The Nashian Orientation of Bitcoin, the Axiom of Resistance, and Tail Emission vs. Drivechains as a Solution to the Security Budget Problem - jalToorey/IdealMoney GitHub Wiki

Bitcoin's Value Proposition Rests On its Ability to Resist State Control aka the Axiom of Resistance

It is said by Eric Voskuil in CryptoEconomics that Bitcoin is implicitly premised on an Axiom of Resistance:

…there is an assumption that it is possible for a system to resist state control. This is not accepted as a fact but deemed to be a reasonable assumption, due to the behavior of similar systems, on which to base the system.

Such that:

One who does not accept the axiom of resistance is contemplating an entirely different system than Bitcoin

Bitcoin's Security Budget As the Cost to Successfully Invalidate the Axiom of Resistance

In Security Budget pt. 1 and Security Budget pt. 2 Paul Sztorc details and explains Bitcoin's security budget which a growing movement championing for Drivechains references as a solution for. From a reference in Paul's writing we find out that the cost to attack Bitcoin is directly related to the miner revenue:

Proof-of-work provides security by making attacks expensive. Miners are spending a lot of money mining (and competing to produce maximum hash rate per dollar) so attackers will have to spend a lot to attack. So the total amount being spent ultimately determines the cost to attack.

Since the total amount being spent by miners is capped by their revenue (they need to profit) the total miner revenue is really the thing that sets the security level. This is why I’ve been calling miner revenue the “security budget” (SB).

But the author further illuminates the relationship between security and network value (although notably value has no metric for comparison here) since the reward seems higher for paying the same cost to take down a high value network:

So then the best picture of security is total miner revenue?

I think there’s something better…

I’ve been arguing that the cost to attack a network (like Bitcoin) should scale with the value of the network — that networks must maintain some “security factor” (SF is defined as attack_cost / network_value).

The purpose of the formalization is to point out an uncertainty in the fee pressure with respect to the profits/revenue needed to drive the cost to attack above the necessary security threshold (whatever that threshold may be):

So, current Bitcoin SF is ~4%, and based on the data we are heading for a low of ~1% sometime after 2030…

Is this bad? Is 1% good enough?

No one knows! All we know for sure is that previous SF levels of ~4% and higher have been adequate. Maybe 1% will be fine, maybe it won’t.

This uncertainty is exactly why I think it’s so dangerous to rely on the fee-market for fundamental security. Nobody knows what the fee-market is going to do. It is external to the protocol, driven by user-side demand, and we can’t control it.

One thing to note from Paul’s explanation:

First, whether P is priced in sats or USD, makes no difference whatsoever. Only the purchasing power of money matters – and that PP is exactly the same, be it written down in BTC or USD.

The above illuminates the usefulness of Nash’s concept the ICPI in dialogues on these related subjects.

Bitcoin's Usefulness Derives From Black Market Transactions

Extending on the acceptance of the Axiom of Resistance Voskuil explains the permissionless principle suggests Bitcoin's utility draw from its ability to serve black market transactions:

Bitcoin is designed to operate without permission from any authority. Its value proposition is entirely based on this property.

A market can be divided into permissioned and permissionless from the perspective of the state. For ease of reference the former is often referred to as "white market" and the latter "black market". White market trade, by definition, requires permission, and black market does not.

As a simple matter of definition, Bitcoin operations cannot be both white market and permissionless. Any person operating in the white market requires permission to do so. Bitcoin is therefore inherently a black market money.

The Asymptotic Nature of Tail Emissioned Money

In regard to the security budget debate Peter Todd makes observations about a hypothetical tail emission for Bitcoin’s supply:

If an existing coin decides to implement tail emission as a means to fund security, choosing an appropriate emission rate is simple: decide on the maximum amount of inflation you are willing to have in the worst case, and set the tail emission accordingly. In reality monetary inflation will be even lower on day zero due to lost coins, and in the long run, it will converge towards zero.

The fact is, economic volatility dwarfs the affect of small amounts of inflation. Even a 0.5% inflation rate over 50 years only leads to a 22% drop. Meanwhile at the time of writing, Bitcoin has dropped 36% in the past year, and gained 993% over the past 5 years.

Here we are noting the asymptotic nature of the supply curve tending towards zero.

On the Nashian Ideal and a Tail Emission Based Money (System)

In an earlier writing we have already noted the effects of uncertainty of the relevant money on contract formation and the effects of long term contracts on the well functioning and advancements of a society. Nash gives the simple observation:

Consider a society where the money in use is subject to a rapid and unpredictable rate of inflation so that money worth 100 now might be worth from 50 to 10 by a year from now. Who would want to lend money for the term of a year?

In this context we can see how the “quality” of a money standard can strongly influence areas of the economy involving financing with longer-term credits.

But in regard to a steady and constant rate of inflation he notes that it doesn’t effect the idealness of the money with respect to contract formation. The predictability of the supply can be translated into the extending contracts:

There is a problem for the issuer of a currency, whether in coinage, paper, or electronic form, that if this currency (or money) is too good, then it could be exploited by all sorts of parties and interests that might simply wish to safely deposit a store of wealth or even to conservatively invest some assets for future good value. (The word good is used here in terms of comparative value trends, as in good investments.)

Then, under extreme conditions the currency issued by one state could be exploited by parties not of that state as a sort of “safe-deposit box” on which they would not need to pay any rental fees or fees like those paid to the managers of mutual funds for investment.

But, simply to improve the conditions under which agreements regarding long-term lending and borrowing would be made, a money would be more or less equivalently good if it had a completely steady and constant rate of inflation. Then this inflation rate could be added to all lending and borrowing contracts. Hence, the problem of a money that would be too good is avoidable.

And philosophically viewed, although not in programmatic implementation, Bitcoin has such a constant steady rate, as Satoshi put it in the whitepaper:

The steady addition of a constant of amount of new coins is analogous to gold miners expending resources to add gold to circulation.

This analogy lends to our argument for the suitability of Bitcoin as a basis for Nash’s proposal. It’s important to understand the predictability (synonymous with honesty in a centrally controlled system) is the important factor rather than the finiteness of the supply of the referenced commodity (or commodities):

IF the concept can be accepted that "honesty is the best policy" then, achieved by honestly striving "central bankers" and governments, a procedure analogous to "inflation targeting" would be sufficient (and perhaps ideal). The inflation rate target would be ZERO (!!), but this would be measured in relation to commodities and/or services that are not in intrinsically limited supply. (There is a subtle point here.) And a form of "ideal" money would also be, of itself, a sort of artifact that would be, more or less, worthy of hoard- ing, to some extent, rather than being like a collapsing Argentine, German, or Zimbabwean currency that should be exchanged as quickly as possible by any worker being paid in that currency.

Here we note that regardless of the debate about the optimal supply of bitcoin, giving an entity control of the supply would effect its idealness as a basis for Nash’s argument.

The GRAND Nash Equilibrium

The Nashian orientation argues that Bitcoin, in its current and previous forms (ie perhaps even without lightning channels) serves as an ideal basis for Nash’s proposal for a single global pricing system. Stability to this basis, in the context that is relevant, is thus seen as critical for the advancement of our global civilization through the contract based linking of the existing sub-economies (effectively denoted by their centrally banked currencies). The basis itself is higher order than Bitcoin but hidden to the laymen that functions in a world pre-Ideal Money or pre-stable global pricing system. It is an equilibrium illuminated by John Nash’s work in the best way he could explain.

In his work he created the concept of an ICPI for the layman to use as a conceptualization tool. Today we have Bitcoin as a worthy approximation of the theoretical basis to the higher order equilibrium Nash exposes. Intrinsic in other solutions to otherwise unknown problems Nash put forth, it might be the implementation was effectively drawn out of the higher order equilibrium, that Nash somehow foresaw, without that equilibrium being properly formalized (ie only philosophically).

On the Elasticity of Black Market Transaction Demand

It should be part of the considerations of the markets willingness and intensity for transaction demand. That the well functioning of a government/state, and freedoms it should foster, should imply less of a need for black-market transactions or the reverse etc.

The Nashian Orientation of Bitcoin and Drivechains

Thus proponents of Drivechains are tasked with showing why changing the protocol is a necessary security trade-off compared to preserving the Nashian Idealness of Bitcoin as a basis to a global pricing system, understanding that the problem of the security budget doesn’t force the former to be necessary since at the very least a tail emission added to the system is a possible solution within the realm of the Nashian orientation.

Is There a Way of Living in a World Beyond Needing Bitcoin?

...philosophically viewed, money exists only because humanity does not live under “Garden of Eden” conditions and there are specializations of labor functions. So we are always exchanging, mediated by money transfers, the differing fruits of our varied forms of labor.~Ideal Money

Nash describes money as, "an artifact of practical usefulness in human societies and/or civilizations". In his essay Shelling Out Nick Szabo expounds on this and lays a theoretical and anthropologically testable grounds for it by extending Dawkins observation that "money is a formal token of delayed reciprocal altruism". Szabo gives numerous examples how this unit of delayed reciprocal altruism replaced the need for trust and memory in social and economic interactions between humans and groups of humans. This allowed our economies to link and scale in ways that trust based economies wouldn't be able to at such a magnitude.

However, the nature of humans and society might change in the far off future. If Bitcoin is seen as the catalyst to a new economic order, it might be that we needn’t carry the canoe after we cross the shore. Such considerations should be considered a necessary part of a full discourse on the path and implication of Bitcoin’s development. Because of Bitcoin’s scarcity implications in its earlier phases we would expect such content to be less palatable as compared to a future where the expected value trend would be more flat and stable (at least comparatively).

But for a proper philosophical discourse it should be considered whether or not Bitcoin's value proposition need always increase and perhaps more importantly whether or not the system needs to have an implicit self-preservation for all time principle.

Post-Conclusion

The security budget paid and the value of the network are the factors that effectively determine the cost to invalidate the relevance of the Axiom of Resistance. The future concern is the uncertainty of the effects of moving from a predetermined security structure to a fee based one.

Here we call attention to the relationship between the demand for a black market money and the willingness of a potential attacker, or state, to pay the cost to invalidate the relevance of the Axiom of the Resistance.

If we consider the willingness as related to the increase or decrease in the tyrannical nature of a state we implicitly illuminate a relationship between such a state and the citizenry’s demand for a black market money (also really we can think of players, entities, coalitions etc rather than only state vs. citizen framing-this allows then for state vs. state game theoretic considerations).

Thus it can be said that the want and willingness to pay for the security for the use of a black market money, here we are thinking about fee pressure, does adjust in proportion to the (change in the) need for such security.

This relates to the concept of a declining security factor where there is a missing consideration of whether or not or how much security is needed or demanded. This suggests, compared to a world of freedom and abundance, in a world of tyranny Bitcoin is more valued/valueable, and thus and therefore more secured, ie if the demand for freedom is equal. (note: the inflation of forced currency options would be an example of such a tyranny that would increase the value of a Bitcoin in many people's opinion and which is the crux of Nash's works Ideal Money).

Game Theory Considerations of Coalitional Based Formations

...unless the opponent has a very low budget and is thus limited to standard personal computers, it does not make sense to analyze the security or cost of these schemes without reference to machine architecture.~Nick Szabo Intrapolynomial Cryptography

It seems clear then that the leading philosophical debate on the future implications for Bitcoin and its design path must take serious consideration of games of coalitional (and thus contract) formation. Considering the state vs. state framework (as perhaps considerations between the greatest economic forces available) it seems appropriate to consider the attacker as an entity vs any counter coalitions that could form as the defender or funder coalition of the protocol's ability to defend the relevance of the Axiom of Resistance. And for security sakes it might prove useful or be possible to solve (or meaningfully analyze) the consideration of the major economic superpowers of our time as attackers (and or different or grand coalitions of them against other state or citizenry framed coalitions).

Cooperative Game Theory Considerations and the Security Budget

Although usually security analysis involving game theory rests on non-cooperative assumptions there may be real life implementations of cooperative game theoretical solutions that can eventually be used to address the problem of the security budget if it is seen as such (a problem to be addressed).