Creative Commons License


"defense" spending action theory action-based jurisprudence actions altcoins American history Amsterdam anarchy antifragile Arthur C. Clarke audio YouTube Australia Austrian school Ayn Rand banking Bitcoin Bitcoin Bitstamp block size debate blockchain books bubble bureaucratic budgets business cycles Carl Menger civilization climate change collectivism commodity community Constitution deflation deflationary spiral demonetization digital signatures dualism duality economic cycles Economic history Economic theory economic theory economic voting economics Economics and society education encryption Energy entrepreneurship environment ethics evolution Evolutionary health exchange rates fantasy fear and media ffiat money fiat money Fiction Films flow Francis Pouliot game of thrones gaming Gavin Andresen Gaza Gedauges global warming gold gold standard Hans-Hermann Hoppe Happiness hashing Health Henry Hazlitt history Hugo Award winners hyperinflation hypermonetization ideology iintegral theory individual rights individualism inflation inherent value integral theory Isaac AsimovFri Jane McGonigal Jeff Volek Jeffrey Tucker Jörg Guido Hülsmann journalism JP Koning jurispurdence justice Katrina law legal theory legal theory lipid profiles litecoin Low carb Ludwig von Mises Matt Ridley media Mihaly Csikszentmihalyi Military mining Mises monetary theory monetization money Mt. Gox Murray Rothbard Nassim Nicholas Taleb Nebula Award winners network effect Nolan Chart Nutrition Objectivism open-source Paleo paradox Peter Šurda Philipp Bagus philosophy police policy drivers policy objectives policy success Political philosophy political power political spectrum political voting Politics politics politics and science praxeology prcing Prices & Markets pricing Primal propaganda property rights property theory psychology Randy Barnett redistribution of wealth reductionism regression theorem remittances reputation research Reviews Reviews revolution Rick Valkvinge rivalry Roderick T. Long Ron Paul Rothbard Satoshi Nakamoto satoshis scarcity science science fiction silver singularity state state and education state/business partnership statefree statistics Stephan Kinsella supreme court theocracy Training Biochemistry transaction malleability US history value voluntaryism Voting

Some misplaced explanations of bitcoins as tradable units

This is an excerpt from Chapter 8, “Some illusions of enlightened explanations,” in my book, Are Bitcoins Ownable: Property Rights, IP Wrongs, and Legal-Theory Implications.

As important as it is to gain at least a basic technical understanding of Bitcoin, attempts to describe what its tradable units “really” are, as elaborated from some allegedly more enlightened perch, can sometimes distract more than aid when applying economic and legal concepts. For example, pundits discussing whether bitcoin falls under what they each consider to be “money” or not sometimes explain that bitcoin is really just a “ledger entry” or a “protocol token,” a harmless technical artifact of a promising new “blockchain technology.”

Whatever the root of or strategy behind such discourse, however, a bitcoin buyer does not in fact seek a share in a distributed ledger or any other such tortured monstrosity. He wants to buy a bitcoin in the same sense that he might want to buy a grapefruit. He in no way sets out toward the market to buy a share of a global orchard cooperative that also happens to entitle him to one grapefruit that day.

Molecular diagram of grapefruit mercaptan. Tasty.Nor is it relevant that a grapefruit is “really” organic molecules, water, and some other substances. For that matter, a physicist might go further and insist that a grapefruit is “really” nothing but some occasional quarks suspended in vast stretches of empty space. All such misused reductionism is irrelevant to understanding the buying and selling of grapefruit. It likewise has no bearing on whether grapefruits can be eaten without being paid for and how or if people ought to react if they are.

Really just quarks and empty space (Wikimedia Commons, Aleph)Economic theory and legal theory are fields concerned with human acts, such as acquiring, holding, trading, and stealing. Action is marked by verbs. If one is interested in understanding the grapefruit market, one does not seek first to master grapefruit-tree cellular biology, let alone quantum mechanics. It is sufficient for economics to view those grapefruits actually being traded as the relevant goods, the production, pricing, and distribution of which are to be examined using economics methods.

This implies the importance of taking care in selecting which fields of knowledge, aspects of the phenomenon, and “layers” of reality are the most relevant to consider in understanding what bitcoin “really” is, including with regard to whether it is ownable.

One must also proceed with caution in applying analogies. For example, it is easy to view bitcoin as just like other digital blips buzzing around the internet. However, it should be emphasized that buying a bitcoin is not like buying other digital goods, such as a copy of a song file. One does not buy a copy of a bitcoin, but a bitcoin itself. A bitcoin seller no longer possesses the bitcoin in question after the sale (and contextually sufficient confirmations). When one buys (a copy of) a song file, in contrast, the possessor retains copies from which to make more copies.

Most digital goods, such as documents and song files, are nonrival. They can be copied. Multiple people can use multiple copies simultaneously. “Stealing a copy” leaves the original as it was. It is not gone after being “stolen.”

Likewise, not only can a whole blockchain be copied, but some key part of its value derives from its actually being so copied and distributed with redundancy to numerous independently operated locations. A signed bitcoin transaction is also a short digit string that can be copied, sent, and resent around the globe in fractions of seconds. These are nonrival goods, as are cryptographic signing keys. With nonrival goods, one person can have one copy and another person can have another copy and each person can control these respective copies independently and simultaneously.

However, this is not the case with bitcoins. A bitcoin cannot be copied in any such way. It is rival in the same sense as a physical object or spatial location. In addition, a bitcoin cannot be sufficiently described as “just a ledger entry” because a ledger entry records something. This formulation alone does not yet explain what it is that is recorded.

From a unit perspective, bitcoins function as a digital monetary commodity according to strict economic-theory definitions. From an integral perspective, the units are inseparable aspects of the Bitcoin blockchain. They cannot exist without it and it does not exist without them. There is a nondualistic relationship between bitcoin units and the Bitcoin blockchain; while they are distinguishable conceptually, they are not separable in reality.


Announcing new book on bitcoin and legal theory

The first of several concurrent research and writing projects has just hatched: Are Bitcoins Ownable? Property Rights, IP Wrongs, and Legal-Theory Implications.

This is a study in the foundations and implications of action-based jurisprudence, forged through applying it to bitcoin. This brings together for the first time the two major fields on which I have been writing over the past five years.

The context includes relationships among crypto-anarchist thought (such as contract assurance through software code), conventional legal administration (bureaucratic classificationism and rule through law), and ideal legal practice (actual promotion of justice), as well as related philosophical issues such as the combined use of multiple knowledge fields and the ethics of legal practice. Among the book’s central themes is whether and how the same principles that both support property rights in measurable objects and locations and argue against IP claims in copiable ideas and abstractions may apply to the unique new case of bitcoin.

Here is the back-cover description:

Bitcoin has fresh implications for economics and law at many levels. This book addresses whether bitcoins ought to be considered ownable under an action-based approach to property theory, which—like bitcoin itself—transcends the boundaries of existing positive law jurisdictions. Beyond instinctive answers is a rich opportunity to examine the many technical facts and legal-theory issues involved. Bitcoin has a unique new place among types of economic goods, between the physically and spatially defined goods of property theory and the copiable, abstract ideas, patterns, and methods associated with IP rights. It does not fall so easily into existing categories.

The author brings together here for the first time his work in an approach to legal philosophy grounded directly in the analysis of human action, which he has termed action-based jurisprudence, with his several years of writing about bitcoin from a monetary theory perspective and contributing through articles, presentations, and video productions to raising general public understanding of how Bitcoin works on a technical level.

This content (22,000 words) is licensed under Creative Commons and has been made available in commercial paperback and Kindle versions on Amazon as well as other ebook store versions, and a free PDF of the paper version to facilitate quick and full access to the text, previewing, sharing, text searching (beats an index), quoting, and citation by page number.

Ways to support this work and encourage future work like it include spreading the word and sharing, writing reviews on Amazon and elsewhere, posting quotations, and buying a commercial edition.

Most of all, enjoy. Hopefully, no reader’s views on the topics addressed will remain entirely unaffected. Mine were not.

Paperback edition at Amazon ($6.99)

Ebook stores ($2.99): Kindle edition (free under Kindle MatchBook program for buyers of paper version), iBooks, Kobo, Nook, Oyster, Page Foundry, and Scribd.

PDF of paperback edition (Free supplement to commercial editions or consider sending an optional bitcoin tip)

Watch the five-minute video introducing the book on my Amazon author page, which can also be followed for future releases.

The paperback version is available at least on US, UK, and EU area Amazon sites, but not sure about elsewhere. The Kindle version is available on most national Amazon sites worldwide.


Preview: “The market for bitcoin transaction inclusion and the temporal root of scarcity”

What do you see in those blocks? Source: Wikimedia Commons: “Crown Fountain” by Tony Webster.I have been considering the Bitcoin block size debate for quite a few months (next to some other large projects), reading, learning, and applying principles. It is such an important and contentious issue that I have taken extra time before commenting at all to research and keep following the wide range of factors, opinions, and related issues.

In seeking to apply economic theory in new ways, and when addressing Bitcoin in particular with it, I try to take even more care than usual to first acquire a sufficient technical understanding so that I can usefully apply such theory to the case. The block size issue has set that bar still higher than it had been with other Bitcoin topics I have addressed.

I am convinced the roots of much of the contention are based primarily in economic-theory differences and only secondarily a technical or even social ones. Additional issues of governance and decision-making likewise come to the fore mainly when people are severely conflicted on what the right thing to do is and the issues then descend into “political” contests of influence and persuasion. There are also economic ways to understand the kinds of circumstances under which issues tend to become viewed as “political” in nature rather than not.

In short, if it were clear what ought to be done, that could be implemented with some work. Yet not only has widespread consensus on the right thing to do been slow to arrive, but the disagreements appear rooted more in differing opinions on economics, a specialized field entirely distinct from engineering, programming, and network design. Worse, too much of what passes for “economics” in the official mainstream today has been built upon a foundation of long-refuted non-sense. So using that is unlikely to help matters along either.

A 30-page written treatment is in the editing and review phase. For now—in response to numerous behind-the-scenes requests for comment—here is a summary preview of some of the essentials of my take on this as of now. The forthcoming paper contains citations, support, and step-by-step context building and also covers many more related topics than this summary can touch on.

Summary of some findings

The block size limit has for the most part not ever been, and should not now be, used to determine the actual size of average blocks under normal network operating conditions. Real average block size ought to emerge from factors of supply and demand for what I will term “transaction-inclusion services.”

Beginning to use the protocol block size limit to restrict the provision of transaction-inclusion services would be a radical change to Bitcoin. The burden of proof is therefore on persons advocating using the protocol limit in this novel way. This protocol block size limit was introduced in 2010 as an anti-spam measure. It was to be an expedient to be removed or raised at a later stage as normal (non-attack) transaction volumes climbed. It was not envisioned as having anything to do with manipulating transaction fees and transaction-inclusion decisions on a normal operating basis. The idea of using the limit in this new way—not the idea of raising it now by some degree to keep it from beginning to interfere with normal operations—is what constitutes an attempt to change something important about the Bitcoin protocol. And there rests the burden of proof.

If that burden is not met, the limit ought to be (have already been) raised—by some means and by some amount. Those latter details do veer more legitimately into technical-debate territory (2, 8, or 20MB? new fixed limit or adaptive algorithm? Phased in how and when? etc.), but all such discussions would be greatly facilitated by a shared context on the goal and purpose of any such limit having been placed into the code. A case for establishing some completely new reason to retain this same limit—other than as an anti-spam measure—would have to be made by its advocates if they were to overcome the default or “when in doubt” case. The context shows that this when-in-doubt default case is actually raising the limit, not keeping it unchanged.

Casual and/or rhetorical conflation of the block size limit with the actual average size of real blocks is rampant. This terminological laziness begs the key questions of: whether any natural operational economic constraints on block sizes exist (or could become even more relevant in the future), what those natural constraining factors might be, and what degree of influence they might have on practical mining business decisions. In strict terms, nothing can be done without some non-zero cost. For example, including a transaction in a candidate block carries some non-zero-cost and larger blocks propagate more slowly than smaller ones, other things being equal.

How can the real influences of such countervailing factors be discovered within a dynamic complex process? Markets and open competition excel at just this type of unending trial-and-error tinkering problem. However, setting a blanket restriction at an arbitrary numerical level on the output of transaction-inclusion services across the entire network distorts such processes, preventing accurate discovery and inviting both general economic waste and hidden zero-sum transfers.

Transaction-fee levels are not in any general need of being artificially pushed upward. A 130-year transition phase was planned into Bitcoin during which the full transition from block reward revenue to transaction-fee revenue was to take place. The point at which transaction-fee revenue overtakes block reward revenue should not have been expected to arrive any time soon—such as within only the first 5–10% of time that had been planned for a 100% transition. Transaction-fee revenue might naturally come to exceed block reward revenue in say, 20, or 30, or 50 years, or whatever it ends up being. Yet even that is still only a 50% milestone in the full transition process. Envisioning the long-term future of mining revenue should also factor in the clear reasons for anticipating steady secular growth in real bitcoin purchasing power.

Most fundamentally, scarcity is being treated in this debate largely using an intuitive image of “space in blocks.” However, scarcity follows from the nature of action as inevitably occurring within the passage of time. Actors would like to accomplish their objectives sooner rather than later, other things being equal. Time is the ultimate root and template for scarcity, because goods are only definable in relation to action and any action taken precludes some possible alternative action (“cost”). Scarcity of transaction-inclusion should therefore be understood in terms of relative time to confirmation—which is already today statistically influenced by fee levels.

Finally, discussions of whether bitcoin should or should not be used for “buying coffee” sound embarrassingly like Politburo debates. Market discovery through real supply, demand, and pricing over time allow socially best-possible levels of [average fee multiplied by transaction volume relative to real bitcoin purchasing power] at any given point in (in-motion) time, to be discovered dynamically. The same goes, at the same time, for the relative pros and cons for users of the entire possible existing and future spectrum of off-chain transaction options relative to on-chain ones. The protocol block size limit was added as a temporary anti-spam measure, not a technocratic market-manipulation measure. The balance of evidence still seems to indicate that it should remain restricted to its former role.


Bitcoin as a rival digital commodity good: A supplementary comment

Japanese commodity money before the eight century. Source: Wikimedia Commons, PHGCOM.One of the challenges of interpreting bitcoin has been whether it can be classified under certain existing conceptual rubrics such as “money” or “commodity” for purposes of economic analysis. Could it be some strange new kind of “commodity money”? Most people immediately and intuitively dismiss this as a possibility because it is not a physical “thing,” which they feel is a defining characteristic of commodity-ness.

Resort to a word such as “token” seems a convenient escape valve from this situation. However, this could also be misleading. A token in a “token money” context derives its value from having a fixed exchange rate against something else—a 100 pennies for a dollar, a plastic chip for a euro, etc. Bitcoin, in contrast, is traded directly as itself, with utterly no sign of any fixed exchange or substitution rates (see my Bitcoin, price denomination and fixed-rate fiat conversions” 22 July 2013).

My newest paper, “Commodity, scarcity, and monetary value theory in light of Bitcoin” in The Journal of Prices & Markets (Winter 2015) explores some of these issues in detail from a formal conceptual standpoint to check such immediate and intuitive responses. The paper takes the time to define and then apply core economic-theory concepts, including goods, scarcity, and rivalry, as well as classical lists of “commodity money” characteristics, to understanding bitcoin in terms of monetary theory.

True, commodities are usually tightly associated with materiality. However, an economic-theory sense of commodity ought to be differentiable from a physical-descriptive sense. Economics begins with the study of choice and action, as distinct from issues addressed in physical sciences. It may be that the presence of materialness in commodities has just been assumed due to the nature of the available historical examples.

For a supplemental “reality check” beyond the obscure economics library, I thought to simply go and read the Wikipedia article on “Commodity.” This should be reasonably unlikely to represent any arcane or partisan definitions from one school of economics rather than another, and should first of all represent a general-purpose range of typical current understandings of the term.

I extracted some economic-theory elements from the entry, omitting illustrative examples. The examples are mostly material items, but this is to be expected due to the overwhelmingly pre-bitcoin scope of economic history so far. Indeed, part of my argument is that bitcoin may be the first rival digital commodity good (defined in the paper), which would mean precisely that it is unprecedented, a new type of example. Between the few excerpts below, I relate these presumably mainstream characterizations of commodity-ness to bitcoin.

Extracts from Wikipedia entry on “Commodity”

The exact definition of the term commodity is specifically used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. As the saying goes, “From the taste of wheat it is not possible to tell who produced it, a Russian serf, a French peasant or an English capitalist.”

No one generally considers which mining pool mined the block that a bitcoin originated in when deciding whether to accept payment. 50 Cent, for example, is unlikely to refuse bitcoin payments for his albums from anyone using coins mined by pools other than 50 BTC.

In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer were considered equivalent.

Multiple producers: All the various Bitcoin miners produce interchangeable new coins.

One of the characteristics of a commodity good is that its price is determined as a function of its market as a whole. Well-established physical commodities have actively traded spot and derivative markets.

There are numerous bitcoin spot markets and even some derivatives markets.

Commoditization occurs as a goods or services market loses differentiation across its supply base. As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and DRAM chips. There is a spectrum of commoditization, rather than a binary distinction of “commodity versus differentiable product”. Few products have complete undifferentiability.

Coin tracking is sometimes cited as a risk for weakening the completeness of bitcoin fungibility, so while fungibility largely holds, there is some risk of entering onto a “spectrum of commoditization” in which some differentiation could creep in under certain circumstances.

Overall, I thought the entry was surprisingly clear in defining commodity in terms of economic rather than material concepts. While most of the examples of commodity were material, the economic meaning was conceptually independent of materiality. As should be expected, the discussion was about economic issues such as quality differentiation, pricing, market organization, and trading patterns—not chemistry. If we are using a term in economic analysis, a strictly economic definition should be most suitable.



Jeff Volek presents research indicating low-carb also best way to improve lipid profiles

Ultra-low-carb eating has appeared for about a century already to be the most effective treatment for both overweight and diabetes (both linked to the more general metabolic syndrome), beating all drugs and other interventions by wide margins (on this, see Taubes’ groundbreaking Good Calories, Bad Calories). However, the establishment has resisted or ignored (if not memory-holed) this information for general application primarily based on separate claims about lipid profile risk and heart disease. The conventional view has been that these risks outweigh the benefits, so other treatments are likely to be better on balance.

Turning this view completely on its head, in this 1 July 2014 conference presentation, cholesterol researcher Jeff Volek explains how his and related carefully controlled research over the past two decades indicates that ultra-low-carb eating appears to also be the best known intervention for improving lipid profile markers, properly interpreted. He focuses particularly on issues with the measurement, context, and interpretation of LDL-C, and by the end appears to have left the strong conventional view concerning low-carb and lipid profiles in the dustbin of failed scientific claims.

[Gets going at about 1.05.]

See my Evolutionary Health page for more perspective and selected references.