Proof of Work Theory of Value

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3 years ago

In community: Bitcoin Cash Hub(0cd1)

Topics: Government, BCH, Psychology

I will preface this by saying I am no expert in mathematical analysis and I can make correlations that to others seem absurd. However, I perceive a larger issue looming over all cryptocurrencies, an issue which BTC is poised with a better chance of surviving: civil conflict.

It's a cliche to talk about apocalyptic scenarios. I'll forego commentary on various Reductio ad Apocalypse phenomenon taking place politically (which invariably you'll assert yours is true, 'mine' isn't, or vice versa). The issue is, if crypto infrastructure collapses, whether by political or other disruptive means - BCH and cryptocurrencies in general will not have any value, to anyone.

Okay, so what?

Good question. As the stakes grow higher politically for cryptocurrencies being suppressed, and those austere conditions force adaptations on cryptocurrencies to resist censorship (such as decentralizing exchanges and decentralized distributions of wallet software), the failure condition for crypto (and BCH with it) is the failure of developing/funding it as a project, at least to near completion. It also means an emphasis on immutable code/systems built into the protocol are bulwarks against future fragility. Regardless, if crypto is seen as too disruptive (imagine a global crackdown on all cryptocurrency GitHubs/similar) then BCH as it stands will fail.

This is just conspiracy thinking, right? Well, it is an extension on the issue acknowledged by Knuth*, that BCH and all crypto is up against a confluence of fiat institutions that have shared interests. No dark room meetings are needed when your particular interests align. Such institutions have many avenues of attacking/defaming cryptocurrencies. Already some coins such as Monero have been banned from exchanges (recently talked about by Roger Ver below).**

Problems and Perspectives

In response, some persons took extremes to try and keep cryptocurrency from governmental crackdown by selling it as a tool for surveillance. This particular approach I don't think has much merit, except for the currying favor of the blind and power hungry as a means to create capital. 'Big government', governments of all sorts, have secrecy and security. It would have no upside - would not be a method of increasing governmental transparency - for they'd declare people 'terrorists' (like Snowden) for demanding 'secrets be revealed' - even with regard to funding (lack of Federal Reserve audits). A one-way surveillance street.

BTC, separately, has the most social capital and clout today to possibly resuscitate itself against adversity. To illustrate this as a hypothetical, if crypto was banned in your country, and everywhere there might be an internet connection, which project would have the clout and thus potential resources to be revived? BTC would be the best opportunity - the block size debate being immaterial as it could be resuscitated however they wanted.

The only reason it's a vulnerability for BCH in such a circumstance is due to the precedent threat (limiting block size still because of prestige) and asset preservation (those involved in BTC have funds reactivated where BCH peoples do not). Admittedly, in such conditions they could just start a new chain - but would that be politically expedient for worldwide revival? Probably not. It would undermine the idea of the preservation of value and take away from the argument of utilizing it.

Projects and Projections

The prelude of this was all the problems I saw with a resolution to another problem. That problem? The continued usage of fiat as the default terms a person uses to evaluate cryptocurrency. Measuring the value of a cryptocurrency in fiat includes talk like 'to the moon', displays in wallets, etc. This is inadvertently propping up the very system it's supposed to replace. There are a couple aspects as to why fiat is used as the measurement for value:

The ability to think in BCH terms is tied to its ability to acquire tangible things
The simpler fiat terms of for the acquisition of product (you don't look at .001 of a fiat currency, but you will see a reduction to whole numbers such as ¥100)

Most people probably think the former issue is just a matter of mass adoption. Meaning, the benefit of evaluating in purely crypto terms will come when crypto succeeds. While that's likely true, it's not a good way to actually create success.

For the latter, most people likely think that when adoption comes, wallets will just adapt to the success and adjust the units of BCH such that the unit (bitcent, millibit, satoshi, etc.) makes better sense for the average consumer. So, 'therefor', right now, there's "no point really" to thinking about it.

In the meantime, wallets are stuck using fiat as terms for understanding crypto value instead of having wallets/price displays adjust units (displaying 0.01234 BCH vs 1.234 bitcent or 12.34 millie) against a sustainable asset. An asset it doesn't seek to replace.

Research and Results

This issue bothered me. So I had to tie the value of BCH down to something that isn't another cryptocurrency and isn't fiat. I asked around what the most bought thing with BCH was, and I got varying answers - VPS's, gift cards, and more. Too varying. So I began to think of items that everyone most needs. Fun fact: turns out after water, it's concrete. I even got creative and looked into GDP, measurements of happiness and other correlations. No dice.

I decided to go with water. A bottle of water, on average, costs $1 per liter. So, I only had to acquire a method of measuring how much BCH per liter of water is but that'd easily scale real-time with the blockchain to reference as tangible value. But that wasn't possible. So, I looked to something else, like food. On its own, it was a useless measure. However, I knew that transaction fees in BCH are tied to real world things: technology, and primarily, electricity. So I looked into whether energy (electricity) values correlated with food value.

Turns out, food prices are correlated with oil prices.*** Oil is used for electricity. So I did some back-of-the-napkin mathematics to figure out if I could link transaction fees at a certain date to the cost of $1 USD at a certain date. $1 USD being the stand-in for a liter of water. If they're similar enough in ratio, that means transaction fees follow a resource- which is a basis for a tangible measure of value that's really technically disconnected from the dollar. It will potentially provide self/crypto-referent measure for the adjustment of units in wallets, etc.

Back-Of-The-Napkin Mathematics

(Reminder: I am no mathematical wizard. I could also be totally off about my methods and conclusions.)

Here is what I solved for:

x * (BCH/USD cost) = (Liter of Water Cost)

x * (Tx Fee in BCH) = (BCH Tx Fee in USD cost)

Solve for x, the first results in 769.231, the second results in 808.219 when I used a particular date.

Maybe it's a coincidence, but 769.23 and 808.219 seem pretty close. Maybe my methods and conclusions are all wrong - but there could be a close enough correlation with transaction fees to its real-world costs. This could mean that transaction fees in BCH could provide a basis for adjusting units and changing the units of thinking for those utilizing BCH. It would be a Proof of Work Theory of Value.

Criticisms

This math/logic is stupid and doesn't mean anything.

Probably. This doesn't mean the problem is not real, though.

As energy prices go up, won't the value of electricity and its ratio change so it begins to disconnect from the everyday?

Likely not too much. Electricity is a major resource for modern life everyone interacts with. I expect also there's smarter people than I who will be able to figure out algorithms for those issues as well.

TL;DR

Exactly - no one wants to read "0.000..."

Final Thoughts

I hope this gets people thinking of the economy of BCH in a manner outside fiat comparisons, and that people see the value in that. I am not skilled enough nor invested enough in BCH (I have less than 10, let's just say) to explore this with more intensity. Hopefully the community can provide solutions.

*"Bitcoin Cash is competing with the most powerful monopoly of all time: fiat money." - https://knuth.flipstarter.cash/

**Roger Ver discussion with Dr. Julian Hosp: