How to simply understand decentralized economics for the Austrian economist.

* for everyone and those that understand traditional economics.

* in plain language

Decentralized Economics is Traditional Austrian Economics + Decentralization effects.

I will contest that decentralized economics really is a new type of economics, with new vectors, the reason it is a new actual “type” of economics, is importantly because of real tangible meaningful effects that did not exist in past human history, that is to say this is not an evolution of traditional economics, because some of these effects, which are verifiable and scientifically proven to be new phenomenon, actually effect the way in which “value” is derived.

I’m sure that anyone would agree that this is a significant variance if humans generally in a group or individually use different means to “value” items or entities in the future, then we are dealing here with a new net economic effect, one which needs to be added to the traditional set of economics as we know it, thus we have a whole new fork of economics.

Generally it can be defined as a mixture of pure traditional “Austrian” type economics + with a decentralized information vector, or to be clearer with a complex “network effect”.

Where people get lost is understanding how this network effect works, and how it is important.

The biggest gulf in understanding, does, I believe stem from the confusion around the creation of Crypto currency as a decentralized store of value and form of payment and the ongoing distribution of it.

There is another gap, and it is around the non physical nature of Crypto currency.

These are the two key points I’d like to talk about, because both actually play a huge roll in the overall “decentralization effect” which effectively , and actually, determines the value of Crypto currency.

I will even give examples of why and how this is the case.

“It doesn’t exist!”  V Confidence, Corruption and Politics

Oh but it does exist, just as much as corruption and politics

The Cryptocurrency non physical state is a huge barrier to traditional economists , they will always generally look back to bank credits etc. but will see the non physical aspect as a disadvantage.

lets talk about Cryptocurrency advantages and disadvantages then lets relate that back to its existence on the block-chain.

“fiat” or “By government fiat” is a measure of trust, its a form of confidence, if a certain government law states that this or that paper is good for this or that acceptance then by default that “token” will be of value in the society of the rule of that law.

But here in lies the trap.

As an exclusively physical entity; the token can certainly and definitely be centralized, and will be.

This is even assuming that Fiat paper money is not issued by a central authority, so for example even if we were taking about Gold coins, the people with the most authority over the rule of that law can centralize that asset (gold) and print off paper against it and supposedly have the citizens accept that as (tokens of transfer).

now some would say this element of government authority over money could be good, as they would not have a primary motive to issue currency as debt exclusively etc, then in theory the effects of democracy should balance the government etc.

But unfortunately Government is only the sum of its corrupted parts and eventually  (it may take lot of terms of government)  That government will use that issuing power to either:

1. Just form popular policy thus effective destroying the currency (see example like Greece and other South American systems)

or

2.   Have the control of issuance corrupted in such a way that the money no longer serves the people ( see “the West” ) and is permanently siphoned off to Corporations i.e Banks.

So i hope that we can understand (or disagree)  that centralization of the issuance is a problem, not just for paper but also for any physical entity, Gold coins included.

Gold can’t be “double spent” i.e a physical token that can be verified can not have undue Debt associated to it and it can not be printed into oblivion, of course, but everyone knows that’s not how Gold would function as a currency, Gold would function as a reserve to say an SDR and then these paper tokens or “credits” would be issued.

but,  the corrupting factor is not the entity (of course) its the human(s) that are in effective control of the ongoing issuance, i.e in terms of Gold , the old statement:

“Who owns the Gold wins”

Well let me explain how that will all change, and is not as valid as it use to be.

Cryptocurrency in contrast, and if designed correctly provides generally what is called

“Neutral Control” over the ongoing issuance of the “token”

this means, (and this is usually the hardest part to grasp)

No one effectively controls the ongoing issuance, distribution or supply.

You can not, I can not, no government or corporation can.

it effectively does not matter how much power the NSA or anyone else has in hardware, once a cryptocurrency is effectively distributed (as long as it fits neural control parameters)  no one controls it.

certainly an interesting point to ponder no?

further more the parameters for basic currency supply are very very basic, and if designed in a normal sane sensible manner effectively never need to be changed, just like Gold effectively does not change its basic parameters make up or “value.”

Value in a Decentralized economic state.

How does one “price” or value something that has no physical state and is used as a store of value and a means of payment.

the key is (uncomfortably for some) in the “ongoing decentralization”  I  can state that in the “new” decentralized economics, this is everything.

What are the key parameters to judge these new rules in the new economics :

* i will explain and example each

1. Algorithm.

2. Start distribution (less important depending on %).

3. Distribution time to maturity

4. Traditional economics.

Explanation:

1. Algorithm

Not as friendly sounding,  but very easy to understand once you understand its importance in relation to decentralization , I can’t understate how important a factor this is, in the longer term.

The encryption algorithms can vary, and some lend themselves more to centralization and less to centralization, this is the best way to explain this.

Two Algorithms:

Algorithm A.

So algorithm A  can have devices built that can effectively very efficiently mine and distribute it but these devices are not available generally to the general public, they lend themselves to specialized machinery, that to a degree only corporations and government states can control this effect is especially multiplied if the distribution of the currency is spread out over many years.

Algorithm B.

B Has properties that lend itself to the inability of specialized devices, this means that while perhaps a device could be built, from the start time of distribution say 0 lots of general computer users will have a chance to gain rewards and more importantly ongoing continuance also.

*So its important to explain that Bitcoin had a very imperfect start and so did Quark, i don’t take exception to Bitcons start but the ongoing centralization. the start and distribution period is much less important as long as its reasonably decentralized in control and accessible after that period.

So a more “resistant” algorithm to centralization lends itself to being better decentralized and thus retaining better long term value.

2. Start Distribution.

Very simple, a Cryptocurrency can’t really effectively be IPO’d  its not a stock.

IPO will not lend itself to very good distribution or decentralization that’s not to say it can’t be done, but when put into an aggressive free market such as is Cryptocurrency it will not have the “network” effect which derives value to all or any cryptocurrency.

3. Distribution time to maturity

“maturity” is defined as a fully distributed currency.

Not as important in some cases but very important in others, so for example if a Cryptocurrency used a centralized algorithm (one that only Governments or large Corporations could use) and distributed that over years, (say 50 years or 100 years),  then that lends itself very much to the centralization of that asset in % terms.

Because the distribution is slow and the devices that mine it are only in a few hands , this means that small % of miners can effectively  “price control” the entity,  if they just hold it and exchange it on exchanges they either 1 control or 2 created, one can see that a price control / manipulation effect is apparent.

not the end of the world if its thrown into a competitive environment, because eventually the lack of decentralization will cause a drop in confidence and an equilibrium will be found, i.e the price will drop then new buyers will come in if they see fundamental value, then recovery will occur, but we are talking about price discovery here, so centralization and long distribution times will not lead generally to a higher price in the distribution period as it is derived in the summary.

Contrast a shorter distribution time with a decentralized algorithm  and you have almost the opposite effect, the shorter time does not lend itself to specialization of hardware and more importantly means it goes to “lots of hands” which then as they compete drive the price in a full and free market fashion, this is an important point for the entity to find its stabilized price.

*in Quarks case the 6 month distribution lead Quark to (at that time) its intrinsic value, which was effectively 0 (or close to zero) because it was relatively unknown and Cryptocurency was almost completely unknown. see summary*

4. Traditional Economics

All the other stuff most economists would take for granted, for example; if crytpocurrency is built with parameters of harsh inflation or harsh deflation, (and this can exist and do) this is just going to effectively change the value or how it is valued in the future, and the longer term.

The further away they get from decentralization the less net value, and this can not be fudged or faked, there can be all the hype in the world, but unless the % of decentralization is in effect, rule will hold true, so that is to say you can’t  “fake” decentralization in % terms.

So the basics of Austrian economics still hold true because decentralized economics has not reached into the past and changed any fundamental rules but humans have evolved new systems, and its these that must be taken into account.

Summary

The important key aspects to understanding what is essentially a new economic system is to understand that value is derived by decentralization  because its the fixed aspect of the whole decentralized economic equation.

things can move towards or away from decentralization, and value will be found eventually over the longer period in that effect.

This effect gets complicated by information or a “media effect” for example the perfect price discovery mechanism would be a pure decentralized information environment  i.e no Centralized TV, but that is never going to happen in the purest sense, but what we will see is a further direction towards this system, and so expect the general rule to become more true and correct.

So of course I am happy with the price of Quark as I always expected 6 months for distribution and 6 months for stabilization, we are only one month into the stabilization period and Quark is at its effective value based on its decentralization and its network effect.

if we hold this value against Bitcoin its hard for me to say that a further continuation of the price is warranted unless some of the ongoing centralization of the Bitcoin entity is corrected, in fact i will note that as the natural and effective balance of decentralization has begun the price has trended lower.

for example we can say that at no time have more people held Bitcoin, yet the price value moved lower, (noise accounted for) a specific event to have watched was the large announcements of its integration into larger merchant facilities, after this event the Bitcoin entity continued steady or lower; this is all in line with the decentralization rule, Quark being effectively fully distributed just sped that effect up, so I will be very interested to see the effect of price when Quark is accepted in more and larger merchant systems.

what’s it all mean?

It tells me that the market is seeking a fair value based on Bitcoin’s super original centralization and it can not effectively find that until full distribution or close to that, I think the future of Bitcoin is bright just because the alternatives are so bad, likewise but Quark is fully distributed and is now at a very fair value indeed based on its parameters.

A rational comment on Gold and Silver.

back to our point about a physical entity, Gold is a centralized asset by default it exists in a fixed place at any one time.

The biggest risk to Gold i believe is Government itself, because if Government changes with the changes that are sweeping the world regarding decentralization Gold could be a very large victim of that as “value” will change with those governments representation.

For example:

i.e if Government became much more directly representative, if Gold is not directly benefiting the citizens then Gold will not be valued as highly in a decentralized environment.

other examples are if a Government issued a Fiat Neural Control Crypto, this would put Gold at a significant disadvantage in price compared to Cryptocurrency.

So i’d like to ask if its a fair statement to say that to a degree Gold and Silver depend on centralization and fiat authority just as much as paper Fiat does ?

both are centralized entities, but the distinct point i’d like to make is that i see the world moving fairly rapidly towards a decentralization of systems and “things” see my comment about the “Internet of things”  https://kolinevans.wordpress.com/2014/03/10/explanation-of-internet-of-things-corporate-code-why-its-used-what-it-means/

its well known that Corporations are always ahead of Government as they have a much larger incentive to be ahead.

So if we can generally assume that decentralization is a trend and not a fad, I as an investor would be looking at Quark at 3c per and some other quality fairly neutral control crypto at similar prices, also then, for investment purposes I’d be looking at the long distribution crypto and waiting for the inevitable bottom they will find in price also.

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