Ideal Money and My [before] New Year Resolution
Looks like I haven’t written anything for a while. The new Bitcoin ATHs, lots of crypto news and growth of interest towards investment and cryptocurrencies remind me that I’ve started a blog some time ago. But lots of work and events have been distracting me from writing. So, let me make my small [before] New Year’s resolution. Closer to the end of 2020 and during 2021, I will write new posts regularly (at least I hope so).
I thought a lot about the topics I want to discuss with you. Should I share my own predictions about Bitcoin or other crypto? Or give some advice as CTO? Well, I’m a little bit unsure about that, so I’ll be grateful if you share what topics are interesting for you.
This time, I decided to start… well, from the start. The world we live in is quite imperfect. It’s digitizing and developing but still, there are a lot of things we need to change. One of them is money. The information technology race modifies our houses, our phones, and our habits. We even launch rockets into space! But we still have an old perception of the main way of payment. Maybe it’s time to cut off old understandings and foundations about fiat money and accept new reality with new concepts.
There are a lot of interesting theories about perfect money. But I like “Ideal Money” by John F. Nash Jr. more than the others. Follow the link if you haven’t read it. Don’t be scared, it’s short, you won’t spend a lot of time :)
Nash in his work considers the history and philosophy of money. He says we can’t look at money objectively because it’s important to us — we’re under the pressure of the desire to receive more new money and not lose our old savings. It makes it hard to look at money rationally and transform it into a part of the modern world.
The ideal money is an idea for the stabilization of international currencies. Nash called ideal money the money that isn’t subject to inflation. Interesting start, isn’t it? :) Such money should be free from “inflationary decadence” like a true “gold standard” but… without a link to the gold. Considering this, Nash looked for the apolitical foundation of money stability and created the ICPI — Industrial Consumption Price Index. In simple words, it’s optimal prices linked to commodities (silver, copper, tungsten, etc). The commodities should be chosen very carefully and their prices shouldn’t be quickly changeable. So, not gold necessarily, but something close. Ideal money is more about measurement standards than about the money we are used to.
Ideal money, as almost all ideal things, is hard to achieve in the real world, so Nash proposed a new idea that is closer to reality — the asymptotically ideal money. Such money works with “inflation targeting” that can be controlled by governments (and excludes an apolitical state of ideal money). In this case, the inflation index depends on the standard of living in the current country. And the “inflation targeting” can lead to the development of main currencies and the gradual emergence of stable value that will increase the quality of money and make it closer to the ideal.
Hope you’re not tired from explanations
Now we’re getting closer to the link between cryptocurrency and ideal money. No inflation, limited emission, transparent blockchains, totally apolitical system. Could Bitcoin be an ideal payment method? Nash said: “Bitcoin might not be it but…” and explain that a new issuercan spoil the idea and create a new currency with the same price but worse quality.
Despite Nash’s words about Bitcoin, part of the crypto community thinks Satoshi Nakamoto might have been inspired by “Ideal money”. For example, mining difficulty is regulated by an algorithm that looks like Nash’s ICPI.
I’d like to finish without a conclusion and maybe will continue this topic in the next posts. Now I want to ask you, what do you think? Can we have the ideal fiat money, or can cryptocurrencies play this role? Or maybe it’s just a good theory that couldn’t be implemented in real life?
