bitcoin lateral economics
DESCRIPTION
#bitcoinconfmelbTRANSCRIPT
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Melbourne
Nicholas Gruen E [email protected]
T @ngruen1
9th July 2014
Bitcoin: a public good privately provided
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Outline
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Emergent public goods
What is money? • Hint: an emergent public good
Perfect and monopolistic networks• Phase transitions and transactions costs
Banks: what are they good for?• Hint: ripping us off
Bitcoin: what is it good for?
Public private partnerships
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Public goods – goods that no-one will supply if the government doesn’t
Public goodsPublic goods . . . present seriousproblems in human organisation.
Vincent and Elenor Ostrom - 1977
(as a problem)
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Public goods(as an opportunity)
He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.
Thomas Jefferson to Isaac McPherson, August, 1813
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Web 2.0 platforms are public goods:
Google (1998)
Wikipedia (2001)
Blogs (early 2000s)
Facebook (2004)
Twitter (2006)
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The Wealthof Nations (1776)
• Private Goods
The Theory ofMoral Sentiments (1759)• Social rules (like road rules)Order the social world and Transform potentialconflict into harmony and cooperation
Language
Adam Smith
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The ecology of private and public goods: Markets
Private Goods• Traders address
their mutual self-interest
Public Goods
• Marketplace for meeting
• Price discovery• Liquidity
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Public Goods
Private Goods
[The public good of] Justice . . . is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society . . . must in a moment crumble into atoms.
Adam Smith
The ecology of public and private goods
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The fractal ecology of public and private goods
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The old and the new
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The old and the new
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The old and the new
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The old and the new
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The economics of abundance: a new birth of freedom
Public goods . . . present serious problems in human organisation.
Vincent and Elenor Ostrom - 1977
He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.
Thomas Jefferson
Public goods as a problemPublic goods as an opportunity
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When the economics of abundance runs out
What c
ould be built in th
is space?
What c
ould be built in th
is space?
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Is money a thing? A commodity that becomes a medium of exchange?
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Or something else?
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Modern practice in regard to gold reserves has a good deal to learn from the more logical practices of the island of Yap.
John Maynard Keynes
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16 October 1834
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Money is information(including incentives to maintain its integrity)
+Social convention as to value
(AKA collective hallucination)
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The significance of transactions costs
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Two Networks
Phone Network Internet
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Two Networks
• Monopolistically competitive
• Large transactions costs to establishing interfirm trade
• Concentration is high
• SMS, International Roaming
• Obstacles to innovation
• Perfectly competitive
• Negligible transactions costs - 99.5% informal agmts
• Low concentration
• Where marginal cost is zero, so is marginal price
• Innovation is exploding
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Phone Network Internet
Both built from interconnect agreements
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Economic growth is held back by industries where established interests are so powerful that disruptive innovation can be staved off forever.
Financial services is probably one.
UK Econ Prof and FT Journalist John Kay, 2012.
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The significance of transactions costs
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• Home lending at <60% loan to valuation
• Foreign Exchange
• Credit cards
• Wealth Management
Margins from 500% to 2,000% above costs
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The significance of transactions costs
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Reasonable Margin
Actual Margin
(Smarts)
Ratio (Smarts)
Actual Margin (Mugs)
Ratio (Mugs)
<60% LVR Loan 0.50% 2.50% 500% 3.50% 700%
FX 0.20% 2% 1,000% 9% 4,500%Retail
Payments 0.20% 2.50% 1,250% 5% 2,500%Wealth
management 0.25% 1.75% 700% 2.50% 1,000%
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Two Foreign Exchange Markets
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10%10%
14%14%
13%13%
14%14%
21%21%
23%23%
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Implicit Too-Big-To-Fail Subsidy For The 29 Biggest Banks
Source: Bank of England calculations. (Haldane, 2012)
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Bitcoin: what is it good for?
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1. Medium of exchange: 2. Unit of account:3. Store of value:
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When the economics of abundance runs out
What c
ould be built in th
is space?
What c
ould be built in th
is space?
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10,000% Productivity Improvement
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PPPs 2.0
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Private sector builds service
Public sector contributes its resources– Networks– Nudges – Non-obstruction– Financial internalisation
Subject to openness and privacy undertakings
Much more for each in partnership than alone
Australia acquires new research assets
Not ‘picking winners’ but mediated through usual processes such as open tenders, etc.
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When the economics of abundance runs out
What c
ould be built in th
is space?
What c
ould be built in th
is space?
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It’s the protocol stupid
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The End