Proof of Greater Fool

"A Peer-To-Peer Dimensionless Pseudo-currency Secured with Pure Proof-of-Greater-Fool"

Most of us have been exposed to the dimensionless token in some way or another.  Many of us grew up with them being pushed on us in schools, as teachers taught us various shapes and sizes that these tokens being pushed locally could take.  "The dime is just smaller than the nickel, yet worth more, that's how it works.  Yes they are both made of zinc".  We have to some extent used them in our day to day lives.  But few of us truly understand the heart of the proof-of-greater-fool consensus mechanism that secures this network.

The reason for the lack of understanding of this important mechanism is twofold.  First of all many simply don't question the mechanism, preferring to just assume it is sacrosanct.  This is often the case when a concept is put in place during one's formative years, and one has not found the secure ground from which to venture forth with curiosity.  Don't question the herd, safety in numbers, that kind of thing.  The second reason is that the mechanism is not obvious.  It is so subtle that it sometimes inspires even a curious person to run away from the explanation, preferring to feign ignorance than to embrace understanding of the system.


Most people upon first hearing the suggestion of a counterfeitable pseudo-currency are incredulous.  How could that work?  The proposal is laughed off.  A currency is something that you can trade.  That makes it by definition a  commodity.  Commodities have units or dimensions.  Grains of rice.  Ounces of gold.  Barrels of oil.  Cowrie shells.  How could something dimensionless ever be used as a currency?  Who would do that?  And yet this property is that heart of what the fiat token is, and is one part of what allows pure-proof-of-greater-fool-secured networks to take shape.

To understand better what is meant by "dimensionless", consider for example a hypothetical Joachimthaler note.  When taken in a laboratory, it appears like other physical objects.  It has a length.  It has a thickness, a mass, and other properties.  But what about these properties make it a Thaler note?  A paper of that size, even with similar markings and chemical composition, is not necessarily a "dollar".  From inside the laboratory, there is no way to show conclusively the identity of the note precisely.  There is no rational definition of the object available to the laboratory.  The confirmation of its identity can only come by bringing another individual to accept it as valuable, for example in a bank or a store, at which point the identity of the thing as a fiat note becomes clear (note this is a PoGF wavefunction collapse).  Even the writing on the note might describe this phenomenon, "This note entitles the bearer to 1 Pound".  The implication is that the note itself is not the pound.  The "dollar" itself remains elusive and dimensionless.

To some extent this dimensionless property is also true of the concept of value.  This is what underlies the difficulties of the "transformation problem" as posed by Marx.  Value is not something with a unit, which can be measured with a calibrated device.  It needs to be transformed via a marketplace into something with a unit by market participants in real time.  It is then given a price.


Unlike value, the tokens produced and used in a PoGF system have an additional property which allows us to ascribe the term pseudo-currency.  This property is that they are unlimited and arbitrarily enumerated.  This means specifically that is just as easy to create a hundred tokens as it is to create a single one.  The cost of production is not a function of the amount produced.  A subjective viewer might ask how a thinking person would value one thing as 100 times the value of another, when the two things have the same cost of creation.  The answer is simple: proof of greater fool.

The answer to this question is the subtlety that underlies the pure-proof-of-greater-fool network.  A user agrees to participate not because he is a type of fool, but because he believes others to be fools.  If one can perhaps exchange the 100 units for more than the 1 unit with some other person, one should indeed value the 100 units more, despite a complete understanding that both took equal work to create.

Bootstrapping Proof-of-Greater-Fool

Perhaps the hardest part of a pure PoGF system is getting it started.  If no PoGF notes are in circulation, there is no proof that other greater fools exist, and without this proof PoGF notes will not be accepted by anyone.  This means that the system cannot be started from scratch.  It must be slowly transitioned.  What is required to do this?

First of all, there must be substantial seeds of general contempt for one another inside the populace.  Regardless of peoples means or abilities, they must be eager and willing to think worse of others - and to act on those thoughts financially.

Second, and more crucial, is that a separate monetary system is in place.  By monetary system we mean a specific commodity or commodities used in trade or barter which has come to be a preferred exchange commodity by Gresham's law.

Third, is that there must be a reasonable excess of current-era necessities.  What this means is that being inherently exploitative, PoGF cannot take hold in a crisis situation when there is severe shortage of food for example.

Fourth, is that the current monetary unit be slowly replaced by PoGF tokens - in a procedure known as decreasing fractional reserve or decaying convertibility.

That's all there is to it!  Perhaps we'll get around to monopolization of PPoGF token issuers and dealing with PPoGF exchanges and transactions at a later date.



Fiat Feudalism - A Primer for Marxists

Karl Marx recently received acclaim as the most influential academic ever.  Of course these quantitative studies of academic influence are not really so worthwhile as claimed, being in some ways corruptible and generally not necessarily indicative of reputations on the ground.  However there is without question some truth to the strong influence Marx had on economic thought and politics.

While some people might first think that Marxism is about certain political goals or strategies, in fact much of his work was more akin to a Newtonian effort - to determine laws which explain the way economies function.  In doing so, also akin to Newton, he used a terminology with which to describe systems which largely survives to this day.  Many people still speak about capitalism, socialism, the means of production, the proletariat and the bourgeoisie, and even the law of value.

And why not?  Aren't these concerns still relevant today?  Well, partially.  However we point out here now that after Marx's death in 1883 a new era formed.  A new era of different means of exploitation of the worker, and of a rather different economic paradigm than his laws of Capital were built to describe.  Namely, the system of fiat feudalism.  To ignore this change and the behavior of economics and describe economics in the language of Marx is likely to be a mistake.

The rise of fiat feudalism was not, by its nature, a black or white affair.  While in 1971 it was declared as official, the general means of which monetary affairs were shifted from metals to "paper", through gradual inconvertibility, began very slowly and this path seems to have been largely missed (or at least not emphasized) by Marx.  The first world war is perhaps as good a marker of the start of this period as any other.  Later authors in the field would address the money issuers only in passing, as though it were an external affair of little import to the Marxist theory.  In fact the opposite is true.

Fiat feudalism contradicts the law of value.
The law of value states that the value of a good or service is the sum of the quantities of labor, direct and indirect, which are used in the process of production.  It's not my intention to get into the details in this post, but we should know that Marx's law of value states that value comes from labor or work.

A fundamental tenet of fiat feudalism is that a fiat token can be an indicator of value. To put this a different way: a price of a good denominated in a fiat currency is a measure of the value of the good.

As we can see immediately, the two italicized statements above are in contradiction.  The fiat tenet contradicts explicitly the law of value, for fiat tokens require effectively no labor to be produced (to be more specific, the labor or energy cost of production of fiat currency can be reduced as low as the issuer would like).  Under fiat feudalism, the yardstick of value is explicitly no longer tied to labor.

So what's going on here?  The law of value is the backbone of all of Marx's theory and a century of related work (the most valuable in academics, remember!).  Can it really be discarded?  The answer is of course no.  Labor does have value, and some sort of value is built from work.  However according to the law of value, fiat currency is precisely valueless, as the amount of labor that went into its production is zero.

What needs to be addressed to reconcile these contradictory premises is the evolution of the means and ways of exploitation of the worker, coupled with the market mechanisms for determining the law of transformation.  Transformation refers to converting value to marketplace prices, which decouple from Marxian values for specific reasons.  We'll save the rest for a later post.


Public Coin

What is public coin?

A public coin is any exchange commodity for which the total supply is public.  It is any money in which everybody knows how much there is.  Compare this to a "publicly traded company".  Such companies have a list of shares that is public, which makes the supply of shares public knowledge.  A public coin is analagous, in that it has a money supply which is public.  It represents a public commons, of which anyone is free to participate.

Satoshi's bitcoin is a public coin.  However contrary to common belief, bitcoin was not the first public coin.  The Rai, as used on the Yap islands, predates it.  However the Rai coin was not globally used, nor electronic, nor so easy to use as bitcoin.

The advantages of public coin were laid out by Wei Dai in his proposition called B-money (1997).  This system was later implemented by Satoshi (2008) using proof of work.  Quite simply, monetary supply fraud such as counterfeiting, hidden issuance, and private dilution, is completely eliminated from such a system.

Today there are thousands of public coins in use, of which bitcoin is the most common, and they are the preferred way of doing business amongst those willing and able to wield political power in the form of monetary choice.  After the dismal record of the counterfeiters and fiat issuers and what they did with their fraudulently obtained wealth during the 20th century, this is a most promising development.


The fiat option

Imagine you have been offered a job, and you will be paid in shares.  An option is typically more complex than simply receiving the shares (it's an option to receive them), but for the sake of simplicity lets say you have been offered the shares straight up.  One hundred of them per month.  Lets say the company is called "apple".  They are a successful business or at least have many customers.

This might seem like an attractive offer to you right now, because you have some preconceived notion of what a share is and what it is worth.  In particular, you have the idea that there are a number of shares outstanding, and this number is public.  Everybody knows the number, and somebody or something is entrusted to ensure that no more shares than that number exist.  There is thus a thing called a market capitalization, namely that number of shares multiplied by the price one can fetch for a single share in the marketplace.

However, this offer we now consider is different!  The shares offered are fiat shares.  They are not guaranteed to have a certain number outstanding, nor are you privy to any information about how many are to be released over time.  Economists might estimate the amount of shares which have been issued in a given year, but there are no guarantees - nor are each of your shares meaningfully marked or traceable to a certain issuance date.  In fact it isn't even clear which people are capable of issuing the shares, as issuance is not publicly verifiable.

Think about it for a minute.  How does this change your consideration of the job offer?  Are you going to accept fiat shares to take the position?  Would you ask for something more sane and less prone to fraud?

To continue in this vein, would you consider buying shares of a company which were issued in this manner?  Market capitalization of such fiat shares can only be estimated, now suppose that even the company itself refuses to make such an estimate.  Would you recommend others to purchase such shares?  Under what circumstances would you trade a bitcoin for 400 such fiat shares?