Bitcoin Lateral Economics

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  • Simpler version with no money.
  • More complex version
  • Bitcoin Lateral Economics

    1. 1. Melbourne Nicholas Gruen E ngruen@gmail.com T @ngruen1 9th July 2014 Bitcoin: a public good privately provided
    2. 2. Outline 3 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
    3. 3. Public goods – goods that no-one will supply if the government doesn’t Public goods Public goods . . . present serious problems in human organisation. Vincent and Elenor Ostrom - 1977 (as a problem)
    4. 4. 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
    5. 5. Web 2.0 platforms are public goods: Google (1998) Wikipedia (2001) Blogs (early 2000s) Facebook (2004) Twitter (2006)
    6. 6. The Wealth of Nations (1776) •Private Goods The Theory of Moral Sentiments (1759) •Social rules (like road rules) Order the social world and Transform potential conflict into harmony and cooperation Language Adam Smith
    7. 7. The ecology of private and public goods: Markets Private Goods • Traders address their mutual self-interest Public Goods • Marketplace for meeting • Price discovery • Liquidity
    8. 8. 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
    9. 9. 10 The fractal ecology of public and private goods
    10. 10. The old and the new
    11. 11. The old and the new
    12. 12. The old and the new
    13. 13. The old and the new
    14. 14. 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
    15. 15. When the economics of abundance runs out W hat could be built in this space? W hat could be built in this space?
    16. 16. Is money a thing? A commodity that becomes a medium of exchange? 20 Or something else?
    17. 17. 21
    18. 18. 22
    19. 19. 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 23
    20. 20. 24 16 October 1834
    21. 21. 25
    22. 22. 26
    23. 23. 27 Money is information (including incentives to maintain its integrity) + Social convention as to value (AKA collective hallucination)
    24. 24. The significance of transactions costs 28
    25. 25. 29 Two Networks Phone Network Internet
    26. 26. 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 30 Phone Network Internet Both built from interconnect agreements
    27. 27. 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. 31
    28. 28. The significance of transactions costs 32 • Home lending at <60% loan to valuation • Foreign Exchange • Credit cards • Wealth Management Margins from 500% to 2,000% above costs
    29. 29. The significance of transactions costs 33 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%
    30. 30. 34 Two Foreign Exchange Markets
    31. 31. 10%10% 14%14% 13%13% 14%14% 21%21% 23%23%
    32. 32. 36 Implicit Too-Big-To-Fail Subsidy For The 29 Biggest Banks Source: Bank of England calculations. (Haldane, 2012)
    33. 33. Bitcoin: what is it good for? 37
    34. 34. 1. Medium of exchange: 2. Unit of account: 3. Store of value: 38
    35. 35. When the economics of abundance runs out W hat could be built in this space? W hat could be built in this space?
    36. 36. 42
    37. 37. 43
    38. 38. 44 10,000% Productivity Improvement
    39. 39. PPPs 2.0 45 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.
    40. 40. When the economics of abundance runs out W hat could be built in this space? W hat could be built in this space?
    41. 41. It’s the protocol stupid 47
    42. 42. 48 The End
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