The Creation Of Nash Equilibria In Bitcoin

By Jon Gulson on ALTCOIN MAGAZINE

The fly in the ointment for a “cash system” is that ex nihilo money creation — euphemistically known as printing — is frequently cited as inflationary in the sense it’s dissipating purchasing power with each unit made.

John Forbes Nash Jr

Central banking practice has evolved away from this understanding: a price level of typically 2% is targeted on a local basis, in relation to goods and services commonly consumed in that area, so that a consumption index reflects an economic picture to the ends of sovereign policymakers maintaining market stability and systematic trust.

This approach allows a freer license to administrators in influencing supply elasticity in times of growth or contraction and it also means they can communicate their actions to the markets and public through forward guidance.

A Theoretical Ideal Money

Game theorist John Nash proposed a theoretical Ideal Money which sought to remove the subjective element from macroeconomics and establish a stable international index which could provide a trustworthy apolitical comparison for each sovereign fiat.

This proposal is at the opposite end of the operational scale for central banks to adopt: it doesn’t provide them room for maneuver in managing their affairs and the inelasticity of such an index would make holding a peg almost impossible.

A Special Medium

The opening gambit in Ideal Money is Nash’s observation that money is a special medium by which we are so controlled, dependent, and motivated [that] we may become irrational over it and fail to reason about it as we would a technology, such as a radio, to be used more or less efficiently.

That the transferable utility created gives money a quality which can vary in differing issuances — and this led Nash to understand the value of convenience in making the comparison between each.

The Inflation Postulate

In Ideal Money, Nash removed the inflation postulate to the extent he believed zero inflation would be the ideal rate. In respect of the central bank forward guidance language game, this would obviously prove problematic!

In this regard, it’s observed there are limits to central bank language in that it can’t speak multilaterally.

Nash’s removal of inflation becomes comparable to Satoshi’s removal of the mediation postulate in this light: Bitcoin created a new and parallel form of money where principals aren’t required at settlement.

Removing the fly from the cash system ointment re-orientates the proposition: if 1 Satoshi (BTC 0.00000001) became equal to $1, would the dollar creation required to sate bitcoin demand be inflationary? If the same were to happen across all sovereign fiats, would this be inflationary on a supranational basis?

And if the language game were such that the general price level in the inflation targeted sense remained unaffected, how would central bank forward guidance then express this “inflation”, given their multilateral limitations?

The Creation of Nash Equilibria in Bitcoin

In the non-cooperative game, participants assimilate moves in relation to others: equilibria stabilizes where unilateral advantage can’t be gained from deviation.

In the monetary macroeconomic game, Bitcoin has created a new equilibria between trusted (lingual) and trustless (math) money — and the assimilations are still being made as the game progresses.

And with this line of thought, Nash’s earlier works in bargaining prior to equilibria and Ideal Money can be seen relevant to Satoshi’s observations on the small casual transaction.

So too Nietzsche’s observations on the diachrony of verbal and numerical reasoning existing in continual transition, where bundles of objects or material things of a general nature, are interactive to each other and not bivalent systems.

And if a world empire context is to transform so that the multilateral coalition becomes a modern reality, then the decentralization of Bitcoin would become redundant as the equilibria stabilize, inevitably creating a new game.