Bitcoin as a basis for John Nash’s Asymptotically Ideal Money

The ultimately launched concept of “ideal Money” became possible when I conceived of a practical basis of a standardization of the comparison of the value of the currency with an appropriate standard of ideal.

…a modern alternative is possible, one that would provide a good standard independent of state pardoners. This idea occurred to me fairly.~Ideal Money

In 2002 John Nash published a paper in the Southern Economic Journal entitled “Ideal Money” in which he proposed an ideal basis for the global economy as an alternative to the gold standard.

The concept, which he called an ICPI, was a globally constructed price index which all existing national currencies would use as a target for price stability:

A possible nonpolitical basis for a value standard that could be used for money would be a good industrial consumption price index (ICPI) statistic. This statistic could be calculated from the international prices of commodities such as copper, silver, tungsten, and so forth that are used in industrial activities.

Nash went on to give examples of what kinds of prices might be most useful for such an index:

Crude petroleum could also be used for barter transactions, and in view of the present state of the global economy it would seem a proper component of an index of prices of internationally traded commodities that enter into the costs of industrial consumption.

Another basic cost that could be used would be a standard transportation cost, the cost of shipping a unit quantity of something over long international distances

He did however note one problem that maintaining such an index would imply-changes in the world economy would need to be reflected in the index and this would require political intervention:

We can see that times could change, especially if a “miracle energy source” were found, and thus if a good ICPI is constructed, it should not be expected to be valid as initially defined for all eternity. It would instead be appropriate for it to be regularly readjusted depending on how the patterns international trade would actually evolve.

In an alternate version of Ideal Money Nash explains this admission of the need for political intervention is what caused him to consider what he called “asymptotically ideal money”-an evolutionary approach rather than a pure politically born system:

One cannot logically feel confident of the adoption internationally of an ideal system of currency or currencies in an achievement analogous to the achievement of the metric system or of “the euro”. Such a result would necessarily have a political content since it is the states that control and supply the various currencies that are in use at the present time.

So it occurred to me to think that the improvement in the quality of forms of money or currency being used in the world might result by a process of evolution instead of as a result of an analogue of the adoption of the metric system or of the “euro”..

Thinking of a system in which legacy national currencies are “idealized” by using a set of global production prices as their basis for stability targeting it is interesting to consider the mechanism which regulates bitcoin’s supply issuance-the difficulty adjustment algorithm. In a basic sense the algorithm senses the total mining power of the bitcoin network and adjusts the difficulty of mining the next set of newly release bitcoins such that the new blocks which produce them are created every 10 minutes.

In light of Nash’s observation this creates a curious effect.

Consider Satoshi’s remarks:

The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.

This means, viewed over time, the the market price of a unit of bitcoin converges with its factors of production. In other words bitcoin is asymptotically ideal money, suggesting that it may be worthy for consideration as an ideal target for the legacy national currencies:

The ultimately launched concept of “Ideal Money” became possible when I conceived of a practical basis for a standardization of the comparison of the value of the currency with an appropriate standard or ideal.

…if there is in the first stage of progress the advent of “asymptotically ideal” currencies, then after that level of what might be called “rationalization” is achieved there would be the possibility of an international collaboration to set up value standards analogous to the standard measures used in the internationally accepted “metric system”.