The ”The Ecology of Money“ book by Richard Douthwaite states the following
questions about a currency:
So I start this topic to gradually collect all possible answers on all the questions.
We all do. Money is a consensual mass-convenience.
Gold is money created in stars, mined from the earth, refined in the crucible, and coveted by kings and bandits alike. But that was still about convenience, or as you put it “ergonomics”. Money is the lowest common denominator, the otherwise useless commodity that stores and transacts “value” (a nebulous term if there ever was one). At the end of the day, gold is only money if you use it that way, and otherwise it is just property. To the extent that gold is money, that is because we made it so. Aliens don’t care.
Aliens care even less about fiat currencies, but those are clearly money too. The banks create the currency here, with a central bank creating a base currency used between the private banks, but the private banks creating the retail currency by lending to the public. The money is still created by the people in the sense that they determine its “value” via broad market forces. When the banks rig the system too much, people lose faith. But they still need to eat and pay taxes, so this mostly manifests as despair.
Like gold, ERG will not compete as money in a world of nation states. But the stablecoins built on Ergo could very well become money, because they will store and transact value for business purposes. The creation of these stable coins must ultimately come from the operations and security of the miners, but the market will still determine their value in the form of a market cap. Ergo has a long way to go there, but at least we’re way ahead of bitcoin! - unless you count Tether…
Heres an interesting 50 min talk about the idea of money The Story Of Money: How Human Behavior Shapes Economies — And Vice Versa.
Minute 1-23 minute mark talks about the role that stories play in our economic lives such as the creation of bitcoin.
Minutes 23-40 talks more about a "competing idea of the nature and origin of money) which is relationships or mutual obligations. Here they seem to describe a system that the Mesopotamian civilization may have used with tablets to record receipts which seems to describe what would be done in a LETS system.
Minute 41:20 talks about “Society is a thing of ongoing continuous relationships. The settling and unsettling of debts, on and on and on and on and on.” They bring up the question of what’s a world when all debt is settled?
Edit: O ya i guess tying it to ergo as a currency. What type of currency would anyone want ergo to be, transactional/functional, or more based off relationships like a shell/necklace (a reference to the talk and LETS systems).
We create it out of necessity. Without money, trade is inefficient. Without money, business planning is difficult. Without money, there is no way to negotiate abstract contracts. Money is a pillar of civilization.
Interestingly, nobody has found any evidence of coinage among the ruins of the Indus Valley Civilization. But they did find many tiles with identifiable marking on them. Those markings are the same on signs, building entrances, and whatnot. We assume this to be a language, although linguists have not succeeded in translating it. Perhaps the tiles were money, programmable money. Perhaps one type meant grain, another meant pottery, another meant firewood, etc. Maybe they had multiple tokens, like food stamps and whatnot, but no single token to trade for any other like what we think of as money today.
Hell, even where there is basically no money, like in prison or in boarding schools, there evolves a form of money… a most liquid, easiest to hold and store, but also easy to trade for almost anything… some asset or commodity. Cigarettes, perhaps? Necessity is the mother of invention, and I expect that a form of money exists in any grouping of more than 1000 people. However piously they might protest, there will still be a lowest common denominator of commerce.
In a healthy and free world, with a good internet and well distributed access points, then we could choose to adopt a cryptocurrency as a reserve asset. But the actual broad currency of the society will always be controlled by the government and the bankers, who will require employee pay structures and taxes fit in the context of existing federal legislation. They would vigorously resist any attempt to usurp that authority.
So the best hope that we can operate within that context, for now. Ergo can act like a currency at a casino, or a carnival, or a Grayman family reuinion… but not as a replacement for the dollar. Ergo Platform stable coins could get become interchangeable with currency, but there still need to be on/off ramps.
Having said that, just because Ergo is not the currency, doesn’t mean that it isn’t money… gold is money, but not currency. So we create the Ergo Platform to make a better, more ergonomic money.
Not very well.
King Dollar is certainly dominant and effective. The problem is that the USG has found ways to exploit the digital dollar system (SWIFT) to pursue foreign policy aims via sanctions and seizures. It’s not that the other sovereign currencies are saints, but the USD is definitely a wrecking ball right now. As the USD is the primary reserve currency around the world, this swift “justice” gives pause to countries and people everywhere. The USD hegemony creates a variety of domestic issues, and has hollowed out our society’s human capital. Yes, we have more indebted college grads than ever, but you can’t book a plumber for three weeks out. Basic mechanical skills are just thirty youtube videos and a broken thumb away… Also the dollar doesn’t work well for online payments, so we sacrifice a pint of blood to Visa/Mastercard every month, as Saylor says.
Gold lost to the dollar, which gives you an idea of how poorly it functioned as a currency. Bear in mind that the population quadrupled in the last century, and gold production has outpaced population growth. Nevertheless, gold is a deflationary currency and always has been. Gold is saved, and spent only in emergencies or in trade for productive assets. A penny saved is a penny earned, and all that. Keynes hated that because it’s no way to boost production… The dollar is a slowly depreciating (inflationary) currency that is so easy to lend and spend. Don’t you need a bigger TV? As a reserve asset, over the long haul, gold is a good inflation hedge. It holds monetary value pretty consistently. But bonds have historically outperformed gold and inflation, so even in the primary use case gold is currently behind the dollar.
Some people think Bitcoin is the real king of money, because it has a number of qualities that make it superior to gold. It is certainly far more divisible, and the supply is capped, so the market dynamic should lead to an s-curve, landing at a high plateau of true monetary value when there is 100% adoption. But if you think that gold is deflationary, BTC is a monstrous collectable that many will lose. The slow speed makes it inappropriate for significant trade, which is why all orange hope is pinned on a layered strategy with the Lightning network batching transactions… in BTC. They failed to understand that it is BTC itself which is deflationary money that nobody wants to spend. That will relegate it to the same pit as gold… a reserve asset. But one with a deteriorating security budget and extreme volatility due to decreasing liquidity as it gets more and more hodled. It’s a remarkable invention that has stood the test of a whole decade and a half. But the future adoption curve is murky.
Seen in this context, a proof of stake alternative with better utility and more liquidity has a much better chance of challenging the dollar system, compared to gold or BTC. But not if it is prone to enormous bloat and easy to censor, like Ethereum (and clones). After all, sanctions, seizures, and censorship are exactly why cryptocurrencies have any hope to replace the dollar system in the first place. The account model is unscalable. Layer 2 solutions, also based on the account model, are thieves’ lairs, or worse: a VC funded conveyor-belt operated rug pulling machine.
No, the base layer needs to do the money work and I don’t need a layer 2 reaching into my wallet for me. If it is going to be Proof of Stake, that has some monetary consequences, but it needs to still use unspent transactions at its heart. Cardano is a good bet here, and the most ambitious in terms of funding and development by far. But the monetary consequences of proof of stake implies that saving ADA will perform like a bond, but spending ADA, converted automatically from your stablecoins, will allow you to certify your transcript or get your car repaired. Every DEX launch on Cardano drops the price of ADA, as the investment liquidity went towards paying for developer’s pizza (in cash money). That downward price pressure has kept ADA affordable, but ultimately ADA also has a deflationary nature due to limited supply and lost keys. On the other hand, Cardano has tools to mitigate this problem, including native tokens, programmability, and extreme scalability. ADA will become more valuable the more people use it; it’s that simple.
ADA is easier to use and better than BTC by virtually all measures; but it is proof of stake. Do you think Charles Hoskinson should be able to print his own money? I always laugh when I hear this question from Bitcoiners; it’s usually followed by declaration that you should have fun staying poor. But on the other side of their wonderful s-curve, when 1 BTC = $2M, they will look out at the rest of humanity and think that we poor saps should still buy their engineered dips. What a dystopian future a BTC standard would be. But Cardano can actually be the kernel of a financial operating system, not just a global cash register. So yes, I do think that Charles, and all of the others in the Cardano community, can create and open source a piece of software that creates coins, and help themselves to some. The question is what does the distribution look like? And if you compare ADA to BTC, it does not go well for BTC.
What about our favorite, the Ergo Platform? How well does it work? By some measures, it works remarkably well compared to all of the others, including Cardano. Granted, that community takes a lot of arrows for us, but they benefit from our development and collaboration. And if development were measured in productivity per person, I bet Ergo would be at the top of all charts; as it is, name a more decentralized development community (no points if it is dysfunctional).
As a mineable proof of work coin, with no pre-mine, based from the beginning on open source, published code, ERG is a digital commodity, like BTC. Cardano has a fight on their hands, which they will win by altering the regulatory apparatus in the long run. But ERG fits right into the existing regulatory space for commodities. It earns no yield, there is no promise of financial reward, there is a development team, but the existing system is open source and can proceed without any particular developer, or indeed even without all of them. Nobody needs permission from anyone to develop on Ergo. Ergo clearly passes the Howey test, and in the current context ERG sales should be regulated by the CFTC, if at all. And that is one reason that Ergo has an advantage over Cardano.
Ergo also works much better than bitcoin, because it enables the type of financial arrangements that are needed, without depending on surrendering custody or security to a layer 2 network. Yes, so does Cardano, so I won’t repeat all of that except to note that Ergo is considerable easier to approach and begin coding, whereas Cardano is more formal and complex. Both have permissionless development communities, but the barrier to entry is higher for Cardano. That is changing, and they are thorough and voracious – Cardano will be programable in COBALT before we’re done. But the Ergo community welcomes and supports new developers better than most communities I have seen. The bottom line is that Ergo can change with the times, and Bitcoin will not. These aren’t metals, they are distributed computing systems; change is inevitable so there must be a plan to manage it.
Ergo has storage rent, which helps a little with the deflation. But like ADA, the supply of ERG is capped so we can expect upward pressure on price in proportion to utilization. In both cases, the transaction costs may need to increase over time to manage the security budget, but neither are on the short leash that Bitcoin is now feeling. In the end this is a race for utilization and market cap. Bitcoiners like to say that the hardest money will always win; they should think more carefully about that. In today’s world, and throughout the ages, there may have been a dominant money, but there were always monetary alternatives. We do not need to win the race in order to achieve glory. But we do need to outlast bitcoin.
We do it by agreeing to rely on a standard unit of something that we can hold as a way to measure the value of all of the other products and services that we want to buy.
That sounds trivial, and it does seem to be an emergent behavior. But it starts with everyone’s participation in a convenient illusion, with consensus. And once again, the loaded word “value” does a lot of heavy lifting; it’s like saying that money stores wealth.
For a simple UTXO coin like Bitcoin, the analogy to gold is easy to make. We see it as an asset. Is it money? Yes, bitcoin and gold are both money, and even serve as currency in some places. But those places are like a cargo cult on a weird island. Mostly people just hodl. Either way, they are counting on “Number go up”.
The USD broad currency, used around the world for payment, is created by commercial and retail banks by lending (and us by borrowing). It is a debt instrument, partially backed by even more obscure treasury reserves, as well as the promise to pay back all those loans with interest. The system distributes the pain of defaults, as well as the profits of growth, on a wide basis. Even the borrowers prosper if they use the debt for capital improvements. Not enough credit goes to the USD and the banks for being a pretty good distributed system, given its age. Not that it is flawless…
The problem with this federated system is that the Cantillon effect is a little hard for the people to swallow - especially when the banks buy the politicians to vote themselves a bailout. Socialism for them, but capitalism for the people. Push that needle too far, and things will get out of hand. They pushed it too far in 2008, and they got bitcoin. They are ready to put that in the box with gold, as a price captured “tier 1” asset. They just need to increase their holdings enough before they let the price rip to where they want it, even BlackRock is in on it. Saylor thinks any poor person can save their money in Bitcoin, because Saylor has no concept of what poverty is. He thinks it’s all about getting cashapp and hitting the doobilydoo. He doesn’t understand hunger.
Bitcoin in the box.
Shame.
Could Ergo escape the box? I think so. The box is the Cantillon effect. ERG is never going to be a common currency. But a stablecoin built on the Ergo Platform could become an excellent way for people to transact online across the free and internet-connected world - without fee-greedy middle men and without censorship.
Let’s think about what would make the money unsustainable, since there are many examples of that in history. Let’s start with silver, and come to understand why it is no longer a currency or effective form of money. The crustal abundance ratio of silver to gold is about ten or twenty to one. The mining production ratio is about eight to one. Throughout history, both silver and gold were used as currencies, and the primary purpose of silver was to divide gold, according to the ratio set by the sovereign minting the coins (typically 25:1). Silver did tarnish and show wear, but it was rare and easy to identify, so it worked better than gold in terms of the common person’s spending. Silver dollars were the way to spend and save for many decades. So then why can an ounce of gold buy five pounds of silver now?
Silver became unsustainable as a currency when it became too useful for industry, so the miners’ future production was bid up by electrical equipment makers and film producers to a point where the sovereign was no longer interested in the meager remaining seigniorage they would get from minting silver dollars. Since gold remains mostly useless, it provides much more profit to the mint; they stopped minting silver coins here in 1965, and replaced them with our modern coinage. Gresham’s Law applied, and now all those silver dollars are slowly tarnishing in the back of people’s sock drawers - no longer money.
What about the many sovereign (or private) paper currencies that have failed? I inherited a twenty-dollar bill from the Confederate States of America. It’s not rare, but I could probably get more than face-value in USD, if I sold it to some weirdo. I can’t spend it at the grocery store, because the CSA is gone forever, thank God. The Deutschmark famously hyperinflated, yet Germany still grew into an industrial powerhouse and war machine. Printing money to fund war debt is an effective strategy for a while, but ultimately this approach requires aggressive expansion to get the materials needed to keep the system working. Since nobody trusted the Deutschmark, Hitler had to either pay gold for the resources from other countries, or simply invade them. So, even before the end of WWII, the Deutschmark was not sustainable.
Property depends on the law; the law depends on force; the force depends on capabilities; and the capabilities depend on property. This cycle happens within every sovereign nation, and between every nation. It is human nature, and real politics. In the old world, the primary form of property was land. From the land came the crops, the wood, the oil, the metals. Land was wealth, and money could be slow and deliberate. Gold had been a convenient measure between the sovereign nations. But after the horrors of the great war, USA controlled 80% of the gold bullion supply, and we had a similar dominance in productive capacity. We cornered the market, and developed a system where the idea was the primary form of property: corporations rather than land. This system was much more abstract and complicated than the old imperial system; it relied on some measure of peace and a great deal of trust. Globalism was born, and the dollar began its reign as a surrogate for gold.
That lasted for a few decades until France sent a battleship to swap their dollars for gold. Nixon chose to depeg the dollar, and the US said to the world: “Choose the dollar or choose gold, but we’re using dollars.” Any nation that chose gold would be locked out of a much more fluid and convenient form of money (currency); their gold-backed currency would appreciate against the dollar, harming exports and inviting competition from the dollar-based producers.
Technological development is deflationary because it makes products and services cheaper and more effective. In a gold backed currency, your strong incentive is to hold your gold until it buys more stuff later. But when the dollar is allowed to slowly depreciate, it encourages utilization of the currency for the purpose of trade, because your money will buy a similar amount of stuff later as it does now, and there is no incentive to wait for the next year’s model. You could rightly argue that this is why we have global warming and the Great Pacific garbage patch; but you cannot argue that a gold-based world economy prevented calamity.
The dollar system is now dominant, but it isn’t sustainable. The debt (public and private) is too high compared to the economic productivity. So, they will do what they must, which is to inflate the currency supply until the cost of the debt is manageable compared to productivity. This is called financial repression, and we last saw here it in the 70’s. Another famous example is the gold seizure and repeg at $35 undertaken by the Roosevelt administration during the great depression; but that tactic won’t work now because the dollar backs itself and the gold is already floating. Now the process requires them to print a lot of dollars, and for wages to rise so that inflation can do its thing. The demographic stagnation (or implosion) that we are witnessing around the world will make labor scarce for a while, and capital will rotate into bonds and other non-risk assets. This will cause revaluations of all sorts of stuff, including the dollar itself. It will be a tough time, but it will also fix some things that are broken. The problem is that the poor and working class will be the last to see the benefits, and the first to see a wave of consumer price inflation and layoffs.
An even more troubling problem is that to print those dollars, they would need the banks to make loans, and the banks are not stupid. If they raise rates to the point that loans are comparable to inflation, then they will not find a lot of customers. If they lower rates in the face of high inflation they will get many interested borrowers, but they would lose big on even collateralized loans. Don’t worry, though; the USG will use fiscal policy (and a CBDC) to push massive amounts of dollars to the people, and make high paying jobs available after the crash. Medicare alone will force trillions of dollars a year in spending soon. The banks will print the money, or else; same as it ever was. I think the dollar will survive another round of this nonsense, domestically, assuming that we can resolve our political differences peacefully. But I don’t think the dollar is going to continue to dominate world financial markets and reserves in the face of a decade of stagflation. Not again.
Ultimately it makes no sense for the world to rely on the sovereign currency of a single country with only 5% of the world population. The recent moves to use dollars as a tool of statecraft and global policy enforcement is not compatible with the concept of money, nevermind sustainability. The dollar will probably survive for a great deal longer, in one form or another. But it’s getting worse in terms of intrusiveness, and less valuable in terms of purchasing power. Is that sustainable? Not in the long run.
So then, we’re back to gold, right? Not really…
Gold is certainly sustainable money, in the sense that it does hold value; but gold is not a currency and will not regain that title. I can’t send gold over the internet, but I can send my trust online. When I use my Visa card, my vendor and I trust them to handle the currency transfer, for a fee. The digital dollar seems to work pretty well, if you don’t look behind the curtains. But it isn’t private, it isn’t frictionless, and now the dollars are depreciating at 10% a year. So, folks take the dollars and buy assets with them, like houses or tools. They spend the dollars and save in assets.
Here comes Bitcoin, our monetary savior, right? Maybe…
With Bitcoin, the code is the law that secures the property, theoretically without any force required. That is a remarkable achievement, and at first glance it breaks the old money/power cycle. But if you think more carefully about proof of work, you will understand that the security of the system depends on a race to dominate physical commodities: ASIC’s and Energy. And that requires wealth and power: not just to accumulate the bitcoin, but also to secure its value.
So what? Every poor person can tag along and let the rich and powerful secure their BTC too, right? No. Every poor person won’t, and many of the wealthy will not either. Bitcoiners are offering to replace one set of rich and powerful with another, and urging the current elite to embrace them and become the new elite. But that’s ok, because thanks to the Lightning Network, even a few Satoshis can be used for the plebs to buy groceries, right?
The dollar was the Lightning Network for gold, but eventually it depegged. You could assert that Lightning cannot depeg from BTC, but there are very different security assumptions for the two networks. Also, the current UX is so primitive that the majority of plebs keep their BTC on centralized exchanges. There are around ten thousand Bitcoin full nodes, yet we are told that tens of millions of Americans hold BTC. The elite will control the coins, the security, the on/off ramps, the liquidity, the price, and the ability of most people to access their savings so they can cash out into dollars (not BTC). At best Bitcoin is digital gold, a commodity that the elite will use to trade among themselves. At some point, they will agree to wrap the BTC on some more appropriate blockchain, and use that to manage their digital assets. The premise that Bitcoin is the only trustless and scarce digital commodity is transparently wrong, and the network itself is rickety and expensive. Bitcoin is fundamentally incompatible with sustainability.
So how can the money be compatible with sustainability? Well, using proof of stake might help, if there is a fair and broad distribution, but let’s leave Cardano out of this discussion. I concede that Cardano is sustainable, but more because it uses eUTXO rather than PoS. The energy savings are not the issue, long term, but that helps; the potential for viable stable coins is the true measure of sustainability. Why? Because without stability, there will never be real-fi, proper payment rails, on any cryptocurrency platform. That is the simple truth, but the implementation is not so simple.
In order to be sustainable, the money must become (and remain) relevant to actual people in the marketplace. Existing stablecoins are backed by either a promise or by an algorithm. The trust-based coins, like Tether and Circle, are appealing to the old elite. The algorithmically backed coins have mostly been a disappointment due to poor design and opaque security assumptions. But SigUSD has held, and I think that Djed will too. They may not perform as well as intended, but these are the beginning of the solution to sustainability.
The Ergo Platform is oriented directly at solving these problems, by enabling the money itself to support multiple currencies. They might come and go, but if the underlying operating system is strong and flexible then it’s all down to the miners to keep it running. If we get into a ludicrous race condition like Bitcoin, that will be a problem; but if we carefully balance our competitive mining with cooperative development and governance, then we may prevail. There are already too many of us miners, and I want to see even more. The ball is in the developers court to deliver the solutions that will make ERG useful and our monies sustainable.
Well the apparent value of money changes moment to moment via market forces, but the creation is done at either one of two times (in any system): At the point of sale, or at the point of a loan (which is also a type of sale).
You thought I’d say it was mining, but no… A miner may hold tons of gold underground, and all the tools to get it, but that is not money. A miner may hold rich gold ore, but that is not money. Hell, it could be .999 fine and crafted into intricate jewelry, and that still wouldn’t be money. It needs to become a standard recognizable unit that people agree to use, at the point of sale, or in the context of a trade or transaction.
It is easier to make a law and paper into money than gold itself. But the value of either is still determined by the market. Monetary value is an independent market commodity, and if it were not so then gold would be less than $50 an ounce. We’ll come back to that in the next answer, but in terms of timing it means 24/7/365. Bankers keep business hours, unless they take an unscheduled holiday. They do create the currency when lending, even outside our borders… and the money markets are adjusting the value all the time. The number of dollars cannot be known, even in principle.
There is no pause, but there is a rate at which money is created (and less frequently destroyed). Theoretically this rate of expansion and contraction is controlled by the interest rates for interbank lending in our current debt-based system (created during WWI, off chain in 1971). It’s very analog, and frankly it’s amazing that this system works at all. Yet here we are: since Bretton Woods it has overseen a time of relative peace and globally connected trade.
Similarly, in Ergo it is all of us creating the money - all the time. Users, traders, miners, developers, and even casual philosophers (derps) like me. In the end, people need to care about it more than Bitcoin for it to become a significant type of money. The new prolonged emission contract will ultimately reduce short term sell pressure, and the flexible yet solid design will adapt as needed to the changes. Meanwhile, the applications (like stable coins) will be able to provide a newfound certainty and transparency for economic development.
Kushti, thank you. And to the rest of the ergonauts, sigmanauts, the EF, and everyone that reads this, thank you.
You are right on time.
Well, it isn’t just scarcity, that is for certain. Bismuth has approximately the same crustal abundance as gold, but costs about a dollar per ounce. And it isn’t rarity either: Rhenium is substantially less abundant than gold in the earths crust, and very difficult to extract and refine. But you can currently lay your hands on rhenium at around $50 per ounce.
The historic ratio in cost between silver and gold was closer to the crustal abundance, when both were considered monetary assets. But now all these materials are produced at industrial scale, and all but gold have a significant industrial utility. A lot of gold does become jewelry, but that is at best an asset for barter or sale. The vast majority of the rest becomes gold bullion, and that is certainly money in the form of a reserve asset. We don’t use gold as broad money, or currency. That honor now goes mostly to the dollar, but it depends on where you are. Consequently, we usually measure the value of gold in dollars and treat it as a market commodity.
So then, what is it? What makes gold so valuable? What makes the dollar valuable, to the extent that it is?
It’s because they are all tradeable commodities, including the dollar. They get their value from trade: supply and demand. But if silver, bismuth, and rhenium are so rare and so useful, then why are they cheaper than gold? What is the demand for gold besides pretty jewelry and space mirrors?
Gold is stacking up in sovereign vaults at a remarkable rate, doing nothing but gathering dust and providing a ballast to their currency trading. But if it were more useful for some other purpose, then the price would get beat down to that supply demand curve. The lack of utility (other than monetary qualities) actually increases gold’s value in the market. It’s valuable because it’s valuable, and easy to hoard or to trade. It is a consensus of the biggest players in the market.
And the dollar is the consensus among the smallest players in the market. Dollar General. The dollar is used across the world as savings for the poor, because their own currency would be worthless next month. The dollar is their reserve asset.
The consensus is important, but it is the market that gives value to the dollar, gold, and all other currencies and commodities. When the market no longer respects the dollar, it will no longer be money. Something else will take its place, and that will derive its value simply from value as the lowest common denominator, in the broadest possible market. Could that be ERG? Definitely not! But it could be a stablecoin on the Ergo Platform. I think Cardano is more likely to work as a home for the broad currency, but I think that ERG has a strong shot at becoming the top tier reserve asset. But we will have to unseat the king BTC, as well as gold, to make that happen.
Bitcoiners often insist that “digital scarcity can only be created once”, meaning that BTC is digital gold. The network effect means that nobody else can catch up. BTC has value because the market says it has value, and rich people like to hoard it. Get off their lawn! They believe that any token with utility is not useful as a reserve asset. Gold is the current reserve asset because it isn’t useful!
But they don’t understand gold. They don’t understand scarcity. And they don’t understand utility. Gold holds value, BTC is extremely volatile. Gold works without electricity or communications. Gold is private, BTC is public. Gold mostly just sits there, storing value. BTC is huffing and puffing to maintain a few transactions per second worldwide, but that really isn’t even needed if you are just trying to be a reserve asset. Gold is not really usable as a reserve asset in bullion less than an ounce. BTC is already much more divisible and useful than gold, but less useful or divisible than Ergo or Cardano. They think they hit the sweet spot, without understanding that sats are very cheap compared to ounces of gold, and gold is way more distributed than any cryptocurrency. Programmability and the ability to use and improve the system is necessary if a distributed system is to survive the ages, like gold has. Striving for decentralization by stifling innovation is the bitcoin approach; they believe there will be SHA256 hives on the moons of Jupiter.
Money gets its value from us market participants. We create it. We give it value. We will choose the one that works best for the intended purpose. Gold is 20 times bigger than crypto and bitcoiners are saying the race is over. Ergo is in a good spot among the market pack; if Cardano wins the race for real-fi utility (which I think is likely due to PoS), then Ergo will be up there with them due to interoperability. If ADA is necessary for the mechanics of the world’s financial OS and payment systems, then it will not be the reserve asset because it would be too useful, like silver or copper. Ergo may not be as fast (due to PoW), but it doesn’t need to be if it becomes a reliable and well distributed market resource that easily interoperates with Cardano (already the case). BTC would also be available as a collateral asset, but ERG is much easier to work with, and provides a “trusted/trustless” third party for Plutus contracts. That is my hope.
Gold becomes money when it is minted into bullion, not worn on the finger or trapped underground. This happens at sovereign mints, and private mints, after they purchase the gold at a considerably lower price. This happens in many places around the world to this very day.
Dollars become money in accounts managed by banks to serve their lending clients. This happens in the digital world, primarily. It is a distributed system that can work on paper, as well as online, but it is definitely showing some signs of age. Dollars wink into existence when foreign banks make dollar denominated loans, believe it. The Fed and congress have bailed them out directly.
BTC gets provisionally minted when a miner finds a block, which theoretically could be anywhere with even meager bandwidth. In reality block production is dominated by miners with access to plentiful cheap electricity (usually waste energy), and also access to the most efficient ASIC’s available. The cast of characters is becoming increasingly dominated by a small number of parties. Some worry that this could lead to a 51% attack, but in the case of bitcoin, this is impractical because the non-mining nodes are also providing validation, which is counted as voting in the primitive governance system that Bitcoiners seem to regard as a feature, not a bug. Also, while the miner mints the block, it is the validators that determine it is actually money. So, the where question is getting complicated. Perhaps more importantly, the new BTC being created are decreasing, and the vast majority of the emission is already complete. At this point, or perhaps after the next halving, Bitcoin will really need to reckon with its diminishing security budget. Where is BTC created? Most of it was created in just a few places, though it was a fair launch.
Cardano’s security budget increases in parallel with its adoption and value, which is certainly an advantage of PoS. ADA are created at one of over 3000 stake pools, but most new ADA are created and distributed to several hundred. Nevertheless, all of them, all around the world are creating ADA for themselves and their stakeholders, which is a pretty good security model: everyone’s incentives are to cooperate about the money part, even if they fight about implementations of dapps or other projects. Critics would say it all depends on Charles, or IOG, but that’s bullshit. Cardano is in the wild now, just like Ergo was from the beginning. Cardano is trustless, permissionless, open source, and well distributed system that can adapt to change, while consensus and governance become increasingly decentralized. It has also demonstrated remarkable performance and development, as well as market adoption. There is still a pretty long curve for ADA creation, but the downside here is like old school banking: the more you have, the more you get. PoS rewards participation, whereas PoW rewards the hardest worker. Anyway, ADA is created at SPO’s all over the planet, with more bandwidth requirements, but considerably less power requirements than BTC.
Ergo is created by the miners, and validated by the nodes, similar to how Bitcoin functions. But unlike Bitcoin, the Ergo Platform is adaptable to change based on the votes of the miners in proportion to hashrate. There is no tyranny of the plebs for Ergo, like on Bitcoin. The system is governed by the ones that actually compete to maintain it, and therefore those who are most likely to consider how to improve it. The Ergo Platform mining algorithm, Autolykos, is memory intensive and more difficult to optimize for energy consumption by throwing custom silicon at it. That sounds bad, but actually it encourages decentralization, because the most efficient hardware is consumer gaming equipment. The miner incentives in the Ergo Platform are similar to Bitcoin, and misbehaving pools or bad actors will not last.
The Ergo Platform is much younger than Bitcoin, but it benefits from Bitcoin’s experience like a younger sibling that is paying close attention big brother’s struggles and moves. Since we are younger, there are many more ERG left to mine, and thanks to the wisdom of Kushti, the community, and the votes of the miners, we now have further prolonged the emission. As a result, the concerns about security budget are unwarranted – I say this as someone that is spec-mining at the moment, because I can see the future.
Where is ERG created? Right here in the room with me, and in rooms around the world. In terms of decentralization of new coin production, Ergo is way better than Cardano (or Bitcoin); but to be fair to Cardano, that production is shared with and dependent upon all of the delegated stakeholders (who mostly control their keys, and probably run a node too). You have to respect that approach, from a decentralization perspective; but Bitcoin and Ergo rely on the market for this part of the equation, separating currency creation from currency holdings. From the standpoint of operational security: Ergo is more decentralized; but from the standpoint of distribution of risk/security and speed, you gotta hand it to Cardano. It’s complex, isn’t it?
Sorry for the twists and turns, but here is the summary of where all of our central characters are created: Basically everywhere on Earth, to one degree or another. The most distributed and prevalent system is the dollar, in spite of the problems with governance. Gold is a distant second, quite distributed in terms of geography and population. Bitcoin is a distant third, distributed abundantly in ownership, but lumbering along in terms of security and utility; still created and validated around the world, 24/7/365. Cardano is in fourth place, but cogently planning to become the dominant financial operating system, produced and distributed in most parts of the world. And last in terms of current value, but most distributed in production and governance: It’s the Ergo Platform, ladies and gentlemen. We create the money everywhere, all the time.
My favorite cartoon character and Steve Van Meter talk about why Bitcoin and gold cannot unseat the dollar: IT'S OVER For The Dollar....... - YouTube
thinking of creating a new post to get some thoughts about Ergo as an investment. Wondering what you think would be some good questions to ask in that? Thinking of following the same structure as these questions with the who what where when, why and how about investments
Hmmm. I don’t think of gold as an investment, but rather as a form of savings, due to the constant depreciation of the dollar. But it just sits there and does nothing, earns no interest, and locks capital outside of the market, rendering it the opposite of an investment.
ERG is similar in that, by itself, it is not an investment. There is better reason to speculate on ERG rather than gold, because if Ergo continues improving and gaining momentum, then the tokenomics of ERG are much better than any PM. But again, that is speculation and not investment.
You can invest in gold by investing in miners, and so I invested in Ergo by buying GPU’s… So far I would have been better off speculating by just buying ERG. But I like my job as a miner.
You can also invest in the Ergo Platform by putting in the time to improve it, as you are doing right now… that might make speculation in ERG more profitable. You can also do yield farming with ERG vs SIGUSD, and other pairs, at Spectrum Finance (and other venues). I’ve just dipped a toe in that water to see how it goes.
Investing in Ergo comes down to participating in the community and evangelizing newcomers, AFAICanTell.
If you asked me what considerations go into whether or not it makes sense to speculate on ERG, I would say it’s all about comparisons to BTC, ETH, ADA, and the jumble of other players. Also, comparing the entire industry to PM’s seems like a compelling argument, considering the size of the market and the advantages of crypto.
But speculation (trading) goes both ways. I have bought and sold small amounts of ERG, speculatively, but my main investment is in mining ERG (and trying to stimulate discussions here and on Reddit). I’m not sure how much it helps to convince people to speculate in ERG, because they will come and go unless they invest time or materials in the Ergo Platform.
Investing in Ergo makes less sense than investing on Ergo, but I am not pleased with most of the current venues. The idea of buying tokens on ErgoPad, with the hope that I can help guide the project that uses my gift, will only pay off if those tokens increase in value compared to ERG, which is speculation on top of speculation. LGD was talking about profit sharing, but I am more interested in ownership and taking part in both profits and losses, when discussing investment. I don’t mind being a cheer leader, and I threw some ERG into the recent raffle for the sigmanauts… but I am not going to give (rather than invest) any significant amount of my ERG to Palmyra, or any other project, based on some speculative model on ErgoPad. I’ll let the deep pockets engage in that speculation, and hold onto my ERG instead.
Sorry if this is scattershot, but I just got back from my family reunion, where there was plenty of alcohol. But there is my shot from the hip answer.
Nope this is great! Wanted to start a discussion to get thoughts exactly as this on Ergo as an investment because seeing a lots of discussions especially recently about Ergo being an investment and would like
But first trying to figure out the questions/how to phrase them as an investment such as:
Who will invest in Ergo, as opposed to just speculating?
Well, I guess miners do, but small time miners are often paid in BTC and do not HODL.
I think the ones that are investing the most are the developers.
Why? Because they are attracted to an opensource community with cutting edge work on the eUTXO model, as well as a robust security model and fair launch. That will not attract speculators, but these developers know the pros and cons. Most coders will stick to Solidity, and we don’t need them.
How do they, or others invest in Ergo? Via brainstorming, writing/testing code, debating EIP’s, trying out each other’s work, participating in AMA’s with the community, holding their attention, and their big bags. These are the salad days.
But now there are new ways to invest in Ergo: yield farming, lending, bonds, and various swaps. Once Rosen bridges to other chains, they will bring liquidity to this these tools and enable those assets to be traded within Ergo’s security assumptions.
When to invest? Right now! Bear market is the ideal time to speculate on ERG price, as well as many of the other assets in the ecosystem. But in the long run it will become more about investing on Ergo, rather than in Ergo. At least, I hope it will.
What makes investing in Ergo worthwhile, compared to the many other assets, companies, projects, and ideas that pull at our attention every day? Ergo is not just a good idea. It is 4 years old now, and getting steadily better by any measure except price action. It is what Bitcoin cannot become.
Where can one invest in Ergo? Well honestly the USA isn’t making things easy, but anywhere, really. Mining is permissionless, for example. And the first amendment guarantees that the government won’t succeed in preventing me from writing, publishing, and running computer code. They won’t stop us, it’s more about whether they can stop the people from adopting Ergo. Which is why regulatory compliance is important, and we need that clarity.
How well does investing on Ergo work? Well I’m still not profitable as a miner, almost two years in - the Ethereum Merge hurt, ngl. But I’m still at it, and holding. I’m still thinking about the project, and how I can contribute in the future. Time will tell how well my investment works, I’m here for at least another 4 years (based on my investment plan).
Investments are sustainable for a term, and then they win or lose. Speculation and trading can be profitable too, but require a lot more risk and focus to avoid failure. My investment, and my continuing electricity costs, are all money (time and materials) that I can afford to lose. I’m investing in what I love, till term do us part.
Thanks for sharing this here @RealisticClock. Will does incredible work and imo anyone thinking about grassroots monies and local currencies should read his work (even if just as an exercise of reflection).
For those interested: