Sunday, April 2, 2017

Par Value, another semantic

I hear it a lot and generally assume it means something about accepting the contract on the face of the paper.  If the dollar is worth x, then a ten dollar bill gets you 10x, I accept your denomination algebra.

In the sandbox that sort of disappears.  All agents know the compact distribution of your denominations to a known precision, your S&L makes it so. Par value is inherent, all transactions can be adjusted for currency risk, known and share.

But,but...bitcoin has no currency risk!

No, bitcoin has no ledger risk.  The currency risk is embodied in the ledger fees, and that is a one color flex price trade.  It is going to work, but eliminates a set of trajectories from the collection of possible pricing rings available to bitcoin. Can we do an S&L with bitcoin?  Sure can, but given the S&L is not the issuer, some bitcoin folks will put up base money and announce their semi-random take from the bit error function.  That is, a base money finance S&L has owners,but it need not be a three color trade. Ownership risk can be  shared in the bit error process and owner position is market priced, but unhedgeable.

The S&L has too be finite in number of trades  and have an overall timeout.

If owners close out, there is finite probability they leave fractional bitcoins in the sandbox and lose. There is also finite probability that others with bit coin used the S&L and the original owners gain money. There is also the possibility that the owners take a neutral position, in contract, and sell cycles on the probability trees, in another currency. Or just put up kitten videos, transaction costs are zero.

My point is the sandbox does not make the block size moot, but it makes the block size irrelevant in the sandbox.  The sandbox will enforce, by contract, managed congestion in ledger services, bitcoin is in the box, The block size debate is internal and we accept anything they decide.

No comments: