The Bitcoin Model – Trustnodes

The Bitcoin Model


Stock to flow bitcoin model

The prevailing view among some traditional economists is that bitcoin is a speculative bubble, an irrational mania, an inexplicable phenomena; but if we take a different view, that bitcoin is an objective rational actor subject to market forces, we can come up with what we are calling the bitcoin model which can potentially be used in macro-economic analysis.

The bitcoin model is simple in concept. Unlike any other money we know or have ever known, bitcoin is a totally fixed measurer of value. Therefore the bitcoin value doesn’t change, the value of everything else changes.

To be very precise, its supply is currently increasing but we know by exactly how much it is increasing – 1.7% a year – and therefore can discount it to make it amount to a fixed measurer even now.

Because this is a fixed measurer with complete information about all of its qualities, we can use it to measure things that we don’t know or for which we have more limited information.

A simple example is the dollar, or the euro, from which we can attain the real inflation rate rather than the trusted – and thus potentially abused – official rate which in any event is an estimate.

Another example is energy. Here it is a lot more complex because we’ll first have to make the assumption that bitcoin mining is or should be using 2% of global energy supply in line with the energy model.

From that we calculate the current cost of mining bitcoin based on asics costs and energy costs, and its price. If the two are different, then we calculate how much energy is required for mining cost to equal price. In the process we get a lot of information, including what may be going on in the energy market.

Another even more complex example is potential big events or geopolitical events. Numerous studies have found that bitcoin is a predictor of geopolitical risks. How?

Although it is a cliche nowadays to say we have access to instant information, information in fact travels quite slowly, if it travels at all.

However because bitcoin is global, information here travels at the speed of those that have access to bitcoin and act on the information. Meaning events happen in bitcoin first and then we get to know about them.

Making use of this is difficult, but the point is to show that bitcoin reveals and thus it is something that should be studied as a potential measurer of most easily what are currently estimates.

In this way one can create a global economic dashboard that measures movement in bitcoin to get a more precise degree of such movements.

Whether this model is currently useful however is not clear because bitcoin is still somewhat small and not quite yet fully integrated.

But theoretically its fixed limit should reveal more precise information that a moving measurer like the dollar can hide by the movements of its own supply.

Leave a Reply

Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>