Category: #Nick Szabo

International payment using the radio waves

In a first, Bitcoin developers have done something amazing amid the criticism over the lightning network and issues associated with it. A team of developers has made an international payment using the radio waves on the lightning network.

Rodolfo Novak, the co-founder of the startup CoinKite sent out a Bitcoin transaction to Bloomberg columnist Elaine Ou from Toronto Canada to San Francisco, California. The current feat is quite remarkable given how dependent our current system of banking is on the internet. So, under the circumstances of an Internet shut down, you can still send or receive Bitcoin using the radio waves

With 🧡

Bitcoin Tree

Plant the Seed.
Make the tree grow!
You'll never enjoy it's shadow!
But you joice knowing the next generations to come,
Will thrive under it's Legacy...

Learn about Inflation Folks!

What Is Inflation?

Inflation definition

Inflation is a rise in prices, which can be translated as the decline of purchasing power over time.

The rate at which purchasing power drops can be reflected in the average price increase of a basket of selected goods and services over some period of time.

The rise in prices, which is often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.

Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.

KEY TAKEAWAYS

  • Inflation is the rate at which prices for goods and services rise.
  • Inflation is sometimes classified into three types: demand-pull inflation, cost-push inflation, and built-in inflation.
  • The most commonly used inflation indexes are the Consumer Price Index and the Wholesale Price Index.
  • Inflation can be viewed positively or negatively depending on the individual viewpoint and rate of change.
  • Those with tangible assets, like property or stocked commodities, may like to see some inflation as that raises the value of their assets.

Understanding Inflation

While it is easy to measure the price changes of individual products over time, human needs extend beyond just one or two products.

Individuals need a big and diversified set of products as well as a host of services for living a comfortable life.

They include commodities like food grains, metal, fuel, utilities like electricity and transportation, and services like healthcare, entertainment, and labor.

Inflation aims to measure the overall impact of price changes for a diversified set of products and services. It allows for a single value representation of the increase in the price level of goods and services in an economy over a period of time.

Causes of Inflation

An increase in the supply of money is the root of inflation, though this can play out through different mechanisms in the economy.

A country’s money supply can be increased by the monetary authorities by:

  • Printing and giving away more money to citizens
  • Legally devaluing (reducing the value of) the legal tender currency
  • Loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market (the most common method)

In all of these cases, the money ends up losing its purchasing power. The mechanisms of how this drives inflation can be classified into three types: demand-pull inflation, cost-push inflation, and built-in inflation

Here is an interesting collection of books about inflation:

https://www.infobooks.org/free-pdf-books/business/inflation/

“According to Cantillon, the beneficiaries from the expansion of the money supply are the first recipients of the new money, who are able to spend it before it has caused prices to rise.

Whoever receives it from them is then able to spend it facing a small increase in the price level.

As the money is spent more, the price level rises, until the later recipients suffer a reduction in their real purchasing power.

This is the best explanation for why inflation hurts the poorest and helps the richest in the modern economy.”

Saifedean Ammous, “The Bitcoin Standard: The Decentralized Alternative to Central Banking”

“It is much more difficult to see how it will ever be possible to abandon a system of provision for the aged under which each generation, by paying for the needs of the preceding one, acquires a similar claim to support by the next.

It would almost seem as if such a system, once introduced, would have to be continued in perpetuity or allowed to collapse entirely.

The introduction of such a system therefore puts a strait jacket on evolution and places on society a steadily growing burden from which it will in all probability again and again attempt to extricate itself by inflation.”

Friedrich A. Hayek, “The Constitution of Liberty”

What with the doctrines that are now widely accepted and the policies accordingly expected from the monetary authorities, there can be little doubt that current union policies must lead to continuous and progressive infl ation.

The chief reason for this is that the dominant “fullemployment” doctrines explicitly relieve the unions of the responsibility for any unemployment and place the duty of preserving full employment on the monetary and fiscal authorities.

The only way in which the latter can prevent union policy from producing unemployment is, however, to counter through inflation whatever excessive rises in real wages unions tend to cause.”

Friedrich A. Hayek, “The Constitution of Liberty”

“Inflation destroys the value of your savings while Bitcoin protects them.”

Olawale Daniel

“To accumulate any wealth, you must invest at a growth rate higher than inflation.”

Naved Abdali

“An ounce of gold will always be an ounce of gold regardless of the length of possession.

The short-term value will go up or down, but gold prices will follow the general inflation rate in the long run.”

Naved Abdali

“… The Banks, as we now all too well know, must be rescued no matter what.

‘The value of commodities is thus sacrificed in order to ensure the fantastic and autonomous existence of this value in money.

In any event, a money value is only guaranteed as long as money itself is guaranteed.’

Inflation, as we also know, must be kept under control at all costs.

‘This is why many millions’ worth of commodities have to be sacrificed for a few millions in money.

This is unavoidable in capitalist production and forms one of its particular charms.’

Use values are sacrificed and destroyed no matter what is the social need.

How insane is that?”

David Harvey, “Marx, Capital and the Madness of Economic Reason”

“For one thing, this steady devaluation of the dollar is a new practice, relatively speaking.

For most of our country’s history, the dollar gained value.

The dollar was worth 75 percent more in 1912 than it was worth in 1800.

You know those stories your parents or grandparents tell about how they used to buy a sandwich and a fountain soda for a dime?

How everything was so much cheaper back in the day?

If you were around in 1900, for instance, the old folk didn’t tell those sorts of stories.

What cost a dime in 1900 probably cost fifteen cents in 1875, and twenty cents in 1800.

Of course, since 1912, the dollar has lost more than 95 percent of its value….

You will remember what happened in 1913: the Fed was created.”

Peter Schiff, “The Real Crash”

“We have gold because we cannot trust governments”

Herbert Hoover

“Inflation is taxation without legislation.”

Milton Friedman

“Inflation is always and everywhere a monetary phenomenon.”

Milton Friedman, “Money Mischief: Episodes in Monetary History”

“The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature.

The inflation tax has a fantastic ability to simply consume capital.

It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation.

Either way, she is ‘taxed’ in a manner that leave her no real income whatsoever.

Any money she spends comes right out of capital.

She would find outrageous a 120 percent income tax, but doesn’t seem to notice that 5 percent inflation is the economic equivalent.”

Warren Buffett

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Ronald Reagan

“The natural tendency of the state is inflation.”

Murray Rothbard

“The first panacea for a mismanaged nation is inflation of the currency; the second is war.

Both bring a temporary prosperity; both bring a permanent ruin.

But both are the refuge of political and economic opportunists.”

Ernest Hemingway

“Whoever controls the volume of money in our country is absolute master of all industry and commerce…when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”

James A. Garfield

“Continued inflation inevitably leads to catastrophe.”

Ludwig von Mises

“The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”

Ludwig von Mises

“Continued inflation inevitably leads to catastrophe.”

Ludwig von Mises

“When a business or an individual spends more than it makes, it goes bankrupt.

When government does it, it sends you the bill.

And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation.

Make no mistake about it, inflation is a tax and not by accident.”

Ronald Reagan

“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending.

No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.”

Ayn Rand

“Monetary inflation not only raises prices and destroys the value of the currency unit; it also acts as a giant system of expropriation.”

Murray Rothbard

“Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel.

These once unthinkable dosages will almost certainly bring on unwelcome after-effects.

Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”

Warren Buffett

“I believe that banking institutions are more dangerous to our liberties than standing armies.”

Thomas Jefferson

The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.

There is no safe store of value.

Deficit spending is simply a scheme for the hidden confiscation of wealth.

Gold stands in the way of this insidious process. It stands as a protector of property rights.

If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Alan Greenspan

“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”

Friedrich August von Hayek

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.

The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

John Maynard Keynes

“Printing money creates inflation, which weakens an economy.

Unfortunately, this kind of common-sense thinking never seems to penetrate academic circles.”

Peter Schiff

“It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less.

[I]f the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with ‘free banking.’

The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.”

Paul Volcker

“Most people will see declining returns [due to inflation].

One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life – you don’t need a lot of material goods.”

Charlie Munger

“Inflation is the true opium of the people and it is administered to them by anticapitalist governments and parties.”

Ludwig von Mises

“There are two main drivers of asset class returns – inflation and growth.”

Ray Dalio

“It’s hard to build models of inflation that don’t lead to a multiverse.

It’s not impossible, so I think there’s still certainly research that needs to be done.

But most models of inflation do lead to a multiverse, and evidence for inflation will be pushing us in the direction of taking [the idea of a] multiverse seriously.”

Alan Guth

“If the governments devalue the currency in order to betray all creditors, you politely call this procedure ‘Inflation‘.”

George Bernard Shaw

“The illusiveness of this concept of national income is to be seen in its dependence on changes in the purchasing power of the monetary unit.

The more inflation progresses, the higher rises the national income.”

Ludwig von Mises

“The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners, had to be put into action in order to destroy the gold standard.”

Ludwig von Mises

“The idea that when people see prices falling they will stop buying those cheaper goods or cheaper food does not make much sense.

And aiming for 2 percent inflation every year means that after a decade prices are more than 25 percent higher and the price level doubles every generation.

That is not price stability, yet they call it price stability.

I just do not understand central banks wanting a little inflation.”

Paul Volcker

“Inflation is the fiscal complement of statism and arbitrary government.

It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.”

Ludwig von Mises

“To reverse the trend and reduce the role of government in our lives, and thus alleviate the government deficit and inflation pressures, is a giant educational task.

The social and economic ideas that gave birth to the transfer system must be discredited and replaced with old values of individual independence and self-reliance.

The social philosophy of individual freedom and unhampered private property must again be our guiding light.”

Hans F. Sennholz

“What I’m trying to say is that for the average investor, what I would encourage them to do is to understand there’s inflation and growth – it can go higher and lower – and to have four different portfolios essentially that make up your total portfolio that gets you balanced.”

Ray Dalio

“If government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will.

As a result, this ‘inflation’ of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.”

Murray Rothbard

“We are now speeding down the road of wasteful spending and debt, and unless we can escape we will be smashed in inflation.”

Herbert Hoover

“Inflation is probably the most important single factor in that vicious circle wherein one kind of government action makes more and more government control necessary.

For this reason all those who wish to stop the drift toward increasing government control should concentrate their effort on monetary policy.”

Friedrich August von Hayek

“Big business is not dangerous because it is big, but because its bigness is an unwholesome inflation created by privileges and exemptions which it ought not to enjoy.”

Woodrow Wilson

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth.

Gold stands in the way of this insidious process.

It stands as a protector of property rights.”

Alan Greenspan

“Higher education is the place where people who had big plans in high school get stuck in fierce rivalries with equally smart peers over conventional careers like management consulting and investment banking.

For the privilege of being turned into conformists, students (or their families) pay hundreds of thousands of dollars in skyrocketing tuition that continues to outpace inflation.

Why are we doing this to ourselves?”

Peter Thiel

Having examined the nature of fractional reserve and of central banking, and having seen how the questionable blessings of Central Banking were fastened upon America, it is time to see precisely how the Fed, as presently constituted, carries out its systemic inflation and its control of the American monetary system.

Murray Rothbard

“Inflation, being a fraudulent invasion of property, could not take place on the free market.”

Murray Rothbard

“No central banker would disagree with the proposition that inflation is primarily a monetary phenomenon.

Not one of them will disagree that every inflation has been accompanied by a rapid increase in the quantity of money and every deflation by a decline in the quantity of money.”

Milton Friedman

“The drum-fire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game.

The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about ‘Inflation,’ for which virtually everyone else in society seems to be responsible.

What we are seeing is the old ploy by the robber who starts shouting ‘Stop, thief!’ and runs down the street pointing ahead at others.”

Murray Rothbard

“I think democracies are prone to inflation because politicians will naturally spend [excessively] – they have the power to print money and will use money to get votes.

If you look at inflation under the Roman Empire, with absolute rulers, they had much greater inflation, so we don’t set the record.

It happens over the long-term under any form of government.”

Charlie Munger

“Government policies try to prevent the emergence of serious unemployment by credit expansion, i.e., Inflation.

The outcome was rising prices, renewed demands for higher wages and reiterated credit expansion; in short, Protracted Inflation.”

Ludwig von Mises

“Inflation is essentially antidemocratic.”

Ludwig von Mises

“Inflation has always been an important resource of policies of war and revolution and why we also find it in the service of socialism.”

Ludwig von Mises

With 🧡

Smart Contracts by Nick Szabo-1994

Nick Szabo

A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs[1].

Some technologies that exist today can be considered as crude smart contracts, for example POS terminals and cards, EDI, and agoric allocation of public network bandwidth.

Digital cash protocols[2,3] are fine examples of smart contracts. They enable online payment while honoring the characteristics desired of paper cash: unforgeability, confidentiality, and divisibility.

When we take a second glance at digital cash protocols, considering them in the wider context of smart contract design, we see that these protocols can be used to implement a wide variety of electronic bearer securities, not just cash.

We also see that to implement a full customer-vendor transaction, we need more than just the digital cash protocol; we need a protocol that guarantees that product will be delivered if payment is made, and vice versa.

Current commercial systems use a wide variety of techniques to accomplish this, such as certified mail, face to face exchange, reliance on credit history and collection agencies to extend credit, etc.

Smart contracts have the potential to greatly reduce the fraud and enforcement costs of many commercial transactions. Digital cash protocols use several of the rich new building blocks coming out of the fields of cryptography and computer science.

Most of these components have not yet been widely exploited to facilitate contractual arrangements, but the potential is vast. These subprotocols include Byzantine agreement, symmetric and asymmetric encryption, digital signatures, blind signatures, cut & choose, bit commitment, multiparty secure computations, secret sharing, oblivious transfer, and multiparty secure computation. All of these except the first are described in [2,3].

The consequences of smart contract design on contract law and economics, and on strategic contract drafting, (and vice versa), have been little explored. As well, I suspect the possibilities for greatly reducing the transaction costs of executing some kinds of contracts, and the opportunities for creating new kinds of businesses and social institutions based on smart contracts, are vast but little explored.

The “cypherpunks”[4] have explored the political impact of some of the new protocol building blocks. The field of Electronic Data Interchange (EDI), in which elements of traditional business transactions (invoices, receipts, etc.) are exchanged electronically, sometimes including encryption and digital signature capabilities, can be viewed as a primitive forerunner to smart contracts. Indeed those business forms can provide good starting points and channel markers for smart contract designers.

One important task of smart contracts, that has been largely overlooked by traditional EDI, is communicating the semantics of the transaction to the parties involved.

There is ample opportunity in smart contracts for “smart fine print”: actions taken by the software hidden from a party to the transaction.

For example, grocery store POS machines don’t tell customers whether or not their names are being linked to their purchases in a database. The clerks don’t even know, and they’ve processed thousands of such transactions under their noses.

Thus, via hidden action of the software, the customer is giving away information they might consider valuable or confidential, but the contract has been drafted, and transaction has been designed, in such a way as to hide those important parts of that transaction from the customer.

To communicate transaction semantics well, we need good visual metaphors for the elements of the contract. These would hide the details of the protocol without surrendering control over the knowledge and execution of contract terms.

A primitive but good example is provided by the SecureMosiac software from CommerceNet. Encryption is shown by putting the document in an envelope, and a digital signature by affixing a seal onto the document or envelope. On the other hand, Mosaic servers log connections, and sometimes even transactions, without warning users — classic hidden actions.

Another area that might be considered in smart contract terms is synthetic assets[5]. These new securities are formed by combining securities (such as bonds) and derivatives (options and futures) in a wide variety of ways.

Very complex term structures for payments (ie, what payments get made when, the rate of interest, etc.) can now be built into standardized contracts and traded with low transaction costs, due to computerized analysis of these complex term structures.

Synthetic assets allow us to arbitrage the different term structures desired by different customers, and they allow us to construct contracts that mimic other contracts, minus certain liabilities.

As an example of the latter, synthetic assets have been constructed that mimic the returns of stocks in German companies, without requiring payment of the tax foreigners must pay to the German government for capital gains in German stocks.

It’s important to note that these synthetics do _not_ confer voting rights as do the originals. It might be possible to add smart contract protocols to transfer voting rights to the synthetic.

Of course, these protocols might have to be quite secure to withstand attacks from the third party jurisdiction, whose transaction cost (the tax) is being arbitraged away by the synthetic asset.

Finally, we can extend the concept of smart contracts to property. Smart property might be created by embedding smart contracts in physical objects. These embedded protocols would automatically give control of the keys for operating the property to the agent who rightfully owns that property, based on the terms of the contract.

For example, a car might be rendered inoperable unless the proper challenge-response protocol is completed with its rightful owner, preventing theft. If a loan was taken out to buy that car, and the owner failed to make payments, the smart contract could automatically invoke a lien, which returns control of the car keys to the bank. This smart lien might be much cheaper and more effective than a repo man.

Also needed is a protocol to provably remove the lien when the loan has been paid off, as well as hardship and operational exceptions. For example, it would be rude to revoke operation of the car while it’s doing 75 down the freeway.

Smart property may be a ways off, but digital cash and synthetic assets are here today, and more smart contract mechanisms are being designed. So far the design criteria important for automating contract execution have come from disparate fields like economics and cryptography, with little cross-communication: little awareness of the technology on the one hand, and little awareness of its best business uses other.

The idea of smart contracts is to recognize that these efforts are striving after common objectives, which converge on the concept of smart contracts.

Copyright (c) 1994 by Nick Szabo
permission to redistribute without alteration hereby granted

Redistributed with respect & admiration from:

https://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart.contracts.html

Nick Szabo is so deeply ingrained in the modern digital currency landscape that 1/1000000000000th of an Ether is called a “szabo”.