Thursday, August 26th 2021 - Issue #1064

Execution risk is important

A simple way to explain the difference between bitcoin and the US Dollar is to describe how the two systems have different execution risks. How much skin in the game does each stakeholder have? And how does that affect the incentives between those at the helm of the distribution, accounting, and security of those systems and the individuals who use them to conduct commerce? When you sit down and think through these questions, it becomes obvious that Bitcoin, at the very least, is a much preferable incentive driven monetary system than a US Dollar system controlled by Fed officials.

The Fed is an institution that's viewed as an arbiter of truth. While many believe that the likes of Jerome Powell, Janet Yellen, Ben Bernanke, and their counterparts at central banks around the world are wise sages equipped with the knowledge, experience, and foresight to effectively micromanage the global economy via the manipulation of their monetary bases and targeting interest rate; this may not be the case. I argue this isn't the case and put forth that this can be recognized from a first principles understanding of the execution risk of the Fed. The Federal Reserve is subject to absolutely no execution risk at all.

Fed officials are allowed to tweak and tinker with the money supply on a whim without any consequences. Not only do they not suffer any consequences, but it seems like society has gotten to a point where most individuals have been hypnotized into a state in which they aren't even cognizant of the notion that there should be consequences for the Fed's actions.

It is truly wild that this is how most view the Fed when you consider how disastrous their policies have been for the Common Man. Exacerbating the wealth gap while pushing up prices of essential goods and aiding in the addition of leverage in an already fragile financial system. The fact that Fed officials don't suffer any consequences for their actions means that they have no real incentive to properly manage a monetary system. Is the type of incentive system you want running on the back end of your monetary system?

No. You shouldn't settle for this incentive structure. It seems much more rational to opt-in to a monetary system that is facilitated and secured by individuals who stand to suffer if they don't perform for their users. Bitcoin provides this. The nature of bitcoin mining comes with very high execution risks. The amount of capital needed to stand up a mining operation today is material. Right off the bat, before a miner has even plugged in a machine, they have taken a capital risk which incentivizes them to get their machines plugged in and hashing as quickly as possible.

If a miner wishes to get a return on their initial capital outlay, they need to ensure that their miners are up and running with as much uptime as possible while abiding by the consensus rules set forth by the network. If they fail to do so, they will not be able to realize revenues. Failure to execute means failure to initially recoup and eventually make money. This is a good thing for bitcoin users. If miners are incentivized to plug in as quickly as possible it means Bitcoin has a natural gravitational pull of computing power to secure the integrity of block production. If miners are also only allowed to realize revenues if they add blocks that fall within consensus rules it means they are incentivized to respect the rules which bitcoiners have opted into. 21 million. You can only spend using a valid UTXO.

When miners fail to execute on these two things they miss out on cash flows that are vital for their businesses. The nature of the network forces miners to play by the rules of those who have decided to use it. If a miner were to attempt to print one million bitcoin out of thin air its block would be rejected and it will have suffered a monetary loss on the electricity wasted on producing the bunk block.

Who would you want securing your monetary system; the Fed, which has absolutely zero execution risk. Or bitcoin miners, who have extremely high execution risk?

I know my answer.

And for those of you steaming in the background muttering, "The Dollar is also backed by the full faith in the US Government." Do you really have any faith in this government?

Final thought...

Too much travel.

Share

Forward

Hope you enjoyed today's issue. If you have any friends that are looking to find out more about Bitcoin have them sign up for this newsletter here:

Get Ƀent

Ƀent noun 1. direction taken, as by one's interests; inclination.

Thanks for reading Marty's Ƀent, a daily newsletter containing all the information I found interesting in the Bitcoin world in the last 24 hours.

Marty's Ƀent - August 26th, 2021 - Issue #1064

Execution risk is important

Older messages

Marty's Ƀent - August 25th, 2021 - Issue #1063

Marty's Ƀent - August 24th, 2021 - Issue #1062

Marty's Ƀent - August 23rd, 2021 - Issue #1061

The Sat Standard - Bitcoin Weekly - August 21st 2021

Marty's Ƀent - August 20th, 2021 - Issue #1060

You Might Also Like

Texas doubles down on crypto with new $250 million Bitcoin reserve bill

How-ey Can Get Out of Here

February CEX Data Report: Significant Decline in Trading Volume Across Major CEXs - Spot Down 21%, Derivatives Dow…

El Salvador defies IMF, continues Bitcoin purchases amid market downtrend

🖊️ Trump signed an Executive Order for a US Strategic Bitcoin Reserve; Cronos proposed to reissue 70 billion CRO …

Vitalik TAKO AMA: ETH Positioning, Sequencer Centralization, L1 vs L2, Governance, and Success Metrics

Donald Trump Creates U.S. Bitcoin Reserve

Bitcoin’s realized volatility surges in as traders face extreme price swings

Asia's weekly TOP10 crypto news (Mar 3 to Mar 9)

Trump declares end to ‘war on crypto,’ vows to propel America to Bitcoin supremacy