A friend of mine told me about bitcoin. He mentioned there is some form of internet money being created in which computers create money by solving problems. That was about the extent of our discussion on the subject. I watched a 2 minute video on the subject and stored the concept in my mind under “Cool, what else is going on in this world!?”. I learned the of name Satoshi Nakamoto and that no one knew who he was but that he had invented bitcoin. And I think I saw a few media stories with some frenzies about trying to find out who created bitcoin (Dorian etc.)
I never thought about bitcoin much after that for quite sometime and I certainly didn't understand the significance of it.
In my life I had been playing poker intensely for a few years which involved studying game theory and specifically the Nash Equilibrium. I got into some debates on the largest poker forum about the implications of such an insight by John Nash, but I didn't understand the literature or definitions well enough to be allowed to participate. So I went studying through Nash's works, deeper and deeper, trying to find the insight I was looking for that I felt Nash's knew all too well.
This is when I came across Ideal Money.
Nash had been lecturing and writing on this special subject for the last 20 years, touring the world from major nation to major nation, from university to university. How could we have missed this?
Nash's major breakthroughs took nearly 40 years to be acknowledged, but he is WELL known for having a dramatic impact on nearly every science with is work on equilibrium theory.
Nash changed the world when he was merely a young adult and it seems he knew it at the time although the world and the people around him did not.
I read Ideal Money, and I watched some of his lectures. Nash has that same coy smile he always carries. He did something, but he has a difficult time explaining exactly what.
I kept reading Ideal Money over and over, and researching online trying to find other people that were familiar with the works. But I found none.
I decided to do some “art”. I took his lecture and I replace “money” with “chips” and “banks” with “poker sites” and I created “Ideal Poker”. I started to have sparks of insight hitting me instantaneously and it wasn't stopping. I started to rewrite the entire poker industry and the way the players SHOULD view the game. Things started to make sense to me; I started to solve problems as I found them. I created a blog theweatlhofchipsas an extension of these thoughts.
I kept reading Nash's works and eventually found his university homepage which was filled with more versions of Ideal Money, interesting and curious memos, and other insights that are oddly and vaguely related to the subject of money and game theory.
"I am speaking about a research project that is not fully complete since I have not yet written up and submitted for publication any paper or papers describing the work. Also the details of what axioms to use and how to select the basic set theory underlying the hierarchical extension to be constructed are not fully crystallized. I have also a great fear of possible error in studying topics in this area. It is not rare, historically, for systems to be proposed that are either inconsistent or that have unexpected weaknesses. So I feel that I must be cautious and proceed without rushing to a goal. And this psychology of fear has also inhibited me from consulting other persons expert in logic before I could feel that I had gotten my own ideas into good shape."
"Aug. 30, 1999 Initiation of this directory, "Goldbach_Programs". This is just for some recreational mathematics stuff that may be of occasional interest. I recently read the novel "Uncle Petros and the Goldbach Conjecture". In the story Petros, but at a time many years in the past, wonders about whether or not, in particular, the number 2^100 satisfies GB (so that it is a sum of 2 primes). Nowadays it is possible to compute answers to questions of this sort for numbers of that size fairly easily. As I read the novel and thought about that specific question I remembered that quite a few years ago, just while doing recreational work/play with numbers, I had developed a moderately efficient program to search for the next prime larger than a given odd number. And I realized that this program, which I had on file as a MATHEMATICA program, could be applied to the problem challenge of checking out 2^100 in relation to the Goldbach Conjecture."
Then, one day I was sitting down reading “The Bargaining Problem” that John Nash proposed and solved when he was a young man. It is simple in concept. Two parties engage in trade with various items. Nash showed a scenario without money and then with money. He goes on to show how money can optimize the value of trade between the two parties.
I was sitting thinking to myself, “What is the next evolution of this?”
Loose thoughts came to me, “a more divisible money?” “What is the money 2.0 in regard to creating this value?”
Then it hit me, like a ton of bricks, or like lighting, it hit me really hard: bitcoin!
Insight Comes in a Flash
You will have to understand something that will be hard for many to see. MANY MANY thoughts went through my mind instantaneously. But all the while this was happening, running sort of in parallel to my thoughts, was the realization that whatever I was about to learn and understand, John Nash figured out in a flash when he was in his early 20's.
This is something nobody will really believe me on, but I knew it was true in that moment, and I still believe it is true. And this was what set me off-I think it set HIM off too.
I knew Nash's biography, very quickly after he showed an incredible prowess in mathematics he appeared to lose his sanity. He started to say he was the savior of the world, and he was going to save the people from the colluding governments communists and anti-communists alike.
In a flash, probably similar to, but a fraction of his, I realized that it was by the creation of Ideal Money he would do this. His whole biography started to make sense in a different way to me. He was thinking over 50 years into the future, but in a moment. He fled the US at that time, and wanted to exchange his USD for the Swiss Franc because it was “better quality”.
He wrote “secret letters” to the NSA and other government intelligence agencies, informing them of a conjecture he can't prove but believes still holds significance, that eventually encryption would completely outrun decryption.
He showed that all finite games have a solution, and he started to see our global financial system, and the interaction of nations as players in such a game. You see, he didn't need to solve it, not yet, he realized in a flash simply this INCREDIBLY powerful realization: the problem IS SOLVABLE.
Is John Nash Satoshi Nakamoto?
It wasn't that John Nash is Satoshi, although I thought it an incredible coincidence at the time that I could spell “I am Nash” with the letters and settle on “sato kato” as the possible Japanese words left over with the letters (Sato somewhat a Japanese equivalent to John).
Rather bitcoin had relevance, significance, in regard to Nash's works Ideal Money, as he was talking about e-currencies, and money with a stably issued supply, and what the relation is between the supply of a money and its underlying intrinsic value.
I didn't have time to research bitcoin, I didn't know who Nick Szabo was, or Hal Finney, or any of the others (I started reading Szabo's works feverishly at the time though and was convinced there was some realtion!) . I knew nobody was going to understand what I was doing for a very long time. But I knew that Nash was speaking far beyond that advent of bitcoin. I need to couple the subject-to create a bridge between them.
So I went on a campaign, “Nash is Satoshi” without caring much about the truth of it. I could be wrong I thought, but it didn't matter, because eventually the world would know about Nash's works and we would relate it to bitcoin.
The world will eventually bring about Ideal Money, and it will happen at the time when we start to understand Nash's lectures and writing on the subject and what he was doing touring the world giving them out. Ideal Money is Peace
Ideal Money is Stable Over Time, but in Relation to What?
Ideal Money, by Nash's definition which I will always use in my writing, means money that is inflationary free over long periods of time. In other words it has a stable value. But for many people that have a strong understanding of economics this is something that is impossible.
Now you might understand what I am suggesting. Nash didn't believe it was impossible, or more importantly he didn't believe that study and discussion on the subject was insignificant. He believed it was the most significant problem that man faced-How to bring about Ideal Money?
He also clearly believed we WOULD do it eventually, and took great pains to explain how this would be done over time. He explained the process from many different perspectives, to many different types of readers.
To understand the difficulty of creating a money that is stable in value overtime we have to ask “Stable in relation to what?”
If $100 buys one a house today, we might suggest that, if the money is “Ideal”, then 100 years from now $100 will also buy a house. But with technology the materials used to make house changes, and the cost of producing those materials decreases significantly. So then what does it mean to have money that is stable in value, or purchasing power, over time?
Many nations try to solve this problem by creating consumer price indexes, which are an aggregate of the types of things we buy over time that change very little over long periods (or relatively little compared to other things we purchase). This begins to solve the problem of value measurement, but it doesn't completely address the difficulty. For one, the governments issuing their respective national fiat are in control of the metric and so it's not completely objective. More to the point, although its a better metric than nothing, it still doesn't quite approach the limit we are looking for. It's not a perfect solution.
Nash DID propose such a system for an international standard of money, based on an aggregate of prices of world commodities, but if we REALLY read the lectures and writing Nash left us, this was not actually his proposal. Rather it was a side street point he was making, that although we COULD do such a thing, it would be subject to the same subjectivity (political corruption) that our current national money systems have inherited. And furthermore, although it would be a decent metric, it would still not be perfectly “Ideal”.
Money has a Ceiling for Quality
Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will disappear from circulation.
Nash's relates the quality of money to Gresham's Law, which was a historical observation of the nature of money when there is “good money” and “bad money” presented to users that can choose to spend, hoard, or send abroad which ever of the two they choose. Most people don't feel this relates to bitcoin versus fiat, but Nash's is only making one simple and special observation. Since the quality of money has a ceiling, and so left on a competitive stage, in which the peoples valuation of it shows up in their want to have or use it, the ultimate asymptotic result will approach Ideal Money, as a money that is stable in purchasing power over time.
All this WITHOUT trying to peg the money to a standardized basket of commodity prices.
Its all backwards from what people seem to think he is saying. He isn't proposing and index for comparison, rather he is suggesting IF we evolved to HAVE Ideal Money, such a money WOULD be comparable to a money that was pegged to an IDEAL consumption price index.
In other words, there is the possibility of solving this problem WITHOUT creating a price index.
The Keynesian System of Devaluing Money to Incentivize Spending
A “Keynesian” would favor the existence of…central bank and treasury…~Ideal Money
Nash is thought to have critiqued Keynes view on economics, but he didn't really put Keynes down. Rather he critiqued Keynesian economics, and specifically what he calls Keynesian's as people that believe that central banks should be responsible for manipulating our money supply. In Nash's view the (arbitrary) manipulation of our money supply is exactly what devalues it in the Gresham's sense. And this devaluation causes money to lose it purchasing power over time.
The Keynesians implicitly always have the argument that some good manages can do things of beneficial value, operating with the treasure and the central bank, and that it is not needed or appropriate for the citizenry for the “customers” of the currency supplied by the state to actually understand, while the managers are managing, what exactly there are doing and how it affect the “pocketbook” circumstances of these customers. ~Ideal Money
Keyensians believes this incentivizes spending, and in turn boosts our economy. This is exactly what Nash's believes is our governments working against the ultimate wants of the people. Ultimately, if we are educated on the subject of macro-economics, we should want money with a stable purchasing power, as this would have a dramatic effect on long term contract formation.
…“the Keynesians”…while they have claimed to be operating for high and noble objectives of general welfare what is clearly true is that they have made it easier for governments to “print money”.~ Ideal Money
In this regard we can understand long term contract formation to be related to long-term sustainable projects and PEACE.
Keyenesians and most economists would probably even agree to this, but few of them will admit that there is a possibility for such a money standard to ever exist. So each country goes on, controlling its own money supply, not for the good of the global economy, but rather for its own selfish interests (not even necessarily for its people).
On the one had this is a rational system, given the circumstances, yet on the other hand it is not at all optimal for the individual players OR the whole.
The Triffin Dilemma
Nash's Ideal Money is said to be a solution to the Triffin Dilemma:
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was first identified in the 1960s by Belgian-American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit.
Countries cannot properly serve themselves and the world too. The US issuing the de facto world reserve currency has inherited this problem. Many countries around the world have been devaluing versus the USD in order save their economy from failing in the recent recessions. The US is in a special position where there are greater ramifications if it starts to devalue its dollar.
The US doesn't want to give up its power in this regard, but such power is costly, and this is why the US has such a massive military budget. It has to protect this special position in the world, and continue to prop itself up.
Hayek's Incredible Machine
Nash makes a small point at the end of Ideal Money about how his views run parallel to Hayek:
…I learned of the work and publications of Friedrich Von Hayek. I must say that my thinking is apparently quite parallel to his thinking in relation to money and particularity with regard to the non-typical viewpoint in relation to the functions of the authorities which in recent times have been the sources of currencies (earlier “coinage”).)
In his essays "The Fatal Conceit" and "The Use of Knowledge in Society", Hayek makes the point that society has a special complex problem that is not solvable by an individual or a subset of the population. This problem is the optimal production and distribution of commodities and goods throughout our global economy. He points out that historically, those nations that tried to centrally plan the optimization of such systems eventually failed miserably and the people suffered greatly as a consequence. Such central planning is the “Road to Serfdom”.
Only by the creation of the freest functioning pricing mechanism can we learn how to optimally produce and distribute our commodities and goods (ie the free market). The prices people are willing to sell versus what others are willing to buy for give us the ultimate achievable information for the solution to this complex problem. No single group or subset of our global population could come up with optimized prices.
Understanding the Relationship Between the Hayekian and Nashian Views
Here we can understand Nash's special insight from a different view (Hayekian). Nash says that Ideal Money COULD be created by pegging the supply of money to an optimized index of commodity prices. HAYEK shows that commodity prices, can only be optimized by the markets. So we have an underlying realization here: Ideal Money can be elevated by the markets, and only by the markets.
That is to say the underlying value of money, being ultimately related to an aggregate of global prices, MUST be decided by the only mechanism mankind has access to that can accurately create these prices.
Ideal Money must be created by evolution on a stage in which the users of the currencies are able to valuate the currencies on a market.
Enter: an International E-money with a Stably Issued Supply
In the near future there may be a smaller number of major currencies use in the world and these may stand in competitive relations among themselves. There is now the "euro" and the old inflationary history of the Italian lira is past history now. And there COULD be introduced, for example, a similar international currency for the Islamic world or for South Asia, or for South America, or her or there.~Ideal Money
This is the significance of bitcoin. Until bitcoin there was no such true stage for a global game to take place. With the advent and evolution of bitcoin and crypto-currencies more than ever the users of money now have the ability to evaluate each currency not just by their own preferences, but also by using prices signals. A truly free, or significantly free international market of this sort will still take time to evolve, but we can begin to see what Nash has been painting for many years. Our money systems are evolving to have this stronger and stronger quality-money that is stable in relation to some theoretical (but never created) industrial consumption price index. We are naturally approaching ideal money, Ideal Money is natural evolution.
The Asymptotic Evolution of Ideal Money
So here is the possibility of "asymptotically ideal money". Starting with the idea of value stabilization in relation to a domestic price index associated with the territory of one state, beyond that there is the natural and logical concept of internationally based value comparisons. the currencies being compared, like know the euro, the dollar, the yen, the pound, the Swiss Franc, the Swedish kronor, etc. can be viewed with critical eyes by their users and by those who may have the option of whether or not or how to use one of them. This can lead to pressure for good quality and consequently for a lessened rate of inflationary deprecation in value.~Ideal Money
Nash paints us this picture, in which the introduction of an electronically issued, internationally exchangeable money with a stably issued supply, sparks a revolution of new economic theory. Its the CATALYST that begins the asymptotic evolution towards a standard of value that is stable over time.
Now we should understand, that in my opinion, and my understanding, is that this is what Nash saw in an instant when he was young, but he was unable to express it in any understandable form.
In his later years he did the best he could, and he left us great ideas related to this special metric that we WILL realize. He knew we would get there, and eventually his works would become readable.
His works will become readable well before we actually bring about Ideal Money. They will inspire discussion on the subject, dialogue, and this dialogue is what will truly be the beginning of the age of Ideal Money.
Now you can understand why I frantically tried to embed Nash's work into bitcoin and the story of Satoshi Nakamoto. Nash's Ideal Money is about a post bitcoin world. Its the most special writing that has graced our civilization, and I believe it will be heralded for 100's, possibly thousands, of years like many of the ancient scripts and writings that founded great civilization.
Of course the future in general is presumably long...unless things start to go bad...or unless some MIRACLE HAPPENS (54:08)