Thanks for your reply and engagement.
I do not think it is quite that simple. Of course, if Bitcoin allows us, as a society, to approach a true risk-free rate of 0%, then that would be great and usher in a type of utopia because, by definition of a 0% risk free rate, people would value the future as much as the present.
Alas, so long as we have finite lifespans, and we do not think that (simplifying here) log2_work in our logs will ever approach infinity, then even bitcoin has a positive risk-free rate. Bitcoin’s future is uncertain.
Nevertheless it still may be worth trying to quantify, in an effort to reduce, that uncertainty it in a manner which does not rely on central authorities.
I am not sure I follow which counterparty you refer to here.
@ZmnSCPxj managed to succinctly summarize the BMAX concept this way:
the point is to be able to create a futures market for Bitcoin-the-asset itself, and not actually a market for Bitcoin mining; hooking into Bitcoin mining is simply used as a proxy for expected value of Bitcoin-the-asset in the future (and thus an economically-rational proxy for Bitcoin futures).
The futures markets referred to would be the hoped-for exogenous effect of the endogenous instruments (shares, bonds) of BMAX which are themselves different types of claims on the stochastic stream of block rewards which are mined by BMAX. That stream is currently non-existent, and even if it did exist, it might be remain empty indefinitely (if there is no demand).
Yes, there is counterparty-risk here, but the sharechain network itself is the counterparty to the shareholders and bondholders.
This is not fundamentally very different from the type of counterparty that Bitcoin is to its miners. Bitcoin enforces a 100-block (17-hour) lockup of coinbase outputs, during which time a miner is, effectively, holding a not-yet-transferable-on-chain instrument, the counterparty of which is the Bitcoin network.
Bitcoin already consistently demonstrates this notion of network-as-counterparty for a very short time window. What we are contemplating here with BMAX is a way for a network, as part of its core offering, to explore what it means to have a longer time horizon, while still staying true to Bitcoin.
Yes, especially when the sharechain contributes only a trivial fraction of hashrate. However, if this sharechain grows to contribute a non-trivial fraction of Bitcoin hashrate, then the risk of the sharechain persisting might be perceived to reduce. But there are no guarantees. Nor are there any guarantees, from Bitcoin-consensus-observable data, that the next Bitcoin block will be produced, yet, thankfully blocks keep coming in!
A term structure for anything (stochastic or concrete), so long as it is ultimately realized in sats is, at least in part, a statement about time in Bitcoin-native time pricing. Mining is just the proxy we can use to try to educe rationality into these statements.
Regarding the practicality/usefulness: while mining is how the instruments are created and maintained until they are ultimately settled/redeemed on Bitcoin, the usefulness of the instruments themselves is not limited to the mining industry.
Of course my preference would be that this mechanism, or something simpler which accomplished the same thing, were available on Bitcoin directly. In which case the signal would be more pure. It could be done as a soft-fork I think, but even still, it will will never happen.
So the next best thing I can come up with is this BMAX sharechain thing we are discussing here. Because the sharechain network is a valid bitcoin miner, and especially if the sharechain contributes a non-trivial portion of Bitcoin work then the signal can still get through.
How might the sharechain ever contribute a non-trivial portion of Bitcoin work?
- reduce protocol risk (i.e. keep it simple, but no simpler)
- get the economics right to reduce risk premia associated with the sharechain
Something I did not mention in the OP is that a positive side effect of the mechanism we are discussing here is that investors/hodlers can directly participate in bitcoin’s future (which is mined into existence), even if they are not in a thermo-geo-economic advantaged position to mine, so long as they have the risk-appetite for it.
The argument is that this expands the pool of available capital which can be deployed in a trust-minimized way to secure bitcoin’s future, and a side-effect is that we get a glimpse into the Bitcoin (via BMAX) network’s collective time preference.
Naturally, no hodler should bet their whole stack on the future of Bitcoin via BMAX, but hodlers who are willing to allocate a marginal portion of their stack towards “risk,” and who have been extremely hesitant to do so (because moving their precious sats in/out of centralized exchanges or buying equity of various supposedly bitcoin-aligned, yet ultimately traditional, companies, comes with a whole host of headaches that is hard to justify) may find solace here.
I suppose that if BMAX were to exist and never manages to contribute more than a de minimus portion of Bitcoin’s work, then there is also a signal there too, albeit, a more sad one. In such a case, we can partially conclude:
- BMAX is perceived to be too risky relative to Bitcoin itself (despite the well-intended attempts of the BMAX designer(s) to keep it as bitcoin-aligned, and protocol-risk-minimized as possible), in which case perhaps a better BMAXv2,3,4 can be created to try to overcome those issues.
- or the collective desire for Bitcoin to stand on its own as a self-consistent global money without central authorities has diminished so much that it has been, for all intents and purposes, “captured” by the now-traditional high finance world of trust and custody that Bitcoin was created to obviate.
Your opinion, and others on this forum, is very valuable! Thank you for taking the time to provide it.
The big question here is if there is any real merit trying to bring BMAX into existence. Or will it be DOA because demand for this type of is not there anymore and unlikely to return?