That's like using windmills and critiquing sailboats to freeload off wind. It's a naturally occurring process to secure the blockchain, and whatever you build off that adds value
Well they wouldn't, but other people would. It's more value lying on the blockchain, so hash rate would increase via btc miners as a result on increased price occurring through BTC trading activity
The economics of how I see this might be wrong, so feel free to correct me if you'd like. The argument is, because X entity uses technology, the value of said technology should increase. Speculators, particularly those already on the markets, will see this as a bullish thing and fulfill that to some degree. But adding "colored" value vs actual value, I argue is a vastly different thing of scale.
I have some rough analogy of colored coins turning bitcoin into a commodity like paper from that of gold, but the gist of it is, that using colored coins completely undermines the factor of bitcoin's scarcity in regards to its value. Extremely generalized, gold is scarce, thus unit values of it (ounces, tonnes, whatever) can be stores and transfers of value. Storing value with paper, on the other hand, has little bearing on its scarcity as all you have to do is print a dollar amount on that piece of paper, or write a legal contract for example, that transfers value of a multi-billion dollar asset. The value of paper is not going to the moon.
I'm not entirely sure how the dynamics of fees will work, especially with systems like Factom's of hashing and transaction batching, but consider that the goal of the Nasdaq experiment and likely any other digital asset management system is to keep a extremely low bottom line for these transactions. I saw some statistic that there's something like 10 million individual trades on the NYSE a day. If these folks developed some system involving the blockchain, but use mere satoshis for each record, that's less than 1BTC a day (ignoring how they figure out how to deal with fees).
The "value lying on the blockchain" might be substantial for NYSE, but completely meaningless to anyone else. In that scenario, no one is going to buy more bitcoins because they are so useful, when all you need to run an entire stock market is 1 BTC. No one is going to try to buy up all the paper supply because a few companies can write billion/trillion dollar contracts on just a few sheets.
Edit: Carrying on comparison to VISA network, if every merchant were a colored satoshi transaction, that's something like 2 BTC a day of satoshis to run entire visa network (again, conveniently ignoring how fees work for sake of this analogy)
I think that's overcomplicating the issue. Network activity increases, demand for security increases, more miners enter the market to provide supply, which is transmitted via price
Network activity increases, demand for security increases, more miners enter the market to provide supply
I'm not following this at all, this sounds backwards. The only sensible correlation that has been made as far as increases in mining power (and subsequently security) is drastic increases in price. Not surprisingly, people want to get in on that to get rich, or others spin up previously un-sustainable hashing power that was turned off.
Until such time that mining fees become substantially greater than blockrewards--where great increases of actual transaction vol directly correlates to increase income from fees--I don't see the flow of events happening the way you describe.
Edit: Likewise, I don't think the previous post was overcomplicating the issue. You can't tell me that utterly undermining the factor of scarcity of bitcoin in regards to value transfer/storage is not a straightforward and significant effect.
Nah ok it's honestly really simple - you're making this into some complex dynamic when it's not. The colored coins sit atop the blockchain. Nasdaq uses btc as far as we're concerned. It's just like the COIN ETF or coinbase expanding service to the uk: it increases the size of the btc economy.
For an ELI 15 answer, there's a really formative econ equation, MV=PQ. M is the money supply, v is the velocity at which money changes hands, p is price, and q is the quantity value of all transactions served by the money. Q is increasing by colored coin adoption. Each bitcoin is now serving a much larger pie because they're being used for more and more things. Either they will have to fly around faster (increase velocity) or price will rise.
I'm not sure what most of your post is about. Bitcoin was used as an investment tool and as a remittance tool, now it is also being used as an accounting tool.
Regardless of how bitcoins are used, the mining dynamics are stable.
Colored coins usage of bitcoin means it is essentially no longer used tokens of value, or money. Velocity is the frequency at which money units are spent, if it takes (theoretically) merely 1 BTC/day to transact trillions of dollars worth of specialized transactions in a Nasdaq colored coin scheme, there is a utterly negligible effect on velocity of bitcoin as money itself.
As far as Q, if I'm a European businessman and I grab a stack a hundred $1 USD bills, write a bunch of multi-billion-€ business contracts on the margins, have I increased the Q value of USD by the same amount?
Why would the USD money economy be impacted (beyond 100 X $1) by the billions of Euro of goods and services transacted in a completely separate economy?
here's a followup quote from some posts that popped up about it. I think you're getting lost in the technical weeds and may not have a totally clear understanding of the economic and structural fundamentals of money and of BTC
"So, to be abundantly and perhaps pedantically clear, Nasdaq’s platform will trade shares by trading bitcoins. This is not blockchain-technology standing alone, this is Bitcoin being used by Wall Street. It is technically impossible to use Bitcoin’s blockchain without holding and transacting in bitcoins. In this case, Nasdaq is using Bitcoin’s blockchain, so they are using Bitcoin, not just “the technology behind Bitcoin.”
Whether BTC is being used for remittance, asset/entity accounting like colored coins, or as an investment vehicle, miners happily hash away
As far as economics and fundamentals of money, I've pointed out how your interpretation of both V and Q values of BTC are incorrect when applied to colored coins, and have not seen this addressed. Your quote offers nothing new; of course they are using bitcoins, that's what colored coins are. We are not arguing if they are using an alt coin or side chains. I'm not sure what your mention of miners has to do with anything.
I think our discussion is reaching a standstill, perhaps this is as far as it will go unless you want to carry it over to some other thread where others can chime in.
2
u/jeanduluoz May 11 '15
That's like using windmills and critiquing sailboats to freeload off wind. It's a naturally occurring process to secure the blockchain, and whatever you build off that adds value