Why gold is (not) money.

*** MD: This article is from ZeroHedge.com. There they are clueless about money, but continue to pontificate with articles like this.

At MoneyDelusions (MoneyDelusions.com/wp) we know that gold is not money … and easily prove it. Lets see how they get around our proof.


A couple of months ago, CNBC’s Josh Brown made a blog post saying that “Permabears are Ridiculous People”. Here’s my answer.
Why Gold Is Money: A Periodic Perspective
Profile picture for user Tyler Durden
by Tyler Durden
Fri, 07/05/2019 – 22:25
Authord by Nicholas LePan via Visual Capitalist,

The economist John Maynard Keynes famously called gold a “barbarous relic”, suggesting that its usefulness as money is an artifact of the past. In an era filled with cashless transactions and hundreds of cryptocurrencies, this statement seems truer today than in Keynes’ time.


*** MD: Agreed.

However, gold also possesses elemental properties that has made it an ideal metal for money throughout history.


*** MD: Disagree. It has never been money and never will be money. However, it may be a better money substitute than, say, cement blocks.


Sanat Kumar, a chemical engineer from Columbia University, broke down the periodic table to show why gold has been used as a monetary metal for thousands of years.

The Periodic Table

The periodic table organizes 118 elements in rows by increasing atomic number (periods) and columns (groups) with similar electron configurations.

Just as in today’s animation, let’s apply the process of elimination to the periodic table to see why gold is money:


*** MD: Note, he begins with the premise that money can be stuff (wrong). He then goes through the periodic table to see what the best stuff is for money. With an errant premise, you’re going to come to an errant conclusion. Watch him do it.

Gases and Liquids
Noble gases (such as argon and helium), as well as elements such as hydrogen, nitrogen, oxygen, fluorine and chlorine are gaseous at room temperature and standard pressure. Meanwhile, mercury and bromine are liquids. As a form of money, these are implausible and impractical.

*** MD: So he takes his false premise and hones it down to solids. What if he said music can be found in the periodic table … and the job is to select the best music. See how ridiculous things get when you start with a ridiculous premise?

Lanthanides and Actinides
Next, lanthanides and actinides are both generally elements that can decay and become radioactive. If you were to carry these around in your pocket they could irradiate or poison you.

Alkali and Alkaline-Earth Metals
Alkali and alkaline earth metals are located on the left-hand side of the periodic table, and are highly reactive at standard pressure and room temperature. Some can even burst into flames.

Transition, Post Transition Metals, and Metalloids
There are about 30 elements that are solid, nonflammable, and nontoxic. For an element to be used as money it needs to be rare, but not too rare. Nickel and copper, for example, are found throughout the Earth’s crust in relative abundance.

MD: Ok, here’s another false premise. “Money needs to be rare”. Nonsense. There must perpetually be an equality between the amount of money needed and the amount of money available. No “stuff” will ever meet this requirement. Money logically should be in “free” supply. Something rare will never be in free supply. And we can prove empiracly that he is wrong. In 1963 I was able to trade a silver USA quarter for a gallon of gasoline. In 1964 I was able to trade a composite USA quarter for a gallon of gasoline. Today, I can trade a USA quarter for 1/10th gallon of gas … whether it has silver in it or not. Logical conclusion? The silver (i.e. intrinsic value of the token) has absolutely nothing to do with the trade. Why the factor of 10 difference in trading power of the token? As we know here at MD, it’s because of counterfeiting (i.e. default not mitigated by interest collections of like amount) … predominantly by governments.

Super Rare and Synthetic Elements
Osmium only exists in the Earth’s crust from meteorites. Meanwhile, synthetic elements such as rutherfordium and nihonium must be created in a laboratory.

Once the above elements are eliminated, there are only five precious metals left: platinum, palladium, rhodium, silver and gold. People have used silver as money, but it tarnishes over time. Rhodium and palladium are more recent discoveries, with limited historical uses.


*** MD: They had the specie wars towards the end of the 19th century in the USA. Why? Because, though both gold and silver meet the ridiculous “rare” requirement, the people who had the gold pulled rank on the people who had the silver. They prevailed lawfully (i.e. in an un-principled fashion). Laws only dilute principles as is vividly illustrated in this example.

Platinum and gold are the remaining elements. Platinum’s extremely high melting point would require a furnace of the Gods to melt back in ancient times, making it impractical. This leaves us with gold. It melts at a lower temperature and is malleable, making it easy to work with.
*** MD: Ah … so his wisdom is divine. How interesting!
Gold as Money

Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value.


*** MD: This is the “can’t destroy it” and “precident” argument for gold stuff as money. Again, he started with a false premise and he brings forth false arguments. What’s not to love about the process?

Perhaps modern societies would be well-served by looking at the properties of gold, to see why it has served as money for millennia, especially when someone’s wealth could disappear in a click.


*** MD: The gold bugs would be well-served to look at societies, both modern and otherwise, for the real definition of money. In “no” society can you point to a case where money is created that a ‘trader” is not involved in its creation. Money is obviously and provably “an in-process promise to complete a trade over time and space.” It is always and only created by traders like you and me … making promises and delivering with time payments … like for a house or a car.

FACEBOOK creating its own money.

https://www.zerohedge.com/news/2019-06-21/blain-facebook-last-place-we-should-trust-banking-hub#comment_stream

This article on zerohedge addresses the new overture by Facebook to create a new money (Libre). Knowing what you have learned here about money, it is a fun exercise to take articles like this and blow them full of holes.

Money is an “in-process promise to complete a trade over time and space.” It is always, and only, created by traders (like you and me buying things with time payments). It is always properly destroyed by traders delivering as promised. If the trader defaults or if counterfeit money is found, it is immediately mitigated by interest collections of like amount. The operative relation is INFLATION = DEFAULT – INTEREST = zero.

A proper Medium of Exchange (MOE) process monitors the creation of the money and the delivery on the promise. It guarantees a perpetual perfect balance between supply and demand for money while also guaranteeing perpetual free supply of money.

The money creation process and delivery is never anonymous or done in secret. However, in the interim between creation and delivery, the money circulates in private and anonymous simple barter exchange. In today’s technology (block chains) this can be done with great efficiency and robustness. It can employ the greatest deterrent to cheating … that being transparency.

Now all governments are instituted by money changers. They are designed to protect the money changers “banking” operations. These operations just co-opt the trading process, claiming tribute (INTEREST); manipulating supply and demand to keep traders off balance (the so-called business cycle); and funding governments (traders who never deliver as promised) through INFLATION.

If Google (or better yet Amazon) institutes a proper MOE process, they blow this long running conspiracy out of the water. They return the money process to the traders who created it in the first place.

That ain’t gonna happen. Too bad. If it did happen this planet would be a far more pleasant and safe place to waste about 80 years of your time … the only time you will ever get by the way.

So it goes.

Bernie Sanders, Ocasio-Cortez Propose 15% Cap On Credit Card Rates; Visa, MC Tumble

Bernie Sanders, Ocasio-Cortez Propose 15% Cap On Credit Card Rates; Visa, MC Tumble

https://www.zerohedge.com/news/2019-05-09/bernie-sanders-ocasio-cortez-propose-15-cap-credit-card-rates-visa-mc-tumble

MoneyDelusions: We’re going to get this from people who don’t know what money is … and nobody but the money changers seem to know … and they’re liars.
It is easily proven: Money is “an in-process promise to complete a trade over time and space.” It is always, and only, created by traders like you and me. For example, when we promise to buy a house with 360 monthly payments … or a car with 60 monthly payments … we are making a promise spanning time and space. To do this we create a “money obligation” and get it certified by the process … which then monitors it for performance. In most cases it is just an entry in a couple ledgers. One ledger (the money process’) keeps transparent track of the performance on your promise. The other ledger (yours) keeps track of how much performing you have done and have left to do.

In the mean time, this money you created exchanges as the most common object in every simple barter exchange.

Should you fail to meet your performance promise (i.e. DEFAULT), a proper Medium of Exchange (MOE i.e. money) process immediately recovers your DEFAULT with an INTEREST collection (from other irresponsible traders) of like amount. In this way it protects everyone using money to make trades.

The operative relation is: INFLATION = DEFAULT – INTEREST = zero

‘So INTEREST is absolutely “objective”. It’s not dictated by the likes of Sanders or Cortez … or the money changers … or the governments the money changers institute to protect their scam. INTEREST is guaranteed to be zero for responsible traders (non-DEFAULTERS) and adjusted according to a trader’s propensity to DEFAULT (i.e. irresponsibility). Past irresponsibility can be cleared away by simply making up the DEFAULT.

The money itself has no intrinsic value … so precious metals are not money. The money itself is not created from waste … so BitCoins are not money. Money maintains a perfect perpetual supply/demand balance, thus also ruling out precious metals and so-called crypto.

The obvious indicators that you are immersed in a defective MOE process is concepts like “monetary policy”; “stimulation”; “unemployment”; “inflation targets”; “usurious interest”; etc.

Boomers are facing financial crisis

https://www.zerohedge.com/news/2019-04-29/boomers-are-facing-financial-crisis

“Using faulty assumptions is the lynchpin to the inability to meet future obligations. By over-estimating returns, it has artificially inflated future pension values and reduced the required contribution amounts by individuals and governments paying into the pension system.”

[MD] The quote above is taken from the link to an article at ZeroHedge.com (where everyone seems to be clueless about money … yet claims unending depth of knowledge on that subject.) Look at the quote and if you’re interested follow the link. When you do, keep in mind the obvious facts laid out below. Think!!!

A proper MOE (Medium of Exchange) process makes a huge difference in planning and providing for periods of “failure to be of value”. Life is about being of value and trading that with others. If you’re not of value and you haven’t saved value, you are pretty well doomed in a “real” world. Our current flawed MOE process (1) targets inflation at 2%; (2) delivers inflation at 4%; (3) takes 3/4ths of the fruits of everyone’s labor; and (4) sanctions tithing (to the money-changers) of all trades … it’s their corrupted definition of INTEREST.

In a proper MOE process, traders (and only traders) create money. They do it by making a “promise to complete a trade over time and space”. You do it when you buy a house or car with time payments. That’s what money is … an “in-process promise”. As traders deliver on their promise they return the money they created and it is destroyed. And in the mean time that money exchanges as the most common item in every simple barter exchange. To the extent traders fail (DEFAULT), that failure is immediately mitigated and recovered by an INTEREST collection of like amount. The operative relation is INFLATION = DEFAULT – INTEREST = zero.

With guaranteed perpetual zero INFLATION there is “no time-value of money”. All of finance hocus pocus goes out the window. People can put their surplus value (money) under a rock and it maintains its value perfectly and perpetually. They have no reason to risk it for a return to cover inflation. In fact, the best unit of measure of this value is the HUL … Hour of Unskilled Labor.All of us have been a HUL at one point in our life … usually summer jobs in high school. On average, workers today are able to trade their time at 3 HULs per hour … about $50,000 per year. This was true 50 years ago when I started my career … but then the HUL was valued at $1.50 per hour, not $8.00/hr as it is today. But that HUL 50 years ago traded for the exact same size hole in the ground that it trades for today. It’s the dollar that has changed. The HUL hasn’t changed throughout history and won’t change in the future.

In our confused system, traders think money-changers and the governments they create to protect themselves are the creators of money. They obviously are not. You can point to only one instance where money is created without a trader involved … and that is counterfeiting … and that is far and away done exclusively by the money-changers and their governments.

Throw off that yoke of confusion (educated into traders by the money- changers) and it’s a whole different ball game. Money-changers and governments wilt on the vine. They can’t compete. And the world is a far better place … a far more friendly place for planning for down time under the comfort of guaranteed zero INFLATION.

Think about it.

MMT: Recipe for Revolution

https://www.zerohedge.com/news/2019-04-02/mmt-recipe-revolution

[MD] At MoneyDelusions we are under no delusion about what money is. It is clearly “An in-process promise to complete a trade over time and space”. It is only and always created by traders … not money changers or the governments they institute.

Here we examine articles that display obvious delusions and expose them. ZeroHedge is full of such articles. They recognize that the current money process is flawed, but they don’t know what money is. Therefore, they repeatedly propose equally or even more flawed alternatives. The [MD] Money Delusions annotations reveal and correct their confusion.

From ZeroHedge: MMT: Recipe for Revolution
https://www.zerohedge.com/news/2019-04-02/mmt-recipe-revolution
Authored by Robert Wright via The American Institute for Economic Research,
Historian Stephen Mihm recently argued that based on his reading of the monetary system of colonial Massachusetts, modern monetary theory (MMT), which he cheekily referred to as PMT (Puritan monetary theory), “worked – up to a point.”

[MD] The Federal Reserve system we employ works up to a point. That point is 4% short of optimum … i.e. it yields a 4% annual inflation… on purpose. But worse, it enables an encroaching government that freely counterfeits the money.

One can forgive him for misunderstanding America’s colonial monetary system, which was so much more complex than our current arrangements that scholars are still fighting over some basic details.

[MD] What was so complex about it? Let’s see if he ever tells us. Hint: No he doesn’t.

Clearly, though, America’s colonial monetary experience exposes the fallacy at the heart of MMT (which might be better called postmodern monetary theory): the best monetary policy for the government is not necessarily the best monetary policy for the economy. As Samuel Sewall noted in his diary, “I was at the making of the first Bills of Credit in the year 1690: they were not Made for want of Money, but for want of Money in the Treasury.”

[MD] In a proper MOE (Medium Of Exchange) process, there is no “policy” at all. It is perfectly objective. The article tips its hand by the second paragraph. Samuel Sewall should have noted “I was at the ‘counterfeiting’ of the first Bills of Credit…” He alludes to money being created by something or someone other than government as being the norm. But gets that close and still doesn’t get it … that it is always and only created by traders.

While true that colonial governments controlled the money supply by directly issuing (or lendin) and then retiring pieces of paper, their macroeconomic track record was abysmal, except when they carefully obeyed the market signals created by sterling exchange rates and the price of gold and silver in terms of paper money.

[MD] Note use of the words “lending” and “issuing” but not the word “creating”. In a proper MOE process it is not “lended” nor “issued”. Money, being a promise, is “created” by the promise maker… a trader. It is “destroyed” as he delivers on his promise. If he doesn’t deliver (i.e. he DEFAULTS), his default is immediately mitigated by INTEREST collection of like amount. This guarantees zero inflation by the operative relation: INFLATION = DEFAULT – INTEREST = zero. He recognizes that money is ultimately destroyed (he says “retired”) but then loses it as he addresses the fictional “macroeconomic track record”.

MMT in the colonial period often led to periods of ruinous inflation and, less well-understood, revolution-inducing deflation.

[MD] A proper MOE process “guarantees” perpetual zero inflation.

South Carolina and New England were the poster colonies for inflation, in part because they bore the brunt of colonial wars against their rival Spanish and French empires. Relative peace and following market signals eventually stabilized prices in South Carolina.

[MD] Fails to elaborate by revealing that they were commodity based economies, and thus took the brunt of the “tariff” load that rewarded the money changers and funded the governments they instituted.j.. and put the load on the traders and their customers.

In New England, however, Rhode Island for decades was able to act as a “money pump” that forced inflation on other New England colonies until they abandoned MMT entirely in the early 1750s.

[MD] In a proper MOE process, “traders” are the only money pump. And they won’t pump promises they can’t see clear to delivering.

In New York, New Jersey, and Pennsylvania, by contrast, legislatures followed market signals and were never pressed as hard militarily as the buffers to their north and south were. They therefore did not inflate away the value of their paper moneys by issuing too much.

[MD] “Market signals”? Like wetting the finger and holding it in the air? In a proper MOE process there is only one signal. That is DEFAULTs. And proof that nobody gets it? Show me anywhere a time series of DEFAULTS. You can find innumerable time series for INFLATION and INTEREST. Why do you suppose that is? In a proper MOE process, only the exact correct amount of money is ever “issued”. It’s not subjective at all.

After the French and Indian War, however, the Middle Colonies suffered from a large deflation rooted in wartime excesses, structural economic changes, and new imperial regulations. Real estate prices plummeted and debtors’ prisons overflowed. The direct result was colonial unrest over the Stamp Act, which quickly escalated into a pamphlet war, a trade war, and then a shooting war.

[MD] All due to confusion of what money really is … and who creates it and why.

About the only time the colonial monetary system functioned effectively was when paper money circulated in tandem with full-bodied gold or silver coins (specie). When the government found itself in dire straits, as it did during the American Revolution, the value of paper money vis-a-vis specie slipped.

[MD] And here is the “monetary” nonsense… “in tandem with specie”. The last sentence should read “when the government counterfeited, the value of the money slipped”. This is obviously because they had no mechanism of linking defaults to interest collections for the automatic negative feedback mechanism needed for stability.

This was the market’s way of signaling that too much paper money was in circulation at the current price level and that further emissions would spark inflation. This is precisely what happened. Yes, America eventually won the war, but only after returning to a monetary system anchored by the precious metals.

[MD] The monetary system had nothing to do with winning the war or precious metals. What really happened is that the American trader prevailed in spite of government and money changer bad behavior.

While the prospect of returning to a more solid monetary anchor after the inevitable failure of MMT may intrigue some, the socioeconomic costs of hyperinflation would be enormous. With everyone’s savings destroyed, as in Germany in the 1920s and Venezuela today, the end result is impossible to predict, but undoubtedly thornier than rosier.

[MD] The “end result” is well known. You have a reset; responsible traders get screwed; manipulators and speculators walk; and it starts all over again. Institute a proper MOE process that knows what money really is and the problems are extinguished as long as it is employed.

Trump Is Considering Firing Fed Chair Powell

From ZeroHedge: https://www.zerohedge.com/news/2018-12-22/trump-considering-firing-fed-chair-powell

Tyler Durden [TD]Trump Is Considering Firing Fed Chair Powell

[MD] This article is illustrative of what you see in the behavior of a “flawed money process”. Let’s take it point by point, always keeping in mind that “Money is an in-process promise to complete a trade over time and space.” It is “always and only created by traders making such promises and getting them “certified” (open to transparent scrutiny) by a “real money process” … not the corrupt and contrived process we have all always traded under.

[MD] A proper “real money process” has no chair to fire. It doesn’t even have a central authority requiring a chair.

[TD]if amid the barrage of negative news hitting the market this quarter there has been one outstanding item which would have sent it sharply (even) lower, that would be a flashing red headline – or a tweet from the president – announcing that Trump has fired Fed Chair Jerome Powell.

[MD] A real money process can’t be manipulated. Thus, it wouldn’t even notice such a tweet, let alone change behavior in the face of it.

[TD] And while to many such an act would seem unthinkable, even from someone as unorthodox and unpredictable as Trump, it now appears that’s precisely the outcome the market will have to worry about next as Bloomberg reports that the president has discussed firing Federal Reserve Chairman Jerome Powell “as his frustration with the central bank chief intensified following this week’s interest-rate increase and months of stock-market losses”, citing four people familiar with the matter.

[MD] This is likely all just theater setting up the trip-wire in the money changers’ farming operation … i.e. the so-called business cycle.

[TD] While advisors in Trump’s inner circle have rightfully warned him that firing Powell would be a “disastrous move” for stock prices, and instead are “hoping that the president’s latest bout of anger will dissipate over the holidays”, the sources reveal that the president – who is facing the imminent departure of two of his closest advisors, chief of staff Kelly and secretary of defense Mattis – has talked privately about firing Powell many times in the past few days.

[MD] Think about it. In a real money process such manipulation would be impossible. Yet with our corrupt process, it is tactics.

[TD] Still, even Trump likely realizes that any attempt to push out Powell would have a devastating effect on the one barometer of his presidency he holds dearest to his heart – the stock market – and not only that, but terminating the Fed chair would likely send a shockwave across global financial markets, resulting in a collapse of risk asset prices and undermining investor confidence in the central bank’s ability to guide the economy without political interference. Worse, it would come at the worst possible time, just as markets are in freefall in recent weeks, with the Nasdaq just entering a bear market and the S&P less than 3% away from being 20% down from its all time highs.

[MD] A real money process has no connection to markets whatever (and vice versa). Notice how a real money process makes all these very serious problems simply vanish!

[TD] It is likely that any move against Powell would be met by considerable legalistic resistance as it is unclear how much legal authority the president has to fire Powell, as the Federal Reserve Act says governors may be “removed for cause by the President” and since the chairman is also a governor, that umbrella definition also extends to him. Even so, the rules around firing the leader are legally ambiguous according to Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence.

[MD] Ah … the law. That’s what they introduce to dilute principles. With 40,000 new laws every year, the law is beyond total idiocy. Return to principles. The golden rule (principle) is usually all that’s needed. In this case they need new law … because what they have is badly written law. But observe, no new “principle” is needed. Why dilute principle with laws when it has such negative impact on principles it attempts to parse? And “Fed Independence?” Since a real money process is natively totally independent and immune to manipulation, independence is no issue.

[TD] Additionally, while the Fed is independent only on paper, and history is replete with examples of presidents influencing monetary policy in the past, most notably when LBJ literally attacked then Fed chairman William McChesney Martin, there has yet to be an instance of an acting Fed chair being fired by the president.

[MD] “independent only on paper”? So George Bush tripped over a correct observation: “the Constitution is just a piece of paper.” What a great testament that is to any legal system… not!

[TD] Such a move would represent an unprecedented challenge to the Fed’s independence. Though he was nominated by the president, Powell was thought to be insulated from Trump’s dissatisfaction by a tradition of respect for the independence of the central bank.

[MD] All laws are unprecedented … until they become precedents … which happens virtually immediately. Look at West Law for any statute. They are immediately ruled on all sides of the issues they claim to address. Ridiculous! And “tradition of respect for the independence of the central bank.” That’s respect for the Rothschild family. I have no such respect.

[TD] That separation of politics from monetary policy is supposed to instill confidence that Fed officials will do what’s right for the economy over the long term rather than bend to the short-term whims of a politician.

[MD] Don’t you see? “Monetary policy”? A proper real money process has “no policy knobs”. It’s just simple arithmetic. Traders are free to create money any time they see fit … which means any time they can see clear to deliver on a promise over time and space. If they fail, the immediate and natural negative feedback mechanism of meeting DEFAULTs with INTEREST collections of like amount guarantees stability and ZERO INFLATION. The manipulators can’t screw with the knobs when there are no knobs to screw with.

[TD] The reason behind Trump’s ire is simple: he sees the Fed’s rate hikes as the cause behind the market’s recent slump, and after explicitly “urging” the Fed not to hike rates last week, saying Powell was “being too aggressive, far too aggressive, actually far too aggressive” and telling Reuters the central bank “would be foolish” to proceed with a rate hike, he may well see Powell’s “not so dovish” rate hike as an open act of defiance – usually a career-ending move for anyone who ultimately is accountable to Trump.

[MD] Rate hikes always signal the beginning of the money changers’ harvest season. Traders (with in-process money creating promises) get thrown off balance and the money changers take their stuff for pennies on the dollar. It’s how the farming operation works. They call it the business cycle. Greenspan was the best flunky the traders have ever had. He didn’t change rates. What’s worse than non-zero rates is rates that are not predictable over the time span of a trader’s promise. It’s a built in rug puller!

[TD] The irony is that just over two years ago, Trump attacked Powell’s predecessor, Janet Yellen, for creating a stock market bubble with her dovish policies: in Sept 2016, Trump accused the the Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy.”

[MD]”artificially low” rates? Zero is the proper rate. Anything else is artificially high! A real money process cares nothing about the economy. It’s just a mechanism for traders to span time and space with their trades. It’s more efficient than a forced double trade … e.g. trade what you have for gold; carry gold to another place and time; trade gold for what you wanted in the first place. And it’s not the economy that is false. It’s the money that underlies all trades that is being jerked around and is therefore false.

[TD] Two years later, when the same “false economy” belongs to Trump, the president has changed his tune, and his ideal Fed chair would be none other than Janet Yellen (whom Trump refused to reappoint for being “too short.”)

[MD] Well duh! That’s what money changers, governments they institute, and puppets they employ do … that’s their job … that’s their skill. Those with scruples need not apply.

[TD]The even bigger irony is that Powell finds himself in a lose-lose situation: on one hand he can merely perpetuate the unsustainable asset bubble created by his predecessors Greenspan, Bernanke and Yellen whose inevitable bursting would have devastating consequences on the financial system (which, however, he can leave to his successor as both Bernanke and Yellen did), or he can bit the bullet and be the one responsible for at least attempting the renormalization of monetary policies, an even which inevitably lead to far greater pain for those who invested in said bubble.

[MD] “Unsustainable asset bubble”? This so-called bubble is sustainable as long as traders can deliver on their money creating promises. That’s what determines sustainability. And jerking them around makes that impossible for them. So given the chance they just roll the dice. What do they have to lose? Like governments in this environment: they just reset and start over. Some winners, lots of losers, and the clown is once again high, dry, and looking for a ball player.

[TD] Furthermore, when Trump signed up for the presidency he should have picked one of the two options: the fact that he did not and two years later decided to continue on the autopilot set previously by the Fed is precisely why it is Trump who will now have no choice but to be the fall guy for the mess prior administrations, and previous Fed chairs created.

[MD] Just think about the worst thing that could happen to the money changers, the governments they institute, and their operatives like Trump. That is traders telling them all to “go pound sand”. That they’re instituting a “real” money process to compete with the one they have been forced to use (due to no other alternative). Poof! It all falls down and the traders are jubilant.

[TD] Trump’s public and private complaints about members of his administration have often been a first step toward their departures — including former Attorney General Jeff Sessions, his first Secretary of State Rex Tillerson and outgoing chief of staff John Kelly.

[MD] Pretend you were elected president. Look at all the positions you have to fill immediately. You can’t. So you rely on advisors (almost exclusively tribe members). And then slowly you see where they’re eating you alive and you one-by-one replace them with someone you think can do the job. What’s really wrong with all of this is that people first think that government is the solution to everything … when it fact is the solution to nothing.

[TD] And while it’s not just Powell who is on the chopping block as some of Trump’s recent anger has also been directed at Treasury Secretary Steven Mnuchin for his part in persuading the president to select Powell to lead the Fed, the fact that Powell’s tenure is now in jeopardy and that the Fed Chair could be fired after even a mere sharp drop in the market – with an S&P500 bear market looming as a likely psychological catalyst – will lead to a self-fulfilling prophecy as traders will now sell merely on the fear of, and frontrunning the news that Trump has fired Powell precisely as a result of such selling.
Business Finance

[MD] Write your own comment. You’ve been well briefed.

The Fraud of Money as Debt

[MD] The provocative (and ill-informed) title of this article begs some annotation. At Money Delusions, it is obvious and provable to us that  not only is money debt, it always has been and it always will be. Money is a promise to complete a trade over time and space … and a promise is obviously a debt.

So let’s see what this moron Shorty Dawkins has to say on the subject.

When the Federal Reserve System was established in 1913, it transferred the power of the US Treasury vis-a-vis the creation of money, into the hands of the Federal Reserve. The Fed creates money out of thin air and loans it to the US Treasury in the form of interest bearing debt instruments. Thus, the money of the US is based on debt. With over $20 trillion in Federal debt, the interest paid on that debt in fiscal year 2018 is estimated to be $310 billion. That’s no small amount!

[MD] What was actually transferred was the propensity to counterfeit.  Neither the Treasury nor the Fed create money. Only traders create money. You can’t give a single example where money is created that a trader is not involved and did not initiate it … that is, unless it is created by counterfeiting. And regarding the interest paid: If the process is a “real” process, the interest paid is exactly equal to the defaults experienced. Why don’t we ever see these people quoting defaults experienced?

What if money were not created out of debt? Is that possible? Sure. If the powers of the Federal Reserve were taken back by the US Treasury, it would be possible to spend money into existence, rather than into existence as debt.

[MD] Can he say anything more stupid? “Spend money into existence?” And if not into debt, into “existence” as what? Kind of left something out didn’t you Shorty?

The Federal budget for 2018 is: Total expenditures‎: ‎$4.094 trillion. The total estimated revenue‎: ‎$3.654 trillion. This leaves a projected deficit‎ of ‎$440 billion. Since the deficit must, under the current Federal Reserve System, be borrowed from them, at interest. Thus the deficit grows and next year’s interest payment will increase.

[MD] If a “real” money process were in existence, the government creating this debt would only do it once … and then be excluded from the marketplace as a trader. Deadbeat traders are automatically excluded when their interest load (due to their propensity to default) comes to equal the trading promises they seek to have certified.

However, if the US Treasury were to create the money, it could simply spend it into existence to cover the deficit. No interest need be paid! As the previous debt interests of the Federal Reserve came due, they could be paid off by money created by the US Treasury in the same manner. Eventually, the entire debt could be paid off in this manner.

[MD] “No interest need be paid” is true only for responsible traders. Governments are not responsible traders. In fact they never deliver. They just roll over their trading promises … and that is default … and purposeful default is counterfeiting! I’ll bet Shorty has a perpetual motion machine he would like to show us as well.

Beware! This is not free money!

[MD] In a “real” money process, money is “always in free supply”. That’s not to say it is “free money”. Rather, it says money “never” restricts the trading intentions of responsible traders who create it. They “always” deliver on their promises.

It may sound like free money, but it isn’t. As more money is spent into creation, inflation takes its toll. The true definition of inflation is the increase of the money supply above the value of goods and services produced. When the money supply increases faster than the value of production, there is more money chasing fewer goods and prices rise, as the value of the money decreases. If too many dollars are created, the value of the dollar decreases. Under the Federal Reserve System the value of the dollar has decreased by 98%, meaning that something bought in 1913 for $1 would now cost $98, disregarding any increases in productivity of a particular product.

[MD] In a “real” money process, inflation takes no toll … it  is guaranteed to be perpetually zero. The true definition of inflation is the amount that supply of the money itself exceeds the demand for the money … and we know in a “real” money process, supply and demand for the money itself is perpetually in perfect balance.

The fraud of the Federal Reserve System is that it was sold as a means of preserving the value of the dollar and that it would prevent crashes in the economy. Both of these selling points have not proven accurate. There have been multiple crashes of the economy since the Fed was established, including the Great Depression.

Ideally, the US dollar should be backed by gold and silver, or some tangible item, but that discussion is for later. First things first. We must End the Fed.

[MD] Gold and silver and any other commodity cannot maintain perpetual perfect balance of supply and demand for themselves. So obviously they are useless as money. Thus, your later discussion can be suspended. You don’t know what your talking about Shorty … and that is easy to prove.

The Federal Reserve has never been good for the public. It has only been good for the big banks. They love it, because it makes them money. Who pays? We do. We are slaves to debt. Isn’t it time to eliminate the Fed and turn its powers over to the US Treasury, where it belongs?

[MD] Even the blind squirrel occasionally finds an acorn. Congratulations Shorty. Governments are created by the money changers … always have been, always will be … unless we can effect iterative secession and have it our way in our own space.

[MD] It brought some amusement. It was easy fodder for illustrating how stupid the gold bugs are.

Shorty Dawkins

I am a writer of novels, currently living in the woods of Montana. My 5 novels can be seen here: https://oathkeepers.org/my-5-books-shorty-dawkins/

[MD] Frightening. Hopefully that doesn’t lead to the natural conclusion that there are people reading your novels. Stupidity is already widespread enough don’t you think Shorty?

How Business Owners Take Cues From Interest Rates

https://www.zerohedge.com/news/2018-06-01/how-business-owners-take-cues-interest-rates

Authored by Frank Shostak via The Mises Institute,

[MD] The Mises Institute is professionally and universally clueless about money. But within that community, Frank Shostak holds the record for irrational thought. In the olden days his clarion call was “money pumping” … as if money could be pumped. Let’s see what he’s up to now.

According to the Austrian Business Cycle Theory (ABCT) the artificial lowering of interest rates by the central bank leads to a misallocation of resources because businesses undertake various capital projects that prior to the lowering of interest rates weren’t considered as viable. This misallocation of resources is commonly described as an economic boom.

[MD] According to the theory of park swings, if you push on a swing, it will oscillate. What in the world does Shostak think the business cycle is but the money changers farming operation? We here at MD know that a “real” money process does not allow any such perturbations … thus this is a non-sequitur. Now let’s watch him sequitur.

As a rule businessmen discover their error once the central bank – that was instrumental in the artificial lowering of interest rates – reverses its stance, which in turn brings to a halt capital expansion and an ensuing economic bust. From the ABCT one can infer that the artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.

[MD] As we love to do here, we point out the nonsense that happens or is imagined to happen without a real money process in operation. What Frank writes about here “can not happen” with a real money process. INTEREST collections are in a bear hug with DEFAULTs experienced. Neither INTEREST nor DEFAULTs are a knob anyone can turn.

Critics of the ABCT maintain that there is no reason why businessmen should fall prey again and again to an artificial lowering of interest rates. Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates. Correct expectations will undo or neutralize the whole process of the boom-bust cycle that is set in motion by the artificial lowering of interest rates. Hence, it is held, the ABCT is not a serious contender in the explanation of modern business cycle phenomena.

[MD] What Frank writes here would be true … if we had a real money process. But we don’t. We have a manipulated money process. What could be more obvious when we see them repeatedly use the term “monetary policy”. A real money process has no such capability … and never will. But the so-called “business cycle” which requires no theoretical examination … is a real tool of manipulation. And it does what it is intended to do … to put traders off balance in a “predictable way” … predictable to those turning the knobs … not to the traders suffering the manipulations.

According to a prominent critic of the ABCT, Gordon Tullock,

One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.1

[MD] Consider an inventory control analogy. If you know exactly what demand will be and have total control of supply, you can have a part arrive at the exact moment a customer comes in to buy it. But if either of those expectations cannot be expected, you must lay in “safety stock” (i.e. surplus for eventualities) to keep service percentage high. Now if someone is artificially manipulating demand or supply for their own benefit, you have two things: (1) A cheater benefiting from his behavior; and (2) A non-optimal process that must pay the cost of defending against the cheater. There’s enough of that going on in business without having it being done covertly and overtly to the money itself … especially in the name of “price stability” and “full employment”.

Even Mises himself had conceded that it is possible that some time in the future businessmen will stop responding to loose monetary policy thereby preventing the setting in motion of the boom-bust cycle.

[MD] No they won’t. In the inventory control example, the businessman statistically observed the supply and demand patterns. When they are noisy and unpredictably cyclical, he must lay in more safety stock. When they’re highly predictable, he can trim his safety stock dramatically. Let’s see what the “Mises” genius himself has to say on the subject.

In his reply to  Lachmann he wrote,

It may be that businessmen will in the future react to credit expansion in another manner than they did in the past. It may be that they will avoid using for an expansion of their operations the easy money available, because they will keep in mind the inevitable end of the boom. Some signs forebode such a change. But it is too early to make a positive statement.2

[MD] Idiot! The businessman has no choice. He must serve his customers in the face of any eventuality. Picture him going to his bank and saying he’s not going to pay his mortgage this month because of “tightening” but fear not, next month there will be “loosening” and I will make both payments then.

Do Expectations Matter?

Now, a businessman has to cater for consumers future requirements if he wants to succeed in his business.

So whenever he observes a lowering in interest rates he knows that this most likely will provide a boost to the demand for various goods and services in the months ahead. Hence, if he wants to make a profit he would have to make the necessary arrangements to meet the future demand.

[MD] What is Shostak arguing for? He hasn’t made a demand to institute a “real” money process to make this manipulation impossible.

For instance, if a builder refuses to act on the likely increase in the demand for houses because he believes that this is on account of the loose monetary policy of the central bank and cannot be sustainable, then he will be out of business very quickly. To be in the building business means that he must be in tune with the demand for housing.

[MD] Actually, he’s better to be in tune with the money changer’s farming operation. That’s the tune that is being played.

Likewise, any other businessman in a given field will have to respond to the likely changes in demand in the area of his involvement if he wants to stay in business.

If a businessman has decided to be in a given business this means that the businessman is likely to cater for changes in the demand in this particular business irrespective of the underlying causes behind changes in demand. Failing to do so will put him out of business very quickly.

[MD] But do you see these businessmen or Shostak demanding the institution of a real money process? I wonder if Shostak will demand anything to deal with this manipulation problem.

Hence, regardless of expectations once the central bank tightens its stance most businessmen will “get caught”. A tighter stance will undermine demand for goods and services and this will put pressure on various business activities that sprang up whilst the interest rate stance was loose. An economic bust emerges.

Furthermore, even if businessmen have correctly anticipated the interest rate stance of the central bank and the subsequent changes in the growth rate of money supply, because of the variable time lag from money changes to its effect on economic activity it will be impossible to establish the accurate timing of the boom-bust cycle.

[MD] Frank. Read some history! Thomas Jefferson wrote in 1802 “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” And even if he didn’t write it, it’s absolutely true and obvious.

Due to the time lag, prior changes in money supply could continue to dominate the economic scene for an extended period. (Given that the time lag is variable, it is not possible to ascertain when a given change in the money supply growth rate is going to start to dominate the economic scene and when the effect of past changes in money supply is going to vanish).

We can conclude that correct expectations cannot prevent boom-bust cycles once the central bank has eased its interest rate stance.

The only way to stop the menace of boom-bust cycles is for the central bank to stop the tampering with financial markets.

[MD] And the only way to get them to do that … since they’re doing it “on purpose for their farming operation”  … is to INSTITUTE A REAL MONEY PROCESS TO COMPETE WITH THEM. Asking them kindly “please don’t do that” isn’t going to work.

About Trust and Agents Incentives (hadriencroubois.com)

MD: Reply to Hadrien Croubois article “About Trust and Agents Incentives”
HC: Hadrien Croubois
https://hadriencroubois.com
Oct 11, 2017
PoCo Series #1 — About Trust and Agents Incentives
Who am I?
My name is Hadrien Croubois and I am a Ph.D. student at ENS de Lyon. My research as a Ph.D. student focuses on middleware design for the management of shared Cloud-based scientific-computing platforms; and more particularly how to optimise them for workflow execution.

MD: Why in the world should “cloud-based” systems even exist?

HC: However, my interests are much broader and include HPC, physics, and biology large-scale simulations, image rendering, machine learning and of course cryptography and blockchain technologies.

Since September 2017 I am also a scientific consultant for iExec. I met Gilles at ENS de Lyon and it was the perfect opportunity for me to experience working in a team designing innovative solutions.

My role as a member of this team is to study existing work from the research community and provide insight into the design of a proof-of-contribution protocol for iExec. This article is by no means a solution to this complex issue. It is rather an overview of our understanding and ideas regarding this issue.
Why iExec needs Proof-of-Contribution?

The iExec platform provides a network where application provider, workers, and users can gather and work together. Trust between these agents is to be achieved through the use of blockchain technology (Nakamoto consensus) and cryptography.

MD: COIK (Clear Only If Known). The key here is how Nakamoto establishes consensus. You really can’t know from reading the white paper that got all this started. In short, it comes down to “democracy” … i.e majority rules. In this case, over 1/2 the population. Anyone who has looked into democracy knows it cannot work with more than 50 parties involved.

HC: Our infrastructure is divided into 3 agents:

Application providers: They provide applications, which are seen as services.

MD: How do “application providers” originate?

HC: These applications can be called by the users with specific parameters. Application providers are paid for each execution of their application.

MD: Who pays the application providers. Almost the entire Android community of applications are provided at no cost whatever.

HC: The applications rely on the iExec smart contract to manage communications between the ethereum blockchain and the off-chain computing platform.

MD: COIK … what is a “smart” contract? Is it transparent? Who can see it? Who cannot?

HC: Users: They are the clients of the infrastructure. They pay to obtains results computed by the application.

MD: Seems like a non-competitive model. Take the internet itself. It is an infrastructure with no clients and no providers … or better yet, where everyone is both a client and provider. What problem is being solved here?

HC: Workers: They are computing entities that provide computing resources. These resources are used for the off-chain execution of the applications. Workers are paid based on their contribution to the computation of the applications.

MD: Again COIK. Why would workers be just “computing resources?” Seems like (reading way between the lines here) anyone being a source, or an opposition to a source, of information is a worker.

HC: The goal of the Proof-of-Contribution protocol is to achieve trust between the different agents, and more particularly between users and workers, in order for the users to be able to rely on the results computed by an external actor whose incentive is, at best, based on income.

MD: I once sat in a meeting where they made the rule that you had to say 5 nice things before you could say 1 thing critical. Want to guess how that meeting went?

HC: In particular, we want to achieve protection against Byzantine workers (who could provide bad results to penalize users) and users (who could argue against legitimate work performed by legitimate workers).

MD: Right. In sports we call those referees. But in real sports, the contestants referee themselves. We lose it when we establish rules and laws. What we really have is principles … and very few of them, the “golden principle” being paramount. Rules and laws just dilute principles. They essentially say, by defining this particular instance of the application of the principle, we declare all other applications unlawful … and thus have to define all particular instances in law after that … and thus totally lose sight of the principle. It’s called “gaming the system”.

HC: First approach: the result contribution validation scheme

Validation of the work performed by the worker can be achieved in two different ways:

Majority voting on the (hash of the) result.

MD: Like the long list of scientists who “vote” that global warming is real … when almost none of them are meteorologists or have the slightest clue of things physical?

HC: This helps mitigate against Byzantine workers but at the price of computing power overhead. Validating the result for a specific execution requires multiple workers to compute it, thus multiplying the execution cost by a factor m. In desktop grid or volunteer computing platforms (BOINC), this factor m can range from 3 all the way to 20~50. With more replication come more confidence in the result, but that also means that the reward is shared among more worker, reducing the incentive to the workers to contribute.

MD: Have you thought of a hierarchical structure to get around the fact that democracy doesn’t work with more than 50 people involved? The solution is to have each group of 50 solving the problems they can solve. They select a representative for the next lower group of 50 … and so on until you get to the final group of 50. Nothing should make it down to the bottom group of 50 and if it does, that group should come to a unanimous conclusion (establishing the principle) … not a majority conclusion. With this structure you can “democratically” represent the entire population on earth in just 6 layers of 50 person groups.

HC: Relying on a court system to solve conflicts between users and workers (TrueBit). This solution is however complicated both in terms of efforts from the users, who have to check every single result and from the platform which has to implement complex arbitration mechanisms. While this method does not require the work to be executed many times, the arbitration mechanism might call for heavy instrumentation of the execution in order for the worker to provide elements of proof if their execution is challenged.

MD: Better to make users and workers show where what they are doing “is” principled when challenged. Then let a small democratic group judge their “principled” defense … i.e. would they really want to be treated the way they are treating?

HC: A significant contribution was published by Luis Sarmenta (2002. Sabotage-tolerance mechanisms for volunteer computing systems. Future Generation Computer Systems, 18(4), 561–572). The proposed approach is based on majority voting but rather than relying on a fixed m factor, it dynamically “decides” how many contributions are necessary to achieve consensus (within a specific confidence level). The replication level is therefore dynamic and automatically adapted, during execution, by the scheduler. This helps to achieve fast consensus when possible and to solve any conflicts.

MD: Did it ever occur to you that if we had computers before we had internal combustion engines and the subsequent invention of governors that we couldn’t even mow our lawns today? The mower would become too complicated to use … and enormously unreliable … in spite of the enormous computing power that is thrown at the problem.

HC: Fig 3 from Sarmenta’s paper, describing how workers contribute to different jobs by voting on the result.

This approach relies on worker reputation to limit the potential impact of Byzantine agents and to achieve consensus.

MD: Did you read the global warming emails. You see how workers reputations are easily co-opted … how the best of systems are easily gamed by gangsters.

HC: Yet this approach is designed for desktop grid infrastructures, where money is out of the equation. Using the financial incentive of the different actors, we can modify and improve their approach to better fit our context:

Each worker retribution for computing a task can be indexed on their impact on the consensus for this task. In addition, having a good reputation helps to achieve fast consensus with fewer agents (meaning a bigger share for each agent). This gives the workers a financial incentive to act well and have their reputation go up.

MD: Do you think Digital Research would have won out over the deficient Microsoft if your rules were in place? Do you think Borland would still exist?

HC: Workers are required to commit a security deposit (stake) which is seized in case of bad behavior. This gives the worker an additional financial incentive to behave correctly.

MD: And the process for “seizure” is???

HC: The main drawback of Sarmenta’s article is the assumption that Byzantine workers are not working together and do not coordinate their attacks. While this assumption does not hold in our context, we believe we can still achieve it by selecting workers randomly among the worker pool. Therefore Byzantine workers controlled by a single entity should statistically be dispatched on many different tasks and should therefore not be able to overtake the vote for a specific task.

MD: I created a computer language (see WithGLEE.com). As I was creating it I was basking in the environment where “I” made all the decisions. I had no inertia to keep me from abandoning a bad tact, reversing it, and taking another tact. In the end I was delighted with the result. But all the time, the camel that is the collection of internet process (e.g. Java, JavaScript, Python, … etc.) won out, because though they were all deficient as horses, they had a constituency as a camel (a horse designed by committee). Python is the most obvious. You don’t use visual structure as a programming element.

HC: Adapting Sarmenta’s result certification mechanism to off-chain execution

While Sarmenta’s work is interesting, a few modifications are required to work in our context. In this section, we discuss preliminary ideas on how we believe this work could be adapted to iExec needs. Our idea is to orchestrate the exchanges between the users and the workers as described below.

MD: You better find a different word than “orchestrate” if you want to establish trust. Global warming is a perfect example of “orchestration”. Climate change is a perfect example of “orchestration soiling its own nest and having to change its feathers”.

HC: In addition to the users and workers, we have an additional component: the scheduler. Schedulers manage pools of worker and act as middlemen between the blockchain (listening to the iExec smart-contract) and the workers. A scheduler can, in fact, be composed of multiple programs which complementary features but we will here consider it as a single “virtual” entity.

MD: Right. Always leave openings for large numbers of regulators and bureaucrats. Did it ever occur to you that a full 3/4ths of the fruits of your labor go to government? Really bright people, when given the task of maintaining a broom in upright position, would create an enormously complicated platform using all kinds of sensors and PID controllers. Any maid would just suspend it from the top and rely on it’s naturally stable tendencies.

HC: One should notice that our discussion here does not deal with the scheduling algorithm itself. In a scheduler, the scheduling algorithm handles the logic responsible for the placement of jobs and handles execution errors. The scheduler is free to use any scheduling algorithm it desires as long as it can deal with step 3 and 5 of the following protocol.

MD: Ah yes … and to change it dynamically and often to suit conflicting whims. Ask Facebook how that’s working as they bend to demands to filter out fake news … when all they really are is a medium of communication and the content should be none of their business or responsibility. The gangsters are trying to do the same thing to the internet. Their ox is being gored badly … and what could be better than to gore their ox out of existence?

HC: Workers register themselves to a scheduler.

MD: I’m not going to comment further. This is a perfect example of the condition: “losing sight of our objective we redouble our efforts”. It’s also an example of “if I am a hammer, everything looks like a nail”. It’s also an example of “the first and best solution to every issue is government and regulation”.
Read on at your own risk!

HC: Users submit tasks to scheduler managing the work pool they chose.
Workers ask the scheduler for work to execute. The scheduler gives them tasks to be executed. Note: If we are coming from step 5 we should not ask a worker to compute a task it has already contributed to.
The worker computes the result (A) of the task. In order for this result to be validated, the platform has to achieve a consensus on this result. This is achieved through Sarmenta’s voting. In order to contribute to this consensus, the worker commits the result to the scheduler:
a. Generate and memorize (but not publish) a random value r (private disposable personal identifier).
b. Submit a transaction (contribution) with :
i. hash(A) → used to vote on an answer;
ii. hash(r) → used as a public disposable personal identifier;
iii. hash(A+r) → used as proof of knowledge of A;
iv. commitment fund (with a minimum value) → incentive to only commit good results (see later). A higher commitment fund increases the Cr (cf Sarmenta, L.F.) and thus increases the potential returns (see later);
v. A tamper-proof timestamp → Used by the worker to prove its contribution and claim its reward.
With each new vote (contribution) by the workers, the scheduler checks if an answer (hash(A)) achieves the expected likelihood threshold using Sarmenta’s voting.
a. If we do not have a consensus, the scheduler will ask more nodes to compute the same task (dynamic replication) and contribute to the consensus → go back to 3;
b. If we have a consensus continue to 6.
An answer has been selected. The scheduler can now:
a. Publish the elected hash(A). At this point no new contribution is possible.
b. Ask the winning workers for A and r. Having a value of r which matched a correct transaction dating from before the election result is a proof of contribution. At this point A can be published by any worker. The value for r shows that a worker knew the answer they voted for before the results of the election. That way they cannot claim a contribution by just submitting a transaction with the hash(A) published by other voters.
c. Check the correctness of each worker contribution.
d. Put the deposit fund (stake) of all workers who voted for another answer in the reward kitty.
e. Distribute the reward kitty (users payment + deposit fund from wrong workers) among the winning workers proportionally to their contribution (Cr value computed from the reputation and the funds committed to the vote). The scheduler may take a commission for its work.
f. Increase the reputation of winners, decrease (reset) the reputation of losers.
g. Send the, now validated, answer to the user.

Equations used by Sarmenta to compute the credibility of a result from the credibility of the voters.
Trust level, worker pools, and billing policy

Sarmenta’s voting helps to achieve the given level of confidence using worker reputation and dynamic replication. This confidence level is defined by a value ε which describes the acceptable error margin. Results should only be returned if a confidence level higher than 1-ε is achieved. This value is a balance between cost and trust. A lower ε means more confidence in the result, but also requires more reputation/contributions to achieve consensus, and therefore more work to be performed. While this value could be defined by the user for each task, they might not know how to set it and it might cause billing issues.

We believe this value should be fixed for a worker pool. Therefore the billing policy could be defined for a worker pool depending on the performance of the workers (speed) and the ε value used by this worker pool scheduler (level of confidence). The user would then be free to choose between worker pools. Some worker pools might only contain large nodes running technology like Intel SGX to achieve fast result with low replication. Other worker pools could contain (slower) desktop computers and have their consensus settings adapted to this context.

With consensus managed by the scheduler and financial opportunities for late voters provided by the security deposit of opposing voters, the users should not worry about anything. Users pay for a task to be executed on a pool of worker, regardless of the number of workers that end up involved in the consensus. If consensus is fast and easy the payment of the user is enough to retribute the few workers who took part in the vote. If the consensus is hard and requires a lot of contributions, the workers are retributed using the security deposit of losing voters. This gives the workers a financial incentive to contribute to a consensus with many voters without requiring the user to pay more.

In the current version of this work, the protocol is such as the user has no part in the consensus. Payments are done when submitting the task and no stake is required. Results are public and guaranteed by the consensus. Users can therefore not discuss a result.
Assumptions and agents incentives

We believe the protocol described previously to be secure providing a few assumptions are met :

The first strong assumption is the ability of workers to publish their transaction (contribution) in a public manner. The medium used to publish those contributions has to provide a secure way for anyone to verify that contribution have been done prior to the election results. This can simply be achieved using current blockchain technology such as ethereum smart contracts. Still, that should not prevent us from considering other approaches like DHT (distributed hash tables).
The second assumption is that the voting algorithm will, in fact, give good results. This assumption is equivalent to saying that 51% of the reputation (of a worker pool) is not controlled by a single malicious user. We believe this is not a flaw of the protocol for two reasons:
a. All voting based systems, including the Nakamoto protocol, are subject to such attacks. This flaw is not in the design of the protocol.
b. There are strong (financial) penalties for bad actions on the platform and spot checking can be enforced to give more power to the scheduler and help them deal with bad actors. It is a matter of balance between the scheduler and the workers to enable spot-checking or not. We can imagine multiple worker pools, run by different independent schedulers which specific policy. Ultimately those pools could compete to attract the users (with elements such as the achieved quality of results and pricing).

Finally, we believe that both scheduler and workers will be inclined to work correctly in order to provide a good service to the users and benefit from the iExec ecosystem. Having 51% of the reputation controlled by actors wanting to do things right and benefit from it should not be an issue.

Incentives for the different agents are as follows

Users: They are requesting work to be done, and money in a healthy system would only come from them. User incentive to use the platform is to obtain good results for a low price. This will lead them to create a competition between worker pools. Their ability to chose or boycott worker pools create an incentive for workers and schedulers to work together in order to achieve the best service possible and attract users.
Workers: Their incentive is to gain as much money as possible for their work. To maximize their gain, they should maximize their contribution. Contribution can be obtained by having a good history (reputation) and/or by committing more funds when submitting a contribution. Giving bad results would make them lose both funds and reputation, which they should avoid at all cost.
a. New actors, with no history, start with a low reputation, meaning they will weigh less in the vote. Their chance to overtake a vote against trusted workers is small, and it would be a waste of fund from an attacker.
b. An old actor with a good history can win a lot by using their reputation to perform computations. As they are trusted, fewer contributions are needed to settle a vote and the reward kitty is therefore shared among fewer agents. On the other hand, by submitting bad results they risk losing all their reputation (and the money they committed with the contribution). Reputation does not guarantee them to win votes and spot-checking can help to detect bad contributors with high reputation.
Scheduler: Their incentive is to gain money by helping coordinate the platform. They make money through:
a. Commissions on all transactions;
b. Unclaimed rewards: if a worker doesn’t claim the reward after a contribution the corresponding fund would be kept by the scheduler.

In order to make money, the scheduler requires users to submit jobs and workers to register in its worker pool. This gives him the incentive to manage the worker pool correctly and grow strong.
Public schedulers for a fully decentralized platform

One of the key elements that could ultimately help a scheduler getting bigger and attracting more workers and users is to be open about its decisions. We believe that a scheduler could rely on a blockchain mechanism to orchestrate the protocol described above. In fact, this protocol is designed so that every message can, and should, be public. Security is achieved using cryptography. In particular, the use of a blockchain solves the issue of proving a contribution existence (presence on the blockchain) and validity (precedence to the vote results).

The main issue that still has to be solved is the worker designations. At step 3, the scheduler submits the task to specific workers. This is important for two reasons:

We don’t want workers to race. This would favor fast nodes and one could attack the voting system by coordinating many fast nodes to take over the vote before other nodes can contribute.

We don’t want malicious nodes to take over some votes. By randomly assigning workers to jobs we distribute malicious nodes amongst many votes where they would not be able to take over and where their best play is to provide good results and benefit from the platform working correctly.

Such a mechanism requires a source of randomness which any observers of the blockchain can agree on. This problem is beyond the scope of this post. Having such a source of entropy could help the scheduler designate workers using a random yet verifiable algorithm. The data required for verification would be public. The only change required to the protocol would be that a valid contribution from a worker would require a proof that the worker was designated by a scheduler.

Blockchains versus Traditional Databases (Hackernoon.com)

HN: Shaan Ray
Feb 10
Blockchains versus Traditional Databases
https://towardsdatascience.com/blockchains-versus-traditional-databases-e496d8584dc

To understand the difference between a blockchain and a traditional database, it is worth considering how each of these is designed and maintained.
Distributed nodes on a blockchain.

Traditional Databases

Traditional databases use client-server network architecture.

MD: There is no such thing as a traditional database. Databases existed way before there was a client-server orientation. But we’ll assume your client-server model for purposes of this critique.

HN: Here, a user (known as a client) can modify data, which is stored on a centralized server. Control of the database remains with a designated authority, which authenticates a client’s credentials before providing access to the database.

MD: Do you think the DNS (Domain Name Service) databases fit this model?

HN: Since this authority is responsible for administration of the database, if the security of the authority is compromised, the data can be altered, or even deleted.

MD: Can we replace “authority” with “protocol” or “process” and still assume we are talking about the same thing?

HN: Traditional Databases.

Blockchain Databases

Blockchain databases consist of several decentralized nodes. Each node participates in administration: all nodes verify new additions to the blockchain, and are capable of entering new data into the database. For an addition to be made to the blockchain, the majority of nodes must reach consensus. This consensus mechanism guarantees the security of the network, making it difficult to tamper with.

MD: Don’t “shared” and “distributed” databases have this trait? If not, how can they possibly work? How about “journaled” databases?

HN: In Bitcoin, consensus is reached by mining (solving complex hashing puzzles), while Ethereum seeks to use proof of stake as its consensus mechanism. To learn more about the difference between these two consensus mechanisms, read my earlier post.

MD: See: https://moneydelusions.com/wp/2018/02/13/what-is-proof-of-stake/

HN: Integrity and Transparency

A key property of blockchain technology, which distinguishes it from traditional database technology, is public verifiability, which is enabled by integrity and transparency.

MD: Actually “public” is a relative term. Corporations have databases that do this without blockchain technology for their own “public” that can be very large and use very distributed database technologies. And airline reservations do this through federation with franchised travel agents … all without blockchain.

HN: Integrity: every user can be sure that the data they are retrieving is uncorrupted and unaltered since the moment it was recorded

MD: Only if they are believers. The only users with anything close to such an assurance are the “developers” who supposedly know “all” the complicated mechanism involved. A distributed public transparent data organization, where “anyone” can see everything gives better assurance. This is the mechanism favored by a “proper” MOE process.

HN: Transparency: every user can verify how the blockchain has been appended over time

MD: By using “trusted” API’s. There’s no way they can know the API’s they’re using should be trusted. They’re too complicated … and they’re not open.

HN: A map of Dashcoin masternodes distributed across the world.

CRUD vs Read & Write Operations

In a traditional database, a client can perform four functions on data: Create, Read, Update, and Delete (collectively known as the CRUD commands).

MD: And if the database is distributed and journaled they can do this without the “delete” and “update” … a necessary requirement for “true” transparency.

HN: The blockchain is designed to be an append only structure. A user can only add more data, in the form of additional blocks.

MD: And this causes unnecessary and undesirable latency (which is killing Bitcoin right now). Ideally, every transaction journaled into the database is “related” by hash to every other “related” transaction. What is needed is a hash linking the journal entries … and that is very easy to provide by including an input and output hash into the hashing process itself. Most transactions in a so-called blockchain block have no relevance to each other. It makes more sense to keep “related” transaction chains together rather than “all” transaction chains. This reduces latency and synchronization problems enormously.

HN: All previous data is permanently stored and cannot be altered. Therefore, the only operations associated with blockchains are:
Read Operations: these query and retrieve data from the blockchain
Write Operations: these add more data onto the blockchain

MD: Which I have described above is not “novel” at all. We have had it with journaled distributed databases for a very long time now. We have many of the mechanisms in the various forms of RAID (Random Array of Inexpensive Drives).

HN: Validating and Writing

The blockchain allows for two functions: validation of a transaction, and writing of a new transaction. A transaction is an operation that changes the state of data that lives on the blockchain. While past entries on the blockchain must always remain the same, a new entry can change the state of the data in the past entries.

MD: This is deceptive. The data in past entries never changes. The state of the current data changes by adding transactions to previous states. And you can mitigate corruption of this process with an input and output hash linking them and included in the hash of the new transactions. No block is required. Just a journal entry with two hashes … an input hash and an output hash which includes the input hash. The input hash can be verified back in time as far as the user chooses to do so … and all users my choose to do so any time they want to prove the process integrity.

HN: For example, if the blockchain has recorded that my Bitcoin wallet has 1 million BTC, that figure is permanently stored in the blockchain.

MD: A “real” money process has no such thing as a “bitcoin” wallet. It only has to prove that something claiming to be a bitcoin is not a counterfeit. A huge flaw in the bitcoin process is the fractioning of bitcoins. This is not different in end result than the fractioning of Indian (native American) lands … where they have been fractioned so many times the parcels are too small to be of use and they cannot be practically re-aggregated.

HN: When I spend 200,000 BTC, that transaction is recorded onto the blockchain, bringing my balance to 800,000 BTC.

MD: A “real” and “proper” process cares nothing about the money once it is created by traders. It only cares that it cannot be counterfeited and that the promise creating it is delivered as promised. No money is in circulation without a relation (albeit not direct) to a trader’s “in-process” promise. For any given creation, money does not exist before the promise, nor after the promise is fulfilled. In the mean time it is the most common object in every simple barter exchange … because it works. And it works because it never changes value over time an space. The “process” or “protocol” guarantees it and cannot be manipulated.

HN: However, since the blockchain can only be appended, my pre-transaction balance of 1 million BTC also remains on the blockchain permanently, for those who care to look. This is why the blockchain is often referred to as an immutable and distributed ledger.

MD: With a “real” process, the money “used” by traders is totally anonymous and unaudited. It is usually just a ledger entry in a “trusted” account … trusted by the traders using it. It may temporarily be in use as a coin or currency and returned to a ledger entry. The coin and currency are just uncounterfeitable tokens that when converted to a ledger entry are placed in storage and have no value at all. “Creation” and “destruction” and “default” and “interest” collection are a different matter (than “usage”) entirely. The traders are known and singular. They aren’t groups. They aren’t aliases. Their locations are known and they can be visited. That’s what keeps the process honest and leads other traders to “use” the money. As an example, we all “create” money when we buy a house on time. The documents recording our “promise” are recorded by the county clerk and available for all to see. We know how to do this. We also know how to streamline it (by using things like credit bureaus and title companies). As we pay back our “mortgage” we return money and it is destroyed. We don’t return the same money we created … that’s just not necessary nor can it work in practice.

HN: Centralized vs. peer to peer.

In short, the difference is Decentralized Control

Decentralized control eliminates the risks of centralized control. Anybody with sufficient access to a centralized database can destroy or corrupt the data within it. Users are therefore reliant on the security infrastructure of the database administrator.

MD: And as I have illustrated, that is not the difference, because a distributed journaled database of any kind “must” have decentralized control. What is central and known is the “process” or “protocol”.

HN: Blockchain technology uses decentralized data storage to sidestep this issue, thereby building security into its very structure.

MD: The blockchain has nothing to do with centralization or decentralization. It has everything to do with mitigating “forging” and “counterfeiting” and it does it unnecessarily inefficiently, expensively, slowly, and in an unnecessarily complicated fashion.

HN: Though blockchain technology is well-suited to record certain kinds of information, traditional databases are better suited for other kinds of information. It is crucial for every organization to understand what it wants from a database, and gauge this against the strengths and vulnerabilities of each kind of database, before selecting one.

MD: A journaled database can just manage documents or links … or links to links … or links to links to links. That is irrelevant. What is relevant is transparency of what it is managing and who is interacting with it. That’s what journaling does.