I agree that there would be very little seignorage in any market-based system to create money. An important question is, though, what concrete mechanism it is that drives up the cost of creating money in a given market-based money creation system. I gather that in the Bitcoin system, it is the fact that people spend huge amounts on hardware that hosts the Bitcoin software. This is, if I understand correctly, wasteful to some extent.
Another market-based system which wouldn’t be wasteful in that sense is one along the following lines. Call the new currency X-coin. Say that new X-coins are created now and then (either by a central authority or according to a pre-set process). Every time a new X-coin is created, people may bid for it in dollars. Now since each time a new X-coin is produced, the value of all other X-coins is somewhat diluted. Therefore, the dollars that the purchasers of new X-coins spent get distributed to existing X-coin owners (in proportion to the number of X-coins they own).
That would be a market-based system that wouldn’t be wasteful. Note that it depends on the existence of another currency, dollars, and wouldn’t work if the X-coin system got world monopoly (or perhaps not even if it became relatively large).
Scenario A:
There start out being 100 X-coins. A new X-coin is created. This coin is purchased, and the price distributed equally among the holders of the previous X-coins.
Scenario B:
There start out being 100 X-coins. Each X-coin is declared to be equal to 1.01 X’-coin. Someone then bids for the right to buy all those .01 X’-coins.
What’s the difference between these two scenarios?
In either case, whoever starts out owning 1 X-coin owns 1% of the total currency. Not just 1% of the present currency, but 1% of the entire net present of the expected value of the currency. An X-coin issue doesn’t increase the market capitalization of the coins, it just acts like a partial split.
I agree that there would be very little seignorage in any market-based system to create money. An important question is, though, what concrete mechanism it is that drives up the cost of creating money in a given market-based money creation system. I gather that in the Bitcoin system, it is the fact that people spend huge amounts on hardware that hosts the Bitcoin software. This is, if I understand correctly, wasteful to some extent.
Another market-based system which wouldn’t be wasteful in that sense is one along the following lines. Call the new currency X-coin. Say that new X-coins are created now and then (either by a central authority or according to a pre-set process). Every time a new X-coin is created, people may bid for it in dollars. Now since each time a new X-coin is produced, the value of all other X-coins is somewhat diluted. Therefore, the dollars that the purchasers of new X-coins spent get distributed to existing X-coin owners (in proportion to the number of X-coins they own).
That would be a market-based system that wouldn’t be wasteful. Note that it depends on the existence of another currency, dollars, and wouldn’t work if the X-coin system got world monopoly (or perhaps not even if it became relatively large).
Scenario A: There start out being 100 X-coins. A new X-coin is created. This coin is purchased, and the price distributed equally among the holders of the previous X-coins.
Scenario B: There start out being 100 X-coins. Each X-coin is declared to be equal to 1.01 X’-coin. Someone then bids for the right to buy all those .01 X’-coins.
What’s the difference between these two scenarios?
In either case, whoever starts out owning 1 X-coin owns 1% of the total currency. Not just 1% of the present currency, but 1% of the entire net present of the expected value of the currency. An X-coin issue doesn’t increase the market capitalization of the coins, it just acts like a partial split.
Not completely, it has the side effect of making it even harder to double spend bitcoins.