Is store of value incompatible with medium of exchange?

These next quotes come from: No burning of ADA coins but have gone off topic so I thought it best to start a new thread.

Yes, it is an Interesting quandary.

I agree, this is how people see crypto today.

But, we always see things through our own eyes, coloured by our personal life experiences.

I am not so sure that we can’t successfully combine store of value and medium of exchange.

Argument that people won’t spend an appreciating asset

One argument put up against this is that if value keeps going up then people won’t want to spend the “money” and will instead HODL. However, we already purchase things that lose value relative to the “money”. For example, if you purchase a computer today, it will be worth less money 6 months from now. But, you still buy it because you recognise the value of that computer to you personally to improve your productivity or quality of life.

Thinking in terms of a company focused on productivity: A company will be prepared to spend on a computer today if it determines that the productivity benefits will outweigh the benefits of holding the money. Even if the “money” is a scarce and appreciating asset, a company will still make this determination. If the computer provides more in productivity benefits, then the company will buy it to eventually end up with more of the appreciating “money”.

I think the problem is that we are not used to thinking this way. We are used to our “money” getting devalued over time and to prices of food items staying relatively constant despite technology making things cheaper really.

Argument that appreciating money makes lending untenable

Then there is the argument that borrowing in appreciating money would not work. In other words, if a company producing widgets borrows appreciating money, then it may not be able to earn enough from the widgets it sells to pay back the loan, if the money increases in value relative to the widgets. We see this problem today in countries that borrow in $US and can’t afford to repay the loans when their home currency devalues relative to the $US.

I don’t think this argument is a fatal flaw to appreciating “money”. I think we just need to think about it differently because we are not used to thinking in terms of appreciating money. For example, it would focus the mind of the widget manufacturer more. They might need to do some further analysis to be sure that their revenue stream from widgets would be greater than their loan repayments, taking into account the price of widgets reducing over time. If the numbers stack up, they will still take the loan in an appreciating currency. They can also use insurance to hedge their future widget revenue streams so that speculators take the risk instead, for a fee.

The argument then becomes that such analysis is harder to do and companies will default more. I agree that it might make the analysis harder, but the market will adjust for this uncertainty by charging higher interest rates for higher risk projects. Again, this will focus the mind more and maybe we need more of this focus today.

Today we fund all sorts of crazy projects with high potential to fail. We throw money at things because money left in the bank loses spending power over time. We borrow more and more to build things that can never repay the money with their future revenue streams. There is a lot of wastage and capital inefficiency today.

I think we need more focus today. Maybe an appreciating money would be a good thing.

Benefit that transparency and fixed supply simplifies calculations

One benefit of a known fixed supply is that it allows easy calculation of relative gains. It allows someone to know how much purchasing power they have precisely and measure this over time. In other words, how much of the total purchasing power in the system they possess. This makes it easier to assess whether a project is providing a net benefit to the system or not over time.

If a company uses capital to produce a product or service that others want then it will accumulate capital. If this company accumulates more capital than it spent on developing its products the we can say that these products were more valuable to society on average than the initial capital outlay. Every company or individual is competing to produce things or create value for society. Being able to see where capital is accumulating makes it easy to see who is creating most value.

The problem with the current system is that the constant manipulation of the money supply and the unknown total supply leads to murky uncertain analysis. This also creates incentives for companies and individuals to focus on winning favour with the manipulators rather than focusing on creating and producing. All this jostling for control over the manipulation levers is not benefiting society with more goods and services.

In summary, I am not so sure that an appreciating money with a fixed supply won’t work as a medium of exchange. Maybe we just need different thinking.

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Thanks @Terminada !

Yes, it seems that the majority of people looks at it as an investment. But what is the product we are investing in? What is the promise of the product? That it will be a better money. Sorry to say, but any attempt to smear this fact is just a desperate measure to hide the fact that it is not better yet, because it’s so volatile that no one wants to use it for everyday transactions, and we don’t know what to do with volatility.

So instead of thinking about what can we do about volatility we say, “Ohh, it’s called a currency, yet it’s not a currency.” It’s so freaking disappointing.

What happens on the exchanges? Isn’t people selling and buying things with crypto? If so, how on earth can we state that it’s not money? EUR is not money in the US because you can not pay with it directly? We have to change EUR to USD if we want to pay with it. Just like ADA or any other crypto.

Is it good as money? No. Because it’s volatile. But it doesn’t mean it’s not money. It just not a particularly good one. We are not there yet.

If we can donate we will be able to lend as well.

Many thanks for this one! It’s so rare that I hear this argument backing fixed supply. The only thing I would like to add, that I think “murky and uncertain” is a rather forgiving description. The current “free style” money printing practice renders economical simulations and analysis impossible. We simply don’t know the variables. (We won’t know the exact variables in a fixed supply system neither because of lost tokens, but we will have much better chances.)

I think we need to face volatility honestly and treat it as a challenge instead of juggling with labels.

Oh, and stablecoins inherit all the problems of fiat, so no, they are not a fulfillment of the original promise.

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Of course my last sentence only stands for stablecoins pegged to fiat currencies. I’m much more interested of stablecoins pegged to price indexes. That would make much more sense IMHO!

To date, this has largely defined what money is… those two properties together, although I would state it a bit differently.

Traditional currency has two key properties:

unit of measure
what everything else is measured in terms of
the key desirable property is it has to be less volatile than other assets, which people talk about as being a “store of value”
it is not seasonal
doesn’t change much with the business cycle
stable-ish over long periods of time so you can arrange payments than span decades

unit of exchange
The other key aspect of money is that it has to be easy to use
key properties: transportable, storable, fungible, easy to tax

but really, currency is just “I will pay you X value worth of Y asset
I will pay you $1 worth of Ada
I will pay you $1 worth of USD

anyway, with the whole digital money - most people are already more than happy to take a lot of things worth a dollar instead of a dollar: a credit card, a gift certificate, a traveler’s check (if you remember what those were), or any asset you can trivially turn into a dollar is basically the same as a dollar to me.

With digital assets: basically everything is equally easy to transfer or hold, so I am pretty skeptical about ideas of artificial scarcity - we will only accept “X” instead of something “worth X that is trivially converted into X”. If I am running a store, I will gladly accept anything you want to pay me with - as long as it’s easily exchangeable for what I want.

Pay you in BTC? sure, I’ll can do that - but the price will be in USD. or GBP. or something more stable. No way I want to commit to a price in an asset that can 10x.

that unit of measurement is really what defines a modern currency, because most digital assets are all equally easy to exchange.


I agree that it’s a unit. Unfortunately it’s hard to tell what it measures. The phrase unit of measure nicely sidesteps this problem. Anyway if we can at least agree on that it’s a unit we can compare it to other units of measurements.

  1. A unit has to possess the property that it measures. For example a unit of length has to have a length associated with it. For example if money measures scarcity it has to be scarce.
  2. For a unit to be useful people has to agree on its defining property to be able to think and communicate the measured property. A meter has to be a meter for everybody to be useful.
  3. A unit has to be stable. As much a unit changes its defining property over time the harder it gets to use it as a unit. If this change of the defining property is not known to the users it makes it even harder.
  4. Technically there is no need for more than one unit to be able to measure things. There is no technical benefit of having both the metric and the imperial system. This is strange because money seems to deviate from other units here, since using both BTC and ADA for example seems to change the defining property of the unit, either if we call it scarcity or value or whatever.

Currently for me it seems impossible to tell what money measures. Scarcity of desirable and countable things is the best I can come up with, which directly points to some of the technical expectations of money like constructs.

I’m just thinking out loud here obviously. :smiley:

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The real problem is that some actors have preferential access to see into the murky workings of the money supply better than others. For example the large international banks can see the Eurodollars being created because they are lending them into existence but these numbers are only visible if you have access to view their private database.

Yes and it is a more level playground because everyone is equally unaware except for the poor individual that lost his keys who knows how much he destroyed.

It’s an asset, just like every other asset - It has a value and that value can change over time. The measurement people tend to be most interested in is the relative value of things (which I might call a price).

Ideally, the denominator is highly stable - you really want to know what the value of the other thing is relative to something stable-ish.

I don’t think scarcity is an essential element of that though - or it doesn’t have to be anyway. Even a non-scarce good (a book, an idea, a song) takes time and effort to create, and that effort needs to be compensated. While there might not be a competitive market for a non-scarce good (you don’t need to compete for a non-scarce good), there is a competitive market for labor.

There are a lot of other things that have value (privacy and security come to mind) that are also not scarce, that still need to be compensated.


This is strange. A book is not scarce? You mean everybody can write a book which can interest people? Is the price of a book laying around in every second flat will be the same as a rare collectors item? Sorry to say but this makes no sense at all. Do I misunderstand something?

Also that would mean that money doesn’t have to be scarce to be able to measure the price of things. I see you nodding with a smile, but historic evidence of hyperinflation events seem to contradict that statement. And common sense also. Sorry money has to be finite at least (which means scarce, just the denomination of the unit changes) to be able to express value.

Are you saying that we are living in a world where privacy and security is the norm, it’s not scarce, yet we need to pay for them? Again, this is both a factual and a logical nonsense. Both privacy and security is scarce so we are willing to give a price for them in exchange. Air is not scarce yet, so it’s yet free. Wait for it becoming a scarce item and see.

You probably mean that these items are not ownables, not items. (What is the right word for “ownable”? :slight_smile: ) They are turned into services first so you can pay for a subscription to them which is ownable. (Sorry.)

Anyway price is a nice candidate for what money measures. For me it means money measures how much ownership one willing to sacrifice in exchange of the ownership of another item.


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Yes, exactly - there is no limited amount of security or privacy to go around, such that if some people have privacy there is none left for anyone else.

This is fundamentally different than a newspaper where the act of me reading it means you can’t read the same section. A newspaper has some inherent scarcity - if the demand is greater than the supply, there isn’t enough to go around.

(Sometimes economists call that non-rivalrous)

For example - there does not need to be people who have no security or no privacy to make security or privacy valuable - and yet it still has to be paid for. It represents time and resources which are scarce - which do have opportunity costs, so a price can still exist.

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Somebody or something provides these properties. What’s scarce is the workforce who can provide it. Your argument is like this: “There is no scarcity of red things or “red” (?), yet we have to pay if we want this object to be red, which means price is not interrelated to scarcity!”. You ignore the fact that you don’t pay for “red” you pay for the service which is scarce.

Even where there is no scarcity by nature, like digital information, they either create a service around it or introduce artificial scarcity by DRM to make it monetizable. (yet another word monster… forgive my English!)

Or even a better example: digital currencies!

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No - they don’t.

You could replicate all the problems with physical assets with digital assets for sure - “rent seeking” is not some new phenomena and very lucrative to those who benefit. The idea of artificial scarcity is a powerful marketing tool as well.

They are just tools - but not necessarily ones that lead to a better, fairer or more transparent economy. If you think about scarcity based economics as the ONLY tool you can use - that sort of locks you out of doing something truly different.

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Yeah - but that’s not the point I am ignoring - that is the point I am making. You don’t need to have a fixed supply of ‘red’ tokens to price that thing - or a micro-transaction each time someone looks at it.

Sorry but I didn’t say anything like that. I even stopped understanding what you are trying to say with that. We are getting really far from the origin of this conversation which was that if price is necessarily interrelated with scarcity or not. I’m happy to take notice that you think it isn’t.

Fixed supply is something truly different while Inflationary crypto is something not completely different.

The only way inflationary money can be fair if every holder gets a proportional amount of newly issued money to their holding. At the same time it obviously would render money issuance completely meaningless. So money issuance only makes any sense if it takes away value from the ones already using that currency and gives that value to … who? The question rises who decides who gets that money? The community? Then why don’t the community simply donate to the ones in need?

Oh, no the issuer will decide that! Oh, did I just hear something about “rent seeking”?

And fiat is also scarce. The fact that we don’t know how scarce it is doesn’t mean it’s infinite. We indirectly deduce its scarcity from the price of things and it’s totally unnecessary and renders the whole system a hazy mess.

But look, I really don’t try to stop you and this currency with infinite supply! Who knows, maybe that would make everybody infinitely rich and would solve all the problems of the world. That would be something truly different, and not this boring fixed supply where we only gain transparency (of the system), fairness (again of the system, not the people using it) and a feeling of being rich.

Because in an inflationary system no one feels rich. Because their money is rotting. So they just keep on getting more and more, since it doesn’t express nothing on the long run. So guess what, I think fixed supply would relax these fears and uncertainties and would lead to a more human and more civilized world.

5.625 if that means something to you!

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I think that’s ridiculous - like saying their should be a fixed supply of houses in the world. I just don’t follow why you think a fixed supply is a game changer here - the supply should only be static is the system is in equilibrium and no longer growing or changing; but that’s a silly target, because markets are dynamic and changing, business cycles are the natural state of the economy; stability is artificial construct that is poorly matched to reality.

The only way inflationary money can be fair if every holder gets a proportional amount of newly issued money to their holding

Well… um… communism just doesn’t actually work very well.

As someone with a conviction about free markets and personal action - it’s important to reward people for creating value. That personal incentive to earn money because you did something valuable for people - it is not a zero sum game. That extra value should be split between the both parties - not allocated based on who was richer at the start.

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Because in an inflationary system no one feels rich

I’d disagree with you - for example, there are plenty of BTC buyers who feel rich, even now. Whether or not they will continue to feel rich after the currency stops inflating is a rather more interesting discussion…

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It’s not what I suggested. I’m convinced that the unit should be stable. For example would the “meter” be more useful in measuring the trees’ height in a forest if we would add 3 cm each year to it because we know that the trees in the forest grow 3cm in average?

Sorry to say but from a social perspective fixed supply is the differentiating factor of cryptos. That’s truly different from fiat.

You missed my point which is strange because I wasn’t talking about communism. I just tried to explain why money issueance only makes sense if it introduces bias. If everybody gets from the new money proportionally to what she already have it renders it meaningless, because it only changes the denomination. Let’s say I have 100 you have 900. We agree that we need more money to express some meaningful changes in our environment for example the growth of our economy. So we print 100 new tokens. We agree on that the system needs to be fair, since we both worked for our current savings, so we split the issued money 1:9. What we end up with is I have 110 tokens you have 990. Did anything changed? Not really because we just changed the unit that expresses the price. Prices will go up 10%.

So money issuance to make any sense needs to be biased. Either I must receive more because I’m poor or you should receive more because you’re working harder. Or you’re a banker. Or the government. If we put this new money in a pot, that’s a tax that breaks our unit of price unnecessarily because we can just simply agree on taxation if that’s what we want. Oh, and if you have a problem with me being poor you can simple give me money if that’s the best you can come up with. Or finance education.

I hope it makes my point more clear.

Then you should support fixed supply, because money issuance doesn’t create any value, only distorts our unit of measurement and force people to support some group or entity possibly against their will.

You have a million dollars and stake 1000 ADA. I have 10000 dollars but stake 5000 ADA. Who should get more?

Let me remind you your comment on communism. Fairness of a system, of rules if you will and fairness of peoples behavior is better treated separately. If you want to encode the fairness of peoples behavior into a system of rules you always, invariably end up in catastrophe. Basically it’s inevitable because you don’t trust in people’s ability to be fair, that’s why you try to encode it in a system which is very-very far from being capable to express such a complex and nuanced thing. The lack of trust collapses the system on the long run.

The fairness of the Cardano project depends on us, on the culture that we create, the trust we lay in each other and the trust we try to not abuse.

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Oh, back to my example of money issuance for a minute. By issuing money to express the growth of our economy we exactly did the opposite. We hided the fact that our economy grew. If we would not issue new money prices would have go down, which would express the growth. And if prices are down maybe we would have more courage to support some good causes!

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Before you go to deep that rabbit hole, let me present a different direction

Crypto assets are not acting like currencies, they are missing a key element that is required for currency which is price stability (aka ‘store of value’)

Crypto assets are acting like a better form of company - and have many of the same concerns as companies. They are not cashflow positive on day 1 - they need to raise funds (which is done by issuing tokens.)

Being a self-sustaining DAO isn’t the same as managing a national economy - it is more like a simplified, highly transparent, inside-out company - resilient to change and not too big to fail.

(Who wants a currency to fail? nobody. Did the Luna debacle cause 2008 all over again, or was it on page 7, behind high-school football? “fake money loses some of its made up value”)

Much like companies - you don’t want an infinite number of shares issued (dilutes ownership), but much like companies, you also won’t be cashflow positive in all periods so you will need to occasionally borrow money to pay people. (so, at points, you may need to be inflationary again, until revenues come back.)

Also much like companies - the equivalent of a stock buyback (burning coins) doesn’t feel that bad either, and seems like a way to restore ownership once you get cashflow positive again.

(unlike companies, DAOs don’t really have bank accounts - so a capital raise where you put the money away is not as efficient as gradually issuing tokens to match liabilities, or burning tokens when you have profits.)

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Why not?

Oh, yeah, and here we go again. This is the part where you try to convince me that instead of fighting volatility we are better off by denying that it’s a problem, because ADA is not a currency. Let’s go down your rabbit hole then!

Is it a company now? And I thought it’s an ecosystem! Bummer, my bad. So it was cash-flow positive at day 2. Where’s the problem? If you need money you can always ask for it, nobody needs to print anything. Explain who, why and if it’s for the good of the project, the project will finance it, nobody needs to take anything from anybody here. Remember we are the project.

Ok. It’s different, but at least we are in it together and face the challenges together. Rest assured it won’t fail for a long time. I’ve seen much-much worse projects survive. If it will fail we will survive. Everything fails sooner or later, big things and properly designed things just need more time, but that’s life.

BTC maximalists want ADA to fail. I’m just answering you questions man! :smiley:

Diluted ownership? The price of the stock would not change right? :smiley: Again if Cardano will be self governing why don’t the governing body asks for money from the community? They don’t want to bother to convince the community about their policies and plans? This is going totally against the concept of decentralization. I know you are thinking that this is a good idea because you want to milk the whales, but guess what: inflation punishes the poor much more than the rich. And whale can be a lot of peoples aggregated money too. This is as scary stupid as it gets.
What if somebody is sick? Would you just take 1% of the value of her investment to fund that new and indispensable NFT project, instead of trusting the community that it will realize the importance of the situation?

I’m an investor in this project. If the project needs money for the success of the project it must trust it’s users. If it doesn’t that’s just too bad. I don’t even mention the exodus that such a decision would make. Why would I keep my ADA if some elected minority can force me out from my savings? I wouldn’t even wait for the outcome of such a ballot, and nobody else with their right mind. So where your better company will end up after that and with what cash-flow?

I don’t mind until you do it on your side chain, man. :smiley: If I can also suggest something we better working on the problem of volatility instead of this infantile fantasies of printing and burning tokens. If you need money just ask for it!

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Is it a company now? And I thought it’s an ecosystem! Bummer, my bad. So it was cash-flow positive at day 2. Where’s the problem? If you need money you can always ask for it, nobody needs to print anything. Explain who, why and if it’s for the good of the project, the project will finance it, nobody needs to take anything from anybody here. Remember we are the project .

I think you fundamentally misunderstand crypto currencies and how they work

Just to take BTC as an example.
It’s 14 years old. That is not a new product.

Actual platform revenues over the last year we around 70 MM USD. (You can do this yourself by multiplying the fees by the spot price on the day, but it’s widely available too.)

New token issuance last year was about 1.8%.
( 19e6 BTC ) * 0.018 * ( 20e3 USD/BTC ) = around 7 Billion USD

so - the platform paid out 7 billion dollars to block producers
around 1% of that was paid by platform fees, the other 99% was new issuance of tokens (what you are calling inflation)

so - this isn’t day 2 we are in the middle of decade 2

Pretty much all other crypto L1s have the same issue, they are a long way from being cashflow positive. The whole industry is propped up by “inflation” … but it’s not really inflation in the monetary sense, because cryptos aren’t acting like money - they are missing that price stability (store of value) component.

BTC maximalists want ADA to fail.

BTC maxis have their own problems, they don’t need to borrow trouble.

I don’t mind until you do it on your side chain, man. :smiley:

I couldn’t agree more - I am an empiricist, not a theorist. You build the pilot project before the real one - it’s easy to identify things we need to change, but if the solutions were easy, everyone would already be doing them.

If I can also suggest something we better working on the problem of volatility instead of this infantile fantasies of printing and burning tokens. If you need money just ask for it!

This would require an ‘index’ linked to the economic activity on chain; so if you could measure the average economic activity on the platform you could use that to set prices. It is difficult to design an ‘asset’ that mirrors that though (maybe something that took a percentage of the economic value of every transaction would come close? That’s potentially doable on chain - not so much in the wider economy.)

Anyway, it would probably take splitting apart ‘money’ into two parts: “I will pay you X value in asset Y” … “I will pay you $0.35 worth of Ada” (except you wouldn’t be using dollars, you would be using the index)

“babel fees” are a good first step for this - conceptually splitting the ‘asset’ being exchanged from the ‘price’.

(You could then build up an index of all of these sub-indices to form a world index, where the value represents the average of all the sub-economies. So the value of your index tracks the expansion/contract of the economy.)

but then you spend all your time on forums explaining that inflation, the money supply, artificial scarcity (or worse - trying to use a physical asset like gold as a proxy for the “index”) is totally the wrong way to think about things.