ASIC Monopoly Fallacy

• Cartel Control Theory: Suggests Bitcoin ASIC prices are controlled by a miner cartel for advantage.
• Economic Equivalence: A cartel acts like one entity; size changes are market-driven for efficiency.
• Internal Subsidies: Non-market pricing of ASICs within cartels is a form of internal subsidy.
• Pricing Strategy: Raising prices requires production limits, risking unsold stock.
• Market Forces: Competition drives prices to market equilibrium.
• Interest Rates: Market sets price based on global return, influenced by time preference.
• Open Competition: Without state interference, all can compete in ASIC production.
• Monopoly: Requires state-granted power, not market dynamics.
• Hash Power: Buying from cartel doesn't boost its power; capital seeks equal returns.
• Pooling Pressure: Not protocol-driven; market forces control ASIC production.

Auditability Fallacy

• Non-Auditability: Bitcoin custodian solvency can't be audited; they control asset release and security issuance.
• Custodial vs. Non-Custodial: If controlled by consensus, it's non-custodial (layer), not auditable.
• Solvency Audit: Needs simultaneous proof of asset and securities; atomicity is key.
• National Reserve: Proving all fiat against Bitcoin reserve is complex; even on separate chains, atomicity fails.
• Waiver of Atomicity: Sometimes waived, assuming errors will be found, but not effective for state banking.
• Historical Precedence: Deviations are detectable but stopping them is challenging.

Axiom of Resistance

• Axiom Definition: An unprovable premise necessary for Bitcoin's design.
• Satoshi's Insight: Systems can resist state control, evidenced by P2P networks.
• Importance: Essential for Bitcoin's permissionless, censorship-resistant nature.
• Rejection: Without this axiom, Bitcoin is misunderstood, akin to PayPal.
• Historical Context: Confinity's transition from Bitcoin-like to PayPal illustrates rejecting this axiom.

Balance of Power Fallacy

• Power Distribution: In Bitcoin, power is with miners (transaction selection) and merchants (validity), not balanced but orthogonal.
• Influence vs. Power: Merchants influence miners by not buying services; miners influence merchants by not producing. Power can ignore influence, unlike the state's coercion.
• Defense Against State: Miners and merchants together defend against state aggression; neither can alone.
• Individual vs. State: True balance of power in Bitcoin is between individuals and the state, with resistance to political control.
• Non-Adversarial Relationship: Miners and merchants engage in trade, not conflict; tensions are resolved through price.
• Security Model Misunderstanding: Belief that centralized mining is secure if merchants are decentralized is flawed; a proof-of-work hard fork by merchants doesn't control miners.

Bitcoin Labels

• Ambiguous Definition: Bitcoin's definition is unclear due to its multiple uses since inception.
• Original Usage: Coined by Satoshi for concepts in "Bitcoin: A Peer-to-Peer Electronic Cash System".
• Multiple Contexts: Used for the implementation, transaction chain, consensus rules, coin unit, and community.
• Variations: Multiple implementations, consensus rules, and dynamic histories exist, making 'Bitcoin' label broad.
• Labeling Convention: Used here for Cryptodynamic Principles; implementations by brand (e.g., Bitcoin Core, Libbitcoin), chains by trading symbols (e.g., BTC, LTC), consensus rules by chain symbol, coin units in lowercase (e.g., btc, ltc), communities by general or specific terms.
• Maximalist View: Some maximalists associate Bitcoin with a specific history, but it was originally linked to principles.
• Ambiguity Resolution: Trading symbols resolve ambiguity when referring to different chains or histories.

Blockchain Fallacy

• Theory of Immutable Claims: Suggests property ownership can be secured through immutable claim-keeping, protecting against loss and custodial risk.
• Custodian Control: Property control remains with the custodian; claims are enforced by the claim holder, not inherently secure.
• Claim Loss: Immutable claim-keeping doesn't prevent loss; owners must still secure proof of ownership.
• Storage Efficiency: References to claims can reduce storage costs, but validation and execution still depend on additional data.
• Human Security: Security ultimately relies on people, not technology, as shown by the Risk Sharing Principle.
• Custodial Vulnerability: Immutable claims don't protect against custodian attacks or state interference.
• Non-Custodial Nature of Bitcoin: Bitcoin is traded directly, with merchants acting as value custodians.
• Misconception of Security: The fallacy arises from misunderstanding Bitcoin's security model, attributing it to technology rather than merchant distribution.
• Misleading Term: "Blockchain technology" wrongly suggests security comes from data structure, not from broader economic factors.

Brand Arrogation

• Conceptual Nature: Bitcoin is a set of concepts, not a specific chain; no one can control these concepts.
• Evolution: People will use 'Bitcoin' to describe various chains and splits as they evolve, similar to other commodities like gold or oil.
• Declaration: Bitcoin binds concepts, not rules, protocols, or implementations.
• Brand Association: Investors desire brand association, but there's no legitimate claim to the 'Bitcoin' brand.

Byproduct Mining Fallacy

• Theory of Reduced Consumption: Suggests mining with unmarketable energy byproducts (e.g., unused natural gas) reduces net energy use.
• Market Dynamics: Competition for byproducts increases their price, eliminating the initial cost advantage.
• Increased Consumption: Lower mining costs lead to more mining, increasing hash rate and thus energy consumption.
• Market Energy Supply: Monetizing waste increases marketable energy supply without raising production costs, potentially lowering market energy prices.
• Production Expansion: Lower energy prices might expand production, maintaining price stability.
• Invalidation: Theory fails as it doesn't reduce overall energy consumption; however, it might increase wealth through more efficient resource use.

Causation Fallacy

• Theory of Mining Following Price: Suggests mining activity is dictated by historical price or reward value, implying miners lack influence over coin utility.
• Initial Miner's Dilemma: The first miner cannot rely on historical data; they must anticipate future returns, embodying entrepreneurial risk.
• Predicting Future Value: Miners can't accurately predict future reward values using historical data, as this would imply either static or unpredictable prices.
• Market Dynamics: Overestimation or underestimation of reward value leads to losses. Market competition pressures these errors towards elimination, but unpredictability prevents perfect alignment.
• Production and Consumption: Mining anticipates future demand, not reacting to historical data, creating the opportunity for consumption.
• Miner's Role in Price: Miners contribute to demand but don't set prices independently; their impact is similar to any other market participant with equivalent demand.
• Asymmetry in Market: Miners must anticipate demand and risk before transactions occur, highlighting that production must precede consumption, not the other way around.

Censorship Resistance Property

• Censorship Resistance Property: Driven by transaction fees in Bitcoin.
• Enforcement: Similar to soft fork enforcement, majority hash power rejects non-censoring blocks.
• Profitability: Majority miners are profitable, making censorship cost-effective. Mining's anonymity allows control acquisition.
• Fee Dynamics: Censorship increases fees for unconfirmed transactions, incentivizing miners to confirm them.
• Censorship Failure: Non-censoring hash power can exceed censor's, unless subsidized by state via taxes.
• State Role: Must spend equivalent to fee premium to maintain censorship.
• Fee Integration: Essential for anonymity and resistance; block reward subsidies don't help.
• Economic Impact: Censorship might cause price collapse or increase. Survival depends on fee premiums.
• Proof: Impossible to prove sufficient fees or lack of censor subsidies, making resistance axiomatic.

Centralization Risk

• Centralization Risk: Centralization risk in Bitcoin comes from centralization and pooling, weakening confirmation and consensus security.
• Pooling Pressures: Pooling pressures encourage miners to join pools, reducing security.
• Consensus Risk: Consensus risk is shared by merchants who can refuse non-compliant trades; centralization decreases this number.
• Delegation: Delegation, especially in web wallets, centralizes control over ownership and validation.
• Centralization Pressures: Centralization pressures include the need for discounts due to Bitcoin's difficulty of use and high transaction fees promoting off-chain solutions.
• Manifestations: Centralization is evident in payment processors, trusting wallets, and hosted blockchain APIs.
• Economic Incentives: In low-threat environments, there's less incentive to support Bitcoin's security; rising costs force merchants to offer discounts, impacting market dynamics.

Cockroach Fallacy

• Cockroach Fallacy: Suggests aggregation doesn't reduce security via risk sharing because miners and the economy will disperse if needed, like cockroaches.
• Implication: This implies security exists because it potentially could, ignoring the Threat Level Paradox where security evolves under threat.
• Grinders and Allegiance: Relies on miners switching allegiance, based on the Balance of Power Fallacy, which incorrectly sees miners as the threat. Shifting hash power doesn't reduce pooling risk.
• State Control: States can co-opt large hash power, reducing attack costs. Assuming large mines can exist outside state control is flawed.
• Increasing Miners: Reducing pooling requires more covert miners, increasing costs for grinders (grind is a tool that performs hashing).
• Economic Irrationality: People won't act against financial interest; reversing financial pressures is needed for increased risk sharing.
• Ignoring Centralization: Ignores economic centralization and delegation. Rapid decentralization or de-delegation is unlikely, especially under state attacks with currency controls.

Collectible Tautology

• Collectible Tautology: Postulates Bitcoin started as a collectible due to interest from monetary theorists, gaining use value from their preferences.
• Transition: This value led to barter, then to Bitcoin becoming a medium of exchange based on its barter history.
• Regression Theorem: Suggests money must originate from a commodity with barter value before monetary value. If commodity value can arise from money potential, the theorem becomes tautological.
• Mises' View: According to Ludwig von Mises, the theorem explains the emergence of monetary demand from non-monetary use value.
• Commodity Definition: Economically, a commodity is fungible, typically raw materials or mass-produced goods. The theorem uses "commodity" to denote something with original use value beyond money.
• Implication: If anything can be considered a commodity, the theorem loses its specificity, implying anything could be money, which contradicts its original assertion.

Consolidation Principle

• Consolidation Principle: The need to exchange between coins to trade with merchants incurs a cost, making one coin with higher utility preferable over two.
• Utility: One coin is always better than two unless the resulting coin becomes fee-bound, as per the utility threshold.
• Thiers' Law: In the absence of state controls, the better money will eventually replace the other, leading to consolidation.
• Market Pressure: There's a natural market pressure towards a single coin, though this doesn't prevent the creation or existence of new coins over time.
• Contextual Utility: The utility of a money can vary by situation; for example, gold isn't useful for electronic transfers, and bitcoin needs a network to be functional. The better money prevails in scenarios where it excels.

Credit Expansion Fallacy

• Credit Expansion Fallacy: Credit expansion occurs when credit is multiplied against money through lending, giving the appearance of inflation. It's often mistakenly attributed to banking, with a theory suggesting Bitcoin could eliminate this effect.
• Savings: Encompasses hoarding (consumption via depreciation) and investing (lending for production), with no economic distinction between debt and equity.
• Hoarding vs. Investment: Hoarded money is fully controlled by its owner, while lent money isn't, despite being considered savings. Both lenders and borrowers need liquidity, leading to a cycle of lending until all capital is hoarded.
• Reserves: The term "reserve" in this context refers to the owner's hoard, not to be confused with reserve currency. Fractional reserve banking refers to the ratio of a bank’s hoard to its issued credit.
• U.S. Dollar Circulation: M0 includes tangible and intangible currency, with M3 being M0 plus all bank account money, showing significant credit expansion.
• Credit Expansion Ratios: The total ratio of money to credit in the U.S. is ~3.46%, with bank credit expansion at 9.0x money, and other financial instruments at 48.0x money.
• Eliminating Credit Expansion: Would require eliminating credit, halting production. The theory that Bitcoin can eliminate credit expansion is invalid as Bitcoin can also be lent.
• Risk of Credit: All credit carries default risk. The idea of bank credit being risk-free stems from state intervention, not banking itself.
• Money Market Fund (MMF) vs. Money Market Account (MMA): MMFs adjust unit prices to reflect investment losses, while MMAs absorb losses with reserves, potentially leading to bank runs if reserves are insufficient.
• Fungibility and Risk: Bank credit isn't truly fungible due to settlement risks. Credit expansion and money substitutes will persist under free banking based on people's preferences.
• Time Preference: Determines whether individuals hoard or invest, influencing the economic interest rate and credit availability. Infinite time preference would end all production.
• Lending in Bitcoin: Bitcoin lending doesn't limit credit expansion; lending rates are determined by time preference, not the nature of the currency.
• Consequences of Eliminating Credit Expansion: Equivalent to infinite time preference, leading to no capital for production or products for consumption. Legal restrictions on credit lead to alternative investment forms or cessation of production.

Cryptodynamic Principles

• Cryptodynamics: Term for Bitcoin's fundamental principles, distinguishing it from other technologies.
• Definition: Combines cryptography with the study of forces securing Bitcoin transactions.
• Principles:
  • Human Security: Based on economically rational human actions.
  • Risk Sharing: Distributes risk among participants.
  • Energy Sinking: Uses energy to secure against censorship.
  • Power Regulating: Balances network power.
• Interdependence: These principles are mutually dependent for Bitcoin's security.
• Cryptodynamic Security: Essential for a technology to be considered Bitcoin; absence disqualifies it.
• Violations: Permissioned blockchains, pure PoS, and subsidy-reliant systems fail these principles

Custodial Risk Principle

• Contract as Claim: A contract representing an asset is a claim against its custodian, often termed as a security.
• Value of Security: The value is the underlying asset's value minus costs of exchange and enforcement.
• Custodial Risk: Central to any money system; reliability of the custodian limits money's usefulness.
• State Money: The state acts as the single custodian, with potential for default through reserve liquidation or fraud.
• Bitcoin's Non-Custodial Nature: Bitcoin's value is based on its trade utility; if no merchant accepts it, it's not useful. Merchants collectively act as custodians.
• Merchant Role: Merchants exchange their property for Bitcoin, not securitizing it. They can stop accepting Bitcoin, reducing its utility, but this isn't a default as there's no obligation.
• Economy Size: Bitcoin reduces custodial risk through the size of its economy, not through technology or contracts.
• Blockchain and Custodial Risk: Blockchain technology doesn't protect against custodial default; tokenized assets remain securities with inherent custodial risks.
• Insecurity of Security: Ironically, the "security" in traditional terms is the element that introduces insecurity due to custodial risk.

Debt Loop Fallacy

• Debt Loop Fallacy: Theory suggesting modern state currency isn't actual money but a money substitute, a claim for borrowed money, leading to a conceptual loop.
• Fiat as Money Substitute: Claims are for a definite amount, but this leads to circular reasoning as the value is defined by what the state will accept in trade.
• Nature of Money: Money represents what it can be traded for, not an intrinsic value. Fiat differs from commodity money only by presumed lack of use value, which is subjective.
• Invalid Theory: A claim cannot be for itself; holding the claim satisfies the claim, making it money, not a debt. Thus, the theory is invalid.
• Transition to Fiat: Occurs when representative money loses redeemability, as with the U.S. Dollar in 1934.
• Money Substitutes and Debt Regression:
  • No Regression: Direct money (e.g., Gold, Bitcoin, modern U.S. Dollar).
  • Single Regression: Representative money (e.g., redeemable U.S. Dollar).
  • Finite Regression: Indirect claims with a finite chain of settlements.
  • Infinite Regression: Theoretically impossible; a claim must end.
• Conclusion: The "debt loop" is essentially a description of money itself, not a fallacy, as money substitutes eventually become money when claims settle or are circular.

Dedicated Cost Principle

• Dedicated Cost Principle: Only necessary costs by miners contribute to double-spend and censorship resistance. Unnecessary costs, like those from misconfigured machines, are wasteful and do not enhance security.
• Energy Efficiency Theory: Suggests adding non-dedicated costs to mining, like the discovery of prime numbers, to make PoW more efficient, assuming these have marketable value. However, this theory is invalid as the same efficiency could be achieved by basic PoW with separate operations for marketable products.
• Brewer Analogy: Just as brewers can sell their grain byproducts to farmers, improving efficiency by turning waste into value, miners could theoretically offset mining costs with marketable byproducts. But necessary net costs must still match the reward due to competition.
• Byproduct Value: Costs dedicated to producing independently-marketable value can be offset by selling that byproduct, making them not truly a cost to the mining process.
• Merged Mining: Often used to boost new coins' hash rates but fails to secure them as the hash rate isn't dedicated. The full cost of the hash rate can be recouped by selling it on one chain, allowing for censorship on others without cost.

Decoupled Mining Fallacy

• Decoupled Mining Fallacy: Suggests security improves by decoupling mining rewards from transaction selection, empowering smaller miners. However, control remains with pool operators, making the theory invalid.
• Variance Reduction: The only benefit is reduced variance, contingent on payment which can be conditional, similar to coupled pools.
• Transparency: Claims decoupled pools are more transparent, aiding miners in avoiding censoring pools, but state co-option remains possible, invalidating this.
• Relay Fallacy Comparison: Similar to the Relay Fallacy, where financial benefits depend on miners yielding control to a central entity.

Depreciation Principle

• Depreciation Principle: Ownership transfers from producer to consumer, but production and consumption occur separately. Producers and consumers both hoard products, which depreciate over time.
• Consumption vs. Interest: Selling a product yields interest to the producer, not depreciation. Actual consumption is the product's depreciation through use or waste.
• Wealth and Growth: Wealth is the sum of hoarded, depreciating products. Growth rate is the difference between interest rate and depreciation rate:
  • Formula: growth-rate = interest-rate - depreciation-rate
• Examples:
  • 5% growth = 10% interest - 5% depreciation
  • -10% growth = 10% interest - 20% depreciation
• Economic Observations:
  • Interest rate > Growth rate due to depreciation.
  • Investors expect returns around 10.2%.
  • Global growth in 2019 was 2.6%, implying a 7.6% depreciation rate when interest is 10.2%.
• Money Depreciation:
  • Fiat money (e.g., Bitcoin, USD) has no use value but depreciates through opportunity cost.
  • Commodity money depreciates due to demurrage (storage costs, etc.).
• Growth Rates:
  • Pure money growth rate = 0% (interest - interest).
  • Commodity money growth rate accounts for demurrage, often negative.

Dumping Fallacy

• Dumping Fallacy: The theory that selling units from one side of a split coin for units of the other reduces the sold coin's utility is invalid because every sale involves a buyer, making the trade symmetrical.
• Misrepresentation of Dumping: True dumping involves state subsidies to sell a product in another state at a reduced price to gain market share, not merely trading at market price which doesn't lower the price due to lack of subsidy.
• Hoarding and Price: While reducing hoarding can lower prices, a transfer of hoarded property only reduces hoarding if the buyer hoards less than the seller, which isn't necessarily the case.

Efficiency Paradox

• Efficiency Paradox: Bitcoin mining's cost equals its reward, making it inherently energy-inefficient. Tech improvements increase hash rate, raising difficulty and cost to match the reward.

Empty Block Fallacy

• Empty Block Fallacy: The theory that mining empty blocks is an attack is invalid. Mining empty blocks does not inherently imply theft or harm, as per the Bitcoin whitepaper's definition of an attack.
• Reward Structure: Miners forgo transaction fees by mining empty blocks but still receive the block subsidy, which compensates for network security, not transaction inclusion.
• Security Contribution: A miner's hash power contributes to network security regardless of block content. Empty blocks do not weaken security but delay confirmations similar to reducing hash power.
• Economic Rationality: Miners suffer an opportunity cost by not including transactions, effectively subsidizing chain security. This might be rational due to timing strategies in mining.
• Impact: Mining empty blocks doesn't affect fees or confirmation rates since it's within consensus rules and miners can choose otherwise, ensuring competition and security.

Energy Exhaustion Fallacy

• Energy Exhaustion Fallacy: The theory that Proof-of-Work (PoW) could exhaust all available energy is invalid. PoW uses energy to create a barrier against double-spending, similar to energy costs in securing traditional money from counterfeiting.
• Security Mechanism: Bitcoin's security involves forcing an attacker to perform more work than the current blockchain branch, raising the cost for potential attackers.
• Energy and Security: The energy itself isn't the focus; it's the financial barrier it creates for attackers. The security barrier (S) is calculated as:
  • Formula: S = C * H * T, where C is unit hash cost, H is hash rate, and T is the period.
• Economic Adjustment: As energy becomes scarcer, its price rises, which in turn reduces the energy used for mining while maintaining the security level, preventing exhaustion.
• Conclusion: The adjustment mechanism ensures that as energy costs increase, hash rate decreases proportionally, maintaining security without exhausting energy resources. Thus, the theory of energy exhaustion by mining is invalid.

Energy Store Fallacy

• Energy Store Fallacy: The idea that energy used in PoW mining converts into stored value in coins is flawed. Miners exchange energy for coins, but all goods or services traded for coins represent demand, not just energy.
• Value Contribution: The fallacy lies in suggesting energy's role in value creation is unique. In reality, all sources of demand contribute equally to value, differing only in scale.
• Store of Value: Similarly, money isn't a store of value; it's a store of money. Value is subjective, derived from what money can be traded for, and subject to change, making it impossible to store value itself.
• Conclusion: The theory is invalid as it misrepresents how value is created and stored in the context of Bitcoin and money in general.

Energy Waste Fallacy

• Energy Waste Fallacy: The notion that proof-of-work wastes energy is flawed. Security levels are subjective and based on confirmation costs, not the proof method.
• Security Dynamics: Hash power, driven by rewards and fees, secures transactions against double spends. Security depends on confirmation market dynamics, not proof type.
• Cost Components: Work involves various costs beyond energy, like labor and hardware. Substituting energy with other resources still incurs energy costs indirectly.
• Efficiency Argument: The use of a coin by merchants indicates it's the most energy-efficient option available, as all costs ultimately translate to energy consumption.
• Confirmation Security: Higher block generation costs increase security against double spends, suggesting energy reduction must maintain equivalent costs for the same security level.

Expression Principle

• Expression Principle: Actions are expressions of human preferences through goods, not to be confused with the goods themselves, leading to significant errors if misunderstood.
• Catallactics Focus: Catallactics studies expressed preferences in production, trade, and consumption, ignoring legal, theological, or ethical human concepts.
• Human Spirit: The human spirit, the actor, expresses preferences via its body, which it owns. Death ends action as the spirit ceases to act.
• Turing Test: Used as the criterion for humanity in catallactics, distinguishing decision-makers from rule-followers.
• Machines and Preferences: Machines express the preferences of their human controllers, not their own.
• Ownership and Control: Only the spirit owns and controls the body. Aggression compels action, expressing the aggressor's preference, not the victim's.
• Involuntary Actions: Theft, taxes, and slavery are involuntary expressions of the aggressor's or another's preference, not the actor's independent preference.
• Time Preference: Not based on life's impermanence but on the preference for earlier consumption, even if life were infinite.
• Action vs. Goods: Human-directed processes are actions (production, trade, leisure), while machine-directed processes are goods (websites, assembly lines, cars).

Fee Recovery Fallacy

• Fee Recovery Fallacy: Miners don't gain by mining own transactions; it incurs opportunity cost.
• Opportunity Cost: Self-paid fees are neutral; real cost is forgone external fees.
• Actual Fee: Miners' true fee is the opportunity cost of unused block space.
• Fee Estimation: Tools can't be tricked; no link between historical and future fees, all fees visible on chain.

Fedcoin Objectives

• Fedcoin Objectives: States may introduce Fedcoin to combat Bitcoin, aiming to protect tax revenues while promoting it as a safer alternative.
• Distinctions: Fedcoin allows state control over money creation (seigniorage) via a hard fork and transaction censorship via a soft fork.
• Bitcoin Security: Bitcoin's system security is crucial to resist state compulsion of these forks, preserving its value against state-controlled money.
• Roles: The economy prevents hard forks, while miners guard against soft forks, both risking to maintain Bitcoin's integrity.

Fragmentation Principle

• Fragmentation Principle: Money's utility stems from facilitating trade, dependent on merchant acceptance.
• Splits: A split results in changes in merchant acceptance, creating two economies from one.
• Utility Impact: Splits reduce combined utility due to exchange costs, proportional to the size of the resulting economies.
• Network Effect: The reduction in utility isn't quadratic, contrary to the Network Effect Fallacy.
• Value Shift: Value shifts to the split coin, not taken from the original; merchants control value, owners affect unit price through hoarding.
• Replay Protection: With bidirectional replay protection, units can be spent without additional cost; without, unprotected chains are discounted.
• New Coins: New coins face utility allocation challenges, while splits bootstrap utility from existing chains based on merchant willingness.

Full Reserve Fallacy

• Full Reserve Fallacy: The theory that fractional reserve banking is fraudulent and that full reserve banking is the only honest form is invalid.
• Bank Definition: Rothbard defines banks as money warehouses, but banks also offer interest-bearing accounts, which he distinguishes from warehousing.
• Interest and Fees: Interest on deposits can offset account fees, blurring the line between warehousing and lending.
• Money Certificates: Banks issue money certificates as substitutes, which historically led to fraud when not fully backed by reserves.
• Fraud and Fiat: Large-scale frauds by state and central banks led to the conversion of certificates to fiat, compelling public acceptance.
• Lending and Investing: The theory condemns all bank lending, including from demand and term deposits, equating it to fraud. Lending is indistinct from investing and originates from savings.
• Contractual Understanding: The argument that depositors don't understand banking contracts is refuted, as it implies depositors are incapable of understanding while proponents claim they do.
• Nonaggression: Voluntary contracts between individuals are morally valid under the nonaggression principle.
• Money Substitutes: Money substitutes (deposit accounts) trade at a discount due to settlement costs, fraud risks, and fees, contradicting the theory that they trade at par.
• Credit Expansion: Lending does not inherently cause price inflation; it's influenced by money supply and time preference changes.
• Lending Sources: All lending comes from savings, and aggregating savings through banks doesn't create a meaningful distinction.
• Time and Demand Deposits: No economic distinction exists between time and demand deposits; both imply fractional reserve.
• Insurance: Full insurance of deposits negates the concept of lending, as it implies no risk and no return.
• Free Banking: Free banking does not create money out of thin air; any such ability would apply universally, not just to banks.
• Time Preference Contradiction: Advocating full reserve contradicts advocating lower time preferences, as full reserve implies infinite time preference.

Genetic Purity Fallacy

• Genetic Purity Fallacy: The theory that a single implementation for coin validation strengthens the network is invalid; multiple implementations reduce the risk of unintended chain splits and global network stalls.
• Complexity and Divergence: High complexity of consensus rules increases the likelihood of divergence with each update, whether internal or through external libraries, making a single implementation impractical.
• Financial Impact: A single implementation's updates can deeply affect the economy, increasing the financial impact of any resulting chain split compared to multiple implementations.
• Risk Distribution: With multiple implementations, the risk of any update affecting the network is distributed, minimizing potential damage to the economy compared to a single implementation's 50% maximum split risk.

Halving Fallacy

• Halving Fallacy: The theory that Bitcoin's halving events cause a financial cliff leading to network stalls is invalid.
• Step Functions: Bitcoin's halving, difficulty adjustments, and block organization are step functions; their confluence does not inherently lead to network stalls.
• Difficulty Adjustment: This does not reset miner profits to zero but controls the block organization period, affecting variance and not directly regulating profits.
• Market Dynamics: Miner profits are regulated by time preference and market return on capital, not just by halvings or difficulty adjustments.
• Price Impact: Without price changes, hash rate and difficulty remain stable, maintaining market return on capital for miners.
• Reward and Fees: Halvings, price changes, and difficulty adjustments impact miner profitability similarly; miners can adjust hash rate, prompting market-driven fee and price adjustments.
• Historical Precedent: The two largest halvings have passed without disruption, suggesting future halvings will have even less impact due to their exponentially lesser effect on price reduction.

Hearn Error

• Hearn Error: The theory that states cannot ban popular things is invalid; states often ban popular activities like drugs, gambling, and prostitution.
• Transaction Throughput: High transaction throughput does not inherently defend against state attacks or coercion, nor does it secure Bitcoin against centralizing forces.
• Axiom of Resistance: Ignoring this axiom while working with Bitcoin can lead to cognitive dissonance and potentially a rage-quit upon realizing the error.

Hoarding Fallacy

• Hoarding Fallacy: The theory that increased hoarding enhances a coin's security is invalid; it's akin to the Dumping Fallacy but not necessarily tied to a split.
• Owner Influence: Owners do not control validation unless they trade, and it's merchants who enforce consensus rules, not owners.
• Collective Action: The possibility of owners acting in unison does not increase their control over validation, which remains at zero.
• Individual vs. Social Benefit: Convincing individuals to hoard more than optimal for a perceived security benefit results in individual costs with no actual social benefit, relying on irrational economic behavior.
• Trade and Security: Less trade due to hoarding reduces security, as ongoing trade is necessary for consensus rule enforcement, as per the Qualitative Security Model.
• Price Impact: Hoarding may temporarily increase price, benefiting existing owners, but this is a speculative error related to the Lunar Fallacy, not a validation of increased security.

Hybrid Mining Fallacy

• Hybrid Mining Fallacy: The theory that combining proof-of-work (PoW) and proof-of-stake (PoS) mining increases system security over PoW alone is invalid.
• Censorship Mitigation: The theory assumes PoS can mitigate PoW miner misbehavior, but this relies on the flawed premise that PoW miners are not also PoS miners.
• Cost Analysis: Hybrid mining incurs combined costs of work and staking, yet the return on mining investment equals capital cost due to competition, not contributing to security.
• Majority Control: Achieving majority stake is as costly as achieving majority hash power, and once a majority stakeholder prevents valid PoW block confirmations, the system becomes effectively PoS, lacking censorship resistance.

Ideal Money Fallacy

• Ideal Money Fallacy: The theory that an objective "value index" will compel states to target their monies to eliminate price inflation is invalid.
• Bitcoin as Index: The proposal suggests Bitcoin could serve as such an index, leading to state monies asymptotically approaching zero inflation.
• Assumptions: Assuming Bitcoin represents objective value and people can compare it to state monies, the theory still fails as it contradicts the use of state monies for trade.
• Seigniorage and Fiat: Ideal Money, with zero inflation, would eliminate seigniorage, the tax purpose of fiat, making state money obsolete.
• Legal Tender and Gresham's Law: The proposal ignores legal tender laws and Gresham's Law, which govern fiat and cause bad money to drive out good money when enforced.
• Thiers' Law and Controls: The theory incorrectly assumes Thiers' Law (good money drives out bad) and overlooks foreign exchange controls that prevent capital flight and limit price discovery.
• Gold vs. Bitcoin: The argument that Bitcoin is a more stable index than gold due to fixed supply is flawed, as both are stable with demand stabilized by different factors.
• State Response: States will not surrender seigniorage without extreme duress, making the concept of "ideal money" unattainable for state currencies.

Impotent Mining Fallacy

• Impotent Mining Fallacy: The theory that miners have no power, distinct from the Proof of Work Fallacy, is invalid.
• Economic Pressures: The theory assumes economic pressures prevent sustained effective attacks by miners, leading to complacency about pooling's insecurity.
• Double-Spending: If majority hash power double-spends, merchants would increase confirmation depth, reaching an equilibrium that precludes further attacks.
• Transaction Selection: Miners cannot avoid selecting highest-fee transactions without losing relative rewards, which would reduce their power and ability to censor.
• Selfish Mining: Majority hash power can engage in selfish mining without double-spending or censorship, maintaining hash rate and fees due to potential competition.
• Market Forces: Miners and merchants are trading partners; neither can control the other, and price resolves preferences, but this does not address state threats.
• State Co-option: Pooling hash power reduces security as states can co-opt it or build their own mines, necessitating distributed hash power among those willing to resist state control.
• State Attacks: States, being economically rational, would attack Bitcoin to preserve inflation tax revenue, making the theory invalid due to the inevitability of state-subsidized attacks.

Inflation Fallacy

• Inflation Fallacy: The theory that Bitcoin's monetary inflation causes a loss of purchasing power is invalid.
• Inflation Principle: No change in purchasing power results from the supply increase of a market money like Bitcoin.
• Mining Subsidy: Bitcoin's non-price-inflationary nature means owners do not subsidize mining; miners use their own capital, and their return on investment offsets the opportunity cost of deploying that capital over time.

Inflation Principle

• Inflation Principle: Money's purchasing power changes proportionally with the demand for goods it represents, following the law of supply and demand.
• Rising Supply Market Money: Early Bitcoin and gold consume goods equal to the value of new units created, including opportunity cost, resulting in no price inflation.
• Monopoly Money: Not subject to competitive production, it increases the money-to-goods ratio, causing price inflation.
• Fixed Supply Market Money: Late Bitcoin creates no new units, leading to price deflation as the money-to-goods ratio decreases with economic growth.
• Multiple Monies: Proportionality is preserved as mining creates new demand for goods, offsetting the new money supply.
• Economic Growth: Free market growth is not price-inflationary; it preserves the money relation.
• Cantillon Effect: Valid for monopoly money due to seigniorage but irrelevant for market money, which is price-neutral.
• Von Mises' Error: Incorrectly applies the Cantillon Effect to all money, conflating market money with monopoly money.
• Hoarding and Dishoarding: Hoarding increases time preference, reducing production and wealth, while dishoarding unevenly affects exchange value, not creating wealth but transferring it.
• Money Value and Exchange: A money's value derives from its acceptance in trade, and changes in demand or supply of goods directly impact the money relation.
• Commodity Money Production: Changes in production factors can unpredictably affect prices, constituting speculative error.

Inflationary Quality Fallacy

• Inflationary Quality Fallacy: The theory that price inflation from seigniorage leads to lower quality or less durable goods is invalid.
• Subjective Value: The theory contradicts the subjective theory of value by presuming value is objective.
• Wealth and Time Preference: Greater perceived wealth implies lower time preference, not a preference for lower quality goods, but rather a willingness to lend more capital.
• Rothbard's Error: Rothbard's assertion in "What Has Government Done to Our Money" that inflation leads to a decline in work quality due to "get-rich-quick" schemes is flawed; predictable inflation is offset by real interest rates.
• Seigniorage as Tax: Seigniorage, as a tax, increases time preference by making people poorer, contradicting the theory's premise.
• Tax Uniformity: Rothbard acknowledges in "Man, Economy, and State" that the form of tax is economically irrelevant, and only a net increase in tax reduces wealth.

Jurisdictional Arbitrage Fallacy

• Jurisdictional Arbitrage Fallacy: The theory that Bitcoin would survive a ban by moving mining and other activities to permissive states is invalid.
• Black Market and Rogue States: Non-compliant operations would become black market activities, and permissive states would be considered rogue states by banning authorities.
• Political Action: A ban is a political action against which Bitcoin offers no inherent protection.
• Popularity Fallacy: The related fallacy that a ban would be difficult if Bitcoin is popular reduces Bitcoin's security to a vote, akin to state money, undermining its value proposition.
• White Market Elimination: A ban eliminates white market operations, implying Bitcoin's security depends on rogue states, which also reduces security to a vote.
• State Compulsion: Powerful states can compel others through various means, including warfare, as seen in ongoing international conflicts like those on drugs and money laundering.
• Permissionless Design: Bitcoin is designed to operate without state permission, potentially leading to suppression attempts via censorship, often coordinated through entities like the International Monetary Fund.
• Efficient Censorship: Censorship can be most efficiently executed from a single location, and rogue states can only resist if they are willing to forego tax benefits and fund resistance.
• Political Security: Dependence on rogue states reduces Bitcoin to a politically-secured money, invalidating the theory.

Labor and Leisure

• Labor & Leisure: Complementary actions for producing (labor) and non-producing (leisure) economic goods.
• Rothbard's View: Misconception that both are goods; clarified as actions.
• Utility: Both produce positive utility, with leisure preferred due to time preference.
• Production: Labor is the process; leisure and labor are aspects of production.
• Pure Bank: Illustrates production cycle in employment scenarios.
• Wage Dynamics: Employees lend capital to employers, earning wages as interest.
• Market Rates: Both parties operate at market rates; returns based on investment.
• Leisure Valuation: Inferred from wage rate and interest.
• Life Cycle: Young have high money time preference, low leisure; ages reverses this, leading to retirement.

Lunar Fallacy

• Lunar Fallacy: The theory that hoarding bitcoin guarantees perpetual profit is invalid.
• Economic Laws: The theory relies on Metcalfe’s Law, Thiers’ Law, the Law of Supply and Demand, and the notion that trade is positive sum.
• Speculative Nature: Hoarding is purely speculative, with returns being profit or loss, and the money remains available for exchange, offsetting forgone interest.
• Investment Requirement: The theory's corollary that no investment in production is needed to profit contradicts the fact that all economic activity stems from investment.
• Hoarding Impact: Full hoarding would eliminate trade and demand for money, rendering the theory irrational and supporting the "Magic Internet Money" notion.
• Purchasing Power Increase: A fixed supply market money like Bitcoin can only increase in purchasing power through economic growth or monetization, both of which require investment.
• Economic Growth: Growth results from investment and is less than the return on investment (interest), while full hoarding implies no investment.
• Monetization Limits: Monetization has a limit, and the theory overlooks Bitcoin's stability property, further invalidating it.

Maximalism Definition

• Maximalism Definition: Maximalism is a public relations effort to discourage the formation of substitutes for a given coin.
• Benefit to Owners: If successful, it may benefit existing owners by restricting supply and elevating price.
• Substitution Effect: As people fail to find close substitutes, activity shifts to more distant ones, often state money.
• Distinct from Shitcoin Awareness: Maximalism promotes one Bitcoin over all others, unlike shitcoin awareness, and proponents often claim no other coin could be competitive, which contradicts the need for advocacy.

Miner Business Model

• Miner Business Model: Miners compete in a zero-sum game within a positive-sum economy, where rising utility reflects the positive-sum nature of trade.
• Price and Returns: The notion that blocks mined during rising prices yield outsized returns is flawed due to the unpredictability of market prices; any predictability is quickly competed away.
• Investment and Competition: Bitcoin mining investment is based on the predictable relationship between profit and competition, converging to the market rate of interest over time, influenced by time preference.
• Outsized Returns: Achieving higher-than-market returns requires below-average hash power costs, through pooling pressures or operational efficiency. These gains are offset by lower returns for other miners, diminishing as hash power dominance increases.
• Sustainability: Outsized returns depend on capturing returns from others; the highest sustainable return is limited by the opportunity cost others are willing to bear, as per the Threat Level Paradox.
• Capital Management: Miners can maintain market returns by reinvesting dividends proportional to Bitcoin capitalization, increasing hash power with reinvestment and decreasing it through liquidation or selling off unprofitable devices.
• Time Preference: The rate of return on mining capital is solely dependent on time preference.
• Economy and Miners: The relationship between the economy and miners is further detailed in the Balance of Power Fallacy.

Money Taxonomy

• Fiat Money: No use value, value from trade willingness, decreed by state.
• Commodity Money: Has use value, e.g., gold, silver.
• Money Substitute: Claim to a definite amount of money, redeemable on demand.
• Representative Money: A form of money substitute, claim to represented value.
• Monopoly Money: State-controlled, protected by anti-counterfeit laws.
• Market Money: Produced by market competition, like Bitcoin.
• Currency: Includes money (present) and money substitutes (future).
• Examples:
  • Commodity Money: Bullion
  • Monopoly Fiat: U.S. Dollar Bill
  • Market Fiat: Bitcoin
  • Money Substitute: Visa account, U.S. Silver Certificate

Network Effect Fallacy

• Network Effect Fallacy: The theory that an economy's utility varies with the square of its merchants, based on Metcalfe's Law, is invalid.
• Utility Calculation: The theory suggests that splitting an economy in half reduces its combined utility by half; e.g., a network of 20 merchants with utility 400 splits into two networks of 10 merchants each with utility 200.
• Exchange and Conversion: The ability to exchange units between split economies creates a hybrid economy, reducing utility due to conversion costs, but not to the extent of losing one economy unless conversion costs are unbounded.