From: <eric@voskuil.org>
To: "'ZmnSCPxj'" <ZmnSCPxj@protonmail.com>
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Date: Tue, 3 May 2022 21:04:10 -0700
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Cc: 'Bitcoin Protocol Discussion' <bitcoin-dev@lists.linuxfoundation.org>
Subject: Re: [bitcoin-dev] BIP proposal: Timelocked address fidelity bond
	for BIP39 seeds
Precedence: list

Good evening ZmnSCPxj,

For the sake of simplicity, I'll use the terms lender (Landlord), =
borrower (Lessor), interest (X), principal (Y), period (N) and maturity =
(height after N).

The lender in your scenario "provides use" of the principal, and is paid =
interest in exchange. This is of course the nature of lending, as a =
period without one's capital incurs an opportunity cost that must be =
offset (by interest).

The borrower's "use" of the principal is what is being overlooked. To =
generate income from capital one must produce something and sell it. =
Production requires both capital and time. Borrowing the principle for =
the period allows the borrower to produce goods, sell them, and return =
the "profit" as interest to the lender. Use implies that the borrower is =
spending the principle - trading it with others. Eventually any number =
of others end up holding the principle. At maturity, the coin is =
returned to the lender (by covenant). At that point, all people the =
borrower traded with are bag holders. Knowledge of this scam results in =
an imputed net present zero value for the borrowed principal.

While the lack of usability is a cost to the lender, it is not a benefit =
to the borrower. The lender incurs no risk, and will obtain no reward - =
as the loan is of no value. Failure to deploy capital is an opportunity =
cost, and locking it up is not deployment.

Now, even if we accept the generous (economically irrational) assumption =
that money must increase in price (i.e. trades from more goods) over any =
given period, we are still left with the observation that the presumed =
appreciation would accrue to the lender absent lending, making it =
pointless.

e

> -----Original Message-----
> From: ZmnSCPxj <ZmnSCPxj@protonmail.com>
> Sent: Tuesday, May 3, 2022 7:37 PM
> To: Eric Voskuil <eric@voskuil.org>
> Cc: Chris Belcher <belcher@riseup.net>; Bitcoin Protocol Discussion =
<bitcoin-
> dev@lists.linuxfoundation.org>
> Subject: Re: [bitcoin-dev] BIP proposal: Timelocked address fidelity =
bond for
> BIP39 seeds
>=20
> Good morning e,
>=20
>=20
> > It looks like you are talking about lending where the principal =
return is
> guaranteed by covenant at maturity. This make the net present value of =
the
> loan zero.
>=20
> I am talking about lending where:
>=20
> * Lessor pays landlord X satoshis in rent.
> * Landlord provides use of the fidelity bond coin (value Y) for N =
blocks.
> * Landlord gets the entire fidelity bond amount (Y) back.
>=20
> Thus, the landlord gets X + Y satoshis, earning X satoshis, at the =
cost of having Y
> satoshis locked for N blocks.
>=20
> So I do not understand why the value of this, to the landlord, would =
be 0.
> Compare to a simple HODL strategy, where I lock Y satoshis for N =
blocks and
> get Y satoshi back.
> Or are you saying that a simple HODL strategy is of negative value and =
that
> "zero value" is the point where you actively invest all your savings?
> Or are you saying that HODL strategy is of some value since it still =
allows you
> to spend funds freely in the N blocks you are HODLing them, and the =
option to
> spend is of value, while dedfinitely locking the value Y for N blocks =
is equal to
> the value X of the rent paid (and thus net zero value)?
>=20
> Regards,
> ZmnSCPxj