Thread by @ecoinomia

What's the optimal range for a microcurrency?
1. a market
2. a P2P network
3. an enterprise (ongoing production function)
4. an entrepreneurial venture (investment proposal)
5. a product or service
6. all of the above, some of the above, or something else entirely...

One of the potential advantages of microcurrencies (ignoring the transactional stuff for now) is that given the right technology you can provide two price signals at once: comparative performance within (price), and comparative performance across (currency).

This isn't all that different from legal tender currencies, just more fine-grained. Comparing 2 EUR to 3 CHF gives us some mixed info on product prices and the relative performances of the Euro vs Swiss economies.

This is mostly an exercise in pointlessness because for most of our daily (P2P) activities the comparative performance of economies doesn't matter at all, and the quality of the price signal degrades significantly if we have to add this extra layer of mental accounting.

Nevermind the noise added by exchange rate volatility and spread, which is expected to explode in a microcurrency economy since few microcurrencies will be able to create a thick market.

So if microcurrencies are here to stay (keep in mind Hayek himself was in two minds about this), there should be a good economic efficiency reason behind combining two price signals within a local economy. Otherwise it just adds costly Coasean friction.

So it comes down to two-layer bundling: find the optimal bundles of economic activities at layer 2: price competition ("within") and layer 1: currency competition ("across"). And seeing we can staken tokens on token, potentially we got turtles all the way down...

Imagine entering an Amazon Go activated Whole Foods store with your smart watch that immediately converts all prices (given in various microcurrencies at the store) into your own preferred mental unit of account. This could of course be a self-defined bundle of microcurrencies.

Hayek's and Satoshi's related but not congruent challenges to the public provision of money are based on the notion that private ordering can provide better (more economically efficient) price signals.

This will very much depend on whether microcurrencies can converge towards a (somewhat) stable state that captures optimal currency areas and resolve the boundary problem better.

The boundary problem: If my economic activity straddles two or more currency areas, can private ordering help me reduce the friction of transacting in both (or all) of them?

We're still in kind of a primordial ooze on this both wrt understanding the interaction of the three mechanisms: token (incentive alignment), consensus (coordination), and blockchain (record keeping), *and* the alignment on "preferred" or "efficient" microcurrency areas.

Right now there's both feverish activity and strong ideological alignment wrt various general-purpose microcurrency/technology proposals, and specialization into single-focus "tokens".

At one point in the near future this has to sort out on economic efficiency terms into a "dominant design" of a working portfolio of macro or micro or even publicly issued currencies while incorporating as much as needed of the coordination/auditing advantages of blockchains.

Just as a caveat: There is no reason to believe that this convergence to a dominant design will lead to a socially optimal/beneficial solution. That might be a topic for another thread, just to point out that this makes finding the right answer to my initial question more urgent.

Fwiw, I wrote about cryptocurrency areas from a network perspective here.
medium.com/@trialsanderro…