A deeper diving in the Bitcoin Power Law model

Last month, I reviewed the Energy Law model, which was proposed by the Italian physicist Giovanni Santostasi for the first time. Remember that Logaretm fell bitcoin against the logarithm over time generates a narrow episode, and this is consistent with the price of bitcoin after the energy law. After speaking to Giovanni and reading more of his works, it turned out that Bitcoin addresses also follow the authority of power. Therefore, not only the price but also the number of titles over time is suitable for the energy law.

Giovanni’s recent research on the Energy Law is part of a broader trend for the use of network theory of bitcoin modeling. As we know, the bitcoin network is necessary to impose the decentralized consensus. Just as the Internet follows Metcalfe, the value of bitcoin also increases the size of the network.

There are several ways to measure the size of the network. The traditional method is to use the number of nodes on the network, where the full node is the Bitcoin device that maintains a copy of the full Blockchain on the disk, and confirms all transactions during its publication over the network. Giovanni uses a broader idea of ​​the network, with Bitcoin as a node, and transactions between addresses as links. This most generalized approach will be many nodes, because the number of bitcoin addresses is theoretically unlimited. Anyone can create Bitcoin in a manner without permission by generating a private key pair.

Using bitcoin headlines as complications that have consequences that should be taken into account. There are some behaviors that increase bitcoin addresses without increasing Bitcoin’s dependence. For example, suppose a single user contains 10 bitcoin coins in one address that sends this bitcoin to 10 addresses that control it, with both Bitcoin. This will not increase the adoption of bitcoin, but it will increase the number of addresses. Likewise, the use of the mixing service that recycles Bitcoin by sending it to new addresses, will not also represent an increase in the use of the network, but it will technically increase the size of the network if it is measured in the addresses.

Aside from the edge cases such as these, the number of addresses should be an approximate agent for bitcoin. The relationship may not be individual, but it should be in the right direction, as the use of more Bitcoin network leads to more bitcoin addresses over time.

Causing for the link

However, does the power law determine what causes bitcoin value? no. The Authority’s Law is a statistical model that determines a suitability between the external measures of Bitcoin (price, time, addresses, etc.). It does not provide the basic economic forces that pay these measures. Therefore, although Bitcoin has increased over time, the power law does not explain the reason for the creation of people more Bitcoin addresses over time.

This will require what economists call a “structural” model for Bitcoin, rather than a “reduced” statistical model such as the Law of Authority. The structural model determines some of the basic economic structures that determine the purchase and sale of bitcoin. The value of bitcoin, based on its price, is made in the markets through supply and demand, like all markets. Therefore, to really explain the value of Bitcoin, and therefore its price, it is necessary to explain what individuals lead to the purchase of Bitcoin.

To see a slightly different example, imagine that you are seeking to explain the NVIDIA share price during the past few years. You can draw the price for the price for the time, the record price for the registry time, the record price for time or any other transfer. All of these will be the statistical representations of the price, but they are not causal. The real causal effect that we all know is the demand for nerve networks. However, the identification of the nerve network in a slope that includes the price of NVIDIA share is a chaotic action. But this does not diminish the truth that indicates that nerve networks are the basic technology that drives artificial intelligence, and which pays the demand for the rapid computing that NVIDIA provides uniquely to the market. For bitcoin, the scarcity is this causal effect.

But everything was not lost. It may be possible to build a structural economic model for Bitcoin demand at a slightly higher level of abstraction. Imagine bitcoin buyers in four categories: the short -term traders and their long -term holders, companies and the nation -state. Each of these groups has their own goals, time preferences, budgets and risk appetite. He buys long -term holders first, then companies, then national countries, while traders overlap in the short term all the time. For example, their long -term holders may lead the level of bitcoin measured, for example, through a 180 -day moving average, while in short term traders determines short -term fluctuations from week to week or month.

I am optimistic that the model based on the most comprehensive agent can double the energy law. This is an exciting field for future research that combines material and social sciences, such as Bitcoin itself.