Plan K is a young chap from the UK teaching Kaspa economics on Youtube and X under the name @MikoGenno, primarily covering the nature of money in relation to traditional and crypto markets. Moreover, he is well known for popularizing the power law of Kaspa and developing an end game model of our future economic system. In this article, we cover the hard hitting questions concerning Kaspa economics; such as Gresham's Law, the future of hard money and its fiat counterpart, low-entropy forms of money, Austrian economics, wealth inequality, and the future economic security models of both Bitcoin and Kaspa. 

The Story of Plan K

What is your background? What do you do outside the realm of Kaspa economics? 

I am in my mid-twenties and live in the UK (for now). I am trained as a mechanical engineer and currently work in a role that requires both engineering and project management. I have always had a very logical mind and am drawn to markets in general (not just crypto). My gateway into crypto was probably born from my avid obsession with chess, which I played religiously in my teens and early twenties. I replaced chess with the bigger and more complex game of the markets, but I still play occasionally.

How did you discover Kaspa, and why were you drawn to it? What made it more enticing than, say, Bitcoin or Ethereum or some other layer-1 technology?

I found Kaspa on X and did a small amount of research on it at some very low numbers, along with many other projects. At the time, I was doing a trawl of X looking for projects that were receiving attention in the bear market of 2022 and could be contenders for big winners in the upcoming bull run when the alt season started. At the time, I was a Bitcoin Maxi and was purely looking for some mid-term holds to flip into more Bitcoin, so I "missed the forest for the trees" regarding what Kaspa was. I honestly don't remember what got me fully interested in Kaspa—likely just information on X again—but when I realized what the tech could do, there was a "penny drop" moment where I just thought, "Oh shit, this project is the real deal."

Regarding Kaspa being more enticing, I really have my Bitcoin Maxi roots to thank for that. Being a maxi gave me that foundational knowledge of what characteristics humans select in money, and Kaspa fulfilled essentially all of them. Proof of work is essential for true decentralization and for truly permissionless money, and so that made Kaspa an easy choice over any other Layer 1 using Proof of Stake as the consensus mechanism, which is the majority (I think there is a bit of a Proof of Stake bubble at the moment).

Kaspa, being more enticing than Bitcoin, came down primarily due to the scalability advantage that Kaspa offers. It takes all of the traits that have made Bitcoin successful and builds on them to make them accessible to everyone. In one way or another, all other projects have subtracted from Bitcoin to make it scalable, whereas Kaspa didn't. So essentially, while Bitcoin offers full self-sovereignty of money to a few people, Kaspa offers it to everyone, and so it really is the obvious choice. 

How did you get into the study of the history of economics?

My mind works in the macro; I think in the bigger picture and struggle to focus on details at times. The history of economics isn't just about economics; it encompasses a broad range of subjects, including politics, psychology, anthropology, evolutionary history, and even the laws of physics. It requires a bird's eye view of all of these different complex systems interacting with each other and connecting the dots between all of these subjects, so I really just fell into it more and more. I basically started my journey in the markets by day trading stocks and commodities (I had no clue what I was doing), and eventually, as I began to learn about the current macro picture and the sovereign debt bubble, the dots started connecting, and I am always looking for the next dot.

Who are your favorite economists or economic thinkers?

That's a tricky question because it would be difficult to pin it down to a few. If I had to say who has had the most influence on me, I would likely start with Ray Dalio and his work on the big debt cycle, Neil Howe for his work on generational theory, and perhaps Lyn Alden for her work on the history of money.

Some honorable mentions are David Graeber and Jason Lowery.

Kaspa-Crypto Economics 

Do you think Gresham's law still applies to the future of money? I ask because one of the biggest criticisms I hear about Kaspa is the following: Why spend a hard form of money? Why not save it and store it (i.e., as a store of value like Gold or Bitcoin) and use a cheaper form of money for spending (i.e., stablecoins, proof-of-stake coins, and so on)?

For those you don’t know, Gresham’s Law is an economic principle dubbed in 1857 by economist Henry Dunning Macleod after Sir Thomas Gresham. The law states that bad money (or, in other words, cheap money) drives out good money (i.e., hard money). The nominal value (the face value of the money) of good money bears little difference from its commodity value (value driven by unforgeable costliness). On the other hand, cheap money has a lower commodity value than its face value, as its unforgeable costliness is low (i.e., it is very easy to create and debase). 

Bad money, therefore, will drive out good money because individuals are more likely to spend bad, cheap coins rather than the good, hard ones, keeping the good ones for themselves. 

This is a very good question. I am very confident that Gresham's Law still applies because it is driven by human nature, which hasn't really changed all that much in the past 200,000 years. Gresham's Law can refer to a few scenarios and various situations based on legal tender laws:

1) When the commodity value of the money is greater than the face value. This obviously won't apply as crypto is digital and has zero commodity value.

2) When a central authority incorrectly sets an exchange rate between two forms of money, the money with a lower free market rate will circulate, and the higher free market value money will disappear from circulation. This is currently irrelevant as the market sets the rate, so it will always eventually seek out its true value. In an imaginary scenario where, say, Bitcoin and Kaspa are the two global monies and have a natural exchange rate that is then incorrectly set by a central authority, what would likely happen is that the asset that was set too low would disappear domestically, and then be used instead for international trade outside of the jurisdiction of that authority. Therefore, the asset would flow to where it can be correctly valued as a form of arbitrage.

3) A form of Gresham's Law also applies to hard monies versus soft monies, where, even if the free market correctly sets the exchange rate, people are more likely to want to spend the money that debases faster and save in the money that debases slower. This is true and essentially explains crypto's dramatic and explosive growth since its inception. Those who spend the harder form of money lose out (think of Bitcoin Pizza Day) compared to those who save it. However, this only happens until something called Tiers' Law kicks in, essentially the reverse of Gresham's Law. There comes a point where the worse forms of money become so worthless (especially if this occurs quickly, i.e., hyperinflation) that sellers stop accepting the softer money and will only accept the hard money. After all, a market is made of buyers and sellers, not just buyers.

So I could rephrase your question: "Why accept a soft form of money? Why would you swap your goods and services in exchange for soft money?"

An example of this is in 1920s Weimar Germany, as the German mark became so worthless that people simply stopped accepting it and instead stored their economic energy in things like a loaf of bread (as bread literally lasted longer and was harder money than the currency). This is also true after the fall of the Soviet Union when the use of the dollar became commonplace despite it not being legal tender.

So, in hyperinflation, Gresham's Law reverses without effective legal tender laws: people prefer to transact with what they see as the most valuable money. However, if forced to accept all types of money, they will keep the more valuable currency and pass the less desirable money to others.

In a system where both crypto and the dollar exist with legal tender laws, then a PoW crypto would be at threat due to Gresham's Law as it would have a low transaction count. However, it's unlikely that the dollar can coexist now that crypto exists, which brings us to the next question.

What do you think will be the result of the money wars? For example, do you think:

A). The world will adopt a gold/silver dual money system (such as with Bitcoin and Kaspa) of the past, whereby one form of money (historically gold) is used for larger purchases and the other for smaller exchanges and finance (historically silver). 

B). One form of money (the most saleable form of money) will win out in the end, according to Carl Menger's prediction. 

C). Many, perhaps unlimited, currencies or tokens could function as everyday money, adopting Hayek's prediction. 

Based on my understanding of money, one cryptocurrency will ultimately capture the lion's share of the money market, as money is generally a winner-takes-all market. This is essentially due to network effects, similar to language—one is at a disadvantage if one only uses a scarcely spoken language. There have been periods in history where more than one form of money has coexisted, such as the bimetallic silver and gold standard; however, this was only able to exist because gold was imperfect and not divisible enough for human needs, allowing silver to fulfill the divisibility role despite its lower stock-to-flow ratio. However, when the divisibility of gold was solved with paper notes, silver massively devalued against gold despite having been used for thousands of years.

Because cryptocurrency does not have the same physical limitations as commodity money, and Kaspa has solved the money trilemma, there is no market need for a dual standard. There is no gap left in the money market that Kaspa does not fill. This is another reason I also do not think the dollar can survive long-term—the thing that has really allowed fiat to exist in a world where gold exists is its orders of magnitude faster transaction speed, which has enabled much greater economic activity than gold could have allowed. Moreover, the state's monopoly on violence has played a significant role. However, now that we have a form of money that is both as fast and scalable as fiat and has an ultimate 0% inflation rate, fiat cannot survive and will, over time, be outcompeted by Kaspa.

Multiple forms of money would resemble a system of barter with many different floating exchange rates, and the fact that cryptocurrencies cannot be exchanged cross-chain would add friction rather than alleviate it, as money should. Therefore, it is highly unlikely that multiple layer 1s will be used. I believe there will always be niche forms of money—private clubs, casino chips, airline, and supermarket points—but it is highly unlikely these will be other layer 1s and are much more likely to be layer 2s on the dominant layer 1.

Is Kaspa's power law dead? If so, can it come back? Moreover, what are the implications of KAS no longer following a power law? I.e., what are the pros and cons? 

Kaspa's price has significantly broken the lower standard deviation bands of the power law. Its R² remains relatively high at 0.932 at the time of writing, compared to around 0.96 for Bitcoin; however, while it remains at these prices (12 cents), it will continue dropping. Is it dead? It depends on what you mean by dead. It has, for now, stopped being a predictive model.

This, I believe, is because of the KRC20 protocol change and the change to the cost of production (lower cost of production) from the increased number of transaction fees and the higher average transaction fee. For example, the current new supply of Kaspa being issued per day is around fi million. After KRC20 was launched, the daily fees paid went from around 2K Kaspa to millions, sometimes hitting 20 million Kaspa. This means that four times the amount of the new daily issuance was paid in fees in one day.

Kaspa has momentarily become a "softer" form of money (at least compared to how it was previously) because more of the supply is moving from holders to miners who are more likely to be sellers. So it would be akin to gold miners striking luck and coming across a rich deposit of gold, or similar to when the Spanish caused gold inflation by bringing back huge quantities from the New World. This would decrease the value of all gold while it was being mined and sold. However, while this has been a negative force on the price (a trade-off of Kaspa becoming a provably better medium of exchange and short-term sacrificing its store of value), it is a long-term trade-off needed, as Kaspa will eventually need to survive on fees. So, in the short term, the change in the miner defense line had a negative effect on price (essentially, the constant has lowered). However, the positive effects of network growth are still ongoing beneath the surface (the exponent and network growth rate remain the same).

With the planned reduction in block rewards, Kaspa is now reaching its cost of production despite the higher transaction fees and thus likely has found a new shifted power law growth curve (a reduction factor of around 0.35, or 65% less than the previously predicted values). As Crescendo comes into effect and potentially lowers transaction fees again, it may eliminate this reduction factor.

That, at least, is my current theory, and we will see how it plays out over the next few months.

If the power law truly has broken forever, Kaspa will likely act more like a normal altcoin and go parabolic. However, I think that is negative for network growth, adoption, and stability overall.

Is Kaspa the only way out of using fiat? How do you envision the collapse of fiat? 

Kaspa is not the only way out of fiat; Bitcoin is also a way out of fiat and is good enough for now to protect against the coming debasement. However, Kaspa is the only way out of Bitcoin and the adverse effects that people will experience on layer 2's. Kaspa is the only way for every single human to achieve true self-sovereignty with their money and wealth.

I believe that the future of fiat likely involves systematic debasement against both gold and crypto that has been acquired by nation-states, much like what was done in 1930s America. Once the value of fiat and crypto is more representative of their true values and they have a reasonable exchange rate, crypto should be relatively well distributed throughout the population at that point. Eventually, due to capital flight to regions with no legal tender laws, governments will be forced to relinquish their monopoly on money and remove legal tender laws. Gresham's law will kick in, and crypto will be more widely demanded by sellers, slowly overtaking fiat until governments capitulate and make it legal tender.

In a recent video, Kaspa - Order out of Chaos, you mentioned that gold is low entropy money. Can you expand on what you mean by this? Moreover, do you think forms of money can be high-extropy monies? 

Low entropy money, in this case, refers to two aspects, but it is essentially the same process occurring through different mechanisms. First, gold requires a tremendous amount of energy to create, and all the gold we have is formed either by neutron stars or in supernovae. Humans are nowhere near capable of creating it manually.

Because gold requires a substantial amount of concentrated energy to produce, the process of creating it dissipates this energy into less concentrated forms. According to the Second Law of Thermodynamics, this energy can never again be used for useful work and is thus no longer concentrated enough to facilitate the breakdown of gold. Therefore, to break down gold, it must be subjected to another significant amount of concentrated energy, such as in a nuclear reactor.

Due to the irreversibility of the Second Law, gold inherently becomes an extremely stable (durable) element, in contrast to something like an iron coin, which is less stable because it has taken less energy to form the elemental iron and is, therefore, easier to break down (through oxidation). It also has low entropy in the network sense, although these processes are fundamentally the same. Because extracting gold from the earth requires a large amount of energy, it serves as a receipt of work done within the monetary network. Consequently, the individual participants in the network selfishly use it to maintain their own claims on future economic energy, ensuring that it does not dissipate to other areas of the network. This ensures that energy flows and remains in the productive parts of the network that are performing real work.

I believe money can have high extropy, in the sense that a good form of money encourages efficient distribution of energy within a network, thereby allowing the network to grow stronger and more ordered. Think of it like the physical root and vascular system in a plant: the efficient distribution of energy through the roots, then the plant, and then to the primary vein of a leaf and its secondary veins allows energy to be channeled to the cells engaged in useful work, such as photosynthesis, rather than to cells that are growing in the shade. This, in turn, fosters more growth of the root network and allows for more nutrients to be harvested, creating a positive feedback loop.

Fiat money is analogous to a parasitic vine that sends cytokine hormones to the host plant, tricking it into believing that the vine is doing significant useful work when, in reality, it contributes no extra work or energy to the network. Instead, the vine grows at the expense of the plant, weakening the overall network. In this example, the hormone represents defunct money—it is easily copied, and thus, energy can be easily misappropriated. Gold, Bitcoin, and Kaspa are similar to hormones that cannot be copied, preventing any misappropriation of energy.

We can view BTC and KAS as true forms of money as commodities and proof-of-stake coins as quasi-equity coins. How do you view meme coins or tokenized community coins? What are they? What is their nature? 

I think meme coins have their place and obtain value essentially through culture. They have zero or very limited monetary value in them in the same way that Bitcoin or Kaspa do (as they are inherently "neutral"), and zero structured, revenue-sharing mechanics of quasi-equity PoS, but instead have value in the same way that something like the Mona Lisa has value. Art is completely irrelevant to survival, yet it can hold immense cultural value and can also provide enjoyment.

Meme coins are essentially the same as this—they provide a tokenized claim on a piece of culture. However, because culture is constantly shifting and attention is fickle, it remains to be seen how long each individual one will last. There will likely be some that survive semi-long terms (hundreds of years) because they represent a historically significant piece of culture, likely the same as NFTs. However, there is no guarantee that the Mona Lisa will still be popular in the next century.

What do you think is the future of Bitcoin? For example, do you think the community will eventually have to implement a fork to keep up with modern-day technology? Do you think Bitcoin's tech is stuck in time and will one day become obsolete? Will Bitcoin always remain as THE store of value with the likes of gold? 

I think in the short to mid-term, Bitcoin will continue to dominate, and I believe it will achieve nation-state adoption. Those who currently need it the most (the very rich) can easily pay the barrier to entry. Kaspa will continue to grow alongside being adopted by those who recognize its superiority as a medium of exchange and those who cannot afford the fees on the BTC base chain.

I do think that, at this point, Bitcoin is too ossified to be able to change—any significant hard fork at this point would cause another block war and fracture and weaken the network.

Once the negative effects of having to use the L2s emerge, this will likely catalyze the gradual migration to Kaspa for most people, especially those at a disadvantage and beholden to the L2s. It's possible that those who are still able to use the base chain will continue using it, as they recognize it as a "safer" store of value; it may remain one and grow faster than Kaspa, capturing more of the future productivity of humanity (meaning that it is, in fact, a slightly better store of value). This is supported by the fact that the Bitcoin power law exponent or growth rate is larger than Kaspa's.

Also, as we have seen with KRC20, the more Kaspa is used as a medium of exchange, the more it adversely affects its role as a store of value. Therefore, perhaps there exists a future where they can both coexist, with Bitcoin filling the store of value role better than Kaspa does, similar to how gold did to silver. This situation may result in Kaspa being a better medium of exchange, making it a slightly weaker store of value due to the higher velocity, higher miner rewards, and, therefore, slightly lower cost of production. Perhaps being a medium of exchange and a store of value are opposing values in money, and being better at one makes the other suffer.

Crypto - especially Bitcoin and Kaspa -  is essentially the actualization of the Austrian school of economics. Do you think crypto can learn from other schools of thought, and if so, which ones? 

Austrian economics historically would have preached that money must be a commodity because the value of money is derived from the commodity value (think Peter Schiff). Recently, Austrians have become more amenable to the idea of money as essentially a ledger (or a form of debt), but a ledger that a central authority cannot control. This is historically a more left-wing approach and falls more under the credit theory of money, outlined very well in David Graeber's book "Debt: The First 5,000 Years." Crypto is almost the amalgamation of these ideas.

Another potential challenge to the Austrian school is the overall stance on inequality. While inequality is the natural result of individual choices and abilities, left unchecked, market monopolies will arguably become too powerful and give rise to instability within systems. I think there needs to be a social contract where free markets can make money, but in return, some of that money will be used towards the overall benefit of the network. If left unchecked, any massive consolidation of wealth and power will inevitably result in instability and redistribution of that wealth and power, as seen in the French Revolution and potentially in the early stages of something similar in the U.S.

It's almost as if a monopolistic free market will result in a more authoritarian and less free society. Perhaps this is just the pendulum of history, but if a system could be designed to lessen these swings, I do think that would be a good thing overall. The system would, of course, have to work with rather than against human nature.

How important are smart contracts and layer 2 technologies for the future of Kaspa’s success? 

Smart contracts are the icing on the cake. I think Kaspa would survive without them; however, the more activity that happens on-chain, the more fees the miners collect, and thus the greater the network security. Overall, they are positive. Additionally, we have very little idea of what new forms of contracts and exchanges the future holds, especially with AGI and agents entering the picture. Therefore, Kaspa must adapt to the new demands, which it can do with smart contracts.