Bitcoin Forum

Economy => Economics => Topic started by: muyuu on September 12, 2012, 11:24:30 AM


Title: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 11:24:30 AM
With the reward halving just about 2 months away, I was once again thinking about the coin creation model in Bitcoin. Pros and cons.

What do you guys think it will be the best model for coin creation?

a - Something like that of bitcoin: fixed long term hard limit, with highest creation rates at the beginning (inverted exponential, or some function with a similar behaviour).
b - Constant fixed block reward rate. Effectively this make the amount unbounded but it's more than anything a psychological perception, over time coin creation would converge towards 0%.
c - Constant % growth over coin base (starting from a premined base, either usable or not, or a period of "a" or "b" - above - coin creation)
d - Something essentially different to a, b, or c. External fixing, variable depending on transactions, etc. Also, elements that could be added to a, b or c (substantial compulsory fees, demurrage, etc).


I think it's worth noting that bitcoin is not really "deflationary" and it won't be for a long time. We are still in a stage of rapid growth both in terms of users and in terms of coins. Right now, yearly monetary creation rates are still 25% yearly for this year, and after halving it will be over 10% for two more years. This is still very high for what we're used to in FIAT world in most industrialised countries in modern times. Sure, there is the perceived expectation of ~0% in the future, but this future is still decades away (under 1% first in year 17, under 0.1% first in year 29) and I don't think many people in the Bitcoin community think that long term. At some point, maybe in about 30 or 40 years, coin loss will beat coin generation.

However the bitcoin model makes general sense in relation to the expected adoption of a new technology. User adoption strongly growths early, with peaks of "viral" stages of adoption, and over time it will achieve a plateau, or even a regression given enough time. It seems reasonable that coin creation is faster at the beginning to match demand. It also allows for a relatively short time frame until we have a low coin creation rate (17 years to hit 1%, vs 100 years if coin creation was constant). So basically most of us will live to see how it is. What I think it's a bit radical is the halving policy instead of a more gradual adjustment. It definitely creates a psychological reaction that translates to the market and to the behaviour of users and miners.

Code:
bitcoin-like model, starting reward 50, 10 min per block
after year 1 100.0 % yearly growth -- block reward: 50 total monetary mass: 2629800.0
after year 2 50.0 % yearly growth -- block reward: 50 total monetary mass: 5259600.0
after year 3 33.3333333333 % yearly growth -- block reward: 50 total monetary mass: 7889400.0
after year 4 25.0 % yearly growth -- block reward: 50 total monetary mass: 10519200.0
after year 5 11.1111111111 % yearly growth -- block reward: 25.0 total monetary mass: 11834100.0
after year 6 10.0 % yearly growth -- block reward: 25.0 total monetary mass: 13149000.0
after year 7 9.09090909091 % yearly growth -- block reward: 25.0 total monetary mass: 14463900.0
after year 8 8.33333333333 % yearly growth -- block reward: 25.0 total monetary mass: 15778800.0
after year 9 4.0 % yearly growth -- block reward: 12.5 total monetary mass: 16436250.0
after year 10 3.84615384615 % yearly growth -- block reward: 12.5 total monetary mass: 17093700.0
after year 11 3.7037037037 % yearly growth -- block reward: 12.5 total monetary mass: 17751150.0
after year 12 3.57142857143 % yearly growth -- block reward: 12.5 total monetary mass: 18408600.0
after year 13 1.75438596491 % yearly growth -- block reward: 6.25 total monetary mass: 18737325.0
after year 14 1.72413793103 % yearly growth -- block reward: 6.25 total monetary mass: 19066050.0
after year 15 1.69491525424 % yearly growth -- block reward: 6.25 total monetary mass: 19394775.0
after year 16 1.66666666667 % yearly growth -- block reward: 6.25 total monetary mass: 19723500.0
after year 17 0.826446280992 % yearly growth -- block reward: 3.125 total monetary mass: 19887862.5
after year 18 0.819672131148 % yearly growth -- block reward: 3.125 total monetary mass: 20052225.0
after year 19 0.813008130081 % yearly growth -- block reward: 3.125 total monetary mass: 20216587.5
after year 20 0.806451612903 % yearly growth -- block reward: 3.125 total monetary mass: 20380950.0
after year 21 0.401606425703 % yearly growth -- block reward: 1.5625 total monetary mass: 20463131.25
after year 22 0.4 % yearly growth -- block reward: 1.5625 total monetary mass: 20545312.5
after year 23 0.398406374502 % yearly growth -- block reward: 1.5625 total monetary mass: 20627493.75
after year 24 0.396825396825 % yearly growth -- block reward: 1.5625 total monetary mass: 20709675.0
after year 25 0.19801980198 % yearly growth -- block reward: 0.78125 total monetary mass: 20750765.625
after year 26 0.197628458498 % yearly growth -- block reward: 0.78125 total monetary mass: 20791856.25
after year 27 0.197238658777 % yearly growth -- block reward: 0.78125 total monetary mass: 20832946.875
after year 28 0.196850393701 % yearly growth -- block reward: 0.78125 total monetary mass: 20874037.5
after year 29 0.0983284169125 % yearly growth -- block reward: 0.390625 total monetary mass: 20894582.8125
after year 30 0.098231827112 % yearly growth -- block reward: 0.390625 total monetary mass: 20915128.125
after year 31 0.0981354268891 % yearly growth -- block reward: 0.390625 total monetary mass: 20935673.4375
after year 32 0.0980392156863 % yearly growth -- block reward: 0.390625 total monetary mass: 20956218.75
after year 33 0.0489955903969 % yearly growth -- block reward: 0.1953125 total monetary mass: 20966491.4062
after year 34 0.048971596474 % yearly growth -- block reward: 0.1953125 total monetary mass: 20976764.0625
after year 35 0.0489476260401 % yearly growth -- block reward: 0.1953125 total monetary mass: 20987036.7188
after year 36 0.0489236790607 % yearly growth -- block reward: 0.1953125 total monetary mass: 20997309.375
after year 37 0.0244558571778 % yearly growth -- block reward: 0.09765625 total monetary mass: 21002445.7031
after year 38 0.0244498777506 % yearly growth -- block reward: 0.09765625 total monetary mass: 21007582.0312
after year 39 0.0244439012466 % yearly growth -- block reward: 0.09765625 total monetary mass: 21012718.3594
after year 40 0.0244379276637 % yearly growth -- block reward: 0.09765625 total monetary mass: 21017854.6875
after year 41 0.0122174709835 % yearly growth -- block reward: 0.048828125 total monetary mass: 21020422.8516
after year 42 0.0122159784999 % yearly growth -- block reward: 0.048828125 total monetary mass: 21022991.0156
after year 43 0.0122144863808 % yearly growth -- block reward: 0.048828125 total monetary mass: 21025559.1797
after year 44 0.0122129946263 % yearly growth -- block reward: 0.048828125 total monetary mass: 21028127.3438
after year 45 0.00610612444282 % yearly growth -- block reward: 0.0244140625 total monetary mass: 21029411.4258
after year 46 0.00610575161802 % yearly growth -- block reward: 0.0244140625 total monetary mass: 21030695.5078
after year 47 0.00610537883876 % yearly growth -- block reward: 0.0244140625 total monetary mass: 21031979.5898
after year 48 0.00610500610501 % yearly growth -- block reward: 0.0244140625 total monetary mass: 21033263.6719
after year 49 0.0030524098776 % yearly growth -- block reward: 0.01220703125 total monetary mass: 21033905.7129
after year 50 0.00305231670838 % yearly growth -- block reward: 0.01220703125 total monetary mass: 21034547.7539

Code:
fixed reward model (50 per block, 10 min per block)
after year 1 100.0 % yearly growth -- block reward: 50 total monetary mass: 2629800.0
after year 2 50.0 % yearly growth -- block reward: 50 total monetary mass: 5259600.0
after year 3 33.3333333333 % yearly growth -- block reward: 50 total monetary mass: 7889400.0
after year 4 25.0 % yearly growth -- block reward: 50 total monetary mass: 10519200.0
after year 5 20.0 % yearly growth -- block reward: 50 total monetary mass: 13149000.0
after year 6 16.6666666667 % yearly growth -- block reward: 50 total monetary mass: 15778800.0
after year 7 14.2857142857 % yearly growth -- block reward: 50 total monetary mass: 18408600.0
after year 8 12.5 % yearly growth -- block reward: 50 total monetary mass: 21038400.0
after year 9 11.1111111111 % yearly growth -- block reward: 50 total monetary mass: 23668200.0
after year 10 10.0 % yearly growth -- block reward: 50 total monetary mass: 26298000.0
after year 11 9.09090909091 % yearly growth -- block reward: 50 total monetary mass: 28927800.0
after year 12 8.33333333333 % yearly growth -- block reward: 50 total monetary mass: 31557600.0
after year 13 7.69230769231 % yearly growth -- block reward: 50 total monetary mass: 34187400.0
after year 14 7.14285714286 % yearly growth -- block reward: 50 total monetary mass: 36817200.0
after year 15 6.66666666667 % yearly growth -- block reward: 50 total monetary mass: 39447000.0
after year 16 6.25 % yearly growth -- block reward: 50 total monetary mass: 42076800.0
after year 17 5.88235294118 % yearly growth -- block reward: 50 total monetary mass: 44706600.0
after year 18 5.55555555556 % yearly growth -- block reward: 50 total monetary mass: 47336400.0
after year 19 5.26315789474 % yearly growth -- block reward: 50 total monetary mass: 49966200.0
after year 20 5.0 % yearly growth -- block reward: 50 total monetary mass: 52596000.0
after year 21 4.7619047619 % yearly growth -- block reward: 50 total monetary mass: 55225800.0
after year 22 4.54545454545 % yearly growth -- block reward: 50 total monetary mass: 57855600.0
after year 23 4.34782608696 % yearly growth -- block reward: 50 total monetary mass: 60485400.0
after year 24 4.16666666667 % yearly growth -- block reward: 50 total monetary mass: 63115200.0
after year 25 4.0 % yearly growth -- block reward: 50 total monetary mass: 65745000.0
after year 26 3.84615384615 % yearly growth -- block reward: 50 total monetary mass: 68374800.0
after year 27 3.7037037037 % yearly growth -- block reward: 50 total monetary mass: 71004600.0
after year 28 3.57142857143 % yearly growth -- block reward: 50 total monetary mass: 73634400.0
after year 29 3.44827586207 % yearly growth -- block reward: 50 total monetary mass: 76264200.0
after year 30 3.33333333333 % yearly growth -- block reward: 50 total monetary mass: 78894000.0
after year 31 3.22580645161 % yearly growth -- block reward: 50 total monetary mass: 81523800.0
after year 32 3.125 % yearly growth -- block reward: 50 total monetary mass: 84153600.0
after year 33 3.0303030303 % yearly growth -- block reward: 50 total monetary mass: 86783400.0
after year 34 2.94117647059 % yearly growth -- block reward: 50 total monetary mass: 89413200.0
after year 35 2.85714285714 % yearly growth -- block reward: 50 total monetary mass: 92043000.0
after year 36 2.77777777778 % yearly growth -- block reward: 50 total monetary mass: 94672800.0
after year 37 2.7027027027 % yearly growth -- block reward: 50 total monetary mass: 97302600.0
after year 38 2.63157894737 % yearly growth -- block reward: 50 total monetary mass: 99932400.0
after year 39 2.5641025641 % yearly growth -- block reward: 50 total monetary mass: 102562200.0
after year 40 2.5 % yearly growth -- block reward: 50 total monetary mass: 105192000.0
after year 41 2.43902439024 % yearly growth -- block reward: 50 total monetary mass: 107821800.0
after year 42 2.38095238095 % yearly growth -- block reward: 50 total monetary mass: 110451600.0
after year 43 2.32558139535 % yearly growth -- block reward: 50 total monetary mass: 113081400.0
after year 44 2.27272727273 % yearly growth -- block reward: 50 total monetary mass: 115711200.0
after year 45 2.22222222222 % yearly growth -- block reward: 50 total monetary mass: 118341000.0
after year 46 2.17391304348 % yearly growth -- block reward: 50 total monetary mass: 120970800.0
after year 47 2.12765957447 % yearly growth -- block reward: 50 total monetary mass: 123600600.0
after year 48 2.08333333333 % yearly growth -- block reward: 50 total monetary mass: 126230400.0
after year 49 2.04081632653 % yearly growth -- block reward: 50 total monetary mass: 128860200.0
after year 50 2.0 % yearly growth -- block reward: 50 total monetary mass: 131490000.0


An example for model c  (after a period of a).
Initial block reward 100, 10 minutes per block, block reward decreases to 90% of itself every year, until a target yearly creation growth rate is matched (2% in this case, the discrepancy to 1.9607% comes from adjusting the block at the beginning of the year and measuring the yearly growth at year end). Target is achieved in this case in ~17 years, and then growth is fixed at ~2% a year. Initial reward adjustment is not dramatic. Coin loss is not a problem. Doubling rate at 2% is 35 years - saving is not strongly punished since 35 years is a reasonable time frame in life-time terms.
Code:
Decreasing reward converging to a given rate (2%) with a starting block reward = 100 and initial block modification rate of 0.900000 (adjusted yearly)
after year 1 100.0 % yearly growth -- block reward: 100 total monetary mass: 5259600.0
after year 2 47.3684210526 % yearly growth -- block reward: 90.0 total monetary mass: 9993240.0
after year 3 29.889298893 % yearly growth -- block reward: 81.0 total monetary mass: 14253516.0
after year 4 21.198022681 % yearly growth -- block reward: 72.9 total monetary mass: 18087764.4
after year 5 16.0215867744 % yearly growth -- block reward: 65.61 total monetary mass: 21538587.96
after year 6 12.6022549988 % yearly growth -- block reward: 59.049 total monetary mass: 24644329.164
after year 7 10.1866559735 % yearly growth -- block reward: 53.1441 total monetary mass: 27439496.2476
after year 8 8.39805729184 % yearly growth -- block reward: 47.82969 total monetary mass: 29955146.6228
after year 9 7.02712386344 % yearly growth -- block reward: 43.046721 total monetary mass: 32219231.9606
after year 10 5.94822147542 % yearly growth -- block reward: 38.7420489 total monetary mass: 34256908.7645
after year 11 5.08137313274 % yearly growth -- block reward: 34.86784401 total monetary mass: 36090817.8881
after year 12 4.37323736196 % yearly growth -- block reward: 31.381059609 total monetary mass: 37741336.0992
after year 13 3.78686585653 % yearly growth -- block reward: 28.2429536481 total monetary mass: 39226802.4893
after year 14 3.29585076819 % yearly growth -- block reward: 25.4186582833 total monetary mass: 40563722.2404
after year 15 2.88081312016 % yearly growth -- block reward: 22.876792455 total monetary mass: 41766950.0163
after year 16 2.52720808038 % yearly growth -- block reward: 20.5891132095 total monetary mass: 42849855.0147
after year 17 2.22390483982 % yearly growth -- block reward: 18.5302018885 total monetary mass: 43824469.5132
after year 18 1.96223984367 % yearly growth -- block reward: 16.6771816997 total monetary mass: 44701622.5619
after year 19 1.96078431373 % yearly growth -- block reward: 16.9981072941 total monetary mass: 45595655.0132
after year 20 1.96078431373 % yearly growth -- block reward: 17.3380694399 total monetary mass: 46507568.1134
after year 21 1.96078431373 % yearly growth -- block reward: 17.6848308287 total monetary mass: 47437719.4757
after year 22 1.96078431373 % yearly growth -- block reward: 18.0385274453 total monetary mass: 48386473.8652
after year 23 1.96078431373 % yearly growth -- block reward: 18.3992979942 total monetary mass: 49354203.3425
after year 24 1.96078431373 % yearly growth -- block reward: 18.7672839541 total monetary mass: 50341287.4094
after year 25 1.96078431373 % yearly growth -- block reward: 19.1426296332 total monetary mass: 51348113.1575
after year 26 1.96078431373 % yearly growth -- block reward: 19.5254822259 total monetary mass: 52375075.4207
after year 27 1.96078431373 % yearly growth -- block reward: 19.9159918704 total monetary mass: 53422576.9291
after year 28 1.96078431373 % yearly growth -- block reward: 20.3143117078 total monetary mass: 54491028.4677
after year 29 1.96078431373 % yearly growth -- block reward: 20.7205979419 total monetary mass: 55580849.037
after year 30 1.96078431373 % yearly growth -- block reward: 21.1350099008 total monetary mass: 56692466.0178
after year 31 1.96078431373 % yearly growth -- block reward: 21.5577100988 total monetary mass: 57826315.3381
after year 32 1.96078431373 % yearly growth -- block reward: 21.9888643008 total monetary mass: 58982841.6449
after year 33 1.96078431373 % yearly growth -- block reward: 22.4286415868 total monetary mass: 60162498.4778
after year 34 1.96078431373 % yearly growth -- block reward: 22.8772144185 total monetary mass: 61365748.4474
after year 35 1.96078431373 % yearly growth -- block reward: 23.3347587069 total monetary mass: 62593063.4163
after year 36 1.96078431373 % yearly growth -- block reward: 23.801453881 total monetary mass: 63844924.6846
after year 37 1.96078431373 % yearly growth -- block reward: 24.2774829586 total monetary mass: 65121823.1783
after year 38 1.96078431373 % yearly growth -- block reward: 24.7630326178 total monetary mass: 66424259.6419
after year 39 1.96078431373 % yearly growth -- block reward: 25.2582932702 total monetary mass: 67752744.8347
after year 40 1.96078431373 % yearly growth -- block reward: 25.7634591356 total monetary mass: 69107799.7314
after year 41 1.96078431373 % yearly growth -- block reward: 26.2787283183 total monetary mass: 70489955.7261
after year 42 1.96078431373 % yearly growth -- block reward: 26.8043028846 total monetary mass: 71899754.8406
after year 43 1.96078431373 % yearly growth -- block reward: 27.3403889423 total monetary mass: 73337749.9374
after year 44 1.96078431373 % yearly growth -- block reward: 27.8871967212 total monetary mass: 74804504.9361
after year 45 1.96078431373 % yearly growth -- block reward: 28.4449406556 total monetary mass: 76300595.0349
after year 46 1.96078431373 % yearly growth -- block reward: 29.0138394687 total monetary mass: 77826606.9356
after year 47 1.96078431373 % yearly growth -- block reward: 29.5941162581 total monetary mass: 79383139.0743
after year 48 1.96078431373 % yearly growth -- block reward: 30.1859985833 total monetary mass: 80970801.8557
after year 49 1.96078431373 % yearly growth -- block reward: 30.7897185549 total monetary mass: 82590217.8929
after year 50 1.96078431373 % yearly growth -- block reward: 31.405512926 total monetary mass: 84242022.2507

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 11:45:05 AM
D - an unbounded supply that is determined by the number of people who want and work for new money. If you can guide the cost to produce new money and keep it somewhat stable, new money will only be produced when it is profitable to do so, such as when the network expands and demand increases. How different money would be if it actually took consistent effort rather than putting magical zeroes in a computer.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 01:01:03 PM
Quote from: ribuck on September 12, 2012, 11:56:28 AM
That's how gold mining works. There's always more gold to be found, if there are more people who want to work for new gold.

Not exactly. Gold mining has diminishing returns as the easy stores of gold have all generally been found. It becomes more and more difficult to search for gold and the resources required to do so get greater.

Quote
Bitcoin improves on that model by making the inflation rate predictable. People can argue all they want about how Bitcoin's coin creation rate may not be "optimal", but it's good enough that it's not going to make-or-break the currency, and predictability is far more important.

Well the question of the thread is what would you think would be the best model. I think it will make-or-break the currency because it won't act like a currency, it will forever act like a commodity.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 01:18:26 PM
Quote from: ribuck on September 12, 2012, 11:56:28 AM
Nothing dramatic is going to happen when the block reward drops from 50 to 25, because everyone already knows about it.

I think there's nervousness in the market over the expectation of the reward halving, that's already showing in difficulty and in valuation, and I also think that the reward halving will cause significant reaction in the community. I think you are putting a bit too much faith on users rationality and ability to see through the market when you dismiss the effect of the halving just because it's predictable. How many miners will simply turn off their older machines in early December? The fact that we have rather unpredictable mining technology breakthroughs doesn't help.

I'm not saying that it's a make-or-break factor, but the halvings will definitely affect the community. The question is how exactly and what would you rather have if you could choose.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 01:26:59 PM
A lot of inefficient miners will turn off their hardware.  The same inefficient miners will turn off their hardware if the price dropped to $5 USD:BTC and stayed there for a couple of weeks.  Miners turning off rigs isn't unexpected.  Those miners who turned off rigs would turn them right back on if USD:BTC went to $20 and stayed there for a couple weeks.

While the halving will affect the community I would point out the FIRST halving will (IMHO already has) have the largest effect.  By the third or fourth halving fees will be significantly more important and the money supply so large relative to generation rate the halving really won't make much of a splash.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 01:35:16 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:26:59 PM
While the halving will affect the community I would point out the FIRST halving will (IMHO already has) have the largest effect.  By the third or fourth halving fees will be significantly more important and the money supply so large relative to generation rate the halving really won't make much of a splash.

Well TangibleCryptography, I'm not so sure about that. From 25->12.5, there need to be 25,000 transactions every ten minutes at the current .0005 fee to make up for the "loss". About 42 t/s, or about the same level of popularity as paypal. For it to not have a significant effect, the loss of 12.5 coins would have to be dwarfed by the transaction fees, meaning there'd have to be at least several hundred t/s. It could happen, but I still think 25->12.5 will be pretty significant and definitely not "not much of a splash".

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 01:43:16 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:26:59 PM
A lot of inefficient miners will turn off their hardware.  The same inefficient miners will turn off their hardware if the price dropped to $5 USD:BTC and stayed there for a couple of weeks.  Miners turning off rigs isn't unexpected.  Those miners who turned off rigs would turn them right back on if USD:BTC went to $20 and stayed there for a couple weeks.

While the halving will affect the community I would point out the FIRST halving will (IMHO already has) have the largest effect.  By the third or fourth halving fees will be significantly more important and the money supply so large relative to generation rate the halving really won't make much of a splash.

I think a lot of people will sell their equipment. ASIC wide adoption and reward halving will seemingly happen close to each other, causing a perfect storm for mining concentration. Valuation is extremely hard to predict but I don't think it will shoot up as much as it should to make GPU mining profitable for much longer. We will see.

Another thing I didn't mention, is that certain elements are easy to modify in Bitcoin as is. For instance, enforcing more substantial fees is something the miners can decide and there will be fewer in the future. Even future halvings could be changed or postponed if there was enough support. That would be harder to agree IMO, but the fee part of the equation can be a relatively easy change.

I do think we should aim for a minimum growth rate though. Probably stop after the second halving so lost coins (to early scams/hacks/accidents) don't have as big an impact. Stopping the halvings after the 2nd halving would also converge to 0% long term but it would give us a few decades between 4% and 1%. Maybe stop after the second halving and then setting the block to meet a minimum rate around 1~2% a year (still very low, but significant over generations so late entrants are not as punished as they would be with a hard limit on total coins).

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 01:51:17 PM
Coins scammed or hacked aren't lost.  Criminal buy and sell them.  They remain part of the money supply.

You will NEVER be able to change the minting rate.  Even 99% of miners can't do that. It would require a complete consensus of all users, all nodes, all merchants, all exchanges, and all miners.  Doing it with less will cause a permanent fork in the network and the new fork probably not supported enough to survive.  Say you make BTC generation 12.5 but MtGox accepts coins from the original fork 6.25 BTC rate.  You now have a situation where two entities are calling themselves Bitcoin but they are completely incompatible.  

Given non-miners gain nothing from a higher generation rate why would they update their clients just to make miners richer?  If they don't upgrade their clients well they won't even be able to see the new blocks as valid.  The miners who continue to mine the "old fork" will see tx rise and difficulty fall and become massively profitable.

Best case scenario is they most nodes simply ignore the "hard fork miners" and the fork just goes away.  Worst case scenario is you end up in a situation where both forks have significant support and it likely will very damaging to Bitcoin.  Can you imagine the noob confusion if they send Bitcoin to a merchant's address but the merchant does see them because the merchant is using the "other" Bitcoin?

Note:
The topic is interesting for creation of new alt-coins.  However Bitcoin is probably never going to change.  Not something as fundamental as the minting rate.  Changing it after the fact would be essentially a bait and switch and would lead to a loss of confidence.  If miners can change the rate once they can change it again.  What is to say someday miners won't act like the Fed and determine the appropriate mining rate in order to control economic expansion?   

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 01:56:57 PM
Quote from: Etlase2 on September 12, 2012, 01:35:16 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:26:59 PM
While the halving will affect the community I would point out the FIRST halving will (IMHO already has) have the largest effect.  By the third or fourth halving fees will be significantly more important and the money supply so large relative to generation rate the halving really won't make much of a splash.

Well TangibleCryptography, I'm not so sure about that. From 25->12.5, there need to be 25,000 transactions every ten minutes at the current .0005 fee to make up for the "loss". About 42 t/s, or about the same level of popularity as paypal. For it to not have a significant effect, the loss of 12.5 coins would have to be dwarfed by the transaction fees, meaning there'd have to be at least several hundred t/s. It could happen, but I still think 25->12.5 will be pretty significant and definitely not "not much of a splash".

Miner's costs are primarily in USD.  Say x fees are needed to replace a 12.5 BTC reduction assumes a fixed USD:BTC exchange rate.  If USD:BTC exchange rate doubled over the next 4 years miners under 12.5 BTC subsidy could be more profitable than under a 25 BTC subsidy (and current exchange rate).  Yes the day the subsidy changes miner will see their daily profits change but miners will be anticipating it well in advance (not buying new hardware, scrapping obsolete rigs, etc).

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Explodicle on September 12, 2012, 01:58:47 PM
I'd prefer B since it keeps the money supply relatively constant in the long term (lost coins), but it's such a minor issue that for a deflationary currency Bitcoin is good enough as-is. Bitcoin has convinced me that deflation is not a huge problem, but it still might be suboptimal.

However, both EnCoin/decrits and Freicoin have some good ideas, so I'm keeping an eye out for those. It's unfortunate that much of the Freicoin community supports mandatory payment to a central Freicoin Foundation, though.

Make ALL the coins! Let the market decide, because I'm sure not smart enough to.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 02:02:28 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:56:57 PM
Miner's costs are primarily in USD.  That assumes a fixed USD:BTC exchange rate.  If USD:BTC exchange rate doubled over the next 4 years miners under 12.5 BTC subsidy could be more profitable than under a 25 BTC subsidy (and current exchange rate).

C'mon bro, the exchange rate is going to rise over time, and it certainly isn't going to double right after the switch from 25->12.5, so miners are going to take a big hit and the network TH/s is going to drop a lot, again (ignoring ASICs and what affect they might have). Satoshi made a mistake in having such stark drops. It would be much better if the exchange rate could rise gradually as the mining reward drops gradually. Oh well.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: thezerg on September 12, 2012, 02:10:11 PM
Quote from: ribuck on September 12, 2012, 11:56:28 AM
Quote from: Etlase2 on September 12, 2012, 11:45:05 AM
D - an unbounded supply that is determined by the number of people who want and work for new money
That's how gold mining works. There's always more gold to be found, if there are more people who want to work for new gold.

Bitcoin improves on that model by making the inflation rate predictable. People can argue all they want about how Bitcoin's coin creation rate may not be "optimal", but it's good enough that it's not going to make-or-break the currency, and predictability is far more important.

Nothing dramatic is going to happen when the block reward drops from 50 to 25, because everyone already knows about it.

The above "nothing dramatic" is not well considered.  People know about it but are miners hoarding coins now waiting for the halving?  I don't think many are, its still too early.  They have bills to pay.  But if you were a miner, would you sell ANY coins 1 day before the drop?  Might as well wait to see what happens... how about 1 week before?  So expect no ask depth in the days leading up to the reward halving.

Econ 101 people think supply vs demand means a reward drop in half = a doubling of price.  But this assumes a linear x=y supply demand curve.  Depending on the flexibility of demand (i.e. gasoline is inflexible while M&Ms are very flexible) this could be very much not x=y, but x=100y or x=y/100.  To figure out what the curve really is, you have to ask yourself, how flexible is demand for BTC?


But, the above argument is faulty.  It focuses on instantaneous supply.  But in fact the supply is not changing (due to miners, it will change due to anticipatory hoarding), it is the RATE of supply increase that is changing (because bitcoins are not a consumable).  So a lack of supply on day 0 of reward halving cannot be fixed in the classical econ 101 manner by an increase in production tomorrow.  There will be a similar lack on day 1,2,3, etc.  The issue must be fixed by a reduction in demand.  

Given a constant economy, this reduction in demand can only be addressed by an increase in the price of BTC compared to other commodities.  In other words, until SR merchants, etc lower their prices in BTC to compensate for an increase in BTC price (or sell less product) we'll see a constant increase in price to meet existing demand.  And if the BTC economy is growing, we'll see great pressure on the price due to lack of supply.  

The above is the normal negative feedback mechanism that keeps prices sane.  But if the BTC economy grows BECAUSE of an increase in BTC price (i.e. due to new interest from investors),  we could see an unsustainable positive feedback mechanism.  This will cause the hockey stick bitcoin price appreciation until the positive feedback switches back to negative (i.e. investors see BTC as overpriced).

So the block rate halving is more likely to affect (increase) the long term appreciation of the value of a BTC, combined with a spike leading up to the reward halving which could turn into a massive price appreciation event.  And then (regardless of whether we see a small spike or a big rise), we'll see a possible dump afterwards as short term hoarding is sold.



Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 02:20:43 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:51:17 PM
Coins scammed or hacked aren't lost.  Criminal buy and sell them.  They remain part of the money supply.

There are permanently lost coins though. If halving goes on indefinitely as soon as in 30 years time we might have more coins lost than generated, because generation will be extremely low.

The point about criminals is that coin concentration is so extremely concentrated in the early years that hacking is strongly encouraged, and it also coincides with the community and software being the most immature. It's a rather unfortunate nature of things

Quote from: DeathAndTaxes on September 12, 2012, 01:51:17 PM
You will NEVER be able to change the minting rate.  Even 99% of miners can't do that. It would require a complete consensus of all users, all nodes, all merchants, all exchanges, and all miners.  Doing it with less will cause a permanent fork in the network and the new fork probably not supported enough to survive.  Say you make BTC generation 12.5 but MtGox accepts coins from the original fork 6.25 BTC rate.  You now have a situation where two entities are calling themselves Bitcoin but they are completely incompatible.  

Given non-miners gain nothing from a higher generation rate why would they update their clients just to make miners richer?  If they don't upgrade their clients well they won't even be able to see the new blocks as valid.  The miners who continue to mine the "old fork" will see tx rise and difficulty fall and become massively profitable.

Best case scenario is they most nodes simply ignore the "hard fork miners" and the fork just goes away.  Worst case scenario is you end up in a situation where both forks have significant support and it likely will very damaging to Bitcoin.  Can you imagine the noob confusion if they send Bitcoin to a merchant's address but the merchant does see them because the merchant is using the "other" Bitcoin?

This is something I've mentioned a couple times in other threads, but in reality you only need a big enough economic majority to get away with a fork. Obviously this won't happen if the main client developers don't agree, which is feasible now but ever less so as there are more diverse wallets and clients. Naming would go with the obvious winner. But yep, this would be immensely traumatic and can only be possible if it's decided soon. Maybe too late now.

As for the incentive, it's a long term one. If most people were strongly convinced that it would really make the system more viable, a small growth rate (say 1%) would be a perfectly fine price to pay even for hoarders. Effectively if the underlying economy grows more, because the system is perceived as better, then BTC valuation would over-perform for a good while. Lost of ifs and buts here though.

Quote from: DeathAndTaxes on September 12, 2012, 01:51:17 PM
Note:
The topic is interesting for creation of new alt-coins.  However Bitcoin is probably never going to change.  Not something as fundamental as the minting rate.  Changing it after the fact would be essentially a bait and switch and would lead to a loss of confidence.  If miners can change the rate once they can change it again.  What is to say someday miners won't act like the Fed and determine the appropriate mining rate in order to control economic expansion?   

I agree, I also think it's mostly a matter of alt coins, but there are mechanisms things like fee enforcement that only need a couple of big pools to be strongly encouraged (or else your transaction might take forever to complete). And although I disagree that the mining rate is infeasibly hard to change, it would indeed be traumatic to show you can actually change it.

So yeah, a change in the mining rate probably merits its own coin, although achieving the traction bitcoin has as a newcomer would be a great achievement in itself and looks hardly possible. A number of improvements would be necessary to justify it.

I've seen Etlase2's proposal but it looks ungodly complex and relying on many things to be actually tested IRL. We probably wouldn't be through early testing stages in our whole lives. If anything I think a system with less arbitrary numbers than bitcoin would be better (for instance, without the halvings, or adjusting per block instead of dramatically every four years, ...).

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 02:28:51 PM
Quote from: Etlase2 on September 12, 2012, 02:02:28 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:56:57 PM
Miner's costs are primarily in USD.  That assumes a fixed USD:BTC exchange rate.  If USD:BTC exchange rate doubled over the next 4 years miners under 12.5 BTC subsidy could be more profitable than under a 25 BTC subsidy (and current exchange rate).

C'mon bro, the exchange rate is going to rise over time, and it certainly isn't going to double right after the switch from 25->12.5, so miners are going to take a big hit and the network TH/s is going to drop a lot, again (ignoring ASICs and what affect they might have). Satoshi made a mistake in having such stark drops. It would be much better if the exchange rate could rise gradually as the mining reward drops gradually. Oh well.

I kinda assumed the words "doubled OVER THE NEXT 4 years" implied that price will increase over time.  No intelligent miner looks at 1 day revenue and bases decisions on that.   Sure the network's global hashing rate will change significantly but the network will compensate and life will go on.  Long term the network' hashing rate will be the same regardless of the generation rate.  Daily volatility in the global hashing rate isn't a major concern.  We have seen major changes in difficulty on multiple occasions and none had anything to do with a subsidy change.

Quote
Satoshi made a mistake in having such stark drops. It would be much better if the exchange rate could rise gradually as the mining reward drops gradually. Oh well.
Spoken as a non-programmer.  Technically the reward isn't cut in half it is a binary right shift.   There is no issue of implementation bugs. Right shifting a particular binary value will always produce the same binary value.  The OS, underlying hardware, and programing language can't influence that.  The same can't be said about floating point math.  Lots of things to get wrong and in a p2p project there will be multiple clients running on multiple hardware platforms written by multiple teams.   The risk of someone getting it wrong and causing a hard fork is very real.

Sure a periodic reduction in the reward would be better. A ~0.5% reduction in subsidy every difficulty adjustment (2016 blocks) would generate roughly the long term generation rate as a right shift (50%) every 210K blocks with a much smoother curve.  However it would have been error prone.  Incompatible implementations on a p2p network present a real risk.  

To say Satoshi made a mistake is arrogant.  He made a choice.  He chose simplicity and accuracy over a smoother curve.  It remains to be seen if it is a mistake. 

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 02:34:41 PM
Quote from: muyuu on September 12, 2012, 02:20:43 PM
I've seen Etlase2's proposal but it looks ungodly complex and relying on many things to be actually tested IRL.

Remember when you first heard about bitcoin and tried to comprehend it? Yeah, took me several months too.

Quote from: TangibleCryptography on September 12, 2012, 02:25:03 PM
I kinda assumed the words "doubled OVER THE NEXT 4 years" implied that price will increase over time.

Did you just not read my post and fill in your own words? Because this has nothing to do with what I said. Your twin's argument is that 25->12.5 won't matter because of the price increases, but that is ridiculous since one day they will mine 25xprice, the next it will be 12.5xprice. That is quite significant.

Quote
Spoken as a non-programmer. Technically the reward isn't cut in half it is a binary right shift.

Do I give a damn whether it's cut in half or it is a bit-shift (which btw, I never said cut in half)?

Quote
There is no issue of implementation bugs. Right shifting a particular binary value will always produce the same binary value.  The OS, underlying hardware, and programing language can't influence that.

Apologizing, apologizing, apologizing. "Good lord suh, wesa cannah figga out how to lowah an award withoutta bitshift, suhh! subtrackshun hasna been invente yet" Give me a fkin break.

Quote
The same can't be said about floating point math.

S-S-S-S-STRAWMAN

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 02:37:06 PM
Quote from: muyuu on September 12, 2012, 02:20:43 PM
If anything I think a system with less arbitrary numbers than bitcoin would be better (for instance, without the halvings, or adjusting per block instead of dramatically every four years, ...).

I agree.  I think a system which reduced say 1% every difficulty adjustment would be an interesting alt-coin.  Likewise an alt-coin which used the traditional "bitcoin half" but only down to 1.25 BTC then went to a permanent 1 BTC into perpetuity would also be interesting.

I would point out the post above.  Cutting the reward in half (technically a right shift) reduces the chance of errors.  Making one client error proof is hard enough.  Making multiple clients by multiple teams on multiple hardware and using multiple programming languages is more difficult. 

Right shift is "precise".  You can't get it wrong.
Right shifting 11011101011 will always be 01101110101.

Still there are a lot of thing which Satoshi could have done differently.
why 8 digits when the data structure supports 11.  Just make it 11 from the start.
Why 32 bit nonce (and needing all the junk of extra-nonce).  Just make it 64bit.

For the most part we are "stuck" with these quirks.  It would be nice to see some innovation in the alt-coin space though.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 02:41:47 PM
Quote from: Etlase2 on September 12, 2012, 02:34:41 PM
Mindless insulting drivel.

Thanks for remind me why I rarely waste my time responding to you.  I must have forgotten this morning.

Your arrogant attitude is why 10 years from now you will have 20 theoretically superior currencies which don't have a single line of code written and never will.  Accuracy and simplicity is important in a peer to peer network because OTHER PEOPLE will be writing clients.  Those clients could contain bugs not discovered until years later.  The more complex the system the chance there is for errors.  Satoshi couldn't stop, modify, or control Bitcoin now if he wanted to.   There is VALUE in simplicity.  Something you fail to understand and thus lash out like a child.

Feel free to rant on, the ignore button ensures I won't need to listen to it.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 02:48:19 PM
You heard it here first folks, subtraction is complicated and can't possibly be accurate across all systems. There is NO POSSIBLE WAY the coin distribution could be determined by subtraction because that means we would eventually resolve to a whole number rather than an ever decreasing amount that goes beyond the divisibility of the currency in 2140. Oh the huge manatee. Or if this really bothers you, I'm sure we could figure out a way to bitshift the amount of subtraction to come up with the exact same curve except without the stark halvings.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: thezerg on September 12, 2012, 02:52:57 PM
Quote from: Etlase2 on September 12, 2012, 02:48:19 PM
You heard it here first folks, subtraction is complicated and can't possibly be accurate across all systems. There is NO POSSIBLE WAY the coin distribution could be determined by subtraction because that means we would eventually resolve to a whole number rather than an ever decreasing amount that goes beyond the divisibility of the currency in 2140. Oh the huge manatee.

Don't be silly!  You can't use subtraction because eventually you'd get negative numbers which means miners would have to PAY bitcoins to mine a block!!!  ;D

But seriously your proposal would result in a probably trivially different curve, you were extremely rude in proposing it, and who cares nobody is going to move to an alt-coin for this trivial issue. 

And most importantly, that solution would not be nearly as FUN!!!  ;)

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 02:57:57 PM
Quote from: DeathAndTaxes on September 12, 2012, 02:28:51 PM
Quote
Satoshi made a mistake in having such stark drops. It would be much better if the exchange rate could rise gradually as the mining reward drops gradually. Oh well.
Spoken as a non-programmer.  Technically the reward isn't cut in half it is a binary right shift.   There is no issue of implementation bugs. Right shifting a particular binary value will always produce the same binary value.  The OS, underlying hardware, and programing language can't influence that.  The same can't be said about floating point math.  Lots of things to get wrong and in a p2p project there will be multiple clients running on multiple hardware platforms written by multiple teams.   The risk of someone getting it wrong and causing a hard fork is very real.

Sure a periodic reduction in the reward would be better. A ~0.5% reduction in subsidy every difficulty adjustment (2016 blocks) would generate roughly the long term generation rate as a right shift (50%) every 210K blocks with a much smoother curve.  However it would have been error prone.  Incompatible implementations on a p2p network present a real risk.  

To say Satoshi made a mistake is arrogant.  He made a choice.  He chose simplicity and accuracy over a smoother curve.  It remains to be seen if it is a mistake.  

I agree is a choice and it has a sensible base, but it's not infeasibly hard to provide a binary spec that would allow bit-for-bit precision. Simply leaving the block reward fixed is even simpler and safer (it would take ages to achieve low inflation rates though), or decreasing every x blocks and up to a block n. It was simply a choice and all things considered I think he got a good deal of choices right. I think this choice is not bad either, I just think it would make a substantial difference to have something a bit less dramatic.

Pros: simple, won't cause trouble with unintentional forks, won't have to wait fu*****  50 years to see how it works with low inflation (to "normal economy" standards)
Cons: dramatic a couple of times (1st and 2nd halving), will relatively abruptly reach a ~0% growth economy that hasn't been tested ever

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: tytus on September 12, 2012, 03:28:12 PM
I am for b) [no reward halving] [or d) as explained later] in favor of increased inflation. I don't see a dramatic problem with changing the code.

We have to ask pool operators about their opinion. We can ask them to present their view and miners will just switch to the pool with the view they share :-)
If the pool operators agree with the change we have the majority of new blocks generated with the new software. All other solo miners will also update to get the 50BTC reward. Merchants will update to receive incoming transactions [otherwise they will see no transactions, only transactions generated by a minority of clients that were not updated].
If the number of not updated clients is small, they will not have enough hashing power to generate new blocks.
The change will also teach the network about the feasibility to introduce changes and how to do it in the future.

The better change (d) is as follows:

there is a minimum required transaction fee of 0.01% (much better than the current unpredictable fee). [And here comes the new part] The miner collects all transactions fees in the current block + a reward equal to all fees generated 6 blocks ago. The current block fees are paid from the "account" that sent the funds. The reward (second part) represent newly generated coins that facilitate inflation at a rate proportional to the volume of transactions. The delay of ~6 blocks is needed to prevent miners from profiting from fake transactions. The delayed "confirmation" can be used also to introduce theft protection [the owner of the sending account can cancel the previous transaction in the time frame of 6 blocks]. Of course "6" is just an arbitrary number AND the transaction canceling is a completely separate issue.




Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 03:42:28 PM
Quote from: thezerg on September 12, 2012, 02:52:57 PM
Don't be silly!  You can't use subtraction because eventually you'd get negative numbers which means miners would have to PAY bitcoins to mine a block!!!  ;D

;)

Quote
But seriously your proposal would result in a probably trivially different curve, you were extremely rude in proposing it, and who cares nobody is going to move to an alt-coin for this trivial issue.

I was rude because D&T is a non-stop sycophant that can't imagine that there is something that bitcoin maybe didn't get right. It's not as if this has been our first exchange. "No bitshift? Must mean floating points!" Asinine. And he calls into question my ability to think like a programmer. His posts are almost always dishonest when it comes to bitcoin's shortcomings, so I often have to set him straight for the non-initiated that may be reading.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 03:49:41 PM
Quote from: tytus on September 12, 2012, 03:28:12 PM
I am for b) [no reward halving] [or d) as explained later] in favor of increased inflation. I don't see a dramatic problem with changing the code.

We have to ask pool operators about their opinion. We can ask them to present their view and miners will just switch to the pool with the view they share :-)
If the pool operators agree with the change we have the majority of new blocks generated with the new software. All other solo miners will also update to get the 50BTC reward. Merchants will update to receive incoming transactions [otherwise they will see no transactions, only transactions generated by a minority of clients that were not updated].
If the number of not updated clients is small, they will not have enough hashing power to generate new blocks.
The change will also teach the network about the feasibility to introduce changes and how to do it in the future.

This "introducing changes in the future" is a double-edged sword. It also ends with the perception of long-term predictability of supply. It would be the most radical thing to ever happen to the system.

Quote from: tytus on September 12, 2012, 03:28:12 PM
The better change (d) is as follows:

there is a minimum required transaction fee of 0.01% (much better than the current unpredictable fee). [And here comes the new part] The miner collects all transactions fees in the current block + a reward equal to all fees generated 6 blocks ago. The current block fees are paid from the "account" that sent the funds. The reward (second part) represent newly generated coins that facilitate inflation at a rate proportional to the volume of transactions. The delay of ~6 blocks is needed to prevent miners from profiting from fake transactions. The delayed "confirmation" can be used also to introduce theft protection [the owner of the sending account can cancel the previous transaction in the time frame of 6 blocks]. Of course "6" is just an arbitrary number AND the transaction canceling is a completely separate issue.

This is intriguing but it introduces an unpredictable element, as transactions could end up being very substantial long term, and could also be minimal as payments got centralised in "bitcoin bank accounts" with even lower commission for payments inside of their system. So what happens if transaction fees are exploited as a means of multiplying supply by a cartel of miners? (talking about newly generated coins proportional to previous fees). This probably deserves experimentation but it would take a long while to see potential problems and exploits.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: nevafuse on September 12, 2012, 04:07:07 PM
Overall, I wouldn't change much about bitcoin.  Unfortunately, there's no ideal way of distributing 21 million units of currency.  The initial high rate of inflation is necessary to distribute & promote trade.  If anything, I would have created a shorter window to distribute all 21 million units.  That way transaction fees would be more important by now.  But no one could have predicted how fast bitcoin would take off.  In either case, the shrinking block reward will be a good thing.  Inflation will decrease, causing prices to rise.  Higher transaction fees may be required preventing groups like Satoshi Dice from creating such small/unnecessary transactions that create unnecessary work for everyone else when validating transactions.

Quote
Satoshi made a mistake in having such stark drops. It would be much better if the exchange rate could rise gradually as the mining reward drops gradually. Oh well.

I agree w/ whoever wrote this.  Whether it was a mistake or a choice, these drastic drops are unnecessary compared to doing it gradually.

Quote from: muyuu on September 12, 2012, 02:20:43 PM
There are permanently lost coins though. If halving goes on indefinitely as soon as in 30 years time we might have more coins lost than generated, because generation will be extremely low.

This is true, but we can always move the decimal point if a satoshi isn't small enough.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 04:08:44 PM
Quote from: tytus on September 12, 2012, 03:28:12 PM
I am for b) [no reward halving] [or d) as explained later] in favor of increased inflation. I don't see a dramatic problem with changing the code.

We have to ask pool operators about their opinion. We can ask them to present their view and miners will just switch to the pool with the view they share :-)

There are roughly 20,000 nodes.  Most aren't miners.  You can't simply change the miners you would need to convince all the nodes to switch.  First that means convincing enough trusted developers to code the changes.  It also requires enough users, exchanges, merchants to implement the new code.  If there are nodes with incompatible codebases on the internet at the same time each will produce their own valid network and reject blocks/tx from the other nodes.  Essentially a permanent hard fork.  If you only convince some of the miners to switch they will simply produce blocks (and coins) that nobody uses.   The users who don't switch will produce tx (and fees) accepted by other users and merchants and exchanges who don't switch.   That means there is economic value for miners who don't switch.  Difficulty will fall and thus the revenue per MH/s will rise simply by not switching. Essentially miners will go where the money is.

While in theory it is possible it is far more complex than just convincing some pools to switch.  Even relatively non-controversial breaking changes have taken a very long time to get accomplished (and involved some spririted debate).  You can't force a change like this.  It has to be accepted willingly by a super majority of all users, developers, merchants, exchanges, and miners. 

Quote
Merchants will update to receive incoming transactions [otherwise they will see no transactions, only transactions generated by a minority of clients that were not updated].

Merchants don't need to update if their customers are running the old nodes.  Customers don't need to update if their merchants are running the old nodes.

Quote
If the number of not updated clients is small, they will not have enough hashing power to generate new blocks.
The change will also teach the network about the feasibility to introduce changes and how to do it in the future.

Clients =/- miners but if the number of miners is small but still a significant fraction of total (say 25%) in time difficulty will fall and the miners who remain on the old fork will see their revenue per MH/s rise.  Miners on the new fork are taking a risk they will simply be mining worthless blocks (and coins) accepted by nobody.

Quote
The better change (d) is as follows:
there is a minimum required transaction fee of 0.01% (much better than the current unpredictable fee).

The bitcoin network doesn't know the intended amount of the tx only the sum of the inputs and outputs.  If for example the client chooses a 100 BTC input to pay a 1 BTC tx you would be charged on the 100 BTC.  0.01% is likely too low to produce the revenue necessary to protect the network.  For example PayPal has ~$100 B in transaction volume per year.  At 0.01% that would only produce ~ $10M in revenue for miners.  Also the "cost" of a tx is based on its size not value.  Charging more for higher value but smaller tx and less for lower value but larger tx creates a break between price and cost.

The critical resource of the blockchain is KB.  A 1,000,000 BTC tx is just as easy to process as a 1 BTC tx however a 100 kb tx will require 100x as much storage into perpetuity as a 1 kb tx.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 04:32:22 PM
Quote from: nevafuse on September 12, 2012, 04:07:07 PM
Quote from: muyuu on September 12, 2012, 02:20:43 PM
There are permanently lost coins though. If halving goes on indefinitely as soon as in 30 years time we might have more coins lost than generated, because generation will be extremely low.

This is true, but we can always move the decimal point if a satoshi isn't small enough.

It's not the precision problem, but the extreme long term reward towards not using the coins. I think 0% is radical enough, -0.01% (let's say) sounds just wrong. Granted, it's not a deal breaker, but I don't think it's desirable.

Quote from: DeathAndTaxes on September 12, 2012, 04:08:44 PM
Quote from: tytus on September 12, 2012, 03:28:12 PM
I am for b) [no reward halving] [or d) as explained later] in favor of increased inflation. I don't see a dramatic problem with changing the code.

We have to ask pool operators about their opinion. We can ask them to present their view and miners will just switch to the pool with the view they share :-)

There are roughly 20,000 nodes.  Most aren't miners.  You can't simply change the miners you would need to convince all the nodes to switch.  First that means convincing enough trusted developers to code the changes.  It also requires enough users, exchanges, merchants to implement the new code.  If there are nodes with incompatible codebases on the internet at the same time each will produce their own valid network and reject blocks/tx from the other nodes.  Essentially a permanent hard fork.  If you only convince some of the miners to switch they will simply produce blocks (and coins) that nobody uses.   The users who don't switch will produce tx (and fees) accepted by other users and merchants and exchanges who don't switch.   That means there is economic value for miners who don't switch.  Difficulty will fall and thus the revenue per MH/s will rise simply by not switching. Essentially miners will go where the money is.

While in theory it is possible it is far more complex than just convincing some pools to switch.  Even relatively non-controversial breaking changes have taken a very long time to get accomplished (and involved some spririted debate).  You can't force a change like this.  It has to be accepted willingly by a super majority of all users, developers, merchants, exchanges, and miners. 

Compatibility-breaking changes have been introduced already if I'm not mistaken. No need to do a Rube-Goldberg sync operation, it suffices with agreeing the future block # that makes the change effective and broadcast an alert to upgrade with enough time in advance, this is something Gavin and a couple client devs can single-handedly achieve. We shouldn't pretend this cannot be done, we can just give our honest recommendation to avoid it.


Quote from: DeathAndTaxes on September 12, 2012, 04:08:44 PM
Quote
The better change (d) is as follows:
there is a minimum required transaction fee of 0.01% (much better than the current unpredictable fee).

The bitcoin network doesn't know the intended amount of the tx only the sum of the inputs and outputs.  If for example the client chooses a 100 BTC input to pay a 1 BTC tx you would be charged on the 100 BTC.  0.01% is likely too low to produce the revenue necessary to protect the network.  For example PayPal has ~$100 B in transaction volume per year.  At 0.01% that would only produce ~ $10M in revenue for miners.  Also the "cost" of a tx is based on its size not value.  Charging more for higher value but smaller tx and less for lower value but larger tx creates a break between price and cost.

The critical resource of the blockchain is KB.  A 1,000,000 BTC tx is just as easy to process as a 1 BTC tx however a 100 kb tx will require 100x as much storage into perpetuity as a 1 kb tx.

The resource is measured in KB, but the economic significance of the reward in BTC. It probably should be a mixture of the two, but a % big enough on value would be simpler and practical (expenditures are not decided on KBs, but on cost, if you want the user to worry about internal implementation of the blockchain I think we're fu**ed).

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 04:42:30 PM
Quote from: muyuu on September 12, 2012, 04:32:22 PM
Compatibility-breaking changes have been introduced already if I'm not mistaken.

AFAIK only one has, and that was because of a bug in the software that allowed someone to create several billion coins. This was also very early on when a breaking change was easy to introduce.

Quote
No need to do a Rube-Goldberg sync operation, it suffices with agreeing the future block # that makes the change effective and broadcast an alert to upgrade with enough time in advance, this is something Gavin and a couple client devs can single-handedly achieve. We shouldn't pretend this cannot be done, we can just give our honest recommendation to avoid it.

D&T is right though that everyone, everyone, has to agree. Mt.Gox has to simply say "I reject your code change" and nobody in their right minds would use that fork since Mt.Gox is currently the center of the bitcoin universe. It can be done, but something like changing the coin distribution is never going to have a consensus and it is better to just create a new currency if you feel very strongly about such a thing.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 04:50:34 PM
Quote from: Etlase2 on September 12, 2012, 04:42:30 PM
D&T is right though that everyone, everyone, has to agree. Mt.Gox has to simply say "I reject your code change" and nobody in their right minds would use that fork since Mt.Gox is currently the center of the bitcoin universe. It can be done, but something like changing the coin distribution is never going to have a consensus and it is better to just create a new currency if you feel very strongly about such a thing.

MtGox will take any change in bitcoind.

Let's not pretend Gavin & co. cannot introduce this change. Let's just admit the truth: it would be a dangerous precedent and ought to be avoided.

Not everyone, just a big enough majority, can introduce basically any change you can think of. Obviously it won't happen against the will of the big players though.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: DeathAndTaxes on September 12, 2012, 06:56:46 PM
So MtGox will take a change that works against their best interests rather than just use the pre-change code?  Really?

Who do you think is in the driver's seat.  Those with marketshare power of the developers?  Had MtGox or DeepBit refused to accept P2SH we wouldn't have it right now.  Hopefully Bitcoin becomes more democratic over time but the idea that the developers can dictate something against the wishes of the majority of stakeholders is just silly.

Nobody is saying you TECHNICALLY couldn't change Bitcoin.  There is no technical obstacle.  It just won't happen.  There is a huge SOCIETAL obstacle.  Changing the minting rate would undermine confidence in Bitcoin.  Less confidence in Bitcoin is bad for MtGox shareholders.  They aren't going to support something which isn't needed, isn't wanted by a majority of users, and provides no benefit to them.   Even if it personally benefited them one would hope they would be smart enough to realize the disruptions it would cause would damage the Bitcoin brand and thus their company value.

We may see major breaking changes for security flaws, for new transaction types, for post-quantum encryption as a precaution (if ever necessary), for new address types (if ECDSA is partially or full compromised).   The issue isn't technical it is societal (the Bitcoin community/society).  You will never get the consensus necessary for something as controversial as changing the minting rate.  Even the developers (who BTW are not homogeneous in thinking) don't have that kind of influence.


Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 08:56:38 PM
Yes, the premise being that they think it wouldn't be better.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 12, 2012, 09:35:10 PM
Quote from: Etlase2 on September 12, 2012, 03:42:28 PM
I was rude because D&T is a non-stop sycophant that can't imagine that there is something that bitcoin maybe didn't get right. It's not as if this has been our first exchange. "No bitshift? Must mean floating points!" Asinine. And he calls into question my ability to think like a programmer. His posts are almost always dishonest when it comes to bitcoin's shortcomings, so I often have to set him straight for the non-initiated that may be reading.

That was uncalled for IMO. D&T never claimed such thing, he just said that the bit shift was a justified decision as could have been some other option.

Anyway, I hope the discussion doesn't die off because of some silly feud.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 09:50:14 PM
Quote from: muyuu on September 12, 2012, 09:35:10 PM
That was uncalled for IMO. D&T never claimed such thing, he just said that the bit shift was a justified decision as could have been some other option.

Actually, after insulting me for saying His Holiness the Divine Bitcoin Creator made a mistake, he only mentioned floating points (and several times) as the alternative. Then went on again to expound on upon the properties of bitshifting and how accurate it is. Vehemently supporting the design decision while ignoring other possible decisions and only giving a terrible decision as the alternative is patently dishonest posting in my book. It's a false dilemma (http://en.wikipedia.org/wiki/False_dilemma).

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Melbustus on September 12, 2012, 10:35:50 PM
Quote from: Etlase2 on September 12, 2012, 09:50:14 PM
Quote from: muyuu on September 12, 2012, 09:35:10 PM
That was uncalled for IMO. D&T never claimed such thing, he just said that the bit shift was a justified decision as could have been some other option.

Actually, after insulting me for saying His Holiness the Divine Bitcoin Creator made a mistake, he only mentioned floating points (and several times) as the alternative. Then went on again to expound on upon the properties of bitshifting and how accurate it is. Vehemently supporting the design decision while ignoring other possible decisions and only giving a terrible decision as the alternative is patently dishonest posting in my book. It's a false dilemma (http://en.wikipedia.org/wiki/False_dilemma).


The greater point being made was that one needs to consider simplicity of implementation, and potentially back off of some ideal design points if the implementation demands appear too great. A beautiful but complex design may never be implemented while a less ideal (though still good) design that simplifies implementation significantly probably has an order of magnitude greater chance of becoming reality.

As a software developer, I can very much appreciate that sentiment.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 12, 2012, 10:47:39 PM
Point taken, but since you are doing the same thing (sans insult) I have to remind you that orderly subtraction is not a particularly demanding or complex concept. We're talking about the simplest of mathematical operations that is run once per block. Compared to the thousands of point multiplications or billions of hash operations per second.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Melbustus on September 13, 2012, 12:39:27 AM
Quote from: Etlase2 on September 12, 2012, 10:47:39 PM
Point taken, but since you are doing the same thing (sans insult) I have to remind you that orderly subtraction is not a particularly demanding or complex concept. We're talking about the simplest of mathematical operations that is run once per block. Compared to the thousands of point multiplications or billions of hash operations per second.

My point is general; I'm not arguing one specific feature/implementation-detail.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: tytus on September 14, 2012, 10:40:08 AM
The subject of this thread is important but we have just killed the discussion with some irrelevant details. Maybe we should start a new thread and ask pool operators personally for a statement.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 14, 2012, 10:43:30 AM
Quote from: tytus on September 14, 2012, 10:40:08 AM
The subject of this thread is important but we have just killed the discussion with some irrelevant details. Maybe we should start a new thread and ask pool operators personally for a statement.

Honestly I don't think these ideas should be applied to bitcoin itself, but rather to a new alt-coin.

Another option I had been thinking of is a "sigmoid" kind of supply function: start with a small block to allow people some time to join, generate a bigger coin base during a big block period (say, 6 months later and going on for a few years), then start reducing the block reward again until some low rate is achieved, or allow a fixed final block reward forever.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Etlase2 on September 14, 2012, 10:50:58 AM
Quote from: muyuu on September 14, 2012, 10:43:30 AM
Honestly I don't think these ideas should be applied to bitcoin itself, but rather to a new alt-coin.

Another option I had been thinking of is a "sigmoid" kind of supply function: start with a small block to allow people some time to join, generate a bigger coin base during a big block period (say, 6 months later and going on for a few years), then start reducing the block reward again until some low rate is achieved, or allow a fixed final block reward forever.

This was suggested a long while back and was termed "ease-in, ease-out." Whatever Satoshi's intent with the distribution curve, it is what it is and bitcoin has momentum. I don't think that any alt coin that only changes this property has any chance of competing at this point. In the great grand scheme of things, it is probably not all that usefully different.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 14, 2012, 11:10:49 AM
Quote from: Etlase2 on September 14, 2012, 10:50:58 AM
Quote from: muyuu on September 14, 2012, 10:43:30 AM
Honestly I don't think these ideas should be applied to bitcoin itself, but rather to a new alt-coin.

Another option I had been thinking of is a "sigmoid" kind of supply function: start with a small block to allow people some time to join, generate a bigger coin base during a big block period (say, 6 months later and going on for a few years), then start reducing the block reward again until some low rate is achieved, or allow a fixed final block reward forever.

This was suggested a long while back and was termed "ease-in, ease-out." Whatever Satoshi's intent with the distribution curve, it is what it is and bitcoin has momentum. I don't think that any alt coin that only changes this property has any chance of competing at this point. In the great grand scheme of things, it is probably not all that usefully different.

Yep, I agree with all that. There must be more to it than this. I have a lot of ideas but I wanted to leave this post to the particular problem of supply.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Adrian-x on September 14, 2012, 11:00:00 PM
Quote from: muyuu on September 14, 2012, 11:10:49 AM
Yep, I agree with all that. There must be more to it than this. I have a lot of ideas but I wanted to leave this post to the particular problem of supply.

I don't want to belittle the idea, but I feel adjusting the supply is problematic.

The only problems I have with the supply are:
1) I wasn't supplied enough BTC when it was below $1
2) My supplies only increases with a few BTC cents a day.  (to be halves soon)

An asumption is the supply will eventually be fixed, it won't. total suply will actually be negative.
I for one have already lost (taken out of circulation over 10 BTC never to be found) and I am sure there will be many more. Just think about all those people who will die never revelling the paper wallet to be burned with all their other stuff after they are gone.

To the economy's credit everyone's BTC will be worth more.

I think the focus should be how to get sum not how to get more, that way what you have grows in value.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on September 14, 2012, 11:33:45 PM
When I said I wanted to leave this post to the problem of supply, I mean any model of supply you might care to suggest.

Someone suggested tying it to the recent volumen of transaction somehow. That's intriguing but looks like it might have very complex and dynamic implications. Or at least the particular implementations that occur to me. My instinct tells me to pass on that one.

As for fixed block size vs fixed inflation vs diminishing growth towards zero vs other growth functions, I can see pros and cons for every model. Demurrage is another option, although in supply terms is more or less equivalent, the main differences are in the implementation.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Dalkore on September 18, 2012, 06:06:04 PM
Quote from: DeathAndTaxes on September 12, 2012, 01:51:17 PM
Coins scammed or hacked aren't lost.  Criminal buy and sell them.  They remain part of the money supply.

You will NEVER be able to change the minting rate.  Even 99% of miners can't do that. It would require a complete consensus of all users, all nodes, all merchants, all exchanges, and all miners.  Doing it with less will cause a permanent fork in the network and the new fork probably not supported enough to survive.  Say you make BTC generation 12.5 but MtGox accepts coins from the original fork 6.25 BTC rate.  You now have a situation where two entities are calling themselves Bitcoin but they are completely incompatible.  

Given non-miners gain nothing from a higher generation rate why would they update their clients just to make miners richer?  If they don't upgrade their clients well they won't even be able to see the new blocks as valid.  The miners who continue to mine the "old fork" will see tx rise and difficulty fall and become massively profitable.

Best case scenario is they most nodes simply ignore the "hard fork miners" and the fork just goes away.  Worst case scenario is you end up in a situation where both forks have significant support and it likely will very damaging to Bitcoin.  Can you imagine the noob confusion if they send Bitcoin to a merchant's address but the merchant does see them because the merchant is using the "other" Bitcoin?

Note:
The topic is interesting for creation of new alt-coins.  However Bitcoin is probably never going to change.  Not something as fundamental as the minting rate.  Changing it after the fact would be essentially a bait and switch and would lead to a loss of confidence.  If miners can change the rate once they can change it again.  What is to say someday miners won't act like the Fed and determine the appropriate mining rate in order to control economic expansion?   

There is an example in history we can pull from if a fork happens and there is support for both but not enough for one side to win out.   Read about "Bimetallism".   This happened with Gold and Silver and people hoarded gold while the used silver in daily transactions or to trade for gold.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Sunny King on September 18, 2012, 10:03:12 PM
Inflation model cannot be changed or market will lose confidence in the currency. It doesn't matter that a majority agree with the change or not. Market often disagrees with majority opinion.

Even just smoothing the sudden drop would be a dangerous exercise as that opens a precedence that inflation model is changeable.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: Adrian-x on September 18, 2012, 10:14:53 PM
Quote from: Sunny King on September 18, 2012, 10:03:12 PM
Inflation model cannot be changed or market will lose confidence in the currency. It doesn't matter that a majority agree with the change or not. Market often disagrees with majority opinion.

Even just smoothing the sudden drop would be a dangerous exercise as that opens a precedence that inflation model is changeable.

My confidence is shifting to Bitcoin precisely because I am seeing the shortcomings of the inflation model.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: molecular on October 21, 2012, 02:28:45 PM
Quote from: muyuu on September 12, 2012, 11:24:30 AM
What do you guys think it will be the best model for coin creation?

One that doesn't change.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: molecular on October 21, 2012, 02:52:27 PM
Quote from: Dalkore on September 18, 2012, 06:06:04 PM
There is an example in history we can pull from if a fork happens and there is support for both but not enough for one side to win out.   Read about "Bimetallism".   This happened with Gold and Silver and people hoarded gold while the used silver in daily transactions or to trade for gold.

I think you're missing an important point here: with bimetallism, the exchange rate between the two was fixed ("15.85 oz silver coin  =samevalueas= 1 oz gold coin" or something). Of course price of the two metals didn't assume that ratio on free markets and hence what you described happened.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: cunicula on October 21, 2012, 04:00:59 PM
I think the constant % growth over coin base (starting from a premined base) is the best model.

My reasons are that (a) it is still completely predictable and (b) it reduces uncertainty.

If you start out with 0% or 1% inflation and it works, then you will expect it to continue working in future years. You never need to alter the mix between fees and block reward. The future plan is to operate the currency just like it is currently operating. No uncertainty. No debates like these.

If you start out with 100% inflation and then go to 50% .... and then to 0%, you are repeatedly moving to a new and untested monetary model. At some point, you may worry that the model will cease to function. This introduces a lot of uncertainty. At the same time, for the social reasons D&T points out, even if the system fails it may be likely be impossible to fix. This makes the uncertainty issue more severe.

Despite my concerns with Satoshi's system, there is a good theoretical justification for Satoshi's model. If you want to build up a network, it is optimal to subsidize early adoption and then raise fees once people are "locked-in." Thus, you would want to have 0 txn fees and high inflation initially to subsidize adoption of bitcoin payments. Once people depend on the network, you would want to gradually raise fees.

Satoshi's probably did not expect anyone to pay attention to Bitcoin. Given this belief, the use of an extremely aggressive strategy to promote adoption would be optimal. Ex-post, the aggressive strategy becomes unfortunate.

Title: Re: cryptocurrencies and monetary supply (growth rates)
Post by: muyuu on October 21, 2012, 08:30:15 PM
Quote from: cunicula on October 21, 2012, 04:00:59 PM
I think the constant % growth over coin base (starting from a premined base) is the best model.

My reasons are that (a) it is still completely predictable and (b) it reduces uncertainty.

If you start out with 0% or 1% inflation and it works, then you will expect it to continue working in future years. You never need to alter the mix between fees and block reward. The future plan is to operate the currency just like it is currently operating. No uncertainty. No debates like these.

If you start out with 100% inflation and then go to 50% .... and then to 0%, you are repeatedly moving to a new and untested monetary model. At some point, you may worry that the model will cease to function. This introduces a lot of uncertainty. At the same time, for the social reasons D&T points out, even if the system fails it may be likely be impossible to fix. This makes the uncertainty issue more severe.

Despite my concerns with Satoshi's system, there is a good theoretical justification for Satoshi's model. If you want to build up a network, it is optimal to subsidize early adoption and then raise fees once people are "locked-in." Thus, you would want to have 0 txn fees and high inflation initially to subsidize adoption of bitcoin payments. Once people depend on the network, you would want to gradually raise fees.

Satoshi's probably did not expect anyone to pay attention to Bitcoin. Given this belief, the use of an extremely aggressive strategy to promote adoption would be optimal. Ex-post, the aggressive strategy becomes unfortunate.

I agree with every bit of that, but I also believe a constant absolute rate of growth (instead of % rate) has interesting merits.


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