Bitcoin Forum

As widespread currencies, Bitcoins is also dependent on the money supply. The more there are, the less the value will be. I read the system is designed in such order (correct me if I'm wrong) that only 21 million bitcoins can be created.

Let's say it gets so popular that more bitcoins will be generated. This, in fact, will deteriorate one of the core principles and consequently the fiat in the money which could lead to firesales and finally to a run.

Why was there in the first place a limit and what are the guarantees the limit will never be changed? Thanks for helping me to understand..

 

The limit can't be changed, it's hard coded into the software - It will never exceed 21 million.

K.

Being hardcoded doesn't mean, it cannot be changed. It will only be more difficult as the system needs te be re-engineered. Besides that there are no guarantees, it will never be changed.

There was a time money was linked to gold. The unlinking came only when the system needed more money..

1) The limit is in place to make coins valuable.
2) The mining reward decreases asymptotically to zero meaning less and less coins are added to the supply approaching the limit of 21 mil total.

K.

Actually the most that can be created would be 20999999.97690000

Most people just round up to 21 million when talking about it because it's easier.  Due to some issues early on, there are some bitcoins that were unmined (and now cannot be mined), so the total will actually be less than 20999999.97690000.


That is correct, but the system is designed to require a consensus to make a change.  If every user agrees that more bitcoins should be mined, then more bitcoins will be able to be mined, but convincing every user to agree to such a change is an insurmountable task.

When a miner "solves" a block and includes the mining reward, he broadcasts that block to all the peers he is connected to.  Every peer validates that the block conforms to the protocol rules before they add that block to their blockchain or relay it.  This happens for every peer on the network (both miners and wallet clients).  So if a subset of peers refuse to recognize the increase in block reward that is necessary to mine additional coins, they will simply ignore the block and refuse to add it to their own blockchain or relay it.

If you could get a subset of miners and peers to agree to accept the increased block reward, the blockchain would split.  You'd have one group of users on the "original" bitcoin with a fixed 21 million bitcoins.  They would only accept valid blocks as defined by the original protocol, and would never even see the blocks creates by the other group.  Then you'd have a second group of users on some new blockchain that allowed more than 21 million coins.  They might try to call their network "bitcoin", but there would be a disagreement as to which system was the "true bitcoin".

There would be a lot of confusion as some merchants chose to accept the "new" bitcoin, and some only accepted the "old" bitcoin.  Users would try to make payments not realizing that the merchant they were paying was on the other system.  Eventually after a lot of chaos, at least one of the two systems would likely die off as users migrated toward the one that had the most support.

What happens if the protocol is changed?

For example, the transaction fees could be lowered. Why not accept to release a bit more of money to prevent a excessive deflationism?

Maybe in the future It could be changed.

I believe DannyHamilton answered that in the post above yours.

K.

Does anyone see a problem with deflation and massive hoarding after all of them have been printed out?

That was quite a long time I hadn't heard of asymptotically to zero  :). I think I got it: actually it never gets to zero but infinite close to zero. At a certain point, that is 20999999.9769, Miners will just stop mining because the cost of finding will surpass the value of the reward. However, the latter  can be countered as the cost of mining (in USD) will not increase as much as the reward for finding (in Bitcoins), because of the limit restriction Bitcoins can only go up.  

Let's replace 'new bitcoin' with, eg lightcoin. The altcoins are using the same infrastructure as bitcoins (some with minor changes). So, the altcoins are filling in the demand of the community for a 'new bitcoin'?

 

Yes, you are right. Why would I sell my bitcoins, knowing the price will always go up. A market can only exist with a bid-ask side.

Taking into account human nature isn't that almost bound to happen? There will be a huge disagreement and a splinter group. Could just a few miners decide to strike out on their own and start minting new bitcoins or would it need a certain percentage?

Well, simple - it doesn't *always* go up. It dropped to $55 last week and rose back to ~$135 today. And if you look at the charts the price can fluctuate by 3%+ in a single minute a few times per day. The real world isn't as simple as some economic model you see..

I think Mark Twain said 'Buy land. They're not making it anymore.'
So in 2040 people will be saying the same about bitcoins.
The exchange rates of inflationary and deflationary currencies will always diverge so the value of bit coins relative to inflationary currencies will rise. But the price of bitcoin a relative to something that is finite, such as land, will not necessarily keep rising.

Why would you own bitcoins if you are never going to sell them? They have no other utility. It doesn't matter what the price of BTC is if you are never going to sell them.

Exactly. I never understand why people have a problem with people speculating and investing in bitcoin. The only point in investing is to sell some day and realise a profit. Lots of people invest in land and property which are finite resources but they still change hands, people die and people sell up. Do people think that all the bitcoins
will get hoarded away by people that will never sell them and that will be the end of bitcoin??

I don't know about you guys but I'm storing 'em under my bed.

That's my pension fund taken care of .......  :)

Thank you for the summary

Something just occurred to me!  We call that an "Ah Ha" experience.  I have seen that number before, i.e. ~ $130. It looks remarkably close to the Euro value in USD.  If I were to live in France and they were going to tax me at 70%, I would move my money to somewhere else.  The currency of international trade is still the USD and $1 is equal to 1.3 EU's  I buy 1 Bitcoin ( $130USD ) and send it to Uncle Buck in Hollywood California. I have just moved 100 EU to Hollywood in 10 minutes with only Peter Pans Help.  Now that is slick!  I have hook Bitcoins to Euro's and won't let it go.  Demand, like last week was at $150 USD, something in Eurozone upset people and they were willing to pay more.  An example was that Spain had 27% unemployment. Outch!  If Murkle soothes the Europeans then another group of buyers will have enough purchasing power to control the value if Eurozone is not.

The 21 million Bitcoins is the same as a factor of how many bits of Bitcoins are at the right of the decimal point.
.0000001.  The value of the Bitcoin is what people 's utility for it is.  I suspect in the Eurozone it is moving EU from Greece or France, maybe even England to somewhere else.  

Mining Bit coins, I am trying to think of how much that sounds like metal detecting. bzzzzzz!  The fewer the number of coins left to be mined, if the price goes up for a Bitcoin, their will be a RUSH to mine those coins.  In a world were their is a limit supply of something and demand is high, That next Bitcoin will be of a lot of value.
Lets say it is worth 1000.0000006 USD.

Why would you hoard Bitcoins.  People hoarding Gold just got shot in the butt.  If too many people want to sell Gold the price goes down. "Wa La" !

yes the way it is set up, you can't add any beyond the 21 million.

More and more people see problem in that. Especially newcomers. But this properties of bitcoin are at the same time the reason why many people want and love bitcoin in the first place. This not a bug or flaw, it is a feature, an advantage!
Anyone who wants inflationary money or discouraged hoarding or some form of taxation redistributing wealth have many possibilities already. Both in fiat money and in some altcoins. I hope bitcoin will stay as an alternative. Otherwise it will become as worth(less) as other solutions.

Deflational economics have a problem that people stop actually creating useful products and services. Because anyone can just get some start money and wait for it to raise its value, use it for living. It is a form of crysis too...
On the other hand, Bitcoins are very very far from being a major money in a global system. So I think it will actually get funded by those rich players who bring a lot of dollars into the BTC market, for a long time more. The traditional markets have so much money that it's not a problem for global economics. And BTC still has its unique advantages as a payment method, so it won't avoid being highly valued.

OK. So imagine you are the merchant and you arrive at conclusion that it is better for you to close your company, fire your employees and stop producing anything useful. You just keep your bitcoins earning profit for you.
1.) You are convinced that this is rational and profitable decision.
2.) Therefore you will also conclude that other merchants will arrive at the same conclusion (surely they want profit too).
3.) Therefore you expect that the car seller will stop selling cars soon, travel agency will cease functioning, food will be scare and pleasure place will close.

Now we can ignore steps 1. and 2. What will the step 3 force you to do? Spend some bitcoins when there is still time! (Or would you really keep them even as shops in your neighborhood are closing one after another?)

So there is negative self-correcting feedback loop. The more you expect BTC will gain value the more you realize that others will decrease production and consumables will be scare and the more you will be spending now. The one with the best foresight will make the most profit.

Anyone?  Sure, lots of people come to bitcointalk to say "You all don't understand, this can't work!", meanwhile, bitcoin users continue to prove that "theory" wrong every day as they continue to use bitcoin.

This is incorrect.  The block subsidy (new coin creation) drops to zero after block 6,929,999. The subsidy amount is cut in half and truncated to the nearest 0.00000001 BTC every 210,000 blocks.  After 210,000 blocks with a subsidy of 0.00000001 BTC, that amount is cut in have and truncated to 0.00000000.



So long as bitcoin exists and is used, mining will not stop.  The block reward consists of the sum of the block subsidy AND the total of all the transaction fees of all the unconfirmed transactions the miner includes (confirms) in the block.  As bitcoin gains popularity, the value of the transaction fees is expected to increase.  Meanwhile the block subsidy will be cut in half aproximately every 4 years.  At the moment the block subsidy is the majority of the reward, and the fees are only a small percentage.  Eventually, the fees will be the majority of the reward and the subsidy will be only a small percentage.  Perhaps at that time people will stop calling them "miners" and instead call them "transaction processors", but the work they do will be the same.


Exactly.  Each altcoin is already an attempt to provide a bitcoin-like cryptocurrency with a different set of protocol rules.  If any of them succedd long term, then that success will prove the theory behind the protocol rules.  In the meantime, bitcoin's set of rules appears to be the most successful so far.

Eventually, you have to spend money to survive.  You have to buy food, shelter, water.  You'll choose to pay for entertainment and the things you desire.

I know that a cheaper computer will come out in 5 years that will do far more than the computers available today, but I still but a computer today if I have a need for a computer.

The same will be true of anything else deflationary.  Sure, there will be an incentive to encourage individual saving, but that isn't necessarily a bad thing.  Meanwhile people will still spend on the things they need and want.

Probably, it will be interesting to see how it plays out, won't it.  For that matter, that's what many of the "alt-coins" are.  They are an attempt to create a new crypto-currency with a different set of protocol rules.  The difference is that the "alt-coins" started over with a brand new blockchain from scratch rather than trying to split the current blockchain.  So I guess the big question is: "Will any attempt to change the rules always result in a brand new blockchain, or will someone eventually successfully convince a percentage of bitcoin users to intentionally split the bitcoin blockchain?"


It only takes one miner to split the blockchain.  But that blockchain will sit there split on that miners computer and nobody else will see/use it.  The trick is to convince enough miners to split the chain so that a 50%+ attack becomes financially unlikely, and convince enough users to split the chain so that others will find it worthwhile to join (users need merchants, merchants need users).

Well, you might plan on spending them instead of selling them.  The exchange rate matters then, because it gives an indication of purchasing power.  Spending bitcoins makes about as much sense as spending any other currency assuming merchants exist that offer what you want and accept bitcoin as payment.  The determination of which currency to spend would likely be determined by which offers the higher purchaing power at the moment.  The reduce transaction fees, and fraud risk for merchants is likely to result in more purchaing power when spending bitcoins than other currencies.

Investment for future sale is certainly one potential use for bitcoin, but many people may be looking more into exchange from one currency to another with a long term plan to simply spend the bitcoin directly on future purchases.


Just like bitcoin has uses beyond pure investment, land also has uses beyond pure investment.  You might buy some land to have a place to live, or to grow your own food, or to provide a place to go hunting, etc.

It is human nature to always want more fo whatever they desire.  Sure you might be able to "live off of" some acquired amount, but then you'd want a slightly better car, or you'd want to take a trip, or you'd want to buy a gift for a family member, or whatever. Most people will continue to find things they want to spend money on, and will therefore continue to want just a bit more money than what they already have.  As such, they'll continue producing to provide a source of revenue.

That is absurd. It assumes that the deflation rate is higher than a company's operating margin. Sure, it could happen, but assuming that hyper-deflation is a normal outcome is ridiculous.

Furthermore, nobody would create useful products and services right now according to your logic, because they can just put the money in the bank and earn interest.

I am concerned with the manipulation of Bitcoin by outside corporate banks, and essentially all enemies of a decentralized currency. The recent high percentage fluctuations are bad because they constantly show that the currency is not stable and of course the corporate owned media is bashing it at every turn.

C'mon. In 2012 I sold ~230 BTC for like $2,500, because I needed money. If I just borrowed it or even got a credit from a bank, but didn't sell the BTC,  in early April I'd sell them for $50-60k. I could really just screw my job and do NOTHING for half a year, and I would get my 2-years income just like that. That's bitcoin. That's the deflation.

Once something is in the mainstream media and catches attention it's a good thing. unless it's just the 15 minutes of fame..which btc already passed.
http://www.bbc.com/future/story/20130412-bitcoin-and-the-illusion-of-money/1 (http://www.bbc.com/future/story/20130412-bitcoin-and-the-illusion-of-money/1)

BTC going up this morning.  I like it.

That's bitcoin in its infancy and adoption phase.  That's price deflation due to a rate of growth in demand that is outpacing the supply inflation rate.  As far as supply goes, bitcoin is still inflationary and will be for quite a while.  The previous discussion in this thread about "deflation" was referring to after the price stabilizes and supply deflation occurs.  I'm pretty confident that you aren't going to see 90%+ of the supply of bitcoin permanently lost every year.

You could try to quit your job and live off of nothing but the price deflation of bitcoin for the next few years, but if you started in January 2012 you might have struggled a bit to pay your mortgage and keep food on the table for the next 7 months through July 2012.  For that matter, the $2,500 sunk into bitcoin in January 2012 would have been worth less than $5,000 by the end of December 2012.  Do you really think you can live off of $2,500 per year?

Just a query but would there be anyway for someone/group to mint all the bitcoins or if someone had 51% of all bitcoins? That would definitely effect the value of it....... (sorry newbie)

Well, over half of the bitcoins are already minted, so it's far too late for someone to mint "all the bitcoins".  However, it is technically possible for someone to mint all the remaining bitcoins if they can maintain more hashing power than the entire rest of the bitcoin network continuously for the next 127 years.