Bitcoin Forum

When the 21M bitcoins are produced, miners are supposed to earn bitcoins only by charging fees.
I have another proposal. But probably is a change so drastic that can't be applied to bitcoin.

Freicoins can be created forever as an incentive and still have a fixed monetary base if the amount of newly created reward for miners is equal the amount of destroyed freicoins.
How can freicoins be removed from circulation?
Each time a transaction is done a percentage of the freicoins in the transaction are destroyed depending on how much time the freicoins have been hold since the last transaction. This is called demurrage (http://en.wikipedia.org/wiki/Demurrage_(currency)).

It reduces interest rates (http://www.finanzcrash.com/english/aberrations.html). Concretely, it attacks the basic interest or liquidity premium. Defined as
gross interest = basic interest + risk premium + inflation premium (http://www.community-exchange.org/docs/Gesell/en/neo/part5/7.htm)
Demurrage has other benefits. For example, money with demurrage is crisis resistant (http://www.reinventingmoney.com/worglExperiment.php): it will continue to circulate even with deflation. Deflation discourages real capital accumulation (https://bitcointalk.org/index.php?topic=28276.msg421352#msg421352) and demurrage can solve it.
Also, interest makes the financial market "think" in the short term (http://forum.bitcoin.org/index.php?topic=5373.msg314987#msg314987).

For more information about demurrage you can read Silvio Gesell (http://en.wikipedia.org/wiki/Silvio_Gesell)'s main book on the web (http://www.community-exchange.org/docs/Gesell/en/neo/) or in pdf (http://www.complementarycurrency.org/ccLibrary/materials/neo.zip).
I think the main flaw of Gesell's proposal is that he wanted the government to issue his freigeld (http://en.wikipedia.org/wiki/Freigeld), but there wasn't the block chain back then.

With merged mining (http://forum.bitcoin.org/index.php?topic=29074.0), freicoin can co-exist with bitcoin.

One can say that demurrage is worse than inflation for savers, but I think that's not true (http://www.community-exchange.org/docs/Gesell/en/neo/part4/5g.htm).
Others claim that demurrage and inflation have the same effect. Inflation is worse at all lights (https://bitcointalk.org/index.php?topic=36450.msg469848#msg469848).
Other common criticism is that no merchant would accept a money with demurrage, but there's many local currencies with demurrage operating today (http://www.complementarycurrency.org/ccDatabase/).

There's a forum for bitcoin with demurrage (not necessarily this exact proposal) here:

http://www.freicoin.org/

There's a bounty for its developement here:
https://bitcointalk.org/index.php?topic=36190.0

With 10 minutes per block, the formula for establishing the monetary base and the miner's reward would be:

(base * demurrage) / 52560 = reward

For example:

(21000000 * 0.03) / 52 560 = 11.9863014

** 52560 = 6 * 24 * 365

Freicoin is currently being implemented:

https://github.com/freicoin/freicoin
https://bitcointalk.org/index.php?topic=89843.0

It will not work - because there are another currencies without demurrage.
One can just switch to another currency for saving and then back for spending

Well, we want bitcoin to be used for trade, right?
I don't care if people save in another currency.

How do you get people to do this? If I'm getting this right, either you have to find a way to force them to do it, or they have to voluntarily choose to take part in this system on ideological grounds. I'm sceptical of solutions that rely on ideology - they lose out to more pragmatic approaches in the end. Maybe I don't understand what you're proposing to actually do?

In a highly competitive market, transaction fees, and more worryingly, the network's hash/s, will converge towards zero. 

This is because a miner who discovers a new block only has to pay for the cost of proof-of-work, not for the cost of bandwidth and storage associated with that block. 

That cost is carried collectively by the rest of the network. Including transactions with zero or near-zero fees incurs practically no additional cost to the individual miner. 

So far, I don't think anyone has come up with a solution for this tragedy of the commons. 

Of course this is only true once generation of new coins reaches zero. This won't happen before next century so we've got plenty of time to fix this.

If the demurrage rate was small enough, then it might work, but it would be no different in practice than the fees system.  Either way, the over-parity bitcoins end up in the possession of the miner who found the block hash.  Without looking into it further, one possible problem that I can see is that demurrage rates would be detached from actual block creation, so it's possible that they could occur at significantly different rates, resulting in an unbounded monetary base.  Also, demurrage would also make free transactions impossible, and that would be bad for shifting funds around personal wallets, donations and such.

The transaction fees will trend downward, which will drive down the hash/s, which will drive down the difficulty, until they are in balance. It will all take care of itself.

I don't agree with your viewpoints here.  Transaction fees are and will be a market.  Currently the market price is zero, pricely because network data volume is relatively low, and therefore the cost to the network is almost zero.  There are some limiting factors on the growth of the blocks, however; both intentionally in software as well natural limits due to scale of the network.  As the transaction volumes increase, the average fee will also increase dynamicly.  Some people will be trading in a manner that requires that they get rapid verifications for the transactions, and they will need to provide higher average fees to encourage miners to include their transactions.  Others will be trading or donating in a manner that does not need quick verifications, such as a trade with mutually trusting parties, donations to a charity, or very small purchases; these transactions will not pay transaction fees nearly as high, or not any fee at all, due to the fact that they can wait for days, even weeks, for inclusion into a block.

Nor do I agree that this is a commons situation.  If it were a commons, there would be a resource that can be extracted, without additional costs to the node, without any practical limits; which is not the case here.  Every node must contribute to the overall network just to participate, but not at an equal amount.  In the future, some nodes will be 'lightweight' clients that receive full blocks, but then trim their blockchains for their own needs, keeping only the 80 byte headers to verify transactions that relate to their own trading activities, but neither generating nor maintaining full time network connections.  Also, 'ultra-light' clients that keep no blockchain of their own at all, and depend upon network connectivity to a trusted provider capable of verifying transactions on their behalf.   Neither of these two types of nodes contribute much to the network, nor do they require much; but they give what they get.  Most users will likely use such lighter clients in everyday life, and the majority of the network will be supported almost entirely by the generating clients and other full clients whose owners have their own reasons to participate in the network as a full node, such as bitcoin 'banks' like Mybitcoin.com and verification services for the 'ultra-light' clients.

The main point of demurrage is not avoid fees. There's nothing wrong with fees.
While demurrage decrease the currency's ability to storage wealth, it stimulates the spend and trade with the currency, because the longer you hold the money the more you lose.
The only reason why people would prefer this kind of money is that is more suitable as a medium of exchange. That was what happened during the Worgl experiment.
The problem I want to solve with demurrage is deflation or at least its effects:

http://en.wikipedia.org/wiki/Deflation#Effects

Demurrage suppresses interest too, which I think is evil:

http://finanzcrash.com/english/aberrations.html

The problem of deflation can be solved along with the more general problem of price stability.
Neither Precious metals nor national fiat currencies have been able to solve this problem.
Here we got the formula we're supposed to be talking about if we want to reach stable prices(http://en.wikipedia.org/wiki/Money_supply#Monetary_exchange_equation):

MV = PQ
M is the total dollars in the nation’s money supply
V is the number of times per year each dollar is spent
P is the average price of all the goods and services sold during the year
Q is the quantity of assets, goods and services sold during the year

Demurrage increases V and make it more predictable.
Demurrage (and M) could be adjusted dynamically in function of P, supposing you have a way to measure P.
The typical approach (without demurrage)is to increase M (print money) without knowing anything nor having any control of V. When V is low, crises come. The tool for trade disappears.
With precious metals, M depends on discoveries so you can't control prices with that.
With fiat currencies you can control M, but it doesn't help if you can't control V. When V gets low, Bernanke expands M. But then when V comes higher again, is not that easy to deacrease M and you got inflation.

If you have demurrage and bitcoin generation as an incentive, you can create and destroy money, so you can increase M by creating money faster than you destroy it and viceversa.
Of course, the formula that calculates P, the demurrage to be applied and the amount of bitcoins to be created with each block should be in a free software program and not just in a central banker's mind nor a politician's.
There I think we all agree.  

So, wait, you want to destroy money in order to avoid the effects of destroying money?!?

Saving rate is a function of time preference, therefore the saving will always be spent EVENTUALLY. Saving does not cause a collapse of aggregate demand.

Deflation growth, especially in the bitcoin economy, is a non-problem.

Interest isn't evil. It's simply the profit made in exchange for keeping safe or allowing someone to use money. If you disagree with the amount of interest charged or offered, use another service.

Also, some of us don't see deflation as a problem, either.

I'd much rather have a currency which increases in value than one which devalues.

Charging interest on loans (also called usury) is a source of surplus. It has been considered evil by a lot of religions. Maybe the link above can convince you. Maybe "The natural economic" by Silvio Gesell or "Interest and Inflation Free Money" by Margrit Kennedy can.

I guess you all prefer deflation over inflation, but none of you prefer stable prices?

Deflation discourages commerce. I just can't understand how you can see deflation as desirable.

Edit: Ok, that's not a good point against deflation. What if I say that it discourages real capital accumulation (https://bitcointalk.org/index.php?topic=28276.msg421352#msg421352)?

Dude, put down the kool-aid. Keynes was WRONG. And he knew it.

I say again, If you don't like the interest charged or offered, use another service.

This sounds to me like a case of asking the individuals to set aside their short-term personal interest in favour of the long-term common good. I.e. subscribing to an ideology is required to get an individual to consent to this system. As long as people can freely choose to not take part, I don't think this can compete.

Given the prospect of choosing a deflating currency or an inflation currency, I think people would choose a deflationary currency.

As someone receiving payments, I would much rather receive a deflationary currency than an inflationary currency.  With the inflationary currency, I have to immediately spend it before it loses value.  With the deflationary currency, I'm not pressured to spend it.  That's the advantage bitcoin has, and you are proposing to take that away.  The only way bitcoin will see widespread adoption is by convincing merchants and service providers to accept it as payment, and the fact that it holds its value better than the dollar is the only solid argument we have (for legitimate uses anyway).

Of course the arguments against deflation have been used to defend inflationary policies. I'M NOT DEFENDING INFLATIONARY POLICIES.
I DON'T LIKE BEN BERNANKE NOR WALL ST. Criticizing deflation doesn't make me an inflation advocate just as criticizing the Rothchilds doesn't make me a nazi.

Deflation discourages commerce. I'll try to explain it with an example.
If you can buy an apple today with a bitcoin and two apples tomorrow with the same bitcoin. Why would you buy anything today?
Maybe I'm missing something.
Does deflation encourage commerce? Can anyone explain me how?

Because you're hungry?

I'm sure you can think of a few reasons if you try.

That's really neither here nor there if your proposed solution requires people to voluntarily give up some of the value of their assets on the expectation that everyone else will do the same. At least that's what I understand you to be proposing? You'd have to have a system that makes that obligatory. How?

The problem with an inflationary currency is why would anybody choose to spend or trade within that currency?

They wouldn't. They'd have to be forced (e.g. at gunpoint) to accept it. Freely, they would choose to get rid of it as fast as possible.

Even assuming you are willing to put off buying food til later, eventually your hunger will outweigh the pressure to save. Or you'll die, and unless you've provided for them in a will, your bitcoins get lost, improving the value of our bitcoins. We thank you for your sacrifice.

Well, of course you would expend the necessary to survive, but nothing else.


I'll tell you why the worgl experiment was successful during the great depression until the currency was prohibited by the central bank.
Of course sellers did prefer the traditional currency over the one with demurrage.
But no one wanted to buy anything to them for traditional money. Was their choice to sell in exchange for the currency with demurrage or not to sell. They choose to trade.
There are examples of currencies with demurrage being used today.
Here's one:

http://en.wikipedia.org/wiki/Chiemgauer

And here are some more:

http://en.wikipedia.org/wiki/Demurrage_(currency)#Current_examples
  
I think there has too be more, today and through the history.
They don't appear in the media.

If I can get a 3DHDTV next year, why buy the standard HD now?

Because I want one.

Every decision is an economic choice between two options. You simply have to decide what you want more, the TV, or the extra .0001 BTC by keeping for a few days.

Human beings, with few exceptions, are not monks. We like sex, romantic partners, games, gambling and all sort of stuff.

You see, we don't horde money for the sake of hording money and getting rich, we horde them for the good stuff in life.

Would it make sense to wait for 50 years before purchasing sex, games, and gambling? Heck no. We like them, now, all things being equal.

None of us would stop paying for food, clothes, housing, internet...
But you won't die if you don't buy a car, a tv, a new GPU...
Yes survival is priceless. That's not the point.


0.0001*365 = 0.0365% anual deflation
I think we could live with that. It is very very low.

 

No, human beings don't like to just "survive". They like to thrive, have sex, etc.

Ok, sex is priceless  too ;)
That's not the point neither.

It's called prostitution ;).

I don't think it would be higher, even once the mining has stopped. Deflation is caused by money loss or destruction, so with reasonable wallet security, I doubt much would be lost per year, except through rounding errors.

And the point is, everything is a decision on preferences. Human beings are rather impulsive, by nature, so if you see a candy bar at the checkout, you're not too likely to think, "If I wait, I'll get a few extra satoshis back when I buy that." No, I'd say it would be more along the lines of:

 "Ooh! candy bar!" *tosses candy bar on counter*

As far as I can tell there's nothing "hard" being proposed to force people to use demurrage? Perhaps that's why it's worked with local currencies - social pressures can enforce compliance in a small community where in a large one - let alone one where identity is as ephemeral as it is here - they no longer function quite so well. I just don't think it will work at this scale. You'll have to develop a practical implementation to convince me it can compete with a currency not encumbered with demurrage.

Because I'm hungry.


Time preference.


It neither encourages nor discourages, in any significant way.

I understand that you don't believe people would use it. Let me put it this way.
If you have both currencies, what of the two would you spend first?
Obviously you should spend the one that loses value first.
But why did you accept the money with demurrage in the first place?
Maybe your client can't offer (or doesn't want) you the one without it.
But why he did accept it?
Fiat money can be accepted for various reasons. A government can force you to pay taxes with it and to accept it for clearing debts.
An agreement within a community can be enough like in LETS. You can even trust money "printed" by your friends with Ripple.
But the agreement doesn't have to be based on the commons. You can accept it because is good for YOU.
Bitcoin is accepted because it has qualities that make it better than national currencies.
I claim that a bitcoin-like currency with demurrage has qualities that make it better than bitcoin.
Not for the owner, but FOR THE USER.
Here Gesell can tell you the advantages of free-money (money with demurrage) for different types of money users:

http://wikilivres.info/wiki/The_Natural_Economic_Order#Part_IV._Free-Money.2C_or_Money_As_It_Should_Be

Note that it includes the saver.
I recommend you reading the full text.
Unlike him, I don't want the free-money to be issued by any government. Not after reading David D. Friedman's "The Machinery of Freedom". Unlike Friedman, I don't want metals to be money.
Like many of you, I buy bitcoins with fiat national currency.
Like probably some of you, I buy silver with fiat national currency too.
I'm not advocating to save in a currency that loses nominal value. I just want to use it as a medium of exchange. You can always buy deflationary bitcoins or Precious metals if you want to save.

Few people save in currency.  It is almost all inflationary.  Bitcoin is different.  Bitcoin inflates, but it is controlled, and should be outpaced by other currencies, yielding a relatively deflationary currency.  This currency happens to have some very nice properties, for example no required fees whatsoever for international exchange.  These properties are what will entice people to use bitcoin for trade.  It's simply cheaper for certain transactions, and that scope will broaden as the exchanging to local currencies becomes smoother.  People save in capital.  And people with capital actually spend "ahead" by borrowing inflationary money.  By spending the money earlier they can purchase more; the value of their debt is reduced over time.  This is the real disparity that leads to stratification.  As long as bitcoin remains relatively deflationary, debts in BTC will increase in value over time.  This will lead to few debtors, and those who manage to obtain large debts will face some form of bankruptcy in the bitcoin economy.  I have no idea how that will be handled, but it seems like a nasty trap a few unsuspecting people will get caught in.  People would like to be able to save in a more liquid form, and bitcoin might just fill that role.  Any merchant who accepts bitcoin can consider it a savings account, spend it, or convert it to another currency.  Your proposition seems to eliminate one of these options without adding any real value.  Also, if the bitcoin market itself is more liquid, bitcoin will lose value because it will be less scarce.  Besides, right now there just isn't enough to spend bitcoins on.  Demurrage really doesn't mesh well with the design of bitcoin anyway.  It breaks down when bitcoin stops inflating.  Perhaps someone should start a bitcoin competitor that inflates at a constant rate and savings deflate at the same rate.  Then we can have a constant supply and demurrage.  Bitcoin can have the liquid savings market and othercoin can be it's cousin with ultrafast transaction processing (the money loses value as it travels, so it needs to go from spendable by A to spendable by B as quickly as possible).  It seems you could drop anonymity from the protocol and still maintain it's p2p nature and get quick transaction approval since you know who to blame for any double spending.  Anonymity can be provided by a web service that handles your othercoins for you like mybitcoin.com, but on tor or something.  They could even integrate the two currencies and store your account in bitcoins and only convert to othercoins to send a payment.  When you receive a payment, it would be converted to BTC so as not to lose value.  As long as the exchange rate between the two isn't too volatile, it seems it could work.  And since we threw out anonymity for othercoin, we can have sane addresses that don't scare people.  Words or even numbers are easier to verify they are correct than something like 1K8gutmz4skgezroqGtF3kQ9SHcouJB9uU.  Of course, anonymity is not something to toss out so lightly, but that's they only way I see speed up transaction times.  And you can't have demurrage when the coins can sit in limbo for an hour.

Absolutely correct, IMO. Classic externalization of costs.

Except as mining becomes less profitable, less people will want to do it, which will lower the difficulty, which will make it more profitable.

which changes what exactly?

That transaction fees do not converge toward zero.

if the profit is the same, as you imply, then people will try to get in on the game - competition - which forces prices down.

Until costs exceed returns, then some people will get out of the game, difficulty goes back down, and it's once again more profitable. Are we talking past each other?

OK, so the profitability goes up and down as people go in and out. But what is the average profitability once you smoothe out the swings?

The original point made was that the average profit will tend toward zero.

If the average profit is above zero it must mean someone else is bearing the costs, like, your network provider.

I don't understand. Profit above zero is only possible when costs are externalized, or just in this particular case?

You need to distinguish between momentary profits, due to speculation, or sustained profits.

If sustained profits are on offer, more and more profit seekers enter.

In the latter case, profits will be driven to zero by competition, and then below zero.

Then some people get out, with losses.

Profits go up, people get back in.

What then is the average profit of the average player?

Deflation is no more disruptive to commerce than inflation, and both are only disruptive to the degree that they exist at the moment.  What is most desirable is general price stability, but only to an extent.  The deflationary design of Bitcoin, after about 120 years of course, is *very* gradual.  Between 2020 and 2130, Bitcoin will still be in an inflationary stage, but will be inflating at a rate less than every fiat currency on Earth has averaged over the past 50 years.  This means that Bitcoin's monetary base will be so stable, that price fluctuations will be much more affected by real market forces.  That is the ideal.  Very likely, none of us are going to be alive, and if Bitcoin survives in it's current state till 2130, it will have outlasted every fiat currency that has yet existed.  Even the US Dollar isn't even quite 100 years old as a fiat currency.

Demurrage is exactly the same thing as increasing the money supply. There are no special economic results that will occur under demurrage that will not happen under regular money supply inflation.

Demurrage is simply expressing the amount of bitcoins you have as a fraction of the total supply instead of hard units.

The link provided earlier, http://finanzcrash.com/english/aberrations.html makes an interesting argument about the opportunity benefit of liquidity holding up the entire interest rate system and thereby forcing capitalism to forever maintain scarcity instead of actually satisfying demand.

As I read it seemed to me that it is an argument in favour of having the medium of exchange inflate but not thereby also causing the medium of capital to inflate. Thus the impression it gave me is that it might actually be better to let the inflationary fiat currencies continue to serve as the medium of exchange, the faster the inflation the more urgency to actually spend it instead of hoard it for the opportunity benefits of liquidity.

Basically the link argues in favour of having a mechanism that will balance that opportunity benefit so means of exchange will actually get used to buy stuff instead of held over society in a maybe I will buy something maybe I won't uncertainty creating uncertainty that itself probably encourages others to also want to poise in liquidity waiting to see what one ought to buy and so on ultimately leading to gosh knows what final catastrophe impossible to predict because of the higher and higher uncertainties leading to all kinds of possible chain reaction modes of failure.

So maybe it is good that most buying and selling happens using heavily inflating fiat currencies, and we should aim to keep our savings in bitcoin and spend the fiat stuff...

...Which I suppose is simply bad money driving out good like G's law said...

-MarkM-

MarkM, I agree.

All you are talking about is the separation of the medium of exchange and store of value functions.

Oh, look, its already happened!

The difference is in debt.  Inflating a currency reduces the value of the debt to be paid, but demurrage only reduces the value of the cash you have to pay it off.  It seems demurrage could possibly reduce the tendency to put off debt payments.

Now I know what you meant. You say freicoin is equivalent to expocoin/kingcoin.
Here's my answer. Sorry for the long wait.

This is key. Just to explain a bit more, let's say that in 2010 there are 10 million X in existence and you have 100 X. In 2020, the number of X goes up to 20 million. The result is twofold:

1) Your share of the total sum of money has decreased from 10 per million to 5 per million.
2) Every 10 minutes (assuming money supply growth is exponential), a miner gets coins equal to 1.3 per million (since 1.0000013 ^ (6 * 24 * 365 * 10) = 2). This income transfer to miners carries certain economic effects (encouraging mining, reducing the bitcoin price due to for-profit miners wanting to sell, etc)

Now, let's say there is no inflation, but there is demurrage. In 2010, there are 10 million X in existence and you have 100 X. In 2020, there are still 10 million X but you have 50 X. The result is:

1) Your share of the total sum of money has decreased from 10 per million to 5 per million. In order to effect this change, every 10 minutes, 1.3 per million must be lost out of every pool of money every 10 minutes (since 0.9999987 ^ (6 * 24 * 365 * 10) = 0.5).
2) To keep the money supply constant, every 10 minutes a miner gets coins equal to 1.3 per million of the total money supply.

The two scenarios are EXACTLY THE SAME.

In terms of purchasing power of the money holder, yes.
In term of inflation (the unit of value for calculations and contracts), no.
In terms of interest rates, no.
The economic decision making is different.

I think they are correct that the two scenarios are effectively equal.

With inflation, the purchasing power of all money holders decreases.

With demurrage, the purchasing power of all money holders decreases.

Total money supply = 2X, purchasing power = X vs. total money supply = X, purchasing power = X/2.

They are mathematically equivalent. In both cases the winners are miners, the losers are savers.

In terms of purchasing power of the money holder, yes.

You can save in many ways. For example, investing or storing real products instead of money.
A freicoin bank would probably pay the demurrage of its creditors.

Also, would all gains go to miners or transaction fees would become cheaper?
Anyway, if they go to miners we would have an improved security, nothing unfair.

Differences:

Inflation is an inconvenience for calculations and contracts, even if it's predictable.

I'm surprised that no one had complained about how low interest rates would destroy the economy.
Inflation (like this one, not the one of our central bankers) rises nominal interest rates but leaves real interest intact.
On the other hand, demurrage lowers real interest rates.
But instead of producing mal-investments, like when you lower interest rates by monetizing cheap loans for the government, bankers and other associates, it permits further competition between capitals so their yields can tend to zero like regular profits do.
Any type of capital will have its yield above the liquidity premium (gross interest = liquidity premium/basic interest + inflation premium + risk premium (http://www.community-exchange.org/docs/Gesell/en/neo/part5/7.htm)) or no more competitors will come after the profits of that sector.

Demurrage would seem to discourage Merchants joining on freicoin/bitcoin.  With fees, you get what you charged for.  With demurrage I see destroying money that people own, have earned, and have every right to spend, and give it to whoever they want. (This is an idea of bitcoin representing value owned.  A very attractive idea to me.) For what? To avoid an honest Supply/Demand economy in bitmining?

The concept of people leaving the bitmining pool and joining thus creating a raise and drop in prices is really simple supply and demand economy.  This is free market at it's finest and simplest.

I feel strongly about the apple scenario.  Somebody answered the question 'Why buy an apple today when tomorrow you can buy two?' with 'Because your hungry.'  Which is exactly the point of it!  With the deflating dollar I need to buy a dozen apples today to retain my dozen apple value that I received in pay for my hard work, even though I won't be able to trade those apples for a car I may need in the future.  So I have to stop purchasing so many apples and save money at a rate that exceeds the rate of inflation, when in fact if I had saved my money and only bought apples when I was hungry I could have purchased the car sooner and replaced the vehicle more often, and all parties involved would benefit.  The apple seller would be getting an increasingly valuable currency for his apple, the car dealer as well for his cars.

When you get money (symbol of value) for the services you provided, you're supposed to take something from other person in exchange. The more time you spending how do you want to be compensated, the longer you lock the medium of exchange, and the more freicoin will charge for this wild card service that allows you to shift your "consumption" into the future. If you want to store value, you can still lend your money, or invest it. You can buy the things you know you will consume in the near future or in the long run if they're not perishable goods.

The miners (for the same security) will get exactly the same value, but transaction fees can be cheaper because freicoin always rewards with the same quantity instead of only at the beginning. Just as bitcoin tx fees are cheaper now than will be in the future, demurrage fees make tx fees smaller.

Frecioin mitigates the financial effects of deflation (https://bitcointalk.org/index.php?topic=28276.msg421352#msg421352), but its main goal is to reduce interest rates.

You will buy the apple, but the one in a hurry is the producer who wants to sell the apples, because they money (unlike apples) decay. That's why you can charge interest to the producer if he needs the money before you want to eat the apples.
But would you build a factory today if you can build two for the same price tomorrow? Would you lend money to build a factory that has decreasing nominal yields (and thus decreasing nominal value)?

Anyway, even if you're not worried about deflation, what's wrong with lowering interest rates without inflation nor transfers of wealth?

So the problem you are trying to solve by introducing demurrage into Bitcoin is fees. Reading some of the answers however, it would seem that fees are not seen as a problem. Miners could perhaps exist on fees alone, after mining has tapered out and the full complement of coins has been achieved. It seems like you are trying to solve a problem that isn't perceived as a problem by the Bitcoin community. As a matter of fact, I also see little difference in whether a miner is rewarded by a fee or by the fact that bitcoins continue to be available for mining because demurrage destroys some of them and therefore fills up the reservoir of unmined coins.



Interest also doesn't seem to be much of a problem (yet?) in Bitcoin. It is true that, just like interest, demurrage will tend to make a currency more fluid, meaning they will both induce holders of money to spend it or to make it available to others to spend. I haven't seen much discussion here on the subject of interest, and I don't think that interest is perceived as a problem worthy of solving either, in this community.


It is true that a digital currency is much easier to apply demurrage to than a state-issued currency. Still, you will have to find a good reason to do so. What is the added value that demurrage would bring to Bitcoin, what is the real problem - also in the eyes of the rest of the Bitcoin community - that would be solved by introducing demurrage. Just last week I was talking with someone in Italy who also wanted to introduce demurrage to Bitcoin, but there was also no mention of a real reason to do so, other than it would be nice for reasons not connected to Bitcoin itself...


Merged mining - hmmm. I see they talk about merges mining between Bitcoin and Namecoin. So what you are proposing basically is to establish Freicoin as a fork to Bitcoin, a separate flavor of the currency that includes demurrage. Still, you'll have to find and point out a real advantage to having demurrage over not having it.

There is one point in favor of a Bitcoin flavor with demurrage, which is that the currency will be tending to be spent more readily. But as it is right now, most of the users that have gone into bitcoin mining have done so with the expectation of an increasing value of each coin. They are banking on making profits because the currency is set to appreciate with time, and they would not want to follow you into a currency that does not do that. However there may be many new and potential users who don't care about speculating on their coins increasing in value, and who would welcome a more easily spendable currency.


There is an important problem with Bitcoin that would benefit from a Gesellian cure.

As Gesell points out, a currency, to be stable in value, has to be commensurate with the market it serves. The total amount of units of the currency in circulation and the mean velocity of circulation has to be in line with actual exchange being mediated by that currency.

In the case of Bitcoin, there is no mechanism to ensure this.

Therefore, Bitcoin is not well suited to trade. It tends to appreciate greatly, if the user base grows. That is good for miners and for speculators, but it is hardly good for businesses who want to accept Bitcoin for what they sell. Who would want to change their prices constantly because the currency is changing its value all the time? Think about real trade, like a business selling things. They would have to follow the Bitcoin exchange rate constantly so their prices continue to reflect the real value of what they sell.

So we have a problem, which is the currency is not stable in value. Freicoin could solve that problem, but it would need demurrage to do so.

Freicoin would have to set, for its target amount of coins to be issued, a number that is the product of the payments made through the system in a certain period x a multiplier (to be determined). This variable number would replace the fixed amount of 21.000.000 coins which characterizes Bitcoin.

The difficulty of calculating block chains would have to be automatically adjusted taking into account the currently issued number of Freicoins and the difference between that number and the (adjusted) target number.

Mining adds coins to the Freicoin economy, demurrage drains coins from it.

This way, whichever way the user base goes, whether the Freicoin economy expands or contracts, the value of each unit of Freicoin would be stable in value, as it is continually adjusted to the size of the economy that is being served by the currency.

I suppose what would be needed would be some programmers who could appreciate the importance of a stable Bitcoin flavor, and who would program these parameters into what would be a fork of Bitcoin.

Thank you for your views.
The main advantage I see in freicoin is that it reduces interest with all the good effects that would cause. The problem is that not many people here thinks in fact reduced interest would be beneficial. I first heard about anarcho-capitalism about a year ago, but I think austrian economics theories are pretty compatible with Gesell. I like both, but I don't like Gesell's "free land" nor "free money (freigeld) made by the state" nor austrian's "time preference" nor the "deflation is good/neutral" dogma.

Let's concentrate then in another advantages.

1) Transaction fees are not a problem, but demurrage fees reduce them. Bitcoin holders are receiving a service that bitcoin transactors pay for in form of transaction fees. I mean in the future, currently holders also pay through monetary inflation. But in the future it will be an externality.

2) Demurrage fees increase the velocity of freicoin. That is good for merchants that will make more sells.

Although miners prefer bitcoins over freicoins for their superior speculative value, with merged mining, miners will get the bitcoins the namecoin and the freicoins and sell the ones they don't like for whatever they get, because they don't have additional hashing costs. At 1 satoshi per freicoin, I will buy all the freicoins if no one else want them, so mining won't be a problem.
The problem is acceptance from users and that relies heavily in the acceptance from developers entrepreneurs. We need them to adapt the current bitcoin software and services to also work with freicoin.
Well, first we should code freicoin...
Making a fork from namecoin or collaborating with multicoin (that already have merged mining) seem the better alternatives for now.

A currency that stabilizes its price through changing the monetary base is being discussed in another thread, and I think it could be done better with demurrage (https://bitcointalk.org/index.php?topic=29135.msg431658#msg431658) than with destructive fees.

I don't want to change the stable monetary base feature of bitcoin, because I don't want the people in the forum to confuse demurrage with monetary inflation. In fact, the monetary base is more constant in freicoin than in bitcoin because it recovers lost wallets.

Bitcoin is modeled on mining - your model is modeled on farming. ie you farm a crop and you need to distribute it quickly before it rots. The problem is that we eat food, we don't eat gold. Unless we have an intrinsic need for the money before it rots why would we need it? edit - its like buying apples today and hoping you can still use them a year from now

Interesting analogy.
The "intrinsic need" as for gold, dollars and bitcoins, is that you know you can exchange them later for other goods and services. The producer doesn't eat his wares neither, and he don't want to exchange them for other wares, he wants money because it acts as a wild card. That's were the "intrinsic need" of money is. It should be just a proxy between your product and your consumption. We don't need money to be the best storage of value too. People will store more non perishable food (storages of real value, not monetary) if moneys decays.

I think your idea could work if it included seeding - if i buy a potato I can eat it now or I can plant it and produce 20 potatoes. That's how agriculture works - though people need land. I think any analogy that's worked in reality could work as a virtual currency.

1) I see transaction fees as being quite separate from demurrage. As you say, with demurrage there is no need to use transaction fees for ensuring currency stability or as a reward for miners. I don't understand why in the future currency holders would pay through monetary inflation, or how that would be an externality. Care to specify?

2) Yes, agreed that demurrage increases velocity of circulation, and thus make the currency better for commerce.



Merged mining seems a good idea.

I think users will accept freicoins, but I have some doubts about the ease of use for commerce with the software as it is now. It isn't to everyone's taste to be deal with bugs in transfers or complications with wallets. Things will have to get simpler from the end user standpoint, if the currency is going to have wide appeal. 



Thanks for that link. I posted in the other thread.

I can understand why you would like to keep the two things separate.

It is difficult enough to explain one concept at a time...

No. Now bitcoin miners are rewarded through inflation (new bitcoins are created with each block that go to the miner) and tx fees, In the future only tx fees will pay for the work of the miners.
With demurrage, fees are also allowed, but freicoin holders also pay miners, not only the people who want to move their coins fast.
The externality is the following: some users that gain from the bitcoin network won't pay anything for the miners work. Currently every holder is also paying indirectly the reward for the miner, since this new created coins make their own coins less valuable.


Things will have to get simpler from the end user standpoint for bitcoin too. There's many people working on it.

Here I elaborate a little more the differences between inflation and demurrage:

https://bitcointalk.org/index.php?topic=36450.msg469848#msg469848

Demurrage would seem to discourage Merchants joining on freicoin/bitcoin.  With fees, you get what you charged for.  With demurrage I see destroying money that people own, have earned, and have every right to spend, and give it to whoever they want. (This is an idea of bitcoin representing value owned.  A very attractive idea to me.) For what? To avoid an honest Supply/Demand economy in bitmining?

The concept of people leaving the bitmining pool and joining thus creating a raise and drop in prices is really simple supply and demand economy.  This is free market at it's finest and simplest.

I feel strongly about the apple scenario.  Somebody answered the question 'Why buy an apple today when tomorrow you can buy two?' with 'Because your hungry.'  Which is exactly the point of it!  With the deflating dollar I need to buy a dozen apples today to retain my dozen apple value that I received in pay for my hard work, even though I won't be able to trade those apples for a car I may need in the future.  So I have to stop purchasing so many apples and save money at a rate that exceeds the rate of inflation, when in fact if I had saved my money and only bought apples when I was hungry I could have purchased the car sooner and replaced the vehicle more often, and all parties involved would benefit.  The apple seller would be getting an increasingly valuable currency for his apple, the car dealer as well for his cars.

-DiamondPlus

The market for mining would act the same way with this system. The only difference is that miners will be rewarded by the system (as they are today) perpetually. Some people claims that the transaction fees market would be a tragedy of the commons and the security of the network in proportion of the market cap will severely drop when the reward halves.

I oppose the idea that inflation or demurrage prevents savers from saving. There are many ways of saving, the most productive for the society is investing. Savers are just discouraged to hoarding the currency. They can hoard other goods if that's their passion.

Inflation punishes savers and creates bubbles today just because it is created through cheap loans to privileged borrowers (the state and commercial banks). InflataCoin lenders would just add the corresponding inflation premium to the real interest of their loans: lenders don't suffer from inflation if it is totally predictable.

Apart from the "obvious" accounting inconvenience (https://bitcointalk.org/index.php?topic=36450.msg469848#msg469848), inflation has another disadvantage over demurrage. "With demurrage the debasement happens instantaneously, and evenly across currency owners. With inflation, prices gradually get bid up as the new money works its way through the economy" (that's from d'aniel).
That contribute to the bubbles formation but also has another implication:
Pure inflation creating (without debt, like the greenbacks advocates want) does not lower interest rates. Demurrage does.
When negotiating, the lender doesn't have to necessarily take the losses of inflation if instead of lending buys the market that is going to be inflated. So liquidity yields in itself because it can take advantage of the unexpected changes of the near future.
With demurrage the lender has an unavoidable incentive to lend the money or invest it.
It is a transfer of wealth from lenders to investors that would enable capital yields to drop to zero by competition just like ordinary sustained profits do. But the lenders privilege came from
the fact that money is scarce, everlasting and necessary for all sectors. Their privilege is what has stopped investors to compete until capital yields and thus interest rates go to zero. The total revenue of a given capital (until the time destroys it) could equal its production costs (zero profits). Now capital goods need to be at least as profitable as lending money. If we suppress the bottom limit for interests, we also suppress the artificial upper limit that is set on investments. There will be always unemployment if there's interest, because there will always be more workers than factories in order for them to be as profitable as money and not just solvent.


I won't the argument that "deflation prevents trade" anymore as I recognaise that it could be just a myth.
But the logic tells me that deflation discourages real capital accumulation (https://bitcointalk.org/index.php?topic=28276.msg421352#msg421352).

Anyway, the main points of freicoin are to lower interest rates and keep on rewarding miners after the maximum monetary base has been issued. Encouraging trade is not a bad thing though.

What differences (if any) from the OP are in the 12-21-12 release?

Maybe Mark knows something else, but I would say...

1) A reference block is added to transactions to calculate the payback.
https://github.com/freicoin/freicoin/issues/3

2) Merged mining isn't implemented from the start since we were afraid of being attacked when our difficulty is still low.

3) Divisibility has been improved.
https://github.com/freicoin/freicoin/issues/67

3) Initial distribution is not logarithmic, but linear
https://github.com/freicoin/freicoin/issues/55

4) And probably the biggest (and hardest to decide on) change...80% of the initial distribution won't be mined, but given to non profits through grants.
https://github.com/freicoin/freicoin/issues/29

Oh, I almost forgot. Demurrage is not 5% a year but 4.9something % (2^-20% each block) for optimization.

Thank you for your interest and don't hesitate to ask more questions.

Actually this one was eventually rejected. But to handle demurrage properly we made a switch to exact rational arithmetic internally, which would make it trivially simple to implement sub-satoshi support such as using decimal64 for amounts. It'd be a hard-fork, however.

Excuse me for the noob question, but I want to start mining FRC fast and I cant find out how to make  a wallet.
How can you make your own wallet for FRC and is there a Freicoin_qt

You don't have to shout...

You might want to head over to the alternate cryptocurrencies subforum and read up there, there are 3-4 posts going right now including a fairly long one I started on day 2.

The public facing site where you can get the client and more information is freico.in (http://freico.in)

There is also a nascent online wallet option under development at endlessfreico.in (http://endlessfreico.in)

Lastly if you need help, please stop by #freicoin on freenode IRC.

Enjoy!

I'm shouting, cause I've looked over an hour and I couldnt find shit. There is TMI on the alternative cryptocurancies, and all I got was www.freicoin.org.  ???

Thank you for the www.freico.in link!  ::)

So you decided to defraud the participants after all? Cool story...

I mean go for it! (http://en.wikipedia.org/wiki/Crony_capitalism)

I wanted to be sure, this was post #5 on the first page of the first thread.

There will always be people that will try to control an economy using monetary policies, rather than let money be the reflection of an economy. This only creates lies and lies can not go on forever.

Is that relevant to the discussion to some way, or just a standard piece of dogma you like to share?

Whom?
Which policies?
Which money?
What economy?
What lies?
Why not?

I truly am interested in your logic here, but there is nothing specific in your post.

@king_pin
Maybe you're interested on this thread about mining:
http://www.freicoin.org/help-for-new-miners-t77.html


Yes, just like those other "community cronies" at ithaca http://ithacahours.info/loansgrants.php
Or like the bundesbank when it distributed the newly issued money equally among German citizens. I guess the issuing process must be wasteful enough (bitcoin, gold) for you to consider it legitimate. The fact is our issuance costs will be much lower bitcoin's.
I wonder what will you think when the new Ripple launches...don't know how they will do the issuance but their chain has no proof of work, so it won't go to miners.

Sorry if my statement appeared to be out of context.

To be more specific, I believe arbitrary money policies like demurrage coerce people into changing their economic behaviors. I say coerce, because they are effictively forced to spend their money whereas they might have otherwise saved it to buy something later.

This creates a situations where goods and services are being baught for the wrong reasons. People try to get rid of their money instead of making sensible economic decisions. To pick an example, a family father might decide to spend all of his monthly income instead of saving some for sending his kids to college. It creates a lie, because people act differently than they would otherwise do.

Money should be as neutral as possible and should not get into the way of making economical decisions. And as far as the money circulation argument goes, good money circulation should be the result of a healthy economy. It doesn't work the other way around.

The good news is that inflationary/demurrage based currencies can only be widely adopted at gunpoint. In a free money economy where actors can transact in the currency of their choice, value-retaining currencies will prevail. In any case, time will tell.

Let me challenge that a bit.

Is it coercion if the coin is a voluntary unit that can be selected for adoption based on parameters like demurrage that can be understood up front? Especially since it is likely there will be ever more ways to turn FRC into another coin/fiat that does not have demurrage. At this point I think that coerce is too strong a word, right now FRC is a choice, it only has the potential to be coercion if someone is forced to transact in FRC in some way. Persuade, or "assisting the user in tricking themselves to do the right thing" (like all the crazy stuff ppl do to remember/force themselves to go to the gym) may also be accurate descriptions. I agree that it is arbitrary at time of currency creation, but it is a known quantity (and generally fixed) before mass adoption happens.

Your second point assumes goods/services that are only available for FRC, if the vendor takes fiat or another one does for the same commodity you have a market force that will push you to buy from the vendor that offers the better deal. In this example you have to do the cost/benefit analysis of using FRC with one vendor at his price with fiat at another vendor for the same item. If "net item price" in FRC is more than 5% less (if you only turn over your FRC once a year, far less if you just keep liquid cash as FRC and convert the rest) than the fiat price, then you are better off using FRC, but if it is more expensive then maybe you don't spend your FRC that day. We are talking about 50/1000 coins a year, so waiting a few days to find a good deal in FRC will only cost a fraction of a Freicoin a day. If you turn over 100% of your FRC every month I doubt you will worry about it beyond converting some funds if there are left-over FRC that are not budgeted. Your example is about incenting savings, which is not what FRC is trying to do (except in as much that it incents you to convert your long term funds into a better currency.) So are the goods and services being bought for the "wrong" reasons, or is it just one factor (others include price, promotions, advertising) pushing you towards spending?

Good money always naturally follows with a good economy?: https://bitcointalk.org/index.php?topic=1534.0
Industrial Revolution England is a pretty strong argument against the absolute link between good money and a good economy (or innovation.)

I'm pretty sure that money can be just about anything, but it has to circulate, no matter how "good" or "bad" it is. Baseball/Pokemon/etc. cards are horrible money, but you see them being used as loan collateral and exchange medium on the playground. Wide adoption with a currency means something different that with a lot of technologies, I think it is that because money is an intensely local (physical or virtual locations) phenomenon, and seeing a currency go global is the exception rather than the rule.

Personally I think that value-retaining currencies have an advantage right now because of economic conditions, if liquidity is king in the 2020's then it might flip over to some degree. Either way your point about force is 100% correct, so we have a relatively free market to observe.

So you want to tell us, that you never ever bought a TV, a cellphone, a computer, a printer etc. because in one year you can get for the same money more value? I don't believe you! If you have a stable deflation of let's say 2% in a year, you have nothing to threaten the merchant. "Haha, now I wait and you can't sell and will gain losses. Now sell it to me for a lower price. You have to!" vs. "Haha, buy it now or you have to wait forever, because you will get more value for the same money forever."

I can imagine some peaple:
No, I don't buy the I-Phone 5 because in one year I can get an I-Phone 5s for the same money.
One year later:
No, I don't buy the I-Phone 5s because in one year I can get an I-Phone 6 for the same money.
One year later:
No, I don't buy the I-Phone 6 because in one year I can get an I-Phone 6s for the same money.

Then with the age of 86:
Hm, I still have my cellphone of 1994. Should I buy the I-Phone 34s or should I wait another year?

Well, I don't think there will be an iphone 34 or that anyone should buy any drm iphone.

In any case, ok, deflation doesn't fully stop consumption but it does halt investments.

Say you have 10,000 btc and are considering investing them on building a cell-phone factory, for example.
If you have 10% annual deflation, the factory must yield more than 10% (more than 1000 btc annually) for the investment to make sense.

Just saving you don't grow the economy, you need to invest what you don't consume (savings) in order to make that happen.
An economy without investments actually contracts, since real capital (like Freicoin and Gesell's free-money but unlike capital-money) perishes.
I think my claim "deflation reduces money velocity" isn't particularly crazy or controversial among economists.

So ist is if you hold Apple stocks which gain 10% annual "deflation". So do Apple halt investments because their stock is increasing in value? If you want to come to the solution, you have to ask ypurself why is there an deflation? Demand succeeds over supply. But why is that so? Or take gold as an example.

Do we have to destroy all durable goods to foster encourage investments? In my opinion it would make more sense to stop punish successful investments.

Even if that were true, savings is a type of investment.

Not at all. Let's say I buy 100 shares in a company, each valued at one bitcoin. Over the next year, deflation increases the value of each bitcoin by 50% (Unrealistic, but let's run with it). Meanwhile, the company has made a paltry 1% profit, with a commensurate increase in it's stock price - 1%. So my 100 shares of this company are now worth 1.01 bitcoins a piece. But the bitcoin itself is worth 50% more...  So if I could have bought $10 000 worth of merchandise with those 100 bitcoins a year ago, I can now - after selling that stock - buy $15 150 worth. If I had merely kept those coins in a paper wallet somewhere, I could only buy $15 000 worth.

Investment is still profitable in a deflationary economy, as long as the company you're investing in is.


It encourages long-term investments, such as savings, and might make investors a little more cautious, but honestly, I'd rather have that than the inflation-induced bubbles.

Apple stocks would have to rise at least 10% in value plus the dividends to be better than just hoarding.
Apple hoards a big pile of cash, but thats unrelated to the how value of their stocks fluctuates.

Supply is the stock of wares (your own products, you don't want them). Money should be materialized demand but it isn't.
When the offer of money (demand) decreases prices rise. It doesn't necessarily mean that the supply of wares has increased, although that's another possible cause.

We don't need to destroy durable goods, I've never said that. And demurrage actually encourages long term investments by suppressing the so called "time preference" inherent to capital-monies but not inherent to humans as is often claimed by austrians.
To be more accurate, capital-money favors short-term investments over long term ones and free-money is neutral about time preference.
We've explained this in our web:

http://freico.in/about/

After "Anything that is not perishable becomes much more valuable".

inflation is very nice see
thanks to it a government that i didn't vote for because i wasn't born made some very good investment!
Those investment where so good and yield a fantastic return. Right now i have a 30 000€ debt over my head because everybody in france have.
I'm still waiting for this very nice inflation to reimburse that :)

But you know what? The best would be to increase Inflation and raise this debt to 60 000€/ person. This way we can rebuild public service and made economy bounce back on the track.

Inflation is a tax of the weakest. The weakest is the one that can't avoid this inflation. Basically the middle class

No, investments are a type of saving. Lending is another way of saving. Hoarding is another way of saving, but not an investment.


Your example is wrong. If the stock rises 1% in VALUE but btc rises 50% in value, the stock you bought for 1 btc will be worth 0.505 btc after the year, not 1.01 btc.
You would be better off by hoarding the btc instead of buying the stock.


Deflation encourages hoarding not investment.
And as said above, basic interest and capital-money encourage short-term investments not long-term ones.

Who's arguing for inflation? Freicoin monetary base converges at the fixed quantity of 100 MM Freicoins.
Demurrage fees pay for security, just like transactions fees will pay alone in bitcoin. In freicoin we expect lower transaction fees because demurrage fees are already funding the security.
Gesell himself predicted hyper-inflation for usd-like currencies. He predicts that first central banks lower interest rates to zero and then hyper-inflation eventually occurs when all the hoarded money comes out to the market suddenly. Sounds familiar?

https://www.community-exchange.org/docs/Gesell/en/neo/part3/13.htm

Extrapolating his predictions, the yen should die first, then the usd, gbp, the eur...

How do you measure a stock's value?

(hint: it starts with pr- and ends with -ice)

OK, to expound a little on my above example:
The company has 1000 shares, each IPO'd at 1 bitcoin. This gives them 1000 bitcoins to work with. Over the course of the year, they as I said, make a paltry profit of 1% on those bitcoins. This means the company's total worth is now 1010 bitcoins. Assuming stock price follows net worth (not always true, since there's a bit of future profit potential factored in, not to mention investor confidence) the stock's price is now 1.01 bitcoin. Selling those stocks, you'd make a killing.

Now... would it be harder for a company to make the profit in the first place? Possibly. Depends on how drastic the deflation is. Their business model would also play a part. Service-oriented businesses would be easier to maintain a profit, while production-based businesses would have to be very quick out the door with their product, since every day a product sits on a shelf is reduced profit, compared to the price they paid for the materials. Frankly, a company that can manage a 1% profit in a 50% deflationary economy would be going like gangbusters in more stable one.

Say we have an imaginary currency called stablecoin that has a constant value throughout time.

Year 0
1 stablecoin = 1 share = 1 btc

year 1
1 share = 1.01 stablecoins
0.5 btc = 1 stablecoin
1 share = 1.01 * 0.5 btc = 0.505 btc

my mistake for inflation.
But still i see no pointof adding rules to money.
Shouldn't it be just a mean of exchange/saving ?

Creating other rules around it just like demurge, is adding some political idea inside.

(your math is wrong, I corrected it - btc is worth 50% more, not 100%)

Well, that's just wonderful, but the company's business is not transacted in "stablecoin," but in bitcoin. So if it has made a 1% profit in bitcoin, then the actual calculation would be:

year 1
1 share = 1.01 btc
1 btc = 1.5 stablecoin
1 share = 1.01 * 1.5 btc = 1.515 stablecoin

As I pointed out, making the profit in the first place would be difficult, because of the deflation, but if it made profit, that would translate to being a great investment.
Year 0:
parts to make a phone cost 1 bitcoin = 1 stablecoin
market price of a phone is about 1.1 bitcoin = 1.1 stablecoin

Year 1:
market price of a phone is about .733 bitcoin = 1.1 stablecoin
the parts to make that phone (back in year 0) cost the company 1 bitcoin, a net loss - in bitcoin - of 0.267.

Tough to keep up with the price of your product, since you necessarily have to buy the supplies before you can sell your product.

@jtimon

I think your missunderstanding with myrkul consinst of how the profit is measured (or the stock price.) Let's assume 1BTC = 100$ and at the end of the year 1BTC = 150$. Now if the company uses Dollars, they have to make a profit of 51%, if they use bitcoins, only 1% to be more profitable than hoarding.

But think about it: If you can't abolish Bitcoin and bitcoins gaining 10% in value every year then Bitcoin doesn't have to be a currency. Even today a company would has to make more profit than 10%. If not the company just would buy bitcoins, right? And that counts for the whole stock market.

It's more an economic idea than a political one. But we believe that money should only be a means of exchange, not a so called "store of value". Silvio Gesell explains the problems caused by money trying to perform both functions at the same time.
One function distorts the other one. Personally I don't believe that an abstract store of value is even possible, but other in our community think that Freicoin should be used for exchange and Bitcoin for saving.


Yes, thanks for the correction. In any case, I was talking about the stock having to grow in value more than bitcoin in real terms.
And that applies to your example. The company stock hasn't grown in real value just 1%, it has grown in value more than 50% (more than Bitcoin).
I'm not saying it is impossible, just very unlikely. So less companies will be good investments (compared to hoarding) and hoarding will substitute part of the real investments.
My claim still stands: "deflation makes real investments less attractive".
I'm not saying bitcoin will destroy the economy because it is not monopoly money like gold was. Although borrowing a highly deflationary currency is quite crazy, people will just lend and invest other currencies.

Well i'm not economist but i see no reason of this distinction. Mainly if you have bridges between the two. Doesn't mean there is no space for other crypto, i do not know they'll raise eventually if needed. Bitcoin doesn't solve all the problems.

And gold for instance is an abstract store of value. Yep it is physical but still the value is totally abstract. It is based on faith. Find a guy who grew up in the jungle and never saw gold or silver, give him some and ask him what he want to keep, he might as well keep some silver. Gold is totally useless. yet it is used as a store of value.

Although I disagree that gold is completely useless (it is a valuable industrial commodity), its current value compared to silver cannot derive from their differences as industrial commodities or the difference wouldn't be so big.
No matter what Bernanke claims, gold is still money to some extend. So, yes, a agree that gold qualifies as an abstract store of value. Its value could collapse if all the users wanted to extract that "stored value" at the same time. Not to zero, but still collapse.
So I mostly agree with you in your analysis.

The aim of Freicoin is to provide a crypto-currency that is good as a medium of exchange but not suitable for "store of value".
A currency that makes sense to lend at zero interest (plus risk premium). Well, if you add the inflation premium (which is negative when there's deflation), it could even make sense to lend it at negative interest (of course, never below the demurrage rate).
In our extreme 50% deflation example, not even freicoin would be invested, but the user base will eventually stabilize and at that point freicoin should be more stable than bitcoin (as there won't be much "hoarding demand", which is more variable).

yep u get the point

I spoke with a friend a few day ago and his first idea of perfect money was with this demurge thing (and i send him to freicoin!). But still you create a money that nobody want ( because of demurge) hoping that they will want to use this money.
I don't understand where the value come from: Faith will be very low AND it has no physical value.

What i get of the bitcoin experiment is that SAVING and EXCHANGE goes together. Without poeple using bitcoin as a way of saving, bitcoin would have stay at a very low market cap making it to risky to use as a mean of exchange ( fluctuation ). Raising the market cap by hoarding helped to stabilize the price and make bitcoin credible.
I am not speaking of the little spark we see right now. Bitcoin was used as a saving method before 2010.
SAVING give the value to the currency that can then be used to EXCHANGE.


But again i'm not economist i'd be glad to use freicoin in 5 years if it's still around :)

Thank you for pointing your friend to our project!!

Its value comes from the demand, just like with bitcoin. Of course is still to be proven if demurrage will destroy that demand or not.
Until now, demurrage currencies have been usually backed national currencies (worgl, chiemgauer...) or they were directly enforced by a state (Bernard Lietaer talks about demurrage currencies in the age of cathedrals in europe, Egypt or China; associating these currencies with long-term investments and big infrastructure projects).

I just think that if it has a price, merchants can accept it. And if merchants accept it will have demand. But although I've been investigating money for years I'm not an economist either, and even if I were I don't think anybody can predict what will happen with certainty.
It is an economic experiment in addition to a currency (well, bitcoin is a monetary experiment too as you point out).

That is correct. I do not grok why it matters. Why does money hoarding matter? it is not a real asset. Hoarding money is not like hoarding copper or food that could be productively employed or consumed. You cannot build something out of bitcoin or eat it.  Furthermore it is not necessarily the case that reducing economic activity is bad. Is it better to pump petroleum out of the ground as fast as possible or to hoard some of it? Some resources are finite and their consumption should not be blindly stimulated.

Money systems are never in themselves resources, but money CONTROLS all consumption and production of resources through price signals.  Any economist will tell you that the most important price in the economy is the interest rate and the nature of the money and its supply are the drivers of that rate.  We do not believe that demurrage increases wasteful consumption of resources, if you look at the history of the industrial revolution you will see that mildly inflationary fiat has created an economy with lots of resource consumption and waste in it.  One of the drivers behind that is that interest must be payed in-order to avoid defaulting on loans.  The only way to repay all loans is to expand the economy PERPETUALLY.  Defaults would cause personal bankruptcy (bad for a few poor people) and most importantly without expansion the number of defaults would roughly equal the interest rate meaning lenders would lose in write-offs what they make from interest and all their profits would be gone (bad for very rich and powerful people).  Which reason is the one driving our expansionary paradigm, heck they seem to be very close to making it work for the later group despite the personal bankruptcies of the former.

You can also do some very simple math on NET PRESENT VALUE to see that a forest (or any other natural endowment with perpetual value creating potential) under interest bearing money is only worth a finite amount, at 5% interest its only worth 20 years of lumber production.  If you could make more then that by leveling it for a shopping mall that's what you SHOULD do according to interest.  Under reduced interest rates created by demurrage perpetual natural production is nearly priceless and you preserve it.  Likewise high upfront-low ongoing expenditures like solar, wind currently get out competed by low upfront-high ongoing solutions like goal and natural gas because future expenditure is also discounted by interest, it's well understood by renewable energy investors that financing is now the only real barrier to their cost effectiveness.

I hold some and I hope I will be rich

^^^^ doesn't understand what "demurrage" means.

I will never use that thing. Early adopters must be rewarded.

Maybe it needs to be like a pyramid scam where the demurrage gets paid to the people who signed up ahead of you.  ;)

Because hoarding is a non-explicit loan contract, but very strange.
When much value joins, it rises. When value "cashes out", it drops in
price. So the conservative saver is not "storing value" at all. You
can't just "store value" like that. If you want to travel to the
future, you need a counter-party to travel back to the present, to
take your cash from your hands. You can't just trust-less and
risk-free store "value".

Unless of course you have a bank you can trust to manage risk for you.
But I've heard those are missing, they've turned into paper minters.
Because bank's credit is equivalent to state cash by law.
Meaning...they don't really hold any risk and have no real incentive
to manage it properly.

Value can't be intrinsic. People value, only then things are worth.
Marx was wrong. Cash is a "let's all we trust this so we have no
counter-party risk for trust-less exchange", and it's not its fault to
change in value, you just shouldn't rely on cash for "storing value"
or even as a unit of exchange.
So called value is not only relative but immaterial.

The problem is that without demurrage, the medium of exchange and
lending are coupled. The fault's not on cash, it's on basic interest
of everlasting cash.

With everlasting cash, why would you lend at risk-free 0%?
Adding deflation, why would you discount the inflation premium (which
is negative for deflation) if you're the lender? You can apply it to
a certain extend, but certainly you will never lend on invest
capital-cash below nominal 0%, even if there's 20% deflation.

When money is lend, the saver doesn't consume in the present so that
the borrower can invest to be able to generate that value for the
lender in the future.

But when cash is hoarded, what's taken from consumption is not put
into investments. What does that hoarding then?

When capital accumulation and competition naturally lower yields and
interests (signaling an increased efficiency and the fulfillment of
the demand), some savers stop lending and prefer to hoard.
Even if the risk free interest rates are still positive, the free
insurance that represents a pile of wildcard cash to cover
uncertainties or take advantages of unpredictable future events is
preferable to low interests.

An increase in hoarding produces deflation, since less money
circulating needs to move the same wares. That makes lending even
less attractive, creating a positive feedback loop. The more
deflation, the better it is for the saver to hoard over lend, until
eventually the spiral stops.
The first hoarders in this self-fulfilling prophecy can now "cash
out" (to real capital instead of capital-cash) their huge gains. 
Note that many investments that would have had positive yields aren't
made during this deflationary period.
When the deflationary artificial scarcity of wares caused by the
lacks of investment rises consuming good prices in relation to
producing goods (real capital), interest rise again and savings can
be lent instead of hoarded again and profitable investments get
financed again.

A common alternative to deflation as the tool to restore the scarcity
needed to cover the basic interest rate is war. With more destroyed
buildings the remaining ones can yield more with a higher
rent/building_price ratio that has resulted from destruction.
The only equilibrium here is that capitalists must receive the basic
interest rent on all their real capital AND capital-money, how that's
achieved it's not important.

Gold is the first implementation of cash, before there was only
credit and barter. Later we've seen state-cash, but that's much more
complicated since it has a managed supply. That would be the so
called "debt-free" money. Today we have state and banks credit that
works like cash by law. The state enforces it but leaves the
signoriage to the banks.
Now we crypto-cash.

But all these new forms of cash and bitcoin have chosen to maintain
the design flaw that was mandatory for gold. Make it possible to the
holders to freeze the cash for as long as they want with now cost. All
of them have chosen to ensure price cycles and rents for the master
capitalists (the owner of production goods or medium of exchange that
enjoy a guarantied rent).

Freicoin in the other hand has chosen to tell the holders of the
medium of exchange to preferably save elsewhere and invest or lend
what you don't want to spend in the near future. Thus FRC loans at
risk-free 0% make sense. And -4% rates make sense with 4% deflation.


Why?

It is hard to understand in detail but it is well described, so just search in google (maybe plus Bernard Lietaer).


Maybe sounds litte confusing but that is exactly what happens right now. All the money is beeing hoarded and there is not enough money left in the economy (what is the reason of the recent crisis). This was exactly the same in the great depression. There were enough goods but no one had the money exept a few that had more than they ever could spend.

Money to save is a wounderful thing! Why not save money for bad times? But to use the same money for trade is nearly ridiculous. Its like using a Hammer to lumber a tree. You can do it but its so much harder.

Another argument against demurrage is that nobody would accept payments in that currency? In my opinion this is not true i know enough handcrafters that make beautiful things with high quality but they cant sell it because there is not enough money in the economy. Those people would be grateful because they are dependent on people that spend their money. So dont worry in the next krisis or maybe the one following there will be a market we just have to wait.

And: Inflation is NOT like demurrage! Over all it seems to have the same effect BUT: Inflation is mostly occuring the product Level. Meaning you get the same payment every month but the prices are rising (everybody could confirm that). Demurrage is just to keep the money running like the blood in our veins (selery and prices are stable).

@Founders of Freicoin:

I bow to your wisdom and knowledge!

This currency has the potential to change the world at a very high scale to produce long lasting peace and increase wealth in an amount we are not able to imagine right now.

Rik

 

I think, perhaps, you misunderstand. I was saying that the gentlebeing I quoted, fox19891989, does not understand the concept of demurrage, for s/he is holding onto a currency designed to trickle away from those who grip it the hardest, in the hopes of becoming rich. (rather like holding on to a handful of sand hoping to find a diamond in your palm when you open it)

And now, I think, it is my turn to not understand. Why would you not want to use a currency that is a good store of value to trade with? Certainly your trading partner will value more highly a currency which keeps or increases it's value over time, as opposed to something he'll have to get rid of as quickly as possible.

 ;) Well, because in the end those who are able to save money will be the ones owning all the money and there is no money left for trade (what is in my opinion the main reason for our world wide crisis). You could easily reconsrtuct this scenario by playing monopoly. In the end one person has everything and all the others nothing - the same basic principle.

Just imagine you loose some of the streets over time - you could play on forever, just by a very small change in rules.

lol and yes i misunderstood your first post

A merchant will generally have a great deal of turn over in their money due to the nature of business, they have to pay expenses like rent and salary, get more product etc, so to them the cost of demurrage is actually very modest because it comes as a percentage of they working funds not a percentage of gross revenue.  This is also why sales taxes hurt business so much because they come our of gross revenue which is very large compared to profits, any business would prefer to pay 5% on profits rather then 5% on revenue.

Deflationary currency forces merchants to lower their prices because demand is reduced, the merchant have to offer very attractive bargains to get the potential customer to part with the currency (or sell black-market goods at huge markups).  But the merchant now must spend the revenue immediately to cover costs, acquire new product etc, so the merchant dose not enjoy the benefits of deflation because they are not in a position to hold the money and wait for deflation gain.

Lastly the potential for a low interest loan to finance a business with is also a major issue.  If a merchant can even get a loan under deflationary currency his debt burden is growing constantly and his profitability must be very high to pay back the loan.  If the option exists to take a loan in demurrage currency that loan will be at a near zero rate (some risk premium is legitimate) and the merchant will need to acquire that demurrage currency to repay with, and this acquisition is much easier both because customers willingly part with the money, but also because the real burden of the loan is not increased by deflation.

Most of the confusion your question embodies comes from projecting onto the merchant the situation and mindset of the standard BTC hoarder.  The hoarder dose not have a turnover of goods or overhead costs being paid in deflationary currency (any overhead for a miner is Fiat), they are instead in a position to sit on money and reap the benefits of deflation.  A real business is in exactly the inverse situation so their motivation is reversed and they prefer demurrage.

We as coin-holders if thinking shortsightedly would want deflation of course, but because all the material things we enjoy and consume are produced by business and investment then the truly rational thing is to prefer demurrage currency, it is the prisoners dilemma ware the seemingly individually rational behavior (always snitch) produces the worst outcome, but when viewed from a macro perspective the best solution is to do the opposite.

Sure, and any business would also rather pay 0% on any of that.

So, then, you're saying that demurrage penalizes the merchant for no good reason? Isn't the stated purpose to ensure that velocity is maintained? If it's maintained without it, what use is it?

Why do you assume that debt is more beneficial than savings? Isn't debt how the world got into the dire straights it's in now? Hair of the dog is not the answer, my friend.

Somehow, I doubt they would prefer demurrage to not losing a portion of their proceeds in any way.

I don't know about you, but I prefer being able to save my money. I like to keep it when I want to keep it, and spend it when I want to spend it. Money needs to be a store of value, not just a medium of exchange.

FRC = "hot potato" coin !!!  ;D

_?_do you have a real time freidcoin demurrage chart?...what about physical FRCs with a timer? LOL 8)

indeed

http://www.cryptocoincharts.info/period-charts.php?period=alltime&resolution=day&pair=frc-btc&market=vircurex

thanks bud tho that's only the PPC(price per coin) chart~\//\~
====>ya what i'm looking for a historical chart that shows the demurrage coin-kill rate in relation to friedcoins' PPC! :D tia!

Where can I go to short this thing?

Bermuda triangle ~ Toronto somewhere how many you want? we will skin you alive LOL +1

Not as bad as a 80% crony tax on mining.

There's no charts because that's a constant: 2^(-20)% per block or a little bit less than annual 5%.
The demurrage FEE is constant over time.
What is "destroyed" increases with the total supply, until the equlibrium is reached at 100 Million FRC.

equilibrium at 0

~20 year shelf life then?  ;D
/\not that bad lol

I don't think many people like to see their amount of money getting less. (with the USD if they print more money, people don't see their money decreasing)

Any thoughts on a different timeframe for the demurrage?

We discussed starting with lower demurrage rates before launch and we choose to have it constant from the beginning:

http://freicoin.freeforums.org/initial-proposals-f2.html

Now it would be a very polemic hard-fork and the plan is to only have one more with merged mining and freimarkets, once it is developed.

The transaction fees will trend downward, which will drive down the hash/s, which will drive down the difficulty, until they are in balance. It will all take care of itself.

No, (2^-20) % each 10 minutes is around 5% yearly demurrage.
So if you have 100 FRC today and don't use them in 20 years, in 20 years you will approximately have:

100 * (0.95^20) = 35.8485922409

For them to completely disappear...I don't know, with 2 decimals is more than 175 years, with 8 decimals...I don't want to calculate.
I'm not even doing the real calculations, just approximations, but your math was terribly bad.

Hi there,

Am I right, that when I buy 1000 FRC and keeps it in my offline wallet, it will be ~600 FRC after 10 years?

Yes, approximately.

Because it's cheaper to spend/invest than the exchange to get rid of it (exchange fees can be months of demurrage). This has been covered in depth: please read the thread.

We decide to add Freicoin in our wiki. And now has it's own page on http://coinwik.org. This is a wikipedia listing all the alt coins to help everyone quickly find facts and links about thier favorite coin.

http://coinwik.org/Freicoin

If you know of other facts and links that can be added to the page, please feel free to update the page.

+1 (says time)

still it 'demurrage' is a noble idea and the game is not up quiet yet.

Freicoin is about to drop out of the top-100 cryptocurrencies list.

May it stay out.

Is there a good explanation somewhere of why we should prefer demurrage over inflation?

The demurrage wikipedi article says

"However, inflation, compared to fixed demurrage fees, is more variable, creates uncertainty, and is not usually uniform in its effect across the holders of the currency.[citation needed] Due to this uncertainty, rational economic action becomes more difficult under inflation than under demurrage.[citation needed] The non-uniform distribution of costs and benefits in inflation across the economy meanwhile undermines an aggregate analysis of its effects.[citation needed]."

This is unsourced and unclear.

To me it seems that demurrage is just a kludgey way of approximating inflation. Inflation is relatively continuous and predictable (if it's done in a fixed way in a cryptocurrency), whereas demurrage appears to achieve the same thing but in a less clean way. What am I missing?

There's no good explaination. Trying to force people into spending their coins is always a bad idea. No one wants a deprecating asset.

Variable monetary inflation--increasing the money supply--is nontrivial, and requires a trusted issuer (central bank).  Many here don't like that.
Algorithmically controlled monetary inflation  (e.g. Bitcoin inflation, ~10%/yr now, tapering as more blocks are found) is, by definition, as inflexible as demurrage.

There's value in an inflating currency if the inflation pays for the network security, allowing cheap transactions on a secure network. A sidechain like freicoin which people occasionally moved small amounts of coins to would be useful.


You've described one way in which demurrage is no worse than inflation. My question is why people think demurrage is BETTER than inflation.

Obviously they're equally inflexible. It seems the following is true:

(1) The actual monetary effects demurrage vs. a constant fixed inflation rate are identical.
(2) Most people understand inflation, but are unfamiliar with demurrage.
(3) It's harder to know your exact purchasing power with demurrage, because to find that out you need to do a calculation using the age of all your coins. (Obviously wallet software would do this automatically).

The only potential benefit I can think of is that maybe demurrage is somehow easier to implement technically on a side-chain. Maybe not.

Can anyone point to any advantage of demurrage over inflation?

Demurrage does not require a central issuer.  Without a central issuer, variable monetary inflation is difficult, if not impossible, to implement.

Are you talking about some sort of "variable demurrage"? Obviously inflation as it happens with USD requires a central issuer, but no fixed inflation rule (like 5% inflation per year forever) requires a central issuer. My understanding of freicoin is that the demurrage rule is fixed, and roughly equivalent to 5% per year. So neither fixed inflation nor fixed demurrage require a central issuer.

Are you claiming that demmurage can be more variable than inflation, without needing a central organization? If so, how? If not, then what is the point of demurrage as opposed to inflation?

Is that so?  You did know that Bitcoin is currently in it's inflationary stage, right?  We've been over this before boys, demurrage cannot be implimented in a secure fashion without reintroducing a trust or identity model, and even if we could, no rational & self-interested investor is going to willing participate in demurrage if an alternative exists.  Which, obviously, it does.  This has always been a futile debate.

The point of demurrage is to impose a 'storage fee' on holding value in the currency, as if you were keeping gold inside a rented vault.  Inflation functions more like a tax.  The difference being is that demurrage is supposed to be something that can be avoided within the context of the currency regime that demurrage applies to.  For example, while a gold owner can rent a vault, he can also buy one.  Proper demurrage in a cryptocurrency context would be like losing some small portion of your savings value for not moving your cold storage funds around the blockchain; but this fee could be avoided if the funds were moved periodicly (invoking a transaction fee) or by sponsoring a mining rig (owning your own vault).  However, inflation effects all user relative to the numerical value that they possess, and is practically unavoidable no matter the actions of the user.  If demurrage is set up so that it's unavoidable, then there is no practical difference between inflation and demurrage as measured in the purchasing power of the user's holdings.

It is.  I'll repeat:

It's Freicoin dead by now, along with the rest of altcoins? I mean no disrespect but just being realistic.

To be fair, the market cap of all crypto is heading south.  Down by ~2/3rds YTD :-\

Hi!
Ist there still a developerteam on work? Long time no news from you.