Bitcoin Forum

This is probably the most evil thing I can imagine. But this one simple change would solve every single thing below:

- Solve the problem of lost coins / lost keys
- Prevent hoarding of coins / make it unprofitable in the long run to hoard them
- Encourage people to spend their coins as a currency
- Prevent over-speculation leading to volatility
- Create greater incentives for miners and give miners a reason to mine past 2140
- Eliminate transaction fees completely
- Solve the problem of deflation, while still preventing inflation at the same time (sound impossible? Not with this solution!)

If all those things are solved, mainstream economists would actually take Bitcoin seriously as an economic model, meanwhile the technological protocol and decentralization would be preserved. With this solution, we would still enjoy the benefits of the currency being decentralized, crpytographic, and pseudonymous, while mainstream economists would be more likely to endorse it as a practical currency rather than view it as the commodity / collectible that it currently is.

The grand unified solution is: Have the coins in circulation naturally "decay" over a very long period of time, like a radioactive isotope. Over the course of a year or so, each coin in existence would lose around 0.5%-1% of it's present value. That 1% or so would be re-issued as network fees and greater mining rewards, to the nodes that are actually responsible for sustaining the network. The exact decay rate could be variable based on an algorithm that takes into account the network hash rate and/or transaction volume, or it could be a fixed rate. The decay would have to be calculated at each block, but it should take at least a year to lose the 0.5%-1%.

A simple balance = balance * e^(-bt) where t is the number of seconds elapsed since the last block was created, and b is a very small number (0.00000001-ish) would do the trick.

This would make it so that the value of lost coins asymptotically approaches 0 over a very long period of time, eliminating the need to worry about lost coins causing deflation in the long run. Hoarders will have an incentive to invest rather than hoard. People would spend their currency as a currency rather than speculate and day trade. There would be no need to charge transaction fees since the nodes would be rewarded for moving transactions to blocks this way instead. This will further incentivize spending since users won't be dissuaded by transaction fees.

There would be no inflation, since the number is still capped at 21 million, but all the things that built-in inflation tries to solve in fiat systems, this would solve.

If Bitcoin is going to be adopted by the mainstream, we have to take action to solve every single one of those issues listed above. They are going to be solved anyway, whether it's by us or by them. The world is eventually going to move to a digital currency whether it's ours or theirs, this is beyond question. But if they get to it first and create something that eliminates those issues, it's going to be centralized, not anonymous, not cryptographically secured and will involve banks. If it's going to be us, we have to solve those issues some way soon, and there's not a whole lot of viable solutions for each, let alone singular solutions that fix every one.

Since this is possibly going to upset the "How dare you blaspheme the Sacred Cow by suggesting we change the rules for Bitcoin!" crowd, I humbly add this following. I think we need to let go of this idea that the current rules of Bitcoin are somehow sacred and holy, not to ever be touched because doing so would revile the spirit of the Almighty Satoshi. There is nothing wrong with recognizing a set of flaws in a system and taking action to fix those flaws. They need to be fixed somehow, and the sooner we do it, the easier it will be. If you have a better solution to all of the above, I encourage you to post it.

Do you like gift cards that have a monthly fee? I try to avoid  them.
Second, if someone wants to hoard, its their freedom to do so.

I'd be interested to post if you describe why these things are fundamentally bad.

Not a good idea for currency. See Freicoin...demurrage currency ( http://en.m.wikipedia.org/wiki/Demurrage_(currency) (http://en.m.wikipedia.org/wiki/Demurrage_(currency)) )

Another bad but similar idea: How about a coin that knows who owns it? This way, coins can redistribute themselves from rich people to poor people each week...and currency ownership taxes can be paid automatically every hour!

I think the majority of the bitcoin community would reject the idea of decay over time.
Even if the community would accept such a revolution I think inflation would be easier to accept than decay.

SolidCoin implemented this idea and it was not well received.

They depreciate at the rate of inflation either way.

And it would still be their freedom to do so. But this solution incentivizes spending, which will be good for growing the BTC economy.


No problem. The things I listed, in order, and an explanation for why each needs to be addressed:

Solve the problem of lost coins / lost keys:
Can't really argue that this is a problem. Coins are lost forever in the system never to be found, which means the total coins in circulation will never really be 21 million, and will always be decreasing. On a long enough time scale, they will eventually all disappear.

Prevent hoarding of coins / make it unprofitable in the long run to hoard them:
The economy only grows when money is flowing and changing hands.

Encourage people to spend their coins as a currency:
Bitcoin was intended to be a currency but people are treating it as a collectible because there is no incentive to spend. Merchants will be much more likely to accept Bitcoin as payment if they know people will actually use it as payment. Mass adoption thus becomes more likely.

Prevent over-speculation leading to volatility:
Last 3 days, enough said. The market needs to be stabilized for the public to gain confidence in it.

Create greater incentives for miners and give miners a reason to mine past 2140:
Under the current system, why should anyone mine past 2140? It's also unprofitable to mine, whereas this would make mining more appealing.

Eliminate transaction fees completely:
Transaction fees discourage spending and encourage hoarding.

Solve the problem of deflation, while still preventing inflation at the same time[/quote]
Deflationary currencies don't work for precisely the reasons I already pointed out. People don't spend them. Inflation also has adverse effects, such as when prices go up at a disproportionate pace to wages. It's not easy to solve both these things at once; usually one must be sacrificed for the other.

It sounds like the opposite of what bitcoin is trying to achieve. Governments, or in this case miners, stealing your money...

The txn fee is there, as an incentive for miners to keep mining after 2140. Due to the massive amounts of txns, the fees will be extremely low, but still enough for the miners to make a bit of profit.

Plus you will see more and more that merchants are going to set up their own miners / miner clusters, to make sure their transactions are verified quickly, thus helping to secure the network. (as it is in their best interest too)

Everything happening right now, has to do with the fact that it is a new and upcoming currency, this is a stage every currency has to go through and there is no avoiding it. Let itself play out for another 5 to 10 years, it will be much more stable by then. Hence why the beta tag is still used on bitcoin.

We want the miners to make lots of profit...they are securing the network and we want the network to be worth securing.

Hoarding is not a problem. The word merely means saving. Saving is virtuous, not a problem to be "solved". I'm not interested in what "mainstream" economists take, give or do. If you want what they are selling, then please just stick with dollars or the local currency of your choosing, and leave us bitcoiners alone.

Welcome to Freicoin (http://freico.in/).

imho, demurrage makes sense for regional currencies as it encourages local spending, but macro-economically (i.e. on national or global scale) it will have the same effect as inflation: the flight into assets that don't lose value, like stocks, land, real estate, creating all the bubbles we know so well there.

I kinda agree with OP. But decay should only happen to BTC's that have been sitting at the same address for X time.

This would mean that lost money would be re-issued. For hoarders it would only mean that they would have to move their coins to another address they own every X time.

The time would have to be pretty long. 5-10 years, but the decay should be larger, like 2.5%

But then again - the rules are already set, and I doubt they will be changed even though it means that BTC will go extinct by definition some time in the far future.

Translation: "Join our Cult, adopt all our propaganda, or leave us alone."

This Cult Mentality...
Is why Bitcoin remains an obscure, hoarded commodity (NOT a currency)...
And why several dodgy exchanges effectively control Bitcoin...
And are systematically looting BTC.

This has nor changed since last time I checked in 2011...
Because serious businessmen spend 1-2 days looking at BTC...
And then they just move on.
 

I think I agree with one of your general idea: Incentivize Spending (BTC)

IMO, this needs to be done organically. What I mean is, more businesses (and individuals) accepting Bitcoin and fast and easy exchange.
 
The decay solution is complex to implement. Whatever decay rate you choose, there will be fair amount of wallets where either the decay rate is too fast or too slow to make an impact.
As an example (totally theoretical, just to see numbers):
Beta   0.00000001   
1 Day   86400   seconds since last block (lets assume)
Begin   1,000,000   
End   999,136   
Difference   863.6268595   

In one day, 864 coins sent back to network. For a person holding 1 million coins 864 may be smallish.

Lets say you put a restriction, the decay does not kick in after n years. Now how long does it take for all the lost coins to come back into the network? What if significant coins were lost in a small space of time like a year of multiple heists. Then later we'll have years of low BTC supply contributing to more volatility. Usually a currency should get more stable as it progresses in usage.

Interesting proposal, but the negative image it projects can easily relegate Bitcoin back to murky deals when mainstream media picks up this.

The currency that is decays should be sent back into the mining pool less a transaction fee.

The mining output should increase up to a smallish percentage like 5-10%

I assume that quite a bit of the early bitcoins are lost in space. If the lost coins were sent back into circulation at a low but steady pace, it would give an incentive to mine even beyond 2140.
Also, one would know how many BTC's that are actually available, thus giving a more stable price.

And what algorithm do you use to determine if keys were lost?

This already exists, it is called Freicoin.

https://si0.twimg.com/profile_images/3327034861/16ca8da593c9f98d5df4e308e5159fff.png

http://freico.in/about/

We already have the software released & ready to download. :)

I have a great idea in order to do something that would have the same effect.

Instead of encouraging people to spend their money, let's spend it for them!  So here is the idea:  we steal a bit of everybody's money, and we use it to fund all sorts of stuff.  What we do does not matter much.  We can just build stuff like roads or schools.  Those things are always useful so nobody will complain.  If there are already roads, schools or hospitals, we'll just destroy them and build new ones.  We'll just say they were too old and needed replacements.  And if we still need to spend more, then we'll just hire young people as soldiers and we'll send them to war abroad.

How does that sound?

Well, it can be argued that many people like bitcoin because of these things and not despite them. I could take all your arguments "why those are bad things" one by one and present counterarguments "why they are good things".
But your proposal can be somewhat adopted without any changes to bitcoin protocol. Only if the people using bitcoin will want to. All it takes is (enough, majority, some important) merchants taking into consideration coin age. You can open a store with prices in BTC multiplied by age-coefficient. When buying BTC for fiat, you can pay more for fresh coins than for old coins. You can boycott early-adopters and hoarders altogether. If high number of people do this then your demurrage idea will be implemented. If not enough people do it then well... perhaps they disagree with your idea.

Why not make it voluntary? I can check a box in my client and those coins will be destroyed at the pre-determined rate set by a handful of people. Or would this be a forced issue, where everyone has to participate?

this. A thousand times this.

First, OP presumes hoarding is the cause of volatility and that the proposed solution is a clean fix for that, both of which are dubious assumptions. I'll counter that it is the buyers and sellers rushing in and out of poorly operated exchanges, not the hoarders that are causing volatility. Hoarders are generally waiting for the market to stabilize after long term price discovery has become much more efficient.

Volatility, in my opinion, will NOT subside until virtually everyone knows about Bitcoin and has made their decision about whether to participate or not.   Also, it probably needs to survive in some practical form after a government assault. We'll have waves of volatitily, probably for years, until that process is complete. Then we will have true price discovery. The measures OP describes cannot counter those factors; they are fundamental.

Also, it is totally unrealistic to suggest that the Bitcoin community would just collectively adopt these kind of changes. The entire Bitcoin community, by defintion, is voting for the current rules. If the rules are changed it would not be a magical transformation of Bitcoin into Bitcoin 2.0. It would be a fork, and I will stick with the block chain using the original rules and will not participate in the new coin. If they had value I'd sell those Radioactive Bitcoins immediately and buy more Original Bitcoins.

+ 1 Quadrillion

Just take fiat money or better gift cards then you will have it.
No deflation and by some gift cards you loose the value after a period of time.
But you can loose them also.

interesting idea for me. But decay only if bitcoins sit in single adress for 10 or more years. People would only need to move their savings from one address to another every 10 years, to prevent their money from decaying.

And another quadrillion from me. I want to keep some savings in bitcoin. If wanted them to decay, I would use fiat.

Another day, another ill informed post....come on guys please do some basic research before posting this stuff, most of the answers are out there in plain english already as to what Bitcoin is and is not.



This is a built in feature, not a problem. It allows for appreciation in value over time as they are lost forever. They have already been lost simply because in the past Bitcoin was an experiment, and they were careless with their wallets as Bitcoins wernt really worth anything. They are now though, lost coins will be less of a problem as now losing your Wallet could cost you $1000s instead of nothing now. People are being much more careful.


Impossible. Even if it was, if it was unprofitable to save, no one would.


Absolutely. Moving Bitcoin out of "its the new gold!" phase and into mainstream exchange for goods and servies is key to Bitcoin's proliferation. Bitcoin is an oddity because it right now both acts like a commodity and cash.


Impossible. We cannot choose what the media and economists/speculators say or do. Even if we did, that is fascism. Bitcoin is the anti-control.


Way to early to speculate on the mining trade 100+ years from now. When the last coin is minted in 2140, miners will collect the transaction fees because the network still needs to process transactions. So, Eliminating fees gives miners no reason to continue after the last BTC is found. Fees will likely need an adjustment later on, but who knows when.



Bitcoin is designed on purpose to be deflationary This is an example where basic research would have indicated this. Inflation is curbed by mining model, no matter how much power goes online the rate of new coins entering the system remains the same and only goes down from there to zero sometime in 2140. Unlike our fiats today no one can just "print" more bitcoins and make the rest less valuable. There are only 21 Million, ever. Because Bitcoin has the ability to move it's decimal place around the value of a coin can be indefinitely adjusted to  reflect how much wealth it represents as each remaining Bitcoin becomes more valuable, because there will only be less and less of them.

Bitcoin is entirely self regulating in a way Fiat could never hope to do.

I agree, but I'll play devil's advocate and say that then they'll mention the free rider problem.

They'll say that since spending is necessary for a healthy economy, by refusing to spend your savings you benefit from a healthy economy generated by others, but you don't contribute to it.

The free rider problem is the magic argument to defend any socialist/Statist view of the world, anyway.

There was a nice rebuttal of the free rider argument somewhere on this forum I think, which was titled "I am a free rider" or something.  The guy was mentioning all the things he selfishly uses all the time without paying one cent for it:   Wikipedia, free software, scientific knowledge, public domain art and so on.

A free ride? To save, one must spend less of HIS income and put the remainder into bitcoin. Doesn't that increase the value of it? Doesn't everyone benefit from this value increase? Doesn't everyone benefit from value that is not lost over time?

Contrast the above with fiat and inflation. Nobody saves, everyone borrows and then booom!!! We borrowed the future, including that of our childen, grandchildren etc.

Rushing people into spending their money and not saving at all is a very very bad proposition, as is proven these days. It only helps those on the receiving end, only they forget that that help is only short term.

As somewhat of a newbie to the intricacies of Bitcoin, I am curious about "lost coins."

Is there a way for us to know exactly how many lost coins there are?  Say coins not circulated in 5-10+ years?

If not, it seems reasonable to have those coins be able to be returned to circulation, somehow.

Also, say some something catastrophic happens, war, earthquake, tsunami, etc.  Hundreds, or even thousands of BTC users wallets are lost forever.  What then?  The coins are lost forever as well?  Will the rest of us know how many are left to circulate? 

As stated Freicoin implements everything Tesala suggests and we believe it will have the effects he describes, plus additional benefits.

Chief amongst those additional benefits is a low, ideally zero rate of basic interest (basic interest is what you pay for a no-risk loan).  The deflationary nature of BTC means a borrower would be assuming a massive risk in taking a BTC denominated loan.  Deflation brings huge UNEARNED windfalls to lenders and is thus very bad because it suppresses lending and investment.  In a Freicoin economy in which money is losing face value over time lending at zero interest is still a gain for the lender as they can defray some or all of their demurrage this way, the borrower effectively pays the demurrage while holding the money and has to come up with more then they borrowed to pay back the loan (to the borrower it's just the same as any loan in this regard).

Now let me address another point that opponents of demurrage often raise.  The desire to store value without loss, they point to this desire as a justification for a money system that will allow savings without cost (like Gold or BTC).  But they rarely ask how this is done in a money system when the 'value' of money is all out their in the real world in the goods and services that the money is competing for.  When they do it usually consists of "well I did not spend my income, thus I consumed less now, entitling me to consume more later".  A bit deeper but your now fully dependent on the marketplace to due two things, first it needs to accommodate your non-consumption (you basically reduced money supply) and then it needs to accommodate your increased consumption later in which you reintroduce your money (expanding money supply).  So the marketplace is doing you a service when you use money in this way, and what are you paying the marketplace for this service?

Perhaps you think this service costs the marketplace nothing, and thus it is fair to pay nothing for it?  But ask, could the same thing be done if you were to "go Galt" and just live on your own without anyone else?  For this exercise we will ignore the obvious division-of-labor that makes you less productive alone and just ask can you 'save' and suffer no losses by just stockpiling things like food, clothing, tools etc.  Obviously these things decay away.  BUT BUT these lumps of rare metal wont rust EVARR!!! Well great job try to survive on those, on you can't, and it looks like they are an insignificant fraction of your total wealth anyways as your sustenance is always dependent on a basket of diverse things, some decay rapidly, some slowly, and just a few not at all.  So total up that whole basket and figure out how much it decays in value per year, you alone alone can't save value any more efficiently then that.

As soon as you realize that goods in the real world are constantly decaying and being made anew by hard working people we can see that 'saving' with money is just an illusion, sure you might have consumed less today to actually have the pile of money but someone else needs to make the goods and services that you intent to purchase again someday.  In essence your asking everyone else to put the goods you didn't consume years ago on a shelf, maintain them against decay at their expense and then provide them too you at a later date.  Now obviously goods are not literally put on a shelf and everyone here knows that, but people seem to have it in their minds that money is like some kind of 'Time-Tunnel' that moves unconsumed goods and 'deferred-consumption' from the past into the present or future.  And in a sense it dose, but the marketplace undergoes disruption to achieve this, first it has unconsumed good to deal with which will result in economic contraction, then it has a shortage as money comes back into circulation and bids up the price of goods.   All this creates losses on the part of other people in the economy and they pay for the time-tunnel magic of the savers deferred consumption.  Demurrage corrects this cost by putting it on the saver ware it belongs rather then on the market overall, this is why it's fair and normal money is not.

"deflationary spiral" is a ridiculous concept. Deflation is simply a speculative bubble of money. Bubbles pop, and so deflation ends.

I just Googled "Savings Account" and...

About 278,000,000 results (0.47 seconds)

Nope, this solution won't work. People like to save their money.

Keynesian economics is not economics it is a crime.  Those promoting it should be prosecuted.  Universities promote it because it gets them more money in their pockets.  Jack Lew got a $1.2 million loan as a university administrator all based off student loan debt.  Ask Jack Lew for a $million loan and he will tell you off.

Have you ever tried to read general theory, it is incomprehensible intentionally. That is why the first qualification of fed chairman is to be able to produce the most non-sense that is believable.  That is why Paul Krugman shows up in movies.

Sorry to be so blunt

1) Not all goods decay. Knowledge for example. Trigonometry is the exact same for thousands of years. Your assumption that all goods decay is totally wrong.

2) You also tend to forget that the use of a good (a lighter for example) continues to exist with its user, eg someone who lit his fireplace to keep his family warm. The value of the lighter (and even more) continues to exist with those people because they now can attend to other things, like studying to make the new tech revolution.

3) I don't understand why money has to be the same with other goods that decay. Just by similarity?

4) It is not wise (and never has been) to not save. Look at all the borrowers and their troubles.

Thanks, I will save. Those that need demurrage can go with freicoin or just stay with fiat.

In the end everyone has to find his own equilibrium between saving and spending.
There are many opportunities "not to save" and to spend and consume instead (loans, fiat money, decaying goods, mortages, ...). Someone can go to extreme and enjoy everything in the current present moment on the expense on dire consequences later. Extreme example of this are the drugs. The give you "perfect moments", "absolute flawless present". And the ones who wish to live to this extreme should be able to do so. (They should have both right to do so and the obligation to face the consequences, of course.)
Now, please allow the people wishing to live to the other extreme and shift their equilibrium towards "extreme" saving, keeping value, etc. to have tool to do so. Like inherently deflationary currency, like the bitcoin.

Imagine a dreamer with a dream: I wish my grand grandchildren (in 100 years) will be able to move and live on Mars (all paied by themsleves) and my only wish is to conserve value and wealth for them. Without any loss, without any "taxation" and forceful "for the common good of the society" sharing in the meantime. If a sleeping BTC wallet cannot do this, what can? There should be something what does, don't you think?

Trigonometry and 'Knowledge':  Besides the fact I can't eat trigonometry, it and all other knowledge is useful only when it is in the mind of an educated human being, thus this is whats called human capitol.  Human capitol decays when people die, and they must then be replaced by a laborious process of training new people to be mathematicians.

A Lighter is a trivially obvious case of a tool that wears out with usage, anyone who has ever even used a lighter will tell you this, and on top of that is uses fuel.  An item dose not need to be single use to still decay in use value (The knowledge argument was freaking brilliant compared to this drivel).

Money must decay to be equal with goods, because non-decaying money when saved is simply achieving it's apparent magic of loss-less saving by stealing the difference from the people who actually produce.  Money can not do real magic, it can not stop time and violate the law of entropy, all it can do is a create a structural transfer of wealth/value from one group to another, we call that transfer interest and it is a parasitic burden on virtually everyone which is funneled to those that hold money.

I never said saving was bad or should not be done, but their is no reason why a saver should be subsidized by the rest of society.  A small decline in value causes the saver to pay their own way and not burden everyone else and is thus fair.  A hyper-deflationary currency is even more egregious as it funnels not just a modest stream of wealth to offset decay, but an absolute torrent of wealth ABOVE WHAT THE SAVER SAVED, how is this in anyway fair, the transfer of wealth is brazenly obvious here an can not be defended as 'saving' anymore it's simply naked parasitism.

I still don't understand how a saver burdens others in a free society be it deflationary, or inflationary. I produce and, after taxation, the result is mine to decide upon.

This is a common claim that looters like to make to justify their theft.

It turns out to be exactly 180 degrees from truth.  The reality is that savers are doing a service for the market, not the other way around.  By deferring consumption, you are allowing the market to invest the resources that you would have consumed in the construction of new productive assets.  Growing the productive base is a good thing, and should be rewarded.

There's some that make it happen, there's some that watch it happen and there's some (probably serious business men) that wondered what the heck happened.

+1

Truthfully, I don't think we know how this is going to play out. Those who say "a deflationary currency is bad because it prevents spending" are probably right. So what? Maybe the planet needs less wasteful spending. I will spend my bitcoins for things that are worth more to than the appreciation I will get from the coins themselves. What's wrong with that? Right now, I have no incentive to save or be selective in what I consume.

I believe this an experiment worth doing on a global scale. If it does not work, then bitcoin will evolve or one of her modified cousins will dominate.

They may come up with a centralized digital currency, but without the intrinsic values of transparency, anonymity and low transaction cost, I think there will always be a place for the p2p cryptos.

Saving is not the same as INVESTING, saving is simply withdrawing currency from circulation and dose not result in any increase in future production, in fact all evidence points to a reduction in future production when this is done.  An investment is a form of consumption, capital goods are purchased, buildings constructed etc, this adds to the stock of capitol.  On the other-hand saving simply results in an unconsumed surplus of goods (generally consumer goods) and this reduces the returns of those that produced them causing them to lower production, reduce labor costs and scrap excess capital that can't be productive.  Thus some of the collective stock of capitol is destroyed needlessly, years later this must all be rebuilt to accommodate the new consumption, the wasted capitol if it had been utilized would have lead to an even larger production in the future, this is why boom-and-bust is bad.


alexeft:  It is saving without loss that is the problem, if a person saved real goods they would have a carrying-cost to that saved value. 

There is a carrying cost in bitcoin too. It is the mining cost. It has to be paid with most transactions.
Isn't that enough?

Yes, thank you.  What was missing from these forums was yet one more person parroting the stock Keynesian party line.  You even share the perversely keynesian habit of confusing money with wealth in one sentence, and understanding them as distinct things in the next.

I don't point out your obvious Keynesianness as an ad hominem, but rather to simplify the refutation.  The school of economic thought that you follow is not taken as gospel here.  Merely repeating what you've found in your textbooks will not win you many arguments here.

At this time, I only wish to address two things specifically.

When you save, you are deferring consumption.  You are holding the the token representation of wealth, rather than the wealth itself.  The wealth itself is then free to go where the price signals tell it to go, whether to someone else's consumption, or to capital formation depending on the overall market.

Boom and bust is indeed bad, or at least sub-optimal.  However, it is not caused by savings, it is caused by meddling in the price signals.  Keynesians tend to forget that everything they preach involves suppressing or enhancing price signals, making it impossible for the market to provide correct information.

So you can't eat bitcoins neither. Or gold. Or silver. Or land. There are many good where you don't have decay. Gold and silver are got not because of accident so precious all over the word. Besides other properties like high value-weight-ratio, high fungible, easy to identify, relativ easy divisible etc. gold as the property to be scarce! And because of these properties some goods just qualify to the "the good that everyone accept as part of an transaction = money".

A good that decays do not everybody want. Why? Because of its decay (if there are other good with no decay)!


Like mentioned above there is absolutley no disadvantage with a money which increases in value over time. It is a fact that you can't use bitcoin for something else than spending. You can't eat it, you can't drive with it, you can't wear it. More worth money in your bank account doesn't make you richer. Only if you spend the money, you'll get rich. It is exactly the same as wich stocks. In some day in your life you will sell them, no matter how greatly the value of the stock is rising. Because in some day you are dead.
Otherwise than stocks you don't sell bitcoins, you directly use it as a medium of change.

The mining costs clearly get passed onto new people entering BTC, ask yourself, how is the person saving BTC paying for ongoing electrical consumption when their wealth is going UP, that is the opposite of paying for something, that's being paid.


Pointing out that I am in the minority is not a refutation, it is a simple logical fallacy that is all.  Further more are am well aware that Keynsianism is not gospel here, rather it the rejection of Keynsianism which is the gospel.  Thus I find it necessary to defend people like the OP and point out the errors of the majority position.

Here is a question, why dose the saver get interest for a loan when it is loaned just to another consumer.  The borrower simply performs the consumption of goods that the lender has deferred, their is no overall reduction of consumption, yet the lender still takes interest.


porcupine87:  I never said that all goods decay, please read what I wrote.  I said that non-decaying goods are a small fraction of the basket of goods necessary to live.  And goods necessary to live are always going to be desired regardless of what money is made of.  When a non decaying commodity is made money then it gives money an unfair advantage over the basket of goods.  All money has time-value because it is universally accepted and can act as a wild-card to satisfy unanticipated needs or to take advantage of unanticipated opportunities.  The holder of non decaying money thus received the benefit of liquidity without paying for it, and they can rent out that benefit to earn interest which is how the magic of loss-less savings happens, it's just an inflow of interest to the money holder.

While in the case of fiat, the flow of interest goes to banks!!! Thus it is experienced as "necessary" decay by fiat money holders!!!

No thanks, I'd rather the interest is distributed among regular people rather than banks and there is no decay.

Brilliant. You basically answered all my concerns.
The problem is scaling it with demand and other things but the premise is great.


Oh yeah like someone mentioned this still leaves the problem with mining. Generally speaking mining always creates the probem of people doing unproductive work getting payed for it because it is the only way to do it. What we have no is digging a stupid hole, filling it an digging it again.

But it's still better than just digging an ever smaller hole and hoarding money as output diminishes.

First of all, that is just another way of putting inflation if you think about it. (It has the same effect). Secondly, didn't some concurrency already do this?

Haha! That second idea is just hilariously ridiculous.

This forum is quite a exception in this. Many people on many other discussion platforms would actually think this is a non-ridiculous good idea...

Continuing to take on debt for non-investment consumption is not sustainable and probably not a smart loan to have made in the first place. This is what happens when you have unethical short-term bonus-seeking behavior on the part of bankers with unlimited printed money to play with.

The capital ideally goes towards productive investments. Unfortunately, since the banking system can print money to buy any "investment" (like no-Doc home loans in Detroit) they can find, that leads to loss of investment discipline, malinvestment, and economic contraction as the bad investments are written off. This is exactly what we are going through right now and it is going to get much worse in my opinion. The responses of the Keynesians to their obvious failure is basically, "Well, it's because we aren't making enough bad investments".

I think what you are missing is that savings that would otherwise go to pointless consumption does not bid away the goods and services that productive investments could use. That's a good thing.

These "time based" anti-hoarding penalty ideas IE freicoin, just dont work with bitcoin. Anyone can move their money from one address to another and skirt them.

Stampbit: As we have repeatedly tried to explain to you on our forums, out demurrage code can NOT be subverted by transactions, even moving a coin every single block dose not stop demurrage because it is computer PER BLOCK.  If you want to make economic arguments against demurrage that is one thing, but do not comment on technical designs that you do not understand and appear to have spent no attempt to understand, our code dose what we say it dose.

bitrick:  Obviously loans that are only spent to consume are unsustainable and I never said otherwise.  The question to you is WHY THEY STILL EARN INTEREST when they create nothing?  Further more the whole basis of your argument that 'savings' represent a reduction in consumption and at the same time are 'invested' to create future productivity is trying to have it both ways.  If I literally just remove money from circulation and don't purchase consumer goods no investment is created by this, if anything is causes a decline in investment because demand is now lower and the decrease in circulating money has cancelled any cheapening of the remaining good that might have occurred, so now theirs just over capacity and some portion of existing capitol has to be abandoned.  If I instead Invest money either directly or by loaning it to someone then that investment IS consumption, it's just the purchase of capital goods rather then consumer goods and the total consumption has remained constant and merely changed in composition.

No one can make a rational argument that simply stuffing money under a mattress has a positive effect on the economy or increases future wealth in any way, it is instead a tax on productivity and this has been know for centuries.  Investment CAN be productive and every reasonable person can see how it generates real returns and increased wealth, but mattress stuffers can not claim those benefits as being caused by their actions.  BitCoins economy is pure mattress stuffing without a hint of productive investment (no before you ask buying an ASIC with BTCs is not a productive investment), and the nature of the coin guarantees it always will be hoarded, that is the flaw in deflationary economics.

One idea that makes some sense might be to free up the BTC in wallets that are over say 127 years old. We can be certain that those bitcoins are truly lost as their owner would be dead. Those bitcoins could be added to the pool available for mining. Incidentally in 127 years it will be 2140, so it would be perfect timing for those lost BTC to serve as a reward for the future miners.

Anyone that inherits BTC would move it to their own wallet, so that the expiry limit would be reset for those BTC.

1. what's wrong with taking control of the stored information of the value of my labor?

2. saving is merely a deferred form of investment. Saving up first will be preferred to loaning.

3. there is no value removed from circulation, especially if it's only the bits and bytes of a cryptocoin, and not silver that would actually perhaps be needed for other productive procession. If I die without passing on all my bitcoins, no productive value in society is lost. Bitcoins withheld from circulation merely raise the value of all others, until I spend them. At most this causes higher volatility than necessary. But with sufficient adoption, things will even out.

I'd say we have another nice economic term for theft. Demurrage!!!!

I'd also say that producing for the sake of production adds nothing but loans and indirect slavery, as is proven these days.

What kind of non-sequiter is that?  Your paycheck is the valuation of your labor and uses the units of currency to denominate that value, the question is do you deserve to be given more, equivalent or less value by society then your labor was initially worth at a later date by just stuffing the currency token under a mattress.  You argue that your act of stuffing is somehow increasing societal wide wealth in the future and thus your somehow entitled to that increased wealth (which even your argument was made by someone else's investment and work).


Then you admit that investing and not saving is the source of future wealth?  If so then only the investor can make a claim to a have earned a surplus, aka a return on investment.  Even if saving (capital formation) is a prerequisite to investment it is not investing, no risk has been taken yet.  Show me ware BTCs are actually invested in anything productive (no mining or circulating more BTCs dose not count) and I'll admit the possibility that someone might have earned a return.


Again your trying to have it both ways, if BTC's are meant to be currency then hoarding them is removing currency from circulation, removing currency from circulation causes money to rise in value and goods to drop in price.  This sends price signals through the economy and it is not a signal that encourages anyone to invest, it tells producers they are making TOO MUCH and to make less instead. 

The actual demand removed from the economy is sending the same "Their is too much stuff" signal, but the money reduction is being multiplied by the velocity it previously had, the 1 currency unit would have circulated multiple times buying goods and services and would have supported prices even more, the longer the currency is not circulating the more purchases it is failing to influence.

An investment though IS spent, its just spent on capital goods.  This sends a signal that production of capital goods should continue or even increase.  If the investment improves production and lowers costs then the investor can sell at a lower price while still making a profit and then his lower prices can make other activities profitable.  When deflation occurs from reduction in consumption and money supply their is no business that benefits because they have unsold inventory that loses value on the shelf and can then never cover it's cost of production.  So business reduce production to match the lower demand.

The end result of deflation is always a destruction of capacity and capitol to the point ware goods become so scarce that they stop falling in price and the deflation burns itself out.  The greater the deflation the more physical capitol is wasted or lost.

You're still in a way of thinking that assumes a single monopolistic dominant currency.

Bitcoin is not even "deflationary", because it is not an enforced monopoly money. It is just an asset. It follows supply and demand. So you could ask even today, why should I lend someone my dollars, if I can buy bitcoins instead? Simply because bitcoins exist, you would therefore want to charge high interest even on dollar loans. Or would you? No, because, as we see, the value of Bitcoin fluctuates; it is therefore not deflationary. And even in an economy that is dominated by the Bitcoin currency, it will have to compete with other assets that may promise higher return. So the average interest rate in an economy that is not dominated by a central bank would have nothing to do with the mainly used currency. It will rather be the median of any assets out there.

Or to put it in another way: We could abolish the concept of a currency altogether. All we'd have is assets and price indices (baskets of goods etc) that all fluctuate in value against each other. And everyone would be responsible for themselves which assets they would choose to store the information of the value of their labor in.

I still don't like the idea because in the end we can't see every effect. What if someone wanted to save Bitcoins in a cold wallet for their great grand kid's retirement?

Exactly. And who is to say which account is in use and which one is just lost and forgotten?

My apologies if this has been mentioned, but if day trading causes the volatility and coins take at least a year to decay, how does that decrease day trading?  ???

FTFY & L2MacroEconomics.

I explained that.  I don't agree with the current system that, for example, forces savers in Cypruss to fund loans to Greece for consumption that will eventually default. The current system is corrupt. Since you appear to disagree with the current system as well, what do you propose as an alternative?


I didn't say that. You made that up.


I never said that, but matress stuffing is surely better than malinvestment. Keynesians always avoid addressing the issue of malinvesment. They think every investment is positive and hand wave furiously about money multipliers and such. Malinvestment wastes resources, period. Mattress stuffing allows deployment of resources at a more appropriate time.

Bullshit.

The mattress stuffer first had to get the cash before they could hoard it. If they can't just print it out of thin air it means they actually had to go out in the world and trade for it, by producing valuable products and services. In order to still have the cash, it means they didn't spend it, which means they have consumed less than they produced. This is where the economic benefits of saving come from. The savers are investing, by adding their productivity to the economy while simultaneously limiting their consumption.

The harmful effects of hoarding that you're thinking of are when banksters and politicians just type new balances into their own bank accounts and spend without ever having to contribute any value in return. You're trying to blame deflation for the harmful effects caused by inflation.

Mining bitcoins isn't the same as saving as described above, but unlike government money inflation it is voluntary, limited, and transparent. It will become increasingly insignificant over time anyway so it's not relevant to a long term analysis.

Do you seriously believe that BTC mining has contributed 1 BILLION dollars of goods and services to the rest of the economy?  Maybe their are some miners who eat Ramen so they can afford their huge electric bills but that's not decreased consumption, that's exchanging one consumption for another.  No one can point to any deferred consumption involved in making or hoarding BTCs.  The entire LIFETIME CONSUMPTION of the few thousands of elite miners doesn't come to a Billion dollars.

Your assumption that the entire 'surplus' of deferred consumption goes into productive investments is baseless.  The economy dose not make or not make investments by looking at if their exists a surplus of goods that could be invested, that's how a centrally planned economy might work.  In a free-market economy a surplus is a sign to produce less, not more.

You have not addressed in the slightest the price signals that run counter to I've identified and are just repeating a self justifying manta that's been discredited for ages.  What business is going to be investing when the price they get for their goods is declining AND volume sold is going down?  Maybe capital goods are down in price as well, but that's both unlikely (because the deferred consumption was in consumer goods not capital goods) but it's irrelevant too.  It just means producers of capital goods will ALSO be contracting their production.  Both of these are the effects we would see from hoarding, deferred consumption and deflation.  And no costs of raw materials will not go down to balance it all, the biggest cost is labor and wages are STICKY.

This is BASIC Adam Smith macroeconomics I'm talking here, supply and demand and price signals.  The 'paradox of thrift' and negative effects of deflation are not even Keynesian conclusions, they are the firm conclusion of EVERY the very earliest thinking in economics worthy of the term that date back to Dickensian England.

I just want to point out that Bitcoins hard limit and deflationary properties are precisely the reason why I love it, and why I convert fiat into BTC at all.  BTC is bound to be volatile in the early days as new populations gain awareness of it and new markets enter. 

If a plan was implemented that recycled, reintroduced, or created more coins somehow I would immediately divest.  OP your idea makes for an interesting experiment, but I think its one that should be started in an Alt currency, and not used for Bitcoin itself.
 

This is tiring, who cares about these "mainstream economists", most of them have observed the current system because there is no alternative and can't see that there maybe another way. I know people who studied economics, they knee jerk and shout bubble, its not fiat and not good! Many of us are tired of them; leave us to our experiment please.


If your alternative is the better idea, create an alternative coin, the market will decide if yours is better or worse. This is the only fair way to introduce a new idea.


No, people have bought into Bitcoin based on its rules that are set out in stone. Create a alternative currency to compete, then people can buy into that. The people in Bitcoin don't want this inflation and coin half age. They want to horde. If hording will kill Bitcoin then another coin will replace it.

+1 from me  :)

Isn't that known as DevCoin?

I can look at bitcoin as a new asset class and decide to put 1% of my savings into it, as part of a balanced portfolio (property, shares, normal cash savings, etc).

Now some joker wants to come in and essentially tax me? Hey you - %$#off.

Ancient Egypt had two forms of money: one was gold and silver, and the other was grain.

Wheat would be grown by the people, then they'd deposit it in the store house and get a receipt for it. They would then take those receipts and use them as money in the market place to buy whatever they needed such as food, clothing, tools, etc. These receipts would depreciate in value because the grain had a shelf life due to spoilage, rats, and priests who would eat it in return for running the whole system. It's a direct analogy to the proposal in the OP. This type of money system wasn't inflationary, rather it was a flexible system that allowed anyone in society to create money themselves without fighting it out of the hands of rich people. It was a currency for the benefit of society.

On the other side of things, there was gold and silver. This wasn't traded in the marketplace, but rather used as a store of wealth and exchanged for things like land, homes, it was taken on journeys, and used entirely differently than the first type of money. Both of these systems coexisted and were used by people for different purposes.

If you were raising a family, you probably relied mostly on the wheat system because with each person born in the family, gold would be diluted. With the wheat system, there was a constant source of money that automatically adjusted itself based on the population. Decaying coins are slightly different in that they won't become more numerous, but they will have the effect of not concentrating money in the hands of the old, with the young being at a disadvantage. This is important for currency to do it's job. On the other hand, if you desire to store your wealth, something like gold is a lot more appropriate, and it doesn't restrict currency from flowing around in the economy.

Therefore, what we really need is a dual system. Those who want to store wealth for the long term can fight over the limited supply of the first type of money, and those who just want to buy stuff can use the other form. For example, lets say you get your paycheck. You put 75% of your paycheck in the decaying money because it's cheaper and easier to get and you're going to be spending it anyways. The other 25% of your check you put into the scarce money for long-term savings.

yup, I like Lietaer's idea of yin-yang money.

http://www.scribd.com/doc/34641415/The-Monetary-Blind-Spot

Thank you, this is exactly what I was thinking of but I couldn't remember how to find it again.

Here's more:

Bernard A. Lietaer on Monetary blind spots and structural solutions
1 of 5 https://www.youtube.com/watch?v=OfMbYllbN6c
2 of 5 https://www.youtube.com/watch?v=AIRGPX7LuxI
3 of 5 https://www.youtube.com/watch?v=Q7uJIjSO-a4
4 of 5 https://www.youtube.com/watch?v=xQ-WvJiZ3DQ
5 of 5 https://www.youtube.com/watch?v=MFbvixl_Jv8

Re Freicoin or any other system with  Wörgl-style demurrage: Such an instrument might be adopted in a situation like Wörgl where nothing else is available. But the modern world is not like this; there are lots of alternatives, not only Bitcoin, but Litecoin, et al., which do not charge demurrage. Users will naturally choose to use the systems without such fees. It matters not how fair or unfair you believe this to be; it is a matter of psychology and individual self-interest. Selling a demurrage currency in a market flooded with non-demurrage currencies is going to be an uphill battle.

I believe this is a solution looking for a problem.  While many mainstream economists point to volatility, the deflationary nature of the currency, and other aspects of Bitcoin as bad things, those are actually the unique qualities of Bitcoin that make it desirable to, well, the people who desire to use them.  Whether or not Bitcoin becomes "mainstream" is basically irrelevant to me so long as it remains useful for the things I use it for.

Some of these issues are issues which, with government-backed currency, led to the abandonment of the gold standard.  However, Bitcoin doesn't have this problem.  Nobody is obligated to participate in Bitcoin who does not want to, and those who do are fine with these "problems."  If people prefer fiat currency, they'll use that.  I would imagine the vast majority of Bitcoin users use some combination of fiat currency and Bitcoin and routinely convert between the two as convenient.

If there is anything "revolutionary" about Bitcoin, from a political perspective, it is not that it will obliterate fiat currency or instantly do away with the Fed, or whatever various factions of Bitcoin supporters want it to do immediately.  However, by competing against fiat currency and having its own set of characteristics that make it desirable, it creates pressure against states to abuse their powers over fiat currency too much.  After all, there is now an alternative.

I also don't see the currency being outlawed successfully.  To the extent this is all computer code, it is protected speech under the human rights laws of most so-called "civilized" countries.  While I can see attempts to outlaw it, they will be as successful as the attempts to outlaw cryptography have been.  I.e. some states will try to do it and meet with little to no success, while challenges to the laws on constitutional grounds will win.

Just as actually banning cryptography would render a nation's businesses completely vulnerable to having their trade secrets stolen, once Bitcoin is seen as useful by businesses, and it eventually will be, attempts to outlaw it will not only face organized opposition from the people, but from the corporations who, by and large, own much of the government.  This is one area where we'll basically be on the same side, and even an oppressive government can't win against that kind of coalition.

its a great idea on paper and a terrible idea in practice because it will always get murdered by a deflationary currency. This is very much a form of market failure where it is in the interest of the collective to have a stable currency but never in the interest of the individual to adopt it.

plus once speculators begin to understand deflationary currency they will price in a lot of the nastyness. Speculators are just still so new to this give them a chance to learn.

+1

You can call it anything you like...

But it doesn't affect the correctness of what I've said. Nobody producing a product when faced with 'the price they get for their goods is declining AND volume sold is going down' the company either diversifies what they produce (either through innovation of opening another line of business) or they do what you're suggesting... which is scaling back production which eventually results in their going out of business.

The reaction you're assuming is the expected response to a general economic slump (aka decrease of demand due to lack of funds) not the response you'd expect during deflation. During deflation you have currency that's owned growing in value and this actually encourages people to spend some portion of it that they wouldn't have before. It creates it's own added economic stimulus in this way. Persons are able to at the same time save more value and also spend more value because what they already have is increasing in value.

All that said - the idea that deflation is going to somehow make the 'price they get for their goods decline' is silly - that price isn't going to change just because the currency is worth more. Now someone may lower the price to stay competative, but if the currency is worth more... that's a neutral move on the part of the company not a loss.

What you really should consider is this bad idea that deflation is going to encourage hoarding. It doesn't and it won't. If someone suddenly made everything cost half the current price... how would a typical consumer act? They'd buy more/nicer stuff with some portion of their income and probably end up saving (or paying down debt) with the other portion. Both of those are good for any economy.

Wow that completely takes the cake for self contradiction and stupidity.  

First off a business can not 'diversity' its way around deflation, because deflation is a broad spectrum change in money valuation that is affecting ALL entities in the economy and all sectors of the economy.  Further more if everyone tries to diversify at the same time its just a musical-chairs everyone is now just encroaching on everyone else, and because businesses have core competency in their original area of business but not their new business the diversification is going to lower total productivity and yes lead to reduced profits and many of them going out of business which is NOT what we expect in a growing economy.


The response to a general economic slump IS what we expect to see from deflation because deflation will CAUSE and be caused BY general economic slumps.  This is just as we expect inflation to cause a general economic heating up and a general heart up in the economy will cause inflation.  This is the very basis of economic cycle theory and its a very simple explanation, the equivalent of Boyles gas laws for economics.

A business can not get a wash on selling its product at a lower costs for 'more valuable money' because businesses have lots of FIXED COSTS that are on CONTRACT (not least of which is labor, energy, building lease).  Those fixed costs remain in fixed nominal currency units meaning they explode in real costs and eat away all the profit margin that may have existed even if marginal costs to make each widget are at parity with new marginal sale prices of widgets.  So the business is destroyed by deflation and if you had 1 sentila of knowledge about real business you would know this.


Now you speak as if your don't know the meaning of the world deflation, it IS the increase in purchasing power of money so YES prices decline, if their wasn't a decline in prices then their would be by definition no deflation.  And yes business (all of them) WILL change their prices to stay competitive, (they will either do that or go our of business), that is how free-market competition works, this is well understood and is what happens when the ratio between supply and demand changes.  Under deflation the price point is dropping because their is either more stuff or less money.


You just can't avoid contradicting yourself, first you say it 'wont cause hoarding' and later admit people will 'save and pay down debt' with some of their new surplus.  If that particular person was not doing those things before then this is a decrease in the percentage of their income that was spent.  And that means monetary velocity is going down, it will take longer for each unit of currency to make a circle through the economy so it now has less opportunity to bid on goods and services and this allows prices to fall further, this reduction in velocity can more then counter the increased value of money such that the net value of money moving through the economy goes down and when the that goes down it means the economy is contracting not just nominally but in real terms.

Some people might spend the more valuable money but because we know people will be losing jobs left and right in the economic downturn their will be a broad mood of fear and a desire to save in order to protect oneself in the event of that job loss hitting you, so a huge jump in savings is what ALWAYS occurs during an economic slump.  This creates a spiral of more businesses closing, slower monetary velocity, more deflation, the classic deflationary spiral that has been observed for CENTURIES (note also that unwinding of debt adds more fuel by contracting money supply through the banking system).  

In your mythological reality some kind of never before seen upward deflation spiral would need to be happening in which velocity increases because people spend more (nominally) then they were previously and businesses expand despite being killed by fixed overhead costs.  All of this is a fantasy in direct contradiction to the logical responses that businesses and individuals would actually have to deflation and in complete contradiction to all observed economic contractions.

What new bullshit is this?

By this logic, inflation (the reality we all live in now) would lead to the destruction of every supplier of the business, the businesses on the other sides of those contracts.  After all, contract prices are fixed and absolute until the end of time and can nether be renegotiated  as needed nor written to compensate for changes in the value of money.

And yet, here we all are.  Derp?

This is not a closed system, bitcoin is exchanged for other currency.  The bitcoin cap wouldn't be 1 billon with just the miner, you also have people that bought those coin for cash and the value of what they did to get that cash in the first place.


No matter the type of currency prices are set with many different input. You cannot end speculation, you can just switch it to different place. People will take into account the anticipated change in the value of the currency to make their investment choise.

Lets say I have 100k$ to invest I can do plenty of thing :

- Buy a state bond and get fixed rate
- Buy real estate (leveraged or not)
- Buy stock
- Buy gold
- Buy a shotgun, a shitload of canned good and a bucker in my backyard
- Buy currency
...

The return on each of these will be influenced by the ancipated rate of inflation/deflation and will be taken into account when I make my choice.


Also another thing is you assume is that people should not be rewarded for Hording/Saving/DelayingConsuption. I think this is where you are wrong. Time preference is taken into account in the valuation of any invesment. For most people stuff now is more valuable than stuff later. You delay consomption because :

-You want to make sure you can still consume later when your personnal ability to produce will not be as high
-You get a reveward for delaying consumption (interest, wich in a free market get ajusted to take into account the inflation/deflation rate)

This is exactly why diversification of production occurs, because deflation (and inflation too) affect all sectors of the economy.


No. Deflation is a stronger valuation of a currency - and completely non-causal when it comes to 'general economic' trends (like slumps). If anything deflation causes more transactions.


No. 'fixed costs' are rarely set in stone. Part of managing any business is being willing to adjust such costs as needed. Contracts likewise aren't set in stone. In the scenario of deflation, with currency being worth more there are going to be lots of contract re-negotiations.


You're assuming 100% efficiency in the economy as a whole. That's extremely unlikely (I hesitate to say impossible). When have you ever known a business to lower prices more than they were forced to? Prime example, gas or lux tax increases by 25cents and prices at the pump go up 45 cents.

Also you seem to be stuck thinking of "price point" as a specific number. If you're 'price point' is 1 dollar and your dollar suddenly becomes worth half what it was before... your new 'price point' becomes 2 dollars, it's not about the amount (aka the number) of currency collected but the valuation of it.


It sounds like you're still confused between the valuation of the currency and amount being exchanged. Velocity as a metric doesn't apply to bitcoin in economic terms, since we aren't anywhere near the soft limit of a satoshi being over-valued to the point that nobody can spend it. This is one of the design strengths of bitcoin, we can divide it to whatever decimal place we need to.


'never before seen upward deflation spiral' Man you get points for comedy with that one. You're so used to evaluating everything economics related in terms of debt based currency and the assumption that inflation over time is normal... that a deflationary effect scares you. The same economic 'laws' do not apply inversely to a free market using deflationary currency. They may apply in some way, but those haven't really been well defined yet.

Try to get over the knee-jerk response of 'deflation means i make less money' --- while technically true it doesn't mean what you think it means. As the value of a currency goes up - the real value being exchanged will increase as well as allow an increase in the value people are able to save (what you call hoarding) - it won't cause any of the bad effect you associate with it as long as it's easy to cut into smaller and smaller pieces (which bitcoin is). It will in the short term cause some portion of businesses who aren't willing to adapt to go out of business... but the beauty of a free market is that this market space will then be filled by other companies providing whatever good or service was needed.



 

Isn't what is described in the OP basically Freicoin? I think this is a good idea, but can be extended to be even better. To prevent deflation, take the demurred coins and give it to the miners as new issue (plus a little more). This keeps the supply of currency growing to make up for lost coins and population growth. Im not calling for inflation, just constant unit buying power, so people aren't scared to actually use it as a currency. This also incents joe public mining pools to keep validating transactions forever. Otherwise only entities that can subsidize their own mining costs will be able to continue validating transactions with no transaction fees/mining rewards. Everybody else will be forced out. The remaining players will be the likes of walmart and amazon and google and jp morgan chase. Then we will have a 51% and growing cartel/monopoly by corporate fascists. Follow the logic and imagine that. It's not good. Think far into the future after mainstream adoption when its not a hot fad/speculation gizmo/perceived libertarian wet dream, but rather buys groceries and you need to get paid in it. Do you want the corporatocracy controlling the blockchain? Because that's what will happen if the miners aren't incented properly.

townf:  For crying out loud stop throwing around the 8 decimal points of divisibility as a cop-out to deflation.  It has NOTHING to do with the arguments I've made (which are all about relative price signals and assumed the divisibility already), the fact your regurgitating that drivel indicated indicates you are not actually engaging in any kind of thought but are simply parroting what you have heard others say.

I'm thinking that your assuming BTC never becomes a unit-of-account and BTC-Fiat exchange continues to be the only means doing business with it.  If that's the case then BTC is a mere commodity and NOT MONEY, and the discussion I'm having is about when money deflates.  And yes real prices are STICKY, especially for wages, perhaps you confused the Fiat-2-floating BTC 'prices' on Silk Roads for prices and think they are that dynamic, no that's simply a fixed Fiat price being sent through an exchange rate.  Your pathetic hand-waving away of fixed overhead costs being 'renegotiated' in response to deflation is laughable, I hope you don't try that on your landlord.

kjj:  Of course inflation cuts into the suppliers profit margin which is why it needs to be kept LOW at the 1-2% most governments target.  Most suppliers lower their prices by more then that every year to stay competitive as technology and efficiency lower production costs.  Many industries (like automotive) simply demand that everything they buy be reduced in cost every year by 5% or more and all longer term contracts signed reflect this.  Changes in currency valuation are always helping someone and hurting someone else, the question is dose the rate of change break them or not, low single digit rates or either inflation or deflation won't break any business that has fast turn-over of product or high profitability.  Hyper rates of inflation or deflation are always going to be bad because they overwhelm these factors.

Actually I just did negotiate a $175 reduction in my rent. I just showed him the list of of things I'd repaired in the last year without bothering him and he was smart enough to give me the adjustment I wanted.

You keep saying wages are a fixed cost. Labor costs are constantly being renegotiated... if you're paying too much in wages for a position, you have the choice of a pay cut, 'right-sizing' the position away and then rehiring at a lower rate or other cost savings methods (for example adjustments to benefits packages, reduction of job perks, etc). Another fun cost savings thing is actually promoting people to a salaried position (which most employees will jump at because it takes all the variance out of their paychecks)... which lets you re-negotiate without having to smack anyone around. The end result is you get a more dedicated employee who actually does more work for just about the same pay (aka slight increase in pay for large increase in workload).

So no. You are clearly choosing to remain delusional when it comes to the topics being discussed here. It's quite clear that if you ever do end up in business management you'll probably bankrupt the company swiftly... simply because you obviously aren't very good at forward thinking when it comes to resource or asset management. God help any employees you happen to find...