Bitcoin Forum

This is more of a philosophical question based upon the spirit and motivation in the Bitcoin code.

A lot of things have been "anticipated" with Bitcoin, and clearly a lot of forethought went into the "what ifs" when it was put together.

What if the total was 23 million coins instead of 21 million.
What if people were rewarded with 75 coins instead of 25 per block at "x" interval.
What will the ramifications be of a slightly higher difficulty level at "x" interval versus a slightly lower one?
How will people behave in response? 
How will people react to one, versus the other.

All of these items were thought about, most likely with the goal of ensuring the success of Bitcoin as a currency.

So then ..................

How is Bitcoin programmed / structured / planned so that people are incentivized to spend their bitcoins rather than hoard them?

I was listening to a podcast on bitcoin today and began to wonder:   "What is the motivation for people to put their bitcoin back into circulation after acquiring them, rather than hold onto them indefinitely?"

Aside from obvious reasons, is there something built into the system which will encourage people to offload those bitcoins?  Or is it only the typical "stock market" motivators... like fear of losing value when the value starts to drop, so they sell?   Or excitement at the prospect of riches, by selling when the price goes up?  Is that the only motivation the system has built into it which will ensure the currency will continue cycling? 

Everybody keeps saying that all possible angles were anticipated, but I have not seen any safeguards put in place that ensure bitcoin will not become a "hoarded" commodity, with 80% buy and hold types?  What is in place that will ensure Bitcoin actually "becomes a currency" (which requires 80%+ actual constant spending) ? 

This is a difficult question to articulate.   Hope the answer is more simple.

Why would you spend Bitcoins? Because you have basic human needs like food and shelter.

Right, Gresham's Law.  if you make all your income in bitcoin, what else would you spend?
If you make something worse than bitcoin, then you spend that first.  If you make something better you spend the bitcoin.
http://en.wikipedia.org/wiki/Gresham's_law

I question a few of your premises:

1. You assume that hoarding bitcoins is bad and spending bitcoins is good.
2. You assume that bitcoins will be held indefinitely. (Only lost bitcoins will be held indefinitely).
3. You assume that Bitcoin cannot be a currency without 80%+ constant spending (whatever that means).
4. You assume that Satoshi actually thought of everything, and things like the 21 million limit and the value of the block reward are not just arbitrary numbers.

It is surprising how often Gresham's Law in misinterpreted. The first line of the Wikipedia article even starts with, "When a government overvalues one type of money and undervalues another ...", but I guess nobody reads it. The value of BTC not set by anyone (especially any government), therefore Gresham's Law is not applicable.

Gresham's Law applies to a bi-metal monetary standard where the ratio of the values of the two metals are set by the government, or to the situation when the face value of a coin is less than its melt value.

Just one reason, there are many more ...

So I can send money to people round the world without having to pay all the ridiculous fees Paypal + Western Union + banks charge you.

This. Zero fee is the future.

I should fix that wikip, the philosophy has more profound implications than the narrow interpretation to which you adhere.
At the time the term was coined (ahem) many currencies were private.  It was not government only.  That is a recent deviation.
In the years Wikipedia has existed, that circumstance was largely unknown.

Nobody needs to incentivize spending.  I suspect you're buying into the Keneysian contention that people have to spend their money otherwise it's detrimental to the economy, which is false.  Hoarding is just another word for saving.  The bitcoin economy is just like any other economy, it's self leveling and self correcting, if left alone.  If more people are saving, that means less BTC will be circulating, meaning each circulating BTC will tend to rise in value.  This rise is value will encourage the savers to buy things with their BTC, upping the supply in circulation and easing the upward movement in value.

The 21 million coins is just an arbitrary number. If there was going to be 42 million, the price would be halved.

Reasons 2:

Merchants (online and offline) are currently charged anything from 2%+ to (insert large % here for businesses with lots of chargebacks) from "card processors" when customers buy stuff from them. So merchants would benefit greatly from shoppers buying stuff with bitcoins. Virtually no fees, no chargebacks.

So why hasn't it happened yet to a large extent?

1) Bitcoins are very new! Only this year has VC money come in, and all the ideas and infrastructure are being thought out, implemented and promoted.
2) There are still not enough end users, people round the globe with bitcoins. Bear in mind the utility of a network is equal to the square of the people in the network. We need more bitcoin users globally, a critical mass. When that happens, lots more people can pay merchants with bitcoins, and I can send bitcoins round the world to friends/family (I'm sure somebody must be working on a viral bitcoin app where you can send coins to people who don't yet have bitcoin wallets). Why so few users? Just because currently its so much effort to get bitcoins. Once this changes, and joe public has a bitcoin wallet on their smartphone, critical mass will happen very very quickly.

So we'll estimate 6 months for the infrastructure to be built out much more fully, and 6 months for the results of that to create a much bigger network of bitcoin users and voila, this time next year, you'll be able to send bitcoins to a huge % of people round the world.

Then you can forget about "why people don't spend bitcoins" because in a year, they will be en masse.

Satoshi optimized for the hardest bit of the problem, which at the time was getting people to think that Bitcoins are valuable.

I don't think the incentive to spend is such a big deal, because people are mostly thinking in dollars and the exchange rate should mostly price in the future money supply. If it's rational to hoard it's rational to buy, and if people buy the price will move, until you get to the point where bitcoins are no longer too cheap, even considering low future money supply, and it stops being rational to hoard.

I agree. Satoshi focused on the major problem with FIAT, and solved it.

Spending is very very simple.

If it is more efficient to conduct a transaction with bitcoins than with FIAT, people will do it, period. And what could be more efficient than a direct transaction between buyer and seller with miniscule fees, no middle men, no fraud departments eating up 40% of transaction processing costs.

That is why paypal / western union are looking very hard at incorporating bitcoin in the future. If you can't beat the party, join in!

What are you selling?  I get sales in Bitcoin.  For selling bullion online, Bitcoin is a great advance.
I already have to use non-reversible transactions, so without it my market is limited to where we have a bank in common, or else have expensive wire transfers.

What are you selling?  I get sales in Bitcoin.  For selling bullion online, Bitcoin is a great advance.
I already have to use non-reversible transactions, so without it my market is limited to where we have a bank in common, or else have expensive wire transfers.
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you must be doing something right where in the workd are you located and what is a "new" dollar i've never heard of that NYC;)



http://www.youtube.com/watch?v=X6Sawj0HyF0

At the moment, I am in Calif.  Not sure why that matters here on the interwebs.

Some New Yorkers have heard of it.  David Ganz, Richard Timberlake, Nathan Lewis, Steve Forbes are New Yorkers who have all written about LD and are aware of NLD.  Though admittedly we keep a much lower profile than the original.

If you never heard of Liberty Dollar, it was one of Satoshi's inspirations.  "New" Liberty Dollar is the successor due to the fact that the Liberty Dollar founder is currently fighting off the US Government's false accusations in their attempt to maintain a monopoly on money.  He may spend the rest of his life in court as a professional defendant, but I hope he outlives their onslaught.  NLD kept as much of the original as legally possible, dropped all the politics, and set up shop.  Consequently "New Liberty Dollars" are OK to sell on eBay, and original "Liberty Dollars" aren't (yet).

don't get me wrong i have rolex spoons i'd trade for bitcoins all day , i just see from your site your coins say: 50 "NEW DOLLARS" spot price for silver is nowhare near $50 and whats wrong with the old dollars what happened to: In God WE Trust? NYC;)

as price goes up, you can affor to spend a few fractions of a BTC

eg, say I buy 1000 btc, if I brought it for 10c each, now they are worth $100 each, of my available purchasing power reserves, spending 1 BTC to now buy something is going to probably effect me much less than spending FIAT, and even if it goes up to $10000 ok, so I have lost $10000, but I still have 999x 10,000

see how that works, so the more people hoard and push the price up the more likely one of them will spend a fraction of holdings to buy something

We are drifting off topic so I'll be brief.
US$50 is the MSRP, we sell wholesale based on spot+premium, not retail. Still, you would be surprised how many collectors buy them for US$50 or more.  The limited run from last year was recently selling on eBay for US$280/oz.
The original LD said "TRUST IN GOD" Apparently, the Treasury god is a jealous god, and doesn't want such words to be inscribed on anything unless they do it.  They alleged in the case that it could confuse people into thinking that they were looking at a US quarter or other current money of the US.  So we dropped that and put in the "RIGHT TO CONTRACT" motto instead, referencing the first article of the US constitution which also enshrines gold and silver as the money of the US, forbidding states to make money of anything else.

To get back on topic: No!

The opposite is true, the deflationary nature of bitcoin stimulates saving, just like gold and silver it rewards people for creating a certain degree of scarcity.

Bitcoin is the same as fiat when it comes to wealth distribution, people that have to little will have to spend/consume everything they get to survive and the happy few that have to match will keep on hoarding to inflate there holdings. This results in increasing scarcity and it will keep pushing the gap until the divide is so large that people no longer want to use fiat/bitcoin, at that point there true value will be known. It happened before, it is happening now and it will happen again ...

That said, bitcoin was not designed to solve the growing gap between wealthy and poor people. It was designed to create freedom in a very closed aspect of our society (money), it was designed to protect the freedom of people to take there money and do what ever they want and where ever they want to do it. Even more important is that it was designed to stop banks and/or governments from taking your money just because they believe that’s the best way to solve the crisis we are in!

" I am in Calif.  Not sure why that matters here on the interwebs. "


" They alleged in the case that it could confuse people into thinking that they were looking at a US quarter or other current money of the US. "




got pics ? ok last time i checked California was still connected to The United States of America are those coins you are selling produced here. Would that not make them a form of money of the U.S. NYC;)




http://www.youtube.com/watch?v=AUNe_023rPg

This guy is either nuts or HIGH AS FUCK. All his posts are batshit insane. He also keeps editing them like 10 times after posting.

  I think it depends on the market. The early adopters probably lost all their original wallets, and if they do have them, they will spend them as the  goods and services become available; They will slowly spread the BTC to worthy individuals and businesses.
  The essence of Bitcoin is to be absolutely neutral, it will not force you to spend or hoard, that is up to the market to decide; Currently the market is being valuated by the exchanges, but anyone who trades directly at the exchanges knows the cost... they will tank the price devalueing their holding, this is a consequence of the design of the exchange and not of Bitcoin itself.
  The true value of Bitcoin depends on the size of the market, the true price will emerge eventually through the broader economy. The true price is determined by buying power, in a fully working ecosystem prices must fall naturally to increase sales. If the wealth is being concentrated too much the buying power of each BTC will increase to incentivise purchases, if it is too spread out it will decrease buying power, prices will increase naturally. I believe this aspect is controlled by market concensus created by the merchants, but we are a long way from a fully functioning economy. Once the price of BTC stabilizes in its true economy, out of the exchanges, it will be self stabilizing by world wide consensus. The only thing the exchanges will provide is a gateway for new entrants into the BTC market; It will only tell us the eagerness of the public to trust in bitcoin or the number of fiat to btc to fiat transfers that are occuring in the world.
  Right now the incentive for Bitcoin is to convert it to Fiat that is the main business currently in power, MtGox, with more advertisement that business will lose market share.

Edit: think of it at a higher level, what is the flow of money? Where is it going? Right now it is only going to the best known places;MtGox, it is made by the miners who can't get it easily by buying it, the only place they can go is the exchange to make their money worth something. The Bitcoin ecosystem is not complex enough right now to create a decentralized economy... don't forget the economy.

He solved it by mimicking gold.  Gold cannot be printed out of thin air, and neither can bitcoins.  By mimicking bitcoin mining after gold mining, he created a virtual currency that, as you stated, solves the major problems with fiat currencies, namely their centralized authority and ability to be printed/created at will.

There is only one simple answer for this.

Its so easy to spend them, that you will sooner or later. The moment most people stop looking at the price constantly because they want to convert it into dollar / euro or whatever, the amount of spending goes up a lot.

Even today already, I wish more people/companies would accept BTC purely because I don't have to give them all my credit card data anymore... which I have to fill out every single time because I don't trust them storing it safely for me.

you took too much man, too much

I bet this guy is terrorist sending encrypted messages with these posts.

what the fuck you have been peaking for 12 hours straight now

I disagree.  As the mining incentive drops, the fees will increase.

check this out : http://news.yahoo.com/mont-fund-aid-victims-ponzi-204147109.html

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

i'd say lets make fees dust etc to only go to the crypto darkweb victims fund similiar to this article NYC;)

He created people with desires and drives and filled the world with uncountable wonders and pleasures. All can be yours if you release your grip on your bitcoins.

The only problem is those other interpretations do not have the empirical verification the "narrow" interpretation has.

Gresham's law observes how people behave when some entity tries to force them to act as if two non-equal items have equal value. It's an expression of how the individual preferences which make up a market express themselves even in a situation of coercion.

Some of people like to improperly generalize this into something entirely different, for reasons which tend to appear self-serving.

This post was sort of funny because it starts by defending the "narrow" interpretation.
The second sentence rephrases it to a "broader" interpretation"
And the third vilifies the generalization of the second.
It left me confused so I have to ask...

Your notion of what is "improper" here is curious, but I will bite your cookie to learn its taste.  Please tell us what term you use to describe the general notion of "bad money drives out good" if you are going to constrain your personal definition of the phrase to "bad government money drives out good government money within a bi-metallic system"?
http://www.britannica.com/EBchecked/topic/245850/Greshams-law
What is the proper generalization, please?

I am happy to change my mind, so long as the change makes things better.  But being pedantic for its own sake is a bit bothersome.

"Money functions in ways other than as a domestic medium of exchange; it also may be used for foreign exchange, as a commodity, or as a store of value. If a particular kind of money is worth more in one of these other functions, it will be used in foreign exchange or will be hoarded rather than used for domestic transactions."

To me this parses as:

1) If money (such as Bitcoin) is worth more as Foreign Exchange than a medium of exchange, it will be used in foreign exchange or hoarded rather than used for domestic transactions.  (your proper definition)
and
2) If money (such as Bitcoin) is worth more as a store of value than a medium of exchange, it will be hoarded (used as a store of value) rather than used for domestic transactions.
and
3) If money (such as Bitcoin) is worth more as a commodity than a medium of exchange, it will be used as the commodity or hoarded rather than used for domestic transactions.

For example of the narrow, if you look at the legal tender denominations on American Eagle coins (Silver ounce US$1, Gold ounce US$50, Platinum ounce US$100) these are hoarded rather than used for domestic transactions due to the perceived value being greater than the legal tender value.

For example of the broad, every trade made where you have a choice of payment method.

I am also curious about the assertion of appearance of Self-Serving reasons.  Would you care to expound on that or are you satisfied to simply cast aspersions on those people who improperly generalize (are we both guilty, both innocent, or neither)?

Gersham observed that when people are forced to accept devalued coins (i.e. soldiers will drag them away and throw them in prison if they don't) at the same exchange rate as non-devalued coins they adapt by spending the devalued (bad) coins as quickly as possible and saving the good coins.

This has been summarized as "bad money drives out the good".

Many people who use this phrase use the shorthand version as if it's some inherent fact of nature without any reference to the situation it's summarizing.

There's no basis for taking an observation based on how people adapt to coercion to assume that "bad money drives out the good" is a generally true principle.

If the merchants in question were free to choose they wouldn't accept the "bad" money at all, or else they'd accept it at its true exchange rate.

What I was talking about with regards to self-serving misinterpretations is when people assert that when people have a choice of free market currencies they'll hoard the stronger one and preferentially spend the weaker one (as opposed to just not dealing with the weak currency at all) based on the linguistic meaning of "bad money drives out the good" without any reference to the context in which it was derived. It's a non sequitur.

So then, what do you call the principle of people-desiring-to-change-what-you-perceive-as-bad-money-for-better-money when it happens outside your historical definition?   If you are not going to allow it to be spoken in your presence without the recitation of history, we need something to help us move on to the application, yes?

Merchants are free to choose.  They still accept the "bad" money, they also may accept better money if they can get it.  So long as they aren't caught holding the bag of bad money, they still come out ok.