Bitcoin Forum

Along with the launch of other BitCoin forks, I'd like to present the following:

Altcoin - The alternative cryptocurrency?

- The currently will have constant inflation: there is no total limit for the maximum coins existing, rather, they're generated as long as there are people mining
-> this will encourage people to spend their coins rather than holding them back
-> there will be no significant advantages for early-adopters (although it will still be easier to mine coins in the beginning, due to lower difficulty)
-> the problem "do people still mine after they don't get any block rewards, but rather only tx fees" doesn't exist
-> the inflation rate will slowly decrease, as the proportion of the coins generated will become smaller and smaller compared to existing coins: as bitcoins will have more and more deflation on the time axis, altcoins will have less and less inflation...
-> I personally think that inflation > deflation.
-> coins lost (there will be lots of as the time goes by) will not be that significant problem as there is a constant supply of new ones

- Six AltCoins will be generated every six minutes, that is 60 Altcoins per hour or 1 440 per day or 43 200 per month or 518 400 each year.
-> block generation is faster than on Bitcoin, transactions will be processed faster

- Launch date will be set far in advance
-> 11.11.2011 or 11/11/11, pick your poison!
-> This will give enough time for advertising this fork, which makes more widespread adoption much more likely, than if it started as an inside-thingy with handful of people mining majority of the coins themselves

- Absolutely no coins will be mined before the official launch
-> Bounties will be paid via bitcoins / namecoins / altcoins / USD / euros donated to the project

This kind of an currency wouldn't have been existing if Bitcoin didn't exist. However, as cryptocurrencies have become more widespread, I feel this could succeed. I feel that miners can put up to that rewards aren't that good for early adopters on Altcoin, than on other bitcoin forks. And even if they don't, it's easier for them to hop on the bandwagon late than it's on other currently available cryptocurrencies.

This is only a proof of concept. All criticism is welcome. This topic is rather a showcase for my ideas than an actual project. However, if necessary, I do have enough resources to make something like this happen (and help is welcome too, just hit me up!).

https://i.imgur.com/Sthh4.png
A graph concerning the inflation rate

As there will be no early adopters, so there will be no adopters.

They do still have a slight advantage. And the less there are early adopters, the more profitable it is to be one (lower difficulty). I believe the supply and demand will match themselves here too.

I just had an interesting thought. What if a new start-up started with 21 million coins and they are only released if you spend them. Peg a value to them and go. But only a certain amount is released at a time... I'm getting tired.     Steal this idea and run with it. But call it BrunoCoin. Nite all.

How do you think Satoshi would feel to know your were forking his blockchain behind his back?

QUITE FORKING WITH THE BLOCKCHAIN!!!

Leave the forking blockchain alone already!!!

I can't speak for Satoshi of course (he could probably provide us an clarification), but as an open-source developer I would be quite proud myself that I've developed that's worth copying. If you had a business and someone did copy your business model, you would feel bad. Of course, it would probably mean less profits for you. But I'd like to think Satoshi didn't create Bitcoin to abuse it and gain profit from it. Instead he did something he felt could provide everyone something valuable. Why wouldn't he let someone to make derivates of his work, as long as he is properly credited (I'd like to mention Bitcoin's license does allow and does encourage to do this)? It's not like we're stealing from him, but rather developing his concept forward. With forks from Bitcoin of this kind, we as a community could create even something better than what Bitcoin is (it has it's flaws too).

Also, you of course have the right to criticise this project as much as you want. I would like to see your opinions. This is a proposal for the community. I'm not profiting from this myself obviously (some could say Satoshi profited from Bitcoin, Nasakioto profited from IXCoin etc.). Yes, they kinda have the right to do whatever they want with their own projects, but I can assure that's not my objective with Altcoin.

You know you've done something right when people start copying your work. :)

Nobody is going to buy a currency with that kind of inflation rate. Your looking at 20 years until inflation reaches an except-able level of ~5% (518400 / (518400 * 20) * 100 = 5.

Maybe I'm just stupid, but it seems to me that it might be a bad thing to attempt to divide the cryptocurrency user base among many different block chains in these early stages when a much greater market depth in one single one is so necessary to smooth out volatility, and make it usable.

Not to mention if people actually get on board with these, the collective cryptocurrency inflation rate will skyrocket, since they will be drawing primarily from users that would otherwise be using Bitcoin.

It's funny - dumping a whole bunch of very similar block chains onto the market was a potential attack I thought about a few months ago.  Just never thought people would take them seriously.

Perhaps this attack could be defended against by flooding the market with so many similar alternatives that people are overwhelmed, and just ignore them.  So... keep em coming?

I'd like to think that the inflation rate wouldn't have that major effect in Altcoin than it has on the traditional currencies, because it is predictable and known to everyone. You do know that there will be X% more coins the next year and your coins will probably lose Y% of their value. It makes things a bit harder for those willing to make investments, but doesn't really prevent the adoption of the currency for the normal everyday online shopping where it doesn't matter there the coins are a year from now. In fact, Bitcoin is rather unpredictable in this matter too. The fluctuations are very big, sometimes for no visible reason. And no-one will know how it will behave after it reaches maturity. As I said, Altcoin would stabilize over time, Bitcoin could become more unstable over time...

And if you look at Bitcoin, it has so far had the same inflation rate as Altcoin would have. The second phase where block rewards will be split half will not be reached until next year or so.

these appear to cancel one another out.

if the proportion of coins given for blocks decreases, then the real purchasing power of the block rewards decreases too, eventually this is the same as earning $0.00000000001 to mine a block, effectively zero.

Not only, also infaltion here will one day stop.

Remember, inflation is not more coins, iti s coins less valuable. As prouctivity increases, more coins can be handled by the same number of people. In 100 years, new coin are 1% per year.

Now, this is far in the future, but there will bea poin where the new coins are a low inflation rate below the raise of produtivity.

ALSO: coins ARE lost. More coins in existence, more will be lost - I would expect an equilibruim here to come around, too. Far in the future.

All in all, this here has some merit, and whether or not a limited number of coins is beneficial is a matter of discussion.

Yes, that is true (if we don't account for either the lost coins or growing userbase, at least). Transaction fees could still be necessary at some point. That point will be pretty far away though.

If your open to suggestions might be better have a fixed inflation rate and adjust block rewards accordingly. Say you wanted to fix inflation at 2%.

((Number of coins in existence / 100) * 2) / (60 * 24 * N. days this year) /  (N. Blocks mined last minute) = Block Reward

So if you launch with 100,000 Altcoins (possibly put them in a none profit AltCoin foundation or something). The first block reward would be:

(((100000 / 100) * 2) / 525600 / 6 = 0.00063419584 Alt per block

You could also either hard code or create a formula to keep the inflation rate high the first few years (to increase coin circulation faster) and then fix itself.

year 1 inflation 20%
year 2 inflation 15%
year 3 inflation 10%
year 4 inflation 5%
year 5+ inflation 2%

I definitely am. If people are interested in this, I would like to make this more of a community project where everyone could voice their suggestions or even actual code / implementation / web pages / foundations, than just me arguing against the rest of the bitcoin community :)

Your idea about the fixed inflation rate sounds very interesting. In that case, the block reward will become bigger instead of being fixed. Although, the value of the block reward will stay fixed, so that probably would really be a better idea. Would eliminate the need for transaction fees.

Something that needs polishing is how the coins are put into circulation though. I'm not exactly fond of the idea of a Altcoin foundation, because I want the launch of this blockchain to be as transparent as possible. Even more transparent than Bitcoin's was. And compared to Bitcoin's, the coins would be more even spread. I'm not saying that the early adopters don't deserve those benefits they got with Bitcoin, but more even coin spread would make the currency more stable (at the beginning). Also, the project founder's should not mint any coins themselves before the launch of the project (IXCoin being the worst example).

Faster maturity (until the fixed inflation% phase) would be generally better, but also has it's cons.

Is becoming fashionable invent cryptocurrency.  :-\

The government will love it. OP is probably a shill. Selling inflation. Socialist.

We are having this same discussion over here: https://bitcointalk.org/index.php?topic=36450.0

You might draw some design ideas from there.

Btw, are you actually launching for real on 11.11.11 or is this only a proposal?

It's only a proposal. You might draw some design ideas from here too. It's not my goal to create a new cryptocurrency whatever it is. If you (or probably, we as a community) can pull off a good enough implementation, there's really no reason for me to create my own. I'm just trying to initiate the discussion and development here, not to do all of it myself.

And to add something concerning the launch date, it needs to be set far away enough so that the project can gain as much publicity as it can. Although it would be more profitable for us miners when we could get a headstart, in order to the currency to succeed, we must get as much early adopters as possible. Bitcoin helps a lot in that, because there have been lots of people that have become familiar with the cryptocurrency concept and if we get a new blockchain rolling now, there will be much larger userbase ("wanna-be-rich-early-adopters") than there was when Bitcoin was launched. We definitely don't want majority of the coints to be held by minority of the users.

There is no point in a constant and 100% predictable inflation. Every hour (or even second) the price of goods and services will have to be changed accordingly! Is that what you want? A madhouse?

Complete nonsense. This will encourage people to spend their coins for real money like gold and silver. Because real money doesn't inflate!

the problem I have with this is that the current bitcoin inflation rate is too high...  otherwise it would be trading at 35 USD rather than 11 per BTC ...

And i'm with most on this thread... focus on helping and building bitcoins not forking it... 

I certainly like the idea of managing the rate of inflation with a faster pace the first few years to aid distribution.... I'll be keeping an eye on this post as this system certainly seems fair.... also like the 11/11/11 launch date  ;D

If the pre-launch is handled properly we'll not be in this situation where the stability of the economy could be threatened by a few possessing the majority of coins.

There will always be inflation or deflation with bitcoins too. And the inflation being slightly predictable helps a lot.


That's what people are doing with fiat currencies too. I don't oppose people who are spending their coins for gold and silver, but those aren't that widely accepted, be it b&m store or an online shop.

Agree, Gresham's law will take effect.

That's what people are doing with fiat currencies too. I don't oppose people who are spending their coins for gold and silver, but those aren't that widely accepted, be it b&m store or an online shop.
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So if people are doing the same thing with fiat currency why would you create the digital representation of the same ill begotten problem that is now the scourge of humanity?

Purge your mind of this madness. I don't agree with your methods and am suspicious of your motivations.

What is your main concern now? The early adopters holding so much BTC?

1. There is neither inflation nor deflation with bitcoin. You know when you'll have 21 million coins and that is it. Lack of inflation is not equal to deflation!
2. Inflation that is offered here with altcoin is not 'slightly' but 100% predictable. I don't understand how 100% predictable inflation helps?

Yeah.  :D We need to get right back to basics. I'm gona re-invent the wheel myself. LOL

When you'll already have the 21 million bitcoins, but the userbase is still growing or the mined coins are lost, happens deflation. The prices of the goods and services will drop, because each of us will have less coins to spend in the long run.


Slightly because there are factors that can't be 100% predicted. If there are only a handful of early adopters, the prices of goods'n'services will be high because the coins are valued so low. Even if the implementation was meant to be inflative, deflation could happen if the userbase grows exponentially compared to the coins currently available.


It will take effect with Bitcoin too.


I believe that the main problem with currently available fiat currencies is that they're controlled by the governments. Yes, they're inflative just like Altcoin, but they are also very unpredictable. It's better to invest on gold, silver, shares etc. because there's no way to know whether your USD will be 95%, 75% or 50% of it's value after X years. Right, there's no way to know for sure with Bitcoin or Altcoin either, but they can only be manipulated by the market, not by some shady entity somewhere we don't even know.

E: Also, someone asked what do I have against Bitcoins. Nothing really. I do use them and I do believe they can succeed.

But there exists some problems too and forks are trying to solve them. How long it takes to maturity for example and also that the early adopters are holding huge amounts of BTC, but no-one knows exactly how much. They can manipulate the market to huge extent. As time goes by, not to mention coin loss that's constantly happening, the early adopters will actually become even richer. And even richer. And have even more power. The inherent problems that can come with deflative implementation: your coins are now worth 10USD, but tomorrow they are worth 20USD. Why on earth you would spend your coins today if you could just hold them back until tomorrow? But you really have no idea to buy anything tomorrow either, they're worth twice the next day etc.

Again, these are nothing that are impossible to overcome, but they can prove to be difficult obstacles and probably too unfair for some (like, making the rich ever richer and the poor even poorer) preventing widespread Bitcoin adoption. And I view a large(ish) userbase as a crucial thing.

The user base has nothing to do with inflation or deflation. The inflation or deflation is price of money measured in itself if the factor of time is included. The price of goods and services will drop, because labor productivity is increasing.

Forcing inflation into the monetary system is equal to forcing people buy goods and services they don't actually need! This is not economic growth. This is economic disaster. Because such a monetary system gives wrong signals to the rest of the economy including investors, manufacturers and consumers.

Suppose we reached the bitcoin maturity and all the 21 million coins are distributed. Now, the userbase starts growing: more and more people want to get their share of bitcoins too. Everybody wants to get rid of their fiat currencies and exhange them to bitcoins instead. The value of each bitcoin increases and prices will drop, deflation happens.

And I probably used the term "inflative" irresponsibly. Although there is a constant supply of new coins, there's of course nothing assuring that inflation will happen. "Forcing inflation" is something that cannot be done with cryptocurrencies.

I just can't see how people in a free market would choose altcoins over bitcoins. If given the chance of being paid an amount in BTC or ATC, I'd definitely prefer the BTC, which will store value better than the ever-expanding ATC. This preference for bitcoins would make altcoins fail.

I think the only way the altcoin idea could work would be through government backing. If a government were to legislate that debts can equally be paid in bitcoins and altcoins, then we'd be in a situation where Gresham's Law would apply, and people would tend to pay debts in the less-valued altcoins rather than in the more valuable bitcoins they'd hoard. And in that case altcoins would be a form of fiat money.

this is WRONG.

BTC has DEFLATION BUILT-IN. read some theory.

Good point

Since the productivity is increasing, the labor contained in the product is decreasing. To keep the price stable, money supply should increase to counter this effect. If the money supply is constant, then deflation is unavoidable and will hinder the economy growth

Think the situation other way around. The one being paid prefers bitcoins, but the one paying prefers altcoins. If this makes a currency fail, same could be applied to bitcoins, just the inverse.

This is exactly what I've been considering since the Bitcoin run up to USD$30. Bitcoin is deflationary. It is the digital equivalent of precious metals, particularly gold & silver. That's wonderful as a store of value and a metric of value, but not well as a means of exchange.

A store of value must remain stable or appreciate. It is an asset, not a liability. This is what Bitcoin achieves by being deflationary.

A metric of value must also remain stable, regardless of whether it appreciates or depreciates. The key is that it is recognizable and universally comparable to anything it is held against. In this respect, Bitcoin is not very effective, but easily could be as it gains widespread adoption. For now, gold remains as the ultimate metric of value, until we start thinking of items in terms of how many BTC they're worth.

A means of exchange only needs to be relatively stable on a momentary or short-term basis. It can be literally anything, from a seashell to a glass bead to a dollar. Its purpose is to facilitate an agreeable rate of exchange wherein acceptance of it indicates confidence that it can be exchanged for something else during its usable lifetime. Modern fiat currencies fit this role.

The Altcoin concept is exactly the appropriate complement to Bitcoin. Americans may find it harder to understand the dichotomy between a store of value and a means of exchange because the dollar has been used as both for so long while the rest of the world has seen many local or regional currencies rise and fall. However, throughout most of history, gold and silver were used as savings or stores of value while other items (bronze, copper, paper certificates, etc) were used as currency or means of exchange.

That isn't to say that gold and silver can't be used as currency. Indeed, they very well can. But consider whether you'd rather carry a briefcase full of coins that weighs over 100kg or a wallet full of dollars and Euros weighing only 50 grams. Convenience trumps security for users when it comes to computers and it also trumps value when dealing with short-term exchange in currencies. Only when convenience is no longer worth the loss in value does that switch, usually temporarily.

In the near future, we might see people being paid in Altcoin and buying goods with it while they hold Bitcoins for long-term savings. That isn't because Altcoins weigh less than Bitcoins. Rationale for this comes from the fact that Bitcoin's structure is rigid, while demand for an exchangeable medium can vary wildly. That is a major reason for failure of adherence to the gold standard. Demand for one property of money (means of exchange) outpaced that particular utility of gold.

With Altcoin (or whatever it will be called - my vote is for "Skrill"), an unlimited expansion of supply allows for demand to determine the inflation rate (it also makes lost coins irrelevant to anyone but the owner). The underlying structure is still the same as Bitcoin, but the distinction is that there is no ~21mm unit limit. That flexibility afforded is the critical factor - the "other side of the coin" (pun intended).

Assuming a set inflation rate is a mistake. Mining for Bitcoins now is an inflationary process and will be until the ~21mm unit limit is attained. Only at that point will Bitcoin truly become a deflationary form of money. Until that point, demand will dictate the expansion rate on a cost/benefit basis. If it is profitable to mine, miners will do so. Otherwise, they will not, until such a point as it becomes profitable again. Very simple. The same will apply to Altcoin wherein the inflation rate might be rapid initially, but the profitability of mining Altcoins will dictate the expansion of the supply. That profitability is determined by the demand for Altcoins. Also very simple.

So long as the Altcoin and Bitcoin systems are structurally intact and remain decentralized, Gresham's law will arrive at a balance where Altcoins act as the primary digital means of exchange and Bitcoins act as the primary digital store of value (means of saving).

Another analogy could be to view the current Bitcoin adoption as the 1800s gold rush and the Altcoin concept as the birth of fiat currencies, minimizing the need to carry a pocket full of highly valuable gold.

I hope this ridiculously lengthy explanation helps in understanding why both forms are necessary for a modern society.

If one currency has been widely adopted, then the money supply must follow the increase in total amount of traded goods/services in the whole economy, so a constant increase in money supply is required to maintain price stability

But what if this currency has not been widely adopted (like bitcoin) or maybe never will be? Then I think defaltion nature tends to keep it's economy scale limited, not the other way around (economy scale getting bigger and the currency get more valuable)

As far as my understanding goes, that's accurate. If the economy and currency are growing at the same pace, prices remain stable and everyone goes about with business as usual.

With a deflationary money, it's like Gresham's law again. Assume the economy as the bad money and the deflationary money as good. The good is held more because it appreciates in value relative to the economy. Eventually, there's no money to circulate, so the economy grinds to a halt. Altcoin provides a translation layer between the deflationary currency and the broader economy.

So long as the different facets remain freely tradeable, the economy functions smoothly. Without a central human authority mucking around with the money supply, the two forms of money won't be able to get so out of whack as precious metals and fiat currencies are today.

If someone told you that economic growth depends on money supply they are plain ignorant!

You're right, economic growth does not depend on the money supply, but I believe the point being made was that it can be adversely affected or slowed by it. Deflation to anything less than a purely cash-based economy would have to make up the difference in economic activity with delayed payment or barter. Even reduction in available credit can act as a drag when the system has grown into such flexibility.

If a money supply remains constant while the economy grows, eventually the money supply becomes inadequate to facilitate trade throughout the entire economy. Consequences vary, but all are disruptive.

This is a fallacy! How money supply becomes inadequate? Money is a measure not fuel for economic growth. By increasing money supply as economy grows you are in fact rewarding a group of participating parties with extra money they do not deserve. You are creating bubbles! Bubbles are much more disruptive than slower growth.

Anything can act as money. Money is simply an abstract concept that is applied to a representative item in order to make trade between differing products possible.

I cannot give someone oranges for his chicken eggs if he doesn't want oranges. A universally or at least widely-accepted medium must be used. Otherwise, a direct barter system is necessary.

As mentioned, anything would work to represent value; even ceramic cups. For simplicity, let's use dollars as they're familiar. When there are 10 dollars in an economy that has a hundred items for immediate trade, there are insufficient dollars to facilitate trade. Even if there were 100 dollars, that may not be enough because some items might be valued more highly than others. At least 100 dollars would be necessary to represent each item of value; more depending on negotiated value of the items.

Thus, there would be an increased demand for the medium of exchange, in our case dollars. If that demand is not met, the items will not be traded. This is one of the arguments used against gold as a currency, which does have some validity. Consider a situation where you might look to buy a pair of sandals. The sandals are $40 and you have a $50 bill. Should there be a shortage of currency, the business might not be able to provide you with the $10 in change you would expect after purchasing the $40 sandals with your $50. Would you be willing to take a $10 loss?

The store management might instead raise the price to $50. Eventually, that would displace values of other goods throughout the economy. Granted, it would be a slight displacement, but done with many items and by many participants, the aggregate changes add up and cause large-scale disruption. Then demand for the adopted currency increases.

It is a matter of convenience that drives the demand for a common currency. If it cannot be supplied sufficiently, trade will be put off until negotiated prices restabilize or alternatives are implemented, thus causing an overall slowdown in the interim. This has nothing to do with the economy itself, as that still retains its objective productive capacity. Instead, the economy's ability to function smoothly is hindered by lack of a fungible exchange method.

That's a good way of representing it.  BitCoin is just a newer currency that makes some changes that are better to all but basically anything could be used as currency.

There are sufficient dollars (if this trade is so important to the economy). Each item will be traded at $0.10 and the sky will not fall!

That was a hypothetical for use as an example. Don't focus on the term used, since anything can act as the currency.

I could've said:


The point is that skyhooks are being used by the trading participants to make trade easier. Without enough skyhooks, something else must be used, or trading must be done in-kind (barter).

We can go with currency exchange for further clarification. Let's say that I have 10,000 USD and you have 15,000 BRL. The value representation is approximately equal with 1 US dollar equivalent to about 1.5 Brazilian Reals. If I want 7,500 of your BRL, but you want gold instead of dollars, I will have to use 5,000 USD to buy the appropriate amount of gold. If I can only get 2,000 USD worth of gold, I won't be able to give you enough gold for 7,500 BRL. You would only be willing to exchange for the 3,000 BRL worth of gold that I now have.

The trade is limited by the amount of common currency, in the last case, gold. Obviously there is more gold than that in the world, but again, the situation was hypothetical - an example. Try not to get caught up in the details.

Inflation should not be desired for the mere purpose of keeping prices flat. Prices are important things, they signal where investment ought to occur. Holding any price flat, whether general goods or money, etc. is not only unnecessary but is likely to cause market distortions. All prices ought to float freely against each other... causing the supply of money to increase in order to flatten prices is merely another fallacy of central planning and ought to be avoided.

The fact remains that if two bitcoin-type currencies exist, and Bitcoin proper has zero inflation and the Altcoin has X inflation, then over time the former will retain value in advance of the latter. This will cause the former to be preferred, unless the latter possesses some benefit which overcompensates for this issue. I don't see Altcoin having any substantial benefit over Bitcoin, but I do see it having many negatives.

Those who want perpetual monetary inflation "as long as it's predictable" can go right ahead :)  

False. So long as there are enough divisible units to cover the small transactions, it matters not how much money is in a system. Bitcoin is infinitely divisible, and a world in which a car costs one trillionth of a bitcoin is no different functionally than a world in which it costs 1,000 bitcoin. Prices adjust to the money supply, and there is no reason to tamper with it or inflate it merely to hold prices constant.

I'm not, you are. You are missing the bigger picture. To make a trade happen easier is just the same as giving the buyer easy money. That should never ever happen or you intentionally create bubbles in the economy.

I entirely agree that inflation shouldn't be used simply to keep prices steady and that things should float freely. However, it is still desirable to maintain price stability in order for an economy to function efficiently. Wild fluctuations will cause difficulty in price discovery, thus increasing problems in projecting the viability of business productivity. Basically, it becomes almost impossible to calculate a reliable ROI (http://www.investopedia.com/terms/r/returnoninvestment.asp). This leads to an abandonment of such a manic currency in favor of more flexible alternatives.

The significance of unlimited expansion is not forced inflation or a set rate as central banks today aspire to. Instead, currency demand elasticity is kept stable by the perpetually available expansion; inflation is the result in this case, not the cause. As noted with mining, if it isn't profitable and all miners cease their activity in favor of transaction processing fees, there won't be any inflation at all until mining becomes profitable again (representative of growth and hence demand).

If the economy slows and/or contracts, the existing Altcoins would gradually become worth less. As the economy grows, demand for a common currency increases, so the supply must become available - it must inflate. This keeps the Altcoin value relatively stable and range-bound (elastic). It balances out Bitcoin's nature.

Being a deflationary currency, Bitcoin will become worth more as the economy grows, leading to accumulation - it then becomes a Giffen good (http://en.wikipedia.org/wiki/Giffen_good). This increase in hoarding reduces currency available for the economy to function, which is a major factor in the bust that occurs after a boom unless there is a means of translating the value difference between the store of value acting as a foundation, and the product or service desired. That's where Altcoin fits.

The big difference from current centrally-managed currencies and the Alt/Bitcoin duality is that the former have no effective restraint and are managed using crude methods while the latter are self-correcting, being managed internally by the system itself. It's kind of like the Holy Grail of monetary theory.


Agreed on all counts, in theory. In practice, that can prove less than functional; consider this: is Bitcoin really infinitely divisible? If it would require a change to the code to increase the precision past 8 digits or some other external translation, the answer becomes less clear. Even as the system stands, what would it take to enact such a change? Would that change the fact that Bitcoin is deflationary by nature, having a set limit of ~21mm units? Again, the Giffen good aspect comes into play with a deflationary asset, as does Gresham's law (http://en.wikipedia.org/wiki/Gresham's_law).

Rather than trying to shoehorn Bitcoin into a role of both the means of exchange and store of value, it can much more easily act as the latter due to its deflationary nature. Altcoin then allows for flexibility in the opposite direction without having to add patches to an elegant system. The more things are changed, the greater the potential for failure. KISS (http://en.wikipedia.org/wiki/KISS_principle). The exchanges already perform the vital function of acting as bridges between disparate currencies and would afford the same between Altcoin and Bitcoin.

If Altcoin's inflation halted due to unprofitability of mining in a stagnant or contracting economy, the eventual rise in Bitcoin's value will equalize the overall system and allow the economy to continue growing. Altcoin would continue growing to match the economy's pace while Bitcoin maintains its steady value appreciation. It doesn't matter what Altcoin's value is because the economy's growth carries it - it does matter what Bitcoin's is because the economy would rest on it. The same principles apply to the US dollar (Altcoin) and gold (Bitcoin).

Of course, this all assumes widespread adoption of both Altcoin and Bitcoin.

but not increasing the money supply raises the value of the existing money as with bit coin.... remember with altcoin more money is being added but its up for grabs to anyone who mines?!?!

and decentralised currency needs miners.... plus adding just a little more forever more may encourage people to spend a little and not just hoard.... lets face it hoarding is only done as a means to get rich quick? or at least maybe fairly fast

No need for accusation. I have to differ with you on the suggestion that making trade easier is the same as providing "easy money". While I do agree with you that what we call easy money results in bubbles, it's outside of the actual currency demand from an economy. I also think the excessive availability of it is made possible primarily because of the human control element.

It might be good to elaborate on what I consider "easy money" and how it results in problems. In my view, it's a supply of currency above and beyond that which is demanded by the overall economy (consisting of individuals, businesses and the market systems utilized by them to engage in transactions). Because central banks of today use crude methods to determine demand for money, the granularity (http://en.wikipedia.org/wiki/Granularity) is often too large to be effective without introducing major price/value distortions.

Each time an intervention occurs, it distorts demand. If the distortions aren't allowed to recede, further interventions that supply "easy money" will exacerbate the problem until it is no longer possible to compensate and the money supply is so far removed from real demand that bubbles form (demand that responds to the increases in money supply as opposed to real assets and productivity).

What I've described goes beyond simply making trade easier and crosses into the limitations of human perception on grand scales. Trade only gets so easy - the excess doesn't help. Because Alt/Bitcoin manage themselves internally, these distortions are virtually impossible. When distortions begin to occur, the system self-corrects. I'm sure there will eventually be certain specific situations where complications could arise, but for now they are two sides of an extremely sublime system (the combination of cryptography, triple-entry accounting and distributed networking/processing).

It's somewhat similar to a parent (as a central bank) attempting to control a teenager's habits (which is impossible, as the parent cannot watch the teenager 24/7) and the teenager (as the currency) learning to take care of himself (he is always around himself and his decisions affect him directly so he would know immediately, or very quickly, when action needs to be taken).

Oh - I keep wanting to squish your user icon :)

Decentralized currencies don't necessarily need miners; it's a very ingenious way to spur usage, though. In the Bitcoin system, no miners means no inflation. It's a naturally self-correcting mechanism that prevents runaway devaluation.

Hoarding can be a get-rich-quick method during rapid growth or high volatility, but normally it takes a very long time for hoarding to pay off.

Good discussion Miscreanity!


These two sentences contradict each other. On one hand you say inflation shouldn't be used to keep prices steady. On the other hand you're saying it's desireble to keep prices steady by continually inflating the currency. Your first sentence is correct, second is false.


Agreed, but Bitcoin will not cause wild fluctuations in the long term, will it? It's decreasing rate of inflation is steady and predictable, and there will be no drastic increase nor decrease in money supply, thus price discovery should also occur on a relatively smooth curve. Both Bitcoin and Altcoin would be perfectly predictable and smooth - neither having an advantage in this regard.




Now this is a very problematic statement =) Your claim is that Altcoin will tend to -match- the rate of economic growth, and thus would keep prices stable. But how can you predict the rate of economic growth? You cannot. If the economy grows faster than you're expecting, Altcoin will resemble Bitcoin in that prices for money will rise. The supposed ills which you see in Bitcoin's slower rate of inflation would be similar in Altocoin's faster rate of inflation. Similarly, if the economy grows slower than you expect, the price for both monies will fall, but Altcoin's price will fall faster.

In other words, any argument that Altcoin is superior because it maintains steady inflation rests on the assumption that the economy maintains a steady growth of precisely that amount as well. If not, then Altcoin is susceptible to the same issues of price changes as Bitcoin, just leveraged differently.




Change the word "hoarding" to the word "saving" and you'll see why your statement is silly. An increase in savings rates is not a major factor in an economic bust. People save to the extent that future consumption is worth more than what they could consume in the present. When people save, market prices must fall only until those goods become attractive again, and subsequently people will spend. The "deflationary spiral" is a myth... savings is a self-correcting process. One need only look at the electronics market to see this in action. We all know the computer will cost half the price next year, yet how many of us are reading this on 20 year old computers? We buy electronics all the time, knowing full well that prices will fall.

----

tl;dr - "deflation" is not a problem. It's a boogeyman. Prices always tend to correct and re-allocate behavior toward efficiency. It's okay for prices of goods to fall, and prices of money to rise.

Deflation is more a problem for banks to deal with than for people or for a centralized system...  The big problem with deflation is for wages and for contracts involving loans/debt, but the easy fix is to just put terms into the contract with reference to inflation/deflation.

e.g. you have a loan for 1000$ at 3% annual for five years.  However, make the 3% annual adjusted for central/foreign currency or commodity inflation or deflation, so that it's 3% above whatever the currency has modified to.  If it this year saw a 5% deflation (increase in value of currency +5% or -5% inflation), make the amount owed negative 2%.  If there is 5% deflation, there should be a clause in worker contracts that specifies their wages will go down too.  This is what banks should have been doing in the first place... NOT the Federal Reserve who has been consistent in messing everything up for the past while by never contracting the US money supply.

The only nice thing about a linear supply of money compared to a deflationary supply is that early adopters will not destroy it by getting way more than anyone else...  Eventually there will be no reason to mine anymore with a deflationary curve, which is one of the long term dangers of BTC (a supply not capable of contraction).  But that hasn't deterred gold as an investment.

A better curve for difficulty may be one that is non-formulaic and ties supply to weighted global currency values and supplies, reflecting the amount of wealth presently available.  In the event of recession the output could be contracted by higher difficulties, while in economically favourable times it could be expanded with lower difficulties.  Just an idea.  You could go through economic papers and then probably hard code something that accesses currency values/supplies on the web and calculates the difficulty based upon those.  This would be a real advancement in the online currency world, instead of digital equivalents of gold or of inflation-ridden USD.

Likewise! I've seen, and agreed with, a lot of your comments in other threads. You brought up some good points and the opportunity to cross-examine conclusions is always welcome. :)


Nothing about inflation in that sentence, only price stability. :)


I don't imagine Bitcoin would cause fluctuations in the long-term; wider adoption should see the exchange rates settle and fluctuations become the rarity instead of the norm. The comparison I usually use is to gold, where Bitcoin is the digital version of it. That will last as long as the economy's demand for Bitcoins doesn't outpace the currency's inflation rate - that's when convenience starts to trump value.

Altcoin is different, though. It isn't as predictable because there's no set expansion. If the inflation rate were arbitrarily targeted at 2%, sure you could figure out how many Altcoins there would be in the year 2238. With no specified rate, it'll simply expand to accommodate the participating economy's demand. It could top out at ~10mm units for a year or blaze up to ~100mm within the same time.

As with Bitcoin, the initial growth phase could be turbulent. Bitcoin can be inflated by being dividing units, but it requires increasing effort to do so each time based on the number of participating nodes in the network. It's a similar problem to accumulating >50% of the processing power, though perhaps not quite as difficult. An updated fork would have to propagate sufficiently. Exchanges could accommodate further division, but that's basically patching at a higher level to make things work, introducing external failure potential.

Inflating Altcoin's supply would simply involve more mining. That would take place based on the profitability of generating additional blocks, essentially what the situation in Bitcoin will be until it hits ~21mm units. With no expansion limits, Altcoin can continue to grow with the economy, but during a contraction it can't reduce the number of Altcoins that already exist. It's the opposite problem from Bitcoin's - progressive loss of value instead of progressive gain.

That's where the balance in competing money supplies comes in - Gresham's law means that oversupply of Altcoins will force Bitcoins to be hoarded/saved until Altcoins have dropped in far enough in value to be supported by Bitcoin's rise in value. The corollary is the decline in USD to a point where gold would be preferable for trade. Obviously, the control of dollar supply is too primitive to secure ongoing viability, but the principle remains the same.


Heh exactly. It's a bit tricky, but the pattern of growth would be about the same as Bitcoin's is now. The two are complementary, but we'll get to that in a moment.

There's no need to predict economic growth - the inflationary expansion occurs in response to it. If the money supply in Altcoins lags the economic growth, you can bet it'll be very worthwhile to mine, so there will be processors working overtime to generate as many as possible while the mining's good.

Imagine if Bitcoins were still worth USD$30 per BTC today. How many people would be mining their asses off? That'd happen until either the price dropped as demand fell off, or USD rates on everything increased 30-fold. Because of that, at this point in Bitcoin's growth phase, I entirely agree that they both would share the same inflation problem and that Altcoin's relative price would fall faster than Bitcoin's during a contraction. Once Bitcoin hits its ceiling, Gresham's law becomes apparent.

We can compare the X-coin relative price valuations as helium-filled balloons, one in the air, the other underwater. Altcoin is in the air - as it inflates, it rises; as it deflates, it drops to the ground. Bitcoin is underwater - as it inflates, it rises; as it deflates it still rises. At zero altitude, the two meet.

It isn't about superiority - the two variants work in a complementary fashion. Price stability is as important as having a solid value base. Bitcoin provides the base, but if an economy is expanding and Bitcoin has hit its limit (it doesn't subdivide units automatically to my knowledge), prices denominated in BTC will start to drop suddenly and rapidly. That means that Bitcoin will be gaining value in relation to the broader economy and would be looked at as an investment (again, similar to gold). This hoarding/saving takes BTC out of circulation, leading to further relative value increase in BTCs until a threshold is reached.

With a functioning implementation of Altcoin, prices remain stable because Altcoin's relative value keeps pace with economic growth. Bitcoin's value is still likely to rise rapidly, but not in direct relation to products and services. It rises in Altcoin value as well (e.g. 10 ATC per BTC to 20 ATC per BTC), but businesses pricing goods and services in ATC wouldn't care. The ATC price remains stable even if BTCs buy more ATC and goods now than before. That's the price stability, and Bitcoin's steady valuation acts as a base upon which all other valuation is finally derived.

If you've ever gone SCUBA diving and been unable to see the surface or the seafloor, you know how important a steady reference point is. Bitcoin is the reference point. Above all, it provides a starting point, the origin coordinate of (0,0) from which all other points on the value map can be plotted.

For an excellent visualization of Altcoin's potential progress, Artefact2's Eligius charts (http://eligius.st/~artefact2/5/16ccjkuuQjQ64H9qssmXnj695DdBDR75wJ) shows the pattern very nicely. The blue "Current block estimate" line is the path Altcoin would take and the green "Unpaid reward" line that climbs a stairstep pattern represents economic growth. I imagine the steady slope wouldn't be quite as steady, and would be attributable to speculators who keep mining under the expectation that growth will continue (speculators actually stabilize prices).


You're right - deflation isn't a problem. Currently, mismanagement of our mediums of exchange (Euro, USD, Yen, etc.) in relation to outstanding debt is. And hoarding/saving or whatever you want to call it isn't a bad thing either - it's a defensive reaction.

The difficulty comes from having such a dissociation between the real economy and the illusion of prosperity such that large segments of the illusory economy default during the crunch. Lots of pain and social unrest; nobody wanting to admit they were duped or wrong. The monetary system itself isn't at fault, it's the human control element.

Hoarding/saving doesn't cause the correction, it just accelerates it to completion. Not silly at all - it helps clear up the waste by cutting off access. Even the worst company can continue to function with funding; shut that off and the company fails faster than any other method. Savings: instant deflation!

Electronics are manufactured and their value comes from the way they're used (no electricity, no internet or software == doorstop). Something like that has immediate utility, but certainly isn't a store of value or we'd all be "saving" computers for our retirement. Gold simply exists and for very specific reasons serves almost no other purpose than as money, particularly in the store of value aspect. It also functions as a metric of value, that all-important reference point. Electronics cannot do so reliably. Nor can cars, houses, food, dollars or Euros.

The appropriate asset class needs to be used in the right context. No matter how valid a comparison it might be, imagine how absurd it would be to say that you wanted to pay for a Mercedes with 150 Radeon 5850 cards. Will that still be a legitimate comparison in 5 years?

Speaking of - I have an extra 6-pin power cable and an open PCIe slot - got an extra card? :)

Although quite off-topic, it's a pleasure to read your post and get inspiration to think more

This "easy money" concept, I'm still confusing. What is exactly "easy"?

A cook in kitchen cooking hard to make 20$/hour
A fund manager sitting in his office to make 400$/hour
A banker get 400000000$ loan from FED with 0 interest
An early bitcoin miner mined 25000 BTC

Which is easier?

How could you decide the money supply is excess?

And, why economy can't expand at 10% or even 200% per year, what is the factor that limit it? It's decided by number of people? Technology? Human nature?

Easy money is most closely represented by the 3rd item you listed. It's almost impossible to lose with a 0% rate, as you can use it for even highly conservative investments that might return 2% and be nearly guaranteed profit. Gov't takes all the risk and banks keep all the profit.

It's almost impossible to determine when there's excess in a modern economy of sufficient size. There are so many variables and changes take a long time to propagate through an economy. By the time the metrics used to observe an economy and decide how to manage it finally produce recognizable results, there are major distortions. That makes any actions taken more likely to cause harm and further disruption than correct any imbalances in the first place.

In order to truly be able to centrally manage an economy, massive amounts of data must be collected, increasing complexity and potential for errors. The task becomes herculean while allowing the system to manage itself would result in the distortions and imbalances resolving themselves over time.

There are many factors that influence growth rates. Yes, the human aspect among others. Raw resource availability, energy production, global competition, population growth, infrastructure development, etc...

From a macro level, it is difficult to see the truth because of many variabls and delays. Let's just look at a simple example:

A sell a horse to B at 10$
B sell back to A at 20$
A sell back to B at 40$
.
.
.
A sell the horse back to B at 1280$
.


During this procedure, since A and B are both making money, they will get good incentive to continue this activity. And the bank is willing to provide extra loan to facilitate the transactions because A&B's income are increasing steadily

We all know this is a bubble, but as long as banks are providing money to support the trading, this game could continue and the required money supply will increase exponentially

So, could we define that profit from rising in good's value are easy money and bank should not provide money to support such kind of trading?

But then how could you differentiate rising value caused by speculation or just by increase in demand? Isn't speculation itself some kind of demand?

The example you provided doesn't just occur without serious distortions elsewhere in the system (internal, external or a combination). But yes, without tracking every transaction and the rationale, it becomes increasingly difficult to manage the money supply.

In the current system, banks provide credit and came to treat debt as money, but they do not increase the monetary base. Ironically, if the banks did print their own money, the ongoing financial crisis probably wouldn't be as pronounced although other issues would arise.

I would agree that speculation on expanding economic development can be categorized as demand. The question is whether we're talking about a hypothetical system such as one predominantly based on Alt/Bitcoin or the current system.

In the current system, speculation builds on itself because there are no consequences for being wrong if the speculator is a major player or otherwise in a position to be bailed out. In a Bitcoin-based system, there is no way to manipulate the monetary base, so a speculator who is wrong will have to take his losses.

Inflation sucks, a bottle of Coke is 4 times more expensive than it was just a couple years ago but salaries haven't increased anything near that

I think this post better move to economics subcategory  :)

In my understanding, only commercial banks treat debt as money, the central bank has to produce money to facilitate the trading

In old time, it was gold production, and today printing paper money/digital money with the amount matching the GDP growth. Like gold belongs to gold miner, the printed money also belongs to central bank. Although the central bank create money supply to buy the government bond, but without having the ownership of those printed money, they can not do this through an accountable way

Of course they do not need these money for private usage, but they are issentially like a bitcoin miner who provide the market with liquidity. They are more flexible than a bitcoin miner since the amount of money they can provide at any time (to keep price stable)  will not be limited by difficulty/electricity/hashing power etc... So their effort is moved from creating money and more focused on watching the money flow in the whole society

Anyway, the FED just feels like "the biggest end customer" in today's financial system. If he spend, everyone start to make money, if he  save, everyone feel the pain. If he spend too fast(easing), that will cause inflation; if he spend too slow(tightening), there will be deflation and recession; it's really an art to be a FED chairman

In the bitcoin world, same thing happens, but we all know this "biggest end customer" only have limited amount of bitcoin (he is not very rich), so we might not want to do big business with him  ;D 

Bitcoin may easily die after the last 6.25 block (or whatever the number is)

here's the scenario: a bunch of miners are trying to get that last block because bitcoins are worth $100 each
the difficulty is around 5M, but with electricity prices at 30 cents per kilowatt hour so it's still worth it

now the last block is mined, a couple of people don't notice and mine the next block too... a couple of hours later the network slows down a lot and the difficulty takes a long time to adjust
however, before it is adjusted, the transfer fees are like 0.5BTC and not worth mining
the difficulty doesn't update because no one is mining blocks
transactions are halted, nobody can move their bitcoins out
BTC value crashes as everyone tries to sell

nobody wants to mine and BTC transactions take ages because all the miners already went to mine AltCoin

You forgot 'the sky is falling'

that's what they said about fulltiltpoker and the sky did, in fact, fall

I also read this from economic books, these do not change the issentials, in this way of understanding, central bank works as final loan issuerer, and these loans are own created money

Someone has to create the money and get the ownership, without this very first step, everthing afterwards won't happen

This would only make sense if you kept X amount of money over Y period of time (hoarding the currency).

I suspect it's either the one selling the bottle of coke (the price has in fact gone up and they're profiting more) or the one paying you the salary ripping you off (they're actually paying you less than before), not problem of the currency you're using.

The exactly same thing can easily happen with deflation: your salary will decrease, but price of the bottle of coke will remain the same.

I have seen these videos years ago, at that time I was still confused about how money works.  But after I have mined my first bitcoin, I can look from a money producer's point of view, suddenly everything is so clear.

Loan is just a term to relate future and present, it moved the consumption to present and leave the labour in the future. It does not change the fact: With increasing amount of good/services in the society, more money has to be produced

Price decreasing of goods/services is already a norm in IT industry, that lead to chasing higher and higher efficiency and aggresive cost cutting, I think this is not sustainable in the longrun. Sooner or later the speed can not hold and investers will prefer to hold the cash and stop the business altogether. So does an economy with limited amount of money supply

Without awareness of its existence, there won't be capital flows into Bitcoin. Keep in mind that capital will seek the best balance of risk and return, so if fiat currencies prove inhospitable, there are bonds, commodities and equities. Of the three, bonds are increasingly unreliable, equities are in free-fall and commodities are being dragged down by global reduction in demand expectations.

That leaves certain real assets, precious metals (especially gold) and whatever alternatives might arise. The quintessential standby for thousands of years has been gold. One of the alternatives is community, or direct lending. Bitcoin is yet another different location for capital to flow.

As awareness of Bitcoin grows and it proves its potential and stability over time, more capital will flow into Bitcoin. The same is occurring with gold, only gold has already proven itself over time. A collapsing economy is really among the greatest supports for Bitcoin and its ilk.


Was FTP a new form of money?


In comparison to the amount of expanded credit, absolutely. That's why there's a rush to monetize the credit that hasn't experienced a return (debt) before it all collapses down and the illusory, unrealized losses become real. Nobody wants to be hit by that financial haymaker.


Exactly - the temporal aspect is critical to understand, but most either don't or ignore it.

The money supply doesn't actually need to expand, but without monetary expansion to match economic growth, prices can fluctuate rapidly. Inflating the monetary base allows for perception of value to remain consistent, maintaining convenience through familiarity.


That could become a problem, but only as the number of coins approach parity with the number of participants. If there are fewer indivisible Bitcoins in existence than individuals using them and no expansion is possible, transaction reliability suffers and could trigger a panic - first to acquire Bitcoins, then out of them and into other assets.


A fixed growth rate is arbitrarily inflexible and thus counter to the required convenience factor necessary for an ideal transactional medium, as real goods and services are much more likely to fluctuate wildly in price. This is the danger Bitcoin faces during its main growth phase.

For example, using Bitcoin's rate of 50 units generated every 10 minutes and fixing that indefinitely, approximately 216,000 units will be introduced into the system per month. If the demand is for only 100,000 units per month, market value will fall; if demand is for 500,000 units per month, market value will rise. As the magnitude of participation increases, demand could well double during each cycle. How would an arbitrary, fixed growth rate prevent massive price fluctuations?

You are correct in that a continual rate of growth would take care of the transaction fee problem. As long as demand supports mining, the miner is the first to benefit from production of additional coins which can then be used to acquire additional share of the savings pool - Bitcoins, gold, real estate, etc.

The suggestion of a fixed growth rate would be excellent to alleviate Bitcoin's eventual limitation of ~21mm units, allowing it to continue at a moderate pace to account for lost coins and overall economic growth. However, even then it would be preferable to use a fixed relative expansion limit of perhaps 2% rather than a set number.

My reasoning for this is because what will work for an economy of scale X will be woefully inadequate for an economy of X^10 scale, but overwhelming for one of X^-10 scale. Relative ratios allow for applicability no matter the magnitude.

What if a water treatment plant were suitable for a population of 1,000 people and the population exploded to 10,000? There would have to be 10 water treatment plants. If only 2 water treatment plants can be built per year, the population can only expand by 2,000 per year, but if the growth rate is increasing and the construction rate remains at 2 plants per year, the population will still be limited to a linear growth rate. Water is essential to life, but a currency that acts in such a limiting nature will be abandoned for a more flexible alternative.

That's the distinction between Altcoin and Bitcoin. From what I see of Altcoin's principle, there is no arbitrary limit to the growth rate, either absolute or relative. Because of this the market value of Altcoin will determine the growth rate. If more is needed, the value rises and mining resumes or accelerates. If the value decreases due to reduced demand, mining slows or stops. It's a much more convenient and flexible manner of effecting a transactional medium and is almost exactly how currencies work today. The critical difference is the management - modern currencies are managed by increasingly ineffective central human authorities. Currencies based on the Bitcoin system are managed automatically from within by the system itself. Therefore, the potential for rampant monetary base expansion is virtually nullified.

A transactional medium is necessary for day-to-day economic activity. That means that it doesn't matter whether the currency depreciates, so long as it doesn't do so too quickly. What savers use to store their accumulated wealth must retain its value independently of any other factors. Again, Bitcoin serves this latter function perfectly - it appreciates in value over time due to its deflationary nature. For the transactional, even disposable, medium - Altcoin is flexible, maintains stability in pricing perceptions and has the highest in convenience of any currency.

Think of Altcoin as the translation layer between a consistent measure of value (Bitcoin or gold), and the fluctuating quantity and quality of goods and services in an entire economy. It doesn't matter whether there are 10,000 potatos or 1,000,000 - the price for them will still be the same in Altcoins. The more potatos there are, the cheaper they become in Bitcoins. Assume that potatoes are the only goods in our example economy, a maximum for Bitcoin of 1,000 Satoshis and an initial 10:1 Altcoin/Bitcoin to potato ratio:

Annual Potato Yield	>Total Altcoins	>Value in Altcoins	>Total Bitcoins	>Value in Bitcoins
100	1,000	10	1,000	10
1,000	10,000	10	1,000	1
10,000,000	100,000,000	10	1,000	0.0001

Can you imagine if potato crop yields fell significantly one year and people saw the US dollar-denominated price of potatoes go from $1/ea to $10,000?

Now under a fixed 2% annual rate rise for Altcoins, with the same starting assumptions as above:

Annual Potato Yield	>Total Altcoins	>Value in Altcoins	>Total Bitcoins	>Value in Bitcoins
100	1,000	10	1,000	10
1,000	1,020	1.02	1,000	1
10,000,000	1,040	0.000104	1,000	0.0001

The same problem arises as that with Bitcoin. A fixed absolute value increase would obviously be even more divergent. You can see from these tables that it is impossible for Bitcoin to serve both purposes alone. A second, more flexible Bitcoin system is necessary in the vein of Altcoin.

Private firms could even issue registered physical paper notes associated with the Altcoins being held. Picture a QR code on each paper note printed with the appropriate denomination. No personal digital device? No problem. So long as a business has a scanner (and which one doesn't have a laser barcode scanner), you can pull out a wad of Altcoin paper bills and use them just as you would dollars and Euros. Everything here can be smoothly transitioned to from the existing system by way of integration with the Open Transactions (https://github.com/FellowTraveler/Open-Transactions/wiki) platform.

Ah, you're right - I have my own take on Altcoin where I was envisioning a constant payout period, but I hadn't elaborated on the dynamic adjustment of payout amount. As with Bitcoin currently, a block reward every 10 minutes, but a variable amount of coins generated; just a shift of variability from difficult to block size.

Recalculation of the block size could occur at the same 2016 block period as difficulty, although that may be calculated dynamically as well. Still no upper limit on number of blocks generated.

That way, demand could rise 2% or 200% and would still be closely aligned with established prices. All of the other issues would likewise be resolved as described in the OP.

You're correct, that's the concept. Should we flip a Bitcoin to see who'll code the changes?

Not at all - there were good points brought up all around. It was a goof on my part, skimming your explanation of utilizing the difficulty. I'm kind of busy myself, but I do have opportunities here and there. PM is good...

A max growth rate was something I was considering, but only as a means to restrain ridiculous block generation early on. It would have to be like Bitcoin's gradual slow-down, only in reverse; slow initially and finally getting to a point of no programmatic restraint, instead relying upon market demand (assuming sufficient adoption). A linear growth rate is almost guaranteed to fail, so acceleration on the back end of the curve would be preferred. That's because unrestrained growth would lead to far too-rapid depreciation of the units in the initial phases.

Early adoption reward isn't necessarily a bad thing. And the "ideal" difficulty will always exist, it'll just be a moving target that the system adjusts to. If any of the other *coins introduce anything truly worthwhile, they'll eventually rise above the others. This one has immense potential...

yes, it had FTP dollars which are like real dollars until feces hit the ventilation

the difference is that everyone thought they were playing with real dollars, but it turned out not to be the case   >:(

Ideally the best block difficulty is one that is extremely high so as to protect the block chain.
However, without adequate computing power an extremely high difficulty would make block generation take far too long.
So the difficulty is adjusted periodically to allow available computing power to generate a block in about 10 minutes.
The sole reason for changing block difficulty is to adjust for computing power available.
However computing power available does not readily equate to economic activity.
Initially it may to a great degree. Miners will come and go as the price rises and falls, but over time inefficient miners will be driven from the market by competition.
Left standing will be miners who have paid off hardware and low cost or free electricity who will stay and mine regardless of the block reward. Even if all they earn is transaction fees.
The block reward should be based on the value of altcoin.
If the value rises the block rewards continue to increase until the value returns to the set level.
If the value falls the block rewards continue to decrease (even to 0) until the altcoin value returns to the set level.

The issue is what to use to determine the value of altcoin.
It needs to be something that is constant.

For example, if the USD is used and  1 USD = 1 ATC
and the USD falls in value it will look as if ATC is increasing in value, but really it's just the USD losing value.
But block chain rewards would increase thereby decreasing the value of ATC to bring it in line with the devalued dollar.
Gold wouldn't work well either as the price fluctuates greatly due to varying demand as well as the values of the currencies used to purchase it.

"-> I personally think that inflation > deflation."

You must either be a neocon or a democrat.  Inflation is never good if you use the coins and don't have any loans outstanding.  If your a miner inflation is good because you get to steal off the workers and businesses.  If you are a government inflation can be good because it is a hidden tax.

On the other hand deflation is never good for anyone because saving is heavily encouraged so the economy stagnates.

Yes, saving is terrible for the economy. Damn the individual! Long live the economy! (Whatever that is). (sarcasm off).

Economies expand and contract. I.e., they inflate and deflate just as we inhale and exhale. Some may like it if the sun never set but would not the crops all burn up?

No deflation in an economy is simply unnatural and should not be avoided. Individuals need to learn this and ignore politicians and bankstas who say they can mediate this process.  But of course that would require people to grow up.

It is terrible for the economy. If everyone is saving there's no commerce going on. What do you think triggers recessions?


What is this stupidity? Are you saying the individual is better off in a shitty economy?


A lack of deflation would be unnatural huh? Looks like you are just resorting to mysticism because you don't know what causes the business cycle.

Do you mean saving triggered recession?!... That is laughable. That is nonsense, of course. Statistics clearly show savings rate is currently at its historical bottom!

As matter of fact, it is just the opposite. It is the brainless hyper consumption encouraged by mass hysteria, based on ever increasing debt levels during last 40 years, that caused distortions and bubbles in the economy. You can't inflate bubbles for ever. There always comes a moment when they burst.

By the early 1970s, as the costs of the Vietnam War accelerated inflation, Richard Nixon canceled the direct convertibility of US dollar to gold. Gold standard was canceled and the world entered the era of pure fiat money. Since then economy entered into downward spiral of vicious cycles. To sustain such a 'model' growth was needed at any rate! But... consuming more things you don't actually need is not growth, because they do not positively contribute to your physical, intellectual or mental condition!

So, what do you do to show there is growth when there is no growth? You start by changing statistics methodology to hide the unpleasant truth. When this is not enough, you start printing more money under the pretext of 'stimulating' the economy. You can use 'jerking' if you like instead of 'stimulating'... Does 'jerking' the economy actually change something? Next step is to artificially decrease the price of oil on relative base. Everything around us is OIL! By decreasing the price of oil you are again 'jerking' the economy. So, you press OPEC countries to increase oil production. But what do you do when easy oil is gone? What do you do when oil producers need to invest $80 to pump and ship 1 barrel of oil? This is where your rosy dreams and wishful thinking collides with the crude reality of a consumer based economy!

Of course, we all know what followed. Next step is to export 'democracy' on board of battle ships and planes to 'easy' oil countries you don't control like Iraq and Libya. What is the next oil pie that needs situation with human rights improved? Iran, Venezuela or Nigeria?!

It is high time our economy be changed from consumer based to resource based.

Again, that is laughable. Do you mean people will prefer to walk without cloths or shoes and die of thirst or hunger just to save their money?! Resource based economy means people will buy only those things they actually need. They will not be forced to buy things today just because their savings will be valued less tomorrow. It shouldn't be difficult to understand this! Monetary inflation is just another tax imposed by governments. A tax that is not defined by law. A tax they can change at their own discretion to serve their own hidden agenda. No, thanks. I don't need such a tax!

So? We are not in the middle of a recession. We are heading for one no doubt, and then savings will jump just like they jumped during the last one (http://www.nbc29.com/story/9983829/savings-rate-jumps-during-recession?redirected=true).


I agree that's how bubbles are created and that they always burst. But why does a bubble bursting in one industry, like housing, end up affecting the whole economy? The only explanation in my opinion is because people see dark times ahead so they panic and stop spending, then as people stop spending companies have to reduce costs to maintain solvency, many times in the form of firing employees, reducing spending even further. It is this chain reaction that creates a self fulfilling recession.


How is something that is true by definition laughable? You do know the definition of commerce, don't you?


No, I mean people will only buy what's absolutely necessary and nothing else. Thus people will get fired, companies will go bankrupt and the economy contracts.


You are not forced to buy stuff you don't need in inflation or demurrage. You can save your money by buying assets instead of holding the money in your bank account. And you seem to have the impression that I'm advocating inflation, I'm not.

That is good. The planet has a chance to be saved.

Of course. This is the natural end of every bubble. There comes a moment when it can't be inflated anymore and it bursts. The bigger the bubble the dire the consequences.

1. If nobody is holding their money in a bank account because of the inflation how would banks find money to give credit? Looks like the central bank will print money and 'buy' from banks their junk loan portfolio?
2. So, it is worse than I thought. You are not forcing people to buy stuff but force them to speculate on the stock market?... Just to preserve the purchasing power of their money?... Isn't that insane?... BTW, why don't you check out what were the level of DOW, S&P or DAX 10 years ago, or NIKKEI 20 years ago?

No, it's not good. The planet doesn't need any saving, only life does. Basically you are advocating going back to a hunter-gatherer society just to accommodate an oversized population, which I find ridiculous. I'm unwilling to make that sacrifice and probably you too. Electricity isn't necessary, neither is hot water, cars, clean clothes, houses, toothpaste, etc. Are you willing to live without those to 'save the planet' or 'for the greater good'? If you say yes then you are lying to yourself.


Yeah, but we are talking about deflation. That is what will happen if we have a monetary system with constant deflation.



It is not insane. You have to keep moving all the time to preserve your wealth and that is a good thing as it forces progress. Some will fail at keeping their wealth and some will succeed. It's evolution. What's really insane is expanding your purchasing power just by holding money, then there's no reason to ever work, to ever move again. Why would anyone go through the effort and risk of creating a company to sell some good or service if it's equally or even more profitable to just hold the initial capital?

Let the people decide for themselves what they need and what they don't. Don't use inflation to 'show' them what they need or to force them to act! People are not fools that need their actions directed by forcing inflation punishment upon them!

I suggest reading some books before talking nonsense. Lack of inflation is not deflation! Monetary inflation is usual for the world economy only for the last 40 years since the gold standard was canceled in 1971 and the era of pure fiat currencies begun. Gold and silver were used as money for the last 6000 years. Do you really think that during all those 6000 years (minus last 40) people were insane? Do you really think there was no reason during all those 6000 years (minus last 40) to work or move, create art or businesses, or people became rich only by holding gold and doing nothing? Come on, raise your head up and take a look beyond your nose!

Inflation has no positive influence on economy. It is just unlawful tax imposed by the government that can and should be easily removed from our everyday life. Get over this.

Jesus christ you are a lost case. I don't know why I bother. Btw, I'm not making a case for inflation, I'm making a case against deflation.


I suggest you take your own advice and research before talking bullshit because there was mostly inflation during the gold standard.


No shit it's an unlawful tax, but we are not talking about a government issued currency you stupid motherfucker, we are talking about the best model for a decentralized cryptocurrency. If you believe a currency with pure deflation can work then you are just retarded and that's all there is to it.

You have $10,000 in the bank and now it is worth more.  That is GOOD for the economy.  The saver can go to the store and now buy 2 cars instead of one.   This is the only reason I am interested in cryptocurrencies, they are like full reserve banking and a gold standard tied into one.  Fuck the banks, fuck the people who live on credit, and double fuck the government workers that spend even though the credit limit is hit.

EVERY recession and depression was caused by banks, loans, and or fractional-reserve lending.


http://en.wikipedia.org/wiki/Panic_of_1837 (http://en.wikipedia.org/wiki/Panic_of_1837)  Banks spent money they didn't have and only accepted silver for deposits.

http://en.wikipedia.org/wiki/Panic_of_1857 (http://en.wikipedia.org/wiki/Panic_of_1857)  Look at the picture, notice the bank run.  Fractional reserve, the banks loaned more gold than was in the banks and stole the people money.

http://en.wikipedia.org/wiki/Panic_of_1873 (http://en.wikipedia.org/wiki/Panic_of_1873)  Look at the picture.
 
http://en.wikipedia.org/wiki/Panic_of_1893 (http://en.wikipedia.org/wiki/Panic_of_1893) Banks over spending other peoples money on railroads.

http://en.wikipedia.org/wiki/Panic_of_1907 (http://en.wikipedia.org/wiki/Panic_of_1907)  Look at the picture, bank loans for spending on stocks weeeeee.

 

You have $10,000 in the bank, so you sit on it because you know it'll grow.  So does your neighbor.  And the guy down the street.  Everyone is sitting on their money waiting for it to grow.  No one is spending.  That car dealership you're talking about now has to lay off more employees because there isn't enough business.  So does the baker.  The newspaper hits: "Everyone is being laid off!".  With a poor job outlook, people save more for the rough times ahead.  Rinse/repeat.

If you have $10,000 in the bank and cars drop to $500, I buy one.  The cost of a trip to Europe drops to $100 I go on a trip.  People don't sit on their savings.  They spend it.  They earned it.  They work to earn money, to take trips and buy cars.  Their money will go further.  Government making money out of nothing is no more moral than throwing grandma out of her house, taking $20,000 of her $100,000 savings every year. Then kicking dirt on her while she is laying on the ground.

Obama and Reich are no more than asshole bullies that make money worth less, they make unemployment higher, make work conditions worse, force workers to work longer hours for less pay, make school more expensive, destroy the middle class, make healthcare unaffordable, EVERYTHING THEY PROPOSE does the exact opposite!!!!!!!!   

Wow, that's possibly the most concise way I've seen of obliterating the absurd argument that savings is bad. Who does anyone know who sits around and prefers to count their money on a regular basis rather than go on vacation or work on their house or watch movies or anything else other than count their money?

This is also discussed by Alasdair Macleod and James Turk (http://www.goldmoney.com/video/macleod-turk-interview.html).

Steelhouse, just protect yourself and your assets. Leading by example is far more productive than trying to force an individual's perception to change. Knowing what you can influence over what you can't is critical to surviving the final stages of the ongoing catastrophe; channel your outrage.

Scrooge McDuck?
http://www.enusbaum.com/blog/wp-content/uploads/2011/08/scrooge-mcduck-christmas-carol.jpg

But how will their money grow if interest rate on those 'accounts' is zero?

The present interest rates on money in your checking account in terms of value is negative 5-20%.  If you could earn 5% interest your money would be shrinking.  All you have to do is look at change in m1 money supply.  money supply chasing goods is the value of money.  m1 is the closest factor to loose spendable money in the economy.  m3 such as 5 year cds is locked up and does not effect the money supply as much.   There will be inflation the lag has not hit yet.

If interest rates are zero, their money will not grow in the present dollar world.  However, in cryptocurrencies their will be some deflation.  From 1840-1914 there was basically deflation overall.  When you get a job, you don't get a raise but your money is worth more with time.

Savers money can only grow if interest exceeds inflation, or there is deflation.  If interest is zero, bitcoin will far exceed dollar deflation due to lost coins.

From 1840-1914 there were no cryptocurrencies. How did that happen?

1. How did you know a coin is lost?
2. Don't people lose dollar banknotes as well?


Inflation fans stress on the fact that inflation forces people to buy goods and services just to avoid their money devaluing on their checking accounts. They say that is good for the economy.

- 'A' produces goods and services in excess.
- 'B' produces goods and services in excess as well.
- Both 'A' and 'B' purchase goods and services of each other not because they need it but to allow their counterpart to have the funds to purchase the goods and services they don't actually need. Thus, some people say, economy will grow.

This is not a definition of economy. This isn't even a definition of a ponzi scheme. This is a definition of insanity!

The time preference argument only works for legal tender currencies. If you are free to use any currency you will just save with the deflationary one and spend with the inflationary one.


Jesus christ. Why do people keep using this argument? Nobody is disputing this and it doesn't help your case in favor of deflation. In fact it hurts your case when you try to bring in morality to a discussion about economic models as it implies you don't have good logical arguments and have to resort to appeals to emotion.


He is obviously talking about purchasing power, not in nominal terms.

REALLY?!  Have you not talked to *anyone* who was on the wrong end of the depression in the 30's?

There are lots of people who don't save so they can go on nice trips they  save so that they and their children can eat food and have clothes if times get rough.

If the only hardship you've been through is not having enough cash to go to the movies...

I know what he is talking about, he doesn't. If you have natural money as gold (neither inflationary nor deflationary) price of goods and services will decrease because productivity is increasing. This, however, IS NOT DEFLATION! Learn to make difference between inflation/deflation in general and MONETARY inflation/deflation! Money is just metric of value that helps exchange goods and services. This is why money should be absolutely neutral in terms of inflation or deflation. The so called money supply should be constant zero! The quantity of money in circulation should be constant! In terms of Bitcoin this is 21 million coins or 21 quadrillion units. That is it! Why is that so difficult for you to understand?

Monetary inflation is bad! Inflation is unlawful tax imposed by governments to rob their citizens!

Please explain how using gold as money automagically increases productivity and how it is neither inflationary nor deflationary.


Or maybe you should learn that the terms inflation and deflation only refer to the level of prices and what you refer as "monetary inflation/deflation" is actually called money supply expansion/contraction.


Yeah, you are right.

1. I should have probably move the upper date to 1971 or 1933.  We were on a strict gold standard and the debt of the United States was flat. That will increased productivity resulted in deflation.  It is to be noted, even when we were on a gold standard banks made loans far bigger than reserves.  At times the government or banks would demand real money gold or silver for the fake money paper, which caused a lot of problems.

2. I here about it all the time, but bitcoin can easily be lost with a keystroke.
3. Yes, but compared to bitcoin they are small.  Especially now when the nickles and pennies you lose are more expensive to make than the face value of the coin.

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