Bitcoin Forum

Got that from here: http://culubas.blogspot.com/2011/05/timejacking-bitcoin_802.html

I think most would agree that it is more desirable to have price stability than either deflation or inflation so I'm mainly interested in discussing the viability of implementing something like this.  I was thinking that instead of having a special voting transaction, which only a few would bother to use, votes could be embedded into every normal transaction where each unit of currency sent is 1 vote. An average of all votes taken during the last 30 days or so would then determine what nSubsidy should be.

Thoughts?

How does that achieve price stability, however? People would vote with their self-interest in mind, probably with the miners voting for higher subsidies, and everyone else voting for lower.

If miners vote for higher subsidies and the rest for low then it should balance it out no? Although I don't believe doing this is in the self-interest of any coin holder. The main point of the currency is roughly achieving price stability so if it can't perform this function the currency will be abandoned.

I see this as more of a 51% attack but with currency instead of mining power, rather than something people will naturally want to do. Some checks could be set to minimize such an attack, like invalidating votes that deviate too much from the average, hardcoding limits to the supply growth rate, implementing demurrage so that an attacker would have to constantly be buying/mining coins to maintain 51%, extending the time frame for calculating the average so that the average moves slower, and supplying a sensible default vote for people that won't likely pay much attention to monetary policy. This default would be updated based on a commodity price index.

I don't think this would be an economical reasonable attack though, it probably would be way cheaper to get 51% hashing rate than buying and maintaining 51% of the coins.

It won't balance out unless the miners and speculators just happen to have equal assets, which is unlikely.

So you believe over 51% of coin holders will intentionally vote against price stability, making the currency useless?

I value price stability, just as you do. But you and I are working to create an alternative currency, so naturally we think about these long-term, macroeconomic issues. On the other hand, most people will be driven by short-term self-interest. Merchants will want higher prices, consumers will want lower prices. Miners will want more subsidy, investors/hoarders will want deflation. Yes, it will reach some sort of equilibrium--but there is no reason to presume that it'll be at stable spending power.

That is entirely plausible.

Also, anonymous vote systems, even ones with complex mathematical magics securing a reliable crypto-pseudonym, are very hard to get right.

For a really obvious one, you can not (should not) neglect time a node spends online when assigning "voting power", otherwise, on the voting day, you will find yourself flooded with strange "noob nodes" that never transacted and never mined, and just arrived to cast votes and disappear.

I'm not so sure. What good would it be to provoke inflation and raise prices if the purchasing power the merchant will end up with is the same? In fact the merchant could incur a loss instead as changing prices requires work and demand would likely go down because fixed income earners won't have enough to buy the product/service.


Same problem as above but with deflation. Deflation means that consumers will earn less nominally so it will end up being the same for them. Fixed income earners would be owning themselves because a higher cost of employment means a higher risk of getting fired. Also, like inflation, deflation is not evenly distributed across the board, some goods and services can get away with maintaining their prices while everyone else is forced to lower them, so consumers will end up paying a bigger percent of their income on essential stuff like food, energy and housing, leaving them with less disposable income.



Raising the subsidy would be meaningless to miners because new miners would just join in, leaving the profit margins of the old miners at the same level.



If this currency has demurrage then there shouldn't be any hoarders to begin with.

There's no such thing as "voting day". As explained in the first post you would be voting with every transaction you make and each coin sent would be 1 * COIN votes (COIN being the source definition, 100000000).

If a coin votes each time it is sent, coinholders will spam transactions in order to maximize their voting rights. For biticoin, spamming is bad because it increases informational overhead in the blockchain.

Possible fix: Voting power = ( # of coins sent)*(# of confirmations on sent coins)
Under this rule, users should be indifferent between voting often (sending coins with few confirmations) and voting rarely (sending coins with many confirmations).

There would be demurrage in this currency meaning that the attacker will eventually run out of coins by spamming transactions back and forth, so it would be very costly to sustain the attack. Demurrage destroys the possibility of profit from manipulating the supply expansion rate in this way. Also if everyone tried that then the block size limit would be reached regularly so the attack would have the additional cost of transaction fees.


A weighted average wouldn't help because the average is taken from the last X days, so new transactions that are multiplied by a very low factor will eventually become the old transactions with huge multipliers. Because of this it would still be in the interest of the attacker to spam every block.

You are confused. The number of votes assigned to each send is ( # of coins sent)*(# of confirmations on sent coins at the time that they are sent). This modification does remove the incentive to spam transactions.

Oh I get what you mean now. Very nice, I like it.

Investors and debtors will want inflation.
Creditors and money holders will want deflation.
Even with demurrage, money holders will want their money to appreciate.
And yes miners will want more subsidy, even if it will be translated in more competition later (that neutralize their increased profits), that won't be instant, the increase in the subsidy would happen first.
I don't know, maybe it all get balanced as you say.
About the concrete voting system, I would suggest to define a reference currency (https://bitcointalk.org/index.php?topic=11614) and the people vote how higher or lower the chain currency is compared to the reference. And the system could ignore very extreme votes or the ones that are vey different from the rest.
But wait, miners can leave out the votes they don't like.
This decentralized price index problem is really hard.

Well, it's somewhat saner per cunicula's explanation, but I find the issue to be a bit of a tempest  in a teapot, since monetary policy doesn't work with abstract products of exotic math as it would with vanilla money (fiat or otherwise).

"quasi-deflation" and "quasi-inflation" of cryptocoins is largely of relevance due to its psychological effects, not due to objective shift in available monetary mass (since said mass is infinitely divisible and as trivially infinitely renominable, and merchant response to shifting buying power of a a coin as expressed in any noncrypto-currency can be organized to be on the order of milliseconds)

DISCLAIMER: When we say xflation we mean mainly price xflation, not monetary xflation.
The problems with price instability appear in financial markets.
Imagine a bitcoin loan.
I lend you 10 btc and you agree to give me 10.5 btc back in a year.
If in a year btc value has multiplied itself by 10, your debt is highar than you expected.

If we say: "I lend you $100 worth in btc and you pay me $105 worth in btc" (imagine for this example that the dollar is stable), and bitcoins appreciate again x10, I paid lent you 20 btc and now you're giving me back 2 btc. Will I be happy with such a loan? I could just keep the 20 btc and I would be better. Here the currency being divisible doesn't help.

Well, yes, given that BTC appreciate in a manner consistent with a deflationary good the credits would indeed be discouraged, in that specific scope it is not unreasonable to say that BTC behave in deflationary manner.

However, given that BTC isn't a State Currency and in fact floats relative to all them motherloving paper money (and also everything else anyone bothers to trade BTC against), the effects of this formally price-deflationary behavior on the state of Bitcoinomy will be different from the effect "price deflation" usually has on economies (Proper state economies are more or less self-contained units. Bitcoinomy is, well, "inhabiting" many other economic systems, more or less simultaneously, so I would suggest that shenanigans that ensue if/when bitcoins appreciate like crazy would be different from cases of state-supported currency appreciating like crazy)

In fact, assuming that BTC would appreciate insanely as typically claimed it would, fascinating economic activity would take place where Bitcoinomy and "normal world" intersect

I agree. I never said that deflation will destroy bitcoin. I just can't see deflation as a desirable quality for a currency.

Can we agree that bitcoin isn't a "proper" currency and what it is experiencing, given both it's inherent properties and the context of its operation, allows one to say that what it will undergo isn't quite typical deflation ? :)

You are right, that is undoubtedly their self-interest, but I believe they mostly cancel each other out. Creditors will lend 100 coins and vote for maximum deflation, then debtors will spend/invest the 100 coins and vote for maximum inflation. Debtors get another chance to vote with 100 or more coins when they pay the creditor back but this offset by the higher than average probability that the money sent from creditor to debtor had more confirmations than the money sent from debtor to creditor.


I guess you are right. What if the demurrage rate were inversely proportional to the supply growth rate? That way money holders have no incentive to push for deflation because it will translate into increased demurrage and miners have no incentive to push for inflation because it results in less revenue from demurrage.


Yeah, I had Terra in mind when I suggested to follow a price index for the recommended/default rate, but I get the vibe you mean create a real parallel blockchain just to set the reference. I don't see the need for that.

EDIT: I read your thread more carefully and it looks you didn't mean real currency that's actually issued, so we are on the same page.


Yeah, I suggested ignoring extreme votes on post #3 (https://bitcointalk.org/index.php?topic=44264.msg528300#msg528300). You are right about miners being able to boycott votes but I believe accepting the transaction fees would be more profitable most of the time, especially if demurrage is transaction based like maaku wants to implement. Also if I'm correct about removing bad incentives for miners with the demurrage rate as a function of the supply growth rate then there's nothing to worry about, they would just ignore transactions with votes that deviate from price stability.  

Would linking the votes to transaction fees be a good way to stabilize things ?
Exchanging money between accounts seems prone to gaming. Fees aren't recoverable and help the system maintain itself (incentive to mine). That's not really democratic, as people will get more votes by giving more money but it seems to have some nice stabilizations properties.

Yes, is not typical deflation. A big difference, when deflation attacks an economy, the currency is usually monopoly money. On the other hand, one of the current functions of bitcoin is to act like a glue between currencies (for example, I don't know an easy way to buy yens without bitcoins), it's also free software...Bitcoin will never be monopoly money in any economy.

Actually now that I think about it, miners would be able to game this by sending money to themselves with a big fee and not broadcasting the transaction until they can include it in a block they mined themselves.

Not sure if all this get balanced.


My initial proposal for demurrage and inflation rate to influence prices was:


I guess this is incompatible with demurrage being inversely proportional to the supply growth rate.
But definitely removing miners bad incentive is a priority. If you achieve that, you can just use a decentralized price index (http://).


Yes, I don't want to issue or back it. I just want to use a decentralized price index to be able to measure the price (in bitcoins, freicoins or whatever) over time. But for this you need to remove the voting incentives for miners, which they won't have if the reference currency doesn't influence the rewards and issuance of the host chain.
If you want to use the reference coin for more than just contracts and price setting (to make it the target for your dynamic supply chain currency); then the system becomes more fragile. Remember that the time travel attack was based on cheating the timestamps that miners "vote".

Useless maybe in the long term but profits can be made in the short term.

Say I have $1M.  If I could vote to deflate that to $2M and then cash out why not?

To answer your direct question YES people will vote AGAINST price stability if there is short term profit in it.

I think this is 100% correct. That is why you need to manage money supply creation and destruction, so as to neutralize effects on currency holders. Proper distribution rules would ensure that money holders are indifferent between voting for inflation and deflation under the assumption that the real value of all the currency in circulation remains fixed. You can arrange this by taking money away from accounts when the majority votes for deflation and distributing it to accounts when the majority votes for inflation. This design encourages currency holders to vote for outcomes that maximize the total real value of the money supply.

Don't ask for clarification, I'm not giving it.

Interesting idea.
This could also be done if only miners vote. In the current bitcoin chain miners have to wait I think 100 blocks to be able to move the newly created coins and you could apply the "award for honesty" or "fine for lying" just after that period.
But I guess they would vote for inflation anyway.