Bitcoin Forum

I thought you claimed "there's nothing wrong with deflation" too. Sorry, my fault.

By "undeniable truths" I mean premises that are obvious to anyone and that no one will discuss. Logic is part of math, is not a social science.

I agree, I prefer gold over USD. But national inflationary (I prefer this term over fiat because I don't think fiat is bad per se, in fact I consider bitcoin fiat) currencies are not the only alternative.

I think business cycles are avoidable because I think their root cause is interest.

I consider gold and bitcoin flawed because they have interest. I advocate for ripple and freigeld (freicoin if you want to keep the state out of its issuance) and ripple instead. Well, I advocate for bitcoin (it's enough hard to explain it without the demurrage, one step at a time) and I recommend people to buy gold and silver (to protect themselves against what I see as the "unavoidable global fiat system collapse"), but I think they won't be the "money of the future" because of their flaw.

I bet you're going to answer with one of these two:

-Without interest people invest in stupid things.
-Demurrage is isomorphic with inflation.

But those questions are not about deflation. If you want, we can discuss those points here: https://bitcointalk.org/index.php?topic=3816.0
Probably I will start a new thread "Why demurrage is not equivalent to inflation".

Logic is logic.  Logic involves proofs, but that doesn't make it math.  Praxeology involves logic and reason and math, but it's still a social science.  The core concept of praxeology, and thus all included disiplines, is the study of human actions.  Thus, there is no way to separate the social aspect of the science without significant flaws.


I can see how you might consider Bitcoin to be similar to fiat currencies, lacking any obvious non-monetary use value; but how could you rationally consider it fiat?  The very term requires the imposition of a government agency, since it literally means "by decree".


I'm sorry to tell you this, but this is wrong.  The business cycle's root cause is malinvestment.  The social aspect is that, during the boom, investors are as upbeat as everyone else and are more likely to investing borderline projects.  Artificially low interest rates, manipulated by central banks, make this pattern of malinvestment worse but are not themselves the cause.  The root cause of the boom is a form of collective sentiment, what Keynes called "animal spirits".  Keynes was not wrong about the role of the mood of the collective in the business cycle, he was wrong in his belief that it could be forced via monetary policy.  The malinvestment of the boom cycle is what then makes the correction inevitable, but there is always a trigger event that draws the attention of the collective towards the developing cracks in the system.  Once the first true crack is identified to the collective, it starts looking for more, and it finds them; and then the mood changes.  And this continues until the correction resolves the cracks, and the recovery begins.  After a time of no cracks, the sentiment slowly turns to a 'feeling' that there are no more cracks to worry about, and the boom starts again.  In the past, both a gold standard and the more local regionality of the credit & productive markets tended to limit the scope of the boom, and thus the severity of the bust.  The boom from 1992 to 2001 was the longest national (worldwide?) boom period in the history of the US, thus we can expect the most severe correction in the history of the US.  But only once those with the power to manipulate monetary and fiscal policies finally resign to allow the correction to occur, or simply fail to continue to prevent it.


Neither gold nor Bitcoin have interest by their design (or nature).  Interest exists only because two parties are willing to engage in contract.  Do you believe that there is some mechanism inherent to either Freicoin or Ripple that prohibits interest?  Ripple is a web-of-trust credit system, and not a currency at all, so there is certainly not any means to prevent interest contracts from forming in whatever currencies that Ripple users ultimately settle upon using.  I admit I'm not terriblely familiar with Freicoin, care to enlighten me?


You would have lost that bet in whole.  People invest in stupid things because of interest, or more precisely in the pursuit of improbable interest.  And I am aware that demurrage is not equal to inflation.  Inflation is rot, udderly unavoidable while value is stored in the currency.  Demurrage is a security or storage fee, which can usually be reduced under certain situations, which players will then tend to favor.  I've started an older thread on this subject, stating my concerns about the lack of an artificail equivialnt to demurrage in Bitcoin, but the thread died because there doesn't seem to be any way to do that in the blockchain security model without also breaking the cash-like features of Bitcoin.  It also might not matter, as I'm concerned but not actually convienced that demurrage is neccessary for a cryptocurrency.

I looked up Freicoin, and I'm not impressed.  How did you impliment demurrage into the codebase that manages the blockchain?  By what method do you actually impose the demurrage fees upon the addresses with a positive balance without also introducing security issues into the blockchain?  10% per year is way too high, 1% is probably too high.  And is that percentage applied to the individual balances, or only to the total monetary base?  If the former, how?  If the latter, what are the details of applying demurrage to transactions buried deep into the blockchain?  A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

A single currency that provides all of the major functions of money is nearly impossible to implement. Demurrage might be close to that, but why introduce excessive complexity?

There is a concept (https://bitcointalk.org/index.php?topic=37405.msg468740#msg468740) involving a dual-currency system. Bitcoin is the deflationary side, similar to gold. It appreciates in value over time. The other side would be purely inflationary, but not a targeted method such as central banks use and politicians promote. Instead, use the same code as Bitcoin - only remove the hard ~21mm unit limit. That allows for price stability as the currency can expand to the needs of the aggregate economy.

Other technical issues exist, but the general idea is very similar to the existing financial system; the major distinction being decentralized control with auto-regulation.

Save in gold; spend in EUR/USD/etc.

Save in Bitcoins; spend in Altcoin/Aucoin/Mote/etc.

No need to mangle an existing and elegant solution. Only two modifications for the inflationary side: remove the hard limit and optionally limit the initial unit expansion rate.

1) The meaning you attribute to fiat depends on the translation (http://en.wikipedia.org/wiki/Fiat_lux) I guess.
But I can say non-backed if you prefer it.

2) I'll answer you to the "cause of business cycles" question with more time.

3) Capital-money needs to be everlasting and scarce. Freicoin is perishable and ripple is abundant. Demurrage directly attacks the inflation premium, the profit you can do by using money to "move wares" better than barter. With abundant-money that profits tends to zero by competition, everybody can issue money. The payer can pay without cash. That's why capital money will have always a minimum sustained profit that Gesell called basic interest (gross interest = basic interest + risk premium + inflation premium).

4) The implementation is quite simple in my opinion. All accounts are charged with demurrage automatically each block (without writing anything in the block chain). When the monetary base is stable, miners will be rewarded with the same amount that is charged in concept of demurrage. It is charged through the protocol. For a transaction (and therefore the block that contains it) to be valid the following condition must be true:
 Sum(output) >= Sum( input * ( (1 - demurrage_rate_per_block) ^ (current_block - input_block_number) ) ) )


Are you saying that freicoin is equivalent to expocoin (with exponential monetary growth, constant monetary inflation rate)?
For miners, yes. But...
constant monetary inflation rate:
1) Rises the nominal interest rates but does nothing against real interest rates.
2) Creates price inflation

demurrage with stable base:
1) Lowers real interest rates
2) Makes V (in the equation of exchange) more stable
3) Recovers lost coins making M really stable (this is good for storage too, since old blocks can be forgotten)

@miscreanity
1) As said, demurrage doesn't add much complexity.

2) Yes, people could trade in freicoins and save in bitcoins.

3) If you just have a constant reward, the monetary inflation rate would be comparatively lower and lower with time.
To achieve a constant inflation rate, you need a monetary base that grows exponentially, what I call expocoin.
But expocoin is not equivalent to freicoin.

You are missing the point. Freicoin is not meant to be a store of value, it gives up that property in order to encourage investing and spending.

But that is a contradiction.  In order for there to be investing and spending in relation to a currency, it must also be fairly good as a storage of value.  At least as good as the Euro or US $.  Otherwise, your spenders are never going to spend in Freicoin, because they never have an incentive to earn it.  Credit works in our debt laden economy because the credit is based upon the US $, which is still a decent store of value compared to a demurrage rate of 10% APR.

I disagree already.


I consider a perishable trade currency a bug, not a feature; and ripple is a p2p credit system, it's only as abundant as users are credit worthy.


I don't understand your explaination here.  And I don't agree that 'basic interest' is not trivial, or even always a postive number.


But how?  I mean how is that actually enforced?  Is it taken as a fee once the funds are spent, or is there some other mechanism?  Can a miner chose to ignore it, like a miner can presently choose to favor a transaction dispite a higher fee offered by another, or is there some mechanism that requires the miner to enforce demurrage for all transactions?


Does this mean that miners cannot waive the demurrage fee?  A universal demurrage fee isn't useful for encouraging desired behaviors either.  In order for the desired effects to occur, there has to be an alternative to paying full costs.

I question this assertion.  At least, I question that it's effects on the market interest rate is not negligble.


I question this as well, velocity is effected by so many variables that I don't think you can claim that velocity is stablized in any great degree via demurrage.  Certainly not with a 10% APR demurrage that is inflexible and unavoidable.


How is this?  Do you just delete the transactions if they reach zero?  How?

We have some semantic confusion. I don't consider any currency that loses purchasing power over time, even if very slowly, a storage of value. I wasn't implying that the faster it loses value the better it is for investment as that would be claiming that an hyperinflationary currency is optimal for investment. But you are right, Freicoin should conserve value better than the mainstream currencies to have an incentive to earn it.


This depends on the GDP growth rate of each economy. If the currency with 10% demurrage experiences an annual GDP growth of 7% then it would hold its value better than the dollar (inflation is at ~3.6%). Btw, we are not advocating 10% demurrage, you probably read that from my proposal on the Freicoin forum which I made a while ago and haven't bothered to update. At least jtimon and I only support for enough demurrage to bring down basic interest to 0%, which should be around 4 to 5%.

Well, you may not consider the interest as a flaw in gold. But since I think it is, demurrage (supressing interest) is a feature.
With ripple, the producers can sell their wares even if "there's no liquidity". Money exacts the basic interest from the wares:
http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm


Just as miners (the protocol to be more accurate) doesn't let you spend more than 100 btc from an output that contains 100 btc, the protocol won't let you spend more than 95 fcn from an output that contains 100 fcn and is in the block chain for a year (assuming a 5% annual demurrage rate).
You're assuming that my desired effect is just to recover lost coins and save storage. But I want economic effects that need the demurrage to be unavoidable when holding the currency. To avoid the demurrage loss, you must spend, lend or invest.
Rewarding miners perpetually is another nice side effect, like recovering lost coins, but that's not the main purpose of demurrage here.


So would you borrow bitcoins and freicoins at the same interest?
When negotiating, the borrower knows that the lender will have a nominal loss if he doesn't make the deal.
Actually, I expect the basic interest to drop to zero through 5% demurrage. Of course, the risk premium will still be there for risky investments.
You could say that it would be the same with inflation, but no.
If you lend 100 freicoins you will be payed back with 100 freicoins (the same percentage of the money supply).
If you lend 100 expocoins you will be payed back with 100 expocoins (a lower percentage of the money supply). So you will demand the inflation premium.
You will demand 105 expocoins (plus interest, say 110 expocoins).


We're proposing a 4% or 5% demurrage rate. Hoarding is what makes V that unpredictable.
Also, I'm not against arbitrage, but everlasting money allows way more speculation. Inflation also encourages especulation because all prices are not affected at the same time and in the same way by the inflation.
Read this:
http://www.community-exchange.org/docs/Gesell/en/neo/part4/5f.htm
In general, I recommend you reading the whole book. I'm not very convinced with the free-land proposal, you can skip the first two parts. 


When no transaction can take a certain output as an input, there's no point in keep storing that output. Is like it had a zero in it.
The initial proposal with some introductory links to the the free-money concept is here:
https://bitcointalk.org/index.php?topic=3816.0

I still owe you an explanation on how interest causes business cycles.

Demurrage (negative interest rate) or interest rates belong to the same family of what I would call "threadmill knobs": they allow government, banks, corporations, whoever is setting the rate, to put people on the threadmill and set the speed without them having a say.

With demurrage, you can have them run backwards :D

The flawed assumption is that without interest rates people would have no incentive to invest ..
As if people needed interest rates to be creative, productive and to think about their kids and the future in general.

I think people would invest with zero interest rates, that's why I want demurrage. What you fail to see is how capital yields and interest rates are related.
With non perishable cash, money won't participate in investments unless it receives at least as much as it can get from liquidity.
Let say you want to build a factory that will yield 0.1%. That yield is profit, and that means the investment is good for the consumers of the products of your factory (plus you're creating jobs, maybe you even hire yourself as the factory manager). If interest rates are at 4%, that factory won't be constructed. You can say, well, that's because there's another more profitable factory competing with yours for the resources. But I claim that capital-money will never (let's forget manipulations from the fed for this discussion) allow real capitals to compete between them to the point of them yielding under say, 2%. Money can yield through the wares, so means of production must yield at least that much or won't be produced. Because means of production need money to be produced. You cannot organize the construction of a factory with barter.

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

Well, as I already said, I don't consider interest a flaw (if indeed a flaw) of gold because it's not a feature of gold at all, but a product of contracts.  Bitcoin is likewise.  Even Freicoin, for that matter.  All of these currencies are independent of the interest rates that individual users charge.  I can see now how you intend to suppress the general interest rate, but I don't agree that is an advantage worthy of a new fork.  You certainly cannot force the market interest rate to below 0%, otherwise the user base of freicoin will flee to any alternative, the relative value of Freicoin would crash, and your fork would fail.  So even a 4% demurrage is dangerously high.  I wouldn't invest in any cryptocurrency with more than 1% APR demurrage.  Probably 0.5% would be high enough for the other advantages of demurrage; i.e. rotting away the value of lost addresses as an example.


I'm aware of how ripple works.  It's a web-of-trust mutual credit system.  It's well done, for what it is.  But it's a credit network, not a currency.  It cannot work at all without a commonly established currency, whether that is US$, silver ounces or pounds of wheat berries.  Ripple doesn't have a metric, which is what currencies are at root.  Ripple only records, and consolodates, the trust that people will put in people that they know on behalf of other people that they know, and expresses that consolodated trust as credit available.

I'll try to read your link when I get a chance.

I see.  But if demurrage fees are unavoidable, then you are limiting how the system can encourage users to use the currency.  For example, this reduces the incentive to consolidate multiple transactions into a single transaction.  If the users have a grace peroid, say three months, that security is considered paid for by the transaction fees, then some will make an effort to avoind transactions growing older than three months so long as the cost of consolidating into a new transaction is cheaper than just taking the demurrage hit.  This encourages old transactions to update and also encourages miners into improving security buy participation.  If thedemurrage fee is a flat fee applied to each transaction in the blockchain, then users with many transactions are further encourages to freshen their holdings and reducing the blockchain load.  I really don't think that a ridgid percentage is really demurrage.  Demurrae is a cost of security in real currencies such as gold.  Literally the cost of renting a saftey deposit bos to hold the gold, which still costs the same no matter how much is eing kept.  Percentage fees aren't demurrage.
No, but not because of some theoretical 'basic interest' that you are trying to avoid.  Because of arbritrage.  I'm not likely to be lending in freicoin if I never bother to buy any, due to the losses that I can forsee.  Really, you can't see the problem with this plan?
That is a amaturish view on velocity. There is simply too many variables to make such a blanket statement.  I can't een say if this is true or false in general, but I'd guess that it's likely false.

Okay, I read your link.  And if this guy is representative of the "Free Money theory of interest" then I'm calling that theory bunk.  I'm not even going to bother to break it down.  If you wish to try to defend that crap, feel free, but otherwise don't refer to this crank as the basis for any more of your ideas.  I'll just lose more respect for your mind than I just did.

Would any of the more economically minded minds care to review my proposal for EnCoin?
Instead of demurrage (which is a concept not based around a virtual currency), EnCoin employs transaction fees that are not awarded to the miners. The currency is destroyed. So saving is preserved, spending has a fee (a fee that will most likely be borne by the receiver). There is of course no limit on the amount of coins that can be produced, which I think is the only sane way to make a currency not based around enriching the early adopters.

Anyways, I'm not going to rehash all of it here, there is a proposal and some actual discussion of encoin starts around page 3.

https://bitcointalk.org/index.php?topic=44682.0

This is off topic.

That said, what info that I can find is light on details.  What I can find doesn't fill me with confidence.

If fees are destroyed, how are miners encentivized to mine?

And why destroy them?  This isn't clear.

What is the point?

The interest does not only depend on growth and potential profits from investments. There's a minimum yield that can be obtained "from the wares".
The advantage of money over barter make it be able to profit directly from trade, and that's the source of the basic interest/liquidity premium:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

I wouldn't buy freicoins to hoard them neither, but I would accept them as payment. And I would spend them first and the bitcoins later. But this doesn't mean that the price of the currency must collapse. Remember that its initial value will be zero, just like with bitcoin. It price can only rise from there.
I don't care if it doesn't reach 5 usd as long as it can be used for exchange. If I can fund my investments with freicoins, I will prefer to borrow them than bitcoins, because I'm sure I will get a cheaper interest rate that with bitcoin and expocoin.


Ripple can use any denomination that their participants agree to use, for example, hours, carrots or terras (a reference currency defined as a basket of commodities), but the denominations doesn't have to exist as a currency. Ripple doesn't need parallel currencies to work. Like LETS, ripple can perform the medium of exchange function and that's why I call it money (not currency).
If you don't know that you can use ripple (instead of cash) to pay, you're not aware how ripple works. 


But with your solution everybody could avoid the demurrage fees and they wouldn't have any effect on interest.
I called this property of a currency demurrage because it's the most extended term, how should I call it?

http://en.wikipedia.org/wiki/Demurrage_(currency)


Why you won't accept freicoins as payment? Once you have them, you can spend them or lend them, but there's no point in keeping them.
If you can buy all the things you need to start your business with either bitcoin or freicoin. Why would you borrow bitcoins instead of freicoins? You know you will spend both fast to buy your capital, why are you worried about freicoins losing value if you're going to spend them?
You will prefer to borrow freicoins because of its cheaper interest.


You keep saying to many variables but you don't say what variables. What makes V be volatile in your opinion?


That attitude is disappointing. Yes, Gesell was the originator of the free money theory on interest.
If you arguments are just "this is crap" then we shouldn't keep on discussing, because we're not going to learn much.
I guess you're another time preference believer. "abstinence theory" (http://www.community-exchange.org/docs/Gesell/en/neo/part4/5m.htm) in Gesell's words.
I understand why you think the way you do but you can't understand how I can think the way I do. Don't you feel the need to understand where I'm wrong or what am I missing?
Many people "believe this crap". For example, in Germany and Austria. Many austrians prefer this theory over the very "Austrian school theory on interest".
If you want to try break it down some day I'll be here to point out your errors.
I hope you can open your mind to new ideas you haven't thought deeply enough some day.

No, no links.  Make your own arguments.

In your own words, what causes the minimum level of interest?

Since you can profit from liquidity by "renting it to the people who need it to trade", you won't lend your money unless the borrower gives you at least that same profit in concept of interest. If the products don't include the basic interest in their selling price, they're not sold, because money demands to be payed for the service it provides (it is a convenient tool for trade). Even without innovations and profits, there would still be capital yields and interest. A wrote an islands story about interest here:
https://bitcointalk.org/index.php?topic=28497.msg392389#msg392389
I can link to my own posts, right?

The last time we had this debate, I got lost reading the books you linked, and forgot to get back to the thread.  I'm trying to prevent a repeat of that.

You are saying that trade and production are competing for the same pool of capital, and that the interest rate in total is higher than it would be for either of them individually.  And because of this, society loses out on production that would have been profitable if not for trade.

Your solution is to change the rules so that borrowing money for trade is no longer profitable, so that loans for construction don't have to compete with trade for capital.

Am I right?  Is that a good summary of your argument?

Yes, that's kind of what I'm saying. But trade would still be profitable (the merchant will keep "his wage"), with free-money. What happens is that the costs of commerce in concept of interest are eliminated. Wares have storage costs, perish and are by definition a thing its producer doesn't want to hold. So to be exchanged for money (which is cheap to hold, doesn't perish and is like a wildcard) he must "pay the interest". The merchant can't simply sell the products for the costs of production plus his labor, he pays for the liquidity he needs to move wares around.
The main point is that capital-money (scarce and everlasting) prevents capital yields from dropping to zero.

But the essential point is that traders should not be competing with producers for capital in a single unbiased market.  Right?

Market is a centralized place, do not looking for bitcoin related answer here

Not exactly. They will still be competing with producers. But money holders won't have the "insurance for free"/protection against uncertainty/potential profit from uncertainty (or need for trade) privilege they have.
Traders will still need cash. Merchants will be paying demurrage costs instead of interest (hopefully the basic interest will drop to zero despite producers and traders are still competing for funding in the financial market) but the final product they sell will be much cheaper because of what we save in concept of capital yields, that are included in the costs of production.
Traders will have to know in advance (like investors) what they want their money for before lending. There would be far less gambling and speculation (not all the speculation is arbitrage, much of it is based on rumors, misinformation of other investors and the like).
People would think twice before selling their stocks because money wouldn't be a safe heaven.

Ok, so traders have the advantage that they can ride out a bad market by cashing out and waiting.  They can do this because their ratio of overhead to stock is very low, while producers have a very high ratio of overhead to stock, and really can't.  You want to level the playing field by adding artificial overhead for a trader sitting on the sidelines.

Just as an aside, your comments about gambling are irrelevant.  Regardless of the method used, a trader that doesn't get results will not be able to afford to continue.

Yes, I'm more comfortable with that summary.

The difference is that the public won't panic so easily. Before they sell, they must think what are they going to buy after that, because maybe just keeping the "falling assets" is better than cashing and sit on the money or buy other falling assets. I think stock prices would be more stable with demurrage. And of course, that "gambling" is worse with monetary inflation, because you can bet on what prices are going to be hit first.

Oh, I do.  Ripple isn't comparable to a LETS.  Ripple cannot function without a common currency with an external valuation, be it a fiat dollar or dollar equivilent, or bitcoin or silver or gold or Ithica Hours.  Ripple is not currency, it's a distributed web-of-trust credit system.

If you try to use an unestablished or uncommon currency over Ripple, you will fail.

I think you are oversimplifying a bit. Ripple is both a medium of exchange, and a store of value. The medium of exchange quality is clear. The store of value quality should be apparent if we think that each unit of ripple owned by someone is a debt someone else has to his friends, business partners and immediate family. In case of famine gold or dollars might prove uneatable, but the trust of your social network is an extremely valuable asset - these are exactly the people you would rely on when gold and dollars become worthless. It follows Ripple is a very good store of value.

So the only thing Ripple needs to work as money is the unit of account quality, an external benchmark on which to measure the issued credit. Sure, you could do it by pegging the value to a fully fledged currency, but you don't have to. For example you could express balances in time dollars (not that I like the idea of egalitarian constructions like time dollars, but they are simple to understand). What I'm trying to say is that you don't need the extra complexity of the Ithaca Hours you mention: a central ledger, standardized scrip, and all the things that make Ithaca Hours a currency. You just need the valuation benchmark, one hour of work in my behalf, something the participants can easily measure; the rest is handled by the Ripple system.

That doesn't follow at all.  Ripple works by consolodating the many small amounts of credit that people who know you personally are willing to extend to you, and permitting someone that you don't know to trust you because, should you default, all your friends (for which a direct chain of trust can be shown by the Ripple system) are now on the hook for up to whatever amount of credit that they said you were good for.  It's like a distributed version of getting your Dad to cosign a loan for your first car.  If you were to die, or some other lesser event to occur, your credit would fall.  To zero if you died.  There is no storage of value there, for if there was any kind of real asset (beyond a good credit rating, for those who consider a good credit rating a social asset) it would be inheritable by your heirs.  Credit isn't inheritable.

That is exactly what I was trying to say.  That Ripple requires an externally valued benchmark, which is usually called a currency, in order to function.  There is no practical way that Ripple, itself, can serve as that valuation.

If one of the people that owes you money dies, sure, the credit has vanished. But on the other hand one of the people you owe money to might also die so the net effect cancels out assuming you have a large social circle. Let's not forget large credits are usually backed by some sort of collateral, and the credit relation does not die together with the owner, it follows whoever inherits the asset. If it weren't for those pesky legal tender money that you are forced to accept instead of the collateral in a court of law, a healthy credit network is a pretty good store of value.


That external benchmark might not be a proper currency, or a practical currency, think rai stones. The ripple system enables uses that the asset in itself can't do, so it becomes a currency in the modern sense. There's no practical way to store work hours, and you typically can't use them beyond barter, they can't be called a currency. With Ripple you can store and transact work hours with people you don't know, and with which you don't have a coincidence of wants, besides credit Ripple enables the essential quality of money to work as a medium of exchange.

I do however have my own issues with Ripple. Ripple breaks the fungibility of money. A dollar is a dollar, a bitcoin is a bitcoin, money has no smell they say. Well, Ripple reeks - it's only as good as the person issuing it. You don't have a wallet full or ripple dollars, you have a collection of IOUs of a varying quality.
Suppose I want to sell my car to someone I met on eBay. I need to receive credit from someone that's not very trustworthy, and it can't clear because it's a large amount. Sure, I would prefer to not extend credit to that person, but I have to if I want to make the deal. The person might claim he has credit in his social network, and I might be able to verify that using some ripple tool that says "this guy is owed 10.000 ripple dollars from people in his social hub". However I have no idea how spendable is that credit. I can't assess the quality of his social connections. Maybe when I go tomorrow to buy groceries I find out that the credit he gave is not spendable - the supermarket can't clear on his credit. I end up with worthless "money" in exchange for my car, I've effectively extended credit to a bum. So I either extend credit to strangers or refuse to make the deal - Ripple disrupts trade outside of your social network.
In the normal world I can sell the car for 10.000$ cash and live on that for many months. In the Ripple world I have to either sell it to a friend (at a discount because I have much less friends than eBay has users), or keep the car and live on the charity of my friends by sucking dry the credit lines they issued me.

Of course Ripple is comparable to LETS. Ripple is a generalization of LETS. LETS is just a concrete Ripple topology: you can stablish a LETS currency (or a time banking system for that matter) inside of a Ripple network.
LETS with hours (not egalitarian hours, but defined as "an hour of unskilled and not painful work") have proved to work.
I agree Ripple is not a currency, it is many currencies. My hour denominated credit would be one currency, your ounces of silver denominated credit would be another one, my ounces of silver denominated credit would be another one (no, my credit is not equivalent and fungible to yours, even in the same unit), McDonald's big mac denominated credit would be another currency. But those currencies are not universally accepted, you need the "chain exchange" ripple is to be able to pay to someone that doesn't accept directly any of your currencies. With Ripple, everyone can issue his own currency.
If cash were a ripple node (like a LETS organization can be), every other node would accept its credit and it would not accept credit from anyone. Therefore, the initial issued currency would never be redeemed for services (this inanimated node doesn't provide any service). The advantage of having IOUs of this cash node is that those IOUs are the more liquid ones (everybody accepts them) and will always allow you to pay, even to people to whom you're not even indirectly connected with. Credit money (ripple, LETS) is a relationship between two agents, but cash is a relationship between one agent and everybody else. That's what I mean by money is a common.


No, that's not what I want to do. I want money holders to pay for the privileged relationship they have with the rest of the money users. If not, money-capital owners (and other capital owners, given that capital-money sustains artificially a minimum yield for all capitals) can get indefinetely from society without giving anything in exchange. Even worse, if they re-lend the interest (compound interest) their capital will grow exponentially without doing nothing, which is obviously unsustainable, by this process you eventually get a credit collapse that is usually called an economic cycle.
I also want to eliminate the short-term thinking that interest imposes on the financial market.


It is often called liquidity fee, circulation incentive, or circulation protection fee. But I think demurrage is the most common name this currency concepts gets. I know that for other things it has another meaning, that's why the wikipedia has an independent entry for demurrage (http://en.wikipedia.org/wiki/Demurrage) and demurrage(currency) (http://en.wikipedia.org/wiki/Demurrage_(currency)).


Ok, so you accept that if other people accept it as payment, you as merchant would accept them, as a consumer you would spend them first and as entrepreneur you would prefer to borrow them (at a lower interest rate), you just don't think any merchant would ever accept them.
That's something.
Now I have some questions:

Why the worgl experiment was a success in Austria during the great depression?
Why the central bank felt so threaten by it that it has to exercise his monopoly on money creation and forbid it?
Why there's so many local (most of them private) currencies with demurrage working today?
Why lossing 5% of the nominal value would make freicoins value drop to zero and and losing real value by inflation doesn't destroys national currencies overnight?
If you say because of legal tender laws, why Ven (a private currency based on a basket of national currencies) doesn't get destroyed in the same way?


Fair enough. Then I just claim that V would be more stable (and higher) with demurrage than without it, not completely stable.


I understand that, what I don't understand is why you call crap another theory that you know for a few days. And why can't you explain what is wrong with it if you're that confident that is crap.


Of course if there's interest the time preference on money applies. But that's obvious, that doesn't explain interest. The theory assumes that what is true for money is also truth for other goods, which is false.
Why would Robinson prefer 500 fish today over 500 fish next week if you're not going to eat anymore today and fish rots?
For the short term thinking that interest imposes on us (no, money is not value neutral, it is the water where we swim and it influences us), here's an example:

Tree Metaphor

Imagine you plant a tree. In ten years, that tree can give you $100 in lamber and in 100 years, $ 1000.
Now from the financial perspective:

With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today. And $1000 in 100 years are equivalent to $ 7.60 today.

If the currency has 5% demurrage, $100 in ten years are equivalent to $ 167.02 today. And $1000 in 100 years are equivalent to $ 168,903.82 today.

With interest, the same stuff in the future is valued less than today. With demurrage, the same stuff in the future is valued more than today.

But with demurrage you could have zero interest rates, so $100 in ten years are equivalent to $100 today and $1000 in 100 years are equivalent to $1000 today.

This proves that the structure of money has an impact in our way to value things over time.

<sigh>  No, a LETS system establishes the value by common agreement, usually by pegging it to some ratio against a national fiat currency, thus becoming subject to manipulations of said currency and not really an independent currency itself.  A LETS based upon an agreement concerning the relative value of labor hours, such as the Ithica Hour, is an independent currency as such.  Certainly you can establish a commonly accepted LETS within Ripple, just as you can do the same with gold ounces or a national fiat currency.  Ripple doesn't affect that in any way, it only establishes a web of trust credit system.  If you try to establish a LETS system that is CENTERED around Ripple, and derives it's value only from the Ripple community, it will fail.  There is nothing within Ripple itself that can support such a currency unattached from an external valuation.  Any kind of internal valuation WILL fail.

Ithaca hours are not a LETS, but there are LETS based on hours. Here (http://www.fourthcornerexchange.com/)'s an example. Ithaca hours are just worth $10 by their users agreeing on it, as far as I can tell.

I'm not saying establishing the units of account in a ripple credit line as the same of one LETS. I'm saying using ripple to manage an actual LETS community. Here's how you would do it:
The LETS managers start a ripple node that gives and receive credit from all the LETS participant in the same unit of account. Voi lá, you have a LETS community.
You're confusing currency with unit.
If mcdonals or facebook creates a ripple node that only use bigmacs or facebook credits as the unit and people use them for trade, aren't them two different private currencies? If mcdonals also issues dollars denominated ripple IOUs, isn't that a third currency?
I can use ripple issuing IOUs denominated in whatever I produce (say Kilograms of carrots), I don't need dollars, or gold as reference at all. I just need to agree in the exchange rates with my ripple neighbors.
With ripple every person can issue his own currency (more than one if he uses different units), but only his ripple neighbors accept that currency.
Dollars denominated LETS aren't dollars. They're different currencies. One accepted by a local community and the other even by central banks around the world.
LETS credits (like ripple credits) can also be denominated in any unit, the unit doesn't have to be money (say national currencies or gold). The users can decide the unit they find more practical. I think a basket of commodities (terra-like) could be perfectly fine, specially because being a reference you don't need to store anything to back it. Debtors/issuers back them directly with their products.

Consumers will borrow in bitcoin because they will be able to spend in bitcoin, and sellers will price in bitcoin because they can get paid in bitcoin.  Neither will happen for freicoin now that bitcoin has the market advantage so long as the value rots, and there is nothing that a user can do to reduce or avoid the fees.
[/quote]

Ok, so you accept that if other people accept it as payment, you as merchant would accept them, as a consumer you would spend them first and as entrepreneur you would prefer to borrow them (at a lower interest rate), you just don't think any merchant would ever accept them.
That's something.

[/quote]

It's a chicken and egg problem, further complicated by the fact that Bitcoin has already overcome it.


Although Worgl Shillings did have a monthly demurrage of 1%, it was also possible to avoid that devaluation by returning to city hall to have that month's stamp impossed upon the Shillings.  This is exactly what I'm talking about, there must be a way to avoid the devalution, or at least part of it, in order to encourage a particular behavior.  In this case, it encouraged citizens to come to city hall once each month, if they have enough value to justify the trip.  While there, they had to pay any taxes that they owed, if they wished to have their money stamped.  Also, Shillings could be used to pay local taxes, and local government clerks were paid in shillings; two important features that functionally made shillings a local legal tender.  Freicoin cannot have such explicit and official support.  Freicoin might work anyway, if some major company/bank/institution established a backing ratio, publicly announced same, and had enough public trust and resources to be able to support such a backing.

Also, If I recall correctly, shillings were directly useful on the local public transit system without additional transactions.  A tactic used by some local governments in America to get locally unemployed people to show up at city make work projects.   


For the same reason that they feel threatened by any alternative legal tender; should there ever be a major monetary crisis in the future, people would shift quickly to the local legal tender, pushing up it's value and velocity while the national fiat crashed in both.


Most of them are backed, explicitly by an institution or implictly by community agreement.  Some of them also have alternative methods of avoiding demurrage, by doing something particular that is preferred by the issuing institution; as in the above example.  Again, this isn't presently or realisticly possible for Freicoin or Bitcoin.


I din't say drop to zero.  I implied that it would never acrue above zero, without backing, in the presence of a functioning and continuingly trusted Bitcoin.


I had to look that one up, but offhand I would guess that it survives due to an implict community backing form the HUb Culture community.


I have no evidence that your beief is incorrect, nor any to support it.  Yet, I still do not agree that intentional reduction of intrest rates or the intentional support of stablility of velocity are neccessarily befefits.  I have no way to know what is the proper interest rate nor any way to judge teh proper velocity at any given time.

quote]

I understand that, what I don't understand is why you call crap another theory that you know for a few days. And why can't you explain what is wrong with it if you're that confident that is crap.
[/quote]

Sorry, I'm just not interested in going down that rabbit hole.  I don't have that much free time.  If you wish to defend it, I'll listen, but I don't consider myself to be the one with the burden of proof here. 

By definition, a LETS system is a mutual credit system, of course you could establish one intended to be used within Ripple.  But it's still not Ripple.  The distiction isn't semantics.


I'm not confusing currency with unit, because you can't seperate them.  All currencies are, by their very nature, units of measurement (of abstract value).  I can't get them confused because they are one in the same.  Some monetary systems have additional features, but the unit is the currency.


Yes to all.


The difference here is trust.  Do your ripple neighbors trust that you can honor your currency, and not manipulate or devalue it's future value.  McD's has a reputation to uphold, which implictily backs their Bigmacs currency.


That doesn't mean that every person can sustain the trust a currency requires.  That's the magic of Bitcoin, the trust is vested in the blockchain, it's security model, and the accuracy of it's collective ledger system.  There need not be a trust in individuals to that level.  I must be able to trust that vendors I deal with will send my my orders once paid, but if they issue currencies, I have to trust that they will be honored (at near to their present value) into an indefinate future.

Ripple is also a mutual credit system. Ripple is a generalization of LETS. LETS is a concrete case of ripple. YOU CAN CREATE YOUR LETS COMMUNITY JUST USING THE RIPPLE SOFTWARE !!

All currencies are units but not all units are currencies.
Two different currencies can use the same unit (like USD, mcDonalds dollars and LETS dollars).


If mcdonalds decided to issue its currency within the ripple network, all bigmacs currency users will have to extend credit to mcdonald's node in order to use the currency.
Ripple connections doesn't have to be two-ways. People would extend credit to mcDonalds just because they can redeem the currency for bigmacs. I would extend credit to my baker just because I know I can redeem my baker's currency (in the unit he likes more) just because I know I can redeem it for bread.
The only difference is in the number of connections a reputable company will have compared to a typical individual.   


It can sustain the trust to his ripple neighbors.
Your view of a currency is too narrow. In the end, national currencies are just IOUs from the government/central bank. You can redeem your national currency to pay taxes and don't go to jail (take that as a service).
Maybe this article helps:
http://ripplepay.com/essay/

But why bitcoin did it and freicoin won't?

First of all, Schillings weren't from Worgl nor had demurrage. Schillings were the Austrian national currency. You mean Worgl stamp script.
Again different currencies but one unit.


No. When people went to the city hall to get the monthly stamp was exactly were they pay the demurrage (otherwise the bill was invalid until someone went to the city hall with it) and nobody was willing to do it, they prefer to avoid to pay the demurrage.

There's only two ways to avoid the demurrage: spend the money or lend it.

No they were discouraged to go to the city hall to pay, they were encouraged to spend their script. They didn't have to pay the local taxes to have their money stamped, they just had to pay the demurrage for that. The reason why people paid taxes in advance was to avoid paying the demurrage.


What about Chiemgauers (http://en.wikipedia.org/wiki/Chiemgauer)? You can't pay taxes with them and the city won't pay anyone with them.
What about Grok (http://regional-economic-communities.info/)?
There's lots of examples.

How bitcoin could make it without any backing?


Note that that the stamp script were backed by a stored reserve of the national currency. Not to give them value (people couldn't redeem them back for the national currency) but to avoid being accused of creating money and inflation. So the further extension of those stamp script currencies couldn't destroy the value of the national currency. Towns need it to issue the local one.
Also why the central bank didn't pay attention to the growing employment?


A community agreement is also what backs the monetary value of gold, just the community is greater and older.
A community agreement is also what backs bitcoin.

I don't know any currency with demurrage that have "alternative methods of avoiding demurrage". Can you point me to one?


Your argument is circular: "It won't be ever accepted because it won't be accepted being that bitcoin exists".

Don't do it. Nothing special with that currency. The point I wanted to make is that is based on national currencies (therefore suffers inflation), cannot be used to pay taxes and it doesn't collapse overnight.


Fair enough. I repeat my arguments against the time-preference theory on interest:

I think you just created a new economic school. This is definitely not the Austrian explanation for the business cycle but it definitely makes more sense.

Because there was an unfilled niche, for which Bitcoin was well suited; and it still took over 2 years for Bitcoin to overcome it.  I'm not sure that it completely has, but it has a nearly three year head start on all derivitives and the first-to-market advantage over those same derivitives.  Any currency that expects to compete with Bitcoin has to either solve a problem that Bitcoin cannot, or find it's own little niche.  


Sorry, my error.


This is factually incorrect.

"He issued numbered 'labour certificates' to the value of 32,000 schillings, in denominations of 1, 5 and 10 schillings, respectively. These became valid only after being stamped at the town hall, and depreciated monthly by 1 per cent of their nominal value.

It was possible for the holders to 'revalue' them by the purchase, before the end of each month, of stamps from the town hall, in the process creating a relief fund.
...

The depreciation not only encouraged rapid circulation, but also the payment of taxes, past, current and upcoming. These taxes were used to provide social and public services.

At the end of each year, it was required that the notes be turned in for new ones. No charge was made for the transaction if the required stamps had been affixed. Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings."

http://www.globalideasbank.org/site/bank/idea.php?ideaId=904
Emphis added.  Although it was not possible to completely avoid all demurrage by monthly stamp seeking trips to city hall, it was possible to avoid some of it, which would have otherwise ecome a kind of end of year transaction fee/fine for anyone who failed to have all twelve stamps on their script.

BINGO!

He can be taught!


I dont have time to critique every example of a local currency, and compare that to your proposal.  I'm just trying to point out where I think your error resides.  If you still disagree, go ahead an try it.  If you fail, please consider my words.  If you don't fail, I'll eat mine.


It actually has some implicit community backing, by reason of the fact that it filled a niche that could not reasonablely be filled by fiat currencies over the Inbternet and the large and growing group of people who had taken the time to understand how it worked and came to believe that it could.  Now that niche is filled, and ther is no such advantage for Freicoin.

Also fctually incorrect...

" Subject to a 2 per cent deduction, the town also undertook to convert the labour notes into Austrian schillings.
To facilitate this conversion at any time - and thereby provide a cover for the relief certificates - the trustees deposited at the local Raiffeisen Bank (credit union) an amount in Austrian currency equivalent to the issued local currency.

The money was loaned out to trustworthy wholesalers at 6 per cent interest. Interest thereby flowed back into the town treasury, yet further facilitating transactions with the 'outside' world.

Emphasis added.


Employment isn't really the mission of a central bank, then or now.  The mission of a central bank is to serve the member banks and protect them from the risks involved in fractional reserve banking.  Employment talk is secondary, at best.

True, but both those examples fill important niches and both have an existing history that Freicoin does not while attempting to break into the same niche as Bitcoin.

Yes you do.  In fact you likely know of several, you just don't recognize the demurrage as such.  Gold is, by definition, the original example.  The storage fees for gold is demmurage.  If a national currency is gold backed, then the storage fees are borne by the nation, not the indivicual gold saver.

Call it circular if you like, but it remains true.  For any currencyto be accepted, there must be a pricipal and common reason why it's a better medium of exchange than what is already available.  This was true with Bitcoin, because there was nothing quite like it online beofre it.  This is not so anymore, so for Freicoin to stand a chance at pulling itself up by it's own bootstraps (without institutional backing of some kind) it would have to either fill a niche that Bitcoin does not do wel or solve a flaw with Bticoin.

Then it's just a dollar substitute.



Fair enough. I repeat my arguments against the time-preference theory on interest:


It's not false that money is simply a barter commodiety, and thus has no special rules withregards to time preferences.  You example of 500 fish or 500 moneies is a false choice, because it may not be the only choice for the individual. I don't have the

No, I didn't.  This is another way to look at the Austrian Economic theory of the business cycle.  Most of the time Keynes is given no credit, however he wasn't just some hack.

The Austrian School says the root cause is excess credit expansion, at least according to Wikipedia. According to you, excess credit expansion is not required, the only requirement is humans being humans (that is, stupid). That is in sharp contradiction with the Austrian School which believes the business cycle is preventable with good monetary policy.

Yes, and even under a gold standard, credit can expand excessively due to the mood of the loan officers and their employers.  The manipulation of the free market interest rate, commonly practiced by central banks today, make this effect worse but are not the cause of it.  The business cycle did, and would still, exist within a sound/hard monetary system.  It just tends to not reach the same level of malinvestment nor persist for as long before the correction phase.  The correction phases prior to the establishment of the Federal Reserve were called "panics" and the booms were called "manias", but usually only in retrospect.  A quick google search and it will become quite obvious that the business cycle exists in every monetary system ever devised, and will continue to do so.  Bitcoin isn't immune either.

Exactly, and that's when they paid the demurrage. The bill becomes invalid if you don't stick to it the monthly stamp, and the monthly stamp costs 1% of the face value of the bill !!

If you don't pay monthly, you can make it valid yearly by turning into a new one and pay for the 12 stamps. The charge for this renewal transaction was exactly the same as stamps you didn't stick before.
But when people accepted a bill with missing stamps they know they will have to pay them, so they will discount the stamps you didn't added.
Trust me, they used the stamped implementation of free-money (http://www.community-exchange.org/docs/Gesell/en/neo/appendix/methods.htm)
0.50 per 5 bill (http://lh5.ggpht.com/Mr.GregoryRMiller/SPjDENLckiI/AAAAAAAABtc/uQAmTIV_mOI/s1600-h/clip_image003%5B3%5D.jpg)
0.10 per 1 bill (http://lh5.ggpht.com/Mr.GregoryRMiller/SPjC_s_GiVI/AAAAAAAABtU/1vOht_Al49k/s1600-h/clip_image002%5B3%5D.jpg)

My fault, although they were trade like a full Austrian schilling, they were backed to the eyes of the 0.98 schillings. Pretty similar to chiemgauers then.


The money holders were effectively lending at zero interest there.


You have admitted earlier that money is an agreement from a community. Anyway, the difference with regards to time preferences is that fish perish and money doesn't.
He could have lots of choices, the obvious one (instead of lending at zero interest), is to let the 500 fish slowly rot.
I hope you have time to read a little of this story (http://www.altruists.org/f245).

I guess you're ok with the short-term thinking that interest imposes on us too.

Sorry, I fell into a lack of sematic precision error.  It's a common error, but not one that I should have stumbled into.  Money is the commodity, currency is the standardized unit of valuation.  The two terms are not quite interchangable.  Neither Bitcoin nor Freicoin are money, they are only (somewhat arbitrary) units of valuation, agreed to implicitly by the community that may use them.  Regression theorm is what you need to overcome, that I don't think that you can unless you can establish a backreference to Bitcoin's valuation (perhaps by an explicit bitcoin reserve, much like what that Austrian town did) or by the explicit support of a trusted institution.  These are two bootstrapping techniques that Bitcoin could not utilize.  I don't know how you do it, however.


Money is a common commodity that has as many of the features as an ideal money as possible, one of which is that it does not rot.  It's one reason that gold is historically money, and why pork futures are not.


I'm indifferent to it.  It simply is, and I don't think that you can change that perspective even if you are successful in suppressing the market interest rate in freicoin.  If nothing else, the growth of your currency, even if it takes off, will be suppressed at an equal rate as you suppress the market interest rate because those who would lend never bother to invest in your currency to begin with.  Consumers have a short term thinking, and even investors don't have very long term thinking.  Both generally intend to enjoy the fruits of their own labors within their own lifetimes.  Very few people invest on their grandchildrens' behalf, and those that do only do so with excess income.  There really isn't a way to invest into projects that exceed a lifetime in their ROI.

They were effectively lending out at a negative interest rate, but they were lending out funds that were not their own and for which they did not have to pay anything to utilize.  This had the practical effect of nearly doubling the monetary base, because the Austrian Shillings used to back the local currency were not held in reserve at all, but themselves loaned out into local circulation.  This doubling of the monetary base would reverse itself as soon as the currency was recalled or the loans paid without issuing of new loans.  So the 'miracle' was, in part, a result of a local "stimulas" injection effect, that could be unwound by simply allowing the loans to mature and thus retract the reserve shillings back into the actual reserve fund.  It was a pretty good plan, for what it was, but I wager that the doubling of the monetary base was unintentional.

1) About money.

Wait, your definition of money is not what I expected. Why bitcoin is not money? Are USDs money according to your own definition?
According to my definitions...

Forms of money: gold, national currrencies, bitcoin, ripple (and therefore LETS)
Currencies: gold, national currencies, bitcoin, a concrete LETS, a concrete ripple line of credit
Units of accounts for exchange and/or credit: gold grams/ounces, dollars, btc, life hours (a concrete LETS unit), Kgs of carrots...

2) About the emergence of gold as money.

Gold emerged as a form of money far before option markets and futures. If you had say pork meat...well, the extremely fast way in which pork deteriorates (not comparable with 5% a year) invalidates it as money. It is not easy to transport and, most important, it is not fungible.
Imagine that gold had a magic property that makes 5% of it evaporate and return to the river or the mine. It would still have been better than say salt as money because it is more scarce and therefore can store value in a more dense fashion (better for transport). Gold is not only time-resistant, is also resistant to the elements (for example, water or acids).
It has so many qualities that it cannot constitute a proof that time-resistance is a necessary quality of money.

3) About the source of short-term thinking

Interest produces short-term thinking even within the lifetime of an individual. The bigger the interest the faster you want to receive the return on investment. Re-read the tree metaphor.
With a currency that yields 5% interest, $100 in ten years are equivalent to $ 61.39 today, with 7% interest, $100 in ten years is equivalent to 51 today. Interest makes us discount from the future, no matter the time interval.

4) About the worgl miracle.

So what you say is that the miracle came from the inflation. You assume that lent fund was also reinvested in the local economy, if it were lend to say, china, worgl wouldn't have felt the "stimulus". In fact, since you think free-money is bad, if the fund would have been just hoarded (the stamp script would just have been a substitute of the same amount of schillings), worgl wouldn't had experienced a miracle but it would have been even worse.
http://www.reinventingmoney.com/worglExperiment.php
An official just reasoned the same way:
"Far more serious, however, is the attitude of the Austrian State Bank, which has opposed the issue of relief money from the beginning. It looks upon the issue of this paper money as an infringement of its privilege and has urged the authorities to suppress it. Thanks to repeated petitions and appeals to the Tyrolese authorities, the parish has succeeded in averting the putting into force of the prohibition. Juridically the State Bank is within its rights if the Wörgl certificates are regarded as money, although no creditor is bound to accept them in payment. Whether it is necessary or advisable to stop this experiment, is another question. A Tyrolese official of high standing, who is theoretically an opponent of the free money theory, doubts this. He describes the depreciating certificates as a kind of parish bonds bearing no interest and which are subject to a disguised 12 % turnover tax. As he has stated the matter in a memorandum to the authorities, he sees in the Wörgl self-help effort a welcome sign of the revival of the collective spirit and recognises its beneficial effects. He only criticises the cover, which he deems insecure. The deposit of 12.000 schillings should, in his opinion, be withdrawn from the Raiffeisen Bank whose assets are already three-fourths frozen, a state of affairs which endangers the deposit and thus the cover. The latter should be deposited in an Innsbruck bank or at the State Bank in a suspense account, where it could not be touched and, of course, would carry no interest. This would prevent a multiplication of the means of payment and exclude all inflation. If Wörgl agreed to this proposal, he could see no good reason for insisting on the suppression of the relief money. In any case, these certificates are decidedly more harmless than the expanded credits of numerous financial institutions which have by no means been so sternly dealt with.
A reason which may account for the unyielding attitude of the State Bank, is perhaps the fear of the experiment spreading. On 1 January the neighbouring parish of Kirchbichel, also an industrial commune of about 3.000 inhabitants, began, on its part, to issue depreciating money to the value of 3.000 schillings. The certificates of the two parishes are valid in both places. Four other Tyrolese communes-Hopfengarten-Markt u. Land, Brixen, and Westendorf, localities totalling about 16.000 inhabitants-have also decided on issuing depreciating money, but are awaiting the outcome of the struggle between Wörgl and the State Bank before taking action."

Why the central bank didn't just demanded to keep the "cover" of these new currencies in a suspense account?

No.


Units of account, by definition, are currencies.  Money is something a bit different.


It would not have been better than salt, if 5% were to vanish from the monetary base by it's nature.  In such a case, silver would have been the dominate form of money in human history.


There is no 'proof' of anything, as such.  But an ideal money is one that holds value, as well as is fungible, divisable, portable and difficult to fake.  That is not to say that a commodity that rots a little can't be a money, since silver corrodes.  But it doesn't corrode quickly, if stored in the proper conditions.



I don't contest the above paragraph, but so what?  By what logic do you conclude that short term thinking is contrary to the best needs of the market, or of the market players?  How do you determine what kind of 'thinking' is ideal?  We're back into 'fatal conceit' territory again.


No, I say that the miracle came from a temporary stimulus effect.  And it was doomed to reverse itself whether or not the central bank ended the experiment or not.  Done correctly, the reversal would have taken as long as the terms of the loans.  Probably.  Done wrong and we wouldn't be discussing the miracle, but instead the folly of Worgl.


Probably so.


Why the central bank didn't just demanded to keep the "cover" of these new currencies in a suspense account?

[/quote]

Again, because they protect the banks, not the public.  They were simply not interested in competining with an experimental monetary model.

Let me guess...Your definition of money is the same as Mike Maloney's. A great guy, but what a useless definition, why not just precious metals for the concept he means?
Anyway, let's not waste time on misunderstandings, from now on I'll say medium of exchange (MOE).

No. Units of account can be hours, seconds, grams, watts, bytes, invitations left, reputation points, books, posts...depending on what are you accounting.
If you can trade with them, they're not currencies.
I can accept that currencies by definition are units of account.

Yes gold would have been still better than salt. How do you transport the value of a house in salt?
I should have said precious metals instead of gold. If silver also evaporated at 5%, according to you copper would have been the best, I guess. How abundant can be until it is useless as cash?

Yes gold is water resistant and immune to most (all?) chemical processes. But anyway...
Gold has so many qualities that it being used as the moe for so long is not a proof that time perfect resistance is a necessary property of moe.


Why the medium of exchange must hold value?

Is it even possible to hold value? Isn't value always relative and depending on collective desires?

Many people today, including me, claims that short-term thinking can destroy our society, even make or species disappear.
Anyway, what I claim here is that the medium of exchange should not influence our time preference, it should let us decide. For that interest rates should be zero.
And I also claim that time preference (like interest) is a consequence of the structure of money the medium of exchange and therefore cannot be an explanation of interest.
Time preference and interest are both consequences of the same cause, not one the cause of the other.


Good to hear that last part.
So if worgl (or any other city administration today) had decided to store the "cover" national currency instead of lending it, how would have the stamp script destroyed the local economy?
Would it have made people pay taxes in advance and would had it be as good for employment?
Why not?

Who?  I don't know, is his definition of money the same as Aristotle's?

"The Greek philosopher Aristotle (384-322 BC) was a student of Plato and teacher of Alexander the Great. He discovered, formulated, and analyzed the problem of "commensurability", or how different things can be measured in the same units. He wondered how ratios for a fair exchange of different things could be set. He searched for a principle that makes it possible to equate what is apparently unequal and non-comparable.

Aristotle found that money, as a common measure of everything, makes things commensurable and makes it possible to equalize them. In the form of money, he says, a substance has a telos, a purpose, and that in creating money individuals have devised a unit of measure on whose basis fair and just exchange can take place. Aristotle thus maintains that everything can be expressed in the universal equivalent of money, and argues that money was introduced to satisfy the requirement that all items exchanged must be comparable in some way.

Within such a frame work, Aristotle defined the characteristics of a good form of money – which must be:

•Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
•Portable: Good money needs to hold a high amount of 'worth' relative to its weight and size;
•Divisible: Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be "fungible", defined as "being freely exchangeable or replaceable, in whole or in part, for another of like nature or kind."
•Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself, starting with rarity."

http://goldnews.bullionvault.com/money_aristotle_050120092

Only commodities can solve the final characteristic requirement to any degree, and neither Bitcoin nor the US $ can do so.  Currencies are standard units, widely agreed upon by either convention or fiat.  So a coin minted from a defined amount of silver, and so stated upon it's face, is both a currency and a money.  A melted lump of an unassayed volume of pure gold is money, but it's not a currency.  I don't like how this particular article explains "intrinsically valuable", because I think that it's flawed.  I don't agree that gold or silver have any value "contained in the money itself" as such.  Value is always subjective, but the value of gold is not rooted in what a person could trade for it, but in what it was useful for (beyond a trade medium), whether or not the person who held it actually intended to do so.


Okay.

Your assumptions are destroyed by actual human history.  In some markets, salt was nearly as valuable as gold by weight, and was oftentimes traded as a medium of exchange independently of gold or silver.  You trade in salt exacltly the same way that you would have traded in gold, by weight.


Raity is a secondary issue to the ability of trade.  Rarity contributes to the portability problem, since less weight implies more value, however rarity also contributes to a lack of recognition.  Platinum was considered a usless byproduct of silver mining for hundreds of years, because it was too rare for it to be useful as a medium of exchange.  The Spanish famously made cannons out of platinum in order to protect their gold shipments, because they had no other use for it.
I was referring to your expectation that I was trying to prove time preferences.  You jsut lost a little more respect.


That's not een a good dodge.  I ask again, by what reason (logic) to you make such a claim?  Because you think so, because someone you listen to thinks so?  Do you even have a reason, or is it just anouther form of religious belief?

Why?  Why should they be zero?

Why should htey be any particular number?


I don't agree, but it's still illrelevant.  Why is suppressing the interestes rate or the time preference ideal?  Why isn't natrual money ideal?  Why wouldn't establishment of a cryptocurrency that mimics natural money be ideal?  You ahve no support.


Honestly I don't know.  And neither do you, and that is my point here.  It is a fatal conceit to believe that you can design an economy.  You might just luck into a partial success, but I think that your errors of though are predictable, and will lead to a great many tears.

Sorry, I though I had said acid-proof or something and you were rebating that. My fault, I misunderstood you.
But I think I've showed respect, even when I've tried to make you understand ripple in a wider sense and you sighed.
With your gold example you weren't trying to prove time-preference but that durability is a necessary requirement for the medium of exchange.


If money must, the medium of exchange doesn't have to be time-resistant. I guess you also disagree here.

That has a lot to do with rarity. But more or less we agree that a certain quantity is needed for commodity to become money. If very too rare or too common, doesn't serve.

I'll assume that you know that value is never intrinsic. Then your requirement to money would be to have value apart from the monetary value gained when the commodity.
I disagree there too.
In my opinion, Gesell proves this here:

So called "value" (http://www.community-exchange.org/docs/Gesell/en/neo/part3/3.htm)
Why money can be made of paper (http://www.community-exchange.org/docs/Gesell/en/neo/part3/4.htm)

I must say that I disagree with him when he says "The choice is, therefore, either State money or no money", but maybe his concept of "state" is so wide that it includes a LETS and the block chain.

He's specially funny here:

If you don't accept these mediums of exchange as money, you must accept that other things that aren't money can have monetary value, which seems a contradiction to me.
But assuming commodity money is the only money, what I question is that we should use commodity money as the medium of exchange. I'll accept that definition of money for this conversation, but if I accepted it forever I should agree with "resource based economy" advocates when they say we don't need money, and I prefer to disagree with them there.

But not the other way around. Anyway this is only important for our ripple discussion.

I thought that you probably would be opposed to short-term thinking. But you're right, we're entering the morals field here.

The must be zero to be time-preference neutral.

You can't suppress the time preference, each person has his own depending on his circumstances. I'm trying to prove that time preference the way austrians think about it is a consequence of interest and cannot be its cause.
If there's moneys mediums of exchange with interest at zero, the time preference for them is not the same as with commodity-money. Therefore, a universal pro short-term time preference for all mediums of exchange cannot be the cause of interest.
 
Also, why commodity-money is more "natural" than so called "virtual" money?
Is not even the first form of money:
http://www.nakedcapitalism.com/2011/08/what-is-debt-–-an-interview-with-economic-anthropologist-david-graeber.html


I don't pretend to design an economy, only fix a technology/agreement that I call medium of exchange when talking to you and others commodity-money believers and money when talking to the rest of the people.
What I was asking is how demurrage will cause those many tears.
You say that it won't ever acquire any value, it can't cause any sorrow.
 
But it will have some value even if it is very small. If the maximum base of freicoin is 1 billion, I can put a bid to buy all the supply for 10 btc at a 1 fcn = 1 satoshi.
Now bitcoin miners can sell the freicoins they merge-mine to me. Bit-pay can also accept freicoins and sell them automatically for bitcoins or USDs.
We have merchants accepting them and more people can accept the currency. 1 satoshi will be their minimum price. If bitcoins become too expensive, I will buy them for USDs or EURs at a similar small price until its monetary value starts to rise.

I was upset, I apologize.


Actually I don't.  I think that your belief that you can have a separate store of value and medium of exchange is not only correct, but the default condition under all fiat currencies.  What I object to is the idea that, even if I agreed that you can guess what the proper demurrage rate should be to suppress market interest rates and built a currency around that assumption, the conditions would be different in ways that cannot be predicted in a relatively short period of time.  Said another way, even if your general assumptions are correct, you cannot possiblely know how to arrive at the 'proper' rate.  No one knows this stuff, that is the root of the errors of central banking in general.


We agree.

He is arguing for the medium of exchange power of a fiat currency, backed by an implicit or explict threat of force.  This is called 'legal tender' law in the US.  It is not about money.


Why is that a contradiction?  A public transit ticket has monetary value, but isn't money or even currency.


It's a provable statement that money isn't necessary, but it's also proven that mediums of exchange are more efficient forms of trade over barter, and thus will always arise in some form.


I think of it more of a feedback loop, but I think I see your point.


Those tears might be yours.


By saying that it will never rise about zero value, I mean that it can never rise above a nominal zero.  A condition that Bitcoin suffered under for over two years, and only got up to half a cent due to the large fanbase that was willing to lose all of their investements on a very risky idea.  My point is that you don't have that dedicated fanbase, and I can't see how you can attract it.  I actually might be wiling to mine your freicoin, just to see how it can work out, but I'm not willing to risk any of my own.  I do wish you better luck than Bitcoin has had, though.

I think that is not the only source of the errors of central banks. They never tried demurrage, that has different effects than inflation.
But you're right, I don't know the proper demurrage rate. I say that the ideal rate would suppress the basic interest, but I don't know the exact rate for that. We suspect from historical data that it must be between 3% and 5%, but it's an open discussion in the freicoin forum.

[/quote]
Yes. He thought that money must be legal tender and I disagree with him there. But bitcoin is the living proof that you can make fiat without legal tender laws.
By fiat here I mean unbacked, not "intrisically valuable". Other people don't think a currency is fiat if it is not enforced by a state.

That's not what I mean by monetary value. I don't mean a price. I mean value that is derived from the fact that the medium of exchange can be used for trade and not other property.
The dollar has monetary value (that comes from the fact that the dollar is a monetary instrument) but it's not money according to your definition.
According to this definition, a public transit ticket (or a bag full of oranges) doesn't have monetary value.

We agree here too. mediums of exchange are superior to barter, even when they're flawed.

I'll take that risk. The potential benefits for the world are worth the try.


Yes, the value of the currency depends on its user base that, being voluntary, is not something sure.
My point is that even if its user base is small for some time, if the user base exists, the currency has some value. And some value is the only prerequisite for new users to join.
Like bitcoin, it has a long way to walk, but it's not doomed from start for having demurrage. On the contrary, it will encourage its users to transact.

Since you stated in this thread that there were flaws in the design of bitcoin (what flaw ? I am not sure; personnally I have not found any: when I discovered bitcoin, I just thought it was a beautiful construction of the human mind. Just like the first time I visited the Louvre I thought it was a beautiful building) , I feel compelled to state very forcefully that there is a fundamental flaw in the design of freicoin: it's called demurrage.
Demurrage implies setting a rate.
To determine that rate, you need to build a consensus before the word go.
Worse than that, you need a governing body to harbour the interminable discussion that would need to happen to simply formulate a consensus.
This kind of govenring boby is called a central bank, is it not ?

I also think that bitcoin is a beautiful construction of the human mind. The flaw in bitcoin is the same flaw that there is in gold and USDs, which is interest.
We need to have a consensus for freicoin only before it starts, after that, if someone wants a different rate he would have to fork again.
So no, it's not like a central bank. We only dictate our "monetary policy" once, like satoshi did choosing the generation curve and the maximum monetary base. And people is free to not join if they don't like the rate. It's definitely not like a central bank.
If you don't see any problem with capital-money, you probably won't join. Or maybe you accept freicoins but sell them for bitcoins or dollars as soon as you get them.
The monetary reformists have many faces: there are gold standard advocates, people who want the money to be issued directly by the government without debt (like "the money masters" producer), mutual credit advocates (they should all prefer Ripple over LETS, but they still don't know it), just advocates for local currencies (usually related with peak oil circles), advocates for freigeld-like local currencies, bitcoiners, barter advocates, and finally a hybrid between bitcoiners and gesellians (freicoiners).
It is clear for many people that the current monetary system is flawed, but we need to discuss together what are the flaws.
There's certain things that we all identify as flaws, but there's different views about other problems.
I've been reading alternatives for monetary system for years, and I can tell you that the ongoing crises have been very good for these movements since not many people were interested in the subject before 2008. All these movements have good intentions, but we need to make the effort to understand other movements to make our fight more coordinate and effective.
Freicoin is ideologically in the middle of two schools: the austrian and the gesell/Lietaer "school". Some people don't like freicoin because demurrage reminds them to inflationary national currencies. Other people don't like it because it is not local. Other people don't like the fixed supply and are trying to define a model to have a bitcoin-like currency with stable value. I don't think that last thing is possible after I've thought a lot about it. But if they find the solution we can have two freicoins. I've learned a lot of austrian economics during last year and now I don't think that the fixed supply must be a problem for cash-money anymore. Is not a problem if you have demurrage. Otherwise you can have economic cycles and catastrophic deflation.
But again, the main aim of demurrage is suppressing interest, which causes short-term thinking and also prevents us from building all the capital we demand. Capital yields don't follow the normal market dynamics because competition is limited by the money interest rates.

I really think a synthesis of the austrian school/anarcho-capitalist/libertarians and gesellians/transition towns/permaculture movements is needed.

Bitcoiners clearly fit in this category: except bitcoins remove the many drawbacks of the gold standard (most notably, central bank issuance and deflationary spiral).
Bitcoin by no means influence interest rates.
You can't prevent lenders from charging interest.
At least, with bitcoin you pull one of their argument out of the way, namely inflation of the monetary base.
The rate of demurrage in freicoin cannot be disconnected from macroeconomics indicators over time: without a governing body to maintain that rate, you run a serious risk that the demurrage rate will drift out of sync with the economy in real terms.
So if the demurrage rate is cast in concrete and cannot be adjusted, who in their right mind would adopt such a monetary system ?

I'm going to play the Devil's Advocate a bit here...



Central banking control of the monetary base, yes; deflationary spiral, no.  Assuming that an imaginary construct that is commonly described as a "deflationary spiral" actually exists, that it is a real and significant threat to a major economy, and that it's not simply the aggregate effect of many market players changing their financial stragedies to fit the new economic conditions (and therefore in their own best interests and that of the economy at large); there remains no evidence that Bitcoin, nor it's many derivitives, are immune from such a deflationary spiral.

More specificly, there is no evidence that demurrage would insulate Freicoin from this aggregate effect, either.

I have already brought this up, and he quite literally can make an educated guess as the best demurrage rate to set, and let it run.  If it's impossible to change, the currency will either succeed or fail entirely on it's own.



I tried to argue an internal ruleset that would allow the active saver to partially avoid the demurrage, which would have had similar effects as to what I believe you are arguing for.  However, he is unconvienced of the value of an avoidable demurrage fee.

I made a difference between them because I think the difference is there. There's people who believe that bitcoin cannot be money (nor the medium of exchange) because it has no "intrinsic value". They share the libertarian root with bitcoiners, but they fail in this common Austrian dogma. I don't like the term deflationary spiral. I prefer "liquidation phase accelerated by deflation". If you accept that economic cycles are a byproduct of interest, then freicoin is supposed to solve this.
If you're worried about "increase in hoarding" (or demand for savings) caused deflation, then freicoin pretty much solves it by discouraging hoarding.
If you're only concerned about growth caused deflation, freicoin can stand a price deflation as high as the demurrage rate (or lower) without favoring money-capital over real capital.
I think you just mean bitcoin solves the divisibility problems of gold.

By giving money holders a privilege (the power hold money indefinitely for free), it allows them to charge the basic interest (without providing any service in exchange).


No, but I can remove the superior position they have when negotiating. My means are totally different from those of Bernanke.

This is very important. Not many of the monetary reformists understand this problem like Austrians do. In particular, the debt-free money advocates who want the government to issue money through spending, ignoring completely the problems with inflation as a way of taxation. They like Lincoln and the greenbacks. Yet we share with them the will to end the fed.
But what's even more interesting from bitcoin is the way it solves the inflation problem.
It's the main strength of bitcoin: removing the central authority. Other monetary reformists don't have a tool for really decentralized money (or currency). Both LETS and freigeld-like local currencies need a central authority. Even if its run by people with good intentions now, people is corruptible.
Ripple solves this for LETS (and also its scalability problems) but LETS advocates claim that Ripple doesn't promote local exchange. That is false, because anyone will probably have more liquidity in your local area just for the trust relationships that exists there.
The only way to go for freigeld currencies is the block chain in my opinion.


If our assumption that the basic interest is almost constant through history is true, we can have a fixed demurrage rate. I still think it is hard to determine it even with lots of statistical and historical data.
Most freicoiners don't complain about a fixed demurrage rate but about a fixed monetary supply. They want something like stablecoin with no central authority but dynamic supply. I just don't think that is feasible.
While I discuss with bitcoiners the problems of deflation and interest, I discuss with freicoiners about the fixed monetary base. Is not something that many gesellians will accept. Gesell promised the stable prices the capital-money central bankers can't have.
I'm afraid most gesellians aren't as libertarian as he was. He needed the government (or a central bank) to issue his freigeld because there really wasn't another alternative back then. He didn't like government intervention much, he just thought that was the only way money could be agreed upon, he didn't knew the block chain.
I must say that Gesell's solution didn't look very well lately for me (in favor of LETS, that I was choosing as the better alternative for central money and interest). Then I discovered bitcoin and (almost at the same time) Ripple. I substituted LETS with Ripple instantly and freicoin really came from the necessary reward for miners in a proposed chain hosting decentralized ripple.
Other gesellians that get know bitcoin automatically think about freicoin (the concept, not that they hear my proposal).
But bitcoin is a complex (and for some people scary) concept that even technical people need time to assimilate.

I've considered this more, and still think that a partially avoidable demurrage fee is ideal for your goals, even if that is more difficult to impliment.  Perhaps there should be a grace period for recently mined Freicoins, but not one dependent upon the velocity, such as a grace period after a transaction like I proposed some months ago.  Say that the freicoin blockchain can identify coins that are less than 6 months old, even after transactions mix and divide them.  I don't even know if this could be done, at the scale that the blockchain would have to track them.  But imagine that a miner gets a standard block reward plus demurrage reward.  The demurrage reward isn't graced, but the standard block reward (as the currency is increasing) gets to avoid demurrage.  Perhaps it would work like this...

The miner either provides two different addresses to keep the two rewards from mixing, or one with the intent of mixing those rewards.  Once mixed with other coins inside of an address, the grace period is 'dilluted'.  There are two ways that this could be done.  One, by reducing the time period of the grace by a ratio directly relative to the percentage of graced coins to old coins within the address.  Two by a similar ratio to the actual percentage of demurrage.  I don't know which method would be easier to impliment, but the results would be similar.  The graced coins would be preferred by savers, but not by those who simply desire to spend.  Thus there would be a method for savers to partially avoid demurrage fees against their savings, by either personally operating a mining cluster or by contract arrangements with miners.  There would likely be a small premium for graced coins on exchanges, and that premium (adjusted for the mixing of coins and their age) must (if I understand the logic correctly) represent the best market metric for "basic interest" that exists, thus informing all market players as to what that "basic interest" actuall is.  Once the transactions of graced coins occur, the mixing of graced and ungraced coins then becomes complicated.  If the addresses can, by default, be considered to send all ungraced coins first; it then becomes possible for address holders to keep graced coins "pure" and benefit from the market "base interest".  I can't imagine how the grace period discount could be implimented in software, but then I'm not either a programmer nor a math expert.

Your point of deducing the basic interest from the premium on non-perishable coins is interesting. But the grace period will influence that premium, it is known that the non-perishable coins are going to be perishable in the future.
Apart from the technical difficulties, it makes the coins non-fungible, which I don't like.

Maybe it can be deduced by comparing the bitcoin premium within the decentralized cross-chain exchange, but more things would have to be taken into account.

What I don't understand is why you consider the possibility of avoiding demurrage so important.
People can buy bitcoins (or gold, or goods and services, or ripple credits) to avoid paying demurrage.

For example, consider a business that has always 1000 fcn available for liquidity. They will pay 50 fcn a year for this liquidity. When they get more than 1000 fcn, they can sell the remaining freis for ripple credits. For example, Alice can't pay Bob with her ripple network and buys 100 fcn for 100 fcn ripple IOUs. She pays Bob with the freis and owes 100 fcn to one of her neighbors, who owes to another one, who owes to...who owes to the business 100 fcn. The business trusts this last party, possibly is one of their suppliers.
When they spend some of their freicoins, they can sell some ripple credits to buy freicoins and hold 1000 fcn again.

The grace period will influence the premium, but in the same way that the period chosen influences the interest rate metric.  If the grace were a full year, the premium should reflect the "basic interest" (assuming that it exists) as expressed as an APR.  If the grace period is a month, a quarter or half a year; the premium should be adjustable.  As for not being (quite) fungible, that's a temporary condition.  Nothing at all needs to be done for those same coins to become completely fungible in time. 


Too many things.


Because some capacity for value storage is a market requirement for a currency not backed by the force of law.  There will always be someone who is holding the coins, it's unavoidable.  Taken to an extreme, your plan to increase velocity in this manner, if there is no alternative while holding the coins themselves, is likely to backfire.  A high velocity is also a sign of a collapsing currency value.  The velocity of the mark in the Reimar Republic was huge.


Again, there would always be someone holding the coin, it's unavoidable.  If you were the business, would you prefer to hold your slush fund in a currency that automaticly dropped in value or one that did not, all things else equal?  That is the difference between Bitcoin and Freicoin as it is presented.  So given a choice, the business would prefer to hold the slush fund in bitcoin, and the value of those bitcoin would be higher (due, in part to the thousands of such vendors holding slush funds) and the business would prefer to accept payments in bitcoin, because they have some place to put it and won't have to seek out a buyer quickly.  However, if it's possible to avoid the demurrage, than vendors might be willing to hold some of their slush fund in Freicoin, and thus be willing to accept payment in same.  It's a vicious circle.

But according to your explanation this would give value to the grace freicoins not to all of them.
The only reasons why people could prefer to hold freicoins instead of bitcoins (or graced freicoins) is that they were more stable or more accepted. It's reasonable to think that they should be more stable, specially if you think their value is going to be very small.

But there's no reason for not accepting freicoins. You can exchange them for another currency if you don't want to hold them or better you can spend them. You can lend them (the easiest way, by selling them for freicoin denominated Ripple credits).
Merchants would accept them even if they don't want to touch them, like some merchants using bit-pay. And that is what gives them value: people accepting them.
People will hold them only for liquidity purposes. Say I want to have always 100 fcn in cash, I will only pay 5 fcn a year for it.
You say, why paying at all if you can hold bitcoins?
What if someone suddenly drops 100,000 hoarded btc in the market?
How many speculators will be hoarding bitcoins and how many hoarding freicoins?
The cost of holding freicoins may be higher, but the risk is lower.
Also, the cost of freicoin transactions would be lower, since miners get already payed through demurrage (assuming both monetary bases are completely issued). The limit in transactions per block can be higher in freicoin because miners don't have to rely only on transaction fees.
Apart from the more important indirect advantages, freicoin has some advantages that the user can directly enjoy.

It would give a premium to the grace freicoins.  It will not give them their base value.


Okay.  A rational perspective.  I'm not entirely in agreement, as I think that it's more complicated than that, but the above statement isn't wrong.


But this one is.


If there is an established, accessible and liquid market; then you can exchange them for another currency.  But this is not an easy target.  Again referring to Bitcoin, it took almost two years for the first market exchange to appear, and even now bitcoins aren't very liquid.  As a vendor, I could now set up an account with MtGox to exchange bitcoins received immediately, and can generally expect that exchange to process within an hour if I price it right.  However, if every vendor who accepted bitcoins were to do this, bitcoins would have no value.  In order for anything to have value, someone must be willing to save something in it, even if that amount is relatively small and simply amounts to a spending account.  Otherwise, the currency is simply a transfer mechanism and cannot rise above a nominal zero value, and thus never attract vendors willing to go to the trouble of accepting a new currency to begin with.  It's a chicken and egg problem that bitcoin took more than two years to solve, even though there were hundreds of people willing to save in the currency during those first two years (at great risk of losing all investment if a flaw was discovered or it never took off).


Not true.  Your credit cards are transfer mechanisms, but do not have any market value in themselves.  The digits that represent currencies do.  Same with bit-pay, it's not the transfer mechanism that holds value, it's the currency used by the mechanism.  And the currency must be able to hold value at least as well as comparable methods.  If (small) demurrage were part of the original design of bitcoin, then freicoin might stand a chance (although it would then be redundent) but because bitcoin is now the benchmark against which derivatives will be judged, vendors are not just going to accept freicoin because a few customers prefer it.  It would require that a significant number of their customers prefer it, and since bitcoin exists, most of them aren't going to ever favor a currency that generally buys less in two weeks than one that generally does not.


But then you pay nothing for the same exact functionality with bitcoin.  Again, you misunderstand that the market is now different that bitcoin exists and is established.  The market always favors the first (functional) solution that reaches the market, and will remain hostile to new competitors unless they offer an obvious advantage to the customer.  Unavoidable demurrage might be an advantage for the economy at large, but it's not an obvious advantage to the individual consumer.  Quite the opposite.


Not really.  If the value of freicoins is increasing faster than the demurrage rate, then some people (vendors who accept payments in freicoin, perhaps) will be hording it as a speculation play.  Once that trend reverses, these same speculators will have no expectation that holding what they have will rally further latter, so most will dump.  If anything, demurrage could make voltility greater percentage wise.  There is no reason that it would reduce voltility.


But not advantages that they can enjoy with any certainty.  The certainty is much higher with bitcoin, and that is why you will fail.

1) Bitcoins competitors doesn't need an obvious advantage, they just need an advantage. If it is not obvious, the currency will just wait more before taking off.

2) You say that a liquid market is needed for merchants that don't want the currency and that's true. recent forks had a market from day 1.
With merged mining and people thinking like you, there's definitely going to be enough sellers. With a few "believers" like me that buy them at a low bottom price (say 10 satoshis), there will be enough bids. So a think that a liquid market (even if it a btc/fcn market and not a fcn/usd) is easily achievable. Bitcoin is very liquid in my opinion, I can buy, for example JPYs with them, for me is the easiest way to convert one currency to another, it's like a currency glue.
With a liquid btc/fcn market, there's really no reason for not accepting freicoins as payment.

3) You say that freicoin won't be more stable than bitcoin but at the same time you say that nobody will hoard it. That seems a bit contradictory to me. You say "If the value of freicoins is increasing faster than the demurrage rate..." I thought you considered that impossible, but let's assume that happens. That may encourage some speculation for some time, but the situation will not go on forever and the speculators will eventually get out. I'm not saying is going to be perfectly stable, I'm just predicting that it's going to be comparatively (to the market cap) more stable than bitcoin.

4) "People accepting a currency don't give value to it, you need people hoarding it"
I strongly disagree here. In fact, I think that the value of "stores of value" like gold comes from the fact that they are (or can be) a medium of exchange. But anyway, if people accept it to sell them, they're holding it for some minutes. If they prefer to pay with it directly instead of converting them to bitcoins before spending, they can hold it even for days or months.

5) "The grace freicoins won't increase the freicoin base value"
So their only intent is to measure the basic interest from the premium. I think that would be rather complicated if even possible and I really don't like the non fungibility.
The question here is what happens if the basic interest is below the demurrage rate?
Say that basic interest moves between 3% and 4% and demurrage is always at 5%.
Why is so important to measure precisely the basic interest?