Bitcoin Forum

Hi,

Let's be optimistic and suppose that Bitcoin does take off in a big way and goes mainstream to the point of becoming a significant actor in the world economy.  In this scenario, the early adopters -- those of you who populate this forum today -- will necessarily become a minority.

Since in Bitcoin the policy is dictated by the majority of nodes (weighted against hash/sec), how would you guys react if a future majority were to decide that the current policy needed tweaking?  I am thinking in particular of the policy that the total number of bitcoins is capped at 21 million.  It could very well happen that the majority comes to the conclusion that the builtin cap is having nefarious effects and decides to upgrade the software such that Bitcoin will switch to a controlled inflation system (say 2%/year).  How many of you would "fork" in such a scenario?

On a related note, it seems that many of you see the builtin cap as good thing.  What evidence would be required to change your mind about this?

Jon.

Those who save will have a strong disincentive to inflate the money supply.

Violating the inflation policy requires broader consent than 50% of the network.  Essentially, a vast majority of Bitcoin-accepting vendors must agree to the change.  See an earlier discussion (http://bitcointalk.org/index.php?topic=2252.0) for more details.



I think such a scenario is very unlikely, but I wouldn't personally "fork" on inflation grounds alone.  Bitcoin inflation caps are just one of the many benefits Bitcoin provides.


The Bitcoin supply cap models real world commodities like gold and silver of which there is a fixed supply in the universe (nuclear trickery, notwithstanding).  Comparing the performance of unlimited paper money and fixed supply commodity money over the last 1,000 years of history suggests that a currency with a fixed supply provides a more stable price level.  For me to change my mind, I suppose someone would have to convince me that that interpretation of history is incorrect.

Or asteroid mining!

I think the universe pretty much covers everything.

10,000 Internets to whomever can name that reference.

blocks will be produced at a constant rate of 1 every 10 minutes. Bitcoins are actually represented by these blocks. Right now the software does not allow people to decide which bitcoin one wants to spend. I believe that there are already a number of reasons identified on this forum why that feature would be useful. Bitcoins have a date of creation, and are therefore not all identical.

As soon as this feature is added to the bitcoin client this will allow people to trade bitcoins of a different age at a different price. In other words the geometric series: 50, 25, 12.5 BTC etc will no longer be "enforced". Bitcoins, or more clearly, bitcoin blocks with different ages will then be traded at their relative market value. So the relative value of blocks may then become a smooth function w.r.t. age.

Shutup woman get on my horse?

Why? This would work against Bitcoin by violating one of the fundamental properties of money, that each unit is worth the same as any other (fungibility).

It is not a question of why. This feature can easily be implemented. So it is just a matter of time before it is there. After that the market will decide the relative value of bitcoins with different ages.

Note that old physical coins also have a collectors value. Bitcoin differs from old physical coins in:
1. that it does not have a weight in metal. Note that the coinage is only a certificate of authenticity. Note that all atoms of a metal are quantum mechanically completely identical.
2. that it is not subject to legal tender laws
3. they do not wear out.

We have a winner!

Too bad that Satoshi didn't call bitcoins internets instead.

Yeah real bummer, would have made things a little confusing though.

I meant why would older Bitcoins be more valuable as a currency? It makes no sense at all. If two denominations of 50 BTC are not worth the same as each other, it's a huge strike against Bitcoin as a currency.

They shouldn't, there's no justification except to maybe the super nerd if you could prove you had the first block or something but that's a separate issue.
I suppose if there was some enhanced level of anonymity that went along with it or something maybe but they're going to get passed around plenty anyways. 

No, bitcoins are represented by transactions. A block has no value in and of itself. You need to go back and learn the basics of how bitcoin works https://en.bitcoin.it/wiki/Introduction#Creation_of_coins (https://en.bitcoin.it/wiki/Introduction#Creation_of_coins).

If the chain splits, then older coins will be spendable on two different chains, and they will therefore be more valuable. It's not "older is better", though -- coins would be divided only into categories of "before the split" and "after the split".

I believe that is only one of the issues with forking the chain.

Consider this, if you were to fork the chain at some time point, you would also need to change the transaction format going forward, or else, your spend in one chain could be replicated to the other too.

Think of the confusion it would cause if you could post an address and have it a usable address in both chains? Best you could do, I think, would be to allow addresses from the previous chain only as inputs to transactions, and use a whole new address format going forward... to prevent each system from validating eachother's coins.

Not to say that it can't happen, or it wont ever be tried (hell I know a guy who had $500 and needed $1k tomorrow so he figured his best bet was to buy scratch tickets), but I can't see it turning out well, or being useful for very much.

Maybe as a game currency or something where you just want to give people an incentive to play. Of course, to "play" they would need the private key info from their real bitcoin wallets to sign transactions... which would be pretty safe if you used a new format that differed from real transactions but.... your game idea had better be damned good if you think many people are just going to let it grab the private keys from their wallets for in game use.

Really, if someone wants to change the rules, its best to start a whole new parallel block chain (or implement some of what was talked about with bitdns of using related block chain that can be simultaneously mined)

I go back and forth on whether I like the fixed total money supply of bitcoin but, thats what bitcoin is, change that and you really do have a different beast.

I just can't see bitcoin taking off in a big way, when it is capped at 21 million. Imagine 21 million divided between the facebook population (lets leave country and nationality out of it) 500 million or half a billion users . That's not a lot of bitcoins to go round, it won't buy you a lot. To be honest it mirrors the goldbugs who want to base the real currency of there countries on a gold, or a gold standard. Unless the the world changes it's monetary system from a fractional reserve system to 100% reserves and bit coin does away with the cap, only then could it work.
We live in an exponential monetary system so the money supply has to be exponential in nature and character to fit in with it. If bitcoin were to ever challenge let alone replace our existing money supply it would to change to an exponential currency. The only other way would be to change the worlds money from a fractional reserve to 100% reserve system.

This is a FAQ (or "FMC", frequently misunderstood concept?).

1) Bitcoins can be divided into millionths of a bitcoin, leaving plenty for everyone on Earth.

2) "it won't buy you a lot"  There is no economic reason why 0.000001 BTC cannot be worth $1,000 USD.  It is entirely supply and demand.

Where you place the decimal is completely irrelevant.

Exactly, when I was in Romania they went from the old lei to the new lei. It was something like 29000 to 1usd and they just cut 4 digits off and called it 2.9 new lei to the usd.
You could pay with things in new or old lei and it was easy to figure out. It would be the same thing with btc. Just move the decimal over. You and everyone else would have the same value at the end of the day that they did at breakfast.

Your thinking is way too rigid here.

Bitcoins can be subdivided to 8 decimal places without any changes except to the client to allow you to use them. The number 1 is just an arbitrary value. Think of it this way.... a common wage used to be in cents per day. Could you imagine being paid even 30 cents per day? There was a time when that wasn't bad money! Hell the US used to mint "mils", which were fractions of a penny!

Think of gold. Its sold in grams right? Well 1 gram of gold is over $300 last I looked (a long time ago). Of course, gold is also divisable. If you only need half that, I can sell you half a gram of gold, you can then spend 1/4 that if you need $75. Makes sense right? All these values are relative, they all float against eachother.

Right now, btc sell for around 70-80 cents each. Clearly 21 million 80 cent pieces, even infinitely divisable ones, are not going to run a whole economy. All that means is that a growing economy should drive up btc values... until they can be subdivided enough to provide enough value to run the economy.

Does it really matter what 1 btc is worth? If 1 btc is worth $100 usd, then, we will trade for $1 values in .01 btc

you could also look at it like a stock that splits if that makes more sense to you.

Nope my thinking is spot on. Unless you fundamentally change the way we use money then just splitting bit coins to be smaller and smaller won't work. They have a name for doing that, it's called deflation. Inflation to much money chasing to few goods and services. Deflation is to little money chasing to many goods and services. You have to create as much currency (what ever it is Dollars, bitcoins) to match the the goods and services on offer that people want. I'm a monetary reformist so I'm not against bit coins or any other community currency but, like I said. You can not use a finite resource as a currency in an exponential system.

It only matters if you are talking of bitcoins as being a universal currency. If you are talking about bitcoins as a community currency same as itica hours then no not really.

Let Dr Albert Bartlett explain what an exponential funtion is to you. He does a better job than I ever could.
http://www.youtube.com/watch?v=F-QA2rkpBSY
check out all 8 videos.

You apparently still don't understand exponential growth.

It is never sustainable in the long term.

Given this fact, why would you suggest Bitcoin grow exponentially?

Forget everything you have read about bitcoin. If the above were to happen every manufactured item and every service would be worth less as time went by. Lets use a farmer as an example he buys all his seeds and plants them now it costs x mount  because, the currency has to cover more and more goods and services by the time the farmer reaps his harvest and sells it. The selling price does not cover what he paid for the seeds and stuff in the first place . Classic deflation. Like I said you can not use a finite resource in an exponential system to two are at odds with each other.

Maybe I understand this completely wrong but moving the decimal point doesn't change the real value of the coins.
If I have 10 btc and it's worth 10usd and the next day those 10bct become 100btc I still have 10 usd worth. So they're not deflated or inflated.
This isn't creating coins.

If in this example we move the point one digit right the number of coins increases 10x but the value stays the same.
If the current 1btc rises too high it's not going to make sense to trade 100usd for .01 btc so they move the decimal point.

Inflation on the other hand would be creating more coins (which is happening but levels off).

I never said bitcoins grew exponentially, how can they there will only ever be 21 million of them.
I do understand what exponential growth is (that's why I recommend looking at Dr Bartletts videos)!
You are absolutely right it is not sustainable that is the point I'm making in part. Unless we have sudden depopulation then goods and services will need to grow to match a growing population and in doing so the money supply has to grow to match the goods and services that the people want. Splitting a currency is the same as devaluing a currency the only way it can work is for the goods and services to value from what they were previously. Imagine you have a product it cast you 100 bitcoins to make 6 months later you can only sell it for 75 bitcoins that's defaltion.

I'm going to watch the videos. I've heard of them but never sat down and watched them. I appreciate the link.
I've got a question though.

If you have 10 shares of microsoft and it splits 2:1 and you've got 20 shares of microsoft has it inflated or deflated or neither?

Edit: clarified the question.

Here's what you said in your first post:


If you know that exponential growth is unsustainable, why would you suggest that Bitcoin should grow exponentially?


I've watched them quite a few times and recommend them to everyone who seems remotely interested.


No. Since Bitcoins are divisible to eight decimal places, there are 2,100,000,000,000,000 (2.1 quadrillion) base units of currency available. That's more than enough granularity, which is the only thing that matters. It doesn't matter if you only have 500 Satoshis (1 Satoshi = 1/10^8 Bitcoin) if a meal only costs 2 Satoshis.


Except that your 75 Bitcoins have the same purchasing power (you can buy the same amount of stuff) as the original 100 Bitcoins.

Forget decimal points and all the rest of it. Think of the more people joining the system as population growth. Now the same amount of money has to feed clothe and sustain more and more people but, we only have a fixed amount of money 21 million bitcoins (remember the original sentence said that bitcoins is a major world currency). Think of it in the real world where you live, no more credit, no more real money, than there is at this very moment but, the population got bigger and bigger over time. that means there is less money to go round but it has to buy the same amount of basic goods and services that we all use. these basic goods and services would need to be dropping in price over time the opposite of what happens in real life today.  bit coins can work with one change and that is not to limit the amount of currency that can be produced but, to match it to the goods and services that it needs to be used for (not for speculation and not paying interest with money that does not exist).

It's probably better if someone that knows this better than me comments. I feel like I understand it but I'm going to get confused if I keep going on.
I still don't see it as a problem. If the value of btc goes up because more people are buying it then you'll need less of it to buy those items.
When the person sells the items they'll be getting less btc but it's worth the same.

Let's say the canadian dollar is 1.10 and the us is 1.00 if I offer to pay you in canadian and give you 1.10 for the item you were selling for 1usd you're not going to say I'm ripping you off.
It works the same with a GBP. If I want to give you .60 (or whatever) GBP for that same item you're not getting over charged.


I'm going to hold back from trying to explain it the way I see it though and hope someone can give an answer that satisfies both of us.

Yes that's right bitcoins would have to become exponential. to be used in an exponential system (this is why we use credit, credit has the ability to be exponential). they would have to be able to grow with he system other wise you have two opposites. An exponential system of using resources as in today against a finite resource bitcoin or gold used as money.

Now this statement is different to reality as bitcoin as it is today is not exponential as there are only 21 million of them.

For any monetary system to work it has to have the ability to grow or shrink with the population and the resources being used by those people. it can not be finite. It has to match goods and services being used and keep value with those goods and services. If you were to change the rules on bit coins and allow it to grow and shrink as needed then yes it would work but, not in it's present form. Not unless you change the real world to fit the way bit coins work.


The question was imagine bitcoins became a major world currency.

You still don't know what you're talking about. The quantity of currency does not have to change with the quantity of available goods and services. The currency merely then allows you to purchase more goods and services.

Never mind that there are 21 million Bitcoins are divisible to eight decimal places, which means there are 21 quadrillion base Bitcoin units (Satoshis). If that is not enough, there could be localized Bitcoin block chains, or a separate block chain for larger or smaller amounts.

I reiterate, you don't know what you're talking about.

If I don't know what I'm talking about then every monetary reformist and every government and most economists on the planet are wrong and you are right. The money supply has to keep parity with goods if you have more goods and services then you need more money or the goods and services have to become cheaper through better manufacturing techniques but, the money has to keep parity in terms of prices as the goods other wise it  results in inflation or deflation depending on the miss match.

Remember the question that bitcoin becomes a major world currency not replace the major world currency!

I live in the real world and if your system is so great then all we need do is spit our currencies and hey presto no more deficits. I'd better get on he phone and tell the worlds leaders you've solved the problem.

Correct.

If that's the case. What happened when the currency was gold backed?
Serious question.

haha...I'm sorry this just made me laugh.  Please go back and enjoy your pick of exponentially growing fiat currency.  You have many to choose from.  After all, according to your view, no sustainable growth probably occurred when people used simple gold and silver for money (except maybe the industrial revolution).

Why do you think we came off a gold standard. I'll tell because France asked to be paid in gold and America didn't have enough gold.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5881

And by the way I prefer 100% reserve currency.

Think of bitcoin as a cake you keep splitting the cake till you end up with crumbs but, at the same time more and more people are taking a piece or crumbs as they come into the system so your crumbs have to grow in value to be able to buy what you bought before if your crumbs don't gain value and prices remain the same your up the creek without a paddle. This is the opposite of goods loose value as stated before. it does not matter the size of the piece of cake you have if goods go up your cake has to increase in value to keep up. If your piece of the cake gets smaller because it needs to shared out amongst more people then prices need to come done for you to be able to afford what bought previously.

By the way gold, silver are a form of fiat. they derive there value from people (as does paper money) and what value we give it, they have no magic value of there own they are just metals.

I think the word fiat implies that some government or institution officially accepts a certain thing at a given rate. Prior to Nixon's order detaching the USD from gold, I guess you could have called gold a fiat currency. Now it is only a fiat currency in Utah. Someone correct me if I'm wrong.

You're on the right track, but you keep getting derailed at important points.

Yes, the size of the crumbs will get smaller. But crumbs are a poor analogy, because you need a fixed number of crumbs to be satisfied. As Bitcoins become more and more in demand, a smaller fraction of a bitcoin will go further.

You remind me of when I was in grade 5. Canada was using the Imperial system at the time, and in the process of converting to Metric. My teacher was trying to get me to understand the basics - 10 decimetres to a metre, 10 centimetres to a decimetre, 10 millimetres to a centimetre. "But how much is that in INCHES?" I kept asking. Then it dawned on me - it doesn't matter. It's an independent system, and does not need other systems to be understood.

You have to stop thinking in terms of the existing economic models. Set aside for a moment everything you know about economics, and look at Bitcoin with a fresh eye. Bitcoin flips the whole economic model around. Instead of more and more money being created, and each dollar becoming less and less valuable, the amount of money will be fixed and each Bitcoin will become more and more valuable. It's a deflationary model, instead of an inflationary model.

To be honest, I think you represent the biggest challenge Bitcoin will face gaining general acceptance. I don't mean you personally, of course, being a challenge, I mean that you are representative of a lot of people. Many people will have the same reaction you do. Switching your thinking from an inflationary model to a deflationary one, and realizing "yes, the value of bitcoins will go down, your salary will decrease, but that's a good thing" is damned hard. I'm not entirely convinced of it myself, but I'm willing to explore this crazy system :)

Bitcoin is not deflationary in the monetary sense. The Bitcoin economy will opperate under constant lowering prices. There is absolutely no problem with that, despite all the wackos out there trying to say the contrary.


Prices adjust donwards. The video proves nothing.

No, most of the economists dont think like this. Still using the argument of "most people think like this" thus you are wrong is extremely weak, borderline manipulative.

There is nothing wrong with prices going down, no matter how many times you repeat the same idea. Repeat it again, still wrong.


Bretton Woods was designed in a way that this was unavoidable. The USA kept printing more dollars than gold had and finally it could not pay. In fact the story of how the USA government gradually took over the monetary system its very interesting. It shows why fiat currencies, even if they claim to be backed by gold dont work. Competing currencies dont suffer from this problems.

I'll agree that bitcoin isn't perfect. One problem I could see with the changing value of the currency:

You buy a house for 1000btc
You make 10btc a month.

2 years later..

You still owe 850btc on the house
You make 9btc a month because the value has risen relative to the USD.


You can still afford to make your payments but if it continues to rise you're going to be in trouble.
Someone correct me if I'm wrong but isn't this a big part of what happened to farmers in the dustbowl?
I don't mean they hand loans in BTC obviously  ;D but their value of the money went up and food was easier to buy but they still owed the same in loans.

The other side of the story is that saving for yourself and then using that capital becomes easier, so people can start their own projects without going so much into debt and depending so much on the banks. Inflation on the other hand promotes debt.

About the farmers of dustbowl I guess you are referring to the incident during the Great Depression. The thing is that inflation propagandists always point to deflation for making loans more dificult to pay, but always hide that during the roaring 20's it was the inflationary policies of the Fed that promoted the creation of all that debt. Without inflation all that debt would not have been there and the crash of 1929 would not have happened.

Yes I was talking about the incident during the great depression. Ideally we'd be able to avoid inflation or deflation but it sounds like that is going to be impossible as long as there is more than one currency in the world. Well maybe I should just say anything to compare it to. Even if BTC were the sole "currency" value of commodities would change and affect the value. I think fluctuations and changes in purchase power (don't want to debate if it inflates or deflates) are going to be unavoidable for my lifetime.

I think the answer is to not accept loans of bitcoins with interest.

Same could be said about any loan but that's a pretty fundamental part of society. People want what they can't afford right now.
Not always a bad thing though, it allows a lot of growth that wouldn't be possible.

That doesn't solve the problem, he never mentioned interest in the original question. It could be that a negative interest rate is necessary in the face of price deflation. This isn't a problem since the issuer of the loan is still making money on the appreciation of the currency.

Also it's going to be hard to predict the rate of deflation.

I suppose the best way to do it is base loan repayments on the value of the currency at the time.
You would have to compare it to something though. Obviously the USD would work but maybe you'd want something else like gold.

Just to keep it simple though lets say 1btc = 1usd at the time you get your home loan.
You're paying 1000btc a month
btc goes up to .5btc = 1usd.

Now you only have to pay 500btc because that still buys the same amount of house / food / whatever.


I'd prefer to tie it to how much gold you can buy with 1btc though because it's global but that would be when btc is more established.

What about making any interest rate on bitcoins a function of network difficulty. It may not be a perfect indicator of bitcoin value, but it seems better than trying to gauge it against something relatively unrelated, like gold or USD.

Why does it need to be compared to anything?

To compensate for change in purchase power and long term effect of loans.

I'm ok with not tying it to anything I just assumed people want to repay the same (real value) that they borrow.
That sounds kind of confusing but I'm guessing you know what I mean, obviously borrow 100btc pay 100btc back.

There's a serious problem with forks: any additional bitcoins generated with the new software wouldn't be recognized by the old software. I think practically everyone would have to upgrade, not just a majority.

There is nothing to stop anyone producing yet another currency for use by their customers to buy their product, thus issuing precisely enough currency to purchase the new product(s) being produced.

For example OPEC could have issued OPEC$ and backed them with oil. MacDonalds could issue Mac$ and back them with big macs.

Just because there exists a nice deflationary bitcoin in the world does not at all mean no-one else can issue tickets or credits backed by their promise to provide something in return for them when someone want to redeem them.

So the whole FUD about limiting the number of original blockchain bitcoins being a bad thing is just FUD.

Notice that most such complainers not only do not create their own blockchain having the properties they claim are ideal but furthermore there does not seem to even be much real intention on their parts to even put any wealth into such an ideal even if someone else created it tailored to their specifications. How ideal *is* their ideal if even they are not willing to actually invest in it / buy into it?

So I guess a good question here would be okay great you are right now how much actual wealth are you ready to put into this better thing that you describe once we compile the relevant code to have it ready to use for you?

-MarkM-

Please, please conduct your business in a controlled inflationary currency so that I can purchase your troubled assets with my sound currency when you have a liquidity crisis. I love me a good sale.

Competing currencies for the win.

LOL What a bunch of horseshit. Sorry but it really is.

The farmer doesn't need to get nominally more money back with the harvest compared to how much he needed to plant the seends... I mean wtf, do we have money for the sake of having money or do we have money because it's a means to an end?

If the farmer receives less money back but the currency appreciated in the meantime, he will still be able to afford more goods and services and have a profit in real terms then he could have afforded before he bought those seeds.


Please stop making statements about stuff you didn't properly research yourself and you know no facts about.

EDIT: And judging from the rest of your posts I can see where the problem lies and it's the fact, yes fact, that you're clueless about what deflation or inflation really is. I suggest you read: http://forum.bitcoin.org/index.php?topic=10426.0

People really don't understand how the decimal works. 21 million "coins" doesn't really matter. What matters is where you put the decimal point therefore breaking these 21 million coins into a crapload of sub "coins". People may not like seeing that they have .000045942 bitcoins but if 1btc trades for $100,000,000 you have nearly $46,000 worth of coins. Don't try to picture a bitcoins as actual coins. Picture the value each of those decimal places holds. Way into the future the total decimal places may need to be increased but that won't be a problem for a looooong time.