Bitcoin Forum

Economy => Economics => Topic started by: Suggester on February 18, 2010, 07:12:50 AM



Title: The current Bitcoin economic model doesn't work
Post by: Suggester on February 18, 2010, 07:12:50 AM
Edit 24 May 2011: This post has just been majorly updated after more than a year to address the technical issues raised against the original suggestions. The ones presented now are practical. They're also credible as the early warning turned out to be true: Bitcoin has transformed into a ridiculously volatile speculation and hoarding tool rather than a stable medium of exchange.

http://s3.postimage.org/2zivvoft0/chart.jpg (http://postimage.org/image/2zivvoft0/)

I dare not spend a coin today lest its price doubles tomorrow, nor dare I receive a payment in coins today lest their price crashes before I rush to sell them, nor dare I, naturally, store my wealth in the form coins so I'm relying on vulnerable exchangers to store it in the form of fiat currency. Something must be very wrong...

Yet that was all but unexpected; it was inevitable given how the limited supply system was designed. Let's stop and think about this for a minute:

Satoshi stated in his FAQ that When Bitcoins start having real exchange value, the competition for coin creation will drive the price of electricity needed for generating a coin close to the value of the coin. Now the only problem is that this "real exchange value" itself would be determined in part by electricity, computer deterioration, and time expenditures needed to generate new BTCs. And those expenditures increase with time. We have a loop.

Every four years a miner needs to exert double the virtual effort to create the same amount of coins, which means he'll be constantly demanding higher prices to compensate for his costs. Which also means that bitcoins won't generally be spendable. Why? Because only an idiot spends a currency which he is certain its price will double within 4 years, effectively granting him about 19% real annual interest--significantly better than any bank or mutual fund.

Great! I hear you say, free money for everyone, right?

Wrong.

Just as it's futile to create and distribute free extra coins to anyone already owning them "to make everyone richer", built-in deflation won't be helping anyone on the long term. That free money will encourage people to hoard BTCs forever or until another wishful investor buys them, fueling speculation and price bubbles. Bitcoin will ultimately be regarded as a phony investment with no real value, just like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.

This scenario can only be avoided if the cost of generating new BTCs got constant. Which can only happen if participating nodes needed to exert a more or less constant amount of work (cost) to generate a given amount of BTCs. Only then will people be inclined to actually spend their coins, and they can finally serve their purpose as a stable medium of exchange.

But that's not it. The very fact that the newly-generated coin supply dwindles as its user base (hopefully) continues to grow will raise that 19% deflation rate even higher. Let alone that many coins are forever destroyed via HDD failures and lost thumb drives, pushing the deflation even higher and higher. High deflation is bad because nobody spends their money, they only save it because it gains value over time. Can you imagine what would've happened if, say, the Japanese government hasn't printed any (or very few) Yens during the last century while the population exploded? One 1911 Yen would have been more than enough to buy a house today. Who then would've spent their Yens in 1911? Why, almost noone of course! This scenario is only avoidable if the number of available BTCs continues to grow with its user base at least proportionally. If both figures match, we won't have deflation nor inflation.

But under the current model the price wouldn't necessarily be tied to the increasing generating electricity costs forever, which means there's a different scenario other than a perpetually deflating currency, and it's much worse: After about 14 years almost no new coins will be produced. Generating costs could then be largely irrelevant, resulting in a lack of a price anchor. This would leave the price solely to the market's supply and demand forces. Just like Picasso paintings, a coin could then be worth $1 on a given day then literally be worth $100 on the next and vice versa.

So what's the solution? Well, as you might have already guessed, we should remove both the 4-years doubling interval rule and the 21M limit. Just allow BTCs to be generated indefinitely.

Don't sigh in relief just yet. After removing the limit we're better off but still have another issue: The number of users and generating nodes grows exponentially while the existing coins grow arithmetically. We therefore need a mechanism to reflect the number of generating nodes (i.e the total exerted effort) into the resulting bitcoins. But blocks aren't the answer: Technical difficulties have been addressed against my original suggestion which advised rendering the amount of generatable blocks unlimited and totally dependent on the number of nodes. The problem was that a minimum "cooling down" period is needed to propagate who owns the new block across the entire network to avoid conflicts.

My modified suggestion therefore is to reflect the total exerted effort in the number of coins, not blocks. So we'd still have only 144 new daily blocks, but the amount of coins in these new blocks will depend on the proof-of-work difficulty (which automatically adjusts to the number of generating nodes). That makes sense. A late adopter who needs to spend weeks, months, or even years to generate a block should end up with more coins in that block than an early adopter who had to spend only a couple of hours.

And no, sorry, early adopters didn't take any risk to deserve a reward. Running a computer program which pops deflationary money isn't a risky activity, not one that warrants a 1,000,000% profit anyway. No wonder Satoshi (not his real name, which is unknown) was fiercely defending the original design and wanted to keep it going for as long as possible. It allowed him to initially produce all 144 daily blocks (7200 coins/day) for quite a while before having competing miners drive his coins' price way up. He's probably following up on this forum from his Caribbean beach seat now, with other "early adopters" eager to join him. The proposed system is the way to halt this pyramid scheme.

The coins' price will then depend on the total cost of electricity sacrificed to generate the newest block. Think of it as if everyone in the network bought some electricity from their utilities company before loading it all onto the network where the roulette runs every ten minutes on average with one lucky winner hitting the jackpot. Bitcoins would have a real value equal to the amount of electricity sacrificed to create them, and their price would essentially be a function of the (pretty stable) average worldwide home electricity costs, not a function of the number of generating nodes nor total demand, which will never stabilize in the foreseeable future. Under the proposed system, if the number of generating users doubles tomorrow, the number of coins generated tomorrow will double as well, offsetting the demand surge with a supply surge without the need for a price jump followed by price crash as is the case now.

This flexible supply system will be telling everyone there's no advantage to being an early adopter. A user doesn't need another victim to reap rewards later because there are no rewards to begin with. Bitcoin is a medium of exchange, not a profit-making tool. Speculators and investors can go ruin another currency for there's nothing for them to gain here until they can manipulate global electricity prices. By eliminating risk and uncertainty we're showing them the door, thus accomplishing the most important task towards achieving a stable medium of exchange the general population can trust.

Finally, a simple numerical example: If we assume the average worldwide cost of running a modern CPU for 24 hours is 20 cents, and if our initial goal is to have one BTC roughly equaling one US dollar, then the amount of coins each new block contains should equal: (fifth of a BTC/144 * the estimated equivalent of the modern CPUs number in the network). Thus, if the exerted power was then estimated to equal 10,000 CPUs, the new block created at that point would contain 14 BTC because the whole network spent $14 during the last 10 minutes to create it. If it was 20,000 CPUs, the new block would have 28 BTC and so on. Once enough coins are produced for ฿1 equaling $1, miners would generate just enough to cover the economy's expansion because any excess will come to them at a loss. The price would then fluctuate approximately along the lines of 99¢-$1.03.

Practically speaking, if the price of 1 BTC after implementing the new system was, say $10, we could simply add a zero to increase the amount of existing coins ten-fold, making 1 BTC equaling 1 dollar, after which the price will essentially stabilize itself automatically forever. Note that the estimated CPUs figure is arbitrarily set using current computer power and running costs. Errors won't be detrimental because the market will correct itself resulting in 1 BTC equaling slightly more or less than $1. For example, if computers became more energy-efficient while electricity costs stayed constant, then ฿1 will equal a bit less than $1 because it now costs less to produce and vice versa. Whatever the case may be, the price would be stable on the short term and move slowly along with electricity costs and CPU/GPU efficiency on the long term, rendering coins as stable as major fiat currencies.

Note that some replies before page 7 might seem irrelevant because of the suggestion improvements addressing them. The removed obsolete paragraphs from the original entry have been copied below in the third post of this thread just in case anyone wants to have a look to understand the full context of the discussion.

Note2: I've revived the thread at the bottom of page 20 due to the increased hacking and abuse of intermediary services such as the MtGox and Bitcoin7 exchangers. The underlying logic is that, had the coin's price been stable, we wouldn't have needed to trust them as often because we wouldn't have been forced to keep our wealth with them in the form of stable fiat instead of in our computers in the form of unstable coins.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: I-am-not-anonymous on February 18, 2010, 07:36:51 AM
Every four years, the average BTC generator will need to spend double the effort to create the same amount of coins.

As I understood it people will not need to double their CPU power to get the same amount of coins, rather there'd be half as many coins "up for grabs" by anybody with enough CPU power.

In other words, let's say a Powerful CPU can pull in 500 coins a day and a weaker CPU can pull in 300 coins per day from a pool of 10,500,000.

After 4 years, they are still pulling in 500 coins and 300 coins respectively, but now they can only access a pool of 5,250,000.

I could be wrong though.  Somebody who know what they're talking about please comment instead of me!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 18, 2010, 07:43:10 AM
Every four years, the average BTC generator will need to spend double the effort to create the same amount of coins.

As I understood it people will not need to double their CPU power to get the same amount of coins, rather there'd be half as many coins "up for grabs" by anybody with enough CPU power.

In other words, let's say a Powerful CPU can pull in 500 coins a day and a weaker CPU can pull in 300 coins per day from a pool of 10,500,000.

After 4 years, they are still pulling in 500 coins and 300 coins respectively, but now they can only access a pool of 5,250,000.

I could be wrong though.  Somebody who know what they're talking about please comment instead of me!

The plan is to halve the value of the block every four years. So if your PC is making 6 blocks/day now (i.e 300 BTC/day), in 4 years it could be also be making 6 blocks/day, but your balance will only increase by 150 because the block would equal 25 instead of 50 BTCs

Edit 24 May 2011: These are the removed paragraphs from the original 2010 first post. They are obsolete and no longer relevant as the post is now heavily edited. Nevertheless I thought I'd include them for anyone who wishes to understand the full context of the 2010 discussion (up to page 7).

So what's the solution? Well, as you might have already guessed, we should remove both the 4-years interval thing and the 21M limit. Just let BTCs continue to be created forever at a constant rate*. The rate should be divisible enough to give up to, say, 100,000 people an incentive to run the network simultaneously. In other words, the current 144 daily blocks (or units) aren't enough because this means that @ 100,000 users, one has to wait an average of 757.6 days (that's 2+ years) to see something pop up on his screen. 100k is an arbitrary figure, but remember that we need to mobilize as many nodes as possible to resist the tampering attempts of supercomputer-owning governments who can and will try to generate their own proof of work to ruin the project if it ever reaches mainstream. Also note that this will not lead to inflation in the foreseeable future, because the user base of bitcoin will continue to grow for years to come, let alone natural economic and population growth (unless the Mayans turn out to be right, of course).

This way, when the number of bitcoin-generating nodes approaches stability, we will end up with a slowly-growing number of bitcoins matching a slowly-growing number of nodes, resulting in the currency's relative price stability, leading in turn to the ultimate goal of it being used for exchange purposes.

Now for the fun part, a numerical example: If the system is producing 10k bitcoins/day at a constant rate (with difficulty adjusted by collective CPU power just like it is now), and the number of users attempting to generate BTCs was 10k after 1,000 days from now, and increasing at a constant rate of 10 new users/day, we will have and continue to have an average of 1,000 BTCs/user. No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation. Note that under this model, an initial price surge is inevitable because the number of nodes increases at abnormal rates at the project's beginning. As the project matures, there would be only reasonable user-base increases, so the price won't fluctuate much any longer (think the percentage increase in newly opened email accounts from 2000 to 2001 vs from 2020 to 2021, for example).

*Another idea would be to set the BTCs creation's difficulty irrelevant of total CPU power in the network so that, say, the average computer would create 1 BTC/day. The global price would then automatically adjust to the participants' average electricity and machine consumption cost. It would be sort of like buying some electricity from the utilities company and loading it on your machine as transferable BTCs. If electricity happens to be cheapest in India, Indians will initially profit from creating BTCs, but as their proportion among the nodes increases, the BTCs price will decrease as it approaches India's average electricity cost. Exchangers will quickly balance supply and demand just as in ForEx fluctuations, Econ 101, remember? Non-Indians would purchase BTCs from Indian exchangers at a very small profit margin because of competition. I personally prefer this model to the constant rate one because the amount of BTCs in circulation would generally be proportionate to the amount of users (sort of like farming gold in MMORPGs), instead of picking an arbitrary constant figure and letting users adjust to it. Thus this model avoids the initial price surge because there will be a balance from day one.

Admittedly, BTCs' price would be tied to energy's under this model. But then again, this is also the case in both my other and the current model. Besides, using Bitcoin for casual quick transfers (rather than as savings) would virtually eliminate this risk. Also granted that creating zillions of BTCs (eg. via governmental sabotage) would lead to inflation in this case if they flood the market with cheap coins, but then again this problem exists in the other two models as well, and can also be avoided by those using the coin for transfers only. But whereas in the other two models a supercomputer-or-two can ruin the whole project by barring most of the honest nodes from creating coins (via controlling most of the CPU power and skyrocketing coin-generating needed effort), under this uber-flexible model everybody will be able to create some coins and use them for transfers regardless of sabotage attempts.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: I-am-not-anonymous on February 18, 2010, 07:58:12 AM
Every four years, the average BTC generator will need to spend double the effort to create the same amount of coins.

As I understood it people will not need to double their CPU power to get the same amount of coins, rather there'd be half as many coins "up for grabs" by anybody with enough CPU power.

In other words, let's say a Powerful CPU can pull in 500 coins a day and a weaker CPU can pull in 300 coins per day from a pool of 10,500,000.

After 4 years, they are still pulling in 500 coins and 300 coins respectively, but now they can only access a pool of 5,250,000.

I could be wrong though.  Somebody who know what they're talking about please comment instead of me!

The plan is to halve the value of the block every four years. So if your PC is making 6 blocks/day now (i.e 300 BTC/day), in 4 years it could be also be making 6 blocks/day, but your balance will only increase by 150 because the block would equal 25 instead of 50 BTCs

I think I understand, thank you for correcting me.

Right now, Your average coin creation rate will be (6 * 50 coins / hour) * (your CPU speed / the total CPU speed in the system)

4 Years from now, Your average coin creation rate will be (6 * 25 coins / hour) * (your CPU speed / the total CPU speed in the system)

Because the amount of bitcoins per block halves every 4 years.

My question is, what happens if (your CPU Speed) and (The total CPU Speed in the System) double in 4 years?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 18, 2010, 08:02:53 AM
I think I understand, thank you for correcting me.
NP, I just sent you a PM :)

My question is, what happens if (your CPU Speed) and (The total CPU Speed in the System) double in 4 years?
If both doubles then the ratio will stay the same, so the generation will stay the same. You see, it's all relative. Practically, of course, what will probably happen is that your ratio will be much less since more people will hear about Bitcoin (also given the recent surge in capitalist-anarchists and communists).


Title: Re: Current Bitcoin economic model is unsustainable
Post by: I-am-not-anonymous on February 18, 2010, 08:50:05 AM
I'm really tired and I have work tomorrow so this will be my final post for possibly 18 hours but I see what you're saying--your ability to generate bitcoins will inevitably be reduced because people with high-power server farms will take over production.

But when the first system-wide "halving" of bitcoins occurs there will be 10,500,000 while the server farms get started on the 5,200,000.

This means twice as many bitcoins will be available via exchange than via creation.  If some CPU farmer determines that in now takes double his resources to make bitcoins and thus doubles his exchange rate for his fresh product, he is very likely to be underbid by the people controlling the 10,500,000 because of the time value of money.

You said "only and idiot would sell at 19% interest rates" (paraphrase) but in a free market, somebody HAS to be willing to sell for there to even BE an interest rate, people willing to exchange value today for value tomorrow.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 18, 2010, 09:10:12 AM
I see what you're saying--your ability to generate bitcoins will inevitably be reduced because people with high-power server farms will take over production.
That's only a tiny part of the problem!

This means twice as many bitcoins will be available via exchange than via creation.  If some CPU farmer determines that in now takes double his resources to make bitcoins and thus doubles his exchange rate for his fresh product, he is very likely to be underbid by the people controlling the 10,500,000 because of the time value of money.
What will probably happen is the other way around: Those who create BTCs in the first 4 years will make unreasonable profit as they enter the 5th year, and those who create BTCs in the second 4 years will make unreasonable profit as they enter the 9th year, etc

You said "only and idiot would sell at 19% interest rates" (paraphrase) but in a free market, somebody HAS to be willing to sell for there to even BE an interest rate, people willing to exchange value today for value tomorrow.
The "interest rate" would be the expected future value at best, or Bitcoin will be regarded as a currency without a future at worst. Just like Pyramid Schemes: Many people bought them but nobody took them seriously. It is well established that under perfectly free markets, commodities are sold at a very small or even no margin above their cost on the long run. Since BTCs cost will double every 4 years, so will their price. So nobody under normal circumstances would be willing to sell his ever-inflating BTCs unless he wants to escape the system with some profit before it collapses.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: sirius on February 18, 2010, 01:31:50 PM
Bitcoin is similar to gold in terms of finite supply and increasing mining costs. Every argument you can make against Bitcoin economy you can make against gold economy, but gold economy still works. Actually, gold currency has been throughout the history unmatched by any paper money in stability.

It's an old keynesian argument that deflation is bad because it leads to a "deflationary spiral" where nobody eventually buys anything, because they can get more the next day. That didn't happen where gold standard was applied. Maybe some people will not buy today, but they'll buy tomorrow when the price is lower and they want to enjoy their finite lifetime. A good example is the computers market - you can get twice as good a computer with the same price if you wait a few years, but people still do buy computers today.

Also, it's good to note that production cost doesn't equal value. You could start printing a currency of your own, but it's value wouldn't be equal to your printing costs. The value is zero if nobody accepts them as payment, or it can be more than the printing costs if many people accept it for payment and there's not too many notes in circulation. That's why I've found NewLibertyStandard's pricing by the production costs a bit misleading, giving the wrong picture to some people that bitcoin value is somehow bound to the electricity cost. He may of course sell and buy at whatever price he wants, but he'll be short on either bitcoins or dollars if it's not the market price (supply/demand).


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 18, 2010, 07:58:55 PM
There isn't a right and wrong economic model. Every model adjusts to supply and demand, they just adjust in different ways.

The current model is beneficial to early adopters in three different ways. First, early adopters generate more bitcoins while there is less competition at the beginning. Second, the availability of bitcoins decreases, which cements their position of wealth. Last, the early adopters have the potential to get rich off the latecomers once generating blocks becomes extremely difficult. Latecomers will have to inject dollars or something else of worth in order to get access to bitcoins and the wealth will go disproportionately to the early adopters.

The idea of the swarm increasing the amount of bitcoins awarded as processing power increases is interesting, but I think it would give too much advantage to botnets. With a constant amount of bitcoins being generated, they can only collect a days worth of bitcoins per day, but if the number of bitcoins was variable, they could swoop in and generate a thousand years worth of bitcoins in a few weeks.

In my ideal model, the same amount of blocks would be generated per day, but 100 bitcoins with no decimal would be awarded for generating a block instead of 50.00 and the amount of bitcoins awarded per block would stay the same forever instead of halving every four years. This would give one advantage to the early adopters who would be able to generate bitcoins more easily while there is less competition at the beginning and it would allow deflation as more people adopt bitcoins, but it would also allow for inflation as more bitcoins are generated, thus encouraging people to spend their bitcoins. Eventually creating bitcoins will still become very difficult and dollars or something else of worth will have to be injected in order for latecomers to get access to bitcoins, but as time passes, that wealth will be distributed more and more evenly between early adopters and latecomers. I prefer 100 to 50.00 because bitcoins are going to take a while before they are worth enough to need to be more divisible and because it's not clear whether a single bitcoin is ฿1.00 or ฿0.01.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 18, 2010, 09:19:23 PM
Bitcoin is similar to gold in terms of finite supply and increasing mining costs. Every argument you can make against Bitcoin economy you can make against gold economy, but gold economy still works. Actually, gold currency has been throughout the history unmatched by any paper money in stability.
No. Gold was synonymous to "money". Things were valued for how much gold they were worth, not vice versa. We should think of bitcoin today as a new unestablished currency in a world of established alternatives (eg. the Euro 10 years ago). Additionally, if we assume that it became impossible to mine virtually anymore gold today, and we further assume that the demand for gold was perpetually on the rise (for example because women were increasingly using it for jewelery), then yes, it will result in a perpetual deflation for its value and nobody would be willing to sell their gold except for emergencies. Under these conditions, using gold as a means of payment is a sure way for starting a depression!

It's an old keynesian argument that deflation is bad because it leads to a "deflationary spiral" where nobody eventually buys anything, because they can get more the next day.
Old and true :)

That didn't happen where gold standard was applied.
What has gold standard got with increasing the value of BTCs over time? Gold was ALREADY a medium of exchange when the gold standard was applied. I can imagine that the very first time some human discovered the first gold mine, everybody in their area thought it looked cool and started using it as a medium of exchange. People have been mining gold for thousands of years and we haven't still run out of it. BTCs will essentially stop its generation within 15 years.

Maybe some people will not buy today, but they'll buy tomorrow when the price is lower and they want to enjoy their finite lifetime.
They won't buy tomorrow when the price is lower because it will never be lower as we approach the "next four years limit".

A good example is the computers market - you can get twice as good a computer with the same price if you wait a few years, but people still do buy computers today.
Computers are totally different because you can't sell them 4 years from now for double what they're worth today. Had this been the case, nobody would ever sell a computer unless he's starving. Heck, just look at NewLibertyStandard's graph. It will keep shooting up as long as this 4-year model continues.

Also, it's good to note that production cost doesn't equal value. You could start printing a currency of your own, but it's value wouldn't be equal to your printing costs. The value is zero if nobody accepts them as payment, or it can be more than the printing costs if many people accept it for payment and there's not too many notes in circulation. That's why I've found NewLibertyStandard's pricing by the production costs a bit misleading, giving the wrong picture to some people that bitcoin value is somehow bound to the electricity cost.
If the value is more than my printing costs, I'll be busy printing like there's no tomorrow until the price equals my cost (remember that I'm acting like a selfish unorganized person, not an entity or a country, just like most of Bitcoin users will be). If the value is less than my printing costs, me or anyone who wishes to acquire that currency will buy it from others instead of creating it, raising the price of coins already in circulation and dropping the competition and cost of creating new ones (and in bitcoin's case that means network and proof-of-work failure). So you see, in our coin's case, its market value must equal electricity & computer cost. Not more or less. And in any perfectly free market you'll find a similar situation: price = cost.

He may of course sell and buy at whatever price he wants, but he'll be short on either bitcoins or dollars if it's not the market price (supply/demand).
You said it: Supply & demand. What will happen if BTC got successful is that demand will increase while supply dwindles. At some point (after about 15 years) there will be more and more people demanding coins while almost none is generated. This will result in the price increasing until every human on the planet who will potentially use bitcoin has already joined its market (assuming the 4-year doubling thing was removed). And you know what? Maybe that happened to gold in the beginning of its discovery, until almost all people on the planet had gold available to them if they had a reasonable equivalent (e.g. In Arabia, more than a thousand years ago, you could have sold a camel at a time for about 70 gold dinars, and a rabbit for tenth of a gold dinar. Not too difficult to make).

There isn't a right and wrong economic model. Every model adjusts to supply and demand, they just adjust in different ways.
Pyramid Schemes is an absolutely "wrong" economic model!

The current model is beneficial to early adopters in three different ways.
Who said it should be beneficial to early adopters? I mean, that's cool because I happen to be one, but if it undermines the model's sustainability then it shouldn't stay.

The idea of the swarm increasing the amount of bitcoins awarded as processing power increases is interesting, but I think it would give too much advantage to botnets. With a constant amount of bitcoins being generated, they can only collect a days worth of bitcoins per day, but if the number of bitcoins was variable, they could swoop in and generate a thousand years worth of bitcoins in a few weeks.
Uh huh, but botnets can't start generating now and collecting 90%+ of newly created blocks? Botnets/supercomputers will always be a problem in any model. But with a limited supply such as 6 blocks/hour, almost nobody can compete with them (can you wait 2 months for a coin to appear?). While if the supply is unlimited, at least we'll end up getting something, and hopefully trading it for a price close to what you've paid for it.

In my ideal model, the same amount of blocks would be generated per day, but 100 bitcoins with no decimal would be awarded for generating a block instead of 50.00 and the amount of bitcoins awarded per block would stay the same forever instead of halving every four years.
That's what I've been advocating as the second-best solution. But we'll need to increase the # of daily blocks to give enough incentives though as I explained in the initial post.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 18, 2010, 10:29:13 PM
I stand by my statement that the current economic model is not wrong. You might dislike it and I might not prefer it, but other people do prefer it. Our perspective is no more valid than theirs. But that's not to say that I wouldn't use a bitcoin variant if it more closely resembled the description I offered.

Who said it should be beneficial to early adopters?
I'm just stating the facts, sir.

Currently a botnet could generate 99.9% of bitcoins per day, but if bitcoin generation payout was variable, they could generate over 9000% of how many bitcoins are generated per day without them. Botnet operators value their CPU cycles, so being able to generate over 9000% until they have as many as they currently want and then being able to stop and use their CPU cycles for other purposes is much more advantageous than having to use their spare CPU cycles to only generate a capped amount per day.

The number of blocks generated per day can not be easily increased or decreased because there has to be enough time to propagate the blocks to all other nodes while still being frequent enough to allow timely transactions. What can vary is the amount of bitcoins per block. The amount of bitcoins awarded per block can either increase, decrease or stay constant over time. If every person had an equal amount of CPU cycles at his disposal, I would prefer for the amount of bitcoins awarded per generated block to increase proportionally to the amount of CPU used to generate bitcoins. As it is, I'm in favor of the amount staying constant over time.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 18, 2010, 10:42:03 PM
Maybe some people will not buy today, but they'll buy tomorrow when the price is lower and they want to enjoy their finite lifetime.
They won't buy tomorrow when the price is lower because it will never be lower as we approach the "next four years limit".
He was referring to the price of goods decreasing as value of a bitcoin increases. Eventually the value of bitcoins will go high enough and the price of the goods will go low enough that the person will feel rich enough to spend his bitcoins. To take it to an extreme, if a person has ten thousand bitcoins and can buy the TV of his dreams for one bitcoin, the value of having the TV now is greater than the future potential increased value of the one 10,000th of his total bitcoins.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 19, 2010, 01:06:34 PM
Currently a botnet could generate 99.9% of bitcoins per day, but if bitcoin generation payout was variable, they could generate over 9000% of how many bitcoins are generated per day without them.
9000% of the now-cheaper-coin because so much of it is available after they joined. It all balances out in the end, and in both cases they have an incentive to join the network. Actually, under the current model they have even more incentive because the coin can never get cheaper!

Botnet operators value their CPU cycles, so being able to generate over 9000% until they have as many as they currently want and then being able to stop and use their CPU cycles for other purposes is much more advantageous than having to use their spare CPU cycles to only generate a capped amount per day.
To be honest, I don't see what more harm a botnet can make if we changed to the suggested model. Economically, it would be just like 1,000 honest members joined the network. This can even help the project with some free advertising on security blogs :)

The number of blocks generated per day can not be easily increased or decreased because there has to be enough time to propagate the blocks to all other nodes while still being frequent enough to allow timely transactions. What can vary is the amount of bitcoins per block. The amount of bitcoins awarded per block can either increase, decrease or stay constant over time. If every person had an equal amount of CPU cycles at his disposal, I would prefer for the amount of bitcoins awarded per generated block to increase proportionally to the amount of CPU used to generate bitcoins. As it is, I'm in favor of the amount staying constant over time.
How about a middle solution then? For example, the default difficulty be adjusted to about 1 block/CPU/day (assuming an average 2.4 GHz processor), but in case more than X blocks/day was being created (X = the maximum # of daily blocks afterwhich there is no enough time for propagation across the network), then difficulty gets automatically adjusted. Practically, it would end up being like my second-best and your best model. In other words, very close to the current situation except that we assume the current 4-years-period is extended to forever. So let's at least agree that the removal of the 4-year thing and the 21M limit is essential to avoid an ever-deflating currency.

He was referring to the price of goods decreasing as value of a bitcoin increases. Eventually the value of bitcoins will go high enough and the price of the goods will go low enough that the person will feel rich enough to spend his bitcoins. To take it to an extreme, if a person has ten thousand bitcoins and can buy the TV of his dreams for one bitcoin, the value of having the TV now is greater than the future potential increased value of the one 10,000th of his total bitcoins.
You only switched the problem to another user then: The TV seller! He would also keep this coin until he has 10,000 coins. The point is that it's very hard (albeit not impossible) to convince people to spend or transfer a coin they are pretty sure will be 19% more valuable within a year. Moreover, economic-savvy folks might as well choose not to join the network if they predict this will happen, or join it with the intent of "hitting-and-running" a quick profit before the system's failure becomes imminent, and they will be right.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 19, 2010, 06:26:18 PM
The problem with botnets is that their operators are stealing electricity, bandwidth and access to RAM, hard drive space and CPU time. Everyone else is paying for those resources out of their own pockets.

The order of my preferences for how I would like bitcoin to work is first, for the amount of bitcoins awarded to stay constant as I previously described (https://www.bitcoin.org/smf/index.php?topic=57.msg399#msg399), second, for the amount of bitcoins awarded to increase at a constant rate, third, for the amount of bitcoins awarded to decrease at a constant rate, last and least, for the amount of bitcoins awarded to increase at a variable rate. If botnets did not exist than the variable option would be at the top of my list instead of the bottom.

EDIT: My new highest preference for how I would like bitcoin to work is for the amount of bitcoins awarded to increase at the same rate as worldwide human population growth.

If the TV buyer is an early adopter and the TV seller is a latecomer, then the TV buyer already has many bitcoins and it would cost the TV seller more dollars worth of electricity than the price of the TV to generate 1 bitcoin. I do not agree that it will be hard to get people to spend their bitcoins. People do value potential future increases, but they also value having an item now. Why would someone borrow money on a credit card with a 19% interest rate instead of keeping their money in their savings account? They do it because they value having the TV now more than the potential losses over time. Life is short. You're welcome to save all your high returning money until the day you die, but the rest of us are going to make use of it before it's no use to us.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 19, 2010, 06:48:30 PM
Heck, just look at NewLibertyStandard's graph. It will keep shooting up as long as this 4-year model continues.
My exchange rate will only increase as Bitcoin becomes more popular. There are practical limits to the popularity of Bitcoin. Sure, potentially it could be run on every functional computer around the world, but from practical perspective, that will never happen. The swarm is currently pretty small, so when a few new users join, there is a large effect on my exchange rate and it increases fairly quickly. As the rate of growth slows or reverses and as my exchange rate average increases over the next two years, the exchange rate will steady out with only very small increases AND decreases every day. As for the impending doom and gloom you're prophesying will accompany the decreased payout in a few years, all I have to do is add a little multiply by two to my exchange rate calculation and the problem is solved. The exchange rate stays constant and everyone is happy. In any case, hopefully by then there will be other ways of calculating the value of a bitcoin other than my single solitary exchange service.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: I-am-not-anonymous on February 20, 2010, 01:06:02 AM
No. Gold was synonymous to "money". Things were valued for how much gold they were worth, not vice versa.

In school, they taught us (i.e. me) that a good's value price is based solely on what people can exchange it for.  They also taught us that a good's value was not determined by how much labor went into the good.

We were essentially told that if one camel is worth 50 gold dinars, then 50 gold dinars is also worth one camel.  Or something to that effect.

If this is the case, then the cost of producing bitcoins would only a be a factor in, not a determinant of, their value.

Did I understand the lesson correctly?

_______________________________________________________________________________ ______________________________
On the general topic of whether bit-coin will/will not be successful--I don't really know.  I act as though I am a "bitcoin defender" but this is mostly because I am excited about the new currency and want to support it, not because I know enough about economics to predict it's eventual usefulness.  

I would very much like to see people who dislike bitcoin's design organize and code alternative currencies that inflate according to a monetary rule, or have the built in safeguards you described.  That way, the market will eventually choose the best currency as people move towards the good ones and away from the bad.  

I am not sure if bitcoin's creators will be convinced to implement the changes you recommend--but i think you are very likely to find people who agree with your plan for a better encrypted digital currency and will help you modify or re-write bitcoin's source to make it happen.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 20, 2010, 01:15:18 AM
The problem with botnets is that their operators are stealing electricity, bandwidth and access to RAM, hard drive space and CPU time. Everyone else is paying for those resources out of their own pockets.
That's not a problem for Bitcoin or its users. If those CPU cycles aren't used to steal electricity for bitcoin, they'd be used to steal electricity to DDoS some site or brute-force some account. We shouldn't worry about them. As I said, they're just as if those users voluntarily joined the network for all practical purposes.

EDIT: My new highest preference for how I would like bitcoin to work is for the amount of bitcoins awarded to increase at the same rate as worldwide human population growth.
"Human population" is totally irrelevant. Even if human population was shrinking by, say 1% annually now, I assure you that Internet users population will be increasing and bitcoin users will be increasing at an even higher rate. "Bitcoin users" is the magic word here. With the suggested variable model, we're always sure that new coin generation matches the expanding (or shrinking) user base. But anyway, I see that you're beginning to side with me that the 4-year-doubling isn't a good idea.

If the TV buyer is an early adopter and the TV seller is a latecomer, then the TV buyer already has many bitcoins and it would cost the TV seller more dollars worth of electricity than the price of the TV to generate 1 bitcoin.
Man, if you paid $1,000 for an ounce of gold, then a few months later it was worth $2,000, are you going to sell it for $1,000?! No? Good. Because the early adopter will not treat his coins as if they're worth the pennies he paid for them anymore now that they're worth a ton of electricity. He'd treat them for what they're worth today.

I do not agree that it will be hard to get people to spend their bitcoins. People do value potential future increases, but they also value having an item now. Why would someone borrow money on a credit card with a 19% interest rate instead of keeping their money in their savings account? They do it because they value having the TV now more than the potential losses over time. Life is short. You're welcome to save all your high returning money until the day you die, but the rest of us are going to make use of it before it's no use to us.
My answer is simple: Assuming people approve the current Bitcoin's model, it will turn out to be the #1 worldwide investment: Just buy (or hack) a bunch of PCs, let them run, and you'll be earning at least 19% annually with no risk involved! Investors (and indeed, botnets) won't leave a chance for normal folks like you and me to earn any BTCs much less spend them. Any bitcoin will be spent 2-3 times at most before falling into the hands (well, "the computers" is the better term here) of an investor who'll keep it for a very long time or forever. This model has to change or it will destroy the otherwise excellent idea. Making bitcoin a way to INVEST rather than to SPEND is its one-way ticket to failure. You also forgot that bitcoins will leave the stream all the time (eg. computer failures or accidental deletion), which will add to their deflating. Might as well turn this 19% into 20% or something.

My exchange rate will only increase as Bitcoin becomes more popular. There are practical limits to the popularity of Bitcoin. Sure, potentially it could be run on every functional computer around the world, but from practical perspective, that will never happen. The swarm is currently pretty small, so when a few new users join, there is a large effect on my exchange rate and it increases fairly quickly. As the rate of growth slows or reverses and as my exchange rate average increases over the next two years, the exchange rate will steady out with only very small increases AND decreases every day.
Even if we assume that Bitcoin's current users will never increase (thus not making it more difficult to generate coins), we're sure that its value will increase by at least 19% annually because of the expected 4-year-old D-day when which all BTCs price magically doubles because it will cost double to generate them.

As for the impending doom and gloom you're prophesying will accompany the decreased payout in a few years, all I have to do is add a little multiply by two to my exchange rate calculation and the problem is solved. The exchange rate stays constant and everyone is happy.
Can you explain that part? I didn't understand how multiplying by two will achieve stability.

PS. It might be a good idea to merge your previous double-posts in one via Edit to make reading easier for us and those following us. The world is watching (or some three-letter-agencies anyway :))

We were essentially told that if one camel is worth 50 gold dinars, then 50 gold dinars is also worth one camel.  Or something to that effect.
If we assume that dinars can't be used for any other non-monetary purposes (such as jewelry, paperweights, etc), then it's practically very difficult for them to have a demand curve by themselves. Camels can be used to ride, so their gold price fluctuated (i.e. They become more or less popular with time). Bitcoin can only be used as money, so it's used solely to value things not vice versa.

Did I understand the lesson correctly?
If raising a camel costed more than 50 dinars, you can count on people stopping raising camels until the price goes back up due to supply shortage. With the absolutely arbitray 4-year model, this can never happen. Supply will ALWAYS decrease no matter what. I'm asking for a more flexible method which depends on the actual number of users.

On the general topic of whether bit-coin will/will not be successful--I don't really know.  I act as though I am a "bitcoin defender" but this is mostly because I am excited about the new currency and want to support it, not because I know enough about economics to predict it's eventual usefulness.  
If I wasn't, I wouldn't be here crying my lungs out to correct the model for a one which will work!

but i think you are very likely to find people who agree with your plan for a better encrypted digital currency and will help you modify or re-write bitcoin's source to make it happen.
I know practically nothing about programming or coding. I'm interested in economics (as you might have guessed :)) and was trying to offer a bit of advice to the geeks who do the coding.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 20, 2010, 02:44:56 AM
As for the impending doom and gloom you're prophesying will accompany the decreased payout in a few years, all I have to do is add a little multiply by two to my exchange rate calculation and the problem is solved. The exchange rate stays constant and everyone is happy.
Can you explain that part? I didn't understand how multiplying by two will achieve stability.
I use a formula to calculate my exchange rate which is described on my exchange rate page (http://newlibertystandard.wetpaint.com/page/Exchange+Rate). When I generate my first block of ฿25 rather than ฿50, I can simply change my formula to multiply bitcoins generated by two which will turn that ฿25 into ฿50 within my formula. Bitcoins are worth how much I say they are worth. If tomorrow I say they're all worth half as much as today then it would be so. Go ahead and create your own exchange service using your own formula to value bitcoins and you can have just as much control over the worth of bitcoins.

I absolutely disagree that the current model is unsustainable and I absolutely disagree that people will not spend their bitcoins. If I had my druthers, the amount of bitcoins awarded would grow at the same rate as worldwide human population growth, but it doesn't matter because druthers are just druthers and they ain't important at all.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 20, 2010, 03:56:26 AM
I use a formula to calculate my exchange rate which is described on my exchange rate page (http://newlibertystandard.wetpaint.com/page/Exchange+Rate). When I generate my first block of ฿25 rather than ฿50, I can simply change my formula to multiply bitcoins generated by two which will turn that ฿25 into ฿50 within my formula. Bitcoins are worth how much I say they are worth. If tomorrow I say they're all worth half as much as today then it would be so. Go ahead and create your own exchange service using your own formula to value bitcoins and you can have just as much control over the worth of bitcoins.
OMG. The moment you do that you'll run out of coins immediately because buying them from you would cost only half as much as generating them!

I absolutely disagree that the current model is unsustainable and I absolutely disagree that people will not spend their bitcoins.
Fine. But until someone answers the numerous doubts I've raised in here, I (and anyone with basic economics background) won't believe Bitcoin's current model has a promising future.

If I had my druthers, the amount of bitcoins awarded would grow at the same rate as worldwide human population growth
But I already explained why that was irrelevant. Oh well... nevermind.


Title: Current Bitcoin economic model is sustainable
Post by: NewLibertyStandard on February 20, 2010, 05:12:51 AM
I use a formula to calculate my exchange rate which is described on my exchange rate page (http://newlibertystandard.wetpaint.com/page/Exchange+Rate). When I generate my first block of ฿25 rather than ฿50, I can simply change my formula to multiply bitcoins generated by two which will turn that ฿25 into ฿50 within my formula. Bitcoins are worth how much I say they are worth. If tomorrow I say they're all worth half as much as today then it would be so. Go ahead and create your own exchange service using your own formula to value bitcoins and you can have just as much control over the worth of bitcoins.
OMG. The moment you do that you'll run out of coins immediately because buying them from you would cost only half as much as generating them!
I will always have dollars and bitcoins available to inject into my exchange service. I may run out today, but there will always be more available tomorrow. It's all detailed on my exchange rate page (http://newlibertystandard.wetpaint.com/page/Exchange+Rate).

Fine. But until someone answers the numerous doubts I've raised in here, I (and anyone with basic economics background) won't believe Bitcoin's current model has a promising future.
Fine. But regardless of whether someone answers the numerous doubts you've raised in here, I (and anyone with advanced economics background) will believe Bitcoin's current model has a promising future.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: xc on February 20, 2010, 06:39:33 AM
Nothing to sweat people.  Nobody ever died of a 'deflationary spiral.'  :)  I agree with "I-am-not-anonymous."  The market will choose the best bitcoin-like currency.  I happen to believe, however, that the rules that Satoshi has founded bitcoin on will be more than adequate for the future of a thriving bitcoin economy.  

Everybody knows exactly how fast the supply of bitcoins will grow: it's set in stone in the rules of the programming and the bitcoin network.  While it's true that there is not a currently existing fully-fleshed out market to truly price bitcoins, such markets and exchanges are being developed.  As far as future would-be bitcoin generators are concerned, the question is not how much will he "demand....to compensate for his costs."  The question he'll be asking himself is "given current market values and my ability to utilize electricity and CPU resources, is it worth it for me to generate bitcoins?"  If the answer is yes, he participates.  If it's no, he stops trying to mine for bitcoins and focuses on trading tangible assets with bitcoins serving as an appropriate intermediary.  If he's not sure, he tries his hand at it for a while and then makes a final decision.

The number of nodes and associated computational cpu power will be in flux, and that competitive flux will allow for costs to approximate value (not the other way around.)  Value being set by the markets and the demand for use of bitcoin as a trade intermediary (a money).  In the far future, the competition of transaction costs will play a more important role for the would-be node operator.

Contrary to the paradox of thrift argument you present, collecting bitcoins and saving them with hopes of earning purchasing power through deflation is not a bad thing.  It will allow for the pooling of bitcoin capital and make purchases of larger capital investments possible.  In the future, there might even be bitcoin banks that lend out saved bitcoins with market-set interest rates, thereby diminishing the effects of hoarding.  All this wonderful saving, however, comes at a price: delayed gratification of present desires.  From the perspective of the would-be saver, the question will always be denying present desires to purchase real tangible assets now versus the future possibilities of purchasing more later.  This time preference naturally varies with people and in different circumstances.

Given the fact that bitcoins are by their electronic nature easily divisible, prices will be able to easily adjust to deflationary pressures.  If too many are saving, prices will fall and the rate of interest will go down.  This encourages demand (lower prices) and decreases the desire to save (less interest).

XC


Title: Re: Current Bitcoin economic model is unsustainable
Post by: satoshi on February 21, 2010, 05:44:24 AM
Excellent analysis, xc.

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases.  In your head, you do a probability estimate balancing the odds that it keeps increasing.

In the absence of a market to establish the price, NewLibertyStandard's estimate based on production cost is a good guess and a helpful service (thanks).  The price of any commodity tends to gravitate toward the production cost.  If the price is below cost, then production slows down.  If the price is above cost, profit can be made by generating and selling more.  At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.

At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 21, 2010, 10:06:07 AM
The question he'll be asking himself is "given current market values and my ability to utilize electricity and CPU resources, is it worth it for me to generate bitcoins?"  If the answer is yes, he participates.  If it's no, he stops trying to mine for bitcoins and focuses on trading tangible assets with bitcoins serving as an appropriate intermediary.  If he's not sure, he tries his hand at it for a while and then makes a final decision.
The answer should always be "it's exactly the same". Any slight imbalance will be quickly corrected.

The number of nodes and associated computational cpu power will be in flux, and that competitive flux will allow for costs to approximate value (not the other way around.)
Geez. It's the same guys. In a free market economy, value and cost ARE THE SAME THING.

Value being set by the markets and the demand for use of bitcoin as a trade intermediary (a money).  In the far future, the competition of transaction costs will play a more important role for the would-be node operator.
There will never be a trade intermediary or transactions for a 19% annual-yield investment.

Contrary to the paradox of thrift argument you present, collecting bitcoins and saving them with hopes of earning purchasing power through deflation is not a bad thing.  It will allow for the pooling of bitcoin capital and make purchases of larger capital investments possible.  
That doesn't make sense. What I'm saying is that people aren't stupid. They will figure that since bitcoin will never be spendable, they won't join the network except to "hit and run" a quick profit.

In the future, there might even be bitcoin banks that lend out saved bitcoins with market-set interest rates, thereby diminishing the effects of hoarding.  
Banks? In an anonymity-based system where you can change your identity with a click of a button? I don't think so.

All this wonderful saving, however, comes at a price: delayed gratification of present desires.  From the perspective of the would-be saver, the question will always be denying present desires to purchase real tangible assets now versus the future possibilities of purchasing more later.  This time preference naturally varies with people and in different circumstances.
The luckiest coin will be spent by two or three "spenders" at most before finding itself locked on the harddisk of an investor who'll keep it forever. The result? Supply dwindles even more, prices shoot up, and everybody keep their coins intact and watch NewLibertyStandard's graph as it climbs outside the chart while rubbing their hands in anticipation until the big crash.

If too many are saving, prices will fall and the rate of interest will go down.  This encourages demand (lower prices) and decreases the desire to save (less interest).
How does this solve the problem? Too many are saving, prices go down, which leads to even more people saving because they think the prices will go down ever lower and their coins will be worth more later. By saving here we mean "hoarding", not saving as in investing like your typical bank.


Excellent analysis, xc.
Why am I not surprised? e.e

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases.  In your head, you do a probability estimate balancing the odds that it keeps increasing.
While that is true, you forgot that Bitcoin's expected increase in value (if the project succeeds) is perpetual. It will grow at 19% (or more due to lost coins) forever. How can you incorporate that in its price? If it was estimated today that 1 BTC = $1, 4 years from now it will equal $2. How can you put that in price? Ok, let's make it worth $2 today then. Oh but wait, that makes it equals $4 in 4 years. Hmm, shall we make it equal $16 today then? etc

The price of any commodity tends to gravitate toward the production cost.  If the price is below cost, then production slows down.  If the price is above cost, profit can be made by generating and selling more.  
Exactly. There would never be much difference (if any).

At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.
That assumes that the price was above the cost of generating to begin with! We just agreed that they'll virtually move hand-in-hand.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.
As long as production is possible, which it will always be (if not to the average Joe, then to investors or hackers with botnets), then production cost and market price must conform as you just explained. Moreover, if demand on BTC is more than supply, which will be the case if the coin succeeds, we will be faced with a perpetual shortage leading to perpetual price increasing.

At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.
It is because of NewLibertyStandard's graph. People were also estimating the same for tech-bubbles as they watched their graphs before the market crashed. If this model isn't corrected to reflect a somewhat-constant (or decreasing) value on the long term, nobody will be willing to spend their coins, ever. Sooner or later they will be hoarded by investors (if they believed in BTC's future) who'll sit and wait for their 19% annual interest.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 21, 2010, 11:41:50 AM
My exchange rate will not keep rising forever. If new users can't generate a single block within a few weeks or months, what do you think the likelihood is that they will continue running their CPU at 100% all day everyday? The amount of computers generating bitcoins will grow rapidly only while generating bitcoins is not discouraging. Once it becomes discouraging, we'll sometimes have growth from new users, but we'll also sometimes have decline as users stop generating bitcoins. Watch and be amazed!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 21, 2010, 12:10:57 PM
My exchange rate will not keep rising forever.
Yes it will. And the only thing stopping me from exploiting you by purchasing then reselling to you at a higher price a couple of weeks after is ethical reasons.

If new users can't generate a single block within a few weeks or months, what do you think the likelihood is that they will continue running their CPU at 100% all day everyday? The amount of computers generating bitcoins will grow rapidly only while generating bitcoins is not discouraging. Once it becomes discouraging, we'll sometimes have growth from new users, but we'll also sometimes have decline as users stop generating bitcoins.

Right. And what are those new users going to do as generating becomes more challenging, you think? They can't generate now anymore. Oh, they'll buy from existing ones, of course. What happens to the price when people buy with no adequate supply? Correct. It goes up, and up, and up. And the more the difficulty increases, the more demand will be on the existing coins, and the more the price will shoot up. Typical bubble scenario.


Watch and be amazed!
I won't be amazed when you guys learn that inadequate supply versus growing demand was a bad idea... the hard way.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 21, 2010, 12:18:03 PM
If this model isn't corrected to reflect a somewhat-constant (or decreasing) value on the long term, nobody will be willing to spend their coins, ever.
Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.

I won't be amazed when you guys learn that inadequate supply versus growing demand was a bad idea... the hard way.
I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 21, 2010, 12:22:59 PM
Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.
OMG that's not spending, it's liquidation. It's also called "getting out of the system with as much as you can before it collapses". Say, why did they "spend" these coins when they could've waited for a week and earned a 20% (or whatever) bonus? Kindness of heart? Needed a kidney transplant ASAP?

I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.
Not for long. If the project proceeds in expanding, in a couple of months you won't be able to generate almost any coins.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 21, 2010, 12:40:15 PM
the only thing stopping me from exploiting you by purchasing then reselling to you at a higher price a couple of weeks after is ethical reasons.
Ethical reasons? I'm running an EXCHANGE service! I expect people to "exploit" me. There is absolutely nothing ethically wrong with buying low and selling high. How about you "exploit" me right after midnight GMT by sending me $0.50. Feel free to again "exploit" me the next week by selling those bitcoins you received back for more than $0.50. Better yet, "exploit" me right now!!! Please, please, send me as many bitcoins as I have dollars to buy! If you think the system is so doomed, why haven't you sold all your bitcoins? Do I detect a hint of confidence?

I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.
Not for long. If the project proceeds in expanding, in a couple of months you won't be able to generate almost any coins.
Already taken into account! I assure you I will have both bitcoins and dollars to inject indefinitely. The day I post ฿0.00 in a black font under available bitcoins, you're more than welcome to come rub it in my face. But until that day, you're freshly wrong everyday at midnight GMT until the day you die.

Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.
OMG that's not spending, it's liquidation. It's also called "getting out of the system with as much as you can before it collapses". Say, why did they "spend" these coins when they could've waited for a week and earned a 20% (or whatever) bonus? Kindness of heart? Needed a kidney transplant ASAP?
Unless the person states that they are pulling out which none of them did, it's not liquidation, it's plain ol' buying and selling. I don't know why they SOLD their bitcoins to BUY dollars because they didn't tell me and in any case I wouldn't tell you if they had told me. But as the date was just before Valentine's Day, perhaps he or she wanted to buy a gift for his or her sweetheart. That's certainly more valuable than an improved rate a week later!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 23, 2010, 04:28:37 PM
Who would have spent their Yens in 1910, then? Why, noone of course!

What is wrong is your assertion that people will not exchange a currency because it will invariably increase in value...

Time Preference...
People need goods to survive, the medium will have to exchange in order to satisfy the time preference...

Are you suggesting someone will hoard a virtual asset because it will increase in value and never use it?

Well this is silly, (in this case bitcoin trade-able production) the value will increase as the amount of products that are exchangeable for bitcoin increase, it is an increase in utility that will determine the fate of bitcoin...

As it is an alternative currency, it will have the drawback of the bi-metal fiasco, but the expectation is because there will be a cap in the amount of bitcoins ever available, bitcoin would win the value race IF, and only IF we can generate a real economy with bitcoin as the monetary agent.

How to do this...
Stability, utility is important to gain the acceptance, stability will retain it, so long as we are operating outside legislation and people individually need to make the choice...

Bickering about theory when action is necessary is useless...
Good Job NLS, I may be contacting you about your services soon...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: BitcoinFX on February 23, 2010, 04:44:54 PM
Good discussions, valid points and constructive arguments are offered by all in this thread. I have enjoyed reading the posts and deliberating on the issues myself. It's probably one of the most interesting threads on this forum so far...

I could write an essay in response, but I'm not going to. Instead I will post a few thoughts and perhaps solutions.

(1) I don't currently see Bitcoins as a currency. At the moment they are a commodity with potential 'real' economic value for the future. When investigating Bitcoins as a valid currency (using neural networks and comparisons with other existing currencies, commodities and existing markets) the more I see Bitcoins future model behaving somewhat like Gold i.e. a fairly stable 'base' commodity / currency.

(2) I don't see the current Bitcoin economic model as unsustainable. The fact that their are a finite number of Bitcoins, is precisely what gives them any potential / actual economic value at all. However, I fully understand Suggester's concerns, particularly regarding hoarding etc.

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' ! 8)

(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.

So, I'm going to post the Bitcoin pages on some internet traffic / hit exchanges ! People who use these services for promoting their online 'businesses' or personal pages are already big users of existing internet payment and eCurrency services. They are also 'surfing' for 'the next big thing'. Also, they are perhaps the most likely to try and implement Bitcoins into their accepted methods of payment etc. I encourage others to do the same or similar. "Bitcoins for ALL !"

The above, in my opinion, will go a long way in helping to solve the perceived issues and future problems with Bitcoins as a currency with 'real' merchantability and 'true' economic value in the future.

Get ready for the 'Gold Rush' ! :o (maybe) ;D


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 23, 2010, 06:20:56 PM

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' ! 8)



Except then you have the issue with the current paper money, the virtual printing press will cause an inflationary boom and subsequent bust...

It would be better to have a finite exchange medium that increases in value with the increased utility

The primary recipients of additional "bitnotes" after the first creation will benefit from the prices of the initial volume of bitnotes, but as the increased supply of notes moves around the economy, it depreciates, therefore increasing prices. Basically the time it takes the notes to circulate those who are not receiving the initial boost are paying higher prices, this is the reason why fiat currency is a moral hazard...


(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.

Government and bank should not be an issue, as it is illegal to do this in a sense...
creating a fiduciary media is against the law in any country, anyone who exchanges in this media is breaking a law...
as the transactions are anonymous they are nontaxable, I think we can see where the governments will have an issue...

Hoarding is a silly notion, sure someone may do such, but at the peril of the thing they are hoarding becomes useless and therefore destroys the value, if I were to control all the bitcoins, as there is no mandate securing the use of such a media, everyone can move to another media, and additional to this fact, since we have left the realm of legality, what stops someone from creating a competing currency, or any number of people, which if hoarding takes place utility diminishes and value decreases, people then move their product in other free market money supplies...

The commodity is not the coin, it is the products that the coin is accepted in trade for, it has no inherent value of its own, just a value in relation to what one may obtain for a certain unit of it...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 23, 2010, 06:56:24 PM
Sorry for getting carried away Suggester. I get frustrated when I encounter someone as stubborn as myself.  :P

I again changed my mind for my preferred way for some Bitcoin variant to work. I don't like the idea I had of increasing at the rate of worldwide human population growth because it creates ugly fractions. I like my original idea (https://www.bitcoin.org/smf/index.php?topic=57.msg399#msg399) but in addition to it, I think it would be nice if by default the program wouldn't show a decimal, but allow people to optionally view and send currency with as many decimal places as they want.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: BitcoinFX on February 24, 2010, 04:17:20 AM
@ ihrhase

To clarify I don't mean that paper money should be printed. I mean to build a 2nd implementation of the existing P2P software, that is directly related to the first, although has an infinite generation. However, I was looking way into Bitcoins future.

Welcome to the forum btw.

@ NLS

Yes. Decimal place additions are the obvious way to go. However, most existing currencies rarely show more than 2 decimal places I suppose...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 24, 2010, 07:02:44 AM
@ ihrhase

To clarify I don't mean that paper money should be printed. I mean to build a 2nd implementation of the existing P2P software, that is directly related to the first, although has an infinite generation. However, I was looking way into Bitcoins future.

Welcome to the forum btw.


To clarify I know what you meant, it is not the paper aspect that makes FRN's unstable, it is the unlimited printing of them that does...

The reason the gold standard was superior to non gold standard money was because there was a maximum amount of money printable...

imagine there are 100 BTC...
When there are 1000 BTN in circulation they can be exchanged for .1 BTC per BTN
If creation of BTN is unlimited this exchange is then unstable (always decreasing as more notes are made)

If you lock finite the amount of BTC's and more people use them in exchange, each BTC will purchase more, as the store value of the BTC will increase.

The way the stepped generation of BTC seems to be explained in the FAQ, it will attempt to keep pricing stable as BTC are generated, but overall the prices will drop once BTC production ceases and utility still increases.  This is a good thing, eventually equilibrium will be hit, let the market do it...

Offering uncapped note production is in reality doing what governments do with a money supply, that is, they add notes with nothing to back them up, and if we use the value of the BTC, infinite printing will yield the same issue the USD  has with its former commodity value store (gold), almost a century ago FRN's hit the market, and gold was $20/oz, in the 70's we dropped the standard completely and gold was $35/oz, now gold is over $1000/oz regularly (and this is only due to Congress' meddling with the figures)...

We have an excellent opportunity here, to show government is not necessary, or even desirable in the market, that honest free market alternatives are not only viable, but are also desirable...

Maybe I am insane for wanting a world where market prices are free, and not padded by regulation, taxation, rife with price controls or subject to the desires of the few whom victimize the many, but I am happy with this insanity...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: dwdollar on February 24, 2010, 07:38:24 AM
The economic model is sound in principle, but what happens when people start to notice?  The Empire isn't going to tolerate this kind of behaviour.  There is too much at stake.  The fiat currencies are hanging by a thread and there's no reason to believe that's going to change any time soon.  At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".


Title: Re: Current Bitcoin economic model is unsustainable
Post by: The Madhatter on February 24, 2010, 07:50:34 AM
I suspect they will try to regulate the internet even more, not bitcoin itself.

And yes, they will try to deter others from using it by means of a media smear. (See the smear campaign they did to e-gold back in the day). Will this stop people from using it? Yes, some. Will it stop it completely? No.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 24, 2010, 08:39:45 AM
If the rate at which blocks are generated is on average constant and the amount of bitcoins awarded for generating a block is constant then bitcoin availability is not really infinite. Sure, infinitely in the future there are infinite bitcoins, but if you pick any point in the future, you know exactly how many bitcoins are available. On the other hand if the amount of bitcoins awarded for generating a block is variable, then the botnet operator becomes the bitcoin reserve. Likewise, if a botnet decides to work hard on Bitcoin under the current model for 32 years, he is then and forever the reserve. I don't like the current model or Suggester's model because it allows for the currency to be horded by the few. It gives advantage to whoever has access to more processing power than everyone else. I like my model because it gives as much of an advantage to the people as is possible. Sure the the person with lots of computing power can edge everyone else out, but only so long as he keeps working on it forever. The moment he stops, or whenever people collectively offer more computing power, the advantage doesn't completely balance out, but it becomes less skewed. The person who I think has the most to gain under the current model is satoshi because he knew about bitcoin before anyone else and probably has a nice fat collection of bitcoins. Although I probably have less than him, I have a lot more bitcoins than people who are going to join later than me, so the current model also benefits me. If I was a fan of a pure free market, that would be fantastic for me. Unfortunately I lean towards populism. I think everyone is better off, including myself, when advantages are spread out as equally as possible. That isn't to say that everyone will be forced to be equal. Some of course will be richer and others poorer, but I think that it's in the benefit of everyone, including the rich when the gap between the rich and the workers is under control.

Although I lean toward populism, I'm not really a pure populist either. I sort of dislike big business but I respect them because they often do what they do very well. Sort of like majestic lions, tigers and bears, oh my! I just like it when there is a balance in the fight between ruthless business and ruthless democratic government.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 24, 2010, 01:22:24 PM
The economic model is sound in principle, but what happens when people start to notice?  The Empire isn't going to tolerate this kind of behaviour.  There is too much at stake.  The fiat currencies are hanging by a thread and there's no reason to believe that's going to change any time soon.  At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".

Yep...
Most likely, once they start seeing a real decline in tax receipts, it will be a combination of the two...

I suspect they will try to regulate the internet even more, not bitcoin itself.

And yes, they will try to deter others from using it by means of a media smear. (See the smear campaign they did to e-gold back in the day). Will this stop people from using it? Yes, some. Will it stop it completely? No.

Precisely Madhatter...

NLS, If I may...

Infinite BTC production will cause the same issues we have today, inflationary bubbles and then busts, this will deter people from using BTC as they will already have the same service with government mandated Fiat, and no risk of penalty for using that...

If you were a fan of the free market you would believe everyone, including yourself, is better off when they have equal potential for gain...

You are forgetting the point that BTC only has any real value in trade, so the people generating the coins will have to trade them in order to maintain their value.  If I hoard 20 million BTC, the Value of the other Million will decline as utility will not support BTC, I do not think it will need to come to that with the precariously small number of coins.  Hoarding will be seen, by economic tells, within a 10% share hoard.  I will tell you right now, there is "hoarding" because of the small amount of available business in BTC, I am, but my "hoarding" is waiting for products I want, there is little utility as of yet in BTC for me, though I am willing to do business in BTC.  I do not have a tremendous amount of power dedicated to BTC production, I am a minor player at best, but I offer a product none will be able to attain with BTC as of what I have seen, does this give me an unfair trade advantage?  No, anyone can enter the market against me and compete freely, as with any other Black Market, the advantage to competition here is we are not about to shoot each other over trade.

The democratic governments is what is wrong with the current monetary system which inspired this creation, maybe we should stop considering them as good.  They violate human rights as a constant activity, they murder on wholesale levels, the rob entire populations, they enslave humans, all without any threat of punishment...

I would suggest if you have time looking up the lecture series "The End of Laissez Faire: 1870 to WWII" by Murray Rothbard.  It does well to prove with historical accuracy, Business + Government = Corporatism, and this is NOT conducive to free market...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 24, 2010, 01:50:55 PM
Who would have spent their Yens in 1910, then? Why, noone of course!
What is wrong is your assertion that people will not exchange a currency because it will invariably increase in value...

Time Preference...
People need goods to survive, the medium will have to exchange in order to satisfy the time preference...
Someone spending $1 now to create $1 worth of coins isn't a person who needs goods to survive. He's probably an investor, or will end up paying his coins to an investor.

Are you suggesting someone will hoard a virtual asset because it will increase in value and never use it?

Well this is silly, (in this case bitcoin trade-able production) the value will increase as the amount of products that are exchangeable for bitcoin increase, it is an increase in utility that will determine the fate of bitcoin...
This increase is one of the main reasons Bitcoin is doomed under the current model. I think you lost me.

As it is an alternative currency, it will have the drawback of the bi-metal fiasco, but the expectation is because there will be a cap in the amount of bitcoins ever available, bitcoin would win the value race IF, and only IF we can generate a real economy with bitcoin as the monetary agent.
Which will not happen under the current model due to its enormous "investability".

How to do this...
Stability, utility is important to gain the acceptance, stability will retain it, so long as we are operating outside legislation and people individually need to make the choice...
Which will also not happen under the current model due to increasing generating cost.

Bickering about theory when action is necessary is useless...
Taking thoughtless action without proper planning is catastrophic.

Good discussions, valid points and constructive arguments are offered by all in this thread.
I disagree for obvious reasons :p

(1) I don't currently see Bitcoins as a currency. At the moment they are a commodity with potential 'real' economic value for the future. When investigating Bitcoins as a valid currency (using neural networks and comparisons with other existing currencies, commodities and existing markets) the more I see Bitcoins future model behaving somewhat like Gold i.e. a fairly stable 'base' commodity / currency.
Gold didn't become increasingly difficult to mine from the first day it was discovered. And by the time it becomes impossible to mine anymore, nobody would be using it as a medium of exchange. And if they were, the world would be doomed by depression because everybody would be saving as much as they can because their gold would be worth more tomorrow. Mild inflation (or stability at least) solves this problem.

(2) I don't see the current Bitcoin economic model as unsustainable. The fact that their are a finite number of Bitcoins, is precisely what gives them any potential / actual economic value at all.
That doesn't make sense. All (infinite) fiat currencies have a value. Infinite milk and infinite corn have a value. Infinite electricity has a value. Why are you people so obsessed with the idea of "finite supply"?

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' ! 8)
Why not just use more decimals on the existing coin?

(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.
With 144 daily blocks, you can hardly keep a large user base interested. Sooner or later (especially if a botnet or a supercomputer began competing with us) you'll need to work months before seeing a single block appear. All this has to change.

Get ready for the 'Gold Rush' ! :o (maybe) ;D
Soon to be followed by a 'Gold Crash' (probably)


Hoarding is a silly notion, sure someone may do such, but at the peril of the thing they are hoarding becomes useless and therefore destroys the value, if I were to control all the bitcoins, as there is no mandate securing the use of such a media, everyone can move to another media, and additional to this fact, since we have left the realm of legality, what stops someone from creating a competing currency, or any number of people, which if hoarding takes place utility diminishes and value decreases, people then move their product in other free market money supplies...

The commodity is not the coin, it is the products that the coin is accepted in trade for, it has no inherent value of its own, just a value in relation to what one may obtain for a certain unit of it...
Right. Consider it an un-self-fulfilling prophecy. Because people with reasonable economic background and thought can predict right now that all this would happen, they wouldn't probably use Bitcoin in the first place.

Sorry for getting carried away Suggester. I get frustrated when I encounter someone as stubborn as myself.  :P
NP. I'll probably keep frustrating you for quite some time then :)

I again changed my mind for my preferred way for some Bitcoin variant to work. I don't like the idea I had of increasing at the rate of worldwide human population growth because it creates ugly fractions.
You never stop surprising me with your analysis man.

If the rate at which blocks are generated is on average constant and the amount of bitcoins awarded for generating a block is constant then bitcoin availability is not really infinite. Sure, infinitely in the future there are infinite bitcoins, but if you pick any point in the future, you know exactly how many bitcoins are available.
That doesn't make it "finite". It's infinite but accurately predicted.

On the other hand if the amount of bitcoins awarded for generating a block is variable, then the botnet operator becomes the bitcoin reserve. Likewise, if a botnet decides to work hard on Bitcoin under the current model for 32 years, he is then and forever the reserve. I don't like the current model or Suggester's model because it allows for the currency to be horded by the few. It gives advantage to whoever has access to more processing power than everyone else. I like my model because it gives as much of an advantage to the people as is possible. Sure the the person with lots of computing power can edge everyone else out, but only so long as he keeps working on it forever. The moment he stops, or whenever people collectively offer more computing power, the advantage doesn't completely balance out, but it becomes less skewed.
Stop worrying about botnets, please. They're gonna have an edge under any model. Plus they don't change anything economically. They are just as if normal people donated their coins to a charity or whatever. Limited blocks means people need to wait more for coins to appear in their console, which means less people interested in joining the network after some threshold (maybe 1000 connected machines or something. 500 machines 4 years from now, etc). Bitcoin needs more people to join in order to both spread the system worldwide and for the proof-of-work to be strong.

At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".
I think that it's in the benefit of everyone, including the rich when the gap between the rich and the workers is under control.
dwdollar, I think we can safely add add "communists" to your list.
On a side note, NLE, my model of unlimited coin production is very communist because it doesn't grant any advantage to early starters. You won't need to exert double the effort in 4 years to generate the same amount of coins today. Just put your CPU to work (or buy electricity-in-the-form-of-BTCs from an Indian exchanger) and you'll get what you paid for in untraceable, nontaxable, spendable coins. Plain and simple. It's not fair to grant this huge advantage to early adopters on the expense of later comers (even it wasn't going to crash the whole thing!)

Infinite BTC production will cause the same issues we have today, inflationary bubbles and then busts, this will deter people from using BTC as they will already have the same
service with government mandated Fiat, and no risk of penalty for using that...
This has to be the most biased statement in this thread. Compared to fiat currencies, bitcoin is a wild crazy horse which will undergo extreme bubbles and bursts. Fiat currencies are fairly stable in price.

You are forgetting the point that BTC only has any real value in trade, so the people generating the coins will have to trade them in order to maintain their value.  If I hoard 20 million BTC, the Value of the other Million will decline as utility will not support BTC, I do not think it will need to come to that with the precariously small number of coins.  Hoarding will be seen, by economic tells, within a 10% share hoard.  I will tell you right now, there is "hoarding" because of the small amount of available business in BTC,
So the hoarder will spend some of his coins in order to give value to the rest? This will only lead to another hoarder jumping at this chance to add some more to his hoarded hoards. If the current system was successful (which it won't be), investors will gladly liquidate some of their 10%-yielding assets to purchase the 20%-yielding coin. You guys are missing the whole point. Hoarding = No exchange, period.

I am, but my "hoarding" is waiting for products I want, there is little utility as of yet in BTC for me, though I am willing to do business in BTC.  
Ain't gonna happen if the current model isn't rectified.

The democratic governments is what is wrong with the current monetary system which inspired this creation, maybe we should stop considering them as good.  They violate human rights as a constant activity, they murder on wholesale levels, the rob entire populations, they enslave humans, all without any threat of punishment...
True. But the problem is, dictatorships weren't/aren't any better.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 24, 2010, 04:17:46 PM

Someone spending $1 now to create $1 worth of coins isn't a person who needs goods to survive. He's probably an investor, or will end up paying his coins to an investor.


If the overall plan is not to build a counter economy you would be correct, but I think people involved here are looking to, in the long run at least, do more than trade valueless digital blips...

This increase is one of the main reasons Bitcoin is doomed under the current model. I think you lost me.

If it does not increase in utility it will not increase in value...

The value to these digital blips is NOT in how they are created but in what one can get for them...
Subjective Theory of Value and Bitcoin
I have a list of products I would like to attain for my bitcoins, these are capital goods, that is for use in production of a consumer good.  When I attain these goods, the value of the bitcoin is in relation to how much of these factors can be attained with each coin.  You can assert that 1 BTC = $1, but if I can obtain more capital goods with $1 than 1 BTC, then the $1 is valued higher to me than the 1 BTC.  The logical choice for me is to then dump all BTC for dollars in order to obtain capital goods, and therefore sell my consumer good in dollars....

*side note* When I bring my consumer good to the market, how much the market clearing price for my supply is will determine whether I am using the resources efficiently, or if I should rethink my business model.*

What you guys are talking about is Labor Theory of Value, this theory was shot to pieces in the late 1800's, I do not think I need to repeat the process...

Which will not happen under the current model due to its enormous "investability".
The invest-able nature of the BTC will disappear if there is no commodity market that supports it, it is why the dollar has stayed afloat, well that and military might...

Taking thoughtless action without proper planning is catastrophic.
I Agree, but you are thinking that a planned economy is a sustainable system, look at the world of economy and tell me how well that is working, the free market can handle all your issues, it is something we are not seeing today, so the comparative advantage in logic is based on the unused system.  It was the less planned economy (more laissez faire), that accumulated the major part of the world's monetary gold in the US prior to WWI.  There was less regulation and taxation inflating prices, BTC mimics this, as it is a counter economy currency, if it retains the capped amount of BTC, it will be able to stabilize in the long run...

Mild inflation (or stability at least) solves this problem.
Keynes thought this too, are you going to have a privilege class that gets new BTC to spend to solve your problem too?

That doesn't make sense. All (infinite) fiat currencies have a value. Infinite milk and infinite corn have a value. Infinite electricity has a value. Why are you people so obsessed with the idea of "finite supply"?
Yes they have a value, that consistently depreciates over time, it retains utility by government coercion, if you had the choice to abandon a depreciating fiat currency for a stable commodity based one, why would you allow inflation to rob you perpetually?...  This is an unsustainable model
There is not infinite milk or corn, and they are not currency, they are commodities
There is not infinite electricity either
Finite supply is what this world is about, resources are scarce...

With 144 daily blocks, you can hardly keep a large user base interested. Sooner or later (especially if a botnet or a supercomputer began competing with us) you'll need to work for weeks (wondering whether you've correctly set the thing up) before seeing a single block appear.
So are you looking for some perceived fair share before a more efficient producer comes along?  I am sorry, but IF someone chooses to dedicate more resources to production of BTC, they deserve more BTC.

Right. Consider it an un-self-fulfilling prophecy. Because people with reasonable economic background and thought can predict right now that all this would happen, they wouldn't probably use Bitcoin in the first place.

Except those that are looking to use something that will get them out from under the current failing economic models, which as far as I can tell is not your issue...
People that see no value in anonymous transactions will abandon BTC, I am certain, but I think there are more people looking to not pay for every government misadventure through inflation and taxation...

That doesn't make it "finite". It's infinite but accurately predicted.
Not Quite, it is infinite, just at a planned progression on the way to it.  It still interferes with the market value of the BTC...

Bitcoin needs more people to join in order to both spread the system worldwide and for the proof-of-work to be strong.
I disagree, it needs a trade base, that will prove the currency, without the trade base it is as useful as $$ in an MMORPG, sure people do dedicate real $ for MMORPG $$, but in the end there is no production...

dwdollar, I think we can safely add add "communists" to your list.
Only in your rendition of how BTC should be, there is no way to propagandize me a communist...

It's not fair to grant this huge advantage to early adopters on the expense of later comers (even it wasn't going to crash the whole thing!)
Why should the early comers not have the advantage?  They are taking the risks initially, for something that could go nowhere, the later comers, after the system is proven have considerably less risk and if they dedicate less to generation they have less to lose.
 
Hoarding = No exchange, period.
No you are missing the whole point, no exchange = NO VALUE, and therefore no point in hoarding, it is the common fallacy seen in marxist, so I do not blame you, you just have to realize marxism is wrong before you can think coherently in regard to this argument.  You are completely disregarding ALL economic laws in regard to your analysis, once you try to benefit from hoarding Marginal Utility destroys the potential gain, you completely ignore time, and this is why you think hoarding may be beneficial...

Ain't gonna happen if the current model isn't rectified.
The model has nothing to do with this, it is the utility the producers of capital goods have that will rectify this.

True. But the problem is, dictatorships weren't/aren't any better.
And this would be why Communism is not a good idea either... Are you one of those inevitability of government people?  I am sorry but there is no regulation on BTC and it is nontaxable as it stands now, it is operating without government, do you assume that government should be involved?



Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 24, 2010, 09:10:45 PM
I doubt any of us will convince the others of their views. Agreeing to disagree is boring, so I think the best solution is to turn it into a competition. Lets create two alternatives and let the three battle it out. :) But what would we call the alternatives? I think that my alternative would be pretty easy to implement by making some small adjustments to the Bitcoin code. But I'm not sure how Suggester's idea would work from a technical perspective because generating a larger number of blocks per hour makes it harder to propagate those blocks across the swarm.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 24, 2010, 09:31:54 PM
I doubt any of us will convince the others of their views. Agreeing to disagree is boring, so I think the best solution is to turn it into a competition. Lets create two alternatives and let the three battle it out. :) But what would we call the alternatives? I think that my alternative would be pretty easy to implement by making some small adjustments to the Bitcoin code. But I'm not sure how Suggester's idea would work from a technical perspective because generating a larger number of blocks per hour makes it harder to propagate those blocks across the swarm.

As far as this end of the technology is concerned I am not sure how that all works out...

Can you explain:
1 How yours solves the issue of inflation?
2 How yours can calculate a meaningful price system?
3 Outside of a commodities market, how does yours have a meaningful value for the BTC?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 24, 2010, 09:57:18 PM
1 How yours solves the issue of inflation?
I don't consider steady predictable low inflation an issue that needs solving. The rate of inflation would be decreasing constantly because the amount of bitcoins being added to the system would be constant whereas the amount of bitcoins within the system would be increasing constantly. An increase of 100 when the total is 100 doubles the amount of available bitcoins, but an increase of 100 when the total is a million is a very small percentage increase.

2 How yours can calculate a meaningful price system?
Just like the current implementation, they would have the base value of the cost of production plus any additional value which people give and demand. The only difference is that my alternative bitcoins are like renewable resources. There is not an infinite amount available today, but we can always generate more tomorrow.

3 Outside of a commodities market, how does yours have a meaningful value for the BTC?
Would you rephrase the question?


Title: Explaining my model
Post by: Suggester on February 24, 2010, 10:45:42 PM
I doubt any of us will convince the others of their views. Agreeing to disagree is boring, so I think the best solution is to turn it into a competition. Lets create two alternatives and let the three battle it out. :) But what would we call the alternatives? I think that my alternative would be pretty easy to implement by making some small adjustments to the Bitcoin code. But I'm not sure how Suggester's idea would work from a technical perspective because generating a larger number of blocks per hour makes it harder to propagate those blocks across the swarm.
Alright that sounds interesting. I don't know how fast can propagating blocks go, but let's assume for starters that it takes 10 seconds to propagate a block across the network. There are 8,640 deci-seconds in a day, which means that on average, the system will be able to support something like 2,880 daily blocks (third of 8,640) at a maximum to reasonably avoid collisions. In other words, if we froze the difficulty of generating 1 block so a modern computer would need to work for 1 day on average to create it, it wouldn't be good enough because we hope for much more than 2,880 users to join soon.

The solution would be to make generating a block extremely difficult right from the start. Say, a modern dual-core computer would need to work continuously for a month to generate 1 block regardless of how much CPU power is in the network. With the 10-seconds assumption, this will give us room now to accommodate about 86,400 (which is 2,880 x 30) connected machines without considerable problems. You might complain today that a month of waiting is too much, but assuming the current model succeeds, it will soon need much more than a month to see a block coming under it. Additionally, coin production will be done via specialized businesses and dedicated computers left to work only for that purpose who'll sell to you and me, so a month wouldn't bother them and it would create a killer proof-of-work. And as NLS always fears, a botnet can and will stop all of us from producing under the current model. A botnet will not be able to do so under the suggested model. It will only make its owner rich, which happens anyway.

"What if we listened to your stupid idea, and soon enough we got more than 86,400 connected users?" you may ask. First, please don't resort to name-calling. Second, remember that as time progresses, internet speeds improve faster than computer speeds. So by the time we get 86k PCs connected 24/7 (which may take a couple of years for example), we'll have a propagation time of only 5 seconds. Two more years and it will be 3 seconds, naturally allowing the system to accommodate more newcomers (including a couple of botnets :)) without destroying the economic system via perpetual deflation. The network however wouldn't grow too large because Westerns would prefer to buy coins from people who live in cheap-electricity countries to save on their bills, keep reading...

Can you explain:
I think that request was for NLS but I'll answer them for my model too :D

1 How yours solves the issue of inflation?
Under my model (and indeed, the current one) the generating costs are generally tied to the price of energy. Those may go up and down all the time, but aren't affected by how much people are in the network and don't double every four years either.

2 How yours can calculate a meaningful price system?
Prices will be determined in my model (and also in the current model) by how much cost (i.e. electricity mainly) was spent to generate a block of say, 10 BTCs (or whatever).

3 Outside of a commodities market, how does yours have a meaningful value for the BTC?
My favorite question :). If we assume that running a high-end computer in a Western country continuously for a month costs $10, then under my model, a ฿10 block will more or less have an agreed-upon value of $10 ($1=฿1). As more people from countries with cheap electricity (eg. Venezuela) join to exploit that difference and compete with each other in selling to Westerns, price will more or less stabilize just a tad higher than the average cost of electricity in these countries. This will also serve as a way to limit the network so it wouldn't grow too large for propagation (because why run your PC for a month in the US and pay a $10 bill when you can purchase that block for $4 from an Indian dude while avoiding the melting of your machine -and nervous system- via all that heat and noise?). The network will be filled with generating Mexicans and Zimbabweans (and botnets) because they're most efficient at electricity cost. It's a shame because botnets may eventually become our main providers, but that's better than having them ruin the whole system by stopping participants from producing under the current model, right?

Now that Bitcoins would rarely increase in value (because people will continuously find a place where electricity is 3% cheaper), nobody will be hoarding his coins. People will gladly use them as a means of exchange and even spend them ASAP before they lose another 3%, causing the ฿ economy to flourish. Additionally, even 20 years from now, anyone will be able to generate a coin by running his machine for a few weeks, granting newcomers who don't want to purchase from botnets for ethical reasons or from Mexicans for security reasons a chance to join at any point in the future.

I wholly appreciate NLS's model, which is exactly like mine with the difference of freezing the generation at, say, 2,880 daily blocks. Under his model, if one computer is connected, it creates 2880 blocks/day. If 10,000 computers are connected, they create something like 1 block/4 days each. The problem with this is that the cost of generating a block would continue to deflate for the foreseeable future until the number of participating nodes stabilizes, which could never happen as long as the price keeps increasing because of the increasing cost due to more people joining the network (due to more people using the internet and hearing about Bitcoin, for example), inevitably having us stuck in the perpetual-deflation scenario. Additionally, if a couple of large botnets join the network (which will happen sooner or later, to be honest), the average user would then have noway to generate his own blocks and would be forced to buy from them instead. Some people afraid of government witch-hunting those who purchase BTCs might be afraid to use conventional methods like paypal and would thus have almost noway of acquiring coins (both because botnets/crowds make generation difficult and because 16 years have passed effectively making it impossible). Finally, if those botnets/supercomputers belong to a government, they would not sell their 2,879 daily blocks in order to hinder Bitcoins's usability. Ego aside, that's why I prefer my model of user-base-dependent-block-generation over NLS's of perpetually-fixed-block-generation.

Satoshi, please do consider changing the current model to one of those two (or something new). We're not trying to win an argument here; we're trying to find the best way to make this project successful. This becomes more difficult with time. If we're going to change anything before the word catches on, now is the time to do it.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: xc on February 24, 2010, 10:54:57 PM
As I think I understand you, if the goal is to have price stability I'm not sure I see the advantage.

Even if bitcoins were to increase at a set amount, and therefore increase at a decreasing rate, the pricing system would react the same way as it does now with a final cap: price deflation.  The only difference really is the degree, except that in your system we would still be propagating new blocks (though future computing power probably minimizes this added cost). 

Milton Friedman proposed a similar system to maintain price stability by trying to have the rate of dollar inflation mechanically approximate population growth.  The problem with his proposal though, was that no government (constitutional amendment or otherwise) would limit itself to population growth once it had sanction to increase the money supply.  Besides, they've already given themselves permission now even though the US Constitution forbids it.

As long as we can effectively divide bitcoins (as Satoshi mentioned down to 8+ decimal places), prices will be able to adjust to deflation and increasing purchasing power.  So, Keynesian deflationary spiral crisis ideas aside, absolute price stability is really not necessary.

XC


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 24, 2010, 11:15:35 PM
My exchange rate will not always rise without ever falling. The only reason why it is rising steadily right now is because I calculate it using a large average to reduce volatility. If I used a smaller average, you would regularly see much higher highs and very frequent lows.

Neither the current model nor my model will continue to deflate forever. Once generating bitcoins becomes exceedingly difficult, most people will not try to generate bitcoins.

I know that my model is similar to the current model. What I don't like about the current model is that people generating bitcoins at any given time can generate twice as many as others after four years. That is what I want fixed.

It's Suggester's model that strives for price stability from the beginning.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 25, 2010, 12:58:00 AM
I don't consider steady predictable low inflation an issue that needs solving.
It does if there is a crash from inflated prices, slow steady inflation is what we have now, in an attempt to stabilize the prices (failing)


Just like the current implementation, they would have the base value of the cost of production plus any additional value which people give and demand. The only difference is that my alternative bitcoins are like renewable resources. There is not an infinite amount available today, but we can always generate more tomorrow.
There is a logical inconsistency, can you tell someone that you wish to sell BTC's to, "this costs me $1 to create this, so give me a dollar for it"?  The cost of production has no bearing on the price system in BTC, only the products attainable by it has such.  What your slow stream if inflation does is stabilize prices if more products over time are available in exchange for BTC, however, if they do not increase your price system increases the prices, AKA devalues the currency, and as this is different than government currency, you cannot compel usage, would it not be more beneficial to have an increasing value currency and declining prices in relation to BTC?

Would you rephrase the question?
You sort of answered this in the second, without an exchange of goods that has a measurable value, how do you determine the value of the BTC itself?


1 How yours solves the issue of inflation?
Under my model (and indeed, the current one) the generating costs are generally tied to the price of energy. Those may go up and down all the time, but aren't affected by how much people are in the network and don't double every four years either.

2 How yours can calculate a meaningful price system?
Prices will be determined in my model (and also in the current model) by how much cost (i.e. electricity mainly) was spent to generate a block of say, 10 BTCs (or whatever).

3 Outside of a commodities market, how does yours have a meaningful value for the BTC?
My favorite question :). If we assume that running a high-end computer in a Western country continuously for a year costs about $120, then running it for a month costs $10. If a block equals 10 BTCs, then we'll more or less have an agreed-upon value of $1 = 1 BTC. As more people from countries with cheap electricity (eg. Venezuela) join to exploit that difference and compete with each other in selling to Westerns, price will more or less stabilize just a tad higher than the average cost of electricity in these countries. This will also serve as a way to limit the network so it wouldn't grow too large for propagation (because why run your PC for a month in the US and pay a $10 bill when you can purchase that block for $4 from an Indian dude while avoiding the melting of your machine -and nervous system- via all that heat and noise?). The network will be filled with generating Mexicans and Zimbabweans (and botnets) because they're most efficient at electricity cost. It's a shame because botnets may eventually become our main providers, but that's better than having them ruin the whole system by stopping participants from producing under the current model, right?

Now that Bitcoins would rarely increase in value (because people will continuously find a place where electricity is 3% cheaper), nobody will be hoarding his coins. People will gladly use them as a means of exchange and even spend them ASAP before they lose another 3%, causing the ฿ economy to flourish. Additionally, even 20 years from now, anyone will be able to generate a coin by running his machine for a few weeks, granting newcomers who don't want to purchase from botnets for ethical reasons or from Mexicans for security reasons a chance to join at any point in the future.

I wholly appreciate NLS's model, which is exactly like mine with the difference of freezing the generation at, say, 2,880 daily blocks. Under his model, if one computer is connected, it creates 2880 blocks/day. If 10,000 computers are connected, they create something like 1 block/4 days each. The problem with this is that the cost of generating a block would continue to deflate for the foreseeable future until the number of participating nodes stabilizes, which could never happen as long as the price keeps increasing because of the increasing cost due to more people joining the network (due to more people using the internet and hearing about Bitcoin, for example), inevitably having us stuck in the perpetual-deflation scenario. Additionally, if a couple of large botnets join the network (which will happen sooner or later, to be honest), the average user would then have noway to generate his own blocks and would be forced to buy from them instead. Some people afraid of government witch-hunting those who purchase BTCs might be afraid to use conventional methods like paypal and would thus have almost noway of acquiring coins (both because botnets/crowds make generation difficult and because 16 years have passed effectively making it impossible). Finally, if those botnets/supercomputers belong to a government, they would not sell their 2,879 daily blocks in order to hinder Bitcoins's usability. Ego aside, that's why I prefer my model of user-base-dependent-block-generation over NLS's of perpetually-fixed-block-generation.

Satoshi, please do consider changing the current model to one of those two (or something new). We're not trying to win an argument here; we're trying to find the best way to make this project successful. This becomes more difficult with time. If we're going to change anything before the word catches on, now is the time to do it.

1 your answer has nothing to do with the question, the finite cap on available BTC is how the current system deals with inflation
2 the cost of generating a bitcoin has nothing to do with the price one demands for a commodity in BTC, if I would rather have 1 BTC than x amount of commodity, regardless of the cost of generating that 1 BTC, and the cost of attaining that commodity, no exchange will take place.
Economic law
For a transaction to take place both parties MUST perceive a benefit
The price system is how prices will be determined in the market, if you are proposing that dedicating 4 years time should give equal opportunity to someone dedicating one year, you are devaluing the bitcoin for the long time users...
3 Well if you are concerned with trade in BTC, why are you not concerned with production in BTC?
If the BTC level is capped at 21 million, and there are no more BTC to be made your options are to go into business and sell something for BTC or buy them from someone who has them that sells things for BTC, it is obviously in the interest of producers, without the addition of BTC to the market to sell their BTC off or trade them for capital goods.

Why is price deflation bad?
Monetary deflation would be bad, but we are talking about, as I am lead to believe, there will be a constant amount of BTC after a time, where none will be added or leave the system.  Monetary deflation will not occur, just a decrease in nominal price, which is an indication that the value of the BTC is increasing, a good thing...

maybe you all should look into the philosophy of free market economics, since that is what we are realistically doing...

Off the top of my head...
I think the stabilization of the amount of BTC is crucial to the integrity of the unit
I think that we should stress market trade instead of concerning about the cost of BTC production
I think that IF megabots or whatever decide to dominate the market for generating coins their business will be short lived and only serve to be an exchange service after a time
The fact is that IF there was a hoarder, watching nominal prices would indicate such, and it would be silly for someone to do so, the most they could to is exchange them for $ and then their dominant market share is compromised


Title: Democracy Dollars!
Post by: NewLibertyStandard on February 25, 2010, 01:01:54 AM
Democracy Dollars is now the name for my theoretical currency which is based on Bitcoin but with a few modifications. $1.00 DMD would be awarded per generated block instead of ฿50.00 BTC. The amount of dollars awarded for generating a block would not decrease every 4 years like with Bitcoin. Two decimal places would still be displayed because dollars usually have two decimal places. Ideally users would have the option to display and use hidden decimal places. The client would be called Citizen Bank.


Title: Re: Democracy Dollars!
Post by: ihrhase on February 25, 2010, 01:19:40 AM
Democracy Dollars is now the name for my theoretical currency which is based on Bitcoin but with a few modifications. $1.00 DMD would be awarded per generated block instead of ฿50.00 BTC. The amount of dollars awarded for generating a block would not decrease every 4 years like with Bitcoin. Two decimal places would still be displayed because dollars usually have two decimal places. Ideally users would have the option to display and use hidden decimal places. The client would be called Citizen Bank.

A competing currency?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ihrhase on February 25, 2010, 01:20:45 AM
BTW New liberty, what is the site you do your exchanges at...
I would like to look.....


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 25, 2010, 01:25:21 AM
A competing currency?
More like a currency cousin (http://en.wikipedia.org/wiki/Sister_cities). ;D

BTW New liberty, what is the site you do your exchanges at...
I would like to look.....
http://newlibertystandard.wetpaint.com/page/Exchange+Rate


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 25, 2010, 01:58:58 AM
It does if there is a crash from inflated prices, slow steady inflation is what we have now, in an attempt to stabilize the prices (failing)
I think you're mixing the terms "inflation" with "deflation". We currently have a sharp deflation (i.e the currency's value is increasing). I predict it will continue to occur.

There is a logical inconsistency, can you tell someone that you wish to sell BTC's to, "this costs me $1 to create this, so give me a dollar for it"?  
Yes. If he's willing to pay less, less people will produce BTCs causing their production to be easier until price equates with cost. If he's willing to pay more, more people will produce BTCs causing their production cost to increase until it equates with cost. If you don't understand this very basic economic principle then you should've read the previous posts. And under my model, a similar equation is in effect but is not changed as more people join the network and isn't doubled every 4 years.

What your slow stream if inflation does is stabilize prices if more products over time are available in exchange for BTC, however, if they do not increase your price system increases the prices, AKA devalues the currency, and as this is different than government currency, you cannot compel usage, would it not be more beneficial to have an increasing value currency and declining prices in relation to BTC?
No. And I'm tired of having to explain why a deflating currency is a bad idea. Please refer to previous posts.

1 your answer has nothing to do with the question, the finite cap on available BTC is how the current system deals with inflation\
It does. Because as long as energy costs don't increase by, say, a constant 10% annually, coins won't.

2 the cost of generating a bitcoin has nothing to do with the price one demands for a commodity in BTC, if I would rather have 1 BTC than x amount of commodity, regardless of the cost of generating that 1 BTC, and the cost of attaining that commodity, no exchange will take place.
Oh God...
Did you forget that 99.99% of goods purchasable via coins are also purchasable via cash? You're not making any sense.

If the BTC level is capped at 21 million, and there are no more BTC to be made your options are to go into business and sell something for BTC or buy them from someone who has them that sells things for BTC, it is obviously in the interest of producers, without the addition of BTC to the market to sell their BTC off or trade them for capital goods.
Refer to my previous posts, please. I thoroughly explained why this won't happen.

Why is price deflation bad?
Because it greatly reduces the wish to spend now.

Monetary deflation would be bad, but we are talking about, as I am lead to believe, there will be a constant amount of BTC after a time, where none will be added or leave the system.  
Many will leave the system via computer failures, many will leave the system via sabotage attempts, and there would be noway to bring them back.

Monetary deflation will not occur, just a decrease in nominal price, which is an indication that the value of the BTC is increasing
That's exactly what a "monetary deflation" is.

maybe you all should look into the philosophy of free market economics, since that is what we are realistically doing...
I'm mysteriously resisting the urge to give a really mean response here.

I think the stabilization of the amount of BTC is crucial to the integrity of the unit
Same here. The current model doesn't grant that.

I think that we should stress market trade instead of concerning about the cost of BTC production
They go hand-in-hand. With constant deflation there would very little market trade if any.

The fact is that IF there was a hoarder, watching nominal prices would indicate such, and it would be silly for someone to do so, the most they could to is exchange them for $ and then their dominant market share is compromised
If he earns $ via exchanging them, he wouldn't have a reason to stop generating even more. Nominal prices now does indicate that more people are producing, whether botnets or otherwise.



Democracy Dollars is now the name for my theoretical currency which is based on Bitcoin but with a few modifications. $1.00 DMD would be generated per block instead of ฿50.00 BTC. The amount of dollars awarded for generating a block would not decrease every 4 years like with Bitcoin. Two decimal places would still be displayed because dollars usually have two decimal places. Ideally users would have the option to display and use hidden decimal places.
You forgot the most important question: How many DMD's do you suggest being produced per day on average? You do want it to be a fixed amount, no?
I did a quick and dirty research and it seems that the lowest electricity cost worldwide is about 1/4 of the US average. In an attempt to shoot for ฿1 = $1 to make calculations easier, I think making my block worth about ฿3 (for a month of work) should be close enough.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 25, 2010, 02:12:55 AM
You forgot the most important question: How many DMD's do you suggest being produced per day on average? You do want it to be a fixed amount, no?
I did a quick and dirty research and it seems that the lowest electricity cost worldwide is about 1/4 of the US average. In an attempt to shoot for ฿1 = $1 to make calculations easier, I think making my block worth about ฿3 (for a month of work) should be close enough.
I didn't forget. I was only pointing out the differences. Democracy Dollar blocks would be generated at the same rate as Bitcoin blocks, on average once every ten minutes. You could call yours DC Dollars, short for Direct Current Dollars since you are trying to tie yours more closely with to the price of electricity and computers use DC electricity.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 25, 2010, 02:50:34 AM
\
I didn't forget. I was only pointing out the differences. Democracy Dollar blocks would be generated at the same rate as Bitcoin blocks, on average once every ten minutes. You could call yours DC Dollars, short for Direct Current Dollars since you are trying to tie yours more closely with to the price of electricity and computers use DC electricity.
So you want the rate to be constant @ 144 blocks/day forever? Why not increase it to, say, 1/minute (1440/day) so the system could accommodate more nodes without much delay? With 10,000 nodes at the current difficulty, you need to wait an average of 70 days for a coin to appear. If your dollar became an international currency, you might have to wait for a whole year or more for a coin to appear!

I imagine that my idea will make downloading the existing blocks very difficult after a couple years or so though because of their size (1M blocks?!), isn't there a way to compress them or something?

I could just name mine Electric Bitcoins (EBC's, yummy!), because they're directly proportional to how much electricity you've put into them regardless of how many people are in the network.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 25, 2010, 03:08:18 AM
I didn't forget. I was only pointing out the differences. Democracy Dollar blocks would be generated at the same rate as Bitcoin blocks, on average once every ten minutes. You could call yours DC Dollars, short for Direct Current Dollars since you are trying to tie yours more closely with to the price of electricity and computers use DC electricity.
So you want the rate to be constant @ 144 blocks/day forever? Why not increase it to, say, 1/minute (1440/day) so the system could accommodate more nodes without much delay? With 10,000 nodes at the current difficulty, you need to wait an average of 70 days for a coin to appear. If your dollar became an international currency, you might have to wait for a whole year or more for a coin to appear!

I imagine that my idea will make downloading the existing blocks very difficult after a couple years or so though because of their size (1M blocks?!), isn't there a way to compress them or something?

I could just name mine Electric Bitcoins (EBC's, yummy!), because they're directly proportional to how much electricity you've put into them regardless of how many people are in the network. Watcha think Satoshi?!
Yes, I want the rate to average out at 144 blocks per day forever. I like that rate because I understand and trust satoshi's judgment on that aspect of how Bitcoin works (https://www.bitcoin.org/smf/index.php?topic=43.msg376#msg376). The Democracy Dollar client requires only a few minor changes to the Bitcoin code. Your currency would have to work very differently from a technical perspective. I'm certain that a P2P digital crypto-currency with the economic model you envision is possible, but it would require a competent programmer to redesign how it works. Electric Bitcoins is a good name. :)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 25, 2010, 03:18:03 AM
Yes, I want the rate to average out at 144 blocks per day forever. I like that rate because I understand and trust satoshi's judgment (https://www.bitcoin.org/smf/index.php?topic=43.msg376#msg376). The Democracy Dollar client requires only a few minor changes to the Bitcoin code. Your currency would have to work very differently from a technical perspective. I'm certain that a P2P digital crypto-currency with the economic model you envision is possible, but it would require a competent programmer to redesign how it works. Electric Bitcoins is a good name. :)
My model should be fairly simple to implement. We'd just freeze the amount of effort needed to find a new solution so the odds of finding it would need, on average, a month of continuous work for a modern 2.0 Ghz core-2-duo for example.

Satoshi and other pioneers: I understand your reluctance to change the current system: you guys don't want to sacrifice all the effort you've put into the project and start from scratch with no coins. But all we need to do for Bitcoin 0.3 is remove a couple of zero's for an average month's production to equal 3 new coins for instance. Perhaps every 4,000 Bitcoins can equal 1 NBC (new bitcoin) or something like that?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 25, 2010, 03:23:59 AM
The problem is that blocks are also the equivalent of checks clearing. They are how financial transactions are verified and propagated. If you set the difficulty very high from the beginning, it would take days or weeks to send money until it became more popular.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 25, 2010, 03:25:46 AM
The problem is that blocks are also the equivalent of checks clearing. They are how financial transactions are verified and propagated. If you set the difficulty very high from the beginning, it would take days or weeks to send money until it became more popular.

At 1 block/month on average, with only 30 computers in the network it would take about 1 day to create a new block. 1/2 a day with 60 computers etc.

I admit that we need to correctly estimate the minimum amount of time to broadcast a new block across the network though. And is it possible to use timestamps for blocks so even if the difference was 0.1 second they could be re-organized on our machines? How about something like programming lines with 10-figure differences reserved in case of double-block-creation before broadcasting is complete, is it possible?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on February 25, 2010, 03:31:37 AM
But what do you do when there are hundreds of thousands of nodes generating coins? You would have many people generating blocks every second which breaks the current implementation.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on February 25, 2010, 03:58:59 AM
But what do you do when there are hundreds of thousands of nodes generating coins? You would have many people generating blocks every second which breaks the current implementation.
That's what I'm talking about. If we have something like "spare blocks" designed to be occupied by double-entries as in programming lines (they go 10, 20, 30 not 1,2,3 to make room for later changes), and if we have timestamps which say when was each block exactly generated down to the 100th second, maybe we can solve that problem altogether.

If worst comes to worst, and the number exceeds the proposed 86,400 before we achieve enough technological progress to significantly reduce the latency time, then some blocks will inevitably be lost until this progress is achieved. So, say, if 100,000 nodes are simultaneously generating coins, maybe 10% of the new blocks will be lost which should be an incentive for some of them to leave the network (or, ironically enough, perpetually raise the price they charge to accommodate for their losses!).

This scenario, however, is extremely unlikely. If each node is connected to 10 exclusive others, it should take only 5 "hops" to reach the whole 100,000 connected network. How much time would it take for each hop at most?


Title: No Hurry Here
Post by: NewLibertyStandard on February 25, 2010, 03:31:53 PM
I'm actually not in a hurry to implement Democracy Dollars. I might look into it further at the end of this year or the beginning of next year. Perhaps I can come up with an even more fantastic name before then. :D


Title: Re: Current Bitcoin economic model is unsustainable
Post by: nandnor on March 05, 2010, 03:20:37 PM
But that's not it, there's yet another catastrophe: The very fact that the BTCs creation will virtually cease within 16 (now almost 15) years while its user base continues to grow (hopefully) will inevitably lead to deflation. Deflation is bad because nobody spends their money, they only save it because it gains value over time. Can you imagine what would have happened if, say, the Japanese government haven't printed any Yens during the last century while the population exploded? One 1910 Yen would have been more than enough to buy a house today. Who would have spent their Yens in 1910, then? Why, noone of course!
People need to buy food and goods right? And more savings leads to lower interest rates, which incentivise people to borrow more and move toward interest rate equilibrium ;)

We would all be way richer and more developed in the present, had the inflationary meddling taken place in the last century. You see, high savings rates decrease real interest rates, which makes high order capital industry investments profitable, which otherwise wouldnt be due to their low return. These high order capital industries in turn make lower order industry and consumer goods cheaper, and lead to increased productivity.

Quote
Also note that this will not lead to inflation in the foreseeable future, because the user base of bitcoin will continue to grow for years to come, let alone natural economic and population growth (unless the Mayans turn out to be right, of course)
There will be monetary inflation and, monetary inflation causes interest rates to be below their market level, thus creating speculative bubbles and malinvestments as the resulting capital industri invesments arent supported by actual time preferences.MONETARY INFLATION = BUSINESS CYCLES

Quote
The amount of dollars awarded for generating a block would not decrease every 4 years like with Bitcoin.
Bad idea mate, monetary inflation causes business cycles.


Overall, a lotta ya'll would do good to brush up on some real economics, that is Austrian Economics. Rothbard's MES is a and thorough good start.

http://mises.org/rothbard/mespm.PDF


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on March 06, 2010, 06:15:47 PM
I already explained why is this different than purchasing food and why banks and loaning aren't realistic when it comes to Bitcoin. Please refer to the previous posts under this thread and comment on them if you find them unreasonable.

I rethought about my model and found that if we adjusted the constant difficulty so that we need a month (or more) to generate a block, not many folks will be generating, so the network wouldn't be overcrowded for propagation purposes; people would prefer to buy from professional generators instead (who'll make a small profit margin). But then again we then have a problem that the proof-of-work wouldn't be as strong, although that's surely better than the current situation.

I hope Satoshi or Sirius would take these suggestions seriously and provide some feedback on them, but I think they've totally 'programmed' themselves that the current model works best to the extent that they don't welcome different recommendations very much.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on March 07, 2010, 12:03:13 AM
Your proposed changes to bitcoin WILL NOT WORK with the current implementation of Bitcoin. Absolutely everything about the program would have to be completely and fundamentally redesigned from the ground up in order to implement your suggestions. That is why I don't take your suggestions very seriously. Although I think that such a currency is probably possible, your current suggestions on how to implement it WILL NOT WORK.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on March 07, 2010, 05:42:36 AM
Your proposed changes to bitcoin WILL NOT WORK with the current implementation of Bitcoin. Absolutely everything about the program would have to be completely and fundamentally redesigned from the ground up in order to implement your suggestions.

Why do you say that? Apart from some aesthetic features like reducing the block size to about 3 coins (if difficulty was set to 1 block/month/CPU) in order to have the approximate value of ฿1=$1, all what's needed is to simplify the code by removing the automatic proof-of-work difficulty increases. "Want $3 worth of coins? Go ahead and spend $3 worth of electricity to generate a PoW block, or buy from someone who'd done so".

It ain't gonna double in 4 years, so you can spend it today with no worries. It ain't gonna double in two weeks either if the number of nodes doubled in two weeks. It's pretty stable as long as the lowest global cost of electricity is. We're not gonna run of out it because people constantly lose their virtual wallets. And after 15 years, anybody could still join in and create some coins or buy from generators. How can you claim that the current model beats that one?!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on March 07, 2010, 06:43:53 AM
Your economic model is fine. But not adjusting the difficulty of block verification leads to problems of scale. Having all transaction clear once a month is unusable and unacceptable for a currency and if it did happen to become a huge hit, clearing blocks very much faster than once every 10 minutes does not work. The whole system would get stuck. Not to mention, what can be done in a month right now, will be able to be done in a much shorter amount of time in the future as computers become capable of running more processing threads concurrently.

Bitcoin is great because it works well on a small scale and a large scale and the value can adjust dynamically. While there is demand, the value goes up and while there is not demand the value goes down. A currency tied tightly to the cheapest price of electricity AND with all the other benefits of Bitcoin would work fine, but such a currency has not yet been invented and your suggestions on how to invent such a currency would not work from a practical perspective.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on March 07, 2010, 11:38:25 AM
Your economic model is fine. But not adjusting the difficulty of block verification leads to problems of scale. Having all transaction clear once a month is unusable and unacceptable for a currency and if it did happen to become a huge hit, clearing blocks very much faster than once every 10 minutes does not work. The whole system would get stuck.
You misunderstood me. And we've gone through this before. Nobody's going to wait for a month for their block, because that assumes only one node is generating coins. If 30 nodes were generating simultaneously, we'll wait only for a day. 90 nodes and we've got it down to 8 hours, etc.

Not to mention, what can be done in a month right now, will be able to be done in a much shorter amount of time in the future as computers become capable of running more processing threads concurrently.
But would cost the same amount of electricity in this much shorter amount of time. You'll be able to rise your electricity bill to $3 within two weeks instead of a month that's all (for eg. via using a quad-core 3.2 GHz machine in 2013).

Bitcoin is great because it works well on a small scale and a large scale and the value can adjust dynamically. While there is demand, the value goes up and while there is not demand the value goes down. A currency tied tightly to the cheapest price of electricity AND with all the other benefits of Bitcoin would work fine, but such a currency has not yet been invented and your suggestions on how to invent such a currency would not work from a practical perspective.
I rest my case :-/


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on March 07, 2010, 12:00:48 PM
30 Days in a Month * 24 Hours in a Day * 60 Minutes in an Hour * 60 Seconds in a Minute = 2,592,000 Seconds
In a few years there are 1,000,000 users with the average computer having two 16 core processors with hyper threading.
1,000,000 * 2 * 16 * 2 = 64,000,000 Threads
The current 30 day estimation is based on a dual core processor, so 64,000,000 / 2 = 32,000,000 blocs per month.
2,592,000 / 32,000,000 = On average, each block needs to be spread among 1,000,000 peers every 0.081 seconds.
Now imagine even more users and thousands of cores per processor (http://news.cnet.com/8301-13924_3-9981760-64.html).
FAIL!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Suggester on March 07, 2010, 01:21:08 PM
30 Days in a Month * 24 Hours in a Day * 60 Minutes in an Hour * 60 Seconds in a Minute = 2,592,000 Seconds
In a few years there are 1,000,000 users with the average computer having two 16 core processors with hyper threading.
A million wth?? That's extremely unlikely to happen. To compare, Tor which is virtually indispensable for anonymous surfing (something more important than, and a prerequisite for anonymous currency) has been around for 7+ years now and its users are about 250,000 AFAIK. Remember that we're speaking about users not nodes here. Nodes are about 2000 or less. To compare, we can reasonably estimate that in 7 years we'll have 250,000 casual Bitcoin users, and 2000 dedicated nodes working on creating new coins. I know we shouldn't be comparing that simply, but I'm trying to tell you how fast these projects spread. You don't get a million users in two years for a very specialized service like this.

1,000,000 * 2 * 16 * 2 = 64,000,000 Threads
The current 30 day estimation is based on a dual core processor, so 64,000,000 / 2 = 32,000,000 blocs per month.
2,592,000 / 32,000,000 = On average, each block needs to be spread among 1,000,000 peers every 0.081 seconds.
Now imagine even more users and thousands of cores per processor (http://news.cnet.com/8301-13924_3-9981760-64.html).
You further forgot that internet speeds and computer efficiency would be much better by the time we reach the impossible figure of a million nodes. It would be like comparing today's internet speeds with 1995's. By the time we have a million nodes (maybe by 2050 or something?), the network would be able to propagate new blocks almost immediately. Under the proposed amendment (1 block/month/machine), the system will need 4320+ nodes to reduce the average propagating time to less than 10 minutes. In other words, until we have 4320 nodes, it will be "less congested" than the current build, with an average of 1 new block every 10+ minutes. I think we can easily live with 10k nodes TODAY with the proposed 1 block/month/machine, and by the time they exceed 10k permanent generators (if they ever do), there would be great leaps in both technology and bitcoin's design.

FAIL!
The current model is DEFINITELY a fail. With one or ten nodes, the coin isn't spendable and supply in circulation will dwindle over time due to losses and hoardings. If you don't like my model try to offer something better, but stop advocating something which obviously won't work just because you've put effort into it!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on March 07, 2010, 02:22:55 PM
PayPal has 184 million accounts after 10 years. Bitcoins can be spent on dollars right now. There are physical limits to how much latency can be improved. It will always take multiple milliseconds to send information around the world.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on June 23, 2010, 04:45:44 AM
Hi Suggester,

Let's take a look at the two main issues that you raise:

1) "Because bitcoins get harder to produce every year, it is the same as receiving 19% annual interest for free."

Yes, the marginal cost of a bitcoin increases by 19% per year, as posited by you. However,  note that this is the cost of making *one more bitcoin*. This phenomena does not confer 19% free interest to all existing bitcoins. Here's an example:

Mickey Mouse opens a mine which mines gold. His is the only gold mine in the world. The first year he mines 5000 ounces of gold. In the second year, the gold is harder to find, so he is only able to mine 2500 ounces of gold. The gold becomes harder and harder to find, and he must spend an increasing amount of money to mine the next ounce. Eventually, he can never mine out that last ounce of gold, so its cost rises to infinity.

Now, let's say you bought an ounce in the first year, back when he mined 5000 ounces. In the second year, the supply of ounces rises to 7500, in the third year, it rises to 8750. Now, given that the supply of gold increased rather than decreased, why would the value of gold increase? There is more gold on the market now than there was before, so from the supply side, the pressure should be on the price to lower, not increase.

Let's say a few more years pass, and the price of mining gold is now astronomical. Let's say it takes $1 million dollars to mine the next ounce. Are you honestly going to tell me that the value of EVERY gold ounce in existence suddenly goes to $1 million? No. On the demand side, the mining would simply stop, because at some point, people would refuse to pay more than X for another ounce of gold. Mining would no longer be profitable, which technically makes the cost of one more unit infinity. The mistake you make here is in believing that the marginal cost of the next unit somehow imparts its value onto ALL existing units. It does not.

2) "Again, because bitcoins become harder to produce, everyone will hoard, so there will be massive deflation. Deflation is bad!"

There are a couple of problems with this. First of al, there would not be monetary deflation, there would be price deflation. In terms of price/performance, computers have been decreasing in price at quite a fast rate. Are you honestly going to tell me that this is a bad thing?

Your next argument is that price deflation encourages people to hold on to dollars. Yes, it does, but understand that when people withdraw money out of the market like this, it has several effects. One is that less money in circulation means that prices drop faster, thus encouraging more people to use these hoarded dollars to buy something. I believe someone on the forum also said: ""Even after bitcoins can no longer be created, in a deflationary environment all bitcoins equally appropriate increased purchasing power.  In an inflationary environment (i.e. USD), on the other hand, purchasing power is redistributed from all dollar holders to those first receiving the newly created dollars - generally government and government-connected institutions." This is a strong advantage for a monetary-fixed and price-deflationary environment as opposed to a monetary inflationary environment.

You will not be able to perfectly control who creates the new dollars. In the current system, the scope of inflation is limited in time and limited to contributing users.

The second is that the flood of hoarded dollars increases competition for lending money, which causes interest rates to drop, thus increasing the attractiveness of borrowing dollars and reducing the attractiveness of saving dollars.

Finally, bitcoins do not exist in a vacuum. If hoarding goes too far and bitcoins cease to be useful as a medium of exchange, then their value will actually start to go down. People will start using other currencies, and people will actually start demanding more bitcoins for goods as their perceived value will decline.

Finally, the value of anything in this world is solely the subjective opinion of the person doing the valuation. I can pay a gang of workers a million dollars to dig a big hole in the ground. By your logic, that hole must be worth at least 1 million dollars. However, if the hole isn't worth anything to anyone, then its value is zero, regardless of what it cost to produce.

A hole is a stupid example you say? Then I can produce a wooden horse using wood manually dragged in from 1000 miles away, paying my workers $10,000 for the job. Are you honestly going to tell me the value of the wooden horse is $10,000 simply because it cost me that much to make? Nope, that might be what I personally value it at, but if nobody else wants to buy it, then it is actually worthless as far as other people are concerned.

Two lessons:

cost != value
money is a good, and like all other goods, its price is determined solely by supply and demand; i.e., how much the market will bear (and how much it won't bear)

I believe that the fatal flaw, finally, is with your critique of bitcoin's economic model, and not with bitcoin's economic model itself. If you truly believe bitcoin's model to be flawed, then why not start your own client? If it truly is better, you will be competiive. There is room for more than one currency in our digital future, and I am sure there will be competition, and the consumers will choose the currency they prefer.

I also recommend you spend some time reading up on the subjective theory of value and Austrian economics; it might help to clear up some of these misconceptions.



TO THE CREATORS AND MAINTAINERS OF BITCOIN:

Thank you for creating this project and bringing sound money to the digital realm. Please, do not listen to the criticism directed at you by Suggester and others; it is misplaced and not well-founded in economics. You guys are doing the world a great service, and I commend you for that.



Title: Re: Current Bitcoin economic model is unsustainable
Post by: dwdollar on June 23, 2010, 06:17:07 AM
Welcome to the forum Bitcoiner!  That is an excellent rebuttal.  I couldn't agree more.  Maybe Suggester likes playing devil's advocate?  I don't know.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: buck on July 13, 2010, 09:53:15 AM
But what would stop anyone with a large enough botnet, or even a company such as Google, Microsoft or Amazon with a big cloud, generating the bulk of the coins for themselves and leaving very little for everyone else?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 13, 2010, 03:00:39 PM
But what would stop anyone with a large enough botnet, or even a company such as Google, Microsoft or Amazon with a big cloud, generating the bulk of the coins for themselves and leaving very little for everyone else?

It doesn't really hurt anyone else if they do. If they never spend the coins, it's as if they don't exist, which means everyone else's coins are worth more. Coins can be fractionated to 8 decimal places, so transmitting small value isn't a problem.

The danger would be if the big cloud attempted to undermine the network by screwing around with the block chain, instead of simply generating coins.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Vasili Sviridov on July 20, 2010, 12:14:03 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on July 20, 2010, 12:32:42 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 20, 2010, 12:40:50 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.

I would recommend everyone read "How an economy grows (and why it doesn't)" by Irwin Schiff. In graphic novel format, it's an easy introduction to the basics of economics and on how an honest banking system becomes dishonest. It's quite relevant to this thread and other threads about Bitcoin, actually.

"How an economy grows (and why it doesn't)" (http://freedom-school.com/money/how-an-economy-grows.pdf)

http://freedom-school.com/money/how-an-economy-grows.pdf


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Babylon on July 20, 2010, 12:43:20 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.

I would recommend everyone read "How an economy grows (and why it doesn't)" by Irwin Schiff. In graphic novel format, it's an easy introduction to the basics of economics and on how an honest banking system becomes dishonest. It's quite relevant to this thread and other threads about Bitcoin, actually.

"How an economy grows (and why it doesn't)" (http://freedom-school.com/money/how-an-economy-grows.pdf)

http://freedom-school.com/money/how-an-economy-grows.pdf

A very entertaining libertarian cartoon.  It has some major flaws, but it is certainly an entertaining read.  Not sure what it has to do with bitcoins though.  Bitcoins are kind of the opposite of fish.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 20, 2010, 12:48:47 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.

I would recommend everyone read "How an economy grows (and why it doesn't)" by Irwin Schiff. In graphic novel format, it's an easy introduction to the basics of economics and on how an honest banking system becomes dishonest. It's quite relevant to this thread and other threads about Bitcoin, actually.

"How an economy grows (and why it doesn't)" (http://freedom-school.com/money/how-an-economy-grows.pdf)

http://freedom-school.com/money/how-an-economy-grows.pdf

A very entertaining libertarian cartoon.  It has some major flaws, but it is certainly an entertaining read.  Not sure what it has to do with bitcoins though.  Bitcoins are kind of the opposite of fish.

It does have its flaws, but it's still a good introduction. It's biggest flaw lies perhaps in the presentation of inflation in the form of steadily shrinking fish; surely people would have noticed :P

Still, it's relevant to the idea of fractional reserve and how banking can both become dishonest and stay dishonest for long periods of time. The first chapter about loans and capital accumulation are also good as a primer if you don't want to read something like economics in one lesson.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 20, 2010, 12:51:28 AM
I strongly suggest everyone to read entire Part V of Walter Block's "Defending the Undefendable" (http://www.indytruth.org/library/books/block-defending/defending.pdf). The rest is also good, but beyond this particular discussion. Other book I could recommend would be "Economics in one lesson" by Hazlitt (http://www.hacer.org/pdf/Hazlitt00.pdf).
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.

I would recommend everyone read "How an economy grows (and why it doesn't)" by Irwin Schiff. In graphic novel format, it's an easy introduction to the basics of economics and on how an honest banking system becomes dishonest. It's quite relevant to this thread and other threads about Bitcoin, actually.

"How an economy grows (and why it doesn't)" (http://freedom-school.com/money/how-an-economy-grows.pdf)

http://freedom-school.com/money/how-an-economy-grows.pdf

A very entertaining libertarian cartoon.  It has some major flaws, but it is certainly an entertaining read.  Not sure what it has to do with bitcoins though.  Bitcoins are kind of the opposite of fish.

It does have its flaws, but it's still a good introduction. It's biggest flaw lies perhaps in the presentation of inflation in the form of steadily shrinking fish; surely people would have noticed :P

Still, it's relevant to the idea of fractional reserve and how banking can both become dishonest and stay dishonest for long periods of time. The first chapter about loans and capital accumulation are also good as a primer if you don't want to read something like economics in one lesson.

I also like the part about why you shouldn't lend people money to spend it on consumption, i.e. to go on vacation. I happen to know some people that behave exactly like how the two jokers behaved when they "wanted to go on their vacation NOW!" ;)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Vasili Sviridov on July 20, 2010, 03:28:18 AM
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.
Just read the chapter list for both and you'll have a pretty good understanding... Don't have to lash out with "Dr. Seuss" and what not. Both book titles are fairly self-explanatory.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.
Ok. Both books are preaching the Austrian school's ideas, so they should be a right fit for this community.

"Defending the Undefendable" covers various social aspects and practices of our lives, which are under heavy ostracism by the society (off the cover : The Pimp, Prostitute, Scab, Slumlord, Libeler, Moneylender, and Other Scapegoats in the Gogue's Gallery of American Society). Part V covers financial personages, such as The (Nongovernment) Counterfeiter, The Miser, The Inheritor, The Moneylender, The Noncontributor to Charity, and shows how those are not bad guys, but it fact are required for a normal economy; also covering a good deal about the economy in general.

"Economics in one lesson" is a very old treatise on economics, circa 1946, which is still surprisingly valid in describing current state of economical affairs.



Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on July 20, 2010, 05:35:57 AM
I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.
Just read the chapter list for both and you'll have a pretty good understanding... Don't have to lash out with "Dr. Seuss" and what not. Both book titles are fairly self-explanatory.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.
Ok. Both books are preaching the Austrian school's ideas, so they should be a right fit for this community.

"Defending the Undefendable" covers various social aspects and practices of our lives, which are under heavy ostracism by the society (off the cover : The Pimp, Prostitute, Scab, Slumlord, Libeler, Moneylender, and Other Scapegoats in the Gogue's Gallery of American Society). Part V covers financial personages, such as The (Nongovernment) Counterfeiter, The Miser, The Inheritor, The Moneylender, The Noncontributor to Charity, and shows how those are not bad guys, but it fact are required for a normal economy; also covering a good deal about the economy in general.

"Economics in one lesson" is a very old treatise on economics, circa 1946, which is still surprisingly valid in describing current state of economical affairs.
I honestly don't think the titles are self explanatory, so thanks for the explanation. I think the books I recommended are self explanatory, but in case they're not to you, they're very enjoyable to both kids and adults. In fact they're pretty much my favorite books. They're a bit off topic, but considering the point I was trying to make, they're quite on topic. Sadly I don't think you got it. I wasn't lashing out, but nonetheless apologize for coming across that way. Happy bitcoining!


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Vasili Sviridov on July 20, 2010, 07:21:41 AM
I'm a big fan of Harry Potter myself :) Dr. Seuss is pretty much unknown where I come from :)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Traktion on July 21, 2010, 03:56:16 PM
I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 21, 2010, 04:19:37 PM
I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.

I see the usage of CPU resources as a potential roadblock to Bitcoin - better alternatives here may be found. If legal tender collapses, that's a potential roadblock as well, since that takes away some motive for wanting to use things like Bitcoin. In short, there are many things that could happen between now and the future, but you know what? The best way is to experiment and try.

If you're right, and an expansionary money supply is what people want, then people will choose it. If I'm right, and a stable money supply is what people want, then Bitcoin will prosper and grow. Either way, the consumer wins, and therefore, we win. Without competition and the test of the market place, we could never know what the consumer wants for sure. There is nothing shameful about this; it's all part of the process of creative evolution, and Bitcoin has already captured an important part of that history.

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Traktion on July 21, 2010, 04:36:34 PM
I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.

I see the usage of CPU resources as a potential roadblock to Bitcoin - better alternatives here may be found. If legal tender collapses, that's a potential roadblock as well, since that takes away some motive for wanting to use things like Bitcoin. In short, there are many things that could happen between now and the future, but you know what? The best way is to experiment and try.

If you're right, and an expansionary money supply is what people want, then people will choose it. If I'm right, and a stable money supply is what people want, then Bitcoin will prosper and grow. Either way, the consumer wins, and therefore, we win. Without competition and the test of the market place, we could never know what the consumer wants for sure. There is nothing shameful about this; it's all part of the process of creative evolution, and Bitcoin has already captured an important part of that history.

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

It will be a great experiment, for sure. I agree that Bitcoin will have its footnote in history too, but I think the devs hope it will turn out as more than that. I could well imagine that the Bitcoin approach would be the hare, while the alternative expansionary (with user base) money would be the tortoise. We know who won in that race.

I assume you agree that the value of Bitcoins will increase, while there is limited supply and growing demand? Follow that rational through and see where it takes your path of thought.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: scepticus on July 21, 2010, 04:54:59 PM

If you're right, and an expansionary money supply is what people want, then people will choose it.

History is not on your side. There was a stable supply of money once in the form of gold and silver but from about the 16th century onwards people picked an expansionary one - this was not forced on them. The first formalised  bills of exchange preceded the formation of central banks by somewhere in the region of 200 years.

I guess we will see in time - though in actual fact while people are also using other possibly expansionary monies this grand austrian experiment will be somewhat corrupted in terms of experimental purity.



Title: Re: Current Bitcoin economic model is unsustainable
Post by: Red on July 21, 2010, 05:11:06 PM
I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

I hate for this to be my first post because I have lots of nice things to say to Satoshi Nakamoto and the team. I'll have to put those in another post though.

My first though when I saw bitcoin's disbursement model is that it is structured like a ponzi scheme. Or at least structured like systems people often express frustrations over.

Ponzi like things...

1. It may seem like coins are somehow distributed "fairly" but in reality, 1/2 of all bit coin value is distributed to the initial bitcoin operators. (first four years). If you expect bitcoin to go mainstream (exponentially growing number of users, over say 20 years). Then you've created a class of "landed gentry" based upon arrival time rather than outside commodity value. Ponzi designed his scheme the same way. Early "investors" see disproportionate benefit even though everyone is given the feeling they start equally.

2. Initially bit coins have limited commodity value. No matter how many you have, there are simply few commodities you can buy with them. Relative latecomers are expected to bring "your" commodity value with them. The more relative latecomers you attract, the more your existing savings is expected to increase in commodity buying power. Ponzi would have been proud.

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

Deflation is bad. Unless of course you hold lots of cash-on-hand. In that case it is invaluable. Early users that hoard bit coins are rewarded for doing nothing to help the bit coin ecosystem. They are simply "lords".



 


Title: Re: Current Bitcoin economic model is unsustainable
Post by: kiba on July 21, 2010, 05:43:20 PM

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

It is a bad idea to keep out people, because it mean that your market is limited. There are less goods and services to buy. It would only make sense if you want relative power over others. However, if you're interested in wealth, you would instead open the market up to more people.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 21, 2010, 06:01:53 PM
... I could well imagine that the Bitcoin approach would be the hare, while the alternative expansionary (with user base) money would be the tortoise. We know who won in that race....

You could say that, but that is your hunch based on your imagination, not an objective truth about the future.

I assume you agree that the value of Bitcoins will increase, while there is limited supply and growing demand? Follow that rational through and see where it takes your path of thought.

I already have, along with many others. Perhaps you'd like to read
"Deflation and Liberty", by Jörg Guido Hülsmann (http://mises.org/daily/3231)?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 21, 2010, 06:03:30 PM

If you're right, and an expansionary money supply is what people want, then people will choose it.

History is not on your side. There was a stable supply of money once in the form of gold and silver but from about the 16th century onwards people picked an expansionary one - this was not forced on them. The first formalised  bills of exchange preceded the formation of central banks by somewhere in the region of 200 years.

I guess we will see in time - though in actual fact while people are also using other possibly expansionary monies this grand austrian experiment will be somewhat corrupted in terms of experimental purity.



What does this have to do with what I've said, or Bitcoin? I haven't said anything about credit. Honest credit is a legitimate function of a free market economy.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 21, 2010, 06:10:44 PM
I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

I hate for this to be my first post because I have lots of nice things to say to Satoshi Nakamoto and the team. I'll have to put those in another post though.

My first though when I saw bitcoin's disbursement model is that it is structured like a ponzi scheme. Or at least structured like systems people often express frustrations over.

Ponzi like things...

1. It may seem like coins are somehow distributed "fairly" but in reality, 1/2 of all bit coin value is distributed to the initial bitcoin operators. (first four years). If you expect bitcoin to go mainstream (exponentially growing number of users, over say 20 years). Then you've created a class of "landed gentry" based upon arrival time rather than outside commodity value. Ponzi designed his scheme the same way. Early "investors" see disproportionate benefit even though everyone is given the feeling they start equally.

Well, the coins have to get into distribution somehow. We can't just say "here's the money supply" and be done with it. The way it's done now rewards the early contributors to the system, yes, but without those early contributors, there would be no system. We can discus a better way of distributing the initial set of coins, but they must be distributed somehow.

2. Initially bit coins have limited commodity value. No matter how many you have, there are simply few commodities you can buy with them. Relative latecomers are expected to bring "your" commodity value with them. The more relative latecomers you attract, the more your existing savings is expected to increase in commodity buying power. Ponzi would have been proud.

I don't quite understand what you are trying to say here. Are you saying that as demand rises, Bitcoins can be exchanged for things of more value because people demand them more? Well, that is true by definition.

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?

Yeah. The biggest thing you are missing is that Bitcoins are a voluntary system. If the developers are dishonest, the value of the currency goes to zero. If the early adopters hoard, then other people can make a profit by selling their more valuable Bitcoins. For every action, there is an appropriate reaction.
 
Deflation is bad. Unless of course you hold lots of cash-on-hand. In that case it is invaluable. Early users that hoard bit coins are rewarded for doing nothing to help the bit coin ecosystem. They are simply "lords".

The color purple is bad. Unless of course, you happen to have a lot of purple dye on hand. In that case it is invaluable. Early users that hoard the purple dye are rewarded for doing nothing to help the purple dye ecosystem. They are simply "lords". See, I can assert things if I want to, too. Doesn't make what I say any more than my own subjective hunch.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Bitcoiner on July 21, 2010, 06:13:21 PM

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

It is a bad idea to keep out people, because it mean that your market is limited. There are less goods and services to buy. It would only make sense if you want relative power over others. However, if you're interested in wealth, you would instead open the market up to more people.

Right, he's somehow assuming that Bitcoins will be forced on us all and the developers will become our lords, somehow. It just doesn't work like that in a free market where anyone can easily come up with a competing system and easily switch to it.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Red on July 21, 2010, 08:09:17 PM
Right, he's somehow assuming that Bitcoins will be forced on us all and the developers will become our lords, somehow. It just doesn't work like that in a free market where anyone can easily come up with a competing system and easily switch to it.

Well I lost a great post. I'll retype it when I get to a real keyboard.

I'm not actually worried about the developers. If they haven't accumulated wealth already, they are held hostage to the same "fiat of the code" as everyone else.

However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.

Relatively speaking, I'm an early adopter. For $1,000 I could buy up and hoard 1% of the currently available coin. Anyone long term bullish would do so. Only a bearish early adopter would sell.

According to the deflationary model, there is no reason to ever be bearish.

Unless you think bit coin will fail to gain acceptance. In that case you should cash out, as in any ponzi scheme.

The lords are not the developers. The lords are the early adopters. Isn't that why everyone is here?


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Quantumplation on July 21, 2010, 08:17:50 PM

However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.


No, they couldn't have, not without us knowing.  The block record shows the creation and time stamp of every coin.  They couldn't have started it for 4 years, and then release it, as it would show up in the block chain as having started 4 years ago.  If they tried to fake it to get themselves more coins, every other client would have rejected it.  The source code is open source, so we can verify that there's nothing shifty going on with the verifying of coins (if(developer) accept(); else verify(); or something)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Red on July 21, 2010, 08:31:37 PM

However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.


No, they couldn't have, not without us knowing.  The block record shows the creation and time stamp of every coin.  They couldn't have started it for 4 years, and then release it, as it would show up in the block chain as having started 4 years ago.  If they tried to fake it to get themselves more coins, every other client would have rejected it.  The source code is open source, so we can verify that there's nothing shifty going on with the verifying of coins (if(developer) accept(); else verify(); or something)

I know the coins and  blocks were generated according to the code fiat. But no one knows who they belong to. That is the point of the system. If it's not, I'm no longer interested.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Quantumplation on July 21, 2010, 08:37:58 PM
Noone knows the identities of who the coins belong to, but they do know that they belong to "some entity".  The first transaction in each block says "Ok everyone, listen up:  Someone from address asd;lkfjads;lfkjasd;lfjkasd;fj owns 50 new bitcoins, even though it didn't come from anyone else."  This doesn't reveal the persons identity, but it DOES reveal when they were created.  Looking back to see when the bitcoins were released to the public, and when the first coin was generated, we can see if the developers left coin generation on for a long time to develop a monopoly.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Red on July 21, 2010, 08:42:34 PM
We can't just say "here's the money supply" and be done with it. The way it's done now rewards the early contributors to the system, yes, but without those early contributors, there would be no system. We can discus a better way of distributing the initial set of coins, but they must be distributed somehow.

Actually no pro bitcoin argument changes if 1,000,000 coins each were distributed to the first 21 node operators.

It just seems less like free money to the 22 node operator.  


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Red on July 21, 2010, 08:55:13 PM
Noone knows the identities of who the coins belong to, but they do know that they belong to "some entity".  The first transaction in each block says "Ok everyone, listen up:  Someone from address asd;lkfjads;lfkjasd;lfjkasd;fj owns 50 new bitcoins, even though it didn't come from anyone else."  This doesn't reveal the persons identity, but it DOES reveal when they were created.  Looking back to see when the bitcoins were released to the public, and when the first coin was generated, we can see if the developers left coin generation on for a long time to develop a monopoly.

I can take your word that you were here at the beginning and you know the identities of all the initial node operators. (and I do!)

But I hope you realize, that aside from trust, I and anyone that comes afterwards can't know. And the point of bitcoin was not to have to rely on trust. That's in the white paper. :-)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: jgarzik on July 21, 2010, 09:05:32 PM
But I hope you realize, that aside from trust, I and anyone that comes afterwards can't know. And the point of bitcoin was not to have to rely on trust. That's in the white paper. :-)

Well, more like, you trust the bitcoin network.  For everyday currency transactions (buying and selling), some level of human trust is almost always involved.  You trust that a business will likely give you a service, in exchange for giving them money.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: NewLibertyStandard on July 21, 2010, 09:55:40 PM
Noone knows the identities of who the coins belong to, but they do know that they belong to "some entity".  The first transaction in each block says "Ok everyone, listen up:  Someone from address asd;lkfjads;lfkjasd;lfjkasd;fj owns 50 new bitcoins, even though it didn't come from anyone else."  This doesn't reveal the persons identity, but it DOES reveal when they were created.  Looking back to see when the bitcoins were released to the public, and when the first coin was generated, we can see if the developers left coin generation on for a long time to develop a monopoly.
That's the choice of the developer, nothing wrong with it. I was around pretty early and from what I could tell, the network really had been public the whole time. In fact I think I was the first person, or at least one of the very first people, to start pushing for real financial transactions. 8) You're welcome everybody! :D


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Quantumplation on July 21, 2010, 10:44:56 PM
Well, a single person can have multiple addresses, so you don't neccesarily know if two transactions go to the same person, as different addresses could be either the same person or different people.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: asdf on October 10, 2010, 11:02:40 PM
Satoshi stated in his FAQ that "When Bitcoins start having real exchange value, the competition for coin creation will drive the price of electricity needed for generating a coin close to the value of the coin." Now the only problem is that this "real exchange value" itself would be determined by electricity, computer deterioration, and time expenditures needed to generate those BTCs. We have a loop.

I think you have it backwards my friend. The value of bitcoins will be determined primarily by demand. As demand increases the value will rise and the profitability of generating will adjust accordingly. So, as the number of generators increases, so does the difficulty, thus the profitability levels off at about the cost of electricity/hardware to do the generation.

What you're forgetting is that the cost of generation (In electricity) changes. It depends on the difficulty. The profitability of generation will adjust according to demand/value.

Satoshi has really thought this one through.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: Dennis on October 12, 2010, 09:30:53 PM
Re: computers...the point there is that by the logic of the "deflationary spiral," people should put off their purchases of computers and cellphones, since they can get so much more for the money next year (or the same thing for a lot less money). Yet these are some of the most dynamic sectors of the economy, despite a deflation rate approaching 50% per year.

It's true that we had deflation during the Great Depression. What people overlook is that we also had deflation during the Roaring Twenties. What's more, "Between 1870 and 1896, prices fell consistently amid rapid economic growth—with plenty of booms and busts along the way." Source: http://www.slate.com/id/2258810

Deflation caused by lessening demand, due to everyone being too in debt to buy as much, can be pretty horrible, since it makes it that debt even harder to pay off. But deflation that's just due to the money supply not keeping up with economic growth doesn't appear to be a problem.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: sturle on October 13, 2010, 07:48:27 AM
Re: computers...the point there is that by the logic of the "deflationary spiral," people should put off their purchases of computers and cellphones, since they can get so much more for the money next year (or the same thing for a lot less money). Yet these are some of the most dynamic sectors of the economy, despite a deflation rate approaching 50% per year.
It doesn't work like that for computers.  Last years computers can run last years software, but if you can be more productive with this years software, you need a better computer.  Most people land on a reasonable compromise, and buy the cheapest computer capable of what they need for a couple of years ahead.  This goes for any piece of technology -- cars, planes, factory equipment, whatever.  It makes more sense to buy today and be more productive, than to wait for everyone else to drive you out of competition.
Quote
Deflation caused by lessening demand, due to everyone being too in debt to buy as much, can be pretty horrible, since it makes it that debt even harder to pay off. But deflation that's just due to the money supply not keeping up with economic growth doesn't appear to be a problem.
In a normal economy deflation is countered by printing more money.  Inflation is needed for an economy to work.  Economy is driven by the trading of goods, and money makes it effective.  If there is deflation, it makes more sense to keep the money and not trade it for goods.  If goods keep their worth at best, while money keeps getting worth more and more, then no one will be willing to trade their money for goods and the economy collapses.  In my country it was government policy during the 1930ies to have deflation until the money was worth the same as before the crash, and this made the depression last for ten years more than it would if they had just devaluated and started the inflation again.  A lot of rich people would be poorer, but the economy would have recovered faster because of more incentive to spend and invest.  (Hyperinflation is not good either, because money needs to be trusted to not lose their value to fast.)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: kiba on October 13, 2010, 06:06:16 PM
In a normal economy deflation is countered by printing more money.  Inflation is needed for an economy to work.  Economy is driven by the trading of goods, and money makes it effective.  If there is deflation, it makes more sense to keep the money and not trade it for goods.  If goods keep their worth at best, while money keeps getting worth more and more, then no one will be willing to trade their money for goods and the economy collapses.  In my country it was government policy during the 1930ies to have deflation until the money was worth the same as before the crash, and this made the depression last for ten years more than it would if they had just devaluated and started the inflation again.  A lot of rich people would be poorer, but the economy would have recovered faster because of more incentive to spend and invest.  (Hyperinflation is not good either, because money needs to be trusted to not lose their value to fast.)

This is poor economic reasoning.

The necessity of monetary inflation does not follow toward economic exchange and the effectiveness of money. In other words, this is a non-sequitar.

His reasoning also ignored the fact that people need foods, water, and the like. All of which will exceed the desire to horde.

It is worth noting that money, by themselves are not an end. For any of the money to have any use at all, they must be spent and invested, or otherwise saved for some future catastrophe, spending needs, and others.

All the saving rate does is forecast the time-preferences of the consumers, thus economies will follow consumption pattern that are longer term and make possible capital intensive projects.

I say his reasoning is a bunch of gibberish easily disproved.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: MoonShadow on October 13, 2010, 06:22:50 PM

This is poor economic reasoning.


I've seen a lot more of that since joining this forum.  Considering the main topic, I was expecting a higher level of economic education from the average active member than I've actually seen.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: kiba on October 14, 2010, 12:11:25 AM

This is poor economic reasoning.


I've seen a lot more of that since joining this forum.  Considering the main topic, I was expecting a higher level of economic education from the average active member than I've actually seen.

It add nothing of substance to the topic...


Title: Re: Current Bitcoin economic model is unsustainable
Post by: asdf on October 14, 2010, 12:24:45 AM

This is poor economic reasoning.


I've seen a lot more of that since joining this forum.  Considering the main topic, I was expecting a higher level of economic education from the average active member than I've actually seen.

It add nothing of substance to the topic...
It add nothing of substance to the topic...
add nothing of substance to the topic...
nothing of substance
nothing
.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: sturle on October 14, 2010, 07:59:04 AM
In a normal economy deflation is countered by printing more money.  Inflation is needed for an economy to work.  Economy is driven by the trading of goods, and money makes it effective.  If there is deflation, it makes more sense to keep the money and not trade it for goods.  If goods keep their worth at best, while money keeps getting worth more and more, then no one will be willing to trade their money for goods and the economy collapses.  In my country it was government policy during the 1930ies to have deflation until the money was worth the same as before the crash, and this made the depression last for ten years more than it would if they had just devaluated and started the inflation again.  A lot of rich people would be poorer, but the economy would have recovered faster because of more incentive to spend and invest.  (Hyperinflation is not good either, because money needs to be trusted to not lose their value to fast.)
This is poor economic reasoning.
... by Nobel price winning economists. There is a short summary in the Wikipedia article about the gold standard http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard (http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard).  Read the paragraph titled "Prolongation of the Great Depression".

Some inflation is good. Deflation is bad. Every nation in the world governs by this principle.
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The necessity of monetary inflation does not follow toward economic exchange and the effectiveness of money. In other words, this is a non-sequitar.

His reasoning also ignored the fact that people need foods, water, and the like. All of which will exceed the desire to horde.
Economic exchange today is about a lot more than food. If money keeps increasing in value as long as you hold onto it, you would want to spend as little as possible on other stuff than necessities.  You wouldn't even put it in a bank, because banks can go bankrupt.  And they will in this scenario, because very few will borrow money if their loan keeps getting higher and higher in money value every year. It also discourages investment. The number of possible investments which gives you more in return than you get by keeping the money gets lower, and this limits economic growth.
Quote
It is worth noting that money, by themselves are not an end. For any of the money to have any use at all, they must be spent and invested, or otherwise saved for some future catastrophe, spending needs, and others.
Yes!  And it makes no sense to spend more money than absolutely necessary if the coin which buys you one bread today can buy three breads tomorrow. The other way around makes a lot more sense, since that is an initiative to keep the money flowing in exchange for goods, which keep the economy growing.  Within limits, of course, since lack of trust in money induced by hyperinflation is just as bad.
Quote
I say his reasoning is a bunch of gibberish easily disproved.
Then disprove it.  It would certainly earn you a Nobel price.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: caveden on October 14, 2010, 10:21:17 AM
... by Nobel price winning economists.

Yeah, like that one who believes in the broken window fallacy: http://www.youtube.com/watch?v=QG4jhlPLVVs

The Nobel prize has already lost any respect it might had long before giving the peace prize to the guy who just raised the budget of the strongest armed forces on earth.

There is a short summary in the Wikipedia article about the gold standard http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard (http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard).  Read the paragraph titled "Prolongation of the Great Depression".

What prolonged the depression was all government interventions and attempts to recover the economy.
You want to see how can a strong crisis be quickly "solved"? Just read about the 1920 crisis: http://www.washingtontimes.com/news/2010/mar/18/a-tale-of-two-great-depressions/

Some inflation is good. Deflation is bad. Every nation in the world governs by this principle.

And that's why the world will suffer a major economic crisis in less than one generation time.
There is nothing bad about deflation. It rewards savers (and savings is good since it makes capital accumulation easier) and also make it easier for the poorer to consume stuff that otherwise they wouldn't manage to.

Economic exchange today is about a lot more than food. If money keeps increasing in value as long as you hold onto it, you would want to spend as little as possible on other stuff than necessities.  You wouldn't even put it in a bank, because banks can go bankrupt.  And they will in this scenario, because very few will borrow money if their loan keeps getting higher and higher in money value every year. It also discourages investment. The number of possible investments which gives you more in return than you get by keeping the money gets lower, and this limits economic growth.

First: savers should be rewarded. They make everybody else's life better.
Second: for such a strong price deflation to occur, not only a frozen monetary base is needed, but a strong increase in productivity is necessary as well. Your scenario is self-contradictory. If prices going down causes such bad consequences, how could the prices keep going down in the first place? Productivity would drop and the price of goods would raise since they would become more scarce.
The thing is that prices going down do not cause economic problems. On the contrary, they represent a previous increase in productivity. Prices going down are the result of economic growth.
By the way, the technology industry is a living example of that. Their productivity increases even faster than the central bank printers work. Electronic goods' prices are always falling, and that's not negative at all. That doesn't stop people from wanting to consume them by the way (assuming people would just keep money in their pockets and never use it's quite silly, come on... money is not and end in itself).

Yes!  And it makes no sense to spend more money than absolutely necessary if the coin which buys you one bread today can buy three breads tomorrow.

If that happens it means your baker triplicated his productivity in one-day time. Give him a medal or something.

The other way around makes a lot more sense, since that is an initiative to keep the money flowing in exchange for goods, which keep the economy growing. 

No, no! That's the source of all your mistakes! It's not money flow that allows the economy to grow, it's not consumption that increases productivity.

Memorize it: It's not consumption that allow economic growth. It's saving.

Repeat it to yourself several times....  ;D

Seriously, a raise in consumption is the end consequence of economic growth, not its cause.
First, somebody has to save. Then, this savings can finance capital accumulation. More capital, more productivity. More productivity, more goods and services. More goods and services, more consumption is possible.
Consumption is in the end of the chain. Savings is on the beginning.


Then disprove it.  It would certainly earn you a Nobel price.

It already has been disproved since the 20s.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: db on October 14, 2010, 10:50:29 AM
Nobel price winning economists.
The economics prize is almost as bad as the peace prize. Despite the name it is not actually a Nobel prize but was instituted by the Swedish central bank in 1968.

Some inflation is good. Deflation is bad.
It's not that simple. Unexpected, monetary deflation (and inflation) is bad. That is if there is an unexpected change in the amount of money units that contracts, loans and wages denominated in the currency does not take into account then things get skewed for no good reason.

But that is not the kind of deflation we talk about here. Growth deflation  arising from economic growth is as predicatable as that growth and a good thing because it does not artificially push down the level of investment from the optimal as an inflating money supply does.

Every nation in the world governs by this principle.
Every country in the world has trade tariffs too. That's certainly not because they are good.

It also discourages investment. The number of possible investments which gives you more in return than you get by keeping the money gets lower, and this limits economic growth.
But hoarding growth deflating money is investment so it's actually the exact opposite. It encourages investment and increases economic growth.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: sturle on October 18, 2010, 09:48:30 AM
... by Nobel price winning economists.

Yeah, like that one who believes in the broken window fallacy: http://www.youtube.com/watch?v=QG4jhlPLVVs
Some people even believe in gods or wear a cowboy hat.  Some are even clueless about the Nobel prices.  This do not mean they are incompetent or wrong about everything else.

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The Nobel prize has already lost any respect it might had long before giving the peace prize to the guy who just raised the budget of the strongest armed forces on earth.
The economists in question did not receive the peace price.  If you believe that, you are wrong.  The prices are not related by anything but their name.  The two prices are even given in different countries.

Quote
There is a short summary in the Wikipedia article about the gold standard http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard (http://en.wikipedia.org/wiki/Gold_standard#Suspension_of_the_gold_standard).  Read the paragraph titled "Prolongation of the Great Depression".

Quote
What prolonged the depression was all government interventions and attempts to recover the economy.
You want to see how can a strong crisis be quickly "solved"? Just read about the 1920 crisis: http://www.washingtontimes.com/news/2010/mar/18/a-tale-of-two-great-depressions/
The article fails to mention that the correction in 1920, when millions (yes, millons) of soldiers returned home from a ruined Europe to a transition from war to peace time economy was completely different from the depression in the thirties in both cause and effect.   And I can't see anything in the article that supports deflation in the long term.  This is not about crisis resolution, but about keeping an economy going in the long term.  This is a highly political and very unscientific article.
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Some inflation is good. Deflation is bad. Every nation in the world governs by this principle.
And that's why the world will suffer a major economic crisis in less than one generation time.
There is nothing bad about deflation. It rewards savers (and savings is good since it makes capital accumulation easier) and also make it easier for the poorer to consume stuff that otherwise they wouldn't manage to.
Which planet do you live on?  Those statements must be based on some political theory.  It is certainly not sane economics.  Capital accumulation slows economic growth.  I'll give you a real world example.  My country has about four times the amount of fortune in an international fund as The USA has debt per inhabitant.  It is from oil revenue which is saved in good times to keep the national GDP in check, and spent in worse times.  We expect it all to be gone in 50 years because of an aging population and empty oil wells, but for now we are rich.  When the crisis came in 2008, this country spent a lot of money from the fund to keep people at work and the economy going, and avoided recession.  This spending from the fund increased GDP, just as putting money away keeps GDP from growing too much for us to stay competitive with the rest of the world.

Deflation is very bad for the poor.  When you owe money to someone else, and the money you owe them keep getting more and more worth while you get paid less because of increasing money worth, you don't have any chance of paying back at the end.  With interest you know how much you can borrow, providing the interest keeps at approximately the same level and your income does the same or increases.  With deflation your income will go in the opposite direction, and if deflation increases you pay double.  At least interest levels and inflation tend to cancel each other out in the long term.

Economic exchange today is about a lot more than food. If money keeps increasing in value as long as you hold onto it, you would want to spend as little as possible on other stuff than necessities.  You wouldn't even put it in a bank, because banks can go bankrupt.  And they will in this scenario, because very few will borrow money if their loan keeps getting higher and higher in money value every year. It also discourages investment. The number of possible investments which gives you more in return than you get by keeping the money gets lower, and this limits economic growth.

First: savers should be rewarded. They make everybody else's life better.
Second: for such a strong price deflation to occur, not only a frozen monetary base is needed, but a strong increase in productivity is necessary as well. Your scenario is self-contradictory. If prices going down causes such bad consequences, how could the prices keep going down in the first place? Productivity would drop and the price of goods would raise since they would become more scarce.
The thing is that prices going down do not cause economic problems. On the contrary, they represent a previous increase in productivity. Prices going down are the result of economic growth.
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Try to explain this to the Japanese.  Japan has been troubled by deflation for two decades.  Try to explain that this is good for the economy.  I doubt you'll find anyone who agree with you.  Only ten countries in the world have lower GDP growth than Japan.

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By the way, the technology industry is a living example of that. Their productivity increases even faster than the central bank printers work. Electronic goods' prices are always falling, and that's not negative at all. That doesn't stop people from wanting to consume them by the way (assuming people would just keep money in their pockets and never use it's quite silly, come on... money is not and end in itself).
As I have noted earlier -- electronic goods are an exception because they increase productivity by themselves.  Modern electronics lead to a productivity increase high enough to pay for the quickly decreasing value of the goods.  There are many other examples, which all have the same property.

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Yes!  And it makes no sense to spend more money than absolutely necessary if the coin which buys you one bread today can buy three breads tomorrow.
If that happens it means your baker triplicated his productivity in one-day time. Give him a medal or something.
No.  This will make the baker able to buy more breads.  Quite the opposite, in fact.  The flour he paid a coin for yesterday is now only worth 1/3 coin, and he will lose money because he can't sell the breads for that much.

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The other way around makes a lot more sense, since that is an initiative to keep the money flowing in exchange for goods, which keep the economy growing. 
No, no! That's the source of all your mistakes! It's not money flow that allows the economy to grow, it's not consumption that increases productivity.

Memorize it: It's not consumption that allow economic growth. It's saving.

Repeat it to yourself several times....  ;D
It is wrong as a general rule, which I have proven by counter examples.

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Seriously, a raise in consumption is the end consequence of economic growth, not its cause.
First, somebody has to save. Then, this savings can finance capital accumulation. More capital, more productivity. More productivity, more goods and services. More goods and services, more consumption is possible.
Consumption is in the end of the chain. Savings is on the beginning.
1. Save capital.
2. ?
3. Profit!

Capital will not increase productivity anywhere unless it is invested (which is the same as spent, just with different expectations).  I can collect tons of gold in my basement.  This will not lead to increased productivity anywhere.  I can give it to poor people, who spend it.  This leads to increased demand, and inflation, which lead to increased productivity because it is needed to fill the demand.

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Then disprove it.  It would certainly earn you a Nobel price.
It already has been disproved since the 20s.
No it hasn't.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: kiba on October 18, 2010, 12:27:41 PM

Try to explain this to the Japanese.  Japan has been troubled by deflation for two decades.  Try to explain that this is good for the economy.  I doubt you'll find anyone who agree with you.  Only ten countries in the world have lower GDP growth than Japan.


Dude, you couldn't do worse by using the Japanese as an example. They tried interventionists measure, didn't work. The Japanese stuff their money under the bed.

Even if they were to spend it, there would be massive inflation. It's bad for the Japanese all around.

There are good deflation and bad deflation, just as there are good inflation and bad inflation. Though generally, most inflation that happen today are just bad.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: caveden on October 18, 2010, 09:40:31 PM
... by Nobel price winning economists.

Yeah, like that one who believes in the broken window fallacy: http://www.youtube.com/watch?v=QG4jhlPLVVs
Some people even believe in gods or wear a cowboy hat.  Some are even clueless about the Nobel prices.  This do not mean they are incompetent or wrong about everything else.

You may say that if a mathematician believes in gods that doesn't make him incompetent in Math, but if a so called "economist" believes in one of the oldest fallacies concerning economics, that's a different scenario, don't you think?

The article fails to mention that the correction in 1920, when millions (yes, millons) of soldiers returned home from a ruined Europe to a transition from war to peace time economy was completely different from the depression in the thirties in both cause and effect.

Err... lots of people coming back, with no jobs or money, wounded and all... shouldn't that make everything even worse?

And by the way, the cause of the 1920 crisis was exactly the monetary expansion done by the Fed during WW1.

Which planet do you live on?  Those statements must be based on some political theory.  It is certainly not sane economics.  Capital accumulation slows economic growth. 

What? Wow ... wait... so... buying more machines, training more people, that slows economic growth??

I don't know what you think capital means, but capital = means of production. Machinery, plants, tools, even immaterial things like knowledge, all these are capital. The more you have it, the more productive you are. Economic growth = increase in productivity.

Accumulating capital is the only way to sound economic growth. There's no "monetary magic" that, just by the printing of some paper, will create real capital from thin air and make a society richer. It seems you believe in this keynesian illusion.

I'll give you a real world example.  My country has about four times the amount of fortune in an international fund as The USA has debt per inhabitant.  It is from oil revenue which is saved in good times to keep the national GDP in check, and spent in worse times.  We expect it all to be gone in 50 years because of an aging population and empty oil wells, but for now we are rich.  When the crisis came in 2008, this country spent a lot of money from the fund to keep people at work and the economy going, and avoided recession.  This spending from the fund increased GDP, just as putting money away keeps GDP from growing too much for us to stay competitive with the rest of the world.

I highlighted an important word from your paragraph.
You're talking about Norway, right? The funds of the Norway state are real savings. The Norwegian society produces more than it consumes, the state confiscates it but, instead of doing like most states in the world and burning it immediately, it saves.
That's exactly what I've said before, when I stated that savings is in the beginning of the economic growth chain.
First, you have savings. The more savings available, the easier it is to invest them in the creation of new capital. More capital, more production. More production, more consuming becomes possible and voilà, you have, at the end of the process, a raise in consumption. It was only possible due to the savings in the beginning, otherwise, if everybody consumes exactly what they produce, where will the new capital come from?

Memorize it:
Savings -> Investments -> Capital accumulation -> Increase productivity -> Increase in consumption.

So, when the Norwegian state forces its citizens to save or consume, it is provoking artificial changes in temporal preferences, but, at least, it's not completely illusionary - the savings were real.
But when a state prints money in order to artificially push down the interest rates, all he's doing is manipulating prices. No real savings are created. In this fake prices scenario, people will consume and invest more (since the interest rate is artificially low), and will not be interested in savings... the real savings will eventually dry out, and many long term investments that were started will have to be abandoned because there's not enough resources to complete it.

That's what will happen to the word economy in the near future. And will be strong!

Ah, and regarding spending increasing the GDP... of course, GDP is a measure of spending! That's what it measures, it doesn't measure savings!

Try to explain this to the Japanese.  Japan has been troubled by deflation for two decades.  Try to explain that this is good for the economy.  I doubt you'll find anyone who agree with you.  Only ten countries in the world have lower GDP growth than Japan.

As already noted by someone, Japan suffers from intense government interference. The "too big to fail" idea has made the government drain all the resources of its people to sustain big, wealth destroyer companies.

As I have noted earlier -- electronic goods are an exception because they increase productivity by themselves.  Modern electronics lead to a productivity increase high enough to pay for the quickly decreasing value of the goods.  There are many other examples, which all have the same property.

Well, I was thinking about electronic consume goods, not electronic capital. You claim that under deflation people don't ever spend. So why do people buy HD TVs? Why not wait forever until they get cheaper/better?

And you noted an important thing also: increase in productivity. Just a frozen monetary base won't cause price deflation. Frozen monetary base + economic growth = price deflation. And if the economy is growing, that means new capital is available. As you noted by yourself, these more productive capital compensates the deflation.

1. Save capital.
2. ?
3. Profit!

You don't save capital (if it's "saved", it's not being used as capital at least), you save resources.
And resources saved can be invested to create new capital. With new capital, then, Profit! ;)

Capital will not increase productivity anywhere unless it is invested (which is the same as spent, just with different expectations).  I can collect tons of gold in my basement.  This will not lead to increased productivity anywhere. 

You're confusing capital with resources. Of course capital increases productivity. And first you invest, then you have capital. Tons of gold in your basement is savings, not capital.

I can give it to poor people, who spend it.  This leads to increased demand, and inflation, which lead to increased productivity because it is needed to fill the demand.

Here it's clear you're influenced by keynesianism...

So, people go and spend more. And then, magically, from nowhere, productivity increases! Machines fall from the sky, people wake up more skilled, electronic chips spontaneously mutate into faster circuits, just because you distributed money to the spending-poor!

Sorry for the irony, but, seriously now, how do you think productivity increases? Aren't you missing some important steps in this reasoning?

(And sorry all for the huge post...)


Title: Re: Current Bitcoin economic model is unsustainable
Post by: MoonShadow on October 19, 2010, 12:05:09 AM
Some people even believe in gods or wear a cowboy hat.

Wherever you received your economic education from, you should return and demand your money back.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: kiba on October 19, 2010, 04:42:46 PM
I think the only way to resolve it is that the bitcoin economy will disprove sturle.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: grondilu on October 20, 2010, 12:38:03 PM
I haven't read all this thread but I'd like to say that keyneysianism makes me sick.   I've seen the part where Krugman promoted a "broken window" concept and I felt like vomiting.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: FreeMoney on October 21, 2010, 05:02:37 AM
The "Nobel Prize" argument is absurd. Would reality change if the Nobel committee had decided differently? Or in that case would we actually get to analyze arguments instead of credentials?

And it is totally backwards as an indicator even. You can't get a Nobel until a bunch of people already heard you and agreed, so who cares now? It just a recognition of popularity after the fact.

And they aren't even trying to make it a good indicator anymore. They gave the peace prize to the commander of the largest military in the world. If it was funny it would be a joke.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: ShadowOfHarbringer on October 21, 2010, 07:46:31 AM
Keynesian economy already failed miserably many times (see the latest world crisis caused by nothing else than INTERVENTIONISM), and it will fail again.

I would sooner say that fiat currency model is unsustainable.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: caveden on October 21, 2010, 01:22:43 PM
Talking about Nobel prizes: http://www.spiked-online.com/index.php/site/article/9776/


Title: Major update
Post by: Suggester on May 24, 2011, 10:10:42 AM
Hi again fellow bitcoiners. And thank you for (presumably) missing me!

I'm here after a very long time of inactivity to majorly update the first post in this thread so it contains realistic solutions to the deflation problem and, of course, to yell at all skeptics who opposed my suggestions last year: TOLD YA!

Please refer to the first post of this thread before replying.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: FreeMoney on May 24, 2011, 10:19:26 AM
Okay, I'm finally convinced, you can go ahead and do it now.


Title: Re: Current Bitcoin economic model is unsustainable
Post by: markm on May 24, 2011, 10:24:35 AM
Yes, for sure, if it is so much better get it up and running.

-MarkM-


Title: Re: Removed paragraphs from the first post
Post by: Anders on May 24, 2011, 10:48:16 AM
No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).


Title: Re: Removed paragraphs from the first post
Post by: Suggester on May 24, 2011, 10:59:12 AM
No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).

Anders, please refer to the first post in the thread to read the current suggestion. What you just quoted are the removed obsolete paragraphs. They're only posted for historical context.


Title: Re: The current Bitcoin economic model doesn't work
Post by: stic.man on May 24, 2011, 11:10:25 AM
I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding. What market cap would you expect to go by and how much per BTC would be appropriate. The only way it would stabilize is if the BTC Economy grows at the same exact rate as coins are produced


Title: Re: Removed paragraphs from the first post
Post by: Anders on May 24, 2011, 11:14:14 AM
No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).

Anders, please refer to the first post in the thread to read the current suggestion. What you just quoted are the removed obsolete paragraphs. They're only posted for historical context.

Ok, I read the original post briefly. I will take a closer look at.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on May 24, 2011, 11:22:14 AM
I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding.

Looks like you want to vote "Yes" to the poll above then! With enough people expressing their concern, perhaps we can convince Gavin Andresen and the other developers to update the system.

What market cap would you expect to go by and how much per BTC would be appropriate. The only way it would stabilize is if the BTC Economy grows at the same exact rate as coins are produced

There's no market cap in the suggested model. The price will stabilize around the electricity costs as explained in the first post. If it's higher, more generators will join the network until it stabilizes. If it is lower, less generators would be encouraged to produce until the price matches it again. A typical supply-demand scenario. There will be no major BTC price shifts unless worldwide electricity prices significantly change.


Title: Re: The current Bitcoin economic model doesn't work
Post by: FreeMoney on May 24, 2011, 11:28:37 AM
The inelastic supply of bitcoins is why it has 'market cap' of $40M and your idea isn't valued. Bitcoin can hold value, your system can't. Don't believe me, just do it. Maybe you are right and I'll eat my internet hat.


Title: Re: The current Bitcoin economic model doesn't work
Post by: markm on May 24, 2011, 11:33:19 AM
Quote: "I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding."

Okay lets take an extreme example to illustrate a point by using exaggerated figures.

If only a few trillion dollars worth of bitcoins exist by, say, the end of the Mayan calendar in december 2012, then, yes, a few trillion more dollars choosing to enter the market could still cause quite a jump in price.

But if many trillions of dollars are in bitcoin form by that time, then a paltry few trillion entering ought only cause the price to rise by a small percentage.

Get the drift? (Stability increasing as sheer value of the whole shebang increases compared to potential "outside" influencers.)

-MarkM-


Title: Re: The current Bitcoin economic model doesn't work
Post by: caveden on May 24, 2011, 11:36:01 AM
The inelastic supply of bitcoins is why it has 'market cap' of $40M and your idea isn't valued. Bitcoin can hold value, your system can't. Don't believe me, just do it. Maybe you are right and I'll eat my internet hat.

+1


Title: Re: The current Bitcoin economic model doesn't work
Post by: stic.man on May 24, 2011, 11:44:08 AM
I believe there can be stability but this project is still in it's infancy. It seems like everyone wants it to be perfect immediately. Allow it some growing pains and go along for the ride. If you truly want it to succeed as a currency. I mean the program is still in beta at this point.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Meni Rosenfeld on May 24, 2011, 12:36:04 PM
I'm sorry Suggester, but your analysis is very wrong.

Now the only problem is that this "real exchange value" itself would be determined by electricity, computer deterioration, and time expenditures needed to generate those BTCs. We have a loop.
Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
In the future, mining rewards will be almost solely transaction fees, which I assume will be about 0.1%. So I think it's safe to say miners will be about 0.1% of the economy. In that capacity, their decisions to hoard, use or sell bitcoins will affect the market, but they're only 0.1% of it.

Every four years the average BTC generator will need to spend double the effort to create the same amount of coins.
You're forgetting that eventually mining rewards will consist in transaction fees. Until that point, halving will create a combination of decreased difficulty, increased BTC value, and decreased profitability for miners (which they'll have to consider in their business plans in advance).

That means that he will constantly demand higher prices to compensate for his costs
He can ask whatever he wants, he can't force anyone to buy at that price. There will be other coins circulating, and all miners combined will be a small part of the economy.

only an idiot would spend a currency which he is certain will double in price within 4 years, effectively granting about 19% annual interest--significantly better than almost any bank or mutual fund.
There is nothing certain about it, bitcoins are a high-risk investment and will be in the foreseeable future. And again, halving will only have a small effect on the bitcoin value.
Anyway, a combination of growth and speculation allowed the bitcoin value to increase tenfold in a month without any relation to halving.

People will be hoarding BTCs forever and it will be regarded as a phony investment with no real value
People will hoard some of their bitcoins, but most of them will know that their investment gains value by people using it and will be happy to use it themselves.
This will self-balance to some degree. If nobody uses bitcoins, any speculative bubble will burst, making people less tight-fisted about spending bitcoins, restoring some level of commerce.

sort of like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.
This is nothing like either a pyramid or a ponzi.

This scenario can only be avoided if the cost of generating new BTCs got relatively constant.
Your premise has been debunked, so most of the rest is pretty moot.

Which can only happen if the participating nodes needed to exert a more or less constant amount of work (cost) to generate new BTCs.
Given advances in hardware and software, and the development of special-purpose mining hardware, it will be very difficult to find an objective system that will make the cost of creating BTC constant. Also, once in a while the hashing algorithms used will be changed which will completely shuffle the cards.

So what's the solution? Well, as you might have already guessed, we should remove both the 4-years doubling interval rule and the 21M limit. Just let BTCs continue to be created forever.
I'm not against this per se. A system where the currency continues to be generated at a predetermined rate can work. But people signed up to Bitcoin on the understanding that 21M is the limit, so this must be a separate currency.


All that said, I agree that it seems that currently bitcoins gain their value more by speculation than by use. This is unfortunate, but is part of the growing pains and should stabilize to some degree in the future. "Stability" here means - the purchasing power will not fluctuate too much, but will still increase due the spread of Bitcoin at first, and due to the growth of the economy later.


Title: Re: The current Bitcoin economic model doesn't work
Post by: TradersEdgeDice on May 24, 2011, 01:06:32 PM
And by being in beta, there's room for improvement.

Bitcoin should model itself after silver, not gold.

The biggest problem I have with inflationary money is the fact that there's virtually no collective education about how it works and the guys in charge are basically an oligarchy.

Like silver, bitcoin should have a natural inflation.  Say 1% per year.  That way, it keeps its status as a store of value while weakening the delusional "one day, one BTC will equal one million dollars." I'm in it for anonymous cash.  The true definition of cash.  This store of value stuff seems to be like creatine effects-- fake muscle, real water retention.  

Spoke with an old, accomplished(meaning that he did well and then did time) financial con artist about bitcoin…  He swears that the "trading programs" of the eighties and nineties were started by the phone companies so people would run up long distance bills.  While noting his lack of knowledge in computers, he fingered electric companies and possibly hardware manufacturers at the culprits here.  :-)

I have more than a drop of knowledge about computers…

How many people are going to use four PCI-e x 16 slots and the remaining PCI-e x 1 slots to run one program on the linux CLI 24/7 without a belief in financial reward down the road?

I am fascinated by bitcoin.  I want to rip power out of the hands of central bankers through decentralized money.  That is the allure of this project.

No matter how great a currency is, it needs circulation.  Without circulation, you will get swelling and then death.

I think some people might be confusing and natural tan with pooling blood.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on May 24, 2011, 04:25:21 PM
Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
That's even worse. Now we won't even be tied to the electricity anchor at all. The price will be ridiculously volatile with no limits whatsoever. It will be a speculator's heaven and a spender's nightmare.

You're forgetting that eventually mining rewards will consist in transaction fees.
Not quite. Transaction fees are not a reliable estimate for the coin's price because they cost nothing. Does it cost you anything to fire up Bitcoin.exe and join the network? No? Me neither.

Until that point, halving will create a combination of decreased difficulty, increased BTC value, and decreased profitability for miners (which they'll have to consider in their business plans in advance).
Miners will never lose. If they did, they'll simply stop mining until it becomes profitable again. It's a fact of economics that mining is and will continue to be profitable for the foreseeable future (including expectations of price increase). I'm explicitly complaining from the "increased BTC value" part because it's simply perpetual deflation!

He can ask whatever he wants, he can't force anyone to buy at that price. There will be other coins circulating, and all miners combined will be a small part of the economy.
Rly? And what will determine the price of those coins? "Supply and demand" I hear you say? That's exactly where the catastrophe begins. Here we are, having a wild currency with no anchor with a daily (or an hourly, even) new price determined solely by supply and demand instead of by the stable cost of electricity.

There is nothing certain about it, bitcoins are a high-risk investment and will be in the foreseeable future. And again, halving will only have a small effect on the bitcoin value.
Anyway, a combination of growth and speculation allowed the bitcoin value to increase tenfold in a month without any relation to halving.
There is a very strong relation. Had the system been tamed from the start by a supply-fits-demand model, none of this crazy speculation would've been taking place. The amount of generated coins would then suit the number of generating nodes and everyone would be happy spending their predictable coins with no hoarders or investors ruining everything. Hell, I've got a nice sum of coins which I generated during the cheap times last year and you know what? I'm not spending them till I absolutely need to or till it seems the system is about to collapse. The thing is getting more precious by the month! You think I'm the only weird person thinking that way?

People will hoard some of their bitcoins, but most of them will know that their investment gains value by people using it and will be happy to use it themselves.
Oh, they might as well donate it to Santa Claus.

This will self-balance to some degree. If nobody uses bitcoins, any speculative bubble will burst, making people less tight-fisted about spending bitcoins, restoring some level of commerce.
What a great way to promote bitcoin. "Save till it bursts, spend, then save again!" Imagine if the Euro acted this way when it was rolled out. You're not taking this seriously.

Given advances in hardware and software, and the development of special-purpose mining hardware, it will be very difficult to find an objective system that will make the cost of creating BTC constant.
I just gave you one.

Also, once in a while the hashing algorithms used will be changed which will completely shuffle the cards.
That's included in the proposed model. The hashing will maintain the difficulty so that only 144 daily blocks are produced anyway. The difference will be in the amount of coins those blocks have.

I'm not against this per se. A system where the currency continues to be generated at a predetermined rate can work.
No. If the rate is predetermined we'd fall into the same problems. We want a flexible rate changing with the user base.

But people signed up to Bitcoin on the understanding that 21M is the limit, so this must be a separate currency.
According to that logic, we might as well stop updating the code no matter how grave mistakes we discover in it.

All that said, I agree that it seems that currently bitcoins gain their value more by speculation than by use. This is unfortunate, but is part of the growing pains and should stabilize to some degree in the future. "Stability" here means - the purchasing power will not fluctuate too much, but will still increase due the spread of Bitcoin at first, and due to the growth of the economy later.
That'll never happen. It will only get worse as producing becomes harder and the economy relies on the coins-in-circulation to determine the price via sheer supply and demand with no stable anchor like electricity.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Cusipzzz on May 24, 2011, 04:30:06 PM
Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on May 24, 2011, 04:34:06 PM
Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.
Not before I sell my coins as 1 BTC reaches $100! I sincerely hope the system won't collapse before then.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DATA COMMANDER on May 24, 2011, 04:46:07 PM
Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.

/thread


Title: Re: The current Bitcoin economic model doesn't work
Post by: db on May 24, 2011, 08:16:12 PM
Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.
Not before I sell my coins as 1 BTC reaches $100! I sincerely hope the system won't collapse before then.

And thus, of course, you also sincerely hope no one will actually listen to what you advocate here and act on it?


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 24, 2011, 10:54:18 PM
Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
That's even worse. Now we won't even be tied to the electricity anchor at all. The price will be ridiculously volatile with no limits whatsoever. It will be a speculator's heaven and a spender's nightmare.

You're forgetting that eventually mining rewards will consist in transaction fees.
Not quite. Transaction fees are not a reliable estimate for the coin's price because they cost nothing. Does it cost you anything to fire up Bitcoin.exe and join the network? No? Me neither.

Snip.  It goes on and on and on like this for a while.

Dude, pretty much every one of your points is founded on the wildly incorrect premise that some other currency is fixed and stable in some way.  No currency in use today has this "anchor" that you seem to think is so important.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on May 25, 2011, 12:23:21 AM
Clearly suggester doesn't know what "Time Preference" is. Goods now are worth more than the same amount of goods later. Everybody has different amounts of time preference, so we don't know exactly how much of an increase in goods later is worth the goods attainable now. Just know that if you increase the amount of goods now, you'll have to increase the goods later proportionally. Risk also plays a part in this, since it's not "known" whether or not that proportional increase will be reached.

"Only an idiot would spend bit coins now if he knew that the price would double"

Except you know, if she has want's and needs such things as food or entertainment. It's called having a high time preference. People want to consume goods and are willing to spend their coins for it at some price (amount of goods). The lower the price, the higher the time preference. Also, why would you ever be able to buy bitcoins? Clearly some people want to trade bitcoins even at $7. But no, those people are idiots. ::)

Suggester also doesn't understand what marginal utility is. The more of something you have, the less valuable each extra individual unit is to you. e.g. I have 1000 gallons of water. The first 100 gallons I use to drink, the second 100 gallons I use to bathe. If I only had 100 gallons, I would forgo bathing, and continue to drink. Therefore the first 100 gallons > second 100 gallons. The same applies to bitcoins. I'm more willing to spend 100 bitcoins if I have 1000, than I would be if I had 500 bitcoins because that 100 bitcoins is worth more to me. So hoarding and increasing your stockpile doesn't make sense into infinity because as you increase the amount you have, the less utility you are acquiring.

Also, the higher the value, the more you can buy with it, and the more you can buy with it, the more incentive you have to spend it. Yes, some people have really low time preference, and so they save their bitcoins. But everybody has a price. At some price, they will spend their bitcoins, thus increasing their availability and lowering the amount people are willing to pay for coins certis paribus . Supply/Demand.

Quit thinking that your grand ideas are what will save bitcoin. They won't. People calculating their own value and actions is VASTLY superior to your ability to predict markets and manipulate software to change the rules of this game in the middle of it. Stability is important, not the particular % of growth in the money supply.


Title: Re: The current Bitcoin economic model doesn't work
Post by: RLutz on May 25, 2011, 02:07:49 AM
Hey, I'm a software engineer who after seeing all the constant posts on Slashdot about bitcoins, decided to come see what all the fuss was about. After reading the FAQ, I immediately wanted to come and make a post containing the exact points that "Suggester" has made.

I would totally be excited to get involved in both mining and using BTC as currency if it weren't for the flaws he's outlined. I won't restate every point he made in his original post, but my own thoughts are as follows.

BTC will work fine once it gets enough people using it and accepting its worth (maybe a few slight modifications are needed), but the biggest problem is reaching that many users of BTC. As a potential user who is "late to the game" I see a system that hugely favors the early adopters--it just doesn't come off as "fair", and as such, I'm not too anxious to get involved. Why should the early adopters be rewarded with incredible wealth while I get a pittance?

Anyway, I'm not an expert economist, but I'm guessing my thoughts after reading and understanding how the bitcoin system works are going to mirror those of countless others who stumble upon BTC this late in the game and then investigate how it works. If you want the currency to succeed, you need to attract myriad people, and the only way I see that you're going to do that is to avoid coming off as a "ponzi" scheme, which, even if BTC isn't, it certainly comes off as one at first glance (huge rewards for early adopters, little to no incentive to adopt as time passes).

edit: I know the retort is going to be, "Bitcoin isn't about mining, it's about having a stable currency for exchange." And to that I say, "I agree!" Which is why you need to remove the huge incentive that early adopters get. With that gone, I wouldn't even want to mine, I would just want to immediately get involved in utilizing the currency for its intended purpose.

It isn't so much that the system is flawed, but that from a psychological perspective, people have a real problem getting involved in a currency system that looks like a ponzi scheme--my gut reaction is to reject a system that provides substantial wealth to early adopters, while providing significantly less incentive for new adopters to get on board.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Anders on May 25, 2011, 02:46:48 AM
Why should the early adopters be rewarded with incredible wealth while I get a pittance?

But if you buy bitcoins today for $7 and sell them after three years for $100,000 isn't that enough reward for you? Sure, the value of a bitcoin after 3 years may still be $7 or even zero, but there is a also a chance that it really reaches to extremely high values.


Title: Re: The current Bitcoin economic model doesn't work
Post by: RLutz on May 25, 2011, 03:43:24 AM
Why should the early adopters be rewarded with incredible wealth while I get a pittance?

But if you buy bitcoins today for $7 and sell them after three years for $100,000 isn't that enough reward for you? Sure, the value of a bitcoin after 3 years may still be $7 or even zero, but there is a also a chance that it really reaches to extremely high values.

Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kiba on May 25, 2011, 03:44:25 AM
It isn't so much that the system is flawed, but that from a psychological perspective, people have a real problem getting involved in a currency system that looks like a ponzi scheme--my gut reaction is to reject a system that provides substantial wealth to early adopters, while providing significantly less incentive for new adopters to get on board.

What's the incentive for early adopters to promote and use bitcoin?


Title: Re: The current Bitcoin economic model doesn't work
Post by: zef on May 25, 2011, 03:45:06 AM
Hi Rlutz welcome to the forum.  

I wouldn't dismiss bitcoins as a currency because these perceived "flaws" just yet.  From what i see, its commonly mentioned that early adopters are rewarded disproportionately, its a pyramid scheme, etc, but as posters has noted already, these complaints completely discount the huge risk that early adopters are bearing.  If you speculate on something that fails, you lose, and its hard to tell if something will win or lose when its just getting off the ground.  The reward should be proportionate to the risk taken.  Starting a new currency like bitcoins is a huge risk in terms of success or failure, it's something most people would consider impossible and or/a waste of time.  I think its brilliant that early adopters have a chance of big rewards, it gives new comers great incentive to get involved with using or earning coins NOW - to catch the wave - so to speak. Removing this incentive means there is less interest in this new money, and less growth.

This may seem unstable now, but bitcoin is a tool for exchange, the more people have it, the better chance there will be to build a thriving economy with it, once speculation stops being so novel, and mining stops being so profitable, it will start being used the way it was intended, because there really is no better use.

This is not to say that getting in "late" is bad though.  Mining is not the only way to make coin, trading goods and services is an excellent way to earn your way into the economy. This will eventually be the primary method of earning coin.  The currency is young now, and the infrastructure is still building up to this, but it will eventually happen.

People tend to have this notion - if I do something where someone will gain more than me, then I wont do it - Even if that thing is a win win.  It's not a very constructive way to think about things, but I agree, it may dissuade a lot of people.  People also tend to be overly concerned with "fairness", unfortunately there is no objective way to measure this.  One may consider a free-market unfair because wealth and earning power are distributed unequally at any point in time, while another person may consider it the fairest, because each individual is free to take action to increase their wealth in any way they see fit.  One may consider bitcoins unfair because there are already people with so much more coin than them, others may consider it very fair because there is no one in charge of distributing new money, its just based on your participation in the network.  Unfortunately I don't think there can be a single solution to this problem, its personal.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kiba on May 25, 2011, 03:47:15 AM
If you have a deflationary growth economy, everybody win, even if you're a latecomer.  ;)


Title: Re: The current Bitcoin economic model doesn't work
Post by: stic.man on May 25, 2011, 03:47:22 AM
jesus what is with all the bitching about being "late to the game?"

you snooze you lose, why does this argument keep coming up?


Title: Re: The current Bitcoin economic model doesn't work
Post by: stic.man on May 25, 2011, 03:48:24 AM
and also like stated above if this works out well they'll be worth potentially thousands more.

a return in the tens of thousands of percents is pretty solid


Title: Re: The current Bitcoin economic model doesn't work
Post by: smooth on May 25, 2011, 03:49:31 AM
Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.

It doesn't stop people from continuing to sign up for and use Facebook.  Not only is Zuckerberg getting a lot more out of the deal than any of Facebook's users, but he's also way more of an asshole than any of Bitcoin's early adopters.

Give people compelling enough value and they will overlook fairness.  When the pie (or candy bar) is really small people will bicker forever over how to divide it.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kiba on May 25, 2011, 03:50:23 AM
"I am not going to adopt bitcoin because it unfairly reward early adopters...boohoo!"

10 months later.

"Damn! I should have invest in bitcoin!"


Title: Re: The current Bitcoin economic model doesn't work
Post by: markm on May 25, 2011, 04:00:28 AM
The fact that so many people who already adopted the original bitcoin imagine mining a new but similar currency to be a waste of time might allow late-comers a window of opportunity each time they start yet another similar currency, because it seems possible that not a lot of huge mining corporations will immediately jump on their blockchain and mine a few million coins of it "just in case it does take off".

Thus simply start yet another one yourself, or jump on one of the ones the bitcoin-plutarch-cabal considers beneath their notice and large mining pools seem like they might actually be able to resist the temptation to throw lots of processor power at.

Maybe it will only take a few iterations to accomplish something or maybe it will have to get close to "one blockchain-based currency per person" but hey, is it really so much more wild a gamble than Satoshi's gamble of gosh knows how many programmer hours gallons of skullsweat etc?

There are more and more new blockchain-based currencies springing up all the time. If original bitcoin is not quite to your taste pick another or create one tailored to your precise tastes.

-MarkM-


Title: Re: The current Bitcoin economic model doesn't work
Post by: jerfelix on May 25, 2011, 04:44:22 AM

BTC will work fine once it gets enough people using it and accepting its worth (maybe a few slight modifications are needed), but the biggest problem is reaching that many users of BTC. As a potential user who is "late to the game" I see a system that hugely favors the early adopters--it just doesn't come off as "fair", and as such, I'm not too anxious to get involved. Why should the early adopters be rewarded with incredible wealth while I get a pittance?


There is only $45 Million dollars worth of Bitcoins in the world.  If you think you are "late to the game" and also there's some "incredible wealth" out there, I think you are mistaken.

There are 11,000 people registered in this forum.  Probably most are like me, with just a little bit of Bitcoin.  Some registered users probably have none, but on the contrary some bitcoin holders probably aren't registered in the forum.

The first 960 participants registered prior to 11/1/2010.  Back then there were about 4 Million bitcoins issued (so a current value of about $28 M).  Even if 280 of them split the 28M, that's only an average of $100K each.  Not exactly "incredible wealth".  Or even if only one person has the vast majority of coins issued prior to 11/1/2010, that's only one person getting very rich ($28 Million).
 
I suspect that you could apply the 80/20 rule.  20% of the 11,000 own 80% of the current $45M wealth.  Splitting $36M over 2200 people won't exactly make them all rich.  That's $16K a person.   Maybe the top 20% own 80% of that wealth.  So 440 people split $28M.  That's 64K per person, for 440 people.  Still no incredible wealth.  And if you apply 80/20 one more time, you have 88 people splitting $22M.  That's 88 people getting $250K each.  Still not a lot of money, but respectable.   And 80/20 one more time gets you to 18 people splitting $18M.   So it made 18 millionaires. 

18 millionaires seems about right.  And that's if they didn't dump their bitcoin when the value quadrupled, the first time, or the second time, or the third time.


Besides, there is SOooooo much money and opportunity in other services, and there are soooo many more people that still need to be introduced to Bitcoin.  You are hardly late to the game!


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on May 25, 2011, 05:18:01 AM
And thus, of course, you also sincerely hope no one will actually listen to what you advocate here and act on it?
Part of me wants that yes. But I would've felt guilty had I not warned everyone and told them the way out of this Ponzi scheme. I feel better now, and still hoping to get away with as much cash as I could.

Dude, pretty much every one of your points is founded on the wildly incorrect premise that some other currency is fixed and stable in some way.  No currency in use today has this "anchor" that you seem to think is so important.
Really? I don't remember the last time my electricity bill skyrocketed 10 times in a month.

People want to consume goods and are willing to spend their coins for it at some price (amount of goods). The lower the price, the higher the time preference. Also, why would you ever be able to buy bitcoins? Clearly some people want to trade bitcoins even at $7. But no, those people are idiots. ::)
With the exception of people being forced to sell their coins for an emergency and the exception of "hit-and-run" transactions, most buyers buy now on hope that the coin's price will rise and most sellers on the expectation that it will drop. How otherwise can you justify a ten-fold increase in a single month? It wasn't a sudden surge in child porn anonymous sales I suppose. No, it was speculation. Virtually the whole bitcoin market is speculation.

Suggester also doesn't understand what marginal utility is.... hoarding and increasing your stockpile doesn't make sense into infinity because as you increase the amount you have, the less utility you are acquiring.
Hmm, I wonder how we ended up with quite a few millionaires and billionares on this planet then. Weird. Perhaps they don't understand marginal utility either. Why don't you explain it to them DrSammy? Maybe they'll give up their hoarded money to charity.

Also, the higher the value, the more you can buy with it, and the more you can buy with it, the more incentive you have to spend it. Yes, some people have really low time preference, and so they save their bitcoins. But everybody has a price. At some price, they will spend their bitcoins, thus increasing their availability and lowering the amount people are willing to pay for coins certis paribus . Supply/Demand.
I'm pretty tired of having to repeat this, but let's say it one more time: Yes they will sell at some point, but to another investor who'll keep the coins till the price is right before selling them again. That's a Ponzi scheme by definition.

Stability is important, not the particular % of growth in the money supply.
That just shows you understood nothing of what I said. Stability doesn't come except with a supply proportionate to the demand. Otherwise you'll continue to see these roller coaster prices and/or perpetual deflation.

Hey, I'm a software engineer who after seeing all the constant posts on Slashdot about bitcoins, decided to come see what all the fuss was about. After reading the FAQ, I immediately wanted to come and make a post containing the exact points that "Suggester" has made.
You didn't even need to see the historical price graph to figure the current design has issues? I see you're smarter than quite a few folks here :)

As a potential user who is "late to the game" I see a system that hugely favors the early adopters--it just doesn't come off as "fair", and as such, I'm not too anxious to get involved. Why should the early adopters be rewarded with incredible wealth while I get a pittance?
You join now on the hope that in a year or two you'll be a relatively "early adopter" and then grab a new "late adopter's" cash for your coins which would be even scarcer by then. In other words: Pyramid Scheme

What's the incentive for early adopters to promote and use bitcoin?
The incentive is to get other fools to join the pyramid so they can fatten their wallet even more before running away with their money.

I wouldn't dismiss bitcoins as a currency because these perceived "flaws" just yet.  From what i see, its commonly mentioned that early adopters are rewarded disproportionately, its a pyramid scheme, etc, but as posters has noted already, these complaints completely discount the huge risk that early adopters are bearing.  If you speculate on something that fails, you lose, and its hard to tell if something will win or lose when its just getting off the ground.  The reward should be proportionate to the risk taken.  Starting a new currency like bitcoins is a huge risk in terms of success or failure, it's something most people would consider impossible and or/a waste of time.  I think its brilliant that early adopters have a chance of big rewards, it gives new comers great incentive to get involved with using or earning coins NOW - to catch the wave - so to speak. Removing this incentive means there is less interest in this new money, and less growth.
Another great definition for a Ponzi scheme. And totally true. I mean, the first few people purchasing the ticket are indeed taking more risk since the scheme isn't popularized just yet! The only problem with that, however, is that with bitcoin everyone is an "early adopter" at some point if he holds on to his coins long enough (as long as the system didn't collapse yet).

it, once speculation stops being so novel, and mining stops being so profitable, it will start being used the way it was intended, because there really is no better use.
I explicitly outlined in the first post why that scenario would be much worse than the current one. You're hoping for the total removal of the electricity-cost anchor. That's a nightmare.

This is not to say that getting in "late" is bad though.  Mining is not the only way to make coin, trading goods and services is an excellent way to earn your way into the economy.
You forgot to add: "provided the coins' price doesn't drop in half before you get the chance to sell/reuse them".

If you have a deflationary growth economy, everybody win, even if you're a latecomer.  ;)
Unless enough people realize the trick and escape the ship before it sinks. But if we live in a world of zombies then sure, it won't fail until it snatches enough victims so that it has no space for any new naive newcomers. We're talking hundreds of millions of potentially stupid (or speculative) people.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kiba on May 25, 2011, 05:27:38 AM
Unless enough people realize the trick and escape the ship before it sinks. But if we live in a world of zombies then sure, it won't fail until it snatches enough victims so that it has no space for any new naive newcomers. We're talking hundreds of millions of potentially stupid (or speculative) people.

Must be a ponzi scheme! :D http://bitcoinweekly.com/articles/reactions-to-bitcoin

That comic was not created by me. I paid somebody to create it and I paid somebody 22 times total for content on http://bitcoinweekly.com. I have one current employee, several freelancers, and two cartoonists over the lifetime of Bitcoin Weekly. I am even employed by somebody else. Some spectulative economy, eh?  ;)

Did ya know the marketplace is buzzing with so much activities that moderators have to subdivide it into sell and buy? You said virtually the whole market is speculative, right? So, is that 95%, 85%, 75% or what? How would you measure it?

Let end it with a bitcoin bubble comic: http://bitcoinweekly.com/articles/comic-reaction-after-dramatic-rise-of-bitcoin-s-value


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on May 25, 2011, 06:01:56 AM
That comic was not created by me. I paid somebody to create it and I paid somebody 22 times total for content on http://bitcoinweekly.com. I have one current employee, several freelancers, and two cartoonists over the lifetime of Bitcoin Weekly.
I hope you paid them after the price crashed not before ;)

I am even employed by somebody else. Some spectulative economy, eh?  ;)
If you received your bitcoin sallary around the 12th of April you probably wouldn't mind the speculative economy. If you got it around the the 10th of May though you would've been on my side now.

Did ya know the marketplace is buzzing with so much activities that moderators have to subdivide it into sell and buy?
So? I never said it wasn't growing. I said it was a Ponzi scheme. A growing Ponzi scheme is still a Ponzi scheme. Moreover, Ponzi tickets were a valuable commodity at a time.
Tell me, how would a commodity buyer or a service provider like to price their goods/services to a roller coasting currency? I personally would never sell anything in BTCs unless I can liquidate it into fiat within 24 hours. Make that 12 hours if the transaction was huge.  How does that serve a "medium of exchange" purpose? Hell, you can't even go on vacation for a week without worrying your coins might be worth next to nothing by the time you come back. That's poison for any currency.

You said virtually the whole market is speculative, right? So, is that 95%, 85%, 75% or what? How would you measure it?
I don't need to "measure it". Suffice is to see the price skyrocket 10 fold in a month before crashing 50% within 10 days. I don't think that was due to the increase of genuine demand on bitcoin, do you? The bitcoin market didn't expand 10 times in a month before suddenly shrinking to half in 10 days. The current design has turned this beautiful idea into a speculators den.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kiba on May 25, 2011, 06:09:21 AM
That comic was not created by me. I paid somebody to create it and I paid somebody 22 times total for content on http://bitcoinweekly.com. I have one current employee, several freelancers, and two cartoonists over the lifetime of Bitcoin Weekly.
I hope you paid them after the price crashed not before ;)

I am even employed by somebody else. Some spectulative economy, eh?  ;)
If you received your bitcoin sallary around the 12th of April you probably wouldn't mind the speculative economy. If you got it around the the 10th of May though you would've been on my side now.

Did ya know the marketplace is buzzing with so much activities that moderators have to subdivide it into sell and buy?
So? I never said it wasn't growing. I said it was a Ponzi scheme. A growing Ponzi scheme is still a Ponzi scheme. Moreover, Ponzi tickets were a valuable commodity at a time.
Tell me, how would a commodity buyer or a service provider like to price their goods/services to a roller coasting currency? I personally would never sell anything in BTCs unless I can liquidate it into fiat within 24 hours. Make that 12 hours if the transaction was huge.  How does that serve a "medium of exchange" purpose? Hell, you can't go on vacation for a week without worrying your coins might be worth next to nothing by the time you come back. That's poison for any currency.

You said virtually the whole market is speculative, right? So, is that 95%, 85%, 75% or what? How would you measure it?
I don't need to "measure it". Suffice is to see the price skyrocket 10 fold in a month before crashing 50% within 10 days. I don't think that was due to the increase of genuine demand on bitcoin, do you? The bitcoin market didn't expand 10 times in a month before suddenly shrinking to half in 10 days. The current design has turned this beautiful idea into a speculative den.

Actually, I paid my writers through all the turbulence. I dropped the payment rate there and there, but I don't remember much raising prices. The price deflation was extreme  that I was not sure if I keep pace with the salary.

I don't have any regret at all. Growing the bitcoin economy is a marathon and my business is not a sprint.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Meni Rosenfeld on May 25, 2011, 06:15:21 AM
@ Rlutz - FAQ added (https://en.bitcoin.it/w/index.php?title=FAQ&diff=8889&oldid=8854).

@ Suggester - As I said, I agree that Bitcoin is currently highly speculative which is unhealthy. The way to solve this is to get more mainstream shops to accept Bitcoin payments. Why do you keep obsessing about speculation as if that's all there is to Bitcoin?

In a pyramid, each person can own at most one ticket and can sell as many copies of that ticket as he likes. This will necessarily collapse as we run out of people without tickets. In Bitcoin I can have as many bitcoins as I can get, and I can send each only once. Thus it's like any other commodity.

In a ponzi, there is someone running the show who promises high returns on investment. In Bitcoin - even in its current unfortunate highly speculative state - there's no one at the top, and there's nobody (except some crazies) promising returns. It's you who evaluates the situation (perhaps based in part on the opinions of some people) and expects them to rise. If your evaluation turns out correct, more power to you.


Title: Bad intentions
Post by: Suggester on May 25, 2011, 06:19:52 AM
I don't have any regret at all. Growing the bitcoin economy is a marathon and my business is not a sprint.

And what exactly is the problem in joining a sane, stable marathon? I have yet to see a single economic or technical argument against my suggestion. I think most "skeptics" are simply happy with the current system because they want to earn huge early-adopter profits when more patsies join in.

I'm even beginning to seriously doubt that Satoshi (not his real name) specifically designed the system that way so he could get away with whatever he made at the very beginning before the network went public. The dude could simply be a millionaire now. You guys are just hoping to become mini-Satoshis when more people jump on board.


Title: Re: Bad intentions
Post by: kiba on May 25, 2011, 06:22:18 AM
And what exactly is the problem in joining a sane, stable marathon? I have yet to see a single economic or technical argument against my suggestion. I think most "skeptics" are simply happy with the current system because they want to earn huge early-adopter profits when more patsies join in.

I'm even beginning to seriously doubt that Satoshi (not his real name) specifically designed the system that way so he could get away with whatever he made at the very beginning before the network went public. The dude could simply be a millionaire now. You guys are just hoping to become mini-Satoshis when more people jump on board.

If you don't want to join in the bitcoin spectulation and ignore all the arguments that been made, that's fine.  :P

When somebody invest 10 million dollars into the market, it's going to increase the price widely anyway. You can't expect price stability at time of extreme adoption.

In the meantime, I will keep posting that bitcoin bubble comic everytime somebody cry "BUBBLE!" on this forum. More traffic for me. ;D


Title: Re: Bad intentions
Post by: Suggester on May 25, 2011, 06:53:34 AM
@ Suggester - As I said, I agree that Bitcoin is currently highly speculative which is unhealthy. The way to solve this is to get more mainstream shops to accept Bitcoin payments. Why do you keep obsessing about speculation as if that's all there is to Bitcoin?
That's not addressing the problem. What happens if the whole world accepted bitcoin tomorrow? The price would still be jumping up and down because it's not tied to any stable thing. We need a damn price anchor for stability. Bitcoins will eventually be like Picasso paintings, they can be sold at absolutely any price at any point in time.

In a pyramid, each person can own at most one ticket and can sell as many copies of that ticket as he likes.
In the ones I was familiar with you get only 3 or 5 or whatever limited number of tickets. Had it been unlimited the system would've collapsed too early because all patsies would be "early adopters" with no one to cough up the money.

Regardless, with bitcoin you simply earn more money the longer you hold on to the coins. Deflation is the same as "more tickets coming from nowhere".

In a ponzi, there is someone running the show who promises high returns on investment. In Bitcoin - even in its current unfortunate highly speculative state - there's no one at the top
So early adopters didn't have the advantage of creating 1 block per hour or per day when now you need to wait for weeks to create one? How the hell does that make any sense? Can you imagine the EU giving early "euro adopters" more euros?

And that whole risk argument is strawman. It's all about "early adopters taking more risk". Crap. Had they immediately spent their coins then they took no risk. But had they kept them then they're speculators not adopters. They were waiting for the price to go up because the system was built so the price perpetually goes up. And what risk did they take anyway? $10 on their electricity bill to generate 1000 BTCs? Does this justify the current profit rate of 100,000% for "early adopters" and even higher for "earlier adopters"? That's a pyramid scheme by definition.

When somebody invest 10 million dollars into the market, it's going to increase the price widely anyway. You can't expect price stability at time of extreme adoption.
Nobody smart enough to make $10M would join a Ponzi scheme. And it's exactly these kind of expectations which paralyze the market: "I'll hold on to my coins because soon enough some dude with $10M will enter the market, and then I can exit making a good buck!" Given no such thing can happen in the proposed system, it's much better than the current one as far as stable medium of exchanges (as averse to crazy speculations and price bubbles) are concerned.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on May 25, 2011, 07:02:07 AM
People want to consume goods and are willing to spend their coins for it at some price (amount of goods). The lower the price, the higher the time preference. Also, why would you ever be able to buy bitcoins? Clearly some people want to trade bitcoins even at $7. But no, those people are idiots. ::)
With the exception of people being forced to sell their coins for an emergency and the exception of "hit-and-run" transactions, most buyers buy now on hope that the coin's price will rise and most sellers on the expectation that it will drop. How otherwise can you justify a ten-fold increase in a single month? It wasn't a sudden surge in child porn anonymous sales I suppose. No, it was speculation. Virtually the whole bitcoin market is speculation.

People didn't know about bitcoins before, then it go a lot of publicity, now people want the value that they didn't know it had before. Demand grew, price went up. Dollars are becoming worth less, and that hasn't been reflected in bitcoins until just now. I suspect the volatility is due to the inability to short bitcoins right now. So all speculators can only go up. Once we see speculators shorting, we'll get less volatile exchange (assuming the dollars being exchanged aren't themselves volatile)

Suggester also doesn't understand what marginal utility is.... hoarding and increasing your stockpile (of money. I added this because the parts of my quote you skipped make this distinction clear) doesn't make sense into infinity because as you increase the amount you have, the less utility you are acquiring.
Hmm, I wonder how we ended up with quite a few millionaires and billionares on this planet then. Weird. Perhaps they don't understand marginal utility either. Why don't you explain it to them DrSammy? Maybe they'll give up their hoarded money to charity.

They don't hold those billions in cash. They hold them in assets with different uses. Liquidity is less and less valued the more they have, then they start doing stuff with their money, not hording it all. Also, bitcoin isn't going to represent all transactions of the entire economy. There will probably be other monies and competing currencies. It's up in the air whether or not they understand marginal utility, but clearly you do not.

Also, the higher the value, the more you can buy with it, and the more you can buy with it, the more incentive you have to spend it. Yes, some people have really low time preference, and so they save their bitcoins. But everybody has a price. At some price, they will spend their bitcoins, thus increasing their availability and lowering the amount people are willing to pay for coins certis paribus . Supply/Demand.
I'm pretty tired of having to repeat this, but let's say it one more time: Yes they will sell at some point, but to another investor who'll keep the coins till the price is right before selling them again. That's a Ponzi scheme by definition.

No, that's called a bubble, not a ponzi scheme. A ponzi scheme is where you pay the old people dividends with the new people's money but everybody get's to keep the assets they had in the scheme. Bitcoin is a clear transfer of assets. Also it's only a bubble if the underlying value of it is much much lower than what it's trading for. And it's only a bubble if the underlying value can never catch up to the trading price. That all depends on it's ability to be traded for goods and not just dollars. The increase in value will convince people to accept bitcoin for trade. Which if it is in a bubble, will decrease it's severity.


Title: Re: Bad intentions
Post by: kjj on May 25, 2011, 07:05:08 AM
@ Suggester - As I said, I agree that Bitcoin is currently highly speculative which is unhealthy. The way to solve this is to get more mainstream shops to accept Bitcoin payments. Why do you keep obsessing about speculation as if that's all there is to Bitcoin?
That's not addressing the problem. What happens if the whole world accepted bitcoin tomorrow? The price would still be jumping up and down because it's not tied to any stable thing. We need a damn price anchor for stability. Bitcoins will eventually be like Picasso paintings, they can be sold at absolutely any price at any point in time.

You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...

Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.


Title: Re: The current Bitcoin economic model doesn't work
Post by: markm on May 25, 2011, 07:10:16 AM
Quote: "Given no such thing can happen in the proposed system, it's much better than the current one as far as stable medium of exchanges (as averse to crazy speculations and price bubbles) are concerned."

Great, lets do it. What IRC network and channel do you want it to use, or do you propose leaving out the IRC method in this new better currency?

How much better, in dollars cents or bitcoins, is this new currency, exactly, to you personally, as in how many dollars cents or bitcoins are you willing to buy how many coins of it for? There are quite a few blockchains already up and running any one of which might be more amenable than this crowd to simply eliminating the ever-less-minted "feature" from their code, so how many you want to buy will help determine which will be eligible (as in having already minted sufficient coins to satisfy your initial demand for such coins) and how much you want to pay per coin can then serve to eliminate those that consider your offer too low to be worth bothering with...

...Or, looking at it another way, once I know the price per coin you are willing to pay, for how many of these better coins, I will have the info needed to select among the various blockchains already implementing your idea or amenable to implementing it those closest to fulfilling your order...

-MarkM-


Title: Re: Bad intentions
Post by: Suggester on May 25, 2011, 07:14:50 AM
You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...
Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.
Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

If you want stability in a decentralized p2p system you must have it tied to some external stable commodity such as global electricity prices. The recent bubbles and crashes along with perpetual deflation says enough. I shouldn't need to "prove" my point because it's empirically proven by the price graph. You can't have a medium of exchange without stability, period.

I'm still waiting for one sound argument against the proposed suggestions.


Title: Re: Bad intentions
Post by: markm on May 25, 2011, 07:27:42 AM
You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...
Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.
Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

If you want stability in a decentralized p2p system you must have it tied to some external stable commodity such as global electricity prices. The recent bubbles and crashes along with perpetual deflation says enough. I shouldn't need to "prove" my point because it's empirically proven by the price graph. You can't have a medium of exchange without stability, period.

I'm still waiting for one sound argument against the proposed suggestions.

I am not against the proposed suggestions, I am saying great idea how much is it worth to you.

However, I believe you are wrong in your above-quoted assumption set.

These so called central banks of which you speak are in essence an early-adopter-cabal that, for various reasons (possibly including reputation, national reputation, or even (not so sure of this one) patriotism; or maybe even some even-more-practical reasons and rationalisations; and likely also fraud law adjudicators eager to punish them for giving the nation or law or legal system a bad name) seem by and large to prefer to attempt to prop up their ponzi scheme than to "cut-and-run" aka "fly by night".

What is there to stop those who converted early cheap bitcoins into millions of dollars, yen, GBP etc from using a possibly even very large proportion of such holdings to "prop up" bitcoins much as various nations attempt to keep their national currency from dropping too low in price by buying it back using their reserves of other currencies?

If anyone has managed to convert early bitcoins into vast sums of fiat currencies they should be in an excellent position to buy back bitcoins any time the price of bitcoins seems poised for a precipitous fall.

It might actually be very useful for such purposes to deliberately launch a bunch of variants that they *do* treat as ponzi schemes, both to make money with which to prop up the "real" / "original" bitcoins and to "demonstrate" that "no competing blockchains can in fact compete because we the original are so cool and so first-mover-fiat-reserve-rich we can back ours with more fiat than competitors can back competing chains with".

-MarkM-



Title: Re: The current Bitcoin economic model doesn't work
Post by: Anders on May 25, 2011, 07:40:37 AM
Why should the early adopters be rewarded with incredible wealth while I get a pittance?

But if you buy bitcoins today for $7 and sell them after three years for $100,000 isn't that enough reward for you? Sure, the value of a bitcoin after 3 years may still be $7 or even zero, but there is a also a chance that it really reaches to extremely high values.

Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.

Hmm... You could be right. I'm not sure, but I would like to have a digital currency whose value was even over time, with some algorithm that stabilized inflation and deflation, pretty much in the way the Bitcoin algorithm stabilizes the amount of coins produced into a linear and steady pace.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 25, 2011, 07:50:16 AM
Right, but it still doesn't fix the gut reaction problem that even small children have. Split a candy bar with two kids 70/30, and the kid with the 30 isn't going to say, "Sweet, three tenths of a candy bar!" He's going to say, "Why did he get twice as much as me?!"

I think at a base level, we all have that concept of "fairness" in our decision making processes, and so long as that isn't rectified, I don't see BTC gaining a level of appeal necessary for its success.

Your analogy does not take into account the risk of early adoption. A better example is investors who bought an expensive stock at dollars per share when first offered. Is it unfair to an investor years later that they must pay hundreds of times more for the same share?

Yes, it is fair. They were either unwilling or unable to take that risk at that time. If it wasn't for those both willing and able to do so, they would have nothing in which to invest.


Title: Re: Bad intentions
Post by: db on May 25, 2011, 08:19:18 AM
Can you imagine the EU giving early "euro adopters" more euros?

That's exactly what they did. They gave euros to adopters of the national currencies in proportion to how much they already had. In general, fiat currencies are introduced by the people with the printing presses printing it and then spending it. And bitcoin, that releases currency to anyone who helps secure the transactions, no privileges, is somehow worse!?


Title: Re: Bad intentions
Post by: caveden on May 25, 2011, 09:02:03 AM
Fiats are relatively stable because they've got central banks keeping them stable.

Seriously? The guy says such a thing and yet receives attention?

Stop feeding the Keynesian troll.


Title: Re: Bad intentions
Post by: jerfelix on May 25, 2011, 09:12:40 AM


You mean like the dollar is stable because it is anchored to the...  Or the way the Euro is stable because it is anchored to the...  Or the way the Yen is stable because it is anchored to the...

Well, shit.  I guess nothing is anchored to anything.  Hint:  currency stability comes from depth, not unicorns.

I noticed that in BTC, all those other currencies are fluctuating wildly.  The Bitcoin is the ONLY one that's stable, relative to the BTC.

 ;D


Title: Re: Bad intentions
Post by: Anders on May 25, 2011, 09:14:47 AM
Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

The problem with fractional reserve banking is that it has inbuilt inflation. There is never enough money in circulation at any given point in time to pay both the loans PLUS the interest. So new credits are continuously forced to be created in order to keep the fractional reserve banking monetary systems going. This leads to overall inevitable inflation. Even exponential inflation!

The Bitcoin system has massive deflation built in instead. I don't know if that is a sustainable model. It could be! It will be interesting to see what will happen with Bitcoin. One problem could be that Bitcoin will be less liquid than it would be with another algorithm. Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.


Title: Re: The current Bitcoin economic model doesn't work
Post by: markm on May 25, 2011, 09:25:28 AM
It seems like a pretty good model for a reserve currency.

Keep your wealth in bitcoins until you reluctantly find you need some pocket change to make it through another day or even just another meal, then cash it out to inflationary fiat as close as possible to the time you plan to eat / spend.

Maybe it is not necessary for merchants to accept it directly at all, as if you constantly keep facing those horrible inflationary fiats each time you face the prospect of spending maybe you'll be reminded why you prefer to hold the good currency and spend the bad stuff.

When bad currency forces out good, does that make the good stuff worthless as currency, or just make it worth more as reserve/savings than as pocket-change / spending-money?

Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?

(Is having them directly accept gold silver platinum and palladium bullion as important too?)

-MarkM-


Title: Re: Bad intentions
Post by: db on May 25, 2011, 09:27:32 AM
Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.


Title: Re: Bad intentions
Post by: Anders on May 25, 2011, 09:34:47 AM
Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.


That was an interesting analogy. Hoarding money is like a capacitor in an electronic system. I like the idea! It's less depressing than thinking of hoarding money as blood clots that hinder the flow. It would be interesting to do a more analytical examination of both those analogies.


Title: Re: Bad intentions
Post by: markm on May 25, 2011, 09:41:41 AM
Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.


That was an interesting analogy. Hoarding money is like a capacitor in an electronic system. I like the idea! It's less depressing than thinking of hoarding money as blood clots that hinder the flow. It would be interesting to do a more analytical examination of both those analogies.

The part of the money flow as electrical flow model that always intrigued me is the step-up transformer...

-MarkM-


Title: Re: The current Bitcoin economic model doesn't work
Post by: Anders on May 25, 2011, 09:47:59 AM
Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto have been thought?

-MarkM-

On the Internet it would be good if more and more websites started accepting bitcoins (or similar digital currency). And to have easy ways to quickly convert ordinary currencies from and to bitcoins. To be able to buy hamburgers at McDonald's with bitcoins is not equally important yet I think. Bitcoin would first have to be used a lot on the Internet. Imagine the majority of transactions on the Internet being done with bitcoins. That would be pretty cool. That's a huge amount of money transactions.

"Internet as a sector is about 3% of GDP, or bigger than agriculture or energy, and represents over 20% of economic growth in the past 5 years, and growing." -- From: http://www.businessinsider.com/mckinsey-report-internet-economy-2011-5#ixzz1NM8ZxI2x


Title: Re: Bad intentions
Post by: Anders on May 25, 2011, 09:58:12 AM

The part of the money flow as electrical flow model that always intrigued me is the step-up transformer...

-MarkM-


In an electric system there is the flow of current and also electric potential and resistance. Such as in Ohm's law. The transistor is also an important component in electronic systems which allows a small current to regulate the flow of a much larger current. The Bitcoin system could perhaps be modeled using the electronic analogy. I don't know how though. ???


Title: Re: The current Bitcoin economic model doesn't work
Post by: Meni Rosenfeld on May 25, 2011, 10:12:59 AM
Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?
Yes. Bitcoins will have no value if nobody accepts them as payment.


Title: Re: The current Bitcoin economic model doesn't work
Post by: smooth on May 25, 2011, 10:15:05 AM
Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?
Yes. Bitcoins will have no value of nobody accepts them as payment.

Hmm. How do we know that?  Perhaps they would have pure "collectable" value as the first block chain currency.



Title: Re: The current Bitcoin economic model doesn't work
Post by: Meni Rosenfeld on May 25, 2011, 10:18:01 AM
Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?
Yes. Bitcoins will have no value of nobody accepts them as payment.

Hmm. How do we know that?  Perhaps they would have pure "collectable" value as the first block chain currency.
I guess they will. But it will be negligible compared to the value they can have as the de-facto global currency.


Title: Re: The current Bitcoin economic model doesn't work
Post by: smooth on May 25, 2011, 10:24:21 AM
Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?
Yes. Bitcoins will have no value of nobody accepts them as payment.

Hmm. How do we know that?  Perhaps they would have pure "collectable" value as the first block chain currency.
I guess they will. But it will be negligible compared to the value they can have as the de-facto global currency.

Again, I'm not sure how we know that.  Let's say there is a BTCv2 that succeeds as a de-facto (or even potentially official) global currency.  BTC (v1) might still be worth more to collectors even if it doesn't circulate in commerce.  In fact, it could be BTCv17 that succeeds globally, and I would guess that BTCv1 would be worth more than BTCv2-BTCv16.  There is rare currency of various types that isn't legal tender any more and wouldn't be accepted in commerce by anyone, but still has significant collector value.  But none of those are "The First Currency" of their type.  That could be huge.

 



Title: Re: The current Bitcoin economic model doesn't work
Post by: anderxander on May 25, 2011, 01:41:50 PM
Bitcoins are divisible to eight decimal places giving 2,100,000,000,000,000 total units.

Or 300,000 per person on the planet in 2033

The speculative price in terms of dollars doesn't particularly matter.  It is the trust in the network that the transaction is good and verifiable that gives the currency value.

What is the value of trust?  

Do you trust banks and governments to value your goods?

As the dollar becomes less and less trusted around the world and as the number of them in circulation increases, people will flee from it anyway.  It's backed by the "Full Faith and Credit of the US Government" in other words blood shed and exploitation of resources. In other words, if you don't trust the dollar as a system of valuation, we'll kill you.

What people will be looking for is a trusted way to transact.


The problem with tying it to energy prices is that energy prices, while stable, are still centrally determined and the price of which is subject to the manipulation of energy prices through speculation. The problem with Bitcoin is that it still relies on an external valuation system, that of what the people who issue currencies think stuff is worth.

What happens when distributed generation (http://distributed generation http://en.wikipedia.org/wiki/Distributed_generation) is achieved?

http://openfarmtech.org/weblog/2010/10/distributed-generation/

http://openfarmtech.org/weblog/category/global-village-construction-set/steam-engine-construction-set/


Right now through centrally issued currencies the price of things is determined by a minority of people. In Bitcoin, it requires a majority of people to participate in the valuation of things.

Quote
Deflation is bad because nobody spends their money, they only save it because it gains value over time. Can you imagine what would have happened if, say, the Japanese government hasn't printed any (or very few) Yens during the last century while the population exploded? One 1911 Yen would have been more than enough to buy a house today. Who then would have spent their Yens in 1911? Why, almost noone of course! This bad scenario is only avoidable if the number of available BTCs continues to grow with its user base at least proportionally.

Is deflation bad?

The effects of deflation are:

Decreasing nominal prices for goods and services ( I like cheap stuff)
Increasing real value of cash money and all monetary items (I like when $10 buys lots of cheap stuff)
Discourages bank savings and decreases investment (Money actually circulates in the economy rather than being horded)
Enriches creditors at the expenses of debtors (Isn't that why we're here? To enrich ourselves rather than our creditors?)

 Inflation reduces the real value of money over time; conversely, deflation increases the real value of money.

This allows one to buy more goods with the same amount of money over time.

The problem you are talking about arises from the issuance of currency.  Deflation is correlated with depressions – including the Great Depression, as banks defaulted on depositors.  Not all episodes of deflation correspond with periods of poor economic growth.

 In modern economies, deflation is usually caused by an induced drop in aggregate demand, artificially created by the currency issuer to induce a recession and (more rarely) long term economic depressions, so that those with money can buy assets at fire sale prices before prices are artificially inflated again.





Title: Re: The current Bitcoin economic model doesn't work
Post by: stic.man on May 25, 2011, 01:44:18 PM
it comes down to whether or not you believe bitcoins will be viable in the global community.  If you do, then you invest because 21 million coins spread out over billions or trillions of dollars means inevitable gains.  If not then you sit on your hands and go about other endeavors.


Title: Re: The current Bitcoin economic model doesn't work
Post by: zef on May 25, 2011, 02:29:43 PM
Suggester: its difficult to formulate a response to "disprove" what you are saying since you are arguing so many points with so many people.  I suggest you boil down your arguments to the basic assumptions you are making, rather than the effects of those assumptions applied to a complex system such as bitcoins. This would make it easier to come up with counter arguments.  

For simplicity Ill try to list some assumptions you are making as I have deduced from your posts, correct me if I am wrong.

  • Subjective value cannot come to a consensus without some authority or "backing" by an already established good, ie prices can never stabilize with out a "peg" such as electricity or USD.
  • Deflation has a fundamentally different effect on price stability than inflation, ie prices are more unstable with a controlled deflation than they are with a controlled inflation.
  • Any investment where early adopters have incentives to get others involved, and gain the most if the investment actually becomes popular is a ponzi scheme and therefore unsustainable.
  • There is no value in bitcoins, or anything else for that matter, as a tool used purely in trade and commerce, it is only viable for speculation; essentially trading against already established currencies.

I would like to address these points, and perhaps it will make it easier for others as well, as I feel its much more manageable than addressing the multitude of predictions as to the effects of these assumptions on the bitcoin economy.







Title: Re: The current Bitcoin economic model doesn't work
Post by: anderxander on May 25, 2011, 05:14:38 PM
Though I do agree with suggester on the idea of a stabilizing force for the value of bitcoins.

Is it being overlooked thats the massive internal price deflation of bitcoins is the offsetting force to hording for speculation? In otherwords hording the currency for monetary gain is essentially useless because the deflation of bitcoin values of goods and services will force their circulation. It becomes pointless to keep trying to mine for fed dollars at some point vs just spending all the mined and accumulated bitcoins.


Title: Re: The current Bitcoin economic model doesn't work
Post by: jaime on May 26, 2011, 07:27:59 AM

@zen  thanks synthesizing the discussion


  • Subjective value cannot come to a consensus without some authority or "backing" by an already established good, ie prices can never stabilize with out a "peg" such as electricity or USD.

Isn't that the case with Gold?



Quote
  • Deflation has a fundamentally different effect on price stability than inflation, ie prices are more unstable with a controlled deflation than they are with a controlled inflation.

Is deflation about BTC value or "consumer prices"?  I can't see BTC as a mainstream currency.


Quote
  • Any investment where early adopters have incentives to get others involved, and gain the most if the investment actually becomes popular is a ponzi scheme and therefore unsustainable.

We can see this kind of investment everyday in the stock market. 

Quote
  • There is no value in bitcoins, or anything else for that matter, as a tool used purely in trade and commerce, it is only viable for speculation; essentially trading against already established currencies.

They're many values in the Bitcoin system for trade and commerce (secure, anonymous, non repudiable,...) but those won't be in our minds until BTC reaches an stable value.

Others are investing in the Bitcoin system, as you would have invested in Google's IPO if it's initial offering was set at 0.01. Now you only trade shares against established currencies, and this is the same thing, I see BTC now as 'shares' of Bitcoin's "IPO".



Jaime
--------------------------------
Madrid, Spain


Title: Re: The current Bitcoin economic model doesn't work
Post by: Meni Rosenfeld on May 26, 2011, 08:23:34 AM
@zen  thanks synthesizing the discussion
  • Subjective value cannot come to a consensus without some authority or "backing" by an already established good, ie prices can never stabilize with out a "peg" such as electricity or USD.
Isn't that the case with Gold?
You could say that gold is backed by its industrial uses. But AFAIK the value of gold is much higher than had it not been used as a currency, so indeed the lion share's of gold's value does not come from backing.

Quote
  • Deflation has a fundamentally different effect on price stability than inflation, ie prices are more unstable with a controlled deflation than they are with a controlled inflation.
Is deflation about BTC value or "consumer prices"?  I can't see BTC as a mainstream currency.
In principle, consumer prices, but currently exchange rate with USD is used as a proxy because everyone uses it as a guide for BTC prices.
Why wouldn't BTC be a mainstream currency?


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 26, 2011, 08:44:04 AM
@zen  thanks synthesizing the discussion
  • Subjective value cannot come to a consensus without some authority or "backing" by an already established good, ie prices can never stabilize with out a "peg" such as electricity or USD.
Isn't that the case with Gold?
You could say that gold is backed by its industrial uses. But AFAIK the value of gold is much higher than had it not been used as a currency, so indeed the lion share's of gold's value does not come from backing.

It gets worse.  The price of A can't be stable unless it is pegged to the price of B.  The price of B is stable because it is stable.

All prices, of all things, in all places, and at all times, are backed by supply and demand only.  Everything else is an illusion.


Title: Re: The current Bitcoin economic model doesn't work
Post by: jaime on May 26, 2011, 09:57:37 AM
Why wouldn't BTC be a mainstream currency?


Well, one of the main threats for Bitcoin will come when that possibility becomes a real one. The owners of the current system wont allow something like Bitcoin to take over --too many years working in the other direction--


Title: Re: The current Bitcoin economic model doesn't work
Post by: chretienm on May 31, 2011, 11:41:50 AM
I just have this to say. The idea that people won't sell something that over time has been rising is a very silly and unrealistic idea. Despite the Govt inflating our fiat currency to the moon causing gold and silver to rise people have always bought AND SOLD those metals as those who bought low take profits to spend NOW rather than wait to take larger profits to spend later. For this reason it does not matter that bitcoins will someday not be created anymore...so what? Yes of course the bitcoin will rise in value just as the Canadian dollar rises against the USD because those making US dollars are insanely printing tons of them out of thin air,much morer so than their Northern cousins do. Just because a currency is rising against other currencies doesn't mean people won't spend it if and when they need to. Bitcoins is where I expect savings to be kept.
Martin


Title: Re: The current Bitcoin economic model doesn't work
Post by: romkyns on May 31, 2011, 03:41:58 PM
Is deflation bad?

The effects of deflation are:
[snip]
Discourages bank savings and decreases investment (Money actually circulates in the economy rather than being horded)

I think this point is quoted out of context. Deflation only discourages savings on fear of bank insolvency. It does encourage hoarding of money via other means. We don't have banks to collapse, so I think this point is completely the wrong way around - deflation encourages people to hoard BTC.

I'd gladly join a BTCv2/fork which does away with the total currency limit by removing the halving of rewards. I'm also rather convinced by Suggester's arguments in favour of tying BTC reward to network hashrate.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 03:45:48 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 31, 2011, 03:50:08 PM
Ok.  Here is the thing about the bitcoin hoarding arguments.

If people are sitting on bitcoins instead of spending them, then the amount in circulation will fall, and prices (of everything) will fall too.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend...

Get it?

The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 03:57:21 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

Did I win?

1JxsbbP2k5KHYGWtmggT7yJJ4eRtj7n9sJ


Title: Re: The current Bitcoin economic model doesn't work
Post by: afterburner229 on May 31, 2011, 04:10:59 PM
The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Concept of the dynamic equilibrium works on large ensembles only, and also, on large time intervals, compared with single interaction's time. For now, to input/output BTC/$/goods from the bitcoin market, one may spend many hours or even days. Even if one sell/buy a small thing like T-shirt or coffee-cup or $ equivalent of that.

From physical point of view, Bitcoin society is like a highly rarefied gas, with some thousands of atoms, @ time intervals of some microseconds. It is apparently NOT an equilibrium system.



Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 31, 2011, 04:16:38 PM
It is not yet an equilibrium system.  But it will be if it catches on.  And if it doesn't catch on, then who cares about hoards of coins?


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 04:17:17 PM
The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Concept of the dynamic equilibrium works on large ensembles only, and also, on large time intervals, compared with single interaction's time. For now, to input/output BTC/$/goods from the bitcoin market, one may spend many hours or even days. Even if one sell/buy a small thing like T-shirt or coffee-cup or $ equivalent of that.

From physical point of view, Bitcoin society is like a highly rarefied gas, with some thousands of atoms, @ time intervals of some microseconds. It is apparently NOT an equilibrium system.



What the hell are you babbling about? How is selling anything for bitcoins any different than selling them for dollars or seashells?


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 04:25:45 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market. 

Did I win?

1JxsbbP2k5KHYGWtmggT7yJJ4eRtj7n9sJ

1) does not apply to this discussion, though you are correct, but it relies on a subjective evaluation of "excessive"
2 and 3) seem to be a definitions for speculation, not hoarding


Title: Re: The current Bitcoin economic model doesn't work
Post by: afterburner229 on May 31, 2011, 04:28:00 PM
What the hell are you babbling about? How is selling anything for bitcoins any different than selling them for dollars or seashells?

Ask Kjj, he did understand me. Selling does differ in numbers - how fast, how easy, how many goods available.
If you compare dollars, bitcoin & seashells in such view, you see THE HUGE DIFFERENCE. As for now, bitcoins are much more like seashells. And you give no way for bitcoin society to grow: you can not say 'bitcoin is just in it childhood'.





Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on May 31, 2011, 04:28:02 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

Did I win?


I would say so, but then I'm not the judge here.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 31, 2011, 04:33:22 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

In our current system, saving almost always means "deposit in a bank".  Bank deposits are still in circulation, since the banks use the deposited funds for lending.  (That isn't really true.  In reality, banks make loans, and then seek deposits to meet reserve requirements.)

By contrast, stuffing currency under your mattress could be seen as hoarding.  That money is prevented from circulating by being under your mattress.

That meets the second part of your criteria, but there is no way to meet the first criteria.  All asset allocation is a matter of personal preference.  Bank account, mattress, gold bars, fancy cars, all preferences.  But only one of them actually keeps cash out of action.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 04:40:35 PM
Burning federal reserve notes removes them from circulation, is that hoarding?

My point is that when people use the term "hoarding", what they really mean is "saving more than I think is necessary", which is why I used the bit about personal preference.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 04:44:13 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market. 

Did I win?

1JxsbbP2k5KHYGWtmggT7yJJ4eRtj7n9sJ

1) does not apply to this discussion, though you are correct, but it relies on a subjective evaluation of "excessive"
2 and 3) seem to be a definitions for speculation, not hoarding


1) the market values it as excessive, that's the point.  Yes, the crazy person may value paperclips a lot more than the market, but the point is that the crazy hoarder's subjective valuation of the item is out of sync with the market. 

2/3) may also work for a definition of speculation, but I think 2 more specifically defines hoarding, no?


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on May 31, 2011, 04:50:32 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market. 

Did I win?

1JxsbbP2k5KHYGWtmggT7yJJ4eRtj7n9sJ

1) does not apply to this discussion, though you are correct, but it relies on a subjective evaluation of "excessive"
2 and 3) seem to be a definitions for speculation, not hoarding


1) the market values it as excessive, that's the point.  Yes, the crazy person may value paperclips a lot more than the market, but the point is that the crazy hoarder's subjective valuation of the item is out of sync with the market. 

2/3) may also work for a definition of speculation, but I think 2 more specifically defines hoarding, no?
No, not really.  That is the function of speculation, as a predictive market.  If the speculator is correct in his predictions, then he profits while the market has stored resources that it needs during the crisis.  If he is wrong, he loses money.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 04:52:43 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market. 

Did I win?

1JxsbbP2k5KHYGWtmggT7yJJ4eRtj7n9sJ

1) does not apply to this discussion, though you are correct, but it relies on a subjective evaluation of "excessive"
2 and 3) seem to be a definitions for speculation, not hoarding


1) the market values it as excessive, that's the point.  Yes, the crazy person may value paperclips a lot more than the market, but the point is that the crazy hoarder's subjective valuation of the item is out of sync with the market. 

2/3) may also work for a definition of speculation, but I think 2 more specifically defines hoarding, no?
No, not really.  That is the function of speculation, as a predictive market.  If the speculator is correct in his predictions, then he profits while the market has stored resources that it needs during the crisis.  If he is wrong, he loses money.

Speculation is defined as "investment involving high risk but also the possibility of high profits"  My definition did not focus on risk, hoarding doesn't necessarily involve high risk, it merely involves an anticipation of windfall profits due to either scarcity of the resource or external catastrophe (or both).  You can hoard something that is not a high risk asset, speculation requires a high risk of loss. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 04:56:38 PM
Speculation is defined as "investment involving high risk but also the possibility of high profits"  My definition did not focus on risk, hoarding doesn't necessarily involve high risk, it merely involves an anticipation of windfall profits due to either scarcity of the resource or external catastrophe (or both).  You can hoard something that is not a high risk asset, speculation requires a high risk of loss. 

If you are saving something in order to capitalize on anticipated future increase in value, you are speculating on its future value. You can speculate over any time period... minutes or years. Would you consider it hoarding to buy one bitcoin expecting that its value will increase in the next two minutes?


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 05:00:22 PM
Speculation is defined as "investment involving high risk but also the possibility of high profits"  My definition did not focus on risk, hoarding doesn't necessarily involve high risk, it merely involves an anticipation of windfall profits due to either scarcity of the resource or external catastrophe (or both).  You can hoard something that is not a high risk asset, speculation requires a high risk of loss.  

If you are saving something in order to capitalize on anticipated future increase in value, you are speculating on its future value.

I think in most cases you are correct.  The dictionary definition, however, generally looks at speculation as a risky investment.  Most of the time an asset that may appreciate significantly might also decline in value significantly.  But this is not necessary for hoarding.  For example, I could "hoard" guns and liquor on the belief that anarchy will break out and these assets will become incredibly valuable.  But I don't think this is "speculation" because these are not high risk assets, and they generally maintain their value over time.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 05:02:05 PM
Speculation is defined as "investment involving high risk but also the possibility of high profits"  My definition did not focus on risk, hoarding doesn't necessarily involve high risk, it merely involves an anticipation of windfall profits due to either scarcity of the resource or external catastrophe (or both).  You can hoard something that is not a high risk asset, speculation requires a high risk of loss. 

If you are saving something in order to capitalize on anticipated future increase in value, you are speculating on its future value.

I think in most cases you are correct.  The dictionary definition, however, generally looks at speculation as a risky investment.  Most of the time an asset that may appreciate significantly might also decline in value significantly.  But this is not necessary for hoarding.  For example, I could "hoard" guns and liquor on the belief that anarchy will break out and these commodities will become incredibly valuable.  But I don't think this is "speculation" because these are not high risk assets, and they generally maintain their value over time.

Ok, I agree with you on this point, but what is the difference between "hoarding" guns and liquor and "saving" guns and liquor? Can I save something with the expectation that it will increase in value, or is that always hoarding?

Does that mean that putting aside an asset is only saving if you expect it to stay the same or decrease in value?


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 05:06:14 PM
Speculation is defined as "investment involving high risk but also the possibility of high profits"  My definition did not focus on risk, hoarding doesn't necessarily involve high risk, it merely involves an anticipation of windfall profits due to either scarcity of the resource or external catastrophe (or both).  You can hoard something that is not a high risk asset, speculation requires a high risk of loss. 

If you are saving something in order to capitalize on anticipated future increase in value, you are speculating on its future value.

I think in most cases you are correct.  The dictionary definition, however, generally looks at speculation as a risky investment.  Most of the time an asset that may appreciate significantly might also decline in value significantly.  But this is not necessary for hoarding.  For example, I could "hoard" guns and liquor on the belief that anarchy will break out and these commodities will become incredibly valuable.  But I don't think this is "speculation" because these are not high risk assets, and they generally maintain their value over time.

Ok, I agree with you on this point, but what is the difference between "hoarding" guns and liquor and "saving" guns and liquor? Can I save something with the expectation that it will increase in value, or is that always hoarding?

Does that mean that putting aside an asset is only saving if you expect it to stay the same or decrease in value?

The difference between hoarding and saving is the expectation of windfall profits, or (in the case of the crazy person) the "saving" of items that have no value in the market.  Saving doesn't entail expectation of windfall profits.  That's not to say it can't happen, and of course when you put money into the bank you hope it increases in value, but the proper definition of saving does not involve an expectation of windfall profits in the future.  Amassing a storehouse of guns and liquor in anticipation of the apocalypse, however, that is hoarding. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 05:11:26 PM
The difference between hoarding and saving is the expectation of windfall profits, or (in the case of the crazy person) the "saving" of items that have no value in the market.  Saving doesn't entail expectation of windfall profits.  That's not to say it can't happen, and of course when you put money into the bank you hope it increases in value, but the proper definition of saving does not involve an expectation of windfall profits in the future.  Amassing a storehouse of guns and liquor in anticipation of the apocalypse, however, that is hoarding. 

"Windfall profits"... that is a subjective valuation essentially meaning "too many profits". Rather like "hoarding" = "saving too much".

If I hold 1 BTC with the expectation that it will someday buy me a house, is that hoarding?

If I hold 5,000,000 BTC with the expectation of a mild increase in value, is that hoarding?


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 05:19:49 PM
The difference between hoarding and saving is the expectation of windfall profits, or (in the case of the crazy person) the "saving" of items that have no value in the market.  Saving doesn't entail expectation of windfall profits.  That's not to say it can't happen, and of course when you put money into the bank you hope it increases in value, but the proper definition of saving does not involve an expectation of windfall profits in the future.  Amassing a storehouse of guns and liquor in anticipation of the apocalypse, however, that is hoarding. 

"Windfall profits"... that is a subjective valuation essentially meaning "too many profits". Rather like "hoarding" = "saving too much".

If I hold 1 BTC with the expectation that it will someday buy me a house, is that hoarding?

If I hold 5,000,000 BTC with the expectation of a mild increase in value, is that hoarding?

I think the language I used originally is probably clearer, that hoarding involves an expectation that the future price will become "extremely valuable compared with current value" (for the non-crazy hoarder).  The distinction between hoarding and saving is that saving does not require an expectation of significant or extreme price increases, while hoarding does.  The distinction between hoarding and speculating is that hoarding does not require a significant risk of loss, while speculation does.  These definitions can overlap depending on the circumstances, but that does not mean they are the same. 

As for your examples, I would think that neither involve hoarding.  In the first case while you do have an expectation of significant price increases, you just hold 1, whereas hoarding probably requires amassing significant quantities.  In your second case, while you have amassed significant quantities, there isn't the expectation of significant future price increases.  The first case may be an example of speculation (because the value of the BTC is currently around $9 USD and could drop significantly), and the second may be an example of saving. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 05:21:42 PM
As for your examples, I would think that neither involve hoarding.  In the first case while you do have an expectation of significant price increases, you just hold 1, whereas hoarding probably requires amassing significant quantities.  In your second case, while you have amassed significant quantities, there isn't the expectation of significant future price increases.  The first case may be an example of speculation (because the value of the BTC is currently around $9 USD and could drop significantly), and the second may be an example of saving. 

Quote
requires amassing significant quantities

Your definition requires the subjective valuation of a personal preference and does not qualify for my bounty.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 05:30:47 PM
As for your examples, I would think that neither involve hoarding.  In the first case while you do have an expectation of significant price increases, you just hold 1, whereas hoarding probably requires amassing significant quantities.  In your second case, while you have amassed significant quantities, there isn't the expectation of significant future price increases.  The first case may be an example of speculation (because the value of the BTC is currently around $9 USD and could drop significantly), and the second may be an example of saving. 

Quote
requires amassing significant quantities

Your definition requires the subjective valuation of a personal preference and does not qualify for my bounty.

I don't think it does.  Significance can be measured statistically, and can be defined as "observations that are unlikely to occur by chance and that therefore indicate a systematic cause."  Someone that amasses significantly more guns and liquor than the average Joe, as measured statistically, and does so because of the expectation of extreme price increases in times of anarchy or scarcity, is hoarding. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 05:42:00 PM
As for your examples, I would think that neither involve hoarding.  In the first case while you do have an expectation of significant price increases, you just hold 1, whereas hoarding probably requires amassing significant quantities.  In your second case, while you have amassed significant quantities, there isn't the expectation of significant future price increases.  The first case may be an example of speculation (because the value of the BTC is currently around $9 USD and could drop significantly), and the second may be an example of saving. 

Quote
requires amassing significant quantities

Your definition requires the subjective valuation of a personal preference and does not qualify for my bounty.

I don't think it does.  Significance can be measured statistically, and can be defined as "observations that are unlikely to occur by chance and that therefore indicate a systematic cause."  Someone that amasses significantly more guns and liquor than the average Joe, as measured statistically, and does so because of the expectation of extreme price increases in times of anarchy or scarcity, is hoarding. 

What is significantly more? Twice as many as normal? Ten times? What is an extreme price increase? Double? Ten times? Fifty times?

This all subjective and is no different than "you are saving more than I think you should, thus you are hoarding".

The problem with your logic is that the only person who can tell what is the correct amount of anything to save is that person, no one else.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 05:52:51 PM

What is significantly more? Twice as many as normal? Ten times? What is an extreme price increase? Double? Ten times? Fifty times?

This all subjective and is no different than "you are saving more than I think you should, thus you are hoarding".

The problem with your logic is that the only person who can tell what is the correct amount of anything to save is that person, no one else.

There are different ways of measuring significance using statistics, but that does not mean it can not be done in a manner that does not rely on personal preference.  

Also, I really didn't think there were any value judgments expressed in the definitions I offered.  In popular discourse hoarding may have a negative connotation, but I thought you were looking for an economic definition that distinguished it from saving, which I think I provided.  

With the exception of the crazy person, the definition I offered had nothing to do with personal preference.  I could hoard guns and liquor and have no personal preference for these items, I could be someone who never drinks and never shoots.  

The definition of hoarding simply refers to the acquisition based on an expectation of significant future price increases.  Again, this is something that could be measured statistically, you could look at historical price variance for these assets, and if I was buying them with the expectation that their prices would increase beyond the normal distribution, I would probably be hoarding, regardless of my preference for the items.  

With savings, on the other hand, there is no requirement that the saver expect that his savings will increase beyond the normal range of increase based on historical data and variance.  


Title: Re: The current Bitcoin economic model doesn't work
Post by: nazgulnarsil on May 31, 2011, 06:07:22 PM
hoarding means your expected price appreciation/depreciation is entirely in the market price for the object itself.

saving covers everything that involves investing in a productive venture to receive more of that item in the future.

hoarding you have X of some item and expect that to be worth more in the future.
saving you have X of some item and try to make it grow by some percentage over time.

hoarding is stuffing your mattress
savings is making loans


Title: Re: The current Bitcoin economic model doesn't work
Post by: markm on May 31, 2011, 06:39:36 PM
Hoarding tends to be a loaded term implying possible wrongness or something a bit off.

A community might save up lots of stuff to build a big project, but a dragon does not save up oodles of gold and jewels to any purpose other than to have the largest hoard er I mean savings.

People might save boxtops or someting to some purpose but although I don't watch the television show "hoarders" I get the impression much of the so called hoarding is not to any particular purpose it is just sheer accumulation.

People might save eggs or a nice roast or something for sunday dinner but in wartime the longer they save rationed items for more sunday dinners they never actually have the more likely they are to be accused of hoarding.

-MarkM-


Title: Re: The current Bitcoin economic model doesn't work
Post by: evoorhees on May 31, 2011, 06:52:56 PM
"Hoarding" is a moot concept. It's not important. It's a bogeyman.

As money is "withheld" from circulation, interest rates rise as the demand for money increases. As these rates rise, it becomes increasingly attractive to loan out "hoarded" funds and thus it's a self-correcting problem. ie- not really a problem at all.





Title: Re: The current Bitcoin economic model doesn't work
Post by: Raize on May 31, 2011, 07:26:34 PM
You guys seem to forget that the kinds of people that buy irrationally are also the same kinds of people that sell irrationally. If they can't afford to keep buying up the new coins as they are issued/minted/mined at the same rate in which they purchased their last coins, the price will eventually fall. Once it does, it falls heads over heels because these same fools raised their cost average over time as they bought every week or day while the price was rising.

The real people you sound like we should worry about are the ones who bought massive amounts three months ago and have been sitting on it all while the price increases. But these individuals then aren't really hoarders, they are savers. If your only beef with them is that they purchased "too much Bitcoin" then you're basically saying we should despise people who had a lot of capital they wanted to translate into legitimacy of Bitcoin.

I first heard about Bitcoin in 2009 when I was looking for a way to generate money idly by running a Prime Number generator. I found the community and even downloaded a cruddy client. The community was so small then that no one offered money at all for coins. I even forgot the name (or it was never really called Bitcoin). I never took it seriously and left, finding it again well over a year later.

It took a lot of people taking Bitcoin seriously to get it to where it is today. It's going to take a lot more people taking it seriously to get it where it competes with government-backed fiat currency on a global scale. That means larger and larger investors and custom mining ASIC in large datacenters.

The best thing all of us have going for us right now is that we were the pioneers.


Title: Re: The current Bitcoin economic model doesn't work
Post by: spanish_guy on May 31, 2011, 09:23:12 PM
Ok.  Here is the thing about the bitcoin hoarding arguments.

If people are sitting on bitcoins instead of spending them, then the amount in circulation will fall, and prices (of everything) will fall too.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend...

Get it?

The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?



Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 09:33:32 PM
Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?

Yes. As the "hoarder" attempts to acquire all the coins, the exchange rate rises (supply diminishes, demand stays the same). The "other" becomes rich in the other currency, while the "hoarder" becomes rich in bitcoins. Essentially, nothing changes.


Title: Re: The current Bitcoin economic model doesn't work
Post by: spanish_guy on May 31, 2011, 09:39:19 PM
Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?

Yes. As the "hoarder" attempts to acquire all the coins, the exchange rate rises (supply diminishes, demand stays the same). The "other" becomes rich in the other currency, while the "hoarder" becomes rich in bitcoins. Essentially, nothing changes.

So a system with 2 currencies would be more 'stable' than a system with just 1?



Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 09:41:28 PM
So a system with 2 currencies would be more 'stable' than a system with just 1?

What do you mean by "stable"?


Title: Re: The current Bitcoin economic model doesn't work
Post by: spanish_guy on May 31, 2011, 09:48:41 PM
So a system with 2 currencies would be more 'stable' than a system with just 1?

What do you mean by "stable"?

I'm sorry. "Stable" was not the right word.

You said that "other" will become rich in the other currency. What if that other currency doesn't exist?



Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 09:54:08 PM
I'm sorry. "Stable" was not the right word.

You said that "other" will become rich in the other currency. What if that other currency doesn't exist?

The "hoarder" must trade something in exchange for "other"'s bitcoins. Either some sort of work, a finished product, or another medium of exchange (money). Since he is hoarding (saving) the bitcoins, as he gathers them the supply is still effectively reduced, increasing their purchasing power. That means that the "hoarder" must trade more goods or services in exchange for the same number of coins over time. He will eventually be doing an infinite amount of work for an infinitely small number of bitcoins.

In the real world though, he will quit long before that since there is no point to trying to own all the coins.


Title: Re: The current Bitcoin economic model doesn't work
Post by: anderxander on May 31, 2011, 09:57:31 PM
Ok.  Here is the thing about the bitcoin hoarding arguments.

If people are sitting on bitcoins instead of spending them, then the amount in circulation will fall, and prices (of everything) will fall too.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend their coins while prices are low.  Which means that the amount in circulation will go up, which will cause prices (of everything) to go up.  Which will cause people to hold onto their coins instead of spending them.  Which will cause prices (of everything) to fall.  These low prices will provide an incentive for "hoarders" to spend...

Get it?

The one thing that I wish that everyone understood when they got out of high school is the concept of the dynamic equilibrium.

Trivial case: 2 people. The "hoarder" and the "other".

The "hoarder" gets all the bitcoins. The prices fall to zero. The "hoarder" can get anything by spending nothing. The "other" then becomes a slave.

Am I wrong?



What good does it do for someone to horde all the bitcoins? If someone gets all the bitcoins everyone would leave the network and the hoarders coins would be worthless. Who would he spend them with? Whats the advantage of hording them? They are only valuable if people are buying them which means someone has to be selling them. Has anyone been able to horde ALL the gold in 5000 years? Not yet. I don't see how something do divisible and liquid as bitcoins could be horded anymore than gold.

Money must originate from a commodity with intrinsic value - ideally, one that is durable and divisible. Money starts out as a commodity with utility value, then, through demands which it satisfies alone, becomes a common medium of exchange, i.e., money. Even the fiat dollar derives its purchasing power from when it was backed by gold. We went from gold, to a paper substitute for the gold, to the acceptance of the paper notes themselves, to paper that is now completely divorced from gold, but has a purchasing power that descends from when it was originally backed by gold. This is best explained by Ludwig von Mises' Regression Theorem.

If I were to make cute little paper certificates and call them, say, Anderson notes, nobody would just accept them. Money originates as a commodity with utility value, and the dollar had to descend from something with a pre-existing demand.

 Since money is a commodity, then paper money is supposed to be a substitute for, not an addendum to, the money supply, redeemable in a fixed amount of specie.

Contrary to popular thinking, money is not supposed to be an abstract unit of account, nor is it imputed with value through some other good, but is, itself, a valuable commodity. Paper money should function much like that of a check, which does not add to the supply of money, but is a stand-in for cash.

This is what Bitcoins does. But it is better than gold because of how divisible it is.

Bitcoins durability comes from the electricity, hardware, software, and its divisibilty  come from the decimal places on the computer much like gold.

the problem is a lack of savings. Encouraging consumption and penalizing saving, which is what inflation does, is the antithesis of what we should be doing. Producers need to consume in order to sustain production. Encouraging everybody to run off and spend their cash balances only lengthens the process of production. Our problem is more like over consumption, which leads to capital decumulation and erodes savings. It was once widely understood that people cannot borrow in excess of available capital, since credit is the trading of future wealth for current wealth.


http://www.american-partisan.com/cols/2003/anderson/qtr2/0422.htm


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 10:30:22 PM
I'll give 5 BTC to anyone who can provide an economic definition of "hoarding" which does not rely on personal preference and is demonstrably different than "saving".

I'll give it a shot:

Hoarding has three general meanings in an economic sense.  They are as follows: (1) acquiring excessive quantities of items that have little value in the market (think the crazy person who hoards paperclips), (2) acquisition based on an expectation that certain items will become extremely valuable related to current values during times of economic, political, or environmental crisis, or (3) acquisition based on on an expectation that such items will become extremely valuable compared with current values due to future scarcity.

Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

Did I win?


I would say so, but then I'm not the judge here.

Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 10:37:13 PM
Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

"Holding an asset expecting an increase in value more than the statistical norm" is a definition of speculation, not hoarding. By this definition I could hold one gun or one bitcoin, expecting the value to skyrocket, and I would be hoarding. Do you agree with this?


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 10:39:32 PM
Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

"Holding an asset expecting an increase in value more than the statistical norm" is a definition of speculation, not hoarding. By this definition I could hold one gun or one bitcoin, expecting the value to skyrocket, and I would be hoarding. Do you agree with this?

As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on May 31, 2011, 10:53:33 PM
As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 

So, is this your definition?

The acquisition of a statistically abnormal amount of a resource, due to a belief that the resource will gain a statistically abnormal amount of value in the future.

My problem is that "statistically abnormal" is subjective.

What is a "statistically abnormal" amount of bitcoins, and what is a "statistically abnormal" expectation of value?


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 31, 2011, 11:28:10 PM
Bittertea, where did you go?  I have answered every one of the criticisms you threw at my definition, so far I have defined hoarding, distinguished it from saving (and distinguished it from speculation, too, which was not even required), and done so in a way that is measurable outside of personal preference (using a generally accepted statistical test of significance for the amount of acquisition as well as the expectation of price increase).  Do you have anything else to throw at it?  If you don't want to pay, don't sweat, but at this point I am curious as to whether you concede or have some other angle to attack my definition. 

He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 11:33:22 PM
As I stated above, speculation requires a significant risk of loss, per the dictionary definition.  Hoarding does not.  I can expect an increase in value more than the statistical norm for a non-risky asset, like guns or liquor as discussed above, and be hoarding, but not speculating.  I also proposed that hoarding incorporates a statistically abnormal amount of acquisition, so holding one gun or one bitcoin would likely not qualify as well. 

So, is this your definition?

The acquisition of a statistically abnormal amount of a resource, due to a belief that the resource will gain a statistically abnormal amount of value in the future.

My problem is that "statistically abnormal" is subjective.

What is a "statistically abnormal" amount of bitcoins, and what is a "statistically abnormal" expectation of value?

I probably should just stick with the term "significant", as abnormal is probably not technically correct.  I am not a statistician, but if you google "statistically significant increase in price", you will see that this is a commonly used term in research.  My definition incorporates the notion that the hoarder expects that prices will increase significantly.  Statistical significance can also be used to measure divergence from the mean in population samples (like whether a particular person's holdings of bitcoins are significantly greater than the average holder).  I can go research how statisticians document statistical significance and report back, but why?  Is there anything in my definition that does not meet your criteria?  


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on May 31, 2011, 11:39:04 PM

He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not). 


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on May 31, 2011, 11:54:55 PM

He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not). 

Except that you haven't removed the personal preference part.  You've merely moved it from the individual to the group.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 12:01:03 AM

He sent you off to search for argyle paint.  I think his point was that it was impossible, not that you needed to try to split your hairs more finely.

I think that was his point, but it's clearly not impossible.  There is a definable economic difference between saving and hoarding, as one other poster has acknowledged, and as even BitterTea appeared to acknowledge above at one point.  It hinges on both the amount of assets accumulated (hoarding requires a significant amount of accumulation, saving does not) as well as the expectation of price increases (hoarding requires an expectation of significant price increases for the accumulated asset, saving does not).  

Except that you haven't removed the personal preference part.  You've merely moved it from the individual to the group.

How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence.  What was asked for was an economic definition that distinguishes between the two, this has been accomplished.  According to the definition proposed, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either.  


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 01, 2011, 12:02:51 AM
How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either. 

It's because you're defining hoarding based on the preference of others. If nobody prefers to own guns, but I do, then I own a statistically significant number of guns.

It's essentially saying that nobody should own more than the average number of something. Completely and utterly subjective.


Title: Re: The current Bitcoin economic model doesn't work
Post by: nazgulnarsil on June 01, 2011, 12:10:47 AM
are you asking for a theory of value that doesn't rely on preferences?  that's pants on head retarded.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 12:13:07 AM
How so?  My definition, and the distinction between saving and hoarding, is completely agnostic about personal preferences, whether anybody has a personal preference for the asset being saved or hoarded is of no consequence, all that matters is expectation of future value increase and divergence from the mean in amount of acquisition.  As I stated above, I could hoard guns and liquor in anticipation of the apocalypse, and have absolutely no preference for either. 

It's because you're defining hoarding based on the preference of others. If nobody prefers to own guns, but I do, then I own a statistically significant number of guns.

It's essentially saying that nobody should own more than the average number of something. Completely and utterly subjective.

I do not see where I suggested that nobody should own more than the average number of something?  The definition I proposed is completely objective.  It has nothing to do with whether anybody prefers to own the asset in question, only whether they acquire significant amounts of it and expect significant price increases.  The definition simply distinguishes between hoarding and saving without regards to personal preferences, by focusing on other attributes of the acquisition. 

Example: I may have a personal preference for collecting rare earth metals, and I accumulate an average amount of them and also believe they will maintain price stability, my accumulation of rare earth metals is an example of saving, not hoarding under the definition.  But if I have a personal preference for rare earth metals and I accumulate a significant amount of them and expect the price to increase significantly because of scarcity or catastrophe, under the definition I proposed this is hoarding.  So the distinction is without regards to my personal preference for rare earth metals, or any asset.  It is rather an objective test that looks at actions and expectations, not preferences.  I can prefer something and acquire an average amount, or not prefer something and acquire a significant amount.  The definition I proposed looks not at personal preference but rather the objective factors noted.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 01, 2011, 12:40:11 AM
Except that the objective factors you are looking at are such things as the number of standard deviations away from the average personal preferences of society.  You have taken your own personal preferences out of your system, but only by including everyone else's.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 12:51:54 AM
Except that the objective factors you are looking at are such things as the number of standard deviations away from the average personal preferences of society.  You have taken your own personal preferences out of your system, but only by including everyone else's.

Except the factors don't look at personal preferences at all. 

Expectation of significant price increases certainly has nothing to do with preference.

And as to the first point, simply because preference might be correlated with amount of acquisition does not mean the two are measuring the same thing.

As the examples given above show, I may have little or no personal preference for an item, and accumulate a significant amount of it because of my expectation for future price increases, or tremendous personal preference for it, and accumulate an average amount of it because of an expectation of future price stability. 

The definition I gave is agnostic with respect to group or personal preference, although it may be correlated with it.  I am more likely to acquire significant amounts of things I personally prefer, but not guaranteed to, as is society as a whole. 

The definition is measuring two objective measures, the expectation of future price increases and the amount of acquisition, not the preference of the acquirer or of the society, which could be all over the map and diverge from personal (or collective) preferences. 

The task was to come up with a definition of hoarding that did not "rely on personal preference and is demonstrably different than 'saving'".   Task accomplished, no? 


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 01, 2011, 01:48:44 AM
Except the factors don't look at personal preferences at all. 

Expectation of significant price increases certainly has nothing to do with preference.

And as to the first point, simply because preference might be correlated with amount of acquisition does not mean the two are measuring the same thing.

As the examples given above show, I may have little or no personal preference for an item, and accumulate a significant amount of it because of my expectation for future price increases, or tremendous personal preference for it, and accumulate an average amount of it because of an expectation of future price stability. 

The definition I gave is agnostic with respect to group or personal preference, although it may be correlated with it.  I am more likely to acquire significant amounts of things I personally prefer, but not guaranteed to, as is society as a whole. 

The definition is measuring two objective measures, the expectation of future price increases and the amount of acquisition, not the preference of the acquirer or of the society, which could be all over the map and diverge from personal (or collective) preferences. 

The task was to come up with a definition of hoarding that did not "rely on personal preference and is demonstrably different than 'saving'".   Task accomplished, no? 

I'm pretty sure you've defined all of the terms as statistic deviations away from the group average.

Post your complete theory in one place, just for clarity.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 02:18:33 AM

I'm pretty sure you've defined all of the terms as statistic deviations away from the group average.

Post your complete theory in one place, just for clarity.

No, the distinction between saving and hoarding does not rely on statistic deviations away from the group average under the definition I proposed.  

It has to do with deviations away from the historical price averages.  

A hoarder accumulates because they expect price to increase significantly.  

A saver does not accumulate because they expect price to increase significantly over time.  Rather, a saver saves to preserve an asset for future use, and possibly to benefit from appreciation in the asset (but again, does not expect significant price increases, as defined statistically).    

Another element of hoarding (but one that does not necessarily distinguish it from saving) is that the hoarder accumulates a significant amount of the asset.  You can argue that this definition relies on personal preference but this is not the case.  You do not have to have a preference for the asset in order to hoard, you merely need to accumulate a significant amount of it, and do so because you expect that the price will increase significantly.  Measuring the deviation from the mean also does not mean the definition relies on society's collective preferences, society's average level of acquisition could be based on factors other than the collective preference of individuals for the asset, people could be accumulating ugly smelly icky pond goo, because they believe that it is a store of value.  One person could be accumulating a significant amount of ugly smelly icky pond goo, expecting that it will not merely be a store of value in the future, but actually increase in value significantly, i.e., the person could be hoarding.  

Personal preferences for an asset be correlated with the level of accumulation, but they are different measures.  The definition's reliance on level of accumulation is entirely agnostic as to people's preferences for the asset (or society's).  

The definition distinguishes saving from hoarding in an objective manner that does not rely on personal preference.  It looks at two objective measures that can both be analyzed using statistical tools (price increase expectation and level of accumulation).  

I hope people don't find this discussion too insanely technical or boring, I actually think it's pretty interesting, I had never thought about the distinctions between hoarding, speculating, and saving until today.  I do think, though, that I have met the task set forth.  Although I definitely would like to hear if anyone has any other arguments against what I proposed?



Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 01, 2011, 02:45:50 AM

I'm pretty sure you've defined all of the terms as statistic deviations away from the group average.

Post your complete theory in one place, just for clarity.
No, the distinction between saving and hoarding does not rely on statistic deviations away from the group average under the definition I proposed.  

It has to do with deviations away from the historical price averages.  

A hoarder accumulates because they expect price to increase significantly.  

A saver does not accumulate because they expect price to increase significantly over time.  Rather, a saver saves to preserve an asset for future use, and possibly to benefit from appreciation in the asset (but again, does not expect significant price increases, as defined statistically).    

Another element of hoarding (but one that does not necessarily distinguish it from saving) is that the hoarder accumulates a significant amount of the asset.  You can argue that this definition relies on personal preference but this is not the case.  You do not have to have a preference for the asset in order to hoard, you merely need to accumulate a significant amount of it, and do so because you expect that the price will increase significantly.  Measuring the deviation from the mean also does not mean the definition relies on society's collective preferences, society's average level of acquisition could be based on factors other than the collective preference of individuals for the asset, people could be accumulating ugly smelly icky pond goo, because they believe that it is a store of value.  One person could be accumulating a significant amount of ugly smelly icky pond goo, expecting that it will not merely be a store of value in the future, but actually increase in value significantly, i.e., the person could be hoarding.  

Personal preferences for an asset be correlated with the level of accumulation, but they are different measures.  The definition's reliance on level of accumulation is entirely agnostic as to people's preferences for the asset (or society's).  

The definition distinguishes saving from hoarding in an objective manner that does not rely on personal preference.  It looks at two objective measures that can both be analyzed using statistical tools (price increase expectation and level of accumulation).  

I hope people don't find this discussion too insanely technical or boring, I actually think it's pretty interesting, I had never thought about the distinctions between hoarding, speculating, and saving until today.  I do think, though, that I have met the task set forth.  Although I definitely would like to hear if anyone has any other arguments against what I proposed?

I think I found the problem.  You think that personal preference means what someone says about a good.  This is incorrect.  The preference is what they actually do.

In your goo example, if someone finds goo disgusting, but also feels that it is a store of value, then the accumulation by that individual is an expression of their personal preference for a store of value, in spite of their dislike of the goo.  Trade is, in fact, the only objective way to measure preferences.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 03:32:52 AM

I think I found the problem.  You think that personal preference means what someone says about a good.  This is incorrect.  The preference is what they actually do.

In your goo example, if someone finds goo disgusting, but also feels that it is a store of value, then the accumulation by that individual is an expression of their personal preference for a store of value, in spite of their dislike of the goo.  Trade is, in fact, the only objective way to measure preferences.

I think this is a stretch.  The task was to find an economic definition that didn't rely on personal preference.  I proposed one that looked at expectation of significant price increases and significant accumulation, as opposed to saving which has an expectation of non-significant price increases.  To say this relies on "personal preferences" is only true if personal preferences encompass everything in the entire world, including economic predictions and warehouse inventory.  If a company accumulates more goo than another company, can you say that is somehow based on personal preferences?  Only in bizarro-world. 

If you are correct, the request for a definition was just a trick to show that personal preferences accompany everything in the world.  I think a more reasonable reading of the purpose for the request was to try to discredit the concept of hoarding as a descriptive term, saying that it was just a pejorative for saving.  I think what I have shown is that hoarding is not without merit as a descriptive term, and is not just a pejorative for "saving that I don't like" or "saving that society finds distasteful".  It is actually a distinct economic category that can be defined objectively, by looking at price expectations and extent of accumulation.  A plain reading of the request and my answers will reveal that this is the case. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 03:34:07 AM

I think I found the problem.  You think that personal preference means what someone says about a good.  This is incorrect.  The preference is what they actually do.

In your goo example, if someone finds goo disgusting, but also feels that it is a store of value, then the accumulation by that individual is an expression of their personal preference for a store of value, in spite of their dislike of the goo.  Trade is, in fact, the only objective way to measure preferences.

I think this is a stretch.  The task was to find an economic definition that didn't rely on personal preference.  I proposed one that looked at expectation of significant price increases and significant accumulation, as opposed to saving which has an expectation of non-significant price increases.  To say this relies on "personal preferences" is only true if personal preferences encompass everything in the entire world, including economic predictions and warehouse inventory.  If a company accumulates more goo than another company, because its computer price algorithm predicted significant increases, can you say that is somehow based on personal preferences?  Only in bizarro-world.  

If you are correct, the request for a definition was just a trick to show that personal preferences accompany everything in the world.  I think a more reasonable reading of the purpose for the request was to try to discredit the concept of hoarding as a descriptive term, saying that it was just a pejorative for saving.  I think what I have shown is that hoarding is not without merit as a descriptive term, and is not just a pejorative for "saving that I don't like" or "saving that society finds distasteful".  It is actually a distinct economic category that can be defined objectively, by looking at price expectations and extent of accumulation.  A plain reading of the request and my answers will reveal that this is the case.  


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 01, 2011, 04:37:13 AM
I think this is a stretch.  The task was to find an economic definition that didn't rely on personal preference.  I proposed one that looked at expectation of significant price increases and significant accumulation, as opposed to saving which has an expectation of non-significant price increases.  To say this relies on "personal preferences" is only true if personal preferences encompass everything in the entire world, including economic predictions and warehouse inventory.  If a company accumulates more goo than another company, can you say that is somehow based on personal preferences?  Only in bizarro-world. 

If you are correct, the request for a definition was just a trick to show that personal preferences accompany everything in the world.  I think a more reasonable reading of the purpose for the request was to try to discredit the concept of hoarding as a descriptive term, saying that it was just a pejorative for saving.  I think what I have shown is that hoarding is not without merit as a descriptive term, and is not just a pejorative for "saving that I don't like" or "saving that society finds distasteful".  It is actually a distinct economic category that can be defined objectively, by looking at price expectations and extent of accumulation.  A plain reading of the request and my answers will reveal that this is the case. 

But that's just it.  Economics is the study of personal preferences, either in small (micro) or large (macro) scales.  Personal preferences are how people make value decisions, which they express through trades.

Also, I should point out that no one else in the entire world would ever come up with your definition of hoarding, and you've really only twisted "saving that society finds distasteful" to "saving that society finds statistically abnormal".

I think it was a trick.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 01, 2011, 05:48:40 AM
But that's just it.  Economics is the study of personal preferences, either in small (micro) or large (macro) scales.  Personal preferences are how people make value decisions, which they express through trades.

Also, I should point out that no one else in the entire world would ever come up with your definition of hoarding, and you've really only twisted "saving that society finds distasteful" to "saving that society finds statistically abnormal".

I think it was a trick.

I suppose it was a trick in that I didn't expect anyone to come up with a satisfactory answer. It wasn't a trick in the sense that I thought it was a self contradictory question or it was impossible to answer.

There is a lot of talk of hoarding, especially revolving around the concept of deflation. The idea is that if the purchasing power of a currency is rising, people will hoard it instead of spending it, as if the only correct way to use money is to spend it. Hoarding, or saving as I prefer to call it, is merely the action an individual takes when they prefer a liquid cash balance as oppose to less liquid investments. When people refer to saving as hoarding, to me what they are saying is that the person is saving an excessive amount. Again, excessive is completely subjective.

I feel like the definition that you presented was carefully crafted to exclude things that you do not consider "excessive", but does not fit the normal use of the word. That is why I do not feel obligated to pay you the bounty.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 01, 2011, 06:59:55 AM
In that case, I think I should get it for coming up with the only qualitative difference between saving and hoarding cash.  :)

Then again, my answer falls apart when applied to commodities other than cash, as they all must.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Mal on June 01, 2011, 10:23:49 AM
I like hoarding, and I think it's a good thing. Imagine if an Ebenezer Scrooge like actor stages a giant feast. More people would starve to death because the price of food had skyrocketed and the amount of food had dropped. Gold coins might buy food but being rich in gold doesn't mean you can magically make more food than there is. I'm often angered by this myth.

Still, I do consider there to be differences between "saving" and "hoarding", perhaps just because I read something about a bounty.
I'll assume (because I haven't read the entire thread) that by "saving" no one is talking about investing, "savings and loan" style deals.

Saving is holding with a target purchase in mind.
Hoarding is holding with a target value in mind.

If I save my money, I'm holding to buy say, a motorcycle. Once I have enough, I buy the motorcycle.
I might "save" a bag of potato chips for a party. I don't care what the later price of potato chips is.
When I "save" I most likely expect what I hold not to devalue, though. This is not a necessity in saving.

If I hoard my money I'm holding to make a profit.
I might "hoard" a bag of potato chips expecting a boom in the price of potato chips.
I use the bag of potato chips as a store of value, as opposed to a future use of potato chips.
When I "hoard" I expect what I hold to appreciate in value. I gamble that the price will increase.

Another key difference is that when I purchase my potato chips to "save" them for later, I am not going to be acting in reverse of the mechanism with which I got them. I am not purchasing them to allow someone else to purchase them later. If I hoard them that's exactly what I am doing. An exception to this is money which by it's nature is a liquid asset. The only way to get money is to provide goods or services, and the only purpose to save money is to pay for goods or services. The difference here is of again saving money for an goal (even if unknown now, like a possible future medical bill) vs hoarding money for an appreciation in value.

I think hoarding/gouging are good things. They are natural and efficient mechanisms for managing a shortage, and gauging accurate prices.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cbeast on June 01, 2011, 01:08:57 PM
Hoarding was an unintended consequence of GPU mining that raised the difficulty factor against CPU mining. Unless more people get GPUs, the majority of bitcoins will be in the hands of a few people. Bitcoin will die unless they are spread around. It is up to the bitcoin holders to develop a means of getting bitcoins into the hands of others or all interest will be lost in them. No one else cares enough about bitcoins to do this for them.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 01, 2011, 01:44:52 PM
Hoarding was an unintended consequence of GPU mining that raised the difficulty factor against CPU mining. Unless more people get GPUs, the majority of bitcoins will be in the hands of a few people. Bitcoin will die unless they are spread around. It is up to the bitcoin holders to develop a means of getting bitcoins into the hands of others or all interest will be lost in them. No one else cares enough about bitcoins to do this for them.

The initial distribution of bitcoins probably doesn't matter (https://secure.wikimedia.org/wikipedia/en/wiki/Coase_theorem).

That said, I believe the early users were able to generate tens of thousands of bitcoins on CPUs; GPU mining did not come until late 2010. Currently the difficulty is so high that even with a high end graphics card, you cannot generate a significant number of bitcoins (compared to what was generated by CPUs earlier).


Title: Re: The current Bitcoin economic model doesn't work
Post by: dayfall on June 01, 2011, 02:05:53 PM
"It is up to the bitcoin holders to develop a means of getting bitcoins into the hands of others or all interest will be lost in them."

Yeah, like changing the Drupal 7 Commerce module natively support BTC, and creating a wiki on how to set up a website to sell goods for Bitcions.  Heck, an amazon like website that holds many storefronts would be super nice, too!  Nudge nudge.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Catallaxy on June 01, 2011, 02:28:58 PM
Hoarding and saving are just building up of capital for future investment. The problem with fiat currencies today is they discourage saving of investment capital, so everyone spends everything--even money they don't have in the form of credit. This is the crux of a consumer driven economy.

This is also the crux of a hyperinflation economy, where business owners cannot even buy half a can of paint for a work site, because in one week the can of paint will have doubled in price. Everything must be bought and used that day.

If everything can be bought and used 10 years from now, this would be a sign of a healthy economy that can invest in big, long-term projects, like cancer research, dam building, etc.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 03:47:31 PM
But that's just it.  Economics is the study of personal preferences, either in small (micro) or large (macro) scales.  Personal preferences are how people make value decisions, which they express through trades.

Also, I should point out that no one else in the entire world would ever come up with your definition of hoarding, and you've really only twisted "saving that society finds distasteful" to "saving that society finds statistically abnormal".

I think it was a trick.

I suppose it was a trick in that I didn't expect anyone to come up with a satisfactory answer. It wasn't a trick in the sense that I thought it was a self contradictory question or it was impossible to answer.

There is a lot of talk of hoarding, especially revolving around the concept of deflation. The idea is that if the purchasing power of a currency is rising, people will hoard it instead of spending it, as if the only correct way to use money is to spend it. Hoarding, or saving as I prefer to call it, is merely the action an individual takes when they prefer a liquid cash balance as oppose to less liquid investments. When people refer to saving as hoarding, to me what they are saying is that the person is saving an excessive amount. Again, excessive is completely subjective.

I feel like the definition that you presented was carefully crafted to exclude things that you do not consider "excessive", but does not fit the normal use of the word. That is why I do not feel obligated to pay you the bounty.

I think we're not that far off.  I think we both see hoarding as similar to saving, but different in degree.  I don't think there's anything wrong with hoarding, and I don't think the definition I proposed implies that there is anything wrong with hoarding.  As several posters have noted, hoarding can serve as a value to society, as the profit motive rewards people who recognize trends or future developments and accumulate/preserve the appropriate resources for later distribution. 

The definition I proposed simply offers an objective way to tell whether someone is accumulating a significant amount of something for a particular purpose (expected significant increase in prices).  What are normal uses of the word that my definition does not fit?  Accumulating liquor and guns for an apocalypse would seem to fit, hoarding bitcoins with the anticipation of significant profits would seem to fit, putting 10% of my weekly paycheck in a CD would seem not to fit (and would be considered saving, which I think comports with the generally accepted use of the word)?  What does my definition exclude that should be included?  Again, I'm not looking for the bounty, just interested in pursuing the discussion at this point.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 01, 2011, 04:18:12 PM
I think we're not that far off.  I think we both see hoarding as similar to saving, but different in degree.  I don't think there's anything wrong with hoarding, and I don't think the definition I proposed implies that there is anything wrong with hoarding.  As several posters have noted, hoarding can serve as a value to society, as the profit motive rewards people who recognize trends or future developments and accumulate/preserve the appropriate resources for later distribution. 

The definition I proposed simply offers an objective way to tell whether someone is accumulating a significant amount of something for a particular purpose (expected significant increase in prices).  What are normal uses of the word that my definition does not fit?  Accumulating liquor and guns for an apocalypse would seem to fit, hoarding bitcoins with the anticipation of significant profits would seem to fit, putting 10% of my weekly paycheck in a CD would seem not to fit (and would be considered saving, which I think comports with the generally accepted use of the word)?  What does my definition exclude that should be included?  Again, I'm not looking for the bounty, just interested in pursuing the discussion at this point.

I still disagree, but since I worded the challenge poorly I sent you 5 BTC.

Maybe this is more in line with my intention:

What makes saving good but hoarding bad?


Title: Re: The current Bitcoin economic model doesn't work
Post by: Mal on June 01, 2011, 07:08:21 PM
Hoarding is somewhat inefficient but more efficient than alternatives. People just get upset with hoarders because they drive the price up, often profit from the price going up, and don't contribute anything but storage or market adjustment for that profit. It's pretty much the same envy that drives some people to have an emotional issue with concept of early adopters/initial investors who get something for nothing (in said people's minds), and everyone else who follows their lead is left to diminishing returns.

There's nothing bad with hoarding but that's the problem people have with it. If it isn't flat envy of wealth it's envy of foresight. There is also the irrational fear that hoarders can somehow take everything and leave nothing, and the concept people learn at a young age that it's rude not to actively share what you own.

"Saving" money isn't quite hoarding, even when you aren't investing it because [see my earlier post]

People don't have a problem with saving because you aren't strictly profiting from it. You weren't actively pursuing profit, merely a wait, or a critical price [edited from "gain" because I don't proofread my messages for thought process artefacts]. The same irrational people often dislike the opposite side of the coin as well, which is to borrow the money for something instead of saving it, because they see everything from only one side. Borrowing money means you increase the overall cost (for the borrower) and therefore it's a worse deal than saving. These ideas are irrational but pervasive.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 08:08:42 PM
I think we're not that far off.  I think we both see hoarding as similar to saving, but different in degree.  I don't think there's anything wrong with hoarding, and I don't think the definition I proposed implies that there is anything wrong with hoarding.  As several posters have noted, hoarding can serve as a value to society, as the profit motive rewards people who recognize trends or future developments and accumulate/preserve the appropriate resources for later distribution. 

The definition I proposed simply offers an objective way to tell whether someone is accumulating a significant amount of something for a particular purpose (expected significant increase in prices).  What are normal uses of the word that my definition does not fit?  Accumulating liquor and guns for an apocalypse would seem to fit, hoarding bitcoins with the anticipation of significant profits would seem to fit, putting 10% of my weekly paycheck in a CD would seem not to fit (and would be considered saving, which I think comports with the generally accepted use of the word)?  What does my definition exclude that should be included?  Again, I'm not looking for the bounty, just interested in pursuing the discussion at this point.

I still disagree, but since I worded the challenge poorly I sent you 5 BTC.

Maybe this is more in line with my intention:

What makes saving good but hoarding bad?

Cool, thanks!  I'm going to hoardsavespeculate with that...

And thanks for the interesting question.  I was looking at some economic texts today and they define hoarding with some convoluted formulas that if I had more time it would probably be fun to try to decipher. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: zef on June 01, 2011, 08:23:05 PM
And thanks for the interesting question.  I was looking at some economic texts today and they define hoarding with some convoluted formulas that if I had more time it would probably be fun to try to decipher. 

I'm curious as to where the assumption that "hoarding" is objectively and quantifiably different than "savings" originates from.  Could you identify those sources?


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 08:48:35 PM
And thanks for the interesting question.  I was looking at some economic texts today and they define hoarding with some convoluted formulas that if I had more time it would probably be fun to try to decipher. 

I'm curious as to where the assumption that "hoarding" is objectively and quantifiably different than "savings" originates from.  Could you identify those sources?

Sure.  Here are four sources I found today on google books:

http://books.google.com/books?id=UGq6vlIm5TUC&pg=PA189&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CEcQ6AEwAw#v=onepage&q=definition%20of%20hoarding&f=false (http://books.google.com/books?id=UGq6vlIm5TUC&pg=PA189&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=4&ved=0CEcQ6AEwAw#v=onepage&q=definition%20of%20hoarding&f=false)

http://books.google.com/books?id=8mbgqf0squcC&pg=PA203&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFkQ6AEwBw#v=onepage&q=definition%20of%20hoarding&f=false (http://books.google.com/books?id=8mbgqf0squcC&pg=PA203&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=8&ved=0CFkQ6AEwBw#v=onepage&q=definition%20of%20hoarding&f=false)

http://books.google.com/books?id=e4QiEMmZcLwC&pg=PA192&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=6&ved=0CE8Q6AEwBQ#v=onepage&q=definition%20of%20hoarding&f=false (http://books.google.com/books?id=e4QiEMmZcLwC&pg=PA192&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=6&ved=0CE8Q6AEwBQ#v=onepage&q=definition%20of%20hoarding&f=false)

http://books.google.com/books?id=8_xMAAAAMAAJ&q=definition+of+hoarding&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=7&ved=0CFQQ6AEwBg (http://books.google.com/books?id=8_xMAAAAMAAJ&q=definition+of+hoarding&dq=definition+of+hoarding&hl=en&ei=J6XmTcaHKOHe0QGm0-ySCw&sa=X&oi=book_result&ct=result&resnum=7&ved=0CFQQ6AEwBg)


Title: Re: The current Bitcoin economic model doesn't work
Post by: zef on June 01, 2011, 09:40:06 PM
Thanks, you should of just pointed me to http://lmgtfy.com/?q=definition+of+hoarding :)

Seriously though, is this the literature where you specifically draw your assumptions from?  Perhaps I should of been more clear, if you believe that hoarding is quantifiably, objectively different from savings, where did you learn this?

I looked over those sources and I can only conclude that there is no difference in their terminology between hoarding and saving. One source defines it as a variable that effects velocity of money, or "idle deposits", which could obviously be said of savings.

The first source looks promising, but only alludes to definitions of hoarding, the closest thing to a definition was "actual holding of cash".  Please correct me if am missing something though. 






Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 01, 2011, 09:44:01 PM
Thanks, you should of just pointed me to http://lmgtfy.com/?q=definition+of+hoarding :)

Seriously though, is this the literature where you specifically draw your assumptions from?  Perhaps I should of been more clear, if you believe that hoarding is quantifiably, objectively different from savings, where did you learn this?

I looked over those sources and I can only conclude that there is no difference in their terminology between hoarding and saving. One source defines it as a variable that effects velocity of money, or "idle deposits", which could obviously be said of savings.

The first source looks promising, but only alludes to definitions of hoarding, the closest thing to a definition was "actual holding of cash".  Please correct me if am missing something though. 


No, I just found these today and haven't looked at them in depth but from the looks of it the definition I proposed is not what these authors are referring to.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Waschtel on June 02, 2011, 11:38:19 AM
I think your analysis is sound, but your solution would burst the bitcoin-bubble: The success of bitcoin is largely due to early adopters speculating on deflation. If monetary policy is changed to open-end bitcoin generation, an enormous inflation will set in immediately, collapsing the whole project.

What I think will happen: When bitcoin-mining gets less and less profitable, some mining-guilds will switch to block reweaving, double spending bitcoins instead of mining. This will happen more and more often, weakening faith in the currency, and collapsing the system.

The whole project doesn't have a future, but have fun while it lasts!


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 02, 2011, 03:10:37 PM
The whole project doesn't have a future, but have fun while it lasts!

You're entitled to your opinion. I'll buy your bitcoins at $5/each before the bubble bursts though.

(paging Kiba to the bubble, Kiba to the bubble)


Title: Re: The current Bitcoin economic model doesn't work
Post by: FooDSt4mP on June 02, 2011, 03:20:46 PM
I think your analysis is sound, but your solution would burst the bitcoin-bubble: The success of bitcoin is largely due to early adopters speculating on deflation. If monetary policy is changed to open-end bitcoin generation, an enormous inflation will set in immediately, collapsing the whole project.

What I think will happen: When bitcoin-mining gets less and less profitable, some mining-guilds will switch to block reweaving, double spending bitcoins instead of mining. This will happen more and more often, weakening faith in the currency, and collapsing the system.

The whole project doesn't have a future, but have fun while it lasts!

Any pool that engaged in double spending would quickly see it's users switch to a different pool.  The largest pool is only about 1/3 of the total hashing power.  Non-pooled mining altogether is around 1/4 of all hashing power.  Double spends are nearly impossible after a few confirmations unless all the pool operators work together.  Why would they do that when they are making a lot of BTC, and doing so could only lower the value of their income?


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 03:48:26 AM
Just read this article by Adam Cohen titled Is the cryptocurrency Bitcoin a good idea? http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-idea/answer/Adam-Cohen-2 (http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-idea/answer/Adam-Cohen-2)

Though his third and fourth raised points are overly pessimistic, he strongly addresses the early adopters bonus and the perpetual deflation as the first and second "severe problems". I'm glad the same points were raised by an independent economist.

I'm also beginning to notice a trend in the ongoing discussion here: Most new comers (folks with a small number of posts) support my suggestions, while most "early adopters" don't. There can't be any mischievous intentions here, right?

Just in case there was, I'm reminding the early adopters that the proposed system will not take any of their profits away. It will simply freeze the coin's value at the point which it's at once the implementation begins. But contrary to having people like Cohen (rightfully) doubting the sincerity of the project which Satoshi et al made thousands if not millions of dollars in profits for "taking an early risk", the new system will be much more trustworthy as it will be fair to all with a stable exchange price.

No more speculation, no more incentives to hoard/save, and no more unwarranted profits (or losses). You can casually keep a few hundred coins in your virtual wallet without worrying about a price crash. And you can casually spend them without pulling your hair out when the price doubles the week after. How on earth does the current system beat the proposed one?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cbeast on June 03, 2011, 04:36:40 AM
regarding: http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-idea/answer/Adam-Cohen-2


"Fortunately, it's such an obviously flawed system that it will probably never grow to a point where it causes any ill-effects,or even impact, to world economies."
Obviously  ::)

"No matter what your reasoning, Bitcoin is a ridiculous idea that will not accomplish what you want."
Or maybe it will.

This guy clearly believes he is an expert about economics; yet he is writing a blog about a currency, not an economy. His argument about a "central bank" fails. Where is this "central bank?" America? Germany? Switzerland? The fact is, there is no workable banking system anywhere. That's why the world is financed by dodgy credit default swaps, derivatives, naked short-sells, and other financial jalopies. Bitcoin may not be perfect, but as long as it is reasonably secure, convenient, and available, it will thrive. The naysayers and demagogs can ad hominem and make all the strawmen arguments they want, but unless they show good evidence that bitcoin fails after two years, they can get get in the game or get out of the way.

BTW, I have only known about BTC a couple weeks and have not yet seen any valid case presented against BTC. I am open to evidence, not just opinion.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 04:41:42 AM
BTW, I have only known about BTC a couple weeks and have not yet seen any valid case presented against BTC.
You read the initial post right? It's against the limited supply system, not Bitcoin in general.

I am open to evidence, not just opinion.
https://mtgox.com/trade/history
Nuff said? :)


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 07:41:22 AM
Feel free to start your fork anytime.  This experiment is ours.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 03, 2011, 10:39:12 AM
Feel free to start your fork anytime.  This experiment is ours.

+1

I don't particularly believe that this would be successful, but i will surely watch the development with interest.

Perhaps even many forks should be created - inflata-coin, superdeflata-coin, stuff-coin, alter-coin - so we can experiment & test which one will be more successful than others.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Catallaxy on June 03, 2011, 12:43:05 PM
Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

People save with the incentive that they will profit, otherwise there would be no saving. It seems to me to be a little disingenuous to suggest people save altruistically and hoard selfishly.



Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 03, 2011, 02:06:22 PM
Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

People save with the incentive that they will profit, otherwise there would be no saving. It seems to me to be a little disingenuous to suggest people save altruistically and hoard selfishly.



There was no such intended implication, I did not suggest that saving is altruistic or that hoarding is selfish.  Later I acknowledged that the term "windfall" was probably not as precise as "significant price increases".  Savers do not generally anticipate significant price increases, although you are correct that they do have a profit incentive.  They just do not anticipate their profits will deviate significantly from historical averages generally.  Hoarding, on the other hand, generally entails an expectation that profits will be significant, for the reasons I noted above.  I do not think hoarding is any more selfish or altruistic than saving.  As many have noted, hoarded serves an important function for the market. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 02:25:52 PM
Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

People save with the incentive that they will profit, otherwise there would be no saving. It seems to me to be a little disingenuous to suggest people save altruistically and hoard selfishly.



There was no such intended implication, I did not suggest that saving is altruistic or that hoarding is selfish.  Later I acknowledged that the term "windfall" was probably not as precise as "significant price increases".  Savers do not generally anticipate significant price increases, although you are correct that they do have a profit incentive.  They just do not anticipate their profits will deviate significantly from historical averages generally.  Hoarding, on the other hand, generally entails an expectation that profits will be significant, for the reasons I noted above.  I do not think hoarding is any more selfish or altruistic than saving.  As many have noted, hoarded serves an important function for the market. 

The problem with "hording" is that the term has a commonly understood negative connotation, whether we would agree with your benign definition or not. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: Guy Inkognito on June 03, 2011, 02:45:37 PM
Hi, I will repost this here as the previous thread has been closed by the admin for unkown reasons / probably a lot of "deflation" posts which was not intended.
I believe 2 things are imperative

1) controlled growth of the supply as suggested by "Suggester"
2) Making credit available and facilitating savings through an interest free credit/savings exchange. This will prevent "hoarding". Instead of "hoarding" the BC could be lent out to others without interest. The lender will be compensated by credit points, which allows him to get a bigger credit from future savers.


-----------------------------------------------------------------------------------------------------------------------------------------------------------------
Bitcoins had quite a frenzy about them recently, being mentioned in mass media and their value increasing. However, they will die out even without governments etc. Intervening or clamping them down. Let me explain:

Bitcoins are not money. They are a (perfect) medium of exchange. Their properties are similar to gold: scarce (finite amount), divisible, stable, low volume / easy transport, secure. So they only fulfil two properties of money: exchange and storage of value. But they lack CREDIT.

Fiat however, is born out of credit (each dollar/euro/... cash or deposit is mirrored by an equal amount of debt). The next is zero. Money is debt. The debt money (fiat) arises from property rights: somebody needs cash so he will pledge his property against a loan. The bank demands interest for giving up her property right on the money (a compensation for not being able to use the money, NOT because of the credit risk). Fiat systems thus have inherent interest in debt contracts. This interest has not yet been created, in order to have the interest paid back, new money must be perpetually created. Obviously, over the course of many years, the fiat system leads to an unequal distribution of net worth, as people owning property earn interest and people needing money pay interest.
The advantage, however, of the fiat system is Credit: only Credit enables economic trade, investment etc. Everybody who started their own business or wanted to buy a house knows that.

But credit comes into place with property rights – the only conundrum is the interest which is inherent to it. If we could remove the interest, we could go towards more equilibrium and a more stable and sustainable economy.

Without credit, we would live in a mere barter society. That’s what the bitcoin world is at the moment – a bartering club.

Unless bit coins allow CREDIT, they will just be a scarce barter medium and will end in an awful way:
Due to their scarcity (and the relatively huge amount of fiat in circulation), a bubble is already building: many people buy bitcoins without the intention of even use them for barter. Easy to see, as mtgox a “exchange” is the biggest bitcoin accepting site. They are now valued at ten dollar, with about 8 million in circulation. I would not be surprised if they go to 100 dollars due to their scarcity and similar properties to gold. They are a highly deflationary medium.

Eventually, the bubble will burst however, as people suddenly find themselves on the selling side and convert their bitcoins into physical goods or fiat. (the velocity of money rises, everybody wants to get rid of them, prices of goods relatively rise, the currency plummets). This would lead to a sad end to a nice experiment. Just like with Tulipmania, Dot Com Bubble etc. People would lose a lot of fiat and staying away from alternative currencies for a long time.

So what can be done to avoid it?

1)   Bitcoins should not be completely scarce. A finite amount of bitcoins makes them highly deflationary. Similar to gold, a controlled mining should be allowed even after the intended stop, so their availability grows with usage

2)   Credit needs to be allowed and facilitated: As we don’t want to have another fiat experiment, bitcoins would be ideal to try true interest free credit:  please take a look at the following interest free credit/banking model which could be easily setup for Bitcoins
http://jak.aventus.nu/download/Uppsatser/MARK_BURTON_DISSERTATION_2.pdf
http://www.feasta.org/documents/review2/carrie2.htm

Thoughts / critique / discussion welcome!
Guy


Title: Re: The current Bitcoin economic model doesn't work
Post by: Catallaxy on June 03, 2011, 03:12:44 PM
Saving, on the other hand, merely involves guarding or preserving an asset for future use.  It does not require an expectation of future windfall profits, or excessive acquisition of items that have little value in the market.  

People save with the incentive that they will profit, otherwise there would be no saving. It seems to me to be a little disingenuous to suggest people save altruistically and hoard selfishly.


Savers do not generally anticipate significant price increases, although you are correct that they do have a profit incentive.  They just do not anticipate their profits will deviate significantly from historical averages generally.  Hoarding, on the other hand, generally entails an expectation that profits will be significant, for the reasons I noted above.  I do not think hoarding is any more selfish or altruistic than saving.

Well in this case I would say that hoarders seem to be more knowledgeable than savers.

Also there is nothing stopping people from lending their bitcoins out for credit.


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 03, 2011, 03:18:18 PM

SuggesterCoin

any coin will do.


Title: Re: The current Bitcoin economic model doesn't work
Post by: rahl on June 03, 2011, 04:46:23 PM
Every four years a miner needs to spend double the effort to create the same amount of coins.

And you mean to say that computer processing speeds don't double that fast? What exactly is the problem here....



Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 06:32:52 PM
Hi, I will repost this here as the previous thread has been closed by the admin for unkown reasons / probably a lot of "deflation" posts which was not intended.
I believe 2 things are imperative

1) controlled growth of the supply as suggested by "Suggester"


Bitcoin has a controlled rate of growth.  That's it's primary feature.  It's so well controlled, I can predict with high accuracy what the monetary base will be years in advance, and never be off on my timing by more than +-.5%.  Does any fiat currency in current use have such a record?

Quote

2) Making credit available and facilitating savings through an interest free credit/savings exchange. This will prevent "hoarding". Instead of "hoarding" the BC could be lent out to others without interest. The lender will be compensated by credit points, which allows him to get a bigger credit from future savers.


Go ahead.  There is no reason that you or anyone else interested in such a bitcoin bank can't start one, but nor is there any need to incorporate credit lending into the Bitcoin protocol itself.

Quote

Bitcoins are not money. They are a (perfect) medium of exchange. Their properties are similar to gold: scarce (finite amount), divisible, stable, low volume / easy transport, secure. So they only fulfil two properties of money: exchange and storage of value. But they lack CREDIT.

So does gold.  Credit is a feature provided by institutions, not the medium of exchange.

Quote
Thoughts / critique / discussion welcome!
Guy

Be careful what you wish for.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 03, 2011, 06:40:36 PM
Why is it so hard to believe that these "problems" are taken into account in the price of bitcoins. Why does everybody assume that the speculators are wrong? The increase in the price of bitcoin is not credit driven, nor even inflation driven. There is no reason for there to be a cluster of errors specifically in bitcoins. There are no policies favorable to buying bitcoins in place by the government. Nobody is giving out massive loans to people who aren't good debtors in order to buy bitcoins. All the reasons for a bubble are absent in bitcoin.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Anonymous on June 03, 2011, 07:03:17 PM
Let them assume what they wish. In the end, we'll be the wealthy ones.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 07:15:00 PM
Let them assume what they wish. In the end, we'll be the wealthy ones.

You're not supposed to say that explicitly, Atlas. You're supposed to pretend that "deflation is fine" or that "it will all balance out in the end". You've just broken every Ponzi rule by declaring your sinister intentions out loud.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 07:20:11 PM
Let them assume what they wish. In the end, we'll be the wealthy ones.

You're not supposed to say that explicitly, Atlas. You're supposed to pretend that "deflation is fine" or that "it will all balance out in the end". You've just broken every Ponzi rule by declaring your sinister intentions out loud.

That would be true, if this were a ponzi scheme.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 07:27:57 PM
That would be true, if this were a ponzi scheme.

Supporters of the current design lose the debate either way. If the price..
1. Keeps rising forever, then it's a Ponzi scheme which will collapse at some point.
2. Keeps rising sharply then falling sharply forever, then it's an unstable currency subject to severe manipulation and speculation.

I'm still begging for one argument against my proposed stable-price system.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 03, 2011, 07:29:43 PM
Let them assume what they wish. In the end, we'll be the wealthy ones.

You're not supposed to say that explicitly, Atlas. You're supposed to pretend that "deflation is fine" or that "it will all balance out in the end". You've just broken every Ponzi rule by declaring your sinister intentions out loud.

What he is expressing is his strong feeling that Bitcoin will succeed. He is saying "we'll be the wealthy ones as opposed to the others who did not invest". This is not at the expense of any individual, as others who buy at higher prices are doing so because they value the Bitcoin concept. It is in fact a valuable service to take risk by buying now to sell at a higher price later, when it is seen as less risky.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 07:37:09 PM
What he is expressing is his strong feeling that Bitcoin will succeed. He is saying "we'll be the wealthy ones as opposed to the others who did not invest". This is not at the expense of any individual, as others who buy at higher prices are doing so because they value the Bitcoin concept. It is in fact a valuable service to take risk by buying now to sell at a higher price later, when it is seen as less risky.

I understand that. And my question was: How is this supposed to end? Will the price keep rising forever or not? Think well before answering because you lose both ways.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 07:40:52 PM
That would be true, if this were a ponzi scheme.

Supporters of the current design lose the debate either way. If the price..
1. Keeps rising forever, then it's a Ponzi scheme which will collapse at some point.
2. Keeps rising sharply then falling sharply forever, then it's an unstable currency subject to severe manipulation and speculation.

I'm still begging for one argument against my proposed stable-price system.

You do realize that 1 & 2 are the same exact scenario, just stated differently, right?  And both of them are also internally illogical.

Perhaps you shouldn't be investing in anything.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 03, 2011, 08:45:49 PM
That would be true, if this were a ponzi scheme.

Supporters of the current design lose the debate either way. If the price..
1. Keeps rising forever, then it's a Ponzi scheme which will collapse at some point.
2. Keeps rising sharply then falling sharply forever, then it's an unstable currency subject to severe manipulation and speculation.

I'm still begging for one argument against my proposed stable-price system.

3. Rises to a point of equilibrium, and is used as an easily stored and transmitted gold-like asset. Over time, the purchasing power of Bitcoin will increase at a rate equal to the rate of the growth of it's economy. People will accept that even though their paycheck may be decreasing denominated in bitcoin, the amount of goods and services they can buy stays the same or increases. In addition, massive amounts of debt are no longer needed, as people can easily defer consumption and save, which benefits them in the future and provides the necessary capital for investment in infrastructure.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 09:22:13 PM
You do realize that 1 & 2 are the same exact scenario, just stated differently, right?  And both of them are also internally illogical.
By 1 I meant a hoped perpetual deflation scenario. By 2 I meant a perpetual bumpy-price scenario. Neither of them is illogical, one of them is inevitable.

Perhaps you shouldn't be investing in anything.
Don't worry, I'm not investing. I'm hoarding.

3. Rises to a point of equilibrium, and is used as an easily stored and transmitted gold-like asset. Over time, the purchasing power of Bitcoin will increase at a rate equal to the rate of the growth of it's economy.
Really? So for instance its user base increase between 2017 and 2018 is supposed to be only 1.5% simply because the increase in bitcoins would be about 1.5% during the same period? That's nonsense. The natural human population growth exceeds that figure. Millions of people would have joined the internet for the first time and learned of bitcoin by then. And what about by 2025, when the new bitcoins produced would be almost nill? Should the Bitcoin economy's growth hault by then so that the purchasing power of Bitcoin increases at a rate equal to the rate of the growth of its economy?

People will accept that even though their paycheck may be decreasing denominated in bitcoin, the amount of goods and services they can buy stays the same or increases.
In addition, massive amounts of debt are no longer needed, as people can easily defer consumption and save, which benefits them in the future and provides the necessary capital for investment in infrastructure.
And what exactly would their incentive be for spending a currency which gains 20%+ of real annual interest when they can spend fiat instead and hoard that currency year after year only to be given to a new hoarder? Bitcoin's limited supply model is any hoarder's wet dream come true: Ridiculously high interest money coming out of thin air. Who the heck would wanna spend this unless he's trying to escape an eminent price collapse?


Title: Re: The current Bitcoin economic model doesn't work
Post by: defxor on June 03, 2011, 09:40:03 PM
Really? So for instance its user base increase between 2017 and 2018 is supposed to be only 1.5% simply because the increase in bitcoins would be about 1.5% during the same period? That's nonsense. The natural human population growth exceeds that figure

"In 2009, the estimated annual growth rate was 1.1%."
- http://en.wikipedia.org/wiki/Population_growth (http://en.wikipedia.org/wiki/Population_growth)

http://en.wikipedia.org/wiki/File:World_population_increase_history.svg


Title: Re: The current Bitcoin economic model doesn't work
Post by: Braden on June 03, 2011, 09:47:21 PM
Why is it so hard to believe that these "problems" are taken into account in the price of bitcoins. Why does everybody assume that the speculators are wrong? The increase in the price of bitcoin is not credit driven, nor even inflation driven. There is no reason for there to be a cluster of errors specifically in bitcoins. There are no policies favorable to buying bitcoins in place by the government. Nobody is giving out massive loans to people who aren't good debtors in order to buy bitcoins. All the reasons for a bubble are absent in bitcoin.

According to Austrian Theory. Mainstream economics has a different explanation of what causes bubbles, and it happens in a community of people who think prices can only go up.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 09:47:57 PM
"In 2009, the estimated annual growth rate was 1.1%."
- http://en.wikipedia.org/wiki/Population_growth (http://en.wikipedia.org/wiki/Population_growth)
http://en.wikipedia.org/wiki/File:World_population_increase_history.svg

You're looking at newly born babies sir. Those don't use bitcoin. You should look at the natural increase of eligible users.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcoinfrenzy on June 03, 2011, 09:54:56 PM
Why is it so hard to believe that these "problems" are taken into account in the price of bitcoins. Why does everybody assume that the speculators are wrong? The increase in the price of bitcoin is not credit driven, nor even inflation driven. There is no reason for there to be a cluster of errors specifically in bitcoins. There are no policies favorable to buying bitcoins in place by the government. Nobody is giving out massive loans to people who aren't good debtors in order to buy bitcoins. All the reasons for a bubble are absent in bitcoin.

According to Austrian Theory. Mainstream economics has a different explanation of what causes bubbles, and it happens in a community of people who think prices can only go up.

To some extent, there is truth in what both of you say.  Government policies, excessive debt-financed purchases, etc., are not necessary for a speculative bubble to emerge.  On the other hand, there may be some truth to the argument that a Bitcoin bubble is "less" likely to exist or crash hard if it is not debt-financed.  If the Bitcoin "bubble" just represents a lot of reasonable speculation (lets say 100,000 people all put $1,000 of their assets, without using debt financing) into Bitcoins on the hopes of higher prices, the "bubble" or "price increase" or whatever you want to call it may be more sustainable and may not end as badly as it would if people are buying with debt, for obvious reasons.  


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 03, 2011, 10:45:50 PM
That would be true, if this were a ponzi scheme.

I feel compelled to respond to creighto's remark here.

People in general, me included, have a difficult time believing that out of the ashes of the recent economic collapse (the RE market collapse as well as the Madoff-like, greed based ponzi schemes) something as awesome, beautiful and as powerful could arise as the result of the efforts of a single, or perhaps and more likely, a group of technically/economically minded/skilled individuals.

The automatic, default response to anything novel and revolutionary, is at first, denial and ultimately, acceptance while pretending nothing new ever happened.

A perfect example of the emotional/psychological/thought/belief-based roller coaster that we all go through when faced with something so big and so 'surreal' is captured in this just as awesome, beautiful and powerful quote as BitCoin is, by William James:

Quote
When a thing is new, people say: "It is not true".
Later, when its truth becomes obvious, they say: "It's not important."
Finally, when its importance cannot be denied, they say "Anyway, it's not new."

Now, I've personally known a few people in my time who have achieved something revolutionary, not because they had any idea how to do it when they set out to do it, but because they all had the following things in common at the level of whom they were being:

1) an intention to create something Good (Good here is defined according to my Judeo-Christian belief system)

2) a complete surrender of their personal philosophy/worldview/doctrine in lieu of another's philosophy/worldview/doctrine. They answered their God-given Calling.

3) they executed and finished it

Steve Jobs... is one of these people.  Bill Gates... is another one of these people. In my view, Satoshi, whom as far as I am concerned at this point in time might as well be Keyser Söze, is one of these people as well.

I choose to create a personal relationship with Satoshi by starting with a $100 USD investment into BTCs, much in the same way I have created a personal relationship with Steve Jobs by owning a MBP, or Akio Toyoda, by owning two Toyota vehicles, mine and my wife's.

My trust in BitCoin, vis-a-vis, Satoshi, is 100%. I risk getting screwed over by BitCoin/Satoshi. Upon reading the whitepaper, I am confident that Satoshi's intentions are noble, despite any imperfections BitCoin's heuristics may have.

My suggestion to everyone here is to trust Satoshi until he cannot be trusted any longer.  I know this doesn't sound "revolutionary", but in fact, all of these skeptics and naysayers are actually PRETENDING to know that Satoshi is a scammer, and thus BitCoin is a scam. Fact is - they don't know anymore than I know that he is genuine. They want to peek around the corner of time when the only way to find out is to play the game. If indeed he turns out to be a scammer, the people with the highest levels of greed today risk getting screwed the most anyway. The other ones can shrug off the loss. One thing I am certain of, if Satoshi is proven to be a scammer, he will be no more, much like Bin Laden, or Ratko Mladic.

Barring any serious technical analysis of Satoshi's BitCoin heuristics/algorithm that can prove it logically unstable or easily defraudable by a large entity with much time/cash to spend on a systematic attack toward this purpose, I welcome you to the new world currency - BitCoin.

Dive in, the water's just fine (for now!)  8)


Title: Re: The current Bitcoin economic model doesn't work
Post by: defxor on June 03, 2011, 10:47:56 PM
"In 2009, the estimated annual growth rate was 1.1%."
- http://en.wikipedia.org/wiki/Population_growth (http://en.wikipedia.org/wiki/Population_growth)
http://en.wikipedia.org/wiki/File:World_population_increase_history.svg

You're looking at newly born babies sir. Those don't use bitcoin. You should look at the natural increase of eligible users.

I have no idea what you're talking about now, but your original statement was about the rate of human population growth and was promptly disproven.

(UN medium scenario projects a max global population of somewhere between 9-10 billion at the year 2050-2070 and then decreasing)





Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 11:19:01 PM
I have no idea what you're talking about now, but your original statement was about the rate of human population growth and was promptly disproven.
That point is so trivial we shouldn't be arguing about it. I was simply telling you to reflect upon the natural increase of eligible bitcoin users rather than the sheer increase in population which is based on newly-born babies.


(UN medium scenario projects a max global population of somewhere between 9-10 billion at the year 2050-2070 and then decreasing)
Bitcoin's rate of generation will continue to decline beyond 1.1% reaching practically 0% long before 2050 if that makes you happy. Add to that that its user base grows much faster than that of human population, eligible or total. To cut it short: Deflation is inevitable.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 03, 2011, 11:27:04 PM
The automatic, default response to anything novel and revolutionary, is at first, denial and ultimately, acceptance while pretending nothing new ever happened.



I can't say I understand what point that you were trying to make, but I can say for certain that not all people react in the above generality.  I am an INTP, it's not in my personality makeup to reject new data lightly, nor to take much stock in the opinions of others.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 03, 2011, 11:41:35 PM
I just want to add one more inquiry to my previous characterization of BitCoin -

the value add of having a decentralized currency does not come without some other, less visible/obvious costs.

Namely, all the good, bad and ugly stuff that human beings are able to do with centralized currency, will still be possible with BitCoin, once the gold/BitCoin fever is over and the currency is used en masse.

Thus, I assert that BitCoin is NOT a solution to the ethical/moral problems that arise in society. After all, the first thing one will do with an anonymous currency that can be sent to anyone in the world is abuse it for immoral purposes. By 'immoral', I am using my personal Judeo-Christian belief system here, which has been around for 4000 years or thereabouts, BC and AD combined. Apparently, some of this has already been done.

The cost of being able to transfer currency at will, to anyone and anywhere in the world, is an apparent shift/increase in responsibility from the group (e.g. "centralized") to the individual.

Now, the question is - if responsibility to make "bad" (e.g. self-destructive or destructive to others) decisions is given via means of BitCoin - will that eventually result in the massive corruption of the whole, e.g. the few or one bad apple will spoil the whole good bunch?

Or, does personal responsibility eventually, once all the "bad bunches" have been eliminated by self-destruction or mutual-destruction, result in increased responsibility for all people combined?

I know there is no easy answer to this type of ethical inquiry - however, I want people to beware that NOTHING comes without a COST - not necessarily a MONETARY one at that, and that eventually, "scary" or "pleasant" as it might be, we ALL get exactly what we are asking for. Whether we like what we get or not, in the end, is open to debate.

I am not denigrating or putting down BitCoin by any stretch of the imagination, merely adding some _human_ perspective to it and the kind of problems it will solve as well as create at the same time as a result of this transfer of responsibility.


Barring any serious technical analysis of Satoshi's BitCoin heuristics/algorithm that can prove it logically unstable or easily defraudable by a large entity with much time/cash to spend on a systematic attack toward this purpose, I welcome you to the new world currency - BitCoin.

Dive in, the water's just fine (for now!)  8)


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 03, 2011, 11:44:58 PM

Suggester has been wrong for 18 months, why should we believe anything will change?

It must suck knowing that you could have been a pizza delivery boy just once in your life, see 2 pizza for 10,000 BTC, and you would be well ahead right now.

These grapes are getting too sour to even look at, can someone close this thread already?


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 03, 2011, 11:49:10 PM
Suggester has been wrong for 18 months, why should we believe anything will change?

Just a reminder of how "wrong" I've been for 18 months:
http://s2.postimage.org/249eg65t0/price.jpg (http://postimage.org/image/249eg65t0/)

Doesn't look like perpetual deflation. Doesn't look like a crazy horse. Doesn't look like a speculators' den. Doesn't look like a nerve-wrecker with each single transaction. No, It's a perfectly sensible stable currency with a promising future.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 03, 2011, 11:50:41 PM
I can't say I understand what point that you were trying to make, but I can say for certain that not all people react in the above generality.  I am an INTP, it's not in my personality makeup to reject new data lightly, nor to take much stock in the opinions of others.

Do not take this as an ad hominem - just think about it before you have the 'automatic' (emotional) response - but what kind of a personality "does not take much stock in the opinions of others"? A trusting or distrusting one?

Pretending that we do not use emotions, in addition to data/logic/facts when making decisions, is, in my view, deadly.

At the core of who we are, we're driven by our emotions as well as reason. What is the incentive for my dad, who is 64, and never interacted with computers his entire life nor does he intend to, to trust BitCoin over the dollars in his pocket? It will definitely not be an in-depth analysis of BitCoin. It will be my word or other people or authority he trusts to make the decision.

Does your personality get an MD degree before you go to a doctor because you do not take much stock in the doctor's opinion?

Either you are playing devil's advocate here, or perhaps you are very young .... Again, not to berate you, but I am a little surprised you do not see the point.





Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 04, 2011, 12:00:06 AM
Suggester has been wrong for 18 months, why should we believe anything will change?

Just a reminder of how "wrong" I've been for 18 months:
http://s2.postimage.org/249eg65t0/price.jpg (http://postimage.org/image/249eg65t0/)

Doesn't look like perpetual deflation. Doesn't look like a crazy horse. Doesn't look like a speculators' den. Doesn't look like a nerve-wrecker with each single transaction. No, It's a perfectly sensible stable currency with a promising future.

So you are heavily invested and quite wealthy from all your gains then? If you predicted this so perfectly why haven't you profited, altruism?

What happens next sooth-sayer?


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 04, 2011, 12:22:38 AM
I can't say I understand what point that you were trying to make, but I can say for certain that not all people react in the above generality.  I am an INTP, it's not in my personality makeup to reject new data lightly, nor to take much stock in the opinions of others.

Do not take this as an ad hominem - just think about it before you have the 'automatic' (emotional) response - but what kind of a personality "does not take much stock in the opinions of others"? A trusting or distrusting one?

Pretending that we do not use emotions, in addition to data/logic/facts when making decisions, is, in my view, deadly.


If it were a matter of pretending, I would agree.  I did not have any emotional attactment to Bitcoin or it's success when I learned about it.  I had no opinion about it until I understood it.  But once I understood it, I had an opinion. 

Quote

At the core of who we are, we're driven by our emotions as well as reason.


Do you understand what I am referring to when I say I'm an INTP?  I'm just about an unemotional in my decision making processes as is likely possible.  I am not driven by emotion, it has taken me decades just to fake it well.

Quote
What is the incentive for my dad, who is 64, and never interacted with computers his entire life nor does he intend to, to trust BitCoin over the dollars in his pocket? It will definitely not be an in-depth analysis of BitCoin. It will be my word or other people or authority he trusts to make the decision.


This is likely true for most people, but by this point he will be using Bitcoin because that's what other people trust, not because he trusts what other people say.

Quote

Does your personality get an MD degree before you go to a doctor because you do not take much stock in the doctor's opinion?


Sans the license to practice, almost a yes.

Quote

Either you are playing devil's advocate here, or perhaps you are very young .... Again, not to berate you, but I am a little surprised you do not see the point.


I am neither playing, nor am I particularly young.  Do you regularly see those who hold opinions other than your own to be inmature or inexperienced in your own mind?  If your point was that emotion plays a a role in how people view Bitcoin, I think you were being too vague, but I still would say, so what?  The vast majority of people don't understand how fiat currency works, and don't care.  They only know that everyone else uses it.  Bitcoin takes over as those who care to know, switch; and are followed by those who don't care to know.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 04, 2011, 01:14:40 AM
Do you understand what I am referring to when I say I'm an INTP?  I'm just about an unemotional in my decision making processes as is likely possible.  I am not driven by emotion, it has taken me decades just to fake it well.

Wow... I am impressed .... You remind me of Mr. Data from Star Trek, cold, unemotional, calculating and driven.... by the love of the BitCoin!

I wish you the best of luck in your pursuit.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Anonymous on June 04, 2011, 01:37:13 AM
Creighto, the whole Jung personality game is just as notable and credible as astrology. I hope you know that.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 04, 2011, 03:13:36 AM
Creighto, the whole Jung personality game is just as notable and credible as astrology. I hope you know that.

Carl Gustav Jung also said "The most terrifying thing is to accept oneself completely".... I hope he knows that one too.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Anonymous on June 04, 2011, 03:15:12 AM
Creighto, the whole Jung personality game is just as notable and credible as astrology. I hope you know that.

Carl Gustav Jung also said "The most terrifying thing is to accept oneself completely".... I hope he knows that one too.
I like Jung now. A never-ending curiosity for oneself and others can prove to be quite a virtue. Actually, it's a foundation most relationships lack. One should not neglect it in the relationship with oneself.

Good food for thought.


Title: Re: The current Bitcoin economic model doesn't work
Post by: AaronM on June 04, 2011, 03:38:33 AM
I voted no, for a few reasons.

1. The current model is not flawed.  There is nothing wrong with price deflation, since if you need to buy things, you need to buy them instead of hoarding all of your bitcoin.  Bitcoin is unlike a Ponzi scheme in that the _true_ non-bubble price of a Bitcoin won't go to zero if the cryptography underlying Bitcoin is sound.  There always be someone interested in taking your Bitcoins.

Of course, the best defense against a price drop (even in the face of the "doomsday scenario" of the government shutting down all exchanges) is a healthy exchange of bitcoins for real goods and services, not just other currency.

2. Even if it was mildly flawed, there should never be a precedent of changing the rules.  If the rules change, the result should not be called "Bitcoin".


Title: Re: The current Bitcoin economic model doesn't work
Post by: AaronM on June 04, 2011, 03:43:11 AM
I'd also like to refute the whole "OMG early adopters are making a fortune!" argument: for an early adopter to maximize their profits from hoarding while the price rises, they would have to never lose faith in Bitcoin.  As soon as they do, they sell, and then they're at the same level as newcomers.


Title: Re: The current Bitcoin economic model doesn't work
Post by: bitcool on June 04, 2011, 04:36:00 AM
If you have a better economic model, why bother messing with the existing bitcoin? As it has been said many times: create your own block chain.

In all seriousness, this is not just a shut-you-up one liner. For the first time in history, people can actually experiment with different monetary economic models. Back in history, when people chose seashell, metals or paper as money, most of the money characteristics was pretty much set by nature, or the nature of government. They didn't have the luxury defining the characters of their money and then enforcing it via electronic circuitry.

Now with this concept of cryptocurrency, money systems based on different models can co-exist: inflacoin, deflacoin, constcoin. People have options to choose whatever they like the most. It will be interesting to see how Gresham's law (http://en.wikipedia.org/wiki/Gresham's_law) works in this environment.

One possible outcome is there will be no clear winner, or, winner/loser change over time. At a time like we are living now, after decades of inflationary monetary  policy worldwide, I would guess deflacoin, aka bitcoin, has more appeal to (more and more) people.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BalkanBoy on June 04, 2011, 07:35:30 AM
Beautifully said. It sounds to me like you are powerfully related to other people. As a result of being powerfully related to your fellow human beings - whether through therapy, healing of trauma, faith or all of the above- you got to know who you are.  That's something that a BitCoin can't buy.... and one can be only transformed into such a human being... by a certain higher power which most people do not beleive exists.

I wish more people were like you. The good does indeed survive!

I like Jung now. A never-ending curiosity for oneself and others can prove to be quite a virtue. Actually, it's a foundation most relationships lack. One should not neglect it in the relationship with oneself.

Good food for thought.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 04, 2011, 08:52:04 AM
If you have a better economic model, why bother messing with the existing bitcoin? As it has been said many times: create your own block chain.

In all seriousness, this is not just a shut-you-up one liner. For the first time in history, people can actually experiment with different monetary economic models. Back in history, when people chose seashell, metals or paper as money, most of the money characteristics was pretty much set by nature, or the nature of government. They didn't have the luxury defining the characters of their money and then enforcing it via electronic circuitry.

I join this.

I think it is very important and quite interesting that we experiment to find the best workin currency model (or perhaps find some ways to improve current model).
Maybe it would be beneficial for BTC users for 2, 3 or more separate systems to exist simultaneously.

Although this should be done through a fork, not forcing changes on the current chain. The market will decide the rest. If there really is a demand for "StuffCoin", "Inflatacoin", "SuperDeflataCoin" etc, then market will preserve them and they will live their own lives.

So Suggester: please go start your own chain. Seriously.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Marxian on June 04, 2011, 01:36:42 PM
There are three aspects that the current Bitcoin system and Suggester's solution share and which you wouldn't like to have in a currency:

1. A Bitcoin's current value is determined by the currently socially necessary labour time to produce one bitcoin.
This means that Bitcoin is a digital currency money (https://secure.wikimedia.org/wikipedia/en/wiki/Currency_money). In the current model the value changes by 19% p.a. on average. But Suggester's model shares the same flaw. Although Bitcoin would not be deflationary anymore, the value still depends on commodities like hardware and electricity. Money can't be created as needed, but has to be produced with commodities. This implies …

2. Money supply is severely restricted.
Bitcoin is only a Ponzi/pyramid scheme without any use besides speculation. You cannot create money as it is needed. There would be no banks, no credits, no interest rates. This system can never work in a growing capitalist economy. It can't measure the value of the produced goods because there can never be enough Bitcoins.

3. A huge part of the economy serves only the mining of Bitcoins.
Since Bitcoins are produced only with electricity and computing, a great part of capital (means of production and labour) has to be expended on the production of the society's money. This is economically and ecologically insane, to put it politely! Even under Suggester's model an economy could only grow as the Bitcoin mining industry grows. Just imagine nearly every worker working for an electricity/Bitcoin mining company. This industry would invest all its profits in Bitcoin mining and draw capital from all other industries. Soon there would not be any other industry than Bitcoin mining and related industries.

All these fundamental problems exist in both the current model and Suggester's model. That's why I suggest to drop this Bitcoin Ponzi scheme altogether.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 04, 2011, 05:18:44 PM
It can't measure the value of the produced goods because there can never be enough Bitcoins.

You can't measure the value of produced goods period.

Quote
1. Keeps rising forever, then it's a Ponzi scheme which will collapse at some point.

Gold is a perpetually deflationary currency. When is that going to collapse down to it's industrial use value?


Title: Re: The current Bitcoin economic model doesn't work
Post by: AaronM on June 04, 2011, 05:49:31 PM
There are three aspects that the current Bitcoin system and Suggester's solution share and which you wouldn't like to have in a currency:

1. A Bitcoin's current value is determined by the currently socially necessary labour time to produce one bitcoin.
You have it backwards. The time to mine one bitcoin is determined by the difficulty level, and the difficulty level is approximately determined by 1) the value of Bitcoins, 2) the number of Bitcoin users, and 3) the level of "mining enthusiasm".

The value of one bitcoin is determined by people's beliefs in what goods and services they can get for that bitcoin in the future.

Quote
2. Money supply is severely restricted.
Bitcoin is only a Ponzi/pyramid scheme without any use besides speculation. You cannot create money as it is needed. There would be no banks, no credits, no interest rates. This system can never work in a growing capitalist economy. It can't measure the value of the produced goods because there can never be enough Bitcoins.

How can you be sure there's enough USD or Euros?  If central banks determine there's not "enough" of their currency, they issue more and the value of each one is diluted -- inflation. (http://en.wikipedia.org/wiki/Inflation)

Credit is entirely possible, as are banks.  You don't need a fiat currency for those.  We had both credit and banks when currencies were backed by precious metals.

Here is my litmus test for Bitcoin: are Bitcoins being exchanged for real goods and services (not mining paraphernalia)? If so, then it's not a Ponzi/Pyramid scheme.


Quote
3. A huge part of the economy serves only the mining of Bitcoins.
Since Bitcoins are produced only with electricity and computing, a great part of capital (means of production and labour) has to be expended on the production of the society's money. This is economically and ecologically insane, to put it politely! Even under Suggester's model an economy could only grow as the Bitcoin mining industry grows. Just imagine nearly every worker working for an electricity/Bitcoin mining company. This industry would invest all its profits in Bitcoin mining and draw capital from all other industries. Soon there would not be any other industry than Bitcoin mining and related industries. [...]

I think you greatly over-estimate the need for mining.  It seems to me that most of the mining going on is driven by enthusiasm, and is happening at a loss.  When the enthusiasm passes, the only mining will be done by people making a profit, and so there will be much more real economic activity in proportion to mining activity.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Marxian on June 04, 2011, 07:51:39 PM
You can't measure the value of produced goods period.
Well, then Bitcoin is completely useless. How would I buy anything if the money does not measure the value of goods? Measuring value is one of the functions of money.
Gold is a perpetually deflationary currency. When is that going to collapse down to it's industrial use value?
Gold is neither a currency nor is it deflationary. According to this chart (http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm) it seems inflationary and volatile. The peak price of 1980 was $2251 in 2010 dollars. Today the gold price is $1533 in 2011 dollars. The price will drop as mining gets improved and new deposits are discovered. There is no way back. Mining technology constantly improves and the amount of mined gold grows.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Davis5 on June 04, 2011, 08:04:19 PM
Hi all,

I've only just heard about Bitcoin last week, and have been reading through this thread today.

It's funny to see Suggester's predictions from a year and a half ago come true, and it's going to be even funnier to see when a couple of people decide to cash out, then investors see the price drop a bit, then everyone decides to get out while they can and then entire system implodes...  :)

I thought about getting some Bitcoins a couple of days ago to start playing with them as I was interested in the concept, but after seeing how volatile they are and watching them go up 70% in the last 4 days, I wouldn't touch them with a ten foot pole, because the chances are that they'll go down 70% by next week, or more likely drop way past whatever their "true" value is, but who knows what that is at the moment.

Good luck guys. For those with a lot of coins, I hope you get out before the crash...


Title: Re: The current Bitcoin economic model doesn't work
Post by: Marxian on June 04, 2011, 08:20:29 PM
You have it backwards. The time to mine one bitcoin is determined by the difficulty level, and the difficulty level is approximately determined by 1) the value of Bitcoins, 2) the number of Bitcoin users, and 3) the level of "mining enthusiasm".
The value of a bitcoin is the value of the means of production (hardware, network connection) that is transferred to the bitcoin + the value of the used electricity + the value of the necessary labour (some people must be paid to manage the servers etc.). With this formula you can calculate the value (in dollars, euros, …) of a coin which is produced today. Speculation makes the price fluctuate around this value.
Quote
How can you be sure there's enough USD or Euros?  If central banks determine there's not "enough" of their currency, they issue more and the value of each one is diluted
Not necessarily. If the value of the issued money equals the newly produced value, the value of one unit of money does not change. I don't want to defend our banking system. I only say that Bitcoin can't succeed in achieving a constant value of money (Bitcoin is deflationary) because with Bitcoin nobody can create money when needed.
Quote
Credit is entirely possible, as are banks.
Can you explain how? You need to create money "out of nothing" to grant a loan. In fact, debt is the source of money. Otherwise a bank could only give the money it has and only give it once. That would be pointless.

Quote
I think you greatly over-estimate the need for mining.  It seems to me that most of the mining going on is driven by enthusiasm, and is happening at a loss.  When the enthusiasm passes, the only mining will be done by people making a profit, and so there will be much more real economic activity in proportion to mining activity.
It's not my estimate. It is estimated that mining will continue until 2033. All Bitcoin owners (and thus the miners) definitely don't loose because of the annual increase in value of 19%. If the Bitcoin community grows this rate is even much bigger. Mining will continue as long as there are Bitcoins to mine or until the big crash comes.


Title: Re: The current Bitcoin economic model doesn't work
Post by: wareen on June 04, 2011, 08:35:10 PM
I thought about getting some Bitcoins a couple of days ago to start playing with them as I was interested in the concept, but after seeing how volatile they are and watching them go up 70% in the last 4 days, I wouldn't touch them with a ten foot pole, because the chances are that they'll go down 70% by next week, or more likely drop way past whatever their "true" value is, but who knows what that is at the moment.
Of course Bitcoins are experimental and rather new - if you are looking for some low-risk investment then look elsewhere. On the other hand, most people seem to expect Bitcoin to either be hugely successful or fail completely. In the latter case the "real value" will eventually be zero of course but in the former, it is greatly undervalued right now.

If you think Bitcoin is worth at least something in the long run, then investing a bit in them is probably a good idea - even if you think the current price is too high.


Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 04, 2011, 09:00:16 PM
Quote
Credit is entirely possible, as are banks.
Can you explain how? You need to create money "out of nothing" to grant a loan. In fact, debt is the source of money. Otherwise a bank could only give the money it has and only give it once. That would be pointless.

No, you don't need to create new money to make a loan.  You can loan money that you already have.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 04, 2011, 09:08:04 PM
Isn't every bitcoin bought a bitcoin sold?  (Except for the minute 50 btc / 10 minutes added to the system?)  Monthly turnover of bitcoin in existence is more than 5x that of gold in existence, and thats only at the major exchange - excluding trades for goods/services.  Can that be called hoarding or fluid exchange?  And maybe it is not popular in all the nations of the world - but some still prefer in having a surplus instead of a deficit and working towards a reserve (saving, hoarding or what else you would like to call that) instead of a shortage (bankruptcy, hunger, devastation, or what else you would like to call that).  Haven't some nations funded other nations inflation (/shortage) by foreign direct investment in the currency because some currencies were believed to be world currencies?  If that trend should reverse - wouldn't it mean devastation (even to a lesser degree for some of the former foreign direct investor countries as well)?


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 04, 2011, 09:09:46 PM
You can't measure the value of produced goods period.
Well, then Bitcoin is completely useless. How would I buy anything if the money does not measure the value of goods? Measuring value is one of the functions of money.

Then so are US Dollars. Somehow they are still useful for exchange. By definition the value of a good is more than the dollars I exchange for them, otherwise I wouldn't exchange them. How much more is it valued? No one knows, because we can't measure that through action.

Quote
Gold is a perpetually deflationary currency. When is that going to collapse down to it's industrial use value?
Gold is neither a currency nor is it deflationary. According to this chart (http://www.inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm) it seems inflationary and volatile. The peak price of 1980 was $2251 in 2010 dollars. Today the gold price is $1533 in 2011 dollars. The price will drop as mining gets improved and new deposits are discovered. There is no way back. Mining technology constantly improves and the amount of mined gold grows.

LOL, as if the fluctuations of the price of gold in USD is a reflection the inflation or deflation of Gold and not the USD at the end of the 1970's. Also LOL using a peak in the data as your basis for inflation. Tell me, Has global warming also stopped since 1998?

Edit: There is no definition of deflationary that you can use that will make gold inflationary and Bitcoin deflationary (just in case you were going to try to use the real definition of deflation e.g. a decrease in the money supply)


Title: Re: The current Bitcoin economic model doesn't work
Post by: Davis5 on June 04, 2011, 09:17:55 PM
Quote
if you are looking for some low-risk investment then look elsewhere

Who mentioned anything about Bitcoins being an investment. I want to use them for what they are meant to be used for, an alternative to mainstream fiat currencies with which to buy and sell goods and services. No one is going to be doing that until things settle down, be that with Bitcoins being worth $0.20 or $200, or who knows where.

Sure, currencies can be used as an investment tool, but that's not their primary purpose. Today their value gone up 20%. Seriously. How can you use something like that trade. If you owe someone the equivalent of US$100 in the morning, by the afternoon you owe them US$120.

I'll come back whenever things have settled down and buy in at US$0.20 a Bitcoin or US$200 a Bitcoin, I won't care which, it's just a number. As long as it's worth roughly the same amount a week later I'll be happy.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 04, 2011, 09:36:07 PM
Who mentioned anything about Bitcoins being an investment. I want to use them for what they are meant to be used for, an alternative to mainstream fiat currencies with which to buy and sell goods and services. No one is going to be doing that until things settle down, be that with Bitcoins being worth $0.20 or $200, or who knows where.

As long as a merchant converts on the fly to his currency of supply - he is not exposed to the markets.


Sure, currencies can be used as an investment tool, but that's not their primary purpose. Today their value gone up 20%. Seriously. How can you use something like that trade. If you owe someone the equivalent of US$100 in the morning, by the afternoon you owe them US$120.

If bitcoin is a rapidly appreciating asset, can you not afford to lend your bitcoin for currency at negative rates in exchange for currency?  In other words, if you expect a 10% appreciation in bitcoin's value over the loan/exchange (to be exchanged back after a certain period) term against some currency, wouldn't it still be worth your while to lend it out at -5% bitcoin interest, and still get a real return expressed in the currency that you gauge the appreciation of bitcoin against?


I'll come back whenever things have settled down and buy in at US$0.20 a Bitcoin or US$200 a Bitcoin, I won't care which, it's just a number. As long as it's worth roughly the same amount a week later I'll be happy.

Because bitcoin's supply is fairly fixed, it becomes a demand side balance act.  As long as demand is increasing or goods/services/other is offered for exchange with bitcoin, bitcoin will show greater value in the equation.  If demand is decreasing or goods/services/other available for exchange with bitcoin is decreasing, bitcoin will show a decrease in value in the equation.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 04, 2011, 09:37:20 PM
Quote
if you are looking for some low-risk investment then look elsewhere

Who mentioned anything about Bitcoins being an investment. I want to use them for what they are meant to be used for, an alternative to mainstream fiat currencies with which to buy and sell goods and services. No one is going to be doing that until things settle down, be that with Bitcoins being worth $0.20 or $200, or who knows where.

An ecommerce site can simply peg their fiat currency prices into a script that uses the 24 hour volume weighted average price from bitcoinwatch.com, and the script update the bitcoin prices each morning.  Yes, the exchange prices are very volitile as of late, but they were between 5 and 7 cents for months at one point.  The bitcoin rallies go in fits, this one will level off like the rest.

Quote
Sure, currencies can be used as an investment tool, but that's not their primary purpose. Today their value gone up 20%. Seriously. How can you use something like that trade. If you owe someone the equivalent of US$100 in the morning, by the afternoon you owe them US$120.

You can't really owe anyone anything in Bitcoin yet.  There is no credit system.  You pay the price when you order it, just like you would if you were ordering from anywhere else; using paypal or a credit card.  If the price changes before the product arrives, that is neither your problem nor your gain.  The bitcoins are in the possession of the vendor within an hour, and they can choose to sell them on the exchanges immediately if they wish.

Quote
I'll come back whenever things have settled down and buy in at US$0.20 a Bitcoin or US$200 a Bitcoin, I won't care which, it's just a number. As long as it's worth roughly the same amount a week later I'll be happy.


If we ever see 20 cents again, the system has failed.  I predict that it'll settle down soon around $25 per, and stay between $20- and $30 for a couple months before it shoots to $100 in the fall or winter.

We shall see how good I am at this.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 04, 2011, 09:47:33 PM
Isn't every bitcoin bought a bitcoin sold?  (Except for the minute 50 btc / 10 minutes added to the system?)  

Yes, for every successful trade the must be, by defintion, a seller and a buyer.  This is true whether the bitcoin is being traded for US $, Euros, carrots or alpaca socks.  Even the block reward can honestly be considered a trade, of sorts, as there is a definable amount of hashing power (or electricity if you prefer) that had to have been contributed to the security of the system for that block to have been found.  From a certain perspective, all 21 M bitcoin can be considered to exist, it's just going to take some time for the algorithim to pay it out in trade for calculations.

There is no free lunch in bitcoin, not even for the miners.  Every transaction and reward in bitcoin represents value in motion; otherwise it wouldn't move.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 05, 2011, 12:24:01 AM
1. A Bitcoin's current value is determined by the currently socially necessary labour time to produce one bitcoin.
This means that Bitcoin is a digital currency money (https://secure.wikimedia.org/wikipedia/en/wiki/Currency_money). In the current model the value changes by 19% p.a. on average. But Suggester's model shares the same flaw. Although Bitcoin would not be deflationary anymore, the value still depends on commodities like hardware and electricity. Money can't be created as needed, but has to be produced with commodities. This implies …
There's no problem with money being created with commodities. After all, milk is created with cows and grain is created with other grain and fertilizers. On the contrary, the problem occurs when we don't have a stable anchor to which we can tie our money to. Central banks use government powers including interest rates and money supply for that purpose, but what does Bitcoin use? That's right, mainly electricity. I'm simply proposing holding the amount of required electricity to generate X amount of coins constant.

2. Money supply is severely restricted.
Bitcoin is only a Ponzi/pyramid scheme without any use besides speculation. You cannot create money as it is needed. There would be no banks, no credits, no interest rates. This system can never work in a growing capitalist economy. It can't measure the value of the produced goods because there can never be enough Bitcoins.
That's not in my proposed system. In my proposed system your money doesn't gain value over time (nor does it lose value, for that matter). Therefore you have no reason to hoard nor a reason to squander. You'll just spend as you normally see fit without worrying the money's value will jump up and down in a crazy unpredictable manner.

3. A huge part of the economy serves only the mining of Bitcoins.
Since Bitcoins are produced only with electricity and computing, a great part of capital (means of production and labour) has to be expended on the production of the society's money. This is economically and ecologically insane, to put it politely! Even under Suggester's model an economy could only grow as the Bitcoin mining industry grows. Just imagine nearly every worker working for an electricity/Bitcoin mining company. This industry would invest all its profits in Bitcoin mining and draw capital from all other industries. Soon there would not be any other industry than Bitcoin mining and related industries.
That's exactly the beauty of my proposal: The amount of money produced actually depends on the amount of electricity sacrificed. Under the current system, the same bitcoin created a year ago costing a couple of cents is the same bitcoin produced today costing (tens of dollars?). That's insane. It doesn't make any sense. And it causes the price graph to appear like you saw in my first post because that same one bitcoin progressively gets more expensive to produce. As far as the ecological and global effect is concerned, I think you're overestimating its impact. You're better off banning video games for that matter.

All these fundamental problems exist in both the current model and Suggester's model. That's why I suggest to drop this Bitcoin Ponzi scheme altogether.

Although I disagreed with your ideas I feel obliged to congratulate you. Believe it or not, you're just about the first person in this thread to actually try coming up with counter arguments instead of crying Burn him at the stake!


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 05, 2011, 12:38:42 AM

Fixing bitcoin to electricity prices would create the unnecessary tension of supply/demand of electricity mismatch with supply/demand for unregulated free currency. You would waste untold energy fighting two vastly different markets. Suggestercoin credits that could always be redeemed for a fixed quantity of kW.hr electricity are a viable market option but only if trade freely with bitcoin.

You could use the Open Transaction platform to issue Suggestercoin electric credits yourself. People could trade in a truly anonymous exchange then. But how would you guarantee that they could be redeemed for electricity?

https://github.com/FellowTraveler/Open-Transactions/wiki

https://github.com/FellowTraveler/Moneychanger/wiki



Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 01:25:04 AM
2. Money supply is severely restricted.
Bitcoin is only a Ponzi/pyramid scheme without any use besides speculation. You cannot create money as it is needed. There would be no banks, no credits, no interest rates. This system can never work in a growing capitalist economy. It can't measure the value of the produced goods because there can never be enough Bitcoins.

How would you define a Ponzi/pyramid scheme?

If counter trade for Bitcoins is Q = goods/services/other available for countertrade with Bitcoins,

and Number of Bitcoins in existence is M = number of Bitcoins in existence

and the velocity with which Bitcoins in existence M is traded for Q = V

and the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins = P (with increase/decrease in P giving the systems inflation/deflation)

then in accordance with the equation of exchange ( http://en.wikipedia.org/wiki/Equation_of_exchange ), this equation needs to be satisfied in all instances:

M x V = P x Q

Thus, for inflation/deflation benchmark level P = M x V / Q,

and approximated to:

%Pchange = (%Mchange) + (%Vchange) - (%Qchange)

so if %Mchange is fairly constant or very close to zero (only 50btc generated every 10 minutes)  -> take as 0%
and assume %Vchange remains constant (liquidity remains unchanged) not to complicate matters in this relationship  -> take as 0%

what remains of the above equation of exchange in relation to %change is:

%Pchange = -(%Qchange)

The above is telling us that there are an inverse relationship between %Pchange and %Qchange
This means that if Q (goods/services/other offered for exchange with bitcoins) increases drastically, there is a resulting equally drastic decrease in P.

If %Pchange is a very large negative number (or in other words P is decreasing drastically, or in other words the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins is decreasing drastically) you have deflation of the system.

If %Pchange is a very large positive number (or in other words P is increasing drastically, or in other words the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins is rising drastically) you have inflation of the system.

So if you want to have inflation or stabilization of the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins, you will need to decrease or stop/stabilize any new goods/services/other available for exchange with Bitcoins.

That's the equation of exchange.


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 05, 2011, 09:48:37 AM
How would you define a Ponzi/pyramid scheme?

If counter trade for Bitcoins is Q = goods/services/other available for countertrade with Bitcoins,

and Number of Bitcoins in existence is M = number of Bitcoins in existence

and the velocity with which Bitcoins in existence M is traded for Q = V

and the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins = P (with increase/decrease in P giving the systems inflation/deflation)

then in accordance with the equation of exchange ( http://en.wikipedia.org/wiki/Equation_of_exchange ), this equation needs to be satisfied in all instances:

M x V = P x Q

Thus, for inflation/deflation benchmark level P = M x V / Q,

and approximated to:

%Pchange = (%Mchange) + (%Vchange) - (%Qchange)

so if %Mchange is fairly constant or very close to zero (only 50btc generated every 10 minutes)  -> take as 0%
and assume %Vchange remains constant (liquidity remains unchanged) not to complicate matters in this relationship  -> take as 0%

what remains of the above equation of exchange in relation to %change is:

%Pchange = -(%Qchange)

The above is telling us that there are an inverse relationship between %Pchange and %Qchange
This means that if Q (goods/services/other offered for exchange with bitcoins) increases drastically, there is a resulting equally drastic decrease in P.

If %Pchange is a very large negative number (or in other words P is decreasing drastically, or in other words the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins is decreasing drastically) you have deflation of the system.

If %Pchange is a very large positive number (or in other words P is increasing drastically, or in other words the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins is rising drastically) you have inflation of the system.

So if you want to have inflation or stabilization of the benchmark level giving a ratio of all goods/services/other's system valuation in relation to Bitcoins, you will need to decrease or stop/stabilize any new goods/services/other available for exchange with Bitcoins.

That's the equation of exchange.

Very good! Someone else knows about the equation of exchange! You might want to take a look at my post regarding this:
http://forum.bitcoin.org/index.php?topic=11627.msg167838#msg167838 (http://forum.bitcoin.org/index.php?topic=11627.msg167838#msg167838)

The equation of exchange, as you state it (MxV = PxQ) is not a real identity though. Only the classical form of the equation of exchange (MxV = PxT) is a real identity, meaning it always has to be fulfilled. T is the number of transactions that took place in a certain period. This number is hard to estimate with a "classical" currency, that's the reason for substituting T with Q, but this is only a crude approximation.

I think with bitcoins though, you can now calculate the number of transactions exactly from the previous solved block. Please correct me if i'm wrong about this.

The result you derive from the equation of exchange is also correct, but it is impractical, since noone can control the number of transactions/number of goods available for bitcoins. I derive a different result:

Given P = M x V / T

under the assumption that V = constant (a pretty good approximation to reality, otherwise, maybe this can also be calculated from a solved block, can someone please comment on this?)

the money supply needs to increase and decrease with the number of transactions that take place in a certain period, to guarantee a stable price level.

Since the difficulty at which blocks are solved is already being changed dynamically, i think it's not hard to also change the number of bitcoins that are created per block, dynamically. If it is possible to calculate the number of transactions and the velocity of money from a solved block exactly, then there is the possibility to have the first currency being completely free of inflation and deflation, in other words being absolutely stable in value.

I am looking for people willing to create a possible bitcoin alternative with a stable value. Please PM me.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 05, 2011, 09:55:24 AM
Quote
completely free of inflation and deflation, in other words being absolutely stable in value.

w.r.t. what exactly?


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 05, 2011, 11:18:06 AM
Quote
completely free of inflation and deflation, in other words being absolutely stable in value.

w.r.t. what exactly?

Thank you for your reply, this is a very good question. It is difficult to give an answer to this, but i'll try.

Short answer 1:
It would be absolutely stable in value in comparison to the theoretically optimal value standard. So find me a good that's absolutely stable in value, w.r.t. that good it would be stable in value. This good does not exist, but gold was used as a value standard when currencies were linked to it, it can be considered a good that is fairly stable in value. So, if you really want a good it would be stable to in comparison, it would be gold, approximately.

Short answer 2:
Since you adjust the money supply to the demand dynamically, supply and demand will always be in balance, so simple economics tell it will always have the same value. "w.r.t. what exactly" is the wrong question in this context, since all other goods will now be measured in this new currency/value standard, instead of the other way round.


Long answer:
During the gold standard, gold was the value standard and money was the medium of exchange. Central banks gave the guarantee, that everyone can, at any time, exchange his currency holdings into gold. This guaranteed that the value of money was linked to the value of gold, that's why gold is called "value standard" here.
Suppose that the central bank overestimated money demand and increased money supply too much. People would then start to exchange currency into gold more, which would force the central bank to limit money supply to protect their gold holdings. If the central bank underestimated money supply people would start to exchange gold into currency, thus giving the central bank an indicator to increase money supply.

Since the gold standard does not exist anymore there is no value standard anymore. Instead, money is both medium of exchange and value standard in our current monetary system. Central banks try to keep the value of money stable by looking at the price level as an indicator for inflation, in other words, they try to stabilize the purchasing power of money, which is an approximation to the value of money, but not necessarily the same.

The central bank is not independent of the government in most political systems, so there is a conflict of interest: The government is usually the biggest debtor in an economy, so it has an incentive to devaluate its debt by starting inflation. Governments then usually try to hide inflation by changing the definitions of the cpi (the indicator for inflation), see e.g. http://www.wnd.com/?pageId=59409 (http://www.wnd.com/?pageId=59409) or google some more on this.


With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly. This would result in a currency that's a perfect value standard. Money supply can not be manipulated by governments, since it is coded into the system. Savors had more incentive to save, since their currency holdings would not be devaluated by inflation, giving more and cheaper capital for investments, giving the possibility of more economic growth.

I welcome everyone to work with me together to create an alternative crypto-currency, if the bitcoin community does not want to change its money supply system.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 11:44:56 AM
Very good! Someone else knows about the equation of exchange! You might want to take a look at my post regarding this:
http://forum.bitcoin.org/index.php?topic=11627.msg167838#msg167838 (http://forum.bitcoin.org/index.php?topic=11627.msg167838#msg167838)

The equation of exchange, as you state it (MxV = PxQ) is not a real identity though. Only the classical form of the equation of exchange (MxV = PxT) is a real identity, meaning it always has to be fulfilled. T is the number of transactions that took place in a certain period. This number is hard to estimate with a "classical" currency, that's the reason for substituting T with Q, but this is only a crude approximation.

Without the introduction of any assumptions, the Equation of Exchange is a tautology ( http://en.wikipedia.org/wiki/Tautology_%28logic%29 ) like it is stated in http://en.wikipedia.org/wiki/Equation_of_exchange . Equations always need to be fulfilled - that's why they are called equations!  On the left, (M=Total quantity of bitcoins in exchange) x (V=Total number of times the quantity of bitcoin in exchange is exchanged in a certain time period) should equal the right, (Q=Total quantity of goods/services/other exchanged for bitcoin in exchange in a certain time period) x (P = Value relationship between M and Q, giving rise to a rate of exchange, inflation/deflation in the rate of exchange)


Since the difficulty at which blocks are solved is already being changed dynamically, i think it's not hard to also change the number of bitcoins that are created per block, dynamically. If it is possible to calculate the number of transactions and the velocity of money from a solved block exactly, then there is the possibility to have the first currency being completely free of inflation and deflation, in other words being absolutely stable in value.

I am looking for people willing to create a possible bitcoin alternative with a stable value. Please PM me.

Is it equitable to have a system where you reward some arbitrarily issuer during deflationary periods with more bitcoins, and inversely punish subsequently all bitcoin holders by debasing their existing holding during inflationary periods?  Will you be able to withdraw bitcoins during an inflationary period to keep your M constant in your system? Are you only going to ask the arbitrary issuing parties from the deflationary period to return their bitcoins when an inflationary period arrives, or are you going to give to some in a deflationary period and take from all in an inflationary period? When goods/services/other offered for exchange with bitcoins decreases (inflationary bitcoin system) - all the holders of bitcoins will have to bear the brunt of the decrease in the value relationship (rate of exchange = P = Value relationship between bitcoin and goods/services/other available for exchange with bitcoin).  The holder of bitcoin makes the decision whether he would offer more bitcoin available for exchange, thus influencing M (M = bitcoins available for exchange).  Thus holders of bitcoins should be rewarded/punished as more or less goods/services/other are offered for exchange with bitcoins available for exchange.  Bitcoin already adjusts the Equation of Exchange dynamically - and does not reward some arbitrary issuer under deflationary circumstances - and punish all bitcoin holders under inflationary circumstances.  Coin generators are incentivised by network difficulty changes in combination with their reward (for securing the network) based on P (value relationship of bitcoin to other) to increase/decrease their share of supply to the network difficulty - bringing balance in network difficulty based on the Equation of Exchange's balanced P.  Every coin generator has another profitable decision point on this, depending on his cost/profit/future expectation structure.  Your system is doomed for failure - as it will reward a non-holding issuer (imagine that in the sense of company shares, I'm a holder of shares but someone else dilutes my value by issuing more shares not to us holders - but to himself!!) during deflationary periods and punish existing holders during inflationary periods (imagine that in the sense of company shares, now that the shares are less valued - the other person who is issuing shares in deflationary periods are not un-issuing shares now that we have an inflationary period and all holders of shares now get devalued shares!!)  Deflation/Inflation is necessary as a measurement of how much bitcoin is valued.  If you feel uncomfortable with deflation/inflation (of bitcoin, shares, pigs, gold, etc.), don't be a holder of them - if you still want to use them in trade - trade for them and minimize your risk by minimizing your exposure risk period by exchanging on the fly.  Ultimately the holder of bitcoin is taking the risk, and should be rewarded or punished by uptake or flight of exchangeable goods/services/other from the bitcoin system.

If you do not want to invest in Bitcoin by being a Bitcoin holder and having the subsequently reward/risk on your investment (free market capitalism),

but still want to use it as a medium of exchange and reduce your exposure to its reward/risk (deflation/inflation) - there is a simple solution - exchange it immediately after you received it in exchange, back to your medium of choice (on the fly, programmatically if you prefer).

With regards to hoarding - as long as people have needs and only other people can fulfill in that need and they have some medium of exchange, wouldn't they use that medium of exchange to fulfill in that need?  Isn't nearly 5x more bitcoin exchanged than gold due to its ease of exchange?

With regards to early adopters - wouldn't people adopting now, again be viewed as early adopters in a year as well?  If you valued something when no one else did, didn't you satisfied the equation of exchange at your time of adoption?  Again aren't you exposed to possible reward/risk (deflation/inflation) from your point of adoption?


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 01:02:56 PM
alexk, how are you going to measure the demand for money?

Hint: its impossible.

Long answer:
During the gold standard, gold was the value standard and money was the medium of exchange. Central banks gave the guarantee, that everyone can, at any time, exchange his currency holdings into gold. This guaranteed that the value of money was linked to the value of gold, that's why gold is called "value standard" here.
Suppose that the central bank overestimated money demand and increased money supply too much. People would then start to exchange currency into gold more, which would force the central bank to limit money supply to protect their gold holdings. If the central bank underestimated money supply people would start to exchange gold into currency, thus giving the central bank an indicator to increase money supply.

Offtopic:

This is how central banks promised they would opperate, its not how they actually operated.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 01:23:20 PM
alexk, how are you going to measure the demand for money?

Hint: its impossible.

Doesn't Bitcoin automatically adjust the medium of exchange by fairly fixing the bitcoin supply (limiting the quantity of the medium of exchange but making it infinitely divisible - very similar to gold divisible down to the molecular/atom level), and making it nearly infinitely divisable, and rewarding/punishing a holder during deflation/inflation when tradeable goods,service,other increases/decreases in relation to tradeable bitcoins?  Isn't a balanced Equation of Exchange achieved without addition/removal of bitcoins, due to the above?  Is gold a physical accounting record and bitcoin a digital accounting record?


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 01:56:00 PM
alexk, how are you going to measure the demand for money?

Hint: its impossible.

Doesn't Bitcoin automatically adjust the medium of exchange by fairly fixing the bitcoin supply (limiting the quantity of the medium of exchange but making it infinitely divisible - very similar to gold divisible down to the molecular/atom level), and making it nearly infinitely divisable, and rewarding/punishing a holder during deflation/inflation when tradeable goods,service,other increases/decreases in relation to tradeable bitcoins?  Isn't a balanced Equation of Exchange achieved without addition/removal of bitcoins, due to the above?  Is gold a physical accounting record and bitcoin a digital accounting record?

Yes, but that was not the question. The question was: how do you mesure the demand for money?


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 05, 2011, 01:58:26 PM
Although I disagreed with your ideas I feel obliged to congratulate you. Believe it or not, you're just about the first person in this thread to actually try coming up with counter arguments instead of crying Burn him at the stake!

Says the guy who thought billionaires held all their assets in cash.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 03:44:59 PM
alexk, how are you going to measure the demand for money?

Hint: its impossible.

Doesn't Bitcoin automatically adjust the medium of exchange by fairly fixing the bitcoin supply (limiting the quantity of the medium of exchange but making it infinitely divisible - very similar to gold divisible down to the molecular/atom level), and making it nearly infinitely divisable, and rewarding/punishing a holder during deflation/inflation when tradeable goods,service,other increases/decreases in relation to tradeable bitcoins?  Isn't a balanced Equation of Exchange achieved without addition/removal of bitcoins, due to the above?  Is gold a physical accounting record and bitcoin a digital accounting record?

Yes, but that was not the question. The question was: how do you mesure the demand for money?

Note: see post above for explanation of Equation of Exchange symbols,

Doesn't the free market measure bitcoin's demand in %P, by finding a balance between bitcoin supply available for exchange (M), and goods/services/other available for exchange with demanded bitcoins (Q)?

Isn't MtGox' previous expired 24h (%Pchange)24h: BTC = 14.29 LRUS$ Open, BTC = 18.89LRUS$ Close, giving (%Pchange)24h-4Jun2011 = -32.1903% (smaller than zero value indicates deflation of bitcoin against LRUS$)?

Isn't current 24h %Mchange for total btc system 50 btc x 6 x 24 = 7,200 BTC divided by 6,439,500 BTC in existence ( http://bitcoinwatch.com/ ) = 0.1118% = (%Mchange)24h ?

so, if

M x V = P x Q

by approximation, (with % indicating percentage change in ... ),

%M + %V = %P + %Q

assume %V = 0% gives

%M = %P + %Q

%M - %P = %Q

to have %P = 0% (zero inflation / deflation):

(-%P + %M)representing %M in your system where %P=0% + (-%P +%P)representing %P in your system of %P=0% = %Q

reduces to,

(-%P + %M)representing %M in your system of %P=0% + (0%)representing %P in your system of %P=0% = %Q

%M's representation in your system where you would prefer %P=0%  will equate to (-%P + %M), so in order to have %P = 0, wouldn't you have to adjusted the number of bitcoins with a total of (-%P + %M) for a given %Q?

So for yesterday's %P of -32.1903% (smaller than zero value indicates bitcoin deflation against LRUS$), in a system of zero inflation/deflation against LRUS$ with %P set to 0%, wouldn't you have had to adjust the number of bitcoins by ((-32.1903%) + 0.1118%) = 32.0785% ?  Would you have issued 6,439,500 BTC x 32.0785 % = 2,065,695.0075 BTC to keep %P = 0% ? Who would issue it, and receive it to be exchanged for the given %Q?  If %P were positive (indicating inflation of bitcoin against LRUS$ on MtGox), from whom would you collect the bitcoins to destroy to keep %P = 0% for a given %Q?


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 04:00:33 PM
Yes, but that was not the question. The question was: how do you mesure the demand for money?
So for yesterday's %P of -32.1903% (smaller than zero value indicates bitcoin deflation against LRUS$)

Where are you getting this calculation from?

If I suspect correctly you are trying to keep the price of bitcoins nominally stable in dollars (I can not be sure until you tell me where you get that number). Why would you want to keep bitcoins nominally in line with the dollar? And more important, how does that answer my question?

PS: The M*V = P *Q equation is wrong, but I am accepting for the sake of argument.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 05:28:37 PM
Where are you getting this calculation from?

its in the message posted that you are commenting on:

Isn't MtGox' previous expired 24h (%Pchange)24h: BTC = 14.29 LRUS$ Open, BTC = 18.89LRUS$ Close, giving (%Pchange)24h-4Jun2011 = -32.1903% (smaller than zero value indicates deflation of bitcoin against LRUS$)?

-----

If I suspect correctly you are trying to keep the price of bitcoins nominally stable in dollars (I can not be sure until you tell me where you get that number). Why would you want to keep bitcoins nominally in line with the dollar? And more important, how does that answer my question?

it was a comment addressing this issue, and your comment on it being impossible to measure the demand for medium of exchange:

With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly. This would result in a currency that's a perfect value standard. Money supply can not be manipulated by governments, since it is coded into the system. Savors had more incentive to save, since their currency holdings would not be devaluated by inflation, giving more and cheaper capital for investments, giving the possibility of more economic growth.

I welcome everyone to work with me together to create an alternative crypto-currency, if the bitcoin community does not want to change its money supply system.

-----

PS: The M*V = P *Q equation is wrong, but I am accepting for the sake of argument.

Let's say in a village there are 100 eggs everyday on the market (M=100 eggs).  Chickens are traded the most on this market and is used as a medium of exchange.  Each of these eggs changes hands 2 times on average everyday (V=2 times/day).

On the entire village market, on day 1 and 2 only oranges are traded for eggs.

1:  On day 1, 50 oranges are traded for M1=100 eggs in the morning and in the afternoon all M1=100 eggs are traded for 50 apples.  Apples do not generally exchange easily for oranges directly normally in this market, as sometimes there are goats, chickens, cows, etc. as well - but we take a simple day for example.  Thus for day 1, Q1=[(50 oranges + 50 apples)].  Thus P1=[(50 oranges + 50 apples) per 100 eggs].  V1=2 times/day as eggs changed hands twice on this day.

2:  On day 2, 100 oranges are traded for M2=100 eggs in the morning and in the afternoon all M2=100 eggs are traded for 100 apples.  Another simple trading day taken as an example to simplify matters.  Thus for day 2, Q2 = (100 oranges + 100 apples) = [2 x (50 oranges + 50 apples)].  Thus P2=(100 oranges + 100 apples) per 100 eggs = [2 x (50 oranges + 50 apples) per 100 eggs].  V2=2 times/day as eggs changed hands twice on this day.

So, change from day 1 to day 2 is (%... indicates % change in ...):

%M = (M2 - M1) / M1 = {100 eggs - 100 eggs} / 100 eggs = 0%
%V = (V2 - V1) / V1 = {(2 times/day) - (2 times/day)} / {2 times/day} = 0%
-%P = (P2 - P1) / P1 = {[2 x (50 oranges + 50 apples) per 100 eggs] - [(50 oranges + 50 apples) per 100 eggs]} / {[(50 oranges + 50 apples) per 100 eggs]}
 %Q = (Q2 - Q1) / Q1 = {[2 x (50 oranges + 50 apples)] - [(50 oranges + 50 apples)]} / {[(50 oranges + 50 apples)]}

So if M x V = P x Q, and
%M + %V = %P + %Q, then

0% + 0% = -{[2 x (50 oranges + 50 apples) per 100 eggs] - [(50 oranges + 50 apples) per 100 eggs]} / {[(50 oranges + 50 apples) per 100 eggs]} + {[2 x (50 oranges + 50 apples)] - [(50 oranges + 50 apples)]} / {[(50 oranges + 50 apples)]}

Is this true? Simplifying for a = oranges, b = apples, c = eggs, gives:

0% = -{[2 x (50a + 50b) / 100c] - [(50a + 50b) / 100c]} / {[(50a + 50b) / 100c]} + {[2 x (50a + 50b)] - [50a + 50b]} / {[50a + 50b]}

or

{[2 x (50a + 50b) / 100c] - [(50a + 50b) / 100c]} / {[(50a + 50b) / 100c]} = {[2 x (50a + 50b)] - [50a + 50b]} / {[50a + 50b]}

simplifying,

{[(50a + 50b) / 100c]} / {[(50a + 50b) / 100c]} = {[50a + 50b]} / {[50a + 50b]}

simplifying,

1 = 1

resubstitute a = oranges, b = apples, c = eggs, if you like.  1 still remains 1.

So if you say 1 = 1 is wrong, I can't convince you otherwise.  You may complicate the example to test it for more complicated scenarios, but I tried to keep it simple.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BubbleBoy on June 05, 2011, 05:36:49 PM
With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly.

While it's easy to find a party willing to receive the proceeds of seigniorage, how do you propose to diminish the monetary base in inflationary times ? A tax perhaps, so that besides loosing value, the money you hold are automatically taxed by the system ? Basically, rewarding those responsible for inflation (debtors) and punishing savers ? I think this would quickly lead to an inflationary spiral where everybody wants to get out of that pesky currency that looses value by the minute.

The only way to achieve what you are proposing would be if the receivers of seigniorage are committed to defend the currency during inflation, by selling for bitcoins the assets bough during expansion. I think it's fair to say that will never happen, so the best we can hope is for a non-deflationary currency, that could lose value at any moment if the market decides to abandon it.

PS: I'd very weary of using the equation of exchange without fully understanding what's being exchanged: the "goods" are MtGox dollars, for which there's no intrinsic demand inside the Bitcoin economy, and the price index is purely artificial, driven by the speculation that someday the economy will exchange other things besides dollars.

PPS: what you are seeing in the block-chain is not the velocity of money, but rather an artifact of how the system operates. There's no basis to use that for macroeconomic purposes since it would be easy to manipulate the apparent velocity for example by moving my BTC 1.000.000 from one wallet to another, all day long. If you don't trust the goverment published CPI, the only valid estimator of inflation is the price in bitcoins of one alpaca sock.

PPPS: let's agree not to call the current Bitcoin block chain a ponzi scheme, because it enrages the locals and is not exactly true. It's a speculative mania, where everybody is holding the inflated asset and nobody is yet getting rich (because if they were, the price would crash). When it does finally pop we can call it a ponzi scheme where there will be widespread evidence of early 'investors' cashing out early at the expense of later ones.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 05:41:33 PM
PPPS: let's agree not to call the current Bitcoin block chain a ponzi scheme, because it enrages the locals and is not exactly true. It's a speculative mania, where everybody is holding the inflated asset and nobody is yet getting rich (because if they were, the price would crash). When it does finally pop we can call it a ponzi scheme where there will be widespread evidence of early 'investors' cashing out early at the expense of later ones.

Can we then call the housing bubble, the dot com bubble, the commodities bubble, and wall street crashes of 1928 and 1987, social security and public debt ponzi schemes as well?  Capitalist ponzi schemes? Doesn't some rate of exchange crash (suddenly inflates) because it was overvalued - and a sudden revaluation happens?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 05:52:18 PM
With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly.
PS: I'd very weary of using the equation of exchange without fully understanding what's being exchanged: the "goods" are MtGox dollars, for which there's no intrinsic demand inside the Bitcoin economy, and the price index is purely artificial, driven by the speculation that someday the economy will exchange other things besides dollars.

Would MtGox dollars be traded at all in the Bitcoin economy if there were no "intrinsic" demand for it?  Doesn't the equation of exchange apply to any definable ecosystem where exchange happens, also with regards to the rate of exchange discovery happening on MtGox between bitcoin and LRUS$?  Isn't the %P (change in rate of exchange discovery) reflected in most trades of goods/services/other offered in exchange for Bitcoin here https://en.bitcoin.it/wiki/Trade ?  Also total bitcoins exchanged in past 24h at MtGox is 23,417.37BTC.  Total bitcoins sent over bitcoin network in past 24h in total is 468,263.71 BTC.  Total bitcoins in existence is 6,440,750 BTC.  (Source http://www.bitcoinwatch.com/ )


Title: Re: The current Bitcoin economic model doesn't work
Post by: BubbleBoy on June 05, 2011, 05:59:04 PM
Quote
Can we then call the housing bubble, the dot com bubble, the commodities bubble, and wall street crashes of 1928 and 1987, social security and public debt ponzi schemes as well?

We could and in fact some people do. But as I've said, they are pushing the boundary of the definition. Going 'full ponzi' requires malicious intent and a clear setup where early depositors are sure to win and later ones are sure to loose.
When an asset bubble bursts the exists are random: it's perfectly possible for someone to go in at 15$/BTC, exit at 20$/BTC, and make a handsome profit, while someone who bought at 0.0005 will see all his imaginary wealth vanish because of bad timing. However there would be some amount of 'ponziing' going on (profiting on the expense of another), bubbles are zero sum by definition.
An example that comes to mind is Madoff's fund: you could sell at any time you wanted in profit, just like with Bitcoin, yet when it crashed people widely called it a ponzi scheme because of it's intent. In Bitcoin's case, I leave that to the reader.


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 06:06:26 PM
[quote author=cloud9 link=topic=57.msg171509#msg171509 date=1307294917it was a comment addressing this issue, and your comment on it being impossible to measure the demand for medium of exchange:

With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly. This would result in a currency that's a perfect value standard. Money supply can not be manipulated by governments, since it is coded into the system. Savors had more incentive to save, since their currency holdings would not be devaluated by inflation, giving more and cheaper capital for investments, giving the possibility of more economic growth.

I welcome everyone to work with me together to create an alternative crypto-currency, if the bitcoin community does not want to change its money supply system.
[/quote]

But you are not mesuring the demand for money (bitcoins), you are just keeping bitcoin nominally in line with dollars.

Again, how do you measure the demand for money?

PS: In the example you have eliminated the currency. The problem with that equation is that it does not take into account the changes in the valuation of the currency. But I dont want to discuss about the equation. I want you to answer how do you measure the demand for money.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 06:19:08 PM
Quote
Can we then call the housing bubble, the dot com bubble, the commodities bubble, and wall street crashes of 1928 and 1987, social security and public debt ponzi schemes as well?

We could and in fact some people do. But as I've said, they are pushing the boundary of the definition. Going 'full ponzi' requires malicious intent and a clear setup where early depositors are sure to win and later ones are sure to loose.
When an asset bubble bursts the exists are random: it's perfectly possible for someone to go in at 15$/BTC, exit at 20$/BTC, and make a handsome profit, while someone who bought at 0.0005 will see all his imaginary wealth vanish because of bad timing. However there would be some amount of 'ponziing' going on (profiting on the expense of another), bubbles are zero sum by definition.
An example that comes to mind is Madoff's fund: you could sell at any time you wanted in profit, just like with Bitcoin, yet when it crashed people widely called it a ponzi scheme because of it's intent. In Bitcoin's case, I leave that to the reader.
Don't you risk bitcoin becoming inflationary instead of deflationary, no matter at which stage you adopt to hold some of the bitcoins issued at that stage?  And isn't capitalism = profiting on the expense of the losing counter party?  Why are there a pyramid with the all-seeing eye on top of it on the 1US$ dollar bill - and written "In God we trust" next to it?  Didn't everything not add up in Madoff's case because you got fraudulent promises instead of the underlying investment you were promised and were under the impression that you are investing in?  Are you promised anything more than a right to a share of the bitcoins in existence when you opt to hold some bitcoins at a certain value of exchange?  When the value of exchange changes in your favor or against your favor don't you have a profit or a loss to show on the value of your share of issued bitcoins?  Wouldn't it be up to each individual to decide whether bitcoin's properties of enabling fluid exchange over vast or small distances quite instantly and securely warrant / does not warrant a risk for profit / loss to be taken?  If this bitcoin venture, or any capitalist business venture, turned out successful at the value of exchange where you convinced yourself to opt in and proved to be profitable, or if it proves not to be so due to unforeseeable / uncontrollable circumstances or future events - isn't the responsibility on yourself and your financial advisor (whom you reimburse for their services) to do a due diligence evaluation of your options, risk profile, what you can afford to loose, etc., etc.?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 06:26:52 PM
Again, how do you measure the demand for money?

A free market determines it by placing a premium on it (%P) negative (negative actually means better exchange value for the medium of exchange) or positive (poorer exchange value for the medium of exchange) against goods/services/other traded for it.  Rate of exchange discovery happens in the free market.

In the example I did not eliminate what you would call the currency - the currency, money, medium of exchange, pebbles, salt, gold, paper (call it what you like) was eggs!!!  Isn't the medium of exchange not the most commonly traded item in a definable system of exchange?

Or are you asking for a measurement of the supply of medium of exchange (money as you would call it) available for exchange for goods/services/other?


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 06:33:42 PM
Again, how do you measure the demand for money?

A free market determines it by placing a premium on it (%P) negative or positive against goods/services/other traded for it.  Rate of exchange discovery happens in the free market

And why are you deciding that the dollar is the only reference? And even if you include all the other currencies, how do you weight each currency?

You cant, but even if you did, you are not yet having a mesure of the demand for money, because the exchanges are not the only factor in the bitcoin economy creating demand for money.

Again, how do you measure the demand for money?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 06:51:46 PM
Again, how do you measure the demand for money?

A free market determines it by placing a premium on it (%P) negative or positive against goods/services/other traded for it.  Rate of exchange discovery happens in the free market

And why are you deciding that the dollar is the only reference? And even if you include all the other currencies, how do you weight each currency?

You cant, but even if you did, you are not yet having a mesure of the demand for money, because the exchanges are not the only factor in the bitcoin economy creating demand for money.

Again, how do you measure the demand for money?

If you are talking about medium of exchange / bitcoin (when you say money), you don't have to do it this way, but I would take average growth / decline of P (ratio of value of exchange between medium of exchange and goods/services/other traded for the medium of exchange) over a certain period.  All goods/services/other value exchange rate with bitcoin from merchants, as well as other rates of exchange for bitcoin and MtGox's LRUS$ exchange rate try to have parity with each other through arbitrage.  Due to significant bitcoin trade volumes, I just assume that MtGox LRUS$ rate will be on parity or will be parity over a certain time period (adjust the time period for growth / decline fit to your liking).

If there is a premium on %P (negative value indicates better value attributed to medium of exchange) then there is a demand for the medium of exchange and it is quantified by the magnitude of %P.  If there is discount on %P (positive value indicates poorer value attributed to medium of exchange) then there is a surplus in the medium of exchange and it is quantified by the magnitude of %P.


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 07:05:55 PM
If you are talking about medium of exchange / bitcoin (when you say money), you don't have to do it this way, but I would take average growth / decline of P (ratio of value of exchange between medium of exchange and goods/services/other traded for the medium of exchange) over a certain period.  All goods/services/other value exchange rate with bitcoin from merchants, as well as other rates of exchange for bitcoin and MtGox's LRUS$ exchange rate try to have parity with each other through arbitrage.  Due to significant bitcoin trade volumes, I just assume that MtGox LRUS$ rate will be on parity or will be parity over a certain time period (adjust the time period for growth / decline fit to your liking).

And there you go, you are just doing some nasty approximations, because you have no way of determining the demand for money (bitcoins). Specially calculating the rise in prices is an utopy. Your system would probably do more harm than good.

There is also the problem of implementation that is basically imposible because you dont know if MtGox will exists in the future or if it will the majoritary exchange.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 07:17:18 PM
And there you go, you are just doing some nasty approximations, because you have no way of determining the demand for money (bitcoins). Specially calculating the rise in prices is an utopy. Your system would probably do more harm than good.

If in two identical cities in all ways but this, city A and city B has the same number of supplies of bread loafs (staying fixed and nearly constant over time), and if you need to exchange three shiny disks out of your pocket for one bread in city A, and you need to exchange four shiny disks out of your pocket for one bread in city B - would you say the demand for bread is greater in city A or city B?

And now, substitute bread above with bitcoins, would you say the demand for bitcoins is greater in city A or city B?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 07:40:35 PM
And there you go, you are just doing some nasty approximations, because you have no way of determining the demand for money (bitcoins). Specially calculating the rise in prices is an utopy. Your system would probably do more harm than good.

If in two identical cities in all ways but this, city A and city B has the same number of supplies of bread loafs (staying fixed and nearly constant over time), and if you need to exchange three shiny disks out of your pocket for one bread in city A, and you need to exchange four shiny disks out of your pocket for one bread in city B - would you say the demand for bread is greater in city A or city B?

And now, substitute bread above with bitcoins, would you say the demand for bitcoins is greater in city A or city B?


If in two identical cities in all ways but this, city A and city B has the same number of supplies of bitcoins (staying fixed and nearly constant over time), and you are able to exchange your one bread you are bringing to city A's fair for three bitcoins (in other words one bitcoin can be exchanged for 0.3333 of a bread), and you are able to exchange your one bread you are bringing to city B's fair for four bitcoins (in other words one bitcoin can be exchanged for 0.25 of a bread) - would you say the demand for bitcoins is greater in city A or city B?

City A:  P = 0.33333 breads / bitcoin
City B:  P = 0.25 breads / bitcoin

%P moving from City B to City A:  (0.25 - 0.33333) / 0.25 = -33.33% (Deflationary, medium of exchange or bitcoin gained in value)
%P moving from City A to City B:  (0.33333 - 0.25) / 0.33333 = 25% (Inflationary, medium of exchange or bitcoin reduced in value)

So the inverse of demand for bitcoins, if number of bitcoins stays constant, is measured by %P (where %P negative is better for bitcoins held, and %P positive is worse for bitcoins held and the magnitude indicates measurement of demand) is greater when you move from City A to City B than when you move from City B to City A.


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 08:16:36 PM
And there you go, you are just doing some nasty approximations, because you have no way of determining the demand for money (bitcoins). Specially calculating the rise in prices is an utopy. Your system would probably do more harm than good.

If in two identical cities in all ways but this, city A and city B has the same number of supplies of bread loafs (staying fixed and nearly constant over time), and if you need to exchange three shiny disks out of your pocket for one bread in city A, and you need to exchange four shiny disks out of your pocket for one bread in city B - would you say the demand for bread is greater in city A or city B?

And now, substitute bread above with bitcoins, would you say the demand for bitcoins is greater in city A or city B?


And this has any resamblance with what happens in reality how?


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 05, 2011, 08:23:38 PM
And there you go, you are just doing some nasty approximations, because you have no way of determining the demand for money (bitcoins). Specially calculating the rise in prices is an utopy. Your system would probably do more harm than good.

If in two identical cities in all ways but this, city A and city B has the same number of supplies of bread loafs (staying fixed and nearly constant over time), and if you need to exchange three shiny disks out of your pocket for one bread in city A, and you need to exchange four shiny disks out of your pocket for one bread in city B - would you say the demand for bread is greater in city A or city B?

And now, substitute bread above with bitcoins, would you say the demand for bitcoins is greater in city A or city B?


And this has any resamblance with what happens in reality how?

I tried to give you a constructive answer.  Maybe a Eureka moment will come.


Title: Re: The current Bitcoin economic model doesn't work
Post by: hugolp on June 05, 2011, 08:34:40 PM
I tried to give you a constructive answer.  Maybe a Eureka moment will come.

Hopefully and then you will realize you can not calculate the demand for money because nobody is able to access the needed information.

Btw, you can keep trying to explain how you can calculate the demand for money. Its entertaining.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Marxian on June 05, 2011, 10:35:45 PM
There's no problem with money being created with commodities.
Generally, that's true. Paper money is made of many material ingredients, means of production and labour. But for Bitcoin this is a problem. The value produced (production costs) per dollar banknote is about 4 cents, whether the note has an exchange value of $1 or $100. But to produce a Bitcoin always costs a Bitcoin. Do you see the problem? Let's make a thought experiment. We assume the dollar was a currency money like Bitcoin. To print a $1 note would cost $1, to print a $2 note $2 and so on. So the only purpose of printing money would be to pay the printer for printing it. The same holds true for Bitcoin. It is impossible that there ever would be given one Bitcoin to the society because the society would have to pay one Bitcoin to the miners to receive one Bitcoin. As I said, the entire model is pointles. We would create a society of miners and hoarders. If the Bitcoin model succeeded – which is impossible because the inevitable crash will stop its expansion –, every person on the planet would work in the hardware or electricity industry.

That's not in my proposed system. In my proposed system your money doesn't gain value over time (nor does it lose value, for that matter). Therefore you have no reason to hoard nor a reason to squander. You'll just spend as you normally see fit without worrying the money's value will jump up and down in a crazy unpredictable manner.
In your model the currency is neither inflationary nor deflationary. I know this and I don't know why you mention this because it is not related to the restrictions on money creation. You still don't explain how the economy can grow, how the society can pay for any goods. It can't because it has to spend all its money on its money.

That's exactly the beauty of my proposal: The amount of money produced actually depends on the amount of electricity sacrificed.
More accurate: The value of money produced equals the value of capital sacrificed, with capital being composed of means of production (hardware), used up materials and labour. How could this be desirable? Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.


Title: Re: The current Bitcoin economic model doesn't work
Post by: mouse on June 05, 2011, 11:11:41 PM
Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.

Today I made my first real world profit from mining; about $150US.To do this, I'm guessing I've spent a LOT more than the government would have to print $150. Now I'm at the point where I'm thinking I should invest this back into more mining (currently i just mine on my 'gaming rig' for fun, but I could buy more powerful cards) and so I have a moral dilemma. You (and others) have noted some great truths about the flaws in bitcoin. But I can't leave now. Why would I? I'm rational, and so while I can still make money I should. But I'm also (somewhat less) moral. This is all a terrible waste of resources, and the cost to mint the final 21 millionth bitcoin is going to be unfathomable.

*Edit*
Also, isn't a system like this going to breed immense distrust? Imagine when we're at the point where solving a block will generate enough wealth to retire you, your family, and all their friends for a number of generations. I can see more than one pool operator running away with the spoils....
Also, does anyone really think that society will allow itself to spend the majority of the earth's computer power on minting money instead of, say, curing cancer, or pretty much any other worthwhile cause?


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 06, 2011, 01:07:30 AM
Quote
*Edit*
Also, isn't a system like this going to breed immense distrust? Imagine when we're at the point where solving a block will generate enough wealth to retire you, your family, and all their friends for a number of generations. I can see more than one pool operator running away with the spoils....
Also, does anyone really think that society will allow itself to spend the majority of the earth's computer power on minting money instead of, say, curing cancer, or pretty much any other worthwhile cause?


At present the number of graphic cards doing mining is a small fraction of those ever produced. Hard money that provides efficient transmission of monetary information and resource allocation is arguably the most worthwhile cause you can think of for computing power and information technologies in general.


Title: Re: The current Bitcoin economic model doesn't work
Post by: dayfall on June 06, 2011, 01:26:47 AM
and so while I can still make money I should. But I'm also (somewhat less) moral. This is all a terrible waste of resources, and the cost to mint the final 21 millionth bitcoin is going to be unfathomable.

Well, if the Banks would stop claiming they have money when they really don't.  AND when the governments stop printing ever increasing amounts of cash.  AND the credit card companies lower their swipe fees.  THEN yes.

Honest banks and honest governments can't survive in this environment.  So, it has to be forced by us.  Because of proof of work, laws are the best weapon against Bitcoin.

I do worry about the miners just up and running but I still think they will remain honest to continue to get profits.   They can only do it once anyhow. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 06, 2011, 02:32:21 AM
There's no problem with money being created with commodities.
Generally, that's true. Paper money is made of many material ingredients, means of production and labour. But for Bitcoin this is a problem. The value produced (production costs) per dollar banknote is about 4 cents, whether the note has an exchange value of $1 or $100. But to produce a Bitcoin always costs a Bitcoin. Do you see the problem? Let's make a thought experiment. We assume the dollar was a currency money like Bitcoin. To print a $1 note would cost $1, to print a $2 note $2 and so on. So the only purpose of printing money would be to pay the printer for printing it. The same holds true for Bitcoin.

No, the purpose of printing/mining a bitcoin is to make the block chain more secure and to facilitate transactions. As such you are paid based on how efficient you are at it. If you are more efficient than your competition, then you are paid more than what it cost you. If you are exactly as efficient as your competition, you are paid exactly what it cost you (assuming perfect competition, but which is impossible, so payment will be more than your costs, once investments in production no longer outweigh opportunity cost). If you are less efficient than your competition, then you are paid less than what it cost you (again with the possibility that you might be able to eek out a profit if you're close enough to the mean).

Quote
It is impossible that there ever would be given one Bitcoin to the society because the society would have to pay one Bitcoin to the miners to receive one Bitcoin. As I said, the entire model is pointles. We would create a society of miners and hoarders. If the Bitcoin model succeeded – which is impossible because the inevitable crash will stop its expansion –, every person on the planet would work in the hardware or electricity industry.

You know, other than the fact that as fewer and fewer people make food to go into electrical engineering, then food prices start skyrocketing. LOL.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BubbleBoy on June 06, 2011, 07:01:49 AM
The value of money produced equals the value of capital sacrificed, with capital being composed of means of production (hardware), used up materials and labour. How could this be desirable? Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.

You are clearly correct on your underlying assumption: Bitcoin is similar to gold in that, at equilibrium, it tends to have the same value as the work needed to create it. If by a thought experiment we equate the value of all goods and services with the market capitalisation of Bitcoin we have a full blown eco-catastrophe one our hands: I computed that if Bitcoin were to replace the USD monetary base somewhere in the next 10 years, minting bitcoins would suck up 70% of US's electricity production at current prices.

So Bitcoin is a quite inefficient format of money but I wouldn't go so far as to say "all the society can buy is the value of bitcoins". Once mintend bitcoins have an unlimited shelf life and can participate in an indefinite number of transactions. For the first transaction the global "fee" imposed by bitcoin is 50%, for the second 33% and so on. This is the same way a limited supply of USD monetary base (~2trillion) can participate in a 14 trillion GDP every year.


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 06, 2011, 07:05:53 AM
The value of money produced equals the value of capital sacrificed, with capital being composed of means of production (hardware), used up materials and labour. How could this be desirable? Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.

You are clearly correct on your underlying assumption: Bitcoin is similar to gold in that, at equilibrium, it tends to have the same value as the work needed to create it. If by a thought experiment we equate the value of all goods and services with the market capitalisation of Bitcoin we have a full blown eco-catastrophe one our hands: I computed that if Bitcoin were to replace the USD monetary base somewhere in the next 10 years, minting bitcoins would suck up 70% of US's electricity production at current prices.

So Bitcoin is a quite inefficient format of money but I wouldn't go so far as to say "all the society can buy is the value of bitcoins". Once mintend bitcoins have an unlimited shelf life and can participate in an indefinite number of transactions. For the first transaction the global "fee" imposed by bitcoin is 50%, for the second 33% and so on. This is the same way a limited supply of USD monetary base (~2trillion) can participate in a 14 trillion GDP every year.

Gibberish.


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 06, 2011, 08:21:47 AM

Without the introduction of any assumptions, the Equation of Exchange is a tautology ( http://en.wikipedia.org/wiki/Tautology_%28logic%29 ) like it is stated in http://en.wikipedia.org/wiki/Equation_of_exchange . Equations always need to be fulfilled - that's why they are called equations!  On the left, (M=Total quantity of bitcoins in exchange) x (V=Total number of times the quantity of bitcoin in exchange is exchanged in a certain time period) should equal the right, (Q=Total quantity of goods/services/other exchanged for bitcoin in exchange in a certain time period) x (P = Value relationship between M and Q, giving rise to a rate of exchange, inflation/deflation in the rate of exchange)


English Wikipedia is not entirely correct on this matter. I was just pointing you to the fact that only the classical version of the equation of exchange is the one that is a tautology. The one where T is replaced by Q is just an approximation. Try google translate on the german wikipedia, it has some explanation.



Is it equitable to have a system where you reward some arbitrarily issuer during deflationary periods with more bitcoins, and inversely punish subsequently all bitcoin holders by debasing their existing holding during inflationary periods?  Will you be able to withdraw bitcoins during an inflationary period to keep your M constant in your system? Are you only going to ask the arbitrary issuing parties from the deflationary period to return their bitcoins when an inflationary period arrives, or are you going to give to some in a deflationary period and take from all in an inflationary period? When goods/services/other offered for exchange with bitcoins decreases (inflationary bitcoin system) - all the holders of bitcoins will have to bear the brunt of the decrease in the value relationship (rate of exchange = P = Value relationship between bitcoin and goods/services/other available for exchange with bitcoin).  The holder of bitcoin makes the decision whether he would offer more bitcoin available for exchange, thus influencing M (M = bitcoins available for exchange).  Thus holders of bitcoins should be rewarded/punished as more or less goods/services/other are offered for exchange with bitcoins available for exchange.  Bitcoin already adjusts the Equation of Exchange dynamically - and does not reward some arbitrary issuer under deflationary circumstances - and punish all bitcoin holders under inflationary circumstances.  Coin generators are incentivised by network difficulty changes in combination with their reward (for securing the network) based on P (value relationship of bitcoin to other) to increase/decrease their share of supply to the network difficulty - bringing balance in network difficulty based on the Equation of Exchange's balanced P.  Every coin generator has another profitable decision point on this, depending on his cost/profit/future expectation structure.  Your system is doomed for failure - as it will reward a non-holding issuer (imagine that in the sense of company shares, I'm a holder of shares but someone else dilutes my value by issuing more shares not to us holders - but to himself!!) during deflationary periods and punish existing holders during inflationary periods (imagine that in the sense of company shares, now that the shares are less valued - the other person who is issuing shares in deflationary periods are not un-issuing shares now that we have an inflationary period and all holders of shares now get devalued shares!!)  Deflation/Inflation is necessary as a measurement of how much bitcoin is valued.  If you feel uncomfortable with deflation/inflation (of bitcoin, shares, pigs, gold, etc.), don't be a holder of them - if you still want to use them in trade - trade for them and minimize your risk by minimizing your exposure risk period by exchanging on the fly.  Ultimately the holder of bitcoin is taking the risk, and should be rewarded or punished by uptake or flight of exchangeable goods/services/other from the bitcoin system.

If you do not want to invest in Bitcoin by being a Bitcoin holder and having the subsequently reward/risk on your investment (free market capitalism),

but still want to use it as a medium of exchange and reduce your exposure to its reward/risk (deflation/inflation) - there is a simple solution - exchange it immediately after you received it in exchange, back to your medium of choice (on the fly, programmatically if you prefer).

With regards to hoarding - as long as people have needs and only other people can fulfill in that need and they have some medium of exchange, wouldn't they use that medium of exchange to fulfill in that need?  Isn't nearly 5x more bitcoin exchanged than gold due to its ease of exchange?

With regards to early adopters - wouldn't people adopting now, again be viewed as early adopters in a year as well?  If you valued something when no one else did, didn't you satisfied the equation of exchange at your time of adoption?  Again aren't you exposed to possible reward/risk (deflation/inflation) from your point of adoption?

I wonder what you mean by "arbitrarily issuer" ? I don't want to change the system how bitcoins are issued, they are still generated when a block is solved by the network. Just the number of bitcoins generated should be adjusted according to the equation of exchange.

You change your definition of M in this paragraph to the one above.

Yes the equation of exchange is already balanced by a changing P, but as you said yourself, it is a tautology, so this is not surprising. What is necessary for a currency though, is stable value. So it should not be balanced by P, which should stay constant, but by the money supply, which is a constant 50BTC/10min at the moment, and will only decrease in the future.

I'm not uncomfortable holding a good that's rising and falling in value. But i would never exchange a good that i expect to rise in value for another good which i don't expect to rise in value. That's why i will keep my bitcoins and not use them as a medium of exchange.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 06, 2011, 08:36:28 AM
alexk, how are you going to measure the demand for money?

Hint: its impossible.

Thank you for the question.

You are right in your statement, that the current money demand is hard, if not impossible to measure. In my opinion, you can give a pretty good estimate by looking at the past demand of money, the part P*T of the equation of exchange.

How are you going to measure the current computing power of the bitcoin network? It's also impossible. But still, the difficulty is changed dynamically by linking it to some average of past computing power.

My idea for bitcoins is to dynamically change the number of bitcoins created per block dynamically and link it to some average of the number of transactions, to keep the price level constant. As the difficulty to solve a block is already changed dynamically this wouldn't be difficult, i think.

Long answer:
During the gold standard, gold was the value standard and money was the medium of exchange. Central banks gave the guarantee, that everyone can, at any time, exchange his currency holdings into gold. This guaranteed that the value of money was linked to the value of gold, that's why gold is called "value standard" here.
Suppose that the central bank overestimated money demand and increased money supply too much. People would then start to exchange currency into gold more, which would force the central bank to limit money supply to protect their gold holdings. If the central bank underestimated money supply people would start to exchange gold into currency, thus giving the central bank an indicator to increase money supply.

Offtopic:

This is how central banks promised they would opperate, its not how they actually operated.
[/quote]

I'm sure there are more historical details to it, I just wanted to explain the function of the value standard. If you have some more knowledge i would appreciate if you share it.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 06, 2011, 08:49:21 AM
I tried to give you a constructive answer.  Maybe a Eureka moment will come.

Hopefully and then you will realize you can not calculate the demand for money because nobody is able to access the needed information.

Btw, you can keep trying to explain how you can calculate the demand for money. Its entertaining.

And still his Eureka moment did not come  ???

Thank you for the permission to try and shed light on the matter for you.

After proving a tautology (the Equation of Exchange) in a previous post to you, this is taken as truth, fact, cast in stone (without further assumptions):  M x V = P x Q     -- Simple mathematics, logic and common sense - you can not change it - unless you live in a different distorted reality.

If
M x V = P x Q
and %... means % change of ... ,
as an approximation, this equation may apply:
%M + %V = %P + %Q

Current M = 6,448,200 BTC ( http://www.bitcoinwatch.com )
From 17 August 2010 to 5 June 2011 (292 days):
bitcoin medium of exchange rate 292 days ago = 0.07 MtGUS$ / btc Close rate ( http://bitcoincharts.com )
bitcoin medium of exchange rate current = 16.70 MtGUS$ / btc Close rate ( http://bitcoincharts.com )
In the bitcoin system for the previous 292 days, the following will be
M expansion past 292 days = 50btc/10 min x (6 x 10 min / hour) x 24 h / day x 292 days = (50 x 6 x 24 x 292) btc = 2,102,400 btc
For the past 292 days:
%M = (M expansion) / (Current M - M expansion) = 2,102,400 btc / (6,448,200 btc - 2,102,400 btc) = 48.3777%
%P = (bitcoin medium of exchange rate 292 days ago - bitcoin medium of exchange rate current) / bitcoin medium of exchange rate 292 days ago = (0.07-16.70) / 0.07 = -237.57143 x 100% = -23,757.143%
%V = 0 assumed

To calculate %Q:
rearrange above equation to:
%Q = %M + %V - %P
substituting values for past 292 days:
%Q = 48.3777% + 0% - (-23,757.143%) = 23,805.5207%

%Q is the percentage change of goods/services/other offered in exchange for btc.

To calculate the demand for M for past 292 days:  Take %M as zero additionally and substitute into formula to calculate %Q (as %Q - change in goods/service/other offered in exchange for medium of exchange, should equal the change in demand for medium of exchange in a system where the medium of exchange stays constant, the velocity of the medium exchange stays constant and only the value ratio between the medium of exchange and the goods/services/other offered for exchange changes together with the quantity of goods/services/other offered for exchange with the medium of exchange changes):

So %Q = %M + %V - %P
substituting %M as 0% as well together with prior values:
%Q = 0% + 0% -(-23,757.143%) = 23,757.143%

this is however a distortion because %M were taken as 0% and not the correct 48.3777%.  If the medium of exchange did not suffer expansion - the inverse of 48.3777% would have been included in %P in the system and %P would have equaled %P = (-23,757.143%) - 48.3777% = 23,805.5207%

substituting these values in %Q = %M + %V - %P gives:
%Q = 0% + 0% + 23,805.5207% = 23,805.5207%

In other words the change in goods/service/other offered for exchange (%Q) for the medium of exchange (M) will equal the demand for medium of exchange in a system where the velocity of the medium of exchange (V) remains constant (%V = 0%) and this will be reflected in the expansion of the medium of exchange (%M) in combination with the change in the value ratio of the medium of exchange and the goods/services/other offered for exchange (%P).  So if you can measure %Q it will give you the demand for medium of exchange, otherwise you need free market exchange ratio (P) discovery to do it for you and not be tampering with medium of exchange expansion/contraction (%M) or if you do you need to tamper this tampering need to be included in calculating your %Q.

Bitcoin's status quo, without the proposals for changes mentioned in this post, has a known rate of medium of exchange expansion (%M known) - so it is easy to include it in the calculations.  Actually the change in the medium of exchange's market valuation rate is determined automatically by the free market and in known (%P known), keeping the relationship between medium of exchange and goods/services/other offered for exchange intact with regards to the Equation of Exchange.  If you knew the correct change in the velocity of the medium of exchange, and do not want to assume %V = 0, the velocity of medium of exchange will be known as well  (%V known).  From %M, %P and %V known you may calculate %Q if you wanted to.  If you have a very comprehensive network of reporting you may calculate the changes in goods/services/other offered in exchange for the medium of exchange (%Q known) and then you can calculate the correct value for the velocity of the medium of exchange which you assumed as %V = 0.  But then again if the unknown (if no reporting data available to calculate) is proportionally and inversely cancelled by each other in %Q and %V, and you have %P and %M and assumes %V=0% this will give you and adequate relationship to calculate the demand for medium of exchange as reflected in the variable %P.


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 06, 2011, 09:02:14 AM
With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly.

While it's easy to find a party willing to receive the proceeds of seigniorage, how do you propose to diminish the monetary base in inflationary times ? A tax perhaps, so that besides loosing value, the money you hold are automatically taxed by the system ? Basically, rewarding those responsible for inflation (debtors) and punishing savers ? I think this would quickly lead to an inflationary spiral where everybody wants to get out of that pesky currency that looses value by the minute.

The only way to achieve what you are proposing would be if the receivers of seigniorage are committed to defend the currency during inflation, by selling for bitcoins the assets bough during expansion. I think it's fair to say that will never happen, so the best we can hope is for a non-deflationary currency, that could lose value at any moment if the market decides to abandon it.

Thank you for your reply and for thinking about my proposed idea. This is a very good point.

As you correctly point out, if the number of transactions in the bitcoin economy is decreasing, with my proposed idea the number of bitcoins generated per block would have to be negative. Then there is no more incentive for the miners to let their computers run.

One simple solution would be to set a minimum of 0 created bitcoins per solved block and accepting light inflation, if the bitcoin economy is shrinking. As i don't expect the bitcoin economy to shrink very often, this might be feasible.

Another solution would be, to take some fraction of the transaction fees, that are awarded to the successful miner and remove it from the system. The miner would still get a positive return on a solved block.

There might also be some better solutions to this problem.


PS: I'd very weary of using the equation of exchange without fully understanding what's being exchanged: the "goods" are MtGox dollars, for which there's no intrinsic demand inside the Bitcoin economy, and the price index is purely artificial, driven by the speculation that someday the economy will exchange other things besides dollars.

In my understanding, the goods in the equation of exchange can be anything that anyone is willing to sell for bitcoins.


PPS: what you are seeing in the block-chain is not the velocity of money, but rather an artifact of how the system operates. There's no basis to use that for macroeconomic purposes since it would be easy to manipulate the apparent velocity for example by moving my BTC 1.000.000 from one wallet to another, all day long. If you don't trust the goverment published CPI, the only valid estimator of inflation is the price in bitcoins of one alpaca sock.

Ok, i see how manipulations can be made to this system. For this to be possible though, one has to have a huge number of BTC and must be willing to manipulate the system for more inflation. I don't see how these two requirements can go together.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 06, 2011, 09:05:37 AM
Alexk:

In essence what you want to do is to transfer the risk/reward of holding bitcoins from the bitcoin holder to the bitcoin generator.  Which is not fair - if you dilute bitcoins, by issuing more, you are punishing bitcoin holders and rewarding the bitcoin generators you are issuing it to.  If the goods/services/other in offered in exchange for bitcoins diminish and the rate of exchange with it - from whom are you gonna retract bitcoins to enable a stable rate of exchange?  Are you only going to retract it proportionally now from all the bitcoin generators who might not even be bitcoin holders at that stage - or are you then going to punish the bitcoin holders and retract it proportionally from them - which would not be equitable because you did not issue more to them when the inverse scenario hold true?

Under the bitcoin's generation system, a bitcoin generator are rewarded by the bitcoin expansion which is quite substantial at present, and which will diminish over time, and minimum transaction fees on a massive amount of transfers will become a replacement for rewarding bitcoin generation / network securing.


Title: Re: The current Bitcoin economic model doesn't work
Post by: cloud9 on June 06, 2011, 09:09:22 AM
I would rather know by bitcoins exchange value what my bitcoin's share in the total number of bitcoins value are than having to do an additional calculation by calculating my number of bitcoins divided by your now changing number of bitcoins and multiplying that by the exchange value to know what my bitcoin's share in the total number of bitcoins values are.

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.

And actually you need to account for the bitcoin expansion already issued to bitcoin generators as well.

So if more goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go up.
So if less goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go down.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BubbleBoy on June 06, 2011, 10:16:12 AM
One simple solution would be to set a minimum of 0 created bitcoins per solved block and accepting light inflation, if the bitcoin economy is shrinking. As i don't expect the bitcoin economy to shrink very often, this might be feasible.

That sounds like a sensible conclusion. I think it all depends on what's being done with the printed money. I would be perfectly fine to hold a decent amount of internet money if I knew they are the result of charitable giving, that is most or all printed money were exchanged for dollars that were spent to make the world a better place. If they are abandoned by the market and end up valueless, it's as if every holder of the currency was forced to foot the bill of the initial charity giving - not so bad overall.
OTOH I believe most people will reject money backed partly by a huge electricity and resource waste, partly the result of early speculators getting rich.

Quote
Another solution would be, to take some fraction of the transaction fees, that are awarded to the successful miner and remove it from the system. The miner would still get a positive return on a solved block.

Taxing those who trade to the benefit of the hoarders seems like a bad way to regulate the business cycle. It either leads to an economic downturn (people stop economic activity of fear of being taxed), or a rush to get out of the bad, taxy currency and into a better medium of exchange, the hiperinflationary spiral I was warning about.

Quote
In my understanding, the goods in the equation of exchange can be anything that anyone is willing to sell for bitcoins.

Sure, but both the price index and the amount of 'economic activity' (MtGox swaps) are imposed externally, by the speculative interest spurred by Bitcoin. So these are the causes of the effects on the other variables, and since they are unpredictable, as all speculative bubbles are, it can't lead to any meaningful conclusion over the Bitcoin economy.


Quote
Ok, i see how manipulations can be made to this system. For this to be possible though, one has to have a huge number of BTC and must be willing to manipulate the system for more inflation. I don't see how these two requirements can go together.

My macro intuition would call any increase in the apparent velocity to be a sign of coming inflation, so the macro model would move to reduce the liquidity, increase the value, create deflation and reward those who hold assets, who are thus incentivized to collude and manipulate the apparent velocity and game the system.
If I'm wrong and you are looking to do the opposite, then the system can be gamed by those who don't own the money they are moving, for example debtors or traders. I could borrow 2 million BTC, buy 1 million BTC worth of gold, then use the spare 1 million to game the system, devalue BTC by 10% in relation to gold, sell back the gold for 1.1  BTC, repay the 2 million and pocket the 100K BTC.
So any reliance on the blockchain for macro adjustments can be gamed by debtors or savers, and can't be countered by the the opposite party.
I wouldn't discount such an influence: if the average BTC changes hands every week - month or so (GDP/M1), the manipulator could spend it in every block, 1680 time a week. So the manipulator can increase the apparent velocity by 10% if he holds only 0.006% of the money supply.

In conclusion, the correct way to achieve price stability is the good old method: aim for constant price for the Bitcoin Standard Commodity Basket which is hereby defined to consist of one alpaca sock, four large carrots and two pizzas.
I doubt inflation estimation can be automated and made 100% reliable and mechanical.


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 06, 2011, 11:07:03 AM

People who do not understand money can say the dumbest things.

Gotcha BTC yet or just here to troll away happily?


Title: Re: The current Bitcoin economic model doesn't work
Post by: alexk on June 06, 2011, 11:55:04 AM
Alexk:

In essence what you want to do is to transfer the risk/reward of holding bitcoins from the bitcoin holder to the bitcoin generator.  Which is not fair - if you dilute bitcoins, by issuing more, you are punishing bitcoin holders and rewarding the bitcoin generators you are issuing it to.  If the goods/services/other in offered in exchange for bitcoins diminish and the rate of exchange with it - from whom are you gonna retract bitcoins to enable a stable rate of exchange?  Are you only going to retract it proportionally now from all the bitcoin generators who might not even be bitcoin holders at that stage - or are you then going to punish the bitcoin holders and retract it proportionally from them - which would not be equitable because you did not issue more to them when the inverse scenario hold true?

Under the bitcoin's generation system, a bitcoin generator are rewarded by the bitcoin expansion which is quite substantial at present, and which will diminish over time, and minimum transaction fees on a massive amount of transfers will become a replacement for rewarding bitcoin generation / network securing.

I admit that destroying bitcoins is not easy to accomplish in my proposed bitcoin-generating system. I suggested two possible solutions in my post above, you might be able to find a better solution.


I would rather know by bitcoins exchange value what my bitcoin's share in the total number of bitcoins value are than having to do an additional calculation by calculating my number of bitcoins divided by your now changing number of bitcoins and multiplying that by the exchange value to know what my bitcoin's share in the total number of bitcoins values are.

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.

And actually you need to account for the bitcoin expansion already issued to bitcoin generators as well.

So if more goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go up.
So if less goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go down.

In my understanding, your idea for the value of bitcoins is the following:

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.


In my understanding, my proposed system works like this:

If more goods/services/other are added for exchange with bitcoin, bitcoin's value stays the same.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value stays the same.


I own bitcoins now and i expect there will be more goods available in the future that can be bought with bitcoins. I will not exchange my bitcoins for these goods, as they will continue to gain value. For a currency, in my opinion it is important that it has stable value.


alexk


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 06, 2011, 02:32:59 PM

People who do not understand money can say the dumbest things.

Gotcha BTC yet or just here to troll away happily?

OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 03:31:03 PM
OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.

We don't need The CIA doesn't need to post anything to ruin the project. They have I'm sure they have a fake proof-of-work ready to launch whenever they feel Bitcoin has grown too dangerous. One extra block at that chain's end transferring everybody's money into the CIA account is all what's needed for a clean game over.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 06, 2011, 03:52:17 PM
OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.

We don't need The CIA doesn't need to post anything to ruin the project. They have I'm sure they have a fake proof-of-work ready to launch whenever they feel Bitcoin has grown too dangerous. One extra block at that chain's end transferring everybody's money into the CIA account is all what's needed for a clean game over.

LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 03:58:59 PM
LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or the imaginary (http://globalresearch.ca/index.php?context=va&aid=24738) Al-Qaeda for the lulz.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 06, 2011, 04:03:12 PM
LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or Al-Qaeda for the lulz.

The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.

How easy it is to hypothesize about Bitcoin's susceptibility to attack without even understanding how it works.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 06, 2011, 04:14:00 PM
LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or the imaginary (http://globalresearch.ca/index.php?context=va&aid=24738) Al-Qaeda for the lulz.

You talk much, but you really understand nothing about the protocol.

We have a saying in my country, which roughly translates to "A cow which makes a lot of noise, gives little milk". And that is the problem in your case.

BTW, I support the idea of creating newbie forum subsection for such foolish discussions.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 04:20:26 PM
The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.
Ah, so freezing the transaction confirmations, thus preventing anyone from spending their money isn't such a big deal huh? I see you're not as smart as your post-count.

We have a saying in my country, which roughly translates to "A cow which makes a lot of noise, gives little milk". And that is the problem in your case.
Right. So a cow with 1015 decibel noise which moos just for the purpose of mooing probably gives less milk than most.

I support the idea of creating a newbie forum for such foolish discussions.
And I support the idea of creating a bigmouthie forum for bored Hero Members who're desperately trying to increase their post count even by babbling fruitless nonsense.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 06, 2011, 04:26:26 PM
The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.
Ah, so freezing the transaction confirmations, thus preventing anyone from spending their money isn't such a big deal huh? I see you're not as smart as your post-count.

If you would understand the specification, you would know that this is impossible.
Even if CIA accumulates 90% of network's processing power, transactions will still confirm. Much slower yes, but they will.
.
.
I support the idea of creating a newbie forum for such foolish discussions.
And I support the idea of creating a bigmouthie forum for Hero Members who're mindlessly trying to increase their post count even by babbling fruitless nonsense.

Playing "smartass" without understanding anything is the domain of the mindless.
So it is clear who is mindless here.

I have no more time to continue this idiotic & fruitless discussion, I'm outta here.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 04:34:28 PM
Even if CIA accumulates 90% of network's processing power, transactions will still confirm. Much slower yes, but they will.
Nobody said anything about them accumulating a certain % of the network's processing power. I was talking about them developing a whole new fake blockchain thus luring the honest nodes into accepting their new fake blocks instead of the genuine ones.

If you would understand the specification, you would know that this is impossible.
The problem isn't in my understanding of the specification, it's in your ability to read.

Playing "smartass" without understanding anything is the domain of the mindless.
So it is clear who is mindless here.
+1

I have no more time to continue this idiotic & fruitless discussion, I'm outta here.
Thanks. Are you sure you won't be back shortly to waste our time while increasing your Linux pride with even more post count?


Title: Re: The current Bitcoin economic model doesn't work
Post by: WilliamJohnson on June 06, 2011, 05:47:23 PM
But how can you lure the other nodes into accepting a brand new blockchain?


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 06, 2011, 06:00:27 PM
With Three Letter Acronym MAGIC of course! They are wizards, don't you know?


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 06, 2011, 06:50:44 PM
With Three Letter Acronym MAGIC of course! They are wizards, don't you know?

I think it will be the best just to ignore him.
He is either trolling us, he is some kid, or his fucked up & overgrown ego won't allow him to ever to listen to anybody but himself.

This thread is a total waste of time.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 10:48:44 PM
But how can you lure the other nodes into accepting a brand new blockchain?
With Three Letter Acronym MAGIC of course! They are wizards, don't you know?
From Wikipedia: The main chain consists of the longest series of blocks from the genesis block to the current block.
And thank you Bitter for making it quite clear who exactly doesn't know what he's talking about.

I think it will be the best just to ignore him.
He is either trolling us, he is some kid, or his fucked up & overgrown ego won't allow him to ever to listen to anybody but himself.
Or he's a retired bored old man who's got nothing better to do than insult others whom he disagrees with instead of leaving them in peace and wasting his time on more entertaining activities.

This thread is a total waste of time.
I just LOVE how you keep coming only to say this thread is a waste of time only to come again a couple of hours later to just repeat the same thing. Listen buddy, if you wanna increase your post count why don't you just start a thread all for yourself and keep repeating whatever you want in it while leaving this thread to time-wasting people who want to actually accomplish something? If you really think it's a waste of time then you're better off getting a life (https://secure.wikimedia.org/wikipedia/en/wiki/Get_a_life_%28idiom%29) without coming for a third time only to repeat the same thing, please.

Thanks for promising not to post here again. Have a great day.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 06, 2011, 10:55:04 PM
With Three Letter Acronym MAGIC of course! They are wizards, don't you know?
From Wikipedia: The main chain consists of the longest series of blocks from the genesis block to the current block.
And thank you for making it quite clear who exactly doesn't know what he's talking about.

Let me quote your original post which brought me back into this:

We don't need The CIA doesn't need to post anything to ruin the project. They have I'm sure they have a fake proof-of-work ready to launch whenever they feel Bitcoin has grown too dangerous. One extra block at that chain's end transferring everybody's money into the CIA account is all what's needed for a clean game over.

Of course someone with hashing power equal to or greater than the rest of the network can probably build a longer block chain. Can they do so forever? Probably not.

The part that concerns me and you have yet to explain, is how creating a longer block chain allows you to spend the transactions of others. Would you please explain how they would go about doing so, given that all transactions must be signed by the holder of the private key?


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 06, 2011, 10:57:51 PM
From Wikipedia: The main chain consists of the longest series of blocks from the genesis block to the current block.
And thank you Bitter for making it quite clear who exactly doesn't know what he's talking about.


I would hope that you would know that Wikipedia is only as accurate as those who contribute articles, which in this case is not very accurate at all.  The main chain is the one with the greatest total proof-of-work, not necessarily the longest.  I could make a longer chain in the dark with one GPU and a hacked client (to set the block interval to one-hundreth of a second) running at a difficulty of one; but as soon as I attach my client to the rest of the network, my chain is going to cease to exist.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on June 06, 2011, 11:02:20 PM
how creating a longer block chain allows you to spend the transactions of others. Would you please explain how they would go about doing so, given that all transactions must be signed by the holder of the private key?
Why would they need to spend the transactions of others when they can simply freeze all the payments by always holding the upper hand (read: possessing the longer "magical" blockchain)? Their presumed goal is to ruin the project, not to steal people's coins.

The main chain is the one with the greatest total proof-of-work, not necessarily the longest.  I could make a longer chain in the dark with one GPU and a hacked client (to set the block interval to one-hundreth of a second) running at a difficulty of one; but as soon as I attach my client to the rest of the network, my chain is going to cease to exist.
I realize that creighto but it's implicitly understood. We're talking about the US government which owns computers powerful enough to create a greater proof of work than the rest of Bitcoiners combined, not some Russian script kiddy in a basement.

May I ask everyone to reserve their comments regarding crypto attacks on Bitcoin's infrastructure to its thread (https://forum.bitcoin.org/index.php?PHPSESSID=4e6b0401779aa6490da467b6a082cbf0&topic=2436.0) while reserving this one to the deflation and pricing problem? I know I started it all but I was innocently responding to Bitter's CIA joke.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 06, 2011, 11:10:52 PM
We're talking about the US government which owns computers powerful enough to create a greater proof of work than the rest of Bitcoiners combined, not some Russian script kiddy in a basement.

The bitcoin network has,  in collective, surpassed the total (estimated) hashing power of the top 500 (not secret) supercomputers on Earth.  Even taken as a given that the US government actually does have this much computational power in total, it would be a non-trivial issue for any branch to assert control of the computational power of the others for such a project.  And by the time this could be arranged, the power of the network will have quintupled once again.  IMHO, this was once a real concern, but no longer is.  This is no longer the most likely attack vector by any government agency, their attacks will come in the public view, not in the dark reaches of the Internet.


Title: Re: The current Bitcoin economic model doesn't work
Post by: BitterTea on June 06, 2011, 11:12:28 PM
Why would they need to spend the transactions of others when they can simply freeze all the payments by always holding the upper hand (read: possessing the longer "magical" block)? Their presumed goal is to ruin the project, not to steal people's coins.

If they have half of the network's computing power (equal to the honest network) and fail to include transactions into blocks they create, confirmation can take twice as long.

I realize that creighto but it's implicitly understood. We're talking about the US government which owns computers powerful enough to create a greater proof of work than the rest of Bitcoiners combined, not some Russian script kiddy in a basement.

I really doubt that they have a significant amount of hardware that performs hashes as quickly as a distributed network full of ATI graphics cards. I imagine if they did, it would be rather centralized, and perhaps easy(ish) to take offline through some sort of attack.


Title: Re: The current Bitcoin economic model doesn't work
Post by: marcus_of_augustus on June 06, 2011, 11:51:50 PM
Suggester;

Quote
If I understood the crypto design correctly,

uh-huh.


Title: Re: The current Bitcoin economic model doesn't work
Post by: DrSammyD on June 07, 2011, 12:01:10 AM
Playing "smartass" without understanding anything is the domain of the mindless.
So it is clear who is mindless here.
+1

Says the smartass who thought billionaires held all their assets in cash.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ShadowOfHarbringer on June 07, 2011, 07:25:36 AM
We're talking about the US government which owns computers powerful enough to create a greater proof of work than the rest of Bitcoiners combined, not some Russian script kiddy in a basement.

The bitcoin network has,  in collective, surpassed the total (estimated) hashing power of the top 500 (not secret) supercomputers on Earth.  Even taken as a given that the US government actually does have this much computational power in total, it would be a non-trivial issue for any branch to assert control of the computational power of the others for such a project.  And by the time this could be arranged, the power of the network will have quintupled once again.  IMHO, this was once a real concern, but no longer is.  This is no longer the most likely attack vector by any government agency, their attacks will come in the public view, not in the dark reaches of the Internet.

Actually, as chain "checkpoints" are hardcoded into the default Bitcoin client, even with the processing power it is practically impossible to pull something like this off.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on June 07, 2011, 11:55:30 AM
We're talking about the US government which owns computers powerful enough to create a greater proof of work than the rest of Bitcoiners combined, not some Russian script kiddy in a basement.

The bitcoin network has,  in collective, surpassed the total (estimated) hashing power of the top 500 (not secret) supercomputers on Earth.  Even taken as a given that the US government actually does have this much computational power in total, it would be a non-trivial issue for any branch to assert control of the computational power of the others for such a project.  And by the time this could be arranged, the power of the network will have quintupled once again.  IMHO, this was once a real concern, but no longer is.  This is no longer the most likely attack vector by any government agency, their attacks will come in the public view, not in the dark reaches of the Internet.

Actually, as chain "checkpoints" are hardcoded into the default Bitcoin client, even with the processing power it is practically impossible to pull something like this off.

That's true, too; but they could still dick with the last couple hundred blocks.


Title: Re: The current Bitcoin economic model doesn't work
Post by: FlipPro on June 07, 2011, 12:22:31 PM
I just made an account on this forum, and I must admit the ignorance shown here by these fake "opponents" to the currency is nauseating at best. All they can do is reference to past event's and out-dated theory's that simply do not apply to bitcoin. I have been reading up on these coins for 2 weeks now, and to be honest with you, they seem so attractive to me, that my original plan of exchanging them for money immediately as I mine them has gone completely out the window! You trolls are only motivating people who are learning about bitcoins, and who see the pure brilliance behind them, to back them up EVEN MORE. Who the hell says that bitcoins were made to be used as a highly speculative investment ponzi scheme? Maybe the ill-intentioned trolls like Suggestor draw people to these conclusions, and maybe there are people out there trying to drive the "ponzi scheme", but we have to realize that these people simply do not understand the system. They think they can play ponzi with it because they don't believe in the systems resiliency, they think it will either be hacked, or taken down by the government at some point, but they are wrong.

We know this because the system that's been designed is beautiful, and was built with resiliency in mind. Don't you think all of these things were already foreseeable by the developers? Bitcoins are just like any other currency, except more predictable, and secure. I see collapse next to impossible, and the envy that I see in this forum by some stupid people who only wish they would of thought of it(or even had the remote brain capacity to even understand what the system really is) is a truly desperate attempt to shun the brilliance that is bitcoin. Some people thrive on the status quo because they can't see themselves evolving with times, either because their scared, or simply to stupid, and these people are what I call dinosaurs. I am here now, and though I heard about bitcoins a long time ago I have to admit I didn't grasp what they really were until they were reintroduced to me by a friend, and after 2 weeks of steady research (videos,articles,wiki,forums,MSM) I can honestly say you guys have my support 100%. I am here, remember that, and there a millions of us out there who support you and don't even know it yet. These people (like me) will invest in this economy JUST TO PROVE THE TROLLS WRONG. I believe in my heart that the developers, and the community as a hole has nothing but good intentions in mind for this project.

We truly don't even need the government backing us, or anyone for the matter including MT.GOX or any of these exchange markets. The key lies in strengthening our economy and I am already seeing it happen right before my eyes. I mean look at bitmunchies.com for god sake. The idea is genius, I can't wait to start saving hundreds of dollars on groceries just by buying from bit munchies.  They even got Chefboyardee  ;D

You have to be a fool not to know the true value of what has been built here. I do agree with some people that bitcoins are actually worth even more than they are trading for now, and while that may seem hard for anyone to imagine it's totally feasable. First you have to admit that FIRST MATTERS , if it didn't there would be no Bill Gates, Steve Jobs, or even dare I say Barack Obama.

YOU CAN BUILD A WEBSITE LIKE AMAZON.COM , BUT IT WILL NEVER BE AMAZON.COM . GET IT?

FIRST MATTERS NO MATTER HOW MUCH YOU TROLLS BRING UP COUNTER CURRENCY'S THAT DON'T EVEN EXIST YET, AND THAT ARE ALL FLAWED IN THEORY ANYWAY.

This system relies on three very basic things that I think are notable:

1. It's decentralized, to the point where no single entity can take over all of the nodes. If I read correctly in a previous post,the top 500 worlds super computers can't amount to our nodes, making it virtually impossible for anyone to shut us down. They would be better off investing their time and resources mining, and using it to back up their own reserves...
2.It's predictable, sure there will be bumps down the road, and I expect the market to fluctuate viciously. But they will never be able to stop people from using them for goods and services. And once again that is the key to this projects survival.
3.It's intelligent, I know its hard for people to humble themselves in this new "modern age", but for FFS you gotta admit when something is smart, and has the potential to change this entire planet as we know it.

That is my 2cents, see you guys around the forum, I will def be showing pictures of the rig I am going to be building this week for mining. I am also going to be putting in the little savings I have into all bitcoins. YEAH I'm putting my money where my mouth is, and even if the market fluctuates, I truly and deeply believe in the end result, that none of you will be able to stop. God I'm loving it  :D !

And BTW I'm a Democrat, you don't have to be a conservative, libertarian, or anarchist to believe in this system. If you ask me it's a PERFECT check/balance to the current monetary system that we have now. It will finally put accountability back into the equation that bank's and world governments can't control, something that is purely ran by the people, and that will only make the existing monetary systems stronger, because then they will finally have true competition, and start taking their debt/taxes/budget management ALOT MORE SERIOUS.



Title: Re: The current Bitcoin economic model doesn't work
Post by: kjj on June 07, 2011, 01:29:18 PM
If we switch to an exponential difficulty requirement for chain forking, we can amplify the requirements for this type of attack and move it from "incredibly difficult" to "nearly impossible".

http://forum.bitcoin.org/index.php?topic=11464.0 (http://forum.bitcoin.org/index.php?topic=11464.0)


Title: Re: The current Bitcoin economic model doesn't work
Post by: royalecraig on June 07, 2011, 06:25:05 PM
If the system is shown to be unfair on society in general, a newer currency will develop, and maybe laws to go with it that will compete with Bitcoin, presumaby this will lessen the value of Bitcoin.
So there might be an incentive to 'cheat' a little in some way, but once it starts hurting a lo of people, they wil come up with an alternative.



Title: Re: The current Bitcoin economic model doesn't work
Post by: buckeye on June 07, 2011, 06:54:00 PM
It's all just a game. You have to look at it like that if you don't want be worried about losing money.

There will always be new things that come along.

Bitcoin is still relatively a new thing.

Let's hope it is harder to shut down than e-gold was.


Title: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 09:18:38 AM
Thanks to the (stupid) limited supply model which results in perpetual price bubbles and bursts, Bitcoin users have come under the mercy of exchangers. The reason is simple: One cannot trust their very own bitcoin wallet. If you have $100 worth of coins today on your computer, they could be worth $90 tomorrow, and then $80 the day after, which means you need to keep them in the form of fiat currency at the bitcoin exchanger's website or at a service linked to it such as Dwolla or LR to ensure your ability to utilize their full worth as bitcoins later.

Sounds familiar? It should. Because we're back to the good ol' banking system again. These exchangers and services can hold your money hostage till you send them scans of your personal documents where you could then be vulnerable to identity theft or at least a breach of privacy, or the exchangers' databases themselves can get hacked as was the case with MtGox in June and most recently Bitcoin7 yesterday, potentially undermining all your wealth.

Had Bitcoin used a flexible supply model which anchors a single coin's price to the amount of electricity needed to generate it, the community's reliance on such services would've been very limited. We'd only use them to get money in and out of the system, but not for storage over long periods of time where they're vulnerable to all sorts of misfortunes we're seeing now. It's not an exaggeration to say that every (non-speculating) user who lost money to a price burst, a database breach, or draconian security and AML regulations is probably a victim of the limited supply model.

If matters continue this way then the general population, which we were hoping to attract to adopt bitcoin usage, will lose all confidence in the P2P currency. Normal people aren't willing to keep their money in the form of a medium wildly fluctuating up and down by the day, while keeping it in the form of fiat with traditional institutions nullifies the whole purpose of bitcoin. This is an open letter for the project's developers to reconsider the current design in order to save this marvelous idea from an eminent failure.


Title: Re: The current Bitcoin economic model doesn't work
Post by: db on October 06, 2011, 10:49:15 AM
Suggester, Bitcoin can't be changed that way but a similar competing currency could be created. How would the flexible supply work? When demand shrinks whose money will be destroyed? When demand grows who will get the new money?


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on October 06, 2011, 10:59:10 AM
Suggester, Bitcoin can't be changed that way
Yes it can.

a similar competing currency could be created
The current design is a failure so why not simply transform it instead?

How would the flexible supply work?
Read the first post in this thread.

When demand shrinks whose money will be destroyed?
Under normal circumstances (read: flexible supply) the total demand will almost never shrink. That's as unlikely as having a negative GDP growth in a given year. What will occasionally shrink however is the increase rate of total demand.

When demand grows who will get the new money?
It'd be random just like the current design. The proposed changes are really very limited.


Title: Re: The current Bitcoin economic model doesn't work
Post by: db on October 06, 2011, 12:14:00 PM
The current design is a failure so why not simply transform it instead?

And retain compatibility with the existing system? It seems like a contradiction. Isn't the whole point of the proposal to use other rules?

Under normal circumstances (read: flexible supply) the total demand will almost never shrink. That's as unlikely as having a negative GDP growth in a given year. What will occasionally shrink however is the increase rate of total demand.

So under stable circumstances with demand determined only by, say, 3% economic growth wealth equal to 3% of the value of the money supply will be transfered from current coin holders into waste heat. Whoever the ones are that burn the resources will get the new coins. (IMO this is wasteful and distorts the incentives for investment but this is the old inflation good or bad argument; let's not go there.)

By putting a cap on the price this way you'd get rid of speculation in higher prices but but only by wasting the same amount of wealth that successful speculators would have received. Why is that better?

Speculation in lower prices would not be affected.

Isn't this just trading swings both up and down for even larger swings down? Without a price cap temporary demand spikes will be absorbed by short sellers. With a price cap they will be absorbed by new money but then there will be a price drop. A drop both from the lower demand and from the greater supply of coins. And not dampened by speculators anticipating it.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Suggester on October 06, 2011, 12:35:40 PM
`
The current design is a failure so why not simply transform it instead?
And retain compatibility with the existing system? It seems like a contradiction. Isn't the whole point of the proposal to use other rules?
I detailed in the first post exactly how's this possible. Both systems are fully compatible.

Under normal circumstances (read: flexible supply) the total demand will almost never shrink. That's as unlikely as having a negative GDP growth in a given year. What will occasionally shrink however is the increase rate of total demand.
So under stable circumstances with demand determined only by, say, 3% economic growth wealth equal to 3% of the value of the money supply will be transfered from current coin holders into waste heat. Whoever the ones are that burn the resources will get the new coins. (IMO this is wasteful and distorts the incentives for investment but this is the old inflation good or bad argument; let's not go there.)
Who said anything about inflation? If you have 100 people and $100 on an island, and then the population increases to 110 people producing 10% more, shouldn't we print 10 more dollars to keep prices constant? If we don't prices will simply decrease to compensate for the increased supply of goods and services relative to money. It's the same situation with bitcoins. Say we originally have 100 users and 100 coins, but then next year we have 102 users, then next year 115 users, then next year 120 users, then the next year 150 users, but the increase in supply is always constant at 10 coins/year. How do you expect speculation and price bubbles not to be rampant? Well under the current system it's even worse because the new supply shrinks each year till it reaches zero!

By putting a cap on the price this way you'd get rid of speculation in higher prices but but only by wasting the same amount of wealth that successful speculators would have received. Why is that better?
You're essentially saying that stealing some money from a random person and giving it to another random person isn't a bad thing for society. But it is. Sure, there's a 50% you might be the lucky guy who gets the free lunch, but overall you want to know what to expect to plan ahead properly. That's why most people don't like gambling even if it was at a 50-50 chance. The current bitcoin market condition is only attractive for addictive gamblers.

Without a price cap temporary demand spikes will be absorbed by short sellers.
Historical evidence doesn't indicate this at all. I mean look:
http://s3.postimage.org/2zivvoft0/chart.jpg (http://postimage.org/image/2zivvoft0/)

With a price cap they will be absorbed by new money but then there will be a price drop. A drop both from the lower demand and from the greater supply of coins. And not dampened by speculators anticipating it.
The whole point of the alternative model is kicking speculators out of the game. The result would be having a natural, ever-growing bitcoin economy with a slightly-increasing supply matching it. The price will hardly rise or drop because supply will react to demand changes. It is the current system with its fixed supply and crazy demand (due to speculation) which renders the price stability impossible. And as long as people don't see price stability they won't store their wealth confidently in bitcoins. In other words, they will stay away from it.


Title: Re: The limited supply model has proven to be a failure
Post by: BitterTea on October 06, 2011, 12:49:22 PM
Thanks to the (stupid) limited supply model which results in perpetual price bubbles and bursts, Bitcoin users have come under the mercy of exchangers. The reason is simple: One cannot trust their very own bitcoin wallet. If you have $100 worth of coins today on your computer, they could be worth $90 tomorrow, and then $80 the day after, which means you need to keep them in the form of fiat currency at the bitcoin exchanger's website or at a service linked to it such as Dwolla or LR to ensure your ability to utilize their full worth as bitcoins later.

You really have no clue. If you're in Bitcoin for the long run (storing value long term), price bubbles and bursts don't matter, and you keep your own wallet. At least, that's what I do. If you want to play the game, then play the game, but don't pretend like everyone has to.

Quote
The current design is a failure so why not simply transform it instead?

Because not many people agree with you. Start your own fucking currency rather than trying to change ours.

Quote
as long as people don't see price stability they won't store their wealth confidently in bitcoins. In other words, they will stay away from it.

Invalid assumption.


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 01:13:24 PM
Thanks to the (stupid) limited supply model which results in perpetual price bubbles and bursts, Bitcoin users have come under the mercy of exchangers. The reason is simple: One cannot trust their very own bitcoin wallet. If you have $100 worth of coins today on your computer, they could be worth $90 tomorrow, and then $80 the day after, which means you need to keep them in the form of fiat currency at the bitcoin exchanger's website or at a service linked to it such as Dwolla or LR to ensure your ability to utilize their full worth as bitcoins later.
You really have no clue. If you're in Bitcoin for the long run (storing value long term), price bubbles and bursts don't matter, and you keep your own wallet. At least, that's what I do.
Who cares about what you do? You can burn your money down or invest in pink cats for all I care. The current design has proved incapable of keeping the price reasonably stable for one single month in a row since April. I don't understand how you think it's practical to ask non-adopters to trade their money for a medium of exchange which they potentially won't fully retrieve its value before months or even years, if ever.

Quote
as long as people don't see price stability they won't store their wealth confidently in bitcoins. In other words, they will stay away from it.
Invalid assumption.
Really? So you're saying we can have a perfectly average Joe looking at such a graph and then deciding Hey you know what, I'll remove my cash from the local bank and put it in bitcoin instead? I'm not talking about investors and gamblers here, I'm talking about normal folks who wanna use something like paypal and dwolla. You don't lose half of your dwolla deposits in a couple of weeks do you?

The current design is a failure so why not simply transform it instead?
Because not many people agree with you. Start your own fucking currency rather than trying to change ours.
Alternatively you can give me one fucking reason for repeatedly coming back to this thread to only whine and swear. Here's a tip buddy: If you don't like it here you can stay out and leave room for sane people who're actually willing to discuss ideas instead of mindlessly cussing. Oh and I'll help you achieve just that in case you don't know how: I'm ignoring you.


Title: Re: The limited supply model has proven to be a failure
Post by: ShadowOfHarbringer on October 06, 2011, 01:16:07 PM
Quote
The current design is a failure so why not simply transform it instead?

Because not many people agree with you. Start your own fucking currency rather than trying to change ours.

Additionally the poll in the topic may very well be rigged, as SMF currently does not support blocking votes of people with less than X posts and registered longer than Y days.

Also, it is pointless to discuss with Suggester, as he just doesn't get it.


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 01:20:31 PM
Additionally the poll in the topic may very well be rigged, as SMF currently does not support blocking votes of people with less than X posts and registered longer than Y days.
So why can't it be rigged against me then? If I was gonna rig something I'm gonna make sure it appears like I have the support of 2/3rds of the community (hint hint).

Also, it is pointless to discuss with Suggester, as he just doesn't get it.
But it's not pointless to come to a thread only to say it's pointless to argue with its poster?
I'm really thankful to whomever added this fantastic ignore button. Keep barking boys, you gotta have at least 2k posts before Christmas.


Title: Re: The limited supply model has proven to be a failure
Post by: ShadowOfHarbringer on October 06, 2011, 01:43:10 PM
Additionally the poll in the topic may very well be rigged, as SMF currently does not support blocking votes of people with less than X posts and registered longer than Y days.
So why can't it be rigged against me then?

Can be rigged both ways. That is the point.
But i would rather suspect it is rigged "your" way.


Also, it is pointless to discuss with Suggester, as he just doesn't get it.
But it's not pointless to come to a thread only to say it's pointless to argue in it?

It's not because you are not getting it.


I'm really thankful to whomever added this fantastic ignore button. Keep barking boys, you gotta have at least 2k posts before Christmas.

I am not in a hurry anywhere. I think i rather won't cross 2k posts in the next year, unless something special happens.

Also, 1k posts in over a year is really nothing extraordinary.


Title: Re: The limited supply model has proven to be a failure
Post by: BitterTea on October 06, 2011, 01:45:09 PM
The current design has proved incapable of keeping the price reasonably stable for one single month in a row since April.

Sorry, as much as you want it to be, "maintaining a stable exchange rate against X fiat currency" is not one of the design goals of Bitcoin. Again, feel free to start your own block chain rather than campaigning to change this one against the will of current users.

I don't understand how you think it's practical to ask non-adopters to trade their money for a medium of exchange which they potentially won't fully retrieve its value before months or even years, if ever.

You mean, like dollars, which have lost 95% of their value since the inception of the federal reserve?

Really? So you're saying we can have a perfectly average Joe looking at such a graph and then deciding Hey you know what, I'll remove my cash from the local bank and put it in bitcoin instead?

Maybe not. So what? That time will come. Bootstrapping a new system of money is an iterative one, not instantaneous.

I'm not talking about investors and gamblers here, I'm talking about normal folks who wanna use something like paypal and dwolla. You don't lose half of your dwolla deposits in a couple of weeks do you?

Nor do you lose any of your Bitcoins. If the dollar fluctuates against the euro, OH NOES! Bitcoin is a much smaller market, as it grows it will stabilize. Do you understand this?

Alternatively you can give me one fucking reason for repeatedly coming back to this thread to only whine and swear. Here's a tip buddy: If you don't like it here you can stay out and leave room for sane people who're actually willing to discuss ideas instead of mindlessly cussing. Oh and I'll help you achieve just that in case you don't know how: I'm ignoring you.

Oh no, I used a bad word. Sorry, I get angry when people campaign to change Bitcoin instead of just making their own fucking version. Seriously, you have all the tools available to you. Grow up.


Title: Re: The limited supply model has proven to be a failure
Post by: kjj on October 06, 2011, 01:51:19 PM
Also, it is pointless to discuss with Suggester, as he just doesn't get it.
But it's not pointless to come to a thread only to say it's pointless to argue in it?
I'm really thankful for whomever added this fantastic ignore button. Keep barking boys, you gotta have at least 2k posts before Christmas.

Is it pointless to come to a thread to explain why it is pointless to argue with you?  It probably is, but I'm going to give it a try anyway.

Your thinking is hopelessly linear.

The real world is a messy, complicated place.  Many factors come together to interact in complex ways, non-linear ways.  Real understanding of the world is very difficult, often actually impossible.  So we simplify and approximate.  We make models where A causes B, and B causes C.  But these models are wrong, and we poison our thinking when we forget that.

Bitcoin is a system with dozens of variables, and hundreds of relationships.  We know a couple of these exactly.  We know a few more to a decent approximation.  Quite a few more are just vague assumptions.  The vast majority of them are so unknown that we don't even know what we are missing.

In summary, your entire conclusion is based on simple linear extrapolations.  Ponder this:

http://imgs.xkcd.com/comics/extrapolating.png (http://xkcd.com/605/)


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 01:58:00 PM
Also, it is pointless to discuss with Suggester, as he just doesn't get it.
But it's not pointless to come to a thread only to say it's pointless to argue in it?
I'm really thankful for whomever added this fantastic ignore button. Keep barking boys, you gotta have at least 2k posts before Christmas.

Is it pointless to come to a thread to explain why it is pointless to argue with you?  It probably is, but I'm going to give it a try anyway.

Your thinking is hopelessly linear.

The real world is a messy, complicated place.  Many factors come together to interact in complex ways, non-linear ways.  Real understanding of the world is very difficult, often actually impossible.  So we simplify and approximate.  We make models where A causes B, and B causes C.  But these models are wrong, and we poison our thinking when we forget that.

Bitcoin is a system with dozens of variables, and hundreds of relationships.  We know a couple of these exactly.  We know a few more to a decent approximation.  Quite a few more are just vague assumptions.  The vast majority of them are so unknown that we don't even know what we are missing.

In summary, your entire conclusion is based on simple linear extrapolations.  Ponder this:

http://imgs.xkcd.com/comics/extrapolating.png (http://xkcd.com/605/)

Your "argument" against my suggestion wasn't very informative to say the least. I'll try to explain why:

Your thinking, kjj, is hopelessly linear.

The real world is a messy, complicated place.  Many factors come together to interact in complex ways, non-linear ways.  Real understanding of the world is very difficult, often actually impossible.  So we simplify and approximate.  We make models where A causes B, and B causes C.  But these models are wrong, and we poison our thinking when we forget that.

Bitcoin is a system with dozens of variables, and hundreds of relationships.  We know a couple of these exactly.  We know a few more to a decent approximation.  Quite a few more are just vague assumptions.  The vast majority of them are so unknown that we don't even know what we are missing.

In summary, your entire conclusion is based on simple linear extrapolations.  Ponder this:


http://imgs.xkcd.com/comics/extrapolating.png (http://xkcd.com/605/)

Did that convince you that you were wrong and I am right? No? Why not? Perhaps because it wasn't very convincing? Or perhaps even because I haven't actually said one single useful sentence?

I'd really like to start hearing arguments against (or for) my proposal just for a change. Preferably from members who aren't trying to increase their post count by replying even when they have nothing to say.


Title: Re: The limited supply model has proven to be a failure
Post by: BitterTea on October 06, 2011, 02:57:18 PM
I'd really like to start hearing arguments against (or for) my proposal just for a change. Preferably from members who aren't trying to increase their post count by replying even when they have nothing to say.

Maybe you can more succinctly present your proposal so I don't have to spend an hour refuting things like...

Quote
That free money will encourage people to hoard BTCs forever

What would be the point of hoarding any kind of money forever? Are you going to eat it? Are you going to build a house out of it? You don't understand incentives. The only reason to hoard money is to later spend it.

Quote
And no, sorry, early adopters didn't take any risk to deserve a reward. Running a computer program which pops deflationary money isn't a risky activity, not one that warrants a 1,000,000% profit anyway.

They spent time and money building infrastructure. Who are you to say that their time and money is worthless? What have you contributed? Why don't you start your own currency if there's so little risk?

So, please summarize your proposal, say in a paragraph or less, and I will respond directly to it.


Title: Re: The limited supply model has proven to be a failure
Post by: kjj on October 06, 2011, 02:59:17 PM
Did that convince you that you were wrong and I am right? No? Why not? Perhaps because it's not very convincing? Perhaps because I haven't actually said one single useful sentence?

I'd really like to start hearing arguments against (or for) my proposal please just for a change. Preferably from someone with a post count under 1,000.

I had a post count under 1,000 once, but I don't any more.  Feel free to check my details though, if you think that I'm some old money dude trying to defend his hoard.  I've earned about 125 BTC since I got started, and I've spent about half of that on goods and services, and I've lost a fair chunk more by gambling (both on actual gambling sites, and on the exchanges).  Oh, and I'll be spending another 30ish (depending on the exchange rate) in the next week or so, which will leave me nearly bitpennyless.

Every four years a miner needs to exert double the virtual effort to create the same amount of coins,

You are confusing the subsidy (creation) with the reward (income).  If this was a paragraph about coin creation, it would be right, in that every 4 years halves the number of coins created.  But the rest of the paragraph makes it very clear that you are really thinking of income, and income does not decrease linearly with time the way creation does.

which means he'll be constantly demanding higher prices to compensate for his costs. Which also means that bitcoins won't generally be spendable. Why? Because only an idiot spends a currency which he is certain its price will double within 4 years, effectively granting him about 19% real annual interest--significantly better than any bank or mutual fund.

Linear.  You are assuming that the cost of mining pushes the value, and that the value does not push the cost of mining.  This is not true.  If we ignore all other factors, we end up with something similar to the Lotka-Volterra (http://en.wikipedia.org/wiki/Lotka%E2%80%93Volterra_equation) equations where the cost of mining and the value of the coins have a complex non-linear effect on each other.

But in reality, we can't ignore all other factors, because bitcoin gets value from exchange, not creation.  So we need a third non-linear differential equation to show how mining relates to supply.  And then we need a fourth, to show how value and creation relate to demand.  And then we need a fifth, to show how value relates to saving.  And then a sixth, to show how...

See where I'm going with this?

That free money will encourage people to hoard BTCs forever or until another wishful investor buys them, fueling speculation and price bubbles. Bitcoin will ultimately be regarded as a phony investment with no real value, just like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.

A conclusion drawn from your previous linear mistake.  You are assuming a system with no feedback, and then shocked (shocked!) to find that it runs away to a singularity.

This scenario can only be avoided if the cost of generating new BTCs got constant. Which can only happen if participating nodes needed to exert a more or less constant amount of work (cost) to generate a given amount of BTCs. Only then will people be inclined to actually spend their coins, and they can finally serve their purpose as a stable medium of exchange.

You are totally correct that your fictional linear model can only be saved by adding feedback.  But your model isn't reality.  Reality already has feedback in place.

But that's not it. The very fact that the newly-generated coin supply dwindles as its user base (hopefully) continues to grow will raise that 19% deflation rate even higher. Let alone that many coins are forever destroyed via HDD failures and lost thumb drives, pushing the deflation even higher and higher. High deflation is bad because nobody spends their money, they only save it because it gains value over time. Can you imagine what would've happened if, say, the Japanese government hasn't printed any (or very few) Yens during the last century while the population exploded? One 1911 Yen would have been more than enough to buy a house today. Who then would've spent their Yens in 1911? Why, almost noone of course! This scenario is only avoidable if the number of available BTCs continues to grow with its user base at least proportionally. If both figures match, we won't have deflation nor inflation.

Yawn.  Do I even need to say it?  Linear extrapolation with no feedback once again races to the moon.  Also, bitcoin isn't atomic.  We are free to divide it.  Even if a single bitcoin will someday be worth eleventy billion dollars, it doesn't mean that we can't peel off a fraction to buy a loaf of bread today.

I'm going to stop here.  The later part where you want the equivalent of 12 billion new coins produced per day left me nearly speechless.


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 03:46:00 PM
I had a post count under 1,000 once, but I don't any more.
It's nothing personal, but from experience it seems that people with ridiculous number of post counts take it as their personal duty to respond to just about anyone saying anything on the board whether they've got something valuable to add or not. That's why their replies, generally speaking, don't tend to be very useful or well-thought. And I've seen three examples today already.

Feel free to check my details though, if you think that I'm some old money dude trying to defend his hoard.
There's no way to ever verify otherwise but it doesn't really matter. We're discussing abstract ideas not personal motives.

I'm going to stop here.  The later part where you want the equivalent of 12 billion new coins produced per day left me nearly speechless.
Then you better remain speechless. Because if people are spending $12 billion/day on electricity to produce coins (wtf?) then they deserve $12 billion worth in stable coins per day. At the current price of about $5/coin and the daily 144 blocks*50 coins the daily new supply is worth about $36,000.

There's no point going through the technical details about whether the price will perpetually deflate since the last 20 pages pretty much cover all the for and against arguments on that and they're available for people to read if interested. Rather, it's more constructive if we focus on the main much simpler problem: the instability of the bitcoin's price. I don't think you have any doubts that the current model does not produce a stable currency, do you?

If we agree on that, then I hope we also agree that stability is an important if not an essential feature of a medium of exchange. It would then be established that we have a problem in the current design, and we'll start thinking about how to deal with it.

For the lulz: It's incredibly funny seeing Bittertea and SoH keep posting "This user is currently ignored." I bet they're still yelling about how pointless it is to keep posting in this pointless thread. It's like these retards literally can't stop typing.


Title: Re: The limited supply model has proven to be a failure
Post by: ShadowOfHarbringer on October 06, 2011, 04:10:03 PM
I had a post count under 1,000 once, but I don't any more.
It's nothing personal, but from experience it seems that people with ridiculous number of post counts take it as their personal duty to respond to just about anyone saying anything on the board whether they've got something valuable to add or not. That's why their replies, generally speaking, don't tend to be very useful or well-thought. And I've seen three examples today already.

Sorry, but if i had 100 posts, not 1000, i would still say that your argumentation is a complete bullshit.

I really admire kjj and BitterTea for wasting time with you. You just don't get simplest things. Your whole point is illogical, false and based on wrong assumptions and facts.

But keep going, just let me grab some popcorn.


Title: Re: The limited supply model has proven to be a failure
Post by: kjj on October 06, 2011, 04:29:46 PM
There's no point going through the technical details about whether the price will perpetually deflate since the last 20 pages pretty much cover all the for and against arguments on that and they're available for people to read if interested. Rather, it's more constructive if we focus on the main much simpler problem: the instability of the bitcoin's price. I don't think you have any doubts that the current model does not produce a stable currency, do you?

If we agree on that, then I hope we also agree that stability is an important if not an essential feature of a medium of exchange. It would then be established that we have a problem in the current design, and we'll start thinking about how to deal with it.

I think it is way too early to say whether or not the system is going to produce a stable currency or not.  I suspect that it will produce enough stability, but for, I think, very nearly the exact same reasons that you think it won't.

I'm also not sure that total stability (or really even more than a little stability) is a necessary feature of a medium of exchange.  For example, I don't consider the dollar to be very stable at all, except in relation to a limited subset of goods and services over very, very short periods, but the dollar is still a very useful medium of exchange.

The value of everything floats.  Things that are more useful today than they were yesterday will become more valuable.  Things that are easier to produce today will become less valuable.  Hoping for real long term stability is childish.  Expecting it is madness.  History tells us that state sponsored violence isn't enough to create stability.  What makes you think you are clever enough to design an algorithm in advance that will achieve it no matter what tomorrow brings?


Title: Re: The limited supply model has proven to be a failure
Post by: Red on October 06, 2011, 04:45:13 PM
Had Bitcoin used a flexible supply model which anchors a single coin's price to the amount of electricity needed to generate it, the community's reliance on such services would've been very limited. We'd only use them to get money in and out of the system, but not for storage over long periods of time...

This seems very similar to what Etlase2 is trying to design for EnCoin (https://bitcointalk.org/index.php?topic=46237.msg551023#msg551023).

I'm absolutely sure the coin price (equals) and absolute quantity of electricity argument is impossible to implement. (Feel free to see that and the previous EnCoin (https://bitcointalk.org/index.php?topic=44682.0) thread for details of why.)

However,

Suggester, Bitcoin can't be changed that way but a similar competing currency could be created. How would the flexible supply work? When demand shrinks whose money will be destroyed? When demand grows who will get the new money?

In the process, I identified (the beginnings of) a pretty trivial mechanism for keeping *coin prices stable. It uses the price of electricity as a constraint. It has varying minting based upon economic changes.

I don't want to deliberately sidetrack Etlase2 threads. But if there is interest, I don't mind starting a new thread to discuss the feasibility of the concept.

This post (https://bitcointalk.org/index.php?topic=46237.msg560126#msg560126) has a brief summary.
This post (https://bitcointalk.org/index.php?topic=44682.msg546418#msg546418) gives a few more details.

I'm not saying this exact idea is finished or perfect. I noticed few unintentional flaws in the details myself. But if anyone is willing to discuss the plausibility of creating stable *coins using a variant of this mechanism, then give me a ping in PM.

If you want me to understand that a fixed number of coins and depreciating prices are better... Trust me, I've already heard you! Nothing to see here. Move along...


Title: Re: The current Bitcoin economic model doesn't work
Post by: Crypt_Current on October 06, 2011, 05:30:16 PM
I spend an unhealthy amount of time lurking around this forum, and I noticed a trend -- that people like Suggester pop up every now and then to ... "suggest" changes to BTC that would make it more like regular physical centralized currencies.  Their suggestions hardly if ever add any value to our beloved crypto-currency, and when refuted and politely told why exactly they don't, these people just continue to plug their original argument.  Even when it is suggested to the suggester to just start his/her own damn currency, they often pass right over that possibility.

I think it would be easier to put effort into creating an alt-chain than to defend political stances.  I don't think this sort of "defense" is any kind of thing any normal person does in his/her spare time, or as a kind of "labor of love".

It's probably not a novel idea, and it definitely and admittedly borders on paranoia, but:

I think these people are paid agents of organizations that have averse intent toward Bitcoin, and possibly the concept of crypto-currency in general.

One such organization could be whichever shadowy one is led by The Manipulator.


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 05:41:43 PM
For example, I don't consider the dollar to be very stable at all, except in relation to a limited subset of goods and services over very, very short periods, but the dollar is still a very useful medium of exchange.
Your definition of "a limited subset of goods and services" seems to mean just about every consumer good and service out there, while your definition of "very, very short periods" seem to mean around 5+ years. And that's all nice and dandy till we find that you've got no problem with bitcoins' price shooting up and down several folds within weeks. You're weird, you know?

Hoping for real long term stability is childish.  Expecting it is madness.  History tells us that state sponsored violence isn't enough to create stability.
Drama aside, I pointed out in the initial post that the proposed model will tie the coin's price to the average worldwide electricity costs. That's certainly not 100% stable on the long term, but I can promise you it won't double over a month nor lose half its value over 10 days. Let's just say it's significantly more stable than the current design. Got a better idea? Be my guest.

I think these people are paid agents of organizations that have averse intent toward Bitcoin, and possibly the concept of crypto-currency in general.
One such organization could be whichever shadowy one is led by The Manipulator.
Crypt_Current, you've just made The Manipulator very, very angry. By exposing His agents you have sealed your fate. Let that be a lesson to all of you. Background music followed by a cut scene

Red, Encoin sounds like a very promising idea. While by no means Etlase2 was the first member to point at the dreaded problems of limited supply as many people have cried out loud against it over the last year and a half, it's the first practical implementation of the concept I've seen. I'll look into it right away (then report back to The Manipulator, of course).


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 05:44:23 PM

Crypt_Current, you've just made The Manipulator very, very angry. By exposing His agents you have sealed your fate. Let that be a lesson to all of you background music followed by a cut scene


HE ADMITTED IT!


Then you better remain speechless. Because if people are spending $12 billion/day on electricity to produce coins (wtf?) then they deserve $12 billion worth in stable coins per day. At the current price of about $5/coin and the daily 144 blocks*50 coins the daily new supply is worth about $36,000.

...

If we agree on that, then I hope we also agree that stability is an important if not an essential feature of a medium of exchange.

Just because you mine BTC doesn't mean you spend anything to do it, or care where the electricity comes from / who's paying it.  SETI and Folding@Home people do what they do for the same reason I mine BTC -- two things coupled together:  1) I believe in the concept more strongly than I believe in most things, and 2) I have an opportunity to support that belief tangibly.

For miners like me, it's not really about the value of the currency (BTC, USD, whatever) -- it's about the core principles and the concept.

Your valuation of BTC against USD shows that you do not think the same way about crypto-currencies as people like myself do.


Title: Re: The limited supply model has proven to be a failure
Post by: Suggester on October 06, 2011, 06:08:02 PM
For miners like me, it's not really about the value of the currency (BTC, USD, whatever) -- it's about the core principles and the concept.

Your valuation of BTC against USD shows that you do not think the same way about crypto-currencies as people like myself do.
What's wrong with you folks? I thought I was a conspiracy nut job till I saw people on this forum. Does a crypto-currency need to be stupidly volatile to be a good crypto-currency? Does anchoring its price to the average global electricity price means we're selling our souls to OPEC or something? Do you see Bitcoin ever going mainstream when one cannot even ensure it'll keep half of its worth by next week?

The premise of bitcoin is:
1- Anonymity
2- Control

My proposed model doesn't even touch these concepts. It's a purely economic suggestion. An unstable medium of exchange is a bad medium of exchange.

And you know what? By insisting on making Bitcoin fail it's probably you who's working for The Manipulator!


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 06, 2011, 06:16:57 PM
For miners like me, it's not really about the value of the currency (BTC, USD, whatever) -- it's about the core principles and the concept.

Your valuation of BTC against USD shows that you do not think the same way about crypto-currencies as people like myself do.
What's wrong with you folks? I thought I was a conspiracy nut job till I saw people on this forum. Does a crypto-currency need to be stupidly volatile to be a good crypto-currency? Does anchoring its price to the average global electricity price means we're selling our souls to OPEC or something? Do you see Bitcoin ever going mainstream when one cannot even ensure it'll keep half of its worth by next week?

The premise of bitcoin is:
1- Anonymity
2- Control

My proposed model doesn't even touch these concepts. It's a purely economic suggestion. An unstable medium of exchange is a bad medium of exchange.

And you know what? By insisting on making Bitcoin fail it's probably you who's working for The Manipulator!

I shot down this idea back in Feb.  What has changed, Suggester?  Have the laws of economics been repealed since I last posted?  Do you have a new plan to peg the value of the bitcoin to a commodity service/product that doesn't break anonimity? 


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 06:24:29 PM
It's a purely economic suggestion. An unstable medium of exchange is a bad medium of exchange.

It's only unstable in terms of other currencies, not goods / services.

People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

Quote
And you know what? By insisting on making Bitcoin fail it's probably you who's working for The Manipulator!

I will tell you right now I do not, but you yourself have already implicitly agreed that you do work for the Manipulator in an earlier post you made.  Do you want me to recite it to you?


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 06, 2011, 06:31:35 PM
People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

That's a world that can never be, no matter how hard you wish it to be so.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Crypt_Current on October 06, 2011, 06:33:30 PM
It's a purely economic suggestion. An unstable medium of exchange is a bad medium of exchange.

It's only unstable in terms of other currencies, not goods / services.

People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

Quote
And you know what? By insisting on making Bitcoin fail it's probably you who's working for The Manipulator!

I will tell you right now I do not, but you yourself have already implicitly agreed that you do work for the Manipulator in an earlier post you made.  Do you want me to recite it to you?

Actually, what you implicitly agreed to is that you do these things:
"suggest" changes to BTC that would make it more like regular physical centralized currencies.  Their suggestions hardly if ever add any value to our beloved crypto-currency, and when refuted and politely told why exactly they don't, these people just continue to plug their original argument.  Even when it is suggested to the suggester to just start his/her own damn currency, they often pass right over that possibility.

Regular people don't spend their free time to act this way on forums.  You're either compensated or insane.


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 06:34:20 PM
People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

That's a world that can never be, no matter how hard you wish it to be so.

That's an opinion that always is and will be, about everything.


Title: Re: The limited supply model has proven to be a failure
Post by: BitterTea on October 06, 2011, 06:42:34 PM
People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

That's a world that can never be, no matter how hard you wish it to be so.

That's an opinion that always is and will be, about everything.

Crypt, I think you might be mistaken on what the term economics means. It's merely the set of laws (in the sense of gravity, not Patriot Act) that govern exchange between individuals. Stuff like supply and demand... they exist until scarcity no longer exists.

I assume what you want is a world free from state control over economics altogether, no?


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 06:45:01 PM
People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

That's a world that can never be, no matter how hard you wish it to be so.

That's an opinion that always is and will be, about everything.

Crypt, I think you might be mistaken on what the term economics means. It's merely the set of laws (in the sense of gravity, not Patriot Act) that govern exchange between individuals. Stuff like supply and demand... they exist until scarcity no longer exists.

I assume what you want is a world free from state control over economics altogether, no?

Sure, yeah, whatever.   :D ;)


Title: Re: The limited supply model has proven to be a failure
Post by: kjj on October 06, 2011, 07:00:23 PM
For example, I don't consider the dollar to be very stable at all, except in relation to a limited subset of goods and services over very, very short periods, but the dollar is still a very useful medium of exchange.
Your definition of "a limited subset of goods and services" seems to mean just about every consumer good and service out there, while your definition of "very, very short periods" seem to mean around 5+ years. And that's all nice and dandy till we find that you've got no problem with bitcoins' price shooting up and down several folds within weeks. You're weird, you know?

Been to the grocery store or the gas station lately?  The dollar is hardly stable in relation to food, water, or gasoline, and the period is far shorter than "5+ years".  How about the stock markets?  Commodity markets?  Forex markets?  Not exactly stable there either.  Natural gas or heating oil?  The dollar doesn't appear to be stable relative to anything but the penny.

Hoping for real long term stability is childish.  Expecting it is madness.  History tells us that state sponsored violence isn't enough to create stability.
Drama aside, I pointed out in the initial post that the proposed model will tie the coin's price to the average worldwide electricity costs. That's certainly not 100% stable on the long term, but I can promise you it won't double over a month nor lose half its value over 10 days. Let's just say it's significantly more stable than the current design. Got a better idea? Be my guest.

In my opinion, Bitcoin is already a better idea.  Bitcoin has stable rules, well known in advance and unchanging.  You just think it is unstable because you don't see the feedback mechanisms in the system.

Care to answer my question?

The value of everything floats.  Things that are more useful today than they were yesterday will become more valuable.  Things that are easier to produce today will become less valuable.  Hoping for real long term stability is childish.  Expecting it is madness.  History tells us that state sponsored violence isn't enough to create stability.  What makes you think you are clever enough to design an algorithm in advance that will achieve it no matter what tomorrow brings?

Oh, and to Crypt_Current...

People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

It doesn't really matter if you aren't interested in economics.  Economics is very interested in you.


Title: Re: The limited supply model has proven to be a failure
Post by: Red on October 06, 2011, 07:00:59 PM
What's wrong with you folks? I thought I was a conspiracy nut job till I saw people on this forum. Does a crypto-currency need to be stupidly volatile to be a good crypto-currency? Does anchoring its price...

The premise of bitcoin is:
1- Anonymity
2- Control

There is a third premise that was explicit in bitcoin.
3. Fixed monetary policy

It was that third premise that represents the "soul" of this community.

There used to be a currency called the Drachma that represented the soul of one community. A currency called the Deutsche Mark that represented the soul of another community. Then someone suggested, "Wouldn't it be better if we created one currency that represented our combined souls?"

Turns out the answer was, "No. Probably not."

Some concepts have to compete. True can't collaborate with False by settling on Maybe. Or in answer to a famous question, "No, we can't all just get along."


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 07:05:09 PM

Oh, and to Crypt_Current...

People like me aren't really interested in economics.  People like me want to build a world free from economics altogether.

It doesn't really matter if you aren't interested in economics.  Economics is very interested in you.

So is Jesus Christ, Allah, the OTO, gravity, ITT Tech, Valued Opinions, and some medium named Tara.  I'll deal with economics interest in me in a similar fashion as I've dealt with all these:  Use it to afford myself a more comfortable living when I can do so without knowingly harming others in the process, and ignore it otherwise.  No one gets out of life alive, yet.


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 07:07:52 PM
What's wrong with you folks? I thought I was a conspiracy nut job till I saw people on this forum. Does a crypto-currency need to be stupidly volatile to be a good crypto-currency? Does anchoring its price...

The premise of bitcoin is:
1- Anonymity
2- Control

There is a third premise that was explicit in bitcoin.
3. Fixed monetary policy

It was that third premise that represents the "soul" of this community.

There used to be a currency called the Drachma that represented the soul of one community. A currency called the Deutsche Mark that represented the soul of another community. Then someone suggested, "Wouldn't it be better if we created one currency that represented our combined souls?"

Turns out the answer was, "No. Probably not."

Some concepts have to compete. True can't collaborate with False by settling on Maybe. Or in answer to a famous question, "No, we can't all just get along."


PLUS LOTS OF ONES


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 06, 2011, 07:45:41 PM
No one gets out of life alive, yet.

Try and prove that statement.


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 06, 2011, 08:29:34 PM
No one gets out of life alive, yet.

Try and prove that statement.

?


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 06, 2011, 09:00:04 PM

What did you misunderstand?  There are three live assentions claimed in the KJV of the Bible alone.  Disprove them.


Title: Re: The limited supply model has proven to be a failure
Post by: RandyFolds on October 06, 2011, 09:08:37 PM

What did you misunderstand?  There are three live assentions claimed in the KJV of the Bible alone.  Disprove them.

No no no. You can't take a story about something that never happened and then demand someone disprove it. That's how retarded religious chimps argue, and it is fundamentally flawed.

The easter bunny is real. Disprove it.

Santa Claus is real, too. Hitler is alive and living in the loft of my garage. Obama isn't a US citizen. Fucking Gilgamesh never killed the bull of heaven for slaying Enkidu, and Odysseus is still lost at sea.

You've got a lot to prove here, brother.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Crypt_Current on October 06, 2011, 09:28:24 PM
Ah, I see, thanks for that Randy.

Yeah, I only said that "no one gets out of life alive" as a sort of assertion that everyone knows for sure that every human dies, but no one knows for sure that any human escapes or circumvents death.  So, "economics" and whatever else can "be interested" in me or threaten me or help me or whatever -- in the end I'll be six feet under and on that scale I'm a nihilist.


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 06, 2011, 09:53:45 PM

What did you misunderstand?  There are three live assentions claimed in the KJV of the Bible alone.  Disprove them.

No no no. You can't take a story about something that never happened and then demand someone disprove it. That's how retarded religious chimps argue, and it is fundamentally flawed.

The easter bunny is real. Disprove it.


That's quite a claim.  Notice I didn't make any such claim.  I just asked him to prove his assertion, as if the reader should just take it on faith that what he says is so.  I make the same charge to you, since you seem to think you understand what I'm doing.  Prove the statement that the Easter Bunny is real.  I'm the reader, I am under no obligation to disprove it.

Quote

Santa Claus is real, too. Hitler is alive and living in the loft of my garage. Obama isn't a US citizen. Fucking Gilgamesh never killed the bull of heaven for slaying Enkidu, and Odysseus is still lost at sea.

You've got a lot to prove here, brother.

No, I don't.  I looks to me like you have a lot to prove.  Get started, you've just cut yourself quite a lot of work.

And I would recommend you try not to make claims that are not supportable in the future.


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on October 06, 2011, 09:55:23 PM
Ah, I see, thanks for that Randy.

Yeah, I only said that "no one gets out of life alive" as a sort of assertion that everyone knows for sure that every human dies, but no one knows for sure that any human escapes or circumvents death.  So, "economics" and whatever else can "be interested" in me or threaten me or help me or whatever -- in the end I'll be six feet under and on that scale I'm a nihilist.

In the long run, we're all dead, right?



Title: Re: The limited supply model has proven to be a failure
Post by: RandyFolds on October 07, 2011, 12:34:37 AM

What did you misunderstand?  There are three live assentions claimed in the KJV of the Bible alone.  Disprove them.

No no no. You can't take a story about something that never happened and then demand someone disprove it. That's how retarded religious chimps argue, and it is fundamentally flawed.

The easter bunny is real. Disprove it.


That's quite a claim.  Notice I didn't make any such claim.  I just asked him to prove his assertion, as if the reader should just take it on faith that what he says is so.  I make the same charge to you, since you seem to think you understand what I'm doing.  Prove the statement that the Easter Bunny is real.  I'm the reader, I am under no obligation to disprove it.

Quote

Santa Claus is real, too. Hitler is alive and living in the loft of my garage. Obama isn't a US citizen. Fucking Gilgamesh never killed the bull of heaven for slaying Enkidu, and Odysseus is still lost at sea.

You've got a lot to prove here, brother.

No, I don't.  I looks to me like you have a lot to prove.  Get started, you've just cut yourself quite a lot of work.

And I would recommend you try not to make claims that are not supportable in the future.

You told him to prove his assertion that is 100% confirmed by empirical evidence, and then quoted a fairy tale to cast doubt on his assertion.

One person is making outrageous claims, and the other is making obvious empirical claims. So who should prove it; the person whom ALL empirical evidence supports, or the guy talking about fairies? My series of examples was just mocking your choice of the bible as an empirical source. None of those is true, except for the Obama one.

I just don't understand people who play devil's advocate for ridiculous things. I mean, yes, some of us are currently alive and we cannot read the future and might never die, but when 100% of primary sources throughout history confirm a theory, doesn't that make it pretty goddamn sound?


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 07, 2011, 12:50:48 AM
Quote


And I would recommend you try not to make claims that are not supportable in the future.

You told him to prove his assertion that is 100% confirmed by empirical evidence, and then quoted a fairy tale to cast doubt on his assertion.


And yet, he didn't assert any such emprical evidence.  He stated it as a given, but didn't mention that it was a given on his part, and used it as a comparision of his correctness.  You can't make such an argument if there are dissenters, and at least all Catholics would dissent from the claim that "no one has gotten out of life alive, yet" would they not?  

Quote
One person is making outrageous claims, and the other is making obvious empirical claims.


Which is which?  I certainly made no claims at all, simply highlighted an example of a document that portends to dispute his position.  Since your the one who claimed that Hitler's head was alive, I assume that your's were the outrageous claims that you refer to?

I really don't think that you understand what's going on here, and I find it rather depressing to imagine that you could be an educated adult.

Quote


So who should prove it; the person whom ALL empirical evidence supports, or the guy talking about fairies?


Both of you, as far as I am concerned.  Again, he presented no evidence at all, and neither did you.  I've made no claims to support, I expect the author to support his position, not the reader.

Quote
My series of examples was just mocking your choice of the bible as an empirical source. None of those is true, except for the Obama one.

Of course I know that you were attempting to mock me, and that is part of what makes your statements both sad and amusing.  You assumed that my referencing a document that contradicts his (and your's, presumedly) premise means that I was trying to argue that either position was correct.  I was not.  I was highlighting that there exists a large percentage of people who would disagree with his assertion, and that he left said assertion unsupported as if everyone would naturally agree that he was correct.

Please tell me you are still in high school.

Quote
I just don't understand people who play devil's advocate for ridiculous things. I mean, yes, some of us are currently alive and we cannot read the future and might never die, but when 100% of primary sources throughout history confirm a theory, doesn't that make it pretty goddamn sound?

That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 07, 2011, 01:22:51 AM
Quote


And I would recommend you try not to make claims that are not supportable in the future.

You told him to prove his assertion that is 100% confirmed by empirical evidence, and then quoted a fairy tale to cast doubt on his assertion.


And yet, he didn't assert any such emprical evidence.  He stated it as a given, but didn't mention that it was a given on his part, and used it as a comparision of his correctness.  You can't make such an argument if there are dissenters, and at least all Catholics would dissent from the claim that "no one has gotten out of life alive, yet" would they not?  

Quote
One person is making outrageous claims, and the other is making obvious empirical claims.


Which is which?  I certainly made no claims at all, simply highlighted an example of a document that portends to dispute his position.  Since your the one who claimed that Hitler's head was alive, I assume that your's were the outrageous claims that you refer to?

I really don't think that you understand what's going on here, and I find it rather depressing to imagine that you could be an educated adult.

Quote


So who should prove it; the person whom ALL empirical evidence supports, or the guy talking about fairies?


Both of you, as far as I am concerned.  Again, he presented no evidence at all, and neither did you.  I've made no claims to support, I expect the author to support his position, not the reader.

Quote
My series of examples was just mocking your choice of the bible as an empirical source. None of those is true, except for the Obama one.

Of course I know that you were attempting to mock me, and that is part of what makes your statements both sad and amusing.  You assumed that my referencing a document that contradicts his (and your's, presumedly) premise means that I was trying to argue that either position was correct.  I was not.  I was highlighting that there exists a large percentage of people who would disagree with his assertion, and that he left said assertion unsupported as if everyone would naturally agree that he was correct.

Please tell me you are still in high school.

Quote
I just don't understand people who play devil's advocate for ridiculous things. I mean, yes, some of us are currently alive and we cannot read the future and might never die, but when 100% of primary sources throughout history confirm a theory, doesn't that make it pretty goddamn sound?

That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.

I dunno dude, I thought the two things most "normal, common" people generally take as concrete truths were:  1) death and 2) taxes.
My sane side takes it as fact that 100% of real, non-fictional humans that have lived and are not alive anymore, have died.  I think that's the 100% Randy was referring to.

Jeez, these forums, man... I thought *I* was fucking weird; my whole love of argument in general and transhumanism, and Uranus having a large influence in my chart causing me to think centuries ahead of my time.  You people make me feel NORMAL, and I fucking LOVE you for that.  :-D

It is REALLY goddamned nice that this thread has gone off topic, and it makes me feel extremely warm and fuzzy to know that I contributed to that.

I also want to add that I am a baptized and confirmed Catholic, and have many Catholic family members who would agree with me that they will most likely die someday.


Title: Re: The limited supply model has proven to be a failure
Post by: RandyFolds on October 07, 2011, 01:44:08 AM
That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.

PRIMARY sources, throughout history. Wikipedia that shit, holmes.


Title: Re: The limited supply model has proven to be a failure
Post by: BitterTea on October 07, 2011, 03:22:54 AM
That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.

PRIMARY sources, throughout history. Wikipedia that shit, holmes.

What is a primary source for the theory "self does not survive the death of the body"?


Title: Re: The limited supply model has proven to be a failure
Post by: RandyFolds on October 07, 2011, 04:18:32 AM
That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.

PRIMARY sources, throughout history. Wikipedia that shit, holmes.

What is a primary source for the theory "self does not survive the death of the body"?

That isn't what we are talking about. We are talking about the comment that no one has made it out of life alive. LIFE::ALIVE


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 07, 2011, 04:26:12 AM
That's just it, 100% of historical sources do not confirm any such theory.  There are many historical documents besides the one that I referenced that have referred to such things.  Myths or not, not all sources support such a theorm.  You don't get to just dismiss those documents as myth, that's not your call.  It's also an intellectual cop-out.

PRIMARY sources, throughout history. Wikipedia that shit, holmes.

Almost all human history that we in the modern age consider to be factual is based upon independent documented references.  The New Testament references itself, which is not trustworthy, but there are literally dozens of independent documents that claim that Jesus of Nazareth was a real person who was executed by a Roman official.  There is more evidence that Jesus was not a work of fiction than there is that Homer was more than a pseudonym or that, excluding his own written texts, that Plato was a real person and not a pseudonym for a collection of students of Socrates.  Yet I have encountered many who doubt that Jesus lived at all who wouldn't question that Plato was a real and singular person.  Do you really think that you get to exclude the perspectives of those who disagree with you, based primarily on your personal assessments of the quality of references?  Do you think that, because you have a particular belief, that those who do not share your belief are to be discounted or derided?  If you make a statement, you have the obligation to support the statement. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on October 07, 2011, 04:29:36 AM
BTW, no one can prove that "no one makes it out of life alive" because, although it's pretty obvious that it's close enough to be true, you can't prove a negative absolute. 


Title: Re: The current Bitcoin economic model doesn't work
Post by: Crypt_Current on October 07, 2011, 09:25:45 AM
BTW, no one can prove that "no one makes it out of life alive" because, although it's pretty obvious that it's close enough to be true, you can't prove a negative absolute. 

"Everybody dies", then?

And even if I can't prove it's true, I can prove it's a classic deathmetal / grindcore album by Hateplow!  ;D


Title: Re: The limited supply model has proven to be a failure
Post by: MoonShadow on October 07, 2011, 06:51:47 PM

You should have responded like this...

"If we agree with the generally accepted definition of self-evident truths – those which do not require hard evidence in order to evince acceptance – we run into two problems. The first is that at some time there surely must have been some evidence that caused universal acceptance of these truths; as in, it is self-evident that the Sun rises in the east every morning because the ancients and we have seen it there; as in, every human being has material needs to stay alive because the ancients and we have gotten hungry and cold and awkward at nakedness; as in, all things are subject to the laws of cause and effect, except for the uncaused cause, whom believers call God and our secular colleagues call Nature. These observations of the Sun and realizations of our own self-needs are, in fact, evidence for their universal acceptance. But the universality of these "truisms" (another way of saying self-evident truths) allows us to dispense with the need to provide scientific evidence in support of them whenever we articulate them. Stated differently, no rational person can seriously challenge truisms when we use them as building blocks for our arguments."

-Judge Neopolitano

But as soon as you had, I would have been inclined to point out that this is one truism, and economics is a set of same.  A set of natural laws that cannot be denied without a "cost" in some other aspect of the economy.  So just as no one gets out of life alive, nor do you get to ignore economics without a cost to yourself, whether you are aware of the loss or not.

Seriously, you kids are slow.


Title: Re: The limited supply model has proven to be a failure
Post by: Crypt_Current on October 08, 2011, 12:52:06 AM

You should have responded like this...

"If we agree with the generally accepted definition of self-evident truths – those which do not require hard evidence in order to evince acceptance – we run into two problems. The first is that at some time there surely must have been some evidence that caused universal acceptance of these truths; as in, it is self-evident that the Sun rises in the east every morning because the ancients and we have seen it there; as in, every human being has material needs to stay alive because the ancients and we have gotten hungry and cold and awkward at nakedness; as in, all things are subject to the laws of cause and effect, except for the uncaused cause, whom believers call God and our secular colleagues call Nature. These observations of the Sun and realizations of our own self-needs are, in fact, evidence for their universal acceptance. But the universality of these "truisms" (another way of saying self-evident truths) allows us to dispense with the need to provide scientific evidence in support of them whenever we articulate them. Stated differently, no rational person can seriously challenge truisms when we use them as building blocks for our arguments."

-Judge Neopolitano

But as soon as you had, I would have been inclined to point out that this is one truism, and economics is a set of same.  A set of natural laws that cannot be denied without a "cost" in some other aspect of the economy.  So just as no one gets out of life alive, nor do you get to ignore economics without a cost to yourself, whether you are aware of the loss or not.

Seriously, you kids are slow.


I know the cost all too well, my friend... I'm about to be homeless -- again.
Even at age 31, I do still feel like a kid at times.  Ya take the good with the bad, ya know?


Title: Re: The current Bitcoin economic model doesn't work
Post by: spndr7 on April 12, 2014, 02:33:12 PM


Every four years a miner needs to exert double the virtual effort to create the same amount of coins, which means he'll be constantly demanding higher prices to compensate for his costs. Which also means that bitcoins won't generally be spendable. Why? Because only an idiot spends a currency which he is certain its price will double within 4 years, effectively granting him about 19% real annual interest--significantly better than any bank or mutual fund.

Great! I hear you say, free money for everyone, right?

Wrong.

Just as it's futile to create and distribute free extra coins to anyone already owning them "to make everyone richer", built-in deflation won't be helping anyone on the long term. That free money will encourage people to hoard BTCs forever or until another wishful investor buys them, fueling speculation and price bubbles. Bitcoin will ultimately be regarded as a phony investment with no real value, just like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.


Every word of this 4-year old post is holding true and if nothing changes, bitcoin faces the danger of the conclusion of this post.


Title: Re: The current Bitcoin economic model doesn't work
Post by: Ibian on April 12, 2014, 08:44:33 PM
Is bearish necroing of ancient threads a bullish sign?


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on April 13, 2014, 12:14:06 AM


Every four years a miner needs to exert double the virtual effort to create the same amount of coins, which means he'll be constantly demanding higher prices to compensate for his costs. Which also means that bitcoins won't generally be spendable. Why? Because only an idiot spends a currency which he is certain its price will double within 4 years, effectively granting him about 19% real annual interest--significantly better than any bank or mutual fund.

Great! I hear you say, free money for everyone, right?

Wrong.

Just as it's futile to create and distribute free extra coins to anyone already owning them "to make everyone richer", built-in deflation won't be helping anyone on the long term. That free money will encourage people to hoard BTCs forever or until another wishful investor buys them, fueling speculation and price bubbles. Bitcoin will ultimately be regarded as a phony investment with no real value, just like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.


Every word of this 4-year old post is holding true and if nothing changes, bitcoin faces the danger of the conclusion of this post.

Economic law has not changed in the past 4 years, so this post is no more correct today than it wasn't 4 years ago.  Go take an economics class.


Title: Re: The current Bitcoin economic model doesn't work
Post by: devphp on April 13, 2014, 06:11:31 AM
Not everyone is holding forever for various reasons. Some people need to cash out to cover living expenses, some freak out like the past few days and sell, there is an equilibrium of sorts. Yes, bubbling and then popping, rinse and repeat, so what. Besides, other crypto currencies that came into existence since the original post are making sure bitcoin is being traded for them and spent at stores that recently started accepting them. This ensures people are getting less religous about holding bitcoin and developing more practical attitude just like to any other asset class.

People always tend to look at things as just black or white, but the truth is always somewhere in the middle.

What doesn't have characteristics of a ponzi after all?


Title: Re: The current Bitcoin economic model doesn't work
Post by: badchild on April 17, 2014, 09:50:50 AM
I'd also like to refute the whole "OMG early adopters are making a fortune!" argument: for an early adopter to maximize their profits from hoarding while the price rises, they would have to never lose faith in Bitcoin.  As soon as they do, they sell, and then they're at the same level as newcomers.


Title: Re: The current Bitcoin economic model doesn't work
Post by: counter on April 17, 2014, 06:29:44 PM
to say it doesn't work is laughable.  Perfect, no far from it but Bitcoin is spreading around the globe so yea it is doing something right if you ask me and I believe many others feel the same way.


Title: Re: The current Bitcoin economic model doesn't work
Post by: spazzdla on April 17, 2014, 07:23:03 PM
Economic "law" written around the idea of infinite money creation and money based on debt is hilarious, just hilarious.


Title: Re: The current Bitcoin economic model doesn't work
Post by: j1pvt on January 02, 2016, 01:33:55 PM
to say it doesn't work is laughable.  Perfect, no far from it but Bitcoin is spreading around the globe so yea it is doing something right if you ask me and I believe many others feel the same way.

But what happens when all the halving has taken place and we hit the proposed 21 000 000 total bitcoins.
The difficulty is already knocking out the small individuals who are presumably the life and blood of the whole system...
Does the whole currency then get sold back to highest bidder ie: illuminati banksters and we are back to square one again..??
How does mining carry on after that if there are no rewards coming from the blockchain ... ??
How does the whole currency perpetuate into the future ... ??


Title: Re: The current Bitcoin economic model doesn't work
Post by: MoonShadow on January 04, 2016, 02:27:08 PM
to say it doesn't work is laughable.  Perfect, no far from it but Bitcoin is spreading around the globe so yea it is doing something right if you ask me and I believe many others feel the same way.

But what happens when all the halving has taken place and we hit the proposed 21 000 000 total bitcoins.
The difficulty is already knocking out the small individuals who are presumably the life and blood of the whole system...
Does the whole currency then get sold back to highest bidder ie: illuminati banksters and we are back to square one again..??
How does mining carry on after that if there are no rewards coming from the blockchain ... ??
How does the whole currency perpetuate into the future ... ??

Please, not this again.  The difficulty is a self correcting system.  It's high now because so many people are competing for the block reward, which is still subsidized.  The subsidy cuts in half every 4 years, and will be inconsequential before all 21 million bitcoins have been issued around 2140 AD.  Either way, it won't be an issue I'll live to have to worry about, and probably not you either; and it would still outlive every fiat currency the world has yet seen.  Please search the forum history before asking the same questions that have been asked for 6 years.


Title: Re: The current Bitcoin economic model doesn't work
Post by: junoreactor on January 30, 2018, 12:11:29 PM
Bumping this, wondering if in 2018 we won't see the limits of bitcoin as described in the original post.
The OP was spot on about the speculative quality of the coin (that not many would spend) and many other things.


Title: Re: The current Bitcoin economic model doesn't work
Post by: ecoin_bestcoin on February 02, 2018, 09:08:52 PM
Bump. OP was right, good thing bitcoin's dominance is weakening