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The supply of coins grows at the same rate regardless of demand. Stability requires a flexible supply increase to correspond with demand increase. This limitation will be an impediment to the growth of Bitcoin commerce.

Meh supply growth is predictable and now less than 0.1% per day. 

Swings in price as much as 40% daily can't be explained by 0.1% supply growth. 

Gold supply continues to grow roughly 3% per year.  While gold has volatility we don't see it $1800 one day and $720 the next.

You're completely incorrect. Prices cannot do anything BUT stabilize in the long-run.

Now, in a Bitcoin world we may see the price for a coin change every day, but that change will asymptotically shrink over years and decades.

What's important in a currency is that changes in money supply are A) minimal, B) predictable, C)not arbitrarily decided by specific actors. Bitcoin satisfies these requirements - and in fact Bitcoin offers the most predictable money supply ever created in any form of money.

+1.
Evoorhees: Thank you for answering all the economics-challenged people out there when they post threads like this.  Nobody else bothers, but you are providing a very important service to this forum and the Bitcoin community.  

(Also, note that I am not ridiculing people who are confused about economics, just saying that someone has to answer them when yet another thread like this gets posted)

I'm not economically confused. Bitcoin is a virtual commodity that happens to have properties that allow for easy exchange. Like any commodity, or any other good/service on the market for that matter, an increase in demand leads to an increase in prices, leading to an increase in production/supply, which decreases prices to balance them out.

Normally on the market, this process yields stable prices (technically, it leads to decreasing prices due to greater efficiency of capital with time, but Bitcoin supply increases the same amount regardless of capital so capital efficiency cannot improve for Bitcoin). As a result, I theorize that Bitcoin price increases exponentially the more demand exceeds supply, and decreases exponentially the more supply exceeds demand. This off-the-top-of-my-head theory was concocted by reasoning that moving up/down on a demand curve exponentially increases the area between it and its corresponding supply curve. Given the relatively small user base we have, demand is going to be finite over a small period of time. So once demand decreases beyond the equilibrium point, boom turns to bust and we have an exponentially decreasing price even with just a linear increase in sellers. I predict that with an increase in user base, the boom/bust cycles will take longer and be larger but still occur.

Now my theory and prediction could be complete nonsense, but the bit about prices being unstable (without trying to quantify) should be accurate.

Unstable price will attract speculators, and today almost everything is to be speculated, bitcoin will be the best candidate for speculation, due to its limited supply nature

I read an assumption of price or market size staying at exponential growth.

Read the above sentence a few times, remember what an exponential is, and it will be obvious that evoorhees is correct. He even put in a reasonable time-scale: "over years and decades".

Of course it won't be stable tomorrow. But the market learns at the speed the volatility happens, and exponential growth cannot last forever, so there is no problem after enough time has passed.

And you are completely ignorant and stupid. How do you know what must happen in the long-run? Why are these things important? How do you know that they are important?

What a fucking idiot you are. It is really mind-boggling.

You're thinking of the total in existence.

But what's important is the supply for sale. That's what "supply" means in an economic sense. Just because an average of 7200 BTC are mined daily doesn't mean all those bitcoins will always be thrown onto the market. Miners have the option of holding onto and/or spending their bitcoins rather than putting them up for sale on the exchanges. Also, holders of bitcoins have the option of throwing their previously-purchased coins back onto the market for sale.

At any given time, between zero and all available bitcoins in existence can be for sale. That's as flexible as any other asset/resource/whatever.

I think there is another problem here.. What do you mean by stabilize?
From what I've seen, there is no such thing out there. No world currency or commodity stabilizes... they always fluctuate due to millions of little and big pressures in the market.
I'd say bouncing between 6 and 7 for the past week is pretty stable... :p for bitcoins.

You are correct if you assume miners hold when prices are low and sell when prices are high. But if most miners behave the same way as most of the market, they will constrict supply during uptrends and beef up supply during downtrends. In that case, supply moves in the opposite direction of demand.

Think about the original suppliers for gold and for Bitcoins. Gold miners mine more gold when prices go up. Alternatively, we can say that the earth supplies more gold to the miners due to the miners investing more mining resources into extracting it. For Bitcoin, the network gives miners the same amount of Bitcoins when prices rise. This remains true no matter the quantity of mining resources invested.

A) I should have clarified. I meant fixed rate, not constant. The rate is simply fixed differently depending on amount of time passed.

B) This proves my point. Yes, demand can increase substantially, and supply will not adjust to match, thus creating a greater price increase than would otherwise occur. That's why I believe prices will be sky high at some points, but I think you're assuming that I'm trying to bash Bitcoin and say it's worthless. I'm just saying that prices will be less stable than they should otherwise be, and so this imperfection might make Bitcoin commerce less efficient. We will have cycles of people hoarding coins en masse during upturns and then spending coins en masse during downturns.

C) This is not really a solution to the problem. It is equivalent to saying "because Bitcoin is unstable, people can substitute Bitcoin for other money".

You made an important point here: "Gold miners mine more gold when prices go up."

But they do so by expending more effort and resources to mine more.

The equivalent, in the world of bitcoin mining, would be to apply more processing power to mining when prices go up, giving themselves a bigger cut of the block rewards.

And still, the point remains: the supply of bitcoins for sale at any point is as flexible as any other commodity (more than some others, really.) Even with all miners selling all coins ASAP, there are still 8 million bitcoins in existence; that's potentially about 22K bitcoins per day if sold off throughout the course of the year, far more than the miners produce.

So there's really no need to worry--some of these reserves will join the public market supply if the price rises enough, just like with gold, wheat, etc.

Bitcoin is only like gold if all of the gold miners were competing over the same mine. You would have either one miner get X amount of gold, or N miners getting X/N *(mining power/total mining power) gold per miner. I understand that scarcity is a fundamental qualification for a commodity to become a currency, so maybe it's OK for Bitcoin to have such extreme scarcity since it is so highly divisible. Maybe I should rethink my knowledge on theory of money, since I'm familiar with the basic properties required for something to be money but have never thought about how those properties can counterbalance one another. In fact, maybe a theoretically optimal currency is one that approaches infinite scarcity and infinite divisibility. Thanks for contributing to the discussion and getting me to reconsider my initial complaints.

Nah, you're pretty much right. There will definitely be booms and busts, regardless of what currency we use, and you're right that people will buy up more when the price goes up, and sell more when it goes down. Hopefully price rising up will drive holders to cash out, and prices going down will cause willing investors to buy it up, but if that barely works in the stock market, I would expect for it to work for bitcoin either. Our main hope is that in the long run people will understand that the value of a bitcoin is mainly as exchange, not as investment, and resist running to it every time they see it increase in value a bit, but considering it's a strong and dependable store of value, I fully expect everyone to run to it every time the economy hits a snag. Maybe eventually we'll end up with a self-interested party holding a vast store of bitcoin, and releasing it into the market or buying it up to try to keep the prices stable, the way DeBeers does for diamonds now.

It takes a bigger man to rethink his initial assumptions, than stubbornly hold on. Good sports.

DeBits?

*shudders at thought of a single entity controlling 60+% of all bitcoins*

What you are describing are speculators: http://mises.org/daily/4466 (http://mises.org/daily/4466)

Price stability depends largely on market size and history, and bitcoin doesn't have much of either yet.

I wouldn't call DeBeers speculators. They don't so much guess and try to make a profit of market movements as they actually determine and control the market by having a near monopoly on production and distribution, and holding huge reserves of diamonds, keeping them off the market and buying up any new diamonds to keep the market from being flooded. A wealthy self interested party could theoretically do the same with bitcoin, buying up large quantities, making more wealth off of their large holdings, and using that wealth to buy up any unexpected bitcoin flooding the market (such as during start of a panic sell), just to preserve the value of their holdings. DeBeers is more of a powerful and sophisticated hoarder than a speculator.

Artificial scarcity, a very special character of BTC, in a world that almost everything can be mass produced without limit

The gold price proves you wrong.

Have you considered checking your "facts" before you post them?

I just been to china, you better come to see how many gold mines have been opened here this year. Soon, gold will flood the market like chinese made shoes, at the same time as people getting out of the panic of post financial crisis...

The reason gold price hold relatively stable is because people have replaced most of its use with fiat money, otherwise the price of gold already skyrocketed to a unheard level

If you don't care if the reasons you give for your opinions are true there's no point in discussing this further.

You do understand that China is "buying" somewhere near 100% of the output of their domestic gold mines, right?

The reason China has so many gold mines is because they have very nearly zero gold reserves, and they don't want to buy a few thousand tons on the open markets.  Nothing is getting flooded any time soon.

It is important to note that, in the case of bitcoin, the 21mil bitcoin supply is just a monetary base (http://en.wikipedia.org/wiki/Monetary_base).
The total potential BTC money supply (http://en.wikipedia.org/wiki/Money_supply) (in the smallest bitcoin unit - a.k.a. "satoshi") is 2.1 quadrillion.

That's just a matter of normalization.  You could just as well say that the money supply is 1.  And 1E-8 isn't a fundamental unit of the system, it is just the smallest increment currently accepted.  We could easily switch to 1E-30, but it would probably be more useful to use 1E-21.  See here (https://bitcointalk.org/index.php?topic=58206.msg687978#msg687978).

Keep in mind that inflation/deflation in a fiat-based economy is deflation/inflation in a bitcoin-based economy.
That's why one should use "satoshi" to arrive at the potential money supply for the BTC economy.

Now, what everyone should be thinking about is what does it take to create and maintain deflation in the BTC economy?

A proposal to consider...

A different approach for a nacent digital currency (NDC), or possibly even "Bitcoin 2.0":

1) Pre-mine all the coins (i.e. 21 trillion NDC).

2) Immediately initiate an exchange (i.e. Mt. Gox 2.0).

3) Make the exchange decentralizable. Distribute coins from the 21 trillion NDC to the exchangers in proportion to their ability to handle transaction volume.

4) Peg the NDC to a known "stable" currency (i.e. USD, EURO, Pound).

5) Using USD as the start point, permanently set the NDC buy orders at $1.01 and the sell orders at $1.00. This bid/ask wall cannot be moved or it all falls apart. A federated group of "trusted" market-makers/exchangers joined at the "crypto-hip" could prevent collusion (i.e. A & B or C cryptographic type of arrangements). We want to reduce NDC price fluctuation. This helps the merchants gain stability and virtually removes the speculator/manipulator angle for a longer period of time. BTW, I have nothing against speculators per se.

6) Take the spread and/or fees and pay the "miners" and "transaction handlers" to secure the network. This will be net settled in NDC unless converted (minus fees). Hopefully this prevents the dreaded 51% attacks.

7) When the 21 trillion coins are spent into the "economy" the fiat currency peg becomes detached (because the author can no longer keep the price fixed) and it starts to float against all other currency/commodity money equivalents.

What you gain: Instant stability, long-term growth, fewer manipulative events, no first-mover advantage, fewer early adopter issues; at least not any more than the national fiat currencies would induce, in which case you could peg to a "commodity money" such as gold, silver, oil, etc.

Hopefully the transaction fee issue to secure the network will be solved after the NDC currency float event.

Bitcoin is stable enough, that is if you're willing to look past the market makers.

It's a good thing Satoshi understands economics a lot better than you.

It doesn't really matter what you set the money supply limit to be.
What's important is how does one grow the money supply to that limit in a deflationary-by-design economy?
And that, my friend, is a 1,000,000BTC question. Luckily, I may have the right answer.

So, who's got that much BTC to spare? Don't be stingy!

I can't tell if your kidding, but what I meant to infer was the USD/BTC or fiat/BTC stability issue. We all know a nearly exact number of coins are "minted" per unit of time. The issue at hand is convincing merchants and others to hold the coin when the price is all over the place. I'm not suggesting a different protocol, just a different starting point for the economy.

Stability is valuable to some extent I'd think. Obtaining financial gain merely because your USD/BTC changed is not particularly "productive".

Take the market makers out of the equation, and your stability issue will not be an issue anymore.
Who says that you must sell BTC for USD (or other fiat currencies) in order to buy something with BTC?

Really? How so? We are all pretty certain that his cryptographic skills are stellar bar none, but his economic sense... that's a matter of contention I'd say.

Again, I'm not suggesting a different cryptography protocol per se, just a different way to jump-start a nacent digital money economy. Perhaps one that doesn't have to be so volatile. My suggestion was merely one of how to use a boot-strap technique which segways into a global exchange environment with the possible effect of reduced manipulation and speculation. It's only the transition and stability I'm interested in.

To be clear, I have nothing against speculators, they will always exist and they probably serve a purpose; namely, liquidity and money velocity, but for start-up purposes, they can make for a very difficult exchange situation. Why would merchants want to have to worry about that? Every merchant/business person I've spoken to, who wheels and deals in physical goods, mentions that as their biggest fear/issue. They won't stake much of their business on it until the price spikes calm down, and yet you need them to soften the blows. You have a chicken and egg problem.

There's no need in waiting... If you have 1,000,000BTC to spare (https://bitcointalk.org/index.php?topic=58102.msg709098#msg709098), I'll give you the answer now.

not sure if serious...

It's actually market makers that tend to smooth price fluctuations (just a guess). Nevertheless, without somebody to take the other side of the trade, your BTC isn't worth anything. In fact, that's true of anything. You're always trading something for something else you value more. Money material is merely a midway point for easy accounting purposes since barter is less convenient.

Nobody has to use other fiat currencies, of course, but that isn't the point. We could all decide to use BTC for our monetary system today... thing is, why isn't everybody doing it? Most don't understand it, or don't care. Perhaps they need a reason to care. I'm merely piggy-backing on an already quasi-stable currency.

If prices were stable and transacting were cheap you'd probably get more followers, hence my proposal. And that doesn't include the more esoteric issues of more anonymity, no charge-backs, and flexibility etc.

I'm getting a bit greedy here, but what's the hell...

Why don't the miners start a bounty for the best answer on how to run/grow BTC economy?
They are the ones who have the biggest gain if bitcoin becomes more than just a perishable gold.

I believe I may have the right answer, but I'm not sure whether I should disclose it for FREE.

Look, I'm just like the miners -- a contributing member to the future of BTC economy.
If miners can get paid for their contribution, so should the BTConomist(s).

EDIT:
And if my answer does happen to win that bounty, I will spend it (no exchange) in the same way I earned it -- to buy a valuable service/product or a piece of information.

If I can sell them for 1,000,000BTC, then you've got yourself a deal.

I have one unit that I would not spare, even for 1,000,000 BTC.   :D

I don't know if it's funny, or annoying, the way people keep forgetting that when you exchange currency, such as Bitcoin into USD, or USD into whatever currency is being proposed here, the currency being exchanged doesn't just disappear. When you quickly exchange out of BTC into USD to avoid currency fluctuations, someone else is buying and holding that BTC, exposing themselves to the fluctuation risk. Likewise, with your proposed idea, when you buy this Bitcoin 2.0 with USD, someone else ends up with your USD. So, basically what you are proposing is gifting a few lucky exchange operators with $21,000,000, totally free of charge, and then making the rest of us give them our hard earned USD for the privilege of using their special freely obtained $21,000,000 worth of BTC.

Even you yourself later point out that "without somebody to take the other side of the trade, your BTC isn't worth anything," so why even propose something like this?

No thanks

Firstly, it's 21 trillion coin, not 21 million (this market is too small if you're going to peg). Secondly it's pegged to the dollar, on purpose, to avoid volatility. The idea is that if it's pegged, it doesn't fluctuate. All of the exchangers agree to the peg (thru smart property cryptographic mathematical arrangements). The currency doesn't initially float. The net effect is to move as many dollars into many vaults (permanently parked in hundreds of locales) and circulating as bitcoin as much as possible. The exchangers would be the "vaults" for this. No money disappears anywhere. There is just a transference and preference to bitcoin trading or money away from USD or other fiat.

Initially, people will probably use the coin as a transition between fiat and BTC but without the currency price exposure. Once they realize it's easier to trade in bitcoin, more fiat resides in the vaults (it doesn't move much except to grease the proverbial wheel when necessary). The money velocity demand decreases for USD and increases for bitcoin until eventually all transactions are in BTC or other digital coin. Once you exceed the 21 trillion dollar mark (or some other largish dollar amount) you then go to the float scenario. Hopefully by then, volatility will be less of a factor.

Nobody gifts anybody. The miners who authenticate and secure the network get paid a fee to do so. The exchangers are nothing more than a connection to the fiat market. I'm piggybacking, nothing more.

You're still asking for 21 trillion to process some transactions.

Besides, bitcoin was just made out of the thinness of air why should I give/gift my hard earned $$$ to someone for the privilege of moving/creating/transacting bitcoin (it's the identical argument as yours Rassah). The incentive is just relocated. The idea is to get people to use bitcoin sans the boostrapping volatility issue. Maybe a picture will help. The following is money flow/velocity.

$$$$$$$$$ --> BTC  or  BTC <--> BTC,
not BTC <--> $.

The latter creates an environment of volatility the former not so much.

One way to do this is to peg the currency until such time as so many dollars are vault-parked and an equivalent number of bitcoins are in circulation so that when you unpeg because you ran out of digital coins to spend into circulation, the volatility is a non issue. You want dollars/fiat to flow into bitcoin first thru exchanges into the BTC economy not in and out and in and out of it (rinse repeat) because of speculation, volatility and manipulation.

Why is this so hard to envision?

So what are you saying? Is 21 trillion too big (dollar equivalence)? Make it $210 billion in transactions then. At least make it as big or bigger than the wealthiest individual or potential colluding groups could create to push the market around. The NYSE handles transactions in the trillions of dollars or at least hundreds of billions of dollars on a daily basis. Do you have a problem with them too?

I know I'm concerned, but I'm trying to do something about that by creating a cooperative but mitigated restrained federated exchange trust server network. Spread the trust around. Use math to solve the problem. Let the market want to move fiat to bitcoin. The way to do that IMO is to create an initial par-value trading environment, then unpeg later when it matters less.

It isn't any different in the way bitcoin is handled now. My approach is just slightly different. Having a digital currency is a neat idea. Price volatility isn't necessarily a good feature or side effect to have when bootstrapping a currency into existence.

I'm not raining on your bitcoin parade, just offering suggestions that could further the cause.

Emphasis mine. With a large value of "almost".

Automation in manufacturing is at an all time high, but this has been the case for the last 100 years too. We are slowly but surely moving in a post-scarcity society.

The idea is to function initially like a bailment service. Each DigiCoin token in circulation represents $1 fiat of world currency. It's a lot like E-gold, PayPal, Dwolla, or Amazon Payments (they're all digital fiat equivalent exchange systems with a 1:1 conversion. E-gold was the exception since it tied to itself to a commodity) except decentralized and open source. Once the digital tokens are purchased, those tokens can trade between users independent of the exchanges (exactly like bitcoin does now). The exchanges only exist primarily for bailment and reserve/vaulting of fiat, thus transacting to and from "digicoin-token" (bitcoin) and "fiat-token" (dollars) at a 1:1 par-value conversion.

Everyone can see the digital token/currency blockchain and verify it against the sum total of all of the dollars in reserve at each of the exchanges (due to their open source nature they must publish in a similar fashion to the blockchain, but just the fiat dollar totals to maintain privacy and quasi-anonymity). It's a completely auditable digital paper-trail both for the user-to-user, user-to-exchange, and exchange-to-exchange transaction interface.

Everybody must authenticate everybody else's transactions (or some high percentage, say 60%). Everyone can also see the main account that holds the reserve digital coin tokens and can verify that they aren't being spent unless there is an equivalent fiat dollar in reserve at the exchange.

The idea is to grow the reserve of dollars in the vault and use the digital tokens as the transaction medium (money material as it were). And then once the tokens are bought up (this happens when the reserve of dollars exceeds the pre-mined coin token total), their real value will be known and the coins then go to a float scenario (a deflationary event which you want to arrive at sooner than later).

Hopefully by making the exchange software open-source like the bitcoin network, more exchange services will emerge to share the load. At the moment we have a very centralized fiat-to-bitcoin system. You have to trust somebody somewhere eventually. Better to have a complete system end-to-end so that integration can happen smoothly, than bootstrap completely independent of the rest of the world. You want a tandem bitcoin exchange with a fiat exchange platform joined together, but partially semi-dependent on each other for security purposes.

The quicker you can obtain a critical mass of token transactions equivalent to billions of vaulted/parked reserve fiat dollars, the more stability you can create, the faster the adoption rate. Imagine if the bitcoin economy was a 50 billion dollar fiat equivalence and the volatility was similar to the USD/EURO currency pairs? Just about everybody would convert. At the moment though were just a toy to be played with. Too easy to manipulate, in my opinion.

We have two main factors to consider when it comes to the price of BTC:

1) Change in the number of people buying/mining bitcoins (demand)
2) Change in the total number of bitcoins in circulation (supply)

An increase in demand results in an increase in price (assuming the supply is unchanged).
An increase in supply results in a decrease in price (assuming the demand is unchanged).

We know this much:

* The supply will continue to increase until 2140 and remain constant after that (apart from lost coins)

We can make this prediction:

* The demand will continue to increase for a long time but will eventually reach a relatively stable state

As the demand and supply increase, they help balance each other out. When I first started getting into Bitcoin I noticed that the price was steadily increasing, it went all the way up to $30 until it came crashing back down with all the hacking drama. This indicated to me that the increase in demand was slowly outpacing the increase in supply. Fear and speculation was what brought it back down. A lot of people probably cashed out and the demand went down.

Now I predict, the price will continue to slowly rise again (like it has been recently doing) as more people get back their faith in Bitcoin, and also as more newcomers start investing in bitcoins. It's clear to see that the price wont go down until the demand actually stops increasing or decreases, or the increase in supply outpaces the increase in demand. Wild speculation is the only other thing that will cause the price to come back down. And there is a lot of speculation when it comes to Bitcoin.

I think Bitcoin is designed so that even if prices are very volatile in the beginning, there's still incentive to use Bitcoin because people know the price is set to go up (long term), and it's worth while to get in as early as possible before things start to smooth out (when all the coins are mined and Bitcoin finds a solid audience). Bitcoin is still a rather new currency, but a large percentage of the bitcoins are already in circulation (over 8 million), which means demand is likely to outpace supply for a while.

I think that by the time all the coins have been mined, the price will be extremely stable because not only will the amount of coins in circulation be static, but the demand is also likely to be very stable by that point in time because it'll have a stable user base and if Bitcoin lasts that long the trust issues and rampant speculation will be virtually non-existent. A stable supply and a stable demand certainly seems to mean a stable coin in my mind. It's like Bitcoin is designed to be the currency of the future imo.

This is just not possible. It is so far from remotely possible that if you don't see it yourself there's probably no point in trying to explain why.

The 21 trillion coin amount is just arbitrarily large (it might as well be 210 billion coins). It's merely acting like a large supply/demand shock absorber when the bailment service is abandoned for a foreign currency system.

I bet you didn't think to invent bitcoin either, and had somebody mentioned it to you 5 years ago, you probably would have said it was impossible. Just because you say it's impossible doesn't make it so. No point in explaining it to someone who has already dismissed any and all plausibility.

See the Smart Property concept explained here:

https://en.bitcoin.it/wiki/Smart_Property (https://en.bitcoin.it/wiki/Smart_Property)

and the Open Transaction server methodology here:

https://bitcointalk.org/index.php?topic=53329.0 (https://bitcointalk.org/index.php?topic=53329.0)
and here
https://bitcointalk.org/index.php?topic=44692.0 (https://bitcointalk.org/index.php?topic=44692.0)

The reason people are saying it's not possible is not because of the 21million/billion/trillion figure, but because what you are proposing is exactly the same as gold-backed fiat. Except instead of backing fiat with gold, you are proposing backing fiat with another fiat. And instead of already owning the gold and issuing fiat notes against it, you want other people to give you their "gold" in exchange for as yet not established fiat. And to answer your earlier question, I can trust an open source, mathematically established system, and can more or less trust some guy who has a small amount of tokens from that system and who is willing to trade them for a bit of my money, but who otherwise has no control over what the system does. It's a bit harder to trust someone who has most, if not all, of the tokens in this system, and who has the power and incentive to manipulate the system to their advantage. With bitcoin I am trusting a distributed mathematical system no one can control. With your system, regardless of how much financial data is available, you are still exactly as trustworthy as a central fiat issuing entity, and there is still nothing to stop you from clearing out that vault and running away to another country.

Btw, question. Let's say this works, $21m worth gets issued to the public (sold for USD), and then the peg gets released. What happens to the $21m still sitting in the vaults? Is it profit for currency issuers that they are finally free to do with as they wish?

There is little to no incentive to manipulate the system, as doing so would be immediately verified and determined by the auditing system (blockchain of BCT being out of whack with the vaulted $FIAT reserves). It would be like saying Mt. Gox would just up and close shop and take all your fiat and bitcoin tomorrow. Not that they couldn't, but why? Why kill the golden goose (fee structure)? They would have the worst reputation on the planet and could potentially kill the bitcoin network overnight. 90% of the current miners would bail. That just doesn't compute.

We are already in this situation with the top 4 $FIAT/BTC exchanges, otherwise you would just trade your bitcoins with another bitcoin address and never mess with the exchanges in the first place. If you want fiat we already have a very centralized "fiat-backed" system. The majority of players in the market are probably storing both their fiat and their bitcoin with Mt. Gox (80% volume leader).

The $21B fiat just sits in the vault. It goes nowhere until someone converts BCT for fiat. If everybody bails, then the BTC/FIAT pair value will change, exactly as it does now. Think of it like shares in a company on the stock market. If you have more sellers than buyers the stock drops, conversely for more buyers than sellers it goes up.

Most (vast majority) of the people don't keep their money in MtGox. If MtGox were to run off with the funds, at most they would have a few $100k to play with. They have more of an incentive to hold as little as possible (reduces their liability), and to keep making money off trades, though even that isn't guaranteed to be a viable long term income.
In your system, who is checking the physical fiat reserves? Why should we trust that they are honest and not working with vault holders to skim off the top? And why would they care about reputation of they have the option to run of with ALL the Fiat, as opposed to just a fraction of it?



As I said, I seriously doubt a lot of people are holding their money in MtGox. Especially after all the losses and scandals last summer. High volume just means two people exchanged money using their system, and likely withdrew it as soon as possible. It doesn't mean MtGox sold BTC themselves and are keeping the money, as would be in your scenario. The point is not how much, or who, but how much control is there by free individuals, and how much of our well being depends on having to trust someone else.


Ah, I think I see where you're going with this. You want to essentially create shares of stock equivalent to $21m or whatever, and sell it on the market with the promise to keep the share exchanging system secure, and the price pegged to $1 per share. But, again, corporations issue and sell shares. For the promise of giving profits and being secure, they ask that you give them lots of your own money, which they then use for whatever they want with the condition that the buyers of that stock will like what is they do. Again, how is your proposal different from also asking for money from people that you'll be free to do with as you please? If it's not, I guess your main issue would be trying to sell your idea so people can give you their money.

You're just doing bailment by maintaining 1 BTC for every 1 FIAT dollar until you run out of BTC coin (21 billion BTC in my particular case). To spend the coin into the BTC economy requires the joint signatures (cryptographically signed) by multiple trusted servers (M of N server verifications, where M = N/2+1). Otherwise, the transaction fails and the fiat is either returned or never accepted. There is no individual central authority for this. A BTC block chain and equivalent exchange auditing system exists to verify this for continual public review. It would use something like the Open Transactions software developed by FellowTraveler, or the Stratum Network Protocol. It's a distributed trust network.

bitcoin is growing, and it is growing fast, by 70% increase in the last 30 days or so

Bitcoin is still a very inflationary currency, if you think about it. 50 BTC added every 4-500 seconds comes out, over 8 million total supply, well above even US inflation which is easily the most inflationary economy of the developed world atm.

This will change after the 2nd or maybe 3rd halving, when the built in inflation drops under 1%.

In 9 months that rate will drop by 50%....despite demand. I think there wasn't supposed to be a correlation between the two given that Satoshi made the model of coin distribution from day 1.

Your logic is the product of living under an inflationary economic system with a gaping security hole. 
The truth is that economic stability is higher under an inflexible money supply.  This is also the case historically when one considers the stability created e.g. in the 19th century under a relatively fixed quantity of physical specie.
 
The increase in stability is because demand increase (or decrease) will meet market forces and equilibrium can be reached.  Manipulation of the money supply only hinders the ability of the free market to respond to changes, especially when the exact amount of the manipulation is kept secret from market participants. The only limitation caused by an open money supply is a limitation on inflationary fraud.     

+100

It's all relative, really. A dollar is stable and is always a dollar only when you look at it with the dollar being your point of view. If you flip it, and, say, make gasoline our currency and dollars being something we buy, dollars are anything but stable. Here is a  chart, from my own car fuelup data (fuelly.com), showing the value of a dollar over just the last 3 years (1 dollar will buy you 0.3 gallons, then 0.65 gallons, and then downhill from here). From this you can see that a dollar fluctuates quite a bit as well. (the chart even looks somewhat familiar XD)

https://lh3.googleusercontent.com/-Pxa4RpeWeqs/T1em-Ecb4dI/AAAAAAAAcnQ/gnscNLf65hU/s678/DollarValue.jpg

You could always go with the "twice on Sunday," "rubber-glue," or the old standby nananana poopoo rejoinders. Anything more poignant, such as pointing out a fallacious argument to such a poster in Latin is doubly wasted.

No you can't.  That's crazy talk.


Fuck commerce.  Bitcoin is not commerce.  Bitcoin is trade.

The utility of Bitcoin is to aggregate and transmit information on the supply and demand of goods in the economy.  This utility is destroyed if the supply changes arbitrarily.

Stability requires zero external disturbance so that market participants can use accurate price information to stabilize the supply of goods and services in relation to demand.

Another way of looking at Bitcoin, is seeing it as a product of Electricity. Each miner consumes 'V' KWatts of electricity
and produces 'Z' Bitcoins. Thus 'V' x 'Processing Coefficient' = 'Z' Bitcoins / 'Reward Factor'. This holds true until all the
21Million coins are mined. After that the formula will change and miners income will be transaction based.

The price will probably stabilize when someone comes up with an idea of how it's possible to convert Bitcoins into electricity.
In other words, closing the loop... Noteworthy to say that electricity has extreme liquidity. There is no cap on its demand
as we speak, and I doubt there will ever be...


Regards,

Oh, I'm completely against inflationism in traditional banking. What I mean is that with gold, for example, an increase in demand will lead to an increase in gold mining, which increases the supply to match. With Bitcoin, supply is increased at the same rate regardless of demand so no equilibrium price can be sustained.

I'm not talking about having some centralized jerk manipulating the supply to his liking, but rather having a dynamic market instead of a static one.