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SgtSpike, I'm in a bit of a hurry. I have one more point to make at mind right now but it will be at a later time. But I believe my last post adresses some of the things you took up though even if it's not a direct response.
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Therefore, in a deflationary economy, we lose out on all investments estimated to pay back 0%-3%, after calculating for risk. This results in a smaller, less productive economy.
No, it's the complete opposite. The point of interest rates according to austrians is not only to allocate resources to profitable investments, but to the most profitable investments. The reason interest rates (and loans) even arise in an economy is becuase different people have different abilities and different opportunities for profits. Lets say you and I are working in different sectors of the economy and earn different rates of returns on our invested capital. You make 5% returns on your investment and I make a 3% return. Rather than to keep this status quo we would both be better of if I simply lent you money for an interest rate between 3-5%. The interest rate would reasonably be in the 4% range. From my perspective, my original investment is not actually a profit, it's an opportunity cost, and the same applies to the society as a whole. I'm allocating my resources in a suboptimal way and unless I can reallocate them to compete with you, the optimal thing to do is to simply hand them over to you (or your competitor). If I lend you the money, then you can expand your output, which will drive down the price of the goods you produce and lower your profit margin. At the same time the output of the goods I was producing will decrease, which will raise the price for my competitors and their profit margin. The end result will be that the profit of both your and mine sector of the economy will get closer and closer to the interest rate i.e. 4%. Banking according to austrian theory is simply an arbitrage business. They solve the case where lender and borrower of funds don't know each other. They give me the opportunity to lend you funds even though I don't know you so I can stop hogging resources that I employ in a suboptimal way. The rate of return where all investments even out is what austrians refer to as the "natural rate of interest". No investments below this should take place in an optimal economy (and though we never reach this point we should strive to get as close as possible). Main point is, resources are limited. All value improvements cannot take place at the same time. This means that resources cannot simply be allocated to all profitable investments, but rather need to be rationed to only the most profitable investments. The purpose of the interest rate is to solve this rationing process as good as possible. |
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Why would I invest in said business with my money to make 2% per year, when I could just keep the money in my pocket and make a certain 3% per year?
Because 5% > 3%. If you are earning a sum of 2% in a currency that increases in value by 3%, you reap the benefits of both. In a way, yes. But you're missing out on what that investment could have been making had you just held on to the money. I'll do some maths. Nope. You need better maths.  If you have X units of something, and their value is increasing by 3% per year, if you don't invest, then after three years you will have a value of X*1.03 3. However, if you do invest at 2%, after three years, you will have X*1.02 3 units, each worth 1.03 3, for a total value of X*1.02 3*1.03 3. In the investment case, you'll end up with a value of 1.159611, but if you had simply held them, you'd have a value of 1.092727. Ah, I was afraid I wasn't explaining it well enough. To put it simply, the investment value does NOT rise with the 3% purchasing power increase. If I buy a building for 10,000 BTC, and deflation hits at a rate of 3%/year, then my building is only worth 9,700 BTC the next year (and maybe the rental income was the 2%, so I'd have 9,900 BTC instead). If I had held that BTC instead, I'd still have 10,000 BTC. I cannot think of an investment that would also gain value along with value gains of the currency itself. If you can think of one, please enlighten me. But really, what good do you do to society by simply buying and holding assets (which is deteriorating by time btw)? When austrians speak of investments they generally speak of value improvement. That is, you buy resources for X amount of bitcoins and then transform it into a more valuable form and sell it for Y amount of bitcoins. If you can buy aluminum for 20 BTC and turn it into a bicycle worth 30 BTC then that's an investment. If you simply buy aluminum in the hopes of an increase in price you are speculating (which is totally fine sometimes, but that is the exception rather than the norm). Simply holding resources will generally be a bad investment in a deflationary economy. And that is a good scenario. It means the resource hoarders will stay away from the market, and the price will keep going down to the point where those who actually see a way to improve on the resource find a viable way to do so. In your scenario where the rent is worth 200 BTC the price of the building simply wont be 10.000 BTC. Rational market agents will see that as a losing investment and stay away from the market. That means the price will go down to the point where it actually becomes viable to buy it and rent it out for 200 BTC (and most likely add some value by improvements to the asset). The price of resources will go down by time in a deflationary economy. That means you actually need to improve on it if you want to profit. If you don't have an idea on how to do that you should stay out of the market rather than keeping other people out of it. |
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By the way, there is one kind of inflation that is harmless according austrian theory that could eliminate all price deflation. That would be a completely even distribution of the newly created money. We could let the money supply double at the end of every year, as long as the newly created money is distributed proportionally according to how much money you currently have (the value of each bitcoin adress is simply doubled). All this would cause is that prices would instantly double as well (and lending contracts would start compensate for this). No one would lose or gain any purchasing power.
In fact, someone could even create an inflationary bitcoin client without even forking the block chain. Just change the unit of representation in the UI at the end of each year, without changing the underlying code. So at the 1 of January every year, everyone's balance doubles. Thinking about it, this would actually be a really good idea to shut the inflationists up. Just give them their inflation client, where they can pick their own rate of inflation.
That is the same as moving the decimal place. That does absolutely nothing except for perhaps arcane psychological effects. Exactly. So why do people still believe that absolute prices are so important? If bitcoin grows to the rate where price decreases is predictable we could easily counter this by agreeing on a rate of inflation in the UI (moving the decimal). But as you notice, this is completely meaningless. Only relative prices matter. And that is why our current monetary inflation is bad. Newly created money is spent into the economy and changes some prices before others. In our current monetary system it changes interest rates first, and then house prices and other assets you can easily borrow against etc. It is this disruption that comes from an uneven change in prices that is bad and causes misallocation of resources. Evenly distributed inflation does nothing. |
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In a properly functioning market, interest comes from future profits, and that's healthy. The fact that there is a limit to the number of bitcoins doesn't mean this dynamic doesn't work.
1) I loan you 10 btc for your business. Terms are you pay back 11 btc in a year.
2) You start your business, and earn back enough to pay the loan.
3) You pay the loan off, and all is well.
There is no requirement for the money supply to be perpetually increasing for this to work.
But there is a requirement that the money not be worth a lot more in the future. "Terms are you pay back 11 btc in a year." would never be acceptable to a borrower if bitcoin is increasing 20% a year in value. The borrower would have to make a 30% return just to break even. Yes. And if you want to invest in a car factory there is a requirement that cars are not worth 99% less in a year. You can't just make up scenarios with crazy premises without regard to how likely they are or what they imply. An economy in equilibrium with a constant money supply that increases 20% in value on a yearly basis over the long run implies that we have a 20% increase in goods and services every year. That is an extremely good scenario. |
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Interesting argument, I'll have to take that into consideration. I'm no economist by any means, but it just makes sense to me that the optimal economy would be one in which the money supply does not affect the decision to spend or save (or take on debt).
But would an economy in which the money supply dynamics are fully defined and well known with perfect information for all participants affect someone's willingness to invest negatively? Wouldn't the known money supply dynamic just become the backdrop on which people still evaluate whether they can put capital and labor together to yield more than the sum of those costs? Sure, savings would grow purchasing power over time, but investing would bring in profits that also grow purchasing power over time... Doesn't this even out? It seems to me that the key is perfect money supply information. People are exceptionally conditioned to a generally inflating (at variable rates) money supply right now, so if we get brief periods of deflation (or deflation expectations), of course people hoard because they know the supply is just going to inflate again soon. But again, if the supply dynamics are perfectly well known to everyone, it should just come back to sound business decisions without any of the macro-forecasting shenanigans that pervert investment incentives. Bitcoin is the first feasible monetary system ever proposed that credibly offers perfect information to all participants. That changes (purifies) the calculus quite a bit. Let's continue with the maths then. Say I am looking at a potential investment in a company that has a 95% chance of succeeding, and if it does succeed, it'll grow my investment at an average rate of 7% per year, but if it doesn't succeed, then I lose everything. I might value that investment as a potential 2% growth on my money. Now, say that I know that prices are dropping at a rate of 3% per year (purchasing price increasing, due to deflation in the monetary supply). Why would I invest in said business with my money to make 2% per year, when I could just keep the money in my pocket and make a certain 3% per year? I can know everything about the specifics of the money supply, but that wouldn't change the fact that 3% > 2%, and thus saving instead of investing is the wiser business decision. The question I cannot answer is whether the expected 7% return would have been greater in the inflationary economy vs in the deflationary economy. If that is the case, then perhaps my argument would be nullified. But again, the question is why prices even drop in the first place? It's because we have economic growth (same money supply chasing more stuff), so obviously someone is making a profit. Higher deflation implies higher economic growth, which implies there are lots of people actually capable of making profits in the current economy. If you can't make a profit because of deflation, it's because someone else is doing a better job than you. If they weren't, there wouldn't be any deflation to stop you. |
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By the way, there is one kind of inflation that is harmless according austrian theory that could eliminate all price deflation. That would be a completely even distribution of the newly created money. We could let the money supply double at the end of every year, as long as the newly created money is distributed proportionally according to how much money you currently have (the value of each bitcoin adress is simply doubled). All this would cause is that prices would instantly double as well (and lending contracts would start compensate for this). No one would lose or gain any purchasing power.
In fact, someone could even create an inflationary bitcoin client without even forking the block chain. Just change the unit of representation in the UI at the end of each year, without changing the underlying code. So at the 1 of January every year, everyone's balance doubles. Thinking about it, this would actually be a really good idea to shut the inflationists up. Just give them their inflation client, where they can pick their own rate of inflation.
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It means that loans will be rare in a Bitcoin economy. Growth will come from savings (capital formation).
Instead of being able to borrow money to buy a car and a flatscreen TV you'll need to save the money first.
Why would loans be rare? All you do is adjust the interest rate for the expected amount of deflation. Yes, but keep in mind, the interest rate on a loan can't go lower than 0% (and really, why would anyone want to give out 0% loans anyway?), but if deflation beyond 6% hits, most people are going to stop taking out loans to buy houses. If deflation beyond 10% hits, people probably aren't going to take out loans for cars. If deflation beyond 20% hits, people are probably going to avoid taking out any sort of loans altogether. If.. if.. if.. My question to you is why? why? Why do we have (price) deflation in an economy with a constant money supply? The answer is because we have the same amount of money chasing more stuff. There is an implicit premise here that we actually have an increase in the amount of stuff to sell i.e. economic growth. The argument that a constant money supply prohibits economic growth is a contradiction, since price deflation caused by a constant money supply requires economic growth to even happen in the first place. A means not A. So, with a constant money supply, deflation is the direct effect of economic growth. If we have 10% deflation it's because we've simultaneously had a 10% increase in the amount of goods and services (i.e. the same money supply chasing 10% more stuff). Without the growth, the deflation will not take place at all (same money supply chasing the same amount of stuff). So your scenario with 20% deflation builds on a premise of 20% economic growth in the first place. That seems like a pretty unreasonable scenario to me, but if it isn't, that would be even better. 20% economic growth is far better than any country manages to do today. Interesting argument, I'll have to take that into consideration. I'm no economist by any means, but it just makes sense to me that the optimal economy would be one in which the money supply does not affect the decision to spend or save (or take on debt). The only way to achieve that is without a money supply. Changes in the money supply affects the interest rate, and the interest rate affects peoples decision to save or spend. A better goal for the money supply would be one where the interest rate reflects the time preference of market participants as closely as possible. The general goal of a price is not to be high or low, but to be true. |
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Somehow I doubt that. I am more inclined to believe that a planet has a billion times more atoms than that number, considering a human body has a similar value, according to this article: http://education.jlab.org/qa/mathatom_04.htmlBut I am no physicist. Do the math again. Number of atoms in the human body according to your article 2,3*10^28 2^256 ~ 10^77 Number of atoms in the universe ~ 10^80 The greatest shortcoming of the human race is our inability to understand the exponential function. |
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I wonder how "google is not responding" have managed to make that list, since it obviously is responding to those typing that.  |
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Obviously the long term plan is not to require rooting to back up the wallet. Backup isn't really properly supported right now (well, backup is, clean restore is the issue).
Long term plan should be HD wallets, no? |
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As long as no one cheats Hm … I know that in games where no money is involved, nobody ever cheated but do you think that would be the same when there was real money involved? I still have doubts but try it out. It would be a cool experiment on the honesty of people. That's why I explained it as an escrow service where you need 2-out-of-3 bitcoin signatures to send the money. In cases where everyone is honest there is no problem. Thus you and your trusted friend could play using this API without needing involvement of anyone else. But when there is disagreement the money gets frozen until a previously agreed upon judge resolves the issue and sides with one of the two players. The judge could be anyone. Game developers could choose to create games where they themselves are the judges of disputes, or create a social atmosphere where the 2 players could agree upon a third player to be the judge. I don't think this design decision should be centrally controlled. The game developers only need an API that makes these bets easy to implement. edit: lol, escort service should obviously be escrow service. Fixed. |
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I believe there is an excellent place for Bitcoin on the Ouya, but not primarily for an app market. The competition is too hard and there isn't enough of a user base to make it worthwile for developers yet.
I believe there is a much better opportunity in competetive gaming for money. Someone should create an app with an API that allows people to easily make bets against eachother. My first thought of how this could work is a Bitcoin app/wallet that allows you to create a 2-out-of-3 signatures contract between you, a competitor and a judge. This would allow you to make bets in bitcoin with another person in a decentralized manner. Game developers could call this API to create a bet (though you would need to confirm it manually) between to players, and thus allow them to compete for money. As long as no one cheats the player consoles would agree upon who won/lost the game and the judge wouldn't need to be called in. If someone cheats then the judge will need to make a decision. The judge could be either the game developer himself or a third neutral person depending on how the game developer set it up.
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Lol, I feel a bit stupid. I even turned off my ad block and looked for ads before posting, but I was looking for banners or the like. I do think there is a lot more value to be gathered here than the current ads though. They're kind of subtle, which goes against the purpose of ads. But considering this thread was started on false premisses there probably isn't that much to discuss here. |
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Do you think it would be a good idea if this forum was providing free ads for bitcoin businesses? This forum is definitely one of the most visited bitcoin sites, and we all here have an interest to not only spread awareness of bitcoins, but also about the lesser known businesses and websites that accept bitcoins.
There is an issue of how to choose which site should get the ad space, but I think there are fair ways to do this. It could be set up like an award and every month a new company or someone who has done something special for bitcoin would get the honor to be featured on the site until the next month. Or we just give the space to someone with a unique idea and needs the exposure. My first thought here is ogrr.com (I'm not affiliated with them in any way). I think they have a great idea but they really seem to need a way to get the word out to people.
This could be a great way to help lesser known businesses or to incentivize people to do something for the sake of community to win the ad space. What do you think?
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[lots of BS skipped]
He has now effectively hedged his downward risk.
[lots of BS skipped]
This is a new kind of hedge. Let's now borrow at 3000% APR to hedge some insignificant risk. This is some genius hedging here, lets pay 3000$ to remove risk of losing 100$ Right! Here is a simpler option, get idiots greedy brainless "investors" to give you BTC, sell half on open market, pay the rest back to those greedy brainless "investors" in weekly instalments until there is no money left. Now look, no need to waste a few pages to explain some convoluted unworkable and completely pointless scheme. Just one-two sentences and it is all simple and clear. Vlad should make a 5000 BTC bet if he really thinks this way And a 150.000 BTC hedge on his bet.  |
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Why would the majority of the people that have bitcoins spend them if they know bitcoins are becoming scarce (wich equals to more value) while time passes?
And to get the value of bitcoin raising you need a running economy right?
Doesn't these two things conflict with each other or am I misunderstanding something here?
Thanks for enlighting.
-Grouver- The counter-question is, why should the majority of merchants not give better deals priced in bitcoins if they know they are becoming scarce and more valuable? There are two parts in every trade you know, and the right price will make every trade possible. |
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Doesn't that provide excellent refutation for all the Gresham's law naysayers?
Gresham's Law is commonly very misunderstood. It does not apply to bitcoin at all. Gresham's Law is only applicable when you have a fixed exchange ratio between two different kinds of money, such as when the government forces people to accept debased gold coins at face value. Basically, Gresham's law is a special case of price fixing. When you have a fixed mandate of the exchange rate between two goods you get a glut of one of them and a shortage of the other (and usually a black market to go with that). Thus, bad money only drives out good money when you are forced to accept the bad money at a higher price than the market price. Absent of price fixing, good money will outcompete bad money since merchants will be willing to offer better prices for good money. If Gresham's Law was universally applicable to all money at all times, gold would never have been money before the governement destroyed it. The market place would have ended up with the worst good possible for the purpose. There is no problem the right price can't fix. If people get less inclined to sell their bitcoins (i.e. buy goods and services for them) because the expect the value to rise, then we should, for the same reason, expect that people will be more inclined to buy bitcoins (i.e. sell goods and services for them). This leads to an increase in the price of bitcoins, and thus lowers the expected return of hoarding to the level where people are ready to spend them again. |
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On Google play they (Bitcoin Labs) say "**** WARNING: this app is still experimental/alpha. It will get much, much better over the next few weeks."
so you just have to wait until they fixed all the bugs.
It also says last update was May 22, 2011. I wouldn't hold my breath waiting. |
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So when can we expect the first real life video of this?
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