Luxury goods, by definition, are not mass produced. So while he's right in that full employment via the luxury industry is possible, one must wonder if enough demand for luxury goods exists - is such full employment probable ? Maybe wealthy individuals are more keen to having their own golf courses (low employment, high impact for society), than buying overpriced hand knitted socks.

Well, 210 people meeting and declaring themselves the stakeholders of the new currency is exactly what centralization means, except maybe if those 210 people will be the only users of the currency for it's entire lifetime.

The problem is this: how to create a distributed and eco-friendly currency, usable by anybody, without creating a perverse incentive for the early adopters? The system should succeed on it's technical merits alone, not by fanatical backing from a vested minority.

Proof of stake is a solution for a different problem: byzantine fault tolerance of the coin database, a.k.a double spend protection and global consistency. For this task Bitcoin uses a uniquely creative solution, called by some "Nakamoto proof of work chains"; the necessary work is funded at equilibrium (block reward=0) by the transaction fees.

What we are talking about here is initial coin disbursement, coin minting. The issue is confusing because Bitcoin cleverly employs the same proof of work for both minting and byzantine fault tolerance, thus jump starting a secure network before the transaction fee volume would otherwise enable it. While you could certainly create an e-currency based on proof of stake, the issue of initial coin distribution remains open. Without initial distribution there is no stake, thus no proof of stake.

So a resource-friendly currency would have to imagine a different way for coin distribution. Incidentally, a theoretical result know as the Sybil attack proves there is no possible method by which you could do a "fair" distribution of coins over an anonymous medium such as the internet. You must either allow some degree of centralization, or fallback to proof of work. Anything else will be subverted by automated programs and allow their authors to earn most of the minted money.

Here's how a non-POW, centralized-but-fair distribution method could go: a central authority mints all possible coins allowed by the protocol, prints them onto little pieces of paper, then pulls a "Helicopter Ben". Alternatively, a central authority has no minting powers, but can approve (or veto) a list of charitable organizations that would receive the proceeds of seigniorage; when the monetary mass is scheduled to increase, the charities get the money, in a proportion democratically chosen by the holders of currency (similar to proof of stake).


I have more faith in democracy. I'm sure if the general public understood the problems, there would be instant political will for change. As always, the problem lays with the public, not the politicians:
http://www.maniacworld.com/the-public-sucks.html

The math is fine: if 10 million coins are in existence, in order to reach annual Visa volumes a coin needs to be worth 40000$. Proportionately less after more coins are minted, proportionately more if the payment volume rises. The mining revenue would rise to 1 million USD/block in 2013 - 2016, and the miners will use those earnings for rigs, electricity and profits.

The 1000x apparent inefficiency as compared to Visa has nothing to do with the actual efficiency of the Bitcoin payment network, rather to the particular way coin minting is performed. If Bitcoin achieves Visa levels after the initial coin distribution phase is completed (a few decades from now), the mining revenues will be much more modest. The 1000x factor is true today, and will halve every four years.


You are not accounting for the hidden revenue that seigniorage generates. Since Visa works with national currencies it does not have this revenue stream, so all it's markup is passed on the the consumers.

When an investor buys bitcoins for the first time, he enables miners to burn those resources in their mining rigs and mine a shiny new bitcoin for him. The resources are forever wasted but apparently he still "has the money" in new bitcoins - a curious case of having one's cake and eating it too. Conversely when Bitcoin will fail (as all human endeavors eventually do), someone will be left holding worthless bits. So from the point of view of the participants in Bitcoin, the markup  is deffered until the system is closed, whenever that may be - tomorrow or one thousand years from now.

<soapbox>
From the point of view of the society, we are better off avoiding a proof-of-work monetary system, like Bitcoin or gold. If we can convince our governments to issue sound, non-inflationary fiat money we can put those wasted resources to better use today. It's travesty of our times that the resources saved by fiat money, instead of making the society richer, are siphoned by the rent seeking bankster elite.
</soapbox>

Sure, the infrastructure will be decentralized, maybe in 1000 "small" data centers, each the size of Visa's
As for ASICS, you can bet they will be the only form of mining, however that does not change the amount of resources Bitcoin farming will command since they will be available to all players and the difficulty will rise dramatically to compensate.

We could assume some minority players will have top technology with say 2x performance per watt most miners have, thus they will be able to pocket higher profits that could go for charity or for building nice mansions for their rich financiers. Still, the bulk of those 200bln$ worth of resources will be destroyed in the mad game of "proof of work".

Are you sure about that ? In order for Bitcoin to scale to Visa volumes (5 trillion $/year), and assuming the average bitcoin is spent once per month (for M1 US dollars this period is about 45 days), the total capitalization of Bitcoin should rise to 400 bln dollars, or an exchange rate of about 40000 $/BTC.

This sharp price rise would enable about 75 billion dollars of mining fees for the remainder of 2012, and 50 billion dollars mining fees in 2013 and onwards, after the block reward drops to 25BTC/block. That's almost 300 bln $ in mining fees for the next 5 years. No less than about 200 bln$ if we account for the expansion of BTC monetary base, and keep the payment volume constant. On a competitive mining market, the bulk of this 200 bln dollars would go towards mining rigs and electricity, while the remainder will represent mining profits.

Visa's data center, impressive as it may seem, is still 1000x cheaper than the corresponding Bitcoin infrastructure.

Ripple is an overlay credit network, not a currency. You can't buy anything in ripples, they are just a way to settle debt and clear transactions done in dollars, euros, ounces of gold and silver, and bitcoins. The value of a ripple credit is externally imposed and not determined by the market. Should anyone try to use "unbacked" ripples, there will be instant hiperinflation since I have no problem issuing my friends infinite credit of worthless money and their transaction partners don't have any reason to doubt I will settle the debt - it's worthless.

By definition a credit network needs to work on top of a hard, scarce, fungible monetary base. If the monetary base is not scarce (leaf money), there is no point issuing credit, because there is no incentive to have it payed back. Bitcoin and Ripple are solutions for two different problems.

That being said, the non-economist who wrote tha p2pfoundation text probably refers to the dubious shape of the Bitcoin monetary base, perfectly suited for a pyramid scheme and less so for a functioning, expanding economy.

The ad-hominems were not directed to you. Let's agree to disagree on the issue of Mises being a fanatical ideologue.


You are switching playing fields mid-sentence. The company without thieves will do better, and the society without slaves owners (thieves of another man's own body) will also fare better. On the micro level, the businessman employing 20 free men will produce more than the owner of 20 slaves, but the businessman will have to price his goods at a level sufficient to pay the salaries. This means the slave owner will always have an opportunity to undercut his competition: he will price the products of slave work lower than a free man will accept to work. The freemen will flee to other countries or fields where there are no slaves, and the slave owner will continue to thrive in his labor intensive market. He will never go bust because he has free labor. The invisible hand  will never correct this by itself, unless you believe revolutions, wars and coups to also be free market manifestations.


I've given you an extreme example of the kind of product a completely free market can produce. If my slaves are good architects or programmers, there's an opportunity cost for me to leech them for blood, I'm not making the best use of the resources. So I will use the most inferior and retarded (=cheap) slaves in the blood farm, those who definitely can't perform medical research. Until your 1000 scientists can develop a blood substitute (which might very well never happen), my slave farm is the cheapest way to deliver blood products on the market.

Therefore a society that allows ownership over individuals will have blood-farms, sex slaves, slave breeding and just about every sick and perverted use of human beings for benefit of the economic elite. The free market is a morally neutral device, as long as there is somebody willing to pay a certain price on some immoral product, the market will deliver if we as citizens don't do something about it. We must stop wrong deeds that happen now, and we should not settle for the hope that perpetrators will eventually go bankrupt.

You are all ignoring the development effort required to make a collaborative implementation. If the incentives are not sufficient, people will not relay transactions, it's a simple as that. Especially if they have zero variable costs (botnet) and high fixed costs (developing exploits and the custom mining software).
The critical path to profit is a non-collaborative miner. Once I have that, maybe, just maybe, I will start working on transaction relay and Merkle tree updates. If it looks like allot of work and the fee revenue seems modest, I'll pass.

What will you do exactly ?

Also, I'm not sure you understand the incentives structure. A 50% pool is in the position to form a cartel and double the average payout. The profits of the cartel member will rise dramatically, if they had a 10% profit margin on the open market, they will increase the profits by 11 times when the cartel starts operating. It seems miners have all the reasons to join DeepBit before they close doors to new members, and the "Bitcoin shareholders" can't do jack shit about it.

@realnowhereman: From what I read, Mises` own argument is that you literally can't extract above-animal performance from human slaves, and that the generalized demise of slavery in the world had to do with slave owners being unable to compete with capitalists for productivity and quality reasons. This position is one of right-wing bigotry in it's purest form and sheer historical ignorance: slavery was always fought on humane and ethical terms, and always against wealthy slave owners who've seen their profits threatened. Unsurprisingly, Mises never won any Nobel.

You make a more convoluted argument: you admit that a slave might be coerced to produce economic goods of 5$/hour, but you assert that the same free man will produce 10$/h when he applies himself, and there's no way for a slave owner to exert that productivity by force  alone - you are basically making a psychological argument. That may be true, but you need to understand that most of the productivity of the slave goes to his owner (minus the bare essentials for keeping him alive), while the productivity of the free man on a competitive market will tend to go mostly to the man himself. What I am saying is that even allowing - for the sake of argument - the idea that a free man is more productive than a slave, a slave owner has no incentive to become a capitalist: by owning two slaves he keeps the better part of 2x5$/hour, while the capitalist must compete on price for the labor of free men, and keep much less of the 10$/hour each employee fetches.

There are also human activities that can't reasonably be expected to follow your incentives argument: if I coerce my slave to become a blood donor and sell the blood on the free market, there's no way I can convince him to become a better producer of blood by sharing the profits with him. Quite contrary, a slave with free time and money to burn is likely to score high for alcohol, drugs and VDs, diminishing the quality of the "product".

Sorry for the off-topic, but whoever believes the free market is somehow naturally inclined to reject slavery is a blithering idiot that knows very little about the principles of "human action". Coerced human slaves will absolutely and unequivocally produce economic goods that far surpass those supplied by animal or robotic laborers. Think about prostitution, think about scientists coerced by totalitarian regimes, think about human organs, to name but a few.

If I could buy you guys on the market, I would coerce you to solve captchas for 3$ an hour. That's a healthy 300$ a week/person. A 20 slave workshop would generate 50.000$/year minus expenses. I would select the biggest and strongest among you to guard the rest and whip you when you fail to meet your quota or the error rate is too high. How exactly would the free market undermine my system ?

Well, there are 10^23 atoms per cubic cm of silicon. If you were God, how many atoms would you need to make a transistor and the adjacent insulation and electric connections ? Let's say ten thousand, add or take another zero. So an absolute density limit is on the order of 10^19 transistors per cubic cm. That still leaves enormous headroom for Moore's law to unfold, what we are hitting are technological limits of the photolithographic chip fabrication process, not physical limits.

In practical terms, NSA is more interested in data-mining than encryption. The huge datacenters are most likely running voice recognition and text classification algorithms, searching for things like: bomb, nuclear, enrichment, anthrax, jews, intifada, jihad etc. (hehe, a huge false positive there...).

If they are doing large scale crypto cracking, they are most likely concentrating on attacking key distribution, public key and key derivation algorithms. They are most likely not brute-forcing AES, that would a stupid waste of taxpayers money.

The "cashless society" scheme is a crime against society. If we only stop for a moment to think that the European payment market is basically a duopoly between Visa and MasterCard, which charge between 1%-5% on each transaction passing through their systems. That's a few percent of the GDP of a cashless society subverted for the benefit of private entities. It's rent seeking in it's purest form.
But what if the carder lobby succeeds in their evil plan ? What if cash is abolished by law and the carders no longer see it as a competition - what would the fees be then ?

The privacy implications are appalling. The ability to make secret payments and purchases is an essential liberty of a free citizen, a citizen able to overlook his elected representatives. "Money laundering" and "tax evasion" are not reasons to strip essential liberties - criminals will always find ways to move assets, while the general public will lose the ability to fund and engage in counter-governmental activities, effectively setting the stage for a police state.

Governments should go exactly in the opposite direction the carders are pushing: established a public electronic cash system based on chaumian blinding. It should be free to use and guarantee the privacy of person to person transactions. The only way privacy could be removed should be with the cooperation of the other parties in the transaction, thus establishing an acceptable compromise between the privacy of citizens and preventing major crimes such as kidnapping for ransom (which are easier to accomplish with digital cash).

Prices actually going down all across the economy is an extremely rare phenomenon. It might had happen 100 years ago, in the age of precious metals, but people nowadays don't realistically expect prices to go down, and they don't "hoard" money in order to buy more stuff later. You might see it in some asset classes, say real estate, but not enough to cause a generalized and significant price drop in the whole economy.

What actually happens when deflationary expectations set in is not really a drop in prices, but a sharp drop in the velocity of money. It's intuitive: if the total monetary mass changes hands half often than it used to, the total economic output of the economy halves, even if prices stay the same. Because of the lower aggregate consumption, businesses start failing and credit becomes scarce. Mass unemployment and underemployment ensues. People start to consider themselves "lucky" to have a job at all, setting in motion the recessionary feedback loop: households and business defer consumption and investment because they anticipate "hard times" ahead, and holding onto their savings, preferably in the most liquid form possible, becomes an issue of survival. This reduces velocity further, in a self-fulfilling prophecy.

It important to underline that people don't deffer consumption for the sake of speculation, i.e "money will be worth more in the future". Most economic agents are risk averse and they hoard money to ensure continuity and survival, not to seek future profit. That's why simply injecting liquidity (preventing price deflation thus denying the future profit) does not solve the economic crisis. As governments around the world grudgingly start to realize, economic recovery is an issue of confidence, pure and simple. Unlike inflation, you can't manufacture confidence in the printing press - you need good policies and credible leaders.

Ah yes, threads like these make it all worthwhile: let's push a shady internet currency onto a poor nation who experiences one of the worst internet censorship in the world, severe currency control, impending war and subsequent communication blackout.

As for the economics of it, the first poster in the "Dire straits" link above has it just right:

That's precisely what I said: assuming the agents are rational, let's see what other rational explanation can cover this behavior.
The explanation some posters are giving, present in the original article ("because they are so worried about the potential for big losses elsewhere") makes no sense whatsoever - whoever is writing this does not understand the notions involved.

Negative interest rates are clearly a curious concept. Yes, rational agents would rather hold the money instead of lending them out at negative interest rates.


In 500 EUR bills if they have to. The players bidding at these bond auctions are typically banks themselves, and they have a "bank account" that can't possibly go bust: the reserve account with the ECB. It makes little sense for a bank to diminish it's reserves in order to buy negative yield assets.

What I suspect is going on here is that there is a strong sentiment of Euro dissolution, at which point all nations would revert to older national currencies. Of course investors would prefer to own debt denominated in Deutsche Marks than Italian Liras or (gasp!) Drachmas. So I think the negative interest rates arise because players don't have faith in the currency itself - they believe euros will soon become non-fungible and some types of euros, like those held by Germans will be worth more.

Not at all. People hoard money for reasons similar to building a house, getting a job, marrying etc. Unlike purely instinctual creatures such as the Ice Age squirrel, people have an intimate relationship with the notion of risk and predictability. Most people, given the choice, are rather risk-averse and don't follow the old "carpe diem" adage.

Whereas a guy living paycheck to paycheck might have a tough time starting a business, a thrifty guy that has some savings will not have to chose between his business and a meal. Limiting present consumption to supplement for future risks (and enable  future risks that are currently unacceptable) is a basic feature of intelligent creatures when faced with an unpredictable reality.

While a cave man would have stored fruits and salted meat for rainy days, the modern man hoards money - in effect limiting his current consumption of actual goods and services towards other members of the society in the hope that some day they will reciprocate the favor. When you save money you are crediting the society - your savings are not the money itself, they are just tokens of your contribution; all money is debt by definition.