Indeed. We can still consider the general macro-evidence...
Japan: deflation = stable living standards, wealth preservation.
Venezuela, Argentina: inflation = decreasing living standards, destruction of wealth.
Zimbabwe: hyperinflation = destruction of living standards, endemic subsistence poverty.
Selection bias, I'm afraid. Hyperinflation has always been a political act, not solely a monetary one. There is no obvious economic lesson to be learned from hyperinflationary events such as Zimbabwe or the Weimar Republic, but plenty of political lessons. |
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Obamacare is the law of the land now... just like slavery used to be.
Just words on a paper. Different words on another paper would have a different effect. |
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Democratic politicians can be crackheads.
But Republican politicians can't be crackheads.
Republicans can't be sexual deviants, either. Some kind of fetish is almost a given for Democrats at the national level. |
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...and then the block reward halved...
... and then the price of bitcoin went up x10. Rises in the value of bitcoin are going to outstrip any of the measures mentioned to reduce the cost of block propagation. OR the price of bitcoin simply wont rise because fees are too high. Gavin's Cost is independent of the trade value of bitcoins, so that wouldn't prevent a halving from improving the attractiveness of fee paying transactions. Regardless, there is much that can yet be done about Gavin's Cost before the next halving anyway, so I don't think that Gavin's Cost is really a problem so much as it is (and will continue to be) the real blocksize limiting factor whether or not we continue to hold a hard limit on blocksizes. With 'thin' blocks (block headers & merkle tree only) the one meg hard limit would easily permit an average transaction rate of 30 - 40 transactions per second right now, doing nothing further. A blocksize limit of 10 megs would get us into the 300+ per second range, which is a workable rate for a major system; and higher rates can be handled better by overlay networks anyway. |
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I disagree with the premise that Japan's deflationary environment for the past 20 years or so was a bad thing, just because a majority of the formerly 3rd world nations around their region are now nipping at their collective heels economicly. Regardless, I don't think that Japan's experience with deflation is particularly instructive in any sense with regard to Bitcoin's own experiences. I don't think that Japan can be generalized, since the culture and economy is both so complex and so unique. Even if there is something instructive with Japan's example, I don't think that it would be obvious nor without cavets. I'm not sure that any existing example would be instructive for Bitcoin, because the economy that can be expected around Bitcoin is entirely voluntary, and that might make it rather unique as well. Some things are universal, of course, but applying the macro lessons from nations using fiat is bound to be fraught with error.
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these issues may be why POS offers things over POW. POS may be able enforce sytems of mining more uniformly and easily that POW, also you can long term plan eg with Peercoin, the massive evaluation of NXT and then emunie
Maybe, but I've yet to see a working POS system that wasn't either too complex to prevent a trusted-peer attack vector of some form, break the anonimity factor of users, or both. |
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In the long term?
It's called a quantum-computer and it can make a bit be 0 and 1 at the SAME time, potentially solving any hash in a matter of microseconds.
So far, this still a theoretical thing, but scientists are working and getting closer on the concept.
If anything can destroy bitcoin at it's core, its that thing.
But that will not increase the amount of Bitcoins being generated. The rate of creation of new BTCs will remain unchanged. So this will only be having a minimal effect. Except that every bitcoin adress whith a balance on it will be compromised and the owner of the quantumcomputer can use all those coins as if they were in his wallet. LOL No problem here surely! Did you know that a keypair is created using cryptography as well?  Herpderp.  Bitcoins are not under great threat by the develpment of a practical quantum computer. They're not magic, Bitcoin is fairly resistant to quantum brute forcing already, and can be upgraded if the threat proves real. On what facts do you base that? the wiki for quantum computing very clearly states: Besides factorization and discrete logarithms, quantum algorithms offering a more than polynomial speedup over the best known classical algorithm have been found for several problems,[19] including the simulation of quantum physical processes from chemistry and solid state physics, the approximation of Jones polynomials, and solving Pell's equation. No mathematical proof has been found that shows that an equally fast classical algorithm cannot be discovered, although this is considered unlikely. For some problems, quantum computers offer a polynomial speedup. The most well-known example of this is quantum database search, which can be solved by Grover's algorithm using quadratically fewer queries to the database than are required by classical algorithms. In this case the advantage is provable. Several other examples of provable quantum speedups for query problems have subsequently been discovered, such as for finding collisions in two-to-one functions and evaluating NAND trees.
Consider a problem that has these four properties:
The only way to solve it is to guess answers repeatedly and check them,
The number of possible answers to check is the same as the number of inputs,
Every possible answer takes the same amount of time to check, and
There are no clues about which answers might be better: generating possibilities randomly is just as good as checking them in some special order.
An example of this is a password cracker that attempts to guess the password for an encrypted file (assuming that the password has a maximum possible length).
For problems with all four properties, the time for a quantum computer to solve this will be proportional to the square root of the number of inputs. That can be a very large speedup, reducing some problems from years to seconds. It can be used to attack symmetric ciphers such as Triple DES and AES by attempting to guess the secret key. As far as i know SHA is one of the algorithms that is threatened by this. Show me what magical special defense system bitcoin has against this potential threath plz.  As noted very well by Nancarrow, quantum computing simply shortcuts some poarts of chryptography, but other parts are no faster. The thinkg about Bitcoin is that it's not based upon the abiluty to hide a secret text from veiwing, but to make the proof-of-work system viable. The most likley result of quantum computing on Bitcoin would be an increase in the hashing rate in the same way that moving from CPU's to GPU's to ASICs have increaced the hashrate, and even then, if we don't likel it, we can switch the algo to something more quantum resistiant. The part that is most at risk in Bitcoin is the private keypaairs to the addresses, but even then, Bitcoin uses an upgrade path to address algos that permits a quantum resistant algo to be adopted in place of the current (version 1 address start with a "1") address algo. Again, quantum computing is not magic. |
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Is anything being done about this?
Yes.
The obvious solution is to reduce the orphan cost. To do this solved-block propogation time needs to be lowered.
This is being worked on by migrating from a complete block to a skeleton block, with only the headers and merkle tree included. This alone would reduce the orphan risk cost by about a factor of 10. Not for Bitcoin. |
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In the long term?
It's called a quantum-computer and it can make a bit be 0 and 1 at the SAME time, potentially solving any hash in a matter of microseconds.
So far, this still a theoretical thing, but scientists are working and getting closer on the concept.
If anything can destroy bitcoin at it's core, its that thing.
But that will not increase the amount of Bitcoins being generated. The rate of creation of new BTCs will remain unchanged. So this will only be having a minimal effect. Except that every bitcoin adress whith a balance on it will be compromised and the owner of the quantumcomputer can use all those coins as if they were in his wallet. LOL No problem here surely! Did you know that a keypair is created using cryptography as well? Herpderp. Bitcoins are not under great threat by the develpment of a practical quantum computer. They're not magic, Bitcoin is fairly resistant to quantum brute forcing already, and can be upgraded if the threat proves real. |
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So, market forces would compel litecoin and others to fill the gap in the monetary base if bitcoin is insufficient and the deflationary pressures really are as doom and gloom as some predict.
Added to this, the upper bound of Bitcoin's velocity is quite high, which can have a similar effect to inflation as the average velocity increases. |
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Bitcoin isn't deflationary by any fundamental feature for at least 100 years; and it's current price growth is limited to it's potential market size, which cannot exceed the whole of the Earth. At some point it must reach maturity, and once it does it's year on year price variance shouldn't exceed +-2%.
As I am catching up. I come to another question. If currency amount is stable, then inflation and deflation (in currency value) will mainly be function of growth of total economy, no? As economy grows, more goods chase less money, so money goes up in value. If true, does this not mean that if there is too much deflation, it is because economy is growing fast, and if deflation makes businesses fail and jobs go away, then economy will slow down, and so will deflation? Well, it depends upon on which definition of deflation you're using. But you are certainly thinking correctly about the general mechanisms at play. |
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MoonShadow: Your straying into a petulant tone which is uncalled for, when you misrepresent what someone is saying you apologize, you don't try to blame them and throw down the gauntlet as you just did. Debate people respectfully and you'll get a lot more fruitful of a discussion.
Etlase2 and I have a history of misrepresenting one another. I'm trying to catch up here.
P.S. The 'mild deflation' definition being the reciprocal of what we consider mild inflation ~2% seems reasonable. I don't have any faith that BTC would every reach that rate, but I'm sure it would never have any real economic usage until it DOSE reach that level or less.
Okay, your perspectives are your own, and should inform your actions. Mine are different on this topic, and I will have different actions as a result. Both of us can't be right, but neither of us can know that we are correct until the future is past. As has been noted, however, Bitcoin isn't deflationary by any fundamental feature for at least 100 years; and it's current price growth is limited to it's potential market size, which cannot exceed the whole of the Earth. At some point it must reach maturity, and once it does it's year on year price variance shouldn't exceed +-2%. At least, it's no more likely to do so than any large national fiat system, for those fiat currencies vary so much as a direct result of their inflationary target goals. |
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I would make the point that saving assets that appreciate in value is not immoral, while saving a currency and gaining purchasing power is.
Assets and money (not currency) have value
Currency has no value, but is a representation of value. Similar to the way that an inch has no length but represents length. Holding currency and gaining value is like holding an inch and gaining length.
The author of Cryptocromicon put it another way that I think is better. Paraphrasing, currency is not wealth, but the corpse of wealth. |
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This is a fallacy. People will always buy what they need, which puts a floor under any deflationary spiral. In the current system people are encouraged to consume for the sake of consumption, buying what they don't need, and worse, borrowing to do it. With a sound monetary system borrowing would be done for purposes of new and increased production - driven by legitimate market forces (not excessive FRB and CB-spiked money creation).
Further. Bitcoin is not even a deflationary currency. It just inflates at a smaller and smaller rate. The inflation rate in Bitcoin right now is about 11%, which is larger than any real GDP growth! Eventually it will be less than real GDP growth, but even then, lower prices and wages will not reduce living standards.
All you are doing is thumping on the same bitcoin bible. People can't buy what they need if they don't have jobs. Consumerism, as I stated, is mostly irrelevant and is only good for distracting from the real topic regarding what effects deflation will have on investment and job creation. And arguing about what the word deflation means is the typical bitcoinomics cherry on top. This is a modern myth as well. There are other means to an income than what might be called a "job". A great many people still make their own way in this country without ever submitting to an hourly wage. This is a small minority of people, mind you, but a much larger minority of people are well accustomed to earning some portion of their income outside of the hourly wage paradigm. Furthermore, what he says is technically true, Bitcoin won't be remotely deflationary within any of our expected natural lifespans. It's dramatic price increases are due entirely to a speculative assumption of future economic growth upon a fairl ridgid monetary base, but one that isn't properly called deflationary. This is a growth stage, not a feature of Bitcoin itself. |
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The finance industry has become such a huge part of the US economy, that I would say that Elats2's claim that even mild deflation would result in a large pull back from major investment, and result in increased unemployment. Please direct me to where I wrote this. Otherwise that is twice in two posts you have (intentionally?) misrepresented what I've said. I was paraphrasing my own interpretation of your statements. I'd say that I was giving your viewpoints unearned credit out of kindness for your perspectives. You'd be wise not to attempt to disprove that. Small businesses have always been the bulk of business activity in the United States, and small businesses should be the bulk of the business with Bitcoin as well. Under such a model, mild deflation is no more (and perhaps less) dangerous to the business climeate than mild inflation. Would you care to provide any evidence to back this up rather than idle and wanton speculation? Because small businesses tend to operate on very strict amounts of capital, cash flow that is almost universally derived from credit. Small businesses tend to balance a very fine line between profitability and bankruptcy. Mild deflation (you imply here that bitcoin would have mild deflation, based on what? and what do you consider to be mild?) that is just a smidgen more than expected can and will cause a slew of bankruptcies. There is simply no other way. You cannot have credit in a deflationary economy without bankruptcy being the equalizer. There simply will not be sufficient money to pay off debts without an equivalent and unsustainable increase in velocity. You could argue then that those businesses did not deserve to survive, and in effect you are arguing against small business and for large business where costs can be reduced as economies of scale take precedence. You could argue that small businesses should not run on credit, but then I'd just have to laugh at how little you understand the real world. Why is my speculation "idle and wanton" while your's is not? By mild deflation, I mean something very close to 0% APR, as in less than 2%, or closer to 0% than the normal inflationary "targets" of central bankers worldwide. I was not implying that Bitcoin would necessarily achieve this anytime soon, but I do expect it to happen eventually should Bitcoin ever become an international reserve currency. I have no better evidence to support that last position than you have for discounting it, which is to say nothing more than intuition. |
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I think the basic argument is whether falling prices cause people to postpone purchase of items. I think that in general this is a fallacy. Regardless whether electronics is the best example and whether this can be compared to a deflating currency, I do not believe in the concept of people postponing purchase forever. Now is more valuable than next year. We humans all face an equal and rock solid constraint: time.
In general, it is a falacy, for the obvious reasons that the consumer doesn't delay purchases indefinately. However, I have to admit that Elase2 does have a point here about the role of investors and speculators in the health of the modern economy. What I don't believe that s/he understands, is that is a side effect of the outsized role of modern finance, not a requirement of a functioning economy. The finance industry has become such a huge part of the US economy, that I would say that Elats2's claim that even mild deflation would result in a large pull back from major investment, and result in increased unemployment. Still, I would consider this to be a symtom of the longstanding effect of mild inflationary policies, resulting in the growth of the finance industy itself. The problem isn't that investment adviser and bankers can't make money doing what they do; the real problem is that they can make a great deal of money doing what they do, but that they work in the largest 'cost center' industry in the world. Said another way, the finance industry (on net) does not produce anything of value, but instead offers only to move wealth around in the most efficent manner possible. Whether or not they live up to that promise is a matter of opinion, but they actually cannot produce value in their own right. This has much to do with why Mish has, and still does, consider what he does to be a fraud. Not that he's personally fraudulant in giving advice, but that the entire freaking industry is a fraud; pretending to produce wealth, when mostly they just move it around and take a slice off the top. A healthy economy does not require the dominate finance industry that has developed in the US and most modern "Western" nations. We want a healty economy to develop around Bitcoin, and that means that nearly every consumer is also a producer, and that these huge 'cost center' industries never develop beyond a few percent of the gross. Nor should it require tax benefits from governments to have economic incentives to build factories, nor these power broker parasites that tarvel around the world searching for investment bargins. Small businesses have always been the bulk of business activity in the United States, and small businesses should be the bulk of the business with Bitcoin as well. Under such a model, mild deflation is no more (and perhaps less) dangerous to the business climeate than mild inflation. That is not to say that the significant deflation that we have experienced thus far is a favorable climate, it's certainly not. So either Bitcoin will mature and stabilize on it's own merits, or fail epicly. We al place our bets according to which outcome we deem more likely. |
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I have to strongly question the intelligence of the author of that article as well as yourself Moonshadow for perpetrating bullshit like this.
A currency that is deflationary IS NOT EQUAL TO a specific product or industry that experiences deflation in an otherwise inflationary currency. They are COMPLETELY DIFFERENT economic situations.This is in no way an argument for a deflationary currency. It is asinine to think so.
In what way, Etlase2? A currency is simply a market product with a well defined trade value, by whatever means that trade value is defined. The laws of supply & demand most certainly do apply to currencies. I know of no economic laws that do not apply to currencies. If you do, feel free to share your insights. |
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Economic illiterates will tell you that deflation (for this example defined as falling prices) is a bad thing. They will tell you that when prices fall, people will delay purchases waiting for still more falling prices, and then consumers will not buy goods and employment will drop and a downward economic spiral will ensue.
That is the theory of people in ivory towers who read books and articles by economists who cannot find their ass with two hands and a road map.
If falling prices stopped people from buying goods, no computers, TVs, monitors, or electronic goods would have been purchased for years.
Just yesterday I bought a 27 inch high-end NEC monitor for $800. It was one of the top-rated monitors for digital photography display that I could find.
It beats hands down my Dell 24 inch monitor I bought a few years ago for $2400. Will monitors be better and cheaper next year. Of course. Did that make me wait? Not in the slightest. http://globaleconomicanalysis.blogspot.com/2013/12/economic-illiterate-proposal-inflation.html#rMYzZkAfFCzAbtyF.99 |
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It's to do with the blocksize limit - currently all blocks can only hold a maximum of 1MB of data. I'm told by smarter people that it would require a hard fork to remove or otherwise change this limit. Given average time to generate a block as 10 min, and a minimum transaction size of ... whatever-it-is bytes, that works out to 7 transactions per second.
If the blocksize limit were increased, or removed altogether, we'd get the blockchain increasing at an even faster rate than it already is, but that may or may not be a problem depending on how storage hardware develops, and how drastically we implement 'pruning' solutions or lightweight clients. I'm told there are also economic reasons why a limited block size might be a good idea but I don't know what those are.
This isn't true as of yet, since most blocks are not full as of yet. The greater limiting factor seems to be Gavin's Cost; a theoretical risk of loss from including each additional transaction that Gavin Andreson estimated to be around .00033 BTC per KB of transaction size. This number will naturally change over time, due to many variables, but efforts are underway to significantly reduce this cost per transaction in order to encentivize miners to include more transactions into the block. The same effort will also improve the average transaction rate. |
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ASIC mining farms. I believe Satoshi intended for BTC to be cpu only Your belief is in error. Sataoshi expressed a desire that Bitcoin remain cpu only till the "kinks" were worked out, but he didn't get to decide that issue alone either. I don't understand you completely; by issue, do you mean the kinks or CPU? And what did Satoshi try to decide? He attempted to convince the users to hold off on GPU mining. He didn't get his way. |
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