Redeeming? I thought we were talking about a one-way bitcoins->forkcoins system. Are you suggesting there should be some way to go from forkcoins->bitcoins? Where would the bitcoins come from?

That would help a lot if, and only if, someone could come up with a clever and secure way to move bitcoins to another block chain and them move them back so that they could be temporarily traded in another block chain.

That way, you could have a 'fast' block chain that only ran for, say, six months that handled small, fast transactions. Bitcoins would leave the main hash chain to enter the fast chain, could be quickly traded, and then anyone could 're-import' their bitcoins into the main hash chain. But, alas, nobody has yet come up with a way to make this work.

I think the fix is to have a node be trusted only to have checked the signatures. So the other (cheap) checks, such as for conflicting transactions claiming the same outputs, are still done.

It is a tipping point. With more than 50% of the hashing power, an attacker can always choose which of two conflicting transactions makes it into the hash chain. If the wrong transaction gets into the chain, no matter how many confirmations it has, with 51% of the hashing power the attacker can build off a chain from before the transaction, including the conflicting transaction, and eventually his chain will be longer than the public chain. With 45% of the hashing power, even reversing a transaction with just four confirmations becomes very unlikely to succeed.

You currently make $11/hour working as a cashier, which you hate. You got a job as a pizza delivery driver that pays $19/hour, which you would love, but you need a car to accept that job. You don't have enough money to buy a car, but you could borrow $2,220 at interest to buy a car.

You designed a cash-for-bitcoins terminal. You can buy the hardware for $1,900 and sell them for $2,400. You only have about $5,000 cash. You just signed a contract for 1,200 terminals, but you need to provide them all within three months. You don't have the $2.3 million you need to order 1,200 terminals, but if you borrowed it with interest, you could pocket $350,000 in profit.

Sometimes it is most efficient to produce value before you consume it. But it is also sometimes much more efficient to consume value prior to producing it, such that the amount ultimately produced is much greater. Interest consist of two people sharing this benefit because they both made it possible.

Thanks, jackjack.

You are making two mistakes:

1) You are forgetting to convert future nominal currency values to their (lower) current value. 10 stc next year is not worth as much as 10 stc this year because you have to subtract the benefit of everything you could do with the 10 stc during that year. So 10 stc next year may be worth, say, 9.5 stc right now.

2) You are forgetting that even a deflationary currency is worth more today than it will be next year. 10 BTC today *includes* the present value of 10 BTC next year because one of the things you can do with 10 BTC right now is have 10 BTC next year. So the *present* value of N BTC can never, ever be less than the present value of the future value of N BTC at any point. (So none of the terms can be negative, each is the present value of holding a bitcoin for a year. At worst, that's worth zero because you can't find anything useful to do with it.)

The mere existence of a reliably deflationary currency changes the time value of money equation because one of the factors that goes into that equation is the inflation/deflation rate. It's the same way if gold was $2,000/oz today but we all knew it would be $3,000/oz next year, $3,000 next year wouldn't be worth much more than $2,000 now because you can turn one into the other by buying/selling gold.

(Assuming perfectly constant, perfectly predictable deflation.)

There are many ways to defeat this. The simplest is:
1) Never relay local transactions to nodes that connected to you.
2) Only make outbound connections to semi-trusted nodes.
3) Always send transactions to the same node.

You borrowed the right to hold that money as it appreciated, you invested the value of that right, why would paying it back be a problem?

Whether you would prefer decreasing nominal payments or level payments depends on what the borrower plans to do with the money and what the lender wants to get for his money. Some people may prefer one lump payment at the end of the loan term. I think generally borrowers generally prefer increasing real payments, so level nominal payments may be preferred because that implements decreasing real payments. It depends why you're borrowing the money.

For example, if you're borrowing the money to buy a car and you expect your income to be level in the deflationary currency, you would prefer level nominal payments. If your income shrinks because the currency is very deflationary, then you would prefer decreasing nominal payments. If you're investing in a business that won't get off the ground until later in the loan term, you may prefer increasing nominal payments.

A deflating currency will put a preference towards decreasing nominal payments. But that will go into the mix of preferences based on what the lender wants and what the borrower wants.

The problem is that this is a "front door" attack, attempting to do exactly the one thing the algorithm was specifically designed to make impractical.

If that were true, "I'll give you $50,000 if you kill my wife" would be lawful speech as well, but we know it's not.

You can't have it both ways. You can't say that there's uncertainty and therefore more and more deflation will be priced in. If it's uncertain, then deflation might get priced in or might get priced out or might not change at all.

In any event, uncertain deflation (assuming there's not a huge amount of it) is a manageable risk. If you are harmed if deflation increases, you find someone who is harmed if deflation decreases and you hedge with them. We already do precisely this to hedge around uncertain inflation. It works the same way with deflation.

What are you talking about? What is being exploited?

If you could try a billlion, billion keys per second, for a billion centuries, you could test one three hundred thousand billion, billion, billion, billionth of the possible keys. On the bright side, on average you only have to try half of them.

You have to discount each future value to its present value. $15 next year is not worth as much as $15 right now.

To put it another way, 1 bitcoin is worth:

1) The value of being able to spend a bitcoin right now but have to pay it back next year, plus
2) The present value of being able to spend a bitcoin next year but have to pay it back the year after that, plus
3) The present value of being able to spend a bitcoin in two years but have to pay it back in three years, plus ...

Because a bitcoin today gives you the right to do all of those things. But note that you have to compute the present value of each future 'loan'. The deflation increases the future value of each term but decreases the ratio of future value to present value. It winds up more or less cancelling out.

The value of a bitcoin is what it is. That already includes the value of everything you can do with that bitcoin, including the right to hold it as it deflates.

The time horizon doesn't matter. And that is right, the deflation disappears. Predictable deflation is already built into the price.

It's not my job to figure out how to save your example.

Sure. Also if someone put a gun to your head and said "buy these bitcoins for $10 each", then you would probably pay the extra dollar too.

I have a client in Austria who pays me this way. He logs into his online banking and directs a bank payment. I receive a payment from his bank's US affiliate, from a special outgoing payments account. (He doesn't have an account in their US affiliate.) The only personally identifiable information of his that it contains, I think, is his name (though I didn't look very closely).

This may be an Austrian thing, something specific with his bank, or something like that. I never really thought about how unusual it was.

If you had the choice between buying at 9 or buying at 10, you'd buy at 9 no matter what.

Right, in those cases, you really are paying for something in advance. Bitcoins are a commodity, like gold. You can buy and sell gold, but if you buy gold and then trade it for a hamburger, your buying the gold wasn't paying for the hamburger.

That's true if, and only if, the expected deflation either changes or the actual deflation doesn't well match the predicted deflation. I agree that you can get all kinds of strange and bad results if you try to denominate an agreement in an unstable or unpredictable currency.

Exactly. That's why you don't want to denominate an agreement in a currency that isn't very predictable over the time frame of the agreement. Otherwise, people will become very risk averse and tend to prefer shorter term agreements because it costs money to manage risk. It would be madness to offer or accept a 30 year mortgage denominated in bitcoins today.

An unpredictably inflationary currency, by the way, creates precisely the same issues. This is why we have currency hedge funds, TIPS, adjustable rate mortgages, and so on. These are all ways to manage the risk associated with a currency whose inflation is only somewhat predictable. A currency whose deflation was only somewhat predictable would create the same issues and more or less the same workarounds will reduce their impact.

Here's another example of the same error where it's easier to see: "Who would want to borrow money with an inflationary currency? The mortgage rate would likely have to be adjustable and could climb up really high, forcing you to pay back lots more money."