Is there an inflationary element of the coin? For example, if I own 10k Ether but I'm not mining, will that 10k Ether increase just based on linear inflation year to year?
Negatory, I'm afraid. Ethers will decline in value as more ethers are mined, at a fixed rate of 0.5 x original ethers formed via fundraising. The rate of ethers declining will slow down over time. The most painful year seems to be the first year, which from an investment point of view is counterintuitive, as that is arguably the point of highest risk. Btw, I like Ethereum and I do want it to succeed. I find the distribution counterintuitive at this point. |
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Agree, the theoretical limit is not something to worry about. However, early investor risk should be looked at, especially ROI versus Btc which is more mature and where take up rate is expanding very rapidly.
People may criticise satoshi and the winklevoss twins, but that is not slowing the rate of adoption, afaik. Even the Winklevii are providing a service by holding btcs for the very long term, without them each Btc would be worth less (not worthless). The more investors pile into btcs, the more the value rises, providing long term stability and more widespread adoption.
Early adopters should be rewarded for their foresight, attention to detail and the fact that they are putting their money where their mouth is. IMHO.
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Based on above.
ROI 0% requires ether doubling in value in Btc terms in first year. If Btc rises 10 times in fiat, ether needs 20 times increase in fiat terms for ROI to 0%.
Every year after that, ether depreciates per table above. This implies adoption rate must exceed Btc for it to ROI positively as Btc is strongly deflationary.
What is the point of measuring Ether's ROI in terms of BTC? Why not just measure in terms of fiat, or gold? Why choose a volatile BTC? We pay in Btc. Volatility is a subjective measure in terms of time scales. Using one year time scales, I find Btc volatility is ok. |
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A few people here didn't read the whitepaper closely enough.
1.2 trillion ether will NOT be issued at launch. At a tentative price of 0.0001 BTC, X ether will be raised. The initial money supply will be 1.5X, of which founders get .25X, ethereum reserve pool .25X, and fundraiser (investors) participants 1.0X.
After 1 year, total money supply is at 2X, with the ratios:
Founders .25X / 2.0X = 12.5%
Fundraisers 1.0X / 2.0X = 50%
Reserve .25 X / 2.0X = 12.5%
Miners .5X / 2.0X = 25%
Every year miners are mining .5X, this is the inflation rate
So year 1 inflation is (1.5X increase to 2X) = 33%
Year 2 inflation is 2X to 2.5X , 25%
Year 3 inflation is 2.5X to 3X, 20%
Year 4 inflation is 3X to 3.5X, 16.66%
Year 5 inflation is 3.5X to 4X, 14.2%
I personally think the distribution model is a lot fairer than the way Nxt and mastercoin did theirs. I'm not knowledgeable enough about emunie or bitshares to comment on their model, but I think ethereum has more promise than any of these other coins PLUS a fairer distribution.
Based on above. ROI 0% requires ether doubling in value in Btc terms in first year. If Btc rises 10 times in fiat, ether needs 20 times increase in fiat terms for ROI to 0%. Every year after that, ether depreciates per table above. This implies adoption rate must exceed Btc for it to ROI positively as Btc is strongly deflationary. |
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Who will invest then?
Sadly it seems that not many people will given the current structure. Its only a matter of time until a coin comes along which copies the features they like from ethereum but offers much better investor terms, which would cause ethereum to languish ensuing shortly after. I want this coin to succeed, but as it is its model is similar to Freicoin, with a much stronger disincentive and I expect that the result will be the same and or worse regardless of the feature set. Satoshi was not just an expert in coding, but also an expert in human nature. Absent of the right incentive systems, even the most brilliant currencies will never take hold. I think perhaps there will be a first year hump. Mining should also be ok. At some point ether adoption might outpace Btc adoption. Then switchover would be profitable. Agree, Satoshi's genius is shining through. Btw, Ethereum is a brilliant concept. I want to invest in it too. |
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What's the expected ROI for early investors?
I mean the total market will have 1 trillion! coins and the early investors cant dump them for years?
Correct me if I am wrong, just want to clarify my perspective!
Overall a great innovation.
It appears investors get 0.25 of all ether which is halved after one year to 0.125 of all ether due to first year ether inflation. If ether increases 8 times in value in bitcoin terms, we make 0% ROI. If adoption of ether takes more than 12 months for it to increase 8 fold in bitcoin terms then ROI is negative in year one. Over five years, ether depreciates by 50% again to 0.625. So, hopefully over that five year period, ether gains in value by more than double in bitcoin terms or if calculated from inception, greater than 16 times in bitcoin terms. In fiat terms, if bitcoin increases in value by say 20 times fiat in 2014, then ether will need to increase by 160 times! for ether to break even in year 1. Please correct me if I'm mistaken. |
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The meaning is that the results you get by using a formula don't correspond well to actual data. Usually it means that you chose the wrong formula or the formula has some limitations. What is oxymoronic in that?
In short, stop trolling...
In Maths the above statement = fail In Chem the above statement = fail In Physics the above statement = fail In Computer Science the above statement = fail Even in sociology the above statement = fail Economics is littered with examples of "formulas that don't correspond well to actual data". Then economists run a massive economic experiment called Quantitative Easing with these formulas... It is hard to impossible to gauge human behavior (which is what economics is primarily concerned about) with strict mathematics. Also, wrong premises will lead to wrong conclusions which would not correlate with empirical data. I don't see how economics is different in this aspect from any other empirical science that operates with and checks its models against empirical evidence... Then it is not a mathematical formula is it? It is a very flawed approximation of reality that should not be used to run a massive experiment. Economics should be frank about this but it is not. That's the whole problem: economics ignores the empirical evidence to achieve political outcomes. It's bamboozle with BS all the way. |
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Bitcoin falls perfectly under the general description of an pyramid scheme. Wikipedia: "A pyramid scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.". Only thing different from the pyramid schemes that we see everyday is the general reward system where the entire pyramid is rewarded for new recruits.
This is beginning to look like another repetitive "semantic game." What you call a "pyramid scheme" others would define as building up a P2P-proof-of-work-trusted-Network, which becomes stronger and of more value with each participant. Where you interpret a relation between diminishing amount of participants and value, others understand that the rise and fall in price follow directly upon good-or-bad news about a future digital, yet vulnerable, currency; any new currency has to deal with volatility in the beginning. Nobody can know for sure wether this Bitcoin-Network is sustainable or not, whereas you seem to have some fortune-telling capacity predicting the latter. Anyway, my common sense tells me you are deliberately trying to spread fraudulent information. A lot of FUD from banks I do believe. |
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.0001 is an absolutely insane starting price for a coin that will eventually have 1 trillion in circulation.
I am also wondering about the statement in the paper and the expected fundraising volume. Original: "Ether will have a theoretical hard cap of 2^128 units (compare 250.9 in BTC), although not more than 2^100 units will be released in the foreseeable future." 2^100 = 1,26 * 10^30 = 1 260 000 000 000 000 000 000 000 000 000. The issuance rule is like that: 0.0001 BTC for 1 Ether. If people invest all in all 1000 BTC there will be 10 000 000 Ether from fundraising and 50% of that goes to founders/org + 50% to miners per year. So after 1 year you have 20 mio Ether. If they get 10k BTC at fundraising -> 200 Mio Ether; If they get 100k BTC at fundraising (100 mio USD!) -> 2 000 Mio Ether; If they get 1000k BTC at fundraising (1000 mio USD!) -> 20 000 Mio Ether; But thats very unrealistic (10% of btc market cap) In that caseFor mining there would be added 10 000 Mio per year, if you count for 100 years thats 1 000 000 Mio = 1*10^12. So even in a highly unlikely scenario of 1 Mio Btc fundraising there would be only about 10^12 in circulation. So what does "not more than 2^100 units will be released in the foreseeable future" refer to? Or was it just a relict form an older version of a fundraising model or Ether nomination? This is very clever. But my,"12 year old" doesn't get it. I have 10 Btc, which I invest. That gets converted to ether. Ok, the founders/org take half and miners take half. What do I get? Then after one year, the mined coins are rising at linear inflation of 50%? Who gets those? Thanks. Can somebody smart and talented answer the dumb kid? |
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.0001 is an absolutely insane starting price for a coin that will eventually have 1 trillion in circulation.
I am also wondering about the statement in the paper and the expected fundraising volume. Original: "Ether will have a theoretical hard cap of 2^128 units (compare 250.9 in BTC), although not more than 2^100 units will be released in the foreseeable future." 2^100 = 1,26 * 10^30 = 1 260 000 000 000 000 000 000 000 000 000. The issuance rule is like that: 0.0001 BTC for 1 Ether. If people invest all in all 1000 BTC there will be 10 000 000 Ether from fundraising and 50% of that goes to founders/org + 50% to miners per year. So after 1 year you have 20 mio Ether. If they get 10k BTC at fundraising -> 200 Mio Ether; If they get 100k BTC at fundraising (100 mio USD!) -> 2 000 Mio Ether; If they get 1000k BTC at fundraising (1000 mio USD!) -> 20 000 Mio Ether; But thats very unrealistic (10% of btc market cap) In that caseFor mining there would be added 10 000 Mio per year, if you count for 100 years thats 1 000 000 Mio = 1*10^12. So even in a highly unlikely scenario of 1 Mio Btc fundraising there would be only about 10^12 in circulation. So what does "not more than 2^100 units will be released in the foreseeable future" refer to? Or was it just a relict form an older version of a fundraising model or Ether nomination? This is very clever. But my,"12 year old" doesn't get it. I have 10 Btc, which I invest. That gets converted to ether. Ok, the founders/org take half and miners take half. What do I get? Then after one year, the mined coins are rising at linear inflation of 50%? Who gets those? Thanks. |
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LOL:
Wells chief executive John Stumpf said it was the bank’s practice to examine financial innovations.
“We have made enormous investments as a company and as an industry in a payments system that is secure, and we need to be sure we are up to speed with what other things are going on and their risks and rewards,” he said.
So basically we don't want to fund a future competitor to us! lol
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An even more fundamental reason why Btc notes will not work over the next few years is due to the increased adoption rate. As the Bitcoin economy is expanding much faster than regular growth, Bitcoin deflation is running at greater than 15% per year, probably much more. No one will borrow in Bitcoin to start a fiat business.
When Bitcoin becomes pervasive and perhaps a currency of its own with a complete economic cycle, there will still be no incentive to borrow in Bitcoins for fiat. Why? Because bitcoins are limited to 21 million, lost coins, productivity growth in real economy, population growth and fiat inflation all adds up to a real deflation of Bitcoins exceeding 6% per year in fiat terms.
During the adoption phase of Bitcoin, I believe there will be more equity financing. Basically, use Bitcoins to buy into alt coins, 2nd gen coins and various Bitcoin businesses. Hopefully, by the time Bitcoin hits some kind of terminal value (in terms of user growth, which will be many years down the track), we would've gotten comfortable with equity financing as the primary means of finance.
Why equity financing? Because it is much more robust than debt financing and there is no possibility of a debt crisis with equity financing. The financial sector will be a lot more stable.
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The meaning is that the results you get by using a formula don't correspond well to actual data. Usually it means that you chose the wrong formula or the formula has some limitations. What is oxymoronic in that?
In short, stop trolling...
In Maths the above statement = fail In Chem the above statement = fail In Physics the above statement = fail In Computer Science the above statement = fail Even in sociology the above statement = fail Economics is littered with examples of "formulas that don't correspond well to actual data". Then economists run a massive economic experiment called Quantitative Easing with these formulas... I can't really believe anyone can be so stupid. Yellen was afterall cum laude of her year. I really think these people get pressured/corrupted by the system the higher they are promoted. Would you believe Greenspan's Phd thesis in 1977 forecasted the collapse of the housing bubble? http://www.webcitation.org/6DKm7EZfnWrites Greenspan: "There is no perpetual motion machine which generates an ever-rising path for the prices of homes." This implies he knowingly inflated the housing bubble and then goes on to deny that asset bubbles can be identified when they occur. Greenspan says: bubbles can only be identified after they have burst. How convenient! This is precisely why I'm one hundred percent behind an incorruptible mathematical algorithm to replace human central banks. Absolute power, corrupts absolutely. This is also what gives Bitcoin value over the other 194 currencies. |
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As for the existence of banks, there are two primary reasons for that. One is that banks do serve some useful purposes. Facilitating the fractional-reserve paper money scam isn't one of those purposes, but other bank services are. The second reason is that the government has repeatedly intervened to maintain the existence of banks and in particular the centralized fractional-reserve banking system. But each intervention has been bigger and bigger, and eventually the crisis is going to be too big, and the whole thing is going to collapse. And Bitcoin, should the government not succeed in killing it, likely will serve to make this day come sooner.
The primary purpose of banks is redistribution of money from those who don't need them right now to those who do (thus facilitating production, trade and what not) Why do you think money multiplication (which is the correct term for what you wanted to say here) is a scam? Do you also hold the view that banks can "create money out of thin air"? Besides that, first banks were just financial institutions without any centralized banking system existing along... Money multiplication is a scam because any idiot can borrow cheap money and speculate on property and shares, which pushes up asset prices. This devalues our currency in real terms. The rich then withdraw equity or generate capital gains to fund their lifestyles. They never have to spend their real wealth which they keep invested in assets. This widens the wealth gap as ordinary workers' earnings are less than capital gains of the rich, generated simply by holding assets. This is the exact definition of the rentier class that Keynes himself detested. What does it have to do with that as such? Should we prohibit lending money at all? You can't prohibit anything whether in fiat or bitcoin. That is the same top down thinking that has pervaded society. With Bitcoin, we won't need lending to provide liquidity. People now have a choice. |
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Bitcoin the PROTOCOL obviates the need of a third party in any transaction. Therefore, *poof* bank no longer required.
I have written above the primary purpose that banks serve in the economy. Unless you can substitute this with something else without the help of banks (or somehow eliminate the need for money redistribution), banks will exist.... Yes. Amazing to me you still don't realise that bitcoin is a superior substitute for banks. What about going into detail? If you haven't got it yet, you probably never will. I don't know why that is the case but it is not my problem to rectify. |
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If banks made loans and someone necessarily borrows then why are there $4 trillion sitting in bank reserves? Why is velocity at decade lows? It is simply not true that someone necessarily borrows. There is a limit to debt based systems and I can see the end is coming soon.
This is called liquidity trap, if I'm not mistaken. I think it is actually a consequence of the previous credit boom... Also, that part somewhat contradicts this: The fed reserve then helps the rich by printing money to suppress long term interest rates, which encourages yet more credit creation which devalues the dollar via asset price inflation. Meanwhile, workers are subjected to mild inflation whilst their wage growth is stagnant. You are not in the "previous" credit boom. You are in the same credit boom but re inflated by Ben. We never had the correction we needed. There is no contradiction. Ben was trying to escape the liquidity trap and he tried to do that by creating another asset bubble, exactly like his mentor Greenspan. So far the US has seen weak credit growth, which why there is a weak recovery if one can call it that. You may not recall but everyone praised Greenspan when he retired but now he is known as the fed chair that created two asset bubbles. Has there been a more hated chairman? Now maybe yes. Bernanke is leaving a similar time bomb for yellen. When it blows, yellen will have no choice but to print, not realising that the USD might devalue significantly as she strives for "optimal" control. Then the fed will be cornered by rising inflation and GDP contraction. Say hello to stagflation. |
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Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky.
I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice.
Banks were not centralised initially, so centralization is not inherent to them. It means that they can coexist with bitcoin without a hitch... Businesses love loans too. If banks make loans, someone necessarily borrows from them Bitcoin the PROTOCOL obviates the need of a third party in any transaction. Therefore, *poof* bank no longer required. I have written above the primary purpose that banks serve in the economy. Unless you can substitute this with something else without the help of banks (or somehow eliminate the need for money redistribution), banks will exist.... Yes. Amazing to me you still don't realise that bitcoin is a superior substitute for banks. |
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It is very interesting how much history comes into the analysis for being a revolutionary concept. I agree there are unique aspects here and I will keep an open mind as to how things will unfold. I really don't know. I think it's great that questions about monetary theory are arising though, as most of the public never really stops to question the status quo other than bitch about the banks.
As for known reserves against derivatives (money et al), doesn't matter. From Breton woods to Nixon closing the gold window there was always more dollars issued than gold backing it. This was known by all who cared to inquire. The gold window was closed when France (only france) tried to convert their dollars to gold. There was not even enough to cover them. All the same it was fractional for 30 years before anyone called their notes. Of course a bitcoin bank may not have the power to change the rules and so there is a distinction there.
We do have a credit catastrophe looming for sure. I cover that in the video I published. Nonetheless, even my very wealthy friends finance a lot of their purchases. All of my poorer friends do except the very poorest who cannot get access to credit at all. This is what I mean by people live credit. They love to finance and borrow. The devaluing of currency helps debtors pay back loans with cheaper money. There are downsides to this but given the choice it is a no brainer to finance in dollars rather than bitcoin. Unless we have an all out paradigm shift and/or the current system implodes (plausible if not probable), well I just see bitcoin as a payment service and a speculative vehicle for now, and probably a store of wealth like metals. The credit based system will carry on as long as people want to be in debt to possess more than they can afford. Which is probably forever.
Yes. But the whole point is that France did get the heebie jeebies and ask for gold. By creating notes backed by bitcoin you are simply asking someone to make a run at you at some point. Sure, it's cheap to borrow now. However, there are consequences when access to credit dries up. At some point interest rates will rebound, as they are currently doing. Your rich friends will start selling assets and your poor friends will buy less food. Hence foodstamp usage goes up and consumer demand drops. There is already a paradigm shift going on. You just have to observe that people now have a choice to opt out into a non debt based non fiat monetary system called Bitcoin. It will happen gradually then all at once. Kind of like 2013 but with more people. Hopefully many, many more people. I think the debt based system has already seen its best days. We are simply not going to get the credit growth rates that we used to get. China's credit growth in 2013 was 49% of GDP according to Fitch. Good luck to them with that. In the US interest rates are rising. In Europe, they are pretty much still a hard currency zone. All that is happening is Germany shipping out BMWs and taking IOUs in return. Shhh, they just haven't told the German public. In Japan, they are still firing arrows to no effect. Abe's popularity is yet to hit rock bottom. They are just squeezing everyone in Japan via yen devaluation. There is not long to go, IMHO. |
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People lend money in exchange for bank receipts. These receipts in case of bitcoins will become the simplest bitcoin derivatives which can be used as negotiable instruments (such as checks). Anyway, you will necessarily have to use some offline bitcoin derivatives, provided it ever takes off...
Banking system will persist as long as persist loans (and humans love loans)...
Governments and banks love loans. Other people not so much. Prior to the 80s loans were actually paid back with real savings. Minsky describes that the end phase of debt systems is towards disequilibrium because more debt is required just to pay off old debt and cover interest. Economists always forget Minsky. I'm sure you are aware that the whole point of bitcoin is to replace centralised systems like banks. You can argue with this all you want but now there is real competition and choice. Banks were not centralised initially, so centralization is not inherent to them. It means that they can coexist with bitcoin without a hitch... Businesses love loans too. If banks make loans, someone necessarily borrows from them Bitcoin the PROTOCOL obviates the need of a third party in any transaction. Therefore, *poof* bank no longer required. If banks made loans and someone necessarily borrows then why are there $4 trillion sitting in bank reserves? Why is velocity at decade lows? It is simply not true that someone necessarily borrows. There is a limit to debt based systems and I can see the end is coming soon. |
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