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1  Economy / Economics / The Bitcoin Price Paradox on: February 05, 2021, 07:03:30 PM
I came across a discussion on Hacker News: Bitcoin still makes no sense. I see it as an honest assessment from someone open-minded about Bitcoin. The articleís author, Evan Kozliner, made some interesting observations. Bitcoin supporters claim that they understand money better. Bitcoin is THE money. Bitcoin supporters mostly agree that Bitcoin has no intrinsic value. Itíll be the mother of all assets. In the future, values will be based on Bitcoin. But this future has a problem. If Bitcoinís price continues to rise, weíd be spending more and more energy to mine it. Since Bitcoin has no intrinsic value, its price cannot be determined. We can spend an infinite amount of energy. We donít have infinite energy.

A lot of confusion about Bitcoin originates from a fundamental problem. I call this problem the Bitcoin Price Paradox. It works like this:

Bitcoin Price = Demand / Supply

When supply reaches zero and demand is a positive number, Bitcoinís price is infinite. If Bitcoin is not grounded in some physical reality, we have no way to price it. Bitcoin is a narrative-driven asset. People compare Bitcoin to gold. In this narrative, its market cap should be something around 10 trillion dollars as of 2021. But after that, weíd have the real estate market, the bond market, the equity market. If Bitcoinís price is infinite, weíd be spending an infinite amount of energy to mine it.

The Bitcoin Standard and Hyperbitcoinization

Some Bitcoin supporters advocate for the Bitcoin Standard or Hyperbitcoinization. In this future world, everything would be denominated in Bitcoin. When this happens, Bitcoinís price would become stable. This logic seems to make sense if we assume the world is stable. But what if the world is unstable? We see the world as unstable. We want to base it on Bitcoin for its stability. For Hyperbitcoinization to happen, the world needs to become stable on itself. Bitcoin is a reflection of the worldís value and vice versa. There are two possibilities:

  • The world is unstable and Bitcoin is unstable. This is where we are.
  • The world is stable and Bitcoin is stable. This is Hyperbitcoinization.

The question is which stability happens first. We really canít know. Bitcoin depends on the world. The world depends on Bitcoin. We have a circular dependency. Hyperbitcoinization is also a paradox. Hyperbitcoinization does not solve the Bitcoin Price Paradox. It is another paradox sitting on top.

Turtle All The Way Down

The Bitcoin Price Paradox is the origin of confusion in Bitcoin. We attempt to solve it by reasoning on top of it. These efforts lead to more paradoxes. They are circular. We just go around in a loop. Bitcoinís price cannot be infinite. We donít have an infinite amount of energy. Physical reality is bounded. Humans are finite. Energy is finite. The Fed only prints so much money, not infinite. Bitcoin cannot be priced if it exists only in the virtual world and has no connection to physical reality. Basing money on Bitcoin is like putting reality on top of ungrounded reality. Weíll keep making ungrounded reality. Bitcoin cannot lift itself from gravity.

The Bitcoin Price Paradox is the mother of all paradoxes in Bitcoin. It is a version of Turtle All The Way Down.

Solving The Paradox

I believe the solution to the Bitcoin Price Paradox is inflation. Letís say we have a hybrid crypto that has inflated supply. The price equation becomes:

Hybrid Crypto Price = Demand / Supply

In this case, the supply is never zero. So the price is never infinite. It is the way to get out of the Bitcoin Price Paradox. This is where an inflationary crypto is useful. Bitflate is an experiment in this direction. It has a moderately high inflation of 7%. It is the opposite of Bitcoin. Another way to think about this solution is through the philosophy of Yi Ching. Money Yin and Yang are Deflation and Inflation. Theyíre complementary to each other.

Original Post: https://bitflate.org/post/2021/02/05/the-bitcoin-price-paradox.html
Hacker News - Bitcoin still makes no sense: https://news.ycombinator.com/item?id=25319849
2  Bitcoin / Development & Technical Discussion / Why check for pchMessageStart in blocks? on: January 24, 2021, 01:36:06 AM
I notice there's a check for message_start in the function ReadRawBlockFromDisk.

https://github.com/bitcoin/bitcoin/blob/master/src/validation.cpp#L1207

If I understand correctly, message_start is used to identify Bitcoin Core clients.

https://bitcointalk.org/index.php?topic=2997687.0

Why does the function ReadRawBlockFromDisk check for message_start? Does that mean message_start is also written into blocks?

Thanks.
3  Other / Serious discussion / Yi Ching and Cryptocurrency on: August 29, 2020, 05:23:40 PM
I wrote an article on the Yi Ching philosophy and cryptocurrency. I think Yi Ching provides a framework to evaluate cryptocurrency. It can point us to where the market is missing. Would love to hear more discussion.

https://bitflate.org/post/2020/08/24/yi-ching-and-cryptocurrency.html
4  Alternate cryptocurrencies / Altcoin Discussion / Hybrid Coins on: July 17, 2020, 05:58:32 PM
Hi everyone,

The Bitflate community brings up a new idea: Hybrid Coins. They have the potential of making cryptocurrencies work for the payment use case.

Post: https://bitflate.org/post/2020/07/17/hybrid-coins.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Bitflate is an inflationary cryptocurrency. Its inflation rate is 7% per year. People are often critical of this inflation rate. It is too high. It will make Bitflate coins worthless. The rate of 7% is intentional. Bitflate is not designed to be a Store of Value (SoV). Its goal is to be a Medium of Exchange. If we chose a low inflation rate (e.g. 1%), Bitflate supply will behave more like an SoV. It will have no place in the market. Bitcoin has already occupied the SoV use case. There is a nice feature of 7%: supply doubles every 10 years. Therefore, having a moderately high inflation rate, like 7%, is a clear differentiator.

Intellectuals, like Milton Friedman and John Nash, had discussed a constant inflation rate for money [1] [2]. The problem is how we would know the right inflation rate. The US Federal Reserve sets its inflation target at 2% [3]. Gold supply inflates around 1.5% [4].


Hybrid Coins (Created by @JacobBarnette)

Cryptocurrencies can offer new options: hybrid coins. Using a sidechain, we can create a synthetic crypto. By mixing Bitcoin and Bitflate, we can create a coin with a supply inflation rate between 0 and 7%. Developers and engineers can get out of the business of picking an inflation rate. The market can decide the inflation rate. They will do this by issuing a sidechain coin with the backing of Bitcoin and Bitflate coins.

Hereís an example. In 2030, a financial provider wants to issue a coin that inflates at 3% per year. Letís call this coin Bit3. For simplicity, letís assume the Bitcoin supply is 21 million. It no longer inflates. Bitflate supply is 30 million. It inflates at 7% per year. In 2031, Bitflate supply will reach 33 million. At the time of this Bit3 issuance, 1 Bitcoin is equivalent to 1.4 Bitflate (30 million/21 million). If we mix ratio 1/1.4, weíd get a coin that has a supply inflation of 3.5%. To lower the inflation rate, we need to mix less Bitflate coins. In this case, the mix ratio is 1 Bitcoin and 1.2 Bitflate.

In 2040, Bitflate supply will reach 60 million. To issue a Bit3 coin, weíll need a different mix. 1 Bitcoin is equivalent to 2.8 Bitflate. Weíd need a mix ratio of 1 Bitcoin and 2.4 Bitflate. By using a mix of Bitcoin and Bitflate, the market can issue coins with any inflation rate between 0% and 7%. As builders, we no longer have the problem of deciding the inflation rate. The market can decide what it wants. The mixed coins with inflation are better suited for lending and staking. They will generate new businesses. They will create demand for Bitcoin transactions.

Hybrid coins is a novelty of cryptocurrencies. We no longer need central planning or complicated models for inflation targeting. The free market can decide what it wants.

[1] Friedmanís k-percent rule

[2] Ideal Money

[3] Inflation targeting

[4] Gold Supply Increase

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
5  Other / Beginners & Help / What is Bitcoin? Why Bitcoin? A Store of Value Perspective. on: July 02, 2020, 12:01:12 AM
Hi everyone,

I've seen technical videos of Bitcoin. I have not seen one presented from the Store of Value perspective. So I made one video.

https://youtu.be/wCYpSY0qNsw

Would love to hear your thought.
6  Alternate cryptocurrencies / Altcoin Discussion / Lending Does Not Work Without Inflation on: June 28, 2020, 01:03:30 AM
There's a lot of hype with crypto lending. I think it has some problems. I'm writing down my thoughts in an article.

Original Post: https://bitflate.org/post/2020/06/26/lending-does-not-work-without-inflation.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Traditional value investors (e.g. Howard Marks) point out a problem with crypto assets: They have no cash flow. There is no way to value these assets. The only use case is speculation. To address this problem, some crypto builders have worked on lending. Crypto owners can put their assets to work through lending. Borrowers can use the money for business activities. They pay interest to lenders. Crypto assets can generate cash flow through this mechanism. Lending seems to be a good way to create utilities for crypto assets. In this article, I point out the problem with existing crypto lending. I believe a potential solution is inflation.

Crypto owners make money through SoV and interest

Crypto assets have limited supplies. Some are more extreme than others. Bitcoin has a hard limit of 21 million. Ethereum uses minimum necessary issuance. Itís a fancy term for limited supply. This property is designed to make the assets valuable. As they become scarcer, prices would go up. The side effect is price volatility. Crypto owners make money through Store of Value appreciation.

With lending, crypto owners will also make money through interest. Borrowers are supposed to create businesses with the money they lend. These businesses generate cash flow. To use cryptocurrencies for businesses, they have to convert to tangible money like fiat currencies. With fiat lending, borrowers repay loans in the same currency plus interest. With crypto lending, they need to manage the underlying assetís volatility.

Crypto owners want to make money through both SoV appreciation and interest. Borrowers need to create return and manage price volatility. Given the high amount of risks, they will need to pay high-interest rates on the loans. Such a system is unstable. It will blow up at some point.

Lending an SoV is fundamentally broken

Making money through SoV appreciation and interest is extremely greedy. Crypto owners are likely to lose their assets when the system fails. Borrowers may not be able to repay the loans. The price peg can fail because of speculation. We have examples of lending SoV in the past. Feudal landlords extracted high rent on peasants. Real estate landlords can block housing development to pump value and extract rent. Lending an SoV creates extreme rent-seeking behavior. Hoarding a scarce asset is bad. Hoarding and rent-seeking is worse.

Lending an inflationary currency

When the underlying asset is inflationary, the system can correct itself. The assetís price would be less volatile. The asset depreciates over time. Owners are discouraged from hoarding. They will want to use the asset for businesses. Itís easier for borrowers to acquire the asset to repay loans. Interest return is a solution to value depreciation. Lending is viable when the asset is inflationary.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
7  Alternate cryptocurrencies / Altcoin Discussion / Bitcoin Volatility on: May 11, 2020, 07:14:24 AM
Original Post: https://bitflate.org/post/2020/05/10/bitcoin-volatility.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Bitcoin price is going up, but it will remain volatile

There is a common belief in the Bitcoin community about how Bitcoin would become a currency. The story says that Bitcoin is currently on its way to become a Store of Value. Once its market capitalization reaches a certain height, Bitcoinís price would become stable. Then it will transition to a Medium of Exchange. I never buy this story. I think itís very naive. Yet, many Bitcoin analysts believe in this story. Bitcoinís limited supply is the cause of its price volatility. Itís an inherent property. Bitcoin may win the price appreciation. But we need to pay attention to its price volatility. This is where many bitcoiners are wrong. Two things are true about Bitcoinís price:

  • Its price is going up due to its limited supply.
  • Its price is volatile due to its limited supply.

I came across a short video clip (https://twitter.com/johnkvallis/status/1257419107848290304) from Parker Lewis (@parkeralewis) and John Vallis (@johnkvallis). In the clip, Parker Lewis argues that inflation does not have any effect on price stability. The comment implies that Bitcoin would become stable without the need for inflation.

Deflation, inflation and volatility

I donít think Bitcoinís price volatility will go down. I started the Bitflate experiment to fix this problem. The purpose of this experiment is to prove that inflation has a price stabilizing effect. My point was proven during March 2020 when Bitcoinís price crashed more than 50%. Bitcoinís price volatility went up to a level not seen since 2014.

Bitflate is still a small experiment. Itís early to declare victory. But I think itís heading in the right direction. John Vallis still disagrees with me about this topic. Iím sure many bitcoiners disagree with me.

John Vallis set a reminder in 5 years. If Bitcoinís price volatility goes down by then, I will admit that I am wrong. The Bitflate experiment will fold. Until then, letís enjoy the ride.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
8  Alternate cryptocurrencies / Altcoin Discussion / How Bitflate Is Different on: May 01, 2020, 09:58:19 PM
OP: https://bitflate.org/post/2020/05/01/how-bitflate-is-different.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

When I discuss Bitflate on public forums (Twitter, bitcointalk, Hacker News), people tell me that inflation is an old idea. Teams had tried these experiments. Inflation adds nothing new or novel to cryptocurrency. However, with Bitflate, I want to reintroduce the idea of minimalism. Bitflate is the same kind of money as Bitcoin, with one exception, a 7% supply inflation. It will remain so in the future. We will not commit to further change.

Tail emission is not inflation

Bitcoin has a supply cap of 21 million coins. There are a lot of coins that have no supply cap. Ethereum is currently producing 2 coins per block, possibly forever. Dogecoinís current reward is 10k coins, possibly forever. These kinds of supply increase are not inflation. They are tail emission rewards that are supposed to incentivize miners. I donít see the rationale behind this scheme. Constant tail emission will become increasingly smaller relative to circulating supply. At some point, the reward is so small. It just the same as no reward. Dev teams may need to increase the reward if they motivate miners. I donít think these unstable monetary policies can produce long-term stable money. Dev teams can arbitrarily change the rewards.

Bitflate will have a constant 7% inflation, forever

Bitflateís reward schedule starts at 50 coins per block like Bitcoin. The reward will drop until we reach 7% inflation. Then, itíll increase at 7%, forever.

0: 50 (increase rate: N/A)
1: 25 (increase rate: 50%)
2: 12.5 (increase rate: 16.67%)
3: 6.25 (increase rate: 7.14%)
4: 6.56 (increase rate: 7%)
5: 7.02 (increase rate: 7%)
6: 7.51 (increase rate: 7%)

I design a reward system to give more coins to early adopters. This bootstrap mechanism creates incentives to hold Bitflate coins. The constant inflation will stay the same regardless of what will happen. I will not advocate for change in this reward system. If I do at some point, you should not listen to me.

Bitflate is minimalistic

Iíve followed cryptocurrency for a few years. I conclude that previous experiments with the technology produces little to nothing. These failed experiments are lessons on what we donít need. Litecoin proved that mining algorithm changes donít matter. Ethereum proved that sidechains donít create new use cases. These altcoins were too early. Theyíre not solving the problem that hinders adoption. I think the lack of adoption is because of volatility. The cause of volatility is limited supply. We need a predictable and constant inflation.

I want to come back to the minimal form of cryptocurrency, Bitcoin. We donít need more technology. Technology improvements are distractions. Bitflate is minimalistic. We only need a change in the monetary policy. The goal is to create another form of money, a Medium of Exchange.

A Medium of Exchange

Previous experiments, like tail emission, have not fully committed to the idea of inflation. Dev teams and communities are afraid of price crash. They hold on to the idea of a highly restrictive supply. Why do we need inflation? A constant inflation rate will reduce volatility. Inflation is the missing ingredient in cryptocurrency. It is the key to create a Medium of Exchange. Thatís the breakthrough we need for widespread cryptocurrency adoption.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
9  Alternate cryptocurrencies / Altcoin Discussion / We Need Inflationary Cryptocurrency on: April 26, 2020, 11:40:03 PM
Original Post: https://bitflate.org/post/2020/04/26/we-need-inflationary-cryptocurrency.html

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

A Deflationary Crisis

The world discovered the Coronavirus in January 2020. Itís been four months. We are learning more and more about the danger of this new virus. We now agree that this virus is not just a flu. Itís novel and dangerous. It paralyzes the world economy. Crypto sphere has pitched limited supply and Austrian economics as cures to inflation and the money printing disease. The Coronavirus seems to be the perfect crisis to prove the use case of cryptocurrecy. However, the opposite may be happening. This crisis is cutting deep into the world economy. It has exposed flaws and incompetencies. Government policies are ineffective in the short-term. Money printing and stimulus have not relieved the problems. They even cause political discontent.

Weíre seeing oil and commodity price crash. There are reports of farmers dumping milk and eggs because consumptions have gone down. When demand drops and supply remains the same, prices have to drop to encourage people to spend. Commodity prices will drop. Companies will make less money. Then, wages will drop. This is a vicious price decrease cycle. We are heading into a deflationary crisis.

Inflation

Bitcoin may see price appreciation in this crisis. Itís a digital and possibly uncorrelated asset. Itís not affected by the problems that we experience in the physical world. Itís an escape pod. However, Bitcoin remains a speculative asset in the short-term. Itís not going to relieve the problems that we face daily. The Coronavirus crisis has shown that inflation is not always bad.

Bitcoinís shrinking reward and extremely limited supply make it very volatile. Itís not suitable to be a Medium of Exchange. Crypto builders overlook this property. They think technology improvements like sidechain and programmability will drive cryptocurrency adoption. Since the Bitcoinís introduction, weíve seen a lot of proposals for technology improvements. None of them has made cryptocurrency easier to use and drive adoption outside speculation.

We need to abandon dogma and embrace economic changes in cryptocurrency. We need to reject Austrian economics as the only viable principle. If you study the Great Depression closely, you will see that deflation is a vicious threat. It can prolong economic hardship. Inflation has its role. If governments can distribute stimulus fairly, they can drive economic activities. The US government under Franklin D. Roosevelt overcame this challenge. Itís time for us to devise solutions for this crisis.

We need a cryptocurrency that goes beyond a speculative asset and a Store of Value. We need a cryptocurrency that people can use as a Medium of Exchange.

Inflationary cryptocurrency

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange. I design a reward system to give more coins to early adopters. The idea is to encourage people to hold on to their coins and create some restriction of supply. This bootstrap mechanism creates incentives to hold Bitflate coins. The reward system is as follows:

0: 50 (supply: ~10 million)
1: 25 (supply: ~15 million)
2: 12.5 (supply: ~18 million)
3: 6.25 (end of halving)
4: 6.56 (start of inflation 7%)
5: 7.02
6: 7.51
7: 8.04
8: 8.60
9: 9.20
10: 9.85 (supply: ~31 million)

For the first 3 halvings, Biflate follows the same reward schedule as Bitcoin. But it will switch to inflation after 3 halvings. Even with inflation, it will take 10 years for supply to reach 31 million coins. Bitflate adheres crypto principles. It differs on economics and is designed to be a Medium of Exchange. It offers the same freedom as Bitcoin. The game is fair.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
10  Bitcoin / Bitcoin Discussion / Bitcoin Thesis on: April 15, 2020, 10:24:55 PM
Everyone has different views on Bitcoin. I want to run a poll to see where people are. It's hard to control your thoughts when there's a lot of noise in the market. This is a good exercise for me. I'm currently at 3 (An SoV).
11  Economy / Economics / The Coronavirus and A Deflationary Crisis on: April 12, 2020, 10:03:30 PM
Original Post: https://bitflate.org/post/2020/04/11/the-coronavirus-and-a-deflationary-crisis.html

Nobody could have imagined the Coronavirus crisis. But the scope and damage are enormous. The Black Swan event is here. Nassim Taleb calls it a White Swan, an expected pandemic that will eventually happen. You can buy his book to learn this distinction. Governments and people were caught off guard. The crisis started at the beginning of 2020. A few months later, it has turned the world economy upside down.

The Coronavirus crisis offers important lessons for crypto. It discredits some foolish ideas that we used to believe in.

Bitcoin is not money during a crisis

Bitcoin is supposed to be a Store of Value. Crypto sphere has pitched it as an uncorrelated asset, a safe haven, a hedge, an insurance against a global economic crisis. False! The opposite has happened, at least, in the short-term. People flee to cash. They dumped their positions in equity and Bitcoin. For a few weeks, equity and Bitcoin prices are highly correlated.

During this crisis, Bitcoin volatility increased dramatically. It dropped more than 50% (from 8k to 4k) on March 12, 2020. The lesson here is Bitcoin is not money during a crisis. People need cash to pay for their essential expenses (e.g. rent, food).

Itís time for the crypto community to discard some thesis about Bitcoin.

  • Bitcoin is an uncorrelated asset. (Itís not.)
  • Bitcoin is a hedge against an economic crisis. (Itís not.)
  • Bitcoin volatility will decrease as Bitcoin matures. (It wonít.)

I remain bullish for Bitcoin in the long-term. But I revised my view. Here are my current thoughts.

  • Short-term, Bitcoin is a speculative asset.
  • Long-term, Bitcoin is a Store of Value.
  • Bitcoin is not a medium of exchange.

We are heading into a deflationary crisis

When the US government announced the 2T stimulus package, people flooded Crypto Twitter with the Money Printer Go Brrr meme. This meme quickly died as the crypto sphere quickly realized the scope of the Coronavirus damage. This is no ordinary economic crisis. The US economy has shut down. Consumptions slow to a halt. People briefly spent more money to stock up groceries at the beginning of the shutdown. Consumptions in other categories, like entertainment and travel, are down from 20% to 90%. We see reports of farmers dumping milk and eggs because consumptions have gone down. When demand drops and supply remains the same, price has to drop to encourage people to spend. Commodity prices will drop. Companies will make less money. Then, wages will drop. This is a vicious price decrease cycle. We are heading into a deflationary crisis.

Itís likely that a 2T stimulus package is not enough. The Coronavirus crisis shut down the world economy for months. It probably destroyed a lot more wealth than 2T. We probably need more than 50T stimulus to just get the US economy back to its previous height. There is an immense challenge to distribute the stimulus money fairly. The roadblocks can cause prices to drop for many months. Crypto sphere has expected rampant inflation to make the case for Bitcoin. Policymakers may overshoot and cause rampant inflation. They may become corrupt and distribute money unevenly. Bitcoin is a good hedge against this. But the opposite is happening.

We need an inflationary cryptocurrency

The Coronavirus crisis highlights the importance of inflation. It is the force to drive economic development. Deflation can send an economy into a long-term recession with vicious price decrease cycles. We experienced these issues during the Great Depression during the 1920s. The gold standard exacerbated the Great Depression. Weíve learned many lessons. Some people ignore these lessons to profess their ideology. Deflation is a real threat. Bitcoin does not fix this.

Itís time to discard the idea that Bitcoin is the ideal form of money. It is a good starting point to create a new monetary system. But its deflationary property makes it volatile. It is not suitable as a medium of exchange. We need crypto experiments with inflation.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
12  Bitcoin / Bitcoin Discussion / Bitcoin is a Store of Value on: March 18, 2020, 06:15:37 AM
After last week's price crash, I saw some discussions regarding this topic. I have not changed my thesis. I wrote a post to explain my view.

Original Post: https://bitflate.org/post/2020/03/17/bitcoin-is-a-store-of-value.html

This article expresses a personal opinion of the Bitflate developer. It is not investment advice.

TL;DR

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.


The coronavirus is spreading across the world. The US economy is feeling its impact. In time of crisis, people are dumping equities for cash. Crypto market had a hard crash last week. Bitcoin dropped more than 50% on March 12, 2020. Bitcoin analyst, Nic Carter, pointed out that it was the 2nd worst percentage drop in recorded history of Bitcoin trading. The worst percentage drop happened in 2013. This Bitcoinís price drop coincides with the US stock market crash. This correlated price movement challenges Bitcoinís value proposition as a safe haven Store of Value.

The magnitude of price drop shattered many bitcoin owners. Theyíre quick to dump and start to question the safe haven SoV thesis. This is understandable. As we are introduced to Bitcoin, the first most enduring thesis we hear is the Store of Value. The stock market drops 5-10% a day during this crisis, while the Bitcoin Store of Value drop 50% in a day. Bitcoin is peculiar. It lives in the fringe and extremities of our psychology. Can a Store of Value be extremely volatile? I think the answer is yes. We consider how we view Bitcoin in the short-term or long-term.

Bitcoinís short-term price movements are dependent on traders

Bitcoin is a global digital currency. People trade it 24/7. There is no circuit break. No authority can intervene to stop its price movements. If we divide Bitcoin owners into hodlers and traders, we can see that traders dominate Bitcoinís daily movements. Occasionally, hodlers will switch to be traders and vice versa. When Bitcoin price crashes, some hodlers may become anxious and start dumping their bitcoins.

Traders want to make money. They think short-term. They live off price movements. Bitcoinís short-term price trend is speculative. Itís difficult to understand its daily price actions. With the stock market index, when many stocks can crash, some stocks remain well positioned. For example, this crisis greatly impacts Boeing due to decrease in air travel. But Costco benefits from increase volume. Bitcoin is a solo asset. Therefore, its price movement is very volatile.

Bitcoinís fundamentals remain strong

During this price crash, we saw Bitcoinís price dropped below $4k. But it bounced back and has hold above $5k in the past few days. This likely indicates that long-term investors remain holding and buying.

We see how Bitcoin price can make sudden and drastic changes. This recent price crash is entirely caused by external factors. Bitcoinís fundamentals change very little. Besides a hashrate drop, we donít see any other change in how Bitcoin trades and operates. It is still producing blocks every 10 minutes, or maybe a little slower. It is still issuing 12.5 coins for every block for the past 4 years. It is still secure. Bitcoinís fundamentals remain strong.

Bitcoin is a Store of Value

If we zoom out the hours, days, and months of the Bitcoin price chart, we can see its long-term price trend remains up. The currently crisis is caused by external factors. The coronavirus is impacting the worldís economies. A sudden panic is causing people to flee asset markets. This has not changed Bitcoinís value thesis. Long-term, Bitcoin is a Store of Value.

By long-term, I mean the time horizon is 5-10 years (more than 1 halving). Bitcoinís price movement is affected by traders in the short-term. But in the long-term, hodlers will ultimately decide its price trend.

Long-term, Bitcoin is a Store of Value.

Short-term, Bitcoin is a speculative asset.


When to dump Bitcoin

People will move their money around. I follow but usually ignore short-term price movements. I try to stick with my timeline and how I allocate money. During tumultuous times, some bitcoiners advocate HODLism as a strategy. You should always hold. But I donít think this is a sound strategy. I think a sound investment approach is to compare Bitcoin with other assets. If I see Bitcoin overvalued compared to real estate or equities, I would consider dumping Bitcoin. This is my personal view of how to deal with Bitcoinís price movements. You should do your own research.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.
13  Alternate cryptocurrencies / Altcoin Discussion / The Problem with DAI on: March 15, 2020, 11:52:10 PM
I've worked and thought about digital native stablecoins. I think we should use supply inflation. I'm skeptical about stable tokens building on top of a limited supply Store of Value.

Original Post: https://bitflate.org/post/2020/03/14/the-problem-with-dai.html

Bitflate is a cryptocurrency with constant inflation of 7% per year.

When you are involved long enough with crypto, youíll see a lot of stupid ideas. DAI is one of them. Its ecosystem had a meltdown a few days ago during a crypto price crash. You can read about the story here: https://www.coindesk.com/defi-leader-makerdao-weighs-emergency-shutdown-following-eth-price-drop.

DAI - Digital Native Stablecoin

For those who donít have time to get into the weeds, DAI is a ďdigital nativeĒ stablecoin. It wants to create a 1-1 peg to USD using an underlying volatile asset, Ethereum. If you want to use USD, itís probably most efficient to go get USD. Smiley But for some ideological reasons (decentralization), DAI wants to be USD but also digital native. So they ďlockĒ the underlying asset, Ethereum, and issue DAI coins. The premise is with intelligent computer algorithms, we can maintain 1-1 peg between a digital asset (Ethereum) and a real-world asset (USD).

The Problem

Digital assets are digital. Humans are the arbitrageurs. Humans are emotional. DAI is trying to create stability on top of Ethereum volatility. Itís kinda like building a stable house on a shaky foundation. Your building will collapse or you will spend so much money patching the flaws of your shaky foundation. This is a laughable idea for those who live in reality. But I guess some computer programmers/investors live in alternative realities too long. They forget about reality.

Whatever your algorithms are, you need to arbitrage risks. So you will always need to lock up more USD-ETH to account for risks. To be safe, maybe, you need 1.5 USD-ETH for a DAI USD. However, with digital scarce and volatile assets like Ethereum, thereís a chance that 1.5 USD-ETH will drop to 0.9 USD-ETH. At that point, you will be underwater. A couple of days ago, it did. If you need to lock up 1.5 USD for 1 USD, you may as well go get 1 USD. Itís a dumb idea to use 1.5 USD to get 1 USD.

DAI has a lot of jargon and technology (more layers on top of the shaky foundation). These things make it look sophisticated and fool people. The basic problem is very simple. You only need elementary school arithmetic and logic to know its flaws and inefficiency. You can say it is interesting to develop technology to build stabilization technology on a shaky foundation. That is fine for a hobby project if you have a lot of time and money to waste. People who put money into DAI are exposing their money to a lot of unknown risks.

A potential fix for DAI will require the MakerDAO team to move to a centralized bank model. They are somewhat centralized already. With control, theyíll be able to manage the risks. They may even get USD reserve to reduce Ethereum volatility. In this case, the MakeDAO will become a kind of hybrid crypto and fiat bank. I donít know how this would work. It could be an interesting model. But itís going to be a centralized stablecoin.

Bitflate - Digital Native (Somewhat) Stablecoin

A potential prospect for digital native stablecoin is Bitflate. Bitflate is similar to Bitcoin but with a 7% inflation of supply. Bitcoin has proven to be a good model for creating decentralized money. By adding inflation to the supply, Bitflate creates incentives for people to spend. Its supply is still limited by the inflation rate. This is why it will retain some value. Even when Bitflate gains adoption, its price will not be completely stable. This is the tradeoff we have to live with for decentralization.
14  Bitcoin / Bitcoin Discussion / How Gold Became Money and How Bitcoin Can Become Money on: December 04, 2019, 06:26:12 PM
Original Post: https://bitflate.org/post/2019/11/29/how-gold-became-money.html

Gold has been a valuable commodity since ancient times. When gold showed up in written history, it was already a valuable commodity [3]. Societies had used it as money. We donít exactly know how it became money. There are hypotheses [1].

- Scarce: Its supply is more limited than other chemical elements. You cannot easily extract it. The mining process has become intensive over time.
- Beautiful: Gold is beautiful. It is soft and easy to mold. It makes good jewelry.
- Unique atomic structure: Gold has a unique chemical structure. It doesnít rust or interact with other chemical elements.

These hypotheses are reasonable. They make a good case for gold as money. But humanís obsession with gold is strange. It permeated across societies. Closer examination shows these hypotheses are flawed.

- Scarce: There are many other rare chemical elements. Silver is scarce.
- Beautiful: Gold has a yellow color. While we perceive it as beautiful, gold has probably influenced our view on its beauty. Its color is not desirable in some applications. For example, we like silverware more than golden silverware.
- Unique atomic structure: We didnít have the tool and knowledge to examine gold chemical properties before it became money thousands of years ago.

These hypotheses seem like afterthoughts. We try to stitch together some ideas that help us explain why gold became money. There are even more bizarre theories. Weíre innately made to like gold. The gods make gold to seduce humans. Gold came from outer space [2].

In this post, I want to discuss the rise of gold in a different view. I think gold rise as money is related to the rise of metallurgy. Waves of innovation in metal technology destroyed and created empires. Gold is invaluable money because it is at the center of metallurgy.

The Rise of Gold

The first metal that humans interacted with appears to be gold. Small amounts of natural gold had been found in present-day Spain during the late Paleolithic period, around 40,000 BC. The Paleolithic period is known as the Old Stone Age. Gold was the metal that enabled humans to move away from stone tools. This is an important development. After the Paleolithic period, we went through Upper Paleolithic (Late Stone Age), Mesolithic & Neolithic (End of Stone Age), Chalcolithic (Copper Age), Bronze Age, Iron Age. Subsequent developments in human history were marked by advances in metallurgy.

Early metallurgists started their learning by interacting with gold. Then they learned how to manipulate other metals. Gold is rare enough that it became valuable to metallurgists. There is not enough gold to mass-produce gold tools. Itís rare and shiny. It became a decorative metal, a symbol for prestige and power. Gold is often seen as jewelry. But it is really a display of metal technology advancements. When metallurgists created their tools or weapons, they would decorate the items with gold. Metallurgists were the engineers that help ruling elites destroy and create empires.

Vietnamese folklore told a story of king An Duong Vuong [5]. He ruled the ancient Vietnamese people during the Iron Age. The story said that An Duong Vuong possessed a magical crossbow. With this weapon, he was able to resist the Chinese invasion. History also mentioned Cao Lo, his weaponry engineer [6]. An Duong Vuong was finally defeated when his enemy stole his magical crossbow. His kingdom fell apart and was subjected to Chinese domination for the next 10 centuries. The thief was his Chinese son-in-law. The magical crossbow was likely a metaphor. It may be a metal technology that gives the Vietnamese king superior weapons.

Metal development was an important driver in human history. Gold was at the center of that development. The metallurgy engineers and ruling elites were obsessed with gold. Normal people followed. Gold became the most valuable form of money.

Bitcoin and Gold

Fast forward to the 21st century, gold was slowly fading away. Fiat currencies used to be backed with gold. But the Gold Standard had hit world economies many times. During the Great Depression of the 1930s, gold rigidity spread recessions to many countries. In 1971, facing a shortage of gold reserve, the United States terminated convertibility of the US dollar to gold. This event ended the gold influence on monetary policies.

Crypto literature pitches Bitcoin as digital gold, an emerging alternative to gold. Bitcoin design imitates gold features. It has a limited supply of 21 million coins. The coins are created through a mining process that consumes electricity. In some ways, Bitcoin is better than gold. It does not require physical storage. We can transfer bitcoins almost instantly. In other ways, Bitcoin is worse than gold. Bitcoins are not physical. We canít use bitcoins for anything other than holding. We rely on economic ideologies to justify Bitcoinís role in the market.

Weíve been through the Gold Standard. Economists and politicians are not eager to return to gold-backed currencies. In the digital age, we can create reliable banking networks of fiat currencies. Central bankers find digital currencies easier to manage than gold-backed systems. Bitcoin supporters pitch the Bitcoin Standard. It is digital native and supposed to be better than the Gold Standard. To make the case for Bitcoin, people downplay gold. Gold is just a shiny and scarce metal that people use for decoration.

But Bitcoin is still searching for its use case. We see gold was money. One of its prominent applications is jewelry. We conclude that jewelry is the secondary market that drives gold demand. From this conclusion, crypto builders think there may be a similar secondary market for Bitcoin. Our ignorance of gold history creates a gap. We have not found the missing puzzle piece.

Search for Bitcoin Metallurgy

Weíve been looking in the wrong place. Jewelry is just the surface of gold rise. Itís a minor application that came out of metallurgy. It is not the secondary market that drove gold demand. Gold became money because it was an important part of metallurgy. It was the symbol of the metal revolutions.

From this insight, we should think about the equivalence of metallurgy for Bitcoin. Bitcoin has similar traits. It is technology. There is an ecosystem of hardware and software around Bitcoin. If Bitcoin were to be like gold, it would be the money that powers the next technology revolutions. Advance in the Bitcoin technology ecosystem may produce new use cases for Bitcoin. The ďBlockchain, not BitcoinĒ projects did not produce new use cases. They may have gone too far and became detached from Bitcoin. Successful applications may not have much to do directly on Bitcoin. But maybe, they will need to interact with Bitcoin like the way other metals interact with gold.

It took gold and metallurgy 30,000 years to transition humans away from stone tools. Weíre still very early with Bitcoin.

References

[1] Why do we value gold? https://www.bbc.com/news/magazine-25255957

[2] Does gold come from outer space? https://www.bbc.com/news/magazine-22904141

[3] History of gold https://onlygold.com/facts-statistics/history-of-gold/

[4] History of Metallurgy https://en.wikipedia.org/wiki/Metallurgy#History

[5] An Duong Vuong https://en.wikipedia.org/wiki/An_D%C6%B0%C6%A1ng_V%C6%B0%C6%A1ng

[6] Cao Lo https://en.wikipedia.org/wiki/Cao_L%E1%BB%97
15  Bitcoin / Bitcoin Discussion / Bitcoin: Immaculate Conception and Original Sin on: November 29, 2019, 06:56:18 PM
Original Post: https://bitflate.org/post/2019/11/26/bitcoin-immaculate-conception-and-original-sin.html



From time to time, especially when the price is down, the crypto sphere will go into war against each other. Someone usually triggers war by saying controversial things. The hottest debates happen between Bitcoin (BTC) and Ethereum (ETH) or Bitcoin (BTC) and Bitcoin Cash (BCH). Occasionally, we see Bitcoin SV (BSV) enters the debate. When I first got into crypto, I looked at Ethereum. Then I learned and bought Bitcoin. I see outrageous claims from both communities. With Ethereum, itís a programmable Store of Value that will reinvent the worldís finance and save the bankless humans. With Bitcoin, itís digital gold and money that will eventually replace all of the worldís money. The visions are grand. Both coins over promise and under deliver. I see Bitcoin remains a speculative asset and Ethereum is a crypto research project. The crypto space is plagued with scams.

The tit-for-tat arguments escalate quickly. Crypto communities sometimes feel like religions. Some people declare their religious zeal to their communities. Tuur Demeester, an influential Bitcoin analyst, recently released The Bitcoin Reformation paper. Reformation is a reference to the Western Christianity movement in the 16th century. Thereíre many ways to attach religious stories to Bitcoin.

Immaculate Conception

Bitcoin was started by an anonymous programmer, Satoshi Nakamoto. He/she/they released the Bitcoin whitepaper, worked on the code for a few years, then disappeared. Up until this day, we donít have a clear idea about Satoshiís identity.

Satoshiís identify and disappearance created mysteries around Bitcoin. Thereís lots of room for interpretation. Some find similarities with the Christian Bible story of Jesus Immaculate Conception. Translating that story to Bitcoin, we can interpret Bitcoin as a gift from God. Satoshi was either God or His Messenger. Satoshi came to Earth to deliver Bitcoin. It is supposed to cure the financial ill in our society.

Bitcoin origin was attributed to a higher power. Its creation was perfect in both design and timing. Bitcoin is the start of a new chapter in human history. Bitcoin is an Immaculate Conception.

The story is powerful. It creates a strong narrative. Bitcoin is destined to have infinite value. First, it will become digital gold. Then it will conquer all of the worldís money. Bitcoin will destroy all the financial trickery that plagued human society.

Original Sin

When I first came to Bitcoin, I was baffled by its mysteries. Bitcoinís religious interpretation is appealing. Perhaps, God did come to Earth and delivered Bitcoin to humanity. I dug deeper and learned more. I think there is another religious story around Bitcoin: the Original Sin. In this story, the Original Sin was committed by Satoshi. When he/she/they released the Bitcoin whitepaper, its title indicated Bitcoin as A Peer-to-Peer Electronic Cash System. As Satoshi worked on Bitcoin, its narrative changed to digital gold. Satoshi promised us digital cash. But he/she/they gave us digital gold.

When Satoshi disappeared, it is up to people to interpret the intention. The Bitcoin community remains attached to the digital gold narrative. Its supporters claim once Bitcoin reaches critical mass, it will become digital cash. The narrative is to become the Store of Value first, the Medium of Exchange later. However, some people took a scriptural interpretation of the Bitcoin whitepaper. They want Bitcoin to be digital cash. They forked to Bitcoin Cash with bigger block size. The idea is to make Bitcoin work for everyday transactions.

Satoshi wanted to reinvent money. To make the monetary incentive work, he may have inadvertently switched to digital gold. Itís a hack to get something to work for now. Then we can worry about making Bitcoin for everyone later. I think Original Sin is an interesting story. It explains why crypto is plagued with scams. They all have their origins in the confusion between digital cash and digital gold.

Baptism

Bitcoin is an exciting study case for religion. It shows us how the intermingling of an Immaculate Conception and an Original Sin can be the origin of a new change. Religious stories can give us hints of solutions.

Humans squabbled over these conflicting claims for thousands of years. The conflicting stories were written to the Bible. Crypto communities continue to attack each other and make outrageous claims. I think the Bible also contains stories that can help us find a cure. Bitcoin may have started with an Immaculate Conception and an Original Sin. The world is full of contradiction. Whatever happened, we are here with cryptocurrencies. The problem is not ours. We can ďbaptizeĒ ourselves and move forward. Without forgiveness, we can never make peace with others and with ourselves.
16  Alternate cryptocurrencies / Altcoin Discussion / Bitcoin Will Not Be a Medium of Exchange on: November 25, 2019, 12:34:42 AM
Original Post: https://bitflate.org/post/2019/11/24/bitcoin-will-not-be-a-medium-of-exchange.html

Bitcoin is "good" money. Itís too good that "bad" money will crowd it out of circulation.

Bitcoin is digital gold. Itís the number one Store of Value in cryptocurrency. But it doesnít do much for us besides Store of Value. Some Bitcoin supporters argue HODL is a use case. More use cases will come. There is a narrative: Store of Value first, then Medium of Exchange. In this narrative, itíll take time for Bitcoin to gain widespread adoption. Once it reaches critical mass, possibly hundreds of trillions of dollars, people will then use it as a currency. This narrative is convenient and used to justify Bitcoin ever rising price.

Nobody knows exactly when Bitcoin will reach critical mass. I agree with Store of Value use case. But I donít agree that Bitcoin will have other use cases. Bitcoin is currently worth more than 100 billion dollars. We see few indications that it is being used as a currency outside of crypto world. Bitcoin is a valuable commodity. It will not be used as a medium of exchange.

Greshamís law: bad money drives out good money

This principle states that more valuable commodity (good money) will gradually disappear from circulation. It will be replaced by less valuable commodity (bad money). For example, if people are currently using silver coins as money, the government decides to switch to copper coins. Government decrees that both coins have same value. In this situation, people will hold on to silver coins and use copper coins. They will spend the bad money (copper coin) and keep the good money (silver coin).

Bitcoin supporters tout it as the good money, the "goodest" money. Hyperbitcoinization will eliminate all bad money. It is misleading to label money as good and bad. Any form of currency has some use if it is in circulation. Fiat money makes the good/bad distinction fuzzy. These bad currencies are in circulation because they are just easier to circulate. The good, sound, and hard money is simply harder to circulate.

We should classify money as the desirable (good) money and the less desirable (bad) money. There is a spectrum between desirable and not desirable. In this spectrum, Bitcoin is highly desirable, gold is desirable, USD is desirable, Euro is next, Venezuela bolivar is not desirable. Greshamís law continues to apply to the spectrum. The less desirable money will drive out the highly desirable money.

Bitcoin world domination does not reduce price volatility

Bitcoin needs to reach critical mass for world domination. This is a future outcome that Bitcoin supporters often pitch. In this future, Bitcoin price will become less volatile. It will be suitable as a medium of exchange. This argument derives from micro view of Bitcoin economics. If Bitcoin market cap is hundreds of trillions of dollars, a few hundred billions exchange will not affect price. The flaw of the argument is it assumes Bitcoin is micro and local. Bitcoin is permissionless and global. It is accessible by everyone.

Bitcoin supply is fixed. But its demand is unpredictable. Humans are fallible. We may go into wars and induce recession. We may achieve productivity breakthrough and grow fast. The future is unpredictable. Another factor is high fee. When Bitcoin no longer gives out block reward, miners will need to raise fee. When a transaction has high fee, bitcoin owner will need to have substantial gain to justify high fee. Otherwise, he/she will do better by HODLing. Bitcoin price will continue to be volatile.

Bitcoin will not be a medium of exchange because of price volatility.

"Bad" money always exists to prevent "good" Bitcoin circulation

Bitcoin is decentralized money. It exists because many of us believe it has value. It is unlikely that everyone on planet Earth will unify into one single belief. There will always be other kinds of money. These money wonít be as desirable as Bitcoin. Therefore, people will put them in circulation and keep their bitcoins.

Bitcoin will be a Store of Value. We will use other "bad" money as currency.

Bitflate is a cryptocurrency with constant inflation of 7% per year.
17  Alternate cryptocurrencies / Altcoin Discussion / Completely steady and constant rate of inflation (John Nash) on: November 21, 2019, 01:46:47 AM
I've developed Bitflate, a cryptocurrency with constant inflation. It will inflate at 7% per year.

I recently came across Ideal Money, an article from John Nash.

https://www.jstor.org/stable/1061553?seq=1#page_scan_tab_contents

In the article, there's a similar idea: "But, simply to improve the conditions under which agreements regarding long-term lending and borrowing would be made, a money would be more or less equivalently good if it had a completely steady and constant rate of inflation. Then this inflation rate could be added to all lending and borrowing contracts."

John Nash lecture was in 2001, prior to cryptocurrency. This idea is similar to what I'm pursuing with Bitflate. But I think there's a difference between low rate and high rate. With low rate, a currency will behave like a Store of Value. This happens to gold and Bitcoin. With high rate, a currency will behave like transaction money.

I wonder how we would interpret Nash's view in cryptocurrency context.
18  Alternate cryptocurrencies / Altcoin Discussion / Why Create a Cryptocurrency in 2019? on: November 20, 2019, 10:42:10 PM
Original Post: https://bitflate.org/post/2019/11/20/why-create-a-cryptocurrency-in-2019.html

Bitflate is a cryptocurrency with constant inflation of 7% per year.

Itís 2019. Iím pitching my idea of Bitflate, a cryptocurrency with constant inflation. Iíve got a lot of NO feedback. Investors tell me the age of tokens has passed. We donít need more tokens. Crypto enthusiasts tell me Iím just forking Bitcoin. Itís been done so many times. Thereís no new innovation.

Bitcoin is the king of cryptocurrency. Ethereum is the king of token platform. Bitcoin has sidechain, Lightning Network. Ethereum has programmable blockchain. Everyone should start building on top of these platforms. We donít need to reinvent the wheel.

We donít have the platforms we need

We have many platforms. Iím most familiar with Bitcoin and Ethereum. Their economics operate under the same assumption: limited supply. Supporters of these platforms value this property. Price rise is a big incentive to motivate communities. At market level, we can see token growth as a kind of inflation. As more projects launch, people have more tokens to choose. In 2019, the prevailing view is we have too many tokens. We need to innovate the technology. High profile investors continue to put money behind projects that experiment with technology.

Iím a software engineer. I have seen smart and innovative technology in crypto market. In Bitcoin, we have Lightning Network for scaling, sidechain for launching derivatives. In Ethereum, we now have solutions building 3-4 layers on top of the main chain. There are other platforms improving components of Bitcoin and Ethereums.

I have come to the conclusion that technology is not the problem, at least right now. We have enough technology to solve any problem in the next 5-10 years. We donít need more solutions to solve imaginary problems. The real problem is our base layer is missing some economics.

Bitcoin strength and weakness: limited supply

Bitcoin has successfully bootstrapped using limited supply. Its limited supply and halving increase market price. I think Bitcoin would not survive if it didnít have this property. There is economic and social movement built around Bitcoin. People promise liberation from the existing monetary system. Despite of the hype, the main use case of Bitcoin remains Store of Value. It remains and likely continues to be a speculative asset. With Bitcoin, we HODL. The feature that defines Bitcoin hinders its adoption. Its strength is also its weakness.

Ethereum and other tokens face the same challenge. People in crypto donít recognize this. If users donít make transactions with tokens, there is no point building layers on top.

Experiment with monetary policy

Iím making the case for new experiment with monetary policy. With Bitcoin, we already solved the Store of Value use case. But we need to rethink limited supply. The world needs more than Store of Value. Life isnít just work and stash. Crypto needs to grow up and accept reality. We need to stop preaching a limited supply money future. We need to create a cryptocurrency that people want to use.

The missing platform: cryptocurrency with constant inflation

Bitflate is a cryptocurrency with constant inflation. It is experimental. My experiment is simple. I take what is working in Bitcoin and change monetary policy. I think it has the technology we need. Bitflate does reward halving until the 4th halving. Then it starts inflation of 7%. The reward schedule is as follows:

0: 50 (supply: 10 million)
1: 25 (supply: 15 million)
2: 12.5
3: 6.25 (end of halving)
4: 6.56 (start of inflation 7%)
5: 7.02
6: 7.51
7: 8.04
8: 8.60
9: 9.20
10: 9.85 (supply: 31 million)

Other tokens have constant tail emission. Bitflate has a percentage, exponential increase. Even with 7% inflation, Bitflate supply is still limited. This is an incentive for early adopters to acquire Bitflate tokens. I think an inflating crypto has different economics. It discourages HODL. Itís not a long-term Store of Value. When people transact more often, we will see crypto moving. The market needs an inflating cryptocurrency. This is why I create a cryptocurrency in 2019.

Join Bitflate Discord community: https://discord.gg/utnEyp8
19  Alternate cryptocurrencies / Altcoin Discussion / Ethereum and Computer Language on: November 17, 2019, 12:15:18 AM
Hi everyone,

I'm Bitflate developer. I don't usually dive into other crypto. But some reader asks me for my view on Ethereum.

Original Post: https://bitflate.org/post/2019/11/16/ethereum-and-computer-language.html

Bitflate is a cryptocurrency with constant inflation of 7% per year.
This article reflects authorís opinion, not Bitflate community.


When I first got into crypto in 2017, the first project I looked at was Ethereum (ETH). It captured a lot of attention from the market. Iím a developer so I have the skills to dig around a ETH development framework, such as Truffle. I find the whole ecosystem confusing. The idea of smart contract and programmable blockchain sounds fancy. But like many things in software, fancy is a gloss for complex technology that doesnít work. I followed ETH development. I didnít find a good and simple use case that really gains adoption. I think CryptoKitties was probably the most notable project.

After ETH, I studied Bitcoin (BTC). I find it is more focused. BTC only wants to be money, in particular, digital gold. BTC clearly captured this market. ETH is like a research project. ETH is general purpose and programmable. It lacks focus. Their leaders often change narrative and pitch endless new ideas.

It is easy to go down the rabbit hole and attack each other. Some readers challenge my view on ETH. I write this article to explain my view about its prospect in the market.

Three success factors in crypto: use case, use case, use case

I use this real estate adage (location, location, location) to emphasize the importance of use case. Cryptocurrency is a new space. The most important factor that determines long-term success for a crypto is use case. For example, Bitcoin (BTC) is digital gold. zcash and Monero are privacy coins. Dogecoin is meme, fun, tip coin. Bitflate is inflating coin.

ETH pitch is general purpose, programmable blockchain. It is supposed to conquer all markets. But since it is general purpose, it doesnít do anything particularly well. In digital gold use case, it is trailing far behind Bitcoin. Its programmable capability opens gateway for scams. Post ICO craze, ETH community has moved on to the next pitch, decentralized finance, DeFi.

It is easy to look at ETH history and point out many flaws. But if we think of it as an experimental, research project, we can learn some things from it. I suspect BTC sidechain idea is an effort to compete with ETH. Not everything in ETH is bad. But how do we gauge its success? From my software background, comparing ETH to computer language will give us some glimpse about ETH prospect.

Ethereum as computer language

Ethereum is a programmable blockchain. Itís supposed to be programmable, like a computer language. I find they share similarities. Computer language is obviously programmable Smiley. One lesser known fact about computer language is almost all of them are general purpose. That means you can actually program anything with a particular language. For example, Java is a high level programming language. But itís possible to program an operating using Java. This is an interesting feature but it is also very confusing. Occasionally, people will use programming language in very different use cases.

Programming language shines in specific use case

Each language is optimized and used for a very specific market. For example, when it comes to operating system, the dominant language is C. In enterprise software application, it is Java. PHP is a language that is used for web development. It doesnít find much use outside of web development. In some cases, we find languages with multiple use cases. For example, Python started out as a scripting language, then it got adopted for web applications, and recently data science.

Drawing from computer language analogy, for ETH to succeed, it needs to find a specific use case. If ETH community keeps pitching general purpose blockchain, they diminish ETH long term prospect.

Polymorphic Ethereum

It is possible for Ethereum to be general purpose for a long time. It can be a fun research project for many years. Eventually, somebody will come up with a working scenario. This occasionally happens in computer language. Ruby is a lesser known programming language. It was invented in 1995. It did not find any success until around 2005. Interest in Ruby surged because a programmer, David Heinemeier Hansson (DHH), invented Rails, a new way to program web application. He decided to use Ruby as the underlying language.

Perhaps, around year 2025, an Ethereum DHH will appear and figure out a cool use case for Ethereum. Even then, it is good to remember that even with Ruby, its use case is limited to Rails. The applicable Ethereum use case will be very specific. It will not be what we see today in the market.

Disclosure: Iím long Bitcoin (BTC) and Biflate (BFL).
20  Economy / Economics / Inflating Crypto and Inflating Fiat on: November 14, 2019, 07:20:09 AM
I discussed with others about inflating crypto and fiat. I wrote down some thoughts.

Original Post: https://bitflate.org/post/2019/11/14/inflating-crypto-and-inflating-fiat.html

Bitflate is a cryptocurrency with constant inflation of 7% per year.

Bitcoin is the first cryptocurrency. It has limited supply of 21 million coins. Since its creation, Austrian economics is making a comeback. Bitcoin is pitched as digital gold and deflationary asset. The world of economic theories collide: Austrian versus Keynesian economics. The line of divide is clear. Crypto is Austrian. Fiat is Keynesian.

Is the world going to be clearly divided between digital and human? Are we going to swing between these two extremes? When I work on Bitflate, I often think about this problem. Most people dismiss the idea of inflating crypto. I am optimistic. I think inflating crypto can serve as medium of exchange.

Fiat requires coercion

When we discover crypto, we took the red pill and found new freedom. We quickly dismiss the existing monetary system as fake. We were somehow forced to use fiat by authorities. Therefore, inflation is an authority made phenomenon to subjugate us into using fiat. People tell me that an inflating crypto wonít work. It needs authority to force people to use it.

Then, we discover crypto is also fake. It requires us to come to consensus, to believe that it has value. Money, at its core, is a Ponzi scheme. Store of Value cryptocurrency like Bitcoin needs new investors to push its price up. Otherwise, halving supply is a slow death sentence. It happened in many altcoins. And it is happening in Litecoin.

Fiat with inflation over crypto with inflation

This is another type of feedback I got. Some people rather use a fiat issued by authority than a digital native and decentralized crypto with inflation. Maybe, we dislike inflation more than government. Bad economic policies sure can trigger hyperinflation. But inflation is a natural phenomenon. It happens in healthy economy. Low inflation triggers other problems.

I think a crypto with constant inflation is appealing. The most important aspect is predictability. We can find ways to avoid value loss. It is not an asset for long-term investment. But it has its own use cases.

Inflating crypto is for transaction

With deflationary crypto, we are rent-seeking and waiting for price to go up. Holders contribute nothing to price rise. We are discouraged from spending and investing in its ecosystem. The goal of inflating crypto is transaction, not Store of Value. It discourages HODL behavior. Because inflating crypto loses value over time, we are forced to put it to use. We will need to lend, spend, or invest the money.

Is the world either Austrian or Keynesian? Do we need to pick a side? I donít think so. The world is full of contradictions. Cryptocurrency gives us monetary freedom. We are free to choose whatever money that fits our needs.

Read more about inflating crypto economic incentives: https://bitflate.org/post/2019/11/01/economic-incentives-for-inflating-cryptocurrency.html.
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