The basic interest rate / liquidity premium is a natural feature of money unrelated to the artificially-imposed demurrage rate. Basic interest does not go up or down if demurrage parameters are adjusted. Gesell argued that demurrage should be equal to the basic interest rate, which at his time and now hovered around 5% (but like the undeveloped value of land, it's not something easy to measure). We chose 4.89% because the math was better (2**-20 per 10min block) and it stayed within the error bars of ~5%.

Doesn't this have the issue that sell orders can exist without coins backing it? If a user lists 1,000 FRC for sale which is their exact balance on the exchange then on the next block they no longer have 1,000 coins to match the order.

Yes, but the fraud could only be pulled off if there's a human in the loop, and one which didn't bother to correlate. Any application (payment service, exchange, etc.) would properly account for demurrage and know that 100 coins sent from a reference height 1 year in the past is still only ~95 coins.

And I just realized that while discussed in depth on our own forums, this probably hasn't been made clear here: always check the reference-height of an incoming transaction to make sure it's close to what you'd expect. The creator of a transaction is allowed to select the reference height value.

Some people are probably sitting up in their chairs at reading that, thinking “oh my god that's exploitable!” Well it's a bit more complicated and some thought has been put into it. There are some new rules for validating transactions: the reference height must be greater than or equal to all of its inputs reference heights, and less than or equal to the block height, and coinbase transactions must have a reference height equal to the block height. And even if you purposefully constructed a transaction with an old reference height (there are no tools to do this currently), it'd still show up as less than the advertised amount in the recipient's balance.

However it is possible for someone to construct a new transaction with an old reference height, if they have access to suitably old outputs, such that it would show a larger amount on the transaction tab than is added to the recipient's available balance. More than anything else, that's why the transactions tab includes the Ref-height column - always check the reference-height of an incoming transaction.

The key here is the distinction between 'Basic' interest and the interest rate on individual loans.  Basic interest is what the lender can demand for a risk-free loan and each individual borrower is then charged a premium for their individual risk factors (or refused a loan all together).  The aim of Demurrage and Gesell's theories is to bring basic interest to 0% as only that portion of a loan is usury, the risk premium portion is completely legitimate and necessary.  Competition between lenders will drive the risk premium down to just paying for defaults and profits which as Jt explains naturally fall to zero under perfect competition.

The reality is that loans in Freicoin won't start until valuation has become stable and a good amount of products are selling in Freicoin.

As you point out, the lender will try to maximize his profits and currencies can be exchanged. But that also applies to the borrower, who will try to minimize his borrowing costs. That way, bitcoin and freicoin financial markets will theoretically equilibrate and produce the same interest rate.
Now you ask why the equilibrium should be zero interest.
The fast answer is that without an artificial barrier for capital yields to drop, they would drop to zero like all profits do in perfect competition and interest rates are intimately linked to interest rates.
But let's make an example with some imaginary assumptions to simplify things. Freicoins and Bitcoins have the same price.

There's a given market, say car manufacturing, where factories (capital) yield 2% of their producing costs (the cost to build the factory). Of course, their yield comes from selling the consuming goods (cars). Building a new factory would push the yields down, since all compete selling cars. In perfect competition, profits drop to zero, but not yields, since they represent the borrowing costs for the investment. To be profitable with a new factory you need a loan at a lower rate than 2%. Sorry if I'm repeating myself but I want to stress how yields tend to drop by competition, which, by the way, is good for the consumers, since lower yields mean cheaper products.
If lenders/investors can find another market with higher yields they will prefer to invest on that other market first. Higher yields mean that the demand on that market hasn't fulfilled the whole demand at the lowest possible price. There's more margin for the lowest possible price (which is just the raw costs, without profits nor capital yields) on that market so the demand's signal is transmitted to the financial market. But those markets will eventually hit 2% yields and eventually lenders/investors will have to chose between 1.9% or hoarding money.

A bitcoin lender doesn't have any incentive to lend at zero interest, but a freicoin lender has. Borrowers/entrepreneurs will find lower interests on freicoin's financial market, possibly zero. As yields get lower, bitcoin's financial market would shrink in favor of freicoin's. Borrowers don't care about demurrage because they're going to invest the money, spend it on producing goods.

Why an entrepreneur would plan to invest in something that yields 0% ? That means that the factory on its whole lifetime will only pay for itself, not give more return. The lender just wants to spend his money at another time without paying demurrage nor conversion to bitcoin fees. And the entrepreneur is paying his own wage as part of the production costs. Being selfish that could be enough for him. Ideally at this stage the building costs of the factory equal its total outcomes in its productive lifetime and the consumer is only paying for the real costs of production.

I hope this makes sense to you, but of course don't hesitate to ask questions or criticize the parts you don't agree on.

Did you ever consider general demurrage to offset the Proof-of-Stake inflation in PPCoin? If the reason is that this introduces extra coding-complexity, would you consider introducing it in a later version of PPCoin? Maybe have a look at the code for demurrage in Freicoin?

I don't see how demurrage money is necessarily bad as a unit for contracts. It's not the same as inflationary money. If you are owed 1000 usd and there's 10% inflation you will lose 10% on real value. But if there's no price inflation you won't lose even if the reference currency has demurrage. If you are owed 1000 frc to be paid next year, you are owed 1000 frc to be paid next year, no matter the demurrage rate. If the borrower wants to sit on the money and pay the demurrage instead of invest it on something productive that's his problem.

How will a hard fork affect wallet balances?

Don't believe everything you hear. For the most part, unless maaku wrote it, it's probably wrong.

The first block generated 750.56846171 coins.

496.03174604 went to the foundation.

254.53671561 went to the abyss, or to maaku. Not sure on that.

   .00000001 x 6 went to addresses of various contributors to the development of Freicoin. These are meant to be like a movie credits.

Let me reiterate: 80% of the initial distribution. This shuts off on block 161280, and the perpetual reward (4.9% of the monetary base per year) goes to the miners only.

This is a different way of handling the initial distribution. Coins will enter the marketplace through mining, and through purchase of goods and services by a community-vetted process of grant proposals.

Question, can you ever lose your stake?

Or you never lose it?

Do you ever get interest? Or it operates the same way as a normal balance?
Advantages?

Who is the dev or dev team behind freicoin? I haven't really heard much about this one before.