I've just begun to look into BitCoin as I'm interested in seeing a change to our current management of our medium of exchange, the dollar.
I didn't have to look very far to sense that BitCoin does not understand the management of an exchange medium.
First: You need to know what the media represents. In a medium of exchange, the media is "promises to complete trades". Thus, new media is created when someone makes a promise and media is extinguished when that promise is kept and the trade is complete. BitCoin seems to have no knowledge of trading.
Second: The manager of the exchange medium is ultimately responsible for broken promises. This is necessary to preserve the integrity of the exchange medium. The manager must observe the relation:
DEFAULT = INTEREST + INFLATION
When someone DEFAULTS on a trading promise, the medium manager must absorb that DEFAULT to maintain INFLATION at zero. From the relation we can see that the manager does this by collecting INTEREST equal to DEFAULTS.
Observation: The failure of BitCoin was obvious when the master of ceremonies of Gavin's presentation commented that he himself had "bought some BitCoins and they had already trippled in value". The media in a properly managed medium of exchange never changes value.
Todd Marshall
Plantersville, TX; USA
Todd, I think of four uses for money; Store of Value, Medium of Exchange, Unit of Account, and Stabilizing Demand (by governments manipulating the supply of money). With bitcoin, as you've probably gathered, the amount of bitcoin produced is preset and not subject to “management”. This makes it a desirable store of value. If it ever gets easy to go into and out of bitcoin it becomes a great medium of exchange due to ease of use and anonymity properties. It's only when you start thinking of bitcoin as the unit of account (salaries and prices) for the wider economy that stabilizing demand through managing the supply of bitcoin is an issue. I think most people interested in bitcoin don’t feel that that is a desirable use of bitcoin. They’re happy the total demand in the economy is something that cannot be nudged up or down by producing or destroying the currency their wealth is stored in. As has been said elsewhere, bitcoin will probably never be the unit for setting salaries or prices in the real economy. Business loans will not be denominated in bitcoin and interest rates will not be driven by inflation or deflation in bitcoin. So I guess bitcoin will not be the "change in the dollar" that you desire. On the other hand these forums are a great place for discussing "what if" variations building on the core technologies of bitcoin. What properties do you think bitcoin should have to consider it a replacement for the dollar? Why would it be any better than the dollar if it can be "managed"? |
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Under free competition, only the currency with the most merit will survive. Bitcoins main problem is that proof of work is not a marketable good and its inherent value is zero, but this cannot be changed. What can be changed is the inflation policy. The problem is how to get the best long term growth potential?
In my above system, miners should have an interest to choose the best known policy dynamically, but it would be nice if that can be proved.
Bitcoin has value beyond proof of work or the equivalent electricity content. It is a very efficient medium of exchange and hopefully for that reason there will always be demand for it. If too many people start using bitcoin as a store of value (by hoarding it) you can argue this will tend to decrease its value as a medium of exchange but as mentioned above this is self-limiting. As the overall value drops that releases bitcoins and its value as a medium of exchange will stabilize. This dual nature of bitcoin will make it difficult for a competing e-coin to establish itself. A large population that is holding wealth in bitcoin will not give it up. A new user considering where to transfer his wealth will choose the established bitcoin. This is reinforced by the fact that many channels will exist for using bitcoin as a medium of exchange and a newcomer will only compete with difficulty. Note that due to the divisibility of bitcoin, large amounts of hoarding will not hinder bitcoin exchanges. This is especially true if the use of bitcoin is transitory such as an exchange between two currencies in two different countries. Who cares what the bitcoin exchange rate is if I'm only going in then back out a few minutes later. It's only when you start thinking of bitcoin as the unit of account for the wider economy that deflation / inflation or the total number of coins produced is important. I've concluded so what? Bitcoin will probably never be the unit for setting salaries or prices in the real economy. Business loans will not be denominated in bitcoin and interest rates will not be driven by inflation or deflation in bitcoin. Total demand in the economy will be something that cannot be nudged up or down by producing or destroying bitcoin. So bitcoin is not a good unit of account but it will be a great store of value and (assuming we ever make it very easy to go into or out of bitcoin) a great medium of exchange. The inflation / deflation policy is fine as is. |
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This process continually repeats itself until transaction fees are reduced to their smallest possible value and very little mining is done. This leaves the blockchain venerable. One solution is continue to pay out a block reward forever. What do people think?
Yes, but this is not a problem. On the contrary, it is the magic of a truly free market at work. Thus benefiting the entire world with the lowest possible transaction fees. You should read "the wealth of nations" by Adam Smith to really understand what I just said. Indeed, the fact that transaction fees are eliminated by competition is not the problem. It's the fact that difficulty is also eliminated, it makes double spending attacks too easy. One solution is continue to pay out a block reward forever. What do people think?
That is not a viable solution. It would completely ruin what Bitcoin currently is. Note that keeping the block reward at 50 forever is not going to be a big problem. 50 btc will become a gradually smaller proportion of the total number of bitcoins until eventually it becomes equal to the rate of loss (which is going to be proportional to the total number of bitcoins in circulation). Could you explain your thoughts more? My two cents worth; A reward of 50 charges everyone equally for the cost of making a new block (by debasing the currency a little). Now this may not "be a big problem" but why is it more fair than charging the creators of new transactions directly for the cost of those blocks in the form of a fee. Think of the 50 coin reward in the early days as a reward for creating a small fraction of the β21M coins we want created. We all have an interest in making those and we all pay. Once the β21M coins are created I could care less if this guy's transaction goes in fast or slow. Let him pay for the service. I don't want my coins debased to pay for fast service for someone else. |
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Consider a world where mining only pays out transaction fees. Almost all miners charge a transaction fee of t and all users pay a transaction fee of t on their transactions.
One miner decides to increase his profits by charging a smaller transaction fee. He publicly announces his intention and many users reduce their fee to be on par with the new fee he has announced. If I post a transaction with a fee that would be accepted by only one miner, I will have to wait much longer for my transaction to get into a block. If he controlled 1% of the mining power, I'd have to wait for 100 blocks on average. That may not be attractive to many users. I agree. In fact I assume there will be a range of offered fees and a range of miners accepting certain minimum fees resulting in a range of wait times for transactions to post. |
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And vendors can easily adapt to having different e-currencies, because a website can automatically adjust prices and even automatically exchange from one e-currency to the one preferred by the vendor. I mean that the vendor could deal only in currency C, but accept currencies A, B, C and D. When someone goes to his/her website and pays in currency B, the system can automatically send that money to an exchange and receive payment in currency C. That way the vendor only deals with his preferred currency while still accepting a lot of them. In an unregulated economy the cost of the exchange would probably be minimal, there could even be vendor associations that exchange the currencies among themselves, a sort of vendor cooperative exchange.
PS: There goes my part to get the post back on track.
I agree. One of the best features of bitcoins is the ability to transfer wealth in an easy convenient way. Setting up markets for buying and selling bitcoins in local currencies in every country will give us the biggest bang for the buck in terms of getting bitcoin established. You could even automate a buy in one currency associated with a sell in another currency so the customer never owns bitcoins for more than a few minutes. Only local market agents would need to hold enough bitcoins to facilitate the trade for a fee and they would be strictly local actors in each country, not international players with contacts across the world. The value here is in the ease of transfer and the ease of entry into the business in each country. No need to wire money in an international currency. No need to trust an agent in another country. No central clearing house, etc.. |
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I am simply disappointed that the author of the original post has not been engaged in this discussion whatsoever.  Ditto... This discussion is sooo far from the original post I am at a loss for anything to say.  Bring it back. "You can do it." I'll start by saying it is a bit of a stretch to consider an exclusive Bitcoin economy as existing in a vacuum. The very nature of Bitcoin virtually ensures there will at least be several of them. It may very well be the case that there are rules that could be applied to one of many parallel Bitcoins which is better suited to paying wages much in a way people are presently used to. But I doubt that there is a one-size-fits-all solution that will work well with all market segments. ok... I’ve only known about bitcoin for a few weeks. It’s been fun learning so much as I read the forums. The initial discussion was focused on the fixed number of bitcoins that will be issued. My initial post described three uses for money; Store of Value, Medium of Exchange, and Unit of Account. I’ve come to realize that governments manipulate money for a fourth use, Stabilizing Demand. Money is so integral to the real economy that it becomes the major symptom/cause of downturns. During downturns overall economic activity is reduced and this is reflected/measured as lower money transactions. Central banks try to boost economic activity by boosting the supply of money in the hope of increasing money transactions. In bitcoin the comparable measure is the total value of the transactions captured in the blocks. In a sense this is independent of the fixed supply of bitcoin. The 21 milloin bitcoins can roll over once per year causing β21M/year of economic activity or they can roll over 10 times per year causing β210M/year of economic activity. A level of transaction activity consistant with the level of the economy is healthy and is what stabilizing demand tries to do. With a fixed supply of bitcoin we are saying that no one will try to stabilize demand by debasing the curency. For all I know this may be a good thing. As we’ve discussed, debasing the currency does not necessarily lead to inflation if the economy is growing, but on the other hand it may. This is because human management of the currency is never perfect and temptation will always be there to “prime the pump” a little too much. I agree bitcoin may never be the exclusive currency in a modern economy. So maybe it doesn’t have to be a tool to stabilize economic activity and that’s ok. |
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I am simply disappointed that the author of the original post has not been engaged in this discussion whatsoever. Ditto... This discussion is sooo far from the original post I am at a loss for anything to say. |
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How is this achieved? If an entity does not want to recognize the value of a particular crypto-currency then they will simply start their own. Hence crypto-currencies will be plentiful.
I don't think so. Bitcoin has the first adopter advantage. Any new service requires many early adopters that will help it launch. All the people that are predisposed to be early adopters of an electronic currency like bitcoin are invested in bitcoin and will actively discourage a different e-coin. Without a pool of active early adopters a new e-coin is doomed. This can only change if a majority of early bitcoin adopters recognize a major flaw in bitcoin that is solved by a different e-coin. At this point this is not likely. |
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If this were easy then surely Satoshi would have implemented it from the start; after all the address is one step removed from the public key presumably to prevent offline attacks trying to find the private key. It seems like you're looking to be another step removed. Is there much point?
Satoshi has a bunch of features that he 'figured out from the start' that are not implemented yet; I'll ask him if this is one of them after I figure out exactly what feature I want and convince myself it is possible to do securely. So I'm going to try to gather my thoughts and see if there is much point: This is the main problem I was trying to solve: - A merchant's website should give the customer a unique payment address during the chekcout process. Ideally, generating that unique address would be done entirely on the web server without requiring a RPC call to a bitcoind process running somewhere.
Communicating with bitcoin or some merchant-services website during the checkout process adds another possible point of payment failure-- it is better for the merchant if their customers can continue to pay them even if their bitcoin daemon (or MyBitcoin or MtGox merchant services) is temporarily down for maintenance. OP_OVER OP_ADD solves that problem, and, thinking about it, has some other very nice properties. Here's how it would work in practice: 1. Merchant gets one or more public keys to use for payments. They're stored in the web server's database. 2. Customer checks out: web server computes HASH160(public_key+order_id), and converts the result to a bitcoin address version#2 (first byte is not base58-encoded-0, but something else). 3. That bitcoin address makes its way to bitcoin software running on the customer's machine (or at an online wallet service). Since it is a version#2 address, bitcoin creates an OP_OVER OP_ADD.... transaction for it instead of an OP_DUP ... transaction. 4. Merchant's web server software tells a bitcoind running somewhere "if you see payments to HASH160(public_key+order_id), that's one of mine." 5. When the merchant want's to spend the bitcoins it got from the customer, it has to tell a bitcoind running somewhere the public_key,order_id pair. If the merchant doesn't completely trust the payment processor then keeping steps (4) and (5) separate is very nice-- the payment processor can't spend the merchant's bitcoins until the merchant tells them the order_ids (merchant would have to use truly random order_ids to be completely safe, of course). And, as noted before, this is a little more private than standard bitcoin transactions because the public key isn't revealed until the coins are spent. I was answering a different question and came up with the following: Here’s a use case: The client creates a special kind of transaction that you could attach to the email. This transaction transfers a certain amount of Bitcoin from your public key to the recipients public key. This transaction is not published and therefore not yet final. Furthermore, it has a time to live, say 48 hours.
At the receiver the software checks the validity of the transaction. If it is valid and the money is there in Bitcoin it presents the email to you. If you like the email you do nothing and the transaction expires. No funds transfer. After the transaction expires the sending wallet deletes its copy of the transaction and credits the sender with the coin.
If you don’t like the email you click the button and the coin is collected. (The transaction is published and bundled into the next Bitcoin block.) The sending wallet sees the transaction and makes the deduction of funds from the wallet permanent.
This is like a check in the mail. It’s safe because only the recipient public key can collect it and it can’t be lost because of the expiration date.
It’s a form of check in bitcoin. The key idea is that the receiver adds a well formed transaction to the block chain, not the sender. This can be made to solve the merchant problem as well without having to add a new transaction type to the block chain. It would work as follows: Define a well formed Transaction as Tw. Define a covered transaction, Tc, as one where a field in the transaction is “covered” redering the transaction invalid as far as the normal client is concerned. Assume the sender uses the receiver’s public key to generate the cover in such a manner that only the receiver (using his private key) can uncover it. So, the sender starts by creating a well formed transaction Tw. He then covers it using the receivers public key producing Tc. He sends Tc to the receiver out of band (it’s exported from the client and sent in some other transaction, encoded for pasting in an email for example.) Only the receiver can uncover Tc to produce Tw which he can check and submit to the network if he wants to cash the check. One detail. The sender should put the amount of the check into a single public key he owns before creating the check. The sender can effectively cancel the check by sending himself the amount of the check from that key. If his cancel went in before the merchant’s cashing of the check then the check is canceled. If the merchant got Tw published first then the cancel is too late. This mechanism allows an effective expiration time limit on the check. |
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A fractional reserve bank could exit at up to a 50% reserve ratio, by openly stating that all deposits, including 'on demand' accounts, are used as reserve funds for loans. Simply loaning out what they actually have on deposit, plus what they have in 'on demand' accounts, would be an advantage over a full reserve bank that had to be able to cover all 'on demand' accounts in full.
I would argue that the greatest impediment to sustained, fractional-reserve Bitcoin banking is the simple fact that few in the bitcoin economy will accept bitcoin credit from such a bank. Why should they when they can get cold, hard BTC directly? Why can't the bank deliver real hard BTC? Fractional reserve relies on the fact that the demand for hard BTC will never be 100% of deposits, not that demand for hard BTC will be zero. |
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Now, a question: Your scheme seems to require the user to read every e-mail they get in order to choose whether to refund or not. Is this a good idea? I know I'm a lazy e-mail reader; I think a lot of people would be pissed off with me for getting their bitcents stuck in limbo because I neglect reading their mails.
Nah. If you ignore the email the transactions expire. If you do nothing the transactions expire. Nothing gets stuck in limbo. The coins are either claimed through an active act or they revert if ignored. |
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Here’s a use case: The client creates a special kind of transaction that you could attach to the email. This transaction transfers a certain amount of Bitcoin from your public key to the recipients public key. This transaction is not published and therefore not yet final. Furthermore, it has a time to live, say 48 hours.
At the receiver the software checks the validity of the transaction. If it is valid and the money is there in Bitcoin it presents the email to you. If you like the email you do nothing and the transaction expires. No funds transfer. After the transaction expires the sending wallet deletes its copy of the transaction and credits the sender with the coin.
If you don’t like the email you click the button and the coin is collected. (The transaction is published and bundled into the next Bitcoin block.) The sending wallet sees the transaction and makes the deduction of funds from the wallet permanent.
This is like a check in the mail. It’s safe because only the recipient public key can collect it and it can’t be lost because of the expiration date.
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The original article talks about the dollar being backed by force (specifically since people are coerced into paying obligations to the US government using dollars.)
If bitcoins are in use for a while and legal contract are written requiring the paying of obligations in bitcoin then bitcoins will have a little bit of the same kind of backing as the dollar. Someone could be coerced (by the courts) into seeking out bitcoins to pay off obligations. In that sense bitcoins will have intrinsic "value".
We could grow into this kind of world because bitcoin has advantages paper dollars don't. Contracts may start to be written denominated in bitcoin.
The problem with bitcoin is that it is not legal tender. If a country recognize it as legal tender, than bitcoin would indeed...have "backing". Of course, it's a bad kind of backing. I agree it's not legal tender, but bitcoin civil agreements can still be written and enforced by courts (such as wage agreements denominated in bitcoin). If this becomes common who cares if the US government insists on dollars. |
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The original article talks about the dollar being backed by force (specifically since people are coerced into paying obligations to the US government using dollars.)
If bitcoins are in use for a while and legal contracts are written requiring the paying of obligations in bitcoin then bitcoins will have a little bit of the same kind of backing as the dollar. Someone could be coerced (by the courts) into seeking out bitcoins to pay off obligations. In that sense bitcoins will have intrinsic "value".
We could grow into this kind of world because bitcoin has advantages paper dollars don't. Contracts may start to be written denominated in bitcoin.
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I'm a little confused - for one set of data and one method of hashing, isn't there only one possible hash? What does it mean then to try to find a hash below a certain value? From what I understand about hashes, either it is or it isn't below that value, and no amount of retrying can change that.
Yes. Only one possible hash. In fact very probably a useless hash because it is larger than the target difficulty. That's why the block has a random number that you can change. It's called the nonce. If a hash fails to be below the difficulty threshold, you increment the nonce and try again. You get a different hash and a new shot at having the hash below the difficulty. You'll probably fail again and have to increment the nonce again. Guess what. You're mining! After billions of tries you run across a nonce that makes the block hash to a value less than the difficulty and you've made yourself 50 bitcoins. |
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The recipient would give its public key to the sender, and the sender would create a transaction to that public key and send it to the recipient. Then both broadcast it on the network. It would be like IP transactions. You could just bump them together. http://bu.mp/. The phones themselves would then exchange public keys and the sender would create the bitcoin transaction. |
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The average user is going to want to have something as easy to use as paypal.
The average user will want to use a brand name they're familiar with; if we can continue to convince early adopters that bitcoin is a good idea, eventually PayPal or one of its competitors will start supporting it. I hope. In fact, there is nothing preventing PayPal from writing their own version of the client that adds a lot of user friendliness and integrates into their system. Bitcoin is just a standard for issuing and validating transactions. It's not about the user interface or where the wallet is stored. If PayPal can charge for the use of its client, then bitcoin is not even a competitor. |
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If wages stay flat due to productivity growth and people get used to slowly falling prices, that just leaves holders of large assets like homes that are priced in bitcoins to suffer a slow loss.
An interesting thought with a fixed number of bitcoin; Each coin represents 1/21millionths of the whole economy and as the economy grows the holder of 1 bitcoin still has claim to 1/21millionths of the larger economy. If a home is dropping in value (priced in bitcoin) then this just means it represents a smaller and smaller fraction of the total economy. So maybe it should fall in price. Being worried about falling home prices may be just my old mindset coming from an era where homes were an investment. Seems silly. A home is a place to live, not an investment. Maybe in real life paying for a place to live does become cheaper with time as the economy grows. (Of course you could never really buy the whole economy with 21M bitcoin. As you started to buy, prices would leap out of reach.) |
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The solution to 'sticky wages' is to educate people that the value of their wages is going up or staying flat, even if the number on their check goes down. I don't think this would be as hard as people think, especially if there were reliable statistics available on the price deflation rate.
It's doesn't have to happen anyway. Average nominal wages don't go down because productivity goes up. There is still the same amount of money per person in the economy. Average nominal wages only go down when the population increases. I hadn't thought of this. Your right barbarousrelic. Maybe wages don't have to fall. Does anyone know what productivity growth typically is? If wages stay flat due to productivity growth and people get used to slowly falling prices, that just leaves holders of large assets like homes that are priced in bitcoins to suffer a slow loss. (By the way a 3% growth in bitcoin is _not_ inflationary if the underlying economy is growing. There are 3% more things to buy at the end of the year. Or , if you prefer, there are newer better inventions to spend the extra 3 coin on.) |
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