By the way, if teaching workers to accept what they're given and no complaining allowed is your predisposition then fine. Deflating prices and wages is the way to go.

However, if you are in favor of limiting the supply of bitcoin because you want to protect your savings then there is an easy way to have your cake and eat it too. It goes like this:

Modern economies tend to grow at 3% in the long run. The base supply of bitcoin should grow at 3% to keep prices and wages stable, but how to do this and keep savings protected? Well the answer is a multiplier associated with blocks that multiplies the cash value of each transaction by effectively 3% by the end of the year (I could calculate the number of blocks per year and tell you the multiplier per block). This is magic that bitcoin can do which is impossible with a paper currency.

So, if someone transferred 100 bitcoins to you and you didn't spend it for a year, in 12 months you would have 103 bitcoins that you can spend from that transaction. There you go; Savings protected and prices stable.

Problem is, as some have asked about above, the client does not know who you really want to send money to and how much to send.

So the token is there and the client knows for sure that a human who knows a password is sitting at the computer. But a Trojan can get any amount sent to anyone once the handshake with the token is complete because at this point the handshake is complete, the password is entered, the private keys are unlocked, etc...

I gather from the tone of most posts here that people love the fact that only a fixed number of bitcoins will ever be produced. This is justified when you consider bitcoins as a Store of Value. No one wants their wealth stored in bitcoins to erode. Bitcoins as a Medium of Exchange are also unsurpassed. They can be transferred easily and anonymously.

There is a problem when bitcoin is considered a Unit of Account. Merchants will be constantly lowering the price of merchandise as the economy grows and the demand for money (bitcoins) grows with it. I suppose they can do this. They certainly got used to doing it in the other direction as paper money lost value.

Here’s the subtlety. A merchant changes his prices once in a while. For that reason he looks beyond the current point in time to what he expects his price should be at the next cycle. In other words, he builds in some extra price lowering to account for the fact he won’t be changing his prices for a while. When all merchants do this it builds momentum into price lowering that is very hard to change. (By the way this works with inflation too. It causes an accelerating “core inflation” and is very hard to reverse.) This can be very distorting to an economy because it enriches holder of “money” at the expense of holders of assets (like a home). In can be just as unjust as an inflationary money.

When we consider wages another problem intrudes. Normally an employer would want to lower wages periodically to reflect the fact that demand for “money” is driving up the value of bitcoins. Wages, however, are “sticky”. No one wants to see their salary lowered and will resist this. Real labor costs rise as a consequence and employers end up hiring fewer people. This has a negative effect on the economy as the amount of goods and services produced goes below potential. Again holders of cash are happy but unemployment is causing misery.

These are real problems that have to be solved before an electronic money like bitcoin can take the place of a national fiat currency. No one will want to price things in bitcoin and bitcoin will never be more than a convient replacement for a Store of Value like gold.

You are right River. Taxes are CRIMINAL. I just meant you will pay taxes because you are being coerced to pay taxes. By force.
Bitcoin doesn't help with that.

Also, eventually, anyone with a phone can participate (smartphone). A large fraction of the world's people own phones already.

Governments discovered long ago that taxing is best done through coercing companies not people. As companies grow it becomes impossible for them to lie to government auditors (among 1000 employees there will always be at least one whistle blower). That's why they collect most personal taxes through payroll deductions. That leaves personal income not from payroll. If contractors start hiding their income governments will require the companies that use them report more details about payments. If investors hide income, brokers will report more details. etc...

So the only income you can hide is minor incidental income from personal exchanges. If these grow big (for example from drug dealing) they'll get you when you try to purchase big items from companies that do report. Ever try to buy a house without going through some reputable companies?

You will pay taxes, even if the only currency is Bitcoin.

A more interesting question is what an entity that controls 1%, 5%, 10% of the processing power devoted to mining could do with such an on - off - on cycle of generating coins. Here's what I think happens:

cycle 1: The entity turns his miners on generating coins at a rate that pushes the difficulty up for the next cycle.
cycle 2: The entity turns his miners off. The difficulty is scheduled to go down next cycle.
cycle 3: The entity turns his miners on again generating coins at a high rate pushing the difficulty up for the next cycle.
cycle 4: Other miners start noticing the pattern and join the on - off - on cycle since it makes sense to only spend electricity during the easy cycles.

cycle n: It becomes obvious to all miners that it is counterproductive to generate coins during the hard cycles and they therefore wait for the easy cycles.

This is a self reinforcing pattern and is unstable as the number of miners remaining in the hard cycles goes to zero the difficulty will flip flop by a factor of 4 (or whatever is the maximum allowed ratio) between the easy and hard cycles. Also the easy cycles will draw more and more newcomers.

More alarmingly, since the difficulty will be slamming against the artificial bounds (the max by 4 factor) it no longer reflects the true difficulty (since it is no longer calculated from the equation that controls block production rate to near one per 10 minutes).

I will give a made up example to show the dynamic: Assume you want to generate 2016 coins per 20160 minute cycle and the available processing power can generate 1000 coins per minute when the difficulty is 1. We set the difficulty to 10000 to get a stable 1000/10000 = 0.1 coins per minute or 2016 coins per cycle.

cycle 1: Entity turns on and adds 10% capacity. Coins produced = 1100/10000 = .11 coins/min (time to produce 2016 = 18327 min) -> difficulty is set to 11000
cycle 2: Entity turns off. Coins produced = 1000/11000 = .091 coins/min (time to produce 2016 = 22176 min)  -> difficulty is set to 10000 again
cycle 3: Entity turns on. Coins produced = 1100/10000 = .11 coins/min (time to produce 2016 = 18327 min) -> difficulty is set to 11000
cycle 4: 10% of the miners notice the pattern and stop mining the difficult cycle. Coins produced = 900/11000 = .082 coins/min (time to produce 2016 = 24640 min) -> difficulty set to 9000
cycle 5: Production = 1100/9000 = .122 coins/min (time to produce 2016 = 16495 min)-> difficulty back to 11000
cycle 6: Now 30% of miners catch on. Production = 700/11000 = .064 coins/min (time to produce 2016 = 31680 min) -> difficulty set to 7000
cycle 7: Now new miners want in on the easy cycle. Base capacity up another 10%. Production = 1200/7000 = .171 coins/min (time to produce 2016 = 11760 min) -> difficulty now to 12000
cycle 8: 90% of original miners are in on the game. Production = 100/12000 = .008 coins/min (time to produce 2016 = 241920 min) -> difficulty should be 1000 but slams into boundary at 12000/4 = 3000
cycle 9: The game has attracted 50% more miners. Production = 1600/3000 = .533 coins/min (time to produce 2016 = 3780 min) -> difficulty should go to 16000 but stops at 12000 (at the 4x3000 limit)
cycle 10: Production near zero and difficulty down to 3000 again

Difficulty will slam between 16000 and 3000 and most coins will be produced during the 3 day easy cycle with long 24 week periods with high difficulty and few miners.

This kind of instability is inherent in systems that have delay such as happens with the calculation of a new "difficulty" after a delay.

I bet someone controlling even 1% of capacity could, through the amplification of other miners joining him once they notice, cause hard/easy cycles where production in the easy cycle is more than twice desired production.

One more point I'd like to make is that the _only_ person who can double spend is the owner of the coin (since only he knows the private key). The only time clients see a double spend is if the owner is purposely being malicious. It is therefore reasonable to drop _both_ the original and the second transactions if a double spend is seen within a window of time. Further, the double spend "event" could be bundled (both original transactions included in the bundle as proof of the double spend) into a transaction that locks that coin out for a long time (remember, we have proof of malicious intent so we would be justified in locking out the coin for say 10,000 blocks or more).

After the window of time expires the second transaction is simply ignored. At this point we don't want to lock out the coin because we don't want to leave an opening for the original owner to cancel the original transaction. We would need the window to be large enough that we are very confident most clients have seen it yet short enough that the selling merchant can wait without burdening normal customers. 15 seconds for example. So, waiting 30 seconds without seeing the coin lockout transaction would assure the merchant no double spending happened.