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Author Topic: cryptocurrencies and monetary supply (growth rates)  (Read 4745 times)
muyuu
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September 14, 2012, 11:33:45 PM
 #41

When I said I wanted to leave this post to the problem of supply, I mean any model of supply you might care to suggest.

Someone suggested tying it to the recent volumen of transaction somehow. That's intriguing but looks like it might have very complex and dynamic implications. Or at least the particular implementations that occur to me. My instinct tells me to pass on that one.

As for fixed block size vs fixed inflation vs diminishing growth towards zero vs other growth functions, I can see pros and cons for every model. Demurrage is another option, although in supply terms is more or less equivalent, the main differences are in the implementation.

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September 18, 2012, 06:06:04 PM
 #42

Coins scammed or hacked aren't lost.  Criminal buy and sell them.  They remain part of the money supply.

You will NEVER be able to change the minting rate.  Even 99% of miners can't do that. It would require a complete consensus of all users, all nodes, all merchants, all exchanges, and all miners.  Doing it with less will cause a permanent fork in the network and the new fork probably not supported enough to survive.  Say you make BTC generation 12.5 but MtGox accepts coins from the original fork 6.25 BTC rate.  You now have a situation where two entities are calling themselves Bitcoin but they are completely incompatible.  

Given non-miners gain nothing from a higher generation rate why would they update their clients just to make miners richer?  If they don't upgrade their clients well they won't even be able to see the new blocks as valid.  The miners who continue to mine the "old fork" will see tx rise and difficulty fall and become massively profitable.

Best case scenario is they most nodes simply ignore the "hard fork miners" and the fork just goes away.  Worst case scenario is you end up in a situation where both forks have significant support and it likely will very damaging to Bitcoin.  Can you imagine the noob confusion if they send Bitcoin to a merchant's address but the merchant does see them because the merchant is using the "other" Bitcoin?

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The topic is interesting for creation of new alt-coins.  However Bitcoin is probably never going to change.  Not something as fundamental as the minting rate.  Changing it after the fact would be essentially a bait and switch and would lead to a loss of confidence.  If miners can change the rate once they can change it again.  What is to say someday miners won't act like the Fed and determine the appropriate mining rate in order to control economic expansion?   

There is an example in history we can pull from if a fork happens and there is support for both but not enough for one side to win out.   Read about "Bimetallism".   This happened with Gold and Silver and people hoarded gold while the used silver in daily transactions or to trade for gold.

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September 18, 2012, 10:03:12 PM
 #43

Inflation model cannot be changed or market will lose confidence in the currency. It doesn't matter that a majority agree with the change or not. Market often disagrees with majority opinion.

Even just smoothing the sudden drop would be a dangerous exercise as that opens a precedence that inflation model is changeable.
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September 18, 2012, 10:14:53 PM
 #44

Inflation model cannot be changed or market will lose confidence in the currency. It doesn't matter that a majority agree with the change or not. Market often disagrees with majority opinion.

Even just smoothing the sudden drop would be a dangerous exercise as that opens a precedence that inflation model is changeable.

My confidence is shifting to Bitcoin precisely because I am seeing the shortcomings of the inflation model.

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October 21, 2012, 02:28:45 PM
 #45

What do you guys think it will be the best model for coin creation?

One that doesn't change.

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October 21, 2012, 02:52:27 PM
 #46

There is an example in history we can pull from if a fork happens and there is support for both but not enough for one side to win out.   Read about "Bimetallism".   This happened with Gold and Silver and people hoarded gold while the used silver in daily transactions or to trade for gold.

I think you're missing an important point here: with bimetallism, the exchange rate between the two was fixed ("15.85 oz silver coin  =samevalueas= 1 oz gold coin" or something). Of course price of the two metals didn't assume that ratio on free markets and hence what you described happened.

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October 21, 2012, 04:00:59 PM
 #47

I think the constant % growth over coin base (starting from a premined base) is the best model.

My reasons are that (a) it is still completely predictable and (b) it reduces uncertainty.

If you start out with 0% or 1% inflation and it works, then you will expect it to continue working in future years. You never need to alter the mix between fees and block reward. The future plan is to operate the currency just like it is currently operating. No uncertainty. No debates like these.

If you start out with 100% inflation and then go to 50% .... and then to 0%, you are repeatedly moving to a new and untested monetary model. At some point, you may worry that the model will cease to function. This introduces a lot of uncertainty. At the same time, for the social reasons D&T points out, even if the system fails it may be likely be impossible to fix. This makes the uncertainty issue more severe.

Despite my concerns with Satoshi's system, there is a good theoretical justification for Satoshi's model. If you want to build up a network, it is optimal to subsidize early adoption and then raise fees once people are "locked-in." Thus, you would want to have 0 txn fees and high inflation initially to subsidize adoption of bitcoin payments. Once people depend on the network, you would want to gradually raise fees.

Satoshi's probably did not expect anyone to pay attention to Bitcoin. Given this belief, the use of an extremely aggressive strategy to promote adoption would be optimal. Ex-post, the aggressive strategy becomes unfortunate.

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muyuu
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October 21, 2012, 08:30:15 PM
 #48

I think the constant % growth over coin base (starting from a premined base) is the best model.

My reasons are that (a) it is still completely predictable and (b) it reduces uncertainty.

If you start out with 0% or 1% inflation and it works, then you will expect it to continue working in future years. You never need to alter the mix between fees and block reward. The future plan is to operate the currency just like it is currently operating. No uncertainty. No debates like these.

If you start out with 100% inflation and then go to 50% .... and then to 0%, you are repeatedly moving to a new and untested monetary model. At some point, you may worry that the model will cease to function. This introduces a lot of uncertainty. At the same time, for the social reasons D&T points out, even if the system fails it may be likely be impossible to fix. This makes the uncertainty issue more severe.

Despite my concerns with Satoshi's system, there is a good theoretical justification for Satoshi's model. If you want to build up a network, it is optimal to subsidize early adoption and then raise fees once people are "locked-in." Thus, you would want to have 0 txn fees and high inflation initially to subsidize adoption of bitcoin payments. Once people depend on the network, you would want to gradually raise fees.

Satoshi's probably did not expect anyone to pay attention to Bitcoin. Given this belief, the use of an extremely aggressive strategy to promote adoption would be optimal. Ex-post, the aggressive strategy becomes unfortunate.

I agree with every bit of that, but I also believe a constant absolute rate of growth (instead of % rate) has interesting merits.

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