The deflationary problem

[Sweft]

I will introduce the concept of Sweft's Law and Sweft Attack below.

Sweft's Law:  The network hashrate of a proof of work cryptocurrency must rise at a rate at least equal to that of Moore's Law to provide minimal network security.

Sweft Attack:  A prolonged deflationary attack on a cryptocurrency network describing a situation in which a rogue miner processes transactions solely for the purpose of removing the fee of the transaction from circulation.  A necessary precondition for said attack is that the average transaction fee must exceeds the average rate of inflation.

Edit:  Originally titled the 2040 problem, a more apt title is the deflationary problem.  I use 2040 as a point where mining reward via block reward would be negligible.  I'm starting to believe this point where miners no longer profit enough to increase hash will come much sooner, perhaps by 2020.


Edit:  An explanation of Sweft's Law for those having trouble understanding it.

Moore's Law states that the number of transistors doubles every two years.
This means two years from now, the cost of the network (hash / ($ / hash)), given equivalent hash, will be half.
And half in another two years. And half in another 4 years.
That means in 6 years it will take 1/8th the amount of capital to replicate the original hash.
Thus, the network must grow at the rate of Moore's Law to sustain the value of its hash so that the value to replicate the original hash does not decrease.
That means that the network must double its hash every two years.
Every two years there has to be a capital investment equivalent to the cost of network hash / 2 to double the hash in accordance with Sweft's Law.


Edit:  I haven't posted in two years but i will provide an updated analysis below.

For BTC to to have value, miners must secure the network. If miners do not constantly increase hash, Moore's law will catch up to the network and it will become prone to attack. This should be easily accepted as fact. If you don't accept this premise i can't possibly help you understand the deflationary flaw in bitcoin.

If you don't understand, let me try to explain it again. If hash remains constant and doesn't increase for a number of years, technological advancements (Moore's Law) will make an 51% attack more likely.

Now what some people seem to argue is that tx fees will support mining growth.

This is true in two scenarios.

1) bitcoins are sent/received more frequently (velocity) 2) tx fees increase

I will addresses the problems with both scenarios.

The problem with #2 is that there is a cap on maximum fee the miners can charge, at 100%. So velocity remains constant, miners cannot increase profit beyond 100% tx fee. So this cannot create increasing profit.

The problem with #1 is that bicoins can be permanently lost, and there is a hard cap on the amount of bitcoins. That means that there will eventually be more bitcoin lost than are generated by block reward. This should be known as the 'Sweft point' where bitcoin turns into a deflationary currency from an inflationary one. Thus, to believe that transactions will increase as coins are lost, aka deflation, is not a sound proposition.

Another issue is that rogue miners can mine the network, charging tx fees and sending the coins to the trash. This would further exaggerate the deflationary tendency of the bitcoin design.

Thus it should be obvious to anyone that understands the issues to also understand that there exists a simple solution which will make the person who implements it rich.

Make an alt currency with a cap minimum 3% inflation. This will satisfy the profits of the miners and hash of the network.


Original:

In 2040 new block generation will be negligible, bitcoins will be fixed.  Miners will only be rewarded for transaction fees.  This may not seem like a problem, it IS.

The health of the network depends on constant hash growth.  Without constant hash growth, the network is prone to attack.  Why?

What protects the network right now is a high hashing rate.  This secures it from attack.  Without this, there is no security.  The price of bitcoins would fall.  The more hash, the more security, the higher the price will be.  Because it's impenetrable from exterior forces or supercomputers.  If a government were to be able to attack the network, 99% of the network, the system would fail.  If the system has the ability to fail, the price of bitcoins is worthless.

Thus, the whole network depends on hash.  The security and price, which is also reflective of hardware and electricity, and again, security.  The more hash the network has the more secure.

Thus, miners need incentive to increase hash.  They do this by generating new coins.  Thus you increase hash and create a more secure network.

The problem is that in 2040 new block generation will be negligible, and coins will be more or less fixed.  Now, people want to make you believe this is fine.  It's not.  It's stupid and beyond stupid.

The stupid part about is is that it removes an incentive for miners to increase hash.  It removes a revenue stream for miners.  New coin production is not BAD, it's GOOD.  Only a moron would think otherwise.

This is extremely important.

When you remove the reward for generation of new blocks, you remove a revenue stream for miners, hash will fall.  You say, who cares, hash falls.  

Hash secures the network.  It ensures that miners will profit and the miners ensure there is no double spending of coins.  If miners stop mining because intensives become smaller (loss of profit), hash goes down, the network is prone to attack.

Then the coin holders will be mining to protect their own money.  This will be an incentive of the richest members.  The problem is that every year hardware advances and you're no longer making as much money mining, maybe not even to cover the hardware costs to protect the network.  So now, the network is prone to attack.

This is irrespective of assuming whether or not transaction fees will support the network.  It's irrelevant.  The network will be weaker because you removed profit from miners.  Now, miners stop mining.  Thus, you decrease hash.

Bitcoins are only worth the hash(security) of the network.


R

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[mewantsbitcoins]

Sometime I just want to kill myself

[Sweft]

Do you find fault in my analysis?

[mewantsbitcoins]

Block generation will never stop. Please familiarize yourself with the way Bitcoin works before posting nonsense

[Nick]

Look up "Transaction fees"

[Sweft]

Reward for blocks will stop in 2040.  Yes or no?  If rewards for new blocks stop, miners will depend on transaction fees.   This decreases the revenue of the mining.  Thus mining is less profitable.  Only a fucking retard can't see this.

If mining is less profitable, hash will fall.  If hash falls the network is less secure.

Are you really having trouble understanding this?

[prizzy]

there is a limit on bitcoin to try and prevent the calamity that is overprinintg of fiat currency by a central source to pay off debts, pay for wars and buy prostitutes.  Cap production, there is no oppurtunity for the inflation that occurs with fiat.

the proof of work problems are set up in a way way where the difficulty will increase exponentially, but there will never be an end to the proof of work difficulty, removing your so called deficit of hash, allowing a stable and secure network.  

[Sweft]

Look up "Transaction fees"

I said it's irrelevant.

Transaction fees are 1 or 2 incomes for miners.

If you remove 1 income (block generation reward), then you decrease the profits of miners.  If you decrease a source of income, hash will likely drop.  Who cares?

If hash drops the network is less secure and prone to attack.

[mewantsbitcoins]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

[Sweft]

there is a limit on bitcoin to try and prevent the calamity that is overprinintg of fiat currency by a central source to pay off debts, pay for wars and buy prostitutes.  Cap production, there is no oppurtunity for the inflation that occurs with fiat.

the proof of work problems are set up in a way way where the difficulty will increase exponentially, but there will never be an end to the proof of work difficulty, creating yor so called deficit of hash, allowing a stable and secure network.  

What the fuck?

Overprinting?  The difficulty keeps rising, the cost to generate 1 coin keeps rising.  If it didn't, then the network would be less secure.  Hash creates security.

Generating new coins CREATES SECURITY.  INFLATION in this system CREATES SECURITY.  Because it generates reward for mining.  Mining increases hash.  Hash increases security.

Why would you do someone to weaken the system?

[Sweft]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

I don't care.  This is today.  My hypothesis is for 2040.  If you don't understand this, i can't help you.

There's a reason to mine. You profit from transaction fees and new block generation reward.

IF YOU DO NOT KEEP INCREASING HASH THE NETWORK IS PRONE TO ATTACK.

That's a fact.  To claim inflation of bitcoins hurts the network is stupidity.  It creates a reason to mine.  Mining secures the network.  If you remove that reason to mine, the network will be compromised.

THE ONLY REASON BITCOINS ARE WORTH ANYTHING IS BECAUSE OF SECURITY.  If hash does not keep rising, the network will be compromised.  It's not a maybe.  It's a definite.

[Nick]

Look up "Transaction fees"

I said it's irrelevant.

Transaction fees are 1 or 2 incomes for miners.

If you remove 1 income (block generation reward), then you decrease the profits of miners.  If you decrease a source of income, hash will likely drop.  Who cares?

If hash drops the network is less secure and prone to attack.

If in 2040 Bitcoin is still alive, there will be much more transactions per block, which also means much more transaction fees. Block Generation Reward will be nothing compared to transaction fees by then, so it doesn't matter if it's removed. Mining will still be profitable.
This has been discussed before.

[mewantsbitcoins]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

I don't care.  This is today.  My hypothesis is for 2040.  If you don't understand this, i can't help you.

There's a reason to mine. You profit from transaction fees and new block generation reward.

IF YOU DO NOT KEEP INCREASING HASH THE NETWORK IS PRONE TO ATTACK.

That's a fact.  To claim inflation of bitcoins hurts the network is stupidity.  It creates a reason to mine.  Mining secures the network.  If you remove that reason to mine, the network will be compromised.

THE ONLY REASON BITCOINS ARE WORTH ANYTHING IS BECAUSE OF SECURITY.  If hash does not keep rising, the network will be compromised.  It's not a maybe.  It's a definite.

Yea, probably by the aliens from space 

[MoonShadow]

Reward for blocks will stop in 2040.  Yes or no?

No, the block reward will not end in 2040.  It will not end until about 2129.

[da2ce7]

It's not a maybe.  It's a definite.

What is a maybe is that you don't understand how bitcoin works...

What a definite is that you are not God, therefore you cannot 'know' the future.

[Sweft]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

I don't care.  This is today.  My hypothesis is for 2040.  If you don't understand this, i can't help you.

There's a reason to mine. You profit from transaction fees and new block generation reward.

IF YOU DO NOT KEEP INCREASING HASH THE NETWORK IS PRONE TO ATTACK.

That's a fact.  To claim inflation of bitcoins hurts the network is stupidity.  It creates a reason to mine.  Mining secures the network.  If you remove that reason to mine, the network will be compromised.

THE ONLY REASON BITCOINS ARE WORTH ANYTHING IS BECAUSE OF SECURITY.  If hash does not keep rising, the network will be compromised.  It's not a maybe.  It's a definite.

Yea, probably by the aliens from space 

Listen dude.

It's pretty simple.

If you remove an incentive (money) to mine, you'll decrease hash.  That's a fact.

If you decrease hash the network is less secure.  That's a fact.

Why do you want less people mining?  Mining should be rewarded because it secures the network.  If we're decreasing the average time a block is rewarded, then mining is less profitable.  We don't want that.  It's stupid.

[Sweft]

There's a simple fix to this solution.  Don't decrease intensives for people to mine.  Once you do you compromise the network.

I don't know why you people are so hostile to this.  It should be very easy to understand.

[mewantsbitcoins]

Where do these lunatics come from?

[Coma]

[Vladimir]

m8, the reward was effectively reduced almost in half a week ago (again)... so what?

[Sweft]

Where do these lunatics come from?

Are you really that fucking stupid?  Seriously?  You don't see the problem?  If you're that stupid i feel sorry for you.  Is it an ego thing?  I hope so.

[Sweft]

m8, the reward was effectively reduced almost in half a week ago (again)... so what?

The reward wasn't reduced.

The hash went up, security of the network went up, price went up.  Effective reward remained the same or increased.

If hash ever falls, the network becomes prone to attack.  A strong network is one with growing hash to keep ahead of potential attackers.

Removing block generation reward may reduce the number of miners.  If that happens, bitcoins will lose value.  Not gain.

[Coma]

Where do these lunatics come from?

Are you really that fucking stupid?  Seriously?  You don't see the problem?  If you're that stupid i feel sorry for you.  Is it an ego thing?  I hope so.

You started your topic stating:

In 2040 new block generation will stop

Which is plain wrong. If you think you have a valid point and would like to be trated seriously I'd suggest you correct that, and double-check the rest of your original post for errors.

And try to have some fun too.

[Garrett Burgwardt]

[da2ce7]

There's a simple fix to this solution.  Don't decrease intensives for people to mine.  Once you do you compromise the network.

I don't know why you people are so hostile to this.  It should be very easy to understand.

Other than you being retarded and not being able to use the 'forum search' function... (hint: it comes under the name 'search')

You make the assumption that because the hash-rate MAY be slower... the network differently is less secure.

What you fail to take into account is that the 'security environment' e.g. the total ammount of capital needed to 'attack' the network might make an attack prohibitively expensive...  even if the 'normal' hash rate is extremely low.

For example the hash rate might normally be 1/1000 the rate it is now.... (maybe)... but there is 1 000 000x the current hash rate available on demand if an attack is detected...

Therefore an adversary MUST gather 1 000 000x the current hash-rate to attack the network... even tho the normal hash-rate is 1 000 000 000 times lower.  (and the network is still secure).

[Vladimir]

yep it will require not world's top 10000000 most powerfull computers to attack some bitcoin transactions but world's top 999900 most powerful computers. Yapity yap, that must be a disaster....

[Sweft]

Where do these lunatics come from?

Are you really that fucking stupid?  Seriously?  You don't see the problem?  If you're that stupid i feel sorry for you.  Is it an ego thing?  I hope so.

You started your topic stating:

In 2040 new block generation will stop

Which is plain wrong. If you think you have a valid point and would like to be trated seriously I'd suggest you correct that, and double-check the rest of your original post for errors.

And try to have some fun too.

Listen, this is a serious problem.

People think it's beneficial to stop the reward for generating new blocks.  They're wrong.  They're also idiots.  Maybe they're misinformed, but it's not a good position.

NO ONE should believe this.  It's stupid.  I don't know how people came to the conclusion.

Hash secures the network and miners don't make as much money, they'll stop mining.  Once hash goes down, value of bitcoins goes down.  Bitcoins are only worth the hash of the network.  Not their supply.  It's irrelevant.  You can fix supply, but if the network is insecure, they're not worth anything.

INFLATION IS GOOD for bitcoin.  It supports the hashing network.

[da2ce7]

INFLATION IS GOOD for bitcoin.  It supports the hashing network.

You mum is GOOD for bitcoin... providing she doesn't charge to high.

[Sweft]

This is not acceptable language.  This is your final warning.  Check yourself or I will.

-creighto

[MoonShadow]

Listen, this is a serious problem.

People think it's beneficial to stop the reward for generating new blocks.  They're wrong.  They're also idiots.  Maybe they're misinformed, but it's not a good position.

NO ONE should believe this.  It's stupid.  I don't know how people came to the conclusion.

You need to check your premises. 

[Sweft]

yep it will require not world's top 10000000 most powerfull computers to attack some bitcoin transactions but world's top 999900 most powerful computers. Yapity yap, that must be a disaster....

Vladimir i'm discussing the future.

Right now the ecosystem is healthy.  An unhealthy one would be where reward stops for block generation.

[Sweft]

Listen, this is a serious problem.

People think it's beneficial to stop the reward for generating new blocks.  They're wrong.  They're also idiots.  Maybe they're misinformed, but it's not a good position.

NO ONE should believe this.  It's stupid.  I don't know how people came to the conclusion.

You need to check your premises. 

I have to go too.  Later, no time for this.

[mewantsbitcoins]

[Vladimir]

I am discussing the future too.. and I gave you best guess estimation of effect of the block reward being reduced from 0.1 to 0 BTC.

Suggestion: check how block reward is reduced so that it asymptotically approach 0 over time. Than maybe post something along the lines of  "Before thinking that I am smarter than 10 000 smartest people on the planet I will do more research next time".

[k]

also on the point of tx fees. if the nethash decreases when the block reward is reduced that implies that it will take longer then the intended average of 10 minutes between blocks being discovered. transactions will take longer, and there will be a build up of unconfirmed transactions. people who desire a speedy processing of their transactions will be incentivised to pay a tx fee which will help make up for the reduction in the block reward.

this has been discussed before. there was a good thread on why it may have been better to have a continually decreasing block reward rather than a halving every 210000 blocks.

[nazgulnarsil]

This is not acceptable language.  This is your final warning.  Check yourself or I will.

-creighto

go [censored] yourself.

There, I fixed it.

-creighto

[da2ce7]

nazgulnarsil and Sweft,  you create to-many lulz

lulzzz of making yourselves look like complete retards on the internet.

Edit:  tl;dr
nazgulnarsil, Sweft -1 reputation

[grdryn]

This entire thread is completely irrelevant. Harold Camping says the world is going to end in october.

[mewantsbitcoins]

This entire thread is completely irrelevant. Harold Camping says the world is going to end in october.

Not again

[MoonShadow]

nazgulnarsil and Sweft,  you create to-many lulz

lulzzz of making yourselves look like complete retards on the internet.

nazgulnarsil was just trolling me.  Sweft was getting upset and using strings of letters in conjunction that some would find offensive, although the majority here would likely have just found his attitude hilarious.

[prizzy]

i think sweft needs to dev his own ecurrency software however he wants.  let him see how his ideas actually pan out in an open market and the real world before he calls out the devs of bitcoin because they didnt do something right.  well it sure appears they are doin somethin right as we speak cause the price of bitcoin is soaring.

sweft, go get an education.

[MoonShadow]

This entire thread is completely irrelevant. Harold Camping says the world is going to end in october.

I'm not impressed with his track record.  If there were a way to short Harold Camping's predictions, I'd do that.

[Quantumplation]

So much ad hominem it hurts.

Listen, the hashing rate doesn't need to INCREASE to maintain security.  If the hash rate remains constant, the security of the network remains constant.

For the past several months (probably more like the entirety of the project), the reward for mining has been decreasing substantially, due to the difficulty rate increasing.  Higher difficulty, less payout for miners.  This hasn't created a "catastrophe", or you wouldn't be posting on this forum.  In a stable bitcoin economy, the transaction fees for block generation will far outweigh the amount generated by block creation:  100,000 transactions in 10 minutes would mean 500 bitcoins at the new, reduced transaction fee.  And 100,000 is roughly the number of credit card transactions per minute... JUST in the US.  The system was designed to be a _lasting_, _stable_ economy, and has made assumptions as such.  Bitcoin will never reach it's true potential until it becomes one, and that's the goal of the project, so why design it otherwise?

Inflation, on the other hand, is a very real problem, and has caused the outright destruction and mayhem of many massive economies (Germany, Russia, and I'm sure other forum members can provide other examples.)  If bitcoin was not designed to avoid these catastrophes, what would the point of it all be?

[FreeMoney]

There's a simple fix to this solution.  Don't decrease intensives for people to mine.  Once you do you compromise the network.

I don't know why you people are so hostile to this.  It should be very easy to understand.

Make it. It isn't Bitcoin it's something else, something I think will fail. Seriously 99.999% of the work to make it is done, yet it isn't happening. This is because it is a crap money.

[theboos]

Transaction fees today are admittedly low enough to not support mining. However, if Bitcoin is still operational in 2040 (and is not proven inherently insecure), it will by then very likely be a very heavily used currency, to the point where the current volume of transaction fees will solely support mining. Some conservative predictions (if you think these are optimistic, consider the growth of the internet in the last ten years):

• Transaction volume will rise 10,000-fold
• Value will rise to $1000 due to: deflation, expanding user base, and decreasing production rate

Finally, here's the genius of the difficulty adjustments: if mining ever becomes too expensive or not profitable enough, people stop mining until the difficulty decreases enough so that it is profitable to mine again. The only reason this wouldn't work so well today is that transaction fees are not steady; there are many blocks without fees or even transactions. If the 50 BTC bounty disappeared tomorrow, many miners would stop mining and the difficulty would decrease until the few bitcents per block of transaction fees were profitable enough to mine for. Simultaneously, users would be forced to send larger transaction fees to have their transactions processed promptly. All of this serves to stabilize the block production rate.

Edit: Quantumplation covered half of my points...

[Sweft]

Transaction fees today are admittedly low enough to not support mining. However, if Bitcoin is still operational in 2040 (and is not proven inherently insecure), it will by then very likely be a very heavily used currency, to the point where the current volume of transaction fees will solely support mining. Some conservative predictions (if you think these are optimistic, consider the growth of the internet in the last ten years):

• Transaction volume will rise 10,000-fold
• Value will rise to $1000 due to: deflation, expanding user base, and decreasing production rate

Finally, here's the genius of the difficulty adjustments: if mining ever becomes too expensive or not profitable enough, people stop mining until the difficulty decreases enough so that it is profitable to mine again. The only reason this wouldn't work so well today is that transaction fees are not steady; there are many blocks without fees or even transactions. If the 50 BTC bounty disappeared tomorrow, many miners would stop mining and the difficulty would decrease until the few bitcents per block of transaction fees were profitable enough to mine for. Simultaneously, users would be forced to send larger transaction fees to have their transactions processed promptly. All of this serves to stabilize the block production rate.

Edit: Quantumplation covered half of my points...

No that's not true.  The claim that if it becomes unprofitable mining will decrease, miners will stop, and it will become profitable again.  That's ok.  It doesn't matter.

The security of the network is determined by hash.  A decrease in mining is a decrease in hash which is a decrease in security.  If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases value decreases.  The hash has to keep growing for value to increase.

[MoonShadow]

 If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases vale decreases.  The hash has to keep growing for value to icrease.

You have your cause and effect backwards.  Difficulty follows price, and averages a six week lag.  So the difficulty that would match the current rally won't show up for about six weeks.  The exchange price of a bitcoin is independent of the security level of the blockchain, but the security level (difficulty) is dependent upon the value.

[kinghajj]

https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

tl;dr It's not a big problem. If someone tried to fuck around with the block chain, others would join in to stop it from happening.

[Sweft]

 If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases vale decreases.  The hash has to keep growing for value to icrease.

You have your cause and effect backwards.  Difficulty follows price, and averages a six week lag.  So the difficulty that would match the current rally won't show up for about six weeks.  The exchange price of a bitcoin is independent of the security level of the blockchain, but the security level (difficulty) is dependent upon the value.

He exchange price is independent of security of the network?

Are you joking?  I hope so.

[getrichquack]

ki....

No hostility here ...just confusion!!

I might have it wrong ....but the way i understand the machinations of the Bitcoin algorithm, is that the difficulty ( to solve a block ...producing 50 bit coins)  increases periodically.
 
The points at which this will occur can be calculated roughly .. These thresholds are affected  ( to a certain degree )by the number of people who are (or have been...past tense) mining ...or the 'Hash rate'  of the network computing power combined.

The higher the hash rate the ...faster the network approaches  a " difficulty increase" threshold.
 
I think where your argument comes unstuck is in the assumption that difficulty will decrease if hash rate decrease. and as i understand it ...It doesn't

Lets say everyone stops mining simultaneously ...thus reducing the overall "hash" rate of the network to 0 ...the difficulty to "solve a block" ...won't reduce. It will remain static at that point .

If one person re- starts mining the hash rate would be equal to whatever the hash rate of his personal setup was able to achieve....but the difficulty to solve a block would be that same as it was when thousands of people were mining .The difficulty is the same for everyone. It will only increase .It does not decrease.

So I fail to understand how the network security is then  compromised because less people are utilizing it

Maybe i've missed something and you can set me straight ...If so please feel free to explain it to me  

[justusranvier]

He exchange price is independent of security of the network?

Are you joking?  I hope so.

The exchange price is entirely determined by what people are willing to pay at a given moment and nothing else.

[Quantumplation]

No that's not true.  The claim that if it becomes unprofitable mining will decrease, miners will stop, and it will become profitable again.  That's ok.  It doesn't matter.

The security of the network is determined by hash.  A decrease in mining is a decrease in hash which is a decrease in security.  If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases vale decreases.  The hash has to keep growing for value to icrease.

Your assumption that bitcoin derives it's value solely from security is false.  A large part is the security, yes, but it also derives from:

Convenience.  It's DAMN easy to send someone a bitcoin.
Intrigue. The concept is really clever.
Freedom to property.
Cost. It's a LOT cheaper to send someone internationally 1btc than it is 20 dollars.

If the hash rate decreases (or stagnates), that does not guarantee that someone will be able to overwhelm the network instantaneously.  They still have to ACQUIRE a substantial majority of the networking power.  At the CURRENT volume of miners, that's more than the top 500 supercomputers combined.  In a stable, vast reaching economy, "competition" (I use the word here for lack of a better term, not to imply that block solutions is a race) for the block solutions would be extremely high, and thus there would be several hundred times more computing power devoted to bitcoin.

Transaction fees will more than cover the costs of incentivizing miners, as I outlined above.  What you seem to think is that the value of bitcoins at this point will be extremely fluid:  A TINY decrease in security will cause mass panic and devalue the currency, causing a cascade.   Bitcoins will become stickier than that.  In the same way that you cannot notice a 100w lightbulb among 100 other 100w lightbulb, there's a certain point at which the fluctuation of security in the system is undetectable.  The value of bitcoins will stabilize.  The value of a dollar is not subject to stock-like panic swings, and in the presence of a rich economy, neither will bitcoins.

Similarly, the security of the system as a whole is subject to the same sensory threshold phenomenon.  The difference in security between 100THash/s and 99THash/s is not equivalent to the difference in security from 2THash/s to 1THash/s.  Just because it drops by 1 THash/s in the future doesn't mean it will have the same risks assosciated with dropping by 1THash/s today.

Finally, someone with substantial control of the computational power of the network has only limited attack vectors on the system.  He can claim he did not spend money which he did for limited amounts of time.  The longer in the past he wants to rewrite this "history", the harder it takes, and he can never say that you gave him coins that you did not.  The likely payoff for this in regards to the amount of computing power it would take to compromise a vast system that satoshi envisioned as a stable, worldwide economy would arguably not be worth it.  Seemingly against intuition, and in one of the most beautiful aspects of the bitcoin system, when dealing with the types of resources required to complete these attacks, it's likely more profitable to be honest than it is to be malicious.

I think where your argument comes unstuck is in the assumption that difficulty will decrease if hash rate decrease. and as i understand it ...It doesn't

No, the difficulty would also adjust down.  It's adjusted such that a block is generated roughly every 10 6 10 minutes, ad infinitum. (Woops! hehe) (Woops again!  That's what I get for trusting other people, eh? )

[ryepdx]

Maybe i've missed something and you can set me straight ...If so please feel free to explain it to me  

You have. The way I understand it, the Bitcoin algorithm always seeks to have 10 6 blocks an hour solved.¹ If everyone were to stop mining tomorrow, the difficulty would eventually plummet.

The exchange price is entirely determined by what people are willing to pay at a given moment and nothing else.

Right. But if the network becomes open to attack due to a drop in the network's hashing power, people will become less willing to pay for bitcoin.

The security of the network is determined by hash.  A decrease in mining is a decrease in hash which is a decrease in security.  If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Kinda. I don't actually think we're looking at a system where one drives the other. I think we're looking at a feedback loop. But this is irrelevant. Sweft, your concerns have been voiced by many a newbie before you and addressed many times before. It's a failing of this community that we don't have a sticky to address your concerns, choosing instead to react with hostility toward you. (Though your calling everyone an idiot probably didn't help your case much.)

I think you are overlooking the fact that the base block reward will be diminishing gradually, not simply going from 50 to 0 in 2040. Hashing will still take place afterward as by then (as it has been said before) transaction fees will have become the norm for "must-take-place-ASAP" transactions. Because the base block reward is set to diminish gradually, there will be plenty of time for the mining ecosystem to begin adapting to the upcoming change. The coping mechanism may be built into the system in the form of transaction fees, or a new as-of-yet-unknown one may be built on top of it. After all, the bitcoin payment processors that are bound to crop up will have a vested interested in keeping transactions going and may institute fees of their own, much like banks have now, to compensate mining cost (if indeed it becomes unprofitable.)

The bitcoin system is extremely robust, I think you'll find. Hopefully the cold reception you've received from this community of bitcoin veterans won't put you off them too much.  

Edit:
1. My original claim of 10 blocks an hour was incorrect. According to the wiki:

The network rules are such that the difficulty is adjusted to keep block production to approximately 1 block per 10 minutes.

From https://en.bitcoin.it/wiki/Category:Mining

[Quantumplation]

Just thought of something else:

The kind of people who have the resources for massive bitcoin mining servers are likely to be large financial investment firms.  It is very much in their interest to keep mining, as, essentially, their entire company can perform transactions on the bitcoin network without any fees, as long as it's solved by their own server.  This would be HUGE savings for the firm, likely doing high volume microtrades on thousands of stocks, on top of the income from the fees themselves.  So we've got an example of secondary or tertiary motivational factors.

[ByteCoin]

You have. The way I understand it, the Bitcoin algorithm always seeks to have 10 blocks an hour solved.

Only if you're working in base 6.

ByteCoin

[ryepdx]

You have. The way I understand it, the Bitcoin algorithm always seeks to have 10 blocks an hour solved.

Only if you're working in base 6.

Correction noted and made. Thanks. :-)

[marcus_of_augustus]

However misguided, it raises some interesting thoughts about if/when bitcoin network is matured. If difficulty is stabilising at some rate this is likely because the exchange value has stabilised. If the exchange value has stabilised there is much more likely to be merchants and vendors willing to exchange, trade, do free commerce, rather than save. The result of this is more transactions on the network and thus more fees.

So here is yet another self-regulating mechanism tucked into the inner workings of bitcoin, this time as a mature network. More stability of exchange value leads to more commerce leads to more fees => more mining => more security. Also, a drop in exchange value leads to more commerce (people cashing out) and more fees. Net effect, it drives difficulty towards some temporarily stable value (stationary fixed point) on fees only mining basis.

[Vladimir]

Pure genus isn't it?

[Sweft]

This issue hadn't been addressed, please stop saying that.  It's a lie.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.

Thus to me this issue is problematic for bit coin.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

[markm]

Original Poster, your problem is trivially easy to solve.

Please just tell us first exactly how many fixed coins you wish to buy and at what price, since most people who mouth off like that fail to put their money where their mouth is.

If you are serious about buying coins that feature your "fix", they will be made available for you to buy. Its simple, just put your money where your mouth is.

Until you do, or someone does, why should someone even point you at the coins that have the feature you are mouthing off about, let alone build them from scratch just for you? Possibly a hidden cadre of people are already making fortunes with precisely such coins, but if you aren't serious about buying any there is no point wasting their time on you.

-MarkM-

[Vladimir]

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

Let's preserve this for posterity. Now read this again. Now we bring up deflation in combination with decreasing by a fraction of % hashing power 30 years from now. That's a new level of ...

[marcus_of_augustus]

Pure genus isn't it?

Yeah, the more you dig the more you find ... satoshi must have had some exposure to control system theory (not to mention the myriad other topics). The stability during boot-strapping (what we are experiencing now) is actually harder to achieve than in the stable case ... and then it combines a system that caters for both.

Wonder if there were any design notes on that aspect of it?

Aside: in the middle of the financial crises in 2008 Henry Paulson placed Neel Kashkari, a recruit also from Goldman Sachs with prior training and experience in multi-variate aerospace control systems, in charge of monetary systems at the Treasury. (i.e. the exchange stabilisation slush fund, the PPT).

http://abcnews.go.com/Business/neel-kashkari-tarp-bailout-czar-leaves-washington-california/story?id=9269413

"According to the Washington Post, Kashkari, who left his post at the interim assistant secretary of the treasury for financial stability in May 2009, is enjoying his new life, a move he told the paper he's dubbed the "Washington detox."

Today, Kashkari's daily routine includes chopping wood found on his property near the Truckee River and building a shed, ..."

[Quantumplation]

This issue hadn't been addressed, please stop saying that.  It's a lie.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.
Thus to me this issue is problematic for bit coin.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

Please, point out your problems with the issues as I have presented them.  [hypocritical ad hominem]Or did you not read my posts because they were too long and hard to understand? [/hypocritical ad hominem]

[kstepyra]

@thread poster - at first it is going like 1/2 of the amount generated every 4 years, so it will simply go really low amount in 2100's. About transaction fees and mining - simple math man..

if now we have fees around 0.1 - 1 BTC / block - let's call it 0.3 BTC.
Let's say we have 50 transactions per block (just took a look for couple last blocks on blockexplorer) - so it's 0.006 btc / transaction. - lets even call it 0.005 BTC (~10c)

If visa really have 4000 transactions / s (and that's only VISA) then it will be at CURRENT! fee rate 12000 BTC / block   - which is about $210000 / 10 minutes for mining for all miners - which is about $30.000.000 per day for all hashing guys. So where's the problem man? Let's even say that power consuption is like $0.1 /kwh and miners mine only when they have $0.9(probably current ratio) in return for every 1kwh lost. That's about 2,500.00 Thash/s  which is like 500 times our current hash rate! If there will be need then fees will increase to get enough miners running. Remember also about block rewards till 2100 yr. To attack network someone will need to put in the machines like $1.000.000.000 dollars minimum, and it will be traceable as big power consumption on specific area, someone buying like ~5 000 000 computers of same type etc etc. - it's not that easy as you think.

Maybe i did some mistakes in calculations, or information specified is not completly proper - but for sure FEEs can be readjusted to meet network requirements.

One thing is sure -> more people in the system - safer system.

[ryepdx]

This issue hadn't been addressed, please stop saying that.  It's a lie.

No. It's not a lie. It simply hasn't been addressed in a way that is satisfactory to you. I'm beginning to wonder what it is you're looking for in terms of a response. If you understand the system so well and find it wanting, what more could we possibly say to you? You've already decided on an answer, it seems.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.

We've given you a lot of reasons why the removal of a base block reward will be a non-issue. I haven't seen you address a single one. How can we give you a satisfactory explanation if you won't tell us what your problems with the ones we've already given are? All you've done so far is call us all idiots and reiterate the points you made in your original post, points which, I might add, a number of people aside from you feel they've satisfactorily addressed. Give us something more to go on and maybe we'll get somewhere.

Thus to me this issue is problematic for bit coin.

Q.E.D.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

Wrong. The Keynesian economic model you refer to is based on indivisible units. Bitcoins are, in theory, infinitely divisible. In practice we only allow transfers of at least 0.00000001 bitcoin. This can be changed, though, as smaller transactions become necessary. Thus deflation in the Bitcoin economy will look quite different from deflation in any other economy. At worst it will eventually reverse and result in inflation when someone breaks ranks and spends more than usual. But liquidity traps are not possible with bitcoin, at least not in theory. (And there is no reason at present to suspect that theory is wrong, from where I stand.)

[em3rgentOrdr]

Reward for blocks will stop in 2040.  Yes or no?  If rewards for new blocks stop, miners will depend on transaction fees.   This decreases the revenue of the mining.  Thus mining is less profitable.  Only a fucking retard can't see this.

If mining is less profitable, hash will fall.  If hash falls the network is less secure.

Are you really having trouble understanding this?

Block generation doesnt stop on 2040.  The bitcoin per block reward decreases in half every few years, but doesn't stop.  Economics will dictate a value for bitcoin.  A miner will produce a block in exchange for the value of the bitcoin reward.  If there are not many people interested in mining due to low reward, then the difficulty rate will be decreased in accordance.  As it is easier to produce bitcoin, then a miner will be more likely to solve the hash problem to generate a block, so the reduced reward rate is compensated by the lowered difficulty rate.

[MoonShadow]

 If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases vale decreases.  The hash has to keep growing for value to icrease.

You have your cause and effect backwards.  Difficulty follows price, and averages a six week lag.  So the difficulty that would match the current rally won't show up for about six weeks.  The exchange price of a bitcoin is independent of the security level of the blockchain, but the security level (difficulty) is dependent upon the value.

He exchange price is independent of security of the network?

Are you joking?  I hope so.

No, not joking.  It's already been shown extensively by others in other threads that difficulty follows price, and that  price is not responsive to changes in difficulty.  Note the search function, it does really work.

[MoonShadow]

Pure genus isn't it?

Yeah, the more you dig the more you find ... satoshi must have had some exposure to control system theory (not to mention the myriad other topics).

If Satoshi is really a single person (as opposed to a front for an organization) the s/he is a true polymath.  There is simply to many areas of expertise s/he would have required to produce something of this degree of elegance on the first try.

[marcus_of_augustus]

Pure genus isn't it?

Yeah, the more you dig the more you find ... satoshi must have had some exposure to control system theory (not to mention the myriad other topics).

If Satoshi is really a single person (as opposed to a front for an organization) the s/he is a true polymath.  There is simply to many areas of expertise s/he would have required to produce something of this degree of elegance on the first try.

Ociam?

[MoonShadow]

Pure genus isn't it?

Yeah, the more you dig the more you find ... satoshi must have had some exposure to control system theory (not to mention the myriad other topics).

If Satoshi is really a single person (as opposed to a front for an organization) the s/he is a true polymath.  There is simply to many areas of expertise s/he would have required to produce something of this degree of elegance on the first try.

Ociam?

What?

[getrichquack]

You have. The way I understand it, the Bitcoin algorithm always seeks to have 10 6 blocks an hour solved.¹ If everyone were to stop mining tomorrow, the difficulty would eventually plummet.

Well thanks for setting me straight ...That certainly makes a difference then !!

[FreeMoney]

Where do these lunatics come from?

I don't know about these ones, but real lunatics come from the moon.

[benjamindees]

You know, when I clicked on this thread, I was expecting something on the order of Bitcoin becoming self-aware and placing a monolith on the moon.

And what I got instead was "oh noes deflation!"

[kstepyra]

Everything leads us to 2 thoughts:

1) everything is hard to understand in bitcoin or

2) part of society became so stupid that those people don't know how to search and read before writing such stuff?

Where did he got that 2040? From picture on wiki?


Btw. maybe lets create an easy to understand big FAQ on any often used websites such weusebitcoins or so? There is a lot of information to be explained in easy steps to prevent such misunderstanding.


my 0.02 btcs : )

[Nesetalis]

2040 is the new 2012?

seriously though, bitcoins really are not THAT hard to comprehend!

it /is/ a complex system but with very basic checks and balances wrapped around some rather brilliant math.

even my 80 year old grandmother understands it and is actually kinda fascinated.

[theboos]

Pure genus isn't it?

Yeah, the more you dig the more you find ... satoshi must have had some exposure to control system theory (not to mention the myriad other topics).

If Satoshi is really a single person (as opposed to a front for an organization) the s/he is a true polymath.  There is simply to many areas of expertise s/he would have required to produce something of this degree of elegance on the first try.

Who says Bitcoin is/was his/her/their first try?

I don't agree that Bitcoin could not have been invented by a single person. In another thread, someone pointed out that the critical breakthroughs that make Bitcoin possible (Merkle trees, asymmetric cryptography, and the like) had been around for at least 5 years before Bitcoin was created. If Satoshi is a single person, he is undoubtedly very intelligent, but Bitcoin is more the product of clever composition of concepts than of expert knowledge of all subjects involved.

[Sweft]

Please.  Enough circle jerking.  That doesn't help this problem. 

Sure, the program is elegant but the creator obvious he isn't an economist.  Without inflation the network will become insecure.  I'm not worried about the ramifications of a deflationary currency with respect to anything besides hash.  Hash secures the network.

This is pretty much a fact at this point.  There's no way around it.  At some time bitcoins will begin to devalue after hitting a peak.  People will wonder why.  It's because miners were punished by removing inflation.  This is an inescapable conclusion.

I'm sorry people are having trouble understanding this.

[MoonShadow]

Please.  Enough circle jerking.  That doesn't help this problem. 

Sure, the program is elegant but the creator obvious he isn't an economist.  Without inflation the network will become insecure.  I'm not worried about the ramifications of a deflationary currency with respect to anything besides hash.  Hash secures the network.

This is pretty much a fact at this point.  There's no way around it.  At some time bitcoins will begin to devalue after hitting a peak.  People will wonder why.  It's because miners were punished by removing inflation.  This is an inescapable conclusion.

I'm sorry people are having trouble understanding this.

It's not the rest of us having trouble understanding.

[k]

Please.  Enough circle jerking.  That doesn't help this problem. 

Sure, the program is elegant but the creator obvious he isn't an economist.  Without inflation the network will become insecure.  I'm not worried about the ramifications of a deflationary currency with respect to anything besides hash.  Hash secures the network.

This is pretty much a fact at this point.  There's no way around it.  At some time bitcoins will begin to devalue after hitting a peak.  People will wonder why.  It's because miners were punished by removing inflation.  This is an inescapable conclusion.

I'm sorry people are having trouble understanding this.

Sweft, I think you haven't factored in as much as you need to the replacement of the block bounty with the increase in tx fees. Granted it remains to be seen how that will play out.

Also the security of the network is just one aspect that i believe feeds into the value of BTC. When the block bounty decreases we may see a decrease in hash rate thus making the network theoretical less secure but network security is not the only factor that determines the value. If the total net-hash halves (which I don't predict will happen, will decrease but not by half) when the block bounty decreases from 50 to 25BTC, I don't expect the value of BTC in $ to half - which I think is what you are trying to imply. I believe that when the block bounty halves that even if the network hash halves it will still be prohibitively difficult for an attacker to destroy the system.

[kstepyra]

ban this troll please ; - ) waste of KBs on server space. He don't even read what we write.

[gigabytecoin]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

I don't care.  This is today.  My hypothesis is for 2040.  If you don't understand this, i can't help you.

There's a reason to mine. You profit from transaction fees and new block generation reward.

IF YOU DO NOT KEEP INCREASING HASH THE NETWORK IS PRONE TO ATTACK.

That's a fact.  To claim inflation of bitcoins hurts the network is stupidity.  It creates a reason to mine.  Mining secures the network.  If you remove that reason to mine, the network will be compromised.

THE ONLY REASON BITCOINS ARE WORTH ANYTHING IS BECAUSE OF SECURITY.  If hash does not keep rising, the network will be compromised.  It's not a maybe.  It's a definite.

Yea, probably by the aliens from space 

Listen dude.

It's pretty simple.

If you remove an incentive (money) to mine, you'll decrease hash.  That's a fact.

If you decrease hash the network is less secure.  That's a fact.

Why do you want less people mining?  Mining should be rewarded because it secures the network.  If we're decreasing the average time a block is rewarded, then mining is less profitable.  We don't want that.  It's stupid.

There are already transaction fees in upwards of 2-3 BTC per block.

By 2040... if bitcoins are still around then... I expect each bitcoin to be worth about a few million USD in today's equivalent.

Sure you will be mining fewer "bitcoins", but you will be receiving greater "value" for each one you do receive until the end of time.

[BombaUcigasa]

I don't understand the problem reported in the OP. Am I tested for trolling resistance?

Did this guy read the first two paragraphs of the bitcoin thesis and then started screaming that he invented the table salt? Why aren't moderators suspending his ass until he learns to voice his questions in a civilized manner? Doesn't he check at least one block on blockexplorer.com to see how big the transaction fees are for just 30% of the total bitcoin mass?

[kstepyra]

Am I tested for trolling resistance?

Yes.

[cyberaa]

i think the world will end next year so why dont u just give me your bitcoins ?
thanks

[Terpie]

This issue hadn't been addressed, please stop saying that.  It's a lie.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.

Thus to me this issue is problematic for bit coin.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

1. This problem wouldn't be a '2040' problem, it would be a problem every time mining rewards were lowered every 4ish years. Not to mention, your title shows a lack of research, as BTC will still be created way after 2040.

2. This is an issue with marginal security of the network, and a very small marginal change at that. If Bitcoin makes it to the last BTC creation date, the change in marginal security of the network due to removal of this reward will be VERY small. It would be insane to think it would cause a detrimental effect to the network.

3. There is a balance that must be created between features that incentivize users and incentivize miners. What's the 'sweet spot' reward amount that most most maximally incentivies miners while also encourages people to adopt the currency? Under your premises, 60 BTC per block would also make the network more secure, so where do you propose we fix the reward at and why? Network security is not the end-all-be-all of bitcoin. Most people that use BTC right now would not use a currency that inflated in perpetuity, this is a design feature and would incompatible with your proposal.

[Sweft]

This issue hadn't been addressed, please stop saying that.  It's a lie.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.

Thus to me this issue is problematic for bit coin.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

1. This problem wouldn't be a '2040' problem, it would be a problem every time mining rewards were lowered every 4ish years. Not to mention, your title shows a lack of research, as BTC will still be created way after 2040.

2. This is an issue with marginal security of the network, and a very small marginal change at that. If Bitcoin makes it to the last BTC creation date, the change in marginal security of the network due to removal of this reward will be VERY small. It would be insane to think it would cause a detrimental effect to the network.

3. There is a balance that must be created between features that incentivize users and incentivize miners. What's the 'sweet spot' reward amount that most most maximally incentivies miners while also encourages people to adopt the currency? Under your premises, 60 BTC per block would also make the network more secure, so where do you propose we fix the reward at and why? Network security is not the end-all-be-all of bitcoin. Most people that use BTC right now would not use a currency that inflated in perpetuity, this is a design feature and would incompatible with your proposal.

That's obvious.  Hash will be tested at the first reward point in a year or so.  If hash falls significantly, we can say the bitcoin experiment will end in failure.  If hash continues to rise, then it's possible that mining can continue.

The issue with your presentation, and everyone else that has explained this, is that "transaction fees will support mining."  

1) There's no proof of this.
2) It really does not matter.

I'll explain why it doesn't matter, and it should be obvious by now - unless you have not read anything or don't think.  It doesn't matter because even if transaction fees support hash (which there is no proof), you still deduct a revenue source (block reward) from miners.  Which means, miners make less money than they would if there was block reward.  It's very simple.  Shouldn't be hard to explain.

Since miners make less money than they would with transactions fees and block reward, we assume that hash will decrease once block reward decreases.

(Mining profit = block reward + fees)
 
(Mining profit = (block reward)/2 + fees) in 1 year

(Mining profit = (block reward)/4 + fees) in 5 years

(Mining profit = (block reward)/8 + fees) in 9 years

It should be obvious that if you remove a source of mining income, miners will profit less.  This will decrease hash, hash secures the block chain, and it will devalue bitcoins.

INFLATION IS NOT THE ENEMY

I don't know why people believe INFLATION(BITCOIN) = INFLATION(FIAT).  It's NOT TRUE.  Inflating bitcoins costs computational power, A LOT of it.  Inflating paper currency costs almost nothing.  

Inflating bitcoins also secures the NETWORK.  Because it gives miners profit.  When mines profit, hash increases.  When hash increases bitcoins become more valuable because they're more secure and less prone to attack.

So please, enough with the "fees will support the network."  There's no proof of it, and even if there is, it's irrelevant because inflation + fees are more beneficial.

[Sweft]

The other issue is with the velocity of money.  A deflating currency decreases the velocity of money.  If money is worth more tomorrow, you're less likely to spend it.  If you know tomorrow your money is worth less, you're more likely to spend it. 

This issue has to be address with respect to miners.

If the velocity of money decreases (with a deflating currency), the processing nodes will experience less transactions which will decrease mining reward.

Everything about a deflating currency is BAD for miners.  If miners do not support the network with hash, the network will become vulnerable to attack.

A deflating currency creates a vulnerability inside the network to attack through the decrease in hash.

This is a fact.  The fact that people are hostile to consider this point of view is unfortunate.  If they're acting in their self interest then so be it.  But this is a very problematic possible outcome for the future of bitcoins.

[Terpie]

Yes, security will drop marginally. If the network is more powerful than the top 500 super computers in the world RIGHT NOW, then by the time this issue arrives, the network will be so insanely robust and secure, that a marginal drop in security will have a negligible if ANY effect on people's expectations that the network could survive an attack. As for the inflation argument, it has been discussed ad nauseum, and essentially, if you believe in your idea, go ahead and start inflatacoin and see if anyone wants to adopt it. Otherwise, please stop telling us we're doing it wrong. Funny how we have yet to see anyone put their time and energy where there mouth is.

[kstepyra]

@thread poster - at first it is going like 1/2 of the amount generated every 4 years, so it will simply go really low amount in 2100's. About transaction fees and mining - simple math man..

if now we have fees around 0.1 - 1 BTC / block - let's call it 0.3 BTC.
Let's say we have 50 transactions per block (just took a look for couple last blocks on blockexplorer) - so it's 0.006 btc / transaction. - lets even call it 0.005 BTC (~10c)

If visa really have 4000 transactions / s (and that's only VISA) then it will be at CURRENT! fee rate 12000 BTC / block   - which is about $210000 / 10 minutes for mining for all miners - which is about $30.000.000 per day for all hashing guys. So where's the problem man? Let's even say that power consuption is like $0.1 /kwh and miners mine only when they have $0.9(probably current ratio) in return for every 1kwh lost. That's about 2,500.00 Thash/s  which is like 500 times our current hash rate! If there will be need then fees will increase to get enough miners running. Remember also about block rewards till 2100 yr. To attack network someone will need to put in the machines like $1.000.000.000 dollars minimum, and it will be traceable as big power consumption on specific area, someone buying like ~5 000 000 computers of same type etc etc. - it's not that easy as you think.

Maybe i did some mistakes in calculations, or information specified is not completly proper - but for sure FEEs can be readjusted to meet network requirements.

One thing is sure -> more people in the system - safer system.

Read that carefully, and remember - if bitcoin will somehow lose its popularity that means it's not necessary anymore  - so why secure it and produce quadrillions of bitcoins to miners?
Also this is calculation for current prices and production. If prices will go to $1000 /BTC then fees will go to 0.0001 or less, everything will be balanced anyway.

[Quantumplation]

This issue hadn't been addressed, please stop saying that.  It's a lie.

If it had been addressed someone would have Provided a sufficient explanation in this thread.  I have yet to see one.

Thus to me this issue is problematic for bit coin.

People assume wrongfully that inflation is bad.   To respect to security, inflation is not only beneficial but necessary.  Otherwise a declining hash will compromise the security of the network.

1. This problem wouldn't be a '2040' problem, it would be a problem every time mining rewards were lowered every 4ish years. Not to mention, your title shows a lack of research, as BTC will still be created way after 2040.

2. This is an issue with marginal security of the network, and a very small marginal change at that. If Bitcoin makes it to the last BTC creation date, the change in marginal security of the network due to removal of this reward will be VERY small. It would be insane to think it would cause a detrimental effect to the network.

3. There is a balance that must be created between features that incentivize users and incentivize miners. What's the 'sweet spot' reward amount that most most maximally incentivies miners while also encourages people to adopt the currency? Under your premises, 60 BTC per block would also make the network more secure, so where do you propose we fix the reward at and why? Network security is not the end-all-be-all of bitcoin. Most people that use BTC right now would not use a currency that inflated in perpetuity, this is a design feature and would incompatible with your proposal.

That's obvious.  Hash will be tested at the first reward point in a year or so.  If hash falls significantly, we can say the bitcoin experiment will end in failure.  If hash continues to rise, then it's possible that mining can continue.

The issue with your presentation, and everyone else that has explained this, is that "transaction fees will support mining."  

1) There's no proof of this.
2) It really does not matter.

I'll explain why it doesn't matter, and it should be obvious by now - unless you have not read anything or don't think.  It doesn't matter because even if transaction fees support hash (which there is no proof), you still deduct a revenue source (block reward) from miners.  Which means, miners make less money than they would if there was block reward.  It's very simple.  Shouldn't be hard to explain.

Since miners make less money than they would with transactions fees and block reward, we assume that hash will decrease once block reward decreases.

(Mining profit = block reward + fees)
 
(Mining profit = (block reward)/2 + fees) in 1 year

(Mining profit = (block reward)/4 + fees) in 5 years

(Mining profit = (block reward)/8 + fees) in 9 years

It should be obvious that if you remove a source of mining income, miners will profit less.  This will decrease hash, hash secures the block chain, and it will devalue bitcoins.

INFLATION IS NOT THE ENEMY

I don't know why people believe INFLATION(BITCOIN) = INFLATION(FIAT).  It's NOT TRUE.  Inflating bitcoins costs computational power, A LOT of it.  Inflating paper currency costs almost nothing.  

Inflating bitcoins also secures the NETWORK.  Because it gives miners profit.  When mines profit, hash increases.  When hash increases bitcoins become more valuable because they're more secure and less prone to attack.

So please, enough with the "fees will support the network."  There's no proof of it, and even if there is, it's irrelevant because inflation + fees are more beneficial.

You are claiming that the hashing rate has to increase forever.  The bitcoin economy is doomed anyway, under that logic, since there is a finite limit to the processing power of the network, and one day that will be reached.  Stagnation does not equate to a decrease in security.

Similarly, a decease in payout doesn't mean that all miners will stop mining.  Just as WE have no proof that what you say is true, YOU have no proof that miners will quit because of a minor drop in profitability.  In fact, we have more evidence than you do, since the profitability of mining has been decreasing for some time now (difficulty rate increase), and us miners are still here.  The fees, however, ARE there, and ARE providing a profit for miners, and ARE increasing over time, and WILL be there based on the current rules.  And, if bitcoin has enough miners that it can't be compromised, it stands to reckon that it has enough USERS to produce a high volume of transactions, such that the tiny amount of fee with each will accumulate to large payouts.  We've provided sample math for you, and you've chosen to ignore it.

[Maged]

Guys, I think I get it! Since the value of a bitcoin follows the difficulty, we should increase the current block reward to 50,000 BTC! We'll all be 1000 times richer!

In all seriousness, don't feed the troll. We won't have any meaningful data until the first drop in the block reward, but the current indications are that we'll be fine. This has been discussed to death in the past, so let's just suspend this discussion until we have that data.

[MoonShadow]

Actually, I am more concerned about the 2038 problem. And I'm not concerned about it all that much.

Yeah, really.  At least the 2038 is a real problem.

[mewantsbitcoins]

Actually, I am more concerned about the 2038 problem. And I'm not concerned about it all that much.

Yeah, really.  At least the 2038 is a real problem.

A real change - not a problem 

[MoonShadow]

Actually, I am more concerned about the 2038 problem. And I'm not concerned about it all that much.

Yeah, really.  At least the 2038 is a real problem.

A real change - not a problem 

I don't know, I'm known for keeping my computer way past it's prime.  I might still have a 32 bit cpu in 2038.

[Nesetalis]

if you honestly thing a deflationary currency is a bad idea... go somewhere else were not going to change your mind with facts after all. So why are you still here, trolling these fine people in to arguing with your brickwall faith in fiat? It can't really be THAT fun can it?

[Zamicol]

Swift,

Here's another aspect:

Lets imagine that there are no transaction fees in 2040.   At that time, there should be strong Bitcoin banks and other financial institutions.  These institution will have every reason to run miner to keep the integrity of their own transactions and to make sure that deposits are safe from attack.  If I'm not mistaken, miners can pick and choose which transactions to include in a block.  I believe Mt Gox runs miners to speed verification of transaction.  Mining helps bitcoin financial institutions even without transaction fees or rewards from new blocks; The incentive already exists. 

Today, banks must pay fees for things like checks (yes, I'm American).  They spend huge bucks on robust, secure equipment, and yet they don't earn "transaction fees" on transactions.  Often times they are the ones paying them.  Why do they do this?  To offer a secure service to their customers, thus making them more appealing.  Would you save money in a bank that had bad coverage after a hacker tampered with accounts?  If these financial instituions suspect that billion of dollars where at risk, wouldn't they invest even more into computers?  Why wouldn't this translate over to a bitcoin economy?

And some adive:
I'm sorry for the harsh responses that you have been receiving, but there is reason for it.  You come across arrogant and condescending in your original post when you say things like, "The stupid part about is.." or "This may not seem like a problem, it IS."  A change of tone will help to build friends on this forum.  Most of the people here are very intelligent and well studied on the topic.  For a newbie to ram an opinion down our throats seems out of place. 

Good luck to you. 

[MoonShadow]

Swift,

Here's another aspect:

Lets imagine that there are no transaction fees in 2040.   At that time, there should be strong Bitcoin banks and other financial institutions.  These institution will have every reason to run miner to keep the integrity of their own transactions and to make sure that deposits are safe from attack.  If I'm not mistaken, miners can pick and choose which transactions to include in a block.  I believe Mt Gox runs miners to speed verification of transaction.  Mining helps bitcoin financial institutions even without transaction fees or rewards from new blocks; The incentive already exists. 

Yes!  Finally someone who gets it!  I've been trying to highlight this for months.  Many of the intelligent forum members don't equate mining to a strong bank vault or other security measures.

[MoonShadow]

I found the offending article...

"According to the Bitcoin FAQ, new coins are generated by a network node which spends its time trying to find solutions to a certain mathematical problem. Each time one of its nodes finds an answer — and can demonstrate proof of work — it creates a new block of the currency. The reward for ‘solving a block’ is automatically adjusted so that in the first four years of the Bitcoin network, 10.5m bitcoins will be created. The amount is then halved every four years, and the total number of bitcoins created is meant to be limited to 21m by 2040. In fact, Bitcoin’s curators seem more concerned about creating a deflationary spiral than inflation. In that sense, it’s kind of the opposite mindset to the Federal Reserve."

http://ftalphaville.ft.com/blog/2011/06/06/585756/virtual-money-from-real-central-bank-mistrust/

[dayfall]

I agree there is no problem here, at least not a clear cut one.  But, has anyone considered having Bitcoins increase in number to match GDP of the planet?  This can be roughly estimated, and implemented such that each block is always worth at lest 1BTC.  We have a few decades before we need to consider this, anyway.

Keep on truckin'.

[nathanrees19]

(Mining profit = block reward + fees)
 
(Mining profit = (block reward)/2 + fees) in 1 year

(Mining profit = (block reward)/4 + fees) in 5 years

(Mining profit = (block reward)/8 + fees) in 9 years

It should be obvious that if you remove a source of mining income, miners will profit less.

You are incorrectly treating "fees" as a constant.

The issue with your presentation, and everyone else that has explained this, is that "transaction fees will support mining."  

1) There's no proof of this.

There is strong evidence to suggest that fees will increase significantly over time.

2) It really does not matter.

I think I am finally beginning to understand your misunderstanding. You seem to think that:

• Incentives only work if they are "new" coins
• Therefore, inflation is necessary to provide an incentive
• Therefore, anyone disagreeing you must be afraid of inflation

Your premise (first point) is wrong.

Your second point is wrong due to relying on the first point.

Your obsession with point three is baffling.

[Quantumplation]

Swift,

Here's another aspect:

Lets imagine that there are no transaction fees in 2040.   At that time, there should be strong Bitcoin banks and other financial institutions.  These institution will have every reason to run miner to keep the integrity of their own transactions and to make sure that deposits are safe from attack.  If I'm not mistaken, miners can pick and choose which transactions to include in a block.  I believe Mt Gox runs miners to speed verification of transaction.  Mining helps bitcoin financial institutions even without transaction fees or rewards from new blocks; The incentive already exists. 

Yes!  Finally someone who gets it!  I've been trying to highlight this for months.  Many of the intelligent forum members don't equate mining to a strong bank vault or other security measures.

I pointed this out in another thread (or maybe this one, can't remember), and it doesn't just apply to bankers.  It also applies to financial investment firms, because they can choose to accept their OWN transactions into the block without a fee, thus significantly reducing their cost overhead for investing in stocks and other such things that I don't have a head for.

[rebuilder]

I read through this whole thread just to make sure it really was just on the 5th page that someone brought up the point that if Bitcoin is still around in 2040 in any form that it makes sense to attack, there will be so many parties with vested interests in keeping the system stable that they'll mine their asses off even if it isn't directly profitable. (OK, someone on the third page kind of said that too, but not so directly).

Seriously. Poor show, guys.

Now, to digress a little bit... If you assume direct rewards from mining eventually decrease to the point where it's no longer seen as a profit vector, but rather a necessary cost of doing business in Bitcoin - is that a form of inflation built into the system itself? If holding Bitcoin means having to spend money to secure the system, what does that mean for spending incentives? I'll admit it's a pretty contrived comparison, but there it is.

[MoonShadow]

Swift,

Here's another aspect:

Lets imagine that there are no transaction fees in 2040.   At that time, there should be strong Bitcoin banks and other financial institutions.  These institution will have every reason to run miner to keep the integrity of their own transactions and to make sure that deposits are safe from attack.  If I'm not mistaken, miners can pick and choose which transactions to include in a block.  I believe Mt Gox runs miners to speed verification of transaction.  Mining helps bitcoin financial institutions even without transaction fees or rewards from new blocks; The incentive already exists. 

Yes!  Finally someone who gets it!  I've been trying to highlight this for months.  Many of the intelligent forum members don't equate mining to a strong bank vault or other security measures.

I pointed this out in another thread (or maybe this one, can't remember), and it doesn't just apply to bankers.  It also applies to financial investment firms, because they can choose to accept their OWN transactions into the block without a fee, thus significantly reducing their cost overhead for investing in stocks and other such things that I don't have a head for.

I have pointed this theme out in other threads as the "Wal-Mart" perspective.  When the day comes that either Wal-MArt or one of it's major competitors starts accepting bitcoins, Wal-mart (and competitors) will have an outsized interest in timely processing of free transactions (for themselves not their competitors) so Wal-Mart might fund a mining cluster (they already have partially funded a datacenter) while smaller competitors such as Target would likely contract out to a major mining company to process their customers' transactions for free, so that they don't have to wait for free transactions to process on the open network nor ask their customers to pay a transaction fee.  Wal-Mart doesn't need a 'financial institution', they are the financial institution.

[Sweft]

The ONLY way transaction fees will increase is through the velocity of money.  Bitcoin is designed to favor a deflationary model.  The problem with depending on transaction fees for hash growth is that velocity of money will decrease, which decreases transaction fees.  The value of bitcoins is dependent on hash.  If miners are not profiting, there's no point to increase hash, the network is less stable and secure.

If mining is unprofitable and we begin to rely on institutions to exert complete control over the system, without any individual miners, the hash becomes centralized to a few authorities - you also decrease the security of the system.  The most healthy and vibrant system is where miners are small and abundant.  When centralized authorities control large percentages of the mining pool (say if banks or walmart invested quantities of money), the network will be LESS safe.

In effect, removing reward of mining still destroys the system.

[rebuilder]

Sweft: So, assuming centralization really becomes that extreme, Wal-Mart could abuse their hashpower to double-spend their BTC. They could print their own USD right now and "profit", but the risk is too high. They're in business, and screwing over their customers like that is usually a bad idea for such a big target.

[Sweft]

Sweft: So, assuming centralization really becomes that extreme, Wal-Mart could abuse their hashpower to double-spend their BTC. They could print their own USD right now and "profit", but the risk is too high. They're in business, and screwing over their customers like that is usually a bad idea for such a big target.

Well avoid the 2040 analogy for a second.  What i'm trying to say is that it's a threat for adoption.  Bitcoins will become a target if they keep growing.  There is no question about it, no one should really assume otherwise.  Everything should be created with the assumption that people will attempt to destroy the currency whenever possible.  If you base every design decision on that assumption, you create the soundest currency possible.  My conclusion is that a deflating currency limits the security of the currency and opens it up to attacks.

Technology advances ever year, if there's no investment in the infrastructure, the system will be prone to attack.  If mining is less profitable, there's little reason to invest in infrastructure.  If hash remains constant, ie. no new infrastructure is created to support a growing hash.  In 2 years, hardware efficiency doubles, in 4 years, it quadruples, in 6 years it's 8x more efficient.  That means hash has to grow in response to technological advancements.  If it doesn't, the barrier to control the market becomes very small.

You can make arguments, come up with theoretical possibilities - how to defend a deflating currency.  People may mine at very large loses to protect their coins.  Sure.  If there's no profit motive, what is the point of increasing hash?  Only to protect your own money.

So, in any way - my original argument is that deflation is bad for the system.

Inflation creates a reason to mine, which reinforces the system.  Once you remove inflation the argument trends into waters of possibility.  It may be possible to defend the system, but it's much more difficult and the arguments revolve around unclear means.  

There's absolutely no reason to favor deflation, there is reason to favor inflation.

[rebuilder]

Inflation creates a reason to mine, which reinforces the system.  Once you remove inflation the argument trends into waters of possibility.  It may be possible to defend the system, but it's much more difficult and the arguments revolve around unclear means.  There's absolutely no reason to favor deflation, there is reason to favor inflation.

There is a lot of reason to favor deflation. Let's disregard the wild exchange rate fluctuations for the moment, since we're assuming deflation exists. If I offer you payment in BTC and you expect it will deflate, and I also offer to pay you in some inflationary currency, which would you rather take, absent anyone forcing you to use one currency over the other?

I'm not at all convinced an inflationary currency can be competitive without some sort of (coercive probably) immediate incentive for people to use it.

[MoonShadow]

I'm not at all convinced an inflationary currency can be competitive without some sort of (coercive probably) immediate incentive for people to use it.

Well, it doesn't really have to be coercive.  Bad money will chase good money out of the market, because while the vendor would prefer to receive his funds in the good money, if the customer is only offering the bad money, then the vendor will take that with a risk premium added on.  This is why dimes made of real silver still exist, but never circulate.  That and inflation has made the silver content worth over $3 apiece.

In a truly free marketplace, Bitcoin would never have been more than a transfer mechanism with websites like eGold operating unmolested.  Of course, if eGold was still around, Bitcoin would likely never have been created.  It's the lack of a free market in money that drives the demand for Bitcoin to begin with.  If the governments of the world really want to destroy Bitcoin, all they have to do is (credibily) return to the Gold standard.  I don't forsee that happening, however.

[Sweft]

Inflation creates a reason to mine, which reinforces the system.  Once you remove inflation the argument trends into waters of possibility.  It may be possible to defend the system, but it's much more difficult and the arguments revolve around unclear means.  There's absolutely no reason to favor deflation, there is reason to favor inflation.

There is a lot of reason to favor deflation. Let's disregard the wild exchange rate fluctuations for the moment, since we're assuming deflation exists. If I offer you payment in BTC and you expect it will deflate, and I also offer to pay you in some inflationary currency, which would you rather take, absent anyone forcing you to use one currency over the other?

I'm not at all convinced an inflationary currency can be competitive without some sort of (coercive probably) immediate incentive for people to use it.

Listen please explain to me how mining is benefited in an deflationary currency.

Gold mining is inflationary, we mine much more gold now then we did before, but the price keeps increasing.

Why? Because it requires significant input energy to mine it.  The same follows for bitcoins.

Why would you not accept bitcoins that were mined later since they used significant energy to mine it.  It makes absolutely no sense.  Bitcoin is not fiat, and inflation does not affect it in the same way.

Lets please recognize this point.  Otherwise people cry inflation.  You people who do do not understand that it requires a lot of money to inflat bitcoin unlike fiat.  Same as gold, which requires abundent energy.

[mcdeeda]

hah, this all implies that bitcoins will last as a currency for more than a few months before collapsing spectacularly

[MoonShadow]

Inflation creates a reason to mine, which reinforces the system.  Once you remove inflation the argument trends into waters of possibility.  It may be possible to defend the system, but it's much more difficult and the arguments revolve around unclear means.  There's absolutely no reason to favor deflation, there is reason to favor inflation.

There is a lot of reason to favor deflation. Let's disregard the wild exchange rate fluctuations for the moment, since we're assuming deflation exists. If I offer you payment in BTC and you expect it will deflate, and I also offer to pay you in some inflationary currency, which would you rather take, absent anyone forcing you to use one currency over the other?

I'm not at all convinced an inflationary currency can be competitive without some sort of (coercive probably) immediate incentive for people to use it.

Listen please explain to me how mining is benefited in an deflationary currency.

Bitcoin is not deflating.  Bitcoin is inflating at roughly 40% APR, and will not actually be deflating until at least 2129.  This is a non-issue in my lifetime.

[ryepdx]

hah, this all implies that bitcoins will last as a currency for more than a few months before collapsing spectacularly

Well... it's already lasted for 2 years... so I don't think it's going to just collapse out of the blue. Price might drop, but every market does that from time to time.

[Klestin]

On the off chance that OP isn't trolling, I'll give a go at removing the main concern of the post.

Although as others have pointed out, 2040 is not a special date, we can at least agree that the coin creation reward for block solving will have diminished by then to a much smaller reward than exists today.

In fact, in 2041, the coin creation reward for solving a block will drop from 0.39BTC to 0.19 BTC.  Sounds drastic, right?  Who would mine for 0.19 BTC???  But that reward is only a small part of the picture.  We need to consider transaction fees and exchange rates too.

Let's consider a pretty conservative (but of course not guaranteed) prediction of a future in which BTC is commonly used and has been adopted by a good portion of the populace, and is used for a portion of Internet commerce.  There might, in this world, be 10,000 transactions in each 10 minute block, and let's say they pay on average 0.002 BTC per (a small fraction of the suggested transaction fee for today).  That works out to 20 BTC in transaction fees, or 20.39 including the creation reward.

Now, 2040 rolls into 2041 and (gasp) the creation reward drops to 0.19.  Suddenly and without warning, the total block creation reward drops to 20.19 (from 20.39)!  Oh noes!  

Who can say what the exchange rate in USD will be at that time?  $100? $1000?

As time goes on, and adoption increases, the transaction fees increase.  In even a very conservative prediction, transaction fees outweigh the creation reward well before 2040.

[Sweft]

On the off chance that OP isn't trolling, I'll give a go at removing the main concern of the post.

Although as others have pointed out, 2040 is not a special date, we can at least agree that the coin creation reward for block solving will have diminished by then to a much smaller reward than exists today.

In fact, in 2041, the coin creation reward for solving a block will drop from 0.39BTC to 0.19 BTC.  Sounds drastic, right?  Who would mine for 0.19 BTC???  But that reward is only a small part of the picture.  We need to consider transaction fees and exchange rates too.

Let's consider a pretty conservative (but of course not guaranteed) prediction of a future in which BTC is commonly used and has been adopted by a good portion of the populace, and is used for a portion of Internet commerce.  There might, in this world, be 10,000 transactions in each 10 minute block, and let's say they pay on average 0.002 BTC per (a small fraction of the suggested transaction fee for today).  That works out to 20 BTC in transaction fees, or 20.39 including the creation reward.

Now, 2040 rolls into 2041 and (gasp) the creation reward drops to 0.19.  Suddenly and without warning, the total block creation reward drops to 20.19 (from 20.39)!  Oh noes!  

Who can say what the exchange rate in USD will be at that time?  $100? $1000?

As time goes on, and adoption increases, the transaction fees increase.  In even a very conservative prediction, transaction fees outweigh the creation reward well before 2040.

Yeah, unfortunately with transaction fees you have to deal with the velocity of money.  In a deflating currency, the velocity of money declines, less transactions, less fees.  The numbers you have created are pure speculation. 

The other problem is that for hash to increase, there must be either an increase in velocity or block inflation.  We reach a point where block creation is negligible.  Thus, since we agree that the deflationary aspect causes hording (which i'm not arguing is bad in commodities like gold, etc) but the proof of gold does not depend on mining.  It's the proof itself.  A bitcoin requires future proof of work.  Gold requires past proof of work.

Deflation poses numerous problems to the future of bitcoin.  They should be easily solved by a competing cryptocurrency.

[nathanrees19]

The value of bitcoins is dependent on hash.

No.

[nathanrees19]

Yeah, unfortunately with transaction fees you have to deal with the velocity of money.  In a deflating currency, the velocity of money declines, less transactions

No, you get smaller transactions, not less transactions.

less fees.

I don't think you know how the fees work.

[marcus_of_augustus]

Yeah, unfortunately with transaction fees you have to deal with the velocity of money.  In a deflating currency, the velocity of money declines, less transactions, less fees.  The numbers you have created are pure speculation. 

You stopped at the final hurdle. (remember this is in far, far future when btc is actually deflationary)

Velocity of money declines, less transactions, less fees ....

less fees, less mining, difficulty eases ...

difficulty eases, valuations decline slightly (inflationary expectations creep in), people start spending ...

velocity of money increases, more fees, more mining .... until velocity of money declines ... begin loop again, it will track the demand for money.

It appears there is a self-regulating mechanism built in even in the far, far future when your grandkids might be debating these same things. (Be careful, they maybe reading what you write today).

[Sweft]

Yeah, unfortunately with transaction fees you have to deal with the velocity of money.  In a deflating currency, the velocity of money declines, less transactions, less fees.  The numbers you have created are pure speculation. 

You stopped at the final hurdle. (remember this is in far, far future when btc is actually deflationary)

Velocity of money declines, less transactions, less fees ....

less fees, less mining, difficulty eases ...

difficulty eases, valuations decline slightly (inflationary expectations creep in), people start spending ...

velocity of money increases, more fees, more mining .... until velocity of money declines ... begin loop again, it will track the demand for money.

It appears there is a self-regulating mechanism built in even in the far, far future when your grandkids might be debating these same things. (Be careful, they maybe reading what you write today).

Sure, there is self regulation.  That's fine.

You don't understand one point.  Without increasing hash, the network is not secure.  If hash begins to decrease or remain at equilibrium the network will be vulnerable to compromise.  This is inescapable.

Without an increase in hash, the network is vulnerable.  If miners don't profit, the network is vulnerable. 

Inflation expectations cannot creep in to a currency that is mathematically devoid of inflation.

[Sweft]

The value of bitcoins is dependent on hash.

No.

You don't understand bitcoins, sorry.  Read the thread, hopefully you will understand.  If not, again, sorry.

[Sweft]

Yeah, unfortunately with transaction fees you have to deal with the velocity of money.  In a deflating currency, the velocity of money declines, less transactions

No, you get smaller transactions, not less transactions.

less fees.

I don't think you know how the fees work.

Velocity of money means a decrease in the exchange of money.  That's what it means.  A currency that will be worth more in the future will decline in transactions because there is little reason to spend it, when you earn money by holding it.  A decrease in transaction fees leads to a decrease in mining profitability, which leads to a decrease in hash.

A decrease in hash will compromise the network.

[legion050]

Without increasing hash, the network is not secure.

I am pretty sure i won't be mining on the same old 5970 in 5, 10, or even 15+ years..

[Sweft]

Without increasing hash, the network is not secure.

I am pretty sure i won't be mining on the same old 5970 in 5, 10, or even 15+ years..

I'm sure if mining has little reward you won't be mining at all, regardless of the hardware.

[phillipsjk]

Velocity of money means a decrease in the exchange of money.  That's what it means.  A currency that will be worth more in the future will decline in transactions because there is little reason to spend it, when you earn money by holding it.  A decrease in transaction fees leads to a decrease in mining profitability, which leads to a decrease in hash.

A decrease in hash will compromise the network.

Without rereading the whole thread, I think you are the only one to bring up the velocity of money. To be honest, I never thought of transaction fees as a "tax" on the velocity of money. I personally think that in the long term, mining capacity will follow the stored value of all bitcoins, not the price of power as many expect. If the bitcoin economy becomes a multi-trillion USD economy, all world governments will be mining in a big way. Early adopters and large corporations will be using their capital to set up solar mega-projects and data-centers: decoupling the price of electricity from mining capacity.

In my first or second post, I explain why I think bitcoin will fail in the medium term. The slow dwindling of mining capacity brought on by deflation did not make the list. You may be right. However, keep in mind that bitcoin is still an experiment in its early stages. The first drop in block reward has not happened yet, and will happen within two years (haven't calculated the expected date).

If you are correct, I would expect to see a substantial drop in mining capacity (over 30%), that does not rebound for several months. If everybody else in the thread is correct, I would expect to see a slight drop in mining capacity (for consistency I will say less than 30%) that will rebound within 6 weeks (apparent lead-time for mining to match price according to some on the forum).

If deflation is really shown to be a problem, I think many people would support starting a new block chain where the block reward does not diminish over time (possibly called bitcoin 2.0). Would that be inflationary enough for you, or do you think the block reward should increase over time as a (small) percentage of existing bitcoins?

If I am right about mining capacity following the stored value of all bitcoins, inflation (not deflation) may actually cause mining capacity to drop. Currently, bitcoin is experiencing hyper-deflation, and mining capacity is scaling well.

[WilliamJohnson]

The reward, in Bitcoins, for solving a block, will decrease over time.
But considering Bitcoin is designed to have an increasing value, the value of the reward (in terms of purchasing power) shouldn't decrease.

[nathanrees19]

Velocity of money means a decrease in the exchange of money.  That's what it means.

No. Velocity of money is the average frequency of the exchange of a unit of money per time unit.

Considering that bitcoins are easily divisible, a decrease in the velocity does not necessarily mean a decrease in the number of transactions.

A currency that will be worth more in the future will decline in transactions because there is little reason to spend it, when you earn money by holding it.

People don't just spend money because they worry it will go down in value. They spend it because they need to buy things.

A decrease in transaction fees leads to a decrease in mining profitability, which leads to a decrease in hash.

...Which leads to a decrease in difficulty, which leads to an increase in the profitability of mining.

Of course, miners can just refuse to include transactions with low fees, encouraging people to pay higher fees, making mining more profitable.

The entire system self balances.

A decrease in hash will compromise the network.

Current indications are that it is more profitable to be honest than to try to compromise the network.

[nathanrees19]

The value of bitcoins is dependent on hash.

No.

You don't understand bitcoins, sorry.  Read the thread, hopefully you will understand.  If not, again, sorry.

The sentence that I quoted does not make sense.

I am sorry that you don't understand how to form sentences. Go back to school and hopefully you will learn. If not, neck yourself join the circus.

[klamathonsite]

One way to look at this to is there was 1 man smarting enough to create bitcoins to begin with well with in the next 30+ years there will be some one smarter making changes or adding to btc some how or even a newer forum of digital currency so when we do hit the 21milllion btc and cant generate any more then some thing else WILL TAKE ITS PLACE.
man can think it we can build it.

Just my take on it.

[nathanrees19]

some thing else WILL TAKE ITS PLACE.

Yeah. Bitcoin in its current implementation may die out, but the idea will live on.

Perhaps soon we will have exchanges for the competing cryptocurrencies.

[mcdeeda]

hah, this all implies that bitcoins will last as a currency for more than a few months before collapsing spectacularly

Well... it's already lasted for 2 years... so I don't think it's going to just collapse out of the blue. Price might drop, but every market does that from time to time.

yeah, but the kind of publicity it's getting, combined with the rapid deflation and difficulty increases are pointing towards the system becoming increasingly unstable; plus, we all know that it's only a matter of time before at least 1 government (US) tries to get in and interfere with the system, because the concept of a decentralized currency detached from banks is threatening to the banking system.

[marcus_of_augustus]

some thing else WILL TAKE ITS PLACE.

Yeah. Bitcoin in its current implementation may die out, but the idea will live on.

Perhaps soon we will have exchanges for the competing cryptocurrencies.

The future is here https://exchange.bitparking.com/main

[Bicknellski]

So, have we resolved it yet?

[ShadowOfHarbringer]

So, have we resolved it yet?

Been practicing necromancy much ? Are you a professional Lich, or just an adept ?

Seriously guys, this forum should have an option to close very old topics. Perhaps automatically, by vote or by owner.

[Piper67]

So, have we resolved it yet?

Been practicing necromancy much ? Are you a professional Lich, or just an adept ?

Seriously guys, this forum should have an option to close very old topics. Perhaps automatically, by vote or by owner.

We also should have an option to filter out posts by order of stupidity... alas, no chance of that 

[Sukrim]

No, old topics can be still relevant and closing down everything only leads to re-iteration of the same issues over and over again.

The few necroed threads can be closed manually by mods as well...

[misterbigg]

...stupid...beyond stupid....

Yep, this is pretty much all I took away from this post.

[Gabi]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

Are you really comparing an ASIC with a supercomputer?  Seriously this is fail. Yes an asic is good for mining, and that's all.

[Elwar]

You do realize that we already past the 500 most powerfull computers on earth COMBINED

Are you really comparing an ASIC with a supercomputer?   Seriously this is fail. Yes an asic is good for mining, and that's all.

That was in 2011 dude...

when miners were willing to mine for $50 block rewards.

Before SatoshiDICE where transasction fees are paid to miners.

[jubalix]

Where do these lunatics come from?

Are you really that fucking stupid?  Seriously?  You don't see the problem?  If you're that stupid i feel sorry for you.  Is it an ego thing?  I hope so.

No, no, nope.jpg, consider, that the value of BTC are much higher and there are many many  more people wanting to make transactions, these transaction fees will incentive miners to become transaction processors


I think some new coins may be a good thing as many coins will be lost, some how to a cap or a really slow fixed rate release....but some how neither of these things work as they just out you back to square one

[Piper67]

Where do these lunatics come from?

Are you really that fucking stupid?  Seriously?  You don't see the problem?  If you're that stupid i feel sorry for you.  Is it an ego thing?  I hope so.

No, no, nope.jpg, consider, that the value of BTC are much higher and there are many many  more people wanting to make transactions, these transaction fees will incentive miners to become transaction processors


I think some new coins may be a good thing as many coins will be lost, some how to a cap or a really slow fixed rate release....but some how neither of these things work as they just out you back to square one

Oh, for the love of all that's holy!!!!

[Killdozer]

[greyhawk]

[marhjan]

Wow this thread is full of stupid...   and what's up with the crazy necro-threads lately?

[JoelKatz]

"We're all going to die because our car is heading straight for a cliff ten miles ahead."

Umm, no. We'll probably turn the wheel sometime between then and now.

[mccorvic]

"We're all going to die because our car is heading straight for a cliff ten miles ahead."

Umm, no. We'll probably turn the wheel sometime between then and now.

You don't know me!

*Continues to drive straight ahead*

[whitenight639]

(Mining profit = block reward + fees)
 
(Mining profit = (block reward)/2 + fees) in 1 year

(Mining profit = (block reward)/4 + fees) in 5 years

(Mining profit = (block reward)/8 + fees) in 9 years

It should be obvious that if you remove a source of mining income, miners will profit less.

You are incorrectly treating "fees" as a constant.

The issue with your presentation, and everyone else that has explained this, is that "transaction fees will support mining."  

1) There's no proof of this.

There is strong evidence to suggest that fees will increase significantly over time.

2) It really does not matter.

I think I am finally beginning to understand your misunderstanding. You seem to think that:

• Incentives only work if they are "new" coins
• Therefore, inflation is necessary to provide an incentive
• Therefore, anyone disagreeing you must be afraid of inflation

Your premise (first point) is wrong.

Your second point is wrong due to relying on the first point.

Your obsession with point three is baffling.

+1000 killed off OPs Trolling, also reading this thread i was amazed to actually learn something, the whole deflationry thing and the velocity of money correcting itself as tx / block reward changes very interesting, also as the value of a currency rises people will still spend, if there Btc goes from $300 to $400 overnight and they need there weekly shop then they will just buy there weekly shop and keep $100 to appreciate in value, the only hoarders will be those that can afford to hoard and there appreciation will be the same per bitcoin as everybody elses.

I think when the mining of new coins ends we could see (as some suggested) smaller companies take on Tx processing as they have interests to keep the network alive, this seems to be a good thing as any centralisation of miners over time could be reversed, and that would put Tx processing back in the hands of everybody.

[Sweft]

(Mining profit = block reward + fees)
 
(Mining profit = (block reward)/2 + fees) in 1 year

(Mining profit = (block reward)/4 + fees) in 5 years

(Mining profit = (block reward)/8 + fees) in 9 years

It should be obvious that if you remove a source of mining income, miners will profit less.

You are incorrectly treating "fees" as a constant.

The issue with your presentation, and everyone else that has explained this, is that "transaction fees will support mining."  

1) There's no proof of this.

There is strong evidence to suggest that fees will increase significantly over time.

2) It really does not matter.

I think I am finally beginning to understand your misunderstanding. You seem to think that:

• Incentives only work if they are "new" coins
• Therefore, inflation is necessary to provide an incentive
• Therefore, anyone disagreeing you must be afraid of inflation

Your premise (first point) is wrong.

Your second point is wrong due to relying on the first point.

Your obsession with point three is baffling.

+1000 killed off OPs Trolling, also reading this thread i was amazed to actually learn something, the whole deflationry thing and the velocity of money correcting itself as tx / block reward changes very interesting, also as the value of a currency rises people will still spend, if there Btc goes from $300 to $400 overnight and they need there weekly shop then they will just buy there weekly shop and keep $100 to appreciate in value, the only hoarders will be those that can afford to hoard and there appreciation will be the same per bitcoin as everybody elses.

I think when the mining of new coins ends we could see (as some suggested) smaller companies take on Tx processing as they have interests to keep the network alive, this seems to be a good thing as any centralisation of miners over time could be reversed, and that would put Tx processing back in the hands of everybody.

I most certainly understand the transaction fee scenario, but you don't.

For BTC to to have value, miners must secure the network.  If miners do not constantly increase hash, Moore's law will catch up to the network and it will become prone to attack.  This should be easily accepted as fact.  If you don't accept this premise i can't possibly help you understand the deflationary flaw in bitcoin.

If you don't understand, let me try to explain it again.   If hash remains constant and doesn't increase for a number of years, technological advancements (Moore's Law) will make an 51% attack more likely.

Now what some people seem to argue is that tx fees will support mining growth.

This is true in two scenarios.

1) bitcoins are sent/received more frequently (velocity)
2) tx fees increase

I will addresses the problems with both scenarios.

The problem with #2 is that there is a cap on maximum fee the miners can charge, at 100%.  So velocity remains constant, miners cannot increase profit beyond 100% tx fee.  So this cannot create increasing profit.

The problem with #1 is that bicoins can be permanently lost, and there is a hard cap on the amount of bitcoins.  That means that there will eventually be more bitcoin lost than is generated by block reward.  This should be known as the 'Sweft point' where bitcoin turns into a deflationary currency from an inflationary one.  Thus, to believe that transactions will increase as coins are lost, aka deflation, is not a sound proposition.

Another issue is that rogue miners can mine the network, charging tx fees and sending the coins to the trash.  This would further exaggerate the deflationary tendency of the bitcoin design.  

Thus it should be obvious to anyone that understands the issues to also understand that there exists a simple solution which will make the person who implements it rich.

Make an alt currency with a cap minimum 3% inflation.  This will satisfy the profits of the miners and hash of the network.

[Kettenmonster]

Who cares for 2040? The world ended already last year, thus why worry? 

[marhjan]

Make an alt currency with a cap minimum 3% inflation.  This will satisfy the profits of the miners and hash of the network.

Wow...   please just go and do this, and don't bother your pretty little head about bitcoin ever again.  It's truly staggering how little you understand, and how utterly unaware you are of your lack of understanding.  But seriously, please go design your alt-chain, I wish you luck with it.

[markm]

Make an alt currency with a cap minimum 3% inflation.  This will satisfy the profits of the miners and hash of the network.

Wow...   please just go and do this, and don't bother your pretty little head about bitcoin ever again.  It's truly staggering how little you understand, and how utterly unaware you are of your lack of understanding.  But seriously, please go design your alt-chain, I wish you luck with it.

At least two altcoins already keep issuing the same number of coins per block forever, which is a big step in the "desired" direction, so how about go promote those for now as the best so far and maybe as you become a major investor in those their makers might listen to your arguments that even that is not enough and a coin must be made that increases the nubmer of coins issued per block...

-MarkM-

[Sweft]

Make an alt currency with a cap minimum 3% inflation.  This will satisfy the profits of the miners and hash of the network.

Wow...   please just go and do this, and don't bother your pretty little head about bitcoin ever again.  It's truly staggering how little you understand, and how utterly unaware you are of your lack of understanding.  But seriously, please go design your alt-chain, I wish you luck with it.

At least two altcoins already keep issuing the same number of coins per block forever, which is a big step in the "desired" direction, so how about go promote those for now as the best so far and maybe as you become a major investor in those their makers might listen to your arguments that even that is not enough and a coin must be made that increases the nubmer of coins issued per block...

-MarkM-

I don't believe that will provide the necessary level of inflation necessary to keep increasing hash.  The inflation rate will continuously decrease.

My proposal is a constant block reward until that rate of inflation approaches 3%, then you adjust block reward to annually create 3% inflation.

Whoever implements this and adopts this will be rich because I am certain that at some point BTC will fail.

[markm]

Well we shall see I guess. Let us know when our constant minting coins reach 3% so we can watch the transition to the point at which your modification will be needed to keep them at the top of the heap.

Meanwhile its not clear people are even seeing the value in just the never decreasing minting, maybe you need to push that so people catch on to it first, if you can do that maybe they will then be prepared to believe it should also be modified when it reaches this magical 3%.

By the way, have you graphed how the usefulness / adoption / value / anything changes at 2.9%, 3.1%, 2.99%, 3.01% and so on to prove 3% is truly the peak point?

-MarkM-

[Sweft]

Well we shall see I guess. Let us know when our constant minting coins reach 3% so we can watch the transition to the point at which your modification will be needed to keep them at the top of the heap.

Meanwhile its not clear people are even seeing the value in just the never decreasing minting, maybe you need to push that so people catch on to it first, if you can do that maybe they will then be prepared to believe it should also be modified when it reaches this magical 3%.

By the way, have you graphed how the usefulness / adoption / value / anything changes at 2.9%, 3.1%, 2.99%, 3.01% and so on to prove 3% is truly the peak point?

-MarkM-

The problem is that I don't understand why Satoshi designed the protocol to be deflationary.  Gold has been mined for 7000 years.  The amount of gold in the universe is almost infinite.  Most people accept that gold is a store of value.  For BTC to be almost fully mined in almost 20 years means that early adopters have a huge advantage that is unlike any commodity on earth.

Every year more gold is discovered yet hardly anybody would claim that gold was inflationary.  In fact, most people claim that gold protects against inflation.  Why?  Because it takes work to produce gold, just like it does to mine bitcoins.  If all the gold on earth was mined in 20 years, gold would be valueless.

[markm]

Well maybe you just don't understand people, if there aren't enough variant altcoins out there yet for you to empirically watch which do best by all means offer some bounties to have more made to empirically test your theories / serve to empirically teach you about people.

Unthinkingbit managed to get help building DeVCoins by offering a mere 100 bitcoins in bounty, who knows maybe you might even be able to some help making your perfect coin for less now that bitcoins trade at a higher exchange rate than they did back then.

-MarkM-

[Killdozer]

The amount of gold in the universe is almost infinite.

What does that have to do with anything? What is important is how much gold there is to be mined in realistic time on earth, and that is definitely not infinite.
Also, what kind of term is "almost infinite" is 10 an "almost infinite" number? 1000? What about 21 million? Because there you go, that's how many bitcoins there are in the universe, almost infinite.

Every year more gold is discovered yet hardly anybody would claim that gold was inflationary.

Very little gold is mined every year, compared to the existing amount.

In fact, most people claim that gold protects against inflation.  Why?  Because it takes work to produce gold, just like it does to mine bitcoins.

No. It's because gold is scarce, so is Bitcoin. Most gold that is actually used does not take any work to produce, because it is already mined and available.

If all the gold on earth was mined in 20 years, gold would be valueless.

This is just nonsense. Let's say no more gold is mined after today. Just in what way is it going to become valueless?

[MoonShadow]

Make an alt currency with a cap minimum 3% inflation.  This will satisfy the profits of the miners and hash of the network.

Wow...   please just go and do this, and don't bother your pretty little head about bitcoin ever again.  It's truly staggering how little you understand, and how utterly unaware you are of your lack of understanding.  But seriously, please go design your alt-chain, I wish you luck with it.

At least two altcoins already keep issuing the same number of coins per block forever, which is a big step in the "desired" direction, so how about go promote those for now as the best so far and maybe as you become a major investor in those their makers might listen to your arguments that even that is not enough and a coin must be made that increases the nubmer of coins issued per block...

-MarkM-

I don't believe that will provide the necessary level of inflation necessary to keep increasing hash.  The inflation rate will continuously decrease.

My proposal is a constant block reward until that rate of inflation approaches 3%, then you adjust block reward to annually create 3% inflation.

Whoever implements this and adopts this will be rich because I am certain that at some point BTC will fail.

Go for it.  There is notihing stopping you from doing it yourself.

[MoonShadow]

Guys, I know the uninformed newbies and their incessant protestations of "OMGZ the network has a FATAL ERROR!!" are annoying, but please, try responding as if you aren't 5 years old.

Yeah, you keep up that mature perspective for another four years of seeing this BS at least once each week.

We shall see how agreeable to it you are in a couple years.

[Piper67]

Guys, I know the uninformed newbies and their incessant protestations of "OMGZ the network has a FATAL ERROR!!" are annoying, but please, try responding as if you aren't 5 years old.

Yeah, you keep up that mature perspective for another four years of seeing this BS at least once each week.

We shall see how agreeable to it you are in a couple years.

Exactly. Sleft has learned very little since this thread was started. That's pretty close to wilful ignorance, if you ask me.

[Elwar]

I agree with the many suggestions to go create your own alt coin and not to use Bitcoin.

Do you often spend time on forums of technology that you do not wish to ever use to tell them why their technology is flawed?

Does Litecoin have a forum? Have you critiqued them yet?

[Sweft]

I agree with the many suggestions to go create your own alt coin and not to use Bitcoin.

Do you often spend time on forums of technology that you do not wish to ever use to tell them why their technology is flawed?

Does Litecoin have a forum? Have you critiqued them yet?

I was a GPU miner of bitcoin, which is no longer economically feasible.

I'm trying to educate people on these forums so that we can produce a cryptocurrency that will be resilient. 

What people don't realize is that bitcoin is currently inflationary.  That's why the price goes up, in accordance to network hash, which secures the network.

When more bitcoins are lost than created, reaching the 'Sweft point', bitcoin will become deflationary. 

Somewhere around the 'Sweft point' bitcoins value will approach 0 and become worthless.

This can all be prevented with an inflationary cryptocurrency.   I'm not a programmer so i don't really know how to develope  an inflationary alt coin, but if i knew, surely i would.

[agath]

When more bitcoins are lost than created, reaching the 'Sweft point', bitcoin will become deflationary. 
Somewhere around the 'Sweft point' bitcoins value will approach 0 and become worthless.
This can all be prevented with an inflationary cryptocurrency.   I'm not a programmer so i don't really know how to develope  an inflationary alt coin, but if i knew, surely i would.

This is just absurd. And this thread is non-sense. Transaction fees will be enough to guarantee mining activity. If you don't agree or if you believe differently, then don't use bitcoin, and stop writing such useless/irrational things.

[Sweft]

When more bitcoins are lost than created, reaching the 'Sweft point', bitcoin will become deflationary. 
Somewhere around the 'Sweft point' bitcoins value will approach 0 and become worthless.
This can all be prevented with an inflationary cryptocurrency.   I'm not a programmer so i don't really know how to develope  an inflationary alt coin, but if i knew, surely i would.

This is just absurd. And this thread is non-sense. Transaction fees will be enough to guarantee mining activity. If you don't agree or if you believe differently, then don't use bitcoin, and stop writing such useless/irrational things.

The guarantee of mining activity is irrelevant.  If you read my posts you would understand that mining must continuously increase to secure the network.  If hash doesn't keep up with Moore's Law then the network will be prone to attack.

[Sweft]

That's why the price goes up, in accordance to network hash, which secures the network.

I don't believe you.

Miners don't think, "Hey let's secure this worthless coin so the value goes up and people will buy it from us."

Miners think, "Hey, people are buying this valuable coin, lets get paid for securing the network."

If all it took to make a coin valuable was hashing power, all of the alt coins would be wildly successful as well. Coins which can be merged mined would be as valuable as Bitcoin. Yet they aren't. Why not? Because difficulty doesn't drive price.

This can all be prevented with an inflationary cryptocurrency.   I'm not a programmer so i don't really know how to develope  an inflationary alt coin, but if i knew, surely i would.

Inflationary coins exist already. Enjoy.

BTC is worth ZERO without a secure network. 

Does hash secure the network?  Yes. 
Does a more secure network increase demand? Yes. 
Does increase demand drive prices up?  Yes.

There are various reasons why other alt currencies are valueless.  They can be undervalued.  The distributions of coins might make it less attractive.  They may not have the developer ability bitcoin has.

First and foremost, though, before any other factors are considered in price, the strength (hash) of the network must be considered.

[Sweft]

I will introduce a law which i believe is the fundamental law of securing the network of a cryptocurrency.  This law will be known as Sweft's Law and is described below.

Sweft's Law: The network hashrate of a cryptocurrency must rise at a rate at least equal to that of the rate of Moore's Law to ensure minimum network security.

[Killdozer]

This is just absurd. And this thread is non-sense. Transaction fees will be enough to guarantee mining activity. If you don't agree or if you believe differently, then don't use bitcoin, and stop writing such useless/irrational things.

Absurd.... Or... Genius?

Sweft's Law: The network hashrate of a cryptocurrency must rise at a rate at least equal to that of the rate of Moore's Law to ensure minimum network security.

You have written this already 2 years ago, and in all that time you still don't see how this is utter rubbish? This still makes perfect sense to you, doesn't it? Amazing...

[Sweft]

This is just absurd. And this thread is non-sense. Transaction fees will be enough to guarantee mining activity. If you don't agree or if you believe differently, then don't use bitcoin, and stop writing such useless/irrational things.

Absurd.... Or... Genius?

Sweft's Law: The network hashrate of a cryptocurrency must rise at a rate at least equal to that of the rate of Moore's Law to ensure minimum network security.

You have written this already 2 years ago, and in all that time you still don't see how this is utter rubbish? This still makes perfect sense to you, doesn't it? Amazing...

No, it makes perfect sense, especially considering Sweft's Law and diminishing mining profit.

[Sweft]

I will introduce a law which i believe is the fundamental law of securing the network of a cryptocurrency.  This law will be known as Sweft's Law and is described below.

Sweft's Law: The network hashrate of a cryptocurrency must rise at a rate at least equal to that of the rate of Moore's Law to ensure minimum network security.

So are you still saying that Bitcoin is doomed to failure or are you just declaring this law here? I can understand what you are saying regarding the increasing need for network security with the advance of technology, but my first thought is I'm wondering why it would mean a failure for Bitcoin? Surely if Bitcoin becomes so widely adopted and important to the world economy we'd find a solution. Groups of wealthy individuals/corporations would most definitely have an interest in paying miners for security.

Yes, I believe that deflation is a flaw so fundamentally dangerous that BTC will fail once it becomes deflationary.  I believe most of the protocol is sound, other than the 21,000,000 coins maximum.  If there was an alt coin designed with 3% inflation, i believe that such a coin could exist for a longer period and avoid the deflationary doom that will make mining unprofitable.

BTW every year 1.5% of the total gold ever mined is mined, or 2500 tonnes.  That's hardly insignificant.  In the past total mined gold a year was in the range or 2-3% of total gold ever mined.

A 3% inflationary coin would satisfy miners and secure the network.

[Sweft]

There's 10,800,000 coins right now.
1,280,000 will be mined this year.

The inflation rate this year is 12%.

In December of 2016 block reward will be halved.

There will be 15,350,000 coins.
640,000 coins will be mined a year.

The inflation rate will be 4%.

In December of 2020 block reward will be halved.

There will be 17,900,000 coins.
320,000 coins will be mined each year.

The inflation rate will be 1.9%.  This is the point that my protocol would redesign block reward to generate a 3% inflation.


I envision a problem around 2020 or even before where miners no longer profit at rate they did before, the hashrate remains stagnant or increases but does not comply with Sweft's Law, and thus the price of BTC is negatively impacted because the network is less secure.

[the joint]

Does your girlfriend have a Sweft point?

Edit:  Thanks for the comedy gold on a sleepless night.

[Sweft]

I will describe another flaw that can be exploited in a deflationary cryptocurrency.  It will be known as a Sweft attack and is described below.

Sweft attack: A prolonged deflationary attack on a cryptocurrency network describing a situation in which a rogue miner processes transactions solely for the purpose of removing the fee of said transaction from circulation. A necessary precondition for said attack is that the average transaction fee must exceeds the average rate of cryptocurrency inflation.

[Sweft]

I will posit this explanation of a Sweft attack.

Once there's no longer inflation, the network is prone to deflation. Theoretically, bitcoins can deflate to 0, which would mean that every bitcoin mined would be lost. If a rogue miner solely mines transactions to remove the reward, given the miner has enough hash, he would eventually remove all bitcoins in circulation.

This is not possible with inflation, unless said miner has 100% of network hash.

Inflation in real world and bitcoin are not akin. Gold miners could stop mining and the gold they created still exists. If bitcoin miners stopped mining all bitcoins ever mined would become valueless.

[akspecs]

But it's very impractical to say "if all bitcoin miners stop mining" - is it not?

On a different note:
I think people are over estimating their confidence by forgetting that this is still technically an experiment.  No one has ever seen a deflationary currency like bitcoin - and therefore I don't think anyone can easily write off any theory provided with reason.

[drawingthesun]

I will posit this explanation of a Sweft attack.

Once there's no longer inflation, the network is prone to deflation. Theoretically, bitcoins can deflate to 0, which would mean that every bitcoin mined would be lost. If a rogue miner solely mines transactions to remove the reward, given the miner has enough hash, he would eventually remove all bitcoins in circulation.

This is not possible with inflation, unless said miner has 100% of network hash.

Inflation in real world and bitcoin are not akin. Gold miners could stop mining and the gold they created still exists. If bitcoin miners stopped mining all bitcoins ever mined would become valueless.

I'm really really tired at the moment, but this seems genius. Because i'm invested in Bitcoin I have tried to consider all possible attack vectors to the fundamentals.

The things that I think about include the blockchain issues and a way to allow people with limited bandwidth participate as a fraction of a full node (swarm nodes I call them) instead of dumb lite clients only.

But, the sweft attack is amazing. Like I said i'm tired and may have missed a flaw in your argument, but right now it seems sound.

A person wants to destroy Bitcoin, they mine away and send all the transaction fee reward into oblivion. On a long enough time line this will destroy Bitcoin, with a absolute cap at 21 million this is a viable attack.

[akspecs]

Now everybody is plotting to be the rouge miner to bring down BTC!

[drawingthesun]

Now everybody is plotting to be the rouge miner to bring down BTC!

Haha, well it would probably take a hundred years to actually have an effect. I might try working it out in a bit.

Shame though, as it stands Bitcoin might not last for a thousand years.

(Yes I was naive and thought Bitcoin could be an immortal currency for all time)

[drawingthesun]

If each block contains 1 Bitcoin worth of transaction fees, lets assume our rogue miner aims for 10% of the hashing power.

1 Bitcoin per block, 144 blocks per day. So after a day the rouge miner could have destroyed about 15 Bitcoins, and after a year that would be almost 5,500 Bitcoins, so it would take 1000 years to reduce the amount of Bitcoins in existence to 15,500,000 (minus 5,500,000)

These calculations assume each block will only have 1 Bitcoin worth of transactions, of course as we know this will increase a lot over time and shorten the time to remove almost a quarter of all Bitcoins.

I can't see this being a problem in the next 50 years though. But it is a real issue and marks a definite end to the Bitcoin network in the far future.

This opens up a place in the market for a new alt-coin, probably called ImmortalCoin. (that has at least 1% inflation) :p

[drawingthesun]

Also, the entire Bitcoin economy can run on a single satoshi, with a hard fork.

If they allow a satoshi to be divided or even some type of infinite division, then yes the sweft attack will never be able to remove enough coins.

Finally, everyone reading this thread will be dead before all the Bitcoins are mined.

Don't be so sure about that! Its likely people reading this thread, if rich enough and at the right time, may gain life extension. (Just in time perhaps)

**Bitcoin billionaire first to get brain upload into new body** <---  news headline in 20 years. :p

[drawingthesun]

 

[MoonShadow]

Also, the entire Bitcoin economy can run on a single satoshi, with a hard fork.

If they allow a satoshi to be divided or even some type of infinite division, then yes the sweft attack will never be able to remove enough coins.

A satoshi can still be divided without significant changes to the running code, by the use of a digitial token in the big end of the 64 bit integer.  Even with all 21million BTC in a single transaction output, not all of the bits would be in use.  There would be several on the large end that could be used as a digital marker to identify the output as a 'sub-satoshi' value.  Alternately, a new kind of bitcoin address could be developed to specificly identify very small values with sub-satoshi amounts included.

Yes, this too has long been considered.  This is a non-issue, and even if it was, it's not pressing.  If any of you newbies can come up with a "flaw" that has not already been discussed to death in this forum before you have 300 posts, I'll give you a bit-nickel myself.

[marcus_of_augustus]

I find it interesting that this topic seem to get dragged out on weekends.

It is like the old football that a kid gets out to play with on a Saturday ... kicks it around, pretends to be an all star, etc ... then Monday rolls around.

There is no deflationary problem, but it is fun to wonder what it would be like if there was one?

[Sweft]

Also, the entire Bitcoin economy can run on a single satoshi, with a hard fork.

If they allow a satoshi to be divided or even some type of infinite division, then yes the sweft attack will never be able to remove enough coins.

A satoshi can still be divided without significant changes to the running code, by the use of a digitial token in the big end of the 64 bit integer.  Even with all 21million BTC in a single transaction output, not all of the bits would be in use.  There would be several on the large end that could be used as a digital marker to identify the output as a 'sub-satoshi' value.  Alternately, a new kind of bitcoin address could be developed to specificly identify very small values with sub-satoshi amounts included.

Yes, this too has long been considered.  This is a non-issue, and even if it was, it's not pressing.  If any of you newbies can come up with a "flaw" that has not already been discussed to death in this forum before you have 300 posts, I'll give you a bit-nickel myself.

You can divide bitcoins any way you want it doesn't change the fact that bitcoin is a deflationary currency.  If I have an ounce of gold, and I cut it up into smaller pieces, I'm still left with an ounce of good.

I really do not understand how diving satoshi has any meaning to the discussion and flaws that I found in deflationary cryptocurrencies. 

[markm]

I was going to inquire how much gold goes missing each year, but instead I will just quote Meni's nice link from a totally different thread:

See http://en.wikipedia.org/wiki/Crank_(person).

-MarkM-

[Sweft]

I really do not understand how diving satoshi has any meaning to the discussion and flaws that I found in deflationary cryptocurrencies.  

Unfortunate. I'll give it the old college try.

Didn't you suggest an attack that would reduce the amount of coins to 0? Yes, Sweft's Attack I believe, AKA Sweft's Folly. The attack being that the coin would no longer be useful because there weren't enough coins to facilitate trade?

Well, if someone attempts this attack and we start to run low on coins, we can divide the remaining coins in two and you now have twice the supply, which can be used to facilitate trade! The coins which still exist are, of course, more valuable. So the only ones who lose out are the ones destroying their coins during your "attack". The attacker is only hurting himself!

Bitcoin is extremely divisible. I don't have a lot of technical knowledge, but the wiki says "infinitely divisible". The rogue miner better get busy!

I think you're missing the bigger picture here.  As much as you divide bitcoin, it is still deflationary.  The only thing you're doing is moving numbers around.  If you make a 1 a 100000 you still have the same amount.  Value doesn't increase if you move numbers around.

Let me try to explain is to you.

If tomorrow they moved the decimal 2 points right making each coin you have worth 100 coins, the exchange rate will also move in corespodence by decreasing the value of each coin by 100.  Eventually the rogue miner will still take every coin out of existence if he processes transactions and destroys the coins.  Moving the decimal doesn't change anything, the currency is still deflationary.

Why?

In prior scenario say 1 BTC was worth 50$ and miners demanded .01 btc fee which is 1% or 50 cents.

If we move the decimal 2 places to the right.

Now 1 BTC is worth .50$ miners charge .01 BTC per transaction or 1%.
100 BTC is worth 50$ miners charge 1 BTC per transaction or 1%.

The impact to the currency is exactly the same whether .01 BTC fee exists for 1 BTC at 50$ or a 1 BTC fee exists for 100 BTC at .5$.

Regardless of how divisible BTC is a rogue miner will eventually take out every bitcoin in existence unless the currency inflates at a rate greater than transaction fees.

[akspecs]

  To all those people comparing bitcoin to gold - don't kid yourself into thinking they're very similar.  Gold exists in a physical sense.  Of course this has been brought up before.  But it hasn't been taken seriously.

  It is much easier for a bitcoin to disappear forever than it is for an oz of gold to disappear.  Therefore, it is quite possible for there to be a much more rapid rate of deflation than of what there would be with gold / silver / oil or any other supposed to be deflationary assets.  No one can simply claim how the market will react to this deflationary asset because none like it have ever existed.

  This is an experiment.  This is a beta.  Really.  And to be frank, the most recent monetarist experiment of the 20th century failed miserably.

  Bitcoin is meant to be a universal currency.  Not something just for libertarians.

  

[akspecs]

The only think it's lacking is a history of acceptance.

I agree with practically everything you said.  Really.  

I just want to consider everything.  Although I am convinced that inflation is usually very bad for practically everybody (except for *cough*, you know who), I am not convinced that rapid deflation will provide the simple after affect of increased purchasing power.  It can't be that simple.

Looking at the history of gold and silver - there have been plenty of instances (historically speaking) where the volatility in those assets would be unbearable for a conservative investor.  History has shown us that a few entities have the power to play ping pong with those assets.  Manipulation is very prevalent in these markets.  What makes you think bitcoin is immune to this?

In the end, I am very interested in bitcoin's future.  If bitcoin proves to be successful in the long term, I will be the first to defend the statement that the "deflationary spiral" is just a myth.

[MoonShadow]

The only think it's lacking is a history of acceptance.

I agree with practically everything you said.  Really.  

I just want to consider everything.  Although I am convinced that inflation is usually very bad for practically everybody (except for *cough*, you know who), I am not convinced that rapid deflation will provide the simple after affect of increased purchasing power.  It can't be that simple.

It's not simple, and extreme deflation can also be detrimental.  However, just like inflation, the cause of the deflation matters.  In the case of Bitcoin, the vast majority of the deflation occurs because the economy is expanding at that rate.  While deflation can impede that growth, (which is not necessarily bad, btw) it cannot prevent it; for to whatever degree that deflationary effect impeded the growth of the economy also limits further deflation.  It's a self-limiting process.

[Sweft]

The divisibility of coins does not change the deflationary aspect of the currency.  As many time as you divide them, you're still experiencing a deflationary event if someone uses a Sweft attack.  As the miner accumulates more coins, more money is lost. 

The deflationary aspect of bitcoin destroys the vibrancy of the mining ecosystem that is necessary to support a cryptocurrency.

Design a crypto with a minimum 2% inflation and it can survive outside threats.

Let me explain why deflation is bad.

How much transaction fees will support a 2% inflation rate?

If tx fee is .5%, the amount of currency needed to move to get the equivalent of 2% inflation would be 4x the amount of btc in circulation.

Assume tx fee is .1%, the amount of currency you need to exchange to get the equivalent  of 2% inflation is 20x the amount of btc in circulation.

So we assume that when block reward is negligent, that transaction fees will support the economy.

Let's assume the attacker has 50% of network hash.
Let's assume .1% tx fee and 20x velocity of btc.
The miner would in this scenario destroy 1% of BTC a year.

Thus the problem is that without inflation the more BTC that are spent, the more prone to a prolonged deflationary attack.

Thus with a cap on btc we are achieving the opposite of what we want which is spending, not hording.

Why do we not favor hording?

Because miners must profit to secure the blockchain from attack.

Otherwise Sweft's law will make a 51% attack and fork much easier.

[Sweft]

Let's assume we assign a 2% inflation with .1% tx fee and 10x velocity.

The effective mining profit is 3% of BTC a year (2% inflation, 1% fees)


Now an attacker processes 50% of network hash.

Thus he removes 50% of coins generated and 50% of tx fees.

The inflation rate is now 2%-(1%+.5%) or .5%

With a pre-programmed 2% inflation, even with 50% of mining share, the attacker cannot create a deflationary environment as described in the previous post.

Thus the hording and destruction of BTC by rogue agents would be futile because the inflation would ensure more decentralization, more mining profit and a more secure network.

[bitlancr]

So your argument is that Bitcoin is insecure because someone can get all the coins?

Rather than spending all that money on running mining hardware and waiting years to accumulate all the coins, the attacker should just buy the coins directly. Boom, bitcoin network destroyed.

[Bytas]

It's just ridiculous how many times you imply that anyone who does not agree with you is a retard Sweft.

If you are going to make a point and want to be taken seriously, please refrain from offending everyone who you might want to pull into the discussion.
It's a sickening attitude really. There is something called an 'Argument', which is a statement based on facts that sounds completely neutral to anyone who hears/reads it and can be used to convince people without forcing your way into their brain and telling them what to think.

Rule number one of discussion: Never EVER explicitly say "I'm right and you are wrong!" It does not work that way.


Now, as to the content of this topic:

Once Bitcoin matures, the transaction fee will settle in a certain state so that it will still be profitable for miners to mine. Just like any other economic system it will be based on offer and demand. If not enough miners are present, people will increase their transaction fee to get priority over other transactions -> mining will become more profitable -> other people will start mining to get their share of the prize.
An equilibrium will be met.
There will never be a shortage of hashingpower. If there is little hashingpower, people all over the world will start mining because they only need to invest a small amount to get a reasonable percent of the transactionfees in their pocket.

On top of that, its Practically (and mathematically!) impossible to collect ALL the coins by mining transaction fees. Good luck trying completely absorb something by taking away 1% of what is left every time.
100->99->98,01->97,0299->...  
Please go on and tell me when you reach 0 :p

While this "evil person/government" is mining away, he is taking away bitcoin from the market, and while he does that, the worth of bitcoin goes up due to less supply/same demand. In the meantime people still want to use the currency so they divide this infinitely dividable currency(currently 8 digits, more can be added if needed) into smaller parts to trade -> Transaction fees become smaller -> evil dude is having an even harder time to mine them all.
And no, shops will not stop accepting bitcoin because they get worth more.  
If anything, this evil guy is helping the system because he is making transactions cheaper by providing so much hashingpower. (more suplied hashingpower -> cheaper transactions), And as long as he holds all the mined bitcoin, the price will go up, everyone else in the system will get richer. As said before he will never be able to mine all the coins.  

If someone wants to get all the coins, a faster and cheaper way to do that would be to buy them all, and right now that will cost more than one billion dollars. Hopefully by the time bitcoin matures it will be a number somewhere in the trillions. If anyone on the world got that kind of money just laying around and is willing to completely throw it down the drain, go ahead! He will have spend some trillion dollars to buy 21million bitcoins that are now worthless to him and everyone that once owned bitcoins will have their value in Dollars/Euros/... to spend and live from. Everybody wins except for the guy that aims to "destroy us all!"


As to Moore's law. How is it a problem that computers evolve? The better they get, the more powerful the mining-rigs will get, don't forget that mining rigs are computers too.
Why would only bad people take the effort to buy a supercomputer for mining? Moore's law makes the Total hashingpower of the network grow day to day. Its happening as we speak!
Saying that Moore's law will catch up with our hashingpower is like saying that Moore's law will catch up with Moore's law, which is nonsense.



There are some serious flaws in your reasoning that you should evaluate

Kind regards.
Bytas

[Sweft]

Once Bitcoin matures, the transaction fee will settle in a certain state so that it will still be profitable for miners to mine. Just like any other economic system it will be based on offer and demand. If not enough miners are present, people will increase their transaction fee to get priority over other transactions -> mining will become more profitable -> other people will start mining to get their share of the prize.
An equilibrium will be met.
There will never be a shortage of hashingpower. If there is little hashingpower, people all over the world will start mining because they only need to invest a small amount to get a reasonable percent of the transactionfees in their pocket.

I already addressed this numerous times.  If you're having trouble grasping the consequences of a deflationary currency I will explain it once again for those that that yet do not understand.

Mining profit = Block Reward + Tx Fee

In 10 years or less block reward will be negligible.  Thus the sole profits of mining will be Tx Fees.

Your insistence that mining will decrease until mining becomes profitable is only applicable to the ecosystem of miners.  Miners will decrease hash if it is unprofitable to generate hash.  Thus, there will reach an equilibrium between hash and mining profit where miners do profit.

My claim is that this is detrimental to the security of the network.  Any action that requires miners to decrease hash makes the network less secure.  The network is only as secure as the inability of someone to generate a large percentage of total hash.  Thus, to profit, if miners decrease hash, they also decrease security.  It's pretty simple to understand that what we don't want is a scenario where miners have to decrease hash because there is deflation.

The duty of a miner is not only to profit but to continuously increase hash in accordance with Sweft's law.

[mpfrank]

OP's premise makes no sense.  If Moore's Law is continuing, then it is getting cheaper for miners (along with everyone else) to buy computing power.  The continuation of Moore's Law does not weaken Bitcoin's security.  And transaction fees will always be enough to make mining profitable, by the law of supply and demand - once the block size limit is reached, miners will reject transactions that are not large enough to make mining profitable.  If there are not enough such transactions, mining activity (and difficulty) will fall until it is cheap enough to mine that the transaction fees are enough to make mining profitable again.  It's simple economics.  Next, there is no reason to think that transaction fees will come anywhere near 100% in this scenario.  Next, even if coins are destroyed by an attacker, it is not fatal to the economy - Bitcoin is already effectively deflationary (from a price perspective) since its user base is increasing - so additional inflation simply means that the remaining coins become more valuable.  Finally, it is unrealistic to expect Moore's Law to continue indefinitely anyway, since fundamental thermodynamic limits on bit energies (as a multiple of kT) will be reached within the next few decades if not earlier.

[Impaler]

Sweft:  We at Freicoin have long understood the scenario you describe and are in agreement with you on the unsustainable nature of Transaction Fees to support BTC, velocity is far far below 1 so you would need terribly high fees to generate a revenue stream that would replace present mining rates.  So far the response to lower block rewards has been a rise in valuation, which appears to have blow through the mere doubling that would have kept miners at parity and is now an out and out speculative bubble.

The Freicoin solution is to reduce all wallet funds by 5% per year (in tiny amounts per block), all these funds are then payed to Miners.  Total monetary base dose not increase so their is no inflation, after a short initial distribution of 3 years miner rewards remain constant and the network never needs to depend on Transaction fees.  All users essentially pay to secure the network based on their wealth rather then by transaction fees, this is both better economically as well as intrinsically more fair.

We also believe their are a myriad of other detrimental macro-economic effects (Usury) cause by Deflationary currency (putting us radically at odds with the majority of the community that feels it deflation a good thing), and these were our primary motivations, but we've been aware of the death-by-transaction-fee scenario for a long time.  Our website is http://www.freicoin.org/

[Bytas]

OP's premise makes no sense.  If Moore's Law is continuing, then it is getting cheaper for miners (along with everyone else) to buy computing power.  The continuation of Moore's Law does not weaken Bitcoin's security.  And transaction fees will always be enough to make mining profitable, by the law of supply and demand - once the block size limit is reached, miners will reject transactions that are not large enough to make mining profitable.  If there are not enough such transactions, mining activity (and difficulty) will fall until it is cheap enough to mine that the transaction fees are enough to make mining profitable again.  It's simple economics.  Next, there is no reason to think that transaction fees will come anywhere near 100% in this scenario.  Next, even if coins are destroyed by an attacker, it is not fatal to the economy - Bitcoin is already effectively deflationary (from a price perspective) since its user base is increasing - so additional inflation simply means that the remaining coins become more valuable.  Finally, it is unrealistic to expect Moore's Law to continue indefinitely anyway, since fundamental thermodynamic limits on bit energies (as a multiple of kT) will be reached within the next few decades if not earlier.

What he said!

I'm not at all worried that "Sweft's Law" will ever come into play, nor that it is even correct in the first place.

[Bytas]

On top of that, its Practically (and mathematically!) impossible to collect ALL the coins by mining transaction fees. Good luck trying completely absorb something by taking away 1% of what is left every time.
100->99->98,01->97,0299->...  
Please go on and tell me when you reach 0 :p

I found a cool comic that is kinda related to the 'mining all the coins via transaction fees' thing i said earlier.
+ It's kinda funny

[Traktion]

I've read the initial assertion and it seems that the primary problem is of Moore's Law resulting in hashing power getting cheaper, which could threaten a static/shrinking Bitcoin network.

Surely this has a simple solution - agree a minimum fee* (a percentage, perhaps - TBC) and apply it to the software. This doesn't need to be decided now, as it would only become useful when the total hashing power starts to flat line. Adding a minimum fee wouldn't fork the block chain either.

Why a minimum fee? It would mean that as hardware halved in price, the amount of hashing power could be doubled to soak up the return on the minimum fee. Therefore, hashing power would scale up, at a similar rate to the drop in hardware costs.

Additionally, the fact that you can't charge a fee over 100% is irrelevant. You don't need an ever increasing hash rate [EDIT: relative to Moore's Law], you just need a total hash rate which is large enough to make network attacks uneconomical (which means tracking Moore's Law - see above).



EDIT: * To add, the reason why a minimum fee would be preferable to a market solution is due to the 'tragedy of the commons'. If same miners start dropping their rates to catch more transactions, then it will price out those with high rates. Setting same sort of minimum fee, for the good of the network, would seem appropriate to combat this. There may be alternatives to this though.

[Nesetalis]

The problem with a minimum fee, is it puts a floor on the exchange rate.

[bitlancr]

EDIT: * To add, the reason why a minimum fee would be preferable to a market solution is due to the 'tragedy of the commons'. If same miners start dropping their rates to catch more transactions, then it will price out those with high rates. Setting same sort of minimum fee, for the good of the network, would seem appropriate to combat this. There may be alternatives to this though.

Tragedy of the commons doesn't apply as long as there is sufficient demand for block space (transactions), and some form of limit on block space to facilitate competition.

See this ongoing thread here:
https://bitcointalk.org/index.php?topic=157141.0

[Traktion]

The problem with a minimum fee, is it puts a floor on the exchange rate.

Do you mean a floor on the price? If not, I'm not sure what you mean.

If you have a minimum fee as a percentage, then there should be no hard floor on the price.

[Traktion]

EDIT: * To add, the reason why a minimum fee would be preferable to a market solution is due to the 'tragedy of the commons'. If same miners start dropping their rates to catch more transactions, then it will price out those with high rates. Setting same sort of minimum fee, for the good of the network, would seem appropriate to combat this. There may be alternatives to this though.

Tragedy of the commons doesn't apply as long as there is sufficient demand for block space (transactions), and some form of limit on block space to facilitate competition.

See this ongoing thread here:
https://bitcointalk.org/index.php?topic=157141.0

I don't think that is the problem (although I haven't read that thread yet - will do later).

The problem isn't that there would ever be insufficient block space; the problem is that providing sufficient block space may become too easy. That is, the hashing power needed to confirm the transactions may get so cheap that it would be economical to attempt to take over the network.

If a single, cheap, machine had enough hashing power to process all the transactions in the world, then the fees would be tiny. Equally, anyone with a couple of servers could take over the network. Ofc, this is an extreme example, but I think it is what the OP is concerned about. I would assert that it is a valid concern too, but one that can be rectified.

[bitlancr]

If a single, cheap, machine had enough hashing power to process all the transactions in the world, then the fees would be tiny.

No - block space is independent of hash rate. Competition for block space => increased fees => increased hash rate.

[Traktion]

If a single, cheap, machine had enough hashing power to process all the transactions in the world, then the fees would be tiny.

No - block space is independent of hash rate. Competition for block space => increased fees => increased hash rate.

Assuming that:

- Transaction rate becomes stable.
- Mining ceases to be profitable.

Why would there be increasing competition for block space (in turn, an increasing hash rate)?

Logically, the hash rate only needs to be sufficiently high to process all of the transactions requested. If hardware to provide said hash rate continues to fall, at some point the cost of hardware to do this will fall to a price where it is economical to attack the network.

Apologies if I am misunderstanding something technical which is critical to this debate.

[bitlancr]

The problem is in this statement:

Logically, the hash rate only needs to be sufficiently high to process all of the transactions requested.

The hash rate is technically independent of transaction volume. If the hash rate were to drop to 1Mhash/s right now, then the target difficulty would soon follow. Bitcoin is set up to produce a new block every 10 minutes, regardless of hash rate. Thus block space remains constant.

Now, given that block space is a finite resource, there will be competition. More competition (more transactions) will drive up fees, which will make mining more profitable, thus increasing the hash rate as more miners join in to get that profit. Conversely, less transactions means less competition, less fees, less mining, reduced hash rate.

Now, when hardware becomes cheaper, mining becomes more profitable. Thus more miners join in to get that profit. Any guesses what that results in?

Bottom line: as long as there is competition for block space, this entire thread is moot.

[Traktion]

The problem is in this statement:

Logically, the hash rate only needs to be sufficiently high to process all of the transactions requested.

The hash rate is technically independent of transaction volume. If the hash rate were to drop to 1Mhash/s right now, then the target difficulty would soon follow. Bitcoin is set up to produce a new block every 10 minutes, regardless of hash rate. Thus block space remains constant.

Yes, understood. However, this is just asserting that if the hash rate falls, the difficulty will adjust. The problem isn't the difficult level, but the falling hash rate (reducing the barrier against a network attack).

Now, given that block space is a finite resource, there will be competition. More competition (more transactions) will drive up fees, which will make mining more profitable, thus increasing the hash rate as more miners join in to get that profit. Conversely, less transactions means less competition, less fees, less mining, reduced hash rate.

Sure, I'm fine with this too. I asserted that 'if the transaction rate becomes stable', then so will the competition for block space. In turn, this implies a stable hash rate (fluctuations considered, ofc).

Now, when hardware becomes cheaper, mining becomes more profitable. Thus more miners join in to get that profit. Any guesses what that results in?

Bottom line: as long as there is competition for block space, this entire thread is moot.

I asserted that 'mining ceases to be profitable' as a boundary condition. I'm not convinced that miners drive the price of Bitcoin; It's the people who value Bitcoin that dictate the price. If it becomes too expensive to mine at the market rate, mining will not be done. Therefore, I'm not convinced that miners will necessarily step up to increase the hash rate.

To conclude, I am still unconvinced that this thread is moot. The hash rate needs to increase proportionately to Moore's Law and I'm not certain this will happen automatically (without some relatively minor alternations).

I'm happy to be proved wrong though, if you think I'm still missing something.

[gollum]

Deflation will kill bitcoin businesses - why spend your bitcoins today if they are worth more tommorow, or next week, or next month...
Bitcoin simply becomes an asset to speculate in or hedge against inflation instead of being used as a trading currency.
The best thing that can happen to the bitcoin community is a crash followed by a stable price for a long time so people get used to spend their coins instead of just hoard the coins.

One solution to the deflation problem is that if everybody votes for a change in the bitcoin protocol so a 2%  inflation can go on for ever even after 21 million coins have been mined.

[Traktion]

Deflation will kill bitcoin businesses - why spend your bitcoins today if they are worth more tommorow, or next week, or next month...
Bitcoin simply becomes an asset to speculate in or hedge against inflation instead of being used as a trading currency.
The best thing that can happen to the bitcoin community is a crash followed by a stable price for a long time so people get used to spend their coins instead of just hoard the coins.

One solution to the deflation problem is that if everybody votes for a change in the bitcoin protocol so a 2%  inflation can go on for ever even after 21 million coins have been mined.

That's not true. If it were, no one would hold inflationary cash, as they would be spending it today, rather than lose value tomorrow. It would also mean that no one would buy any computers.

Just as contracts can account for inflation, they can also account for deflation. The only real difference is psychological - more stuff has to be better than less stuff, right?

There is nothing to stop people taking out inflation rate trackers, which can go negative. That is, the repayments get reduced during a deflation. The real value remains positive regardless.

[Mosper]

there is a limit on bitcoin to try and prevent the calamity that is overprinintg of fiat currency by a central source to pay off debts, pay for wars and buy prostitutes.  Cap production, there is no oppurtunity for the inflation that occurs with fiat.

the proof of work problems are set up in a way way where the difficulty will increase exponentially, but there will never be an end to the proof of work difficulty, removing your so called deficit of hash, allowing a stable and secure network.  

There is a limit on bitcoin because the person who made it never intended it to be used the way this community has decided it should be used. Kind of ridiculous to ignore that fact and try to rationalize the nature of BTC away and make it fit nicely into your ridiculous internet libertarian world view.

[bitlancr]

I asserted that 'mining ceases to be profitable' as a boundary condition. I'm not convinced that miners drive the price of Bitcoin; It's the people who value Bitcoin that dictate the price. If it becomes too expensive to mine at the market rate, mining will not be done. Therefore, I'm not convinced that miners will necessarily step up to increase the hash rate.

To conclude, I am still unconvinced that this thread is moot. The hash rate needs to increase proportionately to Moore's Law and I'm not certain this will happen automatically (without some relatively minor alternations).

I'm happy to be proved wrong though, if you think I'm still missing something.

Ok, so let's assume everything is constant except for Moore's Law. By Moore's Law, the cost to produce a fixed level of hashing power will decrease over time. With all other things being equal, mining becomes more profitable. Now other potential miners will take note of this, so more miners will join, incentivised by the increased profit margin. Thus - all other things being equal - the hashing power will increase with Moore's Law.

I think your point about the price of Bitcoin is right - but that should be obvious. Bitcoin being less valuable means exactly that - it's less valuable, therefore it's only right that less hashing power is devoted to it. In this case, less hashing power is the effect of Bitcoin being less valuable, not the cause.

[alexeft]

Great, everyone gets absolutely filthy stinking rich for ever and ever... that cant be right

And it is not right. For someone to be rich, someone has to be poor.

I guess that even bitcoin has a natural point of equilibrium after which it will only deflate by the yearly value that its economy will produce.
If for example at equilibrium all bitcoin users have a total of 10 houses and someone builds one more, the total value of the 21 mil bitcoins will become equal to eleven houses and ALL bitcoin users will be richer by a house divided by their percentage of the total bitcoins.

[JoelKatz]

Guess I'm not seeing the "why buy today when its cheaper to buy tomorrow?" argument clearly. "Because I have to eat today" only covers a very small part of it. Unless we're living on the breadline then we can and will save for tomorrow with a deflatory currency and that saving will continue until there's only Satoshi's in circulation. Great, everyone gets absolutely filthy stinking rich for ever and ever... that cant be right :/ I guess if someone gets to be an all powerful dictator they'll be left with a useless blockchain if they piss to many folks off though.

Maybe you'll see it more clearly if you look at the same argument in the context of an inflationary currency or good that's appreciating in value. Suppose the price of gas has been rising continuously and fairly predictably, either because the currency is dropping in value or because the demand for gas is increasing. Are gas stations going to close down for a few weeks so that they can sell gas for higher prices in the future?

The answer is clearly no. Because if they were going to do so, that would simply mean the price of gas wasn't high enough *today*. You don't see a gas station closing because they'd prefer to sell their gas later when the price is higher. The price is already high enough -- supply and demand ensures it.

The same is true of a deflationary currency. If it's actually encouraging hoarding, that would simply mean the price of goods wasn't low enough *today* to encourage people to buy them and the price would fall until it is low enough. But of course, that will have already happened -- having a deflationary currency means the price of goods has dropped.

[gollum]

Guess I'm not seeing the "why buy today when its cheaper to buy tomorrow?" argument clearly. "Because I have to eat today" only covers a very small part of it. Unless we're living on the breadline then we can and will save for tomorrow with a deflatory currency and that saving will continue until there's only Satoshi's in circulation. Great, everyone gets absolutely filthy stinking rich for ever and ever... that cant be right :/ I guess if someone gets to be an all powerful dictator they'll be left with a useless blockchain if they piss to many folks off though.

Maybe you'll see it more clearly if you look at the same argument in the context of an inflationary currency or good that's appreciating in value. Suppose the price of gas has been rising continuously and fairly predictably, either because the currency is dropping in value or because the demand for gas is increasing. Are gas stations going to close down for a few weeks so that they can sell gas for higher prices in the future?

The answer is clearly no. Because if they were going to do so, that would simply mean the price of gas wasn't high enough *today*. You don't see a gas station closing because they'd prefer to sell their gas later when the price is higher. The price is already high enough -- supply and demand ensures it.

The same is true of a deflationary currency. If it's actually encouraging hoarding, that would simply mean the price of goods wasn't low enough *today* to encourage people to buy them and the price would fall until it is low enough. But of course, that will have already happened -- having a deflationary currency means the price of goods has dropped.

If I managed an oil company and the price of oil was going up very quickly I would of course try to profit from the rising price by not selling to the market until the price has peaked.
Since oil demands huge volumes of storage It would be much easier to just deliver the oil to the customers, and instead buy one future contract for every barrel deliverd until our analysts would say the bubble is about to crash. (summer of 2008, oil peaked at 145$/barrel and crashed 80%).

[JoelKatz]

If I managed an oil company and the price of oil was going up very quickly I would of course try to profit from the rising price by not selling to the market until the price has peaked.

That's very dangerous because there is no way to know when it has peaked and there's always a risk that the price will fall before you can sell the oil you held back. Certainly some people will do that, but it's not a universally winning strategy.

Since oil demands huge volumes of storage It would be much easier to just deliver the oil to the customers, and instead buy one future contract for every barrel deliverd until our analysts would say the bubble is about to crash. (summer of 2008, oil peaked at 145$/barrel and crashed 80%).

The problem is that the predictable aspects of the future price are already baked into the present price. If the price wasn't rising fast enough, people would hold back oil, and the price would just rise faster.

All of these affects are already cancelled out in the present price. The present price must be fair to sellers, or it would rise. The present price must be fair to buyers, or it would drop. For any reasonably-liquid commodity priced in any reasonably-liquid currency, the price will be tend towards the price that is equally fair to the typical buyer and the typical seller.

[mobile4ever]

Reward for blocks will stop in 2040.  Yes or no?  If rewards for new blocks stop, miners will depend on transaction fees.   This decreases the revenue of the mining.  

I predict that by 2040 there will be so many transactions that people would rather not get a reward for their hashing out a block, just for the transactions. I cant prove anything, but that is what I believe.

[Adrian-x]

I don't thing fees will be necessary.

All electronic devises capable of performing a financial transaction will have Avalon SHA256 Asics built into the processor.  Everyone who is invested in making such transaction will be contributing. (if not everyone then all the serves providers who collect payments will.)

The value of Bitcoin will increase exponentially until it has some huge value. Once it does anyone with a single Bitcoin will be running a miner on their PC with an integrated SHA256 Asics just to secure their 1BTC on the network. Redundant relic SHA256 Asics will be on standby with monitors to detect any opportunity to profit from delayed transactions and auto power up.

If fees are even necessary, it will be determined democratically by choice in mining software, the idea that fees will be charges will create a huge buzz in the world, the talk will be all about the lucky winners in the lottery.  

Conglomerates / mining pools will form to process the transactions, users will switch mines in coordinated efforts to try and keep free money transactions,  Conglomerates / mining pools, will be kept in cheque ever increasing there SHA256 processing power to ensure they have the dominant mining software to maintain the fee structure necessary to manage their efforts. All the while users benefit  by either increased security, or reduced costs, and it will be technology and news that drive the different trends.    

[chrsjrcj]

Deflation will kill bitcoin businesses - why spend your bitcoins today if they are worth more tommorow, or next week, or next month...
Bitcoin simply becomes an asset to speculate in or hedge against inflation instead of being used as a trading currency.
The best thing that can happen to the bitcoin community is a crash followed by a stable price for a long time so people get used to spend their coins instead of just hoard the coins.

One solution to the deflation problem is that if everybody votes for a change in the bitcoin protocol so a 2%  inflation can go on for ever even after 21 million coins have been mined.

Because people have to eat.
50 inch flat screen? I could hold out, but the Super Bowl is tomorrow.
Air conditioner breaks down in the middle of summer.

Apple comes out with a new iPhone every year. Why buy this years model when you know you can buy a better model next year, or this year's model at a lower price next year? Doesn't stop people from standing in line for 8+ hours.

[gollum]

Deflation will kill bitcoin businesses - why spend your bitcoins today if they are worth more tommorow, or next week, or next month...
Bitcoin simply becomes an asset to speculate in or hedge against inflation instead of being used as a trading currency.
The best thing that can happen to the bitcoin community is a crash followed by a stable price for a long time so people get used to spend their coins instead of just hoard the coins.

One solution to the deflation problem is that if everybody votes for a change in the bitcoin protocol so a 2%  inflation can go on for ever even after 21 million coins have been mined.

Because people have to eat.
50 inch flat screen? I could hold out, but the Super Bowl is tomorrow.
Air conditioner breaks down in the middle of summer.

Apple comes out with a new iPhone every year. Why buy this years model when you know you can buy a better model next year, or this year's model at a lower price next year? Doesn't stop people from standing in line for 8+ hours.

If I got 1000$ in my bank account and 1000 $ worth of BTC I would rather buy the new iPhone with my fiat-money than my BTC since the dollars decrease in value every year and the bitcoin increase in value every year. To compare currencies with iCrap is just foolish since some people are even ready to sell their organs for a new iPad...

[JoelKatz]

If I got 1000$ in my bank account and 1000 $ worth of BTC I would rather buy the new iPhone with my fiat-money than my BTC since the dollars decrease in value every year and the bitcoin increase in value every year.

That makes no sense. Why would you prefer this to buying your iPhone with Bitcoins and then just buying more Bitcoins?

If you really would significantly prefer to buy the iPhone with Bitcoins rather than dollars, that just means the price of Bitcoins relative to dollars is too low *today*. If that were true, people would be trying to buy Bitcoins for dollars and nobody would be selling them, which would cause the price to rise immediately. In practice, this simply never happens. The price of Bitcoins relative to dollars is already fair to the typical buyer and typical seller or it would already have changed.

[gollum]

If I got 1000$ in my bank account and 1000 $ worth of BTC I would rather buy the new iPhone with my fiat-money than my BTC since the dollars decrease in value every year and the bitcoin increase in value every year.

That makes no sense. Why would you prefer this to buying your iPhone with Bitcoins and then just buying more Bitcoins?

If you really would significantly prefer to buy the iPhone with Bitcoins rather than dollars, that just means the price of Bitcoins relative to dollars is too low *today*. If that were true, people would be trying to buy Bitcoins for dollars and nobody would be selling them, which would cause the price to rise immediately. In practice, this simply never happens. The price of Bitcoins relative to dollars is already fair to the typical buyer and typical seller or it would already have changed.

If I buy the iPhone with bitcoins and want to buy new bitcoins I have to transfer money to MtGox which costs money and take time, and I have to pay 0,6% fee to MtGox to buy bitcoin. And I also risk that buy back the bitcoins at a much higher price when I have funded my MtGox account.. the price might have moved 50% in two weeks.
Or I can just pay for the new iPhone with fiat$ and keep my coins. Much easier and I dont have to spend money on transactions or possible pice rise on bitcoin.

[MikeH]

yeah that's the problem I'm seeing at the moment - I'm happy to spend bitcoins as long as I can replace them straight away, as it is I would have to log in to Mt Gox and have some fiat on stand by to do that whereas it'd be preferable to just have like a 'pay and top up' button when making transactions.

[JoelKatz]

If I buy the iPhone with bitcoins and want to buy new bitcoins I have to transfer money to MtGox which costs money and take time, and I have to pay 0,6% fee to MtGox to buy bitcoin. And I also risk that buy back the bitcoins at a much higher price when I have funded my MtGox account.. the price might have moved 50% in two weeks.

Right, but in exchange, you get to offer the seller the currency they want most. If your assumption that people would much rather hold Bitcoins than dollars is correct, the seller should significantly reward you for giving them the currency they prefer. The costs you mention above are miniscule. There's no need for you to risk buying Bitcoins at a much higher price, you can buy them immediately. If Bitcoins are underpriced, you would have already funded your Mt. Gox account. The fact that you didn't shows you don't really believe Bitcoins are underpriced.

Or I can just pay for the new iPhone with fiat$ and keep my coins. Much easier and I dont have to spend money on transactions or possible pice rise on bitcoin.

Right, but you'll pay much more for no reason. If your assumption that people would significantly prefer to hold Bitcoins over dollars is correct, you'd be giving the seller something they value much more highly. Unless the seller is irrational, they should make that well worth your while, and all your additional costs in doing so are miniscule.

[Sweft]

Sweft:  We at Freicoin have long understood the scenario you describe and are in agreement with you on the unsustainable nature of Transaction Fees to support BTC, velocity is far far below 1 so you would need terribly high fees to generate a revenue stream that would replace present mining rates.  So far the response to lower block rewards has been a rise in valuation, which appears to have blow through the mere doubling that would have kept miners at parity and is now an out and out speculative bubble.

The Freicoin solution is to reduce all wallet funds by 5% per year (in tiny amounts per block), all these funds are then payed to Miners.  Total monetary base dose not increase so their is no inflation, after a short initial distribution of 3 years miner rewards remain constant and the network never needs to depend on Transaction fees.  All users essentially pay to secure the network based on their wealth rather then by transaction fees, this is both better economically as well as intrinsically more fair.

We also believe their are a myriad of other detrimental macro-economic effects (Usury) cause by Deflationary currency (putting us radically at odds with the majority of the community that feels it deflation a good thing), and these were our primary motivations, but we've been aware of the death-by-transaction-fee scenario for a long time.  Our website is http://www.freicoin.org/

I'm not sure of the viability of Freicoin.  I will point out things that I dislike.

1) people don't like to lose money.
2) mining profit cannot increase unless the price increases.  Whether or not 5% mining profit is enough to keep up with Sweft's Law, I can't prove.
3) the 5% surcharge makes it prone to a mining attack where the miner takes approximate control proportional to his mining hash of network hash in approximately 30 years.  Ie. if miner controls 50% of hash he will control 40% of coins in 30 years.  If miner controls 90% of hash he will control 80% of coins in 30 years.  Or so, I didn't do the math.  This is problematic because people cannot hoard coins, which given a free market, people should be at liberty to do.  It removes some freedom and that will certainly affect the adoption of Freicoin.

It's much simpler to program inflation into coins rather than a tax.

[Luckybit]

I will introduce the concept of Sweft's Law and Sweft Attack below.

Sweft's Law:  The network hashrate of a cryptocurrency must rise at a rate at least equal to that of the rate of Moore's Law to ensure minimum network security.

Sweft Attack:  A prolonged deflationary attack on a cryptocurrency network describing a situation in which a rogue miner processes transactions solely for the purpose of removing the fee of said transaction from circulation.  A necessary precondition for said attack is that the average transaction fee must exceeds the average rate of cryptocurrency inflation.

Edit:  originally titled the 2040 problem, a more apt title is the deflationary problem.  I use 2040 as a point where mining reward via block reward would be negligible.  I'm starting to believe this point where miners no longer profit enough to increase hash will come much sooner, perhaps by 2020.

 
In 2040 new block generation will be negligible, bitcoins will be fixed.  Miners will only be rewarded for transaction fees.  This may not seem like a problem, it IS.

The health of the network depends on constant hash growth.  Without constant hash growth, the network is prone to attack.  Why?

What protects the network right now is a high hashing rate.  This secures it from attack.  Without this, there is no security.  The price of bitcoins would fall.  The more hash, the more security, the higher the price will be.  Because it's impenetrable from exterior forces or supercomputers.  If a government were to be able to attack the network, 99% of the network, the system would fail.  If the system has the ability to fail, the price of bitcoins is worthless.

Thus, the whole network depends on hash.  The security and price, which is also reflective of hardware and electricity, and again, security.  The more hash the network has the more secure.

Thus, miners need incentive to increase hash.  They do this by generating new coins.  Thus you increase hash and create a more secure network.

The problem is that in 2040 new block generation will stop, and coins will be fixed.  Now, people want to make you believe this is fine.  It's not.  It's stupid and beyond stupid.

The stupid part about is is that it removes an incentive for miners to increase hash.  It removes a revenue stream for miners.  New coin production is not BAD, it's GOOD.  Only a moron would think otherwise.

This is extremely important.

When you remove the reward for generation of new blocks, you remove a revenue stream for miners, hash will fall.  You say, who cares, hash falls.  

Hash secures the network.  It ensures that miners will profit and the miners ensure there is no double spending of coins.  If miners stop mining because intensives become smaller (loss of profit), hash goes down, the network is prone to attack.

Then the coin holders will be mining to protect their own money.  This will be an incentive of the richest members.  The problem is that every year hardware advances and you're no longer making as much money mining, maybe not even to cover the hardware costs to protect the network.  So now, the network is prone to attack.

This is irrespective of assuming whether or not transaction fees will support the network.  It's irrelevant.  The network will be weaker because you removed profit from miners.  Now, miners stop mining.  Thus, you decrease hash.

Bitcoins are only worth the hash(security) of the network.





Edit:  I haven't posted in two years but i will provide an updated analysis below.

For BTC to to have value, miners must secure the network. If miners do not constantly increase hash, Moore's law will catch up to the network and it will become prone to attack. This should be easily accepted as fact. If you don't accept this premise i can't possibly help you understand the deflationary flaw in bitcoin.

If you don't understand, let me try to explain it again. If hash remains constant and doesn't increase for a number of years, technological advancements (Moore's Law) will make an 51% attack more likely.

Now what some people seem to argue is that tx fees will support mining growth.

This is true in two scenarios.

1) bitcoins are sent/received more frequently (velocity) 2) tx fees increase

I will addresses the problems with both scenarios.

The problem with #2 is that there is a cap on maximum fee the miners can charge, at 100%. So velocity remains constant, miners cannot increase profit beyond 100% tx fee. So this cannot create increasing profit.

The problem with #1 is that bicoins can be permanently lost, and there is a hard cap on the amount of bitcoins. That means that there will eventually be more bitcoin lost than is generated by block reward. This should be known as the 'Sweft point' where bitcoin turns into a deflationary currency from an inflationary one. Thus, to believe that transactions will increase as coins are lost, aka deflation, is not a sound proposition.

Another issue is that rogue miners can mine the network, charging tx fees and sending the coins to the trash. This would further exaggerate the deflationary tendency of the bitcoin design.

Thus it should be obvious to anyone that understands the issues to also understand that there exists a simple solution which will make the person who implements it rich.

Make an alt currency with a cap minimum 3% inflation. This will satisfy the profits of the miners and hash of the network.

R

Bitcoin wont have to last until 2040 before something better replaces it.

[Impaler]

Golum/JoelKatz :  Yall are basically arguing over Gresham's law aka "Bad money drives out Good".  Golum believes in it, JoelKatz rejects it.  Bad in this context means soft aka inflationary or overvalued money and Good means hard money that's deflationary or undervalued.  People spend the bad money and hoard the good money, thus the good money stops acting as money and becomes a commodity, while the bad money dose the job of money.

BUT, Gresham's law as originally stated only works when Legal tender laws force the two currencies to be exchanged at equal face-value and the underlying commodity values are different (for example equal weight silver and brass coins having the same face-value).  When allowed to float freely we don't see classic Gresham's law.  In a hyper-inflationary environment the hyper currency actually disappears and commerce is done in a foreign (usually dollar if people can get them) currency.

Now it seems lots of BTC folks have concluded from this that if people reject hyper-inflationary currency for a mildly inflationary one.  Then they would reject the mildly inflationary currency for a hyper-deflationary one.  Golum's position or "Golums Law" seems to be that "Stable money drives out unstable money", and what people seek is not the maximally deflating currency but rather the maximally stable currency.

http://en.wikipedia.org/wiki/Gresham%27s_law

[MoonShadow]

 Golum's position or "Golums Law" seems to be that "Stable money drives out unstable money", and what people seek is not the maximally deflating currency but rather the maximally stable currency.

That's actuallly true, for some; but provablely not true for all.  This can also be said for Gresham's Law.  Part of this Regression Theorem, as trader's generally expect that bitcoins will be worth tommorrow roughly what they were worth yesterday.  If there is great insability (as we presently have) or either significant inflation or deflation then traders can no longer be confident of the value of those bitcoins tommorrow, and thus one party to the transaction faces an increased risk of some kind of loss if there is significant movement in trade value in the near future.  In the case of inflation, it's the merchant who accepts such a currency that faces potential losses; while in the case of deflation, it's the buyer who faces a potential loss due to increasing opprotunity costs.  In either case, relative stability contributes to bitcoin's value as a medium of exchange.  Hyper deflation is as bad for a trade currency as is hyper inflation, but it's 'delta' rate of change that matters, not so much the direction.

[Impaler]

Well historically if we look at the full history of BTC it has deflated at a rate of around 1000% a year, or roughly one order of magnitude per year.  In its MOST stable period which was 2012 it managed to only increase 300% but this was a lull between two massive bubbles and crashes.  So I think it's quite reasonable to say that BTC lives up to it's intended deflationary nature and is by any reasonable definition is hyper-deflationary.

[marcus_of_augustus]

Well historically if we look at the full history of BTC it has deflated at a rate of around 1000% a year, or roughly one order of magnitude per year.  In its MOST stable period which was 2012 it managed to only increase 300% but this was a lull between two massive bubbles and crashes.  So I think it's quite reasonable to say that BTC lives up to it's intended deflationary nature and is by any reasonable definition is hyper-deflationary.

Yes but this during adoption phase when the needed network effect to establish as a currency is being established. Bitcoin does no have the luxury of a big bad govt. overnight declaring it the coin of the Internets (and wouldn't want to anyway).

That order of magnitude per year is a figure Vladimir and I discussed way back in late 2010 I think and is a ballpark figure to keep in mind as the network adoption is growing. Networks often grow exponentially over fixed time periods ... until they mature.

So this most recent run up could be seen as the combination of reverting to exponential growth after being beaten down by previous Gox fiasco ... so should have been $10 at end of 2011, $100 at end of 2012 ... and euphoria looking towards end of 2013 ($1000).

[MoonShadow]

Well historically if we look at the full history of BTC it has deflated at a rate of around 1000% a year, or roughly one order of magnitude per year.  In its MOST stable period which was 2012 it managed to only increase 300% but this was a lull between two massive bubbles and crashes.  So I think it's quite reasonable to say that BTC lives up to it's intended deflationary nature and is by any reasonable definition is hyper-deflationary.

Only for the time being.  This is the adoption phase.  It is to be expected.

[Impaler]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

[myrkul]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

[minerva]

Make an alt currency with a cap minimum 3% inflation. This will satisfy the profits of the miners and hash of the network.

You will need a central bank/authority that would exchange dollars to bitcoins, and that would set difficulty based upon that.

[mestar]

 This should be known as the 'Sweft point'

Ego problems?

[mestar]

I will describe another flaw that can be exploited in a deflationary cryptocurrency.  It will be known as a Sweft attack and is described below.

Sweft attack: A prolonged deflationary attack on a cryptocurrency network describing a situation in which a rogue miner processes transactions solely for the purpose of removing the fee of said transaction from circulation. A necessary precondition for said attack is that the average transaction fee must exceeds the average rate of cryptocurrency inflation.

Why is that a condition for this attack?  Can't he remove the coins he got as block award as well?  Can't he also buy them on an exchange and remove them?  What makes those coins in the fees so special?

Also, after he collect a huge amount, and the price increases because of that, your miner will have a hellova big incentive to spend those coins, wouldn't you say? 

[mestar]

If tx fee is .5%, the amount of currency needed to move to get the equivalent of 2% inflation would be 4x the amount of btc in circulation.

How do you know how much security is enough?

If, with those numbers, there is only 1% of BTC in circulation each year (instead of your 4x), is that enough security or not?

[mestar]

The deflationary aspect of bitcoin destroys the vibrancy of the mining ecosystem

What the fuck does this mean?

[xylop]

The deflationary aspect of bitcoin destroys the vibrancy of the mining ecosystem

What the fuck does this mean?

computers won't vibrate anymore
natural vibrations is the key

[Sweft]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

I already addressed this issue, please read the thread.

Fees are capped at 100% so increasing fees cannot support exponential growth.

You have three means to secure the network once bitcoin becomes deflationary.

1) exponential growth of velocity which is almost impossible given the deflationary nature.
2) exponential growth of price which would lead to hoarding and less coin velocity
3) mining at a loss of profit to protect the network and your coins

All of these are situations are irrelevant given moderate inflation.  Inflation supports network hash by supporting mining profits

[myrkul]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

I already addressed this issue, please read the thread.

Fees are capped at 100% so increasing fees cannot support exponential growth.

If bitcoin is still experiencing exponential growth in 2140, the world will have much greater problems than securing the bitcoin network, because that will require many times the current world population and that the population also be growing exponentially.

[Sweft]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

I already addressed this issue, please read the thread.

Fees are capped at 100% so increasing fees cannot support exponential growth.

If bitcoin is still experiencing exponential growth in 2140, the world will have much greater problems than securing the bitcoin network, because that will require many times the current world population and that the population also be growing exponentially.

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

I'm not sure what you're talking about, honestly, and neither do i think that you, yourself, know what you are talking about.

The other issue is that there must exist a base hash which would be proportional to world hash computational output on which then Moore's Law is applied to satisfy Sweft's Law.  Growing at the rate of Moore's Law is insignificant if the baseline threshold for attack is low.

Let me make it more clear.

If we take 70,000ghash and divide by 60 and multiply by 2000 we can arrive at the cost to replicate the bitcoin network security.  This is assuming 60ghash can be purchased for 2000$.

So, currently, the network hash is worth about 2.3m and valued at 600m.  So bitcoins are worth about 230x network hash.

To have a secure network from which we can then apply Sweft's Law the ghash should be about 100,000 times larger.  This would cost 230,000,000,000$ to replicate the network or 230b.   From there we apply Moore's Law and the network must grow in accordance to the Law to ensure minimum security

I just don't think that deflation will satisfy Sweft's Law and I believe thst a competing alt 2-3% inflationary cryptocurrency will eventually outcompete bitcoin for the various reasons i have outlined.

[Adrian-x]

I just don't think that deflation will satisfy Sweft's Law and I believe thst a competing alt 2-3% inflationary cryptocurrency will eventually outcompete bitcoin for the various reasons i have outlined.

The inflation in the economy is cause for Malinvestment, it is a cost industry pays at the expense of efficiency and environment, the net energy in mineral  / energy mining and environmental damage and wasted recourses as a result of the inflation caused Malinvestment, will be much higher than the cost of a fixed currency infrastructure through the Hash rate. 

To make your argument you will have to prove why the hash rate will scale relative to number of transactions, the to functions do not scale symmetrically, your assumption that they do is the error that makes your argument.   

[Sweft]

I just don't think that deflation will satisfy Sweft's Law and I believe thst a competing alt 2-3% inflationary cryptocurrency will eventually outcompete bitcoin for the various reasons i have outlined.

The inflation in the economy is cause for Malinvestment, it is a cost industry pays at the expense of efficiency and environment, the net energy in mineral  / energy mining and environmental damage and wasted recourses as a result of the inflation caused Malinvestment, will be much higher than the cost of a fixed currency infrastructure through the Hash rate.  

To make your argument you will have to prove why the hash rate will scale relative to number of transactions, the to functions do not scale symmetrically, your assumption that they do is the error that makes your argument.    

Gold has been inflating for thousands of years.  Your arguments are nonsense.  It takes energy to find gold and it takes energy to mine bitcoins.  Neither is a cause of mal-malvestment because it is not free to obtain.  Mal-investment only occurs when inflating is cheap relative to what is gained by inflating.  Inflation of fiat is bad, of gold, bitcoins, copper, uranium, etc not.  It is necessary and good.

Please spare me the mundane economic discussion.  If you did your due diligence i already addressed the inflationary aspect earlier, and how it relates to other known stores of value such as gold.

I will have to address this in the first post so people don't keep repeating the same thing.

[myrkul]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

I already addressed this issue, please read the thread.

Fees are capped at 100% so increasing fees cannot support exponential growth.

If bitcoin is still experiencing exponential growth in 2140, the world will have much greater problems than securing the bitcoin network, because that will require many times the current world population and that the population also be growing exponentially.

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

Because if Network hash rate doesn't at least keep up with computing power, it can be outcompeted, and lose the 51% battle?

You seem to have forgotten the second half of Moore's law. Hardware also gets cheaper as it gets more powerful. Fees will more than keep miners in the latest hardware.

[Sweft]

So your saying you expect it to stop?  I find little evidence that it will ever stop, the continual halfing every 4 years of mining rewards clearly points to a about ~20% deflation per year over the long term as the price of BTC must rise to keep mining profitable.

Not necessarily. Fees can rise, as well.

Once we get closer to market saturation, and have a better developed economy - by which I mean more goods and services valued directly in bitcoin - we'll see a lot smoother price movements.

I already addressed this issue, please read the thread.

Fees are capped at 100% so increasing fees cannot support exponential growth.

If bitcoin is still experiencing exponential growth in 2140, the world will have much greater problems than securing the bitcoin network, because that will require many times the current world population and that the population also be growing exponentially.

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

Because if Network hash rate doesn't at least keep up with computing power, it can be outcompeted, and lose the 51% battle?

You seem to have forgotten the second half of Moore's law. Hardware also gets cheaper as it gets more powerful. Fees will more than keep miners in the latest hardware.

I think you are one step closer to realizing the problem.

Hash must always grow.  

The inclination of early Bitcoin theorists was that Hash would fall if miners did not profit, and the mechanism would regulate itself until miners profited.  This is true for mining profit and always will be.

But if miners do not profit, and the difficulty must come down for them to profit, then the whole network can potentially become compromised.

Thus, as i originally stated hash must increase in accordance with Moore's Law, as well as difficulty, and the protocol should reward mining profit through inflation rather than punish it with deflation.

[Adrian-x]

Gold has been inflating for thousands of years.

I am not defending Bitcoin I see flaws too, to your point, gold is a finite resource, and it inflates very slowly over thousands of years, energy and environmental cost of gold inflation dwarfs that of Bitcoin. Bitcoin is finite and inflates (if only it would inflate like gold) the cost of Bitcoin inflation is insignificant in when compared to gold.

[minerva]

https://bitcointalk.org/index.php?topic=174378.0

I've posted an equation that relies on declining rates of return on mining, allowing increased mining to produce more hashes, but also for more coins to be produced.

[myrkul]

Because if Network hash rate doesn't at least keep up with computing power, it can be outcompeted, and lose the 51% battle?

You seem to have forgotten the second half of Moore's law. Hardware also gets cheaper as it gets more powerful. Fees will more than keep miners in the latest hardware.

I think you are one step closer to realizing the problem.

Hash must always grow.  

Nope, it must not. In order for the network to be secure, 51% of hashing power must remain in "white-hat" hands.

Even if a 51% attack happened, it wouldn't do much, nor last long (as the other miners could simply buy cheap hardware and knock him back under 51%).

It's more profitable to play by the rules, than to try and subvert them.
See: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

[Sweft]

Bump.

[JoelKatz]

Even if a 51% attack happened, it wouldn't do much, nor last long (as the other miners could simply buy cheap hardware and knock him back under 51%).

They could, but would they? If they feared the 51% would continue, they'd have no assurance of any return on their investment. If the price falls, some existing miners might be discouraged and stop mining, possibly faster than new mining could be added, especially when it wasn't profitable in the short term.

It's more profitable to play by the rules, than to try and subvert them.
See: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

That assumes that their profit comes from Bitcoin rather than a competitor (which could even be conventional fiat currency). Consider, for example, a future time when Bitcoin prices are high but the block reward is low enough that mining isn't all that profitable. If someone shorts Bitcoins (perhaps even by investing in a competitor, which could even be something like Western Union, PayPal, or Visa), they might actually find it profitable to launch a 51% attack.

One thing that helps Bitcoin resist this kind of attack is that it can't be mined efficiently with general purpose hardware. This means that miners probably won't stop mining at the drop of a hat because they can't sell their mining hardware to someone who is going to do something else with it anyway or use it for something else -- they will have to try to keep Bitcoin healthy event if that means short term losses otherwise their expensive mining hardware is just scrap metal. And it also means that an attacker has to invest in hardware that they can *only* use to mine Bitcoins. They can't rent general purpose hardware to attack the network at a low cost. Coins that use ASIC-unfriendly mining schemes are much more vulnerable to this kind of attack than Bitcoin is.

[myrkul]

Even if a 51% attack happened, it wouldn't do much, nor last long (as the other miners could simply buy cheap hardware and knock him back under 51%).

They could, but would they? If they feared the 51% would continue, they'd have no assurance of any return on their investment. If the price falls, some existing miners might be discouraged and stop mining, possibly faster than new mining could be added, especially when it wasn't profitable in the short term.

It's more profitable to play by the rules, than to try and subvert them.
See: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

That assumes that their profit comes from Bitcoin rather than a competitor (which could even be conventional fiat currency). Consider, for example, a future time when Bitcoin prices are high but the block reward is low enough that mining isn't all that profitable. If someone shorts Bitcoins (perhaps even by investing in a competitor, which could even be something like Western Union, PayPal, or Visa), they might actually find it profitable to launch a 51% attack.

I can't refute those points, but the next one makes them all sort of moot.

One thing that helps Bitcoin resist this kind of attack is that it can't be mined efficiently with general purpose hardware. This means that miners probably won't stop mining at the drop of a hat because they can't sell their mining hardware to someone who is going to do something else with it anyway or use it for something else -- they will have to try to keep Bitcoin healthy event if that means short term losses otherwise their expensive mining hardware is just scrap metal. And it also means that an attacker has to invest in hardware that they can *only* use to mine Bitcoins. They can't rent general purpose hardware to attack the network at a low cost. Coins that use ASIC-unfriendly mining schemes are much more vulnerable to this kind of attack than Bitcoin is.

[Sweft]

Even if a 51% attack happened, it wouldn't do much, nor last long (as the other miners could simply buy cheap hardware and knock him back under 51%).

They could, but would they? If they feared the 51% would continue, they'd have no assurance of any return on their investment. If the price falls, some existing miners might be discouraged and stop mining, possibly faster than new mining could be added, especially when it wasn't profitable in the short term.

It's more profitable to play by the rules, than to try and subvert them.
See: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

That assumes that their profit comes from Bitcoin rather than a competitor (which could even be conventional fiat currency). Consider, for example, a future time when Bitcoin prices are high but the block reward is low enough that mining isn't all that profitable. If someone shorts Bitcoins (perhaps even by investing in a competitor, which could even be something like Western Union, PayPal, or Visa), they might actually find it profitable to launch a 51% attack.

One thing that helps Bitcoin resist this kind of attack is that it can't be mined efficiently with general purpose hardware. This means that miners probably won't stop mining at the drop of a hat because they can't sell their mining hardware to someone who is going to do something else with it anyway or use it for something else -- they will have to try to keep Bitcoin healthy event if that means short term losses otherwise their expensive mining hardware is just scrap metal. And it also means that an attacker has to invest in hardware that they can *only* use to mine Bitcoins. They can't rent general purpose hardware to attack the network at a low cost. Coins that use ASIC-unfriendly mining schemes are much more vulnerable to this kind of attack than Bitcoin is.

ASIC's are tremendously beneficial to the future of cryptocurrencies.  The fact that bitcoin lasted long enough to herald in ASICs is a great accomplishment for all future cryptocurrencies that will compete on the basis of which economic protocol is most efficient.

That said, once the hashrate matures we cannot simply rely on the fact that ASIC miners will not stop mining.  The hashrate must double every two years, otherwise the monetary barrier to a double spend become  smaller and smaller.

[JoelKatz]

I can't refute those points, but the next one makes them all sort of moot.

I hope so. I think it's worth working on ways to reduce the probability and severity of this attack. So, in an academic sense, it's well worth worrying about. But it would be really odd to argue that people should avoid Bitcoin because of the very small risk of this kind of attack.

In addition, though the known solutions (at least known to me) to a 51% attack (from a motivated attacker with significant resources) are pretty awful, it's not necessarily the total death of Bitcoin. So while it would be a severe blow (as the block chain split was, as the recent price crash was), I would expect Bitcoin would survive somehow. Bitcoin's death has been predicted so many times and Bitcoin has weathered crises.

[firefop]

I just wanted to wrap this thread up by pointing out that moores law will break down at some point once we can't make smaller silicon... or at least change to a different time frame. Once bitcoin asics are at the practical limits of silicon's molecular size (is it 4 or 5 nano meters?) we're dead in the water on this issue until quantum computing... at which point we'll have to change the proof of work anyway.

Moore said it himself: the following an extracted from this transcript  http://ftp://download.intel.com/museum/Moores_Law/Video-Transcripts/Excepts_A_Conversation_with_Gordon_Moore.pdf  in 2005.

Interviewer: How long can it continue?

Gordon Moore: I think Moore’s Law will continue as long as Moore does anyhow! Ha ha ha... I’m periodically amazed at how we’re able to make progress. Several times along the way, I thought we reached the end of the line, things taper off, and our creative engineers come up with ways around them. I can think of at least 3-4 things that seemed like formidable barriers that we just blew past without any hesitation and in fact, the board meeting we came up I saw pictures that go a couple of generations beyond anything I had seen previously in regards to the highest transistors we can build... so I think we’ve got quite a bit of life yet. I’ve  ever been able to see beyond the next three generations of technology. Three generations of technology is about 6-8 years and I can see that far now, things haven’t really changed. Eventually they’re going to have to. Materials are made of atoms, and we’re getting suspiciously close to some of the atomic dimensions with these new structures, but I’m sure we’ll find ways to squeeze even further than we think we presently can.

[MoonShadow]

In addition, though the known solutions (at least known to me) to a 51% attack (from a motivated attacker with significant resources) are pretty awful, it's not necessarily the total death of Bitcoin. So while it would be a severe blow (as the block chain split was, as the recent price crash was), I would expect Bitcoin would survive somehow. Bitcoin's death has been predicted so many times and Bitcoin has weathered crises.

From my own perspectives, the block chain split was of zero consequence.  If it were not for the activity on this forum at the time, and my interaction with this forum, I (personally) wouldn't have even noticed.  The same would have been true for most users who either don't spend bitcoins on a daily basis or don't fret over the time to confirm.  Once users are competing for blockspace, a 24 hour long time to confirm will become more commonplace for much more mundane reasons.  And the price crash wasn't even the worst crash that I've seen since I've been here.  On a percentage basis, dropping from about $250 to about $50 over the course of a week or two isn't as bad as dropping from $32 to $2 in 2011 (2012?), although it happened much faster.

[JoelKatz]

From my own perspectives, the block chain split was of zero consequence.  If it were not for the activity on this forum at the time, and my interaction with this forum, I (personally) wouldn't have even noticed.  The same would have been true for most users who either don't spend bitcoins on a daily basis or don't fret over the time to confirm.  Once users are competing for blockspace, a 24 hour long time to confirm will become more commonplace for much more mundane reasons.

I think the fact that someone had a transaction with six confirmation that was then undone was extremely significant.

And the price crash wasn't even the worst crash that I've seen since I've been here.  On a percentage basis, dropping from about $250 to about $50 over the course of a week or two isn't as bad as dropping from $32 to $2 in 2011 (2012?), although it happened much faster.

True, but it happened at a time when Bitcoin's rise was big news and there was a high rate of influx of new users. These are the conditions under which you would never expect such a drop. And it happened due to a failure at a choke point whose significant was not, I think, generally recognized.

But I agree with your point. You can see these events as Earth shattering or meaningless. The important thing is that bad things happened and Bitcoin barely noticed. So if you're worried about bad things happening, the evidence suggests that Bitcoin will survive.

[MoonShadow]

From my own perspectives, the block chain split was of zero consequence.  If it were not for the activity on this forum at the time, and my interaction with this forum, I (personally) wouldn't have even noticed.  The same would have been true for most users who either don't spend bitcoins on a daily basis or don't fret over the time to confirm.  Once users are competing for blockspace, a 24 hour long time to confirm will become more commonplace for much more mundane reasons.

I think the fact that someone had a transaction with six confirmation that was then undone was extremely significant.

Well, you have a point there.

And the price crash wasn't even the worst crash that I've seen since I've been here.  On a percentage basis, dropping from about $250 to about $50 over the course of a week or two isn't as bad as dropping from $32 to $2 in 2011 (2012?), although it happened much faster.

True, but it happened at a time when Bitcoin's rise was big news and there was a high rate of influx of new users. These are the conditions under which you would never expect such a drop. And it happened due to a failure at a choke point whose significant was not, I think, generally recognized.

Those are exactly the conditions that I would expect a big drop, due to the eventual popping of a bubble.  And that is largely what happened.  Honestly, I expected it weeks before it happened, and lost a small fortune short selling with a stop-loss limit  at $72.  It never eeven got back down to where I thought it made fundamental sense, so I would have lost it anyway.

But I agree with your point. You can see these events as Earth shattering or meaningless. The important thing is that bad things happened and Bitcoin barely noticed. So if you're worried about bad things happening, the evidence suggests that Bitcoin will survive.

It's much like the point about violence and terrorrism; terror attacks make big news but not really big body counts, as a nominally "free" US citizen is 9 times more likely to die by the unwarrented actions of a police officer than a terrorist.

Really, the perception of risks are out of prooportion with the reality of those same risks.

[Sweft]

From my own perspectives, the block chain split was of zero consequence.  If it were not for the activity on this forum at the time, and my interaction with this forum, I (personally) wouldn't have even noticed.  The same would have been true for most users who either don't spend bitcoins on a daily basis or don't fret over the time to confirm.  Once users are competing for blockspace, a 24 hour long time to confirm will become more commonplace for much more mundane reasons.

I think the fact that someone had a transaction with six confirmation that was then undone was extremely significant.

Well, you have a point there.

And the price crash wasn't even the worst crash that I've seen since I've been here.  On a percentage basis, dropping from about $250 to about $50 over the course of a week or two isn't as bad as dropping from $32 to $2 in 2011 (2012?), although it happened much faster.

True, but it happened at a time when Bitcoin's rise was big news and there was a high rate of influx of new users. These are the conditions under which you would never expect such a drop. And it happened due to a failure at a choke point whose significant was not, I think, generally recognized.

Those are exactly the conditions that I would expect a big drop, due to the eventual popping of a bubble.  And that is largely what happened.  Honestly, I expected it weeks before it happened, and lost a small fortune short selling with a stop-loss limit  at $72.  It never eeven got back down to where I thought it made fundamental sense, so I would have lost it anyway.

But I agree with your point. You can see these events as Earth shattering or meaningless. The important thing is that bad things happened and Bitcoin barely noticed. So if you're worried about bad things happening, the evidence suggests that Bitcoin will survive.

It's much like the point about violence and terrorrism; terror attacks make big news but not really big body counts, as a nominally "free" US citizen is 9 times more likely to die by the unwarrented actions of a police officer than a terrorist.

Really, the perception of risks are out of prooportion with the reality of those same risks.

The issue isn't any one single double spend attack.

The issue is a long-term, ongoing double spend attack where the attacker holds a significant amount of hash.

[townf]

http://www.marketoracle.co.uk/Article39704.html
The author of this article posted it here in this forum for discussion:
https://bitcointalk.org/index.php?topic=160612.0

51% attack can also exist as a "benevolent" mining monopoly or cartel that doesn't necessarily wreck the blockchain or ruin the value of the cryptocurrency, but simply controls the majority of transaction processing. It then controls the flow of money, who gets charged transaction fees, who doesn't, who even gets their transactions processed. They choose what makes it into the blockchain and what doesn't. They could freeze accounts or move coins to other accounts at will, behind the scenes, benevolently of course, to keep us safe or some shit like that, or without the majority of people knowing (or caring probably) that they can do this, as a matter of their policy.

As soon as the block rewards dry up, this cannot help but become a reality. It is a mathematical, economic inevitibilty, because joe shmoe miner can't afford to prevent it without block rewards. He will go out of business, and that is who we depend on to keep the network honest. We need joe shmoe to be at least 51%, not the walmart-amazon-google network hash cartel to be 51%. Don't let joe shmoe go broke mining!

This cartel will be comprised of corporations or entities who can subsidize their own mining operations, as in pay their electric bill out of their own pocket, buy their hardware, etc without needing block rewards or transaction fees. The joe shmoe public mining pools whose members depend on these compensations to operate would dry up, thus surrendering the 51% of network hash and more to fewer and fewer entities, which will then start acting like a cartel or monopoly and dictate their policies with the clout of essentially holding as hostage the blockchain.

Whoever doesn't think this will happen when the incentive to mine is gone is a fool or is too lazy to think into the future.

The economics of deflation (and inflation) is harmful to participants in an economy anyway in my opinion but that is for another thread. That's more of a general opinion on a complex issue, but the sweft law thing is not an opinion, it is bombproof math and economic reality.

[MoonShadow]

From my own perspectives, the block chain split was of zero consequence.  If it were not for the activity on this forum at the time, and my interaction with this forum, I (personally) wouldn't have even noticed.  The same would have been true for most users who either don't spend bitcoins on a daily basis or don't fret over the time to confirm.  Once users are competing for blockspace, a 24 hour long time to confirm will become more commonplace for much more mundane reasons.

I think the fact that someone had a transaction with six confirmation that was then undone was extremely significant.

Well, you have a point there.

And the price crash wasn't even the worst crash that I've seen since I've been here.  On a percentage basis, dropping from about $250 to about $50 over the course of a week or two isn't as bad as dropping from $32 to $2 in 2011 (2012?), although it happened much faster.

True, but it happened at a time when Bitcoin's rise was big news and there was a high rate of influx of new users. These are the conditions under which you would never expect such a drop. And it happened due to a failure at a choke point whose significant was not, I think, generally recognized.

Those are exactly the conditions that I would expect a big drop, due to the eventual popping of a bubble.  And that is largely what happened.  Honestly, I expected it weeks before it happened, and lost a small fortune short selling with a stop-loss limit  at $72.  It never eeven got back down to where I thought it made fundamental sense, so I would have lost it anyway.

But I agree with your point. You can see these events as Earth shattering or meaningless. The important thing is that bad things happened and Bitcoin barely noticed. So if you're worried about bad things happening, the evidence suggests that Bitcoin will survive.

It's much like the point about violence and terrorrism; terror attacks make big news but not really big body counts, as a nominally "free" US citizen is 9 times more likely to die by the unwarrented actions of a police officer than a terrorist.

Really, the perception of risks are out of prooportion with the reality of those same risks.

The issue isn't any one single double spend attack.

The issue is a long-term, ongoing double spend attack where the attacker holds a significant amount of hash.

I do know what a 51% attack is.  Even then, it would be limited to whomever had recently sold the attackers something of value.  A 51% attacker cannot steal coins that he has never legitimately possessed.

[molecular]

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

Why wouldn't hashrate grow according to Moore's law. If hardware performance increases in hashrate per $, everything else being equal, why wouldn't the bitcoin network hashrate increase accordingly and Sweft's Law be satisfied?

There will always be new miners entering the game with new up-to-date hardware (or existing miners upgrading) and old rigs will drop out, keeping bitcoin hashing equipment up-to-speed with moore's law.

[Sweft]

http://www.marketoracle.co.uk/Article39704.html
The author of this article posted it here in this forum for discussion:
https://bitcointalk.org/index.php?topic=160612.0

51% attack can also exist as a "benevolent" mining monopoly or cartel that doesn't necessarily wreck the blockchain or ruin the value of the cryptocurrency, but simply controls the majority of transaction processing. It then controls the flow of money, who gets charged transaction fees, who doesn't, who even gets their transactions processed. They choose what makes it into the blockchain and what doesn't. They could freeze accounts or move coins to other accounts at will, behind the scenes, benevolently of course, to keep us safe or some shit like that, or without the majority of people knowing (or caring probably) that they can do this, as a matter of their policy.

As soon as the block rewards dry up, this cannot help but become a reality. It is a mathematical, economic inevitibilty, because joe shmoe miner can't afford to prevent it without block rewards. He will go out of business, and that is who we depend on to keep the network honest. We need joe shmoe to be at least 51%, not the walmart-amazon-google network hash cartel to be 51%. Don't let joe shmoe go broke mining!

This cartel will be comprised of corporations or entities who can subsidize their own mining operations, as in pay their electric bill out of their own pocket, buy their hardware, etc without needing block rewards or transaction fees. The joe shmoe public mining pools whose members depend on these compensations to operate would dry up, thus surrendering the 51% of network hash and more to fewer and fewer entities, which will then start acting like a cartel or monopoly and dictate their policies with the clout of essentially holding as hostage the blockchain.

Whoever doesn't think this will happen when the incentive to mine is gone is a fool or is too lazy to think into the future.

The economics of deflation (and inflation) is harmful to participants in an economy anyway in my opinion but that is for another thread. That's more of a general opinion on a complex issue, but the sweft law thing is not an opinion, it is bombproof math and economic reality.

This is a good point.  Block reward is fixed, tx fees are not.  Thus, someone can solve blocks at negative cost and bankrupt all other miners, since he can reduce his tx fee to 0.

Inflation also solves this problem because a mining cartel cannot remove all of the income from the solving blocks.

[Sweft]

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

Why wouldn't hashrate grow according to Moore's law. If hardware performance increases in hashrate per $, everything else being equal, why wouldn't the bitcoin network hashrate increase accordingly and Sweft's Law be satisfied?

There will always be new miners entering the game with new up-to-date hardware (or existing miners upgrading) and old rigs will drop out, keeping bitcoin hashing equipment up-to-speed with moore's law.

An explanation of Sweft's Law for those having trouble understanding it.

Moore's Law states that the number of transistors doubles every two years.

This means two years from now, the cost of the network (hash / ($ / hash)), given equivalent hash, will be half.

And half in another two years. And half in another 4 years.

That means in 6 years it will take 1/8th the amount of capital to replicate the original hash.

Thus, the network must grow at the rate of Moore's Law to sustain the value of its hash so that the value to replicate the original hash does not decrease.

That means that the network must double its hash every two years.

Every two years there has to be a capital investment equivalent to the cost of network hash / 2 to double the hash in accordance with Sweft's Law.


But then we also have to calculate electricity costs, which i will do later.

[MoonShadow]

This is a good point.  Block reward is fixed, tx fees are not.  Thus, someone can solve blocks at negative cost and bankrupt all other miners, since he can reduce his tx fee to 0.

This is a nonsense statement.  It's impossible for any entity to bankrupt all other miners, no matter his transaction fees.  Not only would any such miner have to aquire the capital investment in order to build his network to beyond 51%, an uphill battle considering the vast majority of the current running network (now or at any other time) is a sunk cost already paid for; he would also have to compete with the hobbyist miners who benefit from co-generation of waste heat.

I have a GPU based mining rig that I choose not to use, that I can use for space heating in my garage at will.  No miner can bankrupt me.

Therefore your "law" is invalid.

[Sweft]

This is a good point.  Block reward is fixed, tx fees are not.  Thus, someone can solve blocks at negative cost and bankrupt all other miners, since he can reduce his tx fee to 0.

This is a nonsense statement.  It's impossible for any entity to bankrupt all other miners, no matter his transaction fees.  Not only would any such miner have to aquire the capital investment in order to build his network to beyond 51%, an uphill battle considering the vast majority of the current running network (now or at any other time) is a sunk cost already paid for; he would also have to compete with the hobbyist miners who benefit from co-generation of waste heat.

I have a GPU based mining rig that I choose not to use, that I can use for space heating in my garage at will.  No miner can bankrupt me.

Therefore your "law" is invalid.

That has nothing to do with my Law.  That specific vulnerability was something that someone else posted, not me.

If you believe you can use your mining to convert electricity into heat, i hope you live in a very cold climate.

[MoonShadow]

This is a good point.  Block reward is fixed, tx fees are not.  Thus, someone can solve blocks at negative cost and bankrupt all other miners, since he can reduce his tx fee to 0.

This is a nonsense statement.  It's impossible for any entity to bankrupt all other miners, no matter his transaction fees.  Not only would any such miner have to aquire the capital investment in order to build his network to beyond 51%, an uphill battle considering the vast majority of the current running network (now or at any other time) is a sunk cost already paid for; he would also have to compete with the hobbyist miners who benefit from co-generation of waste heat.

I have a GPU based mining rig that I choose not to use, that I can use for space heating in my garage at will.  No miner can bankrupt me.

Therefore your "law" is invalid.

That has nothing to do with my Law.  That was what someone else posted, not me.

If you believe you can use your mining to convert electricity into heat, i hope you live in a very cold climate.

I don't, personally.  Yet, for this exact reasoning, I have long ago predicted that Reykjavík, Iceland will likely become a mining hub due to the confluence of factors including a relatively low electric rate (due to geothermal resources), a high demand for space heating and a high degree of international Internet connectivity, along with other more minor factors.  I also predict that asic mining chips will eventually be included into electric "heat trace" cabling intended to produce spot heating to protect public and private infrastructure from extreme cold.  I've personally been involved in many such projects, and the cable currently in use, although really just a continuous resistor, is already very expensive.  A co-mining method would simply represent an alternative income source to counterbalance the capital costs of such infrastructure.  Oil and gas pipelines in the arctic require quite powerful heat cabling across their entire length.  Imagne the hashrate of a strip of asic chips along a linier network and power line, with each chip placed one per foot along it's length AND circumference, in order to achieve a targeted watts per foot.  In my own mild climate, the watts per foot range is 3-7 watts per liner foot for insullated pipes of less than 3" in diameter and 7 watts per square foot of insulated surface.  I have not even seen a project that was les than 3 watts per square foot.  Every public parking garage in the US built since 1985 (in regions that freeze in winter) has pressurized sprinkler systems required by code & insurance, and every linier foot of insulated pipe you might see when you look up has at least 3 watts per foot of heating cable that must energize whenever the local temp drops below 33 degrees (and usually much warmer due to insurance worries).  What do you suspect woudl happen once Bitcoin is as big an economy as many of us believe it will be?  Do you honestly think that Bitcoin wise engineers will not incorporate spot heat co-mining in such infrastructure?

[gollum]

Gresham's law is an economic principle that states: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good". http://en.wikipedia.org/wiki/Gresham's_law

Applying Gresham's law to crypto currencies: some inflationary crypto currency will eventually be widely accepted and drive out BitCoin that is deflationary in nature.

[myrkul]

Gresham's law is an economic principle that states: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good". http://en.wikipedia.org/wiki/Gresham's_law

Applying Gresham's law to crypto currencies: some inflationary crypto currency will eventually be widely accepted and drive out BitCoin that is deflationary in nature.

That would require a government to enforce an exchange rate. Since that's not happening, nor will it, the opposite of Gresham's law applies, and good money drives out bad.

[TerryHyden]

What do you suspect woudl happen once Bitcoin is as big an economy as many of us believe it will be?  Do you honestly think that Bitcoin wise engineers will not incorporate spot heat co-mining in such infrastructure?

Some bitcoins will always be lost but the effect will be astonishingly small; people are not going to accidentally lose several percent of their money per year. The real issue is growth deflation. As the economy grows the same amount of money can buy more stuff than before simply because the stuff is cheaper to produce. That is cheaper measured in real resources such as labor, electricity or steel.

This kind of deflation is very beneficial because it is interest on a loan, the return of a real investment. The money consumes no resources and is entirely useless until it is spent. The seller hopes to regain the value lost in the sale in the future, by spending the money. In effect, the seller has lent out a real resource with hopes of getting paid back in the future.

[myrkul]

What do you suspect woudl happen once Bitcoin is as big an economy as many of us believe it will be?  Do you honestly think that Bitcoin wise engineers will not incorporate spot heat co-mining in such infrastructure?

Some bitcoins will always be lost but the effect will be astonishingly small; people are not going to accidentally lose several percent of their money per year. The real issue is growth deflation. As the economy grows the same amount of money can buy more stuff than before simply because the stuff is cheaper to produce. That is cheaper measured in real resources such as labor, electricity or steel.

This kind of deflation is very beneficial because it is interest on a loan, the return of a real investment. The money consumes no resources and is entirely useless until it is spent. The seller hopes to regain the value lost in the sale in the future, by spending the money. In effect, the seller has lent out a real resource with hopes of getting paid back in the future.

While everything you say is true, It isn't really a reply to MoonShadow's post. He's talking about using bitcoin mining waste heat to keep pipes from freezing. If you're going to be throwing watts away to keep the pipes warm, might as well include a little revenue stream while you're at it, right?

[JoelKatz]

I do know what a 51% attack is.  Even then, it would be limited to whomever had recently sold the attackers something of value.  A 51% attacker cannot steal coins that he has never legitimately possessed.

A 51% attacker can do almost anything except steal coins that have not moved recently.

Consider, for example, a 51% attacker who follows this model:

1) He buys a large number of Bitcoins.

2) He starts building his own block chain with the first block containing a transaction moving all his Bitcoins to another of his own accounts and no other blocks containing any transactions.

3) He starts depositing his Bitcoins at online wallets and exchanges. He also withdraws them, depositing them in other services, and then withdrawing them from those. He gradually begins to turn his Bitcoins into Litecoins, Liberty Reserve, and the like, using as many Bitcoin transactions from as many services as possible.

4) Many Bitcoin wallets and services begin to hold large amounts of Bitcoins that trace back to his Bitcoins. Other people who withdraw from online wallets and exchanges get Bitcoins the attacker deposited.

5) The attacker now releases his longer chain with no transactions but the one that invalidates all of his deposits to the public. Now, a significant fraction of Bitcoin withdrawals and exchanges find themselves undone. Whoever held anything traceable to his original Bitcoins, now widely distributed through the Bitcoin ecosystem, finds their balances drop.

[MoonShadow]

A 51% attacker can do almost anything, except steal bitcoins that he has never legitimately possessed.  It is impossible for any attacker to steal my coins in cold storage, even if he sold them to me a couple of months ago, due to checkpointing. 

[JoelKatz]

A 51% attacker can do almost anything, except steal bitcoins that he has never legitimately possessed.

The problem is that he can fairly easily set things up so that he has legitimately possessed a significant fraction of the coins in circulation, far more than the number of Bitcoins he holds. He can do this by "churning" his Bitcoins through online wallets and exchanges.

Exchanges are actually at the highest risk. I can't see any excuse they could make for not making good on any withdrawal that was subsequently undone. And they could find a significant fraction of the Bitcoins they think they hold disappear from their wallet. I'm not sure they could justify debiting customer accounts for deposits they had accepted that were subsequently undone either.

Long-term holders of Bitcoins are safe, assuming they don't try to move their Bitcoins during the attack. (Which nobody would know until it was too late.)

[molecular]

Network hash must grow at least at the rate of Moore's Law.  This is also known as Sweft's Law.  If Bitcoin fails to satisfy this condition, then it will be prone to attack.

Why wouldn't hashrate grow according to Moore's law. If hardware performance increases in hashrate per $, everything else being equal, why wouldn't the bitcoin network hashrate increase accordingly and Sweft's Law be satisfied?

There will always be new miners entering the game with new up-to-date hardware (or existing miners upgrading) and old rigs will drop out, keeping bitcoin hashing equipment up-to-speed with moore's law.

An explanation of Sweft's Law for those having trouble understanding it.

Moore's Law states that the number of transistors doubles every two years.

This means two years from now, the cost of the network (hash / ($ / hash)), given equivalent hash, will be half.

And half in another two years. And half in another 4 years.

That means in 6 years it will take 1/8th the amount of capital to replicate the original hash.

Thus, the network must grow at the rate of Moore's Law to sustain the value of its hash so that the value to replicate the original hash does not decrease.

That means that the network must double its hash every two years.

Every two years there has to be a capital investment equivalent to the cost of network hash / 2 to double the hash in accordance with Sweft's Law.


But then we also have to calculate electricity costs, which i will do later.

I don't get it... bitcon network hashrate could just increase forever. what's the problem with that?

[Sweft]

I don't get it... bitcon network hashrate could just increase forever. what's the problem with that?

Of course anything can happen.  But that isn't a rational argument in favor of a deflationary cryptocurrency.  The whole point of this thread is to argue in favor of an inflationary cryptocurrency.

The less inflationary the cryptocurrency becomes, the more it depends on tx fees for revenue rather than block reward.  Why do you remove a stream of revenue from the the profits of miners when it is their job to create a secure network?

I'm not sure you even read anything in this thread.

As I explained above:

The network must increase hash at a rate of total cost of network hash / 2 every 2 years.

If the network must double in present size of hashrate, then the cost of doubling the hashrate in 2 years will be the value of half the network hashrate in the present.

For example.

If the network is valued at 30b in the future (30b is a minor barrier to entry, which i don't think will be enough, perhaps 300b), but let us use 30.  In 2 years the cost of that hash will be 15b.  Thus every two years, for the network to grow at the rate of Moore's rate, the network must invest 15b for the cost to replicate network hash not to decrease.  Otherwise, if the network does not invest half of its cost every two years, the barrier to replicate the original hash will decrease to 0 over time.

As I explained previously.

Given 1% inflation, the value of the cryptocurrency must be at least 25x the cost of network hash for miners to profit + electricity costs.
Given 2% inflation, the value of the cryptocurrency must be at least 12.5x the cost of network hash for miners to profit  + electricity costs.
Given 3% inflation, the value of the cryptocurrency must be at least 8.3x the cost of network hash for miners to profit + electricity costs.

Given 0% inflation, for us to mimic 2% inflation:
If tx fees is 1%, then velocity of bitcoins has 2.
If tx fees is .5%, then the velocity of bitcoins has be to 4.  That the total bitcoins sent every year must be equivalent to 4 times the amount of bitcoins in circulation.
if tx fees is 0%, then there is no mining profit and we have a problem where it's possible that mining cartels are actively undermining the system.  This is not possible with an inflationary cryptocurrency.

But transaction fees cannot mimic inflation for revenue because inflation will naturally also have the same revenue stream of tx fees.

There really is absolutely no benefit for this type of a cryptocurrency not to be inflationary.

[myrkul]

There really is absolutely no benefit for this type of a cryptocurrency not to be inflationary.

Then why are you still using it? Why aren't you using one of the inflationary altcoins? More to the point, why are you still bugging us about it?

[Sweft]

There really is absolutely no benefit for this type of a cryptocurrency not to be inflationary.

Then why are you still using it? Why aren't you using one of the inflationary altcoins? More to the point, why are you still bugging us about it?

This is a discussion about the ramifications of inflation and deflation and I'm sure many people have benefited in their understanding of cryptocurrency economics from my theories.  How am i bugging you?

There isn't an inflationary coin with the properties that i like.

[justusranvier]

There isn't an inflationary coin with the properties that i like.

Then make one and post all about it in the alt cryptocurrencies section.

[myrkul]

There isn't an inflationary coin with the properties that i like.

Then make one. When Bitcoin "inevitably" fails due to the causes you've outlined here, and everyone switches, you'll be rich.

Satoshi made a currency that fixes the problems he saw in the current monetary system, and if you see problems with his, you're free to follow suit. I wish you luck.

[jtimon]

The money consumes no resources and is entirely useless until it is spent.

Money is useless to its possessor until it is spent?
Yeah, and a wildcard is completely useless within a game until you show it, right?

The seller hopes to regain the value lost in the sale in the future, by spending the money. In effect, the seller has lent out a real resource with hopes of getting paid back in the future.

Who is the counterparty in this loan?
If it is the economy and thus the society as a whole, why the society as a whole should be forced to accept such conditions?
Why if many people "lend money" like this at the same time they get apparently get all rich by the very deflation their hoarding has created, even if the drop in prices doesn't translates in more investment?
Where is that growth for the hoarders-at-the-same-time comes from?

[Sweft]

I think the inflation people have a trouble with is fiat fractional reserve lending.

Why?

Because if you fractionally lend money, that original money that was lent should in theory be distinguished from debt by having some essence.  The issue is with fiat the original money and the debt become indistinguishable when they monetize the debt by printing money.

If you lend based on gold, that original loan is still owed to you, so by default every loan that was fractionally created from gold is still the very same original gold. Therefore the money is distinguished from the debt because it must be returned to the lender since you cannot counterfeit it (print).

The same applies with bitcoin fractional lending as does with gold.  Pre-programmed inflation in bitcoin should behave nothing like fiat inflation, because the debt cannot be monetized.  The debt must be returned to the lender.

And if you notice throughout history gold has inflated and will continue to inflate, but since gold mining requires energy, as bitcoin mining does, the inflation is beneficial to its value because it allows for a larger adoption base and solves the first adopter problem.  

Inflation is not the enemy of bitcoin.

[myrkul]

And if you notice throughout history gold has inflated and will continue to inflate, but since gold mining requires energy, as bitcoin mining does, the inflation is beneficial to its value because it allows for a larger adoption base and solves the first adopter problem.

Do you consider the world's gold supply to be infinite?

[Impaler]

Sweft:  I think you over estimate the depth of thought of your opposition, the argument I hear is simple "Inflation is THEFT!!!" and fractional reserve is just attacked as "Making money from nothing" without really connecting the two as you have done.

That said I don't think your logic is correct in that a commodity money solves a problem with fractional reserve lending.  The key distinction is that their are TWO kinds of money, cash money and debt money.  Cash money is the real thing that acts as a medium of exchange, it is fungible, every unit is identical and once it passes from one person to another its 'history' is forgotten, aka its a bearer bond.  Debt money is not fungible, it is always the debt OF someone and is owed to some else and that WHO always matters, the only relation it bears to cash money is the unit of account which it takes from cash.  But debt money as the name implies CAN be used as money, if I have some IOUs from a reliable person I can trade these to anyone well aware of the debtors credit worthiness at very near face value.

Banks can create debt money and yes they do 'create it from thin air' but their ability to do this is independent of the nature of cash money, it's instead built upon the networks of credit worthiness monitoring, law enforcement etc that makes sure we pay our debts or pay a high price for not doing so.  This gives the would be buyer of the debt a high degree of confidence that it will be re-payed, the higher the confidence the higher the debt trades as a percentage of face value.  Now regardless of if you believe this is good, bad or ugly the amount of this debt money created is going to be determined by repayment confidence and leverage limits (which ever is lower) and not at all on the nature of the underlying cash money.

When you say that monetizing dept by printing money makes them indistinguishable this is not entirely correct, the unit of account is decreased in value and because they share that both debt and cash decline in value.  But the non fungible nature of debt means repayment confidence is always a factor and by reducing the unit of account your making repayment easier and more likely, after a crisis when repayment confidence has crashed it may be possible for lenders to gain by this trade off, they would prefer 80% of dept to be re-payed with money that has lost half its value then for 10% to be payed in undiminished value money.  In general we can always expect a lender to suffer a smaller loss under inflation then dose a cash money holder, because some of the lenders inflation loss will be compensated for by higher repayment rates.

[MoonShadow]

Sweft:  I think you over estimate the depth of thought of your opposition

If anything, he under estimates it.  For the most part, his opposition isn't interested in convincing him of anythin, most who post here are just trolling him.  In the long run, not only are we all dead, our grandchildren will receive the benefits of our foresights.  If Sweft is correct, and he actually does something about it beyond arguing about it with people on the Internet, then his grandchildren will benefit and they will be thankful for it.  If we are correct, our grandchildren will be thankful.  In the near term; however, there is no point in us arguing about it, since Bitcoin is presently, and will continue to be for long after my natural life span, a rather inflationary currency. 

[Sweft]

Sweft:  I think you over estimate the depth of thought of your opposition

If anything, he under estimates it.  For the most part, his opposition isn't interested in convincing him of anythin, most who post here are just trolling him.  In the long run, not only are we all dead, our grandchildren will receive the benefits of our foresights.  If Sweft is correct, and he actually does something about it beyond arguing about it with people on the Internet, then his grandchildren will benefit and they will be thankful for it.  If we are correct, our grandchildren will be thankful.  In the near term; however, there is no point in us arguing about it, since Bitcoin is presently, and will continue to be for long after my natural life span, a rather inflationary currency.  

There's no reason you cannot become rich, since you can also mine stablecoins.  The only thing i'm trying to create is an economic algorithm that has the fewest number of flaws.

[firefop]

The only thing i'm trying to create is an economic algorithm that has the fewest number of flaws.

You'll never win on the inflation vs deflation thing... (sorry).

As I've already pointed out, your law is flawed in that it depends on Moore's law... which is already breaking down.

[JoelKatz]

I proposed a Bitcoin-like scheme but were the mining reward is controlled by a blend between proof of stake and proof of work. Basically, transactions propose a mining reward which is weighted based on bitcoin days destroyed, but miners have to include the transaction in a block for it to count. Here's the proposal:

With a Bitcoin-like system, the only way to agree on something is to include it in a mined block. The miners have a combined interest in devaluing existing currency. So likely you'd have to change it into something more based on proof of stake or combined in some way to balance the competing interests.

Those who hold Bitcoins have an interest in assuring there's sufficient mining to keep the currency secure. And miners already have an incentive to include transactions that include fees. One can leverage this as follows:

1) Bitcoin transactions can include a desired block reward.

2) Bitcoin blocks can track the "votes" on the changes in the desired block reward.

3) Votes can be weighted based on Bitcoin days destroyed to act as a proof of stake system.

4) A miner can be bribed to include a block that includes a block reward vote he disagrees with just by ensuring the transaction fee is adequate.

5) Part of the block validity test can be to ensure the weighted voting information is correctly updated based on votes in the block.

6) Every so many blocks, perhaps at the same time the difficulty is changed, the reward would also be changed slightly based on the votes summarized in the block.

This balances power between miners and Bitcoin holders and the voting algorithm can be adjusted to avoid rapid changes. All it would require was some extra fields in the block which could be held in a pseudo-transaction.

[townf]

Is that like ppcoin? They use a combined proof or work/proof of stake.

Sorry for asking without having really studied it myself, im just asking in case you haven't heard of it or in case you want to expound on the differences for all of us who are vaguely familiar with the concept of proof of stake and know of the existence of ppcoin, like me.

[m3ta]

pay off debts, pay for wars and buy prostitutes.  

You don't "buy" whores, you rent them. And they get more income per hour than most miners.

[Impaler]

I proposed a Bitcoin-like scheme but were the mining reward is controlled by a blend between proof of stake and proof of work. Basically, transactions propose a mining reward which is weighted based on bitcoin days destroyed, but miners have to include the transaction in a block for it to count. Here's the proposal:

With a Bitcoin-like system, the only way to agree on something is to include it in a mined block. The miners have a combined interest in devaluing existing currency. So likely you'd have to change it into something more based on proof of stake or combined in some way to balance the competing interests.

Those who hold Bitcoins have an interest in assuring there's sufficient mining to keep the currency secure. And miners already have an incentive to include transactions that include fees. One can leverage this as follows:

1) Bitcoin transactions can include a desired block reward.

2) Bitcoin blocks can track the "votes" on the changes in the desired block reward.

3) Votes can be weighted based on Bitcoin days destroyed to act as a proof of stake system.

4) A miner can be bribed to include a block that includes a block reward vote he disagrees with just by ensuring the transaction fee is adequate.

5) Part of the block validity test can be to ensure the weighted voting information is correctly updated based on votes in the block.

6) Every so many blocks, perhaps at the same time the difficulty is changed, the reward would also be changed slightly based on the votes summarized in the block.

This balances power between miners and Bitcoin holders and the voting algorithm can be adjusted to avoid rapid changes. All it would require was some extra fields in the block which could be held in a pseudo-transaction.

This is somewhat similar to proposals by maaku for an extension of FRC, but the factor being decided would be a split between miners and charity.  ElectricMucus also proposed something similar in which miners and stakeholders conflicting interests balance out.  I'm very skeptical of the idea though as I don't see any reason for this to balance out at a point of lower inflation or lower transaction fees then our current monetary regime, for one thing miners are VERY organized compared to normal spenders, miners can simply set their rigs to reject anything that's not in their favor while people trying to make transactions will be under time pressure.  This power dichotomy will generally result in the miners having their way and we end up with a high inflation and or high transaction fee system.  I dose have the benefit of breaking the back of the perpetual deflation expectation which would be good, but it doesn't get us to the ideal situation which is 0% inflation, 0% transaction fees, and 0% interest.  Despite all that I'm willing to endorse this as an experiment, at the very least it would teach us something.

[JoelKatz]

I'm very skeptical of the idea though as I don't see any reason for this to balance out at a point of lower inflation or lower transaction fees then our current monetary regime, for one thing miners are VERY organized compared to normal spenders, miners can simply set their rigs to reject anything that's not in their favor while people trying to make transactions will be under time pressure.

True, but they can just turn up the transaction fees. And not every transaction will be made under time pressure. If you leave transaction fees on the table, someone else will get them.

This power dichotomy will generally result in the miners having their way and we end up with a high inflation and or high transaction fee system.

If you really believe that, then Bitcoin should result in a high transaction fee too, since miners can effectively choose the transaction fee by selecting which transactions to include. We'll see if they can organize to push up the transaction fee as the block reward drops. I hope so, at least a little, because otherwise we're going to have big problems with blockchain security.

I dose have the benefit of breaking the back of the perpetual deflation expectation which would be good, but it doesn't get us to the ideal situation which is 0% inflation, 0% transaction fees, and 0% interest.  Despite all that I'm willing to endorse this as an experiment, at the very least it would teach us something.

With a proof-of-work based system to prevent double spends, we need something to reward miners or it's unlikely the system will remain secure. That can be the block reward, transaction fees, or something else. Essentially, I'm suggesting a blend between a block reward and transaction fees for the long term, rather than just transaction fees. Effectively, the block reward would be managed much the same way the transaction fee is, but with (I think) a bit less power to the miners.

(Of course I'm not suggesting changing Bitcoin. I'm just adding this to the pile of ideas as probably the most sensible way to build in active money supply management to a coin that is otherwise as much like Bitcoin as possible.)

[Impaler]

If you really believe that, then Bitcoin should result in a high transaction fee too, since miners can effectively choose the transaction fee by selecting which transactions to include. We'll see if they can organize to push up the transaction fee as the block reward drops. I hope so, at least a little, because otherwise we're going to have big problems with blockchain security.

Yes I generally think you will see either high transaction fees, or lower hash-rates, in BTC eventually, both are bad but I'm more worried about transaction fees rising and think that's the more likely effect because of an overhang of hardware capacity.

With a proof-of-work based system to prevent double spends, we need something to reward miners or it's unlikely the system will remain secure. That can be the block reward, transaction fees, or something else. Essentially, I'm suggesting a blend between a block reward and transaction fees for the long term, rather than just transaction fees. Effectively, the block reward would be managed much the same way the transaction fee is, but with (I think) a bit less power to the miners.

I'm skeptical of the long term viability of PoW as a concept because of its high cost that someone in the system must ultimately bear.  That said I think the FRC demurrage solution is the best way so far developed to bear that cost for the long term.  I favor keeping transaction fees to a minimum because of the dead-weight loss that transaction fees cause, instead putting it all on the block rewards should give greater economic activity over-which to spread the costs.

[agentbluescreen]

I think the inflation people have a trouble with is fiat fractional reserve lending.

Why?

Because if you fractionally lend money, that original money that was lent should in theory be distinguished from debt by having some essence.  The issue is with fiat the original money and the debt become indistinguishable when they monetize the debt by printing money.

If you lend based on gold, that original loan is still owed to you, so by default every loan that was fractionally created from gold is still the very same original gold. Therefore the money is distinguished from the debt because it must be returned to the lender since you cannot counterfeit it (print).

The metal smiths who originally invented "counterfeit reserve receipt-token fiat-bankstering" were enabled to do so because gold and silver were too fungible, risky and bulky to handle and secure in the marketplace. This technologically-harder to counterfeit stamped-coin "reserve fiat bankstering" actually began with cheaper "private" coinages all much like the Levitican's "Temple Shekels" whose intrinsic values and utility values actually were token for much-larger exchange valued assets as determined by the "fiat" of the "money-changers" currency exchanges. Bronze age coins were the antecedents of (far far cheaper and actually easier to counterfeit) paper phony-receipt-note "currencies" that came along much later.

It was Julius Caesar in 48 BC who first set up a "central" publicly owned for public profit "counterfeit reserve receipt-token fiat-bankstering" system for Rome that put the smiths out of business, making a single, common public currency standard and plentiful to facilitate commerce and industry, and (by public lending) to thus finance public projects free of armed-marauding public-shakedown "taxations". This was why he was assassinated.

The simple fact is that the "original debt" in "reserved" gold always was, is and always becomes continuously more and more irrelevant. Sure gold has an inescapable "exchange value" (due solely to it's ever-increasing rarity) but it's intrinsic and utilitarian values are actually squat, save as a decorative or luxury plating metal. It never or very, very seldom if ever needs to be "paid back", because that is why the pretty junk was all laboriously and hazardously carted-over and dumped-off into a "reserve" in the first place! It ends up there because nobody can bear with the nasty bothers of dealing with it.

You see many people with wheelbarrows full of gold out car shopping? Or truckloads of gold looking for a new house? As a "money" gold has been practically obsolete for well over 3 hundred years.

Reserve bankstering works and has always worked just fine, because a Medium of Labour Exchange is actually backed by the labours that it's earning has, or spending will, represent, ALONE!

In other words, it (a "money") is simply an Exchange Tokenage representative of Labour Values performed or performable, period. It does not ALSO have to be anything else that it is not!

As Julius Caesar, Henry 1st, George Washington and Abe Lincoln (and JFK might also have) proved all you need is a good token supply that is publicly owned, issued and rented-out, who's (hopefully growing) supply keeps up with (hopefully growing) labour force quality and size demands, in order to have perfectly fine "money" and a perfectly fine Freed Market economy (freed from counterfeit private gold-receipt slavery to private gold-Pharaohs)

The same applies with bitcoin fractional lending as does with gold.  Pre-programmed inflation in bitcoin should behave nothing like fiat inflation, because the debt cannot be monetized.  The debt must be returned to the lender.

And if you notice throughout history gold has inflated and will continue to inflate, but since gold mining requires energy, as bitcoin mining does, the inflation is beneficial to its value because it allows for a larger adoption base and solves the first adopter problem.  

Inflation is not the enemy of bitcoin.

A Bitcoin is a fiat digital high security internet game casino gambling token of excellent utilitarian value and marginal intrinsic value but it has no exchange value AT ALL. It's inflationary and deflationary "assigned fiat exchange value" properties have nothing whatsoever to do with the supply of them, nor the growth or shrinkage of that supply, and they never ever will! Mining Bitcoins merely finances it's transaction network, period.

A Bitcoin is an "deregulated" Over the Counter derivative. The "exchange-value" (price) inflation and deflation of Fiat Bitcoins has squat to do with any "monetary supply" of them and (foreseeably) never, ever will!

Penny Stock-Market (pretend-exchanges) speculators and their greedy and mischievous fiat-antics capriciously determine the latest (stale) fiat exchange-value of the last fiat Bitcoin that past their way.

The actual "price" of any given Bitcoin remains forever unknown and unknowable until after it has been re-sold (re-exchange valued) to the next guy, in the future.

A Bitcoin functions exactly in much the same way as a "funded" Credit Default Swap (fCDS). You fund it's former owner's "loss" (costs) on it, and the next owner funds yours.

A Bitcoin is a commercial "over the counter (OTC) derivative" of the current-past value and future possible values of itself and it's network, which are only (at best) completely deregulated commercial resources, and neither "commodity futures" nor "securities" as per the CFMA of 2000. This is why, with it's "market" exchange-value changing every two seconds, it is useless as a "money" because you need an hour to accept and/or spend it. It's exchange-values are really only very useful as a delayed-exchange "funding" medium.

The intrinsic and utility values of the "futures derivative swap-contract token" no matter how attractive or quantitatively prearranged, are materially too small to be any more than a very, very minor factor in it's (inflationary or deflationary) exchange-value (aka price)

Buying a Bitcoin futures derivative swap-contract token is simply gambling that the value of it's current "fiat" exchange-value will be close to or less than the value of it's future "fiat" exchange-value.

Yes inflation (and deflation) are ALWAYS everybody's and everything's enemy!

[Adrian-x]

Reserve bankstering works and has always worked just fine, because a Medium of Labour Exchange is actually backed by the labours that it's earning has, or spending will, represent, ALONE!

Fractional Reserve Banking worked to bring about a power shift from feudal monarchs to the merchant class. FRB is in itself dishonest when you think of money as a commodity (say wheat) it is a flawed human construct. FRB also creates money inflation which is a cause for malinvestment in an economy, the net byproduct of inflation is continued economic growth, (the result of the additional Labour needed to offset the increase in the money supply)   which is now unsustainable.

Yes inflation (and deflation) are ALWAYS everybody's and everything's enemy!

Price inflation and deflation is not in itself good or bad, it is natural market feedback, information provided to members of an economy to make optimal use of resources available. It should be respected not feared and manipulated if the goal is to live sustainability and in peace.

[Spendulus]

pay off debts, pay for wars and buy prostitutes.  

You don't "buy" whores, you rent them. And they get more income per hour than most miners.

I dunno.  Watching Deadwood series there was one night a week that was nickel whore night.  I guess they was rented, though.

[spartacusrex]

Hello. This is a lively debate..  

I'll be honest, I kinda agree with Sweft, that the txn fees are NOT going to sustain as secure a network as I would like..

I don't want more than 21 million coins, I like the whole FIXED-amount-of-coins thing, so that only leaves the txn fees.

What I'm wondering is : If txn fees were set to a percentage of the transaction, say 0.1%, would this not fix the 'potential' problem ?

1 1-thousandth seems a fair price to pay, for a functioning super secure network.. no?

I don't know why everyone is so against paying the miners A LOT. They are the backbone of the whole network and should be rewarded..

I am working on a new coin, and would like to put a fixed percentage as the fee. Remove confusion and doubt.  

You would of course also need a minimum TXN fee, to stop DOS attacks.
..

[cough] Don't all shout at me at once.

[myrkul]

I don't know why everyone is so against paying the miners A LOT. They are the backbone of the whole network and should be rewarded..

FWIW, I agree. But the market should decide exactly how much, not the programers.

[molecular]

I don't know why everyone is so against paying the miners A LOT. They are the backbone of the whole network and should be rewarded..

FWIW, I agree. But the market should decide exactly how much, not the programers.

Isn't there a "tragedy of the commons" problem involved here, though?

While everyone using bitcoin will want the blockchain to be as secure as possible, maybe "the mass of people" on average will be too selfish to pay a high enough fee?

[spartacusrex]

While everyone using bitcoin will want the blockchain to be as secure as possible, maybe "the mass of people" on average will be too selfish to pay a high enough fee?

That's EXACTLY what will happen.

That's why I'd like it built into any new protocols.. 0.1%.

[JoelKatz]

Isn't there a "tragedy of the commons" problem involved here, though?

While everyone using bitcoin will want the blockchain to be as secure as possible, maybe "the mass of people" on average will be too selfish to pay a high enough fee?

A miner will have a tough choice. If he has room, it will be very tempting to include an "underpriced" transaction. If he doesn't, he's just leaving money on the table and doubtless some other miner will grab it.

What will probably happen is that people who need timely transactions will pay the full to ensure the highest percentage of miners will include their transactions. People who aren't in a hurry will pay a much lower fee and wait until a miner who would rather have the fee than not is willing to include it.

I don't think the "percentage of the transaction" fee scheme is a good idea. If you do that, you may have miners who only mine when there are high-value transactions available, choosing to save electricity costs otherwise. That will lead to bursty block creation. That would be a huge problem, an obvious disaster, for a coin that had CPU friendly mining, it's less of a problem with Bitcoin. But I still think it's bad enough to make that kind of fee system a bad idea.

[spartacusrex]

I don't think the "percentage of the transaction" fee scheme is a good idea. If you do that, you may have miners who only mine when there are high-value transactions available, choosing to save electricity costs otherwise. That will lead to bursty block creation.

Hmm.. not if there is a minimum txn fee..

The MINIMUM TXN fee would be the same as bitcoins. The miners would always have the same incentive or MORE.. if 0.1% was more than that txn fee.

[JoelKatz]

The MINIMUM TXN fee would be the same as bitcoins. The miners would always have the same incentive or MORE.. if 0.1% was more than that txn fee.

If they sometimes have more, then they don't always have the same incentive.

If the incentive is sometimes much more than average, then mining will sometimes be more than average. That means it will sometimes be much less, meaning a very long time waiting for a block.

[molecular]

The MINIMUM TXN fee would be the same as bitcoins. The miners would always have the same incentive or MORE.. if 0.1% was more than that txn fee.

If they sometimes have more, then they don't always have the same incentive.

If the incentive is sometimes much more than average, then mining will sometimes be more than average. That means it will sometimes be much less, meaning a very long time waiting for a block.

Also meaning some potential attacker could choose a time with less mining going on to stage his attack (chain only as strong as weakest link as in network only as strong as it is at times with lowest hashrate). So I think I'm against a transaction-amount dependant fee.

So the incentive for someone sending money to include a high transaction fee is not "to secure the network" but to "ensure a speedy transaction". Transacters are competing for scarce space in blocks. However "block space" is not the same resource (in view of miners) as "hashing power".

So is it true that we basically have to "artificially" limit the available block size to ensure miners will receive high enough fees?

[Jobe7]

Concerning miners and mining fees & end of bitcoin generation (mining) with regard to mining income and its continuation:

At such a point in the future, 2040, when bitcoin generation ends, before this time tbh. A majority of businesses and organisations (governments, etc) would be using bitcoin. For a business/corporation, etc, it is in their interest to make a speedier transaction, especially when they are competing against each other.

Part of this speedier transaction will be to include transaction fees with their price models (for whatever they are doing with btc). Seeing as how  at this time (assuming the global adoption of btc) there would be a massive amount of businesses using btc, the amount of transaction fees getting thrown at the miners will be stupidly enormous compared to now. Though keep in mind there will obviously be more miners/mining power at this time.

Basically - the need for speedier transactions because of competitive businesses will ensure a healthy amount of transaction fees that will go to miners. Indeed, businesses may even make it part of their model to publicly state (well, it would be transparent anyway) the amount that they pay in mining fees, thus allowing the customer to know how fast their holiday/car/house/burger/etc will go through.

[MoonShadow]

Bitcoin generation does not end in 2040

There IS a minimum transaction fee, it's just optional for the miners to accept or not.  Some will certainly not accept free transactions eventually, others will accept free transactions that are paid off network.  The on-network transaction fees are the "retail" method of paying for the network.  There are a number of likely off-network methods of paying for miners to run the network.  This is not a tragedy of the commons scenario.  Free transactions should always be possible, let the market decide if they are viable, not the code.

[myrkul]

Bitcoin generation does not end in 2040

Yup, not until 2140: https://en.bitcoin.it/wiki/Controlled_supply#Projected_Bitcoins_Long_Term

Of course, block fees will only be one satoshi for four years prior. Bottom line, there will be plenty of time for the market to discover the right price for a transaction.

[firefop]

Also meaning some potential attacker could choose a time with less mining going on to stage his attack (chain only as strong as weakest link as in network only as strong as it is at times with lowest hashrate). So I think I'm against a transaction-amount dependant fee.

So the incentive for someone sending money to include a high transaction fee is not "to secure the network" but to "ensure a speedy transaction". Transacters are competing for scarce space in blocks. However "block space" is not the same resource (in view of miners) as "hashing power".

So is it true that we basically have to "artificially" limit the available block size to ensure miners will receive high enough fees?

I don't believe so - I think the idea of limiting it by size is past it's time and will soon be modified and/or removed entirely. At the very least we need to be able to process transactions on a level that competes with some large private payment network (like visa). Honestly I'd like to see the rate of block creation increase by an order of magnitude and the block reward decrease accordingly (as a start) that would at least put us much closer to where we need to be.

[spartacusrex]

I have to disagree..

I think it is simply NOT reasonable to expect the network to deal with FREE and/or very low tXn fees for really large txns...

I know we can leave it up to the miners and they will come up with a value that meets their demands and the demands of the users, but that will not be as secure as the users want it, and it won't be as many fees as the miners want. It'll be somewhere in the middle..

If the protocol said, it's 0.1%. full stop. The miners get a nice fraction, that always grows proportionally, as the usage of the network grows. They will be paid well, and the network will be VERY secure.

I am not interested in arguing over 1/1000 of a percent. I want to give it to the miners and have a secure network.

All I know is that right now, the fees are NOWHERE near enough to pay for the miners.. https://blockchain.info/charts/network-deficit

And they will have to go up.. A LOT.

If the incentive is sometimes much more than average, then mining will sometimes be more than average. That means it will sometimes be much less, meaning a very long time waiting for a block.

This is true, but only if we find that there is a disparity in the txn amounts in the blocks.. I don't know what the ratio is, but the mathematician inside me reckons that in a global economy they would be pretty standard on average.. But I don't know..

(Throwing a few ideas out here..)

What if we find the 0.1% txn fees are always high enough to make mining worthwhile ? Or maybe the network difficulty needs to be a bit more dynamic in nature.. OR maybe the difficulty could be in some way linked to the txn amout of the block.. hmm.. maybe not..

What i'm saying is there may be other solutions - with the eventual GOAL being - Happy Well-Payed Miner / Secure Network.




 

[MoonShadow]

I have to disagree..

Okay.

I know we can leave it up to the miners and they will come up with a value that meets their demands and the demands of the users, but that will not be as secure as the users want it, and it won't be as many fees as the miners want. It'll be somewhere in the middle..

That's the idea.  The market finds a balance.  There is no other way.

[spartacusrex]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

Yes this is true, but where is it said that this is the BEST AND ONLY way.. ?

People  do NOT understand the complexities of bitcoin TXNs. They just want to send their money. IF they were perfectly informed about the PRO's and CONs maybe most would choose to pay. But they will not be perfectly informed.

When asked if you could transmit your coins for free, OR pay a tiny TXN fee and help the network be more secure, how many will pick the former over the latter ? I can imagine that MOST people will go for the free option, of course..

Whereas if they weren't given a choice, and told that they had to pay 0.1% fee, MOST wouldn't bat an eyelid.. and say, That's fine.

It just seems that we are giving a choice were the NON-Obvious choice , pay a small fee, has very little against it and WILL make an ENORMOUS difference to the health of the network.

I can see how this goes against the whole FREE-MARKET thing, but don't people need to be BETTER informed, which they WON'T be, to make a GOOD decision ? Could that be the problem..?

Sorry to keep harping on about this, but many FREE-MARKETs have crashed because people are not mathematical objects, that don't have to behave rationally. They're human after all.. 

 

[myrkul]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

[spartacusrex]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

PEOPLE are the children.. in a nice way..

[myrkul]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

No, not really. Unless, of course, you assume that miners are children.

PEOPLE are the children.. in a nice way..

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

[spartacusrex]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

[myrkul]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

Why do you assume that all market participants are ignorant of the functioning of the network?

[kjj]

People want to have fast transactions. Miners want to have fees. Where these two desires interact, is where the market finds the proper transaction fee. People are not children, and thinking that they are is what has gotten this world into the state it is in. Central planning always fails.

Hmm.. I mean Children in the sense that they are not informed about all the facts. Is that not a requirement for a free market to work correctly ? Total Information Transparency ? Which requires them to understand the information..

The Children don't know if they eat all those sweets they will damage their bodies, get fat, rot teeth etc etc.. If they did - they'd think twice about it. And 'happily' choose to only eat a few.

They don't need "Total Information Transparency", they just need enough information to make a reasonable (not necessarily perfect) decision.

The market for fees doesn't exist yet, practically speaking.  We have no tools to collect and distribute the necessary information.  Mostly, this is because bitcoin is still young.  It wasn't born fully formed; we still have work to do.

Allowing fees to float in relation to transaction value was a very wise decision.  Setting a fixed percentage, even as just a floor, is impossible at best, and grotesquely disfiguring at worst.

[spartacusrex]

..grotesquely disfiguring at worst..

HA! Ok.. Children eating too many sweets and being sick it is!

They'll learn the hard way. Just as we will. Maybe that is the only way there is.

 

[myrkul]

They'll learn the hard way. Just as we will. Maybe that is the only way there is.

I think you're starting to get it.

[spartacusrex]

hello.. sorry.. just one more thing..

I quote some guy - http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be

'I read that the market will find the equilibrium how much these transaction fees will be.

It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.

True, there is a limit on the blocksize, so if the transaction volume in a block window (approximately 10 minutes) exceeds the block size you can expect a miniature "auction" where transactions fight for space in the block by bidding up the minimum transaction fee needed to get in. However this isn't really a closed-loop adjustment: the maximum blocksize is an arbitrarily chosen number, and there's no reason to believe the maximum blocksize is small enough to ensure that transaction fees are high enough to incent enough miners to mine to keep the system secure. Unlike the difficulty and the USD/BTC exchange rate it does not respond to market activity. It also has the negative side effect of capping the worldwide Bitcoin transaction throughput since other parts of the protocol rely on the assumption that blocks are created -- in the long run -- no more than once every ten minutes.

As the mining reward is reduced this "direct coupling" between the network's need for security and the incentive to mine becomes progressively more diluted.

I worry a lot about what will happen to Bitcoin once we decouple those two forces. I think the developers ought to at least come up with a story on how this will be solved so people can start testing it.
'

I think he makes a valid point, better than I made it..  and I wanted to point out that this issue is far from clear/certain/set-in-stone to everyone.

Thanks for listening.

Now, where's that bag of sweets...

[kjj]

hello.. sorry.. just one more thing..

I quote some guy - http://bitcoin.stackexchange.com/questions/876/how-much-will-transaction-fees-eventually-be

I read that the market will find the equilibrium how much these transaction fees will be.

It will not. This is perhaps the biggest flaw in Bitcoin at the moment: once mining rewards end there is no direct linkage between the amount of hashpower needed to secure the network and the incentive to mine.

True, there is a limit on the blocksize, so if the transaction volume in a block window (approximately 10 minutes) exceeds the block size you can expect a miniature "auction" where transactions fight for space in the block by bidding up the minimum transaction fee needed to get in. However this isn't really a closed-loop adjustment: the maximum blocksize is an arbitrarily chosen number, and there's no reason to believe the maximum blocksize is small enough to ensure that transaction fees are high enough to incent enough miners to mine to keep the system secure. Unlike the difficulty and the USD/BTC exchange rate it does not respond to market activity. It also has the negative side effect of capping the worldwide Bitcoin transaction throughput since other parts of the protocol rely on the assumption that blocks are created -- in the long run -- no more than once every ten minutes.

As the mining reward is reduced this "direct coupling" between the network's need for security and the incentive to mine becomes progressively more diluted.

I worry a lot about what will happen to Bitcoin once we decouple those two forces. I think the developers ought to at least come up with a story on how this will be solved so people can start testing it.

I think he makes a valid point, better than I made it..  and I wanted to point out that this issue is far from clear/certain/set-in-stone to everyone.

He keep using 'mining reward' wrong.  What he is talking about is actually the subsidy, which will gradually taper off and end, but the subsidy is only part of the mining reward.  He doesn't seem to be unaware of this distinction, but his misuse of the terms suggests muddled thinking, and he would probably benefit greatly from cleanly dividing the concepts in his mind.

I'm not sure that delving deeper into this is a good use of my time.  He seems to be making an awful lot of assumptions, some of which are going to be tricky to expose.  The most obvious is that the competition is for block space, which is already not true today.*  One more subtle is that the mining reward needs to pay for new hash power at roughly the current rate, which seems incredibly unlikely.**

It looks like a very static analysis.  He picked one thing that he knows is going to change, and figured out the ramifications by assuming that everything else was going to stay constant.  Such thinking usually goes horribly wrong when incorrectly applied to complex systems.

*  The competition is for miner attention.  Blocks are rarely full, and yet transactions, even some with fees, are waiting.

** It didn't take many GPUs to make overtake the entire CPU network.  It likewise didn't take many ASICs to overtake the entire GPU network.  But ASICs are the end of that road; now all we can do is make better ASICs.  There may be one or two more generational changes still coming as ASICs start to approach mass-market efficiency, but after that, improvements will be incremental rather than revolutionary.  This means that the furious pace of hardware turnover will slow dramatically.  Thus, mining rewards will only need to pay for operational costs and (relatively) modest upkeep and replacement, plus commodity-level profits.  By contrast, prior to winning the hashpower race, the mining reward has to pay that much, plus finance very rapid growth.

[myrkul]

It looks like a very static analysis.  He picked one thing that he knows is going to change, and figured out the ramifications by assuming that everything else was going to stay constant.  Such thinking usually goes horribly wrong when incorrectly applied to complex systems.

Like predicting the weather based on the assumption that only the temperature will change.

[spartacusrex]

Fizzy-Cola-Bottle anyone ?

I'm feeling a bit queasy.. eaten too many sweets..

[myrkul]

I'm pretty confident that over the next century, the market will learn what the correct price for a block is to maintain the hashpower to secure the network.

[MoonShadow]

That's the idea.  The market finds a balance.  There is no other way.

Hmm.. Forgive me, but is that not the same as this..

We let Children into a room full of sweets. They will eat as many sweets as they can before they are sick. They won't eat more than that, as they will be feeling ill, and won't want any more.. The Market will find a balance.

Yes this is true, but where is it said that this is the BEST AND ONLY way.. ?

It's closer to giving your kids a dollar, and telling them to pick out their own candy at the store.  If you've ever seen a six year old deliberate over the selection for an hour, clutching that dollar in his hand, you've just seen the principles of Praxeology in play.  Particularly "opprotunity cost calculation".  Giving kids candy is a real 'tragedy of the commons'.

People  do NOT understand the complexities of bitcoin TXNs. They just want to send their money. IF they were perfectly informed about the PRO's and CONs maybe most would choose to pay. But they will not be perfectly informed.

Those who need to understand will learn.  It's a fairly easy concept that free transactions can take a long time, so if you need speedy, pay the fee.

When asked if you could transmit your coins for free, OR pay a tiny TXN fee and help the network be more secure, how many will pick the former over the latter ? I can imagine that MOST people will go for the free option, of course..

Probably; unless the confirm times average over a week, which they eventually will.  Again, there are other ways to pay miners for support off network.  On network is retail.  Free transactions must be possible for off network solutions to develop.

Whereas if they weren't given a choice, and told that they had to pay 0.1% fee, MOST wouldn't bat an eyelid.. and say, That's fine.

Most, maybe.  Until they learn that Litecoin permits free transactions.

It just seems that we are giving a choice were the NON-Obvious choice , pay a small fee, has very little against it and WILL make an ENORMOUS difference to the health of the network.

How much?  Can your quantify it, or you just guessing?  Obviously, that was retorical, I know your honest answer.  You must make many assumptions about how much network "health" (a very subjective metric to start with) would be lost, and how mch is enough.  These things are unknowable.  Let the market decide.

I can see how this goes against the whole FREE-MARKET thing, but don't people need to be BETTER informed, which they WON'T be, to make a GOOD decision ? Could that be the problem..?

Sorry to keep harping on about this, but many FREE-MARKETs have crashed because people are not mathematical objects, that don't have to behave rationally. They're human after all.. 

The individuals don't need to be well informed for the 'market' as a whole to be well informed.  Look at intrade.com. 

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

― Friedrich von Hayek

[spartacusrex]

Most, maybe.  Until they learn that Litecoin permits free transactions.

This doesn't take into account that security is the MOST important part for some of us.. I wouldn't switch because i would want my coins kept in the most secure network. Not the cheapest.

How much?  Can your quantify it, or you just guessing?  Obviously, that was retorical, I know your honest answer.  You must make many assumptions about how much network "health" (a very subjective metric to start with) would be lost, and how mch is enough.  These things are unknowable.  Let the market decide.

True, true.. and yet..

Well, actually as I'm sure you know, in April 2013, 1 billion dollars (in bitcoins) was sent over the network.. At 0.1% that would have paid the miners 1 million dollars just in TXN fees..

Would that make the network MORE or LESS secure ? Would miners be MORE or LESS interested in being part of that network.. ? Surely it will incentivise the miners in the right way ?

OK - I can see we are not going to agree :-) BUT i just want it known, that for many of us, a HIGHER hashrate, better networking, and a more secure network, is really important.. not trying to squeeze out the cheapest transactions possible. A coin that did have a fixed fee, and rewarded it's miners in a MORE predictable way, would be a feature for me.

There is a lot of talk about what should/might/may happen, when the TXN fees ALONE (basically) will need to pay for the network, and I hope that happens, but does a little push in the right direction really hurt SO MUCH..
 
I'm going to call it quits now..
 

[agentbluescreen]

Reserve bankstering works and has always worked just fine, because a Medium of Labour Exchange is actually backed by the labours that it's earning has, or spending will, represent, ALONE!

Fractional Reserve Banking worked to bring about a power shift from feudal monarchs to the merchant class. FRB is in itself dishonest when you think of money as a commodity (say wheat) it is a flawed human construct. FRB also creates money inflation which is a cause for malinvestment in an economy, the net byproduct of inflation is continued economic growth, (the result of the additional Labour needed to offset the increase in the money supply)   which is now unsustainable.

Yes inflation (and deflation) are ALWAYS everybody's and everything's enemy!

Price inflation and deflation is not in itself good or bad, it is natural market feedback, information provided to members of an economy to make optimal use of resources available. It should be respected not feared and manipulated if the goal is to live sustainability and in peace.

Fractional Reserve came about because metalsmiths realized people dumped the useless precious-metal junk off with them because they couldn't be bothered with the loathsome tasks of dragging it around with them, protecting, hiding and defending it.

Pontifex Maximus JULIUS CAESAR in 48 BC took fractional reserve counterfeiting away from the private bankstering class and coined the first ALL PUBLICLY OWNED (and rented-out) "central reserve bank" money-tokens. This invention enabled him to build vast public works projects and obsolete taxation (for Romans in Rome), since the Republic profited sp handsomely from the correct growth of the public's Medium of Labour-Resource Exchange. He was assassinated by the private banksters (over his overwhelming popularity) for this, and his new calendar.

You silly "hard currency" morons totally confuse a "wealth" (too much of some garbage or rarer COMMODITY)  with a "money" (the universal "fractional" token of the PRIME RESOURCE of the values of all labours).

Any mere "commodity", no matter how rare, can and will become easily monopolized by any "economic winner". This is how Joseph enabled Pharaoh to enslave his people (because of their rare, limited and finite "fools-gold" money) during the famine in Egypt. It is exactly what the Rothschilds (and their global bankstering proxies) did ALL OVER AGAIN with the Private Federal Reserve Act in 1913.

Making some stupid rare "commodity" equal to the value of all human labour makes humans a damned "commodity"!

Gold was obsolete in the 1700's. Right now there is less than one ounce of gold per person on earth. This means that (as an average "Producer") all that you could ever do in your entire lifetime could never be worth (paid in-profit, savings or excess) more than a lifetime-maximum of 28 grams of gold. (or you'd have somebody else's, who's entire life's labours would have to be worth less).

The way gold wealth is currently distributed people would have to work weeks for some minute dust-fragment of gold.


Fine art, antiques, collectables and rare gems are "Mediums of Savings" (rare wealths who's values ever increase) generic metals and diamonds are only 2nd or 3rd rate (monopolized) Mediums of Savings, the price/demand for which are solely determined by how much monopolists are willing to pay for "more of their junk".

All other "commodities" are better or worse "Mediums of Investment" depending upon just about everything.

A "money" is (usually) a (national) economies' people's Medium of Labour-Resource Exchange that represents only the "current" sum total values of the fruits of all of their (exportable) PRIME LABOUR RESOURCES. It need not also be something (or anything) else that it is not.

WHAT IT IS IS WHAT IT IS, IT NEED NEVER ALSO BE ANYTHING ELSE (EASILY MONOPOLIZED) THAT IT IS NOT!


This is why an independently owned (by it's bearers and acquirer counter-parties alone)  Bitcoin Credit Swap OTC Derivative  is an ideal form of Labour-Resource Exchange "currency".

The power to print and own a "money" is the power to either free and liberate, or the power to enslave and own, an entire "human resource" of people.  All of these questions have nothing to do with what fiat money simply always must and has to be, they all have EVERYTHING to do with WHO OWNS IT.

[MoonShadow]

Most, maybe.  Until they learn that Litecoin permits free transactions.

This doesn't take into account that security is the MOST important part for some of us.. I wouldn't switch because i would want my coins kept in the most secure network. Not the cheapest.

And yet, as you point out, the important fact is not what is important for some of us, but what most of us are willing to pay for.  What you may want, or I, is irrelevant.

How much?  Can your quantify it, or you just guessing?  Obviously, that was retorical, I know your honest answer.  You must make many assumptions about how much network "health" (a very subjective metric to start with) would be lost, and how mch is enough.  These things are unknowable.  Let the market decide.

True, true.. and yet..

Well, actually as I'm sure you know, in April 2013, 1 billion dollars (in bitcoins) was sent over the network.. At 0.1% that would have paid the miners 1 million dollars just in TXN fees..

Would that make the network MORE or LESS secure ? Would miners be MORE or LESS interested in being part of that network.. ? Surely it will incentivise the miners in the right way ?

OK - I can see we are not going to agree :-) BUT i just want it known, that for many of us, a HIGHER hashrate, better networking, and a more secure network, is really important.. not trying to squeeze out the cheapest transactions possible. A coin that did have a fixed fee, and rewarded it's miners in a MORE predictable way, would be a feature for me.

Go for it.  Make our own alt-coin if you have the skills.  I wouldn't trust it as far as I could throw it, personally.

There is a lot of talk about what should/might/may happen, when the TXN fees ALONE (basically) will need to pay for the network, and I hope that happens, but does a little push in the right direction really hurt SO MUCH..
 
I'm going to call it quits now..
 

Neither of us will likely  live to see the endgame.  Again, that's not even going to happen for another 115+ years.

[spartacusrex]

HA! I said I'd call it quits and yet here I am..

This really is it though, on this topic.. too much code to write..

Go for it.  Make our own alt-coin if you have the skills.  I wouldn't trust it as far as I could throw it, personally.

Careful - you get the right shoulder action going, you can throw a coin pretty far..

On a serious note - I don't like alt-coins.. Well not the ones that have been produced so far. They're all just Bitcoin with some parameters changed.. except maybe PPC coin, but I don't like the POS system.. Though I do like seeing how the different strategies play out..

IF I did write a coin, which I have considered, it's going to be COMPLETELY different.. from the ground up. THAT I would like to see. Something truly new and dare I say it, original ?.

BUT [cough].. I'll probably have some kind of low fixed fee built in..   

I hope I can show it to you someday. You never know..

[Impaler]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.  Could it be that BTC 'mining' is embraced not because it's really necessary but because a whole group of people make profits from it.

[marcus_of_augustus]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

[Adrian-x]

EVERYTHING to do with WHO OWNS IT.

Agreed, that's why I see promise in Bitcoin, apart from the initial distribution problem once that has passed, the money will be owned by the labour that saves it (and inflation and deflation will be the measure the value of the labour that produced the work that earned the money that was saved.)

Fractional Reserve Banking is by definition theft, I am grateful for it as it is what broke the Feudal class, who had a monopoly on the land which is the source of prosperity, and enslaved the 99%, FRB gave birth to a new Capital class who now have a monopoly on the prosperity of labour and innovation. The time has come to end the Capital class the owners of money.

The new enlightenment will result when: 1) you own your productivity and 2) the Property rights evolve to mitigate monopoly.
Fixed quantity p2p Cryptocurrency is the first step in achieving 1)

[MoonShadow]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

If a trustless, anonymous, authorityless cryptocurrency could be developed that did not require proof-of-work; and be credible, it would overtake Bitcoin in no time. (assuming bitcoiners were unwiling to modify bitcoin's running protocol to match)  This is the primary motivation for alt-coins that attempt to use proof-of-stake and hybrid POW/POS systems to create the timestamping ledger/blockchain.  It's just that they are all so complicated; it's either difficult or impossible to prove that they are successful in this goal, and otherwise do not introduce new attack vectors.  In the several POS alt-coins I've seen, they either break anonimity, authorityless-ness, or provablely introduce new attack vectors. (for example, teh problem with trustless POS is that often the mining with that POS can build trust/stake until they are functionally supernodes, and then turn malicious at that point)

Proof-of-work is (relatively) simple.

[Adrian-x]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.  Could it be that BTC 'mining' is embraced not because it's really necessary but because a whole group of people make profits from it.

I mine to protect my investment in BTC, earning BTC from mining is a bonus, and so it will be with ASICMiner too they Mined to earn BTC, but they will eventually mine to protect the BTC they have saved Mined.   

[marcus_of_augustus]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

If a trustless, anonymous, authorityless cryptocurrency could be developed that did not require proof-of-work; and be credible, it would overtake Bitcoin in no time. (assuming bitcoiners were unwiling to modify bitcoin's running protocol to match)  This is the primary motivation for alt-coins that attempt to use proof-of-stake and hybrid POW/POS systems to create the timestamping ledger/blockchain.  It's just that they are all so complicated; it's either difficult or impossible to prove that they are successful in this goal, and otherwise do not introduce new attack vectors.  In the several POS alt-coins I've seen, they either break anonimity, authorityless-ness, or provablely introduce new attack vectors. (for example, teh problem with trustless POS is that often the mining with that POS can build trust/stake until they are functionally supernodes, and then turn malicious at that point)

Proof-of-work is (relatively) simple.

Ah-yup. I think we have at least a 2nd gen and 3rd gen before the whole space of what is possible has been explored and optimised.

[kjj]

Isn't it ironic that we have this great cryptographic system public-private keys and such and yet we still seem to need to pay through the nose for security.  Could it be that BTC 'mining' is embraced not because it's really necessary but because a whole group of people make profits from it.

How terrible that people should profit from doing something useful.

We need a new coin that automatically allocates profit to those that claim to represent the useless.  That will keep academics and politicians busy so they don't smell their end coming.

[Adrian-x]

How terrible that people should profit from doing something useful.

We need a new coin that automatically allocates profit to those that claim to represent the useless.  That will keep academics and politicians busy so they don't smell their end coming.

I do think that supporting a  full block chain node (with accompanying bandwidth) does add value, it could be possible that a node who maintains the block chain is reworded with proof of stake (mining options) like the current reword, but to mine you need to convert proof of stake into proof of work to earn BTC.

This would allow South and Northern hemispheres to take a break from mining in the summer months without missing out on opportunity, thus maximising the utility of the heat generated by mining by limiting it to winter months. It would make an attack harder too, as an attacker would need to support strengthen the existing network in order to allow it to even attempt a 51% brute force attack.

[firefop]

I do think that supporting a  full block chain node (with accompanying bandwidth) does add value, it could be possible that a node who maintains the block chain is reworded with proof of stake (mining options) like the current reword, but to mine you need to convert proof of stake into proof of work to earn BTC.

This would allow South and Northern hemispheres to take a break from mining in the summer months without missing out on opportunity, thus maximising the utility of the heat generated by mining by limiting it to winter months. It would make an attack harder too, as an attacker would need to support strengthen the existing network in order to allow it to even attempt a 51% brute force attack.

OR somebody could do something like... oh I don't know - buy a bunch of avalon chips - put together a rig that acts as a space heater, and sell that for a profit. How many people buy those "edenpure" space heaters for multiple thousands of dollars...

Why not a bitcoin based product in the same price range - where a consumer can purchase it and then heat his house by mining bitcoin to offset his power bill? What about a bitcoin based hot water heater (just liquid cool your chips and heat exchange into a water tank)?

The point isn't purely 'secure the network' although it is a point. There are also a myriad of ways to profit by building services on the bitcoin network. Device construction is only a part of that pie... services are going to be key in the future as well (or this whole project at some point fails).

[Impaler]

The point is that BTC intertwined transaction security with creating the money supply and then says these things will be divorced from each other at some future data that's so far in the future we will all be dead by then.  Now I'm aware that the double spend issue has not been solved in a robust way by any other system, but the general lack of interest in solving it is I think a reflection of a desire by most of the community here NOT to try to solve it in any other way.  

People really like being well payed bodyguards for a system that could collapse without them, the poorer the systems innate security the more bodyguards needed and the bigger the cut for the bodyguards.  Low and behold the bodyguards aren't interested in anything that would replace them at lower cost.  Should we be the least bit surprised that this bodyguard system isn't being used by real merchants who have the option to use Fiat money instead with it's massively lower costs?  Even if you call the State the bodyguards/enforcers of that money system (fair enough), they charge less then you guys and they have more market share, if you want to win market share lower your price.  But it seems to me people here prefer to get a big slice of a little pie then a small slice of a big pie, the classic error of guilds and unions throughout history.

[Etlase2]

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

Of course they can. The problem is figuring out how to moderate it with an efficient decentralized system while also making it sybil-resistant. I claim I have just the thing in my signature.

The point is that BTC intertwined transaction security with creating the money supply and then says these things will be divorced from each other at some future data that's so far in the future we will all be dead by then.  Now I'm aware that the double spend issue has not been solved in a robust way by any other system, but the general lack of interest in solving it is I think a reflection of a desire by most of the community here NOT to try to solve it in any other way. 

People really like being well payed bodyguards for a system that could collapse without them, the poorer the systems innate security the more bodyguards needed and the bigger the cut for the bodyguards.  Low and behold the bodyguards aren't interested in anything that would replace them at lower cost.  Should we be the least bit surprised that this bodyguard system isn't being used by real merchants who have the option to use Fiat money instead with it's massively lower costs?  Even if you call the State the bodyguards/enforcers of that money system (fair enough), they charge less then you guys and they have more market share, if you want to win market share lower your price.  But it seems to me people here prefer to get a big slice of a little pie then a small slice of a big pie, the classic error of guilds and unions throughout history.

Nice post.

[MoonShadow]

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

Of course they can.

Not in any way that's provably sound, in the mathmatics proof sense.  Proof-of-work is mathmaticly provable.  This is no small hurdle.

The problem is figuring out how to moderate it with an efficient decentralized system while also making it sybil-resistant. I claim I have just the thing in my signature.

Oh, wow.  Here we go again.  Havn't read your description completely, but I already have a complaint.  Your description is 'fuzzy', as even you mention that your numbers are "debatable".  Worse still, you start by establishing a two-tier class system (like common versus preferred corporate stocks), wherein ownership of the high class assets are what give you special rights to be a 'supernode'.  While this might be 99% attack resistant (I'm not conceding this, just not contesting it yet) what prevents any one person or group from accumulating those Shareholder coins until they can functionally perform a >1% attack?  On the flip side, what incentive would a SH coin holder have for selling one?  How are they created, and how (or by whom) are those recepients chosen?  God this thing is complex, and it's not even close to a complete protocol.  What prevents a SH coin holder from using that power to disrupt the network itself, by voting against consensus?  I contend that some of these features are impossible on a practical level, and some might be impossible on an implementation level.

Good God!  That's an awful way to make an argument, Etlase2.  Haven't you learned anything during your tour here?

[Etlase2]

Not in any way that's provably sound, in the mathmatics proof sense.  Proof-of-work is mathmaticly provable.  This is no small hurdle.

Oh please. Unless you plan on debating the finer points of the cryptographic proof differences between DSAs and hashing algorithms, your argument holds no water. It is defeated very easily because you must concede that a central authority with one key could control a network such as I describe. The point of course is to not give just one key this privilege, but very many.

Your description is 'fuzzy',

I'm aware of that. It's because of an unfounded fear about someone using the idea that I've spent far too much time developing. I wouldn't have a problem with that per se, but it would probably be used to create bitcoin 2.0 rather than cryptocurrency 2.0, and that would be a shame.

as even you mention that your numbers are "debatable".

That is a reference to the constants I use.

what prevents any one person or group from accumulating those Shareholder coins until they can functionally perform a >1% attack?

What is a 1% attack? Refusing to acknowledge a consensus block? Well if no one can hear you scream... Acknowledging a different consensus block? Well hey you've created a fork where you are the only one and the original fork has destroyed your money. Sure, I can just say these things and pretend that's evidence, but understanding proof-of-consensus requires a break from the bitcoin mentality of security. Your attitude speaks volumes about your willingness to think differently, so there is little point in me continuing.

On the flip side, what incentive would a SH coin holder have for selling one?  How are they created, and how (or by whom) are those recepients chosen?

They aren't created or sold, money of the network is used to purchase shares in the network. The recipients aren't "chosen", they make the decision to work for the network. In return, they receive a portion of transaction fees. This stuff is all covered clearly enough in the first few paragraphs.

God this thing is complex, and it's not even close to a complete protocol.

Complex? Yes. Protocol incomplete? No, only the proposal is incomplete for brevity and the aforementioned fear.

What prevents a SH coin holder from using that power to disrupt the network itself, by voting against consensus?

The simple fact that every single other SH that is not colluding with him will agree destroy his share for his unwillingness to agree to consensus. Of course then comes the "well what if EVERYONE is colluding?" and I have to point out the failure of that logic etc.

I contend that some of these features are impossible on a practical level, and some might be impossible on an implementation level.

Well if you contend!

Good God!  That's an awful way to make an argument, Etlase2.  Haven't you learned anything during your tour here?

I'm not here to argue, I know what I propose is possible and it will be made. The more that are made aware of a completely different way to accomplish the task at hand is available, the more quickly it is likely to be realized.


And thanks for the support 100x.

[Adrian-x]

I do think that supporting a  full block chain node (with accompanying bandwidth) does add value, it could be possible that a node who maintains the block chain is reworded with proof of stake (mining options) like the current reword, but to mine you need to convert proof of stake into proof of work to earn BTC.

This would allow South and Northern hemispheres to take a break from mining in the summer months without missing out on opportunity, thus maximising the utility of the heat generated by mining by limiting it to winter months. It would make an attack harder too, as an attacker would need to support strengthen the existing network in order to allow it to even attempt a 51% brute force attack.

OR somebody could do something like... oh I don't know - buy a bunch of avalon chips - put together a rig that acts as a space heater, and sell that for a profit. How many people buy those "edenpure" space heaters for multiple thousands of dollars...

Why not a bitcoin based product in the same price range - where a consumer can purchase it and then heat his house by mining bitcoin to offset his power bill? What about a bitcoin based hot water heater (just liquid cool your chips and heat exchange into a water tank)?

The point isn't purely 'secure the network' although it is a point. There are also a myriad of ways to profit by building services on the bitcoin network. Device construction is only a part of that pie... services are going to be key in the future as well (or this whole project at some point fails).

I can think of lots of scenarios where the heat can be effectively utilised, I think it will be an industry unto itself.

So I think Satoshi was close when he discounted the size of the blockchain looking at the historic rate that Hard drive space is increasing relative to cost. But bandwidth requirements are increasing at a rate higher than the cost of bandwidth is decreasing. The result is maintaining the blockchain will become more and more costly to the point it is an investment that has no return. 

So it makes sense to reword the stewards of the blockchain in a similar way to the miners.

The advantage of making one proof of stake option, is with the space heater idea, it won't be practical to run it in summer, however the cost investment in hardware would result in a lost opportunity in mining. The net result is, human action isn't held in balance with the system and people will waste energy. It is in contrast to the other aspects of the Bitcoin economy.  If you had options to mine you could save them in the summer and use them in the winter, the only risk is the business risk that is similar to the risk Bitcoin has now. (this would be ideal feature now before Bitcoin energy consumption grows exponentially.)   

All in all I keep wondering how much of what makes Bitcoin so cool, was the result of the conceived  design (getting the fundamentals right in the protocol) or getting the protocol aspect resolved and by chance, it being so accurately timed and exsiccated it has become the catalyst for new ideas and features and ways of exchanging and storing economic activity among the benefits possibly eliminating the economic problem of inflation and deflation.

[MoonShadow]

If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

Of course they can.

Not in any way that's provably sound, in the mathmatics proof sense.  Proof-of-work is mathmaticly provable.  This is no small hurdle.

The problem is figuring out how to moderate it with an efficient decentralized system while also making it sybil-resistant. I claim I have just the thing in my signature.

Oh, wow.  Here we go again.  Havn't read your description completely, but I already have a complaint.  Your description is 'fuzzy', as even you mention that your numbers are "debatable".  Worse still, you start by establishing a two-tier class system (like common versus preferred corporate stocks), wherein ownership of the high class assets are what give you special rights to be a 'supernode'.  While this might be 99% attack resistant (I'm not conceding this, just not contesting it yet) what prevents any one person or group from accumulating those Shareholder coins until they can functionally perform a >1% attack?  On the flip side, what incentive would a SH coin holder have for selling one?  How are they created, and how (or by whom) are those recepients chosen?  God this thing is complex, and it's not even close to a complete protocol.  What prevents a SH coin holder from using that power to disrupt the network itself, by voting against consensus?  I contend that some of these features are impossible on a practical level, and some might be impossible on an implementation level.

Good God!  That's an awful way to make an argument, Etlase2.  Haven't you learned anything during your tour here?

Yeah, what the hell was he thinking trying to actually create something novel (compared all the other shit coming out of the altcoin sub-forum)?
And seriously, starting a discussion without having a perfectly outlined specification? Madness! So glad the bitcoin protocol is perfectly specified.
We all know complex proposals always fail, which is why we have stuck to the horse and buggy for transportation and the good ol' postal service for communication!

Etlase2 and I have a history about this kind of thing.  He proposes BS,and I point out it's flaws.  It drives him nuts.  He's being fuzzy because he is afraid that someone is going to point out flaws.

[firefop]

All in all I keep wondering how much of what makes Bitcoin so cool, was the result of the conceived  design (getting the fundamentals right in the protocol) or getting the protocol aspect resolved and by chance, it being so accurately timed and exsiccated it has become the catalyst for new ideas and features and ways of exchanging and storing economic activity among the benefits possibly eliminating the economic problem of inflation and deflation.

I often wonder about that myself... but I'm slowly coming to the conclusion that this sort of thing would happen in any free market. It just happens faster in bitcoin... because it is a free market. Which in turn makes me want to shake statists and banksters.

[kjj]

Etlase2 and I have a history about this kind of thing.  He proposes BS,and I point out it's flaws.  It drives him nuts.  He's being fuzzy because he is afraid that someone is going to point out flaws.

Wouldn't we need to take him off ignore before we could do that?

[myrkul]

Etlase2 and I have a history about this kind of thing.  He proposes BS,and I point out it's flaws.  It drives him nuts.  He's being fuzzy because he is afraid that someone is going to point out flaws.

Wouldn't we need to take him off ignore before we could do that?

Isn't that what the "show" link is for?

[MoonShadow]

Etlase2 and I have a history about this kind of thing.  He proposes BS,and I point out it's flaws.  It drives him nuts.  He's being fuzzy because he is afraid that someone is going to point out flaws.

Wouldn't we need to take him off ignore before we could do that?

I don't have the luxury of ignoring members.  Those who would most likely earn it, are the same group of people that need be moderated.

I wouldn't agree that Etlase2 falls into that catagory anyway.  He is as free to make his silly proposals as I am to mock them.

And mock them I shall, it's one of the things that makes that "Global Moderator" tag worthwhile.

[MoonShadow]

I can think of lots of scenarios where the heat can be effectively utilised, I think it will be an industry unto itself.

I've literally been talking about this kind of thing for years.  Heat trace cabling for public and private infrastructure being a big one.

[marcus_of_augustus]

Quote from: marcus_of_augustus on 10 May 2013, 13:31:00
If you feel there is better way to solve the double-spend problem than the block-chain we are all ears ... pub-priv key pairs can not do this as far as I'm aware?

Of course they can. The problem is figuring out how to moderate it with an efficient decentralized system while also making it sybil-resistant. I claim I have just the thing in my signature.

Cool thanks, I'll look into it ... I'm always open to new ideas. Where do we send feedback?

[Etlase2]

Cool thanks, I'll look into it ... I'm always open to new ideas. Where do we send feedback?

The link in my sig is to a thread on these forums. Reply to it with questions/comments.

[jtimon]

Obviously the most promising alternative to PoW is Ripple's new consensus algorithm.
It is still unclear to me if it leaves PoW obsolete, since PoW seems to be more trust-less and robust.
But I don't see how the consensus can fail, maybe someone sees it when it becomes free software.

In the end is all about following the same rules. If 99% of bitcoin users want to make a change in the rules but 90% of the miners oppose it.
What's the "real" chain?
The one that 99% of people listen to or the one with 9x more hashing power?
I say the one chosen by the users.

Anyway, "alternatives to PoW" seems very distanced from "the deflationary problem", which the austrian dogma says doesn't exist and I've already discussed extensively in the previous thread about this.

[MoonShadow]

Obviously the most promising alternative to PoW is Ripple's new consensus algorithm.

That's not at all obvious.

It is still unclear to me if it leaves PoW obsolete, since PoW seems to be more trust-less and robust.

It certainly doesn't leave PoW obsolete, it doesn't even serve the same function.  Ripple is a p2p credit system.  It's not a monetary system at all, and it's recent attempts to develop it's own internal currency are going to hamper it's utility.  They are simply trying to be all things, and it's not going to turn out well.

But I don't see how the consensus can fail, maybe someone sees it when it becomes free software.

Oh, consensus can certainly fail.  Deadlock for a necessary change is a failure.

[jtimon]

Obviously the most promising alternative to PoW is Ripple's new consensus algorithm.

That's not at all obvious.

Do you know any other alternative for p2p public accounting?

It is still unclear to me if it leaves PoW obsolete, since PoW seems to be more trust-less and robust.

It certainly doesn't leave PoW obsolete, it doesn't even serve the same function.  Ripple is a p2p credit system.  It's not a monetary system at all, and it's recent attempts to develop it's own internal currency are going to hamper it's utility.  They are simply trying to be all things, and it's not going to turn out well.

Well, the Ripple concept (Ryan Fugger, 2004) has nothing to do with the new consensus mechanism (Jed McCaleb).
The Ripple concept can be implemented on top of a PoW chain (we want to do that for freicoin, bitcoin could just pull the changes).
The new consensus mechanism doesn't need the p2p credit network. Opencoin could have launched only XRP without Ripple, only a new cryptocurrency.
But the new consensus system requires a host currency to pay the fees which are destroyed because there's no mining.
They couldn't have launched Ripple without XRP if they want to use their new consensus mechanism, period.

But I don't see how the consensus can fail, maybe someone sees it when it becomes free software.

Oh, consensus can certainly fail.  Deadlock for a necessary change is a failure.

Can you extend on this, please?

EDIT:
Here's my first attempt to implement Ripple on top of bitcoin more than 2 years ago: https://bitcointalk.org/index.php?topic=3557.0

And this is the last design I'm working in with @maaku: https://docs.google.com/a/monetize.io/document/d/1nnul3oDO5z8sspWBKgTKKSjQ7dWoOqU4Pd8DILLmFN8
Sorry, we have to clean that up, but we're open to collaborate with more people interested in this. Most of the colored coins people didn't wanted to modify the protocol so they're more limited.
When implemented, it will be less controversial to deploy it on Freicoin than Bitcoin, but I think bitcoin will end up something like that (if not the same code) as well.

[MoonShadow]

Obviously the most promising alternative to PoW is Ripple's new consensus algorithm.

That's not at all obvious.

Do you know any other alternative for p2p public accounting?

Doesn't matter what I may or may not know.  It's an objective observation that a consensus algorithm is not an obvious "most promising" anything.  If you hadn't stated it as if it were fact, I wouldn't have objected, but that is not what you did.  Your opinion may or may not be shared, or supportable with objective or subjective arguments, or even considered common knowledge; but it is still an opinion.

I really have no opinion on whether or not ripple's new consensus algo is "the most promising alternative to Pow" or not.  I consider that a silly idea on it's face.  My personal opinion is that comparison is akin to the next most promising alternative to good health, life or freedom; the next most promising alternative is not usually acceptable.

[jtimon]

Ok, it's not obvious, it is just my opinion.
To me the consensus algorithm is the most promising alternative to PoW for public p2p accounting, mainly because it is the only alternative I know.

[MoonShadow]

Ok, it's not obvious, it is just my opinion.
To me the consensus algorithm is the most promising alternative to PoW for public p2p accounting, mainly because it is the only alternative I know.

Much better.