The deflationary problem

[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]