Bitcoin major fail - doesn't allow credit creation (aka deflationary currency)

[molecular]

So money becomes an asset on its own rather than an exchange medium; you can make money just by having money. I understand that ... doesn't mean I agree with it, I mean look at where this approach got us into now. The power to create money should reside with people that create actual things, not with banks.

This thread may be relevant: https://bitcointalk.org/index.php?topic=79555.0 ("I used to think lending at interest was evil")

[bobitza]

This thread may be relevant: https://bitcointalk.org/index.php?topic=79555.0 ("I used to think lending at interest was evil")

Yes, I briefly mentioned that in a previous post; interest can be seen as a measure of investment risk and a measure of protection from inflation. In the current system it's usually both because there is no 0% interest rate for risk-free assets. Care to comment on how interest should be regarded when dealing with a deflationary currency/environment? For example there can't be such thing as negative interest for risk free assets ...

[molecular]

This thread may be relevant: https://bitcointalk.org/index.php?topic=79555.0 ("I used to think lending at interest was evil")

Yes, I briefly mentioned that in a previous post; interest can be seen as a measure of investment risk and a measure of protection from inflation. In the current system it's usually both because there is no 0% interest rate for risk-free assets. Care to comment on how interest should be regarded when dealing with a deflationary currency/environment? For example there can't be such thing as negative interest for risk free assets ...

I'm having trouble understanding the problem. If you view interest as a measure of protection against inflation then that doesn't make sense with a money supply that doesn't inflate, does it? Simply save (deposit money to bitcoin lending bank you trust, or: simply keep in your own wallet if 0% is enough for you, after all: prices keep falling)

If you want to enable negative interest rates, you'd have to have negative interest rates on the currency itself in order to make the negative-interest-investment look better than simple saving of the money (gesell's money, demurrage, freicoin or whatever the ideas are).

[bitcoinbear]

This thread may be relevant: https://bitcointalk.org/index.php?topic=79555.0 ("I used to think lending at interest was evil")

Yes, I briefly mentioned that in a previous post; interest can be seen as a measure of investment risk and a measure of protection from inflation. In the current system it's usually both because there is no 0% interest rate for risk-free assets. Care to comment on how interest should be regarded when dealing with a deflationary currency/environment? For example there can't be such thing as negative interest for risk free assets ...

Why can't you have a negative interest rate? It might not make sense with bitcoin, but consider gold: I have 100 g of gold, but I want to keep it safe, so I give it to the bank, and pay an account fee of 1 g of gold. That would essentially be a negative interest rate. Actually, come to think of it, you could say that using a webwallet which you pay a bit of extra per transaction for the security of knowing your bitcoins are safe and availible wherever you are, that would be a negative interest rate as well. The negative interest rate is possible because you are paying to have a risk-free investment.

[justusranvier]

Why can't you have a negative interest rate? It might not make sense with bitcoin, but consider gold: I have 100 g of gold, but I want to keep it safe, so I give it to the bank, and pay an account fee of 1 g of gold.

Paying a storage fee for a physical commodity isn't quite the same as lending at a negative nominal interest rate.

If bitcoins were gaining in purchasing power at a steady 5% per year would you lend some of yours out at a nominal rate of -1%? In purchasing power terms you'd still come out ahead by 4%, but why would you accept the risk of default to end up with less bitcoins than you would have if you had just held on to them and never risked them at all?

[bitcoinbear]

Why can't you have a negative interest rate? It might not make sense with bitcoin, but consider gold: I have 100 g of gold, but I want to keep it safe, so I give it to the bank, and pay an account fee of 1 g of gold.

Paying a storage fee for a physical commodity isn't quite the same as lending at a negative nominal interest rate.

If bitcoins were gaining in purchasing power at a steady 5% per year would you lend some of yours out at a nominal rate of -1%? In purchasing power terms you'd still come out ahead by 4%, but why would you accept the risk of default to end up with less bitcoins than you would have if you had just held on to them and never risked them at all?

Say I am computer-unsavvy, or I tend to loose my computer, or it gets stolen a lot. Whatever the factors, I decide the risk of me holding my own bitcoins and losing them is higher than the risk of you defaulting. If this is true, then it does make sense to lend you the bitcoins at a negative interest rate.

That being said, I do not think it will ever come to this. My prediction is that the value of bitcoins will never rise strongly and consistently enough to justify a negative interest rate.

[Richy_T]

Why can't you have a negative interest rate? It might not make sense with bitcoin, but consider gold: I have 100 g of gold, but I want to keep it safe, so I give it to the bank, and pay an account fee of 1 g of gold.

Paying a storage fee for a physical commodity isn't quite the same as lending at a negative nominal interest rate.

If bitcoins were gaining in purchasing power at a steady 5% per year would you lend some of yours out at a nominal rate of -1%? In purchasing power terms you'd still come out ahead by 4%, but why would you accept the risk of default to end up with less bitcoins than you would have if you had just held on to them and never risked them at all?

Say I am computer-unsavvy, or I tend to loose my computer, or it gets stolen a lot. Whatever the factors, I decide the risk of me holding my own bitcoins and losing them is higher than the risk of you defaulting. If this is true, then it does make sense to lend you the bitcoins at a negative interest rate.

That being said, I do not think it will ever come to this. My prediction is that the value of bitcoins will never rise strongly and consistently enough to justify a negative interest rate.

If you are wanting someone else to hold your money, you are not lending but storing or depositing. If, in such a circumstance, you would expect to be able to get back your bitcoins at no notice, interest would not be an issue but there would likely be some kind of fee you would have to pay for the service.

In truth, I can't see anyone ever lending at a negative interest rate. Regardless of the mathematics of the thing, you typically lend to get back more of what you're lending. Since the mathematics kinda-sorta make sense, it seems likely we are missing a piece of the puzzle.

[bitcoinbear]

Say I am computer-unsavvy, or I tend to loose my computer, or it gets stolen a lot. Whatever the factors, I decide the risk of me holding my own bitcoins and losing them is higher than the risk of you defaulting. If this is true, then it does make sense to lend you the bitcoins at a negative interest rate.

That being said, I do not think it will ever come to this. My prediction is that the value of bitcoins will never rise strongly and consistently enough to justify a negative interest rate.

If you are wanting someone else to hold your money, you are not lending but storing or depositing. If, in such a circumstance, you would expect to be able to get back your bitcoins at no notice, interest would not be an issue but there would likely be some kind of fee you would have to pay for the service.

In truth, I can't see anyone ever lending at a negative interest rate. Regardless of the mathematics of the thing, you typically lend to get back more of what you're lending. Since the mathematics kinda-sorta make sense, it seems likely we are missing a piece of the puzzle.

What is the difference between giving somebody a loan or giving somebody a deposit? It is just a matter of semantics based on who is the larger party. Not all deposits are available on demand, such as CDs.

You lend to get more back than you would by just holding. Again, if just holding something is risky, the expected value might be lower than the expected value of a no-risk investment. The problem is, I do not think the risk of default will ever drop below the risk of lost coins. There are just no deposit takers who are trustworthy enough to be no-risk.

[myrkul]

Say I am computer-unsavvy, or I tend to loose my computer, or it gets stolen a lot. Whatever the factors, I decide the risk of me holding my own bitcoins and losing them is higher than the risk of you defaulting. If this is true, then it does make sense to lend you the bitcoins at a negative interest rate.

That being said, I do not think it will ever come to this. My prediction is that the value of bitcoins will never rise strongly and consistently enough to justify a negative interest rate.

If you are wanting someone else to hold your money, you are not lending but storing or depositing. If, in such a circumstance, you would expect to be able to get back your bitcoins at no notice, interest would not be an issue but there would likely be some kind of fee you would have to pay for the service.

In truth, I can't see anyone ever lending at a negative interest rate. Regardless of the mathematics of the thing, you typically lend to get back more of what you're lending. Since the mathematics kinda-sorta make sense, it seems likely we are missing a piece of the puzzle.

What is the difference between giving somebody a loan or giving somebody a deposit? It is just a matter of semantics based on who is the larger party. Not all deposits are available on demand, such as CDs.

...And that's the difference. A CD has a positive interest value. You're loaning the bank an amount of money for a set time period. A demand deposit (such as a checking account) typically has fees. These fees are because while the bank holds the funds for you, they can't use them. The difference between fees and interest is that fees are typically static, while interest is dependent on the amount in the account. Would you use a bank that charged you a 3% fee, as opposed to a set fee per check or month?

If so, then you can perhaps consider that loaning at negative interest.

[markm]

This whole argument seems a bit absurd since bitcoin the blockchain is itself in effect created credit and bitcoin the free open source software is a free to use credit-creation system.

Take a good look at http://galaxies.mygamesonline.org/digitalisassets.html

I think maybe no one has yet. The figures there continue to amaze me.

Something somehow does seem to have been massively suppressing bitcoin exchange rates but fortunately it maybe also has diverted attention from some of its spin-offs.

If there are not enough bitcoins to go around, or, as seems to have been the case for a year or more, bitcoin is somehow failing to represent enough value to serve as a useful unit of account, make more spin-offs.

-MarkM-

[cunicula]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

[kjj]

This whole argument seems a bit absurd since bitcoin the blockchain is itself in effect created credit and bitcoin the free open source software is a free to use credit-creation system.

Take a good look at http://galaxies.mygamesonline.org/digitalisassets.html

I think maybe no one has yet. The figures there continue to amaze me.

Something somehow does seem to have been massively suppressing bitcoin exchange rates but fortunately it maybe also has diverted attention from some of its spin-offs.

If there are not enough bitcoins to go around, or, as seems to have been the case for a year or more, bitcoin is somehow failing to represent enough value to serve as a useful unit of account, make more spin-offs.

-MarkM-

Dude.  You keep posting that link like it means something to us.  It does not.  None of us have any idea what those numbers mean.

[DannyHamilton]

Take a good look at http://galaxies.mygamesonline.org/digitalisassets.html

I think maybe no one has yet. The figures there continue to amaze me.

I have.  I see nothing amazing.  Care to explain what it is that I'm failing to see in the figures?

This whole argument seems a bit absurd since bitcoin the blockchain is itself in effect created credit and bitcoin the free open source software is a free to use credit-creation system.

I don't really understand your point.  In what way is the blockchain created credit?

Something somehow does seem to have been massively suppressing bitcoin exchange rates. . .

Absolutely! I think it's called "supply and demand", or "perhaps market forces".

If there are not enough bitcoins to go around, or, as seems to have been the case for a year or more, bitcoin is somehow failing to represent enough value to serve as a useful unit of account. . .

And yet from everything I've seen so far, bitcoin has been a fine unit of account.

[bitCooper]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

If someone or some organization decided tomorrow to impose demurrage via a 51% attack, the response would be:
1. What is demurrage?
2. How could I calculate it even if I cared?
3. Just wait until a miner from the remaining pools mined a block with your .001 btc fee.

The US government will always be able to print money as it desires; even if bitcoin becomes 50% of the economy, they will still be able to encourage lending via a low interest rate, as long as dollars continue to be treated as legal tender.

People can always move from dollars to btc, gold, stocks, or anything else with a more stable value than the dollar.

[cunicula]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

If someone or some organization decided tomorrow to impose demurrage via a 51% attack, the response would be:
1. What is demurrage?
2. How could I calculate it even if I cared?
3. Just wait until a miner from the remaining pools mined a block with your .001 btc fee.

No, common misunderstanding. If the organization has 51%, mining must be authorized by the organization or it cannot occur.

[molecular]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

If someone or some organization decided tomorrow to impose demurrage via a 51% attack, the response would be:
1. What is demurrage?
2. How could I calculate it even if I cared?
3. Just wait until a miner from the remaining pools mined a block with your .001 btc fee.

No, common misunderstanding. If the organization has 51%, mining must be authorized by the organization or it cannot occur.

but if the organization imposes certain rules (demurrage in this case), the 49% can just hard-fork by rejecting blocks identified as being mined be that organization.

[Richy_T]

but if the organization imposes certain rules (demurrage in this case), the 49% can just hard-fork by rejecting blocks identified as being mined be that organization.

That would set a pretty bad precedent. But the fact that it could be done would hopefully be enough to prevent some rogue entity from investing millions in the attempt.

[molecular]

but if the organization imposes certain rules (demurrage in this case), the 49% can just hard-fork by rejecting blocks identified as being mined be that organization.

That would set a pretty bad precedent. But the fact that it could be done would hopefully be enough to prevent some rogue entity from investing millions in the attempt.

exaclty.

[cunicula]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

If someone or some organization decided tomorrow to impose demurrage via a 51% attack, the response would be:
1. What is demurrage?
2. How could I calculate it even if I cared?
3. Just wait until a miner from the remaining pools mined a block with your .001 btc fee.

No, common misunderstanding. If the organization has 51%, mining must be authorized by the organization or it cannot occur.

but if the organization imposes certain rules (demurrage in this case), the 49% can just hard-fork by rejecting blocks identified as being mined be that organization.

I'm sorry, how do you identify the organization's blocks? By the fees they charge? That would work if you imposed a mandatory fee system rather than a market-based fee. A mandatory fee is a great idea. You have to do it now, though. You can't wait for the "attack" to happen and then try to fight the government.

Only idealistic libertarians will fight the government. The 99% will reject invalid libertarian blocks.

[molecular]

Bitcoin is completely compatible with liberal central bank directed credit creation. The bank just needs to have 51% of hashing power. Then it can charge demurrage and give the demurrage fees to banks to lend out.

If someone or some organization decided tomorrow to impose demurrage via a 51% attack, the response would be:
1. What is demurrage?
2. How could I calculate it even if I cared?
3. Just wait until a miner from the remaining pools mined a block with your .001 btc fee.

No, common misunderstanding. If the organization has 51%, mining must be authorized by the organization or it cannot occur.

but if the organization imposes certain rules (demurrage in this case), the 49% can just hard-fork by rejecting blocks identified as being mined be that organization.

I'm sorry, how do you identify the organization's blocks? By the fees they charge? That would work if you imposed a mandatory fee system rather than a market-based fee. A mandatory fee is a great idea. You have to do it now, though. You can't wait for the "attack" to happen and then try to fight the government.

Only idealistic libertarians will fight the government. The 99% will reject invalid libertarian blocks.

99% would mine blocks according to some rules that charge demurrage? I doubt it.