What is the ideal inflation rate in an inflationary PoW currency?

[8up]

The first question is. Why is inflation needed in our current system?
It's an indirect tax and it's a tool supposed to speed up the money flow. The faster the money circulates, the more value will be created.

The second question is. Is bitcoins' value guaranteed?
No, bitcoin has to compete and can lose "value" in the process.

Third question. How will states finance themselves in a future world?
Look at some implementations of regional currencies.  (e.g. http://community-currency.info/en/currencies/brixton-pound/)

Two implementations (a combination is possible):

• Demurrage (e.g. if holding a coin for more than 3 month the customer as well as the business owner loses 0.25% every month)
• Transaction (sales) tax (e.g. if a business owner is paid with local currency (e.g. Brixton Pound) he has to pay 2.5% if he wants to receive bitcoins instead.

The last sub-question is. Why would a business owner use this?
Because after all, we are all social beeings living in a neigbourhood. Profit maximizing only works, where people don't know each other very well. If I can see my money working for the greater good, I have nothing against opt-in taxes.

Both implementations are easily enforceable/auditeable due to their digital nature. It already works in small communities despite beeing based on inflationary fiat currencies.
The "generated" money will go to one or many causes, the customer pre-defined. (e.g. a hospital, a school, a municipal administration,...)

P.S. Sorry for capturing your thread. I don't think inflation on the base layer of a digital currency is a good idea. If it is needed, to secure the network well that's another case - I would go with the block-reward instead. If you really want an inflationary currency build it upon layer 2.

BTW -  I am also open for suggestions.

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[mcplums]

You are in bitcoin to change the world for the better, right?  Or are you just here to get rich?

Can I choose both please?

[funkenstein]

You are in bitcoin to change the world for the better, right?  Or are you just here to get rich?

Can I choose both please?

You can, because they are the same thing. 

[americanpegasus]

 
 
Everyone who came to decry the idea of protocol level inflation is failing to understand is that a cryptocurrency network only exists due to miners.  If miners stop mining (due to the block reward getting too small and transaction fees not keeping up), the network rapidly loses strength (leading to loss of value).  The problem with this collapse is it compounds on itself as less valuable tokens translate to even less incentive for mining. 
 
So in order for bitcoin to work long-term, transaction fees have to be valuable enough to sustain half an exahash of mining (and more in the future).  For this to happen, competition to get into a block has to go way up.  This means that many users have to want to transact in bitcoin and there has to both be a large demand to move many bitcoins frequently (totally against any philosophy of hodl'ing) and also a scarcity of ability to get into a block leading to higher fees.  Otherwise, as the blocksize slowly shrinks it will eventually reach a critical point where mining another currency will simply be more profitable and the miners will quit en masse. 
 
When this happens you no longer own a token on the strongest and most secure network on Earth - you own an old and abandoned token.  I predict that either bitcoin will eventually collapse, move to PoS, or implement a trailing block reward.  I simply do not see a mathematical way for bitcoin to hold a value of "$1 million per bitcoin" when no one is transacting with it and everyone is simply holding it and hoping to be rich. 
 
Monero helps solve this by having a perpetual 0.3 XMR block reward so there will always be new Monero to mine. 
 
Aeon solves it even further by allowing 8/9% new Aeon a year so there will always be a reason for miners to keep mining the Aeon network. 
 
You are welcome to try to prove me wrong, but make sure you include the simple fact of keeping the miners happy in your rebuttal - with no miners you have no network and no value.

[David Rabahy]

Those attempting to transact ought to pay the miners; those just sitting there shouldn't.

[GingerAle]

 
  
Everyone who came to decry the idea of protocol level inflation is failing to understand is that a cryptocurrency network only exists due to miners.  If miners stop mining (due to the block reward getting too small and transaction fees not keeping up), the network rapidly loses strength (leading to loss of value).  The problem with this collapse is it compounds on itself as less valuable tokens translate to even less incentive for mining.  
  
So in order for bitcoin to work long-term, transaction fees have to be valuable enough to sustain half an exahash of mining (and more in the future).  For this to happen, competition to get into a block has to go way up.  This means that many users have to want to transact in bitcoin and there has to both be a large demand to move many bitcoins frequently (totally against any philosophy of hodl'ing) and also a scarcity of ability to get into a block leading to higher fees.  Otherwise, as the blocksize slowly shrinks it will eventually reach a critical point where mining another currency will simply be more profitable and the miners will quit en masse.  
  
When this happens you no longer own a token on the strongest and most secure network on Earth - you own an old and abandoned token.  I predict that either bitcoin will eventually collapse, move to PoS, or implement a trailing block reward.  I simply do not see a mathematical way for bitcoin to hold a value of "$1 million per bitcoin" when no one is transacting with it and everyone is simply holding it and hoping to be rich.  
  
Monero helps solve this by having a perpetual 0.3 XMR block reward so there will always be new Monero to mine.  
  
Aeon solves it even further by allowing 8/9% new Aeon a year so there will always be a reason for miners to keep mining the Aeon network.  
  
You are welcome to try to prove me wrong, but make sure you include the simple fact of keeping the miners happy in your rebuttal - with no miners you have no network and no value.

I think what he was saying was protocol vs. blockreward.... he/she writes:

I don't think inflation on the base layer of a digital currency is a good idea. If it is needed, to secure the network well that's another case - I would go with the block-reward instead.

inflation in the base layer, I think, means adding coins to everyones account.... inflation via block-reward is something else. So here, it seems, we are getting confused with our terminology of "protocol level."

[johnyj]

Monetary inflation rate measure the money supply increase, but it does not measure the real money in circulation, so it is useless

For example, FED increased the money supply by 500% since 2008 during various QE program, but the real money in circulation barely increased, so there was no significant inflation

Even in a limited total supply money like bitcoin, if Satoshi decided to spend his one million coins, there will be immediately strong inflation in the market to drag the coin value down

[funkenstein]

Monetary inflation rate measure the money supply increase, but it does not measure the real money in circulation, so it is useless

For example, FED increased the money supply by 500% since 2008 during various QE program, but the real money in circulation barely increased, so there was no significant inflation

Even in a limited total supply money like bitcoin, if Satoshi decided to spend his one million coins, there will be immediately strong inflation in the market to drag the coin value down

You have a good point.  But let me ask you this: what is your evidence for the claim that the USD money supply increased by 500% since 2008? 

[EggShells]

 
 
Everyone who came to decry the idea of protocol level inflation is failing to understand is that a cryptocurrency network only exists due to miners.  If miners stop mining (due to the block reward getting too small and transaction fees not keeping up), the network rapidly loses strength (leading to loss of value).  The problem with this collapse is it compounds on itself as less valuable tokens translate to even less incentive for mining. 
 

Sorry, I don't understand.  Why do miners matter to the currency value?  If they all stop mining, why should it have an adverse effect on the bitcoins in existence?

[funkenstein]

 
 
Everyone who came to decry the idea of protocol level inflation is failing to understand is that a cryptocurrency network only exists due to miners.  If miners stop mining (due to the block reward getting too small and transaction fees not keeping up), the network rapidly loses strength (leading to loss of value).  The problem with this collapse is it compounds on itself as less valuable tokens translate to even less incentive for mining. 
 

Sorry, I don't understand.  Why do miners matter to the currency value?  If they all stop mining, why should it have an adverse effect on the bitcoins in existence?

Well in the extreme, if they stop mining no TXs can go through and so the currency is worthless.

One also has to bear in mind that the security of a transaction against double spending is defined by the difficulty to control hashpower, which is to first order the real cost of the total block reward.  If the total block reward, fees and all, is just a few millies..   then you know you shouldn't trust much more than a few millies in a single confirmed TX with untrusted parties.   

This is all an elaborate way of saying that both these statements are true:  A) I'm not going to mine the coin if it's worthless  B) If miners aren't trying hard to mine it I'm not going to value it highly. 

[smooth]

There is more to it. The chain is only secure because it is moving forward. Thus to rewrite the chain someone needs to keep up with the rest of the miners. If miners stop then you can take as long as you want to solve a block (for example one hour per block with 1/6 hash rate), you don't have to do it within 10 minutes to keep up. Thus you could rewrite the chain with only a fraction of the original hash power used to create it.

[Lasergun]

I really like the NVC inflation design. Due to the nature of the mint rate design it’s not possible to predict a final limit as it depends heavily on market participation, as well as the influences between proof-of-stake minting and fee destruction. What we do know is that the proof-of-work minting would slow down exponentially according to Moore’s Law, and proof-of-stake minting introduces 1% annual inflation in the future (~23% now).