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Author Topic: Inflation and Deflation of Price and Money Supply  (Read 507583 times)
jrussou
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February 19, 2013, 05:26:46 PM
 #21

when you think about how much they've stolen, yes ... pretty d@mn genius

alas, we are on the brink of providing the benefit without the theft

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February 19, 2013, 05:39:28 PM
 #22

when you think about how much they've stolen, yes ... pretty d@mn genius

LOL yeah looking at it that way, you're actually right  Cheesy Which is sad..  Angry

My personality type: INTJ - please forgive my weaknesses (Not naturally in tune with others feelings; may be insensitive at times, tend to respond to conflict with logic and reason, tend to believe I'm always right)

If however you enjoyed my post: 15j781DjuJeVsZgYbDVt2NZsGrWKRWFHpp
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February 19, 2013, 06:20:37 PM
 #23

this is long, but I would love to know what you economics types think about my layman's explanation for why we need some features of the Federal Reserve System included with crypto-currency:

http://mrmoneyhustler.blogspot.com/2013/02/a-tale-of-two-currencies.html

jrussou
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February 20, 2013, 12:22:21 AM
 #24

I will focus on this quote, derived from your linked writing, as I think it sums up the point you're trying to make...

Quote
Demand is far outpacing supply, and as a result, the price for each Bitcoin is rising very rapidly.  The effect of this situation is clear; people tend to hoard Bitcoins rather than buy stuff with them because they are appreciating in value so rapidly.  As the world of crypto-currency matures, we will need another currency type that satisfies the need to have a handy, readily available medium for exchange ... ergo, a currency that people don't tend to hoard.

A really awesome point made by another person on this forum was that during the great Bitcoin Bubble of 2011, we had a lot of hype-demand pushing up the exchange price to what was very unsustainable levels. People were hoarding just as much then, if not more. It seemed like Bitcoins were never going to be spent and people were just going to hoard them forever...


until the bubble popped...


suddenly, the exact opposite mentality became pervasive throughout the system and exchange rates came crashing down as people began selling in a frenzy. No longer were Bitcoins being hoarded; people were selling them for whatever value they could. Deflation didn't seem like a relevant issue in those times....


until the next bubble...

In my opinion, bubbles are not only natural in human history(Yes they occurred under a gold standard as well, though to a much lesser extreme), but also beneficial in the case of Bitcoin.

Because of the distribution model of Bitcoin, early adopters/miners of Bitcoin in 2009-early 2011 obtained a majority of the coins without having much use for them at that time. The first bubble was the only way to make them redistribute it either because of greed(on the way up) or fear(on the way down). I would never have been able to buy some coins in the single digits if the first bubble did not pop.

Without distribution of coins to a larger base, the price cannot reach stability. The more hands that hold Bitcoins, the lower the volatility will become. And the fear phase during bubble popping is the best time for large holders to redistribute

And during all this time, people used Bitcoins to gamble, buy drugs, cars, homes, or other things, build companies and invest in others, etc...

So what I really think deflation does is provide an incentive to critically think before going off and speculating, "investing", or wasting money on frivolous things -- because money will be worth more if it isn't trying to be spent as quickly as possible (mindset of the current wealthy elite in society). I think it truly helps those without the ability to invest (the less wealthy), as their wealth is not unknowingly being eroded as time goes on.

To be clear, I am in favor and would even prefer if both systems existed simultaneously, and each performed well in their own right. I am more in favor of competition in all things, than I am about Bitcoin specifically. It is the fact that fiat currency has no competition which makes me so supportive of Bitcoin, not that it is deflationary. (I also enjoy other features of Bitcoin but that is irrelevant to this lol)

Honestly, I wish we didn't have to use money at all... but a perfect world can never exist in this chaos.

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February 20, 2013, 02:57:04 PM
 #25

yes, I especially like your competition in everything quote ... and that's what I despise about fiat currency the most also ... the forced monopoly.

There will be many crypto-currencies 5 years from now and certainly the ones that work best will have the widest adoption.  A currency which maintains some stability day to day will win over one that fluctuates so wildly.  Even in my own personal experience selling bitcoin to an individual who was trying to actually use them (he wouldn't say what for) ... but his request to me was to offer the coins to him at a fixed rate.  The daily fluctuations in price messed up his business model when prices would change before he could complete the whole cycle of a deal.

Managed stability is a good idea ... only problem with the FED system is that it's managed robbery ... lol, as we mentioned before.  So, I would love to work with some folks to design a more useable type of crypto-currency.  We could just start with a wish list.  Some items on my wish list are:

-clients that don't need to download the whole freaking block chain ;-)

-price stability (so I can put an item for sale on a web page and not have to adjust the price every other day).

-built in reputation features ... it could still be anonymous, but it would be nice to see that an address has done some deals and has some positive feedback

-built in escrow features

-backed by something else of value -- Bitcoin blazed the trail and it's not back by anything other than good marketing and perception.  Bitcoin does have value now, and so it could be used to back a new virtual currency.

What about you guys?  Surely Bitcoin has some features you would like to tweak, no?


jrussou
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February 20, 2013, 05:04:27 PM
 #26

-clients that don't need to download the whole freaking block chain ;-)

Plenty already exist! Multibit, BitcoinJ, Electrum, etc...

Quote
-price stability (so I can put an item for sale on a web page and not have to adjust the price every other day).

That won't happen for a long time. Bitcoin is a new thing and is going to be a wild currency to exchange. I would suggest just writing a script to change the prices automatically.

Quote
-built in reputation features ... it could still be anonymous, but it would be nice to see that an address has done some deals and has some positive feedback

Not a bad idea to possibly have a reputation listing like they do at bitcoin OTC, but for the entire community, and maybe even integrate a client to utilize that...

Quote
-built in escrow features

Humans will always have to handle an escrow so I'm not sure how it would be built in...

Quote
-backed by something else of value -- Bitcoin blazed the trail and it's not back by anything other than good marketing and perception.  Bitcoin does have value now, and so it could be used to back a new virtual currency.

I made a post about this further along in the first page of this thread.

Quote
What about you guys?  Surely Bitcoin has some features you would like to tweak, no?

We do! And we're always working on them.  Wink

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February 20, 2013, 08:24:22 PM
 #27

hmmm, ok, I have some research to do now on:

 Multibit, BitcoinJ, Electrum,

...I want to put together a crackpot team of economists, freedom lovers, and programmers to do a mega awesome crypto-currency ... not that bitcoin isn't already, but this market is wide open for others and it is the wild wild west of our day ... and of world changing significance.

jrussou
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February 20, 2013, 10:50:44 PM
 #28

hmmm, ok, I have some research to do now on:

 Multibit, BitcoinJ, Electrum,

...I want to put together a crackpot team of economists, freedom lovers, and programmers to do a mega awesome crypto-currency ... not that bitcoin isn't already, but this market is wide open for others and it is the wild wild west of our day ... and of world changing significance.

feel free to take a look at the link in my sig, although the ideas have evolved a decent bit since then too

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February 22, 2013, 03:01:33 PM
 #29

There's something to be said for an alternate currency. Let's make a generic term, "altcoin," to refer to your proposal.

For one thing, it helps people mentally separate the concept of a crypto-currency from bitcoin in particular. It also helps in case there's a huge exploit of bitcoin and everyone is fleeing: at least they can flee to another altcoin instead of back to fiat.

But consider the problem of capitalization: so much time, effort, and money has gone into bitcoin that all the altcoins together have no effect on bitcoin. Most of that capital invested into bitcoin cannot be recovered. I just want to point that out – I wish you luck in creating an altcoin but be aware of the implied investment of capital you're talking about. How are you going to convince people to invest?
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February 24, 2013, 07:35:32 PM
 #30

To have variable inflation/deflation (chosen by a few) as exists in current fiat money is absurd, akin to entrusting a 3 year old to look after a lollipop for you and expecting it to remain unlicked.

Bitcoins inflation is predetermined as we all know.

The only reason coin inflation is written in is to encourage miners to invest in more powerful nodes to get the network established quickly.

Once the network is established then nodes will gain more from processing transactions. When all bitcoins are mined then transaction processing will be the only incentive to own a node. But this will continue to evolve the network to better hardware as transactors clamor to offer lower commisions using higher hash/watt equipment.

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March 31, 2013, 07:43:18 PM
 #31

yes, I especially like your competition in everything quote ... and that's what I despise about fiat currency the most also ... the forced monopoly.

There will be many crypto-currencies 5 years from now and certainly the ones that work best will have the widest adoption.  A currency which maintains some stability day to day will win over one that fluctuates so wildly.  Even in my own personal experience selling bitcoin to an individual who was trying to actually use them (he wouldn't say what for) ... but his request to me was to offer the coins to him at a fixed rate.  The daily fluctuations in price messed up his business model when prices would change before he could complete the whole cycle of a deal.

Managed stability is a good idea ... only problem with the FED system is that it's managed robbery ... lol, as we mentioned before.  So, I would love to work with some folks to design a more useable type of crypto-currency.  We could just start with a wish list.  Some items on my wish list are:

-clients that don't need to download the whole freaking block chain ;-)

-price stability (so I can put an item for sale on a web page and not have to adjust the price every other day).

-built in reputation features ... it could still be anonymous, but it would be nice to see that an address has done some deals and has some positive feedback

-built in escrow features

-backed by something else of value -- Bitcoin blazed the trail and it's not back by anything other than good marketing and perception.  Bitcoin does have value now, and so it could be used to back a new virtual currency.

What about you guys?  Surely Bitcoin has some features you would like to tweak, no?



As already stated: wallets exist that don't need the entire blockchain.

As to your other issues, I think you've made the mistake of evaluating bitcoin as a standalone currency. Right now it isn't. It will become that eventually if quantum computing doesn't become reality first.

You do not need to concern yourself with price stability as a vendor, simply use a service that converts your inc btc to fiat. Leave the speculation to the speculators, they can hold or trade bitcoins and it won't affect you receiving payments through your service. As an end user, you also don't really need to concern yourself with the price stability most transactions will move in the direction of "purchase item, buy and send bitcoins" rather than a transaction directly from a wallet using bitcoins you already owned. As an early adopter (which is what we all right now) we're a mix of speculators and users... as for wanting to put in the a price and having it be stable over a period of time... why not simply tie it to the exchange rate that your pref exchange uses, then the price would update automagically to whatever fiat they were buying in.

Reputation features are a non-starter on the network level. We're concerned with providing a platform for exchange. This would be best handled by a service or site that does it as part of it's other business. If you see a need for this feature - make that site and transmit the messages on the blockchain, call it something cool, then get wallet providers to include your API to pull that information relative to a public address.

Escrow features are a bad idea on the network level. I know I'd like them also... but really... how could you prevent someone from simply not releasing escrow? Much better to provide this a service linked to the reputation site imo.

I'm not even going to talk about alt-coins.

~

The only tweak I'd love to see would be a massive increase in block generation rate. I want lower difficulty, more blocks (like one ever 30 seconds or per min), the linking of transaction fees to both 'size of tx' and 'difficulty' along with an proportional decrease in the block reward. IMO this has to happen soon and really should be the focus of the devs (or at the very least the foundation) for the simple fact that if we can't service potential transactions we're placing a very real barrier to adoption. I'd love to see 10 confirmations take only 5 mins - lets really focus on exploiting the tech available instead of just saying "it's already way faster than a wire transfer' - because what we really need is for a vendor to be able to take a payment a point of sale - wait 30 seconds and know that it's paid.






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March 31, 2013, 11:10:31 PM
 #32

If quantum computing can actually break the hash functions and crypto which are currently used in the blockchain, bitcoin will evolve simply by switching to new crypto and hash functions that are not broken by quantum computing.

The bitcoin protocol allows the blockchain to use any function. Every transaction includes the instructions on what algorithms were used.
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April 01, 2013, 07:46:05 PM
 #33

Thanks everyone!!!! ... I didn't realize that other chains of Bitcoin were already starting to have success until I joined this discussion and saw there were so many other cryptos already.  Then I researched it and found Litecoin in the nick of time ... it doubled last night into this morning!!! Yaayyyyy

Wow, if you haven't tried it yet, BTC-e.com is a sweet site for trading BTC and LTC (litecoin).  It's a great hedge on BTC drops.  Whenever there is a selloff on mtgox BTC/USD ... you actually have time to react and sell any LTC you've accumulated for BTC.  Then, you just buy back some LTC when ever things settle back to normal.  Sometimes when BTC surges, then you can get a good deal on LTC to do it all again.   I'm just dabbling, but I earned 11 BTC trading like this last week.




"The only tweak I'd love to see would be a massive increase in block generation rate. I want lower difficulty, more blocks (like one ever 30 seconds or per min), the linking of transaction fees to both 'size of tx' and 'difficulty' along with an proportional decrease in the block reward. IMO this has to happen soon and really should be the focus of the devs (or at the very least the foundation) for the simple fact that if we can't service potential transactions we're placing a very real barrier to adoption. I'd love to see 10 confirmations take only 5 mins - lets really focus on exploiting the tech available instead of just saying "it's already way faster than a wire transfer' - because what we really need is for a vendor to be able to take a payment a point of sale - wait 30 seconds and know that it's paid."

I agree completely...

Have you looked at Litecoin yet?

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April 03, 2013, 09:41:35 AM
 #34

i`m also considering litecoin since bitcoins difficulty will skyrocket, hence some people will move to litecoin and therefor increasing its value

=

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Dr3AM$cAp3
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April 04, 2013, 06:27:11 PM
 #35

Hopefully one day I will understand more about all this.  It's a lot to take in and I just found out about Litecoin last night, which adds to the pile.  Why didn't I pay more attention when it came to economics....that's right, I went to public school, it wouldn't have mattered.  Lips sealed

Marking for later lurking, rl calls....loudly.

New to the game, too much to learn.
Smiley OD, sarcasm implied.
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April 07, 2013, 03:20:07 PM
 #36

Excellent posts btw OP Smiley

Edit: That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

I just realised what you meant by that Shocked And people think it's price is spiking now, this will be most enjoyable to watch Smiley
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April 13, 2013, 03:13:11 AM
 #37

I look forward to learning more about the market, that examines its underlying "nature." All very intriguing. It seems at first glance there is something "deep". I am watching the ocean and observed that the markets unfolded quite similiarly to stocks.
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April 19, 2013, 08:24:08 PM
 #38

....So what I really think deflation does is provide an incentive to critically think before going off and speculating, "investing", or wasting money on frivolous things -- because money will be worth more if it isn't trying to be spent as quickly as possible (mindset of the current wealthy elite in society). I think it truly helps those without the ability to invest (the less wealthy), as their wealth is not unknowingly being eroded as time goes on.....

So if bitcoin in spite of high volatility generally has an upward price, then it acts like a savings account with an actual interest rate?  To be competitive with savings in bitcoin, how would the US$ need to change?

It'd need to have an interest rate, right?

But then the US government could not begin to pay interest on it's debt. 

And so here we are...
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April 20, 2013, 02:02:26 PM
 #39

Excellent thread. You can't find that kind of information in your TV especially 1st page of this thread was very cool. When will the next round begin on this battle: Keynesian v Libertarian?

US options trader and ancap
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April 24, 2013, 11:08:10 PM
 #40




Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.

While it may be cute to try to confuse the "fiat" phenomenons of devalued/overvalued Monetary Inflation/Deflation with the "hard" phenomenons of Commodity-Resource Inflation/Deflation, there really can be no confusion and there is little room for any notion of marginal "Price Inflation" save within the context of the introductory Marketing Pyramid of a new Commodity-Resource, Item or Product.

When the first entrepreneur discovered salt, oil or gold for instance, they likely had no idea of the intrinsic-value, utility-value or exchange-values of them. In most all of these cases, the lucky dudes named Sitoshi brought some of their new "intrinsic curiosity" back to the encampment, and noticed their pals also had a curiosity about it, so he promptly gave them some in exchange for a few extra cups of their grog and went back a day or two later to the place he found that for more, to continue his enterprise. He did this because he was made drunkenly aware that this new "common curiosity" of his seemed to have both an intrinsic(curiosity) and what remarkably seemed to be an exchange value!

Meanwhile his pals noticed that you could salt meat to keep it from spoiling and even use it to make other crud taste better or use oil to make wagon wheels move more smoothly or was easier to light for light or heat, others noticed the hottest chicks loved earrings and bangles made out of the yellow shiny stuff. This second echelon "second floor-down" of low price meddlers had developed or discovered that Sitoshi's kool new "commodity" resources had utility value, separate from their common intrinsic value that increased their (greatest and most desirable of all) "exchange value".

Owing to these new discoveries Sitoshi's small second floor-echelon of Sitoshi-Resource Pharoahs began to market their new wares as bagged salt, bottled torch fuel and bullion to make chick-magnet jewellery. Buzz and newly discovered utility values allowed third and fourth floor-down echelons to "Price Inflate" (discover) the same Sitoshi-Resources their wholesalers got for grog into hard assets they could sell for boats, tents and fancier rides for their shorties. Finally fifth and lower floor-down operators in the marketing pyramid's echelon really started to exploit even newer and better utility values leading the price discovery of their new commodity resources into becoming something closer to reaching for the most treasured and coveted crown of either being a utilitarian commodity resource of serious hard-asset exchange value, or just a too-rare "wealth itself". (eg: emeralds)

Of course all these things didn't happen at once because, in the pre-refrigerated ancient world, salt (in high demand) was the first well known and widely traded form of a widely accepted Medium of Labour Exchange Currency (aka "money"). Indeed the further it had to be conveyed to deliver it, the more it's intrinsic value was "Price Inflated".

Salt worked as a "money" only so long as it retained it's aura as a rarity of constantly assured value. Salt's price-demise (Price Deflation)  as a currency no doubt came about with the invention of the Sauna bath where people suddenly became aware it was as common as sea water.

While one might find some reason to create the confusion of calling it "price inflation or deflation", most of us properly define those phenomenon as "Price Discovery". Unforeseeable, unpredictable, undesirable and nasty, "behind your back" economic fluctuations caused by Monetary "Inflation or Deflation" are the only "flationy" bubble-type things that everybody always cares about remedying.

There are three echelons of commodity resource values:

The top floor is occupied by Mediums of Labour Exchange Currency of Assured Value
The second floor is occupied by extreme rarities like gems, art, antiques and (lesser) precious metals or Mediums of Savings
The bottom floor is occupied by all other (finite or not-so) commodity resources which are Mediums of Investment

The top floor occupants must struggle to retain their tokens value to save everyone from starving to death.
The second floor contains rare and finite things certainly assured to only ever inflate in value
The bottom floor contains stuff that may inflate or deflate in value, it's a circus of games we call an economy.

The seeming "price inflation" of "finite" Mediums of Savings ("hard" assets) are the direct and unavoidable arithmetic consequence of "infinite" (or at least much less finite) economic growth.

Nowadays individual commodity resource "price inflation/deflations" are minute and relatively insignificant components of all large economic pictures, save in the area of marginal profitability and comparative advantage analysis. There's nothing anyone can really do about them, they come and go, they have to exist.


Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.

Bitcoin is a "fiat asset" it is not a "hard asset".

The Fiat Bitcoin "Bitchain-Securitized Bitcoin Futures Derivative Contract Token" has only a small actual intrinsic value owing largely to the novelty and curiosity of it's uniquely secured residence in the secured encrypted exchange-chain in which it only functions and resides. It also has utility value in the way it's easy to conceal, easy to transport, impossible to counterfeit, is mutually owned and profited from buy all of it's users alone and hopefully (more so in the future) requires no third party to use as a barely somewhat viable "medium of Byzantine-exchanges".

It's utilitarian value is only that of a contract-token of the past value of the last transaction in which it was involved where it's former owner, by mutually agreed upon "fiat", made off with the asset value of it's current owner. It still has no value other than in the mind of it's current contract owner who bought it's "futures contract" in hopes of getting and making off with an equal or greater asset value for it's possession in the future, when he trades it in (for another fiat labour exchange currency) or "exchanges" it some other product or service.

The reason it's grossly unstable "fiat price" (intrinsic+utilitarian+exchange value) changes so radically, nonsensically and foolishly with such suicidal volatility is because it is abused by it's supposed "promoters" as if it were "somebody else's" penny-stock, ideal for speculators to "play" by "penny stock marketeering" trading-speculation "exchanges" who think they are Wall St.


I'll get to your second and third comments in a bit  Roll Eyes

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