Flaw in the reward structure of Bitcoin and other cryptocurrencies?

[Elwar]

Google had the same problem early on. Its early adopters could have sold all of their shares at any point and dropped the price drastically.

but until all the wealth distributes more or less evenly with no single entity holding a large amount, this will be a problem for the foreseeable future.

Like the dollar?

[codro]

What is your margin for slightly over? If you double that number you won't be able to bring the price to 0. But maybe double does mean slightly. You'll have to confirm that as well.

Ok, you're right. I originally meant to put 1 there, as in the previous sentence, I mistakenly rounded it off without digits to 0. My apologies. That is hardly the point I'm trying to make here so  stop trying to sound so superior over minor details.

[Bitobsessed]

If anyone has over 300k bitcoin, please sell em off and crash it to $1!!  I would eat em up.

[codro]

Google had the same problem early on. Its early adopters could have sold all of their shares at any point and dropped the price drastically.

but until all the wealth distributes more or less evenly with no single entity holding a large amount, this will be a problem for the foreseeable future.

Like the dollar?

No, not like the dollar because someone wouldn't have held a huge amount in the early days. They would've held a lot less. Because -> inflation.

[lophie]

1 Bitcoin alone can be divided up into millions of decimals.

Only 8 decimals man. Calm down please..... You meant millions of Satoshies.

[wtfvanity]

If anyone has over 300k bitcoin, please sell em off and crash it to $1!!  I would eat em up.

yum yum. I'll outbid your dollar @1.1

[Elwar]

Google had the same problem early on. Its early adopters could have sold all of their shares at any point and dropped the price drastically.

but until all the wealth distributes more or less evenly with no single entity holding a large amount, this will be a problem for the foreseeable future.

Like the dollar?

No, not like the dollar because someone wouldn't have held a huge amount in the early days. They would've held a lot less. Because -> inflation.

Well, the Fed prints out billions of dollars and gives it to their banker buddies before inflation hits. Then those buddies use that money for investments before inflation hits. Then as it trickles down to you and me the money is inflated.

As for the way Bitcoin was created in order to award early adopters, it allowed people who may have otherwise just tried it out to have a large stake and incentive to make Bitcoin succeed. The risk was also higher early on to put in any time or money because it was an unproven technology.

To go the opposite way of awarding latecomers and not awarding early adopters would have had people waiting to adopt Bitcoin until the incentive was there, which would have led to Bitcoins early demise.

[codro]

Google had the same problem early on. Its early adopters could have sold all of their shares at any point and dropped the price drastically.

but until all the wealth distributes more or less evenly with no single entity holding a large amount, this will be a problem for the foreseeable future.

Like the dollar?

No, not like the dollar because someone wouldn't have held a huge amount in the early days. They would've held a lot less. Because -> inflation.

Well, the Fed prints out billions of dollars and gives it to their banker buddies before inflation hits. Then those buddies use that money for investments before inflation hits. Then as it trickles down to you and me the money is inflated.

As for the way Bitcoin was created in order to award early adopters, it allowed people who may have otherwise just tried it out to have a large stake and incentive to make Bitcoin succeed. The risk was also higher early on to put in any time or money because it was an unproven technology.

To go the opposite way of awarding latecomers and not awarding early adopters would have had people waiting to adopt Bitcoin until the incentive was there, which would have led to Bitcoins early demise.

The early comers would've still been awarded more, because they'd have been fewer.

100 people competing over 500 coins per day is still better than a million people competing over 50000 coins per day.

It would've kept mining feasible for a longer time for the average Joe, possibly helping boost interest.

[acoindr]

If anyone has over 300k bitcoin, please sell em off and crash it to $1!!  I would eat em up.

yum yum. I'll outbid your dollar @1.1

Exactly. If someone successfully crashed the market by dumping their many thousands of bitcoins it would mean a buying opportunity for many, while the market recovered resulting in a wider distribution of those coins which is what the OP wants in the first place. Next question.

[Walter Rothbard]

It would've kept mining feasible for a longer time for the average Joe, possibly helping boost interest.

But bitcoin is not about mining.  People today should find a different way to earn their bitcoin income.

[codro]

It would've kept mining feasible for a longer time for the average Joe, possibly helping boost interest.

But bitcoin is not about mining.  People today should find a different way to earn their bitcoin income.

Bitcoin today is not about mining, but if the reward structure was reversed it could've been. Perhaps the official client would've mined for you by default, strengthening the network at the same time to survive 51% attacks (opt-in of course).

Think about it, we've had an exponential increase in number of people getting into bitcoin, but the biggest chunk has already been generated. We're probably at 0.1% of total global potential as far as bitcoin is concerned, but more than 50% of the coin is already out there.

While the number of adopters is exponentially increasing, the supply is potentially exponentially decreasing. While this is a good thing for hoarders, I don't consider it healthy. Would've been a lot healthier if the two curves were heading the same direction rather than battling head to head.

[codro]

Bitcoin today is not about mining, but if the reward structure was reversed it could've been. Perhaps the official client would've mined for you by default, strengthening the network at the same time to survive 51% attacks (opt-in of course).

Think about it, we've had an exponential increase in number of people getting into bitcoin, but the biggest chunk has already been generated. We're probably at 0.1% of total global potential as far as bitcoin is concerned, but more than 50% of the coin is already out there.

While the number of adopters is exponentially increasing, the supply is potentially exponentially decreasing. While this is a good thing for hoarders, I don't consider it healthy. Would've been a lot healthier if the two curves were heading the same direction rather than battling head to head.

Yet, Bitcoin is proving you wrong. Did you ever stop to think that to get to where we are today, the distribution curve needed to look like it did? Perhaps the early adopters needed some kind of motivation to build the infrastructure we have today. Profit is fantastic motivation to make something work. If the opportunity for such profit wasn't available, would we even be having this conversation?

Yet, you're wrong. The distribution curve didn't need to look that way, people got into it anyway because of the same reason they compete for high scores in Facebook games. It was play money as far as they were concerned, otherwise they wouldn't have bought pizzas for 10 000 BTC. Note that WoW gold cost more than BTC for a long time.

However, even though things panned out this way they would've still been rich now, simply because there would've been more BTC/person mined in the early days than there are now. See my earlier post:

100 people competing over 500 coins per day is still better than a million people competing over 50000 coins per day.

 It's simple math.

Edit: I should've said 7200 coins per day for greater impact (at max 50 BTC per block reward), not 50000. So yeah, think 7200.

[nwbitcoin]

I can fully understand the concerns of the OP. Its just a shame its becoming taboo to suggest that Crypto coins are in some way flawed!

However, People will sell out as they reach their personal version of super rich.  Eventually, the owners of the majority of bitcoins will be those same rich people who are currently on top of the hill!

There is an old saying that if all the money in the world was equally divided, it would only take a week before we would be back to where we are today!

[codro]

nwbitcoin: Have a tip, because Kurt Cobain and because you're probably the only one with an open mind around here.

Note to everyone: I'm very much into Bitcoin myself, and would love to see it succeed, but everyone should be at least a little worried that if an evil entity (government?) had millions of coins from the early days they could easily send the price back to $1 again, with a lot of people losing a lot of money.

However, I don't want to go into this debate again, we're strictly talking about the reward structure here.

[DeathAndTaxes]

It is like 2011 all over again with everybody thinking they found the "critical deathblow" to Bitcoin.  Why is it rational discussion and USD price are inversely correlated?

To OP simple version is:
There aren't more than a handful of people with hundreds of thousands of BTC, and they have a vested interest in not destroying their own wealth.  Even if they act irrationally they can only do so once.

Personally I think the number of imaginary multi hundred thousands BTC early adopters is probably close to zero but let say he/she exists and for some asinine reason decides to tank the market.  Ok.  A drop from $32 to $2 didn't kill Bitcoin.  A drop from $50 to $1 won't either. The value is in what Bitcoin can DO not it's current price.

Still even if such adopter exists one would have to suspend disbelief that he/she would act so irrationally.  He mined them over the course of a year for fun.  Then suddenly they were worth a $1.  $311K for something fun.  Yet Joe Early doesn't sell.  He watches the price climb to $32 making him a millionaire ten times over but doesn't sell.  Why?  Maybe he believe BTC is worth a lot more.  The price crashes and he doesn't sell on the way down.   He doesn't sell at the bottom despite seeing the paper value evaporate.   Over the next two years the price slowly rises and he COULD have sold a thousand or so coins a week without affecting the price and pocketed millions of dollars if that was his goal.  However 4 years later he hasn't done any of that.  Why?  Really the only plausible scenario is that he is a diehard true believer, "A bitcoin will change the world as we know it" type.

So Joe Early is now Joe the Apostle.  Yet for some reason he decides to cripple adoption (at least in the short term) by crashing the market.  Hurting his own net worth, hurting his credibility, and hurting the thing he is a diehard believer in.   Does that even sound close to plausible?

Still time will solve even this non-problem.  I remember the same "doomsday scenarios" except at one time it was tens of thousands of BTC, then a hundred thousand BTC.  Now it is a beyond silly hundreds of thousands of BTC, someday it will be "well if someone accumulated over a million BTC they could crash the market below $100".

[Piper67]

It is like 2011 all over again with everybody thinking they found the critical deathblow to Bitcoin.  Why is it rational discussion and USD price are inversely correlated.

To OP simple version is.  There aren't more than a handful of people with 311K coins.  Personally I think the number is zero but even if there are once they spend those coins they aren't getting 311K back.  A drop from $32 to $2 didn't kill Bitcoin.  A drop from $50 to $1 won't either.  The value is in what Bitcoin can DO not its price.

Second one would have to suspend disbelief to imagine Joe Early Adopter is sitting on 311K coins.  He mined them over the course of a year for fun.  Then suddenly they were worth a $1.  $311K for something fun.  Yet Joe Early doesn't sell.  He watches the price climb to $32 making him a millionaire ten times over but doesn't sell.  Why?  Maybe he believe BTC is worth a lot more.  The price crashes and he doesn't sell on the way down.   He doesn't sell at the bottom despite seeing the paper value evaporate.   Over the next two years the price slowly rises and he COULD have sold a thousand or so coins a week without affecting the price and pocketed millions of dollars if that was his goal.  However 4 years later he hasn't done any of that.  Why?  Really the only plausible scenario is that he is a diehard true believer, "A bitcoin will change the world as we know it" type.

So Joe Early is know Joe the Apostle.  Yet for some reason he decides to cripple (in the short term) adoption by crashing the market.  Hurting his own net worth, hurting his credibility, and hurting the thing he is a diehard believer in.   Does that even sound close to plausible?

Don't let reason interfere with a good story DeathandTaxes... cordo knows, and Kurt Cobain is really cool 

[codro]

Well, it should be possible to write a script that checks the blockchain for bitcoins that were not touched at all in the past 2 years (atomically). Since they're traceable to their genesis, we should be able to find out exactly how many are in circulation and how many are being hoarded.

This is just a major flaw, I didn't say it's a critical deathblow.

If however Bitcoin2 was made today from stuff we learned from Bitcoin, I think it makes a lot more sense to have a reversed reward structure - please try to debate on that.

To everyone else being offtopic here, your air of superiority just makes you look dumb.

[Piper67]

Well, it should be possible to write a script that checks the blockchain for bitcoins that were not touched at all in the past 2 years (atomically). Since they're traceable to their genesis, we should be able to find out exactly how many are in circulation and how many are being hoarded.

This is a major flaw, I didn't say it's a critical deathblow.

If however Bitcoin2 was made today from stuff we learned from Bitcoin, I think it makes a lot more sense to have a reversed reward structure - please try to debate on that.

Oh, gosh, what an astonishing idea! If only someone had come up with it before... 

[markm]

At least two chains already made a compromise, they put out the same number of coins per block forever.

That is a step in the direction the OP wants, yet it does not seem to have caused those chains to be widely adopted instead of the "flawed" chains that produce less coins over time.

-MarkM-

[codro]

At least two chains already made a compromise, they put out the same number of coins per block forever.

That is a step in the direction the OP wants, yet it does not seem to have caused those chains to be widely adopted instead of the "flawed" chains that produce less coins over time.

-MarkM-

There are various things at play in making something truly successful. Associating with the right people, bringing awareness and sometimes novelty factor is the most important, execution barely matters most of the time. (Not saying Bitcoin is badly executed.)

Regarding what is going to happen in the long term, we'll have to wait and see, in a decreasing reward system the market is easily manipulated, in an increasing reward system, the market is much more stable. That's all I'm saying. Conceptually, it's the right thing to do, and I'm waiting for someone to prove this wrong.