Would Bitcoin Suffer a Similar Fate as that of Unix on the Desktop?

[flyonwall]

I have seen the Grand Canyon of Arizona, and I am still smarting from its effect on my perception of reality. Its grandeur reminded me of a paradox, the paradox of what I would call "chance and permanence": nature works mostly by chance, but what it has wrought so far is almost permanent. In the beginning, I am sure the path of the mighty Colorado river that formed the Grand Canyon was determined mostly by chance. As time went by, and the canyon went deeper, what was determined by chance is now almost permanent. Every twist and every turn, every steep cliff that formed, every rock that stayed put and not washed away is there by chance, and yet now permanent. It would take great effort, time, and money to change the path of the Colorado river. So we, as observers of the Grand Canyon, can appreciate how its path was formed mostly by chance, but can also appreciate its permanence. And so it is with the rest of the universe.

We can consider even human institutions in terms of the same paradox. Sure, we'd like to think that all our institutions are there by design, and not by chance, and that is true. But there are certain important aspects of our institutions that become permanent purely by chance. We cannot possibly know beforehand which little twists and turns in our lives become very important later, but there is no doubt in my mind that the sum total of those decisions can make each one of us successful or lose out and simply become a statistic. It certainly makes sense to leave less to chance, and the less we leave to chance, the better.

Just as an example, let's take the Windows operating system. It has now become an institution. It is very difficult to replace precisely because it has become an institution. We can appreciate the fact that until now, despite the presence of free (and some say even better) alternatives like Linux, Windows remains the most widely adopted operating system, by a wide margin. It is not that the proponents of Linux have not tried enough. A huge effort is being spent, not just by the Linux community, but also by the Apple OS community, to dislodge Windows from its position as number one, but so far to no avail. This is what I mean by becoming an institution, mostly by virtue of Windows' virtues, but also partly by chance. There were crucial steps that Microsoft took, during its early days, that caused Windows to be an institution. Some of those steps, like partnering with IBM in the early days, did not happen by chance. What was left to chance was which little OS to start with, during the earliest epoch called "DOS".

(Microsoft started not with an OS of its own making, but bought out some OS from an obscure company.  Incidentally, it would be wrong to conclude from this that Windows won by great marketing alone. It had to be a good OS also, limited only by available hardware, and had to continue to compete by being the best. Being a good OS is a minimum requirement, and by now that should be obvious.)

Now I have no doubt that Bitcoin will become an institution, something that maybe very difficult, if not impossible to change in the near future. I would not invest in it myself if I did not believe in it. But there are a couple of things that worry me, and I am writing this to see what other serious thinkers would say.

There have been several attempts to bifurcate the path of transactions. Let us remember that these attempts had a sinister purpose. I believe it is also possible to bifurcate the path of transactions, to have more than one set of transaction files, simply by distributing another branch of the software.  The system is designed to protect itself from invalid transactions with a sinister purpose. However, if this is done NOT with a sinister purpose, but in order to come up with a better currency, then politically such new branch would be adopted by a large number of users, which would then cause the path of transactions to bifurcate. We would end up with not one database of transactions, but several incompatible databases. The Bitcoin currency would then bifurcate several times to spawn several other currencies, all competing against each other.

Remember Unix? I believe that Unix should have been the number one OS instead of DOS/Windows. It was certainly better, by any measure, than DOS. It did not win out because it bifurcated several times into different versions, all incomptible with one another. Would Bitcoin suffer a similar fate?

The other thing that worries me about Bitcoins is the rule that puts a hard limit to its quantity. I believe that this is reason enough for it to bifurcate. I still have to hear from a reputable monetarist thinker that a hard limit on quantity is good. Here is why I think it is bad.

What makes gold still THE number one standard currency is the fact that its quantity cannot be increased by a simple human decision. It has to be mined. There have been times when its quantity increased by more than the world economy can sustain, and it inflated just like fiat currency (during the Gold Rush, for example). However, there is no hard limit to the quantity of gold in circulation, and I think that the reason it remains the best currency is because it continues to be mined and so continues to increase in quantity. In the end, I think that it's not the increase in quantity of a currency per se that's bad, it's HOW it increases in quantity. I believe that the best currency is one that increases in quantity in relation to worldwide economic activity. In the future, gold cannot remain the best currency because its increase in quantity is not necessarily a good arithmetic function of worldwide economic activity.

A currency is only as useful as how convenient and beneficial it is to use as a medium of exchange. In this regard, Bitcoins are far more useful than gold. Gold has other values apart from its use value as currency. It has jewelry or ornamental value, it has industrial value (as electronic connector in integrated circuits), and monetary value. Its monetary value has now exceeded its two other values because the U.S. dollar is failing in this function as worldwide currency. Contrast this with the pure monetary value of Bitcoins. Bitcoins have no other value than its use for exchange. We can say it has pure exchange value. One of its attractions is that, by being based on the power of the Internet, it is money that can travel friction-free from one point in the world to another. Very much unlike gold, which weighs so much it takes not just some reliable means to transport, but also a secure one. It takes a lot of money just to transport gold; it takes almost zero to transport Bitcoins.

However, and this is a big caveat, even a Bitcoin itself can see its exchange value reduced. It can reduce in exchange value precisely because its perceived value, or market value, is increasing. As it increases in market value, many holders will start to horde it. (Like me: I plan to hold on to as much quantity of it as long as I can.) Now when it is hoarded and stashed away, the total count of Bitcoins in circulation necessarily goes down. Hoarding necessarily affects the count of daily transactions that occur per quantity of Bitcoins: its so-called net velocity goes down. When the velocity of a currency goes down, we can say its usefulness as currency goes down also. Therefore, what we may see happen is a long-term trend upwards in market value, but punctuated by violent fits of steep drops in price, as the exchange value compensates for market value, and vice-versa. This is precisely what we want a currency to fix: the occasional steep drops, the violent business cycle.

I propose that the violent cycles of ups and downs can be avoided, simply by increasing the quantity of Bitcoins, not asymptotically as it is now, but as a function of velocity. (It should not be a function of market price because market price by definition is always in relation to another currency, like the U.S. dollar, which can also be volatile.) Velocity is easily measured by the count of transactions per minute or per hour or per day even. Note that "velocity" is different from speed (as in elementary physics). Velocity includes the component of direction, not just speed; so for example, a million transactions that occur only between two accounts contributes less to velocity than transactions that occur between many different accounts.

I am a programmer by trade, and I can go in there and make this modification myself, and come up with a different distribution. If enough people believe that my version is better, then the database of transactions will bifurcate, which is not good. Rather than do that, I have chosen to discuss this matter with the Bitcoin community. Even just two currencies competing at this early stage can be fatal. We have a world to conquer out there, and we don't want to end up like Unix. Rather, we want to be like the Colorado river, cutting deep into the very foundation of world commerce. However, we want Bitcoin to be successful less by chance like the Colorado, and more by conscious decisions like Microsoft's Windows OS on the desktop.

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[ThickAsThieves]

Tell me more!

[tutkarz]

In the nearest future people will start to exploit asteroids. I wonder what people who invested in gold will say, when some company will bring someday asteroid made of gold on earth.

[christop]

Considering that Unix in one form or another is one of the most (if not the most) adaptable and widely used OS ever--it can be found in every current Apple and Android device, many smart TVs, most Web servers, and many other "smart" devices--I say it would be a good thing if Bitcoin "suffered" the same fate.

[Vladimir]

Fate of Unix? Do you mean as in UNIX running most of infrastructure of The Internet. I expect that yes it will.

Not sure "suffer" is the proper term here. I would use "enjoy" instead.

[Jaw3bmasters]

He's just worried anyone with the know-how can start a crypto-currency, just as the wild-west of Linux all it's many distros........

@OP, get in where you fit in.

[Vladimir]

Yep probably nobody read that wall of text. OP read the words below my avatar. Then google "network effect".

[speeder]

Linux dominates server market.
Linux dominates smartphone market.
iOS and OSX are Unix (literally, Apple paid the fees to get certified as such)

[Jaw3bmasters]

This is the last known photograph of Satoshi and Linus together.

[flyonwall]

The metaphor may not be correct in that Unix derivatives now dominate the handheld and embedded markets, but if we limit our discussion on the desktop market, there is no doubt in my mind that Windows has won. Of course, we are now in the handheld era, and in this market Windows is clearly losing. My only mistake here is that I did not qualify what I meant by "fate" -- which should be the Unix fate in the desktop.

Rather than dispute the metaphor, I want to get people's opinion on the real subject, which is Bitcoin bifurcation, and the reason described why it makes sense to do it, to start another currency that has no hard limit on quantity.

[Vladimir]

Not this again.

There is no reason to not "start another currency that has no hard limit on quantity" you can do it. It is easy. I dare you to start it right now. In fact, such shitcoin is sorely needed. It would be great to have all inflation lovers to start using their own inflationary currency and leave us Bitcoiners alone.

[flyonwall]

Not this again.

There is no reason to not "start another currency that has no hard limit on quantity" you can do it. It is easy. I dare you to start it right now. In fact, such shitcoin is sorely needed. It would be great to have all inflation lovers to start using their own inflationary currency and leave us Bitcoiners alone.

I am a Bitcoin enthusiast myself, and am invested in it. It is also in my interest to see Bitcoin thrive, but emotions aside, an objective analysis of the situation really puts a question mark on the hard limit. Like I wrote in the opening, I believe it is not the unlimited quantity per se that is bad (about fiat currencies), it is rather the absence of rules about increasing the quantity. As I have shown, increasing market price will cause hoarding, and thereby reduce velocity, which is not good for any currency.

[Vladimir]

Not this again.

There is no reason to not "start another currency that has no hard limit on quantity" you can do it. It is easy. I dare you to start it right now. In fact, such shitcoin is sorely needed. It would be great to have all inflation lovers to start using their own inflationary currency and leave us Bitcoiners alone.

I am a Bitcoin enthusiast myself, and am invested in it. It is also in my interest to see Bitcoin thrive, but emotions aside, an objective analysis of the situation really puts a question mark on the hard limit. Like I wrote in the opening, I believe it is not the unlimited quantity per se that is bad (about fiat currencies), it is rather the absence of rules about increasing the quantity. As I have shown, increasing market price will cause hoarding, and thereby reduce velocity, which is not good for any currency.

This is perfectly fine and reasonable point of view you have. If you think 21 million BTC is bad for a currency you gotta go and create one with another limit or no limit. If you are on a mission to change Bitcoin in this direction it is simply hopeless. Not going to happen and frankly there is nothing to talk about much outside of "alternative currencies" section of this forum.

[robamichael]

What you call "hoarding," I call saving.

Besides, electronics are prone to deflating prices, yet people line up for brand new fully prices Iphones all the time!

Don't they know??? There will be a new one next year!

Saving is exactly what is missing from our current economies. Too much blind consumption to "stimulate" the economy is what is leaving us increasingly impoverished.

[Vladimir]

Savers are effectively persecuted by banksters worldwide. There is a published research claiming that in past 4 years in UK only 102.4 Billion £ were confiscated from savers via quasi-zero interest rates and inflation.

Bitcoin and PMs is  the last refuge of the prudent. You try to take this away and ammo will become the  asset of last resort.

[flyonwall]

The bad news is that there is no such thing as "store of value". There is only medium of exchange. If the Bitcoin currency loses its value as medium of exchange, it will have no other value, and your savings would turn out to be of no value. Remember, it is people that ascribe value to any currency. Not just you, not just me, but all of us. If we all think that Bitcoin is nothing, then it is nothing. And yet it has real value as medium of exchange. Its value resides in us using it as medium of exchange.

[niko]

First of all, OP is a good read, even though I disagree on main points.

The issue of hard limit boils down to psychology and culture. It is stated in the OP how the supply of an ideal currency should scale with the economic growth or recession. In that case, we need to think in terms of changing supply and (ideally) steady real value of the unit of currency. In reality, however, this implies trust in a central authority issuing and destroying currency at their (corrupt) will. It implies uncertainty. Importantly, we have all seen how dysfunctional and corrupt this system is. Taking "experts" seriously would mean mental disease at this point.

Bitcoin, on the other hand, offers a mathematically certain supply (with some minor variation due to hash rate variation and compressed or extended schedule of difficulty adjustments). In the case of Bitcoin, therefore, we need to think in terms of scheduled supply and variable real value of the unit depending on the growth or recession of the economy. If the economy is growing, value of coins is rising, and people may slow down on spending and increase savings, thereby slowing down the economy, thus leading to a slower increase or even to a decrease in the value of a coin, which then stimulates spending, and drives the economic growth... you get the picture. Hard limit on the supply leads to a sane, self-regulating economy, as opposed to the current mainstream idiocy.

[flyonwall]

Thanks for a thoughtful reply, niko. I have been waiting for your kind of reply.

In reality, however, this implies trust in a central authority issuing and destroying currency at their (corrupt) will. It implies uncertainty.

Not necessarily, right? In the same manner that the Bitcoin network is self-protecting, it can also be programmed to be self-regulating: we can program the increase in quantity, one in which the increase depends only on the velocity, by some (still undetermined) formula.

[niko]

Thanks for a thoughtful reply, niko. I have been waiting for your kind of reply.

In reality, however, this implies trust in a central authority issuing and destroying currency at their (corrupt) will. It implies uncertainty.

Not necessarily, right? In the same manner that the Bitcoin network is self-protecting, it can also be programmed to be self-regulating: we can program the increase in quantity, one in which the increase depends only on the velocity, by some (still undetermined) formula.

True, and this kind of coin would still be better than the current fiat system because the supply of new coins would be "democratic" - anyone willing to mine could do it. In the case of fiat, there is a monopoly on issuing money, and consequences for attempting to DIY are rather violent and painful.

You would also need to allow for the opposite - a decrease in the supply. But why bother? Just so I can always express a value of a thing in roughly the same nominal price? Why not simply let the value evolve, and correct for inflation/deflation when analyzing historical prices? Why not evolve a correct way of thinking about value, saving, and spending - if people really hold on to their (presumably appreciating) coins until they absolutely must spend them - so be it! The world won't end, and life will find new equlibriums and new games to play. As pointed out in the OP, it will all make sense in retrospect.  

[Rothgar]

So bitcoin may only have a market share of 10% of the worlds currency. 


Darn

[blogospheroid]

Hi Flyonthewall,

The main issue you will face is defining velocity. In a pseudo-anonymous world, it is impossible to distinguish someone paying another person from someone round tripping to their own account. You could use coin-days destroyed, but coin days destroyed is a measure that is presently not being used for any adjustment, hence it might be an ok measure. Once a measure is made a target, it tends to lose its ability to measure the phenomenon. (Goodhart's law). If the coins are dependent on coin days destroyed, you will have early adopters sweeping their accounts at a regular rate to minimize the production of new coins.

The closest you have is Freicoin which degrades at a given rate, but even that is not an intelligent, sensing dependent rate. It is a fixed rate.

If you have a velocity measure that cannot be gamed, there are many people waiting for it, as a fair number of people in the real world might follow a coin more in tune with their conventional economic sense.

[ArticMine]

A very interesting perspective but if Bitcoin were to have a worldwide market share comparable to GNU/Linux on the desktop, about 1.21% by one of the most conservative estimates http://www.netmarketshare.com/, the value of one Bitcoin would have to reach at least that of 12100 USD (2013 dollars).

Why? Because we are talking of Bitcoin accounting for 1.21% of the approximately 21 Trillion USD world M1 money supply.

[robamichael]

A very interesting perspective but if Bitcoin were to have a worldwide market share comparable to GNU/Linux on the desktop, about 1.21% by one of the most conservative estimates http://www.netmarketshare.com/, the value of one Bitcoin would have to reach at least that of 12100 USD (2013 dollars).

Why? Because we are talking of Bitcoin accounting for 1.21% of the approximately 21 Trillion USD world M1 money supply.

And this is conservative because Unix works globally, just as there are other fiat currencies to consider.

[Dabs]

There are already alt-coins. Some have limits of 84 million. You are forgetting that Bitcoin, while it is limited to 20.9 million, has 8 decimal places. People just have a hard time understanding more than 2 decimal places because people are so used to fiat currency with 2 decimal places.

While gold can be mined, the vast majority of gold has already been mined. To go further on this analogy, half the bitcoins have been mined. Another 20 to 30 years and almost all the bitcoins will have been mined. To keep mining, miners must invest heavily in hardware.

For gold, to keep mining, they have to invest in digging deeper (more difficulty, like GPU) or going to within our solar system space (more difficulty, like FPGA), or going to deep outer space (more difficulty, like ASICs).

It's not practical nor economic to keep mining gold when it is more expensive or dangerous (overheating bitcoin mining rigs, high electricity), and there might be other stuff to do that is more profitable (like generate electricity that the miners have to buy).

In 30 years, there might not be any much point in bitcoin mining for block rewards, but instead to get all those transaction fees. For gold, maybe the analogy is similar to how gold is being used while physically being secured, you are getting certificates for your gold, not the actual gold itself (maybe you can get it later.)

When bitcoins are worth $12,100.00 as ArticMine has pointed out, then those decimal places come in handy. Transaction fees will eventually become lower to reflect the value or worth of each bitcoin.

[hashman]

In the nearest future people will start to exploit asteroids. I wonder what people who invested in gold will say, when some company will bring someday asteroid made of gold on earth.

Lets hope people have learned a thing or two before such nonsense occurs.  Collective stupidity is getting a little old. 

[flyonwall]

If you have a velocity measure that cannot be gamed, there are many people waiting for it, as a fair number of people in the real world might follow a coin more in tune with their conventional economic sense.

I understand your point that it maybe possible to game the measure of velocity, what I don't see is the motivation for it. If I were a miner for this new currency (which would simply be a slightly different version of Bitcoin), sure I would want to relax the production spigot for that currency. But by doing so I would be affecting not just the production of my mining rig, but the production rate of all my competitors as well. We can all conspire to render that spigot ineffective altogether, but then doing so would NOT be in our interest. Why? Because, like the oil-producing cartels, we don't want to flood the world with cheap currency. It wouldn't be in the interest of miners to lower the relative price of the new currency, just as it's not in the interest of oil-producing countries to cause the price of oil to come down. What every oil-producing country wants to do and is continually doing is to announce that it would reduce production, but then secretly do the opposite (increase its production). However, all the other members of the cartel are doing the same thing, and so in general they find it very difficult to directly cause an increase in the world price of oil. The current high price is certainly not of their doing.

You are forgetting that Bitcoin, while it is limited to 20.9 million, has 8 decimal places. People just have a hard time understanding more than 2 decimal places because people are so used to fiat currency with 2 decimal places.

Some programmer thought at one point in the history of desktop PCs that it's OK to allocate only so many digits for the year. And so during the year 2000 an enormous amount of effort had to be spent just to fix this date limit bug. My point is that the eight decimal places for every Bitcoin may still not be enough. If the U.S. dollar were to continue as the dominant world currency, the M1 count would definitely grow, maybe indefinitely.

[flyonwall]

The Miners' "Greed" will Save Bitcoin

It occurred to me that the Bitcoin system of production does not need to be controlled at all, not pogrammatically, not even by any rule. What will limit production is the profitability of miners. At this stage of development, Bitcoin is increasing in value, and mining is very profitable. It cannot remain so forever, if production is not limited by absolute quantity. Assume for the sake of discussion that there is no limit. Every miner, to increase profitability, would produce as many Bitcoins per second as he could. There will be over-production, and subsequent inflation (inflation in quantity, and then eventually reduction in value [the alternate "definition" of inflation]). As the value of Bitcoins come down, naturally the profits of miners will come down also, if measured in terms of how much a Bitcoin can buy. The system will tend towards a state of equilibrium, one in which the profitability of miners is throttled by inflation (in the second sense), and the value of every Bitcoin stabilizes.

This absolute limit on quantity is fictitious anyway, and I daresay it is GOOD that it is fictitious.

Let's say that the miners "collude" among themselves in order to remove the absolute limit on quantity. As the moderator of this forum pointed out here: https://bitcointalk.org/index.php?topic=145475.msg1543280#msg1543280, there is really nothing that can stop the miners from changing the quantity rule, except the wallets in everybody else's possession. What if the miners themselves also start distributing their vesion of the wallet, with compelling advantages to the user? (For example, a version with a much pruned Merkle tree, so that everybody with a smartphone or any handheld device can use it.)

So now the question to ask is, if the limit on quantity is fictitious, what sets Bitcoin apart from any fiat currency in use today? Every fiat currency is controlled by some monopoly, a monopoly necessarily sanctioned and enforced by the state. In Bitcoin's case, such monopoly does not exist. In Bitcoin's case, its own market will control its quantity, while fiat currencies are prone to hyper-inflation because its monopolistic structure does not present a feedback mechanism to limit production or "printing".

The two worries I expressed in the OP are in reality no cause for concern. I now believe in Bitcoins much more than I ever did. If a version of the wallet that can run on a handheld becomes available (as I am sure it will, soon enough), then its proliferation will further enhance its own integrity, as I explain here: http://ctapang.wordpress.com/2013/01/30/more-on-bitcoins/.

[Dabs]

Some programmer thought at one point in the history of desktop PCs that it's OK to allocate only so many digits for the year. And so during the year 2000 an enormous amount of effort had to be spent just to fix this date limit bug.

I think you are mistaking some corporation or one proprietary operating system, compared to the open source programmers or OS. Perhaps, during that time, 4 digit years took up twice the space of 2 digit years, and space was at a premium then. This Y2K bug was not a problem for Linux machines, and for most of their software (unless it had a Windows counterpart) because this really is a Y2038 bug. Which is not a bug, it's just a limitation of the bits allocated for time.

[notme]

1. I've used Linux on the desktop since I was 12.  Linux and other Unix like OSes run the vast majority of hardware.  Windows is for consumers and (decreasingly) business users.  Real code runs on a real OS.  Smartphones are almost all POSIX compatible.  Microsoft will continue to see difficulty with new markets since users now understand the walls that come with Windows.
2. As for chance, it does play a small roll, but 98% of the time, if you started with the same initial distribution of land and poured water on it you would get the same path.  The path did change as the river carved out the rock.  Softer areas of rock wore quicker and pulled the river in that direction.  If you go back far enough, and cast your net across the entire universe, it can be deterministically predicted.  However, there are practical problems when you try to model the entire universe over all time, so we have to resort to probabilistics to make good local guesses and still acknowledge that the likely event may not happen because of an external factor we can't predict.
3. If bitcoin runs serious international settlement and some other systems provides a simple user interface for consumers (possibly with chargebacks, insurance, etc.), bitcoin will still be a success in my mind.  This is just like the comparison of Unix running the show and Windows just being a walled garden so idiots don't hurt themselves with the power of the real system.  As long as the real system remains accessible to everyone.

[notme]

Rather, we want to be like the Colorado river, cutting deep into the very foundation of world commerce, less by chance, and more by conscious decisions.

Are you saying the Colorado river cut it's path via conscious decisions?

[flyonwall]

First of all, OP is a good read, even though I disagree on main points.

The issue of hard limit boils down to psychology and culture. It is stated in the OP how the supply of an ideal currency should scale with the economic growth or recession. In that case, we need to think in terms of changing supply and (ideally) steady real value of the unit of currency. In reality, however, this implies trust in a central authority issuing and destroying currency at their (corrupt) will. It implies uncertainty. Importantly, we have all seen how dysfunctional and corrupt this system is. Taking "experts" seriously would mean mental disease at this point.

Bitcoin, on the other hand, offers a mathematically certain supply (with some minor variation due to hash rate variation and compressed or extended schedule of difficulty adjustments). In the case of Bitcoin, therefore, we need to think in terms of scheduled supply and variable real value of the unit depending on the growth or recession of the economy. If the economy is growing, value of coins is rising, and people may slow down on spending and increase savings, thereby slowing down the economy, thus leading to a slower increase or even to a decrease in the value of a coin, which then stimulates spending, and drives the economic growth... you get the picture. Hard limit on the supply leads to a sane, self-regulating economy, as opposed to the current mainstream idiocy.

Niko, I read this again, and I think I have just fully understood it. So what you are saying is that keeping the quantity a constant while allowing the value to change is just the other side of the same idea, which is allowing the quantity to change, thereby steadying the value. Sort of like an adiabatic pressure, volume, and temperature (velocity) relationship. Keeping the pressure (price) constant and allowing the volume (quantity) to change has a similar effect on temperature as keeping the volume constant and allowing the pressure to change.

You make a very good point, but there is just one thing we need to take into account. If the current Bitcoin rules are followed rigorously in time, there would be a tendency for the absolute quantity to decrease. This is because, like real coins, Bitcoins can be lost. I have a Bitcoin address for which I lost the private key. Fortunately for me, that Bitcoin address has zero coins in it. We can imagine this happening to millions of people on a daily basis losing the private key for one reason or another, and the sum of Bitcoins lost in this manner can be substantial. As another, more dramatic example, some wealthy person with millions of Bitcoins in several accounts or addresses dies, and nobody, not even his heirs, are able to get to the private keys.

One other thing: it's not just economic activity that's going to affect the value of Bitcoins. Things like the size of the Bitcoin economy in terms of total number of users is also a big factor in its valuation. We want to see the Bitcoin market increase in size in terms of number of participants; but even if Bitcoin conguers the whole world this increase in market size will continue due to population increase. At some point (maybe after we have gone to other habitable planets light-years away, and Bitcoin remains the dominant currency), even the fact that each Bitcoin is divisible won't be enough for it to continue to be useful to a population much larger than its quantity.

[townf]

Coin loss, population growth, and a hard limit all collude to make btc a deflationary currency (when the hard cap comes or gets close)

A lot of people around here think this is a good thing, but that is because they currently don't need to buy groceries with btc (or produce groceries with btc).

All there is to do really is just sit on them, watch the exchange rate, wait for the new mints to taper off, and see what happens.

I agree that the value of btc as a store of wealth is proportional to its value as a medium of exchange, because it has absolutely no other use. You can't even make jewelry with btc.

One thing that I haven't seen talked about around here, is that all the different altcoins springing up takes the pressure of deflation off of bitcoin.

Bitcoin may be the first, and currently the biggest and the baddest, and the most valuable against fiat, but at the end of the day, you have to admit that anymore it's just another crypto altcoin like all the others. The supply of all of them combined is growing, and probably always will, and they all equalize and trade for each other in places like vircurex and btc-e. So when a new one springs up that gains some popularity, people move some of their positions in bitcoin into these.

I think the deflation/inflation issues of any altcoin will ultimately be averaged out across all the altcoins, of which bitcoin is only one. Hopefully that average will work itself out to be optimal in terms of exchanging goods and storing wealth.

[solex]

Not this again.

There is no reason to not "start another currency that has no hard limit on quantity" you can do it. It is easy. I dare you to start it right now. In fact, such shitcoin is sorely needed. It would be great to have all inflation lovers to start using their own inflationary currency and leave us Bitcoiners alone.

Yes. Anyone desperate for "another currency that has no hard limit on quantity" should just load up with XRP instead of bleating that Bitcoin lacks this "feature".

[BtcBling]

There will be and there´re already enough bitcoins to run world economy - however we can be quite happy if it ever covers 1 - 5%. It needes just split (which is not good for clarity, but maybe there will be some changes in the future). Basicly miners will mine and others will spend. Only "few" understand the real potential value and very few really saves bitcoins - which is good for bitcoin economy and adpotion.  So, within next years bitcoin fiat value can basicly only increase as demand will increase dramatically due to India / africa where bitcoin is going basicly replace banks as there´s hundreds of millions without any bank relationship. Of course there will be other altcoins, but it is quite important to understand that bitcoin is more and more nearby real mass adoption stage and other alt coins are just very small sub economies without any real traction. So, in Bitcoins we trust.

[keystroke]

If you have a velocity measure that cannot be gamed, there are many people waiting for it, as a fair number of people in the real world might follow a coin more in tune with their conventional economic sense.

Could transaction fees paid be a measure of velocity as they go to a random miner?

[townf]

There is no reason to not "start another currency that has no hard limit on quantity" you can do it. It is easy. I dare you to start it right now. In fact, such shitcoin is sorely needed. It would be great to have all inflation lovers to start using their own inflationary currency and leave us Bitcoiners alone.

This phenomenon will actually make bitcoin currency more inflationary. MUWAHAHAAAHAAHAAA!!!!

[flyonwall]

Coin loss, population growth, and a hard limit all collude to make btc a deflationary currency (when the hard cap comes or gets close)

A lot of people around here think this is a good thing, but that is because they currently don't need to buy groceries with btc (or produce groceries with btc).

All there is to do really is just sit on them, watch the exchange rate, wait for the new mints to taper off, and see what happens.

I agree that the value of btc as a store of wealth is proportional to its value as a medium of exchange, because it has absolutely no other use. You can't even make jewelry with btc.

One thing that I haven't seen talked about around here, is that all the different altcoins springing up takes the pressure of deflation off of bitcoin.

Bitcoin may be the first, and currently the biggest and the baddest, and the most valuable against fiat, but at the end of the day, you have to admit that anymore it's just another crypto altcoin like all the others. The supply of all of them combined is growing, and probably always will, and they all equalize and trade for each other in places like vircurex and btc-e. So when a new one springs up that gains some popularity, people move some of their positions in bitcoin into these.

I think the deflation/inflation issues of any altcoin will ultimately be averaged out across all the altcoins, of which bitcoin is only one. Hopefully that average will work itself out to be optimal in terms of exchanging goods and storing wealth.

I believe what will happen is that there will be a dominant currency, and that dominant currency would be one that had no hard limit on quantity. In this regard, both Litecoin and Ripple are similarly lacking. The Bitcoin community can and should change this absolute rule, and simply allow the law of supply and demand to determine the course of the currency. It would appear on first examination that this is no different from the current fiat money situation, but in fact there is a big difference: there would be no central authority that will control the quantity of money (as in current fiat money arrangement). The market will decide how many Bitcoins will be produced at any given time. When the price is high, miners will overproduce and thereby tilt the price downwards. Mining profits would then fall, and production consequently be reduced also. Price would go up again, and so on, in a mild cycle of ups and downs. There will be more periods of quiet equilibrium than violent crashes and recessions.

[justusranvier]

I believe what will happen is that there will be a dominant currency, and that dominant currency would be one that had no hard limit on quantity. In this regard, both Litecoin and Ripple are similarly lacking. The Bitcoin community can and should change this absolute rule, and simply allow the law of supply and demand to determine the course of the currency. It would appear on first examination that this is no different from the current fiat money situation, but in fact there is a big difference: there would be no central authority that will control the quantity of money (as in current fiat money arrangement). The market will decide how many Bitcoins will be produced at any given time. When the price is high, miners will overproduce and thereby tilt the price downwards. Mining profits would then fall, and production consequently be reduced also. Price would go up again, and so on, in a mild cycle of ups and downs. There will be more periods of quiet equilibrium than violent crashes and recessions.

The market has already decided. There are alternate cryptocurrencies with no hard limit on quantity.

Nobody uses them.

Amazingly enough, when people are free to choose they tend to choose to hold the currency which gains in value over the one which has a constant or decreasing value. So far no amount of persuasion works to convince people that they should reverse their preferences, so that's why advocates of those other systems can must constantly attempt to remove the features that people actually want in Bitcoin. 

[flyonwall]

Thanks JustusRanvier. So I maybe completely wrong about my thesis here. I admit ignorance and am not aware of such crypto currencies until now. Just googled it, and indeed PPCoin sounds very interesting. I will take a look at it and others.

Bitcoin has had a head start, and that maybe the only reason it's very popular. The competition will intensify shortly, and we'll see whether Bitcoin remains at the top of the heap.

[townf]

The market has already decided. There are alternate cryptocurrencies with no hard limit on quantity.

Nobody uses them.

Amazingly enough, when people are free to choose they tend to choose to hold the currency which gains in value over the one which has a constant or decreasing value. So far no amount of persuasion works to convince people that they should reverse their preferences, so that's why advocates of those other systems can must constantly attempt to remove the features that people actually want in Bitcoin. 

See http://en.wikipedia.org/wiki/Gresham%27s_law

If this holds up then people will be using alternative non deflationary coins and hoarding (not using) bitcoins.

[justusranvier]

See http://en.wikipedia.org/wiki/Gresham%27s_law

If this holds up then people will be using alternative non deflationary coins and hoarding (not using) bitcoins.

In what way is Gresham's Law applicable to cryptocurrencies?

[agentbluescreen]

The market has already decided. There are alternate cryptocurrencies with no hard limit on quantity.

Nobody uses them.

Amazingly enough, when people are free to choose they tend to choose to hold the currency which gains in value over the one which has a constant or decreasing value. So far no amount of persuasion works to convince people that they should reverse their preferences, so that's why advocates of those other systems can must constantly attempt to remove the features that people actually want in Bitcoin.  

See http://en.wikipedia.org/wiki/Gresham%27s_law

If this holds up then people will be using alternative non deflationary coins and hoarding (not using) bitcoins.

That wikipedia article is in serious need of editing  LOL


The queer notion that our human, public Medium of Work-Resource Exchange needs to ALSO be some other "commodity" that can easily be monopolized by any elite gang of "economic winners" to thus enslave us into debt to their "lending" monopoly, is BAD MONEY, not good.

This arises from the confusion of idiots who stupidly confuse a "money" (token of the limitless Prime Resource of all labours) with a wealth (some scrap-token of some hoard of mere inanimate and unproductive yet rarer junk).

A junkyard full of scrap cars contains thousands of rare parts worth thousands of times it's value, but one would not be right to regard it as a "good money".

The wikipedia article needs to be edited to describe the contrast between the coin and paper as that between a "dangerous, finite, limited-commodity token" and a "safe, properly growth-elastic and unlimited-resource token". In other words, dangerous money versus safe money.

Whenever there is not enough of a Medium of Work-Resource Exchange to put some in everyone's pockets an economy faces catastrophe!

It's not what you make money out of, or even what it's worth that ever really matters, it's WHO "OWNS" IT! (all?) ...that does!

[townf]

See http://en.wikipedia.org/wiki/Gresham%27s_law

If this holds up then people will be using alternative non deflationary coins and hoarding (not using) bitcoins.

In what way is Gresham's Law applicable to cryptocurrencies?

In what way is it not?

Agentbluescreen says they aren't a "Medium of Work-Resource Exchange" or a "token of the limitless Prime Resource of all labours", and he is correct currently, but let's just wade through all that and pretend they are for now.

[flyonwall]

It's not what you make money out of, or even what it's worth that ever really matters, it's WHO "OWNS" IT! (all?) ...that does!

Well, it's a market price, in a sense. That price has a network effect component. If everybody hoards something, its price goes up, but it won't be used as money. The network effect is that caused by everyone hoarding it. If quantity is unlimited but production of something is not so easy, its price would be more stable, and it will be used as money. The network effect in this case causes people to use it as a medium of exchange.

Just read about ppcoin. It is VERY interesting to me.
https://github.com/ppcoin/ppcoin/wiki/FAQ