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Author Topic: = Grand Unified Solution to Lost Coins, Hoarding, Deflation, Speculation =  (Read 10842 times)
NikolaTesla
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April 13, 2013, 02:37:07 PM
 #1

This is probably the most evil thing I can imagine. But this one simple change would solve every single thing below:

- Solve the problem of lost coins / lost keys
- Prevent hoarding of coins / make it unprofitable in the long run to hoard them
- Encourage people to spend their coins as a currency
- Prevent over-speculation leading to volatility
- Create greater incentives for miners and give miners a reason to mine past 2140
- Eliminate transaction fees completely
- Solve the problem of deflation, while still preventing inflation at the same time (sound impossible? Not with this solution!)

If all those things are solved, mainstream economists would actually take Bitcoin seriously as an economic model, meanwhile the technological protocol and decentralization would be preserved. With this solution, we would still enjoy the benefits of the currency being decentralized, crpytographic, and pseudonymous, while mainstream economists would be more likely to endorse it as a practical currency rather than view it as the commodity / collectible that it currently is.

The grand unified solution is: Have the coins in circulation naturally "decay" over a very long period of time, like a radioactive isotope. Over the course of a year or so, each coin in existence would lose around 0.5%-1% of it's present value. That 1% or so would be re-issued as network fees and greater mining rewards, to the nodes that are actually responsible for sustaining the network. The exact decay rate could be variable based on an algorithm that takes into account the network hash rate and/or transaction volume, or it could be a fixed rate. The decay would have to be calculated at each block, but it should take at least a year to lose the 0.5%-1%.

A simple balance = balance * e^(-bt) where t is the number of seconds elapsed since the last block was created, and b is a very small number (0.00000001-ish) would do the trick.

This would make it so that the value of lost coins asymptotically approaches 0 over a very long period of time, eliminating the need to worry about lost coins causing deflation in the long run. Hoarders will have an incentive to invest rather than hoard. People would spend their currency as a currency rather than speculate and day trade. There would be no need to charge transaction fees since the nodes would be rewarded for moving transactions to blocks this way instead. This will further incentivize spending since users won't be dissuaded by transaction fees.

There would be no inflation, since the number is still capped at 21 million, but all the things that built-in inflation tries to solve in fiat systems, this would solve.

If Bitcoin is going to be adopted by the mainstream, we have to take action to solve every single one of those issues listed above. They are going to be solved anyway, whether it's by us or by them. The world is eventually going to move to a digital currency whether it's ours or theirs, this is beyond question. But if they get to it first and create something that eliminates those issues, it's going to be centralized, not anonymous, not cryptographically secured and will involve banks. If it's going to be us, we have to solve those issues some way soon, and there's not a whole lot of viable solutions for each, let alone singular solutions that fix every one.

Since this is possibly going to upset the "How dare you blaspheme the Sacred Cow by suggesting we change the rules for Bitcoin!" crowd, I humbly add this following. I think we need to let go of this idea that the current rules of Bitcoin are somehow sacred and holy, not to ever be touched because doing so would revile the spirit of the Almighty Satoshi. There is nothing wrong with recognizing a set of flaws in a system and taking action to fix those flaws. They need to be fixed somehow, and the sooner we do it, the easier it will be. If you have a better solution to all of the above, I encourage you to post it.

Do as thou wilt shall be the whole of the law.
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April 13, 2013, 02:46:54 PM
 #2

Do you like gift cards that have a monthly fee? I try to avoid  them.
Second, if someone wants to hoard, its their freedom to do so.

I'd be interested to post if you describe why these things are fundamentally bad.
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April 13, 2013, 02:58:52 PM
 #3

Not a good idea for currency. See Freicoin...demurrage currency ( http://en.m.wikipedia.org/wiki/Demurrage_(currency) )

Another bad but similar idea: How about a coin that knows who owns it? This way, coins can redistribute themselves from rich people to poor people each week...and currency ownership taxes can be paid automatically every hour!

Hardfork aren't that hard.
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April 13, 2013, 03:04:29 PM
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I think the majority of the bitcoin community would reject the idea of decay over time.
Even if the community would accept such a revolution I think inflation would be easier to accept than decay.
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April 13, 2013, 03:06:30 PM
 #5

SolidCoin implemented this idea and it was not well received.

NikolaTesla
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April 13, 2013, 03:06:58 PM
 #6

Do you like gift cards that have a monthly fee? I try to avoid  them.
They depreciate at the rate of inflation either way.

Quote
Second, if someone wants to hoard, its their freedom to do so.
And it would still be their freedom to do so. But this solution incentivizes spending, which will be good for growing the BTC economy.

Quote
I'd be interested to post if you describe why these things are fundamentally bad.

No problem. The things I listed, in order, and an explanation for why each needs to be addressed:

Solve the problem of lost coins / lost keys:
Can't really argue that this is a problem. Coins are lost forever in the system never to be found, which means the total coins in circulation will never really be 21 million, and will always be decreasing. On a long enough time scale, they will eventually all disappear.

Prevent hoarding of coins / make it unprofitable in the long run to hoard them:
The economy only grows when money is flowing and changing hands.

Encourage people to spend their coins as a currency:
Bitcoin was intended to be a currency but people are treating it as a collectible because there is no incentive to spend. Merchants will be much more likely to accept Bitcoin as payment if they know people will actually use it as payment. Mass adoption thus becomes more likely.

Prevent over-speculation leading to volatility:
Last 3 days, enough said. The market needs to be stabilized for the public to gain confidence in it.

Create greater incentives for miners and give miners a reason to mine past 2140:
Under the current system, why should anyone mine past 2140? It's also unprofitable to mine, whereas this would make mining more appealing.

Eliminate transaction fees completely:
Transaction fees discourage spending and encourage hoarding.

Solve the problem of deflation, while still preventing inflation at the same time[/quote]
Deflationary currencies don't work for precisely the reasons I already pointed out. People don't spend them. Inflation also has adverse effects, such as when prices go up at a disproportionate pace to wages. It's not easy to solve both these things at once; usually one must be sacrificed for the other.

Do as thou wilt shall be the whole of the law.
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April 13, 2013, 03:20:02 PM
 #7

It sounds like the opposite of what bitcoin is trying to achieve. Governments, or in this case miners, stealing your money...

The txn fee is there, as an incentive for miners to keep mining after 2140. Due to the massive amounts of txns, the fees will be extremely low, but still enough for the miners to make a bit of profit.

Plus you will see more and more that merchants are going to set up their own miners / miner clusters, to make sure their transactions are verified quickly, thus helping to secure the network. (as it is in their best interest too)

Everything happening right now, has to do with the fact that it is a new and upcoming currency, this is a stage every currency has to go through and there is no avoiding it. Let itself play out for another 5 to 10 years, it will be much more stable by then. Hence why the beta tag is still used on bitcoin.

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April 13, 2013, 03:27:18 PM
 #8

We want the miners to make lots of profit...they are securing the network and we want the network to be worth securing.

Hardfork aren't that hard.
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April 13, 2013, 03:34:33 PM
 #9

Hoarding is not a problem. The word merely means saving. Saving is virtuous, not a problem to be "solved". I'm not interested in what "mainstream" economists take, give or do. If you want what they are selling, then please just stick with dollars or the local currency of your choosing, and leave us bitcoiners alone.
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April 13, 2013, 03:34:46 PM
 #10

Welcome to Freicoin.

imho, demurrage makes sense for regional currencies as it encourages local spending, but macro-economically (i.e. on national or global scale) it will have the same effect as inflation: the flight into assets that don't lose value, like stocks, land, real estate, creating all the bubbles we know so well there.

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April 13, 2013, 03:45:14 PM
 #11

I kinda agree with OP. But decay should only happen to BTC's that have been sitting at the same address for X time.

This would mean that lost money would be re-issued. For hoarders it would only mean that they would have to move their coins to another address they own every X time.

The time would have to be pretty long. 5-10 years, but the decay should be larger, like 2.5%

But then again - the rules are already set, and I doubt they will be changed even though it means that BTC will go extinct by definition some time in the far future.

BitCoin is NOT a pyramid - it's a pagoda.
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April 13, 2013, 03:52:39 PM
 #12

Hoarding is not a problem. The word merely means saving. Saving is virtuous, not a problem to be "solved". I'm not interested in what "mainstream" economists take, give or do. If you want what they are selling, then please just stick with dollars or the local currency of your choosing, and leave us bitcoiners alone.

Translation: "Join our Cult, adopt all our propaganda, or leave us alone."

This Cult Mentality...
Is why Bitcoin remains an obscure, hoarded commodity (NOT a currency)...
And why several dodgy exchanges effectively control Bitcoin...
And are systematically looting BTC.

This has nor changed since last time I checked in 2011...
Because serious businessmen spend 1-2 days looking at BTC...
And then they just move on.
 
silzero
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April 13, 2013, 04:35:14 PM
 #13

I think I agree with one of your general idea: Incentivize Spending (BTC)

IMO, this needs to be done organically. What I mean is, more businesses (and individuals) accepting Bitcoin and fast and easy exchange.
 
The decay solution is complex to implement. Whatever decay rate you choose, there will be fair amount of wallets where either the decay rate is too fast or too slow to make an impact.
As an example (totally theoretical, just to see numbers):
Beta   0.00000001   
1 Day   86400   seconds since last block (lets assume)
Begin   1,000,000   
End   999,136   
Difference   863.6268595   

In one day, 864 coins sent back to network. For a person holding 1 million coins 864 may be smallish.

Lets say you put a restriction, the decay does not kick in after n years. Now how long does it take for all the lost coins to come back into the network? What if significant coins were lost in a small space of time like a year of multiple heists. Then later we'll have years of low BTC supply contributing to more volatility. Usually a currency should get more stable as it progresses in usage.

Interesting proposal, but the negative image it projects can easily relegate Bitcoin back to murky deals when mainstream media picks up this.


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April 13, 2013, 05:09:29 PM
 #14

The currency that is decays should be sent back into the mining pool less a transaction fee.

The mining output should increase up to a smallish percentage like 5-10%

I assume that quite a bit of the early bitcoins are lost in space. If the lost coins were sent back into circulation at a low but steady pace, it would give an incentive to mine even beyond 2140.
Also, one would know how many BTC's that are actually available, thus giving a more stable price.

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April 13, 2013, 05:11:47 PM
 #15

This is probably the most evil thing I can imagine. But this one simple change would solve every single thing below:

- Solve the problem of lost coins / lost keys
- Prevent hoarding of coins / make it unprofitable in the long run to hoard them
- Encourage people to spend their coins as a currency
- Prevent over-speculation leading to volatility
- Create greater incentives for miners and give miners a reason to mine past 2140
- Eliminate transaction fees completely
- Solve the problem of deflation, while still preventing inflation at the same time (sound impossible? Not with this solution!)

If all those things are solved, mainstream economists would actually take Bitcoin seriously as an economic model, meanwhile the technological protocol and decentralization would be preserved. With this solution, we would still enjoy the benefits of the currency being decentralized, crpytographic, and pseudonymous, while mainstream economists would be more likely to endorse it as a practical currency rather than view it as the commodity / collectible that it currently is.

The grand unified solution is: Have the coins in circulation naturally "decay" over a very long period of time, like a radioactive isotope. Over the course of a year or so, each coin in existence would lose around 0.5%-1% of it's present value. That 1% or so would be re-issued as network fees and greater mining rewards, to the nodes that are actually responsible for sustaining the network. The exact decay rate could be variable based on an algorithm that takes into account the network hash rate and/or transaction volume, or it could be a fixed rate. The decay would have to be calculated at each block, but it should take at least a year to lose the 0.5%-1%.

A simple balance = balance * e^(-bt) where t is the number of seconds elapsed since the last block was created, and b is a very small number (0.00000001-ish) would do the trick.

This would make it so that the value of lost coins asymptotically approaches 0 over a very long period of time, eliminating the need to worry about lost coins causing deflation in the long run. Hoarders will have an incentive to invest rather than hoard. People would spend their currency as a currency rather than speculate and day trade. There would be no need to charge transaction fees since the nodes would be rewarded for moving transactions to blocks this way instead. This will further incentivize spending since users won't be dissuaded by transaction fees.

There would be no inflation, since the number is still capped at 21 million, but all the things that built-in inflation tries to solve in fiat systems, this would solve.

If Bitcoin is going to be adopted by the mainstream, we have to take action to solve every single one of those issues listed above. They are going to be solved anyway, whether it's by us or by them. The world is eventually going to move to a digital currency whether it's ours or theirs, this is beyond question. But if they get to it first and create something that eliminates those issues, it's going to be centralized, not anonymous, not cryptographically secured and will involve banks. If it's going to be us, we have to solve those issues some way soon, and there's not a whole lot of viable solutions for each, let alone singular solutions that fix every one.

Since this is possibly going to upset the "How dare you blaspheme the Sacred Cow by suggesting we change the rules for Bitcoin!" crowd, I humbly add this following. I think we need to let go of this idea that the current rules of Bitcoin are somehow sacred and holy, not to ever be touched because doing so would revile the spirit of the Almighty Satoshi. There is nothing wrong with recognizing a set of flaws in a system and taking action to fix those flaws. They need to be fixed somehow, and the sooner we do it, the easier it will be. If you have a better solution to all of the above, I encourage you to post it.
And what algorithm do you use to determine if keys were lost?

BTC:1AiCRMxgf1ptVQwx6hDuKMu4f7F27QmJC2
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April 13, 2013, 05:50:10 PM
 #16








This already exists, it is called Freicoin.



http://freico.in/about/

We already have the software released & ready to download. Smiley
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April 13, 2013, 06:11:17 PM
 #17

- Encourage people to spend their coins as a currency

I have a great idea in order to do something that would have the same effect.

Instead of encouraging people to spend their money, let's spend it for them!  So here is the idea:  we steal a bit of everybody's money, and we use it to fund all sorts of stuff.  What we do does not matter much.  We can just build stuff like roads or schools.  Those things are always useful so nobody will complain.  If there are already roads, schools or hospitals, we'll just destroy them and build new ones.  We'll just say they were too old and needed replacements.  And if we still need to spend more, then we'll just hire young people as soldiers and we'll send them to war abroad.

How does that sound?

ZephramC
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April 13, 2013, 06:14:04 PM
 #18

This is probably the most evil thing I can imagine. But this one simple change would solve every single thing below:

- Solve the problem of lost coins / lost keys
- Prevent hoarding of coins / make it unprofitable in the long run to hoard them
- Encourage people to spend their coins as a currency
- Prevent over-speculation leading to volatility
- Create greater incentives for miners and give miners a reason to mine past 2140
- Eliminate transaction fees completely
- Solve the problem of deflation, while still preventing inflation at the same time (sound impossible? Not with this solution!)

Well, it can be argued that many people like bitcoin because of these things and not despite them. I could take all your arguments "why those are bad things" one by one and present counterarguments "why they are good things".
But your proposal can be somewhat adopted without any changes to bitcoin protocol. Only if the people using bitcoin will want to. All it takes is (enough, majority, some important) merchants taking into consideration coin age. You can open a store with prices in BTC multiplied by age-coefficient. When buying BTC for fiat, you can pay more for fresh coins than for old coins. You can boycott early-adopters and hoarders altogether. If high number of people do this then your demurrage idea will be implemented. If not enough people do it then well... perhaps they disagree with your idea.
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April 13, 2013, 06:24:09 PM
 #19


Why not make it voluntary? I can check a box in my client and those coins will be destroyed at the pre-determined rate set by a handful of people. Or would this be a forced issue, where everyone has to participate?

good judgment comes from experience, and experience comes from bad judgment
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April 13, 2013, 06:29:50 PM
 #20

Hoarding is not a problem. The word merely means saving. Saving is virtuous, not a problem to be "solved". I'm not interested in what "mainstream" economists take, give or do. If you want what they are selling, then please just stick with dollars or the local currency of your choosing, and leave us bitcoiners alone.

this. A thousand times this.

First, OP presumes hoarding is the cause of volatility and that the proposed solution is a clean fix for that, both of which are dubious assumptions. I'll counter that it is the buyers and sellers rushing in and out of poorly operated exchanges, not the hoarders that are causing volatility. Hoarders are generally waiting for the market to stabilize after long term price discovery has become much more efficient.

Volatility, in my opinion, will NOT subside until virtually everyone knows about Bitcoin and has made their decision about whether to participate or not.   Also, it probably needs to survive in some practical form after a government assault. We'll have waves of volatitily, probably for years, until that process is complete. Then we will have true price discovery. The measures OP describes cannot counter those factors; they are fundamental.

Also, it is totally unrealistic to suggest that the Bitcoin community would just collectively adopt these kind of changes. The entire Bitcoin community, by defintion, is voting for the current rules. If the rules are changed it would not be a magical transformation of Bitcoin into Bitcoin 2.0. It would be a fork, and I will stick with the block chain using the original rules and will not participate in the new coin. If they had value I'd sell those Radioactive Bitcoins immediately and buy more Original Bitcoins.
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