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Author Topic: Argument that not increasing difficulty would make bitcoin "inflationary"??  (Read 701 times)
forgotmypassword8x
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June 18, 2011, 01:25:00 AM
 #1

When people propose removing the difficulty increase, I see people frequently respond this would make bitcoin
infinitely inflationary and so worthless.  This makes no sense to me.  Bitcoins would still cost money (electricity/time) to produce.
All this would mean is bitcoin's price would basically be tightly tied to their cost of production.
It would also mean each coin truly represents the amount of work
put into generating it, unlike now where the first 10% of coins mined required 800k times less work to generate.

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ibisy70
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June 18, 2011, 01:27:55 AM
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That would only work if the amount of bitcoins is infinite....but their is a limit.
forgotmypassword8x
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June 18, 2011, 01:48:43 AM
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Er, also allowing them to grow infinitely.  Note that they will only grow infinitely as long as people are trading them for MORE than the cost of production.  It seems to me at some point people would say "OK, it seems like our economy is big enough to do our business now", and the demand price would drop below cost of production.  At this point people would stop generating them, because there is no-one to sell them to for profit (and even if they wanted to speculate, they would could just buy them for less).

It seems to me perfectly fine to let them grow infinitely, and in fact this will not cause the value of existing coins to decrease, because it cost money/resources to produce the new coin.  Much like when a VC meets with a corporation and gives a pre-money valuation of $1 million for their existing 500 shares.  The corporation then creates 500 new shares and sells them to the VC at $1 million, meaning there are now 1000 shares.  But the existing 500 shares are worth exactly the same amount as they were before, because the company now has a of $2 million.
drknark
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June 18, 2011, 08:17:26 AM
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At this point people would stop generating them, because there is no-one to sell them to for profit

And this is a big problem. Blocks need to be generated for transactions to be able to be carried out. If there is no profit in generating blocks, no blocks get generated -> no transactions are possible.

Yes, this is an extreme case. But with the current design the network will always produce 1 block every ~10 minutes, guaranteeing a consistent speed of transactions.
Delicious
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June 18, 2011, 08:24:22 AM
 #5

I have a feeling BTC will never go mainstream unless transactions can be confirmed much faster than in 10 minutes stretches.  Xfers are instant, but confirmations are not.  Am I even being relevant?  I don't know.

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Michiko
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June 18, 2011, 09:38:32 AM
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At this point people would stop generating them, because there is no-one to sell them to for profit

And this is a big problem. Blocks need to be generated for transactions to be able to be carried out. If there is no profit in generating blocks, no blocks get generated -> no transactions are possible.

Yes, this is an extreme case. But with the current design the network will always produce 1 block every ~10 minutes, guaranteeing a consistent speed of transactions.

And that's why miners then will be getting paid mostly in transaction instead fees I guess. To remain safe the network needs to keep enough parties interested in competing to do proof-of-work. Maybe the inventors envisioned that a large number of transactions per block in a mature network would generate sufficient pay-off even with low fees per single transaction.
drknark
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June 18, 2011, 11:22:22 AM
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At this point people would stop generating them, because there is no-one to sell them to for profit

And this is a big problem. Blocks need to be generated for transactions to be able to be carried out. If there is no profit in generating blocks, no blocks get generated -> no transactions are possible.

Yes, this is an extreme case. But with the current design the network will always produce 1 block every ~10 minutes, guaranteeing a consistent speed of transactions.

And that's why miners then will be getting paid mostly in transaction instead fees I guess. To remain safe the network needs to keep enough parties interested in competing to do proof-of-work. Maybe the inventors envisioned that a large number of transactions per block in a mature network would generate sufficient pay-off even with low fees per single transaction.

Yes, you are correct. This is the way the current system works / will work.
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