[white paper] Purely P2P Crypto-Currency With Finite Mini-Blockchain

[AnonyMint]

I had written much about this already in No Money Exists Without The Majority:

https://bitcointalk.org/index.php?topic=226033.0

What I want to know now, is what the Bitcoiners here really think about debasement, gold, and the lack of debasement in Bitcoin after 2024, especially 2033.

So I will start another thread to ask for them to express their opinions, while I will try to shut up and listen to what all have to say.

https://bitcointalk.org/index.php?topic=312649.0 (that thread)

Because I don't want to get very excited about doing something good for the world, only to find out later that the market doesn't understand and is caught up in a gold delusion. If the market just wants to be fooled by their delusion into allowing mining cartels as Satoshi appears to have done to manipulate their psychology, then I need to know that, because it impacts how I should approach this. Generally speaking I am most excited to work when I feel I am doing something good for society and making money at the same time. I am sure it is the same for most of you all. Yet if you all think that gold as a strict currency is good for society, then we are doomed.

Not everyone has to agree, I just need to determine what is the real mindset of the majority of Bitcoiners. So I will start another thread to try to find out.

P.S. The probability that Satoshi was one person is slim and none:

http://ianso.blogspot.be/2013/10/bitcoin-as-law-enforcementnatsec.html

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[Etlase2]

I would like to know who has 600 years to sit on idle savings for a start. There is nothing selfish about deflation, it is the natural consequence of a currency which experiences increased demand and no one should have the ability to steal that extra value from the currency. What you are basically saying is that people shouldn't be allowed to save their money and hope it goes up in value, which is obviously not the spirit of cryptocurrency.

Not in the spirit of bitcoin. Your argument about stealing is pretty funny, considering you are talking about being entitled to an increase in your wealth by the mere virtue of other people demanding to use the currency that you happen to use. Wealth is not created this way, wealth is redistributed. Wealth is created by the trading lubricant provided by money in lieu of barter. I've argued in the past that I think FRB was a key part in creating the merchant/middle class. Do I think FRB would have been the best way? Of course not, it created other types of empires and enslavement, but coincidentally or not, it does have a correlation with humanity moving away from feudalism and into a much more free society.

With a fairly objective perspective, one could argue that the US sees a much higher standard of living than it deserves, merely because of the property that its currency is the world reserve currency. The US government/fed/banking system triumvirate thoroughly enrich themselves by "printing" valueless bills in return for real goods and services and real power in the world. This, if not precisely, closely parallels how value is absorbed into the bitcoin ecosystem--by funneling it through the top. It is much more difficult to objectively see that when you (the general you) might be close to the top that this is a problem.

And mathematically loans require more money supply every year due to the interest rate. So if you only have gold, then you have no choice but to cheat and debase it with fractional reserves.

This is mathematically false. Interest does not require an ever-increasing money supply, it only requires that those who earn the interest spend it. However, there is very little incentive to actually consume wealth when it very easily buys power, and power tends to beget more power and wealth. The problem, my dear AnonyMint, with perpetual fixed debasement in a bitcoin-like blockchain design, is that competition to waste resources in pursuit of some-percentage-inflation means that little to no power will actually ever be distributed in that design. It is also a square peg in a round hole treatment that tries to address the fact that "something must be done" but "I really have no idea what." Comparing it to "this is sort of how it works today" is not particularly convincing, considering that it is the system that is trying to be fixed.

[AnonyMint]

Edit: I had written about all of this in more detail in August:

https://bitcointalk.org/index.php?topic=279771.msg3014282#msg3014282

I would like to know who has 600 years to sit on idle savings for a start. There is nothing selfish about deflation, it is the natural consequence of a currency which experiences increased demand and no one should have the ability to steal that extra value from the currency. What you are basically saying is that people shouldn't be allowed to save their money and hope it goes up in value, which is obviously not the spirit of cryptocurrency.

Not in the spirit of bitcoin. Your argument about stealing is pretty funny, considering you are talking about being entitled to an increase in your wealth by the mere virtue of other people demanding to use the currency that you happen to use. Wealth is not created this way, wealth is redistributed. Wealth is created by the trading lubricant provided by money in lieu of barter.

Happy to see someone understands why currency exists (in terms of unit-of-exchange, not just store-of-value). This is essentially what I wrote upthread about "velocity of trade (money)" and society entrusting savings because it expects you to generate more trade and excess production, as well what I wrote in the following linked No Money Exists Without the Majority, where I mentioned the purpose of currency (unit-of-exchange) is to obtain the maximum division-of-labor.

https://bitcointalk.org/index.php?topic=226033.0

I've argued in the past that I think FRB was a key part in creating the merchant/middle class.

Velocity of money is what brought us out of the last Dark Age. Unbanning usury was one factor, as well as the creation of the world's first central bank in Europe.

If goldbugs had their way, we would sink into another Dark Age. (I was a goldbug before sigh)

Do I think FRB would have been the best way? Of course not, it created other types of empires and enslavement, but coincidentally or not, it does have a correlation with humanity moving away from feudalism and into a much more free society.

I am again happy to see someone besides me understands this on the Bitcointalk forum.

With a fairly objective perspective, one could argue that the US sees a much higher standard of living than it deserves, merely because of the property that its currency is the world reserve currency. The US government/fed/banking system triumvirate thoroughly enrich themselves by "printing" valueless bills in return for real goods and services and real power in the world. This, if not precisely, closely parallels how value is absorbed into the bitcoin ecosystem--by funneling it through the top. It is much more difficult to objectively see that when you (the general you) might be close to the top that this is a problem.

Sadly I agree with you. And "Satoshi" (which is probably the same triumvirate, disagree?) has the psychology of these naive goldbugs wrapped around his million BTC finger.

And mathematically loans require more money supply every year due to the interest rate. So if you only have gold, then you have no choice but to cheat and debase it with fractional reserves.

This is mathematically false. Interest does not require an ever-increasing money supply, it only requires that those who earn the interest spend it.

Pedantically correct yet also incorrect as you admit. But as you say below and as I had noted also, interest flows to those who have amassed so much capital that they can no longer spend it nor invest it well. Thus my statement was correct in reality. Thus they turn to Olsen capture and parasitism. Controlling credit is a way to suck blood from a turnip. The controllers of the triumvirate don't even need to issue the loans, they control those who do.

However, there is very little incentive to actually consume wealth when it very easily buys power, and power tends to beget more power and wealth.

Exactly.

Perpetual debasement is one method of decaying that misdirected power. But not really effective, yet what other alternative do we have? And perpetual debasement at least helps us to keep mining more decentralized away from complete control of cartels.

The problem, my dear AnonyMint, with perpetual fixed debasement in a bitcoin-like blockchain design, is that competition to waste resources in pursuit of some-percentage-inflation means that little to no power will actually ever be distributed in that design.

I thought of one way it will:

https://bitcointalk.org/index.php?topic=285701.msg3090924#msg3090924

The large wealth can't seek out those little hydropower streams all over the world, because the economy-of-scale is too small for them.

This is analogous to my point upthread about how a guy selling mineral water on a hot day can double or triple his investment, but Warren Buffett can't do that in a day with $billions.

So redistribution can occur,and not just in mining but in general that "smaller things grow faster, seedlings grow to saplings in months, saplings grow to oak trees in years, but oaks trees never grow to the moon". This is why central banks are so evil, because it enables the bastards to reset the system and destroy all the gains the little guys have accumulated since the last reset. Central banking is the way the bastards kill everything periodically in order to maintain their percentage of power. Grotesque!

So the solution is we need a coin that can't be centralized, then human ingenuity will take care of the rest. This is why the mini-blockchain and perpetual debasement are a natural fit. But unfortunately the mini-blockchain designer can't see it (yet) due to some delusion he learned when becoming a goldbug. (sorry for the personal attack, but how else can I say I am frustrated that the designer of something so good can't see the big picture)

Do you have a better solution that is tied to the effort and ingenuity of humans and not just a Marxist redistribution scheme?

It is also a square peg in a round hole treatment that tries to address the fact that "something must be done" but "I really have no idea what." Comparing it to "this is sort of how it works today" is not particularly convincing, considering that it is the system that is trying to be fixed.

I think you missed that revelation I had on hydropower since the last time we were debating.

You are a smart guy and I wish we could get on the same page.

[Etlase2]

Pedantically correct.

Mathematically correct. It is an often misunderstood concept and conflating the reasons for the necessity of an expanding supply is not helpful to your line of argument.

The large wealth can't seek out those little hydropower streams all over the world, because the economy-of-scale is too small for them.

This presumes that hydropower streams are somehow the end-all be-all for efficient energy production. It also ignores the very significant hardware aspect of the equation. Square peg, round hole.

Do you have a better solution that is tied to the effort and ingenuity of humans and not just a Marxist redistribution scheme?

Yes.

[AnonyMint]

Btw, I am considering quitting and exiting Bitcointalk.org. I have been thinking lately, it is time for me to make a decision and stop wasting time. Either I do the project, or I move on to other software projects that are less thankless and dangerous. The following link has my logic on why:

https://bitcointalk.org/index.php?topic=286536.msg3354194#msg3354194

Pedantically correct.

Mathematically correct. It is an often misunderstood concept and conflating the reasons for the necessity of an expanding supply is not helpful to your line of argument.

Disagree, because the math also applies to the fact that larger capital can't do what smaller capital can. Any way, we agree on the point and we are arguing only semantics.

The large wealth can't seek out those little hydropower streams all over the world, because the economy-of-scale is too small for them.

This presumes that hydropower streams are somehow the end-all be-all for efficient energy production. It also ignores the very significant hardware aspect of the equation. Square peg, round hole.

I trust human ingenuity and the fact that smaller capital can do things which larger capital can't.

I think the main problem is the central bank (actually the triumvirate) which erases the gains smaller capital make against larger capital. Right now, the G20 is collecting data on all the millionaires so it can destroy them. Bitcoin is probably a honeypot helping them to do this.

Do you have a better solution that is tied to the effort and ingenuity of humans and not just a Marxist redistribution scheme?

Yes.

I know how to implement what was proposed in this thread within probably 3 to 6 months. You would be well served to implement, and not talk.

And I am about done with talking. Decision time.

[AnonyMint]

The simple fact is that most people who believe in Bitcoin-type technology also believe in Austrian principles. If you want to put so much stock into surveys then you must accept the fact that most of us prefer a limited money supply.

The only logical reason for perpetual debasement is to keep the value of the coins stable, but it is extremely difficult to achieve this because the value of the coin isn't just a function of the total money supply.

...

What you are basically saying is that people shouldn't be allowed to save their money and hope it goes up in value, which is obviously not the spirit of cryptocurrency.

No money has a constant value unless everyone uses it as their unit-of-account and thus no exchange-value needs to be considered:

http://armstrongeconomics.com/2013/08/24/14007/

Thus maintaining a constant money supply doesn't guarantee deflation, unless it is everyone's unit-of-account, but in that case deflation leads to repulsion to investment, because why should I risk my capital when it is always increasing in value if I just bury it in a hole. But then production declines due to lack of investment and you get stagflation with deflation of production. Then why should I invest if the economy is declining. Sound familiar? (it is happening right now) It is a downward spiral that can lead to a Dark Age, if society doesn't confiscate the gold and create inflation (by devaluing gold) as FDR did to save us from a Dark Age. That is not to say I like the outcome of the New Deal socialism, but I am saying that if rational (Arlyn Rand self-interested) capitalists have their way, we end up in Dark Age.

It is really the high tech sector that always saves society from ruin. We always invest our brains, because we are bored otherwise.

(note wrote the above very sleepy, so may not make complete sense)

[AnonyMint]

bitfreak! I want to apologize for crashing in on your thread. I think the Mini-blockchain is absolutely required for a Bitcoin future that isn't dominated by cartels doing the mining (but it is not alone sufficient to prevent the cartels).

Let me summarize where this ended up for me.

1. Mini-blockchain by itself is not sufficient to drive adoption a new altcoin. Users get more excited about features that put coins in their pocket, than solving future scaling problems.

2. Economics of debasement (i.e. money supply inflation) is not well understood. However, without perpetual debasement, the mining of PoW will end up with cartels. However, many will disagree on these points, so it is very difficult to get any sort of consensus agreement.

The key to understanding the economics of debasement is that money supply inflation always goes to workers salaries[1], so it is not a problem. The theft that occurs with fractional reserve banking is mainly by periodically confiscating the capital of the population with an economic implosion and a reset of the currency, e.g. bank failures in a fractional reserve system or the coming bail-ins and retirement account nationalizations for G7 nations. And without perpetual debasement, you must have fractional reserve banking, because of the logic Etlase2 and I discussed upthread.

An economy can't run properly without perpetual debasement because then capital never has to move (because it never rots), it can just sit in a hole forever. Nothing in the universe is forever, so to structure capital to be forever introduces abnormality that can't be.

[1] A more direct link to the math, https://bitcointalk.org/index.php?topic=160612.msg2895021#msg2895021

[digitalindustry]

Anonymint.

First I agree in degrees there is nothing wrong with an expansion of the money supply , to fit the normal balance of trade and production of the citizens therein. 

Where I think you misunderstand is the relationship between "interest" and debt.

You make a blanket assumption that all currency must expand because of the principal of interest ?

This is not the case , and its important that we dont confuse this basic principle , interest can be a justification for risk on an investment , this is just a transfer mechanism , nothing to do with net currency expansion .

The reason all economic activity is grinding to a halt is of course because all currency is  issued as debt , then by extension expanded with " credit creation" .

There is more debt than currency , understand ?

This by extension and purpose filters , energy productive capacity back towards the top of that pyramid friend .

If citizens humans for examples,  stopped getting into debt , and stopped borrowing further into debt , nearly all currency velocity would freeze and the world would grind to a halt .

This would be called a deflationary spiral.  This is what everyone fears .

Of course BTC is fantastically centralized , they are relying in that very thin principal of paying off the right people , I dont think its a viable economic infrastructural design.

But roll with it while its working .

The reason the fed balance sheet is tbe number it is , is due to the fear that people individual and businesses are at thier debt limit.

Thus all currency velocity can freeze .

[digitalindustry]

Id like to add that there is nothing inside the human dna that is compelling them towards rising prices , or away from dropping prices .

This is purely a market mechanism .

Having said that im not a proponent of the "gold standard" simply because of its manny other flaws .

Furthermore having said that , though,  I dont personally own 1 to 2000+ nuclear weapons so I wont be in the decision making process for this in the future .

Id say the Nations that do will be .

Still a srict gold type standard would net net be more equitable for most people across the world including by extension "westerners" than the present situation , so when you stand back and think about it , what are we doing ?

The trend is not on an improvement slope , I think everyone agrees. 

[digitalindustry]

"Thus maintaining a constant money supply doesn't guarantee deflation, unless it is everyone's unit-of-account, but in that case deflation leads to repulsion to investment, because why should I risk my capital when it is always increasing in value if I just bury it in a hole. But then production declines due to lack of investment and you get stagflation with deflation of production. Then why should I invest if the economy is declining. Sound familiar? (it is happening right now) It is a downward spiral that can lead to a Dark Age, if society doesn't confiscate the gold and create inflation (by devaluing gold) as FDR did to save us from a Dark Age. That is not to say I like the outcome of the New Deal socialism, but I am saying that if rational (Arlyn Rand self-interested) capitalists have their way, we end up in Dark Age"

You said you were tired when you wrote this ?

Then that is understandable,  be careful not to fall into someone elses narrative , humans are by extention :

1. Sociable
2. Productive

If capital was in a hole gaining money , some human would be in the hole throwing the extra out the sides , in fact they would invent a way to throw it out .

The point is as long as there are enough units to meet and exceed production and trade , largely the market will balance .

The division of units inherent in the crypto principal needs to be looked at in respect to actually points you yourself brought up and i will credit you with in regards to the fee structure centralization. 

So there are things to look at in this regard .

[AnonyMint]

...

The key to understanding the economics of debasement is that money supply inflation always goes to workers salaries[1], so it is not a problem. The theft that occurs with fractional reserve banking is mainly by periodically confiscating the capital of the population with an economic implosion and a reset of the currency, e.g. bank failures in a fractional reserve system or the coming bail-ins and retirement account nationalizations for G7 nations. And without perpetual debasement, you must have fractional reserve banking, because of the logic Etlase2 and I discussed upthread.

An economy can't run properly without perpetual debasement because then capital never has to move (because it never rots), it can just sit in a hole forever. Nothing in the universe is forever, so to structure capital to be forever introduces abnormality that can't be.

[1] A more direct link to the math, https://bitcointalk.org/index.php?topic=160612.msg2895021#msg2895021

Where I think you misunderstand is the relationship between "interest" and debt.

You make a blanket assumption that all currency must expand because of the principal of interest ?

We are getting off-topic of this thread, and I don't have any strong disagreements with the rest of what you wrote. However, let me clarify this one point. I agreed with Etlase2 that in theory interest could simply be transferred, if not everyone is in debt, but mathematically it can't occur. I provided two orthogonal (to each other) reasons for the mathematical certainty that interest requires an expanding money supply:

1. If all base money is earning an interest, then the base money supply must expand, otherwise there doesn't exist enough base money to pay the interest.

2. Those who earn the interest are wealthy, and only spend a fraction of their passive income, thus they don't transfer it back to those who are paying interest. Thus, it is a mathematical certainty that eventually all of the money supply will be transferred to them, if we don't debase the money supply.


Note that with central bank control, the most wealthy and powerful debase the money supply sufficiently to destroy those earning interest (current ZIRP), and pass the debasement to themselves. These periodic resets are how they take all the interest that was aggregated by moderately wealthy who are less powerful including the disposable banking corporations. A grotesque racket.

[AnonyMint]

...

The key to understanding the economics of debasement is that money supply inflation always goes to workers salaries[1], so it is not a problem. The theft that occurs with fractional reserve banking is mainly by periodically confiscating the capital of the population with an economic implosion and a reset of the currency, e.g. bank failures in a fractional reserve system or the coming bail-ins and retirement account nationalizations for G7 nations. And without perpetual debasement, you must have fractional reserve banking, because of the logic Etlase2 and I discussed upthread.

An economy can't run properly without perpetual debasement because then capital never has to move (because it never rots), it can just sit in a hole forever. Nothing in the universe is forever, so to structure capital to be forever introduces abnormality that can't be.

[1] A more direct link to the math, https://bitcointalk.org/index.php?topic=160612.msg2895021#msg2895021

Where I think you misunderstand is the relationship between "interest" and debt.

You make a blanket assumption that all currency must expand because of the principal of interest ?

We are getting off-topic of this thread, and I don't have any strong disagreements with the rest of what you wrote. However, let me clarify this one point. I agreed with Etlase2 that in theory interest could simply be transferred, if not everyone is in debt, but mathematically it can't occur. I provided two orthogonal (to each other) reasons for the mathematical certainty that interest requires an expanding money supply:

1. If all base money is earning an interest, then the base money supply must expand, otherwise there doesn't exist enough base money to pay the interest.

2. Those who earn the interest are wealthy, and only spend a fraction of their passive income, thus they don't transfer it back to those who are paying interest. Thus, it is a mathematical certainty that eventually all of the money supply will be transferred to them, if we don't debase the money supply.


Note that with central bank control, the most wealthy and powerful debase the money supply sufficiently to destroy those earning interest (current ZIRP), and pass the debasement to themselves. These periodic resets are how they take all the interest that was aggregated by moderately wealthy who are less powerful including the disposable banking corporations. A grotesque racket.

This is why they are going after the millionaires now, to confiscate (via their control of the government) what was aggregated since the last reset 1929 - 1955. This reset is 2007 - 2033. Every 78 years (3 x 26 reproductive maturity generations).

You have to Think Like a Bankster to understand how the globalists play the game:

http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html

You see what Merkel did as soon as she was re-elected to her lame duck term, she cooperates to supra-nationalize the German banks to transfer control to the EU (Brussels), where the most wealthy and powerful have even more control:

http://armstrongeconomics.com/2013/09/26/one-day-after-german-elections-truth-comes-out/

http://armstrongeconomics.com/2013/10/20/growing-concern-about-the-federalization-of-europe/

http://armstrongeconomics.com/2013/10/14/european-banking-crisis-seizing-10-of-everyones-accounts-hello-cyprus/

[digitalindustry]

We are getting off-topic of this thread, and I don't have any strong disagreements with the rest of what you wrote. However, let me clarify this one point. I agreed with Etlase2 that in theory interest could simply be transferred, if not everyone is in debt, but mathematically it can't occur. I provided two orthogonal (to each other) reasons for the mathematical certainty that interest requires an expanding money supply:

1. If all base money is earning an interest, then the base money supply must expand, otherwise there doesn't exist enough base money to pay the interest.

2. Those who earn the interest are wealthy, and only spend a fraction of their passive income, thus they don't transfer it back to those who are paying interest. Thus, it is a mathematical certainty that eventually all of the money supply will be transferred to them, if we don't debase the money supply.


Note that with central bank control, the most wealthy and powerful debase the money supply sufficiently to destroy those earning interest (current ZIRP), and pass the debasement to themselves. These periodic resets are how they take all the interest that was aggregated by moderately wealthy who are less powerful. A grotesque racket.

Hmmmm.

Ok , well simply do this as an exercise , seperate the production and the currency .

If one does this , you will note that point 1 is redundant as there is no need for most of the people or even many of the people to be paying interest , interest is a payment for risked capital used for productive expansion.

Correctly viewed , it bears no relation to monetary expansion .

The rest I cant comment on except to say , the current scam we have operating of course all relates to issuance .

In case im not being clear issuance issuance issuance issuance issuance .

Did I mention the issue is with the manner of the issuance of the monetary supply ?

Once this is understood everything becomes much clearer. 

[digitalindustry]

Hey I want to stay on topic as much as the next freedom loving debt ridden  wage slave ...

[Etlase2]

1. If all base money is earning an interest, then the base money supply must expand, otherwise there doesn't exist enough base money to pay the interest.

Along the same lines as I mentioned earlier, this is not accurate. One base unit of currency on average can be used to pay off more than one debt unit if the velocity of money is high enough. The problem is that it is only a matter of when the velocity will drop from previous levels and necessitate a slew of bankruptcies as lots of credit/debt money disappears, and a cycle of economic recession starts. This doesn't only affect FRB, it affects a rigid gold standard (lol) too because then instead of not lending debt digits, you're hiding gold under the mattress. If you're rich and want to stay that way, you play scared. The Fed nowadays tries to fix this by offering cheap money, etc. it always ends up being a handout to the people who got us into this to get them out of it unscathed while everyone else suffers.

Bitcoin would work even worse because you can't dig up more bitcoins than allotted, so there is nothing coming from anywhere to spur new economic activity. It won't work this way in practice though (the "deflationary spiral") because people will just switch to a clone or back to fiat. The bitcoin wiki probably still says something along the lines of "it won't happen because the rich will buy stuff".

2. Those who earn the interest are wealthy, and only spend a fraction of their passive income, thus they don't transfer it back to those who are paying interest. Thus, it is a mathematical certainty that eventually all of the money supply will be transferred to them, if we don't debase the money supply.

It's only a certainty under certain conditions. The wealthy play the game that has been passed down to them over the generations. But with a couple simple variable tweaks, you could totally change that game. For example, the idea behind demurrage and Freicoin, where money has a carrying cost, ergo not durable. I don't think it has a shot of working considering that it will (probably) never be legal tender, but if it were, the game would be played much differently.

Regardless, if all base money is earning interest and there is a fixed supply in a real world scenario, it can still work, it just involves a lot of bankruptcies in lieu of an expanding supply. Banks would find some equilibrium between bankruptcies and interest rates to be where the most profitable position is. Of course, when they fuck up, as they always will, the bankruptcies will increase significantly for some time. Bankruptcies in general are not good for anyone including the rich, so the tightly controlled system of inflation we use today is preferable. Without government spending of bitcoin to put money into motion and with more than half in the hands of the tiniest of percentage of the world's population, the trail to bitcoin adoption (or any deflationary money similar to it) can only be littered with bankruptcy.

[AnonyMint]

1. If all base money is earning an interest, then the base money supply must expand, otherwise there doesn't exist enough base money to pay the interest.

Along the same lines as I mentioned earlier, this is not accurate.

My statement is accurate because velocity can't continue to increase forever.

People can only transact so fast, because it is assumed there must be some service or good provided.

This spiral demand is why at debt bubble peaks (probably circa end of 2015, with a possible extension to 2017 or so), everyone is running around like a chicken with head cut off, trying to move faster and faster, and there is massive misallocation of resources because of the race to transact faster thus sacrificing quality of (or rational necessity) of services and goods. (This is the Mises Crackup Boom)

You will see this race in the developing countries now. They are literally not sleeping, they are moving so fast to spend all the debt being pumped in.

Foreign Policy described this as "globalization":

http://www.foreignpolicy.com/articles/2001/09/01/will_globalization_go_bankrupt

Real Estate bubble is now spreading to where ever it wasn't already:

http://armstrongeconomics.com/2013/10/04/real-estate-boom-in-switzerland-singapore-elsewhere/

One base unit of currency on average can be used to pay off more than one debt unit if the velocity of money is high enough. The problem is that it is only a matter of when the velocity will drop from previous levels and necessitate a slew of bankruptcies as lots of credit/debt money disappears, and a cycle of economic recession starts.

You are referring to the Quantity Theory of Money and the summary equation:

M x V = P x Q ≈ GDP

Correct. Velocity can't increase perpetually, thus eventually base money supply has to increase or bankruptcies must ensue, which is where the world is now (final peak inflection point is 2015 - 2016 probably).

This doesn't only affect FRB, it affects a rigid gold standard (lol) too because then instead of not lending debt digits, you're hiding gold under the mattress. If you're rich and want to stay that way, you play scared.

You are saying that hoarding gold collapses the velocity, and yes velocity is down -50% since 2007:

http://armstrongeconomics.com/2013/10/20/they-are-calling-it-a-collapse-in-capitaism/

http://armstrongeconomics.com/2013/10/10/deflation-inflation-stagflation/

Note we didn't have a rigid gold standard ever. These were always fractional reserve systems, e.g. the private banks in the USA in 1800s. The rigid gold system occurs as the people run from the debt collapse into gold and bury it which can end up in a Dark Age:

http://armstrongeconomics.com/2013/10/21/what-about-gold-hoarding-the-reserve-dollar-status/

http://armstrongeconomics.com/2013/10/16/destroying-the-world-economy/

http://armstrongeconomics.com/2013/10/10/g20-meeting-to-raise-taxes/

http://armstrongeconomics.com/2013/10/10/obamacare-another-nsa-spying-on-citizens/

http://armstrongeconomics.com/2013/10/07/how-empires-nations-city-states-die-we-seem-to-be-right-on-schedule/

http://armstrongeconomics.com/2013/09/27/so-what-does-the-future-hold/

http://armstrongeconomics.com/2013/09/26/one-day-after-german-elections-truth-comes-out/

The Fed nowadays tries to fix this by offering cheap money, etc. it always ends up being a handout to the people who got us into this to get them out of it unscathed while everyone else suffers.

Agreed as I wrote upthread, the central banks debase in ways that aid the controllers of the goverment, i.e. the most rich and powerful:

http://armstrongeconomics.com/2013/10/16/fed-balance-sheet-lack-of-oversight/

Bitcoin would work even worse because you can't dig up more bitcoins than allotted, so there is nothing coming from anywhere to spur new economic activity. It won't work this way in practice though (the "deflationary spiral") because people will just switch to a clone or back to fiat. The bitcoin wiki probably still says something along the lines of "it won't happen because the rich will buy stuff".

Very much agreed, except the switch may be to the new official digital currency offered by the powers-that-be after this current crisis ends 2033. Investors will want to buy government bonds then to recapitalized the destroyed global economy, since they will be paying say 18% or so. The official money will be the only way to do that,...

...unless we create a better decentralized currency before that, which a significant portion of society adopts and which wrecks havok on the plans of the powers-that-be.

2. Those who earn the interest are wealthy, and only spend a fraction of their passive income, thus they don't transfer it back to those who are paying interest. Thus, it is a mathematical certainty that eventually all of the money supply will be transferred to them, if we don't debase the money supply.

It's only a certainty under certain conditions. The wealthy play the game that has been passed down to them over the generations. But with a couple simple variable tweaks, you could totally change that game. For example, the idea behind demurrage and Freicoin, where money has a carrying cost, ergo not durable. I don't think it has a shot of working considering that it will (probably) never be legal tender, but if it were, the game would be played much differently.

Regardless, if all base money is earning interest and there is a fixed supply in a real world scenario, it can still work, it just involves a lot of bankruptcies in lieu of an expanding supply.

And bankruptcies mean increased government as a share of GDP, because everyone wants the government to protect them from every bad outcome. And this is precisely what has happened:

http://grandfather-economic-report.com/#govt (see charts at first sublink comparing 1910 to today)

http://armstrongeconomics.com/2013/10/01/what-socialism-destroyed-govt-shutdown

http://armstrongeconomics.com/2013/09/30/debt-pension-crisis-fuel-behind-a-stock-rally/

Banks would find some equilibrium between bankruptcies and interest rates to be where the most profitable position is.

Nothing in the universe operates as a flat-line equilibrium. Nature is always oscillating (wave-like) in nature.

Refer to the relevant linked sections of my two blog articles to better understand the physics of the universe and why it MUST BE THAT WAY else nothing at all would exist. A flat-line is no-contrast, no-knowledge creation, not-alive:

http://unheresy.com/Information%20Is%20Alive.html#Knowledge_Anneals

http://unheresy.com/The%20Universe.html#Matter_as_a_continuum

See also explanation of waves in markets:

http://armstrongeconomics.com/2013/10/13/defeating-the-business-cycle-a-goal-for-thousands-of-years/

http://armstrongeconomics.com/2013/10/16/from-ireland-the-key-to-everything/

http://armstrongeconomics.com/models/7219-2/

http://armstrongeconomics.com/2013/10/04/manipulations-exceptions-one-dimensional-thinking/

Of course, when they fuck up, as they always will, the bankruptcies will increase significantly for some time. Bankruptcies in general are not good for anyone including the rich,

Bankrupties are bad for the middle rich, but wonderful for the most rich and powerful who control the government, because the control of the government and the central bank manipulations increase during every debt crisis:

http://armstrongeconomics.com/2013/10/16/ghost-companies-on-the-radar/

http://armstrongeconomics.com/2013/10/14/european-banking-crisis-seizing-10-of-everyones-accounts-hello-cyprus/

http://armstrongeconomics.com/2013/10/10/g20-meeting-to-raise-taxes/

http://armstrongeconomics.com/2013/09/30/they-are-officially-eyeing-up-pensions/

"Never waste a good crisis" - various politicians and treasury officials

so the tightly controlled system of inflation we use today is preferable. Without government spending of bitcoin to put money into motion and with more than half in the hands of the tiniest of percentage of the world's population, the trail to bitcoin adoption (or any deflationary money similar to it) can only be littered with bankruptcy.

Eventually Bitcoin has to fail. Agreed. For numerous reasons. And that failure might be the opportunity for the governments to morph it in the next fiat digital currency which they control. That the Bitcoin mining can be so easily cartelized and is designed (whether intentional or not) to go that direction, is very relevant to this thread. As I have explained upthread.

[Etlase2]

Correct. Velocity can't increase perpetually, thus eventually base money supply has to increase or bankruptcies must ensue, which is where the world is now (final peak inflection point is 2015 - 2016 probably).

It's all about the change in velocity compared to the change in debt. Obviously we can't eliminate bankruptcy unless we eliminate debt, and that is a problem I do not think is trying to be solved yet. So the issue is how to minimize the eventual bad result of a velocity/debt change. A fixed supply of currency is probably the worst case scenario anyone could come up with (mayyybe second worst to modern government fiat), but it can function without an expanding supply.

Nothing in the universe operates as a flat-line equilibrium. Nature is always oscillating (wave-like) in nature.

Of course, the finer points are the amplitude and the duration, as I was getting at with that post.

[AnonyMint]

So you are thinking (in the mathematical abstract, although you may not have specifically modeled as a differential equation) in terms of a differential equation model (e.g. for your Decrits altcoin design) where you control the Q (damping factor) to optimize oscillation resonance (i.e. outcomes)?

We can't stop velocity and debt overshoot and the downwave bankruptcies, but we can accomplish three improvements with the improvements I suggest for Mini-blockchain + perpetual debasement PoW:

1. Remove the most obvious design flaw(s, both reducing blockchain overhead and 0% transaction fee, c.f. upthread for detailed explanations) that makes it easy for cartels to control mining.

2. Remove centralized control over the perpetual creation of money, thus reduce the ability to use crisises to reward those who control the government.

3. Make it very difficult for those who lend to be backstopped by insurance (and thus implicitly by the government) and thus they have to go bankrupt more frequently thus keeping bubbles small and more frequent, also preventing them from aggregating too much capital (they then have to deal with the economy-of-scale of small risk differences for each loan). One way this happens is if the coin eliminates the ability to tax. So there isn't any funding for collective insurance. Because realize that private insurance MUST always fail (another math to discuss) so public bailouts are inevitable. There are other points I could make on this...

Readers (I know Etlase2 knows this), please realize I am not talking about eliminating investors-at-risk from aggregating capital, i.e. I am not anti-capitalism. Rather I am saying that loaning money to anyone with a heartbeat is a low-knowledge activity that should not be backstopped by the public (government + insurance).

You can see that taxes (government) and insurance (along with inflated real estate prices by giving everyone with a heartbeat a 30 year mortgage which pulls 30 years of future demand into the present radically raising prices) are the major reason western countries are more expensive than developing countries which don't have high government as a percent of GDP, don't have well developed insurance industry, and don't have high debt levels as of percent of GDP:

http://www.thaivisa.com/forum/topic/677362-whats-your-monthly-cost-to-live-in-thailand/

http://grandfather-economic-report.com/#govt

http://www.heritage.org/index/explore (sort by "Govt Spending")

http://www.gfmag.com/tools/global-database/economic-data/11855-total-debt-to-gdp.html
(Total Debt, which is more accurate)

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
(Public Debt, which misses much of the debt in countries such as China)

http://en.wikipedia.org/wiki/List_of_countries_by_future_gross_government_debt
(Future Public Debt, captures some of the rises in debt coming, yet misses many of classes of debt and contagion effects coming)

[Etlase2]

3. Make it very difficult for those who lend to be backstopped by government

I would say that this is a property offered by almost any decentralized currency. Though there is the issue of mining cartels potentially replacing the government's role here, but I think the likelihood will be significantly reduced simply because cryptocurrency is open source, and the proletariat is now capable of fighting back with another currency which will be many magnitudes easier to adopt once one is already in place. This is a drastic option though. And if outside (hashing) power is used to control security and all money entering the system, it will be difficult to start a fledgling currency. If you separated security and mining, and made mining profitable for only short periods of time, you might be really on to a solution to this problem. *cough*

One way this happens is if the coin eliminates the ability to tax.

I don't think that this is as necessary as you think. Without being able to print money at will, the governments of the world will have to tell the world that they intend to take your productivity from you, not take it like a thief in the night with no one noticing via inflation. Imagine if Americans started seeing their salaries cut by half or more to fund wars for oil or to bail out wall street.

[AnonyMint]

3. Make it very difficult for those who lend to be backstopped by government

I would say that this is a property offered by almost any decentralized currency. Though there is the issue of mining cartels potentially replacing the government's role here, but I think the likelihood will be significantly reduced simply because cryptocurrency is open source, and the proletariat is now capable of fighting back with another currency which will be many magnitudes easier to adopt once one is already in place.

I disagree. Bitcoin appears to me to be very taxable because it is not anonymous the way most non-experts apparently transact with it (judging from cursory summaries from published research of actual blockchain). All those (non-experts, who are not well studied on how to anonymize every aspect) who have transacted in Bitcoin may have a nasty surprise coming from the G20 after some years the government will present proof obtained from the NSA (and respective agencies in other countries), of their transactions and a huge tax bill with penalties and interest for not reporting capital gains (and required wealth report for Europeans, including expats). One can posit that the powers-that-be are letting Bitcoin honeypot go on for now to lay the entrapment.

And the data mining intelligence agencies also likely know who has gold and silver too. Most readers don't realize how data from their phone calls, SMS text messages, emails and internet usage, driving patterns, mailing patterns, credit card and banking records, etc. can be cross-correlated. Here is the expert:

https://www.schneier.com/essays-privacy.html

Also they can make it very difficult to sell your gold and silver later without revealing identity. People say there are always black markets, but that was before automated face recognition algorithms (Facebook uses one to identify you in your friend's photos), putting a camera on every light post, a tracking device in every smart phone and car's computer. Hitler and Stalin only dreamed they had the tracking capabilities that exist now.

Of course the bankrupt government will track down all the money they can that they think is owed to the government, and tack on criminal penalties to teach others not to try to circumvent the monopoly power of the government.


---------Definition of Government---------------
http://esr.ibiblio.org/?p=5044&cpage=1#comment-411923

Well, yes. I would say that. Governments are based on the threat and use of force, up to and including the killing and inevitable murder of the people they claim to be the governing.

This isn’t merely a contingent property of government, it’s the essential one. Read your Max Weber: a government is, definitionally, an organization which claims a monopoly on the legitimate use of physical force (thus, a monopoly on legal murder). Political science has failed to improve on this definition since it was proposed in 1919.

------------------------------------------------

And replacing a well established currency is impossible, because the masses are not enlightened AND NEVER WILL BE (is a few 1000s years of history not enough proof of human nature?). Ask all those who have tried to compete with fiat.

You get one chance to make a popular decentralized currency that can't be co-opted by the powers-that-be. After they institute the new fiat digital currency (or currencies) after this crisis, there is NO MORE CHANCE. That is the end game for current human civilization.

666 (i.e. we go into another 600 year Dark Age)

This is a drastic option though. And if outside (hashing) power is used to control security and all money entering the system, it will be difficult to start a fledgling currency.

Yup. And as about as probable as the moon hitting the earth.

If you separated security and mining, and made mining profitable for only short periods of time, you might be really on to a solution to this problem. *cough*

When that solution is available in comprehensible open source code and eloquently explained, that might be a preferred alternative to my proposal to at least perpetually fund PoW with debasement and to make the PoW not run faster on GPUs and ASICs (many doubt this is possible due to Litecoin's and Yacoin's Scrypt failures (update), but what if someone shows it is possible?).

One way this happens is if the coin eliminates the ability to tax.

I don't think that this is as necessary as you think. Without being able to print money at will, the governments of the world will have to tell the world that they intend to take your productivity from you, not take it like a thief in the night with no one noticing via inflation. Imagine if Americans started seeing their salaries cut by half or more to fund wars for oil or to bail out wall street.

Obama is saying now he will raise taxes, and the majority are cheering him on "to tax the rich" and give them free everything from the government. Ditto Europe, which taxes at double the Laffer limit. Spain even taxes sunlight, and France forces you to continue to run your company at a loss to pay for workers and health insurance, against your wishes to shut down the company before you deplete all your capital. Next logical step of the progression is they may force citizens to increase your (personal or corporate) debt to sustain operation of your loss making company.

There is an Iron Law of Political Economics (from Rancur Olsen's research):

http://esr.ibiblio.org/?p=984

Basic problem is that everyone has an incentive to just suck from the collective and as this gains momentum it becomes impossible to keep any prosperity without the collective destroying it, thus at the end game everyone is sucking everyone, which often means genocide.

This is why this is a such an intractable problem, because eliminating taxes basically means war, because it will dismantle most of what people currently think society should be.

That is why I posit that any long-term successful decentralized coin effort is going to have to first win a war against society.