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Author Topic: Inflation and the end of 50 BTC per block (from technical discussion)  (Read 5194 times)
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Mike Caldwell
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December 16, 2010, 12:00:29 AM
 #1

Multiple replies to multiple comments.  This original thread was in the technical section at http://bitcointalk.org/index.php?topic=2252.0, I thought to reply as a new thread in economics because that seemed more on topic.  As it says to the left, I am a newbie, so even though I have made fairly pointed suggestions, if I've made them in the context of not properly understanding the way this nifty system works, or I've failed to notice where some of this stuff has already been hashed out in detail in some other thread, please feel free to put me in my place!

Quote from: creighto
The max block size is not imposed by fiat, but by agreement to a convention.  You could change that in your client right now and produce blocks just fine, but unless at least 50% of generators agree with you, whenever your client produces a block that defies this agreed convention it will be ignored by those who do.


By fiat, I don't mean to suggest that someone dictated it with an iron fist.  But I do mean to point out that it makes the currency dependent on a central authority.  Sure, it is open source, but it is meant to benefit humankind, not just developers... over 99.9% of its users will have no clue how to participate in the management of this convention, which at this point appears to be designed to require it.

Wouldn't it make sense to change the convention to something that will automatically cope with growth, much like the difficulty system adjusts to new computational pressure?  With a hard limit like this, the threshold at which it suddenly grinds reliable transaction processing to a halt at a reasonable price (until everyone upgrades their client at the direction of the developers) will, in all likelihood, be exactly at the moment where it sees a viral surge in new popularity that suddenly brings it past that point and to its knees.  That may bring it a lot of unnecessary questioning and criticism by the public and the media, particularly about just how truly viable and independent it is.

I have read repeatedly that the achilles heal of Bitcoin is that 50% CPU threshold.  I have never heard of another one I believe might exist - the possibility that the Bitcoin community gets very large, and then has factions, the block chain forks, and the system crumbles in the face of FUD while two or more camps argue which leg is correct (sort of like a country that started out with a Constitution or a religion that started out with a Bible or Koran and now has two large factions eternally asserting their particular interpretation of it).  Two religious factions can go their own way and live their own separate lives on separate lands, but if they must trade while they can't agree on what constitutes the existence of money, the money may as well not exist.  If Bitcoin is in its "constitution" phase, I would submit that the time to address something like this is now.

Quote from: creighto
Yes there are such market forces, at least there will be once the rate of transactions is averaging over 50KB per block.  Some fees are voluntary, but increase your priority, allowing your transaction to be processed in a timely manner.  There are numberous cases in real life wherein a delay of a couple of hours is unacceptable, and it would be worthwhile to tack on a transaction fee of .02 bitcoin in order to jump the line of freebies.  If you are tyring todonate to a cause, or just moving funds around between multiple clients of your own (working client to a savings client, for example) then you can probably wait a few hours, or a few days, for the transaction to get processed at the network's own convience.  Buying a car, however, would likely justify the fee for speed.

That requires an assumption that the rate of transactions will be sometimes above 50 KB per block, and sometimes under.  That's a pretty narrow line.  What about the point where it is always over 50 KB?  Then it will always cost money - possibly substantial money - just to use money, making it very different from cash.  No one will want to receive Bitcoins without any guarantee that they're actually going to receive them anytime soon, there will be lots of uncertainty while recipients wonder if they will ever receive that payment they were sent, there will be lots of unusable bitcoins tied up in limbo because their recipients can't safely spend them, there will be lots of recipients who demand that their transactions be accompanied by an X fee to assure prompt posting, where X is a number that escalates indefinitely until an equilibrium is achieved between growth versus people get frustrated and decide to abandon the system.

At some point it's reasonably necessary to match the transaction volume with the capabilities of the system - if I buy a soda, and 10 million nodes must each exchange and store 210 bytes (total 2.1 GB system-wide for my soda) that's admittedly impractical, especially when 10 million other people might be buying a soda too.

At a volume like that, Bitcoins would become no longer useful for trivial stuff like lawn mowing or MMORPG equipment, and become more like wire transfers (where the fees make impractical all but the largest transactions), until some sort of mechanism (like a distributed hash table or "supernode" hierarchy) were put in place to cull the noise arriving at every node.

If Bitcoin has aspirations of being a real currency that can survive the evils of governments, it's perhaps best not to consider it a long term solution as a way to pay for swords in games and micropayments.  The way it looks to me, it doesn't look like it could sustainably serve large and small commerce at the same time.  Short of an overhaul, it would have to pick one - and if I understand its goals correctly in the big picture, it will do the world more good for the big things rather than the small.

Quote from: creighto
I think that you misunderstand the point of decentralization in the context of currency.  It's not the idea of a bank that is the problem, but the monopolies that cnetral banks have in our modern world.  Bitcoin banks will likely exist before very long, as Mybitcoin.com and Mtgox.com already offer some of the most important functions of a bank, but none of them can manipulate the system to their own advantage over any other peer, be they a user or another bank.

That is true only because Mybitcoin.com and Mtgox.com do not collectively control more than 50% of the CPU power on the network.  I assume things would be different if they did.  This is the thought that leads me to advocate for the maximum incentive for average Joes to keep generating blocks.

Quote from: creighto
Those two incentives are not equivalant, transaction fees do not affect the value of all other bitcoins held by others.  Increasing the monetary base does.

The risk of having the entire network usurped by an adversary as a result of not incentivizing users to throw all the CPU power they can at the network is potentially material to the value of all bitcoins in the system.

An increase to an economy's monetary base isn't intrinsically bad - it's only bad when it substantially exceeds the increase in size of the economy's capacity for production.  The opposite on the other hand, deflation, which occurs when output grows faster than the money supply, has got to be at least as destructive to preservation of value, when it leads people to hoard coins speculatively, and when that in turn leads to bubbles and wide swings of volatility.  I guess it depends on what purpose the currency was being minted for.  Unless bitcoins are meant for long-term saving, I am suggesting that zero inflation isn't automatically a good thing.

Further, if permanent slow inflation is allowed explicitly for one purpose (supporting miners), then by participating in distributed mining, anyone can offset their inflation losses by contributing their fair share of the distributed mining.  In doing so, they're compelled to contribute their CPU, which strengthens the network as a whole, and unlike investing fiat currencies to combat unpredictable inflation, their payout would be more or less predictable (and always positive).

Quote
I think the wisdom is that a declining pay out for discovering new blocks closely models currencies based on commodities (gold, silver, etc).  The profit margins on gold mining are much lower now than they were 100 years ago, when one only needed a river and a pan.  Gold mining is still possible, but it requires a substantial capital investment (buying "GPUs" so to speak).  Such commodities have proven to be useful currencies over the last couple thousand years.  It seems like a prudent model for a new currency.

One danger not applicable to gold and silver, is that all of the mining companies in the world can't just get together and decide to change the fundamental physical properties of the metals they are looking for.  They can't suddenly agree that gold is now twice as abundant today as it was yesterday, or that its atomic number is now +10 what it was before.  But if they control more than half the CPU power being used for mining, it seems they could have quite a bit of influence over the fundamentals of bitcoin.

Quote
First, the day that comes that a reward is zero is beyond our lifetimes, and only a theoretical issue to us.  Second, the priorities system gives more priority to transactions that pay a higher fee.  So the blocksize limit, whatever it is in the future, functions as artifical scarcity as well as limit the bandwidth/storage consumption of the network.  If Bitcoin were to become as regularly used as Paypal, even a 10 meg top limit is likely to delay transactions of the smallest fee, creating a natural market price for the value of a near term transaction.  A future client can look at the most recent several blocks, and produce an average transaction fee recommendation for a user to get his transactions processed in a timely manner.  This premium on speed will likely be in constant flux.

Perhaps we should consider a "flushing block" every so often, wherein the top limit is uncapped for that single block, to allow all persistant transactions to clear.  This could be done once every retarget, permitting the network to catch up, so that even free transactions have a high end limit of two weeks of wait.

If Bitcoin were to become as regularly used as Paypal, and the influx of 10 megs every few minutes (along with the outflow relaying it to other nodes) were a reality, I and presumably many others would not be able to sustain it on our internet connections.  It would suffer the same fate as the first revisions of Gnutella where the network was crushed under the weight of every search being propagated to every node, until the system were re-engineered to work in a more hierarchical fashion.

The way I understand it, a flushing block would defeat the purpose of a block limit, which I understand mainly to be spam prevention.  IF a transaction is going to end up on a later block anyway, what reason does there exist to stop it from going on a block generated now?

Quote
Right now everyone who generates leaves it on all the time. When a block is found they keep right on going because they are after the 50 and there is another 50 for the next block. When the reward is 0 everyone will likely stop after a block is found and wait for a fee transaction to show up. If the fee is worth the average power it will take to get it then they turn on, else they wait for more fees to accumulate. If generators are not finding it worth it to solve the block in an average of 10 minutes then the difficulty will drop until they do. 

If that becomes the status quo, the way it looks to me, that's a gift to anyone who wants to attack the network.  Anything that gives "good" block generators (as opposed to "evil" ones) an incentive to stop trying to generate blocks is something that appears to me would weaken the network as a whole.



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December 16, 2010, 01:21:26 AM
 #2


Quote from: creighto
The max block size is not imposed by fiat, but by agreement to a convention.  You could change that in your client right now and produce blocks just fine, but unless at least 50% of generators agree with you, whenever your client produces a block that defies this agreed convention it will be ignored by those who do.


By fiat, I don't mean to suggest that someone dictated it with an iron fist.  But I do mean to point out that it makes the currency dependent on a central authority.


Dependent perhaps, but even the current developers have no monopoly on the system.  The ever present threat of a classic open source code fork is a real limitation upon what the core developers can do.

Quote

  Sure, it is open source, but it is meant to benefit humankind,


What do you mean "but"? 

Quote

 not just developers... over 99.9% of its users will have no clue how to participate in the management of this convention, which at this point appears to be designed to require it.


It doesn't require participation.  I don't directly participate, at least not beyond voicing my opinions.  I don't even run a client most of the time, as Mybitcoin.com is perfect for my own needs; but I still have the option of participation, and that is key.

Quote

Wouldn't it make sense to change the convention to something that will automatically cope with growth, much like the difficulty system adjusts to new computational pressure?  With a hard limit like this, the threshold at which it suddenly grinds reliable transaction processing to a halt at a reasonable price (until everyone upgrades their client at the direction of the developers) will, in all likelihood, be exactly at the moment where it sees a viral surge in new popularity that suddenly brings it past that point and to its knees.  That may bring it a lot of unnecessary questioning and criticism by the public and the media, particularly about just how truly viable and independent it is.


There has already been much discussion on this forum about the 1 meg hard limit, including myself.  Yet there is plenty of time.  If you look at blockexplorer.com, you can see that the average block is under a kilobyte.  The current hard limit can handle much more activity than one might think.  There are many other ways that this can be handled.

Quote

I have read repeatedly that the achilles heal of Bitcoin is that 50% CPU threshold. 


You say that like it is some kind of new issue, overlooked by those who have come before you.  The reality is that this "achilles heal" is the cornerstone of the blockchain's proof-of-work security.  It would take nation-state level resources to pool enough CPU power to cross that 50% CPU mark already, and this network isn't very large as of yet.

Quote
I have never heard of another one I believe might exist - the possibility that the Bitcoin community gets very large, and then has factions, the block chain forks, and the system crumbles in the face of FUD while two or more camps argue which leg is correct (sort of like a country that started out with a Constitution or a religion that started out with a Bible or Koran and now has two large factions eternally asserting their particular interpretation of it).  Two religious factions can go their own way and live their own separate lives on separate lands, but if they must trade while they can't agree on what constitutes the existence of money, the money may as well not exist.  If Bitcoin is in its "constitution" phase, I would submit that the time to address something like this is now.


Both code forks and blockchain splits are long expected, and neither is really a threat to Bitcoin.  Blockchain splits happen regularly, and heal themselves most of the time without any human intervention.  This s also a feature of the blockchain proo-of-work system, not a bug.

Quote
Quote from: creighto
Yes there are such market forces, at least there will be once the rate of transactions is averaging over 50KB per block.  Some fees are voluntary, but increase your priority, allowing your transaction to be processed in a timely manner.  There are numberous cases in real life wherein a delay of a couple of hours is unacceptable, and it would be worthwhile to tack on a transaction fee of .02 bitcoin in order to jump the line of freebies.  If you are tyring todonate to a cause, or just moving funds around between multiple clients of your own (working client to a savings client, for example) then you can probably wait a few hours, or a few days, for the transaction to get processed at the network's own convience.  Buying a car, however, would likely justify the fee for speed.

That requires an assumption that the rate of transactions will be sometimes above 50 KB per block, and sometimes under. 


How do you figure?  The 50KB limit is for free transactions.

Quote

 Then it will always cost money - possibly substantial money - just to use money, making it very different from cash.


1)  No it wouldn't, as there will always be generators who have a motive to process free transactions up to the limit and...

2)  Cash transactions are rarely free, you just don't often count the cost of traveling to the vendor's store as part of the transaction costs; yet they are a cost to you as a customer.


Quote
  No one will want to receive Bitcoins without any guarantee that they're actually going to receive them anytime soon, there will be lots of uncertainty while recipients wonder if they will ever receive that payment they were sent, there will be lots of unusable bitcoins tied up in limbo because their recipients can't safely spend them, there will be lots of recipients who demand that their transactions be accompanied by an X fee to assure prompt posting, where X is a number that escalates indefinitely until an equilibrium is achieved between growth versus people get frustrated and decide to abandon the system.


There are way too many assumptions here for me to bother breaking them down, but even if your assumptions are correct, they are all just contributing factors to a market transaction cost.  Do you think that all of those forces would total to a transaction cost that is as high as that of a credit card or Paypal?  If yes, why would we use it?

Quote

At some point it's reasonably necessary to match the transaction volume with the capabilities of the system - if I buy a soda, and 10 million nodes must each exchange and store 210 bytes (total 2.1 GB system-wide for my soda) that's admittedly impractical, especially when 10 million other people might be buying a soda too.


The system is designed to allow you to buy a soda via the Bitcoin network if you wish, as well as allow you to use a Bitcoin bank (mybitcoin.com) instead if you wish.  The choice is paramount, as transactions internal to mybitcoin.com are way cheaper.

Quote

At a volume like that, Bitcoins would become no longer useful for trivial stuff like lawn mowing or MMORPG equipment, and become more like wire transfers (where the fees make impractical all but the largest transactions), until some sort of mechanism (like a distributed hash table or "supernode" hierarchy) were put in place to cull the noise arriving at every node.


1)  A natural supernode heirarchy is expected...

2)  and there is no reason to expect that the average Joe in 2020 will have any need to interact with the Bitcoin network directly 99.9% of the time.  Sites like mybitcoin.com will fill that role for most people.  The key is that if the people get upset with how mybitcoin.com does things, they can choose another or do it themselves.

Quote

If Bitcoin has aspirations of being a real currency that can survive the evils of governments, it's perhaps best not to consider it a long term solution as a way to pay for swords in games and micropayments.  The way it looks to me, it doesn't look like it could sustainably serve large and small commerce at the same time.  Short of an overhaul, it would have to pick one - and if I understand its goals correctly in the big picture, it will do the world more good for the big things rather than the small.


Yes, the Bitcoin network isn't well suited to micropayments, but mybitcoin.com is.

Quote
Quote from: creighto
I think that you misunderstand the point of decentralization in the context of currency.  It's not the idea of a bank that is the problem, but the monopolies that cnetral banks have in our modern world.  Bitcoin banks will likely exist before very long, as Mybitcoin.com and Mtgox.com already offer some of the most important functions of a bank, but none of them can manipulate the system to their own advantage over any other peer, be they a user or another bank.

That is true only because Mybitcoin.com and Mtgox.com do not collectively control more than 50% of the CPU power on the network.  I assume things would be different if they did.  This is the thought that leads me to advocate for the maximum incentive for average Joes to keep generating blocks.


Okay.  I don't agree with your concerns, but okay.

Quote

Quote from: creighto
Those two incentives are not equivalant, transaction fees do not affect the value of all other bitcoins held by others.  Increasing the monetary base does.

The risk of having the entire network usurped by an adversary as a result of not incentivizing users to throw all the CPU power they can at the network is potentially material to the value of all bitcoins in the system.

An increase to an economy's monetary base isn't intrinsically bad - it's only bad when it substantially exceeds the increase in size of the economy's capacity for production.  The opposite on the other hand, deflation, which occurs when output grows faster than the money supply, has got to be at least as destructive to preservation of value, when it leads people to hoard coins speculatively, and when that in turn leads to bubbles and wide swings of volatility. 


Deflation is not a threat to an economy, and is not destructive in the same way that inflation is.  Think about it this way, what is the harm to the economy if the consumer can buy milk for less than yesterday?  And do you really buy the talk that the increasing value of a currency will lead to hoarding?  If so, why doesn't it lead to hoarding now?

Quote


Quote
I think the wisdom is that a declining pay out for discovering new blocks closely models currencies based on commodities (gold, silver, etc).  The profit margins on gold mining are much lower now than they were 100 years ago, when one only needed a river and a pan.  Gold mining is still possible, but it requires a substantial capital investment (buying "GPUs" so to speak).  Such commodities have proven to be useful currencies over the last couple thousand years.  It seems like a prudent model for a new currency.

One danger not applicable to gold and silver, is that all of the mining companies in the world can't just get together and decide to change the fundamental physical properties of the metals they are looking for.  They can't suddenly agree that gold is now twice as abundant today as it was yesterday, or that its atomic number is now +10 what it was before.  But if they control more than half the CPU power being used for mining, it seems they could have quite a bit of influence over the fundamentals of bitcoin.

Quote
First, the day that comes that a reward is zero is beyond our lifetimes, and only a theoretical issue to us.  Second, the priorities system gives more priority to transactions that pay a higher fee.  So the blocksize limit, whatever it is in the future, functions as artifical scarcity as well as limit the bandwidth/storage consumption of the network.  If Bitcoin were to become as regularly used as Paypal, even a 10 meg top limit is likely to delay transactions of the smallest fee, creating a natural market price for the value of a near term transaction.  A future client can look at the most recent several blocks, and produce an average transaction fee recommendation for a user to get his transactions processed in a timely manner.  This premium on speed will likely be in constant flux.

Perhaps we should consider a "flushing block" every so often, wherein the top limit is uncapped for that single block, to allow all persistant transactions to clear.  This could be done once every retarget, permitting the network to catch up, so that even free transactions have a high end limit of two weeks of wait.

If Bitcoin were to become as regularly used as Paypal, and the influx of 10 megs every few minutes (along with the outflow relaying it to other nodes) were a reality, I and presumably many others would not be able to sustain it on our internet connections.  It would suffer the same fate as the first revisions of Gnutella where the network was crushed under the weight of every search being propagated to every node, until the system were re-engineered to work in a more hierarchical fashion.

The way I understand it, a flushing block would defeat the purpose of a block limit, which I understand mainly to be spam prevention.  IF a transaction is going to end up on a later block anyway, what reason does there exist to stop it from going on a block generated now?



Spam is not stopped by the bitcoin network, but delayed.  take a look at how the spam actually works, ans the value of limiting the spam taransacitons in the near term will be apparent.



"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 16, 2010, 01:52:55 AM
 #3


Deflation is not a threat to an economy, and is not destructive in the same way that inflation is.  Think about it this way, what is the harm to the economy if the consumer can buy milk for less than yesterday?  And do you really buy the talk that the increasing value of a currency will lead to hoarding?  If so, why doesn't it lead to hoarding now?


Spectators  do all the working out for you.  The price of bitcoin will have the deflating price factored in at any one point.  So people will trade bitcoin knowing that they are paying a higher price than the 'real price without expected deflation'.

The only thing to keep in mind is that the price of bitcoin will be directly related to the size of the bitcoin economy.  So, just buying bitcoins and hording them, is directly equivalent to investing in the entire economy that uses bitcoin.

One off NP-Hard.
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December 16, 2010, 02:13:17 AM
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Deflation is not a threat to an economy, and is not destructive in the same way that inflation is.  Think about it this way, what is the harm to the economy if the consumer can buy milk for less than yesterday?  And do you really buy the talk that the increasing value of a currency will lead to hoarding?  If so, why doesn't it lead to hoarding now?


Spectators  do all the working out for you.  The price of bitcoin will have the deflating price factored in at any one point.  So people will trade bitcoin knowing that they are paying a higher price than the 'real price without expected deflation'.

The only thing to keep in mind is that the price of bitcoin will be directly related to the size of the bitcoin economy.  So, just buying bitcoins and hording them, is directly equivalent to investing in the entire economy that uses bitcoin.

Amen

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 16, 2010, 02:35:00 AM
 #5

Quote
The system is designed to allow you to buy a soda via the Bitcoin network if you wish, as well as allow you to use a Bitcoin bank (mybitcoin.com) instead if you wish.  The choice is paramount, as transactions internal to mybitcoin.com are way cheaper.

OK, this makes sense.  I guess that means the Bitcoin network is sort of like the backbone, the equivalent of Fedwire, and the mybitcoins of the world are like the bank branches.  I can buy a soda with my American Express, which will cost me $1.00, or I can buy one with a Federal Reserve wire transfer, and pay $21.00 when all the fees are added up.  Because Fedwire wasn't meant for soda.  Am I on the right track?


Quote
Quote
I have read repeatedly that the achilles heal of Bitcoin is that 50% CPU threshold.

You say that like it is some kind of new issue, overlooked by those who have come before you.  The reality is that this "achilles heal" is the cornerstone of the blockchain's proof-of-work security.  It would take nation-state level resources to pool enough CPU power to cross that 50% CPU mark already, and this network isn't very large as of yet.

...

Both code forks and blockchain splits are long expected, and neither is really a threat to Bitcoin.  Blockchain splits happen regularly, and heal themselves most of the time without any human intervention.  This s also a feature of the blockchain proo-of-work system, not a bug.


Here is a hypothetical question.  Suppose for a moment that I can control more than 50% of the network resources, and in the process, start creating blocks that incorporate bogus transactions that unfairly favor me.  Either the rest of the nodes will reject my transactions for being invalid, or will accept them for being the greatest "proof of work".  I feel as though regardless of the outcome, there's an opportunity for exploitation.

Perhaps here is another way to ask the same thing.  What if users controlling 30% of the CPU don't like a change that users controlling 70% of the CPU are doing?  Example, suppose 70% decide that on Christmas, new blocks shall earn 500 BTC instead of 50.  And those 70% produce a beautiful proof of work chain full of transactions that make the 30% clients vomit.  What then?

I feel doubtful that a nation state is what it would take to control 50% of the CPU power, given plenty of disincentives for mass crowds to generate blocks.  Didn't someone recently say that an investment in $140,000 of video cards would be enough to presently overtake the 50% mark?

Quote
Deflation is not a threat to an economy, and is not destructive in the same way that inflation is.  Think about it this way, what is the harm to the economy if the consumer can buy milk for less than yesterday?  And do you really buy the talk that the increasing value of a currency will lead to hoarding?  If so, why doesn't it lead to hoarding now?

I agree with you, cheaper milk tomorrow is always great.  It's also great for the economy today, because I still need breakfast today, and I probably will not skip eating today just because breakfast will be cheaper tomorrow.

Deflation is bad because it creates escalating disincentives toward production of goods and services, which ultimately are the real backbone of an economy, not its money.  Deflation creates an incentive to collect money and make it unavailable to others rather than spend it.  In contrast, a tiny bit of inflation encourages investment and allocation of economic resources towards greater production of goods and services.  It's only when the printing presses run wild without accountability that inflation destroys an economy.

Cheaper milk tomorrow is great, but what about cheaper housing tomorrow?  Why buy a house today if I know it will be cheaper tomorrow?  Why borrow money for an economically productive endeavor if I know my debt must be repaid with funds that will be increasingly harder to acquire?  Why lend money if I can plan on a better rate of return just holding onto it?

Finally, when people holding an asset collectively decide the real reason it's been in demand is just so people can hold onto it for its endless "gains" and start dumping it because they realize it's overvalued, the value falls through the floor, or as they say, the bubble pops.

If I type "deflation" into Google, I am presented with plenty of credible persuasive arguments as to why deflation is bad.  Wikipedia introduces it as follows: "Economists generally believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral" (which it later defines in detail).  Conspiracy perhaps?

Quote
So, just buying bitcoins and hording them, is directly equivalent to investing in the entire economy that uses bitcoin.


If I change this a little bit and say, "So, just by buying houses and hoarding them, is directly equivalent to investing in the entire real estate market", I think the problem pretty much illustrates itself.




Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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December 16, 2010, 02:51:34 AM
 #6


If I type "deflation" into Google, I am presented with plenty of credible persuasive arguments as to why deflation is bad.  Wikipedia introduces it as follows: "Economists generally believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral" (which it later defines in detail).  Conspiracy perhaps?

The bitcoin economy is undergoing a deflationary spiral, last time I check. We marvels at the fact that a pizza cost 10,000 BTC but we don't miss the old day.

Anyway, the deflation that occurs in the bitcoin economy are *growth* deflation.

You also have to remember that the early adopter are driven to make sure that bitcoin succeed. They knew that they will greatly benefit if they could get people to investing and using bitcoin.

So they are not keen to horde all of their bitcoin, but rather invest in the economy.

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December 16, 2010, 03:40:12 AM
 #7


The bitcoin economy is undergoing a deflationary spiral, last time I check. We marvels at the fact that a pizza cost 10,000 BTC but we don't miss the old day.

Anyway, the deflation that occurs in the bitcoin economy are *growth* deflation.

You also have to remember that the early adopter are driven to make sure that bitcoin succeed. They knew that they will greatly benefit if they could get people to investing and using bitcoin.

So they are not keen to horde all of their bitcoin, but rather invest in the economy.

I feel strongly in favor of the policies in place right now.

I suppose the original idea I wanted to promote was the idea of permanently making blocks worth 50 BTC instead of halving down to nothing, which effectively spreads the cost of mining (a function which promotes network integrity) across everyone who's using Bitcoin as a store of value.  And the notion that a tiny bit of inflation is not a bad thing, nor is deflation entirely a good thing.  The idea is to give everyone a reason to keep the network strong.  Anyone who wants to minimize their inflation losses need merely help with distributed mining.  Every peer in the network gets to contribute something to keep it strong and decentralized - either in the form of mining, or suffering minimal inflation.  I suppose I will be rapidly convinced if I can grasp how transaction fees alone will constitute enough of an incentive to maximize mining.

From an economic perspective, it seems to me that the single best thing everyone can do for Bitcoin to promote its adoption is to persuade more businesses to accept it as a form of payment in exchange for goods and services.

From the perspective of a miner, it's neat and novel that I can throw five server machines at a distributed mining workload and watch it "generate" a dollar every day or two.  If more people join, hopefully BTC value rises in proportion, I may see fewer BTC or less often, but they will probably still be worth a dollar every day or two at then-current rates.  When mining produces half that BTC, then half again, and half again, why will I want to mine?  When I quit along with many others, the network suffers and I believe there's plenty more CPU power out there that we should do everything to be strongest against... that's my main point in a nutshell.


Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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December 16, 2010, 04:00:51 AM
 #8

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The system is designed to allow you to buy a soda via the Bitcoin network if you wish, as well as allow you to use a Bitcoin bank (mybitcoin.com) instead if you wish.  The choice is paramount, as transactions internal to mybitcoin.com are way cheaper.

OK, this makes sense.  I guess that means the Bitcoin network is sort of like the backbone, the equivalent of Fedwire, and the mybitcoins of the world are like the bank branches.  I can buy a soda with my American Express, which will cost me $1.00, or I can buy one with a Federal Reserve wire transfer, and pay $21.00 when all the fees are added up.  Because Fedwire wasn't meant for soda.  Am I on the right track?


Yes, you are on the right track.  Of course, the fee schedule would still be way lower; since monopoly pricing is not an issue, and neither is the costs of human intervention.

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I have read repeatedly that the achilles heal of Bitcoin is that 50% CPU threshold.

You say that like it is some kind of new issue, overlooked by those who have come before you.  The reality is that this "achilles heal" is the cornerstone of the blockchain's proof-of-work security.  It would take nation-state level resources to pool enough CPU power to cross that 50% CPU mark already, and this network isn't very large as of yet.

...

Both code forks and blockchain splits are long expected, and neither is really a threat to Bitcoin.  Blockchain splits happen regularly, and heal themselves most of the time without any human intervention.  This s also a feature of the blockchain proo-of-work system, not a bug.


Here is a hypothetical question.  Suppose for a moment that I can control more than 50% of the network resources,


How long can your hypothetical attacker keep this up?  This is not a trivial detail.  For any time period shorter than 100 blocks, the attack is limited to double-spending of coins that the attacker recently owned, and no one else's.  Longer than 100 blocks, and other's start to get affected (theoreticly) if they do not notice that there is an ongoing blockchain split underway (unlikely for any savvy users as it is now, and we don't have a 'watchdog' process in the client yet).

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 and in the process, start creating blocks that incorporate bogus transactions that unfairly favor me.  Either the rest of the nodes will reject my transactions for being invalid, or will accept them for being the greatest "proof of work".  I feel as though regardless of the outcome, there's an opportunity for exploitation.


Can you show the basis of this feeling?  If you could, I would like to know.

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Perhaps here is another way to ask the same thing.  What if users controlling 30% of the CPU don't like a change that users controlling 70% of the CPU are doing?  Example, suppose 70% decide that on Christmas, new blocks shall earn 500 BTC instead of 50.  And those 70% produce a beautiful proof of work chain full of transactions that make the 30% clients vomit.  What then?



Depends upon how long they can keep it up.  If you really had 70% of all generators willing to do this, what happens when the 30% call their pals on vacation and say, "hey, some jokers are attacking the blockchain!  Fire up your GPU!"  Your 70% would not be 70% for long, but would they be more or less than 50%?  Even 70% of the current generation is a supercomputing class collective.

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I feel doubtful that a nation state is what it would take to control 50% of the CPU power, given plenty of disincentives for mass crowds to generate blocks.  Didn't someone recently say that an investment in $140,000 of video cards would be enough to presently overtake the 50% mark?


I don't know who might have said that, but they were wrong.  The difficulty before this last retarget, of about 8500, put the entire Bitcoin network in the top ten of publicly known supercomputers according to Wikipedia's list.  Recently, The People's Republic of China took delivery of a Tesla GPU based supercomputer that could have done it at a difficulty of 8500, but not now at 12K, and that thing cost the poor farmers of China 1.1 million in US$.  Keep in mind that in order for an atacker to get and maintain 50% of the network GPU in total, they must either convince 50% of current generators to participate, or produce hashing power greater than all of the present generators combined plus those who would jump in to protect their investments should an ongoing attack attempt be noticed.  We are not talking about small numbers here, even though they are not insurmountable as of yet.
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Deflation is not a threat to an economy, and is not destructive in the same way that inflation is.  Think about it this way, what is the harm to the economy if the consumer can buy milk for less than yesterday?  And do you really buy the talk that the increasing value of a currency will lead to hoarding?  If so, why doesn't it lead to hoarding now?

I agree with you, cheaper milk tomorrow is always great.  It's also great for the economy today, because I still need breakfast today, and I probably will not skip eating today just because breakfast will be cheaper tomorrow.

Deflation is bad because it creates escalating disincentives toward production of goods and services, which ultimately are the real backbone of an economy, not its money. 



History doesn't jive with your interpretations.  Deflation was the natural state of things under a gold standard, and 'panics' were more common, but much shorter in duration and magnitude than under fiat currencies are today.

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Deflation creates an incentive to collect money and make it unavailable to others rather than spend it. 


Not really, and you are contradicting yourself.  No one saves/hords money in the absence of the intent to spend it.  You still need the milk, remember?  If you have a savings of bitcoin, and your refrigerator goes out tommorrow, are you going to tell your wife, "we will buy a new refrigerator in a couple more months, when they are cheaper"?  Either you need to spend money now, or you don't.  Inflation creates teh perverse incentive to spend now even though you may not need to, in order to avoid loss of spending power; under the incorrect Keynesian concept that spending drives production.  This is not the case.

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In contrast, a tiny bit of inflation encourages investment and allocation of economic resources towards greater production of goods and services.  It's only when the printing presses run wild without accountability that inflation destroys an economy.


This is a Keysenan fallacy, and if you really believe this, you shouldn't buy any bitcoins.  Even gentale inflation will destroy an economy eventually.

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Cheaper milk tomorrow is great, but what about cheaper housing tomorrow? 

Still good for the consumer, without neccessarily being bad for the seller.  His house may be cheaper in nominal terms, but his buying power of those funds remains the same.  The reverse is largely true, except that the seller is compelled, by ongoing loss of buying power, to do something with that money besides wiat for a good deal.

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Why buy a house today if I know it will be cheaper tomorrow? 


Because life goes on, and the law of opprotunity cost hasn't been repealled.

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Why borrow money for an economically productive endeavor if I know my debt must be repaid with funds that will be increasingly harder to acquire?  Why lend money if I can plan on a better rate of return just holding onto it?


Now that is a rational perspective.  We are getting into the hidden motives of bankers and the inflation of fiat currencies.  Prior to the abandonment of gold standards, how often did consumers borrow money for anything?  How often do you see Bitcoin users trying to borrow now?  Does that harm the consumers, or anyone?  Who benefits from the incentives towards borrowing that inflation presents in fiat currencies?

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Finally, when people holding an asset collectively decide the real reason it's been in demand is just so people can hold onto it for its endless "gains" and start dumping it because they realize it's overvalued, the value falls through the floor, or as they say, the bubble pops.


Yes, that is called the "business cycle".  Stopping it was the original rationalle for the Federal Reserve, and the cycle has only gotten harsher.  How's that inflation thing working out for ya?

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If I type "deflation" into Google, I am presented with plenty of credible persuasive arguments as to why deflation is bad.  Wikipedia introduces it as follows: "Economists generally believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral" (which it later defines in detail).  Conspiracy perhaps?

Keynesain bullshit.  Reality doesn't care what the majority may think, and history has shown that whatever a majority of scientists of any flavor beleive is almost certianly wrong.

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So, just buying bitcoins and hording them, is directly equivalent to investing in the entire economy that uses bitcoin.


If I change this a little bit and say, "So, just by buying houses and hoarding them, is directly equivalent to investing in the entire real estate market", I think the problem pretty much illustrates itself.


Not quite, as real estate isn't fungible.  Strawmen burn nicely.  Stick to your code, Kid; as you have some insights there.  But econoimcs is my field.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 16, 2010, 04:24:13 AM
 #9

From the perspective of a miner, it's neat and novel that I can throw five server machines at a distributed mining workload and watch it "generate" a dollar every day or two.  If more people join, hopefully BTC value rises in proportion, I may see fewer BTC or less often, but they will probably still be worth a dollar every day or two at then-current rates.  When mining produces half that BTC, then half again, and half again, why will I want to mine?  When I quit along with many others, the network suffers and I believe there's plenty more CPU power out there that we should do everything to be strongest against... that's my main point in a nutshell.



There is a reason why we have transaction fees.

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December 16, 2010, 04:30:36 AM
 #10

Perhaps here is another way to ask the same thing.  What if users controlling 30% of the CPU don't like a change that users controlling 70% of the CPU are doing?  Example, suppose 70% decide that on Christmas, new blocks shall earn 500 BTC instead of 50.  And those 70% produce a beautiful proof of work chain full of transactions that make the 30% clients vomit.  What then?

The 70% chain may be longest, but no vendors will honor the fabricated Christmas transactions in exchange for goods or services.  It's not much different from sending a transaction with an invalid signature although I'm not sure the current client verifies such things yet.

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Finally, when people holding an asset collectively decide the real reason it's been in demand is just so people can hold onto it for its endless "gains" and start dumping it because they realize it's overvalued, the value falls through the floor, or as they say, the bubble pops.

Then the deflationary spiral ends and people spend their bitcoins again.  A new currency can't change irrational behavior.
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December 16, 2010, 05:04:11 AM
 #11

I feel doubtful that a nation state is what it would take to control 50% of the CPU power, given plenty of disincentives for mass crowds to generate blocks.  Didn't someone recently say that an investment in $140,000 of video cards would be enough to presently overtake the 50% mark?

I don't know who might have said that, but they were wrong.

I said that, http://bitcointalk.org/index.php?topic=2227.msg29538#msg29538, I don't believe that I was wrong. It is true that bitcoin is under generated atm. 

However I do not expect that to remain true for long, it is just too profitable!

One off NP-Hard.
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December 16, 2010, 05:14:38 AM
 #12

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I feel doubtful that a nation state is what it would take to control 50% of the CPU power, given plenty of disincentives for mass crowds to generate blocks.  Didn't someone recently say that an investment in $140,000 of video cards would be enough to presently overtake the 50% mark?


I don't know who might have said that, but they were wrong.

This is where I got the idea from.  This was within the last week.  http://bitcointalk.org/index.php?topic=2227.0;all

I did nothing to check their math

Can anyone figure out what the total computing power of the bitcoin botnet is?

We are right at 100 g hash/sec right now. That's 7.2 blocks per hour at the current difficulty.


A computer system that could produce 100GHash/sec (what is required to attack the network) would involve having 200 ATI 5970 @ $500 + (200 computer) each, that is $140,000 dollars required to control the network... still not prohibitory expensive.

Lets try and not get attacked until attacking the network costs at least 50% of the economy. ~ $500,000 or ~ 350GHash/sec
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Can you show the basis of this feeling?  If you could, I would like to know.

Sure.  If two major factions of Bitcoin users decide their way is right and attempt to "filibuster" one another, either the two sides are going to reject each other's transactions, or they're going to accept transactions they don't like to keep the block chain intact.  Neither scenario promotes sustenance of the network.

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Not quite, as real estate isn't fungible.  Strawmen burn nicely.  Stick to your code, Kid; as you have some insights there.  But economics is my field.

With all due respect (since you clearly have a sound understanding of this system far better in depth than I possibly can), do you mean that economics is a field of interest, or your particular field of study/career?  I can't help but notice "Keynesian" misspelled twice... not that this forum is a spelling bee, but not something I'd expect from an expert in the field either.  I'm listening intently, and I'm no economics major myself, but I have thus far still not come across any sort of general consensus that "Keynesian" is a synonym for bullshit, certainly not to any point where the mere association with Keynes makes an idea conclusively wrong with no further support for why.  I suppose this is besides the point and neither here nor there: if after a bit more poking around I wise up and catch the clue as to how the transaction fee keeps the wheel greased and the blocks coming and the network strong, and that the transaction fee won't require mandatory central changes in the future that could spark community dissent while the network Gnutellas itself, then the least I can do is say is a bit of thanks for the time spent on what amounts to indulging my curiosity.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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December 16, 2010, 05:39:29 AM
 #13

I have read repeatedly that the achilles heal of Bitcoin is that 50% CPU threshold.  I have never heard of another one I believe might exist - the possibility that the Bitcoin community gets very large, and then has factions, the block chain forks, and the system crumbles in the face of FUD while two or more camps argue which leg is correct (sort of like a country that started out with a Constitution or a religion that started out with a Bible or Koran and now has two large factions eternally asserting their particular interpretation of it).  Two religious factions can go their own way and live their own separate lives on separate lands, but if they must trade while they can't agree on what constitutes the existence of money, the money may as well not exist.  If Bitcoin is in its "constitution" phase, I would submit that the time to address something like this is now.

That design decisions concerning inflation and other factors are "hard-wired" into the network suggest some inflexibility and the ability of another network to swoop in and cut users a better deal.

The only attack I've considered any kind of threat to bitcoin is the presence of a network better than bitcoin.  I think it's likely that the biggest sticking point is the reward-for-work in bitcoin, which is tied to inflation.

It's easy convince the predominately libertarian early adopters that a fixed money supply is worth giving a handful of early adopters over a quarter of the total bitcoins that will ever be created.  But bitcoin may have a hard time crossing the chasm if new users get for terahashes what people were getting for megahashes a few months ago.

Some of the heretics on irc have mentioned keeping the 50 btc block reward indefinitely, having a steady perma-inflation.  I'd go one step further and say that the number of coins generated in a block should be proportional to the rarity of the block's hash.  In other words, a block with 15 leading zero bits should generate twice the number of coins that a block with 14 leading zero bits in the hash.

This would probably be called "hyper-inflation".  Why not keep the reward the same--from the first hash to the last hash?

As it is, I feel that we're in a giant pyramid scheme where present petahashes are being offered up so that bitcoins from the genesis block can ever-increase in value.
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December 16, 2010, 05:46:32 AM
 #14

There is no incentive for early user to promote your inflationary currency, appammato.

There's no incentive for saving if it is eroded repeatedly by inflation.

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December 16, 2010, 05:46:47 AM
 #15

Sure.  If two major factions of Bitcoin users decide their way is right and attempt to "filibuster" one another, either the two sides are going to reject each other's transactions, or they're going to accept transactions they don't like to keep the block chain intact.  Neither scenario promotes sustenance of the network.


I see.  Well, one would eventually win.  This is a human issue, however, not a protocol issue.  I don't know how every human risk can be eliminated, at least not without removing humans from the Bitcoin economy, which I think might be counterproductive.

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Not quite, as real estate isn't fungible.  Strawmen burn nicely.  Stick to your code, Kid; as you have some insights there.  But economics is my field.

With all due respect (since you clearly have a sound understanding of this system far better in depth than I possibly can), do you mean that economics is a field of interest, or your particular field of study/career?


No comment.

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  I can't help but notice "Keynesian" misspelled twice... not that this forum is a spelling bee, but not something I'd expect from an expert in the field either.



I misspell a lot of words on this forum because IE 8.x doesn't handle the large edit field very well once the post is longer than the field itself, and doesn't spellcheck at all.  I find it irritating and just move on.

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  I'm listening intently, and I'm no economics major myself, but I have thus far still not come across any sort of general consensus that "Keynesian" is a synonym for bullshit, certainly not to any point where the mere association with Keynes makes an idea conclusively wrong with no further support for why.


I don't go into much detail when posting about economics, because I grow tired of explaining things to people on the Internet; that and I don't get paid for my time.  (Don't take that personally, I'm not refering to yourself or anyone in particular)  I am a 'praxeologist', and can teach a ten year old things about economics, human nature, and the nature of money that many adults who graduate with a useless degree in Economics don't understand.  It's not called the 'dismal science' for nothing.  Economics degrees should require a minor in sociology, as far too many econoimcs theorists lose sight of the trees looking for the forest.

I'm more than willing to offer recommendations for personal research, but not so willing to duplicate the best work of others; particularly on an anonymous Internet forum that is not even peer reviewed.

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  I suppose this is besides the point and neither here nor there: if after a bit more poking around I wise up and catch the clue as to how the transaction fee keeps the wheel greased and the blocks coming and the network strong, and that the transaction fee won't require mandatory central changes in the future that could spark community dissent while the network Gnutellas itself, then the least I can do is say is a bit of thanks for the time spent on what amounts to indulging my curiosity.


It was hard forme to wrap my head around the technical and crypto aspects of the system.  I'm sure that you can work your way around the economics in due time.  I was impressed that (largely) one man created this system, assuming that Satoshi is actually a person, and not an avatar for some greater organization.  I found out, as you shall, that those that are new to the idea alwasy seem to think of the same set of potential problems, long since resolved if they were ever a problem to start with.  Most older forum memers just begin to ignore these newbie posts, which is why you only have myself and kiba in this thread to represent the counterpoint.  Dive into the forum's search function, there is much there.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 16, 2010, 06:00:54 AM
 #16


I'm more than willing to offer recommendations for personal research, but not so willing to duplicate the best work of others; particularly on an anonymous Internet forum that is not even peer reviewed.

It was hard forme to wrap my head around the technical and crypto aspects of the system.  I'm sure that you can work your way around the economics in due time.  I was impressed that (largely) one man created this system, assuming that Satoshi is actually a person, and not an avatar for some greater organization.  I found out, as you shall, that those that are new to the idea alwasy seem to think of the same set of potential problems, long since resolved if they were ever a problem to start with.  Most older forum memers just begin to ignore these newbie posts, which is why you only have myself and kiba in this thread to represent the counterpoint.  Dive into the forum's search function, there is much there.

I was the same, once I got the technical component of bitcoin it instantly 'clicked' the importance of bitcoin succeeding! However I think that creighto and I come from a very similar school of economics.

Bitcoin has the potential to do more good for this world than any other single effort in the last 50 years!  If you let th people control their own money, you let the people control their own destiny!

One off NP-Hard.
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December 16, 2010, 06:02:38 AM
 #17

There is no incentive for early user to promote your inflationary currency, appammato.

There's no incentive for saving if it is eroded repeatedly by inflation.

Your value is not being eroded.  Your coins represent your percentage of work put into the block chain.  That ratio will never be broken.
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December 16, 2010, 06:02:54 AM
 #18

I was the same, once I got the technical component of bitcoin it instantly 'clicked' the importance of bitcoin succeeding! However I think that creighto and I come from a very similar school of economics.

The Austrian School of Economic.

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December 16, 2010, 06:09:56 AM
 #19

There is no incentive for early user to promote your inflationary currency, appammato.

There's no incentive for saving if it is eroded repeatedly by inflation.

Your value is not being eroded.  Your coins represent your percentage of work put into the block chain.  That ratio will never be broken.

Let me recalibrate my understanding.

Every computer will be essentially generating bitcoin. Essentially, it is hyperinflation. However, this distort economic calculation to a really bad level. Everything you invest in looks like a profit, when it's actually not.

There is still no incentive to save, because your saving is becoming worthless every single day due to inflation. Basically, it rewards the biggest generator at the expense of everybody else, except those who borrows money.

In the bitcoin economy, the generators still benefit disapportionately, but it will also benefit those who save. In other words, everybody who save win, except those who borrows money.

Investors in business will be forced to be more conservative or efficient at finding economic opportunity.

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December 16, 2010, 06:27:11 AM
 #20

There is no incentive for early user to promote your inflationary currency, appammato.

There's no incentive for saving if it is eroded repeatedly by inflation.

Your value is not being eroded.  Your coins represent your percentage of work put into the block chain.  That ratio will never be broken.

Let me recalibrate my understanding.

Every computer will be essentially generating bitcoin. Essentially, it is hyperinflation. However, this distort economic calculation to a really bad level. Everything you invest in looks like a profit, when it's actually not.

There is still no incentive to save, because your saving is becoming worthless every single day due to inflation. Basically, it rewards the biggest generator at the expense of everybody else, except those who borrows money.

In the bitcoin economy, the generators still benefit disapportionately, but it will also benefit those who save. In other words, everybody who save win, except those who borrows money.

Investors in business will be forced to be more conservative or efficient at finding economic opportunity.

I'm not sure why there would necessarily be price inflation given that the marginal increase in btc is relatively small and can in any case be forecast.
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