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Author Topic: Is Bitcoin going to change its inflation algorithm?  (Read 4357 times)
wumpus
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July 19, 2011, 06:08:46 AM
 #21

Mind you that this is a decentralized system, so there is no such thing as a central planning committee or someone to hold an axe above the miners heads.

This is what I meant with my comment about mathematics: humans are out of the loop.

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July 19, 2011, 06:11:30 AM
 #22

So, basically, you guys want to optimize total transaction volume to a certain value?

If there's too little volume... lower the fees, create more coins

If there's too much volume... raise the fees, destroy coins

Am I right?


Somewhat different than that for me. Ignoring the part about combining proof-of-stake and proof-of-work...

Coin creation is always proportional to txn volume. Txn fees are also proportional to txn volume. Coin creation is limited so that [fees >> coin creation]. [fees >> coin creation] is necessary to ensure that the system can reign in inflation.

High difficulty growth -> indicates deflationary pressure -> distribute txn fees  
Low difficulty growth -> indicates inflationary pressure -> destroy txn fees to combat inflation.


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July 19, 2011, 06:13:58 AM
 #23

Mind you that this is a decentralized system, so there is no such thing as a central planning committee or someone to hold an axe above the miners heads.

This is what I meant with my comment about mathematics: humans are out of the loop.


By central planners, I mean the people who design the incentive mechanisms in the beginning. This language is the convention in economics (actually maybe social planner is the more common term.)
Rules in the blockchain hold the axe over the miner's head.

The fact that a permanent difficulty target has to be set a priori is troublesome. You have to really trust Moore's law here. If chips improve faster than you expected, you could end up with more inflation than you intended. Even so there would be a credible cap on the inflation rate. 

You could put breathing room in by setting a high difficulty growth target (I thought 50% per annum was high, since it implies a 125% increase in computational speed every two years). As I understand Moore's law it is a 100% increase in computational speed every two years.

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July 19, 2011, 06:16:22 AM
 #24

If a version of bitcoin is established that inflates forever, I'll ignore it.  If somehow such a thing were imposed upon Bitcoin, I'll abandon it.  I'm sure I'm not alone.  Perpetual inflation as a monetary model is only possible with continuous economic growth, which is a physical impossibility so long as humanity (and thus the economy) is constrained upon this planet's surface.

"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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July 19, 2011, 06:28:44 AM
 #25

You could put breathing room in by setting a high difficulty growth target (I thought 50% per annum was high, since it implies a 125% increase in computational speed every two years). As I understand Moore's law it is a 100% increase in computational speed every two years.
If you want an inflationary currency, why all the complicated stuff, and not simply set a fixed inflation rate of, say, 2% per year instead of the current 50 coins per 10 minutes? And remove the cap at 21,000,000. The only thing that would be needed is to base miner payouts on the current total number of coins (which is trivial) and you have your geometric "growth".



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July 19, 2011, 06:37:28 AM
 #26

You could put breathing room in by setting a high difficulty growth target (I thought 50% per annum was high, since it implies a 125% increase in computational speed every two years). As I understand Moore's law it is a 100% increase in computational speed every two years.
If you want an inflationary currency, why all the complicated stuff, and not simply set a fixed inflation rate of, say, 2% per year instead of the current 50 coins per 10 minutes? And remove the cap at 21,000,000. The only thing that would be needed is to base miner payouts on the current total number of coins (which is trivial) and you have your geometric "growth".




Perhaps you should read my posts more carefully. The exact problem I am concerned with is Bitcoin's inability to prevent price inflation. Preventing or even limiting inflation requires establishing a commitment to destroy coins to prop up prices. Bitcoin does not have any mechanism to destroy coins on net. Thus, extremely rapid price inflation is a serious risk to anyone accepting payment in bitcoin.

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wumpus
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July 19, 2011, 06:42:38 AM
 #27

I know. But isn't the reason for the rapid price inflation that there's simply a lot of coins are being produced right now? Inflation is like 40% per year. This will eventually change, of course, as the 50 coins per 10 minutes become a smaller and smaller part of the total pool (and when the mining payouts get reduced to 25 coins).

You don't need to commit to destroy coins if you don't produce them in the first place.

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July 19, 2011, 07:26:24 AM
 #28

I know. But isn't the reason for the rapid price inflation that there's simply a lot of coins are being produced right now? Inflation is like 40% per year. This will eventually change, of course, as the 50 coins per 10 minutes become a smaller and smaller part of the total pool (and when the mining payouts get reduced to 25 coins).

You don't need to commit to destroy coins if you don't produce them in the first place.


In the current system everyone can anticipate how many coins will be issued, so there is no reason why a change in the issuance rate should lead to a change in prices or price volatility. The real problem is that the market participants are uncertain how widely bitcoin will be used in the future. Given this uncertainty, volatility in bitcoin's total market cap is inevitable. The prices of individual coins, however, can be partially stablized by allowing rates of creation and destruction to vary according to changes in market sentiment. Essentially you allow the market cap to fluctuate as normal, but cushion coin holders against these fluctuations by creating and destroying coins.

There are serious limitations of course. Current difficulty growth rates (still well above 50% per annum in the current difficulty cycle), my system would not have begun destroying coins. You can see then that prices would still be highly volatile. Still the knowledge that the system would begin destroying coins if difficulty stagnated even more would make an inflationary spiral much less likely.

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Vladimir
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July 19, 2011, 07:30:16 AM
 #29

Quote
Is Bitcoin going to change its inflation algorithm?

no

/thread

-
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July 19, 2011, 07:37:04 AM
 #30

Quote
Is Bitcoin going to change its inflation algorithm?

no

/thread

Cant't blame Vladimir. All of the reasonable changes to the algorithm I can imagine would involve redistribution of wealth from people currently mining to current wealth holders and people who will be mining in the future. I would not be happy with such arrangements if I was Vladimir. I'm not mining currently, so I wouldn't feel the pinch.

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July 19, 2011, 07:44:45 AM
 #31

If we simply have a number of different types of coin similar to but not quite the same as bitcoin, wouldn't market forces balance them out, taking as much advantage as needed from each variant to achieve the purposes of each market participant?

-MarkM-

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July 19, 2011, 07:51:39 AM
 #32

Just for everyones information, cunicula comes daily to the forums to discuss Bitcoin while at the same time thinks that a decentralized currency is not possible (or has serious doubts about it). So basically he does not believe in the basic Bitcoin idea. Thats why he wants to kill it.

Cant't blame Vladimir. All of the reasonable changes to the algorithm I can imagine would involve redistribution of wealth from people currently mining to current wealth holders and people who will be mining in the future. I would not be happy with such arrangements if I was Vladimir. I'm not mining currently, so I wouldn't feel the pinch.

Oh yes, and he continuously uses class warfare rethoric.

Cunicula if you think you can create a better currency go do it. The Bitcoin community has released the code in open source and you just need to change a couple lines to be up and ready. Go take over the world with your inflationary currency.
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July 19, 2011, 07:57:03 AM
 #33


Cant't blame Vladimir. All of the reasonable changes to the algorithm I can imagine would involve redistribution of wealth from people currently mining to current wealth holders and people who will be mining in the future. I would not be happy with such arrangements if I was Vladimir. I'm not mining currently, so I wouldn't feel the pinch.


it's not FAAIIIRRRR!!!!

who decides?

who profits?

who loses?
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July 19, 2011, 07:57:42 AM
 #34

If we simply have a number of different types of coin similar to but not quite the same as bitcoin, wouldn't market forces balance them out, taking as much advantage as needed from each variant to achieve the purposes of each market participant?

-MarkM-


That is a possible outcome, but I don't think it is likely in the long-run. There are network economies at work. Two identical currency networks with 100,000 people each would yield a lower transaction volume per person, then one network with 200,000 people. Keeping up membership in a network has an opportunity cost. The larger networks offer more buying and selling opportunities, so there is always an incentive to desert small or shrinking networks and join large or growing networks.

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July 19, 2011, 07:58:47 AM
 #35


Cant't blame Vladimir. All of the reasonable changes to the algorithm I can imagine would involve redistribution of wealth from people currently mining to current wealth holders and people who will be mining in the future. I would not be happy with such arrangements if I was Vladimir. I'm not mining currently, so I wouldn't feel the pinch.


it's not FAAIIIRRRR!!!!

who decides?

who profits?

who loses?

The market.

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July 19, 2011, 08:00:14 AM
 #36

The market.

You are such a troll.

If you want the market to decide why were you arguing yesterday that the market can not handle the fee structure and that we all need to follow a fixed set of rules regarding fees following your oh so intelligent advise?
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July 19, 2011, 08:02:01 AM
 #37

If we simply have a number of different types of coin similar to but not quite the same as bitcoin, wouldn't market forces balance them out, taking as much advantage as needed from each variant to achieve the purposes of each market participant?

-MarkM-


That is a possible outcome, but I don't think it is likely in the long-run. There are network economies at work. Two identical currency networks with 100,000 people each would yield a lower transaction volume per person, then one network with 200,000 people. Keeping up membership in a network has an opportunity cost. The larger networks offer more buying and selling opportunities, so there is always an incentive to desert small or shrinking networks and join large or growing networks.

If people want to miss out on the awesome advantages of your scientifically social-planned by economics experts currencies merely because few people use them, that is their problem. Skillful economists with the intelligence to perceive its advantages can then keep its amazing advantages to themselves and profit from it themselves leaving the unwashed masses in the dust.

-MarkM-

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July 19, 2011, 08:02:13 AM
 #38


Cant't blame Vladimir. All of the reasonable changes to the algorithm I can imagine would involve redistribution of wealth from people currently mining to current wealth holders and people who will be mining in the future. I would not be happy with such arrangements if I was Vladimir. I'm not mining currently, so I wouldn't feel the pinch.


it's not FAAIIIRRRR!!!!

who decides?

who profits?

who loses?

The market.

then write the software and put it out there.  see how you do.  and stop whining about it.

i'm no early adopter, but i like the current setup just fine.  if vladimir is the first Bitcoin billionaire (i kinda miss that sig, but i get it...) then i'll have plenty to keep me happy.  and nothing but appreciation for those with greater will, vision and courage than i have.
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July 19, 2011, 08:11:30 AM
 #39

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

-Keynes

I'm a very patient person.

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July 19, 2011, 08:14:09 AM
 #40

Well lets implement your awesome new variant. The longer we delay in doing so the longer the world will remain deprived of its advantages.

So far we have at least done the constant creating of coins part, in GRouPcoin, which will keep making 50 coins per block forever.

-MarkM-

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