A Better Coin

[cunicula]

Okay, I accept human control of currency generation. However, we need to tie human hands to prevent them from seriously fucking up. What if human input could produce a 5% rate of currency destruction annualy or a 5% rate of currency production annualy or anything in between, but that any changes outside these bounds are blocked in the code.

All for tying human hands.

I was thinking another way the managers might be kept accountable and competent might be if several of these banks were operating for profit and in competition with one another.  There's nothing to stop viable for profit competitors from springing up if the stability etc. they offer is compelling enough.

Are you okay with managing the exchange rate through currency creation and currency destruction? I don't like fixed exchange rates. Also if you want to fix the exchange rate, then you will need physical control over some location where people can redeem their coins. This might prove difficult. Control over creation and destruction can be managed by anyone with access to a computer interface and the right password.

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[jtimon]

Are you okay with managing the exchange rate through currency creation and currency destruction? I don't like fixed exchange rates. Also if you want to fix the exchange rate, then you will need physical control over some location where people can redeem their coins. This might prove difficult. Control over creation and destruction can be managed by anyone with access to a computer interface and the right password.

This is beertokens. I don't like it neither.

None of these suggestions has a workable method of ensuring honest reporting. Instead, they use democratic reporting. This might end up being honest, but there is no incentive for honest reporting in the system. Given how much nonsense is talked in the forum, would you really want the masses to decide how much money is generated?

I would put more trust in a dictatorship or oligarchy as these governance systems provide better incentives for truthfulness. The dictator loses big if he fucks up his coin. In a democratic system, the losses are divided among many decision makers so no one has a significant stake in making good decisions. I think we should vest all power in a few oligarchs, but tie their hands using hard coded rules. If we must use a democracy, then we should use even stricter rules. I really don't think a democracy is a good way to go. One oligarchic option is vesting all voting power in the 10 largest account balances. These guys are the 10 oligarchs. If someone else wants to be an oligarch, they can purchase the necessary coin. 

The system proposes the miners democracy that its built in the system, so it's more similar to an oligarchy than to a democracy.
But still the biggest problem is the centralization in mining that current pools represent.

[cunicula]

3) Miners long term reward

I think this is cunnicula's main concern.
There's only two possibilities: exponential growth of the monetary base or coin destruction equivalent to creation. Destructive fees will affect V the opposite way demurrage does.
So the solution with more stable M and V is demurrage.

I have another suggestion for this. Currently attackers need to invest in computing hardware to mount an attack. In the future, an attack might become feasible with a relatively modest hardware investment. An alternative is to require miners to make a simultaneous investment in bitcoin. In this scenario, bitcoin hoarders become the bitcoin miners. Hoarders are highly unlikely to mount an attack since any attack would tend to screw them over.

Here is how I think it should work:

Miners who submit blocks must also submit coins for escrow in the blockchain. The escrowed coins must satisfy a 'coin-confirmation constraint'. By 'coin-confirmation constraint', I mean the product of the number of coins sent and the number of confirmations on those coins must be greater than or equal to some number. The blockchain escrows the sent coins and then returns them to the sender when the next block is found. A single miner both finds the block and includes his own coins for escrow in the block (a pool might do this by combining remotely rented hashing power with their personal coin stash).

The 'coin-confirmation' threshold would be set relatively low so that say only 10% of extant coins would have to be actively used in mining to keep the system churning out blocks. If miners began to run short of 'coin-confirmations', they would want to purchase more coins to prevent any blocks they find from going to waste. In fact, they would want to keep an oversupply of coins. If they happened to get lucky hashing, they would need to have these extra coins ready for inclusion in blocks.  Miners' demand for an excess coin hoard would prevent the system from ever getting stuck.

Difficulty would be set just as before to ensure that hashing produces 6 blocks per hour on average.

[cunicula]

Are you okay with managing the exchange rate through currency creation and currency destruction? I don't like fixed exchange rates. Also if you want to fix the exchange rate, then you will need physical control over some location where people can redeem their coins. This might prove difficult. Control over creation and destruction can be managed by anyone with access to a computer interface and the right password.

This is beertokens. I don't like it neither.

None of these suggestions has a workable method of ensuring honest reporting. Instead, they use democratic reporting. This might end up being honest, but there is no incentive for honest reporting in the system. Given how much nonsense is talked in the forum, would you really want the masses to decide how much money is generated?

I would put more trust in a dictatorship or oligarchy as these governance systems provide better incentives for truthfulness. The dictator loses big if he fucks up his coin. In a democratic system, the losses are divided among many decision makers so no one has a significant stake in making good decisions. I think we should vest all power in a few oligarchs, but tie their hands using hard coded rules. If we must use a democracy, then we should use even stricter rules. I really don't think a democracy is a good way to go. One oligarchic option is vesting all voting power in the 10 largest account balances. These guys are the 10 oligarchs. If someone else wants to be an oligarch, they can purchase the necessary coin.  

The system proposes the miners democracy that its built in the system, so it's more similar to an oligarchy than to a democracy.
But still the biggest problem is the centralization in mining that current pools represent.

Miners are not the appropriate decision makers. An oligarchy of miners will just vote to increase their own rewards. Hyperinflation is the probable outcome. It should definitely be the coin holders who make the decisions. I think only the 10 richest coinholders should be allowed to vote (but tying their hands so they can only make a very narrow range of decisions).

[cunicula]

We have different concerns. Let's recapitulate a bit.

1) Early adopters reward

Regarding adoption rewards, I think we should set up a trust fund to bribe people to maintain shops. None of the bitcoin merchants are making any money. We need to bribe them until the coin's economy grows.
The failure to provide these rewards is where bitcoin went wrong I think. Handing out rewards to early consumers is good. You just need to take care of the other side too.

4) Steady deflation


5) Economic cycles

I don't think we should worry too much about either of these. I don't see them as problems. Regarding economic cycles and steady deflation, no one really understands this stuff very well in economics. If they did, stuff like the great depression and the current situation wouldn't happen. Let's focus on issues that we understand better. Rather than focus on issues that may or may not be problems, and which (if problems) may or may not be solvable.

[d'aniel]

Okay, I accept human control of currency generation. However, we need to tie human hands to prevent them from seriously fucking up. What if human input could produce a 5% rate of currency destruction annualy or a 5% rate of currency production annualy or anything in between, but that any changes outside these bounds are blocked in the code.

All for tying human hands.

I was thinking another way the managers might be kept accountable and competent might be if several of these banks were operating for profit and in competition with one another.  There's nothing to stop viable for profit competitors from springing up if the stability etc. they offer is compelling enough.

Are you okay with managing the exchange rate through currency creation and currency destruction? I don't like fixed exchange rates.

In my proposal the market exchange rate between the bank's currency and Bitcoin is not actually fixed - it will wiggle around 1-1 since the currency will occasionally be paying either positive or negative interest.  Furthermore, there is currency creation and destruction going on via interest payments and demurrage, respectively.  But I think I see what you mean - you're suggesting the bank issue and absorb currency through "open market operations", right?

I proposed this method instead 1) to reinforce a common (on the larger time scale) currency unit, 2) to avoid introducing risks of insufficient reserves, and 3) because it seemed to me to do the best job of evenly/fairly distributing purchasing power gains/losses (cut the speculators out, they're not necessary when issuing a Bitcoin-like currency).

I'm interested to hear what you think of this reasoning.

Also if you want to fix the exchange rate, then you will need physical control over some location where people can redeem their coins. This might prove difficult. Control over creation and destruction can be managed by anyone with access to a computer interface and the right password.

Physical key storage is an unfortunate fact of having human control over currency issuance/redemption, I think.  But I tried to mitigate this by suggesting using the CHECKMULTISIG OP code to require some majority of the managers' signatures in order to produce a valid transaction.  This way, some minority of them can at any given time lose their keys or be corrupted somehow, and the bank will go on functioning smoothly.

[Ten98]

Psychological barrier to entry is simply this: Few people are going to be willing to buy a single bitcoin for $1,000.  It's a psychological thing.  Having $1,000 in your bank account just "feels" a lot better than having 1 bitcoin, even if they're both worth the same amount and both have the same purchasing power.  To a lot of people, buying a handful of bitcoins for a lot more than a handful of dollars feels like they are getting ripped off.  Unless the virtual currency can have rough parity with the dollar, it will not ever be fully accepted by the general public.

You think? Plenty people seem to be pepared to buy a single ounce of gold for nearly twice that amount...

The Japanese don't seem to have a problem spending 1000 Yen on something trivial.

I think maybe this is an imagined problem rather than a real one.

[cunicula]

I'm not in favor of using bitcoin to back the currency.

Here is what I propose instead.

1) every send is taxed at a 0.1% rate (the tax is rounded up) + (an extra tax fee for sends with low confirmations) + (a user-specified voluntary tax to motivate inclusion in a block)

2) mining occurs through the mixed coin - hashing system I described above where you escrow coins in the blockchain whenever you find a block (and thus need coins to mine)

3) miners receive 50% of the send tax revenue. An additional 50% of the tax revenue and coin generation equal to 50% of the tax revenue is put in an escrow account.

4) What happens to the escrowed money depends on monthly voting rounds. There are two possible voting outcomes (these are hard-coded):
                      a) money generation via lottery -> all tax revenue is sent via a random dividend to some lucky address.
                                                                      Probability of being selection in the random draw is proportional to coin account size (one coin = one draw.
                                                                     the lottery occurs once per block
                      b) money destruction -> all tax revenue is disposed of (for example sent to a nonexistent address)  

5) Voting rounds last for one month worth of blocks. Votes are cast whenever a block is mined. However, only one vote is counted every month. The counted vote is the one that included the largest number of escrowed coins (not coin-confirmations) in a block mined over the past month. This single vote decides whether the next month follows outcome 4a or outcome 4b.

To the extent that currency use grew over time, money generated via the lottery would enrich all holders of the currency in proportion to their initial holdings (early adopters are rewarded). To the extent that the currency failed, the volume of currency available would contract with every block sent until none remained. If this occurred slowly enough, the price could remain stable during the contraction.

Rich voters decide between currency creation and currency destruction. If they are risk-neutral, they will be indifferent between destroying currency and generating it. I think they would try to manage the currency price in a sensible way to help it succeed and thus maximize returns on their investment. I believe that they would try to keep USD or EUR exchange rates stable, but it is up to them. Also, there is a market for control. If anyone decides that they can manage creation/destruction more successfully, they can seize control of voting through a massive investment in the coin.

[Ten98]

I'm not in favor of using bitcoin to back the currency.

Here is what I propose instead.

1) every send is taxed at a 0.1% rate (the tax is rounded up) + (an extra tax fee for sends with low confirmations) + (a user-specified voluntary tax to motivate inclusion in a block)

2) mining occurs through the mixed coin - hashing system I described above where you escrow coins in the blockchain whenever you find a block (and thus need coins to mine)

3) miners receive 50% of the send tax revenue. An additional 50% of the tax revenue and coin generation equal to 50% of the tax revenue is put in an escrow account.

4) What happens to the escrowed money depends on monthly voting rounds. There are two possible voting outcomes (these are hard-coded):
                      a) money generation via lottery -> all tax revenue is sent via a random dividend to some lucky address.
                                                                      Probability of being selection in the random draw is proportional to coin account size (one coin = one draw.
                                                                     the lottery occurs once per block
                      b) money destruction -> all tax revenue is disposed of (for example sent to a nonexistent address)  

5) Voting rounds last for one month worth of blocks. Votes are cast whenever a block is mined. However, only one vote is counted every month. The counted vote is the one that included the largest number of escrowed coins (not coin-confirmations) in a block mined over the past month. This single vote decides whether the next month follows outcome 4a or outcome 4b.

To the extent that currency use grew over time, money generated via the lottery would enrich all holders of the currency in proportion to their initial holdings (early adopters are rewarded). To the extent that the currency failed, the volume of currency available would contract with every block sent until none remained. If this occurred slowly enough, the price could remain stable during the contraction.

Rich voters decide between currency creation and currency destruction. If they are risk-neutral, they will be indifferent between destroying currency and generating it. I think they would try to manage the currency price in a sensible way to help it succeed and thus maximize returns on their investment. I believe that they would try to keep USD or EUR exchange rates stable, but it is up to them. Also, there is a market for control. If anyone decides that they can manage creation/destruction more successfully, they can seize control of voting through a massive investment in the coin.

Way too complicated.

The beauty of Bitcoin, and a big part of why it is a success, is its simplicity.

Every *coin that comes along and proposes to add more features, more complexity, more checks and balances is ultimately missing the point.

[cunicula]

I'm not in favor of using bitcoin to back the currency.

Here is what I propose instead.

1) every send is taxed at a 0.1% rate (the tax is rounded up) + (an extra tax fee for sends with low confirmations) + (a user-specified voluntary tax to motivate inclusion in a block)

2) mining occurs through the mixed coin - hashing system I described above where you escrow coins in the blockchain whenever you find a block (and thus need coins to mine)

3) miners receive 50% of the send tax revenue. An additional 50% of the tax revenue and coin generation equal to 50% of the tax revenue is put in an escrow account.

4) What happens to the escrowed money depends on monthly voting rounds. There are two possible voting outcomes (these are hard-coded):
                      a) money generation via lottery -> all tax revenue is sent via a random dividend to some lucky address.
                                                                      Probability of being selection in the random draw is proportional to coin account size (one coin = one draw.
                                                                     the lottery occurs once per block
                      b) money destruction -> all tax revenue is disposed of (for example sent to a nonexistent address)  

5) Voting rounds last for one month worth of blocks. Votes are cast whenever a block is mined. However, only one vote is counted every month. The counted vote is the one that included the largest number of escrowed coins (not coin-confirmations) in a block mined over the past month. This single vote decides whether the next month follows outcome 4a or outcome 4b.

To the extent that currency use grew over time, money generated via the lottery would enrich all holders of the currency in proportion to their initial holdings (early adopters are rewarded). To the extent that the currency failed, the volume of currency available would contract with every block sent until none remained. If this occurred slowly enough, the price could remain stable during the contraction.

Rich voters decide between currency creation and currency destruction. If they are risk-neutral, they will be indifferent between destroying currency and generating it. I think they would try to manage the currency price in a sensible way to help it succeed and thus maximize returns on their investment. I believe that they would try to keep USD or EUR exchange rates stable, but it is up to them. Also, there is a market for control. If anyone decides that they can manage creation/destruction more successfully, they can seize control of voting through a massive investment in the coin.

Way too complicated.

The beauty of Bitcoin, and a big part of why it is a success, is its simplicity.

Every *coin that comes along and proposes to add more features, more complexity, more checks and balances is ultimately missing the point.

Please consider visiting other threads if you are not going to make serious contributions. If you want to stay, propose or debate improved rules for a new currency. That is the point of the thread.

[jtimon]

Miners are not the appropriate decision makers. An oligarchy of miners will just vote to increase their own rewards. Hyperinflation is the probable outcome. It should definitely be the coin holders who make the decisions. I think only the 10 richest coinholders should be allowed to vote (but tying their hands so they can only make a very narrow range of decisions).

Miners are the ones who vote now you like it or not. They could decide to not halve the reward if they agree.
If miners would report false low prices to create inflation and benefit the miner community, big holders would report false high prices to produce deflation and benefit themselves (all of them, not "maybe in your next mined block" like would be the case for miners).
Anyway let's explore the idea of accounting dP by tracking dV.

Regarding adoption rewards, I think we should set up a trust fund to bribe people to maintain shops. None of the bitcoin merchants are making any money. We need to bribe them until the coin's economy grows.
The failure to provide these rewards is where bitcoin went wrong I think. Handing out rewards to early consumers is good. You just need to take care of the other side too.

Yes merchant have rewards. They used to sell only for national currencies and now they sell more because they also accept an international currency that their advocates want to spend. They also save fees and this allow them to be more price competitive.
Just to name a few.

Physical key storage is an unfortunate fact of having human control over currency issuance/redemption, I think.  But I tried to mitigate this by suggesting using the CHECKMULTISIG OP code to require some majority of the managers' signatures in order to produce a valid transaction.

Check out beertoken. They're exactly working on this.

[cunicula]

Miners are the ones who vote now you like it or not. They could decide to not halve the reward if they agree.

Apparently, you didn't read my post above where I explain how coin-holding can be integrated with hashing as an additional coin generation criteria. This would prevent GPU owners from sabotaging an asset they don't hold a stake in.

 

Miners are the ones who vote now you like it or not. They could decide to not halve the reward if they agree.
If miners would report false low prices to create inflation and benefit the miner community, big holders would report false high prices to produce deflation and benefit themselves (all of them, not "maybe in your next mined block" like would be the case for miners).
Anyway let's explore the idea of accounting dP by tracking dV.

Apparently, you didn't read my proposal above. I outlined a system in which big holders should be indifferent between price deflation and inflation. The key here is designing a system in which their expected share of the total extant coins is constant regardless of whether they choose price deflation or inflation.

Yes merchant have rewards. They used to sell only for national currencies and now they sell more because they also accept an international currency that their advocates want to spend. They also save fees and this allow them to be more price competitive.
Just to name a few.

These rewards are not available now because the size of the market is too small to support merchants. Rewards may become available in a certain future state of the world.
If you want to increase the probability of reaching this state of the world, you should provide subsidies to merchants who bring stores online early. In an earlier post I included a link to a paper explaining this in the highly analogous situation of the ACH wire transfer system. Read it.

Anyway let's explore the idea of accounting dP by tracking dV.

I explored this above, it is not promising. Do you have something to add?

[SgtSpike]

@d'aniel

If you have the external input of exchange rates in the chain, why do you need human management?

You do?  Apart from the rough proxy of difficulty, as cunicula suggested?

Dacoinminster and morpheo (among others) propose different chains in which miners must report certain outside exchange values and the validity of their block depends on the network accepting those reports as truth or not. They can average various exchange and an error must be allowed.
If you know the prices for btc/usd, usd/oil, usd/gas, usd/rice, usd/corn, etc. You can make a target stable value to estimate dP.

None of these suggestions has a workable method of ensuring honest reporting. Instead, they use democratic reporting. This might end up being honest, but there is no incentive for honest reporting in the system. Given how much nonsense is talked in the forum, would you really want the masses to decide how much money is generated?

I would put more trust in a dictatorship or oligarchy as these governance systems provide better incentives for truthfulness. The dictator loses big if he fucks up his coin. In a democratic system, the losses are divided among many decision makers so no one has a significant stake in making good decisions. I think we should vest all power in a few oligarchs, but tie their hands using hard coded rules. If we must use a democracy, then we should use even stricter rules. I really don't think a democracy is a good way to go. One oligarchic option is vesting all voting power in the 10 largest account balances. These guys are the 10 oligarchs. If someone else wants to be an oligarch, they can purchase the necessary coin.  

I'm not in favor of using bitcoin to back the currency.

Here is what I propose instead.

1) every send is taxed at a 0.1% rate (the tax is rounded up) + (an extra tax fee for sends with low confirmations) + (a user-specified voluntary tax to motivate inclusion in a block)

2) mining occurs through the mixed coin - hashing system I described above where you escrow coins in the blockchain whenever you find a block (and thus need coins to mine)

3) miners receive 50% of the send tax revenue. An additional 50% of the tax revenue and coin generation equal to 50% of the tax revenue is put in an escrow account.

4) What happens to the escrowed money depends on monthly voting rounds. There are two possible voting outcomes (these are hard-coded):
                      a) money generation via lottery -> all tax revenue is sent via a random dividend to some lucky address.
                                                                      Probability of being selection in the random draw is proportional to coin account size (one coin = one draw.
                                                                     the lottery occurs once per block
                      b) money destruction -> all tax revenue is disposed of (for example sent to a nonexistent address)  

5) Voting rounds last for one month worth of blocks. Votes are cast whenever a block is mined. However, only one vote is counted every month. The counted vote is the one that included the largest number of escrowed coins (not coin-confirmations) in a block mined over the past month. This single vote decides whether the next month follows outcome 4a or outcome 4b.

To the extent that currency use grew over time, money generated via the lottery would enrich all holders of the currency in proportion to their initial holdings (early adopters are rewarded). To the extent that the currency failed, the volume of currency available would contract with every block sent until none remained. If this occurred slowly enough, the price could remain stable during the contraction.

Rich voters decide between currency creation and currency destruction. If they are risk-neutral, they will be indifferent between destroying currency and generating it. I think they would try to manage the currency price in a sensible way to help it succeed and thus maximize returns on their investment. I believe that they would try to keep USD or EUR exchange rates stable, but it is up to them. Also, there is a market for control. If anyone decides that they can manage creation/destruction more successfully, they can seize control of voting through a massive investment in the coin.

Both of these ideas have the same problem - the rich controlling whether new coins are created or not.

If you own 1% of a currency, do you want that 1% to be devalued through creation of new coins?  No, of course not!  You'd want to minimize creation of new coins as much as possible to retain your holdings' purchasing power.

And I outright refuse to support a project where any person or group of people (or democracy) decides on how coin production should change.  It will be manipulated, just the same as the government manipulates the money supply today.  It doesn't matter what sort of checks and balances you put in place, the system would be abused to benefit those who are in the position of power to make a decision.  I would rather see volatility or inflation/deflation because of the decentralized nature of the currency than have a group of people controlling it.  Otherwise, we may as well just continue using USD and the other fiat currencies.

JohnDoe - getting back to our discussion regarding GDP growth and whether the rate will change... I just thought of this.  If the GDP growth rate is higher than population growth rate, then we should see more goods available for lower prices, adjusted for inflation.  But, that is not really what we are seeing in the world today.  Lately, we have been seeing increased energy prices far beyond the rate of inflation, increased food prices, increased land prices (except for the recent crash), etc.  Everything that is based on resources is going up in price, faster than inflation, which indicates we are approaching scarcity of those items.  Sure, you could argue that some commodities (such as oil) are being manipulated to increase prices (and profits), but even artificial scarcity will take its toll on overall GDP.

Your thoughts?

[jtimon]

Apparently, you didn't read my post above where I explain how coin-holding can be integrated with hashing as an additional coin generation criteria. This would prevent GPU owners from sabotaging an asset they don't hold a stake in.

Yes I did. I just don't like the money holders voting idea at all.

Apparently, you didn't read my proposal above. I outlined a system in which big holders should be indifferent between price deflation and inflation. The key here is designing a system in which their expected share of the total extant coins is constant regardless of whether they choose price deflation or inflation.

Yes, you claimed that the biggest holders "indifferent between price deflation", but that's not true. They clearly prefer deflation.
If their share is constant they still prefer deflation.

These rewards are not available now because the size of the market is too small to support merchants. Rewards may become available in a certain future state of the world.
If you want to increase the probability of reaching this state of the world, you should provide subsidies to merchants who bring stores online early. In an earlier post I included a link to a paper explaining this in the highly analogous situation of the ACH wire transfer system. Read it.

The merchants already exist. They get an extra profit for accepting bitcoin. Other business can exist without a system like bitcoin: they don't need further motivation.
Also I don't like subsidies.

I explored this above, it is not promising. Do you have something to add?

I'll give it a bit more thought.

[jtimon]

And I outright refuse to support a project where any person or group of people (or democracy) decides on how coin production should change.  It will be manipulated, just the same as the government manipulates the money supply today.  It doesn't matter what sort of checks and balances you put in place, the system would be abused to benefit those who are in the position of power to make a decision.  I would rather see volatility or inflation/deflation because of the decentralized nature of the currency than have a group of people controlling it.  Otherwise, we may as well just continue using USD and the other fiat currencies.

+1

JohnDoe - getting back to our discussion regarding GDP growth and whether the rate will change... I just thought of this.  If the GDP growth rate is higher than population growth rate, then we should see more goods available for lower prices, adjusted for inflation.  But, that is not really what we are seeing in the world today.  Lately, we have been seeing increased energy prices far beyond the rate of inflation, increased food prices, increased land prices (except for the recent crash), etc. Everything that is based on resources is going up in price, faster than inflation, which indicates we are approaching scarcity of those items.  Sure, you could argue that some commodities (such as oil) are being manipulated to increase prices (and profits), but even artificial scarcity will take its toll on overall GDP.

No, the price inflation is primarily a symptom of the monetary inflation created by the fed to prevent deflation and a credit crunch.
But they cannot keep on printing more and more and wait for all this debt to disappear. If they don't allow deflation to come in, hyperinflation will end with this unsustainalbe situation.
If the inflation index you're looking at doesn't include energy and food then is clearly a wrong index. GDP growth statistics are highly manipulated too. I recomend you a video series called the crash course. It explains in a comprehensive fashion how CPI and GDP are calculated. Also peak oil and other important subjects.

Keep in mind that your assumption of 4% constant growth means exponential growth.

[SgtSpike]

And I outright refuse to support a project where any person or group of people (or democracy) decides on how coin production should change.  It will be manipulated, just the same as the government manipulates the money supply today.  It doesn't matter what sort of checks and balances you put in place, the system would be abused to benefit those who are in the position of power to make a decision.  I would rather see volatility or inflation/deflation because of the decentralized nature of the currency than have a group of people controlling it.  Otherwise, we may as well just continue using USD and the other fiat currencies.

+1

JohnDoe - getting back to our discussion regarding GDP growth and whether the rate will change... I just thought of this.  If the GDP growth rate is higher than population growth rate, then we should see more goods available for lower prices, adjusted for inflation.  But, that is not really what we are seeing in the world today.  Lately, we have been seeing increased energy prices far beyond the rate of inflation, increased food prices, increased land prices (except for the recent crash), etc. Everything that is based on resources is going up in price, faster than inflation, which indicates we are approaching scarcity of those items.  Sure, you could argue that some commodities (such as oil) are being manipulated to increase prices (and profits), but even artificial scarcity will take its toll on overall GDP.

No, the price inflation is primarily a symptom of the monetary inflation created by the fed to prevent deflation and a credit crunch.
But they cannot keep on printing more and more and wait for all this debt to disappear. If they don't allow deflation to come in, hyperinflation will end with this unsustainalbe situation.
If the inflation index you're looking at doesn't include energy and food then is clearly a wrong index. GDP growth statistics are highly manipulated too. I recomend you a video series called the crash course. It explains in a comprehensive fashion how CPI and GDP are calculated. Also peak oil and other important subjects.

Keep in mind that your assumption of 4% constant growth means exponential growth.

I don't understand what you are saying.  How could monetary inflation of 4% result in price inflation of 8%?  I just made up those numbers, BTW, but even just looking at the price of gas... I mean, I remember when I was a kid and gas was $0.99/gallon.  I was probably around 10 years old at the time, so 1996 or so.  400% rise in price in 15 years, and I don't think inflation comes close to that.  Actually, using the inflation calculator here (http://www.usinflationcalculator.com/) it should only be $1.44 today.  Now, I don't know what metric of inflation they are using, but I doubt any metric you could find would show 400% inflation over the last 15 years.

I'm not at home, so can't watch the video at the moment.  And I really hate watching videos for information anyway, they usually talk much more slowly than I could read the same thing, so it frustrates and bores my mind.    But I'll try to get through it this evening.  Thanks for the link at any rate.

Yes, 4% constant growth does assume exponential growth.  But it doesn't assume growth in the growth rate.  I think the best we can do is assume continued growth at the rate we have seen in the past.  Even though it assumes continued exponential growth, and I don't believe exponential growth is possible indefinitely, there isn't really a way we can determine or even come close to estimating when that GDP growth rate will slow down.

[jtimon]

I don't understand what you are saying.  How could monetary inflation of 4% result in price inflation of 8%?  I just made up those numbers, BTW, but even just looking at the price of gas... I mean, I remember when I was a kid and gas was $0.99/gallon.  I was probably around 10 years old at the time, so 1996 or so.  400% rise in price in 15 years, and I don't think inflation comes close to that.  Actually, using the inflation calculator here (http://www.usinflationcalculator.com/) it should only be $1.44 today.  Now, I don't know what metric of inflation they are using, but I doubt any metric you could find would show 400% inflation over the last 15 years.

I'm not at home, so can't watch the video at the moment.  And I really hate watching videos for information anyway, they usually talk much more slowly than I could read the same thing, so it frustrates and bores my mind.    But I'll try to get through it this evening.  Thanks for the link at any rate.

Yes, 4% constant growth does assume exponential growth.  But it doesn't assume growth in the growth rate.  I think the best we can do is assume continued growth at the rate we have seen in the past.  Even though it assumes continued exponential growth, and I don't believe exponential growth is possible indefinitely, there isn't really a way we can determine or even come close to estimating when that GDP growth rate will slow down.

By monetary inflation you probably mean M0 inflation, but we use also use check-money (the money created by commercial banks) and other forms of credit to trade. With 1% money printing by central banks and 10% fractional reserve you can easily reach 10% inflation.
To achieve 400% rise in anything 15 years you need (1.09700^15 = 4.0095849) a 9.7% annual rate aprox. Probably gas has raised more than other things because energy is very important.

If you prefer to read, here's the web of the creator of the series, but I still recommend you to see the videos first. Each one is very short.

I think the best we can do is not make any assumptions about economic growth, specially at this moment in history when we will reach a peak of production on most commodities.

[JohnDoe]

Yes, 4% constant growth does assume exponential growth.  But it doesn't assume growth in the growth rate.  I think the best we can do is assume continued growth at the rate we have seen in the past.  Even though it assumes continued exponential growth, and I don't believe exponential growth is possible indefinitely, there isn't really a way we can determine or even come close to estimating when that GDP growth rate will slow down.

I think the best we can do is not make any assumptions about economic growth, specially at this moment in history when we will reach a peak of production on most commodities.

Yeah, after going through the crash course series I'm giving up on trying to push accelerating growth into the equation. I still believe it is feasible in the long term after completely transitioning from fossil fuels to nuclear/renewable energy, but I acknowledge that we are in for a bumpy road in the coming decades so it'd be better to just leave the growth rate fixed.

Btw, I got GDP growth data since the 1950s from the IMF and the Economist and a 4% average was about right.

[cunicula]

Yes, you claimed that the biggest holders "indifferent between price deflation", but that's not true. They clearly prefer deflation.
If their share is constant they still prefer deflation.

Okay, I'll explain again. The lottery is probably a bad idea, let's consider a deterministic system based on a numeraire instead. I can explain if you don't know what a numeraire is.

Assume you are one of the rich guys. You own 5% of all bitcoin. You have two voting options to choose from:

1) issue new bitcoin. Coins you issue are divided evenly across all existing balances. (you decrease the numeraire here)

2) destroy bitcoin. Gains from appreciation due to destruction are divided proportionately across all existing balances. (here you hold the numeraire constant)

Your decision has no effect whatsoever on your share of the total bitcoin money supply.  

It may help to think of money supply in terms of a pie. You start out with 5% share of the pie.
If you issue new bitcoin, the pie is larger, but you still own exactly 5% of it.
If you destory bitcoin, the pie is smaller, but you still own exactly 5% of it.

Given that your share of the pie is independent of your vote, how should you decide to vote?

You should vote so as to maximize the total real value of the pie.
If you make a decision that increases the total real value of the pie, you will be better off.
If you make a decision that decreases the total real value of pie, you will be worse off.

Can you think of a better way to organize decisions than this?

If you disagree with me, but cannot construct logical arguments to refute my points, then perhaps it is better to ask someone more intelligent than yourself to evaluate the argument for you.

[jtimon]

Uups. I though I had sent this post already

you can get around the txn volume measurement problem with a small % tax. However, there is a lingering problem. Txn volume tends to shoot up in periods of high volatility. Look at the stock market for evidence. In some cases, a price collapse could cause an increase in txn volume as people run for the exit. If the algorithm floods the market with coins in response, it would just make the problem worse. One possibility is to use only very long run trends in txn volume to adjust coin output. These long run trends are less likely to be related to volatility.

Yes, a small mandatory proportional fee should help.
I think high volume  should be interpreted as a symptom of inflation, not deflation, so the network would act the opposite way you describe.
With high volume, the demurrage would decrease but the reward would decrease even more (making dM negative).
Just exploring ideas...

You are right, I shouldn't have been so careless about the relationship between velocity and price.

Our equation for change in price:

%ΔP = %ΔM + %ΔV – %ΔQ

Our goal in math: find a function f(%ΔV), such that if we set %ΔM = f(%ΔV), then E[(%ΔP)] = 0
Our goal in English: find a money supply rule that minimizes expected price changes given what we observe about velocity

One obvious f(%ΔV) to choose is %ΔM = -%ΔV, this takes velocity out of the price change equation. However, if %ΔV and %ΔQ are correlated, then this is not a good rule.
The best rule to pick is f(%ΔV) = E[ -%ΔV + %ΔQ |  %ΔV ]. However, we have no idea what E[ -%ΔV + %ΔQ |  %ΔV ] is and there is no obvious way of estimating it.

In short, we are up shit creek.

We control M directly: dM = R (Reward) - D (demurrage rate)
But we control V only indirectly.
V rises with D and dM (and decreases when they decrease)
With dM = 0, dV > 0 => dP > 0

The functions we need to adjust are R = f(dV) and D = g(dV)

I'll keep on thinking about this. I didn't though the implications of knowing V because I though we could not know it.