A Better Coin

[d'aniel]

My position on this is that the psychological benefit, if any, is with inflation, not demurrage. Inflation is an every day phenomenon. Everyone is familiar with txn fees and inflation. Few people have ever seen a government drain their bank accounts to keep prices stable. I would rather not impose an unfamiliar experience on end users. I think this idea will be poorly received  by 99% of the population of potential users.

A good marketing strategy for a demurrage coin against an inflation coin would be to point out that the exact same drain is happening on their bank accounts, except with demurrage you at least get a receipt (i.e. it's completely transparent).  If people can at least agree that the debasement is sometimes necessary, then this seems like a no-brainer for discerning customers.  Especially after their experience with today's central banks.

As well there are the fairness/non-economically disruptive marketing angles I mentioned earlier:

Except with demurrage the debasement happens instantaneously, and evenly across currency owners.  With inflation, prices gradually get bid up as the new money works its way through the economy.  I imagine this can be potentially disruptive, as the new money starts overly concentrated in one place.  My intuition tells me bubbles could be caused this way.

[JohnDoe]

I think we're getting close to the consensus that demurrage is better than inflation.
Many of us agree we don't want direct human intervention in the system, too.
Until you remove money holders voting from your proposal I don't think it can be accepted by many people.
Only miners can vote and, as you pointed out, the effects of their voting must be innocuous for them or they will vote in their favor.
So the idea of miners reporting exchange prices is also banishing.
I still think they can vote to define a parallel stable currency for contracts and prices if it doesn't affect anyone's balance.

I believe both demurrage and supply expansion are required for price stability. If you only have demurrage then there will be price deflation proportional to the growth in GDP.

[cunicula]

Let me try to explain.

Transferring mining rights to wealthholders is how you would reduce the costs of security. In theory, I think it is the only possible method.

One way of thinking about it is as follows:

There are two ways to secure the network:
1) Require people to spend resources to vote on block validity
2) Screen people who vote on block validity to ensure that they are trustworthy.

People who are heavily invested in the system do not have incentives to carry out attacks. Successful attacks would undermine the value of their assets. Would someone who already holds 50% of the total coin want to carry out double spends? No, that person would be a fool to do so. Accordingly, he is rather trustworthy as a miner. If you subsidize wealth-holders in their search for blocks (for example by allowing them to submit blocks even with a low difficulty threshold), then you are screening miners for trustworthiness. Miners who are not trustworthy (people without a large stake in the system) would have to spend more computing resources to mine the same amount of blocks.

By shifting the security technology from resource use to voter screening, you save on resource costs and make network security cheaper. Ultimately, this means you can lower txn fees substantially without endangering the network.

You are making some grossly inaccurate assumptions about human kind which would make your system to be doomed for failure....  1) What stops a criminal coming in and buying up wealth to get in and then once there he uses his new power such that behind the scenes he is improperly acquiring more wealth from the system.  2) Just because someone has more coins does not mean the have a greater stake in the system, on the contrary it is often the big investors that have the least to loose because their entire capital investment is large enough that no single investment will bring them to their knees, so while they would want to protect theirselves you also couldn't trust them to not attempt to use their new found power to try a bleed a little extra from the system.  3)  Wealth holders getting lower difficulty blocks just means you further perpetuate all the wealth of the system being consolidated in just a few places.

I'm just relying on self-interest. Assumptions are standard. Write down a model, see what comes out of it. If attacks have some positive chance of being detected, and if detection of an attack reduces the value of the coin, then wealthholders will be the most trustworthy miners. End of story.

[jtimon]

I think we're getting close to the consensus that demurrage is better than inflation.
Many of us agree we don't want direct human intervention in the system, too.
Until you remove money holders voting from your proposal I don't think it can be accepted by many people.
Only miners can vote and, as you pointed out, the effects of their voting must be innocuous for them or they will vote in their favor.
So the idea of miners reporting exchange prices is also banishing.
I still think they can vote to define a parallel stable currency for contracts and prices if it doesn't affect anyone's balance.

I believe both demurrage and supply expansion are required for price stability. If you only have demurrage then there will be price deflation proportional to the growth in GDP.

I'm not that sure. Credit could expand to rise prices. The catastrophic deflations we've seen in the past were probably the outcome of a credit bubble that cannot growth exponentially anymore as interest promotes. In those cases the credit has to shrink because the level of debt is not sustainable, but with real growth we can afford a growth of credit instead of deflation. My point is, do we have to be scared of economic cycles when there's no interest?

And again, you're assuming we will always have economic growth, but some experts foresee economic contraction for the coming years.

[JohnDoe]

I'm not that sure.

You are saying that the equation of exchange (%ΔP = %ΔM + %ΔV – %ΔQ) is false then? If you don't believe a finite money supply will result in price deflation, with or without demurrage, then might as well stay with Bitcoin.

[jtimon]

I'm not that sure.

You are saying that the equation of exchange (%ΔP = %ΔM + %ΔV – %ΔQ) is false then? If you don't believe a finite money supply will result in price deflation, with or without demurrage, then might as well stay with Bitcoin.

Yes, I believe in the equation, but I think that credit may act as part of M. That M effectively increases by credit growth pushed by interest and that leads to so called business cycles. When the level of debt is unsustainable, the credit must contract, effectively decreasing M.

Also a modest deflation (caused only by growth) would not hurt investments as much as if there wasn't demurrage.

[JohnDoe]

Yes, I believe in the equation, but I think that credit may act as part of M.

I get that credit acts as M growth in a fractional reserve system, but how would you be able to lend money that doesn't exist in this blockchain? New money needs to be mined, it can't be summoned out of nowhere.

That M effectively increases by credit growth pushed by interest and that leads to so called business cycles. When the level of debt is unsustainable, the credit must contract, effectively decreasing M.

Also a modest deflation (caused only by growth) would not hurt investments as much as if there wasn't demurrage.

I'm confused. If M growth through credit is unsustainable, which I believe is true, then why would you want to rely on it for your chain?

[jtimon]

Yes, I believe in the equation, but I think that credit may act as part of M.

I get that credit acts as M growth in a fractional reserve system, but how would you be able to lend money that doesn't exist in this blockchain? New money needs to be mined, it can't be summoned out of nowhere.

There's many forms of credit, not only cheque-money created through fractional reserve. IOUs, for example. If you go to the bakery and ask for bread saying "I'll pay you tomorrow", you're bidding for bread with money that doesn't exist.

That M effectively increases by credit growth pushed by interest and that leads to so called business cycles. When the level of debt is unsustainable, the credit must contract, effectively decreasing M.

Also a modest deflation (caused only by growth) would not hurt investments as much as if there wasn't demurrage.

I'm confused. If M growth through credit is unsustainable, which I believe is true, then why would you want to rely on it for your chain?

The growth of M through credit is unsustainable because is issued with interest. The interest is what pushes the exponential growth.
Imagine the US stops its deficit right now. It earns from taxes as much as it spends and only borrows to pay the interest on previous debts. Eventually the debt will be unsustainable by growing through interest alone.
If you lent 1 oz of gold at 5% in the year 0, in the year 2000 your borrower owes you:

1.05^2 000 = 2.3911022 × 10^42 ounces of gold of gold
4 times the earth in gold if I remember well.

Without interest, the credit doesn't have to grow exponentially. Doesn't have to grow, it can also shrink when the debts are payed back.

The main point is that demurrage would suppress interest and therefore business cycles. But if we cannot agree on that, let's just say that the effects of the modest deflation produced only by growth would be less dangerous with demurrage than without it.

[JohnDoe]

Oh now I get it, for real this time. What I was having trouble with is the investment problem with deflation but I can see the difference with the addition of demurrage now. Let's say demurrage rate is 10%, I invest 100 coins in stock and at the end of the year my shares are worth 96 coins because of price deflation. This would be a serious loss in Bitcoin, as it would have been better to just leave the coins in my wallet. With this currency though I'm still better off because if I hadn't invested then I would only have 90 coins left. So it doesn't really matter if the nominal value of my assets goes down as long as the demurrage rate is superior to the deflation rate.

For loans, a creditor could lend at negative interest and still be better off. With demurrage at 10% and deflation at 5%, I could lend 100 coins and ask for 93 back. This is still superior than saving the money and it's also extremely convenient for the debtor as he end ups paying up less than what he borrowed (both in nominal terms and adjusted for purchasing power). It's totally genius.

You can sign me up as a demurrage-only advocate.

[jtimon]

Oh now I get it, for real this time. What I was having trouble with is the investment problem with deflation but I can see the difference with the addition of demurrage now. Let's say demurrage rate is 10%, I invest 100 coins in stock and at the end of the year my shares are worth 96 coins because of price deflation. This would be a serious loss in Bitcoin, as it would have been better to just leave the coins in my wallet. With this currency though I'm still better off because if I hadn't invested then I would only have 90 coins left. So it doesn't really matter if the nominal value of my assets goes down as long as the demurrage rate is superior to the deflation rate.

For loans, a creditor could lend at negative interest and still be better off. With demurrage at 10% and deflation at 5%, I could lend 100 coins and ask for 93 back. This is still superior than saving the money and it's also extremely convenient for the debtor as he end ups paying up less than what he borrowed (both in nominal terms and adjusted for purchasing power). It's totally genius.

You can sign me up as a demurrage-only advocate.

Cool. We (some gesellians/freeconomist/demurrage advocates) have started a forum to discuss the implementation of a bitcoin fork with demurrage.
The main discussion is going to be if an elastic money supply is needed or not. After reading a few books and discussing a lot with austrians here in the forum, I strongly doubt the desirability of it. But gesell actually thought that the central bank/government issuing the freigeld (free money in german) should manage stable prices. In his opinion, that can't be done easily without demurrage because V is not much constant.
Also implementing a bitcoin fork with demurrage would be relatively easy while a feasible fully decentralized currency with stable value doesn't even have a design that doesn't rely on miners reporting prices from external exchanges.

http://freicoin.freeforums.org

[JohnDoe]

The main discussion is going to be if an elastic money supply is needed or not. After reading a few books and discussing a lot with austrians here in the forum, I strongly doubt the desirability of it.

I also don't believe it will be necessary.

But gesell actually thought that the central bank/government issuing the freigeld (free money in german) should manage stable prices. In his opinion, that can't be done easily without demurrage because V is not much constant.

It would be ideal to be able to expand or contract the money supply at will to maintain price stability but, as we've concluded in this thread, it is not possible without centralization. I think price deflation will only be a minor inconvenience unless the rate of deflation is superior to the rate of demurrage.

[JohnDoe]

This is my proposal for awesomest blockchain ever:

- Name of currency: Gesell.
- Annual demurrage rate of 10%. This rate is high enough to make the currency very resistant to business cycles but not high enough to make it inconvenient to use.
- Demurrage is triggered every block so the rate per block would be 0.0002% (we assume 52560 blocks per year).
- Coins from demurrage get added to the block reward (nSubsidy + nFees + nDemurrage).
- Base nSubsidy is changed from 50 * COIN to 50,000 * COIN. This helps with granularity and with the psychological barrier of coins being worth too much in USD.
- Max money is 21 billion instead of 21 million.
- Retarget interval decreased from 2016 blocks to 1008. This helps with the accuracy of our target demurrage rate.
- Difficulty decrease limit is lifted.

[jtimon]

This is my proposal for awesomest blockchain ever:

- Name of currency: Gesell.

I've named it freicoin (freigeld + bitcoin) until know, but the name could be changed of course.

- Annual demurrage rate of 10%. This rate is high enough to make the currency very resistant to business cycles but not high enough to make it inconvenient to use.

I think that may be too much. Gesell estimated (well, someone else I can't remember did the historical study) that the interest rates were historically between 4% and 5% per average. So he proposed 5%.
If the demurrage rate is too high, the interest rates are going to be negative even with stable prices and I'm not sure that's desirable.

- Demurrage is triggered every block so the rate per block would be 0.0002% (we assume 52560 blocks per year).

Sure, every block is better than daily, monthly or whatever. It allows us to equal the reward to the demurrage once the maximum based is issued.

- Coins from demurrage get added to the block reward (nSubsidy + nFees + nDemurrage).
- Base nSubsidy is changed from 50 * COIN to 50,000 * COIN. This helps with granularity and with the psychological barrier of coins being worth too much in USD.

We should discuss the intial generation curve. viperjbm has proposed to have a lower demurrage rate until the monetary base is issued to attract early adopters.

- Max money is 21 billion instead of 21 million.

I think the maximum base is as important as the name (not very important). Maybe just from the psychological perspective.
I would like that both the maximum base and the perpetual reward (maximum base / (annual demurrage / 52560)) were round numbers.

- Retarget interval decreased from 2016 blocks to 1008. This helps with the accuracy of our target demurrage rate.
- Difficulty decrease limit is lifted.

I agree. with decresing the interval. Probably we should have a time limit (in addition to the block number limit) for retarget, like I0coin has.

We're discussing this kind of things in the forum. We're very few, but I hope more people join us with time. Bitcoiners that meet Gesell and gesellians that meet bitcoin mostly, but maybe also converted keynesians, who knows.

[JohnDoe]

I think that may be too much. Gesell estimated (well, someone else I can't remember did the historical study) that the interest rates were historically between 4% and 5% per average. So he proposed 5%.
If the demurrage rate is too high, the interest rates are going to be negative even with stable prices and I'm not sure that's desirable.

I haven't read his book The Natural Economic Order but I found this in the shopkeeper chapter:

         "About the depreciation itself I have no reason to complain. Personally, as a merchant, I should welcome an increase of the rate of depreciation from 5 % to 10 % a year, for that would make buyers still more amenable and book entries would cease entirely, so I could dismiss my last book-keeper. I now see that the more despised money is, the more highly esteemed are goods and their makers, and the simpler is commerce. Workers can be respected only in a country where money is not superior to them and their products. This desirable result, though not quite attained by the present rate would certainly be realised by a rate of depreciation of 10 %, so possibly the rate may be raised in favour of the workers.

          And what is even 10 % on my average cash balance of $1000? A hundred dollars a year! A mere trifle, compared to my other expenses. I can moreover contrive to reduce this amount considerably by getting rid of my money still more speedily, that is, by paying not only cash but in advance. "

What happens if the deflation rate goes over 5%? People will start hoarding and we'll have a recession. Also what's wrong with negative interest rates? As long as the creditor is better off with the deal then what's the problem? Even with negative interest the creditor could maintain or increase his purchasing power.

We should discuss the intial generation curve. viperjbm has proposed to have a lower demurrage rate until the monetary base is issued to attract early adopters.

Yeah, you may be right.

[jtimon]

If the interest rates are below zero, money holders would prefer to hoard goods over lending.
The merchant wants 10% demurrage, but Gesell says:
"Interest on commercial capital is composed of this regular payment which, distributed over the total annual transactions, amounts, as we know from thousands of years of experience, to about 4 or 5% per annum of the capital sum involved."
I can't find the reference to the author he mentioned, that measured the average interest rates since roman times.

[JohnDoe]

If the interest rates are below zero, money holders would prefer to hoard goods over lending.
The merchant wants 10% demurrage, but Gesell says:
"Interest on commercial capital is composed of this regular payment which, distributed over the total annual transactions, amounts, as we know from thousands of years of experience, to about 4 or 5% per annum of the capital sum involved."
I can't find the reference to the author he mentioned, that measured the average interest rates since roman times.

You are right, didn't think about that. 5% it is.

[🏰 TradeFortress 🏰]

I just don't see it being logical to have it going anywhere near 500k/block.
I like our current method.
Once all the blocks are mined, the pools can force a minimum transaction fee to be allowed by them.
I do think that 21million coins is a LOW amount, but that's why there a numbers bellow 0 (to the 8th).

500k/block would be necessary if 300,000,000 people used it.  That would keep the currency at roughly parity with the dollar (which makes sense, in order to avoid the psychological "less is not more" barrier).

It is also necessary to continue with block rewards, so that the currency doesn't go into a deflationary spiral (which WOULD happen - see "The Great Depression").

I also believe that, with the current Bitcoin client, transaction fees will not be high enough to maintain a sufficient number of miners to keep the network secure.  Once we hit 25 BTC rewards, the number of miners will drop in half.  Same thing when we reach 12.5 BTC rewards, etc.  The end result is that we wouldn't have enough money being spent on mining to keep the network secure, which I'll explain in further detail.

If we assume there is no growth in bitcoins from now until the reward is effectively gone (and thus no value increase), then miners will see a reward of 0.05 BTC/block or so.  Which means that the network would be secured, theoretically, by 1/1,000 of the number of miners that currently secure it.  We'd have 20-50 GPU's securing the entire network worth $210M.  In order to maintain the same level of network security that we have today, on a "hash-per-market-cap" basis, we'd have to have 1000 times the number of transactions in each block that are currently had.  That's just not going to happen unless worldwide adoption becomes a reality, so we will always have a discrepancy between the hashing power securing the network and the total value of the network.  Sure, if prices reach $1,000, then we might have 2,000 to 5,000 GPU's securing the network, but that network would be worth $21B.  So 2,000 to 5,000 GPU's probably isn't going to be enough at that point either.  At the current transaction rate, the network will not be sustainable in the future.

See the problem?

It's been suggested a number of times before under Inflatacoin, Keynescoin, etc. Nobody has cared enough about the idea to actually spend the time creating the new chain. People wouldn't buy or mine it because with inflationary currencies you either use it right now or you lose your purchasing power, and since there would be nothing to buy with it then the only option is to lose.

It's not inflationary - it's stable.  Well, eventually anyway.

Once the number of coins generated equals, roughly, the number of coins accidentally lost, then the currency is stable.  It shouldn't increase or decrease in value.  Up to that point, it would be inflationary, but the hope would be that the adoption rate of the currency would keep up.

Did this happen? hmm? No, we do not need a better coin.

[SgtSpike]

Did this happen? hmm? No, we do not need a better coin.

Random thread necro...

Anyway, it did not happen because I do not have the capabilities to make it happen, and no one else seemed interested in making it happen.  If I had the capabilities, I would have most certainly made it happen. 

[jtimon]

Since demurrage was discussed here, I think maybe some of the thread participants may be interested in knowing that Freicoin (a fork with demurrage) has already launched. More info here: http://freico.in/

[Bicknellski]

Did this happen? hmm? No, we do not need a better coin.

Random thread necro...

Anyway, it did not happen because I do not have the capabilities to make it happen, and no one else seemed interested in making it happen.  If I had the capabilities, I would have most certainly made it happen. 

It happened.