Freicoin: bitcoin with demurrage

[jtimon]

Bitcoin is modeled on mining - your model is modeled on farming. ie you farm a crop and you need to distribute it quickly before it rots. The problem is that we eat food, we don't eat gold. Unless we have an intrinsic need for the money before it rots why would we need it?

Interesting analogy.
The "intrinsic need" as for gold, dollars and bitcoins, is that you know you can exchange them later for other goods and services. The producer doesn't eat his wares neither, and he don't want to exchange them for other wares, he wants money because it acts as a wild card. That's were the "intrinsic need" of money is. It should be just a proxy between your product and your consumption. We don't need money to be the best storage of value too. People will store more non perishable food (storages of real value, not monetary) if moneys decays.

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[dancupid]

Bitcoin is modeled on mining - your model is modeled on farming. ie you farm a crop and you need to distribute it quickly before it rots. The problem is that we eat food, we don't eat gold. Unless we have an intrinsic need for the money before it rots why would we need it?

Interesting analogy.
The "intrinsic need" as for gold, dollars and bitcoins, is that you know you can exchange them later for other goods and services. The producer doesn't eat his wares neither, and he don't want to exchange them for other wares, he wants money because it acts as a wild card. That's were the "intrinsic need" of money is. It should be just a proxy between your product and your consumption. We don't need money to be the best storage of value too. People will store more non perishable food (storages of real value, not monetary) if moneys decays.

I think your idea could work if it included seeding - if i buy a potato I can eat it now or I can plant it and produce 20 potatoes. That's how agriculture works - though people need land. I think any analogy that's worked in reality could work as a virtual currency.

[Sepp]

Let's concentrate then in another advantages.

1) Transaction fees are not a problem, but demurrage fees reduce them. Bitcoin holders are receiving a service that bitcoin transactors pay for in form of transaction fees. I mean in the future, currently holders also pay through monetary inflation. But in the future it will be an externality.

2) Demurrage fees increase the velocity of freicoin. That is good for merchants that will make more sells.

1) I see transaction fees as being quite separate from demurrage. As you say, with demurrage there is no need to use transaction fees for ensuring currency stability or as a reward for miners. I don't understand why in the future currency holders would pay through monetary inflation, or how that would be an externality. Care to specify?

2) Yes, agreed that demurrage increases velocity of circulation, and thus make the currency better for commerce.

Although miners prefer bitcoins over freicoins for their superior speculative value, with merged mining, miners will get the bitcoins the namecoin and the freicoins and sell the ones they don't like for whatever they get, because they don't have additional hashing costs. At 1 satoshi per freicoin, I will buy all the freicoins if no one else want them, so mining won't be a problem.
The problem is acceptance from users and that relies heavily in the acceptance from developers entrepreneurs. We need them to adapt the current bitcoin software and services to also work with freicoin.
Well, first we should code freicoin...
Making a fork from namecoin or collaborating with multicoin (that already have merged mining) seem the better alternatives for now.

Merged mining seems a good idea.

I think users will accept freicoins, but I have some doubts about the ease of use for commerce with the software as it is now. It isn't to everyone's taste to be deal with bugs in transfers or complications with wallets. Things will have to get simpler from the end user standpoint, if the currency is going to have wide appeal. 

A currency that stabilizes its price through changing the monetary base is being discussed in another thread, and I think it could be done better with demurrage than with destructive fees.

I don't want to change the stable monetary base feature of bitcoin, because I don't want the people in the forum to confuse demurrage with monetary inflation. In fact, the monetary base is more constant in freicoin than in bitcoin because it recovers lost wallets.

Thanks for that link. I posted in the other thread.

I can understand why you would like to keep the two things separate.

It is difficult enough to explain one concept at a time...

[jtimon]

1) I see transaction fees as being quite separate from demurrage. As you say, with demurrage there is no need to use transaction fees for ensuring currency stability or as a reward for miners. I don't understand why in the future currency holders would pay through monetary inflation, or how that would be an externality. Care to specify?

No. Now bitcoin miners are rewarded through inflation (new bitcoins are created with each block that go to the miner) and tx fees, In the future only tx fees will pay for the work of the miners.
With demurrage, fees are also allowed, but freicoin holders also pay miners, not only the people who want to move their coins fast.
The externality is the following: some users that gain from the bitcoin network won't pay anything for the miners work. Currently every holder is also paying indirectly the reward for the miner, since this new created coins make their own coins less valuable.

Merged mining seems a good idea.

I think users will accept freicoins, but I have some doubts about the ease of use for commerce with the software as it is now. It isn't to everyone's taste to be deal with bugs in transfers or complications with wallets. Things will have to get simpler from the end user standpoint, if the currency is going to have wide appeal. 

Things will have to get simpler from the end user standpoint for bitcoin too. There's many people working on it.

[jtimon]

The two scenarios are EXACTLY THE SAME.

In terms of purchasing power of the money holder, yes.
In term of inflation (the unit of value for calculations and contracts), no.
In terms of interest rates, no.
The economic decision making is different.

I think they are correct that the two scenarios are effectively equal.

With inflation, the purchasing power of all money holders decreases.

With demurrage, the purchasing power of all money holders decreases.

Total money supply = 2X, purchasing power = X vs. total money supply = X, purchasing power = X/2.

They are mathematically equivalent. In both cases the winners are miners, the losers are savers.

Here I elaborate a little more the differences between inflation and demurrage:

https://bitcointalk.org/index.php?topic=36450.msg469848#msg469848

[DiamondPlus]

Demurrage would seem to discourage Merchants joining on freicoin/bitcoin.  With fees, you get what you charged for.  With demurrage I see destroying money that people own, have earned, and have every right to spend, and give it to whoever they want. (This is an idea of bitcoin representing value owned.  A very attractive idea to me.) For what? To avoid an honest Supply/Demand economy in bitmining?

The concept of people leaving the bitmining pool and joining thus creating a raise and drop in prices is really simple supply and demand economy.  This is free market at it's finest and simplest.

I feel strongly about the apple scenario.  Somebody answered the question 'Why buy an apple today when tomorrow you can buy two?' with 'Because your hungry.'  Which is exactly the point of it!  With the deflating dollar I need to buy a dozen apples today to retain my dozen apple value that I received in pay for my hard work, even though I won't be able to trade those apples for a car I may need in the future.  So I have to stop purchasing so many apples and save money at a rate that exceeds the rate of inflation, when in fact if I had saved my money and only bought apples when I was hungry I could have purchased the car sooner and replaced the vehicle more often, and all parties involved would benefit.  The apple seller would be getting an increasingly valuable currency for his apple, the car dealer as well for his cars.

-DiamondPlus

[jtimon]

Demurrage would seem to discourage Merchants joining on freicoin/bitcoin.  With fees, you get what you charged for.  With demurrage I see destroying money that people own, have earned, and have every right to spend, and give it to whoever they want. (This is an idea of bitcoin representing value owned.  A very attractive idea to me.) For what? To avoid an honest Supply/Demand economy in bitmining?

The concept of people leaving the bitmining pool and joining thus creating a raise and drop in prices is really simple supply and demand economy.  This is free market at it's finest and simplest.

The market for mining would act the same way with this system. The only difference is that miners will be rewarded by the system (as they are today) perpetually. Some people claims that the transaction fees market would be a tragedy of the commons and the security of the network in proportion of the market cap will severely drop when the reward halves.

I oppose the idea that inflation or demurrage prevents savers from saving. There are many ways of saving, the most productive for the society is investing. Savers are just discouraged to hoarding the currency. They can hoard other goods if that's their passion.

Inflation punishes savers and creates bubbles today just because it is created through cheap loans to privileged borrowers (the state and commercial banks). InflataCoin lenders would just add the corresponding inflation premium to the real interest of their loans: lenders don't suffer from inflation if it is totally predictable.

Apart from the "obvious" accounting inconvenience, inflation has another disadvantage over demurrage. "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" (that's from d'aniel).
That contribute to the bubbles formation but also has another implication:
Pure inflation creating (without debt, like the greenbacks advocates want) does not lower interest rates. Demurrage does.
When negotiating, the lender doesn't have to necessarily take the losses of inflation if instead of lending buys the market that is going to be inflated. So liquidity yields in itself because it can take advantage of the unexpected changes of the near future.
With demurrage the lender has an unavoidable incentive to lend the money or invest it.
It is a transfer of wealth from lenders to investors that would enable capital yields to drop to zero by competition just like ordinary sustained profits do. But the lenders privilege came from
the fact that money is scarce, everlasting and necessary for all sectors. Their privilege is what has stopped investors to compete until capital yields and thus interest rates go to zero. The total revenue of a given capital (until the time destroys it) could equal its production costs (zero profits). Now capital goods need to be at least as profitable as lending money. If we suppress the bottom limit for interests, we also suppress the artificial upper limit that is set on investments. There will be always unemployment if there's interest, because there will always be more workers than factories in order for them to be as profitable as money and not just solvent.

I feel strongly about the apple scenario.  Somebody answered the question 'Why buy an apple today when tomorrow you can buy two?' with 'Because your hungry.' Which is exactly the point of it!  With the deflating dollar I need to buy a dozen apples today to retain my dozen apple value that I received in pay for my hard work, even though I won't be able to trade those apples for a car I may need in the future.  So I have to stop purchasing so many apples and save money at a rate that exceeds the rate of inflation, when in fact if I had saved my money and only bought apples when I was hungry I could have purchased the car sooner and replaced the vehicle more often, and all parties involved would benefit.  The apple seller would be getting an increasingly valuable currency for his apple, the car dealer as well for his cars.

I won't the argument that "deflation prevents trade" anymore as I recognaise that it could be just a myth.
But the logic tells me that deflation discourages real capital accumulation.

Anyway, the main points of freicoin are to lower interest rates and keep on rewarding miners after the maximum monetary base has been issued. Encouraging trade is not a bad thing though.

[scrybe]

What differences (if any) from the OP are in the 12-21-12 release?

[jtimon]

What differences (if any) from the OP are in the 12-21-12 release?

Maybe Mark knows something else, but I would say...

1) A reference block is added to transactions to calculate the payback.
https://github.com/freicoin/freicoin/issues/3

2) Merged mining isn't implemented from the start since we were afraid of being attacked when our difficulty is still low.

3) Divisibility has been improved.
https://github.com/freicoin/freicoin/issues/67

3) Initial distribution is not logarithmic, but linear
https://github.com/freicoin/freicoin/issues/55

4) And probably the biggest (and hardest to decide on) change...80% of the initial distribution won't be mined, but given to non profits through grants.
https://github.com/freicoin/freicoin/issues/29

Oh, I almost forgot. Demurrage is not 5% a year but 4.9something % (2^-20% each block) for optimization.

Thank you for your interest and don't hesitate to ask more questions.

[maaku]

3) Divisibility has been improved.
https://github.com/freicoin/freicoin/issues/67

Actually this one was eventually rejected. But to handle demurrage properly we made a switch to exact rational arithmetic internally, which would make it trivially simple to implement sub-satoshi support such as using decimal64 for amounts. It'd be a hard-fork, however.

[king_pin]

Excuse me for the noob question, but I want to start mining FRC fast and I cant find out how to make  a wallet.
How can you make your own wallet for FRC and is there a Freicoin_qt

[scrybe]

Excuse me for the noob question, but I want to start mining FRC fast and I cant find out how to make  a wallet.
How can you make your own wallet for FRC and is there a Freicoin_qt

You don't have to shout...

You might want to head over to the alternate cryptocurrencies subforum and read up there, there are 3-4 posts going right now including a fairly long one I started on day 2.

The public facing site where you can get the client and more information is freico.in

There is also a nascent online wallet option under development at endlessfreico.in

Lastly if you need help, please stop by #freicoin on freenode IRC.

Enjoy!

[king_pin]

I'm shouting, cause I've looked over an hour and I couldnt find shit. There is TMI on the alternative cryptocurancies, and all I got was www.freicoin.org.  

Thank you for the www.freico.in link!  

[ElectricMucus]

4) And probably the biggest (and hardest to decide on) change...80% of the initial distribution won't be mined, but given to non profits through grants.
https://github.com/freicoin/freicoin/issues/29

So you decided to defraud the participants after all? Cool story...

I mean go for it!

[scrybe]

I'm shouting, cause I've looked over an hour and I couldnt find shit. There is TMI on the alternative cryptocurancies, and all I got was www.freicoin.org.  

Thank you for the www.freico.in link!  

I wanted to be sure, this was post #5 on the first page of the first thread.

where u get these from?? got a link to the client / daemon? and whitepaper, pools etc?

website: http://freico.in/
Forums: www.freicoin.org
Github: https://github.com/freicoin/freicoin

The forums are a mess, I'm still trying to sort it out, here's a quick dump.

It was referenced in a "lost bitcoins" conversation recently, so I grabbed the client (released on 12-21-12) and started solo mining.

FIRSTLY Freicoin is not released, it will be released on 21-DEC-2012. Please click this link for real information on the coin.

I'm still looking for more information such as the coin limit (if any) (100 million) but I know this much...

It's been in the works a while:
Original project announcement thread:
https://bitcointalk.org/index.php?topic=3816.0

Article from June
http://www.newscientist.com/blogs/onepercent/2012/06/freicoin-occupys-online-curren.html

Failed Indiegogo pitch:
http://www.indiegogo.com/freicoin

Beta started this fall, and the chain was reset on 12-21-12 for production.

It's an odd critter. It's a demurrage based currency where your coins are constantly losing 4.89%/year which is paid to miners as a subsidy. It's brainchild came out of the 99% movement so it's aimed at disincentivising  hoarding and lowering interest rates. I don't quite get how this could work with other currencies in existence, but the slow 4.89% seep rate may not matter too much in the end. It may just be like bitcoin but with skewed interest rates and less desire to hold.

[ciphermonk]

There will always be people that will try to control an economy using monetary policies, rather than let money be the reflection of an economy. This only creates lies and lies can not go on forever.

[scrybe]

There will always be people that will try to control an economy using monetary policies, rather than let money be the reflection of an economy. This only creates lies and lies can not go on forever.

Is that relevant to the discussion to some way, or just a standard piece of dogma you like to share?

Whom?
Which policies?
Which money?
What economy?
What lies?
Why not?

I truly am interested in your logic here, but there is nothing specific in your post.

[jtimon]

@king_pin
Maybe you're interested on this thread about mining:
http://www.freicoin.org/help-for-new-miners-t77.html

4) And probably the biggest (and hardest to decide on) change...80% of the initial distribution won't be mined, but given to non profits through grants.
https://github.com/freicoin/freicoin/issues/29

So you decided to defraud the participants after all? Cool story...

I mean go for it!

Yes, just like those other "community cronies" at ithaca http://ithacahours.info/loansgrants.php
Or like the bundesbank when it distributed the newly issued money equally among German citizens. I guess the issuing process must be wasteful enough (bitcoin, gold) for you to consider it legitimate. The fact is our issuance costs will be much lower bitcoin's.
I wonder what will you think when the new Ripple launches...don't know how they will do the issuance but their chain has no proof of work, so it won't go to miners.

[ciphermonk]

There will always be people that will try to control an economy using monetary policies, rather than let money be the reflection of an economy. This only creates lies and lies can not go on forever.

Is that relevant to the discussion to some way, or just a standard piece of dogma you like to share?

Whom?
Which policies?
Which money?
What economy?
What lies?
Why not?

I truly am interested in your logic here, but there is nothing specific in your post.

Sorry if my statement appeared to be out of context.

To be more specific, I believe arbitrary money policies like demurrage coerce people into changing their economic behaviors. I say coerce, because they are effictively forced to spend their money whereas they might have otherwise saved it to buy something later.

This creates a situations where goods and services are being baught for the wrong reasons. People try to get rid of their money instead of making sensible economic decisions. To pick an example, a family father might decide to spend all of his monthly income instead of saving some for sending his kids to college. It creates a lie, because people act differently than they would otherwise do.

Money should be as neutral as possible and should not get into the way of making economical decisions. And as far as the money circulation argument goes, good money circulation should be the result of a healthy economy. It doesn't work the other way around.

The good news is that inflationary/demurrage based currencies can only be widely adopted at gunpoint. In a free money economy where actors can transact in the currency of their choice, value-retaining currencies will prevail. In any case, time will tell.

[scrybe]

There will always be people that will try to control an economy using monetary policies, rather than let money be the reflection of an economy. This only creates lies and lies can not go on forever.

To be more specific, I believe arbitrary money policies like demurrage coerce people into changing their economic behaviors. I say coerce, because they are effictively forced to spend their money whereas they might have otherwise saved it to buy something later.

This creates a situations where goods and services are being baught for the wrong reasons. People try to get rid of their money instead of making sensible economic decisions. To pick an example, a family father might decide to spend all of his monthly income instead of saving some for sending his kids to college. It creates a lie, because people act differently than they would otherwise do.

Money should be as neutral as possible and should not get into the way of making economical decisions. And as far as the money circulation argument goes, good money circulation should be the result of a healthy economy. It doesn't work the other way around.

The good news is that inflationary/demurrage based currencies can only be widely adopted at gunpoint. In a free money economy where actors can transact in the currency of their choice, value-retaining currencies will prevail. In any case, time will tell.

Let me challenge that a bit.

Is it coercion if the coin is a voluntary unit that can be selected for adoption based on parameters like demurrage that can be understood up front? Especially since it is likely there will be ever more ways to turn FRC into another coin/fiat that does not have demurrage. At this point I think that coerce is too strong a word, right now FRC is a choice, it only has the potential to be coercion if someone is forced to transact in FRC in some way. Persuade, or "assisting the user in tricking themselves to do the right thing" (like all the crazy stuff ppl do to remember/force themselves to go to the gym) may also be accurate descriptions. I agree that it is arbitrary at time of currency creation, but it is a known quantity (and generally fixed) before mass adoption happens.

Your second point assumes goods/services that are only available for FRC, if the vendor takes fiat or another one does for the same commodity you have a market force that will push you to buy from the vendor that offers the better deal. In this example you have to do the cost/benefit analysis of using FRC with one vendor at his price with fiat at another vendor for the same item. If "net item price" in FRC is more than 5% less (if you only turn over your FRC once a year, far less if you just keep liquid cash as FRC and convert the rest) than the fiat price, then you are better off using FRC, but if it is more expensive then maybe you don't spend your FRC that day. We are talking about 50/1000 coins a year, so waiting a few days to find a good deal in FRC will only cost a fraction of a Freicoin a day. If you turn over 100% of your FRC every month I doubt you will worry about it beyond converting some funds if there are left-over FRC that are not budgeted. Your example is about incenting savings, which is not what FRC is trying to do (except in as much that it incents you to convert your long term funds into a better currency.) So are the goods and services being bought for the "wrong" reasons, or is it just one factor (others include price, promotions, advertising) pushing you towards spending?

Good money always naturally follows with a good economy?: https://bitcointalk.org/index.php?topic=1534.0
Industrial Revolution England is a pretty strong argument against the absolute link between good money and a good economy (or innovation.)

I'm pretty sure that money can be just about anything, but it has to circulate, no matter how "good" or "bad" it is. Baseball/Pokemon/etc. cards are horrible money, but you see them being used as loan collateral and exchange medium on the playground. Wide adoption with a currency means something different that with a lot of technologies, I think it is that because money is an intensely local (physical or virtual locations) phenomenon, and seeing a currency go global is the exception rather than the rule.

Personally I think that value-retaining currencies have an advantage right now because of economic conditions, if liquidity is king in the 2020's then it might flip over to some degree. Either way your point about force is 100% correct, so we have a relatively free market to observe.