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Author Topic: Freicoin (was Re: Deflation and Bitcoin, the last word on this forum)  (Read 6567 times)
jtimon
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September 21, 2011, 07:26:06 AM
 #1

I thought you claimed "there's nothing wrong with deflation" too. Sorry, my fault.

By "undeniable truths" I mean premises that are obvious to anyone and that no one will discuss. Logic is part of math, is not a social science.

I agree, I prefer gold over USD. But national inflationary (I prefer this term over fiat because I don't think fiat is bad per se, in fact I consider bitcoin fiat) currencies are not the only alternative.

I think business cycles are avoidable because I think their root cause is interest.

I consider gold and bitcoin flawed because they have interest. I advocate for ripple and freigeld (freicoin if you want to keep the state out of its issuance) and ripple instead. Well, I advocate for bitcoin (it's enough hard to explain it without the demurrage, one step at a time) and I recommend people to buy gold and silver (to protect themselves against what I see as the "unavoidable global fiat system collapse"), but I think they won't be the "money of the future" because of their flaw.

I bet you're going to answer with one of these two:

-Without interest people invest in stupid things.
-Demurrage is isomorphic with inflation.

But those questions are not about deflation. If you want, we can discuss those points here: https://bitcointalk.org/index.php?topic=3816.0
Probably I will start a new thread "Why demurrage is not equivalent to inflation".

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 21, 2011, 08:08:37 PM
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I thought you claimed "there's nothing wrong with deflation" too. Sorry, my fault.

By "undeniable truths" I mean premises that are obvious to anyone and that no one will discuss. Logic is part of math, is not a social science.


Logic is logic.  Logic involves proofs, but that doesn't make it math.  Praxeology involves logic and reason and math, but it's still a social science.  The core concept of praxeology, and thus all included disiplines, is the study of human actions.  Thus, there is no way to separate the social aspect of the science without significant flaws.

Quote
I agree, I prefer gold over USD. But national inflationary (I prefer this term over fiat because I don't think fiat is bad per se, in fact I consider bitcoin fiat) currencies are not the only alternative.

I can see how you might consider Bitcoin to be similar to fiat currencies, lacking any obvious non-monetary use value; but how could you rationally consider it fiat?  The very term requires the imposition of a government agency, since it literally means "by decree".

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I think business cycles are avoidable because I think their root cause is interest.


I'm sorry to tell you this, but this is wrong.  The business cycle's root cause is malinvestment.  The social aspect is that, during the boom, investors are as upbeat as everyone else and are more likely to investing borderline projects.  Artificially low interest rates, manipulated by central banks, make this pattern of malinvestment worse but are not themselves the cause.  The root cause of the boom is a form of collective sentiment, what Keynes called "animal spirits".  Keynes was not wrong about the role of the mood of the collective in the business cycle, he was wrong in his belief that it could be forced via monetary policy.  The malinvestment of the boom cycle is what then makes the correction inevitable, but there is always a trigger event that draws the attention of the collective towards the developing cracks in the system.  Once the first true crack is identified to the collective, it starts looking for more, and it finds them; and then the mood changes.  And this continues until the correction resolves the cracks, and the recovery begins.  After a time of no cracks, the sentiment slowly turns to a 'feeling' that there are no more cracks to worry about, and the boom starts again.  In the past, both a gold standard and the more local regionality of the credit & productive markets tended to limit the scope of the boom, and thus the severity of the bust.  The boom from 1992 to 2001 was the longest national (worldwide?) boom period in the history of the US, thus we can expect the most severe correction in the history of the US.  But only once those with the power to manipulate monetary and fiscal policies finally resign to allow the correction to occur, or simply fail to continue to prevent it.

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I consider gold and bitcoin flawed because they have interest. I advocate for ripple and freigeld (freicoin if you want to keep the state out of its issuance) and ripple instead. Well, I advocate for bitcoin (it's enough hard to explain it without the demurrage, one step at a time) and I recommend people to buy gold and silver (to protect themselves against what I see as the "unavoidable global fiat system collapse"), but I think they won't be the "money of the future" because of their flaw.


Neither gold nor Bitcoin have interest by their design (or nature).  Interest exists only because two parties are willing to engage in contract.  Do you believe that there is some mechanism inherent to either Freicoin or Ripple that prohibits interest?  Ripple is a web-of-trust credit system, and not a currency at all, so there is certainly not any means to prevent interest contracts from forming in whatever currencies that Ripple users ultimately settle upon using.  I admit I'm not terriblely familiar with Freicoin, care to enlighten me?

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I bet you're going to answer with one of these two:

-Without interest people invest in stupid things.
-Demurrage is isomorphic with inflation.


You would have lost that bet in whole.  People invest in stupid things because of interest, or more precisely in the pursuit of improbable interest.  And I am aware that demurrage is not equal to inflation.  Inflation is rot, udderly unavoidable while value is stored in the currency.  Demurrage is a security or storage fee, which can usually be reduced under certain situations, which players will then tend to favor.  I've started an older thread on this subject, stating my concerns about the lack of an artificail equivialnt to demurrage in Bitcoin, but the thread died because there doesn't seem to be any way to do that in the blockchain security model without also breaking the cash-like features of Bitcoin.  It also might not matter, as I'm concerned but not actually convienced that demurrage is neccessary for a cryptocurrency.

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 21, 2011, 08:27:45 PM
 #3

I looked up Freicoin, and I'm not impressed.  How did you impliment demurrage into the codebase that manages the blockchain?  By what method do you actually impose the demurrage fees upon the addresses with a positive balance without also introducing security issues into the blockchain?  10% per year is way too high, 1% is probably too high.  And is that percentage applied to the individual balances, or only to the total monetary base?  If the former, how?  If the latter, what are the details of applying demurrage to transactions buried deep into the blockchain?  A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 21, 2011, 09:38:26 PM
 #4

A single currency that provides all of the major functions of money is nearly impossible to implement. Demurrage might be close to that, but why introduce excessive complexity?

There is a concept involving a dual-currency system. Bitcoin is the deflationary side, similar to gold. It appreciates in value over time. The other side would be purely inflationary, but not a targeted method such as central banks use and politicians promote. Instead, use the same code as Bitcoin - only remove the hard ~21mm unit limit. That allows for price stability as the currency can expand to the needs of the aggregate economy.

Other technical issues exist, but the general idea is very similar to the existing financial system; the major distinction being decentralized control with auto-regulation.

Save in gold; spend in EUR/USD/etc.

Save in Bitcoins; spend in Altcoin/Aucoin/Mote/etc.

No need to mangle an existing and elegant solution. Only two modifications for the inflationary side: remove the hard limit and optionally limit the initial unit expansion rate.
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September 21, 2011, 11:04:22 PM
 #5

1) The meaning you attribute to fiat depends on the translation I guess.
But I can say non-backed if you prefer it.

2) I'll answer you to the "cause of business cycles" question with more time.

3) Capital-money needs to be everlasting and scarce. Freicoin is perishable and ripple is abundant. Demurrage directly attacks the inflation premium, the profit you can do by using money to "move wares" better than barter. With abundant-money that profits tends to zero by competition, everybody can issue money. The payer can pay without cash. That's why capital money will have always a minimum sustained profit that Gesell called basic interest (gross interest = basic interest + risk premium + inflation premium).

4) The implementation is quite simple in my opinion. All accounts are charged with demurrage automatically each block (without writing anything in the block chain). When the monetary base is stable, miners will be rewarded with the same amount that is charged in concept of demurrage. It is charged through the protocol. For a transaction (and therefore the block that contains it) to be valid the following condition must be true:
 Sum(output) >= Sum( input * ( (1 - demurrage_rate_per_block) ^ (current_block - input_block_number) ) ) )

A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

Are you saying that freicoin is equivalent to expocoin (with exponential monetary growth, constant monetary inflation rate)?
For miners, yes. But...
constant monetary inflation rate:
1) Rises the nominal interest rates but does nothing against real interest rates.
2) Creates price inflation

demurrage with stable base:
1) Lowers real interest rates
2) Makes V (in the equation of exchange) more stable
3) Recovers lost coins making M really stable (this is good for storage too, since old blocks can be forgotten)

@miscreanity
1) As said, demurrage doesn't add much complexity.

2) Yes, people could trade in freicoins and save in bitcoins.

3) If you just have a constant reward, the monetary inflation rate would be comparatively lower and lower with time.
To achieve a constant inflation rate, you need a monetary base that grows exponentially, what I call expocoin.
But expocoin is not equivalent to freicoin.


2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 21, 2011, 11:23:26 PM
 #6

A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

You are missing the point. Freicoin is not meant to be a store of value, it gives up that property in order to encourage investing and spending.
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September 22, 2011, 01:11:05 AM
 #7

A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

You are missing the point. Freicoin is not meant to be a store of value, it gives up that property in order to encourage investing and spending.

But that is a contradiction.  In order for there to be investing and spending in relation to a currency, it must also be fairly good as a storage of value.  At least as good as the Euro or US $.  Otherwise, your spenders are never going to spend in Freicoin, because they never have an incentive to earn it.  Credit works in our debt laden economy because the credit is based upon the US $, which is still a decent store of value compared to a demurrage rate of 10% APR.

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 22, 2011, 01:26:44 AM
 #8


3) Capital-money needs to be everlasting and scarce.


I disagree already.

Quote
Freicoin is perishable and ripple is abundant.


I consider a perishable trade currency a bug, not a feature; and ripple is a p2p credit system, it's only as abundant as users are credit worthy.

Quote
Demurrage directly attacks the inflation premium, the profit you can do by using money to "move wares" better than barter. With abundant-money that profits tends to zero by competition, everybody can issue money. The payer can pay without cash. That's why capital money will have always a minimum sustained profit that Gesell called basic interest (gross interest = basic interest + risk premium + inflation premium).


I don't understand your explaination here.  And I don't agree that 'basic interest' is not trivial, or even always a postive number.

Quote

4) The implementation is quite simple in my opinion. All accounts are charged with demurrage automatically each block (without writing anything in the block chain).


But how?  I mean how is that actually enforced?  Is it taken as a fee once the funds are spent, or is there some other mechanism?  Can a miner chose to ignore it, like a miner can presently choose to favor a transaction dispite a higher fee offered by another, or is there some mechanism that requires the miner to enforce demurrage for all transactions?

Quote

 When the monetary base is stable, miners will be rewarded with the same amount that is charged in concept of demurrage. It is charged through the protocol. For a transaction (and therefore the block that contains it) to be valid the following condition must be true:
 Sum(output) >= Sum( input * ( (1 - demurrage_rate_per_block) ^ (current_block - input_block_number) ) ) )


Does this mean that miners cannot waive the demurrage fee?  A universal demurrage fee isn't useful for encouraging desired behaviors either.  In order for the desired effects to occur, there has to be an alternative to paying full costs.
Quote
A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

Are you saying that freicoin is equivalent to expocoin (with exponential monetary growth, constant monetary inflation rate)?
For miners, yes. But...
constant monetary inflation rate:
1) Rises the nominal interest rates but does nothing against real interest rates.
2) Creates price inflation

demurrage with stable base:
1) Lowers real interest rates


I question this assertion.  At least, I question that it's effects on the market interest rate is not negligble.

Quote
2) Makes V (in the equation of exchange) more stable


I question this as well, velocity is effected by so many variables that I don't think you can claim that velocity is stablized in any great degree via demurrage.  Certainly not with a 10% APR demurrage that is inflexible and unavoidable.

Quote
3) Recovers lost coins making M really stable (this is good for storage too, since old blocks can be forgotten)

How is this?  Do you just delete the transactions if they reach zero?  How?

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 22, 2011, 03:58:44 AM
 #9

But that is a contradiction.  In order for there to be investing and spending in relation to a currency, it must also be fairly good as a storage of value.  At least as good as the Euro or US $.  Otherwise, your spenders are never going to spend in Freicoin, because they never have an incentive to earn it.  

We have some semantic confusion. I don't consider any currency that loses purchasing power over time, even if very slowly, a storage of value. I wasn't implying that the faster it loses value the better it is for investment as that would be claiming that an hyperinflationary currency is optimal for investment. But you are right, Freicoin should conserve value better than the mainstream currencies to have an incentive to earn it.

Credit works in our debt laden economy because the credit is based upon the US $, which is still a decent store of value compared to a demurrage rate of 10% APR.

This depends on the GDP growth rate of each economy. If the currency with 10% demurrage experiences an annual GDP growth of 7% then it would hold its value better than the dollar (inflation is at ~3.6%). Btw, we are not advocating 10% demurrage, you probably read that from my proposal on the Freicoin forum which I made a while ago and haven't bothered to update. At least jtimon and I only support for enough demurrage to bring down basic interest to 0%, which should be around 4 to 5%.
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September 22, 2011, 08:03:54 AM
 #10

3) Capital-money needs to be everlasting and scarce.
I disagree already.

Quote
Freicoin is perishable and ripple is abundant.
I consider a perishable trade currency a bug, not a feature; and ripple is a p2p credit system, it's only as abundant as users are credit worthy.

Quote
Demurrage directly attacks the inflation premium, the profit you can do by using money to "move wares" better than barter. With abundant-money that profits tends to zero by competition, everybody can issue money. The payer can pay without cash. That's why capital money will have always a minimum sustained profit that Gesell called basic interest (gross interest = basic interest + risk premium + inflation premium).

I don't understand your explaination here.  And I don't agree that 'basic interest' is not trivial, or even always a postive number.

Well, you may not consider the interest as a flaw in gold. But since I think it is, demurrage (supressing interest) is a feature.
With ripple, the producers can sell their wares even if "there's no liquidity". Money exacts the basic interest from the wares:
http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

Quote
4) The implementation is quite simple in my opinion. All accounts are charged with demurrage automatically each block (without writing anything in the block chain).
But how?  I mean how is that actually enforced?  Is it taken as a fee once the funds are spent, or is there some other mechanism?  Can a miner chose to ignore it, like a miner can presently choose to favor a transaction dispite a higher fee offered by another, or is there some mechanism that requires the miner to enforce demurrage for all transactions?

Quote
When the monetary base is stable, miners will be rewarded with the same amount that is charged in concept of demurrage. It is charged through the protocol. For a transaction (and therefore the block that contains it) to be valid the following condition must be true:
 Sum(output) >= Sum( input * ( (1 - demurrage_rate_per_block) ^ (current_block - input_block_number) ) ) )
Does this mean that miners cannot waive the demurrage fee?  A universal demurrage fee isn't useful for encouraging desired behaviors either.  In order for the desired effects to occur, there has to be an alternative to paying full costs.

Just as miners (the protocol to be more accurate) doesn't let you spend more than 100 btc from an output that contains 100 btc, the protocol won't let you spend more than 95 fcn from an output that contains 100 fcn and is in the block chain for a year (assuming a 5% annual demurrage rate).
You're assuming that my desired effect is just to recover lost coins and save storage. But I want economic effects that need the demurrage to be unavoidable when holding the currency. To avoid the demurrage loss, you must spend, lend or invest.
Rewarding miners perpetually is another nice side effect, like recovering lost coins, but that's not the main purpose of demurrage here.

Quote
A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

Are you saying that freicoin is equivalent to expocoin (with exponential monetary growth, constant monetary inflation rate)?
For miners, yes. But...
constant monetary inflation rate:
1) Rises the nominal interest rates but does nothing against real interest rates.
2) Creates price inflation

demurrage with stable base:
1) Lowers real interest rates

I question this assertion.  At least, I question that it's effects on the market interest rate is not negligble.

So would you borrow bitcoins and freicoins at the same interest?
When negotiating, the borrower knows that the lender will have a nominal loss if he doesn't make the deal.
Actually, I expect the basic interest to drop to zero through 5% demurrage. Of course, the risk premium will still be there for risky investments.
You could say that it would be the same with inflation, but no.
If you lend 100 freicoins you will be payed back with 100 freicoins (the same percentage of the money supply).
If you lend 100 expocoins you will be payed back with 100 expocoins (a lower percentage of the money supply). So you will demand the inflation premium.
You will demand 105 expocoins (plus interest, say 110 expocoins).

Quote
2) Makes V (in the equation of exchange) more stable

I question this as well, velocity is effected by so many variables that I don't think you can claim that velocity is stablized in any great degree via demurrage.  Certainly not with a 10% APR demurrage that is inflexible and unavoidable.

We're proposing a 4% or 5% demurrage rate. Hoarding is what makes V that unpredictable.
Also, I'm not against arbitrage, but everlasting money allows way more speculation. Inflation also encourages especulation because all prices are not affected at the same time and in the same way by the inflation.
Read this:
http://www.community-exchange.org/docs/Gesell/en/neo/part4/5f.htm
In general, I recommend you reading the whole book. I'm not very convinced with the free-land proposal, you can skip the first two parts. 

Quote
3) Recovers lost coins making M really stable (this is good for storage too, since old blocks can be forgotten)
How is this?  Do you just delete the transactions if they reach zero?  How?

When no transaction can take a certain output as an input, there's no point in keep storing that output. Is like it had a zero in it.
The initial proposal with some introductory links to the the free-money concept is here:
https://bitcointalk.org/index.php?topic=3816.0

I still owe you an explanation on how interest causes business cycles.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 22, 2011, 10:49:46 AM
 #11

Demurrage (negative interest rate) or interest rates belong to the same family of what I would call "threadmill knobs": they allow government, banks, corporations, whoever is setting the rate, to put people on the threadmill and set the speed without them having a say.

With demurrage, you can have them run backwards Cheesy

The flawed assumption is that without interest rates people would have no incentive to invest ..
As if people needed interest rates to be creative, productive and to think about their kids and the future in general.

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September 22, 2011, 12:02:13 PM
 #12

The flawed assumption is that without interest rates people would have no incentive to invest ..
As if people needed interest rates to be creative, productive and to think about their kids and the future in general.

I think people would invest with zero interest rates, that's why I want demurrage. What you fail to see is how capital yields and interest rates are related.
With non perishable cash, money won't participate in investments unless it receives at least as much as it can get from liquidity.
Let say you want to build a factory that will yield 0.1%. That yield is profit, and that means the investment is good for the consumers of the products of your factory (plus you're creating jobs, maybe you even hire yourself as the factory manager). If interest rates are at 4%, that factory won't be constructed. You can say, well, that's because there's another more profitable factory competing with yours for the resources. But I claim that capital-money will never (let's forget manipulations from the fed for this discussion) allow real capitals to compete between them to the point of them yielding under say, 2%. Money can yield through the wares, so means of production must yield at least that much or won't be produced. Because means of production need money to be produced. You cannot organize the construction of a factory with barter.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 22, 2011, 03:12:16 PM
 #13

The flawed assumption is that without interest rates people would have no incentive to invest ..
As if people needed interest rates to be creative, productive and to think about their kids and the future in general.

I think people would invest with zero interest rates, that's why I want demurrage. What you fail to see is how capital yields and interest rates are related.
With non perishable cash, money won't participate in investments unless it receives at least as much as it can get from liquidity.
Let say you want to build a factory that will yield 0.1%. That yield is profit, and that means the investment is good for the consumers of the products of your factory (plus you're creating jobs, maybe you even hire yourself as the factory manager). If interest rates are at 4%, that factory won't be constructed. You can say, well, that's because there's another more profitable factory competing with yours for the resources. But I claim that capital-money will never (let's forget manipulations from the fed for this discussion) allow real capitals to compete between them to the point of them yielding under say, 2%. Money can yield through the wares, so means of production must yield at least that much or won't be produced. Because means of production need money to be produced. You cannot organize the construction of a factory with barter.

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

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September 22, 2011, 09:24:16 PM
 #14

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Demurrage directly attacks the inflation premium, the profit you can do by using money to "move wares" better than barter. With abundant-money that profits tends to zero by competition, everybody can issue money. The payer can pay without cash. That's why capital money will have always a minimum sustained profit that Gesell called basic interest (gross interest = basic interest + risk premium + inflation premium).

I don't understand your explaination here.  And I don't agree that 'basic interest' is not trivial, or even always a postive number.

Well, you may not consider the interest as a flaw in gold. But since I think it is, demurrage (supressing interest) is a feature.


Well, as I already said, I don't consider interest a flaw (if indeed a flaw) of gold because it's not a feature of gold at all, but a product of contracts.  Bitcoin is likewise.  Even Freicoin, for that matter.  All of these currencies are independent of the interest rates that individual users charge.  I can see now how you intend to suppress the general interest rate, but I don't agree that is an advantage worthy of a new fork.  You certainly cannot force the market interest rate to below 0%, otherwise the user base of freicoin will flee to any alternative, the relative value of Freicoin would crash, and your fork would fail.  So even a 4% demurrage is dangerously high.  I wouldn't invest in any cryptocurrency with more than 1% APR demurrage.  Probably 0.5% would be high enough for the other advantages of demurrage; i.e. rotting away the value of lost addresses as an example.

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With ripple, the producers can sell their wares even if "there's no liquidity". Money exacts the basic interest from the wares:
http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm


I'm aware of how ripple works.  It's a web-of-trust mutual credit system.  It's well done, for what it is.  But it's a credit network, not a currency.  It cannot work at all without a commonly established currency, whether that is US$, silver ounces or pounds of wheat berries.  Ripple doesn't have a metric, which is what currencies are at root.  Ripple only records, and consolodates, the trust that people will put in people that they know on behalf of other people that they know, and expresses that consolodated trust as credit available.

I'll try to read your link when I get a chance.
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When the monetary base is stable, miners will be rewarded with the same amount that is charged in concept of demurrage. It is charged through the protocol. For a transaction (and therefore the block that contains it) to be valid the following condition must be true:
 Sum(output) >= Sum( input * ( (1 - demurrage_rate_per_block) ^ (current_block - input_block_number) ) ) )
Does this mean that miners cannot waive the demurrage fee?  A universal demurrage fee isn't useful for encouraging desired behaviors either.  In order for the desired effects to occur, there has to be an alternative to paying full costs.

Just as miners (the protocol to be more accurate) doesn't let you spend more than 100 btc from an output that contains 100 btc, the protocol won't let you spend more than 95 fcn from an output that contains 100 fcn and is in the block chain for a year (assuming a 5% annual demurrage rate).
You're assuming that my desired effect is just to recover lost coins and save storage. But I want economic effects that need the demurrage to be unavoidable when holding the currency. To avoid the demurrage loss, you must spend, lend or invest.
Rewarding miners perpetually is another nice side effect, like recovering lost coins, but that's not the main purpose of demurrage here.

I see.  But if demurrage fees are unavoidable, then you are limiting how the system can encourage users to use the currency.  For example, this reduces the incentive to consolidate multiple transactions into a single transaction.  If the users have a grace peroid, say three months, that security is considered paid for by the transaction fees, then some will make an effort to avoind transactions growing older than three months so long as the cost of consolidating into a new transaction is cheaper than just taking the demurrage hit.  This encourages old transactions to update and also encourages miners into improving security buy participation.  If thedemurrage fee is a flat fee applied to each transaction in the blockchain, then users with many transactions are further encourages to freshen their holdings and reducing the blockchain load.  I really don't think that a ridgid percentage is really demurrage.  Demurrae is a cost of security in real currencies such as gold.  Literally the cost of renting a saftey deposit bos to hold the gold, which still costs the same no matter how much is eing kept.  Percentage fees aren't demurrage.
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A demurrage system that is rigid is not likely to achieve the social goals, if the users can take no other actions for reducing their loss other than leave the currency in favor of another method of storage of value.  In this respect, a rigid demurrage fee system isn't much better than a rigid/predictable inflation target.

Are you saying that freicoin is equivalent to expocoin (with exponential monetary growth, constant monetary inflation rate)?
For miners, yes. But...
constant monetary inflation rate:
1) Rises the nominal interest rates but does nothing against real interest rates.
2) Creates price inflation

demurrage with stable base:
1) Lowers real interest rates

I question this assertion.  At least, I question that it's effects on the market interest rate is not negligble.

So would you borrow bitcoins and freicoins at the same interest?
No, but not because of some theoretical 'basic interest' that you are trying to avoid.  Because of arbritrage.  I'm not likely to be lending in freicoin if I never bother to buy any, due to the losses that I can forsee.  Really, you can't see the problem with this plan?
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We're proposing a 4% or 5% demurrage rate. Hoarding is what makes V that unpredictable.

That is a amaturish view on velocity. There is simply too many variables to make such a blanket statement.  I can't een say if this is true or false in general, but I'd guess that it's likely false.

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 22, 2011, 09:30:14 PM
 #15

Okay, I read your link.  And if this guy is representative of the "Free Money theory of interest" then I'm calling that theory bunk.  I'm not even going to bother to break it down.  If you wish to try to defend that crap, feel free, but otherwise don't refer to this crank as the basis for any more of your ideas.  I'll just lose more respect for your mind than I just did.

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 22, 2011, 11:42:14 PM
 #16

Would any of the more economically minded minds care to review my proposal for EnCoin?
Instead of demurrage (which is a concept not based around a virtual currency), EnCoin employs transaction fees that are not awarded to the miners. The currency is destroyed. So saving is preserved, spending has a fee (a fee that will most likely be borne by the receiver). There is of course no limit on the amount of coins that can be produced, which I think is the only sane way to make a currency not based around enriching the early adopters.

Anyways, I'm not going to rehash all of it here, there is a proposal and some actual discussion of encoin starts around page 3.

https://bitcointalk.org/index.php?topic=44682.0

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September 23, 2011, 12:17:45 AM
 #17

Anyways, I'm not going to rehash all of it here, there is a proposal and some actual discussion of encoin starts around page 3.

https://bitcointalk.org/index.php?topic=44682.0

This is off topic.

That said, what info that I can find is light on details.  What I can find doesn't fill me with confidence.

If fees are destroyed, how are miners encentivized to mine?

And why destroy them?  This isn't clear.

What is the point?

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

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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September 26, 2011, 08:54:19 AM
 #18

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

The interest does not only depend on growth and potential profits from investments. There's a minimum yield that can be obtained "from the wares".
The advantage of money over barter make it be able to profit directly from trade, and that's the source of the basic interest/liquidity premium:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 26, 2011, 09:36:18 AM
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Well, as I already said, I don't consider interest a flaw (if indeed a flaw) of gold because it's not a feature of gold at all, but a product of contracts.  Bitcoin is likewise.  Even Freicoin, for that matter.  All of these currencies are independent of the interest rates that individual users charge.  I can see now how you intend to suppress the general interest rate, but I don't agree that is an advantage worthy of a new fork.  You certainly cannot force the market interest rate to below 0%, otherwise the user base of freicoin will flee to any alternative, the relative value of Freicoin would crash, and your fork would fail.  So even a 4% demurrage is dangerously high.  I wouldn't invest in any cryptocurrency with more than 1% APR demurrage.  Probably 0.5% would be high enough for the other advantages of demurrage; i.e. rotting away the value of lost addresses as an example.

I wouldn't buy freicoins to hoard them neither, but I would accept them as payment. And I would spend them first and the bitcoins later. But this doesn't mean that the price of the currency must collapse. Remember that its initial value will be zero, just like with bitcoin. It price can only rise from there.
I don't care if it doesn't reach 5 usd as long as it can be used for exchange. If I can fund my investments with freicoins, I will prefer to borrow them than bitcoins, because I'm sure I will get a cheaper interest rate that with bitcoin and expocoin.

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With ripple, the producers can sell their wares even if "there's no liquidity". Money exacts the basic interest from the wares:
http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm


I'm aware of how ripple works.  It's a web-of-trust mutual credit system.  It's well done, for what it is.  But it's a credit network, not a currency.  It cannot work at all without a commonly established currency, whether that is US$, silver ounces or pounds of wheat berries.  Ripple doesn't have a metric, which is what currencies are at root.  Ripple only records, and consolodates, the trust that people will put in people that they know on behalf of other people that they know, and expresses that consolodated trust as credit available.

Ripple can use any denomination that their participants agree to use, for example, hours, carrots or terras (a reference currency defined as a basket of commodities), but the denominations doesn't have to exist as a currency. Ripple doesn't need parallel currencies to work. Like LETS, ripple can perform the medium of exchange function and that's why I call it money (not currency).
If you don't know that you can use ripple (instead of cash) to pay, you're not aware how ripple works. 

I see.  But if demurrage fees are unavoidable, then you are limiting how the system can encourage users to use the currency.  For example, this reduces the incentive to consolidate multiple transactions into a single transaction.  If the users have a grace peroid, say three months, that security is considered paid for by the transaction fees, then some will make an effort to avoind transactions growing older than three months so long as the cost of consolidating into a new transaction is cheaper than just taking the demurrage hit.  This encourages old transactions to update and also encourages miners into improving security buy participation.  If thedemurrage fee is a flat fee applied to each transaction in the blockchain, then users with many transactions are further encourages to freshen their holdings and reducing the blockchain load.  I really don't think that a ridgid percentage is really demurrage.  Demurrae is a cost of security in real currencies such as gold.  Literally the cost of renting a saftey deposit bos to hold the gold, which still costs the same no matter how much is eing kept.  Percentage fees aren't demurrage.

But with your solution everybody could avoid the demurrage fees and they wouldn't have any effect on interest.
I called this property of a currency demurrage because it's the most extended term, how should I call it?

http://en.wikipedia.org/wiki/Demurrage_(currency)

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So would you borrow bitcoins and freicoins at the same interest?
No, but not because of some theoretical 'basic interest' that you are trying to avoid.  Because of arbritrage.  I'm not likely to be lending in freicoin if I never bother to buy any, due to the losses that I can forsee.  Really, you can't see the problem with this plan?

Why you won't accept freicoins as payment? Once you have them, you can spend them or lend them, but there's no point in keeping them.
If you can buy all the things you need to start your business with either bitcoin or freicoin. Why would you borrow bitcoins instead of freicoins? You know you will spend both fast to buy your capital, why are you worried about freicoins losing value if you're going to spend them?
You will prefer to borrow freicoins because of its cheaper interest.

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We're proposing a 4% or 5% demurrage rate. Hoarding is what makes V that unpredictable.

That is a amaturish view on velocity. There is simply too many variables to make such a blanket statement.  I can't een say if this is true or false in general, but I'd guess that it's likely false.

You keep saying to many variables but you don't say what variables. What makes V be volatile in your opinion?

Okay, I read your link.  And if this guy is representative of the "Free Money theory of interest" then I'm calling that theory bunk.  I'm not even going to bother to break it down.  If you wish to try to defend that crap, feel free, but otherwise don't refer to this crank as the basis for any more of your ideas.  I'll just lose more respect for your mind than I just did.

That attitude is disappointing. Yes, Gesell was the originator of the free money theory on interest.
If you arguments are just "this is crap" then we shouldn't keep on discussing, because we're not going to learn much.
I guess you're another time preference believer. "abstinence theory" in Gesell's words.
I understand why you think the way you do but you can't understand how I can think the way I do. Don't you feel the need to understand where I'm wrong or what am I missing?
Many people "believe this crap". For example, in Germany and Austria. Many austrians prefer this theory over the very "Austrian school theory on interest".
If you want to try break it down some day I'll be here to point out your errors.
I hope you can open your mind to new ideas you haven't thought deeply enough some day.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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September 26, 2011, 11:38:37 AM
 #20

Hang on a second.  Why are interest rates 4% in your model?  I know you just made up 4% as a stand-in for X%, but why does X have whatever particular value it has?

The interest does not only depend on growth and potential profits from investments. There's a minimum yield that can be obtained "from the wares".
The advantage of money over barter make it be able to profit directly from trade, and that's the source of the basic interest/liquidity premium:

http://www.community-exchange.org/docs/Gesell/en/neo/part5/3.htm

No, no links.  Make your own arguments.

In your own words, what causes the minimum level of interest?

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