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Author Topic: When the majority decides to change the rules  (Read 5246 times)
Jered Kenna (TradeHill)
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March 22, 2011, 08:48:33 PM
 #21

you could also look at it like a stock that splits if that makes more sense to you.

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Dai
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March 22, 2011, 09:10:02 PM
 #22

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Your thinking is way too rigid here.

Bitcoins can be subdivided to 8 decimal places without any changes except to the client to allow you to use them. The number 1 is just an arbitrary value. Think of it this way.... a common wage used to be in cents per day. Could you imagine being paid even 30 cents per day? There was a time when that wasn't bad money! Hell the US used to mint "mils", which were fractions of a penny!

Think of gold. Its sold in grams right? Well 1 gram of gold is over $300 last I looked (a long time ago). Of course, gold is also divisable. If you only need half that, I can sell you half a gram of gold, you can then spend 1/4 that if you need $75. Makes sense right? All these values are relative, they all float against eachother.

Right now, btc sell for around 70-80 cents each. Clearly 21 million 80 cent pieces, even infinitely divisable ones, are not going to run a whole economy. All that means is that a growing economy should drive up btc values... until they can be subdivided enough to provide enough value to run the economy.

Does it really matter what 1 btc is worth? If 1 btc is worth $100 usd, then, we will trade for $1 values in .01 btc

Nope my thinking is spot on. Unless you fundamentally change the way we use money then just splitting bit coins to be smaller and smaller won't work. They have a name for doing that, it's called deflation. Inflation to much money chasing to few goods and services. Deflation is to little money chasing to many goods and services. You have to create as much currency (what ever it is Dollars, bitcoins) to match the the goods and services on offer that people want. I'm a monetary reformist so I'm not against bit coins or any other community currency but, like I said. You can not use a finite resource as a currency in an exponential system.

Quote
Does it really matter what 1 btc is worth? If 1 btc is worth $100 usd, then, we will trade for $1 values in .01 btc
It only matters if you are talking of bitcoins as being a universal currency. If you are talking about bitcoins as a community currency same as itica hours then no not really.

Let Dr Albert Bartlett explain what an exponential funtion is to you. He does a better job than I ever could.
http://www.youtube.com/watch?v=F-QA2rkpBSY
check out all 8 videos.
BitterTea
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March 22, 2011, 09:13:12 PM
 #23

You apparently still don't understand exponential growth.

It is never sustainable in the long term.

Given this fact, why would you suggest Bitcoin grow exponentially?
Dai
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March 22, 2011, 09:25:42 PM
 #24

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Let's be optimistic and suppose that Bitcoin does take off in a big way and goes mainstream to the point of becoming a significant actor in the world economy

Forget everything you have read about bitcoin. If the above were to happen every manufactured item and every service would be worth less as time went by. Lets use a farmer as an example he buys all his seeds and plants them now it costs x mount  because, the currency has to cover more and more goods and services by the time the farmer reaps his harvest and sells it. The selling price does not cover what he paid for the seeds and stuff in the first place . Classic deflation. Like I said you can not use a finite resource in an exponential system to two are at odds with each other.
Jered Kenna (TradeHill)
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March 22, 2011, 09:28:23 PM
 #25

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Your thinking is way too rigid here.

Bitcoins can be subdivided to 8 decimal places without any changes except to the client to allow you to use them. The number 1 is just an arbitrary value. Think of it this way.... a common wage used to be in cents per day. Could you imagine being paid even 30 cents per day? There was a time when that wasn't bad money! Hell the US used to mint "mils", which were fractions of a penny!

Think of gold. Its sold in grams right? Well 1 gram of gold is over $300 last I looked (a long time ago). Of course, gold is also divisable. If you only need half that, I can sell you half a gram of gold, you can then spend 1/4 that if you need $75. Makes sense right? All these values are relative, they all float against eachother.

Right now, btc sell for around 70-80 cents each. Clearly 21 million 80 cent pieces, even infinitely divisable ones, are not going to run a whole economy. All that means is that a growing economy should drive up btc values... until they can be subdivided enough to provide enough value to run the economy.

Does it really matter what 1 btc is worth? If 1 btc is worth $100 usd, then, we will trade for $1 values in .01 btc

Nope my thinking is spot on. Unless you fundamentally change the way we use money then just splitting bit coins to be smaller and smaller won't work. They have a name for doing that, it's called deflation. Inflation to much money chasing to few goods and services. Deflation is to little money chasing to many goods and services. You have to create as much currency (what ever it is Dollars, bitcoins) to match the the goods and services on offer that people want. I'm a monetary reformist so I'm not against bit coins or any other community currency but, like I said. You can not use a finite resource as a currency in an exponential system.

Quote
Does it really matter what 1 btc is worth? If 1 btc is worth $100 usd, then, we will trade for $1 values in .01 btc
It only matters if you are talking of bitcoins as being a universal currency. If you are talking about bitcoins as a community currency same as itica hours then no not really.

Let Dr Albert Bartlett explain what an exponential funtion is to you. He does a better job than I ever could.
http://www.youtube.com/watch?v=F-QA2rkpBSY
check out all 8 videos.


Maybe I understand this completely wrong but moving the decimal point doesn't change the real value of the coins.
If I have 10 btc and it's worth 10usd and the next day those 10bct become 100btc I still have 10 usd worth. So they're not deflated or inflated.
This isn't creating coins.

If in this example we move the point one digit right the number of coins increases 10x but the value stays the same.
If the current 1btc rises too high it's not going to make sense to trade 100usd for .01 btc so they move the decimal point.

Inflation on the other hand would be creating more coins (which is happening but levels off).

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Dai
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March 22, 2011, 09:45:50 PM
 #26

You apparently still don't understand exponential growth.

It is never sustainable in the long term.

Given this fact, why would you suggest Bitcoin grow exponentially?

I never said bitcoins grew exponentially, how can they there will only ever be 21 million of them.
I do understand what exponential growth is (that's why I recommend looking at Dr Bartletts videos)!
You are absolutely right it is not sustainable that is the point I'm making in part. Unless we have sudden depopulation then goods and services will need to grow to match a growing population and in doing so the money supply has to grow to match the goods and services that the people want. Splitting a currency is the same as devaluing a currency the only way it can work is for the goods and services to value from what they were previously. Imagine you have a product it cast you 100 bitcoins to make 6 months later you can only sell it for 75 bitcoins that's defaltion.
Jered Kenna (TradeHill)
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March 22, 2011, 09:53:54 PM
 #27

You apparently still don't understand exponential growth.

It is never sustainable in the long term.

Given this fact, why would you suggest Bitcoin grow exponentially?

I never said bitcoins grew exponentially, how can they there will only ever be 21 million of them.
I do understand what exponential growth is (that's why I recommend looking at Dr Bartletts videos)!
You are absolutely right it is not sustainable that is the point I'm making in part. Unless we have sudden depopulation then goods and services will need to grow to match a growing population and in doing so the money supply has to grow to match the goods and services that the people want. Splitting a currency is the same as devaluing a currency the only way it can work is for the goods and services to value from what they were previously. Imagine you have a product it cast you 100 bitcoins to make 6 months later you can only sell it for 75 bitcoins that's defaltion.

I'm going to watch the videos. I've heard of them but never sat down and watched them. I appreciate the link.
I've got a question though.

If you have 10 shares of microsoft and it splits 2:1 and you've got 20 shares of microsoft has it inflated or deflated or neither?

Edit: clarified the question.

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BitterTea
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March 22, 2011, 09:58:11 PM
 #28

I never said bitcoins grew exponentially, how can they there will only ever be 21 million of them.

Here's what you said in your first post:

Quote
We live in an exponential monetary system so the money supply has to be exponential in nature and character to fit in with it. If bitcoin were to ever challenge let alone replace our existing money supply it would to change to an exponential currency.

If you know that exponential growth is unsustainable, why would you suggest that Bitcoin should grow exponentially?

Quote
I do understand what exponential growth is (that's why I recommend looking at Dr Bartletts videos)!

I've watched them quite a few times and recommend them to everyone who seems remotely interested.

Quote
Unless we have sudden depopulation then goods and services will need to grow to match a growing population and in doing so the money supply has to grow to match the goods and services that the people want.

No. Since Bitcoins are divisible to eight decimal places, there are 2,100,000,000,000,000 (2.1 quadrillion) base units of currency available. That's more than enough granularity, which is the only thing that matters. It doesn't matter if you only have 500 Satoshis (1 Satoshi = 1/10^8 Bitcoin) if a meal only costs 2 Satoshis.

Quote
Imagine you have a product it cast you 100 bitcoins to make 6 months later you can only sell it for 75 bitcoins that's defaltion

Except that your 75 Bitcoins have the same purchasing power (you can buy the same amount of stuff) as the original 100 Bitcoins.
Dai
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March 22, 2011, 10:08:35 PM
 #29

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Maybe I understand this completely wrong but moving the decimal point doesn't change the real value of the coins.
If I have 10 btc and it's worth 10usd and the next day those 10bct become 100btc I still have 10 usd worth. So they're not deflated or inflated.
This isn't creating coins.

If in this example we move the point one digit right the number of coins increases 10x but the value stays the same.
If the current 1btc rises too high it's not going to make sense to trade 100usd for .01 btc so they move the decimal point.

Inflation on the other hand would be creating more coins (which is happening but levels off).

Forget decimal points and all the rest of it. Think of the more people joining the system as population growth. Now the same amount of money has to feed clothe and sustain more and more people but, we only have a fixed amount of money 21 million bitcoins (remember the original sentence said that bitcoins is a major world currency). Think of it in the real world where you live, no more credit, no more real money, than there is at this very moment but, the population got bigger and bigger over time. that means there is less money to go round but it has to buy the same amount of basic goods and services that we all use. these basic goods and services would need to be dropping in price over time the opposite of what happens in real life today.  bit coins can work with one change and that is not to limit the amount of currency that can be produced but, to match it to the goods and services that it needs to be used for (not for speculation and not paying interest with money that does not exist).
Jered Kenna (TradeHill)
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March 22, 2011, 10:22:04 PM
 #30

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Maybe I understand this completely wrong but moving the decimal point doesn't change the real value of the coins.
If I have 10 btc and it's worth 10usd and the next day those 10bct become 100btc I still have 10 usd worth. So they're not deflated or inflated.
This isn't creating coins.

If in this example we move the point one digit right the number of coins increases 10x but the value stays the same.
If the current 1btc rises too high it's not going to make sense to trade 100usd for .01 btc so they move the decimal point.

Inflation on the other hand would be creating more coins (which is happening but levels off).

Forget decimal points and all the rest of it. Think of the more people joining the system as population growth. Now the same amount of money has to feed clothe and sustain more and more people but, we only have a fixed amount of money 21 million bitcoins (remember the original sentence said that bitcoins is a major world currency). Think of it in the real world where you live, no more credit, no more real money, than there is at this very moment but, the population got bigger and bigger over time. that means there is less money to go round but it has to buy the same amount of basic goods and services that we all use. these basic goods and services would need to be dropping in price over time the opposite of what happens in real life today.  bit coins can work with one change and that is not to limit the amount of currency that can be produced but, to match it to the goods and services that it needs to be used for (not for speculation and not paying interest with money that does not exist).

It's probably better if someone that knows this better than me comments. I feel like I understand it but I'm going to get confused if I keep going on.
I still don't see it as a problem. If the value of btc goes up because more people are buying it then you'll need less of it to buy those items.
When the person sells the items they'll be getting less btc but it's worth the same.

Let's say the canadian dollar is 1.10 and the us is 1.00 if I offer to pay you in canadian and give you 1.10 for the item you were selling for 1usd you're not going to say I'm ripping you off.
It works the same with a GBP. If I want to give you .60 (or whatever) GBP for that same item you're not getting over charged.


I'm going to hold back from trying to explain it the way I see it though and hope someone can give an answer that satisfies both of us.

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Dai
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March 22, 2011, 10:32:57 PM
 #31

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We live in an exponential monetary system so the money supply has to be exponential in nature and character to fit in with it. If bitcoin were to ever challenge let alone replace our existing money supply it would to change to an exponential currency.

Yes that's right bitcoins would have to become exponential. to be used in an exponential system (this is why we use credit, credit has the ability to be exponential). they would have to be able to grow with he system other wise you have two opposites. An exponential system of using resources as in today against a finite resource bitcoin or gold used as money.

Now this statement is different to reality as bitcoin as it is today is not exponential as there are only 21 million of them.

For any monetary system to work it has to have the ability to grow or shrink with the population and the resources being used by those people. it can not be finite. It has to match goods and services being used and keep value with those goods and services. If you were to change the rules on bit coins and allow it to grow and shrink as needed then yes it would work but, not in it's present form. Not unless you change the real world to fit the way bit coins work.


The question was imagine bitcoins became a major world currency.


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March 22, 2011, 10:42:05 PM
 #32

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We live in an exponential monetary system so the money supply has to be exponential in nature and character to fit in with it. If bitcoin were to ever challenge let alone replace our existing money supply it would to change to an exponential currency.

Yes that's right bitcoins would have to become exponential. to be used in an exponential system (this is why we use credit, credit has the ability to be exponential). they would have to be able to grow with he system other wise you have two opposites. An exponential system of using resources as in today against a finite resource bitcoin or gold used as money.

Now this statement is different to reality as bitcoin as it is today is not exponential as there are only 21 million of them.

For any monetary system to work it has to have the ability to grow or shrink with the population and the resources being used by those people. it can not be finite. It has to match goods and services being used and keep value with those goods and services. If you were to change the rules on bit coins and allow it to grow and shrink as needed then yes it would work but, not in it's present form. Not unless you change the real world to fit the way bit coins work.


The question was imagine bitcoins became a major world currency.


You still don't know what you're talking about. The quantity of currency does not have to change with the quantity of available goods and services. The currency merely then allows you to purchase more goods and services.

Never mind that there are 21 million Bitcoins are divisible to eight decimal places, which means there are 21 quadrillion base Bitcoin units (Satoshis). If that is not enough, there could be localized Bitcoin block chains, or a separate block chain for larger or smaller amounts.

I reiterate, you don't know what you're talking about.
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March 22, 2011, 11:13:22 PM
 #33

If I don't know what I'm talking about then every monetary reformist and every government and most economists on the planet are wrong and you are right. The money supply has to keep parity with goods if you have more goods and services then you need more money or the goods and services have to become cheaper through better manufacturing techniques but, the money has to keep parity in terms of prices as the goods other wise it  results in inflation or deflation depending on the miss match.

Remember the question that bitcoin becomes a major world currency not replace the major world currency!

I live in the real world and if your system is so great then all we need do is spit our currencies and hey presto no more deficits. I'd better get on he phone and tell the worlds leaders you've solved the problem.
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March 22, 2011, 11:27:40 PM
 #34

If I don't know what I'm talking about then every monetary reformist and every government and most economists on the planet are wrong and you are right.

Correct.

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Jered Kenna (TradeHill)
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March 22, 2011, 11:32:14 PM
 #35

If that's the case. What happened when the currency was gold backed?
Serious question.

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March 22, 2011, 11:35:46 PM
 #36

If I don't know what I'm talking about then every monetary reformist and every government and most economists on the planet are wrong and you are right.

haha...I'm sorry this just made me laugh.  Please go back and enjoy your pick of exponentially growing fiat currency.  You have many to choose from.  After all, according to your view, no sustainable growth probably occurred when people used simple gold and silver for money (except maybe the industrial revolution).

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Dai
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March 23, 2011, 12:16:18 AM
 #37

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We live in an exponential monetary system so the money supply has to be exponential in nature and character to fit in with it. If bitcoin were to ever challenge let alone replace our existing money supply it would to change to an exponential currency.

Why do you think we came off a gold standard. I'll tell because France asked to be paid in gold and America didn't have enough gold.
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5881

And by the way I prefer 100% reserve currency.

Think of bitcoin as a cake you keep splitting the cake till you end up with crumbs but, at the same time more and more people are taking a piece or crumbs as they come into the system so your crumbs have to grow in value to be able to buy what you bought before if your crumbs don't gain value and prices remain the same your up the creek without a paddle. This is the opposite of goods loose value as stated before. it does not matter the size of the piece of cake you have if goods go up your cake has to increase in value to keep up. If your piece of the cake gets smaller because it needs to shared out amongst more people then prices need to come done for you to be able to afford what bought previously.

By the way gold, silver are a form of fiat. they derive there value from people (as does paper money) and what value we give it, they have no magic value of there own they are just metals.
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March 23, 2011, 01:54:46 AM
 #38

By the way gold, silver are a form of fiat. they derive there value from people (as does paper money) and what value we give it, they have no magic value of there own they are just metals.
I think the word fiat implies that some government or institution officially accepts a certain thing at a given rate. Prior to Nixon's order detaching the USD from gold, I guess you could have called gold a fiat currency. Now it is only a fiat currency in Utah. Someone correct me if I'm wrong.

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March 25, 2011, 01:29:45 AM
 #39

Think of bitcoin as a cake you keep splitting the cake till you end up with crumbs but, at the same time more and more people are taking a piece or crumbs as they come into the system so your crumbs have to grow in value to be able to buy what you bought before if your crumbs don't gain value and prices remain the same your up the creek without a paddle.
You're on the right track, but you keep getting derailed at important points.

Yes, the size of the crumbs will get smaller. But crumbs are a poor analogy, because you need a fixed number of crumbs to be satisfied. As Bitcoins become more and more in demand, a smaller fraction of a bitcoin will go further.

You remind me of when I was in grade 5. Canada was using the Imperial system at the time, and in the process of converting to Metric. My teacher was trying to get me to understand the basics - 10 decimetres to a metre, 10 centimetres to a decimetre, 10 millimetres to a centimetre. "But how much is that in INCHES?" I kept asking. Then it dawned on me - it doesn't matter. It's an independent system, and does not need other systems to be understood.

You have to stop thinking in terms of the existing economic models. Set aside for a moment everything you know about economics, and look at Bitcoin with a fresh eye. Bitcoin flips the whole economic model around. Instead of more and more money being created, and each dollar becoming less and less valuable, the amount of money will be fixed and each Bitcoin will become more and more valuable. It's a deflationary model, instead of an inflationary model.

To be honest, I think you represent the biggest challenge Bitcoin will face gaining general acceptance. I don't mean you personally, of course, being a challenge, I mean that you are representative of a lot of people. Many people will have the same reaction you do. Switching your thinking from an inflationary model to a deflationary one, and realizing "yes, the value of bitcoins will go down, your salary will decrease, but that's a good thing" is damned hard. I'm not entirely convinced of it myself, but I'm willing to explore this crazy system Smiley

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March 25, 2011, 07:46:12 AM
 #40

Nope my thinking is spot on. Unless you fundamentally change the way we use money then just splitting bit coins to be smaller and smaller won't work. They have a name for doing that, it's called deflation. Inflation to much money chasing to few goods and services. Deflation is to little money chasing to many goods and services. You have to create as much currency (what ever it is Dollars, bitcoins) to match the the goods and services on offer that people want. I'm a monetary reformist so I'm not against bit coins or any other community currency but, like I said. You can not use a finite resource as a currency in an exponential system.

Bitcoin is not deflationary in the monetary sense. The Bitcoin economy will opperate under constant lowering prices. There is absolutely no problem with that, despite all the wackos out there trying to say the contrary.

Quote
It only matters if you are talking of bitcoins as being a universal currency. If you are talking about bitcoins as a community currency same as itica hours then no not really.

Let Dr Albert Bartlett explain what an exponential funtion is to you. He does a better job than I ever could.
http://www.youtube.com/watch?v=F-QA2rkpBSY
check out all 8 videos.

Prices adjust donwards. The video proves nothing.
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