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Question: Would you support a change to bitcoin that would make 50BTC the standard reward for a block, forever?
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Author Topic: Would you support moving to a system with controled inflation?  (Read 11830 times)
stakhanov
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March 25, 2011, 05:06:30 PM
 #1

It seems the issue of inflation vs. deflation is pretty controversial, so I thought it would be interesting to see where the majority is, and how strong it is.
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ShadowOfHarbringer
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March 25, 2011, 05:48:56 PM
 #2

It seems the issue of inflation vs. deflation is pretty controversial, so I thought it would be interesting to see where the majority is, and how strong it is.

Bitcoin _is_ a system with controlled inflation.
And it will keep being so for about next 100 years.



So you are asking the wrong question.

I think that the question you want to ask is "Would you support moving to a fiat-like electronic decentralized currency system".

EDIT:
The question for you is:
What or who will "control" the inflation in your idea ?

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March 25, 2011, 05:55:52 PM
 #3

Controlled Inflation is controlled resource use.

Do you want someone telling you how much food to eat, gas to use, power to use, clothing to own, etc... ?

And if even possible, people would create a "Black Market" to get around it. Make their own clothes, their own food, etc...


BitCoin is not controlled inflation. It is a constant quantity used for Money. You can't print more, preventing Quantitative Easing.

Inflation would still occur, instead of 10 Bitcoins for a Widget, when people want more Widgets with declining Widget production, the Widget will cost 20 Bitcoins.  <--Inflation


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epii
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March 25, 2011, 05:56:18 PM
 #4

I think that the question you want to ask is "Would you support moving to a fiat-like electronic decentralized currency system".

I think the question they want to ask is "Would you support moving to a system with constant inflation?"

(Not constant as a fraction of the money supply, though.)

It'd be worthwhile at least discussing how the economic future of Bitcoin would look different if the mining bounty were to remain at 50 BTC forever...

Vires In Numeris.
kiba
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March 25, 2011, 05:56:42 PM
 #5

Would you move your money to an inflationary currency?

I think the answer is....

"NO"

It's one thing to support another idea, it's quite another to actually use it.

Pieter Wuille
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March 25, 2011, 05:58:02 PM
 #6

I think there are two outspoken opinions:
  • (continued) increase of monetary mass is bad
  • A certain % of newly injected money is useful (eg. 2%/year)

In the first case, I'd expect you to favor a system where block_reward eventually becomes 0.

In the second case, I'd expect you to favor a system where block_reward eventually becomes 1/2650000 of BTC mined so far at that point in time (causing 2% increase per year).

I'd like to know what reason there is to want 50 BTC forever.

aka sipa, core dev team

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barbarousrelic
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March 25, 2011, 05:59:43 PM
 #7

There is nothing more fiat-like about the system he proposes than the current system. I actually think it would be better his proposed way because it would better promote mining, which is necessary to ensure network security. The rate of inflation would still be gradually decreasing, because 50BTC becomes less and less meaningful as time goes on.

Staying at 50BTC reward per block would mean the inflation rate would approach 0% as time went on but never actually get to 0.

Under the current system, the world will still be mining more gold long after the last BTC is mined.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
epii
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March 25, 2011, 06:01:05 PM
 #8

Would you move your money to an inflationary currency?

I think the answer is....

"NO"

It's one thing to support another idea, it's quite another to actually use it.

Devil's advocate here, but I think the one thing that might motivate people to move their currency to an inflationary currency would be if the "inflationary" fact somehow gave them more confidence in the currency being useful and capable of supporting a flourishing economy.  The economic future of Bitcoin is still unclear, in no small part because it is treading new economic ground.  Though I'm not pessimistic personally, most people will stick with systems like the ones they know until they understand enough such that making the change is something they can do with confidence.

Vires In Numeris.
barbarousrelic
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March 25, 2011, 06:02:52 PM
 #9

Would you move your money to an inflationary currency?

I think the answer is....

"NO"

It's one thing to support another idea, it's quite another to actually use it.

Bitcoin is an inflationary currency right now. Very highly inflationary.
The difference of opinion is only on how fast to cut back on inflation in the coming decades.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
ShadowOfHarbringer
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March 25, 2011, 06:05:00 PM
 #10

BitCoin is not controlled inflation. It is a constant quantity used for Money. You can't print more, preventing Quantitative Easing.

That is a relative term.

The inflation in Bitcoin is predefined and "controlled" by mathematical algorithm that is known to all parties in advance.
So it is "controlled" in a way.

Bitcoin is inflationary, and it will stay so until the last coin is mined (for another 100 years or so). Of course, the inflation decreases over time.

theymos
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March 25, 2011, 06:06:31 PM
 #11

Keeping the block reward at 50 BTC would continue to encourage mining forever, which might improve network security. It would be a "tax" on all coins, used to keep the network secure.

I don't think this is necessary, though.

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barbarousrelic
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March 25, 2011, 06:47:15 PM
 #12

There is nothing more fiat-like about the system he proposes than the current system. I actually think it would be better his proposed way because it would better promote mining, which is necessary to ensure network security. The rate of inflation would still be gradually decreasing, because 50BTC becomes less and less meaningful as time goes on.

Staying at 50BTC reward per block would mean the inflation rate would approach 0% as time went on but never actually get to 0.

Under the current system, the world will still be mining more gold long after the last BTC is mined.

This ignores the transition from block bounty to transaction fees. Blocks will still be mined for transaction fees, which could be substantially more than the current bounty.
Perhaps there are other better threads to hash this out, but I have some doubts that transaction fees will ever be big enough to be an adequate mining incentive alone.

I foresee a future where each miner will want to include as many fee-paying transactions in his or her blocks as possible, so they will set their minimum transaction fee to the smallest nonzero unit (currently .01 BTC). Any miner setting their transaction fee threshold to .02 or higher will skip over all the .01BTC transaction fees and end up losing money.

People sending transactions will know this and not ever set their fees to above .01.

But I could be wrong. It's difficult to predict human actions.

Do not waste your time debating whether Bitcoin can work. It does work.

"Early adopters will profit" is not a sufficient condition to classify something as a pyramid or Ponzi scheme. If it was, Apple and Microsoft stock are Ponzi schemes.

There is no such thing as "market manipulation." There is only buying and selling.
casascius
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March 25, 2011, 06:53:36 PM
 #13

I would say YES, I'd support 50 BTC forever, for the following reasons.

1. It pops the legitimate argument that "early adopters" are being unfairly rewarded.  Right now, 25% of the BTC have been passed out, but to less than 0.000001% of the world population.  We are all "early adopter elite".  That fosters a risk that an inrush of popularity will come in, all agree that it's not fair that the select few as we know each other are profiting handsomely at their expense, and start canvassing the idea of a new block chain.

2. Even with 50 BTC given forever, the inflation still tends to zero (since it's a ratio of new minting divided by the total BTC out there, which tends to infinity)

3. I am not convinced that the "transaction fees for mining" is a sustainable equilibrium that will sustain the network.  The incentives are in the wrong place.  I see a massive negative feedback loop.  The real control at stake here is the maximum block size acceptable to the network, something that is somewhat "centrally administered" in the source code.

Miners are always going to be incentivized to accept the maximum number of coins that they can jam into a block.  Miners will collectively never have any leverage to enforce a certain transaction fee, all of the control lies with the payers.  The higher the fee being paid, the more miners that will start mining, at least some of which will not be enforcing any minimums, which enables payers to pay as low a fee as they would like, which will make mining less or non worthwhile.  This is what I mean by negative feedback loop.

You'll have miners incented to waste available space in blocks - that's about the only way they'll be able to exert influence on the price payers pay.  Nowhere do I see an incentive for the mining community at large to throw as great a sum as possible of GPU power at the network.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
kiba
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March 25, 2011, 07:00:00 PM
 #14

I would say YES, I'd support 50 BTC forever, for the following reasons.

1. It pops the legitimate argument that "early adopters" are being unfairly rewarded.  Right now, 25% of the BTC have been passed out, but to less than 0.000001% of the world population.  We are all "early adopter elite".  That fosters a risk that an inrush of popularity will come in, all agree that it's not fair that the select few as we know each other are profiting handsomely at their expense, and start canvassing the idea of a new block chain.
The 50 BTC forever will disincentivize early adopters from promoting the currency. Not to mention that will disincentive saving, which is the basis of capital in the economy. Currency competition will eventually move all saving to a more stable currency putting the light out of the 50 BTC forever currency.

kiba
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March 25, 2011, 07:24:43 PM
 #15


Here's an idea... Once January 2013 rolls around we can create a permanent fork. Have one Bitcoin that follows the original economic plan and a 'Bitcoin50' that pays 50BTC/block forever... Let them compete with each other.

People propose them but they can't brother to do it in practice.

epii
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March 25, 2011, 07:51:17 PM
 #16

If it turns out this is an idea that has traction I would much rather it be explored in a fork than to change the original economic plan. Plus, I think there could be some very interesting dynamics between the two currencies...

OT: Is it possible to fork the chain in such a way that, even though the official bitcoin chain doesn't recognize post-fork transactions in the secondary chain, both the official and secondary chains continue growing and continue recognizing pre-fork transactions?  What would that even look like?  If the secondary chain became longer, would it "become" the official chain?

Vires In Numeris.
casascius
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March 25, 2011, 08:06:57 PM
 #17


Here's an idea... Once January 2013 rolls around we can create a permanent fork. Have one Bitcoin that follows the original economic plan and a 'Bitcoin50' that pays 50BTC/block forever... Let them compete with each other.

People propose them but they can't brother to do it in practice.

Wait until a million people show up, all competing for a slice of 500,000 active BTC being circulated, at which point they start asking each other, where's the other millions of BTC?  Suppose at this time there's 7 million BTC out there.

The million people who show up will start asking one another, where's the other 13/14ths of the Bitcoin economy?

If they collectively become convinced that we as "early adopters" are holding it for profit at their expense, just watch how fast they "bother do to it in practice".  They don't want 13/14 of their BTC wealth to potentially disappear on a whim, and you don't think they will be strongly motivated then?

Even with 50 BTC forever, inflation tends to zero.  It just removes a major incentive to speculate at Bitcoin's most vulnerable time: the startup period while it is trying to convince the public to adopt it.  We ARE going to have people questioning the unfairness favoring early adopters.

If not 50 BTC forever, then at the very least, something that substantially pacifies this concern.  Even on the Wiki "Myths" page, under the question "doesn't Bitcoin unfairly favor the early adopters?", the response given is essentially, "nothing in life is fair".  That does nothing to quell the "myth", it only purports to validate the concern as legitimate!  The public CAN do something about this, especially with a Google or some other corporation pushing for it... they can start a new block chain with majority support (their majority, not ours), which would effectively reduce the value of every one of today's BTC to zero.

Companies claiming they got hacked and lost your coins sounds like fraud so perfect it could be called fashionable.  I never believe them.  If I ever experience the misfortune of a real intrusion, I declare I have been honest about the way I have managed the keys in Casascius Coins.  I maintain no ability to recover or reproduce the keys, not even under limitless duress or total intrusion.  Remember that trusting strangers with your coins without any recourse is, as a matter of principle, not a best practice.  Don't keep coins online. Use paper wallets instead.
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March 25, 2011, 11:59:09 PM
 #18

The bitcoin code is open source. Anyone can setup their own genesis block and start a currency. I dont see how an inflatacoin is any different. 2% is probably the optimum amount and is a form of tax to ensure miners are incentivised. Who knows , you might be able to keep most transactions essentially free because there will always be blocks to mine so no one will have to include tx fees at all.

Be interesting to see how many miners switch and what the exchange value between them would be. Essentially people would be saving the majority of their wealth in bitcoins and spending inflatacoins.
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March 26, 2011, 12:06:46 AM
 #19

This topic quite naturally brings out lots of comment from the libertarian/anarcho-capitalist perspective but as I don't fall into those categories myself just thought I'd chime in.

I have no particular philosophical investment in the deflationary model, but I think it would be very difficult to get traction for a digital currency system with no clear upper limit.  Yes, in a mathematical sense the percentage of bitcoins being issued becomes smaller and smaller; however in practice the presence of an infinite progression makes the value of something much more difficult to intuitively quantify.  As the system currently stands the total quantity of bitcoins is a simple to understand amount, being distributed predictably over a decent period of time.

Regarding the "fairness of distribution" issue there seems to be a lot of misunderstanding on this point which we would do well to address internally as a community so that we don't keep presenting a confusing perspective to newcomers.  I'm not personally much of a capitalist in perspective so I'm not overly concerned with a profit incentive for early adoption:  for me the real incentive is the possibility of what Bitcoin might become in regards to enabling a microtransaction economy and democratizing access to financial services around the world.  But what people have to understand is that in a successful currency initial distribution is virtually irrelevant in comparison to the overall activity of the economy.

For example, a typical US one dollar bill changes hands 15-20 times or more a year and lasts 4 years in circulation.  Thus the total amount of economic activity it's involved in ($60-$80) dwarfs the economic activity of its actual production (a few cents) and even the impact of its introduction into the money supply ($1).  Digital currencies are likely to have even higher velocity and bitcoin in particular is much more efficient at the ratio of investment in production (electricity, hardware, and time for mining) to the face value of the currency.  So there is a much higher ratio of economic activity to the actual gain that someone receives for being an early adopter.  It is this economic activity as a whole that adds value to the early adopter's coins--the amount "paid" by any future user of bitcoin to the early miners and purchasers is tiny even if the currency becomes wildly successful.

As another way to understand this, consider the scenario of an early Google investor.  Because of the increase in the company's value that person has made a massive amount of money (for an individual) off their initial investment.  But look at the overall impact of the company.  Millions or even billions of people have used Google's search engine, webmail, advertising, and other services.  Because of the scale of digital computing and the internet there is a very tiny margin on any given transaction with the company--be it in time spent looking at or clicking on ads, or fees paid for Google AdWords--compared to the benefits people have received from being able to search the web, use email online, advertise cheaply to a wider range of customers, etc.  This is why the company was so successful--because the value proposition was fantastic! Yet that tiny margin has funded all the activities of the company, and after subtracting out the considerable expense of actually running an internet giant, paying its staff, etc. it is only a portion thereof that ends up as company profit; and it is only a portion of that value (and the market valuation of being able to hold shares in it) which is ultimately returned to that investor as a gain in value.  The percentage return is indeed impressive when we see what they had then vs what they have now.  But those gains are distributed across the whole range of Google's activities and economic impact.  The result?  We all wish that we were early Google investors, but we don't grumble about the unfairness of not being one every time we click 'search'.  The truth is, that at the time we had a chance to get in it took a lot of foresight to see what Google would become.  There was risk, and uncertainty, and no guarantees.  So your average Google user doesn't rant about the "unfairness" of initial stock distribution leaving them out.

Bitcoin is the same story.  Yes, early adopters (especially very early adopters) stand to gain significant amounts if bitcoin ultimately becomes successful.  But the whole reason for this is that a year ago, or even now no one had any real idea whether it would be successful or not.  If success was always such a sure thing the value would have been very high for bitcoins right from the get-go, mining competition would have been intense, and no particular individual would have gained massive percentages on their original return between then and now except possibly the miners of the very first blocks.

If bitcoin is even moderately successful its overall benefit to mankind will dwarf any gains people make by being in it earlier than others.  Joe Schmoe User won't care a twit how the coins were initially distributed.  They'll wish and dream that they had put a thousand dollars into Bitcoins when they were worth .05 cents US each, but they won't rant and abandon the system any more than we would stop using Google because we didn't buy shares at the IPO.

tl;dr:  Stop confusing new adopters of bitcoin with all these silly bickerings and particulars over distribution schemes and how mining should be done and generally transmitting the mistaken belief that distribution/mining has anything to do with the ways or reasons that people should actually use Bitcoin.

Bitcoin is cash.  You get it the way get cash--by exchanging other cash, working or selling something.  It's secure, easy-to-use and moves with the speed and reach of the internet.  And that's awesome, because nothing like it has ever existed before.  Get on board.  That is all.

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March 26, 2011, 01:17:13 AM
 #20

Keeping the current generation rate will ensure that lost bitcoins are effectively replaced forever.

If the bitcoin economy fails to at least double in the period of 2012-2016, keeping the generation rate at 50 BTC/block will cause inflation, but wouldn't a bigger issue be with the lack of growth in the economy at that point?
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