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Author Topic: Limited coins and hoarding  (Read 7910 times)
Blinken
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November 04, 2011, 06:16:47 PM
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I have said it before, but asymptotically limiting the number of bitcoins has bad repercussions.

One of the most serious problems is hoarding. Whenever you have a commodity that has a fixed supply against an increasing demand, inevitably hoarding occurs.

This is one of the key reasons why currencies are designed to expand: steady expansion of a currency improves liquidity.

Bitcoiners complain about non-use of coins and liquidity, but I think it is largely their own fault for capping the bitcoin supply, an elementary design blunder. Not only that, the closer we get to 21 million and the more users there are, the more intense the hoarding will become. This is basic economics stuff. Seriously, people around here need to read Adam Smith. (Hey, I know its a fat book, maybe your mom can help you with the big words.)

Also, as long as I am ranting, the procedure of giving bitcoins to people who run computational server farms is totally off the wall. The natural way to do P2P currency expansion is to award new coins proportionately to those who hold existing coins. Duh.

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November 04, 2011, 06:25:10 PM
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One of the most serious problems is hoarding... The natural way to do P2P currency expansion is to award new coins proportionately to those who hold existing coins.

I see. So the way to solve hoarding is to reward folks that hoard coins is to give them more coins?

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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November 04, 2011, 07:05:42 PM
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One of the most serious problems is hoarding. Whenever you have a commodity that has a fixed supply against an increasing demand, inevitably hoarding occurs.

This is one of the key reasons why currencies are designed to expand: steady expansion of a currency improves liquidity.
I agree with you 100%, but don't expect much traction on this issue here.  Many of the hard-core Bitcoiners are too blinded by their own ideology to recognize the basic fundamentals of economics in the real world.  All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.

But all they see is that the coins they hold would get really valuable if everybody started using them.  Plus they aren't evil "fiat" money printed by the CIA and used to control their thoughts and therefore automatically good.

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November 04, 2011, 07:13:45 PM
 #4

I have said it before, but asymptotically limiting the number of bitcoins has bad repercussions.

One of the most serious problems is hoarding. Whenever you have a commodity that has a fixed supply against an increasing demand, inevitably hoarding occurs.

This is one of the key reasons why currencies are designed to expand: steady expansion of a currency improves liquidity.

Bitcoiners complain about non-use of coins and liquidity, but I think it is largely their own fault for capping the bitcoin supply, an elementary design blunder. Not only that, the closer we get to 21 million and the more users there are, the more intense the hoarding will become. This is basic economics stuff. Seriously, people around here need to read Adam Smith. (Hey, I know its a fat book, maybe your mom can help you with the big words.)

Also, as long as I am ranting, the procedure of giving bitcoins to people who run computational server farms is totally off the wall. The natural way to do P2P currency expansion is to award new coins proportionately to those who hold existing coins. Duh.

Lucky for you there now are several alternate currencies which address your concerns.  See the forum section "Alternate cryptocurrencies" for more info:
  - http://bitcointalk.org/index.php?board=67.0

Personally, I'm sticking with Bitcoin.  I see it this way -- because it is trivial to "restock" my supply of bitcoin, I don't hesitate to choose it as the currency I use for spending.  And because when I spend using Visa/MC/PayPal, the merchant gets less than a dollar for each dollar I spend, I believe it is only a matter of time before we start seeing incentives from merchants driving us to use Bitcoin as the payment method.  i.e., I as a consumer gain more from using bitcoin for a payment than I would gain as a speculator from the increase in its value.

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November 04, 2011, 07:27:05 PM
 #5

One of the most serious problems is hoarding. Whenever you have a commodity that has a fixed supply against an increasing demand, inevitably hoarding occurs.

This is one of the key reasons why currencies are designed to expand: steady expansion of a currency improves liquidity.
I agree with you 100%, but don't expect much traction on this issue here.  Many of the hard-core Bitcoiners are too blinded by their own ideology to recognize the basic fundamentals of economics in the real world.  All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.

But all they see is that the coins they hold would get really valuable if everybody started using them.  Plus they aren't evil "fiat" money printed by the CIA and used to control their thoughts and therefore automatically good.


Wait, we're the one's blinded by ideology?

"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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November 04, 2011, 07:30:15 PM
 #6

Personally, I'm sticking with Bitcoin.  I see it this way -- because it is trivial to "restock" my supply of bitcoin, I don't hesitate to choose it as the currency I use for spending.  And because when I spend using Visa/MC/PayPal, the merchant gets less than a dollar for each dollar I spend, I believe it is only a matter of time before we start seeing incentives from merchants driving us to use Bitcoin as the payment method.  i.e., I as a consumer gain more from using bitcoin for a payment than I would gain as a speculator from the increase in its value.
+1
Couldn't agree more!
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November 04, 2011, 07:40:53 PM
 #7

your point: hoarding is bad because of low liquidity.

How does hoarding impact liquidity? If everyone stopped hoarding, the price of bitcoin would just go down. then it's trading as usual.
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November 04, 2011, 07:44:55 PM
 #8

Personally, I'm sticking with Bitcoin.  I see it this way -- because it is trivial to "restock" my supply of bitcoin, I don't hesitate to choose it as the currency I use for spending.  And because when I spend using Visa/MC/PayPal, the merchant gets less than a dollar for each dollar I spend, I believe it is only a matter of time before we start seeing incentives from merchants driving us to use Bitcoin as the payment method.  i.e., I as a consumer gain more from using bitcoin for a payment than I would gain as a speculator from the increase in its value.
+1
Couldn't agree more!

I especially use credit/debit cards for small purchases because the banks take a good chunk. I write checks for larger payments because it is slower for the payment to process.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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November 04, 2011, 07:57:30 PM
 #9

I have said it before, but asymptotically limiting the number of bitcoins has bad repercussions.

One of the most serious problems is hoarding. Whenever you have a commodity that has a fixed supply against an increasing demand, inevitably hoarding occurs.

This is one of the key reasons why currencies are designed to expand: steady expansion of a currency improves liquidity.

Bitcoiners complain about non-use of coins and liquidity, but I think it is largely their own fault for capping the bitcoin supply, an elementary design blunder. Not only that, the closer we get to 21 million and the more users there are, the more intense the hoarding will become. This is basic economics stuff. Seriously, people around here need to read Adam Smith. (Hey, I know its a fat book, maybe your mom can help you with the big words.)

Also, as long as I am ranting, the procedure of giving bitcoins to people who run computational server farms is totally off the wall. The natural way to do P2P currency expansion is to award new coins proportionately to those who hold existing coins. Duh.

Put your time where your mouth is and support my idea for EnCoin. It requires pretty much a completely new codebase, so it is a bit far yet from being a reality.
If too many people hoard and the prices rise, more people can create new coins (and there are rules governing creation that make it much less profitable for server farms and such).
Merchant reputation provides security for the network and merchants are encouraged to gain this reputation in the form of refunding some of a mandatory transaction fee. Any unrefunded fees go to those who already hold coins.

No big payoff for being an early adopter though since it is attempting to be a currency rather than a commodity. :/

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November 04, 2011, 08:05:06 PM
 #10

I especially use credit/debit cards for small purchases because the banks take a good chunk..

I'm missing the intent ... that causes pain to the merchant, who in turn raises the price -- the only winners are the payment network s and credit card issuers.  Many merchants post minimum charge limits (though their merchant agreements almost universally prohibit that policy) so that their profits don't get demolished by payment network fees with these small purchases (e.g., purchases under $10).

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November 04, 2011, 08:06:03 PM
 #11

I'm regularly amused by members who do no comprehend Praxeology or Economics telling me how consumers should act.

"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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November 04, 2011, 08:06:53 PM
 #12

I especially use credit/debit cards for small purchases because the banks take a good chunk..

I'm missing the intent

The intent was sarcasm.

"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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November 04, 2011, 08:10:13 PM
 #13

I'm regularly amused by members who do no comprehend Praxeology or Economics telling me how consumers should act.
Since you're obviously an expert in both, what do you think will motivate a consumer to use an irreversible method like Bitcoins to buy something online instead of their Visa card? 

Donation address:  none, because I'm not a goddamn hobo.
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November 04, 2011, 08:21:14 PM
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I especially use credit/debit cards for small purchases because the banks take a good chunk..

I'm missing the intent ... that causes pain to the merchant, who in turn raises the price -- the only winners are the payment network s and credit card issuers. 

Right, the merchant raises prices, which in turn allows banks to make more fees. If the banks get away with charging higher fees to the merchant instead of the consumer, then the merchant again raises prices and the banks make more in fees.
The intent is to break that vicious cycle. At some point, Bitcoin will fit into the picture.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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November 04, 2011, 08:28:15 PM
 #15

I'm regularly amused by members who do no comprehend Praxeology or Economics telling me how consumers should act.
Since you're obviously an expert in both, what do you think will motivate a consumer to use an irreversible method like Bitcoins to buy something online instead of their Visa card? 

Hopefully (eventually) lower prices.  CC fees are expensive, and merchants routinely lose even more via fraud.  Those aren't "free" and get wrapped into the cost of doing business.  If Bitcoin gets popular enough hopefully merchants will offer discounts for using Bitcoin.  The true cost of doing business with CC is easily 5% when you combine the fraud, charge back fee costs, merchant account costs, and the "vig".  For some high chageback businesses it is north of 10%.

Of course it is a chicken or the egg scenario and it won't be solved overnight but CC aren't free and that offers an oppertunity for Bitcoin to be "better".
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November 04, 2011, 08:38:17 PM
 #16

All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.
The analogy with gold as a global currency is valid.  But bitcoin improves on gold in that it is possible to easily buy/sell/trade in tiny fractions of one bitcoin.  So even though there is a finite supply, the value will simply increase until equilibrium is found.  Since bitcoins are easily divisible--and their divisibility could even be increased from the current 8 digits--it doesn't matter how high their value goes to reach equilibrium.

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November 04, 2011, 08:41:46 PM
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All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.
The analogy with gold as a global currency is valid.  But bitcoin improves on gold in that it is possible to easily buy/sell/trade in tiny fractions of one bitcoin.  So even though there is a finite supply, the value will simply increase until equilibrium is found.  Since bitcoins are easily divisible--and their divisibility could even be increased from the current 8 digits--it doesn't matter how high their value goes to reach equilibrium.
Gold is not a currency.

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November 04, 2011, 08:43:47 PM
 #18

All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.
The analogy with gold as a global currency is valid.  But bitcoin improves on gold in that it is possible to easily buy/sell/trade in tiny fractions of one bitcoin.  So even though there is a finite supply, the value will simply increase until equilibrium is found.  Since bitcoins are easily divisible--and their divisibility could even be increased from the current 8 digits--it doesn't matter how high their value goes to reach equilibrium.
Gold is not a currency.

Splitting hairs.  Gold has the potential as a currency and it has been used as a currency in the past.  It is generally not used as currency for various reasons as outlined in the post that your replied to.

Gold has fallen out of favor as a medium or exchange because
* it can be counterfitted relativley easily
* the amount of gold in coin can be altered
* it is difficult to have small units of exchange.  For example making a 1/1000th ounce coin would be inpractical.
* as a medium of exchange some value will be lost due to abrasion
* difficult to transport large amounts safely

Bitcoin doesn't have the issues that Gold has and thus would be a more viable global currency.
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November 04, 2011, 08:51:55 PM
 #19

I'm regularly amused by members who do no comprehend Praxeology or Economics telling me how consumers should act.
Since you're obviously an expert in both, what do you think will motivate a consumer to use an irreversible method like Bitcoins to buy something online instead of their Visa card? 

I'm educated in both.  (Actually, I'm educated in Praxeology, Economics is a subset)  There is no such thing as an expert in either discipline, because they are both social sciences.  Trustworthy Economists don't call themselves "experts", other people do.  It's like the "guru" word among unix programmers, it's a title that you earn, not one you claim.

As the the question, "what do you think will motivate a consumer to use an irreversible method like Bitcoins to buy something online instead of their Visa card?" the answer is very simple.  Lower transaction fees over the Internet, and eventually merchant discounts.  Once upon a time, cash was cheaper than using a credit card, until the credit card companies got wise and started demanding vendors sign contracts to not advertise prices lower than the credit card prices.  This is why the dual price displays on gas pumps disappeared in the 1980's.  But you can still get a cash discount from such vendors on larger items, such as a new tv, if you know who it is in the store you have to talk to.  Online vendors, for the most part, don't sign such agreements; and even if they did, they could be undercut by another website selling the exact same products for bitcoin only.

"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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November 04, 2011, 08:54:04 PM
 #20

All you'll get is analogies to gold, which is the heart of Bitcoin's problems as a currency.  Bitcoin isn't gold, neither Bitcoin nor gold are a currency, and neither would work as a global medium of exchange without major disruptions to world economies.
The analogy with gold as a global currency is valid.  But bitcoin improves on gold in that it is possible to easily buy/sell/trade in tiny fractions of one bitcoin.  So even though there is a finite supply, the value will simply increase until equilibrium is found.  Since bitcoins are easily divisible--and their divisibility could even be increased from the current 8 digits--it doesn't matter how high their value goes to reach equilibrium.
Gold is not a currency.

Visa is not a money.

"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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