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Author Topic: Properties a crypto-currency requires in order to be self-stabilizing  (Read 3637 times)
FreeTrade
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November 10, 2011, 06:30:40 AM
 #1

My recent discussion about Encoin got me wondering what properties a crypto-currency would require in order to be self-stabilizing. I realize the majority opinion is that this is the crypto-currency equivalent of a perpetual motion machine. But mere claims of impossibility don't dissuade me from considering an idea, indeed I think that is the reason many of us considered Bitcoin in the first place.

So Encoin has a property of only allowing new currency to be created (at a fixed cost) when the market value has reached or exceeded that cost. Thus no rational actor would create new currency except where market demand required it, and effectively setting a maximum possible value on the currency.

But what property of a crypto-currency could help to arrest a falling market value?

1. The first idea I had was that currency could be randomly destroyed when the market value was falling, thus reducing supply and increasing price. However the knowledge that ones currency was being depleted might cause one to sell-off, actually increasing the supply and further depressing the price.

2. Another idea is to have an interest rate - when the price is falling, existing currency holders see their holdings grow at a rate proportional to the distance from the target price of the currency. This increases demand for the currency in line with the distance from the target price. However if the price were to fall too far, increasingly higher interest rates would need to be provided, and we might see a huge glut of the currency until it became ridiculous and faith was completely lost. But perhaps the currency could chop off zeroes as needed, and everyone who was going to sell had sold, causing the interest rate to come back down.

3. A third idea might be to have a (distributed) central bank (DCB). The DCB would need to tax the generation of new coins, maybe at 20%, convert them into some other store of value (maybe Bitcoins), and then seek to buy back the currency if the target price of the currency fell too low.  Now a central body could do this easily enough, but I'm not sure how one might set the rules in advance, and then distribute the task so that no individual could change it.

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November 10, 2011, 07:01:05 AM
 #2

The largest problem with all of those (or any method that attempts to fix price) is how do you determine price?

You ask Mt.Gox.  Hardly distributed.  Even if it was somehow distributed it now likely requires some element of trust to avoid a coalition feeding the protocol invalid data (i.e. a 51% price attack).  Even if you solve that well markets (especially small ones) are easily manipulated.

Also the track record on market manipulation is rather weak.  If the most powerful central banks in the world with nearly unlimited ability to create or destroy money have difficulty achieving their goals it seems unlikely any protocol especially one which would be limited to avoid manipulation could do much better.
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November 10, 2011, 09:55:30 AM
 #3

I talk a lot about price stability, but I really don't care about price - I care about the stored value in my wallet.  That tracks with price only if the number of coins in my wallet stays the same.  If you destroy 20% of all coins in all wallets in response to a price drop you'll bump the price back up, but you won't restore the value of my wallet.  Therefore #1 and #2 don't really help.

#3 is interesting.  I've had a somewhat similar idea.  I called it a "Decentral Bank".  Smiley  I haven't fully fleshed out that idea, so run with it a bit and see if you can get my mind going.

The largest problem with all of those (or any method that attempts to fix price) is how do you determine price?

My idea is to mine it into the block chain.  We had a lot of interesting back-and-forth about it over here:
https://bitcointalk.org/index.php?topic=49959.msg600953#msg600953

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November 10, 2011, 10:18:58 AM
 #4

So Encoin has a property of only allowing new currency to be created (at a fixed cost) when the market value has reached or exceeded that cost. Thus no rational actor would create new currency except where market demand required it, and effectively setting a maximum possible value on the currency.

There is nothing stopping anyone from creating currency at a loss. It's just irrational, obviously.

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But what property of a crypto-currency could help to arrest a falling market value?

The same property that has arrested bitcoins around $3 - opportunity. Everyone can see that the market price is below what it cost to produce, that means you can buy and hold to speculate that the currency will again rise to its market value. Prove enough times that the market value of the currency revolves around a stable cost to produce, and you can gain a lot of faith in the currency.

But there are other ideas as well. One I came up was redistributing transaction fees as interest to all holders of currency. This means if the price does start to fall, those with currency can hold on and make interest off of those who are buying in and transacting, or just selling. This interest would still apply even when the currency isn't falling, so it creates demand to hold anyway.

Red had an idea where transaction fees are destroyed, but only if no one is making new currency, and even possibly adding a spending tax. I've drawn this idea out a bit in my latest post in the thread, but I need to think on it a bit more.

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1. The first idea I had was that currency could be randomly destroyed when the market value was falling, thus reducing supply and increasing price. However the knowledge that ones currency was being depleted might cause one to sell-off, actually increasing the supply and further depressing the price.

This is why you should always revolve these types of decisions around transaction fees. Real economic activity is a lot easier to measure when there is a small, but significant fee.

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The largest problem with all of those (or any method that attempts to fix price) is how do you determine price?

If we're talking about Encoin, there is no method that attempts to fix the price. It only attempts to keep a stable cost to produce, and it does so by occasionally restricting supply to see how much competition is fostered. koomey's law

If the price of electricity goes down, the cost of time and processing cycles will go up due to competition. Although not quantifiable, time isn't free. If 1 coin takes 50 hours and $1 of electricity, it may be valued identically to a coin that takes 100 hours and 50 cents of electricity. This is the balance Encoin is trying to achieve. Electrical cost + time + processing cycles (hardware costs, etc.) + return on investment = market price.

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November 10, 2011, 10:25:35 AM
 #5

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The largest problem with all of those (or any method that attempts to fix price) is how do you determine price?

If we're talking about Encoin, there is no method that attempts to fix the price. It only attempts to keep a stable cost to produce

Yes - determining the price doesn't seem like the big problem to me. Choosing an arbitrary price and attempting to fix against the current electricy/hardware/hashrate seems like a good approach.

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November 10, 2011, 10:31:13 AM
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#3 is interesting.  I've had a somewhat similar idea.  I called it a "Decentral Bank".  Smiley  I haven't fully fleshed out that idea, so run with it a bit and see if you can get my mind going.

Sure - the Decentral Bank does have nicer ring to it!

I guess it is easy enough to levy the tax, you'd require miners to pay Bitcoin in addition to proof of work to create new currency. How does the DCB hold those Bitcoin such that they can only be released with the consent of the majority of the network. That seems to be the crux of the issue. Maybe something in the bitcoin scripting system would be helpful. I'll need to think about it some more too.

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November 10, 2011, 10:42:25 AM
 #7

Price is a bad word to use, at least with the encoin design. Value is more appropriate. I used the example of if 1 ENC = 1 loaf of broad, 1 ENC should always = 1 loaf of bread, assuming production costs of bread are unchanged. This initial value will be determined within the first few hundred thousand coins or so, after that everyone else must put in a similar cost to produce, or they are doing so at a loss (if they are doing so at a greater gain, and this greater gain becomes a larger percentage of the coins produced, the koomey's law competition effect will bring the cost back up).

But value is different from price because price kind of implies market price, e.g. what does 1 ENC = in USD/EUR/etc. This will change drastically over time as fiat currency inflates. If you can buy 1 loaf of bread for $2 in 2011, but a loaf of bread costs $4 in 2050, a loaf of bread should still cost 1 ENC in 2050. More fiat available for limited ENC, plus those producing ENC will want an equivalent amount of fiat value (why would I mine/sell for $2 when bread costs $4?) for their time, hardware, ROI even if electricity prices lag behind. Like I've said, it won't be perfect, but I think it can get real close.

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November 10, 2011, 10:53:33 AM
 #8

Price is a bad word to use, at least with the encoin design. Value is more appropriate. I used the example of if 1 ENC = 1 loaf of broad, 1 ENC should always = 1 loaf of bread, assuming production costs of bread are unchanged. This initial value will be determined within the first few hundred thousand coins or so, after that everyone else must put in a similar cost to produce, or they are doing so at a loss (if they are doing so at a greater gain, and this greater gain becomes a larger percentage of the coins produced, the koomey's law competition effect will bring the cost back up).

But value is different from price because price kind of implies market price, e.g. what does 1 ENC = in USD/EUR/etc. This will change drastically over time as fiat currency inflates. If you can buy 1 loaf of bread for $2 in 2011, but a loaf of bread costs $4 in 2050, a loaf of bread should still cost 1 ENC in 2050. More fiat available for limited ENC, plus those producing ENC will want an equivalent amount of fiat value (why would I mine/sell for $2 when bread costs $4?) for their time, hardware, ROI even if electricity prices lag behind. Like I've said, it won't be perfect, but I think it can get real close.

That's a great idea. All it requires is for you to corner the entire world market on bread making.

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November 10, 2011, 08:40:42 PM
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A currency with a monetary base that increases indefinitely can maintain price stability in relation to the overall economy. Therefore, it can act as a means of exchange and a metric of value. The problem with existing fiat currencies is that they also are promoted as a store of value, which is impossible outside of a static economy.

The world could be fine if people saved their wealth in gold/silver and spent euros and dollars. However, the centralized management is currently at odds with this. A decentralized system of control and management over the money supply as provided by the mechanism from Bitcoin is the most ideal (to my knowledge) means of transcending that dilemma.

Such a system would involve saving in Bitcoins and spending in Altcoin/Aucoin or what-have-you. There was an extensive discussion on this at the Altcoin thread. Whereas Bitcoin reaches an asymptote, Altcoin would have no such limitation and could be expanded indefinitely via the same mechanism that is limited in the former. Note the consistent value in Altcoins from the quoted chart below.

A transactional medium is necessary for day-to-day economic activity. That means that it doesn't matter whether the currency depreciates, so long as it doesn't do so too quickly. What savers use to store their accumulated wealth must retain its value independently of any other factors. Again, Bitcoin serves this latter function perfectly - it appreciates in value over time due to its deflationary nature. For the transactional, even disposable, medium - Altcoin is flexible, maintains stability in pricing perceptions and has the highest in convenience of any currency.

Think of Altcoin as the translation layer between a consistent measure of value (Bitcoin or gold), and the fluctuating quantity and quality of goods and services in an entire economy. It doesn't matter whether there are 10,000 potatos or 1,000,000 - the price for them will still be the same in Altcoins. The more potatos there are, the cheaper they become in Bitcoins. Assume that potatoes are the only goods in our example economy, a maximum for Bitcoin of 1,000 Satoshis and an initial 10:1 Altcoin/Bitcoin to potato ratio:

Annual Potato Yield>Total Altcoins>Value in Altcoins>Total Bitcoins>Value in Bitcoins
1001,000101,00010
1,00010,000101,0001
10,000,000100,000,000101,0000.0001

Generation of both Altcoins and Bitcoins is a function of profitability for the producer and thus a self-managing process. There is no need to increase complexity to manage something that doesn't need management.
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November 10, 2011, 09:22:07 PM
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Note the consistent value in Altcoins from the quoted chart below.

Except this chart has no basis in reality. The amount of money in existence will not just perfectly equal the amount required for the economy to so beautifully line up with your chart. It takes no actual supply or demand into account, only a made-up 10:1 ratio between it and bitcoins and a 10:1 ratio between it and potatoes. Real economies don't work this way, brah.

What if there is no demand for new currency? Well, new currency is going to be produced anyway, but now it comes in for little effort. Everyone will HAVE to mine just to keep the value of the currency remotely stable. And it will HAVE to be done in massive pools or someone is going to become Altcoin's newest (b-)millionaire based purely on luck.

Instead of one replacement currency, now you have one for spending and one for saving. Doesn't that suggest that there is something inherently wrong with both? Everyone will have to keep wealth in both because god-forbid the christmas season come around and bitcoins flow like mad into altcoins, crashing the value of bitcoins and inflating the value of altcoins. (buying wheat in the fall caused a constriction of the money supply in new york, led to someone manipulating the system, led to a crash in the economy, and the eventual result was the federal reserve as we know it today. things aren't so simple as you'd like them to be)

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A transactional medium is necessary for day-to-day economic activity. That means that it doesn't matter whether the currency depreciates, so long as it doesn't do so too quickly.

Then why switch from fiat? Just for convenience's sake?

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What savers use to store their accumulated wealth must retain its value independently of any other factors.

See my example above. Bitcoin won't retain its value independently of the exact same thing but with inflation. There will be flows between the two constantly, and if something scares/guides the public into one over the other, it will surely affect the other's value.

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Generation of both Altcoins and Bitcoins is a function of profitability for the producer and thus a self-managing process. There is no need to increase complexity to manage something that doesn't need management.

The creation of coins is a self-managing process, the effects of that creation is not. Coins are not created in a void. The cost to produce each coin should not vary so wildly as to essentially imitate fiat. All this will do is create a gigantic market of speculation between the two currencies which MIGHT actually result in stability between the combination of the two (but the cost of this stability will be that speculators get value, everyone else loses--oh wait, exchanges win too by taking fees, we love fees). Again though, you'd have to keep half of your wealth in both. Kind of silly. And still doesn't do anything to help ease economic struggles or prevent manipulations of the currency.

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November 10, 2011, 09:42:48 PM
 #11

My recent discussion about Encoin got me wondering what properties a crypto-currency would require in order to be self-stabilizing.
What we need is millions of users and hundreds of thousands of service/product providers all willing to accept and spend the cryptocurrency. Problem solved.

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November 10, 2011, 11:37:38 PM
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My recent discussion about Encoin got me wondering what properties a crypto-currency would require in order to be self-stabilizing.
What we need is millions of users and hundreds of thousands of service/product providers all willing to accept and spend the cryptocurrency. Problem solved.

Right. Speculators will compete against each other causing their fluctuation waves (or whatever trader lingo) to dampen each other. The mean value of Bitcoin will rise with its usefulness.

Any significantly advanced cryptocurrency is indistinguishable from Ponzi Tulips.
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November 11, 2011, 12:22:12 AM
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Except this chart has no basis in reality. The amount of money in existence will not just perfectly equal the amount required for the economy to so beautifully line up with your chart. It takes no actual supply or demand into account, only a made-up 10:1 ratio between it and bitcoins and a 10:1 ratio between it and potatoes. Real economies don't work this way, brah.

The chart illustrates the principle. In practice the supply ranges in accordance with demand, not at a precise relationship. This is exactly the same way existing money supplies operate, the only difference being centralized (flawed) management as opposed to Bitcoin's much more reliable decentralized method.

What if there is no demand for new currency? Well, new currency is going to be produced anyway, but now it comes in for little effort. Everyone will HAVE to mine just to keep the value of the currency remotely stable. And it will HAVE to be done in massive pools or someone is going to become Altcoin's newest (b-)millionaire based purely on luck.

No demand for new currency means prices fall (continued production without monetary base expansion is deflationary), no different from Bitcoin near its asymptote. New block production in a situation of significant displacement leads to increased unit production - with arbitrage first generating, then mediating volatility. The currency must be spent to be of worth (e.g. buying real goods or Bitcoins for savings), as the money supply can only expand - any substantial expansion leads to depreciation of the unit.

The notion that unit generation must be done in massive pools is false, just as it is now. Nothing prevents an individual from participating alone. Pool mining simply allows individual algo miners a more reliable chance at sharing in block discovery. Note that discovery of a single block does not create millionaires in any existing crypto-currency system, nor would a single block necessarily do so in an inflationary Bitcoin structure.

Instead of one replacement currency, now you have one for spending and one for saving. Doesn't that suggest that there is something inherently wrong with both? Everyone will have to keep wealth in both because god-forbid the christmas season come around and bitcoins flow like mad into altcoins, crashing the value of bitcoins and inflating the value of altcoins. (buying wheat in the fall caused a constriction of the money supply in new york, led to someone manipulating the system, led to a crash in the economy, and the eventual result was the federal reserve as we know it today. things aren't so simple as you'd like them to be)

No. Use the right tool for the job. Gold is excellent for wealth preservation while fiat is excellent for active use; the same applies to Altcoin/Bitcoin. There is no contradiction - only the perspective is erroneous. If you have a better solution, I'm sure there's a Nobel prize waiting.

With an economy the size of Bitcoin as it currently stands, manipulation is a very real and dangerous possibility. I was not suggesting Bitcoin (or Altcoin) in its nascent state is capable of providing the necessary service as described; my discussion is oriented toward the more mature stages of use. At that point, it quickly becomes much more difficult to manipulate the system.

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A transactional medium is necessary for day-to-day economic activity. That means that it doesn't matter whether the currency depreciates, so long as it doesn't do so too quickly.

Then why switch from fiat? Just for convenience's sake?

Bitcoin is functionally no different from fiat currencies. It is the control and management that makes it more reliable. This means that not having to be concerned about which banker or politician is reliable is of greater convenience.

Quote
What savers use to store their accumulated wealth must retain its value independently of any other factors.

See my example above. Bitcoin won't retain its value independently of the exact same thing but with inflation. There will be flows between the two constantly, and if something scares/guides the public into one over the other, it will surely affect the other's value.

The example is based upon temporal assumptions. Representative wealth is effectively stored in everything from real assets to fiat currencies. There are flows between fiat and gold, yet this does not harm the independent value of gold with all else remaining static.

There are multiple components in play, not just Altcoin/Bitcoin. Just as with gold and fiat, they are not themselves wealth, but representations of it. The wealth that the two systems represent is transferable among the currencies as well as anything else involving capital investment.

Quote
Generation of both Altcoins and Bitcoins is a function of profitability for the producer and thus a self-managing process. There is no need to increase complexity to manage something that doesn't need management.

The creation of coins is a self-managing process, the effects of that creation is not. Coins are not created in a void. The cost to produce each coin should not vary so wildly as to essentially imitate fiat. All this will do is create a gigantic market of speculation between the two currencies which MIGHT actually result in stability between the combination of the two (but the cost of this stability will be that speculators get value, everyone else loses--oh wait, exchanges win too by taking fees, we love fees). Again though, you'd have to keep half of your wealth in both. Kind of silly. And still doesn't do anything to help ease economic struggles or prevent manipulations of the currency.

The effects of unit generation are insignificant in a mature system. Even with massive production on the inflationary side (Altcoin/fiat), the deflationary component (Bitcoin/gold) remains relatively immobile and absorbs the influx (along with real assets and other investment vehicles, just as happens in contemporary economies). This is another point made clear by the chart: an absolute change is relatively large and disruptive for small economies, while for large economies the same absolute change is negligible in toto.

Arbitration is a normally occurring aspect of any economy; it will exist, allowing opportunities for profit. Introduction of the inflationary side (Altcoin) can be initially governed by logarithmic block generation, easing disruptive effects of adoption. This is essentially the reverse of Bitcoin's halving of the block reward over time; Altcoin might increase the block reward periodically over a set period of time, after which market demand for the currency determine its expansion.

Exchanges provide an essential service that is external to the currency itself. A reasonable cost for a quality product or service is simply an aspect of participation in any society. If you can obtain all of your products and services for free, you must be better than anyone else or a politician.

The assumption that half of a person's wealth must be stored in each is nonsense. Nothing demands wealth be kept in either currency: it's a matter of personal choice. If a person chooses to store his wealth in the form of plush animals, that's his prerogative. Each individual's needs are met by variable allocation, just as exists with the current global financial system. With a deflationary component separate from the inflationary one, it becomes easier to manage wealth versus trying to shoehorn everything into a single unit that can do neither indefinitely without introducing disruptive volatility.

Again, a nascent system is vulnerable to manipulation. At a critical mass, that becomes a largely irrelevant issue. The problem is in getting to that point, something existing banks and governments are doing an excellent job of achieving without the Bitcoin community needing to do much at all.

It may help to read this for a better understanding of how capital flow and money in general works.
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November 11, 2011, 02:02:31 AM
 #14

The chart illustrates the principle. In practice the supply ranges in accordance with demand, not at a precise relationship. This is exactly the same way existing money supplies operate, the only difference being centralized (flawed) management as opposed to Bitcoin's much more reliable decentralized method.

This is not true. The value ranges in accordance with demand. There is a huge difference. And what that difference does is open up the opportunity for a transfer of value/wealth by manipulating the supply. Bitcoin is not more reliable in this management, as the spiral up to USD $30 so eloquently proved. Even without early adopters, if we assume the 80/20 distribution of wealth will generally remain true, those with 80% of the wealth have every opportunity to manipulate this supply for their own benefit. Even more so with an arbitrary money generation like Bitcoin's that cannot be changed. At least more effort can go into mining gold to ease supply problems; there is no such possibility with bitcoins.

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No demand for new currency means prices fall (continued production without monetary base expansion is deflationary)

The point was the monetary base is going to expand whether or not continued production warrants it. I'm talking about Altcoin here. Prices rise, and for no good reason. This may actually encourage a loss of productivity as electricity is wasted to keep your portion of the value of the currency. Don't want to lose value? Mine. Perhaps it makes sense from the standpoint of the security of the network, but it hardly makes real sense.

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No. Use the right tool for the job. Gold is excellent for wealth preservation while fiat is excellent for active use; the same applies to Altcoin/Bitcoin. There is no contradiction - only the perspective is erroneous. If you have a better solution, I'm sure there's a Nobel prize waiting.

Gold is not excellent for wealth preservation. Its prohibitively limited quantity makes it a speculative vehicle. Speculation is not something one should have to engage in to retain wealth. http://upload.wikimedia.org/wikipedia/commons/thumb/e/e3/Gold_price_in_USD.png/800px-Gold_price_in_USD.png - Anyone buying in on the way up or near the top most certainly did not preserve their wealth. It is inflation-resistant though, but that is only because the property of fiat is to be inflative.

By using an analogous dual currency system that mimics gold and fiat, you are asking for the same problems.

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With an economy the size of Bitcoin as it currently stands, manipulation is a very real and dangerous possibility. I was not suggesting Bitcoin (or Altcoin) in its nascent state is capable of providing the necessary service as described; my discussion is oriented toward the more mature stages of use. At that point, it quickly becomes much more difficult to manipulate the system.

Do you agree that the USD is a mature system? If you do, then how did we just see a world-wide recession based on the manipulation of credit? Those with the majority of wealth aimed to transfer more wealth to themselves by pushing currency around. And that is in a mature system, and they nearly collapsed the economy. Do you think Bitcoin will be immune to this because of no government? The government had little to do with any of this besides deregulation. Bitcoin absolutely begs for low fractional reserves with its restricted supply. Welcome to debt-based society yet again. Welcome to the manipulations of the top 20% in wealth impressed upon the bottom 80%. No goverment will be able to bail anyone out, so welcome to the recession to end all recessions.

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Bitcoin is functionally no different from fiat currencies. It is the control and management that makes it more reliable. This means that not having to be concerned about which banker or politician is reliable is of greater convenience.

Greed is something we can universally depend on, and those who have the ability and desire to acquire wealth for nothing productive will always attempt to do so. This will be realized in bitcoin; it has already been realized.

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The example is based upon temporal assumptions. Representative wealth is effectively stored in everything from real assets to fiat currencies. There are flows between fiat and gold, yet this does not harm the independent value of gold with all else remaining static.

There are multiple components in play, not just Altcoin/Bitcoin. Just as with gold and fiat, they are not themselves wealth, but representations of it. The wealth that the two systems represent is transferable among the currencies as well as anything else involving capital investment.

Yes, they are representations. But these representations change in value based on external factors. A currency should make these external factors--these manipulations--as difficult as possible. Bitcoin makes it as easy as possible to transfer wealth up the chain. Altcoin makes it somewhat easy to transfer wealth down the chain. Neither is at all optimal. The poor won't use bitcoin, the rich won't use altcoin. Not a very productive currency. Governments attempt to alleviate the disparity by government spending, though we all know that this is another greed-fueled process that rarely benefits the majority.

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The effects of unit generation are insignificant in a mature system. Even with massive production on the inflationary side (Altcoin/fiat), the deflationary component (Bitcoin/gold) remains relatively immobile and absorbs the influx (along with real assets and other investment vehicles, just as happens in contemporary economies). This is another point made clear by the chart: an absolute change is relatively large and disruptive for small economies, while for large economies the same absolute change is negligible in toto.

Altcoin is actually something I've agreed in the past as a genuinely better system than bitcoin or fiat. However, the decades it will take before altcoin stops being so volatile make it essentially worthless. It cannot adapt to large changes in demand or productivity. It will likely never have to as no one will adopt it.

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Arbitration is a normally occurring aspect of any economy; it will exist, allowing opportunities for profit.

Yeah but I don't pay a 0.65% arbitration fee to move money from my savings to my checking. It is such a gross solution to the issues of bitcoin. "Start a sister currency LOL!"

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Exchanges provide an essential service that is external to the currency itself.

Well, not really a currency if you can't spend it though, now is it? "Get your bitcoin bullion here! Only a 1% fee!"

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The assumption that half of a person's wealth must be stored in each is nonsense.

I did not say must. But if you want to hedge your bets evenly, you have to. Aka not be a speculator with your personal wealth.

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With a deflationary component separate from the inflationary one, it becomes easier to manage wealth versus trying to shoehorn everything into a single unit that can do neither indefinitely without introducing disruptive volatility.

No, it becomes easier to use a simple number and go from there without any real economic thought behind it. That is the only logic behind either of these distribution schemes. If you could create a currency that is similar to gold in that it is difficult to obtain but the difficulty of obtaining it stays relative throughout time, you would have a great foundation for a currency. Say you could compact 1 man-hour of work into a coin. 1 man-hour may have different productivity throughout time because of technological progress or whatever, but everyone knows what 1 man-hour is when you spend it. Or save it. Its value should not vary based on the whims of the 20%, its value should not vary based on the whims of the government.

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Again, a nascent system is vulnerable to manipulation. At a critical mass, that becomes a largely irrelevant issue. The problem is in getting to that point, something existing banks and governments are doing an excellent job of achieving without the Bitcoin community needing to do much at all.

The bailouts were governments protecting the many from the greed of the few. Although in doing so they just let the greedy retain their power. But make no mistake that the greedy had everything to do with the latest recession, not the government. Mature market, nascent market does not matter. Greed will find a way if you give it one.

FreeTrade
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November 11, 2011, 04:32:14 AM
 #15

What we need is millions of users and hundreds of thousands of service/product providers all willing to accept and spend the cryptocurrency. Problem solved.

I've seen this said a few times, but I don't see why this should be true. I would expect to see big movements in a cryptocurrency even if it became widely accepted.

The internet is freedom to communicate without permission. Crypto is freedom to trade without permission.

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November 11, 2011, 02:58:46 PM
 #16

What we need is millions of users and hundreds of thousands of service/product providers all willing to accept and spend the cryptocurrency. Problem solved.

I've seen this said a few times, but I don't see why this should be true. I would expect to see big movements in a cryptocurrency even if it became widely accepted.

If BTC were as widely accepted/used as, say, CAD, why would you expect to see more fluctuation in BTC than you currently do in CAD?

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November 11, 2011, 03:55:18 PM
 #17

If BTC were as widely accepted/used as, say, CAD, why would you expect to see more fluctuation in BTC than you currently do in CAD?

Because the supply of BTC is limited, unlike CAD. The value of BTC will necessarily have to rise as more people adopt it to make room for everyone.
The supply is finite, but for the near future, the supply will continue to increase at a predictable rate.  It seems to me if bitcoin was widely used, we would see a slow, steady deflation, but I don't see why there would be huge fluctuations (up and down).

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November 11, 2011, 04:18:36 PM
 #18

You don't see why there'd be huge fluctuations? Is the rise up to $30 completely anomalous to you then?

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November 11, 2011, 04:35:41 PM
 #19

How about renaming the thread to "Properties I can add to a stable crypto-currency to make its price diverge"?

Seriously. The point of speculation is that it corrects price. Adding an arbitrary feedback that goes against the correction -- or magnifies it, for that matter -- is a pretty absurd idea.

If the goal is to emulate a central bank, altering supply to achieve some murkily defined goal, I have a hint: don't. The last thing we need is more strange dynamics nobody understands that blow up the currency at random. I would probably have used a Bitcoin+demurrage system to keep the amount of circulating coins constant at all times, but Bitcoin is good enough. Run it for a few years, and speculators will make it increasingly stable. Voilà, there is something usable, without the threat of some failure in system dynamics suddenly causing a hyperinflation or whatever.
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November 11, 2011, 04:40:46 PM
 #20

Seriously. The point of speculation is that it corrects price. Adding an arbitrary feedback that goes against the correction -- or magnifies it, for that matter -- is a pretty absurd idea.

Arbitrary feedback. pfft. The point is to come up with something that isn't arbitrary. I know that this is possible may come as a shock to many, but calling something that is not arbitrary, arbitrary, does not mean that it is.

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