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.
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.
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.
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.
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.
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.
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.
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!"
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!"
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.
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.
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.