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Question: Do you support the proposed amendments?
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Author Topic: The current Bitcoin economic model doesn't work  (Read 80008 times)
caveden
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October 21, 2010, 01:22:43 PM
 #121

Talking about Nobel prizes: http://www.spiked-online.com/index.php/site/article/9776/

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Suggester
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May 24, 2011, 10:10:42 AM
 #122

Hi again fellow bitcoiners. And thank you for (presumably) missing me!

I'm here after a very long time of inactivity to majorly update the first post in this thread so it contains realistic solutions to the deflation problem and, of course, to yell at all skeptics who opposed my suggestions last year: TOLD YA!

Please refer to the first post of this thread before replying.
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May 24, 2011, 10:19:26 AM
 #123

Okay, I'm finally convinced, you can go ahead and do it now.

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May 24, 2011, 10:24:35 AM
 #124

Yes, for sure, if it is so much better get it up and running.

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May 24, 2011, 10:48:16 AM
 #125

No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).
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May 24, 2011, 10:59:12 AM
 #126

No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).

Anders, please refer to the first post in the thread to read the current suggestion. What you just quoted are the removed obsolete paragraphs. They're only posted for historical context.
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May 24, 2011, 11:10:25 AM
 #127

I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding. What market cap would you expect to go by and how much per BTC would be appropriate. The only way it would stabilize is if the BTC Economy grows at the same exact rate as coins are produced
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May 24, 2011, 11:14:14 AM
 #128

No inflation, no deflation, no incentive to hoard BTCs, and no incentive to spend BTCs quickly (though that wouldn't necessarily be a bad thing!). Remember that we can always add or remove zero's if the numbers turned out to be awkward at some point, like Germany did in the 1920's hyper-inflation.

That sounds good. I'm new to Bitcoin and the concept of this kind of digital currencies so I don't know if your proposal is possible or not, but yes the incentive to hoard bitcoins will make the system more clogged up I think. Adding or removing zeroes however sounds burdensome. It would be nice if the currency would remain very stable, so for example if a Big Mac costs 3 bitcoins today, a Big Mac year 2111 would also cost 3 bitcoins (of cource, there will likely be nanotech matter compilers by then that can materialize Big Macs out of the vacuum energy for free, but anyway :-).

Anders, please refer to the first post in the thread to read the current suggestion. What you just quoted are the removed obsolete paragraphs. They're only posted for historical context.

Ok, I read the original post briefly. I will take a closer look at.
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May 24, 2011, 11:22:14 AM
 #129

I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding.

Looks like you want to vote "Yes" to the poll above then! With enough people expressing their concern, perhaps we can convince Gavin Andresen and the other developers to update the system.

What market cap would you expect to go by and how much per BTC would be appropriate. The only way it would stabilize is if the BTC Economy grows at the same exact rate as coins are produced

There's no market cap in the suggested model. The price will stabilize around the electricity costs as explained in the first post. If it's higher, more generators will join the network until it stabilizes. If it is lower, less generators would be encouraged to produce until the price matches it again. A typical supply-demand scenario. There will be no major BTC price shifts unless worldwide electricity prices significantly change.
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May 24, 2011, 11:28:37 AM
 #130

The inelastic supply of bitcoins is why it has 'market cap' of $40M and your idea isn't valued. Bitcoin can hold value, your system can't. Don't believe me, just do it. Maybe you are right and I'll eat my internet hat.

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May 24, 2011, 11:33:19 AM
 #131

Quote: "I don't understand how people expect BTC to have a stable price if the market for their use keeps expanding."

Okay lets take an extreme example to illustrate a point by using exaggerated figures.

If only a few trillion dollars worth of bitcoins exist by, say, the end of the Mayan calendar in december 2012, then, yes, a few trillion more dollars choosing to enter the market could still cause quite a jump in price.

But if many trillions of dollars are in bitcoin form by that time, then a paltry few trillion entering ought only cause the price to rise by a small percentage.

Get the drift? (Stability increasing as sheer value of the whole shebang increases compared to potential "outside" influencers.)

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caveden
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May 24, 2011, 11:36:01 AM
 #132

The inelastic supply of bitcoins is why it has 'market cap' of $40M and your idea isn't valued. Bitcoin can hold value, your system can't. Don't believe me, just do it. Maybe you are right and I'll eat my internet hat.

+1

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stic.man
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May 24, 2011, 11:44:08 AM
 #133

I believe there can be stability but this project is still in it's infancy. It seems like everyone wants it to be perfect immediately. Allow it some growing pains and go along for the ride. If you truly want it to succeed as a currency. I mean the program is still in beta at this point.
Meni Rosenfeld
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May 24, 2011, 12:36:04 PM
 #134

I'm sorry Suggester, but your analysis is very wrong.

Now the only problem is that this "real exchange value" itself would be determined by electricity, computer deterioration, and time expenditures needed to generate those BTCs. We have a loop.
Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
In the future, mining rewards will be almost solely transaction fees, which I assume will be about 0.1%. So I think it's safe to say miners will be about 0.1% of the economy. In that capacity, their decisions to hoard, use or sell bitcoins will affect the market, but they're only 0.1% of it.

Every four years the average BTC generator will need to spend double the effort to create the same amount of coins.
You're forgetting that eventually mining rewards will consist in transaction fees. Until that point, halving will create a combination of decreased difficulty, increased BTC value, and decreased profitability for miners (which they'll have to consider in their business plans in advance).

That means that he will constantly demand higher prices to compensate for his costs
He can ask whatever he wants, he can't force anyone to buy at that price. There will be other coins circulating, and all miners combined will be a small part of the economy.

only an idiot would spend a currency which he is certain will double in price within 4 years, effectively granting about 19% annual interest--significantly better than almost any bank or mutual fund.
There is nothing certain about it, bitcoins are a high-risk investment and will be in the foreseeable future. And again, halving will only have a small effect on the bitcoin value.
Anyway, a combination of growth and speculation allowed the bitcoin value to increase tenfold in a month without any relation to halving.

People will be hoarding BTCs forever and it will be regarded as a phony investment with no real value
People will hoard some of their bitcoins, but most of them will know that their investment gains value by people using it and will be happy to use it themselves.
This will self-balance to some degree. If nobody uses bitcoins, any speculative bubble will burst, making people less tight-fisted about spending bitcoins, restoring some level of commerce.

sort of like the good ol' Pyramid (Ponzi) Scheme where everyone purchases a ticket just to sell it to someone else later for a high profit until the whole system collapses when it runs out of new victims.
This is nothing like either a pyramid or a ponzi.

This scenario can only be avoided if the cost of generating new BTCs got relatively constant.
Your premise has been debunked, so most of the rest is pretty moot.

Which can only happen if the participating nodes needed to exert a more or less constant amount of work (cost) to generate new BTCs.
Given advances in hardware and software, and the development of special-purpose mining hardware, it will be very difficult to find an objective system that will make the cost of creating BTC constant. Also, once in a while the hashing algorithms used will be changed which will completely shuffle the cards.

So what's the solution? Well, as you might have already guessed, we should remove both the 4-years doubling interval rule and the 21M limit. Just let BTCs continue to be created forever.
I'm not against this per se. A system where the currency continues to be generated at a predetermined rate can work. But people signed up to Bitcoin on the understanding that 21M is the limit, so this must be a separate currency.


All that said, I agree that it seems that currently bitcoins gain their value more by speculation than by use. This is unfortunate, but is part of the growing pains and should stabilize to some degree in the future. "Stability" here means - the purchasing power will not fluctuate too much, but will still increase due the spread of Bitcoin at first, and due to the growth of the economy later.

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May 24, 2011, 01:06:32 PM
 #135

And by being in beta, there's room for improvement.

Bitcoin should model itself after silver, not gold.

The biggest problem I have with inflationary money is the fact that there's virtually no collective education about how it works and the guys in charge are basically an oligarchy.

Like silver, bitcoin should have a natural inflation.  Say 1% per year.  That way, it keeps its status as a store of value while weakening the delusional "one day, one BTC will equal one million dollars." I'm in it for anonymous cash.  The true definition of cash.  This store of value stuff seems to be like creatine effects-- fake muscle, real water retention.  

Spoke with an old, accomplished(meaning that he did well and then did time) financial con artist about bitcoin…  He swears that the "trading programs" of the eighties and nineties were started by the phone companies so people would run up long distance bills.  While noting his lack of knowledge in computers, he fingered electric companies and possibly hardware manufacturers at the culprits here.  :-)

I have more than a drop of knowledge about computers…

How many people are going to use four PCI-e x 16 slots and the remaining PCI-e x 1 slots to run one program on the linux CLI 24/7 without a belief in financial reward down the road?

I am fascinated by bitcoin.  I want to rip power out of the hands of central bankers through decentralized money.  That is the allure of this project.

No matter how great a currency is, it needs circulation.  Without circulation, you will get swelling and then death.

I think some people might be confusing and natural tan with pooling blood.

Like what I posted?

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May 24, 2011, 04:25:21 PM
 #136

Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
That's even worse. Now we won't even be tied to the electricity anchor at all. The price will be ridiculously volatile with no limits whatsoever. It will be a speculator's heaven and a spender's nightmare.

You're forgetting that eventually mining rewards will consist in transaction fees.
Not quite. Transaction fees are not a reliable estimate for the coin's price because they cost nothing. Does it cost you anything to fire up Bitcoin.exe and join the network? No? Me neither.

Until that point, halving will create a combination of decreased difficulty, increased BTC value, and decreased profitability for miners (which they'll have to consider in their business plans in advance).
Miners will never lose. If they did, they'll simply stop mining until it becomes profitable again. It's a fact of economics that mining is and will continue to be profitable for the foreseeable future (including expectations of price increase). I'm explicitly complaining from the "increased BTC value" part because it's simply perpetual deflation!

He can ask whatever he wants, he can't force anyone to buy at that price. There will be other coins circulating, and all miners combined will be a small part of the economy.
Rly? And what will determine the price of those coins? "Supply and demand" I hear you say? That's exactly where the catastrophe begins. Here we are, having a wild currency with no anchor with a daily (or an hourly, even) new price determined solely by supply and demand instead of by the stable cost of electricity.

There is nothing certain about it, bitcoins are a high-risk investment and will be in the foreseeable future. And again, halving will only have a small effect on the bitcoin value.
Anyway, a combination of growth and speculation allowed the bitcoin value to increase tenfold in a month without any relation to halving.
There is a very strong relation. Had the system been tamed from the start by a supply-fits-demand model, none of this crazy speculation would've been taking place. The amount of generated coins would then suit the number of generating nodes and everyone would be happy spending their predictable coins with no hoarders or investors ruining everything. Hell, I've got a nice sum of coins which I generated during the cheap times last year and you know what? I'm not spending them till I absolutely need to or till it seems the system is about to collapse. The thing is getting more precious by the month! You think I'm the only weird person thinking that way?

People will hoard some of their bitcoins, but most of them will know that their investment gains value by people using it and will be happy to use it themselves.
Oh, they might as well donate it to Santa Claus.

This will self-balance to some degree. If nobody uses bitcoins, any speculative bubble will burst, making people less tight-fisted about spending bitcoins, restoring some level of commerce.
What a great way to promote bitcoin. "Save till it bursts, spend, then save again!" Imagine if the Euro acted this way when it was rolled out. You're not taking this seriously.

Given advances in hardware and software, and the development of special-purpose mining hardware, it will be very difficult to find an objective system that will make the cost of creating BTC constant.
I just gave you one.

Also, once in a while the hashing algorithms used will be changed which will completely shuffle the cards.
That's included in the proposed model. The hashing will maintain the difficulty so that only 144 daily blocks are produced anyway. The difference will be in the amount of coins those blocks have.

I'm not against this per se. A system where the currency continues to be generated at a predetermined rate can work.
No. If the rate is predetermined we'd fall into the same problems. We want a flexible rate changing with the user base.

But people signed up to Bitcoin on the understanding that 21M is the limit, so this must be a separate currency.
According to that logic, we might as well stop updating the code no matter how grave mistakes we discover in it.

All that said, I agree that it seems that currently bitcoins gain their value more by speculation than by use. This is unfortunate, but is part of the growing pains and should stabilize to some degree in the future. "Stability" here means - the purchasing power will not fluctuate too much, but will still increase due the spread of Bitcoin at first, and due to the growth of the economy later.
That'll never happen. It will only get worse as producing becomes harder and the economy relies on the coins-in-circulation to determine the price via sheer supply and demand with no stable anchor like electricity.
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May 24, 2011, 04:30:06 PM
 #137

Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.

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May 24, 2011, 04:34:06 PM
 #138

Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.
Not before I sell my coins as 1 BTC reaches $100! I sincerely hope the system won't collapse before then.
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May 24, 2011, 04:46:07 PM
 #139

Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.

/thread

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May 24, 2011, 08:16:12 PM
 #140

Suggester: I suggest you start your own chain, SuggesterCoin, and given it's overall superiority to the current bitcoin blockchain yours will surpass bitcoin usage very soon. Cheers.
Not before I sell my coins as 1 BTC reaches $100! I sincerely hope the system won't collapse before then.

And thus, of course, you also sincerely hope no one will actually listen to what you advocate here and act on it?
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