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Author Topic: The current Bitcoin economic model doesn't work  (Read 79867 times)
Vasili Sviridov
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July 20, 2010, 03:28:18 AM
 #81

I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.
Just read the chapter list for both and you'll have a pretty good understanding... Don't have to lash out with "Dr. Seuss" and what not. Both book titles are fairly self-explanatory.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.
Ok. Both books are preaching the Austrian school's ideas, so they should be a right fit for this community.

"Defending the Undefendable" covers various social aspects and practices of our lives, which are under heavy ostracism by the society (off the cover : The Pimp, Prostitute, Scab, Slumlord, Libeler, Moneylender, and Other Scapegoats in the Gogue's Gallery of American Society). Part V covers financial personages, such as The (Nongovernment) Counterfeiter, The Miser, The Inheritor, The Moneylender, The Noncontributor to Charity, and shows how those are not bad guys, but it fact are required for a normal economy; also covering a good deal about the economy in general.

"Economics in one lesson" is a very old treatise on economics, circa 1946, which is still surprisingly valid in describing current state of economical affairs.


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NewLibertyStandard
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July 20, 2010, 05:35:57 AM
 #82

I strongly suggest everyone read the children's books of Dr. Seuss and Roald Dahl as well as the Harry Potter series.
Just read the chapter list for both and you'll have a pretty good understanding... Don't have to lash out with "Dr. Seuss" and what not. Both book titles are fairly self-explanatory.

Please let us know why or what about the books you're recommending. Honestly, nobody is probably going to read either of the books, so you might as well at least let us know that they offer a good argument in this or that direction.
Ok. Both books are preaching the Austrian school's ideas, so they should be a right fit for this community.

"Defending the Undefendable" covers various social aspects and practices of our lives, which are under heavy ostracism by the society (off the cover : The Pimp, Prostitute, Scab, Slumlord, Libeler, Moneylender, and Other Scapegoats in the Gogue's Gallery of American Society). Part V covers financial personages, such as The (Nongovernment) Counterfeiter, The Miser, The Inheritor, The Moneylender, The Noncontributor to Charity, and shows how those are not bad guys, but it fact are required for a normal economy; also covering a good deal about the economy in general.

"Economics in one lesson" is a very old treatise on economics, circa 1946, which is still surprisingly valid in describing current state of economical affairs.
I honestly don't think the titles are self explanatory, so thanks for the explanation. I think the books I recommended are self explanatory, but in case they're not to you, they're very enjoyable to both kids and adults. In fact they're pretty much my favorite books. They're a bit off topic, but considering the point I was trying to make, they're quite on topic. Sadly I don't think you got it. I wasn't lashing out, but nonetheless apologize for coming across that way. Happy bitcoining!

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Vasili Sviridov
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July 20, 2010, 07:21:41 AM
 #83

I'm a big fan of Harry Potter myself Smiley Dr. Seuss is pretty much unknown where I come from Smiley

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Traktion
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July 21, 2010, 03:56:16 PM
 #84

I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.
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July 21, 2010, 04:19:37 PM
 #85

I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.

I see the usage of CPU resources as a potential roadblock to Bitcoin - better alternatives here may be found. If legal tender collapses, that's a potential roadblock as well, since that takes away some motive for wanting to use things like Bitcoin. In short, there are many things that could happen between now and the future, but you know what? The best way is to experiment and try.

If you're right, and an expansionary money supply is what people want, then people will choose it. If I'm right, and a stable money supply is what people want, then Bitcoin will prosper and grow. Either way, the consumer wins, and therefore, we win. Without competition and the test of the market place, we could never know what the consumer wants for sure. There is nothing shameful about this; it's all part of the process of creative evolution, and Bitcoin has already captured an important part of that history.

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

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July 21, 2010, 04:36:34 PM
 #86

I just read this thread - quite a long one there.

I agree with Suggester. I also believe that a competitor to Bitcoin which works in a way he/she describes will be the better currency in the long run. While I agree that competition will run its course and this will become obvious, it would be a shame for Bitcoin - it does so much right and in a clever way, that it would be a shame to see it lose out in the longer run; the team deserve much credit, IMO.

One of his first posts made the point worth repeating: keeping the system as it is, is like a ponzi scheme. As we all know, these have a habit of not lasting the test of time.

I see the usage of CPU resources as a potential roadblock to Bitcoin - better alternatives here may be found. If legal tender collapses, that's a potential roadblock as well, since that takes away some motive for wanting to use things like Bitcoin. In short, there are many things that could happen between now and the future, but you know what? The best way is to experiment and try.

If you're right, and an expansionary money supply is what people want, then people will choose it. If I'm right, and a stable money supply is what people want, then Bitcoin will prosper and grow. Either way, the consumer wins, and therefore, we win. Without competition and the test of the market place, we could never know what the consumer wants for sure. There is nothing shameful about this; it's all part of the process of creative evolution, and Bitcoin has already captured an important part of that history.

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

It will be a great experiment, for sure. I agree that Bitcoin will have its footnote in history too, but I think the devs hope it will turn out as more than that. I could well imagine that the Bitcoin approach would be the hare, while the alternative expansionary (with user base) money would be the tortoise. We know who won in that race.

I assume you agree that the value of Bitcoins will increase, while there is limited supply and growing demand? Follow that rational through and see where it takes your path of thought.
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July 21, 2010, 04:54:59 PM
 #87


If you're right, and an expansionary money supply is what people want, then people will choose it.

History is not on your side. There was a stable supply of money once in the form of gold and silver but from about the 16th century onwards people picked an expansionary one - this was not forced on them. The first formalised  bills of exchange preceded the formation of central banks by somewhere in the region of 200 years.

I guess we will see in time - though in actual fact while people are also using other possibly expansionary monies this grand austrian experiment will be somewhat corrupted in terms of experimental purity.

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July 21, 2010, 05:11:06 PM
 #88

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

I hate for this to be my first post because I have lots of nice things to say to Satoshi Nakamoto and the team. I'll have to put those in another post though.

My first though when I saw bitcoin's disbursement model is that it is structured like a ponzi scheme. Or at least structured like systems people often express frustrations over.

Ponzi like things...

1. It may seem like coins are somehow distributed "fairly" but in reality, 1/2 of all bit coin value is distributed to the initial bitcoin operators. (first four years). If you expect bitcoin to go mainstream (exponentially growing number of users, over say 20 years). Then you've created a class of "landed gentry" based upon arrival time rather than outside commodity value. Ponzi designed his scheme the same way. Early "investors" see disproportionate benefit even though everyone is given the feeling they start equally.

2. Initially bit coins have limited commodity value. No matter how many you have, there are simply few commodities you can buy with them. Relative latecomers are expected to bring "your" commodity value with them. The more relative latecomers you attract, the more your existing savings is expected to increase in commodity buying power. Ponzi would have been proud.

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

Deflation is bad. Unless of course you hold lots of cash-on-hand. In that case it is invaluable. Early users that hoard bit coins are rewarded for doing nothing to help the bit coin ecosystem. They are simply "lords".



 
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July 21, 2010, 05:43:20 PM
 #89


3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

It is a bad idea to keep out people, because it mean that your market is limited. There are less goods and services to buy. It would only make sense if you want relative power over others. However, if you're interested in wealth, you would instead open the market up to more people.

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July 21, 2010, 06:01:53 PM
 #90

... I could well imagine that the Bitcoin approach would be the hare, while the alternative expansionary (with user base) money would be the tortoise. We know who won in that race....

You could say that, but that is your hunch based on your imagination, not an objective truth about the future.

I assume you agree that the value of Bitcoins will increase, while there is limited supply and growing demand? Follow that rational through and see where it takes your path of thought.

I already have, along with many others. Perhaps you'd like to read
"Deflation and Liberty", by Jörg Guido Hülsmann?

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July 21, 2010, 06:03:30 PM
 #91


If you're right, and an expansionary money supply is what people want, then people will choose it.

History is not on your side. There was a stable supply of money once in the form of gold and silver but from about the 16th century onwards people picked an expansionary one - this was not forced on them. The first formalised  bills of exchange preceded the formation of central banks by somewhere in the region of 200 years.

I guess we will see in time - though in actual fact while people are also using other possibly expansionary monies this grand austrian experiment will be somewhat corrupted in terms of experimental purity.



What does this have to do with what I've said, or Bitcoin? I haven't said anything about credit. Honest credit is a legitimate function of a free market economy.

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July 21, 2010, 06:10:44 PM
 #92

I'll have to disagree that Bitcoin is like a ponzi scheme; there is nothing pyramidal in its nature at all. I believe this criticism stems from a flawed theory of value.

I hate for this to be my first post because I have lots of nice things to say to Satoshi Nakamoto and the team. I'll have to put those in another post though.

My first though when I saw bitcoin's disbursement model is that it is structured like a ponzi scheme. Or at least structured like systems people often express frustrations over.

Ponzi like things...

1. It may seem like coins are somehow distributed "fairly" but in reality, 1/2 of all bit coin value is distributed to the initial bitcoin operators. (first four years). If you expect bitcoin to go mainstream (exponentially growing number of users, over say 20 years). Then you've created a class of "landed gentry" based upon arrival time rather than outside commodity value. Ponzi designed his scheme the same way. Early "investors" see disproportionate benefit even though everyone is given the feeling they start equally.

Well, the coins have to get into distribution somehow. We can't just say "here's the money supply" and be done with it. The way it's done now rewards the early contributors to the system, yes, but without those early contributors, there would be no system. We can discus a better way of distributing the initial set of coins, but they must be distributed somehow.

2. Initially bit coins have limited commodity value. No matter how many you have, there are simply few commodities you can buy with them. Relative latecomers are expected to bring "your" commodity value with them. The more relative latecomers you attract, the more your existing savings is expected to increase in commodity buying power. Ponzi would have been proud.

I don't quite understand what you are trying to say here. Are you saying that as demand rises, Bitcoins can be exchanged for things of more value because people demand them more? Well, that is true by definition.

3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?

Yeah. The biggest thing you are missing is that Bitcoins are a voluntary system. If the developers are dishonest, the value of the currency goes to zero. If the early adopters hoard, then other people can make a profit by selling their more valuable Bitcoins. For every action, there is an appropriate reaction.
 
Deflation is bad. Unless of course you hold lots of cash-on-hand. In that case it is invaluable. Early users that hoard bit coins are rewarded for doing nothing to help the bit coin ecosystem. They are simply "lords".

The color purple is bad. Unless of course, you happen to have a lot of purple dye on hand. In that case it is invaluable. Early users that hoard the purple dye are rewarded for doing nothing to help the purple dye ecosystem. They are simply "lords". See, I can assert things if I want to, too. Doesn't make what I say any more than my own subjective hunch.

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July 21, 2010, 06:13:21 PM
 #93


3. While the accounting is clean. The market seems subject to manipulation. For example, this forum is obviously a tightly knit group relative to the worlds general population. And this tight group has all the bit coins and decides the rules of how they operate. For example it would be trivial for you bit coin rich to decide that you would keep the community in close beta for a year or two. Thereby assuring yourselves an initial hidden stash. Those coins could be considered "lost" to the latecomers. Then after  commodity values begin to rise, this group would control say 30% of all currency.  That is as close to a fiat currency and a federal reserve as I've ever seen.

Am I missing something?
 

It is a bad idea to keep out people, because it mean that your market is limited. There are less goods and services to buy. It would only make sense if you want relative power over others. However, if you're interested in wealth, you would instead open the market up to more people.

Right, he's somehow assuming that Bitcoins will be forced on us all and the developers will become our lords, somehow. It just doesn't work like that in a free market where anyone can easily come up with a competing system and easily switch to it.

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July 21, 2010, 08:09:17 PM
 #94

Right, he's somehow assuming that Bitcoins will be forced on us all and the developers will become our lords, somehow. It just doesn't work like that in a free market where anyone can easily come up with a competing system and easily switch to it.

Well I lost a great post. I'll retype it when I get to a real keyboard.

I'm not actually worried about the developers. If they haven't accumulated wealth already, they are held hostage to the same "fiat of the code" as everyone else.

However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.

Relatively speaking, I'm an early adopter. For $1,000 I could buy up and hoard 1% of the currently available coin. Anyone long term bullish would do so. Only a bearish early adopter would sell.

According to the deflationary model, there is no reason to ever be bearish.

Unless you think bit coin will fail to gain acceptance. In that case you should cash out, as in any ponzi scheme.

The lords are not the developers. The lords are the early adopters. Isn't that why everyone is here?
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July 21, 2010, 08:17:50 PM
 #95


However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.


No, they couldn't have, not without us knowing.  The block record shows the creation and time stamp of every coin.  They couldn't have started it for 4 years, and then release it, as it would show up in the block chain as having started 4 years ago.  If they tried to fake it to get themselves more coins, every other client would have rejected it.  The source code is open source, so we can verify that there's nothing shifty going on with the verifying of coins (if(developer) accept(); else verify(); or something)

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July 21, 2010, 08:31:37 PM
 #96


However, as with a ponzi pyramid they could have stacked the early deck and no one can know. I'm not making any accusations here or casting aspersions.


No, they couldn't have, not without us knowing.  The block record shows the creation and time stamp of every coin.  They couldn't have started it for 4 years, and then release it, as it would show up in the block chain as having started 4 years ago.  If they tried to fake it to get themselves more coins, every other client would have rejected it.  The source code is open source, so we can verify that there's nothing shifty going on with the verifying of coins (if(developer) accept(); else verify(); or something)

I know the coins and  blocks were generated according to the code fiat. But no one knows who they belong to. That is the point of the system. If it's not, I'm no longer interested.
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July 21, 2010, 08:37:58 PM
 #97

Noone knows the identities of who the coins belong to, but they do know that they belong to "some entity".  The first transaction in each block says "Ok everyone, listen up:  Someone from address asd;lkfjads;lfkjasd;lfjkasd;fj owns 50 new bitcoins, even though it didn't come from anyone else."  This doesn't reveal the persons identity, but it DOES reveal when they were created.  Looking back to see when the bitcoins were released to the public, and when the first coin was generated, we can see if the developers left coin generation on for a long time to develop a monopoly.

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July 21, 2010, 08:42:34 PM
 #98

We can't just say "here's the money supply" and be done with it. The way it's done now rewards the early contributors to the system, yes, but without those early contributors, there would be no system. We can discus a better way of distributing the initial set of coins, but they must be distributed somehow.

Actually no pro bitcoin argument changes if 1,000,000 coins each were distributed to the first 21 node operators.

It just seems less like free money to the 22 node operator.  
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July 21, 2010, 08:55:13 PM
 #99

Noone knows the identities of who the coins belong to, but they do know that they belong to "some entity".  The first transaction in each block says "Ok everyone, listen up:  Someone from address asd;lkfjads;lfkjasd;lfjkasd;fj owns 50 new bitcoins, even though it didn't come from anyone else."  This doesn't reveal the persons identity, but it DOES reveal when they were created.  Looking back to see when the bitcoins were released to the public, and when the first coin was generated, we can see if the developers left coin generation on for a long time to develop a monopoly.

I can take your word that you were here at the beginning and you know the identities of all the initial node operators. (and I do!)

But I hope you realize, that aside from trust, I and anyone that comes afterwards can't know. And the point of bitcoin was not to have to rely on trust. That's in the white paper. :-)
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July 21, 2010, 09:05:32 PM
 #100

But I hope you realize, that aside from trust, I and anyone that comes afterwards can't know. And the point of bitcoin was not to have to rely on trust. That's in the white paper. :-)

Well, more like, you trust the bitcoin network.  For everyday currency transactions (buying and selling), some level of human trust is almost always involved.  You trust that a business will likely give you a service, in exchange for giving them money.

Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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