The current Bitcoin economic model doesn't work

[xc]

Nothing to sweat people.  Nobody ever died of a 'deflationary spiral.'    I agree with "I-am-not-anonymous."  The market will choose the best bitcoin-like currency.  I happen to believe, however, that the rules that Satoshi has founded bitcoin on will be more than adequate for the future of a thriving bitcoin economy.  

Everybody knows exactly how fast the supply of bitcoins will grow: it's set in stone in the rules of the programming and the bitcoin network.  While it's true that there is not a currently existing fully-fleshed out market to truly price bitcoins, such markets and exchanges are being developed.  As far as future would-be bitcoin generators are concerned, the question is not how much will he "demand....to compensate for his costs."  The question he'll be asking himself is "given current market values and my ability to utilize electricity and CPU resources, is it worth it for me to generate bitcoins?"  If the answer is yes, he participates.  If it's no, he stops trying to mine for bitcoins and focuses on trading tangible assets with bitcoins serving as an appropriate intermediary.  If he's not sure, he tries his hand at it for a while and then makes a final decision.

The number of nodes and associated computational cpu power will be in flux, and that competitive flux will allow for costs to approximate value (not the other way around.)  Value being set by the markets and the demand for use of bitcoin as a trade intermediary (a money).  In the far future, the competition of transaction costs will play a more important role for the would-be node operator.

Contrary to the paradox of thrift argument you present, collecting bitcoins and saving them with hopes of earning purchasing power through deflation is not a bad thing.  It will allow for the pooling of bitcoin capital and make purchases of larger capital investments possible.  In the future, there might even be bitcoin banks that lend out saved bitcoins with market-set interest rates, thereby diminishing the effects of hoarding.  All this wonderful saving, however, comes at a price: delayed gratification of present desires.  From the perspective of the would-be saver, the question will always be denying present desires to purchase real tangible assets now versus the future possibilities of purchasing more later.  This time preference naturally varies with people and in different circumstances.

Given the fact that bitcoins are by their electronic nature easily divisible, prices will be able to easily adjust to deflationary pressures.  If too many are saving, prices will fall and the rate of interest will go down.  This encourages demand (lower prices) and decreases the desire to save (less interest).

XC

[1715156498]

1715156498

[1715156498]

1715156498

[satoshi]

Excellent analysis, xc.

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases.  In your head, you do a probability estimate balancing the odds that it keeps increasing.

In the absence of a market to establish the price, NewLibertyStandard's estimate based on production cost is a good guess and a helpful service (thanks).  The price of any commodity tends to gravitate toward the production cost.  If the price is below cost, then production slows down.  If the price is above cost, profit can be made by generating and selling more.  At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.

At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.

[Suggester]

The question he'll be asking himself is "given current market values and my ability to utilize electricity and CPU resources, is it worth it for me to generate bitcoins?"  If the answer is yes, he participates.  If it's no, he stops trying to mine for bitcoins and focuses on trading tangible assets with bitcoins serving as an appropriate intermediary.  If he's not sure, he tries his hand at it for a while and then makes a final decision.

The answer should always be "it's exactly the same". Any slight imbalance will be quickly corrected.

The number of nodes and associated computational cpu power will be in flux, and that competitive flux will allow for costs to approximate value (not the other way around.)

Geez. It's the same guys. In a free market economy, value and cost ARE THE SAME THING.

Value being set by the markets and the demand for use of bitcoin as a trade intermediary (a money).  In the far future, the competition of transaction costs will play a more important role for the would-be node operator.

There will never be a trade intermediary or transactions for a 19% annual-yield investment.

Contrary to the paradox of thrift argument you present, collecting bitcoins and saving them with hopes of earning purchasing power through deflation is not a bad thing.  It will allow for the pooling of bitcoin capital and make purchases of larger capital investments possible.  

That doesn't make sense. What I'm saying is that people aren't stupid. They will figure that since bitcoin will never be spendable, they won't join the network except to "hit and run" a quick profit.

In the future, there might even be bitcoin banks that lend out saved bitcoins with market-set interest rates, thereby diminishing the effects of hoarding.  

Banks? In an anonymity-based system where you can change your identity with a click of a button? I don't think so.

All this wonderful saving, however, comes at a price: delayed gratification of present desires.  From the perspective of the would-be saver, the question will always be denying present desires to purchase real tangible assets now versus the future possibilities of purchasing more later.  This time preference naturally varies with people and in different circumstances.

The luckiest coin will be spent by two or three "spenders" at most before finding itself locked on the harddisk of an investor who'll keep it forever. The result? Supply dwindles even more, prices shoot up, and everybody keep their coins intact and watch NewLibertyStandard's graph as it climbs outside the chart while rubbing their hands in anticipation until the big crash.

If too many are saving, prices will fall and the rate of interest will go down.  This encourages demand (lower prices) and decreases the desire to save (less interest).

How does this solve the problem? Too many are saving, prices go down, which leads to even more people saving because they think the prices will go down ever lower and their coins will be worth more later. By saving here we mean "hoarding", not saving as in investing like your typical bank.

Excellent analysis, xc.

Why am I not surprised? e.e

A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases.  In your head, you do a probability estimate balancing the odds that it keeps increasing.

While that is true, you forgot that Bitcoin's expected increase in value (if the project succeeds) is perpetual. It will grow at 19% (or more due to lost coins) forever. How can you incorporate that in its price? If it was estimated today that 1 BTC = $1, 4 years from now it will equal $2. How can you put that in price? Ok, let's make it worth $2 today then. Oh but wait, that makes it equals $4 in 4 years. Hmm, shall we make it equal $16 today then? etc

The price of any commodity tends to gravitate toward the production cost.  If the price is below cost, then production slows down.  If the price is above cost, profit can be made by generating and selling more.  

Exactly. There would never be much difference (if any).

At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.

That assumes that the price was above the cost of generating to begin with! We just agreed that they'll virtually move hand-in-hand.

In later years, when new coin generation is a small percentage of the existing supply, market price will dictate the cost of production more than the other way around.

As long as production is possible, which it will always be (if not to the average Joe, then to investors or hackers with botnets), then production cost and market price must conform as you just explained. Moreover, if demand on BTC is more than supply, which will be the case if the coin succeeds, we will be faced with a perpetual shortage leading to perpetual price increasing.

At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.

It is because of NewLibertyStandard's graph. People were also estimating the same for tech-bubbles as they watched their graphs before the market crashed. If this model isn't corrected to reflect a somewhat-constant (or decreasing) value on the long term, nobody will be willing to spend their coins, ever. Sooner or later they will be hoarded by investors (if they believed in BTC's future) who'll sit and wait for their 19% annual interest.

[NewLibertyStandard]

My exchange rate will not keep rising forever. If new users can't generate a single block within a few weeks or months, what do you think the likelihood is that they will continue running their CPU at 100% all day everyday? The amount of computers generating bitcoins will grow rapidly only while generating bitcoins is not discouraging. Once it becomes discouraging, we'll sometimes have growth from new users, but we'll also sometimes have decline as users stop generating bitcoins. Watch and be amazed!

[Suggester]

My exchange rate will not keep rising forever.

Yes it will. And the only thing stopping me from exploiting you by purchasing then reselling to you at a higher price a couple of weeks after is ethical reasons.

If new users can't generate a single block within a few weeks or months, what do you think the likelihood is that they will continue running their CPU at 100% all day everyday? The amount of computers generating bitcoins will grow rapidly only while generating bitcoins is not discouraging. Once it becomes discouraging, we'll sometimes have growth from new users, but we'll also sometimes have decline as users stop generating bitcoins.

Right. And what are those new users going to do as generating becomes more challenging, you think? They can't generate now anymore. Oh, they'll buy from existing ones, of course. What happens to the price when people buy with no adequate supply? Correct. It goes up, and up, and up. And the more the difficulty increases, the more demand will be on the existing coins, and the more the price will shoot up. Typical bubble scenario.

Watch and be amazed!

I won't be amazed when you guys learn that inadequate supply versus growing demand was a bad idea... the hard way.

[NewLibertyStandard]

If this model isn't corrected to reflect a somewhat-constant (or decreasing) value on the long term, nobody will be willing to spend their coins, ever.

Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.

I won't be amazed when you guys learn that inadequate supply versus growing demand was a bad idea... the hard way.

I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.

[Suggester]

Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.

OMG that's not spending, it's liquidation. It's also called "getting out of the system with as much as you can before it collapses". Say, why did they "spend" these coins when they could've waited for a week and earned a 20% (or whatever) bonus? Kindness of heart? Needed a kidney transplant ASAP?

I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.

Not for long. If the project proceeds in expanding, in a couple of months you won't be able to generate almost any coins.

[NewLibertyStandard]

the only thing stopping me from exploiting you by purchasing then reselling to you at a higher price a couple of weeks after is ethical reasons.

Ethical reasons? I'm running an EXCHANGE service! I expect people to "exploit" me. There is absolutely nothing ethically wrong with buying low and selling high. How about you "exploit" me right after midnight GMT by sending me $0.50. Feel free to again "exploit" me the next week by selling those bitcoins you received back for more than $0.50. Better yet, "exploit" me right now!!! Please, please, send me as many bitcoins as I have dollars to buy! If you think the system is so doomed, why haven't you sold all your bitcoins? Do I detect a hint of confidence?

I won't be amazed when you guy learn that there will always be more supply at midnight Greenwich Mean Time.

Not for long. If the project proceeds in expanding, in a couple of months you won't be able to generate almost any coins.

Already taken into account! I assure you I will have both bitcoins and dollars to inject indefinitely. The day I post ฿0.00 in a black font under available bitcoins, you're more than welcome to come rub it in my face. But until that day, you're freshly wrong everyday at midnight GMT until the day you die.

Wrong! Go look at my exchange rate history. See where the available bitcoins spikes up while the available dollars drops down? That is people SPENDING their bitcoins.

OMG that's not spending, it's liquidation. It's also called "getting out of the system with as much as you can before it collapses". Say, why did they "spend" these coins when they could've waited for a week and earned a 20% (or whatever) bonus? Kindness of heart? Needed a kidney transplant ASAP?

Unless the person states that they are pulling out which none of them did, it's not liquidation, it's plain ol' buying and selling. I don't know why they SOLD their bitcoins to BUY dollars because they didn't tell me and in any case I wouldn't tell you if they had told me. But as the date was just before Valentine's Day, perhaps he or she wanted to buy a gift for his or her sweetheart. That's certainly more valuable than an improved rate a week later!

[ihrhase]

Who would have spent their Yens in 1910, then? Why, noone of course!

What is wrong is your assertion that people will not exchange a currency because it will invariably increase in value...

Time Preference...
People need goods to survive, the medium will have to exchange in order to satisfy the time preference...

Are you suggesting someone will hoard a virtual asset because it will increase in value and never use it?

Well this is silly, (in this case bitcoin trade-able production) the value will increase as the amount of products that are exchangeable for bitcoin increase, it is an increase in utility that will determine the fate of bitcoin...

As it is an alternative currency, it will have the drawback of the bi-metal fiasco, but the expectation is because there will be a cap in the amount of bitcoins ever available, bitcoin would win the value race IF, and only IF we can generate a real economy with bitcoin as the monetary agent.

How to do this...
Stability, utility is important to gain the acceptance, stability will retain it, so long as we are operating outside legislation and people individually need to make the choice...

Bickering about theory when action is necessary is useless...
Good Job NLS, I may be contacting you about your services soon...

[BitcoinFX]

Good discussions, valid points and constructive arguments are offered by all in this thread. I have enjoyed reading the posts and deliberating on the issues myself. It's probably one of the most interesting threads on this forum so far...

I could write an essay in response, but I'm not going to. Instead I will post a few thoughts and perhaps solutions.

(1) I don't currently see Bitcoins as a currency. At the moment they are a commodity with potential 'real' economic value for the future. When investigating Bitcoins as a valid currency (using neural networks and comparisons with other existing currencies, commodities and existing markets) the more I see Bitcoins future model behaving somewhat like Gold i.e. a fairly stable 'base' commodity / currency.

(2) I don't see the current Bitcoin economic model as unsustainable. The fact that their are a finite number of Bitcoins, is precisely what gives them any potential / actual economic value at all. However, I fully understand Suggester's concerns, particularly regarding hoarding etc.

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' !

(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.

So, I'm going to post the Bitcoin pages on some internet traffic / hit exchanges ! People who use these services for promoting their online 'businesses' or personal pages are already big users of existing internet payment and eCurrency services. They are also 'surfing' for 'the next big thing'. Also, they are perhaps the most likely to try and implement Bitcoins into their accepted methods of payment etc. I encourage others to do the same or similar. "Bitcoins for ALL !"

The above, in my opinion, will go a long way in helping to solve the perceived issues and future problems with Bitcoins as a currency with 'real' merchantability and 'true' economic value in the future.

Get ready for the 'Gold Rush' ! (maybe)

[ihrhase]

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' !

Except then you have the issue with the current paper money, the virtual printing press will cause an inflationary boom and subsequent bust...

It would be better to have a finite exchange medium that increases in value with the increased utility

The primary recipients of additional "bitnotes" after the first creation will benefit from the prices of the initial volume of bitnotes, but as the increased supply of notes moves around the economy, it depreciates, therefore increasing prices. Basically the time it takes the notes to circulate those who are not receiving the initial boost are paying higher prices, this is the reason why fiat currency is a moral hazard...

(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.

Government and bank should not be an issue, as it is illegal to do this in a sense...
creating a fiduciary media is against the law in any country, anyone who exchanges in this media is breaking a law...
as the transactions are anonymous they are nontaxable, I think we can see where the governments will have an issue...

Hoarding is a silly notion, sure someone may do such, but at the peril of the thing they are hoarding becomes useless and therefore destroys the value, if I were to control all the bitcoins, as there is no mandate securing the use of such a media, everyone can move to another media, and additional to this fact, since we have left the realm of legality, what stops someone from creating a competing currency, or any number of people, which if hoarding takes place utility diminishes and value decreases, people then move their product in other free market money supplies...

The commodity is not the coin, it is the products that the coin is accepted in trade for, it has no inherent value of its own, just a value in relation to what one may obtain for a certain unit of it...

[NewLibertyStandard]

Sorry for getting carried away Suggester. I get frustrated when I encounter someone as stubborn as myself. 

I again changed my mind for my preferred way for some Bitcoin variant to work. I don't like the idea I had of increasing at the rate of worldwide human population growth because it creates ugly fractions. I like my original idea but in addition to it, I think it would be nice if by default the program wouldn't show a decimal, but allow people to optionally view and send currency with as many decimal places as they want.

[BitcoinFX]

@ ihrhase

To clarify I don't mean that paper money should be printed. I mean to build a 2nd implementation of the existing P2P software, that is directly related to the first, although has an infinite generation. However, I was looking way into Bitcoins future.

Welcome to the forum btw.

@ NLS

Yes. Decimal place additions are the obvious way to go. However, most existing currencies rarely show more than 2 decimal places I suppose...

[ihrhase]

@ ihrhase

To clarify I don't mean that paper money should be printed. I mean to build a 2nd implementation of the existing P2P software, that is directly related to the first, although has an infinite generation. However, I was looking way into Bitcoins future.

Welcome to the forum btw.

To clarify I know what you meant, it is not the paper aspect that makes FRN's unstable, it is the unlimited printing of them that does...

The reason the gold standard was superior to non gold standard money was because there was a maximum amount of money printable...

imagine there are 100 BTC...
When there are 1000 BTN in circulation they can be exchanged for .1 BTC per BTN
If creation of BTN is unlimited this exchange is then unstable (always decreasing as more notes are made)

If you lock finite the amount of BTC's and more people use them in exchange, each BTC will purchase more, as the store value of the BTC will increase.

The way the stepped generation of BTC seems to be explained in the FAQ, it will attempt to keep pricing stable as BTC are generated, but overall the prices will drop once BTC production ceases and utility still increases.  This is a good thing, eventually equilibrium will be hit, let the market do it...

Offering uncapped note production is in reality doing what governments do with a money supply, that is, they add notes with nothing to back them up, and if we use the value of the BTC, infinite printing will yield the same issue the USD  has with its former commodity value store (gold), almost a century ago FRN's hit the market, and gold was $20/oz, in the 70's we dropped the standard completely and gold was $35/oz, now gold is over $1000/oz regularly (and this is only due to Congress' meddling with the figures)...

We have an excellent opportunity here, to show government is not necessary, or even desirable in the market, that honest free market alternatives are not only viable, but are also desirable...

Maybe I am insane for wanting a world where market prices are free, and not padded by regulation, taxation, rife with price controls or subject to the desires of the few whom victimize the many, but I am happy with this insanity...

[dwdollar]

The economic model is sound in principle, but what happens when people start to notice?  The Empire isn't going to tolerate this kind of behaviour.  There is too much at stake.  The fiat currencies are hanging by a thread and there's no reason to believe that's going to change any time soon.  At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".

[The Madhatter]

I suspect they will try to regulate the internet even more, not bitcoin itself.

And yes, they will try to deter others from using it by means of a media smear. (See the smear campaign they did to e-gold back in the day). Will this stop people from using it? Yes, some. Will it stop it completely? No.

[NewLibertyStandard]

If the rate at which blocks are generated is on average constant and the amount of bitcoins awarded for generating a block is constant then bitcoin availability is not really infinite. Sure, infinitely in the future there are infinite bitcoins, but if you pick any point in the future, you know exactly how many bitcoins are available. On the other hand if the amount of bitcoins awarded for generating a block is variable, then the botnet operator becomes the bitcoin reserve. Likewise, if a botnet decides to work hard on Bitcoin under the current model for 32 years, he is then and forever the reserve. I don't like the current model or Suggester's model because it allows for the currency to be horded by the few. It gives advantage to whoever has access to more processing power than everyone else. I like my model because it gives as much of an advantage to the people as is possible. Sure the the person with lots of computing power can edge everyone else out, but only so long as he keeps working on it forever. The moment he stops, or whenever people collectively offer more computing power, the advantage doesn't completely balance out, but it becomes less skewed. The person who I think has the most to gain under the current model is satoshi because he knew about bitcoin before anyone else and probably has a nice fat collection of bitcoins. Although I probably have less than him, I have a lot more bitcoins than people who are going to join later than me, so the current model also benefits me. If I was a fan of a pure free market, that would be fantastic for me. Unfortunately I lean towards populism. I think everyone is better off, including myself, when advantages are spread out as equally as possible. That isn't to say that everyone will be forced to be equal. Some of course will be richer and others poorer, but I think that it's in the benefit of everyone, including the rich when the gap between the rich and the workers is under control.

Although I lean toward populism, I'm not really a pure populist either. I sort of dislike big business but I respect them because they often do what they do very well. Sort of like majestic lions, tigers and bears, oh my! I just like it when there is a balance in the fight between ruthless business and ruthless democratic government.

[ihrhase]

The economic model is sound in principle, but what happens when people start to notice?  The Empire isn't going to tolerate this kind of behaviour.  There is too much at stake.  The fiat currencies are hanging by a thread and there's no reason to believe that's going to change any time soon.  At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".

Yep...
Most likely, once they start seeing a real decline in tax receipts, it will be a combination of the two...

I suspect they will try to regulate the internet even more, not bitcoin itself.

And yes, they will try to deter others from using it by means of a media smear. (See the smear campaign they did to e-gold back in the day). Will this stop people from using it? Yes, some. Will it stop it completely? No.

Precisely Madhatter...

NLS, If I may...

Infinite BTC production will cause the same issues we have today, inflationary bubbles and then busts, this will deter people from using BTC as they will already have the same service with government mandated Fiat, and no risk of penalty for using that...

If you were a fan of the free market you would believe everyone, including yourself, is better off when they have equal potential for gain...

You are forgetting the point that BTC only has any real value in trade, so the people generating the coins will have to trade them in order to maintain their value.  If I hoard 20 million BTC, the Value of the other Million will decline as utility will not support BTC, I do not think it will need to come to that with the precariously small number of coins.  Hoarding will be seen, by economic tells, within a 10% share hoard.  I will tell you right now, there is "hoarding" because of the small amount of available business in BTC, I am, but my "hoarding" is waiting for products I want, there is little utility as of yet in BTC for me, though I am willing to do business in BTC.  I do not have a tremendous amount of power dedicated to BTC production, I am a minor player at best, but I offer a product none will be able to attain with BTC as of what I have seen, does this give me an unfair trade advantage?  No, anyone can enter the market against me and compete freely, as with any other Black Market, the advantage to competition here is we are not about to shoot each other over trade.

The democratic governments is what is wrong with the current monetary system which inspired this creation, maybe we should stop considering them as good.  They violate human rights as a constant activity, they murder on wholesale levels, the rob entire populations, they enslave humans, all without any threat of punishment...

I would suggest if you have time looking up the lecture series "The End of Laissez Faire: 1870 to WWII" by Murray Rothbard.  It does well to prove with historical accuracy, Business + Government = Corporatism, and this is NOT conducive to free market...

[Suggester]

Who would have spent their Yens in 1910, then? Why, noone of course!
What is wrong is your assertion that people will not exchange a currency because it will invariably increase in value...

Time Preference...
People need goods to survive, the medium will have to exchange in order to satisfy the time preference...

Someone spending $1 now to create $1 worth of coins isn't a person who needs goods to survive. He's probably an investor, or will end up paying his coins to an investor.

Are you suggesting someone will hoard a virtual asset because it will increase in value and never use it?

Well this is silly, (in this case bitcoin trade-able production) the value will increase as the amount of products that are exchangeable for bitcoin increase, it is an increase in utility that will determine the fate of bitcoin...

This increase is one of the main reasons Bitcoin is doomed under the current model. I think you lost me.

As it is an alternative currency, it will have the drawback of the bi-metal fiasco, but the expectation is because there will be a cap in the amount of bitcoins ever available, bitcoin would win the value race IF, and only IF we can generate a real economy with bitcoin as the monetary agent.

Which will not happen under the current model due to its enormous "investability".

How to do this...
Stability, utility is important to gain the acceptance, stability will retain it, so long as we are operating outside legislation and people individually need to make the choice...

Which will also not happen under the current model due to increasing generating cost.

Bickering about theory when action is necessary is useless...

Taking thoughtless action without proper planning is catastrophic.

Good discussions, valid points and constructive arguments are offered by all in this thread.

I disagree for obvious reasons :p

(1) I don't currently see Bitcoins as a currency. At the moment they are a commodity with potential 'real' economic value for the future. When investigating Bitcoins as a valid currency (using neural networks and comparisons with other existing currencies, commodities and existing markets) the more I see Bitcoins future model behaving somewhat like Gold i.e. a fairly stable 'base' commodity / currency.

Gold didn't become increasingly difficult to mine from the first day it was discovered. And by the time it becomes impossible to mine anymore, nobody would be using it as a medium of exchange. And if they were, the world would be doomed by depression because everybody would be saving as much as they can because their gold would be worth more tomorrow. Mild inflation (or stability at least) solves this problem.

(2) I don't see the current Bitcoin economic model as unsustainable. The fact that their are a finite number of Bitcoins, is precisely what gives them any potential / actual economic value at all.

That doesn't make sense. All (infinite) fiat currencies have a value. Infinite milk and infinite corn have a value. Infinite electricity has a value. Why are you people so obsessed with the idea of "finite supply"?

(3) Bitcoins are a finite 'base' commodity / currency. So, when 'production' eventually slows down to an unacceptable and perhaps unusable rate you simply introduce a 2nd 'Bitcoin' client which provides an infinite supply of eCurrency which is based on 'real' Bitcoin production and / or exchange rates.

Let's call it 'Bitnote' i.e. an infinite electronic 'paper money' which is based on real Bitcoin 'value' and Bitcoins existing model. Similar to what the banks did with the inception of real 'paper money' !

Why not just use more decimals on the existing coin?

(4) Concerns over hoarding, bot net control, government and bank intervention etc. can largely be solved by increasing Bitcoins user base as quickly as possible. No one wants to see a monopoly for a peer-to-peer network based anonymous digital currency.

With 144 daily blocks, you can hardly keep a large user base interested. Sooner or later (especially if a botnet or a supercomputer began competing with us) you'll need to work months before seeing a single block appear. All this has to change.

Get ready for the 'Gold Rush' ! (maybe)

Soon to be followed by a 'Gold Crash' (probably)

Hoarding is a silly notion, sure someone may do such, but at the peril of the thing they are hoarding becomes useless and therefore destroys the value, if I were to control all the bitcoins, as there is no mandate securing the use of such a media, everyone can move to another media, and additional to this fact, since we have left the realm of legality, what stops someone from creating a competing currency, or any number of people, which if hoarding takes place utility diminishes and value decreases, people then move their product in other free market money supplies...

The commodity is not the coin, it is the products that the coin is accepted in trade for, it has no inherent value of its own, just a value in relation to what one may obtain for a certain unit of it...

Right. Consider it an un-self-fulfilling prophecy. Because people with reasonable economic background and thought can predict right now that all this would happen, they wouldn't probably use Bitcoin in the first place.

Sorry for getting carried away Suggester. I get frustrated when I encounter someone as stubborn as myself.  

NP. I'll probably keep frustrating you for quite some time then

I again changed my mind for my preferred way for some Bitcoin variant to work. I don't like the idea I had of increasing at the rate of worldwide human population growth because it creates ugly fractions.

You never stop surprising me with your analysis man.

If the rate at which blocks are generated is on average constant and the amount of bitcoins awarded for generating a block is constant then bitcoin availability is not really infinite. Sure, infinitely in the future there are infinite bitcoins, but if you pick any point in the future, you know exactly how many bitcoins are available.

That doesn't make it "finite". It's infinite but accurately predicted.

On the other hand if the amount of bitcoins awarded for generating a block is variable, then the botnet operator becomes the bitcoin reserve. Likewise, if a botnet decides to work hard on Bitcoin under the current model for 32 years, he is then and forever the reserve. I don't like the current model or Suggester's model because it allows for the currency to be horded by the few. It gives advantage to whoever has access to more processing power than everyone else. I like my model because it gives as much of an advantage to the people as is possible. Sure the the person with lots of computing power can edge everyone else out, but only so long as he keeps working on it forever. The moment he stops, or whenever people collectively offer more computing power, the advantage doesn't completely balance out, but it becomes less skewed.

Stop worrying about botnets, please. They're gonna have an edge under any model. Plus they don't change anything economically. They are just as if normal people donated their coins to a charity or whatever. Limited blocks means people need to wait more for coins to appear in their console, which means less people interested in joining the network after some threshold (maybe 1000 connected machines or something. 500 machines 4 years from now, etc). Bitcoin needs more people to join in order to both spread the system worldwide and for the proof-of-work to be strong.

At best, they'll discredit Bitcoin with endless propaganda.  At worst, they'll hunt us down as "criminals" and "terrorists".

I think that it's in the benefit of everyone, including the rich when the gap between the rich and the workers is under control.

dwdollar, I think we can safely add add "communists" to your list.
On a side note, NLE, my model of unlimited coin production is very communist because it doesn't grant any advantage to early starters. You won't need to exert double the effort in 4 years to generate the same amount of coins today. Just put your CPU to work (or buy electricity-in-the-form-of-BTCs from an Indian exchanger) and you'll get what you paid for in untraceable, nontaxable, spendable coins. Plain and simple. It's not fair to grant this huge advantage to early adopters on the expense of later comers (even it wasn't going to crash the whole thing!)

Infinite BTC production will cause the same issues we have today, inflationary bubbles and then busts, this will deter people from using BTC as they will already have the same
service with government mandated Fiat, and no risk of penalty for using that...

This has to be the most biased statement in this thread. Compared to fiat currencies, bitcoin is a wild crazy horse which will undergo extreme bubbles and bursts. Fiat currencies are fairly stable in price.

You are forgetting the point that BTC only has any real value in trade, so the people generating the coins will have to trade them in order to maintain their value.  If I hoard 20 million BTC, the Value of the other Million will decline as utility will not support BTC, I do not think it will need to come to that with the precariously small number of coins.  Hoarding will be seen, by economic tells, within a 10% share hoard.  I will tell you right now, there is "hoarding" because of the small amount of available business in BTC,

So the hoarder will spend some of his coins in order to give value to the rest? This will only lead to another hoarder jumping at this chance to add some more to his hoarded hoards. If the current system was successful (which it won't be), investors will gladly liquidate some of their 10%-yielding assets to purchase the 20%-yielding coin. You guys are missing the whole point. Hoarding = No exchange, period.

I am, but my "hoarding" is waiting for products I want, there is little utility as of yet in BTC for me, though I am willing to do business in BTC.  

Ain't gonna happen if the current model isn't rectified.

The democratic governments is what is wrong with the current monetary system which inspired this creation, maybe we should stop considering them as good.  They violate human rights as a constant activity, they murder on wholesale levels, the rob entire populations, they enslave humans, all without any threat of punishment...

True. But the problem is, dictatorships weren't/aren't any better.

[ihrhase]

Someone spending $1 now to create $1 worth of coins isn't a person who needs goods to survive. He's probably an investor, or will end up paying his coins to an investor.

If the overall plan is not to build a counter economy you would be correct, but I think people involved here are looking to, in the long run at least, do more than trade valueless digital blips...

This increase is one of the main reasons Bitcoin is doomed under the current model. I think you lost me.

If it does not increase in utility it will not increase in value...

The value to these digital blips is NOT in how they are created but in what one can get for them...
Subjective Theory of Value and Bitcoin
I have a list of products I would like to attain for my bitcoins, these are capital goods, that is for use in production of a consumer good.  When I attain these goods, the value of the bitcoin is in relation to how much of these factors can be attained with each coin.  You can assert that 1 BTC = $1, but if I can obtain more capital goods with $1 than 1 BTC, then the $1 is valued higher to me than the 1 BTC.  The logical choice for me is to then dump all BTC for dollars in order to obtain capital goods, and therefore sell my consumer good in dollars....

*side note* When I bring my consumer good to the market, how much the market clearing price for my supply is will determine whether I am using the resources efficiently, or if I should rethink my business model.*

What you guys are talking about is Labor Theory of Value, this theory was shot to pieces in the late 1800's, I do not think I need to repeat the process...

Which will not happen under the current model due to its enormous "investability".

The invest-able nature of the BTC will disappear if there is no commodity market that supports it, it is why the dollar has stayed afloat, well that and military might...

Taking thoughtless action without proper planning is catastrophic.

I Agree, but you are thinking that a planned economy is a sustainable system, look at the world of economy and tell me how well that is working, the free market can handle all your issues, it is something we are not seeing today, so the comparative advantage in logic is based on the unused system.  It was the less planned economy (more laissez faire), that accumulated the major part of the world's monetary gold in the US prior to WWI.  There was less regulation and taxation inflating prices, BTC mimics this, as it is a counter economy currency, if it retains the capped amount of BTC, it will be able to stabilize in the long run...

Mild inflation (or stability at least) solves this problem.

Keynes thought this too, are you going to have a privilege class that gets new BTC to spend to solve your problem too?

That doesn't make sense. All (infinite) fiat currencies have a value. Infinite milk and infinite corn have a value. Infinite electricity has a value. Why are you people so obsessed with the idea of "finite supply"?

Yes they have a value, that consistently depreciates over time, it retains utility by government coercion, if you had the choice to abandon a depreciating fiat currency for a stable commodity based one, why would you allow inflation to rob you perpetually?...  This is an unsustainable model
There is not infinite milk or corn, and they are not currency, they are commodities
There is not infinite electricity either
Finite supply is what this world is about, resources are scarce...

With 144 daily blocks, you can hardly keep a large user base interested. Sooner or later (especially if a botnet or a supercomputer began competing with us) you'll need to work for weeks (wondering whether you've correctly set the thing up) before seeing a single block appear.

So are you looking for some perceived fair share before a more efficient producer comes along?  I am sorry, but IF someone chooses to dedicate more resources to production of BTC, they deserve more BTC.

Right. Consider it an un-self-fulfilling prophecy. Because people with reasonable economic background and thought can predict right now that all this would happen, they wouldn't probably use Bitcoin in the first place.

Except those that are looking to use something that will get them out from under the current failing economic models, which as far as I can tell is not your issue...
People that see no value in anonymous transactions will abandon BTC, I am certain, but I think there are more people looking to not pay for every government misadventure through inflation and taxation...

That doesn't make it "finite". It's infinite but accurately predicted.

Not Quite, it is infinite, just at a planned progression on the way to it.  It still interferes with the market value of the BTC...

Bitcoin needs more people to join in order to both spread the system worldwide and for the proof-of-work to be strong.

I disagree, it needs a trade base, that will prove the currency, without the trade base it is as useful as $$ in an MMORPG, sure people do dedicate real $ for MMORPG $$, but in the end there is no production...

dwdollar, I think we can safely add add "communists" to your list.

Only in your rendition of how BTC should be, there is no way to propagandize me a communist...

It's not fair to grant this huge advantage to early adopters on the expense of later comers (even it wasn't going to crash the whole thing!)

Why should the early comers not have the advantage?  They are taking the risks initially, for something that could go nowhere, the later comers, after the system is proven have considerably less risk and if they dedicate less to generation they have less to lose.
 

Hoarding = No exchange, period.

No you are missing the whole point, no exchange = NO VALUE, and therefore no point in hoarding, it is the common fallacy seen in marxist, so I do not blame you, you just have to realize marxism is wrong before you can think coherently in regard to this argument.  You are completely disregarding ALL economic laws in regard to your analysis, once you try to benefit from hoarding Marginal Utility destroys the potential gain, you completely ignore time, and this is why you think hoarding may be beneficial...

Ain't gonna happen if the current model isn't rectified.

The model has nothing to do with this, it is the utility the producers of capital goods have that will rectify this.

True. But the problem is, dictatorships weren't/aren't any better.

And this would be why Communism is not a good idea either... Are you one of those inevitability of government people?  I am sorry but there is no regulation on BTC and it is nontaxable as it stands now, it is operating without government, do you assume that government should be involved?