Prices Cannot Stabilize

[notme]

Artificial scarcity, a very special character of BTC, in a world that almost everything can be mass produced without limit

What world you live in is what I'm starting to wonder.
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Unless you're talking about digital goods, there are practical limits to the production of most things.  Stuff if made of other stuff.  There is only so much stuff.

[1714969946]

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[Grinder]

The supply of coins grows at the same rate regardless of demand. Stability requires a flexible supply increase to correspond with demand increase. This limitation will be an impediment to the growth of Bitcoin commerce.

You're completely incorrect. Prices cannot do anything BUT stabilize in the long-run.

The gold price proves you wrong.

[Grinder]

The amount of goods you can buy with a certain amount gold has remained relatively stable over thousands of years! The fiat inflated around it.

Have you considered checking your "facts" before you post them?

[johnyj]

Artificial scarcity, a very special character of BTC, in a world that almost everything can be mass produced without limit

What world you live in is what I'm starting to wonder.

I just been to china, you better come to see how many gold mines have been opened here this year. Soon, gold will flood the market like chinese made shoes, at the same time as people getting out of the panic of post financial crisis...

The reason gold price hold relatively stable is because people have replaced most of its use with fiat money, otherwise the price of gold already skyrocketed to a unheard level

[Grinder]

I never said anything I posted was a fact. What gave you that idea? Do I need a freaking disclaimer to post on the internet now?

If you don't care if the reasons you give for your opinions are true there's no point in discussing this further.

[kjj]

Artificial scarcity, a very special character of BTC, in a world that almost everything can be mass produced without limit

What world you live in is what I'm starting to wonder.

I just been to china, you better come to see how many gold mines have been opened here this year. Soon, gold will flood the market like chinese made shoes, at the same time as people getting out of the panic of post financial crisis...

The reason gold price hold relatively stable is because people have replaced most of its use with fiat money, otherwise the price of gold already skyrocketed to a unheard level

You do understand that China is "buying" somewhere near 100% of the output of their domestic gold mines, right?

The reason China has so many gold mines is because they have very nearly zero gold reserves, and they don't want to buy a few thousand tons on the open markets.  Nothing is getting flooded any time soon.

[BTConomist]

It is important to note that, in the case of bitcoin, the 21mil bitcoin supply is just a monetary base.
The total potential BTC money supply (in the smallest bitcoin unit - a.k.a. "satoshi") is 2.1 quadrillion.

[kjj]

It is important to note that, in the case of bitcoin, the 21mil bitcoin supply is just a monetary base.
The total potential BTC money supply (in the smallest bitcoin unit - a.k.a. "satoshi") is 2.1 quadrillion.

That's just a matter of normalization.  You could just as well say that the money supply is 1.  And 1E-8 isn't a fundamental unit of the system, it is just the smallest increment currently accepted.  We could easily switch to 1E-30, but it would probably be more useful to use 1E-21.  See here.

[BTConomist]

It is important to note that, in the case of bitcoin, the 21mil bitcoin supply is just a monetary base.
The total potential BTC money supply (in the smallest bitcoin unit - a.k.a. "satoshi") is 2.1 quadrillion.

Also, when talking about the US dollar, for example. Do we measure the monetary base in dollars and the money supply in pennies? Because that's what you just did with Bitcoin.

Keep in mind that inflation/deflation in a fiat-based economy is deflation/inflation in a bitcoin-based economy.
That's why one should use "satoshi" to arrive at the potential money supply for the BTC economy.

Now, what everyone should be thinking about is what does it take to create and maintain deflation in the BTC economy?

[FredericBastiat]

A proposal to consider...

A different approach for a nacent digital currency (NDC), or possibly even "Bitcoin 2.0":

1) Pre-mine all the coins (i.e. 21 trillion NDC).

2) Immediately initiate an exchange (i.e. Mt. Gox 2.0).

3) Make the exchange decentralizable. Distribute coins from the 21 trillion NDC to the exchangers in proportion to their ability to handle transaction volume.

4) Peg the NDC to a known "stable" currency (i.e. USD, EURO, Pound).

5) Using USD as the start point, permanently set the NDC buy orders at $1.01 and the sell orders at $1.00. This bid/ask wall cannot be moved or it all falls apart. A federated group of "trusted" market-makers/exchangers joined at the "crypto-hip" could prevent collusion (i.e. A & B or C cryptographic type of arrangements). We want to reduce NDC price fluctuation. This helps the merchants gain stability and virtually removes the speculator/manipulator angle for a longer period of time. BTW, I have nothing against speculators per se.

6) Take the spread and/or fees and pay the "miners" and "transaction handlers" to secure the network. This will be net settled in NDC unless converted (minus fees). Hopefully this prevents the dreaded 51% attacks.

7) When the 21 trillion coins are spent into the "economy" the fiat currency peg becomes detached (because the author can no longer keep the price fixed) and it starts to float against all other currency/commodity money equivalents.

What you gain: Instant stability, long-term growth, fewer manipulative events, no first-mover advantage, fewer early adopter issues; at least not any more than the national fiat currencies would induce, in which case you could peg to a "commodity money" such as gold, silver, oil, etc.

Hopefully the transaction fee issue to secure the network will be solved after the NDC currency float event.

[BTConomist]

What you gain: Instant stability, long-term growth...

Bitcoin is stable enough, that is if you're willing to look past the market makers.

[Grinder]

A proposal to consider...

It's a good thing Satoshi understands economics a lot better than you.

[BTConomist]

It is important to note that, in the case of bitcoin, the 21mil bitcoin supply is just a monetary base.
The total potential BTC money supply (in the smallest bitcoin unit - a.k.a. "satoshi") is 2.1 quadrillion.

That's just a matter of normalization.  You could just as well say that the money supply is 1.  And 1E-8 isn't a fundamental unit of the system, it is just the smallest increment currently accepted.  We could easily switch to 1E-30, but it would probably be more useful to use 1E-21.  See here.

It doesn't really matter what you set the money supply limit to be.
What's important is how does one grow the money supply to that limit in a deflationary-by-design economy?
And that, my friend, is a 1,000,000BTC question. Luckily, I may have the right answer.

So, who's got that much BTC to spare? Don't be stingy!

[FredericBastiat]

What you gain: Instant stability, long-term growth...

Bitcoin is stable enough, that is if you're willing to look past the market makers.

I can't tell if your kidding, but what I meant to infer was the USD/BTC or fiat/BTC stability issue. We all know a nearly exact number of coins are "minted" per unit of time. The issue at hand is convincing merchants and others to hold the coin when the price is all over the place. I'm not suggesting a different protocol, just a different starting point for the economy.

Stability is valuable to some extent I'd think. Obtaining financial gain merely because your USD/BTC changed is not particularly "productive".

[BTConomist]

What you gain: Instant stability, long-term growth...

Bitcoin is stable enough, that is if you're willing to look past the market makers.

I can't tell if your kidding, but what I meant to infer was the USD/BTC or fiat/BTC stability issue.

Take the market makers out of the equation, and your stability issue will not be an issue anymore.
Who says that you must sell BTC for USD (or other fiat currencies) in order to buy something with BTC?

[FredericBastiat]

A proposal to consider...

It's a good thing Satoshi understands economics a lot better than you.

Really? How so? We are all pretty certain that his cryptographic skills are stellar bar none, but his economic sense... that's a matter of contention I'd say.

Again, I'm not suggesting a different cryptography protocol per se, just a different way to jump-start a nacent digital money economy. Perhaps one that doesn't have to be so volatile. My suggestion was merely one of how to use a boot-strap technique which segways into a global exchange environment with the possible effect of reduced manipulation and speculation. It's only the transition and stability I'm interested in.

To be clear, I have nothing against speculators, they will always exist and they probably serve a purpose; namely, liquidity and money velocity, but for start-up purposes, they can make for a very difficult exchange situation. Why would merchants want to have to worry about that? Every merchant/business person I've spoken to, who wheels and deals in physical goods, mentions that as their biggest fear/issue. They won't stake much of their business on it until the price spikes calm down, and yet you need them to soften the blows. You have a chicken and egg problem.

[BTConomist]

To create and maintain deflation in the Bitcoin economy, we have to wait for the inflation to end first. 

There's no need in waiting... If you have 1,000,000BTC to spare, I'll give you the answer now.

[cbeast]

To create and maintain deflation in the Bitcoin economy, we have to wait for the inflation to end first. 

There's no need in waiting... If you have 1,000,000BTC to spare, I'll give you the answer now.

not sure if serious...

[FredericBastiat]

Take the market makers out of the equation, and your stability issue will not be an issue anymore.
Who says that you must sell BTC for USD (or other fiat currencies) in order to buy something with BTC?

It's actually market makers that tend to smooth price fluctuations (just a guess). Nevertheless, without somebody to take the other side of the trade, your BTC isn't worth anything. In fact, that's true of anything. You're always trading something for something else you value more. Money material is merely a midway point for easy accounting purposes since barter is less convenient.

Nobody has to use other fiat currencies, of course, but that isn't the point. We could all decide to use BTC for our monetary system today... thing is, why isn't everybody doing it? Most don't understand it, or don't care. Perhaps they need a reason to care. I'm merely piggy-backing on an already quasi-stable currency.

If prices were stable and transacting were cheap you'd probably get more followers, hence my proposal. And that doesn't include the more esoteric issues of more anonymity, no charge-backs, and flexibility etc.

[BTConomist]

To create and maintain deflation in the Bitcoin economy, we have to wait for the inflation to end first.  

There's no need in waiting... If you have 1,000,000BTC to spare, I'll give you the answer now.

not sure if serious...

I'm getting a bit greedy here, but what's the hell...

Why don't the miners start a bounty for the best answer on how to run/grow BTC economy?
They are the ones who have the biggest gain if bitcoin becomes more than just a perishable gold.

I believe I may have the right answer, but I'm not sure whether I should disclose it for FREE.

Look, I'm just like the miners -- a contributing member to the future of BTC economy.
If miners can get paid for their contribution, so should the BTConomist(s).

EDIT:
And if my answer does happen to win that bounty, I will spend it (no exchange) in the same way I earned it -- to buy a valuable service/product or a piece of information.