Monero Economy

[cAPSLOCK]

Estimate 1:

Parameters:
- Largest holding: 100,000 XMR
- number of holders: 6,800
- j value = 0.58
- power law: no

I don't doubt the other numbers but how did you extrapolate the number of holders?

I was checking the poloniex accounts and estimated how many of them have bought XMR.

Do you think the largest holding is realistic? It would have to be a guy that we know. Myself, I don't have nearly that many

Yes.  I would imagine that is possible.  I think it is also (somewhat) possible a semi connected (to the project)  botnet master might also have mined to keep rather than sell.  If this is so they would be sitting on a possibly bigger holding.

[dreamspark]

Estimate 1:

Parameters:
- Largest holding: 100,000 XMR
- number of holders: 6,800
- j value = 0.58
- power law: no

I don't doubt the other numbers but how did you extrapolate the number of holders?

I was checking the poloniex accounts and estimated how many of them have bought XMR.

Do you think the largest holding is realistic? It would have to be a guy that we know. Myself, I don't have nearly that many

Thing is with Polo is a lot of people jump in and out of the coins and also don't have particuarly large balances what sort of parameters did you use to estimate this?

Yes its realistic, my guess would be that its not quite that large but not far off.

Your other guesses in terms of holders above a certain threshold I think are a little low in most the ranges  but without a real way of knowing its a fairly pointless argument.

[cAPSLOCK]

Results:
10,000 or more: 23 holders
1,000 - 10,000:   435  <=half of the XMR are owned by this group
100 - 1,000:    2,300
10 - 100:    3,000
1 - 10:     1,050.

Questions, comments, what parameters to change in order to get a more realistic calculation?

I wonder for the amounts of folks we see in the 1 to 1k realm...  if you are right about your estimates this implies an escalating  general knowledge about Monero out there.  I have thought up to now it has been a fairly strong insider community.  If we are starting to see any "mainstream" alt crypto interest it could mean the current price direction is somewhat sustainable.

[aminorex]

Good thing it's anonymous, or chicks would be after me.

Oh crap, I'm doing the rich thing all wrong!

[aminorex]

And Bitcoin has less than 50 million transactions in its entire life, so don't even pretend like you know if it's capable of supporting any economy of scale.

I think we know with good certainty that it is not capable of supporting a global economy today, but that it is feasibly evolvable to do so.

[rpietila]

Your other guesses in terms of holders above a certain threshold I think are a little low in most the ranges  but without a real way of knowing its a fairly pointless argument.

They are not guesses but the outcomes of the mathematical fitting procedure, and as such they are true to the given parameters.

Only the parameters are guesses.

[aminorex]

Currency cannot behave like currency if the value constantly trends upward.

Gresham's law is supply-side driven.  If the demand side rejects your bernankebux, the law no longer holds.  By the time BTC is big enough for the economics peculiar to it to have a significant impact on the global economy, we are very very near the singularity, and no one will accept an inflationary currency.  Until it gets pervasive, global, it's not a problem.  When it gets pervasive and global, its not a problem for a different reason.  

If you hold 100 USD, and 100 mBTC, and the mBTC appreciates rapidly, while you spend all your depreciating USD, then soon you have no more USD to spend.  Your reserves are dominated in mBTC, and you must spend mBTC perforce, for lack of an alternative.

Coase's theorem indicates that distribution of BTC will tend to optimal.  That implies that the flows required to optimize the productivity of the distribution of capital (which are exactly the flows which are most productive) will occur.

There are numerous directions to come at this, but they all have the same conclusion:  BTC will tend to circulate to the degree it is beneficial to circulate BTC.  

When your liquidity is infinitely divisible, there is never an insufficiency of liquidity.

My take:  XMR needs to bootstrap.  It can't bootstrap if no one will take it.  If it is inflationary, no one will take it.  The only way to get people to accept an inflationary currency is to hold a gun to their head.  Crypto has no guns.

[cAPSLOCK]

My take:  XMR needs to bootstrap.  It can't bootstrap if no one will take it.  If it is inflationary, no one will take it.  The only way to get people to accept an inflationary currency is to hold a gun to their head.  Crypto has no guns.

I could not agree with this statement more.  It is just another way the black swan of cryptocurrency is blowing up the way we understand finance.  Folks keep trying to appy the limitations of current systems to this new one.

I am curious what your thresholds are for it being inflationary/deflationary/stable.

[aminorex]

I could not have envisioned a better way to reduce the land of the free and home of the brave to its current wretchedly pitiable state than fiat money.

Arguably the best period of organic growth in the US was 1870-1913.  Amazing incentive system.  It is a period which includes the inception of all the technical infrastructure which provided, by inertia, economic growth during the exchange standard, bretton woods, and debt-based eras which followed. 

[tacotime]

My take:  XMR needs to bootstrap.  It can't bootstrap if no one will take it.  If it is inflationary, no one will take it.  The only way to get people to accept an inflationary currency is to hold a gun to their head.  Crypto has no guns.

I could not agree with this statement more.  It is just another way the black swan of cryptocurrency is blowing up the way we understand finance.  Folks keep trying to appy the limitations of current systems to this new one.

I am curious what your thresholds are for it being inflationary/deflationary/stable.

The issues are two-fold:
1) It seems unlikely that fees will properly secure the blockchain a long time into the future. There have been numerous comments from the core devs (eg Peter Todd) and academics at Microsoft about this.
2) Any blockchain that has logarithmic decay for subsidy will eventually face persistent and random deflation when coins are lost, causing wild speculatory price fluctuations.

Tiny inflation (0.1 XMR at year 10 as I have proposed) that tends to zero slowly as time goes on probably alleviates both, so I don't see why it's so controversial.

[rpietila]

[perpetual debasement] Can somebody summarize the proposals that have gained enough support to have a chance to be implemented?

[tacotime]

[perpetual debasement] Can somebody summarize the proposals that have gained enough support to have a chance to be implemented?

Debasement as above is non-perpetual; over time the inflation rate goes to zero slowly with a fixed subsidy. For instance, at year 11 annual inflation is 0.335774683775%, while at year 20 it is 0.325925311615%.

[rpietila]

[perpetual debasement] Can somebody summarize the proposals that have gained enough support to have a chance to be implemented?

Debasement as above is non-perpetual; over time the inflation rate goes to zero slowly with a fixed subsidy.

Okay. Are there other proposals that enjoy any support with the devs?

[tacotime]

Okay. Are there other proposals that enjoy any support with the devs?

That I'm not sure. Johnny Mnemonic proposed exponential inflation, which I think was ill received as a lot of people think it'll turn Monero into the next FreiCoin.

[rpietila]

How much is required to secure the chain?

Also - have we discussed the theoretical issue of levying fees for balances, since it's mainly the security of balances we need to protect, and not so much the security of transactions. (The easiest way to levy a fee on balance is naturally the creation of new coins, diluting all balances).

[smooth]

Tiny inflation (0.1 XMR at year 10 as I have proposed) that tends to zero slowly as time goes on probably alleviates both, so I don't see why it's so controversial.

It is somewhat controversial because people have various pet economic theories about how "currencies" are supposed to be. These have little to nothing to do with the technical issue of maintaining a distributed proof-of-work blockchain (which I happen to think requires a mining reward, though I acknowledge that some believe transaction fees can work), so in a sense the two sides are often talking past each other.

[tacotime]

How much is required to secure the chain?

Also - have we discussed the theoretical issue of levying fees for balances, since it's mainly the security of balances we need to protect, and not so much the security of transactions. (The easiest way to levy a fee on balance is naturally the creation of new coins, diluting all balances).

The quantity required is an open question, and it depends on the value of 1 XMR in 10 years time. If 1 XMR is $10k USD, then 0.1 could be very attractive. If it ends up at $10 USD, it will be very unattractive, but then the price of fees will be low so transacting on the network will be cheap and can be used to pay the miners if sufficient volume occurs. If the price of fees is high ($10k USD per 1 XMR), then a small subsidy like that will likely be essential in keeping the chain secure in my mind. Without a secure blockchain, the entire system will fall apart.

In regards to the second question, the other way to do so is FreiCoin's system, which over time destroys the balance of all accounts equally through demurrage. The FreiCoin devs insist that this is totally different from inflation, but I haven't been able to follow that argument (and it diverges into a lot of economics I'm not well versed in).

One thing we can do is make an official merged mined currency alongside Monero with exponential inflation, to provide a fiat-like adjunct that can one day be traded in a decentralized manner with a two-way peg.

[cAPSLOCK]

How much is required to secure the chain?

Also - have we discussed the theoretical issue of levying fees for balances, since it's mainly the security of balances we need to protect, and not so much the security of transactions. (The easiest way to levy a fee on balance is naturally the creation of new coins, diluting all balances).

The quantity required is an open question, and it depends on the value of 1 XMR in 10 years time. If 1 XMR is $10k USD, then 0.1 could be very attractive. If it ends up at $10 USD, it will be very unattractive, but then the price of fees will be low so transacting on the network will be cheap and can be used to pay the miners if sufficient volume occurs. If the price of fees is high ($10k USD per 1 XMR), then a small subsidy like that will likely be essential in keeping the chain secure in my mind. Without a secure blockchain, the entire system will fall apart.

In regards to the second question, the other way to do so is FreiCoin's system, which over time destroys the balance of all accounts equally through demurrage. The FreiCoin devs insist that this is totally different from inflation, but I haven't been able to follow that argument (and it diverges into a lot of economics I'm not well versed in).

One thing we can do is make an official merged mined currency alongside Monero with exponential inflation, to provide a fiat-like adjunct that can one day be traded in a decentralized manner with a two-way peg.

Has a subsidized draw been considered?  A minimum block reward paid when the fees cannot meet that minimum?  This could be a flexible way to allow the health of the economy and value of the currency have at least partial determination over the inflation.  Perhaps this is exactly what has been discussed and if so forgive me as I am getting up to speed.

[tacotime]

Has a subsidized draw been considered?  A minimum block reward paid when the fees cannot meet that minimum?  This could be a flexible way to allow the health of the economy and value of the currency have at least partial determination over the inflation.  Perhaps this is exactly what has been discussed and if so forgive me as I am getting up to speed.

This is similar to adaptive block sizing, which applies a penalty for generating blocks over the median size. The cost of the penalty is supposed to be mitigated by the value of the fees. My opinion is that this will not work well.

Such a mechanism doesn't work for this reason: miners generate their own blocks and include whatever tx they choose too, however the smaller the block, the less likely it is to ever be orphaned. If there was an overlay PoS network (like for MC2) you could try and enforce tx being included into blocks even at some level of reward penalty, but naturally miners will just include as many high fee transactions as possible without destroying any of their reward. Such a method of securing a blockchain is highly experimental and may not work for other incentives reasons (that's for the MC2 thread). As PoW stands now, miners are free to manipulate the transaction volume/fees volume in the network as they desire, and so subsidy penalties will not really work.

[rpietila]

How much is required to secure the chain?

Also - have we discussed the theoretical issue of levying fees for balances, since it's mainly the security of balances we need to protect, and not so much the security of transactions. (The easiest way to levy a fee on balance is naturally the creation of new coins, diluting all balances).

The quantity required is an open question, and it depends on the value of 1 XMR in 10 years time. If 1 XMR is $10k USD, then 0.1 could be very attractive. If it ends up at $10 USD, it will be very unattractive, but then the price of fees will be low so transacting on the network will be cheap and can be used to pay the miners if sufficient volume occurs. If the price of fees is high ($10k USD per 1 XMR), then a small subsidy like that will likely be essential in keeping the chain secure in my mind. Without a secure blockchain, the entire system will fall apart.

In regards to the second question, the other way to do so is FreiCoin's system, which over time destroys the balance of all accounts equally through demurrage. The FreiCoin devs insist that this is totally different from inflation, but I haven't been able to follow that argument (and it diverges into a lot of economics I'm not well versed in).

One thing we can do is make an official merged mined currency alongside Monero with exponential inflation, to provide a fiat-like adjunct that can one day be traded in a decentralized manner with a two-way peg.

The value required for securing should be proportional to the value stored, in other words a constant %-age, irrespective of value.

If all balances are directly and proportionally reduced, it is deflation. But it does not matter since it is applied to all equally. If a corresponding number of coins is generated elsewhere to be used for some purpose, it is inflation. Taking both into account, it equals a tax or a fee.