Monero Economy

[aminorex]

all you really need is anonymous currency. You can use that currency to purchase bitcoins or anything you want with anonymity.

I agree with all of your points, for the most part -- with two exceptions:  

Firstly, it is, for the present, more challenging to buy bitcoin anonymously than your text suggests.  Even an easy, effective anonymous currency does not suffice to make it easy to buy bitcoin with reliable and effective anonymity.

Secondly, I think that for quite some time the valid theoretical point of Gresham's Law is largely irrelevant, in practical terms, because the overwhelming barrier to use of crypto as currency is lack of infrastructure and vendor support, next to which all other considerations are secondary. (And which renders crypto useful only for a very special class of typically very high value or else crucially private transaction, where Gresham's Law doesn't really apply.)

Both of these conditions are accidents of history, and will hopefully change in the future, but while they pertain, they do bear strongly on the desirability of an anonymous coin as a value store.

The biggest reason why it would be well for Monero not to commit to a perpetual debasement just yet is that the decision may have irreversible impact detrimental to the establishment of the coin.  Gresham's Law works in favor of the increased adoption of a deflationary currency during times such as we are presently in, times when infrastructure does not allow the quotidian use of crypto.  It only works against the purpose of facilitating anonymous transactions when, in the hypothetical future, infrastructure is sufficient to allow reliance on Monero for general transactions.  

Hoarding is part of the PR, as is price appreciation. If you are debasing early, you tend to lose value early, which turns people away from the coin.  BTC is much more usable than DOGE, presently, for example, which is in serious decline and unlikely to recover a growth trajectory, whereas BTC has never lost its exponential growth momentum despite a price collapse, in part because it is deflationary.  I.e. the empirical evidence at present is contradictory to Gresham's Law, and I claim this is because of the immaturity of infrastructure, but will change eventually, to bear out Gresham.

For these reasons, I would suggest that any persistent debasement be tied to the number of active transactors in the ecosystem, e.g. a 7-day moving average.  If the number is stable or declines over time, debasement should be nil.  If the number is increasing, debasement should kick in.  If the number is accelerating, debasement should accelerate.  But even that is premature until infrastructure exists to support an economy, so I would suggest another factor, to threshold at some level of activity indicative of a working bootstrap. 

The result of such a policy should be enhanced price stability:  The value of a currency scales as the square of the number of transactors in the economy.  Price deviates from value due to exogenous factors, but converges to a mean which approximates the value increasingly well over time.  If you adjust issuance in accordance with value, price will tend to adjust along with it.

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[Johnny Mnemonic]

Your suggestion of transaction-dependent debasement is similar to what I mentioned a couple of posts back, but as I said then, I fear it would only hurt adoption, as most folks aren't particularly keen on an indeterminate future. There is comfort in knowing exactly how large the money supply will be 5, 10, 20 years from now.

If BTC's success compared to DOGE is in fact due to it's deflationary nature, it's merely perceptual, as both coin's money supplies are presently increasing. Perhaps that's your point. If by "debasing early" you mean making your intentions transparent that the money supply will forever increase, are you suggesting it's better to "advertise" a finite supply with the intention of debasing in the future? The "give the people what they want now and change it later" approach makes sense, but can be quite challenging with decentralized systems

I agree with your statement that the infrastructure isn't ready, but it never will be if there isn't a demand for it. A cryptocurrency has to achieve tx volumes high enough to push the limits of current infrastructure before more scalable solutions will be put in place. I fear we will never get to that point with deflationary money... and even if we do, then what? Hard fork? I don't see it happening at that point. What will happen is a new inflationary alt will be introduced, and we will be right back where we started.

That's why I think it's important to have these features in a currency from the beginning. With a bitcoin style emission, it would be decades before the block reward would start to reverse anyway. We just have to figure out how to educate people and get them to adopt it.

[aminorex]

Indeed we've seen a lot of drama surrounding the tuning of parameters already.  Your point about indeterminacy is well taken.  But I don't think these really militate against a principled, formula-driven adjustment mechanism.  PoW difficulty adjustment has worked pretty well and is very comfortably familiar to crypto users.  Instituting a formula-based deterministic (but yet undetermined) inflation which is designed to stabilize price, is a change in contract, and there would always be some who were disillusioned by any change whatsoever, but it is not a change in the present contract.  It would have no impact until it became needed, and thus wouldn't bother most of the present users.  A substantial proportion of them would agree that a stabilizing inflation would add to the value of the coin, it's distinctives, and it's likely future transaction volumes.  There is also comfort in the expectation that price will be more stable, so it's a trade-off.  After all, we're not talking about orders of magnitude here, just a few % in supply annually, at most, and only years in the future.  It doesn't change the near-term speculative supply/demand picture at all, and offers some incremental improvement in the long-term value-investment picture.  I think it would work, for Monero.  There are several arguments in favor of it, and I haven't noticed any strong ones against it yet.  Still listening though.  Unlikely though it may be that any such change is adopted in Monero, it seems worthwhile at least to build a change-set which implements such a mechanism, as it would clarify the issues and methods.  Adding it to my TODO list.

[equipoise]

The entire market cap at the moment is about 700 BTC with about 4% of it traded each day. With the advantages MRO gives over the other concurrent cryptocurrencies the market cap is very small I think. A lot of FUD going on now, but I won't sell mine at this price. In order MRO to get to the DRK market cap the current price of MRO should be 0.08 BTC - about 87 times higher then it's now.

Edit: I actually sold with all those dumps. Now it's time for the price to rice.

[Keyboard-Mash]

Awesome discussion here guys, sorry I cross posted and left. Things got busy and I hope to contribute soon.

Before I do though, I'm cross-posting this because it seems like it's heavily economically related

Hey, so I was doing some thinking. If we just maximize the size of every block by moving a lot of money around .... would that fend off botnets by creating low subsidies?

Or would it be counterproductive because it would leave us w/ a high difficulty?

Thoughts?

[Mesutalkali]

Am I able to mine this coin with my old dual core -computer?
Thx for an answer.

[surfer43]

Am I able to mine this coin with my old dual core -computer?
Thx for an answer.

Yes, you can mine on pools. Or you can try your luck at solo mining. 

[smooth]

Am I able to mine this coin with my old dual core -computer?
Thx for an answer.

A goal of the original design is "egalitarian mining" which means ordinary computers can be used for mining. Obviously newer and more expensive and powerful computers will mine faster, but you should get your fair share (small).

[Abel82]

Is this coin now scam or not? I'm interested in buying this coin but on the main thread of monero there are some members saying this is scam.

So guys, please tell me the truth about Monero Economy.

Thanks in advance.

[aminorex]

Is this coin now scam or not? I'm interested in buying this coin but on the main thread of monero there are some members saying this is scam.

So guys, please tell me the truth about Monero Economy.

Thanks in advance.

read the announcement op.  it is factual.  'scam' is not well-defined, but mro has been carefully planned to avoid any taint of scamminess such as bytecoin, darkcoin have suffered due to premining.

[aminorex]

In another thread,  the plausible argument was made that MRO is presently overvalued at 1/342 BTC.  This is a reasonable position, if one takes the historic price series of bitcoin to imply a discounting curve, and apply that to MRO.

I had considered this previously, but rapidly rejected the argument, on two principal grounds:

1) The adversities which BTC overcame during that time constituted existential threats.  No successor crypto faces those adversities.  Much has been learned.  The probability of a flaw or event fatal to the project is vastly -- and I do mean vastly -- lower.  However it is challenging to accurately quantify how much lower.  I would dearly love some input on this point.

2) The adoption process must be expected to be much more rapid for a successful candidate to the privacy-enhanced niche, because of the precedent and conceptual familiarity created by bitcoin.  What BTC did in 5 years should be done in a fraction of that time in MRO, if it is to inherit that niche.  But again, even a very crude quantification of how much more rapidly would be essential to a rational application of the discounting method to estimate fundamental value.

I need parameters.  I will work on this later, as time permits, but this message is a solication of comments, input, facts, numbers, theories. 

This is actually a solvable problem, if only by degree, with error bars.  And the value of solving it can be quite large.  It will require some creative and some rigorous thought, as well as factual data.

While this fundamental approach to valuation is a reasonable one, it is not comprehensive.  There are many ways to value an instrument.  In theory they should all tend to converge to the same value.  This theory has been true in the case of bitcoin, and it will be informative to apply it to monero.

[Keyboard-Mash]

I'm working my way down the thread post by post.

Some promises have value, while others do not.  Which are which will vary over time.  The same is true of other commodities, although promises are typically more volatile.  Gold certificates have been successfully used as a long-term store of value and as an exchange medium for high-volume trade -- for suitable values of "long-term" and "high-volume".

If Monero was accepted as having similar characteristics to gold, would you see these promises manifesting outside of the blockchain, or as a part of it? I could send someone a certain amount of gold, or I could issue a promise that their gold (ex: Monero) will be ready to be placed in their hands on demand. I've imagined an infrastructure, like banking, that can be built on top of Monero .. specifically utilizing the tx_extra field (or perhaps not, as it may be better utilized in things like recurring monthly payments). I'm unaware of how this could come together, or if "banking" is even the correct word for what I'm trying to describe. Your mentioning of certificate issuance indicates, to me, that you are of a similar opinion.

Physical metals have persisted in storing value longer than anything else, and were used for essentially all trading worldwide for centuries.  Arguably, some of the features of gold certificates which make them more usable for larger volumes of trade (in excess of say, a million dollars in value, pick a number, corresponding to the strength of your back) also contribute to their inferiority as a value store, relative to physical metal.  That does not mean that they are not suitable for both uses, within their actual limitations.  Gold or silver certificates which are fully backed by deposits and have the full faith and credit of their issuer are a pretty darn good value store.

I'm trying to define a word here. When you mention volume, are you referring to trading volume (# shares traded) or something else like the specific amount of value traded (not # of tx's) in a certain amount of time? In bold, which features  of metals do you see, other than being fully backed by one's strength, lean toward high value transactions, while at the same time "contribute to their inferiority as a value store"? Could one be that they have functional uses other than a store of value (eg, electroplating)? Or something more economically related, the fact that they are capable of being more easily seized/become a target of seizure with an increased size of holding?

[Keyboard-Mash]

What do you mean "garbage-collecting the chain"? I've never heard anything referred to as that. Does it just mean: Define a minimum balance, and let miners reap dust? Can your garbage-collection proposal where most of the block chain is eliminated be compatible with side chains?

I have nothing useful on side-chains yet.  It is in my todo queue.

By garbage collecting the chain I mean eliminating all of the historical transaction data, and distilling the information content down to the minimum that is required to operate the coin:  The association between controllers and the summed outputs which they control.  Currently, almost no one is mixing, and the chain is growing about 2.3 gb/year.  If it were transacting actively and mixing was in heavy use,  I can see Moore's law running out of runway long before Monero ceased to be important.  Definitely in my lifetime.

Got it, thanks. I think I mentioned in my above post that perhaps much of this historical transaction data could be kept off chain .. in something similar to a trusted banking system that issues certificates based on its own Monero holdings. How this protocol could scale with microtransactions/high trading volume is something that is yet to become fully apparent to me .. as we don't currently have need for them. I would suppose those with far more time evaluating cryptocurrencies than me would have useful insight here. Perhaps it could be done on chain though, to remove bloat and still keep on-chain transactions?

[Keyboard-Mash]

Botnets.

In order to mine coins you need connectivity to peers.  If we whitelist peers, then botnets will be excluded.  I suggest this as a temporary measure.  It is good for miners because they don't have to compete with botnets.  It is good for monero because it does not suffer reputation damage as a botnet coin.  It is good for botnet victims because it is one less criminal purpose for their systems. 

I think this works well if it is incorporated into the daemon as an optional feature.  That way it is easy to use.  Any comments?

Large-scale botnets that are on the orders of magnitude higher than a few amazon EC2 instances are what I'd be worried about. I have seen them come up numerous times as being a limited resource, so my fresh opinion is mixed on the issue.

If something massively scaled were to pop up, I would think it would be interesting to see exactly what extent would be necessary to prevent them through whitelisting. Though there are currently far more dangerous aspects of the protocol that would cripple botnets.

[Keyboard-Mash]

I should clarify... what I meant to say is:

High volume trade is certainly possible with a long-term value storage vehicle, but very unlikely because the properties of such an entity actively discourage it. This is why bitcoin has such a small circulating supply relative to the total available coins... nobody wants to spend their bitcoins when they can just accumulate them and watch the price go up. This is why I don't think bitcoin will ever be a "spending currency" so to speak.

A great currency for trade is one that is both easy to get and easy to spend, and this quality is acheived by deteriorating its long-term value integrity. Bitcoins are neither easy to get nor easy to spend, as the PoW increasingly favors the privileged, and the coin's deflationary qualities force you to fight logic to spend it.

I think we all agree the tendency to accumulate could be offset with a form of inflation (static or dynamic), but I'm coming to see that the tendency to accumulate may still be there despite that (I'll have to do quite a bit more reading on this, and know right where to look). A perfect inflation would manifest as a constant balance to keep the marketcap approaching infinity at an uncontrolled rate. Presently I know that a certificate issuing agency, based off of Monero holdings would be highly critical of an inflation ... but at the same time I can see that same accumulation impeding the ability to keep it a "spending currency".

Regarding anonymous value storage, I'm saying it's useless because all you really need is anonymous currency. You can use that currency to purchase bitcoins or anything you want with anonymity. "Unnecessary" is probably a much better choice of word.

I hold the opinion that both a store of value and the need for it to be currency will come to be a central point in this currency. I could see many troubles with a $77 million business trying to operate within the confines of what Monero, being only a currency, and not a valid store of value. Imagine trying to use purchase orders, only to have your currency be worth 2% less than it was when you sent it out last year. I see that some form of debasement is necessary, but for it to do both value would have to trickle out very slowly. Maybe this is a malformed opinion, but perhaps you could share insight?

[Keyboard-Mash]

I agree with all of your points, for the most part -- with two exceptions:  

Firstly, it is, for the present, more challenging to buy bitcoin anonymously than your text suggests.  Even an easy, effective anonymous currency does not suffice to make it easy to buy bitcoin with reliable and effective anonymity.

This is a good point. If your initial trade into the currency isn't anonymous, per bitcoin's publicly available blockchain .. then your pursuit of anonymity is potentially (most likely) lost. You may still have private transactions that can't be traced if you were to trade into Monero, but the fact that you traded first into Bitcoin and then to Monero would be a weak link in the anonymity chain. I guess the question that would come up is exactly how one would obtain Monero (other than mining) in the first place without compromising identity? I've been told avenues using coinjoin over tor/i2p are only partially anonymous at best .. so that puts us back to buying into it face to face for now. Unless you have other ideas?

Secondly, I think that for quite some time the valid theoretical point of Gresham's Law is largely irrelevant, in practical terms, because the overwhelming barrier to use of crypto as currency is lack of infrastructure and vendor support, next to which all other considerations are secondary. (And which renders crypto useful only for a very special class of typically very high value or else crucially private transaction, where Gresham's Law doesn't really apply.)

"When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."[1] It is commonly stated as: "Bad money drives out good".

I'm trying to take understanding from your correlation. Are you saying there is largely no "good money" to drive out, in the cryptocurrency markets currently? If that's true, then I'm starting to see where you're coming from in your desire to pursue a store of value first rather than a currency for everyday use. I think I understand your stance now. The question that I'd ask here is : If we were to build a currency from the ground up .. would you start with having a store of value on which you may trade something representative of that value for value (notes for market goods), or would you start with a bartering system where the store of value is what is traded (rather than the value) for value? Let me know if I'm way off here.

Hoarding is part of the PR, as is price appreciation. If you are debasing early, you tend to lose value early, which turns people away from the coin.  BTC is much more usable than DOGE, presently, for example, which is in serious decline and unlikely to recover a growth trajectory, whereas BTC has never lost its exponential growth momentum despite a price collapse, in part because it is deflationary.  I.e. the empirical evidence at present is contradictory to Gresham's Law, and I claim this is because of the immaturity of infrastructure, but will change eventually, to bear out Gresham.

With the massive amount already being produced daily, i agree that we have enough debasement for now. I think the main focus I see come up is how to handle it when the large block rewards are close to zero (quite a number of years)

For these reasons, I would suggest that any persistent debasement be tied to the number of active transactors in the ecosystem, e.g. a 7-day moving average.  If the number is stable or declines over time, debasement should be nil.  If the number is increasing, debasement should kick in.  If the number is accelerating, debasement should accelerate.  But even that is premature until infrastructure exists to support an economy, so I would suggest another factor, to threshold at some level of activity indicative of a working bootstrap.  

Have you considered this in respect to the adaptive block sizes and rewards? Factoring in another scaling variable may prove problematic to tune correctly .. when the block size itself is still a factor in the equation. Would you support a move to this at the end of the high block rewards above 0.xxxx MRO (almost dust sized rewards), or would you see it as something that can be included and tuned well before that time. Where would transaction fees come into play here? Could they overcome the sliding inflation?

[Keyboard-Mash]

In another thread,  the plausible argument was made that MRO is presently overvalued at 1/342 BTC.  This is a reasonable position, if one takes the historic price series of bitcoin to imply a discounting curve, and apply that to MRO.

I had considered this previously, but rapidly rejected the argument, on two principal grounds:

1) The adversities which BTC overcame during that time constituted existential threats.  No successor crypto faces those adversities.  Much has been learned.  The probability of a flaw or event fatal to the project is vastly -- and I do mean vastly -- lower.  However it is challenging to accurately quantify how much lower.  I would dearly love some input on this point.

Toward this I would only expect claims of people "getting something for nothing" from the Bitcoin (or any alt) community in respect to the amount of hurdles that had to be overcame in Bitcoin. I do; however, think you're correct in your rejection of this. The claim is founded on those that present their opinion that they were overcoming these adversities for their own currency, when in fact they were overcoming them for any future implementation of any cryptocurrency by the simple grace of the open source mindset that's prevalent here. Anyone saying differently is just worried about their market cap. Maybe I should spend some time understanding what these licenses are though before I say more about that.

To say that you appreciate, fundamentally, someone else's work and then continue it in your own way is by no means wrong or worthless. What makes value, here, is the ability to withstand whatever comes in future that you have created for yourself (and make sure that it will indeed be different than the one you've branched from), not only what those have done in the past. The key here is to never forget that you once or still stand on the shoulders of giants -- even in your own pursuit of becoming one. I say this under the presumption that if put into the same scenario, I would have made an attempt to overcome it in a similar fashion.

As far as being able to quantify a lower risk of failure, well that's an incredible concept. It's as if you're asking : What, of value, have we created here? Amongst a sea of questions, that is one of the biggest. To me, value is one of the major factors of calculating the "probability of a flaw or event fatal to the project". While what defines value, to me, is what Monero is quantified by.

In that mindset, Monero has a constantly growing team of developers, community members and speculators. It is based on CryptoNote technology. It has begin to provide the tools of mass adoption for the CryptoNote technology, rather rapidly in my opinion. Those three things I know for sure.

Other variables I'd like to see are a specific outline (in list form) of CryptoNote technology as it is now and what we can add to it (I know Taco already did something with MIP's on github - awesome way to start), and improve on it. I'd like to see a standard usage protocol for the tx_extra field, for at least until a time in which that responsibility can be dictated to other groups. It's data recorded on our blockchain and we should have a say of what it is, in my opinion. I'd like to see large sized businesses become a welcomed addition to the variables, as well as one man shops. I'm sure there's a lot of other things that can be added here, so I'd like to hear some ideas other ideas as well (I'll try to think of some more as well).

This is actually a solvable problem, if only by degree, with error bars.  And the value of solving it can be quite large.  It will require some creative and some rigorous thought, as well as factual data.

Talking about this problem, as constructively as possible (and learning how to tune out the noise when it comes -- it has and will always continue), will be one of the major innovations of this currency. A currency/store of value that knows what it wants and where its going will grow up quick.

[smooth]

I'd like to see a standard usage protocol for the tx_extra field, for at least until a time in which that responsibility can be dictated to other groups. It's data recorded on our blockchain and we should have a say of what it is, in my opinion.

I'd like to see it just go away. There is not really any good reason to store blobs of data in the blockchain and there are good reasons not to. However, before that can happen the tools need to improve, especially APIs for wallet access. The tx_extra field is a workaround right now because exchanges can't feasibly create a separate deposit address for each user the way they do for every other coin. I don't have any inside knowledge but I would guess they rather hate it anyway, since it must cause no end of support problems when users mess it up.

[Keyboard-Mash]

I'd like to see a standard usage protocol for the tx_extra field, for at least until a time in which that responsibility can be dictated to other groups. It's data recorded on our blockchain and we should have a say of what it is, in my opinion.

I'd like to see it just go away. There is not really any good reason to store blobs of data in the blockchain and there are good reasons not to. However, before that can happen the tools need to improve, especially APIs for wallet access. The tx_extra field is a workaround right now because exchanges can't feasibly create a separate deposit address for each user the way they do for every other coin. I don't have any inside knowledge but I would guess they rather hate it anyway, since it must cause no end of support problems when users mess it up.

Ah, so it's more of a crutch that doesn't need to be necessarily part of the blockchain. I hadn't considered it like that at all.

How would you see payments from pool wallets direct to exchanges? That was a major part, along with the API, that I saw busoni in IRC talking about. Granted when one usually sends money this way -- it's for dumping onto the market .. but people are losing money either way and telling them to send to their personal wallets first is just an extra nuisance that can be figured out with code.

A correlation I might see here is how would one setup automatic monthly payments without the usage of something like the tx_id field? I would hope this could be totally outside of the blockchain for numerous reasons, but by what route would it manifest? Moreover, with previous posts in this thread regarding this as a store of value or a currency .. do we even view a scenario where automated payments happening as possible?

Either way, from what I'm gathering this would be best solved by a capable API?

[Johnny Mnemonic]

This is a good point. If your initial trade into the currency isn't anonymous, per bitcoin's publicly available blockchain .. then your pursuit of anonymity is potentially (most likely) lost. You may still have private transactions that can't be traced if you were to trade into Monero, but the fact that you traded first into Bitcoin and then to Monero would be a weak link in the anonymity chain. I guess the question that would come up is exactly how one would obtain Monero (other than mining) in the first place without compromising identity? I've been told avenues using coinjoin over tor/i2p are only partially anonymous at best .. so that puts us back to buying into it face to face for now. Unless you have other ideas?

I don't see your point. Governments can still force exchanges to collect your ID whether you're buying Monero or Bitcoin. What's the difference? How will an anonymous crypto solve that?

I hold the opinion that both a store of value and the need for it to be currency will come to be a central point in this currency.

You cannot have it both ways. Long-term value storage is slow money. Fast money is easy to get, easy to spend. It's a hot potato. Fast money burns a hole in your pocket. There is urgency by design. Economies of scale depend on fast money. High volume trade requires stimulation. People don't just pull out their wallets en masse for no reason.

Liquidity always has a cost. Wealthy folks don't store their money in savings accounts. They own appreciable assets that are liquidated on an as-needed basis.

I could see many troubles with a $77 million business trying to operate within the confines of what Monero, being only a currency, and not a valid store of value. Imagine trying to use purchase orders, only to have your currency be worth 2% less than it was when you sent it out last year. I see that some form of debasement is necessary, but for it to do both value would have to trickle out very slowly. Maybe this is a malformed opinion, but perhaps you could share insight?

The U.S. Dollar inflates much quicker than 2% a year, has no intrinsic value whatsoever, and billion dollar businesses handle it just fine. In fact, they need it, because such businesses depend on fast money.

Also, just because the money supply increases by 2% does not mean the trade value of your coins decreases by 2%. Crypto is not fiat, and so the same rules do not apply. PoW currencies have real intrinsic value, so increasing the money supply does not affect the buying power in the way you might imagine. As an example, the world's gold supply is debased by around 3% annually.

Even if inflation was that simple, you'd have to significantly inflate the circulating money supply in order to see a decrease in trade value. An increase in total supply does not automatically mean more money exchanges hands.