Monero Economy

[drawingthesun]

I think that something like 0.5% to 1% would be better as it really doesn't eat into our wealth that much and it offers an incentive to miners in 50-100 years.

It would be nice for Monero to be amoung the first coins designed for very long term use. I know I was one of the original supporters of the fixed block reward but after thinking about it more it I am not sure. I feel it has the effect of pushing Monero prices into the infinite territory over 100 years or causes a weaker network where we're not attracting enough hashpower.

Would something like 0.8% inflation for all time be better?

[drawingthesun]

Any people good with economics here? I think the decision between fixed percent or fixed amount should be well reasoned.

If we are releasing 0.8% per year. And Monero is worth $50,000,000,000 in 100 years. That's about $400 million a year for the reward. Or less than Bitcoins reward now.

That means to me, that Monero will still be very secure on 100 years time.

I'm on my phone so I can't work out the same figure for a fixed reward. Anyone care to try?

[tupelo]

If that's your concern than continuous adjustments correlating to market cap could be realised. Although that would of course give rise to unhealthy issues.
Planning 100 years ahead is likely overkill, I'd say. But the more traditional suggestion of continuous inflation or limited inflation coupling miner's reward with difficulty are probably the only feasible.


My vote goes to: continuous inflation of a healthy 1%

[Keyboard-Mash]

If that's your concern than continuous adjustments correlating to market cap could be realised. Although that would of course give rise to unhealthy issues.
Planning 100 years ahead is likely overkill, I'd say. But the more traditional suggestion of continuous inflation or limited inflation coupling miner's reward with difficulty are probably the only feasible.

I think that only giving a miner the incentive to continue mining is part of the issue I see come up (can be solved with either a constant reward or constant inflation). Recently, there's been discussion on how to keep wealth from accumulating and cause heavy centralization and hoarding of funds rather than spending them (which won't ultimately be solved with a constant reward but might be solved with a constant inflation).

I currently agree that network stability can be bought with a constant block reward, but am still trying to comprehend the second half of the picture (where I'm still at a loss because the 'tendency' to centralize does not immediately correlate to 'absolute' centralization for me yet .. and many other things).

[canonsburg]

It depends on what people think should be the ideal inflation. Central banks like to keep inflation between 2-3%. That's too much in the crypto world.

We should work backwards to figure out the "ideal" rate of growth. What do people think is acceptable? Should the supply double in 30 years? 50 years? How about 100 years?

A doubling of the total supply every 100 years works out to be about 0.69% interest per year.

Is that acceptable? Well, not many will see their 100th birthday so I doubt you should care about your wealth since you'd be dead by then.

[surfer43]

I support an annual inflation of 1% as well.

[smooth]

I actually think there needs to be some dynamic market mechanism for pricing the service provided by miners (processing transactions and securing the block chain). I haven't seen a convincing model for how do this though.

Part of Satoshi's insight is to just fix the supply and let the market adjust around it, which if correct (and many doubt this), means that it doesn't really matter what inflation rate is chosen (including 0%)

[tacotime]

I support an annual inflation of 1% as well.

The reason I chose such a small percent as 0.3% is that it's impossible to know how many coins have been destroyed over time. For instance, it may be that case that 50% of the coins end up missing/destroyed 10 years down the line. This would make effective inflation 0.6%, which we did not intend. If we made inflation 1%, the effect is more dramatic, with us all ending up with 2% inflation instead. If even more coins are destroyed somehow, the rate of inflation could end up being catastrophic. So, we must be careful and choose a conservative number.

[tacotime]

I actually think there needs to be some dynamic market mechanism for pricing the service provided by miners (processing transactions and securing the block chain). I haven't seen a convincing model for how do this though.

Part of Satoshi's insight is to just fix the supply and let the market adjust around it, which if correct (and many doubt this), means that it doesn't really matter what inflation rate is chosen (including 0%)

There was tons of stuff on the FreiCoin forums about this sort of thing, and maaku etc spent months on the problem to eventually abandon it for demurrage. If there is an answer, it's not an obvious one.

[smooth]

I actually think there needs to be some dynamic market mechanism for pricing the service provided by miners (processing transactions and securing the block chain). I haven't seen a convincing model for how do this though.

Part of Satoshi's insight is to just fix the supply and let the market adjust around it, which if correct (and many doubt this), means that it doesn't really matter what inflation rate is chosen (including 0%)

There was tons of stuff on the FreiCoin forums about this sort of thing, and maaku etc spent months on the problem to eventually abandon it for demurrage. If there is an answer, it's not an obvious one.

The lack of a clear answer likely includes it not being clear that any of these approaches are necessarily better than satoshi's (though also not clear they are not). Therefore I largely abstain from these debates.

[digitalindustry]

I support an annual inflation of 1% as well.

The reason I chose such a small percent as 0.3% is that it's impossible to know how many coins have been destroyed over time. For instance, it may be that case that 50% of the coins end up missing/destroyed 10 years down the line. This would make effective inflation 0.6%, which we did not intend. If we made inflation 1%, the effect is more dramatic, with us all ending up with 2% inflation instead. If even more coins are destroyed somehow, the rate of inflation could end up being catastrophic. So, we must be careful and choose a conservative number.

just some feedback - that is incorrect -

the number will be 2% in effect but you have to take into account velocity, the simplest way to explain this is to say how can the Fed balance sheet be over 4 Trillion dollar right now ?

the answer is because the Velocity of currency is not being felt to have an inflationary effect on prices (because that 4 Trillion is just being effectively buried, exported even)

so a 2% "inflation rate" at the effect of a bunch of lost units is not the catastrophe that it would seem.

The net likely effect on velocity of that many lost units would possibly find equilibrium because it could drive valuation higher thus encouraging spending as your "2%" replenishes the equilibrium in velocity is found.

the EQ reward is very flexible -  simply because humans are flexible

[digitalindustry]

I think that something like 0.5% to 1% would be better as it really doesn't eat into our wealth that much and it offers an incentive to miners in 50-100 years.

It would be nice for Monero to be amoung the first coins designed for very long term use. I know I was one of the original supporters of the fixed block reward but after thinking about it more it I am not sure. I feel it has the effect of pushing Monero prices into the infinite territory over 100 years or causes a weaker network where we're not attracting enough hashpower.

Would something like 0.8% inflation for all time be better?

; )

nice choice of wording.

[Johnny Mnemonic]

Central banks like to keep inflation between 2-3%. That's too much in the crypto world.

No it is not. In fact crypto currencies can inflate much, much more than fiat without losing significant value.
Please take the time to read upthread, because I've already explained the differences between fiat money and crypto in detail.

Fiat economics and cryptoeconomics do not play by the same rules. Before bitcoin it was impossible to manipulate the work/reward relationships of money. We cryptocurrency folk are the first people to ever experiment in this arena.

Quantitative easing is a mechanism of fractional reserve banking where the central controllers give banks more lending leverage by purchasing their financial assets. The money used to purchase these assets is generated ex nihilo, as is the resulting money that is created from this leverage.

That should not in any way be compared to an increase of a proof-of-work based money supply. If the "proof" and "work" scale proportionately, there will be minimal effect on value.

......

Whether the rate of increase of the world's gold supply was historically lower or higher doesn't change the fact that the buying power of gold is (roughly) the same today as it was a thousand years ago, despite centuries of exponential inflation. Why? Because the "work" and the "proof" scaled proportionately.

[tacotime]

Central banks like to keep inflation between 2-3%. That's too much in the crypto world.

No it is not. In fact crypto currencies can inflate much, much more than fiat without losing significant value.
Please take the time to read upthread, because I've already explained the differences between fiat money and crypto in detail.

Fiat economics and cryptoeconomics do not play by the same rules. Before bitcoin it was impossible to manipulate the work/reward relationships of money. We cryptocurrency folk are the first people to ever experiment in this arena.

Quantitative easing is a mechanism of fractional reserve banking where the central controllers give banks more lending leverage by purchasing their financial assets. The money used to purchase these assets is generated ex nihilo, as is the resulting money that is created from this leverage.

That should not in any way be compared to an increase of a proof-of-work based money supply. If the "proof" and "work" scale proportionately, there will be minimal effect on value.

......

Whether the rate of increase of the world's gold supply was historically lower or higher doesn't change the fact that the buying power of gold is (roughly) the same today as it was a thousand years ago, despite centuries of exponential inflation. Why? Because the "work" and the "proof" scaled proportionately.

I think the ideal case for exponential inflation is with a merged mining chain.

Maybe I will implement this in the future, when the Monero codebase matures a bit.

[dnaleor]

I support an annual inflation of 1% as well.

The reason I chose such a small percent as 0.3% is that it's impossible to know how many coins have been destroyed over time. For instance, it may be that case that 50% of the coins end up missing/destroyed 10 years down the line. This would make effective inflation 0.6%, which we did not intend. If we made inflation 1%, the effect is more dramatic, with us all ending up with 2% inflation instead. If even more coins are destroyed somehow, the rate of inflation could end up being catastrophic. So, we must be careful and choose a conservative number.

I forgot the "lost coins issue"
In that case, I would suggest a fixed block reward at a certain point and NOT a fixed inflation rate.

Reason: when we fix the block reward, the inflation nrate will go down, but if the number of coins goes up, this overall would cancel out (less or more)
Fixed inflation will always end badly, because coins get lost. That's how it works. You can't avoid it.

[tacotime]

Right, my proposal fixes block reward at 0.117061151915 once the chain reaches that.

[dnaleor]

Right, my proposal fixes block reward at 0.117061151915 once the chain reaches that.

ah, ok, so NO adjusting block reward based on the number of coins. That sounds good.

0.117061151915 is an odd number. Why not just use 0.1 XMR?

[tacotime]

Right, my proposal fixes block reward at 0.117061151915 once the chain reaches that.

ah, ok, so NO adjusting block reward based on the number of coins. That sounds good.

0.117061151915 is an odd number. Why not just use 0.1 XMR?

It's the reward at block 5,781,600 (at the last block of year 10 of the chain). Perhaps I can simply lock it then at 0.12 then, and prevent coinbase dust.

[dnaleor]

Right, my proposal fixes block reward at 0.117061151915 once the chain reaches that.

ah, ok, so NO adjusting block reward based on the number of coins. That sounds good.

0.117061151915 is an odd number. Why not just use 0.1 XMR?

It's the reward at block 5,781,600 (at the last block of year 10 of the chain). Perhaps I can simply lock it then at 0.12 then, and prevent coinbase dust.

or just wait a little longer until the reward is just above  0.1 XMR. But it doens't really matter

[digitalindustry]

I support an annual inflation of 1% as well.

The reason I chose such a small percent as 0.3% is that it's impossible to know how many coins have been destroyed over time. For instance, it may be that case that 50% of the coins end up missing/destroyed 10 years down the line. This would make effective inflation 0.6%, which we did not intend. If we made inflation 1%, the effect is more dramatic, with us all ending up with 2% inflation instead. If even more coins are destroyed somehow, the rate of inflation could end up being catastrophic. So, we must be careful and choose a conservative number.

I forgot the "lost coins issue"
In that case, I would suggest a fixed block reward at a certain point and NOT a fixed inflation rate.

Reason: when we fix the block reward, the inflation nrate will go down, but if the number of coins goes up, this overall would cancel out (less or more)
Fixed inflation will always end badly, because coins get lost. That's how it works. You can't avoid it.

+1

both the divisible nature of crypto and the flexibility of velocity mean this is most likely the more viable option - its simple and elegant.

the numbers will just change on your cap etc.