Monero Economy

[Johnny Mnemonic]

I don't actually see anything wrong with off-blockchain, as long as you end up holding the actual coin at the end of the day.

Again, this is another technical consideration that grandma is not likely to understand. Who's the authority? Blockchain.info? or JP Morgan Chase? There is always the possibility that the masses will embrace the wrong authority and the blockchain becomes irrelevant (back to fiat we go).

[smooth]

I feel we would still need new coins being minted to keep the economy from going stale.

There are lost coins at least. Without new coins the money supply will definitely shrink forever.

[smooth]

I don't actually see anything wrong with off-blockchain, as long as you end up holding the actual coin at the end of the day.

Again, this is another technical consideration that grandma is not likely to understand. Who's the authority? Blockchain.info? or JP Morgan Chase? There is always the possibility that the masses will embrace the wrong authority and the blockchain becomes irrelevant (back to fiat we go).

You are assuming the masses hold most of the wealth, that is likely false. Yeah grandma may do the wrong thing. George Soros probably won't. For that matter, her grandkids (or theirs) probably won't either. It's a bit like getting scammed on the internet today. Grandma is a far higher risk than the grandkid.

[AnonyMint]

Currency cannot behave like currency if the value constantly trends upward. An asset's value appreciation tends to be the inverse of its liquidity.

Infinite divisibility means that the floating portion is always capable of providing a transmission mechanism.  Increasing value means less of the float is required to perform the transmission function.  It is a self-adjusting mechanism.

The demand for liquidity has presumably also increased proportionally, so I don't think your postulate is correct?

How much are you willing to pay to keep the greedy fatcats out of the cookie jar?

In the long run, demurrage games have vanishingly small impact compared to the forces they would mitigate.  Any distribution improvements would be a tiny marginal one.

That may not be the case if the masses are mining with electricity costs that are a multiple of the income from mining. The fat cats would then have to mine at-scale at huge losses. So instead they must buy at market prices which drives the prices higher thus supporting my claim that price scales to mining demand.

OTOH, even if I am correct that price will scale to mining demand and if this caused mining to always be profitable for masses (which I don't think follows, because in economics we have the very important concept of marginal vs. average price), the balance of distribution shifts towards masses due to second order effects (velocity not just position).

The cost of those improvements would be destabilization and shrinkage of the in-currency economy, as capital fled to other media.

Capital will chase adoption because price yield scales to demand.

Separating transmission and storage creates a friction, an inefficiency and ill-liquidity in conversion, which I expect does more damage in aggregate than any improvements in distribution would be able to offset.

All monetary history disagrees with you.

Most of the social value created by a currency is created by liquidity.  Any impairment of liquidity is catastrophic, if only because competing media will not suffer the same impairments, and hence will dominate.

Debunked above?

[r0ach]

I actually think that transaction fees will be enough to support the miners without subsidy, because the miners will only process transactions with the highest fees. This will turn transactions into bidding wars, and it will become extremely expensive to get a transaction included in a block.

No, what it means is, people abandon the coin, stop using it, and move to a coin that has a fixed, non-zero subsidy of most likely 1-2%.  In other words, Bitcoin itself will either have to dwarf every other coin in market cap and liquidity, by exponential magnitude forever to avoid this, or even BTC itself will die if they refuse to fork to non-zero block reward.

[AnonyMint]

I actually think that transaction fees will be enough to support the miners without subsidy, because the miners will only process transactions with the highest fees. This will turn transactions into bidding wars, and it will become extremely expensive to get a transaction included in a block.

No, what it means is, people abandon the coin, stop using it, and move to a coin that has a fixed, non-zero subsidy of most likely 1-2%.  In other words, Bitcoin itself will either have to dwarf every other coin in market cap and liquidity, by exponential magnitude forever to avoid this, or even BTC itself will die if they refuse to fork to non-zero block reward.

Finally someone gets it.  

I figured that out a year ago but most everyone was looking at me cross-eyed.

I am still having difficulty agreeing that human population growth + productivity has only averaged 2%.

The currently low birth rates in the west are an artifact of the massive bankrupt socialism, so this will end.

[AnonyMint]

I hate to bring fiat into the argument, but despite all it's problems the U.S. dollar does a great job at supporting large-scale economies. Even with a 2.5% - 4% annual inflation (definitely not "saver friendly"), capital formation does not seem to be a problem. Go figure.

You could not be more wrong. During the unfettered fiat standard (1971-), the by-far-the-most-glorious-and-economically-strong-empire-the-world-has-ever-seen has reduced itself to a miserable leech, a cancer to the world's economy, destroyed its productive capacity, essentially producing almost nothing that the rest of the world wants, utterly dependent on extorted energy and finished goods from the rest of the world, with half of the middle class already destroyed, youth unemployment soaring etc.

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.

You are conflating the debasement of the dollar with the artifacts of the power vacuum of democracy.

The repeating cycles of failure of the collective is not due to debasement. Debasement is absolutely required because growth of the population and productivity is exponential (percentage, not fixed nominal amount)-- hard money tards would rather savings eat productivity because it means capital can grow in purchasing power merely by sitting in hole and not being productive. Even the Bible admits this when it says in numerous versus about money "it will grow wings and fly away" and the punishment given to the tard who buried his hoard in a hole (to "keep it safe") in the Parable of the Talents was all his hoard was taken from him and given to the one who put it to productive use earning a compounded interest.

The centralized control over debasement is one of the levers afforded to the power vacuum, but it does not logically follow that decentralized debasement is.

[AnonyMint]

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.

Hyperinflation never happens to the reserve or empire currency. It only happens to fringe and revolutionary governments. Martin Armstrong explains this in great detail on his blog.

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.

You can join Kurzweil in his vacuous nonsense.

The human economy has always been and always will be using inflationary currencies, your selfish hardtardmoney delusion aside.

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.

You think the target market of crypto-currency are investors. No that wouldn't be a currency. The target market are spenders and users of the facilities (network effects) it brings.

The key to beating Bitcoin is making a currency that is more popular TO USE, not just to invest in.

Think for example social media.

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.

I couldn't disagree more.

You've got to create uses for the coin. And the best way to do that is put the coin in the hands of as many spenders as possible so as to stimulate the demand for such facilities and network effects. The whales will be buying the spent coin and the virtuous spiral (spenders mine -> spend -> investors accumulate) spirals upward.

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.

Please do fixed nominal debasement or some tiny % such as 1%.

That will leave the door open for a coin to do it correctly. Thank you very much.

[canonsburg]

The breakthrough of Bitcoin was the creation of a protocol for the network to reach consensus on how the next block was created. But this is for deciding transactions (and yes it just so happens that block rewards are also given at that time too) but what if there was another protocol created so the network can reach consensus on how much reward is created?

So there are camps of people that like the current setup with Bitcoin having a hard cap, and then there are proposals for a fixed constant block reward (e.g. 1 coin per block) or even block rewards based on a fixed exponential growth (e.g.. 0.5%-1% per year), but what if the block reward is instead reached by network consensus?

So in that case, it may be possible that the network can go 100 year without ever raising ANY reward, so you get absolute hard cap on supply. But if the network decides that there needs to be some new coins released, it does that and the effect may be tiny growth, maybe even on the order of 0.0001% or even as large as 2% depending on how much coins have been lost, or how expensive it is to process transactions. In this case, no hard limit is set on the amount of new coins created, (i.e. some people are very against say 2% growth), the amount is flexible (may even be 0%), and entirely decided by the network (i.e. it is "fair").

Do you think such mechanism is possible?

[AnonyMint]

...protocol created so the network can reach consensus on how much reward is created?

I hope you understand that all voting (consensus by stake) mechanisms are centralizing.   (don't tell me you are surprised that for example the Bitcoin Foundation ended up as centralized and corrupt)

And so now you have my answer why I don't contribute to the development of Monero. Because design-by-commitee (or worse, design-by-the-mob consensus) is proven to be an abject failure. All great open source projects have a Benevolent Dictator (For Life), who makes these key decisions correctly after fielding all input from the community. I don't see strong enough leadership (I believe there isn't even one leader, i.e. it appears to be leaderless organization) nor do I see agreement with the concepts I want implemented in an altcoin.

If you look at what works (and what the Apaches actually did) is many leaders each leading their own competing projects (families or clan). The competition is what ends up forming the overall outcome of leaderless (resilient) organization but optimally because each competing entity is not leaderless.

[onemorebtc]

The breakthrough of Bitcoin was the creation of a protocol for the network to reach consensus on how the next block was created. But this is for deciding transactions (and yes it just so happens that block rewards are also given at that time too) but what if there was another protocol created so the network can reach consensus on how much reward is created?

So there are camps of people that like the current setup with Bitcoin having a hard cap, and then there are proposals for a fixed constant block reward (e.g. 1 coin per block) or even block rewards based on a fixed exponential growth (e.g.. 0.5%-1% per year), but what if the block reward is instead reached by network consensus?

So in that case, it may be possible that the network can go 100 year without ever raising ANY reward, so you get absolute hard cap on supply. But if the network decides that there needs to be some new coins released, it does that and the effect may be tiny growth, maybe even on the order of 0.0001% or even as large as 2% depending on how much coins have been lost, or how expensive it is to process transactions. In this case, no hard limit is set on the amount of new coins created, (i.e. some people are very against say 2% growth), the amount is flexible (may even be 0%), and entirely decided by the network (i.e. it is "fair").

Do you think such mechanism is possible?

in general i like the idea.

BUT: i think a possible unlimited inflationary money supply would fear many investors away

does your idea mean that miners only get rewarded by transaction fees or do they get nothing?

i'd like to see an working example with miners working only on fees! that sounds intersting...but more as an experiment.

the next problem is how to reach consensus in the second chain. in btc side-chains or merged mine chains are possible so i'd say it could be implemented...) the tough questions are: how to vote: pos like with your current stake (by submitting it to a pow proofed sidechain) or by burning some of your coins?

edit: imagine a very big exchange gets robbed. it could bribe holders with fiat to vote for a bigger supply to make it possible to recover that loss. i am unsure if i like that. need to think more about it

[smooth]

And so now you have my answer why I don't contribute to the development of Monero.

Ah, but you are contributing, by posting on these threads. If you feel that is not a good use of your time, you know what to do.

Even just bumping the threads is contributing in a useful way, and we thank you for that. Relevant on-topic content that provides insightful input to the development process is a bonus.

[AnonyMint]

I have an incentive to contribute in that way, because we all benefit from hashing out the ideas.

I meant those who have implored me publicly and privately to contribute actual programming effort. So now they have my answer.

[canonsburg]

...protocol created so the network can reach consensus on how much reward is created?

I hope you understand that all voting (consensus by stake) mechanisms are centralizing.   (don't tell me you are surprised that for example the Bitcoin Foundation ended up as centralized and corrupt)

And so now you have my answer why I don't contribute to the development of Monero. Because design-by-commitee (or worse, design-by-the-mob consensus) is proven to be an abject failure. All great open source projects have a Benevolent Dictator (For Life), who makes these key decisions correctly after fielding all input from the community. I don't see strong enough leadership (I believe there isn't even one leader, i.e. it appears to be leaderless organization) nor do I see agreement with the concepts I want implemented in an altcoin.

If you look at what works (and what the Apaches actually did) is many leaders each leading their own competing projects (families or clan). The competition is what ends up forming the overall outcome of leaderless (resilient) organization but optimally because each competing entity is not leaderless.

Is it possible for consensus to be between miners and stakeholder, so it's not just stakeholders that get a vote? I mean after all it's the miners doing the work.

Also, is it possible for any other mechanism other than stake to reach consensus?

Again, I'm no expert so I have no idea what I'm talking about but just an idea.

P.S. on the subject of how to best run a cryptocurrency, if given the power, how exactly would you dictate your perfect cryptocurrency? What decisions are best left outside the control of the masses?

does your idea mean that miners only get rewarded by transaction fees or do they get nothing?

It actually refers to after all the coins have been emitted and the question of if transaction fees are enough to sustain mining. If tx fees are, then there is no block reward, but if it isn't then some new coins are created, but how many coins is to be decided by the network.

[AnonyMint]

...protocol created so the network can reach consensus on how much reward is created?

I hope you understand that all voting (consensus by stake) mechanisms are centralizing.   (don't tell me you are surprised that for example the Bitcoin Foundation ended up as centralized and corrupt)

And so now you have my answer why I don't contribute to the development of Monero. Because design-by-commitee (or worse, design-by-the-mob consensus) is proven to be an abject failure. All great open source projects have a Benevolent Dictator (For Life), who makes these key decisions correctly after fielding all input from the community. I don't see strong enough leadership (I believe there isn't even one leader, i.e. it appears to be leaderless organization) nor do I see agreement with the concepts I want implemented in an altcoin.

If you look at what works (and what the Apaches actually did) is many leaders each leading their own competing projects (families or clan). The competition is what ends up forming the overall outcome of leaderless (resilient) organization but optimally because each competing entity is not leaderless.

Is it possible for consensus to be between miners and stakeholder, so it's not just stakeholders that get a vote? I mean after all it's the miners doing the work.

My hypothesis is that all consensus built via stake (voting) is centralizing.

Also, is it possible for any other mechanism other than stake to reach consensus?

Satoshi's longest chain rule via Proof-of-work. And we are contemplating improvements to it.

P.S. on the subject of how to best run a cryptocurrency, if given the power, how exactly would you dictate your perfect cryptocurrency? What decisions are best left outside the control of the masses?

The way open source appears to work best is all discussion is open, but when it comes right down to it, the leader keeps the direction focused. Watch Linus Torvalds explain it (also explains why people get annoyed with my posts).

After Satoshi left, Bitcoin was leaderless and no significant innovation was achieved after that.

[Johnny Mnemonic]

I actually think that transaction fees will be enough to support the miners without subsidy, because the miners will only process transactions with the highest fees. This will turn transactions into bidding wars, and it will become extremely expensive to get a transaction included in a block.

No, what it means is, people abandon the coin, stop using it, and move to a coin that has a fixed, non-zero subsidy of most likely 1-2%.  In other words, Bitcoin itself will either have to dwarf every other coin in market cap and liquidity, by exponential magnitude forever to avoid this, or even BTC itself will die if they refuse to fork to non-zero block reward.

The conclusion I was leading to is the same as yours. If bitcoin doesn't remedy the issue it will be abandoned long before such a situation manifests.  I was kicking this horse when bitMonero was still just an idea, and the community's anti-inflation paranoia gets in the way of implementing a solution that can really work.

[AnonyMint]

First you must choose the long-term debasement rate category:

a) declining nominal rate of debasement, i.e. asymptotically nominally 0 a la Bitcoin
b) slight demurrage, i.e. shrinking money supply if you send it to the ether (forgot how Freicoin handles demurrage)
c) fixed nominal rate of debasement, i.e. asymptotically 0%
d) fixed % rate of debasement, a la Inflatacoin (which failed? Was it 10%? Did it exist?)


If you choose d (which apparently quite a few of us think is correct, but we may not be the majority?), then you have to decide the %.

So what determines the ideal %?

I suggested the long-term rate of debasement should mirror the population + productivity growth.

http://www.globalchange.umich.edu/globalchange2/current/lectures/human_pop/human_pop.html

The factors affecting global human population are very simple. They are fertility, mortality, initial population, and time. The current growth rate of ~1.3% per year is smaller than the peak which occurred a few decades ago (~2.1% per year in 1965-1970)

http://www.nber.org/papers/w15834

Its conclusion is that over the next 20 years (2007-2027) growth in real potential GDP will be 2.4 percent (the same as in 2000-07), growth in total economy labor productivity will be 1.7 percent, and growth in the more familiar concept of NFPB sector labor productivity will be 2.05 percent.

So that is a range between 1.3 + 1.7 = 3% to 2.1 + 2.05 = 4.2%, i.e. 3 - 4%.

Another way of framing this question is to consider my theory that if the mining is won by the home miner (who doesn't care about the electrical cost thus crowds out the investment miner) this increases the number of spenders, which due to Metcalf's law, increases the network effects (growth in use) by the square of the increase in spenders.


Thus the ratio in network effects growth between a 0.5% and 1% rate of debasement is ≈ 1 x 1 / 0.5 x 0.5 = 400%.

Thus the ratio in network effects growth between a 0.5% and 3% rate of debasement is ≈ 3 x 3 / 0.5 x 0.5 = 2700%.

Thus the ratio in network effects growth between a 1% and 3% rate of debasement is ≈ 3 x 3 / 1 x 1 = 900%.

The ratio in network effects growth between a 3% and 5% rate of debasement is ≈ 5 x 5 / 3 x 3 = 278%.

The ratio in network effects growth between a 3% and 4% rate of debasement is ≈ 4 x 4 / 3 x 3 = 178%.

The math shows that going to higher percentages diminishes the potential gain in network effects growth for the same difference, e.g. 3 - 1 = 2 and 5 - 3 = 2, but the former is 900% and the latter is 278%.

One counter argument to the benefits of getting more coin into spenders hands is they spend putting a downward pressure on the price. But this liquidity means the price seen on the exchanges is more realistically the marginal price you will pay. Whereas I had pointed out that when liquidity is low, the market price is meaningless.

[rpietila]

These numbers have not imploded gold, and there will be far far higher XMR lost per year than gold misplaced or lost per year.

Gold's block reward is adjustable. In times of low population growth and low economic activity, it is very near to zero. It can also reach upwards of 2% per year in boom times. Since antiquity, it has averaged only 0.3%, much less than is probably needed for network security alone.

On the other hand, the fiat regime since 1971 shows the terrible mislocations of capital caused by the "contained" inflation averaging 6% per year.

0.7% per year => monetary base doubles in 100 years, goes up a 1000-fold in 1000 years.
1.4% per year => monetary base quadruples in 100 years, goes up a 1,000,000fold in 1000 years.
2.1% per year => monetary base goes up 700% in 100 years, a billionfold in 1000 years.
2.8% per year => monetary base goes up 16-fold in 100 years, a trillionfold in 1000 years.
3.5% per year => monetary base goes up 32-fold in 100 years, a quadrillionfold in 1000 years.

Anyone who takes the time to read the above list, realizes that no astute whale is going to buy things whose inflation is more than ~1.5% per year unless they are for short term speculation only, or there is another compelling consideration except inflation.

[AnonyMint]

These numbers have not imploded gold, and there will be far far higher XMR lost per year than gold misplaced or lost per year.

Gold's block reward is adjustable. In times of low population growth and low economic activity, it is very near to zero. It can also reach upwards of 2% per year in boom times. Since antiquity, it has averaged only 0.3%, much less than is probably needed for network security alone.

On the other hand, the fiat regime since 1971 shows the terrible mislocations of capital caused by the "contained" inflation averaging 6% per year.

0.7% per year => monetary base doubles in 100 years, goes up a 1000-fold in 1000 years.
1.4% per year => monetary base quadruples in 100 years, goes up a 1,000,000fold in 1000 years.
2.1% per year => monetary base goes up 700% in 100 years, a billionfold in 1000 years.
2.8% per year => monetary base goes up 16-fold in 100 years, a trillionfold in 1000 years.
3.5% per year => monetary base goes up 32-fold in 100 years, a quadrillionfold in 1000 years.

Anyone who takes the time to read the above list, realizes that no astute whale is going to buy things whose inflation is more than ~1.5% per year unless they are for short term speculation only, or there is another compelling consideration except inflation.

Nonsense. You are not investing for 100 years. The nominal rise is meaningless. If the population + productivity is growing at the same rate, then there is 0 (ZERO!) relative nominal growth.

You are exaggerating because you don't show the relative figures.

So what determines the ideal %?

I suggested the long-term rate of debasement should mirror the population + productivity growth.

http://www.globalchange.umich.edu/globalchange2/current/lectures/human_pop/human_pop.html

The factors affecting global human population are very simple. They are fertility, mortality, initial population, and time. The current growth rate of ~1.3% per year is smaller than the peak which occurred a few decades ago (~2.1% per year in 1965-1970)

http://www.nber.org/papers/w15834

Its conclusion is that over the next 20 years (2007-2027) growth in real potential GDP will be 2.4 percent (the same as in 2000-07), growth in total economy labor productivity will be 1.7 percent, and growth in the more familiar concept of NFPB sector labor productivity will be 2.05 percent.

So that is a range between 1.3 + 1.7 = 3% to 2.1 + 2.05 = 4.2%, i.e. 3 - 4%.

[AnonyMint]

Q: What is 3% annual debasement to a layman?

A: $25 per month for $10,000 in savings.

Q: What is 1% annual debasement to a layman?

A: $8.33 per month for $10,000 in savings.

But if the demand increases faster than the supply of the coin (i.e. the population rises) and or the production of the economy rises (i.e. productivity rises), it could eliminate those costs above because in the former case the price of the coin rises and in the latter case the purchasing power of each coin rises.