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Author Topic: A modest amount of inflation should be part of bitcoin  (Read 16323 times)
pusle
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April 23, 2011, 04:35:55 PM
 #1


I see no problem with this since those who collect the new blocks/BTC's are distributed at random with probability modulated by computing power.

If somebody skews this probability to their favor at minimum they have created a large computer (cluster), which has value by itself
and gave work/money to lots of people, and at best they have advanced the state of computing in general.

This type of system of money creation is completely different from the way the banks do it today where the created money eventually
ends up in the pockets of a small rich minority at the expense of all the others.

My argument why there should be a small inflation is not so much the deflation spiral, which I don't think would be a problem,
but as more to do with human psychology.

As we progress through life we want to "climb upward". We except reward for our productivity.
We gaining knowledge, skills etc and hence we expect our salaries to rise.

This simple "feedback" makes us happy. Our real purchasing power may have gone down over time even though we got several big fat raises,  but most people
don't see it that way. It's a question of feeling more than intellectual understanding.

As the value of bitcoin rises, you could argue your productivity is helping make everything cheaper. So in fact your salary stays the same, but you reap the reward
when prices go down.  I would say I'm a reasonable smart person, but even I don't get the same emotional satisfaction from seeing prices fall, as I do from my salary rising.

Intellectually I understand that my hard work (or not so hard?..) has contributed to increase productivity and hence purchasing power, but the emotional connection
gets lost on most people. Even worse, I may have to take a pay cut because the value of the currency climbs too fast by productivity in other areas. (or I'm a lazy tard Tongue )
One could say that in deflation, the awards are distributed evenly across the entire population but this is too abstract for the naked ape. ( communism doesn't work in practice )

A modest inflation of say 1% ?  would preserve the award mechanism to promote productivity for individuals/small groups, without "punishing" those who aren't doing so well.
This would also alleviate other issues like lost coins and  "super nodes" would not have to rely on fees alone for their finance in the future.

All this is based on bitcoin becoming an established currency with enough nodes to dwarf any single entity when it comes to computing power.
Right now it's in it's infancy and there will be growing pains. I'm happy to spend some money I might never see again to help it become reality.

What we need now is more businesses/people accepting and using bitcoins on a daily basis. Owning bitcoins doesn't make it a viable currency by itself.

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ThomasV
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April 23, 2011, 05:05:32 PM
 #2

see here my proposal for controlled inflation : https://en.bitcoin.it/wiki/Controlled_inflation


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rezin777
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April 23, 2011, 05:33:37 PM
 #3

I think deflation will promote savings and wise investments. I think inflation will promote the opposite. I think people will adapt.
elggawf
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April 23, 2011, 05:42:28 PM
 #4

I think deflation will promote savings and wise investments. I think inflation will promote the opposite. I think people will adapt.

I think the chief concern is that right now, deflation is promoting everyone hold onto their currency. It's not really an economy if the actual amount being spent is trivial, though I don't know whether it is, it just seems that way to an outside observer. To an outside observer though, it just seems like a bunch of people holding onto BTC because no one wants to have sold off their BTC for $1.40 when it's not entirely inconceivable it could be $200 down the road.

Inflation, while evil at times, promotes spending IMHO - because if the BTC is sitting in your wallet it's depreciating. Downside is too much, and the BTC loses any sense of "worth" and that freezes the economy too.

^_^
em3rgentOrdr
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April 23, 2011, 06:17:54 PM
 #5

if I had a bitcoin for everytime someone proposed to "fix" bitcoin by adding inflation...

They just don't get it.

"We will not find a solution to political problems in cryptography, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks, but pure P2P networks are holding their own."
Ian Maxwell
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April 23, 2011, 07:08:52 PM
 #6

While I'm not interested in changing the contract underlying the existing Bitcoin now that it's out there, I do think a less deflationary currency would have been nicer. If the network were to emit bitcoins at a linear rate, we would experience inflation when economic growth was sub-linear and deflation when it was super-linear; as it is, we'll experience inflation when the economy shrinks, and deflation when it grows. I think the former is more stable in the long run, though still ultimately deflationary unless the future is quite unpleasant indeed.

Some others have suggested that because of physical limits (number of atoms, etc), the overall value of the economy is limited and asymptotically constant, so an asymptotically constant number of bitcoins is only accurate. I respond that I know of no physical limit on the economic value of an atom, and I doubt we're going to run up against one in the lifetime of Bitcoin.

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tomcollins
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April 23, 2011, 07:14:30 PM
 #7

I think deflation will promote savings and wise investments. I think inflation will promote the opposite. I think people will adapt.

I think the chief concern is that right now, deflation is promoting everyone hold onto their currency. It's not really an economy if the actual amount being spent is trivial, though I don't know whether it is, it just seems that way to an outside observer. To an outside observer though, it just seems like a bunch of people holding onto BTC because no one wants to have sold off their BTC for $1.40 when it's not entirely inconceivable it could be $200 down the road.

Inflation, while evil at times, promotes spending IMHO - because if the BTC is sitting in your wallet it's depreciating. Downside is too much, and the BTC loses any sense of "worth" and that freezes the economy too.

What's wrong with everyone holding onto it?
Pieter Wuille
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April 23, 2011, 08:00:59 PM
 #8

If the reason is purely psychological, you could create something like an "indexed bitcoin", where the client simply multiplies all numbers with 1.02^((months_since_jan_2009)/12) or something like that. The underlying properties of the system are not changed, but still things like decreasing wages can be avoided.

aka sipa, core dev team

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pusle
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April 23, 2011, 08:19:29 PM
 #9


I don't regard bitcoin as being broken in any way, in fact in it's current form it's the best currency yet.
However it must be okay to discuss effects and possible improvements.

The inflation in a currency like bitcoin would be a predictable randomized distribution of wealth not controlled by anyone. This is very different from the central/private bank fiat currencies such as USD etc.

I ask you all to think about how it feels making less and less each year? ok, so maybe you would still be as productive but do you think "Joe Sixpack" would be?

A modest inflation would also encourage people to invest in new business instead of just sitting on their money, again motivating productivity.

If you argue the goal is absolute stability in price level, and thus the value of the currency, this would also be best achieved by inflation matching the increase in technology/productivity.

Right now this isn't a problem since bitcoin haven't converged yet and as the wiki points out this would be possible to incorporate into the system at a later time. We can hope our culture/nature changes so much in the future so we don't need a direct reward system to keep the individual motivated/productive but I have my doubts..




Littleshop
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April 23, 2011, 08:32:15 PM
 #10

if I had a bitcoin for everytime someone proposed to "fix" bitcoin by adding inflation...

They just don't get it.

Amen. 

So far Satoshi has been right on the money.  I do not see a challenge for bitcoin until the transition from mining to transaction fees, and I even think he has that pretty well figured out in advance. 

I have spent plenty a bitcoin even with its amazing deflation and I am still quite happy. 

infra172
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April 23, 2011, 08:42:04 PM
 #11

I would normally just ignore posts like these from someone like you, pusle, but this thread has gotten under my skin.

You have no idea what you're talking about. You're condescending ("Joe Sixpack"), naive ("some day our culture will evolve so we don't need a reward system to keep the individual motivated falalalala"), an awful speller, and, if I could, I would leap across the internet and punch you in the face.

If you want a currency run by omnipotent moral busybodies melding in people's lives, stick with the U.S. dollar. Leave me and my Bitcoins alone.

pusle
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April 24, 2011, 07:51:53 AM
 #12


I have presented my views with what I believe are good arguments.
If you can't give arguments to why "I don't get it" then what is the point of even  posting?

There must be lots of people here who share my way of thinking.
This is your chance to  explain why my arguments are wrong in a constructive manner.
With the intensity of your post it should be easy to share with us the reason behind your convictions.

The state this world is in should be evidence enough that people are not ideal.
Most people don't work together for the greater good.
I agree it might be naive to hope that this might change in the future and this is exactly why I argue the benefit of having modest inflation.


I'm not a native English speaker and I apologize for my bad writing.





stillfire
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April 24, 2011, 04:00:08 PM
 #13

Don't forget that economies have been built on gold and silver in the past and worked.

If the psychological hit of a yearly pay decrease is too much, you have a choice. You can choose to be paid in an inflation happy medium like dollars and get a free 3% 'raise' every year. Why couldn't the world have more than one kind of money?

In fact I believe this is why the dollar and other government fiat monies are strong today. People love the 'feel-good' feeling of a constantly 'growing' economy (measured in non-constant dollars) and yearly raises even for the same amount of productivity.

But it's an illusion with a price. Actual spending power is constantly siphoned out and given to the fractional reserve banks and the fed. Then it is a simple free market situation: you like feel-good inflation, you buy dollars and pay their price. Vote with your money.

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April 24, 2011, 05:17:12 PM
 #14

Personally, I'd have liked it if BTC that aren't used for much too long begin fading away and get slowly collected by miners, after 10 years or so. That way, the amount of BTC is exactly determined and they don't just get less and less with nobody knowing how many are left. Plus we'd have some remaining mining in the future that has a solid and fairly predictable income.

But it may be too late for that fix now. I actually never understood why it shouldn't be done -- nobody accidentally keeps coins around unmoved that long.
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April 24, 2011, 05:50:46 PM
 #15

see here my proposal for controlled inflation : https://en.bitcoin.it/wiki/Controlled_inflation



No no no and one more fking time no. NO inflation after the 21mio. PERIOD.

You don't need to have more money to experience growth. Growth through money is not about how much you have but how much goods and services you command. And if you have the same amount of money but the goods and services you command increases because the prices drop you also experience growth just as you would if the prices stay the same and you got more money and that's not to even mention the fact that inflation is theft!


The moment the majority agrees to inflate BitCoins I'm out and gone and will never be back.

p.s.: do you even realize how horrible the 1% inflation is??! If not I suggest you watch: http://www.youtube.com/watch?v=F-QA2rkpBSY

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infra172
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April 24, 2011, 06:32:17 PM
 #16


There must be lots of people here who share my way of thinking.
This is your chance to  explain why my arguments are wrong in a constructive manner.
With the intensity of your post it should be easy to share with us the reason behind your convictions.


You want inflation. That means you want the money I've earned to be worth less so that someone else can have more. That's theft. I don't need to argue why theft is wrong. I just need to tell the thieves to fuck off.



rezin777
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April 24, 2011, 06:42:42 PM
 #17

Inflation is theft from anyone holding the money being inflated (unless everyone holding the money receives the proper percentage of the new money created at the time of creation).

Bitcoins are limited. We know how many will exist. The method of distribution was designed to reward those keeping the network secure.

You are going to need a stronger reason to justify theft than, "It gives me a perceived incentive to continue working."
elggawf
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April 24, 2011, 06:49:27 PM
 #18

What's wrong with everyone holding onto it?

While I don't feel strongly enough about it to argue in favor of inflation (I was just speaking about my layman's understanding of the argument behind it), my issue with this particular comment is simple:

Bitcoins are only really worth anything through their ability to buy something with BTC. Anything else is pure speculation, and again, I have no facts or empirical observations to back this up but purely as an outside observer it seems like there's a lot more speculation than actual trade going on.

Deflation would be fine if the market were still moving, but one of the chief criticisms I hear about Bitcoin from outsiders is that it's worth is pumped-up. There's a small number of merchants who accept Bitcoin, the rest is just people trading it back and forth for another currency if you can't (or aren't willing, for fear of taking a loss*) buy something with it other than another currency then it doesn't really have any buying power itself. The people holding onto their BTC are holding onto it in the hopes that it will one day become useful, and the way it'll become useful is by people spending it... so (again, as an outside observer) it seems like the Bitcoin "economy" is really just a bunch of people waiting to see who'll fold (and spend their BTC, not "go broke") first.

It seems like the built-in deflation in Bitcoin actively encourages this behavior, which a lot of critics seem to think isn't conducive to making a flourishing economy. Naturally, the knee-jerk "solution" is to add inflation. I'm not saying it's right, I'm just saying I can understand the motivation behind it. Smiley

* Time preference theory supposedly states that people won't do this, but is anyone able to do some research into what percentage of Bitcoin transactions are for goods/services as opposed to trades for currency?

^_^
rezin777
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April 24, 2011, 07:01:50 PM
 #19

Bitcoins are only really worth anything through their ability to buy something with BTC. Anything else is pure speculation, and again, I have no facts or empirical observations to back this up but purely as an outside observer it seems like there's a lot more speculation than actual trade going on.

* Time preference theory supposedly states that people won't do this, but is anyone able to do some research into what percentage of Bitcoin transactions are for goods/services as opposed to trades for currency?

What if the people trading bitcoins for other currency are doing so due to the lack of faith in the other currency. So, bitcoins become a store of value, similar to gold.

These days it's quite impractical to buy anything with gold. I doubt I would have much success buying anything at the grocery store with a few gold pieces. I would either have to purchase enough goods to equal the smallest piece of gold, lose value in the exchange, or accept other currencies as change. Yet, gold is doing quite well regardless of the ability to easily purchase goods with it.

Do you see the same problems for gold that you see for bitcoins? Rather, does the outside observer see these problems with gold as well?

As long as there are people who exchange other currencies for bitcoins, bitcoin doesn't really need to be able to make purchases.

One could also argue that anything is speculation. If I hold on to my federal reserve notes today, will they be worth as much tomorrow? Does it matter that I can purchase goods with them or not when the price of goods can change as quickly as, well, the price of gas!

pusle
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April 24, 2011, 07:20:32 PM
 #20


OK lets look at the flip side, Deflation.

I got a lot of money and I just sit on it, doing nothing, while the money increase in value year by year.

Isn't that theft from those who generate the productivity driving up the value of the currency?



If you watched your own link you'd see that 1% inflation will reduce the value of your money by 10% in 10years, or half in 70 years. But this is only true if there is no increase in productivity during all those years. In practice you would need an inflation of 1-2% in order to keep the value of your money constant and there would be no stealing from anyone.

There are pro's and cons with both inflation and deflation.
Remember there is no money creation by the banks with bitcoin and the "theft" would be distributed among miners.
This is almost like stuffing some of the "gold" back into the ground for miners to find.






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