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Author Topic: A modest amount of inflation should be part of bitcoin  (Read 17775 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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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.

^_^
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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."
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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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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?
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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..




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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.





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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.



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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!

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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.






infra172
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April 24, 2011, 07:31:31 PM
 #21

You have no idea what you're talking about. 

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April 24, 2011, 08:18:01 PM
 #22

Quote
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.

The daily turn over on the forex market is 4 trillion USD. That's like a third of the outstanding federal government debt speculated upon each and every single day. And that doesn't stop you from using USD. What should be stopping you is inflation.

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April 24, 2011, 09:09:36 PM
 #23

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?

My guess is probably, but gold has the advantage of it's already established as a measure of worth. I personally would level almost all the criticism most people poke at Bitcoin at gold too, were it not already established. As you pointed out, it's pretty rough buying something for gold from most people... and you can't eat it. But for some unknown reason, gold is considered to have worth because it's almost universal in someone's willingness to buy it from you.

A more fitting question to ask, I think, is this: is gold worth what the market says it's worth right now? Industrial uses aside, gold too is only worth the equivalent of your ability to convince someone else to take it off your hands.

The USD is only worth anything because as a matter of policy people are already convinced to take it off your hands.

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

Isn't the intention to make a global peer2peer currency for the exact purpose of making purchases though?  Maybe I misunderstood the purpose of Bitcoin, but a circle-jerk for investments with no real purchasing power didn't really strike me as the ultimate goal.

Quote
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!

Almost certainly not, but again you don't really see anyone holding onto USD do you (putting $1k into a tin can in your backyard is about the silliest thing you could do with it)?

You have no idea what you're talking about. 

That's constructive. Cheesy

The daily turn over on the forex market is 4 trillion USD. That's like a third of the outstanding federal government debt speculated upon each and every single day. And that doesn't stop you from using USD. What should be stopping you is inflation.

And of those currencies traded on Forex, are any of them not mandated by policy of one or more countries, or are not already entrenched as having worth? Barring having some authority telling you you must accept it as payment, or having an established-and-widely-accepted imaginary value, Bitcoin is already "pushing shit up hill".

Having more and more people accept it as a form of payment would help it become actually useful, which it seems to me is an effort that's choked if someone mines BTC as part of a pool, buys some services off a merchant, then the merchant decides to speculate on the BTC's worth and sits on the coins.

Again, from an outsider's perspective it seems like Bitcoin is 5% actual usable currency, and 95% people saying "these are going to be worth a buttload one day" without actually doing anything to advance them toward being useful. If that's a correct assumption, what can be done to fix it? If it's an incorrect assumption, what can be done to convince outsiders?

Arguing that it doesn't matter as long as speculators will continue buying it for USD... doesn't that sound kind of bubble-ish?

^_^
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April 24, 2011, 09:48:58 PM
 #24

Being constructive isn't the goal. If you're advocating theft, I'm not going to help you "construct" anything.

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April 24, 2011, 10:08:03 PM
 #25

And of those currencies traded on Forex, are any of them not mandated by policy of one or more countries, or are not already entrenched as having worth? Barring having some authority telling you you must accept it as payment, or having an established-and-widely-accepted imaginary value, Bitcoin is already "pushing shit up hill".

Having more and more people accept it as a form of payment would help it become actually useful, which it seems to me is an effort that's choked if someone mines BTC as part of a pool, buys some services off a merchant, then the merchant decides to speculate on the BTC's worth and sits on the coins.

Again, from an outsider's perspective it seems like Bitcoin is 5% actual usable currency, and 95% people saying "these are going to be worth a buttload one day" without actually doing anything to advance them toward being useful. If that's a correct assumption, what can be done to fix it? If it's an incorrect assumption, what can be done to convince outsiders?

Arguing that it doesn't matter as long as speculators will continue buying it for USD... doesn't that sound kind of bubble-ish?

My point was that there is a buttload of dollars, euros, yens and god knows what else going from hand to hand everday for sole purpose of extra some wealth in the process, and yet it isn't hurting the stability of those currency at all, even though this buttload is about 90% of all the usd, eur and yen traded each and every day. So in regard of this long term, real life example, the spending and speculating pattern of Bitcoin is not different from those of government enforced currencies, which proves 2 things: That this speculation doesn't will not stop vendors from joining, and that Bitcoin is functioning properly as a currency.

As for the bubble part, that is indeed true, but keep in mind that any new business will know a bubbling growth until it reaches its actual load capacity on the market.

Also Bitcoin goal is not necessarily to attract vendors and entrench itself in an everyday use. That would be a nice consequence, but the primary goal is to be a proper store of value. Look at gold for an example.

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April 24, 2011, 10:48:23 PM
 #26

Some of these arguments are switching between effects associated with different time scales. At present, Bitcoin IS inflating, at a huge rate in fact, around 33% this year and 25% next year. The deflationary "currency dividend" that seems to be hated is not going to be enjoyed until out into the far future. At least base your arguments on either the current state or a future one specifically.

In the long term, most of the speculation and sitting on coins going on now will abate when a more stable market value for bitcoin has been established. This may not happen for some time, i.e. when the current rate of inflation of bitcoin and growth of demand for bitcoin equilibriate.

Muddying the waters with mixed arguments pertaining to effects from vastly different time scales is pointless.

Also we need a graph showing the projected inflation rate for bitcoin ... so when another noob comes and says "... but, but what about nasty deflation you can point them at the chart ...." and say, "get back to me in 20 years time and we'll see if it is problem."

Over-valuation due to speculation is a different matter.

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April 25, 2011, 12:16:28 AM
 #27

Also Bitcoin goal is not necessarily to attract vendors and entrench itself in an everyday use. That would be a nice consequence, but the primary goal is to be a proper store of value. Look at gold for an example.

That's actually helpful to my understanding, as is moa's comment.

Again, I'm not advocating anything... I just hear outside criticisms of Bitcoin's approach, and a lot of the time it's dismissed without anyone actually explaining why the criticism isn't valid.

^_^
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April 25, 2011, 12:28:14 AM
 #28

If I were Satoshi...  I would have built a modest amount of inflation in to bitcoin.  "Modest inflation is what most people are comfortable and familiar with," I would have reasoned to myself, "so that's the right thing to do."

However... I'm not so sure that would have worked.  It is very nice to be able to say "bitcoins are valuable because they are rare, and they are rare because they are designed that way-- there will never be more than 21-million of them."  That is easy to understand, and gives bitcoins a clear advantage over existing currencies.


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April 25, 2011, 01:25:58 AM
 #29

Fixed money supply = Let the market determine prices

Inflationary money supply = Re-allocate wealth to an undeserving entity

Inflationary policy is the ant-market solution. And we all love free markets ;-)
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April 25, 2011, 04:36:33 AM
 #30

So if the supply of gold were theoretically infinite, but limited at any one point in time, it would be a poor choice of currency? Not only a poor choice, in fact, but an anti-market choice?

And stored electrical energy (in the form of, say, batteries) would be a terrible form of currency because more could be generated? Again, not only a poor choice but an unfree one that redistributes wealth to the undeserving?

I really don't think this argument generalizes very well.

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April 25, 2011, 05:03:21 AM
 #31


A modest inflation of say 1% ?  would preserve the award mechanism to promote productivity for individuals/small groups,

I'm not sure if I missed it, but I'm really surprised that no one had pointed out that Bitcoin currently inflates at around 40% APR, and will continue to be inflationary for as long as some of us could hope to live.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 25, 2011, 05:06:59 AM
 #32


A modest inflation of say 1% ?  would preserve the award mechanism to promote productivity for individuals/small groups,

I'm not sure if I missed it, but I'm really surprised that no one had pointed out that Bitcoin currently inflates at around 40% APR, and will continue to be inflationary for as long as some of us could hope to live.

Interesting point...I forgot about that...

"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.

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April 25, 2011, 06:08:27 AM
 #33

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.

How does "everybody wants to hold on to them" == "Bitcoins can't be used to buy something" ?  If anything, deflation increases your ability to spend them because more people would like to have them.

Also, even if it is only exchanged with other currencies, it will be valuable exactly for that reason.  Once the BTC<-> fiat process is smoothed out a bit more, anyone in the world can sell goods to you in your local currency, buy bitcoins, and sell them for their local currency.  BTC <-> fiat conversions are still a bit pricey, but as volume goes up and more players enter the exchange market the price should come down.

My biggest concern is the investors who are just treating this as a bubble they can ride.  If they pump it up too quickly, we could have a mess on our hands.  But the protocol would probably survive even that scenario, but it would be a bumpy ride.  The saving grace is that there are lots of early miners with thousands of coins that can sacrifice a small portion of their future trillions of USD to keep things sane.

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April 25, 2011, 06:17:06 AM
 #34


A modest inflation of say 1% ?  would preserve the award mechanism to promote productivity for individuals/small groups,

I'm not sure if I missed it, but I'm really surprised that no one had pointed out that Bitcoin currently inflates at around 40% APR, and will continue to be inflationary for as long as some of us could hope to live.

Interesting point...I forgot about that...


hmm, and by that time one may hope people have become more altruistic and have no problem acting for the greater good in deflation or we may have switched to something else anyway.

I can also hope some sort of mixed economy will emerge with resource based system principles at the bottom for infrastructure etc. It would also provide materials into the open market with pricing set more by scarcity, recycling and pollution factors rather than just how easy it is to dig out of the ground.
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April 25, 2011, 06:51:08 AM
 #35

I assume you are answering to me, but I have no idea what your point is.

So if the supply of gold were theoretically infinite, but limited at any one point in time, it would be a poor choice of currency? Not only a poor choice, in fact, but an anti-market choice?

Gold is practically close enough to a fixed supply to make it good money. The inflation part isn't necessary and only serves to redistribute wealth to gold miners.

And stored electrical energy (in the form of, say, batteries) would be a terrible form of currency because more could be generated? Again, not only a poor choice but an unfree one that redistributes wealth to the undeserving?

I'm not sure what your trying to communicate, but yes, I think that electrical energy would make a bad currency.

I really don't think this argument generalizes very well.

If new currency is created, it has to be distributed into the economy. This process necessarily distorts the market all just for the sake of some useless and unachievable goal of stable prices.
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April 25, 2011, 06:58:33 AM
 #36

Let me try again.

So if the supply of gold were theoretically infinite, but limited at any one point in time, it would be a poor choice of currency? Not only a poor choice, in fact, but an anti-market choice?

Gold is practically close enough to a fixed supply to make it good money. The inflation part isn't necessary and only serves to redistribute wealth to gold miners.

My question is whether this aspect of gold is unfair. Do people with gold deserve to see the supply remain fixed, and gold miners are cheating them out of their dues?

And stored electrical energy (in the form of, say, batteries) would be a terrible form of currency because more could be generated? Again, not only a poor choice but an unfree one that redistributes wealth to the undeserving?

I'm not sure what your trying to communicate, but yes, I think that electrical energy would make a bad currency.

Again, my question is not about electrical energy itself (though I do think sealed battery packs would make good trade items in a collapse scenario). Is the ability to make more batteries unfair to people who have batteries now? Would only an anti-market zealot support battery inflation?

Yes, the fact that there's more gold / energy / carrots will reduce the trade value of other gold / energy / carrots. I agree that this is unfortunate for people holding large carrot reserves, but why is it anti-capitalist?

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April 25, 2011, 07:23:07 AM
 #37

Let me try again.

So if the supply of gold were theoretically infinite, but limited at any one point in time, it would be a poor choice of currency? Not only a poor choice, in fact, but an anti-market choice?

Gold is practically close enough to a fixed supply to make it good money. The inflation part isn't necessary and only serves to redistribute wealth to gold miners.

My question is whether this aspect of gold is unfair. Do people with gold deserve to see the supply remain fixed, and gold miners are cheating them out of their dues?

And stored electrical energy (in the form of, say, batteries) would be a terrible form of currency because more could be generated? Again, not only a poor choice but an unfree one that redistributes wealth to the undeserving?

I'm not sure what your trying to communicate, but yes, I think that electrical energy would make a bad currency.

Again, my question is not about electrical energy itself (though I do think sealed battery packs would make good trade items in a collapse scenario). Is the ability to make more batteries unfair to people who have batteries now? Would only an anti-market zealot support battery inflation?

Yes, the fact that there's more gold / energy / carrots will reduce the trade value of other gold / energy / carrots. I agree that this is unfortunate for people holding large carrot reserves, but why is it anti-capitalist?

Bitcoins, gold: hold value
carrots/energy/batteries: decay in a relatively short time span
That's where the analogy breaks down.... when you put a real orange in your fake apple basket.

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April 25, 2011, 08:03:40 AM
 #38

One of the arguments often cited in favor of a fixed supply is the trust it creates. There are no more than 21 million bitcoins, therefore you know precisely what fraction of the money supply you own. This "certainty" is opposed to the unstability caused by central bankers inflating the money supply at unpredictable rate.

I think that this story misses a critical point.

Every year, bitcoins will be lost, for various reasons (backup mistakes, people not caring about a few bitcent, people dying, etc). The loss rate might be a very small fraction of the total, it is nonetheless a cumulative effect, meaning that the number of lost coins increases over time. And since the supply is fixed, the fraction of lost bitcoins will increase over time.

In principle, this should not be a problem, because bitcoins are divisible. Indeed, as somebody mentioned, the whole bitcoin economy could run on one single bitcoin. This is not a technical problem, indeed. It is, however, an uncertainty problem. Indeed, there is no way to know whether a bitcoin has been lost, or whether it is just sat upon. As time passes, the amount of lost bitcoins will increase, and so will the uncertainty about that amount.

This uncertainty is a major problem for the market. It means that we traded the unpredictability of central bank policies for an unpredictability of the size of the actual money supply. We did not create something more stable. As time passes, uncertainty can only grow, causing bubbles and abrupt price changes.

A small amount of inflation should prevent this. Of course, it will not prevent the loss of bitcoins, but it will ensure that the fraction of bitcoins that have been lost remains capped. If the bitcoin loss rate is 1%/year, a controlled inflation rate of 2%/year will ensure precisely that. It will ensure that the consequences of somebody losing their wallet today will be bounded in the future.

Another benefit of a fixed inflation rate is that we will not need to switch to an unproven model based solely on transaction fees.

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April 25, 2011, 08:46:18 AM
 #39

One of the arguments often cited in favor of a fixed supply is the trust it creates. There are no more than 21 million bitcoins, therefore you know precisely what fraction of the money supply you own. This "certainty" is opposed to the unstability caused by central bankers inflating the money supply at unpredictable rate.

I think that this story misses a critical point.

Every year, bitcoins will be lost, for various reasons (backup mistakes, people not caring about a few bitcent, people dying, etc). The loss rate might be a very small fraction of the total, it is nonetheless a cumulative effect, meaning that the number of lost coins increases over time. And since the supply is fixed, the fraction of lost bitcoins will increase over time.

In principle, this should not be a problem, because bitcoins are divisible. Indeed, as somebody mentioned, the whole bitcoin economy could run on one single bitcoin. This is not a technical problem, indeed. It is, however, an uncertainty problem. Indeed, there is no way to know whether a bitcoin has been lost, or whether it is just sat upon. As time passes, the amount of lost bitcoins will increase, and so will the uncertainty about that amount.

This uncertainty is a major problem for the market. It means that we traded the unpredictability of central bank policies for an unpredictability of the size of the actual money supply. We did not create something more stable. As time passes, uncertainty can only grow, causing bubbles and abrupt price changes.

A small amount of inflation should prevent this. Of course, it will not prevent the loss of bitcoins, but it will ensure that the fraction of bitcoins that have been lost remains capped. If the bitcoin loss rate is 1%/year, a controlled inflation rate of 2%/year will ensure precisely that. It will ensure that the consequences of somebody losing their wallet today will be bounded in the future.

Another benefit of a fixed inflation rate is that we will not need to switch to an unproven model based solely on transaction fees.


I could see a small fixed amount making sense (on a different block chain), but I won't support anything with a percentage inflation rate.

A, IMHO better solution, would be to have a once a year reclamation of all bitcoins that have not been in a transaction in the past year.  Everyone can just send any stale coins in their wallet to a new address.  The reclaimed coins would added up and divided by 87600 blocks per year, and added to the block rewards. (Divide by 87840 on leap years.)  Then we reclaim the certainty. (Which inflation doesn't really give you anyway, since loss rate is unknown without enforcing something like reclamation.  You're counterbalancing, but you don't know how much counterbalancing you should do.)

This could be added on at any point, as long as it is widely publicized that you need to move your coins at least once a year.

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April 25, 2011, 11:00:10 AM
 #40

Let me try again.

So if the supply of gold were theoretically infinite, but limited at any one point in time, it would be a poor choice of currency? Not only a poor choice, in fact, but an anti-market choice?

Gold is practically close enough to a fixed supply to make it good money. The inflation part isn't necessary and only serves to redistribute wealth to gold miners.

My question is whether this aspect of gold is unfair. Do people with gold deserve to see the supply remain fixed, and gold miners are cheating them out of their dues?

And stored electrical energy (in the form of, say, batteries) would be a terrible form of currency because more could be generated? Again, not only a poor choice but an unfree one that redistributes wealth to the undeserving?

I'm not sure what your trying to communicate, but yes, I think that electrical energy would make a bad currency.

Again, my question is not about electrical energy itself (though I do think sealed battery packs would make good trade items in a collapse scenario). Is the ability to make more batteries unfair to people who have batteries now? Would only an anti-market zealot support battery inflation?

Yes, the fact that there's more gold / energy / carrots will reduce the trade value of other gold / energy / carrots. I agree that this is unfortunate for people holding large carrot reserves, but why is it anti-capitalist?

It's different for currency which can be created at zero cost, like bitcoins and dollars. These are abstract things, so creating more of them is not like creating more batteries. It's more like stretching an inch. You can't apply arguments about commodities to currencies. Straw man.
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April 25, 2011, 11:11:54 AM
 #41

But surely the reason inflating the dollar is unfair is because people are forced to hold dollars as it happens? It's not unfair to, like, Estonians. Or moon men.

Since no one is forced to hold bitcoins, who is inflation unfair to?

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April 25, 2011, 11:54:44 AM
 #42

another posts related to this:

http://bitcointalk.org/index.php?topic=2792.0

http://bitcointalk.org/index.php?topic=6317.0

http://bitcointalk.org/index.php?topic=3816.0

I started this last one that, in fact, doesn't propose to eliminate deflation but its pernicious effects.

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April 25, 2011, 12:42:52 PM
 #43

Bitcoins or any other cryptocurrency with inflation would never work. Why? Because the next day someone would start a new block chain without inflation and everyone would switch. How could you ever prevent that?

From an economics perspective of passing arround bitcoins as fast as possible it would sure be better to have a some inflation that would benefit everybody in equal parts. But it does not seem possible.





blockchained.com ■ bitcointalk top posts
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April 25, 2011, 01:37:50 PM
 #44

Some people said in my thread that a demurrage cryptocurrency won't work for the same reason: people would switch to a clone without it. People would prefer to hold bitcoins. That's true. But people would definitely prefer to pay with...let's say...freicoins or timecoins (don't google them, they don't exist).
Bitcoin it's better to store value than timecoin and freicoin. But if they have any value, they will be preferred to pay. The payee can trade them for bitcoins as soon as he receives them or can trade them for other goods and services that accept them.
The payee prefers to be paid in bitcoins, but mostly prefers to be paid. If the payer does not have he can accept freicoins or lose the sell.

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April 25, 2011, 01:46:58 PM
 #45

Some people said in my thread that a demurrage cryptocurrency won't work for the same reason: people would switch to a clone without it. People would prefer to hold bitcoins. That's true. But people would definitely prefer to pay with...let's say...freicoins or timecoins (don't google them, they don't exist).
Bitcoin it's better to store value than timecoin and freicoin. But if they have any value, they will be preferred to pay. The payee can trade them for bitcoins as soon as he receives them or can trade them for other goods and services that accept them.
The payee prefers to be paid in bitcoins, but mostly prefers to be paid. If the payer does not have he can accept freicoins or lose the sell.

This is actually true, in the sense that bad money chases good money out of the market.  This is one reason you don't see silver dimes anymore, even though they still exist.  The difference is that, without some form of outside force compelling the consumer to deal in the bad money, why would they ever buy it in the first place?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 25, 2011, 02:28:58 PM
 #46

This is actually true, in the sense that bad money chases good money out of the market.  This is one reason you don't see silver dimes anymore, even though they still exist. The difference is that, without some form of outside force compelling the consumer to deal in the bad money, why would they ever buy it in the first place?

I guess at first it would be just faith and then it would be backed by the economy behind it, that is, by the goods and services offered in exchange of it. Just like bitcoin.
Some people ask themselves the same question about bitcoin. Why would anybody buy them in the first place if there's the risk that that market does not develop?

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April 25, 2011, 05:04:44 PM
 #47

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.

So you would steal from those who saved and give that savings to miners? That sounds an awful lot like the the USD economy, except anybody can be a miner (just not a big one).
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April 25, 2011, 06:08:17 PM
 #48

This is actually true, in the sense that bad money chases good money out of the market.  This is one reason you don't see silver dimes anymore, even though they still exist. The difference is that, without some form of outside force compelling the consumer to deal in the bad money, why would they ever buy it in the first place?
Some people ask themselves the same question about bitcoin. Why would anybody buy them in the first place if there's the risk that that market does not develop?

Because speculators can look at the system, and in particular the ultimate cap on the monetary base, and speculate that those bitcoins that they can gather and keep would be worth much more in the future.  If it were permanently inflationary, those same speculators would be able to assume that even if such a support economy were to develop, those same coins would eventually be worth less in the long term.

So again I ask, how would an openly inflationary version of Bitcoin actually bootstrap?  Not like Bitcoin has, this is certain.  Such a currency would have almost zero chance of overcoming the first value rule.  Bitcoin's first value was a potential future value to speculators, but an inflationary bitcoin would never had that first value.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 25, 2011, 06:13:28 PM
 #49

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.

This is actually likely to happen in the long term, if the public/private keypair system Bitcoin uses is to ever show signs that it might be cracked.  Bitcoin can move to another, more secure, version of the same thing without skipping a beat; and users would be pretty much forced to go back and claim all of their old transactions in order to move them to the new system in situ.  However, lost coins would be obvious shortly after such a changeover were complete, and easily recovered by the first person willing to write the crack program using the new exploit.  It'd be like treasure hunters racing to claim a Spanish Gallion, first to get the address cracked and moved to his own new address wins.

It might be decades before anything like this occurs, however.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 25, 2011, 07:03:04 PM
 #50

This is actually true, in the sense that bad money chases good money out of the market.  This is one reason you don't see silver dimes anymore, even though they still exist. The difference is that, without some form of outside force compelling the consumer to deal in the bad money, why would they ever buy it in the first place?
Some people ask themselves the same question about bitcoin. Why would anybody buy them in the first place if there's the risk that that market does not develop?

Because speculators can look at the system, and in particular the ultimate cap on the monetary base, and speculate that those bitcoins that they can gather and keep would be worth much more in the future.  If it were permanently inflationary, those same speculators would be able to assume that even if such a support economy were to develop, those same coins would eventually be worth less in the long term.

So again I ask, how would an openly inflationary version of Bitcoin actually bootstrap?  Not like Bitcoin has, this is certain.  Such a currency would have almost zero chance of overcoming the first value rule.  Bitcoin's first value was a potential future value to speculators, but an inflationary bitcoin would never had that first value.

In fact bitcoin still is an "inflationary" currency. Some speculators invest in bitcoins waiting for the creation of bitcoins too slow down but others just wait for the demand to explode. If bitcoin is increasing in value is because the demand is increasing not because the total supply is banishing. Nevertheless you're right in that it would attract less speculators and it would be harder for the currency to acquire value at first. Anyway, it would be easy for a speculator to calculate the damage of demurrage in its investments.
Unlike in timecoin, in freicoin, the total supply of money (once issued) will be constant, just like in bitcoin.
Demurrage will also has an advantage for their users. When all the supply is generated, the miners will live not only from the fees, but also from the money collected through demurrage, thus making the fees lower. The users will be charged less for trading and (in exchange) will be charged for hoarding.

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April 25, 2011, 07:16:49 PM
 #51

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.

So you would steal from those who saved and give that savings to miners? That sounds an awful lot like the the USD economy, except anybody can be a miner (just not a big one).

Actually, I don't see anything bad in what he says. If everybody knows that after 10000 blocks a public address expires, people would just create another address and move them. Only the lost coins would stay in the same address.
But I don't see anything bad in some bitcoins getting lost neither.
What's the point of having "the amount of BTC is exactly determined"?
To have the full 21 millions and not some unknown amount between 21,000,000 and 20,990,000?
When you lose a bitcoin, all the others become more valuable, but we got the micro bitcoins and nanobitcoins.
We don't really need those lost bitcoins. Satoshi could have decided 50 billions or 10 millions and bitcoin would be the same. Only the price per bitcoin would be different.

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April 25, 2011, 07:42:30 PM
 #52

@jtimon - I agree with both of your posts. I think recycling "lost" coins just makes extra busy work for savers.

One thing regarding inflation/deflation (this isn't necessarily directed at you). There are two very different things that go by the same name.

The first is monetary inflation/deflation, which is when the money supply increases or decreases. Generally we only experience monetary inflation, but in the case of Bitcoin, once the generation subsidy drops to 0, we will experience very slow monetary deflation in the form of lost private keys. Changes in the quantity of money will cause a change in the price of products, which is the second type - price inflation/deflation. Currently, the money supply of Bitcoin is inflating (at a rate of about 7200 BTC/day). If the Bitcoin economy were larger, this would cause an increase in prices (denominated in Bitcoin), just as we see today with prices in USD (which is highly inflationary).

However, there are other causes of price inflation/deflation. In the case of Bitcoin, prices appear to deflating, even though the monetary supply is inflating. The cause of this is the exchange rate of BTC/USD. Because few can pay their business costs in Bitcoins, it is easier to price in dollars and then convert to BTC on the fly. As Bitcoin gains popularity and/or the dollar inflates, those goods will be prices in fewer Bitcoin, but only because Bitcoin is more valuable as compared to the dollar. Once businesses can pay for their costs in Bitcoin, this "deflation" will disappear and prices will become more stable.
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April 25, 2011, 09:22:28 PM
 #53

Thank you for pointing out that monetary inflation is not the same that price inflation. I didn't know the correct way to mean one or another.
I think this price deflation may not disappear. It is true that we can't measure the current price deflation of bitcoins just by looking at its USD dollar price, because USD have an increasing price inflation. The point I wanted to make is that you can have price deflation even with monetary inflation. That's what is happening now with bitcoins: the falling dollar is not the only cause of the rise of the bitcoin.
We could even have price inflation with a constant monetary base if less goods are traded every year (negative growth). Let me think about something that could cause a global negative economic growth...oh, yes, a falling EROI, for example. When people say that bitcoin has a built in deflation they mean that when the bitcoin monetary base is completely issued and thus constant, there will be price deflation if the economy keeps growing.
Price deflation can encourage hoarding and make trade harder (because the medium of exchange gets out of the market), but what you want to fight is hoarding and not the deflation itself. Demurrage can prevent hoarding even in a deflationary context.

Demurrage has another economical advantage. It would make more enterprises profitable. To calculate the profit, you must first discount the interest cost. If you suppress the liquidity premium with demurrage (not the risk premium), the financing costs will decrease. In capitalism, all kinds of capital tend to be as profitable as lending money. If, for example, renting houses becomes more profitable, investors will construct more houses until the profit becomes the equivalent. If there are "too many" houses, the price of houses will drop until they become as profitable as money. Money is the only true capital.
For more on this (sorry if I repeat this links too much):

http://en.wikipedia.org/wiki/Freigeld

http://finanzcrash.com/english/aberrations.html



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April 25, 2011, 10:13:55 PM
 #54

Thank you for pointing out that monetary inflation is not the same that price inflation. I didn't know the correct way to mean one or another.
I think this price deflation may not disappear. It is true that we can't measure the current price deflation of bitcoins just by looking at its USD dollar price, because USD have an increasing price inflation. The point I wanted to make is that you can have price deflation even with monetary inflation. That's what is happening now with bitcoins: the falling dollar is not the only cause of the rise of the bitcoin.
We could even have price inflation with a constant monetary base if less goods are traded every year (negative growth). Let me think about something that could cause a global negative economic growth...oh, yes, a falling EROI, for example. When people say that bitcoin has a built in deflation they mean that when the bitcoin monetary base is completely issued and thus constant, there will be price deflation if the economy keeps growing.
Price deflation can encourage hoarding and make trade harder (because the medium of exchange gets out of the market), but what you want to fight is hoarding and not the deflation itself. Demurrage can prevent hoarding even in a deflationary context.

Demurrage has another economical advantage. It would make more enterprises profitable. To calculate the profit, you must first discount the interest cost. If you suppress the liquidity premium with demurrage (not the risk premium), the financing costs will decrease. In capitalism, all kinds of capital tend to be as profitable as lending money. If, for example, renting houses becomes more profitable, investors will construct more houses until the profit becomes the equivalent. If there are "too many" houses, the price of houses will drop until they become as profitable as money. Money is the only true capital.
For more on this (sorry if I repeat this links too much):

http://en.wikipedia.org/wiki/Freigeld

http://finanzcrash.com/english/aberrations.html




Don't fear deflation.  Price deflation also happens as productivity increases through technological advances, for example.  Consumer electronics and computers have been in a constant state of double-digit price deflation for decades DESPITE severe USD inflation (you can often buy twice the computer for the same amount of USD every 1-2 years or so).  If "hoarding" were such a problem then the electronics industry would have gone bust a long time ago as everyone just sat and waited for things to stabilize.  All deflation does is decrease people's time preference and increase savings which, in a free banking market, lowers interest rates so longer term capital investments can be carried out.  The only type of deflation to fear is a "sudden-stop", uncontrolled deflation, like the popping of an inflationary credit bubble (2008 anyone?)

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April 26, 2011, 02:51:10 AM
 #55

Thank you for pointing out that monetary inflation is not the same that price inflation. I didn't know the correct way to mean one or another.

debasement is probably the better word

Quote
There is an English word that used to mean "debasement," whose meaning somehow changed, during a generally unpleasant period in history, to mean "increase in consumer prices," and has since come to mean "increase in consumer prices as measured, through a process whose opacity makes chocolate look transparent, by a nonpartisan agency whose objectivity is above any conceivable question, so of course we won't waste our time questioning it." The word begins with "i" and ends with "n." Because of its interesting political history, I prefer to avoid it.

(possibly of interest: during roughly the time of that generally unpleasant period of history (roughly 1914 to 1989), at least in most of the Anglosphere, "liberalism" dramatically shifted its meaning to the point that those who held to the old meaning had to essentially redefine themselves (as "libertarians"))
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April 26, 2011, 03:37:02 AM
 #56

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.

CENTRA

            ▄▄▄██████████▄▄▄
        ▄▄████████████████████▄▄
      ▄███████▀▀         ▀▀███████▄
    ▄█████▀                  ▀██████
   █████▀      ▄▄▄█████▄▄      ▀█████▄
  █████     ▄██████████████▄     ▀████▄
 █████     ██████▀▀  ▀▀██████▄    ▀████
▐████     █████          █████     █████
█████    ▐████                     ▐████
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█████     █████          ▄████▌    █████
 ████▌    ▀█████▄▄    ▄▄█████▀    ▄████▌
 ▀████▄     ▀██████████████▀     ▄████▀
  ▀█████▄     `▀████████▀▀     ▄█████▀
   `██████▄                  ▄██████
     ▀███████▄▄          ▄▄███████▀
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April 26, 2011, 07:17:17 AM
 #57


Don't fear deflation.  Price deflation also happens as productivity increases through technological advances, for example.  Consumer electronics and computers have been in a constant state of double-digit price deflation for decades DESPITE severe USD inflation (you can often buy twice the computer for the same amount of USD every 1-2 years or so).  If "hoarding" were such a problem then the electronics industry would have gone bust a long time ago as everyone just sat and waited for things to stabilize.  All deflation does is decrease people's time preference and increase savings which, in a free banking market, lowers interest rates so longer term capital investments can be carried out.  The only type of deflation to fear is a "sudden-stop", uncontrolled deflation, like the popping of an inflationary credit bubble (2008 anyone?)

No, because price deflation must generalized (in fact if it occurs just in one sector, it's not really price deflation) to impede commerce.
The money is not getting out of circulation (is not being hoarded) because computers are cheaper each year. The others sectors are not affected by this.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 07:26:49 AM
 #58

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.


bills of 0.000000000000001 dolars can be printed too. So I guess deflation is not a problem for national currencies neither.

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April 26, 2011, 07:33:51 AM
 #59

Thank you for pointing out that monetary inflation is not the same that price inflation. I didn't know the correct way to mean one or another.

debasement is probably the better word

Quote
There is an English word that used to mean "debasement," whose meaning somehow changed, during a generally unpleasant period in history, to mean "increase in consumer prices," and has since come to mean "increase in consumer prices as measured, through a process whose opacity makes chocolate look transparent, by a nonpartisan agency whose objectivity is above any conceivable question, so of course we won't waste our time questioning it." The word begins with "i" and ends with "n." Because of its interesting political history, I prefer to avoid it.

(possibly of interest: during roughly the time of that generally unpleasant period of history (roughly 1914 to 1989), at least in most of the Anglosphere, "liberalism" dramatically shifted its meaning to the point that those who held to the old meaning had to essentially redefine themselves (as "libertarians"))

You prefer to use "monetary debasement" over "price inflation". Fair enough.
It's the same for me.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 07:34:13 AM
 #60

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.


bills of 0.000000000000001 dolars can be printed too. So I guess deflation is not a problem for national currencies neither.

You're right, it's not. Mostly because deflation isn't good for governments and central banks.
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April 26, 2011, 07:37:07 AM
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No, because price deflation must generalized (in fact if it occurs just in one sector, it's not really price deflation) to impede commerce.
The money is not getting out of circulation (is not being hoarded) because computers are cheaper each year. The others sectors are not affected by this.

How does removing money from circulation hurt anyone? All the other money has more purchasing power, which means individuals can purchase more of the things they need and want. Sticky wages are merely a psychological obstacle, decreasing wages are good if prices are decreasing faster.

People don't really want money, they want the things they can buy with that money. If they can buy more or better things in exchange for less of their time, they will be happier (inasmuch things can make one happy).
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April 26, 2011, 09:15:18 AM
 #62

No, because price deflation must generalized (in fact if it occurs just in one sector, it's not really price deflation) to impede commerce.
The money is not getting out of circulation (is not being hoarded) because computers are cheaper each year. The others sectors are not affected by this.

How does removing money from circulation hurt anyone? All the other money has more purchasing power, which means individuals can purchase more of the things they need and want.

How can closing highways hurt transport? All the other highways would have more "transporting power", which means they can charge more fees for using them.
From my point of view, money is to commerce what roads are to transport. Maybe there's some better analogy.

If everybody hoard their money, there's no decrease in price: there's no price at all. People would have to barter in exchange of other things instead of money.

Sticky wages are merely a psychological obstacle, decreasing wages are good if prices are decreasing faster.

People don't really want money, they want the things they can buy with that money. If they can buy more or better things in exchange for less of their time, they will be happier (inasmuch things can make one happy).

Agreed.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 09:29:20 AM
 #63

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.


bills of 0.000000000000001 dolars can be printed too. So I guess deflation is not a problem for national currencies neither.

You're right, it's not. Mostly because deflation isn't good for governments and central banks.

The point I'm trying to make is that a severe deflation is not good for trading. It doesn't matter how the money is created.
The fact that the governments and central banks can suppress deflation easily by creating inflation (which is not good neither) doesn't make deflation any better. It's a problem for national currencies too, it's just not the most common problem because governments are always willing to spend more and central banks are always willing to print more. Deflation could be good for an hypothetical government with no debts and money reserves, but it would be bad for the economy of its country.

That fact that bitcoin have 8 decimal places doesn't solves the problems of deflation. If so, central banks could just print bills with smaller denominations to avoid the problems of deflation. Instead they tend to replace deflation with inflation.
Join everyone else and just say there's no problem with deflation.

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April 26, 2011, 09:51:00 AM
 #64

There is yet another reason, that is bitcoin specific, on why inflation would be bad idea. Interestingly, it is the same basis why inflation is bad for other currencies, but is a different mechanism for undermining confidence in the bitcoin system.

We already have good evidence that network difficulty, hence hash-power and security are correlated quite tightly with bitcoin exchange rate, i.e. the price basis other goods, service and currencies. As the value of bitcoin grows, so does the security of the network due to the strength of the computational power backing it, since miners have an economic incentive to compete harder for the bitcoins on offer. At this stage, it is something of a virtuous circle.

However if there were to be an inflation expectation different than that already planned for then the incentive system in place that is driving the increase in network strength would be undermined. It is not just the dilution of the currency unit that would be affecting economic confidence but the pricing dynamics of securing the bitcoin network, that appear to working just fine at present, would also be affected.

Simply put: inflation is a threat to network security.

EDIT: seeing things in this light, it is no longer a question for economists but it is now in the hands of IT (where, perhaps, it should have been all along)




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April 26, 2011, 09:56:28 AM
 #65

สุดยอดเลยพี่

โยวกัง (http://xn--12cm5fua1c7f.com) โยวกัง
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April 26, 2011, 10:00:48 AM
 #66

How can closing highways hurt transport? All the other highways would have more "transporting power", which means they can charge more fees for using them ... Maybe there's some better analogy.
Yes there is a better analogy. Saving your bitcoins is like keeping your car in the garage. Losing your bitcoins is like scrapping your car.

From my point of view, money is to commerce what roads are to transport.
If your car is not on the highway, it doesn't harm anyone else. It just makes the highways more useful to others
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April 26, 2011, 10:03:24 AM
 #67


There is yet another reason, that is bitcoin specific, on why inflation would be bad idea. Interestingly, it is the same basis why inflation is bad for other currencies, but is a different mechanism for undermining confidence in the bitcoin system.

We already have good evidence that network difficulty, hence hash-power and security are correlated quite tightly with bitcoin exchange rate, i.e. the price basis other goods, service and currencies. As the value of bitcoin grows, so does the security of the network due to the strength of the computational power backing it, since miners have an economic incentive to compete harder for the bitcoins on offer. At this stage, it is something of a virtuous circle.

However if there were to be an inflation expectation different than that already planned for then the incentive system in place that is driving the increase in network strength would be undermined. It is not just the dilution of the currency unit that would be affecting economic confidence but the pricing dynamics of securing the bitcoin network, that appear to working just fine at present, would also be affected.


That's true. Even if we replace inflation with demurrage in everything you said.
If the price of the hypothetical freicoin were equal to the price of the bitcoin (and the supply the same) the security of the freicoin network would be smaller than the security of the bitcoin network because miners would have more incentive to mine bitcoins that haven't demurrage.

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April 26, 2011, 10:09:52 AM
 #68

How can closing highways hurt transport? All the other highways would have more "transporting power", which means they can charge more fees for using them ... Maybe there's some better analogy.
Yes there is a better analogy. Saving your bitcoins is like keeping your car in the garage. Losing your bitcoins is like scrapping your car.

Can you elaborate a bit more on why your analogy is better?

From my point of view, money is to commerce what roads are to transport.
If your car is not on the highway, it doesn't harm anyone else. It just makes the highways more useful to others

If your money is not in the market, you harm commerce. There's less medium of exchange out there to trade.
People willing to trade without money will have to use conventional barter or IOUs, which are not as good as money for trade.

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April 26, 2011, 10:59:09 AM
 #69

To make clear that I'm not for inflation. I started this thread that explains how the money supply of the freicoin would look like.
There's a math problem and a bounty of 2 + 5 + 5 = 12 btc

http://bitcointalk.org/index.php?topic=6549


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April 26, 2011, 11:05:48 AM
 #70

Can you elaborate a bit more on why your analogy is better?
The Bitcoin system is the conduit for transactions, just as the highway is the conduit for vehicles. If you don't use the Bitcoin system (because you are saving your coins), you don't damage the system itself, just as you don't damage the highway by not driving on it.

"The economy" is not a tangible entity, it's just a statistical aggregation. However, "your economy" is real to you. If other people are not spending their bitcoins, your bitcoins are worth more and your economy is booming.
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April 26, 2011, 11:19:12 AM
 #71

Can you elaborate a bit more on why your analogy is better?
The Bitcoin system is the conduit for transactions, just as the highway is the conduit for vehicles. If you don't use the Bitcoin system (because you are saving your coins), you don't damage the system itself, just as you don't damage the highway by not driving on it.

I disagree. Imagine that no bitcoin owner sells their bitcoins for anything (I know, you have to imagine it).
No new bitcoin based business would be created, because there's no bitcoin transactions. If no one is willing to sell their bitcoins and people just collect them, bitcoin wouldn't serve as a medium of exchange.

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April 26, 2011, 11:29:47 AM
 #72

... Imagine that no bitcoin owner sells their bitcoins for anything ...

But I am always free to sell my bitcoins. If others are not selling their coins, I can get more for the coins that I sell.

You and others who share your preferences are free to start up freicoin and use it instead of Bitcoin. Competing currencies are not a bad thing.
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April 26, 2011, 11:58:32 AM
 #73

... Imagine that no bitcoin owner sells their bitcoins for anything ...

But I am always free to sell my bitcoins. If others are not selling their coins, I can get more for the coins that I sell.

Yes, you could sell your bitcoins for more, but that's not the point. You missed the part "imagine NOBODY wants to sell them". I'm just trying to explain you how money hoarding can hurt commerce like closing highways can hurt transportation. Of course, the owners of the highways have no reason to close them neither.

We agree in that deflation promotes hoarding, right?

You and others who share your preferences are free to start up freicoin and use it instead of Bitcoin. Competing currencies are not a bad thing.

Yes, I know. I prefer bitcoin and ripple to succeed for now.
Plus I don't know the bitcoin code well enough to make a fork, and I don't have the time to read it right now.
Moreover, what's the point in starting it if nobody (from the subset of the world population that understands why bitcoin can have value) agrees with me in that demurrage could be a good thing?

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April 26, 2011, 12:30:17 PM
 #74

We agree in that deflation promotes hoarding, right?

No!

Every transaction needs a buyer and a seller.

With price inflation, the buyer wants to get rid of the inflating money before it loses value, but the seller doesn't want to receive value-losing money either.

With price deflation, the buyer is happy to have money that increases in value, but the seller wants the money too.

Prosperity doesn't come from the money supply. It comes from people making stuff and doing stuff that is useful to other people. Perhaps in a theoretical "perfect" world, prices would vary only as productivity changes, but I can't think how you could bootstrap a new currency into such a world.
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April 26, 2011, 01:17:12 PM
 #75

Jtimon, I feel you're so close to understanding why deflation isn't a preoblem.

Maybe this is the sticking point... it will never be that nobody wants to trade their money in a deflationary/hoarding environment. Why? As the number of hoarders approaches the number of participants in the economy, the purchasing power of the remaining money "in" the economy approaches infinite. At some point, well before infinite purchasing power, some individuals are going to take advantage of low prices and make purchases. This will raise prices slightly.

You see, there is no spiral, it's a negative feedback loop - self correcting, not subject to wild swings as is the centrally controlled fiat money.
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April 26, 2011, 01:21:44 PM
 #76



It seems to me everything boils down to trust. 
This might be obvious to some but since the currency is virtual the trust/belief  is the most important aspect, especially when it is introduced.

I would have no problem trusting a currency with fixed say 0.5% increase in money supply each year, which in reality would lead to deflation anyway due to advance in technology/productivity etc.
But In order to have as many people as possible put their trust in bitcoin,  I now think it might be best let it converge to a fixed amount.

Maybe there will not be a new Ipad every year, but as an environmentalist I got no problem with that.





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April 26, 2011, 02:41:47 PM
 #77

Jtimon, I feel you're so close to understanding why deflation isn't a preoblem.

I think our views are not that different.
The two things in which we don't agree are these:

-Deflation incentives hoarding.
-Hoarding "hurts" commerce.

It would be more reasonable that you say:

Deflation incentives hoarding, but hoarding does not hurts commerce and there's no problem with it at all.

Maybe this is the sticking point... it will never be that nobody wants to trade their money in a deflationary/hoarding environment. Why? As the number of hoarders approaches the number of participants in the economy, the purchasing power of the remaining money "in" the economy approaches infinite. At some point, well before infinite purchasing power, some individuals are going to take advantage of low prices and make purchases. This will raise prices slightly.

You see, there is no spiral, it's a negative feedback loop - self correcting, not subject to wild swings as is the centrally controlled fiat money.

Agreed. My example, obviously won't happen. Just because of what you said.
I didn't talk about any spiral.
It is not subject to wild swings but it's subject to swings.

Since you don't like the highway analogy, I'll try it with an example.
BitterTea produces, for example, tea; Ribuck produces carrots and I produce fish.
There's only 3 gold coins in the island.
If one of us has the 3 coins in some certain time and hoard them, there's no possibility of exchange between the others but by barter or issuing IOUs.





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April 26, 2011, 02:49:27 PM
 #78

We agree in that deflation promotes hoarding, right?

No!

Every transaction needs a buyer and a seller.

With price inflation, the buyer wants to get rid of the inflating money before it loses value, but the seller doesn't want to receive value-losing money either.

With price deflation, the buyer is happy to have money that increases in value, but the seller wants the money too.

With price deflation, the money owner has a privilege that will take advantage of.
While money increases in value over time, most goods, like carrots, decrease their value over time.

Prosperity doesn't come from the money supply. It comes from people making stuff and doing stuff that is useful to other people.

I agree. Prosperity doesn't come from money supply. If so, we should all thank a lot Bernanke for what he is doing.

Perhaps in a theoretical "perfect" world, prices would vary only as productivity changes, but I can't think how you could bootstrap a new currency into such a world.

The fact that you can't think of a new currency with stable prices is not incompatible with the fact that it would be desirable.


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April 26, 2011, 02:56:00 PM
 #79



It seems to me everything boils down to trust. 
This might be obvious to some but since the currency is virtual the trust/belief  is the most important aspect, especially when it is introduced.

I would have no problem trusting a currency with fixed say 0.5% increase in money supply each year, which in reality would lead to deflation anyway due to advance in technology/productivity etc.
But In order to have as many people as possible put their trust in bitcoin,  I now think it might be best let it converge to a fixed amount.

Maybe there will not be a new Ipad every year, but as an environmentalist I got no problem with that.


After the coming (¿coming?) energy crisis there won't be a new Ipad every year regardless of the monetary system.
Personally I don't think that is going to be a new Ipad every year even if the peak energy doesn't come after a century from now.
Apple's strategy in rewards with free software is not very smart IMO. The appstore will kill apple. Maybe I'm wrong. Anyway this is offtopic.

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April 26, 2011, 03:05:45 PM
 #80

Quote
Since you don't like the highway analogy, I'll try it with an example.
BitterTea produces, for example, tea; Ribuck produces carrots and I produce fish.
There's only 3 gold coins in the island.
If one of us has the 3 coins in some certain time and hoard them, there's no possibility of exchange between the others but by barter or issuing IOUs.

now let's imagine that there are 21 million coins and 2.1 billion of bitcoin users. What are the odds that they ALL will decide to hoard their average 0.01 BTC and will not part with it even if it suddenly worth twice as much as day before. Care to do the math?


Ok. Again, I'm not saying that hoarding could ever stop commerce, just slow it down. Because not everybody is going to hoard the money.
There's 21 million bitcoins out there.
There's a 3% annual deflation.
Nobody will start a business that doesn't give him more profit than the 3% that he is getting for just hoarding his money.
What is better for society?
Someone living from doing nothing or someone investing the money in some enterprise at a risk?

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April 26, 2011, 03:20:24 PM
 #81


Perhaps in a theoretical "perfect" world, prices would vary only as productivity changes, but I can't think how you could bootstrap a new currency into such a world.

The fact that you can't think of a new currency with stable prices is not incompatible with the fact that it would be desirable.

/sigh/

Please read the above carefully, to see the difference between what I actually said, and what you assumed I said. This is wasting my time; I'm out of this discussion.
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April 26, 2011, 03:33:49 PM
 #82

Ok. Again, I'm not saying that hoarding could ever stop commerce, just slow it down. Because not everybody is going to hoard the money.
There's 21 million bitcoins out there.
There's a 3% annual deflation.
Nobody will start a business that doesn't give him more profit than the 3% that he is getting for just hoarding his money.
What is better for society?
Someone living from doing nothing or someone investing the money in some enterprise at a risk?

If you're going to continue to call it hoarding, can you please define the difference between "saving" and "hoarding"? To me, there is no difference, hoarding is merely someone saving more than you think is proper. Which is to say, it's none of anyone's business but the saver. Smiley

Anyway, I still disagree that hoarding/saving is detrimental. The key factor is "time preference", in almost every case, humans prefer to have things now instead of later. Think of it like two opposing forces, one is "if I wait until later, I can buy more things", the other is "I want things now". There is a different point for every individual at which these two forces cancel out. This cancelling results in trade. Now imagine you place everyone on a one dimensional graph represented by this function. There would be people scattered all over. Some will trade their Bitcoins when they reach $0.10/BTC, some at $1/BTC, some at $10/BTC. There is never going to be a point where a significant number of people are not willing to engage in trade. The more people unwilling to engage in trade, the more incentive there is for everyone else to trade, as their money has that much more purchasing power.

If you think about the two forces in an inflationary money supply, it's obvious why we are such consumers today. Inflation discourages savings, so the forces are "if I wait until later, I can buy less things" and "I want things now".
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April 26, 2011, 03:38:14 PM
 #83

What is better for society?
Someone living from doing nothing or someone investing the money in some enterprise at a risk?

What's better for society.  People only buying what they need, and things they _really_ want, or some people buying everything they think they might want, and some people not having anything.  That's what happens when inflation causes prices to rise.  The haves blow all their money on stupid shit because it will be worthless tomorrow and the have nots go hungry.

As we slide down the banister of life, this is just another splinter in our ass.
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April 26, 2011, 05:08:39 PM
 #84

Ok. Again, I'm not saying that hoarding could ever stop commerce, just slow it down. Because not everybody is going to hoard the money.
There's 21 million bitcoins out there.
There's a 3% annual deflation.
Nobody will start a business that doesn't give him more profit than the 3% that he is getting for just hoarding his money.
What is better for society?
Someone living from doing nothing or someone investing the money in some enterprise at a risk?

If you're going to continue to call it hoarding, can you please define the difference between "saving" and "hoarding"? To me, there is no difference, hoarding is merely someone saving more than you think is proper. Which is to say, it's none of anyone's business but the saver. Smiley

Anyway, I still disagree that hoarding/saving is detrimental. The key factor is "time preference", in almost every case, humans prefer to have things now instead of later. Think of it like two opposing forces, one is "if I wait until later, I can buy more things", the other is "I want things now". There is a different point for every individual at which these two forces cancel out. This cancelling results in trade. Now imagine you place everyone on a one dimensional graph represented by this function. There would be people scattered all over. Some will trade their Bitcoins when they reach $0.10/BTC, some at $1/BTC, some at $10/BTC. There is never going to be a point where a significant number of people are not willing to engage in trade. The more people unwilling to engage in trade, the more incentive there is for everyone else to trade, as their money has that much more purchasing power.

If you think about the two forces in an inflationary money supply, it's obvious why we are such consumers today. Inflation discourages savings, so the forces are "if I wait until later, I can buy less things" and "I want things now".

Agreed.  jtimon, you need to stop calling "saving" "hoarding".  That's Keynes lingering in your brain.  What you need to take into consideration is that we are all mortal and will die some time soon.  This makes our scarce time on this Earth extremely valuable to us.  That's why we'll continue to spend and circulate a currency even in a moderately deflationary environment.  Satisfying needs and wants now is more valuable than satisfying them later.

You also need to understand how important real savings are to economic growth.  I recommend the book, "How an Economy Grows and Why it Crashes" by Peter Schiff.  It's a fast and entertaining read that explains economic fundamentals (and torpedoes Keynesianism as a result) very succinctly.  If you want something free, then I highly recommend "What Has Government Done to Our Money?" by Murray Rothbard.  Reading that book was a real "red pill" moment for me.

EDIT: If you're REALLY impatient, here's Murray's thoughts on "hoarding".  He dedicated an entire chapter to it.

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April 26, 2011, 06:54:22 PM
 #85


Perhaps in a theoretical "perfect" world, prices would vary only as productivity changes, but I can't think how you could bootstrap a new currency into such a world.

The fact that you can't think of a new currency with stable prices is not incompatible with the fact that it would be desirable.

/sigh/

Please read the above carefully, to see the difference between what I actually said, and what you assumed I said. This is wasting my time; I'm out of this discussion.

I've re-read it and cannot see the difference between what you actually said, and what I assumed you said. I didn't want to put words in your mouth that you didn't say, but if you don't have the time to clarify it yourself, I cannot undone it, because I don't know what you meant.



2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 07:00:34 PM
 #86

Ok. Again, I'm not saying that hoarding could ever stop commerce, just slow it down. Because not everybody is going to hoard the money.
There's 21 million bitcoins out there.
There's a 3% annual deflation.
Nobody will start a business that doesn't give him more profit than the 3% that he is getting for just hoarding his money.
What is better for society?
Someone living from doing nothing or someone investing the money in some enterprise at a risk?

If you're going to continue to call it hoarding, can you please define the difference between "saving" and "hoarding"? To me, there is no difference, hoarding is merely someone saving more than you think is proper. Which is to say, it's none of anyone's business but the saver. Smiley

Anyway, I still disagree that hoarding/saving is detrimental. The key factor is "time preference", in almost every case, humans prefer to have things now instead of later. Think of it like two opposing forces, one is "if I wait until later, I can buy more things", the other is "I want things now". There is a different point for every individual at which these two forces cancel out. This cancelling results in trade. Now imagine you place everyone on a one dimensional graph represented by this function. There would be people scattered all over. Some will trade their Bitcoins when they reach $0.10/BTC, some at $1/BTC, some at $10/BTC. There is never going to be a point where a significant number of people are not willing to engage in trade. The more people unwilling to engage in trade, the more incentive there is for everyone else to trade, as their money has that much more purchasing power.

If you think about the two forces in an inflationary money supply, it's obvious why we are such consumers today. Inflation discourages savings, so the forces are "if I wait until later, I can buy less things" and "I want things now".

Agreed.  jtimon, you need to stop calling "saving" "hoarding".  That's Keynes lingering in your brain.  What you need to take into consideration is that we are all mortal and will die some time soon.  This makes our scarce time on this Earth extremely valuable to us.  That's why we'll continue to spend and circulate a currency even in a moderately deflationary environment.  Satisfying needs and wants now is more valuable than satisfying them later.

You also need to understand how important real savings are to economic growth.  I recommend the book, "How an Economy Grows and Why it Crashes" by Peter Schiff.  It's a fast and entertaining read that explains economic fundamentals (and torpedoes Keynesianism as a result) very succinctly.  If you want something free, then I highly recommend "What Has Government Done to Our Money?" by Murray Rothbard.  Reading that book was a real "red pill" moment for me.

EDIT: If you're REALLY impatient, here's Murray's thoughts on "hoarding".  He dedicated an entire chapter to it.

+1

Murray Rothbard FTW

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April 26, 2011, 08:58:14 PM
 #87

You prefer to use "monetary debasement" over "price inflation". Fair enough.
It's the same for me.

They're not exactly the same thing though.

Bernanke could deliver $5 trillion to Bill Gates who decides to just put the money in a hole in the ground.  The US dollar has just been substantially debased but there's no reason to expect any inflation.

Sustained inflation (beyond temporary price spikes) requires debasement of the currency, but debasement of the currency does not always result in price inflation.  Debasement is a necessary but not sufficient condition for price inflation.
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April 26, 2011, 09:01:42 PM
 #88

You prefer to use "monetary debasement" over "price inflation". Fair enough.
It's the same for me.

They're not exactly the same thing though.

Bernanke could deliver $5 trillion to Bill Gates who decides to just put the money in a hole in the ground.  The US dollar has just been substantially debased but there's no reason to expect any inflation.

Sustained inflation (beyond temporary price spikes) requires debasement of the currency, but debasement of the currency does not always result in price inflation.  Debasement is a necessary but not sufficient condition for price inflation.

Unless Bill is very careful to hide the location of his $5 trillion from everyone it will cause inflation when he dies.  Your argument is that if you create money and remove that same amount from the supply, inflation won't happen, but in what situation would that ever be done?

As we slide down the banister of life, this is just another splinter in our ass.
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April 26, 2011, 09:11:13 PM
 #89

You prefer to use "monetary debasement" over "price inflation". Fair enough.
It's the same for me.

They're not exactly the same thing though.

Bernanke could deliver $5 trillion to Bill Gates who decides to just put the money in a hole in the ground.  The US dollar has just been substantially debased but there's no reason to expect any inflation.

Sustained inflation (beyond temporary price spikes) requires debasement of the currency, but debasement of the currency does not always result in price inflation.  Debasement is a necessary but not sufficient condition for price inflation.

Unless Bill is very careful to hide the location of his $5 trillion from everyone it will cause inflation when he dies.  Your argument is that if you create money and remove that same amount from the supply, inflation won't happen, but in what situation would that ever be done?

That such a scenario is unlikely, I grant.  Still, the distinction is an important one if only because blurring it is confusing symptom with cause.
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April 26, 2011, 09:12:54 PM
 #90

Keynes didn't wash my brain. If someone did it, probably has been Silvio Gesell, as his was the first book that talks about economics that I read. Now I'm seeing a series of introductory lectures about austrian economics that the "don't buy bitcoins" guy has in his youtube account. It seems interesting. I will read the book because I'm interested in monetary theorist in general.
I'll reed the link to the chapter first.
Before anything I want to clarify what I mean by hoard and what I mean by save.
when you hoard you keep your money out of the market. When you save, you reserve some of the wealth you're earning to later consumption (or to increase production in the future or whatever). Thus hoarding is a way to save, but not the only one. You can save without hoard by lending or storing consumption goods that you know you will consume, for example. This way you can free the money to keep circulating and to do its job: serve as a medium of exchange.
I don't think that money should serve necessarily as a store of value because that function competes with the function as medium of exchange. Before money emerged from barter, the only way to save was storing goods or lending them.

I think that the assertion of "no one would lend his goods without charging interest because of time preference" is wrong.
There's some cases in which you would do it. If you have 20 Kgs of fish, maybe you consider lending them before they lose their value. Most consumption goods lost their value over time. Even production goods break and deteriorate. The only thing that does not (without inflation nor demurrage) is money.

When you hold money is like if the whole society gives you credit because the goods and services offered in exchange of a currency is what really "backs" a currency. Bitcoin is fiat, but the bitcoin community agrees to trade with it because it has many advantages as a medium of exchange over other currencies. A currency is in part an agreement. That's why a currency can lose all its value overnight when that agreement is broke.

In some sense, gold is fiat too. Even if it has "intrinsic value". Be careful when you hear this words because value is always relative. What that really means is that inside the commodity called gold which is a medium of exchange that isn't, but is also called gold and you can mutate between them at your will. That's why the value of gold will never go to zero even if the agreement is broke and it is not a currency anymore. But gold has far more value as a currency than as a commodity.

The first implicit agreement in what money should be (which emerged naturally from bartering) converged in gold (and other precious metals), which has the ability to store value because it doesn't deteriorate. It wasn't the only reason why it was collectively chosen. That agreement could exclude that property from the mix.

I don't think that printing is the right way to prevent money to become a store of value, inflation has many side effects which you probably know in more detail than me. One of them (which you seem to not consider too bad due to your defense of deflation) is that it damages the desirable function of currencies as measure of value.

I think that a better way to take away the function of storing value from money than applying demurrage to a scarce currency exist: create a non scarce currency.
There's a non scarce currency called LETS, but it depends on a "state". It requires a mini-government. Furthermore it is not scalable at all.
There's another non scarce currency called Ripple. I bet your objection to ripple: it is based on debt. But since every money is credit, Ripple is just pure money. You can store value in ripple by lending to the agents you trust

I'll put together some things you may disagree:

-Money shouldn't have the store of value function.
-Time preference does not apply to all goods.
-Every currency is based on collective credit: gold is also fiat.
-Measure of value is a desirable function for money. [This was the topic when I got in the thread]

P.S.: The web advices me that there's 4 posts that I haven't read, but I'm going to post it anyway.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 09:16:56 PM
 #91

You prefer to use "monetary debasement" over "price inflation". Fair enough.
It's the same for me.

They're not exactly the same thing though.

Bernanke could deliver $5 trillion to Bill Gates who decides to just put the money in a hole in the ground.  The US dollar has just been substantially debased but there's no reason to expect any inflation.

Sustained inflation (beyond temporary price spikes) requires debasement of the currency, but debasement of the currency does not always result in price inflation.  Debasement is a necessary but not sufficient condition for price inflation.

Ok, so monetary debasement is the same as what we called monetary inflation before, not the same as price inflation.
Thank you

I know what I mean, but I don't say what I mean sometimes.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 26, 2011, 11:06:54 PM
 #92

Keynes didn't wash my brain. If someone did it, probably has been Silvio Gesell, as his was the first book that talks about economics that I read. Now I'm seeing a series of introductory lectures about austrian economics that the "don't buy bitcoins" guy has in his youtube account. It seems interesting. I will read the book because I'm interested in monetary theorist in general.
I'll reed the link to the chapter first.

Great!  Let me know what you think. Smiley

Quote
Before anything I want to clarify what I mean by hoard and what I mean by save.
when you hoard you keep your money out of the market. When you save, you reserve some of the wealth you're earning to later consumption (or to increase production in the future or whatever). Thus hoarding is a way to save, but not the only one. You can save without hoard by lending or storing consumption goods that you know you will consume, for example. This way you can free the money to keep circulating and to do its job: serve as a medium of exchange.

Everyone who "hoards" their money out of the market is intending to spend it at some later date, unless they are collectors and the money itself were the desired end (a miniscule minority at best).  To paraphrase Rothbard, money isn't only useful when it's being exchanged.  It's also useful when put away, as it is ready to be exchanged if/when its owner wants to.  Think of spending as kinetic energy and savings as potential energy, if that helps.  Both are needed and useful.

Quote
I don't think that money should serve necessarily as a store of value because that function competes with the function as medium of exchange. Before money emerged from barter, the only way to save was storing goods or lending them.

What is money if not a store of value?  It can only be used as a medium of exchange because it has value.

Quote
When you hold money is like if the whole society gives you credit because the goods and services offered in exchange of a currency is what really "backs" a currency. Bitcoin is fiat, but the bitcoin community agrees to trade with it because it has many advantages as a medium of exchange over other currencies. A currency is in part an agreement. That's why a currency can lose all its value overnight when that agreement is broke.

In some sense, gold is fiat too. Even if it has "intrinsic value". Be careful when you hear this words because value is always relative. What that really means is that inside the commodity called gold which is a medium of exchange that isn't, but is also called gold and you can mutate between them at your will. That's why the value of gold will never go to zero even if the agreement is broke and it is not a currency anymore. But gold has far more value as a currency than as a commodity.

Not to sidetrack with a semantic argument, but bitcoin is not fiat.  Fiat money has its value because it is backed by government fiat.  Free market money has its value because enough people freely assign value to it.  The key difference is counterparty risk.  Fiat money relies on a relatively small group of people (government) to retain its value while free market money disperses its risk over the entire free market.

Quote
The first implicit agreement in what money should be (which emerged naturally from bartering) converged in gold (and other precious metals), which has the ability to store value because it doesn't deteriorate. It wasn't the only reason why it was collectively chosen. That agreement could exclude that property from the mix.

I don't think that printing is the right way to prevent money to become a store of value, inflation has many side effects which you probably know in more detail than me. One of them (which you seem to not consider too bad due to your defense of deflation) is that it damages the desirable function of currencies as measure of value.

I think that a better way to take away the function of storing value from money than applying demurrage to a scarce currency exist: create a non scarce currency.
There's a non scarce currency called LETS, but it depends on a "state". It requires a mini-government. Furthermore it is not scalable at all.
There's another non scarce currency called Ripple. I bet your objection to ripple: it is based on debt. But since every money is credit, Ripple is just pure money. You can store value in ripple by lending to the agents you trust

If they were truly non-scarce then they would have 0 value on the free market.  I haven't read about Ripple or LETS yet but I'm venturing to guess that, if it can function as a store of value, then it must have scarcity.  Even the USD has scarcity -- it just keeps getting less scarce at a very fast rate.

Quote
I'll put together some things you may disagree:

-Money shouldn't have the store of value function.

Again, if money did not store value, then it would be worthless in exchange.

Quote
-Time preference does not apply to all goods.

Since our time is scarce, and we can only take any action at the exclusion of all other possible actions at any given time, time preference applies to everything we do.

Quote
-Every currency is based on collective credit: gold is also fiat.

Note the differences I pointed out between "collective credit" and fiat above.

Quote
-Measure of value is a desirable function for money. [This was the topic when I got in the thread]

Measure of value = store of value.  They are one and the same.


Instead of looking at money as a medium of exchange, try viewing it instead as an accounting tool (by calling it a "measure of value" you may already do this).  As separation of labor and the resulting necessities to trade propagated throughout humanity, a need arose to efficiently measure each individual's contribution to the economy.  That's all money really does.  Any changes to the total supply of money distorts this measure of past productivity.  The savings rate is also important as it broadcasts to entrepreneurs, through interest rates, what the market's general time preference is at any given time.  Savings are extremely important.  It's actually the only way an economy can sustainably grow because people are deferring present consumption in favor of more future consumption.  This deferred consumption is what gets invested into newer and better capital to increase productivity.  As for money that is lost, like a deleted bitcoin wallet, that can't be accounted for since there is no way in telling if any bitcoin is truly lost or just being saved for a long period of time.  IMO, the fairest action is no action.  The wallet owner is punished for his/her mistake while the rest of the bitcoin owners benefit on aggregate.

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April 27, 2011, 12:21:47 AM
 #93

Ripple is not a currency, but a web-of-trust based credit system.  It still depends on a common reference of value.  Said another way, Ripple users can use any common metric; such as ounces of gold or silver, fiat currencies, or whatever; as their medium of exchange, but the system itself does not establish one.  Bitcoins could be traded well in this manner, but in the end, Ripple is credit; if the buyer had the bitcoins, he could just pay for it.  Ripple does permit people to trade online relative to hard money, without needing to ship the hard money itself; but it is neccessarily not anonymous.

LETS stands for Local Exchange Trading System, and it is a local "mutual credit" based currency.  It does not involve scarcity, as the credits are created at the time of the trade deal by a double entry type system.  I.E., there is some central book, and when someone buys something from a local vendor, the account of the vendor shows a credit while the account of the buyer shows a debit, but all debits and credits in the system balance out to zero.  The system requires an external peg of value agreed to by the whole of the userbase, which can be a national currency, hard money, or hours of unskilled labor.




"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 28, 2011, 03:35:27 PM
 #94

Keynes didn't wash my brain. If someone did it, probably has been Silvio Gesell, as his was the first book that talks about economics that I read. Now I'm seeing a series of introductory lectures about austrian economics that the "don't buy bitcoins" guy has in his youtube account. It seems interesting. I will read the book because I'm interested in monetary theorist in general.
I'll reed the link to the chapter first.

Great!  Let me know what you think. Smiley

I've read the chapter.
I don't think that a hoarder is a miser. He just do what he thinks is better for him. If hoarding is the best way to save in the society he lives, it's not his fault.
The argument I find more interesting is this:

"The more uncertain and fearful they are, the more cash balances they will want to hold; the more secure, the less cash they will wish to keep on hand. "

Or more simply: Cash is a protection against uncertainty.

Quote
Before anything I want to clarify what I mean by hoard and what I mean by save.
when you hoard you keep your money out of the market. When you save, you reserve some of the wealth you're earning to later consumption (or to increase production in the future or whatever). Thus hoarding is a way to save, but not the only one. You can save without hoard by lending or storing consumption goods that you know you will consume, for example. This way you can free the money to keep circulating and to do its job: serve as a medium of exchange.

Everyone who "hoards" their money out of the market is intending to spend it at some later date, unless they are collectors and the money itself were the desired end (a miniscule minority at best).  To paraphrase Rothbard, money isn't only useful when it's being exchanged.  It's also useful when put away, as it is ready to be exchanged if/when its owner wants to.  Think of spending as kinetic energy and savings as potential energy, if that helps.  Both are needed and useful.

Quote
I don't think that money should serve necessarily as a store of value because that function competes with the function as medium of exchange. Before money emerged from barter, the only way to save was storing goods or lending them.

What is money if not a store of value?  It can only be used as a medium of exchange because it has value.

Quote
When you hold money is like if the whole society gives you credit because the goods and services offered in exchange of a currency is what really "backs" a currency. Bitcoin is fiat, but the bitcoin community agrees to trade with it because it has many advantages as a medium of exchange over other currencies. A currency is in part an agreement. That's why a currency can lose all its value overnight when that agreement is broke.

In some sense, gold is fiat too. Even if it has "intrinsic value". Be careful when you hear this words because value is always relative. What that really means is that inside the commodity called gold which is a medium of exchange that isn't, but is also called gold and you can mutate between them at your will. That's why the value of gold will never go to zero even if the agreement is broke and it is not a currency anymore. But gold has far more value as a currency than as a commodity.

Not to sidetrack with a semantic argument, but bitcoin is not fiat.  Fiat money has its value because it is backed by government fiat.  Free market money has its value because enough people freely assign value to it.  The key difference is counterparty risk.  Fiat money relies on a relatively small group of people (government) to retain its value while free market money disperses its risk over the entire free market.


Ok, maybe fiat is not the right word, what I mean is that its value as money is based on faith too. People give credit to gold in some sense.
I think that was Morgan who said "Gold is money, everything else is credit".
Well, I disagree and I think gold (when used as money) is credit too, the only difference is that gold cannot be printed. That's one of the reasons why it became money in the first place.

Quote
The first implicit agreement in what money should be (which emerged naturally from bartering) converged in gold (and other precious metals), which has the ability to store value because it doesn't deteriorate. It wasn't the only reason why it was collectively chosen. That agreement could exclude that property from the mix.

I don't think that printing is the right way to prevent money to become a store of value, inflation has many side effects which you probably know in more detail than me. One of them (which you seem to not consider too bad due to your defense of deflation) is that it damages the desirable function of currencies as measure of value.

I think that a better way to take away the function of storing value from money than applying demurrage to a scarce currency exist: create a non scarce currency.
There's a non scarce currency called LETS, but it depends on a "state". It requires a mini-government. Furthermore it is not scalable at all.
There's another non scarce currency called Ripple. I bet your objection to ripple: it is based on debt. But since every money is credit, Ripple is just pure money. You can store value in ripple by lending to the agents you trust

If they were truly non-scarce then they would have 0 value on the free market.  I haven't read about Ripple or LETS yet but I'm venturing to guess that, if it can function as a store of value, then it must have scarcity.  Even the USD has scarcity -- it just keeps getting less scarce at a very fast rate.


They are as scarce as credit.
LETS works for small communities. The payer owes the community (as a whole) and the seller is credited by the community by the same amount (the price of the purchase).
With Ripple, each participant performs the same role as the central LETS organization. He gives and receives IOUs from his trusted parties and can act as an intermediary between them (just as the central LETS does with the LETS participants), without moving his total balance. He can charge fees or interest if the parties agree.
The Ripple system allows you to use that network of trust connections to pay someone who you don't have a direct trust relationship with.

Quote
I'll put together some things you may disagree:

-Money shouldn't have the store of value function.

Again, if money did not store value, then it would be worthless in exchange.


I mean that fulfilling this function optimally shouldn't be the main purpose of a currency.
Inflationary currencies or currencies with demurrage don't store value as well as gold does. Does make them money with less capacity for storing value, but with more capacity to mediate in exchanges.
Inflationary currencies also lead to miss-allocation of capital.

Quote
-Time preference does not apply to all goods.

Since our time is scarce, and we can only take any action at the exclusion of all other possible actions at any given time, time preference applies to everything we do.


What I meant is that you don't always prefer to have certain good now than later.
If you have 100,000 carrots, for example, maybe you're happy to lend them at no interest and receive 10 of them a week.

Quote
-Every currency is based on collective credit: gold is also fiat.

Note the differences I pointed out between "collective credit" and fiat above.

I change the sentence.

-Every currency is based on collective credit: gold is also credit.

Quote
-Measure of value is a desirable function for money. [This was the topic when I got in the thread]

Measure of value = store of value.  They are one and the same.

Instead of looking at money as a medium of exchange, try viewing it instead as an accounting tool (by calling it a "measure of value" you may already do this).  As separation of labor and the resulting necessities to trade propagated throughout humanity, a need arose to efficiently measure each individual's contribution to the economy.  That's all money really does.  Any changes to the total supply of money distorts this measure of past productivity.  The savings rate is also important as it broadcasts to entrepreneurs, through interest rates, what the market's general time preference is at any given time.  Savings are extremely important.  It's actually the only way an economy can sustainably grow because people are deferring present consumption in favor of more future consumption.  This deferred consumption is what gets invested into newer and better capital to increase productivity.  As for money that is lost, like a deleted bitcoin wallet, that can't be accounted for since there is no way in telling if any bitcoin is truly lost or just being saved for a long period of time.  IMO, the fairest action is no action.  The wallet owner is punished for his/her mistake while the rest of the bitcoin owners benefit on aggregate.

Yes, separation of labor. That's the whole point of money. It's a step forward in separation of labor when compared to ordinary barter.  
The accounting tool would be better if it didn't suffer from price inflation/deflation.

We have two men that produce the same durable good.
One of them sell it for an ounce of gold, while the other one stores the good to sell it in the future.
The credit that the first holds (one ounce of gold) is equivalent at market price to the stored good.
No growth, no change in the market.
Now a ton of gold gets lost in the deepest ocean. Monetary deflation causes price deflation.
Now the first man is credited magically for a value greater than the stored good (which is what he produced).
The stored good has not change in value in relation to all the other goods, just in relation with money. Nevertheless, the unit of account (the value of a gold ounce) has changed.
If the unit of account is changing, is more likely that "unfair" deals are made.
Deflation is bad for debtors, and we all owe to money holders in a certain way (if you accept that money is credit).
The example is a bit tricky because it relies on monetary deflation, not just price deflation. But I think that if we replace in it monetary deflation with stable supply and growth, the result is much the same.

I'll keep on reading about Austrian economics. Although I don't think that "gold = money" is a natural law, but an ancient cultural convention, their theories are very interesting.
I don't completely agree with the school in what the nature of money is but I do agree in what's the origin (from what I read/heard) of it.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 28, 2011, 03:37:31 PM
 #95

Ripple is not a currency, but a web-of-trust based credit system.  It still depends on a common reference of value.  Said another way, Ripple users can use any common metric; such as ounces of gold or silver, fiat currencies, or whatever; as their medium of exchange, but the system itself does not establish one.  Bitcoins could be traded well in this manner, but in the end, Ripple is credit; if the buyer had the bitcoins, he could just pay for it.  Ripple does permit people to trade online relative to hard money, without needing to ship the hard money itself; but it is neccessarily not anonymous.

LETS stands for Local Exchange Trading System, and it is a local "mutual credit" based currency.  It does not involve scarcity, as the credits are created at the time of the trade deal by a double entry type system.  I.E., there is some central book, and when someone buys something from a local vendor, the account of the vendor shows a credit while the account of the buyer shows a debit, but all debits and credits in the system balance out to zero.  The system requires an external peg of value agreed to by the whole of the userbase, which can be a national currency, hard money, or hours of unskilled labor.


It depends on how we define currency.
What quality has LETS and Ripple hasn't that make it a currency?
You may say that the real currency in ripple are the IOUs issued. The LETS currency is just the IOUs issued by the LETS organization or community.
I see the fact that they can use different references of value (and need to use at least one) as an advantage.
You could issue IOUs denominated in carrots, but carrots won't gain extra value for becoming money (as gold did).
You could issue IOUs denominated in a currency that is based on a basket of currencies (like terra) so that they were completely inflation/deflation resistant. You could define a currency in Ripple the same way you define CPI.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 28, 2011, 07:11:25 PM
 #96

Ripple is not a currency, but a web-of-trust based credit system.  It still depends on a common reference of value.  Said another way, Ripple users can use any common metric; such as ounces of gold or silver, fiat currencies, or whatever; as their medium of exchange, but the system itself does not establish one.  Bitcoins could be traded well in this manner, but in the end, Ripple is credit; if the buyer had the bitcoins, he could just pay for it.  Ripple does permit people to trade online relative to hard money, without needing to ship the hard money itself; but it is neccessarily not anonymous.

LETS stands for Local Exchange Trading System, and it is a local "mutual credit" based currency.  It does not involve scarcity, as the credits are created at the time of the trade deal by a double entry type system.  I.E., there is some central book, and when someone buys something from a local vendor, the account of the vendor shows a credit while the account of the buyer shows a debit, but all debits and credits in the system balance out to zero.  The system requires an external peg of value agreed to by the whole of the userbase, which can be a national currency, hard money, or hours of unskilled labor.


It depends on how we define currency.
What quality has LETS and Ripple hasn't that make it a currency?
You may say that the real currency in ripple are the IOUs issued.

Ripple doesn't define the unit of value the IOU's are based upon, while a LETS system must collectively define this.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 29, 2011, 12:51:18 AM
 #97

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.


bills of 0.000000000000001 dolars can be printed too. So I guess deflation is not a problem for national currencies neither.

I'd like to see you, the user divide a penny. Lets see it.

CENTRA

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April 29, 2011, 12:21:10 PM
 #98

Ripple is not a currency, but a web-of-trust based credit system.  It still depends on a common reference of value.  Said another way, Ripple users can use any common metric; such as ounces of gold or silver, fiat currencies, or whatever; as their medium of exchange, but the system itself does not establish one.  Bitcoins could be traded well in this manner, but in the end, Ripple is credit; if the buyer had the bitcoins, he could just pay for it.  Ripple does permit people to trade online relative to hard money, without needing to ship the hard money itself; but it is neccessarily not anonymous.

LETS stands for Local Exchange Trading System, and it is a local "mutual credit" based currency.  It does not involve scarcity, as the credits are created at the time of the trade deal by a double entry type system.  I.E., there is some central book, and when someone buys something from a local vendor, the account of the vendor shows a credit while the account of the buyer shows a debit, but all debits and credits in the system balance out to zero.  The system requires an external peg of value agreed to by the whole of the userbase, which can be a national currency, hard money, or hours of unskilled labor.


It depends on how we define currency.
What quality has LETS and Ripple hasn't that make it a currency?
You may say that the real currency in ripple are the IOUs issued.

Ripple doesn't define the unit of value the IOU's are based upon, while a LETS system must collectively define this.

Right. In LETS, all the community have to decide the unit of value of the IOUs. In Ripple, just the issuer and the receiver of the IOUs.
In both systems they trade with IOUs. They are so similar to me (Ripple is a generalization of LETS) that I don't understand how one can be a currency and the other not. They are both a currency or neither of them.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 29, 2011, 12:59:18 PM
 #99

HELOOOO...

Bitcoin is divisible to 8 decimal places. EIGHT! Its a digital currency, you don't have to break it on a rock to divide it. Deflation is irrelevant.


bills of 0.000000000000001 dolars can be printed too. So I guess deflation is not a problem for national currencies neither.

I'd like to see you, the user divide a penny. Lets see it.

No I was saying that the fed could print 0.000000000000001 dolar bills too. The dolar is potentially divisible to any number of decimal places.
The user would need to go to a bank and change its one cent coin for 100 bills of 0.0001 dolars.
Bitcoin doesn't have more protection against deflation than the dolar because of its divisibility.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 29, 2011, 01:06:20 PM
 #100

The entire system surrounding the dollar is set up for two decimal places of divisibility. Do you have any idea how much it would cost to add more decimal places? Every fucking thing would have to change.
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April 29, 2011, 04:57:31 PM
 #101

No it wouldn't. We'll just use nanobitcoins or something...

Jtimon claimed that if deflation happened to the USD (haha), the Fed would just print .000000001 dollar bills. I was refuting this claim.
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April 29, 2011, 05:22:12 PM
 #102

The entire system surrounding the dollar is set up for two decimal places of divisibility. Do you have any idea how much it would cost to add more decimal places? Every fucking thing would have to change.

You're right. The change would have a cost. But if the divisibility of the currency were the problem of deflation, the solution would be as easy (although as you say, costly) as that, increasing the divisibility of it.
During inflation, changing the denomination of the bills has also costs (although they may be lesser) and I don't see anybody arguing that high denomination bills is the reason why we don't want inflation. It leads to other and more serious problems.
I estimate the cost of changing the divisibility of the dolar to be lesser than the cost of moving from pesetas, escudos, marks, etc, to euros.
Most people in this forum believe that there's no problem with deflation at all, but I didn't see anyone arguing against it signaling the problem of divisibility.
Bitcoin won't have that problem, cool. But no one is saying that divisibility is the problem with deflation.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 29, 2011, 05:23:14 PM
 #103

What you don't get is that motivating (rewarding, punishing) is not the only way to bring change.

In fact, were it not for the condescending (and yes it is) attitude, more people would do good without being rewarded. Because you see, aside from the initial 'who the hell is he to tell me what to do?' reaction a different sentiment creeps in. This is far more discouraging. What people start thinking after they get over the initial selfishness (lasts about 5 minutes) are thoughts like the following:

'is this guy ever going to be satisfied?'
'can I do something complex without his royal displeasure figuring into the equation?'
'will the king of moral manipulation say no to an idea that might interfere with his painstaking calculations of where the inflation should be?'
'will I not be able to help a friend using bitcoin because so many newbies hang around the blowhards instead of contributing?'

That's right I said it. The last one is the prime reason why people are more likely to complain about a problem than do something. You elitists got people to wait for you to give the signal with all your hot air. If there's any lack of charity it's your attitude that promotes it.

What you fail to understand is that not only are you not the first nor the only one, but that there's a whole army of elitists like yourself waiting for an opening.

Now as to your elitism. First, people evolve not society and they do it within their lifetime not over generations. Your conception of human progress is completely out of touch. Second, people have already come up with ideas so your characterization of society needing to evolve is as they say 'not even wrong'.

There's plenty of injustice in the world which is inspiring, not motivating, people to help each other. Check out the Middle East and North Africa. Copts and Muslims protected each other.

Last, but not least, there are ways to create subnetworks of bitcoin without imposing a one size fits all adjustment. Bitcoin doesn't need to change. You can create voluntary closed communities for the purpose of giving people a medium of exchange. But it never occurs to you elitists to create models and voluntary structures. Always trying to create the most clever idea that should be imposed on all based on merit alone. Ideas should not be based on merit alone. They should also be agreed to based on the humility of the one proposing.

You fail it.

Get thee behind me. Now watch this drive. See how real activism works.

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
Means: Code, donations, and brutal criticism. I've got a thick skin. 1Gc3xCHAzwvTDnyMW3evBBr5qNRDN3DRpq
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April 29, 2011, 06:26:37 PM
 #104

@antivigilantie, who are you complaining about?

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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April 29, 2011, 06:40:08 PM
 #105

@creighto
I think it's against me

I don't want to bother any of you.
I've learned many things during the thread and I want to thank you for that. I'll follow Mashuri's advice of reading about austrian economics and maybe after that, I can explain my ideas in a less annoying way for all of you. Probably those ideas will change or at least order themselves a little bit. After that I may need to re-read Gesell too.
I still find the subject "potential problems of inflation and deflation in a free market economy with a stable monetary base" very interesting.
Don't get mad, I'm not that bad. I don't know who wrote that, but I'm sure we have more in common than he thinks.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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April 29, 2011, 06:45:25 PM
 #106

@creighto
I think it's against me

I don't want to bother any of you.
I've learned many things during the thread and I want to thank you for that. I'll follow Mashuri's advice of reading about austrian economics and maybe after that, I can explain my ideas in a less annoying way for all of you. Probably those ideas will change or at least order themselves a little bit. After that I may need to re-read Gesell too.
I still find the subject "potential problems of inflation and deflation in a free market economy with a stable monetary base" very interesting.
Don't get mad, I'm not that bad. I don't know who wrote that, but I'm sure we have more in common than he thinks.

jtimon, I really appreciate your attitude in this discussion. I can be an asshole and/or blunt sometimes, but I try to have productive disagreements whenever possible. It makes it so much easier when the other person is at least willing to do some research on the issue at hand. Thanks for being a good sport! Smiley
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April 29, 2011, 08:01:29 PM
 #107

@creighto
I think it's against me

I don't want to bother any of you.
I've learned many things during the thread and I want to thank you for that. I'll follow Mashuri's advice of reading about austrian economics and maybe after that, I can explain my ideas in a less annoying way for all of you. Probably those ideas will change or at least order themselves a little bit. After that I may need to re-read Gesell too.
I still find the subject "potential problems of inflation and deflation in a free market economy with a stable monetary base" very interesting.
Don't get mad, I'm not that bad. I don't know who wrote that, but I'm sure we have more in common than he thinks.

It's not you. It's the original poster, pusle. Really got under my skin with the rhetorical condescension, like it's accepted fact. People like that swing between professional melancholy and romanticizing collapse sometimes a few cycles a day. Attitude only gets someone so far, afterwards, trending toward major douche. There's a seething undercurrent that doesn't mesh with the turtleneck dictator mindset, which is why such people can't see it.

We're upset about manipulation of money, but we need to be incentivized? That's a living contradiction for people who are still alive, even if it technically isn't a contradiction. Sorry there's two problems: I have ideas of how to use bitcoin as it is and I don't trust any one who uses the word modest in the title of a post. Those two factors collide making it necessary to respond. Could I have been nicer about it? I honestly don't know how far this person wants to go or how many other Keynesian fanatics think they found a safe haven they can test their pet theories on.

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
Means: Code, donations, and brutal criticism. I've got a thick skin. 1Gc3xCHAzwvTDnyMW3evBBr5qNRDN3DRpq
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April 30, 2011, 07:59:48 PM
 #108


I've learned a lot too and converging to a fixed amount does seem to be the best choice.

I will however defend my original argument about incentive motivates people.
For any animal it doesn't make sense to do something unless there is a reward of some kind.
There would be a strong evolutionary pressure for this trait in any species.
Sure this may not only be short term as some species have evolved cooperation, altruism, social interaction  etc. This increases chance of survival for all members of the group.

We have more or less recreated the jungle, in abstracted form.
This is the reason why our current system works so well,  and other more ideal systems has failed.
We don't have to go out to hunt, but we have to go to work and bring home the money.  Instead of storing  goods you really need, we buy crap we think we need. All the mechanisms are intact, it's just moved one level up on the abstraction ladder.

People are not driven by this alone. If I wanted to make maximum amount of money I'd go into the offshore/oil business, instead I earn half of what I could have. But if people like me ran Wall Street there would never be an economic crash and banks would be mandated to have a 50% reserve ratio.

I may not have the best contact with the world either, but from the stories other people tell me it's quite obvious selfishness and  "path of least resistance" is alive and well in the world. This is why incentives, real or imagined, increases productivity.

But yes, what kind of productivity?  Perhaps it would be better for all to slow down as one poster said.
I don't have the answers, but I'm happy to make people think and discuss even if some get angry and threaten me with violence  Grin


(Yes, my mind is sometimes a convoluted mess Tongue )

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May 02, 2011, 11:25:51 PM
 #109

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


34.x% is not enough in the 3rd year.  It might need to be 300 or 400% to keep up with demand as it takes off, maybe more.

It's a good concept but needs to be refined, into something self regulating and sustaining.
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May 03, 2011, 02:26:38 AM
 #110

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


34.x% is not enough in the 3rd year.  It might need to be 300 or 400% to keep up with demand as it takes off, maybe more.

It's a good concept but needs to be refined, into something self regulating and sustaining.

AFAICT, the only way to keep up with demand that's self-regulating is to throw out difficulty adjustment and have blocks be solved faster as more nodes are working (thus faster money creation as more nodes participate).
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May 03, 2011, 04:12:32 AM
 #111

Some people think that deflation is terrible since everyone will hoard the currency and hope that it increases in value. This is just as absurd as saying that with inflation, no goods will ever be sold since no one will want to trade them for a depreciating asset. Predictable levels of inflation and deflation are not very destructive (unlike unpredictable levels), since economies can adjust easily, but they are not necessary.

Also, if the money supply is constant, prices will fall not because of deflation, but because goods and services naturally fall in price in a free-market setting as competition and innovation persist. Here I'm using the Austrian School's definition of inflation and deflation: an increase or decrease in the money supply, respectively, NOT an increase or decrease in the prices of goods and services.
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May 03, 2011, 07:38:31 AM
 #112

Some people think that deflation is terrible since everyone will hoard the currency and hope that it increases in value. This is just as absurd as saying that with inflation, no goods will ever be sold since no one will want to trade them for a depreciating asset. Predictable levels of inflation and deflation are not very destructive (unlike unpredictable levels), since economies can adjust easily, but they are not necessary.

Also, if the money supply is constant, prices will fall not because of deflation, but because goods and services naturally fall in price in a free-market setting as competition and innovation persist. Here I'm using the Austrian School's definition of inflation and deflation: an increase or decrease in the money supply, respectively, NOT an increase or decrease in the prices of goods and services.

I am using the term deflation with the conventional definition: A decline in nominal aggregate prices.  I have not said that trade cannot take place in the presence of either inflation or deflation. The Austrian definition seeks to emphasize the role of changes in the money supply in inflation, which is not a problem since I am also saying that money supply is an important factor in recent BTC price changes.

While I agree that given a constant money supply prices will tend to fall with economic growth and technological innovation, clearly there has not been sufficient economic growth in the real bitcoin economy to account for the large increase in the price of BTC/USD in the last four weeks.  This price instability I believe is a threat to widespread adoption of bitcoin, as measured by the rapid changing of these prices in the first and second derivative.  The other complication is that like it or not bitcoin exists in the context of much more widely used fiat currencies, and the exchange rates with those currencies will directly influence BTC prices independent of growth or technology.

I think a much more likely cause is not the natural evolution of prices in the face of growth and constant money supply, but rather a drastic increase in external demand wishing to hold the currency because of the novelty of something easily purchased electronically that cannot be easily increased in quantity.  The recent publicity has also contributed. The very attribute making BTC desirable will also be its undoing unless a self-regulating peer-to-peer method of naturally regulating the money supply can be found.
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May 03, 2011, 08:00:07 AM
 #113


AFAICT, the only way to keep up with demand that's self-regulating is to throw out difficulty adjustment and have blocks be solved faster as more nodes are working (thus faster money creation as more nodes participate).


34.x% is not enough in the 3rd year.  It might need to be 300 or 400% to keep up with demand as it takes off, maybe more.

It's a good concept but needs to be refined, into something self regulating and sustaining.

Both of these are easy to implement. If you don't code someone will probably do it for you for 10-20BTC. They don't exist because no one wants them.

Play Bitcoin Poker at sealswithclubs.eu. We're active and open to everyone.
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May 03, 2011, 09:01:21 AM
 #114

I don't think either of us think it is an implementation issue. The difficulty is to come up with a distributed p2p algorithm that can allow some self-regulating elasticity in the money supply.  Nobody wants it because a good one has not been thought of.

Bitcoin is threatened by a bubble at the moment.  Prices (USD/BTC) are rising because it is perceived as a scarce resource that might have value in the future.  As soon as the underlying perception changes it will go the other direction just as fast because there is little underlying real economy to stabilize it.
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May 03, 2011, 09:17:46 AM
 #115

I don't think either of us think it is an implementation issue. The difficulty is to come up with a distributed p2p algorithm that can allow some self-regulating elasticity in the money supply.  Nobody wants it because a good one has not been thought of.
 

I know of a good one. It was implemented and thousands of people value it. Others have been thought of, none that anyone expects other people to value in the future or else they would be making them now. I fully admit that something else could catch on, but it's not going to be one where value is dissipated.


Bitcoin is threatened by a bubble at the moment.  Prices (USD/BTC) are rising because it is perceived as a scarce resource that might have value in the future.  As soon as the underlying perception changes it will go the other direction just as fast because there is little underlying real economy to stabilize it.

It's true that if people decide they don't want coins then the price will be low. Why do you think people are going to change their minds?

Why do you say "perceived as a scare resource"? Do you think it is not?

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May 03, 2011, 09:48:19 AM
 #116

Any one that thinks 'inflation' is a good idea ... no matter how small .. is a high treasonous traitor to their race.

Why simple:
- person X goes to work -> 40 hours per week
- person X's skills/labor/etc are worth  ... oh .. say $5 (I'm using Fiat as it is inflationary based) / hour ...
- person X can pay for housing and food for himself and his family with this amount
- inflation raises prices 5% because some Parasite decided to print UNENDING amounts of MONEY (inflation) devaluing it more
- person X -> working the same time and effort can no longer afford housing and food for himself and his family because the costs went up to do inflation.
- person X watches him family be HOMELESS or STAVE to death now.


 -  inflation just murdered his family .. because his labor/skill no longer have VALUE because YOUR inflation just took it away.
       and you wanted it intentionally ... this is what central bankers want and it's why you and them are evil ...

inflation steals labor, work and the RIGHT to make a living ... unconstitutional high treason  -> only one penalty by common law rule for this crime.

While I roughly agree with the sentiment, it's worth noting that killing people won't be nearly as effective as disengaging from the fraudulent system and using our own solution.

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May 03, 2011, 10:25:24 AM
 #117

Any one that thinks 'inflation' is a good idea ... no matter how small .. is a high treasonous traitor to their race.

Why simple:
- person X goes to work -> 40 hours per week
- person X's skills/labor/etc are worth  ... oh .. say $5 (I'm using Fiat as it is inflationary based) / hour ...
- person X can pay for housing and food for himself and his family with this amount
- inflation raises prices 5% because some Parasite decided to print UNENDING amounts of MONEY (inflation) devaluing it more
- person X -> working the same time and effort can no longer afford housing and food for himself and his family because the costs went up to do inflation.
- person X watches him family be HOMELESS or STAVE to death now.


 -  inflation just murdered his family .. because his labor/skill no longer have VALUE because YOUR inflation just took it away.
       and you wanted it intentionally ... this is what central bankers want and it's why you and them are evil ...

inflation steals labor, work and the RIGHT to make a living ... unconstitutional high treason  -> only one penalty by common law rule for this crime.

While I roughly agree with the sentiment, it's worth noting that killing people won't be nearly as effective as disengaging from the fraudulent system and using our own solution.

Deflation is "unfair" too.
-person Y starts a business paying their workers fro 40 hours a week.
-person Y make a building and will use their gains for housing himself and his family with this amount.
...
Deflation occurs and he has not gained enough to cover housing and food for him and his family. Maybe he can't even pay the loan ha asked for starting the business.

@CoinOperated

Do you think demurrage could prevent these bubbles?

http://bitcointalk.org/index.php?topic=6549.0

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May 03, 2011, 12:48:47 PM
 #118

That makes no sense. Prices are falling dute to deflation, so food and shelter is no problem. The interest rate on the loan is 0 or negative, since the creditor will be repaid in BTC with more purchasing power, and is easier to repay. Also, person y probably has been saving money for a while (since deflation causes hoarding, right?) and has enough to get by.
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May 03, 2011, 01:02:44 PM
 #119

@Topic author

This has been discussed many times over and over and over and over again.
This will simply not happen. If it would, I (and probably most of the people who have Bitcoin now) would simply not use Bitcoin.

Deflation is the most important reason why I am using Bitcoin - because i don't want governments or anybody else to steal from me.

Go make a fork, start your own version of Bitcoin and stop littering the forums uselessly.

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May 03, 2011, 01:26:48 PM
 #120

That makes no sense. Prices are falling due to deflation, so food and shelter is no problem.

Is no problem for money owners, it is a problem for debtors.

The interest rate on the loan is 0 or negative, since the creditor will be repaid in BTC with more purchasing power, and is easier to repay.

Without demurrage the interest rate on the loan will never go to zero or negative: the money owner would prefer to just hold it.

Also, person y probably has been saving money for a while (since deflation causes hoarding, right?) and has enough to get by.

What if the deflation appears after he starts the business?


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May 03, 2011, 01:44:14 PM
 #121

While I roughly agree with the sentiment, it's worth noting that killing people won't be nearly as effective as disengaging from the fraudulent system and using our own solution.

Not saying kill .. just saying how wrong it is.

Deflation is "unfair" too.
-person Y starts a business paying their workers fro 40 hours a week.
-person Y make a building and will use their gains for housing himself and his family with this amount.
...
Deflation occurs and he has not gained enough to cover housing and food for him and his family. Maybe he can't even pay the loan ha asked for starting the business.

@CoinOperated

Do you think demurrage could prevent these bubbles?

http://bitcointalk.org/index.php?topic=6549.0

wrong again ...

Deflation as your referring to .. increases the value of money ... that's like investing wisely from the employee stand point ... duh ..
Employers can just alter the terms of contract of employment to make it fair for themselves .. after all that's all employment is .. a contract.

Your poor employee could have an inflation-resistant contract too, right?
Also wages are not the only costs for the businessman. He will not be able to sell their products at the price he expected. Not because his competitors have improved, but because of deflation. Nothing will save him from this, maybe contracting with their clients before asking for the loan...He could save the "risk premium" from the loan interest too, I just think it's not likely to happen.
I'm always referring to price inflation/deflation with a constant money supply. When not expected, both damage the measurement.
If would prefer to hear bitcoiners say "it is unavoidable" than "It is a good thing, it manipulates the labor market to benefit the employees" or "deflation is good, everybody gets richer". This sounds to me as good as printing money to stop poverty.

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May 03, 2011, 02:19:16 PM
 #122

That makes no sense. Prices are falling due to deflation, so food and shelter is no problem.

Is no problem for money owners, it is a problem for debtors.

The interest rate on the loan is 0 or negative, since the creditor will be repaid in BTC with more purchasing power, and is easier to repay.

Without demurrage the interest rate on the loan will never go to zero or negative: the money owner would prefer to just hold it.

Also, person y probably has been saving money for a while (since deflation causes hoarding, right?) and has enough to get by.

What if the deflation appears after he starts the business?



Loan junkies .. why the hell do all you idiots want loans to begin with .. do you ENJOY being in DEBT in the first place ....
Learn what money is .. and use it ...
Learn what stocks/commodities/investments and such are ... (here's a hint .. there different) .. and use them ...

you'll notice that no one with an I.Q. over their shoe size here is bitching about this shit ... they use BTC as the currency it is vs the commodities they want it to be ...
when the USD or CDN goes UP/DOWN vs other currencies people don't bitch about .. OH FUCK DEFLATION ... .. they just pay the price at the counter and shut the fuck up .... it's money ... if you don't like the exchange back and forth ... QUIT EXCHANGING.

DOC DOC  > ... it's hurt when I do THIS ... doc: then quit fucking DOING THAT!!!

charging 5BTC for coffee

if the exchange on an item goes to 0.01BTC vs $5.00 ... then keep charging the original 5 BTC price .. ... the clients can exchange AT THE TIME of purchase if they want .. OR .. just work for the BTC currency to begin with ... just like EVERY OTHER CURRENCY as a standard ..
because guess what .... 5BTC = 5BTC .. dumb asses.


now please everyone .. shut up .. learn ... move on.

EDIT 1: your using BTC to begin with because you hate the Fiat shit going on .. so quit complain about it ... you have REAL MONEY now .. USE IT.

I don't want a loan, but some entrepreneurs need them to start their business.
I prefer bitcoin to fiat currency, but it doesn't make deflation good.
I can see you're a bad ass, but I need arguments that convince me instead of insults to learn and move on. It seems to me that you're very confident that you got nothing to learn from me in this issue. Want me to shut up? Please link me to a serious critique against Silvio Gesell from the austrian school. I'm looking for it, but the better argument I've found is "Keynes said he was a prophet", which seems to me as good argument as "If you don't like deflation quit exchanging".

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May 03, 2011, 05:06:54 PM
 #123

inflation does NOT exists with real money (see Gold/Silver/BTC) .. period ... it simply doesn't ..

Maybe it doesn't exist anymore, but it did. For example, after the discovery of America, when ships full of gold came to Europe.
Even with a fixed money supply, we can have inflation if there's a negative growth. Have you heard about falling EROI or peak oil?

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May 03, 2011, 07:22:50 PM
 #124

inflation does NOT exists with real money (see Gold/Silver/BTC) .. period ... it simply doesn't ..

Maybe it doesn't exist anymore, but it did. For example, after the discovery of America, when ships full of gold came to Europe.
Even with a fixed money supply, we can have inflation if there's a negative growth. Have you heard about falling EROI or peak oil?
Even now it does.  I think the supply of gold increases by 1-2% per year.
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May 03, 2011, 07:46:14 PM
 #125

I think what matters more than whether monetary inflation or deflation is occurring is whether it is predictable. If so, businesses and investors can include it in their calculations to more accurately determine profitability. Otherwise, they will follow the false signals created by artificial pressure on the supply of money and malinvestments occur.
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May 03, 2011, 07:53:07 PM
 #126

I think what matters more than whether monetary inflation or deflation is occurring is whether it is predictable. If so, businesses and investors can include it in their calculations to more accurately determine profitability. Otherwise, they will follow the false signals created by artificial pressure on the supply of money and malinvestments occur.

Predictability is great.  But counterfeiting is not cool.  Those who are last to get the counterfeited money will suffer at the expense of those who are the first to get it.

However, if it's open, like mining, where anyone can enter if there becomes too much of a gap between price and cost to extract, everything evens out.  If it's too easy to mine for what you get, then lots of people enter, more mining happens, the price goes down.  If it gets too hard to mine, then people stop mining, price goes up, people start mining more.

The problem is when one person can benefit at the expense of others.
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May 03, 2011, 08:10:09 PM
 #127

I think what matters more than whether monetary inflation or deflation is occurring is whether it is predictable. If so, businesses and investors can include it in their calculations to more accurately determine profitability. Otherwise, they will follow the false signals created by artificial pressure on the supply of money and malinvestments occur.

I am not an Austrian per se, but I like some of their ideas.  Malinvestment is very Austrian, and I think what everyone are nervous about on this thread and the "21M limit" thread is that we are currently seeing some false signals and malinvestment in bitcoin itself. People are devoting resources to something with little real economy to back it.  If people lose confidence in MtGox the whole thing could turn very quickly.

Some possible solutions:
Collectively decide to increase the mining rate (in a gradual controlled way)
Start a second chain (the whole Au/Ag thread)
Some kind of controlled inflation/deflation target or band (I don't really know what solution is proposed to implement this)

Any others?
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May 03, 2011, 10:17:32 PM
 #128

inflation does NOT exists with real money (see Gold/Silver/BTC) .. period ... it simply doesn't ..

Maybe it doesn't exist anymore, but it did. For example, after the discovery of America, when ships full of gold came to Europe.
Even with a fixed money supply, we can have inflation if there's a negative growth. Have you heard about falling EROI or peak oil?
Even now it does.  I think the supply of gold increases by 1-2% per year.

Though the extent to which that's the result of mining known reserves (which are theoretically already priced in) vs. discovering new reserves....
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May 03, 2011, 11:57:33 PM
 #129

Deflation is "unfair" too.
-person Y starts a business paying their workers fro 40 hours a week.
-person Y make a building and will use their gains for housing himself and his family with this amount.
...
Deflation occurs and he has not gained enough to cover housing and food for him and his family. Maybe he can't even pay the loan ha asked for starting the business.

This is my first post, and I'd like to take a stab at this. There really isn't enough information to go on, but let me try by filling in additional information:

Person Y makes a carrot picking machine. The resources that go into the carrot picking machine cost 2ⓑ and the labor is also 2ⓑ. The machine is sold for 5ⓑ.

Deflation occurs...let's say 10% so it's a bit easier to do the numbers with. The carrot machine now has to cost 4.50ⓑ to keep in line with what Person Y's competitors are pricing it at.

If deflation is occurring, then it effects all prices, so the resources to make the machine have also deflated in price 10%, or instead of costing 2ⓑ, they cost 1.80ⓑ.

Additionally, in an economy where deflation is occurring the employer has a couple choices when it comes to how the employees are paid. If paying employees hourly, then most likely instead of employees getting pay raises they would get a decreasing pay scale normally and a flatter pay scale if a great worker. Another possibility is that employees are paid per machine, and so when the deflation occurs the employer adjusts the amount per machine down directly.

Either way reduces the amount for labor to 1.80ⓑ instead of the previous amount. This is an additional cost reduction of 0.20ⓑ.

Adding up the costs now gives a total amount of: 3.60ⓑ with a profit of 0.90ⓑ which matches the deflation.

What is the end result of the deflation? All goods and service costs are reduced 10% so Person Y is still able to pay for their home and family.

This hypothesis assumes that deflation immediately and everywhere, which doesn't accurately reflect reality, but I don't think a double digit deflation would reflect reality either. It is important to understand that every Person Y is someone else's Person X, so while short term losses could happen for a Person Y, they are likely to be offset rather quickly.

As far as a home loan would be concerned, I think in a deflationary society the "loan" would just require the principal to be repaid instead of the current requirement of interest that exceeds the inflation of the money supply. The person taking out the loan would strive to pay off the loan as quickly as possible, so that they can hold on to more of their money's value. The person who loaned the money would be fine to wait until the full payment schedule is completed, so that they would have the added value the deflation added to the purchasing power of the money.

That I think may be the hardest thing for me to wrap my head around. While it's easy to see that something that cost 1ⓑ now costs 0.90ⓑ means that the item now is 90% of it's cost, what happened to a person's purchasing power? If a 1ⓑ purchase in the past now only takes 0.90ⓑ, the value of a bitcoin has increased. If my math is correct, the increase is 11%. This means that a person actually gains additional value from deflation for their existing funds.
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May 04, 2011, 01:50:05 AM
 #130

Nice thoughtful post, Tsudico. As Vladimir points out there won't be any home loan because the lender can just hold onto BTC at zero risk.  There always has to be some interest to account for repayment risk and profit.  Say the interest is 5%, then with 10% deflation that makes an effective 15% interest rate - expensive for the borrower and all the more reason to pay off the loan quickly.

That is the conventional wisdom on deflation.  It makes borrowing very expensive, and discourages lending as well.  Another risk for the borrower: What if deflation accelerates half way through the loan?  Then you are faced with a rising effective interest rate and ever-appreciating principal to repay.  In an inflationary environment generally borrowers benefit from some inflation, or worst case it is neutral.  Lenders bear most of the inflationary risk. This additional risk for the borrower in deflation is another reason not to borrow, or to pay it off very quickly.

While you may correctly conclude "don't borrow" in fact there are short term "effective debts" incurred all the time in any economy.  You get billed at the end of the month, paid at the end of the month, things take time to ship, to store in inventory, to get consumed.  Inventories need to be sold quickly or you could lose money.  You can come up with hundreds of examples.

Things to ponder.
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May 04, 2011, 03:05:17 AM
 #131

Nice thoughtful post, Tsudico. As Vladimir points out there won't be any home loan because the lender can just hold onto BTC at zero risk. 

This will hold true only so long as the value of the bitcoin is increasing at a rate faster than the ROI of the potential home loans.  This will not continue forever.  In fact, it's almost certain to level off to a much more stable relative value by 2020.  That or crash into oblivion.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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May 04, 2011, 03:12:16 AM
 #132

That is the conventional wisdom on deflation.  It makes borrowing very expensive, and discourages lending as well.  Another risk for the borrower: What if deflation accelerates half way through the loan?  Then you are faced with a rising effective interest rate and ever-appreciating principal to repay.  In an inflationary environment generally borrowers benefit from some inflation, or worst case it is neutral.  Lenders bear most of the inflationary risk. This additional risk for the borrower in deflation is another reason not to borrow, or to pay it off very quickly.
All this depends on the amount of inflation or deflation of a currency. Inflation isn't sustainable, it requires more and more money in order to pay for the same things. This may partially be offset by technology or production improvements, but the end result is that you need to use more money to purchase the same goods. That requires you to work more or harder to gain that money. It also makes people more inclined to spend the money they have since the quicker they spend it, the more purchasing power that money has.

Many of the things said about inflation could also be said about deflation although the effects are reversed. Deflation requires less and less money to pay for the same things. A deflationary currency promotes saving by increasing the value of the currency over time in relation to purchased goods. This could lead to hording of the currency which defeats the purpose of a currency in the first place.

In regard to the OP:
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.
Even a 1% inflation would cause the currency to double in 70 years. Instead of 21 million there would be 42 million. Another 21 million would be generated in 35 years, then 17.5 years and so on and so on. If any form of inflation had to exist, I personally would prefer a flat amount rather than a percentage.

The one point I don't usually see mentioned is that it is the rate of inflation or deflation that matters the most. The closer either is to zero the better the currency will be able to be used as a stable medium for exchange. Until bitcoin reaches the point where it is more profitable to process transactions than to mine for bitcoins, I don't think we'll be able to determine whether inflation should continue to be included in bitcoin. If the deflation of a bitcoin is extreme enough to warrant additional measures, I think it should be decided at that time. I personally prefer keeping inflation out of the equation until proof exists that justifies it.
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May 04, 2011, 03:25:31 AM
 #133

In regard to the OP:
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.
Even a 1% inflation would cause the currency to double in 70 years. Instead of 21 million there would be 42 million. Another 21 million would be generated in 35 years, then 17.5 years and so on and so on. If any form of inflation had to exist, I personally would prefer a flat amount rather than a percentage.

The one point I don't usually see mentioned is that it is the rate of inflation or deflation that matters the most. The closer either is to zero the better the currency will be able to be used as a stable medium for exchange. Until bitcoin reaches the point where it is more profitable to process transactions than to mine for bitcoins, I don't think we'll be able to determine whether inflation should continue to be included in bitcoin. If the deflation of a bitcoin is extreme enough to warrant additional measures, I think it should be decided at that time. I personally prefer keeping inflation out of the equation until proof exists that justifies it.
I didn't fixate on the 1% inflation.  I took the OP as a general question of should we have a price stability target and how to accomplish that.  Both are big questions, the second part is really vexing. My intuition says a better target is very mild deflation, say maybe 1-3% per year.  I am on the same page of you that a stable medium of exchange would encourage commerce.  But I have taken some flak on that point from some who think it is heresy to talk about adjusting the money supply. I don't know how else to accomplish it.  I do know that current system has proven extremely volatile.
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May 04, 2011, 03:58:14 AM
 #134

  I do know that current system has proven extremely volatile.


Only for the moment.  Stability comes with market maturity.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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May 04, 2011, 04:11:45 AM
 #135

  I do know that current system has proven extremely volatile.


Only for the moment.  Stability comes with market maturity.

Sure, agreed. But it is a small market, compared to the USD/EUR/JPY liquidity out there, the BTC price would have to rise 100s or 1000s of times for the market cap to get big enough to give it enough scale to have even a slim chance at maturity.
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May 04, 2011, 04:13:15 AM
 #136

  I do know that current system has proven extremely volatile.


Only for the moment.  Stability comes with market maturity.

Sure, agreed. But it is a small market, compared to the USD/EUR/JPY liquidity out there, the BTC price would have to rise 100s or 1000s of times for the market cap to get big enough to give it enough scale to have even a slim chance at maturity.

That's the ideal outcome.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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May 04, 2011, 06:20:21 AM
 #137

Quote from: CoinOperated
While I agree that given a constant money supply prices will tend to fall with economic growth and technological innovation, clearly there has not been sufficient economic growth in the real bitcoin economy to account for the large increase in the price of BTC/USD in the last four weeks.  This price instability I believe is a threat to widespread adoption of bitcoin, as measured by the rapid changing of these prices in the first and second derivative.  

The price is increasing because the expected long run equilibrium price of BTCs is increasing. Price instability does pose a threat to widespread adoption if bitcoin, but rapid price appreciation also helps adoption of bitcoins by generating interest in them, which leads to larger numbers of people coming to hold them.

Quote
think a much more likely cause is not the natural evolution of prices in the face of growth and constant money supply, but rather a drastic increase in external demand wishing to hold the currency because of the novelty of something easily purchased electronically that cannot be easily increased in quantity.  The recent publicity has also contributed. The very attribute making BTC desirable will also be its undoing unless a self-regulating peer-to-peer method of naturally regulating the money supply can be found.

Speculators purchasing BTC on expectations of higher prices in the future does not hurt bitcoin adoption, it helps it. Speculation and rapid price rises are inevitable for any currency seeing rapid adoption rates.
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May 04, 2011, 07:43:29 AM
 #138

A deflationary currency promotes saving by increasing the value of the currency over time in relation to purchased goods. This could lead to hording of the currency which defeats the purpose of a currency in the first place.

Demurrage would discourage hoarding and encourage lending. If demurrage rate = deflation rate + liquidity premium (or the utility for the money owner of having cash to "protect" him from uncertainty), interest rates would be zero + risk premium (this depends on the investment and collateral). Calculate such a demurrage rate may be impossible.
This wouldn't solve the problem solve the accountability problems of inflation/deflation, but as someone said, that's not a real problem if inflation/deflation is predictable. With a stable monetary base, to predict deflation would be as hard as to predict growth (I'm not saying that's easy).
The point I want to make is that increasing the money supply is not the only way to discourage hoarding. With demurrage, people could still save by lending/investing and hoarding goods they will consume in the future (like Crusoe saving fish to have time to make a net). Fridges would be full and people would prefer not to owe money to their tender.


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May 04, 2011, 08:08:01 AM
 #139

Quote from: CoinOperated
While I agree that given a constant money supply prices will tend to fall with economic growth and technological innovation, clearly there has not been sufficient economic growth in the real bitcoin economy to account for the large increase in the price of BTC/USD in the last four weeks.  This price instability I believe is a threat to widespread adoption of bitcoin, as measured by the rapid changing of these prices in the first and second derivative.  

The price is increasing because the expected long run equilibrium price of BTCs is increasing. Price instability does pose a threat to widespread adoption if bitcoin, but rapid price appreciation also helps adoption of bitcoins by generating interest in them, which leads to larger numbers of people coming to hold them.

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think a much more likely cause is not the natural evolution of prices in the face of growth and constant money supply, but rather a drastic increase in external demand wishing to hold the currency because of the novelty of something easily purchased electronically that cannot be easily increased in quantity.  The recent publicity has also contributed. The very attribute making BTC desirable will also be its undoing unless a self-regulating peer-to-peer method of naturally regulating the money supply can be found.

Speculators purchasing BTC on expectations of higher prices in the future does not hurt bitcoin adoption, it helps it. Speculation and rapid price rises are inevitable for any currency seeing rapid adoption rates.


This is the paradox.  The rising price is gathering attention to bitcoin.  This is good. I've argued in several posts that due to any random shock to the system, prices my fall (even if temporary). While things could work out well if prices rise steadily for a long time, and that at some point a real merchant economy emerges as the BTC total quantity tails off.  That is the ideal scenario.  But I also can see that any bump in the road could cause a drop in prices, followed by a move away from BTC.  At that point merchants may decide this was just a fad and the whole project will fizzle out.  It will be very difficult to restart.

I hope for the first outcome, but prefer to plan for the second since I've not encountered many smooth roads in life.  That is why I argue for considering ways to modify the system to encourage merchant participation soon.  I'm not the only one, I see many people exploring and considering different ideas along these lines, stemming from the same concern.
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May 04, 2011, 08:18:25 AM
 #140


It was never going to be a smooth ride.

For it to be steadily rising price or stable you would have to somehow match the increase in supply, currently fixed at BTC 7200 per day, with an unpredictable amount of demand for new BTC.

Currently inflation is at the 7,200/6.086e06 per day, i.e. 43.8% annualised rate. Wrap your head around that, monetary issuance is expanding at 43.8% annualised and the value is still rising ...

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May 04, 2011, 01:10:43 PM
 #141


It was never going to be a smooth ride.

For it to be steadily rising price or stable you would have to somehow match the increase in supply, currently fixed at BTC 7200 per day, with an unpredictable amount of demand for new BTC.

Currently inflation is at the 7,200/6.086e06 per day, i.e. 43.8% annualised rate. Wrap your head around that, monetary issuance is expanding at 43.8% annualised and the value is still rising ...

Exactly.

Isn't 43,8% a "modest" amount of inflation already ?

Bitcoin will have inflation for the next 100 years, its just that demand for it rises much faster than inflation.

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May 04, 2011, 02:37:17 PM
 #142

Quote from: CoinOperated
This is the paradox.  The rising price is gathering attention to bitcoin.  This is good. I've argued in several posts that due to any random shock to the system, prices my fall (even if temporary). While things could work out well if prices rise steadily for a long time, and that at some point a real merchant economy emerges as the BTC total quantity tails off.  That is the ideal scenario.  But I also can see that any bump in the road could cause a drop in prices, followed by a move away from BTC.  At that point merchants may decide this was just a fad and the whole project will fizzle out.  It will be very difficult to restart.

I hope for the first outcome, but prefer to plan for the second since I've not encountered many smooth roads in life.  That is why I argue for considering ways to modify the system to encourage merchant participation soon.  I'm not the only one, I see many people exploring and considering different ideas along these lines, stemming from the same concern.

It's price drops, not price volatility, that would most discourage merchants from accepting it, and a fixed supply is the best way to give people confidence in it maintaining its present value into the future.
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May 04, 2011, 06:34:25 PM
 #143

But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling. Merchants won't bother to offer BTC prices since it will not get enough use.  A situation where the price of something (BTC) is far in excess of its actual utility happens all the time in markets, but then you get the inevitable downdraft.  I know it is very powerful to believe in the "always upwards if we leave it alone" idea but we need the wisdom to see both sides of it.

Just a thought: What if bitcoin replaced all the money in the world, what would its present value be in USD?  The velocity of money in the US historically has been approximately 2, meaning there is half the amount of money as GDP (the money turns over on average twice a year).  I don't know what it is in other countries, but just guessing that is reasonable worldwide, and the world economy is approaching $60T, I get ($60T/2)/21M ~= $1.43 Million per BTC present value.  That is the theoretical end value of the deflation once it hits 21M cap and replaces all the fiat currency.  After that monetary theory says it will deflate or inflate at the GDP growth rate if velocity does not change.

I know that sounds rather attractive, but it won't happen.  It will unravel before then, who knows next month or next year.
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May 04, 2011, 06:51:58 PM
 #144

There's a culture developing around bitcoin.

That culture overrides supply and demand dead locks.

Paypal just shut down coinpal. I am not going to be an idle bitcoin user.

Welcome to the Streisand effect.

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
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May 04, 2011, 06:56:59 PM
 #145

But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling. Merchants won't bother to offer BTC prices since it will not get enough use.  A situation where the price of something (BTC) is far in excess of its actual utility happens all the time in markets, but then you get the inevitable downdraft.  I know it is very powerful to believe in the "always upwards if we leave it alone" idea but we need the wisdom to see both sides of it.

Just a thought: What if bitcoin replaced all the money in the world, what would its present value be in USD?  The velocity of money in the US historically has been approximately 2, meaning there is half the amount of money as GDP (the money turns over on average twice a year).  I don't know what it is in other countries, but just guessing that is reasonable worldwide, and the world economy is approaching $60T, I get ($60T/2)/21M ~= $1.43 Million per BTC present value.  That is the theoretical end value of the deflation once it hits 21M cap and replaces all the fiat currency.  After that monetary theory says it will deflate or inflate at the GDP growth rate if velocity does not change.

I know that sounds rather attractive, but it won't happen.  It will unravel before then, who knows next month or next year.


But you can't eat Bitcoins.  You can't do anything with them.  I can accumulate all the money I want, but I'll die of starvation or have no enjoyment of life.  That will encourage people to spend.
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May 04, 2011, 07:58:19 PM
 #146

But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling. Merchants won't bother to offer BTC prices since it will not get enough use.  A situation where the price of something (BTC) is far in excess of its actual utility happens all the time in markets, but then you get the inevitable downdraft.  I know it is very powerful to believe in the "always upwards if we leave it alone" idea but we need the wisdom to see both sides of it.

Just a thought: What if bitcoin replaced all the money in the world, what would its present value be in USD?  The velocity of money in the US historically has been approximately 2, meaning there is half the amount of money as GDP (the money turns over on average twice a year).  I don't know what it is in other countries, but just guessing that is reasonable worldwide, and the world economy is approaching $60T, I get ($60T/2)/21M ~= $1.43 Million per BTC present value.  That is the theoretical end value of the deflation once it hits 21M cap and replaces all the fiat currency.  After that monetary theory says it will deflate or inflate at the GDP growth rate if velocity does not change.

I know that sounds rather attractive, but it won't happen.  It will unravel before then, who knows next month or next year.


But you can't eat Bitcoins.  You can't do anything with them.  I can accumulate all the money I want, but I'll die of starvation or have no enjoyment of life.  That will encourage people to spend.

That is the standard argument that in a deflationary environment after some time people will get tired of deferring consumption and will start to consume and that will end the deflation of its own accord.  But those arguments were made historically for closed economies or economies where external trade was minor compared to GDP (say <10%).  What we are talking about is the exchange rate between bitcoin and a much larger fiat economy.  That is why I said "They would rather hold them since they are rising and spend fiat currency which is falling" .  They do have a choice, they can use fiat currency to eat for now.  Human nature is they will hold BTC while it is rising, and as soon as it start to fall they will try to buy everything in sight with BTC, it will fall faster and then merchants won't want to take it anyway.  We don't have an experiment of a diversified mostly closed economy that can supply most its needs internally that runs 100% on BTC.   If we did we should see inflation of 43% - grwoth rate.
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May 04, 2011, 08:24:11 PM
 #147

But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling.

This would mean people will end up holding no dollars and only bitcoins. And then they spend coins because they want stuff.


Merchants won't bother to offer BTC prices since it will not get enough use.  

They will if they want to get Bitcoins, which is a premise.

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May 04, 2011, 08:35:02 PM
 #148


That is the standard argument that in a deflationary environment after some time people will get tired of deferring consumption and will start to consume and that will end the deflation of its own accord.  But those arguments were made historically for closed economies or economies where external trade was minor compared to GDP (say <10%).  What we are talking about is the exchange rate between bitcoin and a much larger fiat economy.  That is why I said "They would rather hold them since they are rising and spend fiat currency which is falling" .  They do have a choice, they can use fiat currency to eat for now.  Human nature is they will hold BTC while it is rising, and as soon as it start to fall they will try to buy everything in sight with BTC, it will fall faster and then merchants won't want to take it anyway.  We don't have an experiment of a diversified mostly closed economy that can supply most its needs internally that runs 100% on BTC.   If we did we should see inflation of 43% - grwoth rate.

Bollocks. I have to resist the urge to spend bitcoin, as it's only "1 or 2 BTC" for y product.

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May 04, 2011, 08:59:25 PM
 #149


That is the standard argument that in a deflationary environment after some time people will get tired of deferring consumption and will start to consume and that will end the deflation of its own accord.  But those arguments were made historically for closed economies or economies where external trade was minor compared to GDP (say <10%).  What we are talking about is the exchange rate between bitcoin and a much larger fiat economy.  That is why I said "They would rather hold them since they are rising and spend fiat currency which is falling" .  They do have a choice, they can use fiat currency to eat for now.  Human nature is they will hold BTC while it is rising, and as soon as it start to fall they will try to buy everything in sight with BTC, it will fall faster and then merchants won't want to take it anyway.  We don't have an experiment of a diversified mostly closed economy that can supply most its needs internally that runs 100% on BTC.   If we did we should see inflation of 43% - grwoth rate.

Bollocks. I have to resist the urge to spend bitcoin, as it's only "1 or 2 BTC" for y product.

I guess all those electronics manufacturers should be out of business any day, since customers will just resist buying new computers/televisions/etc... since the price keeps getting lower for the same stuff (or better stuff).  If only customers were smart enough to just keep waiting!
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May 04, 2011, 09:24:44 PM
 #150

Still the same argument as getting hungry.  If they want a TV they have to spend fiat dollars, because that is the only way to get a TV whether or not it gets cheaper. But in this case they have a choice of two currencies so it is a different dynamic.  It is a choice whether to spend A or B and not a choice to spend or not spend.
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May 04, 2011, 09:37:38 PM
 #151

But in this case they have a choice of two currencies so it is a different dynamic.  It is a choice whether to spend A or B and not a choice to spend or not spend.
If the customer has both currencies, the customer prefers to get rid of InflataBucks instead of DeflataBucks. The retailer, on the other hand, prefers to receive DeflataBucks instead of InflataBucks.

The price of goods in each currency will therefore float to the point where the interests of the buyers and sellers are matched, whichever currency they use.
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May 04, 2011, 10:11:15 PM
 #152

But in this case they have a choice of two currencies so it is a different dynamic.  It is a choice whether to spend A or B and not a choice to spend or not spend.
If the customer has both currencies, the customer prefers to get rid of InflataBucks instead of DeflataBucks. The retailer, on the other hand, prefers to receive DeflataBucks instead of InflataBucks.

The price of goods in each currency will therefore float to the point where the interests of the buyers and sellers are matched, whichever currency they use.

As InflataBucks, DemurrageBucks will be preferred by the payer but not by the payee.
But the price of InlataBucks would change against DeflataBucks forever while the exchange between DemurrageBucks and DeflataBucks could become "stable" if both monetary bases are fixed. DeflataBucks would be always better for saving, but maybe the payee doesn't care to receive InflataBucks or DemurrageBucks if he knows he will spend them quickly.

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May 04, 2011, 11:31:07 PM
 #153

Is it so much to ask to have a cheerios version of bitcoin (as it is now) without the bells and whistles?

I mean look at this thread.

If this is the sort of long discussion people will have to bite their nails over when trying to create large scale solutions, I have to protest.

It's like a convention of future bloat analysis consultants. Whatever happened to composition of features?

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
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May 05, 2011, 12:30:37 AM
 #154

Is it so much to ask to have a cheerios version of bitcoin (as it is now) without the bells and whistles?

I mean look at this thread.

If this is the sort of long discussion people will have to bite their nails over when trying to create large scale solutions, I have to protest.

It's like a convention of future bloat analysis consultants. Whatever happened to composition of features?

The issue is that two competing version of the bitcoin block chain would be incompatible.  The bitcoin network would be split in two.  This means that the total strength of each individual network would be weaker than a single unified bitcoin network.

United we Stand.  Divided we Fall.  (as the Statists would say Cheesy )

"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."
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May 05, 2011, 12:50:28 AM
 #155

This means that the total strength of each individual network would be weaker than a single unified bitcoin network.

Miners can theoretically mine toward more than one block chain simultaneously, so more block chains are a good thing IMO. Most of the long arguments take place over proposals like this one, that fundamentally alter the technicals or economics of Bitcoin. They might as well just create a fork instead of argue that their version is better. Basically, "put your money where your mouth is" - if your version is better or more useful than Bitcoin, people will use it.
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May 05, 2011, 01:39:04 AM
 #156

This means that the total strength of each individual network would be weaker than a single unified bitcoin network.

Miners can theoretically mine toward more than one block chain simultaneously, so more block chains are a good thing IMO. Most of the long arguments take place over proposals like this one, that fundamentally alter the technicals or economics of Bitcoin. They might as well just create a fork instead of argue that their version is better. Basically, "put your money where your mouth is" - if your version is better or more useful than Bitcoin, people will use it.

interesting point...so it is basically the same computational power to mine towards two block chains, since fundamentally the thing being hashed is just a binary number with a different nonce...

"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."
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May 05, 2011, 01:50:47 AM
 #157


I don't think that is correct. Different block chains would be encoding a different set of transacations on the different networks right? So they would be hashing different blocks, they could be working on the two chains simultaneously but the work done for each would be separate. No free lunch.

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May 05, 2011, 02:00:50 AM
 #158

In this recent thread, Mike explains how this could work. Previously Satoshi had expressed this idea (link in thread), but had never provided implementation details.
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May 05, 2011, 02:25:32 AM
 #159

Quote from: CoinOperated
But then consumers won't want to spend bitcoins.  They would rather hold them since they are rising and spend fiat currency which is falling.

Historically, gold has had the same quality as a currency. People want to hold on to it, since it appreciates. I believe the effect of this is that it threatens the demand for gold, since it's not being circulated as currency and therefore merchants look for alternatives, which leads to price drops, which leads to increased circulation, which leads to the price coming back up as the demand for it as a currency returns, and so on.

If you look at the dollar's value when it was on a gold standard, it alternated between deflation and inflation:



After the 1950s, it was only inflation, as the dollar delinked from gold.

The point is that the value oscillates, rather than going into a free fall, due to the fixed supply always making it potentially valuable to merchants. Gold's value was volatile, but in the long run it was stable.

Bitcoin also has an advantage to all other currencies in that transaction costs are extremely low, as are the storage costs. It's like a more easily transferable, storable and divisible version of gold, and gold was used for hundreds of years as the primary currency of the world, so I think bitcoin has what it takes.

Quote
Just a thought: What if bitcoin replaced all the money in the world, what would its present value be in USD?  The velocity of money in the US historically has been approximately 2, meaning there is half the amount of money as GDP (the money turns over on average twice a year).  I don't know what it is in other countries, but just guessing that is reasonable worldwide, and the world economy is approaching $60T, I get ($60T/2)/21M ~= $1.43 Million per BTC present value.

BTCs are easily divisible, so it doesn't matter if the value of a BTC goes to $1.43 million, as then smaller denominations will be used. It's also implausible that BTC would replace all other fiat currencies, as they are legal tender in their countries, so they will always have some demand. BTC's potential is to be a major currency in one niche of global commerce.

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May 05, 2011, 09:42:19 AM
 #160

It's also implausible that BTC would replace all other fiat currencies, as they are legal tender in their countries, so they will always have...

Be careful when you said that. I agree in that bitcoin could be considered fiat because fiat just means "let it be done", but most people require money to be issued by a government/state to be considered fiat.

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May 05, 2011, 10:07:28 AM
 #161

Different block chains would be encoding a different set of transacations on the different networks right? So they would be hashing different blocks ... No free lunch.

For a miner to "get a free lunch" by mining another block chain simultaneously with Bitcoin, that other chain must be designed for this purpose, by incorporating an extra field that will make the hashing problem the same as the one being solved for the Bitcoin chain.

Also, if the other chain has a different difficulty level, you will get different numbers of blocks mined on the two chains.
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May 05, 2011, 10:19:43 AM
 #162

Different block chains would be encoding a different set of transacations on the different networks right? So they would be hashing different blocks ... No free lunch.

For a miner to "get a free lunch" by mining another block chain simultaneously with Bitcoin, that other chain must be designed for this purpose, by incorporating an extra field that will make the hashing problem the same as the one being solved for the Bitcoin chain.

Also, if the other chain has a different difficulty level, you will get different numbers of blocks mined on the two chains.

That's quite a clever idea, adjust the adjoint network problem so that it becomes the same problem to be solved as the one bitcoin is doing anyway. Supposedly this would be done in real-time and need to be synced with the bitcoin network?

Btw, I'm not talking about the miner getting the free lunch, he's the guy doing the work, it is whoever is hoping to get their problem solved for free by piggybacking onto the block-chain hashing that would be getting a free lunch .... would it require any mods to the miner hashing code or does it just need to sync up with the inputs and outputs to the hashing? If they have different difficulty levels then somehow you have to tell the miners that they have to also report to the adjoint network solutions to the "lesser difficulty" problems and you would need code to be checking for that .... what is the miner's their incentive to do that?

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May 05, 2011, 11:32:25 AM
 #163

Supposedly this would be done in real-time and need to be synced with the bitcoin network?
This shouldn't be a practical problem with Bitcoin's 10-minute target block rate.

If they have different difficulty levels then somehow you have to tell the miners that they have to also report to the adjoint network solutions to the "lesser difficulty" problems and you would need code to be checking for that .... what is the miner's their incentive to do that?
The pooled mining operators already have access to "lesser difficulty" solutions and could easily contribute those to the adjunct network, in return for whatever reward the adjunct network provides.
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May 05, 2011, 11:38:18 AM
 #164

Quote from: jtimon
Be careful when you said that. I agree in that bitcoin could be considered fiat because fiat just means "let it be done", but most people require money to be issued by a government/state to be considered fiat.

Oops, I didn't mean that Bitcoin is fiat. I was thinking 'the U.S. dollar and all other fiat currencies' and just wrote 'all other currencies' mistakenly instead, which obviously implies that Bitcoin is fiat as well. I agree, Bitcoin isn't fiat, as its value doesn't come from any government mandates.
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May 05, 2011, 12:39:29 PM
 #165

Supposedly this would be done in real-time and need to be synced with the bitcoin network?
This shouldn't be a practical problem with Bitcoin's 10-minute target block rate.

If they have different difficulty levels then somehow you have to tell the miners that they have to also report to the adjoint network solutions to the "lesser difficulty" problems and you would need code to be checking for that .... what is the miner's their incentive to do that?
The pooled mining operators already have access to "lesser difficulty" solutions and could easily contribute those to the adjunct network, in return for whatever reward the adjunct network provides.

Okay, so the pool operators code would be the main target for these efforts. I imagine there must be some super-computer houses looking at deepbit.net for instance (360GHash/s and it was put together in less than 4 months) and thinking far out ... how do we get our hands on that kind of power?

The latent potential in the installed hardware base that bitcoin has tapped is a sight to behold for the big iron people, I can tell you. Tailoring a new problem to suit the network as it is configured now could be too hard to implement though. Bitcoin shows that if the right incentive structure is put in place the nodes will figure out best how to optimise to solve the problem, decentralised growth based on few simple rules beats centrally planned clusters and huge blocks of cabinets.

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May 05, 2011, 01:00:52 PM
 #166

Okay, so the pool operators code would be the main target for these efforts. I imagine there must be some super-computer houses looking at deepbit.net for instance (360GHash/s and it was put together in less than 4 months) and thinking far out ... how do we get our hands on that kind of power?

Botnet-powered bitcoin mining starts in 3..2..1...

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May 06, 2011, 12:51:53 PM
 #167

Is anyone working on a different chain that shares computing power with the bitcoin network?

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May 07, 2011, 12:55:11 AM
 #168

Nice chart amincd.  Good observations all round.

Gold has many good properties for a currency - it is scarce, it is a bearer currency, anonymous, relatively easily authenticated, impossible to counterfeit, reasonably easily divisible.  It's value-to-weight ratio is pretty good, however storage, transport and security are a problem especially for large amounts over long distance.  Bitcoin equals or far exceeds gold on all counts, so rather than just "egold" it should probably be "e super-gold" or something. 

The reason behind the Au/Ag idea was that because bitcoin is so good in these categories, demand to hold it as money is extremely high.  Bimetallic currencies were used extensively over the ages, it is easy to read up on how they worked.  I do not know why people started using Ag in history since in theory the Au price can go as high and you can just divide it down.  Maybe it was simply a physical issue, Au coins became too small or you had to mix them with too many other metals and they became difficult to validate the gold content easily.  If the only reason was divisibility, then in theory if someone starts a 210M cap chain with a 500 BTC block nobody is going to be interested in it, they'll want only the scarcest stuff.  If it is a more fundamental issue of demand for more stable pricing, then Ag will flourish.  However, it will not make the AuBTC go away - of that I have confidence.

I think Au/Ag is worth exploring, however at the moment I am more intrigued by the ECC idea (1kWh = 1 BTC) in the other thread.  Conceivably both an Ag and ECC chain could be started, and let the market decide.  If both fall flat, then that may tend to prove the AuBTC to be the best design and will probably dampen all the arguments about deflation.  Competition makes the survivor stronger.

I suspect that regardless of all our opinions some other chains will be attempted as the market cap of all BTC continues its skyward trend.

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May 07, 2011, 02:23:24 AM
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I suspect that regardless of all our opinions some other chains will be attempted as the market cap of all BTC continues its skyward trend.

The most interesting alternative chain, IMO, would be one that kept the 50 unit per block production rate constant (with difficulty adjustments to keep the 1 block/10 min ratio... perhaps even with some mechanism to keep longer-term solving rates at 1 block/10 min).  Such a chain may be more likely to have a constant amount of currency as time approaches infinity than the current chain as it will [at least] almost surely reach an equilibrium state where the average rate of currency losses due to lost wallets will be 5 units per minute (assuming, as is probably reasonable, that the long-term average rate of currency in newly-lost wallets will be a reasonably constant percentage of total currency that has been mined but not lost).  Of course, currency in lost wallets will eventually be rediscovered, but the probability of it happening anytime soon is effectively nil.

Parenthetically, I'm starting to come to the view that lost wallets are effectively demurrage.  There's a non-zero chance of your wallet being lost, no matter how much you back it up.  You can take that risk yourself (e.g. by not making lots of backups), you can take steps (at non-zero cost) to reduce the risk (e.g. by paying for cloud backups, CD-Rs, backups to paper and putting it in a safe-deposit box, etc.), or you can pay someone else to take on the risk (e.g. taking out insurance, but a more interesting (and probably realistic, considering that I can't see how an insurance firm would know that a wallet had been lost) case is depositing the money into an institution that you trust to take sufficient steps to reduce the risk of it being lost and whose promise to, even if the wallet with your account in it is lost, make you whole... such a bank would of course probably charge you money to deposit your funds).  In all cases, there's some cost to holding the bitcoins to infinity and a negative interest rate, so long as it's still greater than, for instance, the cost of cloud backup it would be more rational to lend at a loss than hold and pay for the backup.  It may not be much demurrage, but it is there.
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May 07, 2011, 07:35:16 AM
 #170

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Nice chart amincd.  Good observations all round.

Thank you for the compliment.

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The reason behind the Au/Ag idea was that because bitcoin is so good in these categories, demand to hold it as money is extremely high.

I don't believe it will be any where near as attractive to hold on to it in the future as it is now. Right now it is going through a rapid growth phase, which has a natural limit due to the finiteness of the global economy. Whether that limit is 100%, 50% or 1% of the global economy, it will inevitably reach it one day, and when it does, the rate of value increase will slow to the rate of growth of the global economy.

Even now, with value growth of 100% a month, it is still being sold and traded in the tens of thousands of BTCs a day.

Quote
Bimetallic currencies were used extensively over the ages, it is easy to read up on how they worked.  I do not know why people started using Ag in history since in theory the Au price can go as high and you can just divide it down.  Maybe it was simply a physical issue, Au coins became too small or you had to mix them with too many other metals and they became difficult to validate the gold content easily.  If the only reason was divisibility, then in theory if someone starts a 210M cap chain with a 500 BTC block nobody is going to be interested in it, they'll want only the scarcest stuff.  If it is a more fundamental issue of demand for more stable pricing, then Ag will flourish.  However, it will not make the AuBTC go away - of that I have confidence.

Yes that is the reason. Gold and silver have different properties that give them distinct advantages. Gold is difficult to make small value purchases with, because the mass that's needed to transfer is small and easily lost. Silver is more difficult to make large value purchases with, because it becomes heavy and costly to transfer large value in silver form.

A gold bitcoin will have no such differences in its quality as a currency from a silver or copper bitcoin, because any amount is easily transferred (e.g. 0.1 gold bitcoins versus 1,000,000 copper bitcoins is equally easy to transfer).

Right now, the biggest short-coming of bitcoin is that it's not widely adopted and thus a coincidence of wants involving bitcoins is rare. Promoting one type of bitcoin is better at over-coming this than different variations which will fork efforts and make each less effective.
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May 07, 2011, 02:55:03 PM
 #171

[OFFTOPIC]
Yes that is the reason. Gold and silver have different properties that give them distinct advantages. Gold is difficult to make small value purchases with, because the mass that's needed to transfer is small and easily lost. Silver is more difficult to make large value purchases with, because it becomes heavy and costly to transfer large value in silver form.


This was because there was much more silver than gold.
Is that true today?

[/OFFTOPIC]

A gold bitcoin will have no such differences in its quality as a currency from a silver or copper bitcoin, because any amount is easily transferred (e.g. 0.1 gold bitcoins versus 1,000,000 copper bitcoins is equally easy to transfer).

I agree.
And if other chain has to be created, it should be int hte way satoshi and mike describe (which I'm not sure I understand). That way, the new currency would enjoy the current security from the beginning (much more than if a new completely parallel chain were started) while not competing for CPU power with bitcoin.
If another currency have to be started, it has to be for a better reason that a smaller denomination. That's not needed at all since bitcoins can be easily divided.

Right now, the biggest short-coming of bitcoin is that it's not widely adopted and thus a coincidence of wants involving bitcoins is rare.
Promoting one type of bitcoin is better at over-coming this than different variations which will fork efforts and make each less effective.

If another bitcoin-like currency is created, I think most of its users (probably all) would also accept bitcoin. If there's people that accept some newcoin and not bitcoin, they would need a very good reason. In this case maybe we should support newcoin instead of bitcoin.
I don't think, for example, that anyone accepting timecoin or freicoin would reject bitcoin.


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May 07, 2011, 03:04:36 PM
 #172

I suspect that regardless of all our opinions some other chains will be attempted as the market cap of all BTC continues its skyward trend.

The most interesting alternative chain, IMO, would be one that kept the 50 unit per block production rate constant (with difficulty adjustments to keep the 1 block/10 min ratio... perhaps even with some mechanism to keep longer-term solving rates at 1 block/10 min).  Such a chain may be more likely to have a constant amount of currency as time approaches infinity than the current chain as it will [at least] almost surely reach an equilibrium state where the average rate of currency losses due to lost wallets will be 5 units per minute (assuming, as is probably reasonable, that the long-term average rate of currency in newly-lost wallets will be a reasonably constant percentage of total currency that has been mined but not lost).  Of course, currency in lost wallets will eventually be rediscovered, but the probability of it happening anytime soon is effectively nil.

Parenthetically, I'm starting to come to the view that lost wallets are effectively demurrage.  There's a non-zero chance of your wallet being lost, no matter how much you back it up.  You can take that risk yourself (e.g. by not making lots of backups), you can take steps (at non-zero cost) to reduce the risk (e.g. by paying for cloud backups, CD-Rs, backups to paper and putting it in a safe-deposit box, etc.), or you can pay someone else to take on the risk (e.g. taking out insurance, but a more interesting (and probably realistic, considering that I can't see how an insurance firm would know that a wallet had been lost) case is depositing the money into an institution that you trust to take sufficient steps to reduce the risk of it being lost and whose promise to, even if the wallet with your account in it is lost, make you whole... such a bank would of course probably charge you money to deposit your funds).  In all cases, there's some cost to holding the bitcoins to infinity and a negative interest rate, so long as it's still greater than, for instance, the cost of cloud backup it would be more rational to lend at a loss than hold and pay for the backup.  It may not be much demurrage, but it is there.

That chain has been proposed here with the name of timecoin:

http://bitcointalk.org/index.php?topic=2792.0

If you're worried about lost bitcoins, freicoin would warranty a stable monetary base, because the supply would converge over and over again to the maximum:

http://bitcointalk.org/index.php?topic=6549.0

But sincerely I don't understand why are you worried about that and don't complain about the arbitrary 21 million maximum.
If 1 million are lost, is like satoshi would have liked more 20 instead of 21, no big deal. If he had chose 210 millions it would be the same. The market will make more valuable each unit of the currency if it is more scarce, but the currency as a whole won't work better.
There's no need to protect bitcoin from lost wallets.
Is like the Au/Ag bitcoin thing: I just don't see the need.

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May 08, 2011, 12:06:43 AM
 #173

Quote from: jtimon
[OFFTOPIC]This was because there was much more silver than gold.
Is that true today?

[/OFFTOPIC]

I have no idea tbh, but I would imagine that having bulk is advantageous more infrequently today since more every-day-type transactions are transfers of title rather than a physical transfer of the metal. Since gold is less costly to store and transfer in larger amounts, this would increase gold's value as a currency relative to silver.

Quote
Quote from: amincd on Today at 07:35:16 am
A gold bitcoin will have no such differences in its quality as a currency from a silver or copper bitcoin, because any amount is easily transferred (e.g. 0.1 gold bitcoins versus 1,000,000 copper bitcoins is equally easy to transfer).

I agree.
And if other chain has to be created, it should be int hte way satoshi and mike describe (which I'm not sure I understand). That way, the new currency would enjoy the current security from the beginning (much more than if a new completely parallel chain were started) while not competing for CPU power with bitcoin.
If another currency have to be started, it has to be for a better reason that a smaller denomination. That's not needed at all since bitcoins can be easily divided.

I'm not familiar with the method Satoshi and mike describe, but if it's more secure, then I would agree it's better and I agree that a new currency would need a quality other than a different number of denominations to be useful.

Quote
If another bitcoin-like currency is created, I think most of its users (probably all) would also accept bitcoin. If there's people that accept some newcoin and not bitcoin, they would need a very good reason. In this case maybe we should support newcoin instead of bitcoin. I don't think, for example, that anyone accepting timecoin or freicoin would reject bitcoin.

I think it would just cause confusion for new users, and make people uncertain about investing into it as they wouldn't know which
currency would end up being the more widely adopted one. This is what happens when standards are competing. People sit-out until they know which standard will come out as the winner, like the way they did with Blu-Ray vs HD-DVD.

That being said, experimentation can be beneficial, so it might end up doing good, but I am leaning towards it being to the bitcoin community's advantage to focus on only one variation for now rather than creating a few variations and convincing people to adopt them.



 
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May 08, 2011, 04:02:51 AM
 #174


This was because there was much more silver than gold.
Is that true today?


There is more than one way to look at that, but if one is restricting oneself to the mass weight of each in an "above ground" (i.e. already mined) and elemental (i.e. refined to an elemental metal) and in a quantifiable form (mostly means it's in bullion or coined form) then there is much more gold in our modern world than silver.  The reason for this is that there are many industrial and commercial uses for silver beyond it's use as a store of value.  Such as, up until the relatively recent takeover of digital photography, silver was a necessary component of photo development chemicals, some trivial amount of which always ended up permanently in the photographs themselves.  Silver also has excellent electrical properties, and is therefore the ideal conductor for mission critical devices that weight is a severe limitation; such as spacecraft, satellites and high-altitude military aircraft.  Silver also has well documented antibacterial properties in it's elemental form, and for this reason is the traditional material that the food implements used by the wealthy.  In today's world, that use isn't as significant, but many surgical materials still contain silver in non-trivial amounts.

All of these uses, and others less significant, tend to 'consume' elemental silver; unlike it's use in jewelry or as a store of value.  On the other hand, gold has relatively few industrial uses that cannot be met by other means.  For example, gold does not corrode, so a gold plated steel hulled ship would be largely immune from saltwater corrosion; but zinc corrodes in a manner that actually protects steel (it's an electro-chemical thing that I don't understand, but I know that zinc used in this fashion is called a "sacrificial anode").  The zinc needs to be replaced periodicly, but over the expected lifetime of such a ship, zinc is by far the better deal.

So, the result of over a century of the industrial age, almost all of the gold ever mined is still known to exist, more or less.  Whereas much of the silver mined, although it's 16 times more abundant in the Earth's crust than gold, no longer exists in any economicly recoverable fashion.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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May 08, 2011, 12:01:33 PM
 #175


This was because there was much more silver than gold.
Is that true today?


There is more than one way to look at that, but if one is restricting oneself to the mass weight of each in an "above ground" (i.e. already mined) and elemental (i.e. refined to an elemental metal) and in a quantifiable form (mostly means it's in bullion or coined form) then there is much more gold in our modern world than silver.  The reason for this is that there are many industrial and commercial uses for silver beyond it's use as a store of value.  Such as, up until the relatively recent takeover of digital photography, silver was a necessary component of photo development chemicals, some trivial amount of which always ended up permanently in the photographs themselves.  Silver also has excellent electrical properties, and is therefore the ideal conductor for mission critical devices that weight is a severe limitation; such as spacecraft, satellites and high-altitude military aircraft.  Silver also has well documented antibacterial properties in it's elemental form, and for this reason is the traditional material that the food implements used by the wealthy.  In today's world, that use isn't as significant, but many surgical materials still contain silver in non-trivial amounts.

All of these uses, and others less significant, tend to 'consume' elemental silver; unlike it's use in jewelry or as a store of value.  On the other hand, gold has relatively few industrial uses that cannot be met by other means.  For example, gold does not corrode, so a gold plated steel hulled ship would be largely immune from saltwater corrosion; but zinc corrodes in a manner that actually protects steel (it's an electro-chemical thing that I don't understand, but I know that zinc used in this fashion is called a "sacrificial anode").  The zinc needs to be replaced periodicly, but over the expected lifetime of such a ship, zinc is by far the better deal.

So, the result of over a century of the industrial age, almost all of the gold ever mined is still known to exist, more or less.  Whereas much of the silver mined, although it's 16 times more abundant in the Earth's crust than gold, no longer exists in any economicly recoverable fashion.

Thank you for the explanation!
So if all the national currencies were to disappear, other currencies (like bitcoins, gold and silver) would be more monetized, silver has the potential to become more valuable than gold due to its scarcity. In that case, gold would be good to trade "small quantities" while silver would be used for bigger trades. Due to its potentially infinite divisibility, bitcoin could be used for both big and small trades.
The demonetization of just one big currency (like the dolar or the euro) could be enough to bring such a scenario.
If the "intrinsic value" of the currency was important to its monetization, silver (for having more industrial uses) also has an advantage over gold (and both metals over bitcoin). Like Gesell and unlike Nielsio, I don't think any "intrinsic value" is necessary for money.
On the other hand, the monetization of currency over other is highly psychological and hardly predictable: gold could also become the only currency.
Maybe I should move this comment to the "Bitcoin vs Gold" thread.

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May 08, 2011, 12:26:13 PM
 #176

Quote
Quote from: amincd on Today at 07:35:16 am
A gold bitcoin will have no such differences in its quality as a currency from a silver or copper bitcoin, because any amount is easily transferred (e.g. 0.1 gold bitcoins versus 1,000,000 copper bitcoins is equally easy to transfer).

I agree.
And if other chain has to be created, it should be int hte way satoshi and mike describe (which I'm not sure I understand). That way, the new currency would enjoy the current security from the beginning (much more than if a new completely parallel chain were started) while not competing for CPU power with bitcoin.
If another currency have to be started, it has to be for a better reason that a smaller denomination. That's not needed at all since bitcoins can be easily divided.

I'm not familiar with the method Satoshi and mike describe, but if it's more secure, then I would agree it's better and I agree that a new currency would need a quality other than a different number of denominations to be useful.


http://bitcointalk.org/index.php?topic=7219.0

Quote
If another bitcoin-like currency is created, I think most of its users (probably all) would also accept bitcoin. If there's people that accept some newcoin and not bitcoin, they would need a very good reason. In this case maybe we should support newcoin instead of bitcoin. I don't think, for example, that anyone accepting timecoin or freicoin would reject bitcoin.

I think it would just cause confusion for new users, and make people uncertain about investing into it as they wouldn't know which
currency would end up being the more widely adopted one. This is what happens when standards are competing. People sit-out until they know which standard will come out as the winner, like the way they did with Blu-Ray vs HD-DVD.

That being said, experimentation can be beneficial, so it might end up doing good, but I am leaning towards it being to the bitcoin community's advantage to focus on only one variation for now rather than creating a few variations and convincing people to adopt them.

I think newcoin could save a lot of explanations by linking to bitcoin. In the description could be some text like "if you don't know bitcoin, go to...". For newcoin, the success of bitcoin would be highly desirable I think, just like the success of gold is good for silver because they share most qualities. Instead of looking at it as a market of competing currencies, look at it as a market for competing qualities for money: the currency with the best "basket of qualities" will "win".
Newcoin would take advantage of free developments done for bitcoin, but mostly later. For the newbie it would be always better to start with bitcoin since it has more applications and services.
Only the people who see a flaw in bitcoin and wouldn't use it, would use newcoin.
For example, some "interest haters" could give a chance to freicoin while they're not interested in bitcoin.
I should mail Bernard lietaer.

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May 10, 2011, 03:42:34 PM
 #177

twits .. the supply is increasing ...   so until all the bitcoins are mined it is an inflationary system .. of which we look at it as static because we know the total ...

so look at gold as the total .. duh..

think people.

Stop. You'll go crazy. Just let's create diskcoin, cyclecoin, bandcoin, and servcoin before these idiots poison the reference currency.

What part of "We don't large round bricks with holes" don't people get?

We want rectangular bricks that everyone can build upon not just the self-proclaimed priest class. The real cause of poverty is a bunch of inflated egos telling the minimally able that they need an intellectual permit to help themselves.

Haven't you idiots ever played with Legos?

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
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May 11, 2011, 06:26:23 PM
 #178

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

They just don't get it.

Why don't they just create an inflationary counterpart to bitcoin and let the two compete? (It may be uncharitable of me, but I think it's because the pro-inflation people are mainly also the sort of people who believe in monetary monopolies. "Properly governed", of course.)

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May 11, 2011, 06:33:12 PM
 #179

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

They just don't get it.

Why don't they just create an inflationary counterpart to bitcoin and let the two compete? (It may be uncharitable of me, but I think it's because the pro-inflation people are mainly also the sort of people who believe in monetary monopolies. "Properly governed", of course.)

As i have said many times: Market will decide which solution is better.
If somebody wants moar inflation so much, they should start their own currency and compete with Bitcoin. The code is free & open - so just do it.

I somebody wants to add more inflation into bitcoin then they essentially want to steal from me. I will not tolerate such a common thievery, so i will always be against adding **ANY** more inflation than satoshi envisioned. EVER.

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May 11, 2011, 06:44:05 PM
 #180

This uncertainty is a major problem for the market.

Great. Markets are all about managing uncertainty. It's what they do.

Quote
It means that we traded the unpredictability of central bank policies for an unpredictability of the size of the actual money supply.

Not analogous. Central banks are political organizations. They are secretive, coercive, and inherently fraudulent. A non-inflationary competitive currency, for all its flaws you can name, is transparent, voluntary, and while not completely fraud-proof is at least not conducive to it. Furthermore, central bank currencies are monopolistic; centrally-controlled and effectively outside the market. Market currencies, by definition, are not.

What you are proposing is to apply a central planning solution to a problem which markets are perfectly suited to address: a top-down guess at a solution which will inhibit or prohibit the millions of possible other solutions coming from millions of different approaches. Whatever benefit may come from that solution cannot possibly be as good as the solution that will occur naturally, through competition, in its absence.

It really seems to me that you're completely missing the point of bitcoin. In closing, go start your own inflatacoin or whatever. Some of us are choosing bitcoin for precisely the thing that you would do away with.

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May 11, 2011, 06:49:57 PM
 #181

As i have said many times: Market will decide which solution is better.
If somebody wants moar inflation so much, they should start their own currency and compete with Bitcoin. The code is free & open - so just do it.

I somebody wants to add more inflation into bitcoin then they essentially want to steal from me. I will not tolerate such a common thievery, so i will always be against adding **ANY** more inflation than satoshi envisioned. EVER.

I agree. The rules of bitcoin shouldn't be changed, another currency would make much more sense if something has to be changed.
On the other hand, a new bitcoin-like currency will have more chances to survive if it appears after bitcoin has been well established and the general public knows it is completely functional.

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May 11, 2011, 06:53:29 PM
 #182

On the other hand, a new bitcoin-like currency will have more chances to survive if it appears after bitcoin has been well established and the general public knows it is completely functional.

In which case, I find it highly unlikely that they would want to use a more inflationary currency. This could just be me projecting my desires on the rest of the world, though...
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May 11, 2011, 07:12:50 PM
 #183

In which case, I find it highly unlikely that they would want to use a more inflationary currency. This could just be me projecting my desires on the rest of the world, though...

I don't thing that timecoin has any advantage over bitcoin neither. But it would be possible that it circulates in parallel.
I think moneys with demurrage could take a greater share of a free market than inflationary ones.
Of course, if that market of non-government moneys overtakes the monetary madness that we live in now, it will decide what moneys are good enough to be used.

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August 04, 2011, 02:58:40 AM
 #184

I brought up this old thread for a reason....   everyone wanted modest inflation... well at the price of BTC today (8 dollars)  you got it... a ton of it.


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August 04, 2011, 05:33:54 AM
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I brought up this old thread for a reason....   everyone wanted modest inflation... well at the price of BTC today (8 dollars)  you got it... a ton of it.

Inflation causes price decreases
Price decrease != inflation
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August 04, 2011, 09:44:10 AM
 #186

I brought up this old thread for a reason....   everyone wanted modest inflation... well at the price of BTC today (8 dollars)  you got it... a ton of it.

If the USD/bitcoin price were constant, you would have rampant price inflation.
This is far from modest.
I didn't want modest inflation anyway.

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August 04, 2011, 01:32:09 PM
 #187

I brought up this old thread for a reason....   everyone wanted modest inflation... well at the price of BTC today (8 dollars)  you got it... a ton of it.

Uhh... what? I don't think anyone who's ever called for any sort of inflation wanted it for the reason of "hey, I think I want my holdings to be worth a little less each day for no good reason!"

The belief is that a modest amount of inflation simply discourages hoarding when the currency is doing well, which would spur on a real economy of trade. Whether this belief is unfounded (I've come to the conclusion it's not, however there's no solution to that problem without a central authority.. deterministic inflation is worse than deterministic deflation for a currency that depends entirely on trust of the participants) is irrelevant to the current situation - the fact is that prices are dropping at the moment because the currency is not doing so well at the moment.

This encourages you to spend it, sure - but it also makes the person accepting it wary about doing so. The goal with a modest amount of inflation is the best of both worlds: encourage people to spend, but not at the expense of people willing to accept it. I don't think any solutions are plausible, but that's not to say that what we're experiencing now is a good thing in the eyes of people asking for these solutions.

TL;DR: They may be wrong, but you ain't right.

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August 04, 2011, 03:45:19 PM
 #188

The goal with a modest amount of inflation is the best of both worlds: encourage people to spend, but not at the expense of people willing to accept it.

The same thing can be obtained with a proportional modest demurrage, while avoiding the accounting inconveniences of inflation and also lowering interest rates, which allows greater real capital accumulation.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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August 04, 2011, 06:11:31 PM
 #189

The goal with a modest amount of inflation is the best of both worlds: encourage people to spend, but not at the expense of people willing to accept it. I don't think any solutions are plausible, but that's not to say that what we're experiencing now is a good thing in the eyes of people asking for these solutions.

I would actually argue further that it is not beneficial overall to "encourage" people to spend. Individuals have various needs and wants that they prioritize based on their own personal preferences. They will act rationally according to these priorities in order to maximize their happiness. If in order to do so it is necessary to exchange things they currently own for something that they consider to be of greater value, they will do so.

Those that attempt to justify the theft from others for some greater benefit, like the "economy" (which is merely an aggregation of individuals acting to maximize their happiness) have no ground upon which to stand.
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August 04, 2011, 06:37:44 PM
 #190

I would actually argue further that it is not beneficial overall to "encourage" people to spend. Individuals have various needs and wants that they prioritize based on their own personal preferences. They will act rationally according to these priorities in order to maximize their happiness. If in order to do so it is necessary to exchange things they currently own for something that they consider to be of greater value, they will do so.

I would argue that that's simply not true. First of all, IMHO, the deflationary Bitcoin isn't that way because it's favorable, but because it's the only way a decentralized currency will work. I don't believe deflationary currency is favorable - it facilitates a wedge between the haves and have nots which has nothing at all to do with hard work... it's simply a case of if you already have enough value that you can sit on some or all of your deflationary currency and wait for it to appreciate then you will receive more value without contributing anything. If the amount you earn is around what it costs you to survive, you stand almost no chance of ever striking it rich. I don't think removing that wedge, whether through inflation or demurrage is inherently bad (or "theft") - it's irrelevant because there simply isn't any way to do it.

Furthermore I reject objectivism and communism and any other philosophy which hinges upon people acting rationally - people do not act rationally for the most part, and they simply can't be depended to act rationally... ever.

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August 04, 2011, 10:18:47 PM
 #191

it facilitates a wedge between the haves and have nots

In an environment where prices are falling (even if wages fall to match), any money you were able to save previously is now able to buy more things. This helps the haves and the have nots.

you can sit on some or all of your deflationary currency and wait for it to appreciate then you will receive more value without contributing anything.

If you "sit" on your money, you are forgoing consumption so that others may. You are also decreasing the supply of currency, increasing it's price. This raises the purchasing power of all consumers.

If the amount you earn is around what it costs you to survive, you stand almost no chance of ever striking it rich.

The goal of an economy is not to strike it rich. It's to first survive and second better your life. If the price of the things you need to survive goes down, you can save more money. Wages are sticky, so it's not likely that your income will fall with your expenses.

people do not act rationally

Aha! The crux! You think that in order to act rationally, someone must act rationally by your standards. As Mises says:

Quote
Human action is necessarily always rational. The term 'rational action' is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.

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When applied to the means chosen for the attainment of ends, the terms rational and irrational imply a judgment about the expediency and adequacy of the procedure employed … It is a fact that human reason is not infallible and that man very often errs in selecting and applying means. An action unsuited to the end sought falls short of expectation. It is contrary to purpose, but it is rational, i.e., the outcome of a reasonable — although faulty — deliberation and an attempt — although an ineffectual attempt — to attain a definite goal.
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August 04, 2011, 10:44:06 PM
 #192

There already are blockchain based currencies that do not decrease the number of coins minted per block. They will continue adding more coins forever.

So far though the people who go on about actually wanting inflationary coins have managed to pretty effectively avoid all these new blockchains.

I wonder why.

-MarkM-

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August 05, 2011, 12:40:34 AM
 #193

Nothing you said above invalidates what I said about it being a wedge between the haves and have nots. You are correct, in that other things are wedges as well, but a deflationary currency is so.

Aha! The crux! You think that in order to act rationally, someone must act rationally by your standards. As Mises says:

No, I'm saying that the whole "the situation will sort itself out as long as people act rationally" is bullshit, because they won't. We've seen it with Bitcoin, an anonymous irretrievable currency is a fuckin' warzone. Scammers and crooks make out like bandits. It doesn't matter what standards you define "rationally" by, if you say things like "it'll work out if people just do X" when it's not immediately in their own best interests, chances are they probably won't do X.

markm: I already said why - because a deterministically inflationary currency is even worse than a deterministically deflationary currency - this whole discussion about whether deflation is bad is irrelevant, because there's no way to do smart inflation (which should ideally match the growth of the economy, right?) in a decentralized way.

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August 05, 2011, 02:03:32 AM
 #194

markm: I already said why - because a deterministically inflationary currency is even worse than a deterministically deflationary currency - this whole discussion about whether deflation is bad is irrelevant, because there's no way to do smart inflation (which should ideally match the growth of the economy, right?) in a decentralized way.

You mean the Lazarus Long approach (issue currency enough yourself for people to buy what you sell) won't work? I always figured that guy was smart.

-MarkM- (Theatres issue enough tickets to redeem all available seats, why can't farmers issue enough tickets to redeem their produce?)


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August 05, 2011, 01:00:51 PM
 #195

There already are blockchain based currencies that do not decrease the number of coins minted per block. They will continue adding more coins forever.

So far though the people who go on about actually wanting inflationary coins have managed to pretty effectively avoid all these new blockchains.

I wonder why.

-MarkM-


I didn't know it.
Are they like timcoin (always the same amount added) or like expocoin (a proportion of the existing supply)?
Can you give a link?
I still prefer freicoin, but I want to talk with the people who did them.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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August 05, 2011, 01:32:40 PM
 #196

markm: I already said why - because a deterministically inflationary currency is even worse than a deterministically deflationary currency - this whole discussion about whether deflation is bad is irrelevant, because there's no way to do smart inflation (which should ideally match the growth of the economy, right?) in a decentralized way.

There's people talking about a system that creates "smart inflation" as you call it here.

Why is predictable inflation so bad?

The only "theft" in expocoin/freicoin goes to the users in form of cheaper transaction fees (if you maintain security) and comes from the money holders, who also gain from the service miners provide but enjoy it for free within bitcoin.

You mean the Lazarus Long approach (issue currency enough yourself for people to buy what you sell) won't work? I always figured that guy was smart.

-MarkM- (Theatres issue enough tickets to redeem all available seats, why can't farmers issue enough tickets to redeem their produce?)

You can do that with Ripple. You can chose what you want for the IOUs, but the denomination doesn't need to be available seats or carrots.
You could even define a stable currency and use it with no more backing than the goods and services you produce.


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August 05, 2011, 03:14:02 PM
 #197

There's people talking about a system that creates "smart inflation" as you call it here.

If I'm not mistaken though, do both of those not depend on some form of centralized authority to set the rate? Also if I'm not mistaken, there's almost zero incentive to mine?

Quote
Why is predictable inflation so bad?

Predictable inflation as we've got it in Bitcoin isn't so bad... people understand the rules of the game and know that the market has to expand at a given rate to soak up the known amount of new coins coming in, or else the price will go down. What offsets this and props the market up is the fact that it's known when it will end, so a lot of people can successfully play the long-game and buy up what they consider "cheap" coins now, knowing (well, betting) that if Bitcoin has any kind of economy when the inflation stops, they'll do very well out of it.

That's literally about the only thing giving Bitcoin any value right now - if it weren't for the speculation, I don't see any reason we still wouldn't be spending thousands of Bitcoins on very cheap items... and the one or two people selling automobiles would be asking in the hundreds of thousands. In fact I'd bet without the near-instant ability to convert Bitcoins (provided by the speculators) to your local currency, we wouldn't have as many people even selling stuff for BTC.

That's the whole crux of my argument in this thread - a deflationary currency is sub-optimal for building an economy, but it's about the only way it'll work in the parameters of a currency that Bitcoin fulfills.

^_^
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August 05, 2011, 06:07:26 PM
 #198

There's people talking about a system that creates "smart inflation" as you call it here.

If I'm not mistaken though, do both of those not depend on some form of centralized authority to set the rate? Also if I'm not mistaken, there's almost zero incentive to mine?

No, the rate is set automatically in function of the exchange prices reported by the miners. If they cheat the report their blocks won't be accepted.
There's incentive to mine, coin creation and voluntary fees, but also a mandatory fee to destroy coins.
I don't like the mandatory fee, a demurrage fee is better for that.

Quote
Why is predictable inflation so bad?

Predictable inflation as we've got it in Bitcoin isn't so bad... people understand the rules of the game and know that the market has to expand at a given rate to soak up the known amount of new coins coming in, or else the price will go down. What offsets this and props the market up is the fact that it's known when it will end, so a lot of people can successfully play the long-game and buy up what they consider "cheap" coins now, knowing (well, betting) that if Bitcoin has any kind of economy when the inflation stops, they'll do very well out of it.

That's literally about the only thing giving Bitcoin any value right now - if it weren't for the speculation, I don't see any reason we still wouldn't be spending thousands of Bitcoins on very cheap items... and the one or two people selling automobiles would be asking in the hundreds of thousands. In fact I'd bet without the near-instant ability to convert Bitcoins (provided by the speculators) to your local currency, we wouldn't have as many people even selling stuff for BTC.

That's the whole crux of my argument in this thread - a deflationary currency is sub-optimal for building an economy, but it's about the only way it'll work in the parameters of a currency that Bitcoin fulfills.

If the 21M limit wasn't there, we would have less speculators and a bitcoin would cost 1 dollar instead of one. So what? You still can trade with it. $500 worth in btc is still $500 worth in btc no matter its price. Is it so important to use the decimals?

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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August 05, 2011, 07:04:20 PM
 #199

No, the rate is set automatically in function of the exchange prices reported by the miners. If they cheat the report their blocks won't be accepted.
There's incentive to mine, coin creation and voluntary fees, but also a mandatory fee to destroy coins.

How does the average peer on the network double check the latest block without resorting to a central authority? I have a sneaking suspicion you're not catching my drift that in this situation the exchanges become the central authority.

Quote
If the 21M limit wasn't there, we would have less speculators and a bitcoin would cost 1 dollar instead of one. So what? You still can trade with it. $500 worth in btc is still $500 worth in btc no matter its price. Is it so important to use the decimals?

No, what I mean is that if the 21M limit wasn't there, there wouldn't be anywhere near the liquidity in Bitcoin right now. Many businesses that accept Bitcoin do so because it's neat, but it's almost universally untrue that their costs are in Bitcoin as well - they need a way to turn those Bitcoins into your local currency reliably in order to be able to accept it. This liquidity is only provided (for the most part) on the basis of "hey, there's a chance this could be a really great investment someday" - if you take that away much of the liquidity is gone.

It would be desirable for someone getting into Bitcoin for the same reasons I did - I like the idea of barter, and things like Ripple, Bitcoin, etc which serve as facilitators to barter without bringing all the negative aspects that come with any modern financial system are great.

But it's my strong belief that under any of the systems you're talking about, even "$500 worth of Bitcoin" is probably a misnomer, because I feel like you'd have a very hard time actually getting the USD out of them. It should be stressed that I'm not one of these assholes stomping my feet and saying "inflation is theft! you will not touch my wealth!" I simply think that Bitcoin is "working" right now because of the prospect of deflation in the future, not in spite of it.

^_^
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August 05, 2011, 08:47:20 PM
 #200

I get your point, the liquidity would had grown much slower.
Yes, bitcoin has the potential to expand faster.
But a new coin also has a lot of free software already developed and the adaptation costs for bitcoin businesses will be smaller than their initial costs for accepting bitcoin. Merged mining also lets you start with big difficulty. I think new coins will be traded mainly for bitcoins to take advantage of its superior liquidity (Not only compared with the new coins but also compared with "national" currencies like USD, EUR or JPY: Bitcoin is the easiest way for me to by currencies of the world, so maybe bitcoin is the more liquid currency in the world right now in that sense). New coins could be p2p traded for bitcoins within exchange chain.
Back to the topic, I guess bitcoin was meant to be the first for its ability to attract and create early speculators. Yes, I'm one of them. Long bitcoin. (I'm namecoin invested too. I have 800 nmc that will make me rich Wink I don't expect anything near bitcoin parity but at 0.03 btc they seem cheap) But this ability is not needed to achieve expansion, only helpful.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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