A modest amount of inflation should be part of bitcoin

[jtimon]

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.

[BitterTea]

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...

[jtimon]

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.

[the founder]

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.

[BitterTea]

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

[jtimon]

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.

[elggawf]

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.

[jtimon]

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.

[BitterTea]

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.

[elggawf]

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.

[BitterTea]

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:

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.

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.

[markm]

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-

[elggawf]

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.

[markm]

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?)

[jtimon]

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.

[jtimon]

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.

[elggawf]

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?

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.

[jtimon]

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.

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?

[elggawf]

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.

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.

[jtimon]

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 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.