What happens if someone starts another blockchain or cryptocurrency?

[lonelyminer (Peter Šurda)]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

If by deflation you mean a falling price level, then I humbly disagree. References:
http://www.mises.cz/clanky/fungovani-ekonomiky-v-podminkach-poklesu-cenove-hladiny-254.aspx
http://mises.org/document/3726/Deflation-and-Liberty
http://mises.org/document/2745/
http://ideas.repec.org/p/fip/fedmsr/331.html

Most importantly though, even if a decrease in the price level was a problem, it's irrelevant for Bitcoin unless Bitcoin is a dominant currency (e.g. it outcompetes fiat and gold, and/or is made legal tender). In other words, the scaremongering against "deflation" is based on the assumption of a monopoly money. Which Bitcoin is not at the moment.

If by "deflation" you mean a decreasing quantity of money, that's not representative of Bitcoin as long as the mining exceeds lost Bitcoins. A type of a decrease in the quantity of money known as credit contraction, however, is a phenomenon accompanying the current monetary system. Now that one is a problem.

[lonelyminer (Peter Šurda)]

To fix this, money needs to be channeled into businesses to convince them to accept bitcoin. The mining system could be designed to perform this function by passing out coins to people the community judges to have performed socially useful functions. Instead, mining distributes coins to people who engage in a waste and destruction of resources. It is sad, unfortunate, and fundamentally unnecessary.

The way to persuade people to use Bitcoin is to provide them a with a package better than fiat/gold. This is a question for R&D, business strategy and marketing, not for central planning.

Finally, I don't have any problem with deflationary currency or speculation/investment as a motive. The problem is not that hoarding is bad. The problem is that hoarding is not sustainable if the currency remains nearly useless for any other purpose.

Hoarding is a necessary condition for sustainability. Not a sufficient though, it's also necessary that the prospective money decreases transaction costs (which Bitcoin does) and overcomes the network effect of encumbents (which is iffy, but since it's a widely dispersed open source project, there's no time or budget constraint here).

[hashman]

The cleverest way to bootstrap (handle initial distribution) imo would be to allow people to buy in to the new chain by destroying their bitcoins in a specified manner to 'move' them into the new chain. But really that is just a way to allow people a one-way ticket into a breaking change version of Bitcoin, not a completely new system.

I think the cleverest way to bootstrap would be to pick a bitcoin block and then look at the bitcoin balances of that block and copy them to the new genesis block. Then every bitcoin user would become a newcoin user automatically and they would be inclined to at the very least install the new client, copy their private keys to it and sell their newcoins.

Great idea thanks   This would be a good way to bootstrap a test coin with no inflation to see how mining for fees only will pan out.  

Edit: No pun intended

[Portnoy]

Is the talk about deflation and hoarding a call to start another cryptocurrency that doesn't have the deflationary feature?

How would that work and would people move from Bitcoin to it, killing Bitcoin, or would people just give up on the whole
decentralized crypocurrency experiment and keep using the existing centralized banking systems? 

 

[cunicula]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

If by deflation you mean a falling price level, then I humbly disagree. References:
http://www.mises.cz/clanky/fungovani-ekonomiky-v-podminkach-poklesu-cenove-hladiny-254.aspx
http://mises.org/document/3726/Deflation-and-Liberty
http://mises.org/document/2745/
http://ideas.repec.org/p/fip/fedmsr/331.html

Most importantly though, even if a decrease in the price level was a problem, it's irrelevant for Bitcoin unless Bitcoin is a dominant currency (e.g. it outcompetes fiat and gold, and/or is made legal tender). In other words, the scaremongering against "deflation" is based on the assumption of a monopoly money. Which Bitcoin is not at the moment.

If by "deflation" you mean a decreasing quantity of money, that's not representative of Bitcoin as long as the mining exceeds lost Bitcoins. A type of a decrease in the quantity of money known as credit contraction, however, is a phenomenon accompanying the current monetary system. Now that one is a problem.

Would you please not post this asshat garbage? It makes me physically sick. Could we please stick with references that are accepted by mainstream economics?

People might think that Mises is a noteworthy economist or that his followers perform legitimate academic research that is accepted by modern economists. Neither of these is true. Mises has no influence on modern economics and his theories are not accepted by mainstream economists. He retains a small lay following among libertarian asshats like yourself.

For those unfamiliar with economics, the best analogy might be to those lay physicists who insist on expounding on their method for cold fusion, but are not familiar with basic mathematics.

There is no point in debating anything with you people because you explicitly reject the use of rigorous, logical arguments which have become the standard toolset of economics. You also are averse to the use of mathematical theory and statistical evidence. Instead you prefer a faith-based approach.

There is a controversy over the effects of deflation, but Mises is not referenced in this modern debate at all. He was a nutjob. He is now completely unimportant to economics. Rightly so.

Lay audience, please don't get confused by any of the bullshit he posted. To learn about economics, read a mainstream economics textbook published within the last three decades instead. This Mises stuff is just anti-communist propoganda which became popular due to the cold war. Cold War is over folks. Let it die.

[cunicula]

Key way to identify libertarian asshat #1.

They call things they don't like central planning. Whether whatever they are criticizing bears any relationship to central planning or not is not relevant. They don't like it and don't know exactly why. So it suffices to label it central planning.


Key way to identify libertarian asshat #2.

They post self-contradictory statements such as the following:

 This is a question for R&D, business strategy and marketing, not for central planning.

Note that R&D, business strategy, and marketing would require some sort of centralized planning. There is a manager of a firm. She is the central authority.

(Use of female pronoun intended to piss off libertarian fundamentalist nutjob. Ignore button now in use.)

[etotheipi]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

You know what else is deflationary?  Electronics.  Why buy an iPad now when it's going to be 30% cheaper next year?  The money used to buy electronics is extraordinarily deflationary -- yet people buy electronics all the time!  They should be hoarding that money, wait a year, then they can get 30% more electronics with the same cash!  I don't know why anyone would buy electronics, then.  Oh, except they do.  And somehow that market is freakin' enormous, contrary to the economic theories.

The cleverest way to bootstrap (handle initial distribution) imo would be to allow people to buy in to the new chain by destroying their bitcoins in a specified manner to 'move' them into the new chain. But really that is just a way to allow people a one-way ticket into a breaking change version of Bitcoin, not a completely new system.

I think the cleverest way to bootstrap would be to pick a bitcoin block and then look at the bitcoin balances of that block and copy them to the new genesis block. Then every bitcoin user would become a newcoin user automatically and they would be inclined to at the very least install the new client, copy their private keys to it and sell their newcoins.

As for switching chains, I'm sure it's been mentioned before, but the new chain could distribute its units purely from un-redeemable outputs from the main blockchain.  The only way to get Bit2coins would be to send Bitcoins to your Bit2coin address but using a special script that is impossible to evaluate true on the main bitcoin network.  Therefore, they are destroyed on the main chain, and redeemable within one confirmation on the Bit2coin chain.   Merged mining would keep them both running, and miners could start having their generation transaction go right to the unredeemable-on-the-main-chain Bit2coin addresses.

If the alternate chain has an alternate philosophy on generation, it won't work... but if you plan to keep the same generation scheme, you could change just about everything else and people could decide if or when to switch, as there's an exact 1-1 correspondence between BTC and BT2C (or whatever the hell we call it).  If this has been mentioned before...anyone have a link?

[mcorlett]

Gold was less valuable than iron at one time.

Iron was more valuable than gold, rather.

[BubbleBoy]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

You know what else is deflationary?  Electronics.  Why buy an iPad now when it's going to be 30% cheaper next year?  The money used to buy electronics is extraordinarily deflationary -- yet people buy electronics all the time!  They should be hoarding that money, wait a year, then they can get 30% more electronics with the same cash!  I don't know why anyone would buy electronics, then.  Oh, except they do.  And somehow that market is freakin' enormous, contrary to the economic theories.

As a matter of fact, deflationary expectations kill trade in electronics too. When a company announces a revolutionary product just around the corner, customers cease buying it's current inventory and hold out for the latest and greatest. Sometimes the revenue hit is so strong that the company folds before the revolutionary next version has a chance to become reality, as was the case for the Osbourne Computer Corporation. The phenomenon is called The Osborne effect, has been observed since in many cases, and is a textbook case study in technology marketing.

That being said, this sort of thing does not usually happen for electronics, although customers know and expect constant advances and lower prices. That's because the electronic device provides an utility to it's buyer since day one, which might very well be above the present value of money for that person. If I want to make pictures in my vacation, I will buy a digital camera today; although I might get it 20% cheaper a year later, I would have no pictures from my vacation and that loss is not compensated by the 20% cheaper camera. In the long run we're all dead.

Since a speculative asset like Bitcoin derives no utility for it's owner, this - often repeated - analogy is flawed.

[etotheipi]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

You know what else is deflationary?  Electronics.  Why buy an iPad now when it's going to be 30% cheaper next year?  The money used to buy electronics is extraordinarily deflationary -- yet people buy electronics all the time!  They should be hoarding that money, wait a year, then they can get 30% more electronics with the same cash!  I don't know why anyone would buy electronics, then.  Oh, except they do.  And somehow that market is freakin' enormous, contrary to the economic theories.

As a matter of fact, deflationary expectations kill trade in electronics too. When a company announces a revolutionary product just around the corner, customers cease buying it's current inventory and hold out for the latest and greatest. Sometimes the revenue hit is so strong that the company folds before the revolutionary next version has a chance to become reality, as was the case for the Osbourne Computer Corporation. The phenomenon is called The Osborne effect, has been observed since in many cases, and is a textbook case study in technology marketing.

That being said, this sort of thing does not usually happen for electronics, although customers know and expect constant advances and lower prices. That's because the electronic device provides an utility to it's buyer since day one, which might very well be above the present value of money for that person. If I want to make pictures in my vacation, I will buy a digital camera today; although I might get it 20% cheaper a year later, I would have no pictures from my vacation and that loss is not compensated by the 20% cheaper camera. In the long run we're all dead.

Since a speculative asset like Bitcoin derives no utility for it's owner, this - often repeated - analogy is flawed.

Admittedly, it's a weird analogy, because it's not the electronics themselves that are deflationary, it's the money that is used to buy them that is deflationary with respect to what is being purchased.  But the analogy holds for the same reason that people purchase electronics with fiat -- the money has no particular utility to the owner except that it helps them acquire things to do have value/utility.  A world where Bitcoin is a dominant currency will see people using them, because they need stuff.  Just because they can buy more stuff later with the same number of Bitcoins doesn't mean they'll wait -- a lot of stuff you buy because you want it or need it now.  It just means people be more inclined to save their Bitcoins instead of spending it on stuff they don't need.  It's has different economic principles, but it's not a show-stopper for the currency.

EDIT: Sorry, I shouldn't have started derailing this thread, especially with concepts that are probably beaten-to-death on other parts of the forums.  If someone has a link to the discussion on this stuff, let me know, I'll take my rambling there.

[kjj]

For those unfamiliar with economics, the best analogy might be to those lay physicists who insist on expounding on their method for cold fusion, but are not familiar with basic mathematics.

There is no point in debating anything with you people because you explicitly reject the use of rigorous, logical arguments which have become the standard toolset of economics. You also are averse to the use of mathematical theory and statistical evidence. Instead you prefer a faith-based approach.

LOL.  The pot calling the other pot black.  Your tea leaves and sheep's entrails may be fancier than his, but don't pretend that there is some science going on here.

[BubbleBoy]

@etotheipi

The subject has been beaten to death for a century by various economic schools, and the general consensus of most economists, supported by empirical data, is that deflationary expectations destroy trade, reduce economic activity and makes everybody a bit poorer, save for those who hold the most money.

A rational agent holding Bitcoins will understand their risky nature so it's likely he will diversify to control risk - not dump all his savings into Bitcoin. He might hold one third of his money in a mutual fund, one third in cash and one third in Bitcoins. Of these assets, Bitcoins is the most risky, but it also has the largest potential upside.

Ok, if this rational agent is faced with a buying decision regarding a new iPad, what currency is he likely to use, Bitcoin or cash ? Two basic scenarios:
 - as long as bitcoins are rising, it's irrational to spend them; it's like killing your best cow - it's much more profitable to ride the bull market
 - if bitcoins have stagnated since the user has added them to his portofolio, it's irrational to spend them since he took all the risk but has none of the expected upside

Faced with this decision the rational agent will chose to pay with cash. He will treat Bitcoin as a long term investment, and only spend them if:
 - he wants to balance his portfolio after a bitcoin rally and mark his profits
 - he wants to liquidate his bitcoin portfolio for whatever reason

Both these events are rare, so the velocity of bitcoins will be extremely low, and will mostly be related to cash <-> bitcoin exchanges. Thus Bitcoin's potential as a trade facilitator will not be fulfilled. On the other hand, an slightly inflationary cryptocurrency which has similar risks but no potential upside will be spend by it's owners like there's no tomorrow. Nobody will treat it as an investment since it's guaranteed to loose some value in a year or two - the hot potato game. The much higher velocity means higher GDP and strong merchant revenue in this alternate cryptocurrency.

[wogaut]

Bitcoin isn't really working because deflation destroys trade. There, I've said it.

If by deflation you mean a falling price level, then I humbly disagree. References:
http://www.mises.cz/clanky/fungovani-ekonomiky-v-podminkach-poklesu-cenove-hladiny-254.aspx
http://mises.org/document/3726/Deflation-and-Liberty
http://mises.org/document/2745/
http://ideas.repec.org/p/fip/fedmsr/331.html

Most importantly though, even if a decrease in the price level was a problem, it's irrelevant for Bitcoin unless Bitcoin is a dominant currency (e.g. it outcompetes fiat and gold, and/or is made legal tender). In other words, the scaremongering against "deflation" is based on the assumption of a monopoly money. Which Bitcoin is not at the moment.

If by "deflation" you mean a decreasing quantity of money, that's not representative of Bitcoin as long as the mining exceeds lost Bitcoins. A type of a decrease in the quantity of money known as credit contraction, however, is a phenomenon accompanying the current monetary system. Now that one is a problem.

Would you please not post this asshat garbage? It makes me physically sick. Could we please stick with references that are accepted by mainstream economics?

People might think that Mises is a noteworthy economist or that his followers perform legitimate academic research that is accepted by modern economists. Neither of these is true. Mises has no influence on modern economics and his theories are not accepted by mainstream economists. He retains a small lay following among libertarian asshats like yourself.

Thank you Cunicula!!!

+1000 (not that I have that many votes here anyways...)

[kjj]

@etotheipi

The subject has been beaten to death for a century by various economic schools, and the general consensus of most economists, supported by empirical data, is that deflationary expectations destroy trade, reduce economic activity and makes everybody a bit poorer, save for those who hold the most money.

A rational agent holding Bitcoins will understand their risky nature so it's likely he will diversify to control risk - not dump all his savings into Bitcoin. He might hold one third of his money in a mutual fund, one third in cash and one third in Bitcoins. Of these assets, Bitcoins is the most risky, but it also has the largest potential upside.

Ok, if this rational agent is faced with a buying decision regarding a new iPad, what currency is he likely to use, Bitcoin or cash ? Two basic scenarios:
 - as long as bitcoins are rising, it's irrational to spend them; it's like killing your best cow - it's much more profitable to ride the bull market
 - if bitcoins have stagnated since the user has added them to his portofolio, it's irrational to spend them since he took all the risk but has none of the expected upside

Faced with this decision the rational agent will chose to pay with cash. He will treat Bitcoin as a long term investment, and only spend them if:
 - he wants to balance his portfolio after a bitcoin rally and mark his profits
 - he wants to liquidate his bitcoin portfolio for whatever reason

Both these events are rare, so the velocity of bitcoins will be extremely low, and will mostly be related to cash <-> bitcoin exchanges. Thus Bitcoin's potential as a trade facilitator will not be fulfilled. On the other hand, an slightly inflationary cryptocurrency which has similar risks but no potential upside will be spend by it's owners like there's no tomorrow. Nobody will treat it as an investment since it's guaranteed to loose some value in a year or two - the hot potato game. The much higher velocity means higher GDP and strong merchant revenue in this alternate cryptocurrency.

Yes, given an unlimited supply of two currencies of unequal merit, it totally makes sense to unload the loser.  Congratulations, you've found a really convoluted way to restate Gresham's Law.

In reality, the rational agent will run out of dollars eventually, or run out of people willing to accept them.

[BubbleBoy]

Gresham's law refers to government enforced exchange rates and does not apply. This is about deflationary expectations on a free floating market.
The rational agent will not run out of cash if he has a webstore where people buy iPads with cash, and he gets a commission in cash. He will never get a a bitcoin revenue because people will not buy his inventory with bitcoins. Cash circulates, bitcoins do not.

[kjj]

Gresham's law refers to government enforced exchange rates and does not apply. This is about deflationary expectations on a free floating market.
The rational agent will not run out of cash if he has a webstore where people buy iPads with cash, and he gets a commission in cash. He will never get a a bitcoin revenue because people will not buy his inventory with bitcoins. Cash circulates, bitcoins do not.

You don't see it.  Bitcoin is deflationary in relation to the dollar in your example.  That means that the dollar is inflating.  They are a matched pair, just as you can't have a purchase without a sale, you can't have an inflation without a deflation.

Inflation always ends badly.

[Portnoy]

Gresham's law refers to government enforced exchange rates and does not apply. This is about deflationary expectations on a free floating market...

But this thread is about "What happens if someone starts another blockchain or cryptocurrency?"

Please check the OP to remind yourself what the intent of this thread is.  Thanks.

[BubbleBoy]

And there's your answer: if it's slightly inflationary it will overtake Bitcoin, otherwise it will fail

@kjj: Bitcoin is strongly deflationary in real terms, unrelated to any one fiat currency.

[cbeast]

For those unfamiliar with economics, the best analogy might be to those lay physicists who insist on expounding on their method for cold fusion, but are not familiar with basic mathematics.

There is no point in debating anything with you people because you explicitly reject the use of rigorous, logical arguments which have become the standard toolset of economics. You also are averse to the use of mathematical theory and statistical evidence. Instead you prefer a faith-based approach.

LOL.  The pot calling the other pot black.  Your tea leaves and sheep's entrails may be fancier than his, but don't pretend that there is some science going on here.

Don't forget, they call chiroprators Doctors now. Let's not get into epistemology debates.

[lonelyminer (Peter Šurda)]

There is no point in debating anything with you people because you explicitly reject the use of rigorous, logical arguments which have become the standard toolset of economics. You also are averse to the use of mathematical theory and statistical evidence. Instead you prefer a faith-based approach.

It is funny that you accuse your opponents of rejecting logical argument, while your only "argument" is an ad hominem (i.e. a logical fallacy). You conveniently neglect making any logical arguments yourself. If you do not want to confront my arguments, that's all right, but justifying it as "scientific" is highly misleading.

Edit: I would also like to point out that none of the references I provided were by Ludwig von Mises, and one of them was provided by the Federal Reserve Bank of Minneapolis.

I like to debate people who are so full of themselves as you, cunicula. They typically end up contradicting themselves within a couple of minutes. You have a unique opportunity to surprise me. Are you up for the challenge or is it beneath you?