Current Bitcoin inflation rate = 35%. Price = stable

[Etlase2]

BULLSHIT: http://www.youtube.com/watch?v=JeIljifA8Ls

What exactly are you calling bullshit on? That an inelastic supply of money causes the wealthy to become wealthier? It may have been exacerbated by government policy, but was still only an effect on supply. The same phenomena can and will occur every time bitcoin has a growth spurt.

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[blablahblah]

Thank you very much for these calculations, I was wondering what the current inflation rate was.

YW
It might be down to ~34.5% by now.

But I think you're making a mistake when you're equating inflation with rising prices. You correctly identified inflation as the growth of supply of bitcoins and what it's rate is but this is only one half of the supply/demand story that goes into the exchange rate with another currency/commodity price discovery.

Inflation != rising prices. Inflation can result in rising prices given the right conditions of supply/demand.

IMO what the current inflation rate of bitcoins really tells us is that the demand to hold bitcoins is greater than the growth of supply but it doesn't explain where this demand comes from. Is it new market participants coming in and shoring up their balance sheets? Is it the current market participants saving and increasing their balance sheets? Is it just miners saving? Who knows from who's balance sheet this demand really comes from and what Bitcoins "growth" rate actually is.

There was a lot of follow-up debate. As a quick recap:

• Due to enthusiastic disagreements about definitions of inflation, I defined "inflation" for this thread as being "increase in the money supply", with no growth or price information included. I wanted to understand (and maybe help others understand) Bitcoin better, not a shouting match between proponents of Keynesian and Austrian economic theories.
• I was surprised that despite the high inflation (increase in money supply), the US dollar price wasn't falling. However, after considering that in this case the inflation has a mining cost, which reflects the price buyers are willing to pay, which reflects how much value they assign to bitcoins, it now makes more sense to me.
• Re: growth, I think the debate is wide open. The supply and price levels simply don't provide enough information about the size and qualities of the economy to be able to meaningfully discuss growth. Furthermore, any attempt to measure the growth would imply a set of arbitrary criteria that define growth.

[JusticeForYou]

The cause of the inflation is important. Is it because people want it but can't obtain it OR is it because people don't want it so suppliers have to increase prices due to lack of demand (What I like to call Buggy Whip Economics).  Buggy Whips went up in price before they disappeared because no one used them anymore.

I judge demand by the amount of nodes using Bitcoin. Increasing nodes = increasing demand, decreasing nodes = decreasing demand.

I believe increasing use of Bitcoins is the goal here. Mining operations seems to have taken a precedence over this.

But my Nutshell says:


 If Bitcoin is increasing in price with increase in nodes, it is good.

 If Bitcoin is increasing in price with decreasing nodes, it is bad.

 If Bitcoin is decreasing in price with increase in nodes, it is good. (Although this scenario isn't 'good' for miners, it is good for the Bitcoin)

 If Bitcoin is decreasing in price with decrease in nodes, it is bad.


Then apply whatever inflation formulas you want.

[wogaut]

 If Bitcoin is increasing in price with increase in nodes, it is good.

 If Bitcoin is increasing in price with decreasing nodes, it is bad.

 If Bitcoin is decreasing in price with increase in nodes, it is good. (Although this scenario isn't 'good' for miners, it is good for the Bitcoin)

 If Bitcoin is decreasing in price with decrease in nodes, it is bad.


Then apply whatever inflation formulas you want.

OK, let's try some logistic regression analysis here:
Conclusion, independent on what bitcoin is doing, decrease in nodes is bad! 

[blablahblah]

  ... damn nervous tic

The cause of the inflation is important.

The miners keep mining and creating new coins. Hence: inflation. The approximate rate is pre-defined by the Bitcoin system. I eventually settled on the Austrian "asshat" definition. If you read the whole saga, it's pretty self-explanatory.

Where can we get info on the number of Bitcoin nodes in use? That sounds like a great metric.

[hazek]

Where can we get info on the number of Bitcoin nodes in use? That sounds like a great metric.

It's not really that great because it doesn't account for all the tens of thousands of online wallets secured by exchanges and ewallet service providers.

[JusticeForYou]

... damn nervous tic

The cause of the inflation is important.

The miners keep mining and creating new coins. Hence: inflation. The approximate rate is pre-defined by the Bitcoin system. I eventually settled on the Austrian "asshat" definition. If you read the whole saga, it's pretty self-explanatory.

Where can we get info on the number of Bitcoin nodes in use? That sounds like a great metric.

http://bitcoinstatus.rowit.co.uk/hosts.html

http://p2pool.info/

[khagler]

Where can we get info on the number of Bitcoin nodes in use? That sounds like a great metric.

It's not really that great because it doesn't account for all the tens of thousands of online wallets secured by exchanges and ewallet service providers.

Also, unless it's something like "different nodes seen in the last week" it wouldn't account for people like me who only run the Bitcoin client long enough to catch up on the blockchain and the occasional transaction.

[JusticeForYou]

Where can we get info on the number of Bitcoin nodes in use? That sounds like a great metric.

It's not really that great because it doesn't account for all the tens of thousands of online wallets secured by exchanges and ewallet service providers.

Also, unless it's something like "different nodes seen in the last week" it wouldn't account for people like me who only run the Bitcoin client long enough to catch up on the blockchain and the occasional transaction.

This whole forum is full of statisticians that will tell you how to account for outliers.

[unclescrooge]

So this doesn't look good?

[JusticeForYou]

   It is a concern of mine. However, remember this is a niche economy, so far, and even the high figure isn't that much. So the swings can seem large when dealing with such small numbers. e.g. 2-1=1 represents a 50% decrease but really doesn't mean that much as tomorrow it can easily do the opposite.

  This is a ßeta project still but people are relying on it as money. I laugh when people make fun of 'early' adopters cause 'they' are early adopters. Yes, someone else might have 20K BTC compared to their 100 BTC. But 100 BTC in the grand scheme would be a multi-millionaire if 9 billion people were using the 21 Million Bitcoins in an economy. Although, I'm shooting for just 100 to 300 million people.

 A problem is people are saving to much. Robber Barons, ponzi schemes, pyramid schemes, real businesses, etc... It is interesting to see the 'new' economy act just like the 'old' economies. The key is that we've seen it happen before and there is an element of predictability in what will happen. The time frame and where are the questions.

 This is the first currency that has potential to become a 'world' currency. It is also its greatest threat. The 'Big Boys' will either try to kill it or co-opt it if it becomes to much a threat. That needs to be guarded against.

 Currently a very small amount of BTC, relatively, controls the market price.

Assuming each node represents 1 person (which it doesn't), that would be about 8 Million / 18,000 for about 444 BTC each on a MTGOX volume for 30 days. But as said, it doesn't because people run more than 1 node and not every trade is unique on the exchange.

We are a baby economy that needs nursing.  There is a term for the period that we are in. But I will not coin it here. However, two things happen from it. It either breaks out or collapses.

The older generation will just not get it. Look towards the schools and gaming segment of this economy. Get college students to buy Pizza and kids to pay for games in BTC.  And with a little time, someone big will accept it. i.e. Dominos, GameStop, etc...

Plan for the worst, hope for the best.

I get some grief because I would like to see the price between 1.7 to 3 USD. In the long run, I think this price point will help the spread of BTC but the 'market' (miners) don't like that point.  Miners need to be-careful that they don't get what they wish for. Their fishing of Blue Fin Tuna might turn into Pogie Fishing.

Miner bitch about the cost of mining and they need a certain price point. NO, they don't. The lower price would put miners out of business lowering the difficulty and making it easier (cheaper) for the remaining miners to mine.

I believe the original intent of Satoshi was for distributed mining among all clients. This has changed and now mining is becoming centralized based on whom is the most efficient and stays in business. I believe, every client should be 'easily' be able to mine but a control of how much should be left to the individual.  As I see it now, the first people to ASIC farms will win and slowly but surely put the others out of business. The client could prevent the soon to come ASIC Hubs from exerting a unbalance force on the network by letting people just bypass them. i.e. P2Pool among just other clients and avoid the ASIC Hubs altogether.


Bah... I ranted again.

[miscreanity]

Bah... I ranted again.

Good rant, valid concerns.

The issue of concentration via ASIC mining isn't as great a concern as other technical aspects, though. Even if a CPU-friendly algorithm were used, that just means economy of scale will emerge for whomever can pull together more/faster processors in bulk rather than better custom chip design. Actually, ASIC mining can help to guard against some threats such as botnets and traditional bank/government aggression.

Same problem, different approach. Defending against malicious domination requires eternal vigilance.

[benjamindees]

And with a little time, someone big will accept it. i.e. Dominos, GameStop, etc...

I hesitate to call this off-topic since, now that the price is stable, large-scale adoption is the next step.  But I'll just point out that a nationwide retailer is the wrong place to look.  It would be nice, but I just don't see any of them having the balls to do it.  Instead, look for mom-and-pop shops, local barter groups and, eventually, cities and states.  These are the only entities that can stand up to the expected retaliation of the federal government for adopting an alternative currency.  Large scale retailers, especially publicly-traded ones, don't really have a lot to gain by adopting Bitcoin.

[JusticeForYou]

And with a little time, someone big will accept it. i.e. Dominos, GameStop, etc...

I hesitate to call this off-topic since, now that the price is stable, large-scale adoption is the next step.  But I'll just point out that a nationwide retailer is the wrong place to look.  It would be nice, but I just don't see any of them having the balls to do it.  Instead, look for mom-and-pop shops, local barter groups and, eventually, cities and states.  These are the only entities that can stand up to the expected retaliation of the federal government for adopting an alternative currency.  Large scale retailers, especially publicly-traded ones, don't really have a lot to gain by adopting Bitcoin.

Agreed,

 That is the steps needed before the national chains adopt it. Small Businesses could stand to have the most benefits from BTC. Once that starts en masse tho... the chains will quickly adapt to a B2B market of them and quickly followed by a B2P market.

[blablahblah]

So this doesn't look good?

I see several possible explanations:

• After the 2011 bubble burst, a lot of disgruntled speculators ditched Bitcoin and sought refuge in the safety of leveraged AAPL ETFs instead.
• 95% of the node activity was due to miners (who else keeps the software running 24-7, sheesh) and most of them gradually dropped out when they could no longer mine profitably at such high difficulty vs. price.
• The data is collected from an old version of the client, and most people have now upgraded and/or use e-wallets as suggested above.

You cover a lot material, BTC_Bear. Where do I start?

Currently a very small amount of BTC, relatively, controls the market price.

What if each bitcoin were incredibly valuable?

I get some grief because I would like to see the price between 1.7 to 3 USD. In the long run, I think this price point will help the spread of BTC but the 'market' (miners) don't like that point.  Miners need to be-careful that they don't get what they wish for. Their fishing of Blue Fin Tuna might turn into Pogie Fishing.

Breathalyze Ben Bernanke and take away his helicopter keys? j/k

In a normal market, the price is the point where the supply and demand curves meet. To achieve a lower price, you would have to:
1) make [whatever it is that you're talking about] seem crappier, less appealing,
2) increase supply,
or 3) both 1 and 2.
However, with Bitcoin the supply is extremely inelastic, which means (ignoring hoarding and other short-term manipulations for the moment) that the exchange rate is almost entirely controlled by the demand, or in other words: it's in the mind of the buyer. Have you considered that if the Bitcoin developers had decided to put the decimal point 1 digit further to the left, the price might still be $5 instead of $50? IMO it's bad enough with only 21 million coins, but with only 2.1 million coins to go round, why should anyone be $45 more serious about a toy currency like that?

[JusticeForYou]

Breathalyze Ben Bernanke and take away his helicopter keys? j/k

Not my helicopter.

However, with Bitcoin the supply is extremely inelastic, which means (ignoring hoarding and other short-term manipulations for the moment) that the exchange rate is almost entirely controlled by the demand, or in other words: it's in the mind of the buyer. Have you considered that if the Bitcoin developers had decided to put the decimal point 1 digit further to the left, the price might still be $5 instead of $50? IMO it's bad enough with only 21 million coins, but with only 2.1 million coins to go round, why should anyone be $45 more serious about a toy currency like that?

I suppose we should make the use of the word 'healthy'.  Again, what did the last Buggy Whip sell for?  But, yes the price is more determined by the willingness of the buyer to buy rather than the seller to sell. (Supply Side economics only works if people want what your selling).

Actually, on the decimal placement, yes I have. What other currency places the decimal so high above the base unit. To the left would hurt it, imo. To the right wouldn't do much or might even help it a little. Luckily the clients now allow for the movement of the placement with growth of the economy. You can move it to the right.


Now let me get back to drunk flying. You know, you don't get pulled over up here.

[Gavin Andresen]

Again, what did the last Buggy Whip sell for?

There's one selling for about 2 BTC (equivalent) here: http://cheshirehorse.com/Buggy-Whip-P6374.aspx

I wonder how that compares to the inflation-adjusted buggy-whip price in 1900...

[notme]

Again, what did the last Buggy Whip sell for?

There's one selling for about 2 BTC (equivalent) here: http://cheshirehorse.com/Buggy-Whip-P6374.aspx

I wonder how that compares to the inflation-adjusted buggy-whip price in 1900...

It doesn't have the last couple years worth of data, but http://www.westegg.com/inflation/ gives this:
"What cost $10 in 2010 would cost $0.39 in 1900."

[molecular]

I remember when "clicky" keyboards used to cost over $50 in the 1990s, but unlike modern keyboards, those could be repaired.

sorry for offtopic, but good keyboards are still expensive. I'm currently looking at keyboards and the ones that I like and fit my specs are in the range of $100 to $170.

[miscreanity]

sorry for offtopic, but good keyboards are still expensive. I'm currently looking at keyboards and the ones that I like and fit my specs are in the range of $100 to $170.

How quaint.