Topic: A Better Coin (Read 12445 times)

Random thread necro...

Anyway, it did not happen because I do not have the capabilities to make it happen, and no one else seemed interested in making it happen.  If I had the capabilities, I would have most certainly made it happen. 

Did this happen? hmm? No, we do not need a better coin.

500k/block would be necessary if 300,000,000 people used it.  That would keep the currency at roughly parity with the dollar (which makes sense, in order to avoid the psychological "less is not more" barrier).

It is also necessary to continue with block rewards, so that the currency doesn't go into a deflationary spiral (which WOULD happen - see "The Great Depression").

I also believe that, with the current Bitcoin client, transaction fees will not be high enough to maintain a sufficient number of miners to keep the network secure.  Once we hit 25 BTC rewards, the number of miners will drop in half.  Same thing when we reach 12.5 BTC rewards, etc.  The end result is that we wouldn't have enough money being spent on mining to keep the network secure, which I'll explain in further detail.

If we assume there is no growth in bitcoins from now until the reward is effectively gone (and thus no value increase), then miners will see a reward of 0.05 BTC/block or so.  Which means that the network would be secured, theoretically, by 1/1,000 of the number of miners that currently secure it.  We'd have 20-50 GPU's securing the entire network worth $210M.  In order to maintain the same level of network security that we have today, on a "hash-per-market-cap" basis, we'd have to have 1000 times the number of transactions in each block that are currently had.  That's just not going to happen unless worldwide adoption becomes a reality, so we will always have a discrepancy between the hashing power securing the network and the total value of the network.  Sure, if prices reach $1,000, then we might have 2,000 to 5,000 GPU's securing the network, but that network would be worth $21B.  So 2,000 to 5,000 GPU's probably isn't going to be enough at that point either.  At the current transaction rate, the network will not be sustainable in the future.

See the problem?

It's not inflationary - it's stable.  Well, eventually anyway.

Once the number of coins generated equals, roughly, the number of coins accidentally lost, then the currency is stable.  It shouldn't increase or decrease in value.  Up to that point, it would be inflationary, but the hope would be that the adoption rate of the currency would keep up.

If the interest rates are below zero, money holders would prefer to hoard goods over lending.
The merchant wants 10% demurrage, but Gesell says:
"Interest on commercial capital is composed of this regular payment which, distributed over the total annual transactions, amounts, as we know from thousands of years of experience, to about 4 or 5% per annum of the capital sum involved."
I can't find the reference to the author he mentioned, that measured the average interest rates since roman times.

I think that may be too much. Gesell estimated (well, someone else I can't remember did the historical study) that the interest rates were historically between 4% and 5% per average. So he proposed 5%.
If the demurrage rate is too high, the interest rates are going to be negative even with stable prices and I'm not sure that's desirable.

We should discuss the intial generation curve. viperjbm has proposed to have a lower demurrage rate until the monetary base is issued to attract early adopters.

This is my proposal for awesomest blockchain ever:

- Name of currency: Gesell.

- Annual demurrage rate of 10%. This rate is high enough to make the currency very resistant to business cycles but not high enough to make it inconvenient to use.

- Demurrage is triggered every block so the rate per block would be 0.0002% (we assume 52560 blocks per year).

- Coins from demurrage get added to the block reward (nSubsidy + nFees + nDemurrage).
- Base nSubsidy is changed from 50 * COIN to 50,000 * COIN. This helps with granularity and with the psychological barrier of coins being worth too much in USD.

- Max money is 21 billion instead of 21 million.

- Retarget interval decreased from 2016 blocks to 1008. This helps with the accuracy of our target demurrage rate.
- Difficulty decrease limit is lifted.

The main discussion is going to be if an elastic money supply is needed or not. After reading a few books and discussing a lot with austrians here in the forum, I strongly doubt the desirability of it.

But gesell actually thought that the central bank/government issuing the freigeld (free money in german) should manage stable prices. In his opinion, that can't be done easily without demurrage because V is not much constant.

Oh now I get it, for real this time. What I was having trouble with is the investment problem with deflation but I can see the difference with the addition of demurrage now. Let's say demurrage rate is 10%, I invest 100 coins in stock and at the end of the year my shares are worth 96 coins because of price deflation. This would be a serious loss in Bitcoin, as it would have been better to just leave the coins in my wallet. With this currency though I'm still better off because if I hadn't invested then I would only have 90 coins left. So it doesn't really matter if the nominal value of my assets goes down as long as the demurrage rate is superior to the deflation rate.

For loans, a creditor could lend at negative interest and still be better off. With demurrage at 10% and deflation at 5%, I could lend 100 coins and ask for 93 back. This is still superior than saving the money and it's also extremely convenient for the debtor as he end ups paying up less than what he borrowed (both in nominal terms and adjusted for purchasing power). It's totally genius.

You can sign me up as a demurrage-only advocate.

I get that credit acts as M growth in a fractional reserve system, but how would you be able to lend money that doesn't exist in this blockchain? New money needs to be mined, it can't be summoned out of nowhere.

I'm confused. If M growth through credit is unsustainable, which I believe is true, then why would you want to rely on it for your chain?

Yes, I believe in the equation, but I think that credit may act as part of M.

That M effectively increases by credit growth pushed by interest and that leads to so called business cycles. When the level of debt is unsustainable, the credit must contract, effectively decreasing M.

Also a modest deflation (caused only by growth) would not hurt investments as much as if there wasn't demurrage.

You are saying that the equation of exchange (%ΔP = %ΔM + %ΔV – %ΔQ) is false then? If you don't believe a finite money supply will result in price deflation, with or without demurrage, then might as well stay with Bitcoin.

I'm not that sure.

I believe both demurrage and supply expansion are required for price stability. If you only have demurrage then there will be price deflation proportional to the growth in GDP.

You are making some grossly inaccurate assumptions about human kind which would make your system to be doomed for failure....  1) What stops a criminal coming in and buying up wealth to get in and then once there he uses his new power such that behind the scenes he is improperly acquiring more wealth from the system.  2) Just because someone has more coins does not mean the have a greater stake in the system, on the contrary it is often the big investors that have the least to loose because their entire capital investment is large enough that no single investment will bring them to their knees, so while they would want to protect theirselves you also couldn't trust them to not attempt to use their new found power to try a bleed a little extra from the system.  3)  Wealth holders getting lower difficulty blocks just means you further perpetuate all the wealth of the system being consolidated in just a few places.

I think we're getting close to the consensus that demurrage is better than inflation.
Many of us agree we don't want direct human intervention in the system, too.
Until you remove money holders voting from your proposal I don't think it can be accepted by many people.
Only miners can vote and, as you pointed out, the effects of their voting must be innocuous for them or they will vote in their favor.
So the idea of miners reporting exchange prices is also banishing.
I still think they can vote to define a parallel stable currency for contracts and prices if it doesn't affect anyone's balance.

My position on this is that the psychological benefit, if any, is with inflation, not demurrage. Inflation is an every day phenomenon. Everyone is familiar with txn fees and inflation. Few people have ever seen a government drain their bank accounts to keep prices stable. I would rather not impose an unfamiliar experience on end users. I think this idea will be poorly received  by 99% of the population of potential users.

Except with demurrage the debasement happens instantaneously, and evenly across currency owners.  With inflation, prices gradually get bid up as the new money works its way through the economy.  I imagine this can be potentially disruptive, as the new money starts overly concentrated in one place.  My intuition tells me bubbles could be caused this way.