Biggest threat to bitcoin right now is the fragile state of the "real" economy since bitcoin is as of yet still not well established.... if the "real" economy falters too bad no one will be thinking about switching to an as of yet unestablished economy.
Without awareness of its existence, there won't be capital flows into Bitcoin. Keep in mind that capital will seek the best balance of risk and return, so if fiat currencies prove inhospitable, there are bonds, commodities and equities. Of the three, bonds are increasingly unreliable, equities are in free-fall and commodities are being dragged down by global reduction in demand expectations.
That leaves certain real assets, precious metals (especially gold) and whatever alternatives might arise. The quintessential standby for thousands of years has been gold. One of the alternatives is community, or direct lending. Bitcoin is yet another different location for capital to flow.
As awareness of Bitcoin grows and it proves its potential and stability over time, more capital will flow into Bitcoin. The same is occurring with gold, only gold has already proven itself over time. A collapsing economy is really among the greatest supports for Bitcoin and its ilk.
that's what they said about fulltiltpoker and the sky did, in fact, fall
Was FTP a new form of money?
Simple fact is there is very little original money left.
In comparison to the amount of expanded credit, absolutely. That's why there's a rush to monetize the credit that hasn't experienced a return (debt) before it all collapses down and the illusory, unrealized losses become real. Nobody wants to be hit by that financial haymaker.
Loan is just a term to relate future and present, it moved the consumption to present and leave the labour in the future. It does not change the fact: With increasing amount of good/services in the society, more money has to be produced
Exactly - the temporal aspect is critical to understand, but most either don't or ignore it.
The money supply doesn't actually
need to expand, but without monetary expansion to match economic growth, prices can fluctuate rapidly. Inflating the monetary base allows for perception of value to remain consistent, maintaining convenience through familiarity.
... once the coins in existence are fixed, my critiques (simillar to your view on money and what I think Altcoin here is trying to address?...) is that coins lost are lost forever and that one day there will not be enough coins to spread to all users and adopters.
That
could become a problem, but only as the number of coins approach parity with the number of participants. If there are fewer indivisible Bitcoins in existence than individuals using them and no expansion is possible, transaction reliability suffers and could trigger a panic - first to acquire Bitcoins, then out of them and into other assets.
The solutions to this that I feel the altcoin style system will address is with a "fixed" growth rate (NOT inflation as the coins should still deflate given the growth rate of the coinbase is slower than the growth rate of the economies using it). This is is "solved" in 2 ways. Lost coins are lost forever still but new coins are injected and at some point the coinbase will naturally establish an equilibrium ( X % coins lost == Y coins added ) which establishes a stable coinbase. Furthermore, while this coinbase will likely still in time be outpaced by it's use and adopters, the timeframe to insolvency is greatly extended making this style of coinbase more ideal for a longer period of time. The Key is NOT to have a % of current coinbase rate of growth but rather a FIXED growth rate, I don't even mind the issue of hoarding and saving (there is a difference and I don't believe either is bad unless it is too prevalent leading to hyper-deflation).
I guess to sum my stance in simple terms FIXED Growth does NOT equate to inflation and should be a part of the system.
This also overcomes some of the worry of what happens when miners only earn transaction fees. The Bitcoin system was for the most part very well thought out and set out on a mission to mimic the properties of Gold/Silver/etc. and that is great, but there is one problem the finiteness of precious metals has not been realized and no one knows how this will truly effect an economy, there was some times in history though where the growth rate of precious metal resources became very slow (too slow for the economy), notably the Roman Empire, and it had very negative effects on the system as a whole... fixed growth would not fully address this problem as like I said once the coin loss rate is the same as the coin growth rate it would be the equivalent of hitting Bitcoins 21 Million very subdivisable coins with NO loss rate. Eventually both systems will see a time when their demand eventually exceeds their supply to the point where people will be forced to jump to something new.
I feel strongly the need to create a new coinbase but there are too many "fad" coins being created right now, and would prefer to learn from the strengths and weaknesses of the systems before embarking on that journey. I like the demurage idea that was posted by jtimon as it may be another way to handle these issues as well. Namecoin had a very innovative idea by coupling a native service into the coinbase system increasing it's value right out of the gate so to speak and well Bitcoin by itself was an amazing currency innovation.
A fixed growth rate is arbitrarily inflexible and thus counter to the required convenience factor necessary for an ideal transactional medium, as real goods and services are much more likely to fluctuate wildly in price. This is the danger Bitcoin faces during its main growth phase.
For example, using Bitcoin's rate of 50 units generated every 10 minutes and fixing that indefinitely, approximately 216,000 units will be introduced into the system per month. If the demand is for only 100,000 units per month, market value will fall; if demand is for 500,000 units per month, market value will rise. As the magnitude of participation increases, demand could well double during each cycle. How would an arbitrary, fixed growth rate prevent massive price fluctuations?
You are correct in that a continual rate of growth would take care of the transaction fee problem. As long as demand supports mining, the miner is the first to benefit from production of additional coins which can then be used to acquire additional share of the savings pool - Bitcoins, gold, real estate, etc.
The suggestion of a fixed growth rate would be excellent to alleviate Bitcoin's eventual limitation of ~21mm units, allowing it to continue at a moderate pace to account for lost coins and overall economic growth. However, even then it would be preferable to use a fixed relative expansion limit of perhaps 2% rather than a set number.
My reasoning for this is because what will work for an economy of scale X will be woefully inadequate for an economy of X^10 scale, but overwhelming for one of X^-10 scale. Relative ratios allow for applicability no matter the magnitude.
What if a water treatment plant were suitable for a population of 1,000 people and the population exploded to 10,000? There would have to be 10 water treatment plants. If only 2 water treatment plants can be built per year, the population can only expand by 2,000 per year, but if the growth rate is increasing and the construction rate remains at 2 plants per year, the population will still be limited to a linear growth rate. Water is essential to life, but a currency that acts in such a limiting nature will be abandoned for a more flexible alternative.
That's the distinction between Altcoin and Bitcoin. From what I see of Altcoin's principle, there is no arbitrary limit to the growth rate, either absolute or relative. Because of this the market value of Altcoin will determine the growth rate. If more is needed, the value rises and mining resumes or accelerates. If the value decreases due to reduced demand, mining slows or stops. It's a much more convenient and flexible manner of effecting a transactional medium and is almost exactly how currencies work today. The critical difference is the management - modern currencies are managed by increasingly ineffective central
human authorities. Currencies based on the Bitcoin system are managed
automatically from within by the system itself. Therefore, the potential for rampant monetary base expansion is virtually nullified.
A transactional medium is necessary for day-to-day economic activity. That means that it doesn't matter whether the currency depreciates, so long as it doesn't do so too quickly. What savers use to store their accumulated wealth
must retain its value independently of any other factors. Again, Bitcoin serves this latter function perfectly - it appreciates in value over time due to its deflationary nature. For the transactional, even disposable, medium - Altcoin is flexible, maintains stability in pricing perceptions and has the highest in convenience of any currency.
Think of Altcoin as the translation layer between a consistent measure of value (Bitcoin or gold), and the fluctuating quantity and quality of goods and services in an entire economy. It doesn't matter whether there are 10,000 potatos or 1,000,000 - the price for them will still be the same in Altcoins. The more potatos there are, the cheaper they become in Bitcoins. Assume that potatoes are the only goods in our example economy, a maximum for Bitcoin of 1,000 Satoshis and an initial 10:1 Altcoin/Bitcoin to potato ratio:
| Annual Potato Yield | >Total Altcoins | >Value in Altcoins | >Total Bitcoins | >Value in Bitcoins |
| 100 | 1,000 | 10 | 1,000 | 10 |
| 1,000 | 10,000 | 10 | 1,000 | 1 |
| 10,000,000 | 100,000,000 | 10 | 1,000 | 0.0001 |
Can you imagine if potato crop yields fell significantly one year and people saw the US dollar-denominated price of potatoes go from $1/ea to $10,000?
Now under a fixed 2% annual rate rise for Altcoins, with the same starting assumptions as above:
| Annual Potato Yield | >Total Altcoins | >Value in Altcoins | >Total Bitcoins | >Value in Bitcoins |
| 100 | 1,000 | 10 | 1,000 | 10 |
| 1,000 | 1,020 | 1.02 | 1,000 | 1 |
| 10,000,000 | 1,040 | 0.000104 | 1,000 | 0.0001 |
The same problem arises as that with Bitcoin. A fixed absolute value increase would obviously be even more divergent. You can see from these tables that it is impossible for Bitcoin to serve both purposes alone. A second, more flexible Bitcoin system is necessary in the vein of Altcoin.
Private firms could even issue registered physical paper notes associated with the Altcoins being held. Picture a QR code on each paper note printed with the appropriate denomination. No personal digital device? No problem. So long as a business has a scanner (and which one doesn't have a laser barcode scanner), you can pull out a wad of Altcoin paper bills and use them just as you would dollars and Euros. Everything here can be smoothly transitioned to from the existing system by way of integration with the
Open Transactions platform.
