Topic: Block Reward changing to 25 BTC in November-December 2012 - page 2. (Read 14837 times)

Yes, thank you for clarifying - solution nonce/private key is what I should've said

From our perspectives here and now, 2^256 does seem incalculably enormous. So did multiple gigabytes of memory when 640k was supposed to be Moore than anyone would need. Consider the breakthroughs occurring on a regular basis with graphene as a potential successor to silicon for ICs and rapid advances in quantum computing.

Even if the Bitcoin protocol eventually shifts to another algorithm old coins that have been lost will still remain in the system, so long as there is some form of backward compatibility. Should there be widespread adoption, a single full BTC could be worth an enormous amount of relative wealth. For familiarity and simplicity, let's hypothetically assume a 1x10^15 USD size global economy (1 quadrillion dollars) that has fully transformed to a Bitcoin economy (pick any date, let's say 2020).

1,000,000,000,000,000 / 21,000,000 = ~47.6mm USD/BTC

Assuming 0.5% loss at that point means there will be:

21,000,000 * 0.005 = 105,000 lost BTC

That's a good number of Bitcoins that would be worth a lot of money in the above scenario.

1x10^15 * 0.005 = $5,000,000,000,000 equivalent

For a potential bounty of $5 trillion today, you can bet there'd be dozens of contestants vying for the prize(s). Even at 100th the reward ($10 trillion), the pot would still be worth $50 billion, and System D is estimated to be a $10 trillion USD market that could conceivably adopt Bitcoin very readily. It would only be a matter of time before some enterprising mathematician(s) decided to tackle the conundrum; after all, people have worked on far more difficult solutions for free.

You could call it a lottery for people who can do math. There may even be countdowns as the last 'lost coins' are reclaimed, allowing the protocol to sever the backward compatible cruft and forge ahead with renewed freedom.

An alternative would be that a parallel, more advanced system is developed, letting the existing Bitcoin platform languish to a point where it becomes susceptible to other attacks. The residual wealth could then be extracted before it collapses entirely. Hypothetically.

Kurzweil offers an analysis of the powerful returns from aggregate advances in technology. Everything has held quite accurately so far, and it certainly does seem that the pace has accelerated even from the Internet's rise during the 1990s.

We just have to keep the curve in mind...


Getting way out there, I've also speculated on the possibility that generalized Bitcoin systems could lay the foundation for a super-intelligence which we may need to merge with or face extinction, so maybe this monetary stuff won't even hold that much importance. All that, and I have a normal haircut

People have a hard time understanding just how big 2^256 is.

Say that bitcoin was totally distributed down to the satoshi level.  That is, all 21 million coins exist and have been spread around so that each 0.000 000 01 BTC was stored by a different keypair.  Got that?  2.1 * 10¹⁵ different key pairs.  Your job is to find one of them.

On average, how many random numbers do you have to try before you find one?

57896044618658097711785492504343953926634992332820282019728792

You are better off mining.

I think you're misinterpreting something here. Some explanations:

• Finding a hash (more correctly "solution nonce") does not allow spending of coins. I think you mean "finding of a private key"?
• finding the private key to an address (necessary to recover lost coins or steal coins from someone) is not the same operation as mining. Neither does it somehow happen as a byproduct of mining
• Even if that was the case, it would be like mining at mind-boggling difficulty... just not feasable.
• it would still be magnitudes more profitable to just simply mine for transaction fees (assuming mining subsidy is zero and all bitcoins mined) than to try to find keys to lost (or not-lost) coins. Even with half a million BTC on a single address. Therefore everyone with hardware on his hands will mine, not search the sea-floor for lost coins.
  

Basically no matter what anyone around here says, this guy knows what are the facts of reality when it comes to economic theory and there's no convincing him otherwise hence why I didn't bother even trying.  

It took me a while to fully process this claim, because at first glance it seemed to me like it might not work out.

If the money supply is constant (M = 21 Million BTC, forever and ever) then each Bitcoin will have an intrinsic value of something like V/M, where V is the total value of all the "stuff" being exchanged in the Bitcoin economy. Any "good investment" is, in essence, putting your money behind some attempt to create new V - which claims that, with a certain capital C, you can create a certain value dV. If you invest, that's the rate of return you'll get - dV/C. Whereas, if you just bury your money in the ground, you'll get... the total increase of value the entire economy has produced, divided by your share of the money. So at first glance
you have dV/C versus (avg dV/C * V)/V, which means that unless you can invest in something better than the average investment, it'd be better to just hoard.

But really, not every ounce of value in the economy is being used to generate more value; if it was, there'd be no point! Rather, some is being used as capital, and some is being consumed - the kind of things whose value is in feeding people, maintaining the places they stay, protecting them, and making them happy. So as long as your investment isn't worse than average by a factor of (V/C), I think the math works out.

Huh. That's pretty neat, actually.

I really, really don't like this. If the private key to an address with "lost" BTC can be broken, so can the private key to an address with held BTC - money being used today, with an unambiguous owner. If you're basing your hopes on someone breaking the underlying cryptographic problems that make Bitcoin work...

I think this would be the best solution... however it would be such a fundamental change I'm afraid it might as well bring bitcoin down as a whole. I wish it was devised like that in the first place.

I will elaborate.

If the community can change something as fundamental as this - other changes discussed to date are more understandable: they respond to the problem that we know for a fact that bitcoin won't scale long term as is, thus they were completely predictable in a broad sense - that would simply destroy one of bitcoin's main premises: predictable money supply. Basically, it would set such a precedent that we wouldn't know whether we may or may not have an exponentially inflated currency in a few years time. All it takes is 51% agreement by miners. And 51% of the miners is just agreement between the main 2~4 pools. This makes the whole direction of the system dependent on the will of people. Worse even, the will of relatively few influential people. That would be bitcoin's main premise blown out of the water right there.

But it's true that constantly increasing money supply is a lot more stable and less inflationary than ANY constant-proportion increasing of money supply (which means exponential growth no matter how small the %). Constantly adding 50 BTC per block would still be less inflation long term than having it fixed to 1%, or to 0.1%, or to 0.00000001%. Yet most people would agree that "this is no inflation at all." But obviously, that's long term. As long as bitcoin is young, this 50 BTC per block means a big chunk of the available money supply.



I'm willing to experiment this deflationary theory but I honestly believe it won't work. The main reason is "currency elasticity." Anywhere you hear about bitcoin's value you have it referenced to a fiat currency. Typically US$. Bitcoin doesn't work as good money, people must immediately replenish their reserves in something else because there is nowhere near enough stability in the real market to have a high % of exposure to bitcoin. Computers are not so easily substituible. If they were, I would convert my computer to cash with no loss at night and convert the cash back into a slightly better computer just before I need to use it again. But that's simply not possible. I have stuff installed, there is a set up and there is a friction every time you buy and sell. That right there is the main difference and why deflationary spirals are so destructive to an economy. The problem is the world can afford to substitute/phase out bitcoin rendering our coins near-zero real value.

Thanks for the compliments; there are a lot of strong thinkers in the Bitcoin community. Much of what I've put together is based on prior ideas from the likes of Martin Armstrong, Jim Sinclair, FOFOA, Ray Kurzweil, et al.


Lost coins are a short-term factor, but long-term they shouldn't be an issue. As hashing power rises, it should become progressively easier to find a particular hash sequence to allow lost coins to be used. This would be akin to recycling or exploring sunken shipwrecks for treasure: it isn't economically practical today, but very likely will be in a not-too-distant future.


Yes, that's what I was moving toward with this (aside from lost units):


So you're right - in general we don't use the term deflation in isolation, but in relation to other asset classes (including population). Sometimes the uses get conflated, so it can help to separate them. Of course, Bitcoin's asymptotic limit is much more rigid than that of gold and closer to being truly deflationary in all senses.


Yes, and it says a lot when the adoption rate in external capital inflows have been able to push the exchange rate up regardless of the hyperinflation.


Good observation - businesses can't project for future orders without a stable financial platform. This is why fiat works so well for price stability by matching economic growth.

I consider gold's history to be the most relevant proxy for Bitcoin's development. Gold wasn't always used as savings - it started out as a transactional currency or conduit for transfer of other assets, just as Bitcoin is performing now. Since gold wasn't immediately useful as food or for tools, it served best as a means of acquiring things that would make life easier. Mostly very high net-worth individuals held it for wealth storage until relatively recently.

There's some further technical analysis comparison in addition to this chart:




It's just a shame many Austrian economists consider Bitcoin to be little more than a curiosity doomed to failure, generally because of anachronistically arbitrary assumptions based on the commodity origins of money. Maybe that's because of so much time spent applying mathematics practically while being wary of the purely abstract?


That's key - and it's been attempted before with earlier e-currencies, but Bitcoin finally hit on the magic formula.

e-gold:Myspace as Bitcoin:Facebook

I appreciate a response like this.  Well thought out, with sound logic and reasoning behind it.  You and I may disagree, but at least you have legitimate reasons for disagreeing with me.  And it sounds like we do agree on some of the basics (the fact that the economy would be vastly different than it is today, for example).

The technology example is a good one too.  I don't have a rebuttal against that at this time.

All hazek (and a few others in this thread) are doing is saying I'm wrong without anything to back it up.  I'm done responding to them until they come up with legitimates response to everything I have already posted.

have you ever, once, had the thought that perhaps economics textbooks have a strong Keynesian bias?

don't patronize people it's unforumly

Quoted only last part, but +1 goes to entire post.

How nice of you to notice! 

Of course not, what you said makes perfect sense and you backed it up with real world evidence.

I just get a rage fit at zombies who don't investigate their beliefs and just blindly repeat something someone else taught them with zero evidence to back it up. It's the attitude more so than the person. And since the majority of people at no fault of their own weren't taught any critical thinking skills in school, just like I wasn't, I really don't have any patience left to give BS credibility by elevating my way of communicating to a civilized debate so I just end up in a rage.

Half jokingly but still, I'm starting to get the feeling SgtSpike is payed to spread the status quo economics 101 propaganda BS over here.

That "simple logic" obviously fails: people are buying computers like mad although they can buy twice as many next year with the same amount of money and computers are not "absolutely necessary" to have (for most).
Another way to see it: saving is "spending later", so some poeple that have saved in the past, will spend today.

Also: any amount of a money can support any size economy given that the money is divisible enough.

So people "saving" (which is just spending later) will not harm the economy. Prices will simply adjust by free market forces: if (all else equal)...

• demand for money (not wealth) increases => people cut spending and/or sell stuff => demand for products decreases => prices of products fall
• demand for money (not wealth) decreases => people spend more and/or reduce selling of stuff => demand for products increases => prices of products rise

I hope the rage of hazek (are you hayek with a non-austrian keyboard?) wont come down on me, I will try to substantiate my claims upon request.

Well well, so you are merely repeating what you heard or read from someone else pretending as if you're teaching some facts of reality. What if your precious "basic economics" has it all wrong? What then dear sir?


Please. You can shove those basic 101 economics up where the sun don't shine. Those same basic economics are what enable these huge socialistic and oppressive governments, it's those same basic economics that enable the governments around the globe to wage all these different wars, it's those same basic economics that enable wealth distribution through the invisible hand of inflation via fiat money created out of thin air by a small number of people, benefiting their friends who get it first and growing the wealth disparity bigger and bigger, it's those same basic economics that are what caused and are exacerbating the current depression and it's those same basic economics that completely failed to see it coming.

Here's an interesting thing though, not all economic thought is the same. The Austrian school of economic thought for instance strongly disagrees with the basic economics you hold so dearly, it perfectly predicted this crisis we're in right now and it's aftermath and has completely different solutions to the problem. So while your glorious basic economics has zero evidence of credibility and a long resume of disastrous failures, forgive me if I take a big steamy dump on it, and listen to the other theory that got it exactly right in every single case so far.


BULLSHIT. Citing other people saying what you're repeating after them IS NOT EVIDENCE.

Exactly.

It's actually very healthy in many ways to have a deflationary environment, which can't be understood by someone who relies on the "economics 101" as it is taught today. I would never have supported Bitcoin so strongly if the monetary model wasn't exactly what it is. Bitcoin is the first real currency that will put the Austrian school to the test and I'm confident that it'll pass the test. This will not be the problem that kills Bitcoin.

It will undoubtedly lead to a smaller economy than we have now but people will be less in debt and they will have a much more solid foundation in their personal economies. This would apply to all levels of the economy, from governments to companies and regular people. I embrace this change, people should invest money in projects that they support from other perspectives than money. Investing only based on maximum return is an old way of thinking, investing to things that matter and actually produce meaningful things is the way to go.

Consider the amount of useless crap the economy produces today, the amount of absolutely unproductive development that is done... the amount of money that is invested in stuff that is only produced because they have enough money to create a marketing campaign convincing enough to manipulate people to buy them. This behaviour will have less reinforcement in a more deflationary environment because first of all consumers will consume less crap that they don't really need and investors will think differently because they have to.

The economy wouldn't die but it certainly would be different. Consumption and development would be focused more on things that 1) consumers feel they really need and 2) what investors and enterpreneurs feel they want to develop and produce. As long as the effective deflation isn't on hyper mode, and there is no reason to believe it would with the exception of short periods of rapid userbase inflation, there will still be a lot of consuming and a lot of investing.

Simply hoarding will give you a small increase in your purchasing power, a good investment will still make you much more than that. I could go on forever but the bottom line is that not only is a monetary system like this helpful in correcting our overly materialistic way of life but it will lead to healthier and more meaningful ways of spending money. And on top of everything, it will actually help save our planet. Less consumption = good.

Funny how the entire technology industry seems to do just fine despite being hugely deflationary.  A $1000 PC today costs $500 next year... and yet people still buy. Funny huh?

It's basic economics.  Read any economics textbook, and it'll show you the same thing.


Again, it's basic economics.  I learned this stuff in Economics 101.  Maybe you didn't take such a class.  It's like 1+1 = 2.  Anyone with common sense would agree that that formula is true, just like anyone with common sense would agree that a smarter investment with regards to a deflationary economy is an investment in the currency itself.

But, since you insist on me citing sources...

"Moreover: deflation results in gross imbalances in the economy: delayed consumption and capital investment and an increasing debt burden (in real, deflation-adjusted terms) adversely affect manufacturing, services, and employment. Government finances worsen as unemployment rises and business bankruptcies soar. Sovereign debt (government bonds) - another form of highly-liquid, "safe" investment - is thus rendered more default-prone in times of deflation."
http://www.globalpolitician.com/print.asp?id=6556

"When deflation occurs, the prices of goods and services are decreasing, so the primary goal for investors during deflationary times is to hold cash since its relative value is increasing.  One approach to holding cash includes placing money in money market funds or short term treasury bonds."
http://www.money-zine.com/Investing/Investing/Inflation-and-Deflation/

"3. May decrease investment and lending if cash holdings are seen as preferable (aka hoarding)"
http://en.wikipedia.org/wiki/Deflation

"Here, the risk-adjusted return of assets becomes negative in nature, thereby encouraging the purchasers and investors to gather money, rather than investing it in solid and assured securities. This leads to the formation of a theoretical condition known as Liquidity Trap. Liquidity trap is regarded as a critical condition as it stagnates the economy, where the nominal rate of interest becomes zero or close to zero."
http://www.economywatch.com/inflation/deflation/effects.html

Satisfied now?  I'm not just making this stuff up.  A deflationary currency WOULD and DOES stifle the economy.