Topic: Deflatory nature of Bitcoin - the problem and a possible solution - page 5. (Read 6351 times)

I'm a semi-retired analytical chemistry professor.  This means I have worked a bit in electronics design, repair, troubleshooting, and day-to-day usage.  I have also worked a long time with some "early adopter" software, primarily the N. Wirth languages.  I have programmed embedded systems where everything in the system was software that I wrote.  I have looked at some of N. Wirth's hardware languages for programming FPGAs, but I never have bought a board and done anything hands on with it.

At this point, I'm trying to figure out what it will mean for bitcoin to be adopted as a currency, and produce some software or systems that will be needed then.  I am especially trying to figure out what this would mean in the small town of Morris, MN, where there are 1,800 full time college students in a town of about 5,000 population.  I think if I can define a healthy bitcoin ecosystem here, the lessons learned will be very helpful to bitcoin everywhere.  I especially want to know how to make income from bitcoin separate from mining, or trading on price volatility.

I understand but if you are not protected, what's the point? Also you said before


Are you protected or not?

Also it's not like a cold wallet because if the price goes up your customer will not use that bitcoin at your shop and you will never see it again

My customers are protected from the volatility.  I am not.  From my point of view, it is the same as if I held them in a cold wallet.  I also don't pre-load any fees.
Here's the timeline:

0.  I borrow $2500 from somewhere.
1.  I pay $970 for inventory, lights, and labor (grocery stores operate on about 3% margin)
2.  I pay $1000 for 1 BTC.
status:  <$2,500>; $530 cash on hand, operations stocked, 1 BTC held (exchange value $950)

3.  They pay me $1,000 for 1 BTC.
4.  Bitcoin drops to $500
5.  They buy a whole winter's supply of granola, yogurt, and roasted almonds, their retail bill comes to $1,000
6.  They pay me in the store BTC.
status:  <$2,500 in debt>,  $1,530 on hand, no inventory, 1 BTC (exchange value $500)

7.  I pay $970 for inventory, lights, and labor
status:  <$2,500 in debt> $560 cash on hand, operations stocked, 1 BTC held (exchange value $500)

I am not sure where you learned math, but if I have $1000 today and in 10 years, you take $200 as a fee and I have $800, I have lost $200 in value. I have lost 2% per year (not compounded).  Same for bitcoin.  Saying that is "Wrong!" is at such odds with math that you clearly need to review it.  I started with 10, you took 2, I ended up with 8.   That is a loss.

Where I come from 2 BTC is not "nominal".  Right now it is nearly $2000.  Hardly a nominal amount.  Also, there is no guarantee that it will appreciate so you can't say, but in fiat terms you are still ahead.  Finally you assume that I intend to cash my bitcoin out for an inflating currency to buy a car.  Why would you assume that someone wouldn't just sell me a car for BTC?

Here is my final thought on this since you are having serious problems having a civil discussion:  if you don't like Bitcoin, go to freicoin or fork bitcoin with a rule that will steal 1-2% of their bitcions each year.  Or start an alt-coin.   If you think this is a brilliant idea that will save bitcoin from itself, put up your time where your mouth is.  Instead of arguing here, fork bitcoin and see if you can get people to follow you.  You should have no problem since this is such a wonderful idea.

Ok so it's all based on the fact that you believe that "Bitcoin will eventually rise above their purchase price". You invest capital, you borrow it in another form (BTC) and you hope for the best. In the meantime you use the new capital to make some profit somehow and decrease the possibility to have a loss. Is that what you are saying?

Lost opportunity (the new chance at a gain from $500 to ??) is not the same as liability or loss. As long as whatever I'm holding to maintain their $ at its promised value should they choose to "return" the BTC is not losing value, and dependent on the confidence that Bitcoin will eventually rise above their purchase price.

I don't get it. You buy bitcoin from the market let's say at $950, then you sell at your customer for $1000.
Your customer can spend their bitcoin freely or spend them to your "store" for a $1000 value.
Let's say the price goes down to $500, customers see an advantage now at spending $1000 in your "store" and you get the BTC back.
Now, are you protected from the volatility?

All purpose financial services, kind of like a bank, but like a bank was back when their purpose was to safeguard assets from loss. In 2014 I include "manipulation and unnatural devaluation" in "loss". It's been thus far somewhat of a private deal, in that it was exclusively word of mouth. I keep meaning to take it further but I have been too busy with my research. (That may be changing; I just committed to a project not two hours ago, so the recruiting effort begins shortly.) Anyway, yeah, actual insured asset vault storage like art and gold bullion, as well as an automated "fiat-decoupled" bitcoin exchange (not like Coinbase, but not real-time either; all funds are in cold storage), secured loans, etc. On the promissory-like functionality side, we promise your funds will never be worth less than the 5-day EMA. There are a couple other "account" types but that's the most popular.

My modified client is really a protocol-compliant custom client that runs on a board comprised of mostly an old Stratix III. One here, and a duplicate cloaked in Japan with a special sync method and a dead man switch to release funds if I croak or something. At one point last year I'd developed a "hardware exchange" after that NY startup (I think) started talking about developing a "millisecond" exchange. Figured I'd beat them by writing everything in hardware on FPGAs, and then also be basically impervious to normal hacking, but around 85% I got dragged into the real world for a while.

Did you have some insight / ideas? What is your specialty, btw? The new project I mentioned is going to require some software skills, and I'm mainly a HW guy. I can't do all this realistically on an FPGA.

What is your good/service area?
Have you modified a client to help you with tracking this?

Fixed that for you.
-- Prof Mac

You guys have successfully convinced me to find some more in depth economics books and classes locally. Thanks. I think education can never be too good when dealing with money.

This is exactly what my company does, except for an initial fee. Thus people are protected against negative volatility, we make a modest profit (we also offer many other things, most of which are also modestly profitable), and the world is happy.

1) Wrong thread? Lol

2) As long as he has it from a true source, it's exactly the purpose of journalism. The longer the information is floating around in secret circles but not in public, the more "insiders" can buy before the public does. The sooner to real-time we find things out, the better off we are, and the less "insider-like trading" can occur at our loss (well, perhaps our decreased gain). So unless it is false, it really doesn't matter why Keiser said it.

There is an alternate way to address volatility in bitcoins.  That is to use it as a promissory note.

For example, I may work at the local food co-op.  I will sell bitcoins to our customers at a certain price, such as $750 / BTC.  I know which of the bitcoins I sold to them, and they will of course segregate those bitcoins into an "account" with the name "food co-op"

When they come in to purchase, if they pay from an address that had our address as the input, that coin is credited at $750 / BTC in the purchase.

Everywhere else, this bitcoin is just an ordinary bitcoin.  If the price starts to rise, our customer can spend the bitcoins where-ever they wish.  If the price falls, they are protected from the volatility.  We are also protected, since we sold them at that price in the first place.

I find it odd max even finds it necessary to leak information, though this could be big news and a price rise.

I was going to be polite but I can't let that kind of arrogance slide, economics is simple, neo-keynesian economists ( those who are most in the public eye now, like Paul Krugman ) overcomplicate economics to the point that they even make up words and phrases to hide what they're actually doing, you know Quantitative Easing? That's called money printing and interest rate fixing, what you're proposing by putting in inflation is money printing, adding to the money supply, all that would do is cause the currency involved to lose value and make it more expensive for people to buy everyday things.

People like you are the product of almost a century of brainwashing to believe in one extremely wrong economic theory that ignores basic mathematics.


There is actually you're right, stuff like Freicoin is already out there, I don't understand why people like him just don't go over to that coin instead of trying to ruin another more successful coin.

i guess there is already one 

Assume I have 10 bitcoins today. Ten years from now I go to spend them and have the 2% annual "fee" taken. I can only spend 8 bitcoins. I have lost twenty percent of the bitcoins I owned. That is a loss of value.  If, as you stated, bitcoin is only a currency the exchange rate is irrelevant.

Anyway, I'll be interested in seeing how this alt-coin turns out. I dare say that most people will look at the calculation above and do it the same way and stick with the real bitcoin, not this proposed fork.

Good luck forcing the majority of the network to do so if they disagree with a fee that erodes the number of bitcoins they own over time like inflation does whether or not the fiat value increases or not.

As for people losing money within the system I'm proposing; either you are deliberately oversimplifying or you just don't understand economics. Given the fixed final amount of Bitcoins on one side and the ever growing world economy, Bitcoin is bound to be at least slightly gaining value, prices of goods in Bitcoins are bound to be going down and exchange rates to other currencies are bound to constantly rise. If the yearly fee rate would be smaller or equal to the appreciation rate, nobody would lose their money.