Topic: Demurrage, transaction fees, storage fees & comparison to commodity money. - page 4. (Read 16732 times)

Unless you can define "hoarding" in a way that does not also include "saving", please stop using this bullshit term.

I've changed your proposal to this:

1) Miners would receive the demurrage fees relative to their hashing contributions, like the block reward is now.

2) Demurrage fees should be very small, but should be assessed with each block.

3) The block reward by demurrage would be proportional to the number of "out of date" (and not empty) addresses.
  
4) Only transactions older than, say 6 months, should be affected by demurrage fees.

5) The demurrage would be discounted from the payer's address when he makes a transaction (but it is effectively charged when the miner receives it).

This, by the way, also solves "the problem of the lost wallets" since lost wallets will eventually be completely spent on demurrage fees. Actually I didn't though it was a technical problem until now. I wasn't very concern with the economic impact of lost wallets neither.

Again, I think a demurrage fee that depends on the money quantity too and not only on time would be financially beneficial for the money users and won't punish all the savers. Just hoarders and lenders.
Lending would still be more interesting than storing while the liquidity premium were positive, or even zero because most goods aren't as time resistant as a safe loan.
More investing (another way of saving) would be more interesting than today in this "saving market" and in general.
Note that you can invest with borrowed money so investing is not always saving.    
But the reason why malinvestments are done before crises is because of an "unexpected" increase in the monetary supply (note that this had happened with gold being money too), not because need to charge the liquidity premium in order to lend wisely.
My proposal would remove the point 4 and change the 5:

5) The block reward by demurrage would be constant. To accomplish this, the reward would be equal to the demurrage percentage charged on each account but applied to the total targeted supply.

If you want a reasonable demurrage rate with this proposal you need to change either the 21 M or the 50 btc. I think the issuing curve would be different too, so it cannot be applied to bitcoin.
I think we should focus on the proposal for bitcoin and discuss the supposedly evil financial effects of demurrage and freicoin in another thread.

Another thing that creighto's proposal accomplish is preventing other applications from "burning bitcoins" to have storage forever (like a dns address in the destination field).
The applications that introduce information for free (or for fee) but without burning bitcoins could still be used with this proposal, but when a block dosn't contain active transactions it doesn't have to be stored and sent (right?). So the service bitcoin provides can be timestamping, but not storage if we apply demurrage.
You just need to burn bitcoins to get "everlasting storage" right now.

It's provably true that there is a cost to maintaining old transactions, however small that it is.


If this were universally true, where would the miners download the old blocks from?  The miners is where those blocks are most likely to be kept.

I see this as an unintended consequence of the network providing for free storage indefinitely, and I don't agree that it would be a workable solution, or even generally a positive consequence.


Once again, there is a provable degree of storage costs suffered by the network.  If you don't believe that is true, then just consider what you think would happen if transactions stopped.


Old transactions are indeed 'using' Bitcoin.  The only way to not be using bitcoin is to sell out all that you have so that someone else is using what you once had.  If you have a positive balance in bitcoin, you're using the system by defintion.

The cost is requiring that the block chain continue to grow to stay ahead of attackers.  Otherwise eventually an attacker can reverse the entire chain, including the old transactions.

This whole thread is based upon a false premise: there is a global storage cost for old transactions.  This is untrue.

The miners only need to keep the root hash of every block to verify transactions.  However the owner of the old coins needs to keep an complete copy of the old block.

To spend the old coins. The owner announces both the transaction, and provides the old coin's block for upload.  The miners (who wish to) will see this transaction an 're-download' the old block. (and compare the root Merkle hashes)

The miner only need to keep the more recent blocks, old blocks can be downloaded when needed.  Only some of the miners will bother to download the old block, others will just focus on bitcoins in recent blocks.

This extra work of checking old blocks can adequately and naturally attract higher transaction fees. (but not demurrage, as there was no 'storage costs')

The whole concept of demurrage doesn't isn't economically logical.  Just like always issuing new coins always isn't economically logical.  The COST involved isn't to secure old coins - but to secure NEW TRANSACTIONS.  When all the Bitcoin's are mined, securing transactions moves to a user-pays model.  (as it should be, the user pays for the cost)

There is no cost in 'not using' Bitcoin.

This is how we can keep it from "going that low"

It necessarily needs it, in some form or fashion.  And the max block size is going to go away.  Too many people are opposed to the artificial scarcity that it imposes, and want to remove it and let it become a true free market.

An adaptive max block size is fine for it's own reasons, if a system can be agreed upon, and that really would have to be code enforced.  But that would not solve the problem.  There is little evidence that such compensation will be appropriate to overcome the 'free storage' problem, and much economic theory that suggests that over the long term free storage of old transactions will distort the market.

I don't know how to deal with lost coins, or even if it's possible.
Yes, it does.  That's my point.  It may not require much, but it does require some resources.
That's why I started this thread, to have that conversation.

Miners don't have as much control as you think.  There is a market that they have to respond to, so there needs to be published expectations.  This is not an unpredictable issue, it's a very definable economic issue.

Concerning the whole chain size, I don't think that will be a major problem, compared to the bandwidth required.

And if it ever becomes annoying for some miners, they can try offering bounties to the owners of the oldest coins to move them to a new address. It can be done without the owner of the coins having to identify himself.

There is one major barrier though: some private keys are lost. These coins won't ever be moved again, and there isn't anyway to verify that the coins are really lost or someone is just lying about it. Considering that people probably lost private keys from the early days of bitcoin, when the coins were mostly worthless, I'd say there isn't much room for pruning the chain.

Considering the proposition of demurrage itself, I don't like it very much, for the following reasons:

• All it does it does is that it forces people to move money around, so that transaction fees are collected and the chain is pruned. If the transaction fees remain near a satoshi, that doesn't add much to miners. It would be better to make sure transaction fees won't go that low.
• It introduces a completely new and big feature/constraint to a system that doesn't necessarily need it. (transaction fees and maximum block size are already there)
• I can't see a way to make it automatically adjustable or "market-adaptive"... and hard-coded, arbitrary rules are not good.
  

I still prefer an adaptive maximum limit to the block size, that creates some artificial block space scarcity on peak hours of the day or peak days of the week/month/year. It is not a major new feature, and although the formula to be defined is arbitrary, there are no arbitrary constant values. And it may guarantee a minimum incentive to miners.

You say you want to prune the chain? How would you deal with lost coins then? Do you intent to simply replicate old transactions in newer blocks? Wouldn't that hinder the demurrage fee calculation? The light weight client will eventually see the day so I don't think the whole block chain download will remain a problem in the mid term. The only reason a person with 50 BTC imposes less on the network than someone with 400k BTC is the flat fee. Reflecting volume on the fee would help against that in a better fashion imo.

From my understanding, spread out long term holdings will still have a small impact compared to live, broken down transactions constantly creating new coins to pay for odds amounts. I agree that "traders" are already paying for that service, but so have hoarders. Technologically, the spot these people have "purchased" in the block chain doesn't require further maintenance. The idea of demurrage has been brought up as an alternative to lacking fees, but I think the very concept of "simulated maintenance fee " vs actual maintenance costs needs a thread on its own before we can really figure out where to go with demurrage.

At any rate, we can't establish now that fees won't be reward enough to maintain adequate security in a few decades from today. Miners already have control over transaction inclusion, I think it is wiser to first wait for a tangible hint of whether or not the market can maintain high security naturally before we talk of modding the source.

No, because demurrage would have to scale depending upon the number of existing transactions.  It's the avoidance of demurrage, with the inclusion of a 'grace' period, that encourages major savers to consolidate their holdings.

What I understand for liquidity premium is this: Interest rate = liquidity premium + risk premium + inflation premium
What I claim is that if demurrage rate < liquidity premium, then risk premium won't be affected by demurrage.
The liquidity premium emerges from the fact that historically monetary systems have defined money to be (nominally) time resistant. If money was made of carrots, for example, instead of gold, money would have a built in demurrage without enforcing it. If time resistance is a necessary quality of money or not is another discussion.
With risk-free loans, the lender still can (and therefore will) charge the liquidity premium and the interest won't be zero, preventing investments that economically viable (in terms of resources although not in terms of capital yield) from happening.
What prevents houses from being treated as consumer/producer goods? Liquidity premium.
If houses were consumer goods, the rent from the entire "life" of the house should just be enough to cover the cost of production (plus profit). If hoses are treated as capital, their price depends on the yield of the house (rent) compared to the yield of money (excluding the risk premium) or the liquidity premium. If a type of capital have a greater yield than money, more of that type of capital will be produced until the yield drops (by competition between the capital of the same type) and equals the yield of money. If a type of capital have a lower yield than money, no more capital of that type will be produced until its yield increases (by increasing demand) and surpasses the yield of money. Therefore the yield of money is the reference (and the limitation) for every capital accumulation. No new house will be built (even if there's demand and enough resources for it) if it won't be at least as profitable as money.
That's a feature built in and "enforced" in dollars, gold and bitcoins.
For Gesell, that liquidity premium built in "regular" money is the only "evil force in capitalism". Most pains come from regulations from the state.
I know I've repeated it many times, but you libertarians and austrians should give a chance to Gesell because his ideas are not incompatible with libertarianism. If they are, I think no Austrian economist have made a serious critique of them.
Please anyone let me know if you have read that.


If you think the effect of a demurrage close to the actual cost of securing the network is nil, then I don't need to convince you that demurrage won't have evil effects (at least not in this thread), but not everybody here think that way.

Here you imply that someone could have "billions worth" of profit by exploiting the >50% vulnerability, but as I said multiple times, that is not that simple.

You can't steal all bitcoins by having control of the chain. All you can do is double-spend. And that's fraud. You'd be vulnerable to the same risks anyone has when committing fraud. If you try to fraud a billion worth contract of any kind, you'll probably sleep with the fishes. And the amount doesn't even need to be that high. The chances of making profit out of such kind of attack are extremely low.

And a non-profit oriented attacker couldn't steal billions worth of money either. It could temporarily pause the network until developers and miners find a way to get around him. The more money at stake, the stronger the incentive to get this scumbag government ostracized from the network.


There really should be a FAQ about the true risks of a >50% attack.

Can someone define "hoarding" in a way that is incompatible with "saving"? In my opinion, the two are one in the same. Hoarding is just what one person calls another's saving "too much".

Doesn't a demurrage charge upon spending actually discourage the consolidation of multiple outputs into a single one?

I don't think "encouraging" investing is a good goal for a money. Doing is only an attempt at modifying people's preferences to bring about and end result that you prefer, as opposed to one they prefer.

That doesn't make much sense. They should charge less, precisely because including transactions with old coins help them pruning the chain.

The ability to select rulesets now would be nice, since it would allow us to choose between free pools and non-free pools with reasonable estimates of time-til-confirmation.

Unfortunately, it's easier said than done, so unless people are willing to pony up the Bitcoins now to incentivise and empower Gavin et al., I'm not sure it's going to happen soon.

That's fine, but it would still be ideal if everyone knew in advance what those rulesets are likely to include.  This means that it would be wise to include storage fees/demurrage sooner rather than later.  It needs to be part of the status quo before the economy grows so large as to solidify that status quo, which in practice means that it needs to be included into the standard clients and miners as a default condition.  Miners could then choose to opt out of charging that fee at their own will, just like they can opt out of limiting the size of the free transaction section of the block now.

Because as the network grows, the resources required to store those many old transactions grow at least as much.  New clients must download and verify each of those transactions for as long as they persist.  A single transaction with 400,000 BTC costs exactly the same amount to store as the same transaction with 50 BTC; but one person with holdings totaling 400,000 BTC spread across 8000 transactions imposes 8000 times as much burden of resources upon the network.  The idea is to encourage that person to consolidate his holdings into fewer transactions, without forcing him to do so, as he can still choose to leave them where they are if he is okay with 8000 times as much storage fees as is necessary.  It also has the effect of partially compensating the miners for the resources that those many transactions consume; not just 8000 times as much disk space, but 8000 times as much bandwidth for every new client that connects to that node to download the existing blockchain.  Currently, it still doesn't matter; because the miners are more than compensated for these things with the block reward and blockchain pruning is not yet implemented anyway.  I'm just thinking ahead.

While I don't particularly like the conclusion, I understand the argument.

Does it not come back down to the market?  If I understand it correctly, miners will eventually produce diverse rulesets for the trades they are willing to process and the fees they will be charging.

If it becomes an issue, the client can integrate a feature which allows choice between ruleset pools upon transaction.  Miners can switch between ruleset pools as they please.

Traders are also already charged for this privilege.


I don't contest that, which is why I thought the idea (someone else's) to charge the demurrage rear-loaded upon eventual spending was brilliant.