Topic: Freicoin: bitcoin with demurrage - page 5. (Read 31327 times)

1) I see transaction fees as being quite separate from demurrage. As you say, with demurrage there is no need to use transaction fees for ensuring currency stability or as a reward for miners. I don't understand why in the future currency holders would pay through monetary inflation, or how that would be an externality. Care to specify?

2) Yes, agreed that demurrage increases velocity of circulation, and thus make the currency better for commerce.



Merged mining seems a good idea.

I think users will accept freicoins, but I have some doubts about the ease of use for commerce with the software as it is now. It isn't to everyone's taste to be deal with bugs in transfers or complications with wallets. Things will have to get simpler from the end user standpoint, if the currency is going to have wide appeal. 



Thanks for that link. I posted in the other thread.

I can understand why you would like to keep the two things separate.

It is difficult enough to explain one concept at a time...

I think your idea could work if it included seeding - if i buy a potato I can eat it now or I can plant it and produce 20 potatoes. That's how agriculture works - though people need land. I think any analogy that's worked in reality could work as a virtual currency.

Interesting analogy.
The "intrinsic need" as for gold, dollars and bitcoins, is that you know you can exchange them later for other goods and services. The producer doesn't eat his wares neither, and he don't want to exchange them for other wares, he wants money because it acts as a wild card. That's were the "intrinsic need" of money is. It should be just a proxy between your product and your consumption. We don't need money to be the best storage of value too. People will store more non perishable food (storages of real value, not monetary) if moneys decays.

Bitcoin is modeled on mining - your model is modeled on farming. ie you farm a crop and you need to distribute it quickly before it rots. The problem is that we eat food, we don't eat gold. Unless we have an intrinsic need for the money before it rots why would we need it? edit - its like buying apples today and hoping you can still use them a year from now

Thank you for your views.
The main advantage I see in freicoin is that it reduces interest with all the good effects that would cause. The problem is that not many people here thinks in fact reduced interest would be beneficial. I first heard about anarcho-capitalism about a year ago, but I think austrian economics theories are pretty compatible with Gesell. I like both, but I don't like Gesell's "free land" nor "free money (freigeld) made by the state" nor austrian's "time preference" nor the "deflation is good/neutral" dogma.

Let's concentrate then in another advantages.

1) Transaction fees are not a problem, but demurrage fees reduce them. Bitcoin holders are receiving a service that bitcoin transactors pay for in form of transaction fees. I mean in the future, currently holders also pay through monetary inflation. But in the future it will be an externality.

2) Demurrage fees increase the velocity of freicoin. That is good for merchants that will make more sells.

Although miners prefer bitcoins over freicoins for their superior speculative value, with merged mining, miners will get the bitcoins the namecoin and the freicoins and sell the ones they don't like for whatever they get, because they don't have additional hashing costs. At 1 satoshi per freicoin, I will buy all the freicoins if no one else want them, so mining won't be a problem.
The problem is acceptance from users and that relies heavily in the acceptance from developers entrepreneurs. We need them to adapt the current bitcoin software and services to also work with freicoin.
Well, first we should code freicoin...
Making a fork from namecoin or collaborating with multicoin (that already have merged mining) seem the better alternatives for now.

A currency that stabilizes its price through changing the monetary base is being discussed in another thread, and I think it could be done better with demurrage than with destructive fees.

I don't want to change the stable monetary base feature of bitcoin, because I don't want the people in the forum to confuse demurrage with monetary inflation. In fact, the monetary base is more constant in freicoin than in bitcoin because it recovers lost wallets.

So the problem you are trying to solve by introducing demurrage into Bitcoin is fees. Reading some of the answers however, it would seem that fees are not seen as a problem. Miners could perhaps exist on fees alone, after mining has tapered out and the full complement of coins has been achieved. It seems like you are trying to solve a problem that isn't perceived as a problem by the Bitcoin community. As a matter of fact, I also see little difference in whether a miner is rewarded by a fee or by the fact that bitcoins continue to be available for mining because demurrage destroys some of them and therefore fills up the reservoir of unmined coins.



It is true that a digital currency is much easier to apply demurrage to than a state-issued currency. Still, you will have to find a good reason to do so. What is the added value that demurrage would bring to Bitcoin, what is the real problem - also in the eyes of the rest of the Bitcoin community - that would be solved by introducing demurrage. Just last week I was talking with someone in Italy who also wanted to introduce demurrage to Bitcoin, but there was also no mention of a real reason to do so, other than it would be nice for reasons not connected to Bitcoin itself...


Merged mining - hmmm. I see they talk about merges mining between Bitcoin and Namecoin. So what you are proposing basically is to establish Freicoin as a fork to Bitcoin, a separate flavor of the currency that includes demurrage. Still, you'll have to find and point out a real advantage to having demurrage over not having it.

There is one point in favor of a Bitcoin flavor with demurrage, which is that the currency will be tending to be spent more readily. But as it is right now, most of the users that have gone into bitcoin mining have done so with the expectation of an increasing value of each coin. They are banking on making profits because the currency is set to appreciate with time, and they would not want to follow you into a currency that does not do that. However there may be many new and potential users who don't care about speculating on their coins increasing in value, and who would welcome a more easily spendable currency.


There is an important problem with Bitcoin that would benefit from a Gesellian cure.

As Gesell points out, a currency, to be stable in value, has to be commensurate with the market it serves. The total amount of units of the currency in circulation and the mean velocity of circulation has to be in line with actual exchange being mediated by that currency.

In the case of Bitcoin, there is no mechanism to ensure this.

Therefore, Bitcoin is not well suited to trade. It tends to appreciate greatly, if the user base grows. That is good for miners and for speculators, but it is hardly good for businesses who want to accept Bitcoin for what they sell. Who would want to change their prices constantly because the currency is changing its value all the time? Think about real trade, like a business selling things. They would have to follow the Bitcoin exchange rate constantly so their prices continue to reflect the real value of what they sell.

So we have a problem, which is the currency is not stable in value. Freicoin could solve that problem, but it would need demurrage to do so.

Freicoin would have to set, for its target amount of coins to be issued, a number that is the product of the payments made through the system in a certain period x a multiplier (to be determined). This variable number would replace the fixed amount of 21.000.000 coins which characterizes Bitcoin.

The difficulty of calculating block chains would have to be automatically adjusted taking into account the currently issued number of Freicoins and the difference between that number and the (adjusted) target number.

Mining adds coins to the Freicoin economy, demurrage drains coins from it.

This way, whichever way the user base goes, whether the Freicoin economy expands or contracts, the value of each unit of Freicoin would be stable in value, as it is continually adjusted to the size of the economy that is being served by the currency.

I suppose what would be needed would be some programmers who could appreciate the importance of a stable Bitcoin flavor, and who would program these parameters into what would be a fork of Bitcoin.

When you get money (symbol of value) for the services you provided, you're supposed to take something from other person in exchange. The more time you spending how do you want to be compensated, the longer you lock the medium of exchange, and the more freicoin will charge for this wild card service that allows you to shift your "consumption" into the future. If you want to store value, you can still lend your money, or invest it. You can buy the things you know you will consume in the near future or in the long run if they're not perishable goods.

The miners (for the same security) will get exactly the same value, but transaction fees can be cheaper because freicoin always rewards with the same quantity instead of only at the beginning. Just as bitcoin tx fees are cheaper now than will be in the future, demurrage fees make tx fees smaller.

Frecioin mitigates the financial effects of deflation, but its main goal is to reduce interest rates.

You will buy the apple, but the one in a hurry is the producer who wants to sell the apples, because they money (unlike apples) decay. That's why you can charge interest to the producer if he needs the money before you want to eat the apples.
But would you build a factory today if you can build two for the same price tomorrow? Would you lend money to build a factory that has decreasing nominal yields (and thus decreasing nominal value)?

Anyway, even if you're not worried about deflation, what's wrong with lowering interest rates without inflation nor transfers of wealth?

Demurrage would seem to discourage Merchants joining on freicoin/bitcoin.  With fees, you get what you charged for.  With demurrage I see destroying money that people own, have earned, and have every right to spend, and give it to whoever they want. (This is an idea of bitcoin representing value owned.  A very attractive idea to me.) For what? To avoid an honest Supply/Demand economy in bitmining?

The concept of people leaving the bitmining pool and joining thus creating a raise and drop in prices is really simple supply and demand economy.  This is free market at it's finest and simplest.

I feel strongly about the apple scenario.  Somebody answered the question 'Why buy an apple today when tomorrow you can buy two?' with 'Because your hungry.'  Which is exactly the point of it!  With the deflating dollar I need to buy a dozen apples today to retain my dozen apple value that I received in pay for my hard work, even though I won't be able to trade those apples for a car I may need in the future.  So I have to stop purchasing so many apples and save money at a rate that exceeds the rate of inflation, when in fact if I had saved my money and only bought apples when I was hungry I could have purchased the car sooner and replaced the vehicle more often, and all parties involved would benefit.  The apple seller would be getting an increasingly valuable currency for his apple, the car dealer as well for his cars.

In terms of purchasing power of the money holder, yes.

You can save in many ways. For example, investing or storing real products instead of money.
A freicoin bank would probably pay the demurrage of its creditors.

Also, would all gains go to miners or transaction fees would become cheaper?
Anyway, if they go to miners we would have an improved security, nothing unfair.

Differences:

Inflation is an inconvenience for calculations and contracts, even if it's predictable.

I'm surprised that no one had complained about how low interest rates would destroy the economy.
Inflation (like this one, not the one of our central bankers) rises nominal interest rates but leaves real interest intact.
On the other hand, demurrage lowers real interest rates.
But instead of producing mal-investments, like when you lower interest rates by monetizing cheap loans for the government, bankers and other associates, it permits further competition between capitals so their yields can tend to zero like regular profits do.
Any type of capital will have its yield above the liquidity premium (gross interest = liquidity premium/basic interest + inflation premium + risk premium) or no more competitors will come after the profits of that sector.

I think they are correct that the two scenarios are effectively equal.

With inflation, the purchasing power of all money holders decreases.

With demurrage, the purchasing power of all money holders decreases.

Total money supply = 2X, purchasing power = X vs. total money supply = X, purchasing power = X/2.

They are mathematically equivalent. In both cases the winners are miners, the losers are savers.

In terms of purchasing power of the money holder, yes.
In term of inflation (the unit of value for calculations and contracts), no.
In terms of interest rates, no.
The economic decision making is different.

This is key. Just to explain a bit more, let's say that in 2010 there are 10 million X in existence and you have 100 X. In 2020, the number of X goes up to 20 million. The result is twofold:

1) Your share of the total sum of money has decreased from 10 per million to 5 per million.
2) Every 10 minutes (assuming money supply growth is exponential), a miner gets coins equal to 1.3 per million (since 1.0000013 ^ (6 * 24 * 365 * 10) = 2). This income transfer to miners carries certain economic effects (encouraging mining, reducing the bitcoin price due to for-profit miners wanting to sell, etc)

Now, let's say there is no inflation, but there is demurrage. In 2010, there are 10 million X in existence and you have 100 X. In 2020, there are still 10 million X but you have 50 X. The result is:

1) Your share of the total sum of money has decreased from 10 per million to 5 per million. In order to effect this change, every 10 minutes, 1.3 per million must be lost out of every pool of money every 10 minutes (since 0.9999987 ^ (6 * 24 * 365 * 10) = 0.5).
2) To keep the money supply constant, every 10 minutes a miner gets coins equal to 1.3 per million of the total money supply.

The two scenarios are EXACTLY THE SAME.

Now I know what you meant. You say freicoin is equivalent to expocoin/kingcoin.
Here's my answer. Sorry for the long wait.

The difference is in debt.  Inflating a currency reduces the value of the debt to be paid, but demurrage only reduces the value of the cash you have to pay it off.  It seems demurrage could possibly reduce the tendency to put off debt payments.

MarkM, I agree.

All you are talking about is the separation of the medium of exchange and store of value functions.

Oh, look, its already happened!

The link provided earlier, http://finanzcrash.com/english/aberrations.html makes an interesting argument about the opportunity benefit of liquidity holding up the entire interest rate system and thereby forcing capitalism to forever maintain scarcity instead of actually satisfying demand.

As I read it seemed to me that it is an argument in favour of having the medium of exchange inflate but not thereby also causing the medium of capital to inflate. Thus the impression it gave me is that it might actually be better to let the inflationary fiat currencies continue to serve as the medium of exchange, the faster the inflation the more urgency to actually spend it instead of hoard it for the opportunity benefits of liquidity.

Basically the link argues in favour of having a mechanism that will balance that opportunity benefit so means of exchange will actually get used to buy stuff instead of held over society in a maybe I will buy something maybe I won't uncertainty creating uncertainty that itself probably encourages others to also want to poise in liquidity waiting to see what one ought to buy and so on ultimately leading to gosh knows what final catastrophe impossible to predict because of the higher and higher uncertainties leading to all kinds of possible chain reaction modes of failure.

So maybe it is good that most buying and selling happens using heavily inflating fiat currencies, and we should aim to keep our savings in bitcoin and spend the fiat stuff...

...Which I suppose is simply bad money driving out good like G's law said...

-MarkM-

Demurrage is exactly the same thing as increasing the money supply. There are no special economic results that will occur under demurrage that will not happen under regular money supply inflation.

Demurrage is simply expressing the amount of bitcoins you have as a fraction of the total supply instead of hard units.

Deflation is no more disruptive to commerce than inflation, and both are only disruptive to the degree that they exist at the moment.  What is most desirable is general price stability, but only to an extent.  The deflationary design of Bitcoin, after about 120 years of course, is *very* gradual.  Between 2020 and 2130, Bitcoin will still be in an inflationary stage, but will be inflating at a rate less than every fiat currency on Earth has averaged over the past 50 years.  This means that Bitcoin's monetary base will be so stable, that price fluctuations will be much more affected by real market forces.  That is the ideal.  Very likely, none of us are going to be alive, and if Bitcoin survives in it's current state till 2130, it will have outlasted every fiat currency that has yet existed.  Even the US Dollar isn't even quite 100 years old as a fiat currency.

You need to distinguish between momentary profits, due to speculation, or sustained profits.

If sustained profits are on offer, more and more profit seekers enter.

In the latter case, profits will be driven to zero by competition, and then below zero.

Then some people get out, with losses.

Profits go up, people get back in.

What then is the average profit of the average player?

I don't understand. Profit above zero is only possible when costs are externalized, or just in this particular case?