Topic: Handle the 21M Limit - page 3. (Read 10378 times)

Are there any ideas for how exchange would happen between the two block chains? Is there some way to facilitated chain1-to-chain2 exchange such that it will not become a completely independent currency?  I think two indpendent bitcoin currencies would be damaging to the chances of expanding this into merchant trade.  Merchants would have to decide which to support.

PQ = MV problem can be addressed by increasing V or M, or some combination.  The 2nd chain idea addresses M, but the problem is then we will have PQ = (M1.V1) + (M2.V2) and it will get complicated. Increasing V will help imo but I do not yet have a vision on how to get coffee for my bitcoins. What about just increasing the number of BTC awarded to miners? That may not seem fair to last year's miners, but we have to consider whether the recent large BTC price rises (deflation) is a long term threat to BitCoin overall.   Any currency, whether it be fiat, gold, Medici bills of exchange or immovable rocks will not succeed if there is not a reasonable amount of price stability (neither too much inflation or deflation).  It just becomes too impractical for merchants to manage long term, they spend more time adjusting prices than conducting business.  The miners might conclude some price stability is equally in their interest.

I see your delimia that a paycheck will increase and decrease and that can do alot to people's plans with what they were going to do with it. but whos to say that my paycheck will decrease during a payweek? If we agree on me being payed 500 bitcoins it should already be in escrow regardless and if bitcoins prices go up or down(do you get payed less or more during a pay period if the price of the dollar went up or down?)then I'll have twice the money to purchase coffee until the next payperoid. But who knows what will happen in the future

As we speak, BTC is under fire again as Mt. Gox is under DDoS... and in this times the lack of a BTC economy turns more evident. As nobody seams able to deal directly with bitcoins, the exchange being down simply "halts" the entire system.

Right on - I couldn't (didn't?) say it better.  The hoarding (what I called "investing") is reducing the average velocity, most likely drastically.  A "hoarded" BTC has V=0 over the the time period during which you measured it.  Has any economist written some econometric perl scrips to look at veocity in the BTC supply over time? The cool thing about bitcoin is we have complete transparency on all the transactions since the beginning while still preserving anonymity.  FRED has to figure it out by dividing GDP by M2, and both of those values are estimates and there are piles of books and PhD theses arguing for or against those metrics.

However, I do not want to go so far as branding everyone buying BTC at the moment as "speculators".  Let us just say there is strong demand with a narrow supply.  A likely source of the demand is investment, but until we have some real metrics we may not be able to judge how much is intended for trade.  A greater supply of trade goods and services would test that theory to see if we could shake loose some of the low velocity BTC, per my original point.

Just an idea... yet it needs something usable.
You don't go buy a coffee with gold nor a car with tin; yet there're more coffees being sold out than cars and within this BTC we only get gold.
I know this moves with the greed of old miners, believing that a secondary line would drop the value of their bitcoins... still, is just a matter of put it in the right perspective to prevent such thing.
And, again, a secondary block chain would give a boost of another "gold rush" for it... maybe shorter than the actual block chain as now there're a lot of miners equipped with top edge GPU, something I don't recall to see last year.

Infinite growth is not required.  Marx assuming that was a requirement was incorrect.

If growth doesn't happen, or is less than population growth, people generally get poorer.  This sucks, but is not really any kind of problem for capitalism.  Capitalism would be the best suited for prolonging resources over several generations since there would be incentives to try to make things last as long as possible (although current consumption > future consumption all things being equal).

Technology has been the main reason our economy has grown over the last 10,000 years at a tremendous rate.  Everyone keeps saying the end is nigh, yet it never happens.  Maybe someday they'll be right.  But I wouldn't bet against the last 10,000 years.

This has nothing to do with the cyclic crises that is most commonly caused by money supply and the banks.  Banks put easy money into the economy, people cannot accurately make guesses on what is profitable, and then mal-investment happens. 

Sure, the economy comes from speculation mostly.  There are uses right now where it's superior, but it's much less than the size of the money supply.

What would be the point of creating a block chain and indexing it to a currency?  Just use that currency if you like it better.

This is the reason Marx was right about the major issue of Capitalism, somehow, or by convenience, some people tend or look to think as "growing to the infinite" as some kind of possibility. Technology doesn't allow it, as it needs resources to be created and after a few cycles you get it heavily inflated.
Therefore we've the cyclic crisis, a "readjustment" on that "growing to the infinite" attempt.

But this leads to other sort of economics, as CoinOperated states rightly, BTC has no economy at all, it's value emanates directly from speculation.
Which lead us to a secondary problem here, we NEED (isn't just a matter of "want") to have or start a BTC based economy, if the current isn't suitable for the purpose, create another chain, have another rules like index it to CAD or USD, force "miners" to backup their coins with some solid currency and leave this one to the only purpose it seams to have so far; trading fiat for bit and vice-versa.
Otherwise, keeping this economy-less currency by trading BTC people is loosing, as it always happens when you trade money for money, and to the end this would end up like any other sort of scheme where you trade money for money.

Yeah, if money stops being spent, then those who are spending money generally would have increased purchasing power.  Velocity is just a different way to measure how much money is being used.  If someone hoards money and doesn't spend it (that money has V=0), then it's essentially removing it from the equation.  If people are spending it rapidly, then it's going to be the purest case where it's never taken out of the money supply.  Reality is money is taken out of the money supply and then put back in all the time, so it's just a way to abstract it.  But yes, assume it is constant and deal with the other variables to understand the problem.

I'm not sure that it is tied to GPU has anything to do with the price instability.  If it was just a dick measuring contest through GPU cycles, then there would be no price instability since BTC would be worthless.  But it *is* used for something, and it *can* be used for more stuff theoretically in the future.  The problem is it's a small market ($20M market cap now?), and a ton of that is being hoarded and isn't being traded, and a few decent sized speculators can drive the price up a ton very easily, and a few people trying to unload a decent amount can drive the price right back down.

You can have deflation even if production, resources and technology remain constant.  Deflation, like inflation, is a monetary phenomena.  Assuming the velocity of money remains fairly constant (which it typically does year to year) then an increase in economic activity (typically measured as GDP growth) and a constant money supply will lead to deflation.  Normally we think stable or slightly rising prices are the norm (at least for the last few decades) but we are not noticing that the money supply is growing at nearly the rate of inflation.  Take a look at http://research.stlouisfed.org/fred2/ you can graph all these things easily and see it visually as an illustration.  You can plot velocity, money supply (typically given as M2), GDP and other metrics over 50 years and see the changes.

Since the BTC supply depends on GPU cycles it is tied only very indirectly to any type of economic activity (investment, trade or otherwise).  This is the root cause of the BTC price instability.

I think you have the resources backward.  Every year, we are able to harvest resources better, more efficiently, and in greater numbers.  Technology allows this.  The amount of energy put on the earth and the amount of resources here are vast.

But, sometimes certain resources become more scarce or expensive to find.  This is an except to the general pattern, but certainly happens.  In this case, if the amount of money is constant, then prices of that good will rise.  We become less wealth in those area, which leads to price inflation.  This makes people poorer and is generally a bad thing.

Yes, this can hurt many businesses.  It also gives incentives to people to find alternatives.

Wrong concept, Tom, isn't "by produce more" that you cause deflation, could be but rarely (as the planet is already being exhaust of its resources), is by "retraction of consumption" (market has TWO sides, not ONE).
If less money is available, people will consume less, things either get cheaper or in stock, if stocking is possible, you can't stock fresh food for an instance.
This circle generates high losses to all sort of business.

The only way deflation happens is if the economy is expanding (people are becoming more productive).  There's no reason to think that your salary will be cut just because the cost of coffee goes down.  If everyone else is improving productivity and you aren't, your salary might go down in that case.  But it's probably better to get that signal that you are slacking than just assume a low/no raise means you are doing great.

Landlords will be forced to make rents competitive based on supply and demand.  If they don't lower their rents, people move out.  I've lived in deflationary rent environments, and people have the expectation that their rent lowers.  It's not a big deal.  He can ask all he wants.  But you are not his slave.  If the guy down the street lowers his rent to 125, you are going to move if he doesn't do the same.

Please explain how it causes bankruptcy.

In deflationary times there has been bankruptcy.  But this is do to the boom-bust cycle which is caused by ma-investment.  People invest in unprofitable areas due, that seemed like a good idea, but easy money drives inflation and the cost of business, which makes the business no longer profitable.  This results in bankruptcy, the easy money clamps down, deflation occurs, and then you have bankruptcy and unemployment.  But this is like saying that umbrellas cause rain since it is always raining when people carry umbrellas.

Yes, there is some psychological adjustment.  But people will adjust, just as they have adjusted to inflation.  People expect raises now.  People will expect rents to drop, food prices to drop, etc..., as we get more prosperous.  Salaries would stay constant or possibly drop a little with an increase in population, but they would be used to it.

In order to cure the deflation problem, we need to keep in mind the basic equation for the quantity theory of money:

PQ = MV   (price x quantity = money supply x velocity)

Everyone is focusing questions on the money supply (total number of BTC that exist), but are not focusing on the "V" velocity.  Increasing the velocity will help reduce deflation and stabilize prices, even if we stick to the 21M limit on quantity.  In order to increase the velocity we need more active merchant trade in BTC.

Rather than getting super technical on monetary theory, I will try to explain my thinking in plain language terms.  Right now the likely cause of BTC deflation is that there is strong demand for BTC as an investment.  People are mining and buying BTC to hold them for various reasons.  Of course deflation only encourages this behavior, attracting more investment demand for BTC, causing further deflation.  I am using the term investment loosely here - someone buying BTC for investment wants to "hold" them for a period of time rather than "use" them as soon as possible.

The main practical difference between BTC "investors" versus BTC "users" is that a BTC user would typically buy/mine a small number of BTC and then spend them.  For example, if I want BTC to buy cofffe, I would buy maybe 10BTC.  After I have successfully drunk a few cups of coffee and exhausted my BTC, I would buy another 10.  This behavior is familiar to anyone with a store card for a coffee shop.

If Investors mine or buy they accumulate the BTC, not offering them for sale.  The problem is those "investor mined" BTC do not add much to the supply of BTC available for sale, and the BTC bought may actually reduce the amount available for sale.  Both drive up BTC value causing deflation.

If more merchants such as coffee shop owners accepted BTC this would help the problem.  They would receive BTC, deliver a nice cup of coffee, and in turn sell the BTC for local currency (CAD,USD,EUR etc) so they could pay suppliers and employees not part of the BTC economy.  This creates more sell side pressure on BTC and increases the average BTC velocity.  Both of those results are beneficial to increasing BTC economic activity and stabilizing prices.

Like I said, Tom, it's a matter of "psychological" maneuvers.
People will get happier with inflation as they get more, even if they make less out of it, than with deflation. And even if deflation would be ok if all prices come down at the same time, the fact is they don't, some will, some won't. Let's say from my previous example you have to pay a rent of 250/mo, will your landlord accept 125? Or he will be asking you the same 250 even if now it worth 500?
Deflation is a cause of social unrest, massive bankruptcy and unemployment and, due to the psychological impact, way worse than inflation.

When thinking about economy, it's a mistake to think just in numbers, as who does business is people, nothing has intrinsic value, people give (or take) value of things, therefore you always need to add people to the equation.

I would oppose the creation of a separate bitcoin if it was out of the bitcoin project, as such will render "two golden cryptocurrencies", but my idea goes around create a lesser-valued bitcoin attached to the already existing one. One more suitable for investment, other more suitable for trading. And here works again the "mind trick", name one gold the other silver would keep "big sharks" away from silver... even thus mathematically they're the very same thing.

You won't make less if you keep your production increases equal to the rest of the economies growth.  If you are inefficient, your salary will get cut.  Otherwise, it will remain constant or even grow.

People will adjust.


But maybe they won't, since people get low raises now and think they are making more money even when inflation eats it away.  But they will have to live with the consequences whether they understand it or not.  But it certainly is superior to any inflationary system.

Xenland,

When comes to economics, a very large slice of it is psychological. A bit like deflation, it's a nightmare due basically to psychological behaviors not by itself; say you earn 500, your coffee costs 1, at some point your coffee costs 0.5, your boss wants to cut your income to 250, this will alter your state of mind as you, "in your mind", are getting less (regardless you do the same with it or not).

People will never accept any currency they can't aim for the "unit". That's why gold ended up replaced for trade, even before banknotes regular trade was done with mostly bronze coins.
And here we go again, the existence of silver, bronze and other less precious metals didn't hurt gold's value.

That doesn't really prove a valid point all your really doing is calling it a different name. Currency is currency. I would pay for goods & services in microPennies in real life if i got payed in nanoPennies or vice verse or  so whats your point? What is the people side? are nerds not people and if they're not please explain because I'm pretty sure we nerds arn't aliens coming to destroy every world currency with cryptocurrency.

You insist to forget one thing, the currency doesn't conduct trade, people does, so prior to "nerd thinking" you've to think on "the people" side.
Nowhere in Earth general population will stick with a currency where you need to go on nanoX or picoY or microZ, so if that's the idea, rather bury bitcoin for business now, as it only business will be to trade btc for fiat currency and back to btc again and to fiat currency...

I couldn't have said it any better, Bitcoins won't fail because of some simple flaw found in most centralized systems unless you've read the detailed description, checked the source code and possibly went to MIT for cryptology I highly doubt you'll find a flaw in this system after "taking a look at the details". Like someone else said they wouldn't be here if they didn't think it would work and I highly doubt thousands of people are investing in computers dedicated to mining bit coins if they thought all that Time, energy and centralized money backed money went to nothing.

Regular money is more like bread

Bitcoin is more like wine