Topic: Increases in bitcoin prices are bad for merchants (Read 3324 times)

> I don't see how you can do that without making it centrally controlled and acting like the fed (printing more or less based upon an inflation target of 0%).

Network hashrate relative to a projection from the 2-year moving average (eg. hashrate of 100 110 121 133 146 is just Moore's law doing its job, 110 110 121 140 170 signifies a spike in popularity). If there's a spike in popularity, print more, otherwise print less.

Bitcoin (and gold I think to some extent) are very different than oil. If Bitcoin gets expensive it holds a lot of value and that makes a good money. If oil gets expensive we suck more up until we ultimately find a different means to our ends.

Actually, Bitcoins are very much "consumed" in the sense that, over time, the total number will drop due to things like hard drive crashes and so on. In fact, it is quite likely that of the 8 million plus BTC mined so far, a fairly good number were lost in the early days. People weren't taking much care of them then, drives crashed, flash drives got lost and so on.

The rate of consumption is slow, and I don't agree with the writer who said it will ultimately reduce to zero (if we as a species can keep alive the Spanish Flu virus, we sure as shit can keep a few BTC safely guarded), plus the mining curve is asymptotic, so there will always be one more bitcoin to be mined. But they're certainly consumed.

I think most people believe oil will just continue to go up in value. The same could be said for uranium and other non-renewable resources that are consumed (gold and silver doesn't count).

Gold, silver, bitcoins, etc aren't really consumed, so even though they follow the same extraction curve as oil, their price floats based upon the whims of speculators.

Can you really envision a world where everyone meaning 100% of participants think something will only go up in value? I sure can't.. And that's why it's a fallacy.

I don't think that it proved a fallacy. A deflationary spiral only is a problem when everyone believes it can only go up in value. I think there are enough people that think the current price of bitcoins and the rate of increase is nuts, and just want to dump what they have.

I thought it was proven the last time the value increased dramatically that the dreaded deflationary spiral is a fallacy and people actually spent more? 

I think it works out OK.  It's a case of the prisoner's dilemma:  If all the miners collude it's a problem, but any individual miner gets an advantage by selling at the peaks when their coins are worth an extra 30%.  Also, because of the time-value of money, and especially because we're pinning to inflating fiat, they're better off spending their coins than hoarding hoping to increase the payout.  Keep in mind they're having to pay electricity bills the whole time.

It's an interesting objection that no one has raised before, though.  I'll have to consider it some more and see if there ends up being some hoarding strategy that would let miners game the system.

I meant a percentage of the fees.... Percentage of transaction is indeed obviously bad.

Allowing thr price to differ from the basket of currencies that it's supposedly tracking isn't a good idea.  If the miners want to continue to get all of the transaction fees, they will sell enough of the new coins to keep the destruction threshold from kicking in.  Otherwise they will horde and horde until they have all the coins as speculators try to buy them up and your algorithm prints more money to try and quell the rally.  Even with transaction fee destruction, it seems like there might not be enough destruction capacity to make this work.

If massive growth is "inevitable", then over the long term you only need to control one way.  If it's failing, people lose value... Them's the breaks.

You can't prop up an unbacked currency.  Destroying a percentage during a transaction just means that the recipient demands more coins (IE, the coins are devalued); so you may as well just admit that the coins are devalued and spread that hit among all holders instead of the ones who are trying to participate in commerce.  Taxing commerce will just make it worse.

My idea is that preventing the bubbles will prevent the huge drops from occurring in the first place.  It will also completely end the whole "it's a pyramid scheme" objections, and I suspect that will get a whole lot more people involved.

That would only work if you could also deflate it.  Perhaps the protocol could require destroying transaction fees instead of paying the miner.  Of course, what's the incentive for that block then?  Perhaps you could just destroy a percentage.

My idea (working name RevCoin) is to mine an exchange rate for a currency basket into the blockchain.  Miners can use any quote source they want, but relay nodes will only propagate it if they agree the quote is reasonable (preventing miners from gaming it).  Heavily smooth the value so that the price can float to let market makers and speculators provide liquidity by trading short-term fluctuations, but over the long term the coins generated per block are adjusted to keep the exchange rate flat.  As the number of coins in existence grows, the smoothing-time will also grow to let the price float more; when the BTC market cap reaches the scale of fiat money supplies, it will be essentially free-floating.

The idea is to keep a stable value and prevent speculative "to the moon" fluctuations until it's large enough to stand on its own.  If it fails, of course there's no way to deflate to compensate (it will reset the target and recapture control at a lower level), but I think long term success is more likely without the current wild value fluctuations.

See also: EnCoin, GEM.

This makes no sense.

if anything, if i were a merchant, i would be selling goods to accumulate Bitcoins as fast as possible due to their potential for value increase.

^This

Buying is like selling bitcoins. People sell bitcoins when price goes up, mostly. Sure, some apply the buy high sell low rule...

+2.5

It's actually been proven that rising prices are good for Bitcoin merchants, so it's basically good for everyone. The only real problem with the price has been volatility, which will get better slowly once the sustained market cap gets bigger.

The problem with these "issues with deflation" arguments is that they are always theoretical and do not take into account everything. When we see increasing Bitcoin price, it is usually because people appreciate Bitcoin more and we get more users into the Bitcoin economy. That means there are more people using the currency leading to increased activity at merchant sites.

The other issue is that for some people it means increased purchasing power, meaning that if you bought or produced bitcoins at a lower price point, you have more purchasing power when the price goes up. This obviously means that you now have the ability to buy stuff you necessarily couldn't before.

In my opinion this issue could only become a real issue if the price always went up and we had a good way of predicting how much it goes up in a certain timeframe. Hyperdeflation can kill an economy but all the cases of hyperdeflation in history have been because of real issues. If the usage of a currency grows fast enough to cause temporarily hyperdeflation, it will NOT kill the economy. On the contrary, it will grow the economy. Thinking otherwise is ludicrous.

As it is with inflation, there are many reasons for deflation and there are different levels of it. I have a hard time seeing Bitcoin having a problem with this for any long period of time. Temporarily it can cause issues but it's a self-correcting issue in this case.

Using bitcoin to buy something doesn't have to have any net effect on your bitcoin position.  So whether the price rises or falls it does't (or shouldn't) matter when it comes to purchasing decisions.  However, the issue that we do have is that we have limited tools to manage the stock and flow of bitcoins.  It's mainly a tools issue that the bitcoin exchange rate can have an effect on people's buying habits.  With adequate tools to manage stock and flow, even extreme volatility shouldn't have any affect on commerce using bitcoin.

Keep in mind its a two way street: People would rather work for a strong currency than a weak one. Production & quality should increase in a deflationary environment.

I don't see how you can do that without making it centrally controlled and acting like the fed (printing more or less based upon an inflation target of 0%).