Topic: Interest and Bitcoin - Impossible? - page 5. (Read 6579 times)

Inactive wallets are not re-minable. It's just not possible. Lost coins are, barring an astronomically rare private key collision, lost for good.

So unless population levels drop faster than coins get lost, Bitcoin will be deflationary. Mildly, because since lost coins are functionally the same as hoarded, you can never be sure when they'll come back on the market, and so you must assume that they will at some point, but deflationary all the same.

well you're assuming bitcoin is deflationary - I see it stabilising at some point with only population change and lost coins affecting its value.

I expect a downturn in population eventually given the trend of birth rates falling below population replacement levels in developed countries and of course it will happen a lot soon if people like Bill Gates have their way.

I also wonder whether lost coins may be taken care of in the way that inactive fiat accounts are handled now only re-mined instead of handed to the government after a period of time.  The Australian government only recently changed this from 7 years to 3 years btw.

You're neglecting the value of time.

I think people have this all wrong.

There isn't any Bitcoin 'bank.' Normal people won't deposit their bitcoins into any institution by default like they do with currency because otherwise the bank would have to provide negative interest which doesn't make any sense.

That doesn't mean there won't be loans, however. But it will work more like venture capital, with only certain people doing it and subjecting themselves to considerable risk. For loans such as those associated with housing, I suspect it will end up working sort of like car dealerships. The seller of the house (or an agency the seller uses) will provide an interest-free loan to the buyer not to profit from the loan, but to profit from the sale of the house, likely with a large down payment required. Most for-interest loans would go to businesses.

What does this mean? A much safer financial climate all around.

Show me someone who borrows at negative interest and I'll show you a borrower who is taking value from the lender.  At zero interest the lender gets back what he lent 1:1, at a positive rate of interest he takes more then he lends and thus takes a surplus from the borrower.  If you still subscribe to the theory that merely holding currency tokens is creating surplus value then why must the lender lend out the money to someone else to realize it?

What claim does the borrower have to the surplus value of the lender?

Of course it's possible to 'work your way out of debt' but that in no more excuses usury then saying that in the pre-Civilwar South slaves could work and earn enough to buy themselves out of slaver.  The question is if the taking of interest is justified in the first place, irrespective of the debtors ability to pay it.

This is so ironic, aren't you libertarians the ones that say taxes are theft and denounce those greedy liberals that say that the rich should be taxed because the can afford it?  Now the same sloppy logic can be used to justify interest simply because the debtor is being productive and producing surplus value and can afford to pay interest.  What claim dose the lender have to the surplus value of others?  I say he has claim to get back the value he lent and no more.

This is essentially what I was referring to when I said that the assumption of an infinite supply of people willing to borrow at interest was unrealistic. If you drop the assumption of infinite velocity of money--which would otherwise allow the situation to continue indefinitely--you will eventually approach a point where people realize that they've already signed away most of their future productivity, and consequently stop taking out additional loans. As long as the money continues to circulate, the existing loans can still be repayed, even if they exceed the total BTC in circulation. However, the total debt will stabilize, not spiral out of control.

Excellent points.

Interest / usury is a subject that easily twists your head more than required. It gets quite straightforward when you understand that interest can be effectively eliminated by work (or other activity providing future value). Thus it doesn't matter if there are more liabilities than current tokens of value - the difference can be paid by production. Ever heard that "you are a creator"? It applies in this field too - you can create value, exchange that to tokens of value, and pay off your debt previously accrued by interest. Simple.

Interest isn't much root of the problem; its big brother debt is.

The key to stability is moderation. With the human nature being what it is, it's too easy to promise something that you can not fulfill, ie. more future value than what you are capable of producing. At that point things start to spiral out of control and the system is in serious trouble, if not doomed.

I must be missing something really obvious ..

The way I see interest and lending re: bitcoin -

1. Mr A asks me "Can I borrow 100 bitcoins?"

I say "Sure, if you want it over 10 weeks, then 10% interest for a total of 110 bitcoins, which you'll have to pay back 11 btc each week. Deal?"

2. Or.. if you're talking about interest from banks.. e.g. I store 1000 btc, and expect xxx% interest after 1 year. I've always seen this as a con tbh, it used to be a way to get you to give them your money "hide you money with me, and after 1 year i'll add on xxx% called 'interest'." (whilst really stealing your money for gambling and investing in dodgy deals, or just stealing).

But I also understand it that banks simply don't need to offer any kind of 'competitive' interest anymore, seeing as almost everything is tied into them anyway regardless of interest.

Interest could still work in case no 2, if the 'bank/institute' you were giving your money to was gambling ('investments') etc, and made enough profit with your money to cover your interest (with the usual thought that people generally never take 100% of their wealth out). So, ye, can work..

Though point 2 kinda beats a huge point of bitcoin, but ye, its a safer storage I guess for people who need it.

To wrap your head around paying interest with bitcoins, it might be beneficial to look into ripple and think about how the two systems can be used together.

Basiacally, when you agree to pay interest you indeed make a promise to pay more btc than you currently have (like giving an IOU on ripple, it creates money). You do whatever economic activity, maybe you sell something and earn bitcoins. You then pay back the bitcoins plus interest, thus negating the IOU and the amount of money returns back to its initial state.

Renegade Mind:  If you truly hate Usury then you should read Gesells book, he explains how usury is the inevitable result of hard money.  Once money is no longer hard usury will vanish because it is a 'rent' that the holder of money extracts because of the unnatural store of value hard money represents.  BTC, gold and other hard money solutions can never eliminate usury because they are the source of it.  Fractional reserve banking is largely a red herring in that what ever abuses may be involved it is not the root of usury, and if anything it is likely a stealthy argument by gold-bugs to limit credit expansion and make Fiat behave more 'tightly' and to raise interest rates as a result.

Here is The Natural Economic Order it's written in a very plain manor without complex economic terms or equations (Gesell predates all that).  The parts on land reform can be skipped as it's not relevant to our debate.  It is quite ironic that Gesell was one of the fiercest opponents of Karl Marx, but he was also an opponents of capitalists aka supporters of usury.  Gesell properly distinguishes between the free market (which he supports) and usury (which he opposed).  Marx failed to make that distinction.  Unfortunately Gesell's ideas were forgotten in the titanic capitalist-communist struggles of the 20th century.

https://www.community-exchange.org/docs/Gesell/en/neo/index.htm

Well, Bitcoin is a fine solution to that, as well.... Any sound currency is, for that matter. Sound money tends to appreciate in value. Even if it is merely stable, it encourages saving. Bitcoin will most likely be slowly deflationary, which will further encourage saving. Saving is the counterpoint to lending. If a person can more profitably save their money instead of taking out a loan to purchase the house, then they will, so lenders would need to price their interest so as to attract customers.

Small wonder, then, that as soon as banks gain control of a state, they work to inflate the currency, since a currency worth less tomorrow than it is today discourages saving, and especially private (kept at home) saving. Money is no good to a banker, if it's not in his bank.

Hmmm... Not so sure... I've only ever seen the kind of system we have now, and calling it criminal would be an understatement. I'm having a hard time imagining how it can ever be anything except predatory.

It seems that money is heroin for bankers - they're junkies perpetually jonesing for another fix, and they'll do anything to get it, no matter the consequences for them or anyone else.

A fine argument to keep the bankers out of the halls of government, I agree. Andrew Jackson knew this, too.

So, what's wrong with my analogy, then, if it's perfectly analogous?

It seems to me that the time dimension is simply not important. But, let's run with it...

Inside of the velocity of money, it seems that you are assuming that a sort of equilibrium will be reached where money moves fast enough through the economy and that the lenders (those charging interest) will continue to move money.

This seems to ignore the possibility (probability?) that all money must move through the lenders eventually, and that they will never call in loans ahead of schedule. We know that this doesn't happen in reality - banks call in loans and ruin people's lives.

I'm skeptical that there would be an equilibrium there. It seems to me that the fabrication of claims on bitcoins would result in the lenders eventually taking all wealth the way it happens in the current system.


Yes - I absolutely have a negative view of usury/interest.



Well, I guess I understand how people view bitcoin better now.

It just seems more to me now that the only real advantage is that it cannot be directly controlled by central banks, which is an advantage that I think could disappear very quickly once it gains broader acceptance.

FWIW - I don't think fractional reserve banking works, except for the banks. Here's a series of articles on the topic:

Part 1 - The Mechanics of Fractional Reserve Banking
Part 2 - What is money?
Part 3 - "How" Fractional Reserve Banking Creates Money and "Why" it is Fraudulent
Part 4 - Run on the Banks? Or Run on the People?
Part 5 - Compound Interest as Invisible Slavery
Part 6 - Summary & Additional Resources

Fractional reserve banking relies on float time, which if you or I use, we go to prison. It's just fraud. The articles above explain that in depth.

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Anyways, I was looking to see what the general outlook on the topic there was from other people. Thanks for everyone chipping in with their 2 satoshi!

Your use of the term "usury" implies a negative view of interest. Interest is simply the cost of money. Now, having that money, as money, at a later date may well be more profitable than using it immediately to buy something physical, in the bitcoin economy. So interest rates can be expected to be low, as there is less incentive for the lender to convert the currency to hard assets than in an inflationary economy, which is what, essentially you are paying for: the ability to use money which might otherwise be used for some other endeavor by the lender.

But that is not to say that interest is impossible. Even an interest debt which totals (after compounding and such) more than 21 million coins can still be paid off. You are, after all, paying in installments, and the lender isn't simply holding onto the coins after you pay him. He's making other loans, purchasing capital, expending it on resources such as food and shelter, etc. Just because your heart pumps 191,625,000 gallons of blood over the course of your lifetime doesn't mean that you have to have that much at all times in your body.

Not necessarily, because you're ignoring the time dimension.

The claims are not for X number of BTC right now, but rather for X BTC/day for Y days. The total number of BTC/day available for buying goods and services as well as paying off loans depends on monetary velocity and is not strictly limited to the number of BTC in circulation.