Topic: Price stability, difficulty changes, fairness. infnite coins is NOT inflation (Read 5727 times)

Money must be scarce or based on direct credit (like LETS or Ripple).
When you own scarce money, society as a whole credits you, because they have to provide you goods or service in exchange of your money.
But why would society credit you for owning something abundant ?
You say that they will credit you because that useless (apart from being used as money) commodity is expensive to produce. But there you're relying on the labor theory of value, which is wrong.
Solving inequalities by making money expensive to produce sounds to me like a state hiring people to dig a ditch and then burying it again to prevent unemployment.

Your comparison is wrong.


The first gold found was easier to find than any gold you can find now. The firsts people to arrived in the Klondike had an easier time to find gold than I would have now.

The first bitcoin mined is worth exactly the same as one bitcoin mined today. It's just harder to find.

The limited supply of bitcoin is the primary reason that people are interested in it as a currency. Take that away and you are back in the same playing field as world of warcraft gold.

Is that really crazy?  To be more precise, don't think of paper bill's.  Think of something that actually have cost to produce near their face value, like coins.

What is wrong with that logic?  People will "print money" (i.e., produce coins) as long as people who don't have the knowledge or ability to produce coins themselves are demanding them from those who do.  Also keep in mind the cost-of-production is not the same for everyone.  As more and more coins are produced, their value will decrease.  But once demand price decreases to cost of production, there is no incentive to produce anymore.

So this prevents money from being overvalued, as I'd argue bitcoins are now.  A system that values a coin produced by Satoshi at difficulty 1 as produced by someone now for 1million times the work is NOT AT ALL some kind of "stored fixed value" like gold.
Let me see if I can really make this clear...

Here is a comparison of bitcoin to gold
Imagine the first person to find gold said "OK everyone, 1oz of your gold shall be worth 1 million times less than 1oz my gold".  How could they enforce that, if all gold looks the same?  By building a "Gold Registry", where everyone must register their gold, and then declaring that only registered Gold is valuable.  More precisely, rather than trading gold, it is declared that all business shall be done in units called "PyramidCoins".  Exactly 1000 PyramidCoins will be issued per day, in exchange for whatever Gold people are willing to register that day.  That is, if there is only 1 person willing to give 1 gold bar, they are given all 1000 PyramidCoins for their single bar of gold.  But if instead, 100 people are each willing to give 1 gold bar, the 1000 PyramidCoins will be divided between them and they will be given 10 PyramidCoins each.  If multiple people each give multiple gold bars, the 1000 PyramidCoins are divided in proportion to the number of gold bars they registered.  It is also declared that every 25 years, the number of PyramidCoins issued per day will halve, so there is a limited total supply.

Now what is the outcome of this?  The guy who starts it all puts in 1 gold bar at a time, declaring 1000 PyramidCoins for himself.  Slowly more people start to join, and for awhile there's a small group of 10 people each getting 100 PyramidCoins per day for their gold bars.  Eventually more join, and people are getting less PyramidCoin for the same bar of gold.

What I am suggesting
If you use bitcoins, congratulations, you have been fooled into using PyramidCoins.  Note I don't necessarily believe Satoshi intended things to be this way.  From reading his early posts, he seemed to be aware this kind of scheme would incentivise early adopters, but it is not clear that he actively intended to construct a pyramid scheme as opposed to not just thinking things all the way through.

My suggestion/scheme is to stop using PyramidCoins.  Just use your gold instead!!

How can we do that?  Well, it would be nice to eliminate the "Gold Registry" altogether.  Unfortunately, that seems technically difficult for information-money which can easily be copied.

Alternatively, we can issue 1 PyramidCoin per 1 Gold bar.  That's reasonable, but with information-gold it may be that producing 1 bar of gold next year costs 1/2 as much as this year, so it would be nice to protect people from that.

So we set the PyramidCoin per Gold bar issuance rate by vote.  That is my suggestion.

But the money itself is not scarce, it  can be produced at will.


I didn't want it to look like an interesting idea, just wanted to show how stupid the idea is.


The current bitcoin developers will tell you that the current computing power spend by miners is not a waste of resources because miners provide the security of the network.
Your miners don't provide anything, they just waste resources.

+1

Every bitcoin-like currency that is created from the pure jealousy late-comers have of "early adopters" will fail.

Money in these transactions is generated by proof-of-work, which costs scarce resources.


Interesting idea, applying the suggested 'distribution scheme' to the dollar. Less practical, as the exact amount of 'work' needed can not easily be proven when dollars are printed. But suppose it could work and we'd have a dollar being worth it's production costs.

Obviously the number on such a 'dollar note' is no longer relevant, a 1.000.000 dollar note is just as easy to print as a 1 dollar note. So either you need a huge amount of notes to pay for e.g. a car, or some printing process has to be invented that can be proven to cost way more resources than the current printing process.


Such questions are best asked to the current bitcoin developers.

I'm signing out (http://forum.bitcoin.org/index.php?topic=26738.0), this is my last post in this thread.

EDIT: http://www.thesmokinggun.com/documents/crime/got-change-million

I have had a similar idea, and I think it could be worked into the current bitcoin system rather than making a new hashcoin thing.  And rather than each miner and each block having differing amounts of new coins, the amount would be recalculated with each difficulty change.  This prevents a miner from attempting to maximize coins for just himself.  Also, services could be set up that attempt to calculate the current "value" of bitcoins which miners could subscribe to.

If this system were created for Gold, then right now the gold miner's production would increase by a small amount in order to bring prices back down.

But, all in all, I don't think such a scheme is necessary.

Money must be either scarce or based on the credit of the issuer (LETS, ripple) to work.


This is like saying that we all should be allowed to counterfeit dollars and there would be no inflation because no one would print them if their price goes below the production costs.
Also, bitcoin miner's calculations are the source of the bitcoin security. What those generating calculations are for? Just wasted resources?

Although most people use the term fiat currency to mean state currencies, I think fiat is the right word to define a non backed currency like bitcoin.
What he means is that it was "created out of nothing". But then he claims "the value of a bitcoin should be its cost of production" which is in contradiction with the first statement.
Although bitcoins are not made out of thin air, neither are paper bills, but the monetary value is never backed. Its users give them value by fiat, by the common agreement that it is a medium of exchange.
This agreement is often forced by one or several states. In the case of bitcoin, some people trust the cryptography behind it and agree to use it as currency. As more people join the agreement, the monetary value increases.
I'm happy to say that unlike gold, bitcoin is fiat.
But it shares most of the properties that make gold a good storage of value.
I just prefer the term "fiat" over "non-backed" money.
I understand that many people want to use the term "fiat" over "national" or "state" currencies.
It's the same with "money" and "currency". You can find very different definitions.

All value is subjective. Nothing has intrinsic value. http://forum.bitcoin.org/index.php?topic=16263.0

Bitcoin is, as hashcoin stated, a 'fiat like' currency. It shares one very important characteristic: no intrinsic value.

Hashcoin, thanks for the pm. If you want to discuss an alternate currency distribution scheme on this forum, be prepared for some insults and/or, more irritating, misquotes. Although it's good to see some moderation going on these days, it's one of the reasons I don't bother too much to do too much discussing here (after trying e.g this http://forum.bitcoin.org/index.php?topic=15657.msg206521#msg206521).

Another reason is that, although I think I'd know the perfect solution for a natural, logical distribution scheme, I don't have a proper solution for two other problems that I expect to lead to the downfall of Bitcoin.

But, for the distribution, how 'bout (thanks to Ryan for part of this idea):

- Mining blocks is rewarded only with transaction fee's, no coins are generated with it.

- A 'special' transaction exists, where the 'in' does not refer to a previous transaction, but coins are generated by proof-of-work. (With proven 'difficulty' of a certain hash linear to the reward, hash of some previous block should e.g. be included to prevent double spending.)

- Anyone can create and send as many of these transactions as he/she likes.

No (noteworthy) inflation due to increasing moneysupply is to be expected, as one should be crazy to create more money if it's worth less than the cost of production. No (noteworthy, long-term) deflation is to be expected, as coins will be produced when appearently necessary.

There could be temporary deflation if money-demand outpaces production facilities. There could be permanent inflation if money-demand shrinks (same as with the current Bitcoin).


I too think there's way too much incentive for early adopters now (http://forum.bitcoin.org/index.php?topic=19303.msg241662#msg241662), and it will keep hindering it's acceptance. In normal life early-adopters are prepared to pay for interacting with new, cool technology (and for being early-adopter).

One more thing.


Have a look at http://www.hashcash.org/  before you call it hashcoin...

You do realize that name will attract a bunch of pot smokers and will be percieved as such in public?

How would I do it? I like how Bitcoin is now.

And you are wrong when you say that people just follow what Satoshi wrote. People like what Satoshi wrote or otherwise Bitcoin would not have the success it has had. If a big part of the people liked another way they would have already started a competing currency. There is nothing stopping you from creating your hashcoin. Satoshi even gave you the open source code so you only need to change a few lines of code and you are ready to go.


I really dont know how can I explained more clearly, but Ill try. I am saying that having a price index (no matter what you decide to include or how to calculate that index) does not guarantee you that the monetary system is not creating distortions in the economy. As an example I signaled the roaring 20's. So saying that as long as some price index that you deem appropiate will remain stable is not a guarantee that a monetary system you propose will ensure economic stability.


The problem with your hyphothesis is that price has been stable way before the hashing power stabilized. In fact, hashing power is starting to rise again since yesterday.

Even if you took the time to analize it econometrically (which I believe you havent) I dont think you will find a clear pattern relating hasing power and price, because basically hashing power does not change almost the supply of coins (big increases accelerate very slightly the supply until difficulty adjusts again) and does not affect the demand. This is why we see in reality that increases in price always leads to increases in difficulty (because hashing power has increased).

Both theoretical analisys and empirical data are against your hypothesis. Its important to keep in mind that supply and demand of bitcoins, and thus price, are not affected by hashing power (supply slightly). Instead the incentive to mine it is indeed affected by the purchasing power of bitcoins.


Well, Bitcoin is not a system to get rich, its a currency. Its meant to be used to trade. People should understand that mining is a market with a very low barrier of entry, almost anyone can do it, and will be, more and more as time pases, a very low yielding activity due to competition. If you want to prosper in the Bitcoin economy you will have a lot more success trying to create a business than going the miner route. This is also a good incentive.

They wouldn't use it because it's not compatible with the existing clients on the network, and most people would reject their forked chain.

In your system, collusion to award yourself more coins is compatible with the existing clients on the network.  

Your system allows a gradual, creeping corruption.  It's a bit like a badly enforced law that initially gets broken by only a few opportunists, but after a while even "nice" people who (in principle) agree with the law start breaking it because they feel cheated by the opportunists.

The current bitcoin implementation is highly resilient because of network effects.  A gradual corruption is not possible. You can't go from a situation where only 1% of miners use the corrupt client, then a week later 2%, then 10%, then 50%... no, network effects will very quickly drive the number down from 1% to 0%.

Corruption in the current implementation can only be revolutionary, ie. >50% of users (not just miners!) updating to the corrupt client simultaneously.  That is extremely unlinkely.



Also, 50% inflation a year as a result of Moore's Law is still a lot better than allowing people to vote themselves richer, causing hyperinflation.

Personally, I like the system just the way it is. it has all of the characteristics of a great medium of exchange:

http://economicsandliberty.wordpress.com/2011/06/04/further-observations-on-bitcoin-digital-currencies-privacy-and-liberty/

We just need to now make it user friendly so grandma can do it

Scarcity is relative.  There is clearly a limit on the # of processors or # of hard drives that will fit on earth.  The only difference is things like gold have nearly already been exhausted, while silicon/hard drives have not.

If this is true, then if I wrote a bitcoin client that colluded to give miners more coins, they would use it.  I don't think that's the case.  I think people can understand that if they do these things, the coins they are generating become totally worthless because noone has faith in them anymore.


See point (3).  The problem is inflation due to Moore's law.  The purpose of changing difficulty is to counteract the fact that computation depreciates.


No, a single selfish individual decision is not bad.  51% of people making them is.  I agree with you this is somewhat troubling, and personally I worry that there may be miners who are not smart enough to see why voting to raise issuance is a bad idea.  Fortunately the upper/lower bd gets around that.  

Anyway thanks those who have replied so far for constructive feedback, but it looks like unhelpful persons are starting to show up.  Before this thread gets worse, I just want to reiterate the following point.

We basically already have this system in place, but just implemented in a very inefficient way.  If I don't like the rules, I must (a) write a new client, (b) distribute it, (c) explain/debate with other people why my rules are better (d) get them to them switch.  The purpose of "hashcoin" would be to recognize this and streamline it, making it very easy for people who are unhappy with the current rules to find each other and fork the chain.  In other words, what I'm really proposing is not philosophical or economic at all, but purely practical: writing a client that has built-in-support for doing steps (a) and (b) automatically.  Thus, if you are unhappy, you need only do (c) and (d).  The goal is to write a system with the goal in place of "how can I make it so that, if people don't like this system, they can very easily change it themselves without having to write any code or forcing everyone to start over".

Indeed, I suspect there are people with economic backgrounds that have much better ideas for parameter settings than I do as a CS.  All I am proposing is essentially a system where such people can put their parameter settings into place without writing any code.

This is an argument to keep newbies locked in the playpen longer. I wouldn't buy a single coin you produced.  The limited supply is the only reason there is any long-term future for Bitcoin.

Bitcoin works. It has a track record. You are [mod edit: No insults allowed] and I don't have time to set you straight, assuming you even wanted to learn. I am just going to keep buying coins now while they are cheap.

And here lies the problem. A system that relies on hope.

The current bitcoin implementation, despite all its flaws, has one feature the gives it a huge amount of resilience:  A decision that is in the selfish interest of an individual user is usually also in the interest of the bitcoin network as a whole.  It doesn't matter who the user is or what his motivations are. Bitcoin is agnostic to things like hope and ideology.

In the system you're suggesting, a decision that is in the selfish interest of an individual user is  detrimental to the network as whole. It's a tragedy of the commons of sorts.

I'm not saying such a system can't work, but it's a lot more vulnerable than the current bitcoin implementation.

Voting will make the number of generated coins highly unpredictable. You are setting up a system prone to positive feedback loops that could create even more price instability.

I don't think that most people will vote altruistically or in the name of economic stability. A lot of miners will just vote for a very high number hoping to bring the weighted median up so they can make a few more coins. Once people get used to the fact that the block award keeps rising, they will vote for even bigger increases hoping to make up for the loss of value of their coins.  Hyperinflation could result.

Even your idea of "vetoing" for upper and lower bounds will be "abused" for selfish means: Many miners will set lower bounds (that they keep raising) simply to make sure other voters don't bring the median down again.


Here is a much less corruptible scheme that addresses your concerns:

Number of coins awarded per block = Difficulty

Simple, predictable, easy to understand by everybody, and likely to lead to (more or less) stable prices because difficulty is roughly proportional to the size of the economy.