Topic: Price stability, difficulty changes, fairness. infnite coins is NOT inflation - page 2. (Read 5717 times)

Bitcoin is not a fiat currency. Fiat means imposed using force, usually by governments. Bitcoin is a voluntary currency.


Since both those thing are not scarce, why would you back a currency with them? For example, do you thing anyone woul trust a currency backed by leafs? No, because leafs are very abundant.


Clearly you need to give it more though. How do interest rates affect the economy? Is is possible for one person (or a group) to centrally plan interest rates? Its not a problem of corruption, it is a problem of limited information.


And what would be the result of "democratically" selected interest rates in the economy? How would peple know with their limited information and their personal incentives what are the interest rates needed?


That is not price inflation indeed, but if that were to happen with money that would be monetary inflation. Why is that bad? Because it creates bubbles. Check the 20's. There was almost no price inflation, Irving Fisher said the Fed was doing a great job at managing the monety supply and creating the correct monetary inflation to keep prices stable. But hiding behind the price index there was a bubble forming in the stock market due to the monetary inflation that popped in the crash of 1929.

Having some price index constant is not a good monetary objective and does not matain a healthy economy.


This is very wrong. Bitcoin is inestable because its a small market and when new money comes in it has a big influence. If you start your new hashcoin it will be unstable as well, no matter how much does it "cost" to produce.

Also, let me predict that your hashcoin would be accused as well of being a ponzi scheme, because those acusations come from not liking Bitcoin and wanting to attack it some way and from envy, not from really thinking that it is a ponzi scheme.

I wrote the edit after the first part so there may have been inconsistency.  In the edited scheme, the blockchain would basically fork at that point.  Basically the blockchain is a state of all transactions and generations up until some point in time.  Say we're at block number 100, and I see a new block 101 just made that gives a ridiculous amt of BTC to the generator.  If I find that unreasonable, I just pretend I never saw it: I go on continuing to try to build block 101 from block 100.  On the other hand, if someone else gives me block 101 that is agreeable, I shift work to continuing on block 102 ontop of that.

Now things get a bit weird: some transactions (like transfers of old coins) will be valid in both chains, while some will be valid in one and invalid in the other (e.g. spends of those new coins).  Now we can do business together even if we don't agree on everything: as long as all the money involved respects both of our rules, any tx between us will be valid in both chains, and so both of us is happy (actually, I guess all that matters is the person receiving the money wants it to be valid in their chain).  But I will not do any business involving coins I didn't accept (i.e., txs that would be invalid in my chain).

Ofcourse, it would be a headache to keep track of these things and the goal would be for this to never, or rarely happen.  A fork should be like a "revolution", not a common occurence, and people would draw their lines in the sand and stick to their chains.

Would it not be in the interest of subsequent miners to increase appreciation. Say early adopters have mined 1M in one year. Secondary adopters with twice as much computational power decide on an appreciation rate of 500%. So after year two there would be 5M (early adopters) + 10M (secondary adopters) + 1M, and the secondary adopters clearly have more Hashcoins/power etc.

With the "inalienable rights" scheme the "tyranny of the majority" (in above example, or otherwise) would render Hashcoins impossible to function as "their" blocks would be accepted by the "majority", whereas "the minority" may not want to continue on those terms - or am I missing something?

@blogospheroid:
That's actually a very good question.

Financially, only a reasonable appreciation rate (technically, if you're an early adopter, you CHOOSE the appreciation rate yourself and can make it as big as you want; but if you do that, the next round of adopters will probably say screw you and start their own.).  Everyone is different, but my threshold would be if something was appreciating more than 100% a year *above Moore's law*, I would say "screw that".  Thus why I see 1M-fold increase in bitcoin and am basically saying, "screw that".  Note I don't mean value relative to USD.  I strictly mean the "coins issued per difficulty" value, which I would expect to be moore's law + 10% or so.

Admittedly the distribution of bitcoin is quite clever from an "incentivise early adopters"  perspective.  The problem, from my discussion with others about bitcoin, is it totally scares away the crucial "mid-adopters" you need before mass use.  But perhaps I'm wrong and the price instability and difficulty increases won't scare too many away -- humans behave in all kinds of weird ways.

@dennis,
The point of this is to recognize that
1) As of right now, you could not stop such a group in bitcoin.  if 51% were unhappy with the current rules, they could band together and terrorize people, double spending, DDOS
2) We basically already have a voting system but it's terribly inefficient: if I don't like the rules now, I must write a new client, distribute it, and explain to other people why my rules are better.  The purpose of "hashcoin" would be to recognize this and streamline it, so that if people get unhappy or want changes, they can do so without starting from scratch again.  In hashcoin, if you are unhappy with the rules, you simply propose new ones, explain them to the community, and then they will be voted on.  In other words, the system can adapt rapidly to any change in how people feel/what they want.  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 propose changes that if most people agree are good ideas, can be incorporated immediately rather than everyone having to start over".

@Rassah
Unfortunately I agree, particularly after my realization that "inalienable rights" are meaningless where 51% can do whatever they want.  There is some hope though, in that the voters are miners/people with massive CPU power, not every random person using hashcoin.  Hopefully the miners/people who invested heavily will spend time to think clearly before voting.  But there is no solution to tyranny of the majority...


Edit
Actually, here is the closest thing you could do to "inalienable rights".  You could refuse to accept certain rule changes, and importantly, make everyone know that you will refuse to accept such changes.  To do this, instead of voting on the value, you vote on an upper and lower bound for the value (here the value is the BTC rewarded per difficulty, but its conceivable there are other parameters people could want to vote on, like TX fee per KB perhaps).

Thus now you vote on a range X-Y, and when you vote, you are basically saying this: I will not accept a block with parameters outside these ranges.  If you send me one, I will ignore it, and will fork the blockchain and stick with whoever else doesn't like your change..  Now the goal of the miner is, given the votes he's seen, to set the parameter to the value that maximizes acceptance (i.e., pick a value that falls in as many people's acceptable ranges as possible).  This is by definition -- a miner wants his block to be accepted by as many people as possible, to guarantee he gets his reward in the generally accepted blockchain.  Thus infact, no voting is needed at all and the miner can do whatever he wants.  However, if he wants his block to be accepted, he better respect others' wishes.  Now if 51% come online they can't force you to accept rules you don't like, but they can wreak havoc/terrorize the blockchain as they can now.

The biggest problem I see with this idea is that the VAST majority of voters will have no idea what they are doing. Even on these forums, where the topic is currency, there are A LOT of people with no financial or economic background. Uneducated votes at a time of crisis will likely (probably) make things much much worse.

The idea of not having a deflationary currency which would not massively benefit early adopters is in my view better than the how Btc is set up. As you say, many people do not find Btc atractive at all due to this circumstance. But if the opposite is true, that if a constellation of very powerful computers wanted inflation and there is no possible way of stopping them from getting their will through - how is this scheme better as opposed to different from Btc. This is a genuine question - I have no programming skills whatsoever.

What is your incentive for early adopters of hashcoin?

Again, realize any such limit put in place is only giving you security through hoping everyone else is too lazy to write a new client.  If 51% want unlimited coins, you have two options: you give it to them, or they fuck with your network nonstop wreaking havoc.

and re: democracoin name I pulled it out of my ass, I would not actually call it something like that .  I would call them hashcoins.

unfortunately, absolutely nothing, that is the price of total anarchy.  At first I thought perhaps of "inalienable rights" like "difficulty will never decrease" (since decrease in difficulty would make old-adopters coins worth *less*.  But after some more thought I came to the following conclusion: any such fixed rule is "security through hoping everyone is too lazy to write another client".  If 51% of CPU power really wants difficulty to decrease, and you don't give them their way, they could also just decide to all band together and wreak havoc on your network.

Ultimately, in total anarchy, there is nothing you can do but hope 51% of people are far-sighted enough to see if they do these things in a system where everyone is promised that things may change, but all changes are recorded, then if they choose to manipulate things this way they are basically screwing themselves since people will bail.

In other words, I could respond to you with "what's to stop a few supercomputers from banding together and double spending on the current bitcoin network, or raising difficulty and then leaving?".  You just have to hope 51% of cpu power is controlled by people who want long-term success.

One more thing: Democracoin doesn't sound very catchy, rather just like a politically-charged ripoff of the original.

Your argument about today's price instability and your proposal of a fixed difficulty certainly hold some weight; however, for maximum stability I would propse a scheme under which the number of coins is fixed in accordance with computational power increasing and making it easier to create blocks.

I do like the idea of having the wealth more distributed, so early-adopters can't hold ridiculously large fractions of the total share without putting for the equivalent in USD.

Also, I think the whole voting thing would work in an ideal world, but what's to stop a few supercomputers from banding together and drastically changing the price?

Since the other thread got locked and some of the ideas below may not be obvious to all, I'll write them out here.
I've spent a bit of time thinking out how to design a currency like bitcoin that would fix some problems, namely
 
- price instability
- the ponzi-scheme like result of the current way difficulty does not affect generation

My schemes fall into two categories.  The first are unbacked, fiat like bitcoin is now.  The others would be backed by something like
CPU shares in a big grid,  or space in a massively replicated filesystem.  This post will purely discuss the former.  I am a computer scientist, not an economist and recognize it's debatable which is superior.  It does seem clear though that the power to arbitrarily control interest rates and inflation is a very good one when used responsibly.  So here is how that can be done democratically.

Summary
Build a new currency, call it hashcoins that are exactly like bitcoins except for one fundamental difference:
The number of coins issued per block is not fixed at 50 and on a decreasing timescale, but rather completely determined by vote.
Votes are determined by current CPU share.   Every N blocks (perhaps 2016), there would be a meta-block where miners would
indicate their vote on the coins-issued-per-block by including it in the meta-block header and hashing on it.  The coins-issued-per-block for the next N block epoch is then fixed to be the median over votes from the 10,000 vote-shares submitted with smallest SHA2 hash.

edit note: better scheme than voting proposed in post #10

Discussion

1)  But wait!! Then there could be infinitely many coins! they will be worthless due to inflation!.  Wrong, they cost money to produce.  If there are 1 million coins that each cost $1 to produce, and I generate a new coin at a cost of $1, that is not inflation, but rather a transfer of $1 from the USD economy to the coin economy.

Look at a corporation raising capital, say they get a pre-money valuation of $4 million from a VC for their 1M shares, so each share is worth $4.   The VC wants to buy 500k shares.  The corporation issues 500k brand new shares out of thin air and sells them to the VC for $2M, which then become the assets of the corporation.  So the corporation now has 1.5M shares.  OMG INFLATION right? No.  The corporation just got $2M in assets, and so has a post-money valuation of $6M, so it is still worth $4/share.  That is not inflation.

2) For stable prices, and elimination of the "ponzi-scheme" feeling, coins should cost the same to produce.  As it is now, the reward for a block is the same 50BTC it was in 2009, but requires 1M times as much work.  This is the fundamental reason for gross price instability, and the reason bitcoin is perceived as a ponzi scheme.  In other words, it's obvious that prices are instable now, because different coins cost different amounts of money to produce.  So it's easy to stabilize prices: make all coins cost the same to produce.   Say what you want about early adopters deserving it.  The fact is most people, when they hear this, will immediately think ponzi/pyramid scheme and want no part in it.  In fact, every time I've discussed bitcoin with others, the fact that coins made now require 1M times as much work as coins made in 2009 is the single fact that made them dismiss bitcoin entirely.

3) There is a problem with a fixed "50 BTC per difficulty" rule due to Moore's law: the same computational work a year from now will cost about 0.7 of what it does now.  Thus if coins truly represented a fixed difficulty, they would depreciate in value rather quickly.  The purpose of the voting is to allow for this to be accounted for in a fair and reasonable way, to protect against depreciation but not to grossly enrich early adopters.  A reasonable rate would be say, enough to counteract Moore's law plus perhaps a 5 or 10% appreciation for early adopters, but NOT a ridiculous 10,000% increase in 2 years; the current market participants would decide the exact rate.  Ofcourse, they could vote for a 10,000% increase and get it if they want.  The hope is that enough people will realize that is an extremely stupid idea and be detrimental to widespread adoption, and instead carefully vote in a way that gives them some kind of appreciation, but not so much to scare away future newcomers.