Topic: Proposal from a macroeconomist for an optimal crypto-currency - page 3. (Read 4296 times)

How much will it cost someone to move enough coins to cause a reaction they for some reason choose to instigate?

Who gets that cost, is it destroyed thus everyone including the perpetrator gains from it or does it go to miners or something so that who it goes to is compensated somewhat for the cost of the moving?

Is the amount of coin created by a move less than or more than the amount moved, and by how much?

-MarkM-

In the presence of transaction fees, I think we can rule out many sources of 'noise' in measuring the velocity of money.  One can move coins to a different account within a wallet without incurring fees, and if wallets become sophisticated enough for accounting purposes, a natural desire to avoid incurring expenses ought to mean that money hardly ever moves between wallets unless it is genuinely being moved between actors. 

So we should be able to know, instantly, what the velocity of money is.  We can detect how much of the money supply is spent in every ten-minute block and we can react.

Zeronominal check this coin, it will use Proof of importance (POI). If you check it, could you shares your views about it. NEM tries to be next big thing in world of cryptos

https://bitcointalksearch.org/topic/m.5940057

That's another question... With physical currencies positive target inflation rates may be justified by the zero lower bound on nominal interest rates. But as I said in my original post, that need not be a problem for cryptocurrencies, so 0% inflation would be desirable were it possible.

ZeroNominal, we have emailed you.

That rule references target inflation rate without seeming to actually prescribe how that target should be calculated...

-MarkM-

No. I'm not saying what you thought I was saying... Removing predictable components of prices has no effects on welfare. Removing unpredictable components has a beneficial effect. But the unpredictable components can be removed via a very simple, entirely deterministic algorithm. In fact the simpler, more transparent, and less random the algorithm is, the better it is for welfare. For example, in "traditional" economies, central banks can use the Taylor rule https://en.wikipedia.org/wiki/Taylor_rule to stabilise prices.

Algorithms are predictable though so basically you seem to be arguing that you want some kind of central bank or central committee or something.

They have to be unpredictable so the manipulators cannot predict and thus incorporate into their attack/manipulation the actions of the magic fairy dust scatterers who are to scatter fairy dust to make it all magically act how you want it to?

Actually it kind of seems you ultimately are arguing that manipulation is needed thus you want to be the manipulator or to specify the manipulations that are to be done.

-MarkM-

I might have heard it mentioned, but I hadn't seen the details. The problem is the fixed 5% demurrage rate. Having a fixed rate fixes no economic distortions whatsoever, since if (say) the value of a bitcoin grew by a constant 5% a year price setters could costlessly index to this known growth rate. The aim ought to be to use demurrage/interest to remove unpredictable fluctuations, not predictable trends.

The 80% distribution to a foundation also seems troubling.

ZeroNominal, have you seen Freicoin?

http://freico.in/

Use of currency to pay taxes = use in transactions. It is because I expect that in future someone will give me real goods in exchange for the currency that it has value to me now. (In the case you refer to, the real goods are avoiding whatever consequences non payment of tax has. So, yes, "coercion" if you want.)

But the government is not the only body who might be prepared to exchange real goods for currency for you in future. In fact, it's readily easy to write down a model in which a fiat currency such as bitcoin has a value because everyone believes that everyone else will accept it for payment in future. The problem with these models is that they always have at least two equilibria. One in which people coordinate on believing that everyone else will accept the currency for real goods, and so they too are happy to accept the currency for real goods, and another in which no one believes this. Both are fully rational. (They are sub-game perfect Nash equilibria of the dynamic game.)

Macroeconomists have been interested in the role of nominal tax payments not because they're necessarily the fundamental source of a currency's value, but because they provide a way of ruling out the bad equilibrium of the model, in much the same way that gold's use as jewellery ruled out the bad equilibrium in societies in which gold was used as currency. It is interesting to note that there's nothing ruling out the bad equilibrium for bitcoin. However, this is not the case for e.g. namecoin, for which the (apparently) fixed price of a domain name provides a lower bound on value. The bad equilibrium should also be ruled out for coins such as primecoin for which the mining process is productive, since if I value prime chains sufficiently highly I should be prepared to accept primecoins for real goods in order to incentivise others to mine primecoins.

You're taking out of the picture the central bank role in regulating the price of the currency, that is the existence of the central authority with market-maker capacity. But this is the most prominent distinction between fiat and crypto. In a way traditional macroeconomics money theory cannot be directly applicable to cryptos

The price of a currency is a function of supply and demand. The value is measured in different units ("utils" if you like). You're perhaps thinking of demand stemming from a currency's role as a "store of value", but this is an off-shoot demand from its use in transactions. If you did not expect to be able to use the currency in transactions in future, then it would not function as a store of value.

Velocity is just as hard to measure as NGDP. Indeed, velocity is just NGDP divided by the money stock in question. As I said before, to get to NGDP (and hence velocity) we'd want to prune the list of all transactions of all transfers between wallets, and all intermediate transactions. (In any case, we're only interested in velocity as it enables us to derive NGDP. The original monetarists took velocity as constant in the short-run, so thought they could derive NGDP from the money stock. This assumption has proven to be a bad one.)

^That post is kind of easily debunked by the Peter Schiff paraphrase, "I need this currency to pay taxes so they won't throw me in prison".

Value through coercion.  Keynesians like this guy not only accept it as the norm, but like to see just how far they can expand on the idea.

Intuitively, this doesn't sound correct. The true value of a currency surely is a function of supply and demand. Use in transactions represents one type of demand, but there are others. And I think there are a lot of real world examples where volatility in currency values has not inhibited its use in transactions.

Original poster sounds like one the biggest Keynesian, maniac control freaks I've ever witnessed.

Why is gold still worth anything whatsoever and all the currencies in the following chart are worth nothing?  Because gold is the epitome of Occam's Razor, and pretty much everything you typed is the exact opposite.  (ie:  voodoo, witchcraft, or relies on authoritarianism to work at all)

The only logical starting point for a digital currency was to utilize game theory and the gold model combined together.  Central planning always implodes.  Eventually, BTC will be the digital transmission vehicle of gold, while the fiat pairings might become secondary in importance.  Sink your teeth in that watermelon rind, commie.

keep in mind that with a cryptocurrency we can directly monitor and instantly respond to any changes in the velocity of money. 

We know exactly how much money is spent every block.  We can apply any kind of deterministic calculation to it to adjust the money supply over subsequent blocks.   Does that help?  I mean, if we observe that the velocity of money is contracting sharply (or expanding sharply) what adjustments ought to be made in upcoming blocks to preserve a stable economy that 'seeks' a particular level of inflation/interest?

I agree with all of this.


The deterministic model is fine as long as people cannot see any buy/sell orders placed within the minute. If this is the case, then you learn nothing by waiting till the last second. If buy/sell orders within the period were visible, then even if periods had random duration, people would still have an incentive to wait a little to learn something at least. It would also lead to random fluctuations in liquidity, which would cause additional fluctuations in price volatility, which is undersirable.


Yes. This is the problem. It is something that central bankers have slowly learnt over the last 50 years, with the focus gradually moving away from targeting measures of the money supply to targeting interest rates and inflation directly. If money growth is 5% per year, then, yes, in the absence of any trends in "velocity", inflation will also be 5% per year in the long-run. The problem is that there are trends in velocity, as new technologies and financial instruments change the need and use of money. For this reason, the velocity of money is something that is almost never mentioned in modern macro. It's so unstable as to be useless. We can expect substantial changes in the velocity of bitcoins as they become ever more tightly entwined in existing financial structures, with e.g. bitcoin banks and loans.

The only real issue I have with transaction fees as normally implemented in cryptocurrencies is that the externality they supposedly compensate for applies to everyone operating a full node, but that the people being paid for that externality are exclusively the much smaller set who have specialized hardware to solve block formation puzzles.   A distortion in the allocation of fees to offset costs seems to me no less certain to lead to economic distortions destroying value than a distortion in the amount.


Interesting.  I came to exactly the same conclusion when I spent some time thinking hard about it, with the added condition that the end of the trading period should be probabilistic (like the end of a block interval) rather than deterministic (like the end of a minute).  Otherwise people would be playing endless games about the last fraction of a second before the end of the period.   But anyway, I'm all in favor of the model where all bids and asks for an interval are matched up and executed in batches where every seller and every buyer get exactly the same price.

It is actually quite hard to target a particular rate of interest or inflation (measured in value) by adjusting the number of units of currency in circulation.   As an altcoin implementor you can influence the latter only.  We tend to assume that in some hypothetical steady state it eventually averages out that the value inflation and the currency inflation track each other in the long run - but is that purely a naive illusion?