Topic: Serious flaws in Bitcoin monetary policy - page 4. (Read 7095 times)

It has been discussed many times, but your M.Sc in Econ is probably enough to disqualify you right away.  I don't doubt your sincerity, but most Econ departments feed students the pablum needed to justify keeping the authoritarian, control-freaks in power and everyone else under their thumbs, no matter the cost to their students.

Obviously they are loans, but they use the tax money as the collateral, so if the loans default, the tax money is lost  

So it is a gift basically and a scam. As for the loan, its just money out of thin air, like the entire fractional reserve banking.

Yes I know what I`m talking about, but you are right ,this may be a little off topic  

I can't believe you are MS in Econ and you don't know bailouts are loans not gifts.  Your thread started out well but now you are talking about how govt scams citizens?

Well all derivatives , not the main instruments, but the derivatives are there to mitigate risk.

For example a futures contract, which is just a derivative of a commodity or currency, is there to mitigate the risk of the producer and let traders hold their risk.

If a corn farm is afraid of the depreciation of their corns and thus to the loss of money, they can just make some corn futures at the current price while selling the corn later, to make sure he sells it profitable.

If the price of corn does go down then the traders who hold the risk will pay him, if not then he lost a bit of money, but atleast he can now sell his corns at a good price.

So basically the traders hold the risk in every market, but its not a forced risk, it is voluntary, everyone has to know their risk tolerance and not risk more that they can afford.

So a few traders lose, but the corn market gets saved, and the workers on the corn farm can keep their jobs, otherwise they would be fired because the corn farm would go bankrupt.

So basically a few unlucky traders sacrifice a little bit of their money to save a whole industry from volatility and collapse.

That is basically the role of derivatives.

But when the government starts to bail out wrecklessly them from taxpayer money, thats another story. Because traders voluntarly risked their money, but the taxpayer was forced to pay the taxes.Furthermore, the taxpayer is not even getting any benefit from it. Because the trader atleast has a chance to make money, but the taxpayer is permanently sentenced to lose money...

You see the difference? 

Well I`m an economist so, yes financial instruments are my toys  

It's not that hard to grasp, bitcoin will provide the basic trust needed, and you can build upon that whatever you wish.

It doesn't have to be complicated, but since no system can ever eliminate risk entirely, if you design a system, that atleast tries to do it, then it could be much more flexible than to just hope for the best.

Despite the fact that derivatives got so infamous in the 2008 crisis, they are not that of a boogieman , they are actually very very useful, if used correctly, and only then.

If a CDO is used to clean up the debt of irresponsible politicians, it's not the CDO's fault that it does that, its the politicians fault.

The CDO can also be used responsibly as an investment vehicle on smaller scales aswell. Forcing mortgages to be written into these instruments is never a good idea.

I`m for free market, but also lets face it, somebody has to clean up the mess when it all goes wrong, and its never the banker who will do it.

The supply of coin is somewhat constant when the difficulty changes. Some miners get more does mean some other miner will get less. The total is the same.

Well my instrument is a double derivative, as the base instrument is the Bitcoin, BTC's derivative is the Counterparty (XCP), and my instrument GREENSTOX is a stock derivative based on Counterparty.

If somebody would create a stock option based on my GREENSTOX stock, that that would be a triple derivative 

You see you can build layer upon layers of instruments ,which could mitigate the basic risks of BTC.

If you don't like the ever decreasing price of BTC you can just create a derivative where you can short it, and hedge against the risks.

So based on this mechanism, if BTC is a savings currency, you can still create a commercial "token" or asset that can be used as a commercial currency, by adding inflation to it.

Mastercoin and Counterparty have these features, while Ethereum will also have it soon after it will be released.

You could issue 1,000,000,000 units of a derivative currency and make it inflationary, and control the price of it with this mechanism, while the base instrument would be deflationary.

Although one feature I miss from Counterparty is the lack of a "monetary base tightening" option, where you can delete X amount of units from circulation.

It has a basic "callback" feature but that is only a 1 time and you can't modify it. I would like to see a feature when you can just tighten the monetary base without restriction, and also loosen it without restriction.

I hope Ethereum will have these features.

We shall see, it will be a nice economic experiment, elasticity vs deflation, which one will win.

But to my common sense, I just can't see a comercially used currency to be deflationary, in some nasty way, devaluation does boost demand

Although Bitcoin could have a future as a partially commercial but largely savings oriented currency, where you can get loans from BTCJam or other services, and invest in it.

You could see BTC savings accounts in the future, and decentralized banks operating on the blockchain, so it's not a desperate case.

Otherwise I would not be in the bitcoin myself.

I personally just use BTC as a savings currency, but I have my own instrument GREENSTOX built on the layer of bitcoin by using Counterparty as a mediator

I really like what Counterparty did, you can just add many layers of instruments on one another and create all sorts of complicated derivatives

I`m also excited about Ethereum, they enhanced this feature even more.

So I`m very excited to create my own financial instruments, I think this is how the world should work, everything to be decentralized, not just a few crooks in CB seats to dictate the monetary policy.

An amusing contradiction.

And you know this because.....err....we just witnessed the price drop like 80% in a year.  Yep, 100% known and predictable

I've suggested somewhere else that if a coin has a proof of stake mechanism, we can use that as a monetary policy instrument without too many adverse effects: Make it higher if we want to expand and make it lower if we want to contract. This leaves the Proof of Work "taproot" in place, but Proof of Stake isn't much of a security mechanism by itself, so changing PoS reward isn't too bad.

If you want 100% stability, find someone to sign a futures contract with. That's not the job of monetary policy.

BTC supply is 100% known and predictable. Predictability allows for stability, which is what markets need to function properly.


The giant boom-bust cycles we see in modern economies seem to occur about every 8 years or so, and are very difficult to predict. When a vehicle like BTC cycles more frequently it allows business to more reliably anticipate market fluctuations.

Haha, no. The mining mechanism would be the redistribution mechanism, of course it needs to be reworked to become flexible, and not perma-inflationary.

Also don't forget about deflation, if the demand drops, a deflation algorithm would clear up X% of bitcoins from circulation, from everybody's address.

So if you got 1000 bitcoins, and a 2% "rate hike" would set in, then you would lose 20 bitcoins, however the remaining 980 bitcoins of yours would value 1000 bitcoins of the previous.

This is just to boost demand, in case of price drop, nobody would lose anything actually.

That is why we need this mechanism to prevent pump and dumping. My theory is exactly blocking the pump and dump scheme, by discouraging speculators to form bubbles.

So just decentralize it.

HFT's are not a problem, bitcoin transactions take 10 minutes to confirm, you can't HFT here, this is actually a strength of bitcoin.

You might want to check out a crypto 2.0 project such as Ethereum, Counterparty, or Truthcoin. They're all working on making it so any computable value can be computed without trust (thought Truthoin in a bit of a roundabout way). Once that hurdle is cleared, making an AI trustless will easily follow.

Now you've got a bigger problem: develop a decentralized AI that doesn't require any trust. If someone can do this, then it would be a bigger achievement tan Bitcoin itself.

I'm glad you brought up in inelasticty flaw.  Your analysis in the OP is spot on.  Unfortunately, Nobody here sees that because they're all speculators.  To them the cap limit is the pump used to sell the bitcoins.  "Hard limit means I can be in the 1%"

Their greed will doom them to losing it all because they can't think of external factors.

However, I think your proposal  of an "AI central bank" is lacking in foresight about the political realities.  Notice even in this crappy forum they all talk about politics when someone brings up economics

If the market would remain stable, then no QE is needed, remember QE and Rate hikes are both interventionist tools.

If the market performs well, then none of them is needed, but of course we know the economy is a very delicate mechanism and nothing will be ok forever, so we need both tools to fix it.

My model, is a bottom up model, miners in the bitcoin network are not centralized, because anyone can become a miner, so the distibution resulted by QE in the bitcoin system is more fair than the Keynesian QE distribution which only consists of giving 0% loans to Wall st. and big taxes to the main street.

You still confuse the QE as a tool with the Keynesian QE. I already explained, my QE is not used for "economic stimulus" or "consumer stimulus" because that is a direct form to facilitate fractional reserve ponzis.

Since we dont have fractional system, there is no need to "stimulate" anything (with more credit card debt, student loan, etc).

The QE in my theory is only used to adjust the price to demand & supply, thats all it will do.

So no bond purchase program, to cover the welfare deficit of socialist governments, and no stock market purchase to enrich the 1% strata of speculators and banksters.

It is only used to add more liquidity and all of the generated money will be fairly redistributed

Nobody can steal any of it in a fraudulent way because all of it would be automated.

I can't emphasize it enough, because you still confuse the concept of QE with the way it's used by Keynesian con artists

That is only because the fractional reserve banking is used to support the welfare state that is promised by irresponsible politicians.

So they grow a ponzi scheme global debt bubble and use QE as a tool to ease the debt.

But Bitcoin is already a 1:1 leverage system, no fractional reserve BS. You can't compare the fiat economy to it.

In my theory the QE will only be used to control the price and stabilize it in accordance to the supply & demand mechanism.

In my theory QE won't be used to pay off the debt aquired by irresponsible governments

There is a huge difference there! 

Bitcoin QE generated money wont be used to buy bonds, it will be used to redistribute it  between the miners

1)  A)
Who said here a need for a central bank? I only said that we need a mechanism that controls the money supply, it doesn't have to be a central bank, it can be just a decentralized protocol that watches the price, an AI if you will.

We can limit the corruption and the financial frauds just simply by estabilishing a decentralized control mechanism.

But we need a control mechanism, we can't just have a Laissez faire monetary policy, it won't work.

  B)
Not even that, i`m all for 1:1 leverage loans, fractional reserve system is flawed, I said nothing about it.
Since bitcoin is international, it won't facilitate the loans of any government, it can't create loans out of thin air from fractional reserve system.

The only way to increase the monetary supply (in my theory) was to make QE after every liquidity shortage, but only then, not before not after.

The money generated from QE will be used to redistribute it between miners , who will after sell it to the market.

In the bitcoin eco-system, the miners are the reserve banks, and the central bank (if would exist) would just be a protocol built into the system, there is no need for a government agency to control the money supply, it could be all automated and decentralized.

In the same way if there is a demand shortage, then a % of bitcoins will be deleted from circulation, be removing them from everyone's wallet simultaneously.

It can be all automated, I don't imply any sort of central bank!

2) Yeah but until that happens, we will see many crashes, and bubbles, after every major positive news, suppose giant corporations adopt BTC.

Speculators will hoard in BTC again, and year 2013-2014 will happen again, nothing will change.

And after all BTC will be mined out, it will be even worse, you could see 50% increase /decrease swings daily.

It will be forever a speculative currency unfortunately :|

3) Care to elaborate on that, or do you understand how supply & demand mechanism affect the price?

#1

A. You believe that inelasticity is a problem only because you believe that central bank control of the money supply is a benefit. However, to many people, the central bank is the problem that Bitcoin is trying to eliminate. The idea that an organization can have enough knowledge of the economy in order to control it is preposterous. The central bank only adds another element of instability.

B. Your "problem" of inelasticity is only temporary. I believe that fractional reserve banking of Bitcoin is inevitable, and with FRB will come the inevitable central bank. It will be limited compared to a fiat central bank because it can't print money, but it will give the central planners something to keep them happy, hopefully not enough to really screw everyone.

#2

The difficulty self-adjusts to maintain an inflation rate that eventually goes to 0. The idea that "[when] miners halt their progress, [it] will create more inflation because they can mine more BTC now" is simply wrong.

#3

There is too much speculation and too many unsubstantiated conclusions to comment on. Plus, it depends on #2, which has been shown to be incorrect.