Topic: The current Bitcoin economic model doesn't work - page 15. (Read 96539 times)

Bitcoins are divisible to eight decimal places giving 2,100,000,000,000,000 total units.

Or 300,000 per person on the planet in 2033

The speculative price in terms of dollars doesn't particularly matter.  It is the trust in the network that the transaction is good and verifiable that gives the currency value.

What is the value of trust?  

Do you trust banks and governments to value your goods?

As the dollar becomes less and less trusted around the world and as the number of them in circulation increases, people will flee from it anyway.  It's backed by the "Full Faith and Credit of the US Government" in other words blood shed and exploitation of resources. In other words, if you don't trust the dollar as a system of valuation, we'll kill you.

What people will be looking for is a trusted way to transact.


The problem with tying it to energy prices is that energy prices, while stable, are still centrally determined and the price of which is subject to the manipulation of energy prices through speculation. The problem with Bitcoin is that it still relies on an external valuation system, that of what the people who issue currencies think stuff is worth.

What happens when distributed generation is achieved?

http://openfarmtech.org/weblog/2010/10/distributed-generation/

http://openfarmtech.org/weblog/category/global-village-construction-set/steam-engine-construction-set/


Right now through centrally issued currencies the price of things is determined by a minority of people. In Bitcoin, it requires a majority of people to participate in the valuation of things.


Is deflation bad?

The effects of deflation are:

Decreasing nominal prices for goods and services ( I like cheap stuff)
Increasing real value of cash money and all monetary items (I like when $10 buys lots of cheap stuff)
Discourages bank savings and decreases investment (Money actually circulates in the economy rather than being horded)
Enriches creditors at the expenses of debtors (Isn't that why we're here? To enrich ourselves rather than our creditors?)

 Inflation reduces the real value of money over time; conversely, deflation increases the real value of money.

This allows one to buy more goods with the same amount of money over time.

The problem you are talking about arises from the issuance of currency.  Deflation is correlated with depressions – including the Great Depression, as banks defaulted on depositors.  Not all episodes of deflation correspond with periods of poor economic growth.

 In modern economies, deflation is usually caused by an induced drop in aggregate demand, artificially created by the currency issuer to induce a recession and (more rarely) long term economic depressions, so that those with money can buy assets at fire sale prices before prices are artificially inflated again.

Again, I'm not sure how we know that.  Let's say there is a BTCv2 that succeeds as a de-facto (or even potentially official) global currency.  BTC (v1) might still be worth more to collectors even if it doesn't circulate in commerce.  In fact, it could be BTCv17 that succeeds globally, and I would guess that BTCv1 would be worth more than BTCv2-BTCv16.  There is rare currency of various types that isn't legal tender any more and wouldn't be accepted in commerce by anyone, but still has significant collector value.  But none of those are "The First Currency" of their type.  That could be huge.

 

I guess they will. But it will be negligible compared to the value they can have as the de-facto global currency.

Hmm. How do we know that?  Perhaps they would have pure "collectable" value as the first block chain currency.

Yes. Bitcoins will have no value if nobody accepts them as payment.

In an electric system there is the flow of current and also electric potential and resistance. Such as in Ohm's law. The transistor is also an important component in electronic systems which allows a small current to regulate the flow of a much larger current. The Bitcoin system could perhaps be modeled using the electronic analogy. I don't know how though.

On the Internet it would be good if more and more websites started accepting bitcoins (or similar digital currency). And to have easy ways to quickly convert ordinary currencies from and to bitcoins. To be able to buy hamburgers at McDonald's with bitcoins is not equally important yet I think. Bitcoin would first have to be used a lot on the Internet. Imagine the majority of transactions on the Internet being done with bitcoins. That would be pretty cool. That's a huge amount of money transactions.

"Internet as a sector is about 3% of GDP, or bigger than agriculture or energy, and represents over 20% of economic growth in the past 5 years, and growing." -- From: http://www.businessinsider.com/mckinsey-report-internet-economy-2011-5#ixzz1NM8ZxI2x

The part of the money flow as electrical flow model that always intrigued me is the step-up transformer...

-MarkM-

That was an interesting analogy. Hoarding money is like a capacitor in an electronic system. I like the idea! It's less depressing than thinking of hoarding money as blood clots that hinder the flow. It would be interesting to do a more analytical examination of both those analogies.

Perhaps money is more like electrical potentials in an electronic system. Change something and they shift around into a new equilibrium. Move them by outside force and things start burning.

It seems like a pretty good model for a reserve currency.

Keep your wealth in bitcoins until you reluctantly find you need some pocket change to make it through another day or even just another meal, then cash it out to inflationary fiat as close as possible to the time you plan to eat / spend.

Maybe it is not necessary for merchants to accept it directly at all, as if you constantly keep facing those horrible inflationary fiats each time you face the prospect of spending maybe you'll be reminded why you prefer to hold the good currency and spend the bad stuff.

When bad currency forces out good, does that make the good stuff worthless as currency, or just make it worth more as reserve/savings than as pocket-change / spending-money?

Hmmm is having merchants directly accept bitcoins for goods really as important as seems hitherto to have been thought?

(Is having them directly accept gold silver platinum and palladium bullion as important too?)

-MarkM-

The problem with fractional reserve banking is that it has inbuilt inflation. There is never enough money in circulation at any given point in time to pay both the loans PLUS the interest. So new credits are continuously forced to be created in order to keep the fractional reserve banking monetary systems going. This leads to overall inevitable inflation. Even exponential inflation!

The Bitcoin system has massive deflation built in instead. I don't know if that is a sustainable model. It could be! It will be interesting to see what will happen with Bitcoin. One problem could be that Bitcoin will be less liquid than it would be with another algorithm. Money (currency: from current as in flowing) is like the blood flow in society. Clogging up the flow of money in society is similar to a cardiovascular disease in the human body.

I noticed that in BTC, all those other currencies are fluctuating wildly.  The Bitcoin is the ONLY one that's stable, relative to the BTC.

 

Seriously? The guy says such a thing and yet receives attention?

Stop feeding the Keynesian troll.

That's exactly what they did. They gave euros to adopters of the national currencies in proportion to how much they already had. In general, fiat currencies are introduced by the people with the printing presses printing it and then spending it. And bitcoin, that releases currency to anyone who helps secure the transactions, no privileges, is somehow worse!?

Your analogy does not take into account the risk of early adoption. A better example is investors who bought an expensive stock at dollars per share when first offered. Is it unfair to an investor years later that they must pay hundreds of times more for the same share?

Yes, it is fair. They were either unwilling or unable to take that risk at that time. If it wasn't for those both willing and able to do so, they would have nothing in which to invest.

Hmm... You could be right. I'm not sure, but I would like to have a digital currency whose value was even over time, with some algorithm that stabilized inflation and deflation, pretty much in the way the Bitcoin algorithm stabilizes the amount of coins produced into a linear and steady pace.

I am not against the proposed suggestions, I am saying great idea how much is it worth to you.

However, I believe you are wrong in your above-quoted assumption set.

These so called central banks of which you speak are in essence an early-adopter-cabal that, for various reasons (possibly including reputation, national reputation, or even (not so sure of this one) patriotism; or maybe even some even-more-practical reasons and rationalisations; and likely also fraud law adjudicators eager to punish them for giving the nation or law or legal system a bad name) seem by and large to prefer to attempt to prop up their ponzi scheme than to "cut-and-run" aka "fly by night".

What is there to stop those who converted early cheap bitcoins into millions of dollars, yen, GBP etc from using a possibly even very large proportion of such holdings to "prop up" bitcoins much as various nations attempt to keep their national currency from dropping too low in price by buying it back using their reserves of other currencies?

If anyone has managed to convert early bitcoins into vast sums of fiat currencies they should be in an excellent position to buy back bitcoins any time the price of bitcoins seems poised for a precipitous fall.

It might actually be very useful for such purposes to deliberately launch a bunch of variants that they *do* treat as ponzi schemes, both to make money with which to prop up the "real" / "original" bitcoins and to "demonstrate" that "no competing blockchains can in fact compete because we the original are so cool and so first-mover-fiat-reserve-rich we can back ours with more fiat than competitors can back competing chains with".

-MarkM-

Fiats are relatively stable because they've got central banks keeping them stable. They manipulate interests and money flows to keep inflation and deflation in check.

If you want stability in a decentralized p2p system you must have it tied to some external stable commodity such as global electricity prices. The recent bubbles and crashes along with perpetual deflation says enough. I shouldn't need to "prove" my point because it's empirically proven by the price graph. You can't have a medium of exchange without stability, period.

I'm still waiting for one sound argument against the proposed suggestions.

Quote: "Given no such thing can happen in the proposed system, it's much better than the current one as far as stable medium of exchanges (as averse to crazy speculations and price bubbles) are concerned."

Great, lets do it. What IRC network and channel do you want it to use, or do you propose leaving out the IRC method in this new better currency?

How much better, in dollars cents or bitcoins, is this new currency, exactly, to you personally, as in how many dollars cents or bitcoins are you willing to buy how many coins of it for? There are quite a few blockchains already up and running any one of which might be more amenable than this crowd to simply eliminating the ever-less-minted "feature" from their code, so how many you want to buy will help determine which will be eligible (as in having already minted sufficient coins to satisfy your initial demand for such coins) and how much you want to pay per coin can then serve to eliminate those that consider your offer too low to be worth bothering with...

...Or, looking at it another way, once I know the price per coin you are willing to pay, for how many of these better coins, I will have the info needed to select among the various blockchains already implementing your idea or amenable to implementing it those closest to fulfilling your order...

-MarkM-