Topic: The deflationary problem - page 16. (Read 32501 times)

Your assumption that bitcoin derives it's value solely from security is false.  A large part is the security, yes, but it also derives from:

Convenience.  It's DAMN easy to send someone a bitcoin.
Intrigue. The concept is really clever.
Freedom to property.
Cost. It's a LOT cheaper to send someone internationally 1btc than it is 20 dollars.

If the hash rate decreases (or stagnates), that does not guarantee that someone will be able to overwhelm the network instantaneously.  They still have to ACQUIRE a substantial majority of the networking power.  At the CURRENT volume of miners, that's more than the top 500 supercomputers combined.  In a stable, vast reaching economy, "competition" (I use the word here for lack of a better term, not to imply that block solutions is a race) for the block solutions would be extremely high, and thus there would be several hundred times more computing power devoted to bitcoin.

Transaction fees will more than cover the costs of incentivizing miners, as I outlined above.  What you seem to think is that the value of bitcoins at this point will be extremely fluid:  A TINY decrease in security will cause mass panic and devalue the currency, causing a cascade.   Bitcoins will become stickier than that.  In the same way that you cannot notice a 100w lightbulb among 100 other 100w lightbulb, there's a certain point at which the fluctuation of security in the system is undetectable.  The value of bitcoins will stabilize.  The value of a dollar is not subject to stock-like panic swings, and in the presence of a rich economy, neither will bitcoins.

Similarly, the security of the system as a whole is subject to the same sensory threshold phenomenon.  The difference in security between 100THash/s and 99THash/s is not equivalent to the difference in security from 2THash/s to 1THash/s.  Just because it drops by 1 THash/s in the future doesn't mean it will have the same risks assosciated with dropping by 1THash/s today.

Finally, someone with substantial control of the computational power of the network has only limited attack vectors on the system.  He can claim he did not spend money which he did for limited amounts of time.  The longer in the past he wants to rewrite this "history", the harder it takes, and he can never say that you gave him coins that you did not.  The likely payoff for this in regards to the amount of computing power it would take to compromise a vast system that satoshi envisioned as a stable, worldwide economy would arguably not be worth it.  Seemingly against intuition, and in one of the most beautiful aspects of the bitcoin system, when dealing with the types of resources required to complete these attacks, it's likely more profitable to be honest than it is to be malicious.


No, the difficulty would also adjust down.  It's adjusted such that a block is generated roughly every 10 6 10 minutes, ad infinitum. (Woops! hehe) (Woops again!  That's what I get for trusting other people, eh? )

The exchange price is entirely determined by what people are willing to pay at a given moment and nothing else.

ki....

No hostility here ...just confusion!!

I might have it wrong ....but the way i understand the machinations of the Bitcoin algorithm, is that the difficulty ( to solve a block ...producing 50 bit coins)  increases periodically.
 
The points at which this will occur can be calculated roughly .. These thresholds are affected  ( to a certain degree )by the number of people who are (or have been...past tense) mining ...or the 'Hash rate'  of the network computing power combined.

The higher the hash rate the ...faster the network approaches  a " difficulty increase" threshold.
 
I think where your argument comes unstuck is in the assumption that difficulty will decrease if hash rate decrease. and as i understand it ...It doesn't

Lets say everyone stops mining simultaneously ...thus reducing the overall "hash" rate of the network to 0 ...the difficulty to "solve a block" ...won't reduce. It will remain static at that point .

If one person re- starts mining the hash rate would be equal to whatever the hash rate of his personal setup was able to achieve....but the difficulty to solve a block would be that same as it was when thousands of people were mining .The difficulty is the same for everyone. It will only increase .It does not decrease.

So I fail to understand how the network security is then  compromised because less people are utilizing it

Maybe i've missed something and you can set me straight ...If so please feel free to explain it to me  

He exchange price is independent of security of the network?

Are you joking?  I hope so.

https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power

tl;dr It's not a big problem. If someone tried to fuck around with the block chain, others would join in to stop it from happening.

You have your cause and effect backwards.  Difficulty follows price, and averages a six week lag.  So the difficulty that would match the current rally won't show up for about six weeks.  The exchange price of a bitcoin is independent of the security level of the blockchain, but the security level (difficulty) is dependent upon the value.

No that's not true.  The claim that if it becomes unprofitable mining will decrease, miners will stop, and it will become profitable again.  That's ok.  It doesn't matter.

The security of the network is determined by hash.  A decrease in mining is a decrease in hash which is a decrease in security.  If hash declines the value of bitcoins will decline.  The hash determined the value of the bitcoin, nothing else.  The hash gives the bitcoin security.

Once hash decreases value decreases.  The hash has to keep growing for value to increase.

Transaction fees today are admittedly low enough to not support mining. However, if Bitcoin is still operational in 2040 (and is not proven inherently insecure), it will by then very likely be a very heavily used currency, to the point where the current volume of transaction fees will solely support mining. Some conservative predictions (if you think these are optimistic, consider the growth of the internet in the last ten years):

• Transaction volume will rise 10,000-fold
• Value will rise to $1000 due to: deflation, expanding user base, and decreasing production rate

Finally, here's the genius of the difficulty adjustments: if mining ever becomes too expensive or not profitable enough, people stop mining until the difficulty decreases enough so that it is profitable to mine again. The only reason this wouldn't work so well today is that transaction fees are not steady; there are many blocks without fees or even transactions. If the 50 BTC bounty disappeared tomorrow, many miners would stop mining and the difficulty would decrease until the few bitcents per block of transaction fees were profitable enough to mine for. Simultaneously, users would be forced to send larger transaction fees to have their transactions processed promptly. All of this serves to stabilize the block production rate.

Edit: Quantumplation covered half of my points...

Make it. It isn't Bitcoin it's something else, something I think will fail. Seriously 99.999% of the work to make it is done, yet it isn't happening. This is because it is a crap money.

So much ad hominem it hurts.

Listen, the hashing rate doesn't need to INCREASE to maintain security.  If the hash rate remains constant, the security of the network remains constant.

For the past several months (probably more like the entirety of the project), the reward for mining has been decreasing substantially, due to the difficulty rate increasing.  Higher difficulty, less payout for miners.  This hasn't created a "catastrophe", or you wouldn't be posting on this forum.  In a stable bitcoin economy, the transaction fees for block generation will far outweigh the amount generated by block creation:  100,000 transactions in 10 minutes would mean 500 bitcoins at the new, reduced transaction fee.  And 100,000 is roughly the number of credit card transactions per minute... JUST in the US.  The system was designed to be a _lasting_, _stable_ economy, and has made assumptions as such.  Bitcoin will never reach it's true potential until it becomes one, and that's the goal of the project, so why design it otherwise?

Inflation, on the other hand, is a very real problem, and has caused the outright destruction and mayhem of many massive economies (Germany, Russia, and I'm sure other forum members can provide other examples.)  If bitcoin was not designed to avoid these catastrophes, what would the point of it all be?

I'm not impressed with his track record.  If there were a way to short Harold Camping's predictions, I'd do that.

i think sweft needs to dev his own ecurrency software however he wants.  let him see how his ideas actually pan out in an open market and the real world before he calls out the devs of bitcoin because they didnt do something right.  well it sure appears they are doin somethin right as we speak cause the price of bitcoin is soaring.

sweft, go get an education.

nazgulnarsil was just trolling me.  Sweft was getting upset and using strings of letters in conjunction that some would find offensive, although the majority here would likely have just found his attitude hilarious.

Not again

This entire thread is completely irrelevant. Harold Camping says the world is going to end in october.

nazgulnarsil and Sweft,  you create to-many lulz

lulzzz of making yourselves look like complete retards on the internet.

Edit:  tl;dr
nazgulnarsil, Sweft -1 reputation

go [censored] yourself.

There, I fixed it.

-creighto

also on the point of tx fees. if the nethash decreases when the block reward is reduced that implies that it will take longer then the intended average of 10 minutes between blocks being discovered. transactions will take longer, and there will be a build up of unconfirmed transactions. people who desire a speedy processing of their transactions will be incentivised to pay a tx fee which will help make up for the reduction in the block reward.

this has been discussed before. there was a good thread on why it may have been better to have a continually decreasing block reward rather than a halving every 210000 blocks.

I am discussing the future too.. and I gave you best guess estimation of effect of the block reward being reduced from 0.1 to 0 BTC.

Suggestion: check how block reward is reduced so that it asymptotically approach 0 over time. Than maybe post something along the lines of  "Before thinking that I am smarter than 10 000 smartest people on the planet I will do more research next time".