Topic: What will happen with Bitcoin if it never scales? - page 16. (Read 11417 times)

This is not neo-Keynesian at all, it is rather neo-classical, in Friedman's tradition.  Keynesians want to influence economic activity with monetary policy ; Friedman considers just the monetary value stability.  Keynesians think that one should print more money if the economy depresses, and that one should restrict monetary supply if the economy booms.  Friedman's monetary view is rather that the monetary supply should keep money's value as constant as possible:

https://en.wikipedia.org/wiki/Monetarism


You can hardly think of Friedman as a neo-Keynesian.

One should regulate the money supply so as to keep as stable a monetary value as possible, in the sense of Nash's ideal money.

https://en.wikipedia.org/wiki/Ideal_money


Nash proposes something of the kind in principle as the Big Mac index, but smarter.  The idea is to have *constant economic value* of the money unit even though that notion itself is difficult to define precisely.


He considered the Euro as a good candidate for asymptotically ideal money, exactly because the European central bank has only a single objective: inflation of 2%, and no neo-Keynesian targets to meet.


That is true, but velocity is something that is hard to control, is a function of people's habits, mood and so on, and is especially a function of the perception of whether an asset is speculative or not.  When you look at monetary velocity, it is not something that has uniform behaviour, and remains grossly within some boundaries.  You cannot "regulate" velocity.  You cannot make people spend faster or hoard more.  In fact, velocity is at the origin of two instabilities: the deflationary spiral, and hyper inflation.   The deflationary spiral happens when people speculate on the strongly rising value of a monetary asset: they hoard it more and more, lowering as such, the velocity, and hence increasing even more the market value of those few coins on the market, confirming the speculation of rise.  This is bitcoin's behaviour.  
On the other hand, hyper inflation is when people speculate on a strongly falling value of a monetary asset: they try to get rid of it as quickly as possible, increasing as such the velocity to very high values, and hence, decreasing even more the market value of the mass of coins chasing goods in the market, confirming the speculation of drop.  This is what has happened to some famous hyper inflations like the Reichsmark.

The knowledge of a stabilizing mechanism avoids both instabilities, but one doesn't have any handle on people's spending decisions which determine velocity ; as such, the only thing one has a handle on, is the coin emission.


But then it is not in a state to become a currency !  If the argument against why it is not behaving like a currency, is: "because it is not a currency yet", then that's not very convincing as an argument of why it is a good currency, no ?  In fact, the deflationary spiral is even worse for a non-essential asset, because in as much as the deflationary spiral of the principal currency is tempered because after all, you HAVE TO BUY FOOD, here, nothing stops one from hoarding all of bitcoin, because you don't have to spend it to get food.


Apart from ransomware and dark markets, I wonder what ?


You mean that someone was offering an exclusive bitcoin tooth brush for 0.1 BTC 2 years ago when it was around $200,- (so a brush for $20,-), that same tooth brush will still be sold for 0.1 BTC ($180.- right now) ?  I would hurry cashing out my BTC into fiat and buy 9 toothbrush in the supermarket with it, no ?


Absolutely.  I don't claim that "bitcoin is dead".  It has a bright future !  I think it will go sky high - but in the same way that complex derivatives could go sky high.  Bitcoin is a hugely speculative asset, it is BY FAR its principal usage.  Look at this forum.  Look at what people say about it.  Look at the volumes.  This is all speculation.  But speculation is a HUGE market.  Hell, it is MUCH MUCH bigger than the fiat market.  The whole financial world is the market.  Not the "payments" application of fiat.  It is a market that is about 10 times the world's economy all by itself.  This is the true nature of bitcoin and most crypto.  It is purely speculative, and once big finance will get into it, it will be HUGE.  But entirely speculative and if it is well done, totally unpredictable (efficient market hypothesis).  

In fact, I think crypto finally invented, what the financial world has been looking for: abstract speculative tokens.  No more need to speculate on derivatives linked in the real economy, like oil, real estate, food, metals, technology or whatever: just abstract tokens to gamble on.

That's not what one pretended, but that's how it was designed.


I think that this is again this fallacy of taking a desirable objective as an actual consequence.  It is not because "bitcoin would crash if there wasn't any merchant usage" that "merchant usage will emerge".  But moreover, I don't think that it is true, that bitcoin has what so ever to do with merchant usage.  Merchant usage was a story told in the beginning, to kickstart it, and there IS some marginal merchant usage, but it is not what bitcoin is about, nor what sets its price.  Pure speculation is.  And I think it has a monstrously bright future in that.

Sounds like a fair summary of current mainstream neo-Keynesian monetary policy. I just wanted to point out to you that this system is by no means normal, stable, or rational, and it has no successful historical precedent. It's just been "the system" for the past 40+ years in G8 countries.


Aren't you forgetting that inflation also arises from increased monetary velocity, not just increased supply? So the increased nominal exchange value is not necessarily "catastrophic deflation" at all. As you point out, in a classic deflationary event, the velocity of money spirals downward as the currency becomes more valuable - it's smarter to hold money than buy goods and services. This doesn't effect bitcoin for several reaons: 1. bitcoin not a primary unit of account, and 2. it isn't required to purchase vital goods and services. Furthermore, there is an increasing number of goods and services that can ONLY be purchased using bitcoin. People who aren't taking fiat profits on exchanges are likely buying more of these "exclusive" goods and services as we speak - if they're smart, they know that the price/fiat exchange rate will correct soon anyway. Remember that people buying into the bitcoin currency to acquire goods and services don't care what the fiat exchange rate is - they simply buy the coin and get the product at roughly the same exchange rate (or better if they bought in January). Additionally, remember that bitcoin is a financial asset class of its own, which continues to find new market share and investment. Finally, I doubt that a complete stagnantion of BTC trade and exchange voume would happen on the bitcoin network - most people know that this would kill bitcoin and a devaluation would be close at hand.


I don't think people are really writing up labor contracts for BTC. Just about every store I've seen uses national currencies for pricing and the BTC price is determined by daily exchange rates. There's no real problem with that other than wild fluctuations before exchange. Somebody from Coinbase said in an interview that their large merchants exchange their BTC for fiat once per day day or more. That insulates the merchant from large losses (but also large gains).

If bitcoin never scales, this will cause bitcoin to lose people's interest. It cannot be used for small transactions and other micro transactions.

One should distinguish between inflation/deflation (= the change in real world value of a token) on one hand, and debasement (= creating monetary tokens) on the other hand.

In general, a good currency has only very mild inflation or deflation, and what's more important, this mild inflation or deflation is *predictable*.  This makes that the currency is a good representation of value as a function of time, and hence a good "unit of account".   Whether the deflation or inflation is 2% or 3% ... doesn't really matter.  If you KNOW that on average, a currency has an inflation rate of 2%, say, you KNOW that 10 years from now, a given sum represents 20% less value than that same sum today, so you can take this into account in every long term agreement.  If you know that the currency is mildly deflationary, you know that a given sum will represent about 20% more than today, so that too, you can take it into account.
As such, mild inflation or deflation, for a currency, doesn't matter much, as long as it is predictable.

But in order for a currency to keep its inflation or deflation rate close to the "programmed" one, the currency OFFER needs to adapt as a function of its value.  If the currency is too expensive (that is, if the deflation is too severe), more currency needs to be put on the market.  If the currency becomes too cheap, (that is, inflation is too severe), currency needs to be taken out of the market.

A currency with a given production rate, worse, a currency with a decreasing production rate, and an increasing adoption, will be explosively deflationary.  That's exactly what we saw with bitcoin.  Everyone is cheering that bitcoin went up from $0.1 to $1700 or so in about 6 years, but that is a catastrophic deflation.  

Imagine that 6 years ago, you signed a contract with me that I would clean your room for 100 BTC (say, $10) per day, with an indemnity of breach of contract of 5000 BTC (say, $500) if you decide to stop the contract without me failing to clean your room.  Then I'm rich now, and you will be working the rest of your life to pay off the contract !
You cannot do business in such a "currency".  

If that currency would become in general usage, then the economy would fall in a deflationary spiral: as hoarding currency instead of spending it would lead to higher wealth, and as the increase in value of the hoarded currency would outpace any reasonable true economic return on investment (look at bitcoin: what real world economic investments allow a factor of 10000 ROI in 7 years !), nobody would spend, nobody would invest, and everyone would hoard more and more currency, having less and less currency running around, increasing even more the value of the few coins that are available and not hoarded yet, inspiring people to hoard even more.

Wait a minute - the main reason that Bitcoin core does not want to increase the blocksize is to force people onto Segwit and over to LN and their other patented solutions. They've stated this publically.  Also, why would bitcoin Core care about fees? Miners will secure the network for meager fees.

Your claims about money supply are interesting. Is it possible that your views about current inflationary economics cause you to regard such systems as normal and stable?

to me, it will be difficult for Bitcoin to be used for micro transaction as a normal form for transaction in the market and as the top in all crypto-sites, it wont  and can't be underrated because of its high price in the market system.
In years coming the price of Bitcoin will still be increasing, other coins will increase but can't beat the price of Bitcoin in the market.

I 100% agree with you.

In any case, this "limited number of coins" is more a religious thing than anything else, to boost speculation.  A good currency has a mechanism built into it to regulate the value of the coin so that you don't have to check every day whether the sum that was going to buy you a car yesterday, is going to buy you a burger, or a house, tomorrow.

The problem with PoW is that even though it is not a bad idea to burn seigniorage, it is an awful idea as "cryptographic protection".  One should have distinguished PoW for coin creation, and another cryptographic mechanism to decide upon the consensus, and eventually yet another mechanism to secure the consensus (immutability).

In fact, we can see the whole of crypto as a very interesting experiment on how some naive ideas lead to the consequences that have been predicted in some cases (like the deflationary spiral).

That will not work. The main reason that Bitcoin core does not want to increase the blocksize is that they want to force the "fee market" that is supposed to replace block rewards as the means of securing the Bitcoin network, while there is still enough of a block reward left to secure the Bitcoin network.

My take is that any proof of work coin that has a fixed maximum number of coins, with the exception of demurrage see edit 2, will not be able to scale unless it gives up de-centralization.  In the top 10 coins  Monero is the only proof of work coin that has given up on the maximum number of coins in exchange for a 0.6 XMR minimum per block reward in perpetuity. It is this minimum block reward that has allowed Monero to have an adaptive blocksize limit and thereby scale on the main chain without have to be concerned about the need for a "fee market" to replace block rewards.

I have not included Ethereum since it is planning to move away from proof of work to proof of authority or proof of stake. Interestingly Ethereum Classic moved away from a minimum block reward to a fixed maximum number of coins when the Ethereum Classic community decided to stay with proof of work. In my opinion this was a terrible mistake.

Having worked closely with the Monero adaptive blocksize, it has become very clear to me that without a minimum block reward the Cryptonote adaptive blocksize limit will cause the total fees per block to go to zero at the same rate as the block reward. This will lead to no incentive for the miners to secure the Monero network. By analyzing the Monero adaptive blocksize and fee structure one can see why "solutions" such as Bitcoin unlimited will fail, since these type of solutions are in effect a much weaker version of what Monero already has. In the Bitcoin unlimited model for example net fees to the miner will fall to zero much faster than with a Cryptonote style quadratic penalty

Edit 1: Litecoin and Dash have fundamentally the same flaw as Bitcoin. In the case of Dash the situation is made even worse since the falling block reward not only has to support the miners but also the masternode network and project funding.

Edit 2: Demurrage as in Freicoin could be used to create a permanent block reward while maintaining a fixed number of coins.  

It is possible other cryptocurrencies might want to take the lead. The thing is the fact that bitcoin got accepted today massively is as a result of the huge increase in value over time. Personally, I believe storing it for a long time would definitely make me a bigger boy later. A time will definitely come when we will stop seeing bitcoin as an asset instead of a means of transaction.
Nevertheless, the ease of transaction too is something but if another crypto currency decides to offer something better, people may want to give it a chance but I don't think that will stop bitcoin from still operating.

I express my strong disagreement with this attitude

It seems to be a case where you are rationalizing in hindsight the Bitcoin failure as a genuine currency ("not meant to get transferred every second"). As to me, this is sheer nonsense (or just a dumb rationalization if you please). Bitcoin specifically was meant to be a currency (as per Satoshi), and the fact that you pay a hefty fee to transact with it nowadays confirms just that, i.e. that something is wrong with Bitcoin in respect to its transaction fees (technically, with Bitcoin mining, which is the case). It is not a collector's item by any means since its role is purely utilitarian (i.e. it is only a tool such as, for example, a sledgehammer or screwdriver)

Bitcoin is just a Digital Asset that most people that use it have no idea of what Bitcoin actually is. Bitcoin is not meant to get transferred every second of the hour because it has a transaction fee.

Bitcoin is a collector's item and once people begin to just figure that out then the price of Bitcoin would go up, it does not matter if there's people trying to build a larger Blocksize for Bitcoin because less people would spend it on junk.

Completely agree with you, mate. It's now the time where cryptocurrencies are proving their real use case in the real world. While the ever-increasing userbase in Bitcoin is inevitable, there should an emergent consensus to help Bitcoin scale before its too late.

If the scalability debate remains without any consensus from the miners and community as a whole, another altcoin will take the lead. So as you said earlier, it would be somewhat similar to MySpace vs Facebook where the latter has taken over as the top social network. Only time will tell if the same happens with BTC or not. Just my opinion.   

You can say that I like to poke a stick in their ego

If you don't like that (which is understandable), don't show it up. Regarding the bullshit you wrote after that, you are not the first who writes this stuff. In fact, everyone claims exactly that, but there is no use trying to deceive me (or anyone else, for the record) into thinking that you are really into something you pretend to be. I have seen it many times, and I have been there myself, though I was more sincere and honest and never claimed that trash ("I want to test my own ideas and see what reactions they bring"). If you were really looking for that, there are ways which are much more effective and efficient as well as places much more productive and fertile in this regard. But you will be quickly shut down there by the dudes who are genuinely above you (and which don't want to show off at that)

And you like replying to people that are only here to rub their ego

No, really, I'm only here to provoke answers from which I can learn something.  I don't care at all what others might get out of what I'm posting.  I want to test my own ideas and see what reactions they bring, because these reactions may tell me something about my ideas, which is what matters for me.  No, I don't want to help anyone, no I don't want to impress (how can an anonymous pseudo on a forum "impress" what so ever ?), no I don't want to teach anything to anyone.  But sometimes, this can be a side effect of me trying out my ideas.  I couldn't care less about what others gain or what others think of a pseudo on a forum, not knowing who I am for real.

Take a step back, and think of what we are doing here.  We are just writing stuff on a forum, and we are anonymous to one another.  What counts is what is written, not the identifier under which it is written, which only serves to link posts together in order to understand lines of reasoning.  We could just as well all use "anonymous" as identifier ; it would simply be somewhat harder to have exchanges of arguments because one would have to quote all the elements to which one is replying.

Maybe I should abandon my pseudo here and create a new one, so that no "personality" is linked to it.

You are one of these people that cannot distinguish an argument from its author.  That's not a way of having logical arguments.  It is quite useless as a pass-time, especially if the author is a pseudonymous identifier on a forum.  You could just as well argue with a bitcoin address about its personality traits.

i think bitcoin is the face of digital currency. when you meet someone and you want to tell them about digital currency you must first mention bitcoin. you cannot mention all coins, but atleast the history will be traced to bitcoin. so even if it never scales it will be a great store of value, people will buy it then exchange it with other crypto particularly ethereum or dash that is if they want a faster transaction. But i dont see bitcoin ever dieing,

Isn't this equally applicable to you?

In other words, don't tell me what I should not tell you, okay? In fact, by telling this you have just revealed what is behind your posting here (you can think that I was specifically interested in revealing that, apart from a host of other reasons). You are here to boost and rub your ego, now that's as clear as day. Obviously, you aren't interested in actually explaining things to other people (unlike me), you are here to make an impression on them. You want to shine but you don't care to shed light on anything. That's why you feel so hurt and pissed off when someone pokes (a shit end of) a stick in your inflated ego

Point is, apart from some *technical* tests, the geeky fun of it, and the buzz for a while, I don't see why anyone would use it on litecoin, as long as normal transactions on LTC work very well (and LTC has 4 times more room than bitcoin, and is much less used right now).
Why would one lock one-self in with "a guy on the internet", if one can send the transaction directly to destiny ?
Because if the "guy on the internet" decides to settle, your funds are locked for a certain time in any case.  If the "guy on the internet" decides not to transmit your LN transaction (because his PC is down), you cannot use your funds for a certain time either.  Why go through all these inconveniences when you can send your transaction directly ?
(apart for the geeky fun ?)

You should stop telling people what they should do.  Like it, or don't like it.  Answer, or don't answer.  Read, or don't read.
As I told you, writing concise, well-worked texts is much more work than I'm willing to spend here.

Bingo. You just described Blockstream's $75 million business plan: Restricting the bitcoin blocksize artficially and then scaring people about quadratic hashing and capacity ceilings being reached. It should've convinced people that LN is inevitable. Unfortunately there has been a hitch: people aren't drinking the Segwit Koolaid, so Blockstream can't move forward with LN over BTC as only a settlement layer. Since there is no opinion leader other than Greg Maxwell (a bit of a troll for a CTO), they really aren't able to lead more than the "tech-lemmings" to LN.

Also, there is the slight problem that a functioning LN doesn't exist yet. I'm happy to try it if it works over Litecoin. A perfect little sandbox. They just activated a few hours ago...

I don't really know

I don't really know whether you are deliberately confusing different notions you refer to here or due to the lack of proper understanding of the differences between them. Basically, you are trying to sell the idea of should (in the sense of having to do something in the prescribed way only) for the idea of may (when you would be better off if you do something this way). In other words, with LN you may still transact in the old way if you choose so but you might not want to transact that way. This distinction is important in questions of trust. In the first case (when you have no choice), the trust goes out the window, while in the second it remains. Obviously, LN is about the second option


You should keep your posts as short, simple and comprehensible as this one. You would fare a lot better here (otherwise, I see no reason in your posting across the forum)