Topic: Why was bitcoin designed with no inflation? - page 2. (Read 4112 times)
Bitcoin was designed with no inflation because that's a economically wise decision.
Once i get enough BTC or a steady source of income (bigger than just the natural valuation(sp?) of Bitcoin), i'll start spending my BTC; right now i don't got enough of either, if i start spending my coins more than the sporadic donations here and there i'll run out of coins too quickly. On the other hand, if BTC was getting less and less valuable i would be in a hurry to unload mine and be hesitant to acquire more later on. With Bitcoin increasing value over time, it makes it a good investiment, if it was loosing value people wouldn't wanna buy it in the first place.
I read someone explaining here in the forum the other day that there is two types of things that are called inflation/deflation, i forgot the details, but basicly you only say Bitcoin is going one way and eventually will tip the other way if you mix the two things together; I think it was the total number of bitcoins avaiable versus the value of individual bitcoins when compared to other currencies (i could be remembering it a tad inaccuratly though)
I read someone explaining here in the forum the other day that there is two types of things that are called inflation/deflation, i forgot the details, but basicly you only say Bitcoin is going one way and eventually will tip the other way if you mix the two things together; I think it was the total number of bitcoins avaiable versus the value of individual bitcoins when compared to other currencies (i could be remembering it a tad inaccuratly though)
Bitoin IS inflationary...until new blocks no longer reward miners. Then it is mildly deflationary, the only reduction in bitcoins will happen when coins are permanently lost (a wallet is corrupted or misplaced).
So Bitcoin is both inflationary (in stage 1) and then slightly deflationary (in stage 2).
So Bitcoin is both inflationary (in stage 1) and then slightly deflationary (in stage 2).
I think the bitcoin system required somewhat of a deflationary system to get established. Imagine if bitcoins were inflationary, why would you switch to it? There's already a ton of inflationary currencies out there, and chances are you wouldn't trust an online one.
The deflationary system is what makes bitcoins valuable.
The deflationary system is what makes bitcoins valuable.
Was it not for real altruistic reasons?
Inflation is not good for anyone except holders of debt. In fact, inflation and deflation are both bad. Better to have a currency immune to all of those things. It also enhances its value as a safe haven.
Inflation is not good for anyone except holders of debt. In fact, inflation and deflation are both bad. Better to have a currency immune to all of those things. It also enhances its value as a safe haven.
Inflation is good for holders of debt, but it also tends to (in small amounts), help make sure that the economy is vibrant - since if the money you hold today will be worth less in time, there's an incentive to spend it. Deflation give the reverse incentive.
Now whether either of these situations is better is a different question - and my guess is that Satoshi feels that the problems with inflation are greater than those with deflation, and that's why it's that way. It's a philosophical decision - that's all.
Was it not for real altruistic reasons?
Inflation is not good for anyone except holders of debt. In fact, inflation and deflation are both bad. Better to have a currency immune to all of those things. It also enhances its value as a safe haven.
Inflation is not good for anyone except holders of debt. In fact, inflation and deflation are both bad. Better to have a currency immune to all of those things. It also enhances its value as a safe haven.
Why make somthing that looses value over time when you can make somthing that becomes more valuable over time?
I joined much later than i wish i had, yet i'm ecstatic watching the few coins i got earning me money just by sitting there. I hold no hard feelings towards the people that got in before me, i'm happy for them, but i guess i'm significantly less selfish than your average guy (or at least try to be). I don't get envious of people that have things better than me, i mean, not in the bad sense; i would like to be as lucky, sure, but i wouldn't dare want to rob them of their happiness to have my own, nor do i wish they hadn't been as lucky.
I joined much later than i wish i had, yet i'm ecstatic watching the few coins i got earning me money just by sitting there. I hold no hard feelings towards the people that got in before me, i'm happy for them, but i guess i'm significantly less selfish than your average guy (or at least try to be). I don't get envious of people that have things better than me, i mean, not in the bad sense; i would like to be as lucky, sure, but i wouldn't dare want to rob them of their happiness to have my own, nor do i wish they hadn't been as lucky.
There are no guarantees that bitcoin will hold its present value or even increase over time.
What the op wrote makes a lot of sense. I also think the coins given out for the early adopters were too much too fast, and now its very difficult with only 1/3 of the total coins mined.
There should have been a slower coin distribution and a larger supply of coins, then the growth and value would have been slow and steady, not this huge peaks and valley like we have been seeing. This methodology still benefits early adopters since they will have more coins, but it also allows late miners into the game. Considering the technology is P2P, more miners=more computation power, which is better for the community as a whole.
Why make somthing that looses value over time when you can make somthing that becomes more valuable over time?
I joined much later than i wish i had, yet i'm ecstatic watching the few coins i got earning me money just by sitting there. I hold no hard feelings towards the people that got in before me, i'm happy for them, but i guess i'm significantly less selfish than your average guy (or at least try to be). I don't get envious of people that have things better than me, i mean, not in the bad sense; i would like to be as lucky, sure, but i wouldn't dare want to rob them of their happiness to have my own, nor do i wish they hadn't been as lucky.
I joined much later than i wish i had, yet i'm ecstatic watching the few coins i got earning me money just by sitting there. I hold no hard feelings towards the people that got in before me, i'm happy for them, but i guess i'm significantly less selfish than your average guy (or at least try to be). I don't get envious of people that have things better than me, i mean, not in the bad sense; i would like to be as lucky, sure, but i wouldn't dare want to rob them of their happiness to have my own, nor do i wish they hadn't been as lucky.
Just curious about the reason that bitcoin was designed without inflation.
Given that blocks are produced on a regular schedule it should have been easy to put a fixed inflation rate into bitcoin, by simply building a payout schedule that didn't reduce to 0 but instead reduced at a rate that matched the total number of bitcoins that would have been produced by that point. I'm not going to do the math right now but it seems like it should have been possible. Probably something like payout(block N) = sum(payout(block 0), payout(block 1) ... payout(block(N - 1)) * (0.02 / (365 * 24 * 6)), the idea being to make each block's payout be an amount that would be 10 minutes' worth of 2% yearly inflation of the entire existing bitcoin supply.
So why wasn't this done?
I have a theory: because it would not enrich the creator and very early adopters as well as the defined schedule does. The first year+ of bitcoin's existence was simply early adopters minting themselves bitcoins. Look at the block chain, it's obvious; real-looking transactions didn't become common until 4 months ago or so.
With the existing bitcoin creation schedule, a significant fraction of the entire bitcoin supply that will ever exist was already allocated to the early adopters, and in only a year's time. If bitcoin really takes off, these early adopters will control a significant fraction of the total market, and can sit on their share indefinitely without any inflation rate urging them to put their bitcoins back into the system. With inflation they'd have to choose smart ways to re-circulate their bitcoins to maximize their value, which would be beneficial to everyone (the coins would circulate, spreading wealth around). Without inflation, they can simply sit on bitcoins forever without any impetus to spend them other than picking the best moment to cash out a bit for their new yacht or whatever. These holders of huge quantities of bitcoins would simply be lords of the market, able to dip in whenever they feel like it to extract value out, without the requirement of circulating their coins to maintain value as would be the case if there were inflation.
So why wasn't bitcoin set up with a fixed, definite, constant, and knowable inflation? Is there a good reason other than maximally enriching early adopters?
I really like the concept of bitcoin and when I read the white paper and supporting documentation on the bitcoin wiki I was just blown away by the genius of it all. I bought 3 bitcoins for ~$100 on eBay not to speculate but just because I am excited to be a part of it and I felt that this amount of money was not unreasonable to spend to test out the software and see how it works, and to have the satisfaction of seeing some bitcoins in my wallet. But since thinking about bitcoin more, I feel like I am participating in a system that unfairly rewards the early adopters (nobody getting in now is an early adopter, early adopters were those who could mine bitcoins easily a year ago, or could buy hundreds for the dollar). Early adopters should get a significant reward, no doubt, but - 20% of the total value of the system for under a year's work? That seems ridiculously excessive to me. And the fact that inflation is not built into bitcoin just smells to me like a way to ensure that these early adopters stay rich no matter what they do.
This factor is reducing my interest in bitcoin. I actually think that bitcoin has a significant technical limitation - one that has been pointed out numerous times in the past - of a lack of scalability in its current form; every client cannot be expected to download hundreds of megabytes (or by years' end, likely close to a gigabyte) of data just to participate. So I have written up a proposal for extending the bitcoin protocol to support a different mode of block distribution that I think should solve this problem. But I am starting to feel hesitant to continue to participate because the upside for me is so miniscule compared to the upside for the very early adopters. I feel like it's a system in which I personally have already been set up to lose because of the lack of inflation built into bitcoin and the fact that early adopters were given such a huge piece of the pie already.
Given that blocks are produced on a regular schedule it should have been easy to put a fixed inflation rate into bitcoin, by simply building a payout schedule that didn't reduce to 0 but instead reduced at a rate that matched the total number of bitcoins that would have been produced by that point. I'm not going to do the math right now but it seems like it should have been possible. Probably something like payout(block N) = sum(payout(block 0), payout(block 1) ... payout(block(N - 1)) * (0.02 / (365 * 24 * 6)), the idea being to make each block's payout be an amount that would be 10 minutes' worth of 2% yearly inflation of the entire existing bitcoin supply.
So why wasn't this done?
I have a theory: because it would not enrich the creator and very early adopters as well as the defined schedule does. The first year+ of bitcoin's existence was simply early adopters minting themselves bitcoins. Look at the block chain, it's obvious; real-looking transactions didn't become common until 4 months ago or so.
With the existing bitcoin creation schedule, a significant fraction of the entire bitcoin supply that will ever exist was already allocated to the early adopters, and in only a year's time. If bitcoin really takes off, these early adopters will control a significant fraction of the total market, and can sit on their share indefinitely without any inflation rate urging them to put their bitcoins back into the system. With inflation they'd have to choose smart ways to re-circulate their bitcoins to maximize their value, which would be beneficial to everyone (the coins would circulate, spreading wealth around). Without inflation, they can simply sit on bitcoins forever without any impetus to spend them other than picking the best moment to cash out a bit for their new yacht or whatever. These holders of huge quantities of bitcoins would simply be lords of the market, able to dip in whenever they feel like it to extract value out, without the requirement of circulating their coins to maintain value as would be the case if there were inflation.
So why wasn't bitcoin set up with a fixed, definite, constant, and knowable inflation? Is there a good reason other than maximally enriching early adopters?
I really like the concept of bitcoin and when I read the white paper and supporting documentation on the bitcoin wiki I was just blown away by the genius of it all. I bought 3 bitcoins for ~$100 on eBay not to speculate but just because I am excited to be a part of it and I felt that this amount of money was not unreasonable to spend to test out the software and see how it works, and to have the satisfaction of seeing some bitcoins in my wallet. But since thinking about bitcoin more, I feel like I am participating in a system that unfairly rewards the early adopters (nobody getting in now is an early adopter, early adopters were those who could mine bitcoins easily a year ago, or could buy hundreds for the dollar). Early adopters should get a significant reward, no doubt, but - 20% of the total value of the system for under a year's work? That seems ridiculously excessive to me. And the fact that inflation is not built into bitcoin just smells to me like a way to ensure that these early adopters stay rich no matter what they do.
This factor is reducing my interest in bitcoin. I actually think that bitcoin has a significant technical limitation - one that has been pointed out numerous times in the past - of a lack of scalability in its current form; every client cannot be expected to download hundreds of megabytes (or by years' end, likely close to a gigabyte) of data just to participate. So I have written up a proposal for extending the bitcoin protocol to support a different mode of block distribution that I think should solve this problem. But I am starting to feel hesitant to continue to participate because the upside for me is so miniscule compared to the upside for the very early adopters. I feel like it's a system in which I personally have already been set up to lose because of the lack of inflation built into bitcoin and the fact that early adopters were given such a huge piece of the pie already.
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