Quote from: robm on May 05, 2011, 09:35:44 PM

But over the long run, print more and your currency will get dumped as people switch into (and bid up) others.

Yes. If someone could print more Bitcoins, Bitcoins would lose value and be "dumped". But your point was that "The supply of alternative, competing cryptocurrencies is unlimited. Very bad."

Your argument appears to me that infinite competition with an unlimited number of currencies will water down Bitcoin. But as my example illustrates, the supply of other unused cryptocurrencies has no effect on Bitcoin. Only usage of other currencies affects it. And usage is decidedly limited - neither unlimited nor infinite. Usage does not appear in a vacuum, it only comes about due to a new currency being better in some circumstances. And the amount of 'betterness' available to exploit for new currencies is, again, anything but unlimited.

Like eMansipater said, "Why weren't there many competing shell currencies in 19th century Africa?"

Quote from: robm on May 05, 2011, 09:35:44 PM

Think of money like water. It flows between different places. Where it flows determines prices.

A beautiful analogy to be sure, but a little hard to work with since we're discussing more than one 'water' here. Yes, if there were competing liquids, they would sometimes fill up holes water would otherwise. And the more liquids there would be, the less of any one there would be in the existing holes. But here the comparison becomes thin, because what would the incentive for creating and applying ever new liquids be? Indeed, the opposite incentive exists because most people already have water and keeping what you have is easier than creating anew.

Building up a new currency is hard work with no small amount of catch-22 built in. Why would you start using a new currency when it starts out useless? You have to somehow be convinced there will be future utility greater than that of your current money. Your leap of faith and those of others may eventually fulfil the prophecy. Or it may not.

There may be a million tiny currencies but if there is no improvement in one over the other, the inertia of the existing value of an economy is insurmountable. Smallness in itself is a negative for a currency. All things equal, meaning both currencies are exactly as 'good' in convenience, value store capacity and so on - you will go with the currency useful in the most places - the larger one.