Quote from: NeuroticFish on July 07, 2017, 12:50:09 PM

Quote from: dinofelis on July 07, 2017, 12:36:45 PM

Bitcoin is based upon a bogus application of sound money doctrine, but has no value regulation mechanism in it that tries to make bitcoin keep constant economic value (or slightly and predictably increasing or decreasing value). In other words, bitcoin has no deflation/inflation control AT ALL, and has fallen into a speculative deflationary spiral.

Imho it was designed to be deflationary. Just think: 21M cap from start, the real chance that some money will be lost (pk lost, tx sent to wrong address or simply burned..), this doesn't look like a mistake.

It is a mistake to think that this will become a CURRENCY.

The mistake is a misunderstanding of what sound money doctrine was about, and the mistake is also to think that the slight inflation in fiat currency is a problem (essentially, it is based upon a misunderstood pile of conspiracy theories).

The sound money doctrine (by the Austrian school) considered that it is such a bad idea to have a CENTRAL PLANNER decide arbitrarily upon the printing of money under POLICITAL INFLUENCE, that it is better to have a constant amount of money that "is in circulation since ever". What was considered bad by Austrians, is SEIGNIORAGE. If there's no way to print money, there will not be seigniorage.

This is why Austrians liked gold, because gold is already in circulation for millennia. Nobody is going to "start putting gold in circulation". It IS already in circulation and it WAS already highly valuable. At no point, Austrians considered huge value appreciation of gold beyond the economic growth, because, exactly, gold was already valuable and widely distributed.

However, bitcoin is new, so there WAS huge seigniorage (those making the first bitcoins, didn't have to burn as much proof of work as people now, so they got essentially printed bitcoin "for free"). This seigniorage of the initial bitcoin printing with few PoW costs screwed entirely the MOTIVATION of sound money doctrine. Bitcoin was also new to the world, so it didn't have value, and it was in very limited circulation.

All this made bitcoin totally different from gold's economic situation, and made that the REASONS for the sound money doctrine were of no value in bitcoin.

So bitcoin inherited all the PROBLEMS of sound money doctrine (namely the lack of value control) while it didn't have any of the reasons why sound money doctrine was preferred by the Austrians (no seigniorage, already high value, already very old and in circulation, very well known, and largely used: gold).

Nash explains us what the ideal CURRENCY is. Gold from sound money doctrine can only be a remote approximation under the original conditions of the sound money doctrine, but bitcoin's application of sound money doctrine with huge seigniorage, low initial value and growing user base is EXTREMELY REMOTE from Nash's ideal money. In fact, it is difficult to imagine a WORSE form of currency.

A good currency has constant, or predictably slightly evolving, economic value. Proof of work for coin creation at CONSTANT ECONOMIC COST would have been a very good approximation to Nash's ideal money. If the first bitcoin mined would have COSTED AS MUCH in PoW as a bitcoin mined today, we would have had:

- constant value of bitcoin (namely close to the constant cost of mining it with PoW)
- no seigniorage (you waste all of it on PoW)
- coin emission on par with adoption
- no speculation

It would have been a very good currency.

Bitcoin, in true sound money vision, could only become a kind of a currency after all of it was in circulation for such a long time, that all of its seigniorage was dissipated economically for a long time, and that it had been in wide use like gold since a long time. In other words, 500 years from now or so.