Quote from: jtimon on July 26, 2011, 07:03:45 PM

This is like saying that we all should be allowed to counterfeit dollars and there would be no inflation because no one would print them if their price goes below the production costs.

Is that really crazy? To be more precise, don't think of paper bill's. Think of something that actually have cost to produce near their face value, like coins.

What is wrong with that logic? People will "print money" (i.e., produce coins) as long as people who don't have the knowledge or ability to produce coins themselves are demanding them from those who do. Also keep in mind the cost-of-production is not the same for everyone. As more and more coins are produced, their value will decrease. But once demand price decreases to cost of production, there is no incentive to produce anymore.

So this prevents money from being overvalued, as I'd argue bitcoins are now. A system that values a coin produced by Satoshi at difficulty 1 as produced by someone now for 1million times the work is NOT AT ALL some kind of "stored fixed value" like gold.
Let me see if I can really make this clear...

Here is a comparison of bitcoin to gold
Imagine the first person to find gold said "OK everyone, 1oz of your gold shall be worth 1 million times less than 1oz my gold". How could they enforce that, if all gold looks the same? By building a "Gold Registry", where everyone must register their gold, and then declaring that only registered Gold is valuable. More precisely, rather than trading gold, it is declared that all business shall be done in units called "PyramidCoins". Exactly 1000 PyramidCoins will be issued per day, in exchange for whatever Gold people are willing to register that day. That is, if there is only 1 person willing to give 1 gold bar, they are given all 1000 PyramidCoins for their single bar of gold. But if instead, 100 people are each willing to give 1 gold bar, the 1000 PyramidCoins will be divided between them and they will be given 10 PyramidCoins each. If multiple people each give multiple gold bars, the 1000 PyramidCoins are divided in proportion to the number of gold bars they registered. It is also declared that every 25 years, the number of PyramidCoins issued per day will halve, so there is a limited total supply.

Now what is the outcome of this? The guy who starts it all puts in 1 gold bar at a time, declaring 1000 PyramidCoins for himself. Slowly more people start to join, and for awhile there's a small group of 10 people each getting 100 PyramidCoins per day for their gold bars. Eventually more join, and people are getting less PyramidCoin for the same bar of gold.

What I am suggesting
If you use bitcoins, congratulations, you have been fooled into using PyramidCoins. Note I don't necessarily believe Satoshi intended things to be this way. From reading his early posts, he seemed to be aware this kind of scheme would incentivise early adopters, but it is not clear that he actively intended to construct a pyramid scheme as opposed to not just thinking things all the way through.

My suggestion/scheme is to stop using PyramidCoins. Just use your gold instead!!

How can we do that? Well, it would be nice to eliminate the "Gold Registry" altogether. Unfortunately, that seems technically difficult for information-money which can easily be copied.

Alternatively, we can issue 1 PyramidCoin per 1 Gold bar. That's reasonable, but with information-gold it may be that producing 1 bar of gold next year costs 1/2 as much as this year, so it would be nice to protect people from that.

So we set the PyramidCoin per Gold bar issuance rate by vote. That is my suggestion.