Post
Topic
Board Economics
Re: Current Bitcoin economic model is unsustainable
by
Suggester
on 20/02/2010, 01:15:18 UTC
The problem with botnets is that their operators are stealing electricity, bandwidth and access to RAM, hard drive space and CPU time. Everyone else is paying for those resources out of their own pockets.
That's not a problem for Bitcoin or its users. If those CPU cycles aren't used to steal electricity for bitcoin, they'd be used to steal electricity to DDoS some site or brute-force some account. We shouldn't worry about them. As I said, they're just as if those users voluntarily joined the network for all practical purposes.

EDIT: My new highest preference for how I would like bitcoin to work is for the amount of bitcoins awarded to increase at the same rate as worldwide human population growth.
"Human population" is totally irrelevant. Even if human population was shrinking by, say 1% annually now, I assure you that Internet users population will be increasing and bitcoin users will be increasing at an even higher rate. "Bitcoin users" is the magic word here. With the suggested variable model, we're always sure that new coin generation matches the expanding (or shrinking) user base. But anyway, I see that you're beginning to side with me that the 4-year-doubling isn't a good idea.

If the TV buyer is an early adopter and the TV seller is a latecomer, then the TV buyer already has many bitcoins and it would cost the TV seller more dollars worth of electricity than the price of the TV to generate 1 bitcoin.
Man, if you paid $1,000 for an ounce of gold, then a few months later it was worth $2,000, are you going to sell it for $1,000?! No? Good. Because the early adopter will not treat his coins as if they're worth the pennies he paid for them anymore now that they're worth a ton of electricity. He'd treat them for what they're worth today.

I do not agree that it will be hard to get people to spend their bitcoins. People do value potential future increases, but they also value having an item now. Why would someone borrow money on a credit card with a 19% interest rate instead of keeping their money in their savings account? They do it because they value having the TV now more than the potential losses over time. Life is short. You're welcome to save all your high returning money until the day you die, but the rest of us are going to make use of it before it's no use to us.
My answer is simple: Assuming people approve the current Bitcoin's model, it will turn out to be the #1 worldwide investment: Just buy (or hack) a bunch of PCs, let them run, and you'll be earning at least 19% annually with no risk involved! Investors (and indeed, botnets) won't leave a chance for normal folks like you and me to earn any BTCs much less spend them. Any bitcoin will be spent 2-3 times at most before falling into the hands (well, "the computers" is the better term here) of an investor who'll keep it for a very long time or forever. This model has to change or it will destroy the otherwise excellent idea. Making bitcoin a way to INVEST rather than to SPEND is its one-way ticket to failure. You also forgot that bitcoins will leave the stream all the time (eg. computer failures or accidental deletion), which will add to their deflating. Might as well turn this 19% into 20% or something.

My exchange rate will only increase as Bitcoin becomes more popular. There are practical limits to the popularity of Bitcoin. Sure, potentially it could be run on every functional computer around the world, but from practical perspective, that will never happen. The swarm is currently pretty small, so when a few new users join, there is a large effect on my exchange rate and it increases fairly quickly. As the rate of growth slows or reverses and as my exchange rate average increases over the next two years, the exchange rate will steady out with only very small increases AND decreases every day.
Even if we assume that Bitcoin's current users will never increase (thus not making it more difficult to generate coins), we're sure that its value will increase by at least 19% annually because of the expected 4-year-old D-day when which all BTCs price magically doubles because it will cost double to generate them.

As for the impending doom and gloom you're prophesying will accompany the decreased payout in a few years, all I have to do is add a little multiply by two to my exchange rate calculation and the problem is solved. The exchange rate stays constant and everyone is happy.
Can you explain that part? I didn't understand how multiplying by two will achieve stability.

PS. It might be a good idea to merge your previous double-posts in one via Edit to make reading easier for us and those following us. The world is watching (or some three-letter-agencies anyway Smiley)

We were essentially told that if one camel is worth 50 gold dinars, then 50 gold dinars is also worth one camel.  Or something to that effect.
If we assume that dinars can't be used for any other non-monetary purposes (such as jewelry, paperweights, etc), then it's practically very difficult for them to have a demand curve by themselves. Camels can be used to ride, so their gold price fluctuated (i.e. They become more or less popular with time). Bitcoin can only be used as money, so it's used solely to value things not vice versa.

Did I understand the lesson correctly?
If raising a camel costed more than 50 dinars, you can count on people stopping raising camels until the price goes back up due to supply shortage. With the absolutely arbitray 4-year model, this can never happen. Supply will ALWAYS decrease no matter what. I'm asking for a more flexible method which depends on the actual number of users.

On the general topic of whether bit-coin will/will not be successful--I don't really know.  I act as though I am a "bitcoin defender" but this is mostly because I am excited about the new currency and want to support it, not because I know enough about economics to predict it's eventual usefulness.  
If I wasn't, I wouldn't be here crying my lungs out to correct the model for a one which will work!

but i think you are very likely to find people who agree with your plan for a better encrypted digital currency and will help you modify or re-write bitcoin's source to make it happen.
I know practically nothing about programming or coding. I'm interested in economics (as you might have guessed Smiley) and was trying to offer a bit of advice to the geeks who do the coding.