Post
Topic
Board Announcements (Altcoins)
Re: [ANN] Ethereum: Welcome to the Beginning
by
digitalmagus
on 24/01/2014, 21:42:23 UTC
Commentary on  the Economic Model:

IMHO, the brainiac eclectic Ethereum team is missing an economist (or two - ideally from different economic schools of thought). The vast majority of countries have now regulated Bitcoin as a commodity because it fails the test of being a currency. The number one reason (aside from the fact they can't control it via their central banksters) is because bitcoin lacks "price stability". Let me put that in upper case, because it seems to escape the minds of every crypto coin developer I've seen to date...

*** For a monetary unit to be a globally accepted currency it must have PRICE STABILITY!  ***

This is not a government mandate, but rather a mandate of people all around the world for centuries. The minute a currency fluctuates wildly, people stop using it. Whether to hoard it (deflationary currencies) or to get rid of it ASAP (inflationary ones).
In order to attain price stability, you must have very low inflation or very low deflation, with 0% being ideal (Keynesians would argue that 2% inflation is ideal). From that perspective, Ethereum's philosophical design appears to be on target... except the details matter.

The inflationary design of Ethereum imagines that it will be more fair if it targets 0% inflation.  Unfortunately, you can't target 0% inflation, when your protocol is completely disconnected from a wide range of real world dynamics such as production capacities and efficiencies, resource availability and overall costs of living to name a few. It is academically erroneous to claim to target 0% inflation, when what you mean is targeting 0% dilution after a certain time period - that is unfortunately not the same as 0% inflation. Because your coin will lack Price Stability, it will immediately not be considered a potential global currency. Because your coin will not be a currency, but rather another commodity like bitcoin (albeit with different characteristics), it will always be traded and valued against a real accepted global currency such as the USD, and thus, even if you design an eventual 0% dilution target into it, simple supply/demand will actually determine it's real world value in a foreign currency, and thus you will have inflation or deflation regardless of how much effort you placed into Ethereum's inflationary design code.  I should also add that talking about Ethereum in your whitepaper and saying that it is inflationary like bitcoin is highly confusing, since bitcoin is predominately deflationary. Some word clean up is required there to get your meaning across.

To be clear, I'm not pro USD, and despise various aspects of it, but one thing is certain - on a day to day basis, consumers have price stability - despite the fact that over much larger periods of time (i.e. 100 years) it looses significant (98%) purchasing power... but that's by design (2%/yr inflation), not accident; and the result is *practical* price stability that can be used to conduct Commerce and operate businesses (i.e. pay employees static salaries each month, pay suppliers the same price for goods with the possibility of only 1 or 2 yearly adjustments)etc.

Lastly, the irony is not lost on me… you put brain power towards achieving 0% ‘inflation’, but then turn around and call it a platform and not a currency. So which one is it supposed to be? ;-)