1) I see transaction fees as being quite separate from demurrage. As you say, with demurrage there is no need to use transaction fees for ensuring currency stability or as a reward for miners. I don't understand why in the future currency holders would pay through monetary inflation, or how that would be an externality. Care to specify?

2) Yes, agreed that demurrage increases velocity of circulation, and thus make the currency better for commerce.



Merged mining seems a good idea.

I think users will accept freicoins, but I have some doubts about the ease of use for commerce with the software as it is now. It isn't to everyone's taste to be deal with bugs in transfers or complications with wallets. Things will have to get simpler from the end user standpoint, if the currency is going to have wide appeal. 



Thanks for that link. I posted in the other thread.

I can understand why you would like to keep the two things separate.

It is difficult enough to explain one concept at a time...

I very much like the idea of stablecoin. This would be a version of bitcoin that's better suited for commerce than the original. In order to use a currency in commerce, stability is very important. No merchant wants to constantly have to change prices.

What I do not like in your proposal (and in your subsequent amendment to 1971 coins) is the proposal to target a certain dollar value. Someone said Euro would be better, but I think we could do away with targeting a fiat currency value altogether.

We would need a good way to release more coins into circulation (which is available in the bitcoin software, as it is).

We also need a good way to lower the number of coins in circulation, in case the user base contracts. jtimon has proposed to do this by introducing demurrage, i.e. to take a small percentage of the amount transferred at the moment of transfer, and to destroy that small percentage. The percentage would increase depending on the time the coin had been held onto before being spent, making demurrage a powerful incentive to not hold on to stablecoins but to actually use them in commerce.

How to achieve stability without external input

The way to have a stable currency without the need for either a price index or a steward of the currency holding the value constant, is to target a fixed ratio between the size of the stablecoin economy and the total number of stablecoins extant. It is not really important what value that ratio produces, the important thing is that the ratio can be kept stable with only internal inputs.

The inputs we would need are:

- volume of trades in a determined time interval (I believe the system can supply that data).

- number of coins existing at the moment (also a system internal datum)

Using a fixed ratio (I am saying just for example 1:10 but it could be anything that's decided) we can now calculate the target amount of coins. 5,640 in trade would give us a target of 56,400 coins. Please don't hold me to the numbers, it's just a made up example.

Since demurrage is constantly lowering the amount of coins in existence, we can now adjust the degree of difficulty of creation of new coins to get us as close to the targeted coins total as possible.

Since we have the volume of trades as an internal input, we can constantly update the targeted coins total.

Since the value of a currency depends on the number of coins times velocity of circulation in relation to the volume of trade, we have a reasonably stable currency that does not depend on external inputs.

We do not know what the value of each coin will turn out to be before putting this in practice, but it is of no concern because all we want is stability of the value of each coin over time.

Could that work?

So the problem you are trying to solve by introducing demurrage into Bitcoin is fees. Reading some of the answers however, it would seem that fees are not seen as a problem. Miners could perhaps exist on fees alone, after mining has tapered out and the full complement of coins has been achieved. It seems like you are trying to solve a problem that isn't perceived as a problem by the Bitcoin community. As a matter of fact, I also see little difference in whether a miner is rewarded by a fee or by the fact that bitcoins continue to be available for mining because demurrage destroys some of them and therefore fills up the reservoir of unmined coins.



Interest also doesn't seem to be much of a problem (yet?) in Bitcoin. It is true that, just like interest, demurrage will tend to make a currency more fluid, meaning they will both induce holders of money to spend it or to make it available to others to spend. I haven't seen much discussion here on the subject of interest, and I don't think that interest is perceived as a problem worthy of solving either, in this community.


It is true that a digital currency is much easier to apply demurrage to than a state-issued currency. Still, you will have to find a good reason to do so. What is the added value that demurrage would bring to Bitcoin, what is the real problem - also in the eyes of the rest of the Bitcoin community - that would be solved by introducing demurrage. Just last week I was talking with someone in Italy who also wanted to introduce demurrage to Bitcoin, but there was also no mention of a real reason to do so, other than it would be nice for reasons not connected to Bitcoin itself...


Merged mining - hmmm. I see they talk about merges mining between Bitcoin and Namecoin. So what you are proposing basically is to establish Freicoin as a fork to Bitcoin, a separate flavor of the currency that includes demurrage. Still, you'll have to find and point out a real advantage to having demurrage over not having it.

There is one point in favor of a Bitcoin flavor with demurrage, which is that the currency will be tending to be spent more readily. But as it is right now, most of the users that have gone into bitcoin mining have done so with the expectation of an increasing value of each coin. They are banking on making profits because the currency is set to appreciate with time, and they would not want to follow you into a currency that does not do that. However there may be many new and potential users who don't care about speculating on their coins increasing in value, and who would welcome a more easily spendable currency.


There is an important problem with Bitcoin that would benefit from a Gesellian cure.

As Gesell points out, a currency, to be stable in value, has to be commensurate with the market it serves. The total amount of units of the currency in circulation and the mean velocity of circulation has to be in line with actual exchange being mediated by that currency.

In the case of Bitcoin, there is no mechanism to ensure this.

Therefore, Bitcoin is not well suited to trade. It tends to appreciate greatly, if the user base grows. That is good for miners and for speculators, but it is hardly good for businesses who want to accept Bitcoin for what they sell. Who would want to change their prices constantly because the currency is changing its value all the time? Think about real trade, like a business selling things. They would have to follow the Bitcoin exchange rate constantly so their prices continue to reflect the real value of what they sell.

So we have a problem, which is the currency is not stable in value. Freicoin could solve that problem, but it would need demurrage to do so.

Freicoin would have to set, for its target amount of coins to be issued, a number that is the product of the payments made through the system in a certain period x a multiplier (to be determined). This variable number would replace the fixed amount of 21.000.000 coins which characterizes Bitcoin.

The difficulty of calculating block chains would have to be automatically adjusted taking into account the currently issued number of Freicoins and the difference between that number and the (adjusted) target number.

Mining adds coins to the Freicoin economy, demurrage drains coins from it.

This way, whichever way the user base goes, whether the Freicoin economy expands or contracts, the value of each unit of Freicoin would be stable in value, as it is continually adjusted to the size of the economy that is being served by the currency.

I suppose what would be needed would be some programmers who could appreciate the importance of a stable Bitcoin flavor, and who would program these parameters into what would be a fork of Bitcoin.

Right now, Bitcoin seems to generate excitement and expectation of would-be speculators and miners as in a gold rush. Lots of people upgrading their computers in an effort to spend some electricity to mine the coins (the goldrush) and lots of people actually buying Bitcoin to sit on them in the expectation that their value will go up and the owner gets a bit richer.

There is precious little going on by way of trading with bitcoins, as far as I understand.

So this is someone who has taken bitcoins from everyone who would give them to him for a relatively moderate amount - I say relatively moderate because 250k $ is not much in business - and who is either unwilling or unable to stand up and pay back the money (value) he took in to safeguard. Evidence is his babble about a "claim process" which predictably will yield little or nothing for those who gave him bitcoins in the first place.

It's a lesson to be learned:

Don't trust ANYONE with your bitcoins. Keep them in your wallet on your computer, with a backup handy just in case.

I wonder how many of those cases it will take for people to realize that there is a price to pay for being improvident...

And yes, going to the police will only hasten the demise of bitcoin as a whole.

You either are independent of the authorities or you aren't. Police investigating and courts deciding means you aren't.

you mean by google's gmail?

.cc certainly comes up on google searches...

Sounds like a bad deal to me 

Sounds like a bad idea to use paypal if they have a policy of not allowing bitcoin trades and exchanges over their network. It's a competition game, and a dirty one at that, and paypal always wins. They have the lawyers and the conditions of use tweaked so whatever you do they can best you. Freeze account, take your money, report you... I would rather stay away from them.

Maybe I haven't understood anything yet, but to me it seemed that bitcoin was supposed to be a means of payment, an electronic form of money.

You are treating it like it was an investment, some financial product that is somehow miraculously supposed to grow.

Those two uses of money are actually incompatible. When money is used for payment, it needs to circulate. When it's used for investment, it needs to be fixed. Money can't do both at the same time.

Hi, I'm just here making some of the obligatory posts before being allowed into the arena

I'm Sepp (yes, it's my real name) and I have been studying to understand money systems and finance for over two decades.

Silvio Gesell's "The Natural Economic Order" makes a lot of sense to me. I would like to see whether his work and bitcoin can somehow be connected. There is a string of discussion about this, but with newbie rules and all, I can't (yet) participate.

Patience.

Well, don't call anyone or anything here stupid, you'll have trouble making your important announcement.

I have some interesting (I believe) things to say myself, and I actually did make some posts in the old forum before these newbie restrictions were decided upon.

Well, I guess I have to just wait and make a few noises to get out of prison and be allowed to post.

Good thing the number of needed posts got restricted from 50 to 5!

Not talking here about stability of an economy as such.

The stability I have in mind is price stability.

And if price stability can be attained by relatively simple means, why prefer eternally sliding prices until one day we (might) run into the physical limit where prices can no longer slide because they can't be expressed, as the unit has been subdivided by too many decimals?

I suppose you mean to compare stability (of a currency's value) with deflationary development (of that currency's value). They do not really have anything to do with economic growth as such.

To answer the question, as I understand it, stability of a currency (in relation to the goods it buys)

- avoids continual change of prices of goods as expressed in a currency (think of having to change a price list frequently).

- simplifies comparative analysis of economic activity over time (think balance sheets).

- promotes public confidence in the currency.

Deflationary, inflationary, both are undesirable in a currency.

Can't we talk about having a STABLE currency, and what it would take to keep a currency reasonably stable?

Prices, ideally, should neither increase, nor should they decrease. The ideal for any currency is stability.

Bitcoin is a great step forward in the direction of having a stable currency, but it does not seem that its creation algorithm is directed towards obtaining stability. We will have gradually increasing difficulty of mining, until a few years from now, mining will practically come to a halt.

Now if bitcoin were to serve a substantially stable market, meaning there is a community of bitcoin users that does not either substantially increase in numbers nor decrease, the currency could be said to be stable in the long term.

I do have a feeling though, that the long term intention of the creators and the early adopters of bitcoin is to expand the user base to hundreds of millions, perhaps even to billions of users.

Since stability of a currency is a function of demand (user base) and availability (fixed in our case after the target amount of bitcoins programmed by its creator has been reached) in a long term view, this means that bitcoin will very likely be a deflationary currency, i.e. that prices, as expressed in bitcoin, will be continually falling, as the user base grows.

For stability, the target amount of bitcoins should be ajustable - preferably by some automatism - to follow the growth of the user base.

You are probably right about the extremes balancing each other out somewhere in the middle, especially as the bitcoin ecology grows.

The last assumption however, that inflation/deflation rate should tend to zero is not a given.

The overall inflation/deflation rate depends entirely on how much request for bitcoin there is to do its main business, which is to be used as a payment medium.

Large changes in user base will inflate/deflate the currency.

Double the user base, and you will roughly double the value of each coin = deflation.

Cut the user base in half (because - let's say - users leave for a different bitcoin implementation) and the value of each coin will roughly be half = inflation.