I appreciate you clarifying your points from earlier, I now understand what you were aiming at and agree with you that this type of "problem" really isn't.


Maybe that is where my theory is wrong.  I view the re-distributive power of monetary inflation as only occurring when it is not predictable (i.e. in the way the fed does it).  If we were to know 100% for sure what the fed would do next week, there wouldn't be a problem being ready for it.  In fact, we can see this type of preparation whenever the fed discusses tapering (or the converse, more "QE").  This type of knowledge would actually take the teeth out of monetary inflation, as prices would adjust before the new money could be spent.  I could certainly have this wrong; any thoughts?

I'm not really sure it would have a negative impact, but it would certainly make planning harder (by at least a little bit).


Unfortunately, even a basket of goods is subject to changes in supply.  As examples, natural disasters can decrease supply and technological innovation can increase supply.  On the other side, demand can also change; people want bananas instead of oranges this month, next month they decide apples are the hot fruit (my wife is eating an apple right now, hence the fruit example ).


I believe it would help because static inflation would offset, at least partially, the dynamic deflationary effects of coin loss.  Doing so would give people a certain offsetting amount that they could plan against.  Basically, given uncertainty in one direction certainty in the other direction helps balance things out, although admittedly not entirely.

There two other benefits I see as well and, although these are a bit off-topic for the purposes of this thread, I'll put them in here.
1) Miners would have further incentive to continue providing network security.
2) Fees could be kept low, as miners would will receive rewards from #1.

You give the perfect solution here, use a physical representation of BTC.  Then if he stiffs you there is something to take out of his pocket after you kick his face in.

And this "supercomputer", how will it account for people's wants and desires?  People aren't parts in a machine, intended to be used to further some arbitrary ends, they are sovereign beings capable of making decisions and fulfilling their own wants.  No centralized system can account for me deciding I want a ham sandwich instead of turkey sandwich.  When it comes to the interaction of closed systems (i.e. individuals), past results are not a valid predictor of future encounters.

Something tells me your part of the nuttery-coven at the Venus Project.  Good luck with taking resources from people and turning it all over to machines, PM me with the death toll yu have to ring up to make that happen.


OK, so.....welfare then?  Or maybe a better term would be slave/forced labor.  When people are denied the basic right of determining how they will work and for what gains, they call that slavery. 


TL/DR version: "I like to spout facts and when someone asks me to support them, well.....its a conspiracy!"


A laissez-faire system assumes protection from theft.  It is the role of government to provide this protection.  The system you were looking for was Anarchy.

I think I am starting to see what you are saying here.  Is it something along the lines of "people know about the risk of losing Bitcoins and account for it accordingly"?  Sorry, I'm probably being dense on this one...


I am looking to make economic calculation as easy as possible.  The more stable prices are (i.e. the degree to which they are likely to change over time) the more easily someone can plan for the future.


I would say it is not problematic as it is a static amount each day, which is something people can account for.  If the amount were variable, as in the case of lost Bitcoins, there is no way people could account for such loses.  Giving them a know offsetting amount allows them to plan better, although still not perfectly.

1) I wasn't talking about charge back like recourse, but more along the lines of taking someone to court for theft.  Thanks for helping me to clarify.  I like your suggestion about an EULA and a "audit trail" of sorts, that would go a long way
2) Very true, but calculating those taxes, when pricing things in Bitcoin might be difficult.  I buy a BTC0.01227 pizza at the spot price of $888/BTC1.  That same amount could be worth more or less in the fiat currency of choice if it isn't immediately converted.  So the shop owner pays the $0.90 to then city but what about the gains?  If there are losses to the value, can those be written off?  Like I said, this only applies if it isn't instantly converted to fiat.

Absolutely and I agree with you that this will work...to a point.

Over time the loss of coins can add up, especially if we consider Bitcoin as a long term currency.  Additionally, there is currently a high concentration of coins in the hands of a few (see https://bitcointalk.org/index.php?topic=316297.0), so the loss of any one of those private keys would be a major blow and cause severe instability as the supply was reduced.

A simple scenario I came up with involves the recent arrest of Ross William Ulbricht.  If he had gotten wind of them coming to arrest him (say by looking out his window as they rolled up) and was in a position to "nuke" all of the computers that housed the private keys to his and Silk Road's Bitcoins (maybe thinking that it would keep him out of jail), this would be a major problem.  If not a major problem immediately, then maybe down the road after similar scenarios play out again and again.

This.

As an example, we value water because it is highly useful (i.e. required for human survival), therefore the demand for water is extremely high.  If tomorrow a way was found to alleviate entirely the human body's need for water, it's value would be greatly diminished, as it's usefulness had been reduced.  Concomitantly, the demand for water would be diminished.

In the Bitcoin world, the demand for Bitcoins is high because people value them for various reasons such as security, anonymity, easy of transfer, low fees, etc.  If tomorrow a requirement of high fees were somehow introduced, that aspect of its usefulness would be gone, thereby reducing its value.  This would cause the demand to drop.

But wouldn't the purchasing power of Bitcoins be increased by the loss of some Bitcoins (i.e. deflation)?  Since Bitcoin is designed to be deflationary, even if no-one ever loses a single coin, then loss of every coin increases that deflationary bias.

Again, I don't seek to find a perfect equilibrium, as I'm fairly certain that isn't possible, but instead to offset the deflationary effect of lost Bitcoins.  For me, the best way to do this seems to be via predictable inflation.

I see three scenarios:
1) Fewer Bitcoins are lost than are produced through inflation, so the newly created currency drives prices up at a rate people can account for, since they know the maximum it could be.
2) The amount of new currency produced is equal to the amount lost then no inflationary or deflationary effects ensue directly (for me this would be the ideal), people who accounted for inflation come out on top since the currency they have has retained its value.
3) More coins are lost than are produced via inflation, prices are driven down, people who counted on inflation are even better off than they would be in either of the two scenarios.

In scenarios 2 and 3, the spending of the "extra currency" (as people now have greater purchasing power than they expected) would create inflation, as pent up demand (from the purchases forgone to accont for inflation) is released.  Additionally, for number 3, this would also serve to offset the deflationary effects of the additional lost coins.

That is an excellent article and I really appreciate you sharing it.  I don't pretend to know what inflation rate would be ideal (nor do I think anyone could know for all time what it would be), but instead, an arbitrary, but informed, decsion would need to be made about the inflation amount, just like with the arbitrary limit of 21 million Bitcoins.


I don't think this would be needed, as the inflation amount would be a hard limit included as part of the protocol.


I believe the model laid out by Satoshi is correct, higher rewards at the beginning and diminishing over time.  I am just not sure that the reward should diminish to zero.

Well darn, I thought I had something new.  That'll teach me to search before posting.

Sorry for the duplicate thread.

While not directly related to Bitcoin, this article discusses several statements and moves being made, by major economic players, toward higher taxation for top income earners.  One of the ideas floated is a one-time tax on capital assets.

http://online.wsj.com/news/articles/SB10001424052702304355104579232480552517224

A better argument to buy Bitcoin (or gold, silver, etc...) I haven't heard in a long time.  Not that most of us really needed one anyways...

Unfortunately a planned economy can't work.  If you plan the entire thing and the smallest detail doesn't line up with "the plan" then how does the rest of the plan adjust?  This was tried a lot in the USSR (5-year plans) but always failed.  Additionally, I'm not sure how you plan an economy without everyone being on welfare (i.e. provided for by the government).  Wouldn't their wages, or alternatively their means of subsistence, need to be part of the plan?

I would like to see some examples of the African countries you indicated had a high standard of living while the USSR was in existence.  I suspect the state they are in now is either a direct result of involvement with the USSR (and the fallout from its collapse) or events since then have caused the issues and true "laissez-faire policies" were never really tried.  I would be thrilled if you could prove me wrong on that.

I agree with op and officially volunteer to moderate!  Banhammer here I come...


Agreed.  Although I'm not sure how much effect that tactic has anymore, especially on this community.

I agree with many of the other things said in replies, but would add a few additional points.

1) Know the legal status for Australia - Businesses want to know that they have recourse if someone stiffs them
2) Know how taxes would work - In the case of immediately exchanging via Bitpay, this isn't an issue, but ideally these shops would be able to start paying their vendors and employees with Bitcoins, in which case they need to calculate taxes on Bitcoin sales.
3) Research each business and relate benefits specifically to them if possible.  Being former salesmen I doubt you needed to hear something like this, but others might find it useful.

Finally, I want to join others in thanking you for doing this, it is exactly what is needed.  I would also be interested to hear how you make out, as I wouldn't mind doing a little bit of this on the side as well.

While I agree, I had to laugh at the way I read this in my head, using a Billy Mays voice.

That being said, such phenomenal growth is within the realm of possibility, but people need to be willing to "ride out storms" like the one that happened just this weekend.  Additionally, I think that with legal protections will come increased acceptance and reduced volatility, so these types of "storms" will become less severe over time.


This is an excellent example why I think legal protection is the next logical step for Bitcoin, because businesses are at least half of the equation for broader acceptance and no business owner I know will deal in something without the possibility of prosecuting someone who stole it from him/her.  Additionally, business want to pay their taxes correctly, so as to receive the protection I just mentioned. That being said, they need to know how to pay taxes on Bitcoin sales, meaning better defined rules are also needed.

minerva already beat me to this, but I would like to expand on my reason as to why I don't agree with your statement.

First, 'X' can be thought of as variable, whereas in my suggestion it is not, but instead a statically increasing rate for all time (ignoring an initial growth period which is essential to any new system like this).

Second, I believe that a static supply has the potential to increase price VOLATILITY, since the quantity of the currency would slowly decrease over time (see premise #2) thereby driving up prices.

Please don't mistake my ideas to suggest that we could have perfect stability.  I only seek to determine if offsetting the loss of currency by steady inflation would help decrease the volatility of prices as compared to either fiat currency (where inflation is unchecked) and a system with a static money supply (where deflation would be unchecked).

In any case thank you for your post, it helped me being these points (previously omitted) out.

Thanks for your response, I was hoping for responses like this to help me flesh this out (or prove me wrong).


I take number one as coming from the essential functions of money, primarily that of a "store of value".


Agreed that I cannot define those terms from an empirical standpoint.  I should probably have worded my first premise differently.  How about this:

1) Stability in supply supports the essential functions of money


I do admit to falling into the definition of money vs currency trap (if that is what you were talking about) and am not careful enough with how and where I use those terms.  Any help in better differentiating when to use one versus the other would be appreciated.

At any rate I would be interested in your definition.


Correct, this is a purely hypothetical exercise based on assumptions.


Given my redefined first premise, do you still think so?  If so, can you explain?

This is not a post intended to point out any flaws in Bitcoin nor is it intended to suggest any changes.  I am simply looking for input from the Bitcoin community on my ideas.

From what I understand the problem with many fiat currencies is the incentive for the printing authority to increase the number of notes in circulation.  The reason this incentive exists is because of the time-lag between the increase in the money supply and the corresponding increase in prices.  Additionally, when the printing authority and government are one in the same, there is an additional, political cause of this incentive in that it allows politicians to spend on programs that will keep them in office while not immediately and plainly passing the costs onto their constituents.

In the longer term, the inflated money supply causes price inflation.  However, despite this, Bitcoin is currently in an inflationary period (until all 21 million are mined) and there is actually price deflation overall (ignoring the ups and downs due to the current volatility).  I believe that this is because in the much longer run there is a known, finite amount of Bitcoin.  Basically, despite the current fluctuating quantity of Bitcoin, there is long term stability, which, from my understanding, is the ideal state for any currency.

While I believe this is a good thing, since I view inflation (and the following price inflation) as tantamount to theft, the downside is the risk of coin loss.  I am not concerned with an individual's loss of currency, but the loss to the system as a whole and over time.  This problem is made more dangerous, in the Bitcoin case, by the current concentration of coins in the hands of the few.  I will pause here to indicate that I believe any allocation of wealth to be just and take no issue with someone or group of someones amassing any degree of wealth, so long as they do so by honest means.

All of this being said, I wonder if a currency where the supply is constantly increasing, to replace lost or inaccessible currency, but at a defined and unchanging rate.  While this still would likely amount to overall inflation, the inflation would be totally predictable and controlled (the purported holy grail of modern central banking), thereby allowing people to predict and account for any price inflation that might follow.

To sum up, my basic argument is this

1) The best possible state for a currency is one of stability
2) Units of currency are lost or made inaccessible

Therefore;

Controlled and steady inflation is better than a static money supply.

Any further thoughts?

I think I got it now thanks to both theymos and emansipater, thanks guys.  Just to close out the thread, here is the short and sweet answer I was looking for:


But I only really understood that after reading this:


I put the "lightbulb" statement in bold.  Looking at it that way completely alleviates my concern about being subject to the "will of the majority" as a "forking" of this kind would almost certainly increase the value of original Bitcoins, which I would still hold, up to a point.  It is on me to watch for the "break point" in this case and sell before that.  In ot6her words I am still the one in control so long as I don't get lazy I'll do alright.


Just to make sure I understand this last bit, that person could still have all 184 billion Bitcoins, but they would not be considered invalid by any Bitcoin user who has updated to the new version, correct?

Thank you guys so much for the wonderful and timely explanations, this thread has made me a "believer".

Result: bitcoinUserCount++; 

Wow, thanks for the great explanation!  Your post has alleviated my second fear (Loss Prevention) with this sentence:


As for my first fear (Counterfeiting) I will go through your points and ask a few questions.  I probably should have stated that most of my concerns in this regard really only come into play after we are no longer generating Bitcoins legitimately or if someone (or group of someones) is simply being malicious.


Based on what you said here, it sounds like what I will call "mob rule" although that might not be the most apt term.  Basically it means that a majority can foist things onto a minority.  Since Bitcoin is open source, anyone can write and distribute his own version of the software.  If someone, even simply being malicious, decides he wants to devalue Bitcoins all he has to do it write a client that allows all of those using it to gain Bitcoins when they use his implementation.  He can even use this as a selling point for those considering his application.  While many people (most of us here included) would see the negative effect of inflating the money supply, those who are doing it probably wouldn't and in any case they may not care, as the people who initially receive "newly minted" receive the full benefit of it.

I guess I am just really trying to understand how an "attacker" who controls more than 50% of the network's computing power is prevented from creating new coins.


The only real hardwired security I can see is the fact that honest nodes control the network, everything else is specific to the implementation being used by each Bitcoin user.  Am I wrong here?


You are very right, I initially was very skeptical and have narrowed my fears down to this (now one thanks to you!) problem/concern.