Quote from: jtimon on February 24, 2011, 11:56:03 AM

When the 21M bitcoins are produced, miners are supposed to earn bitcoins only by charging fees.
I have another proposal. But probably is a change so drastic that can't be applied to bitcoin.
Freicoins can be created forever as an incentive and still have a fixed monetary base if the amount of newly created reward for miners is equal the amount of destroyed freicoins.
How can freicoins be removed from circulation?
Each time a transaction is done a percentage of the freicoins in the transaction are destroyed depending on how much time the freicoins have been hold since the last transaction. This is called demurrage.

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.

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It reduces interest rates. Concretely, it attacks the basic interest or liquidity premium. Defined as
gross interest = basic interest + risk premium + inflation premium
Demurrage has other benefits. For example, money with demurrage is crisis resistant: it will continue to circulate even with deflation.
Also, interest makes the financial market "think" in the short term.

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.

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For more information about demurrage you can read Silvio Gesell's main book on the web or in pdf.
I think the main flaw of Gesell's proposal is that he wanted the government to issue his freigeld, but there wasn't the block chain back then.

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...

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With merged mining, freicoin can co-exist with bitcoin.

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.

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One can say that demurrage is worse than inflation for savers, but I think that's not true.
Other common criticism is that no merchant would accept a money with demurrage, but there's many local currencies with demurrage operating today.

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.

Sepp

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