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Why Bitcoin is a significant breakthrough, but perhaps not as a currency

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Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#51

Post by rthomas6 »

maratd wrote: post #47
johndevor wrote: post #40

Earlier quoted context omitted.

> You need to conform to basic human psychology for wide adoption. I don't think inflation is a part of basic human psychology.

> I don't think inflation is a part of basic human psychology. Regardless of your thoughts, it is. Most jobs do not experience constant annual productivity gains, but everyone wants a raise at the end of the year and feels like shit when they don't get it. Nominal inflation allows you to give them a raise without impacting your bottom line. Win/win. Most merchants what to see their prices go up, it signals to them th…

Correct me if I'm wrong, but I'm pretty sure most economists theoretically prefer an inflation rate of 0. However, they see inflation as less bad than deflation, so they err on the side of caution by generating a safety margin of inflation.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#52

Post by yxhuvud »

rthomas6 wrote: post #19

I am convinced that many problems with Bitcoin would be solved if we could come up with a way to tie mining difficulty to the currency's demand instead of only to the mining computing power. Instead of ensuring a predictable generation rate, this could ensure a predictable value . When demand wanes, the currency is harder to mine and becomes more scarce, and when demand surges, the currency becomes easier to mine and…

If you bind the amount of xcoins to demand, what is the difference to normal currency? The vast majority of the money that exist right now is created on demand by banks, when there exist people that want to loan and have the ability to pay back the loan.

I wouldn't mind a distributed currency with this property, but you really should be aware that this is the basic operation of the banking system.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#53

Post by yxhuvud »

fthssht wrote: post #41
maratd wrote: post #33

Earlier quoted context omitted.

> You could plan the rough change in value over time, and build it into the algorithm, perhaps making gains unlimited at first, then making it very deflationary for several years, and gradually easing gains to something like 0-2% deflation per year. You want inflation, not deflation. The value of the currency should decrease at a 2% clip per annum. This would make it into a realistic currency, where people get annual…

2% per annum clip is nonsense dogma. As close to 0 as possible is probably ideal.

If you can achieve that regardless of how deep a recession becomes, sure.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#55

Post by pbreit »

maratd wrote: post #47
johndevor wrote: post #40

Earlier quoted context omitted.

> You need to conform to basic human psychology for wide adoption. I don't think inflation is a part of basic human psychology.

> I don't think inflation is a part of basic human psychology. Regardless of your thoughts, it is. Most jobs do not experience constant annual productivity gains, but everyone wants a raise at the end of the year and feels like shit when they don't get it. Nominal inflation allows you to give them a raise without impacting your bottom line. Win/win. Most merchants what to see their prices go up, it signals to them th…

Reply to rthomas:

Nope. Most economists prefer low but stable inflation around 1-3%.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#56

Post by aggronn »

rthomas6 wrote: post #51
maratd wrote: post #47

Earlier quoted context omitted.

> I don't think inflation is a part of basic human psychology. Regardless of your thoughts, it is. Most jobs do not experience constant annual productivity gains, but everyone wants a raise at the end of the year and feels like shit when they don't get it. Nominal inflation allows you to give them a raise without impacting your bottom line. Win/win. Most merchants what to see their prices go up, it signals to them th…

Correct me if I'm wrong, but I'm pretty sure most economists theoretically prefer an inflation rate of 0. However, they see inflation as less bad than deflation, so they err on the side of caution by generating a safety margin of inflation.

http://en.wikipedia.org/wiki/Phillips_curve

this is an old theory and has been refined over time, but its still the basic model taught in economics courses.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#57

Post by wmf »

rthomas6 wrote: post #19

I am convinced that many problems with Bitcoin would be solved if we could come up with a way to tie mining difficulty to the currency's demand instead of only to the mining computing power. Instead of ensuring a predictable generation rate, this could ensure a predictable value . When demand wanes, the currency is harder to mine and becomes more scarce, and when demand surges, the currency becomes easier to mine and…

I have also thought about this topic because I'm not a fan of pyramid schemes or open-loop money supply. Difficulty is already a proxy for demand (or perhaps the demand/supply ratio) because increasing demand increases the exchange rate which increases mining profitability which increases mining. If the block reward was set equal to difficulty then you'd close the loop. I am concerned that such a system would never be adopted in the first place because it wouldn't benefit early adopters and it may also stabilize at a low hash rate which would make 51% attacks too easy.

Edit: I'm not trying to criticize your ideas; I almost completely agree with you.

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#58

Post by XorNot »

rthomas6 wrote: post #49
swalsh wrote: post #42

Earlier quoted context omitted.

I proposed a way of tying the difficulty level to the quantity theory of money a while ago on economics and alt currency forums of bitcoin talk. I think if you're going to be successful, you'll have to find a different set of early adopters. Bitcoin is as much ideological as anything, and while some people don't want to see another alt currency because of their level of investment, others just generally don't believe…

I did toss out a less thought-out version of the idea on bitcointalk and /r/bitcoin a while back, and you're right, they were not interested. Those communities seemed to think that a non-predetermined amount of coins meant the same thing as a fiat currency. But maybe if something like this is actually built, people that believe in more mainstream economic ideas would get attracted to it and start to use it?

Once you acknowledge mainstream economic thought (or at least mainstream academic economic thought) might actually be a useful field of study, you've pretty much defeated the point of running Bitcoin with a non-central bank model.

Bitcoin appeals to people who have decided it's outrageous they have to invest their money in productive enterprise to get more of it, and it specifically appeals to greed which says "get in early and get rich easily!"

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#59

Post by XorNot »

praxeologist wrote: post #22
fragsworth wrote: post #13

Earlier quoted context omitted.

> hopefully IMO eventually the abolition of states worldwide. These kinds of comments do nothing to help promote bitcoin as a legitimate technology and only increase the risk that cryptocurrencies become generally illegal to use. I'm really disappointed with the anti-government garbage spouted by so many people in the community.

Bitcoin is inherently libertarian: http://rudd-o.com/archives/bitcoin-without-the-politics If all the libertarians who are into bitcoin suddenly cut down the rhetoric, you think that this will "make bitcoin legitimate technology"? What does that even mean? You mean that governments are going to suddenly be more friendly to bitcoin users? That seems like an incredibly naive belief, sorry. In general, it is disappointi…

Yeah people having a say in their government - how silly. We should simply let the free market determine policy. See the richest and strongest will decide what our social, economic and foreign policies are and it will be a golden age of serfdom!

Re: Why Bitcoin is a significant breakthrough, but perhaps not as a currency

#60

Post by johndevor »

maratd wrote: post #47
johndevor wrote: post #40

Earlier quoted context omitted.

> You need to conform to basic human psychology for wide adoption. I don't think inflation is a part of basic human psychology.

> I don't think inflation is a part of basic human psychology. Regardless of your thoughts, it is. Most jobs do not experience constant annual productivity gains, but everyone wants a raise at the end of the year and feels like shit when they don't get it. Nominal inflation allows you to give them a raise without impacting your bottom line. Win/win. Most merchants what to see their prices go up, it signals to them th…

> Most jobs do not experience constant annual productivity gains, but everyone wants a raise at the end of the year and feels like shit when they don't get it.

End-of-the-year raises can happen in a deflationary economy too, that's not really associated with the inflation / deflation debate. The amount of the raise can be less in nominal dollars but the employee gets the same real purchasing power.

> Most merchants what to see their prices go up, it signals to them that there is demand for their goods.

Price doesn't signal that there is demand for their goods, demand signals that there is demand. Price is a reflection of demand / supply, not the other way around.

> it makes them feel good that they can increase their prices.

But don't they, similarly, feel bad when they see everybody elses' prices also increase? They know that their paycheck gets less and less at other stores.

I think it's hard to draw a connection between feelings and economics.

> It allows for short term saving, like for a downpayment on a house, but discourages unhealthy hoarding over long periods of time. Again, win/win.

We live in a time of unprecedented levels of debt, both personal and national. I'd argue that such debt isn't all that healthy for the long-term growth of an economy.

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