The Austrian position is simply that the market will decide what currency to use. Whether it is diamond-coated marshmallows or sound money, it doesn't matter.
h.k.: The Austrian position is simply that the market will decide what currency to use. Whether it is diamond-coated marshmallows or sound money, it doesn't matter. This is indeed correct, but the catallactic process of the emergence of money can, to a certain extent, be understood. | Post Points: 5
Bitcoin is inflating at the moment, in a controlled and predictable manner. The market capitalization of the Bitcoin economy is about 100m USD. Comparing this to the US dollar quantitative easing effort is like comparing a glass of water to a tsunami.
Gary Rowe: Bitcoin is inflating at the moment, in a controlled and predictable manner.
Bitcoin is inflating at the moment, in a controlled and predictable manner.
Whoa, whoa, whoa--the ony thing Bitcoin cannot do, ever, is inflate.
You mean to say that it has gained value relative to the dollar. In fact it has nearly doubled in price.
how is inflationary bitcoin impossible? isn't it in fact designed with a rate of inflation in mind? arent bitcoins *mined in cpu's* or some such. ? But its an interesting question who can/does set the rate of inflation on something like that.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK: how is inflationary bitcoin impossible? isn't it in fact designed with a rate of inflation in mind? arent bitcoins *mined in cpu's* or some such. ? But its an interesting question who can/does set the rate of inflation on something like that.
Bitcoin has a hard limit that only 21 million BTC can exist in the universe, ever, cryptographically ensured.
There have been mined 9 million. If that's what he meant by bitcoin "inflating at the moment" then I misread his comment. I thought he was referring to the price increase of bitcoin, nearly doubling in value, which would actually be akin to a devaluation of a currency caused by excess printing of money. That can't happen to bitcoin. No one controls its money supply.
Having read his statement again, and your challenge, perhaps that's how he meant it to be taken.
The rate of 'discovery' of a bitcoin is mathematically determind and a part of the protocol. Basically it takes the amount of processing power and existing on the network last week and auto-adjusts the difficulty in finding new coins so that there cannot be radical changes in the pace of discovery.
Can I seek clarification here? From my understanding, currency inflation is a sustained increased in the monetary supply. At present, every solved block is injecting 50 BTCs into the Bitcoin economy. According to the block reward rules, this will half every 4 years or so leading to a known inflation curve. Because the rate of inflation is steadily reducing, the outcome is a currency that deflates over time relative to fiat currencies.
Is that a correct analysis (I'm not an economist)?
The exact definition of inflation is an debated among the Austrians (the freebankers use Mises' definition to argue that credit expansion is not inflation). It is then probably better to use the terms "increase in the money supply" or "increase in the quantity of money" as that's clear.
The production of Bitcoins is defined as a convergent series, so it has an upper limit and an progressively decreasing newly produced quantity.
I have long been critical of using the price of Bitcoin as a meaningful variable to assessing its utility. Liquidity is a better variable.
Is there any computational relationship between the transaction of a transfer of ownership of a bitcoin between two wallets and the coining of a new bitcoing ? Are entirely independant processes?
Gary Rowe: Can I seek clarification here? From my understanding, currency inflation is a sustained increased in the monetary supply. At present, every solved block is injecting 50 BTCs into the Bitcoin economy. According to the block reward rules, this will half every 4 years or so leading to a known inflation curve. Because the rate of inflation is steadily reducing, the outcome is a currency that deflates over time relative to fiat currencies. Is that a correct analysis (I'm not an economist)?
Basically you're correct. My point was that Bitcoin cannot be inflated by any person, and as such is not subject to the same problem of inflation that other currencies face (ie: the Iranian Rial just devalued by 50% in a week due to gov currency manipulation).
And that BTC has a hard limit of 21m BTC, which also other currencies cannot replicate.
Righto - I shall be more precise in future. Thanks!
nirgrahamUK: Is there any computational relationship between the transaction of a transfer of ownership of a bitcoin between two wallets and the coining of a new bitcoing ? Are entirely independant processes?
My understanding is that the attempt at mining BTC is resolving the block-chain, meaning that those mining BTC are at the same time processing transactions through the network. Their reward for doing so is potential discovery of BTC. So, not independent.
so when the block creation tops out at 21million then the transfer of bitcoins must cease ?
nirgrahamUK: so when the block creation tops out at 21million then the transfer of bitcoins must cease ? It will never reach 21 million. It's a convergent series. Around 2140 the reward will drop from one satoshi (0.00000001 BTC) to zero. | Post Points: 20
No, at that point (in the year 2140 or something) the "miners" will cease to earn income directly from solving blocks. They will have to rely on the transaction fees embedded in the system.
As a side note, there is some debate about whether this will lead to a Tragedy of the Commons (see http://bitcoin.stackexchange.com/q/3111/117) but it appears that Network Assured Contracts could provide a solution (see https://bitcointalk.org/index.php?topic=67255.msg785122#msg785122).
Peter Šurda:It will never reach 21 million. It's a convergent series. Around 2140 the reward will drop from one satoshi (0.00000001 BTC) to zero.
Hard for me to understand what you are saying. if you envisage the 'reward' for bit coin creation dropping from one satoshi finally to zero.. (The reward is what? that you 'get some multiple or fraction of a bitcoin for processing a transaction?' . Does this mean that in fact bit coin creation and signing of transactions ARE independant since you envisage bit coin creation falling to zero, and yet transactions continue to be processed ?
Can't the algorithm be changed to allow more bitcoins?
Yes, transaction fees are expected to dominate then.
BransonBow: Can't the algorithm be changed to allow more bitcoins? If you change the algorithm in a way that is not backwards compatible (e.g. increase the amount of Bitcoins), you need to persuade a sufficient amount of nodes to adopt the new algorithm. If you can't, what you produce will simply be ignored. | Post Points: 5
nirgrahamUK: Peter Šurda:It will never reach 21 million. It's a convergent series. Around 2140 the reward will drop from one satoshi (0.00000001 BTC) to zero. Hard for me to understand what you are saying. if you envisage the 'reward' for bit coin creation dropping from one satoshi finally to zero.. (The reward is what? that you 'get some multiple or fraction of a bitcoin for processing a transaction?' . Does this mean that in fact bit coin creation and signing of transactions ARE independant since you envisage bit coin creation falling to zero, and yet transactions continue to be processed ?
In each transaction you can put transaction fees into the transfer, allowing the processor to siphon that amount from your transaction.
The difficulty of mining new bitcoin becomes asymptotically difficult. That 21th million may never actually be mined, who knows.
So, as the incentive of finding new BTC decreases, why should people keep mining? The reason is because they can also reap transaction fees by doing so. So, as the difficulty of mining new coin increases, the incentive will turn to transaction fees.
BransonBow: Whoa, whoa, whoa--the ony thing Bitcoin cannot do, ever, is inflate. Can't the algorithm be changed to allow more bitcoins?
You wouldn't want this to happen anyway, inflating the number is not desirable in any way.
Bitcoins are essentially infinitely divisible. As their value increases and thereby purchasing power increases, people can begin transacting in smaller increments.
nirgrahamUK: Hard for me to understand what you are saying. if you envisage the 'reward' for bit coin creation dropping from one satoshi finally to zero.. (The reward is what? that you 'get some multiple or fraction of a bitcoin for processing a transaction?' . Does this mean that in fact bit coin creation and signing of transactions ARE independant since you envisage bit coin creation falling to zero, and yet transactions continue to be processed ? The miner does several things in one unified macro-process. This includes both processing transaction of others as well as creation of new bitcoins. If he is successful, he gets the newly produced bitcoins (which have a predefined amount) as well as transaction fees (which are set by those who created the transactions). The miner is free to choose which transactions to include and which not. | Post Points: 5