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Re: Austrians Slammed for their Criticism of Bitcoin

Peter Šurda — Wed, 03 Oct 2012 20:55:08 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

Anenome — Wed, 03 Oct 2012 20:47:30 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

Anenome — Wed, 03 Oct 2012 20:45:24 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

Peter Šurda — Wed, 03 Oct 2012 20:44:47 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

Anenome — Wed, 03 Oct 2012 20:39:29 GMT

Yes, transaction fees are expected to dominate then.

Re: Austrians Slammed for their Criticism of Bitcoin

BransonBow — Wed, 03 Oct 2012 20:38:56 GMT

Whoa, whoa, whoa--the ony thing Bitcoin cannot do, ever, is inflate.

Can't the algorithm be changed to allow more bitcoins?

Re: Austrians Slammed for their Criticism of Bitcoin

nirgrahamUK — Wed, 03 Oct 2012 20:38:38 GMT

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 ?

Re: Austrians Slammed for their Criticism of Bitcoin

Gary Rowe — Wed, 03 Oct 2012 20:20:43 GMT

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).

Re: Austrians Slammed for their Criticism of Bitcoin

Peter Šurda — Wed, 03 Oct 2012 20:19:05 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

nirgrahamUK — Wed, 03 Oct 2012 20:10:26 GMT

so when the block creation tops out at 21million then the transfer of bitcoins must cease ?

Re: Austrians Slammed for their Criticism of Bitcoin

Anenome — Wed, 03 Oct 2012 20:09:17 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

Gary Rowe — Wed, 03 Oct 2012 20:08:48 GMT

Righto - I shall be more precise in future. Thanks!

Re: Austrians Slammed for their Criticism of Bitcoin

Anenome — Wed, 03 Oct 2012 20:07:57 GMT

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.

Re: Austrians Slammed for their Criticism of Bitcoin

nirgrahamUK — Wed, 03 Oct 2012 20:03:02 GMT

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?

Re: Austrians Slammed for their Criticism of Bitcoin

Peter Šurda — Wed, 03 Oct 2012 19:55:56 GMT

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.