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On March 23 2014 22:27 DoubleReed wrote:You don't judge inflation and deflation by oil/gas prices. They're far too unstable. You'll get random data and noise. Show nested quote +That's interesting. How is that any more arbitrary than the US economy being fiat money and speculators deciding to back the dollar based on oil and gas prices? If bitcoin was tied to anyone's economy I could see where you're going, but being that it is globally decentralized shouldn't the analysis of it be different? There could very well be a problem here, but since this currency belongs to no one, the problem space should look different, correct? Can you point to some actual bitcoin based data to back up these claims? So let me get this straight: One currency we have the FED which looks at the economy and decides whether or not we need to lower interest rates. In the other case, this is entirely impossible and coins are mined at a rate determined by the initial algorithm we used to set it up. And you're going to ask me why the second one is "any more arbitrary" than the first one. You're an idiot. Hell, even talking about speculators, at least the speculators are looking at something in the economy. That's not nearly as arbitrary. Saying that it's a globally decentralized currency is just saying that the arbitrariness is inherent to the currency. Yes. I know. That's what I've been saying the whole time. If I'm selling you a minivan, and you say that you need a sports car, and then I say "Well yes but it's supposed to be a minivan." That's not an argument. What are you acting like it is? You are the one that has to present monetary arguments why it is not the case. You don't just say "Yea but this time it'll be different because cryptocurrencies are NEW!" No, asset-based currencies are not new. Deflation isn't new. Even spending huge amounts of gigawatt-hours just to expand the money supply isn't new. Show nested quote +Deflation in and of itself isn't bad. Especially when it's not massive. The entire late 1990s were actually deflationary in the USA, and that was one of the best chunks of the economy of the 20th century. The issue is when it's Debt Deflation (i.e. your debt becomes worth a whole lot more) without deflation in the rest of the economy (or what the USA got hit with due to the gas-price spike: Cost Inflation & Debt Deflation). Deflation is also a problem when it's driven by panic and not economics. Deflation is in of itself bad. And no, not just when it's massive. Even low inflation is in of itself bad. I have no idea what you're talking about with the 1990s being deflationary. Here's a link. Here's another link. Here's an inflation calculator. They all contradict you. The FED tends to ignore the unstable data from gas/oil prices when it determines interest rates.
To emphasize this point, let me paste a quote I had earlier:
In a deflationary system, it is a perfectly valid strategy to stuff your currency into your mattress and let it appreciate through external market forces alone. The more this happens, the better it becomes as a strategy. People begin scrounging and the economy grinds to a halt as saving becomes the best way to make money, since people try to buy as little as possible to save the most.
Fundamentally the currency (along with other cryptocurrencies) is designed to be hoarded for as long as possible. It cannot be used as a medium of exchange like this.
As for the 3rd sentence, "Even low inflation is in of itself bad," that's not exactly true. Low inflation is only bad because it increases the likelihood of deflation. If there was a decree by GOD ALMIGHTY himself that deflation would not happen even if inflation hit 0.00001%, that would (probably) prevent really low inflation from being horrible. However, the Fed is made up of people with a social science that isn't completely understood, so that promise isn't possible.
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There's nothing magical about crossing over from 0.1% inflation to 0.1% deflation. It's not like businesses are thinking "we have 0.1% deflation, better hold onto our cash instead of investing in new production/workers... oh shit guys, 0.1% inflation, spend spend spend!" Too low of inflation is the same problem as deflation, just at a lesser magnitude.
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On March 24 2014 00:38 ShadowDrgn wrote:
There's nothing magical about crossing over from 0.1% inflation to 0.1% deflation. It's not like businesses are thinking "we have 0.1% deflation, better hold onto our cash instead of investing in new production/workers... oh shit guys, 0.1% inflation, spend spend spend!" Too low of inflation is the same problem as deflation, just at a lesser magnitude.
I was emphasizing that while inflation can be good or bad, macro-level deflation is never good. It is always a bad thing. Yes, it's more of a comparison to how it relates to investments, and whether cash is a good investment compared to stocks and bonds.
It's not spending vs saving. It's what you're doing with your savings.
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I was responding to aksfjh and agreeing with you. 
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Doublereed do you have any evidence to support these arguments you are making? It's that simple. If the deflationary nature of bitcoins is such a problem, where do I go to find this information? What numbers should I be looking at?
So let me get this straight: One currency we have the FED which looks at the economy and decides whether or not we need to lower interest rates. In the other case, this is entirely impossible and coins are mined at a rate determined by the initial algorithm we used to set it up.
This algorithm can not only be changed, but additional coins can be mined if the community wanted to by just changing the Bitcoin protocol. The only difference is the FEDS are a central decision maker where as the Bitcoin community would have to vote. Do you actually understand what the Bitcoin software is? And watch your mouth with the name calling. Keep it civil, bruh.
On March 23 2014 18:43 et wrote:Show nested quote +On March 23 2014 17:56 Ace wrote:
To mine 1 bitcoin costs iirc around 2 gigawatts of electricity (I'd have to go digging for this again).
This makes no sense. Watt (and Gigawatt and so on) is the unit used to quantify the rate of energy consumption. To get energy (which determines cost) you have to multiply it by time, so your measure should be something like "Gigawatt hours", or seconds instead of hours or something.
Yea it should be per hour. I read the discussion on bitcointalk months ago. I'll go back and search for it, but I remember it being insanely cheap to mine coins.
ETA: This guy says what I've been saying all along in a much better way. Math is easy.
There's a lingering misconception out there that deflation will be a problem for Bitcoin, and that will prevent it from widespread use.
The argument (which, full disclosure I used to believe) basically goes like this: Because there's a fixed amount of the coins, people will horde them on anticipation of rising prices, and this hording will prevent the actual spending of currency, and therefore Bitcoins can only be speculative tools.
This argument stems from the correct argument that economists make about national fiat currencies, which is that when you're in a period of deflation (characterized by falling prices and a rising currency) economic activity slows down, because you'll have more buying power tomorrow than you did today, and so what's the rush to spend?
But the argument does not work for Bitcoin.
Bitcoin is fundamentally a way to make transactions in a fiat currency. If you want to sell me something for $850, I could pay you in cash, credit card, via PayPal, bank wire, or possibly Bitcoin. How many Bitcoins this transaction requires (currently it would be right around one) is a function of fluctuating Bitcoin prices, but essentially we're carrying out a dollar-priced transaction and using the Bitcoin as the payment system.
If the price of a Bitcoin were to surge 10-fold from here, it really wouldn't matter for the purposes of our transaction, because then I'd just pay you 0.1 Bitcoins. It's still just a $850.
Source - http://www.businessinsider.com/bitcoin-doesnt-have-a-deflation-problem-2014-2
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Well, then why are you talking about bitcoin as a currency, then? All that's saying is that it will never be a valid currency and shouldn't be considered as a currency.
Okay. I've got no problem with that argument, except for the part where we're using real-world resources to mine coins essentially for no purpose whatsoever. You may as well have a fixed amount from the start in that case just so that we don't have to spend money and time mining.
This algorithm can not only be changed, but additional coins can be mined if the community wanted to by just changing the Bitcoin protocol. The only difference is the FEDS are a central decision maker where as the Bitcoin community would have to vote. Do you actually understand what the Bitcoin software is? And watch your mouth with the name calling. Keep it civil, bruh.
No. I don't understand. I have seen nothing to suggest this and I have no idea what you're talking about.
+ Show Spoiler +For Bitcoins the search is not actually for prime numbers but to find a sequence of data (called a ‘block’) that produces a particular pattern when the Bitcoin ‘hash’ algorithm is applied to the data. When a match occurs the miner obtains a bounty of Bitcoins (and also a fee if that block was used to certify a transaction). The size of the bounty reduces as Bitcoins around the world are mined.
The difficulty of the search is also increased so that it becomes computationally more difficult to find a match. These two effects combine to reduce over time the rate at which Bitcoins are produced and mimic the production rate of a commodity like gold. At some point new Bitcoins will not be produced and the only incentive for miners will be transaction fees.
http://www.businessinsider.com/how-bitcoins-are-mined-and-used-2013-4#ixzz2wp6MM1FX
I've yet to see anything to suggest that there is any way to adjust the difficulty of mining bitcoins depending on economic outlook.
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Zurich15312 Posts
On March 24 2014 00:55 DoubleReed wrote:Show nested quote +On March 24 2014 00:38 ShadowDrgn wrote:
There's nothing magical about crossing over from 0.1% inflation to 0.1% deflation. It's not like businesses are thinking "we have 0.1% deflation, better hold onto our cash instead of investing in new production/workers... oh shit guys, 0.1% inflation, spend spend spend!" Too low of inflation is the same problem as deflation, just at a lesser magnitude. I was emphasizing that while inflation can be good or bad, macro-level deflation is never good. It is always a bad thing. Yes, it's more of a comparison to how it relates to investments, and whether cash is a good investment compared to stocks and bonds. It's not spending vs saving. It's what you're doing with your savings.
True, in general.
However, as long as everyone is still getting their paycheck in Dollars or Euro, and Bitcoin is just used along with "real" currencies we are not having macro-level deflation. That is why I would hesitate to even call the built in deflation a problem. We simply don't know how it would play out, assuming Bitcoin got fairly stable at some point.
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What portion of the businesses that "accept bitcoin" actually take bitcoin directly as opposed to using a service like Bitpay that converts the bitcoin to "fiat" currency that they actually accept? Because I would think of the latter type of business as one that doesn't actually accept bitcoin, it just wants to cultivate the business of bitcoin enthusiasts (but wants actual useful currency in the cash register).
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I don't think a business using a service like Bitpay to accept bitcoins and convert them into their local currency is any different than accepting a foreign currency. For example, if you want to buy from a German company with US dollars, a bank will act as a middle-man to take your dollars and give euros to the German company. Dollars aren't useful currency in the cash register in Germany, after all. Bitpay is simply providing a similar currency conversion service that a bank would. For you, you get to spend your bitcoins; for the company, they get to avoid high credit card and transaction fees. I think that counts as accepting bitcoin.
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Zurich15312 Posts
Of course it "counts", it's a silly thing to say it doesn't. A merchant takes Bitcoin from a customer in exchange for goods. There, the merchant is accepting Bitcoin.
What the merchant does with the Bitcoin after is irrelevant.
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On March 24 2014 00:38 ShadowDrgn wrote:
There's nothing magical about crossing over from 0.1% inflation to 0.1% deflation. It's not like businesses are thinking "we have 0.1% deflation, better hold onto our cash instead of investing in new production/workers... oh shit guys, 0.1% inflation, spend spend spend!" Too low of inflation is the same problem as deflation, just at a lesser magnitude.
At the 0% threshold, there is no longer punishment for holding cash. If deflation couldn't happen, there would be no reason not to invest it as long as there was some guaranteed return. I guess my gripe is really about a world that doesn't exist though (one which deflation is impossible), so it doesn't really matter.
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On March 24 2014 04:51 Ace wrote:ETA: This guy says what I've been saying all along in a much better way. Math is easy. Show nested quote +
There's a lingering misconception out there that deflation will be a problem for Bitcoin, and that will prevent it from widespread use.
The argument (which, full disclosure I used to believe) basically goes like this: Because there's a fixed amount of the coins, people will horde them on anticipation of rising prices, and this hording will prevent the actual spending of currency, and therefore Bitcoins can only be speculative tools.
This argument stems from the correct argument that economists make about national fiat currencies, which is that when you're in a period of deflation (characterized by falling prices and a rising currency) economic activity slows down, because you'll have more buying power tomorrow than you did today, and so what's the rush to spend?
But the argument does not work for Bitcoin.
Bitcoin is fundamentally a way to make transactions in a fiat currency. If you want to sell me something for $850, I could pay you in cash, credit card, via PayPal, bank wire, or possibly Bitcoin. How many Bitcoins this transaction requires (currently it would be right around one) is a function of fluctuating Bitcoin prices, but essentially we're carrying out a dollar-priced transaction and using the Bitcoin as the payment system.
If the price of a Bitcoin were to surge 10-fold from here, it really wouldn't matter for the purposes of our transaction, because then I'd just pay you 0.1 Bitcoins. It's still just a $850.
Source - http://www.businessinsider.com/bitcoin-doesnt-have-a-deflation-problem-2014-2
This makes no sense :/
He's saying that if you have 1 bitcoin you could spend it and buy $850 worth of goods, but if you wait a week you would spend 0.1 bitcoin and buy $850 worth of goods so it's the same. But it's not the same, because in the second situation you still have 0.9 bitcoins left to spend which surely is the definition of having more spending power tomorrow than you did today?
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@zatic
you say it doesn't matter after the store receives the bitcoin but that is actually the main problem.
The store/store owner has to be able to pay overhead and restock his shelves.
How can he do that with something that really has no defined value or backing to guarantee that fluctuations would not hit his operations and capital already sunk into the business.
Majority of you who are pro bitcoin only see the upward trend. Granted it did happen, but what of the bitcoins held during the drop in price? You can't simply argue that the store owner/store is irrelevant since they accepted the bitcoin. If the bitcoin halved in price and stayed at that level for a month before it normalizes, would you expect the store to wait a whole month before he restocks?
It would be different if everyone or majority accept bitcoins, but I see it as a fad and an "up yours" to the established system. But as I mentioned, the main flaw of bitcoin is it's trading ability is dependent on already flawed currency.
You should not have based bitcoin on it (to trade) if the argument was the create a new means of trade to break away from the flawed fiat system.
Not only is the bitcoin (as currency) in a constant state of flux with no way of knowing if it will even be able to "normalize", but you based the value off of fiat currency to justify a trade/transaction (which bitcoin supporters admit to as a flawed system already). So you stacked a building on weak foundations as well which makes no "f-ing" sense if it is meant to create new currency.
It would just be the same as calling bitcoins microsoft points/xbox credit but expanding their market further. But at least with those system, the value isn't in a constant state of flux.
Arguments have also pointed out gains of 1 bitcoin being able to buy 1 "something", and eventually tomorrow 10. But how about 1 bitcoin being able to buy 10 "somethings" now but 1 later? The one who accepts the bitcoin is at the losing end.
You can argue that fiat currency also suffers the same but fiat currency is a bit more stable in that it doesn't happen within a day or two. You can't stop it in bitcoins can you?
I also don't get the mining part when the actual bitcoin numbers are near peak/max quantity. The algorithm makes it harder to mine, therefore, it won't make sense to keep your system mining and running to atempt to mine bitcoin when it clearly isn't worth it anymore.
But isn't the "ecosystem" of bitcoin also dependent on those miners continously running to support it and provide the checks for security of the whole system? What happens when it bogs down due to lack of interest in mining as well? Who then runs the servers to continously support checking of authentic bitcoins?
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Zurich15312 Posts
On March 26 2014 19:22 17Sphynx17 wrote:
@zatic
you say it doesn't matter after the store receives the bitcoin but that is actually the main problem.
It doesn't matter for assessing whether a merchant accepting Bitcoin "really counts" as accepting Bitcoin.
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Zurich15312 Posts
On March 26 2014 19:22 17Sphynx17 wrote:
I also don't get the mining part when the actual bitcoin numbers are near peak/max quantity. The algorithm makes it harder to mine, therefore, it won't make sense to keep your system mining and running to atempt to mine bitcoin when it clearly isn't worth it anymore.
But isn't the "ecosystem" of bitcoin also dependent on those miners continously running to support it and provide the checks for security of the whole system? What happens when it bogs down due to lack of interest in mining as well? Who then runs the servers to continously support checking of authentic bitcoins?
Transaction fees. Please read at least the Bitcoin Wikipedia page: http://en.wikipedia.org/wiki/Bitcoin#Block_chain
This is very basic stuff and shouldn't have to be repeated every second page of this thread
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On March 26 2014 19:38 zatic wrote:Show nested quote +On March 26 2014 19:22 17Sphynx17 wrote:
I also don't get the mining part when the actual bitcoin numbers are near peak/max quantity. The algorithm makes it harder to mine, therefore, it won't make sense to keep your system mining and running to atempt to mine bitcoin when it clearly isn't worth it anymore.
But isn't the "ecosystem" of bitcoin also dependent on those miners continously running to support it and provide the checks for security of the whole system? What happens when it bogs down due to lack of interest in mining as well? Who then runs the servers to continously support checking of authentic bitcoins? Transaction fees. Please read at least the Bitcoin Wikipedia page: http://en.wikipedia.org/wiki/Bitcoin#Block_chain This is very basic stuff and shouldn't have to be repeated every second page of this thread
@zatic
Obviously transaction fees. You didn't need to repeat it but it is clearly there in the wiki as well.
"The Bitcoin transaction is a digitally signed message transferring the ownership of bitcoins from one "Bitcoin address" to another. For the transaction to take effect it must be recorded in a public ledger or public transaction database called the block chain. Approximately every ten minutes a bundle of transactions, called a "block", is added to the block chain. The incentive for this accounting process, known as "mining", carries a reward of 25 bitcoins per block added to the block chain.[19] This 25 bitcoins reward maintains the integrity of the Bitcoin system by allowing the computers that confirm transactions to also mint new bitcoins in the process"
The transaction fees are in bitcoin (which fluctuate not only up but also down). And part of the mining that is done is supportive of the system.
given that there is a max of 21 million bitcoins (talking about the whole number here), those that support the system thruy mining will slowly see lower and lower returns over time given the graphs showing bitcoin mining viability which sort of levels of when it is near the limit. Hence you are taking longer and longer to complete a block correct?
"As of 2014 payment processing is rewarded with 25 newly created bitcoins per block. To claim the reward, the miner includes in the block a special transaction called the "coinbase" that assigns the reward bitcoins to an address of the miner's choosing. All bitcoins in circulation can be traced back to such coinbase transactions. The Bitcoin protocol specifies that the block reward will be halved to 12.5 bitcoins in 2017 and again approximately every four years thereafter. By 2140 there will be 21 million bitcoins, and transaction processing will only be rewarded by the transaction fees"
So once the mining outside stops, the actual exchange needs to continue "mining" to support the ecosystem since outside support is almost non-existent.
Given that concept, the return on the actual act of mining is low, the transaction fees need to increase to support the running costs, especially for the exchange doesn't it?
You are only looking at bitcoins for users, how about those that need to keep the gears running? That is my question which is not answered.
The idea is good and I am not against the purpose, but it seems still flawed in the grand scheme of things, heck it is more flawed that fiat currency. So I still do not get the argument for bitcoins.
Why not just have a buy in to the system altogether to create the liquidity to begin with to avoid the sudden fluctuations.
Being your own "bank" is a neat idea, but that is still what it is, an idea. As long as bitcoin itself doesn't have its own value without depending on other fiat currency, what is the point?
If the transaction fees later on in life are fiat currency based then again, what is the point? Bitcoin itself can't viably pay for the service if bitcoin can't be used as payment for mining and supporting the system. But as it is stated, the "reward" in bitcoins go down over time, so if the conversion from bitcoin to fiat currency doesn't go up which expenses do go up relative to the currency exchange present in your country, then you lose more just by supporting the bitcoin system.
It still doesn't make sense in the grand scheme of things.
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Zurich15312 Posts
Transaction fees (which are currently almost non existent) need to rise, yes. This is not new, part of the Bitcoin specification, and well understood.
Whether this will be a problem, is entirely uncertain. We simply don't know. There are projections that it will be a problem, while others argue it won't.
I personally don't lean either way, but one thing is clear: We are talking about a situation years or even decades from now. Even with a further price drop and the halving of mining rewards in 2017 mining will still be profitable.
I don't understand where you are going with the rest of you post.
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On March 26 2014 16:22 Svetz wrote:Show nested quote +On March 24 2014 04:51 Ace wrote:ETA: This guy says what I've been saying all along in a much better way. Math is easy.
There's a lingering misconception out there that deflation will be a problem for Bitcoin, and that will prevent it from widespread use.
The argument (which, full disclosure I used to believe) basically goes like this: Because there's a fixed amount of the coins, people will horde them on anticipation of rising prices, and this hording will prevent the actual spending of currency, and therefore Bitcoins can only be speculative tools.
This argument stems from the correct argument that economists make about national fiat currencies, which is that when you're in a period of deflation (characterized by falling prices and a rising currency) economic activity slows down, because you'll have more buying power tomorrow than you did today, and so what's the rush to spend?
But the argument does not work for Bitcoin.
Bitcoin is fundamentally a way to make transactions in a fiat currency. If you want to sell me something for $850, I could pay you in cash, credit card, via PayPal, bank wire, or possibly Bitcoin. How many Bitcoins this transaction requires (currently it would be right around one) is a function of fluctuating Bitcoin prices, but essentially we're carrying out a dollar-priced transaction and using the Bitcoin as the payment system.
If the price of a Bitcoin were to surge 10-fold from here, it really wouldn't matter for the purposes of our transaction, because then I'd just pay you 0.1 Bitcoins. It's still just a $850.
Source - http://www.businessinsider.com/bitcoin-doesnt-have-a-deflation-problem-2014-2 This makes no sense :/ He's saying that if you have 1 bitcoin you could spend it and buy $850 worth of goods, but if you wait a week you would spend 0.1 bitcoin and buy $850 worth of goods so it's the same. But it's not the same, because in the second situation you still have 0.9 bitcoins left to spend which surely is the definition of having more spending power tomorrow than you did today?
He's not talking about spending power, he's addressing the problem of "there's only 21 million bitcoins at max". I'll try and phrase it another way: If instead the number was 21 quadrillion (million, billion, trillion, quadrillion) amount of coins, the issue wouldn't be the number of coins in circulation because that's more than enough. The true issue is what the value of the smallest unit of BTC is relative to the currency you're converting it to. I think this is where the arguments are coming from because people look at 21 million and think of it as a ceiling. What some of us are saying is this ceiling is so incredibly high that that isn't a problem.
@sphinx/zatic:
I actually had a big response typed up but scrapped it because I think I see where sphinx is coming from. It's the same concern I voiced a while ago. Why would anyone keep the system going just to get paid in transaction fees when we're near the end of the mining limit? (also sphinx exchanges don't mine coins or run the network, I don't know if this was a typo or misunderstanding of how the network works)
1.) There will be so many transactions that this will be hugely profitable. What sphinx might be saying is if the value of the coins is so low and mining isn't profitable anymore, what incentive do miners have to stick around when no outside force can inject an incentive for them to keep working. Hence people drop out and the system crashes. I also share this concern, although I don't think it has to be an outside force that brings the motivation.
2.) However, if people drop out, the target space for solving the hash problem becomes easier. The difficulty is adjusted based on the power of the network. So now those that stay get to keep all the transaction fees for themselves. This is an incentive to keep mining. If the actual cost of mining is cheap, enough people will always be around to do it.
sphinx does this answer where you're coming from? I'm partially sold on this idea, but I feel there needs to be something else for the network to really take off. I don't think transaction fees, unless they are wildly profitable, will be enough to keep this going decades from now. Then again I don't know how much these people are making although I've read of some huge sums of money being made. I also read the head guy of the dev group talking about coming up with creative solutions to this potential issue. Bitcoin is still an infant technology with stuff that needs to be hashed and I think this is a valid criticism.
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Zurich15312 Posts
This are true and valid points. There is more going into this.
3.) On the long run, the value of BTC is expected to rise, making mining more profitable. We have just been talking about deflation.
4.) Computing power is expected to rise. To what extend is unclear, but there is really no indication why it wouldn't.
5.) Energy costs could go either way. There are miners today operating entirely on solar power.
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probably a bunch of other factors.
Bottom line we are talking about a scenario decades from now, that is influenced by a lot of variables of which we don't know how they will develop. Vague projections is really the only thing we can do at this point.
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EPT
