On Mon, Nov 25 2013, Jim Bell wrote:
I don't agree with your statement, "Bitcoin is only deflationary because the number of people who use it is growing faster than the number of coins in circulation.". To the contrary, my understanding is that a number of factors have combined with the net result that Bitcoin is hyper-deflationary. One major factor has been the shift of bitcoin 'mining' from computer CPUs, to video graphics processors (GPU's), to FPGA (Field Programmable Gate Arrays), and ultimately ASICs (literally, "application-specific integrated circuits"; what used to be called 'custom' IC's decades ago.) While I don't have a specific number, I would not be surprised to hear that an ASIC miner is 1000x faster than even the fastest x86 CPU. If that were the only factor, it would appear that new bitcoins should be 1000x more available than in, say, 2009. However, I also understand that the 'difficulty' of mining bitcoin has been algorithmically increased regularly, in order to make it more difficult to compute to find individual bitcoins. This is programmed into the entire bitcoin system. In fact, it is to the point where the limiting factor to the cost of 'mining' bitcoin is the electricity cost of running the machines, not the cost of the machines themselves. The bitcoin system 'programs' the appreciation of bitcoin by gradually increasing the difficulty of that mining operation. This translates into an increase in the market value of bitcoin. In fact, this is essential to the (theoretical) outcome of bitcoin. I think of it this way: The system is programmed to only allow the generation of 21 million bitcoins. If bitcoin is ultimately to be used to run the entire world economy (why not?) there should be at least one million times more. (Say, 21 TRILLION; 21,000,000,000,000 bitcoins, if we think of the ultimate value of a bitcoin as being roughly equal to the current value of the US dollar, the Euro, the British Pound, etc.) But since they are limited to 21 million, by algorithm, the value of a 2013 bitcoin will have to be increased by a factor of 1000 to stretch to the task of funding a world's market. And that means that the 2 million BTC currently in the wallet most likely owned by Satoshi will presumably increase in value to $2 trillion (USD). "Nice work if you can get it". Is this a problem? Who, instead, would claim that it ISN'T a problem! Bitcoin has many great features, its possibility (through Zerocoin) of being anonymous one of the most intriguing, but there is nothing about a digital currency that requires that it deflates at the rate historically associated with bitcoin. I view this deflation as being arbitrary and capricious, and wildly too large. Like I've said, I don't begrudge Satoshi $1 billion (USD), but I DO begrudge him $2 trillion. If Satoshi's bitcoin rescues us from all governments (enabling 'AM'), perhaps he should be entitled to $10 billion (USD), but not $2 trillion (USC). Jim Bell
I'm far less concerned about Satoshi Nakamoto's ending up a trillionaire than I am about central banks' ability to print money to enrich their friends at will. It's also unrealistic to require that every alternative currency that appears be able to absorb the entire world economy; why can't a cryptocurrency just be one of many options available? I'm hoping Bitcoin is even just one of many *cryptocurrencies* available. Monocultures are fragile. -- Sean Richard Lynch <seanl@literati.org> http://www.literati.org/~seanl/