Saturday, April 30, 2016

Major problem with constant quantity coin like bitcoin

Attempted RECAP:

If savers of a constant quantity coin loan it out like dollars (capital investment or whatever), and if it is the world's default currency like the dollar, major problems will arise if they save more than they spend.

First consider the problem if more people simply save and use the coin more in transactions, without loaning it out. The number of coins usable for transactions dries up. Even if Keynesian economics does not apply (wages and prices were not sticky) there is a problem. Or rather, wages and prices are sticky because prices and wages will have to decrease in terms of the currency. Long-term contracts could not be written in terms of the coin. Stability of prices and wages does not result from a constant-quantity currency, but from an expanding  coin (and contracting in a downturn).  This problem is also the appeal of a constant-quantity coin to savers. They get more than their initial purchase for nothing.  A deflating coin does not benefit everyone, it only means past savers get more financial power over future workers and over future savers to a degree that is GREATER than the work they provided in order to make the initial purchase.

But the situation is MUCH worse if they DID invest in society and obtain interest in return for loans.  The key problem is that loans are normally made at a rate that is greater than the productive capacity increase in society that is supposed to result from the loan.  Even loans with an expanding currency lead to an exponential increase in savings. A shilling loaned out since Jesus at 6% would be worth a block of gold the size of the solar system, minus uranus and pluto... back in 1769.

Savers of a constant quantity coin become excessively powerful over late-adopters and non-savers if they loan it out at interest. At some point, workers will abandon the coin in favor of another coin, which is, in effect, enforcing an inflating coin. Workers need an inflating coin that inflates to keep up with the coin's use, not enough to cause any inflation. But like past savers, they will be guided towards a deflating coin. Changing coins is never easy also because currency gains infrastructure and thereby monopoly status. Bitcoin has an infrastructure like the dollar that pushes workers towards adoption even if it were not deflating.  The existence of cryptocoins may not increase ability to switch, so the above problems may be unavoidable.

Once a monopoly like Google, FB, youtube, and Amazon are established, switching is not easy unless the underlying technology changes everything (Amazon replacing Walmart, Wikipedia replacing encyclopedias). The difficulty in switching is the degree to which abuse will occur. The free market promotes monopolies and is thereby not really free as a result of people needing a single standard in many things. Lack of a standard is chaotic in a bad way.

A constant-quantity coin is really a deflating coin, which adds the problem of it acquiring monopoly status without the macro-economic merit that a constant-value coin would have.

Even miners saving transaction fees is a fundamental problem as it forces value to increase beyond the amount they invested to acquire it.  A saver's unjustified gain from deflation is a late-adopter's unjustified loss.

Loaning the coin amplifies this effect. Debtor's will be pushed by loaners into the coin for this reason, the same way the IMF and World Bank pushed 3rd world countries into loans based on an external currency (they pushed the dollar in Latin America and Asia, and the Euro in Greece, Latvia, Iceland, and Ireland). As those economies collapse(d), they do (did) not have the ability to reduce the quantity of the coin in which the loans were made, which is a type of default.  If they had been allowed to take the loans in their own currency, the loaners would have made DARN sure the society would succeed as a result of the loans, instead of pushing them into selling off natural and tax-payer-built infrastructure. Loans should be like stock investments where the loaner has a vested interest in the success of the debtor, preventing the debtor from becoming enslaved. A contract with such one-sided terms should not be legal (heads you and I win, tails I win and you lose). A free market with these types of loans with no government oversight has a "benefit" and justice served: population reduction where the loaners will eventually have killed the enslaved and then have to start working themselves.

Bitcoin could be used mainly as a store of value.  For example, banks and rich people could choose it for transfers without increasing its use in market pace transactions. Miners would sell profits as they are gained for a currency that expands and contracts with society's productive capacity and thereby has a stable value for wages and purchases. This still results in early adopters unjustly gaining at the expense of late adopters.

Here are some related tweets
Like every other holder, I hold bitcoin because I want to be in the ruling class, getting something for nothing.

Wanting to get something for nothing is a ruling class moral.

If BTC succeeds, we will be to that extent. We gain at later-adopters' expense, getting more of world's pie w/o contributing to it.

AndreasMAntonopoulos
Not like every other holder. That's your reasoning but it's not universal.

AndreasMAntonopoulo
 Banks can't adopt a public, open, borderless network like bitcoin. The regulations prevent them from doing so
They can buy it up before the masses, restricting access to it, driving it up, driving up control.

 If the banks adopt faster than the masses, change is questionable. They did it in the late 1800's with gold.

Tuur Demeester
I don't hold BTC to be in the ruling class — I hold it because I want to be free...

Your freedom comes at expense of late-adopters' financial freedom. Constant-quantity coin is ultimate banker CTRL of poor.

Great irony = BTC holders imagining moral or macro-economic benefit, but I shouldn't ascribe selfish motives to selfish outcomes.

World's problem is inefficiency of muscle, brain, bone, and photosynthesis. Solution: machines displace biology. It's accelerating.

 Solar cells 30x more efficient than plants. Doubling fast. Using brains in future = like using shovels to dig. Not good end 4 DNA.

How are coin coders/miners/holders different from gov/banks/voters? No difference?

Miners/coders/holders prop each other up at expense of new entrants. Ladder-up=holding coin & loaning it out @ 5% BTC


 Constant currency may work in Germany, but not most places using anglo-dutch lending. https://books.google.com/books?id=xH5w

1) It must be at least mixed as transactns will be miners' fees. No trans=no protection/value. Making more transactions possible...

2) is a bad thing because that allows it to be used for wages & prices instead of large asset transfer. If wages & prices made ..

3)  in BTC then it becomes entrenched & usable as a weapon against non-wealthy. Or rather, loans in it should not exceed debtors...

4) assets, at least on macro scale so that debtors are not in a required downward spiral unless ruining debtors is a goal. Loans

5) should be an at-risk partnership like a stock where creditor does not succeed unless debtor succeeds. Destroying debtor at ...

6)creditor's gain wrongly makes loans diff from stocks: heads creditor wins, tails creditor wins = anglo/dutch loans,not in Germny.

 It does nothing fundamentally different. Merchants-workers-customers transacting in it will run afoul of coders/miners/holders..

1st group wants stability or inflation to fight against the "bankers" trying to make it deflate.

holders="immoral" on accident if it becomes default transaction currency instead of mainly large transferr payments like gold.

Once mining stops, If you do not pay your taxes (fees), you're isolated from transactions.~same

 A world BTC w/ infrastructure-based-monopoly on currency & held by banks loaning @ % = unmitigated disaster due to fix-quantity.

They would continue to gain BTC, driving its value up, needing to loan out less & less = parasites choking off economic activity

This is called "the magic of compound interest" applied to a fixed quantity coin, which is worse than http://michael-hudson.co

Switch just as hard as now if govs required tax payment in BTC (banking/Satoshi lobbies) & 90% merchants & apps required it.

$ is dominant not by force but like youtube, VHS, Google, M$ etc monopolies: society needs a single infrastructure=bitcoin danger

So my logic applies only if "bitcoin everywhere". Switching could prevent evil, but world stuck on $ did not prevent evil.

Youtube relevance = infrastructure = BTC relevance. World not forced on $ except by financial system infrastructure.

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