Wary of Bitcoin? A guide to some other cryptocurrencies
arstechnica.com
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What I want is something like PPC, except do it even better - you want a system that will generate coins just enough to make hoarding money a net loss. So if the coins themselves are rapidly becoming more valuable, you should introduce some algorithmic way to inject a lot of coins into the monetary supply, and if they are losing value you want to throttle coin generation.
It would require the distributed network to agree on what the coins value is doing - which would be very complicated. But just flat fixed inflation of the monetary base annually works better than having a finite money supply that eventually means you are doomed to a deflationary spiral.
It is probably chief amongst why BTC is such a commodity right now - since we already have over half the total bitcoins already in the system, the monetary base over the next hundred years is only going to grow less, and as more people want in on BTC, there is higher demand for a resource that has dwindling supply (especially once the rate of lost wallets and the coins therein outpaces the mining of new blocks).
AIUI the main argument against this is that it does nothing to encourage early adopters - why would anyone use my FRC when they can always just start mining them later if they become popular. Still, I'm interested in pursuing this if there's demand.
I don't say this as a Bitcoin fanboy. Bitcoin is far from ideal, but it is good enough, and capable of evolving to stay good enough. In my opinion, there is zero chance of another cryptocurrency being superior as money in the near future.
I rather suspect that replacing Bitcoin with something new and improved might first be like replacing Lycos or Excite (used as a search engine) with AltaVista, and then later like replacing AltaVista with Google. We won't know what a currency with true critical mass looks like until we see one. I can't predict what important feature differences the next electronic currency will offer that provide more user value than Bitcoin offers, but it's quite plausible to me, given the history of technology, that Bitcoin hasn't closed the market to other entrants yet.
From a nephew comment:
Reddit has become integral to the culture in a way comparable to Twitter and Facebook
Nope.
Bitcoin is still staggeringly unadopted amongst the general population - it's like declaring Prodigy the winner in digital communications. Meanwhile, any currency is "as good" as Bitcoin when it is accepted and easily converted - so if CoinBase or Mt. Gox add new currencies, instantly they work as well as Bitcoin (as money, not necessarily as an investment) for the customer or merchant.
Only in information-poor environments does one need currency near-monopolies for economies to thrive - this is no longer the case.
So, the future? Hundreds of cryptocurrencies, private currencies, and still mostly good old fashioned government currencies. All instantly convertible so no merchant need really care what a customer pays in, as long as he gets the one his obligations are predominantly denominated in.
As a medium of transfer, you may be correct.
As a store of value - I find it hard to believe another cryptocurrency will approach Bitcoin.
Bitcoin just so happens to be the most popular cryptocurrency right now, but relatively speaking it's not all that popular. Its deflationary nature might be its downfall and there's certainly room for something to take its place, and it's very myopic to say that just because something appears somewhat popular now that it will remain that way forever.
This is very different than the situation with cryptocurrencies, where Bitcoin came out long before the competing derivatives, and where mindshare and market capitalization of alternative cryptocurrencies has always been insignificant compared to BTC.
Bitcoin could be more properly compared to HTTP, and alternative cryptocurrencies as protocols that are slighty modified versions of HTTP that no one uses.
There's some real cognitive dissonance if you think that bitcoin has a chance against fiat but no currency could take on bitcoin.
Bitcoin isn't going to destroy fiat currency, it's going to complement it.
And I find it unlikely that anyone would hold any cryptocurrency other than bitcoin, since it will be difficult to create the perception of value once a currency has been established.
Bitcoin can't do fast or even reasonable speed transactions (aka less than 10 minutes) and unless that's fixed it's doomed.
There's no reason to believe any significant portion of miners will adopt the patch in the future either, because mining pools have a long term interest in the success of Bitcoin as a whole, and adding replacement for fee would jeopardize it.
The alternative cryptocurrencies are virtually identical protocols to Bitcoin, using a fork of the code, but are just incompatible with BTC clients.
They came out much later than Bitcoin and at no stage in the last four years have they come close to rivaling Bitcoin's mindshare or market capitalization.
It's possible that in the future, a completely new protocol will come out that will be significantly better than BTC, but so far there's nothing on the horizon, and I think it's unlikely someone will make a Satoshi Nakamoto like effort and create one.
Regarding the presence of alternatives, that is in fact the entire point. Money that you do not need liquid and at hand for cash flow purposes should be invested or spent. That keeps the monetary supply moving at a high and near-constant velocity. It also creates a marketplace for credit as people are in need of investment opportunities which do better than demurrage.
It's a little confusing, but what we're trying to do is to separate the medium-of-exchange from the store-of-value: two very different purposes for money that are naturally at odds with each other.
References: https://en.bitcoin.it/wiki/List_of_alternative_cryptocurrenc... http://www.freicoin.org/application-developer-best-practices... https://bitcointalk.org/index.php?topic=134629.0
Suppose for some reason I have to use Freicoin to make a purchase. Since it rots, I keep my wealth in something else (Bitcoin, for sake of example). I go into an exchange and sell some btc for Freicoin, and make my purchase.
On the seller side, they've now got a bunch of rotting Freicoin. So, they go into the market and sell them for, say, bitcoin (or their preference for wealth).
Why would either the buyer or seller go through the extra hop (commissions) of Freicoin when Bitcoin (or whatever non-rotting FX is liquid) serves as both a store of value and a medium-of-exchange.
I challenge the claim that a medium-of-exchange is diametrically opposed to a store of wealth. You need wealth storage to maintain liquidity, do you not?
Nothing to be confused about - that's exactly what it is supposed to be: a high velocity ("hot potato") currency.
> Why would either the buyer or seller go through the extra hop (commissions) of Freicoin when Bitcoin (or whatever non-rotting FX is liquid) serves as both a store of value and a medium-of-exchange.
By your example you are a merchant and some customer just paid with freicoins. Now what do you do? Yes you could convert it into bitcons and take the instant 1% commission + spread loss. Or you can use parts of it to meet your current obligations and put the rest in freicoin investments. I fully expect services resembling money-market accounts to come into being fulfilling this niche.
> I challenge the claim that a medium-of-exchange is diametrically opposed to a store of wealth. You need wealth storage to maintain liquidity, do you not?
I'm not sure I understand your question here. Stored wealth is not on the market and therefore subtracts from liquidity.
This is not a new phenomenon, rather it is exactly the situation community currencies find themselves in.
Which is a way of saying that liquidity decreases at one point in time and then increases at a later point in time. If that were an entirely stochastic process it wouldn't be a concern, but it's not. Wealth tends to enter and leave the markets in a correlated fashion based on macroeconomic factors, coming and going en masse to detrimental effect (c.f. the credit crunch).
The key concept that keeps getting avoided here is Freicoin's value in the face of alternatives. I think you're just as coupled.
We got the credit crunch because of "liquidity spirals" causing lending channels (banks) to hoard cash out of uncertainty. This worked for them (although it brought the whole global economy down) because fiat cash is non-perishable. “Cash in the bank” never decreases -- so long as the bank doesn't go under and you don't live in Cyprus, but that's another story. Demurrage, on the other hand, would cause rational actors to seek other liquid investments to put their assets, thereby keeping the medium of exchange in circulation and available for lending.
I'm going to guess you're citing Worgl, which was a tiny experiment in a small town of 2000. How about the American experiments in 1932-33? Disasters. Canada? Fail.
> We got the credit crunch because of "liquidity spirals" causing lending channels (banks) to hoard cash out of uncertainty.
Yes, banks decreased lending due to the uncertainty of collateral upon which those loans are based.
> ...brought the whole global economy down...
Define that. Economy looks OK to me, especially compared to environment that spawned the economic theories you're working with. You're employed in a place that constantly complains about the need for more skilled labor and hires my idiot friends with MS degrees and zero experience for $150k/year + options.
> [Hoarding cash worked for the banks because] fiat cash is non-perishable.
If cash was perishable, they would just move it into something that wasn't. Keynes argued this point before me.
> Demurrage ... would cause rational actors to seek other liquid investments to put their assets...
Yes, I 100% agree.
> ... thereby keeping the medium of exchange in circulation and available for lending.
Nope. You need buyers. You don't have any.
Since your currency rots, the consumers that don't spend it all on goods are either trying to sell it or trying to spend it. The vendors that were willing accept it in exchange for their goods are also trying to sell it. The value plummets and eventually vendors stop accepting it. A chunk of wealth vanishes into the ether and we all get a little more "equal" in the eyes of Occupy. Freicoin is a new modality of an old "-ism". The ultimate goal is the destruction of capital. For your idea to work, you need an authoritarian government to enforce it. Terrifying.
$ is the devil we know.
In other words, interest rates might start climbing again sooner than you think.
http://online.wsj.com/article/SB1000142412788732474410457847...
having said that, silvio gesell, the spiritual founder of freicoin, was very anti-semitic and there are substantial claims that the whole concept of schwundgeld is tainted by structural anti-semitism.
i don't know any english sources, but for those speaking english, have a look at the book "Schwundgeld, Freiwirtschaft und Rassenwahn" by peter bierl.
http://www.konkret-magazin.de/konkret-texte/texte-archiv/kon...