Dogecoin decides to allow annual inflation of 5 billion coins each year, forever
github.com
github.com
And I get it. That sucks. Personally, I think it's a great thing for Doge. It'll keep up the current "tipping culture", discourage hoarding, and encourage us doge to trade and share, til we get to the moon. Such wow. Amaze. :D
If so, how is dogecoin going to create five billion USD per year via coin buyers to pay for its inflation?
Unless it means something else and I am missing the point?
Also, "to the moon" is a dogecoin reddit joke, it doesn't mean anything in particular
To the moon is simultaneously the moon and the path to the moon.
In the dogecoin community it's a statement that carries an element of self-parody.
Before this announcement, there were only ever going to be 100 billion dogecoin in existence. Now they just decided that they want a 5 billion doge inflation rate per annum, Thereby decreasing the the value of each dogecoin.
Its somewhat similar to the way that the federal reserve pumps money into the market to increase the flow of capital, the dogecoin foundation wants to increase the flow of dogecoin by increasing the supply and access and decreasing the incentive to hoard.
edit the code was already written to be inflationary. The plan was to implement a 100 billion cap in some future version. They scrapped that plan.
There is a reason William Gibson stopped doing straight sci-fi.
Never thought I'd find myself calling a distributed cryptocurrency surprisingly democractic...
For example, take Bitcoin after the cap has been reached and mining bitcoins only gives fees. If 50% of miners cooperate to make blocks worth real bitcoins again, they will suddenly start raking in more profit. They will be devaluing everyone's stores of bitcoins to do it, but people who hold bitcoins have no say in it, only computing power does. If we assume that miners will be the main owners of bitcoins for all eternity then they will probably never agree to this, but if there are a lot of miners with very little in reserve then why wouldn't they accept devaluing bitcoins a little bit to get more per block mined?
Not really; inflation is built into the code and getting everyone to "upgrade" would be difficult.
The idea in the github thread seems to be that the 5% inflation should approximately cancel out the unknown loss of coins that would be going on.
I'm assuming you meant to say 40 billion.
If the blockchain this happened on was serious business you would probably see mass abandonment.
Yeah.
>If the blockchain this happened on was serious business you would probably see mass abandonment.
The hard-currency fanatics would run. But where would they go?
Is there compelling evidence that inflation discourages hoarding? I don't think anyone would agree that USD-centric societies discourage hoarding, unless you think something like investing in mutual funds doesn't fit the term.
Whether this will hold with dogecoin remains to be seen but is somewhat logical.
If you _invest_, you're either buying a productive asset, or storing something valuable for a period of time, or giving money to some other business to spend on equipment, employees etc. in the hope of future return.
No offense, but I think it would be wise to familiarize yourself with the basics of a subject before forming high-confidence blanket opinions about it like that. (The same applies to your other comment about why anyone would think an inflationary economic policy would be desirable at all.)
Sorry if I sound patronizing, but as it happens the link between inflation and hoarding is one of the few well-established empirical facts in economics [1,2,3] with ample historical evidence both from the well-documented shortage effects of price controls [4], to the well-understood effect of changes in bond yields on the money demand [5], which is the cornerstone mechanism of basic monetary policy.
[1] http://en.wikipedia.org/wiki/Hoarding_(economics)
[2] http://en.wikipedia.org/wiki/Inflation
[3] Milton Friedman once said: "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas." From http://en.wikipedia.org/wiki/Price_controls.
[4] http://en.wikipedia.org/wiki/Price_controls
[5] http://en.wikipedia.org/wiki/Monetary_policy#Policy_tools
High-confidence blanket statement? I was asking a question. The opinion in question was poorly worded-- I understand that inflation means money either loses value or must be reinvested in the economy. I just don't think that inflation prevents a wealth incumbency (which I inappropriately referred to as "hoarding").
> (The same applies to your other comment about why anyone would think an inflationary economic policy would be desirable at all.)
I was referring to how the protocols have an identical economic policy (majority rules), not to inflation vs. deflation as economic policy (which I stated explicitly).
I was mainly curious about whether or not inflation vs. deflation matters in terms of preventing a rich-get-richer society. My admittedly poorly worded question seems to have given many HNers an opportunity to feel good about letting me know they understand a classical economic concept.
One is productive, one isn't. That's the key difference.
The difference is even more glaringly obvious if you think about the difference between equity in a productive company, loans to productive organizations, and simply doing nothing.
Dogecoin Bitcoin Litecoin
2015 5.26% 10% 33.33%
2016 5% 9.09% 12.5%
2017 4.76% 4.1% 11.11%
2018 4.54% 4% 10%
2019 4.35% 3.85% 9.09%
2020 4.2% 3.7% 4.1%
EDIT before someone jumps down my throat I am checking the numbers now and the bitcoin one looks to be slightly off, please take this as close, but not exact please. If you have the exact numbers pass them on and I will update.
Especially considering that XDG is barely a few months old, that this decision won't impact anything before the whole 100 billion are mined (which is years from now) and that due to the open source nature of the software the decision can be trivially reversed should the community decide otherwise.
The hilarious thing to note here is that -- over the short term -- this is barely different than Bitcoin's inflation rate. Bitcoin halves its inflation rate every 4 years, but 4 years is a long time in internet time. Here, let's lay them out side by side:
INFLATION RATE BY YEAR
YEAR BITCOIN DOGECOIN
1 inf% inf%
2 100% 100%
3 50% 50%
4 33.3% 33.3%
5 12.5% 25%
6 11.1% 20%
7 10% 16.6%
8 9.1% 14.3%
Dogecoin reward halves every other month until mid 2015
I am just taking the number of new coins created in a year, and dividing it by the number of coins already in the money supply. So if Bitcoin was creating X bitcoins per year for the first four years, the inflation rate for year four was X / 3X = 33%. In year 5, they halved the reward rate, so the inflation rate for year 5 was X/2 / 4X = 12.5%, and for year 6 it was X/2 / (4X + X/2) = 11.1%.
If Dogecoin were minting a constant 5 billion coins per year, then the inflation rate is much simpler: it is always (100/N)%, which is the well-known harmonic series.
Accounting for the initial money supply of 100 billion Dogecoins, it basically just starts further down the harmonic series, and Dogecoin's inflation rate would be 100/(20+X)%, which looks like 5%, 4.8%, 4.5%, 4.3%, 4.2%...
The truly important difference is that Bitcoin has an absolute upper limit, but Doge doesn't anymore. It matters. Scarcity is an important factor for holding value.
Bitcoin will eventually become deflationary, and sooner than you think due to loss of bitcoins.
Dogecoin could also become deflationary. If 6 billion dogecoins worth of value is created in a year and only 5 billion coins to match that increase in value, the economic value of goods created surpases that of the coins created. As a result, you have more goods chasing (relatively) fewer coins, increasing the value of the coin. In other words, less dogecoin gets you more stuff so you actually have (price) deflation.
In the US, during the stupidly-named "long depression" of the late 19th century, prices slowly dropped to about 60-65% of what they were at the start of the period while the total supply of money grew. That's because more goods were chasing (relatively) fewer gold-backed dollars. Monetary inflation coupled with price deflation.
Therefore the Dogecoin money supply after 2015 will be constant: the number of coins in circulation will remain approximately 100 billion, and the value will only increase or decrease as the demand for the currency moves.
Which means that if your grandma stored her wealth in dollars and wanted to pass it onto you, you can only enjoy 3-4% of what's left.
http://4.bp.blogspot.com/-YTyPGaEsBcw/T0Kd1nS9zJI/AAAAAAAABQ...
Since 1928, the S&P has risen 5506%[1]. Over the same period, the dollar has lost 93% of its purchasing power. If you put a dollar on the market in 1928, it would be worth $808 (1928 dollars). A dollar under the mattress is instead worth $0.07 (1928 dollars). Investing had a return 11500-fold greater than hoarding cash.
[1]http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...
In 2011, the gold supply increased at a rate of 1.6%.
Do you think gold is too inflationary to be used at a store of value?
Yes, in theory both Bitcoin and Dogecoin should have inflation until they reach their maximum number of coins, with or without any sort of "built-in" inflation rate. In practice, however, they are both highly deflationary, because they haven't reached their maximum ballpark cap market, which means the demand for them will make its value be highly deflationary, much more than this 5 percent per year figure.
Within the year, it's estimated that nearly 100b doge will be mined. The block target is 1 block/minute, so it will take about 20 years to reach 200b coin in circulation, assuming no irreversible coin loss.
As such, this is nowhere near the "trolling" and otherwise apocalyptic event that the wolves on HN are claiming. It's actually surprisingly sensible economic policy.
Edit: I'm actually a bit disappointed that HN seems to be having such a hard time figuring out how this works.
- It makes the currency much more democratic -- missed the first few months of mining? jump in any time you like and still reap the benefits!
- It neatly circumvents the issue of lost coins -- Bitcoins will keep dwindling over time and there will be no way to keep a consistent number of coins in circulation
- Inflation puts to bed one of the major concerns raised by many traditional economists about Dogecoin; deflation does seem to encourage hoarding
- As a corollary, inflation encourages spending, the growth engine of every modern economy. Like it or not, it works.
I'm mining as much Dogecoin as a I can and will keep doing so. I think this is great news! To the moon!!
I just kinda worry 5 Billion is too much.
Maybe zero to 10k random would be better like the zero to million it started with.
- Lost coins? Analysis can make good estimations of how many coins are lost. The market price will adjust.
- Yes, it puts down concerns from people who believe that inflation is necessary, that is true. Whether deflation is bad is another story, and again, the market takes care of it. If value of the currency goes up over time ("encouraging hoarding"), then the reverse also holds true: merchants lower pricing to encourage spending because they'd rather have bitcoins/litecoins/whatevercoins than the alternatives.
- Same as above. The deflationary aspect has been discussed extensively already, so there's no need to go much further. Here are some nice responses: http://bitcoin.stackexchange.com/questions/66/will-deflation...
Now, as to whether this decision was good or bad, I think it's fairly neutral. If the currency was capped, then I'd say there wouldn't be much to distinguish it from litecoin or bitcoin. This just seems like a way to add a new-ish aspect to it. I'm all for experimenting with multiple currencies, multiple ways of doing things, and I'm interested in seeing what'll happen. Perhaps 10 billion dogecoin will eventually become irrelevant because its value will be too low (akin to spending a ton of resources to mine a few pennies). Or maybe not. I'm rooting for all cryptocurrencies in general nontheless.
Do you have any real-world example of free market taking care of anything substantial? Because from my experience it's a fairy tail: Either you need to the state to jump in and make some decisions or you have big players killing the market whatever decision they make (market-wise good or bad).
It's a vicious cycle: government jumps in, makes competition harder (whether with taxes or regulations) -> smaller businesses have trouble competing with large players -> larger businesses take advantage by offering worse service to cut overhead costs -> customers complain, ask for more government regulation -> makes competition even more impossible -> and so on.
You can observe this cycle in every industry, including food, ISPs, etc.
Before you bash the free market and show me example of how it doesn't work, first look and realize that what you're pointing out to me is not actually a free market.
That could be said for Nazism, Communism, Socialism and possibly every other socio-political out there: It's not the system, it's the implementation that's wrong. But I don't buy it. I used to be liberal myself, but now I don't believe in the skilled vs the unskilled, it's more likely to be the trained who had opportunities vs the untrained who had none and most likely you and I are in the first category.
Out of curiosity though, could you answer the following questions:
* Do you believe that education, energy, water, garbage, railways, lines (as in phone-lines, the network) should be private hands?
* What happens when a player is so big that with every move disrupts the market? The state should step-in or let everything flow naturally?
True, those arguments can be said there, but don't apply here. Those are utopian ideas in that they require every individual, including the governing bodies, to be a saint in order to work. Not so with the free market, as a corruption in one organization leads to the ability for others to rise in their place (no "too big to fail" scenarios).
> Do you believe that education, energy, water, garbage, railways, lines (as in phone-lines, the network) should be private hands?
Yes. A lot of this work is already contracted out to private companies, which do a much better job for a much lower price. There's no reason to think they wouldn't do it themselves to make a profit. Which brings me to...
> What happens when a player is so big that with every move disrupts the market? The state should step-in or let everything flow naturally?
The state IS the biggest player so big that every move disrupts the market, thus creating more "big players" =) For example the government makes contracts with the big players, in the billions of dollars. That's tax payer money that's going to corporations instead of local smaller businesses, and the other guys can't compete. This is just one small example.
There are some good discussions on these topics here: http://www.reddit.com/r/Anarcho_Capitalism/search?q=corporat...
EDIT: What I'm trying to say is that "they" could reverse the decision if they wanted to.
It seems like the blockchain could be used to evaluate the health of currency's ecosystem in a way similar to taking a look at the system monitor or result or cat/proc/loadavg on your desktop. Heck, the blockchain could even be used to store 'extra' system state information with every block, like current exchange rates with other currencies, which would then be used to determine the reward for the next block.
I guess all I'm saying is that I'm surprised there's not a version of bitcoin with an algorithmic 'central bank' type of function, rather than a very straightforward 'inflationary' or 'deflationary' algorithm.
It could probably be gamed very easily by speculators going in and out of the cryptocurrency, but there shouldn't be a technical reason why it can't be done. This is in sharp contrast to traditional currencies: You can't send in the police to confiscate 5% of everyone's dollar bills.
However, the problem with inflation is that might turn the currency not interesting: Why would anyone want to buy an inflationary currency?
Sure gold is inflationary now, but might not be tomorrow and sure as hell comparing any virtual currency to gold is naive.
I'm sure BitCoin was marketed as a currency to outsmart the naives and has successfully done that. It was never designed to act as a currency, it was more of an asset from day 1. We just didn't really get that (from day one).
Why the hell should anyone want to invest in a currency anyway? It's a medium of exchange!
Regardless of the inflation vs. deflation debate, the same exact thing could happen in bitcoin if it is what the community wants.
If you can't get it right, most people consider it better to have a bit of inflation rather than deflation. This may just be a consequence of people being more used to inflation and able to deal with it. For example, people don't mind prices going up as much as they mind their income going down.
Central banks have only had the ability to steer the economy because they controlled the best currencies available in the eyes of consumers. Dollars are much easier to deal with than gold, so people use them even though they know the dollars will be worth less than the equivalent gold in a year or two.
When Bitcoin is as easy to use for trade as dollars are, people won't choose dollars, nor will they chose inflationary altcoins.
Normal folks won't use Bitcoin until merchants pass some of the savings they get to their customers as discounts, or until inflation gets out of control.
It seems to me that what you are doing is actually not "reasonable". If you are assuming that Bitcoin is going to increase in value over time (or at least not decrease), then you should be spending all your dollars first (which are known to decrease in value over time).
The issue of whether merchants can offer discounts based on lower transaction costs would make these crypto-currencies more attractive (if that is the case) but it is not relevant to the discussion of inflation vs. deflation.
The amount of Bitcoin someone holds is based on their belief in Bitcoin's future success, their wealth, their spending needs that can only be transacted in dollars, and their backup plan in the likely event that Bitcoin becomes worthless. Once you've reached the proper balance for your risk tolerance, whether you spend Bitcoin or dollars is irrelevant, other than the 1% fee to switch between the two. Even if you think Bitcoin will triple in price tomorrow, it still makes sense to spend Bitcoin today because you can easily replace it with Bitcoin purchased at the current price.
No, it doesn't make any sense, because you'd have to pay 3x as much to replace that Bitcoin. That's the whole point.
That's also why you should spend your dollars first. Even if Bitcoin value doesn't change a bit the dollar becomes worth less every day, which means you can buy less and less and less Bitcoin with that dollar as time goes buy. Better to use the dollar while its value is still at a maximum.
With Bitcoin the value will likely keep going up, especially once the supply crunch happens. A Bitcoin you give up today will be harder to recover tomorrow, the day after that, etc.
Accordingly you are wasting money if you're spending Bitcoin now which will be more valuable in a year while you have dollars you could be spending for the same thing that would otherwise be worth less in a year.
You might make the decision to use Bitcoin regardless, but that's a decision based on your own policies and wants, not a decision based on maximizing the value of the currency you spend.
No I wouldn't.
I walk up to the merchant. "Oh, you'll accept my $20 payment in Bitcoin? Ok, I'll pay with that." As I walk away, I tap four times on my phone to convert $20 worth of USD to Bitcoin. My loss is the 1% charge to convert, plus the bid-ask spread, not the 200% gain from tomorrow. I still get that.
I consider 1% a reasonable price to pay to promote Bitcoin. I don't think it'll be necessary for much longer.
Yes, that's why I say you are following policies of your own choosing. ;)
In a way though you're both "right"... you're still spending your dollars after all, only via an intermediate form in pursuit of your desired currency goals.
Also, what asset people choose as a store of value is also mostly unrelated to the medium of exchange or the medium of account (any relation is due entirely to transaction costs).
http://www.bayesianwitch.com/blog/2014/bitcoin_critics_not_e...
But they might (probably, actually) inflate the money base a lot further down the line, and never let it actually cap at the 21 million btc Satoshi advertised.
5 billion a year will be noticable in the short run, but in the long run, the inflation per anno will approach 0.
A money is a refrigerator for productivity, not an abstraction over goods and services.
All the best ideas are jokes.
Moreover, there is an issue of keeping the incentive to mine. The theory is, that when a coin is mined, and when it will become popular, there will be a lot of transactions, and the fees will make up a large sum worth mining for. But that's only a theory, it wasn't seen yet. I feel it is much better that miners can still mine their 10k doges per block.
Yet another reason is, that certain amount of coins is being lost forever due to human errors. So the increase will be even less.
Perhaps I should know better than to expect reason when it comes to greed, however.
[Disclaimer: I’m from Argentina, where a 5% annual inflation would be really nice.]
I think this is good news overall.
I suspect this may be what they want: to keep it basically worthless so people keep using it to tip people large amounts and have fun with it, and to drive away investors and people looking to profit.
Holy shit, you mean it's a currency that will encourage trading rather than hoarding? The horror!
You aren't going to sell any goods for it because the value today is likely worth less tomorrow unless you can "cash it out" immediately.
Mining is resource-intensive.
the value today is likely worth less tomorrow unless you can "cash it out" immediately.
Exactly! Not only is this like almost every other good on the planet, it encourages trade.
We should be on 3rd or 4th generation asic scrypt miners by then which maybe means you'll be able to get a $20 usb stick that makes you 10k coins a month with a single kilowatt of power per month.
Eventually, the government will see bitcoin as a true currency, regulate the hell out of it, and all of these things like having no transaction fees will be non-existent.
You know the USD is inflationary, right? I don't see people having had a problem selling goods in the US since 1970.
You don't sell goods to get money to hold on to for the rest of your life.
You sell goods so you can, with the profit, immediately purchase other goods that you need (either to live or to invest in).
FIVE percent. Think about that.
I am hoping it is a zero to 10k block reward which would change all this. But looking at the code I think it is 10k fixed.
I'll grant 5% is a tad high, but it's the right order of magnitude.
Probably even closer when you consider that cryptocoins suffer much more "loss" than USD does. People lose wallets, get hard drives wiped, etc., which are deflationary events that partly counter any built-in monetary inflation. Whereas losses of USD due to things like setting bills on fire or losing them in a lake amount to a miniscule portion of total USD outstanding.
Imo it's even plausible that Dogecoin's current loss rate is >5%, in which case the currency would still be deflationary even with the new coins being added.
The Bureau of Engraving and Printing redeems partially destroyed or badly damaged currency as a free public service.
Every year the U.S. Treasury handles approximately 30,000 claims and redeems mutilated currency valued at over $30 million.
Doge will add 5% to the total supply in the first year, but that will be less every year -- it's a fixed number, not a fixed percent, assuming the title of the your OP is correct. (Not sure about this.)
Of course, that doesn't account for lost coins. Given how doge is used, I am sure a lot of the new coins will actually be replacing lost coins.
That's the "rule" I was always taught anyways.
some years it has been over double 5% a year.
http://www.usinflationcalculator.com/inflation/historical-in...
We have been lucky to have low inflation for the last several years. My mom was trying to establish her adult life during the double digit inflation of the late 70s early 80s and talks about how hard it was and how high the interest rates were.
The people who like BTC for having a fixed cap on the amount of coins in existence are probably the same people who would like the gold standard back, because they don't understand the economic consequences.
As far as the economic effects, I think we'll be much better at managing a deflationary economy in 2030 than we were in 1930. We have more knowledge, better statistics, and better communication. At its core, the sticky wages problem is a communication problem.
In this forum, I would expect that to be a significant issue.
Right and it is indeed a great sign that this drives out the hoarders. Makes for a much more healthy community.
Kudos nonetheless; glad there's finally a digi-coin that might sort of kind of be fungible for real-world wealth.
I don't think that's what currencies are for.
But seriously, Dogecoin was a way-out-there bet. You can't be upset if it doesn't work out. Also, I've seen enough "devastating-end-of-the-world" news on cryptos that make the price tank only to come right back up a month or 2 later. Maybe this'll be reversed after the price tanks & difficulty drops. I'm keeping my doge miners going... You never know. But I'm fully prepared to find out it was all for naught. Easier for me to say since I don't spend anything to mine them. My job gives me limited but free access to cloud servers.
One of major complain about bitcoin is the fact of limited supply of coins. I.e. deflationary currency. But as you can see now - this is nothing more then just an agreement between people using bitcoin (or dogecoin)
If majority of dogecoin owners will not like it - they will fork it. Otherwise we will have nice example of inflationary currency.
Seems smart to keep more doge in play, but it'll also kill a lot of the interest in it as well from the people who were buying to "get in" on it. Funny every time.
Anything that drives away people who want to "invest" in DOGE for dollar exchange is a good thing.
"Thanks for contributing to this discussion. Based on everyone’s feedback, we’ve decided to leave the Dogecoin code base as it was originally released, and not implement a change."
Which means that in fact, nothing has changed and it was always like this.
It's a small constant creation that will converge towards 0% inflation over time, and will stabilize with coins lost and destroyed.
Great idea IMO.
For example, I used to mine scrypt-based coins, then have them automatically traded for BTC via http://www.middlecoin.com/. It's an interesting concept as I would not be able to mine BTC directly on any hardware I own, but I can mine a small amount of scrpyt-based coins. Perhaps the idea of holding value the same way can be introduced. Sort of like a mutual fund of coins. And a coin industry index (Standard & Bits?)
That is several new coins for every active person on the internet, every year.
Also, the blockchain might require terabytes after a decade.
ps. if you do show up, please clarify if it is going to be a zero to 10k reward which is a different situation, or actually 10k fixed per block
This decision makes sense if Doge intends to stay the "great comment, I give you 10000 doge for that" fun-currency and drive out everybody whose primary intention is financial gain.
Why have a whole system that accomplishes no more than merely typing the words did? Stick with the words. Easier, faster, just as much fun.
Easier? Yes. Faster? Yes. Just as much fun? I don't know. Psychologically a Doge has still more perceived worth than than karma. At least to me.
Imagine saying "the blockchain might require gigabytes after a decade" in 2004. Here in 2014, you can get 64 GB on something the size of your smallest fingernail for $30-$40. Terabytes after a decade won't matter a bit.
That said, I was thinking of it all, memory bus, disk r/w speed etc.
and on another note, inflation (or at least lack of deflation) will increase spending of that currency. In other words, it would help Dogecoins be used more, as opposed to hoarding like bitcoins.
The longer a coin runs, the harder it gets. And if I'm reading this bug report correctly, it's not that they're 'adding inflation', it's that they're declining to change an erroneous setting and maintaining the status quo. The more clients that come out, the more that setting will get locked in...
For example, if someone with a lot of resources wanted to adjust the inflation settings for bitcoin, how would they go about it?