Is Bitcoin's fixed supply incompatible with proof-of-work?

The demand for money isn’t infinite; no one is paying an infinite amount in the future for money right now. If anything, most westernized countries have had the opposite problem since 2008 - everyone has money and is looking for a financial return.

and even if there was infinite demand for “money” (which there is obviously not) that doesn’t imply anything about infinite demand for everything that isn’t money - like crypto.

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You have that backwards

You have a problem, know how to solve it, you need money to do it. You have a demand for money.

I have money now, I am looking for a return on that money. I have a supply of money.

If you would give any amount of (money in the future) for (money now) - that’s infinite demand.
If you would take (any return at all in the future) for (money now) - that’s infinite supply
Make sense?

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Don’t make me laugh! Everyone!? There are no people in need in western countries?

People are investing because they want more money for their investment. Even if they have more than what they can spend on their needs they want more. So the demand is indeed infinite.

Have you ever heard anybody saying “Oh, please don’t give me that money I don’t need it I have more than enough already…” .

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Sure - I think that is very common. I think a great many people are looking to invest money, not borrow it.

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Your definition of currency is: “something that shouldn’t lose it’s value over time in theory, but does in practice, and that’s a good thing somehow.” Anything that doesn’t behaves that way is not currency in your world. Am I understand it correctly?

I was talking about giving money, not lending. Ownership, not credit.

You are talking about credit and not money.

It was you who started this analogy with houses and toilet paper. Are you borrowing toilet paper? I hope you’re giving it back with interest, man…

This conversation doesn’t go anywhere…

Yeah pretty much. It’s essentially the equivalent of saying in “modern portfolio theory” that there is a single “risk free asset” and then the “market portfolio” that gets constructed of everything else. Picking some asset other than the lowest volatility one for your risk free asset only lasts until a more stable asset comes along.

You don’t want it to either lose or gain value over time, but as long as the changes are small and fairly predictable it won’t cause too much friction.

When an economy is not close to an stable equilibrium, there is an advantage to slightly losing value over time (a small amount of inflation) in that it encourages some level of economic activity (investing it for a return) rather than having everyone just sitting on funds that is not being put to use.

For an economy that is fairly stable (neither growing nor contracting) than having near zero inflation would be better.

This is pretty fundamental to money.

For example, if I give you a bushel of corn before the harvest (when it is scarce), you give me a bushel back after the harvest (when it is plentiful) - that’s not very fair for me. So we have to invent some neutral ground: I’ll give you “$200 of corn” now, you give me back “$210 of corn” in two months.

So I really want to quote that number in terms of something that doesn’t have a lot of seasonal or other variability.

Yes, but that’s not demand.

There is an equilibrium between supply and demand that is called price; and the general mechanism is one of mutual consent - exchanging two things of equal value.

If you say there is infinite demand, that means that you will pay any price for it.
If you are just giving it away, that doesn’t give you any information about supply/demand/price.

wow - we just gave our entire airdrop away in seconds!!! Infinite demand!!! (seconds later the market crashes as everyone flips their coins.) → demand was not in fact “infinite”, yah?

Ok. So if I want to own a house that’s demand. If I want to own money that’s not demand. Learning every day. Just as ADA is not a currency, despite the fact that we use it as such. Probably Argentinian peso is not a currency either because it’s not the lowest risk asset on the planet…

You’re just twisting and bending definitions to support your argument without the intent to understand the opposing side. This doesn’t leads anywhere. And even if it’s from whatever fancy textbook, it will be what it is: good old fashioned bs.

So one last time: it’s absolutely gorgeous that we have a risk free asset with we can do this feat! Wow. Amazing! What are the price we are paying for this feature? We just need to bend the notion of “constantly loosing value” to “risk free”, and we need to swallow the fact that if it’s a bank that lends the $200 it can just print it.

That is the trade-off. Credit is printed: profit stays with the bank, and the borrower, while the risks are laid on the general public.

The whole system leads to growing inequality, and over-consumption, and investors only looking at returns without considering for example environmental or social impact. And for what? Just to keep the value of their earnings. That’s what you call economical activity. And with economical activity we itroduce risk. Oooopss, that’s a pretty shitty design!

And for what? To be able to credit efficiently? The only problem with this argument that a credit always involves a contract, so we can just sign a contract that I give you enough ADA now that you can buy 1 ton of corn with, and we agree that you give me back enough ADA 3 month later that I can buy 1.1 ton of corn.

So all this modern economy portfolio theory mumbo-jumbo is nothing more than protecting the current practice of rent seeking (the general public can not print credit from thin air) and free loading (profit after printed credit).

Yeah, and this sitting on money thing… This modern fiat system is 100 years old. Were people sitting on their savings before? Didn’t they eat? Didn’t they built houses? Didn’t they travel? Didn’t they built ships and discovered continents?

Are you seriously think that consumption will end with fixed supply? Or will it be just normalized to the point where consumption is proportional to humanity’s real needs?

Would that be a bad thing!?

I am loving this economic discussion even though it wasn’t the main point of my original post.

I think the architects behind Cardano envisage stable coins being the second token with Ada representing the “ownership” / voting rights token. I think it can be workable for Ada to be deflationary (fixed supply cap) in that scenario especially when it is essentially infinitely divisible. Though I am not sure if it is the best design.

Perhaps an end solution could be that democratic Govts get a mechanism to control the total supply of stable coins to maintain price stability for things that people need. Then, everyone gets to see this total stable coin supply on the ledger and the price of Ada varies as required. Can this work in your opinions?

Also, bringing things back to my original posts point:

Do you think there is a fundamental incompatibility between proof-of-work and fixed token supply? It seems to me that this forces security to not scale with the market cap.


Hey, sorry for hijacking your thread! :smiley:

Ownership of ADA is perfect for expressing your involvement in the Cardano project. Why would you need stable coins for that?

Ok, let’s say the financial sector and the government decide that from now on money issuance is not a tool for stealing money from the general public, but a tool of price stability. Nice! The only fair way to do this would be to emit newly issued money to the general public directly. So when they issue new money they don’t lend it to whoever they see fit, but distribute it to the public somehow.

Two question rises: how much should they issue and how to distribute it? What is the good that’s price is the reference, that should be fixed? Grapefruit? Banana? Aluminum? Computers? Oooopsss… Money can’t be stable, since the price of different goods change individually. Yeah then create price indexes, yeah! Cool, now we dance! We can play with the price indexes, so if we the super democratic, altruistic, goodwill champions will have a tool to say how much money need to be issued. “Ohh, food prices went down! That’s terrible! Everybody will suffer! Print money now, that will solve the problem as it always does! Let’s make aluminum relatively expensive!” Or cheap, or whatever! This makes no sense!

But let’s look at the other question! How we distribute the newly issued money? (Of course in practice we never do, since money issuance is about stealing from the public and not price stability.) If we give it to the citizens of the issuing country evenly that’s a nice social nationalistic gesture, penalizing foreigners. So we distribute it proportionally to existing holdings. Yeah, that’s better, but does it makes any sense? Can any government do that, find every holder of their currency and give them some? No. And for what? Relative price fluctuations won’t go anywhere. It’s much better if you put this effort into something meaningful, like fair taxation and clever social spending.

To be honest, I don’t worry too much. I think Bitcoins real problem is sustainability and arrogance. It’s already hurting them, and their bad reputation also bleeds onto other crypto projects.

I think no currency is perfect, never was, never will be. The question is where you put the trade-offs in your design. I personally see Bitcoin as to be overly fixated on security. I guess they will come up with some solution if the equilibrium you are analyzing starts to sway. Yeah, they’re pretty conservative, they change slowly, but it’s not that they do not change at all. If it turns out to be a real problem, they will act.

Oh, and if price stability would be that important then they would burn money when prices go up.

Needless to say they never do. Why? Because price stability is just a nice cover story for stealing from the public through money issuance. That’s why.

Sorry - you’re still not quite getting it.

If you want money then you take out a loan - like a small business loan, a student loan or a mortgage.

I want a house right now and I am willing to pay you back for it later
I want money right now and I am willing to pay you back for it later

(If demand was infinite, then you would pay any amount for that loan.)

The supply of money comes from people who already have money and are looking for an economic return on it.

I have money right now and I am willing to exchange it for something (in the future).
I have house right now and I am willing to exchange it for something (in the future).

Currencies fail for sure - and when that happens they do indeed stop functioning as currencies.

The most useful test is whether or not there is an active, liquid 10+ year loan market. If there are a critical mass of people willing to both borrow and lend for long periods of time, it is acting as a currency.


Just leaving this here:

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It depends a lot on what is driving prices up.

If supply chain disruption is causing the “supply-side” to be disrupted, then central banks destroying demand is going to create issues when the supply chain issues are resolved.

For a long time, central banks have been trying to “create” demand by making borrowing very inexpensive. (Why defer consumption when you can have it now?) Reducing demand by making borrowing more expensive might address the issue in a very heavy handed way, but it is also has a lot of risk of going wrong: you are trying to offset a supply-side issue by making a demand-side change (rather than addressing the issue more directly.)

My thinking is that supply-side driven inflation might be better dealt with via tax or regulatory reform, rather than interest rates or monetary policy. Central banks might not have the right tools to be able to handle that type of change; it requires legislative action instead.

(I certainly don’t envy central bankers right now - even if you could calculate the “best” answer, a one-size fits all solution is never going to fit everyone and it might not even fit anyone very well.)

Sorry, you still mixing up demand for credit and demand for goods. You try to make the two look like the same, while they are not.

If I want a house right now and I am willing to pay for it right now that’s not demand? Is it only demand if I pay for it in the future? Sorry but that’s nonsensical.

No, that is simply not true. See “fractional reserve banking”. Credit by banks are simply printed from thin air. That’s why your analogy is totally broken. In most of the developed countries reserve requirements are 0%.

If credit would come from people who already have money there would be no inflation.

When you refer to “central banks”, I assume you include the Fed? After listening to Jeff Snyder and Emil Kalinowski and their “Eurodollar University” channel, I think the Fed has less tools than may people believe. I can thoroughly recommend their youtube channel:

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No, you are just getting yourself confused.

It was hoping that it would be obvious that if you want money right now, buying it with money right now is sort of pointless.

It’s a lot less difficult that you are trying to make it.

You can pay now or in the future, both are options - that’s not particularly relevant.

If you pay for it right now, you have an additional complexity - it’s less clear if it is a seller’s market (more people have money than houses and are looking to buy: demand for houses) vs. a buyer’s market, (More people have houses would prefer money and are looking to sell: demand for money.)

For example,

  • if you have a need for money such as to pay tuition for a university, you can take a loan. That is demand for money.

  • If you want to buy a house, you can take a loan. That’s demand for housing.

Those are both demand.

(You could also pay for the house in cash, if you had that much money, which is also demand… but that doesn’t help the analogy I am trying to make be any clearer, because paying for money with money doesn’t make any sense.)