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    Author Topic: Freicoin: bitcoin with demurrage  (Read 31378 times)
    jtimon (OP)
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    February 24, 2011, 11:56:03 AM
    Last edit: July 31, 2012, 06:42:05 PM by jtimon
     #1

    When the 21M bitcoins are produced, miners are supposed to earn bitcoins only by charging fees.
    I have another proposal. But probably is a change so drastic that can't be applied to bitcoin.

    Freicoins can be created forever as an incentive and still have a fixed monetary base if the amount of newly created reward for miners is equal the amount of destroyed freicoins.
    How can freicoins be removed from circulation?
    Each time a transaction is done a percentage of the freicoins in the transaction are destroyed depending on how much time the freicoins have been hold since the last transaction. This is called demurrage.

    It reduces interest rates. Concretely, it attacks the basic interest or liquidity premium. Defined as
    gross interest = basic interest + risk premium + inflation premium
    Demurrage has other benefits. For example, money with demurrage is crisis resistant: it will continue to circulate even with deflation. Deflation discourages real capital accumulation and demurrage can solve it.
    Also, interest makes the financial market "think" in the short term.

    For more information about demurrage you can read Silvio Gesell's main book on the web or in pdf.
    I think the main flaw of Gesell's proposal is that he wanted the government to issue his freigeld, but there wasn't the block chain back then.

    With merged mining, freicoin can co-exist with bitcoin.

    One can say that demurrage is worse than inflation for savers, but I think that's not true.
    Others claim that demurrage and inflation have the same effect. Inflation is worse at all lights.
    Other common criticism is that no merchant would accept a money with demurrage, but there's many local currencies with demurrage operating today.

    There's a forum for bitcoin with demurrage (not necessarily this exact proposal) here:

    http://www.freicoin.org/

    There's a bounty for its developement here:
    https://bt.irlbtc.com/view/36190.0

    With 10 minutes per block, the formula for establishing the monetary base and the miner's reward would be:

    (base * demurrage) 52560 = reward

    For example:

    (21000000 * 0.03) 52 560 = 11.9863014

    ** 52560 = 6 * 24 * 365

    Freicoin is currently being implemented:

    https://github.com/freicoin/freicoin
    https://bt.irlbtc.com/view/89843.0

    2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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