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    Author Topic: How did Satoshi Program for Incentive to Spend?  (Read 2382 times)

    • BittBurger (OP)
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    July 04, 2013, 03:15:03 AM
     #1
    This is more of a philosophical question based upon the spirit and motivation in the Bitcoin code.

    A lot of things have been "anticipated" with Bitcoin, and clearly a lot of forethought went into the "what ifs" when it was put together.

    What if the total was 23 million coins instead of 21 million.
    What if people were rewarded with 75 coins instead of 25 per block at "x" interval.
    What will the ramifications be of a slightly higher difficulty level at "x" interval versus a slightly lower one?
    How will people behave in response? 
    How will people react to one, versus the other.

    All of these items were thought about, most likely with the goal of ensuring the success of Bitcoin as a currency.

    So then ..................

    How is Bitcoin programmed structured planned so that people are incentivized to spend their bitcoins rather than hoard them?

    I was listening to a podcast on bitcoin today and began to wonder:   "What is the motivation for people to put their bitcoin back into circulation after acquiring them, rather than hold onto them indefinitely?"

    Aside from obvious reasons, is there something built into the system which will encourage people to offload those bitcoins?  Or is it only the typical "stock market" motivators... like fear of losing value when the value starts to drop, so they sell?   Or excitement at the prospect of riches, by selling when the price goes up?  Is that the only motivation the system has built into it which will ensure the currency will continue cycling? 

    Everybody keeps saying that all possible angles were anticipated, but I have not seen any safeguards put in place that ensure bitcoin will not become a "hoarded" commodity, with 80% buy and hold types?  What is in place that will ensure Bitcoin actually "becomes a currency" (which requires 80%+ actual constant spending) ? 

    This is a difficult question to articulate.   Hope the answer is more simple.
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    July 04, 2013, 03:30:23 AM
     #2
    Why would you spend Bitcoins? Because you have basic human needs like food and shelter.

  • NewLiberty
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    July 04, 2013, 03:35:02 AM
     #3
    Quote from: TradeFortress on July 04, 2013, 03:30:23 AM
    Why would you spend Bitcoins? Because you have basic human needs like food and shelter.

    Right, Gresham's Law.  if you make all your income in bitcoin, what else would you spend?
    If you make something worse than bitcoin, then you spend that first.  If you make something better you spend the bitcoin.
    http://en.wikipedia.org/wiki/Gresham's_law
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  • odolvlobo
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    July 04, 2013, 03:37:54 AM
    Last edit: July 04, 2013, 03:53:43 AM by odolvlobo
     #4
    I question a few of your premises:

    1. You assume that hoarding bitcoins is bad and spending bitcoins is good.
    2. You assume that bitcoins will be held indefinitely. (Only lost bitcoins will be held indefinitely).
    3. You assume that Bitcoin cannot be a currency without 80%+ constant spending (whatever that means).
    4. You assume that Satoshi actually thought of everything, and things like the 21 million limit and the value of the block reward are not just arbitrary numbers.
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  • odolvlobo
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    July 04, 2013, 03:43:45 AM
     #5
    Quote from: NewLiberty on July 04, 2013, 03:35:02 AM
    Quote from: TradeFortress on July 04, 2013, 03:30:23 AM
    Why would you spend Bitcoins? Because you have basic human needs like food and shelter.

    Right, Gresham's Law.  if you make all your income in bitcoin, what else would you spend?
    If you make something worse than bitcoin, then you spend that first.  If you make something better you spend the bitcoin.
    http://en.wikipedia.org/wiki/Gresham's_law

    It is surprising how often Gresham's Law in misinterpreted. The first line of the Wikipedia article even starts with, "When a government overvalues one type of money and undervalues another ...", but I guess nobody reads it. The value of BTC not set by anyone (especially any government), therefore Gresham's Law is not applicable.

    Gresham's Law applies to a bi-metal monetary standard where the ratio of the values of the two metals are set by the government, or to the situation when the face value of a coin is less than its melt value.
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  • empoweoqwj
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    July 04, 2013, 03:51:34 AM
     #6
    Just one reason, there are many more ...

    So I can send money to people round the world without having to pay all the ridiculous fees Paypal + Western Union + banks charge you.

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    July 04, 2013, 03:53:52 AM
     #7
    Quote from: empoweoqwj on July 04, 2013, 03:51:34 AM
    Just one reason, there are many more ...

    So I can send money to people round the world without having to pay all the ridiculous fees Paypal + Western Union + banks charge you.

    This. Zero fee is the future.

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    July 04, 2013, 04:01:12 AM
     #8
    Quote from: odolvlobo on July 04, 2013, 03:43:45 AM
    Quote from: NewLiberty on July 04, 2013, 03:35:02 AM
    Quote from: TradeFortress on July 04, 2013, 03:30:23 AM
    Why would you spend Bitcoins? Because you have basic human needs like food and shelter.

    Right, Gresham's Law.  if you make all your income in bitcoin, what else would you spend?
    If you make something worse than bitcoin, then you spend that first.  If you make something better you spend the bitcoin.
    http://en.wikipedia.org/wiki/Gresham's_law

    It is surprising how often Gresham's Law in misinterpreted. The first line of the Wikipedia article even starts with, "When a government overvalues one type of money and undervalues another ...", but I guess nobody reads it. The value of BTC not set by anyone (especially any government), therefore Gresham's Law is not applicable.

    Gresham's Law applies to a bi-metal monetary standard where the ratio of the values of the two metals are set by the government, or to the situation when the face value of a coin is less than its melt value.

    I should fix that wikip, the philosophy has more profound implications than the narrow interpretation to which you adhere.
    At the time the term was coined (ahem) many currencies were private.  It was not government only.  That is a recent deviation.
    In the years Wikipedia has existed, that circumstance was largely unknown.
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  • worldtreasurefinders
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    July 04, 2013, 04:15:11 AM
     #9
    Nobody needs to incentivize spending.  I suspect you're buying into the Keneysian contention that people have to spend their money otherwise it's detrimental to the economy, which is false.  Hoarding is just another word for saving.  The bitcoin economy is just like any other economy, it's self leveling and self correcting, if left alone.  If more people are saving, that means less BTC will be circulating, meaning each circulating BTC will tend to rise in value.  This rise is value will encourage the savers to buy things with their BTC, upping the supply in circulation and easing the upward movement in value.
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  • Buffer Overflow
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    July 04, 2013, 04:24:51 AM
     #10
    The 21 million coins is just an arbitrary number. If there was going to be 42 million, the price would be halved.
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  • empoweoqwj
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    July 04, 2013, 04:30:03 AM
     #11
    Reasons 2:

    Merchants (online and offline) are currently charged anything from 2%+ to (insert large % here for businesses with lots of chargebacks) from "card processors" when customers buy stuff from them. So merchants would benefit greatly from shoppers buying stuff with bitcoins. Virtually no fees, no chargebacks.

    So why hasn't it happened yet to a large extent?

    1) Bitcoins are very new! Only this year has VC money come in, and all the ideas and infrastructure are being thought out, implemented and promoted.
    2) There are still not enough end users, people round the globe with bitcoins. Bear in mind the utility of a network is equal to the square of the people in the network. We need more bitcoin users globally, a critical mass. When that happens, lots more people can pay merchants with bitcoins, and I can send bitcoins round the world to friends/family (I'm sure somebody must be working on a viral bitcoin app where you can send coins to people who don't yet have bitcoin wallets). Why so few users? Just because currently its so much effort to get bitcoins. Once this changes, and joe public has a bitcoin wallet on their smartphone, critical mass will happen very very quickly.

    So we'll estimate 6 months for the infrastructure to be built out much more fully, and 6 months for the results of that to create a much bigger network of bitcoin users and voila, this time next year, you'll be able to send bitcoins to a huge % of people round the world.

    Then you can forget about "why people don't spend bitcoins" because in a year, they will be en masse.

  • edmundedgar
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    July 04, 2013, 04:58:51 AM
     #12
    Satoshi optimized for the hardest bit of the problem, which at the time was getting people to think that Bitcoins are valuable.

    I don't think the incentive to spend is such a big deal, because people are mostly thinking in dollars and the exchange rate should mostly price in the future money supply. If it's rational to hoard it's rational to buy, and if people buy the price will move, until you get to the point where bitcoins are no longer too cheap, even considering low future money supply, and it stops being rational to hoard.

  • empoweoqwj
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    July 04, 2013, 05:08:34 AM
     #13
    I agree. Satoshi focused on the major problem with FIAT, and solved it.

    Spending is very very simple.

    If it is more efficient to conduct a transaction with bitcoins than with FIAT, people will do it, period. And what could be more efficient than a direct transaction between buyer and seller with miniscule fees, no middle men, no fraud departments eating up 40% of transaction processing costs.

    That is why paypal western union are looking very hard at incorporating bitcoin in the future. If you can't beat the party, join in!

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    July 04, 2013, 06:41:07 AM
     #14
    Quote from: thermos on July 04, 2013, 05:29:47 AM
    i've put ads all over in an attempt to sell stuff for bitcoins and i've sold absolutely nothing, bitcoin appears to be purely speculative and the price reacts as if it's being manipulated be a very small group of greedy individuals,  whoever holds most of the coins dictate the price NYC;)

    http://www.youtube.com/watch?v=O3LJKntr7vQ

    What are you selling?  I get sales in Bitcoin.  For selling bullion online, Bitcoin is a great advance.
    I already have to use non-reversible transactions, so without it my market is limited to where we have a bank in common, or else have expensive wire transfers.
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  • thermos
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    July 04, 2013, 06:59:23 AM
     #15
    What are you selling?  I get sales in Bitcoin.  For selling bullion online, Bitcoin is a great advance.
    I already have to use non-reversible transactions, so without it my market is limited to where we have a bank in common, or else have expensive wire transfers.
    [/quote]

    you must be doing something right where in the workd are you located and what is a "new" dollar i've never heard of that NYC;)



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    July 04, 2013, 08:12:08 AM
     #16
    Quote from: thermos on July 04, 2013, 06:59:23 AM

    you must be doing something right where in the workd are you located and what is a "new" dollar i've never heard of that NYC;)

    http://www.youtube.com/watch?v=X6Sawj0HyF0
    At the moment, I am in Calif.  Not sure why that matters here on the interwebs.

    Some New Yorkers have heard of it.  David Ganz, Richard Timberlake, Nathan Lewis, Steve Forbes are New Yorkers who have all written about LD and are aware of NLD.  Though admittedly we keep a much lower profile than the original.

    If you never heard of Liberty Dollar, it was one of Satoshi's inspirations.  "New" Liberty Dollar is the successor due to the fact that the Liberty Dollar founder is currently fighting off the US Government's false accusations in their attempt to maintain a monopoly on money.  He may spend the rest of his life in court as a professional defendant, but I hope he outlives their onslaught.  NLD kept as much of the original as legally possible, dropped all the politics, and set up shop.  Consequently "New Liberty Dollars" are OK to sell on eBay, and original "Liberty Dollars" aren't (yet).
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  • thermos
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    July 04, 2013, 08:30:31 AM
     #17
    Quote from: NewLiberty on July 04, 2013, 08:12:08 AM
    Quote from: thermos on July 04, 2013, 06:59:23 AM

    you must be doing something right where in the workd are you located and what is a "new" dollar i've never heard of that NYC;)

    http://www.youtube.com/watch?v=X6Sawj0HyF0
    At the moment, I am in Calif.  Not sure why that matters here on the interwebs.

    Some New Yorkers have heard of it.  David Ganz, Richard Timberlake, Nathan Lewis, Steve Forbes are New Yorkers who have all written about LD and are aware of NLD.  Though admittedly we keep a much lower profile than the original.

    If you never heard of Liberty Dollar, it was one of Satoshi's inspirations.  "New" Liberty Dollar is the successor due to the fact that the Liberty Dollar founder is currently fighting off the US Government's false accusations in their attempt to maintain a monopoly on money.  He may spend the rest of his life in court as a professional defendant, but I hope he outlives their onslaught.  NLD kept as much of the original as legally possible, dropped all the politics, and set up shop.  Consequently "New Liberty Dollars" are OK to sell on eBay, and original "Liberty Dollars" aren't (yet).



    don't get me wrong i have rolex spoons i'd trade for bitcoins all day , i just see from your site your coins say: 50 "NEW DOLLARS" spot price for silver is nowhare near $50 and whats wrong with the old dollars what happened to: In God WE Trust? NYC;)

  • jubalix
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    July 04, 2013, 08:36:39 AM
     #18
    as price goes up, you can affor to spend a few fractions of a BTC

    eg, say I buy 1000 btc, if I brought it for 10c each, now they are worth $100 each, of my available purchasing power reserves, spending 1 BTC to now buy something is going to probably effect me much less than spending FIAT, and even if it goes up to $10000 ok, so I have lost $10000, but I still have 999x 10,000

    see how that works, so the more people hoard and push the price up the more likely one of them will spend a fraction of holdings to buy something
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    July 04, 2013, 08:54:06 AM
     #19
    Quote from: thermos on July 04, 2013, 08:30:31 AM
    Quote from: NewLiberty on July 04, 2013, 08:12:08 AM
    Quote from: thermos on July 04, 2013, 06:59:23 AM

    you must be doing something right where in the workd are you located and what is a "new" dollar i've never heard of that NYC;)

    http://www.youtube.com/watch?v=X6Sawj0HyF0
    At the moment, I am in Calif.  Not sure why that matters here on the interwebs.

    Some New Yorkers have heard of it.  David Ganz, Richard Timberlake, Nathan Lewis, Steve Forbes are New Yorkers who have all written about LD and are aware of NLD.  Though admittedly we keep a much lower profile than the original.

    If you never heard of Liberty Dollar, it was one of Satoshi's inspirations.  "New" Liberty Dollar is the successor due to the fact that the Liberty Dollar founder is currently fighting off the US Government's false accusations in their attempt to maintain a monopoly on money.  He may spend the rest of his life in court as a professional defendant, but I hope he outlives their onslaught.  NLD kept as much of the original as legally possible, dropped all the politics, and set up shop.  Consequently "New Liberty Dollars" are OK to sell on eBay, and original "Liberty Dollars" aren't (yet).

    don't get me wrong i have rolex spoons i'd trade for bitcoins all day , i just see from your site your coins say: 50 "NEW DOLLARS" spot price for silver is nowhare near $50 and whats wrong with the old dollars what happened to: In God WE Trust? NYC;)
    We are drifting off topic so I'll be brief.
    US$50 is the MSRP, we sell wholesale based on spot+premium, not retail. Still, you would be surprised how many collectors buy them for US$50 or more.  The limited run from last year was recently selling on eBay for US$280/oz.
    The original LD said "TRUST IN GOD" Apparently, the Treasury god is a jealous god, and doesn't want such words to be inscribed on anything unless they do it.  They alleged in the case that it could confuse people into thinking that they were looking at a US quarter or other current money of the US.  So we dropped that and put in the "RIGHT TO CONTRACT" motto instead, referencing the first article of the US constitution which also enshrines gold and silver as the money of the US, forbidding states to make money of anything else.
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  • Insu Dra
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    July 04, 2013, 07:06:33 PM
    Last edit: July 04, 2013, 08:45:24 PM by Insu Dra
     #20
    To get back on topic: No!

    The opposite is true, the deflationary nature of bitcoin stimulates saving, just like gold and silver it rewards people for creating a certain degree of scarcity.

    Bitcoin is the same as fiat when it comes to wealth distribution, people that have to little will have to spend/consume everything they get to survive and the happy few that have to match will keep on hoarding to inflate there holdings. This results in increasing scarcity and it will keep pushing the gap until the divide is so large that people no longer want to use fiat/bitcoin, at that point there true value will be known. It happened before, it is happening now and it will happen again ...

    That said, bitcoin was not designed to solve the growing gap between wealthy and poor people. It was designed to create freedom in a very closed aspect of our society (money), it was designed to protect the freedom of people to take there money and do what ever they want and where ever they want to do it. Even more important is that it was designed to stop banks and/or governments from taking your money just because they believe that’s the best way to solve the crisis we are in!
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