First Order (Monetary) Dynamics

So how can it possibly be done if it is not something that can be remotely monitored? Well it can't. But it can be increasingly approximated over time.

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Basing GEM on electricity absent any GEM/$ exchanges.

1) All miners use the same current POW difficulty, as in bitcoin.
2) The initial mining proof-of-work (POW) difficulty starts with a wild-ass-guess, scaled so that (36,000,000 joules) mines roughly (1 GEM) on current best-in-class mining rigs. Hitting an exact target is not important.
3) Over time, the mean electrical value of GEMs will tend toward the electrical consumption of the most electrically efficient miner. (MHash/j)
4) Left alone, this electrical consumption would tend to decrease over time according to Koomey's law.
5) To return GEM mining to its original electrical consumption constant,
GEM offsets Koomey's law by doubling the proof-of-work difficulty every 1.57 years.
6) However, the difficulty jump is smoothed using scaled 10 minute increases with each new block.
7) Difficulty never declines.

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Constraints:
a) If processor efficiency outpaces Koomey's law, there will be intrinsic inflation. Before: (1 Donut = 1 GEM)  After: (1 Donut > 1 GEM)
b) If processor efficiency falls behind Koomey's law, there will be intrinsic deflation. Before: (1 Donut = 1 GEM)  After: (1 Donut < 1 GEM)

Note: Extrinsic inflation and deflation (over/under mining) will be discussed in the next section.

This intrinsic inflation or deflation will tend to be predictable rather then wildly dynamic. If efficiency isn't following the current Koomey ratio, it is likely following a close cousin.

There exist no automated solution for detecting or remedying intrinsic inflation or deflation. Monitoring processor efficiency requires external human observation. In cases where technology makes extreme deviations from Koomey's predictions, I see only two possibilities. Either, everyone must tolerate the inflation/deflation, or, everyone must tolerate developers modifying the protocol ratio.

Consequences:
a) Mining rigs lose profitability over time. Since difficulty is monotonically increasing, eventually it will cost more in electricity for a given rig to mine then the resulting GEMs can be traded for.
b) Computationally speedy rigs mint faster. Electrically efficient rigs last longer. The electrically efficient displace the electrically inefficient regardless of computational speed.

Yep. Anyone who sees Bitcoin at $30 then at $5 will think immediately it is a scam. Price stability will make it much more adoptable by merchants etc. to be used as a real currency not just a nerd speculator toy.

Come on, people, get real.
Bitcoin are still at the very early adopter phase.



This means two things:

1. They are still, very difficult to use, even with the progress we're seeing in the last few months, #1 being wallet encryption. This will change with time.
2. They (IMHO) are still profitable as a long term investment, and this is the prime reason newcomers will start buying/mining them, beyond academic curiosity.

As time passes, we'll see more and more legitimate uses, but it will become progressively easier and safer to do so, and in parallel less lucrative to invest in.

I respect this opinion. But that was what everyone was saying when I was here more then a year ago. Bitcoins were 5 for a dollar then.

I am not trying to dog bitcoin. It is what it is, and in that regard it is awesome. Bitcoin was the first master planned scarce COMMODITY. Some people still think bitcoins should be used as money. Others still think it is a highly implausible foundation for monetary policy. 

However, you go on to make a very pragmatic argument.


This should be a clue that things are well beyond the early adopter phase. A year ago in that phase people said things like, "I have no idea if this will become anything. but its cool! Why don't we throw all our excess coins in a fountain?" Nothing pragmatic in early adopter sentiments.


Still waiting on "legitimate" uses, but I was encouraged to hear of even "illegitimate" uses like Silk Road. At least some people are trying to use bitcoins as actual money! Where do those folks get their training? I don't see a lot of chatter among them here.

Good point. Maybe someone should create like a guide or something etc. !?

I said "5 for a dollar" or 20 cents each. I think the week before bitcoin got slashdotted, the coins were between 500 and 50 for a dollar. There was no exchange, just people making deals in the forum. Meaning, the real "early adopters" were throwing them around like candy.

I'm not saying they'll never go up from their current prices. I just think bitcoin is well past the early adopter section of your bell curve.


I guess this answers my question and supports my premise at the same time.

It seems like few are using bitcoin as a currency, but those who are have to use it like a poor western union. (dollars in, dollars out) If people are not speculators, there seems little reason to hold BTC in your wallet just-in-case you might want to buy something.

I think what you are saying is very similar to what I'm suggesting. I see two slight differences.

You are optimizing against computational speed (MHash/s), I'm optimizing against computational efficiency (MHash/ws). (One watt second = one joule) This in practicality is a very minor difference. Moore's Law and Koomey's Law are both exponential and very close cousins.

You are benchmarking against combined instantaneous hashing speed of all nodes. I am benchmarking against time. I think in both cases, we are both making the same presumption that future technology improvements follow Moore's/Koomey's exponential curve.

I wish I could tell you the differences I see. Quite frankly, I didn't have a complete grasp of what you were suggesting at the time. That was mostly because I didn't have a complete grasp of what I am suggesting at that time either!   You're curve idea might very well turn out to be better.

There is lots I don't like about what I'm suggesting. Personally, I hate the idea of burning all that electricity just to make a GEM. However, once I realized the math might lead to stability, I thought it might make a good starting place for discussion.



I'm basically benchmarking efficiency against time. Time doesn't go backwards so efficiency never gets worse. Once a mining rig is built that can mine 1 GEM for (X) joules, that rig will never mine 1 GEM at (>X) joules in the future.



I deal with that in the next section. Basically by adding a transaction fee to NULL, to exert constant downward monetary pressure. And subsidies to compensate for the fee when it would be counter productive.

Are we ready for that discussion? I'd like to have it if only to compare and contrast with your idea. I think each could help clarify the dynamics of the other, possibly leading to easier explanations of why one is better than the other.

Imagine you're now in Feburary 2004:


Is this better?

There was a risk in investing money and time in Facebook's development.

Right now, if you'll ask 99 out of 100 people, they'll say "there's a risk to invest in Bitcoin in 2011. It's a ponzi scheme. It will not be worth anything within a few years.".

So yes, there's a risk, and appropriate rewards. My subjective belief is that (Risk X Potential Reward) in Bitcoin currently outweighs any other investment I know.