The way I understand bitcoins might be flawed but would certainly appreciate clarification ...
My problem with bit coins is that early people who start mining have a greater advantage than later ones. While that's not the classic definition of a Ponzi scheme (in the classic definition, payouts at each round are funded by new participants), it is a feature bitcoin shares with them. If someone started mining bitcoin when it first started, they have a significant stash created by now. As people start to assign value to the virtual currency, these people are getting a significant proportion of value for simply being early adopters.
"these people are getting a significant proportion of value for simply being early adopters"
I'm not one of them but have no gripes with that. What you describe is also commonly known as the entrepreneurial taking-unknown-risks for an unknown-future-reward.
It's the same with government currencies -- the government/banking complex gets newly created money first, and gets to spend it when the new money supply still has the purchasing power of the old money supply, ie. before inflation. This is their bonus for successfully defending their monopoly on money creation. Not that I'm in favour of such a privilegue. Which is the appeal to a growing number of users: yes, early adopters may be rewarded in proportion to how early they adopted, BUT no-one can unilaterally create new Bitcoins at the push of a button or by signing some law and even the early adopters could not initially create more bitcoins or faster than prescribed by the open source peer to peer protocol.
It's not the same as taking early risks; this is a very constrained and artificial environment in which bitcoins are generated. One can be pretty certain that if one generates coins early, one can then make money selling them to others. This is much more similar to a pyramid marketing scenario, where the earlier franchises are inherently worth more, and eventually the value generated for the terminal generation of participants is close to nil.
I'd argue you're not exactly correct about the release path of currency in a fractional reserve system, although I don't disagree that elements are currently implemented in quite unfair ways. I'd also suggest, though, that government fiat currency works very much better than anything commodity based, or indeed than a partially fiat system that functions exactly like a commodity based system, as bitcoin does.
One can be pretty certain that if one generates coins early, one can then make money selling them to others.
I don't know about that. Back in 2009 or 2010, Bitcoins were worth practically nothing and almost everyone predicted that they'd never be worth anything. And if no one mined, maybe Bitcoin would never have taken off (to the extent that it has) and it would still be worthless.
I'm suggesting that if you believe in the model, and even the most obvious ramifications of such an economy, the value of participating in the system is to be as far upstream as possible. I don't believe in the model, so, I'm not suggesting it has real value now or going forward.
You're also actually assuming something that runs counter to the stated bitcoin model, as described in the FAQ (which seems to be down at the moment). That is that there's an investment in making bitcoins, which they would say is not so. The intent in burning cycles and power is simply to ensure security, while the value comes from faith in the currency. Hence, there is no investment in creation: the investment would instead be in accepting bitcoins in transactions, which iterates the pyramidal nature of the system.
The situation is not much better with inflating fiat currencies. Those who are closer to the money spigot have an advantage over those who are further way.
It's no where near as pronounced with fiat currencies as it is with bitcoin. Only a few currencies have experienced this level of hyperinflation that bitcoin has (e.g. weimar republic, zimbabwe), and those currencies have failed.
If inflation is defined as money supply growth, then bitcoin is not hyperinflating. The rate of bitcoin inflation is decreasing over time until it reaches zero.
If inflation is defined as the rise in prices of goods, then bitcoin is deflating.
Isn't bitcoin experiencing some sort of hyperdeflation, not hyperinflation? The strange thing here is not that too many coins are being created, it's that the demand for bitcoins is increasing faster than the supply. The coins are becoming hypothetically more valuable, not less.
Under hyperinflation, each monetary unit is worth less and less. Your complaint about bitcoin is that each unit is worth more and more. Your analogy makes no sense.
If what you're suggesting is that coins can only sit in one address for a limited amount of time, then that would not do anything because people would just create new addresses to send the coins to.
The standard Silvio Gesell expiring-money scheme doesn't have anything to do with where the money is at any given time. The way it works is that for the government to accept a note, it must be up-to-date with stamps, one stamp for every month since it was issued. The stamps (traditionally, bought from the government) cost 10% of the value of the note.
Nobody wants to be sitting on a pile of this sort of cash at the end of the month, because they'll lose 10% of the pile of cash. The intended effect is to dramatically increase the velocity of the money, so that a small stock of it can sustain a very large flow.
I don't know enough about this stuff to sensibly evaluate the claims its proponents make for it.
Wealth consists of things like cured diseases, tasty and nourishing meals, being dry when it rains, and seeing the people you love as often as you want; and the resources and skills we use to create those other kinds of wealth, such as antibiotics, bread mold, spices, beans, houses, corrugated steel, iron ore, blast furnaces, airplanes, kerosene, and CAD software.
Gesell's scheme does not destroy any of those things; it only destroys money. Money is not wealth. Money is just a way to facilitate cooperative ventures with people we don't know and trust. With money, I can cooperate with 200 other people to pay for an intercontinental flight, and with the hundreds of thousands of other people who drilled and refined the kerosene, aluminum, and other resources needed to keep us in the air.
But the money game has a lot of drawbacks. So it's sensible to experiment with it and see how we can improve it. Gesell's scheme was one such experiment. It was reported to be very effective at creating wealth by its proponents when it was tried.
I don't understand the rationale for penalizing saving. The car I couldn't afford on this month's paychecks alone is wealth. Food and shelter after I'm too old to work will be wealth.
You can hardly expect anyone but a proponent to advocate for an idea...
Also, asking for a control group in an artsy fartsy field like economics is too much. Where is the control group that guides the decisions of the central banks? There is none! OMG GREAT DEPRESSION!
In order to spend bitcoins, you need someone willing to exchange them for goods or services. Why would anyone do that if the bitcoins they received were going to expire?
For instance, let's say I wait until the literally last minute to spend my expiring bitcoins. I want to exchange my almost-expiring 10 BTC for $100. Would you accept this offer, knowing that those 10 BTC will vanish shortly after you accept them?
Alternatively, maintaining a hard limit on the number of BTC saves resources, compared to a system that allowed for a fixed growth. Once the 'mining' stage ends, no new computational resources are invested. The system accumulates a kind of computational capital (a mathematical problem difficult enough to be intractable) which needs no further upkeep, other than a network presence to provide verification.
It would only be extended with new transactions, not blocks. Computational resources will be devoted to verification rather than brute-forcing hashes (a much less computationally intensive matter).
No, blocks are still created in exactly the same way, the only difference is that no new bitcoins are created as a side-effect. It is necessary for new transactions to be locked into the block chain with a bruteforced hash, as it's this expenditure of processing power that makes the transactions permanent and prevents double-spending.
I just imagined that the bitcoin world post-mining (after or near the 21M BTC is reached) would just consist of the transactional interfaces and not need the specialized GPU miners.
Unfortunately, that's not how it works. The "miners" are really "transaction settlers". It's the longest block chain that represents the globally consistent view of which transactions have settled.
OK, that was an aspect I was unfamiliar with. So after the mining phase ends, transactions become zero-sum BTC games, where the biggest 'miners' accrue their proportional share of the total fees of transactions validated.
My problem with bit coins is that early people who start mining have a greater advantage than later ones. While that's not the classic definition of a Ponzi scheme (in the classic definition, payouts at each round are funded by new participants), it is a feature bitcoin shares with them. If someone started mining bitcoin when it first started, they have a significant stash created by now. As people start to assign value to the virtual currency, these people are getting a significant proportion of value for simply being early adopters.