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I have already read the following answer which is not really meaningful: 21 Million Calculation

Here's a mathematical explanation: Calculate the number of blocks per 4 year cycle: 6 blocks per hour * 24 hours per day * 365 days per year * 4 years per cycle = 210,240 ~= 210,000 Sum all the block reward sizes: 50 + 25 + 12.5 + 6.25 + 3.125 + ... = 100 Multiply the two: 210,000 * 100 = 21 million.

The total number is thus derived from the reward size and in either case does not provide much insight. I am a bitcoin fan but I am concerned about the deflationary risks in the distant future.

Since it is open source, if there are deflationary problems in the future can adjustments be accepted by the network to adapt? If so what might the possible solution entail?

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The figure of 21 Million is completely arbitrary. It could have been any other number and it would make absolutely no difference, as long as the inflation schedule remains the same.

However, the inflation schedule is universally agreed to be one thing that can never be changed with Bitcoin. Any new code that extends the inflation will no longer be "Bitcoin" and will not be accepted by users of Bitcoin.

To make any change, it is not enough for the majority of nodes to modify, all nodes must eventually change. Usually it is enough for the economic majority to accept the change to trigger this, but with a change like this the worst that could happen is a fork to two different networks.

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Bitcoins are created through the block rewards. The transactions fees don't create coins, they just redistribute them. So, once the block reward goes to 0, there will be no more bitcoins created.

As for deflationary problems, the code can always be changed to re-implement the block rewards. You just need to get the majority of the nodes to run the new code so the new blocks will be accepted.

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What deflationary problems?

Banksters have successfully convinced us that deflation is bad it seems. Don't believe it because that little and supposedly good inflation has destroyed the value of the dollar very effectively.

Deflation is not bad and quite normal with sound money. With technological innovation occurring everywhere sound money will buy you more and more as time passes.

Deflation can be a practical problem. Think for instance about gold. It can become too expensive for people to buy, hold and handle. Gold is divisible but compared to Bitcoin the divisibility is very poor. The picture below shows how the divisibility can be improved. It shows 50g of gold that is created in such a way you can break it up into smaller pieces. Very low tech.

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Bitcoin is very divisible, down to eight decimal places. So there are actually 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the Bitcoin system.

So the system can support a lot of deflation before Bitcoin or units of Bitcoin become too valuable to be practical.

Note however that if it the Bitcoin system achieves widespread adoption, becomes for example the world reserve currency replace the dollar and so forth, we are talking about nothing more than a revolution. The main economic force in our current system is debt. (Maybe debt and death) No debt, no growth. In a system with sound money savings are the driving force. So capitalism.

  • You make a good argument. Since there really is no magic formula to date that can tell us how to adjust the money flow, I can see the merit in fixing the bitcoin amount in favour of a deflationary model against an inflationary model. I have not really sat down and done the math on this yet, but I am interested evaluating the risks of "Lost Wallets" which may move the systems towards deflation quicker than what the creators may have anticipated. I am hoping you are correct that there is a sufficient amount of bitcoins and thus time before we realize any negative effects. – user2976703 Dec 17 '13 at 16:40
  • Answer to my question:bitcoin.stackexchange.com/questions/66/… – user2976703 Dec 18 '13 at 4:38

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