6

I wonder what is the benefit of having Bitcoin reduce the coins mined per block over time?

Suppose a slightly less deflationary growth scheme was possible (and keep other properties that make Bitcoin desirable), that might encourage more people to use it as an actual currency and less as a hoarding item.

For instance, can another blockchain-network be created that increases 0.5% the coins mined per X number of mined blocks?.

1

I believe that it's by design.

As others have stated, several other crypto-currencies have different inflation rules. I believe, however, that Bitcoin was designed with a fixed money supply to motivate early adopters to adopt the currency, thus bootstrapping it into existance.

One could argue that "it's not fair to late comers", but if it works (= it eventually gets millions of people to use the currency), then it was a good design choice.

It makes it relatively easy to reason about potential worth of BTC. The argument goes like this: "If there will only ever be 21,000,000 BTC, and some day 1% of the entire world be using it, then 1 BTC will be worth 1/2,100,000,000 of the world's 'value'. I better get me some of that BTC". This calculation does not depend on when exactly is "some day" - be it 10 or 100 years in the future.

5

It's technically possible to have a blockchain with any generation schedule, such as X% inflation per year or constant reward per block.

The main reasons for a schedule with an upper bound is:

  1. The Austrian economics school, to which apparently Satoshi and a large part of Bitcoin's early adopters subscribe, says that the optimal situation is that the monetary supply is bounded.

  2. If you want to have some long-term inflation you will need to choose what it is, and any choice will be arbitrary. "0% inflation" is a bit less arbitrary option to anchor on.

  3. One of Bitcoin's key properties is that the monetary is supply is not manipulable, and it's perceptually easier to sell it on this point by saying "The protocol guarantees there will never be more than 21M bitcoins" than "The protocol guarantees that in the long term, there will not be more than 3% monetary inflation per year".

1

GeistGeld and SolidCoin offer block rewards that don't decrease over time, I believe. Bear in mind they also have other major differences to the design of Bitcoin though, especially SolidCoin (because it's not a community driven open source project).

The advantage of having a limited number of units is that it is a better store of value. On average, a unit of currency should only increase in value over time. Because we can break one bitcoin down to 8 decimal places (and further if necessary), there's no need to have it any other way.

When it comes to hoarding, the current exchange rate takes into account likely future increases in value (as well as potential risk of things like a collapse in value).

These questions examine the impact of hoarding/speculation on Bitcoin:

  • It is hard to say what SolidCoin does "over time". They have been twisting around the rules quite a bit already. – Thilo Jan 10 '12 at 2:30
  • Agreed. The FAQ does say "No maximum coin generation", but I don't find it to be very well written. It also says it has "a small inflation amount at the end which will increase value of each coin over time whilst providing economic liquidity". That doesn't make sense because inflation decreases the value of each coin over time. – Highly Irregular Jan 10 '12 at 2:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.