This line from the original Satoshi led to all the crazy behavior:QuoteInstead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.Thinking this through even a little bit exposes it as flawed. Users and collectors are not the same. You could say more people will be willing to accept bitcoin as payment, if they expect the value will rise. But if people who hold them think the same thing, they will not want to spend them. It is only by setting some immediate price that is so high, that both parties think it is equally likely to fall as rise from that price, that any transactions will take place.The price will be moved immediately to fair value given the endlessly increasing value. So while the expected increase in value will be priced in and removed as an incentive to buy right away, the volatility will be increased. You will have all the volatility without any more of the expected increase, making the predetermined supply a deterrent to new users. Once the price rises in anticipation of an endless rise, you are left with only the volatility punishment, and none of the attraction.Plus you have the fact that people who own the coins will tend to be speculators and dreamers who think they are worth more than people who are in the business of selling things. The price will be moved above where a reasonable person thinks there is still the possibility of increase. So rather than people who accept them and people who own them agreeing on a price from which they are not more likely to go up than down, at any price the holder will generally think they are worth more than the person he wants to pay. The majority of owners will be people who do not want to spend them, at a price at which sellers are willing to accept them.There is the additional problem of a conflict between hoarding in anticipation of price rises, and actual use. To use the coins, you have to put the data into devices and services so that they become exposed to theft. So you are encouraging people to invest and expose their entire savings to theft. This results in even more bad stories than the volatility alone, further damaging the reputation of the coin compared to one with price stability.In conclusion, intentional price instability cannot lead to increased use over time. Because rational participants will instantly move the price to where there is no longer any "free money" effect. After this time, intentional price instability is more likely to create horror stories and aversion, and skew use to idiots. People will only transact at a price from which they no longer think it will rise, so that there is little opportunity for the perception of free money and actual use to coexist.A more plausible feedback loop is from increased use to increased volatility to decreased use to increased volatility to decreased use. This may be balanced by some actual utility of use, so that the equilibrium level of use remains above zero. But this equilibrium level will be lower than if there were price stability. Some hoarders may profit if bitcoin use becomes more common. But it would probably become even more common if this were not the case. It is probably not necessary to pay hoarders to compensate the maintenance and promotion of bitcoin.If the governance of the coin is controlled by hoarders, it is difficult to transition to a price-stability scheme. At least not until it drops to $1. It is possible the coin could be displaced by one with price stability. Such an alternative coin could perhaps be promoted to critical mass by an association of merchants. It is not clear that price stability could be achieved through mining regulation. Because inflation or a collapse in coin price, might require decreasing the supply. Decreasing the supply would require calling back coins, which would imply they were loaned, which would imply a central bank.Dogecoin, by contrast, is inherently likeable. The volatility is totally worth it, just to see that dog in your hand. Is not ownership of a dog more than adequate compensation for the cost of ownership of a dog, in a bourgeois society? It is like money that comes with a free movie and popcorn, and pays a commission of your team winning the championship, every time you use it. Its total adoption is therefore inevitable.
Last edited by farmer
on April 8th, 2014, 10:00 pm, edited 1 time in total.