Ah, a soft fork focused on SegWit transactions. Every time I try and follow along with the latest in Bitcoin I just don't get that excited. I think that's part of the point, though. "Hard money" and all.
I mean, you're being a little silly by comparing a short-term market gyration to "annualized inflation". The Yen is down 38 basis points against the dollar today. Nobody would describe that as "exhibiting 135% annualized inflation".
True, but there's a big difference between dropping 38 basis points and losing 57% of its purchasing power.
[edit] more importantly, the yen may have dropped 38 basis points against the dollar, however that doesn't necessarily represent a drop in domestic purchasing power at all. Just foreign purchasing power. This change makes imports into Japan more expensive and exports of Japanese products denominated in dollars more affordable to foreign buyers. You're measuring apples vs oranges in that comparison.
Peak-to-trough, the Pound Sterling lost about 25% of its value against the Deutsche Mark during Black Wednesday. It lost about 30% over Brexit. The Aussie dollar fell about 35% against USD during the 2008 financial crisis. The Euro fell approximately 40% against the Swiss franc over the 2011 sovereign debt crisis.
So yes, "real currencies" can and do fluctuate significantly in terms of exchange rates. It simply makes no sense to contextualize exchange rate fluctuations as "annualized inflation".
To be clear, inflation isn't exchange rates. That's a change in how much you can buy in a foreign country with your currency - and how much of your goods they can buy with a unit of their currency, not how much you can buy at home.
Bitcoin's purchasing power fell equivalently the world over and so inflation is a more useful benchmark to compare the loss in purchasing power than foreign exchange is.
No one has ever tried to take a ledger from the unit of account representing no value to representing value on a global scale. Every historical money has come from a cultural context where the token was valuable, beautiful, or frequently both.
When people point out Bitcoin's volatility, I wonder how else this could be accomplished on a decentralized and voluntary basis.
Which isn't to say that BTC will achieve that, of course. But unless it does, how could it possibly have a stable value in between? It's either worth $0 or ~$1-10mm per Bitcoin, and the market is having a vigorous argument about which.
Im still confused. Isnt this deceptive a little bit? Isnt a 50% drop in a month, only a 50% drop in a month. Which I agree has happened to BTC a few times. But what is the point to extrapolate to a year? Bitcoin has never dropped 50% consistently every month for a year.
That definition of inflation is old and discredited. Austrian economics is roughly speaking tinfoil hat economics. The modern definition is a change in purchasing power of a unit of currency, not solely of its supply.
The reason is simple: if you have the treasury mint a $1T coin and give it to me, then I throw it in a vault, and do not spend it then prices do not change. As such, the Austrian model is obviously incomplete as it does not take into account what happens to that supply.
You can see this play out in the macro. Since 1980 the M2 supply has increased 12X but prices are about 3X higher.
Your thought experiment is assuming that $1T is permanently locked "in a vault", therefore it is not actually part of the monetary supply, since it can't be spent without violating your assumption.
Not quite, it's not permanently locked, I have just decided not to spend it. Ditto money people squirrel away in mattresses or vaults. It is an analogy for a change in behavior of market participants over time which must by necessity be included in any complete model of an economic and monetary system. Broadly speaking, "velocity."
This system remains at equilibrium because supply went up, and velocity went down leading to neutral price action.
I think what you're ignoring here is that as any individual gains access to more liquid wealth, they become increasingly more likely to spend some of it.
As your access to supply increases, your demand for more monetary units decreases. As your demand for monetary units falls below your demand for other goods and services you want in life, you spend some of it.
This is how markets function, right? This is why bubbles pop for example, eventually holders of an asset reach a price where they want to take some off the table.
That's the point though, inflation depends a great deal on the velocity of money, as much or even more so than the total amount printed.
Money in a vault has zero velocity, money being spent dozens of times a day has a very high velocity, most situations lie between, we need a meaningful way of discussing this that "monetary supply" does not capture.
There is a common idea that high monetary velocity (GDP divided by broad money supply) is needed for inflation. However, the data show that this is not the case.
Bitcoin is deflationary by definition, not inflationary. Once the last coin is mined that's it - that's all there will ever be. I think you might have inflation and deflation backwards. Inflation can result from a large supply of currency being injected into a monetary system (ie: "bailouts"). This injection dilutes the value of all existing units of currency. This can cause prices to rise (though not always). In other words: the value of the good or service is relatively static, but the value of the money decreases due to the supply being larger. What happened in the Weimar Republic (hyperinflation) has nothing to do with Bitcoin price swings... they turned the money printers on max and diluted themselves into oblivion trying to prop up the economic machinery. This is quite the opposite of what is happening in BTC land. BTC price swings are just speculation (aka gambling with extra steps).
You're describing money supply, not inflation. Inflation is a change in purchasing power of a unit of currency, not the supply of the currency. The supply may influence its purchasing power but there's a lot more to it, obviously.
In economics inflation is a change in purchasing power of a currency. Words have meaning. This is what inflation means to everyone without laser eyes ;) and the word appears to have been redefined to spur unsubstantiated fear to pump bitcoin. So I suggest we all begin using the right word for the job and correcting folks who are using it wrong.
"No the context I'm used to is the only possible answer"
This combined with your mention of fear and pumping, it seems you have a heavy bias against cryptocurrencies so it's not worthwhile to continue this discussion with you.
Oh I understand the crypto communities use, I’m saying they intentionally or unintentionally chose a meaning aligned with their interests and not with reality. I will continue to call out their bad faith actions because if cryptocurrencies are to form any meaningful role in a future economic order it has to be from a position of, well, reality.
I've followed the space very closely for 6ish years now, and I've made a lot of money on crypto both long and short, and I engage with a lot of folks both online and in real life who are both pro- and anti- crypto.
It is deflationary, in terms of your chosen unit of exchange/account, when combined with an increase in demand, hypothetical or otherwise, that is above the rate of emission.
I'm looking forward to third party assets being tradable on the Bitcoin network again.
My contribution to the gradient of behaviors on that network was one where the Bitcoin asset was only used to cover transaction fees for the actual money being traded.
The whole "merchant adoption" thing was always a squirrel to me. When merchants will accept stable value assets more readily, or use those stable value assets for settlement, just like the US regulator greenlighted a few months ago.
Genuine curiosity: why would you trade third-party assets on the Bitcoin network when you could do it infinitely more efficiently on any of the competing chains? It's by far the least efficient blockchain ergo the least efficient way to trade third-party assets.
[edit] Direct fees are lower than they used to be, and the energy cost is about now up to about $100-120 per transaction. While that's being socialized across block reward for now, when that ends, it will have to be born directly by customers or see the network become less secure.
That's simply not true. They are ultra conservative with block size. That doesn't mean transaction volume won't scale. It doesn't even mean block size won't go up.
I'd like the option as thats where they were traded before the transaction space was limited. Counterparty, OMNI... doing that stuff over Lightning Network. Other Layer 2s. The growth of this stuff is limited by bitcoin's current state. It just makes interoperability with the broader Defi space more practical.
Regarding energy, if thats your battle then work on that aspect, there are some influencers aiming to convince miners to create a more energy efficient version of transaction propagation, settled on the Bitcoin network.
How do you want me to answer that? Older things are still compatible on bitcoin network in the older address format. But that mostly means choosing between meta-assets or multisig, or choosing a meta asset or segwit. They also are not transmittable over lightning network reliably yet, this is mostly a factor of no protocol and gui being finished but two people can make their own protocol.
I’m looking forward to this all being standardized and wallets surfacing it after they agree on the protocols.
Yeah, spend it before it drops down to $0 when all governments recognize the threat of this Ponzi to the consumers and to the environment! Bitcoin will never be green - only green in the color of the US dollar as everybody holding BTC cares how much his fake money is worth in greenbacks!
Complexity costs come from backwards compatibility. Backwards compatibility is essential because otherwise the change potentially confiscates users funds.
Assuming compatibility is required softforks generally reduce complexity because they relax the requirement for synchronization between participants.
Softforks reduce deployment complexity but increase overall complexity.
A softfork is like internet access over phone-lines. If you pick up the line, participants that aren't on the latest code will often hear a bunch of garbage that they can't make sense of. Someone might even send them money but they won't be able to make sense of it or accept it since it's now encapsulated.
From an overall network perspective, this may be a worse state of affairs vs. just making everyone upgrade (hard-fork).
You can't just "make everyone upgrade", not without a time machine-- because there are transactions which may have been written arbitrarily far in the past, already signed, potentially lock-timed, whos signers (or at least their keys) have sailed off into the sunset.
If compatibility with their signatures is dropped those funds will be irreparably and irrecoverably destroyed.
So, for example, BCash deployed an earlier version of our schnorr signature spec (from before the taproot part was finished) in a "hardfork" but preventing destroying funds meant that they had to keep the ECDSA support around (duo to presigned transactions, hardware security modules, etc.) -- so they didn't escape any complexity in that change, they introduced a disruptive flag-day which introduced its own extra complexity.
> often hear a bunch of garbage that they can't make sense of
The changes are compatible so you know those extra fields are stuff "from the future" which you don't understand and know you can ignore.
> but they won't be able to make sense of it or accept
The recipient of funds always specifies their own rules, you'll never specify rules that you don't understand so there isn't any issue with not being able to accept it.
It's not artistry, it's overly complex hackery to satiate some weird technological obsession.
Even with a soft fork, everyone still needs to update their nodes to maintain consensus. BIP100 signalling would have fixed everything and avoided so much drama.
> It's not artistry, it's overly complex hackery to satiate some weird technological obsession.
Also known as... backwards compatibility.
>Even with a soft fork, everyone still needs to update their nodes to maintain consensus
Not really. If you decide to not upgrade your node you're not going to get kicked off the network. Your node won't be enforcing the new rules (which is bad), but you're probably not going to lose money due to herd immunity and/or game theory. Specifically, your client will blindly accept taproot transactions (without checking for them) if they make it into a block. An evil miner could possibly use this to send you fraudulent transfers, however:
1. you need to somehow amass the hashpower necessary to generate such a block. this is non-trivial given the network difficulty
2. the block would be considered invalid by the rest of the network, so you'll be forfeiting the regular block reward of ~6.25 BTC
3. other miners won't build on top of this block, so it will take forever to get to 6 confirms
4. in addition to the above, your fork will get overtaken by the legitimate chain and will be ignored
5. if it turns out that your victim did upgrade his wallet software, you just spent a bunch of resources for nothing.
The miner can include some non-standard transactions makes Bitcoin not so perfect, and once that non-standard transactions included in a block, other miners won't validate its script at all, that make it worse.
The bitcoin transaction format has numerous points of intentional forward compatibility: Fields, flags, bits, etc. which intentionally have no effect at this time but which could be further restricted in the future in order to create functionality. Examples include future transaction version numbers and future script version numbers.
Use of these forward compatibility features is "non-standard" which means that unmodified software will not relay, mine, or display-while-unconfirmed transactions which use them. But if they happen to show up inside blocks, they'll be accepted.
This protects these fields for future use. Otherwise, some software would start randomly setting them (e.g. due to programming mistakes or confusion) and then these systems would catch fire when later the fields were given a defined meaning.
This article is about output with version 1 instead of version 0. Currently v1 is defined to have no effect. At block 709632 (in November roughly) that will change and v1 will have a meaning defined by BIP-341 (https://github.com/bitcoin/bips/blob/master/bip-0341.mediawi...).
Nodes don't relay non standard transactions to be mined, but blocks with non standard transactions are relayed and accepted by all nodes. These rules together make soft forks possible.
That’s really fascinating, Ive always found it interesting how some arts become lost in cryptocurrency. Like if you ever read a book on the topic you become aware of so many manual things you can do that wallets don't surface to you.
This Pay-to-Taproot output spendable by anyone is a decent example.
Most multisignature behaviors still aren't exposed, its kind of weird. But looking for to taproot making multisignature addresses indistinguishable from other addresses.
There's the general empty space that people shove all sorts of things into. From plain text metadata to encoded messages to derivatives trades.
From my experience that see it as a technical superiority thing. Where if you want to use that functionality you'd be smart enough to know how to use the cli and if you can't then you probably shouldn't be using it. And then are typically met with hostile attitudes saying that if you're that much of a noob and need a GUI then just go use a lite client or something. The white bitcoin core community is very ostracizing and unwelcoming.
Even vitalik has mentioned that this attitude was one of the things that turned him away from bitcoin (along with refusal to evolve features) and launch ethereum.
I’m glad that’s mostly gone from the crypto space, but its because the core maintainers of projects from the first half of the decade either disappear, leave publicly denouncing that attitude, or die.
In the mean time, a lot of people still tinker at their own volition, read technical books, or now learn about blockchain structures in universities, leading to a continual new set of people using blockchains differently or at their fundamental level.
