Controlled supply: Difference between revisions

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The rate of block creation is approximately constant over time: 6 per hour. The  
The rate of block creation is approximately constant over time: 6 per hour. The  
number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 4 years. The result is that the number of Bitcoins in existence will  
number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 4 years. The result is that the number of Bitcoins in existence will  
never exceed 21 million<ref>[http://www.bitcointalk.org/index.php?topic=3366.msg47522#msg47522 21 million cap]</ref>.
never exceed 21 million<ref>[http://www.bitcointalk.org/index.php?topic=3366.msg47522#msg47522 21 million cap]</ref>. This algorithm was chosen because it approximates the rate at which commodities like gold are mined. Users who use their computers to perform calculations to try and discover a block are thus called ''Miners''.




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|  6930000|| 34||  0.00000000||2140.767|| 20999999.97690000||        0.00000000|| 20999999.97690000||    0.00000000%||      100.00000000%
|  6930000|| 34||  0.00000000||2140.767|| 20999999.97690000||        0.00000000|| 20999999.97690000||    0.00000000%||      100.00000000%
|}
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==Inflation and Deflation==
==Money Supply==


While the number of bitcoins in existence will never exceed 21 million, the [http://en.wikipedia.org/wiki/Money_supply money supply] of bitcoins can greatly exceed 21 million due to [http://en.wikipedia.org/wiki/Fractional-reserve_banking Fractional-reserve Banking]. So while the limited number of "hard" bitcoins will cause deflation in the long term due to positive non-zero reserve requirements, a fast increase in the money supply due to an adoption of Fractional-reserve banking can cause inflation in the medium term.
While the number of bitcoins in existence will never exceed 21 million, the [http://en.wikipedia.org/wiki/Money_supply money supply] of bitcoins can greatly exceed 21 million due to [http://en.wikipedia.org/wiki/Fractional-reserve_banking Fractional-reserve Banking].  


Worth noting are the Keynesian economic arguments against [[Deflationary spiral|deflation]]; such that deflation tends to reduce profits and hence provides a dis-incentive for entrepreneurs to continue their operations. The <span class="plainlinks">[http://en.wikipedia.org/wiki/Austrian_School Austrian school]</span> of thought adequately counters this theory, as deflation occurs in all stages of production and entrepreneurs also benefit from it. As a result, profit ratios tend to stay the same, only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits at all.
==Deflation==


Price deflation encourages an increase in hoarding - hence savings - which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.
Because the monetary base of Bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used.
Worth noting are the Keynesian economic arguments against [[Deflationary spiral|deflation]]; such that deflation tends to reduce profits and hence provides a dis-incentive for entrepreneurs to continue their operations. The <span class="plainlinks">[http://en.wikipedia.org/wiki/Austrian_School Austrian school]</span> of thought counters this criticism, as deflation occurs in all stages of production and entrepreneurs also benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding - hence savings - which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.


==See also==
==See also==

Revision as of 03:33, 11 November 2011

In a centralized monetary system, base money is issued by a central bank as either cash or reserves in the banking system. On top of this, commercial banks create "money" through double-entry bookkeeping whenever they lend money - a process known as fractional-reserve banking. When transfers between account holders at different banks are made, there is a corresponding transfer of reserves at the central bank. The money supply, as usually defined, includes cash and commercial bank-created money, but not reserves. There are two views of how the money supply is controlled. The textbook view is that the central bank controls the money supply, increasing it at a rate that is supposed to match the growth of production so that prices remain stable. The central bank does this by adding reserves through open market operations which banks then lend out. A second view - endogenous money - is that the money supply is controlled by banks, who lend to any credit-worthy customer and borrow reserves later as needed. In this view, the central bank expands or shrinks the supply of base money as necessary to achieve its target interest rate.

In a fully decentralized monetary system, there is no central authority that regulates the amount of base currency in circulation. Instead, currency is created by the nodes of a peer-to-peer network. The Bitcoin generation algorithm defines, in advance, how currency will be created and at what rate. Any currency that is generated by a malicious user that does not follow the rules will be rejected by the network and thus is worthless.

Currency with Finite Supply

File:Total bitcoins over time graph.png
Number of bitcoins over time

Bitcoins are created each time a user discovers a new block. The rate of block creation is approximately constant over time: 6 per hour. The number of Bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 4 years. The result is that the number of Bitcoins in existence will never exceed 21 million[1]. This algorithm was chosen because it approximates the rate at which commodities like gold are mined. Users who use their computers to perform calculations to try and discover a block are thus called Miners.


Projected Bitcoins Short Term

Block Reward Era BTC/block Year Start BTC BTC Added End BTC BTC Increase End BTC % of Limit
0 1 50.00 2009 0 2625000 2625000 infinite 12.500%
52500 1 50.00 2010 2625000 2625000 5250000 100.00% 25.000%
105000 1 50.00 2011 5250000 2625000 7875000 50.00% 37.500%
157500 1 50.00 2012 7875000 2625000 10500000 33.33% 50.000%
210000 2 25.00 2013 10500000 1312500 11812500 12.50% 56.250%
262500 2 25.00 2014 11812500 1312500 13125000 11.11% 62.500%
315000 2 25.00 2015 13125000 1312500 14437500 10.00% 68.750%
367500 2 25.00 2016 14437500 1312500 15750000 9.09% 75.000%
420000 3 12.50 2017 15750000 656250 16406250 4.17% 78.125%
472500 3 12.50 2018 16406250 656250 17062500 4.00% 81.250%
525000 3 12.50 2019 17062500 656250 17718750 3.85% 84.375%
577500 3 12.50 2020 17718750 656250 18375000 3.70% 87.500%
630000 4 6.25 2021 18375000 328125 18703125 1.79% 89.063%
682500 4 6.25 2022 18703125 328125 19031250 1.75% 90.625%
735000 4 6.25 2023 19031250 328125 19359375 1.72% 92.188%
787500 4 6.25 2024 19359375 328125 19687500 1.69% 93.750%


Projected Bitcoins Long Term

Block Reward Era BTC/block Year Start BTC BTC Added End BTC BTC Increase End BTC % of Limit
0 1 50.00000000 2009.007 0.00000000 10500000.00000000 10500000.00000000 infinite 50.00000006%
210000 2 25.00000000 2013.000 10500000.00000000 5250000.00000000 15750000.00000000 50.00000000% 75.00000008%
420000 3 12.50000000 2016.993 15750000.00000000 2625000.00000000 18375000.00000000 16.66666667% 87.50000010%
630000 4 6.25000000 2020.986 18375000.00000000 1312500.00000000 19687500.00000000 7.14285714% 93.75000010%
840000 5 3.12500000 2024.978 19687500.00000000 656250.00000000 20343750.00000000 3.33333333% 96.87500011%
1050000 6 1.56250000 2028.971 20343750.00000000 328125.00000000 20671875.00000000 1.61290323% 98.43750011%
1260000 7 0.78125000 2032.964 20671875.00000000 164062.50000000 20835937.50000000 0.79365079% 99.21875011%
1470000 8 0.39062500 2036.956 20835937.50000000 82031.25000000 20917968.75000000 0.39370079% 99.60937511%
1680000 9 0.19531250 2040.949 20917968.75000000 41015.62500000 20958984.37500000 0.19607843% 99.80468761%
1890000 10 0.09765625 2044.942 20958984.37500000 20507.81250000 20979492.18750000 0.09784736% 99.90234386%
2100000 11 0.04882812 2048.934 20979492.18750000 10253.90520000 20989746.09270000 0.04887585% 99.95117198%
2310000 12 0.02441406 2052.927 20989746.09270000 5126.95260000 20994873.04530000 0.02442599% 99.97558604%
2520000 13 0.01220703 2056.920 20994873.04530000 2563.47630000 20997436.52160000 0.01221001% 99.98779307%
2730000 14 0.00610351 2060.913 20997436.52160000 1281.73710000 20998718.25870000 0.00610426% 99.99389658%
2940000 15 0.00305175 2064.905 20998718.25870000 640.86750000 20999359.12620000 0.00305194% 99.99694833%
3150000 16 0.00152587 2068.898 20999359.12620000 320.43270000 20999679.55890000 0.00152592% 99.99847420%
3360000 17 0.00076293 2072.891 20999679.55890000 160.21530000 20999839.77420000 0.00076294% 99.99923713%
3570000 18 0.00038146 2076.883 20999839.77420000 80.10660000 20999919.88080001 0.00038146% 99.99961859%
3780000 19 0.00019073 2080.876 20999919.88080001 40.05330000 20999959.93410001 0.00019073% 99.99980932%
3990000 20 0.00009536 2084.869 20999959.93410001 20.02560000 20999979.95970001 0.00009536% 99.99990468%
4200000 21 0.00004768 2088.861 20999979.95970001 10.01280000 20999989.97250001 0.00004768% 99.99995236%
4410000 22 0.00002384 2092.854 20999989.97250001 5.00640000 20999994.97890001 0.00002384% 99.99997620%
4620000 23 0.00001192 2096.847 20999994.97890001 2.50320000 20999997.48210001 0.00001192% 99.99998812%
4830000 24 0.00000596 2100.840 20999997.48210001 1.25160000 20999998.73370001 0.00000596% 99.99999408%
5040000 25 0.00000298 2104.832 20999998.73370001 0.62580000 20999999.35950001 0.00000298% 99.99999706%
5250000 26 0.00000149 2108.825 20999999.35950001 0.31290000 20999999.67240001 0.00000149% 99.99999855%
5460000 27 0.00000074 2112.818 20999999.67240001 0.15540000 20999999.82780001 0.00000074% 99.99999929%
5670000 28 0.00000037 2116.810 20999999.82780001 0.07770000 20999999.90550001 0.00000037% 99.99999966%
5880000 29 0.00000018 2120.803 20999999.90550001 0.03780000 20999999.94330001 0.00000018% 99.99999984%
6090000 30 0.00000009 2124.796 20999999.94330001 0.01890000 20999999.96220000 0.00000009% 99.99999993%
6300000 31 0.00000004 2128.788 20999999.96220000 0.00840000 20999999.97060001 0.00000004% 99.99999997%
6510000 32 0.00000002 2132.781 20999999.97060001 0.00420000 20999999.97480001 0.00000002% 99.99999999%
6720000 33 0.00000001 2136.774 20999999.97480001 0.00210000 20999999.97690000 0.00000001% 100.00000000%
6930000 34 0.00000000 2140.767 20999999.97690000 0.00000000 20999999.97690000 0.00000000% 100.00000000%

Money Supply

While the number of bitcoins in existence will never exceed 21 million, the money supply of bitcoins can greatly exceed 21 million due to Fractional-reserve Banking.

Deflation

Because the monetary base of Bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Worth noting are the Keynesian economic arguments against deflation; such that deflation tends to reduce profits and hence provides a dis-incentive for entrepreneurs to continue their operations. The Austrian school of thought counters this criticism, as deflation occurs in all stages of production and entrepreneurs also benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding - hence savings - which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.

See also

References

  1. ↑ 21 million cap
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