Controlled supply: Difference between revisions
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<blockquote>A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money.<ref>[https://www.scribd.com/doc/138347161/Bernard-W-Dempsey-1903-1960-Interest-and-Usury-With-an-Introduction-by-Joseph-a-Schumpeter-1948#page220 <i>Interest and Usury</i> p. 220] by [https://www.jstor.org/stable/29769582 Fr. Bernard W. Dempsey, S.J.] (1903-1960); cf. John Horvat II [http://returntoorder.org/ <i>Return to Order</i>] ch. 37 "The Backing of Money"</ref> | |||
<p align="right">—[https://www.jstor.org/stable/29769582 Fr. Bernard W. Dempsey, S.J.] (1903-1960)</p></blockquote> | |||
In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The | In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The | ||
<span class="plainlinks">[http://en.wikipedia.org/wiki/Monetary_base monetary base]</span> is controlled by a central bank. In the United States, the <span class="plainlinks">[http://en.wikipedia.org/wiki/Federal_Reserve_System Fed]</span> increases the monetary base by issuing currency, increasing the amount banks have on reserve, and more recently, printing money electronically in a process called <span class="plainlinks">[http://en.wikipedia.org/wiki/Quantitative_easing Quantitative Easing]</span>. | <span class="plainlinks">[http://en.wikipedia.org/wiki/Monetary_base monetary base]</span> is controlled by a central bank. In the United States, the <span class="plainlinks">[http://en.wikipedia.org/wiki/Federal_Reserve_System Fed]</span> increases the monetary base by issuing currency, increasing the amount banks have on reserve, and more recently, printing money electronically in a process called <span class="plainlinks">[http://en.wikipedia.org/wiki/Quantitative_easing Quantitative Easing]</span>. | ||
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Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. | Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. | ||
Keynesian economists argue that [[Deflationary spiral|deflation]] is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The <span class="plainlinks">[http://en.wikipedia.org/wiki/Austrian_School Austrian school]</span> of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest 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. | Keynesian economists argue that [[Deflationary spiral|deflation]] is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The <span class="plainlinks">[http://en.wikipedia.org/wiki/Austrian_School Austrian school]</span> of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest 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 15:42, 12 March 2015
A fixed money supply, or a supply altered only in accord with objective and calculable criteria, is a necessary condition to a meaningful just price of money.[1]
—Fr. Bernard W. Dempsey, S.J. (1903-1960)
In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices. The monetary base is controlled by a central bank. In the United States, the Fed increases the monetary base by issuing currency, increasing the amount banks have on reserve, and more recently, printing money electronically in a process called Quantitative Easing.
In a fully decentralized monetary system, there is no central authority that regulates the monetary base. 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
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 four years. The result is that the number of Bitcoins in existence will never exceed 21 million.[2] Speculated justifications for the unintuitive value "21 million" are: it matches a 4-year reward halving schedule; or the ultimate total number of Satoshis that will be mined is close to the maximum capacity of a 64-bit floating point number.
This decreasing-supply 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
This chart shows the number of bitcoins that will exist in the near future. The Year is a forecast and may be slightly off.
| Date reached | Block | Reward Era | BTC/block | Year (estimate) | Start BTC | BTC Added | End BTC | BTC Increase | End BTC % of Limit |
|---|---|---|---|---|---|---|---|---|---|
| 2009-01-03 | 0 | 1 | 50.00 | 2009 | 0 | 2625000 | 2625000 | infinite | 12.500% |
| 2010-04-22 | 52500 | 1 | 50.00 | 2010 | 2625000 | 2625000 | 5250000 | 100.00% | 25.000% |
| 2011-01-28 | 105000 | 1 | 50.00 | 2011 | 5250000 | 2625000 | 7875000 | 50.00% | 37.500% |
| 2011-12-14 | 157500 | 1 | 50.00 | 2012 | 7875000 | 2625000 | 10500000 | 33.33% | 50.000% |
| 2012-11-28 | 210000 | 2 | 25.00 | 2013 | 10500000 | 1312500 | 11812500 | 12.50% | 56.250% |
| 2013-10-09 | 262500 | 2 | 25.00 | 2014 | 11812500 | 1312500 | 13125000 | 11.11% | 62.500% |
| 2014-08-11 | 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 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. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest 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
- Milton Friedman interview, where he proposed to replace the central bank with a computer, and to fix the money supply growth at 4% annually
- Deflationary spiral
- Chart of total bitcoins in circulation
References
- ↑ Interest and Usury p. 220 by Fr. Bernard W. Dempsey, S.J. (1903-1960); cf. John Horvat II Return to Order ch. 37 "The Backing of Money"
- ↑ 21 million cap