PPC Economics: Money Supply and Value Stability

General
1

I’d like to open a discussion about PPC economics.

The change of PPC money supply is determined by:
a) PoW difficulty level (always positive)
b) Number of transactions (always negative, as transaction fees are destroyed)
c) PoS (always positive, <=1% per year)

This means:
a) The more people are mining, the smaller the block reward gets. This negative incentive will probably stabilize energy use for PoW in the short term. In the long term energy use will decrease because of moore’s law (unlike bitcoin’s case!!).
b) The more people are using PPC as a currency and exchange them, the more PPC’s will be burned as transaction fees.
c) The more people are saving PPC, the more the PoS mining will approximate 1%

So a + c - b determine if money supply is actually increasing or decreasing.

b) to me is the most interesting: The more the PPC currency circulates, the more deflationary it becomes.
The more deflationary it becomes, the more people will start hoarding.
The more people will start hoarding, the bigger c) becomes and the smaller b) becomes.

Actually this means, that money supply is self-stabilizing as soon as a) doesn’t dominate money supply anymore.

However, stabilizing money supply does not mean stabilizing value. Actually it could mean quite the opposite. If all PPC are distributed over few people (now), there won’t be a lot of transactions, but a lot stake minting. With increasing adoption of PPC, transaction rates will rise, but stake minting will decrease during expansion because coin days are lost when trading. So PPC will become more deflationary the faster it grows.

If a) would always dominate it would have a similar effect. The more people are willing to mine PoW, the less inflationary PPC becomes.

In my understanding this means PPC will be even more volatile than bitcoin.

2

bump. Is this really not of interest? Can’t imagine…

3

[Edit: I used the wrong scaling for PoW target blocks…Meh.]

I definitely do agree that there is an issue with the checks and balances of the economic supply with PPC. Many situations could lead to immense volatility which would make PPC nonviable.

Here is my personal take on this topic:

First off, let’s assume that 90% of PPC is being “hoarded” (i.e. saved). Mind you, I personally feel that more is being “hoarded” (it wouldn’t surprise me if it’s 95+%).

Let’s look at when the amount gained from PoS overtakes PoW (or at least try to I guess).

Currently with around 20 million PPC in existence, this means that if 90% were locked for stake minting, that would mean 180,000 PPC would be from PoS or just under 500 PPC being created daily.

With the assumption of around 65,000 25000 PPC being gained from PoW on a daily basis (at least that’s what I got after a rough calculation), we have 50:1 ratio for PoW:PoS.

For my first set of assumptions, let’s have the 65k 25k growth be the constant. Then we would have a network of just over 230 100 million PPC in another 9 years. Even at this point, it would be roughly a 10:1 ratio for PoW:PoS. In fact, with constant growth, it wouldn’t be until we hit over the 2 billion “cap” 1 billion PPC that we would experience an equilibrium for PoW:PoS. This type of thing inherently would create an unsustainable hyper-inflation which wouldn’t be good.

Of course, though, we know that growth isn’t stagnant (and we know that for each 16x increase in the network, the PoW block reward is halved).

So now, let’s assume that after another year, the network hash is 16x as large. I’m going to assume that this growth was linear throughout the year and that the decrease in reward is logarithmic (although, I’m not sure if this is really the case, but it makes the most sense to me).

So let’s use the following numbers:
144 48 blocks (target) per day, current block reward of 400 (I know it’s really 410ish), and a 16x increase in network hashrate per year.
We have PoS overtaking PoW in around 5 and half years (with ~1550 850 coins being made from PoS and ~1550 850 coins being made from PoW daily). This would happen at around the 57 40 million coin mark.

Now here is the problem, we may very well get to the point where unless there is an incentive to spend, hoarding will soon be more profitable than just mining in and of itself. This inherently leads to overhoarding and from here, it becomes a game of who is going to sell first.

I really do like PPC, but I feel that its economic footing will need a lot of attention to prevent a network-wide collapse.

Any comments?

[I’ll try to upload the chart I made/used in the future.]

4

[quote=“hellscabane, post:3, topic:94”]Any comments?

[I’ll try to upload the chart I made/used in the future.][/quote]
I wanted to reply a lot earlier but was waiting for your chats and then forgot about it. If you’re still in on the topic I’d be glad to see your charts as I can’t follow your calculations entirely.

5

Exact calculations do not matter here. As I started in 2011 with Bitcoins, I soon recognised that the gain in value would continue as long as the technology would not fail. So I made a “red line” for me, for orientation. I forecasted a quadruplication of the value of Bitcoins every year. This was for me to distinguish between a low and a high price.

I started with 1 USD at the beginning of 2011, then 4 USD at the beginning of 2012, 16 USD at the beginning of 2013, and 42 USD as of today. As you know, I underestimated the price by far, beginning with the rally in this year.

Now think of a large investor, we have some hedgefonds here. In the normal world they calculate in the range of 5 to 20% a year. I have calculated with 400% a year.

If now a multi millionaire wants to invest one million, he will invest this in a very short period of time, not to be late for the chance of 400% a year. This will lead to heavy price jumps, nobody can compete this easily, because of the narrow market. An investor who has bought at 266 USD into the bubble needs only to wait for one year maximum, to come into the break-even.

The volatility will drop with the number of persons with big pockets, that invest into Bitcoins. To me it seems that Bitcoins already becomes more stable. A market cap of 4 Mio. for PPC is a joke. One large investor and the price is ten times as now. All precise calc is unnecessary here.

6

[quote=“whifmoi, post:5, topic:94”]Exact calculations do not matter here. As I started in 2011 with Bitcoins, I soon recognised that the gain in value would continue as long as the technology would not fail. So I made a “red line” for me, for orientation. I forecasted a quadruplication of the value of Bitcoins every year. This was for me to distinguish between a low and a high price.

I started with 1 USD at the beginning of 2011, then 4 USD at the beginning of 2012, 16 USD at the beginning of 2013, and 42 USD as of today. As you know, I underestimated the price by far, beginning with the rally in this year.

Now think of a large investor, we have some hedgefonds here. In the normal world they calculate in the range of 5 to 20% a year. I have calculated with 400% a year.

If now a multi millionaire wants to invest one million, he will invest this in a very short period of time, not to be late for the chance of 400% a year. This will lead to heavy price jumps, nobody can compete this easily, because of the narrow market. An investor who has bought at 266 USD into the bubble needs only to wait for one year maximum, to come into the break-even.

The volatility will drop with the number of persons with big pockets, that invest into Bitcoins. To me it seems that Bitcoins already becomes more stable. A market cap of 4 Mio. for PPC is a joke. One large investor and the price is ten times as now. All precise calc is unnecessary here.[/quote]

You obviously judge cryptocurrencies as an asset, not as money. I’m interested in their usefulness as money. Therefore I need to understand the money supply mechanics. Todays exchange rates are of no significance for my investigation

7

An increasing money supply, does not necessarily equate to decreasing value (i.e. inflation). It is actually possible to have a growing money supply that is also deflationary (increases in value). The innovative feature that Peercoin has is an increasing money supply, while simultaneously becoming deflationary (increasing in value). Peercoin’s “net effect” over time is deflationary even though the money supply will increase. This is a feature that is built into the system and is extremely useful; it is also necessary for long-term sustainability.

Essentially, the “net effect” is the equivalent to adding an unlimited number of "0000"s after the decimal place. Take for instance Bitcoin’s 8 decimal place limit. The Peercoin’s system is works out to be the equivalent of allowing an unlimited number "0000000000"s after the decimal place. This allows for it to have an unlimited money supply, but the value does not get debased. Higher money supply is not a threat, but allows for infinite scalability on a global scale.

Make sense?

8

It’s both. Indeed the aspect of an asset is the most important to me at this time. But I need Bitcoins increasingly for paying something, donations mostly. Hope that PPC will have the same success.

9

[quote=“coolbeans94, post:7, topic:94”]An increasing money supply, does not necessarily equate to decreasing value (i.e. inflation). It is actually possible to have a growing money supply that is also deflationary (increases in value). The innovative feature that Peercoin has is an increasing money supply, while simultaneously becoming deflationary (increasing in value). Peercoin’s “net effect” over time is deflationary even though the money supply will increase. This is a feature that is built into the system and is extremely useful; it is also necessary for long-term sustainability.

Essentially, the “net effect” is the equivalent to adding an unlimited number of "0000"s after the decimal place. Take for instance Bitcoin’s 8 decimal place limit. The Peercoin’s system is works out to be the equivalent of allowing an unlimited number "0000000000"s after the decimal place. This allows for it to have an unlimited money supply, but the value does not get debased. Higher money supply is not a threat, but allows for infinite scalability on a global scale.

Make sense?[/quote]
Yes, I think I understood. With an investor with a million of USD the coin would make a deflationary jump. Or vice versa.