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Cyan comments on Making money with Bitcoin? - Less Wrong
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Comments (119)
Is there any reason why Bitcoin cannot co-exist with other similar e-money schemes? If e-money in general is a winner, then the fact that there can only be 21 million Bitcoins in particular is no longer relevant.
Having learned more, I can point out that Bitcoin can co-exist, but those other e-moneys must have some trait Bitcoin doesn't. It's like evolutionary niches. My current example is an interesting little system I'm GPU mining for right now, Namecoin (homepage). The scarce things that Namecoin is decentralizedly allocating are domain names (.bit), rather than tokens used as money - not direct competition.
The success of one e-money makes life more difficult for the others; there are incentives to standardize (witness the EU, or how some countries peg their currency to the dollar - or just use the dollar).
But that's what I thought I was talking about... (well, actually, I have no idea what I'm talking about, but you've enlightened me on money issues before). What if someone comes along soon and creates another e-currency with some credible generation mechanism but without the hard cap that Bitcoin has and pegs it to Bitcoin at some appropriate time?
By definition, if there is no hard cap and people are generating, then a peg can't be maintained to another currency with a hard cap - basic Pigeonhole Principle. Can't uniquely match n+m items to just n slots. I'm not really seeing what you're asking after.
Ah yes, I see. I didn't think carefully about how a peg would actually be maintained.
Suppose the new currency does have a hard cap -- suppose I copy the Bitcoin scheme and create Cyan-coin, of which there will eventually be 21 million. Even if I don't personally maintain reserves of the two currencies to keep the exchange rate pegged, didn't I just double the supply of e-money, thereby halving the purchasing power of an e-coin?
Only if people use it and make plans on it. You could make a trillion different Cyan-coin currencies, and if they never left your computer, would they affect anything at all? Of course not.
The purchasing power of a random bitcoin only halves if people run out and start using Cyan-coin in exactly the same quantities as Bitcoin. Otherwise, the actual purchasing power is much less, set by the exchange rate - obviously Cyan-coin is not equal to a Bitcoin in PPP if the exchange rate is 100:1.
I imagine that early uptake of a Bitcoin clone would be facilitated if people thought that the hard cap on Bitcoins proper would cause the scheme to have undesirable properties as a currency.
Surely. But that's not the case, as people think the presence of a hard cap is one of the valuable traits of Bitcoin.