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Cyan comments on Making money with Bitcoin? - Less Wrong
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Comments (119)
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.