Why $30 million ? Why so inflationary ?

jeetjeet Member Posts: 2
edited February 2014 in Ether Sale
If 30,000 BTC is raised, it will be roughly $30 million raised. That sounds the way to enrich the founders. I don't think you need $30 million to finish the remaining development. Colorcoin and Mastercoin didn't require that much money.

On top of that there is no cap on the amount of Ether being produced, as it be 40% forever.

Can you please let me know how its going to keep its value, when there will be more in circulation every year and for ever.

Regards
Jeet
Post edited by StephanTual on

Comments

  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    edited January 2014
    Hi Jeet,

    Regarding your first point, most of the funds will be going towards bounties, and even incubators. For example, take the Dagger algorithm, which can be improved further to guarantee it's sequential memory hard (AKA 'ASIC-proof'), or Slasher, the PoS algo that could be used as part of PoW/PoS hybrid implementation. There's plenty of research and work to be done, and the funds will go towards that first and foremost.

    Regarding your second point, I've written a simple infogram explaining the inflation model:
    www.ursium.com/ethereum-fundraiser-infogram/

    You'll see that the inflation is not 40% year on year, but instead decreases over time as its represented by a fixed % of the sum initially raised during the fundraiser. Therefore, as time passes, that number represents a smaller and smaller amount of the total money supply. Ultimately, inflation will tend towards 0.

    I hope this help!
  • ddink7ddink7 Member Posts: 49
    Vitalik said over on reddit that the reason the cap was so high (30,000) was because of his fears of a few big investors coming in and buying it all up. I mean, if the cap was 500 btc, it would be nothing for one big whale to come in and buy out the whole IPO. And with bitcoin being semi-anonymous, there is no real way to limit investment unless you try to fool around with taint analysis or something.
  • uweceuwece Member Posts: 1
    edited January 2014
    FYI, the fundraiser has been postponed to rework the distribution model. http://blog.ethereum.org/?p=100/conference-testnet-and-fundraiser-updates
  • jeetjeet Member Posts: 2
    Hi Ursium
    Thanks for explaining the inflation model. I understand that 40% of initial IPO will decrease over time, but that will take decades to become insignificant, hence inflation in first few decades.
    So the value of Ethers may go up against USD, but it will decrease against BTC in the initial few decades.
    Shouldn't it be limited in a sense that no more issuance after 10 years, for example.
    Thanks for your feedback.
    Regards
    Jeet
  • superfreakaholicsuperfreakaholic Member Posts: 6
    Inflation should keep pace with economic growth. It should be a product of the number of transactions and fees being processed in the network. The idea that a crypto should be deflationary is a terrible idea from a economic standpoint. Moreover, a crypto that maintains a fixed number of coins to be minted IS STILL DEFLATIONARY, because economies grow by percentages, not fixed amounts. Inflation should either be set to 2-5% per year static, or based on transaction activity, or a balance of the two.
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    moved to -> investment
  • LobbeltLobbelt Member Posts: 2
    I think the inflation model is great. It's comparable to gold in my opinion.
  • altcoin_investaltcoin_invest Member Posts: 4
    ...hmm but 30.000 btc isn't so much the most think. All you need to be is a lucky early adopter. ....but I still hope this model will work
  • salwilliamsalwilliam Member Posts: 27 ✭✭
    I'm not sure why there is a cap. A ton of development will be necessary if we want this thing to be a huge global success. Think about how much other huge global successes, such as Google and Microsoft, spend on development each year.

    Also, Charles has indicated that since enforcing a cap leaves room for a small number of whales to come in and quickly purchase all of the available ether, the fundraiser may be administered in a style similar to a Dutch auction. This would mean that no matter how much capital is pledged, everyone who participates will receive a share proportionate to their investment.

    This strategy still leaves room for a whale to come in and purchase a huge % of ether. Because there is a fixed limit, the whale is aware of what the maximum investment can be, and knows that all additional contributions by him will be returned to him, ie. I whale or consortium of whales can invest 100k BTC, and know that the absolute maximum the investment will cost is 30k BTC.

    I think allowing the market to speak here is the best solution. A cap seems like a very unnatural imposition (unless maybe it is there for legal reasons for this). If you can raise 31m+ for Ethereum, why not do it?
  • madavidjmadavidj Member Posts: 4
    I agree with salwilliam. It seems if the "proportionate share" strategy (I don't think it's called a Dutch auction.) is used, it will become some sort of "who has the most btc to pledge" in order to get the proportion of Ether they want.
    Assuming Ethereum actually gives back the overpledged amount (and I trust they will), people aren't truly risking the amount of btc they are pledging.

    Effectively, this gives an advantage to people with lots of btc, and removes the first-mover advantage.
  • mpolaviejampolavieja Member Posts: 20
    That is the way IPO´s are managed in Spain for retail. For example, if X ether are going to be sold and there are also X orders, then only 1 ether per order would be allocated, no matter if the order was for 10 ether or 1 million ether. This proportional constraint applies only when the global demand is higher than the offering.

    Usually all IPO´s are distributed in two segments or tranches, an Institutional tranche and a retail tranche. The institutional tranche has no restrictions, first in, first served. The retail tranche has a proportional restriction as described above.

  • mpolaviejampolavieja Member Posts: 20
    People with lots of Bitcoins would have to issue lots of orders if they want to get a big proportion.
  • DeanScottWalshDeanScottWalsh Member Posts: 1
    If its inflationary doesn't that mean its a bad investment? I can see its good from a broader economic perspective, but your model assumes that people will 'invest' in the project by buying the currency as if ethers are shares or a deflationary crytpocurrency - should this be considered something that people do to support the project because they like it rather than an investment (kickstarter-like crowdfunding style), or is there some mechanism I'm missing for the value of ethers to rise?
  • madavidjmadavidj Member Posts: 4
    Dean, "inflation" in the sense that your fiat loses value over time is due to the fiat money supply growing at a faster pace than the growth of the economy/goods produced.

    With Bitcoin, the money supply grows at a rate that becomes so slow over time (on the order of 1/exp(t)) that the total money supply will never go beyond 21M btc. Assuming the economy will continue growing, this makes BTC a "deflationary" currency.

    With Ether, the money supply grows faster than BTC, but still slow enough to have a growth rate that tends towards 0 (on the order of 1/t). Assuming the economy grows faster than a linear rate (which historically has always been the case), Ether is also a "deflationary currency".
  • ddink7ddink7 Member Posts: 49
    I don't see how a dutch auction would help. So a whale decides to write a script that will submit numerous orders for him. No problem. There is no way around the Sybil problem short of requiring ID, which I believe the community would likely oppose, vehemently.

    Frankly, there just isn't a good answer here.
  • calmecalme Member Posts: 1
    Love what you guys are doing and tend to spread the word. I just hope this isn't a "profit for founders and VCs and pat on the back to IPO investors for helping tech progress" business model. I can see so many people on the forums who would have been enthusiastic investors but now basically inevitably want a competitor to succeed instead. How odd it must feel for them to give highest praise to products they might not have invested in otherwise. And I know you guys work with at least one economist, but please do consider fluctuating BTC price and how that will affect the valuation.
  • JasperJasper Eindhoven, the NetherlandsMember Posts: 514 ✭✭✭
    Which rate to grow the money supply seems like a difficult topic to me. I reckon it should end in some constant inflation, like 1% per year, not going to zero.. Preferably the mechanism that introduces the coin does something useful.

    I think when scripts have been around in the wild for a while some future mining schemes can be based on scripts. For instance the dropbox example could be funded by money creation.
  • kuyonkuyon Member Posts: 5
    Is that cap of 30K BTC just a preliminary suggestion or (almost) final decision?
  • StephanTualStephanTual London, EnglandMember, Moderator Posts: 1,282 mod
    @kuyon it's neither. It was thrown around during the first conceptual inception of the Ether Sale, based on what the core team felt could be achieved.
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