Could there be hyperinflation in Bitcoin?

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Currently the creation of new coins is fixed at a certain rate which halves every few years and will at some point in the future drop to zero. As I understand it, this is by consensus, i.e. all the nodes in the network agree on this protocol.

Suppose at some point in the future the Bitcoin community were to decide that the currency's deflationary bias wasn't such a good thing for the economy and that it would be better to start expanding the monetary base at a higher rate. What would it take for such a policy to take effect? Specifically, what percentage of the nodes in the network would have to vote in favor of the new expansionary policy?

And if indeed the network could vote itself into an expansionary policy, is it then also conceivable that it might vote itself into a hyperinflation, where the rate of expansion gets out of hand?

In short, what does it take to change the rate of expansion of the Bitcoin monetary base, and how easy or difficult is it to achieve as compared with the stroke of a central banker's pen?

PS: I can see a future where the top miners who own most of the computing power decide amongst themselves that they deserve more than their share of bitcoins after all and so they decide to institute the change, and I'm curious to know how the network would handle such an event.

You are misusing the word "hyperinflation". It doesn't mean what you think it means. Bitcoin is experiencing hyperinflation right now. It has halved in value in the last 3 weeks. If it continues to halve in value every 3 weeks for the next year, it will become worthless. – Robin Green – 2013-12-18T18:21:36.893

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Not everybody needs to agree (that would probably never happen!) for there to be a change in the protocol (which would be needed to cause inflation), but it's not based on just a majority of hashpower either.

It's really a vast majority of users that need to agree; if just 51% of users decided to change the protocol, it's entirely possible that it would cause a massive loss in confidence in both resulting chains. Retailers and every other service would need to choose which to accept (or accept both), and try to understand the difference, and communicate that on to users.

I think most of us know its a bad idea to go down that path with Bitcoin while it's not yet been fully accepted as mainstream. A smoother option would probably be to create an alternative cryptocurrency with a new name, rather than trying to split the Bitcoin user base into two parts.

It can very likely happen. See my answer. The big corporations are being expected to provide free mining in the future. This has been the expectation, and that is why market-based transaction fees don't have to scale well. No one has refuted that transaction fees can't scale and Gavin admits it. The fanboys can continue in their myopia like good little slaves that think they understand logic.

– Shelby Moore III – 2013-03-28T00:54:01.493

Do I understand correctly that hash power doesn't matter here, nor does strictly speaking the number of nodes (one participant could run multiple nodes); and that in fact what really matters here is the number of participants (i.e. individuals and corporations) who agree to such a change in the protocol? – Manish – 2013-03-28T01:02:12.410

@Manish, that's the way I see it. – Highly Irregular – 2013-03-28T01:06:30.083

1@Manish, if we're talking about forking the blockchain, it could even split 4 ways with 30%, 27%, 25% and 18%... anyone can run their own blockchain, but it's only valuable to do so when others find it useful. – Highly Irregular – 2013-03-28T01:09:30.593

@ShelbyMooreIII, you're assuming that these big corporations also have control of retail, which would remove the option for alternatives if they abused their power. In that case, which currency is used (and what the fees are) hardly matters; they have control anyway. You're absolutely correct that we need more than just Bitcoin to retain the freedom we have. – Highly Irregular – 2013-03-28T01:12:24.513

@HighlyIrregular if the Walmarts and Amazons are more profitable, they only need to control a fraction of retail, in order to justify the expense to subsidize mining to obtain 51% attack ability. And a monopoly on processing means they can take profitability from the rest of merchants who need to get paid from the P2P currency. There are many vectors that don't require your false assumption. I find the logic of the people in this SE to be very weak. They downvote because they can't reason well second order effects that make my statements true. – Shelby Moore III – 2013-03-28T01:31:14.820

@HighlyIrregular needing more than Bitcoin is not a sufficient excuse for handing the monopolists the pie on silver platter, by refusing the fix Bitcoin. Dumb slave I am not! With a correct P2P currency we can still transact more freely in spite of what shenanigans the power elite have up their sleeve. Sorry we've been friendly recently, but your logic stinks of 1984. Just give in? Normally the power elite back off when they see they are outnumbered. But the problem is people are becoming too dumbed down to even have good logic skills and powers-of-discernment. – Shelby Moore III – 2013-03-28T01:35:41.450

@HighlyIrregular there is also a problem that voters here are not assimilating enough information. The decline of debasement in Bitcoin forces the scenario I fear, because market-based transaction fees don't scale. I read that even Gavin has expressed his doubt that they will. That is why I said it has been planned since Day 1, besides that is what was boasted to me, so I am repeating the paraphrased quote.

– Shelby Moore III – 2013-03-28T02:02:50.103

– Highly Irregular – 2013-03-28T02:05:20.097

@ShelbyMooreIII, I've added some more comments to the chat... – Highly Irregular – 2013-03-28T02:10:06.930

I can read your chat, but unable to reply there. Removing credit card fees while handing the monopolists their 51% attack is not what I would call "a community of geniuses". Morons is what I'm thinking. Sorry. Variable transaction fees will never scale, it is the wrong model. Debasement must continue. Debasement is good for the economy. That is a provable fact. – Shelby Moore III – 2013-03-28T02:26:55.973

@ShelbyMooreIII, "Good for the economy" isn't always best for humanity, and is a term than can be skewed to suit individual purposes. War is thought by many to be great for the economy. Personally, I'm more interested in measuring [GNH] (http://en.wikipedia.org/wiki/Gross_national_happiness) than GDP. Can you point me to a proof regarding Debasement?

– Highly Irregular – 2013-03-28T02:36:05.507

Proof that debasement is good, is so obvious common sense. Can you imagine a world of slavery where the rich got richer just for collecting interest on bonds and doing nothing with their mind? That is what you delusional goldbugs get with NO DEBASEMENT. Brilliant morons! There is a big difference between prevent excessive inflation (good!), preventing insider control over deflation/inflation rate (good!) and NO DEBASEMENT (bad!!!!!). I hope you all can realize that! You all have been hoodwinked by Ponzi Satoshi. – Shelby Moore III – 2013-03-28T03:16:53.930

When you all get over the embarrassment of being involved with Bitcon (not Bitcoin), then let's get busy making something to compete with it and eliminate this diabolical design and plan that Satoshi fooled all of you into joining. – Shelby Moore III – 2013-03-28T03:24:25.717

@ShelbyMooreIII, at some point Bitcoin will reach a peak demand, at which point the only benefit one could obtain through holding bitcoins is to corner the market (which often turns out badly) or manipulate it at a smaller scale. They don't pay interest. My guess is that with the current model traders will manipulate the market causing an extremely volatile exchange rate; another problem not yet solved. I'm no goldbug, by the way, though there are a few involved in Bitcoin... – Highly Irregular – 2013-03-28T04:52:43.137

Why you mention ROI? I wasn't referring to it. I mean embarrassment for being involved with enslaving mankind in a digital kill switch for transactions. – Shelby Moore III – 2013-03-28T05:21:59.050

I don't want to get into your stupid flamewars, but I still want to ask technical questions. Let's say that there is a "war" between pro-deflation and anti-deflation Bitcoin users and miners with one having only slightly above 50% - each one uses a different bitcoin software - what would happen then? Would there be two blockchains with the "deflationary" bitcoin client downloading only the deflationary one and vice versa? Or would there be some weird blocks flying around? What would happen exactly, technically? – Karel Bílek – 2013-04-04T16:23:19.087

1@KarelBílek, if miners that didn't change were in the minority, their blocks may start to be rejected (depending on how the change was implemented), or there may be some other consequence such as miners receiving a lower block reward. – Highly Irregular – 2013-04-04T17:55:12.110

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As I understand it, this is by consensus, i.e. all the nodes in the network agree on this protocol.

No. The network doesn't vote to change itself. Read this: What can an attacker with 51% of hash power do?
Arguably, you could try to get a change to the bitcoin client implemented through astroturfing.

Here's how you'd increase monetary inflation.

1. Find this code:

int64 static GetBlockValue(int nHeight, int64 nFees)
{
int64 nSubsidy = 50 * COIN;

// Subsidy is cut in half every 210000 blocks, which will occur approximately every 4 years
nSubsidy >>= (nHeight / 210000);

return nSubsidy + nFees;
}

2. Change 50 to, I dunno, 100.

3. Convince everybody else to do the same thing. Not just a majority - everybody.

And what if I do 1 and 2 and part of 3, i.e. say I get a majority, then does that mean we end up with two chains, and if so then which is the "real Bitcoin?" Since it's peer-to-peer I'm assuming it's just Bitcoin 1 (devalued) and Bitcoin 2 (original) from that point on. – Manish – 2013-03-28T01:16:19.963

@Manish Which one is the real Bitcoin? Good question - I'm sure that it's a question that would generate many flamewars should this situation come to pass. – Nick ODell – 2013-03-28T01:26:20.623

I downvoted because this is factually incorrect. Not everybody is required. Attacker only needs to change 51% of the mining clients' software (actually those that comprise 51% share of hash power) which you the attacker are running on your peers. Are you confused? – Shelby Moore III – 2013-03-28T03:10:45.460

2@ShelbyMooreIII Old clients will just reject the new chain. That might cause them to enter safemode, but that can be turned off with a simple -disablesafemode. – Nick ODell – 2013-03-28T04:11:47.677

@NickODell I don't see how that is feasible. If the user wants to spend his money, and his client won't let him send a spend transaction, the user is going to upgrade. And mainstream (i.e. naive) users will do what they are told to do by the major sites they visit, e.g. Walwart, Amazon, etc.. So I guess you win an irrelevant technicality but you lose the overall point. – Shelby Moore III – 2013-03-28T04:41:19.713

@NickODell But if the old clients reject the new chain, would they still continue to function on their own (i.e. send and receive bitcoins), albeit on a forked chain? Or would they become unable to do any transactions? If 51% decide to change the protocol then sooner or later the rest would have to get on board (so Shelby seems to suggest)? Or is there any other recourse for the 49% who stick with the original rules? – Manish – 2013-03-28T19:26:23.693

1@Manish Clients will go into 'safe mode' if they see an invalid chain that is longer than a valid chain - the logic being that there's probably a problem that should be fixed before you try to make transactions. That's where the -disablesafemode switch comes in. Once disabled, their transactions would be relayed and mined by both chains, but over time, the two chains would disagree on more and more. – Nick ODell – 2013-03-28T21:13:45.760

@NickODell So the shorter "valid" chain would also have its transactions confirmed by other "49%" nodes (but not by the "51%"?), and it could continue to function as its own currency? Would block generation happen at the same rate, i.e. one every 10 minutes, because now the difficulty for the shorter valid chain would be adjusted downwards (as most of the powerful nodes would be off on the longer "invalid" chain)? – Manish – 2013-03-29T11:33:54.963

@NickODell In short, are you saying that with -disablesafemode the old clients could totally ignore the longer invalid chain and continue to function as if nothing had happened? i.e. old Bitcoin could remain old Bitcoin even under such an attack, and the economy could continue to function as normal? – Manish – 2013-03-29T11:43:14.060

@NickODell "I'm sure that it's a question that would generate many flamewars should this situation come to pass." Actually it'll be more than just flamewars. If you've lent me "bitcoins" to buy a home and now there's a fork in the chain, which bitcoins am I supposed to pay you back in? You'd prefer the original ones, I'd prefer the devalued ones. Our contract would have to be clear about this, and right now no one understands that this is even a possibility (not in the mainstream anyway). – Manish – 2013-03-30T01:51:12.193

@ShelbyMooreIII Correct me here, but I think you don't even need 50+% hash power to achieve this. If you're breaking the block creation fee rule, you might as well break the proof-of-work rule, so instead of proof-of-work now you just have the miner's signature. Old clients reject the block, but modified clients (supplied by said genius miner) accept it by verifying signature. Now the modified clients work with an alternate branch which is compatible with the main branch (a superset of) but contains the miner's extra out-of-thin-air bitcoins as well. – Manish – 2013-03-30T01:57:38.280

@ShelbyMooreIII Now this miner's extra bitcoins can't be spent on the main branch, but otherwise business can go on as usual between the old clients and the modified clients, because valid transactions would still be accepted into both branches. It's only a matter of getting more and more people to adopt the modified client software then, which could easily be achieved by promising a reward of BTC 100 (happily created out of thin air) per new download plus a referral bonus. These reward/bonus bitcoins can only be spent among users of the modified client, but that's a growing user base. – Manish – 2013-03-30T02:06:30.297

@ShelbyMooreIII So turning an alternate branch into the dominant one is only a matter of getting more and more people to adopt a new client which has a different block acceptance rule than proof-of-work. If a big company like Apple were to come up with a sexy Bitcoin client app (bundled with OS X?), they'd have most of the users, and then they could become the dominant fork. No need for 50+% hash power, only a significantly large client base (easily achieved in so many ways). – Manish – 2013-03-30T02:12:29.260

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despite the fact that there are some possible kind of 51% attack for miners and despite the fact that miners really love increase bitcoin creation rate and make profit; you should know they cannot change the basic rules of blockchain like changing block generation protocol and rules.

anything related to block protocol must be accepted by full nodes (~20 thousands of live full nodes) who are mostly influenced by bitcoin core school of though (a group of independent wise developers). they wont accept such a change because they are more like bitcoin owners rather than miners; so they would be against inflation by proof of game theory.

what miners can do for that? nothing, as we saw in SegWit2x activation debate, although most mining cartels was in favor of SegWit2x they couldnt run it because Bitcoin Core Developer team rejected the proposal. that was a simple example of changing block protocol (its size); which could not take the ride by just miners supports.