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Would it not be possible to just destroy some of the coins? If they were destroyed for everyone, proportionally to how much they hold, wouldn't that be in inter

Would it not be possible to just destroy some of the coins? If they were destroyed for everyone, proportionally to how much they hold, wouldn't that be in interest of everyone? Because it would make the coin itself worth more?

jacques_chester 9y ago
As I see it, you have two options. The first is distributed destruction. Everyone destroys some of their coins to raise the value of remaining coins. The problem is that this is a prisoner's dilemma: defection is the best strategy. Some people will not destroy their coins, thus increasing their relative position to others who do. Over time "destroy your coin" signals will simply be ignored. Not to mention cold wallets, which simply don't participate in the ledger unless it suits them to. Are they meant to simply nuke coins upon rejoining? This introduces an incentive to stockpile coins in the hope that the policy will change in future. The second approach is centralised. Someone has the authority to mark some fraction of coins as destroyed. Rather undermines the decentralisation thing people like.
- Erlich_Bachman 9y ago
  But the destruction would of course (obviously) be implemented in the protocol. Just like in Bitcoin, it's not up to each user to be honest and prevent double-spends, it's instead up to the network that checks and re-checks everything - the destruction of those coins in the example would be enforced by the network. Not relied on users.
  - jacques_chester 9y ago
    This is why I brought up the cold wallet. The network can check that transactions occurred, but it can't really make people perform them. It's a ledger system. If someone doesn't post a coin destruction event, how do I know why? Is it because they're cheating? Because of a cold wallet? You might say "I will make coin destruction a precondition for any other transaction". Now the incentive of a hoarder is to sit on their wallet while destruction is high and only enter the market when destruction is low. This means liquidity is tied to how far off the peg you are, which isn't a desirable property. OK, how about summing up the destruction tally for any wallet that's inactive, to be paid in a lump sum? Now you're telling me that my wallet can be completely drained over time by a destruction tax that realises only if I open my wallet. Not very attractive. OK, maybe you just destroy the net of coin creation and coin destruction at transaction time. This seems more likely to work, though I'm unsure whether I can evade it by changing addresses. I'm also unsure what incentives miners have to validate coin destruction. There's also the problem of how it cope with truly heavy amounts of capital flow. Watching a numerical balance surge up and down during a single day might be unattractive to a lot of holders.
- Animats 9y ago
  "Distributed destruction" is just inflation in another form.
xg15 9y ago
That would remove supply, but how would it stop dwindling demand? If I have two moldy banana peels worth approx $0 each and I burn one of them, the other will presumably still be worth $0.
- Erlich_Bachman 9y ago
  The whole idea is that demand will not be 0. If the demand will be non-existent, then none of this is even a problem. If no one wants that coin, it doesn't matter how it works or how many coins are destroyed, etc. But this whole conversation even comes up because there are people that want to use such a coin. That means demand >0.

jacques_chester 9y ago

As I see it, you have two options. The first is distributed destruction. Everyone destroys some of their coins to raise the value of remaining coins. The problem is that this is a prisoner's dilemma: defection is the best strategy. Some people will not destroy their coins, thus increasing their relative position to others who do. Over time "destroy your coin" signals will simply be ignored. Not to mention cold wallets, which simply don't participate in the ledger unless it suits them to. Are they meant to simply nuke coins upon rejoining? This introduces an incentive to stockpile coins in the hope that the policy will change in future. The second approach is centralised. Someone has the authority to mark some fraction of coins as destroyed. Rather undermines the decentralisation thing people like.

Erlich_Bachman 9y ago
But the destruction would of course (obviously) be implemented in the protocol. Just like in Bitcoin, it's not up to each user to be honest and prevent double-spends, it's instead up to the network that checks and re-checks everything - the destruction of those coins in the example would be enforced by the network. Not relied on users.
- jacques_chester 9y ago
  This is why I brought up the cold wallet. The network can check that transactions occurred, but it can't really make people perform them. It's a ledger system. If someone doesn't post a coin destruction event, how do I know why? Is it because they're cheating? Because of a cold wallet? You might say "I will make coin destruction a precondition for any other transaction". Now the incentive of a hoarder is to sit on their wallet while destruction is high and only enter the market when destruction is low. This means liquidity is tied to how far off the peg you are, which isn't a desirable property. OK, how about summing up the destruction tally for any wallet that's inactive, to be paid in a lump sum? Now you're telling me that my wallet can be completely drained over time by a destruction tax that realises only if I open my wallet. Not very attractive. OK, maybe you just destroy the net of coin creation and coin destruction at transaction time. This seems more likely to work, though I'm unsure whether I can evade it by changing addresses. I'm also unsure what incentives miners have to validate coin destruction. There's also the problem of how it cope with truly heavy amounts of capital flow. Watching a numerical balance surge up and down during a single day might be unattractive to a lot of holders.
Animats 9y ago
"Distributed destruction" is just inflation in another form.

xg15 9y ago

That would remove supply, but how would it stop dwindling demand? If I have two moldy banana peels worth approx $0 each and I burn one of them, the other will presumably still be worth $0.

Erlich_Bachman 9y ago
The whole idea is that demand will not be 0. If the demand will be non-existent, then none of this is even a problem. If no one wants that coin, it doesn't matter how it works or how many coins are destroyed, etc. But this whole conversation even comes up because there are people that want to use such a coin. That means demand >0.