Re: Bitcoin P2P e-cash paper

Ray Dillinger:
> the “currency” is inflationary at about 35%
> as that’s how much faster computers get annually
> … the inflation rate of 35% is almost guaranteed
> by the technology

Increasing hardware speed is handled: “To compensate for increasing hardware
speed and varying interest in running nodes over time, the proof-of-work
difficulty is determined by a moving average targeting an average number of
blocks per hour. If they’re generated too fast, the difficulty increases.”

As computers get faster and the total computing power applied to creating
bitcoins increases, the difficulty increases proportionally to keep the total
new production constant. Thus, it is known in advance how many new bitcoins
will be created every year in the future.

The fact that new coins are produced means the money supply increases by a
planned amount, but this does not necessarily result in inflation. If the
supply of money increases at the same rate that the number of people using it
increases, prices remain stable. If it does not increase as fast as demand,
there will be deflation and early holders of money will see its value increase.

Coins have to get initially distributed somehow, and a constant rate seems like
the best formula.

Satoshi Nakamoto

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