Negative interest rates, or demurrage, are not currently enforceable by the network. Users would simply abstain from parking at a negative rate in order to avoid the penalty.
Freicoin implemented something like this, but it has not been a roaring success.
To sustain a peg in all possible market conditions you need interest rates to vary freely. Freicoin implements negative interest rates at a uniform rate. This is not the same thing at all.
Negative interest rates are only applied in extreme boom scenarios when nubits are too popular. This would almost certainly be a transient scenario. Think bubble collapse leading to flight from the other cryptos. We cannot accommodate all that money coming in at once without assuming excessive risk when it tries to leave.
Negative interest rates are used to pop the bubble before it becomes a threat.
The alternative to transient negative interest rates is to either
a) issue more nubits than the system can sustain, allowing the bubble to inflate, and risking a break in the peg when the excess inflows try to leave the system.
b) let nubits appreciate and break the peg right away
Surely the discussed burn mechanism has the same overall effect as a negative park rate?
Similar to @Ben, I am not an economist but I am reading this discourse with interest and trying to understand.
It seems that there are many users here who properly know these potential situations so can effectively ‘feel’ what would happen if any parameter was tweaked.
I’m not quite there yet, but hope to arrive sometime. In the meantime, please excuse occasional misunderstandings or dumb questions.
Benjamin, i strongly disagree with you. If we say “we pay 0.9$ next year or next several year”, our reputation ruined!
The key of Nu’s success, is the willingness of people holding it, if I leave 10000 NBT to my son as heritage, and he can buy as many goods as I can today when he retires, the good money dream comes true.
[quote]“Jobs was furious. “I’m sick of dealing with these stupid companies like Motorola,” he told Tony Fadell and others at one of the iPod product review meetings. “Let’s do it ourselves.” He had noticed something odd about the cell phones on the market: They all stank, just like portable music players used to. “We would sit around talking about how much we hated our phones,” he recalled. “They were way too complicated. They had features nobody could figure out, including the address book. It was just Byzantine.” George Riley, an outside lawyer for Apple, remembers sitting at meetings to go over legal issues, and Jobs would get bored, grab Riley’s mobile phone, and start pointing out all the ways it was “brain-dead.” So Jobs and his team became excited about the prospect of building a phone that they would want to use. “That’s the best motivator of all,” Jobs later said.”
[/quote]
From: Walter Isaacson. “Steve Jobs”。 iBooks.
FIAT is bad money because FED is stealing us by inflation, FED is thief, they dilute us when we do nothing with a ridiculous excuse: to incentive the economics, look, economics had been ruined in 2008 by their absurd theory.
WTF shall we follow the bad FIAT? And BTC, is not money at all for its volatility for its STUPID supply.
ALL THE MONEY IN THE WORLD SUCK! IT’S TIME FOR US TO INVENT A REAL GOOD MONEY!
The actual interest rate you pay back over a year is an average of interest rates over the entire year. I doubt that interest rates would ever remain negative over a prolonged period, so you would probably never need to pay back only $0.90 in practice. Perhaps I should simulate this to better explain what I mean.
Remember that the absence of negative interest rates puts the entire system at risk. We should not make promises we may not be able to keep. I’d rather be given a choice of being paid back $1 now or $0.90 next year than have someone promise me a $1 next year and then go on to lose my entire investment.
No. Burning nubits when the price is already above $1 will cause the price to rise even further, abandoning the commitment to maintain a peg.
You can’t promise to maintain a peg at all times and also promise to always keep interest rates greater than 0.
This is called the impossible trinity.
http://en.wikipedia.org/wiki/Impossible_trinity
The impossible trinity says the following. You can only ever achieve 2 out of the following three goals:
If you want to sustain a peg, you have to commit to using whatever interest rates are necessary to achieve this goal.
That’s true, however, I’d like to point out that there is extremely low likelihood of NBT price ever rising above $1. Potential buyers would expect the next custodial grant to push price back to $1, so nearly everyone would refuse to buy at a premium. Meanwhile, NBT holders would sell at any premium, in anticipation of the next custodial grant. Thus, the “prophecy” of upside stability of the peg is self-fulfilling.
Of course, the same cannot be said for prices below $1, because increasing NBT value is not as simple as issuing a new custodial grant.
[quote]The impossible trinity says the following. You can only ever achieve 2 out of the following three goals:
Benjamin, I’ve carefully read the “impossible trinity”, this theory is good, and I wonder why would you assume Nu has to maintain some control over interest rate?
Nu, as a DAC, has no sovereign monetary policy at all! Nu is completely and 100% dependend on free market, it is the free market determine interest level and NBT circulation.
I think you’ve misunderstood Nu: if free market wanna Nu die, we die, if free market wanna us issue trillions of NBT, we follow. Nu, and other cryptos, just combine a whole ecosystem, which has been well demonstrated by Hayek in 1976.
The impossible trinity just demonstrates how evil the sovereign policy is and how these countries are opposed to free market! That’s why Friedrich Hayek said a country’s monetary monopoly is against free market theory.
Have you read Hayek’s “The denationalization of Money”? I suggest you careful read it if you haven’t. Why denationalization? denationlization= de sovereign policy, you see Hayek already had the answer in 1970s, and his powerful theory, can easily let most crypto hating economists shut up. Hayek’s enemy, Keynes theory has been bankrupted, it is time to counterattack Keynes’ shitty inflation theory!
I am reading the paper. The first impression I have is that in @Benjamin’s analysis of NuBits economics is completely missing the liquidity pools. I will see if they show up later in the document.
I am not sure if OP is not mentioning it for a reason. But for the great part the solvency of nu network now relies on LPC and the number is very transparent and written in real time into the client.
Any analysis made without this notion is at the least to be considered incomplete.
EDIT: confirmed. Try control+f for liquidity, just one mention in the whole document (and its not relevant). At the moment Nu is paying external entities ( you can imagine countries ) - my self included - to buy back its debt. In the future I imagine other types of incentives for individuals to do so.
The number is also clear : now is 170000 USD more or less, with three others 20K LPC lined up the number exceeds 210 000 USD.
I admin myself that my knowledge of economics and finance is worse than OP’s (despite I am catching up). However I don’t see how OP can make a complete analysis completely omitting the liquidity mechanism.
Please clarify
I will be flying for the next 19 hours, so I won’t have time to answer all of these questions. I will respond in a couple days when I recover from insane jet lag.
The impossible trinity is just another term for the uncovered interest parity condition. It applies to all types of financial assets, regardless of whether they are issued by a government or a private entity.
I’d prefer to avoid a lengthy argument about this here.
I will prepare a rigorous mathematical argument on the negative interest rate issue. We can resume the discussion after I release this document.
I don’t see why would we make Nubits a perfect money from the day one? i like to think of Nu like a perfect money transfer service and a unit of account.
How can Nu profits from 10000 Nubits saved for decades?
Keeping the peg and securing the reserves are too costly, Our resources are limited, the competition is huge and any non-profitable service like “storing value” will destroy the network.
I can tolerant the anti-inflation Nubits idea only if Cheap money transactions are not enough to raise the adoption rate any more, but the network has to be profitable enough first to both reward the shareholders and pay for the anti-inflation.
Nu has to decide what is the main service its going to offer, and how to profit from it, it is a matter of sustainability not greed.
If Nu got the needed trust, and with only 1% (0.01NBT minimum) transaction fee, and no volume limits, signing up, paying taxes or fraud risks, we can easily compete with [paypal][1] and have > 3M destroyed NBT per day!
In this case we can:
I say marketing Nubits as a perfect apayment method should be the Nu priority.
When the USD reserve exceeds 120% in a steady way and its security is no longer an issue, we can gladly discuss rewarding our users with converting Nubits to an anti-inflationary money.
All of this is possible if Nubits gets only as successful as paypal, and i beleive it has a far greater potentials.
[1]: http://techcrunch.com/2011/09/25/paypal-now-processing-315-million-in-payments-per-day/
Many of us (myself included) have no problems with fiat money. I think it’s fairly well understood by now that very modest inflation (anywhere from 1-3% normally) is actually healthy for economies, whereas extreme inflation is crippling. For how unpopular quantitative easing seems to be in crypto communities, the reality is that a 1930s-style great depression may very well have occurred beginning in 2008-2009 without that monetary policy interjection.
I get the sense this viewpoint isn’t shared frequently here. So, here is a good introduction to some of the arguments that moderate inflation is healthy. http://www.quora.com/Is-moderate-inflation-good-for-the-economy
tom, this is very classical disagreement between different school of economics.
The intentional inflation originates from Keynes because “The gold standard — which John Maynard Keynes termed a “barbarous relic” — led to ruinous deflations.”
Keynes: Gold is bad for its deflation, while my moderate inflation theory is good, incentive of economics, etc…
Hayek: Keynes is lack of economics. Even moderate inflation is poisonous, Keynes’ theory will definitely lead to disaster! The ultimate solution is good money which is neither inflation nor defaltion.
Yes, the Keynes supporters have many reasons:
[quote]This(moderate inflation) leads to a few advantages. The main one is that it incentivizes people who have stuff (ie assets) to go out and actually put them to use. This way more things get done, which is generally beneficial for society. This means more money circulating, more people getting paid, more businesses making revenue, more taxes… All good things.
Having more assets circulating also makes things more liquid. If people are more actively buying and selling, it’s probably easier to buy or sell whatever you need. This makes doing actual business easier. The main point of the economy is to move necessary things between people who need them, which is exactly what liquidity helps with.
[/quote]
What Hayek said is:
http://library.mises.org/books/Friedrich%20A%20Hayek/Choice%20in%20Currency.pdf
Last but not least, why did satoshi invent bitcoin if he loves fedral reserve and its monetary policy? For many cryptocurrency believers, we are traitor of crypto world, giving up the dream of getting rid of corrupt central node/bank, the flunky of federal reserve.
I think this is a bit of a puzzling analogy to make. It is tempting to view Bitcoin as being a solitary innovation, but in reality it is two: a technology, and an economic application of it.
Bitcoin (the technology) will be forever remembered for its successful introduction of Nakamoto consensus, whereby decentralized digital assets can be held without centralized trusted parties. Bitcoin (the “currency”) will be remembered as an imperfect stepping stone towards digital currencies - like NuBits - that are flexible and responsive to changing environments. NuBits is great because shareholders can vote for whatever monetary policy they feel is appropriate, whether it’s rooted in Keynes or Hayek philosophies.
bitcoin will game over, i believe. 
And funny stories between Keynes vs Hayek, enjoy.
Have fun!
I am curious about Jordan Lee’s ideology, it seems he like “1984”, perhaps “Road to Serfdom” also his favorite, but his product, NuBits, is completely controlled by the federal reserve, which is Keynes’s style.