|
Title: Can we fix excessive volatility? Post by: only on July 02, 2013, 02:30:50 PM I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply.
Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in. I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example: John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system. And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary :P Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver? Would be interesting to see what you guys think :) Title: Re: Can we fix excessive volatility? Post by: Zoznoz on July 02, 2013, 04:03:56 PM You raise some very good points about the volatile nature of virtual currencies which we have seen recently. I believe that it is more a supply and demand thing. Bit coins was in the news and hyped up during the early part of this year which probably caused a huge amount of interest in virtual currencies. However, if one day merchants are able to devise a system to provide bit coins instantly for credit cards or voucher codes etc therefore making bit coins more accessible then we could see a fall in the BTC/USD because of the supply to the greater market.
Title: Re: Can we fix excessive volatility? Post by: only on July 02, 2013, 04:13:14 PM Does anyone else have more relevant thoughts?
Title: Re: Can we fix excessive volatility? Post by: AliceWonder on July 02, 2013, 04:23:25 PM Feds would likely shut it down for similar reasons as to why they shut down Liberty Coin.
Saying they are equivalent to US dollar is dangerous. Whatever group is behind it in charge of the infinite supply releasing and removing currency as necessary to keep it at a dollar would probably end up in jail. But I'm no law expert. It just sounds like something that would legally be dangerous to try. Title: Re: Can we fix excessive volatility? Post by: only on July 02, 2013, 04:32:08 PM Feds would likely shut it down for similar reasons as to why they shut down Liberty Coin. Saying they are equivalent to US dollar is dangerous. Whatever group is behind it in charge of the infinite supply releasing and removing currency as necessary to keep it at a dollar would probably end up in jail. But I'm no law expert. It just sounds like something that would legally be dangerous to try. Well, it is sort of hard to "shut down" a p2p crypto-currency, isn't it? Title: Re: Can we fix excessive volatility? Post by: SaintFlow on July 02, 2013, 04:38:06 PM My bad, and my thought was that bitcoin was a exercise in getting away from governing in general.
To me the exchanges just exist so that nonminers can have some. That you guys value yourself by looking at the outside is the problem and there is no solution. Title: Re: Can we fix excessive volatility? Post by: only on July 02, 2013, 04:55:28 PM My bad, and my thought was that bitcoin was a exercise in getting away from governing in general. To me the exchanges just exist so that nonminers can have some. That you guys value yourself by looking at the outside is the problem and there is no solution. How is my idea of a Dollar pegged crypto-currency hurting your utopia? It would be just a handy proxy for transacting and a quick way to escape the volatility and near-term losses (without having funds transfered all the way back to fiat), that's all. Title: Re: Can we fix excessive volatility? Post by: TiagoTiago on July 02, 2013, 04:58:05 PM The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand?
Title: Re: Can we fix excessive volatility? Post by: only on July 02, 2013, 05:08:12 PM The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand? Good point. Perhaps compute an average from the main BTC exchanges? The created arbitrage opportunity should also make their quotes equal, theoretically. Regarding the supply, it would be unlimited. Title: Re: Can we fix excessive volatility? Post by: SaintFlow on July 02, 2013, 05:40:22 PM nothing can touch utopia
Title: Re: Can we fix excessive volatility? Post by: only on July 02, 2013, 06:08:49 PM Pegcoin would be awesome, but I don't see how you could make it work. Why it wouldn't work in your opinion? The deficit of BTC's for withdrawals in case the exchange rate drops? Title: Re: Can we fix excessive volatility? Post by: johnyj on July 03, 2013, 01:09:16 AM Then you are in fact counterfeiting USD in a P2P network :D
Title: Re: Can we fix excessive volatility? Post by: worldinacoin on July 03, 2013, 01:10:38 AM Yes we can, lets trade with Bitcoin as much as possible, in this way the bigger the Bitcoin market, the less the volatility.
Title: Re: Can we fix excessive volatility? Post by: MinermanNC on July 03, 2013, 01:30:55 AM Interesting thought, basically your finding an equal value in digital form for the dollar, for the purpose of transacting only? as if it were a dollar. So where would that leave the investment side of bitcoin and the specualting that can drive a profit (or loss) for bitcoin holders, or miners for that point..lol, and i think your suggesting using the BTC as an avenue or catalyst to make it happen. ( to purchase the equal coin/dollar) for sending money or purchases,,,sorta like is done now with a btc wallet or even a paypal of sorts. But i don't see how this would stabilize bitcoin? at least the way it exist now...or perhaps your saying create a new digital currency call it Dollar Coin DC :) that is just created by a new software etc...I dont think it could sustain the security and strength of encryption that btc does through the conformation cycles without mass users... and of course some sort of blockchain. ok,,,I don't want to over think it ... but will sleep on it! But I do see your concept..verdy intor'esting" just passing through :) keep thinking!
Title: Re: Can we fix excessive volatility? Post by: Komodorpudel on July 03, 2013, 06:23:50 AM I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply. Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in. I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example: John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system. And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary :P Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver? Would be interesting to see what you guys think :) Probably the easiest way to stop exessive volatility would be a kind of a bitcoin centralbank: For example: You bring a bitcoin stability asset at bitfunder and collect bitcoins at a voluntary basis(everyone who gives the bitcoin stability fund coins gets the coins only back when price is long term stable and only that amount thats left). When you have raised 100.000 BTC bring them to gox and cash out the half. If price loses more than 5% in a single day with out any reason the centralbank would set up a buy wall. If price raises more than 5% the Central Bank would set up a sell wall. Biggest Problem would be that no one wants to give away their coins for free Title: Re: Can we fix excessive volatility? Post by: xxjs on July 03, 2013, 11:06:26 AM I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply. Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in. I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example: John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system. And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary :P Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver? Would be interesting to see what you guys think :) This is an extension of the dollar money system, just like a gift card system. It has to be centralized. You can do it. Thousands of companies already did. Title: Re: Can we fix excessive volatility? Post by: Pumpkin on July 03, 2013, 11:11:54 AM Sure we can fix volatility.
Become a market maker: help bitcoin and earn money for yourself. https://bitcointalk.org/index.php?topic=187530.20 Sell high, buy low. PROFIT ;D Title: Re: Can we fix excessive volatility? Post by: only on July 03, 2013, 11:34:32 AM This is an extension of the dollar money system, just like a gift card system. It has to be centralized. You can do it. Thousands of companies already did. No, it doesn't have to be centralized. It can be a separate crypto-currency, just pegged 1:1 to the dollar by the protocol. Sure we can fix volatility. Become a market maker: help bitcoin and earn money for yourself. https://bitcointalk.org/index.php?topic=187530.20 Sell high, buy low. PROFIT ;D I'm helping Bitcoin with buying and holding it. Title: Re: Can we fix excessive volatility? Post by: TiagoTiago on July 03, 2013, 11:42:53 AM The thing is, where would you get the exchange rate from? And what would prevent people from charging more than 1 USD for 1 virtual dollar when there isn't enough supply to cover the demand? Good point. Perhaps compute an average from the main BTC exchanges? The created arbitrage opportunity should also make their quotes equal, theoretically. Regarding the supply, it would be unlimited. And how would the supply be unlimited if not everyone is selling? Title: Re: Can we fix excessive volatility? Post by: marcus_of_augustus on July 03, 2013, 12:30:50 PM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it ....
Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. Title: Re: Can we fix excessive volatility? Post by: TiagoTiago on July 03, 2013, 12:50:59 PM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... But what would the system buy your money with? And who would be sending you the payment?Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. Title: Re: Can we fix excessive volatility? Post by: xxjs on July 03, 2013, 04:24:45 PM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. Adding something to each wallet every time the value goes up: The value of the total content of the wallet will also go up. That is not stabilizing, it is what Mises call "renaming of the currency unit". It has been done with fiat many times, it is not devaluation, it is only a practical measure to align the different bill and coin sizes to something practical. Regulating the value of a unit, that would need the regulator to have some amount of coins, sell when the value is high and buy when it is low. The limit on the low side is the amount of fiat available at the regulator. In case of a central bank, it is unlimited of course. On the upper limit, on the other hand, nobody has an unlimited number of coins, so when the upward pressure is too high, the limit has to be given up. This is exacly the reason why all pegged currencies are pegged until they are not pegged anymore, and no longer. What we have is entrepreneurs that buy low and sell high (daytraders and other speculators) The resulting value is regulated to what the entrepreneurs think that the value will be some time in the future. If they are right, it will be more stable than if only regular users set the value. Title: Re: Can we fix excessive volatility? Post by: DrahogErusiel on July 03, 2013, 06:21:40 PM This is an extension of the dollar money system, just like a gift card system. It has to be centralized. You can do it. Thousands of companies already did. No, it doesn't have to be centralized. It can be a separate crypto-currency, just pegged 1:1 to the dollar by the protocol. Sure we can fix volatility. Become a market maker: help bitcoin and earn money for yourself. https://bitcointalk.org/index.php?topic=187530.20 Sell high, buy low. PROFIT ;D I'm helping Bitcoin with buying and holding it. BTCOOM!!! Title: Re: Can we fix excessive volatility? Post by: Fugger on July 03, 2013, 08:04:41 PM I think the best way to fix the high vol of BTC is to go out and promote the use of BTC. The more merchants accept BTC and the more individuals pay with BTC, instead of using it as a speculative asset class, the less vol we will have. That's because if we have 100 million people using BTC, the impact of buying and selling by those who speculate exchange for fiat will be much less than if we have something like 4 million users.
Title: Re: Can we fix excessive volatility? Post by: firefop on July 05, 2013, 10:13:13 PM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... But what would the system buy your money with? And who would be sending you the payment?Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold large r account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. This has actually captured my interest now. What we're really talking about is a single party exchange (funded by investors?) that only trade for coupons that equal 1 usd... and only buy and sell bitcoins with it. So every node on the network is run by an investor. This investor is effectively creating coupons at will (backed by actual physical dollars?) So the software could manage the exchange between bitcoins and coupons. It could become the method of choice to move value between the bitcoin exchanges if nothing else. ~ It would require a very high level of trust for people being able to issue the coupons - as they'd have to have cash on hand and be able to deliver it to destroy coupons when people wants to cash out. I'm not sure it's workable - bitcoiners are inherently against a single entity or small group of players controlling the money supply. Title: Re: Can we fix excessive volatility? Post by: odolvlobo on July 05, 2013, 10:32:56 PM In order to maintain the 1:1 ratio, there must be a decentralized way to exchange dollars and coins in the block chain at 1:1. You need a decentralized way to verify that the dollars used to create coins have been destroyed, and a decentralized way to create dollars when coins are removed from the block chain.
Title: Re: Can we fix excessive volatility? Post by: marcus_of_augustus on July 05, 2013, 11:08:47 PM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... But what would the system buy your money with? And who would be sending you the payment?Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold large r account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. This has actually captured my interest now. What we're really talking about is a single party exchange (funded by investors?) that only trade for coupons that equal 1 usd... and only buy and sell bitcoins with it. So every node on the network is run by an investor. This investor is effectively creating coupons at will (backed by actual physical dollars?) So the software could manage the exchange between bitcoins and coupons. It could become the method of choice to move value between the bitcoin exchanges if nothing else. ~ It would require a very high level of trust for people being able to issue the coupons - as they'd have to have cash on hand and be able to deliver it to destroy coupons when people wants to cash out. I'm not sure it's workable - bitcoiners are inherently against a single entity or small group of players controlling the money supply. No. In my scheme the issuer of the currency is an automaton. It can hold effectively infinite balance to issue as many units as necessary to keep growing demand satisfied such that the price is stable (recall that growing demand for the currency is effectively quenched by being paid out to the current holders in the form of a direct dividend to their accounts). When demand is weak, i.e. price dropping, then it buys back at the market to stabilise the price. Obviously, the latter case is the more tricky to deal with since demand for the currency may completely collapse in which case the automation runs out of funds to buy the currency in the market, at which point the game is over anyway. So what all this means is that it requires a large pocketed backer, or group of backers, who front up with the initial pool of funds that the automaton holds to bootstrap the currency. These initial investors put other reserve currency(s) (bitcoins?) into the pool that the automaton uses to effect open market operations, and in return receive an equal amount of the new currency in return (this is the 'float'). If the currency is a desirable product and adoption/usage spreads easily then the volume of funds held by the automaton will be stable as all it has to do is issue the necessary currency into holders accounts to keep market price stable. If demand for the currency weakens then the algo has to buy back at the market to strengthen the currency, if the market supply becomes overwhelming then the currency has problems ... the backers, and latter adopters, would be aware of this and are also incentivised to effect their own market operations to aid the automaton's algo and defend their currency. Title: Re: Can we fix excessive volatility? Post by: edmundedgar on July 06, 2013, 02:57:47 AM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... But what would the system buy your money with? And who would be sending you the payment?Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold large r account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. This has actually captured my interest now. What we're really talking about is a single party exchange (funded by investors?) that only trade for coupons that equal 1 usd... and only buy and sell bitcoins with it. So every node on the network is run by an investor. This investor is effectively creating coupons at will (backed by actual physical dollars?) So the software could manage the exchange between bitcoins and coupons. It could become the method of choice to move value between the bitcoin exchanges if nothing else. ~ It would require a very high level of trust for people being able to issue the coupons - as they'd have to have cash on hand and be able to deliver it to destroy coupons when people wants to cash out. I'm not sure it's workable - bitcoiners are inherently against a single entity or small group of players controlling the money supply. No. In my scheme the issuer of the currency is an automaton. It can hold effectively infinite balance to issue as many units as necessary to keep growing demand satisfied such that the price is stable (recall that growing demand for the currency is effectively quenched by being paid out to the current holders in the form of a direct dividend to their accounts). When demand is weak, i.e. price dropping, then it buys back at the market to stabilise the price. Obviously, the latter case is the more tricky to deal with since demand for the currency may completely collapse in which case the automation runs out of funds to buy the currency in the market, at which point the game is over anyway. So what all this means is that it requires a large pocketed backer, or group of backers, who front up with the initial pool of funds that the automaton holds to bootstrap the currency. These initial investors put other reserve currency(s) (bitcoins?) into the pool that the automaton uses to effect open market operations, and in return receive an equal amount of the new currency in return (this is the 'float'). If the currency is a desirable product and adoption/usage spreads easily then the volume of funds held by the automaton will be stable as all it has to do is issue the necessary currency into holders accounts to keep market price stable. If demand for the currency weakens then the algo has to buy back at the market to strengthen the currency, if the market supply becomes overwhelming then the currency has problems ... the backers, and latter adopters, would be aware of this and are also incentivised to effect their own market operations to aid the automaton's algo and defend their currency. I don't think you even need a large-pocketed backer to bootstrap . Let's assume we've got: - A way of trading in and out of this currency (maybe a decentralized exchange to trade with BTC). - A way for the network to check the exchange rate of the currency. The protocol would have a method to encourage people to keep the rate stable, namely: - If the coin is too weak, anyone can destroy their coins in return for a voucher allowing a share of future money creation. - If the coin is too strong, anyone can cash those vouchers in and get some newly-printed money. So you start with 1 coin and 1 money-printing voucher. Maybe it opens at $2 (I'd pay that, it's worth a shot). People cash in their vouchers until there are 5 coins in circulation and it drops to $1. Then maybe the initial hype wears off and it drops to $0.90. We start buying vouchers and it goes back up to $1.10. Everybody knows there's going to be enough money printed or destroyed to bring it back to $1, so speculators should buy and sell anywhere far outside the target price and it should end up only a shade higher or lower than $1 at any given time. What it relies on is that people think there may be a need to print money in future to maintain parity with USD, without which the money-printing vouchers are worthless. But that isn't too high a hurdle as the currency you're pegged to is getting debased all the time, and I think you have that problem even with initial rich bootstrapping backers. Title: Re: Can we fix excessive volatility? Post by: Ira H. Fuchs on July 06, 2013, 04:08:30 AM I had a revelation the other night - why don't we build a decentralized, open-source crypto-currency that is pegged (protocol-wise) to the US Dollar, which could anytime be bought with and sold for Bitcoin automatically (and perhaps exclusively), so to speak? It would be exactly like Bitcoin, with confirmations and all that, but with no mining and with an infinite supply. Just imagine a separate downloadable client with a BTC address that would keep the received bitcoins in it's protocol (hell knows how, but it doesn't sound impossible) and provide you with a corresponding (at the then-current exchange rate) number of "coins", each of which you can always "cash out", again within the client, for $1 worth of Bitcoin. Whenever you cash out, you get paid automatically in Bitcoin at the current BTC/USD exchange rate, so you end up receiving the same exact money you brought in. I could see this working flawlessly when the BTC appreciates, but when it depreciates there would be a deficit of BTC in the system. Here's an example: John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC appreciates to $200 let's say, and when he (or anybody else, really) "cashes out" to Bitcoin, they receive 0.5 BTC, with half of the Bitcoin staying in the system. And here's the counterexample, John has 1 BTC (current price $100) and buys 100 Virtual USD coins with it. In the meantime, the BTC depreciates to $50, and when he "cashes out" to Bitcoin, he must receive 2 BTC, when bringing in just 1 BTC. Is it possible that the first situation counterbalances the second one? In other words, can mass adoption solve this clusterfuck? I bet it can, if Bitcoin stays deflationary :P Can a sustainable crypto-currency be built on the description above, and if yes, wouldn't this solve the volatility problem we have with Bitcoin, replacing it as a transaction currency and leaving it be a commodity, next to gold and silver? Would be interesting to see what you guys think :) good evening. It begins with having deep knowledge of bitcoin network design, especially block chain protocols. The higher education projects we support fill the largest gaps in the blockchain. More research needs to be done to follow international laws especially ones having a wide impact. We have massive funding so there is no fear of bitcoin being wiped off the map..Ira Title: Re: Can we fix excessive volatility? Post by: petrjanda on July 06, 2013, 05:04:04 AM 1) Proper trading tools are a good start to lower bitcoins volatility.
2) Exchanges have to work closer together. Inter-exchange trading is a must imo. All exchanges should be using the FIX protocol. 3) Futures trading. 4) Wider acceptability of bitcoin. 5) Incentives for people to keep bitcoin instead of trading between fiat and crypto. 6) Investment Title: Re: Can we fix excessive volatility? Post by: Wary on July 08, 2013, 01:53:08 AM Margin trading will fix the volatitility.
Most of BTC business is speculation. When the speculators get proper financial instruments (which, I hope, pretty soon), they will start margin trading. With leverage 100:1 price swings will decrease hundredfold. Say, BTC market is $1B. Then another media hype happens and another $1B comes. But since they be used not for direct BTC purchace, but for margin trading, the price of BTC will raise only by 1%. So, to really help BTC, VC should develop tools for speculants, rather than for "real economy". Title: Re: Can we fix excessive volatility? Post by: DPoS on July 08, 2013, 02:42:12 AM If you are going to go down the route of controlling the amount of units in circulation you could go nutz with it .... Hayek talked about an ideal automated regulator that kept the currency value stable with a basket of goods (gold, oil, wheat, milk, meat, what-have-you, etc) just the usual stuff but the mechanisms he proposed could only be done with something like modern digital currencies that we now are experimenting with ... ... the automated algorithm would have as it's goals the currency's stable value but in order to achieve these targets it would automatically buy currency on the market if the value was dropping below target but here's the kicker, imho, if the currency was becoming over-valued then the system would automatically credit all existing accounts on a pro-rata basis to put more currency supply into circulation, i.e., like stock-holder dividends. Of course, it would need to be something quite sophisticated in the way of a control algorithm to achieve price stability, figuring out necessary time-constants for the system and etc, but not impossible with a modern multi-variate adaptive controllers I don't think (fuzzy logic or neural net may also be options). The key here is that to encourage/speed adoption there is an incentive to hold larger account holdings so that as demand for the currency were to increase as it's use spread, then currency holders would be rewarded with more numbers in their accounts. It is, in effect, the same thing that bitcoin causes when demand rises and it's value increases (in the local unit of account) but it is monetised in a different way such that the current holders see a constant value of the unit but they get more units ... same net effect, different mechanism. The currency inflates at the necessary rate to keep the value constant against the chosen basket of market goods/services but the inflation is spread out EQUALLY to ALL present currency holders. NB: I'm pretty sure that Open Transactions can do all this with it's current functionality. And a few added 'lock 'n leave' controller algos that can be unleashed and keys destroyed so that the tamper-proof machine has control. baked in inflation is what btc is trying to get away from.. that automatic buyback would be totally gamed as well on the other side of it. money is very hard for people to get their head around. it took me a few years to really understand the subtle and psuedo nature of it. currently, the USD is totally worthless on bookvalue. Anything automatic to correct it would shoot off the charts. But, when you understand velocity, you can see that when only the small amounts get moved around it can't really create inflation. When the big piles flow fast, as when TARP et all happened, then you saw some very rocky moves in the value of anything per the dollar. That is the real linchpin, currency crisis. Losing faith from the top side of the money piles is where money beings to die. Not from the ground up since there is never enough velocity to push prices up relative to the whole amount of outstanding units. Regualr people are just too cash poor to move prices in an ocean of trilllions of outstanding units. But when you have that funny money derivatives, et all.. it can happen in an instant PS- back to the value of a currency. That used to be things like gold or oil, which are never worthless and would allow you to exchange the currency easily for the backed commondity. Of course now the dollar is backed by bombs which is mob style. But you have the BRICS doing about 20% of world trade now outside of the dollar and growing. If oil breaks free from the dollar (USA runs out of bombs) then you get massive defaults and death to the currency. BTC is interesting since it is digital gold. So it is like the gold dinar that Gaddafi died trying to introduce; the currency is backed by itself. Let the free market decide how much people value btc. That is the only way it can and should survive anyway. Remember, even if the dollar strengthens, and rates go up and people want that return, the banks can bail-in, corzine, vaporize your cash like cypress (it happened in the 80's with the S&L crisis too.. bait with 12% returns and then poof!) |