Bitcoin Forum

My recent discussion about Encoin got me wondering what properties a crypto-currency would require in order to be self-stabilizing. I realize the majority opinion is that this is the crypto-currency equivalent of a perpetual motion machine. But mere claims of impossibility don't dissuade me from considering an idea, indeed I think that is the reason many of us considered Bitcoin in the first place.

So Encoin has a property of only allowing new currency to be created (at a fixed cost) when the market value has reached or exceeded that cost. Thus no rational actor would create new currency except where market demand required it, and effectively setting a maximum possible value on the currency.

But what property of a crypto-currency could help to arrest a falling market value?

1. The first idea I had was that currency could be randomly destroyed when the market value was falling, thus reducing supply and increasing price. However the knowledge that ones currency was being depleted might cause one to sell-off, actually increasing the supply and further depressing the price.

2. Another idea is to have an interest rate - when the price is falling, existing currency holders see their holdings grow at a rate proportional to the distance from the target price of the currency. This increases demand for the currency in line with the distance from the target price. However if the price were to fall too far, increasingly higher interest rates would need to be provided, and we might see a huge glut of the currency until it became ridiculous and faith was completely lost. But perhaps the currency could chop off zeroes as needed, and everyone who was going to sell had sold, causing the interest rate to come back down.

3. A third idea might be to have a (distributed) central bank (DCB). The DCB would need to tax the generation of new coins, maybe at 20%, convert them into some other store of value (maybe Bitcoins), and then seek to buy back the currency if the target price of the currency fell too low.  Now a central body could do this easily enough, but I'm not sure how one might set the rules in advance, and then distribute the task so that no individual could change it.

The largest problem with all of those (or any method that attempts to fix price) is how do you determine price?

You ask Mt.Gox.  Hardly distributed.  Even if it was somehow distributed it now likely requires some element of trust to avoid a coalition feeding the protocol invalid data (i.e. a 51% price attack).  Even if you solve that well markets (especially small ones) are easily manipulated.

Also the track record on market manipulation is rather weak.  If the most powerful central banks in the world with nearly unlimited ability to create or destroy money have difficulty achieving their goals it seems unlikely any protocol especially one which would be limited to avoid manipulation could do much better.

I talk a lot about price stability, but I really don't care about price - I care about the stored value in my wallet.  That tracks with price only if the number of coins in my wallet stays the same.  If you destroy 20% of all coins in all wallets in response to a price drop you'll bump the price back up, but you won't restore the value of my wallet.  Therefore #1 and #2 don't really help.

#3 is interesting.  I've had a somewhat similar idea.  I called it a "Decentral Bank".  :)  I haven't fully fleshed out that idea, so run with it a bit and see if you can get my mind going.


My idea is to mine it into the block chain.  We had a lot of interesting back-and-forth about it over here:
https://bitcointalk.org/index.php?topic=49959.msg600953#msg600953

There is nothing stopping anyone from creating currency at a loss. It's just irrational, obviously.


The same property that has arrested bitcoins around $3 - opportunity. Everyone can see that the market price is below what it cost to produce, that means you can buy and hold to speculate that the currency will again rise to its market value. Prove enough times that the market value of the currency revolves around a stable cost to produce, and you can gain a lot of faith in the currency.

But there are other ideas as well. One I came up was redistributing transaction fees as interest to all holders of currency. This means if the price does start to fall, those with currency can hold on and make interest off of those who are buying in and transacting, or just selling. This interest would still apply even when the currency isn't falling, so it creates demand to hold anyway.

Red had an idea where transaction fees are destroyed, but only if no one is making new currency, and even possibly adding a spending tax. I've drawn this idea out a bit in my latest post in the thread, but I need to think on it a bit more.


This is why you should always revolve these types of decisions around transaction fees. Real economic activity is a lot easier to measure when there is a small, but significant fee.


If we're talking about Encoin, there is no method that attempts to fix the price. It only attempts to keep a stable cost to produce, and it does so by occasionally restricting supply to see how much competition is fostered. koomey's law (http://encoin.bitcoinforums.net/doku.php?id=koomey_s_law)

If the price of electricity goes down, the cost of time and processing cycles will go up due to competition. Although not quantifiable, time isn't free. If 1 coin takes 50 hours and $1 of electricity, it may be valued identically to a coin that takes 100 hours and 50 cents of electricity. This is the balance Encoin is trying to achieve. Electrical cost + time + processing cycles (hardware costs, etc.) + return on investment = market price.

Yes - determining the price doesn't seem like the big problem to me. Choosing an arbitrary price and attempting to fix against the current electricy/hardware/hashrate seems like a good approach.

Sure - the Decentral Bank does have nicer ring to it!

I guess it is easy enough to levy the tax, you'd require miners to pay Bitcoin in addition to proof of work to create new currency. How does the DCB hold those Bitcoin such that they can only be released with the consent of the majority of the network. That seems to be the crux of the issue. Maybe something in the bitcoin scripting system would be helpful. I'll need to think about it some more too.

Price is a bad word to use, at least with the encoin design. Value is more appropriate. I used the example of if 1 ENC = 1 loaf of broad, 1 ENC should always = 1 loaf of bread, assuming production costs of bread are unchanged. This initial value will be determined within the first few hundred thousand coins or so, after that everyone else must put in a similar cost to produce, or they are doing so at a loss (if they are doing so at a greater gain, and this greater gain becomes a larger percentage of the coins produced, the koomey's law competition effect will bring the cost back up).

But value is different from price because price kind of implies market price, e.g. what does 1 ENC = in USD/EUR/etc. This will change drastically over time as fiat currency inflates. If you can buy 1 loaf of bread for $2 in 2011, but a loaf of bread costs $4 in 2050, a loaf of bread should still cost 1 ENC in 2050. More fiat available for limited ENC, plus those producing ENC will want an equivalent amount of fiat value (why would I mine/sell for $2 when bread costs $4?) for their time, hardware, ROI even if electricity prices lag behind. Like I've said, it won't be perfect, but I think it can get real close.

That's a great idea. All it requires is for you to corner the entire world market on bread making.

A currency with a monetary base that increases indefinitely can maintain price stability in relation to the overall economy. Therefore, it can act as a means of exchange and a metric of value. The problem with existing fiat currencies is that they also are promoted as a store of value, which is impossible outside of a static economy.

The world could be fine if people saved their wealth in gold/silver and spent euros and dollars. However, the centralized management is currently at odds with this. A decentralized system of control and management over the money supply as provided by the mechanism from Bitcoin is the most ideal (to my knowledge) means of transcending that dilemma.

Such a system would involve saving in Bitcoins and spending in Altcoin/Aucoin or what-have-you. There was an extensive discussion on this at the Altcoin thread (https://bitcointalk.org/index.php?topic=37405.0). Whereas Bitcoin reaches an asymptote, Altcoin would have no such limitation and could be expanded indefinitely via the same mechanism that is limited in the former. Note the consistent value in Altcoins from the quoted chart below.


Generation of both Altcoins and Bitcoins is a function of profitability for the producer and thus a self-managing process. There is no need to increase complexity to manage something that doesn't need management.

Except this chart has no basis in reality. The amount of money in existence will not just perfectly equal the amount required for the economy to so beautifully line up with your chart. It takes no actual supply or demand into account, only a made-up 10:1 ratio between it and bitcoins and a 10:1 ratio between it and potatoes. Real economies don't work this way, brah.

What if there is no demand for new currency? Well, new currency is going to be produced anyway, but now it comes in for little effort. Everyone will HAVE to mine just to keep the value of the currency remotely stable. And it will HAVE to be done in massive pools or someone is going to become Altcoin's newest (b-)millionaire based purely on luck.

Instead of one replacement currency, now you have one for spending and one for saving. Doesn't that suggest that there is something inherently wrong with both? Everyone will have to keep wealth in both because god-forbid the christmas season come around and bitcoins flow like mad into altcoins, crashing the value of bitcoins and inflating the value of altcoins. (buying wheat in the fall caused a constriction of the money supply in new york, led to someone manipulating the system, led to a crash in the economy, and the eventual result was the federal reserve as we know it today. things aren't so simple as you'd like them to be)


Then why switch from fiat? Just for convenience's sake?


See my example above. Bitcoin won't retain its value independently of the exact same thing but with inflation. There will be flows between the two constantly, and if something scares/guides the public into one over the other, it will surely affect the other's value.


The creation of coins is a self-managing process, the effects of that creation is not. Coins are not created in a void. The cost to produce each coin should not vary so wildly as to essentially imitate fiat. All this will do is create a gigantic market of speculation between the two currencies which MIGHT actually result in stability between the combination of the two (but the cost of this stability will be that speculators get value, everyone else loses--oh wait, exchanges win too by taking fees, we love fees). Again though, you'd have to keep half of your wealth in both. Kind of silly. And still doesn't do anything to help ease economic struggles or prevent manipulations of the currency.

What we need is millions of users and hundreds of thousands of service/product providers all willing to accept and spend the cryptocurrency. Problem solved.

Right. Speculators will compete against each other causing their fluctuation waves (or whatever trader lingo) to dampen each other. The mean value of Bitcoin will rise with its usefulness.

The chart illustrates the principle. In practice the supply ranges in accordance with demand, not at a precise relationship. This is exactly the same way existing money supplies operate, the only difference being centralized (flawed) management as opposed to Bitcoin's much more reliable decentralized method.


No demand for new currency means prices fall (continued production without monetary base expansion is deflationary), no different from Bitcoin near its asymptote. New block production in a situation of significant displacement leads to increased unit production - with arbitrage first generating, then mediating volatility. The currency must be spent to be of worth (e.g. buying real goods or Bitcoins for savings), as the money supply can only expand - any substantial expansion leads to depreciation of the unit.

The notion that unit generation must be done in massive pools is false, just as it is now. Nothing prevents an individual from participating alone. Pool mining simply allows individual algo miners a more reliable chance at sharing in block discovery. Note that discovery of a single block does not create millionaires in any existing crypto-currency system, nor would a single block necessarily do so in an inflationary Bitcoin structure.


No. Use the right tool for the job. Gold is excellent for wealth preservation while fiat is excellent for active use; the same applies to Altcoin/Bitcoin. There is no contradiction - only the perspective is erroneous. If you have a better solution, I'm sure there's a Nobel prize waiting.

With an economy the size of Bitcoin as it currently stands, manipulation is a very real and dangerous possibility. I was not suggesting Bitcoin (or Altcoin) in its nascent state is capable of providing the necessary service as described; my discussion is oriented toward the more mature stages of use. At that point, it quickly becomes much more difficult to manipulate the system.


Bitcoin is functionally no different from fiat currencies. It is the control and management that makes it more reliable. This means that not having to be concerned about which banker or politician is reliable is of greater convenience.


The example is based upon temporal assumptions. Representative wealth is effectively stored in everything from real assets to fiat currencies. There are flows between fiat and gold, yet this does not harm the independent value of gold with all else remaining static.

There are multiple components in play, not just Altcoin/Bitcoin. Just as with gold and fiat, they are not themselves wealth, but representations of it. The wealth that the two systems represent is transferable among the currencies as well as anything else involving capital investment.


The effects of unit generation are insignificant in a mature system. Even with massive production on the inflationary side (Altcoin/fiat), the deflationary component (Bitcoin/gold) remains relatively immobile and absorbs the influx (along with real assets and other investment vehicles, just as happens in contemporary economies). This is another point made clear by the chart: an absolute change is relatively large and disruptive for small economies, while for large economies the same absolute change is negligible in toto.

Arbitration is a normally occurring aspect of any economy; it will exist, allowing opportunities for profit. Introduction of the inflationary side (Altcoin) can be initially governed by logarithmic block generation, easing disruptive effects of adoption. This is essentially the reverse of Bitcoin's halving of the block reward over time; Altcoin might increase the block reward periodically over a set period of time, after which market demand for the currency determine its expansion.

Exchanges provide an essential service that is external to the currency itself. A reasonable cost for a quality product or service is simply an aspect of participation in any society. If you can obtain all of your products and services for free, you must be better than anyone else or a politician.

The assumption that half of a person's wealth must be stored in each is nonsense. Nothing demands wealth be kept in either currency: it's a matter of personal choice. If a person chooses to store his wealth in the form of plush animals, that's his prerogative. Each individual's needs are met by variable allocation, just as exists with the current global financial system. With a deflationary component separate from the inflationary one, it becomes easier to manage wealth versus trying to shoehorn everything into a single unit that can do neither indefinitely without introducing disruptive volatility.

Again, a nascent system is vulnerable to manipulation. At a critical mass, that becomes a largely irrelevant issue. The problem is in getting to that point, something existing banks and governments are doing an excellent job of achieving without the Bitcoin community needing to do much at all.

It may help to read this (http://fofoa.blogspot.com/2011/11/moneyness.html) for a better understanding of how capital flow and money in general works.

This is not true. The value ranges in accordance with demand. There is a huge difference. And what that difference does is open up the opportunity for a transfer of value/wealth by manipulating the supply. Bitcoin is not more reliable in this management, as the spiral up to USD $30 so eloquently proved. Even without early adopters, if we assume the 80/20 distribution of wealth will generally remain true, those with 80% of the wealth have every opportunity to manipulate this supply for their own benefit. Even more so with an arbitrary money generation like Bitcoin's that cannot be changed. At least more effort can go into mining gold to ease supply problems; there is no such possibility with bitcoins.


The point was the monetary base is going to expand whether or not continued production warrants it. I'm talking about Altcoin here. Prices rise, and for no good reason. This may actually encourage a loss of productivity as electricity is wasted to keep your portion of the value of the currency. Don't want to lose value? Mine. Perhaps it makes sense from the standpoint of the security of the network, but it hardly makes real sense.


Gold is not excellent for wealth preservation. Its prohibitively limited quantity makes it a speculative vehicle. Speculation is not something one should have to engage in to retain wealth. http://upload.wikimedia.org/wikipedia/commons/thumb/e/e3/Gold_price_in_USD.png/800px-Gold_price_in_USD.png - Anyone buying in on the way up or near the top most certainly did not preserve their wealth. It is inflation-resistant though, but that is only because the property of fiat is to be inflative.

By using an analogous dual currency system that mimics gold and fiat, you are asking for the same problems.


Do you agree that the USD is a mature system? If you do, then how did we just see a world-wide recession based on the manipulation of credit? Those with the majority of wealth aimed to transfer more wealth to themselves by pushing currency around. And that is in a mature system, and they nearly collapsed the economy. Do you think Bitcoin will be immune to this because of no government? The government had little to do with any of this besides deregulation. Bitcoin absolutely begs for low fractional reserves with its restricted supply. Welcome to debt-based society yet again. Welcome to the manipulations of the top 20% in wealth impressed upon the bottom 80%. No goverment will be able to bail anyone out, so welcome to the recession to end all recessions.


Greed is something we can universally depend on, and those who have the ability and desire to acquire wealth for nothing productive will always attempt to do so. This will be realized in bitcoin; it has already been realized.


Yes, they are representations. But these representations change in value based on external factors. A currency should make these external factors--these manipulations--as difficult as possible. Bitcoin makes it as easy as possible to transfer wealth up the chain. Altcoin makes it somewhat easy to transfer wealth down the chain. Neither is at all optimal. The poor won't use bitcoin, the rich won't use altcoin. Not a very productive currency. Governments attempt to alleviate the disparity by government spending, though we all know that this is another greed-fueled process that rarely benefits the majority.


Altcoin is actually something I've agreed in the past as a genuinely better system than bitcoin or fiat. However, the decades it will take before altcoin stops being so volatile make it essentially worthless. It cannot adapt to large changes in demand or productivity. It will likely never have to as no one will adopt it.


Yeah but I don't pay a 0.65% arbitration fee to move money from my savings to my checking. It is such a gross solution to the issues of bitcoin. "Start a sister currency LOL!"


Well, not really a currency if you can't spend it though, now is it? "Get your bitcoin bullion here! Only a 1% fee!"


I did not say must. But if you want to hedge your bets evenly, you have to. Aka not be a speculator with your personal wealth.


No, it becomes easier to use a simple number and go from there without any real economic thought behind it. That is the only logic behind either of these distribution schemes. If you could create a currency that is similar to gold in that it is difficult to obtain but the difficulty of obtaining it stays relative throughout time, you would have a great foundation for a currency. Say you could compact 1 man-hour of work into a coin. 1 man-hour may have different productivity throughout time because of technological progress or whatever, but everyone knows what 1 man-hour is when you spend it. Or save it. Its value should not vary based on the whims of the 20%, its value should not vary based on the whims of the government.


The bailouts were governments protecting the many from the greed of the few. Although in doing so they just let the greedy retain their power. But make no mistake that the greedy had everything to do with the latest recession, not the government. Mature market, nascent market does not matter. Greed will find a way if you give it one.

I've seen this said a few times, but I don't see why this should be true. I would expect to see big movements in a cryptocurrency even if it became widely accepted.

If BTC were as widely accepted/used as, say, CAD, why would you expect to see more fluctuation in BTC than you currently do in CAD?

The supply is finite, but for the near future, the supply will continue to increase at a predictable rate.  It seems to me if bitcoin was widely used, we would see a slow, steady deflation, but I don't see why there would be huge fluctuations (up and down).

You don't see why there'd be huge fluctuations? Is the rise up to $30 completely anomalous to you then?

How about renaming the thread to "Properties I can add to a stable crypto-currency to make its price diverge"?

Seriously. The point of speculation is that it corrects price. Adding an arbitrary feedback that goes against the correction -- or magnifies it, for that matter -- is a pretty absurd idea.

If the goal is to emulate a central bank, altering supply to achieve some murkily defined goal, I have a hint: don't. The last thing we need is more strange dynamics nobody understands that blow up the currency at random. I would probably have used a Bitcoin+demurrage system to keep the amount of circulating coins constant at all times, but Bitcoin is good enough. Run it for a few years, and speculators will make it increasingly stable. Voilà, there is something usable, without the threat of some failure in system dynamics suddenly causing a hyperinflation or whatever.

Arbitrary feedback. pfft. The point is to come up with something that isn't arbitrary. I know that this is possible may come as a shock to many, but calling something that is not arbitrary, arbitrary, does not mean that it is.

Supply is not value, therefore your statement of falsehood is incongruent with the argument.

The exchange rate is an indication of relative valuation, not the inherent value of an item.

Value is not purely associated with demand; it arises from the interaction between supply and demand.

Correct me if I'm mistaken, but you seem to be suggesting management of unit value in relation to external forms of wealth.

Manipulation? One child learning how to ride a bike more quickly than another could be considered "manipulation" due to greater skill. Does that mean the bicycle is faulty?

Terrestrial gold is a finite resource, no different from Bitcoin. What happens when gold runs out? The argument is absurd, as is the suggestion that Bitcoin is a static system incapable of change.


Supply expands to the extent that it is demanded; the phenomenon known as elasticity (http://en.wikipedia.org/wiki/Elasticity_(economics)). There is no need to mine in order to maintain value in Altcoins, a simple transfer from Altcoin to Bitcoin (or any other asset that maintains wealth during deflationary periods) works for preservation of wealth. During contraction in demand below what would justify existing supply, the Bitcoin side becomes more attractive and wealth flows in greater volume out of Altcoin and into the former. This is no different from the current shift of trend from holding wealth in fiat to real assets.

A potential concern might be transaction verification time based on participating nodes. In that case, system participants in need of such a service (e.g. retail merchants) will have to provide additional processing power to maintain transaction speed or contract with providers of such services. There is more to an economy than just the monetary base.


I'll let 5,000+ years of history know you disagree. In the meantime, reality just left a message stating that I should tell you an ounce of gold from 2,000 BC is still an ounce of gold.

The dual currency system worked quite well until central banks began managing (read: distorting) supply. Bitcoin doesn't have humans at the helm controlling the supply; the known and verifiable point of failure has been removed from the equation (it isn't perfect - there are other concerns). This is the core of what makes Bitcoin so powerful. Please try to understand this, otherwise further meaningful discussion will be very difficult.


As stated in my comment prior to this: management. Central banks' control over the supply in combination with heavy influence in the rules and regulation thereof. Without the human element now present in existing fiat systems, the one century to collapse we see now might take an order of magnitude longer.

Regulation has been protective of those in positions to manipulate the money supply. Government is complicit in the illegitimate expansion of the monetary base which is used as a store of wealth.

Bitcoin has removed the government, banks, regulators and any other direct form of control over the money supply. This is the critical aspect that allows it to function similarly to fiat, only better. It is market participation, not the market itself, that gives rise to "manipulation" as those whom are more highly skilled at accrual of wealth in a closed system will accumulate more than those that are not as good.

Just as gold removes the possibility of perpetual expansion, Bitcoin's monetary base limitation precludes subversion of existing wealth. The method that Bitcoin's system enforces the limit is the same way laws become entrenched: distributed agreement upon a tenet.

Interaction being cyclical, the dominant factions of a closed system eventually expend more resources maintaining and defending their share than accumulating, leading to smaller participants being able to make headway. The "manipulators" are offensive until they can no longer accrue past a threshold, then they become defensive and the smaller participants become the manipulators.

As an example: for decades, the large banks such as JP Morgan and Deutsche have been the "manipulators" and gamed the system. Recently, the Occupy Wall Street movement has been eroding the dominance exerted by the former that began its decline in the early 2000s. The dominating banks are on the defensive while the smaller participants are building their offense. That is the cyclical nature, and new dominant players will emerge from this populist movement.


Exactly. There is no perfect solution, only a balance of interaction between opposing forces. It's an observation (http://en.wikipedia.org/wiki/Yin_and_yang) that has been made repeatedly throughout history, mostly via religion.


This is an understandably confused perspective. It is not functionally better than fiat: its supply is just governed more reliably. It is not "better" than Bitcoin: it is complementary.

The key to this concept is the interaction between components, even more so than the components themselves.



You don't "pay" because of the return banks gain from holding your money for you. There are other ways the banks make money from holding your money so that they can entice you into entrusting your wealth to their safe-keeping. Checking accounts can be "swept" overnight to earn a return for the bank, and savings accounts are generally limited to a set number of monthly transactions because interest is paid to the client, precluding the bank from "eating" too many transaction fees behind the scenes.

Costs may be hidden from you, even buried, but there is always a price to pay. Bankers and politicians are particularly adept at disguising true costs. Remember: TINSTAAFL (http://en.wikipedia.org/wiki/There_ain't_no_such_thing_as_a_free_lunch).



From a trading perspective, hedging bets is prudent. In a mature system, the pace of change is glacial and obviates the need to stare at a screen just to protect one's assets. Having personal wealth in any currency existing today is speculation anyway, so the point is largely moot.

When travelling abroad, use of traveler's cheques has been preferred to most other forms of transaction (modern digital equivalents notwithstanding for argument sake). This is not the case when conducting general transactions on a day-to-day basis. People use traveler's cheques for certain types of transactions, but they don't store their wealth using them.

As discussed earlier, value is arrived at from the interaction between supply and demand. This carries to a point. Ultimately, the value of an item in foreign denomination is determined by the seller who is choosing to accept (or reject) a currency in exchange for an item with inherent value.

A relationally-static currency (closed system) will still experience "manipulation" as with any other. The distinction is that any additional methods of determination to arrive at the "appropriate" monetary base introduces unnecessary complexity. Simplicity of individual components precludes catastrophic failures while reserving complexity for the interactions between components. This is the same principle that has allowed computer technology to thrive - simple components that interoperate, the interaction of which gives rise to emergent properties (e.g. that internet thing). Monolithic designs easily approach scalability limits and incur the catastrophic failure that simplicity minimizes.

Bitcoin is elegantly simple and effective. Altcoin (or whatever the inflationary complement might be called) simply removes the unit base limit, maintaining simplicity in favor of interaction.


Really? So politicians actually saved the banks out the goodness of their hearts, and not to keep their own jobs? Right...

You're on the right track with the rest of your assessment, but reversed as to the order. The 2008 crisis was due to over-leveraged financial institutions failing. The most recent has been due to government intervention attempting to prevent widescale bankruptcies in addition to its own demise due to loss of public confidence. The European crisis erupting now is similar to the 2008 crisis of risky financial institution leverage, but that's been triggered early by acceleration of economic destabilization incurred from US gov't intervention. With the confluence and overlapping of numerous factors, the effects are amplified - the perfect storm.

Headlines mean nothing; they are reactionary, responding to undercurrents that have already occurred well before. Follow the money.

We can certainly agree that greed (or disparities in perception/skill, whatever you want to call it) will find a way to develop - whether it's given a way or not.


It may not be arbitrary, but it is unnecessary (even undesirable) for low level implementation. A better place for Encoin's methods to be introduced would be at one level of abstraction higher than the monetary base: i.e. the exchange level.


The deflationary and inflationary monetary cores are universal and need to be kept as clean and simple as possible. Abstracting one layer to the exchange level allows all manner of operations to be performed utilizing the underlying base. If that means providing a service that keeps a steady currency based on external factors, great. What could occur is widespread adoption of the derived exchange-level currency instead of the underlying components.

Risks are present, as centrally-managed currencies like these have shown. However, it should also be possible to construct a decentralized derivative crypto-currency based off of an Altcoin/Bitcoin platform the same way an exchange would operate, thus retaining the benefits of distributed control. An exchange would just be technically easier to implement, especially during early stages of development and testing.

None of this actually refutes anything I said; all it is is rhetoric.


You're going to have to define "external forms of wealth" for me, because I don't understand what that means. Wealth shouldn't change because of "supply and demand." I'm not saying it doesn't, I'm saying we need to move away from this.


More rhetoric. Gold is different from bitcoin, as is evidenced by the fact that I can go and mine gold without regard to how many other people are mining gold. In bitcoin, I have no option but to split a severely limited amount with whoever else is mining at the time. Bitcoin is static unless you believe that currency distribution plans on changing anytime soon. The market does not affect this.


And it is no different because the bitcoin/altcoin combination suffer from the same flaws. Somebody should be rewarded with wealth by being ahead of a trend in the flow of wealth? Really? Someone else should lose wealth for being behind? I suppose it's fine if you want to believe that, but we're going to have to agree to disagree. These types of things are the bases of recession.


Ya rly. What I want to do is separate the economy from the monetary base. It should be neutral. It is not with fiat; it is not with bitcoin.


Ohhh look you used the 5,000 year history of gold as an argument. It's so cute. I'll let the 100 year history of gold continue to slap you in the face. Gold doesn't work as a currency anymore.


Central banks were around in the time of the goldsmiths? No I don't think so. Fractional reserve and credit were though. For as long as banks have existed, humans have manipulated the supply. Not only are humans capable of manipulating the bitcoin supply, it has been handed to them on a silver (or should I say altcoin lol) platter. You seem to think that only central banks and governments are capable of doing this; history says you are incredibly wrong.


Oh, it might take longer, so this solves our problems? What a joke.


They are complicit because they owe the bankers. How about we get away from this SOS?


So giving the wealthy control over the money supply is somehow different from giving banks control over the money supply? Hint: it's not. Wealth being accrued from money is the root of our economic woes. Bitcoin doesn't fix this and you complicitly agree with it, therefore you complicitly agree with the inevitable result: wealth transfer, recession. Gap between rich and poor growing. I obviously will not be able to convince you otherwise, because you believe that this is deserved. That the millions of people whose only purpose is to gain wealth from currency are necessary, and that you think that this is productive and good for the economy. That everyone should be slaves to debt. I, on the other hand, actually propose to move away from this.


Yada yada yada. SOS. The supply is not the issue; the manipulation of the supply is.


Rhetoric.


Bitcoin does not come a whit closer.


It is functionally better than fiat because the new money is given to those that work for it, not created as debt. Stop being blinded by what governments do and focus on what the currency does.


Rhetoric. Status quo. SOS.


Yes, bitcoin is moot. Thanks for agreeing! Now let's actually try something different.


You would have to be pretty green to think that 2008's problems and 2011's problems stem from a different source. It is the same recession and I consider it as such.


So says your opinion. Which apparently has changed for whatever reason.

I just had an idea. If it seems the value of something is declining, why not freeze assets and therefore reducing supply temporarily? Say, x% of all money stored in addresses cannot be used for the next y blocks. If an address recieves money, that money is also portion-frozen immediately to slow down economic activity. These methods should cause temporary reductions in supply and economic ability, but nobody actually loses any money.

Alternatively, a sales tax can be implemented for transactions to cut economic activity also. This sales tax approaches 0% when the currency is moving up in price, and can go up to 100% if the currency was devaluating so fast the economy needed to be halted. This might make more sense than freezing money.

In order to prevent speculators anticipating these events and creating a massive selloff, the economy should reward keeping coins when by some metric the market looks like it is devaluating. This can be implemented as a percentage gratuity when the system determines the devaluation is over, but only if the coins are kept and not used.

Yes, it does make more sense, and was proposed by Red in his GEM thread. In Encoin, I have proposed that all transaction fees that are not refunded get spread out evenly as interest among coin holders. It doesn't counter any immediate drop in price, but it encourages holding while others may sell. Also, I am working on ideas that if X% of the total coins gets created in a day that any coins above that % will be doubled and potentially split first among merchants (with higher tx fee refunds for securing the network), then possibly randomly to a number of accounts that made transactions, then if there is still more distributing it as interest again. This "free money" is given to people who believe in and use the system, so it is less of a drain on resources (electricity), and they are going to benefit anyway by selling when the demand is higher than the supply.

There are ways to do this, and it is going to be a lot more appealing as a store of value to "later adopters" who actually paid real money for coins, as well as for merchants who won't have to worry about accepting them and needing to instantly convert it to cash.


Interest, my man.

I really think this is a system that will get more users and merchants on board. And it won't have to be reduced to just being used as a payment processor with just as many fees as CCs.

Interesting, you'd effectively be slowing the velocity of money.  I'd hate it if I really needed to spend that money, and it would create some odd change transactions.  Instead of freezing a percent of all coins, you could increase the waiting period before transactions are confirmed.  If value goes down, a coinbase transaction doesn't mature for 240 or more blocks, a normal transaction doesn't get confirmed until 12 blocks have passed.  I wonder how long you could freeze the funds before it had a negative impact.  I know you're thinking of enCoin which has different mechanics, but I think it would apply to either (with some variation).

Good way to describe it.
Some people around freicoin see this as an necessary requirement, but after thinking about it for some months I've come to the conclusion that it is impossible.
My extreme test for anyone trying to solve this problem...

1) Your currency has a total market capitalization of $5 Million. How does the system knows the price of the coin in a decentralized and secure fashion?
2) People suddenly spend $50 M buying the currency. How do you prevent the currency from rising?
3) The people has bought X coins in 2. Now they sell the X coins back. How do you prevent the currency from dropping?

I definitely think it just can't be done.

How many times does this same thing have to be asked? The point is to keep a consistent cost to produce. Whether it's based on competition (encoin) or a constant increase in difficulty (gem), there doesn't need to be some "vote" for the price if you actually read the proposals. I mean these are central questions that you think might be addressed, unless you just assume everyone putting time and effort into this stuff is a moron.


Pretty simply, you don't. But when the price has risen well above the cost to produce, more people are encouraged to mine. This will bring the price back down near the cost to produce over time.


You can't. But I think you'd be hard pressed to find someone willing to invest $50M to then be guaranteed to lose whatever amount was sold off before you sold it back. Even so, this is a market cap issue that will become more and more difficult after a long enough time. And it certainly affects bitcoin or freicoin in the exact same way.


Yeah, highly informed and unbiased opinion.

Sorry, I've read and discussed many proposals on stable coins but I'll wait for a summary to read yours. The fact that it only aims a constant cost of production is a good start to understand the proposal.
I don't think people trying this are morons: I've tried it myself.


Oh, I see. Just like bitcoin.


Compare bitcoin's market cap in July with what it  has today and you'll see that's definitely possible.


Yes, it will become more difficult (like point 2) the bigger the bitcoin economy is.


I'm glad we can agree that it can't be done.
Sorry I didn't know that Encoin wasn't about a stable value coin.
If it's not to have a stable value, why is so important to have a constant cost of production (that you just admitted it's not possible within my extreme case)?

Well I've read what was available on Freicoin on your forums at the time (a month or two ago), plus a ton of your posts, plus some 100+ page novel that Gesell wrote, plus tons of other resources on the internet to understand the free interest theory and demurrage. I like that it fixes a big flaw in bitcoin; however, I don't believe it fixes anywhere near all of them, and most of the consensus I find is that it really won't accomplish much over traditional fiat. It is very difficult to find any economic theory on how it would interact with a fixed supply. And there is always the huge psychological issue of losing your money by holding it. I understand the benefits to the world of getting rid of interest, but this can be achieved without demurrage (see JAK bank).

Now, after the many hours I've spent understanding your point of view, perhaps you can see why it frustrates me to see you say it "can't be done" after asking questions that do not apply to what I, Red, or others have proposed.

Bear in mind that mining does not secure the network. Merchant reputation forms the "51%". They gain reputation only by paying transaction fees, and it is harder and harder to gain as more merchants secure the network. Little to no electricity required, but still a real, actual cost.

The finer details are in flux, but the simple summary is this:
1) Coins are competed for by small groups of people using processing power in the same vein as bitcoin (the amount of coins each peer is awarded is based on how well they did, but the total award per block is fixed)
2) There can be any number of these small groups, so there is no limit to the supply
3) As processing power increases, the difficulty increases just as with bitcoin, but on a per group basis
4) The supply is occasionally restricted by lowering the block award. Half of the time 6 coins per block, the other half 4.5 coins. Software will automatically adjust output down to 75% when the award drops to 75%, OR the built-in client calculator can automatically adjust based on a market price that is supplied by the user. What this does is allow people with efficiency advantages (either cheaper electricity or GPUs that use less watts) to adjust their clients up from 75% to be able to grab a larger portion of the restricted supply. This will increase the time to make coins.

There is an example in the wiki (http://encoin.bitcoinforums.net/doku.php?id=koomey_s_law).


No value of any kind is programmed in, it is based on competition and market price that the USER supplies. I am still working on the details of block awards and difficulty adjustments, but it would be phenomenal if other people would chime in with ideas. Red seems to have given up due to a lack of interest.


It is the absolute opposite of bitcoin. When the price of BTC rises, more people mine to bring the cost of mining 1 BTC in line with the sell price. With Encoin, more people mine to bring the cost of 1 ENC in line with its production price.


You're going to have to supply more details, because as far as I can tell, bitcoin's market cap is about the same, there are just more coins in circulation. I really hope you don't think that because BTC was $30 USD that that meant that bitcoin's market cap was $200 million, because that was obviously not the case. It was likely less than $2M then, it is less than $2M now. Yet people are still dumping in 10-20k of electricity per day, plus all the hardware and associated costs for mining.


Early adopter coins, on the other hand, will always stay easy. I really don't see what point you are trying to make.


Because it will eventually get back to being near the cost to produce. Speculation is never going to be a significant portion of the economy. Coins will only be created as they are demanded, so the amount of coins will stay small until it is necessary that they grow. The coins are supposed to be backed by electricity + processing cycles + time (ROI). If there is a large sell off that brings the value below the cost to produce, there are other ideas to keep relative stability--interest based on unrefunded tx fees for one, the fact that it still costs more to produce than they are selling for for two (opportunity to buy), and Red had an idea to charge a tax on the person making the tx, but that was based on his proposal where mining was still required to secure the network. Plus something I borrowed from Red where if people are intentionally creating too many coins that "free coins" would be created and distributed to those showing economic activity. The details of this are still being swirled around in my head though.

I think this is a good test, but I think 1 and 2 are quite well addressed by Encoin already.

The problem is number 3. I don't have anything, and haven't seen anything convincing on that. Yet.

Say the real market cap is $200M and the price of 1 ENC is stable around $2. It's impossible to say how much you would get buying $50M worth of coins. If only around 10% of the market is selling, you have around 10M ENC for sale, but obviously there are going to be people attempting to sell at $3, $4, and so on in case of a rapid network expansion, so even though 10M ENC is worth $20M, you are paying (roughly) $50M or more. Then what? Sell for $1.50 and lose $35M? Sell for $1 and lose $40M?

There will be no early adopter coins minted for hundredths or thousandths of a cent, so these can't do it. Someone either is going to have to spend $30-$40M mining or spend $50M in real cash value just to do what, drop the price? Unless faith has been lost by other means (cryptography problems or similar), everyone can see it still costs around $2 to mine 1 ENC. This means nobody is going to be mining until the value gets back up to around $2. Everyone selling high makes money off of this guy, everyone buying low only has to hope that the economy will continue to expand until these coins are sold through. Merchants may certainly raise their prices in the mean time, but once the price levels back off at $2, their prices can go back to what they were before. The overall system has not inflated. The "pump and dumper" has lost millions upon millions while those legitimately using the system have earned those millions.

Unlike bitcoin where the hoards of early adopted cheap coins are not obvious to the casual user, someone buying up the entire ask side of the market will be obvious. If the demand for new coins is still exceedingly high, everyone will win by the "free coins" that would be created by over mining. They can trade some of their coins for fiat and keep the original coins they had before, therefore now possessing both fiat and ENC. If the price of ENC then drops, they haven't lost anything. The market mover has lost many, many millions. Who is going to do this? Governments? No matter what, those existing users of the system profit, and the manipulator loses. This is not what is happening in bitcoin because all these manipulators are not people who have put real value in the system, but people who got tens of thousands of coins for a few dollars taking advantage of those who got a few coins here and there for many dollars.

The convincing argument is that whoever does this has to be insane, or has absolutely no care for money. ENC holders will be happy to take that money off of their hands, I'm sure. The people legitimately using ENC win, the manipulator loses.

I appreciate the effort. I really think that it is a great improvement over national fiats, but I think that same thing about bitcoin.
There's no academy economist that advocates for both demurrage and an unelastic supply of money. A synthesis between Gesell and Austrian economics would be needed. That's what I've been trying to accomplish here in the forums.
I know and like JAK, but it's not attacking the root of the problem in my opinion.
It's just replacing regular interest with "loaning points" that give you the right to loan free of interest later.
But if participants were allowed to sell those points, you would have just another form of interest.


I've just wrote that extreme example to ensure you take into account all the possible cases.
And yes it applies to Encoin, Gem or any other "stable coin".


Well, the constants in your explanation (6, 4.5) don't tell me much, but more or less I get the basic concept.
Some questions:

How the size of the groups is decided?
Do the groups have different difficulties?
Can someone switch from one group to another?
How is it guarantied that the "production cost" is the same in every group?
How the system determines when the supply must be restricted?
What if the users don't report the accurate price to their benefit?
How does the protocol know how much power are miners expending?

Maybe there are too many questions and I should just read the proposal. No offense, but I just expect a non-feasible complicated protocol that has little to do with bitcoin.
Don't get me wrong. I understand your intentions are good. I tried the same thing myself.


I see, more EC are produced so that it price drops. That should work (is the solution of most stableCoin proposals), but the hardest part is making it the other way around: destroying coins to increase its scarcity and price.


Well, I'll do it without very accurate number but more or less...
June
6 M btc * $30 = $180 M total market capitalization
Today
7.5M btc * $2 = $15 M total market capitalization
I don't know what you mean by market capitalization if not that.


You say that a single sell off affecting the price is less likely the more people using Encoin.
I'm just pointing out that the same happens for bitcoin.
Early adopters coins?
You mean coins mined when the price was under 40 cents ?
If I buy them today at $2, what's "easy" in them?   


Encoins, like bitcoins, are backed by nothing.
You cannot derive the value of something from its costs of production.
Prices are what drive production and not the other way around.
You're using labor theory of value there.
I think you haven't understand Gesell critics to Marx. Austrians (well, almost anybody) also disagree with Marx here.
If the costs of production of an encoin is $1, its value on the market doesn't have to be the same.
Like any other non backed currency, the value of Encoin could drop to zero overnight and there's nothing that can be done about it.


You're assuming that the seller is an attacker.
The sell off can be caused, for example, by a sudden lost of faith in the currency or by the appearance of a competitor.
But let's take a less extreme explanation.
Say bit-pay and BTCinch start accepting Encoins.
Many shops start selling thing for encoins but they want to be paid completely in dollars.
In this context, a $50 M volume through these services represents a sell off of $50 M.
The services are actually making money through fees.
The shops are selling their products at the same price in dollars that they always do.
Only encoin holders are losing money.

Maybe that is part of what has happened to bitcoin since June. But, hey, I think we're better now. Hoarders have lost money (including me, although not much), but screw hoarders.
These services increase the "real" (non speculative) value of btc (by increasing its uses) and make it more stable by increasing the trade volume.
Anyway, this last thing is kind of off-topic.

I like gesell's ideas. Austrian economics proponents, however, don't instill confidence in me. http://www.cato.org/pubs/journal/cj19n2/cj19n2-4.pdf A very interesting review of Mises' thoughts on gold and how he often contradicts himself. http://mises.org/daily/1241 President of mises.org using price deflation due to efficiency gains as being an argument for a fixed supply, when the two have nothing to do with each other.

I think you get all the benefits of austrian economics by having it not backed by governments. A fixed supply is not required.


This is a weak argument, IMO. A $100,000 mortgage costs around $200,000 or more in interest on a 30 year loan. Anyone who can't afford the mortgage can't afford to pay anywhere near that amount for the points. Plus, in a system that is not backed by the government, it is up to the people to protect their own assets. If someone defaults on a loan, the investors in the bank are taking the hit.

And freicoin will still have interest. We know this. If you have to pay back the same amount, you're still paying interest. Unless you can get rid of the mindset that people want to buy what they can't afford.


I was referring specifically to your comment about how the system "determines price," when the system does no such thing.



Complicated, yes, infeasible, no. Basing the security of the protocol on hashing power is going to be the eventual downfall of bitcoin. A large part of the complication in my design is getting away from this. But all of the complication is a lot of simple formulas that add up to something more complex.


That is not the hardest part. Both Red's and my proposal require small but significant transaction fees. These fees can be used to guide all kinds of economic activity. I use giving merchants partial refunds as incentive to secure the network via reputation. Currently I have proposed that unrefunded fees are distributed as interest to those who hold ENC. They could just as easily be destroyed (and this was what I originally proposed). I think the effect is identical though. There will not be any instant return to whatever price people think is accurate, but it will happen over time. In the mean time, the lower price will encourage buying the currency, and those who bought in at a lower price do not feel any effects of inflation and are free to spend the currency. This is an oscillation, not a constant lowering of value as is present in traditional fiat. To keep lowering the value, faith has to be significantly lost and this is a problem for any cryptocurrency. At least with encoin, coins are not given out every 10 minutes regardless if anyone is demanding them.


Except that in June, how many bitcoins were for sale? It was restricted by the early adopters, there is simply no question. As 300 BTC per hour is all you're going to get, the market cap was actually around 100k BTC * $30 or whatever it was then. Probably less than that. If you look at the heat maps that farroh provided in another thread, there was virtually no BTC activity on the run up to $30. No one was selling compared to when the price started falling. If early adopters were to do this with Encoin, new users would be able to fill the need for coins in a matter of days. This means the incentive for those with coins to sell is very high when demand is high, not create a deflationary spiral--because you simply can't.


No, I mean the millions of coins that were mined for 0.001 cents or less. 1.6 million coins were mined at a difficulty of 1. 3-5 CPUs worth. Then the run up got people spending millions of dollars on hardware even causing GPU shortages. Then the sell-off started. This scenario simply won't apply to a stable value currency.


And I ask you: SO WHAT? I am not guaranteeing a value, only a stable cost to produce. If the currency loses all faith, of course its value will drop to nothing. This isn't mind-blowing news and it isn't an argument against a stable value currency. It's an argument for the barter system. Get rid of government manipulation, get rid of banker manipulation, get rid of early adopter manipulation, and you might just have a currency that has a lot of faith.


No, encoin holders are not losing money because there is no net sell off. For people to pay in encoins, they must hold encoins. Unless people decide to buy $50M of ENC only to use it all once, then yes it would be a problem. A realistic scenario would be one where there is a constant flow of money back and forth as there is with any normal currency. A realistic scenario for BTC would be that early adopters would have a mass sell-off and cause tens of thousands of others to lose value while only they gain. At least with ENC those who sold the coins originally were those who actually worked for them. 10-20% of the currency is not centered around when early adopters decide to sell.


I don't believe we're any better now. The sell-off yesterday was initiated by one person or group, and that group just happened to be around to buy up plenty of coins at around a dollar less per coin. In my estimation, they probably profited 20-40k USD and have about the same number of BTC. A $250k ask was up there for a matter of seconds (WHY it was up there I don't know, but I'm guessing it was a misclick). This person has a large sum in both currencies and is manipulating the economy. I highly doubt anyone who is wealthy enough to have $250k is dumb enough to invest it in BTC. This person has siphoned money off of the economy every step of the way and has made a gigantic profit. This is only possible because of bitcoin's batshit retarded coin distribution. We're talking about 50k BTC that has been used over and over and over again. And there is 7.5+M out there, with 5M of that that was mined for probably less than 20-40 cents on average. Everyone who continues to hold BTC is just going to be a loser. Unless bitcoin starts getting rapidly adopted, the only way for it to go is down. And if it does get rapidly adopted, you are just giving those with lots of BTC more and more power to do this same shit all over again until finally people wise up and GTFO.



If you're going to misapply economic theory, at least get the basics right. Prices do not drive production, demand drives production. I am not using labor theory of value because I am adding up costs and assuming this will apply to the final price. This is a gross simplification, just as is the original labor theory of value. You must be assuming that I have no concept of supply and demand or utility. I'm aware of these factors, and I'm aware that I have little control over them. All I can do is propose my best effort to making a usable currency and hope that other people feel that it is too. If you don't want to take the time to understand what I've proposed, then please don't waste my time and yours.

Can you come up with any actual arguments against my specific idea rather than generalizations that apply to all currencies?

I believe in the near future, virtual economy will take over the physical economy and be much bigger in size, and the virtual product at that time will be good enough to encourage people spend more money than they did today on housing

So if you are still looking at the exchange price of the BTC, then you are on the wrong track, just like in a RPG game world you always talk about how many gold a certain item require, not $. Just ask a child today, is $ more valuable or his wow gold more valuable? I'm sure sometimes he will be willing to pay more $ for the gold, the problem now is just he could not get $ easily

You are talking about price not value.

Value is purely subjective and arises when someone want something.