Bitcoin Forum

Bitcoin is criticized for its high volatility that hinders commerce, and that it rewards early adopters too much.

How about a cryptocoin that is designed to be stable in value?

A stable national currency would probably tie its money supply to the GDP.

What would be the GDP equivalent in a cryptocoin system? How to measure its adoption and use? I'd say by the number (edit: and volume) of transactions.

So the inflation rate could be tied to the number of transactions occurring, by some formula that yet would have to be figured out.

How to discourage wannabe central bankers to send lots of meaningless transactions back and forth in order to increase money supply? I'd say a small amount of transaction fees that would be mandatory.

Thoughts?

http://www.phauna.org/papers/freecoin/freecoin.pdf

Tie it to fiat? Then you're giving the fed free reign to print your currency.

I was thinking of something similar...

Have a coin with a new RPC function called "get_market_value".  This could then be increased by a fix percentage at each found block.  The value is arbitrary, but hardcoded.  Let's say for example that the value is set to double each year.  

Then, whenever you want to trade it, you would have a reference that is untouchable as a blue chip stock, yet give 100% profit year after year.  And this would still be protected from bubbles, get-rich-quick bulls driving the price insane, etc.  People would jump in for the stability, without any speculation, knowing exactly where is money is going to be worth in X years. There would always be constant flow as people would sell when needing fiat, while other would buy knowing that it will continue to have the same growth year after year.  Miners could just sell immediately or hold.  The number of mined StableCoins could be defined as a constant market value increasing with the typical inflation rate, so that someone finding a block today would get 100$ (for example), and someone finding a block in 10 years would still receive approximately 100$ worth of "today's" money.

We could start at genesis block with value of 1 USD (or 1 Euro, or whatever, we could even have StableCoinUSD, StableCoinEUR, etc. :))

Both ideas want miners to request MtGox for the current market value or something. That's an outside dependency and probably a Point of Failure. That's not what I meant.

My idea is that such an external factor is not necessary. The transaction volume alone should be sufficient and decide how many new coins are minted. And the transaction volume alone is intrinsically known through the blockchain.

http://blockchain.info/de/charts/n-transactions

I think this chart (evened out a bit) pretty accurately reflects the true Bitcoin adoption.

This papers grand idea is to fix the difficulty. The author isnt aware that the difficulty cannot be fixed due to the 10-minute window that must be maintained (by the difficulty) in order to restrain orphaning of blocks.

What do the amount of transactions have to do with the volume or price of a currency?

They measure how much the coin is actually used as a medium of exchange. There'll be statistical noise for sure. But on average it should do. Then there'd be a rule that says, e.g. 500 transactions per second means a money supply of e.g. 50 million coins is targeted, so that it would achieve stable value at the exchanges.

The problem might be how to remove coins from circulation if adoption shrinks. Destroying transaction fees maybe, but that might not be enough. Also, there'd probably be no incentive left to give to miners in that case.

We kicked this idea around for a while. We came up with a couple of ideas for pegging the value to Electricity. I know it seems like it can't be done. But curiously, it can.

GEM - https://bitcointalk.org/index.php?topic=47628.0
EnCoin - https://bitcointalk.org/index.php?topic=49683.0
Decrits - https://bitcointalk.org/index.php?topic=91183.0

I've been kicking around ideas for this sort of solution. I used to be repulsed by the idea of a "center-of-the-coin-universe." But as I've explained in other threads, bitcoin already has a center-of-the-bitcoin-universe and it seems to function adequately enough.

Binding to some however defined external (and complex) property will increase complexity and induce/increase the possibility of failure regarded to design flaws.

What is "stable in value"? While btc crashed against the dollar, I saw no significant changes in the relation to ltc/ppc.

To get it "stable in value" against the dollar you need a market capitalization in dollar much bigger in relation to the availible speculation capital in dollar. And even then there could be hedging.





ppcoin contains some features in that direction.

There's little connection between the transaction rate and the monetary velocity. I can move money between wallets or I can pay using a PayPal like service, thereby introducing false or hiding real transactions from the chain. This is not simply statistical noise because high worth speculators will abuse your mechanism on purpose to move the exchange rate. Nevermind that there's very little connection between the exchange rate and the monetary velocity.

To control the exchange rate you need to watch it directly, because it's influenced by external factors: fundamental supply and demand, economic cycles, trade deficits relative to the fiat world, speculators, etc.


There's no need to do that, just let the money inflate. It will reach an equilibrium value reflecting the new scarcity level. People will lose money but so would fees make them lose money, or other random confiscation schemes.

Miners can control the money supply using a voting mechanism.
They simply write how much reward there should be for finding a block. Newcomers will most likely enter a high value, old miners most likely enter zero.
So the inflation automatically adjusts to the hashrate the newcomers are able to provide which should be correlated to economic growth,

This can be combined with a demurrage scheme where coins decay into nothing if the currency shrinks. (If the hashrate goes down for example)

i copy here my post from other thread cause is the same topic.



I would keep the transaction fee in % as an extra way to stabilize it... (with a minimum working always)


This way we have a freicoin without 5 people controlling the 80% of the economy and without complicated algorithms to devalue each block.

And if you wanna complicate it, instead an algorithm or votes to define how many coins can be mined, i would think about a neural network or something similar, running in each client than accept some type of options, these options are used to feed data to the neural network. An option should be "user happiness", and one aim should be to keep it over the 50%, for example, others can be the exchange rate, n transactions, etc...

It's amazing how many false relationships people see. Hash rate has nothing to do with exchange rate. Neither does the social dynamics of a popular vote.

Stable currency can be created but all the incentives need to be pointed in the correct direction. In the GEM proposal we solved the problem by introducing monetary risk. A person only attempts to create new coins when it is profitable to do so. He risks the cost of creating a coin against the current exchange value of the created coin.

In GEMs case the "risk" was actual electricity cost. If the exchange price of a GEM coin is above the cost of electricity needed to produce it, then there was profit to be had in minting new coins and IMMEDIATELY exchanging those coins for fiat currency. This immediateness is important. Coins minted and then hoarded do ZERO to change the exchange rate. Only coins attempting to be exchanged can do that.

And yes, there does need to be some downward pressure on the coin supply in certain circumstances. Demurrage doesn't really work. Destroying coins that aren't in the process of circulating has no effect on exchange rate. The only way to raise the trading price of coins when their value has fallen is to discourage people from spending them (at that moment). In GEM we introduced a "panic" tax. When the price of GEM coins falls below the target, an extra tax is imposed on spending the coins. The farther the price falls, the higher the tax (non linear). The tax is destroyed.

There is more to it but the above should give you a rough idea of the minimum concepts necessary to create a stable currency. The hard part is doing it without a trusted oracle which can supply external trade information.

Red, stop shilling your shit and contribute to the debate. If you think you've got the right answer go ahead and implement it.

I think I'm 80% to the right answer. I don't think measuring coin value against electrical usage is (in general) a good idea. It was however the first proposed way to create stable currency. I did not create that concept. Another guy did with EnCoin. I just attempted to research and document what simple mechanisms could make the concept work.

Currently I like the idea of "shadow-fiat" coins pegged to the value of their base fiat currencies. These would be anonymous trading currencies with medium term predictable values. They could be used in contracts (like rental leases or installment plans) where you wouldn't currently use a volatile currency like bitcoin.

They aren't intended to serve as a replacement for bitcoin, but as a complement to bitcoin. Think of it as a place to keep your anonymous speculation gains. If bitcoin is rising, hold bitcoins. If bitcoin is falling, hold shadow-fiat until it starts to recover again. If you need to pay rent in 5 days, hold shadow-fiat just-in-case.

However, I haven't worked out the math of pegging to a fiat currency without using a trusted oracle (like Mt Gox) that sees both sides of the transaction.

My current chain of thought is to "introduce risk" through a para-mutual gambling incentive. The mining equivalent would be to put your existing coins at risk against receiving a share of the new coins created. However, it needs to be done in a way that doesn't tend toward price oscillation.

I don't expect that pegging a coin to fiat will be popular. But I keep watching these threads to see if anyone has a better idea. Really, I watch to see if anyone is discussing math that will work.

What you are proposing seems overly complicated, you would have to provide an integrated exchange mechanism and it has to have a monopoly. Doesn't seem doable
Next what's the point in trying to match the value of fiat currency, rather than using that in the first place using for ex ripple?

i am not discussing math, i am suggesting to let an IA system decide the math, setting inputs to the system and looking for certain outputs, as a stable coin or the happiness of the people.

Some inputs will come from facts as exchange rate, votes from the people (n accounts and n votes/coin)
Outputs can be:
-  happiness
-  % fee on transactions destroying coins (>0%) that would prevent from people opening million of accounts
-  amount mined
-  exchange rate


I would add the option to vote other people (and change the vote when ever u want) after a transaction. This way people being bastard in the system will lose people trusting them. The power of many against the one being bastard to many.

i could help with development.

I'd rather not have anything to do with "AI". It's a weasel word, and if you are thinking about things like genetic algorithms for that I wouldn't want to have anything to do with that. That would be headed for inevitable disaster.

I used AI word so more people can understand the idea...

I would love to see the reasons cause it would be an "inevitable disaster"

I'm not saying it would be an "inevitable disaster". But you are using AI to mean "some magic algorithm" does the math. I'm just discussing what that magic algorithm might be.

Anything related to transhumanism is. It's just a stupid concept to try to teach an algorithm decision making which affects more than the system itself.

well, i am just proposing it. Of course it need work to decide the best way to do it, and a way that leaves space to be updated.

ElectricMucus, i suggest then to move to the jungle... cause now days the world is moving like this. From the invest, decisions of big companies, until the way of filling a container.

Name one company which leaves decision making to an algorithm. (Oh and yes I will ask you to cite it)
Filling a container doesn't require decision making.

I think the mining difficulty (while not an exact match to exchange rate) is a strong and correlated signal of exchange rate. In addition it is easily obtainable / calculated for all miners in the system. 

lot of companies use, just of course, they check after to think about.

Here, after checking how the coin is going, people will decide if continue using it or not. And the algorithm should detect it as something bad.

It only took me a few minutes after researching bitcoin to realize these problems in bitcoin. If people were saying it back in 2011, no wonder bitcoin hasn't really taken off!

Cite it.

I told you.

Keep in mind this is exploratory thought. I could be chasing a red herring.

You are right, having an monopoly trusted oracle is the simplest solution. But, it doesn't actually need to be a monopoly. You do need non-spoofable access to both halves of an exchange transaction. But, there could be many trusted parties all recording coin-exchange data into the transaction list. This could be used to deterministically calculate monetary policy decisions.

The real problem, as always, is anonymity. Someone has to be non-anoymous to someone else to make the system work. The question is who and when.

(Aside) The same is true of bitcoin. The system functions because miners are NOT ANONYMOUS to their respective electric companies. They have to pay the piper when they spend $1 to generate 50 cents worth of BTC. Also buyers and sellers are NOT ANONYMOUS to the exchanges on which they trade. There needs to be a process for them to receive their non digital goods (fiat).

Current exchanges are by their nature non-anonymous. They can be audited, sued or arrested. They can be trusted or distrusted. They have to behave to a higher standard than a random anonymous party. But history shows the standard is not much higher! :-)


Ripple is being reworked so I'm not an expert on it at the moment. But it looks like it depends on trusted central parities to validate transactions. Not sure how it handles anonymity.

The advantage of shadow-fiat over real fiat is anonymity and security. Every time a speculator trades in and out of bitcoins, an exchange makes a record of it. They also hold their trader's fiat in their personal accounts. As history has shown they often fall prey to hacking, fraud, incompetence and gov't auditors. These accounts could also become subject to Cypress style seizure.

However, if you could trade between bitcoin and shadow-fiat both parties to the transaction could be anonymous both to each other, and to the exchange. The exchange itself might even be pseudonymous to all parties while still providing verifiable trades. No one knows how much profit your speculation has wrought you until you want them to know.

Of course when you trade shadow-fiat for paper-fiat you would have to be non-anonymous. But in this case that is almost always a brainless 1 for 1 transaction. Any convenience store on the corner could do that. With face to face exchanges like that, no personal information need change hands or be recorded.

Again, for those who don't know me. I'm a fan of anonymity. I'd like a stable digital currency that is as anonymous as cash has always been.

My own bank, insurance company, to decide offers, even the electric companies are starting using computational systems to distribute energy.

I just google... cause i think most of the big companies uses it.

http://books.google.es/books?id=pxAKhMKQ_dAC&pg=PA185&lpg=PA185&dq=genetic+algorithm+decision+making+business&source=bl&ots=4yPcFYb6Lz&sig=oSBlw3Xgkbkfqg5KgW70dNOWs1k&hl=en&sa=X&ei=OthtUZjEH-Lb7Ab2kYAY&ved=0CDcQ6AEwAA

And data mining:

http://en.wikipedia.org/wiki/Decision_support_system

Actually, you are right. I retract some of my smugness from before.

Mining difficulty is related to total hashing calculations / time. So mining difficulty is also related to fiat through hashing efficiency * electrical cost.

It is hazy because average hashing efficiency is an unknown variable. Over time it converges to the most electrically efficient miners. However, its value is further obfuscated because the "future value" of bitcoins is considered unbounded.

That leads people to consider wasting "dollars" today by spending more than a coin is worth. While hoping to make that up over the long term via appreciation.

Stable money removes some of the unknowns and makes solving that calculation MUCH easier.

i have a theory, and i know that im going to be attacked for this, that bitcoin is so volatile in part because its deflationary. Basically the mentality goes something like this. I should buy bitcoin because its deflationary so if it becomes widely adopted it should increase in value forever. Of course if this was the case everyone should just buy bitcoins and never work again. but then bitcoin wouldn't ever buy anything if that happened since nothing would be produced to be bought. So it both makes sense for the individual to buy bitcoins and horde them forever but it doesnt make sense for society as a group to do this. The net result of this is a series of speculative booms as everyone realizes they need to get on the train to infinity, but crashes when they becomes obviously over valued.

If this theory is accurate what i would do to address it is build in slow, steady, predictable inflation. This would have the added advantage of forcing inflationcoin users to use inflationcoin for what it is intended to be used for, trade, not a get rich quick scheme and not a savings account. After all we have gold coins that work wonderfully as savings vehicle but terribly as a media of exchange, there is no need to reinvent the wheel. Build a coin that compliments gold and doesn't attempt to replace it.

This coin would instead of having a specified amount of coins to be released with each block could release a number of coins as a function of the total number of coins minted. So for example each block might allow the miner to mint 0.0000001% (yes i pulled that totally out of my ass) of the total number of coins that have ever been minted.

I dont think this would lead to a parabolic expansion in the money supply but if im wrong about that than the coins should be released in such a manner that there is constant predictable inflation linearly not exponentially.

ok commence with the rageing.

I agree that the idea isn't too well thought out, but I think the idea is more to fix the ratio of difficulty to reward. Thus, as the difficulty goes up, so does the reward. As difficulty goes down, reward goes down. Difficulty could still be adjusted to maintain a steady 10-minute block window.

Thus, when the price spikes as it recently did, it becomes incredibly lucrative to mine and sell bitcoins. Everyone and their grandma starts mining, driving difficulty and reward both way up. The increased reward causes bitcoins to flood the market, putting downward pressure on prices. A similar pressure happens in the opposite direction.

Welcome to the rationalists club! But you're right that kind of talk doesn't go far here. We should start a sub-forum for everyone that likes bitcoin as a concept but thinks most of the people here are certifiably insane. :-)

The problem of course is if you are trying to create a stable coin there are extended periods of time when the appropriate thing to do is to generate ZERO new coins. That makes mining unprofitable for everyone,so everyone stops. In a bitcoin style framework that means that block creation gets seriously delayed and transactions don't get confirmed. After a while difficulty drops to speed the process back up, but the supply&demand exchange value hasn't necessarily fallen with difficulty so coin creation starts again. Even though the correct monetary policy may be to still create ZERO new coins.

As far as I can tell this doesn't produce a stable currency. It osculates tending toward a zero coin value. (continuous over production of coins) It also tends to drive the difficulty level down along with the coin values.

i really wasn't expecting the first response to my comment to be positive O.o

Your analysis seems pretty sound. Before I start agreeing with you, let me propose one change (at the risk of going out to la-la-land):

Let C and D be some constants, their value TBD.

  subsidy = C * difficulty

This is the original idea, keeping the ratio of subsidy to difficulty constant. Now also, to deal with the times when the subsidy ought to be zero (and is so low that it's effectively zero):

  mandatory transaction fee = D * moneysupply / subsidy

(It could equivalently be D * moneysupply / difficulty, with a different D value)

Thus we would have:
1. During "boom" or expansionary times, there is much demand for the coin and the exchange rate begins to increase. As the rate increases, it becomes more profitable to mine, so more people do it, so the difficulty increases, so the money supply increases and eventually applies downward pressure on prices.
2. During slow times, the exchange rate begins to drop. Mining becomes unprofitable. Less people mine. Difficulty decreases, and so does the subsidy BUT, counteracting this effect, mandatory transaction fees begin to increase, to maintain a baseline incentive to keep mining.

This might mitigate the effectively-zero subsidy issue.

Now, switching back to agreeing with you; here's another problem with the design: when a new mining technology appears that allows people to generate a lot more coins with a lot less electricity (e.g. ASICs), there will be a sudden major inflation. If the ratio of coins generated to electricity consumed increases by a factor of 100, I see no reason the money supply wouldn't also increase a hundredfold. At this point, the miners have most of the coins (they just generated 99% of all coins generated to date), and transaction fees are now 100 times higher. Whoops. We were s'posed to be getting a StableCoin, but instead we got a ZimbabweCoin.

You and Anon are cordially invited to Freicoin ware as you say we believe in cryptographic currency but are convinced most people here on bitcointalk are hopelessly committed to incorrect economic theories (like deflation being a good thing) that are handicapping an otherwise excellent technology (I recall a vivid analogy someone on a blog used of a fine microscope being used to hammer in a nail).

I haven't followed everything that has been posted, and I believe you sent me an early stage design doc awhile back, qxzn, and I think I was fairly dismissive of it because of this issue.

In addition to the ones already listed in the thread, I also proposed this:

New musings for a stable currency (https://bitcointalk.org/index.php?topic=64637.0)

Which suffers from the same flaw but does address it.

However, as Red has thoughtfully mentioned, Decrits (https://bitcointalk.org/index.php?topic=91183.0) is my stable currency design of choice because it eschews the problems of the bitcoin block chain. I am still refining Decrits and have come so close to bringing many new cryptocurrency ideas together into one package. Unit tests of the primary consensus-based reputation design will be my first real coding task, which will be out eventually. But if you are looking for a solution to a stable value currency, there is no design that I have seen that compares to Decrits. I don't think anyone else has put as much effort in. What can I say except that I'm a total geek for the idea.

What you write is very similar to what I wrote in the GEM thread.
It is too late at night for me to verify your math, but I think you are on the right track.


The first section you wrote is very similar to what I wrote here:
https://bitcointalk.org/index.php?topic=47628.msg569053#msg569053

I used a constant tax as part of the ration you propose.
I rebated the tax when monetary policy should be neutral.
I destroyed the tax when monetary policy needs to reduce the availability of circulating coins.

There are some differences. I let anyone who thought they could profitably generate coins do so at anytime.
As such I didn't have a variable difficulty over time. I had a monotonically increasing difficulty.
I compared the number of coins generated to the tax to calculate which of the above monetary policies was appropriate.



This is very similar to what I wrote here:
https://bitcointalk.org/index.php?topic=47628.msg566657#msg566657

We are on pretty much the same page.

In another thread I also worked to try to minimize the amount of energy needed to keep the whole system in balance. I'd have to dig that up to remember what I did. It just seems silly to burn so much CPU time when it isn't actually necessary at all.

I wrote about the lack of necessity a couple of days ago. It took a lot of posts to explain it to people. Here are the best:
https://bitcointalk.org/index.php?topic=175676.msg1832843#msg1832843
https://bitcointalk.org/index.php?topic=175676.msg1833134#msg1833134
https://bitcointalk.org/index.php?topic=175676.msg1833246#msg1833246
It kind of freaks people out when you tell them that mining is no longer necessary.

Your point about the correlation between mining difficulty and exchange price is an interesting one to think about again. I'll revisit your actual equations again tomorrow when I'm fresh.

That's a nice concise write up Etlase2. I like it. But when you said:
Do you mean a demurrage style tax where you remove hoarded coins as well? Or is this just on the current transactions?

I'm pretty confident demurrage doesn't do anything to affect exchange rates. The clearest example of this I can give is to point out the case of coins in lost wallets. These coins theoretically exist but they never circulate. So when it comes to pricing lost coins can affect neither supply nor demand. Therefore any demurrage that destroys X% of lost coins does nothing to effect the coin supply EVER. Likewise, any demurrage of hoarded/not currently circulating coins does nothing to effect immediate supply.

Red I've concluded that you need to have a market to predict inflation and deflation.  Obviously some external market is a single-point-of-failure and would not work, so markets need to be created INSIDE the block-chain itself, after all markets are just sets of user transactions handled by defined rules and we know how to do that in Bitcoin type networks.

The trick is that the market can only manipulate a few things, it can't trade coins vs commodities because it has no control over external commodities and no way to convey them or even compel people to deliver them.  Thus this market needs to utilize only things that are completely under the control of the block-chain rules, and that's not much.  The protocol can be control all balances, and it knows the passage of time (roughly), but that should be enough because all we care about is the value of coins today relative to the same coins later, we don't really care about it relative to other 'stuff' only too itself.

So the solution is to have this market make some kind of special 'instrument' like a Bond in a sense that creates or exposes this time-value change in value.  Then people put bets on each side putting their money on the line that their will be inflation or deflation.  The 'clearing price' tells us what is the consensus prediction and the instrument makes the correct prediction pay off.  Now we just adjust money supply counter to the prediction, if their inflation predicted monetary base contracts, if deflation is predicted it expands.

I just haven't figured out how to structure this instrument, It probably needs to involve waiting to receive coins at some later date or having some coins 'frozen' for some period of time.  Possibly the value being bid with is time rather then coins, their are lots of possibilities but it needs to expose that time differential for both inflation and deflation.

This is a really insightful way to phrase it. I was kicking around a similar idea that involved "gambling" some coin you have now against generating new coins.

I agree with you that measurable human behavior needs to be the sentinel to determine when new coins need to be generated. I don't think an algorithm using a derivative value (like block difficulty) will be reactive enough to avoid oscillations. And if a system can oscillate there will always be speculators to attenuate the oscillation. I think using speculators to dampen oscillation is a better use of the resource.

Then here you come and point out the obvious with your insights about time. It's a "futures market." We speculators who trade in bitcoin futures. Genius!


I was having the same structuring problem with my "gambling" idea. How do you gamble in coins and pay off in coins, when the variable you need to make the decision is external to the system (fiat/external value per coin).

I'm not sure I know how to do it with a futures market either, but your insight about the ability to gamble time as well gives us one more variable! Woot!

So how do we do it? :-)

Instead of the number of transactions you could also use the transaction fees. They probably are somewhat bound to the value of the coin.

Inflationary coins will never have a chance against noninflating coins. Who in his right mind would put his money in there if he could simply put it into a more stable coin? Thus Bitcoin and the like always win.

I don't mean stable against the dollar, I mean stable in itself, as if StableCoin was the national currency of StableCountry. This can be achieved if its money supply can be made to grow (or shrink) by its actual adoption and usage. It will be traded freely at exchanges for other currencies (or baskets of goods, BigMacs or whatever), but with the aim to be stable in exchange value (if the other currency is stable too). The problem of course is we have no economic metrics other than its blockchain (or whatever method is used as a distributed accounting database).


The goal is to eliminate external dependencies and statistical noise and to come to faithful predictions about actual adoption and use by internal metrics alone, like amount and volume of transactions. Maybe more metrics can be found. Of course people move wallets around, but this should also even out in the long term. Transaction fees may be able to discourage all too much manipulation. They will have to be fixed to a reasonable level. The exchange rate is intended to be boring and not attract speculators.


Sounds interesting; I originally did not intend a voting mechanism, but if metrics cannot be discovered automatically, why not let money supply growth be voted upon somewhat democratically. I don't understand why old miners would vote for no new coins for themselves though.


Yes, Bitcoin is an experiment, and the economics are part of that. I don't think deflation is bad per se, it doesn't create depressions. The problem is rather that it may continue to result in high volatility, even if Bitcoin has satisfied and occupied its maximum possible market share and adoption. Bubble and burst cycles if you will. Maybe people will get used to it and learn to make better predictions in the future, which will even things out. But we don't know. That's why it's an experiment.

StableCoin would be StableCoin and not "Inflatacoin" or "Deflatacoin" (Bitcoin), so it may gain acceptance with both merchants and buyers, and maybe also savers who just want to store the information of the value of their labor without speculation and risk.

The former is an academic paper on the theory behind the issue, not a concrete application, the latter a simple tool to help with optimization tasks.

I get the burning suspicion that you watched the Zeitgeist films a little too often and not much else.
I think we better leave it like that. If you still think your "AI" governed cryptocurrency: Talk is cheap show me the code.

Automatic schemes might work too, the big question is though how much they will still work later on. The room for experimentation is huge.

The reason I think old miners will vote for less reward is that the voting is intended to be valid for everybody, in a similar way difficulty is calculated. The thought is that old miners will most likely already have a decent stash of coins and will more likely be interested in preserving or increasing the value of the stash than accumulating more.

This concept is part of a more elaborate system which should mimic the way physical gold works in an economy. I don't know if it can be simplified in such a way.
Previous concepts were that coin holders have the possibility to hire "guards" for their stash to keep it from depreciating, while on the other side if they don't their coins get redistributed to newcomers which are the "bandits", "stealing" the coins. The problem I have with that is that is is modelled too much after a mediaeval society and modern economics work different.

The most important part though is that the system provides an engine for new economic growth, in a way like Bitcoin already did with Silk road.
What I always was thinking about is 3D printing and other grassroots manufacturing technologies as a niche.

I mean a haircut across all the network balances. Transactions are unaffected. Demurrage, at least to me, implies a predictable rate of loss over time. The flat tax described in the "new musings" proposal is about only doing it when mining is insufficient to replace destroyed tx fees. To avoid tx confirmations from taking too long, the haircut happens and the difficulty gets lowered.

Ah! You are right. Better to separate the two concepts. I like the term haircut.


I guess I should read more of what you've written lately. Are you still equating 1 coin = X joules?

How can we have a decentralized currency with stable prices? This is what I call "The Trillion Dollar Question", and I have spent hundreds of hours thinking and writing about this topic. I wrote a paper about it, and I'll be on a panel at the bitcoin conference in San Jose in May to talk about it.

Here is what I currently tell people (copied from another thread):

I'm pretty sure I stopped doing that while you were still around, but maybe it has been that long. :)


dacoinminster: how have we not ever spoken? Or maybe I've forgotten. What have you written in regards to stable prices? Have you read the decrits and/or encoin proposals?

Wow! I thought this thread would be a bust like all the others. But it seems to be collecting a bunch of people who've thought about this subject a lot! Last time I was here posting about it there were exactly TWO of us! (Red, Etlase2)

Last night a couple of people separately PM'ed me to discuss this out-of-band. (I promise I'll reply shortly!)
Now dacoinminster shows up as a new evangelist. Woot!



Can you link your paper and the other thread you mentioned?


Can you link this paper as well? At least a couple of us want to kick this futures market idea around a bit.


I think I can make a solid argument about why any reasonably popular self-stabilizing coin will quickly obviate bitcoin. (Shhhh! Don't mention that here!) Actually, I wrote briefly about it a couple of days ago. Anyone else agree?

Right now there is no sub-forum for discussing possible stable coin ideas. I'm not even sure there is enough interest to justify asking for one. However, quite a few of us have already written intelligently about the topic in various other sub-forums of this site.

I propose we create a [StableCoin] directory thread in which we can all link our respective ideas and prior writings on the subject. That way we can all get a broad overview of how others are attempting to solve the problem.

Perhaps after that we can prefix new discussion threads with [StableCoin] or some other tag. If we accumulate enough of them we might even ask for our own sub-forum?

Either that or we could all go hide in IRC! Any thoughts?

[Edit]
Perhaps I spoke to soon! Other are asking about creating Alternate Coin Sub-Forums at the moment.
https://bitcointalk.org/index.php?topic=178849.msg1864083#msg1864083

I'm also excited to find this thread!

I just registered yesterday to see if there might be interest in a stable coin proposal: https://bitcointalk.org/index.php?topic=178027.0

Hmm I don't think this will work. We'd have some kind of prisoners' dilemma situation between the old miners here. Old Miner Joe would be tempted to not forgo his reward "for the common good" when all other old miners are supposed to, just because it's written down on the Golden Plaque of Ye Olde Miners' Guild or something.


Thanks. Interesting, but for this thread I'm interested in a solution that is a true and native single crypto-currency. Maybe just for the fun of it.  :D

For the moment I can think of these types of transactions:

1) User buys StableCoins from exchange => money supply should grow.
2) User puts StableCoins into their savings account (paper wallet etc) => money supply should grow.
3) User spends StableCoins for goods and services, or gambles => money supply should remain constant.
4) User gets StableCoins from their savings account intending to spend => money supply should shrink.
5) User sells StableCoins on an exchange => money supply should shrink.

Perhaps, at least in the beginning, users can optionally specify with each transaction which of these types it is. The system would be self-learning. Sure, users can lie, but... this data would be compared against intrinsically determined metrics as well, contradictions would be found, the rate of manipulations would probably also remain constant over time and be filtered out as statistical noise as well.

I think you still misunderstand me. Miners won't be able to determine their own individual reward.
The way it is supposed to work is for miners to write the desired reward into the block and the actual reward would be the moving average of the last n blocks.
So nobody would forgo their own reward in a sense that the current vote will be valid for everybody who finds a block.

What ever u wanna believe.

Actually i can say i am working 17 hours per day (weekends just 10) so sadly i dont have time to watch movies, i just know in what are working my colleagues. As soon as i have some spare time i will develop an example. I will tell on time and i would lunch as a test. If someone wanna help here i am. If it works then to be fair it will be relaunched as bytecoin.

I just know that using a fix algorithm u need feedback to keep it working "properly", it is working perfect for a fridge, to keep the temperature.... but when the system is too complicated a fix algorithm is not enough. It can react too strong and send the system to the shit...  As 10 ASIC mining bytecoin for some days, and swapping back to bitcoin.

And what ever u can guess today, it can be false in the future. What if in 20 years we develop a fusion power plant that is working properly and the price of the electricity goes to 0. What if a quantum ASIC is developed and is able of produce coins as Finland mosquitos.

Hi timhuge,

Welcome to the dissuasion. I just read your other thread. It's pretty much the standard thread you get whenever you try to start this discussion. You say "what if" and everyone else says, "can't be done", "you're stupid", "bitcoin's model will make me rich!" etc.

But in reality, you are right. I can be done. It can't be done in a way that bitcoin fanboys will love. But it can be done in a way that the majority of people will love.

That's the meaning of stable I generally mean as well. I normally phrase it as "if one coin buys a loaf of bread, it will always buy a loaf of bread". However talking about dynamically stabilizing supply vs demand does require something observable to stabilize against. It also requires some mechanism to do the observing.

Those things are worth discussing!

The only way economists know how to that is by watching a certain basket of goods, compute the CPI and control the monetary variables to that effect. It's simply absurd to think a distributed currency could compute a distributed version of the CPI. And there's no way to design the currency to be intrinsically stable, because the value of money is entirely driven by external factors. You cannot preordain that enough currency be made available to cover rapid demand rise due to sudden media exposure, the only way to absorb that shock is to have a central bank with enough currency reserves make the market. This is exactly what small countries do, sometimes holding a 1:1 foreign reserve vs outstanding currency at the target rate.

A more practical goal than a distributed CPI is to simply target a long term value of the fiat exchange rate. Since fiat currencies already have their CPI and are certainly more stable than bitcoin, we need to somehow incorporate that information into the blockchain and act on it. If you don't trust the USD inflation, you can target a lower rate, say by 1-2%. So in the first year the rate is 1USD, in the fifth year the rate is 1.1USD etc. (a high rate could potentially open a whole can of deflationary worms but if don't believe in the CPI you probably don't fear deflation either).

If, due to such a mechanism, the market believes the long term rate of 1 stablecoin follows 1 USD, then the exchange rate would self stabilize in the efficient market hypothesis (https://en.wikipedia.org/wiki/Efficient_market_hypothesis). Traders know that a 1.05 rate is a good price during a demand shock, and will dump their inventory supplanting the role of the central bank. A few percent swings of the exchange rate per month is enough for them to make a healthy yearly profit and convince them to hold cryptocurrency inventory or contribute "foreign reserves" during lows and buy the cryptocurrency at what they can ascertain is a cheap rate.

I think Impaler might be onto something in regards to exchange rate discovery using some internal tradeable commodity, but I can't quite put my finger on it. As I've said previously, blockchain transaction rate, "coin days destroyed" or other such folly are not good signals because they can be controlled by speculators. A direct way to incorporate the price information is to use a vote and I tend to believe all other schemes can be reduced to this - it they form a majority users would just fork the chain and modify the inflation rate algorithm.



This should be beyond questioning in a thread dedicate to achieving stable prices. The deflationary design is bad, and the "store of wealth" promise of bitcoin is attracting speculators. This is the main problem causing volatility in bitcoin, people wanting to strike it big by simply holding currency. Since this is a self defeating prophecy (if people hold it, it cannot circulate, thus cannot fulfill the promise) a positive feedback loop is formed and the price will tend to move randomly as the rational market tries to guess it's next move.

I believe simply applying Friedman's k% rule (https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule) (increase the money supply by say 4% each year) is probably enough to stabilize long term prices. But in the short run you still have a possible deflation during initial adoption, when the economy is growing much faster than 4% a year. That's why I think some way to discover the exchange rate and set expansion using it is key for initial stability.

Disclaimer: I'm not an economist, but I am a convincing M2 near-economist.

Instead of targeting a long term fiat exchange rate or something as arbitrary as CPI, why not create your own target based on hardware costs, electricity, and time and foster competition among miners to keep this target honest. "But it can't be done!" Well I wager it can.

I think we talked about this two years ago. You can target the hash rate easily using only internal information. Unfortunately that's very unstable do to Moore's law etc. To target the electricity cost you need external information (no algorithm can find out the energy consumed by the computer who is running it, let alone it's cost). At that point it's better to target a major world currency directly, since electricity prices are quite volatile too.

Also, I hope you are not proposing the currency of Mordor (https://bitcointalk.org/index.php?topic=175108.msg1856347#msg1856347) scenario where each coin requires it's value in resources to be destroyed. That's worse than Bitcoin, where at least the energy waste drops after a few decades when coin production slows.

The notion of CPI is not arbitrary, it's by definition the index that you look at to judge the stability of StableCoin. You might not like the US government's CPI and it's implementation in US monetary policy, that's quite another issue. But the CPI of StableCoin, the amount of real life stuff you can buy with a coin, determines it's inflation by definition.

Moore's law, by golly, I totally forgot about that.


Luckily I haven't proposed an algorithm that attempts to find out the energy consumed or its cost.


Bitcoin's coin production is replaced by transaction fees. Transaction fees are essentially coins that are mined again. Admittedly my early designs followed the currency of Mordor scenario (edit: to a much lesser degree than what you described in the link--too long to explain), but that is nowhere near the case in the Decrits proposal.

I apologize for the sarcasm, but I've spent a lot time trying to convince people that there is an outside-the-box way to accomplish this, but I still always hear the same "problems" that the outside-the-box thinking is directly addressing. I might actually just be a lot further along than you give me credit for.


I don't know why because your meaning was fairly obvious, but I was thinking of the actual CPI when I said arbitrary. "If a loaf of bread costs 1 DCR in 2012, then a loaf of broad will cost 1 DCR in 2050, assuming the production costs of bread and money have not changed." This idea has been my cornerstone.

BB:  The main problem I see with targeting Fiat is that the Fiat/coin exchange rate or CPI rate is a piece of outside information the block-chain and must be 'Injected', but WHO INJECTS IT?  We might have complete trust in government generated statistics like CPI but they just publish a number in dead-tree format.  To get that data into the block-chain you need injection and some means to validate that injection, some authority figure that is authorized to do the injection.  What ever authority inputs the information now has complete control over it, they can inject anything they want and the connection to the 'official' number is lost.

An internal futures-market solution alleviates the injection problem by making it distributed to ALL coin holders AND most importantly it requires skin-in-the-game, only with coins on the line can we expect honest inputs values that reflect changes in valuation.

As I try to figure out this future-market I repeatedly find it harder to reward a deflation prediction then an inflation prediction.  Because the deflation predictor really would be best off by just hoarding their money (ware as the inflation predictor is potentially attracted to the market because they believe their current wealth will erode).  Demurrage that is predictable though could potentially bring the deflation predictor in but only if their expected deflation rate is LESS then the demurrage rate.  In Freicoin we implemented a rate of 5% a year that's dose not vary.

One possible solution I though of last night would be to have the inflation and deflation predictors take turns paying each others demurrage.  Both sides put of an equal amount of coins to be subject to the effect.  The deflation predictor would pay for both first, then the inflation predictor would pay for both later.  The total demurrage collected would remain the same but each side has the potential to benefit if they are right.  The bidding process is done with time ware the periods the two pay for can vary to reflect a differing strength of their predictions.

Their is a weakness though, each side would need to have a great deal of money 'frozen' to pay the demurrage and possibly all of it, and this is contrary to the point of demurrage which is to pay for the liquidity of money, frozen money isn't liquid so it would be unfair to both sides.

It's nice to see some new voices speaking about Freicoin, but demurrage, like deflation, is a concept that only works without competition.

Thumbs up on all the new voices and the well thought out posts.
But let's try not to get too defensive at the moment.

I was pretty convinced it was impossible to map coins directly to electrical consumption, Etlase2 convinced me it was. (It took 2 weeks)
Currently I don't think demurrage is ever necessary for monetary policy, 2 weeks might teach me otherwise. Some proposals use competitive mining others use non-competitive mining. Some proposals don't use mining at all. Some use a block list, others don't. Some use algorithms to adjust monetary policy, others require human speculators to watch external variables.

I think its worth canvasing all the different ideas before we try to get too assertive about why each particular plan is impossible. I'm pretty confident the actual workable solution will steal ideas from several people.

I spent a lot of time debating with jtimon about freicoin before it was released. I read a lot of Giselle's stuff during that time, and his candid way of writing made it easy to fall for the allure of demurrage. But, imnhso, it attempts to fix problems that are too narrow in scope. And borrowing heavily from bitcoin, Freicoin is still set up as a commodity, but now a commodity that no one wants to keep.

I'm going to comment in detail on BubbleBoy's posts (Very Impressive!) but Impaler got me thinking about futures markets yesterday. I want to write down a few ill formed ideas before they start to slip away.

----------

Starting in the future and working backwards, presume that we have a functioning stable coin. Further presume that its monetary policy (coin creation & destruction) is guided by speculating futures traders trying to maximize their personal profit. So what might that mean?

In traditional futures markets, speculators look at the share price today and guess what the future price will be. Then they purchase the OPTION to buy or sell a certain number of shares before a certain time. Buying options always requires cash out of pocket. (skin in the game) but the amount is always less than the cost of the shares specified in the option contract.

So an option to [buy 100 shares at $10/share before May 1st] it might cost you only $20.

The point is that if the share price goes above $10 anytime before May 1st, then the option holder can purchase the shares for $1,000 and immediately sell them for their market price netting the difference. If the shares never break $10, the options expire and the purchaser is out the $20 option cost. It's a fancy way to gamble a little money on the chance to win a lot of money.

----

Purchasing options on stable coins are similar, but with a slightly different twist. Everyone knows what the future price will be!

Since we are presuming our medium term monetary policy is correct, the future price should always be the target price. Along the way to the future the coin value may diverge temporarily (above or below) the target prices. But the goal of our system is that it always converges back to the target.

To me this speculating scenario seems analogous...

Today the stable coin prices is at the ($10) target value <-- just for analogy sake
Our speculator thinks demand for coins will rise in the near term which will tend to drive up the price above target.
So for (2 coins) he purchases an option to buy (100 coins) at the target price ($10) within the next (10 days/1440 blocks).
If he's right and demand does drive the price above the ($10) target, then he:
1. Exercises the option by paying $1000
2. Receives his 100 coins.
3. IMMEDIATELY races to liquidate the coins on the exchange for (>$10) before the price falls back to the target ($10).
4. The buying speculator profits in DOLLARS or loses in COINS
5. He must wait for the price to return to target, before converting dollars back to coins otherwise his profits will evaporate.

To make this work, someone has to take the opposite side of the option. In other words, the option seller is gambling that the coin price WILL NOT go above target for the length of the option. Or if it does, it will not go far enough above target to net more than the option cost. So to be an option seller a speculator has to:
1. Set an option price (X) to sell (Y) of his coins @ the target price within the next (Z) days/blocks.
2. Finding an option purchaser earns the seller the option price (X)
3. It also OBLIGATES the seller to:
   a. NOT SELL his (Y) coins to anyone else before the option expires. (These coins are otherwise hoarded/locked)
   b. SELL his (Y) coins to the option holder at target if the option holder exercises the option.
4. The selling speculator earns COINS for selling the option. Receives DOLLARS for selling his coins.
5. He must wait for the price to return to target, before converting dollars back to coins otherwise he will incur losses.

----------
Yes this seems crazy complicated to implement. But that is not my question. My question is:

??? Can this process be done WITHOUT directly referencing an exchange and WITHOUT transferring fiat between parties? ???

For example, instead of "receiving DOLLARS," the option seller might receive coins back only after the price returned to target.
Or for example, you might get a similar effect by changing the option definition to:
"$20 buys a 10 day LOCK against you selling 100 of your coins. This allows me time to sell my coins instead."

All I want is brain storming. The whole construct might be a non starter.
If it starts to seem promising, there are lots more questions to answer. Like, "Does this attenuate the oscillations in the near term?" and "Does this give us additional data we can use to set coin generation/destruction rules for the medium term?"

Red, why such the heavy focus on stabilizing a cryptocurrency against a fiat currency? Do you think the alternatives will still be too unstable? What do you think about a system that forces you to leak information about your profitability if you want to be profitable, and using that as a basis for stability?

Philosophically, I'm not trying to stabilize against fiat currency. I want to be able to always drive a coins value toward any particular stable target value. In the best case that means the coin's target value tomorrow equals its value yesterday and the day before and the day before.

My best definition of StableCoin means my salary this week buys the same number of StableCoins as my salary last week and it will buy the same next week. (Given I don't get a raise) That lets me price my work effort in StableCoins. It lets me agree to a year long lease priced in StableCoins. It lets me put products priced in StableCoins on LayAway. Or even take out a loan in StableCoins, for a car priced in StableCoins, with interest bearing monthly payments in StableCoins. Try pricing, leasing, LayAway, or lending with goods/services priced in VolitileCoins. It is simply infeasible to draft/agree to contracts.

Practically, when writing examples, I don't know how to convey meaning without saying what I'm measuring against. Above target and below target start to get vague without real numbers to show how examples play out. Also saying 1 loaf of bread, 0.2 loaves of bread, "higher than the price of a basket of goods yesterday" starts to get tedious. Formula get much more concrete when I pick example numbers. $1 is the easiest thing for me to type. My keyboard doesn't have any other currency, goods or services symbols.

However, the whole point of my prior post was to see if the process can happen WITHOUT reference to external markets or fiat currency. I don't know if it can. I do know it can happen WITH those references. Hence my example.


Personally, however, I'm becoming intrigued with the idea of creating multiple StableCoins and pegging them to existing fiat currencies. (i.e. DollarCoin, EuroCoin, SterlingCoin, YenCoin, RupleCoin, RenminbiCoin, etc)

Why?
1. People "get" their native currency. It is easy for them to use on a day by day bases for pricing and contracts.
2. Anonymity. All I really want is Anonymous Cash that works over the internet. Is that too much to ask?
3. Fluidity. I want to be able to anonymously move value among currencies as it suits me. It's trivial to create an anonymous currency exchange mechanism when both sides of the exchange are digital coins. This lets me anonymously speculate in BitCoins (Ha Ha). Or lets me "logically" (and privately) move my money to China, Europe, England or whichever currency seems more stable than the Dollar. It also lets me trivially repatriate my money as I need it for day to day local spending.

I think any StableCoin would obviate the need for BitCoin. However, I think it will be MUCH easier to get widespread adoption if people are using something that seems like their local currency. While one unified StableCoin for the world seems simplest to promote, I don't actually believe it is very usable in practice.

Say StableCoin was actually perfectly stable in practice. But We all presume that no other fiat currency is really perfectly stable along with it. That makes it DIFFICULT to write contracts in StableCoins in EVERY country. Because everybody's weekly salary buys a different number of StableCoins each week. It all depends on the whims of their respective Governments. This also leads to constant repricing of every day to day item that people are used to buying. Sure, since your salary is being repriced along with it everything is relative. But who is going to constantly do the math to make sure everything is repriced correctly. All of this extra work and frustration for day to day transactions would just make StableCoin look DEFECTIVE to the casual currency user.




I'm beginning to thing this is actually mandatory. But I'd love to hear your thought on this.

I think you need to think about StableCoin as being a replacement currency rather than a complementary one. Think bigger and these problems are less important. Besides, these problems are no different than the problems that international commerce already deals with. Any cryptocurrency intended to replace or complement a fiat currency is going to have issues like this until it is accepted up and down the chain. It isn't a strong enough reason to focus on fixing day to day valuations, which I think is detrimental to progress.


You mentioned that I convinced you that a relatively stable currency based around electricity was possible. If that is true, then I think I can convince you that Decrits proposes to be even more stable, less attackable, and more energy efficient by using indirect information and reverse tragedy of the commons scenarios. I guess a simpler way to put it is game theory. Hell, one of the massively helpful ideas was yours to begin with, and I originally thought it was dumb. But for now, it is bedtime.

@Impaler, Red: the in-block futures market where a certain proportion of coins is "frozen" for some time has a major drawback: if I can prove that I own the frozen money (using the private key), then I can still spend them out of chain. I can deposit the frozen block to a bank, earn interest, and the bank has 100% certainty that at the unfroze date it has access to the money. The mere promise of future money is money too (near-money), this is how banks operate. So the bidders don't give up anything by having the money frozen, other than the convenience of intra-blockchain transfer. The bid price will collapse as soon as reliable out-of-block transfers are available (like checking accounts drawn on StableCoins) and you won't discover any real-world information.

You really need access to some real currency market. Like the built in market in Ripple for example. Since anyone can create an IOU and tilt the market, maybe a distributed graph analysis can detect the "real" price that most of the network agrees too. Something like PageRank where links between a subnet of pages (IOUs traded by related entities) cannot manipulate the global importance of that subnet.


Yes, that's a restatement of the stability problem. "The production cost of money" should be zero because money is information. So my chain of thought is as follows:

1. A StableCoin needs to maintain it's value in reference to a basket of common goods, otherwise it's unstable by definition; speculation, bubbles, etc.
2. We have no chance to compute the value of that basket with a distributed algorithm
3. There is no monetary law that can guarantee intrinsic price stability, it's an economic impossibility
4. Therefore we need to find some proxy of SC's CPI, and peg it's long term value to it; if the long term value is credible, the market will do the short term and price stickiness will appear
5. What CPI proxy to use ?

It seems that real world central banks have a pretty good grip on this problem and regular currencies are more or less stable, so pegging to a real world currency, be it USD, EUR, GBP, or a basket like SDR, is probably the best we can practically achieve. It's also a single number that we need to discover or be told, so it seems a reliable distributed algorithm, be it a vote from the users or an internal market, can agree to it's value.

On the other hand, pegging to energy or hardware costs is not an optimal idea because energy is relatively volatile. Energy should be just a component of SC's CPI. I don't want to sound patronizing towards your proposal, I just think it's an objectively worse CPI than simply leveraging the USD rate. Nor is it possible to find out the energy costs without external information. So if we need external information either way, why not use the best CPI proxy we can find, the exchange rate ?


Let's not get ahead of ourselves. Like the Bitcoin speculators do when they claim  prices will be stable once everybody is using their currency. Well if prices vary 100% on a daily basis, we will never get to the "everybody is using it" part.

I think a cryptocurrency that stays within a 20% band for a few months relative to the USD dollar and allows people to make instant transactions around the world with small fees and good privacy would be a glorious achievement. We can build from there.

Lots of discussions. Peg it to the dollar, peg it to a basket of commodities.

But I wonder, don't we have a very natural way of pegging it to something quite meaningful -electricity cost?

Couldn't we fix the reward to 50 coins forever, and fix as well the increase of difficulty -to follow Moore's law; so that more miners=more coins?
Then the market would take care. If price goes up too much, the reward for miners wil skyrocket: many will enter the market, more coins will be produced, and the price will go down to its production cost; which, as difficulty increases roughly in sync with computing power, should be relatively stable.

Of course you have to forget about the 21M coins ever and so the 100000000000000000000$/coin many here hope for. But in exchange you'll get a decently stable currency relative to the cost of energy, which is quite linked to the cost of life as everything requires energy; all the same without being linked to the value of dollars, and thus wholly independent from the FED.

Constant 50 coins per block is deflationary in the long run. 50 years from now the yearly expansion drops under 2%, sufficiently low to make people today go bonkers about their future fortune. It's also incentivizes people to waste useful stuff in order to get currency (MordorCoin (https://bitcointalk.org/index.php?topic=175108.msg1856347#msg1856347)), not a nice thing IMO.

In a non-fiat, decentralized currency, the production cost of money cannot be zero.


You aren't patronizing my proposal, you are criticizing a proposal you think I've written.

I'm pretty sure you've made that proposal:


It can be done but it's not the ideal target and it still requires external information.

It *does not* require external information. I repeat, you are criticizing a proposal that you think I've written rather than the actual proposal. While at the same time you are proposing that the solution is more external information. You are going to run into walls every step of the way in trying to make a system that relies on external information that is also completely decentralized.

Leaving the information issue aside, I was saying that tying the value to something like hardware and electricity cost is still not a good solution. Energy shocks and rapid technical changes would influence the value of money. 3D chips, war with Iran, nuclear fusion, and many other similar things would open the door wide to speculators looking to extract value from the users of the currency.

If you target the costs of producing a certain computational work, then yes, you don't need external information. But that cannot be a stable coin, or can it ? Can you explain briefly how are you going about regaining  stability ? It's not clear from your proposal because there are allot of low level technical details.

Wow, so many thing to respond to. I want to write one coherent post so that is going to mean replying to several of you out of order. I tried to keep the quote references pointing back to their respective complete posts. In general this post reverences posts by.
@herzmeister, BubbleBoy, Impaler, Etlase2

BubbleBoy,

I can't stop MY MIND from jumping to conclusions, and it has jumped to generally the same conclusions as you. So DON'T consider any of this post an attempt to refute anything you are saying. My current best guess is that you are exactly correct. However, sometimes thinking about things that seem completely impractical leads to a certain clarity.

A long while back Etlase2 proposed what you call MordorCoin (EnCoin). He claimed you could get stability by requiring the generation of 1 EnCoin to REQUIRE expending 1 KWH of electricity. I thought I was misunderstanding him because that concept seemed stupid. There's clearly not enough information I thought at the time. Nobody would waste so many posts on so stupid an idea.

I decided he must be trying to say, "1 EnCoin is equal to the COST of 1 KWH of electricity." That still seemed impractical and stupid but at least the units of the equation matched. Both were measures of value at least. That had to be what Etlase2 meant. At least, that's what I thought.

So even though I thought it was impratical and stupid I decided to explore the concept. Surely Etlase2 wouldn't allow so many people to call him an idiot, over and over, if he wasn't on to something? It didn't take long before I had some plausible ideas so I posted them in the EnCoin thread. Etlase2 kept calling me an idiot who couldn't understand his most basic concepts. So I'd look at what I wrote, find a flaw and fix it...

After about a week, I found a solution that created a StableCoin. It used the cost of electricity to discourage over production of coins. But it didn't actually need to peg the price to the cost of electricity. Instead it used non-linear equations. The logic went,
1. When the system is in equilibrium, it should cost exactly as much in electricity cost to generate a coin as that coin is worth. Therefore ZERO people would rationally choose to generate a coin.
2. When external demand increases the value of a coin will move above equilibrium. Therefor EVERY rational person would choose to generate new coins. LET THEM! Then increase the difficulty of generating coins in proportion to the number of coins rational people chose to generate.
3. The speculators must then RACE to the exchanges to sell their coins before the exchange rate falls back to their personal cost of electricity. Otherwise they can't pay their electric bill.
4. Increasing the supply of coins AT THE EXCHANGE puts downward pressure on the price.
5. Increasing the difficulty, increases the cost of generating new coins, pushing the system back to equilibrium.
6. (Tired of typing. Pretend the logic for when the value falls below equilibrium is here.)

I thought it was genius. I'd proved that a StableCoin could theoretically be created. Etlase2, however, still thought I was an idiot. My presumption wasn't what he was saying at all. I had failed to understand his most basic premise. He was proposing that it always on average required 1 KWH to generate 1 Coin.

I thought the concept was silly, but just as an exercise I decided to see if I could make his concept work. I could! He was correct a stable coin could be created using his principles. So for the sake of having another concrete example of a potential StableCoin, I wrote it up for discussion as GEM. (the link is above in this thread somewhere.)

Now when I wrote it up, I still thought the MordorCoin concept was stupid. It SHOULD NOT require so much energy to create a stable currency. WTF! the Federal Reserve and Bureau of Engraving and Printing combined don't use that much energy!

But at least three people were discussing the concept so I decided not to derail the discussion. I figured that if I could convince 10 people that a StableCoin was plausible, then I'd work on convincing them we could make the whole system more electrically efficient.

Unfortunately, we never got more that 4 people to believe that StableCoins could be created without REQUIRING a central exchange to directly make monetary policy decisions. We had PROVED the opposite at least 3 separate ways, but we couldn't overcome everyone's preconceived notions.

That said...


You are absolutely right, we couldn't write a program to do all that.


It's also pretty clear to me that someone or something has to have some relationship to the external reality in order to create any meaningful stability. The functions CANNOT be only self-referential.

Who observes the external world, and how they do so, are the open questions.

If you want to stabilize a ship on the open sea, you don't need a reference to stable land to do so. You don't need a reference wave height, period, or relative sea level. You need external information to "leak" into the system. In this case the information leaks in through MOMENTUM. A change in position requires movement. Movement has a velocity. A change in velocity requires acceleration. Acceleration of a known mass equals implies the external force applied. (Not a great explanation)

But the point is that while the inference chain may be long... computers calculate really fast! As long as we figure out where the appropriate information leaks into the system, we can stabilize it.



I think Impaler might be on to something to. Again I'm not exactly sure how the information "leaks" into the system, but it sure seams like it might.


I think you are saying the same thing. But just to be clear we need to understand where EXTERNAL REALITY leaks into our system, before anyone or anything can determine the proper forces to stabilize it.



Speculating through futures IS VOTING. Importantly it is voting by people who are ACTUALLY OBSERVING the external world rationally. Voting by people who are thinking "philosophically" like fixed-coin bitcoin fanboys doesn't leak any useful information into the system.


I agree that SOMEONE somewhere needs access to this information before it can "leak" into our system. However, I'm not ready to jump to conclusions that it must be measured by a trusted authority or deliberately injected. In fact, as with my ship stabilization example, and my initial StableCoin example it might already be measurable based upon a derivative value. In both cases observation is done by measuring "acceleration". In my StableCoin example, I measured the change in coin generation velocity. From that I could infer what speculators had observed in the external market.

And yes I agree, using a reference point we don't have to calculate makes this conversation and system design easier and faster. It might make the conversation much less fascinating!


I agree with this logic, but I'm not ready to commit to a decision yet. I'm reasonably convinced that if we can prove we can stabilize to any CPI particular proxy, we could just as easily stabilize to any of the others as well. While the choice of with CPI proxy to use makes an interesting debate. I don't think that choice is on our "critical path" at the moment.



We'll probably have to standardize on some terms. I propose the following definitions for discussion:

StableCoin - An abstract class of COINS which have the shared property that their monetary policy (coin creation/destruction bounding algorithms) will never allow the coin's future value to "tend toward infinity" or "tend toward zero" given the case of unbounded adoption and unbounded increase in external value traded.

GrailCoin - sub-class of StableCoin whose value attempts to always tend toward the value it had on the day the coin was first launched. It should retain long term value stability even if every reference its value can be measured against varies independently.

InertiaCoin - a subclass of StableCoin whose value is intended to deliberately resist change. InertiaCoin may be pushed off its initial price by extreme external conditions. But it will always re-stabilize to some appropriate value. (non zero, non infinite) Any coin with infinite inertia IS A GrailCoin. But not all GrailCoins need be InertiaCoins. Grail coins always move back to their initial value when pushed off. InfiniteInertia means the value can never be pushed off.

MordorCoin - a sub-class of StableCoin requiring a fixed expenditure of electricity to mine.

CPICoin - a specific StableCoin whose value tends toward a particular measurable consumer price index.
FiatCoin - a specific StableCoin whose exchange rate value tends toward a particular fiat currency.
DollarCoin, EuroCoin, YenCoin, etc. - A FiatCoin intended to always trade 1 to 1 with USD, Euro, Yen, etc.

For reverence, my initial coin (described above) was an InertiaCoin.
GEM was a MordorCoin.



Einstein talked about standing in a free-falling elevator. It helped him visualize what was truly necessary and what was superfluous to the problem at hand. I don't think he ever intended that people actually stand in free-falling elevators because it would facilitate their epiphany.

:-)

There are tradeoffs. The potential volatility from the issues you raise has to be weighed against the disadvantages of relying on external information.

By the way, the idea of pegging a currency to the price of a particular thing (rather than a broad index) has a respectable economics pedigree: http://marketmonetarist.com/2013/01/09/the-last-brick-rip-james-m-buchanan/
(h/t George Selgin: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2000118 )

After lightly reviewing some of the discussion on this, I will admit I was fairly dense to the point you were making about encoin being a mordor currency. Thanks Bubbles for the nickname though. However, after I did get you fleshing it out, I was against it because it created avenues for a monopoly over the money supply and/or a monopoly over the profit of an expanding economy. Shortly after you stopped posting again, I posted the very initial idea behind decrits here (https://bitcointalk.org/index.php?topic=49683.msg611717#msg611717), which was my first thought experiment to eliminate those problems. The gist is to make other people money for your hard work mining. Sounds awful at first, but the people mining are only making money because there is demand for the currency, not because they are mining. This wealth must be spread out or I strongly believe you will find yourself with another bitcoin.


This would appropriately define Decrits. I don't think it would even be possible to know if you had a grailcoin because it would require absolute stagnation among all other things of value (and thus as "futile" to tie something to a CPI as it is to tie it to electricity). But a key to making IntertiaCoin work is protecting against moore's and koomey's laws, in whatever way they present themselves. Jumps outside of the curve (ASICs) are actually not that difficult to defend against. However, it would be very difficult to programmatically prevent, for example, the halving of the currency's individual unit value with a sudden halve in the cost of electricity, though.* But things don't actually work that way. In the mean time, if the new currency is distributed equitably among its users, then the inflation caused by this is not nearly as big of a problem--though it isn't the greatest thing for creditors. (Can we be all that mad about that?)

* - please note that if this does happen, it does not necessarily cause this value loss. If electricity becomes less expensive as a natural result of innovation, that is a benefit to all mankind. The price of products and services that rely heavily on energy could easily remain stable in the face of a money supply inflation due to the same reduction in cost of electricity.



Thank you for getting to the point of asking me the question rather than making a judgment. Unfortunately, an answer that will tie it all together requires me to again organize my thoughts. At least I've had a lot of practice. The Decrits proposal was focused on the major technical aspects to get the idea across of how you could create "InertiaCoin", as Red has called it. Even at the beginning of that thread I assumed I could solve certain problems that I knew were present. And I conceded that there are probably some that can't be programmatically fixed. It just isn't knowable. But that does not mean there is not a solution...

It's hard trying to combine the technical and the economical into one thing, and it's hard to explain one without the other. It's even more difficult to explain if I haven't filled in the gaps on how to get from point A to point C either. But I have a knack for finding B. At this point I am, often in a too aggressive manner (personality defect, what can I say), trying to get people to test me on Decrits like Red did with encoin.

My point is, briefly explaining it will only raise more questions, questions that are more suited for that thread. In short, I believe it would achieve a value that would be more stable than the goods and commodities it is valued against. It would very effectively prevent manipulation of the money supply. It would prevent excessive periods of deflation and/or "credit crises". It would prevent banks from being able to control the network. I know that doesn't explain much, but that is a huge change in philosophy from the encoin proposals, and I have designed with them in mind.

I started a new directory thread so we can hopefully capture more newcomers interested in a stable valued currency. I'd also like it to serve as an index to all the ideas happening in other thread.

Everyone, please link your cool shit here.
https://bitcointalk.org/index.php?topic=179918.msg1877951#msg1877951

It's the pimp'n my cool thoughts thread. ;-)

Impaler this is a really awesome post. I'm sorry I didn't reply to it sooner. Actually the first time I read it I didn't completely understand your concepts. I had to read up on Freicoin and Demurrage to get the right context.


Exactly!


I'm still wrapping my head around the "futures" concept too. But in this case, if I was a speculator predicting deflation, I would want to...
"Buy the OPTION to purchase someone else's coins in the future at TODAY's prices. So I could sell those coins at the FUTURE price along with my own."

An option purchase = skin-in-the-game. A speculator gambles a small amount of money in advance. Against the chance for a leveraged profit in the future.


Every time I try to make the system work using coins only, I run into the "frozen" money too.
In the above situation, to guarantee the seller still owns the coins when an option is executed, the optioned coins must be frozen until the option expires. That make perfect sense.

But, how do I guarantee the seller gets paid at option execution time? He can't be paid in coins. The point of exercising the option was to immediately sell as many coins as possible. I see 2 possibilities:
1. Either the seller gets paid in FIAT now. Or since this is intended to be StableCoin...
2. Once the coin prices returns to the target, the speculator re-buys coins using FIAT and pays with COINS.
In both of these cases the system needs to be able to guarantee FIAT payment. That seems unacceptable.

Now that I think about it, I see a third possibility... but I need to think it through.

Not a zero coin value, the baseline of the coin value is determined by the cost of its production. In such a system there is no such thing as 'over-production', as miners have no incentive to sell coins for less than it cost them to make, thereby restricting supply and applying upwards pressure.

Also price as a product of hash rate (cost does matter):

http://vimveritum.com/Hashrate-VS-Price_annotated.png

I can follow the GED proposal (https://bitcointalk.org/index.php?topic=47628.0), it's the straightforward way to do something like this. My take on it: the number of coins is unbound, and anyone can create new coins by performing a "certain amount" of computing work. This puts a clamp on deflation and speculative appreciation, the market can see at all times what is the maximum price a coin can command before it becomes profitable to mine and create more of them. For each mined coin you can randomly distribute 999 free coins, so that the whole scheme does not become a MordorCoin; mining is just a way to convey price information into the system, not the way most coins are born. That "certain amount" of computing work per coin is set to increase following Koomey's law, so that inflation doesn't takes hold because of future technical advances.

This is straightforward and easy to understand, but as I said, it's less than good. Moore's or Koomey's laws are valid on the long run average, but technical advances come in powerful waves, for example the jump from GPU to ASIC mining will dramatically increase the Bitcoin mining efficiency in the next few months. For GED it would trigger rapid inflation. Or some years pass without major advancement in mining chips, then Kommey correction slowly creeps in and it makes coins hard to mine with existing gear, low supply on the market, thus short term deflation. The GED market would jump like a yoyo on the news that a new mining chip was planned or has failed.

Both of you are alluding that you made the next step:

So how do you move from hashes/coin which is a direct extension of Bitcoin, to something like 1KWh=coin without relying on external information ? And additionally :


It is to me an apparent contradiction: either you have external information or you have a distributed algorithm that can compute it's own energy use. There doesn't seem to exist another way to reliably move from hashes to KWh. Something as generic as Moore's or Kommey's laws can't provide stability in the short run.

Correct, there's no way to enforce 1kWh = 1 coin, this would have to account for the varying electric costs of different areas as well as the efficiencies of different cards, and there's no way to do that. Its not for the protocol to know its own electrical usage, its for the miners to decide what the cost is of producing them and if its profitable to sell.

I can see how something like the brick standard would work, since bricks are widely used and the central bank can convert money back to bricks. If money loses it's value you go to the Fed, take your bricks and build a home. So it's a good inflation hedge and technical advances to brick making won't be very dramatic. Approached from a public choice point of view it could be worthwhile because it massively cuts the rulers' freedom to fuck with the ruled; unlike other monetary policies which are optimal if only Jesus was head of the central bank.

But tie monetary policy to something like "Kommey normalized million SHA256 hashes" ? Which can jump a whole order of magnitude in price during a year or two ? And which are useless in themselves ? (and either way we won't have a way to transform a coin back to it's component hashes). That doesn't bode well on the stability front. It's rather sad if it's all we can do because it makes stability impractical, not a mere tradeoff.

OK, I think I totally miss read what you intended.
Paraphrasing, You want to scale the reward as a function of difficulty. A 2X difficulty increase causes a 2x increase in block reward.


This was the starting point of both EnCoin, GEM. Dynamically It creates an InertiaCoin rather than a GrailCoin. It is also a MordorCoin. I was fine with finding an InertiaCoin but I wasn't satisfied with the amount of inertia it had. It tends to drift with processor efficiency improvements. It also drifts with changes in the cost of electricity.

This is a direct derivative (https://bitcointalk.org/index.php?topic=44682.msg546418#msg546418) of that InertiaCoin idea which attempts to increase inertia and decrease energy use. Nobody else understood it enough at the time to generate a decent discussion. I'll start a new thread if you want to discuss it now.

GEM is also a direct derivative (https://bitcointalk.org/index.php?topic=47628.0), it was really just a second go at explaining the basic stabilization concept. GEM is a MordorCoin that also attempts to be a GrailCoin by controlling for changes in electricity cost and processor efficiency improvements.

Yay! The first ever post to get the point of the exercise! Woot!

It was just intended to an example starting point for discussion, not an ending point. I wanted the concept to be reasonably easy to grasp. And I wanted to make the limitations readily apparent so everyone could learn from the exercise and suggest improvements!


Did I write that? I don't remember being that insightful.



I did try to clearly point that out as a limitation. But curiously, back then when we looked at the jump from CPU to GPU and GPU to FPGA (no ASICs to analyze) what we noticed was that while hashes/sec took a huge jump, hashes/kwh didn't jump nearly as much as we expected. Koomey's law was pretty darn close.

Those quotes are both him. I'm still looking for the next step.

The 999 part is my addition and is what Decrits attempts, if I understand it correctly. But you need to be exceptionally careful who you give the new coins to. If random addresses then you have a guaranteed interest for simply holding money. People stop spending and start watch their accounts rise, deflation and instability ensues: the more you try to fight it by issuing new coins the more profitable it becomes to hold currency until the whole bubble pops violently as people crash the exchange market looking to "cash in". Familiar ?

New created money (except for what goes to miners) should go to a charity the user selects from a predetermined list. So If I have 100 inflationary coins and the yearly inflation is 2%, it's as if I had 100 stable coins and I'm forced to donate 2 coins per year to a charity. Inflation tax goes to the charity instead of the government. This makes me reluctant to hold coins and prevents deflationary expectations.

It's important for this stability thread to note that even 0% inflation (complete stability) is a counter productive goal. Sometimes a real 0% return is above what market has to offer, for example during a recession. If you try to guarantee a 0% risk free return, you kill trade because people prefer to hold money and wait for better times. Money are held, trade stops, better times never arrive and a 0% real return looks even better, reinforcing the crunch. So it's either inflationary and money, or it's Bitcoin - a speculative unstable commodity for the internet geek and closet anarchist.

It's a contradiction between encoin and decrits, but they don't work the same way. And there is a third option.

First of all, the energy usage is only one facet. The cost of hardware *does matter*. The human resource cost *does matter*. It doesn't matter what the mhash cost is in real terms is--as long as you can foster competition, people will find ways to do better, and this in turn must raise the difficulty to where the mhash cost is in line with whatever inertiacoin's (potentially original) coin cost is.

The original way I came up with to foster this competition was to algorithmically change the coin award at certain intervals. During these intervals, miners would be encouraged to lower their output, because if they don't, the difficulty is going to increase. However, more efficient machines would not really be bothered by this and would be able to profit handsomely during this interval. However, for whatever various reasons that could thunk up for this, more efficient machines may not want to or can not oblige, and this could cause a longer-term inflation of the crypto CPI.

I will walk you through what I am currently thinking Decrits will do:

1) It will algorithmically determine the number of coins to be created in the next Mint Block, as I call them.
1a) This number of coins is determined by a percentage of transaction volume over time. (note: for this to matter, transactions must be charged a percentage fee, which in Decrits is 0.01%)
1b) This figure will be difficult and costly to manipulate because it will require significantly increasing the transaction volume of the entire network over a period of a year or more while paying those fees.

2) A Mint Block cannot begin until enough money has been transacted to warrant it.
2a) This will be based on either a (large) percentage, equal to, or a (small) multiplier of the number of coins transacted since the last Mint Block.

3) Once enough money has been transacted, those who wish to create money will have to join a queue to begin the Mint Block.
3a) For the first 25% of the queue, 10% of the individual coin award (the amount each queuer will receive) must be supplied in the currently accepted difficulty with a 10% winning hash and an account number. (note: this can *always* be accomplished in 40-50 bytes because of the account ledger)
3b) For the rest, 5% of the award must be supplied. The most efficient are the most likely to start the next block, but we do not want to unnecessarily raise the difficulty if the majority of people are less efficient, so they get a slight bonus. (This will eventually lead to deflation if we do not account for it, and perhaps because of money supply manipulation.)
3c) Once 75% of the the block's worth has been queued, a minimum amount of time must pass before the queue will close. This figure will be based on some percentage of the the average time it has historically taken to create a Mint Block. (This means that magnitudes more powerful ASICs can not shut others out)
3d) If more than 100% have queued before the minimum amount of time has passed, a random selection of the queued minters will be made to complete the block.

4) Once the block begins, all minters are encouraged to mint at once because:
4a) The coin award is higher the faster you finish. Likely +10% for the top 25%, +5% for the next 25%, -5%, and -10%.
4b) Taking longer than an algorithmically determined amount of time (based on prior blocks) will result in penalties of at least 10% and perhaps more. (e.g. if everybody finished past this time, even the top 25% would still only receive -10% of the promised coin award.)
4c) At some point the block will close, and unminted coins are lost.

5) (Tentative) After the block is over, minters will be randomly assigned to groups (probably of 40) to determine the 10/5/-5/-10 payouts.
5a) This means that there will be groups where ASICs fight ASICs and GPUs fight GPUs (NB: obviously not all of them). This reduces the overall profitability potential of ASICs.


To avoid the p2pool-like data spam, the number of coins mined per queuer must be relatively high. I think the target length for each block will be around 5-10 days. This requires commitment from those minting. It will be annoying. And the fee to join the queue could be completely lost. 50% of those queued will make less than the award.

In addition to all of this, we must eschew mordorcoin and give money away for free. Now we know for damn sure that new money is needed with the difficulties associated with minting. The written decrits proposal proposes giving away 5x of this block of coins to transactions and 5x to existing accounts, both randomly (blocks of accounts will be stored together, and this will be the starting point for awarding free money to them because awarding every account is infeasible in a network of any reasonable size). This area can be nitpicked, but I have come up with some very solid solutions.

In addition to that, because network expansion could easily outpace the time constraints set on Mint Blocks, each successive Mint Block within a defined period will increase the tx/account award further. The second block in a row will award 6x to each. The third will award 7x. This may max out at 10 each, or maybe it could go on continuously (perhaps after 20x the difficulty could start increasing say 3% per block; with so much new money in circulation [especially to transactors], if this causes mild deflation it would likely not have any problems being counteracted). So even in the worst case scenario of everyone instantly switching to ASICs and intentionally not raising the difficulty, designing and producing those ASICs will never be profitable. Plus the inflation has to catch up and raise the average amount of transactions over an extended period, or the ASICs will simply run into a wall where they can not mint for extended periods.

How 'bout it?

Solution: you award people transacting a much larger (in terms of award to volume) percentage of the pot. It's simple to fix this, and I already have.


"Inflation" isn't such a bad word when the new money goes to the people rather than the banks or government. It should not typically cause price inflation at all with the proper precautions in place (like in decrits).


I must point out that a big part of recession is a slowing of the velocity of money. Deflation should *almost always* happen during a recession, but it does not due to price stickiness. Look at gasoline in 2008. Because of the simple fact that gasoline is priced sometimes even hourly, it does not suffer from price stickiness, and it dropped in half. If prices become too high for the average person to afford (respective to salaries and such), minting will become lucrative. And money will be spread into the economy. Yes, this would likely cause slight long-term inflation, but this is exactly what you are asking for. The wealthy are being punished for not moving money and killing the economy; and this new money will spread into the economy and avoid unnecessary suffering. It might inspire the wealthy to stop the shenanigans in the first place after a few economic power grabs fail.

Damn, I've been putting off reading his new proposal because the two of us always end up arguing!


I wrote about this in other placed, but I concluded that:
1. If you are creating new coins, because the coin price has gone above your stability target, then
2. The only effect you are trying to achieve, is to IMMEDIATELY reduce the coin trading price.
3. The only stimulus that can cause this effect, it to give the coin to some one who will IMMEDIATELY sell the new coin, FOR LESS than anyone else is currently offering.
4. Who are these people? The ones with coin addresses on the SELL side of current/recent transitions.

Giving them to hoarders will have zero immediate effect. Neither will giving them to current buyers. You can argue giving them out might have future effect. But that just makes over shooting the target (and oscillation) much more likely.


Damn there are so many important topics being mentioned. Perhaps the optimal GrailCoin is one that targets X% inflation. Boy that thread is going to cause flame wars! Want to start it? Are you listening Freicoin folks?

I think if the market actors generally understood and accepted the theory that i put forward in my original comment than the market could (mostly) price all of this in and bitcoin would experience steady growth that corresponded to the average mans time value of money. The problem is that we have never had a deflationary currency and most people dont think in abstract logical terms they tend to rely on empirical data (if they are rational at all) of which we have very little.

So for this reason im not prepared to say that deflationary currency is a bad thing per-se, mostly because the inflationary currency that could theoretically solve this problem would be unlikely to ever be adopted because it would be rational for the collective to use an inflationary currency but irrational for the individual (market failure in economics speak). So we are kinda stuck with deflationary currency and so we just need to learn how to put reigns on this tiger, which fortunately i do think is possible.

I know you hate hearing this but, yet again, but I'm having trouble grasping the big pictures, because I keep getting lost in all your details.

I know you have a preoccupation with making sure P3 CPU miners can still generate coins along side new ASIC miners. But for the sake of an overview I really don't need to know.

I'm really most interest in knowing:
1. How does the system know that ZERO new coins need to be created at any given moment?
2. What needs to change in at next moment to tell the system to CREATE new coins?
3. What needs to change to tell the system to DESTROY unnecessary coins?
4. What metric tells the system HOW MANY coins to create/destroy?
5. What incentives and disincentives are used to encourage or discourage spending at appropriate moments?

Enough with the facetiousness.

The goal has been to make sure that "the people" can not lose the ability to create the currency. If you allow the quick takeover, which a small number of ASICs could do, you destroy the minting mechanic as a response to changes in the economy. Minting, at least in decrits, is designed to be a short-term quick burst of profit. Perhaps longer-term if there is a serious and ongoing expansion. If ASICs were profitable, everybody would have to buy ASICs. For what? It's completely insane to have a rat race for who can maximize profit short term only to eventually screw themselves over to where they're at the same place as everyone was before. Now the minting is screwed and there will be upcoming massive deflation because no one can mint anymore without a huge slew of ASICs being purchased.

Decrits will attempt to maintain a common level of hardware that needs to be used to create currency. This level will gradually and naturally increase in response to moore's and koomey's "laws". The system will allow those common pieces of hardware to respond to a highly advanced piece of hardware. Hopefully to the point where there is no point making it in the first place. Money HAS TO BE INVESTED in minting. If people have to invest more money than they did before (buying ASICs), that will cause deflation. Severe. People who own a lot of decrits would be willing to cause this problem because they will make oodles of value on hoarding money.

The money supply must be UNMANIPULATABLE. And giving away free coins means that changes to the way coins are minted will have a multiplied effect.


It doesn't care. People create coins or they don't, that's up to them. Starting a new Mint Block will require a lot of investment. If 1 DCR = $1 and a mint block is 10,000 DCR, 500-600 DCR worth of time/hardware/electricity investment must be added to the queue before it will start. If they don't do it, the system doesn't make new coins.


See above.


Decrits does not propose to destroy coins as part of an economic model. It will destroy coins under a few, rare circumstances. An account that hasn't made a spend in 12 years, for example. Bitcoiners may complain all they fricken want, but useless data can not sit around forever. Once every 12 years to make 1 outgoing transaction to preserve your money is not too much to ask.

What you mean to ask is "what to do if there is price inflation?" And the answer is: very little. The price inflation would likely be a result of an economic change, not a problem with minting. I tried to prevent inflation in encoin because it meant that people were probably leaving the currency. But it's just a hack. If people are leaving the currency, making its value look better isn't going to fix anything.


As far as how many coins to create, I detailed that in the post. It is rooted in transaction activity. Transaction activity is charged a percentage fee and is thus strongly disincentivized from making bullshit transactions. I have not come up with exact figures for how transaction activity will be related to Mint Blocks because that will be a huge discussion point when Decrits gets there. The bootstrapping period will also have to work differently.


You focus too heavily on inflation. I do not think that price level inflation will be an issue if the system functions well. Encouraging spending is easy when you give away free money. The only time I foresee price level inflation is when a significant amount of the money supply is tied up in debt and banks start getting shy. Creating currency will become profitable, and the banks will lose their stranglehold on the economy. This will come at a cost of some inflation down the road, unless you propose to tax accounts with lots of money (not gonna happen). However, I expect that debt will never be a significant problem in Decrits. And, with money back in the hands of the people, I believe they will be less inclined to mortgage their lives away and will have wealth spread out so that a bit of inflation will not be disastrous (their other stuff should go up in price, so it's probably a wash). Again, I do not think this is a likely effect, but I can't predict the future and I have no real idea how it would all turn out. But I have thought of a lot of different scenarios.

Awesome post Etlase2!

I learned more of your basic principles from this post than I did from reading all the other pages! Thanks!


So a the number of coins a Minting block creates is dependant on recent transaction activity? Do I understand that correctly? This is where the 5X the activity (or fee? I forget which) comes from?

Thanks.


It will probably be over the last 1 year rolling period. Because of the Consensus Block which you are familiar with from encoin, transactional activity is easy to keep known statistics on. If the mint block is 10,000 DCR, 50,000 DCR will be awarded to transactions and 50,000 DCR will be awarded to accounts. Only a small percentage of each will be awarded so that the award is meaningful and difficult to game.

Processor cycles are not "useless in themselves."  The computing power/energy can be put to other uses. That's the point.

Do Koomey normalized hashes really jump a whole order of magnitude (i.e. 10x) during a year or two?  Source?

Ultimately the issue you will run into with free handouts or enforced penalties is that neither provides an incentive to do anything in particular, that is people will continue to do whatever it is they want. Its specious to say that because we have X system that this will produce Y behavior in its users.

There are some known variables of behavior that we can rely on:

It costs $ to make Coin
Miners have to remain liquid despite desire to hold
Miners wont dump coin for less than it cost them unless the whole market is on a downward spiral
Users dont care about price of coin, they just want to use it.
Speculators will do anything to destabilize the market to profit from the difference. 

Now if you give spenders free money to spend, then its going to enter the economy unvalidated, that means not only will you lower the price of coin (if that is your goal), but you will also lower the confidence in the value of the coin, this could have severe repercussions in the long run.

The issue here is the effect speculators have on the market, and without a central bank there is only one way to handle them, by increasing the monetary supply in concert with demand, in a controlled validated manner, that is by bitcoins very design solely through its miners.

Despite what it seems, I'm in complete agreement with you. However, I agree what I wrote was confusing.


If only you would read what I MEANT, instead of just reading what I WROTE. :-)

I can make the case for incentives and disincentives too. But that is really a separate discussion from mining.

And this is the expected behavior. Unexpected and unprofitable behavior should be acknowledged as a possibility.


I am not sure who you're replying to, and Red has taken a crack, but I will take one as well.

It goes back to game theory. The Evil Guys or whomever may want to lower the value of the coin by minting unprofitably. However, with free coins given away, their unprofitability will be profit in the hands of others. The deeper they want to go, the more significant the investment that needs to be wasted to achieve further instability. This will likely only be accomplished when the network is small. These evil guys will make money for everyone else, and everyone is fairly likely to know what is happening, and no one is really worse for wear other than those who wasted the time, effort, and money to cause the problem. As transaction activity grows, the ability for anyone to do something like this diminishes.

What destruction are you accomplishing when you force other people to profit off of your expense? Evil Guys' attack fails at game theory.


Incorrect. It is validated by those who wasted effort in creating new currency by minting.


It will take some time for an "inertiacoin" to find its sweet spot. The sweet spot may move a few times as, for example, cheap electric economies start minting. But, as the network volume increases, a larger majority of the people around the world will have to be involved in all facets of the currency. Things will normalize. There are two big arguments against your "severe repercussions": 1) those who were already using the network will receive free money to account for losses in the value of each unit (market cap neutral), and 2) it does not affect other assets (this means that the currency will be seen as a "good deal", but only because it is selling for less than its cost to produce, not because it was cheaper than it was before). As the system grows, it will become more and more difficult to try to hide anything. The more you try to hide, the less of an effect you can have.


Speculators in an inertiacoin style market will have no more power over a regular market. They will not be able to manipulate the money supply in the same way they can with bitcoin. Buying large amounts over short periods is the surest way to lose money. Bubbles will not be caused by speculation because everyone can at least have an idea of what it would take them to create currency. This fact can't be hidden. Any short-term instabilities created in a small market will almost invariably benefit the general user base rather than the manipulators, at least if you give money away to transaction activity.

Processor cycles are not useless but hash collisions are. So while it's easy to produce more hashcoins when they are valuable, nobody gives a damn that your hashcoin took 10x more cycles to produce a year ago than they do today. You can't recoup those cycles and put them to other uses. So unlike bricks, there's no built-in inflation protection.

For the hash energy cost variation, just look at the Bitcoin mining market during the ASIC and GPU revolutions. We should not expect each new incremental technological improvement to affect the mining market. It's a small market where a single product can change the game. If 120nm ASICs are available today, we should not expect a 90nm ASIC a few months from now because of fixed development costs, economies of scale for the incumbents, etc.. If mining stays profitable a few years from now someone will introduce a 22nm chip which will have a rapid impact. Maybe not 10x, but even a 2x efficiency improvement (or rumors thereof) will be highly disruptive for the hashcoin currency market and it's users.

While this is plausible in a steady state, it is not possible during rapid economic expansion, like the early adopter phase. The only way to have bitcoin stability now is to convincingly convey gradual higher targets for the eventual size of the bitcoin economy. Price will immediately jump to that value, with a small time preference discount and a large internet-funny-money-better-go-to-the-bank risk discount.

If there is room for economic growth, and the market sees it, it will internalize it as deflation, preventing growth.


It's unlikely to follow the same adoption paradigm as Bitcoin, people won't hoard it because it loses value and can't use it yet because there's no market for it. So Bitcoin is a great forerunner, creating the infrastructure and the market for cryptocurrency. If at a later stage a stable and slightly inflationary currency appears, the community would be all over it because it's a better currency. The marginal cost of extending mtgox, bitpay, silkroad etc. to support this new bitcoin-like currency is negligible. You could incentivize them by giving away lots of the initial batch of currency to prospective customers and make the market for a limited time to give it value.

So with a little help from a centralized pusher in the bootstrap phase, decentralized inflatacoin could survive and disrupt bitcoin.

Are you planning on responding to any of the nice posts I've written for you? :P

At least in Decrits, because of the difficulties associated with minting, you must have both a significantly more efficient piece of hardware AND enough of them to begin a Mint Block AND enough of them to mint a large portion of that block all at once. If they can't, there will be big penalties. This will require a massive, very risky investment. And because the rest of the network knows someone is minting while minting looks unprofitable for all of them, they are given the opportunity to defend currency creation by joining the queue and keeping difficulty normalized. Because creation is limited by transaction activity and there are minimums of time that must pass, this opportunity to defend is specifically designed to exist.

I think there is a much simpler solution to the problem: constant increase in new coins beeing produced.

Firstly, in the adaption phase where many people are getting in, the relative increase in volume would make hoarding less attractive

In the long run however, the inflation will approach zero.

I have proposed one way to achieve it here: https://bitcointalk.org/index.php?topic=181488.0

I know I'm lame but I can't read Russian. Is their an english summary? Or can you tell us the basics?

wingding would you post about you and your plan in this thread?
I'm trying to keep an index of all the on going efforts.
https://bitcointalk.org/index.php?topic=179918.0

From translating I think the gist was that there will be a market maker, someone with a lot of coins keeping the price stable. But I dunno for sure, it doesn't translate well. Not a particularly decentralized approach though if that's the case.

I can understand everything but part (4)

(4) the big premajn plans
(2-3 mils koinov.)
then there are the units
90 +% of the premajna will be sold
wishing to 111% of cost
premajna.
the remainder will profit premajna
project.
Exit the Exchange is not planned
prior to the distribution of premajna.
So no pamp'n'dampa
WILL NOT.


so premine 2-3 million coins, then 90% will be sold to something 111% of the cost of the premine. I can't fully understand that. It sounds vaguely like a market maker. Then you talk about the exchange. Are you trying to keep a price level equal to an existing currency?


Point (1) has many of the same problems as bitcoin:

(1) to be laid on the growth in the number of coins
at 7% per year (or still at 6).
Pure "inflation" but will be less.
Loss of coins, etc. things will be drawn from 7%.


This does not make it easy for the network to grow when it needs to grow. To start gaining acceptance by the world economy, the currency needs to be able to expand to it. 7% supply inflation will cause a lot of deflation because 7% can't keep up with the potential network growth--it could be several thousand times in a year. In my opinion, this will cause people to leave because the currency is a hassle to use (like bitcoin).

Your concerns seem to be more geared towards dumping. This is only an issue in the real world when someone with a massive supply can continually dump to create a market dependence on them, but since anyone can be a supplier at any time in bitcoin this isnt an issue.

Are we talking about the same bitcoin where greater than 50% of the currency to ever be created is in the hands of <100k people? Where 20% of it is probably in the hands of a few dozen? I don't know how you can possibly make the argument that bitcoin mining is somehow a solution to demand when it is, by design, a choke point of the currency. My concerns are not "more geared towards dumping", they are geared towards providing a stable currency base that is difficult to manipulate by those who mine, those who have coins, or anyone else. This is without resorting to some kind of centralized solution or being tied to hard formulas that will not be able to adapt to reality.

This chokepoint you speak of was the result of a fixed block reward coupled with a moving difficulty. In the early days the difficulty was so low anyone could earn the block reward easily, this being the same block reward that as of last winter took incredible amount of investment to earn. Had the block reward been pegged to the difficulty then it would not have cost its users any more to win the same amount of currency than had they been the first and only miner.

This is why most of the currency is in the hands of so few people, when you have a pit full of gold and no one else to compete with, then winner takes all. Widen the pit with the influx of new miners and now everyone will have an equal take no matter how many join.

We're not talking bitcoin here, we're talking stablecoin. You quote one part of a 5 paragraph post and say I'm focusing on dumping. Are there any specific things you don't think I've addressed, rather than just leaving it open ended and implying a failure to account for something else?

There is no such thing a free money, this is what the fed attempts to do with quantitative easing and stimulus bills. There is only so much value in a network, if you increase the amount of money in a system without validating its existence, it decreases the value of all money proportionally. What you are suggesting is a tax on the network to the advantage of transactors in an attempt to further stimulate spending.

These inflationary measures will not doing anything but trickle-up, as we have seen in recent years. Creating a central-bank in protocol is opposite to the bitcoin design philosophy.

But as I said, mining validates the need for new currency. Currency will only be given away when people are mining, and mining is not ever required to be happening like it is in bitcoin and its derivatives. Security of the network is completely separate from mining.


As we have seen? We have seen nothing but crony capitalism. The fed doesn't print money and helicopter it into the economy, it prints new money to bail out banks and serve congressional interests.

In addition to that, as I have stated, mining is required before free money will be created. One way or another, as the economy expands, value has to go somewhere. It either goes into existing currency by enriching only those who hold more than average amounts of the currency, or you can use it to enrich a much wider array of people. Including those who might be on the fence about accepting the currency.

I checked your link. Great! And yes, I will keep you updated!
(I got so much piss from other users just for proposing this thing - you wouldn't believe...)

Yes I would!  ;)

This would not work when deep pockets come...

 OK, i can double my money in a year...
OK, how much is available... hmm i could buy it all..


then what coins would you use for commerce?

If anyone still thinks that *anything* based off of bitcoin is worthwhile: https://bitcointalk.org/index.php?topic=181759.0

Perhaps proposals that do not require proof of work at all for network security merit further discussion. :P

Continuing my conversation with Etlase over here.

https://bitcointalk.org/index.php?topic=179918.msg1948749#msg1948749


The idea is not to make P totally stable. The idea is to make MV move along a certain growth path, and keep P stable within a certain range. This will be the expectations anchor in the proposed currency, like the certainty of the money supply is with bitcoin



If the specs are published and discussed, then anyone joining in a new currency will be aware. It is just like those who buy freicoin even after they are aware of the demurrage.


No, my comparison was not with Decrits. It was with a coin that printed more as transaction fees increased.



The term I was looking for and used in the last para - expectations anchor. Every currency will need one.


Nothing can be done about off-chain transactions, those are not visible to the chain. We have to design around them.


No, the hyperinflation point was directed towards a theoritical currency that had a feedback loop that encouraged more coinage as more transactions happened. I don't remember enough offhand about decrits to make such a comment about it.


My initial idea, as quoted was to have a pure mordor coin during an early phase of bootstrapping and transaction fees level targetting after that, minimising the need for energy after that. A steady growth in transaction fees has a good chance of encouraging some miners to stay with the coin.

I appreciate the patience that you have shown with my ideas.  Almost nothing I entered here is a criticism of decrits. Those are, my half baked ideas for a stable coin. I truly hoped that others would respond as well, to get more views. If the price of admission to a stablecoin thread is full understanding of decrits, then i can say that is a high price to pay.

But you can't determine P without knowing Q, and Q can't be determined by transaction activity. Or any ungameable measure (same as P). Therefore whatever formula you come up with for adjusting MV in response to PQ will not suit the circumstances at least some of the time, probably most. It will probably be more stable than bitcoin, but bitcoin made every effort not to be stable, so it's not a fair comparison.


It isn't awareness that is the question I'm asking though, it is what you believe will be the economic results. How would an exchange even handle this? It will not be very user-friendly or intuitive, and I think from what I have seen you write (note: I wholly understand you are thought processing the idea) that this will cause bouts of unnecessary deflation.


Well it's hard not to assume you are referring to Decrits after asking about it. As I mentioned, it is easy to make the case of how your idea Y is better than weak idea X. If I may be so bold, it is not so easy to make a case of how your idea Y is better than the Decrits idea X. :P


But does it achieve stability? Stability that is better than bitcoin is not good enough, imo. I made a bold claim, probably in this thread, that I think Decrits could be more stable than the commodities it is being measured against. The only way this would be possible is if the standard deviation of a decrit is less than that of a basket of CPI items. The network would have to be quite large and ubiquitous before that could be the case though, but still in the mean time I think it can remain excellently stable barring irrational attacks. And there are potential defenses (even automated) against irrational attacks.


Right, which, IMO, means using transaction activity/tx fees as any kind of indicator of P or Q is a minefield.


I think by now you know my opinion on making this type of argument.


You are going from point A to point C here. By what mechanic is the need for energy minimized? You haven't explained this. You'll also have to tread very carefully if you intend for mining to be the security of the network, because mordorcoin will have a way of rearing its ugly head if that is the case.


Half-baked is nice n all, but Decrits is ready to serve. So it's frustrating from my point of view that people are willing to spend a lot of time and effort in coming up with some ideas that will be nicer than bitcoin without even making the attempt at understanding Decrits. :'(

For those watching this thread, the latest Decrits proposal is here: https://bitcointalk.org/index.php?topic=189239.0

Could the coin supply be adjusted in a decentralised manner according to an exchange rate sourced from an exchange like mt gox? Of course the exchange itself would be a point of centralisation but the average of a few exchanges could be used to source an exchange rate.

I said if the coin supply could be adjusted in  a decentralised manner, not centralised. All you need is a crypto exchange to source an exchange rate, it doesnt matter if mt gox is not allowing USD withdrawals or whatever.

im asking if it can be done

There's already a coin named Stablecoin :)

It doesnt target an exchange rate as I understand it. Am I wrong?

A crypto exchange being the source of the supply is essentially a central bank, it is not decentralized. Decrits has the closest thing yet that I've seen to achieving a goal of a decentralized stable price. Of course I am biased.

the exchange isnt the source of the supply its the source of the exchange rate. It has to be a reliable exchange or maybe a few exchanges can be used to source an exchange rate. Can a system be arrranged where the miner input the exchange rate or something?

the thread has a little life in it, most exchanges are reliable enough and you dont need to reference an exchange initially anyway for coin creation policy

Reserved...

Tie it to current fiat price, and adjust it every time fed prints new money.

Good luck with that

In this thread I did not intend to discuss a crypto-currency to be tied to any fiat.

I wanted to discuss the possibility that a crypto-currency can decide by internal metrics alone how many new coins to put into circulation with each block.

Maybe by heuristics gained from transaction number and volume. Maybe with the help of additional classification metadata that dedicated users can optionally specify with each transaction, which could help initiate and maintain a self-learning process in the system.

Adjust coin release according to xrate not fed print policy . Fed printing policy isnt what determines the value of USD alone, its a key an element in the equation.

X8currency is an upcoming token that will raise the bar in stability and safety.
https://x8currency.com/
X8 slack: https://x8currency.herokuapp.com/