Bitcoin Forum

I know it is a very controversial topic (mildly speaking), so I ask everyone to be civilized and remain calm. All the coins that I heard of have either a fixed supply, like bitcoin with its 21M coins, or a supply which is determined by some algo. But this is definitely not what real economy needs. Modern economies are built around fiat while the amount of fiat in circulation can be changed in pretty much arbitrary way. If we discard the cases where the power to print money is heavily abused, this system works flawlessly (well, at least in theory). If an economy expands, more money is created by banks via credit, if an economy constricts banks give less credits while some money gets destroyed via defaults of the borrowers.

The point I want to discuss here is if we want a cryptocurrency to really act as a better alternative to fiat, its supply should necessarily be floating and depend on the needs of an economy, not on some preset, strictly deterministic algorithm, however sophisticated or complex it could be. How feasible is this? If you think it doesn't make sense, then what are your reasons?

If you want to create a coin with a floating supply, which is no random and can be used for certain purposes, you coin must be centralized. Otherwise, there will be no one to determine it.

Basically, centralized fiat money is the cause of the number of problems, which bitcoin and other crypto with fixed and unchangable supply may solve. At the moment, every national central bank which has monopoly over currency emission, acts no better than a money counterfeiter.

What do you mean by 'needs of an economy', by the way? Crypto with a fixed supply and high level of decentralization is more or less inflation and deflation-proof, while fiat money is being used for boosting inflation on a regular basis, which inevitably results in economic crises.   

Myself, I can't think of plausible ways how that problem can be efficiently solved in practice. Yet I agree that without adjusting the supply of a coin if such a need arises, in a mostly automatic way, it may become a major roadblock on the road toward smooth expansion of an economy if a cryptocurrency becomes a regular means of exchange there. In this respect, Bitcoin is like gold of the 19th century, when the latter had become a hindrance instead of a valuable tool for facilitating free exchange of goods. After people realized the shortcomings of the gold standard, they turned to fiat not backed up anymore by this metal or any specific asset. Maybe, we are in a similar situation right now. Simply put, if we don't know a solution, it doesn't mean that there is none.

I believe that a stable coin with a gradual increase in its offer could have some use. But the difficulty would be to have this option controlled by a mathematical model, rather than being controlled by individuals, groups or governments.

Why not? it is very possible, I personally think if any government create a cryptocurrency, it will be one with a floating supply like fiat money. Otherwise its value always rises as demand eventually rises

i think so. like the government in my country planned to create own digital currency, if it happens then floating supply also happen anyway, because i think the system is like fiat currency

How about we change the point of view, we're using cryptocurrency in this case is bitcoin as an alternative asset and not as alternative to flat. Because of the high price bitcoin has gone, it can also be compared with gold and other investment assets rather than used as basic flat currency, i'm not going to use 0,001 btc to buy a cup of coffee since the calculation and the fluctuation of bitcoin isn't stable enough to be used as retail currency. Consider USDT as an alternative to flat however i don't think it would become a boom such as bitcoin.  ;D ;D

It's definitely possible to do, but the tricky part is trying to find a way to do it in a decentralised fashion.  Increasing the circulating supply should be simple enough, but decreasing it again would likely be problematic.

You could define an algorithm based on your preferred variable.  If you needed the supply to increase in line with the number of transactions, for example, you don't need a centralised authority to do that.  It's just a matter of figuring out what variables to use that can't be easily altered by human interference.   

However, if you were thinking more along the lines of fiat where someone in power makes a sudden unilateral decision to alter the supply, then you're looking at a centralised and closed-source coin.  You'll likely have difficulty finding an audience for such a project here, though.

Floatimg supplies and decentralization might not neccessarily go hand in hand very well. There will be no control over the issuance of the coin. Who is going to regulate the amount of float? When there is a limit, a program or a scedule or a path can be thought of on how long would it take to manifest all of the available coins. But when it has no limits, ut gets difficult and actuall vague in planning amd execution.

Also, it kind of loses the value in the long run. Today we value dollor or any local existant  money because we know that its not unlimited. A country cannot just go on printing money, as many may think.
Now if it was the opposite, we wouldnt care of investing it, spending it properly or any of that stuff. Why?, because we have unlimited supply of it so whats the purpose of saving or valuing it.

Same would be for a floating cryptocurrency. It will just come and make noises and then become vague. A cap is in a way essential to maintain the value in the market and to stop unwanted inflation.

I don't necessarily agree that abuse is the only flaw in the current financial system, but I'll comment under the assumption that it is.

Why can't it be based on deterministic algorithm? Let's consider the Bitcoin network for a second: it records the flow of coins within its system, every single transaction that has taken or is taking place, the balance of each address, etc. If, somehow, it had access to more variables that let it determine the overall health of the (internal) economy and let it estimate how much coins need to be released into the system to keep it in optimum condition, among other factors, wouldn't that be the closest we could come to a flawless system? It is, after all, never arbitrary, and if we assume that it's smart enough to do always come up with the correct numbers, then human intervention should be completely unnecessary.

The challenge, of course, is developing such a system, or if it's even possible. If bias is a problem though, then algorithms would be one of, if not the only way, we could eliminate that factor completely.

I don't see the reason why it should necessarily be centralized. For example, when banks create money via credit, they do it in a pretty decentralized way. In simple terms, they don't ask a central bank whether they should lend money to a certain borrower. Also, what do you mean being "used for certain purposes"? I refer to a coin which would be used as money, a universal means of payment.


Unless you talk about abusing the printing power, I don't see any major problems with it either. Care to expand more on these other problems you refer to?


When an economy expands it needs more money, otherwise there will be deflation, which is a bad thing for this expansion. Crypto with a fixed supply will be a major pain in the ass under these circumstances. To tell the truth, it will be a pain in the ass under any circumstances but a frozen economy.

You might want to have a look at BitBay. While the total supply is fixed, there is this concept of freezing a portion of the supply. This essentially makes the supply in circulation variable. The objective of this is to maintain the value of the coin, peg it to the dollar.

Currencies with floating supplies may be described as trust based systems contrasted by algorithmically determined supply which is more trustless in design. Variance between the two paradigms could accurately define context separating both schools of thought. Trustless designs could represent evolutionary progress over trust based systems given how blockchains trustless abstract has seemingly made many past trust based methods of conducting finance archaic and obsolete. On a basic analysis the less moving parts something has the less likely it is to break. Trustless designs fundamentally containing less moving parts could give it intrinsic advantages over past models of currency supply.

One common argument utilized in an attempt to justify floating supply is it "satisfies the needs of an economy". At the moment both the united states and european union might be characterized as being overburdened by debt and looming deficits. On a global scale, the politics being played and policies being pushed might also be described as attempts by governments to tax, spend and print their way out of debt. If indeed currencies with variable supply serve the needs of economies, how does a transition happen whereby currencies variable supply can be leveraged to bring about more positive change?

Many negatives experienced by nations are empowered by currencies with variable supply. Owning a printing machine often gives politicians and the public the false premise that if things go bad they can simply print-their-way out of trouble. The trust factor of the system is exploited. Eliminating the trust factor as crypto currencies with finite supply do, could represent a more stable and balanced economic and financial paradigm.

There isn't much evidence of currencies with floating/infinite/variable supply which represent the original, printed-without-limit-out-of-thin-air criticism, do much to serve the economy in this day and age. And it is possible that currencies with fixed supply are more robust and reliable over the long term as there is less trust built into the design to soften the consistency factor.

 :)         to myself I can not quite imagine a playable way I can solve that problem really efficiently solved in practice .yet I agree that without adjusting the supply of a coin I like that arises in a mostly automatic way it there is a destination on a major road block on the road going to the smooth expansion of an economic .when a cryptocurrency becomes regularly in reality is exchange it.in this respect the bitcoin is the same gold in the 19th century .when the latter had become a hindrance instead a valuable tool for facilitating free exchange of goods .this people have come to mind that the shortcoming of the gold standards all turned to fiat not backed IP anytime as metal here or any specific asset maybe those same situation right now .simply that I would not know a solution. Does not mean that here is the end.

I assume it could be said with iron certainty that whenever a group of people grabs the power of printing money, they will eventually try to use it to their advantage at the expense of society at large. But dumb supply of coins not dependent on the state of real economy is not much better, either. The other thing worth mentioning and considering here, if we want a coin with a changeable supply, is making the adjustment of the monetary supply happening on its own with little or no direct human control and intervention. Obviously, such adjustments should be based on and reflect the health of an economy.

It is easy when you want to create money, you just print them you can do the same with coins with the help of  the block reward. But how do you plan on switching from creating coins to destroying coins?

And more important who will decide when to switch from more to less?
You will need somebody to take those decisions, just like with segwit , and if people don't want to follow it each time you change this you're going to have at last ten or so new coins, just like the last time.


And how do you think this will work?
Can you give us an example on how the protocol will know when the economy is bad and when it is good?

I can explain how it works with fiat money. More specifically, there is a concept called endogenous money supply. It is basically about internal money which is created and, yes, destroyed as well inside an economy itself without any particular protocol in place. When banks lend money, they are effectively creating money. Then, when the debt is repaid, the money gets destroyed. It also gets destroyed if the borrower defaults. In this fashion, there is no need to know whether the economy is in bad or good shape because this is kind of direct effect or consequence of the state of an economy. This is a feature that no crypto can copy and the reason I started this thread.

In essence, I'm asking myself if the same or similar scheme is ever possible with crypto.

Well, that was my point too...
Is it possible?

I'm having trouble imagining an algorithm that would somehow know the state of the economy just based on the information he is able to deduct from transactions alone and at the same time not risking of being manipulated.
As long as you can move millions with a few cents this might be close to impossible.

And with LN coming, I guess it will be even harder.

Right now I'm not against the idea as I just don't see it possible to implement.
Once we have a clue how to make this we could discuss the good and the weak points, but till then we're talking about what hotel to book on mars once they build the new colony.

floating supply: Means that one of the parties controls the price or in other words "centralization".
fixed supply makes bitcoin like gold "limited and finite supply" However, unlike gold, developers can change the total number of bitcoin in what is known as hardfork.
The power point that makes bitcoin break the barrier of limited 21 million units is can be divided into small pieces Satoshi(100,000,000).
In other words, you have 21 million or 2,100,000,000 Satoshi

What country's economy would a certain crypto be accommodating to if in case it has a floating supply? For this thing to happen, you need some form of authority controlling the outflow/inflow of money, hence you need a centralized cryptocurrency which bitcoin and other cryptos cannot do. It defeats the purpose of trust-less and decentralized cryptocurrency, as you need to trust a central authority to control the supply if everything goes down the drain.


And again, what 'economy' are we referring to with this thought? The subject is just too vague to even be of real importance or discussion right now.

The true idea about having a fixed rate is that it provides much more trust over the network participants, as people "can predict" the future  and has the ability to know how many coins are going to be created in advance.
Also, a fixed supply rate means that the economy is not going to have any insider problems, which means that without something like a war, there's not going to be anything that may dramatically hurt the coin's purchase power, hyper-inflation is being totally prevented by fixed supply.

I think that it's impossible to have a floating supply, because if you want to keep the network decentralized you will also need that the network's participants are going to be those who decide about the float rate, and then you are open to much more kinds of attacks( like someone who pretends to be most of the network attacks the network and enters everybody into hyper-inflation mode.

just because fiat and printing money works in a certain way it doesn't mean that way is a good way and cryptocurrencies should use that way also.

the first thing that needs to be answered is that "what is wrong with having a fixed supply?" for example bitcoin has 21 million cap. what is the actual problem that you faced or expect to face in the future because of this cap?

what i am trying to do is to figure out what the problem is before moving on to finding a solution for that problem.
for example one of the reasons why the argument about the cap  exists is that some coins may be lost over the years (forgotten private keys, hardware failures, proof of burn,...) to a point where it may lead to a lack of supply. well this is an exception and exceptions can be fixed with a simple one time hardfork while still keeping the supply capped.

There is a lot of difference in between the paper money and that of the crypto currencies and that we cannot treat them in the same manner. There are number of things which are very much different in case of the bitcoin and other crypto currencies and that even if we wanted to treat digital currencies like the way we treat paper money, we cannot do that. You can expect a coin with floating supply but this will not happen.

I see where you are getting at but I can't agree with your analogy. Or rather, I can't agree with the place where you put us in it. We already have crypto on board but you mean as if we were talking like it hadn't been done and proved to be a viable concept yet. We are already past that milestone. Look, people are talking about cryptocurrencies substituting fiat all over the world but I just raise the issue which is pretty much in line with that and about taking that to real application.

If we are to consider this endeavor seriously, it is one of the problems that we should solve.

I think the odds are small, really in a floating and unspecified-based economy, the profit earned is small, each coin here has its own target, and if the target is successful then the gain will get bigger, and every the target is bound to exist, what happens if there is no real limitations .. ?? the possibility that happens is less get the appreciation from the investors, this is my opinion on this matter, thanks

Of course my analogy was a big exaggerated but it still stands.

You say we have the cryptocoins ready but none if them is capable of doing such things, just as the current rockets we have right now, none is able to get us to Mars.

If you think that there is possible to build a crypto that is both decentralized an capable to adjust it's supply based on the algorithm only (without forks) then please tell us how it will work?
Unless you have a viable idea then it can still be compared to mars trips.

This is not quite so. The rockets we have today are definitely capable of getting us to Mars, but they are not capable of getting us back to Earth. That's the real problem.

Regarding the question raised in the OP, why not try to replicate some features of fiat as a trial balloon of sorts? For example, we could create a coin with a supply determined by the total amount of loans provided with this coin. If someone wants to take a loan, a crypto bank creates new coins for this loan and then these coins make it to the blockchain by being transferred to the borrower's wallet. When the loan is returned or if the borrower defaults, the coins get destroyed on the blockchain. If he has provided a collateral for the loan, which should be expected, selling this collateral would also lead to the creation of coins. I think this is an overall viable idea which could be done via smart-contracts.

In the OP you raise question about how crypto would adjust to growth and contraction cycles in economy. From what I understand of your analogy to present economic cycle, this is what you have stated:

1. During growth, banks extend more credit allowing availability of currency for things like capital investment, additional wages etc.
2. During contraction, the bad loans get 'written off' resulting in money being destroyed.

I don't understand how the second point is a desirable characteristic for any currency to adopt. Aren't such cycles of credit destruction caused by the banking, politician, business nexus in the first place??

Let's talk about the first case. Lets assume that a country has its own publicly auditable cryptocurrency. It is being mined with a PoW algorithm and you can always expect to have predictable supply available to be added to the pool. This assumes that the reward hasn't trailed off to almost zero yet.

This leaves you ample scope for "planned growth". Planned as not in a planned, socialist economy but planned as in prudent planning about where to allocate the budget rather than simply allot huge amounts to schemes like today that get distributed to private contractors via a complex system of Government sub-contracts. The flow of money in such government handouts is completely obscured and unaccounted. It's as easy to write off a loan as an asset loss to accident or unforeseen incidents.

Contrast this with a scenario where every allocation and fund outgo is publicly available on a block explorer. Every single payment from Government coffers can be traced to it's recipient and approver. Mix in smart-contracts and you could have a publicly available record of what the expenses was made for.

I understand that this will not be an answer if you keep looking at it through the established lens of macroeconomics. Why do we need big money expense to be so obscure and tentaclized that any chance for accountability and auditing is a huge task that is corrected only in hindsight.

It happens like this, definitely. Everyone coin comes with a different concept and goals. Sometimes they have already market their profit ratios and amounts that at the end of this year, our coin must be having this much of popularity and this big value and with percentage of investment. So the progress is continually controlled and observed and the results are made accordingly.

Honestly, I can't say if it is a desirable characteristic or not because I don't really know. I just point it out. The debt shouldn't necessarily get written off as it often happens in real life, though, but that's actually a technicality. If the loaning bank has a collateral, it just sells the collateral and receives the money if that was your point. But even if the loan is returned, the money still gets destroyed because this is how the whole thing about endogenous money works. Credit is money and when it is returned, the money it represents disappears.


You seem to neglect the fact that you can't predict how the economy in question is going to evolve. The business cycles live on their own, and you can't pull off things like "prudent planning about where to allocate the budget". There is no "planned growth" unless we talk about a planned economy. But we all know where such planning leads.

The road to hell is paved with good intentions too.

You are right about loaning banks having collaterals, as an example, in the form of land deeds or houses when it's someone in their 20's taking an educational loan. When it comes to the real money out there, the business-men making impossible bets and banks providing them money for their mid-air castles, there are hardly any collaterals to bank on.

This mismanagement and nepotism based judgement in loaning out funds to select businesses is typical of the present system. This is made possible because we accept the point no. 2 we are discussing as an economic certainty. it necessarily needs to happen that the "poor, risk-taking. true-blood capitalist" businessman will eventually lose money when there is a downward cycle needing loan write-offs.

All I am raising a question on is in treating this as a necessity when it seems to me a corruption of the existing system. Why do we have to replicate that in crypto? I am probably not understanding the economics related point you are trying to make and I'd appreciate if you can point me to source on this.
 
On the face of it, the idea to justify money depletion as a method to compensate for bad loans given out by compromised banking entities seems illogical to me.


Your question was about where the increased supply needed should come from. The amount of currency to be made available in any future period is mathematically known in case of bitcoin. I am not saying that we need planned economies.
That's the reason i insisted on "Planned as not in a planned, socialist economy ".

Planning doesn't necessarily have to mean communism. Every government has an yearly budget allocation. When you know the future money availability, you can always decide beforehand where and how to allocate funds to.

Source to what, I'm sorry? To the concept of endogenous money and why it is all-important for today's economies? I think a Wikipedia article (http://Endogenous_money) on this matter would do just fine for a start.
 

When a credit is returned, the endogenous money created via credit gets destroyed anyway. Credit itself is the money. When someone borrows money, it is literally created out of thin air. Typically, this is where people start to point a finger, though they don't go further in seeing that the money thus created serves the needs of a growing economy, the primary driver for taking the loan in the first place.


I know that. But in effect it is not much different from a planned economy. In practice, though, it is far worse than the latter because planning takes notice of reality, however distorted or skewed this notice might be, while bitcoin's supply simply doesn't. It is, as you yourself say, a mathematical determinacy.

Banks create money by giving away "credit", a fraction of which they maintain as actual deposits. When we talk about bitcoin, I think this is exactly what people are trying to change. I get your concept about the need to create money out of thin air or make it disappear (lol..why doesn't this sound non-intuitive? oh well, present economic order.. :P) to allow for contraction and expansion of economy. My question is why do we need it??

Bitcoin is a potential settlement instrument which can result in sound financial practices without relying on a final arbiter. I wish more economists were talking about it. Have you read this guy who talks about such a settlement system envisaged with bitcoin?? (http://nakamotoinstitute.org/mempool/economics-of-bitcoin-as-a-settlement-network/)


I will just have to wait and see if the article I linked above gives you any different ideas about this.. :)

Banks don't need to keep reserves. It is a very common misconception. People are taught Finance and Banking from the wrong end. They are told that banks accept deposits and then give out loans (while keeping a fraction as reserves) but in reality, in today's fiat economy at least, it works exactly the other way round. Otherwise endogenous money wouldn't be possible.


I generally agree that Bitcoin is "money free of counter-party risk" (as long as it remains properly decentralized) but I don't think that the concept of "sound money" is actually sound for modern economies. One of the reasons why gold had been eventually abandoned as "sound money" was due to its tendency to cause severe economic crises. You can read more about them here (https://en.wikipedia.org/wiki/Long_Depression#Causes_of_the_crisis).

I agree with you, it doesn't make sense if it use floating supply (like fiat), however tail emission still might work?!
IMO no algorithm at the moment can do the job of central bank related to supply control, well sophisticated AI might do. But why bother do that if it's just the same as fiat.
Also deflationary mechanism proposed by crypto seems worth to try considering fiat failure.

A floating supply of a cryptocurrency is possible, but it has many disadvantages and likewise some advantages also. If the coin has a steady supply; there is a tendency for the coin to be highly centralized and a huge part of the coin being held by the developers. There is also a possibility of the coins not being transparent and being easily manipulated by whale investors. The advantage there is a possible regulation and maybe a steady price.

I think supply is really a big issue if we are planning to have a full adaptation of cryptos and consider this as the only currencies available world wide. But the thing is, almost all coins have definite or fix supply which I think developers muct really look into. I agree, we cannot divert into cashless society until this issue is already settled.

Actually, truth be told, I think that a floating monetary supply makes perfect sense (if done right, naturally), especially if some cryptocurrency aims at substituting fiat money for real as a genuine, full-fledged means of exchange throughout an economy. It is sort of a must-have feature without which such a cryptocurrency will kill the economy in the blink of an eye. But don't get me wrong, I have nothing against fixed or limited supply. I just want to say that such a currency won't be usable if it is to be used as a complete substitute for fiat in a "stand-alone mode", with no fiat money backing up its use.

The floating mass of coins will inevitably lead to inflation. In this way, the government takes away our savings. Do you want to have some body that also took away your savings? You little speculators which periodically collapses the markets? No. I don't want bitcoin to become like Fiat.

If we talk about the crypto market, then we can only be sure about anything when we have read enough about all these things and that there are certain things which don’t seem the way they are. You need to sit back and study the behavior of the coins and things related to crypto currency to have a better understanding of the things. Only then, you will be able to achieve your goals.

It looks like a naive understanding of how money works in the world nowadays. Indeed, I'm not talking about situations when the authority to print money leads to heavy abuse of this power with ensuing inflation. This is not what I'm talking about here. Even with a fixed money supply, there can easily be inflation like it happened with gold and silver in the 14th century after the Black Death epidemic. If the number of people diminishes dramatically for whatever reason, it will inevitably lead to inflation. A floating money supply would prevent this, and thus there would be neither inflation nor deflation, which seems to be fair for everyone.

I think merit trading has been done for this post. There is no big content and new answer for this post, but some person has been shared the merit to the post. I really see that your view about cryptos. You do not want the bitcoin to be operate like fiat cash.
If the government regulate also they cannot stop using the bitcoin anonymously since it is a decentralized platform one.
Please do not invest your money on Ripple if you do not want to loose your money.

We as a whole realize that in the good 'ol days there were numerous Bitcoins that were lost and will never be recovered. Does anybody have any informed estimations on what number of would be lost until the end of time?
Fundamental reason we often seek is that all market caps we've seen of bitcoin dependably incorporate each bitcoin that has ever been made (at present 15,178,575 BTC). This increased by the present cost gives you a market cap around $5.7 Billion.

A steady and predictable supply of coins doesn't necessarily mean that the coin will be centralized. Basically it depends on the centralization of coin creation (mining). If it is properly decentralized, there is no reason to think that the supply will be centralized. Then, there are quite a number of coins which don't have developers involved in the distribution of the coin. For example, dogecoin right now seems to be a dead coin in the sense there is no active development going on currently.

In my own opinion, if cryptocurrency will replace fiat money and it will be of steady supply, then there will be a tendency that it will become like the fiat, centralized.

The printing of fiat currency have always being the duty of central bank of different countries. The central bank make sure that the printing of fiat currency does not cause inflation. The reason most government are agents cryptocurrency is that they are afraid of inflation. But cryptocurrency mission is to eliminate poverty and make sure that the poor masses become rich not just the rich getting richer and the poor getting poorer. If cryptocurrency is legally accepted  we will have a stable and high equality level in term of money circulation.

I agree to your point of view to some extent. If bitcoin was implemented to be used as a payment system, how can its supply be limited ? It is a big flaw in my opinion.

In today's world fiat currencies don't work this way. Indeed, the central bank still prints paper money and mints coins, but most money nowadays is non-cash anyway. And it is exactly this non-cash money which is created in a decentralized way via commercial banks is pushing the economy forward. Also, where did you get the idea that the "cryptocurrency mission is to eliminate poverty and make sure that the poor masses become rich not just the rich getting richer and the poor getting poorer"? So far it has been working in the opposite direction as with everything else. And I'm not sure if its mission has anything to do with enriching the poor and impoverishing the rich, or anything to that tune.

The discussion will get sidetracked if we are not on the same page about the basics I guess..LOL..It is not a common misconception regarding banks keeping reserves. Maybe not in their own cash vault but in any banking system, there is a certain reserve that banks maintain with their respective central banks. This is part of the checks and balances on the banking system. If the banks are only acting as a central point of trust and doling out huge amounts to corporates and businesses as loans (without underlying reserves like you claim) then it is a perfect recipe for never-ending disasters.

Those of us who are on the other side of this debate see this whole "growth driven, necessity of monetary controls" as the smokescreen behind which the "invisible hands" play out their script with ease. Keeping income disparities intact and increasing and telling everyone that running constantly is your only option.
The crisis weren't just triggered by the Gold standard. There were wars and instability to account for. I suggest you take a look at this discussion here to see it from the other side. (https://bitcointalk.org/index.php?topic=3345727.msg35129468#msg35129468)

The primary reason to have a "floating supply" is to maintain price stability even if the supply/demand ratio changes.

There were already some experiments in the cryptocurrency space trying to create a sort of "peg", where the value of the currency is meant to be stable but the supply is floating. Most of them feature a blockchain with two or more types of currency.

I want to present an older "stablecoin" called NuBits to explain the problems and challenges with this approach. NuBits works with two currencies, NuShares and NuBits. NuBits are meant to be stable, but with floating supplies, while NuShares have a deterministic supply but a free-floating price. In times of more demand, NuBits are created; while in times of less demand, NuBits can be "parked" (locked) so the freely circulating supply decreases, and the "parkers" are rewarded with NuShares.

BitBay, which was already mentioned, afaik uses a similar model.

The problem with these systems is that the supply does not really float but instead it increases all the time, because the "parked" coins are only temporarily locked away. In a long bear market the whole system can become caught in a "death spiral" where all assets depreciate and there is no longer an incentive to hold the peg.

A newer, interesting approach I just discovered today (and the primary reason why I'm answering here) is Basis (still in alpha, afaik). In this system an "oracle" monitors the price of the coin with respect to the USD. If the price goes below 1 USD, then a "bond" is created and auctioned. The coins given out for this bond are destroyed. When the price goes above 1 USD again, coins are created and the bond is converted into a coin (with an 1:1 ratio; that means if you bought a bond for less than 1 USD you can make profit).

Sounds quite similar to NuBits, or not? But there is a crucial difference: Bonds have an expiry time. If they expire they simply are destroyed.

This system seems better thought-out than NuBits because supply here really can decrease. However, its better incentive structure has a price: "Bonds" buyers can lose all their investment, if something goes wrong. (BitShares, afaik the only coin with a peg that really held it until today, has a similar characteristic, but it works differently - the post is already long enough, so I'll not expand here).

So the question DooMAD raised about "how to decrease supply (https://bitcointalk.org/index.php?topic=3249953.msg33919370#msg33919370)" (in times of economy/demand contraction) has an answer: It can most likely only be decreased if some people are ready to risk to really lose something - for that to happen, they must get an interesting reward for it. I don't see that as a real problem: we have a financial system where margin trading is pretty popular, so the target audience for risky financial products exists and a Basis-like system could find its place there.

I don't think we are on the sidetracks as it is perfectly relevant to the point in question. If we are to copy some useful features of fiat, we should understand how the fiat system works in practice. And it is a common misconception which even many economics graduates seem to enjoy. The reserves that the banks should keep with the banking authority aka central bank are the fraction of the loans they issue. In other words, it is loans that create these reserves. A lot of people erroneously think it works the other way round but in reality when a bank issues a loan, it kind of "reserves" part of this loan with the central bank but it is still "virtual" money. Yes, it is intended to restrict banks from excessive loaning but that has nothing to do with deposits anyway. And for the record, some countries don't have these reserve requirements.

people erroneously think it works the other way round but in reality when a bank issues a loan, it kind of "reserves" part of this loan with the central bank but it is still "virtual" money. We need it all.

You are got it all wrong , Who said that the amount of fiat get changed according to what every economy needs ! . The reality which I know most governments does not follow is fiat must be weighted with gold , we all knows that countries and governments abuse it and a lot of time print fiat without have the the gold for it . But my friend let me tell you that this economies should have been collapsed long time ago and what safes them is things not moral like wars ( USA ) every time USA economy about to collapse they choose a country to attack and go to war with it  .

I might merely subscribe to the fact that the needs of the Economy may be one of the factors that may determine the cryptocurrencies usage as Alternative to Fiat money, since its supply elasticity may be possibly increasing or decreasing that shall be caused by Floating effect, when at any point in time, human needs are unpredictable, while equally may effect the cryptocurrencies volatility. Though, consistent Mathematical Algo could also somehow have effect on at least Bitcoin Floating supply, for instance, when mined Virgin coins are for one reason or the other not used. So, in my conclusion, I feel a coin with floating supply may be made possible to reasonable extents which are inevitable.

It is possible but you have to undergo sequence of paper work approval, the problem is to whom??? Hahaha

If you want to create such token then I think it will be best if the token price is fixed and it can be used for daily transaction like Fiat!  Now that question is if it work like Fiat with same value then Fiat for sure is their pick... Since they have function at all but money works everywhere than this token just in case...

I don't think this is a good reason. And which price are you talking about exactly, exchange rates like in a currency pegged to the US dollar? Any such efforts are set to fail in the long run as history shows. The goal of a floating money supply is to keep it balanced with the current state of the economy (expansion/contraction phase of an economic cycle)


I heard such stories too a couple of years ago. But I don't think these efforts could be of any interest apart from purely academic or out of curiosity. If a currency turns into a shitcoin, lowering mining reward to zero will simply halt its circulation. And even if it doesn't, it won't mend matters. In other words, in cases like these artificially lowering supply won't prevent prices from plummeting.


That's exactly what I'm talking about. Death spiral. Then you die.


I will think over this new approach tomorrow, but for now I don't see how real supply is diminished in the bear market. Why would anyone want to exchange their coins for bonds when everyone will in fact be trying to get rid of both the coins and bonds alike as soon as possible?

I think price stability is a virtue. In fact, if you "keep [the supply] balanced with the current state of the economy" what you want to achieve is exactly this, to limit supply when demand is low, and to expand supply when demand is high. As "demand" is reflected in the price, the mechanism you describe has a price-stabilizing effect.

Ideally a "stable"/"floating-supply" cryptocurrency should not be "hard-pegged" to another asset (like the US dollar). Instead, goods and services priced in the cryptocurrency should not have dramatically changing prices but be rather stable.

However, I understand it is a challenge to create a "stable" currency without any peg. RadixDLT/eMunie is trying to create a currency based on this principle. The problem is that if you don't have an "anchor" for the currency price, nobody knows what it should be really worth (as there is no valid "price theory"), and speculators can drive the market price to the upside or downside trying to profit "gaming" the stability mechanism.

Proof of Burn is a mechanism where the supply could be controlled in a decentralized way (http://slimco.in/advantages/#users-control-the-available-supply) but it was never tested in a mature market, so we don't know if the "floating mechanism" would really react on the state of the "economy".

Regarding Basis:
I have also thought about this problem, and I still have not concluded my analysis (I would like to see it working "in the wild"). However, as bonds have an expire date, we could see the following pattern:
- at the start of the bear market, there is a run on the bonds because people think it won't last very long and they would get fastly their money back.
- As the bear market progresses, the bond demand dwindles and goes almost to zero, so less bonds are created.
- Eventually, the bonds of the "first bond boom" expire and get burned. The investors lost their money.
- Now the game starts again: Because of the first-come-first-served principle, as the coin supply and the bond supply now both are reduced, people can start to expect to get coins again buying bonds, and so there will be a "second wave" of bond buys. The coin supply is reduced again.
- If the bear market still continues, then this pattern can be repeated infinite times, and in some moment maybe the sentiment can turn because the supply is reduced in a sufficient way.

It is true bitcoin have limited supply and its should be like that. If we floating the supply, thats means there is authorities control bitcoin and thats no good for bitcoin development. As we know, fiat money supply controlled by central bank and inflation always increasing because of that.

I think the supply should be limited as it is with Bitcoin. So we have a guarantee when using the currency, especially if you are a long term investor and supporter. It's an universal immutable rule, a confidence pact between the currency and its users, no one will influence the currency and its price for personal reasons by changing the supply at some point. No manipulations will happen this way, it's a natural system on its totality.

If it wasn't a good characteristic people would be happy with their local currencies or any other Crypto-Currency following this model and Bitcoin wouldn't be the success it is today... The truth is that these manipulated currencies (fiat) are "fail".

Well, I expected you to say these things, but the main issue hare is that there is no viable and consistent theory or working approach on how to distinguish between changes in prices caused by the change in the value of things/goods themselves due to a change in consumer preferences, production, whatever, and changes caused by the monetary supply, either due to it being constant, shrinking, or expanding. In real economy, changes in the economy (which are the driving force) translate automatically into changes in monetary supply via credit. In other words, this mechanism is built in with credit money and thus fits in naturally.


The anchor is the state of the economy. The problem is how to translate it into the respective changes in the supply of coins.


This doesn't sound very plausible to me. If the demand for the bonds goes almost to zero as the bear market progresses, why should it be there at all in the first place when the bear market just starts? Bear means people dump the coin, so why should they buy its derivatives, bonds or whatever?

You are right, but the external effects (consumer preferences, seasonal prices etc.) should only have a limited - and mostly short-term - impact on the general price level. In an initial state of a "floating currency", as the trading volume is still low, the impact of these "external" price movements may be significant, but once the usage increases they probably can be ignored.

For this reason I think the best option is to try to adjust supply according to the demand for the currency itself - so it can work as a "currency" with relatively stable prices, as an "unit of account". And demand impacts in the price level (=more demand for the currency, lower prices/higher exchange rate).

I don't see another way of measuring the "state of the economy". In earlier discussions about "stablecoins" some mentioned the transaction rate, but this indicator can be manipulated very easy.

Exactly. There is an additional problem: We must distinguish between the "economy as a whole" and the part of the economy which is driven by the respective cryptocurrency (e.g. Bitcoin, or our "floating cryptocurrency"). Only the latter should have direct influence to the supply of a "floating" currency. In some cases, we can even see the "real economy" conctracting while the "crypto-economy" is expanding (an example: Venezuela in 2016/2017).

But if the anchor is "soft" (=if we have no "hard number" to guide ourselves, like it is the case with a peg) then it is very difficult to know if small changes in demand/price level are caused by sustainable demand changes or if they are caused by short-term speculation. I am eagerly awaiting the final Radix release (although I don't really like their licensing policy) so we can see if and how their system works. ;)

Because of two effects:
- first, in almost all dumps that start a bear market there are market participants that think that they can "buy cheap" and "buy the dip". These will be most likely the first buyers of the bond. The only exception may be a dump for catastrophic fundamental reasons (e.g. an ongoing attack) where demand can fall almost to zero.
- second, in the Basis protocol the first buyers are the first being paid out when currency supply expands again, so they have the lowest risk that their bonds expire - the more people already bought bonds, the higher that risk. Once the first "chunk" of bonds have expired, demand can increase again as I explained in the earlier post.

indeed this is a discussion that has long been discussed but there has never been a way out, when the first time bitcoin launched hoping to simplify a transaction it turns out hope so high so many are looking for it, and other alternatives when we want to enter the world crypto must be good at picking coins, see the best-selling bitcoin hunted many people with fantastic coin prices that others began to emerge and could be other alternatives indeed from the price is very different but there is still hope.

Still, I don't think it would play out good in a bear market. It can work somehow in a sideways market when people are mostly sitting on the fence. But when the prices start to go down, they go down and you simply can't support them from inside economically. If you really could, they wouldn't go down in the first place. It is like trying to pull yourself out of the swamp by your hair.

In other words, you are simply assuming that there will be some demand surge when demand goes down because some people want to "buy the dip". There are always such people but this doesn't prevent prices from crashing massively until the market sentiment changes. But then you don't need these "bonds".