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simple answer: it doesnt.
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Back to the original topic of a stable cryptocurrency.
I think it would help to tie the value of the currency to something, and that something might as well be hashrate. The cost of doing hashing or other sorts of computation doesn't fluctuate nearly as wildly. Especially if we're talking about hashing problems for which ASICS already exist.
So we could basically have Bitcoin with the difficulty and block reward fixed forever. If it's too hard to get coins by any other means, you start hashing. Instant price ceiling.
Understandably you can always mine and the costs associated will validate against deflationary spirals, but in a fixed currency like bitcoin this is only a temporary measure.
Alternatively, we could try and phrase the whole proof of work part of the system in terms of some NP-complete problem, to attempt to pin the value of a unit of the currency to, e.g. solving a 3-sat problem of a certain size. People could phrase useful work in terms of these problems, and offer a reward of coins that would clear only when someone found a valid solution to the problem, which would then be recorded in the blockchain for them to pick up. Miners would work on these problems, or some sort of network-generated problems that paid a lower rate if there was no real work available. Instant price floor.
Care would need to be taken to prevent people from computing answers and then problems to fit them and trying to use that to reap rewards from the network.
How exactly does mining random problems provide an instant price floor? Please explain. I think with deflationary currencies price floors are not so much an issue. |
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Those worrying about the rapid growth and volatility likely would be trying to plan the growth of the internet circa 1972. "see we just connected the first two nodes. We anticipate 100 new nodes to connect to this "internet" in the first year ......
WTF MAN? 100 nodes per year? That is like 5000% growth rate. BUBBLE, TULIPS, PARABOLA. You internet idiots don't know anything about stability. I going to do make my planned internet. 10% growth per year and minimal volatility. By the year 2202 finally all 7 billion people on the planet will be connected to the planned-internet (although only 4000 in the first 30 years). It will be a perfect no volatility line from 2 nodes up to the entire planet.
Which likely would have worked out better:
a) the chaotic explosive growth internet based on the free market.
b) the centrally planned internet based on a stability plan to minimize volatility and manage growth.
Thats not really a fair comparison, if the internet only ever became 100 nodes then it would still be the internet, you wouldnt have sudden outages or massive latency like what we're experiencing with bitcoin's sudden crashes and massive deflation. It might be slower but it would be just as stable and predictable as it was in the early 90's. The fact we're realizing here is that when the price does stabilize, even if everyone trades all their fiat for btc, there will still be massive instability as everyone clamors to guess what the true price of an infinitely divisible non-physical non-backed currency is (hint: there isnt one). |
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I do not believe a crash will happen anytime soon. From the market data it appears there is substantial demand and flash crashes are not causing panic selling on a large scale. The small dips are leading to alot of bids, or people trying to get a discount to short term average.
There is a demand from the hoarders. The value bitcoin once had is more or less gone. It has turned into roller coaster for greedy speculators. When they realize that their imaginary, digital numbers isn't worth anything than for trading I predict it will crash. This. Early adopters fleecing late adopters, creating volatility and undermining the bitcoin economy. |
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Until everyone on earth is filthy rich.
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So by the end of summer i should be able to buy every fortune 500 company and over a dozen micro nations? Can someone point me to a btc-accepting deathstar merchant?
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Right now we are seeing a huge price jump and naturally people think that this means bitcoin is doing better than ever, but bitcoin first and foremost is a currency and a currency's greatest strength is its stability, which means at this moment bitcoin is doing worse than ever before. How could a cryptocurrency control volatility?
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Price doesnt matter, volatility matters, and in those terms bitcoin is doing worse than ever before.
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Bitcoin is an amazing piece of technology - anyone can go dig up a tulip bulb this comparison is ridiculous
Tulips are an amazing piece of natural bioengineering, and anyone can go mine a coin. I think this comparison is comparable. |
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At the height of the mania, in what seems a complete loss of sanity, the bulbs were deemed too valuable to risk planting by their (formerly) wealthy purchasers, and it became popular to display the plain ungrown bulbs. In at least one instance the plan for safety backfired when a visiting sailor mistook a tulip bulb for an onion, and proceeded to eat it for breakfast.
The height of the bubble was reached in the winter of 1636-37. Tulip traders were making (and losing) fortunes regularly. A good trader could earn up to 60,000 florins in a month-- approximately $61,710 adjusted to current U.S. dollars. With profits like those to be had, nothing local governments could do stopped the frenzy of trading. Then one day in Haarlem a buyer failed to show up and pay for his bulb purchase. The ensuing panic spread across Holland, and within days tulip bulbs were worth only a hundredth of their former prices. The tulip bubble had burst. |
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Why stop at $300, someone here has to have $3000 sitting around to play a buy order with.
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Yes, basically the price will skyrocket up to 10billion per coin because there's absolutely no real value backing this (and no economy to support it) so essentially anyone buying into bitcoin past the $13 mark is just giving their money to hoarders for a chance to use a coin.
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Business will never adopt it if people keep hoarding them causing a deflationary spiral to ramp up volatility through the roof.
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I'd just like to point out that deflation creates the possibility for a central power to collect a massive amount of coins thereby causing its price to rise thereby allowing them to buy more coins. By setting a hard limit on coins what satoshi has essentially done is create an avenue for a central bank to appear.
but that makes everybody rich, dont you think? And currently they are printing more money basically stealing value from other owners. There is no perfect solution. To me current is worst possible (printing one). But eventually the bank ends up with most of the coins, so you're microcoins may be worth more, but the 10million or so coins now sitting in the banks vault will never held again. |
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I'd just like to point out that deflation creates the possibility for a central power to collect a massive amount of coins thereby causing its price to rise thereby allowing them to buy more coins. By setting a hard limit on coins what satoshi has essentially done is create an avenue for a central bank to appear.
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Oh goody. ANOTHER deflation thread.
No, another volatility thread  |
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So where then does its real value come from? At the moment it is hugely benefiting from the lack of a feature - the ability to be remotely confiscated. For someone who is not a political insider with connections in the upper levels of international banking, every possible place to store savings carries the risk of being frozen or confiscated. Every time the weekend comes around there's a real possibility that you won't be able to access your money on Monday. Without connections you'll never know before it's too late. Holding bitcoins avoids that risk. The fed, who loves to print trillions of paper bills every year, or any billionaire for that matter, could just as easily buy up all available coins and then freeze them, causing a massive deflationary spiral much like were seeing today, which would enrich them to a point where if they wanted to destroy the bitcoin economy they could issue massive sell off's that would send it plummeting and have retailers running far far away from this super dangerous currency, which after bankrupting everyone would effectively kill bitcoin. |
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We have 21 million total coins that will one day be mined, but unlike most currencies if we lost all but one coin we could break it down in such a way as if 21million never mattered. So it can be said that the concept of a 'coin' is purely psychological, and that we in essence have an infinite supply. Currently the price is rising purely based on speculation, speculation that one day this coin will have real utility in day to day use, as for now there is little use except as a p2p payment system or through the few merchants who actually accept it. So where then does its real value come from? Businesses of course, the same businesses, who often have razor thin profits margins, that favor predictability over profitability.
So the bitcoin market is causing massive volatility swings because it believes one day it will not have massive volatility swings.
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