I wanted to take a stab at proposing a variant of the following proposal, but done right.
I came to think of a cool idea that maybe already has been discussed but the idea is to create a new digital currency backed by bitcoins. In the past, currencies were often backed by gold. Today, bitcoins can be seen as a digital version of gold or similar scarce resource. And it should be possible to create a new kind of digital currency that is backed by bitcoins.
What would the purpose of the new digital currency be? The main purpose would be to create a currency that was stable when it comes to inflation and deflation. So that prices for goods and services in the new digital currency would remain very stable over time. Another purpose would be to create a convenient level of the value of the new current. With bitcoins the price in the future for say a cup of coffee could be something like 0.0000032 BTC. That can be a bit unpractical. The price in the new currency, such as NDC (new digital currency) for the same cup of coffee could be 20 NDC, and remain fairly steady at that price.
The goal is to create a currency that merchants can use to price things that doesn’t fly all over the place yet constitutes trading with bitcoin rather than fiat money. The above topic comes close to accomplishing that but never nails the specifics.
I’ll call my new currency Liquid Bitcoins (LBC). It is centrally managed so issues of trust exist. It is convertible into bitcoin and holding it involves no risk of loosing buying power vs. bitcoin (I’ll explain how in a second). It also has a fixed purchasing power in the real world. Let’s say 100 LBCs buy one big mac as in the referenced thread.
So you deposit bitcoin at the LBC exchange and you get a wallet with LBC. Let say you deposit 1 BTC and a big mac costs 0.5 BTC at the moment. So 1 BTC <-> 200 LBC. You receive 200 LBCs allowing you to buy two big macs or you can cash out and get 1 BTC.
Here’s the magic sauce:
• If BTC drops in value by a factor of 2 your wallet balance will be divided by that same factor of 2
(centrally managed, remember). The rate between BTC and LBC also changes. 1 BTC <-> 100 LBC. Notice, you now have 100 LBCs and can buy only one big mac (due to the underlying drop in the backing currency, bitcoin) but you can still get your 1 BTC back because 100 LBC buys 1 BTC.
• If instead, BTC rises in value by a factor of 2, your wallet balance will also go up by a factor of 2
. Now 1 BTC <-> 400 LBC and you have 400 LBCs in your wallet. You can still only get 1 BTC for the 400 BTC in the market but you can now buy four big macs (due to the underlying rise in the backing currency, bitcoin)
LBC will always be worth 100 LBC to 1 big mac. A merchant can price his items in LBC and not worry about the changes in price of bitcoin. The 100 LBC he gets for a big mac will translate into the right amount of BTC no matter what the BTC market is doing. Yet he is receiving BTC for his merchandize (given he trusts the LBC market).
Why use LBCs? Because it is solid deflationary and tracks BTC value (through changes in wallet balance not buying power) . Because merchants can price things in it and not worry about changing the price as BTC swings in value. Because it is liquid and transactions are centrally cleared hence fast and secure (given you trust the LBC market).