How to make a decentralized cryptocurrency with a stable price.

[wlwlwl]

Summary: This plan describes a hypothetical "TargetCoin." Each coin is worth a constant target value established at the coin’s creation. When the value of a coin falls below the target value, the supply of coins decreases. When the value of a coin rises above the target value, the supply of coins increases. These changes in supply occur in a decentralized manner.

1. Each coin has a target value of 1 U.S Dollar in July 2015. The target value for a TargetCoin is 1 U.S Dollar in July 2015. That means that 100 TargetCoins should always be able to buy the same goods and services that 100 U.S dollars could buy in July 2015.

2. A miner who solves a block changes the block-reward for the next miner. If there has been inflation, the miner decreases the next block reward by 1. If there has been deflation, he decreases the reward by 1. Each miner gets a reward of 1000 coins per block, plus transaction fees. When each miner solves a block, he can choose whether the reward for the next block will go up or down by 1 coin. His instructions are to make the next block's reward go up if the value of a coin is worth more than the target value, and down if a coin is worth less than the target value. To be clear, a miner cannot change the reward for the block he solves, but only for the next block. To follow these instructions, miners could look at the current exchange rate of the coin to U.S dollars, and the U.S consumer price index. They'd say, "a TargetCoin costs $1.10 on the exchanges, and $1.10 today is worth $0.90 2015 dollars. That means a TargetCoin is worth $0.90 2015 dollars, which is below the target value. I should decrease the reward for the next person." However, if the consumer price index broke down, people could switch to some other index. If people used different indexes, that would be fine, because any serious inflation or deflation would be reflected in every index. Consensus judgement, rather than a central authority determines the presence of inflation or deflation.

3. Miners are instructed to build off blocks that roughly agree with their estimate of inflation or deflation. Miners are instructed to build off any block that agrees with their estimate of the coin's value minus the target value with a margin of error of 1%. For example, If you think the value of a Targetcoin is one July 2015 U.S dollar, then the difference between them is 0%. Therefore, you will mine off anyone's block, whether they increase or decrease the reward. If the value of a coin is $1.1 2015 U.S dollars, the difference is 10%, so you will only mine off blocks that decrease the reward.

4. A constant demurrage ensures that there is a net-decrease of coins in inflationary periods. There is a constant demurrage. Say 0.5% a month. For example, 100 coins in January are worth 99.5 coins in February, and so on. Each month, there is a net-creation of coins when miners' total rewards are greater the losses from demurrage. There is a net-reduction in coins when miners' total rewards are smaller than the losses from the demurrage. If there is ever inflation, rewards gradually fall to zero, and the constant demurrage drains coins out of the system.

.Docx version with contact information: http://willleaf.com/wp-content/uploads/2015/07/TargetCoin.docx

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[ikydesu]

Cryptocurrency which have a stable price.

[achow101]

Interesting idea there. So what if someone manages to cause it to deflate or inflate dramatically in a very short timespan, say they bought millions of it and caused the price to rise. Would the miners only be able to recover it back to the target by changing the next reward by only 1 coin at a time?

[wlwlwl]

If there was severe deflation, as you describe, the reward would increase by 1 for each block. Assuming that there is a new block every few minutes, the reward could get huge very quickly. So I think the supply could respond quickly to sudden deflation. I don't know if it is necessary, but the increase or decrease in reward could also be expressed as a percentage of the coins already in existence.

If there is severe inflation, it would take longer for equilibrium to be reached, because the rewards would go to zero, and then the demurrage would gradually reduce the coin supply.

In both cases, the expectation that the price would eventually return to the target value would probably have a stabilizing effect. If there's an increase in TargetCoin price, it doesn't make sense to buy a bunch of TargetCoins in hope that the price rises further.

[Fuserleer]

Good idea, exactly what we've been doing for 2 years, plus more on top and its a bit more dynamic that your proposal and does not rely on 3rd party data.

Self moderating & regulating elastic supply currencies are the future, but its hard to do in practice while combating the gaming attack vectors, which is where your proposal falls somewhat short.

[JBC]

Cryptocurrency which have a stable price.

Cryptocurrencies distributed to a lot of people have stable prices and low volatility.  There's no need for a fancy mechanism to hide a poor distribution.  Poor distribution allows a handful of people to concentrate supply of a coin and this allows them to manipulate the prices in either direction.  Powerful centralized exchanges, such as MtGox which used to be the most popular exchange, can manipulate the price too.

[brekyrself]

Interesting concept.  On the flip side it seems all new quick confirmation 2.0 chains are going POS.

The BitShares experiment has been doing this quite successfully for a year.  I've used the client to move into different BitAssets when liquidity is sufficient or I feel like shorting something.

2.0 due out soon
https://bitshares.org/technology/price-stable-cryptocurrencies/

[wlwlwl]

Interesting concept.  On the flip side it seems all new quick confirmation 2.0 chains are going POS.

The BitShares experiment has been doing this quite successfully for a year.  I've used the client to move into different BitAssets when liquidity is sufficient or I feel like shorting something.

2.0 due out soon
https://bitshares.org/technology/price-stable-cryptocurrencies/

Bitshares may work well, but I think it has some of the same risks as central banking. The TargetCoin idea doesn't require trusted price feeds, voting, or any management outside of the blockchain.

[50cent_rapper]

The most stable price for majority of coins is 0. Very stable 0.

[White sugar]

As far I know the coins don't jump right from the creation to an exchange, so they don't have a money value for some time, and I don't think that would make sense put in the algorithm the exchange price, because cryptos are meant to replace money and be something that stands by itsel

[giustone]

Is very hard to make a cryptocurrency with a stable price.
Is necessary to pass time for a stable cryptocurrency.
Example:Bitcoin is now a medium stable cryptocurrency

[wlwlwl]

As far I know the coins don't jump right from the creation to an exchange, so they don't have a money value for some time, and I don't think that would make sense put in the algorithm the exchange price, because cryptos are meant to replace money and be something that stands by itsel

It's a good point that TargetCoin would not immediately have a market-value. I don't think this wouldn't be a problem, so long as miners are instructed to do this: In the absence of any price information, blocks that decrease the reward are correct.

That way, the block rewards could start at say 10,000 coins, and go down by one each time until there is a clear market price. If the currency became successful, the early blocks would have a predictable and high value. This would encourage miners to be early-adopters.

[sofu]

"How to make a decentralized cryptocurrency with a stable price"

Its already here

http://nxt.org/
http://www.nxttechnologytree.com/
https://nxtportal.org/monitor/
https://nxtforum.org/

Price is very stable but could break out soon and will be stable at the moon  

[goosoodude]

Cryptocurrency which have a stable price.

This! And it seems these guys do a proper job in securing the value of one nubit as 1 Us-Dollar. They claim having more inflation-, and so on, tools in the back of their hand. Till now it works for them.

[barbierir]

You may be interested to know that there's a work in progress by Come-from-Beyond, jl777 and Kushti for a new decentralized pegging system, a whitepaper is being prepared and some code is being tested. If you don't know who these guys are do a search, they should make an awesome team. The only info released is that it's different from Nubits or Bitshare, it is very much decentralized and can withstand great liquidity swings.

[goosoodude]

If there was severe deflation, as you describe, the reward would increase by 1 for each block. Assuming that there is a new block every few minutes, the reward could get huge very quickly. So I think the supply could respond quickly to sudden deflation. I don't know if it is necessary, but the increase or decrease in reward could also be expressed as a percentage of the coins already in existence.

If there is severe inflation, it would take longer for equilibrium to be reached, because the rewards would go to zero, and then the demurrage would gradually reduce the coin supply.

In both cases, the expectation that the price would eventually return to the target value would probably have a stabilizing effect. If there's an increase in TargetCoin price, it doesn't make sense to buy a bunch of TargetCoins in hope that the price rises further.

That would mean miners would have to mine with very much changing difficulty. I wonder if they could exploit that. It doesn't make sense to mine on a huge diff, so i would turn off my miners then, saving power cost.

Then... why should the bitcoin price react that way to the difficulty? No normal person besides miners would think that it would be worth more then. Bitcoin price isn't created that way.

[goosoodude]

Cryptocurrency which have a stable price.

Cryptocurrencies distributed to a lot of people have stable prices and low volatility.  There's no need for a fancy mechanism to hide a poor distribution.  Poor distribution allows a handful of people to concentrate supply of a coin and this allows them to manipulate the prices in either direction.  Powerful centralized exchanges, such as MtGox which used to be the most popular exchange, can manipulate the price too.

I think you miss that distribution will become uneven very fast because not a single person has the same money outside of that coin. Some will invest, some will sell it, some gamble it away.

And manipulation isn't hindered by a fair initial distribution. They could lend money and so on. There are way too many ways and it's easy with small coins.

[g3rszpi]

it's hard to keep the volume high and a stable price. There is no "stable" price in cryptoworld. There is just Panic BUying and Panic selling lol

[goosoodude]

"How to make a decentralized cryptocurrency with a stable price"

Its already here

http://nxt.org/
http://www.nxttechnologytree.com/
https://nxtportal.org/monitor/
https://nxtforum.org/

Price is very stable but could break out soon and will be stable at the moon  

Are you serious? Is the nxt price IN FIAT so stable that you can use it as a safe haven against using bitcoin? I now checked it on poloniex.com and it seems that they are highly volatile in fiat prices. 0.023$ to 0.0286$ in a short time. That's even worse than bitcoins volatility.

So i guess you made a joke?

[wlwlwl]

If there was severe deflation, as you describe, the reward would increase by 1 for each block. Assuming that there is a new block every few minutes, the reward could get huge very quickly. So I think the supply could respond quickly to sudden deflation. I don't know if it is necessary, but the increase or decrease in reward could also be expressed as a percentage of the coins already in existence.

If there is severe inflation, it would take longer for equilibrium to be reached, because the rewards would go to zero, and then the demurrage would gradually reduce the coin supply.

In both cases, the expectation that the price would eventually return to the target value would probably have a stabilizing effect. If there's an increase in TargetCoin price, it doesn't make sense to buy a bunch of TargetCoins in hope that the price rises further.

That would mean miners would have to mine with very much changing difficulty. I wonder if they could exploit that. It doesn't make sense to mine on a huge diff, so i would turn off my miners then, saving power cost.

Then... why should the bitcoin price react that way to the difficulty? No normal person besides miners would think that it would be worth more then. Bitcoin price isn't created that way.

I'm not sure what you mean. Are you saying that if the reward increases, more miners will try to solve the block, which means blocks will get solved faster, which means the difficulty would have to be adjusted? That seems true, but it also doesn't seem like a problem.