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Author Topic: Achieving stable prices through a reference currency  (Read 6478 times)
jtimon
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June 06, 2011, 06:38:28 PM
 #21

There's an easy answer to the problem of price stability from a business perspective - futures contracts. Hedge away your risk like businesses do when dealing with any other volatile price. The lack of a good futures exchange is a major sticking point in the viability of Bitcoin for business.

There's bitoption (beta). And that can be useful to some business, but dealing with those contracts is an additional cost.
I think the reference unit would be more useful for setting prices and making contracts than as protection against volatility when holding a currency. For the later future contracts are better, that's true.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
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Dobrodav
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June 06, 2011, 06:48:28 PM
 #22

When somebody refers to "futures" and "options" like to easy answer of a everyday problem of merchant and customers of say, T-shirts buisnes, -
I am feel very amused and ... wel, alone.

We will  meet in not-so-distant future.
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jtimon
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June 06, 2011, 07:32:14 PM
 #23

> How people trade before central banks existed then?

Using barter, gift economics, precious metals and stones.

Good, precious metals are currencies without managing authorities.

Quote from: BubbleBoy
> Who used to print gold and buy assets with it?

Gold has a relatively uniform geographic distribution, and throughout the human history the available supply matched the economic growth pretty nicely, if only slightly deflationary.

Ok, so we need a managing authority for money now but the people of the past didn't because they were very lucky in how the metals were put in the planet.

Quote from: BubbleBoy
It has the same problems as Bitcoin in that the value of one monetary unit is bounded by the work required to produce it, which in turn leads society to resource expenditures to extract gold out of the ground, only to store it in some other underground vault. Since easy available resources are depleted, the current method of gold extraction consists of chopping a mountain known to contain trace amounts of gold (grams/ton) and transforming in it a lake of toxic cyanide mud. This is the basis of calling gold a "barbaric relic" and the same is true for modern proof-of-work proposals which if widely adopted would lead to similar ecological disasters.
There is a better way.

The current monetary system has costs too. You have to pay (with resources) bankers, printing, derivatives, banks security...Can you prove that all that is cheaper than bitcoin?
Anyway, that has nothing to do with this proposal.

Quote from: BubbleBoy
> Not useless problems, it's security.

That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system (it could be to small leading to vulnerability, much or too large, effectively wasting the excess). Miners only care about is bitcoins and the resulting security of the network is well correlated with the block bonus and the price of BTC. See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.

So now is not useless problems but to much computer work.
How can we know what is the "correct" level of security?
If we knew, how to make a decentralized system that reaches that level but no more (and, very important, not less).

Back to topic, I think the problem you see in bitcoin is not price stability but potential lack of liquidity.
First, with competing block-chain currencies merchants would just have to accept currencies that are not as deflationary as bitcoin. That would make bitcoin less deflationary since it losses value as a medium of exchange. If we "need to print more", we would just create more chains.

Another way (different from printing) to preserve liquidity is demurrage. What do you think about that?
Maybe someone else (not just me) likes freicoin after all.
I could code it, but...
1) I don't have the time right now.
2) I probably would prefer to help with distributed ripple coding first.
3) The "sharing work between different chains" thing is not implemented yet (and I'm not sure I can code that).
4) It would be better to launch freicoin when a lot of people know and is used to bitcoin.
5) As far as I know, nobody wants it in the world but me.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
FreeMoney
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June 06, 2011, 07:41:22 PM
 #24

Merchants,

Buy a put, this is the right to sell coins at some fixed price for some time.
No matter what the price does you get your minimum required number of dollars.

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dacoinminster
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July 25, 2011, 04:57:35 PM
 #25

I have given a lot of thought as to how the bitcoin protocol could be extended to provide a stabilized currency, backed by bitcoin values.

The key is to transfer the risk of price fluctuations from merchants and other people wanting a stable store of value to speculators wanting leveraged exposure to bitcoins.

My first proposal on how this could be done was here: http://forum.bitcoin.org/index.php?topic=30741.0
I extrapolated that a bit, and it is being discussed further here: http://forum.bitcoin.org/index.php?topic=31032.0

This topic is so important for bitcoin's future (IMHO), that I am actually paying bitcoins for intelligent posts in the latter thread. See the thread for a link to the rules.

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