How To Create Price Stability

[BitProdigy]

I have heard by many very prominent sources that people are looking for way to enforce price stability on bitcoin. This would be a BIP that pegs the value of bitcoin to some commodity like oil or some stable currency like the USD, so that whenever the value of bitcoin goes up relative to what it is pegged to, more bitcoins are created to balance it out, thus stabilizing the price. The argument is that this will make bitcoin a viable unit of account, eliminate price volatility, and thus make bitcoin more usable, and encourage people to use it rather than to hoard it.

If 1 BTC = 1 USD in 2010, and 1 BTC = 500 USD in 2013, the proposed solution would be to "rebase" bitcoin, by creating inflation of bitcoin at x500, so 500 times more bitcoin are in circulation in 2013, and therefore 1 BTC still is equal to 1 USD, and the price of bitcoin is stable.

The problem I have with this is that, in the case were the Bitcoin supply is fixed like that of Gold, the end users, the holders of bitcoin, the common man, the poor, the middle class, received an increase of value of their bitcoin by 500x, because in three years there Bitcoin is now 500 times more valuable, and their purchasing power therefore has increased by that much.

On the other hand, by "rebasing" the supply, you transfer wealth and value from the end users, the holders of bitcoin, the common man, the poor and the middle class, directly into the hands of whoever gets the newly created bitcoin, via the tax of inflation. The bitcoin user then would have seen a 500x decrease in the value of their bitcoin in 3 years because their bitcoin would have been 500 times less valuable, and 500 times less purchasing power.

I view bitcoin as the "Gold Standard" of crypto currencies, so that all other crypto currencies are valued based on their value in Bitcoin. We need a "Gold STandard" of crypto currencies, and thus we need Bitcoin to remain scarce. It is this scarcity that makes bitcoin such a good store of value, just like the scarcity of gold makes it such a good store of value. To enable inflation in order to achieve price stability would come at the cost of Bitcoin's capabilities as a store of value.

The solution to the problem then is not to fundamentally change the Bitcoin protocol to allow for inflation and more than 21 million bitcoins, but rather to create an alt coin that is pegged to the price of Bitcoin in the same way as proposed, thus avoiding drastically altering the mission statement and vision of Satoshi for Bitcoin to mimic the qualities of Gold. The alt coin would produce more coins or reduce coins according to the price of Bitcoin, creating inflation and deflation to create price stability in that coin, which would be a unit of account because the resulting price stability, but not a very good store of value.

The limited supply, and fixed supply of bitcoin is fundamental to it's Store of Value property which serves as the cornerstone of all alt coins. all alt coins rest upon the value that is stored in Bitcoin. As soon as you remove the limit, and increase the supply, you compromise the store of Value property of bitcoin.

We can have price stability in an alt coin, and in fact, this need of price stability is a huge opportunity for someone looking to create a useful alt coin, simply peg the value to the price of bitcoin and inflate or deflate accordingly. But the cost of getting rid of the 21 million limit on bitcoin is far too much to justify going through it. The scarcity is a necessary part of being the "Gold Standard" of crypto currencies that Bitcoin is.

[mouneshwar123]

I don't understand why do you actually want price stability. Bitcoin can be spent in pieces. If there is a method to maintain stability then bitcoin will be similar to dollars. We don't want that to happen. I don't want bitcoins to be multiplied.

[zodiac3011]

Bitcoin's price is incredibly hard to control due to its protocol of halving which affects the supply as well the demand for bitcoin which also leads to the price changes. Stability in bitcoin price? If you really want that then wait for a digital currency created by Governments with the bitcoin's technology of blockchain!

[jaysabi]

I have heard by many very prominent sources that people are looking for way to enforce price stability on bitcoin. This would be a BIP that pegs the value of bitcoin to some commodity like oil or some stable currency like the USD, so that whenever the value of bitcoin goes up relative to what it is pegged to, more bitcoins are created to balance it out, thus stabilizing the price. The argument is that this will make bitcoin a viable unit of account, eliminate price volatility, and thus make bitcoin more usable, and encourage people to use it rather than to hoard it.

If 1 BTC = 1 USD in 2010, and 1 BTC = 500 USD in 2013, the proposed solution would be to "rebase" bitcoin, by creating inflation of bitcoin at x500, so 500 times more bitcoin are in circulation in 2013, and therefore 1 BTC still is equal to 1 USD, and the price of bitcoin is stable.

What you have just described is a centralized digital currency. This is the antithesis of what Bitcoin was founded to be, which is decentralized. On top of that, not only are you proposing centralization, but price-fixed centralization. You have basically just advocated for Bitcoin to work like Chinese government.

[markj113]

I have heard by many very prominent sources that people are looking for way to enforce price stability on bitcoin. This would be a BIP that pegs the value of bitcoin to some commodity like oil or some stable currency like the USD, so that whenever the value of bitcoin goes up relative to what it is pegged to, more bitcoins are created to balance it out, thus stabilizing the price. The argument is that this will make bitcoin a viable unit of account, eliminate price volatility, and thus make bitcoin more usable, and encourage people to use it rather than to hoard it.

If 1 BTC = 1 USD in 2010, and 1 BTC = 500 USD in 2013, the proposed solution would be to "rebase" bitcoin, by creating inflation of bitcoin at x500, so 500 times more bitcoin are in circulation in 2013, and therefore 1 BTC still is equal to 1 USD, and the price of bitcoin is stable.

What you have just described is a centralized digital currency. This is the antithesis of what Bitcoin was founded to be, which is decentralized. On top of that, not only are you proposing centralization, but price-fixed centralization. You have basically just advocated for Bitcoin to work like Chinese government.

Agree,

Price fixing bitcoin = stupid idea

[jaysabi]

I have heard by many very prominent sources that people are looking for way to enforce price stability on bitcoin. This would be a BIP that pegs the value of bitcoin to some commodity like oil or some stable currency like the USD, so that whenever the value of bitcoin goes up relative to what it is pegged to, more bitcoins are created to balance it out, thus stabilizing the price. The argument is that this will make bitcoin a viable unit of account, eliminate price volatility, and thus make bitcoin more usable, and encourage people to use it rather than to hoard it.

If 1 BTC = 1 USD in 2010, and 1 BTC = 500 USD in 2013, the proposed solution would be to "rebase" bitcoin, by creating inflation of bitcoin at x500, so 500 times more bitcoin are in circulation in 2013, and therefore 1 BTC still is equal to 1 USD, and the price of bitcoin is stable.

The problem I have with this is that, in the case were the Bitcoin supply is fixed like that of Gold, the end users, the holders of bitcoin, the common man, the poor, the middle class, received an increase of value of their bitcoin by 500x, because in three years there Bitcoin is now 500 times more valuable, and their purchasing power therefore has increased by that much.

On the other hand, by "rebasing" the supply, you transfer wealth and value from the end users, the holders of bitcoin, the common man, the poor and the middle class, directly into the hands of whoever gets the newly created bitcoin, via the tax of inflation. The bitcoin user then would have seen a 500x decrease in the value of their bitcoin in 3 years because their bitcoin would have been 500 times less valuable, and 500 times less purchasing power.

I view bitcoin as the "Gold Standard" of crypto currencies, so that all other crypto currencies are valued based on their value in Bitcoin. We need a "Gold STandard" of crypto currencies, and thus we need Bitcoin to remain scarce. It is this scarcity that makes bitcoin such a good store of value, just like the scarcity of gold makes it such a good store of value. To enable inflation in order to achieve price stability would come at the cost of Bitcoin's capabilities as a store of value.

The solution to the problem then is not to fundamentally change the Bitcoin protocol to allow for inflation and more than 21 million bitcoins, but rather to create an alt coin that is pegged to the price of Bitcoin in the same way as proposed, thus avoiding drastically altering the mission statement and vision of Satoshi for Bitcoin to mimic the qualities of Gold. The alt coin would produce more coins or reduce coins according to the price of Bitcoin, creating inflation and deflation to create price stability in that coin, which would be a unit of account because the resulting price stability, but not a very good store of value.

The limited supply, and fixed supply of bitcoin is fundamental to it's Store of Value property which serves as the cornerstone of all alt coins. all alt coins rest upon the value that is stored in Bitcoin. As soon as you remove the limit, and increase the supply, you compromise the store of Value property of bitcoin.

We can have price stability in an alt coin, and in fact, this need of price stability is a huge opportunity for someone looking to create a useful alt coin, simply peg the value to the price of bitcoin and inflate or deflate accordingly. But the cost of getting rid of the 21 million limit on bitcoin is far too much to justify going through it. The scarcity is a necessary part of being the "Gold Standard" of crypto currencies that Bitcoin is.

Seems I didn't read all the way through your post before commenting, so let me address this second part.

The solution to the problem then is not to fundamentally change the Bitcoin protocol to allow for inflation and more than 21 million bitcoins, but rather to create an alt coin that is pegged to the price of Bitcoin in the same way as proposed, thus avoiding drastically altering the mission statement and vision of Satoshi for Bitcoin to mimic the qualities of Gold. The alt coin would produce more coins or reduce coins according to the price of Bitcoin, creating inflation and deflation to create price stability in that coin, which would be a unit of account because the resulting price stability, but not a very good store of value.

...

We can have price stability in an alt coin, and in fact, this need of price stability is a huge opportunity for someone looking to create a useful alt coin, simply peg the value to the price of bitcoin and inflate or deflate accordingly. But the cost of getting rid of the 21 million limit on bitcoin is far too much to justify going through it. The scarcity is a necessary part of being the "Gold Standard" of crypto currencies that Bitcoin is.

Logically, this makes no sense. You're talking about pegging an alt to Bitcoin, which would still trade freely relative to USD (which it should). This would do nothing to create stability in Bitcoin. By pegging an alt to Bitcoin, all that would do is create volatility in the alt that exactly matches Bitcoin's volatility relative to USD. The exchange rate of the alt to Bitcoin would always be constant, but that's a worthless attribute because the alt's volatility relative to the USD would always be the same as BTC's volatility to USD. This alt would serve absolutely no market function since it only does exactly what Bitcoin does, and therefore there is no reason for anyone to use it.

[Amph]

you simply increase the market cap, but this isn't soething that one man only can do, unless we are talking about a very rich guy that is willing to waste all his fortune on bitcoin, to see, then, a big dumping from the other

it will be possible slowly with adoption nothing more

[Snorek]

If you think you can achieve bitcoin price stability by creating some restriction, limits artificially impose some regulations you are wrong.
It is a natural process and it cant be created in bitcoin decentralized environment, some people would always disagree and market is not so big yet.

[HarryKPeters]

Less whales, more supporters (holders) would be a great start.

Part of the price volatiliy is also the holders though, many weak hands whom sell too fast.

[randy8777]

Less whales, more supporters (holders) would be a great start.

Part of the price volatiliy is also the holders though, many weak hands whom sell too fast.

there will always be large holders. you can't change the fact that some people are simply wealthier than others. stocks are not different. you have a lot small traders, but also banks in the role of a whale.

[thaaanos]

I had discussed such a concept here
https://bitcointalk.org/index.php?topic=382204.msg4389175#msg4389175

[Raimonn]

In my opinion to increase bitcoin stability we need more bitcoin users, as much holders less users could manipulate its price. We need more users and time.

[examplens]

I don't understand why do you actually want price stability. Bitcoin can be spent in pieces. If there is a method to maintain stability then bitcoin will be similar to dollars. We don't want that to happen. I don't want bitcoins to be multiplied.

"stability" not required fixed price. Situation where in 10 days price go from 250 to 500  and back, it is not good for currency except speculators.
example if someone who's take a loan Oct 28(price $300), and he must pay back Nov 11($470). 

In my opinion to increase bitcoin stability we need more bitcoin users, as much holders less users could manipulate its price. We need more users and time.

definitely more bitcoin user will improve the stability of prices, and much higher price for BTC reduce the possibility of manipulation

[erickimani]

I don't understand why do you actually want price stability. Bitcoin can be spent in pieces. If there is a method to maintain stability then bitcoin will be similar to dollars. We don't want that to happen. I don't want bitcoins to be multiplied.

Maintaining stability will have both advantages and disadvantages. Like the possibility of losing your money due to the price falling will be minimal but this means that you will not earn more bitcoins if the price rises. I dont want stabilization though

[lumeire]

If I understand you correctly, then pegging an alt coin to the price of a bitcoin (presumably in dollars) is no more than pegging the alt coin to the dollar.

This. There is no true way of stabilizing the price of bitcoin unless you modify bitcoin altogether. It's better to leave it as it is, pegging it to a commodity goes against the idea of decentralization.

[fuddudle]

I have heard by many very prominent sources that people are looking for way to enforce price stability on bitcoin. This would be a BIP that pegs the value of bitcoin to some commodity like oil or some stable currency like the USD, so that whenever the value of bitcoin goes up relative to what it is pegged to, more bitcoins are created to balance it out, thus stabilizing the price. The argument is that this will make bitcoin a viable unit of account, eliminate price volatility, and thus make bitcoin more usable, and encourage people to use it rather than to hoard it.

If 1 BTC = 1 USD in 2010, and 1 BTC = 500 USD in 2013, the proposed solution would be to "rebase" bitcoin, by creating inflation of bitcoin at x500, so 500 times more bitcoin are in circulation in 2013, and therefore 1 BTC still is equal to 1 USD, and the price of bitcoin is stable.

What you have just described is a centralized digital currency. This is the antithesis of what Bitcoin was founded to be, which is decentralized. On top of that, not only are you proposing centralization, but price-fixed centralization. You have basically just advocated for Bitcoin to work like Chinese government.

Pretty much every fiat currency is controlled by their native governments.

[hawkins]

impossible to make bitcoin prices to be stable, the big players can make bitcoin prices to rise quickly and fall quickly, we also do not know that the economic crisis in one country can make bitcoin be increased or not

[mouneshwar123]

In my opinion to increase bitcoin stability we need more bitcoin users, as much holders less users could manipulate its price. We need more users and time.

I agree to this point ,when there is too much movement in the ecosystem it affects demand and supply. That causes the sudden price hike and fall.

[Pierre 2]

It is nearly impossible to stabilize bitcoin price if it stays decentralized.
And if you centralize it to stabilize, it would lose all attraction.

[Xeelee]

Probably eMunie is something for you. It will going public in some months time and the target there is always to get a stable price. At least they try it.
In general I don't believe in a concept of fixed prices.