Idea for Bitcoin-like system called "kilowatt-hour coin" (kwhcoin)

[kwhcoin]

I was brainstorming about the feasibility of creating a Bitcoin-like system called kilowatt-hour coin (kwhcoin) where there would be guaranteed convertibility between kwhcoin and the current value of a kilowatt-hour. For example, if the current average price for a kilowatt-hour of electricity were $0.10, then the convertibility ratio would be 10 kwhcoin to $1. I believe pegging the kwhcoin to something of relatively stable value like the kilowatt-hour would be highly desirable to consumers and merchants.

If I were to implement the proposed kwhcoin system, I would give it all the features of the Bitcoin system except for the differences described below.

Difference #1 - Markets would decide on the number of kwhcoins

Unlike the Bitcoin system where the number of bitcoins over time is a predetermined curve which is achieved by adjusting the reward for "creating a new block", the kwhcoin system would let the market decide how many kwhcoins exist at any time by allowing kwhcoins to be created and destroyed only by a convertibility house that exchanges kwhcoins for the current value of a kilowatt-hour. In the examples below I'm going to assume the current average price of electricity were $0.10 per kwh. If you were to pay the convertibility house $100, then the convertibility house would create 1,000 new kwhcoins and give them to you. Similarly, if you were to give the convertibility house 1,000 kwhcoins, then the convertibility house would give you $100 and then proceed to destroy the 1,000 kwhcoins you gave them.

Unfortunately, the kwhcoin system would be dependent on an obvious central authority, the convertibility house, which has the power to create and destroy kwhcoins. However, no kwhcoin user would ever need to interact with the convertibility house because it would only take a few people interacting with the convertibility house to maintain the desired value relationship between a kwhcoin and a kilowatt-hour. Additionally, the convertibility house would be privately run with a strong free market incentive to keep kwhcoins competitive with other currencies like Bitcoin and other potential competing currencies of a similar nature. The collection of the various competing currencies that have independent (or no) central authorities would effectively be a decentralized currency system.

The convertibility house's primary role is to make sure people are always able to redeem kwhcoins for their current value in kilowatt-hours, so that people will keep trusting and using kwhcoins. One way for the convertibility house to keep this trust, mitigate risk, and possibly earn a profit would be for the convertibility house to utilize the monies received from issuing new kwhcoins to invest in things that produce electricity such as windmills and solar panel arrays. Actually, the entire kwhcoin concept could be seen as a funding source for windmill and solar panel purchases and the monies received while issuing kwhcoins wouldn't need to be paid back while people used kwhcoins. In other words, the convertibility house would have a strong incentive to keep people happy using kwhcoins.

Difference #2 - Slight modification to transaction fee system

The existing Bitcoin system has an excellent transaction fee system built into it that can work even after all the bitcoins are created. The kwhcoin system would use the same market based transaction fee system as Bitcoin except the convertibility house would have the ability to subsidize (or tax if necessary) the kwhcoin transaction fees. The main purpose of the subsidy would be to keep transaction fees extremely low in order to compete with other currency systems. As an example of how the transaction fee subsidy would work, consider a transaction where Bob wants to give Sue 10,000 kwhcoins. Assume in this example that the Bitcoin-like market-based transaction fee worked out to be 10 kwhcoins for performing the computational work of this transaction. With the modified transaction fee system of kwhcoins, the person performing the computational work would still get the 10 kwhcoins, but the total transaction fee paid by Bob and Sue could be a lower amount like 2 kwhcoins depending on the current transaction fee subsidy of the convertibility house. In this example, the convertibility house would have subsidized the transaction by 8 kwhcoins with the goal of keeping Bob and Sue happy using kwhcoins. The funding source for this type subsidy could be from a portion of the electricity generated by the windmills and solar panels.

In summary, I think it would be possible for someone to develop a profitable Bitcoin-like system that would be backed 100% by something of value like the kilowatt-hour while also having extremely low or no transaction fees. Please let me know your thoughts.

What would you do to improve the kwhcoin concept discussed above?

Do you think merchants and consumers would prefer kwhcoin over Bitcoin?

Do you think there will eventually be new currencies that compete with Bitcoin like kwhcoin, ricecoin, wheatcoin, oilcoin, and gasolinecoin?

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[myrkul]

Meh. We have a wheel.

[kjj]

Pegs don't work.

There are certain circumstances when a powerful entity can fake it for a bit, but it always breaks down.

Pegging a currency to electrical generation is a particularly bad idea.

[ribuck]

http://www.kilowattcards.com/template/index.cfm

[kwhcoin]

Pegs don't work.

There are certain circumstances when a powerful entity can fake it for a bit, but it always breaks down.

I agree it is problematic to try and peg certain things, especially things like gold and silver that require you to pay storage fees to bury your value in a vault. However, with kwhcoin the monies you received from issuing new kwhcoins could be used to purchase windmills and solar panels which produce electricity and earn money while being “stored”.

Pegging a currency to electrical generation is a particularly bad idea.

Do you think a currency pegged to the kilowatt-hour is bad for the users of kwhcoins, or do you think it is just too risky for the convertibility house?

http://www.kilowattcards.com/template/index.cfm

That is an interesting example of how kilowatt-hours can be treated as a store of value. Unfortunately, their card system requires a shipping and handling fee, and it also doesn't have many of the great features of Bitcoin. It still would be fun to purchase one of their cards

[kwhcoin]

I'm actually working on an alternative similar to this. The price is only initially based on kWh though, as the "central bank" can't control the economy.

Please let me know when you are letting people know the details about your similar alternative. If I could make one suggestion to help your kWh project succeed, it would be to focus on trying to guarantee the amount of “work” someone gets when they redeem your currency instead of focusing on how much “work” someone has to do to get your currency. After all, people don't really want a coin someone else had to mow a lawn to get, because what they really want is a coin they know they can redeem to get their own lawn mowed.

Also, in my kwhcoin concept, I wasn't implying that the convertibility house (i.e. central bank) has the ability to control the market value of a kilowatt-hour. I was just saying the convertibility house would allow people to purchase or redeem kwhcoins (i.e. create or destroy kwhcoins) so total supply of kwhcoins could adjust to where the market value of kwhcoins became roughly the market value of a kilowatt-hour.

[ene]

Instead of pegging to the price of a kWh, why not just peg to the dollar? 

Anyway, the central authority will quickly go bankrupt and then people will be unable to redeem their coins for kWh.

Read this before continuing to make suggestions: https://secure.wikimedia.org/wikipedia/en/wiki/Currency_peg

On top of that, you're suggesting all fees will be arbitrarily set by a central authority which can change its mind at any time. Hahaha! You made a joke!

[realnowhereman]

Scenario:

2011: 1 kWh costs $0.10; I buy 100 kwhcoins
2012: 1 kWh costs $0.20

What are my kwhcoins worth?

edit:

when you realise that there is no good answer to that question, you'll realise why it's insane to peg currencies.

[kwhcoin]

The bank can't create coins as that would undermine the economy. But I thought up a different way of doing it that I think will work quite well. 

I agree that a central bank with a government enforced monopoly giving it the privilege of creating money backed by nothing could undermine the economy. However, just to clarify, kwhcoin would compete with other independent currencies in the free market and the amount of kwhcoin created or destroyed would be decided by the free market.

[kwhcoin]

Scenario:

2011: 1 kWh costs $0.10; I buy 100 kwhcoins
2012: 1 kWh costs $0.20

What are my kwhcoins worth?

edit:

when you realise that there is no good answer to that question, you'll realise why it's insane to peg currencies.

Using the numbers from your example, in 2011 all kwhcoins would be worth $0.10 each and in 2012 all kwhcoins would be worth $0.20 each. As seen by your example, a convertibility house would be assuming some risk to bring us kwhcoins, but average electricity prices don't really fluctuate that much in a year so the risk should be manageable.

[kwhcoin]

Instead of pegging to the price of a kWh, why not just peg to the dollar?  

Anyway, the central authority will quickly go bankrupt and then people will be unable to redeem their coins for kWh.

Read this before continuing to make suggestions: https://secure.wikimedia.org/wikipedia/en/wiki/Currency_peg

On top of that, you're suggesting all fees will be arbitrarily set by a central authority which can change its mind at any time. Hahaha! You made a joke!

Yes, there probably will be something like dollarcoin that is pegged to the dollar. Actually, this would have been an simpler example for me to have used to illustrate the concept of backing a Bitcoin-like currency with something. It would be just like the kwhcoin where if you give the convertiblity house $1,000 then they give you 1,000 new dollarcoins (and convertibility house puts the $1,000 in the bank to earn interest) and similarly when you give the convertibility house 1,000 dollarcoins they give you $1,000 and destroy those 1,000 dollarcoins. Unless the dollarcoin convertibility house were fraudulent or incompetent there would be no way they could go bankrupt with managing dollarcoin because they could earn the interest on the dollars they got from issuing new dollarcoins and would only have to redeem the principle when people cashed in dollarcoins. I think currency users would prefer kwhcoins over dollarcoins so that is why a convertibility house may want to assume greater risk to create a currency more competitive than dollarcoins.

I just read the wikimedia article you posted and don't see how the information on that page invalidates the concept of kwhcoins or dollarcoins.

Also, the primary purpose of allowing for the adjustment for transaction fees was to give the convertibility house the opportunity to subsidize transaction fees with the goal of making their currency more competitive so more people used their currency (i.e. so the dollarcoin convertibility house could hold more principle so they could earn more free interest). I think currencies will want to compete for your business.