Has anyone proposed a coin that adjusts its supply to stabilize prices?

[SamuelSG]

Current lower limit has been calculated at 40 bucks something /btc now due to the rising investment cost.

But if the USD exchange rate went lower, wouldn't less efficient miners just drop out, with the difficulty being lowered as needed?

The less efficient miners are the smallest portion, even without asics, the money in the larger mining operations makes them more efficient.
The smaller, less efficient miners being forced out would be a bad thing, as this would leave only larger industry in control of the coin, thus lowering its security in numbers.

[timhuge]

Current lower limit has been calculated at 40 bucks something /btc now due to the rising investment cost.

But if the USD exchange rate went lower, wouldn't less efficient miners just drop out, with the difficulty being lowered as needed?

The less efficient miners are the smallest portion, even without asics, the money in the larger mining operations makes them more efficient.
The smaller, less efficient miners being forced out would be a bad thing, as this would leave only larger industry in control of the coin, thus lowering its security in numbers.

So the difficulty would be lowered, right?

[timhuge]

the SolidCoin forums.

I see SolidCoin had a similar idea for stable prices: http://solidcoin.info/economy.html

But I'm picturing only a minor tweak to Bitcoin, with potentially the same pricing effect, so the security and decentralized features of this coin would be the same as Bitcoin.

[SamuelSG]

Because the less efficient miners control less of the hashing power, the ammount the difficulty went down would be negligible.
It would likely quickly be filled in my the larger operations, it would, if anything, only make there become MANY more coins in a short period, before the difficulty re-adjusted and stabilized it to the set growth rate.

[kokjo]

the SolidCoin forums.

I see SolidCoin had a similar idea for stable prices: http://solidcoin.info/economy.html

But I'm picturing only a minor tweak to Bitcoin, with potentially the same pricing effect, so the security and decentralized features of this coin would be the same as Bitcoin.

this is not a minor change.

[timhuge]

this is not a minor change.

Agreed that it's a major change to the economics - money supply would be adjusted to match money demand and stabilize prices. But it need not be a major change to the way Bitcoin works technologically/politically.

[SamuelSG]

I don't see how it could be done with a minor change specifically on the technical side??
Elaborate.

For that matter, you are assuming that supply is what is causing the variance, which is, imho, quite erroneous.
The main reason I have seen from watching it, is its current status as a commodity rather than a currency.
By virtue of it merely slowly spreading in usage, it will gradually become a currency.

It is important to note that SC is a "was" and not something that ended up functioning at all.

[timhuge]

I don't see how it could be done with a minor change specifically on the technical side??
Elaborate.

For that matter, you are assuming that supply is what is causing the variance, which is, imho, quite erroneous.
The main reason I have seen from watching it, is its current status as a commodity rather than a currency.
By virtue of it merely slowly spreading in usage, it will gradually become a currency.

It is important to note that SC is a "was" and not something that ended up functioning at all.

It's just that it's not worth putting the time into elaborating if there is not a critical mass in this community that believes it is desirable to have the supply adjust to stabilize prices. Someone saying, "Elaborate...but it doesn't matter even if that were possible," without being challenged by anyone else is not encouraging.

[kokjo]

I don't see how it could be done with a minor change specifically on the technical side??
Elaborate.

For that matter, you are assuming that supply is what is causing the variance, which is, imho, quite erroneous.
The main reason I have seen from watching it, is its current status as a commodity rather than a currency.
By virtue of it merely slowly spreading in usage, it will gradually become a currency.

It is important to note that SC is a "was" and not something that ended up functioning at all.

It's just that it's not worth putting the time into elaborating if there is not a critical mass in this community that believes it is desirable to have the supply adjust to stabilize prices. Someone saying, "Elaborate...but it doesn't matter even if that were possible," without being challenged by anyone else is not encouraging.

Enlighten us. we might be with you... the worst that can happen is LULZ.

[niko]

To stabilize the price against what?

[timhuge]

To stabilize the price against what?

The goal is to stabilize the prices in B2C (or whatever you want to call the units of this alternative coin) of the goods and services people buy with it. Of course, the relative prices of different goods change, so the goal of price stability is typically conceived in terms of a price index like the Consumer Price Index. What I'm proposing is not to use such an index directly in the code - I'm just saying that the success of my scheme should be measured against an ideal such index.

What I think is possible to implement with minor technical tweaks to Bitcoin is pegging the value of 1 B2C to the real cost of computing one hash. (This peg could change over time according to a pre-determined formula chosen to anticipate changes in the cost of computing, like Moore's law and energy prices.) To the extent that the real cost of computing a hash changes in unanticipated ways relative to the ideal price index, the price index for B2C will still exhibit price inflation or deflation. But that volatility should be much much less than what we are seeing with Bitcoin.

[greyhawk]

ITT proposing price stability in a forum full of speculators

[timhuge]

ITT proposing price stability in a forum full of speculators

Yes, my proposal would be bad news for the skilled and well-resourced day traders making a profit off of Bitcoin idealism right now.

[timhuge]

To be fair, I think the exciting price swings of Bitcoin have been perfect for generating awareness of crypto-currencies. But the volatility is now an obstacle to more widespread use of Bitcoin as a currency. (I know that Bitpay etc. protects merchants from the volatility, but there's nothing protecting people holding the currency with the intention of spending it on good and services.)

[LeTanque]

To stabilize the price against what?

The goal is to stabilize the prices in B2C (or whatever you want to call the units of this alternative coin) of the goods and services people buy with it. Of course, the relative prices of different goods change, so the goal of price stability is typically conceived in terms of a price index like the Consumer Price Index. What I'm proposing is not to use such an index directly in the code - I'm just saying that the success of my scheme should be measured against an ideal such index.

What I think is possible to implement with minor technical tweaks to Bitcoin is pegging the value of 1 B2C to the real cost of computing one hash. (This peg could change over time according to a pre-determined formula chosen to anticipate changes in the cost of computing, like Moore's law and energy prices.) To the extent that the real cost of computing a hash changes in unanticipated ways relative to the ideal price index, the price index for B2C will still exhibit price inflation or deflation. But that volatility should be much much less than what we are seeing with Bitcoin.

But who would supply that variable? The cost of computing? This would have to be automated and how would that be automated?

[yvv]

I expected to find that some of the alternative crypto-currencies would address the issues with price volatility that come from a fixed supply, but I haven't found any.

Price volatility does not come from fixed supply. It comes from speculations on exchanges. Fixed supply  alone would cause a steady deflation.
 

[timhuge]

I expected to find that some of the alternative crypto-currencies would address the issues with price volatility that come from a fixed supply, but I haven't found any.

Price volatility does not come from fixed supply. It comes from speculations on exchanges. Fixed supply  alone would cause a steady deflation.
 

Not if the demand is not steadily increasing (and known to be with certainty by all market participants).

[Cosmorph]

Have a look at Ripple, it looks to solve some of the problems associated with confirmation delays and transaction costs.

[SgtSpike]

I don't see how it could be done with a minor change specifically on the technical side??
Elaborate.

For that matter, you are assuming that supply is what is causing the variance, which is, imho, quite erroneous.
The main reason I have seen from watching it, is its current status as a commodity rather than a currency.
By virtue of it merely slowly spreading in usage, it will gradually become a currency.

It is important to note that SC is a "was" and not something that ended up functioning at all.

The method of doing it is quite simple - you only need to increase or decrease the supply of all current holders of Bitcoin by a certain percentage.  The difficulty is in determining how much it should be increased or decreased and when!  How could you possibly have a decentralized method of valuation determination?  Perhaps with a decentralized exchange, this would be possible.  I don't see it as feasible until then though, without a central entity involved.

Interestingly, this could be done entirely on the front-end of Bitcoin itself without modifying any of the inner-workings of Bitcoin.  Instead of displaying to the user how many Bitcoins they have, you display to the user how many "Credits" they have, or whatever you want to call the stable unit.  Then, have the client make regular calls to a central entity's server, who gives out an exchange rate of credits to Bitcoins.  The user would always pay X number of credits on the client side for, say, an apple, but the backend number of actual Bitcoins being traded would change.  The user would, however, see the number of credits in their account change depending on the most recent Bitcoin exchange rate.

I'm not sure that either of the two above solutions would solve any problems, other than psychological problems of people with less-than-average intelligence.

I agree with kokjo that a better "solution" would be forever keeping the 50 coin reward, because it would eventually level out to the point where 50 coins are, on average, getting lost while 50 coins are created.  People would be prone to speculating less, since they know that supply is unlimited (time-limited, but theoretically unlimited).  But then you have no way to reward early adopters, so getting such a Bitcoin-alt off the ground might be incredibly difficult or even infeasible.

[niko]

To stabilize the price against what?

The goal is to stabilize the prices in B2C (or whatever you want to call the units of this alternative coin) of the goods and services people buy with it. Of course, the relative prices of different goods change, so the goal of price stability is typically conceived in terms of a price index like the Consumer Price Index. What I'm proposing is not to use such an index directly in the code - I'm just saying that the success of my scheme should be measured against an ideal such index.

What I think is possible to implement with minor technical tweaks to Bitcoin is pegging the value of 1 B2C to the real cost of computing one hash. (This peg could change over time according to a pre-determined formula chosen to anticipate changes in the cost of computing, like Moore's law and energy prices.) To the extent that the real cost of computing a hash changes in unanticipated ways relative to the ideal price index, the price index for B2C will still exhibit price inflation or deflation. But that volatility should be much much less than what we are seeing with Bitcoin.

In essence, you are proposing to replace (to some extent) volatility in price with volatility in money supply. Both are prone to speculative games and manipulation.

Still, I like this thread, except that it lacks specific, detailed proposals about the idea you presented in broad strokes above.