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Author Topic: Goldcoin and Stablecoin proposals  (Read 17511 times)
morpheus
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August 05, 2011, 07:58:02 PM
 #41

If you destroy the money through transaction fees, you don't have direct control over coins destroyed by transaction fees CDT, you just can change the mandatory transaction fee rate MTR.
Even worse, when you increase MTR to fight deflation inflation, V goes down, reducing CDT, making you increase MTR even more...a positive feedback that takes fees to the sky and stops transactions completely. It is better to have deflation inflation than no trade at all.
I don't think that morpheus's proposal can work as it is.

I don't think destroying coins through higher MTR will cause the spiral you predict.

If the transaction fees are increased to avoid inflation, then it will cause people to avoid transactions. However, it would also cause people to ask more for their coins to cover the transaction fee which would cause deflation which is the goal of increasing the transaction fee in the first place. The would break the transaction fee death spiral and stabilize the price of the coin.

Actually, the transaction fee may never get paid if the threat of a transaction fee causes people to hoard Stablecoin and drive prices back up.

I'm selling Mt. Gox USD and Bitcoin for cash, check or money order in the mail: http://bitcoinmorpheus.tumblr.com/

Check out my 100% decentralized P2P exchange: https://github.com/macourtney/Dark-Exchange
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jtimon
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August 05, 2011, 10:41:06 PM
 #42

I don't think destroying coins through higher MTR will cause the spiral you predict.

If the transaction fees are increased to avoid inflation, then it will cause people to avoid transactions. However, it would also cause people to ask more for their coins to cover the transaction fee which would cause deflation which is the goal of increasing the transaction fee in the first place. The would break the transaction fee death spiral and stabilize the price of the coin.

Actually, the transaction fee may never get paid if the threat of a transaction fee causes people to hoard Stablecoin and drive prices back up.

Maybe you're right and this can work only with fees.
With demurrage you still have direct control of how much will be destroyed while with MTR you don't.
Also the increased velocity amplifies the effects on price that money creation/destruction produces. So you have to create/destroy less quantity to achieve the same effect.

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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August 06, 2011, 06:56:20 PM
 #43


Stablecoin

With Stablecoin, you have the same bitcoin like program and exchange as with Goldcoin with only a couple modifications.

The exchange is in USD. However, instead of targeting USD directly, we target a specific date. Let's say we use the date Stablecoin comes into existence. From then on, we keep track of how much USD has inflated/deflated using something like CPI or the Billion Price Index or even a combination of indices. If USD inflates say 1% we increase the target to $1.01 for one Stablecoin. On the other hand, if USD deflates by 1% we target $0.99 for one Stablecoin. Over time the increase and decreases would be added together to get some strange multiple as the target for Stablecoin.

The ultimate goal for Stablecoin would be to target a value not a price, and thus never inflate or deflate over time.

Stablecoin would be a great benefit to any merchant. They could simply price their goods and services in Stablecoin once, and never have to change the price again. They also know, no matter how long they hold Stablecoin, the value of Stablecoin would never increase or decrease significantly. If it does, they can wait until it makes it back to it's target.

Once Stablecoin is used to price goods and services online, you could then drop the use of CPI and Billion Price index and simply use a basket of goods priced in Stablecoin. If merchants start charging more or less on average for their goods, Stablecoin could adjust the number of coins accordingly.

Stablecoin could become the perfect currency for merchants. Which would make Stablecoin perfect for customers who want to buy from those merchants. Once enough merchants and customers adopt Stablecoin, everyone else would follow.



I very much like the idea of stablecoin. This would be a version of bitcoin that's better suited for commerce than the original. In order to use a currency in commerce, stability is very important. No merchant wants to constantly have to change prices.

What I do not like in your proposal (and in your subsequent amendment to 1971 coins) is the proposal to target a certain dollar value. Someone said Euro would be better, but I think we could do away with targeting a fiat currency value altogether.

We would need a good way to release more coins into circulation (which is available in the bitcoin software, as it is).

We also need a good way to lower the number of coins in circulation, in case the user base contracts. jtimon has proposed to do this by introducing demurrage, i.e. to take a small percentage of the amount transferred at the moment of transfer, and to destroy that small percentage. The percentage would increase depending on the time the coin had been held onto before being spent, making demurrage a powerful incentive to not hold on to stablecoins but to actually use them in commerce.

How to achieve stability without external input

The way to have a stable currency without the need for either a price index or a steward of the currency holding the value constant, is to target a fixed ratio between the size of the stablecoin economy and the total number of stablecoins extant. It is not really important what value that ratio produces, the important thing is that the ratio can be kept stable with only internal inputs.

The inputs we would need are:

- volume of trades in a determined time interval (I believe the system can supply that data).

- number of coins existing at the moment (also a system internal datum)

Using a fixed ratio (I am saying just for example 1:10 but it could be anything that's decided) we can now calculate the target amount of coins. 5,640 in trade would give us a target of 56,400 coins. Please don't hold me to the numbers, it's just a made up example.

Since demurrage is constantly lowering the amount of coins in existence, we can now adjust the degree of difficulty of creation of new coins to get us as close to the targeted coins total as possible.

Since we have the volume of trades as an internal input, we can constantly update the targeted coins total.

Since the value of a currency depends on the number of coins times velocity of circulation in relation to the volume of trade, we have a reasonably stable currency that does not depend on external inputs.

We do not know what the value of each coin will turn out to be before putting this in practice, but it is of no concern because all we want is stability of the value of each coin over time.

Could that work?

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August 08, 2011, 05:38:59 PM
 #44


The way to have a stable currency without the need for either a price index or a steward of the currency holding the value constant, is to target a fixed ratio between the size of the stablecoin economy and the total number of stablecoins extant. It is not really important what value that ratio produces, the important thing is that the ratio can be kept stable with only internal inputs.

 . . .

Could that work?



It might work technically, but I don't think it would work from a marketing perspective. That is, holding coins denominated in gold, oil, or 1971 dollars is a very simple and appealing concept.

Morpheus, I've been thinking and thinking about your proposal, and I am now completely convinced that your way is the best way. It is simple to explain and seems reasonably straightforward to implement.

The biggest programming challenge is not deciding the rules of the new currency, nor is it importing public data on inflation, the price of gold, etc. The biggest problem is determining the current market value of the coins in circulation.

Once there are dozens of exchanges running which trade your new coins, this gets a lot easier, as it is just another public data source that the miners import, and any client can reject a block that doesn't have the right exchange rates encoded. But until then, figuring out how many new coins to distribute in a new block in a way that all the clients can agree on is a tricky problem.

There are a couple ways I see that the network can get this data in its infancy:

1) Launch an exchange for your coins at the same time you launch your new client
2) Build in a distributed exchange between your block-chains and the bitcoin block chain into your software, then you know the ratio of prices between your coins and bitcoins, and the price of bitcoins is of course public data.

I'm not sure which option is harder to implement, but I note that the first option is a single point of failure while your coins are new. I also like the second option because it allows bitcoins to still have a role in this new (much bigger) economy, at least for awhile.

I assume you are planning on riding along on the bitcoin block-chain using merged mining?



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August 08, 2011, 06:45:33 PM
 #45

Could that work?

I don't think so. Read this:

https://bitcointalk.org/index.php?topic=26380.msg330368#msg330368


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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August 08, 2011, 09:48:19 PM
 #46

I have a very similar idea, but much prefer to peg generation and destruction rates to difficulty growth rather than market prices.

My issue with pegging generation/destruction to market prices is that it requires a third party to supply accurate price information to the system forever. Two issues with this:
a) this is very centralized; take out the third party and you take out the coin
b) the third party could benefit from supplying inaccurate information.

An ostensibly attractive option is to allow users to vote on prices, but this does create incentives to supply truthful information. A voting system can ensure that everyone supplies similar information, but it cannot ensure that this information is truthful. There is no apparent economic reason why people will form a consensus around the truth instead of forming a consensus around a lie.

Pegging generation and destruction to difficulty growth (for example to achieve 50% annual difficulty growth) does not require the supply of outside price information. The relevant information is in the blockchain already. Linking coin generation and destruction to difficulty would ensure that the coin price approximately tracks the electricity price (I am assuming Moore's law will continue to hold).

There are certain features of this idea which would make it very difficult for anyone to profitably manipulate difficulty, but I don't want to go into the details because most people have short attention spans.



An alternative way to achieve this would be a method I call "one block, one vote". Under this system, everytime a block is mined, the miner may specify the amount of coins that will be received by a future miner a given number of blocks into the future. To prevent wild oscillations, the amount that can be specified would be limited to some range around an average of previous blocks. Under such a system, the price level would be determined by the equilibrium between new miner hash power trying to push up the inflation rate and existing wealth holders trying to push the inflation rate down. My hypothesis is that such an equilibrium would lead to roughly stable prices.

I am currently working on a patch for Multicoin ( http://bitcointalk.org/index.php?topic=24209.0 ) to enable blockchains to use this method. Since I am neither a professional programmer, nor an expert on the bitcoin source code, I welcome help from those interested in this topic.
 


doldgigger
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August 09, 2011, 01:16:31 AM
 #47

If you have a look at how the bitcoin exchange rates changed over the last months without any changes to the mining awards having been done, you will notice that the amount of coins being created is only a minor factor towards stability. When will people start creating actual services using bitcoins and thereby stabilizing the currency in the most natural way?

With predictable mining awards, we can at least ensure that the computing power that keeps the network running is stable. When we take away this basic (computational) stability, I wonder how a decentralized currency is supposed to work at all.

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August 09, 2011, 01:40:17 AM
 #48

I do not get Goldcoin. I mean, I understand the wildly awesome idea of selling free coins for the price of Gold. However, I do not understand why anyone would buy them instead of Gold itself. There is tremendous risk that Goldcoin would not actually match the price of Gold. There is exactly 0% risk, however, that Gold will not match the price of Gold. Saving transaction fees is not good enough to make up for the risk. I store gold. I do not pay transaction fees anyway.

So, lets say the first block of GoldCoins come out. What if nobody wants to buy them on an exchange? Simply reducing new supply will not help. It would be Dead on Arrival. Destroying coins will not work either. Why would I buy coins that can be destroyed? Why would I use transactions that have fees significant enough to make any difference on overall inflation/deflation rates? They would have to be huge. No thanks.

Even if the first few mined coins could be sold, the problem is new on every new block. If there are not enough buyers, GoldCoin would drop and may never come back. Price fixing on the exchanges cannot create demand, either.

I suppose you could destroy coins uniformly to get the price up. But, remember, you are destroying someones real wealth when you do that. If you need to delete half my GoldCoins to get the price up, how exactly does that help me? I paid for 10oz of gold and if I now have 5oz that means I lost money.

I am not saying Goldcoin is impossible. I just think that the equilibrium that keeps the price right would likely be a very small population of true believers. (You might be generating 1 goldcoin per day to avoid oversupply and God forbid if demand drops too fast.) Everyone else would find real gold much less risky and coin shops more convenient than Paxum/MtGox or whatever it takes to get GoldCoin. Or they buy bitcoin if they want a new currency. At least that has potential upside.
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August 09, 2011, 03:03:34 AM
 #49


Stablecoin

With Stablecoin, you have the same bitcoin like program and exchange as with Goldcoin with only a couple modifications.

The exchange is in USD. However, instead of targeting USD directly, we target a specific date. Let's say we use the date Stablecoin comes into existence. From then on, we keep track of how much USD has inflated/deflated using something like CPI or the Billion Price Index or even a combination of indices. If USD inflates say 1% we increase the target to $1.01 for one Stablecoin. On the other hand, if USD deflates by 1% we target $0.99 for one Stablecoin. Over time the increase and decreases would be added together to get some strange multiple as the target for Stablecoin.

The ultimate goal for Stablecoin would be to target a value not a price, and thus never inflate or deflate over time.

Stablecoin would be a great benefit to any merchant. They could simply price their goods and services in Stablecoin once, and never have to change the price again. They also know, no matter how long they hold Stablecoin, the value of Stablecoin would never increase or decrease significantly. If it does, they can wait until it makes it back to it's target.

Once Stablecoin is used to price goods and services online, you could then drop the use of CPI and Billion Price index and simply use a basket of goods priced in Stablecoin. If merchants start charging more or less on average for their goods, Stablecoin could adjust the number of coins accordingly.

Stablecoin could become the perfect currency for merchants. Which would make Stablecoin perfect for customers who want to buy from those merchants. Once enough merchants and customers adopt Stablecoin, everyone else would follow.



I very much like the idea of stablecoin. This would be a version of bitcoin that's better suited for commerce than the original. In order to use a currency in commerce, stability is very important. No merchant wants to constantly have to change prices.

What I do not like in your proposal (and in your subsequent amendment to 1971 coins) is the proposal to target a certain dollar value. Someone said Euro would be better, but I think we could do away with targeting a fiat currency value altogether.

We would need a good way to release more coins into circulation (which is available in the bitcoin software, as it is).

We also need a good way to lower the number of coins in circulation, in case the user base contracts. jtimon has proposed to do this by introducing demurrage, i.e. to take a small percentage of the amount transferred at the moment of transfer, and to destroy that small percentage. The percentage would increase depending on the time the coin had been held onto before being spent, making demurrage a powerful incentive to not hold on to stablecoins but to actually use them in commerce.

How to achieve stability without external input

The way to have a stable currency without the need for either a price index or a steward of the currency holding the value constant, is to target a fixed ratio between the size of the stablecoin economy and the total number of stablecoins extant. It is not really important what value that ratio produces, the important thing is that the ratio can be kept stable with only internal inputs.

The inputs we would need are:

- volume of trades in a determined time interval (I believe the system can supply that data).

- number of coins existing at the moment (also a system internal datum)

Using a fixed ratio (I am saying just for example 1:10 but it could be anything that's decided) we can now calculate the target amount of coins. 5,640 in trade would give us a target of 56,400 coins. Please don't hold me to the numbers, it's just a made up example.

Since demurrage is constantly lowering the amount of coins in existence, we can now adjust the degree of difficulty of creation of new coins to get us as close to the targeted coins total as possible.

Since we have the volume of trades as an internal input, we can constantly update the targeted coins total.

Since the value of a currency depends on the number of coins times velocity of circulation in relation to the volume of trade, we have a reasonably stable currency that does not depend on external inputs.

We do not know what the value of each coin will turn out to be before putting this in practice, but it is of no concern because all we want is stability of the value of each coin over time.

Could that work?



I prefer using difficulty rather than txn volume to establish the target. Difficulty is directly related to coin value. You will see this in months to come now that difficulty levels are approximately in equilibrium. The ratio of txn volume to value depends on what share of people are hoarding coins rather then spending them. This will likely be somewhat unstable. Nevertheless, I think this idea is uch better than goldcoin and stablecoin. These external data-pegged coins are similar to liberty reserve and egold. They drop decentralization which is perhaps the key tech advance in bitcoin
 i see this as moving backwards.

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cunicula
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August 09, 2011, 03:07:45 AM
 #50


the objection here is that txn data is meaningless. You can easily fix this by imposing a 0.1% tax on txns. Suddenly tax collection volume becomes a meaningful measure of txn volume. You need a tax like this anyways to keep mining sustainable. Two birds with one stone.

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August 09, 2011, 06:47:16 AM
 #51

the objection here is that txn data is meaningless. You can easily fix this by imposing a 0.1% tax on txns. Suddenly tax collection volume becomes a meaningful measure of txn volume. You need a tax like this anyways to keep mining sustainable. Two birds with one stone.

I was thinking in free transactions. But I guess that could work.
I still think that you can keep mining sustainable with demurrage, maybe even only with voluntary fees.

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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August 09, 2011, 10:35:13 AM
 #52

I still think that you can keep mining sustainable with demurrage, maybe even only with voluntary fees.

Merchants will not give up even the smallest percentage of their profit margin unless they have to. A mandatory TX fee is the only way to extract blood from that particular stone.

If you found this post useful, feel free to share the wealth: 1E35gTBmJzPNJ3v72DX4wu4YtvHTWqNRbM
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August 09, 2011, 11:50:12 AM
 #53

I still think that you can keep mining sustainable with demurrage, maybe even only with voluntary fees.

Merchants will not give up even the smallest percentage of their profit margin unless they have to. A mandatory TX fee is the only way to extract blood from that particular stone.


I think demurrage could work, but that users would prefer txn fees. Simply because people won't like the idea of money they have forgotten about slowly being drained away.
It is like signing up for a credit card with annual fees. I would much prefer that they gouge me only when I purchase something, rather then when I am not paying attention.

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August 09, 2011, 12:26:24 PM
 #54

I still think that you can keep mining sustainable with demurrage, maybe even only with voluntary fees.

Merchants will not give up even the smallest percentage of their profit margin unless they have to. A mandatory TX fee is the only way to extract blood from that particular stone.


I think demurrage could work, but that users would prefer txn fees. Simply because people won't like the idea of money they have forgotten about slowly being drained away.
It is like signing up for a credit card with annual fees. I would much prefer that they gouge me only when I purchase something, rather then when I am not paying attention.


Merchant are also giving a percentage of their margin profits when customers pay fees. Demurrage fees are part of the merchant costs and customer will pay them indirectly just like they pay for bank fees.
And demurrage can be much cheaper then those.
It is possible that users prefer tx fees, though. Specially if they're not aware how much they will save thanks demurrage.
Most people think that they don't pay interest if they don't borrow money, but that's not true. Interest is factored in the price of every item you purchase.

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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August 09, 2011, 01:00:53 PM
 #55

I very much like the idea of stablecoin. This would be a version of bitcoin that's better suited for commerce than the original. In order to use a currency in commerce, stability is very important. No merchant wants to constantly have to change prices.
As of today, you are wrong: many bitcoin merchants still change prices very often, even though this hurts stability. When they start to grow up and offer their services for dependable prices (I would call it that way at the point where they don't change BTC prices more often than e.g. USD prices), there will soon be no market for bitcoin adaptions with an additional single point of failure added, like stablecoin or goldcoin are.

I would not see them as an alternative to bitcoin, and neither would most of the people I work with, as these approaches backdoor the dependability which bitcoin achieves through decentralization.

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August 09, 2011, 01:36:52 PM
 #56

I would not see them as an alternative to bitcoin, and neither would most of the people I work with, as these approaches backdoor the dependability which bitcoin achieves through decentralization.

Stablecoin is not beertoken. It tries to achieve stability within a decentralized system.
Maybe it can't work, but it has no single point of failure.

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August 09, 2011, 01:42:10 PM
 #57

The source of info on exchange rates is the single point of failure. Ever heard of the mtgox flash crash. Yup, that's failure.

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dacoinminster
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August 09, 2011, 01:56:04 PM
 #58

I do not get Goldcoin. I mean, I understand the wildly awesome idea of selling free coins for the price of Gold. However, I do not understand why anyone would buy them instead of Gold itself. There is tremendous risk that Goldcoin would not actually match the price of Gold. There is exactly 0% risk, however, that Gold will not match the price of Gold. Saving transaction fees is not good enough to make up for the risk. I store gold. I do not pay transaction fees anyway.

So, lets say the first block of GoldCoins come out. What if nobody wants to buy them on an exchange? Simply reducing new supply will not help. It would be Dead on Arrival. Destroying coins will not work either. Why would I buy coins that can be destroyed? Why would I use transactions that have fees significant enough to make any difference on overall inflation/deflation rates? They would have to be huge. No thanks.

Even if the first few mined coins could be sold, the problem is new on every new block. If there are not enough buyers, GoldCoin would drop and may never come back. Price fixing on the exchanges cannot create demand, either.

I suppose you could destroy coins uniformly to get the price up. But, remember, you are destroying someones real wealth when you do that. If you need to delete half my GoldCoins to get the price up, how exactly does that help me? I paid for 10oz of gold and if I now have 5oz that means I lost money.

I am not saying Goldcoin is impossible. I just think that the equilibrium that keeps the price right would likely be a very small population of true believers. (You might be generating 1 goldcoin per day to avoid oversupply and God forbid if demand drops too fast.) Everyone else would find real gold much less risky and coin shops more convenient than Paxum/MtGox or whatever it takes to get GoldCoin. Or they buy bitcoin if they want a new currency. At least that has potential upside.


You are assuming that the protocol would dump a ton of coins in the first block. But what if rather than dump 50 ounces worth of gold coins, it only gives out 0.00001 ounces? That is worth about $0.02, and I don't think you would have trouble with oversupply.

I believe the protocol will need to err on the side of scarcity, especially early on. Artificial scarcity won't generate a massive bubble, since everyone knows the price will eventually converge with the underlying commodity, so it would be silly to pay 2x what they will be worth in a couple years. However, it will give people more confidence to hold these coins if there is more demand than availability.

I predict USDCoins (not the stable 1971 variety) will actually be the most popular one among the masses here in the states, not because it is a good investment, but because it will be easiest to understand. In other parts of the world I expect Eurocoins to be equally popular.

One thing I love about this idea is how extendable it is. If people want to trade coins denominated as Google stock, boom, Googlecoins are born. You just need agreement among all the clients on what data sources to trust and how to deal with data sources getting hacked.

It would be sweet if the integration with bitcoin will allow me to hold my money as goldcoins, stablecoins, etc, but then spend them to any bitcoin or goldcoin address. If it is a bitcoin address, then behind the scenes, the client would exchange the gold coins for bitcoins, and then send the bitcoins.

dacoinminster
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August 09, 2011, 02:07:38 PM
 #59

The source of info on exchange rates is the single point of failure. Ever heard of the mtgox flash crash. Yup, that's failure.

Any coin traded is going to need multiple independent data sources, and some way to deal with data sources getting hacked. Keep in mind that the external price only sets a target which is approached over time by controlling supply. The actual price of the coins is set by supply and demand. A flash crash isn't going to change what people are paying for goldcoins. A sudden change like that might lower the amount of coins being generated, but it would not raise transaction fees - I expect they would come into play very slowly over a long period of time.

If the protocol sees that its data sources have wildly different prices, it won't know which target to use, and the rules to deal with that will need to be flexible enough for everyone using the coins to agree that "at block 1024, we'll stop using this compromised data source and add these two new sources". If your client doesn't vote on a decision like that, you get stuck with the new target that everyone else decides they want.

What if two of your three sources for gold prices get hacked, and there is significant disagreement on which new sources to use? In that case, you might split off a new block chain so you have two chains which recognize the old coins, but each chain uses their own rules for new coins (and new coins wouldn't be equivalent). Any old coin would get onto one of the new chains the next time it was spent.

sacarlson
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August 09, 2011, 04:11:41 PM
 #60

I can only think that only a real market can control a price of any commodity or currency and the a central bank that dumps and buys as needed to control the price would be the only way I know to make a stable currency possible.  as I said before you can peg the value of a currency to anything you want.  It's "The Trust" holders that should decide what they want to hold as there base of value of the asset holdings and just use the crypto coins to pass the value for P2P transactions.  I have almost completed the infrastructure to make all that possible in the BeerTokens model http://bitcointalk.org/index.php?topic=9493.msg138247#msg138247.  The first beerA coins have already been minted with the new merge mining feature using MulitCoin-exp https://bitcointalk.org/index.php?topic=24209.msg300830#msg300830.  With MultiCoin  we also can setup secure exchanges with escrow deposits to prevent third parties from stealing from a central exchange.  I will continue to develop what I feel is missing in the infrastructure to make what  sounds some of you want in the near future.  The basic concept is that the holders of "The Trust" decide how they want things to be and what needs to be changed, Not the developers and miners.  Each holder on record has a voice.  You just have to make it heard by being a part of it.

for more info on MultiCoin check out #multicoin chat on freenode , for more info on BeerTokens see the [url=http://forum.bitcoin.org/index.php?topic=9
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