Dynamic Block Reward Idea-please critique

[gwestcot]

I have an idea that is related to one of the main issues I see with Bitcoin and crypto in general. The hard cap on total supply of 21 million is often touted as a strength but in reality I see it as a definitive weakness that prevents it from operating as a true currency rather than a speculative asset. In essence, Bitcoin is deflationary in nature with the advent of a hard cap on supply and block halving events. If there is increased demand then the price will inevitably go up but this creates speculation and hoarding. This means that there is very little incentive to actually spend Bitcoin to pay for goods. My idea, probably for an altcoin, is to have a dynamic block reward that moves in relation to the demand of the currency. I have an algorithm that I am testing but the general idea is that if there is increased demand then there will be an increase in inflation via the block reward to offset that demand. If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium. The idea is to factor in the delta of transactions, addresses, and volume in a given period of time into the algorithm by using a weighted scale. I realize that potentially this could be exploited by spamming the network with transactions just to increase block reward in future blocks but this would be very costly in the form of fees and once the exploitation ended the algorithm would once again find a market equilibrium. I really would love to create a stable decentralized crypto that is actually useful for people to spend and use. At the moment, only anarchists and libertarians will use Bitcoin as a currency out of beliefs rather than incentives. The masses will not adopt something without stability so I am trying to provide that stability. I foresee, if successful, that such a currency could be a great stable trading pair superior to the USDT in every way without needing to be tied to a fiat currency or needing to trust a third party. Is there any flaws in my logic? Please do critique me as harshly as you want and allow me to further mold this idea into fruition.

[1713902520]

1713902520

[1713902520]

1713902520

[ebliever]

Look up Stablecoins, which is what your coin idea is. Your idea is one of the three approaches to implementing a stablecoin. As it relies on an oracle that can be corrupted (GIGO) I would never trust it.

[gwestcot]

Look up Stablecoins, which is what your coin idea is. Your idea is one of the three approaches to implementing a stablecoin. As it relies on an oracle that can be corrupted (GIGO) I would never trust it.

I have read up on it a little. Well what would be your alternative? rapidly fluctuating valuations and the ever upwards push is not exactly ideal for the masses to adopt. I think a dynamic block reward could work within a certain margin of error of course.

[pooya87]

If there is increased demand then the price will inevitably go up but this creates speculation and hoarding. This means that there is very little incentive to actually spend Bitcoin to pay for goods.

from what i understand, the idea is that the demand will increase but get to a point where it stays the same, eg. reaching mass adoption. when demand is not rising and supply is fixed the price should be a lot more stable.
we are currently on the foot of the adoption S curve that is why the volatility is high and the rises are this big.

If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

the block reward is creating new supply not controlling all the supply. so if you decrease or even make it zero or 10 million you still have to consider the existing circulating supply. for example if your coin at some point has 100 million coins circulating whether your new blocks reward the miners nothing or a lot doesn't change much.
additionally if the reward is like bitcoin's, the miners can not sell their coins until they are matured meaning 100 blocks should pass (IIRC). and that takes time so your block reward adjustment may not even be able to affect the market that fast and this maturation time is needed to control the flow too.

The idea is to factor in the delta of transactions, addresses, and volume in a given period of time into the algorithm by using a weighted scale.

i don't think any of this data can be trusted and it doesn't need a spam attack to change it. because all of it depends on how price is moving. if there is either a surge up or a drop down there will be a lot of transactions, a lot of addresses used, and the volume will go up.

[gwestcot]

If there is increased demand then the price will inevitably go up but this creates speculation and hoarding. This means that there is very little incentive to actually spend Bitcoin to pay for goods.

from what i understand, the idea is that the demand will increase but get to a point where it stays the same, eg. reaching mass adoption. when demand is not rising and supply is fixed the price should be a lot more stable.
we are currently on the foot of the adoption S curve that is why the volatility is high and the rises are this big.

If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

the block reward is creating new supply not controlling all the supply. so if you decrease or even make it zero or 10 million you still have to consider the existing circulating supply. for example if your coin at some point has 100 million coins circulating whether your new blocks reward the miners nothing or a lot doesn't change much.
additionally if the reward is like bitcoin's, the miners can not sell their coins until they are matured meaning 100 blocks should pass (IIRC). and that takes time so your block reward adjustment may not even be able to affect the market that fast and this maturation time is needed to control the flow too.

The idea is to factor in the delta of transactions, addresses, and volume in a given period of time into the algorithm by using a weighted scale.

i don't think any of this data can be trusted and it doesn't need a spam attack to change it. because all of it depends on how price is moving. if there is either a surge up or a drop down there will be a lot of transactions, a lot of addresses used, and the volume will go up.

1. Well demand will never reach an equilibrium even under the insane idea that there is 100% adoption. There is nothing to bridge the gap there but even if there was population numbers do not stay the same so thus demand will inevitable rise even under the best of circumstances.

2. You are correct but my algorithm would have no limits as to how high the block reward could rise or how low it could fall. Basically, regardless it should be able to adjust to any market conditions and it would absolutely dissuade people from trying to speculate. I am ok with it not having a perfectly immediate affect though since I am not trying to maintain perfect stability but rather relative stability within a range. I am not naive enough to think perfect stability is attainable.

3. Well I don't know if you are making my case for me or not on this one. That is literally at the core of my idea. When was speculation most rampant and price movements most severe in the past year? Well December speculation rose and thus transaction levels rose. My algo should theoretically work to dissuade this activity.

My main weakness, in my opinion, is actually probably on the miner side rather than feasibly being able to stabilize price. With there being not a lot of pressure pushing price upwards there would naturally be an equilibrium as far as mining goes as well. Of course I need to think of more of the angles still since the idea and even the algo itself is in its infancy. Of course this theoretical coin would retain many of the other properties of Bitcoin and other crpytos in general.  

[odolvlobo]

I suggest that you reformat your post to make it easier to read. It is well-written, but most people aren't going to read a wall of text.

If there is increased demand then the price will inevitably go up but this creates speculation and hoarding. This means that there is very little incentive to actually spend Bitcoin to pay for goods.

I don't believe that it true. If the value increases by 2%-3% per year, then there will be some additional saving, but to say that there would be "very little incentive to spend" seems to be quite an exaggeration.

Consider that inflation is the opposite of deflation, and your arguments could be presented in the opposite sense with dollars to show how overstated they are:

If there is increased supply then the price will inevitably go down but this encourages spending. This means that there is very little incentive to actually save.

Now, we know that people save even when the currency is inflationary (thought they may save less), so we can assume that they will spend when it is deflationary (though probably less).

[gwestcot]

If there is increased demand then the price will inevitably go up but this creates speculation and hoarding. This means that there is very little incentive to actually spend Bitcoin to pay for goods.

I don't believe that it true. If the value increases by 2%-3% per year, then there will be some additional saving, but to say that there would be "very little incentive to spend" is quite an exaggeration.

Consider that inflation is the opposite of deflation, and your arguments could be presented in the opposite sense with dollars to show how overstated they are:

If there is increased supply then the price will inevitably go down but this encourages spending. This means that there is very little incentive to actually save.

Now, we know that people save even when the currency is inflationary (thought they may save less), so we can assume that they will spend when it is deflationary (though probably less).

You are correct in that inflation and also the manipulation of interest rates does generally provide incentives to spend. I suppose I need to be more clear between the differences in the deflation and constraints in Bitcoin and how fiat operates. Fiat already has mass adoption due to government mandate so inflation/deflation, although this is an oversimplification, is the sole thing they need to worry about. But unlike fiat our demand rapidly changes even from month to month. That demand, while interacting with the core mechanisms of Bitcoin, cause an inevitable increase/decrease in price. To me creating a counterbalance for the changes in demand makes sense for crypto in a way that is different than fiat. At any rate, me and you both know that the value of Bitcoin moves 2-3% per hour at times let alone per year and that will always scare away the sheeple. We will never gain mass adoption by shear beliefs alone so to me we must make it palatable for the masses. 

[odolvlobo]

My idea, probably for an altcoin, is to have a dynamic block reward that moves in relation to the demand of the currency. I have an algorithm that I am testing but the general idea is that if there is increased demand then there will be an increase in inflation via the block reward to offset that demand. If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

Here are my issues:

1. Your currency is strictly inflationary. There is no way to remove "excess" currency from the economy.
2. You haven't described your "algorithm" for determining demand, and that is the key to your whole proposal.

[odolvlobo]

At any rate, me and you both know that the value of Bitcoin moves 2-3% per hour at times let alone per year ... 

That is temporary. The price will stabilize when we have wide adoption.

[pooya87]

3. Well I don't know if you are making my case for me or not on this one. That is literally at the core of my idea. When was speculation most rampant and price movements most severe in the past year? Well December speculation rose and thus transaction levels rose. My algo should theoretically work to dissuade this activity.

what i am trying to say is that increase in real demand may look the same as increase or decrease in price when you use factors such as volume and number of transactions.

for example if price falls there is a lot of transactions on chain from people send their coins to exchanges to sell, some others buy some coins at that time because of drop and transfer it out of exchanges. same thing will happen during rises.
this is going to look exactly like when there is an increase in real demand, like if a merchant (lets say Amazon) starts accepting that coin and gives 20% discount to users who use that coin. obviously there will be an increase in number of transactions and even trading volume.

[gwestcot]

At any rate, me and you both know that the value of Bitcoin moves 2-3% per hour at times let alone per year ...  

That is temporary. The price will stabilize when we have wide adoption.

Population increases are not temporary and we will NEVER see mass adoption right now. There is too much stigma behind it due to volatility. We need to have the stability now to attain mass adoption not wait for mass adoption to gain stability. 90 percent of the world is not like you and me that have a philosophical reason for being in this space. Eliminating volatility would also destroy the one major critique of governments and banks. They would be issued a "check" by the crypto community if such a coin was every created.

[gwestcot]

My idea, probably for an altcoin, is to have a dynamic block reward that moves in relation to the demand of the currency. I have an algorithm that I am testing but the general idea is that if there is increased demand then there will be an increase in inflation via the block reward to offset that demand. If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

Here are my issues:

1. Your currency is strictly inflationary. There is no way to remove "excess" currency from the economy.
2. You haven't described your "algorithm" for determining demand, and that is the key to your whole proposal.

Correct in the truest sense but I am talking about the relation between supply and demand. We are currently always seeing a demand shift on the supply curve. I am simply trying to stabilize it at a market equilibrium. Theoretically it is possible but I guess I will only know when I throw it out there for the world. I suppose the reason why I don't want to disclose the algorithm is that I have yet to release this in practice and that will likely be the truest. Although, people can of course do with it what they want once I release it. I just wanted to let people critique the bare bones idea of such a mechanism.

[gwestcot]

3. Well I don't know if you are making my case for me or not on this one. That is literally at the core of my idea. When was speculation most rampant and price movements most severe in the past year? Well December speculation rose and thus transaction levels rose. My algo should theoretically work to dissuade this activity.

what i am trying to say is that increase in real demand may look the same as increase or decrease in price when you use factors such as volume and number of transactions.

for example if price falls there is a lot of transactions on chain from people send their coins to exchanges to sell, some others buy some coins at that time because of drop and transfer it out of exchanges. same thing will happen during rises.
this is going to look exactly like when there is an increase in real demand, like if a merchant (lets say Amazon) starts accepting that coin and gives 20% discount to users who use that coin. obviously there will be an increase in number of transactions and even trading volume.

I am talking long term price movements and not necessarily instantaneous short term movements. How quickly an adjustment can be made would greatly depend upon the period of recalculation. An example is comparing the transaction levels in December to the transaction levels of today. There was increased demand then and decreased demand now. Also look at the prices for comparison. I am not sure it matters whether it was for speculation, actual real world transactions, or something else entirely.

[odolvlobo]

My idea, probably for an altcoin, is to have a dynamic block reward that moves in relation to the demand of the currency. I have an algorithm that I am testing but the general idea is that if there is increased demand then there will be an increase in inflation via the block reward to offset that demand. If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

Here are my issues:

1. Your currency is strictly inflationary. There is no way to remove "excess" currency from the economy.
2. You haven't described your "algorithm" for determining demand, and that is the key to your whole proposal.

Correct in the truest sense but I am talking about the relation between supply and demand. We are currently always seeing a demand shift on the supply curve. I am simply trying to stabilize it at a market equilibrium. Theoretically it is possible but I guess I will only know when I throw it out there for the world. I suppose the reason why I don't want to disclose the algorithm is that I have yet to release this in practice and that will likely be the truest. Although, people can of course do with it what they want once I release it. I just wanted to let people critique the bare bones idea of such a mechanism.

I think that trying to maintain a market equilibrium will be difficult because you don't know the shapes of either the supply or demand curves. I assumed that you were going to tweak the money supply based on the velocity (more specifically bitcoin-days destroyed) in order to match the current production, but that is probably just as difficult to do.

[gwestcot]

My idea, probably for an altcoin, is to have a dynamic block reward that moves in relation to the demand of the currency. I have an algorithm that I am testing but the general idea is that if there is increased demand then there will be an increase in inflation via the block reward to offset that demand. If there is a decrease in demand then the block reward will decrease to move the price within the desired equilibrium.

Here are my issues:

1. Your currency is strictly inflationary. There is no way to remove "excess" currency from the economy.
2. You haven't described your "algorithm" for determining demand, and that is the key to your whole proposal.

Correct in the truest sense but I am talking about the relation between supply and demand. We are currently always seeing a demand shift on the supply curve. I am simply trying to stabilize it at a market equilibrium. Theoretically it is possible but I guess I will only know when I throw it out there for the world. I suppose the reason why I don't want to disclose the algorithm is that I have yet to release this in practice and that will likely be the truest. Although, people can of course do with it what they want once I release it. I just wanted to let people critique the bare bones idea of such a mechanism.

I think that trying to maintain a market equilibrium will be difficult because you don't know the shapes of either the supply or demand curves. I assumed that you were going to tweak the money supply based on the velocity (more specifically bitcoin-days destroyed) in order to match the current production, but that is probably just as difficult to do.

That indeed would be one way to attempt something like this but even that metric is flawed from the standpoint that it doesn't account for activity that is legitimate but does have a fast turnover. I suppose it still does a good job of filtering out the junk though. Thanks for the different direction. I am honestly just looking for people to throw their ideas around on how to attain lower volatility. I love to debate as you see and I also love hearing peoples ideas. I simply think that we got some things right and some things wrong with this movement but that we are all too busy praying to the almighty god satoshi to even try to fix the things that are wrong.

[gwestcot]

On a side note... I am in need of some help hunting down historical price data of Bitcoin dating from the very beginning. I believe the first data points would be in 2010 but I want something comprehensive that offers daily average prices. blockchain.info has data only every other day which is an inconvenience when trying to determine correlation and coefficients. Do you know of a place I can get a CSV that has the data I need?

[ebliever]

On a side note... I am in need of some help hunting down historical price data of Bitcoin dating from the very beginning. I believe the first data points would be in 2010 but I want something comprehensive that offers daily average prices. blockchain.info has data only every other day which is an inconvenience when trying to determine correlation and coefficients. Do you know of a place I can get a CSV that has the data I need?

https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20130428&end=20180423

Has daily data going back to 4/28/2013.

https://www.coindesk.com/price/

Has a chart going back to 2010, and there is an Export button including a CSV option that may be just what you are looking for.

[odolvlobo]

On a side note... I am in need of some help hunting down historical price data of Bitcoin dating from the very beginning.

https://bitcoincharts.com/charts/bitstampUSD#tgSzm1g10zm2g25zv

I recommend getting the earliest data from the Mt. Gox chart and then switching to Bitstamp as soon as they start diverging.

[franky1]

critique:

1. bitcoin supply of 21m is not an issue. infact there are at code level 2.1 quadrillion units of measure. called sats. many people have said a unit of measure called bits(100 sats) would result in 21 trillion units of measure. which would be ok as a global medium of exchange unit.
EG 1bit ~ $1   1sat ~ 1 cent
if you think of bitcoin as "$1mill" or a tonne of gold.. and then think of bit as $1 or a gram of gold. you start to see that there is enough units of measure to go around

2. exchange markets are not influenced by the entire coins of circulation. or by the coins produced by a block.. the exchange markets are influenced by the amount of coins that had been voluntarily deposited on an exchange and then user chosed as to how much to put on a order line.
.
to explain further. even if we halted bitcoin production right now at ~17m coins. the markets will still fluctuate. one day an exchange may have 200k coins depositied but the volume per order line might only be 0.0001btc per price spread. meaning its very easy to move the price by just buying 0.0001btc. where as another day ach order line/price difference had 1btc per line. meaning it cost alot to move the price.
. then another day thier might only be 50k deposited because people are holding.. but again inside the exchange the orderlines could be thick or thin.

so in short. production does not control market suply/demand. for the simple reason that the current ~17m coins are not all locked into exchanges to be treated as 'supply' and not all coins that are deposited are sat on order lines.

3. though code/mechanics of economics cannot control markets. i understand your belief of your ida is more about persuading the emotions of trader speculation by hoping inflating/deflating mining rewards will affct their emotions.. but i cant see it happening beyond the first month. and then after that i would then see miners abusing the system to 1 month get thousands of coins. to then. get the price to drop.. to buy even more coins cheaply. to cause a price rise. then when the rewards slow down. they mass-sellof at a high. and they repeat this. causing constant waves bi-monthly

summary
i dont think its a solution to a stable market.

[franky1]

On a side note... I am in need of some help hunting down historical price data of Bitcoin dating from the very beginning. I believe the first data points would be in 2010 but I want something comprehensive that offers daily average prices. blockchain.info has data only every other day which is an inconvenience when trying to determine correlation and coefficients. Do you know of a place I can get a CSV that has the data I need?

if you are looking for patterns or trends. you will see that the first big rise of 2013 occured not due to block reward changes. but due to the advent(creation) of ASICS. this happened in october 2013.. then mtgox 'hacked' drama killed that surge a few months later..

if you are looking for patterns or trends. you will see that the next big rise of 2017 occured not due to block reward changes. but due to the advent(creation) of forking the chains after core couldnt accept that they only had 35% vote on segwit. this happened around march/april 2017
(the december 2016 surge to mini sruge from 700-1200 and then drop was the initial segwit bip propaganda.. but died off in january when it only maxed 30%)