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Author Topic: Hypothetical currency with decentralized monetary policy  (Read 2075 times)
gyverlb
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September 20, 2011, 08:16:26 PM
 #21

Would linking the votes to transaction fees be a good way to stabilize things ?
Exchanging money between accounts seems prone to gaming. Fees aren't recoverable and help the system maintain itself (incentive to mine). That's not really democratic, as people will get more votes by giving more money but it seems to have some nice stabilizations properties.

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jtimon
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September 20, 2011, 08:53:51 PM
 #22

I agree. I never said that deflation will destroy bitcoin. I just can't see deflation as a desirable quality for a currency.


Can we agree that bitcoin isn't a "proper" currency and what it is experiencing, given both it's inherent properties and the context of its operation, allows one to say that what it will undergo isn't quite typical deflation ? Smiley

Yes, is not typical deflation. A big difference, when deflation attacks an economy, the currency is usually monopoly money. On the other hand, one of the current functions of bitcoin is to act like a glue between currencies (for example, I don't know an easy way to buy yens without bitcoins), it's also free software...Bitcoin will never be monopoly money in any economy.

2 different forms of free-money: Freicoin (free of basic interest because it's perishable), Mutual credit (no interest because it's abundant)
JohnDoe
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September 22, 2011, 04:09:02 AM
 #23

Would linking the votes to transaction fees be a good way to stabilize things ?
Exchanging money between accounts seems prone to gaming. Fees aren't recoverable and help the system maintain itself (incentive to mine). That's not really democratic, as people will get more votes by giving more money but it seems to have some nice stabilizations properties.

Good idea. Being able to vote only through transaction fees sounds superior than total amount sent * confirmations.

Actually now that I think about it, miners would be able to game this by sending money to themselves with a big fee and not broadcasting the transaction until they can include it in a block they mined themselves.
jtimon
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October 11, 2011, 11:49:43 AM
 #24

Investors and debtors will want inflation.
Creditors will want deflation.

You are right, that is undoubtedly their self-interest, but I believe they mostly cancel each other out. Creditors will lend 100 coins and vote for maximum deflation, then debtors will spend/invest the 100 coins and vote for maximum inflation. Debtors get another chance to vote with 100 or more coins when they pay the creditor back but this offset by the higher than average probability that the money sent from creditor to debtor had more confirmations than the money sent from debtor to creditor.

Not sure if all this get balanced.

Even with demurrage, money holders will want their money to appreciate.
And yes miners will want more subsidy, even if it will be translated in more competition later (that neutralize their increased profits), that won't be instant, the increase in the subsidy would happen first.

I guess you are right. What if the demurrage rate were inversely proportional to the supply growth rate? That way money holders have no incentive to push for deflation because it will translate into increased demurrage and miners have no incentive to push for inflation because it results in less revenue from demurrage.

My initial proposal for demurrage and inflation rate to influence prices was:

NCC = newly created coins
CDD = Coins Destroyed by Demurrage
With deflation you increase both NCC and CDD, but NCC more than CDD
With inflation you decrease both, but you decrease NCC more than CDD

I guess this is incompatible with demurrage being inversely proportional to the supply growth rate.
But definitely removing miners bad incentive is a priority. If you achieve that, you can just use a decentralized price index.

About the concrete voting system, I would suggest to define a reference currency and the people vote how higher or lower the chain currency is compared to the reference.

Yeah, I had Terra in mind when I suggested to follow a price index for the recommended/default rate, but I get the vibe you mean create a real parallel blockchain just to set the reference. I don't see the need for that.

EDIT: I read your thread more carefully and it looks you didn't mean real currency that's actually issued, so we are on the same page.

Yes, I don't want to issue or back it. I just want to use a decentralized price index to be able to measure the price (in bitcoins, freicoins or whatever) over time. But for this you need to remove the voting incentives for miners, which they won't have if the reference currency doesn't influence the rewards and issuance of the host chain.
If you want to use the reference coin for more than just contracts and price setting (to make it the target for your dynamic supply chain currency); then the system becomes more fragile. Remember that the time travel attack was based on cheating the timestamps that miners "vote".

This is a good idea, but how is the infomation about exchange rates fed into the blockchain. You need I thinlk two items of third party data: the current USD exchange rate and the exchange rate between current USD and whatever commodity you are pegging value to. Presumably, humans need to supply this data. How do you incentivize the humans to supply honest data?
If you want a distributed currency pegged to ANYTHING, this is one of the biggest technological problems to solve. However, consider this: there are also attack vectors on bitcoin that involve fraudulent timestamps. Bitcoin uses a distributed timestamp protocol, where nodes reject timestamps that differ significantly from what they think the time is. I believe the same logic can be extended to exchange rates. If somebody lies about the exchange rate, other nodes will reject that block. Consequently, I consider the problem of distributed exchange rates a (mostly) solved problem.


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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October 11, 2011, 03:14:32 PM
 #25

So you believe over 51% of coin holders will intentionally vote against price stability, making the currency useless?

Useless maybe in the long term but profits can be made in the short term.

Say I have $1M.  If I could vote to deflate that to $2M and then cash out why not?

To answer your direct question YES people will vote AGAINST price stability if there is short term profit in it.
cunicula
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October 13, 2011, 03:49:04 PM
 #26

So you believe over 51% of coin holders will intentionally vote against price stability, making the currency useless?

Useless maybe in the long term but profits can be made in the short term.

Say I have $1M.  If I could vote to deflate that to $2M and then cash out why not?

To answer your direct question YES people will vote AGAINST price stability if there is short term profit in it.

I think this is 100% correct. That is why you need to manage money supply creation and destruction, so as to neutralize effects on currency holders. Proper distribution rules would ensure that money holders are indifferent between voting for inflation and deflation under the assumption that the real value of all the currency in circulation remains fixed. You can arrange this by taking money away from accounts when the majority votes for deflation and distributing it to accounts when the majority votes for inflation. This design encourages currency holders to vote for outcomes that maximize the total real value of the money supply.

Don't ask for clarification, I'm not giving it.




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jtimon
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October 13, 2011, 06:07:46 PM
 #27

You can arrange this by taking money away from accounts when the majority votes for deflation and distributing it to accounts when the majority votes for inflation.

Interesting idea.
This could also be done if only miners vote. In the current bitcoin chain miners have to wait I think 100 blocks to be able to move the newly created coins and you could apply the "award for honesty" or "fine for lying" just after that period.
But I guess they would vote for inflation anyway.

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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