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February 11, 2014, 11:47:35 PM |
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All the major crypto-currency overlook one major issue that will make them slowly become obsolete with time, that issue is their long-run rate of money production. We know that a money whose rate of production is ten million percent per annum would be nearly useless, and that a a money, like Bitcoin, whose long-run rate of money production is zero percent would be a much more suitable form of money. This implies that there is some rate that is ideal, no one has proved this ideal rate is zero and below we will prove that zero is not the ideal rate of money production.
To find the ideal rate of money production we must remember that profits are calculated in terms of money, although the point of an economy is not the maximization of profits but rather the maximization of real value, hyper-inflation may maximize money profits, but that does not mean the economy is performing at maximum. Because an economy's incentives work towards maximizing money profits, the ideal money is a unit of value, in this way, the economy using a unit of value as money has profits calculated in terms of a unit of value, thus ensuring a perpetual incentive toward the maximization of value.
In order to achieve a money with a stable value, markets have consistently chosen gold and silver, when the price of gold or silver increases so does the incentive to produce more, and when the price drops the incentive to produce more decreases. In this way gold and silver use a market mechanism to retain stable price. Crypto-currencies have natures that make such a mechanism impossible, however, stable value can be achieved by simply pinning the rate of money production to an approximation of rate of economic growth. In sound money times this rate was around 2-4% annually.
Crypto-currencies additionally require an initial high reward for mining to incentivize initial adopters, meaning there must be two parameters controlling the rate of coin production, the short-run rate that halves to incentivize initial adopters, and the low long-run rate to maximize economic efficiency. The second generation of crypto-currencies will be attempting to approximate this rate.
I have access to the code for a coin I designed called Utilcoin. It has a long run rate of coin production of 3%. Its initial mining reward is 17.76 and this is halved every 4 years, but compounded every 5 days to smooth out the transition. It uses Scrypt. It's genesis block message is the first few lines of the Declaration of Independence with "money and banking" substituted for "governments". I am currently starting up two Bitcoin related businesses and don't really have time to work on it anymore, if someone wants to take a look and continue the project go ahead, but I don't have time at the moment to continue.
The only thing missing from crypto-currency as of now is the fact that in the long-run all of them will tend to appreciate and because profits will be calculated in terms of whatever crypto-currency is adopted as money, any appreciation will necessarily cause money profits to be inaccurate to the same degree. Although the short-run requires rapidly increasingly value, the long-run demands a stable value, Bitcoin doesn't have it, Litecoin doesn't have it, but Utilcoin does.
If you want the links to the code for Utilcoin let me know.
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