The Next Big Thing in Crypto: Using Inflation to Create Stablecoin

[dnprock]

Bitflate is a cryptocurrency with constant inflation. Bitflate is an experimental coin with the goal of becoming a digital native and decentralized stablecoin.

Original post: https://bitflate.org/post/2019/10/10/the-next-big-thing-in-crypto-using-inflation-to-create-stablecoin.html

This is my view of the next big thing in crypto. Bitcoin is digital gold. It has a limited supply of 21 million coins. Therefore, its price fluctuates. Stablecoins are cryptocurrencies designed to avoid price volatility. Existing stablecoins are issued by centralized authorities. This mechanism defeats the ethos of cryptocurrency. In order to access decentralized cryptocurrency, we need to rely on centralized authorities to issue digital stablecoins.

A New Look at Inflation

Cryptocurrency has started and become successful by embracing Austrian Economics. Bitcoin’s limited supply means every person on planet Earth can only own a small fraction of a bitcoin. When Bitcoin reward reaches 0 around year 2140, there will be no coin. If there is still demand for Bitcoin, its price will be: buyer demand / supply = infinite.

How do we address this conundrum? There is currently no easy way. For cryptocurrency to gain adoption, we can’t have a money system with limited supply. That is not how the world works. Even our universe inflates. To solve this paradox, we need to explore the role of inflation.

People lament about inflation robbing your purchasing power. But historically, economies tend to grow with currency inflation. It is hard to find past record of economies thriving with deflation. Inflation is bad when it is high and/or when money is printed without people’s knowledge and approval. Otherwise, it can be a force for growth. With cryptocurrency, we can design a currency with a known and deterministic inflation rate.

Deflationary versus Inflationary

Economies always have deflationary and inflationary assets. People often overlook this. Gold, real estate, moat, competitive advantages are some examples of deflationary assets. Inflationary currencies serve as a medium of exchange. They are used for transactions. Bitcoin was created in response to the 2008 economic crisis. It exists and thrives because of quantitative easing, a type of inflating monetary policy.

Existing stablecoins are inflationary digital currencies. They are pegged to fiat currencies. In the future, there will be two kinds of cryptocurrencies: deflationary and inflationary. For cryptocurrency to gain more adoption, we need a better kind of inflationary digital currency.

Bitflate - Digital Native Decentralized Stablecoin

Bitflate is a new kind of cryptocurrency. It is a Bitcoin fork with an inflation rate of 7% per year. In its first four halvings, Bitflate blockchain will create 19.3 million coins. After that, its supply will inflate at 7% per year. Here’s the block reward schedule for the first 10 halvings:

0: 50
1: 25
2: 12.5
3: 6.25 (end of halving)
4: 6.65 (start of inflation 7%)
5: 7.02
6: 7.51
7: 8.04
8: 8.60
9: 9.20
10: 9.85

With inflation, there will not be a pressure to push price up too high. Bitflate blockchain uses Proof of Work. It issues a deterministic and limited number of new coins. Therefore, price will not drop too low. The goal of Bitflate is to create a digital token that people can use for transactions.

Bitflate price will not be as stable as pegged stablecoins. It has significant advantages: digital native and decentralized. Bitflate will be more suitable for transactions than deflationary cryptocurrencies. It opens a new gateway to financial possibilities. In this future, we, the people, are in control.

PS: Bitflate is now trading on Unnamed Exchange (https://bitflate.org/exchange/). Join our discord community (https://discord.gg/utnEyp8) for update.

[DaMut]

I really do not understand this so-called decentralized stablecoin,
how it is possible to be called as a stablecoin if the price is determined by the open market without any authority controlling it?
stablecoin means a coin with a stable value, without something or someone controlling it there is no way the value will be stable. And the most important thing beside it is a reserve,
a coin with a huge reserve will be able to retain its value even though it is traded in an open market.

Inflation and deflation do not matter if it has a sufficient reserve to back the price.

[magneto]

First of all, a 7% inflation target is way too much. Most western countries have fiat currencies that inflate at around 2-4% annually, and the upper end of that range can even be considered to be high inflation by today's standards (with deflationary pressures hitting most countries right now).

Secondly, how are you going to guarantee that this fork is going to keep its value better than BTC? Remember that prices aren't formed by supply alone, it's a combination of both sides of the market forces.

There is a lot of guesswork and assumptions here. I'd rather have a disinflationary coin like BTC rather than an increasingly inflationary coin like this one. And for anyone wanting a stablecoin, this is not pegged to any stable currencies even in the short run.

[ss890]

This is a nice idea inflationary stablecoin sounds like a weird idea. Moreover Inflation is something which is pretty subjective it can change with the economic condition of the country with increase and decrease in price levels in the country or with fiscal deficit in the country.

[dnprock]

Thanks everyone, I know this is an up side down, contrarian idea. Even die hard crypto fans don't get it. I'll try to explain.

I really do not understand this so-called decentralized stablecoin.

The price of Bitflate won't be very stable, but somewhat stable. It's not a pegged currency. Long term, I think it will be relatively stable. The tradeoff is digital native and decentralization. No central authority controls Bitflate. You don't have to worry about audit and fraud. All records can be verified on the Bitflate public blockchain.

a 7% inflation target is way too much.

I intentionally set the inflation rate high. First, a high rate will make the coin not behave like a Store of Value. Second, if the coin succeeds, a high inflation rate will issue coins fast enough to prevent price rise. Even with 7%, it will take about 30 years to reach 100 million coins. Its value may rise for years. I think high inflation is dangerous when it is not known. When we have a fixed inflation rate, we can devise methods to prevent value loss. For example, users can have Bitflate saving account with interest rate.

Secondly, how are you going to guarantee that this fork is going to keep its value better than BTC?

Bitflate (BFL) is not a Store of Value. Long term, BFL token will lose value to BTC because of inflation. But short term, its token value is stable. People can use BFL for transaction. I expect in the future, people will have 2 kinds of wallets: BTC wallet for Store of Value, and BFL wallet for transaction. Of course, they can spend their BTC. But they may not want to.

And for anyone wanting a stablecoin, this is not pegged to any stable currencies even in the short run.

The tradeoff you gain is digital native and decentralization.

Inflation is something which is pretty subjective it can change with the economic condition of the country

Fiat inflation is not in our control. Bitflate inflation rate is known. We are in control.

[dnprock]

Giving this a bump because I see a new research about Bitcoin inflation on Twitter:

https://twitter.com/hasufl/status/1182439654932537344

The paper authors propose Bitcoin to have 1% perpetual inflation rate.

[notblox1]

We do need some stablecoin system that is not connected with fiat money at all.
This is interesting one idea for sure.

To bad I don't see any volume on this exchange:
https://www.unnamed.exchange/Exchange?market=BFL_BTC

[makishart]

We do need some stablecoin system that is not connected with fiat money at all.
This is interesting one idea for sure.

To bad I don't see any volume on this exchange:
https://www.unnamed.exchange/Exchange?market=BFL_BTC

Some icos have tried use their own formula to make a stable coin without backed by fiat money but it doesn't work at all. The only stable coin that used another crypto like bitcoin to keep its value becomes stable is USDQ. that's the only stable coin that is not connected to the fiat money and used bitcoin as the main currency to create stable valuation.

But the point is everyone wants buy stable coin to avoid volatility and they don't even care about the inflation.

Inflation will only push the price to the bottom if there will be no enough demand to buy

[MiningCoinsPool]

I like the project

[dnprock]

Inflation will only push the price to the bottom if there will be no enough demand to buy

We often think of inflation in context of fiat currencies. In these systems, inflation happens for some opaque reasons. If the rate is known, we can devise ways to mitigate value loss. Bitflate reward system will inflate at 7%. Even with this high rate, it'll take almost 30 years to reach 100 million coins. If there is demand, I don't think 100 million is enough.

I did read about efforts to create stablecoin using peg on crypto currencies. But I think they are too complicated. They are unlikely to work as intended.

Instead of trying to engineer finance, I think we should go with a simple system: supply inflates at 7% per year. That is the base layer. We can engineer the finance on top of this base layer.

[allwelder]

appropriate inflation for fiat money is needed,as more value created.
So if all fiat money converted to crypto asset stable tokens,inflation is obvious.

More stable tokens,price of crypto currencies surely will be up with the total supply fixed.

[dnprock]

appropriate inflation for fiat money is needed,as more value created.
So if all fiat money converted to crypto asset stable tokens,inflation is obvious.

Cryptocurrencies do inflate. The first generation of cryptocurrencies inflated by hard forks. From the original Bitcoin chain/codebase, there are numerous forks. These forks increase the supply of cryptocurrencies. But hard forks have drawbacks: community building, scam, cost of security. It takes a lot of work to build up a community and secure a blockchain. It's time for us to rethink limited supply and bake inflation into the blockchain. Bitflate is a hard fork. But I didn't see another way to implement the idea. Hopefully, it'll spark the second generation of cryptocurrencies.

Join our Bitflate community: https://discord.gg/utnEyp8

[glendall]

basically the above topic explains inflation and deflation, and that doesn't happen in the real world  only, but cryptocurrency world also has inflation and deflation, and bitflate is the opposite side of other cryptocurrency, if another cryptocurrency is deflation, then bitflate is the inflation, complementary to balance,

[dnprock]

bitflate is the opposite side of other cryptocurrency, if another cryptocurrency is deflation, then bitflate is the inflation, complementary to balance,

This explains the idea of Bitflate well. We've only looked at one side, deflationary. There's another side, inflationary. We need better inflationary tokens.

Join our Bitflate community: https://discord.gg/utnEyp8 

[Herbert2020]

Cryptocurrency has started and become successful by embracing Austrian Economics. Bitcoin’s limited supply means every person on planet Earth can only own a small fraction of a bitcoin. When Bitcoin reward reaches 0 around year 2140, there will be no coin. If there is still demand for Bitcoin, its price will be: buyer demand / supply = infinite.

actually bitcoin's limited supply is not about its price and the deflationary characteristic that it creates is more of a side product rather than being the main thing.
the real reason for a limited supply, as the name suggests, is to keep the supply "limited" or in other words in check. so that (unlike fiat) it can not be printed out of thin air and every time someone wishes! that keeps a clear plan and expected outlook for the supply.

[dnprock]

actually bitcoin's limited supply is not about its price and the deflationary characteristic that it creates is more of a side product rather than being the main thing.
the real reason for a limited supply, as the name suggests, is to keep the supply "limited" or in other words in check. so that (unlike fiat) it can not be printed out of thin air and every time someone wishes! that keeps a clear plan and expected outlook for the supply.

I think your interpretation of Bitcoin limited supply is a bit light. Bitcoin really has a final limited supply. But I speculate that Bitcoin eventually will add some low inflation rate to its supply, maybe, 1%. I think gold supply inflation is 1.5%.

By that definition, Bitflate constant inflation is also considered limited supply. It generates 7% more coins every year using Proof of Work. It's not printed out of thin air.

Reward

0 - 50
1 - 25
2 - 12.5
3 - 6.25 (end of halving)
4 - 6.56 (start of inflation 7%)
5 - 7.02
6 - 7.51
7 - 8.04
8 - 8.60
9 - 9.20
10 - 9.85
...
30 - 38.11

New Coins

0 - 10500000
1 - 5250000
2 - 2625000
3 - 1312500
4 - 1378125
5 - 1474594
6 - 1577815
7 - 1688262
8 - 1806441
9 - 1932892
10 - 2068194
...
30 - 8003258

Bitflate Inflation Table: https://docs.google.com/spreadsheets/d/e/2PACX-1vQueAgcI5ZyqkeFe6qcx7kaAsXJxZD-iZF2eLgduvlkwSl60qB0vN8-VlF2PJ-JFgvRZlUVzBdk8qSO/pubhtml

[dnprock]

Today's news headline has a news related to this topic:

Trump’s Former Fed Pick Stephen Moore Announces Cryptocurrency to Compete With Central Banks
https://fortune.com/2019/10/21/stephen-moore-trump-fed-nomination-cryptocurrency-stablecoin-frax/

It looks like this new Frax stablecoin will re-attempt to implement fractional reserve stablecoin. Previous attempt, Basis, didn't make very far due to regulatory pressure. Libra also faced similar problems.

These problems show the need for a decentralized, digital native stablecoin like Bitflate.

Join Bitflate Discord community: https://discord.gg/utnEyp8