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Author Topic: Idea to reduce deflation  (Read 1236 times)
Zotia
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February 06, 2012, 11:18:58 PM
 #1

One thing that (in my opinion) is limiting BTC's growth is that only 50 BTC are produced per block (for now) no matter how many people decide to use it.  This means that if everyone wants some at the same time, the price can climb extremely quickly.  This limits the rate at which new people start using it.


My idea is to have the amount of coin produced be higher when the difficulty is higher.  To give an extreme example, lets say that when that when the difficulty is doubled, the block reward is also doubled.  If this new coin gets popular, the price will go up.  When the price goes up it will be profitable for people to buy mining hardware (or turn on the hardware they already have) so more people will mine.   Since more people are mining, the difficulty will go up.  Since the difficulty goes up, the block reward will go up.  With more coins being created, the price will begin to go back down.  With the price going back down, the difficulty will follow.


Doubling the reward when the difficulty doubles is rather extreme.  I'm not sure if that would work or not.  It could be much less extreme.  For example, 50 coins could be created per block at 1 difficulty, but 500 coins per block at 1 million difficulty.  This would decrease the deflation caused by increased usage, but it wouldn't eliminate it.




Any thoughts about this idea?
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February 06, 2012, 11:22:38 PM
 #2

One thing that (in my opinion) is limiting BTC's growth is that only 50 BTC are produced per block (for now) no matter how many people decide to use it.  This means that if everyone wants some at the same time, the price can climb extremely quickly.  This limits the rate at which new people start using it.


My idea is to have the amount of coin produced be higher when the difficulty is higher.  To give an extreme example, lets say that when that when the difficulty is doubled, the block reward is also doubled.  If this new coin gets popular, the price will go up.  When the price goes up it will be profitable for people to buy mining hardware (or turn on the hardware they already have) so more people will mine.   Since more people are mining, the difficulty will go up.  Since the difficulty goes up, the block reward will go up.  With more coins being created, the price will begin to go back down.  With the price going back down, the difficulty will follow.


Doubling the reward when the difficulty doubles is rather extreme.  I'm not sure if that would work or not.  It could be much less extreme.  For example, 50 coins could be created per block at 1 difficulty, but 500 coins per block at 1 million difficulty.  This would decrease the deflation caused by increased usage, but it wouldn't eliminate it.




Any thoughts about this idea?

Search box is your friend.

#rehash

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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February 06, 2012, 11:27:56 PM
 #3

One thing that (in my opinion) is limiting BTC's growth is that only 50 BTC are produced per block (for now) no matter how many people decide to use it.  This means that if everyone wants some at the same time, the price can climb extremely quickly.  This limits the rate at which new people start using it.


My idea is to have the amount of coin produced be higher when the difficulty is higher.  To give an extreme example, lets say that when that when the difficulty is doubled, the block reward is also doubled.  If this new coin gets popular, the price will go up.  When the price goes up it will be profitable for people to buy mining hardware (or turn on the hardware they already have) so more people will mine.   Since more people are mining, the difficulty will go up.  Since the difficulty goes up, the block reward will go up.  With more coins being created, the price will begin to go back down.  With the price going back down, the difficulty will follow.


Doubling the reward when the difficulty doubles is rather extreme.  I'm not sure if that would work or not.  It could be much less extreme.  For example, 50 coins could be created per block at 1 difficulty, but 500 coins per block at 1 million difficulty.  This would decrease the deflation caused by increased usage, but it wouldn't eliminate it.




Any thoughts about this idea?

Search box is your friend.

#rehash
Search function seems pretty useless here. I'd be interested in the search terms to find a rehashing of this topic using only key words in this thread's post.

Don't mix your coins someone said isn't legal
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February 06, 2012, 11:33:43 PM
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Good call, I'm a troll.  Carry on.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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February 06, 2012, 11:53:55 PM
 #5

If we were to introduce a change to the monetary supply scheme, I'd simply fix the coin creation rate at 50. I don't see the point in creating 4 year milestones that may add to panic phases and introduce bubbles, when a fixed increase also converges to a 0% increase and does so in no artificial timescales other than the age of the system itself. Having difficulty making mining barely profitable long term is not a bug, but a feature. We will see how centralisation goes.

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February 07, 2012, 12:01:31 AM
 #6

Doubling the reward when the difficulty doubles is rather extreme.  I'm not sure if that would work or not.  It could be much less extreme.  For example, 50 coins could be created per block at 1 difficulty, but 500 coins per block at 1 million difficulty.  This would decrease the deflation caused by increased usage, but it wouldn't eliminate it.

Any thoughts about this idea?

The coefficient there (1 million in your example) can not be known. Putting a constant there won't make it better, since we don't know how the network, the energy industry and computing power will evolve. From an investor's standpoint, it's far worse, because any technological breakthrough in one of those areas can destroy the currency. If the currency is to remain pure and predictable, Bitcoin's way of doing it is probably the best.

You could attempt to create a dynamic coefficient though, but the factors that need to go in the equation are external and cannot be detected by the network. There were proposals flying around that enables network to dynamically determine that coefficient by using a parallel distributed network that decides it. Could be done, but that kind of complex systems are prone to unforeseen consequences. I hope someone tries though, would be a good experiment.

EDIT: One of such proposals is Encoin.
Zotia
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February 07, 2012, 01:21:03 AM
 #7

You could attempt to create a dynamic coefficient though, but the factors that need to go in the equation are external and cannot be detected by the network. There were proposals flying around that enables network to dynamically determine that coefficient by using a parallel distributed network that decides it. Could be done, but that kind of complex systems are prone to unforeseen consequences. I hope someone tries though, would be a good experiment.

EDIT: One of such proposals is Encoin.
I don't want external information to be used.


The coefficient there (1 million in your example) can not be known. Putting a constant there won't make it better, since we don't know how the network, the energy industry and computing power will evolve.
To clarify, I didn't mean to use a coefficient or constant.  I meant that exponents would be used.  In the "1 million difficulty" example, I meant that 1,000,000:10 would be the ratio for the exponents (a difficulty change of 1 million fold would change the reward by 10 fold).


We don't need exact information about the energy/computers.  Some inflation or deflation is just fine.  This would just reduce the deflation.



From an investor's standpoint, it's far worse, because any technological breakthrough in one of those areas can destroy the currency. If the currency is to remain pure and predictable, Bitcoin's way of doing it is probably the best.
A technological breakthrough is something that I didn't consider.


However, if it is using something like the 1,000,000:10 ratio,  then it would need to be a MAJOR technological breakthrough to destroy the currency.


In the 1,000:000:10 example, a 64 fold increase in mining rate would double the rate of coin production.
BeeCee1
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February 07, 2012, 03:14:03 AM
 #8

My idea is to have the amount of coin produced be higher when the difficulty is higher.  To give an extreme example, lets say that when that when the difficulty is doubled, the block reward is also doubled.  If this new coin gets popular, the price will go up.  When the price goes up it will be profitable for people to buy mining hardware (or turn on the hardware they already have) so more people will mine.   Since more people are mining, the difficulty will go up.  Since the difficulty goes up, the block reward will go up.  With more coins being created, the price will begin to go back down.  With the price going back down, the difficulty will follow.
Solidcoin does this (or did this, with the last change I'm not sure it still does).

I think a better way to capture changes in demand would be to base the reward on  the rate of change of the difficulty instead of the absolute value of the difficulty.  If the difficulty is rising rapidly, the block reward goes up.  If the difficulty isn't changing, the block reward goes back to the standard 50 coins per block.  For example, if the difficulty re-targets from 1,000 to 1,500 then the amount of coins per block goes to 75, if, at the next retarget the difficulty stays at 1,500 then the reward goes back to 50, if it jumps to 3,000 then the reward would go to 100.  This keeps technological breakthroughs from having a permanent effect.  The exact percentage to raise it, and how long to keep it raised would have to be determined.
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February 07, 2012, 04:52:20 AM
 #9

My idea is to have the amount of coin produced be higher when the difficulty is higher.  To give an extreme example, lets say that when that when the difficulty is doubled, the block reward is also doubled.  If this new coin gets popular, the price will go up.  When the price goes up it will be profitable for people to buy mining hardware (or turn on the hardware they already have) so more people will mine.   Since more people are mining, the difficulty will go up.  Since the difficulty goes up, the block reward will go up.  With more coins being created, the price will begin to go back down.  With the price going back down, the difficulty will follow.
Solidcoin does this (or did this, with the last change I'm not sure it still does).

I think a better way to capture changes in demand would be to base the reward on  the rate of change of the difficulty instead of the absolute value of the difficulty.  If the difficulty is rising rapidly, the block reward goes up.  If the difficulty isn't changing, the block reward goes back to the standard 50 coins per block.  For example, if the difficulty re-targets from 1,000 to 1,500 then the amount of coins per block goes to 75, if, at the next retarget the difficulty stays at 1,500 then the reward goes back to 50, if it jumps to 3,000 then the reward would go to 100.  This keeps technological breakthroughs from having a permanent effect.  The exact percentage to raise it, and how long to keep it raised would have to be determined.


Do you mean the opposite (a high percentage retarget would net less coins per block) because it seems to me that if I build a device that generates 5 terahashes/s (to be VERY extreme) the next set of blocks (which would happen quickly) would create far more coins.

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