Proposal: Constructing a weighted synthetic currency for accounting/pricing

[rpietila]

I have some projects where I need to make contractual obligations to convert present wealth to future cash flow and vice versa. I have found that doing this in any fiat is difficult, because their lifespan is undeterminable and value depreciation is not constant. Further, there is the possibility for a worldwide credit crunch (late 2008 style or worse) that quickly increases the value of fiat relative to other assets. On the other hand, if a loan is simply denominated in BTC, it is a huge gamble - no investment can pay it off if BTC value rises, leading to default.

If there was a weighted accounting unit composed of fiat(s), crypto(s), gold and silver, this might be helpful for some applications, because the value (in fiat) would appreciate when BTC appreciates (but not so much) and also the contrary. This could be the basis for longer-term employment compensations, unlike the present alternatives of pure fiat or pure BTC that quickly go out of sync with the value of labor. Also loans. Also investments that are not solely in BTC world and provide cash flow but cannot beat BTC appreciation, yet are financed by the crypto community.

The currency would exist as an accounting procedure alone, so no blockchain and no monetary base. If it is used, the participants would agree whether the obligation at maturity would be settled with fiat or crypto at a rate provided by the accountant.

My thinking is that when BTC goes up 10x, the value of this currency would go up 2-3x. Even if BTC goes to zero, this currency would have most of its purchasing power. All encoded in a rigid formula, of course (which I intentionally leave out at present to encourage discussion in the general principles first).

Has anyone else been thinking of this? Comments, thoughts?

[dnaleor]

I propose a Big Mac as currency unit  

[phatsphere]

My comment might be stupid, but apart from the "formula" this sounds like Ripple. There, you can mix fiats, cryptos and anything else and a common accounting unit is used to settle differences. I am also pretty sure, that no such formula can exist, because nobody ever has full market information.

[dnaleor]

on a serious note: you could use something like this:

20% cash (EUR, USD, and other fiat)
20% bonds (a tracker of some kind?)
20% stocks (also a tracker, maybe S&P 500?)
20% PM (Gold, Silver, little paladium/platinum maybe)
20% BTC (and maybe some other crypto's LTC, PPC, NMC, XMR)

Periodically adjust the positions to correct to the 20% rules (maybe on the first day of every month? Every week? Every day?)

[theonewhowaskazu]

The answer is very simple. Just tie it to wages. Deflation gets out of control when wages decrease. Inflation gets out of control when wages increase. Simple: Just make it
so wages never increase or decrease. The broader and more accurate your measure of wages, the better.

[rpietila]

The answer is very simple. Just tie it to wages. Deflation gets out of control when wages decrease. Inflation gets out of control when wages increase. Simple: Just make it
so wages never increase or decrease. The broader and more accurate your measure of wages, the better.

Wages is the key.

I am searching a metric, which could be used to determine BTC people wages. It is obvious that fiat-denominated wages are too little. So are fiat+any index. Purely BTC denominated wages are too much, your employees do not become 10x more valuable when BTC goes up 10x. (But they do become at least double as valuable, if they know about btc, since they are much richer, and their skillset has a high demand elsewhere also.)

I am currently using my 3rd generation of assistants. The previous ones have all quit due to their btc holdings becoming too valuable to warrant continued working for me. And this is in 1.5 years..

[theonewhowaskazu]

The answer is very simple. Just tie it to wages. Deflation gets out of control when wages decrease. Inflation gets out of control when wages increase. Simple: Just make it
so wages never increase or decrease. The broader and more accurate your measure of wages, the better.

Wages is the key.

I am searching a metric, which could be used to determine BTC people wages. It is obvious that fiat-denominated wages are too little. So are fiat+any index. Purely BTC denominated wages are too much, your employees do not become 10x more valuable when BTC goes up 10x. (But they do become at least double as valuable, if they know about btc, since they are much richer, and their skillset has a high demand elsewhere also.)

I am currently using my 3rd generation of assistants. The previous ones have all quit due to their btc holdings becoming too valuable to warrant continued working for me. And this is in 1.5 years..

I don't see how this is a problem. If you paid them with USD, they could easily have exchanged that USD to BTC and experienced the same x10 income growth as if they had just been paid in BTC.

But, as I said before, the answer is really simple if you just want to pay them with a non-inflationary currency that isn't increasing in value, or volatile, like Bitcoin. Allow me to clarify. Rather than pay them in US Dollars, pay them in "US Hours."

Step 1: Calculate the equivalent amount of USD you think you should currently, at today's purchasing power & prices, be paying your employees.
Step 2: Visit this page http://research.stlouisfed.org/fred2/data/AHETPI.txt
Step 3: Divide that equivalent amount of USD by today's "dollars per hour" average rate. The result is your employee's wage in "US Hours."
Step 4: Wait until the next month where you have to pay your employees.
Step 5: Multiply the US Hours you owe your employees by that month's "dollars per hour" average rate, to determine how many USD you should pay your employees. Obviously you can then choose to actually pay them in an equivalent amount of whatever currency you choose.

[BTCtrader71]

Has anyone else been thinking of this? Comments, thoughts?

Ever considered the implications of backing a currency in a very broad mutual fund -- for example, the Vanguard Dow Jones U.S. Total Stock Market Index? Or better yet -- Vanguard Total International Stock Index Fund?

EDIT: I don't think my above proposal would serve the purpose you're looking for in this thread, although I like to consider what effect it would have on the economy if everyone used Vanguard Bucks.

Perhaps some sort of cost of living measure, like that used by the Social Security Administration?
http://www.ssa.gov/oact/cola/latestCOLA.html

[rpietila]

Perhaps I am not being clear enough concerning the purpose:

I need an accounting unit for cryptoworld, that would enable:
- lending (ie not be at a mercy of btc appreciation, because no one can borrow and pay back the same number of btc with the proceeds; currently all btc lending is scam. Also few bitcoiners want to lend in fiat which is a guaranteed loss on top of loss)
- contracts of exchanging present wealth to future cash flow on reasonable terms
- enable long-term employment without the need to haggle about the salary every 1-3 months as is currently the case

Don't suggest to me examples that don't take cryptoworld into account.

The purpose is not a cost-of-living index. Rather something that you can make a 3-year fixed monthly salary contract in, so that the deal is fair for both parties, no matter what happens to fiat or btc, or general prices.

[BTCtrader71]

What I meant was that you use your crypto of choice as the unit of account, but you use cost of living to adjust the amount of crypto that gets transacted at any given point in time. For example, I borrow 100 btc from you today and agree to pay [100 + agreed-upon interest]*X in btc back to you in one year, where X is a cost of living adjustment calculated by an agreed-upon third party, such as the SSA, and then converted into btc at current exchange rates. For example, if the interest rate of the loan is 5%, and the COLA is 1.5% (in USD), and the price of bitcoin (in USD) has doubled in one year, then at the end of the year I owe you (100 + 5) * (1.015) * (1/2) in bitcoin.

[dnaleor]

What I meant was that you use your crypto of choice as the unit of account, but you use cost of living to adjust the amount of crypto that gets transacted at any given point in time. For example, I borrow 100 btc from you today and agree to pay [100 + agreed-upon interest]*X in btc back to you in one year, where X is a cost of living adjustment calculated by an agreed-upon third party, such as the SSA, and then converted into btc at current exchange rates. For example, if the interest rate of the loan is 5%, and the COLA is 1.5% (in USD), and the price of bitcoin (in USD) has doubled in one year, then at the end of the year I owe you (100 + 5) * (1.015) * (1/2) in bitcoin.

maybe using a Big Mac as "currency" is not a bad idea after all

[Zangelbert Bingledack]

The purpose is not a cost-of-living index. Rather something that you can make a 3-year fixed monthly salary contract in, so that the deal is fair for both parties, no matter what happens to fiat or btc, or general prices.

You may be able to do something like that with Counterparty, etc. using its built-in contracts for difference (CFD). But who knows which platforms will still be around three years from now. Eventually we'll have decentralized prediction/betting/insurance markets that can probably handle everything in this vein pretty easily, but for now...

[rpietila]

For example my manager asked for a raise, and I told him that he'll get 3x the fiat he gets now, on the condition that Bitcoin goes to 10x that it is now.

[BTCtrader71]

- enable long-term employment without the need to haggle about the salary every 1-3 months as is currently the case

Purely BTC denominated wages are too much, your employees do not become 10x more valuable when BTC goes up 10x. (But they do become at least double as valuable, if they know about btc, since they are much richer, and their skillset has a high demand elsewhere also.)

For example my manager asked for a raise, and I told him that he'll get 3x the fiat he gets now, on the condition that Bitcoin goes to 10x that it is now.

I would think that your solution would be highly dependent on your employee. If you are talking about the kitchen staff at your castle, then I don't think they are worth 3x more if bitcoin goes up 10x. But if you are talking about a manager whose skills are specially tailored to cryptoworld, then yes, that manager could very well be worth 3x more. Some employees might be worth 5x more, others just 1x (unchanged), all depending on whether their skillset is crypto-related or not.

[molecular]

The answer is very simple. Just tie it to wages. Deflation gets out of control when wages decrease. Inflation gets out of control when wages increase. Simple: Just make it
so wages never increase or decrease. The broader and more accurate your measure of wages, the better.

What happens when everyones wages are contracted in this currency?

[dnaleor]

- enable long-term employment without the need to haggle about the salary every 1-3 months as is currently the case

Purely BTC denominated wages are too much, your employees do not become 10x more valuable when BTC goes up 10x. (But they do become at least double as valuable, if they know about btc, since they are much richer, and their skillset has a high demand elsewhere also.)

For example my manager asked for a raise, and I told him that he'll get 3x the fiat he gets now, on the condition that Bitcoin goes to 10x that it is now.

I would think that your solution would be highly dependent on your employee. If you are talking about the kitchen staff at your castle, then I don't think they are worth 3x more if bitcoin goes up 10x. But if you are talking about a manager whose skills are specially tailored to cryptoworld, then yes, that manager could very well be worth 3x more. Some employees might be worth 5x more, others just 1x (unchanged), all depending on whether their skillset is crypto-related or not.

true, if someone is generating net returns in BTC, you could even argue he might be worth 10x (same as bitcoin increase)

[theonewhowaskazu]

The answer is very simple. Just tie it to wages. Deflation gets out of control when wages decrease. Inflation gets out of control when wages increase. Simple: Just make it
so wages never increase or decrease. The broader and more accurate your measure of wages, the better.

What happens when everyones wages are contracted in this currency?

Then nothing. There's no more inflation, no more deflation, just an incredibly stable counterparty-based currency. Everybody's wage increase corresponds to someone else's wage decrease.

[DhaniBoy]

I think it would be tantamount to a laborer who was paid to wear or fiat currency bitcoin, since both are directly proportional, the greater the value of the fiat currency bitcoin, the greater the wage of a worker, I was against the US dollar value of bitcoin is high, and it makes the analys wage system to create formulas using bitcoin, I think it will not be much different when we use a fiat currency ...