Energy Credits as a currency; P2P energy trading

[SGallaecian]

Hello to all!

I've been obsessively reading this forum for a while now, and came up with an idea that I'd like to share with all of you. From my understanding of reading two of the main top topics in the Economics section of the forum (this and this), the main problem with bitcoins is that their value is fully market determined, thus allowing great speculation-driven exchange rate variations, creating market disruption and preventing them to work as effective money. This is actually a problem for any fiat currency, which is why the central banks’ main task is (should be) keeping inflation under control. If they fail, consumers loose trust in the currency, making it essentially worthless as money. That’s why the easiest way to have a stable, EFFECTIVE, currency is to make it out of (or backed by) something with intrinsic value, such as precious metals. I suggest this could be a good idea for P2P currencies.

But what should/could be backing this currency? I suggest the easiest, intrinsically valuable variable, would be Energy. Even right now, bitcoins are energy-dependent. You have to spend electrical energy to mine them. So, in a way, bitcoins are already backed by energy. The main problem is that, because of the 21 million cap, the energy required to produce one bitcoin is variable, increasing with time, making them an inconsistent measure of energy. A P2P currency where this value is constant would be, not only related to, but a measure of energy. This would give it a reference value, which could stabilize the currency and, therefore, the market. It’s this simple, if it becomes overbought, and its price becomes higher than the price of mining them, automatically more miners will emerge, creating a constant supply of energy credits and preventing a speculative cornering of the market (as appears to be happening now with bitcoins). The price of energy, thus, becomes an upper limit for the value of these Energy Credit Coins (ECCs). This doesn’t make bitcoins redundant nor irrelevant. It would be a complementary currency, similar to the AgBitcoin-AuBitcoin system previously suggested.

Another advantage of this system is that, plus the traditional advantages of P2P currency, these ECCs would be a very practical way to trade the world’s most important economic resource, on which all economic growth is dependent - Energy. This would allow money supply to very accurately match economic growth, since energy availability would ultimately determine BOTH economic and money supply growth, thus preventing BOTH inflationary and deflationary traps. The dream of most economists! So, ECCs would have a constant conversion factor for a given amount of energy, for example, 1 ECC = 1 kWh.

Please let me know what you think, and apologize the arrogance of creating a whole new topic to make my first post. I didn't feel it would fit well into any of the already existing topics.

Cheers!

SGallaecian

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[CoinOperated]

Since I'm intrigued by the AuBTC/AgBTC idea, I will be your first reply to your first post.

It is an interesting idea.  The question, as with Au/Ag is how to determine the exchange rate?  I gather you are proposing to tune the mining rate to approximate consuming 1 kWh to generate 1 ECC.  As per a number of previous posts on Au/Ag you are proposing using market arbitrage to keep the ECC/kWh exchange rate close to 1 (similar in general concept to how Index ETFs work today).

The issue I see is the same for ETFs:  You need a fundamental conversion back into the fundamental (kWh in this case). ETFs accomplish this by allowing professionals to deliver or receive the underlying stocks into/from the fund in exchange for shares in the fund.  The issue I can see with not having such a 1:1 exchange mechanism is it could fall into a lack-of-demand trap.  In the beginning while ECC are scarce the USD/ECC price could get bid up.  When it exceeds USD/kWh miners get busy.  I'm with you so far.   But what if they over-mine and rush to sell, and then some false rumor spreads and temporarily drives the USD/ECC price to 1/2 of USD/kWh. Sure all mining stops but you still have an overhang of sell demand.  The price could languish there for a very long time.  It's more likely the bigger the ECC supply gets and you need significant demand depth to pull it up.

But it's a good idea, maybe you need some elastic RC time constant type of mechanism that somehow buys up ECC if that happens (or incentivizes the same).  Can't think of one right now....

[asdf]

Aren't the price of precious metals and energy also fully market driven? Yet if we back bitcoins by one of these commodities, we solve the problem of bitcoin's value being fully market driven?

In any case, I don't think the problem you try to solve is valid. Bitcoin's problem, if it has to have one, is that it's economy is small. Bitcoin is backed by the goods and services available for it. At the moment, the ratio of speculative money to that of the economy is high, resulting in price volatility.

If a whole country was using bitcoin, you can be sure that the price would be much more stable.

Backing bitcoin by anything really defeats the purpose. How can you have a decentralised-p2p-currency that's "backed" by something? Perhaps this is possible. I'd love to hear any answers to this.

[CoinOperated]

The reason for the OP is not to "back" the currency for its own sake.  He is trying to address the problem by allowing the bitcoin supply to be more elastic which is precisely what is called for by conventional monetary theory.  The current system has an ever decreasing rate of increase in the supply of BTC.   The first time I heard of bitcoin I immediately thought "monetary theory would predict an exponentially increasing rate of deflation" and lo and behold that is exactly what you see on MtGox. 

You're right it is very difficult to think of a good way to add supply elasticity P2P.  But the idea isn't bad, it might take some refinement.

>Aren't the price of precious metals and energy also fully market driven?

Yes but in an importantly different way.  Take precious metals.  There are multiple exchange points: Labor and capital in the form of mining equipment are exchanged for metal (extracted from the ground), which is later exchanged for dollars, which establishes the price.  There is an indirect link between labor and capital and the metal price.  This tends to create a loose link between labor prices and the gold price which over long periods of time (50-100 years) tends to have a stabilizing effect.  Since the labor component of BTC mining is negligable, there is no such linkage for bitcoin.

It is these exchange points in and out of BTC that I was exploring in my first response. If you desire to stabilize prices some clever mechanism has to be found.  I am interested in this problem as an intellectual exercise, whether or not people think price stability is desirable and whether or not it will be adopted.

[marcus_of_augustus]

It is an interesting academic exercise. Say you linked the price of bitcoin to the price of 1 kWh, 1:1, as traded on several exchanges (for redundancy) how would you do that in the code?

You would have to increase or decrease the rate of issuance from the miners to compensate for the fluctuations in the exchange rate differentials between energy and bitcoin. The problem with this is that the strength of the network, it's measure of security, is driven by the network difficulty. And the network difficulty is what sets the rate at which transactions are encoded into blocks, presently around 10 mins per block. If you changed the incentive for miners to solve blocks, by varying the reward per block to keep up with some external pricing factor (fixed exchange to energy), then you are changing the incentive structure set-up that ensures network security and network difficulty and therefore security would become unstable. There may be some clever way to stabilise a p2p network crypto-currency having its value fixed to physical assets, but I do not see it right now.

After the bitcoin network matures (at much higher prices), then the bitcoin will be backed by the energy represented by the power that went into mining the bitcoins plus some premiums dependent upon network security and perception of its 'goodness' to act as money. During this initial growth phase it will be very hard to price other things in bitcoins because the price will be so volatile as it becomes monetised.

If/when bitcoin becomes widespread so that is fully monetised, and there are competing crypto-currencies, then the price will be exceedingly stable compared with other assets with perhaps some slight deflation dependent upon the economic conditions of the times.

[CoinOperated]

Agreed, varying the block reward would be a problem.

But what intrigues me about the OP idea is this:  For any arbitrage-based index tracking to work, you need an exchange mechanism that can close the loop - think of it as the feedback loop on an op-amp.  Normally that would be very tough to think up for an e-currency.  But ironically, electricity can exchange into BTC. That is what intrigues me.

It is hard to wrap my mind around it.  You consume electricity to solve a block to create BTC. BTC then is exchanged for USD which is exchanged for electricity.  If you are trying to counterract the USD being exchanged for (buying) BTC, we seem to have the reverse path. But it is weird because the electricity is just "thrown away" as heat, after completing the computation.   Typically in arbitrage you either grow or shrink your inventory of the underlying to close the arbitrage loop.  This seems one way (thank the 2nd law of thermodynamics I guess).

I'm still intrigued.  Someone smarter than me please crack this problem!

[CoinOperated]

Could you just remove the 2-week adustment of difficulty?  Rather, you adjust the difficulty periodically so that it always consumes about 1 kWh to generate 1 BTC, approximately.  Does that break the security?

This may be a way out of the one way problem.  If the value of BTC declines below 1 kWh, people will turn off their mining rigs.  Natural deflation will set in raising the ratio back to 1:1. If BTC gets abouve 1 kWh, now it is profitable to mine and BTC will gush out until it returns back to 1:1.  The feedback may be a little unstable someone needs to model it in matlab :-(

Possible (theoretically) or totally wrong??

[SGallaecian]

Thanks for all the replies! Many interesting issues have been raised.

Aren't the price of precious metals and energy also fully market driven? Yet if we back bitcoins by one of these commodities, we solve the problem of bitcoin's value being fully market driven?

Yes, we do solve it. Precious metals and energy have value as commodities, independently of the currency you use to measure it. So, before using them as currency, they already have value, unlike, say, a paper dollar bill. They, therefore, have intrinsic value. On the other hand, the paper dollar bill only has value because individuals and institutions attribute value to it. Just like bitcoins.

However, if people loose confidence in a currency backed by gold, for example, one can use the currency to buy back the gold stored at the central bank, therefore revaluing the remaining circulating currency until its market driven exchange rate equals the fixed gold exchange rate. You can't do that with ECCs. Therefore, the system is univocal; it takes energy to produce the ECCs, but you don't necessarily can trade ECCs to buy energy back. The consequence of this was adequately illustrated by CoinOperated.

But what if they over-mine and rush to sell, and then some false rumor spreads and temporarily drives the USD/ECC price to 1/2 of USD/kWh. Sure all mining stops but you still have an overhang of sell demand.  The price could languish there for a very long time.  It's more likely the bigger the ECC supply gets and you need significant demand depth to pull it up.

Exactly, the ECC would prevent the instability caused by a deflationary currency such as BTC, setting an upper bound for their value. It does not, however, solve the problem of inflation in a currency no one wants to use, like precious metals do.

You need a fundamental conversion back into the fundamental (kWh in this case).

Does anyone still have any doubt on the deflationary nature of bitcoins? As long as people are using it, the price will eventually loop back into parity with energy. I don't see why some occasional slight inflation would make people not want to use the currency. The problem is really if inflation becomes embedded in the ECC economy, making it entirely worthless for a very long time, in a sort of 0% money supply inflation trap. In this sense, I agree with you.

The way I had thought of it, the tightness of money supply would solve inflation by itself, as is currently the case with bitcoins. Indeed, if inflation remains slight, as would probably be the case for a healthy big economy, I don't think this would be a problem. However, I have to agree this is not an inflation-proof currency. But neither is bitcoin. In fact, the inflation prevention mechanism is exactly the same in the BTC and ECC systems. It's not full-proof, but it's probably good enough.

However, if you're able to come up with any mechanism to close the loop in the system, I'd be very interested to hear it.

If/when bitcoin becomes widespread so that is fully monetised, and there are competing crypto-currencies, then the price will be exceedingly stable compared with other assets with perhaps some slight deflation dependent upon the economic conditions of the times.

Are you sure it will be that stable? I fear, like other have pointed out in the AgBTC/AuBTC discussion, that it will be so valuable, that a permanent deflation will be observed, making it more like an "e-bullion" rather than an "e-currency". No one will be spending it. That's why I agree that an "AgBTC" is needed, that is less valuable and more stable (i.e., non-deflationary) than BTC. My proposed system seeks to avoid the deflation that threatens to make BTC too valuable.

How can you have a decentralised-p2p-currency that's "backed" by something?

By spending that thing to make it.

But it is weird because the electricity is just "thrown away" as heat, after completing the computation.

Exactly, it's not "retradable". The loop is not closed, as discussed above.

You would have to increase or decrease the rate of issuance from the miners to compensate for the fluctuations in the exchange rate differentials between energy and bitcoin. The problem with this is that the strength of the network, it's measure of security, is driven by the network difficulty. And the network difficulty is what sets the rate at which transactions are encoded into blocks, presently around 10 mins per block. If you changed the incentive for miners to solve blocks, by varying the reward per block to keep up with some external pricing factor (fixed exchange to energy), then you are changing the incentive structure set-up that ensures network security and network difficulty and therefore security would become unstable. There may be some clever way to stabilise a p2p network crypto-currency having its value fixed to physical assets, but I do not see it right now

If the number of miners and the rate of issuance is so important for transaction security, how will this problem be addressed for BTC, when it becomes too expensive (for everyone) to mine them? BTW, I don't think one has to vary the reward per block to keep up with the amount of energy spent. It's the exact opposite! It should not vary at all. Please tell me if I misinterpreted you.

Could you just remove the 2-week adustment of difficulty?  Rather, you adjust the difficulty periodically so that it always consumes about 1 kWh to generate 1 BTC, approximately.

Again, my idea was that you should not adjust the difficulty periodically. That said, I also don't see any way the exact same amount of energy can be spent on a calculation. This depends on the processor's efficiency, which, I assume, has been increasing over time. So, the closest variable to energy spent would be "processor work" (whatever the variable used to measure that is), and 1 ECC would always require the same amount of "processor work" to be created. Therefore, and ASSUMING ONLY SLIGHT VARIATIONS IN PROCESSOR ENERGY EFFICIENCY, it can be made that 1 ECC ≈ 1 kWh. This is the biggest problem I see in implementing my initial idea, but I'm, by no means, a programming specialist.

This may be a way out of the one way problem.  If the value of BTC declines below 1 kWh, people will turn off their mining rigs.  Natural deflation will set in raising the ratio back to 1:1. If BTC gets abouve 1 kWh, now it is profitable to mine and BTC will gush out until it returns back to 1:1.  The feedback may be a little unstable someone needs to model it in matlab.

Sounds like a lot of fun! I'd love to do it, but don't really have time right now. Perhaps over the weekend, but I don't promise anything. BTW, I don't know which sort of model you have in mind that would need Matlab to be ran.

[torbank]

But what should/could be backing this currency? I suggest the easiest, intrinsically valuable variable, would be Energy.

Very interesting.

Using units of energy as a type of currency makes sense, I've been thinking about this for a while.

And it looks like others have considered this idea as well:


Calories: The Currency of All Economies

Most economists rely on computer printouts of numerical data for their financial planning. By comparing one series of digits with another they can find the immediate trends in the economy and take advantage of those trends. To most people that seems normal. To me it always was, and still is, artificial. I have always wanted to help both people and the environment, and I learned at an early age that knowledge of the economy could be one tool to reach that end. However, I wanted more than just the knowledge of how to generate a positive series of numbers. I was looking for something bigger. I was searching for universal truths. I wanted knowledge about the economy that was constant from year to year, from culture to culture. I wanted knowledge that would be useful to a poor person or a rich person, in our culture, or in any culture. The truths about economics that I found were not in the New York Stock Exchange, but in anthropology and nature.

http://www.sacredlands.org/calcurrency.htm

[SGallaecian]

torbank,

Thanks for the link. Very interesting read. Although they don't propose the use of energy as currency, they also realise that energy (together with choice) is at the bottom of all economic activity.

Anyway, I had expected many others to have thought of something similar before. I've certainly heard of it before, in Sci-Fi popular culture. I've just adapted the concept to P2P cryptocurrencies, as a way to avoid the deflation trap and to automatically match the money supply with economic activity.

BTW, a Tor-based anonymous bank would be an excellent idea!

Cheers,

SGallaecian

[marcus_of_augustus]

There is a false dichotomy here and it is trap for thinking about these matters.

There is the "store of value" function that money performs and the "proof of work" concept the BTC uses to define that store of value. They are subtly different and using energy as basis for currency reveals some of the difference.

Labour is a way for creating wealth (well spent labour), but that wealth is represented by the product of the labour not the proof of work done. Energy expended, kinetic, can be used as substitute for labour, robots, cars, etc.

These concepts are well based in the physical units of energy, work done is joules and the chemical potential energy stored in barrel of oil can also be stated in joules thermal for example.

But when the barrel of oil is converted (through combustion) to some kind of useful work, the "proof of work" value, i.e. the product of that conversion, becomes a store of value, depending upon its marketability. Just burning oil in the middle of the desert is converting stored energy into kinetic energy (thermal) but does the conversion of that energy in anyway represent a store of value, clearly not to most rational human value systems.

Energy is a mechanism by which money can flow from one form of stored value into another form of stored value. Tying a currency value to energy needs to be careful that it is linked to the store of value not the proof of work, which is not always the same thing, depending on value judgements. The free market needs to be allowed to value the energy, stored or expended, without manipulations.

Clear?

[asdf]

The reason for the OP is not to "back" the currency for its own sake.  He is trying to address the problem by allowing the bitcoin supply to be more elastic which is precisely what is called for by conventional monetary theory.  The current system has an ever decreasing rate of increase in the supply of BTC.   The first time I heard of bitcoin I immediately thought "monetary theory would predict an exponentially increasing rate of deflation" and lo and behold that is exactly what you see on MtGox.

I don't see and need for an elastic money supply. Just let the market determine interest rates and the value of the currency.

Indeed, elastic money supplies have brought down civilizations throughout history. Stop reading your Keynesian textbooks. Price deflation isn't a problem. Stop trying to fix it.

[CoinOperated]

The reason for the OP is not to "back" the currency for its own sake.  He is trying to address the problem by allowing the bitcoin supply to be more elastic which is precisely what is called for by conventional monetary theory.  The current system has an ever decreasing rate of increase in the supply of BTC.   The first time I heard of bitcoin I immediately thought "monetary theory would predict an exponentially increasing rate of deflation" and lo and behold that is exactly what you see on MtGox.

I don't see and need for an elastic money supply. Just let the market determine interest rates and the value of the currency.

Indeed, elastic money supplies have brought down civilizations throughout history. Stop reading your Keynesian textbooks. Price deflation isn't a problem. Stop trying to fix it.

Keynes was not a monetarist.  He advocated making up for a decline in aggregate demand by public spending. If he was a moneterist he would have advocated taking steps to increase the money supply which presumably would increase private spending.  While I think the theories of Keynes, Hayek and the Austrians, Friedman and the rest all have their interesting points, I am personally skeptical that any of them have been proven to explain inflation, deflation, and the causes of recessions, and how to fix them or even if they need to be fixed.  Economics is a social science not a physical science and it is difficult to prove anything in Economics since you rarely have an adequate control group.  I was merely stating what conventional monetary theory predicts (which is just a theory) and that you are seeing an increasing 2nd derivative on MtGox.  The prices on MtGox are really the only facts we have.

Anti-Keynesians usually embrace some kind of free market or libertarian philosophy.  If that is the case, you will have no objection if SGallaecian starts a new chain named ECC that tracks kWh and leaves bitcoin alone.  Then the free market will have two currencies from which to choose and presumably more competition makes everyone better.  If people prefer deflation with a fixed supply nobody will use ECC, and if they prefer an elastic supply that generally tracks a unit of value with moderate inflation or deflation then they will switch. Or maybe they will use both, each for different purposes.  Let the market decide!

[CoinOperated]

Thanks for all the replies! Many interesting issues have been raised.

But it is weird because the electricity is just "thrown away" as heat, after completing the computation.

Exactly, it's not "retradable". The loop is not closed, as discussed above.

You would have to increase or decrease the rate of issuance from the miners to compensate for the fluctuations in the exchange rate differentials between energy and bitcoin. The problem with this is that the strength of the network, it's measure of security, is driven by the network difficulty. And the network difficulty is what sets the rate at which transactions are encoded into blocks, presently around 10 mins per block. If you changed the incentive for miners to solve blocks, by varying the reward per block to keep up with some external pricing factor (fixed exchange to energy), then you are changing the incentive structure set-up that ensures network security and network difficulty and therefore security would become unstable. There may be some clever way to stabilise a p2p network crypto-currency having its value fixed to physical assets, but I do not see it right now

If the number of miners and the rate of issuance is so important for transaction security, how will this problem be addressed for BTC, when it becomes too expensive (for everyone) to mine them? BTW, I don't think one has to vary the reward per block to keep up with the amount of energy spent. It's the exact opposite! It should not vary at all. Please tell me if I misinterpreted you.

Could you just remove the 2-week adustment of difficulty?  Rather, you adjust the difficulty periodically so that it always consumes about 1 kWh to generate 1 BTC, approximately.

Again, my idea was that you should not adjust the difficulty periodically. That said, I also don't see any way the exact same amount of energy can be spent on a calculation. This depends on the processor's efficiency, which, I assume, has been increasing over time. So, the closest variable to energy spent would be "processor work" (whatever the variable used to measure that is), and 1 ECC would always require the same amount of "processor work" to be created. Therefore, and ASSUMING ONLY SLIGHT VARIATIONS IN PROCESSOR ENERGY EFFICIENCY, it can be made that 1 ECC ≈ 1 kWh. This is the biggest problem I see in implementing my initial idea, but I'm, by no means, a programming specialist.

This may be a way out of the one way problem.  If the value of BTC declines below 1 kWh, people will turn off their mining rigs.  Natural deflation will set in raising the ratio back to 1:1. If BTC gets abouve 1 kWh, now it is profitable to mine and BTC will gush out until it returns back to 1:1.  The feedback may be a little unstable someone needs to model it in matlab.

Sounds like a lot of fun! I'd love to do it, but don't really have time right now. Perhaps over the weekend, but I don't promise anything. BTW, I don't know which sort of model you have in mind that would need Matlab to be ran.

I have reread your OP.  I better understand that you are also proposing to remove the difficulty adjustment.  I missed it the first time, I was overwhelmed by the circular nature of electricity2bitcoins that could (eventually) be used to buy the same amount of electricity.  It does take some time to grok.

To summarize, the proposal as I understand it is to start a new chain called ECC that operates the same as bitcoin except it removes the periodic adjustments of difficulty.  The difficulty would be set to a fixed value designed to attract enough miners to make the system secure.   When the system is fully operational with a reasonable supply of ECC, it would be self-regulating.  When the USD/ECC price rises above USD/kWh mining will be profitable increasing supply and driving down USD/ECC.  When it falls below that level, mining would stop and natural deflation would drive up USD/ECC.  Over time ECC would track kWh approximately.

Please correct this summary if I have it wrong.

Now some problems I see with this, and some solutions I will throw out there for comment:

(a)   There is no start point that has positive feedback when there are zero ECC and therefore no price to deflate.   Solution: I think you need to start by setting the difficulty to some easier value, say half a kWh produces 1 ECC for some period, maybe the first year.  Or to a certain number of ECC, say 1M.  Then you build in a schedule of raising the difficulty until it terminates at parity, 1 ECC for 1 kWh.  This incentivizes early miners.  The community will enforce the difficulty rise since it is in everyone’s mutual interest.
(b)   How do you calculate the amount of energy to solve a block?  As pointed out this will reduce over time with better mining technology.  Conceptually inflation will follow the mining technology curve, and will be steeper at first.   However, demand for the currency itself will counteract that if it is successful.  Solution: One idea would be to mutually agree on a standard reference rig – designate a particular algorithm, GPU model, main board, DRAM etc.  We would measure the kWh to solve a block and hard code that as a starting point.  It doesn’t matter that over time that rig will be obsolete, it just means at that point in time it was a reference value.   I can see how (b) might not be necessary, but I think doing this helps to make the value of ECC easy to understand for the casual user.

Again, kudos to the OP for a very excellent idea.

[Vince_Moore]

     As I had the same thought as SGallaecian, I searched on the web and found this interesting discussion. I discovered Bitcoin some time ago but I am somewhat uncomfortable with some of its aspects, one of them being its variable value, the consequent variable prices of goods paid in bitcoins and the advantage of first miners and computing power in creating the money.

     It would be an extremely good idea to associate a monetary unit (let's note it U) with a fixed amount of energy, because this is the physical quantity which allows all world transformations.
     To have a practical unit it should be in relation with human being living. Each day a human being needs around 2000 kcal (8.37 MJ) per day, or 256 MJ/month.
     Given a manageable and comfortable one person monthly salary amount of 3000 units 5% of which (150 units) is for nutrition, would associate 256MJ/150units=1,7MJ/U.

     100g of wheat flour is given for around 300kcal (1.256 MJ) and one kg of such flour is about 1 euro where I live. Thus with 1 euro I have 12.56MJ in flour which I would buy with 7.39 U.

     It is funny to note that we had in France a money unit I considered more practical than the euro and which was about the same ratio (1€ was about 6.6 Francs).

     In short, I would say a practical money unit would correspond to 10 MJ.
     With this choice, the wheat kg would be priced some 1.25U, a gazoline liter would be around 4.5U, the monthly energy budget for eating around 25U, and if this is 5% of the budget a salary of 500U.
     Now as those prices do not include the price of energy to produce them, sell prices should be higher, perhaps a factor of 2 is realistic, which would finally put the kg of wheat at 2.5U, the budget for eating at 50U/month and the salary at 1000U/month.

     To end up with, if a bitcoin was agreed to allow obtaining 10MJ, assuming a 400 watts computer 7 hours of computing expended should be paid 1 bitcoin.

[derek91362]

Hello to all!

I've been obsessively reading this forum for a while now, and came up with an idea that I'd like to share with all of you. From my understanding of reading two of the main top topics in the Economics section of the forum (this and this), the main problem with bitcoins is that their value is fully market determined, thus allowing great speculation-driven exchange rate variations, creating market disruption and preventing them to work as effective money. This is actually a problem for any fiat currency, which is why the central banks’ main task is (should be) keeping inflation under control. If they fail, consumers loose trust in the currency, making it essentially worthless as money. That’s why the easiest way to have a stable, EFFECTIVE, currency is to make it out of (or backed by) something with intrinsic value, such as precious metals. I suggest this could be a good idea for P2P currencies.

But what should/could be backing this currency? I suggest the easiest, intrinsically valuable variable, would be Energy. Even right now, bitcoins are energy-dependent. You have to spend electrical energy to mine them. So, in a way, bitcoins are already backed by energy. The main problem is that, because of the 21 million cap, the energy required to produce one bitcoin is variable, increasing with time, making them an inconsistent measure of energy. A P2P currency where this value is constant would be, not only related to, but a measure of energy. This would give it a reference value, which could stabilize the currency and, therefore, the market. It’s this simple, if it becomes overbought, and its price becomes higher than the price of mining them, automatically more miners will emerge, creating a constant supply of energy credits and preventing a speculative cornering of the market (as appears to be happening now with bitcoins). The price of energy, thus, becomes an upper limit for the value of these Energy Credit Coins (ECCs). This doesn’t make bitcoins redundant nor irrelevant. It would be a complementary currency, similar to the AgBitcoin-AuBitcoin system previously suggested.

Another advantage of this system is that, plus the traditional advantages of P2P currency, these ECCs would be a very practical way to trade the world’s most important economic resource, on which all economic growth is dependent - Energy. This would allow money supply to very accurately match economic growth, since energy availability would ultimately determine BOTH economic and money supply growth, thus preventing BOTH inflationary and deflationary traps. The dream of most economists! So, ECCs would have a constant conversion factor for a given amount of energy, for example, 1 ECC = 1 kWh.

Please let me know what you think, and apologize the arrogance of creating a whole new topic to make my first post. I didn't feel it would fit well into any of the already existing topics.

Cheers!

SGallaecian

 This topic of Energy as Currency is near and dear to me. I have been intrigued with it since the time the concept was first presented to me in the writing of R. Buckminster Fuller in his book, Critical Path. As a World Currency, a broader perspective can be imagined. Most all the energy that is 'generated' and subsequently 'consumed' is solar derived. Fossil Fuel from photosynthesis to plants that decay and are subjected to pressure over time. Wind that is derived from air flow or movement due to temperature differentials in the atmosphere due to "convection" of the Earth from radiant energy of the Sun and so forth.
 Annually the Earth receives 174 petawatts of energy, an agreed upon calculation by scientists, so a simple algorithim to "mine" solar or Sun credits. This calculation can be as visible as the Atomic Clock and distribution or allocation of credits can be accomplished by the same or similar protocol as the Bitcoin Protocol to all of mankind on an individual basis.

 I am writing a 15,000 word story that proposes this system, "The Subterranean Miner" where I show how to migrate from the multitude of fiat currencies to a World Currency. Stay tuned!!