I have given a lot of thought as to how the bitcoin protocol could be extended to provide a stabilized currency, backed by bitcoin values.
The key is to transfer the risk of price fluctuations from merchants and other people wanting a stable store of value to speculators wanting leveraged exposure to bitcoins.
My first proposal on how this could be done was here: http://forum.bitcoin.org/index.php?topic=30741.0
I extrapolated that a bit, and it is being discussed further here: http://forum.bitcoin.org/index.php?topic=31032.0
This topic is so important for bitcoin's future (IMHO), that I am actually paying bitcoins for intelligent posts in the latter thread. See the thread for a link to the rules.
Topic: Achieving stable prices through a reference currency (Read 7106 times)
Merchants,
Buy a put, this is the right to sell coins at some fixed price for some time.
No matter what the price does you get your minimum required number of dollars.
Buy a put, this is the right to sell coins at some fixed price for some time.
No matter what the price does you get your minimum required number of dollars.
> How people trade before central banks existed then?
Using barter, gift economics, precious metals and stones.
Using barter, gift economics, precious metals and stones.
Good, precious metals are currencies without managing authorities.
Quote from: BubbleBoy
> Who used to print gold and buy assets with it?
Gold has a relatively uniform geographic distribution, and throughout the human history the available supply matched the economic growth pretty nicely, if only slightly deflationary.
Gold has a relatively uniform geographic distribution, and throughout the human history the available supply matched the economic growth pretty nicely, if only slightly deflationary.
Ok, so we need a managing authority for money now but the people of the past didn't because they were very lucky in how the metals were put in the planet.
Quote from: BubbleBoy
It has the same problems as Bitcoin in that the value of one monetary unit is bounded by the work required to produce it, which in turn leads society to resource expenditures to extract gold out of the ground, only to store it in some other underground vault. Since easy available resources are depleted, the current method of gold extraction consists of chopping a mountain known to contain trace amounts of gold (grams/ton) and transforming in it a lake of toxic cyanide mud. This is the basis of calling gold a "barbaric relic" and the same is true for modern proof-of-work proposals which if widely adopted would lead to similar ecological disasters.
There is a better way.
There is a better way.
The current monetary system has costs too. You have to pay (with resources) bankers, printing, derivatives, banks security...Can you prove that all that is cheaper than bitcoin?
Anyway, that has nothing to do with this proposal.
Quote from: BubbleBoy
> Not useless problems, it's security.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system (it could be to small leading to vulnerability, much or too large, effectively wasting the excess). Miners only care about is bitcoins and the resulting security of the network is well correlated with the block bonus and the price of BTC. See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system (it could be to small leading to vulnerability, much or too large, effectively wasting the excess). Miners only care about is bitcoins and the resulting security of the network is well correlated with the block bonus and the price of BTC. See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.
So now is not useless problems but to much computer work.
How can we know what is the "correct" level of security?
If we knew, how to make a decentralized system that reaches that level but no more (and, very important, not less).
Back to topic, I think the problem you see in bitcoin is not price stability but potential lack of liquidity.
First, with competing block-chain currencies merchants would just have to accept currencies that are not as deflationary as bitcoin. That would make bitcoin less deflationary since it losses value as a medium of exchange. If we "need to print more", we would just create more chains.
Another way (different from printing) to preserve liquidity is demurrage. What do you think about that?
Maybe someone else (not just me) likes freicoin after all.
I could code it, but...
1) I don't have the time right now.
2) I probably would prefer to help with distributed ripple coding first.
3) The "sharing work between different chains" thing is not implemented yet (and I'm not sure I can code that).
4) It would be better to launch freicoin when a lot of people know and is used to bitcoin.
5) As far as I know, nobody wants it in the world but me.
When somebody refers to "futures" and "options" like to easy answer of a everyday problem of merchant and customers of say, T-shirts buisnes, -
I am feel very amused and ... wel, alone.
I am feel very amused and ... wel, alone.
There's an easy answer to the problem of price stability from a business perspective - futures contracts. Hedge away your risk like businesses do when dealing with any other volatile price. The lack of a good futures exchange is a major sticking point in the viability of Bitcoin for business.
There's bitoption (beta). And that can be useful to some business, but dealing with those contracts is an additional cost.
I think the reference unit would be more useful for setting prices and making contracts than as protection against volatility when holding a currency. For the later future contracts are better, that's true.
There's an easy answer to the problem of price stability from a business perspective - futures contracts. Hedge away your risk like businesses do when dealing with any other volatile price. The lack of a good futures exchange is a major sticking point in the viability of Bitcoin for business.
You should brush up on those reading comprehension skills, I've never said that. The current blockchain is technically and economically flawed, but as you agree nothing precludes a better implementation. This is the basis of my interest in Bitcoin, not the desire to enrage an endless barrage of libertarians, closet economists, conspiracy theorists and other assorted crackpots.
Structurally flawed it may be but 'economically flawed' is a tautology.
My foot hurts when I do this!
Then don't do that.
Quote
> Not useless problems, it's security.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system.
Flat out lying. The security of the system is determined by the amount of time required to fake a block and take advantage of it while still producing blocks to be traded. It's a feedback mechanism that happens to have economic benefits as well.
Quote
(it could be to small leading to vulnerability, much or too large, effectively wasting the excess).
It would take ten times as long to collect the computing power that's been engaged using "purpose oriented" activities. You'd have a hard time convincing the media to cover it. You wouldn't get enough people who wanted to solve your "useful problem" because it would be stuck in a nobody wants because nobody knows about it because nobody wants it loop.
The lottery bypasses all the useless navel gazing.
Quote
the resulting security of the network is well correlated with the block bonus and the price of BTC.
Correlations are a dime a dozen. Where's the meat? Show how tab A fits in slot B.
Quote
See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
I'm about to prove that one wrong.
Quote
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.
Go for it, Geronimo!
> How people trade before central banks existed then?
Using barter, gift economics, precious metals and stones.
> Who used to print gold and buy assets with it?
Gold has a relatively uniform geographic distribution, and throughout the human history the available supply matched the economic growth pretty nicely, if only slightly deflationary. It has the same problems as Bitcoin in that the value of one monetary unit is bounded by the work required to produce it, which in turn leads society to resource expenditures to extract gold out of the ground, only to store it in some other underground vault. Since easy available resources are depleted, the current method of gold extraction consists of chopping a mountain known to contain trace amounts of gold (grams/ton) and transforming in it a lake of toxic cyanide mud. This is the basis of calling gold a "barbaric relic" and the same is true for modern proof-of-work proposals which if widely adopted would lead to similar ecological disasters.
There is a better way.
> Is either central banks or a currency that merchants won't touch?
You should brush up on those reading comprehension skills, I've never said that. The current blockchain is technically and economically flawed, but as you agree nothing precludes a better implementation. This is the basis of my interest in Bitcoin, not the desire to enrage an endless barrage of libertarians, closet economists, conspiracy theorists and other assorted crackpots.
> Not useless problems, it's security.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system (it could be to small leading to vulnerability, much or too large, effectively wasting the excess). Miners only care about is bitcoins and the resulting security of the network is well correlated with the block bonus and the price of BTC. See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.
Using barter, gift economics, precious metals and stones.
> Who used to print gold and buy assets with it?
Gold has a relatively uniform geographic distribution, and throughout the human history the available supply matched the economic growth pretty nicely, if only slightly deflationary. It has the same problems as Bitcoin in that the value of one monetary unit is bounded by the work required to produce it, which in turn leads society to resource expenditures to extract gold out of the ground, only to store it in some other underground vault. Since easy available resources are depleted, the current method of gold extraction consists of chopping a mountain known to contain trace amounts of gold (grams/ton) and transforming in it a lake of toxic cyanide mud. This is the basis of calling gold a "barbaric relic" and the same is true for modern proof-of-work proposals which if widely adopted would lead to similar ecological disasters.
There is a better way.
> Is either central banks or a currency that merchants won't touch?
You should brush up on those reading comprehension skills, I've never said that. The current blockchain is technically and economically flawed, but as you agree nothing precludes a better implementation. This is the basis of my interest in Bitcoin, not the desire to enrage an endless barrage of libertarians, closet economists, conspiracy theorists and other assorted crackpots.
> Not useless problems, it's security.
That's how the mantra goes, but it's false. The amount of work used for bitcoin mining has no relation to the security needs of the system (it could be to small leading to vulnerability, much or too large, effectively wasting the excess). Miners only care about is bitcoins and the resulting security of the network is well correlated with the block bonus and the price of BTC. See the recent thread about how mining for a fee is unsustainable in the absence of unionisation of the miners.
It's also conceptually possible to create a bitcoin-like system that achieves the same level of security wasting much less energy. No, I don't have the source.
In Bitcoin's case, nothing. The proceeds of seigniorage were destroyed by solving incredibly hard, yet useless problems. A central bank could sell the forex, gold or corporate bonds it acquired during monetary expansion, and seize up any excess liquidity on the market. I can't quite imagine the distributed counterpart.
Not useless problems, it's security. Maybe you think tipping your secret number when getting money from an ATM is a waste of your time too.
You can't have stable prices without "messing with the money supply". When the currency's economy grows or money velocity decreases someone needs to print currency, earn seigniorage and buy assets. When the currency loses value the same person needs to sell the acquired assets and defend the currency.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
How people trade before central banks existed then? Who used to print gold and buy assets with it?
Is either central banks or a currency that merchants won't touch? Are you serious?
I don't see many merchants accepting bitcoins and worried about BTCs rising too much. Their complains are related to the hoarding encouraging deflation, all sane merchants accept it. It's just that few people want to pay with bitcoins.
In some sense, every currency is a bubble, since its value depends on beliefs. I just see the current faith in USD more fragile than the faith in bitcoin. USD has an army behind it. Gold has the history. BTC has a 21 million limit and a lot of digital conveniences. I think we will have a bubble, but that hasn't happened yet. What some people don't seem to understand is that although bitcoin has a 21 million credit limit, other block chain crypto-currencies will be created before bitcoin becomes "the world currency". Less secure at first but cheaper too (and with cheaper fees). It could have another technical or economical improvements too.
Anyway, there's a RALLY thread if you want to talk about the "bitcoin bubble", boy.
In Bitcoin's case, nothing. The proceeds of seigniorage were destroyed by solving incredibly hard, yet useless problems. A central bank could sell the forex, gold or corporate bonds it acquired during monetary expansion, and seize up any excess liquidity on the market. I can't quite imagine the distributed counterpart.
You can't have stable prices without "messing with the money supply". When the currency's economy grows or money velocity decreases someone needs to print currency, earn seigniorage and buy assets. When the currency loses value the same person needs to sell the acquired assets and defend the currency.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
what exactly are you selling?
You can't have stable prices without "messing with the money supply". When the currency's economy grows or money velocity decreases someone needs to print currency, earn seigniorage and buy assets. When the currency loses value the same person needs to sell the acquired assets and defend the currency.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
It' either that, or this horrible volatile currency 'backed' by a speculative bubble, that no sane merchant would touch.
[qoute]
There is a solution for this: Peg $5 - $15 dollar items in BTC, Peg $40 - $100 items in MtGox exchange. In between, depending on volume.
There is a solution for this: Peg $5 - $15 dollar items in BTC, Peg $40 - $100 items in MtGox exchange. In between, depending on volume.
Sorry, I don't understand.
[/quote]
Sell and buy the low priced items with BTC in mind.
Sell and buy the high priced items with BTC in mind.
Peg the inbetween items according to sales volume.
sounds nice, but how do we achieve this? democracy. start a poll, spread the word, agree to a fixed amount to start with, agree to an acceptble growth rate, make a website with the current exchange rate according to the deflation rate most of the people agreed to, start your business with bitcoin as an accepted payment.
Hi Bashtee, you can't fix a price just by spreading the word that it's fixed. Suppose the BTC is officially valued at 5 USD/BTC. If I have BTC and somebody wants to buy them at 6 USD/BTC, I will sell them at that price even if the official price is supposed to be 5 USD/BTC. And so will everybody else so it will be impossible to buy them at the official 5 USD/BTC.
Similarly if I have BTC but I really need dollars, and nobody will give me 5 USD/BTC, then I will accept selling them for 4 USD/BTC. So will everybody else so it will be impossible to sell them and get the official 5 USD/BTC.
Similarly if I want to buy BTC and everybody is selling their BTC for 4 USD/BTC, then I won't want to pay the full 5 USD/BTC because I don't know that I'll be able to make that money back by selling the BTC back. So I will pay closed to 4 USD/BTC.
There is a way of doing this though and it's described here: https://secure.wikimedia.org/wikipedia/en/wiki/Currency_peg but it requires somebody to have a lot of money (both USD and BTC) and to be willing to spend it for that purpose.
@AntiVigilante
GPUs are more inflationary than USD (for now). It doesn't help.
GPUs are more inflationary than USD (for now). It doesn't help.
Newegg prices skyrocketing?
There is a solution for this: Peg $5 - $15 dollar items in BTC, Peg $40 - $100 items in MtGox exchange. In between, depending on volume.
Sorry, I don't understand.
Bitcoin will stabilize as it becomes more liquid.
If you really want to help smooth price movements, provide a service that makes it easier to swap (i.e. currency exchange).
If you really want to help smooth price movements, provide a service that makes it easier to swap (i.e. currency exchange).
I don't want to make the price of bitcoin more stable (probably that's just impossible in this grow phase) but making easier for merchants to price in bitcoins (and for all to measure value).
Bitcoin will stabilize as it becomes more liquid.
If you really want to help smooth price movements, provide a service that makes it easier to swap (i.e. currency exchange).
If you really want to help smooth price movements, provide a service that makes it easier to swap (i.e. currency exchange).
As you say, is a difficult project and governments won't like these index currencies, but they won't like bitcoin neither.
Instead of a basket of commodities and services (for simplicity) we could, for example take the value of the USD today and calculate the relative value to the USD using shadow stats inflation index. The unit will be defined as USD in may 2011.
I'm sure many merchants price in dollars and then automatically (or manually) calculate the price in BTC with mt gox, but this way you're avoiding bitcoin's deflation in exchange for USD's inflation. The automatic tools they use to do that could take into account a measure of inflation. And we all know that governments aren't good at reporting inflation.
The point is, many people argue that bitcoin cannot be money because it does not perform the "measure of value" function. I claim it doesn't need to. We can separate that function from money and measure value using a non existent but well defined "currency". Maybe Unit is more accurate. Reference Unit. Of course, different indexes can compete to be the Reference Unit.
@AntiVigilante
GPUs are more inflationary than USD (for now). It doesn't help.
Instead of a basket of commodities and services (for simplicity) we could, for example take the value of the USD today and calculate the relative value to the USD using shadow stats inflation index. The unit will be defined as USD in may 2011.
I'm sure many merchants price in dollars and then automatically (or manually) calculate the price in BTC with mt gox, but this way you're avoiding bitcoin's deflation in exchange for USD's inflation. The automatic tools they use to do that could take into account a measure of inflation. And we all know that governments aren't good at reporting inflation.
The point is, many people argue that bitcoin cannot be money because it does not perform the "measure of value" function. I claim it doesn't need to. We can separate that function from money and measure value using a non existent but well defined "currency". Maybe Unit is more accurate. Reference Unit. Of course, different indexes can compete to be the Reference Unit.
@AntiVigilante
GPUs are more inflationary than USD (for now). It doesn't help.
Newegg prices skyrocketing?
There is a solution for this: Peg $5 - $15 dollar items in BTC, Peg $40 - $100 items in MtGox exchange. In between, depending on volume.
@Bashtee
I don't think that "fixing a price through democracy" is even possible
@Dobrodav
As you say, is a difficult project and governments won't like these index currencies, but they won't like bitcoin neither.
Instead of a basket of commodities and services (for simplicity) we could, for example take the value of the USD today and calculate the relative value to the USD using shadow stats inflation index. The unit will be defined as USD in may 2011.
I'm sure many merchants price in dollars and then automatically (or manually) calculate the price in BTC with mt gox, but this way you're avoiding bitcoin's deflation in exchange for USD's inflation. The automatic tools they use to do that could take into account a measure of inflation. And we all know that governments aren't good at reporting inflation.
The point is, many people argue that bitcoin cannot be money because it does not perform the "measure of value" function. I claim it doesn't need to. We can separate that function from money and measure value using a non existent but well defined "currency". Maybe Unit is more accurate. Reference Unit. Of course, different indexes can compete to be the Reference Unit.
@AntiVigilante
GPUs are more inflationary than USD (for now). It doesn't help.
I don't think that "fixing a price through democracy" is even possible
@Dobrodav
As you say, is a difficult project and governments won't like these index currencies, but they won't like bitcoin neither.
Instead of a basket of commodities and services (for simplicity) we could, for example take the value of the USD today and calculate the relative value to the USD using shadow stats inflation index. The unit will be defined as USD in may 2011.
I'm sure many merchants price in dollars and then automatically (or manually) calculate the price in BTC with mt gox, but this way you're avoiding bitcoin's deflation in exchange for USD's inflation. The automatic tools they use to do that could take into account a measure of inflation. And we all know that governments aren't good at reporting inflation.
The point is, many people argue that bitcoin cannot be money because it does not perform the "measure of value" function. I claim it doesn't need to. We can separate that function from money and measure value using a non existent but well defined "currency". Maybe Unit is more accurate. Reference Unit. Of course, different indexes can compete to be the Reference Unit.
@AntiVigilante
GPUs are more inflationary than USD (for now). It doesn't help.
This way we can achieve stable prices without messing with the money supply.
Pricing in GPU cards?
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