Topic: Goldcoin and Stablecoin proposals - page 3. (Read 19096 times)

I was thinking in free transactions. But I guess that could work.
I still think that you can keep mining sustainable with demurrage, maybe even only with voluntary fees.

the objection here is that txn data is meaningless. You can easily fix this by imposing a 0.1% tax on txns. Suddenly tax collection volume becomes a meaningful measure of txn volume. You need a tax like this anyways to keep mining sustainable. Two birds with one stone.

I do not get Goldcoin. I mean, I understand the wildly awesome idea of selling free coins for the price of Gold. However, I do not understand why anyone would buy them instead of Gold itself. There is tremendous risk that Goldcoin would not actually match the price of Gold. There is exactly 0% risk, however, that Gold will not match the price of Gold. Saving transaction fees is not good enough to make up for the risk. I store gold. I do not pay transaction fees anyway.

So, lets say the first block of GoldCoins come out. What if nobody wants to buy them on an exchange? Simply reducing new supply will not help. It would be Dead on Arrival. Destroying coins will not work either. Why would I buy coins that can be destroyed? Why would I use transactions that have fees significant enough to make any difference on overall inflation/deflation rates? They would have to be huge. No thanks.

Even if the first few mined coins could be sold, the problem is new on every new block. If there are not enough buyers, GoldCoin would drop and may never come back. Price fixing on the exchanges cannot create demand, either.

I suppose you could destroy coins uniformly to get the price up. But, remember, you are destroying someones real wealth when you do that. If you need to delete half my GoldCoins to get the price up, how exactly does that help me? I paid for 10oz of gold and if I now have 5oz that means I lost money.

I am not saying Goldcoin is impossible. I just think that the equilibrium that keeps the price right would likely be a very small population of true believers. (You might be generating 1 goldcoin per day to avoid oversupply and God forbid if demand drops too fast.) Everyone else would find real gold much less risky and coin shops more convenient than Paxum/MtGox or whatever it takes to get GoldCoin. Or they buy bitcoin if they want a new currency. At least that has potential upside.

If you have a look at how the bitcoin exchange rates changed over the last months without any changes to the mining awards having been done, you will notice that the amount of coins being created is only a minor factor towards stability. When will people start creating actual services using bitcoins and thereby stabilizing the currency in the most natural way?

With predictable mining awards, we can at least ensure that the computing power that keeps the network running is stable. When we take away this basic (computational) stability, I wonder how a decentralized currency is supposed to work at all.

An alternative way to achieve this would be a method I call "one block, one vote". Under this system, everytime a block is mined, the miner may specify the amount of coins that will be received by a future miner a given number of blocks into the future. To prevent wild oscillations, the amount that can be specified would be limited to some range around an average of previous blocks. Under such a system, the price level would be determined by the equilibrium between new miner hash power trying to push up the inflation rate and existing wealth holders trying to push the inflation rate down. My hypothesis is that such an equilibrium would lead to roughly stable prices.

I am currently working on a patch for Multicoin ( https://bitcointalksearch.org/topic/new-release-of-multicoin-client-a-branch-of-the-bitcoin-client-24209 ) to enable blockchains to use this method. Since I am neither a professional programmer, nor an expert on the bitcoin source code, I welcome help from those interested in this topic.
 

I don't think so. Read this:

https://bitcointalksearch.org/topic/m.330368

It might work technically, but I don't think it would work from a marketing perspective. That is, holding coins denominated in gold, oil, or 1971 dollars is a very simple and appealing concept.

Morpheus, I've been thinking and thinking about your proposal, and I am now completely convinced that your way is the best way. It is simple to explain and seems reasonably straightforward to implement.

The biggest programming challenge is not deciding the rules of the new currency, nor is it importing public data on inflation, the price of gold, etc. The biggest problem is determining the current market value of the coins in circulation.

Once there are dozens of exchanges running which trade your new coins, this gets a lot easier, as it is just another public data source that the miners import, and any client can reject a block that doesn't have the right exchange rates encoded. But until then, figuring out how many new coins to distribute in a new block in a way that all the clients can agree on is a tricky problem.

There are a couple ways I see that the network can get this data in its infancy:

1) Launch an exchange for your coins at the same time you launch your new client
2) Build in a distributed exchange between your block-chains and the bitcoin block chain into your software, then you know the ratio of prices between your coins and bitcoins, and the price of bitcoins is of course public data.

I'm not sure which option is harder to implement, but I note that the first option is a single point of failure while your coins are new. I also like the second option because it allows bitcoins to still have a role in this new (much bigger) economy, at least for awhile.

I assume you are planning on riding along on the bitcoin block-chain using merged mining?

I very much like the idea of stablecoin. This would be a version of bitcoin that's better suited for commerce than the original. In order to use a currency in commerce, stability is very important. No merchant wants to constantly have to change prices.

What I do not like in your proposal (and in your subsequent amendment to 1971 coins) is the proposal to target a certain dollar value. Someone said Euro would be better, but I think we could do away with targeting a fiat currency value altogether.

We would need a good way to release more coins into circulation (which is available in the bitcoin software, as it is).

We also need a good way to lower the number of coins in circulation, in case the user base contracts. jtimon has proposed to do this by introducing demurrage, i.e. to take a small percentage of the amount transferred at the moment of transfer, and to destroy that small percentage. The percentage would increase depending on the time the coin had been held onto before being spent, making demurrage a powerful incentive to not hold on to stablecoins but to actually use them in commerce.

How to achieve stability without external input

The way to have a stable currency without the need for either a price index or a steward of the currency holding the value constant, is to target a fixed ratio between the size of the stablecoin economy and the total number of stablecoins extant. It is not really important what value that ratio produces, the important thing is that the ratio can be kept stable with only internal inputs.

The inputs we would need are:

- volume of trades in a determined time interval (I believe the system can supply that data).

- number of coins existing at the moment (also a system internal datum)

Using a fixed ratio (I am saying just for example 1:10 but it could be anything that's decided) we can now calculate the target amount of coins. 5,640 in trade would give us a target of 56,400 coins. Please don't hold me to the numbers, it's just a made up example.

Since demurrage is constantly lowering the amount of coins in existence, we can now adjust the degree of difficulty of creation of new coins to get us as close to the targeted coins total as possible.

Since we have the volume of trades as an internal input, we can constantly update the targeted coins total.

Since the value of a currency depends on the number of coins times velocity of circulation in relation to the volume of trade, we have a reasonably stable currency that does not depend on external inputs.

We do not know what the value of each coin will turn out to be before putting this in practice, but it is of no concern because all we want is stability of the value of each coin over time.

Could that work?

Maybe you're right and this can work only with fees.
With demurrage you still have direct control of how much will be destroyed while with MTR you don't.
Also the increased velocity amplifies the effects on price that money creation/destruction produces. So you have to create/destroy less quantity to achieve the same effect.

I don't think destroying coins through higher MTR will cause the spiral you predict.

If the transaction fees are increased to avoid inflation, then it will cause people to avoid transactions. However, it would also cause people to ask more for their coins to cover the transaction fee which would cause deflation which is the goal of increasing the transaction fee in the first place. The would break the transaction fee death spiral and stabilize the price of the coin.

Actually, the transaction fee may never get paid if the threat of a transaction fee causes people to hoard Stablecoin and drive prices back up.

Demurrage has many advantages for its users than just providing a means of money destruction.
It lowers interest rates, drives transaction fee prices down (or improves security) and recovers lost coins.
Merchants should accept a currency that his customers are willing to spend. But let's discuss these other advantages in the freicoin thread if you don't agree or don't see them as advantages.

If you want to influence prices by changing the monetary base, changes will have more effect if there's demurrage, because demurrage increases the velocity of circulation, and having a high V multiplies the effects of increasing/decreasing M.

M * V = P * Q

You can change both, the amount of newly created coins NCC and the demurrage fee rate.
When you have stable prices, you have NCC = (coins destroyed by demurrage) CDD to keep M constant.
When you have inflation you want NCC < CDD to decrease M
When you have deflation you want NCC > CDD to increase M
When you have inflation you want to decrease CDD to decrease V
When you have deflation you want to increase CDD to increase V
So finally,

With deflation you increase both NCC and CDD, but NCC more than CDD
With inflation you decrease both, but you decrease NCC more than CDD

If you destroy the money through transaction fees, you don't have direct control over coins destroyed by transaction fees CDT, you just can change the mandatory transaction fee rate MTR.
Even worse, when you increase MTR to fight deflation inflation, V goes down, reducing CDT, making you increase MTR even more...a positive feedback that takes fees to the sky and stops transactions completely. It is better to have deflation inflation than no trade at all.
I don't think that morpheus's proposal can work as it is.

Edited

You are quite right that only trusted transactions would skip the fees and/or coin destruction. I hadn't thought that through all the way. So buying coins from a trusted exchange could potentially be free, but selling coins to the exchange would definitely require paying the fee since the exchange doesn't trust you.

If you want widespread adoption, there's a huge marketing advantage to getting rid of demurrage. I think morpheus' transfer fee idea has all the advantages of demurrage without the drawbacks. When the price of coins is at or above the target, there would be no fees or penalties of any kind.

That's not going to happen. When you transfer a wallet you can keep a copy of it. The recipient must move them through the block chain or trust you. And if they need to trust you, you've lost the main advantage of scarce moneys. Now people have to trust each other and not be completely anonymous: people probably prefer Ripple for that. You can denominate IOUs in stablecoins, but again you need the decentralized price index system.

The destruction of money through transaction fees has other problems:
Is the transaction fee voluntary?
Why would the merchants include a transaction with a big fee sooner than one with a small one?

I think you need demurrage for this system even if you don't like it.

I don't have a great answer for this problem, but...

If someone wanted to sell 100 Stablecoin this way, they would have to create a new wallet and put 100 Stablecoin in it. If they did this while the price of Stablecoin is low, then they would have to pay the higher transaction fee. Thus solving the problem in this case. If they moved the coin while the price was high, they wouldn't have to pay the transaction fee, but they could just sell the coin for a profit instead. The only way this would work is if they bought the coin when the price is low, then moved the coin into separate wallets when the price is high, then sold the wallets when the price is low again. Not only is this complicated and risky, but the initial purchase would pay the high transaction fee.

An alternative to the above is if someone bought a bunch of Stablecoin at some point and doesn't care about selling exactly 100 coins. They could sell their entire wallet at once with some random number of coins inside. The problem with that is, the receiver couldn't pull the coins out of the wallet without paying the high transaction fees. The receiver would have an incentive to hold the wallet until the prices come back up. He could then sell the coins at a profit and may not have to worry about the transaction fee. Again this encourages hoarding which would drive the price of Stablecoin back up.

The big issue is an exchange like Mt Gox. If there were an exchange like Mt Gox which held all of its Stablecoin in a wallet and let people buy and sell on its open market, then the price of Stablecoin would be independent of transaction fees. Of course, anyone who bought a bunch of Stablecoin while the price is low would not be able to pull it out of the market without paying the transaction fee. This again would encourage hoarding which would drive price back up to the fair market value.

There may be issues in practice, and the transaction fee/miner reward may have to be adjusted at times. I still think it could work and I'm slowly working on an implementation.

If anyone has any info on creating your own bitcoin chain, let me know. I'm looking for a tutorial if one exists. Or maybe a tutorial could be added to the bitcoin wiki.

I've updated the list on my sign to include stablecoin and reservecoin (decentralized beertoken/1971coin backed by escrowcoins).

You could use demurrage instead of fees to destroy the currency. With demurrage the velocity of circulation would also be more constant and higher, thus the changes in the monetary base affecting more to the value of the currency.
I still see the problem of how do you get to the target value in the first place. The system can't control the value of a currency only by controlling its monetary base, and you have limits on how fast you can destroy and create. At the beginning you need to increase its value and also create much more than it is destroyed. I guess the value targeting system should be "switched off" until the currency reaches certain value.
Although I'm very curious about the feasibility of a decentralized stable currency, I'm not sure it would be desirable "for the economy".
The hard technical problem of a decentralized price index is still there. It could be very useful to solve it even without the stable currency.

morpheus,

While pondering this topic this morning I suddenly realized there is a fatal flaw in your plan as stated. I'm very sad to have to point this out, because I really want something like this to work because it is so beautifully simple.

Your plan to destroy coins will not work as stated. You are right that destroying coins will give people incentive to not transfer them between wallets, but they will simply sell whole wallets loaded with coins instead. Once some people start doing this, anybody transferring the normal way will be at a disadvantage, and everyone will have to start doing it, then *poof* you completely lose all control over reducing the coin supply.

Personally, I have to return to pondering the hideously complex ideas in my proposal for the second bitcoin whitepaper for now, but I'm hoping you have a good answer for this because I liked your idea better.

I had a similar idea but using demurrage instead of destroying the currency through fees.
The problem is how you get from starting zero to the target value just by controlling the quantity of coins.

The pegging idea may be more viable. Assuming that voting to obtain the price index in terms of a bitcoin-like currency works, I have a completely decentralized solution for a distributed reserve.
I'm still not sure that the system would be resistant to the depreciation of the currency in reserve.

The idea is based on the decentralized exchange for coins.
Anyone can "destroy" (put in the network reserve) middlecoins to issue stablecoins or destroy middlecoins to get back middlecoins from the reserve.
The number of stablecoins depends on the market, but the number of middlecoins should be stable to prevent its depreciation.
Stablecoins can also be traded with other users at the price they like, for middlecoins, for bitcoin and/or other currencies if the protocol makes miners know about other chains.
Middlecoins can also be traded for any of the supported currencies.

Maybe in this case, escrowcoin would be a better name than middlecoin. It can be in another chain, but it has to look inside whatever chain want to use it as reserve and make sure that no more escrowcoins are created in the other chain than were destroyed previously (to put them in the reserve).