Topic: Has anyone proposed a coin that adjusts its supply to stabilize prices? - page 2. (Read 2417 times)

Okay that's an interesting one yvv, thanks - made me think for a while.    But I'm already imagining how to game the system because the issue is that someone must decide 2 things externally:  What do you peg it to (i will manipulate this) and what percentages do you set (i will game this also).  Game case 1:  The rate of change between two fiat currencies changes more in one day than whatever limit the system imposes - GAME ON.  Then philosophical flaw case 2:  If i buy a bag of groceries for .2 BTC one day, how meaningless would a reference to a central fiat be?  Lastly, bad-guy abuse case 3:  I customize my local Bitcoin client to LIE on the amount of fiat i bought my BTC at.  How would other clients know I lied?  And how would anyone stop me from buying above or below the system's target rate?  I'd only need a modest sized bot-net to start pumping the market rates artificially before i make my sale and let it dump.  And silly case 4:  face to face cash BTC exchanges - how meaningless does it become then? 

So in the end, as will all other Bitcoin "improvement" ideas I've seen to date, the end result is less elegant and beautiful than what is now implemented, and the desired goals are easily circumvented leaving vast holes open for abuse.

No.  The current volatility of Bitcoin is due to its infancy and small scale.  Hell *I* see the market shift some days directly by my actions when I just sell 10 BTC.  On the smaller exchanges, selling 10BTC can swing the value by 5-10 bucks sometimes.  But I see this as a growing pain and short term opportunity for the savvy.  We traders by shuffling funds between highs and lows are facilitating liquidity and we need *a lot* more of this trading activity to nullify the chance for a quick buck via this very activity.  If there were only a few thousand people trading Dollars the same would be the case, but as a market grows, the volume will smooth things out and mature it into something stable over time which people can trust for normal commerce.  We are years off still but it's inevitable IMHO because the central banks will keep screwing people and going bust, tax payers will keep paying, and the Bitcoin protocol will just.... chug along.  We just need to sit tight while the Bitcoin ecosystem is built out and public awareness grows.  A few more banking panics will also help, but in the short term expect a bumpy ride.

For the next years until reaching maturity, BTC will always be low when the press (and public) forgets the horrible state of the global banking system, and skyrocket again when reminded.  (I'm talking to you Cyprus.)

You can trade person-2-persion with a friend without submitting order to the blochain. This will not affect the exchange rate.
 

and what if i traded person-2-person with a friend? whoops, your system is broken.

Wouldn't that mean that there would be somebody involved that made the decision if it needed stabilization?

How about having, not the USD as a referent, but the average of the most important currencies: EUR+USD?

Well, the following could be done.

Кeep all ask and bid  orders for all fiat currencies versus BTC in the blockchain. This is possible without changing the protocol. Allow peers to vote for each order, just like they vote to confirm or reject the transaction. Orders which are going to perturb exchange rate against any fiat up or down by more than 0.015% per day would to be suspended or knocked out by peers (no central control involved). This way exchange rate would not change by more than 5% per year. Then let all online exchanges execute orders from same blockchain.

edit: To be clear, I'm at work and sort of booked the next couple days. But I'm planning on writing a little analysis up within the week.

In essence, you are proposing to replace (to some extent) volatility in price with volatility in money supply. Both are prone to speculative games and manipulation.

Still, I like this thread, except that it lacks specific, detailed proposals about the idea you presented in broad strokes above.

The method of doing it is quite simple - you only need to increase or decrease the supply of all current holders of Bitcoin by a certain percentage.  The difficulty is in determining how much it should be increased or decreased and when!  How could you possibly have a decentralized method of valuation determination?  Perhaps with a decentralized exchange, this would be possible.  I don't see it as feasible until then though, without a central entity involved.

Interestingly, this could be done entirely on the front-end of Bitcoin itself without modifying any of the inner-workings of Bitcoin.  Instead of displaying to the user how many Bitcoins they have, you display to the user how many "Credits" they have, or whatever you want to call the stable unit.  Then, have the client make regular calls to a central entity's server, who gives out an exchange rate of credits to Bitcoins.  The user would always pay X number of credits on the client side for, say, an apple, but the backend number of actual Bitcoins being traded would change.  The user would, however, see the number of credits in their account change depending on the most recent Bitcoin exchange rate.

I'm not sure that either of the two above solutions would solve any problems, other than psychological problems of people with less-than-average intelligence.

I agree with kokjo that a better "solution" would be forever keeping the 50 coin reward, because it would eventually level out to the point where 50 coins are, on average, getting lost while 50 coins are created.  People would be prone to speculating less, since they know that supply is unlimited (time-limited, but theoretically unlimited).  But then you have no way to reward early adopters, so getting such a Bitcoin-alt off the ground might be incredibly difficult or even infeasible.

Have a look at Ripple, it looks to solve some of the problems associated with confirmation delays and transaction costs.

Not if the demand is not steadily increasing (and known to be with certainty by all market participants).

Price volatility does not come from fixed supply. It comes from speculations on exchanges. Fixed supply  alone would cause a steady deflation.
 

But who would supply that variable? The cost of computing? This would have to be automated and how would that be automated?

To be fair, I think the exciting price swings of Bitcoin have been perfect for generating awareness of crypto-currencies. But the volatility is now an obstacle to more widespread use of Bitcoin as a currency. (I know that Bitpay etc. protects merchants from the volatility, but there's nothing protecting people holding the currency with the intention of spending it on good and services.)

Yes, my proposal would be bad news for the skilled and well-resourced day traders making a profit off of Bitcoin idealism right now.

ITT proposing price stability in a forum full of speculators

The goal is to stabilize the prices in B2C (or whatever you want to call the units of this alternative coin) of the goods and services people buy with it. Of course, the relative prices of different goods change, so the goal of price stability is typically conceived in terms of a price index like the Consumer Price Index. What I'm proposing is not to use such an index directly in the code - I'm just saying that the success of my scheme should be measured against an ideal such index.

What I think is possible to implement with minor technical tweaks to Bitcoin is pegging the value of 1 B2C to the real cost of computing one hash. (This peg could change over time according to a pre-determined formula chosen to anticipate changes in the cost of computing, like Moore's law and energy prices.) To the extent that the real cost of computing a hash changes in unanticipated ways relative to the ideal price index, the price index for B2C will still exhibit price inflation or deflation. But that volatility should be much much less than what we are seeing with Bitcoin.

To stabilize the price against what?

Enlighten us. we might be with you... the worst that can happen is LULZ.

It's just that it's not worth putting the time into elaborating if there is not a critical mass in this community that believes it is desirable to have the supply adjust to stabilize prices. Someone saying, "Elaborate...but it doesn't matter even if that were possible," without being challenged by anyone else is not encouraging.