Topic: Market Driven Money Supply.. (Read 3802 times)

I was thinking along the line of Fresh coins constantly debasing the olders out of existance...
I don't think this will be a linear process but more like exponential decay, but the parameters decided by the "Hand" lol

Ok lets define as "Age Band" the timeframe of  ages of coins a user/market feels they have some value like a comfort zone
Local markets develop their own "Age Bands" that shift forward or backward as they grow or recess, a single currency of variable "Hardness"

Redeemability
If I offer some redeem of new coins for invalidated coins then I could not recycle lost or unaccounted or stagnant coins,
That would put a floor as you say to the coins value, is that necessary? I like the idea that the only value stored in the coin to be the utility as exchange, more like exchange tokens. So If you don't use it for exchange then it has no value something like anti-bitcoin.
Would not people?l trade them as soon as coins get out of their stated "Age Band"
Besides maybe there is a market even for near expiration coins: let the children play .

Variability of the Valid Block Window.
It occured to me that markets will define their own Subwindow in the form of "Age Band" and possibly making the size of the Block Window irrelevant, as long as of course the block Window is sufficiently large to encompass the various markets needs/Age-Bands.
So markets expand/shrink - inflate/deflate their bands at their will.

On the lighter side:
how do you like naming my coin ouro from http://en.wikipedia.org/wiki/Ouroboros multiple puns intended
I even have found a symbol for ouro :Ȣ or ȣ  http://en.wikipedia.org/wiki/Ou_(ligature)

comments?

Money with a fixed expiration data was a common means to issue a defacto-demurrage currency in the middle ages.  At a fixed date in the future a unit of currency would be subject to mandatory recall and it would be exchanged for some amount of gold/silver less then it's face value, possibly with a sliding scale for any early redemption.  This established a predictable decline in value for the currency very similar to demurrage.  So I think their is some merit to the concept even if it is more complex then demurrage as implemented in Freicoin, one thing I like is that it makes the money more like a bond and makes market based control mechanics seem more natural to people.

But I would make a modest initial change, the 'expiring' coins need to be redeemable for some quantity of new coins, they can't just be completely voided, that would introduce too much instability on the downward slide in value, you want to have a floor to establish some minimum valuation even as you approach the expiration/recall data.  The amount received might be subject to change of course.

The whole idea of a variable sized 'window' of how long coins last as a way to expand or contract supply is also interesting but I need to see a way to get a handle on how the market would work to know if I really like it.

With regard to inflation and demurrage, I generally envision demurrage being fully reintroduced to the money-supply automatically so demurrage can be set to any rate without changing money-supply.  In Freicoin the rate and the recycling are both fixed and were externally computed to be equal, but so long as one tracks the total money supply it's a simple matter to make recycling continually match demurrage fees programmaticly.  Then a separate 'true' inflation mechanism would add more to get a real expansion of the money supply or if we want contraction some of the demurrage recycling stream gets diverted to the void to satisfy the desired reduction rate.  So ideally demurrage and inflation are completely separate variables that can move up or down independently.

Thinking out loud..

If a coin has an 'expiration date', then the older it is, the closer it is to expiration, so the LESS it is worth. This sounds very similar to demurrage ? I can see why Impaler invited you
 
Trying to keep track of how old coins are, whilst keeping the same value, seems quite complicated. I think that the demurrage principal used by freicoin, where the coin is worth :

(It's value) * (-5% per annum), is simpler for people to understand.

Your idea of buying newer coins with older ones seems THE SAME as simply applying demurrage to all coins ?

The newly minted coins will be worth more since the demurrage has not had a chance to affect them as much.

What I do see as different is that if you had an exchange for older to newer coins, the AMOUNT of demurrage would effectively be set by the market, and would not be set in stone.

This could be a useful metric in deciding the state of the economy, and whether money needs to be injected or not. Hmm..

So, what if the coin amount inflated by 2% per annum, or some amount. BUT the amount of demurrage that was applied to each coin was decided by a some kind of on chain exchange. Similar to exchanging old coins for new.

If the demurrage was set to more than 2% you would have monetary deflation, otherwise inflation ?

I'm not sure if the money injection would be done per coin, or just given straight to the miners.

EDIT:I hope my first post has not gone unnoticed? https://bitcointalksearch.org/topic/m.4375345

Yes coins get to have an expiration date

Now I wonder I'm not there yet my mind races in 100 directions
But One thought is:

Bitcoins this way gain a true utility value that of: age

Will even with a constant rate of invalidations/minings so that number of bitcoins stays constant.?

Can Price stability  be achieved by the internal trade of newer for older coins, and fluctuations overspiled/captured  in the age dimension rather that the count of bitcoins?

So I wonder if my train bellow is correct:

As economy is in recession newer coins gain more utility value and will be traded at higher value as people will try to "harden" their Bitcoins for fear of low transaction volume that will rot deposits, so there is an ad-hoc deflation of currency as people will try to compress their "Age Band"

As economy grows older coins still have good enough utility as people are more confident that they will use/get rid of them because of higher transaction volumes before they become a *problem* so they expand the "Age Band" thus currency inflates.

So maybe we don't really need to print or not more money as Market chooses the confident "Age Band" of usefull coins.

I find this thoughs very intriguing as they lead to a very KISS system, Can someone validate my thoughts so I know if I need to look elsewhere?

thaaanos! ('Thanos Rising' by Jason Aaron was almost my favourite comic of last year..)

Thanks for your input.

I'm not quite sure I get your idea.. let me try..

There are old coins and new coins.

Old coins stop working after a while. new coins take their place.

If you have old coins does that mean they become useless after their expiration date ?

Then you can trade these coins on an exchange. Old for New. And the price on the exchange determines whether we print more or less money ?

Can you explain it in a little more detail ?

Ok after reading the thread I came to the realization that my proposal above could simply work with just constant rate of invalidations and expansions
and that perhaps the stability could be achieved by the internal trading of older for newer minted coins at market rates.
I expect baskets of mixed-age coins wll be created that can act as a stable index?

There are some Moral Hazard issues here
Can you "ethicaly" make a decision NOW that will be used in the FUTURE without knowing the specifics then and possibly not even have a stake?
I.E.
Would you design a Car that automaticaly stops at red lights?

So I belirve ultimately the decision to inflate or deflate the economy lies with the stakeholders,
The luck with cryptocurrencies BTC-like is that even if me/you/some random guy/we decide to inflate the economy,
he doesnt get to distribute that extra money

Thank Impaler for inviting me to this thread,
my 2 cents here https://bitcointalksearch.org/topic/m.4348065, also quoted bellow for ease
I will now go back and read the thread from the start


I think I have reduced the problem to 2 diffrent dynamics, blockchain expansion & blockchain invalidation
so any static rate of inflation is possible, but I believe the crux of the thread is to make them dynamic exploiting info both from the blockchain as well as from miners intentions. Maybe even using all that cpu power that goes in hashing to some monte-carlo solution seeking race

A rule I want to investigate is:
If SomeFunction(transaction fees,transaction count) < K1 invalidate a block from the begining
If SomeFunction(transaction fees,transaction count) > K2 award a bonus for this block

effectively using transactions as a pivot to determine if economy is inflating or deflating

I don't disagree with any of the quoted text above.

Thankfully, none of those problems will materialize based on the hypothetical I described. I don't have any other way of explaining it to you, so I'll leave it at that.

Sure some kind of exchange ratio develops I'm not disputing that but we can't just assume that ratio is telling us what we want to know.  I've heard LOTS and LOTS of proposal from people who think just setting up any kind of market or any kind of voting system involving opposing viewpoints will produce the desired stability.  

For example I frequently hear a proposal build around miners 'voting' for the rate of inflation.   This tends to be one of the first things that occurs to people because it is the technically simplest thing to do and miners and things which empower miners are generally considered doable in BTC (because miners have de-facto veto on protocol changes).  Under this kind of system their would be some miners who vote for high inflation and other that vote for low and the system would reach some compromise when it sums all the votes, but no ones motivation for for their vote is linked to the actual growth in the economy or what would produce stable valuation of the currency, rather it will reflect their individual balance between past holdings and future mining potential.  Their are an endless number of ways to extract a 'signal' from coin users but it is making sure that signal is reflective of the economic variable desired.

In your cash/gold scenario I think the signal your going to be getting is going to mostly reflect the ratio between the two assets and to a lesser degree liquidity, as you say people will want the cash when they want to make purchases so their will be an premium on it which reflects it's ability to be spent (this assumes gold has some time-delay to convert as described earlier, else it is just as liquid).  I've thought about ways to detect the value of liquidity so that demurrage currency could be adjusted to the idea rate.  Freicoin is likely suffering because as a fledgling currency it's liquidity is very low and the 5% rate is likely excessive at this early stage.  Liquidity is a very tricky thing because it gets into all kinds of financial decisions without us being very aware of it, many rates that we see in markets reflect a combination of factors, for example interest rates per the Fisher equation reflect Liquidity + Inflation expectation.  So to get accurate inflation numbers it may be necessary to subtract out the effects of liquidity but knowing liquidity value might take a whole additional market!

Very interesting topic and discussion.
I also think that the right money supply system is one of the most important keys in creating a successful currency. I think that deflation with money is silly, because money should be the intermediate tool in trading value and shouldn't be considered as an separate value to be hoarded.
I'm ok with bitcoin money inflow system being based on deflation, because the speculative nature made it very attractive among masses. And by it's attractiveness, it propagated this new idea of an privatized and decentralized monetary systems.
I'm anxiously waiting for new cryptos that have more complex supply systems and that would have a real future as usable money. It sure is hard to imagine the complexity of that system that could run and autonomous and dynamic money supply without direct human intervention. But topics like this surely contribute in finding answers to those questions.

I can see you're not going for my cash/gold idea. I still don't think it is such a loser though.
 
When they have too much cash, what will they do ? When they don't have enough what will they do ? Seems pretty clear they buy and sell the gold. But maybe i'm looking at this to clinically/physics engine-y.

I'll have a regroup on that one. Come back when i'm ready.

Going back to your previous idea though with the demurrage Stamps. I think I see how the system works. You have an account and you can buy and sell additional demurrage points. You can't spend these. JUST buy and sell them. And if you have any, they are used to pay your demurrage, otherwise your normal account is used. Then if you think money is cheap now, you buy the Stamps, or vice versa.

'..This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.'

How would you affect the Money Supply given the market for Stamps ? Print more when the value goes up and print less/none when the value goes down ?

Would that not destroy the market for them in the first place since we would be weakening the stronger side ? As it were removing the thing that was making it swing one way or the other.

I'd say your getting colder not warmer.

I don't think fixed monetary expansion rates are viable in any Crypto-coin, the 'economy' for a crypto-coin is not the world, it's the transactions being done with that coin and it can grow explosively or shrink rapidly because it is by necessity a tiny thing in a much bigger economy and activity can flow into it or flow out of it from that bigger economy very easily.  In Freicoin we adopted fix demurrage rates and fixed supply purely out of conservativeness and technical limitations, I don't stand behind ANY fixed value going forward.

Keep focusing on the thing that we know will work a market that makes HONEST predictions of future valuation.  Try to pull apart what I've presented, I'm giving what I think is good criticism of your proposal and want to hear more of yours thoughts on mine.

I'm still completely skeptical of any kind of fixed-supply coin being predictive of anything.  The fundamental nature of any fixed supply is to be deflationary NOT stable in prices, they are NOT a store-of-value either.  The BTC and gold-bug communities consistently confuses store-of-value with SPECULATION.  A store-of-value has some quality that makes it's price stable, a speculative commodity is the opposite, unstable so you can reap a speculative gain from holding it or shorting it.  I urge you to not fall into that same rhetorical trap as it will lead to dead-ends.

As for the link you provide to gold I read it the first time you linked it and have simple been trying to not mention it under the old 'if you can't say anything nice' rule.  It is GARBAGE, as is everything put out by anyone who things gold has ANY meaning in our or any economy.  While the author earns some points for pointing out the fallacy that money-supply alone dictates the price of gold, just because someone points out a piece of main-stream Bullshit dose not make their alternative right.  My personal rule of thumb is that so called alternatives are 90% bull-shit too.

Were working with a problem that to my knowledge has NEVER been dealt with before, even my own economic school of Gesell is completely silent on how to do what we want to do.  I'm flying purely on my own understanding but that understanding tells me you can't beat deflation with a deflationary commodity be it a metal or a cryptographic one.

To clarify the previous post :

When trying to come up with a system to grow and shrink the money supply in line with economic growth, using whatever devious mathematics one can come up with, it occurred to me that maybe you could do this instead.

Grow the money supply at a constant rate, and then give the user the ability to mitigate any difference between the ACTUAL rate of economic growth and the 5% we are inflating the money supply by.

That way even if the rate of inflation of the CrytoCoin is not the same as the economic growth, it won't matter.. as :


So, you can make up for the difference, in actual economic growth and 5%, by buying or selling cryptogold.
   

Hi, sorry for delay, New Year Trip. Back now.

Skype not my thing.. Email or this, thx.

So - If the previous system with 'variable money supply growth rate' doesn't seem quite right, what if we made it even simpler, or attack the problem from a different angle..

Have the 2 coin chain with p2p exchange setup. CryptoCash and CryptoGold... stick with this for now, as something may pop out the other end of a brainstorm..

CryptoCash grows by a fixed percent, say 5%. (Could be -5% as in freicoin - just trying to remove the coins ability to be used as a long term store of wealth)

And CryptoGold is fixed to some limit amount.

In this scenario, the Cryptogold with 'on chain exchange' can act as a 'pressure valve' to the ratio of economic and monetary growth ?

So that, in the +5% inflation model, when economic growth is less than 5% the price of CryptoGold will go up. But when Economic growth is more than 5% the price of Cryptogold will go down. And when economic growth is 5%, the price of Cryptogold should be stable.

I again refer to this : http://www.macro-investing-strategy.com/gold-and-money-supply/

The Cryptocash would lose it's long term ability as a store of wealth, but in the short term it would act as a great medium of exchange, 5% per annum is tiny on a day to day basis. The CryptoGold would be the Store of wealth, but you would never need to leave the chain to have BOTH (like having to switch from BTC to USD and back). 
 
Also, as an addendum, cryptocash CAN be destroyed. If not touched for 20 years, or whatever, it is simply removed from the system. CryptoGold always gets put back in the system. 

This system is similar, to the original proposal, but different in a subtle way.. ?

..ps Happy New Year!

Yes I understand your objective I just don't think the structure gets you their because the time factor is not present.  The two parties in an exchange need to be trading places 'in time' so to speak for the market price to reflect a market valuation over time.

The real exchange of Gold vs USD isn't a good target to emulate because it's simply a commodity exchange and both parties are exchange their commodities in the present, no one is taking a different position in time from the other party.  The better market to try to emulate would be a commodity futures market or a bond market.  In both cases the parties are trading across time, the commodity futures market tries to pull future commodity prices into the present and the bond market tries to pull future money demand into the present.  The bond market uses only a single commodity (money) where as futures markets use two so I favor bond-like markets as I think these will be simpler.

Also we have a well documented history of gold fluctuating in its inflation-adjusted exchange with the Dollar, not to mention that as a mined and consumed commodity a fixed quantity coin is not an accurate reflection of it despite what BTC propaganda says.

I'm interested in continuing discussion but via a more direct channel, do you use Skype?  Etlase2 your welcome to join us if you wish, I'll PM you both my Skype account.  Anyone else interested PM me.

Just to be clear, in my system the 'Fair' price is simply Total cash / Total Gold.

.. Hmm.. I do see what you're saying though. The incentives to switch from one coin to the other are not so clear.

I really just wanted one to act like the USD, cash, and the other to act like Gold. Then people would use them as such. And I could use that system to judge required monetary supply changes.

Market prices are by definition the 'fair' price or at least the only way to arrive at a consensus that we can call fair.

I think the spread will always mirror the ratio of the number of coins in each half of the system and won't provide any additional signal.  Say you start with 1:1 ratio between the two, the spread will be 1:1 and no signal to grow or shrink supply will exist.  Then lets say the value of this new crypto-currency rises, I think both halves will rise in tandem and the ratio between the cash/gold will remain 1:1 again no meaningful signal is sent even though their is deflation.

I as a holder of either the fixed supply or floating supply coins can always expect to long-term be able to exchange between the two halves of the system at what ever the ratio of existing coins is.  Only a change in the ratio would change my expectations, but their is nothing to actually initiate a change in the ratio and if their was the system is designed to counter act that movement by changing cash supply.  So a rational trader should conclude that the ratio is never going to move much if at all.

In fact I really see no reason to participate in the internal market except under some rare circumstances, such as if I'm holding the gold half and am ready to spend, then I'd convert just what ever I need for a purchase and I would treat the calculate the value by combining the gold-cash exchange rate and the cash-USD rate.  It would be a bit like using LiteCoin, it actually has a fairly stable exchange rate with BTC but it's still massively deflationary, the two coins just deflate together.

Yes but you can only exchange at the Market price. Not the Fair price.

The spread between the 2 prices is what I think of as 'The Demand for Money'

If demand is high, market price of cryptogold will be lower than Fair price, so expand. And Vice versa.

And, if the market price IS the fair price, then there is the right amount of money in the system.. No change.

Otherwise, what does the Market price of cryptogold in the system show?..

I think were making some good progress, a lot of your ideas are avenues I've gone down before as well.  The idea of having one type of special coin that can not be sent by normal means but can only be exchanged through the internal block-chain market is a very interesting tool.  I'd considered this at one point as a tool in determining the appropriate level of demurrage which requires us to know the liquidity premium and an illiquid asset would be useful for illuminating that.

But one thing I realized is that a market being continually available for exchange MAKES an asset at least slightly liquid.  In your crypto-gold scenario the ability to convert to the crypto-cash means that a user can very easily convert and thus very easily spend both halves, and thus they lose any distinction.

To create real illiquid assets you will need to freeze coins, much the way newly mined coins can not be spent for certain periods of time.  This is a fairly simple technical solution and it could be done for different lengths of time, a bit like the different length of time that bonds take to mature.  At the very least you would need to do this to your gold equivalent to get the other 'cash' part to be the only medium of exchange.  While I think their may be some usefulness in this type of frozen coin, I think it's in the liquidity discovery area rather then in the inflation/deflation discovery area.

When you have a fixed quantity coin pool as with your 'gold' it's own lack of liquidity would concentrate it in a small number of hands which will make it's price unstable and thus send false signals.  Also if you were to actually have the development of a ratio in valuation that keeps the 'cash' at parity valuation and the 'gold' going ever up then half your total money is going to be of a deflationary type so the solution will be a half failure by your own admission.  I don't think any fixed quantity is useful in stabilizing valuation, but I'd encourage you to keep trying to prove me wrong.

As for how to increase money supply, so long as current coin stake is NOT the basis for the receipt of the newly created supply it would be fine as that linkage between present stake and future coins will invariably leak into the market.  Mining can work but at Freicoin we believe it's possible to give most new coins to charity.  Ultimately we hope to have users even choose which charities by a stake voting process.  Both demurrage and new coins created to counter-act deflation can distributed in this way.  The main obstacle is avoiding fraudulent capture by large stake holders.

Thx. Finally a third-party diagnosis of my idea..

Yes - I have been thinking something like this, in fact that is why I say in my last post :


By which I mean that if you want to SPEND the coins it has to be done using CASH, you can't spend/send GOLD. This is the reason for switching from one to the other. You want to save you buy gold, you want to spend you sell gold.

Therefore CryptoCash is the Medium of Exchange, and CryptoGold is the Store of wealth. Like 2 sides of the same coin. You can't use CryptoGold as the medium of exchange, since you literally can't sent it to an account. You can only BUY or SELL it on the Chain.


How about if the inflation wasn't done on all the wallets ? you could simply give the new coins to the miners ? I'm not sure how the demurrage would work though in this case.. Maybe only expand.. Seems a technical cheat though.

I am doing all this because I don't like the idea of a deflationary currency..

What I want, is a currency that grows/shrinks in line with economic growth. And i'm trying to find a financial relationship that tells us how much to expand or contract the money supply..  and it must be fully crypto based.

I do think demurrage is a good monetary construct, but my only issue with it is whether the General Public can deal with it Psychologically ? Not even a financial issue.


This is the crux really. As you say 'Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.'

This could be done with an on chain exchange, sure. What the 2 sides of the trade are, seems the problem..

I did have another idea. The K Percent Rule. Keep it super simple.

Pick a percent increase, say 5%, and simply use that, forever. Then the CryptoGold would be the 'pressure valve' that you could jump in and out of. When economic growth out performs monetary growth, the price of CryptoGold would go down, and when economic growth under performs monetary growth, the price of CryptoGold would go up. Quite like this one actually.. just means the money doubles every 14 years.. exponential increases are always tricky though..

And in a way that can't be gamed, and requires no trusted third party.

Sorry rex I don't think that 2-coins on the same chain really gets you any useful information because your exchange (as far as I can see) is all PRESENT valuation.  The value of the two coins will simple move in synch with each other compared to real assets their is never any reason for people to flee from one half of the system into the other because both halves are basically identical especially when your giving holders of the 'cash' a PPC like interest rate to cause money expansion, their is no way you can ever be diluted so holding cash is as good as holding 'gold' your just choosing which of two numbers goes up your quantity of coin or it's value in Dollars, your getting rich just as fast either way.

The bigger flaw in your approach is that you seem to be trying to create nominal price stability while KEEPING deflationary economics, aka just holding money is yielding an increase in purchasing power.  I'm not sure if deflationary economics is something you genuinely support, or just think is a prerequisite to adoption or if you just view proportional nominal increase for all coins as the simplest technical solution.  But I can assure you that any solution that involves money expansion ONLY through the inflation of all wallet balances will be economically identical to BTC.

What I am looking for is a system in which a coin networks increasing 'market cap' is in the hands of NEW people, not just the early adopters.  An individual holder of coins shouldn't be enriched or impoverished by changes in market-cap and ideally price information is preserved too.  How money new money is distributed is a separate issue from determining how MUCH to change money supply which is what we need to figure out first.

I'm a believer in Demurrage, which I feel has desirable effects on interest rates (lowers them) and velocity (raise it), while it might seem to contradict the non-impoverishment of holders I just mentioned a holder of money enjoys liquidity and demurrage is the payment for liquidity, so long as the rate is correct (another idea I've wrestled with) the money holder is neither robed nor subsidized.  Demurrage might also be a means of driving a prediction market.

The system might be something like this, everyone needs to pay demurrage but you can receive a kind of secondary 'pre-paid' demurrage coin (a bit like your gold/cash distinction) lets call them 'stamps', this sits in your wallet and can not be sent like normal coins but it is used first to pay all demurrage and it is denominated just like normal coins.   Once it runs out demurrage starts being drawn from your normal coin balance so the prepaid stamp is in a sense equal in value to normal coins in the present.

Now we take two people who have differing views on future coin valuation.  The one who expects an increase in coin value would like to have stamps in the future but would give them away now, the one who expects a decline in value would want stamps now but would be willing to give them later.  They could create an exchange that has them each paying the others demurrge costs in addition to their own during a different period of time.  First the person expecting an increase in value pays for them both in what he feels will be cheap coins and then the second person pays for both of them in the future with what he feels will be cheap coins.  Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.  We can mandate that all the contracts be for equal pairings of time 1 week / 1 week, 6 months / 6 months, but the quantity of demurrage paid can float.  This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.

It is not GOLD as in the Physical Yellow Stuff..

To Recap :

We have a blockchain based crypto coin, just like bitcoin, BUT it has 2 types of coin on it.

Gold is the name I use for the coin with a fixed amount. Let's call it CryptoGold.
Cash is the name for the coin with a variable amount. Let's call it CryptoCash.

There is an exchange between the 2 coins on the chain.

There will only EVER be 1 million CryptoGold.
CryptoCash can grow and Shrink.

The Gold price I refer to is the price of the Fixed Amount Coin (CryptoGold) in the Variable amount coin (CryptoCash).

So to start with you would have miners mining 1 million of each. Let's say you get 50 of each per block, decreasing as usual etc etc.

Then you have users trading the 2 types of coin on chain.

The FAIR price is the total CryptoCash divided by total CryptoGold.

At the very beginning the Fair price will be 1.0, as there will be the same amount of both coin types.

When the Market price of CryptoGold, on chain, is Higher than the Fair price (PEOPLE BUYING A LOT OF CRYPTOGOLD), we contract the amount of CryptoCash, driving the FAIR PRICE DOWN, as there will be less CryptoCash. So Total CryptoCash / Total CryptoGold will go down. (There may actually be less Crypto Cash in the system than CryptoGold, making it more valuable..)

When the Market price of CryptoGold, on chain, is Lower than the Fair price (PEOPLE SELLING A LOT OF CRYPTOGOLD), we expand the amount of CryptoCash, driving the FAIR PRICE UP.

We may find that a stable Market & Fair price is reached at about 1200.. meaning there is 1200 times more Cash than Gold. or 1 million CryptoGold, and 1.2 Billion CryptoCash.

So - Sell your gold and drive the price down, and We'll print CryptoCash,
Buy gold and store it driving the price up, and we'll stop printing it.

Expansion and contraction of CryptoCash, occurs on ALL coins, so proportionally no-one loses out.

I am using this principle :


I would limit the expansion and contraction to maybe +/- 5 or 10% per annum (or however many blocks 1 year is).. so as to prevent monetary shock.

There is a final piece that I am working on.. That being that CryptoCash can be transferred, but that CryptoGold can ONLY be Bought and Sold on chain.. Still thinking about this though..

How do the chains know what is the market price of "gold"? And if the price of the gold chain changes, doesn't that affect the valuation of the cash chain?

Good Post. Read it. You make some salient observations about the shortcomings of FGCs (First Generation Crypto-currencies..) and I would recommend anyone interested in creating an SGC (Second Generation Crypto - not 'StarGate Command') read it. 

The proposal I put forward earlier, which I break-down in an earlier post in this thread, is indeed fully self contained ? It uses an ON-CHAIN exchange.. Not an external one.

Also - I think that the basic idea I put forward is VERY SIMPLE.. Both to implement and understand. I'm a big believer in KISS.

Market based currency will tend towards monopoly-oligopoly... So? There won't be enough transparency... So a market based coin will not get you beyond some kind of business cycle.

Great conversation! Very interesting, if it weren't for my two year old outside with the hose I'd read through the whole thing with a fine tooth comb, twice over. Very original problems and solutions! A crypt future is like crack to us economists.

I played with some ideas like this in a post I made back in April:

https://bitcointalksearch.org/topic/m.1897412

In general, I think any reactive scheme built into a system must be completely self-contained; it must be able to base its decision-making purely on internal information, not on external information that must be supplied by humans (who may be unreliable.) This rules out decision making based on prices or exchange values, which are external parameters. However, there are patterns of system behavior that are characteristic of certain types of conditions (bubbles, busts, stable conditions) which might well, if expertly characterized, form the basis of an algorithm which could begin to implement a flexible monetary policy.

Yes, but it is very complicated. But the gist is rather than everyone competing for one block of coins, everyone competes to create their own money from a big block available with those creating it faster earning slightly more. Then the system compares a the speed of creating a block of coins with prior blocks and uses that to increase the difficulty. I have some other tricks to account for potential reductions in energy requirements.


Well you can never have something that is perfectly stable. What I aim for is something that would be more stable in the long run vs. a basket of commodities than any other individual commodity. If things are going well, demand is going to go through periods where it far exceeds supply, and things may occasionally go bad where supply exceeds demand. The price will always oscillate, the question is how well can you keep it oscillating around a given, stable point.

Hi Etlase2!


That's interesting.. I think a way of doing that would be to have the block reward for mining to be proportional to the Hash Rate of the Network ?

Higher the Hashrate, higher the block reward.. All though - when computers change it might cost less for the same hash rate..

Hmm.. so do you have a way of determining a 'Consistent Cost to Produce' ?

I know that Decrits uses a voting system.. Maybe a block vote could take place to determine the price of a unit of energy.

BUT - I am really after a system that has 'Price Stability'.. Which I don't think this system would have, since as you say the variable price would determine whether miners mine it or not (Unless I'm missing something..) ?

spartacus, I know I've directed you before to my Decrits proposal. While I don't have a perfect solution, I do have one that is very decentralized and crypto-only.

First of all, a requirement for a crypto where the money creation is variable and based on demand or whatever needs to have its security separate from mining. This I've already solved.
Secondly, to provide a stable value base, the only real way is to provide a consistent cost to produce the currency. This is really difficult, but I think I've got something that comes really close. If the cost to create the currency is consistent, then people create more of it when its price is high and none of it when the price is low. Rather than finding a way to remove currency from circulation when the price is low, I changed my opinion to the one where you leave things be, because a currency that is below its cost to produce will look undervalued and will incentivize people to accept it as payment, so it is self-correcting.

A consistent cost to produce doesn't guarantee any value, but it will have a very real impact on how people will think about such a currency. I think it will lead to far more stability than just about any other metric could.

Yep..

LOL .. yep.. me too..

I think I have an idea. How about this..

I have been looking for a relationship between some financial instrument and the Money Supply. Think I have found one. I have mentioned it in other posts but the idea is now very clear to me..

The Gold Standard
https://bitcointalksearch.org/topic/the-gold-standard-222653
https://bitcointalksearch.org/topic/freidman-k-percent-rule-268336

This is a nice article with good stats
http://www.macro-investing-strategy.com/gold-and-money-supply/

What that basically says, is something that when you think about it, makes sense.

What is the connection between the Gold Price and The Money Supply ?
  
"The price of gold is the link between real growth and monetary growth: When real growth under-performs monetary growth, the price of gold rises. When real growth out-performs monetary growth, the price of gold falls. And when real growth matches monetary growth, the price of gold is flat."

Now we have a connection between a 'fixed amount commodity', like Gold, or BITCOINS, and the money supply.

OK - so here it is..

You have a normal blockchain based crypto coin, but with 2 coins on the chain, rather than 1.
There is an exchange on chain from one coin to the other.

1 Coin has a fixed amount.. say 1 million in all. Ever. Call it Gold.
1 Coin is not fixed. It grows and shrinks based on the Price of the Other Fixed Coin (Gold).. Call it Cash.


Yep.. And how would the amount of expansion/contraction be calculated ? Simple..

The FAIR price is the total amount of Cash divided by the total amount of Gold.

If the Market price of Gold is higher than the Fair price, we contract the amount of cash..
If the Market price of Gold is lower than the Fair price, we expand the amount of cash..

No need for a futures/bond market.. the Price of Gold does that.. And it ALL happens ON CHAIN.. no external inputs.

What do you think Impaler ? Can it work...

ps Best of all.. I am working on coding a version myself.. It kinda' works..  

This sounds more like a service than an alt-coin to me.  Design some method to determine the general price level and then create a website which keeps an up-to-date value of the result expressed in terms of bitcoins.  Equipped with a simple API, wallets and shops can (as per your claims) use this to allow their users/customers to make "better-informed decisions on consumption and investment".

Let's be aware of the meaning of Bitcoin or any currency. A currency serves as a trusted "medium of exchange." IOW it supports the spread of "economic value" over its population. The amount of 21 million coins has already introduced this "new economic paradigm." Yet, it appears that Bitcoin additionally does not trespass the borders of the playground occupied by miners, speculators, early adapters, opportunists and other geeks with more than average thrill seeking genes, cq hormones.
Let's face it. At this moment 12 million BTC's remain in the hands of only less than 3 million people. That's more than 50% of a possible future Bitcoin economy. Are these 3 million persons in the same position as bankers, governments and CEO's of multinationals right now? Houston, we've got a problem !

Thx, I've thought about this problem a metric Fuckton but it is still not solved to my satisfaction so if you interested in exploring the concept further I am game.

I completely agree that non-crypto inputs are neither desired nor useful, first off all real currencies currently target some level of inflation so even perfectly matching one of them would introduce an inflation rate into said coin that we really do not want.  So I'd forget about any scheme focusing on coins relative to anything external, just worry about the prediction markets relative valuation between 'now coin' and 'future coin'.

To get that kind of prediction you need to allow people to do effective trading of coins between the present and the future, but the 'push' nature of all transactions in BTC makes this nigh impossible, the person who is to receive in the future has no means to compel delivery of what's been promised which is a great part of why BTC is nearly impossible to short.  So we need some kind of NEW instrument that is recorded in the Block-chain along side coins and denominated IN coins but distinct, a kind of coin-futures-contract or coin-bond.

So are prediction market participants would be taking opposing sides in these special instruments, one side predicting a decrease in value for future coins, they are willing to give away future coins to receive coins in the present, and a side predicting an increase in value, they will give-up present coins to receive them in the future.  The instruments will be for some specified period of time so the market will produce a prediction that can be expressed in a ratio for multiple time segments.  For example the prediction for 6 months could be a 3:1 ratio, predicting a coin will fall to 1/3rd it's current value in that time.

How to turn the ratio into a change in money supply, it might be as simple as pushing the mint rate up and down in rather crude fashion until the ratio comes closer to 1:1, supply expansion and contraction could be stake based such that no ones proportional share is changed.  This would be the simplest solution from a technical standpoint (well maybe changing mining rewards is even simpler) but I don't think it would allow any kind of viable futures instrument because your effectively erasing the possibility of being diluted which is motivating people to enter truthful predictions in the market.

? Err.. I have to disagree. Agreed that 'relative' prices stay the same, but what about Price Stability ?

1)Price stability makes it easier for people to recognise changes in relative prices since such changes are not obscured by fluctuations in the overall price level. This enables firms and consumers to make better-informed decisions on consumption and investment. This in turn allows the market to allocate resources more efficiently. By helping the market to guide resources to where they can be used most productively, price stability raises the productive potential of the economy.

2)If investors can be sure that prices will remain stable in the future, they will not demand an "inflation risk premium" to compensate them for the risks associated with holding nominal assets over the longer term. By reducing such risk premia in the real interest rate, monetary policy can contribute to the allocative efficiency of the capital market and thus increases the incentives to invest. This in turn fosters economic welfare.

3)The credible maintenance of price stability also makes it less likely that individuals and firms will divert resources from productive uses to hedge against inflation. For example, in a high inflation environment there is an incentive to stockpile real goods since they retain their value better than money or some financial assets in such circumstances. However, stockpiling goods is not an efficient investment decision, and therefore hinders economic growth.

4)Tax and welfare systems can create perverse incentives that distort economic behaviour. In most cases, these distortions are exacerbated by inflation or deflation. Price stability eliminates the real economic costs entailed when inflation exacerbates the distortionary impact of tax and social security systems.

5)An environment of stable prices helps to maintain social cohesion and stability, since price stability prevents the considerable and arbitrary redistribution of wealth and income that arises in both inflationary and deflationary environments. Several scenarios in the twentieth century have shown that high rates of inflation or deflation tend to create social and political instability.

6)Price stability also contributes to financial stability, because it eliminates market distortions and uncertainties arising from unstable prices. For example, price stability reduces risk premia vis-à-vis interest rates because there is less uncertainty about future inflation.

Or so they say.. 

Problem is of course that if someone has the power to PRINT money, they'll PRINT IT! (Regardless of WHY they should be printing it..)

What we need is an equation.. A maths way of calculating how to affect the Money Supply.

And it seems some kind of Free Market, might be a way of ensuring 'Honest' discovery.

This proposal would not change relative price levels and would thus have no effect on purchasing power, and no effect whatsoever, good or bad.

It's equivalent to if everybody suddenly appends a "0" to the end of each unit of their local currency. If gas cost $3.50 beforehand, it would cost $35.0 after the switch. When you assume that people's desire to hold the same proportion of their worth as cash balances, prices have to multiply by the factor that their purchasing power just rose due to the change.

Now we're getting somewhere..

But - we need a system that doesn't require external/non-crypto inputs..

Could you determine the amount to inflate or deflate the Money Supply of a currency given the price of Bitcoins in the given currency ?  

Or - what I mean is, could the monetary supply of the US Dollar have been regulated given the value of Gold in US Dollars ?

Mathematically speaking..

(I say 'have been' as the current Gold price is SOOO manipulated it bares no relationship, to anything..)

For the proposed system to work, they would have to have behind them a state with its power to coerce the new system on everyone. It seems a bit paradoxical to me, that is, people, if given such choice, willingly cling to a monetary system that would ultimately ruin their lives in the end, and at the same time have to be coerced to a system which would profit them in the long run (corruption and all that shit aside)...

You would need to have a functioning prediction market entirely in the block-chain that requires coin state to participate in and which allows people to hold some kind of 'bond' token which rewards them for correctly betting on future inflation or deflation of the purchasing power of a unit of money.  This ensures honest predictions, meanwhile coin volume grows or shrinks counter to the market prediction, predicted inflation shrinks money supply and predicted deflation grows it.

Yes - This is what I was thinking..

Aside from the technical difficulties, could you regulate the Money Supply if you knew the Price Of Gold, in the currency ?

Or - Which I can see a way of doing, could you regulate the Money Supply if you knew the Price of a Bitcoin .. ?

So that, if the Price of Gold/Bitcoins went up, you would print less..

If the Price of Gold went down, you would print more.

I think this is known as the 'Gold Price Rule'.  

http://www.forbes.com/sites/steveforbes/2013/05/08/heres-what-a-new-gold-standard-could-look-like/


Don't worry - no one is talking about 'wrecking' lovely bitcoin.. This would definitely be an Alt-Coin.

Just trying some different ideas out. Thinking out loud.. So many possibilities now that were not even thought possible BBTC.. (before bitcoin.. ;-p)

As I said in the OP, if you could take the Human element out of the equation, maybe some of this stuff is not soooo terrible..

I personally hate the idea and wouldn't have anything to do with it but I don't see why these people who hate Bitcoin and deflationary currencies can't organise an altcoin of their own like this that they like more rather than trying to usurp the currency and wreck everything. The code is open source and there for you to use and download, even if you don't have any programming experience you could always hire like minded people with Bitcoins to develop it for you and fix things.

I think the Freicoin altcoin is one of the only ones out there that comes close to what you're planning but that hasn't been a great success and because I follow a different economics school I'm just being smug about that and saying it's because of the kind of ideas you're talking about in the first place but again I welcome currency competition, it's just the critics of deflationary currencies that don't. Oh yes! I almost forgot infinite coin, that's an inflationary currency someone made too, it's not doing too great either, there's also stuff like Starcoin and Luckycoin which give out random rewards, so there's all kinds of experiments happening.

The short answer is "no".

The long answer is "How do you measure 3 of {M,V,P,Q} quickly and accurately enough to set the fourth?"

I suggest you have a look at eMunie.

I agree that relative wealth is key, but I am looking for a system with price stability of the goods in that system. A system that can use mathematically based money-supply 'inflation/deflation'. 

In a growing economy with fixed money supply the prices will always tend down. I am not saying if this is good or bad, I am just looking for ideas for a system that has a variable money supply.

One that grows and shrinks as the economy grows and shrinks.

It is already like this.

Since the only important thing is the relative wealth, what you can buy with that wealth does expand and contract depending on what is on the market. You don't need to change the numbers.

Hello!

Let's imagine a NEW economic paradigm.

Crypto currencies give us the ability to create ANY mathematically based currency, so I was wondering about a new type of coin.
 
Lets say, you want a coin that grows AND SHRINKS in number. One that if possible, responds to market forces.

Also - before anyone jumps in with the Inflation/Deflation is Theft Tirade.. If the growth is done FOR EVERYONE.. so that ALL coins grow and shrink, so that proportionally, your amount of coins remains the SAME, I don't think it is theft any longer. Printing and then giving it to a bank to redistribute, as they see fit, is Obviously, not cool.
(ie Alice has 1 coin, Bob has 10, Alice has 10% of Bob. Then 10% inflation. Alice has 1.1 coins, Bob has 11, Alice has 10% of Bob, still.. And Alice also retains her 1/11 stake in the entire coin, in both cases.)

I know there is an economic theory that says that the Money Supply should grow in line with Economic growth, and that this in turn would result in price stability. Unfortunately, measuring economic growth is harder done than said.

What I am wondering if there are any Market Driven Money Supply equations ?
 
For instance..

You could link the Money Supply growth to the Hash rate of the network.. ? (Don't like it..)

You could link Money Supply to the amount of TXN fees paid ? (Hmm.. still not into it..)

You could link it to the number of active accounts ? (Too easy to manipulate.. )

You could let the miners VOTE, in the coinbase (or somewhere) TXN as to whether there should be growth or demurrage ? (Not sooo bad..)

Does any one have any ideas as to how you might regulate the Money Supply Growth of a Crypto Coin in some pre-determined maths way ?

Oh &..Merry Xmas!