Topic: Pegging the coin price.. (Read 1622 times)

What this would do is create a price ceiling, but not a floor.
(They would trade among users for less but never more than the price they could get them from the source)

Better would be a smoother move-up rate.  Jumping an order of magnitude at a time would not be as good as a continuously smooth progression.  This avoids the motivation for rapid world-wide price inflation as soon as a move-up occurs.

With all that is happening with MtGox and the US Government / Fed at the moment, I wish there were some other method of Price Discovery in the BitVerse.

I'm not an economist, but is there some other way of finding the value of Bitcoins other than the Exchange rate ?

That would be nice..

My OP was just an idea to get us away from the centralised exchanges, that now seem the bottleneck / attack points for bitcoin.

Except I'm not talking about speculators. Just about the incentives any typical holder of a currency would have and I'm sure the OP was as well. I mean it's certainly a fair point about how a lot of revenue goes into restocking, but merchants are human too and want to put some money aside as savings just as much as their customers do. So do their employees. Or their suppliers, for that matter.

Your interpretation of the merchants desire is incorrect because you are projecting the motivations of speculator onto the merchant, but speculation and being a merchant are incompatible uses for money.

A merchant makes his profit on a retail markup or on the added value of a manufacturing process (say for example someone who knits socks turning cheap yarn into a valuable sock) or both.  In both cases the merchant is trying to achieve maximum TURNOVER of stock both in manufacturing and in retail setting.  A merchant dose not want to sit on money waiting for it to appreciate in value so it can once again be turned into stock to be processed and or sold.  Sitting on money is exposing them to the huge valuation fluctuation risk of BTC but even if they never suffer any loss in a crash they are suffering a massive reduction in turnover.  Instead of going through the loop of acquiring stock, selling stock and buying new stock as quickly as possible they now have a loop that has a long period of sitting on money before it can be converted into new stock.  This slower cycle means that the merchant must be making more gross margin on each iteration of the cycle in order to cover overhead costs and to make his final profit large enough to be justifiable. 

Speculative holding of money and being a merchant are thus incompatible methods of making a profit, the more you try to do one the less you engage in the other, think of it as the Heisenberg Uncertainty Principle of economics "The more profit you make from speculation the less you make from Merchanting and visa-verse".  The proposed discounting and hold strategy you propose is a messy mix of the two and represents a very dangerous phenomenon as it moves more people into the speculative side of BTC and away from the real commerce side, that can only end in ruin.

Yep.

I don't want to limit it forever..

I want to know what would happen if you did, for a certain amount of time, peg it, and then stopped. and let the price float.. once the economy had established..

Has this been tried before in History with non-disastrous effects ?

Also - the coin supply is not fixed.. as stated in my earlier posts in this thread.. it can grow/shrink.. just not sure about that bit yet. This bit first. 

Due to limited supply of coins and unlimited supply of fiat money, it is possible to forever support the exchange price but it is not possible to forever limit the exchange price

As stated in my earlier post -



And, if possible, a more stable economy.

In theory, if somebody owns vast majority of coins, they could place tight bid and ask walls at major exchanges with very narrow spread (defined by the trade fee), and thus peg the price until the walls melt away depending on the market sentiment. Note, this could be done without making the walls obvious by automated trading - maintaining small walls by replenishing of ask/bid orders as needed.

What's the point?

This is exactly the situation I am trying to AVOID.. I don't want a currency that is a speculative tool.. Bitcoin does that just fine.. What I am looking for is a currency that has all the OTHER great features of bitcoin, p2p, pseudonymous, decentralised, crypto-dipto, no charge-backs, etc.. but without the constant value change.


Thanks Impaler. I think I understand.

So - continuing on this line of enquiry..

What if not only could you buy your 'newcoins' for $1, but you could also sell them back to the issuer for $1.. ?

Would that create a more stable economy for the coin to grow in ? And what would be the effects of eventually, finally, decoupling and letting the coin float like other currencies ?

I've recently answered a similar concern in someone else's topic, but it's worth repeating. The thing you're missing is that you're only thinking from the perspective of the spender, but there are two sides to every transaction. As a prospective buyer, yes, you want to hold onto your deflationary currency. By that same token, vendors want to get ahold of that deflationary currency. If a vendor agrees with you about how the value of a bitcoin will go up over time, they have every reason to give you a discounted bitcoin price below the dollar price because they believe they'll be able to make up the difference as the bitcoins they receive go up in value down the line. At that point it's just a matter of whether the discount is big enough to attract your bitcoin spending and that takes us back to the conventional decision-making issue of whether a purchase is worth it to you. Do you want to pay $4 per gallon for gas in US dollars or, let's say, $3 per gallon in bitcoins?

I'll make this very simple, everything is worth what you can SELL IT FOR, not what you BUY IT FOR.  The point of a peg is to establish the value of a currency for every users, in order for that to happen every user must be able to SELL IT back too you the issuer for the peg price.  If the issuer is selling but not buying their is no peg because nothing is establishing a price floor for the user.

Selling coins as you propose is no more pegging the coin then the current cost of mining establishes a peg, the miner must spend X dollars to create coins but their is zero guarantee they can sell them to anyone at any price, thus we accurately say that BTC floats against the dollar.

If you were also prepared to take coins out of circulation by buying them if the price dropped too low, this might work. You'd effectively be the central bank. The hitch is that people would have to trust you to be honest and not get hacked.

The p2p way to do this is for the network to get information about the value of your coin (this is the hard part) and allow people to create new money when the coins were too weak, and destroy it when coins were too strong. You could incentivize people to destroy coins when they were too weak by giving them a voucher to create coins next time they were too strong. Miners could enforce this: They at wouldn't recognize coin creation operations unless they agreed the currency was too strong, or coin destruction operations unless they agreed the currency was too weak.

Hmmm...

There would be an increase in the money supply, but it would be in line with demand.

Ultimately I think an organic market would pop up for the coin whether you wanted one to or not, and it would mostly trade below the current pegged rate, with the pegged rate creating a price ceiling if demand began to soar.


The question is: Who gets the funds from pre-mined coin sales?

Also: People are unlikely to adopt it if it is guaranteed to not give any return on investment until it reaches a $1,000,000,000+ market cap, especially with bitcoin as an alternative.

hmm good question im not sure about this one

I had an idea with some things in common to yours. Instead of your top-down vision, mine comes from a bottom-up approach of considering what could benefit specific communities.

I'm working on a paper called "The Artist's Currency". The idea is a new currency which gradually increases the money supply at a fixed rate, and perpetually releases new coins on a schedule. It has unique characteristics aside from this.

I'm trying to find a new way to compensate artists for non-commercial work. Of course, the idea of niche currencies suited to specific communities is much further reaching. (I need a technical partner, PM me if anyone is interested in the idea).

The problem I see with a "pegging the price" coin is that it's vision for a one-world currency. It would need to be 100X or 1000X more impactful than Bitcoin. This won't happen because it's utility is not revolutionary enough, and it would have too many detractors.

The world is just now wrapping it's head around Bitcoin. Simultaneously, there are tons of new ideas in the currency/payment space being developed all around the world. IOW there are already many types of money, credits, stores of value, and payments systems, and in the future there will probably be many more (although it will all flow together more efficiently).

Some currencies are inflationary, some are deflationary, but since they can all be exchanged with each other, what we have today is a primordial soup consisting of a mix of deprecating economic theories and the forward momentum of technical visionaries (like Satoshi). I see the future as being perpetually handed over to the most purposeful currencies and stores of value, just as language evolves and becomes more complex based on usefulness.

Inflationary currencies promote investment, since as you say, they punish savers.


There has never been a FULLY COMPUTER CONTROLLED monetary system.. They don't work in practice because squishy, and sometimes corrupt, humans always get in the way.

If the algorithm was well though out, and fully transparent at launch, so that people could see exactly how it works, I think we may have a currency that just might work.

I think consistency is a cornerstone. If you knew that the government or bankers had no say in the money expansion policy, and that it was basically dictated by the market (state of the economy) and a computer algorithm, things may work out differently.. and work, for a change.

But even if it mathematical, it still has to be programmed in by humans, intervention via an algorithm is still intervention.

You cannot hoard bitcoins, or any currency indefinitely, you would have to spend on day to day items, and investments that came along would get you to spend them as well.

Inflationary currencies punish saving, and it is only through saving and investment that new innovations and products come about.  You are correct both kinds have problems, but intervention is not the solution otherwise central planning style systems should work, but in practice they don't.

Not if, as I said, the mechanism to inject Money into the system was built into the coin. In a completely mathematical way. No humans would be used.. utterly beyond repute and corrupt manipulation. ( We can worry about THAT system at a later date..  )


This still does not address the inherent deflationary nature of Bitcoin. As anyone who is currently hoarding their coins knows, there's very little that could tempt you to spend them, as they go up in price, and basically, always will. This has it's own set of economic problems.

In my, admittedly short, economics education, as I am mainly a mathematician and programmer, it has come to my attention that deflationary currencies have just as many problems as inflationary ones ?

Bitcoins are, if they survive, an excellent Store of Wealth. A currency for day-to-day use, as a medium of exchange, seems to require quite different properties and more importantly service a different niche in the market. I'm not sure it is possible to do BOTH things well.

The problem is whoever is making the decision about injecting more or less money into the system is playing the exact role the Federal Reserve is doing right now.  That group or individual has the ability to manipulate the system and now you are back to the same problem fiat has.

Also I don't agree you need to add money to the system as the economy grows, Bitcoin's beauty is in its ability to be divided down to 8 decimal places.  As a Bitcoin becomes more valuable you have to use smaller and smaller amounts for daily activity, all without the risk of inserting someone into the system that can manipulate it.

Well, here-in lies the deflationary question.. 

I do not think a totally fixed supply of coins would work.. The Money Supply has to grow as the economy grows, in my opinion. (For me, brilliant beautiful Bitcoin is digital Gold. Not a digital version of the USD..)

Basically you could premine a Trillion coins.. Or an amount so large that there would always be coins available.

And If/When a trillion coins were in the system, i doubt any single entity could hold the currency to ransom in any meaningful way. There would simply be too many coins.

You could maybe put a time limit on the coin shop.. say 10 or even 20 years.. rather than a limit on the amount of coins.

At that stage another mechanism, which I do have in mind (based on the price of Gold/Bitcoins in 'newcoins'), could be used to decide whether to inject more/less money into the system. This system would of course have to be in place at the launch of the coin.. Not something you could crowbar in 10/20 years into the coins life.. difficult but certainly not impossible.. me thinks.