Topic: Prices Cannot Stabilize - page 2. (Read 7618 times)

Besides, bitcoin was just made out of the thinness of air why should I give/gift my hard earned $$$ to someone for the privilege of moving/creating/transacting bitcoin (it's the identical argument as yours Rassah). The incentive is just relocated. The idea is to get people to use bitcoin sans the boostrapping volatility issue. Maybe a picture will help. The following is money flow/velocity.

$$$$$$$$$ --> BTC  or  BTC <--> BTC,
not BTC <--> $.

The latter creates an environment of volatility the former not so much.

One way to do this is to peg the currency until such time as so many dollars are vault-parked and an equivalent number of bitcoins are in circulation so that when you unpeg because you ran out of digital coins to spend into circulation, the volatility is a non issue. You want dollars/fiat to flow into bitcoin first thru exchanges into the BTC economy not in and out and in and out of it (rinse repeat) because of speculation, volatility and manipulation.

Why is this so hard to envision?

You're still asking for 21 trillion to process some transactions.

Firstly, it's 21 trillion coin, not 21 million (this market is too small if you're going to peg). Secondly it's pegged to the dollar, on purpose, to avoid volatility. The idea is that if it's pegged, it doesn't fluctuate. All of the exchangers agree to the peg (thru smart property cryptographic mathematical arrangements). The currency doesn't initially float. The net effect is to move as many dollars into many vaults (permanently parked in hundreds of locales) and circulating as bitcoin as much as possible. The exchangers would be the "vaults" for this. No money disappears anywhere. There is just a transference and preference to bitcoin trading or money away from USD or other fiat.

Initially, people will probably use the coin as a transition between fiat and BTC but without the currency price exposure. Once they realize it's easier to trade in bitcoin, more fiat resides in the vaults (it doesn't move much except to grease the proverbial wheel when necessary). The money velocity demand decreases for USD and increases for bitcoin until eventually all transactions are in BTC or other digital coin. Once you exceed the 21 trillion dollar mark (or some other largish dollar amount) you then go to the float scenario. Hopefully by then, volatility will be less of a factor.

Nobody gifts anybody. The miners who authenticate and secure the network get paid a fee to do so. The exchangers are nothing more than a connection to the fiat market. I'm piggybacking, nothing more.

No thanks

I don't know if it's funny, or annoying, the way people keep forgetting that when you exchange currency, such as Bitcoin into USD, or USD into whatever currency is being proposed here, the currency being exchanged doesn't just disappear. When you quickly exchange out of BTC into USD to avoid currency fluctuations, someone else is buying and holding that BTC, exposing themselves to the fluctuation risk. Likewise, with your proposed idea, when you buy this Bitcoin 2.0 with USD, someone else ends up with your USD. So, basically what you are proposing is gifting a few lucky exchange operators with $21,000,000, totally free of charge, and then making the rest of us give them our hard earned USD for the privilege of using their special freely obtained $21,000,000 worth of BTC.

Even you yourself later point out that "without somebody to take the other side of the trade, your BTC isn't worth anything," so why even propose something like this?

I have one unit that I would not spare, even for 1,000,000 BTC.   

If I can sell them for 1,000,000BTC, then you've got yourself a deal.

I'm getting a bit greedy here, but what's the hell...

Why don't the miners start a bounty for the best answer on how to run/grow BTC economy?
They are the ones who have the biggest gain if bitcoin becomes more than just a perishable gold.

I believe I may have the right answer, but I'm not sure whether I should disclose it for FREE.

Look, I'm just like the miners -- a contributing member to the future of BTC economy.
If miners can get paid for their contribution, so should the BTConomist(s).

EDIT:
And if my answer does happen to win that bounty, I will spend it (no exchange) in the same way I earned it -- to buy a valuable service/product or a piece of information.

It's actually market makers that tend to smooth price fluctuations (just a guess). Nevertheless, without somebody to take the other side of the trade, your BTC isn't worth anything. In fact, that's true of anything. You're always trading something for something else you value more. Money material is merely a midway point for easy accounting purposes since barter is less convenient.

Nobody has to use other fiat currencies, of course, but that isn't the point. We could all decide to use BTC for our monetary system today... thing is, why isn't everybody doing it? Most don't understand it, or don't care. Perhaps they need a reason to care. I'm merely piggy-backing on an already quasi-stable currency.

If prices were stable and transacting were cheap you'd probably get more followers, hence my proposal. And that doesn't include the more esoteric issues of more anonymity, no charge-backs, and flexibility etc.

not sure if serious...

There's no need in waiting... If you have 1,000,000BTC to spare, I'll give you the answer now.

Really? How so? We are all pretty certain that his cryptographic skills are stellar bar none, but his economic sense... that's a matter of contention I'd say.

Again, I'm not suggesting a different cryptography protocol per se, just a different way to jump-start a nacent digital money economy. Perhaps one that doesn't have to be so volatile. My suggestion was merely one of how to use a boot-strap technique which segways into a global exchange environment with the possible effect of reduced manipulation and speculation. It's only the transition and stability I'm interested in.

To be clear, I have nothing against speculators, they will always exist and they probably serve a purpose; namely, liquidity and money velocity, but for start-up purposes, they can make for a very difficult exchange situation. Why would merchants want to have to worry about that? Every merchant/business person I've spoken to, who wheels and deals in physical goods, mentions that as their biggest fear/issue. They won't stake much of their business on it until the price spikes calm down, and yet you need them to soften the blows. You have a chicken and egg problem.

Take the market makers out of the equation, and your stability issue will not be an issue anymore.
Who says that you must sell BTC for USD (or other fiat currencies) in order to buy something with BTC?

I can't tell if your kidding, but what I meant to infer was the USD/BTC or fiat/BTC stability issue. We all know a nearly exact number of coins are "minted" per unit of time. The issue at hand is convincing merchants and others to hold the coin when the price is all over the place. I'm not suggesting a different protocol, just a different starting point for the economy.

Stability is valuable to some extent I'd think. Obtaining financial gain merely because your USD/BTC changed is not particularly "productive".

It doesn't really matter what you set the money supply limit to be.
What's important is how does one grow the money supply to that limit in a deflationary-by-design economy?
And that, my friend, is a 1,000,000BTC question. Luckily, I may have the right answer.

So, who's got that much BTC to spare? Don't be stingy!

It's a good thing Satoshi understands economics a lot better than you.

Bitcoin is stable enough, that is if you're willing to look past the market makers.

A proposal to consider...

A different approach for a nacent digital currency (NDC), or possibly even "Bitcoin 2.0":

1) Pre-mine all the coins (i.e. 21 trillion NDC).

2) Immediately initiate an exchange (i.e. Mt. Gox 2.0).

3) Make the exchange decentralizable. Distribute coins from the 21 trillion NDC to the exchangers in proportion to their ability to handle transaction volume.

4) Peg the NDC to a known "stable" currency (i.e. USD, EURO, Pound).

5) Using USD as the start point, permanently set the NDC buy orders at $1.01 and the sell orders at $1.00. This bid/ask wall cannot be moved or it all falls apart. A federated group of "trusted" market-makers/exchangers joined at the "crypto-hip" could prevent collusion (i.e. A & B or C cryptographic type of arrangements). We want to reduce NDC price fluctuation. This helps the merchants gain stability and virtually removes the speculator/manipulator angle for a longer period of time. BTW, I have nothing against speculators per se.

6) Take the spread and/or fees and pay the "miners" and "transaction handlers" to secure the network. This will be net settled in NDC unless converted (minus fees). Hopefully this prevents the dreaded 51% attacks.

7) When the 21 trillion coins are spent into the "economy" the fiat currency peg becomes detached (because the author can no longer keep the price fixed) and it starts to float against all other currency/commodity money equivalents.

What you gain: Instant stability, long-term growth, fewer manipulative events, no first-mover advantage, fewer early adopter issues; at least not any more than the national fiat currencies would induce, in which case you could peg to a "commodity money" such as gold, silver, oil, etc.

Hopefully the transaction fee issue to secure the network will be solved after the NDC currency float event.

Keep in mind that inflation/deflation in a fiat-based economy is deflation/inflation in a bitcoin-based economy.
That's why one should use "satoshi" to arrive at the potential money supply for the BTC economy.

Now, what everyone should be thinking about is what does it take to create and maintain deflation in the BTC economy?

That's just a matter of normalization.  You could just as well say that the money supply is 1.  And 1E-8 isn't a fundamental unit of the system, it is just the smallest increment currently accepted.  We could easily switch to 1E-30, but it would probably be more useful to use 1E-21.  See here.