Been away for a while and was stunned to see bitcoins trading at under 2.50 USD.
I would think it would be generally accepted that price stability is desired in making bitcoin competitive as an alternative currency.
However the current difficulty algorithm which attempts to maintain a constant generation of bitcoins inherently creates price instability.
Since price is a function of supply and demand, and the current system does not allow supply to fluctuate (rate of bitcoin generation) the result is that prices must take the full brunt of change in demand.
If we look at a commodity trading in the marketplace, an increase in price makes it more profitable to produce that commodity. This increase in production creates more supply which will bring prices down (and vice versa). In the world of bitcoin, there is never an increase in the rate of supply.
After having read the Satoshi white paper and the bitcoin wiki I find no philosophical reasoning behind the limiting of the rate at which bitcoins are generated. It would seem that this limit is simply a result of the method by which bitcoins are created, ie. the rate can not increase substantially without creating problems with the block chain (here my understanding may be quite limited).
Is there any way to create a method by which the rate of bitcoin generation could fluctuate? For instance having a mining difficulty that doesn't change based on the number of miners, but simply scales until the bitcoin limit is reached?
I was surprised to not find any threads specifically discussing this topic. If I have missed them please refer me
Or have one of the bitcoin competitors addressed this issue?
