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optimizing crypto-currency money supply
Posted on 4/10/13 at 8:05 pm
Posted on 4/10/13 at 8:05 pm
In theory (according to most), it is desirable for money supply to increase and decrease with the growth and contraction of the economy. We know that with a certain oft-discussed crypto-currency, this is impossible -- its money supply is fixed.
How would one go about designing a new crypto-currency that features dynamic adjustment of the money supply? Without a central body (i.e. the Fed) actively controlling supply through a monetary policy, this would have to be done programmatically, and probably at least semi-randomly to avoid vast market manipulation and arbitraging. What economic indicators could be developed for an e-currency to serve an inputs to a monetary control function?
How would one go about designing a new crypto-currency that features dynamic adjustment of the money supply? Without a central body (i.e. the Fed) actively controlling supply through a monetary policy, this would have to be done programmatically, and probably at least semi-randomly to avoid vast market manipulation and arbitraging. What economic indicators could be developed for an e-currency to serve an inputs to a monetary control function?
1
Posted on 4/10/13 at 8:28 pm to gizmoflak
quote:
How would one go about designing a new crypto-currency that features dynamic adjustment of the money supply?
bunch of different ideas to choose from. i like the idea of making it all programmatic and predictable.
don't know if you caught this in other bitcoin threads, but there are alternative crypto-currencies that implement some different features, such as Freicoin, which has built in demurrage
quote:
and probably at least semi-randomly
I disagree with this. If you're going to have inflation, why not make it stable and predictable? like, say, a 1.5% yearly inflation rate.
or if it is going to be random, then how about basing the inflation rate on the amount of transactions. for instance, if people start "hoarding" and transactions go down, then inflation kicks in to encourage spending. this is all possible with algorithms and protocols.
the truly interesting element of this thread is this:
in a world of competing crypto-currencies, which do you think people will choose?
Posted on 4/10/13 at 8:59 pm to WikiTiger
quote:
Freicoin, which has built in demurrage
I applaud the developers for trying, but Freicoin is a horrible idea. It revolves around a centralized "foundation" to arbitrarily distribute the intial coins and it is not clear on what economic bases the demurrage lies. I'll pass.
quote:
If you're going to have inflation, why not make it stable and predictable? like, say, a 1.5% yearly inflation rate.
Yes, stable and predicatble are the ends. I'm worried that too high of a predictability will lead to undesirable manipulation (but maybe I'm overthinking things).
quote:
or if it is going to be random, then how about basing the inflation rate on the amount of transactions. for instance, if people start "hoarding" and transactions go down, then inflation kicks in to encourage spending. this is all possible with algorithms and protocols.
the basic idea is that when hoarding is rampant, increase supply to encourage spending; when spending is spiking, decrease supply to encourage more saving. I'm not sure just looking at the number of transactions will tell us what adjustments should be made. . . not all transactions would be considered "ecomonic activity" unless there is a way to categorize the transactions. We need to develop a way of calculating a crypto-CPI of sorts
quote:
in a world of competing crypto-currencies, which do you think people will choose?
if we're talking crypto-currencies (and not crypto-commodities), the one that is most convenient, secure, anonymous, predictable, and stable
Posted on 4/10/13 at 9:13 pm to gizmoflak
what about basing the inflation rate on the amount of transaction fees, which would protect against manipulation since it would cost real money to influence any change
Posted on 4/10/13 at 9:25 pm to WikiTiger
quote:
what about basing the inflation rate on the amount of transaction fees, which would protect against manipulation since it would cost real money to influence any change
This is one of the only solutions I can think of.
For every transaction, there should be a fee to the transactors and a corresponding reward to the verifier(s).
In periods of inflation, the fee < the reward.
In periods of deflation, the fee > the reward.
In periods of equilibrium (the target goal), the fee == the reward.
Now, the only question is how to dynamically determine the ratio of fees and rewards . . .
Posted on 4/10/13 at 9:26 pm to WikiTiger
Serious question, but why are we manipulating any parameters such as inflation when some of these individuals participating in these currencies (I'm guessing) would want a truly free market?
Shouldn't we just let the market do what it wants?
Shouldn't we just let the market do what it wants?
This post was edited on 4/10/13 at 9:27 pm
Posted on 4/10/13 at 9:31 pm to Teddy Ruxpin
we're just discussing ideas
personally, with currency competition I would choose the currency that benefitted me most, which is a deflationary currency since I'm a saver
I like the idea of competing currencies where the market gets to choose the winner. maybe the market would prefer an inflationary currency over a deflationary one. I doubt it though
personally, with currency competition I would choose the currency that benefitted me most, which is a deflationary currency since I'm a saver
I like the idea of competing currencies where the market gets to choose the winner. maybe the market would prefer an inflationary currency over a deflationary one. I doubt it though
Posted on 4/10/13 at 9:31 pm to Teddy Ruxpin
quote:
Serious question, but why are we manipulating any parameters such as inflation when some of these individuals participating in these currencies (I'm guessing) would want a truly free market?
Shouldn't we just let the market do what it wants?
we want our e-currency to function simply as a transaction vehicle, and not an investment vehicle
for that, we need the stability that monetary inflation provides in a growing economy
Posted on 4/10/13 at 9:39 pm to WikiTiger
quote:
I like the idea of competing currencies where the market gets to choose the winner
So you like the worldwide system of national currencies that we already have? I knew you would come around eventually......
Posted on 4/10/13 at 9:44 pm to LSURussian
quote:
So you like the worldwide system of national currencies that we already have? I knew you would come around eventually......
I think his direct quote was he likes "competing currencies where the market gets to choose the winner"
. . . and the markets will evntually decide whether crypto-currencies are preferable. They are still very new and very mysterious.
Posted on 4/10/13 at 9:49 pm to LSURussian
Exactly.
Wiki, I know Russian likes to give you a hard time on this topic but the institutions that currently govern world currencies didn't exactly come into existence due to easily-refutable arguments. The current forex environment exists through trial by fire.
Sometimes the revolutionaries find out that in fact there are pretty good reasons for the existing order, they just weren't immediately obvious.
Wiki, I know Russian likes to give you a hard time on this topic but the institutions that currently govern world currencies didn't exactly come into existence due to easily-refutable arguments. The current forex environment exists through trial by fire.
Sometimes the revolutionaries find out that in fact there are pretty good reasons for the existing order, they just weren't immediately obvious.
Posted on 4/10/13 at 9:52 pm to foshizzle
quote:
Wiki, I know Russian likes to give you a hard time on this topic but the institutions that currently govern world currencies didn't exactly come into existence due to easily-refutable arguments. The current forex environment exists through trial by fire.
Sometimes the revolutionaries find out that in fact there are pretty good reasons for the existing order, they just weren't immediately obvious.
but why can't capitalism and free markets also be applicable to currency?
Or restated, what are the compelling reasons that currency should strictly lie within the domain and control of the state?
Posted on 4/10/13 at 10:02 pm to gizmoflak
quote:
what are the compelling reasons that currency should strictly lie within the domain and control of the state?
right. good question
and why does the argument always seem to come around to the state using violence to stop what it perceives as a threat? if state currencies are so much better then they should have nothing to worry about with competition from non state currencies
This post was edited on 4/10/13 at 10:03 pm
Posted on 4/10/13 at 10:11 pm to gizmoflak
quote:
but why can't capitalism and free markets also be applicable to currency?
What makes you think they are not applicable to currencies?
quote:
Or restated, what are the compelling reasons that currency should strictly lie within the domain and control of the state?
Restated, what makes you think that currencies strictly lie within the domain and control of the state?
FWIW, here we go polluting the money board with political crap.....
Posted on 4/10/13 at 10:12 pm to WikiTiger
If the private sector can produce a more efficient currency than the federal government, why shouldn't we prefer it?
Posted on 4/10/13 at 10:13 pm to WikiTiger
quote:
why does the argument always seem to come around to the state using violence
You are the only one advocating violence.
Posted on 4/10/13 at 10:17 pm to LSURussian
Russian, I know you are anti-bitcoin.
Is it because you are anti-free markets w/r/t to currencies in general, or just because you think decentralized crypto-currencies are silly?
Is it because you are anti-free markets w/r/t to currencies in general, or just because you think decentralized crypto-currencies are silly?
Posted on 4/10/13 at 10:18 pm to gizmoflak
quote:You didn't respond to my above questions to you.
If the private sector can produce a more efficient currency than the federal government, why shouldn't we prefer it?
Posted on 4/10/13 at 10:21 pm to gizmoflak
quote:
Russian, I know you are anti-bitcoin.
I am not anti competing currencies.
I am anti ANY scam, especially when pumpers use this board to propagate their scam.
Posted on 4/10/13 at 10:29 pm to LSURussian
quote:
I am not anti competing currencies.
I am anti ANY scam, especially when pumpers use this board to propagate their scam.
I'm def anti-scam, too.
I've never owned any bitcoins, and I don't plan on it anytime soon. It's so volatile and so easily manipulated right now . . . I can't tell if it truly is a scam or just suffering the inevitable growing pains of a new technological horizon (maybe both?). . .
Are decentralized currencies inherently scams, IYO? Does there necessarily have to be a centralized body, be it the fedgov or otherwise, for a currency to be legit?
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