The fundamental point with crypto is that you can design your own with any criteria you want to fit all of your needs, but the problem of adoption still remains. If you make it behave like a currency, speculators will lose interest and it won't get adopted. If you find a government willing to impose it for transaction you will nullify the reason for crypto to exist.
How? There has to be an incentive for people to participate in that market. The Bitcoin market shows that "deregulated and decentralized" incentives, by themselves, attract only a minority of users.
It's difficult to see how. The vast majority of people don't care even a little about that stuff. They just want money they can spend on the things they need with the least amount of hassle and risk possible.
> Don’t trust a certified cheque from “Bubba’s Bank and Trust and Taco Shack”, or from the “Royale Bank of Scottland” branch in the City of Culiacán, Sinaloa, Mexico.
That is actually a little like how US money used to work--badly--before the civil war. A storekeeper would keep a third-party guide behind the counter, regularly published for their city or region. The guide would help them recognize the designs of private notes from different banks, and contain recommendations for what value (if any) someone could place on the note depending on the reputation of the bank and how far away they'd have to go to the nearest branch.
"It costs $3? Okay, here's a $5 from the Far South Bank."
"That's a long ways from here in Middleville, traveler, I'll take it as $4."
"If you can give me $2 from Extreme North Bank for change, then I'll take the deal. Otherwise $1 for something local isn't as useful for me since I'm leaving tomorrow."
"Sorry, today I can only make change in local stuff or Eastern Railroad."
One amazing outcome of the (currently expensive and unweildy) DeFi implementations, is that there is always a maker/taker available for every currency pair.
You can always exchange every cryptocurrency for every other cryptocurrency, 24/7, without having to ask any bankster or do-gooder bureaucrat for permission.
Once wealth-backed dynamic-issuance cryptocurrencies eliminate the need for any Fiat on- or off-ramps, the circuit will be closed -- nobody will ever have to ask a gate-keeper for permission to create wealth, monetize that wealth, or execute a mutually agreeable transaction with that money.
Nor will they be forced to use sub-standard money.
The existing power structures will be ... displeased.
Interesting ideas. I think in any practical system, you'd still need some central authority that determines:
a basket of basic, thickly traded commodities should be chosen; perhaps a basket of specific amounts of basic elements, thermal and electrical energy, and basic food commodities, priced as delivered to several large markets.
and
A control algorithm such as the PID loop used in process control or robotics is employed to adjust K over time.
At a minimum, those aspects of this currency would need to be flexible such that they can be adjusted over time, as needed, to maintain the currency's stability.
An inflexible scheme seems like it would be doomed to failure. And yet, any tinkering could also be its demise and undermine its stability and faith in the system. It's a delicate balance.
Ultimately money is a social construct based merely on shared belief. Algorithms can used to enhance and support this social construct, but I do not see how it could wholly replace human/social interventions.
The "central authority" that determines the composition of the basket -- is the users of the money.
The thing about non-fraudulent, wealth-backed money is that there is no barrier to entry, nor is there a barrier to exit. Unlike usury-based money, a wealth-backed currency can cleanly decrease in usage, down to zero. People withdraw wealth pledged to created the money, by returning the amount of money created, and then take their wealth elsewhere.
Thus, if people don't like the valuations arrived at by the "basket" underlying the value of each unit of money (ie. something becomes undesirably in/deflationary), they can move to another form of money -- ideally, one that constitutes its "basket" based on a more representative set of the society's basic commodities. In the ideal embodiment, this basket would evolve over time (eg. as energy production moves from coal to oil to natural gas to nuclear to renewables over the years, for example, the energy commodity component of the basket would be revised automatically).
As for the PID loop, there are much more advanced controls methodologies that improve error rejection (eg. Kalman filtering), stability (Model Predictive or State Space control), etc. Furthermore, limits on the introduction (or withdrawal) of wealth (and hence newly created units of money) should reflect the current size of the ecosystem to limit shocks that would adversely interfere with the control stability. (ie. you can't create 10x the current size of the economy in newly issued money all at once.)
> Algorithmically, it is possible to control how much it costs to mine crypto at any point by modulating network fees (PoS)/block difficultly (PoW). This would in turn have an effect of the supply of the currency because if it becomes cheaper (in USD) to mine than more people will mine it (as it becomes more profitable to do so).
If it's cheaper to mine, it won't be more profitable. See dogecoin. It'll create more token and at a decreased value.
I can't believe people are still falling for this ponzi scheme
The last paragraph is absolutely peak "let cryptocurrency run long enough and they invent every institution they tried to get rid of".
What the author is describing here, a trusted group of institutions that buy and sell currency to maintain an inflation target is called a 'central bank'. Or in this case, a bunch of central banks. In fact even the proposal to automate and do this algorithmically goes back to Friedman.
i agree. although the centrality/instuitionality of the “bank” is negated. the “central” bank is completely decentralized and completely dependent/reactionary to the market.
the idea is old but gains new life to the rise of defi.
In fact, I think there are numerous stablecoins whose peg is maintained through mechanics typically associated with central banks, which have been decentralized. Some (Maker DAO's DAI for example) have been holding at +/- 0.2% of peg, 99.9% of the time, for years.
Wouldn't multiple central banks (each with their own currency) be the best? Or is that what you mean? Then people can choose which currency (and thus which central bank) seems the most stable and legitimate (as long as it can also exchange with the currency they pay their rent and taxes in).
(Theorizing about cryptocurrency is fun as long as you ignore how actually-existing crypto, like actually-existing communism, is working out in the real world. Although that doesn't mean all the underlying principles are wrong...)
> The ideal currency has a constant, predictable 2-4% inflation to promote the velocity of money and prevent stagnation.
I always liked this idea, and I a few cryptocurrencies/blockchains tried to do something like it, including Stellar Lumens[1]. Just looked it up to post this and they abandoned it back in 2019.
Unlike the tokens of other blockchains, lumens aren’t mined or awarded by the protocol over time. Instead, 100 billion lumens were created when the Stellar network went live, and for the first 5 or so years of Stellar’s existence, the supply of lumens also increased by 1% annually, by design.
That inflation mechanism was ended by community vote in October 2019. And in November 2019, the overall lumen supply was reduced. Now there are about 50 billion lumens, total, in existence, and no more lumens will be created.
> The ideal currency has a constant, predictable 2-4% inflation to promote the velocity of money and prevent stagnation.
This 2-4% number has no fundamental basis, Ampleforth is the only cryptocurrency that seems to solve this basic concept of how much supply and how to distribute it
Yes well, inflation (actually: devaluation) isn't in the [immediate] interests of the currency holder. Terrible if you just want to speculate, which is 99% of the crypto market.
I'm no economist, but inflation should reflect an increse in growth and productivity. The fact that these coins don't tend to consistently devalue might say something about how useful they are for doing the job of a real currency.
> I'm no economist, but inflation should reflect an increse in growth and productivity.
An increase in growth and productivity should reflect deflation: more goods and services with the same amount of currency. Absent intervention, inflation simply does not happen as a long-term secular trend in a growing economy.
As mentioned in another thread, pre-modern US had growth rates higher than the modern US (~4%) with an immaterially changed CPI over a ~130 year period. This was with two punctuated sessions of central banks and wars which issued debt notes (currency).
In addition: it should be noted that Japan has had a deflationary currency for 30 years and is an economic dynamo. The only problematic aspect of that—which can be seen in the BOJ's recent ill-fated attempt to increase the interest rate—is it makes government debt (and all debt) harder to pay back. However the point remains: deflation has had an immaterial effect on standard of living.
Yeah projects like this that take into account more solid macroeconomic principles like Milton Friedman's k-percent rule ( https://en.wikipedia.org/wiki/Friedman%27s_k-percent_rule ) are the only ones that deserve to be called crypto "currencies". Too bad they gave up. The appeal of turning it into a get rich quick scheme for early adopters is just too difficult to resist. The fact that no similar project is popular means that few people care for crypto to be used as a functional currency.
> The ideal currency has a constant, predictable 2-4% inflation to promote the velocity of money and prevent stagnation.
This fundamentally misunderstands the point of Bitcoin's creation (and currency). The ideal currency does not inflate at all, which makes it inimical to government spending and debt. As modern fiat is inherently based upon debt, this makes it non-ideal from the perspective of governments, but ideal for everyone else.
Inflation to drive monetary velocity is a ridiculous concept, as is inflation. Inflation is scarcity of goods purchased in the present relative to money supply: fewer goods and services at the expense of more currency. People want goods and services, not currency.
During multiple periods of US history—including much of the 1789-1913 era—the US paid out no interest on US bonds, as the value was in its safety, and the value of the dollar was worth more at its redemption. More goods and services relative to the comparatively smaller increase in currency made savers wealthy without investment. Outside of wars, pre-modern US had a deflationary currency in its run up to becoming the pre-eminent power on the planet.
Let me stop you right there. You may want that, but that's just, like, your opinion man. Most people, like 99% of people, do not want hard money and the tradeoffs it entails.
It has nothing to do with "hard money" if you mean physical currency. People want wealth, period.
The problem with the idea of inflation (read: "scarcity") to drive monetary velocity is it messes with investment. There is no shortage of people wanting to invest capital for increased returns in the future. But if you force consumption without a plan, you're consuming in the present for the sake of it.
A farmer can plant seeds and return an investment on that, or you can eat your seed crop. Forced inflation is forced returns in the present for lower returns in the future. Due to prices functioning as a regression between the exchange of goods and services, this one-to-one mapping is not as obvious, but it is definitively what happens.
You cannot consume what you do not produce. And investment requires deferred consumption. Forced monetary velocity is forced consumption at the expense of investment.
Assuming the parent poster means neither inflation or deflation (read: platonic, theoretical, likely impossible) then that's good, it means the economy is getting distributed in an seamless and unbiased manner.
That means it doesn't matter if you happened to have most of your economic assets in cash, or in potatoes, or in uranium ore, or in a house, etc. It means that there's no weird externality which is tipping the scales or "choosing" winners and losers.
Slight inflation isn't better than perfect balance, it's just a reluctant compromise, since it's the safer direction in which to fall when dealing with an unstable equilibrium.
To be a currency, you need inflation. Otherwise you have an asset. We can see this from European history: before 1492 it was common to hoard gold as if it was gems, rubies, sapphires. It had limited use as a currency, and only at the highest levels of the economy, never at local levels -- it was traded among the very wealthy, the same as assets might be traded among the very wealthy. Only after 1492, when gold and silver started to pour in from the New World, did gold and silver become useful as everyday currencies. The French historian, Fernand Braudel, spoke of the "the price revolution of the 1500s" because inflation managed to average 1% a year for the whole century, which was likely the longest and largest sustained inflation in history up till that time. It was that inflation that gave birth to the modern world, and gave us a world of currencies and wage-work. Because crypto lacks inflation, it cannot be used as a currency. It will remain an asset.
Readit News
https://docs.google.com/document/d/1iUscaSy6HHLVz2e2rjQfQtx5...
There are some good reasons why global-consensus cryptocurrencies can't generally be used as money:
https://perry.kundert.ca/range/finance/holochain-consistency...
That is actually a little like how US money used to work--badly--before the civil war. A storekeeper would keep a third-party guide behind the counter, regularly published for their city or region. The guide would help them recognize the designs of private notes from different banks, and contain recommendations for what value (if any) someone could place on the note depending on the reputation of the bank and how far away they'd have to go to the nearest branch.
"It costs $3? Okay, here's a $5 from the Far South Bank."
"That's a long ways from here in Middleville, traveler, I'll take it as $4."
"If you can give me $2 from Extreme North Bank for change, then I'll take the deal. Otherwise $1 for something local isn't as useful for me since I'm leaving tomorrow."
"Sorry, today I can only make change in local stuff or Eastern Railroad."
You can always exchange every cryptocurrency for every other cryptocurrency, 24/7, without having to ask any bankster or do-gooder bureaucrat for permission.
Once wealth-backed dynamic-issuance cryptocurrencies eliminate the need for any Fiat on- or off-ramps, the circuit will be closed -- nobody will ever have to ask a gate-keeper for permission to create wealth, monetize that wealth, or execute a mutually agreeable transaction with that money.
Nor will they be forced to use sub-standard money.
The existing power structures will be ... displeased.
Ultimately money is a social construct based merely on shared belief. Algorithms can used to enhance and support this social construct, but I do not see how it could wholly replace human/social interventions.
The thing about non-fraudulent, wealth-backed money is that there is no barrier to entry, nor is there a barrier to exit. Unlike usury-based money, a wealth-backed currency can cleanly decrease in usage, down to zero. People withdraw wealth pledged to created the money, by returning the amount of money created, and then take their wealth elsewhere.
Thus, if people don't like the valuations arrived at by the "basket" underlying the value of each unit of money (ie. something becomes undesirably in/deflationary), they can move to another form of money -- ideally, one that constitutes its "basket" based on a more representative set of the society's basic commodities. In the ideal embodiment, this basket would evolve over time (eg. as energy production moves from coal to oil to natural gas to nuclear to renewables over the years, for example, the energy commodity component of the basket would be revised automatically).
As for the PID loop, there are much more advanced controls methodologies that improve error rejection (eg. Kalman filtering), stability (Model Predictive or State Space control), etc. Furthermore, limits on the introduction (or withdrawal) of wealth (and hence newly created units of money) should reflect the current size of the ecosystem to limit shocks that would adversely interfere with the control stability. (ie. you can't create 10x the current size of the economy in newly issued money all at once.)
If it's cheaper to mine, it won't be more profitable. See dogecoin. It'll create more token and at a decreased value.
I can't believe people are still falling for this ponzi scheme
What the author is describing here, a trusted group of institutions that buy and sell currency to maintain an inflation target is called a 'central bank'. Or in this case, a bunch of central banks. In fact even the proposal to automate and do this algorithmically goes back to Friedman.
the idea is old but gains new life to the rise of defi.
(Theorizing about cryptocurrency is fun as long as you ignore how actually-existing crypto, like actually-existing communism, is working out in the real world. Although that doesn't mean all the underlying principles are wrong...)
I always liked this idea, and I a few cryptocurrencies/blockchains tried to do something like it, including Stellar Lumens[1]. Just looked it up to post this and they abandoned it back in 2019.
[1] https://stellar.org/learn/lumensThis 2-4% number has no fundamental basis, Ampleforth is the only cryptocurrency that seems to solve this basic concept of how much supply and how to distribute it
https://satoshi.nakamotoinstitute.org/posts/p2pfoundation/3/
I'm no economist, but inflation should reflect an increse in growth and productivity. The fact that these coins don't tend to consistently devalue might say something about how useful they are for doing the job of a real currency.
An increase in growth and productivity should reflect deflation: more goods and services with the same amount of currency. Absent intervention, inflation simply does not happen as a long-term secular trend in a growing economy.
As mentioned in another thread, pre-modern US had growth rates higher than the modern US (~4%) with an immaterially changed CPI over a ~130 year period. This was with two punctuated sessions of central banks and wars which issued debt notes (currency).
In addition: it should be noted that Japan has had a deflationary currency for 30 years and is an economic dynamo. The only problematic aspect of that—which can be seen in the BOJ's recent ill-fated attempt to increase the interest rate—is it makes government debt (and all debt) harder to pay back. However the point remains: deflation has had an immaterial effect on standard of living.
This fundamentally misunderstands the point of Bitcoin's creation (and currency). The ideal currency does not inflate at all, which makes it inimical to government spending and debt. As modern fiat is inherently based upon debt, this makes it non-ideal from the perspective of governments, but ideal for everyone else.
Inflation to drive monetary velocity is a ridiculous concept, as is inflation. Inflation is scarcity of goods purchased in the present relative to money supply: fewer goods and services at the expense of more currency. People want goods and services, not currency.
During multiple periods of US history—including much of the 1789-1913 era—the US paid out no interest on US bonds, as the value was in its safety, and the value of the dollar was worth more at its redemption. More goods and services relative to the comparatively smaller increase in currency made savers wealthy without investment. Outside of wars, pre-modern US had a deflationary currency in its run up to becoming the pre-eminent power on the planet.
Let me stop you right there. You may want that, but that's just, like, your opinion man. Most people, like 99% of people, do not want hard money and the tradeoffs it entails.
The problem with the idea of inflation (read: "scarcity") to drive monetary velocity is it messes with investment. There is no shortage of people wanting to invest capital for increased returns in the future. But if you force consumption without a plan, you're consuming in the present for the sake of it.
A farmer can plant seeds and return an investment on that, or you can eat your seed crop. Forced inflation is forced returns in the present for lower returns in the future. Due to prices functioning as a regression between the exchange of goods and services, this one-to-one mapping is not as obvious, but it is definitively what happens.
You cannot consume what you do not produce. And investment requires deferred consumption. Forced monetary velocity is forced consumption at the expense of investment.
That means it doesn't matter if you happened to have most of your economic assets in cash, or in potatoes, or in uranium ore, or in a house, etc. It means that there's no weird externality which is tipping the scales or "choosing" winners and losers.
Slight inflation isn't better than perfect balance, it's just a reluctant compromise, since it's the safer direction in which to fall when dealing with an unstable equilibrium.