Re:How do you Design a cryptocurrency like ethereum/BTC to h...
by zoloateff on Friday June 23, 2017 @03:45PM
(#14622176)
isn't a dollar or euro merely a deflationary currency that follows the velocity of money principle albeit controlled by the government and when the velocity is slow they print more?
Re:How do you Design a cryptocurrency like ethereum/BTC to h...
by rthomas6 on Sunday June 25, 2017 @10:52AM
(#14630245)
Not exactly. First of all the currencies aren't deflationary, they're slightly inflationary, meaning they lose value over time. Deflationary currencies are considered very bad if a government holds much debt at all. Inflationary currencies incentivize spending over holding.
Second of all they don't just look at velocity of money, they also look at the economy's strength, demand for money and lending, consumer prices indicies, and other things that are tied to external metrics and thus need a centralized authority to use. For a cryptocurrency, we can't do this, we have to rely on some algorithm. Tying creation rate to velocity of money seems like a decent approximation to me, but I could be dead wrong.
One cool way to do this that I've been thinking about is to tie the mining reward rate to the exchange rate somehow. This has the effect of more coins being created when prices are low, and less created when prices are high. In theory this should stabilize the price. The problem with this method is you need a way to measure the "price" in a decentralized way separate from any other currency.
One way to do THAT is to aim for a certain velocity of money (https://en.wikipedia.org/wiki/Velocity_of_money). Theoretically it should correlate to inflation: if people are hoarding, the *coin will gradually start to decrease in value until more people are spending. If people are spending like crazy, the value will gradually increase. Not sure if that is a good solution, just one that I thought up.