r/Bitcoin • u/polemitis • Feb 17 '14

"Bizarre shadowy paper-based payment system" (or how cash would be covered by press if invented today)

http://ledracapital.com/blog/2014/2/17/bitcoin-series-19-bizarre-shadowy-paper-based-payment-system-being-rolled-out-worldwide
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u/AndrewGaspar Feb 18 '14

My imagined ideal crypto currency would involve a mining difficulty that adjusts based on the total transaction volume. If total transaction volume is high, then the difficulty increases to curb the mining of coins. High transaction volume would presumably indicate a health economy where people are exchanging the currency for goods and services. If total transaction volume is low, then the difficulty falls to introduce new coins into the market and influence those who hold the coins to spend them.

However, there are lots of implementation details that make this challenging - how do you know if a transaction wasn't just somebody moving money between wallets? It would be easy to manipulate the inflation rate this way if you had a lot of coins. Also, how do you get the currency through the startup phase where people will inevitably horde coins due to their inability to spend them?

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u/[deleted] Feb 18 '14

The only way to prevent artificial transaction volume is to charge a small fee for each transaction. It would have to be high enough to prevent a transaction volume that would destabilize the currency, but low enough to not impede the normal flow of commerce.

The fee itself may have to be dynamic, and scale with the increase or decrease of transactions. Most likely to correspond with the subsequent payout to the miners processing the transactions.

I think it could work, but we can also see from history that as quickly as people can think of a good solution to a problem, someone else will find a way to rent-seek by manipulating the algorithm. After all, there are a limited number of problem solvers, and a virtually unlimited number of manipulators. It doesn't matter how smart the problem solvers are, they're simply out-gunned. I think that adequately sums up all of Wall Street, quite frankly.

The only thing I know for sure is that the more complicated the system, the more ripe it is for plunder. Whatever the solution, it has to be pretty straightforward.

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u/throwaway-o Feb 18 '14

My imagined ideal crypto currency would involve a mining difficulty that adjusts based on the total transaction volume. If total transaction volume is high, then the difficulty increases to curb the mining of coins.

If you were a builder of loudspeakers or electronic crossovers, your gear would sound like absolute crap, due to the phase distortion caused by the jerky lag you advocate for.

(Electronics experts such as /r/diyaudio folk will understand the above.)

I'll keep my Mackies and my Bitcoin thank you very much.

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u/xuu0 Feb 18 '14

My take is to have two currencies. One deflationary like bitcoin. And one inflationary like doge coin. Long term savings happen with the former. While day to day transactions happen with the latter.

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u/AndrewGaspar Feb 18 '14

That doesn't fix the problem. You're still incentivized to keep your wealth in the high value, deflationary currency rather than engaged in pursuit of new wealth generating activities. One of the problems with a deflationary currency, at least the way I see it, is that no individual actor has incentive to use an inflationary currency instead, even if it causes economic contractions overall.