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The first step is to not make it deflationary, which causes people to hoard it instead of spend it. Unfortunately BTC gained such popularity in part because of

The first step is to not make it deflationary, which causes people to hoard it instead of spend it. Unfortunately BTC gained such popularity in part because of this property. 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 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.

zoloateff 9y ago
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?
- rthomas6 9y ago
  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.

zoloateff 9y ago

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?

rthomas6 9y ago
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.