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Is it even possible to have a stable priced crypto? The crypto money supply is predetermined, but demand is not, often driven by events outside of the blockcha

by raquo 9y ago

Is it even possible to have a stable priced crypto? The crypto money supply is predetermined, but demand is not, often driven by events outside of the blockchain. Supply needs to actively balance demand if the price is to stay stable. For a stable price you'd need a crypto that adjusts mining difficulty in response to changes in the amount of demand (or something like that? My understanding of crypto currencies is only surface level). However, the USD-to-Crypto price is something outside of the blockchain, so as far as my understanding goes you can't really use that as an input because you can't get undisputable information on the price, because the entirety of undisputable information should exist in the blockchain. I guess you could try to use transaction volume as an input but that seems like a bad metric because it's a) gameable and 2) does not necessarily correlate with external demand for the crypto currency.

smallnamespace 9y ago
> Is it even possible to have a stable priced crypto? Stable with respect to what? Fiat? Which one? In the limit you will have a cryptocurrency backed by a fiat currency (and I don't consider Tether to be one. Bitfinex will allow you to exchange $1 for 1 tether, but nobody will guarantee you can go the other direction).
wmf 9y ago
The crypto money supply is predetermined No, it isn't. People just have trouble imagining non-crackpot cryptocurrency because they've never seen one. For a stable price you'd need a crypto that adjusts mining difficulty in response to changes in the amount of demand (or something like that?) Right, you can adjust the block reward so that the rate of issuance of money tracks the rate of change of demand. However, the USD-to-Crypto price is something outside of the blockchain, so as far as my understanding goes you can't really use that as an input There are some projects that use "oracles" to publish price information on the blockchain, but then you get into a bunch of complexity about electing oracles and taking the median price of multiple oracles. I guess you could try to use transaction volume as an input but that seems like a bad metric because it's a) gameable and 2) does not necessarily correlate with external demand for the crypto currency. Right. You can also use difficulty as a metric (based on the theory that higher price makes mining more profitable which causes more miners to mine which causes difficulty to increase). https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ https://blog.ethereum.org/2014/11/11/search-stable-cryptocur... Note that some of these techniques don't guarantee stable value, just less volatile value.
dragonwriter 9y ago
> Is it even possible to have a stable priced crypto? It should be possible to have one with reasonably stable value compared to any identifiable external commodity or basket of commodities that is not itself highly volstile, though it would be more complex than existing crpytocurrencies, and may not be completely decentralized. Stability, decentralization, and trustlessness together...well, you are pretty much asking can you replace an active central bank with an preset, runs-forever algorithm without a trusted source for real world economic data. I'd say probably not.

by raquo 9y ago

smallnamespace 9y ago

> Is it even possible to have a stable priced crypto? Stable with respect to what? Fiat? Which one? In the limit you will have a cryptocurrency backed by a fiat currency (and I don't consider Tether to be one. Bitfinex will allow you to exchange $1 for 1 tether, but nobody will guarantee you can go the other direction).

wmf 9y ago

The crypto money supply is predetermined No, it isn't. People just have trouble imagining non-crackpot cryptocurrency because they've never seen one. For a stable price you'd need a crypto that adjusts mining difficulty in response to changes in the amount of demand (or something like that?) Right, you can adjust the block reward so that the rate of issuance of money tracks the rate of change of demand. However, the USD-to-Crypto price is something outside of the blockchain, so as far as my understanding goes you can't really use that as an input There are some projects that use "oracles" to publish price information on the blockchain, but then you get into a bunch of complexity about electing oracles and taking the median price of multiple oracles. I guess you could try to use transaction volume as an input but that seems like a bad metric because it's a) gameable and 2) does not necessarily correlate with external demand for the crypto currency. Right. You can also use difficulty as a metric (based on the theory that higher price makes mining more profitable which causes more miners to mine which causes difficulty to increase). https://blog.ethereum.org/2014/11/11/search-stable-cryptocurrency/ https://blog.ethereum.org/2014/11/11/search-stable-cryptocur... Note that some of these techniques don't guarantee stable value, just less volatile value.

dragonwriter 9y ago

> Is it even possible to have a stable priced crypto? It should be possible to have one with reasonably stable value compared to any identifiable external commodity or basket of commodities that is not itself highly volstile, though it would be more complex than existing crpytocurrencies, and may not be completely decentralized. Stability, decentralization, and trustlessness together...well, you are pretty much asking can you replace an active central bank with an preset, runs-forever algorithm without a trusted source for real world economic data. I'd say probably not.