@rayt5 - thanks for the first constructive criticism of this thread! Yes the difficulty is a lagging signal but I can't think of any predictive ones (if I could I'd be trading bitoins!) The aim is not to have a completely flat exchange rate but to as far as possible avoid the massive price spurt then pop scenario that Bitcoin has been going through.

@chriswen - not the exchange rate but the mining difficulty (which in this instance is being used as a measure of the coins popularity).

@bnogal - thanks for your suggestions. Regarding the transaction fee the only thought I had was having it in place is a (minor) incentive to hold onto coins. Whether that turns out to have any significance or 'spammy' transactions are a bigger concern is hard to say. Fortunately there are lots of test cases being conducted at the moment so it might soon become apparent!