Hi

I've been keeping my eye on Bitcoin for a while, but I haven't myself bought in, besides the few fractions of Bitcoins I've generated over the last few weeks.

I've been looking at the recent price rises and then falls, and I've been thinking about how to make the price of Bitcoins more stable.

I suggest that the following are good features for a stable currency:

(1) A process for the release of new currency that formulaic, not arbitrary and can not manipulated by anyone other than the market as a whole.
(2) Negative feedback mechanisms which stablise the value.

Typical fiat currencies attempt to do (2) through the central bank controlling the money supply, though it is debatable how well they perform that option.

On the other hand, they do not meet (1), as the price of money (interest rates) is not controlled by the market, but by the central bank.

Bitcoin clearly on the other hand, meets (1). But it has no mechanism for slowing the supply of new currency when the price goes down, or raising it when the price goes up. Bitcoins are released at a constant rate.

I propose to address this by the following change:

"Change the difficulty of generating bitcoins to be proportional to the number of Bitcoins in existence"

This I believe has a number of advantages over the current system:

(1) Whilst there is an early adopter bonus, it would not be as strong as it is currently.
(2) The cost of mining Bitcoins is more predictable, particularly over the medium term.
(3) There is a negative feedback mechanism. When the cost of generating bitcoins falls below the price, new supply increases, and vica versa.

Bitcoin has been compared to gold, but even gold has this negative feedback mechanism, in that when the price is high, more is mined and less is mined when the opposite is true.

I think Bitcoin needs such a mechanism for it to be a stable currency in the future.

I realise this will mean forking the network, but if people think this is a better way of doing things, perhaps new adopters of bitcoin should go with this approach. I believe it would require minimal changes to the client, which I'm happy to look into myself if there is interest, or would appreciated if someone else does also.

If this has been discussed elsewhere in the past, please feel free to direct me to it.

Any thoughts/improvements would be appreciated.

Clinton