Quote from: kiba on July 17, 2011, 05:22:26 AM

Quote from: cunicula on July 17, 2011, 05:19:42 AM

Different from the FED in that the goal would be to achieve deflation of around 2% or more per year. FED aims for inflation of around 2%. Also different in that currency generation is specified by an algorithm rather than an appointed commitee. Similar to the FED in that the system takes currency in and out of circulation to limit price volatility.

Extreme economic growth is going to lead to extreme deflation. You're going to prevent everyone from benefiting from deflation?

Not really though I would if I could think of a good method. There is a tension between controlling deflation and controlling inflation. If the algorithm can destroy coins at a much faster rate than it can create them, the algorithm will offer stronger protection against inflation. I view rapid deflation as the lesser of two evils. Accordingly the system would be designed to issue coins at a much slower rate than it can destroy them. Remember new issuance of currency in the current period would be set to a fraction (say one tenth) of the transaction fee/tax volume in the previous period.

E.g the tax brought in 10 coins last period for miners and destruction. This period the algorithm issues 1 coin. If difficulty is climbing according to Moore's law or faster, tax is distributed to miners. If difficulty is not climbing fast enough, tax destroys about 10 coins. Net money supply falls if difficulty falls and rises if difficulty rises.

Value of coins should be roughly one to one with transaction volume in the long run. Suppose transaction volume doubles from 100 to 200. Tax revenue would rise from 0.1 to 0.2. Iff difficulty is simultaneously increasing, currency issuance rate woul increase from 0.01 to 0.02. As you can see there is nothing in here to protect the system from rapid deflation. If difficulty is falling, currrency destruccreation would move from 0.01 to -0.09. As long as difficulty continued to fall, destruction would continue. In the event of a collapse, transaction volume would likely increase as wealth holders rushed to sell. Potential Destruction rates are proportional to transaction volume, so these would increase dramatically as well. This would provide some protection against a sudden collapse. The higher the tax rate the better the protection, still I couldn't accept tax rates higher than 0.1%.