To avoid inflation I have another proposal: demurrage.
The bitcoins created can lose value constantly in time so that the amount of bitcoins removed from circulation this way equals the amount created to pay the proof of work.
Obviously, the demurrage would be applied after some quantity of them are circulating (¿21M?).
The demurrage would have another benefits: suppressing interest, stimulating the circulation (that can prevent crises)...
I have posted about it here:
That is exactly what I suggested above. Bitcoins are added to the supply each time a block is solved (incentive to contribute CPU resources), but bitcoins erode each time they are transacted with. So, inflation is balanced.
The hard part IMO, is that you don't always want a balanced inflation. When the number of users of the ripple-bitcoin system is growing, you need more bitcoin liquidity. I have never believed in the built in deflation in bitcoin, it seems to me an unnecessary restriction.
So that hard part, is how the bitcoin-ripple money supply is automatically adjusted to grow with the volume of transactions, or equivalently, how a more or less fixed bitcoin velocity is maintained in this system of balanced demurrage and supply inflation.
The only difference in what I'm saying is how the bitcoins erode.
Your proposal is
F% of the amount is lost with each transaction
or
F is lost with each transaction
I don't know, but i guess you mean the first
My proposal is:
D% of the amount is lost annually
The fee with each transaction punish the spend and therefore reduces the velocity of circulation. On the other hand, the demurrage stimulates the spend and trade with the currency, because the longer you hold the money the more you lose.
I guess time here can be measured with the block counter.
Here we got the formula we're supposed to be talking about if we want to reach stable prices(
http://en.wikipedia.org/wiki/Money_supply#Monetary_exchange_equation):
MV = PQ
M is the total dollars in the nations money supply
V is the number of times per year each dollar is spent
P is the average price of all the goods and services sold during the year
Q is the quantity of assets, goods and services sold during the year
Demurrage increases V and make it more predictable.
Demurrage could be adjusted dynamically in function of P, supposing you have a way to measure P.
The typical approach (without demurrage)is to increase M (print money) without knowing anything nor having any control of V. When V is low, crises come.
For me the most important thing for me is suppressing interest, which is the reason I became interested in Ripple in the first place.