Quote from: cunicula on July 30, 2011, 06:03:36 AM

I have a very similar idea, but much prefer to peg generation and destruction rates to difficulty growth rather than market prices.

My issue with pegging generation/destruction to market prices is that it requires a third party to supply accurate price information to the system forever. Two issues with this:
a) this is very centralized; take out the third party and you take out the coin
b) the third party could benefit from supplying inaccurate information.

An ostensibly attractive option is to allow users to vote on prices, but this does create incentives to supply truthful information. A voting system can ensure that everyone supplies similar information, but it cannot ensure that this information is truthful. There is no apparent economic reason why people will form a consensus around the truth instead of forming a consensus around a lie.

Pegging generation and destruction to difficulty growth (for example to achieve 50% annual difficulty growth) does not require the supply of outside price information. The relevant information is in the blockchain already. Linking coin generation and destruction to difficulty would ensure that the coin price approximately tracks the electricity price (I am assuming Moore's law will continue to hold).

There are certain features of this idea which would make it very difficult for anyone to profitably manipulate difficulty, but I don't want to go into the details because most people have short attention spans.

An alternative way to achieve this would be a method I call "one block, one vote". Under this system, everytime a block is mined, the miner may specify the amount of coins that will be received by a future miner a given number of blocks into the future. To prevent wild oscillations, the amount that can be specified would be limited to some range around an average of previous blocks. Under such a system, the price level would be determined by the equilibrium between new miner hash power trying to push up the inflation rate and existing wealth holders trying to push the inflation rate down. My hypothesis is that such an equilibrium would lead to roughly stable prices.

I am currently working on a patch for Multicoin ( http://bitcointalk.org/index.php?topic=24209.0 ) to enable blockchains to use this method. Since I am neither a professional programmer, nor an expert on the bitcoin source code, I welcome help from those interested in this topic.

Akiron

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