SafeCoin recycling can function as a value stabilization mechanism

One of the main general points of critique on cryptocurrencies has been their extreme volatility. I’ve often tried to find some mechanism or algorithm that could be build into a cryptocurrency to combat volatility and give more stable value, without giving a third party the power of influencing the supply (like a central bank). Although in classic cryptocurrencies it’s easy to enlarge the supply of coins, significantly shrinking the supply at the right moments could be extremely desirable to combat devaluation due to disastrous events (like what happened after Mt. Gox defaulted). At first I thought this was impossible without literally taking coins away from coin owners (which would be ridiculous), but with SafeCoin I believe it is possible.

As David Irvine explained to me a short while ago, when someone buys resources in the network the SafeCoins are not directly paid to farmers. Instead they are effectively destroyed until they are farmed again by the farmers. The rate at which farmers farm SafeCoins is determined by an algorithm that (as far as I know) isn’t exactly defined as of yet.

With this thread I’d like to point to the fact that when resources are bought and SafeCoins are destroyed, the total supply of SafeCoins has temporarily shrunk until the destroyed SafeCoins are created again through farming. If SafeCoins are destroyed faster than they are farmed, the SafeCoin supply is consistently shrinking.

This means that the issuance algorithms can both expand and shrink the supply, creating inflation or deflation depending on circumstances. With the right algorithms, this ability to cause inflation or deflation can be made into an automatic SafeCoin value stabilization mechanism. If the value is falling significantly, SafeCoins would be farmed slower than they are destroyed, when the value is exploding, SafeCoins would be farmed faster than they are destroyed. For ease of use I’d like to refer to this farm/destroy ratio as the recycle ratio (if there’s already a better term, let me know).

For this to be possible the algorithms used need to be able to get some measure of changes in value of SafeCoin. I’m currently thinking mostly about the possibility to derive this from the total amount of resources available to the network. Since the reward of providing resources to the network is issued in SafeCoin, the total amount of resources available will grow until the the lowest possible cost of providing those resources (power, hardware wear) is in equilibrium with the (expected) value of the reward in SafeCoin. A drop in SafeCoin value would hence cause a reduction in total resources available, because farmers would suddenly be paying more to provide those resources than they gain in SafeCoin, and will thus turn them off. Hence it could be said that stabilizing the total resources available would indirectly also stabilize the value of SafeCoin, at least as long as the resource market of the MaidSAFE network is a significant factor in the trading volume of SafeCoin.

It should be noted that the recycle ratio, since it is a ratio, can be changed by adjusting either or both factors ( farming reward and resource cost). Reducing the farming reward in SafeCoin in times of devaluation seems counter productive to me, since it would only cause a bigger reduction in total available resources. Hence increasing the costs in SafeCoin to buy resources seems most logical to me. An additional factor would be that the value of resources would be more stable as well.

The existence of a value stabilization algorithm would also cause a self-fulfilling prophecy. Since owners of SafeCoin know this algorithm is in place, they will panic less when the value drops, in the knowledge that the algorithm will start shrinking the SafeCoin supply. This reduces the incentive to start dumping their SafeCoin in fear of irrecoverable losses.

Of course, this approach is based on the assumption that the network is or can be aware of the total resources available. I don’t understand MaidSAFE well enough yet to answer that question, so it would be great if a developer could shine some light on that.

What do you think?

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I think this pins it very well. The issuance and continued issuance should be and will be based on the underlying resource. I, like you, think this can be very beneficial. The network automatically knows when it needs resources so that part is fine.

I just wrote a mail to Deborah Gordon (the ant woman :-)) to let her see what we are doing as its very close to a natural system and said this. We are taking step one (more of a stumble) in creating a system that searches for equilibrium via maths and measurement as opposed to fear and doubt. I think this is related to what you are noticing and it is a good thing.

All we need to do as a community is find the right algorithms and make sure they are simple and solve not one issue, but many at the same time. The whole network operates like this with fundamental strong types and lack of ‘if statements’. It is this simplicity and multi use of algorithms that provide the strength.

So great thinking @Seneca I feel this is a path worth more discovery indeed. We need to make sure the external value of safecoin though is not linked to resources, but the issuance certainly may be. Very interesting side effect.

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The current possible route to recycle Safecoin is :
1, user need to pay for the Reputation Score
2, user need to pay when store data

The second option requires at least MAID account management, which against the “infinite put” model metioned previously. Unless the charge is based on each “put”, and the rate is calculated in realtime (estimation based on local range, similiar to calculate the POR/Safecoin rate). However, some trade-off might need to be considered to maintain the performance during a put process.
The “delete” part can still be ignored, which means DM account management can be eased.

There are also other ways to recycle Safecoin, such as :
1, charge Transaction Fee
2, charge Vote Admin Fee (anyone want to vote shall pay, which futher prevent bot)

Further to that, when a coin is mined / recycled, it will be ideal that such opertion can be reported to somewhere.
So the statistics like : how many valid coins in network, rate of mining, rate of recycling
and a quick check that whether a coin is occupied can be achieved.
The place holding such info doesn’t have the ownership to any coins, neither knows who owns which coin.
It just collect coin lifespan information.

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Indeed, a self-regulating crypto-currency could be a killer feature that should definitely not be underestimated. It could make SafeCoin one of the best ‘stores of value’ in the world.

Some dislike regulation of currency supply by third parties like central banks influenced by governments and the financial sector, many others fear the raw market forces and potential for manipulation that come with unregulated currencies like Bitcoin. SafeCoin could hit the sweet spot and get the best of both worlds through independent decentralized self-regulation using robust algorithms.

I agree.

I’d like to comment a little more on this to explain what I meant.

The effectiveness of a value stabilization mechanism as proposed is directly tied to the amount of SafeCoin destroyed in a certain period of time. Shrinking the supply can only be done by not (yet) re-creating SafeCoins that were previously destroyed, and since farmers always need to be paid some SafeCoins for their efforts, the maximum possible shrink in a certain period of time will always be less than the total amount of SafeCoins destroyed in that period of time.

So for this mechanism to work well, a non-trivial percentage of the SafeCoin in existence needs to be spend on payments to the network (like storing data) rather than payments to individuals. This should be taken into account when designing the algorithms if price stabilization is going to be a priority. Which I think it should be.

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I’ve been wondering if there were opportunities in this system, which borrows from nature, to use nature’s algorithms to optimise things. Not thinking SAFE might be able to use them to optimise itself.

I can’t see the endpoint from here, but I do wonder if an evolutionary algorithm could be used offline, or perhaps live, to meet this aim (I worked with genetic algorithms and evolutionary rule based classifier systems in the late eighties).

Such algorithms are incredibly efficient at exploring very complex spaces (i.e. manipulating and tuning multiple parameters with unpredictable relationships). People think of evolution as slow, without considering the vast space that it is exploring, and the amazing efficiency of its solutions - i.e. life forms (which are still beyond man’s supposed superior intellect to improve upon).

The application of genetic and similar evolutionary algorithms require certain pre-requisites, that are not obviously met on SAFE, but certainly look like they might be feasible given the vast networked architecture. It would be challenging but possible to encode the stability algorithm and create a way of optimising it through software that mimics “genetic” evolution. The tricky bit is to design a way of automatically testing the “solutions” in order to select the better ones. As I write, it seems feasible to do this without jeopordising the network or stability, simply because the network is so large and would be so computationally powerful.

Anyone wanting to know more, just ask.

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IMHO it has to be through the algorithms and ONLY through these algorithms. When wealth is involved it changes people and they do things that they might not normally do (or have the opportunity to do). We have to protect this with the math and not leave it up to people. We are in fact the weak link here. Weather it be weakness due to fear or weakness due to greed/pride…

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I can’t see it either, I don’t really see an opportunity for that here. If I understand correctly genetic/evolutionary algorithms involve constant trial and error, which is something we can’t really afford to do with a network like this? Simulations won’t be the same as real life, and in real life the damage of trial and error would be too grave.

With the best of both worlds I meant that it’s not unregulated like Bitcoin but not regulated by people like fiat currency either, but regulated by algorithms. So we’re on the same line here, I meant the same thing as you’re saying here.

With the best of both worlds I meant that it’s not unregulated like Bitcoin but not regulated by people like fiat currency either, but regulated by algorithms. So we’re on the same line here, I meant the same thing as you’re saying here.

I was agreeing with you emphatically :wink:

You are correct, and this is why I said this was the tricky bit, but I am half way to imagining this is soluble!

I agree with this OP and I have suggested something similar previously.

We can measure network utilisation, which means we can adjust the price paid to/from farmers as demand dictates.

However, it isn’t clear to me whether we need to increase/decrease the supply of Safecoin. Adjusting the price of storage up/down with result in more/less money moving around, which is a measure of velocity in monetary terms.

As velocity and quantity of money act in tandem in defining the price level, updating the cost of storage depending on demand may be sufficient.

What does a Safetoken represent? How much resource does 1 Safecoin represent is the only thing that matters and not how many tokens exist or don’t exist.

If more tokens exist then we just have to use more tokens to get the same amount of resources. The ideal behavior we want to see is to have the algorithm / math result in our tokens being able to buy a greater amount of resources over time on the SAFE network.

So for example if 1 Safecoin can buy 1 gig of space in 2014 but in 2015 it can buy 100 gigs of space that would be an increase in the buying power and good for people who bought Safecoin in the presale. I expect that to happen which is why I participated in the presale.

It’s not really about the token at all but about the buying power which must increase over time or the project will fail. Because technology is deflationary it’s likely to result in a dramatic increase in the buying power of 1 SAFE token over time as demand for Safecoins increase in correlation with the value of the SAFE network increasing.

It doesn’t have to be complicated. We don’t need genetic algorithms. Set the amount of coins in the beginning and if possible make Safecoin divisible and if not possible then as long as you have at least 1 coin per device for the IoT then it could all work. This is why 4 billion coins makes sense at this time.

I really think it would be best to make Safecoin divisible if possible because that will have a much greater impact but even if it’s not divisible you could still use the Safecoin as the underlying token and then use some other divisible form of credits and debits on top of it.

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For stability here are some examples. You could build something like this on top of MaidSafe http://www.bibocurrency.com/index.php
Check out this quote:
** it is only by allowing people to create money as they exchange real goods and services in stable transactions that both stability of the unit and prosperity can be achieved.**

Safecoins should not be the “currency”. In fact you don’t need a currency at all really just the ability to credit and debit accounts. You need micropayments as that is absolutely critical and Safecoin can just be the resource token which does everything behind the scenes. You can Safecoin as the unit of measure while using USER CREATED currencies as the unit of account or just use numbers which track IOU.

In fact each user could have their own currency which gets created and destroyed. It might actually be a good feature to have this from the start. Check out the quote below:

** “Money” acts as a commonly referenced unit of measure to express divisions of “value” of goods and services in terms of Price (an information input) corresponding to unique instances of transacted goods and services. Each transaction produces account entries recorded as a negative account entry to the buyer (Debt) and corresponding positive account entry of equal magnitude to the seller (Credit). Note input “Prices” can become “Money” only through a transaction of goods and services, this transaction function can act on price to multiply or sum to it or it can be passive (output equal or less to input). **

In essence we shouldn’t be buying currency units with other currency units. Bitcoin is a commodity and that is why it’s volatile. The currency units are to act as units of measurement no different from the numbers on a ruler.

Safecoin is either going to be a currency or a commodity. I think in the end it’s more like a commodity because you buy Safecoins to redeem it for storage space, bandwidth or some other resource. So we shouldn’t try to treat it like it’s a currency and worry about whether or not it’s going to be volatile because it’s going to be volatile as all commodities are.

Instead you can build the stability on top of all of that. Units of exchange or units of measurement are just numbers tracking what everyone owes to each other. Micropayments can happen in something like this while the underlying commodity could be the Safecoin. Every user could have their own account with everything they owe being tracked and they can pay for that in whatever coin they like including Safecoin.

But Safecoin isn’t going to be the perfectly stable currency no matter how hard people try. I also think it shouldn’t try to be because the goal is to push the cost of resources down and see the rise in buying power of Safecoin which makes it more like gold certificates (not money). Money are just units we use to measure how much value is owed (and money tracks value but does not create it), so at best Safecoin can track how much resource is owed and be traded around like a token but to be true money it would have to be divisible enough to do micropayments to track all value and also to be truly stable it is best if it’s not a commodity (but in our case it has to function like a commodity to push the buying power up and cost of resources down).

http://www.bibocurrency.com/index.php/stability-passivity/14-english-root/133-the-money-action-problem-solution-fallacy

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I have a hard time understanding everything you said, it doesn’t really help you’re using different definitions for currency and money than I’m used to. Anyway, there is already an underlying unit of measurement as far as network storage goes, it’s called P.O.R. Also, SafeCoin is divisible, it can be halved 248 times. These things are defined in the whitepaper.

With this proposal I wasn’t aiming for perfect stability, just a technique to mainly soften sudden value drops and recovering the value a little bit faster by shrinking the total supply.

In order to have credits/debits, you need to have a base unit of account - the monetary base.

The monetary base can be either a naturally valued commodity or something else by fiat.

Both Bitcoin and Safecoin could act as a monetary base. If people want to give one another credit measured in either, that’s fine. However, credit requires trust, which is not always preferable.

There is a distinct difference between credit clearing and settlement. Take care not to confuse the two or you end up with a mess similar to the institutional financial system.

Can I just ask/confirm this means Safecoin will still also be used as internal currency of Safenet and not just for resources? My concern being that the cost of Cloud computing is falling at a steady 40% per year, therefore it is likely that Safecoin will too if we can’t “shop” with it. (Does this necessarily follow?) If this is the case then I would like to suggest doing everything possible to ensure Safecoin becomes the established currency even if this restricts other cryptos- at least initially.

You don’t need trust, only collateral. If you use the commodities as collateral and put it in escrow then no one has to trust that you’ll redeem your tokens.

So the choice is between reputation and/or collateral. I say use both reputation and collateral where when one is missing you can sometimes replace it with the other.

The ideal ought to be that 1 Safecoin can buy more resources each year. So the buying power of Safecoin should rise by 40% per year if the statistic you present is true (technological deflation in action). If there are 4 billion Safecoin total then over time the buying power is designed to increase as the cost of resources decreases because as long as you can always get more value next year for your 1 Safecoin than you could get in the current or previous year then the wealth/value of the network has gone up or stays the same.

How exactly would Safecoin drop if they aren’t unlimited? We definitely don’t want it to be a situation where 1 Safecoin today is exactly the same as 1 Safecoin a few years from now in terms of how much resources it can acquire. If it’s like that then no one would buy Safecoins and could just wait for the price to drop down to nearly free.

At the same time why would we need to shop with it? We have Bitcoins to shop with. We could use any coin to shop with. We only need Safecoin to measure the cost in Bitcoin, Litecoin or whatever else so that it’s actually based on the resources the network has. Safecoin could act as collateral so that we can issue our own private credit currencies (as these currencies would always be stable).
Here are some example videos to see what I mean:

So how would I know how much to charge for example for a video stream? I would need to know how much it costs in Safecoin to host the stream in the first place and then could use the Safecoin as the unit of measure for Litecoin or Blackcoin so that it’s 1 Safecoin worth of Litecoin or Blackcoin a week for instance.

This would tell me how much Litecoin or Blackcoin I would have to charge so I can keep buying Safecoins to keep it running. If I’m wrong about this let David correct me.

If you give someone credit, you are trusting them to repay you at a future date. Even if you accept something as collateral (which is approaching barter, tbh), there is still an element of trust involved relative to settlement.

Moreover, you still need base money as a unit of account - in order to promise 10x you need to define what x is. How else would you know what 10x was worth?

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A good end result in my opinion is if any of us can issue our own currency backed by our Safecoins which get held in collateral/escrow. Then we use our own credits to trade with (and not a system wide credit) so that our private credits are backed by our goods and services. This forces us to produce value to the network to increase the value of our own credits.

Safecoin can be the measuring device to let us know how much network resources cost at any particular time. That is critical for running any kind of business on SAFE. But as far as currencies go, in my opinion they should be created and destroyed as needed for different projects.

Separate commodity from currency. Currency is backed by goods and services usually which means a currency is actually just a credit. A commodity is like a natural resource, like gold, silver, oil, food, or information.

You can store wealth in a commodity because you know a commodity is always in demand. But the commodity is really only good for issuing credit by lending the currency into existence. It’s backed by collateral which says if you don’t keep your promise to pay your debt you will lose your gold, your house, your Safecoin.

If the value of the resource you are valuing safecoin against is dropping by 40% per year, then I don’t get it. The resource is getting cheaper for other currencies by 40% but not safecoin isn’t it, or is it the same. Wow this is twisting my melon. Sorry if being ridiculously thick.