Possible solution to volatility (new cryptocurrency design)

Needless to say, price volatility is not desirable in a medium of exchange.

To be extra clear: I'm not suggesting this should be implemented on Nano. It's too late for Nano. It would have to be a new cryptocurrency using block-lattice architecture and most of Nano's design could be kept (so it's still fast, feeless and efficient to transfer). The major difference:

  • A new block type that includes a much harder PoW, creating new units of currency (the user can scale the PoW difficulty to the number of coins they want to generate). In other words, everyone can 'mine' their own block/account chain. But let's use Cuckoo Cycle or similar memory intensive proof of work. New coins can be minted indefinitely.
  • No genesis block - it's not needed anymore. Accounts can be opened with newly minted coins.

Analysis of the economic consequences of this change:

  • Early adoptors and late adoptors are on a level playing field.
  • HODLing is not encouraged. This currency is not going to the moon - it's staying on earth.
  • Market cap grows with use not investment.
  • Money supply grows only with demand, and as fast as necessary.
  • Very difficult to pump, as there would be a bunch of people who have figured out how much it costs to make more, and have huge sell orders just above that price.
  • Without the pumps, there would be less dumps too. This is a currency for users not speculators.
  • Inflation wouldn't be a constant. When the price is low enough, people will stop making lots of new coins. And coins will gradually disappear from circulation as keys are lost. So the system will tend towards equilibrium.
  • The answer to "is it a good investment" will always be "no". It is a very unexciting coin. But it might be very good for payments.
  • Users could have much more confidence that the price isn't in a bubble that's about to burst.

Slogan: Like Nano, but not going to the moon.

Can someone skillfully shoot this idea down for me? Has anything like it been done or proposed before?

This puts the PoW generation in a positive feedback loop, more efficient generation means more money, instead of a negative feedback loop where someone will choose to execute fewer transactions to minimize expense.

This is susceptible to economies of scale: 1000 individuals generating the PoW solutions is not the same as 1000 people who get together to design specialized equipment to generate solutions.

Since nano is supply capped, any fluctuation in price is a shift in demand. In order to compensate for a demand shift, supply changes would have to be inverse to demand shifts. Unless there is a mechanism to generate a negative supply inflation rate, this loop would only slow upward price trends with no ability to stop downward price trends.

If margin trading was introduced to this concept, someone could actually increase the downward price trend by continuing to inflate the supply with efficient solution generation.

It seems like this wouldn't be able to stop downward price movement, upward price movements would be diverted through inflation to specialized equipment holders.

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Thanks.

It sounds like you've conflated the PoW I'm talking about with Nano's anti-spam PoW. The anti-spam PoW would stay just the same as in Nano.

This is correct. But how much downward price action is a result of overbought market conditions? If we remove the greed, then we don't have to deal with the fear that follows. That's my theory. Downward price trends are what happen when people thought something was valuable and then change their mind. If everyone expects the price to go down from the beginning and knows that no big gains are possible, then it won't go up to begin with, which means it won't have far to fall.

But for how long? at some point the price would get low enough that they'd be losing money. I would expect the equilibrium to always be below the profitability of the most efficient work generation.

Perhaps another question to ask here is, could a very low market cap coin work as a currency?

Edit: in answer to how it would stop downward trends, if the price gets low enough, the true believers will start buying in large quantities. This happens with nano when it gets below ~50 cents we just buy as much as we can. The lower it gets the more we buy. But nano is too hyped for the effect to be noticed. It goes up too easily.

There's a lot of economic alchemy being proposed in the crypto world.

There is a very simple solution to this. Just do it like the central banks.
Hold some of your own currency, foreign currencies and gold. If the market rises too much, you can sell the currency and if it goes down you can sell other currencies or gold in order to buy your own currencies. That is daily business for central banks.

For mass adoption volatility issue need to be solved not only against USD , but against local currency.
Nobody is going to use USD to purchase something priced in Euros, there is also volatility there, smaller but there is.
Maybe another approach can be a sender who wants to purchase something which costs x USD to pay x USD and in the background a market buy will be executed and send the crypto to the receive party who wants to accept crypto. Receiver get paid in crypto , sender do not have to be aware about the underlaying exchange to crypto.