Inflation-Protected Asset vs. Anti-Inflation Parking

[Chronos]

We have seen a little discussion about the addition of an inflation-protected asset inside Nu, to be offered in conjunction with the NBT-dollar peg. This new currency unit would be something like a peg to a market basket of goods.

Benefits:

• A clear branding of inflation protection on the alternative currency unit
• No change to the current NBT currency unit

Drawbacks:

• Cannibalism of market share: users would be divided between the two currency units
• Complexity for merchants who must accept and manage two currency units
• Complexity of maintaining peg on two currency units
• Division of peg support between units weakens support for both units
• Risk of failure of peg of one currency unit, which shocks the entire ecosystem

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An alternative: to make the NBT unit itself inflation-protected via parking. Each month, take the CPI inflation index from the previous month, and vote 1-month parking rates to an annualized equivalent of this value. Any holder of NBT who wished for inflation-protection could simply park at one-month intervals to have their real value keep pace with USD inflation.

Benefits:

• Strengthening brand image and market demand of core product (NBT) by adding inflation protection
• Simple to integrate with existing system

Drawbacks:

• Mildly increases supply of NBT, weakening peg

After thinking this through, I favor this second option. I think creating an additional inflation-protected currency unit could divide Nu into two halves, each more weakly supported than the original product. I think that bringing 1-month parking rates up to the rate of inflation would make NuBits a more useful and sought-after product.

What do you think?

[willy]

I really like the second idea!
The risks seem quite low (in comparison) and implementation would be much easier.

[Yurizhai]

It seems like that would provide some of the benefits, but wouldn’t having to park them limit it’s usability?

Also, can anyone give me the benefits of a inflation resistant asset? What type of things would it be used for? I can’t imagine it’s strictly better than a non-inflation protected coin, otherwise I wonder why NuBits didn’t launch that way.

Edit: I’m guessing it’s for storing wealth?

[tomjoad]

The US government doesn’t offer “inflation-resistant USD” anymore, and neither should we. I’m not opposed to a secondary product being introduced that attempts something novel, but it should never replace the core product NuBits product we’re building. An “inflation-resistant” product would not strengthen the brand image as you suggest, nor is there any evidence whatsoever that market demand would increase.

Introducing an “inflation-resistant” product as our sole offering would confuse the market, kill the point-of-sale simplicity that we’re marketing ourselves on (1.00 NBT = $1.00 US), and complicate the process of using NuBits. It is a much less simple solution.

I am much more in favor of continuing to develop the Nu ecosystem to the point (in a few years, likely) where lending is possible through projects like the Cryptocurrency Bank (https://www.cryptocurrency-bank.com/). A moderate 1-3% inflation rate is already present in NuBits because it is tied to US federal monetary policy. If you want to avoid that inflation, you should be investing in projects that offer a return on capital above that rate. Trying to build it into the protocol is artificial and inefficient.

In short, we should not be artificially deflating our product 1-3% per year. We should be encouraging the establishment of formal, legitimate institutions (such as cryptobanks, or DAC’s that offer corporate bonds) that will pay users that 1-3% (or likely higher) interest in exchange for their funds. That is how a cryptoeconomy with an active money supply is built; users should be forced to avoid inflation by active investing, not passive hoarding.

[DavidMc0]

I agree with Tomjoad that 1 NuBit should equal 1 USD, and anything else would be negative for what NuBit is trying to achieve as a transactional currency that people intuitively know the value of.

However, I do think a seperate currency that is designed to have zero inflation is a good idea & could have a different role. It could use similar mechanisms to NuBit to track inflation adjusted USD, so for example NuBit-2014 (edit: like in option 1) could be created to constantly maintain the value of a 2014 USD.

Periodically the shareholders would set the inflation rate (cpi / rpi or whatever), and the buy/sell walls for the exchange bots would follow the trend & adjust their course to counter inflation, maintaining parity with 2014 USD.

I don’t believe that inflation is necessary in an economy once money supply creation is removed from the banking sector (with bank money creation, deflation only happens when money creation is too slow, which means insufficient lending, which means reduced investment & consumption. That is bad. Big inflation is also bad, so low & steady inflation is optimal).

In a non-inflationary crypto economy, people still have incentives to make productive investments, and have increased incentives to save. Increased savings should lead to more funds available for lending by individuals / full-reserve lending organisations.

While I don’t think NuBit-2014 or similar would replace NuBit as a transactional currency, it may grow more rapidly due to people seeing in real time their protection against inflation, which could be a powerful incentive for adoption amongst those not yet involved in crypto-currencies.

Is there any reason why NuBit-2014 (option 1) or similar couldn’t work?

[Chronos]

I agree with Tomjoad that 1 NuBit should equal 1 USD, and anything else would be negative for what NuBit is trying to achieve as a trtransactional currency that people intuitively know the value of.

I think you misunderstand the two options in the opening post. Even if the second option were applied, with the 1-month parking rates set to match inflation, 1 NBT would still be pegged to 1 USD. Parking increases your nominal NBT without affecting the target peg.

Tomjoad simply highlights that the “primary goal” of NBT is to peg to USD, not to provide the option to park and keep up with inflation.

Is there any reason why NuBit-2014 or similar couldn’t work?

What you call “NuBit-2014” is option 1 in the opening post.

[DavidMc0]

Thanks - edited my post to point out that NuBit-2014 is like ‘option 1’.

I don’t think option 2 would work; parking rewards need to be set to maintain a level of demand for, and reduce supply of NuBits. If they are instead set to counter inflation, there may be an overconsumption (or underconsumption) of parking, leading to an oversupply of NuBits, and the peg would fail. Basically, tying parking rewards to the level of inflation would break its ability to stabilise the price of NuBits.

So I see option 1 as superior. It could be an interesting experiment!

[Raythma]

I think we already have an anti inflationary asset called Peercoin!
yes it is volatile and it will still volatile for ever, since controlling volatility needs an elastic supply and elastic supply can not be anti-inflationary with the current liquidity scheme of Nu !

we are not supposed to fix the monetary system, which we can’t, we are supposed to profit from investing in the intermediate solution facilitating the transition from the centralized fiat currencies to the decentralized crypto-assets and whatever crypto-currencies that are pegged to them then, wish it will be also a Nusomething

[learnmore]

I agree with Raythma. If you’re concerned about weakness in USD buy Peercoin. If you think the dollar is strong (for now) park your money in NBT. There are already plenty of vehicles for inflation protection in the traditional markets if that is your primary financial goal. Attempting to adjust NBT to inflation works directly against the peg!

[Sabreiib]

Currency should not be inflated at all. People are being stolen by government for ridiculious economics growth excuse. It’s unfair for an honest labor who keeps his hard-earned money for ten years and finally losing buying power in the end. Even a mild inflation still harmful for economics, is small dose of heroin healthy? Would you take a little bit of it to keep your body stronger?

Governments have been cheating in this monetary game for thousands of years . At first the kings mixed cheaper metal into golden coins and nowadays governments issue paper from thin air with monetary monopolization. Only between 1720-1920 these two hundreds years, gold standard prevented inflation “cheating”/“bug” while induced another bad thing–deflation.

Good money, which is neither inflation or deflation, still a dream for humen being.
Bonds is bonds, asset is asset, money is money, there is no anti-inflation money which people can put into their pocket and spend it freely in this world. When you deposit it in a bank, you cann’t use it to buy a bottle of water at all.

However, we have the very chance to launch the first good money in history.

It seems to me to be fairly certain that
a) a money generally expected to preserve its purchasing power approximately constant would be in continuous demand so long as the people were free to use it
b) with such a continuing demand depending on success in keeping the value of the currency constant one could trust the issuing banks to make every effort to achieve this better than would any monopolist who runs no risk by depreciating his money,
c) the issuing institution could achieve this result by regulating the quantity of its issue, and
d) such a regulation of the quantity of each currency would constitute the best of all practicable methods of regulating the quantity of media of exchange for all possible purposes.
Clearly a number of competing issuers of different currencies would have to compete in the quality of the currencies they offered.
It was not ‘capitalism’ but government intervention which has been responsible for the recurrent crises of the past.
----- Friedrich Hayek

In future we should provide a currency unit which is anti-inflation/deflation while people can use it in any time without needing to deposite/park(losing liquidity).

But now, we need focus on NBT first.

[Cybnate]

Agree that anti-inflationary NuBits is more a marketing vehicle than something of real value to the holders. That means that there may be demand for it, but I think the pegging shouldn’t be against USD but a basket of currencies and goods to be really valuable.

If someone wants to bring this to the market I think we should just fork NuBits ourselves, rebrand it, have it’s own website, shares and community etc. and have it competing against NuBits. That way you take any traction away from any competition and still be in charge of the marketing and network to reduce the confusion of two similar coins. Shares in the new fork could just be provided on a 1:1 bases to the current NuBits shareholders to keep things in control, but should be made free floating on launch.

There are probably a few flaws in my line of thinking, so keen to hear what others think.

[Sabreiib]

NBT is Judas, according to some other crypto fans, because we betray satoshi’s dream: to release the world from inflation.

When you stick to USD, you are just fan of FED.

[Chronos]

Here’s what I’ve seen so far:

@willy Option 2.
@Yurizhai Why do either?
@tomjoad Neither. (Focus on core purpose of NuBits.)
@DavidMc0 Option 1.
@Raythma Neither. (Use Peercoin to fight inflation.)
@learnmore Neither. (Weakens the peg.)
@Sabreiib Option 1, but not right away.
@Cybnate Option 1, but via a fork.

The variety of opinions is fascinating. I think I am currently against option 1, because it would undermine both pegs to have shareholder resources split between them. I think option 1 would increase the risk of peg failure.

Good discussion.

[Cybnate]

NBT is transitional model to increase acceptance rates of alternative digital money till we are relieved from the money printers. That may still be a while.

[Sabreiib]

Prof. F. Ametrano, Hayek e stabilia' delle cryptomonete

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2425270

Our competitors have emerged. Sooner or later, the blockchain equipped Hayek moneies will come.

Ferdinando M. Ametrano , a finance expert working in an italian bank, are planing to apply blockchain on good money dream, his solution is provide two units in one wallet(just like us) but with two blockchains(unlike us) , and ditribute more money (stable) to another money(unstable) holders, so called fairness distribution.

[Raythma]

Creating a “Good money, which is neither inflation or deflation” is possible, but it will be volatile as the money is just another good subjected to the supply and demand volatility, this also sounds like Peercoin!

And solving the price volatility by wallet value volatility is just … No, i will handle the peercoin’s price volatility happily.

[Sabreiib]

From economics view, NBT is not stable at all because it decays 2-3% every year.

[Sabreiib]

The italian professor wrote this in his whitepaper.

For the time being this concludes the generic high-level explanation of how cryptocurrency price stability can be achieved. Cryptocurrencies adopting the monetary standard of elastic fully automatic non-discretionary supply regulated to achieve stable prices with respect to a (commodity) price index36 are defined to be Hayek Money. The departure from Hayek’s concurrent currencies scheme is about how the volume of private currency can be regulated. In Hayek’s scheme the issuing institution would need to buy/sell its currency against other currencies/securities/commodities and contract/expand its lending activities: this is how central banks operate. In the case of a cryptocurrency the obvious superior alternative is to enforce the monetary policy on the block chain itself, directly altering the number of currency units in every wallet. How this can be technically done without relying on a third party authority is the significant challenge of section 6.

You see, he is ready to utilize TWO methods to regulate currency criculation.

1. sell/buy currency with others, that’s exactly what our LPCs do.

2)contract/expand its lending activities. That’s what I suggest so frequently.

Hayek theory is not secret at all, if we don’t start lending business, our competitor will, they are smart.

I guess his solution is below:

basecoin (like NSR)
stablecoin (like NBT)

Both stored in one wallet, your “NBT” balance value is always equal to “NSR” value.

If “NSR” price go up, the protocol will give you some “NBT” to keep value equal. when you send NBT out, your NSR also sent.

“NBT” is stable and “NSR” volatile.

Am I right?

[Yurizhai]

Oh I wasn’t saying why do either. I was showcasing my ignorance on the issue, wondering what such a currency would be used for.

[willy]

I see that I’m lonely with my decision so far… After some thought, I think parking is not the best available choice. I like the idea, but I don’t think “classic NBT” would be suitable for such an implementation.

The NuBits white paper mentions adoption of pegs other than USD like NuEuro etc.
Best advantage: NuShareholders are supposed to control all those pegs on the same NSR chain.
At least this is, how I understood it.
I don’t think that one would need to fork NBT to protect the “classic 1 USD peg” in some way, as other pegs are possible and imaginable with the current white paper.

The idea of an additional inflation-protected USD peg, under a different name, might be worth refining.