Bring Crypto Back to Currency

The Problem

Crypto becoming a commodity is the single stupidest thing to gain widespread popularity. It’s the paragon of post-neoclassical/postmodern economics. If Adam Smith saw NFTs he would shoot himself.

What I mean is that value is deconstructed to peoples own assignments to objects, abandoning the notion of any essential value in things. This is closely related to the abandonment of traditional metrics of valuations in the tech sector.

The original idea was very good–a radical and existential threat to the existing central system of banking. Unfortunately people got distracted by money. Bitcoin was fundamentally flawed due to the built-in scarcity, so obviously the price would go up. The ideal currency has a constant, predictable 2-4% inflation to promote the velocity of money and prevent stagnation. This is antithetical to traditional crypto wisdom where crypto has been completely commodified.

A Proposed Solution

Algorithmically, it is possible to control how much it costs to mine crypto at any point by modulating network fees (PoS)/block difficultly (PoW). This would in turn have an effect of the supply of the currency because if it becomes cheaper (in USD) to mine than more people will mine it (as it becomes more profitable to do so). The supply would then effect the price of the currency as on the marketplace there would be more sellers and it would still be profitable to sell for a lower price.

Using this methodology, which is essentially equivalent to printing money, it becomes possible to modulate inflation.

How to determine current inflation and inflation targets

Inflation is traditionally measured with producer price index (PPI) which is essentially the average of cost of stable (constant supply/demand) goods.

So what would be the source of truth for PPI in this theoretical currency?

A Self-Hosted Marketplace

There could be a decentralized marketplace (built on top of the coins blockchain) with sellers that become trusted and vetted by buyers through some sort of rating system.

Inflation can be measured as average price increases or decreases of this marketplace. As a bonus, USD can be listed on this marketplace and could be bought with the crypto, essentially becoming a self-hosted exchange.

A control loop that tracks inflation could use the described method of modulating block difficulty/network fees to influence current inflation and track the inflation target.

As always, I am open to collab and question/comments: rganapav@purdue.edu.