How Faircoin v2 could be improved

A contribution from Sepp Hasslberger. Sepp’s comments have been addressed by Enric Duran and Thomas König in FairCoop’s own forum, which you may visit here.

“I like the procedures for validation of transactions that were developed and are described in the White paper.

I am with the P2P foundation and am especially interested in monetary issues. Actually, I had hoped to see a completely new coin emerge starting with a clean slate, but I see that this was not really possible without major disturbance to the current owners of fair coins.

With regard to the features that have been taken over from the old implementation of Faircoin, here are two points, which I would like to direct your attention to:

1) there are many of the existing coins (maybe more than half) still in the hands of the original Faircoin crowd and the Faircoin initiator. This may seem a small problem, but it could have some large consequences.

2) Faircoin has inherited from Bitcoin the existence of a limited supply of coins. Due to the supply being limited, and the request for coins being expected to increase, the price of each coin is also expected to increase. This could become rather serious, if we see Bitcoin’s price history as an example. It could lead to high instability in the price of the coins.

Let me explain why I think this needs to be addressed and how to address it.

Bitcoin and most of the alt coins have one severe flaw. They have a fixed limit of coins ever to be created. Why is this a problem, you might ask, the coin just increases in value over time and prices will have to be adjusted to take account of the increase. Yes, but… having a trend of increasing value, the coin becomes an object of investment, and of speculation. Some people (even ones disconnected from the FairCoop circle) will buy the coins to speculate on the increase. There is no way to prevent that, anyone can buy the coins on an exchange.

With the coin becoming an object of speculation, the following problems will appear.

3) Prices as expressed in Faircoin can never be stable, they will have to follow the “value” of Faircoin as expressed in some external currency or other, or as expressed in the exchanged goods and services. This could become a major headache as price changes will never finish. There will always be fluctuations in the price of the coin and there will be a general increase of the coin’s value, since it is inviting speculative use by its very nature. Coins are bought up and “saved” by investors, and the resulting relative scarcity will act to increase the value of each coin.

4) FairCoop and its members will create value over time, which means that the currency faircoin will also gain value. This increase in value will majorly go to those who are holding Faircoin for its investment value, which are the current owners of a large part of all existing coins, and if 50% of those coins are currently in the hands of the original creators and the early adopters, then at least 50% of the value created by cooperative enterprise will end up in the pockets of those early adopters, or in the future, any investors coins are sold to. This could get worse in the future, if FairCoin becomes a known and respected currency that is expected to always improve its value. More of the coins may well be bought up by investors.

In that sense, it could be that the valuable work of the cooperatives does not fully support the network but that a variable but rather high percentage of the fruits of this work is given to investors who purely hold the coins for speculative purposes.

How to prevent such an essentially unjust situation from forming?

A currency keeps a stable value if the units in existence are adjusted to represent the amount of business being done with the currency. In other words, the amount of goods and services being exchanged have to all be represented by the coins. A stable value of the coins would be important to not let the currency become object of (financial) speculation.

The way to keep the value of a coin stable is to introduce new coins as the use increases. This could even be done at any point in time when the coins have reached a value that is desirable. One could, in other words, keep the total of coins stable (and their value increasing) until a point has been reached where you’d say ok, the original adopters of the system now have been properly rewarded for their early efforts, but from now on the price of the coin will no longer increase, it will find a stable level.

How to link the coins to the value of goods and services exchanged?

When it appears desirable to stabilise the coins’ value, the following should be done:

5) the total number of coins becomes no longer fixed, but should be amended to take account of the growth in users and adoption in cooperative enterprise.

6) the total number of coins gets linked to parameters internal to the currency: Number of active users and transaction volume. Those are available to the system. The system acts to increase the number of coins available when it detects an increase in adoption parameters.

7) The new coins thus becoming available are given to … (it is the community that should decide) I would suggest that the coins are equally distributed to all active users of the currency, i.e. each user gets to enjoy the fruits of the cooperative labor of the whole.

The effect of this will be a rather stable currency (without large ups and downs), a currency that is of no
interest to financial speculators. So with time, the coins that are now in the hands of the early adopters fill flow back into the system, the early adopters will have their just reward for their efforts, and Faircoin will be a coin of the cooperative movement, no longer a possible object of speculation.

If you are interested to look into or perhaps participate in the discussions, the arguments that have led me to adopt this view, I have a Facebook group called Money and Economy, where a good deal of discussion took place on Bitcoin and money reform topics.”

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