On an at least less deflating cryptocurrency

The main idea: make the reward for mining each new block an inverse function of the block number in the chain. 

0. Posts on this blog are ranked in decreasing order of likeability to myself. This entry was originally posted on 10.12.2024, and the current version may have been updated several times from its original form. 

1.1 For those doubtless very few souls who are somehow still unconvinced with my design of a cryptocurrency of dynamic supply, here's an alternative setup that can be bolted on with minimal effort into any bog-standard blockchain and still institute the basics of tolerable monetary supply management. 

1.2 When new units of this cryptocurrency are awarded for the successful creation of a new block, just set this amount to a/n, where a was the initial issue at block one, and n is the order the new block has in the longest chain. Unlike some current setups, you will always issue new coins for new blocks (subject to eventual divisibility issues), although the amount will be ever smaller.

1.3 What you have now done is made monetary supply be the sum of harmonic series, one of the very few sums of diminishing terms that still grows to infinity. Weird as this may sound, this cryptocurrency’s supply will (slowly, lethargically, eventually) grow to infinity if you need it to.

1.4 Assuming block time remains constant and broadly constant costs to run the consensus, nominal profit per unit of time will go down but never quite reach zero. The system can create money ad infinitum, but it becomes ever more bothersome to do so, and one would do it only when worth it, i.e. when the underlying economy has grown enough to make this profit worth in in real terms (purchasing power). The basics of a suitable monetary supply.

1.41 The value of the harmonic setup as compared to the obvious competitors (fixed reward per block and exponential reward per block) is precisely that the reward will fall the fastest, and thus the point at which one will have to think if mining the next block is worth it will come sooner, as will the link to real economic demand. An exponential setup may well have no such link at all, and it may well be worth it to mine the next block regardless of real demand. 

1.42 The obvious issue is that this system - like all peers - entangles money creation with transaction checking, both of which are done by creating blocks. If fees are introduced in the system, the mechanism that governs money creation is weakened.

1.421 A tentative solution would be to let block rewards be either fees or new issue, but not both. If block fees are greater than the scheduled issue, just keep adding the issue to the potential reward of the next block. Eventually, the new issue will exceed fees again.

1.5 You may need this setup to have blocks of unlimited size, so that (in theory) every outstanding transaction can be included in the next block and avoid increasing the monetary supply unless more transactions emerge (as opposed to just salami slicing a set number of transactions). 

1.6 Although simple to implement and instituting a decent long-term monetary growth rule, this design is not quite as responsive to demand changes as the constant product scheme in the short-term, and indeed has no way of reducing supply if demand falls. Mining would slow, I suppose. Probably not much worse behaved than gold mining though.

1.7 So probably not good enough as a full replacement for a fiat standard on its own, but as the basis of a pyramiding fractional reserve system, this may well crack it.