Digital currencies on blockchains have become increasingly popular in recent years. However, one of the major challenges with these currencies is their volatility. The prices of digital currencies can fluctuate wildly, making them difficult to use as a means of payment.
There are a number of ways to make digital currencies more stable. One approach is to use a central bank to manage the supply of currency. This is the approach that is used by traditional fiat currencies, such as the US dollar. Central banks can use a variety of tools to control the supply of currency, such as open market operations and interest rates.
Another approach to making digital currencies more stable is to use a basket of currencies. This is the approach that is used by some stablecoins, such as Tether. Tether is backed by a basket of currencies, including the US dollar, the euro, and the Japanese yen. This means that the value of Tether is always pegged to the value of the underlying basket of currencies.
A third approach to making digital currencies more stable is to use smart contracts. Smart contracts are self-executing contracts that are stored on a blockchain. They can be used to automate a variety of financial transactions, including the exchange of digital currencies.
Each of these approaches has its own advantages and disadvantages. Centralized control can make digital currencies more stable, but it can also make them less secure. Baskets of currencies can be more stable than individual currencies, but they can also be less liquid. Smart contracts can automate financial transactions, but they can also be complex and difficult to understand.
The best approach to making digital currencies more stable will vary depending on the specific needs of the user. For example, businesses that need to use digital currencies to make international payments may prefer to use a stablecoin that is backed by a basket of currencies. Individuals who want to use digital currencies to store value may prefer to use a digital currency that is managed by a central bank.
Subtitle: Limiting re-adjustment of proof-of-work targets
One way to make digital currencies more stable is to limit the amount that the proof-of-work target can be adjusted. The proof-of-work target is the difficulty of solving a mathematical problem in order to add a block to the blockchain. If the proof-of-work target is adjusted too frequently, it can lead to volatility in the price of the digital currency.
To limit the amount that the proof-of-work target can be adjusted, a fixed interval can be used. For example, the proof-of-work target could only be adjusted once every 24 hours. This would help to prevent the price of the digital currency from fluctuating too wildly in response to changes in the difficulty of mining.
Subtitle: Making mining rewards variable according to the observed over-threshold changes of block intervals
Another way to make digital currencies more stable is to make mining rewards variable according to the observed over-threshold changes of block intervals. The block interval is the average time between the addition of two blocks to the blockchain. If the block interval is consistently over or under the target, it can lead to volatility in the price of the digital currency.
To make mining rewards variable according to the observed over-threshold changes of block intervals, a formula can be used to calculate the mining rewards. The formula would take into account the average block interval and the observed over-threshold changes. This would help to ensure that the mining rewards are not too high or too low, which could lead to volatility in the price of the digital currency.
Subtitle: Enforcing negative interests to remove old coins in circulation
A third way to make digital currencies more stable is to enforce negative interests to remove old coins in circulation. Negative interests are interest rates that are paid to borrowers, rather than lenders. This can be used to encourage people to spend their digital currencies, rather than hoarding them.
To enforce negative interests, a central bank could create a digital currency that has a negative interest rate. This would mean that people would lose money by holding onto the digital currency. This would encourage people to spend their digital currency, which would help to stabilize the price.
Conclusion
These are just a few of the ways to make digital currencies more stable. The best approach will vary depending on the specific needs of the user. However, by using one or more of these approaches, it is possible to make digital currencies more stable and more useful as a means of payment.
