I suggest reading http://www.reddit.com/r/bitcoin instead of reinventing the wheel here. All of this has been discussed, ad nauseum, there and a few other forums.

We don’t live in a perfect world and people will always attempt to game the system to make themselves rich. The problem other alt currencies have is why would anyone adopt them when bitcoin is already there and clearly (somewhat) successful? Why mine litecoin, for example, when if I mine bitcoin (or even buy them), I make money for sure (for now at least)?

From: David Vorick David Vorick
Reply: David Vorick david.vorick@gmail.com
Date: November 25, 2013 at 6:19:10 PM
To: coderman coderman@gmail.com
Subject:  Re: bitcoin as a global medium of exchange (was Re: Interesting take on Sanjuro's Assassination Market)
As I was telling Jayvan, the idea would be that early adopters use the currency for its inherent uses to them, as opposed to its speculative potential.

Right now, bitcoin is almost exclusively speculative. It's worth a lot of money because the value has been increasing consistently. That's tulipmania.

In a perfect world you would have some way to protect a currency against speculation. The volatility in bitcoin makes it less useful as a currency, therefore the speculation is damaging bitcoin.

I don't have a solution, and I'm not suggesting one, I'm merely suggesting that a solution might exist that would be a substantial improvement.



If bitcoin was based on something that had inherent value, say cloud storage, then a spike in value would be followed by a spike in the amount of storage being contributed to the network (bitcoin currently does this, a spike in price is followed by a spike in mining). The key here though is that the network would be protect from dramatic dips in value. When bitcoin drops in price, all of the abundant mining does nothing to save bitcoin, because the bitcoin mining doesn't actually add any value to the network. Nobody cares how many petaflops the network is pulling, because the petaflops can't be put to use somewhere else.

But if the mining was based on cloud storage, a dramatic drop in the price of the currency would result in a dramatic drop in the cost of storing data on the network. That's something that actually has use, and so people would let the price fall unreasonably low (instead they would find a way to make use of the cheap storage). This would allow the currency to ride arbitrary spikes in price while being protected against arbitrary drops in price.

Jim, the amount of mining being done on the bitcoin network has no impact on the price. The price might have an impact on the volume of mining, but because the mining is specific to the bitcoin network (double sha2 hashing or something like that) it can't be sold or used for other applications. Bitcoin mining is only good for bitcoin mining, which means the demand for the mining is exclusively based on value of the bitcoins being mined every day.