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Devcoin Inflation: How to Combat it

Introduction

Devcoins are a coin that I fully support the vision of. If you are familiar with me, I am a very active member of the community and I am often trying to help make things better around here with regards to the project. It is definitely a big one, but it is also a pretty unexplored territory. That puts it in a unique position to help pave the way and show what the project is capable of facilitating. There is a problem with this, though, which is the situation of inflation. This is something we need to start actively attempting to combat in order to sustain and increase the value of Devcoins. Through this article I want to look at how we can do just that, and why this is so important.

Limitless Currencies

The best way to compare Devcoins to a real life counterpart is to use USD as an example. This is a form of money that has no real limits; it is based on how much the government wishes to print out. As a result, every year we end up with more and more money in circulation among the members of the world.

Devcoins work the same way, although on a much smaller scale of population. Rather than having billions of people utilizing the currency, we are still in a very small niche group right now. As crypto currencies continue to become more and more popular this will undoubtedly change, but for now it is important to realize that we are just a fraction of the world's population. Even as the currencies become more widespread, I do not think that it will ever be a majority of the population that uses them, simply because they are electronic and, for all intents and purposes, computer literacy is still pretty low for the general population (and this is not an attack at those that do not know a lot about computers!).

While we can compare the USD to Devcoins in how they are created (in that both are limitless in nature), there is a separate fundamental as to how much each of them is increased by. For example, with the USD, our government analyzes the data of how much the population is increasing and a lot of other factors to determine how much more money should be added to circulation. This helps keep things in check, so to speak, as it works to help negate the effects of having too much or too little money. As you are likely already aware, we go through a yearly inflation, where things start to go up in price compared to where they were the year before.

I want to take a minute real quick to help better understand what inflation really is. Too many people are caught up in the mindset that all it means is items go up in price, but they usually do not understand why this happens; just that it does. Inflation is the process of money becoming less valuable. Value is based on what people view it as; nothing has a “true value,” because if nobody wants it, it is worthless. Money is the same way, and inflation is a system that devalues it. To help illustrate this, let us create a scenario:

  • We have a town with 100 people. Each person has a dollar. The total money available is $100, with each person having an equal amount. If each person wants one item from someone else, that item will cost $1.
  • We then decide we want some more money. We throw out another $100, with an equal amount going to each person. Each person now has $2, for a total of $200. If each person wants a single item from someone else, that item is now $2.

It is important to understand that while the monetary cost if the item went up to twice its original value, the true cost remained the same. While it went from $1 to $2, each person's cash holdings also increased by the same amount. Therefore, there was really no change at all, other than the perception that things are “more expensive.”

Monetary inflation works the same way. If we compare items we buy today with what they cost, say ten years ago, you will often find that the relative cost was the same (when you compare costs to income). But we perceive the items as being more expensive because the number of dollars we have to give in return for them has gone up. There are some differences, in that we do have the situation of the rich getting richer and the poor getting poorer, but that is a separate discussion all on its own. For now, we are using this generalization to help illustrate the fact that the number of dollars over time does not impact what you can buy; as everything inflates together.

Devcoins are really the same way, but with one big flaw: they inflate at a constant rate, regardless as to what is going on with the economy. It does not matter if there is a single person working or a million; there will always be 180 million coins created every round (estimated to be every 40 days or so). In other words, the inflation has significantly bigger swings, because the creation rate is always the same. To help compensate for this, we need to create immense value for the Devcoins, which helps spread them out among the community more equally and in turn makes them worth more.

Adding Value to Devcoins

The hardest part of any crypto currency is giving them some value. After all, they are sort of like the tokens you get at game rooms, with the difference being that the game room tokens have a direct value: they can be put in to the machines to get some game time. With crypto coins, this is different, and each coin must work to add its own value. This is the point where we are at with Devcoins right now, and it is an important step towards ensuring the coin stays alive. It has been here for quite a while, but it has been pretty stagnant overall.

What we need to start doing is working on this added value. Many ideas have come to light, but there are some that I feel are much more important (due to their potential value) than others. Here, I would like to look at a few of them:

Markets

Markets are a somewhat iffy scenario. While they do allow people to trade in their coins directly for other items (whether this is to a store or an auction type site), there is a big problem with it as well: whoever is selling the items will likely need fiat in order to continue their business, which requires selling the coins. In this case, it does not matter any more whether the buyer sells their coins to get the cash to buy items or they use the coins to trade to the store to buy items; either way, the coins have to be traded for cash at some point.

I do think this has the inferred value, in that people may use their coins as a store of value more than just dumping them as they get them, but I have to wonder what the long term effect truly is. For example, we can look at Bitcoin. Most businesses that accept the Bitcoins instantly trade them in for cash. On the other hand, people are still buying in to them, so it is possible that this could be a great deal for Devcoins as well. In any case, I do not think it hurts to get something going; in the worst case scenario, we would be right back where we are now.

Video Games

I think this is by far the most profitable way to add value to the coins. Players flock to the latest and greatest games all the time. We love our virtual worlds, and free to play games are notorious for creating their own currencies to buy things with on their micro cash shops. For example, Rift utilizes “gems,” which are bought using cash and can only be used in the game. They can not be traded back to cash, so once money has been added to the game it is there for good. Other games use the same method, allowing you to add money to their games but not withdraw it; you can only spend it in their store (or in some cases trade it to other players).

This is an area where Devcoins could add even more value to the game currencies, by giving a hybrid approach. The Devcoins can be used to purchase things from the game's cash shop, but can also be used to trade to other players for their items. Along with this, since it is a crypto currency, it could further be allowed to be withdrawn. Some players could go in the game with tons of Devcoins and get everything they could possibly want, and others could go in with nothing and be able to profit by selling their items. In a way, you can consider this as being like Second Life. Only instead of just being a virtual reality game, it could spread to MMORPG's and other game types like FPS's. New items could be added over time that help give players more and more things to trade in their Devcoins, and the value would keep going up as players would either need to mine them (which is a little less likely) or purchase them (more likely), which would push the prices up.

This is, of course, something that may be tough to implement. While I have worked in the game industry for many years, I am not familiar with game development myself (though I am working on changing that). Working with already existing game publishers, however, we could definitely make this work with AAA titles, and we could throw out our own games as well. They do not even have to be MMO's; they could even be casual games like what you would find on Facebook. The only difference is that instead of using those game's credits, we would be using Devcoins directly.

The biggest argument that I have seen against this so far is in regards to the security of the system. If the game is not completely secure, it risks having someone exploit the system and take all of the Devcoins. This could be combated with a multi tiered approach, although I do not want to discuss it publicly. Suffice it to say that I have some ideas on how we can protect the games and their wallets to keep these problems from occurring in the first place.

Gambling Sites

Websites for gambling, such as casinos, are another great way to add some value to the coins. Bitcoins have chosen to be a very popular method for people to gamble online, whether it be via poker sites or things like dice. In fact, the vast majority of Bitcoin transactions used to be for gambling, although I am not sure if that is still the case today.

Devcoins being used for gambling offers up two great benefits: just like the games, they do not need to hold fiat value (people love to gamble, even if it is using fake chips, so I do not think Devcoins would be any different) and most people that buy in would be holding them for the long run while they increase their holdings. This is a lot like poker chips in Las Vegas, where people do not constantly cash out when they are leaving casinos. Instead, you cash out when you need to or when you are going to be taking an extended break.

The down side to this is that it could cause a bit of a pump and dump scenario. Devcoins would be pumped as people start buying in to play games, and they would be dumped as people start to cash out. I really do not think this would be a big enough issue to worry about, although it is definitely something to keep in mind. If anything, this should be great for speculation and increasing holdings by making smart trading decisions!

This is even more helpful for gambling sites that work on the house's edge, as they will be earning more and more Devcoins while the users that are gambling will keep needing to buy back in. This raises the value and everybody wins!

Publicly Traded Stocks

We definitely need more companies that work using Devcoins as their investment medium. This is probably the largest retainer of Devcoins, and will cause even more of them to be “locked” off of the market and put in to stocks to let them grow in value. This is pretty important because the less Devcoins we have out in the wild, the more rare they become. This brings us to the supply and demand scenario, which should theoretically increase their value.

This would also help by showing people that Devcoins can be used to help fund projects, which would likely bring more people in to the scene. And the more people we have involved, the more spread out the coins become, which means more trading will occur, leading yet again to more value!

The Current Status

I think as of right now Devcoin is in what we can consider a “buyer's market.” This means that the buyers get the most benefit, because people keep selling cheaper and cheaper (although we have seen some bouncing back and forth, which is a great sign). This is due to the lack of true value right now, aside from trading, and it is leading to speculation purchases and sales. This is not necessarily a bad thing or anything to worry about, but it will definitely change once some projects get off the ground that give people direct usage of their Devcoins. Until that point, I think we are going to be staying in a state of limbo where investors are questioning whether or not they should get involved, and at what extent.

The current situation does bring up a great thing as well, though, in that even a small change could easily boost the value of all Devcoins above and beyond what we have seen so far. There are multiple people that have claimed to be working on various projects in relation to Devcoin (although it is hard to tell what their current status is and an estimated time for their completion), which could lead to us getting a massive influx of valuable resources over a short period of time. If this happens, we can expect Devcoins to start skyrocketing, boosting the net worth of everyone's holdings considerably. For this to happen, though, we need to keep pushing forward and bringing up new ideas and concepts on how to go about raising the public awareness of the coins and giving more sources in which to utilize them directly.

Conclusion

We need to start making a move now towards increasing the value of Devcoins. The longer it takes, the harder the journey will become. There is the benefit to early adopters in that they can amass them right now at fairly cheap prices, but the project is already to the point where it needs to work on growing. With Devcoin's unique vision, it should have no problems at all competing with the other crypto currencies. With its attachment to Bitcoins as a “merged mining” coin, that only strengthens its potential!

Finance


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