ReddCoin is the first altcoin - or large group of any sort - that I’ve seen discussing a velocity-based algorithm for money creation. However their proposal differs significantly from my state emoney velocity algorithm.
Reddcoin Money Creation
Reddcoin (unlike the famous bitcoin) doesn’t have miners. Instead coins are automatically minted at a rate of around 5% per year and handed out to all wallets. However the new coins are not handed out equally to all wallets.
There are two factors that determine how much of the new Reddcoins you get. The first is how much money is in your wallet. In this respect, the new money is just like interest in a savings account today (or dividends to shareholders, etc.): keep more money there, get more interest. (This is called Proof of Stake.)
The second factor, however, is how long you’ve held your money there. If you’ve held a coin for a long time, you’ll get less than 5% on that coin, all the way down to zero (but never negative). If you just received (earned) the money recently, you’ll get the full amount or maybe more. This encourages activity: velocity, money turnover, spending and investing.
My Velocity Algorithm Proposal
With emoney having no zero lower bound, I imagined there would be no need for a positive inflation target. Specifically I imagined a 0% inflation target could be a fine goal.
Deflation is the natural state of affairs in an economy for two reasons: technological progress (technological deflation) and bad bets (loans not repaid having a negative wealth effect - yes I know bad loan money has been spent elsewhere, not destroyed, but the lender may still cut back on spending to rebuild their wealth).
Therefore even with a 0% target, there will need to be a constant trickle of money printing. The rate of that trickle however will vary through the year and especially through the business cycle. Specifically it should vary inversely with respect to the velocity. If lots of money is changing hands, don’t create any more. If very little is changing hands, do create more.
So, whereas (I believe, and correct me if I’m wrong) ReddCoin money supply increases 5% per year, my imagined currency may not increase the money supply at all in a given year if there’s plenty money changing hands out there. (If there’s lots of money being hoarded, mine will create more.)
And, when you do create more, credit every wallet (citizen) equally, not more to large earners and especially not more to large holders (i.e. in a Proof-of-Stake interest-like way). The poor have the higher marginal propensity to consume.
Reasons for the difference
Fundamentally I think the reason for the difference is the context: I’m imagining a state currency, with one wallet per citizen, and being the currency that dominates an economy. ReddCoin users could have multiple wallets - so “targetting the poor” could be gamed by setting up multiple wallets - and the currency is not (ever intended to be?) the dominant currency of a state/regional economy.
Let me know if I’ve misunderstood anything about ReddCoin’s algorithm.