Ken Horlor's Digital Currency

Okay, after criticising  bitcoin yesterday, what would I do?

The following is my outline.

Link a digital currency to the production of silver. Silver is a finite resource that is readily mined. We know how much has been mined thus far, and how much can be produced each year.

If you like, this system could work in a decentralised way, with the bitcoin type of mining operation. Alternatively it could be centralised and run by a charitable foundation. Either way works, but I'll go with decentralised for now, just to describe what I'm thinking about:-

1. There have been 40.5 billion ounces of silver produced since the beginning of time, according to the US Geological Survey. We take a small proportion of that to form the core of what may be mined virtually. Let's say 40,550,000 ounces or coins.

2. Each coin at the current price would be nominally worth $17.22, which is the current silver price each ounce. 

3. At current rates of extraction silver is mined at about 887 million ounces a year. This forms the rate of inflation, on top of the starting figure of 40.55 million, 887,000 coins (or ounces) would be added each year. You'll notice that I'm dividing production by one thousand.

4. This is where it gets interesting, I'd link the success of mining these units to the actual cost of mining the same resource in the real world. Overburden ratios, process costs, distribution - the lot. The more scarce silver becomes or more uneconomic to mine, so too goes the digital currency. If real output of silver falls globally then the amount of inflation of the virtual currency reduces.

Also, mining the virtual silver would have a skill factor included. This is so that those with just computing power could not dominate the 'industry.' Just as in real life, a small operator who is a good miner would be able to produce.

5. Then the secondary market kicks in and the currency is traded and exchanged amongst users.

With this decentralised model, the digital coins are created by virtual miners who are faced with the same uncertainty real world miners face. I'm starting with a figure to reflect where civilisation is at to this point, but adding to it each year to reflect progress. There is an element of intervention, in the case of how many coins to add at an anniversary each year, but this could be done through an auction or consensus model, and of course this wouldn't take too long as it only involves determining how much silver has been produced the previous year.

Derivatives could come into play as well. Miners could sell their output forward just as real miners do. This would create price stability.

What about tangible backing for the currency? In the decentralised model this would be very hard to achieve. But if centralised, then a charitable foundation could tax the miners and create a reserve of real silver and of derivatives. The proceeds of the charity could go towards anything worthwhile.

The underpinning of any system like this is trust. My model attempts to establish trust by pinning the creation of the currency to real-world values.

We could call this digital coinage bitDenarii. Derived from the Roman coin.