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"There is nobody to adjust the bitcoin money supply as the population of users grows. That would have required a trusted party to determine the real world value of things.
Bitcoin's pseudonymous inventor was aware of the need to adjust the money supply to accommodate changing money demand. After all, his intent was to develop a better money, and a good money must not be volatile. He knew that, amongst other facors, a growing number of users requires a growing money supply. It seems that he even know more, that the adjustment required relates to the value of goods in the supply chain.
Back in 2009, Satoshi knew no method to value these goods. Central banks would re-introduce an unacceptable trust requirement. "If there was some clever way, or if we wanted to trust someone to actively manage the money supply to peg it to something, the rules could have been programmed for that."
A decentralised adjustment method
A decentralised adjustment method
Bitcredit solves this valuation problem by using real world trades for self-regulation of the currency supply, as follows:
Electronic bills of exchange record real transaction values, the objectively known prices resulting from the negotiation and agreement of a business buyer with a business seller. The seller may want to sell dearer and the buyer may want to buy cheaper, but both have a primary goal: a profitable trade. When both agree on a price they empathically determined the real world value of the goods in question. There is no need to adjust to some government's fiat currency value like with stablecoins.
When a commercial business pays with an electronic bill of exchange, its amount becomes known. The e-bill itself is a raw currency supply which adjusts the total money supply, while the goods constitute savings which stock up the supply chains. When a wildcat mint receives a request to mint an e-bill into e-cash, the parties to the e-bill have already verified the value.
The mechanics
The mechanics
Invoices paid by an e-bill are encrypted and attached to it, its hash is the identifier of the e-bill. This gives verifiable proof of value, prices and quantities can be checked for plausibility. Over time, e-bills give an immutale record of network participants' honesty, thir credit history is an objective record expressed in real world value terms.
The parties form a downstream guarantee chain of value in case of default, the Bitcredit mint network forms an upstream guarantee chain backed by verifiable guarantee capital, near perfect payment certainty eliminates the need for trust.
When the original B2B buyer on-sells his own products downstream in the supply chain or ultimately to a consumer, the reflux of currency upon payment of the e--bill extinguishes (destroys, burns) the medium of exchange.
No inflationary effect
No inflationary effect
As commercial bills of exchange are issued against real value, therefore not causing inflation. There is no Cantillon effect, as the goods bought serve production of commercial buyers, not consumption or speculation.
Usually, the overall economic condidions and production circumstance will not have changed much during the term of a bill, the similar purchasing power at the second real exchange at maturity results in the desired stability.
It has been objected that issued bills, or fungible currency produced from them, are inflationary, when used to pay for speculative purposes or for consumption which takes goods out of the supply chain. However, this overlooks that bills are short term instruments while inflation takes much longer to distort prices. Repayment destroys the bill with deflationary effect, long before any inflationary effect can manifest. The free market mechanism results in near negilgible volatility in the objectiv exchange valueof a money.
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