Elasticoin: Low-Volatility Cryptocurrency with Proofs of Sequential Work

Blockchain-based cryptocurrencies have gained increasing adoption in recent years, and many hope that they may usher in a new era of decentralized electronic money. Unfortunately, they perform the core functions of money quite poorly due to their extremely volatile market value. On the other hand, blockchain “stablecoins” aiming to reduce this volatility, usually through a peg to an external currency like the US dollar, tend to greatly sacrifice decentralization of the money supply that make cryptocurrencies so attractive in the first place. Elasticoin is a novel currency issuance algorithm which greatly reduces price volatility by using the cryptographic puzzle of proofs of sequential work to fix the cost of minting a coin to sequential computation time. This causes coin supply to be highly elastic, quickly responding to demand for new coins and greatly dampening price swings. We argue that Elasticoin’s fixed-minting-cost approach to low volatility has significant advantages over using pegs or explicit measurement of demand to adjust supply.