[wmf]

I have also thought about this topic because I'm not a fan of pyramid schemes or open-loop money supply. Difficulty is already a proxy for demand (or perhaps the demand/supply ratio) because increasing demand increases the exchange rate which increases mining profitability which increases mining. If the block reward was set equal to difficulty then you'd close the loop. I am concerned that such a system would never be adopted in the first place because it wouldn't benefit early adopters and it may also stabilize at a low hash rate which would make 51% attacks too easy.

Edit: I'm not trying to criticize your ideas; I almost completely agree with you.

[rthomas6]

If large deflation was planned in the beginning, it would very much benefit the early adopters. Also you're misunderstanding me a bit: I didn't mean the difficulty would only be tied to demand, but to have it factored in in addition to the current hash rate. Of course difficulty would still increase in proportion to the hash rate. I mentioned elsewhere that it might make more sense to vary the mining reward based on the demand, instead of the difficulty, such that blocks are still verified at a predictable rate, but the reward for each block can change.