Bitcoin Forum

Imagine a new service called Dave's BTC Exchange.

Dave wants to be trusted so he decides to make his service as transparent and accountable as possible.

Instead of storing customer USD balances as some float in his own private database, he decides to make use of the blockchain.

Whenever Dave receives a bank transfer from a Bob, he makes a symbolic (colored coin) transaction to Bob's secret address, representative of the quantity of fiat sent.

This way Bob can always prove that he has X amount of fiat stored with Dave. It helps to keep Dave honest.

Anyone would be able to see the amount of fiat that is stored at Dave's exchange and no-one (apart from Dave and the customer) can make the link between address A and real-life identity, I.

How would people feel about this? Is it too much? Not enough privacy?

Would it count as blockchain spam? Or could it be seen as helping the Bitcoin economy by paying a fair amount of transaction fees to our miners.

why do people always think its a good idea to put the blockchain into everything?

Because its awesomely useful.

no.

the blockchain is not a miracle cure.

What advantage does putting in the blockchain give, over just having a signed, anonymized database available for download somewhere?

idiotic answer: but.. but... its the blockchain! it must be good, it cannot fail!

What is a colored coin?

The blockchain is a ready made data structure for modelling transactions. Not a miracle cure but still damn useful.


Of course that would be the logical plan B, to host his own database, disadvantages being:

* He would need to make the effort himself to provide the infrastructure to host and process his own database :)
* The blockchain is generally considered pretty trustworthy. Dave would need to work hard to get people to trust his own database
* Perhaps he or others could manipulate the database to scam people

Forgive me if I don't really see the harm of using the blockchain for modelling transactions. Especially if people are paying fees for the pleasure.

The harm in using the block chain as your own personal storage is that you are consuming the resources of people who haven't fully consented to it and who aren't the beneficiaries of the fees being paid.  Those of us running nodes want to support this new currency but not become a volunteer Dropbox for people's crap.

That's truly minimal. And in exchange he'd avoid things like 10 minute delays and everyone needing unusual special tools to read the information.

It's difficult to make a trustworthy registry with no central authority. The blockchain does that. But Dave is a central authority. He can just sign the database.

Then there would be a signed database before the scam and a signed database after the scam with no explanation for the change between them. This would be provable, the same as if the blockchain was used.

I don't see a big harm to it, but the disadvantages outweigh the advantages. The Bitcoin system is fundamentally designed around the idea that there are no central authorities to say what is authoritative. The whole point of this scheme is to have Dave do exactly that. So it's an awful fit.

Yes, with a big enough hammer you can cram a round peg in a square hole. But when there's a square peg right on the table ...

You started out mentioning BTC, but then further down the description there is no mention of BTC.
I guess people who skim over the text may assume that you are proposing Dave is using blockchain for his non-BTC related purposes.

greBit, you and I both know what color coin is , and I can understand your proposal just by scanning through it.
But it is not the case for others who simply see "he wants to take advantage of the blockchain".

I'm actually surprise at casascius's comment. I bet he hasn't read the OP, just the comment preceding his.

Yeah of course I understand that.

I wasn't suggesting creating a dropbox. Just using the blockchain for what it is meant for. Securely storing transaction records. Where the outputs would actually be spent and where transaction fees would be paid.

i.e. indistinguishable from the normal day to day use of Bitcoin.

It seems to me a pretty fatal flaw if the transaction fees I pay don't actually help support the infrastructure on which the blockchain is built.

Isn't paying transaction fees actually helping bitcoin circulate and aiding the economy somewhat?

I was proposing the use of the blockchain as a ledger for the deposits of Fiat at some random exchange, so for the moment I don't really care whether he is selling colored coins / bitcoin / litecoin etc

So yes it is kind of abusing the blockchain a little, but only gently.

EDIT: I take it back. I don't see any abuse of the blockchain here.

I guess I see the blockchain as something that could be far more useful than it is today. With smart property etc being built on top.

Here instead of the customer paying MtGox and receiving some random MtGoxCode, the customer deposits fiat and receives a transferable item of smart property, issued by Dave. A bond that confirms to the customer+world that X amount of fiat has been deposited with Dave to the owner of a certain private key.

The blockchain spam arguments seem a bit ridiculous when we are all hoping for bitcoin to become widely adopted, necessitating the handling of far greater transaction volumes. If the odd bit of smart property being transacted on the blockchain is too much then I worry for bitcoin's future!

In this case the whole idea of colored coins is gentle abuse of the blockchain. And so is the idea of smart property and anything for that matter which doesnt involve a pure BTC transaction.

But of course I have sympathy for those who run full nodes and feel they are being spammed/taken advantage of.

I take back the abuse of the blockchain comment.

After writing your reply I changed my mind and decided that Dave was really just issuing smart property, which is transferable. And so is using the blockchain in an entirely appropriate manner.

I have sympathy for those running nodes but I also see the need for bitcoin to grow up to handle far larger numbers of transactions.

I suggest we create a new alt-coin (StorageCoin or something like that) with the purpose of acting as a p2p database so we don't consume resources from the bitcoin miners.

This alt-coin should have hyperinflation for infinity in order to kill its usage as a currency and not compete with bitcoin.  The only question is how to reward the miners, since they are mining something that will not have any currency value (because of inflation to infinity).

I must be missing something. How are my transaction fees not helping support the infrastructure ... the more they earn the more hard disks they can install :)

Do the fees need to be increased?

Transaction fees only go to miners. Not only miners have to store the block chain.

I would support this idea in concert with some sort of decentralized exchange.

MtGox can then issue MtGoxUSD colored coins, which get exchanged for BTC, and can be redeemed at MtGox later on by their new owner. MtGox would just be a broker, and so would the rest of the current exchanges. The decentralized exchange would handle the trade of colored coins for BTC, and work through some sort of publicly auditable blockchain.

How do the incentive structures scale when the whole world wants to get their transaction on the blockchain? Say in 10 years we need to perform 1 million transactions per day or something.

Will people still store all this for free?

Bitstamp already supports this, it is called ripple...