Bitcoin Forum

This thread is now locked!

I have decided that I like morpheus' idea better than my own, so I am locking my threads about this stuff, and I encourage anyone interested in concepts like this to check out his thread:

https://bitcointalk.org/index.php?topic=29135.0


==================================================



If alternative block chains are created which are pegged to various commodities, and which get their value from bitcoin hashing and holding bitcoins in escrow, there will be bitcoin holders that are worth trillions of dollars, and I don't think that is an exaggeration at all. (Here's how I do the math: http://forum.bitcoin.org/?topic=7985.0)

Some people claim that a distributed currency with a pegged value is not possible. I believe it is possible, and I describe a possible way to implement it here: http://forum.bitcoin.org/index.php?topic=30741.msg387215#msg387215

edit: I think this is so important, I'm paying people to post in this thread. Read the rules and post your appalled comments about my forum abuse here: http://forum.bitcoin.org/index.php?topic=31057.0

There is now a second thread derived from this one ("The Second Bitcoin Whitepaper" http://forum.bitcoin.org/index.php?topic=31645.0). Posts in that thread are also eligible for payment.

Here's a conversation I recorded from the future:


Of course, the "bitcoins held in escrow" would actually have to be a price stabilized bitcoin such as the ones resulting from the 1971coin/hyperbitcoin pairing I suggested here: http://forum.bitcoin.org/index.php?topic=30741.0

You might wish to change the name of the title of this post as it is confusing.  Namecoin is not backed by bitcoin.

According to their merged mining proposal I linked to in post #1 above, it IS backed by bitcoin (backed by bitcoin mining, specifically). I think their latest client actually implements the change.

Anti-gascoins ... ? is that something like Mylanta? ... or a brother to Roger Gascoine maybe?

Why create coins pegged to a particular commodities?  Instead, make a modified system of contract ownership that can be traded through a blockchain accounting system.  For instance, I issue a contract to ship 1 oz of silver to the holder of a contract I issue and then sell it for BitCoins through a block chain.  The owner of the contract can either trade it to someone else for a different type of contract or issue it back to me for redemption.  The block chain would use a similar accounting method to determine who the owner is along with added mechanisms to ensure trade takes place smoothly (e.g... one contract for another contract or BitCoins for the contract).

I don't believe you are using the term "backing" properly:

- http://en.wikipedia.org/wiki/Private_currency#Currency_backing

Though there are exchanges where I can convert namecoins to bitcoins and vice-versa, the values for both are free-floating.  There is no "backing" as far as ensuring that my 1 namecoin can be redeemed for a specific number of bitcoins.

As far as the upcoming change for Namecoin mining -- yes, those running the bitcoin+namecoin mining will mine for both currencies simultaneously.  Both gold and silver can come from the same hole in the ground, but that doesn't mean gold is backed by silver, or vice-versa.

Are you aware of Open Transactions?
 - http://en.bitcoin.it/wiki/Open_Transactions
 - http://forum.bitcoin.org/index.php?topic=20425.0

Also:
 - http://forum.bitcoin.org/index.php?topic=28841.0

Consider gascoins / anti-gascoins.  The problem with pegging a gascoin to a gallon of gas like a futures contract is that the holder of the anti-gascoin (the person who is short one gascoin) has unlimited liability, and he can't place an infinite number of bitcoins into escrow.  (The price of gas can't go below zero, but there's no limit to how high it can go.)  There would have to be some way to manage risk, issue margin calls, etc.

An Intrade-style prediction contract might work better.  For example, a contract might settle at 1 BTC if the price of gas is $5 or greater at the end of the year, or settle at 0 BTC otherwise.  Contracts are created out of nothing whenever a buyer (long) and seller (short) agree on a price.  Maximum escrow is 1 BTC for the short.  Contracts are destroyed whenever a short buys back a contract, or at the time of expiration when all contracts are settled at 1 BTC or 0 BTC.

A small fee on each transaction could keep the miners going.

Yes.  Sorta like those.

I envision a tradeable contract.  For example... I create the following text and then sign it with my private key

-------------
Zerbie Contract #: 0000153

I promise to ship the owner of this contract $1 in 90% U.S. coins anywhere in the continental United States.

To redeem, contact me at:

<insert contact information here>

Signed...
PGP key for Zerbie@bitcoin.org
-------------

Now I do an md5sum and attach it to the block chain in one of my BinCoin wallets.  Note that it does not have the text, but simply shows that I own the thing that has the given md5sum.  (Add more checksums to be sure...)  Now I go and sell this contract to whomever trusts me enough to give me BTC for it.  If my reputation is good, I'll get a good price for the contract. 

When I find a buyer, the buyer will give me his email address and his BTC address.  I will send the text of the contract to him as well as opening my wallet and sending him the ownership of the md5sum I created to show the ownership.  The buyer can then do the same for successive buyers of the contract.

When the final owner wishes to redeem the contract, he contacts me, then sends me ownership of the md5sum to show that he owns it and is now redeeming it.  I then take his shipping address and send him the silver.

NOTE: A more advanced system would store the contract distributively so everyone can see the text of the contract and there is no need to ship the text via email.

If my reputation is world rewound, then my contracts will trade for a premium.  If my reputation is shaky, my contracts will trade for a discount, and will probably be redeemed quickly.

Please don't use MD5 as a cryptographic hash function anymore. (http://th.informatik.uni-mannheim.de/people/lucks/HashCollisions/)

It is still useful for detecting random file corruption though, or converting random data into a 128 bit number.

This is a good idea, but how is the infomation about exchange rates fed into the blockchain. You need I thinlk two items of third party data: the current USD exchange rate and the exchange rate between current USD and whatever commodity you are pegging value to. Presumably, humans need to supply this data. How do you incentivize the humans to supply honest data?

That's exaclty what I was going to ask.
How the block chain knows if prices of gas went up or down?

If you solve that problem, I have another proposal (https://forum.bitcoin.org/index.php?topic=29800.msg392799#msg392799).

The big mac blockchain pegged to the average price of a mcdonalds big mac ?

http://www.economist.com/node/16646178?story_id=16646178 (http://www.economist.com/node/16646178?story_id=16646178)

 mcblockchain...

McCoin

"Backing" bitcoins or any currency with a single resource is never a very good idea since any single comodity can be controled. if a single wealty enough individual wanted to they could inflate and deflate the vaule of bitcions at will. look at our market cap it's less than a hundred million dollars one or a group of sufficently rich people could control the entire market fincially. If bitcions were to be backed by any single comodity the same thing could happen right now however they are treated as a comodity themselves not so much as a currency.

Backing bitcoin-like currencies with commodities seems like an insanely bad idea.  It will take everything wrong with systems like speculative investments in oil causing gas prices to go up and give it an alternate anonymous underbelly.  That's insane.  I still don't quite get the logic on how bitcoin can be merged with anything.  I don't get why they would do it or how they would mathematically make it work.  What's wrong with just having one currency to rule them all?  I know, I know, the main 2 problems are the finite number of bitcoins causing crazy pricing and sauron will declare war on middle earth using bitcoins  :P but neither of those should be a big problem for many years.  And wouldn't it be easier to just somehow expand the bitcoin pool with some sort of parallel block chains instead of 2 separate currencies to confuse the hell out of people and make vandors less inclined to accept them?  Can't someone just develop 10 structurally identical chains running in parallel and sharing info with each other but with the same difficulty ratings at all times?

I think is impossible to "back" a currency without introducing centralization.
In this case, he want to use option contracts but I see a few problems.

1) As far as I know, option contracts are not fungible. I didn't get the Gascoin/antigascoin thing.

-Suppose oil is at 10 btc right now. How many btc to buy the oilcoin, a much for the antioilcoin?
dacoinminster, can you elaborate a little bit more on this?

2) If you could peg a chain currency to a commodity using contracts, the options market still needs an arbiter to determine what the price of the commodity is at a given moment. How do you make that arbiter decentralized?



But for the bitcoin to go from one chain to another you have to modify the rules of acceptable block in the main bitcoin chain. If you're going to do it, you could just generate more coins within the first one instead of making new chains. But to change such a rule you need to convince more than 51% of the miners...

Wow. This is great. Paying for posts on a topic that I am interested in is a really fun use for bitcoin.

I will try to be concise, but this will probably be tl;dr for some of you.


I read a bit about OT when it first came out, but I don't claim to understand it completely. At first blush it seems way too complicated for the average Joe to understand and use, and it is not clear to me who is being trusted. With bitcoins, I know I only have to trust an algorithm implemented in Open Source software.

What would be interesting to me would be the "marketing copy" for OT (like how WeUseCoins makes the case for bitcoin). I'd be interested in reading anybody's attempt at marketing copy for OT: a convincing story about who would use OT, under what circumstances, why they would trust it, the "killer app" that makes everyone start using it, how it could change the world, and most importantly (to me) how it could be used to create a black market for currencies, commodities, stocks, bonds, etc.


This is a very good summary of the biggest problem with my suggested coin/anticoin model: how to make sure there are enough bitcoins in escrow to cover all possible market actions. I will discuss this more below.

I would LOVE to see a "distributed intrade" powered by bitcoins. There would be a lot of technical challenges, but it may in fact be a better way to create a black/grey market for speculating on tons of different currencies, stocks, commodies, world events, etc than what I have posted about above. The only problem is you need a stabilized currency (otherwise your profits/losses from your bets will be dwarfed by your profits/losses from holding bitcoins to make those bets!)

IMHO, the next major step for bitcoin MUST start with a price-stabilized version of bitcoin, backed by bitcoin value, but providing a way to separate those who wish to hold bitcoin as a speculative investment from those who want to use it as an unvarying store of value for commerce, bets, etc. My guess at one way that might work is here: http://forum.bitcoin.org/index.php?topic=30741.0 which was an idea I then extended into this thread.

I am very, very interested in how a price-stabilized extrapolation of bitcoin might be created, with a very simple user experience, and the protocol working behind the scenes to match stabilized bitcoin holders to leveraged bitcoin speculators. This would not (and must not) be a bitcoin replacement, but would have to build on to the existing bitcoin infrastructure.


If you want a distributed currency pegged to ANYTHING, this is one of the biggest technological problems to solve. However, consider this: there are also attack vectors on bitcoin that involve fraudulent timestamps. Bitcoin uses a distributed timestamp protocol, where nodes reject timestamps that differ significantly from what they think the time is. I believe the same logic can be extended to exchange rates. If somebody lies about the exchange rate, other nodes will reject that block. Consequently, I consider the problem of distributed exchange rates a (mostly) solved problem.

Your link led me to this very related thread ("Achieving stable prices through a reference currency"): http://forum.bitcoin.org/index.php?topic=11614.0

If bitcoin is successfully extrapolated to provide a stabilized version backed by bitcoins, and then is further extrapolated to allow distributed speculation on stocks, commodities, currencies, etc, the bitcoin black market will be massive. The only ones rich enough to influence it will be the early bitcoin adopters, who would be trillionaires (by USD valuation) :)


Regardless of how insanely bad the idea may be, I also think it is inevitable. There is just too much money at stake for bitcoin holders to ignore this potential million-fold increase in bitcoin values (Here's how I do the math: http://forum.bitcoin.org/?topic=7985.0).

As for how it could be done, that is what this thread is about. Maybe it is not possible, but nobody would have thought bitcoin was possible a couple years ago. If it is possible, mark my words: someone will do it. Then all hell will break lose.


For #2, see above my comments on distributed exchange rates above.

For #1, I am not sure that gascoin/antigascoin is the way to go. It is possible that an intrade-like system as discussed earlier might be a better way to do it.

I will say that I imagine gascoins/antigascoins would have to have some sophisticated rules to prevent the bitcoins held in escrow from running out. I'm guessing the rules might involve some of the following ideas:

1) All bitcoins held in escrow could be used as needed when payouts happen, not just the bitcoins from one coin/anticoin pair
2) Anticoins would be fungible. If you bought one, some of your bitcoins might go into escrow if that anticoin was last sold when the commodity had a lower price. Some bitcoins might come out of escrow (to the seller) if the commodity had a higher price at the last sale.
3) If an anticoin was in danger of going "in the red", the protocol might force a sale, similar to a margin call
4) In the event that all the entire escrow fund went "in the red" (like if there was a "run" on the funds similar to a bank run), bitcoins could be created "out of thin air". I recognize this would violate the 21M hard limit, and that would probably never fly with the community. Perhaps instead of real bitcoins, they could be some kind of "IOU" from the escrow fund, redeemable when the fund went back in the black.

Regardless of whether people are trading something that looks like a future's contract (coin/anticoin), something that looks like intrade, or something else entirely, the first problem to solve is how to create a stabilized extrapolation of bitcoin.

I think what is needed next is "The Second Bitcoin Whitepaper".

I'm not (necessarily) volunteering to write it, but it would be an ambitious extrapolation of the bitcoin protocol to allow it to create a stabilized currency backed by bitcoin value and hashing, but with the volatility risk offloaded onto leveraged speculators.

I'm sure there is somebody out there who wants to be a billionaire or trillionaire badly enough to make sure this happens.  :)

Once we have that, maybe there will be a "Third Bitcoin Whitepaper" which further extends the protocol to create a distributed betting system based on the stabilized coins.

Or perhaps all the black market betting will happen on hidden TOR services, like how the Silk Road operates. I don't really care how it happens, but I am confident that it will.

I think creating Bitcoin-like currencies backed by national currencies might make sense. I'm much less convinced about currencies backed by commodities.

Proxy currencies would allow for more flexible, distributed currency exchange than what is available today and some people might want to accept them for trade directly. The alt chain would still need to be backed by a (consortium of) issuers, thus it would be less decentralized than Bitcoin, but the backers would simply convert USDcoin/EURcoin into bank wires and back (along with all the AML stuff like id verification).

Once those institutions exist, you could do cryptographically enforced currency exchange, futures, options and other derivatives in a peer to peer/decentralized manner. I'm not sure how that would interact with various countries securities-trading regulations, I suppose you would need to check that out before creating such a network.

I though this intrade-chain was the solution for the stable prices and not stable prices what the intrade-chain needed.
But if you can peg the value of a currency to a commodity without storing it (even only its price denominated in other currency), you can have a pretty stable currency defining the currency as a basket of commodities.



I wouldn't say mostly solved, I'm sure is a complex problem, but It's a good idea, it may work.
I was assuming the intrade would use a third party chosen by the two participants specified in each contract to say what happened in the outside world. That's one of the things I meant when saying contracts are not fungible.
I like this "informing the network by voting" idea.
The "price" of a given commodity would be some weighted average from the last miners's reported prices. Nodes should be motivated somehow to not to "go on with the lie".  
One thing to think about is how miners are rewarded. The easiest ways to do it are issuing a new currency or paying them fees directly with bitcoins.


Sorry for the confusing links.


Imagine we have an intrade-chain denominated and paid in bitcoin (so not a good place to short BTC). The chain makes the escrow, but it cannot generate bitcoins out of nothing, they're real bitcoins from the btc network (https://en.bitcoin.it/wiki/Alternative_Chains#Paying_for_resources_on_alternative_chains_with_Bitcoins).
What I don't get is how you get from the intrade to an asset that can be sold at any moment for the current price (in BTC) of a barrel of oil.
How is that done with bets? How many parts are necessary?
I don't know how to do it even with a stable currency.

I created a separate thread for "The Second Bitcoin Whitepaper":

http://forum.bitcoin.org/index.php?topic=31645.0

I am officially extending my offer to pay for intelligent posts to include posts made in that thread as well.

Stable prices are an unachievable mythical goal in the real world.

It stems from deficient mathematical understanding, economists need to do some research into stationary fixed points of dynamical systems, strange attractors and the like. A non-linear dynamic, multi-variable system like a money market is never going to produce stable prices. A vibrant system needs a kernel of instability to retain flexibility and robustness, as a resistance to stagnation, corruption and large external disturbances (shocks).

With a more modern mathematical basis "stable prices" would be recognised as unattainable and anyway not desirable, imho.

I agree that a perfectly stabilized currency is not possible. What is possible (in my opinion) is to let people choose who experiences the instability. The instability is there (risk), but with risk comes reward. I wish to give bitcoin users (at least) two additional choices beyond holding bitcoins: a low-risk low-reward extrapolation, and a high-risk high-reward extrapolation which takes on both the risk and reward from the people who chose low-risk low-reward.

I think that the intrade idea was suggested as an alternative to holding "barrel of oil" type contracts. If speculation worked using binary options like intrade uses, you probably wouldn't be buying and selling bitcoin-backed contracts.

MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D MEGA LAWL  ;D ;D ;D

I'm disappointed. I thought you had a system with "hold a barrel of oil" contracts based on options instead of backing. It sounded almost magical to me but I was very curious. I think I get binary contracts, I just though there was a way to turn or combine them into a "hold a barrel of oil"-like contract.

It seems to me that you just want to have a currency based on bitcoin plus option based insurances for both bitcoin going down and going up. Option traders would sell those insurances. Still don't know where are you going to get all this shorts but it would be possible. It would not be stable, but more stable than bitcoin. I don't think a chain is needed nor useful for that.

Again, I don't know much about options.
But I still don't know what is wrong with having an intrade-chain like the one you proposed with an unstable currency. You could denominate them in whatever currency you like (even if it doesn't exist, a reference currency) and pay them with bitcoins. Once you have an input of information about markets you can redeem automatically the contracts before the money in the escrow can't meet the obligation. I guess you can't apply it to binary options. It should be possible to deposit more funds in the escrow to avoid the automatic redemption of the contract. It would be great to have bitoption in this thread.

Anyway, I think the best idea of the thread is to have a chain that "knows" the prices of commodities. I'm thinking about proposing freicoin 2 with a dynamic monetary base (You hated freicoin? Wait to see what's new in freicoin 2).
With price deflation the system would increase the demurrage rate but increase more the block reward (thus increasing the monetary base).
With price inflation you would decrease the demurrage rate but decrease more the block reward (thus decrasing the MB).
With that you just got the full feedback loop.
With stable prices you keep the demurrage and the annual reward equal.
But that sounds too complicated, let's think first about the intrader-chain without arbiters.

Since there are people working on various OT clients, I get images and screenshots in the email sometimes. Below is an example.

I never understood why people say that OT is "way too complicated for the average Joe" since those people have probably never actually SEEN an OT client. Plus, in my own personal opinion, the OT-API is retard-easy to use. In fact, I can't imagine a system doing all the things OT does and having an easier interface than it already does. A trained monkey could code an OT client!

http://ft.vm.to/blogimages/ot-sample-gui.jpg

Of course, every OT client will have a different interface, so above is only an example of what could be done.

There are also some screenshots of the test GUI: https://github.com/FellowTraveler/Moneychanger
(But keep in mind that a Test-GUI isn't meant to have the prettiest interface. Rather, it's meant for testing the protocol.)


In OT, the issuer is the one being trusted. (The magical part about OT is not having to trust the transaction server.)

In the case of Bitcoin (using Bitcoin as a "backing currency" on an OT server) then you could have a trusted issuer also, the same as with gold or anything else. While this is no different than what the Bitcoin world is doing now (MyBitcoin, MtGox, etc) it is certainly not good enough for me, which is why I have written on this forum on how to use voting pools to eliminate entirely any need for an "issuer" (for Bitcoin on OT.)


If you want to learn more about OT's concept of "low trust servers", check out the post Stephen already referenced:
http://forum.bitcoin.org/index.php?topic=20425.0

"Seek and ye shall find."

As well as this related post:
http://forum.bitcoin.org/index.php?topic=28565.msg363945#msg363945

FYI, OT is open source.


Given that the first clients haven't been released yet, other than the test client, I think marketing copy is a bit premature.  However, there is a pretty easy description at the top of the OT Wiki:

WHAT IS “Open Transactions” ?

• Open-Transactions allows users to issue and manipulate digital assets. Users may create many pseudonyms (public keys), each of which may own asset accounts of various types. Users can transfer digital assets securely between accounts (even a server cannot change balances or forge transactions.) Users can also operate “cash-only” (without accounts) for maximum anonymity.
• Open-Transactions supports a range of financial instruments, such as cheques, vouchers, and untraceable digital cash. These are all analogous to the same financial instruments that we all use at normal banks today. Everyone already has an intuitive understanding of these financial instruments, because we use them regularly in our normal daily lives.
• Open-Transactions also implements higher-level, contract-based transactions such as payment plans and markets with trades. The markets on Open-Transactions support market orders, limit orders, fill-or-kill orders, day orders, stop orders, and stop limits, just like trading on a real market. OT also supports basket currencies.
• All of this is accomplished in such a way that all parties are able to prove, at all times, which transactions have cleared and which instruments are authorized, without having to store their entire transaction history, but instead by merely keeping the last signed receipt.
  (Without the special mechanism that makes this possible, all parties would otherwise be forced to store all receipts forever--no matter which system you are actually using.)

OT is not a "killer app" but rather, a SOFTWARE LIBRARY. There are MANY possible different interfaces that could be built.

The basic use cases are:

-- Issue a new currency (by uploading the new currency contract to an OT server.)
-- Open accounts of any asset type.
-- Withdraw / Deposit in untraceable digital cash.
-- Use "cash only" (no accounts) for full anonymity.
-- Write cheques, cashier's cheques, and perform account transfers (all with signed and unforgeable receipts.)
-- Trade on markets (like MtGox.)

Who could use OT?
-- A market site (like MtGox) where users are able to trade currencies, including Bitcoin, on markets.
-- A "Wallet" website (like MyBitcoin or whatever).
-- A client application. (OT works on all platforms...Android, Windows, Linux, Mac, etc)
-- A gambling site.
-- Etc.

The above are just basic uses which I mention first, since you are all mostly building such things. However, much more useful applications of the library are possible, such as creating the next generation of file-sharing software, the next generation of anonymous networks, etc.

I think the most disruptive use of OT would be using it to solve issues of resource allocation that arise in anonymous networks, mesh networks, darknet hosting, etc.

OT is also useful in combination with Bitcoin. Why?

Bitcoin gives OT: a universal “glue” between servers, a network of existing exchangers, and a publicly-auditable, reserve currency that cannot be confiscated or shut down.

OT gives Bitcoin: Untraceable cash, instant finality of settlement, and convertibility to other currencies on OT Markets.

(Soon, using the low-trust technology, OT will also give Bitcoin the only servers where Bitcoins can safely be stored, without risk of the server, or a hacker, stealing them.)

@fellowtraveler

I had read about OT but not deeply enough. I've recently proposed (https://forum.bitcoin.org/index.php?topic=31643.0) a chain for exchanges between bitcoin-like currencies.
Could this be made directly with OT? Note that the exchanges must be atomic.

Also, can binary options be made through OT without the need of an arbiter (in the intrade-chain way)?

For the stable currency. Imagine we define a currency as a basket of commodities. The problems I see are:

How can we trust the issuers? I mean, why would anyone trust an anonymous issuer?
How can an OT token of say oil fungible with another oil token issued by another issuer?

I think this would work, yes.

First, you'd actually issue two bitcoin-like currencies onto an OT server. For example, Bitcoin and Namecoin.

Second, since you don't want to have to trust an issuer, we'd use the "low trust / voting pool" solution I've proposed, which eliminates the need for an issuer, for any Bitcoin-like currencies. (There is no avoiding issuers for gold-based currencies, but for bitcoin-like currencies it is possible to eliminate issuers.)

Third, since OT has markets (like MtGox) the users are now able to make offers on those markets, trading Bitcoins for Namecoins.

Finally, the OT server(s) processes the trades according the rules defined in the various market offers. Whenever a successful trade occurs, receipts are dropped into the parties' inboxes.

(And yes, the trades are atomic, meaning BOTH parties get a receipt, or not at all.)


Not sure what you mean by this...

When you make an offer onto an OT market, you can attach specific terms to your offer. That is, minimum price ($50 per bushel minimum) or minimum amount traded (500 bushel minimum per trade). You can also create stop-orders (do not activate this offer until the price reaches $50 per bushel.) Basically the same sorts of things you would do on a real market: stop orders, limit orders, stop limits, fill-or-kill orders, day orders (date ranges), etc.


(FYI, OT does support basket currencies, so if you actually wanted to define a single currency as a basket of others, you can do that.)

As I said before, the magic of Open-Transactions is that you do not have to trust the transaction servers. IOW, you still do have to trust the issuer.
For example, if the issuer is holding 100 oz of your gold, he could still disappear with your gold. (This is why OT has traditionally focused on securing the transaction server, so that the server itself doesn't become ANOTHER party that you have to trust, since you normally have no choice about trusting the issuer.)

However for Bitcoin-like currencies (crypto-currencies) as I said before, this "issuer risk" can be eliminated on OT using low-trust servers with voting pools. (By eliminating the issuer entirely.) But obviously such solutions are not possible with gold, silver, or other physical commodities, and so the markets will have to decide on their own which gold issuers they will trust. (One thing OT will never be able to do is PHYSICALLY AUDIT your gold warehouse.)  Therefore I don't know how "anonymous issuers" will work, although I've heard that the eCache group is experimenting with a solution for that, based on bonding.


Keeping things simple, let's assume there is only one OT server, and that 2 oil issuers are using it. (They have both issued their own oil currencies onto the OT server.)

Even though we logically know that both contracts are valued in the real world in terms of "oil", the OT server has no way of knowing that. OT just sees two different contracts -- that's all.

An easy way to convert between the two oil-based currencies, in that example, would be to trade on OT markets.  You just trade one for the other, on the market, the same way that people trade dollars for BTC now on MtGox. The trades would be processed automatically by the OT server, based on the terms in the respective offers, with receipts being dropped into the inboxes of the respective parties once the trade is complete.

There are other solutions for this. For example, if each of the 2 issuers honestly believe that the other oil-based currency is comparable to their own, then there is no reason why the issuers themselves couldn't perform such exchanges on behalf of the users. The issuers could also leave standing orders on the oil markets, and thus use the markets themselves to perform this functionality.  That way no one has to worry about being paid the second half of any trade, since the OT markets handle all of this.

Thank you for the answers, it's an interesting project.


Cool. But I still don't understand how it can be done.
I guess what I don't get is the "low trust / voting pool" solution part (questions at the end)
Example.
I offer 1 BTC for 10 NMC.
You accept the trade.
Then what happens? I have to send you the BTC and you have to send me the NMCs.
Is there an escrow with my BTC and your NMCs?
If it's all decentralized, where the private keys of those escrows are stored?


I mean options and things like intrade. Example:

Will 1 NMC worth more than 0.80 BTC by the end of the year?
I put 10 BTCs in escrow and sell it for 5 BTC to you (then you can resell it at any price you want and can).
Whoever was right by the end of the year gets the money in the escrow.


Can you explain how this work?
Is a new currency backed by bitcoin or you can trade directly with btc within OP ?

I personally prefer the "hold a barrel of oil" model too. Take a look at this post I made describing how it could work for buying and selling "U.S. dollar" denominated bitcoins, which is exactly how I imagine it could work for oil, gold, and anything else you can think of: http://forum.bitcoin.org/index.php?topic=31645.msg400477#msg400477

The idea DOES feel magical to me, which is why I'm pushing it so hard. There's no reason that binary contracts couldn't be built into the system too, but I really like the idea of something your kid brother or Grandma could use to buy/sell oil, gold, Euros, or anything else without understanding anything more than "buy a barrel of oil", "sell an ounce of gold", etc. No paperwork, no money trail, no proof of identification, no trying to grasp the difference between a put and a call or a futures contract. All you do is download bitcoin, get some bitcoins, and then start buying/selling whatever you want to hold.

I would personally hold the hyperbitcoins over any currency or commodity, allowing my bitcoins to be added to escrow as insurance against a crash in bitcoin prices in exchange for massive leveraged exposure to bitcoin price increases.

I agree that oil, gold, whatever markets will be valuable for the bitcoin economy. But as they introduce a single point of failure, they should be kept outside of the bitcoin protocol. What is wrong with creating trade contracts, signing them with your PGP key and establishing a web of trust between traders? This approach can be extended upon in a bottom-up manner, it can use bitcoin as a currency, but it will still not be able to damage bitcoin security.

I disagree with the recent populism targeting at artificially stabilizing the bitcoin currency. Bitcoin will stabilize itself like any other currency when we establish a prosperous bitcoin-backed economy. For this to work, the most important next step will be merchants growing up and providing services or goods for real BTC prices instead of constantly adapting their prices to the exchange rates. After that, the market will stabilize the price by itself (and probably lead to an even more stable currency than what certain national currencies currently are due to the governments becoming more and more indebted).

Please do also note that I cannot be bribed with 0.1 BTC or whatever in order to write something that pleases someone else. I have my own plans on doing bitcoin business, and I have found that there are people in the community who agree with what I do because I received BTC donations both anonymously and by prior agreement. I am always open to new collaborations with people from the bitcoin community, but I will not engage in business which is easily recognizable as being bound to fail.

What is wrong with contracts, PGP keys, and webs of trust? The problem with them is they are hard to explain to Grandma. It's much easier to tell Grandma, "See, you bought some bitcoins, but you can store them as USD, Euros, gold, oil, . . . "


I hope you are right that bitcoin will eventually stabilize. However, price volatility favors speculators at the expense of people who just want to use bitcoin to engage in commerce or store value. The assertion that bitcoin will stabilize may be true, but it can't be proven. I'd rather have the protocol provide stability for the people that want it, and transfer the volatility to the speculators who want it.


Please don't be insulted if I offer to pay you for your post :)

The payments are kind of a gimmick to spur conversation on a topic that I am really really interested in.

At a fundamental level, this is all about derivatives. 

Nominally holding commodity A, while it is stored as commodity B, means you hold B and you also hold a derivative that is short B and long A.  And your unit of B that you are holding should be in escrow in case the derivative goes sour.

If the derivative short B and long A is inextricably tied to a unit of commodity B, then it is safe from default, but there is not much advantage compared to just trading commodity A.  If they are severed, then there is risk of default, and the risk is tied to whoever is the counterparty to the derivative, which means they are not fungible.

It is premature to speak of how a block chain or somesuch could implement deriatives trading, before the inherent issues are resolved conceptually.

The entire problem with backing bitcoins with gold, silver, etc is that someone has to come up with the 200 tons of gold in the first place to back it...  and treat bitcoins as the paper.

It's not going to happen.  

I am not saying it's impossible,  but you need some serious gold / silver / whatever behind it to make bitcoins backed by anything.

Here I'll back it..  1 ounce of silver for each bitcoin...  so people start sending me their bitcoins, and I in turn have to start sending them ounces of silver...  i'll go bankrupt in a week as I will hold thousands of bitcoins,  but out thousands of ounces of silver at 40 bucks a pop.

Now if you scale it down...  3 bitcoins for each ounce of silver...   that's fine...  until silver skyrockets or bitcoins do.. then someone's going to be either sending me more coins to exchange... or sending more silver to exchange...   leading to another bankruptcy...    

bitcoins have to stand on their own.

Yes. I want derivatives which are an order of magnitude easier to use. So much easier that they are invisible and seemless to the average user.


I think I agree with those statements, if I understand them correctly, except that I think there is a HUGE advantage to holding oil-denominated bitcoins, whereas you say there is not much advantage.

Try creating a trading account to buy some oil futures. Go ahead, I'll wait . . . .

I bet your experience will be several orders of magnitude more complicated than clicking "value stored as" and choosing "oil" in your bitcoin client.


Well, resolving the conceptual issues is what this thread is for. I want to know if this idea has a fatal flaw.

Yes, I agree, holding something with the features of bitcoins but with the value stability of oil would be great.  The problem is that somewhere along the line it requires a contract that's long on oil.  I agree that it is difficult or impossible to hold oil in a digital wallet.  This is precisely the problem.

To tie bitcoins into an oil contract such that it can be redeemed for oil will require an oil contract that can be held and transferred digitally.  Essentially a digital bearer certificate that can be unlocked when the derivative is redeemed... or something like that.  A company or 'bank' could hold reserves and issue digital bearer certificates, and those could be connected to bitcoins through derivatives.

But at that point it would be simpler to just use the digital bearer certificates themselves.

This doesn't mean that the derivative market is infeasible, it only means that the derivatives are subject to default risk.  If the bearer certificates could be used, then they could provide 100% guaranteed "backing" but without them there must be some counterparty who is holding the other side of the contract, and that counterparty could default.

If I trade derivatives through a broker, the broker is on the hook if my liabilities exceed my assets, so the broker will liquidate/cover my position if my reserves get too low.  This sort of system might be required for derivatives to be trustworthy enough to be fungible.  It would be a step in the right direction, and exchanges could provide this sort of service today if they wanted, without any changes to the block chain.

To go fully decentralized and guaranteed only by encryption, default risk is going to be a problem.  And it has two facets, one is the actual default risk, and the other is that it makes the derivatives non-fungible.

In my mind, overcoming the default risk is one of the core challenges of setting up such a system.  Perhaps the derivatives could be restricted to those with limited downside, where you can't lose more than 100% of the investment.  Instead of being short, you essentially own a put (or something like that).  Then these contracts can exist without risk of default and without having to figure out how to somehow connect the underlying asset itself.

It is true that with some futures contracts, you can actually take delivery of the underlying commodity (although people actually doing this is very rare). Almost all futures contracts are cash-settled. There are some futures contracts that are 100% cash settled (no way to actually take delivery of the underlying commodity).

Bitcoin-settled tokens like the ones described here and in the sister post for "the second bitcoin whitepaper" (http://forum.bitcoin.org/index.php?topic=31645.0) would actually have nearly zero risk of default by the counterparty. I believe it would not be possible to default without hacking bitcoin.

The risk I would be worried about, which is spelled out in significant detail in posts in the sister thread linked above, is that bitcoin values will crash, and the escrow fund will not be able to cover the value of all the tokens it has issued.

I believe the protocol can mitigate this risk to near zero (again, see the sister thread for details).

I see two things mixed together
1. a derivative system to stabilize value while someone else gets leverage, and
2. something akin to a fractional reserve banking system

I'm not sure how one ties into the other or why they must be connected.

Hyperbitcoins are leveraged and it is therefore possible for them to be underwater.  The owner can walk away, presumably losing their initial bitcoin 'collateral' but it is still a default.

If a hyperbitcoin were leveraged 2:1, say if it's effectively one bitcoin plus a derivative that's long bitcoins and short USD, then if bitcoins fall to below half their value, the hyperbitcoin is worth less than zero and the owner can discard it.  I don't see this as particularly unlikely since bitcoins today are less than half their high for the year.

Dacoinminster, your idea depends on bitcoin (almost) always going up. That's what I don't like about it. In case of default, you can't print more bitcoins outside the bitcoin network, just IOUs.

vector76, what if we have the derivative contracts (https://en.bitcoin.it/wiki/Contracts) inside the chain an also an automated broker that liquidates/covers your position if the reserves get too low?
This way, you eliminate the default risk. If you want your position to exist longer, just put more funds in the escrow.
To make them fungible, the "additional funds" (the difference between the needed funds and the actual funds), should be returned to the seller when the oil-coin is sold. The buyer of the oil-coin can add more funds to the contract within the same transaction to avoid the contract to be liquidated because of a small change in price a block after the transaction is made.

I think it could work, but yes, you would need a counter-party in the derivative for each oil-coin issued. All contracts would be btc (or derivativecoin) denominated.

The network would rely on derivativecoin creation and/or in fees for the contracts creation and trades. The fees can be charged in bitcoins, derivativecoins or both.
There's no need to create another currency for this though. This way we could also see if fees are enough on their own (http://forum.bitcoin.org/index.php?topic=6284.0).

My intention is to have the protocol sell more hyperbitcoins to speculators as bitcoin prices fall, decreasing everyone's leverage by diluting the hyperbitcoins which will also drive down hyperbitcoin prices faster than bitcoin prices (the leverage) and adding bitcoins to the escrow fund. When bitcoin prices rise, hyperbitcoins will be purchased from speculators by the protocol, increasing everyone's leverage and driving up hyperbitcoin prices faster than bitcoin prices (the leverage) using excess bitcoins from the escrow fund. I believe that by having the protocol control the hyperbitcoin supply and resulting leverage, the escrow fund can remain solvent in a sustainable way and prevent default as long as bitcoin remains a viable currency.



I agree that the math is easier when bitcoin prices are going up, but I believe the protocol's control of hyperbitcoin prices and effective leverage also prevents default as described above. A more extreme situation, with panic-selling of both bitcoin and bitcoin-backed pegged-value tokens would require a more extreme response, for which I outline a couple possibilities in the first post of the sister thread: http://forum.bitcoin.org/index.php?topic=31645.0

You are correct that all currencies and commodities tracked would need a real-life counter-party (the escrow fund itself cannot be taking positions that have a net long or short position against oil/gold/Euros/etc). That is the intended function of GoldCoins vs AntiGoldCoins, etc.

One non-obvious consequence of the rules described in my last post should be noted.

I stated that with falling bitcoin prices, hyperbitcoins are sold to speculators, diluting the existing hyperbitcoins and reducing their leverage.

However, for someone holding bitcoins, the effective leverage achieved by trading them for hyperbitcoins actually increases as prices fall. The system is effectively offering greater and greater leverage in exchange for your bitcoins, while existing hyperbitcoin holders get less and less value and leverage.

It might be desirable to amplify this effect when bitcoin prices are falling rapidly, perhaps actually destroying a small percentage of the hyperbitcoins held by each user to make the deal better for new hypercoin buyers. This would be an even more conservative approach to managing the escrow fund. I believe it might be possible to mathematically guarantee solvency with some high degree of probability.

I've read this thread and I still think that your system has the risk of default (and the subsequent collapse).
Since you can't print bitcoins (not even for a while), you can default.

I don't know what is wrong with the derivatives with bitcoin escrows. You still get what you want, oil-coins.


If I've understood vector76 properly, you would have an oil-coin versus a derivative short oil and long bitcoin.
The problem I didn't get about fungibility is that any of the parties could redeem the contract at any time.
That problem could be reduced if the system can look for contracts enders on both sides of the bet.
Remember that both sides of the derivative are always solvent (or the contract is automatically redeemed).

I also came to the conclusion that you cannot use bitcoins for the escrow, because maybe you need to transfer bitcoins of it from a user to the other and you don't own the private keys.
You need derivativeCoin.

My proposal in the sister thread actually mentions that temporarily printing bitcoins might be an emergency measure added to the protocol: http://forum.bitcoin.org/index.php?topic=31645.0


Bitcoin-denominated derivatives are only slightly useful if bitcoin values are bouncing all over the place. I might be right that oil will rise 5% over the next six months, but my gain is dwarfed by a 50% drop in bitcoin values that I used to escrow my bet. I have to have some kind of bitcoin option strategy to hedge against a drop in bitcoin values, which is getting way too complicated for anyone but an options expert.


Everything I have proposed so far requires changes to the existing bitcoin protocol. It might also be possible to engineer something that runs distributed, is backed by bitcoins, but does not need to touch the bitcoin block chain. I would be very interested to hear proposals on how that might work.

I know, that's why I'm telling you that you can't.


Well yes, since they're bitcoin denominated, the price in dollars of the commodity doesn't matter at all.
Since you got inputs from markets to the chain, you could also denominate them in dollars Even in dollars from 1971 or any other reference currency. Miners would have to agree on what PCI to look at.


It is very simple how it would work, you create another chain with your rules, if you need it, with its own currency.
After proposing to add demurrage to bitcoin (freicoin) I would say that is not easy to convince people when you have to modify the rules of what blocks are acceptable.
I have a second proposal (http://forum.bitcoin.org/index.php?topic=32258.0) that may be more acceptable by the bitcoin community. If it can't be added to bitcoin or namecoin, middlecoin will be needed.

I yield on this issue. Bitcoins can't be created out of thin air. I've decided this after contemplating a doomsday scenario thought experiment here: http://forum.bitcoin.org/index.php?topic=31645.msg403514#msg403514


So what happens if bitcoin prices fall 90%? I don't understand how the dollar-denominated contracts would stay valid without an escrow fund.



I agree that something like this might be the way to go, especially if the bitcoin community is lukewarm on the idea of polluting the protocol with my crazy ideas :)

No matter the denomination, the contracts will be automatically redeemed before some of the parties is insolvent.
The problem with this is that the contracts can expire before the contracted date, but the funds in escrow for the other part are the maximum you should expect to win. If you're losing, you can always add more funds to avoid that the contract gets redeemed.
In fact you don't even have to liquidate the contracts when they are become "insolvent", both parties know the funds that are in escrow from the other party, they shouldn't expect to gain more than that.


I'm just noting that the contracts could be denominated in a stable currency. The currency doesn't have to even exist, it can be defined as a basket of commodities or the dollar plus the increase in CPI from shadowstats. It doesn't have to be a currency. The contract could have rice vs gold or mac vs google.

I still think that the hardest part is to define what information must the miners include in the block and how is it going to be calculated that a block is valid or not.


I like your idea for a distributed option market, but it requires many changes and some of them (the voting for the input of information from markets) are very risky. You need to move coins from an address to other with the only authorization from the original address of the contract, and the result of the contract depends on voting.

I think I understand what you are suggesting. No counter-party risk is possible because the contract is liquidated before that can happen when bitcoin prices are diving.

While I would love to see something like this implemented, it does not address my primary desire of transferring risk from users who want stability to users who want to speculate.


I have to re-iterate, the result of the contract does not depend on voting at all. The external exchange rates only affect the fee structure when trades take place, encouraging people to trade near the external spot price. The actual trading price is determined by supply and demand within the bitcoin network. There is pretty much nothing to gain from taking over 51% of the bitcoin network hashing power to force a different exchange rate into the block chain. All you would accomplish would be to annoy people by changing the fee structure slightly. Much more lucrative uses of that hashing power can be found.

When bitcoin prices are diving or when the prices of the commodities in the contract are.


Imagine you're a user that wants a stable value.
You hold some of the bitcoin from your sales (or wage or whatever) and invest some of them in a "1971 dollar vs bitcoin" contract.
The more bitbulls the more you will be able to gain if bitcoin falls. If bitcoin rises, you lose from the contract but gain from the bitcoins you hold, so with the right proportion you stay the same.


The result of the contract (who gains, who loses and how much) depends on the voting, on the real price of the commodities.
The price you mean may differ is the price specified in the contract as a "draw" where neither party gains or loses.

Yes, I agree that kind of contract would accomplish what I want. It would not be seemless and easy for Grandma to use, but a sophisticated trader could make it work just fine. Maybe that is really all we need to attract those trillions of dollars, since most of them are controlled by sophisticated traders.


The voting affects the external price which affects the fees, but nobody forces you to buy or sell at that price within the bitcoin network. If you're willing to pay slightly higher fees, you can trade as far from the external spot price as you want.

Also, voters don't get to vote what they think the price is, they can only vote yes/no on whether to accept the latest block from a miner with the external price embedded. There's not any advantage to voting no if nobody else does. Messing with the exchange rate requires massive collusion with 51% of bitcoin hashing power. That's for sure not the first thing I would do with all that hashing power!

Maybe some later service or client bring it closer to grandma, but that can be outside the chain.


But when you send the sell order you don't know which miner is going to solve the next block nor what spot price he's going to report.


The problem could be the opposite, miners accepting the blocks even when they have wrong spot prices in the fear that everybody will accept it and he's still mining for the old block.

It doesn't matter what the next block reports for the spot price. The price executed would be decided by the buyer and the seller of the contract. The fee paid would be decided by the spot price immediately before their trade.

[POLL] Add ideas from second bitcoin whitepaper proposal to bitcoin?
http://forum.bitcoin.org/index.php?topic=32417.0

I mean the spot price at the moment of redemption.

Yes, that would be the external spot price which I keep insisting matters very little. The price of a sale is decided by the buyer and the seller of the contract. They have an incentive to meet at the external spot price, but the incentive is small.

But when the contracts are redeemed automatically (before becoming "insolvent") and when is decided who was right in his bet and how much has to get from the other's party escrow is when the external spot price matters. If it didn't matter, we didn't had to input information from the markets.

Ah, got it. You're talking about your auto-dissolving contracts. Yes, that would be a problem in that case.

But what is the other case?

I still believe the hyperbitcoin model would allow investors to trade without default risk, and only some bitcoin price risk (if the escrow fund got too low).

I thought you rejected that idea with the doomsday post.
If all reserves are stored in coins, how it is possible that there's no default if the price of the coin gets too much reduced?
If you print more to pay people redeeming their commodity tokens and hypercoins, the value of your coin is going to fall even more.
I still don't know how this tokens are issued. I thought the chain issued them at the spot price known inside the chain thanks to the miners, but you say their price doesn't depend on the spot price.
If they are issued by finding a counter-party, what gets the counter-party exactly? How can you make money with antiOil-tokens?
Where the money both parties pay goes? What happens if the price of the commodity multiplies by 10000?

In the doomsday post I rejected printing new bitcoins to shore up the escrow fund, but not the hyperbitcoin idea. I probably wasn't very clear with that.


If there aren't enough speculators to offset a drop in bitcoin values, coin/anticoin holders would be exposed to bitcoin price fluctuations, but there wouldn't be an outright default


See this post in the sister thread for an example of how coins/anticoins would be issued: http://forum.bitcoin.org/index.php?topic=31645.msg400477#msg400477

antioilcoins would go up when oilcoins go down, so buying them is like shorting oil. I expect some rules would have to be in place to keep them balanced, which I'll admit I haven't given enough thought to yet (see below).

When coins and anticoins are created, they are sold for bitcoins which go into escrow. That last question (what happens if a commodity goes up by 10000x?) is a fantastic one. Let me take a shot at how that would work:

Let's say oil is rising rapidly. As the price of oilcoins starts to rise, the price of antioilcoins would fall at the same time. The bitcoins in escrow backing oil are now out of balance (more bitcoins backing oil coins than antioilcoins), so the protocol needs to either use escrow funds to buy oilcoins on the open market or it needs to mint new antioilcoins out of thin air and sell them on the open market (within the bitcoin network), or some combination of both until balance was restored. The balance of buying oilcoins and selling antioilcoins would be decided by what combination left the escrow fund the healthiest. The only risk of default I can see is the case of an instantaneous huge price move combined with everyone trying to sell their coins/anticoins all at once, which seems pretty unlikely.

I just made that up. Does anybody see a problem with that model?

It is also hard to explain bitcoin's technical details to grandma. Maybe even more than public key crypto and webs of trust. This is what the client software is supposed to abstract away, and this can also be done for out-of-chain contracts etc.

I think there is nothing wrong with creating distributed infrastructure to trade gold, oil, currencies etc., but I don't think it belongs into the block chain. The value of bitcoins can be verified by every peer in the network, and I think this is what makes bitcoin so powerful. Tradable values based on currencies or commodities can only be securely verified by a relatively small subset of the network, and therefore introduce security issues not otherwise present, while still requiring resources from the whole network.
New technology is always more volatile than established business tools. But I think there is a good chance for the current bitcoin implementation to fly for quite some time - sufficiently long to use it for business.

Moreover, I do not think your recommendations can prove stability, either. In fact, they take away a core characteristic of bitcoin that could be a base for its stability (once the business volume using bitcoin grows). No stable currency as of today is valuable simply because you can trade it to another currency, or a commodity. This kind of stability can only be backed by one or more individuals who can ensure the possibility to trade it for whatever they propose. Once the resources of these individuals are exhausted, you reach the limits of this kind of stability. True value of a currency comes from the vast range of goods or services that can be bought using that currency. So, every member of our community who starts doing business using bitcoin provides his share of the stability we all want.

I do think it is an interesting idea to have similar currencies with some other characteristics (for example a different algorithm to manage the amount of coins {which could, in theory, also be backed on commodities etc.}, or using different crypto algorithms), but I think they should have their own block chain and network so we have security through redundancy, rather than a single block chain that becomes so complex that no one can ensure it is robust enough to sustain attacks. Still, I assume the original bitcoin might still be the one that will turn out to be superior.

But I also think it is too early for this to be built. It will be interesting once there is enough freely available software to setup exchanges, do algorithmic trading etc., so users don't have to care about all the virtual currencies manually.
Well, the way I read your offer, I got the impression that just posting here might make me look like I just do that because of the offer. But I actually enjoy to discuss with people who wish to take bitcoin to its next level (as I do). Even if we have rather different ideas. I think we all can only learn from good discussions. If you wish to send coins, I'm also fine with that, but my primary goal is to be a responsible member of the bitcoin community who provides his thoughts for others to read them.

Abstracting away the complexity is exactly what I have in mind, but I'm not sure how that can be done for webs of trust.


I took a poll, and the consensus seems to be that changes of this sort should be experiments in new block chains rather than changes to the existing block chain. I'm concerned that new block chains could compete directly with bitcoin (and make bitcoins less valuable), but perhaps there is a way to tightly integrate them with bitcoins without messing with the existing bitcoin protocol.



I agree with all of this.

Trying to peg a distributed currency to an external value like gold or oil is complex, and leads to a lot of strange "what if" scenarios. I do believe it is possible, although a complete protocol description has so far eluded me.

If you want to create btc denominated assets, why not just create investment funds on GBSLE. You can just issue shares in a gold fund and use the capital you raise to buy gold for example. These coins all require centralization anyway, so what is the difference? You can also set up a fund to short gold if that is important to you.

Unless you can provide some value in exchange, you cannot assume to be able to create value out of thin air. Therefore, when you create an oilcoin (which is supposed to be equivalent to some amount of oil), the corresponding anti-oilcoin will be negative in value. It is basically a debt in oil. So, the value of your oilcoins will depend on other people's willingness to believe that you can balance that debt at any time. Moreover, if you allow anti-oilcoins to be traded freely (as your proposal reads), these people will want to see guarantees that everyone who receives the anti-oilcoins will be equally trustworthy with respect to repaying their debt. You can find excellent real-life example data on the dangers stemming from freely trading debts when you analyze the recent banking crisis.

Merged mining seems promising, however to do it without messing with the existing bitcoin might or might not end up happening, as that would involve adding a new hash value into the bitcoin blocks.

A meta-chain though could maybe do it: a chain specifically for the purpose of being the most difficult chain of a potentially large number of merged chains, the place you go to when you want to be yet another merged mining chain.

Two of the currencies my IRC bots work with are at least somewhat commodity based: GMC and GRF (General Mining Corp and General Retirement Funds). They are not really directly a commodity peg though because the corporations promoting them have not really settled yet on whether to charge interest on loans of these currencies or to simply increase the amount of a commodity they will buy per unit of the currency.

For example instead of charging miners 1% per day interest when loaning them GMC and/or GRF as capital for setting up a mining operation they might simply keep increasing the quantity of mined commodities each unit of the currency will buy, so that the currency goes up in value 1% per day. Here I mean value as in how much of a commodity they will buy per unit and also how much of that commodity they will sell per unit.

Obviously the catch in such plans is who will "honour" coins minted by miners who are not part of the corporation; thus the interest in "licensed mining" and the current practice of having customers use "thin" clients such as the IRC bots instead of having "full clients" such as the corporations and their agents (such as IRC bots) use.

It will not be until the problems around these two currencies are adequately solved that these corporations will look seriously at per-commodity currencies; the GMC and GRF currencies are more like abstractions of baskets, or a kind of "share of the commodities the corporation has available for sale".

Part of their interest in interest is the thought that possibly some of the market demend for a currency might possibly be able to derive from interest denominated in that currency being offered on bonds/loans denominated in that currency. (As they are able to charge quite high interest on loans, they could offer somewhat less interest on bonds aka loans-made-to-them.)

-MarkM-

For starters, my approach would probably be based on some metrics for the web of trust, and statistics to calculate risks based on these metrics. Then an interface as simple as eBay with its feedback system would already be possible. It could be simplified even more by having some reasonable bootstrap web of trust, and a hard-coded value for the acceptable risk (at this point, however, there is more centralization in place, but I believe decentralization is always slightly more complex).
I don't think this is much of a problem. With a new crypto-currency in place, either bitcoin is superior, or the new currency. If bitcoin is superior, there is no point in bloating bitcoin with the new currency. If the new currency is superior, people will wonder why they have to still run bitcoin.

With a new crypto-currency in place, bitcoin won't be affected for some time as people will still use bitcoin as they know it better. There will be early adopters, and maybe they will prove that the new currency is better. Then bitcoin would be superseded. The only scenario where the competition might be a problem is when both currencies have their uses where they are superior to the other one. In this case, automated trading will have to evolve. As of today, I also buy some things in EUR and some things in USD, and it is not a problem because CC companies will automatically exchange the currencies. With everyone being able to invent his own currency, more complex scenarios are possible, but I am confident that similar solutions can still be found.
I don't think it is very complex, but it is a resource issue. To peg the bitcoin currency to gold, you need a large supply of both bitcoins and gold so you can manipulate the markets according to the intended value. I think this is more expensive than it's worth.

Maybe what you're looking for is actually a distributed payment processing network to transfer gold. Individuals with a large supply of gold could create this, possibly using similar protocols as bitcoin uses. But it is still sufficiently different from bitcoin to justify separate development efforts. For example, mining is not required in the same sense as bitcoin uses it (by extension, this means that such a network may be interesting to explore the effectiveness of bitcoin's method of creating a transaction fee market), and a way to cancel transactions in case one of the participants lies about his existing gold supply is needed.

I have decided that I like morpheus' idea better than my own, so I am locking my threads about this stuff, and I encourage anyone interested in concepts like this to check out his thread:

https://bitcointalk.org/index.php?topic=29135.0