Bitcoin Forum

tl;dr: What if miners demanded insurance on a proposed BIP and we had company offering such insurance instruments forcing it to examine every proposal for it's risks and being financially motivated to get their assessment right putting the miners minds at ease and forcing the developers to be open and honest about their proposals?

[TOPIC]
As we are facing this dilemma about which BIP is the best way forward I see a few potentially very dangerous paradigms shine through the discussions I see on how to solve this dilemma and prevent it in the future. For example genjix deals with the later question in this article: http://bitcoinmedia.com/cathartic-progress/

I spoke to genjix last night about a few of my objections to his idea and explained to him my own idea. I would like, as a thought experiment, introduce my idea to everyone, to see what kind of reactions it would get, whether it has any merits and potential legs.


[INTRODUCTION]
It is my strong belief that Bitcoin will not succeed if it can't maintain it's integrity of the promised rules embedded in the original client. It is these rules(scarcity, security, sovereignty in control) why I support and believe in Bitcoin so strongly. And it's why any potential breach of these rules will instantly make me lose faith and leave never to return to Bitcoin ever again.

I speculate I'm not the only one who shares these beliefs so I think the big question is how do we insure the integrity of these rules? How do we insure the whole system doesn't get corrupted by a small group of people and changed in a profound way.

To answer this question I believe the best approach is to look to the real world for examples of what exactly enables such events. And from all of my research into human history on this particular subject this one lesson speaks volumes to me: If there is centralized power or influence to be auctioned off, the auctions are soon to follow. (hence the corporatism, often mistaken as capitalism, in today's real world)

Because of this lesson I do not believe any one individual, or one group of individuals, elected or picked otherwise, should hold centralized power or influence over everyone else no matter what the issue is. As soon as we make this mistake, however well-intentioned, the auctions are going to follow and eventually we're going to end up with a system that will look much like what we have in the real world today.

[CONCEPT]
But how then one can solve a dilemma such as we face without centralizing power or influence you ask? Well I think the answer is pretty straight forward:

The main problem any of the proposed changes has is the attached risk factor. The risk of making the wrong step in the development complicating future developments, the risk of making the whole system more susceptible to attacks, the risk of making mistakes causing damage(bugs), the risk of dividing the community, ect..

Well, if it's all about risk, then I ask you, what do we do in the real world when we face a credible risk? We insure ourselves! And my main point of this post is: Why don't we do the same?

Think about it. Who bears most of the risk? I would argue the most risk lies with the miners since they have the most invested in this system and are making a profit from it. Second most lies with all the Bitcoin holders but even so, their holding is irrelevant if there aren't any miners to enable them the use of it, so I'd argue the risk in both cases lies primarily with miners.

[IDEA]
Here comes my thought experiment: What if we had a insurance company, or more companies competing with each other.., that offered the miners insurance on a proposed change to Bitcoin going bad in any way? What if miners wouldn't agree to a proposed change unless they could get a good insurance deal? What if they would weigh which proposed change was better by how good the insurance deal they could get for it was? What would happen?

My theory is that if such a company existed and miners demanded insurance on proposed changes it would need to have people employed who were capable assessing the risks carried by a particular proposed change. If a proposed change carried too much risk, the insurance deal wouldn't be good enough for miners to feel comfortable taking the risk so they'd reject it. It would force the developers to be as open and as helpful to the insurance company's experts in order to convince them how small or non existent the real risks attached to their proposed change is. It would punish the insurance companies for being wrong in their assessment by being liable for a big payout if the risky event came true. It would put miners minds at ease without the need to completely understand the intricate technical details of each proposed change. There would be no need for any kind of centralization of power or influence in which proposed change should get adopted, instead there would be a ratting attached by a company financially incentivized to get this rating right, especially if it had competition!

[END]
Insurance companies are also how I personally believe we could have the real world without any need for governments and their coercive services but that's a whole different topic.

Anyway, I invite you to please share your opinion about this idea, and please don't get hanged up on the fact that we don't have such an insurance company or how it could possibly operate, the thought experiment is about a scenario where we have one. Thank's for your attention!

The risks are uncalculatable, so no insurance company would touch this without exorbinant fees.

Did you read the sentence before last?  ;)

Excellent idea! I like the market-based approach. I would support this. We would just want to denominate the insurance in LTC or fiat, since a major failure would hurt the BTC price.

Another similar idea I was thinking was this: we start multiple independent prediction markets for future BTC price. For each BIP, we create another set of markets conditional upon BIP adoption. If these markets indicate a higher long-term benefit from adopting the BIP, miners take this into advisement and "vote" accordingly. It's kinda similar to "futarchy", but really each miner would retain autonomy... They would just have useful information for how to maximize earnings, and we would have to assume most miners are rational.
http://en.wikipedia.org/wiki/Futarchy
We could decentralize the process too, should be easier once multi sig gets adopted.
https://bitcointalk.org/index.php?topic=47122.0