I agree. If there is a standard API for contracts then it would be possible for different types of exchanges to form, each with their own rules.

I can't help but notice that we manage to use exchanges to buy and sell wheat, electricity, currency and other commodities. The empirical evidence suggests that it is possible to do it, although some exchanges are better than others. In that context I don't understand the purpose of your reply. If you've identified a problem are do you have a proposed solution? Are you claiming that no solution exists?

Why would a client ever pay for a server to delete data? Any sane implementation of a client would encrypt all data first so that it's useless to anyone else. Why would a block server keep around useless data if no one is paying to store it?
In what way is this a problem? What does "commodities should be fungible" mean in practical terms? Will the fact that some block servers can provide a higher quality service than other block servers break the price discovery mechanism? Your objections are a little too vague for me to understand their practical implications.

Bitcoin: the digital currency of the future and soap opera

Imagine an economy consisting of 100 people who all work 40/hr per week to collectively produce 100 widgets/week and use a money supply of 100 units to buy those 1 widgets per week which they consume to survive.

One of these people, let's call him Ben, decides that he doesn't enjoy working and would rather find some other way to obtain the 1 widget/week he needs to survive. He builds a printing press and on Monday prints 1 currency unit and takes this to the store to buy his 1 widget. Now the rest of the people in this economy have a problem. Because Ben has decided to stop working only 99 units will be produced but he's already bought one of them so there will only be 98 available to buy at current production rates. No one has noticed that Ben isn't working so they don't know why production is coming up short but since they all need 1 widget/week they all start working longer hours in order to make up the slack. Everybody increases their work week by about 1%, which is equivalent to about 1 minute shorter lunch break. By the end of the week the 99 people who are still working managed to produce enough widgets for everyone although the price has gone up to 1.01. Wages have gone as well but the increase in wages doesn't result in an increase in purchasing power because 1 week's labor still only buys 1 widget.

Ben is overjoyed at the result and decides to continue this every week. The second week he has to counterfeit 1.01 but that's no problem. The other 99 people still need to work an extra 1% to cover for the loss of labor represented by Ben's exit from the workforce but they hardly notice. Their wages are still going up by 1% per week but so are the prices so their extra work isn't creating any extra benefit for them. As long as Ben only steals a small, hardly noticeable, amount from everybody he gets to live for free and nobody will ever be the wiser.

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

If the population of this economy start inventing labor-saving devices then life gets even better for Ben since now he can siphon off even more production from those that are still working without being noticed. If their productivity goes up by 10% it means that the 99 working people will produce 108 widgets while working 40 hours per week. If they were allowed to keep that increase they would only need to work 36 hours per week to maintain their standard of living or keep working 40 hours per week to increase their standard of living by 10%. But Ben can print enough currency to buy up those extra widgets for himself without raising prices although maybe he'll let them keep a few scraps for themselves so they think they're making progress. If Ben has trouble consuming that much alone he might invite his friends Fred, Irene, Rachel and Edward to the party too. Greg will surely want a piece of the action as well.

As long as Ben and friends are careful to make sure nobody can see exactly what is going on they can get away with this scam for a long, long time.

A market mechanism for buying and selling hard drive space would look a lot like the commodity markets. If you express a contract in a standard form they can be traded on an exchange to achieve price discovery. The following is not a complete specification but just an example of how such a system might work.

Contract trading could be done on #bitcoin-otc or a similar platform (including the reputation function). Contracts will be priced in bitcoins. Storage is expressed in blocks of 1 MiB and the base time interval is one increment of the Bitcoin block chain.

Block servers (nodes that sell space) can list the contracts they are willing to accept in human and machine-readable form as something like this: "BLOCKSTORAGE,O,10,10000,144,0.001,0.0005,0.00025"

This means that the node is offering (O) to contract with any node with a reputation of 10 or more. Up to 10000 blocks are available for 144 time units. The total cost of the contract is 0.001 BTC per block. Of this total cost 0.0005 is due up front and 0.00025 is due at the completion of the contract. The remainder is due in periodic intervals (perhaps as often as every time increment).

When a node that is looking to sell storage can express the contract it is looking for as a bid (B). It could either work as both the block server and the client can scan the order book to look for a matching contract or the exchange can handle the matching. There would need to be a means to express what should happen to the data at the end of the contract. It can either be deleted (the client no longer needs it) or it can be transferred to another block server or it can be returned to the client.

At the end of each contract the client and the block server both leave feedback on each other which will either increase or decrease their respective reputations. Block servers with high reputations will be able to charge more up front because the clients can be more confident they will actually be able to get their data back at the end of the contract. Clients with high feedback won't need to pay as much up front because the block servers can be more confident they will be paid at the end of the contract. In general a higher reputation will lead to better prices for both a client and a block server.

The client should have a method of verifying that the block server actually retained the data instead of just tossing it into the bitbucket. One possible way to do this is to periodically transmit a block number and two offsets and ask for the hash of the data between the two offsets. The client could pre-select this verification blocks before transmitting the data and have enough hashes stored ahead of time for the number of verification it expects to need.

This is just a rough draft and probably still has holes that need to be filled in but how does it look as a basic outline?

It does if widgets are consumed. In the long term production will ramp up but there's a delay so at the instant the newly-minted currency is spent it reduces the number of widgets that are available for other people to purchase. I'll explain that in more detail in a future post.

I hope for your sake my signature doesn't sound like your ex wife.

I was talking about the instant after the purchase of the 10 widgets, before the 10 new currency units circulate. If you continue the thought experiment a little further there will be a new equilibrium but I don't think the difference between 1.10 and 1.11 in a simplified example is relevant to the overall point.

I was thinking about a writing a slightly more involved example with some long-term consequences; maybe I'll do that later today.

I don't know, but one thing to consider is the purchasing power of government employees and retirees is being eroded at the same time as everybody else. How much of that can happen before the government stops functioning as an organization (people stop coming to work) is unknown.

"Store of value" is a misleading myth. "Deferred consumption" is a much more accurate term.

The US (and other Western governments) is going to default on its unfunded obligations; it's just a matter of how. In a hard default situation they instantly balance the budget which means breaking a lot of political promises. In a soft default scenario the Federal Reserve keeps printing money to cover the shortfall and the price of essential things like food and energy keep rising until the majority of the population can't afford to eat. This is followed by civil unrest such as we saw recently in Egypt.

The USSR was going the soft default route but before they got to Egypt the inner party got together and voted to disband the government. You could call this a hard default because the entity which made the promises ceased to exist. That's more or less what I expect the US and Europe to do in the intermediate term.

That's the risk people take when they use currency as a instrument of speculation instead of as a means of exchange.

If you could just expand internationally into the countries that are net recipients of remittances you'd be able to establish the trade flow that will make it all work.

People who receive bitcoins from abroad need to exchange them from local currency but right now those local exchanges need to go through the legacy banking system and forex markets to get local currency to buy bitcoins with. If you were selling products in the recipient countries you could buy the bitcoins from the exchange with currency you got from local sales and use the bitcoins to pay your suppliers.

This thread has motivated me to add a signature with my bitcoin address in it.

I just tried the Major Bank Branch -> Bitcoin address deposit method today. It took 19 minutes from the time the teller printed the deposit receipt until my Bitcoin client saw the transaction hit the network.

It's not the cheapest way to get bitcoins, since with the various fees involved I ended up paying $6.58 per bitcoin but it is certainly the fastest way to get them.

42

Think of as an SI prefix.

0.001
0.000001

.