I'm really not picking on you. :-)

It's just that a lot of the "fractional reserve" discussions on this site are hooey. Everyone just nodding at each other doesn't re-enforce validity of a fallacious argument.

If I loan the bank 100 gold coins, then the bank promises to repay me 100 gold coins. It doesn't promise me to keep 100 gold coins on hand incase I bang on the door and want to see them.

We have such deposits but they are called "safe deposit boxes" you pay the bank for the privilege of them keeping your hoard safe. They pay you nothing, because they are in business to make money. What you hoard has zero benefit to them. It could be gold, could be comic books. They are just renting really expensive cubic inches to you. If you wanted the bank to keep a 100% reserve of the money you deposit with them, you simply have to pay them for their services. You can't expect them to pay you for it.

Now back to my gold coins, they didn't appear out of thin air. I loaned them to the banker and they are hard and metal. If a home buyer wants a loan, the bank spend my gold coins on a real world house. The coins don't disappear, they go to the previous owner of the house, or pays the builder for creating the new commodity.

Now if I want my gold coins back they don't appear from thin air. The bank gets coins from another bank by simply selling them the house. If you have every mortgaged a house, you would have seen your mortgage change hands several times during the life of your loan. There is no magic involved.

If you do responsible banking, the system works well. If you suck at banking, your bank fails. This can only happen if you give money to someone who won't pay it back AND you didn't take the proper collateral to guarantee zero loss.

That is the problem with depreciation. The collateral for loans no longer provides the value needed to back a default on the loan. That is why NO ONE loans in a depreciating environment.

Interesting! Are you considering going all the way back to the genesis block?

I was presuming you would just wipe out recent transactions. That would require a shorter effort.

If I had to guess, I would say it would be hard (not impossible) to go all the way back to genesis. The reason I think so is the increasing amount of CPU power over time. Every time the difficulty increases, it is because blocks are generating faster on average than 1 per 10 min. There have been many difficulty increases, so therefore I'm guessing that on average since the launch of the system, blocks have been generated faster than 1 per 10 min. If you are trying to fix your rate at 1 per 10 minutes, it would seem you could never catch up.

Doh! I forgot you can fake time itself! That was the whole point of your title! You can generate blocks as fast as you want from your new genesis block! All you have to do is synchronize your network's fake clocks and fake transactions! You could probably wipe the whole list in days if you tried!

Woot! Nice attack!

Do the nodes not keep the alternate forks incase someone wants to extend them in a chunk later?

Banking is always based on trust in the bankers. People don't really "deposit" their money in a bank. They "loan" their money to a banker. There is a written contract between the banker and depositor that specifies the terms for repayment of the loan. Some loans are "on-demand" (checking accounts) others have more restricted terms (certificates of deposit).

If potential depositors don't know who a banker lends too, how can they possibly judge their risk in lending money to a banker? I'm not a lawyer, but I'm as close to as absolutely sure as I can get that you can't enforce a contract between a person and an anonymous entity. So depositors would be able to hold a known banker to a contract. However, a banker wouldn't be able to hold an anonymous borrower to a contract.

Sounds like a recipe for disaster to me.

If you want to do the first market based test of the economic theories here...

You might consider "borrowing" some bitcoins from knightmb at a set interest rate and payment schedule. I'm interested in seeing what he interest rate and payment schedule he would consider acceptable risk.

If you follow most gambling, it is usually better than a license to print money. It could be argued that such a business should out perform the bitcoin economy as a whole.

Technically, you will need to build a relationship with the copyright holders. If they approve your plan it is smooth sailing. If they don't, you are in for a world of hurt.

In western publishing the author often assigns the copyright to a publisher. At that point what they want ceases to be of any importance to your legal standing. I don't know Japanese business conventions though.

So in the abstract, better make sure you knows who holds the actual copyrights. The music trading business has lots of examples of the artist putting works up in P2P systems and the publisher harassing people for trading said music "illegally."

Woot! Real facts! Nice!

Cool time machine thread too. Nice analysis!

That is a very interesting attack vector!

I was thinking about that longest chain wins bit for a while, however, I presumed (didn't read the code) that there was some memory in the network outside of the "block tree" itself.

For example, I presumed that if at block 7000 everyone calculated the difficulty and the consensus was 250 then this would somehow be remembered as a permanent checkpoint. However, if each fork in the block chain is evaluated in its own relative terms then the vector you suggest seems potentially viable.

It would seem even more viable during two week periods where the main network is decreasing in CPU power. On average the network would be generating less than one block every 10 minutes. Towards the end of the two week period it seems possible that you could substitute your now longer chain for the shorter main one. Thereby erasing any number of transactions that you wanted.

If their is no memory across difficulty reset points, the substitution effect is magnified.

Not to pick on Bitcoiner, I've seen this line of reasoning in lots of threads. However, it is bunk as it leaves out obviously everyday solutions currently in use.

Obviously if there is "a run" on a bank's cash reserve, their obviously most common solution is to BORROW cash at interest from another bank. Sometimes this money comes from a central bank, but normally it comes from one of the other banks who are not experiencing "a run" on their cash.

A bank does not "go bankrupt" when it runs out of cash. It goes bankrupt when it runs out of credit worthiness. Banking is always based upon trust in the bankers making the decisions.

By the way, your bitcoin wallet is never "a bank" for any sense of the term "bank" that doesn't start with "piggy". It is more properly termed "a hoard". In the same sense that storing cash in a mattress, safe or piggybank would be a hoard.

A bank's deposits are always in the economic flow. That is the only way banks are able to pay interest. The interest comes because other people use the cash to create more commodity value, that in-turn translates back into cash to repay the loan with interest.

The last thing you want your bank to be doing is hoarding your cash. They couldn't pay you any interest, and would have to charge you a fee for safe storage of your money. It would be cheaper to put it in a mattress and buy a gun. So much for 100% reserve banks. They would be worth-less than fractional reserve banks to everyone.

Do people really think that banks generate or borrow money from the air? That is just uninformed.

Banks borrow money from each other and from the Fed/Central banks at interest. The Fed/Central banks set interest rates (and make other monetary policy decisions) to keep the currency relatively stable. Stable meaning $1 buys 1 loaf of cheap bread. (It has for the better part of a decade now.)

In general the Fed/Central banks guard vigorously against a price deflation. They also guard against rapid inflation. This means the fluctuations are NOT zero centered. Value fluctuations tend to stay on the slightly inflated side of zero. This is all by design.

Getting a 3% pay raise is a little nice. Getting a 3% pay cut sucks really bad.

By the way, I made the "monkey" crack before I saw the thread on monkey economics. It is worth watching the video.

People do tend to make decisions in relative terms rather than absolute ones.

But notice he could have also said, I loaned out all 1000 BTC at -50% interest and get back 500 BTC which is worth the same, but I've done a wonderful thing for society and it cost me nothing.

Or I loaned out all 1000 BTC at -35%(ish) and ended up with 650 BTC worth 1,300 loaves of bread. whether or not it is a good argument depends on the random absolute numbers you pull out of your but with the flying monkeys.

But in the end, humans don't tend to make decisions this way. We say minimize risk if we expect to be gaining value. Gamble overly optimistically if we think the trend is down, but there is a chance we might be saved from loses. Las Vegas was built on this principle. Ask the monkeys.

Expanding upon "bunk"


Lending 100 BTC and having it double the economy is an example equivalent to saying, "And then monkeys fly out of my butt..."

So here's more monkeys!

Scenario 1:

YOU:
At the start of the year you have 1000 bitcoins, you lend out 100 for 1 year at -50% interest.
This stimulates the economy to grow 100%
At the end of the year, you will have 950 bitcoins, but they are worth 1900 loaves of bread.

ME:
At the start of the same year I have 1000 bitcoins. I lend out 0.
You stimulate the economy to grow 100%
At the end of the year, I will have 1000 bitcoins, but they are worth 2000 loaves of bread.

I win!

Scenario 2:
Neither of us loans coins.
The economy increases
We tie in value.

I think I'll just restate what I said in the post he was responding to.

-----------


This logic is mathematically flawed. People don't realize it because they have never seen it.

If external value starts to flock to bitcoin, than the external value to trade increases, while the number of coins to trade stays the same. That means if the value of external commodities traded doubles overall, than the value of each bitcoin doubles as well.

Example: If there were 100 loaves of bread a day and 100 bitcoins the mean value of bread is 1 BTC. If you want to trade an additional 100 loaves a day, you either have to double the velocity of the coins, or trade in 1/2 BTC coins at the same velocity.

That's the easy part! What is counter intuitive is the dynamic vs lending.

In this situation your argument says that people would start lending their excess bitcoins (at interest I'm presuming). So what would the interest rate be in this situation? So if we presume that the amount of value people want to trade using bitcoins will double this year (not unlikely) what is a reasonable interest rate? Well, just putting them in my mattress will give me 100% interest in commodity value with 0% risk.

However, if I want to borrow the money to start a business manufacturing some commodity widgets, the if I borrow the equivalent of 100 widgets today in BTC, then I need to pay the BTC back with the equivalent value of >200 widgets in a year. So if my widget business is growing at 50% growth a year, I'm screwed.

Deflation make lending very expensive, and very risky. That is why there is minimal lending now, EVEN THOUGH the government is giving away free money for banks to lend.

People are not used to this in their regular life because they are used to price inflation.

Inflation means that money in your mattress is worth less to you (in commodities) next year than it is worth today. That encourages you to LOAN your money to a bank in hopes that they will pay you at least as much interest to make up the difference. A little extra is even better!

This makes lending cheap for new businesses and much less risky for lenders. Business need a much smaller growth rate and profit margin to succeed. Including the bank to whom you lent your money.

------------

In my follow up to his reply (which you used to begin this thread) I said


-------------

And he replied


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So generally I think the negative interest rate argument is bunk.

Answering the actual question:

Knightmb

I don't see that it couldn't be done. After all China pegged the currency for a billion plus people against the dollar. If you have a central point of control (conversion point) anything is possible.

That is not an argument for it being a good idea. Should Greece be pegged to Germany? Maybe...?

It's my collection, I can do it if I want!

If you read carefully you'll see I defined the rules for the collected coins in terms of transactions. It maybe a silly idea but I think the rules of the collection make it coherent even if it is virtual.

To make a truly anonymous payment, the sent address must be not be linkable to a particular person. All addresses belong to a particular key holder. So it's an impasse unless we break the rule about an address belonging to one and only one individual.

So what I'm considering is a automated Tor hidden service that holds the private key wallet for a joint address that anyone can trade through. It would have to be a "trusted" service because obviously anyone with access to the private key could steal everyone's coins. So for the sake of argument, presume that the service is not a scam.

Now an honest anonymity service could provide proof of its honesty using the following automated mechanism.

1. Many users send bitcoins to the anonymizer address in advance like a checking account. Each of these are standard public transaction. That means the service can see who sent the coins and keep private account balances by sending address.
2. Users communicate with the anonymizer through a Tor hidden service so there are no exit nodes that can spy. No one knows where the server is located to avoid other sorts of attacks. There are three messages that can be sent to the service.
2a. Send this transaction.
2b. Get Balance.
2c. Acknowledge Balance.

Send this transaction - takes as parameter a almost-standard transaction sending money from the anonymizer address to any recipient address. The only non-standard part of the transaction is that it is signed by the "account holder" rather than by the anonymizer. The system validates this signature and matches it to the depositors account in the standard way. It then checks the current account balance. If there is sufficient funds, the anonyizer simply removes the account holder's signature, and resigns the transaction and broadcasts it. It then *temporarily* stores the original signed transaction request and updates the account balance.

Get Balance - the message returns the account holder's current private balance and any confirmed account transactions.

Acknowledge Balance - once the account holder has reconciled his "checkbook" against the account records, he then signs his account balance and sends the signature in an acknowledgement message. When the system receives the acknowledgment it deletes the transaction logs and saves the signed balance.


So should any user try to repudiate the anonymizer's honesty the system can show the user's previous signed balance, any signed but unacknowledged withdrawals and any new new deposits (from the transaction log). These should sum to an unassailable current balance.

---

As with any mix-net, the system requires a large number of users to provide anonymity. It doesn't do any good to have a single user anonymity system. It also requires a buffer with some latency. It doesn't do any good to deposit 1234 BTC and then immediately send 1234 BTC to someone else using the system. That can be easily correlated just like in my previous post.

The optimal use would be for lots of users to make regular deposits (like a paycheck). Then they could request payments at will, just like with a checking account.

So to be optimally anonymous all users must:
1. make regular payments
2. have private/hidden balances
3. communicate with the system through a non-observable channel
4. make irregular payments (not matching public deposits)

Anyway, that's the general idea. Feel free to shoot holes in it.

Which part?

If I passed a transaction to you offline, you could validate that it was a good transaction using your locally stored block list. Now say I connected to the network first, and instead of broadcasting the transaction I gave you, instead I broadcast a similar transaction sending the same coins to another address. Now when you connect to broadcast the previously valid transaction I gave you, it will have already been spent.

If I remember correctly from the code, the in-points of a transaction reference the end-points of a previous transaction in a particular block. If the transaction is not in the block list, there is no way to generate a subsequent transaction. I could be wrong on the details, but this is the generally expected behavior of the system.

Ah, I see what you are going for now. I don't really know what use case you are thinking about.

Say you duplicate the block list entirely, then split the user base across two non-interconnected systems forking the block list from that point on. Interestedly, all the transactions remain consistent enough to be concatenated. They couldn't actually be concatenated because of the proof of work daisy chain, but you could certainly rerun each fork into the other with no inconsistencies or double spent coins.

The restriction is that each private key/bitcoin address would have to trade on one system or the other but not both. If you merged the transaction list periodically you could allow users to cross over at that point.

Have no idea if this solves any problem, much less the one you were interested in. But I found it interesting to realize that you don't have to destroy the coins. You have to destroy the owners! :-)

This seems quite silly as opposed to not lending the money and making even more real profit.

Perhaps I don't understand what you are saying?

You can make a complete confirmed transfer with the receiving party completely off line if that helps.

It is logically possible to create the transaction and send it to the receiving party while both are offline. However, this becomes a trust situation until one of the parties broadcasts the transaction to the network and it is confirmed in the block list.

Trust meaning that it is possible for the sender to double spend the coins before the receiver broadcasts the transaction. Also, it is not possible for the receiver to spend the coins until the transaction is confirmed.