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21  Economy / Speculation / [GRAPH] This is not a bubble on: February 13, 2013, 06:32:01 PM


Bitcoin growth has always been on a logarithmic scale. 2011 was a bubble. This is not.

I got the graph above taking as many price points as I could find back towards the genesis block. The power function was suggested by Excel, and is "= 4.41877086088824E-17*(X^5.59806919936792)" where X is days since the Genesis Block.

Past performance does not guarantee anything, of course, but I think the current price is just about right.
22  Bitcoin / Bitcoin Discussion / PLEASE HELP: Campaign to get a bitcoin "niche ETF" on: July 03, 2012, 12:36:55 AM
There are niche ETFs for almost everything now. You can invest in specific industries and sub-industries by way of ETFs, along with numerous currencies and commodities.

Why not push these ETF companies to create a bitcoin ETF? There's no technical reason they can't do it, and I know that I for one could invest a lot more money in bitcoin if I could use my Fidelity 401k (which lets me invest in ETFs).

So, I compiled a list of companies that might release a niche ETF for bitcoin, and the best way to contact them:

_______Name_______
_______Website_______
__________Email__________
Market Vectors:
Van Eck info@vaneck.com
Global X:
GlobalX Funds info@globalxfunds.com
PowerShares:
Invesco PowerShares info@powershares.com
iShares, Barclays:
US Ishares isharesetfs@blackrock.com
Guggenheim:
Guggenheim Funds etfinfo@guggenheimfunds.com
First Trust:
FT Portfolios feedback@ftportfolios.com
Index IQ:
Index IQ Innovate@IndexIQ.com
Wisdom Tree:
Wisdom Tree web form
iPath:
iPath ETN ipathetn@blackrock.com
Currency Shares:
Currency Shares web form
Factor Shares:
Factor Shares info@factoradvisors.com
Proshares:
Proshares info@proshares.com
ETF Securities:
ETF Securities infony@etfsecurities.com

You can help; please take a moment to contact the companies above and let them know you would be interested in investing in a bitcoin ETF. If you get an interesting response from them by phone or by email, post it here! Also, post any other ETF companies that should be added to this list.

If one of them actually does it, the ease of investing in bitcoins will go WAY down, and the amount of money coming in to the bitcoin economy will go WAY up Smiley
23  Economy / Speculation / Infographic: why the sky is the limit on bitcoin prices on: June 26, 2012, 08:41:14 PM
I love trying to figure out how much capital could eventually move into bitcoin. Here's an infographic I made to try to describe the potential:



The infographic is part of a larger presentation on the potential of bitcoin which I made.
24  Bitcoin / Bitcoin Discussion / Using MEMES to explain bitcoin's appeal, its problems, and my proposed solution on: June 17, 2012, 02:18:23 AM
I just posted a slideshow to Bitcoinmedia.com explaining my "Second Bitcoin Whitepaper" using memes (I'm hoping to reach the broadest possible audience).

http://bitcoinmedia.com/using-memes-to-explain-bitcoin/

Comments welcome!

25  Bitcoin / Bitcoin Discussion / [Necro Thread] It's here: The Second Bitcoin Whitepaper on: January 06, 2012, 10:42:24 PM
I have spent the last few months writing and editing a document which I am ambitiously calling "The Second Bitcoin Whitepaper".

Today is my birthday, so as promised, I took the day off work to do some final polishing and to publish it for public comment.

Here it is: https://sites.google.com/site/2ndbtcwpaper/2ndBitcoinWhitepaper.pdf

The paper calls for a "trusted entity" to hold funds, hire developers, and probably make a lot of money for themselves. (Read more about it in the whitepaper.) The most important feedback I need from the bitcoin community is who that entity should be.

What company, person, or group of people do you consider most trustworthy to play this role?

I will be online for a couple more hours to answer questions about the paper, then I'll be off to celebrate my birthday and finally publishing this.
26  Bitcoin / Bitcoin Discussion / [ANNOUNCEMENT] The Second Bitcoin Whitepaper (Available Friday Jan 6th, 2012) on: January 04, 2012, 08:10:46 PM
Update: Here it is: https://bitcointalk.org/index.php?topic=56901.0

Quote
I have spent the last few months writing and editing a document which I am ambitiously calling "The Second Bitcoin Whitepaper".

Currently it is 12 pages long, and it is being reviewed by a couple trusted associates. My birthday is this Friday, so I am taking the day off work to do some final polishing before publishing it for public comment.

As a teaser, here is the summary at the beginning of the document:

Quote
Summary

We claim that the existing bitcoin network can be used as a protocol layer, on top of which new currency
layers with new rules can be built without changing the foundation.
We further claim that the new
protocol layers described in this document:

  • Will fix the two biggest barriers to widespread bitcoin adoption: instability and insecurity.
  • Will financially benefit the entire bitcoin user community, including those who donít use the
    new protocol layers.
  • Will provide initial funds to hire developers to build software which implements the new
    protocol layers, and ongoing funds to pay for maintenance of this software.
  • Will richly reward early adopters of the new protocol, in proportion to how successful it is.

Once I am reasonably happy with it on Friday, I will publish it and link to it from this thread. I will probably also create a new thread for discussion and feedback. I plan to spend most of Friday recruiting various bitcoin luminaries to take a look, and various bitcoin news sources to link to it.

Sorry, I'm not available to discuss the paper or answer questions until then, so please don't be offended if I don't answer questions posted to this thread before Friday. Thanks!
27  Bitcoin / Bitcoin Discussion / [PROPOSAL] The ticker and the hole (path to bitcoins worth $1M each) on: August 11, 2011, 03:55:38 PM
I had an epiphany last night while lying in bed contemplating targeted currencies as described in other threads.

I have convinced myself that anybody can start their own distributed currency with a set price target (USD, ounces of gold, barrels of oil, Euros, etc), using only the existing bitcoin client and protocol. To easily track and use the new currencies will require some extra UI on the bitcoin client, but no changes to the underlying protocol.

The concept is absurdly simple. You can create such a currency simply by saying that you have done so, and defining the rules for trading it on the bitcoin network.

tl;dr summary:
Anyone can create their own currency within the existing bitcoin block chain by nominating some extra rules. Anybody following those new rules can use the new currency. Anybody can pay bitcoins to a fake address to get that new currency (destroying the bitcoins). Anybody can sell the currency to someone else by following the rules. Some data is embedded into microtransactions to publish information like "I have 30 goldcoins for sale at such-and-such price".


Let's look at how this could work.

You, Joe user, decide you want to create and issue a new distributed USD currency riding on top of the bitcoin protocol. In this case, your currency is targeted to USD. Anybody buying a unit of your currency expects to be able to sell it in the future for around 1 USD.

The first thing you do is create two bitcoin addresses: the ticker and the hole. The ticker broadcasts the current bitcoin price of 1 USD periodically (for instance, once per day, once per hour, or any time it changes). So if 1 bitcoin is worth $30, the ticker sends 1/30 = 0.03333333 BTC. These coins are sent to the hole.

Anybody anywhere who sends 0.03333333 BTC to a fake address specified by you is recognized to hold 1 unit of your new currency (1 USD). If they send 0.06666666 BTC to the fake address, they are recognized to hold 2 units (2 USD). They can buy as many USD as they want, destroying bitcoins each time they do so. (Sorry, destroying bitcoins is necessary - I don't see any way around it. If the person running the ticker and hole keeps the bitcoins, they can create infinite money by buying these coins from themself.)

Now, let's say I bought 50 USD by destroying bitcoins (sending them to the fake address), and later I want to sell them. To do this, I must mark them as "for sale". This requires that I first send 0.00000001 BTC to your hole, meaning "I'm putting up some of this currency for sale". Then I send 0.00000050 BTC to your hole, meaning "I'm selling 50 USD". Then I send 0.00000003 BTC to your hole, meaning "I'm offering 0.00000003 BTC off face value". The whole bitcoin network now knows that I have 50 USD for sale at 0.03333333 - 0.00000003 = 0.03333330 BTC each. Note that all these sends must come from the address which is currently recognized to hold the 50 USD I bought from you.

Enter yet another person. Satoshi wants to buy 25 of these USD coins. He sees that he can buy them by destroying bitcoins for 0.03333333 BTC each, or from me at 0.03333330 each. He of course chooses to buy from me. Of course, he can't just send me the bitcoins, because someone else might try to buy them at the same time. Instead, he sends me 0.00000001 BTC, which locks my USD coins for the next 2 blocks. For the next 2 blocks, nobody else can buy them, and I cannot take them off the market. Once he sees that he was the first to lock my coins, he sends me 25*0.03333330 = 0.83333250 BTC. Satoshi is now recognized to have 25 of the USD coins I bought from you. With the transaction completed, my other 25 coins are now unlocked, and they are still for sale until someone else buys the rest or I remove them from being for sale.

I change my mind and decide I want to keep the other 25 of these USD coins. I send 0.00000002 BTC to your hole, meaning "my coins are no longer for sale. Thanks!" I could have sent this transaction while they were still locked if I wanted to be sure any remaining coins were taken off the market once unlocked before any more could be bought.

Later I decide I want to transfer my remaining 25 USD to my friend Bob. First I send 0.00000003 BTC to the hole, meaning "I'm going to transfer some USD to someone else", then I send 0.00000025 BTC to Bob's bitcoin address, meaning "I hereby transfer 25 USD to this address". Note that almost no bitcoins changed hands, even though $25 of USDCoins are now under Bob's control.

After watching the wild success of your USDCoins for a few days, I think to myself "screw USDCoins, I'm making my own currency: doublecoins". I define doublecoins to start out at 1 USD, but they slowly grow in value such that their value doubles every year.

I create my own ticker and hole. Many sheeple agree that a coin which grows in value at a rate of 100% per year is MUCH better than owning USD coins. Bitcoins are destroyed in a frenzy as everyone buys doublecoins. For awhile things are going great, but then some people start to worry that they won't be able to find a bigger sucker to buy these doublecoins from them. Prices start to sag. When my doublecoins have a face value of 1.0 BTC, people are selling them at a 10% discount. The seller only gets 0.8 BTC because 10% of the USD coins are destroyed as a penalty for selling 10% below face value and the buyer only gets 0.9 of the 1.0 doublecoins put up for sale. 10% of doublecoins are also destroyed anytime they are transfered while doublecoin prices are 10% low. Eventually there is a panic, prices collapse, and all that are left are bag-holders. I buy a yacht and sail off into the horizon, having sold all my doublecoins at the peak, profiting from the ponzi scheme.

Other tickers are created, some sustainable, and a few more crazy ponzi schemes. Eventually there are tickers for every major stock, currency, and commodity. Tickers are churning, holes are filling up, and needless to say, bitcoin prices are in the stratosphere.

Oh wait, now everybody wants to create a ticker. There could be 362 tickers claiming to be THE ticker for gold alone! To prevent this, ticker creation must have a limited supply and a cost, determined by supply and demand. The first ticker can be created once we reach block 142000 (because it has "42" in it. Current block is 140554, so this is about 10 days from now). The price of creating the first ticker starts at 100 BTC (way more than anyone will pay). The price goes down by 1% with each block, until someone purchases the first ticker.

Any time someone purchases a new ticker, the price doubles, then continues to come down at 1% per block, eventually reaching the price of the previous purchase after about 69 blocks (heh).

Payment for a new ticker would go to a fake address, again destroying bitcoins. Something like:
1NewTickerRegistrationForYourMommy

Once you have purchased your very own ticker, you need to specify the ticker address, the hole address, name the ticker, describe the ticker, etc.

This can be done with a series of special transactions combined with the characters you choose when creating the fake bitcoin address used for destroying bitcoins when the new currency is created.

First, send 0.00000002 BTC to the ticker address from the address which purchased the ticker. If they are the same address, you can skip this step
Then, send 0.00000001 BTC from the ticker address to the backup ticker address (this address would be in a second encrypted wallet. If somebody hacks your computer, and you lose access to the wallet with your ticker, you can unencrypt the wallet containing this backup ticker and keep going with uncompromised ticker updates)
Next, send 0.00000002 BTC from the ticker to a second backup ticker in another encrypted wallet
Then 0.00000003 BTC to a third backup ticker, and so on, until your paranoia is satisfied
Then send 0.00000001 BTC to the hole address
Finally, send 0.0000001 BTC to the fake address that will be used for destroying bitcoins exchanged for your new currency.

Now the whole network knows the address of your ticker, backup tickers, hole, and fake address. Next it is time to add some metadata for your ticker. We will put as much of it as we can in the characters of the fake address.

The metadata we want for this ticker is as follows:
"USD" (the ticker name)
"US Dollars" (the ticker description)
http://bitcointalk.org/?topic=7985.0 (the forum thread for discussing this ticker)
http://www.usd.foo (some website associated with the ticker)
0.7% (new coins will actually be sold at face value times 1.007, allowing our USDCoins to fluctuate above the correct price and therefore have an effect on real-life currency markets)

So the fake address we nominate is:
1USD7985US1Dollars0usd1foo0a700000

This fake address can contain some or all of the meta data describing the ticker. In this case:

1 USD (ticker name) 7985 (forum thread number) US1Dollars (ticker description of "US Dollars") 0a7 (0.7% spread) usd1foo (URL "usd.foo") 000000 (filler)

Any other similar metadata could be defined and included as above. If we need more characters than is allowed by a bitcoin address, we can send additional transactions to the fake address representing the rest of the data describing the new ticker.

Do you think I'm crazy? You're correct on that point, but what am I missing? Perhaps I'm missing an important detail which makes this not work at all, but if I am right, bitcoin price increases are just getting started.
28  Bitcoin / Bitcoin Discussion / "BlitCoin": "unmasks one or both ends of a BitCoin transaction"? on: August 04, 2011, 02:42:40 PM
From this article: http://searchsecurity.techtarget.com/news/2240039221/Black-Hat-2011-Dan-Kaminsky-reveals-network-security-research-topics

Quote
BitCoin, a digital, virtual currency system, was the platform for some of Kaminskyís new research. BitCoin is a payment system that charges a low cost per transaction. Each transaction is digitally signed and broadcast, supposedly anonymously, over a peer-to-peer network. Kaminsky announced a new tool called BlitCoin that unmasks one or both ends of a BitCoin transaction.

Anybody know anything about this supposed tool to unmask bitcoin users? Google search for "blitcoin"+kaminsty just returns two links to the article quoted above:

http://www.google.com/search?q="blitcoin"+kaminsky

That won't be true for long, but here is what I see:

29  Other / Off-topic / Child Pornographers: I hope they die in agony [news article] on: August 03, 2011, 10:16:32 PM
Have you ever read something that makes you so angry you can barely see straight?

One thing that always makes me blind with rage is sexual abuse of little kids. I'm a dad of two little ones, and stories like this make me ready to commit murder:

http://abcnews.go.com/Politics/child-porn-ring-put-kids-obvious-intentional-pain/story?id=14222833

Quote
One particular category was entitled "Super Hardcore." The rules for that category described in graphic language that the only posts permitted were those involving adults having violent sexual intercourse with "very young kids" who were being subjected to both physical and sexual abuse and were obviously "in distress, and or crying."

I know this forum is frequented by some people who are very into privacy and freedom of speech, and consider this sort of "speech" an unfortunate evil which must be tolerated in order to obtain the capability for dissidents to speak out against repressive regimes.

However, from a morality standpoint, if you are aware of something like this going on, and you don't do your part to help put a stop to it, these children's blood and tears are on your head too.

Alternately, if you don't think justice can reach the perpetrator for some reason, I also approve of cold-blooded murder of these perpetrators. This is one case where a bitcoin-powered assassination market could actually do the world some good, although I doubt it would actually be used for purposes that noble.

Anyone defending child pornography as protected "speech" makes me sick. I can't imagine a punishment cruel enough for these guys. At the very least they should be killed.

</vent>
30  Bitcoin / Bitcoin Discussion / Open letter to online exchanges and wallets: store coins offline! on: August 03, 2011, 03:26:23 PM
Every exchange and wallet services (or actually anyone running a service with lots of coins) should only keep only a fraction of their bitcoin reserves available for immediate withdrawal - just enough to provide day-to-day liquidity.

The bulk of coins should be stored in multiple encrypted offline wallets (with multiple backups and a nice big gap of air between these wallets and the internet). These offline coins would not be available for immediate withdrawal, but they would be safe!

Coins could be sent to the offline wallets any time, and coins could be returned to the pool of available coins manually as needed. The concept is analogous to a bank vault. Most of the cash at your bank is not sitting in the till in front of the teller, but is securely stored in a vault which can only be accessed at certain times under heavy security.

Perhaps you think this doesn't need to be said, but some services have already lost all their coins by not doing this!

I also think that users of any such site should also have the option of storing a fraction of their coins in such an offline wallet. You could even give each user their own "offline address" where they could securely store coins for the long term, and they could see the coins in block explorer. Bringing the coins back online would require extra verification steps and built-in delays. This is analogous to a safety deposit box, and you could even call it that.

I'm sending PMs to the exchange and wallet reps, asking them to comment on this thread.
31  Other / Beginners & Help / Trust No One on: August 02, 2011, 09:56:57 PM
Seriously. Don't trust the exchanges, don't trust online wallet services, don't trust your anti-virus software, and don't trust anybody online.

If you absolutely must trust someone with your bitcoins, for the love, choose carefully!

  • Do you know their full name?
  • Do you know where they are located?
  • Have they demonstrated trustworthiness in the past?
  • Are they asking you to trust them? (red flag)
  • Do they have insurance?

Insurance? Impossible, you say. Not so!

When I needed people to trust me to hold bitcoins for a contest, I deposited 50 bitcoins as a bond with a well-respected forum member, so that even if I did something stupid and lost people's money, they would still be reimbursed. You can read about it here: http://bitcointalk.org/index.php?topic=10008.0

Consider carefully who you will trust. With bitcoins, elaborate scams may be profitable. For instance, someone may develop trust for their user name over many months with small transactions on this forum, then take advantage of that trust to make off with a lot of money. Such a scam would only be worth doing on this forum. No other forum in the world would be worth the effort.

If you want someone to hold your bitcoins for you, there are NO online services that have the transparency and security to make me comfortable using them for storing bitcoins for more than a short time in small amounts. The only way to do it is like I did - choose someone whom you believe to be trustworthy, and approach them. If they approach you, or in any way say or insinuate that they are a trustworthy person to hold your coins, STAY AWAY.

If you are thinking that I might not be trustworthy, since I am writing this post about the issue, you are approaching the appropriate level of paranoia.

If you want to store your bitcoins with maximum security, there are lots of resources about how to do it, such as this: https://en.bitcoin.it/wiki/Securing_your_wallet

Here's my summary:

1. Put all your coins in a new wallet that has never connected to the network
2. Encrypt that wallet with the maximum security you can find, using the most secure password you can keep track of
3. Delete the plaintext wallet, and distribute the encrypted wallet to every piece of physical media you own, store it online, and send it to several people you trust

Don't think you can generate and remember a secure enough password? Create a super-long password, and store clues to help you remember it. For instance, your password clue file might say:

My standard password + My throwaway password (backwards, all caps) + &#$%@ + First two sentences of first paragraph of page 19 of my favorite book (include all capitalization and punctuation) + My wife's mother's middle name + My son's favorite superhero + My favorite number times 8734 + food my wife hates (backwards, all caps) + 9-digit number stored with my paper will + 10-character password stored in my safety deposit box + . . . .

You can go on in this way to create as long a password as you want. Store this password clue file with your encrypted wallet, and optionally encrypt both with a simple standard password to keep out snoopers.

In this way, not only can you recover your coins from your "savings account" at a later date, if you get hit by a chicken truck tomorrow and die, your loved ones can probably piece together your password and recover the coins too (better make sure you trust them, and that between them they have or can get the answers to those clues).

I recommend that you practice your wallet encryption and recovery a few times with a small number of coins, until you are very comfortable with the process before you try it with the bulk of your savings.

And remember, this is how most bitcoins services get started:



Comic from: http://bitcointalk.org/index.php?topic=13903.0
32  Bitcoin / Development & Technical Discussion / [POLL] Add ideas from second bitcoin whitepaper proposal to bitcoin? on: July 27, 2011, 09:12:22 PM
Imagine my ideas for the second bitcoin white paper (http://forum.bitcoin.org/index.php?topic=31645.0) turn out to be feasible (this is a big IF).

Would you want to see this kind of functionality added to bitcoin? Is it an interesting idea that should go in a different block chain? Should I just shut up?

Vote now!
33  Economy / Trading Discussion / [POLL] Will you reverse your Dwolla transactions? on: July 27, 2011, 05:00:21 PM
You learn Dwolla transactions ARE reversible. You call your bank.

You: What's this "Duh-wah-luh" thing in my account history?
Bank: Some kind of payment thing like paypal
You: I didn't authorize that
Bank: They deposited in your account to confirm it was yours
You: I didn't see that. I'VE BEEN HAXORED!!!
Bank: We'll take care of it.

Bank to Dwolla: We'll take that money back.
Dwolla to the exchanges: We'll take that money back.
Exchange to users: Um, everything is fine. Don't look behind the curtain

I haven't done this, nor do I plan to, but I'm wondering, will anyone here admit they have done this or plan to?
34  Bitcoin / Development & Technical Discussion / [PROPOSAL] The Second Bitcoin Whitepaper on: July 25, 2011, 07:16:02 PM
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

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


Imagine:

You download the latest bitcoin client, and upon opening it, you see that while your wallet is still enumerated in bitcoins, you now have the option (in a drop-down menu) to store that value at a guaranteed constant value pegged to your choice of USD, Euros, ounces of gold, ounces of silver, barrels of oil, and a couple dozen other currencies and commodities. You can also peg your value to fluctuate with the inverse of any of these. Finally, you have the option to continue to hold your value in bitcoins or in something called "hyperbitcoins". You can convert your holdings between any of these, or hold a combination of them, and each conversion costs you only the current bitcoin transaction fee.

Is this possible? I believe it is, and I believe it is the next step for bitcoin, and will lead to a million-fold increase in bitcoin prices (I describe my logic for the latter claim here: http://forum.bitcoin.org/?topic=7985.0)

This is not the "white paper" referenced in the title of this post, but I'm calling out for such a white paper to be created, and I'm describing some protocol changes the white paper could describe.

Here's how it would work:

People holding bitcoins denominated in USD, Euros, gold, oil, etc, deposit their bitcoins into an escrow fund held by the network. In exchange, they get a token guaranteed to be redeemable for bitcoins from the escrow fund at the pegged value at any point in the future. These tokens could be bought, sold, used in commerce, etc, just like bitcoins. You could send them to any bitcoin address, and that person would receive them as bitcoins. In this way, somebody could buy a t-shirt using oil-denominated bitcoins which they pay to the bitcoin address of a vendor who holds gold-denominated bitcoins. This would be completely transparent to both of them.

The key to making this possible without ever completely depleting the escrow fund is holding additional bitcoins in that fund by the protocol selling hyperbitcoins, which are a big bet on the rise of bitcoins versus ALL the other possible stores of value listed.

You can think of buying hyperbitcoins as buying shares in a company. If you convert a bitcoin to a hyperbitcoin, you are depositing that bitcoin (forever!) in the escrow fund described above to ensure its solvency.

In exchange, when bitcoin prices quadruple (and everything else indexed does not), there is now a surplus of bitcoins held in escrow. Some or all of that surplus value would be distributed to existing hyperbitcoin holders similar to how a company distributes profits to shareholders.

Hyperbitcoins would also be bought, sold, traded, etc, just like bitcoins or any of the currency/commodity tokens described above.

As an example, imagine you believe big-time in the future of bitcoins, so you convert your one bitcoin (worth $15) to a hyperbitcoin. Let's imagine that the escrow fund consists of 1M bitcoins, 250k of which came from hyperbitcoin sales to people like you.

Later, the value of bitcoins rises 100x versus the other currencies and commodities tracked. The escrow fund now holds 100x as much value as before. It only needs 5k bitcoins to cover its liabilities to the token-holders, but it has 1M bitcoins. Consequently, the escrow fund slowly starts distributing bitcoins to hyperbitcoin holders. To be conservative, the escrow fund makes these payments over many months, to protect itself in case the rise was only temporary.

Excess bitcoins could be distributed either by paying "dividends" in bitcoins, or by buying back hyperbitcoins on the open market. In the former case, once all excess bitcoins were distributed, you (the hyperbitcoin holder) now still have your hyperbitcoin (which you can always sell if you want) plus nearly 4 new bitcoins worth $1500 each (You did a lot better than if you had just held onto that one bitcoin). I believe the hypercoin buyback scenario would drive up hyperbitcoin prices, yielding a similar or possibly even greater profit.

The counter-example is if bitcoin prices crash, Now we run into the possibility that there aren't enough bitcoins in escrow to cover all the tokens being held if they were cashed out at once. Perhaps this would trigger a run on the escrow fund by people holding the tokens. I used to think that this scenario must be avoided at all costs, but after contemplating a doomsday scenario thought experiment (http://forum.bitcoin.org/index.php?topic=31645.msg403514#msg403514) I decided that the protocol will probably have to give up supporting the currency/commodity values when there aren't enough hyperbitcoin holders to absorb volatility.

There are several technological hurdles, including how to do a distributed exchange rate (the same way bitcoin currently does a distributed timestamp), and how to create a distributed exchange between bitcoins/hyperbitcoins, GoldCoins/AntiGoldCoins, OilCoins/AntiOilCoins, etc, that the protocol could run and use.

I first introduced the concept of hyperbitcoins in this thread: http://forum.bitcoin.org/index.php?topic=30741.0
The concept was extrapolated in this thread: http://forum.bitcoin.org/index.php?topic=31032.0

I believe this concept is so important to bitcoin's future that I am currently PAYING BITCOINS for intelligent posts in the latter thread, and I'm officially extending those payments so that posts in this thread are eligible as well. See this thread for details on the payments: http://forum.bitcoin.org/index.php?topic=31057.0
35  Other / Meta / [FINISHED] 10 users will get 0.1 BTC for being my shill on this forum on: July 23, 2011, 12:06:17 AM
This contest is over.

I will be deciding the winners soon, hopefully today.

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


I think the issues of alternate block chains backed by bitcoin hashing with pegged values supported by bitcoins in escrow is the most important thing for the future of bitcoins.

I have a thread about it here: http://forum.bitcoin.org/index.php?topic=31032.0
and a follow-up thread here: http://forum.bitcoin.org/index.php?topic=31645.0

I believe so strongly in the importance of this topic that I am willing to PAY for intelligent posts on either thread above.

Sometime between one week and one month from now (depending on how productive and active the thread is)On 8/22/2011, I will select my 10 favorite posts from those two threads, and pay the authors 0.1 BTC each. If multiple of my favorite posts are by the same author, that author will get more. Of course, any posts made by me will not qualify.

Things I would like to see:
 - Intelligent discussion, supported by a thorough understanding of the technological and economic issues at hand
 - Enthusiastic friendly debate
 - Alternate methods of achieving the same goal (bitcoin-backed commodity trading)
 - Good spelling and grammar
 - Extra points for posts I like which also happen to bump the thread when it is stagnant
 - People agreeing with me will probably seem more intelligent to me than people disagreeing, but I will try to distribute at least some of the coins to people presenting well-thought-out counter-arguments, obstacles, and skepticism of my ideas.

Once I select the winners, I will post links to their posts here. Winners who don't have a donation address will get a PM from me asking for their bitcoin address.

Any questions or discussions about the rules, or about me being a jerk for paying for forum shills should go in this thread, not the other one.

This is not a joke - I fully plan to pay up.

Thanks!

Edit: Here are my favorite posts so far  (as the last time I looked). I will have to narrow them down when it is time to pay out:

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


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.

Backing bitcoin-like currencies with commodities seems like an insanely bad idea.

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?


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?

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...

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?

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.
I like the post because it led me to this thread about stabilized currencies: http://forum.bitcoin.org/index.php?topic=11614.0

Backing bitcoin-like currencies with commodities seems like an insanely bad idea.

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?


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?

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...

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 on 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.

User A buys a USDCoin at current market rate, say 1/14 BTC.  Current market rate moves to $15/BTC and user trades in his USDCoin for 1/15 BTC.  Fantastic.  User B decides $/BTC will move down, so he buys a USDCoin for 1/15 BTC.  He is right and wants to cash in his USDCoin.  Whoops!  Either the value of the bitcoins in escrow has to somehow fluctuate with the asset (impossible), or you have to pray it doesn't move against the hedge.

If you want to peg coins to something, you need to get real-world info into the chain to adjust supply.  There are two ways to do this: trust someone, or do it by vote and trust voters to do what you want.

In other words, your proposal is effectively the same as "let coin generation parameters be setr by vote" and "hope people will vote to peg prices".

I described a scheme for doing this here:
 http://forum.bitcoin.org/index.php?topic=24929

I plan to build such a system after meeting work deadlines, about 4 weeks.

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.

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.


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.

But it is the same thing then, just with voting on "hyperbitcoins per bitcoin" or some other exchange than "bitcoins per current block difficulty". Either way you must assume people will vote in their own interest.

I think you underestimate the failure scenario.  Its not hard to design some kind of fund and describe how it will run while it remains solvent; that is easy.  The hard part is deciding what happens if he fund is insolvent.  As you hinted in your OP there is really no way to do this reliably.  

In other words, handling the case of bitcoins win, commodities lose where you have escrowed bitcoins is totally obvious.  Clearly if the losers assets are in escrow, they can be handed to the winners.  What is not obvious, and infact impossible, is to handle the case where bitcoins lose, commodities win when you have only escrowed bitcoins.  To do that, the commodities must be in escrow too,  or you must hold more coins in escrow than you have bet.  

Also, think about what will happen: commodity betters will vote commodities won, and bitcoin betters will vote bitcoins won.  So in the end the result will have nothing to do with exchange rates but simply a game of "pick the bigger side".

Intuitively, NOONE can peg a bitcoin to a commodity except someone who holds both of them.  More accurately, only a bitcoin holder can keep a price above some value and only a commodity holder can keep a price below some value.

If you wanted to do this fund, here is how you could do it.  Find people like yourself who believe bitcoins will outperform oil.  Pool your cash and split it, buying bitcoins with some fraction and using the rest as collateral with a broker, sell an oil futures contract.

First of all, I really think it's lame to use such a bait-and-switch forum topic.  You purposefully chose "The Second Bitcoin Whitepaper" because you want to attract readers to your topic, which, by the title, would seem to suggest that there is a second whitepaper and that the post reveals it.  It's annoying when people choose inflated topic titles to drive eyes to their topic, so don't do it.  You should realize, if you haven't yet, that lots of people have lots of ideas for ways to modify or extend bitcoin and yours is no more worthwile than many others, so stop touting it as if it is more than that.

Second of all, so many people come in here with ideas for adding rules to the bitcoin protocol to effect some pre-existing financial instrument that they desire bitcoin to reproduce.  There are a couple of problems with this:

1) Bitcoin is already established and you have almost no chance of making such fundamental changes even if your idea is wonderful.

2) Most people's ideas are not wonderful, they are well-intentioned but completely miss a very important issue: they are completely unimplementable.  There have been so many proposals for 'pegging' bitcoin value to some other real-world commodity value, but this is completely antithetical to the original purpose of, the original implementation of, and the spirit of, bitcoin.  Also, it's absolutely impossible without an external authority declaring the 'current' exchange rate, and external authorities is exactly what bitcoin does away with.

3) Most of these ideas completely miss the genius idea of bitcoin which is to produce a system of fully disclosed information that anyone can use to validate any transaction.  People propose all kinds of ways to 'peg' bitcoins value relative to something else, or to modify the number of bitcoins generated, or to introduce esoteric new transaction types that have some secondary effect ("contingent claims"), but without any idea how such things could ever be validated realistically and identically by all bitcoin peers.  Any source of external data, such as a "current value of oil" or "current value of gold", cannot implicity be agreed upon by all bitcoin peers, so immediately the ability for all peers to validate transations goes away.

Before you go too far out on any branch of ideas about additions to bitcoin to mimic some pre-existing financial instrument, please take a minute to very, very thoroughly think through exactly what new information will be contained in bitcoin transactions (don't understand bitcoin transactions, how they are represented in the protocol, and what the rules are for validating them?  Stop right here and don't go further until you do), and what new rules will be required for peers to follow to track and validate data necessary to validate transactions, and then whether or not this makes transactions impossible or impractical to validate.

The bitcoin protocol was very cleverly defined to require a minimum amount of data storage and network bandwidth to transmit, validate, and re-transmit validated transactions.  Does your proposal blow up the CPU, memory, and disk requirements for bitcoin peers to an unsustainable level?  If 100 transactions per second including your new protocol rules were transmitted, would any peer have any chance of validating them all?

You should have good evidence that your idea is even remotely workable before stating that there is or should be a "second bitcoin whitepaper" about it.

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.


I did not intend to pull a bait and switch. My intention is to discuss my proposal for what the second bitcoin whitepaper should cover. Would "My proposal for the second bitcoin whitepaper" be a better title?


"My proposal for the second bitcoin whitepaper" is more accurate and more descriptive, and yes, it would have been a better title.

Second of all, so many people come in here with ideas for adding rules to the bitcoin protocol to effect some pre-existing financial instrument that they desire bitcoin to reproduce.  There are a couple of problems with this:

1) Bitcoin is already established and you have almost no chance of making such fundamental changes even if your idea is wonderful.

Changing the protocol is quite possible. If more than 51% of users believe it is in their best interest to use the new protocol because it will increase the utility and value of bitcoins, then it will happen.


You have almost no chance of getting more than 51% of users to agree to anything anymore, which is my point.  There is a central cabal of people who may have more influence over bitcoin because they control the 'standard' client, or some large bitcoin-related website, or a bitcoin trading exchange, and maybe if you could get all of them to agree you could by fiat force the changes on everyone; but you're not going to get 51% of the actual bitcoin users to agree to anything, and it's highly unlikely that even the influential cabal I mentioned could all be swayed.

That being said, I don't mean to imply that no one should think big ideas about bitcoin or write proposals.  I just think that people should also be very realistic and be committed to a very long haul (years of stumping for the cause and making incremental changes) if they are serious about trying to make any fundamental changes to bitcoin.


Bitcoin currently relies on nodes to maintain a distributed timestamp, which is actually based on . . . an external authority! I don't think we can claim that bitcoin relies on no external authority at all. It relies on nodes to cooperate to make sure the data from the external authority is accurately imported into the block chain.

I see no reason why data from other external authorities (like the current price of oil) couldn't be tracked in the block chain as well.


The 'current time' as it is known to every person on the planet is not really an 'external authority'; it is more of a fact.  It has a precisely, scientifically, perfectly predictable value.  This is nothing even remotely like the "price of a commodity", which has no definite value and which, if a definitive value is required, implicitly needs an authority to resolve a diversity of differences of local opinion on the correct value.  Time is not artificial; the "exchange rate" for commodities is.  There is a major difference and it is precisely this difference that makes the latter impractical for use in the bitcoin protocol.


My proposal does not require people to trade at the external exchange rate, it just nudges them in that direction by fee incentives to trade closer to that price. The actual price of oil-denominated bitcoins would be determined by good old-fashioned supply and demand.


Well I like the idea of rules built into the system that effect a desired outcome through the natural action of market forces; but once again who is to define exactly what the 'external exchange rate' is such that everyone can be 'nudged' towards it?  Or is it OK for there to be uncertainty about the exact value as long as the differences between any two disagreeing opinions about the value don't differ by a large amount?

In lots of your discussion on this topic you talk about the protocol making payments based on excessive value in escrow etc; who is to decide exactly how and when this is to be done?  Obviously it has to be built into the rules of the protocol, so that everyone can, after the fact, all come to the exact same conclusion about what the current state of the global balance sheet is.  So how can that level of certitude be achieved without an external authority to be consulted on those parts of the equation ("current cost of gold at the moment in time that a transaction was validated") that cannot be known implicitly from data publicly stored in the block chain?

It is possible to store oil transaction data only on nodes that care about oil, gold transaction data only on nodes that care about gold, etc. The only thing that must be added to the bitcoin block chain is one additional hash of all the transactions being tracked in these other data stores. Clients that care only about bitcoin would just see this one additional hash. If they later decided to mess around with gold, they could download the gold transactions, hash them, then add that hash to the published hashes for oil transactions, euro transactions, etc, then hash that, then verify that hash matches the latest master hash in the bitcoin block chain. I may not have described this perfectly, but you can read more in the official write up (not by me) of how this would work here: https://en.bitcoin.it/wiki/Alternative_Chains

But miners would have to also validate the external data store before believing that the block that they are generating that includes that hash will be accepted by other miners, otherwise other miners will reject the block because it includes an invalid hash of this external data store.  Otherwise, anyone can generate a bitcoin block with any 'external data store' hash they wanted to and the bitcoin block miners, since they don't validate that hash in any way, would just keep on building the block chain based on that.  So the hash would essentially become worthless as it could be faked by anyone to represent any set of invalid transactions in the external data store that they wanted to.

Therefore, the problem I have expressed remains: even if individual clients don't bother to validate this extra hash if they don't care about the contents of the external data store that it represents, miners will have to.

Quote
My proposal may indeed have a fatal flaw (I am searching for it), but if it doesn't, I don't think anyone can deny the massive increase in bitcoin utility and value this would bring.

The fatal flaw is the reliance on an external authority to set a fixed, knowable, and perfectly-agreed-upon value for the exchange rate of bitcoins to the commodities you are interested in, and the ensuing impossibility of validating transactions (identically for all peers) that results.  Also I suspect, although I don't know because I still am not entirely clear on the way that the exchange of bitcoins into 'escrow' and back again is supposed to work, that all peers, including clients, will have to perform excessive and impractical work to determine if a transaction is valid when its history can include bitcoins that were put into escrow and taken back out again.

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 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.


3) Protocol: "Escrow fund is 10% below target. Time to steal some hyperbitcoins from the speculators. YOINK!"


That is the part that I simply do not understand.  The "protocol" is not an entity that can take actions.  The protocol is a set of rules that all peers use to evaluate the bitcoin messages they receive and build up a shared, agreed-upon concept of what the "global balance sheet" of bitcoin is (in the form of transaction chains stored in the block chain).  The protocol dictates rules about transaction validity that individual peers are free to ignore but since other peers have no incentive to ignore the rules, and incentives to obey them, a disobeying peer will get nowhere fast.  At every point in the complex dance of bitcoin peers, the protocol rules are constructed to cause natural agreement between everyone with minimal effort.  It's a thing of beauty.

You talk about the protocol as if it's something running somewhere in real time making decisions and effecting outcomes.  It's not that at all.  The protocol is a set of rules, and those rules must be set out ahead of time to effect the actions you want from the bitcoin peer network.  Not only that, the rules don't specify what any peer has to do, only what is valid for any peer to have done.  The protocol rules do not compel any action on the part of any peer, they establish criteria for deciding when what a peer has done is illegal, and because following these rules is to everyone's benefit due to the clever construction of the protocol, everyone naturally obeys them and everyone agrees when someone has done something against the protocol rules and ignores them identically.

So you have to formulate rules that can be described ahead of time and which, for any peer who doesn't know anything about the history of transactions in your system, can be used to ingest all of the block chain blocks and then decide on its own, independently of any other peer, what the state of the "global balance sheet" is after every block; and each peer must be able to do this identically.  The identically part is what, in my opinion, rules out appealing to external entities for values to use in protocol equations for determining validity of transactions, because nobody ought to, or ought to be expected to, rely on an external authority whom they have to trust gives out accurate information to everybody and who is always available to every bitcoin peer and always presents a true, factual, and consistent set of values when queried.

Furthermore, the requirement that the protocol establish rules that peers can use to verify transactions themselves using only the data available in the block chain (or other data that is publicly shared via the peer network and is cryptographically secure using hashes and forced work functions) means that the data sets and rules involved in verifying a given transaction must be minimal; otherwise, the work required to verify a transaction chain becomes prohibitive and gets even worse as the network scales.

This last part is why I keep asking for a concrete description of the rules that peers will have to follow to validate transactions.  If a client has to a) keep an entire history of every transaction in order to be able to evaluate the validity of a transaction chain (bitcoin peers don't due to the merkle trees), and/or b) appeal to external authorities which may or may not be accessible or trustworthy, and/or c) require the evaluation of complex relationships between transactions or escrow accounts or whatever, and/or d) require every peer to retain huge amounts of data on disk in order to be able to validate any transaction, and/or e) any number of other ways to make the work of peers to establish faith in the validity of a transaction impractical that I haven't thought of yet, then it is an unworkable system.

It is my supposition that your proposal suffers from more than one of these problems; and I've been trying to fish out more detail (admittedly I don't understand every aspect of your proposal so I'm trying to get you to consider my concerns and apply them to your system rather than doing it myself).  I don't think you should write to Satoshi or publish a white paper or take any other premature step before addressing these concerns.

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.

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

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.

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.

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 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.

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.

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?

I think maybe I can understand it better with examples.

Oil is at 10 btc, I  want an oilCoin and you want and anti-oilCoin.
What's next? How much each of us put in escrow?

Oil rises to 11 btc. Does anything happen to the escrow? Do I get 1 btc or something?
Although you gave the direction, here we still have to resolve the problem (define the solution in a more concrete manner) of how the system knows the spot price of oil.

You said somewhere that the spot price of oil is not the same as the price of an oilCoin. Then how are oilcoins related to oil in any meaningful way?

In your example, you and I would both buy the tokens we want on the open market (run within the network). There is no way for us to know where the tokens came from - we may have bought them from other users, or one of us may be buying tokens which were generated from thin air by the protocol in order to keep the tokens balanced and the escrow fund solvent.

Ok, we don't know who I buy the tokens from. I just wanted a detailed example of the tokens creation.
The number of oilcoins will always be equal to the number of anti-oilcoins, right?

When oil rises by 10%, the protocol will buy oiltokens and/or sell antioiltokens until funds in escrow are balanced. The exact combination of buying and selling would be determined by what keeps the escrow fund the healthiest.

Isn't the system losing money on the process? If oil rises 10%, then drops 10%, then rises again...
The system is buying high and selling low.

You and I can't realize profits/losses until we sell our tokens, at which point we may be selling to other users and/or the escrow fund.

The price we buy and sell at is determined by us and the market. We have an incentive to trade close to the external spot price of oil, because the protocol charges an increasing fee the further we trade from the external spot price. The external spot price is imported into the block chain by miners, and their blocks are accepted or rejected by the rest of the network in exactly the same way that the distributed timestamps work.

And what's the spot price of an anti-oilcoin?

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.

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, . . . "
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.
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).

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.
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.
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.

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

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

Here's how it would work:

People holding bitcoins denominated in USD, Euros, gold, oil, etc, deposit their bitcoins into an escrow fund held by the network. In exchange, they get a token guaranteed to be redeemable for bitcoins from the escrow fund at the pegged value at any point in the future. These tokens could be bought, sold, used in commerce, etc, just like bitcoins. You could send them to any bitcoin address, and that person would receive them as bitcoins. In this way, somebody could buy a t-shirt using oil-denominated bitcoins which they pay to the bitcoin address of a vendor who holds gold-denominated bitcoins. This would be completely transparent to both of them.

I believe this system is inherrently flawed because there is no counterparty which will produce the USD. You can peg the funds to EUR or USD for example, and produce a number, yes, but it is a meaningless number because the funds were never actually held (or even ever converted into) the other currency at any time.

I like what you're saying and I have thought about this a GREAT DEAL myself. I believe the only way for it to be done is for some party to gurantee a MINIMUM ACCEPTED VALUE for bitcoins. For some party to openly state, and demonstrate, that they are willing to buy all bitcoins provided bitcoins are below a certain price. The intent is not to stabilize the currency TO any currency, only to facilitate mass exchanges of money.

I just don't think there's any other way to do forex other than actually DOING forex.

It would be great for bitcoin, too.
36  Alternate cryptocurrencies / Altcoin Discussion / Multicoin, Namecoin, Goldcoin, Silvercoin, OilCoin, 1971coin, backed by bitcoin! on: July 22, 2011, 09:18:54 PM
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


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


I've recently become aware of some of the work that is being done on alternate block chains, and I was pleasantly surprised. Apparently, there are already plans to make alternate block chains piggyback on the hashing power of the bitcoin network:

https://en.bitcoin.it/wiki/Alternative_Chains

I always assumed that alternate block chains would be doomed because no bitcoin users would want to use them since they would compete with bitcoins for hashing power and e-commerce acceptance. It turns out that is not necessarily true!

If I understand what is going on correctly, these alternate chains will piggyback on bitcoin acceptance and usage.

People are already putting these ideas into use:
http://forum.bitcoin.org/index.php?topic=24209.0
http://dot-bit.org/Merged_Mining

I predict that not only will we get alternate blockchains with pegged values, we will also get blockchains that are pegged to gold, silver, oil, google stock, and anything else you can think of. Sweet!!!

All you need is network rules for each chain which hold old-fashioned bitcoins in escrow, then pay them out in proportion to the movements of the commodity being tracked!

It's a bright future for bitcoin. Very bright.

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.
37  Bitcoin / Development & Technical Discussion / [IDEA] 1971Coins and HyperBitcoins (backed by bitcoins) on: July 21, 2011, 02:44:21 PM
I'm blatantly stealing an idea from Bitcoin Morpheus, who came up with the idea for 1971Coins:

I'm going to create a block chain called 1971coin which will be pegged to the value of a 1971 dollar. Why 1971 dollar? It's the year the US completely dropped off the gold standard. That seems like a good value to peg.

I think I have an interesting way to implement that, backed by the current bitcoin protocol, hashing, and stored value, which I summarized in his thread:

What would be REALLY cool would be if some sort of automatic behind-the-scenes "stabilization option" could be built right into the bitcoin client. Imagine a radio button selection where I could choose to store my value in "1971 USD", "bitcoins", or "HyperBitcoins". The 1971 folks would be paired with the HyperBitcoin folks using contracts in the block chain. The contract allows the 1971 users to spend their bitcoins as if they have a set value in 1971 USD, and the hyperbitcoin contract holders are obligated to add bitcoins to the transaction if bitcoins are worth less, or they can pocket the extra bitcoins if bitcoins are worth more.

I wanted my own thread to discuss this further, so I created this one.

Maybe this idea is too simplistic or impossible, but I'm imagining an interface that looks like this for an average joe who just wants a stable store of value:

Quote
Exchange Rate: 1 Bitcoin = 10.00 1971USD
You have 10.00 1971USD (1.00 bitcoins)
You are storing value in: 1971USD change this

A bitcoin speculator holding HyperBitcoins might see this:
Quote
Exchange Rate: 1 Bitcoin = 10.00 1971USD
You have 10.00 1971USD, (1.00 bitcoins)
You are storing value in: HyperBitcoins change this

Now imagine that the value of bitcoins drops 10%

The user storing value in 1971USD would then see this:
Quote
Exchange Rate: 1 Bitcoin = 9.00 1971USD
You have 10.00 1971USD (1.11 bitcoins)
You are storing value in: 1971USD change this

The user storing value in HyperBitcoins would see this:
Quote
Exchange Rate: 1 Bitcoin = 9.00 1971USD
You have 8.00 1971USD (0.89 bitcoins)
You are storing value in: HyperBitcoins change this

The contract(s) in the protocol automatically transfered 0.11 bitcoins from the hyperbitcoin holder to the 1971USD holder to make up for the change in the exchange rate.

Now imagine that instead of a bitcoin price drop, we had a 10% bitcoin price increase from where they started.

The user storing value in 1971USD would then see this:
Quote
Exchange Rate: 1 Bitcoin = 11.00 1971USD
You have 10.00 1971USD (0.91 bitcoins)
You are storing value in: 1971USD change this

The user storing value in HyperBitcoins would see this:
Quote
Exchange Rate: 1 Bitcoin = 11.00 1971USD
You have 12.00 1971USD (1.09 bitcoins)
You are storing value in: HyperBitcoins change this

In this case, contract(s) in the protocol automatically transfered 0.09 bitcoins from the 1971coin holder to the hyperbitcoin holder to make up for the change in the exchange rate.
38  Other / Beginners & Help / Shout outs from Seattle on: June 08, 2011, 08:19:21 PM
Post in this thread if you are a bitcoiner in the Seattle area!

I'm in Woodinville, and I know of one other guy mining away down in Lacey (near Tacoma) but he doesn't frequent this forum much. Anybody else?

Just in case anybody else is interested in a Seattle meetup, I put a placeholder here: https://en.bitcoin.it/wiki/Meetups
39  Bitcoin / Bitcoin Discussion / Geeks and Wallstreet on: June 08, 2011, 02:55:10 PM
Geeks: Here's the internet. It changes everything.
Wallstreet: Nifty! Here's billions of dollars!!
Geeks: Wow, thanks! Changing everything can be really profitable. What can we do next? . . .
40  Economy / Marketplace / Software Developer Resume Trove - NO COMMENTS PLEASE on: May 31, 2011, 04:47:32 PM
Venture Capitalists (and newly minted bitcoin millionaires) are all over this board, and it is it high time we created a master list of software developer resumes for them to dig through for their bitcoin projects.

If you (like me) got on the bitcoin bandwagon too late to quit your day-job, but you would be interested in developing software for bitcoin-related projects, please post your location and skills here, along with a link to your resume.

Please DO NOT post comments to this thread. If you do, I will ask you to delete it. Each post should be a software developer interested in working on bitcoin, and have a link to a resume (is your resume not online? Shame on you!). If you want to post a non-developer resume, please start a different thread.

I'll start things out:

I'm a 10-year Senior Software Engineer with a bevy of fantastic accomplishments at work and in my personal projects. I'm confident that a LOT of venture capital is going to be pouring into bitcoin-related projects over the next few years, and I want the chance to work on some of those exciting projects.

Location: Seattle, WA (I would reluctantly consider relocating)

Skill-set: C++, C, PHP, MySQL, Javascript, Visual Basic, data analysis, creativity, rapid learning, unconventional thinking, ruthless pragmatism

Resume: http://linkd.in/lakmn7

Bitcoin Accomplishments:
  - Many/Most of the miners in the "slush" pool use my Greasemonkey script (Greasemonkey == Javascript) to extract and analyze extra data about their miners. My script is linked in post #1 of the thread for that pool: http://forum.bitcoin.org/index.php?topic=1976.0
  - Every major craigslist city (and most minor cities) run my ad looking for more mining power. My minions on this forum use my Greasemonkey script extensively to keep my ads running everywhere: http://forum.bitcoin.org/index.php?topic=8200.0
  - I have multiple other bitcoin projects in various stages of completion. I am especially interested in how bitcoins might be used in trading stock/bonds/commodities, although I doubt that will ever be done legally.

I'm not interested in temporary/contract jobs at this time. Thanks!
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