This is the sort of paranoia we need more of around here!

In this case, a less trusted forum member (me) was leveraging the trust of someone who was much more trusted. Michael Hendrix met all my requirements for how to choose someone to trust if you must (listed above), except obviously he had no insurance himself. In that forum thread I was telling the people placing bets that they don't need to trust me if they trust him, since he was holding my bond.

We could have been in cahoots, but there wouldn't be any point to doing that. Michael already has a lot of trust - he doesn't need my help to scam people if he decides he wants to do so.

I put this post in the Newbies area for a reason

I believe that bitcoin will someday be orders of magnitude more secure (and more valuable). If you buy bitcoins now, you are an early adopter getting in while prices are cheap and betting that security and utility will improve.

In the meantime, yes, you must be absurdly paranoid. These websites cannot be trusted any more than you absolutely have to. To actually hold onto your coins long enough for your investment to pay off, you need to push the paranoia up to the tinfoil-hat level. This is the price of being an early bitcoin adopter.

Agreed. I wrote the post because I am appalled at how much people are trusting exchanges and online wallets to hold ALL their bitcoins. People are too trusting, and need to get a lot more paranoid.

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

I will be so, so happy when this hypothesis actually gets tested by someone


Dang. You are right. I don't know why I didn't see that - even if everyone somehow used the same rules on the distributed exchange, people would just trade outside of the distributed exchange.

I'm increasingly convinced that you have the right approach here. I'm just worried about the coin destruction driving down coin prices rather than driving them up. If you can handle the "doomsday scenario" where 90% of people holding these coins panic that the coins won't hold their value, I'll be totally convinced.

People don't behave rationally during a panic, and I don't think you can rule one out.

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


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



I agree with all of this.

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

At first I had thought this would be the case, but I believe that is impossible. Instead, the system would try to keep the anti-oilcoin escrow fund equal to the oilcoin escrow fund.


You are right that the system I described would buy oilcoins when they went up in price, and sell them when they went down in price. This would have the annoying effect of amplifying any price swings, although I doubt it would consistently lose money since it can always choose the best option between manipulating oilcoins or antioilcoins. I can't prove that though.

I've been frustrated trying to think of what the spot price of an antioilcoin should be. The simplest answer is 1/oilcoin, and you just have a lot more anti-oilcoins. However, no matter what price scheme I choose, they get out of balance after any price movement and require active intervention.

I'm also warming up to morpheus' idea to control prices with mining rewards: https://bitcointalk.org/index.php?topic=29135.msg367322#msg367322

He does this rather than using an "anti" coin and escrow fund, but I'm pondering whether the ideas could be combined.

I am just absurdly interested in these "pegged" coins of all type, as you can tell from my own threads. I was wondering how you would handle the case when the coins were too plentiful and their prices too low, so I'm glad you described your plan.

I am concerned that destroying coins in high transaction fees would lower interest in the coins, leading to lower prices for existing coins, which would force you to raise transaction fees, which would lower interest in the coins, leading to lower prices, . . . you get the picture. Basically, this could result in a divergence which never recovers.

Another concern I have is that you don't want to drive the price too forcefully, or you will limit the impact of goldcoin traders on real-life markets. As long as the prices converge over the long-term, short-term swings are not much concern, and they present arbitrage opportunities.

You might want to consider combining your feedback system with the one I came up with: charging variable transaction fees. If you have a distributed exchange, you can charge no transaction fee when trading at the external spot price for gold, and an increasing transaction fee the further you trade from that spot price. This continually nudges prices toward the external spot price, and helps you not rely so heavily on destroying coins.

Unlike the other guy, I AM a puritanical Bible-thumping evangelical porn-hating Christian (really), and while I'd rather you not have an adult section at all, I appreciate that it is not prominent.

I dunno. I've never been, since it is in the middle of my workday. Somebody else set the time and place.

Anybody feel free to edit that wiki to give us a better time/location. As far as I know, the current one isn't happening.

Please post model, year, pictures, price, etc.

I'm guessing you would get a better price selling it on craigslist (and then using the cash to buy bitcoins), but who knows?

Yeah, I took a poll, and that seems to be the consensus.


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.

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.

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.

I agree with all the above, and I thank all of you for helping me brainstorm about these crazy ideas. Hopefully there are some awesome and interesting block chains coming that will be ride along on bitcoin hashing and store value in various interesting and innovative ways.

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


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


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

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

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

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

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

Ah, so we have about 42 days (1000 hours) before this is possible if namecoin averages 6 blocks/hour.

That's exactly what I thought (that you couldn't have one hash work for both), but I was wrong. I'm not an expert on this, but my understanding is that they will both accept the same hash if it meets their current difficulty requirements. I had to read lots and lots of posts and wiki pages before I finally understood this. One post which helped was here: http://forum.bitcoin.org/index.php?topic=30294.msg393412#msg393412

Basically, namecoin has been modified to accept bitcoin hashes which contain the namecoin merkle root hash in the bitcoin block. The bitcoin protocol doesn't care, and you get free namecoins for the bitcoin hashing you were already doing.

There will be more and more alternative chains, and miners are going to want to get as much value out of their hashing as they can, so this will become an essential feature. The pools will probably just sell the namecoins for bitcoins, take their cut, and distribute the rest of the extra bitcoins to the miners.

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

Tiny tip sent your way. I like to spread itty bitty tips around when I find something helpful or cool.

tycho,

I haven't seen any discussion of merged mining on other block chains like namecoin here yet (at least, no hits on a search of this thread). Are you working on this?

https://github.com/vinced/namecoin/blob/mergedmine/doc/README_merged-mining.md
http://dot-bit.org/Merged_Mining

Basically, we can earn namecoins and bitcoins at the same time. It sounds crazy, but it appears that there is no loss of bitcoin hashing power when adding namecoin mining. Just additional free profits. The only thing needed to enable this is changes on your end.

Thanks!

slush,

I haven't seen any discussion of merged mining on other block chains like namecoin here yet (at least, no hits on a search of this thread). Are you working on this?

https://github.com/vinced/namecoin/blob/mergedmine/doc/README_merged-mining.md
http://dot-bit.org/Merged_Mining

Basically, we can earn namecoins and bitcoins at the same time. It sounds crazy, but it appears that there is no loss of bitcoin hashing power when adding namecoin mining. Just additional free profits. The only thing needed to enable this is changes on your end.

Or are we already mining namecoins for you?

Thanks!

Thankyou ttk2 for this. I've been reading lots of text about this concept, and wasn't quite getting some bits of it. Now it makes more sense.

Why don't you have a donation address in your signature?