This contest is over.I will be deciding the winners soon, hopefully today.
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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=31032.0and a follow-up thread here:
http://forum.bitcoin.org/index.php?topic=31645.0I 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=11614.0Backing 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=24929I 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_ChainsBut 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.
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
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.
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