Why is this thread in Bitcoin discussion? This drama is starting to get annoying.

The set of all sets = 1

With the way our system is setup, that may not be necessary.  The bitcoins are held by bit-pay (payment processor) then turned over as US Dollars to the Charity.

It works exactly the same way if a charitable donation is made with a Visa card.  Visa (payment processor) has the funds for a very short period of time, then they are sent to the Charity.

With our system, the charity receives the donation into their bank account as US Dollars.  It's much easier to place a value and sell bitcoins than it is to sell some furniture, for example, that people donate to charities all the time.

Yes, we will convert the bitcoins to dollars for them immediately, and send them the funds every business day by ACH.

My position on this is that the psychological benefit, if any, is with inflation, not demurrage. Inflation is an every day phenomenon. Everyone is familiar with txn fees and inflation. Few people have ever seen a government drain their bank accounts to keep prices stable. I would rather not impose an unfamiliar experience on end users. I think this idea will be poorly received  by 99% of the population of potential users.

Except with demurrage the debasement happens instantaneously, and evenly across currency owners.  With inflation, prices gradually get bid up as the new money works its way through the economy.  I imagine this can be potentially disruptive, as the new money starts overly concentrated in one place.  My intuition tells me bubbles could be caused this way.

There is no real difference. You are reasoning correctly. The only distinction is a purely nominal one. Unless psychological illusions are introduced, demurrage and inflation produce identical real outcomes.

My position on this is that the psychological benefit, if any, is with inflation, not demurrage. Inflation is an every day phenomenon. Everyone is familiar with txn fees and inflation. Few people have ever seen a government drain their bank accounts to keep prices stable. I would rather not impose an unfamiliar experience on end users. I think this idea will be poorly received  by 99% of the population of potential users.

The problems to be solved are the temporary hurdles of price volatility and merchant adoption, while effectively avoiding splitting the user base, and making the network effect - and thus reduction in price volatility - harder to achieve.  Any potential long run problems like steady deflation or lack of mining incentives should be looked at separately, and can be easily overcome later on if the time comes that they are relevant.  As I believe cunicula agrees, they should not be a consideration at this time.

Based on the conversations here, these problems appear to require human management to be most effectively solved, and any decentralized solutions have been admittedly lacking.  So to solve these problems while keeping the user base effectively contiguous, I proposed having all of the new currency be issued through a "distributed central bank".  By distributed, I mean that any transactions it engages in must be signed by some threshold number of the organizations that run it.  This is possible using the OP code CHECKMULTISIG which isn't currently enabled in Bitcoin.  The bank would uphold a promise to redeem its currency 1-1 for bitcoins, plus any variable fees.

It can credibly keep this promise, without any risk of a run, by using demurrage when it wants to devalue the currency instead of inflation.  Demurrage results in excess reserves being held by the bank, which can be used later on to pay interest to currency holders in order to fight undesirable currency devaluation, as well as to subsidize merchants and developers.  In this way, the price chart of the new currency could look more like a moving average of Bitcoin's if the bank does a good job.

Gresham's law would need to be enforced during times of deliberate currency devaluation, since otherwise people would just dump the currency on the bank 1-1 for bitcoins.  This can be done by deterring redemption at these times with fees.  Conversely, while the bank is supporting the currency with interest, arbitrageurs need to be deterred with fees from buying up a ton of the new currency from the bank 1-1 for bitcoins, and soaking up all the available excess reserves to be paid out.

Txn fees can also be used to devalue the currency, and collect revenue to be distributed as interest, or merchant and developer subsidies.

Despite the increased centralization, trust should not be an issue as it can be distributed over multiple organizations in the way described above.  Management can also be distributed over multiple jurisdictions, and because the backing is non-physical, it should be resistant to confiscation by states, unlike gold for example.  Also, because this is a measure designed to overcome the temporary hurdles described above, the arrangement doesn't have to last forever, or even very long, hopefully.  Afterward, the bank can stop issuing new currency, gradually redeem all of what remains in circulation, and then finally disband once it's achieved its purpose.

This solution effectively avoids splitting the user base since the relative valuation of the new currency and Bitcoin is completely determined by the bank's transparent monetary policy.  This means that added trading depth in one should lead to added stability in the other as well by the actions of arbitrageurs.

It also avoids having to solve the initial distribution problem and builds off of the work already done by Bitcoin toward solving the initial adoption and volatility smoothing problems.  People are incentivized to buy into and hold onto the new currency because it offers them improved stability, and out of the sense that by doing so, they're helping to aid the the adoption and development of Bitcoin, thereby increasing the value of their holdings in the long run.

If this is successful in giving us a widely adopted, steadily deflating currency, then at that point the protocol and blockchain can be forked to solve the steady deflation problem, if it is indeed a problem.  Or if human feedback is desired, then a new "distributed central bank" can form with this new purpose.  I'd prefer the latter solution, as it would be more effective, and the transition wouldn't be at all economically disruptive.  That, or a gradual transition to the former via the latter.  In the same way any potential future miner incentive problem can be addressed.

Thanks jtimon, I will read them.

I think there are distinct short term and long term problems, and that only the short term ones are relevant now since there exists an obvious way down the road to address the long term ones when they become relevant.  (The particular solution details are not obvious - they're what you guys are coming up with here - but the way to roll them out is.)  So because the added centralization from this proposal only exists temporarily to give Bitcoin a leg up over the adoption hurdle, I don't see it as a problem.  Especially considering the organizational structure I proposed.

I also see it as necessary since these short-term problems clearly require, or would at least be much better solved using, external inputs and human management.

And it's especially beneficial since it avoids splitting the user base and causing economic disruption, unlike rolling out a whole new block chain or forking the existing one.

I'd also like to state that I remain quite hopeful that Bitcoin will make it over the adoption hurdle without this kind of help, and that this should only be seen as a kind of contingency plan.

Don't think I can make the case any better than that, so there you have it.

I was thinking another way the managers might be kept accountable and competent might be if several of these banks were operating for profit and in competition with one another.  There's nothing to stop viable for profit competitors from springing up if the stability etc. they offer is compelling enough.

In my proposal the market exchange rate between the bank's currency and Bitcoin is not actually fixed - it will wiggle around 1-1 since the currency will occasionally be paying either positive or negative interest.  Furthermore, there is currency creation and destruction going on via interest payments and demurrage, respectively.  But I think I see what you mean - you're suggesting the bank issue and absorb currency through "open market operations", right?

I proposed this method instead 1) to reinforce a common (on the larger time scale) currency unit, 2) to avoid introducing risks of insufficient reserves, and 3) because it seemed to me to do the best job of evenly/fairly distributing purchasing power gains/losses (cut the speculators out, they're not necessary when issuing a Bitcoin-like currency).

Physical key storage is an unfortunate fact of having human control over currency issuance/redemption, I think.  But I tried to mitigate this by suggesting using the CHECKMULTISIG OP code to require some majority of the managers' signatures in order to produce a valid transaction.  This way, some minority of them can at any given time lose their keys or be corrupted somehow, and the bank will go on functioning smoothly.

Are you okay with managing the exchange rate through currency creation and currency destruction? I don't like fixed exchange rates.

Also if you want to fix the exchange rate, then you will need physical control over some location where people can redeem their coins. This might prove difficult. Control over creation and destruction can be managed by anyone with access to a computer interface and the right password.

Okay, I accept human control of currency generation. However, we need to tie human hands to prevent them from seriously fucking up. What if human input could produce a 5% rate of currency destruction annualy or a 5% rate of currency production annualy or anything in between, but that any changes outside these bounds are blocked in the code.

Dacoinminster and morpheo (among others) propose different chains in which miners must report certain outside exchange values and the validity of their block depends on the network accepting those reports as truth or not. They can average various exchange and an error must be allowed.
If you know the prices for btc/usd, usd/oil, usd/gas, usd/rice, usd/corn, etc. You can make a target stable value to estimate dP.

The servers are running at Rackspace US. If there is a lawful request/warrant or whatever I will have to comply unless I want to go to jail. Unlike many services out there I am not hiding behind Tor and nicknames.

IMO, if we want bitcoin to succeed we need to go beyond the cloak and dagger business.

@d'aniel

If you have the external input of exchange rates in the chain, why do you need human management?

Mmmm. Your idea seems pretty centralized to me.
I suggest you read beertoken, stablecoin and reservecoin proposals in the list of my sign.

I clearly disagree with everyone else on this. Volatility is cause by unanticipated changes in demand. Theoretically, volatility is completely unrelated to any predetermined supply rule you choose (10% destruction, 10% inflation, constant supply, etc.). If you make the supply rule a function of demand information, you can either increase or decrease volatility. Having supply linked to difficulty seems like a no-brainer to me, but no one seems to agree.

The server side is well aware about which wallet public keys are linked to what account public key. This allows the server side to:

• accumulate the wallet balance and return a total.
• grab transactoin outputs sent to different addresses and combine them into new transactions.

If you are worried about this you could use several accounts and one key in each. However, this would greatly increase the bandwidth usage of your device and a heavier load on the server. Furthermore you should somehow make your requests come from different IP addresses (Tor) and not make them come in a bundle.

While using PIR might be a solution, it also introduces a big communication overhead.

Both methods defeat the purpose of the BCCAPI, as it should be light-weight in terms of communication and battery life. In the end you would be better off downloading the entire block chain to the device.

In my opinion, the whole account system needs to be removed from the code.  You really should stop using it.

By steady deflation I meant "always in a deflationary state", not something like "steady 3% annual deflation, forever" as that's not something that could happen.