Thought Experiment: A Coin which destroys Bitcoins

[EndlessSummer]

Imagine a piece of software which does the following exchange:

You send this exchange 1 Satoshi The exchange sends you back 1 new "swap" coin

This continues until 1000 Satoshis have been sent and 1000 new "swap" coins have been created.

The "price" then increases to 2 Satoshis to get 1 "swap" coin until another 1000 more have been exchanged.

The price then goes to 3 Satoshies to get 1 "swap" coin.. etc

What happens to all the Bitcoin which has been sent to the exchange? They are instantly destroyed. 

This hypothetical software would obviously be completely automated, transparent and open it what it is programmed to do so no one can argue that it is stealing Bitcoin.

What do you think would happen?

I think in most likelihood nothing. But say some people risk a few Satoshi each knowing that the price will soon effectively double. Others see this rapid increase and join in knowing that the price will soon be much higher again. Soon the price is increasing fast as many new users send Bitcoin to the exchange for this new coin. An ecosystem soon appears around this coin and more people migrate over all the time Bitcoin is being destroyed. Eventually the "swap" coin is dominant and the remaining Bitcoin are minded and swapped.

There would be no set cap on the amount of "swap" coins in existence and this was only determined by the amount of Bitcoin in existence so people would be effectually mining Bitcoin and swapping them instantly for "swap" coin at an ever increasing (per 1000 coins) "cost" in Bitcoin. You would eventually have nearly all Bitcoin swapped for "swap" coin and the "swap" coin network could be run much more efficiently then the Bitcoin one.

Hope that made sense, the vague idea has been bugging me all day so it would be good to know what you think.


 

[jongameson]

Since your using a centralized broker.  I'd assume the following 3 things would happen:

1) u'd be nuclear bombed

2) u'd die

3) all your possessions destroyed by the police

TRY it!

[frga13]

Hmm, that's seems interesting...
This method can be used for upgrading Bitcoin to 2.0

[bnogal]

It is not hard to do a coin than create addresses (public keys) to store the coins.

You hash N times, and with that result you send the coins there.
the client of that coin just check that transfer(in bitcoin chain) were accepted and then coins are added to your coin chain.



PD: i was thinking about using a system like that(without the halve thing) for my crypto democratic and anti fraud/corruption coin.... that with POS and there is no need for POW waste.

[EndlessSummer]

I am sure this could somehow be done with out a centralized broker or server which could be taken down or stopped. (However, If you tried to do the same thing with the US dollar instead of Bitcoin you  may actually be nuked).

As yes this could be a way to move to Bitcoin "2" as it would encourage early migration and hence a snowball effect may be created where people rush to move over before the exchange rate is 1:1 or worse (I have not done the maths to see if this level would be reached before we run out of Bitcoin)

[anonuser777]

Imagine a piece of software which does the following exchange:

You send this exchange 1 Satoshi The exchange sends you back 1 new "swap" coin

This continues until 1000 Satoshis have been sent and 1000 new "swap" coins have been created.

The "price" then increases to 2 Satoshis to get 1 "swap" coin until another 1000 more have been exchanged.

The price then goes to 3 Satoshies to get 1 "swap" coin.. etc

Why would the price for the new coins increase? As bitcoins get destroyed the remaining ones would become more valuable. The price of your new coin would therefore decrease. Am I missing something?

[EndlessSummer]

Maybe that would happen, as far as I can see it would do one of 3 things:

Scenario A:

The remaining Bitcoins increase in value as the total amount decreases (which is the obvious thing to think will happen).

Scenario B:

As people move to "Swap" coin people lose faith in Bitcoin and the value falls.

Scenario C: (what I think would happen)

As the value of Bitcoin is in a ratio to the "Swap" Coin value Bitcoin would slowly lose its value in relation to "swap" coin as the cost in "Swap" coin increases.

What this would do in relation to Bitcoin cost in US$ is debatable and something I am trying to get my head around (I have had a long day / week).

I would think it would lead to Bitcoin still being worth quite a bit as you need to to exchange to "Swap" coin but it would slowly fall in value as you needed more and more of it to get a "swap" coin.

I really don't know what would happen hence why I asked, anyone got any idea?

[scotjam]

XCP aka "Counterparty" has already done a bitcoin-burn-based launch. Worked pretty well actually. The difference is that the burn period was finite (rather than ongoing, which your suggestion sounds like it would be).

https://bitcointalk.org/index.php?topic=395761.0

It has a tonne of other interesting features as well, such as a distributed exchange and a bitcoin-based transport layer - worth checking out! I myself burned some bitcoin for it during the burn period...

scotjam