Investigating the need for MasterCoin / Colored Bitcoins

[ripper234]

This topic has been discussed before.

MasterCoin is a codename (coined by dacoinminster) for a concept that has been discussed many times here. The basic idea is a new P2P cryptocurrency that allows anyone to easily issue, control and distribute new types of coins.

Example use cases

 - Greece might issue "Drachma 2", a new coin that they manage.
 - A gold trading company can issue GoldCoin, which they promise is always backed by physical gold (insured by 3rd parties)
 - An individual can issue MyCoin, and distribute those to people who he values ... he would then be willing to trade this coin in exchange for his time
 - and so forth...
 - Other Bitcoin-like coins can be issued on top of this coin, investigating properties like faster confirms, different economic properties, StakeCoin, ...

The idea is that Bitcoin itself has very rigid economic properties, that will never be changed, namely fixed money supply and a specific coin minting schedule. Who says these specific parameters are "the correct ones" for the currency that positions itself as a candidate for being the one global currency?

Alternate cryptocurrencies can be created by forking the Bitcoin client, but this process is damn hard. A group of non-techy friends that want to create a "BeerCoin", local to their group, that symbolizes who owe who a beer, will never fork the Bitcoin client. Beyond the technical difficulty of forking, alt coins often have low hash power, and are prone to various attacks because they don't share Bitcoin's hash power (Merged Mining is not a trivial solution for any new alt coin).

So far I just introduced the topic, but I didn't say that I support it.

My opinion

I remain unconvinced that this concept is needed. I believe that people don't really have a need to deal with a lot of coins, and that the ideal situation, for the human kind, would be to have only one representation of money.

As for some of the use cases above, I don't think that a p2p cryptocurrency is the best solution for them. Open Transactions might fulfill all the requirements without the added complexities of Bitcoin, and without being a burden on its blockchain.

I believe that Bitcoin has all the desired properties of an ideal currency. There might be a few competing variations, with minor changes to the coin minting schedule, block confirmation strategy, and so forth ... but we don't really need more than a handful such alternates.

Implementation Notes
Just an aside - I prefer to keep the discussion at the "is there a need for this" level, but I still wanted to reference  two possible implementations for this concept as a p2p currency:

 - Dacoinminster's proposal of MasterCoin (already linked) - a new blockchain that people can switch into by "destroying an amount of bitcoin" in exchange for obtaining new MasterCoins.
 - "Coloring Bitcoins" using a modified client, but without any protocol changes.


Discuss

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[str4wm4n]

very interesting...this is a good idea in my opinion

I can imagine entire communities and regions having their own coins,
and in a truly anarcho-capitalist scenario, the places you would want
to stay in the longest would have the most valuable coins and all coins
could be traded against each other. it would be beautiful

[NASDAQEnema]

Wow. That didn't take long.

Working on MasterCoin type things...

Man this place lights up when summer is over just like Anons.

Well the hive has ideas, I guess we can find some common ground.

[ripper234]

So ... nothing? Or is everybody too busy with Pirate and BTC/USD fluctuations to care about this?

[markm]

Is this necessary in order to work around the enmity some miners seem to have toward merged-mine-able chains?

In principle merged mining was intended to accomplish this ability for many new coins to easily be brought on line, in practice merged mining was even used to attack alternative chains instead of to secure them. Though maybe a more aggressive legal-action response to folk who attack networks could eventually ameliorate that, at least moving it from a public action of major pools to a back alley operation fully acknowleged to be as illegal as any other cyber-attack...

-MarkM-

[ripper234]

Is this necessary in order to work around the enmity some miners seem to have toward merged-mine-able chains?

In principle merged mining was intended to accomplish this ability for many new coins to easily be brought on line, in practice merged mining was even used to attack alternative chains instead of to secure them. Though maybe a more aggressive legal-action response to folk who attack networks could eventually ameliorate that, at least moving it from a public action of major pools to a back alley operation fully acknowleged to be as illegal as any other cyber-attack...

-MarkM-

Yeah, spot on. With Merged Mining it's difficult to attract to right crowd to merge mine your chain. I don't think legal action is something we should count on ... not even sure it attacking blockchains constitutes an attack in any legal manner.

[frisco2]

Cons: I do not think that I should be mining GoldCoin if I never use it. I only want to spend resources on Bitcoin.

Pro: I refer you to Milton Friedman, who advocated the use of different currencies in different countries in order to allow free market to set converstion rates on the currencies -- it would represent different development of the countries, and their law system.  A Chineese worker gets payed salary in his currency, and american consumer buys chineese exports in dollars. The conversion rates will balance out for everyone to make a good living / spending situation. Mind you, Friedman developed this idea, before an electronic "gold" like Bitcoin existed.

[maaku]

There's no need for a "master block chain", if I'm reading your post right. Just update the existing client to support multiple chains side-by-side in a single running process. This is something that I was going to work on eventually, if for no other reason than to simplify the process of running bitcoin and freicoin side-by-side and sharing patches.

But for most of your needs, Open Transactions fills the bill. A bitcoin-like block chain is only ideal for a small number of use cases that require peer-to-peer distributed services. For most financial applications there is inherent centralization in the problem, making Open Transactions a better, more lightweight solution.

[yoniassia]

The main reason to use the bitcoin chain is to harness the community of bitcoin, and let it scale towards an economic infrastructure rather than just one currency.
The Second Bitcoin White paper http://bit.ly/SecondBitcoin (with open comments) is indeed a great comprehensive work on the shortfalls of the bitcoin , I believe that a lot of the concets there are not required for the main problem which is :
"Alternate block chains compete with bitcoins financially, confuse our message to the world, and dilute our efforts. These barriers interfere with the adoption momentum of bitcoin and the adoption momentum of alternate currencies as well, regardless of how well-conceived their
rules may be."

The bitcoin2.X (or possibly bitcoinX http://bit.ly/Bitcoin2) is a much simpler approach :
instead of fixing the value of one currency, lets use the bitcoin infrastructure to create a number of currencies all based on the security of the bitcoin , by simply recognizing a coloring protocol on top of the bitcoin protocol .

I love the Milton Friedman Quote, it conveys exactly what we are saying, why build a currency if you can rebuild the economy ?

http://www.yoniassia.com
http://www.linkedin.com/in/yassia
https://twitter.com/yoniassia

[markm]

Currently though, this code does not actually exist.

Also, I trying to peg a currency is fraught with problems, supposedly.

Merged mining is code that already exists, and merged mined chains are plug-and-play compatible with existing software that currently contacts a bitcoin daemon to do transactions, so software already exists which should work fine with almost any merged-mined chain,

Pegging is not the only way to stabilise the value of a currency; using reserves seems to work quite well. It has been well over a year now since various altchains that use the reserves approach were started, and their values seem strikingly stable compared to the volatility of chains whose coins are minted by arbitrary random miners who maybe have no interest in the coins other than that of dumping them for fiat.

Of course it is hard to see the stability if you express values in terms of some highly volatile coin, but take a look for example at the values expressed in CDN and/or the values expressed in NKL, at http://galaxies.mygamesonline.org/digitalisassets.html

-MarkM-

[ripper234]

The main reason to use the bitcoin chain is to harness the community of bitcoin, and let it scale towards an economic infrastructure rather than just one currency.

I don't think this is a good enough reason. If there are technical benefits to using OT (and I think there are), then it should be the chosen solution. Bitcoiners might still be early adopters of this new tech.

[yoniassia]

"I believe that Bitcoin has all the desired properties of an ideal currency. There might be a few competing variations, with minor changes to the coin minting schedule, block confirmation strategy, and so forth ... but we don't really need more than a handful such alternates."

This sentence means u understand the need for several currencies, therefore a solution is needed.
why compete over resources if all these currencies can work together, why keep things fragmented if they can be unified.

in a future of digital currencies (by definition all currencies will become digital as its the progress of analog), in order to keep them digital while exchanging them they will need to be based on the same protocol to keep persistency (transforming bitcoin to usd is very similiar to digital to analog conversions). if that future will include colored bitcoins, you could replicate or convert the value of any analog financial instrument into a colored bitcoin (gold, dollar, oil), and then exchange them in virtual form, without the need to convert back to analog.
Playing santoshdice made me realize how amazing it is to have your money in your wallet and simply for every transaction place your bet and get it back to your account - the equivilant in regular world would be deposit into gaming account (use credit card, move money from credit to bank, bank to gaming company 3 days, make bet, withdraw (again 3 days). Having

From what I understand open transaction is much more than just a crypto currency its an entire system and specification of any type of financial contracts, which make it harder to understand, and harder to implement globally.

What is really needed to change the world is create a killer app, that creates new usage over the web of transferring value from one person to another. The technology is here, bitcoin can provide the crypto currency and twitter the communication way. There are 500M people who know how to twit, why not twit money ? all we need is to find a way to connect the client to tiny bitcoins, and after to think how you can exchange one value for another.

[killerstorm]

I failed to understand about a half of MasterCoin paper, but it seems to be way too complex and it's unlikely to work. dacoinminster is neither a programmer nor a crypto guy, so there is a lot of unimplementable wishful thinking in there.

However, coloring bitcoins is the shit. I really see no downsides, but it's incredibly easy and in can work.
Even if it doesn't catch on, it's definitely worth to implement it as an experiment.

(Well, technically there is a couple of problems: Bitcoin blockchain is hostile towards microtransactions and probably cannot scale to support them on a large scale. But it isn't a fundamental problem, I think.)

Compared to other solutions, it is interesting because it allows one to create new assets with pretty much zero friction. There are no servers to worry about, no security woes, no DDoS attacks. Just color some bitcoins and it works: forever, worldwide, for free, in a form which is highly resistant to censorship and blockades.

Isn't it awesome?

Merged mining really cannot compete with it because it is incredibly hard to create a new asset with it.

OpenTransactions, perhaps, can, but colored bitcoins have numerous advantages. So it would be interesting to see them competing.

Is anybody working on an implementation now?

[yoniassia]

thanks for the amazing response ! We fill it is an extremely simple approach to extend into an economy, and we are building it.

We are building our first client as one colored bitcoin, to create http://www.twitcoin.org, basically a coin which has initial distribution and "mining" algo based on twitter users data. Open source, github, node js .

Intrested to help ?

[killerstorm]

Intrested to help ?

Well, I'm interested in colored bitcoins, but not so much in that twitcoins. To be honest, I don't see how that can work: there won't be any demand. Also, unlimited supply...

But if you're working on bitcoin integration perhaps same code can be used for other colored bitcoins, like in general case, then I'm interested in that. But I don't have much spare time, to be honest...

I haven't found any github links so I don't see what is done (and in which direction) so far.

[yoniassia]

ripper234 is looking for the base client to work on at :
What client is easiest to fork? https://bitcointalk.org/index.php?topic=102595.0

What we would like is to start by building a new full client (with GUI) that support a new colored bitcoin,

help appreciated,

Thanks,
yoni

[markm]

First step should be to localise all the details of the code that make the program look like it is one particular type of coin.

That is, all the places where the name of the coin is displayed and so on.

That way any "colour" of coin or any "alt" coin can be built easily as all the strings and logos and so on that are different from one coin to another will all be in one place easy to switch/change.

Similarly, the key constants that make it one coin or another: the port and rpcport, the IRC channel, the DNS seed and so on.

Basically make the code generic. First step to making it easy for people to create their clients easily for their chosen colour of coin.

-MarkM-

[killerstorm]

Why not the default, "Satoshi" client? It might be a tad harder to work with it, but on the other hand people who already have it won't need to re-download the blockchain.

Also it depends on what programming language person who wants to implement it knows, e.g. C++ programmer would be more comfortable with C++ source code, obviously.

I help is needed I can perhaps fork some time this weekend. I'm most familiar with C++ but I can program in pretty much any language. I think it's possible to to implement this in one-two days or so. (But I'm not 100% sure we mean same thing by 'color bitcoin implementation'.)

Also I thought that transaction fees would be a problem for microtransactions with colored bitcoins. In that case simplest strategy is to start a block chain merged-mined with Bitcoin which would have no txn fees. But that's like a backup plan.

[markm]

What will you be using as an exchange for, say, these "twitcoins" for example?

If you use Open Transactions for your twitcoins or whatever coins, you'd also have markets too automatically...

-MarkM-

[killerstorm]

In theory, exchange between coins of different colors can be distributed, i.e. run as P2P client.

[markm]

In theory, exchange between coins of different colors can be distributed, i.e. run as P2P client.

Good luck with that. No one has managed to come up with a p2p exchange yet.

It might be worthwhile to do so though as regardless of whether coloured coins ever happen there are already plenty of flavours of coin that could do with a p2p exchange to exchange between them all.

-MarkM-

[killerstorm]

I've started doing a little proof-of-concept to check this idea.

My fork: https://github.com/killerstorm/bitcoin/
colored bitcoin code lives on branch cbtc.

Here's a diff between mainline and colored branch (i.e. changes I've made:
https://github.com/killerstorm/bitcoin/compare/cbtc

Description of code: https://github.com/killerstorm/bitcoin/wiki/Code-structure

Here's info on trying it out: https://github.com/killerstorm/bitcoin/wiki/Running
(I assume that you can compile code.)

[killerstorm]

In theory, exchange between coins of different colors can be distributed, i.e. run as P2P client.

Good luck with that. No one has managed to come up with a p2p exchange yet.

Guys on #bitcoin-dev explained me that exchanging between coins of different color in one blockchain is fairly easy: it involves two guys signing one transaction, no need for any advanced contract support, not even multisig. It's a very basic stuff.

So I'm rather confident that implementing a full p2p exchange isn't that hard, maybe one man month worth of work.

Other p2p exchanges are much more complex, of course. This is why no one has managed to implement one yet, I guess.

[markm]

Well yeah even between blockchains is possible with multisig of some kind apparently.

The hard part is anywhere that touches fiat.

So okay, if a bunch of coins each having 21,000,000 coins each just like bitcoin all want to try using this coloured thing, how do they go about issuing their 21,000,000 coins each as colours on your system?

-MarkM-

[killerstorm]

Well yeah even between blockchains is possible with multisig of some kind apparently.

The hard part is anywhere that touches fiat.

Indeed. In terms of functionality it is roughly same as OpenTransactions (less feature-full, of course), so it does not solve 'fiat' problems.

I believe that Ripple might solve 'fiat problem', but Ripple requires entirely different infrastructure. I'll implement it later, next month, maybe

So okay, if a bunch of coins each having 21,000,000 coins each just like bitcoin all want to try using this coloured thing, how do they go about issuing their 21,000,000 coins each as colours on your system?

According to the original spec we can define a split in a genesis transaction which issues new type of currency/asset. E.g. we declare that 0.001 Bitcoins descending from genesis txn are 1 RedCoin.

But this is just for display purposes, of course, backend software counts everything in satoshis anyway.

So we would observe loss of precision, i.e. currencies which are introduced via split would have a relatively larger quantum.

This would be much less of a problem if base currency has potentially infinite monetary base. (E.g. 50 coins mined forever.)

[killerstorm]

The actual exchange isn't the same thing as an "exchange".  Exchanges also fulfil another important role and that is to ensure bids are binding.   Not saying it is impossible to do in a p2p manner but trivializing it is not really productive.

I don't understand why this is a problem.

Spam and DoS attacks can be a problem, but they can mitigated through various tricks.

Otherwise some trades will fail, but order book isn't deterministic from client's point of view anyway: if you seen certain bid in orderbook and send an order to fill it, there is no guarantee that somebody won't fill it before you do. Also bids can be canceled, can't they?

So from a practical perspective distributed exchange just requires more time to match orders and that's all.

If you remember, in 2011 mtgox had order matching so retarded that it took several hours to match a huge-ass sell order. (And people were able to submit more orders while it mtgox was processing it.)  So this hypothetic distributed exchange won't even be the craziest

The ability to place false bids & asks would doom any p2p exchange unless you figure out a p2p way to enforce quotes.

There are certainly some ways to make quotes more 'binding', but I think it's a premature optimization to do that from the start.

[markm]

This would be much less of a problem if base currency has potentially infinite monetary base. (E.g. 50 coins mined forever.)

50 coins per block forever is GRouPcoin; so the coin you need is already out there...

-MarkM-

[markm]

So how goes the investigation?

Is there apparently no need yet?

-MarkM-

[killerstorm]

Um, I think we came to conclusion that there is a need quite a while ago.

[ripper234]

The project is ongoing, although I'm not very involved with it right now.

There is a dedicated google group for these discussions, started about a week ago.

I personally think that the original MasterCoin topic might be the best way to proceed with implementation, but as I said I'm not very involved with it right now, just musing. There is a POC client that supports colored coins on the Bitcoin network, implemented by killerstorm (link?). Right now the implementation problem seems to be scalability/tx fees, and there is some debate whether it's solvable on top of Bitcoin/Litecoin, or whether some modifications to the core protocol are needed.

[killerstorm]

Scalability is a problem only for some uses. (Basically, if you really want many participants with many transactions.)

For many other uses it's ok. E.g. for assets which aren't so numerous and do not change hands so often.

Currently we are finalizing coloring algorithm, scalability is more like thinking about future.

ripper234, can you elaborate about MasterCoin, is it just about starting a separate blockchain for coloring and other stuff?

[ripper234]

Scalability is a problem only for some uses. (Basically, if you really want many participants with many transactions.)

For many other uses it's ok. E.g. for assets which aren't so numerous and do not change hands so often.

Currently we are finalizing coloring algorithm, scalability is more like thinking about future.

ripper234, can you elaborate about MasterCoin, is it just about starting a separate blockchain for coloring and other stuff?

That's true, it's just that most of the uses I've heard people talk about involve a lot of transactions.

As linked to from the OP, MasterCoin is a concept involving many different chains built on top of each other. People can opt into the MasterCoin model by "destroying" Bitcoins and effectively coverting them to MasterCoin. Have you read the whitepaper?

[killerstorm]

As linked to from the OP, MasterCoin is a concept involving many different chains built on top of each other. People can opt into the MasterCoin model by "destroying" Bitcoins and effectively coverting them to MasterCoin. Have you read the whitepaper?

I've looked it through, it looks like it's designed by a non-programmer and is basically unimplementable.

It's like "Let's build a new Bitcoin with blackjack and hookers". That would be cool, sure, but who will bring hookers?

I thought that maybe you have scrapped sane parts out of it...

[ripper234]

As linked to from the OP, MasterCoin is a concept involving many different chains built on top of each other. People can opt into the MasterCoin model by "destroying" Bitcoins and effectively coverting them to MasterCoin. Have you read the whitepaper?

I've looked it through, it looks like it's designed by a non-programmer and is basically unimplementable.

It's like "Let's build a new Bitcoin with blackjack and hookers". That would be cool, sure, but who will bring hookers?

I thought that maybe you have scrapped sane parts out of it...

It's been a while since I reviewed it, I do remember some part of it being too vague, but I remember the feeling that some parts/ideas from it are in fact implementable.
It's been a while though.