So, if I understand right:
- There is one single issuer of the cryptofiat
- Distribution is only via LN (which makes sense, due to the low amounts of "real" BTC to be expected if 1 sat = 1 unit, e.g. 1 cent), the purchasers having to open a channel to the issuer.
Question: Wouldn't the issuer need a lot of trust for the price of e.g. 1 satoshi = 1 cent to be accepted? From my perspective, the model sounds similar to Tether at first, and he would probably need real fiat (e.g. on a bank account with regular audits ...) to back his cryptofiat, otherwise nobody would buy it.
There's not so much an issuer of the cryptofiat as basically anyone sending BTC to that single address is now able to "issue" tokens from their own address (up to the amount they "purchased"). The address could even be a burn address like 1XXXXXXXX... But I have been kicking around the idea that the address is used to fund further development or even buy back cryptofiat if the market deems it necessary. Not a single person but likely a decentralized organization of some sort with multi-sig access to the address.
The control of that address could disappear (keys lost, people controlling it die off, etc.) and the system would still continue on with no disruption.
Bisq would need to become LN-compatible for that to work, but I guess you know that.
I use bisq as reference but it would likely be a modified version so a user does not necessarily need to download any software (make it web based). While still being able to download software and avoid the middle man.
I don't understand the concept of the "namecoin list of exchanges" and the voting mechanism. Are there multiple (centralized) exchanges involved? I thought there was initially one exchange. What do the users vote, the price or the exchange list?
This part is a bit unhashed but I believe that it will need to start small and grow (likely starting in a small country with few or no exchanges). It will start as a single server but anyone who downloads the software and wants to run their own server (exchange) can also do so. The exchange could charge fees or advertise or whatever they need to make money which allows them to enhance the user experience and advertise to draw more people in. With more volume on the exchanges they're all using the p2p in the background. It's just that the user doesn't know (or shouldn't even care).
The point of the namecoin list of exchanges is so that initially the price can be set to a specific formula (ie. take the volume from Bitstamp, Bitfinex, GDAX, etc. combine and divide to get the price). The price will need to be known by everyone so that the cryptofiat can be the price of the underlying currency while still using satoshis (ie. when someone sends BTC to the initial address at $7k/BTC and 1 satoshi = $1, then everyone in the network knows that the person can issue 7k satoshis and they can ignore any further satoshis sent from that address by consensus.
Since there will be such low volume initially, the price on the decentralized exchange will be too easily manipulated.
But you can't just have a single issuer deciding the price to be used. So initially it will be centralized, then grow more decentralized over time. Then at a trigger point the price is based on the price on the decentralized exchange (due to high enough volume). I figure the "issuers" should be given the ability to determine the price formula that is used.
Unfortunately, I don't think that will work, or I don't understand the mechanism. You are saying that a single purchase of the cryptofiat token with Bitcoin will set the price (potentially forever?)? What is if Bitcoin's price fluctuates heavily, how would the price be "rebalanced"? What if the token becomes traded at other platforms, without the fixed price, and manipulated to the upside or to the downside (something what has happened to the Steem Dollar, for example ...)?
Or are you referring to the "cryptofiat" price measured in fiat? While that would solve the first problem, the second problem (trading at other platforms) would persist. There would still be a "backing" (fiat funds controlled by the issuer) needed to establish trust on the cryptofiat token.
From your explanation, I don't see many differences to Tether - the price is set artificially, and is meant to stay at that price.
I think there is something important missing in your explanation, or something I didn't understand still, so if you want, please elaborate on that.
It certainly is like a decentralized Tether. The main problem with Tether is that it's run by a single company. They have(had) a bank account. Disruption of that single company/account can bring it all crumbling down.
The Bitcoin price can (will) fluctuate no problem. When issuer X buys at $7k they get 7k satoshis. If the price jumps to $10k when issuer Y buys then they can issue 10k satoshis.
Trade on other platforms is more than welcome. If it is known that 1 satoshi = $1 then not only can it just be used for exchange, it can be used in commerce. Merchants can start accepting cryptofiat alongside regular fiat. My ultimate
dream would be that cryptofiat becomes so much easier to use than regular fiat that nobody uses regular fiat anymore. Banks become useless and eventually when BTC price reaches the point where 1 satoshi = $1, people will now just use their cryptofiat as bitcoins. Essentially, bitcoin has now replaced a government currency.
Trust is certainly essential. I believe that if a single exchange is run like this for a while and reaches high enough volume then it will sort of prove itself. Initially it will be centralized and controlled with the mechanisms built in to grow more decentralized over time to the point where it is fully decentralized. People already trust that when they send money to an exchange that the numbers in their database correlate to their money. A lot less trust than I would give but these exchanges are trading hundreds of millions each day so obviously some people trust these database entries.
