Stabilize the price of bitcoin by gold

[gongcheng]

Hi, all.

     I just got an idea to stabilize the price of bitcoin by gold. I want to establish a company to backup bitcoin with gold. I will give the promise to exchange 3 bitcoin for 1 gram of gold. I will not call bitcoin a currency, instead I will call it a virtual commodity.

     I have done some homework, I think in order to keep the promise, I need to prepare 100 kilograms of gold, that is 4.8 million US dollar.   

     I believe that this will be benefical to the bitcoin economy. Also by doing so, I can make some profit by charging transfer fees like MtGox.

     So what you guys think? Any good suggestions?

       

[1714063624]

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[1714063624]

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[Atom]

I was going to argue with you, but this actually would work - BTC is so volatile at least partly right now because it is valued relative to currencies that are being constantly devalued, but if a private business or organization were to essentially place an open order for gold @ 3BTC/g that would quickly stabilize the price.

Pegs to gold don't work if you're expanding the currency (dollars) at a much faster rate than the supply of gold expands (2ish% a year I believe), but that's not a problem Bitcoin has given its transparency and distributed nature of generation....

Put together a business plan and we'll have you on BitTalk to do an interview segment about your idea

[Anonymous]

I was going to argue with you, but this actually would work - BTC is so volatile at least partly right now because it is valued relative to currencies that are being constantly devalued, but if a private business or organization were to essentially place an open order for gold @ 3BTC/g that would quickly stabilize the price.

Pegs to gold don't work if you're expanding the currency (dollars) at a much faster rate than the supply of gold expands (2ish% a year I believe), but that's not a problem Bitcoin has given its transparency and distributed nature of generation....

Put together a business plan and we'll have you on BitTalk to do an interview segment about your idea

Not if I make a plan and act on this first, Atom. Hahaha. This is a very low-risk business. If all things go bust, at least you have a ton of gold as collateral.

However, essentially, you're just another Bullion dealer with tremendous stock.

[NO_SLAVE]

and your going to keep this gold where.....please say your apartment

[Anonymous]

and your going to keep this gold where.....please say your apartment

Even better: a decentralized gold storage network. Your gold to your home in 2-3 days or less.

[Atom]

and your going to keep this gold where.....please say your apartment

One of the amusing things about when governments print money, is that the amount of money available for "speculation" surges incredibly, as we've seen.  It also dramatically expands the amount of Venture Capital available      

It may be amateur hour in the world of BTC for now, but if we don't get our acts together someone else is going to.

@ Atlas - You can't do everything my friend I think you have enough irons in the fire for several lifetimes now

[qualia8]

Good luck trying to back bitcoin with gold.  It's a gamble, akin to a government fixing the price.  BTC and gold are independent markets and move for related, but different reasons.  Nothing stops BTC from dropping dramatically in dollars and everyone running to you for gold.

[Serge]

Bitcoin is not mature enough to stabilize, let it grow a bit more

[Atom]

It could be done much more easily once the mining curve tapers off a little more -Then you just take however much gold the backing agency has, and you divide that by however many bitcoins there are in existence, and that's your exchange rate/backing.   Honestly at the stage that would happen you'll be able to use BTC to buy whatever you want, so it might just be a good way to monetize your gold lol.

[mpfrank]

I think you need more capital.  Eventually there will be 21,000,000 BTC, and so at 3 BTC / gram you will need 7,000 kg of gold (in case everyone decides to cash out).

[Vinnie]

Cool! Make the market! I'm a big advocate of pegged currencies.... but bitcoin doesn't necessarily need to be one, in my opinion. Eventually its value will reflect what you can buy in the Bitcoin economy, as if bitcoin were it's own city-state with its own economy and currency.

[Atom]

The networked world is the bitcoin economy, it just doesn't know it yet.

[gongcheng]

and your going to keep this gold where.....please say your apartment

Quite a few banks in china offer the service to storage gold for you.

[gongcheng]

I was going to argue with you, but this actually would work - BTC is so volatile at least partly right now because it is valued relative to currencies that are being constantly devalued, but if a private business or organization were to essentially place an open order for gold @ 3BTC/g that would quickly stabilize the price.

Pegs to gold don't work if you're expanding the currency (dollars) at a much faster rate than the supply of gold expands (2ish% a year I believe), but that's not a problem Bitcoin has given its transparency and distributed nature of generation....

Put together a business plan and we'll have you on BitTalk to do an interview segment about your idea

Thanks for supporting my idea.

[gongcheng]

Bitcoin is not mature enough to stabilize, let it grow a bit more

I think what I'm planning to do will make it grow faster.

[cloud9]

If there was any future prediction site where you could state your prediction in btc on where you expect the Gold price to go, or Agricultural produce (wheat, soybeans, porkbellies, etc) and get rewarded for correct predictions and punish wrong predictions - it would really assist all btc predictors and stabilise btc as well.

[westkybitcoins]

I'd love to see this tried out.

But... what will you do if the exchange rate for bitcoins falls to $10/coin and stays there for a few months?

[gongcheng]

I think you need more capital.  Eventually there will be 21,000,000 BTC, and so at 3 BTC / gram you will need 7,000 kg of gold (in case everyone decides to cash out).

No, I don't have to backup all the bitcoins, I need only to backup those who would like to trade bitcoin for gold. The number would be significantly smaller.

Here is my calculation. According to MtGox, the trade volume for USD is around 90k bitcoins everyday. Suppose that 1/10 of them would like to trade bitcoins with gold, that would be 9k bitcoins. So I need to prepare 3 kilograms gold. Therefore, minimum speaking, 3 kilograms is enough at this stage.

However, in order to stabilize the price, I need to prepare at least ten times of that amount. Therefore, 30 kilograms of gold would be a more reasonable number.

Considering the bitcoin economy is growing, 100 kilograms is the amount that I need to prepare.

[killer2021]

Won't work.

If you want to stabilize the price of btc then we need speculators who actively trade in the markets. If btc drops below a certain price then they will buy and if it goes above a certain price then they will sell. Overall this will get rid of the volatility because speculators will buy up excess supply and move it to periods of high demand. The end effect is more stable prices. However, there could be negative effects especially if there are very few speculators and some of those speculators have lots of buying and selling power. In this case what happens is the speculator has the potential to corner the market.

http://en.wikipedia.org/wiki/Speculation#The_economic_benefits_of_speculation

http://en.wikipedia.org/wiki/Corner_the_market

[gongcheng]

Good luck trying to back bitcoin with gold.  It's a gamble, akin to a government fixing the price.  BTC and gold are independent markets and move for related, but different reasons.  Nothing stops BTC from dropping dramatically in dollars and everyone running to you for gold.

That's why a company is needed to back bitcoin. If there was a company with enough gold that would like to back bitcoins, the price for BTC would not drop so much.