MasterCoin: New Protocol Layer Starting From “The Exodus Address”

[dacoinminster]

Hi dacoinminister! I read the paper and essentially read the whole thread here. Surprisingly, I didn't find the answers to the following questions:

1.) If a user registers a new currency, let's call it new_coin, is there an upper limit of new_coins that can be supplied?

2.) Who owns them initially? Is it the user who registered the currency or is it the escrow fund? Or is it the escrow fund generating them, as soon as there is demand?

3.) What real-life 'objects' can be made a new currency out of? 1oz of gold is obvious. But, can I make a currency out of a company share (company XYZ), called XYZ_coin, or can I make a currency being worth one gnome in my own garden, called MyGnome_coin? What are the rules?  

4.) How does the escow fund determine the price of a Mastercoin? It must do that, in order to e.g. know the equilibrium value of a Gold_coin, etc to which it tries to couple. Obviously, it cannot look at the orderbook of a user currency, since this would be redundant. So, is the Mastercoin value determined by the Bitcoin/Mastercoin ratio?

1) Great question. Currency amounts are stored in a 64-bit unsigned integer divided by 100,000,000 for the 8-digit decimal precision which would give us a maximum of 184 billion units or so in a user currency, with each unit divisible to eight decimal places.

2) If a new currency is created, none of them exist until people buy them. MasterCoins used to purchase these currencies automatically go straight into the escrow fund where they will later be used to support the pegged value.

3) You can make a pegged currency for anything that has a value published as a data stream (for instance, the price of an ounce of gold). Shares of a company would be something different, called smart property. I plan to add smart property transactions to the next revision of the spec.

4) Since we are running a distributed exchange between bitcoins and MasterCoins, and between MasterCoins and the stabilized currencies, we have all the data we need to determine what the current price is of any asset. Data streams publish their prices in units of the currency held in escrow. Typically this will be MasterCoins, although it would be possible to hold a user currency in escrow too, so that USDCoins could be backed by GoldCoins held in escrow, for instance.

In fact, I thought that there was only one escrow fund in the whole protocol, while reading the paper and the whole thread. You should definitely make this clearer in the paper!

Moreover, can you explain 'One escrow fund for each stabilized currency'? What is a stabilized currency? Isn't there an escrow fund from the beginning on? In this case, where does the supply of coins come from?

See #2 above.

Thanks!

[Tachikoma]

I'm getting somewhere with the ruby implementation (on testnet):

Building a data transaction.

Code:

1.9.3p286 :077> options = {receiving_address: "n3wLS8G69kD96Czw3xbUg17ipsb2W1NGvB", amount: 100000000, transaction_type: 1, currency_id: 2}
1.9.3p286 :078> Mastercoin::Address.new(options).encode_to_address
 => "mppHDcxP8tmLU44CN5jkVtTgutf34cSEFE"

Parsing a bitcoin transction via Mastercoin.

Code:

1.9.3p286 :079>Bitcoin.network = :testnet3
1.9.3p286 :080>Mastercoin::Transaction.new("e4ed08ec03ff42e40b9be85cea97b24232e471d1efec23022403a1fd8ed55516").to_s
=> "Simple send:: Send 1 'Test Mastercoin' to n3wLS8G69kD96Czw3xbUg17ipsb2W1NGvB"

However I'm having trouble generating the same sequence as the python script.

I was wondering if you could explain what base58_found.b58decode returns exactly; my terminal doesn't really know what it is suppose to be: http://cl.ly/image/0p343M1G3d0I.
My ruby version returns a pretty string (like 6ff5ef3b2e5adb597313a91ea898ae1314032bbbe4df3360d0) so I am not creating the same sequences as you are; which is pretty important ^^

[dacoinminster]

I'm getting somewhere with the ruby implementation (on testnet):

Building a data transaction.

Code:

1.9.3p286 :077> options = {receiving_address: "n3wLS8G69kD96Czw3xbUg17ipsb2W1NGvB", amount: 100000000, transaction_type: 1, currency_id: 2}
1.9.3p286 :078> Mastercoin::Address.new(options).encode_to_address
 => "mppHDcxP8tmLU44CN5jkVtTgutf34cSEFE"

Parsing a bitcoin transction via Mastercoin.

Code:

1.9.3p286 :079>Bitcoin.network = :testnet3
1.9.3p286 :080>Mastercoin::Transaction.new("e4ed08ec03ff42e40b9be85cea97b24232e471d1efec23022403a1fd8ed55516").to_s
=> "Simple send:: Send 1 'Test Mastercoin' to n3wLS8G69kD96Czw3xbUg17ipsb2W1NGvB"

However I'm having trouble generating the same sequence as the python script.

I was wondering if you could explain what base58_found.b58decode returns exactly; my terminal doesn't really know what it is suppose to be: http://cl.ly/image/0p343M1G3d0I.
My ruby version returns a pretty string (like 6ff5ef3b2e5adb597313a91ea898ae1314032bbbe4df3360d0) so I am not creating the same sequences as you are; which is pretty important ^^

Dang. I've been so busy managing the PR of this thing that you guys are in danger of getting ahead of my reference implementation!

base58_found is a base58 library I found online and blatantly stole for encoding and decoding bitcoin addresses. (I believe I included a comment in the source code with a link to where I found it).

I believe b58decode returns a byte array, so your console is probably trying to interpret each byte as a character.

[thehun]

Just sent 2.6 BTC 

688fe5ac60ed41d4f3bb9bb231b0552d3ba06f03114f0600b8eb84d8c108ce85

[dacoinminster]

David Johnston, Executive Director of BitAngels, has said he will be investing. Here is what he said on the bitangels email list:

On Wed, Aug 28, 2013 at 10:03 AM, David Johnston wrote:

    Ron,

    Thanks for the input. I talked with JR about this topic today and he is on the same page.

    Meaning there will be NO additional Mastercoins outside of what the spec calls for.

    The spec has the initial Mastercoins created based on the exodus address investments and at the same time a 10% pool of "Reward Mastercoins" for developers over the years contributing to improved features of the Mastercoin protocol.

    The bounties will be competitively awarded by what amounts to a "Mastercoin Foundation" of which JR has asked Sam and I to join the oversight board, in order to provide full transparency.

    I believe this is the right approach, when distributing a new coin, offer everyone an equal opportunity to invest at the beginning and reserve a portion to reward those with intellectual and development capital to invest in the project. In the absence of a "minable" solution I think this a logical and fair way to do the initial distribution of a coin.

    Full disclosure, after much due diligence I'm planning to invest in this project. I hope others here will be joining me.

    This project will offer several of the new capabilities I've been looking for in the Bitcoin eco-system, peer to peer exchange, prediction markets, creation of new currencies (stocks, bonds) and more.

    If you haven't read the specification it is worth a review.

    http://tinyurl.com/nqun98h

    Best Regards,

    David A. Johnston
    Executive Director of BitAngels.co

One thing the folks at bitangels are concerned about is that they really really want me to quit my day job, and the size of their investment is somewhat contingent on their confidence that I will do so. They are keenly interested on what my threshold is, as I'm sure some of you are.

Consequently, I'm having discussions with my wife which are . . . intense. She's VERY risk adverse and she loves my current job for many reasons. I also love my job, but I'm super optimistic about the project and very gung-ho that everything will work out fine if I jump into this full time.

When I give bitangels the final number for "what it will take" for me to go full time, I'll publish the final number here too.

[dacoinminster]

The number: $564,600

Warning: Gratuitous, sickening details about my current cushy job follow!

From: J.R. Willett
Date: Wed, Aug 28, 2013 at 4:20 PM
Subject: MasterCoin - What will it take for J.R. to quit his job?
To: Sam Yilmaz, David Johnston
Cc: Jen Willett


Hey guys,

The number is $564,600 (the project is currently at 2439 BTC x $118@coinbase = $287,802, leaving us short of that mark by $276,798  = 2346 BTC). Nearly doubling the project fund does seem like a pretty big stretch in just the next couple days, even if we get some big investments from bitangels. However there are a couple ways we might still get there, which I'll get to later.

First, the breakdown. My wife loves my job at Cozi for a large number of reasons which I will enumerate, and she has agreed to my quitting my job there if I can prove I have funds to provide equivalent benefits for three years.
Here is what I promised her we would get if I quit:

• Three years of my current base salary (<Redacted>)
• Three years of fully paid health insurance for our family (Cozi is very unusual in that they pay 100% for employee AND dependents medical/dental/vision). The individual coverage plans I can find are significantly less generous than Cozi's plan, and cost in the neighborhood of <Redacted>/month for medical alone. Taking that into account, including our plans to have more children, dental, vision, and the expected further rises in health care costs, I set this number at <Redacted>/year (we had individual coverage on my wife when our second child was born - the most generous coverage we could find - and he still cost us <Redacted> out of pocket!). Note that money not used for health coverage and expenses could return to project funds.
• Direct replacement of costs formerly born by Cozi, such as their share of my Social Security contributions, estimated at <Redacted>/year
• To avoid risk of a bitcoin crash, we would plan to take large chunks of salary in advance (exact amounts to be determined, with amounts largely driven by resulting tax liabilities)
• Total yearly cost: <Redacted> + <Redacted> + <Redacted> = $177k
• Three-year cost = 177*3 = $531k

In addition, I promised her the following items would be paid for out of project funds

• Desk rental at a co-working space, estimated at $350/month ($4200/year)
• Daily transportation costs (Cozi funds my Orca card at about $8 per round trip = $2000/year)
• All travel expenses, including bringing family along if desired, estimated at $5000/year for attending two conferences
• Yearly estimate = 4.2 + 2 + 5 = $11.2k
• 3-year estimate = 11.2*3 = $33.6k

Total for 3 years: 531 + 33.6 = $564.6k

Also, I promised the following intangible benefits of Cozi would be fully matched:

• 5 weeks PTO (combined sick and vacation)
• 4 weeks paternity leave when a child is born (we do plan to have more kids)
• Modest hours (I am consistently home for dinner and rarely work late)
• Continuing my habit of being completely off the internet evenings, weekends, and vacations to focus on family and church

Lastly, in the event of a bitcoin crash or other unforeseen circumstances require me to abandon this project, I reserve the right to seek employment for up to six months while living off project funds before turning over remaining funds to the exodus address (or possibly to the oversight board, or possibly returning funds directly to MasterCoin holders). This is based on the three months it took me to find my position at Cozi in a healthy job market (being very selective and rejecting multiple offers).

Looking at the above, I am embarrassed to see spelled out how cushy my current job is, which is of course why she doesn't want me to leave Cozi . . .

I would appreciate it if you would keep the specifics of the financial breakdown confidential. I'll be publishing a sanitized version of this for general consumption soon.

While the target above may not be imminently achievable, we could conceivably get there if bitcoin prices take off in the coming months. Another possible way would be if MasterCoin prices take off, and I could then sell off some of my personal ones to get us the rest of the way there.

Sorry the number isn't lower. That's the best I could get.

Thanks,

-J.R.

[murraypaul]

The number is $564,600 (the project is currently at 2439 BTC x $118@coinbase = $287,802, leaving us short of that mark by $276,798  = 2346 BTC). Nearly doubling the project fund does seem like a pretty big stretch in just the next couple days, even if we get some big investments from bitangels. However there are a couple ways we might still get there, which I'll get to later.
[...]
    To avoid risk of a bitcoin crash, we would plan to take large chunks of salary in advance (exact amounts to be determined, with amounts largely driven by resulting tax liabilities)
    Total yearly cost: <Redacted> + <Redacted> + <Redacted> = $177k
    Three-year cost = 177*3 = $531k

In addition, I promised her the following items would be paid for out of project funds

    Desk rental at a co-working space, estimated at $350/month ($4200/year)
    Daily transportation costs (Cozi funds my Orca card at about $8 per round trip = $2000/year)
    All travel expenses, including bringing family along if desired, estimated at $5000/year for attending two conferences
    Yearly estimate = 4.2 + 2 + 5 = $11.2k
    3-year estimate = 11.2*3 = $33.6k

Total for 3 years: 531 + 33.6 = $564.6k

So you are planning on using the entirety of the money sent to the Exodus address to pay yourself a nice salary plus all the benefits you want?
What happened to the whole idea of an overseeing board to parcel the money out?
And given that most of the bitcoins sent to the Exodus address were yours to start with, you are actually asking them to kick in far more than 50%.

[dacoinminster]

So you are planning on using the entirety of the money sent to the Exodus address to pay yourself a nice salary plus all the benefits you want?
What happened to the whole idea of an overseeing board to parcel the money out?
And given that most of the bitcoins sent to the Exodus address were yours to start with, you are actually asking them to kick in far more than 50%.

The current plan is for me to NOT quit my job and NOT take any payment at all, while keeping my day job. David and Sam are on the oversight board, and are asking what it would take to get me to quit my job, so I told them.

I realize the details of what it would take are scandalously generous, which is why I haven't been planning on quitting my job!

Also, the outline above is not to pay myself the salary and benefits that I want, but rather what I currently have.

Anyway this is all theoretical. I do expect to see a noticeable investment, but I don't expect that the investment will close that gap, unless something miraculous happens. Plus, the oversight board would have to approve the details of my compensation, and they may decide that bounties are a better idea after all, even if the target is reached.

[mindtomatter]

So you are planning on using the entirety of the money sent to the Exodus address to pay yourself a nice salary plus all the benefits you want?
What happened to the whole idea of an overseeing board to parcel the money out?
And given that most of the bitcoins sent to the Exodus address were yours to start with, you are actually asking them to kick in far more than 50%.

The current plan is for me to NOT quit my job and NOT take any payment at all, while keeping my day job. David and Sam are on the oversight board, and are asking what it would take to get me to quit my job, so I told them.

I realize the details of what it would take are scandalously generous, which is why I haven't been planning on quitting my job!

Also, the outline above is not to pay myself the salary and benefits that I want, but rather what I currently have.

Anyway this is all theoretical. I do expect to see a noticeable investment, but I don't expect that the investment will close that gap, unless something miraculous happens.

Does this figure include how many Mastercoins you will own once the buy-in is complete, and don't those become compensation too?

[dacoinminster]

So you are planning on using the entirety of the money sent to the Exodus address to pay yourself a nice salary plus all the benefits you want?
What happened to the whole idea of an overseeing board to parcel the money out?
And given that most of the bitcoins sent to the Exodus address were yours to start with, you are actually asking them to kick in far more than 50%.

The current plan is for me to NOT quit my job and NOT take any payment at all, while keeping my day job. David and Sam are on the oversight board, and are asking what it would take to get me to quit my job, so I told them.

I realize the details of what it would take are scandalously generous, which is why I haven't been planning on quitting my job!

Also, the outline above is not to pay myself the salary and benefits that I want, but rather what I currently have.

Anyway this is all theoretical. I do expect to see a noticeable investment, but I don't expect that the investment will close that gap, unless something miraculous happens.

Does this figure include how many Mastercoins you will own once the buy-in is complete, and don't those become compensation too?

It may be years before there will be a big enough market to absorb my MasterCoins in any quantity, so no. Also, I bought those on the open market using funds I already had, just like you guys did, so they aren't compensation by any stretch of the imagination.

[mindtomatter]

Didn't you buy them by sending bitcoins to the exodus address, which are going to pay you?

[dacoinminster]

Didn't you buy them by sending bitcoins to the exodus address, which are going to pay you?

Or perhaps to pay someone else. They will be spent on the best interests of all MasterCoin holders, as determined by the oversight board.

[dacoinminster]

I'm offline for the evening guys. It's been great to see the big influx of investors - we'll see what happens. Whether the board can afford me and decides to hire me or I just keep poking along in my free time and creating bounties will be an interesting discussion for sure!

I'll be back tomorrow morning.

Later!

[NewLiberty]

The number: $564,600

Makes sense, you have a responsibility to your family.
Relocation is a pain as well.

Well, since your number is in USD, you may be there once the coins appreciate a little.  Give it a month or two

[solex]

Well, since your number is in USD, you may be there once the coins appreciate a little.  Give it a month or two

Of course! Bitcoin, the currency on steroids, can easily swell a $276k fund to $564k.
I predict that JR will be full-time on Mastercoin before long.

[hmmmstrange]

Well, since your number is in USD, you may be there once the coins appreciate a little.  Give it a month or two

Of course! Bitcoin, the currency on steroids, can easily swell a $276k fund to $564k.
I predict that JR will be full-time on Mastercoin before long.

Apparently all that is standing in the way of JR quitting his job is a greasemonkey script that doubles the values on clarkmoody.

[milkyman]

Hi dacoinminister! I read the paper and essentially read the whole thread here. Surprisingly, I didn't find the answers to the following questions:

1.) If a user registers a new currency, let's call it new_coin, is there an upper limit of new_coins that can be supplied?
...

3.) What real-life 'objects' can be made a new currency out of? 1oz of gold is obvious. But, can I make a currency out of a company share (company XYZ), called XYZ_coin, or can I make a currency being worth one gnome in my own garden, called MyGnome_coin? What are the rules?  
...

1) Great question. Currency amounts are stored in a 64-bit unsigned integer divided by 100,000,000 for the 8-digit decimal precision which would give us a maximum of 184 billion units or so in a user currency, with each unit divisible to eight decimal places.
...

3) You can make a pegged currency for anything that has a value published as a data stream (for instance, the price of an ounce of gold). Shares of a company would be something different, called smart property. I plan to add smart property transactions to the next revision of the spec.
...

regarding 1)

Actually, I was not referring to the technical limitations, but rather to a weakness of the system. If there is unlimited supply of coins, a rich person can exploit the system in the following way:

- He chooses a coin that has 'matured', meaning many users bought such coins, and consequently the escrow fund has a lot of money in it. Let's call them X_coins, where X is e.g. the share of a company.

- Next, he buys a HUGE amount of REAL shares of the company, resulting in a considerable rise of the value of share X.

- Then, he sells all his X_coins to the escrow fund. If the number of coins is unlimited, he makes a HUGE profit, and the escrow fund goes bankrupt.

- As the last step, he sells his real company shares.

His profit will be the initial value of the escrow fund - minus some losses due to the response of the market.

regarding 3)

If there are coins based on something like bottle caps - which you didn't defeat to be allowed - the exploit is much simpler, and you do not even need a huge capital.

A solution for this problem could be to restrict the total supply of coins to, let's say, 10% of the value of the 'real' market of this object. However, as a consequence, if demand rose continuously, the escrow fund eventually runs out of coins, leading in a rise of value of the coin clearly above the 'real' share. That wouldn't be too bad for the ones who invested, but I guess this is not the idea of the Mastercoin system?

[milkyman]

another concern or situation to be clarified:

I assume, we are all sane people. We invest in XZXcoins (e.g. GoldCoins) in the hope the price of gold rises and then withdraw more money at a later time. In some cases, the value will fall, in others it will rise indeed. Let us consider a case, in which the value rose to an all-time high and further assume that the value of a MasterCoin remained constant during this time or even lost value (this will happen sometimes, even assumed that the Mastercoins rise in the long term).

The following will happen: Some people will sell their GoldCoins. Others see that the remaining balance in the escrow fund falls below the sum of the value of all existing GoldCoins - or gets closer to that limit (side question: is the health of the fund public?). In fear of their money, they will sell all their GoldCoins as fast as possible. The fund goes bankrupt.

My question: What happens in such a case??? The escrow fund cannot buy the GoldCoins back, due to the lack of MasterCoins. As a result, the value of a GoldCoin drops to a marginal value. Will the escrow fund then

a) still sell GoldCoins for the market price of real gold? If so, certainly nobody will buy any and the currency is dead forever.

b) sell GoldCoins for a much lower price. But even then, the 'health' of the fund remains horrible. Nobody will invest, except for ridiculously low prices, maybe in the 1% range of the value of real gold. Thus, the fund can only recover, if the value of a MasterCoin suddenly rises by a factor of 100 - which is very unlikely.

I think that every user currency will face such a sitation once (and only once  ), so my assumption is that they will all eventually die.

The risk that this will happen gets amplified by the investors knowing that this CAN happen. So they will reject their user currencies, as soon they see a small profit of a few %.

Is there an idea how to prevent this threat?

If you think that my concerns are serious, I'd be happy about a bounty  18vzopGHgPikz3Sp7FfVRxqxRn1NY5Zxq8

[murraypaul]

It has been pointed out many times that the escrow fund concept cannot protect itself against being traded out of existence.

[milkyman]

maybe a bit offtopic, but I've been really curious how you generated the exodus address... In average, you have to calculate ((58/2)^6)/2 ~ 300 mio. hashes to find an exodus address, right?