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Author Topic: Hypothetical Bitcoin clone except backed by gold  (Read 4109 times)
joepie91
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July 09, 2011, 01:53:35 PM
 #21

Two questions:

1. How do you want to guarantee redemption if there is no central responsible party (because if there were, it would not be decentralized)?
2. What is gold backed by?

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July 09, 2011, 02:06:07 PM
 #22

Because of the security requirements it is very expensive to store gold. How will this be charged to the end user?

What if the backed gold is stolen? Isn't this simply a liability when compared to bitcoin?

Bitcoin Core developer [PGP] Warning: For most, coin loss is a larger risk than coin theft. A disk can die any time. Regularly back up your wallet through FileBackup Wallet to an external storage or the (encrypted!) cloud. Use a separate offline wallet for storing larger amounts.
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July 09, 2011, 06:16:39 PM
 #23

Sure, lets make it happen.  We'll store the gold at my house and I won't charge you anything.   Cool

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cypherdoc
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July 09, 2011, 06:45:05 PM
 #24

you already have a representative failure of this concept; its called GoldMoney by James Turk.

i foresee a Bitcoin backed USD system in the long term.
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July 09, 2011, 07:09:32 PM
 #25

If by 'backed by gold' you mean physical gold, then how would you propose funding the acquisition of any where near enough gold to be able to back the goldcoins?

Similar to Bitcoins, the largest number of Goldcoins that could ever exist would be 21,000,000. Since above I defined the exchange ratio to be 1000 goldcoins for an ounce of gold, the most gold that would ever be necessary is 21,000 ounces of gold which is just a small fraction of the amount of gold mined each year.



The success will depend on the "strength" of the backing, and this is not addressed in your system.

If someone wishes to attack the currency, the first place is to attack the backing.  So even if the backing hasn't failed yet, it stands to be very weak unless there is some mechanism to make it robust.  Weak backing does not deserve the term backing.



Figuring out how to set up anonymous, decentralized, guaranteed redemption is the hard part, not how to set up auctions and create the currency.

I agree that creating a good backing system is difficult, and I didn't address this issue because I am trying to convey a different point about the importance of backing. I also agree that the stronger the backing the better. This is precisely the point I am trying to convey, a stronger backing is better than a weaker backing and so even a weak backing is better than not having any backing at all.



That would mean that each bitcoin/goldcoin would have a fixed value and cannot rise in value as more people adopt it.

...

And question, how would you decide how much gold each coin should be worth?

The amount of gold the goldcoins could be redeemed for would be set at a fixed value at the launch of goldcoin. In my example implementation above, I picked 1000 goldcoins for an ounce of gold to be this fixed ratio. However, this is not the maximum value of goldcoins as it is only their minimum value. In other words, 1000 goldcoins gets you an ounce of gold, but an ounce of gold may not necessarily get you 1000 goldcoins.



Bitcoin is ok as it is, no backing is necessary. You are free to create your own goldcoin or such, good luck.

I don't plan to create Goldcoin. I just wanted to use it as a thought experiment to make a compelling case that a Bitcoin clone that is backed by something has the potential to eat Bitcoin's lunch. The reason I mention this isn't to cause fear, but rather to suggest that it may be possible to slightly tweak Bitcoin  so the current Bitcoin system could be backed by something. For example instead of giving the new bitcoins to miners who heat their homes with GPUs, you could sell the new bitcoins in an auction and use the proceeds to back bitcoins. In other words, instead of the proceeds of newly issued bitcoins going to pay electric bills and purchase CPUs which only benefit the Bitcoin users who like subsidized transaction fees, the new bitcoins could be sold and used to benefit Bitcoin users by backing their bitcoins.



kwhcoin: but what backs gold?

Two questions:

1. How do you want to guarantee redemption if there is no central responsible party (because if there were, it would not be decentralized)?
2. What is gold backed by?

I am assuming gold is backed by the many commodity uses for gold (i.e. gold is in cell phones, computers, automobiles, hospitals, and probably even GPUs, etc.)

The transaction system of Goldcoin would be identical to Bitcoin and therefore it would be just as decentralized. However, you are correct that the backing method I suggested would need to be run by a centralized responsible party.



Because of the security requirements it is very expensive to store gold. How will this be charged to the end user?

What if the backed gold is stolen? Isn't this simply a liability when compared to bitcoin?

Below are some excerpts from my original post that answer your two questions. The first excerpt addresses the gold storage issue with a 0.2% storage fee per year. The second excerpt addresses the failure scenario and how it is not a liability compared to Bitcoin.

“Lastly, anyone can redeem 1000 goldcoins at any time and receive the current value of an ounce of gold less a storage fee which would be around 0.2% per year starting from the launch of Goldcoin until the date the goldcoins are redeemed (i.e. if you redeemed your goldcoins in five years from the launch of Goldcoin you would have a little less than 1% deducted from what you got for redeeming your goldcoins).”

“However, in the disaster scenario where the Goldcoin system of auctioning goldcoins and redeeming goldcoins completely fails (i.e. government crackdown, gold gets stolen, etc.) then the backup plan could be to have Goldcoin automatically revert to the exact same system Bitcoin uses of awarding new coins to miners. In other words, the failure scenario for Goldcoin could be to revert to the Bitcoin system.”



you already have a representative failure of this concept; its called GoldMoney by James Turk.

i foresee a Bitcoin backed USD system in the long term.

Goldmoney has both a centralized backing system and a centralized transaction system. The Goldcoin system mentioned above would be different because it would have a decentralized transaction system identical to Bitcoin. Also, I don't think goldmoney has failed yet, and I believe you may be referring to e-gold as the digital gold currency that has failed due to a government crackdown.
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July 09, 2011, 07:15:02 PM
 #26

no i was referring to GoldMoney.  yes it hasn't "failed" in the traditional concept but its supposed economy is dead in the water as far as i'm concerned.

you still haven't answered the question about a centralized vulnerability of gold storage.
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July 09, 2011, 07:44:21 PM
 #27

you still haven't answered the question about a centralized vulnerability of gold storage.

I agree there is a risk that the centralized backing may fail. There is definitely a risk. You may think it is a huge risk. I may think it is a manageable risk. However, I am not trying to argue the size of this risk. What I am trying to convey is that with Goldcoin there is at least a possibility that the goldcoins will be backed by gold. My point is that even a small probability of being backed by gold is better than a zero probability of being backed by gold.
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July 09, 2011, 07:52:00 PM
 #28

you still haven't answered the question about a centralized vulnerability of gold storage.

I agree there is a risk that the centralized backing may fail. There is definitely a risk. You may think it is a huge risk. I may think it is a manageable risk. However, I am not trying to argue the size of this risk. What I am trying to convey is that with Goldcoin there is at least a possibility that the goldcoins will be backed by gold. My point is that even a small probability of being backed by gold is better than a zero probability of being backed by gold.


You better back gold with bitcoins.


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July 09, 2011, 09:23:35 PM
 #29

I agree without this as a "feature" there could essentially be a bit-currency backed by the dollar, ie. the Bitdollar, for use in exactly the same secure, convenient, fast, cheap, online, and semi anonymous way as the Bitcoin, but exchangable for a dollar at your local bank and vice versa... and of course with value controlled by the value of the dollar

Yes the dollar could also be a possible way to back a Bitcoin-like currency. It would actually be easier to back with a dollar because instead of having to pay to store the gold backing the "goldcoins" you could earn interest storing the dollars that back your "bitdollars". I didn't want to use the dollar in my example of backing a Bitcoin clone-like currency because people would probably attack the dollar aspect instead of thinking about the concept of a Bitcoin clone being backed by something.

If the bitcoin-like currency had to be backed by anything, the dollar would pretty much be a bad idea. Why would you back a currency with another currency? An inflationary currency that's now only worth 4% of its original value, no less. Exchanging, say, a GBP for USD is one thing but you don't have one backing the other.

Also, if you're backing this new clone coin with gold, are you're suggesting a move towards centralization too? Who stores the gold? Who administers the auctions?

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July 09, 2011, 09:33:34 PM
 #30

I would be happy with a cheap and reliable service to convert directly BTC to gold and silver on Goldmoney.

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July 09, 2011, 09:41:05 PM
 #31

As others have said, give it a shot. You'll have a lot of work to overcome, though. (As in, the cumulative effort put forth for bitcoin since 2009.)

I find these ideas amusing, because it is human nature to force new ideas to 'adapt' to previous ones. It's like taking a look at a car, and deciding to weld some metal loops and supports on the frame so a horse can pull it. Just doesn't make sense, really.

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July 09, 2011, 10:03:21 PM
 #32

What incentive would whoever is backing the currency have to back the currency? Would they just do it out of the goodness of their heart? If you want to start backing bitcoins with gold, nobody is stopping you. But I can't think of any reason anyone would do that.

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July 10, 2011, 01:20:13 AM
 #33

I was pondering what would happen if somebody launched a completely separate Bitcoin clone except they tweaked the code slightly so the Bitcoin clone could be backed by gold. Below I discuss Goldcoin, a hypothetical Bitcoin clone except backed by gold, where goldcoins would have all the properties of bitcoins except each goldcoin would be redeemable for a predetermined amount of gold.

You don't need a separate currency since you can just create a company that will sell gold for bitcoins.

+1

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July 10, 2011, 01:53:42 AM
 #34

As already stated, you can simply "back" bitcoins with gold yourself by offering to sell gold for bitcoins.

You don't need a whole separate blockchain for that.

Which is good because if miners are spending their money on gold instead of electricity and hashinh-hardware the blockchain might be quite vulnerable to attack by anyone who chooses to invest in computing gear instead of gold.

As to it not making sense to back a currency with a currency, well, maybe it doesn't need to make sense. What is a 'reserve currency' but backing in one currency for another?

There are a whole bunch of blockchain-based currencies looking at all these concepts precisely because they do want to "back" their currencies. Part of how they plan to do that is to each buy a whole bunch of each of the others, so that all of them have a decent amount of "float" to use to buy back their own using any of the others.

If you would like to "back" one or more of them by selling gold for them, instead of or as well as "backing" bitcoin by selling gold for bitcoin, I doubt they will object. Heck they might even "back" your gold by buying it with various currencies not only with goldcoin...

Come to think of it, United Kingdom Britcoin (UKB) might for traditional reasons like to be "backed" by silver, How much silver would you sell for one UKB?

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July 10, 2011, 02:15:26 AM
 #35

Hey how about we make a Bitcoin clone backed by hookers?  You can turn in 1 Bitcoin for $5 minutes of Goodness.
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July 10, 2011, 02:30:48 AM
 #36


As to it not making sense to back a currency with a currency, well, maybe it doesn't need to make sense. What is a 'reserve currency' but backing in one currency for another?

...Come to think of it, United Kingdom Britcoin (UKB) might for traditional reasons like to be "backed" by silver, How much silver would you sell for one UKB?

-MarkM-


OK, I realize we've all entered bitcoin for various reasons, but backing a new bitcoin-like currency with a fiat curreny that's already losing its status as such is somewhat bizarre. The US$ is a reserve currency because, in 1971, Nixon and Kissinger succeeding in getting everyone trading in oil to convert their local currency into dollars to trade (buying and/or selling). Basically, they agreed to develop Arabian oil fields if all oil trades were done in dollars. The dollar therefore went from being backed by gold up until 1971 (for international trade, anyway) to pretty much being backed by oil... as long as everyone went along with the currency conversion (Sadam Hussein decided against this oil for dollars trade, btw). This is why other countries have reserves of dollars.

However, with China and Russia having agreed earlier this year to side-step this $ for oil conversation and trade directly with each other withouth involving the US$, and with the Fed having to buy more FRNs as other countries aren't biting like they used to, the petrodollar is pretty much doomed. It's therefore hardly a wise decision to back a  new digital currency with a failing fiat one, is it?

As to  your last question. I wouldn't sell silver for a UKB, or at least would hope I wouldn't have to. If silver, or any precious metal, is backing a currency, then you'd have to be in dire straits to decide to liquidate your valuable underlying asset for said currency. So, theoretically, I'd happily use a UKB to buy gold and silver all day everday, but not the other way around, unless I really had to.

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July 10, 2011, 02:41:58 AM
 #37

Couple of notes on that.  Part of the deal was that the Saudis MUST buy US Treasuries with a % of the income they reaped from Oil sales.  As well, on the Sadam Hussein side of things, when Sadam stopped using Dollars in Oil transactions this painted the big target on himself and his country.  Before he invaded Kuwait he was told by the U.S. that nothing would be done if he did(no one would interfere).  As we all know he did attack, and we all know what happened from there on.  He was backstabbed by the U.S. on this issue.  We can only imagine that Iraq stopping using the U.S. Dollar for Oil had something to do with this.

" Basically, they agreed to develop Arabian oil fields if all oil trades were done in dollars. The dollar therefore went from being backed by gold up until 1971 (for international trade, anyway) to pretty much being backed by oil... as long as everyone went along with the conversaion (Sadam Hussein decided against this oil for dollars trade, btw)."

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July 10, 2011, 02:57:29 AM
 #38

Couple of notes on that.  Part of the deal was that the Saudis MUST buy US Treasuries with a % of the income they reaped from Oil sales.  As well, on the Sadam Hussein side of things, when Sadam stopped using Dollars in Oil transactions this painted the big target on himself and his country.  Before he invaded Kuwait he was told by the U.S. that nothing would be done if he did(no one would interfere).  As we all know he did attack, and we all know what happened from there on.  He was backstabbed by the U.S. on this issue.  We can only imagine that Iraq stopping using the U.S. Dollar for Oil had something to do with this.

" Basically, they agreed to develop Arabian oil fields if all oil trades were done in dollars. The dollar therefore went from being backed by gold up until 1971 (for international trade, anyway) to pretty much being backed by oil... as long as everyone went along with the conversaion (Sadam Hussein decided against this oil for dollars trade, btw)."


+1

Thank you.

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July 10, 2011, 03:35:06 AM
 #39

wow, what was it a week ago this was brought up? ,  and the mob pitchforks and torches came out at that time.

fickle crowd
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July 10, 2011, 03:42:20 AM
 #40

You don't need a separate currency since you can just create a company that will sell gold for bitcoins.

Someone selling gold for bitcoins at a set price is not a promise but only a temporary promise to exchange gold for bitcoins at that price and that temporary promise can change at any time. If bitcoins were backed by gold there would be a permanent promise to always sell gold for bitcoins at a set price. A temporary promise that can change at any time is very different from a permanent promise. Someone selling bitcoins for gold is very different than someone backing bitcoins with gold.



What incentive would whoever is backing the currency have to back the currency? Would they just do it out of the goodness of their heart? If you want to start backing bitcoins with gold, nobody is stopping you. But I can't think of any reason anyone would do that.

I agree there would need to be incentive for someone to assume the responsibility of backing goldcoins with gold. The 0.2% per year storage fee and the 3% above spot auction fee discussed in my original post are areas that have potential for profit as it is pretty easy to store gold for less than 0.2% per year and also pretty easy to acquire gold for less than 3% above spot (i.e. the maximum over spot goldmoney charges is 2.49% and the maximum yearly storage fee is 0.18%). However, the largest potential source of profit is the likelihood that many auctions will be for more what would be required to back the goldcoins. For example, if an auction of 1000 goldcoins brought in $2000 and it only cost $1500 to purchase the necessary ounce of gold to back the goldcoins then that would be a $500 profit. There is plenty of incentive for someone to create and back something like Goldcoin.



It is just another pegging scheme.

It is not a pegging scheme because although you would have a guarantee that 1000 goldcoins gets you an ounce of gold,  an ounce of gold is not guaranteed to get you 1000 goldcoins.



... if miners are spending their money on gold instead of electricity and hashinh-hardware the blockchain might be quite vulnerable to attack by anyone who chooses to invest in computing gear instead of gold.

The Goldcoin system proposed would be just as vulnerable to attack as Bitcoin will be after all the bitcoins have been issued because Goldcoin would use the same transaction fee system as Bitcoin. I think the Bitcoin transaction fee system is a good model for Goldcoin to follow.
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