Goldcoin and Stablecoin proposals

[dacoinminster]

Stablecoin is an appealing goal, but ultimately it's not necessary.

Over time, Bitcoin usage will grow rapidly and then eventually stabilize. Over time, new Bitcoins are generated but in smaller and smaller quantities, so the supply will eventually stabilize.

Therefore, if we give Bitcoin a bit of time to find its long-term value, it's going to be fairly stable anyway.

We don't know how long it will take for bitcoin to get stable, or how stable it will be. Stablecoin gives us known stability right now. Also, this method of tracking an external price has a HUGE number of applications. Stablecoin is only one of them.

I can only think that only a real market can control a price of any commodity or currency and the a central bank that dumps and buys as needed to control the price would be the only way I know to make a stable currency possible.  as I said before you can peg the value of a currency to anything you want.  It's "The Trust" holders that should decide what they want to hold as there base of value of the asset holdings and just use the crypto coins to pass the value for P2P transactions.  I have almost completed the infrastructure to make all that possible in the BeerTokens model http://bitcointalk.org/index.php?topic=9493.msg138247#msg138247.  The first beerA coins have already been minted with the new merge mining feature using MulitCoin-exp https://bitcointalk.org/index.php?topic=24209.msg300830#msg300830.  With MultiCoin  we also can setup secure exchanges with escrow deposits to prevent third parties from stealing from a central exchange.  I will continue to develop what I feel is missing in the infrastructure to make what  sounds some of you want in the near future.  The basic concept is that the holders of "The Trust" decide how they want things to be and what needs to be changed, Not the developers and miners.  Each holder on record has a voice.  You just have to make it heard by being a part of it.

Like you, I started with the idea of a fund which would be collectively held to back up the value of new coins/tokens released. I eventually became convinced that Morpheus' idea was better due to its incredible simplicity.

I haven't tried to use Multicoin, but morpheus stated he was unable to get it to work. The future of distributed currencies is definitely going to be one client which is able to support multiple block chains, and hopefully even a distributed exchange built in for converting between them. I suggest you put some effort into getting morpheus set up to use multicoin!

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[John Tobey]

So many questions awaiting empirical answers!  I strongly suspect that someone can design a better cryptocurrency, but I set high standards and look forward to seeing these and many other proposals in competition.

Some good software could open the field of currency design to anybody with an idea to test, not just C++ programmers with large time budgets.  Namecoin and MultiCoin have made good progress, but we have a long way to go.

I am thinking specifically of:

• Bitcoin client plugin interface: plugins can define block acceptance rules.
• Bindings to facilitate plugin development in high-level languages.
• Set of highly configurable plugins extending MultiCoin's advanced configurability.
• Multiple currencies handled by one client process.
• Multiple currencies on one p2p network with a facility for negotiating which chains to relay to which peers.
• Further development of merged mining:
  
  • Multiple auxiliary chains mined together.
  • Multiple proof-of-work formats per chain.
  • Effective difficulty able to vary according to proof-of-work size/complexity.
• New type of "inv" message for broadcasting a new currency definition (plugin code and parameters).
• Block chain browser (Abe) and exchange (Bitcoin Central?) automatically supporting new currencies.
• Graphical wizard/tools to put it all together: plugin architecture, configuration, testing, and launch to the network.  Marketing is still a Phase 2 feature.  

I have the C++, network, database, and thread programming background, and I will eventually do this if I live long enough, but I can not donate enough time to it in the foreseeable future.

Will you help me elaborate this vision until someone picks it up and runs with it?

[jtimon]

I think this is done in multicoin: "Multiple auxiliary chains mined together."

[doldgigger]

I would not see them as an alternative to bitcoin, and neither would most of the people I work with, as these approaches backdoor the dependability which bitcoin achieves through decentralization.

Stablecoin is not beertoken. It tries to achieve stability within a decentralized system.
Maybe it can't work, but it has no single point of failure.

In the future, you may want to read the OP carefully in order to avoid disqualifying yourself like you did in this case. To quote the OP on stablecoin: "From then on, we keep track of how much USD has inflated/deflated using something like CPI or the Billion Price Index or even a combination of indices". Have a look at the wording: The idea is to introduce a single point of failure, either through CPI or Billion Price Index. "Or even" multiple points of failure through a combination of indices. But a stable, decentralized system is completely out of the question. Basically, stability is completely sacrificed, but ironically it is put into the name...

[jtimon]

In the future, you may want to read the OP carefully in order to avoid disqualifying yourself like you did in this case. To quote the OP on stablecoin: "From then on, we keep track of how much USD has inflated/deflated using something like CPI or the Billion Price Index or even a combination of indices". Have a look at the wording: The idea is to introduce a single point of failure, either through CPI or Billion Price Index. "Or even" multiple points of failure through a combination of indices. But a stable, decentralized system is completely out of the question. Basically, stability is completely sacrificed, but ironically it is put into the name...

I know how stablecoin would work. The source of conflict may be our definition of "single point of failure".
To simplify, let's use goldcoin. Miners would report the price in goldcoins of gold (getting information from various exchanges and probably averaging them).
You may think that gold and goldcoin exchanges are the points of failure in this case, but it can be discussed.
As I see it, instead of a CPI index miners would report spot prices from various exchanges and then the price index would be calculated from those spot prices.
I don't think that you can target the price of any commodity or that you can have a totally stable coin just through changing the money supply, but it could be more stable.
Don't know what the OP is, but if you mean this thread, yes I've read it.
Maybe you didn't understand me because some of us have been discussing some topics of this thread in other threads.

[doldgigger]

Actually, the transaction fee may never get paid if the threat of a transaction fee causes people to hoard Stablecoin and drive prices back up.

This is amusing since I read somewhere that stablecoin is supposed to be attractive for merchants. I would like to meet a merchant who prefers a currency that will block the market from time to time...

[doldgigger]

In the future, you may want to read the OP carefully in order to avoid disqualifying yourself like you did in this case. To quote the OP on stablecoin: "From then on, we keep track of how much USD has inflated/deflated using something like CPI or the Billion Price Index or even a combination of indices". Have a look at the wording: The idea is to introduce a single point of failure, either through CPI or Billion Price Index. "Or even" multiple points of failure through a combination of indices. But a stable, decentralized system is completely out of the question. Basically, stability is completely sacrificed, but ironically it is put into the name...

I know how stablecoin would work. The source of conflict may be our definition of "single point of failure".
To simplify, let's use goldcoin. Miners would report the price in goldcoins of gold (getting information from various exchanges and probably averaging them).
You may think that gold and goldcoin exchanges are the points of failure in this case, but it can be discussed.

The points of failure remain, no matter what verbal contortions are put in this thread, in other threads, or anywhere else in order to disguise them.

As I see it, instead of a CPI index miners would report spot prices from various exchanges and then the price index would be calculated from those spot prices.
I don't think that you can target the price of any commodity or that you can have a totally stable coin just through changing the money supply, but it could be more stable.

You cannot have a totally stable coin, period.

The value of any currency is still dependent on how well the economy works. When the economy suffers, you can't do as much with your money, no matter how it is called.

But you can limit the effects, which is what bitcoin does: Other than a bad economy, it can't be hurt much. However, most ideas to "improve" bitcoin which came up lately just introduce more potential weaknesses: external currencies which may be wrecked through currency wars or simply by incompetent politicians, external commodities which may lose in value, external data sources to gather the value of the currencies or commodities, which may be manipulated, may fail etc. Essentially, you are making a mere toy from an experiment that may succeed (bitcoin).

If you really want to remove points of failure, you may want to make every node an exchange. But then, there is no point in weird coin supply strategies including artificial stagnation through transaction fees. Just make the exchange 1:1, and you have a distributed currency or commodity transfer network, which might be very useful. Should it manage to fly, I might even want to use it. But in terms of long-term stability, I still think it would not be able to compete with bitcoin.

Don't know what the OP is, but if you mean this thread, yes I've read it.
Maybe you didn't understand me because some of us have been discussing some topics of this thread in other threads.

The points of failure remain. You may have found a couple of people who don't mind in the other threads you mention, but it won't change the fact that those who care will still see the flaws even if you plainly neglect them.

[jtimon]

I see that a decentralized system for tracking exchange prices has the points of failures in the exchanges miners watch, but still is an interesting concept. My proposal for the best use of this system is to define a nonexistent reference currency that is just useful for contracts. But it lacks a system to reward miners so it should be inside another chain. Another use could be a a currency for decentralized option trading. You need the spot prices in that chain anyway.

[dacoinminster]

So how about we contemplate the doomsday scenario for stablecoin:

• stablecoin starts out wildly successful, miners get rich, everybody is happy
• Stablecoin 2.0 comes out, and nobody wants the original stablecoins anymore
• Everyone tries to sell their stablecoins all at once, price drops 99%
• All confidence in the protocol is lost except a couple hardcore believers holding out hope that the protocol will somehow correct itself

What should the protocol do to transfer fees in this case? Is there a 90% transfer fee? 50%? 10%? If the transfer fee is too high, who is going to want to buy stablecoins? Transfer fees penalize buyers as well as sellers. If nobody wants to buy OR sell, there is no incentive for prices to go up. Stablecoin simply dies.

It would seem that the transfer fee needs to be pretty small even when the price diverges by a large amount from the underlying asset, otherwise the new currency is completely ruined. On the other hand, if the coins cease to track the underlying asset, nobody wants to hold the coins anymore, and the currency is completely ruined.

Morpheus - have you considered how to handle a doomsday scenario like this?

[dacoinminster]

I think a more direct control over the supply of coins is required. Some mechanism needs to be created that allows the user base and interest in stablecoin to shrink by a large amount while still maintaining stablecoin values.

What if stablecoin sells shares like a company? Instead of distributing all new stablecoins to miners, some of them could be distributed to shareholders.

IN ADDITION to a transaction fee when the stablecoin prices drop, the protocol could sell new shares in exchange for stablecoins, taking stablecoins off the market.

Obviously if NOBODY wants stablecoins, there is no way for it to survive, but I think an additional measure such as this could help it survive a much bigger hit.

What do you guys think? Morpheus, I'm especially interested in your thoughts, since this is your baby.

[dacoinminster]

Another note on the doomsday scenario:

Even if you have shareholders as described above, a catastrophic loss of interest in stablecoins would eventually send share prices to zero, and there would be no further leverage to take coins off the market.

At this point, the shareholders are bankrupt, and it would seem wise for the protocol to "declare bankruptcy", wipe out the old shares, wipe out the excess supply of stablecoins (replacing them with some new post-bankruptcy shares), and go from there.

[markm]

Another note on the doomsday scenario:

Even if you have shareholders as described above, a catastrophic loss of interest in stablecoins would eventually send share prices to zero, and there would be no further leverage to take coins off the market.

At this point, the shareholders are bankrupt, and it would seem wise for the protocol to "declare bankruptcy", wipe out the old shares, wipe out the excess supply of stablecoins (replacing them with some new post-bankruptcy shares), and go from there.

It sounds as if whatever it is that your coins are "shares" of has no assets.

If a corporation, for example maybe General Mining Corporation, actually owned assets, such as, for example, a bunch of mines, a bunch of mining rigs, or even a bunch of shares in various publicly traded sold, silver, platinum, paladium, iron, copper, etc etc etc mining corporations, and used a blockchain whose genesis block issued all coins ever to be issued of that blockchain, issuing them to GMC's treasury... then GM could use its actual assets to buy back any GMC coins it had issued at the same price it had issued them at or close to that price.

-MarkM-

[dacoinminster]

It sounds as if whatever it is that your coins are "shares" of has no assets.

If a corporation, for example maybe General Mining Corporation, actually owned assets, such as, for example, a bunch of mines, a bunch of mining rigs, or even a bunch of shares in various publicly traded sold, silver, platinum, paladium, iron, copper, etc etc etc mining corporations, and used a blockchain whose genesis block issued all coins ever to be issued of that blockchain, issuing them to GMC's treasury... then GM could use its actual assets to buy back any GMC coins it had issued at the same price it had issued them at or close to that price.

-MarkM-

The asset is a share in the stream of future coins that need to be distributed as the network grows. Miners would be paid in shares, which they could sell on the open market. When more stablecoins need to be issued to keep prices down, the shareholders would get them to keep or sell.

A share in a revenue stream does have value. The exact value I would leave up to speculators!

[John Tobey]

Both coin programs I'm proposing, would need to include the bitcoin like program, and an exchange. There is not currently an exchange attached to any version of bitcoin to my knowledge. I'm working on a distributed exchange outside bitcoin (https://github.com/macourtney/Dark-Exchange), and you could use a centralized exchange like MtGox or TradeHill, but that would defeat the decentralized aspect of a bitcoin like program. More work and though is needed in this area.

Edit: removed option expiration.
How about a very limited type of exchange within the main chain:

Every block contains a price inserted by the miner.  A block solution must contain a signature on a standard contract using the coinbase output keypair.  The contract is an option to:

    buy at the quoted price plus a standard spread (e.g., 1%)
    or
    sell at the quoted price minus a standard spread

an amount of the underlying commodity equal to the block reward.  The option can only be exercised by solving a block with this block as its parent.  To exercise such an option, a miner must set a special flag in the next block.  The two miners have to find each other and settle up (no need to specify how) before either can claim his block reward.  They must both sign something using their coinbase keypair and submit the signatures to the network before the network will recognize their block rewards.

Perhaps the spreads don't have to be standard, the contract can specify any prices straddling the quote.  Miners would be motivated to offer good terms in order to encourage the network to accept their blocks and thus validate their rewards.

[morpheus]

So how about we contemplate the doomsday scenario for stablecoin:

• stablecoin starts out wildly successful, miners get rich, everybody is happy
• Stablecoin 2.0 comes out, and nobody wants the original stablecoins anymore
• Everyone tries to sell their stablecoins all at once, price drops 99%
• All confidence in the protocol is lost except a couple hardcore believers holding out hope that the protocol will somehow correct itself

What should the protocol do to transfer fees in this case? Is there a 90% transfer fee? 50%? 10%? If the transfer fee is too high, who is going to want to buy stablecoins? Transfer fees penalize buyers as well as sellers. If nobody wants to buy OR sell, there is no incentive for prices to go up. Stablecoin simply dies.

It would seem that the transfer fee needs to be pretty small even when the price diverges by a large amount from the underlying asset, otherwise the new currency is completely ruined. On the other hand, if the coins cease to track the underlying asset, nobody wants to hold the coins anymore, and the currency is completely ruined.

Morpheus - have you considered how to handle a doomsday scenario like this?

I'm not sure what would happen in a total doomsday scenario, but I doubt the above would happen. I don't think a new "better" currency would cause everyone to suddenly jump all at once away from Stablecoin. Instead, it would be a gradual migration where the price of Stablecoin would be consistently under the target. The transfer fee would kick in to destroy the Stablecoins at a regular rate which is exactly what we would want.

A doomsday scenario which is very likely to occur would be like the Mt Gox hack. What happens if a bunch of Stablecoin was stolen and the thief doesn't care about the exchange rate and just dumps the coins on the market. Since something like that has already happened with bitcoin, we can assume this would happen with just about any digital coin.

This scenario will cause some issues, but I think Stablecoin would survive. Lets look at each step of the thief's sale to see how Stablecoin would react.

1. The thief initially tries to dump all of his stolen coins on the market. All of the bids are cleared from the market and the price of Stablecoin drops. If the thief is able to dump all of his coins, he gets away with the money, and a bunch of others buy really cheap Stable coins. If not, He has to wait for more bids.

2. The thief still has more coins to dump and some of those with cheap coins may want to sell at a slightly higher price than they bought them at. If the transaction fees haven't change yet, this is really step one with the addition of more people selling below the fair value. When the transaction fees change, the program will now calculate a very low value for Stablecoin and end up with really high transaction fees. If the thief tries to sell, he will lose much of his stolen coins to transaction fees. Also, anyone who purchased cheap Stablecoins and wants to sell out, or anyone panicking will also pay high transaction fees. Some people will choose to pay the transaction fees, others will not.

There's the important distinction, choice. Some people will choose to return some coins to the either because the coins didn't cost them anything to begin with or they have lost faith in Stablecoins. Either way, coins are destroyed. Hoarders can hoard their coins until the price comes back up. Of course, with so many coins being destroyed, the price will come back up.

Also, the transaction fees are a disincentive for the thief to dump his coins all at once. If he does, he won't make as much money as he would if he sold them slowly. There will likely be some level where he doesn't care about the transaction fee and just wants to dump the coins. But, that would just allow some people to buy cheap coins for a while and allow some of the stolen coins to disappear.

3. Finally, some coins are destroyed, others end up with some cheap coins. The big downside, Stablecoin isn't as stable as the name suggests. It will be influenced by the market, but the goal is to always go back to a specific price. I believe it will do that even in this doomsday scenario.

[dacoinminster]

How about a very limited type of exchange within the main chain:

Every block contains a price inserted by the miner.  A block solution must contain a signature on a standard contract using the coinbase output keypair.  The contract is an option to:

    buy at the quoted price plus a standard spread (e.g., 1%)
    or
    sell at the quoted price minus a standard spread

an amount of the underlying commodity equal to the block reward.  The option expires in 10 minutes(?) and can only be exercised by solving a block with this block as its parent.  To exercise such an option, a miner must set a special flag in the next block.  The two miners have to find each other and settle up (no need to specify how) before either can claim his block reward.  They must both sign something using their coinbase keypair and submit the signatures to the network before the network will recognize their block rewards.

Perhaps the spreads don't have to be standard, the contract can specify any prices straddling the quote.  Miners would be motivated to offer good terms in order to encourage the network to accept their blocks and thus validate their rewards.

There is, I believe, a much simpler way to exchange between bitcoins and stablecoins.

If the stablecoin protocol has visibility into the bitcoin network, then stablecoin users can mark their coins as "for sale" in the network, along with a bitcoin address and price.

When the stablecoin network sees bitcoins go to the address, it releases the stablecoins to the buyer.

There are a couple issues to work out, but I believe it would work. One issue is what happens if two bitcoin users try to buy the same stablecoins at the same time (answer: a buyer could send a tiny amount of bitcoins to "lock" the coins before sending the bulk of the coins. The first person to lock the coins has the right to buy them for a set amount of time.)

[John Tobey]

There is, I believe, a much simpler way to exchange between bitcoins and stablecoins.

Sure.  My proposal is about linking to prices outside the cryptocurrency world.  The bootstrap currency, if you will.  E.g., Goldcoin.

[dacoinminster]

I'm not sure what would happen in a total doomsday scenario, but I doubt the above would happen. I don't think a new "better" currency would cause everyone to suddenly jump all at once away from Stablecoin. Instead, it would be a gradual migration where the price of Stablecoin would be consistently under the target. The transfer fee would kick in to destroy the Stablecoins at a regular rate which is exactly what we would want.

A doomsday scenario which is very likely to occur would be like the Mt Gox hack. What happens if a bunch of Stablecoin was stolen and the thief doesn't care about the exchange rate and just dumps the coins on the market. Since something like that has already happened with bitcoin, we can assume this would happen with just about any digital coin.

This scenario will cause some issues, but I think Stablecoin would survive. Lets look at each step of the thief's sale to see how Stablecoin would react.

1. The thief initially tries to dump all of his stolen coins on the market. All of the bids are cleared from the market and the price of Stablecoin drops. If the thief is able to dump all of his coins, he gets away with the money, and a bunch of others buy really cheap Stable coins. If not, He has to wait for more bids.

2. The thief still has more coins to dump and some of those with cheap coins may want to sell at a slightly higher price than they bought them at. If the transaction fees haven't change yet, this is really step one with the addition of more people selling below the fair value. When the transaction fees change, the program will now calculate a very low value for Stablecoin and end up with really high transaction fees. If the thief tries to sell, he will lose much of his stolen coins to transaction fees. Also, anyone who purchased cheap Stablecoins and wants to sell out, or anyone panicking will also pay high transaction fees. Some people will choose to pay the transaction fees, others will not.

There's the important distinction, choice. Some people will choose to return some coins to the either because the coins didn't cost them anything to begin with or they have lost faith in Stablecoins. Either way, coins are destroyed. Hoarders can hoard their coins until the price comes back up. Of course, with so many coins being destroyed, the price will come back up.

Also, the transaction fees are a disincentive for the thief to dump his coins all at once. If he does, he won't make as much money as he would if he sold them slowly. There will likely be some level where he doesn't care about the transaction fee and just wants to dump the coins. But, that would just allow some people to buy cheap coins for a while and allow some of the stolen coins to disappear.

3. Finally, some coins are destroyed, others end up with some cheap coins. The big downside, Stablecoin isn't as stable as the name suggests. It will be influenced by the market, but the goal is to always go back to a specific price. I believe it will do that even in this doomsday scenario.

I think only a real-life experiment can determine if you are right. How high should the fees go, in your opinion?

One thing I don't like about high fees is that they discourage commerce if stablecoins happen to be priced too low rather than too high. If you want the ideal coin for commerce, this doesn't work as well, since 50% of the time there are fees and 50% of the time there are not once equilibrium is reached. I agree it might work pretty well if it is mostly seen as a store of value.

One other thing that bothers me is the user who just wants to store value, and access it later when they need it. If they happen to need the money while the coin-base is shrinking, you have effectively cut off access to their funds unless they want to surrender a big portion of the supposed value of the coins. I realize that is the point (to discourage people from cashing out when prices are too low), but from a marketing perspective adoption would be much more widespread if someone else (shareholders is my vote) was bearing most of the shrinkage risk.

You may be completely right that this will work with only tiny fees and gradual destruction of coins when necessary, but any violent price swings are going to make these coins less ideal for both commerce and store of value.

If that volatility risk can be transferred somehow as I described, these coins become much better behaved, both for commerce and for storing value. The "bankruptcy scenario" I described above could fail gracefully into the fee-based system you describe, but during any normal market, you would get nearly perfect stability without any fees.

[dacoinminster]

I realize I'm all over the place here, but here is another way to decrease they coin supply temporarily: have the protocol sell bonds. In this way, the protocol can borrow coins from users (reducing the coin supply), then make interest payments, and return the money at maturity. This would be a good way to handle a temporary oversupply of coins, but not a good way to handle a coin supply that needs to keep shrinking (since more coins are ultimately introduced by these bonds through the interest payments).

[markm]

One other thing that bothers me is the user who just wants to store value, and access it later when they need it.

Maybe such people are what futures and options are for?

If you want a loaf of bread in five years time, and are not sure how the price of bread might fluctuate by then, you buy a five year future loaf of bread.

If you want a loaf of bread anytime during the next five years but are not sure exactly when during that span of time you will want it, you buy a five year span open option on a loaf of bread.

Is that not how futures and options work?

-MarkM-