Multicoin, Namecoin, Goldcoin, Silvercoin, OilCoin, 1971coin, backed by bitcoin!

[dacoinminster]

But what is the other case?

I still believe the hyperbitcoin model would allow investors to trade without default risk, and only some bitcoin price risk (if the escrow fund got too low).

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[jtimon]

But what is the other case?

I still believe the hyperbitcoin model would allow investors to trade without default risk, and only some bitcoin price risk (if the escrow fund got too low).

I thought you rejected that idea with the doomsday post.
If all reserves are stored in coins, how it is possible that there's no default if the price of the coin gets too much reduced?
If you print more to pay people redeeming their commodity tokens and hypercoins, the value of your coin is going to fall even more.
I still don't know how this tokens are issued. I thought the chain issued them at the spot price known inside the chain thanks to the miners, but you say their price doesn't depend on the spot price.
If they are issued by finding a counter-party, what gets the counter-party exactly? How can you make money with antiOil-tokens?
Where the money both parties pay goes? What happens if the price of the commodity multiplies by 10000?

[dacoinminster]

I thought you rejected that idea with the doomsday post.

. . . .

If you print more to pay people redeeming their commodity tokens and hypercoins, the value of your coin is going to fall even more.

In the doomsday post I rejected printing new bitcoins to shore up the escrow fund, but not the hyperbitcoin idea. I probably wasn't very clear with that.

If all reserves are stored in coins, how it is possible that there's no default if the price of the coin gets too much reduced?

If there aren't enough speculators to offset a drop in bitcoin values, coin/anticoin holders would be exposed to bitcoin price fluctuations, but there wouldn't be an outright default

I still don't know how this tokens are issued. I thought the chain issued them at the spot price known inside the chain thanks to the miners, but you say their price doesn't depend on the spot price.
If they are issued by finding a counter-party, what gets the counter-party exactly? How can you make money with antiOil-tokens?

See this post in the sister thread for an example of how coins/anticoins would be issued: http://forum.bitcoin.org/index.php?topic=31645.msg400477#msg400477

antioilcoins would go up when oilcoins go down, so buying them is like shorting oil. I expect some rules would have to be in place to keep them balanced, which I'll admit I haven't given enough thought to yet (see below).

Where the money both parties pay goes? What happens if the price of the commodity multiplies by 10000?

When coins and anticoins are created, they are sold for bitcoins which go into escrow. That last question (what happens if a commodity goes up by 10000x?) is a fantastic one. Let me take a shot at how that would work:

Let's say oil is rising rapidly. As the price of oilcoins starts to rise, the price of antioilcoins would fall at the same time. The bitcoins in escrow backing oil are now out of balance (more bitcoins backing oil coins than antioilcoins), so the protocol needs to either use escrow funds to buy oilcoins on the open market or it needs to mint new antioilcoins out of thin air and sell them on the open market (within the bitcoin network), or some combination of both until balance was restored. The balance of buying oilcoins and selling antioilcoins would be decided by what combination left the escrow fund the healthiest. The only risk of default I can see is the case of an instantaneous huge price move combined with everyone trying to sell their coins/anticoins all at once, which seems pretty unlikely.

I just made that up. Does anybody see a problem with that model?

[doldgigger]

I agree that oil, gold, whatever markets will be valuable for the bitcoin economy. But as they introduce a single point of failure, they should be kept outside of the bitcoin protocol. What is wrong with creating trade contracts, signing them with your PGP key and establishing a web of trust between traders? This approach can be extended upon in a bottom-up manner, it can use bitcoin as a currency, but it will still not be able to damage bitcoin security.

What is wrong with contracts, PGP keys, and webs of trust? The problem with them is they are hard to explain to Grandma. It's much easier to tell Grandma, "See, you bought some bitcoins, but you can store them as USD, Euros, gold, oil, . . . "

It is also hard to explain bitcoin's technical details to grandma. Maybe even more than public key crypto and webs of trust. This is what the client software is supposed to abstract away, and this can also be done for out-of-chain contracts etc.

I think there is nothing wrong with creating distributed infrastructure to trade gold, oil, currencies etc., but I don't think it belongs into the block chain. The value of bitcoins can be verified by every peer in the network, and I think this is what makes bitcoin so powerful. Tradable values based on currencies or commodities can only be securely verified by a relatively small subset of the network, and therefore introduce security issues not otherwise present, while still requiring resources from the whole network.

I disagree with the recent populism targeting at artificially stabilizing the bitcoin currency. Bitcoin will stabilize itself like any other currency when we establish a prosperous bitcoin-backed economy. For this to work, the most important next step will be merchants growing up and providing services or goods for real BTC prices instead of constantly adapting their prices to the exchange rates. After that, the market will stabilize the price by itself (and probably lead to an even more stable currency than what certain national currencies currently are due to the governments becoming more and more indebted).

I hope you are right that bitcoin will eventually stabilize. However, price volatility favors speculators at the expense of people who just want to use bitcoin to engage in commerce or store value. The assertion that bitcoin will stabilize may be true, but it can't be proven. I'd rather have the protocol provide stability for the people that want it, and transfer the volatility to the speculators who want it.

New technology is always more volatile than established business tools. But I think there is a good chance for the current bitcoin implementation to fly for quite some time - sufficiently long to use it for business.

Moreover, I do not think your recommendations can prove stability, either. In fact, they take away a core characteristic of bitcoin that could be a base for its stability (once the business volume using bitcoin grows). No stable currency as of today is valuable simply because you can trade it to another currency, or a commodity. This kind of stability can only be backed by one or more individuals who can ensure the possibility to trade it for whatever they propose. Once the resources of these individuals are exhausted, you reach the limits of this kind of stability. True value of a currency comes from the vast range of goods or services that can be bought using that currency. So, every member of our community who starts doing business using bitcoin provides his share of the stability we all want.

I do think it is an interesting idea to have similar currencies with some other characteristics (for example a different algorithm to manage the amount of coins {which could, in theory, also be backed on commodities etc.}, or using different crypto algorithms), but I think they should have their own block chain and network so we have security through redundancy, rather than a single block chain that becomes so complex that no one can ensure it is robust enough to sustain attacks. Still, I assume the original bitcoin might still be the one that will turn out to be superior.

But I also think it is too early for this to be built. It will be interesting once there is enough freely available software to setup exchanges, do algorithmic trading etc., so users don't have to care about all the virtual currencies manually.

Please do also note that I cannot be bribed with 0.1 BTC or whatever in order to write something that pleases someone else. I have my own plans on doing bitcoin business, and I have found that there are people in the community who agree with what I do because I received BTC donations both anonymously and by prior agreement. I am always open to new collaborations with people from the bitcoin community, but I will not engage in business which is easily recognizable as being bound to fail.

Please don't be insulted if I offer to pay you for your post

The payments are kind of a gimmick to spur conversation on a topic that I am really really interested in.

Well, the way I read your offer, I got the impression that just posting here might make me look like I just do that because of the offer. But I actually enjoy to discuss with people who wish to take bitcoin to its next level (as I do). Even if we have rather different ideas. I think we all can only learn from good discussions. If you wish to send coins, I'm also fine with that, but my primary goal is to be a responsible member of the bitcoin community who provides his thoughts for others to read them.

[dacoinminster]

It is also hard to explain bitcoin's technical details to grandma. Maybe even more than public key crypto and webs of trust. This is what the client software is supposed to abstract away, and this can also be done for out-of-chain contracts etc.

Abstracting away the complexity is exactly what I have in mind, but I'm not sure how that can be done for webs of trust.

I think there is nothing wrong with creating distributed infrastructure to trade gold, oil, currencies etc., but I don't think it belongs into the block chain. The value of bitcoins can be verified by every peer in the network, and I think this is what makes bitcoin so powerful. Tradable values based on currencies or commodities can only be securely verified by a relatively small subset of the network, and therefore introduce security issues not otherwise present, while still requiring resources from the whole network.

I took a poll, and the consensus seems to be that changes of this sort should be experiments in new block chains rather than changes to the existing block chain. I'm concerned that new block chains could compete directly with bitcoin (and make bitcoins less valuable), but perhaps there is a way to tightly integrate them with bitcoins without messing with the existing bitcoin protocol.

New technology is always more volatile than established business tools. But I think there is a good chance for the current bitcoin implementation to fly for quite some time - sufficiently long to use it for business.

Moreover, I do not think your recommendations can prove stability, either. In fact, they take away a core characteristic of bitcoin that could be a base for its stability (once the business volume using bitcoin grows). No stable currency as of today is valuable simply because you can trade it to another currency, or a commodity. This kind of stability can only be backed by one or more individuals who can ensure the possibility to trade it for whatever they propose. Once the resources of these individuals are exhausted, you reach the limits of this kind of stability. True value of a currency comes from the vast range of goods or services that can be bought using that currency. So, every member of our community who starts doing business using bitcoin provides his share of the stability we all want.

I do think it is an interesting idea to have similar currencies with some other characteristics (for example a different algorithm to manage the amount of coins {which could, in theory, also be backed on commodities etc.}, or using different crypto algorithms), but I think they should have their own block chain and network so we have security through redundancy, rather than a single block chain that becomes so complex that no one can ensure it is robust enough to sustain attacks. Still, I assume the original bitcoin might still be the one that will turn out to be superior.

But I also think it is too early for this to be built. It will be interesting once there is enough freely available software to setup exchanges, do algorithmic trading etc., so users don't have to care about all the virtual currencies manually.

Well, the way I read your offer, I got the impression that just posting here might make me look like I just do that because of the offer. But I actually enjoy to discuss with people who wish to take bitcoin to its next level (as I do). Even if we have rather different ideas. I think we all can only learn from good discussions. If you wish to send coins, I'm also fine with that, but my primary goal is to be a responsible member of the bitcoin community who provides his thoughts for others to read them.

I agree with all of this.

Trying to peg a distributed currency to an external value like gold or oil is complex, and leads to a lot of strange "what if" scenarios. I do believe it is possible, although a complete protocol description has so far eluded me.

[cunicula]

If you want to create btc denominated assets, why not just create investment funds on GBSLE. You can just issue shares in a gold fund and use the capital you raise to buy gold for example. These coins all require centralization anyway, so what is the difference? You can also set up a fund to short gold if that is important to you.

[doldgigger]

I still don't know how this tokens are issued. I thought the chain issued them at the spot price known inside the chain thanks to the miners, but you say their price doesn't depend on the spot price.
If they are issued by finding a counter-party, what gets the counter-party exactly? How can you make money with antiOil-tokens?

See this post in the sister thread for an example of how coins/anticoins would be issued: http://forum.bitcoin.org/index.php?topic=31645.msg400477#msg400477

antioilcoins would go up when oilcoins go down, so buying them is like shorting oil. I expect some rules would have to be in place to keep them balanced, which I'll admit I haven't given enough thought to yet (see below).

Unless you can provide some value in exchange, you cannot assume to be able to create value out of thin air. Therefore, when you create an oilcoin (which is supposed to be equivalent to some amount of oil), the corresponding anti-oilcoin will be negative in value. It is basically a debt in oil. So, the value of your oilcoins will depend on other people's willingness to believe that you can balance that debt at any time. Moreover, if you allow anti-oilcoins to be traded freely (as your proposal reads), these people will want to see guarantees that everyone who receives the anti-oilcoins will be equally trustworthy with respect to repaying their debt. You can find excellent real-life example data on the dangers stemming from freely trading debts when you analyze the recent banking crisis.

[markm]

I took a poll, and the consensus seems to be that changes of this sort should be experiments in new block chains rather than changes to the existing block chain. I'm concerned that new block chains could compete directly with bitcoin (and make bitcoins less valuable), but perhaps there is a way to tightly integrate them with bitcoins without messing with the existing bitcoin protocol.

[snip]

Trying to peg a distributed currency to an external value like gold or oil is complex, and leads to a lot of strange "what if" scenarios. I do believe it is possible, although a complete protocol description has so far eluded me.

Merged mining seems promising, however to do it without messing with the existing bitcoin might or might not end up happening, as that would involve adding a new hash value into the bitcoin blocks.

A meta-chain though could maybe do it: a chain specifically for the purpose of being the most difficult chain of a potentially large number of merged chains, the place you go to when you want to be yet another merged mining chain.

Two of the currencies my IRC bots work with are at least somewhat commodity based: GMC and GRF (General Mining Corp and General Retirement Funds). They are not really directly a commodity peg though because the corporations promoting them have not really settled yet on whether to charge interest on loans of these currencies or to simply increase the amount of a commodity they will buy per unit of the currency.

For example instead of charging miners 1% per day interest when loaning them GMC and/or GRF as capital for setting up a mining operation they might simply keep increasing the quantity of mined commodities each unit of the currency will buy, so that the currency goes up in value 1% per day. Here I mean value as in how much of a commodity they will buy per unit and also how much of that commodity they will sell per unit.

Obviously the catch in such plans is who will "honour" coins minted by miners who are not part of the corporation; thus the interest in "licensed mining" and the current practice of having customers use "thin" clients such as the IRC bots instead of having "full clients" such as the corporations and their agents (such as IRC bots) use.

It will not be until the problems around these two currencies are adequately solved that these corporations will look seriously at per-commodity currencies; the GMC and GRF currencies are more like abstractions of baskets, or a kind of "share of the commodities the corporation has available for sale".

Part of their interest in interest is the thought that possibly some of the market demend for a currency might possibly be able to derive from interest denominated in that currency being offered on bonds/loans denominated in that currency. (As they are able to charge quite high interest on loans, they could offer somewhat less interest on bonds aka loans-made-to-them.)

-MarkM-

[doldgigger]

It is also hard to explain bitcoin's technical details to grandma. Maybe even more than public key crypto and webs of trust. This is what the client software is supposed to abstract away, and this can also be done for out-of-chain contracts etc.

Abstracting away the complexity is exactly what I have in mind, but I'm not sure how that can be done for webs of trust.

For starters, my approach would probably be based on some metrics for the web of trust, and statistics to calculate risks based on these metrics. Then an interface as simple as eBay with its feedback system would already be possible. It could be simplified even more by having some reasonable bootstrap web of trust, and a hard-coded value for the acceptable risk (at this point, however, there is more centralization in place, but I believe decentralization is always slightly more complex).

I think there is nothing wrong with creating distributed infrastructure to trade gold, oil, currencies etc., but I don't think it belongs into the block chain. The value of bitcoins can be verified by every peer in the network, and I think this is what makes bitcoin so powerful. Tradable values based on currencies or commodities can only be securely verified by a relatively small subset of the network, and therefore introduce security issues not otherwise present, while still requiring resources from the whole network.

I took a poll, and the consensus seems to be that changes of this sort should be experiments in new block chains rather than changes to the existing block chain. I'm concerned that new block chains could compete directly with bitcoin (and make bitcoins less valuable), but perhaps there is a way to tightly integrate them with bitcoins without messing with the existing bitcoin protocol.

I don't think this is much of a problem. With a new crypto-currency in place, either bitcoin is superior, or the new currency. If bitcoin is superior, there is no point in bloating bitcoin with the new currency. If the new currency is superior, people will wonder why they have to still run bitcoin.

With a new crypto-currency in place, bitcoin won't be affected for some time as people will still use bitcoin as they know it better. There will be early adopters, and maybe they will prove that the new currency is better. Then bitcoin would be superseded. The only scenario where the competition might be a problem is when both currencies have their uses where they are superior to the other one. In this case, automated trading will have to evolve. As of today, I also buy some things in EUR and some things in USD, and it is not a problem because CC companies will automatically exchange the currencies. With everyone being able to invent his own currency, more complex scenarios are possible, but I am confident that similar solutions can still be found.

New technology is always more volatile than established business tools. But I think there is a good chance for the current bitcoin implementation to fly for quite some time - sufficiently long to use it for business.

Moreover, I do not think your recommendations can prove stability, either. In fact, they take away a core characteristic of bitcoin that could be a base for its stability (once the business volume using bitcoin grows). No stable currency as of today is valuable simply because you can trade it to another currency, or a commodity. This kind of stability can only be backed by one or more individuals who can ensure the possibility to trade it for whatever they propose. Once the resources of these individuals are exhausted, you reach the limits of this kind of stability. True value of a currency comes from the vast range of goods or services that can be bought using that currency. So, every member of our community who starts doing business using bitcoin provides his share of the stability we all want.

I do think it is an interesting idea to have similar currencies with some other characteristics (for example a different algorithm to manage the amount of coins {which could, in theory, also be backed on commodities etc.}, or using different crypto algorithms), but I think they should have their own block chain and network so we have security through redundancy, rather than a single block chain that becomes so complex that no one can ensure it is robust enough to sustain attacks. Still, I assume the original bitcoin might still be the one that will turn out to be superior.

But I also think it is too early for this to be built. It will be interesting once there is enough freely available software to setup exchanges, do algorithmic trading etc., so users don't have to care about all the virtual currencies manually.

Well, the way I read your offer, I got the impression that just posting here might make me look like I just do that because of the offer. But I actually enjoy to discuss with people who wish to take bitcoin to its next level (as I do). Even if we have rather different ideas. I think we all can only learn from good discussions. If you wish to send coins, I'm also fine with that, but my primary goal is to be a responsible member of the bitcoin community who provides his thoughts for others to read them.

I agree with all of this.

Trying to peg a distributed currency to an external value like gold or oil is complex, and leads to a lot of strange "what if" scenarios. I do believe it is possible, although a complete protocol description has so far eluded me.

I don't think it is very complex, but it is a resource issue. To peg the bitcoin currency to gold, you need a large supply of both bitcoins and gold so you can manipulate the markets according to the intended value. I think this is more expensive than it's worth.

Maybe what you're looking for is actually a distributed payment processing network to transfer gold. Individuals with a large supply of gold could create this, possibly using similar protocols as bitcoin uses. But it is still sufficiently different from bitcoin to justify separate development efforts. For example, mining is not required in the same sense as bitcoin uses it (by extension, this means that such a network may be interesting to explore the effectiveness of bitcoin's method of creating a transaction fee market), and a way to cancel transactions in case one of the participants lies about his existing gold supply is needed.

[dacoinminster]

I have decided that I like morpheus' idea better than my own, so I am locking my threads about this stuff, and I encourage anyone interested in concepts like this to check out his thread:

https://bitcointalk.org/index.php?topic=29135.0