Mastercoin is an interesting idea whose aim is to “build a protocol layer on top of bitcoin (like how HTTP runs on top of TCP/IP)”
It promises:
• Additional security features to make your money much harder to steal
• Built-in support for a distributed currency exchange
• Built-in support for distributed betting (no need to trust a website to coordinate bets)
• Built-in support for "smart property" which can be used to create and transfer property such as titles, deeds, or stock in a company
• Capability to hold a stable user-defined value, such as an ounce of gold or U.S. Dollar, with no need to trust a person promising to back up that value
All of the above is correct. I don't dispute any of it.
It tries to accomplish these features by moving bits of BTC around in the blockchain in a very specific manner and labels them Mastercoins. All Mastercoins come from the “Exodus Address”. No more Mastercoins can be created. It is hoped by limiting the supply, the value of Mastercoins increase as people use them and that Mastercoins can provide escrow type features. It is a ledger type system of recording BTC movement and having those movements represent something else.
This is correct and it is essential that Mastercoins aren't mined and that the amount of them is stable because it's exactly the block reward halving, mining, inflation and other features of Bitcoin which create the volatility. Mastercoin is meant to function as a unit of measurement and it does not exist for anything else.
In the introduction thread of Mastercoin it is claimed that “MasterCoins are intended to be an investment opportunity on par with buying bitcoins when they first came out.” Perhaps that is a bad analogy?
Agreed that was a bad analogy but it was marketing and it did the job of getting half a million dollars give or take for crowd funding.
Mastercoin development is funded by all the bitcoins sent to the exodus address. Those bitcoins will be used to bankroll the project while the users are given bits of BTC that represent Mastercoins. These new coins are then traded like any other currency.
Mastercoins are not a currency and this is where you got it all wrong. It's a unit of measurement.
So no it's not traded like "any other currency" because Mastercoins aren't a currency.
It is hoped that like bitcoin, it gets the first mover advantage and users will flock to Mastercoin making the bits of BTC representing the Mastercoins very valuable. The momentum behind the project will prevent any other competitor from gaining market share in a similar fashion to all the alt coins compared to bitcoin.
This is partially true. It's actually the usefulness of the decentralized exchange which matters, the usefulness of the functionality of Mastercoin which matters and Mastercoin functions as a unit of measurement not a currency.
The main thing that Mastercoin needs to have in order to be independent from Bitcoin is to give users an ability to buy Mastercoins with their national currencies. So basically once the Mastercoin exchange is up then Coinbase or any other company can form to come along and allow people to buy Mastercoins indirectly by purchasing their Mastercoin gift cards.
It would work like this:
1. I'm a business and I buy 1000 Mastercoins.
2. I now issue my private currency in Mastercoin which I'll call a corporate voucher.
3. This corporate voucher can be redeemed for goods and services from my corporation just like a gift card or corporate credits.
4. The corporate voucher has an expiration date on it which means it expires after a certain date forcing you to use it, swap it, or send it back to the issuer by that date at which it becomes invalid.
5. If you send it back to the issuer before the expiration date then you get some Mastercoins which you can then use to buy any gift card, credit, voucher or currency from any other issuer.
6. The value of the gift card, credit, voucher or currency is backed by the goods and services of the issuer and can at any time before the expiration date be redeemed for those goods and services.
I think they are wrong in many aspects and Mastercoin proponents are comparing “apples to oranges”. I think Mastercoin will have to compete more like a protocol (which it claims it is) and less like a currency.
Of course it's a protocol. When did anyone say it wasn't?
Because it is a protocol:
1. Mastercoin is easily replaced or cloned with more advanced protocols
2. Mastercoin will not be the only “layer or protocol” built on top of bitcoin and will therefore not be a monopoly forever. They will however have the first mover advantage.
It can be easily cloned but that doesn't make the clone useful. If all the issuers are using Mastercoin and if you can buy Mastercoins with national currencies because businesses and markets are set up to allow it but you cannot do the same with the clones then what good are the clones? Mastercoin is only as useful as the size of the market. It's all about the issuers really and they'll decide whether Mastercoin or the clone will be a success. If I'm running a business and I'm offering my credits through Mastercoin then you'll be dealing with Mastercoin and not the clone. My currency once issued through Mastercoin would cost me more money to issue it on a clone of Mastercoin so why exactly would I pay twice?
If you're talking about Colored Coin then for sure I could issue it over Bitcoin but then I don't see how Colored Coin can do units of credit, gift cards or vouchers. If I have to buy a bunch of Bitcoins then it's really no different than if I have to buy a bunch of Mastercoins and in fact it's worse because me buying a bunch of Bitcoins will create volatility in the Bitcoin price for people trying to use Bitcoin as a currency and not as some sort of store of value or unit of measurement. All of that on top of the fact that Bitcoins are still being generated by miners and that the block reward will halve while all the Mastercoins that ever need to exist are mostly already in existance. Mastercoin is set to be far more stable because there is no reason for it to inflate or deflate and even if it did the price of Mastercoins in USD already is beyond 1:1 with the dollar. It started out as 1:1 with the dollar at something like 0.01 BTC per Mastercoin and now it's around 0.1. The problem with pricing it in Bitcoin is that Bitcoin isn't even stable and introduces too much volatility to Mastercoin so the solution is for Mastercoin and all it's future clones to be backed directly by the national currencies. You'll purchase Mastercoin (and whatever clone) with your national currency either directly from a Mastercoin ATM machine or indirectly from an issuer by trading in your voucher. The issuer themselves would have to purchase the Mastercoins aleviating the need of users to have to directly purchase them. Instead as a user you'd purchase a Walmart gift card and then trade it in for Mastercoins or if you have Mastercoins trade it back for the Walmart gift card.
So yes you can do a completely decentralized exchange where people buy the giftcards in local stores and then trade them decentralized on the Internet. The cash would be exchanged at the business issuing the Mastercoins. You'd buy either a voucher or swap a voucher for Mastercoins.
3. Mastercoins as a “store of value” as opposed to “ledger entries” is flawed
Why is it flawed? Explain.
Mastercoin claims that with widespread adoption any new system will face lots of resistance because Mastercoin will be already established. The comparison of LTC to BTC often comes up. It’s a bad analogy. BTC and other crypto currencies are backed up by miners. BTC has a huge framework of hardware crunching away. The massive army of miners provides huge momentum and resistance to change.
Mastercoin is backed by issuers. Anyone who owns Mastercoins can be an issuer. Issuers have a strong incentive to stick with whatever they are using. So if you have Mastercoins already you probably don't have a good reason to switch. If you've already issued your currency, credits or vouchers in Mastercoin why would you now have to go to a new ATM machine and buy Clonecoin with your USD so you can issue your currencies again? It makes no sense. If Mastercoin works I can tell you I wont have any reason to use anything else unless something else truly works better and from what I know about Mastercoin if it works it will solve even more long existing problems than Bitcoin does.
Colored Coin is an alternative and truthfully we'll probably be using some combination of both Colored Coin and Mastercoin. But to believe Mastercoin is somehow vulnerable to being cloned and to think issuers are going to go along with the clone is silly. If you were issuing corporate credits and doing good business on Mastercoin or if you're the business who started the Mastercoin ATM then why would you care about some clone? You'll stick with what you already have unless the clone is offering new functionality.
A better comparison would be bitcoin being the routers running the internet while Mastercoin and other frameworks like colored coins are web standards like html or scripting languages. The later being a lot easier to change in a moments notice.
Not quite. When web standards changed but every website on the Internet used the old standards do you think they'll just break all the old sites? The only reason to break old functionality would be to offer newer and better functionality. If a new Masterclone comes along offering the exact same functionality minus the compatibility why would anyone want it? It would be like exotic web browsers which don't follow the mainstream web standards or offer any new functionality so not only will your favorite websites not work, but you'll have to download two browsers and essentially pay twice.
Mastercoin is built on top of bitcoin. This makes it a completely different scenario than previous crypto currencies. All security of transactions in the ledger comes from bitcoin automatically. Imagine a scenario where LTC could instantly have the same network security as BTC. BTC’s hold on the market share would be at risk. They would be on the same playing field with little advantage of one over the other. LTC could easily steal market share under such a scenario.
That is because BTC and LTC are units of account and not designated as units of measurement. The price of BTC and LTC matters to speculators. Mastercoin isn't designed for speculation or as a currency but as a unit of measurement. You can easily create BTC or LTC on top of it and it would have the exact same exchange rate and value provided that its backed sufficiently in escrow around 3:1.
Any Mastercoin competing protocol will have the same network backing it up. Security will be the same. It will be a competition of features only. Will momentum be enough if new protocols emerge that are more advanced? I highly doubt it.
I agree it will be competition by features only and that is very good for us. Issuers and users both benefit from new features. The point is we wont want to pay for a competing product which has the exact same features.
As Colored coins and Mastercoins and other technologies emerge it will be survival of the fittest. Money might not be enough to ensure a protocols success. Eventually the best protocol will likely come out at top and win market share. Especially if the work involved in switching is almost nothing. No hardware to upgrade or change for example.
I predict Colored Coin and Mastercoin will both survive. I don't predict anything will easily threaten them once the decentralized exchanges and user currencies become popular. At that point we'll all be issuing currencies and we will prefer Colored Coin, Mastercoin or perhaps we'll be using both. It will be Internet Explorer and Netscape. Later on there might be some newcomers which try to duplicate these two but early on it's Colored Coin and Mastercoin which will dominate. So while I cannot tell you which one you should use I can say you will be wise to choose one or both as an issuer.
Attempting to create a new “currency” on top of bitcoin is in my opinion Mastercoin’s biggest mistake.
If you understand what it is as a unit of measurement why do you continue calling it a currency? Mastercoin is not a currency and never claims to be a currency. No one is going to buy a Pizza from a store with Mastercoins. Instead you'll buy Domino's Pizza vouchers from some random anonymous person on a decentralized exchange with your Mastercoins and then you'll go to Domino's Pizza to redeem your Pizza voucher. That means Mastercoin is not a currency, it's Domino's Pizza voucher which is the currency and there is no way Bitcoin will be able to compete with that.
When Domino's has to choose between which currency to value the most, Bitcoin, USD, or Domino's credit vouchers, they'll always value their Domino's credit vouchers the most. That would mean we will always have the best deals using Mastercoins, better deals than with USD or Bitcoin. Colored Coin might be able to do this too but with a drawback, it will make people buy Bitcoins to such an extent that Bitcoins may go up to $100,000 but then it could crash down again to $150. That extreme volatility comes form miners generating new coins and when the price shoots up like that they'll probably sell their coins for USD crashing it down. Mastercoins don't have to be sold for USD because Mastercoins can become USD which defeats the whole purpose of anyone selling them for USD.
I understand the intentions of trying to fundraise a new protocol and it is a clever attempt. Unfortunately I think that by doing this Mastercoin has sacrificed its potential. It will always be at risk of being replaced and with it all the BTC invested will be gone.
You make it sound like issuers are going to decide to switch over for the same functionality. If you're the issuer and you're selling Pizzas using your Pizza Coin which you are backing with your goods and services, and Mastercoins are already purchased with national currencies allowing you to feel safe about it, why would you go onto a new uncertain clone where there aren't any Mastercoin ATM machines and most importantly there isn't a market place of other issuers who you can swap your credits with? If you cannot swap vouchers, credits and currencies then what is the point? If I cannot take my credits over to the Mastercoin clone and redeem them there then what is the point? I worked for my credits and I want a Pizza, but there is no Pizza issuer on that clone so I can't get Pizza and the only thing the clone is offering is to start all over again as an employee. BAD DEAL.
And not just the BTC invested to start the project but all the BTC invested as Mastercoins raise in value as they are traded. To survive as a “store of value”, Mastercoin has to remain popular no matter what type of competition emerges. That will be very hard to accomplish. If Mastercoin was a true protocol the store of value would have remained in BTC while Mastercoin was an interface for interpreting the movement of BTC. All the escrow features could have easily been done with actual BTC instead of creating a new currency on top of another currency.
Competition is good but I don't think Mastercoin has much to fear from competition if it works because if it works then we'll all have greater access to goods and services and a market cap in the trillions.
It's possible we will switch to something better than Bitcoin as well, but when things are good and everything works for everybody I don't see any reason why people would have an incentive to.
Perhaps there is another way to fund protocols for bitcoin without having to sacrifice their functionality and ensure that investors are compensated?
The functionality of Mastercoin isn't being sacrificed. What the hell are you talking about?
1. Conduct a “protocol IPO” where an idea is presented with a plea to fund the idea
2. BTC raised would be invested for the development while all investors get “shares” in the technology
3. Design the protocol in such a way that a “donation” or “fee” is necessary for tracking
4. As the protocol becomes popular the fees are used for future development and for paying dividends on the protocol's shares
Why would I want to raise funds in Bitcoin when I can raise funds with USD? Most people have USD. Mastercoin can leverage USD so that people don't even have to interact with Bitcoins. Literally you could go into a store and buy a giftcard and it could be backed by Mastercoin and not even have to know it. You could sell that giftcard on the decentralized exchange for Mastercoins or you could buy giftcards for Mastercoins. People could purchase giftcards for USD which solves the fiat to Mastercoin.
Any issuer can produce a giftcard backed by Mastercoins. If you're doing crowdfunding all you would have to do is issue a gift card or vouchers which can be redeemed based on the amount of USD pledged. Those vouchers could be redeemed for Mastercoins.
Example:
If you pledge $50 you get 0.05 Mastercoins plus whatever other gifts.
If you pledge $100 you get 0.1 Mastercoins plus whatever other gifts.
If you pledge $1000 you get 1 Mastercoin plus whatever other gifts.
Suddenly you now have the ability to crowd fund with USD on kickstarter and offer Mastercoins as the gift which allows people to essentially possess Mastercoins. Later on they can use those Mastercoins to buy whatever giftcards they want or they could stick with your voucher and get the gifts you offer by sending the Mastercoins back to you the issuer when you have some product or service they require or want. They could then get a voucher for that product or service which they could then trade in an automated market place with other people who are doing the same kind of thing and swap vouchers between various startups and other businesses so that everyone gets exactly what they want when they want.
What Mastercoin2 could look like:
-reuses almost all mastercoin code with small modifications allowing for both projects to share code
-the creation of mastercoins2 comes from a transaction where multiple outputs are created with one being the “donation” address. The donation would be similar size to a regular bitcoin fee. A few cents. A mastercoin2 creation transaction would be the donation, a bitcoin network fee, and the actual mastercoin2 outputs. This also means that mastercoins2 are only created when they are needed and don’t have to be purchased anywhere else first. They are just for maintaining the ledger and contain very little value in of themselves. It also means that the users of mastercoin2 are not at risk of speculation of a currency on top of a currency. The value remains in BTC.
But Bitcoin is a currency and not very stable. Why would I buy Bitcoin to put my value in that when I can just stick with USD? With Mastercoin as it's being developed now, if it works then I could never have to even buy Bitcoins. I could just buy Mastercoins directly, or buy vouchers which can be redeemed for Mastercoins. I don't have to care about the value of Bitcoins and that actually provides a massive amount of stability to Bitcoin because people with Bitcoins will be able ot benefit from the stability of Mastercoin. It's possible Mastercoin will be unstable but when you don't have miners, you don't have to worry about hoarders or scarcity affecting the market place, no one really will care all that much about the price of Mastercoin to Bitcoin because the only price that matters is the price of Mastercoin to their local national currency. That price can at least to my understanding be kept absolutely stable. So if $1 is always $1 when I'm in the Mastercoin economy then I just purchase $1000 worth of Mastercoins and I receive however many Mastercoins that is. I'm not a speculator I'm a shopper. If I'm an issuer then I don't really care about the dollar because I'm issuing my own currency and my employees are earning my credit coins, gift cards, and various vouchers which can be traded with other businesses for whatever my employees need. So as long as my business is making a profit and providing valuable goods and services to the market, then my credit coin will be directly backed by the quality and value of my goods and services and not BTC or USD. Mastercoin is merely a unit of measurement to allow me to compare the value of my businesses goods and services with every other.
These are just my thoughts. I have been really thinking about Mastercoin and colored coins and I'm starting to really wonder about all the BTC being invested in speculation on perhaps people being mis-informed on what they are buying.
Perhaps I'm wrong, but I don't really see Mastercoin being similar to bitcoin at all. They are apples to oranges and by people thinking Mastercoins are going to be around just as long as bitcoin in the long run is a pretty big stretch of the imagination. Mastercoin is usefull now but every so often new replacements will come along while bitcoin will always be underneath running all the new protocols. Unless I'm missing something or don't understand Mastercoin?
I think you're not really understanding the dramatic paradigm shifting which will occur once we have user issued credit and an automated decentralized exchange. When we have that then there is no need to care about the price of BTC, the price of the USD or any of that because people will be working for user issued credits which will be redeemed the exact goods and services they need at any given time.
As long as the decentralized exchanges are populated with businesses offering valuable goods and services there will be great value in having Mastercoins and that value will cause great demand.
