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Author Topic: Bitcoin as a kind of digital backing for other digital currencies  (Read 1294 times)
Nefario
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February 07, 2011, 06:46:08 AM
 #1

Use bitcoin as a backing for say some other digital currencies, say ones like that in the ripple system that already have POS software and systems.

Bitcoin then becomes a kind of gold standard of the digital world?

Good idea or bad?

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February 07, 2011, 07:02:47 AM
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Different than what already is happening? MtGox credits your account when you send him bitcoins, but all you have is an entry in his database. Those entries are promises to send bitcoins back to you. It's a bitcoin backed 'currency'.
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February 07, 2011, 07:05:03 AM
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Ripple is prone to fragmentation.

You end up with piles of little "islands" of people that trust and can pay one another. Paying to people on other "islands" is troublesome and sometimes impossible.
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February 07, 2011, 07:32:13 AM
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Ripple is prone to fragmentation.

You end up with piles of little "islands" of people that trust and can pay one another. Paying to people on other "islands" is troublesome and sometimes impossible.

But as a Ripple network gets bigger the disconnected components are more likely to become connected until eventually the network exhibits the small-world phenomenon.
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February 07, 2011, 07:57:46 AM
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Ripple is prone to fragmentation.

You end up with piles of little "islands" of people that trust and can pay one another. Paying to people on other "islands" is troublesome and sometimes impossible.

But as a Ripple network gets bigger the disconnected components are more likely to become connected until eventually the network exhibits the small-world phenomenon.

Yeah, this effect is like magic. As the islands grow the odds of finding a connection between them grows and so does the benefit of that connection. Then you have larger islands and eventually anyone who wants to join knows someone on the biggest island and it's all one huge connected thing.
hugolp
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February 07, 2011, 08:05:50 AM
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Ripple is prone to fragmentation.

You end up with piles of little "islands" of people that trust and can pay one another. Paying to people on other "islands" is troublesome and sometimes impossible.


There is nothing wrong with this. I have always though and history also indicates the same that having local currency complementing a more global currency is positive because it helps isolate your local economy from economic problems in other place. For example, the north of Brasil has a local currency and they have weather this crisis very well. Switzerland has a long tradition of private currencies and have achieve better prosperity (not the only reason obviously). Nowadays swiss companies have a private currency system that they use to lend and borrow between associates of the system, and all the industries acknowledge that it has been a key factor to mantain economic stability.

Having a local currency is very positive. It helps you isolate you from external shocks.
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February 07, 2011, 08:15:16 AM
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Having a local currency is very positive. It helps you isolate you from external shocks.

A local currency alone can't do that. If the supply of things coming from the outside drops then the price will go up regardless of what currency you use. You need to not rely on the outside to full protect from outside influences, but obviously a lot is given up by doing everything yourselves, so people balance. Not to mention there is rarely a well-defined inside and outside, and this would be even more the case in a free world.
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February 07, 2011, 08:47:38 AM
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Having a local currency is very positive. It helps you isolate you from external shocks.

A local currency alone can't do that. If the supply of things coming from the outside drops then the price will go up regardless of what currency you use. You need to not rely on the outside to full protect from outside influences, but obviously a lot is given up by doing everything yourselves, so people balance. Not to mention there is rarely a well-defined inside and outside, and this would be even more the case in a free world.

The thing is that a lot of crisis (not all though) are usually related to problems and disruptions in the money market, therefore having a local currency does help weather the crisis. Even when the crisis is not directly related to monetary issues having a local currency can also help by making local intereactions easier.
Nefario
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February 07, 2011, 10:07:32 AM
 #9

Ripple is prone to fragmentation.

You end up with piles of little "islands" of people that trust and can pay one another. Paying to people on other "islands" is troublesome and sometimes impossible.


This is why it being backed by bitcoin wouldbe a good thing, it would allow the islands to transfer between each other.

I mention ripple because as far as I know they have some good point of sale systems.

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markm
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February 07, 2011, 12:58:47 PM
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My take on Ripple was that I would want to disallow giving people more (bitcoin-) credit than you yourself actually have, except for the admin account which would give credit denominated in bitcoin based on bitcoin actually already received from the person the credit is given to.

Even then things could go weird, but at least the credit given by the admin would (well, could) actually be backed.

-MarkM-

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