How to profitably create Bitcoin forks without causing economic chaos

[d'aniel]

Whole thread is tl;dr = increase confidence that cryptocurrencies in general are a safe store of value that you don't have to babysit by rolling out your new ones, and protocol-breaking updated ones with a peg to BTC, as this strengthens the common currency unit, and solves your initial distribution and valuation problems quickly, and in an economically non-disruptive way.  Do it profitably and in a low-trust way via the "distributed central bank" described here, or come up with a way that the peg can be maintained in a truly trust-free way.


Say a group of people want to create a Bitcoin fork that they think will rival Bitcoin.  This rivalry would normally force people to choose which currency to hold on to, and would create winners and losers.  In order to avoid such a disruption, they could start a whole new blockchain, use Mike Hearn's merged mining, and create a temporary central bank that starts out with the initial distribution of forkcoins, equal to the current supply of bitcoins.

It would then trade bitcoins one-to-one for forkcoins, maintaining a peg.  It can do its trades in a trust-free way via this: https://bitcointalk.org/index.php?topic=22581.msg286054#msg286054, and it could use CHECKMULTISIG to spread the trust in it over many people, in multiple jurisdictions.  Of course it would want to dissolve eventually, so it might state in the beginning that it will begin gradually lowering its bitcoin/forkcoin exchange rate to zero after a given time.  Afterward, it would fulfil a promise to destroy any bitcoins and forkcoins remaining in its possession, so as not to cause any market distortions by releasing them into the market.  Notice that the total bitcoin + forkcoin circulated money supply still grows at the rate that bitcoins alone would have, absent Forkcoin.  They have a symbiotic, rather than rivalrous relationship.

They could even make a business model out of this by charging a fee for issuing or redeeming.

This method could also be used for necessary or experimental protocol updates that break backward compatibility.

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[cunicula]

Sounds like a very good idea to me.

[ThomasV]

It would then trade bitcoins one-to-one for forkcoins, maintaining a peg.  

LOL. let me know when I can exchange my forkcoins for BTC :-)

[d'aniel]

It would then trade bitcoins one-to-one for forkcoins, maintaining a peg.  

LOL. let me know when I can exchange my forkcoins for BTC :-)

I'm pretty sure this proposal is valuable, as it removes the rivalry and barriers to entry due to network effects in the crypto-currency market.  And it incentivises people to discover and implement significant protocol improvements.  Well, for the ones that expand at the same rate, anyway.

Are you really so convinced that Bitcoin is the paragon of crypto-currency?

[kjj]

Pegs are only possible under very special circumstances, none of which will ever apply to bitcoin.  Ever.

Situation 1 is where you can create at least one of the two currencies in unbounded quantities.  Really, you need to be able to do both, but if you can do just one, you can keep the game rolling for a long time.

Situation 2 is where the two currencies are identical, which makes the peg (and the new currency) pointless.  By identical, I mean created at the same time and in the same amounts, and totally identical supply and demand.

[hashcoin]

what is the purpose of making another currency and pegging it to bitcoin???  It seems to me the entire purpose of making another is if you believe it will be better or different in some way, and hence be valued differently.

If you want something like bitcoin but to tweak parameters, here is a plan for "the ultimate fork" I outlined.  The idea is to create the fork-of-all-forks, where all network parameters are set by vote:

http://bitcointalk.org/index.php?topic=24929

Also, merged mining requires getting all the miners to use your software.  There's another way to accomplish the same thing.  It needs a bit more work, but as is it seems pretty good.  The idea is to PAY miners to mine what you want with bitcoins, rather than you pay yourself with hash power.

http://bitcointalk.org/index.php?topic=31111.0

[d'aniel]

I'm sorry, I didn't mean to say peg!  I only meant that the central bank would guarantee the one-to-one exchange rate...

[kjj]

I'm sorry, I didn't mean to say peg!  I only meant that the central bank would guarantee the one-to-one exchange rate...

That's what a peg is.

[d'aniel]

I'm sorry, I didn't mean to say peg!  I only meant that the central bank would guarantee the one-to-one exchange rate...

That's what a peg is.

Whoa, brain fart.  I had it right the first time.  Your sig must have shaken my confidence  

The whole idea is to have value transferring seamlessly from bitcoins to forkcoins in such a way as to not disrupt prices denominated in bitcoins.  For every bitcoin's worth of value that leaves the Bitcoin economy for Forkcoin's, a bitcoin leaves the Bitcoin economy too - via the owner of that value.  And so bitcoin denominated prices will be completely unaffected by the introduction and existence of Forkcoin!  And vice-versa.  And if Forkcoin is at all utilized, then it adds to the value of a bitcoin by providing more utility to it than it otherwise would have had.  This way you don't need to leave the forkcoin valuation, and the bitcoin revaluation up to the speculators, who would no doubt flail wildly.  And if Forkcoin is at all successful, then you don't end up screwing the people that didn't move enough of their bitcoin into forkcoins at the right times.  You draw people to use forkcoin based purely on its merit, and untainted by their fear or greed.

In the extreme case where Forkcoin completely dominates Bitcoin, you'd actually see bitcoins totally disappear from circulation forever.

If the both end up living side by side, then they do so symbiotically instead of rivalrously (at least until the central bank dissolves itself).

And notice that there is always an equal number of forkcoins in existence as there are bitcoins when you include the central bank reserves, provided the central bank gets all newly mined forkcoins while it exists, or it starts out with the current total bitcoin supply plus what will be mined while it exists.  The central bank can always make good on its promise.

If you want something like bitcoin but to tweak parameters, here is a plan for "the ultimate fork" I outlined.  The idea is to create the fork-of-all-forks, where all network parameters are set by vote:

I really think this proposal achieves just that.  Users are voting by deciding which one to hold on to.  And in a non-disruptive way.

Also, merged mining requires getting all the miners to use your software.  There's another way to accomplish the same thing.  It needs a bit more work, but as is it seems pretty good.  The idea is to PAY miners to mine what you want with bitcoins, rather than you pay yourself with hash power.

If forkcoin transaction fees to be earned, miners would no doubt mine, as doing so doesn't impose much extra cost to them because mining is merged.  And if forkcoin users demand more miners to come on board, then all they have to do is up their transaction fees.

Haven't read these two links just yet, but thanks for all the ones you've been posting for me, they're always very enlightening.

[d'aniel]

Maybe the confusing part is recognizing that arbitrage seekers would exchange their bitcoins for forkcoins via the central bank in the event that forkcoins became more valuable on the market than bitcoins.  This would bring more forkcoins into circulation, driving their value back down, and it would take bitcoins out of circulation, driving their value back up to parity.  And similarly if the forkcoin market value drops below bitcoin's.

[d'aniel]

Provided this isn't all one giant brain fart, I believe this solves the problem of investment uncertainty created by the expected introduction of newer, better crypto-currencies supplanting the old ones.  Well, that is if people all agree that this is the best way to roll new ones out  

[kjj]

Ahh, I get it now.

New problems.

1) The exchanger needs to be able to prove that it has destroyed the bitcoins, or no one will trust it.

2) The exchanger needs to be able to prove that it has created no more newcoins than the number of bitcoins destroyed, or no one will trust it.

So, the exchange needs to be a trap door, or the whole thing falls apart.  But, by being a trap door, it brings fear back in, since no one will give up their bitcoins unless they are pretty confident that the new system is not only viable, but will eventually dominate.  Most people would be better off using a floating exchange, at least until the question of dominance has been settled.

[Atom]

This implies there is a finite amount of value in BTC, and that any fork will neccesarily draw that value away from BTC into the fork. 

any fork will get value the same way BTC did - People buying into it with an existing currency.  That will most likely be USD.

This is only a problem because there are problems funding with USD right now.

As far as relative valuations go, whats the point of having a fork if they trade for exactly the same value?  If you want something to be priced exactly the same as BTC I recommend.... BTC.....

lol

Unless the point here is to create a new "early adopter" gold rush while also guaranteeing against non-adoption (the peg), this is a non-starter

[d'aniel]

This implies there is a finite amount of value in BTC, and that any fork will neccesarily draw that value away from BTC into the fork. 

A successful fork will draw value away from Bitcoin, yes, but it won't diminish the value of a bitcoin at all!  It will increase it!

any fork will get value the same way BTC did - People buying into it with an existing currency.  That will most likely be USD.

Don't you think that the adopters of a new crypto-currency would be disproportionately Bitcoin users?  Do you think they might feel like they now have to choose how to split their crypto-currency holdings between BTC and the new one?

As far as relative valuations go, whats the point of having a fork if they trade for exactly the same value?  If you want something to be priced exactly the same as BTC I recommend.... BTC.....

lol

Unless the point here is to create a new "early adopter" gold rush while also guaranteeing against non-adoption (the peg), this is a non-starter

There's a hell of a lot more to a crypto-currency than it's exchange rate to another one.  The protocol could be changed in all sorts of noticeable ways, that would distinguish it from the other.  For example, say you had one that could be used for extreme micro transactions, small enough to pay for each of the individual packets going over the Internet?  Do you think that would be enough to cause an exodus from Bitcoin, despite exchange rates remaining at parity?  Here's the idea of how this might be possible: https://bitcointalk.org/index.php?topic=25786.msg325839#msg325839.

Then suppose Bitcoin eventually got around to implementing this, finally got its users to upgrade their software so that it worked, and eventually wrestled most of its original users back.  Well in the meantime these users got to move seamlessly to a kickass new crypto-currency that did so much more for them than the old one, and at the same time their movements led to a ton of innovation.  And notice that the new currency issuers are incentivised to innovate by being able to turn a profit!  This allows for fierce competition and stability at the same time!

Besides, people stampeding from crypto-currency to crypto-currency fucks over those who don't want to have struggle all the time to stay on top of "the game".  It's not a fucking game to most people.  They can't reasonably be blamed for "not being sensitive enough to the winds of change".  It doesn't help confidence in the stability of crypto-currencies in general to introduce such uncertainty - unnecessarily - as I believe I've shown here.

I hope these fears aren't knee jerk reactions to my use of the words, "peg" and "central bank".  First of all, they're temporary (if you want).  Secondly, the trust in the central bank can be distributed over an arbitrary number of independent people and organizations.  And third, if you analyze this carefully, you'll see that there is never any redistribution of purchasing power until the peg is gradually lifted.

[d'aniel]

Ahh, I get it now.

New problems.

1) The exchanger needs to be able to prove that it has destroyed the bitcoins, or no one will trust it.

2) The exchanger needs to be able to prove that it has created no more newcoins than the number of bitcoins destroyed, or no one will trust it.

So, the exchange needs to be a trap door, or the whole thing falls apart.  But, by being a trap door, it brings fear back in, since no one will give up their bitcoins unless they are pretty confident that the new system is not only viable, but will eventually dominate.  Most people would be better off using a floating exchange, at least until the question of dominance has been settled.

Like I said, trust in the central bank can be distributed among arbitrarily many individuals and organizations using the CHECKMULTISIG opcode.  And it only has to function securely, temporarily.

It can't destroy any bitcoins until it dissolves, since there might be an exodus from the new currency at some point.  It can eventually destroy them, and any remaining forkcoins it has, by sending them to some eater address(es) for which obviously nobody holds the key.  There was a funny one in the block explorer that I can't find now.  Something like 1BitCoinEaterAddressDontSend.

At any time it can prove its reserves by signing messages with its private keys.

[d'aniel]

I guess this discussion would probably be rendered moot by market forces, anyway.

Say someone developed an awesome new protocol change, and rolled out the new currency in the way that I've described.  There's no way anyone would accept if if the source was closed, so this leaves open the opportunity for a competitor to turn around and immediately release the peg-free, floating version.

I think regardless of how it went about solving the initial adopter problem in a reasonable timeframe (probably a blockchain fork), it would be a battle in the public arena between SpeculatorCoin and StableCoin.  Sure SpeculatorCoin could destabilize StableCoin just by proving to be a worthy competitor, but I hope people would see that they're being unnecessarily punished financially simply because they weren't quick enough to upgrade their damn software, and would boycott SpeculatorCoin, and vilify its adopters.    And it would surely only get one attempt before people got fed up with the unnecessary instability IMO.

StableCoin also has going for it the fact that it developed and is maintaining the damn software, and SpeculatorCoin is just a dirty thief.  

Then again, the roles could be reversed, and SpeculatorCoin developed the software that StableCoin is trying to use...

[markm]

I guess this discussion would probably be rendered moot by market forces, anyway.

Say someone developed an awesome new protocol change, and rolled out the new currency in the way that I've described.  There's no way anyone would accept if if the source was closed, so this leaves open the opportunity for a competitor to turn around and immediately release the peg-free, floating version.

I think regardless of how it went about solving the initial adopter problem in a reasonable timeframe (probably a blockchain fork), it would be a battle in the public arena between SpeculatorCoin and StableCoin.  Sure SpeculatorCoin could destabilize StableCoin just by proving to be a worthy competitor, but I hope people would see that they're being unnecessarily punished financially simply because they weren't quick enough to upgrade their damn software, and would boycott SpeculatorCoin, and vilify its adopters.    And it would surely only get one attempt before people got fed up with the unnecessary instability IMO.

StableCoin also going for it the fact that it developed and is maintaining the damn software, and SpeculatorCoin is just a dirty thief.  

Then again, the roles could be released, and SpeculatorCoin developed the software that StableCoin is trying to use...

As it seems to be Bitcoin that is the one speculators flock to, I guess "speculatorcoin" here means Bitcoin, and, yes, it therefore is the case that "speculatorcoin" developed the software that some "stablecoin" or other might choose to use.

I find the idea of destroying bitcoins that are spent to buy "stablecoins" very weird though, because I imagine that being able to "back" one's newfangled "stablecoins" with Bitcoins might be rather useful.

It is rather a pity that it is Bitcoin that has so far filled the role of being a "speculatorcoin", I wonder if it is almost inevitable that whichever coin "the masses" are most aware of will fall into that role? I had often imagined that real bitcoins might be or become far more valuable than the various pocket-change coins used by kids for pocketmoney and by consumers for day to day out of pocket spending. It even seemed that the more "complicated" and "mysterious" real bitcoins are the more the common masses would drift away to pocket change coins of various kinds, leaving the truly valuable "actual bitcoins" to the major pillars of the financial world, the big edifices that "back" the various pocketmoney systems.

If the people who had hundreds of thousands, or millions, of Bitcoins choose to "cash out" to fiat and walk away, they would basically be treating the whole system as a ponzi scheme instead of truly demonstrating by their own actions of "backing" it using such fiat that they are able to get for it that they were and are serious about supporting it as a real currency, the currency of the people who minted it, sold it for fiat, and thus now have huge hoards of fiat with which to "back" it.

Alternatives would seem to me to look a little more serious if they retained any bitcoin they aquired to hold in trust as "backing" for their new coin than if they destroyed bitcoins they aquired.

Most of the players who seem serious about the various new currencies they have had me working on for them seem to agree that they want to aquire plenty of any blockchain based coins they can, so as to have a nicely variegated treasury with which to "back" their favourite type(s) of coin.

Indeed part of why they do not like the types of markets that Bitcoin seems to regard as standard or normal is such markets deprive them of the ability to choose who they buy from or sell to. Not just for prejudices along the lines of "We are the Elves, Orcs are enemies, therefore we will not sell Elfincoin to Orcs nor trade Elfcoin for Orccoin" but also things like "we see no evidence that you have been retaining the fiat you have been aquiring and putting it back into the system therefore we do not want to sell you any more fiat".

-MarkM-

[d'aniel]

mark,

Due to the hostility of the current political/financial establishment, I don't think Bitcoin had any other choice to be SpeculatorCoin.  Ideally it would have bootstrapped itself onto other dominant measures of value, and then possibly shed its backing after getting established, but it did not have this luxury so it made due with what it had: hype.

And up until now it's worked.  I think Bitcoin needs a kick in the ass at this point, though, in order to regain its momentum, and to elevate it above the status of a novelty among the general public, that they don't use.

Don't get scared by the prospect of "destroying coins", or at least removing them from circulation - it's necessary to create a much bigger symbiosis of many different varieties of cryptocurrencies.  I only proposed destroying them after the central bank eventually dissolved itself, but I actually don't see why it couldn't remain in existence as long as there was demand for it to - all the while collecting fees that would ideally go toward further development.  This way having a cryptocurrency-symbiosis would be completely non-disruptive, economically; peoples' value could flow frictionlessly into and out of the different ones in perpetuity.

Think of it this way: there's about 7M BTC in circulation now.  No matter how many various new symbiotic cryptocurrencies get created, this proposal ensures that there will remain 7M (and still growing at 50/10min) total coins in circulation afterward.  The value stored in each individual cryptocurrency is then directly proporitonal to the number of coins it has in circulation, and is determined completely by user preference.

Note that a symbiosis is only appropriate for currencies that create coins at the same rate that Bitcoin does (or those like it) so this could be seen more as a means to enable Bitcoin itself to develop more rapidly and with more variety, and not as a way to fork its "essence", i.e. it's ledger of who owns how many "coins", where "coins" is now meant in a more general sense than BTC.

[etotheipi]

New problems.

1) The exchanger needs to be able to prove that it has destroyed the bitcoins, or no one will trust it.

2) The exchanger needs to be able to prove that it has created no more newcoins than the number of bitcoins destroyed, or no one will trust it.

So, the exchange needs to be a trap door, or the whole thing falls apart.  But, by being a trap door, it brings fear back in, since no one will give up their bitcoins unless they are pretty confident that the new system is not only viable, but will eventually dominate.  Most people would be better off using a floating exchange, at least until the question of dominance has been settled.

Neither of these are problems:

(1) Coins can be verifiably "destroyed" by creating a transaction script that can't ever evaluate to true.  This transaction enters the network and becomes public.  Everyone can see it, and see that the PkScript is impossible to satisfy, ever.  That's pretty good "proof".   And since it's a custom script anyway, they could even include a message in the script which explains exactly the source and purpose (and signature) so that there is no confusion about whose coins were destroyed and why.

(2)  If the new currency is anything like BTC, then similarly, the currency is all public information.  Unless we're talking about non-decentralized currencies... all units of the currency should be traceable, both in time and quantity.  If it's not, I don't see how this currency can really "compete" with BTC, since centralization and closed-ness would pretty much make the "fork" a non-fork.

[kjj]

New problems.

1) The exchanger needs to be able to prove that it has destroyed the bitcoins, or no one will trust it.

2) The exchanger needs to be able to prove that it has created no more newcoins than the number of bitcoins destroyed, or no one will trust it.

So, the exchange needs to be a trap door, or the whole thing falls apart.  But, by being a trap door, it brings fear back in, since no one will give up their bitcoins unless they are pretty confident that the new system is not only viable, but will eventually dominate.  Most people would be better off using a floating exchange, at least until the question of dominance has been settled.

Neither of these are problems:

(1) Coins can be verifiably "destroyed" by creating a transaction script that can't ever evaluate to true.  This transaction enters the network and becomes public.  Everyone can see it, and see that the PkScript is impossible to satisfy, ever.  That's pretty good "proof".   And since it's a custom script anyway, they could even include a message in the script which explains exactly the source and purpose (and signature) so that there is no confusion about whose coins were destroyed and why.

(2)  If the new currency is anything like BTC, then similarly, the currency is all public information.  Unless we're talking about non-decentralized currencies... all units of the currency should be traceable, both in time and quantity.  If it's not, I don't see how this currency can really "compete" with BTC, since centralization and closed-ness would pretty much make the "fork" a non-fork.

Except that #2 requires that the entire network follow the new chain, plus the old bitcoin chain so they can verify that creations match destructions.  And that the two points together form a trap door that essentially causes the same faith problem that this entire proposal was intended to solve.

The way to get people to commit to the a new system is not by having them make an irreversible decision to burn their bridges back to the old system.