[ANN][XCP] Counterparty - Pioneering Peer-to-Peer Finance - Official Thread

[bitwhizz]

any comments on how side chains make counter party redundant?

[1714194795]

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[1714194795]

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[sparta_cuss]

any comments on how side chains make counter party redundant?

Theoretically, a side-chain can be created to do the same things as Counterparty, Mastercoin, or any true altcoin. However, I wonder at the financial incentive to create an altcoin or XCP as a side-chain. Since the side-chain "currency" (not a true coin) will have to be created by burning/suspending/reserving BTC, and the second peg will unburn/unsuspend/redeem at most the same total amount of BTC, isn't the total value of the side-chain "currency" forever limited by the amount of BTC that was reserved for creation?

Let's say someone develops a really cool side-chain currency that does wonderful things, and everyone is using it and wants it. How is the value of any unit of that currency going to increase if it can only ever be redeemed for the same amount of BTC that was reserved to create it? I don't see how it's possible for the side-chain currency to have its own ecosystem and be, in a sense, detached from the original BTC reserve amount. (But I didn't major in math or economics, so maybe I'm missing something.)

Please see some of the questions posed by taariqlewis in this reddit thread for more: http://www.reddit.com/r/Bitcoin/comments/22p0ch/eli5_side_chains/

[PhantomPhreak]

any comments on how side chains make counter party redundant?

Side chains are nothing new, and they have many limitations which make them unsuitable for our use in the short term. What's new here is the proposal for two-way pegs to BTC, which is a very interesting idea, but one that has no direct relevance to Counterparty, or the limitations of Bitcoin that Counterparty resolves.

[bitwhizz]

thanks PP and sparta
jsut the answer i was looking for

[maaku]

Theoretically, a side-chain can be created to do the same things as Counterparty, Mastercoin, or any true altcoin. However, I wonder at the financial incentive to create an altcoin or XCP as a side-chain. Since the side-chain "currency" (not a true coin) will have to be created by burning/suspending/reserving BTC, and the second peg will unburn/unsuspend/redeem at most the same total amount of BTC, isn't the total value of the side-chain "currency" forever limited by the amount of BTC that was reserved for creation?

Let's say someone develops a really cool side-chain currency that does wonderful things, and everyone is using it and wants it. How is the value of any unit of that currency going to increase if it can only ever be redeemed for the same amount of BTC that was reserved to create it? I don't see how it's possible for the side-chain currency to have its own ecosystem and be, in a sense, detached from the original BTC reserve amount. (But I didn't major in math or economics, so maybe I'm missing something.)

The side-chain currency is bitcoins. It's not meant to be detached from the original BTC reserve amount at all! Asking "how is the value of any unit of that currency going to increase?" is kinda silly. It's value goes up or down exactly as bitcoin does, as the two are instances of the same thing: a single, unified cross-chain currency. Indeed one of the primary points is to prevent this scammy every-alt-has-its-own-floating-currency nonsense.

any comments on how side chains make counter party redundant?

Side chains are nothing new, and they have many limitations which make them unsuitable for our use in the short term. What's new here is the proposal for two-way pegs to BTC, which is a very interesting idea, but one that has no direct relevance to Counterparty, or the limitations of Bitcoin that Counterparty resolves.

We'll have to differ on this opinion. As I've stated multiple times in this thread, and to various counterparty and mastercoin people in person, there are significant advantages to doing asset issuance and distributed markets on a validated, merged-mined side chain. This is solving the same problem in a way that is better for the ecosystem. Although we're getting some press now, two-way pegging as a implementable idea has existed since at least December of last year, and distributed p2p markets over side chains was fleshed out in the Freimarkets paper six months prior to that. These ideas pre-date Counterparty and yes, they are frankly better than the unvalidated parasitic model. I will stop evangelizing, but I will be happy to answer specific questions.

[PhantomPhreak]

Side chains are nothing new, and they have many limitations which make them unsuitable for our use in the short term. What's new here is the proposal for two-way pegs to BTC, which is a very interesting idea, but one that has no direct relevance to Counterparty, or the limitations of Bitcoin that Counterparty resolves.

We'll have to differ on this opinion. As I've stated multiple times in this thread, and to various counterparty and mastercoin people in person, there are significant advantages to doing asset issuance and distributed markets on a validated, merged-mined side chain. This is solving the same problem in a way that is better for the ecosystem. Although we're getting some press now, two-way pegging as a implementable idea has existed since at least December of last year, and distributed p2p markets over side chains was fleshed out in the Freimarkets paper six months prior to that. These ideas pre-date Counterparty and yes, they are frankly better than the unvalidated parasitic model. I will stop evangelizing, but I will be happy to answer specific questions.

I won't deny that there are significant advantages to doing asset issuance, etc. on a validated side chain. But there are also significant disadvantages. Both technologies are valid, in my opinion, and they don't solve the same problems (though something like Freimarkets, if it were created, would certainly be able to duplicate some of the functionality of Counterparty). I do disagree that side chains are better for the ecosystem, and also that the benefits of building on a side chain outweigh their significant costs.

[Spekulatius]

Theoretically, a side-chain can be created to do the same things as Counterparty, Mastercoin, or any true altcoin. However, I wonder at the financial incentive to create an altcoin or XCP as a side-chain. Since the side-chain "currency" (not a true coin) will have to be created by burning/suspending/reserving BTC, and the second peg will unburn/unsuspend/redeem at most the same total amount of BTC, isn't the total value of the side-chain "currency" forever limited by the amount of BTC that was reserved for creation?

Let's say someone develops a really cool side-chain currency that does wonderful things, and everyone is using it and wants it. How is the value of any unit of that currency going to increase if it can only ever be redeemed for the same amount of BTC that was reserved to create it? I don't see how it's possible for the side-chain currency to have its own ecosystem and be, in a sense, detached from the original BTC reserve amount. (But I didn't major in math or economics, so maybe I'm missing something.)

The side-chain currency is bitcoins. It's not meant to be detached from the original BTC reserve amount at all! Asking "how is the value of any unit of that currency going to increase?" is kinda silly. It's value goes up or down exactly as bitcoin does, as the two are instances of the same thing: a single, unified cross-chain currency. Indeed one of the primary points is to prevent this scammy every-alt-has-its-own-floating-currency nonsense.

any comments on how side chains make counter party redundant?

Side chains are nothing new, and they have many limitations which make them unsuitable for our use in the short term. What's new here is the proposal for two-way pegs to BTC, which is a very interesting idea, but one that has no direct relevance to Counterparty, or the limitations of Bitcoin that Counterparty resolves.

We'll have to differ on this opinion. As I've stated multiple times in this thread, and to various counterparty and mastercoin people in person, there are significant advantages to doing asset issuance and distributed markets on a validated, merged-mined side chain. This is solving the same problem in a way that is better for the ecosystem. Although we're getting some press now, two-way pegging as a implementable idea has existed since at least December of last year, and distributed p2p markets over side chains was fleshed out in the Freimarkets paper six months prior to that. These ideas pre-date Counterparty and yes, they are frankly better than the unvalidated parasitic model. I will stop evangelizing, but I will be happy to answer specific questions.

Would you pls stop calling it "parasitic"? Its kind of offensive around here and most people in this thread would disagree with you. If you aim for a fruitful interaction with us pls use a less derogative term, like "complementary", "add-on", or "top level layer", etc.

For a different matter, could you think of any situation where 1 BTC in side chain A has a different exchange value then 1 BTC in side chain B? For example during a time period when chain A is under attack and thus less functional or save?

[maaku]

Parasitic is a technical word that describes precisely what it is; those other terms do not. It is not meant to be derogatory.

To the second matter, depending on how the pegging is constructed there might be some automated mechanism by which it shuts off (e.g. if the hash rate falls below some proportional threshold of bitcoin's). In that case of course the market value would diverge. But so long as the pegging mechanism is in place, any significant deviation of market price would be equalized by market makers moving coin in our out of the side chain.

[GLaDOS]

any comments on how side chains make counter party redundant?

When you look for a platform that can weathered the storm best, would you put your most valuable assets on an inflatable raft tied to the Bitcoin boat?

I think most businesses would rather stay on BitcoinXCounterparty.

[nakaone]

maaku thanks for being here I have a few questions
1.) can you explain 2-way-pegging in non-technical manner? coming from an economics background I know pegging, but two-way-pegging is a somewhat artificial expression. is it simply fixing exchange rates?
2.) again from an economics, non-technical perspective, it seems to have a lot of disadvantages, for the case it is the same as fixing exchange rates. if I understood Adam Beck on LTB properly the reason for using this model is keeping the promise of 21 million bitcoins as a somewhat law of scarcity in Cryptocurrencies. Due to altcoins, he sees the danger of losing digital scarcity - that is absurd for an open-source technology isn't it? what incentive do altcoin-developers have to create a great coin within this system? Who sets the exchange rate for the tokens on the sidechains?
3.) Aren't you afraid that some developers who have great ideas simply create altcoins, using closed source code, because they know otherwise they would be cloned by bitcoin (idea is funny)? I think the cryptocurrecy development works so great because it is open sourced, free floating and not limited. I am afraid that you could move great minds, who also want to be monetarily rewarded for an innovation (which is by no doubt fine) out of the Bitcoin-Protocol?

Just to clarify I do not know if there are technical reasons for two-way-pegging, but regarding incentives for core innovation within the cryptocurrency system, especially for people entering the market now and in the future, this is a suicide. After listening to Adam on LTB I think that the motivation for two way pegging is completely wrong and almost funny.

[porqupine]

http://sourceforge.net/p/bitcoin/mailman/message/32108143/

[maaku]

2-way pegging means that value may be transferred at a pegged (fixed) rate in either direction. The "2-way" is in contrast to one-way pegging, which is for example how Counterparty was issued. Unlike proof-of-burn, 2-way pegging involves sending coins to a special form of output which identifies the destination chain and recipient on the other side. At this stage it is similar to proof-of-burn: you have provably made the currency unspendable to you, and in doing so you gain the right to claim an equal number of coins at the destination side chain.

What's new is the return peg: to move those side chain coins back onto bitcoin, you perform the same operation again. First you send the side-chain coins to a special output naming the bitcoin chain and yourself as recipient. On the bitcoin side you take one of those previous burn-like outputs which sent coins into the side chain, and present your proof of having "burnt" sidecoins in order to claim an equal number of real bitcoins.

This special form output is a script which is able to understand an embedded proof-of-spend from another chain, which validates the accounting rules (you need to spend X bitcoins to claim X sidecoins, and vice versa), and which makes sure that claimed coins go to the indicated recipient.


This sortof-is and sortof-isn't fixed exchange rates. If you are coming from an economic background you know the problems of fixed exchange rates, but those problems don't really apply here. The problem with a fixed exchange rate over national currencies is that the two are not in fact equivalent -- you have two issuers that are separately backing each currency. In the case of 2-way pegging however, the two currencies are equivalent. You only ever get sidecoins by making bitcoins inaccessible, and vice versa. It isn't about fixing exchange rates between two currencies, rather it is about using the same exact currency on two different networks: sidecoins are bitcoins, and bitcoins are sidecoins.


Regarding innovation, monetary reward from speculative asset issuance is a failed model. Any innovation that occurs could be cloned on a side chain using bitcoins, freicoins, or some other already issued coin as the native currency. In a free market there is absolutely no reason to prefer the non-pegged alternative.

[porqupine]

2-way pegging means that value may be transferred at a pegged (fixed) rate in either direction. The "2-way" is in contrast to one-way pegging, which is for example how Counterparty was issued. Unlike proof-of-burn, 2-way pegging involves sending coins to a special form of output which identifies the destination chain and recipient on the other side. At this stage it is similar to proof-of-burn: you have provably made the currency unspendable to you, and in doing so you gain the right to claim an equal number of coins at the destination side chain.

What's new is the return peg: to move those side chain coins back onto bitcoin, you perform the same operation again. First you send the side-chain coins to a special output naming the bitcoin chain and yourself as recipient. On the bitcoin side you take one of those previous burn-like outputs which sent coins into the side chain, and present your proof of having "burnt" sidecoins in order to claim an equal number of real bitcoins.

This special form output is a script which is able to understand an embedded proof-of-spend from another chain, which validates the accounting rules (you need to spend X bitcoins to claim X sidecoins, and vice versa), and which makes sure that claimed coins go to the indicated recipient.


This sortof-is and sortof-isn't fixed exchange rates. If you are coming from an economic background you know the problems of fixed exchange rates, but those problems don't really apply here. The problem with a fixed exchange rate over national currencies is that the two are not in fact equivalent -- you have two issuers that are separately backing each currency. In the case of 2-way pegging however, the two currencies are equivalent. You only ever get sidecoins by making bitcoins inaccessible, and vice versa. It isn't about fixing exchange rates between two currencies, rather it is about using the same exact currency on two different networks: sidecoins are bitcoins, and bitcoins are sidecoins.


Regarding innovation, monetary reward from speculative asset issuance is a failed model. Any innovation that occurs could be cloned on a side chain using bitcoins, freicoins, or some other already issued coin as the native currency. In a free market there is absolutely no reason to prefer the non-pegged alternative.

Not to side-track the discussion regarding two-way pegs - but.., Why do you think Freicoins (which has an 80% premine) should be a non-speculative standard that makes sense to use (despite the fact that the functionality is not yet implemented), where as Counterparty (which has better dispersed distribution than bitcoin btw) ought to be considered a failed model?

[maaku]

In my mind, the only valid currencies are those which are distinct from each other in terms of their economic model, and which possess the most free, fair, and wide distribution of their class. For store of value currencies, that is Bitcoin. For demurrage / transactional currencies, the only contender so far is Freicoin. I honestly don't see any other actively developed currencies out there that are trying anything with a different economic model than these two.

Freicoin's 80% issuance through non-profits is a side issue I'd be happy to discuss with you in some other context as its very off topic for this thread.

[nakaone]

2-way pegging means that value may be transferred at a pegged (fixed) rate in either direction. The "2-way" is in contrast to one-way pegging, which is for example how Counterparty was issued. Unlike proof-of-burn, 2-way pegging involves sending coins to a special form of output which identifies the destination chain and recipient on the other side. At this stage it is similar to proof-of-burn: you have provably made the currency unspendable to you, and in doing so you gain the right to claim an equal number of coins at the destination side chain.

What's new is the return peg: to move those side chain coins back onto bitcoin, you perform the same operation again. First you send the side-chain coins to a special output naming the bitcoin chain and yourself as recipient. On the bitcoin side you take one of those previous burn-like outputs which sent coins into the side chain, and present your proof of having "burnt" sidecoins in order to claim an equal number of real bitcoins.

This special form output is a script which is able to understand an embedded proof-of-spend from another chain, which validates the accounting rules (you need to spend X bitcoins to claim X sidecoins, and vice versa), and which makes sure that claimed coins go to the indicated recipient.


This sortof-is and sortof-isn't fixed exchange rates. If you are coming from an economic background you know the problems of fixed exchange rates, but those problems don't really apply here. The problem with a fixed exchange rate over national currencies is that the two are not in fact equivalent -- you have two issuers that are separately backing each currency. In the case of 2-way pegging however, the two currencies are equivalent. You only ever get sidecoins by making bitcoins inaccessible, and vice versa. It isn't about fixing exchange rates between two currencies, rather it is about using the same exact currency on two different networks: sidecoins are bitcoins, and bitcoins are sidecoins.

thank you for explaining it like this, this is for me totally sound even though you can wonder from a non-technical perspective why you need this special tokens on sidechains, when they are equivalent to bitcoin, but I assume this is like for xcp a technical reason.

Regarding innovation, monetary reward from speculative asset issuance is a failed model. Any innovation that occurs could be cloned on a side chain using bitcoins, freicoins, or some other already issued coin as the native currency. In a free market there is absolutely no reason to prefer the non-pegged alternative.

after that wonderful explanation of 2way pegging, I was assuming a great answer to that part. I have to say I cannot agree less. The reason for innovation (not invention) is rent seeking, if you follow Schumpeter even by definition. This view is after all I know widely accepted over all schools of economics, from the libertarians to the almost ultra-left wing economists, and seen as welfare increasing. To put together a new combination of ideas and capital is probably the most driving force in capitalist developement.
Speculating on this assets is referred to Schumpeter seen as "gods work" because it is allocating money to the best ideas, this money is used for building an entire industry around this idea, creating a slippery slope of innovation, investment and re-innovation. The beauty of the value web following the invention of Satoshi is that it is even self-enforcing the factors (capital, ideas, labour) for creating this slippery slope. This is for me one of the reasons why cryptoeconomics has a huge chance to succeed.

Do not get me wrong, from a non-technical perspective I think it is useful to try to set Bitcoin Protocol as the TCP/IP of internet for money, but you should make sure that there is a sound incentive model for developers, which is encouraging innovation. I think this model is not doing this and probably even leading to the opposite direction. Also reading Adams post on the mailing list for the motivation to do two way pegging was in this way depressing. It sounds, even though I think it is unintentional, like someone who wants to protect the status quo.

[maaku]

No, that is not a universally held view. Innovation can bring productivity gains which bring profit for the innovators without necessitating any rent collection. Personally I'm am of the opinion that rents are evil, and I've pretty much dedicated all of my bitcoin efforts towards destroying rent seeking industries.

There are alternative models out there which work much better.

[nakaone]

No, that is not a universally held view. Innovation can bring productivity gains which bring profit for the innovators without necessitating any rent collection. Personally I'm am of the opinion that rents are evil, and I've pretty much dedicated all of my bitcoin efforts towards destroying rent seeking industries.

There are alternative models out there which work much better.

I do not want to be in any way offensive, but the model proposed by adam is artificially, by pegging, seperating the rent from the innovator. I think rent collection by protection is something evil.

[maaku]

And then Freicoin eliminates the rent entirely. We have wandered very off topic however.

[leigh2k14]

Here's an interesting article on side chains on coindesk: http://www.coindesk.com/bitcoin-core-developers-bitcoin-side-chains/

[fishy]

And then Freicoin eliminates the rent entirely. We have wandered very off topic however.

Nobody uses Freicoin though...