Thoughts on a bitcoin alternative backed by gold?

[dance4x]

What are your thoughts on an alternative to bitcoin that actually has something behind it? It would offer the same security and privacy as bitcoin but it wouldn't have the flaws of paper money.

[1714189742]

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[1714189742]

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[ThePiachu]

Well, anyone can offer a service like that. Get some gold/other commodities and offer to trade x amount of things for y amount of bitcoins. Basically you'd be working like a shop, but probably on a bigger scale (enough commodities to support exchange of all bitcoins).

Personally I think it is too early to offer anything like that - bitcoin value fluctuates too much, and they are still being created, meaning you'd have to be getting more and more commodities over time.

[Adult BTC]

How would you decentralize it?

[ThePiachu]

Hmm, I think that would be hard without use of a solution like https://en.bitcoin.it/wiki/Smart_Property . You could always try setting up some service like mtgox where people could be offering to trade their gold for resources. One or either way, it would require some creativity if it was to be really decentralised.

For now you can just do your best to help bitcoins get some more recognised value by trading in it (selling goods and services for coins). This would be similar to what you want to accomplish and it is decentralised.

[John Tobey]

It would probably be a new chain/currency, not bitcoin-the-currency (BTC) per se.  A successful gold-backed currency would fluctuate more or less with the gold price, i.e., less than BTC fluctuates.

Decentralisation would be challenging, but not impossible in the long run--provided that the currency's trade value dwarfs its nominal gold exchange value.  The end result would be just like BTC after the inflationary period.  Gold-backing would have been a crutch to spur early adoption like the bitcoin's 50BTC block rewards.  However, as long as the commodity backing forms the bulk of the currency's value, the currency would be centralized and subject to third-party trust and single points of failure.

Start a new chain like BTC but with the following differences:

• An issuer exists and manages the backing commodity.
• No block solution rewards: only an increase of gold in the system can inject money.  Transaction fees and issuer incentives motivate mining.
• Any transaction signed by the issuer is valid and can create currency.  (This rule could be dropped by agreement among users once the currency becomes established as a medium of exchange.)
• Issuer promises to issue currency to your address when you send it gold.  You hand it the gold, and it hands you a signed transaction.
• Issuer promises to send you gold when you send currency to its address.  You might have to wait a few blocks to prove you didn't double-spend, but the issuer's obligation to you would be public and, presumably, enforceable once your transaction enters the network.
• Issuer might gradually decrease the exchange rate to cover gold storage costs.
• Issuer might charge a spread to cover conversion costs and early mining incentives.
• Several widely trusted parties would audit the issuer's holdings and publish the results.

You'd have BTC's low transaction cost and something to satisfy the goldbugs.

[Anonymous]

Bitcoin is essentially gold. You're wasting time backing it by a physical commodity. Digital scarcity and value is the future.

[John Tobey]

Bitcoin is essentially gold. You're wasting time backing it by a physical commodity.

That's a matter of opinion until tested in the market.

Digital scarcity and value is the future.

That's compatible with usefulness of commodity backing in the present.

[Anonymous]

The market has proven it. A 1000 percent increase over a year very well proves value can be held through this medium. No significant decline below $4 has been shown thus far. I believe full confidence can be maintained despite these volatile and emotional bubbles. This is to say precious mediums like Gold can be emotional but with proper and eventual incentive, the prices will stabilize.

[John Tobey]

A lot can happen between here and market-cap parity with gold.

$37000000: value of all BTC, including "lost coins".
$8000000000000: approx value of all gold.

[ThePiachu]

Well, there might be some more issues to iron out in the new crypto-gold - how much will the miners earn by hashing the network and how fast will you be able to grow the network, as well as if it is meant to be decentralized, how will people add more gold to it without a central authority to say "yes, we got a new kilo of gold from you, so you`ll get 50 gold-coins". Personally I`d just open an internet gold exchange and run it with bitcoins.

[nighteyes]

Well, anyone can offer a service like that. Get some gold/other commodities and offer to trade x amount of things for y amount of bitcoins. Basically you'd be working like a shop, but probably on a bigger scale (enough commodities to support exchange of all bitcoins).

Anyone can support however many bitcoins they want with whatever they want....they dont need to support "all".
Granted, you need a program to parse through all the coins.

[deepceleron]

That's a fun idea if you like federal pound-me-in-the-ass prison:

http://www.securityfocus.com/news/11528

[Sock Puppet]

You can have currency issued and backed by a central authority easily - check out Pecunix.  But that's not "bitcoin backed by gold".  Bitcoin's big advantage is it's decentralized.  In that scenario, who holds the gold and guarantees a fixed exchange rate?  What's their motivation?

[btcmsg]

How about gold backed by bitcoins? A contract in which at any moment one can replace the gold on his credit with an agreed amount of bitcoins.

[BitLex]

this

It would offer the same security and privacy as bitcoin...

and that

• An issuer exists and manages the backing commodity.

don't match.

there has to be an issuer, someone backing the alternative with something,
that something has to be stored and secured.
good luck trying that decentralized.

[dance4x]

I'm not very wise as to how bitcoin works exactly but I've always thought currency should have some actual backing for it to be able to work. I suppose something I would be look for would be closer to E-Gold or the other cold currencies where it is centralized. Decentralization would occur when you had many different companies or banks holding the gold for you. What I'd really like to see is what would happen if all government fiat currencies were abolished. What do you think would pop up as money? If history was an indicator it would have to be gold or silver, correct?

I suppose I need to do more research on bitcoins. Right now it is just something that has caught my interest.

[TheHarbinger]

Any "currency" only has a "perceived" value, whether it is gold, USD, BitCoin, or chickens.  What I mean buy this is that any currency is only worth what someone is willing to trade for it.  I can go to a McDonalds and trade a little green piece of paper for a hamburger.  So 1 McD's burger is worth $1 to me.  Gold is a "standard" only because many people want it, if tomorrow nobody wanted it, I could buy all the gold in the world for my one piece of green paper.  There are places in the world where the demand for a live chicken is greater than 16oz of gold.  All currency is based on the trade system at it's core. 

[AndyR]

No, these notions of a centralized issuer of currency are nothing more than fancies to establish a new reserve-type central currency authority. This is the very same organization we have labored to get rid of with the creation of bitcoins. Gold's value does not derive from it's acceptance by some currency-issuing central body, but by the fact that people recognize its worth as a store of value - gold can be currency, it does not need to back it. Immanuel is right to point out that Bitcoin is analogous to gold, and like Bitcoin, it does not need a central authority to give it value. Such authority is only necessary for intrinsically worthless media of exchange - that is, fiat currencies, whose worth comes to us from the barrel of a gun.

To back Bitcoin with gold is the same as backing silver with gold - it makes no sense when one is as good a store of value as the other. It is unnecessary. All that aside, I would like to see an exchange to allow the conversion of gold and bitcoins. I'll say, though, that such a business will need be quite transparent and forthright with me before I would hand over any of my gold - the present exchanges, for instance, strike me as suspicious organizations. I keep an eye on them, and in time, perhaps I will trust them. For now, however, I keep my Bitcoins - and my gold! - safe with me at all times.

[nighteyes]

To back Bitcoin with gold is the same as backing silver with gold - it makes no sense when one is as good a store of value as the other. It is unnecessary.

It is necessary because people may not see the same value in bitcoin, especially if one wants it as a store of value and the other wants it for exchange. Now, people are being very limited in implying it has to be backed up by gold....but it should be backed up by what you want it to be backed up by(and can pay for).

Another currency is not needed....its ready to fly as it is backed up by anything someone can prove its backed up by. I can take 5 bitcoins and say they are backed by gold...and I can take the next five and back them up by economic cycle part#X.

Now of course you couldnt persuade anyone who is wearing government rose colored glasses that its not illegal....so to put it to the test, it would be in a more savy country thats not hamstrung and uptight like the USA. Probably a third world country. Say some poor farmers who need help. Send them bitcoins backed up by gold...who wouldnt accept that? OK, but you have to stop them from cashing out so the selling point is to exchange those bitcoins backed by gold for bitcoins backed by what the next person wants(except for national currency).

[idontknow]

I'm not very wise as to how bitcoin works exactly but I've always thought currency should have some actual backing for it to be able to work.

But then what is backing the backing?

And what is backing the backing of the backing?

Eventually you get to a point where it's faith/belief/trust in the market so why not just start with that as the backing in the first place.

[P4man]

The backing of money by gold is not to give it inherent value, its to limit its supply.
Bitcoin has no need for that. It doesnt have limitless supply like our current fiat currency.

If you were to back bitcoins with gold,  which really is like reinventing E-gold, you reintroduce a lot of the problems that bitcoin actually solves. With bitcoin there is no risk that whats backing it gets stolen, confiscated, isnt there cause its a scam, or loses it value (or increases dramatically in value). The fact its backed by nothing but supply and demand is its greatest strength IMO. The point of a currency is to trade it with goods and services that have the intrinsic value, giving the currency intrinsic value just messes it up.

[nighteyes]

The backing of money by gold is not to give it inherent value, its to limit its supply.
Bitcoin has no need for that. It doesnt have limitless supply like our current fiat currency.

If you were to back bitcoins with gold,  which really is like reinventing E-gold, you reintroduce a lot of the problems that bitcoin actually solves. With bitcoin there is no risk that whats backing it gets stolen, confiscated, isnt there cause its a scam, or loses it value (or increases dramatically in value). The fact its backed by nothing but supply and demand is its greatest strength IMO. The point of a currency is to trade it with goods and services that have the intrinsic value, giving the currency intrinsic value just messes it up.

I dont see it as E-Gold per se. E-Gold sold its own currency. This would really just be selling gold...and bitcoins. I could see some gov trouble ahead, for sure though. The idea of someone anonymous holding a bitcoin thats worth a million bucks

The gold doesnt give bitcoin any value, so Im missing that point. Bitcoin would still be bitcoin, and gold be gold, but 1+1 might be more than 2. Currency has problems and commodities have problems, so maybe we can work it out hehehe...for now.

[Albert Schweitzer]

How to back up a decentral currency with something outside the internet?

[nighteyes]

How to back up a decentral currency with something outside the internet?

As I understand it....you have a backer who creates a transaction of say 1 bitcoin. Then sells something that is coupled with that transaction....so the "backing" follows the bitcoin wherever it goes. Send the bitcoin back to the backer for redemption....and there would be some process in transferring it.

[Albert Schweitzer]

mh.. guess im too dumb. Dont get it.

[nighteyes]

mh.. guess im too dumb. Dont get it.

The transactions of bitcoins between wallets are held by the network....so you can trace back the history all the way to the beginning.
So then lets say I own two wallets, A and B. I transfer 1 bitcoin from one to the other. Thanks to a unique transaction history  I can say thats my coin now. It doesn't matter who has it since I can look back at the history and see that I at one time owned it...well, thats the simple version of it.

The gold backing wouldnt move at the same time. You would need the holder to tell the backer that there is a new owner or what portion of the amount is another person's.

[cruikshank]

mh.. guess im too dumb. Dont get it.

The transactions of bitcoins between wallets are held by the network....so you can trace back the history all the way to the beginning.
So then lets say I own two wallets, A and B. I transfer 1 bitcoin from one to the other. Thanks to a unique transaction history  I can say thats my coin now. It doesn't matter who has it since I can look back at the history and see that I at one time owned it...well, thats the simple version of it.

The gold backing wouldnt move at the same time. You would need the holder to tell the backer that there is a new owner or what portion of the amount is another person's.

Wouldn't that defeat the purpose of a decentralized cryptocurrency to tie it to a physical thing and turn it into an I.O.U?

[Anonymous]

The fact is one day gold and silver will be easily synthesized by advanced nuclear technology. Synthetic value like Bitcoin is inevitable.

Welcome to the future.

[annelions]

The fact is one day gold and silver will be easily synthesized by advanced nuclear technology. Synthetic value like Bitcoin is inevitable.

Welcome to the future.

I think we're a long, long way off from Star Trek replicators.

[John Tobey]

gold and silver will be easily synthesized by advanced nuclear technology.

Gold has already been synthesized that way.  At a cost... well above... market.  I'd suggest developing a bacterium to concentrate it from seawater before you bark up that tree.

Anyway, there is more than a thousand tonnes of gold in exchange-traded funds (ETFs; a form of IOU) worth c. $100bn--several orders of magnitude greater than cryptocurrencies.  I hope and expect that to change, but it won't happen overnight.

Between gold ETFs and Bitcoin, there are so-called digital gold currencies (DGCs), which let you transfer your IOUs to other end users as opposed to an exchange.  The biggest of these comes to around $1bn: just 30 times Bitcoin.  But in practice, people use DGCs to store value--like ETFs, only less convenient.  They don't use them as money for trade in goods and services.

Why not?  It can not be due to their IOU nature; that reasoning would apply more strongly to storage of value, which is DGCs' most popular use.  Could it be because transfers must pass through a central authority--the issuer's website?

Keep the gold backing--valued by less savvy but wealthier market participants--and add decentralized cryptocurrency transactions, and you might make quite a splash.

[P4man]

The fact is one day gold and silver will be easily synthesized by advanced nuclear technology.

Or someone figures a way to extract just a fraction of the 1.6 quadrillion tons of gold that are contained in the earth core
http://discovermagazine.com/2006/sep/innerfortknox

[Immunooel Gu]

Zee fect is oone-a dey guld und seelfer veell be-a ieseely synzeeseezed by edfunced noocleer technulugy. Bork bork bork! Synzeeteec felooe-a leeke-a Beetcuin is inefeeteble-a.

Velcume-a tu zee footoore-a.

[EvryIntl]

The world will be an interesting place, for sure, if we can find discover a way to create elements from nuclear reactions of other materials.  Frankly, I don't think it will happen.  If it does, it changes what the definition of an element is.

As for gold backing, the real issue at play here is what the free market accepts as money.  Gold has been accepted as money for several reasons: lack of usage in other applications, predictable supply increases, labor required to obtain it, divisibility and other physical properties, etc.  However, the real value in gold is simply that its acceptance is universal.

Money has many 4 properties.  Two of them are particularly important.  One is that money is a store of value (hence the required labor factor).  If it doesn't store value, it's just a currency - a legal tender - likely in existence only because of the monopoly of power that the state has.  The other property is general acceptance as a medium of exchange - something that the state can make happen through force.

Gold has always been the currency of last resort because when all else fails, the market chooses gold because it has *both* properties.  Governments have little desire to create money that has a real store of value because it disables the political class' ability to buy votes.

The sheer fact that bitcoins use energy for creation and that supply (at least rate of growth of supply) is limited and cannot be changed based on some central authority qualifies it to compete with gold and other monetary instruments.  This, of course, has a few risks.  The obvious one is that it's a natural enemy of politicians everywhere as it removes their mechanisms of control, but then again, that's a bitcoin's biggest advantage over gold.  Remember, gold is generally accepted as a monetary instrument - that's tradition.  Governments generally seek to disable that strength through tactics like confiscation and other abuses of the monopoly on force.  But from a market standpoint, this makes bitcoins more attractive than gold.  The decentralization aspect is the only reason that any serious attention should be paid to bitcoins.  Otherwise, it has all of the risks of gold - so why not own gold with a longer track record?

Bitcoins have earned the right to compete in the market place.  The timing is right.  We'll see how the market accepts them in time.  Forget a movement to back them with something - that's just eliminating their true value proposition.

[percymate]

It could always open up the possibility for someone to take the gold away and pretend it's there. I wouldn't trust that system at all.

Besides, just look at the Liberty Dollar. Feds moved in and took it down. Gold reserves make an excellent target for the Feds.

[cruikshank]

The world will be an interesting place, for sure, if we can find discover a way to create elements from nuclear reactions of other materials.  Frankly, I don't think it will happen.  If it does, it changes what the definition of an element is.

There is. Neptunium and Plutonium are synthesized rather than mined because only trace amounts can be found naturally. Pretty much anything heavier than Uranium has to be made.

[EvryIntl]

The world will be an interesting place, for sure, if we can find discover a way to create elements from nuclear reactions of other materials.  Frankly, I don't think it will happen.  If it does, it changes what the definition of an element is.

There is. Neptunium and Plutonium are synthesized rather than mined because only trace amounts can be found naturally. Pretty much anything heavier than Uranium has to be made.

That's true, but they're not made from other elements.