There is a way we can trade Bitcoin without getting shut down constantly - read

[DeathAndTaxes]

Does the forum really think that some investment banks, hedge funds etc, will really entrust huge sums of money to an entity which must needs guarantee that a 64-byte long hex string [the private key] cannot be copied?  Yeah, there are ways to improve security, but it requires that whoever has access to the off-line private key parts be absolutely incorruptible.  Normally this wouldn't be such a huge problem, but here we're talking about sums of money large enough to buy private islands and mega-yachts... and really nasty hit-men.  Now who said they were incorruptible?  Am I fantasising too much?

You do realize there are mechanisms to ensure nobody has complete access to the private key.  Do you think one person at Verisign has a copy of the private key for their root cert just lying in a folder in his desk?  The value of that root key would be 10x maybe 100x the value of any Bitcoin ETF/bond/fund.  

Using your logic no bank uses an SSL issued by a Certificate Authority.

[1713903194]

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[1713903194]

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[fergalish]

Bitcoin can be secured with passwords and multi-key signature requirements. Using a single private key is fine for petty cash, but large sums can be more secure than a Brinks truck Fort Knox.

You do realize there are mechanisms to ensure nobody has complete access to the private key.  Do you think one person at Verisign has a copy of the private key for their root cert just lying in a folder in his desk?  The value of that root key would be 10x maybe 100x the value of any Bitcoin ETF/bond/fund. 
Using your logic no bank uses an SSL issued by a Certificate Authority.

You both make good points.  But, as the few bitcoin heists have shown - bitcoins are much more stealable once you have the private key.  If verisgn's root cert leaked, it would be a major pain, but the www would be fairly quick about rejecting any certs signed from it I think.  Then they could issue a new one, and business would go on - perhaps not so well for verisign.  AND, and multi-million-dollar transactions carried out through a faked cert could be reversed - right?   Bitcoins, once stolen, do not come back.  For the people who lost them, business would very definitely /not/ go on.

I know that the keys can be multiply protected, requiring cooperation from multiple people.  Meh.  So you need 10 private islands instead of just one.

Ok, ok, I'm just playing devil's advocate.  But I can see that getting multi-zillionaires to invest is going to require the kind of security that, well you said it, that Verisign have around their root certs.  Maybe?

[DeathAndTaxes]

You both make good points.  But, as the few bitcoin heists have shown - bitcoins are much more stealable once you have the private key.  If verisgn's root cert leaked, it would be a major pain, but the www would be fairly quick about rejecting any certs signed from it I think.

Well no.  If a subordinate cert is compromised it can be revoked by an order issued by root authority.  It the root authority is compromised there is no "issue a new one".  The root cert is hardcoded into the browser.  Now the browser could be upgraded but millions (probably tens of millions) of users wouldn't or couldn't.  The loss would be measured in the tens of billions of dollars.

Ok, ok, I'm just playing devil's advocate.  But I can see that getting multi-zillionaires to invest is going to require the kind of security that, well you said it, that Verisign have around their root certs.  Maybe?

True it will require significant security just pointing out that such security IS possible.

[fergalish]

Well no.  If a subordinate cert is compromised it can be revoked by an order issued by root authority.  It the root authority is compromised there is no "issue a new one".  The root cert is hardcoded into the browser.  Now the browser could be upgraded but millions (probably tens of millions) of users wouldn't or couldn't.  The loss would be measured in the tens of billions of dollars.

Like the recent diginotar revocation?     https://en.wikipedia.org/wiki/DigiNotar 

I understand the problem.  But at least the situation in that case is recoverable.  If I invest $10M in gullible-fools.com, whose SSL key is fraudulently signed by verisgn's root cert, then, given how international banking is structured, I'd have some expectation of recovering my investment assuming I realised my predicament quickly.  The investment could be followed and the final recipient identified - or at least his bank account.

With bitcoins, there would be no recovery of investment.  None.  Nada.  Zilch.

[DeathAndTaxes]

I understand the problem.  But at least the situation in that case is recoverable.  If I invest $10M in gullible-fools.com, whose SSL key is fraudulently signed by verisgn's root cert, then, given how international banking is structured, I'd have some expectation of recovering my investment assuming I realised my predicament quickly.  The investment could be followed and the final recipient identified - or at least his bank account.

Depends on how the fraud was orchestrated.  If you wired $10M to a bank account in say Cuba due to instructions on the site w/ fake cert well the money is likely never going to be recovered. 

Of course you are ignoring the larger point.  The $10M you personally lose is nothing compared to the tens of billions of losses globally which would occur.  Verisign alone would likely be wiped out between the lawsuits, civil penalties, and loss of business.  Collectively companies would spend billions more to replace their now compromised certs with ones issues by another CA.  Billions more would be lost collectively by victims and with some victims running browsers 10 years out of date the losses would continue to trickle in for years. 

A CA which loses their root cert is bankrupt.  Totally worthless, every shareholder wiped out.  Nobody (an I mean nobody) will be buying certs from a CA which can't ensure their root cert isn't compromised.  So $10B+ is riding on Verisign's ability to prevent a compromise of the root cert.  They have a vested interest in ensuring that doesn't ever (not even once) happen.  Similarly a fund would be bankrupted if they lost their deposited BTC so they have a vested interest to ensure that doesn't happen.  If Verisign can protect a key who's compromise would result in $10B+ in losses I am sure a financial company "could" do the same for keys (no reason to only have 1 account) worth 1/1000th of that.

With bitcoins, there would be no recovery of investment.  None.  Nada.  Zilch.

Well of course there is.  Just because it is difficulty it doesn't mean a thief couldn't be caught by law enforcement and forced to return stolen coins as part of sentencing agreement (10 yrs in prison conditionally on successful return of victims money vs 150 years in prison for 150 counts of wire fraud). 

[fergalish]

1. Depends on how the fraud was orchestrated.  If you wired $10M to a bank account in say Cuba <snip>
2. Of course you are ignoring the larger point.  <snip>
3. A CA which loses their root cert is bankrupt. <snip>
4. Well of course there is.  Just because it is difficulty it doesn't mean a thief couldn't be caught by law enforcement <snip>

1. ok.
2. Yes, but I'm speaking of _individuals_ making decisions to invest $millions and how _individuals_ will feel if their investment is wiped out by bad key security.  But your point is nevertheless valid.
3. ok.
4. Yes, but bitcoin is kind of designed to be untraceable.  And a bitcoin thief will presumably be quite knowledgeable about bitcoins and will anonymize them before use.  Again I don't negate what you say.

In short - OP's idea is great and more than possible.  But it will require wonderful security, and a great PR team able to convince investors that the security is sufficient.  Cheers, good discussion.

[Freeway]

With bitcoins, there would be no recovery of investment.  None.  Nada.  Zilch.

Well of course there is.  Just because it is difficulty it doesn't mean a thief couldn't be caught by law enforcement and forced to return stolen coins as part of sentencing agreement (10 yrs in prison conditionally on successful return of victims money vs 150 years in prison for 150 counts of wire fraud). 

Can you elaborate on how this could be accomplished real world? Evidence required, etc.

[BlackPrapor]

As far as I can see, there is no way for the bond issuing company to back their bonds, without buying bitcoins beforehand. The mechanism of synchronizing ownership of btc with ownership of bonds is nearly impossible. The only thing that comes into my mind is having some large portion of btc to be in possession of this company, say 210,000btc, or 2,1mil btc and according number of shares to be issued for trading at stock exchange. But what if you own the share and want the btc it's backed up with? What if demand and supply for btc is different from one for those shares? Would it be possible to liquidate shares when the owner demands the gold...erm, btc it's backed up with? Or automatically issue new ones when company purchases more btc? I've seen someone stating that in order for btc to be legally recognized, it has to be some country's currency.
So, how much does it cost to register a new country? Let's say it's located on the Moon, and btc is it's currency. Whats next? ))

[Bitcoin Oz]

As far as I can see, there is no way for the bond issuing company to back their bonds, without buying bitcoins beforehand. The mechanism of synchronizing ownership of btc with ownership of bonds is nearly impossible. The only thing that comes into my mind is having some large portion of btc to be in possession of this company, say 210,000btc, or 2,1mil btc and according number of shares to be issued for trading at stock exchange. But what if you own the share and want the btc it's backed up with? What if demand and supply for btc is different from one for those shares? Would it be possible to liquidate shares when the owner demands the gold...erm, btc it's backed up with? Or automatically issue new ones when company purchases more btc? I've seen someone stating that in order for btc to be legally recognized, it has to be some country's currency.
So, how much does it cost to register a new country? Let's say it's located on the Moon, and btc is it's currency. Whats next? ))

I would create a satellite and launch it into orbit then register it as a sovereign nation. I would then sell small parts of its surface as "land" for bitcoins. This country by design would be entirely online. There might be a bitcoin client onboard and a wallet.

Dont know how to stop the space shuttle from raping it though!

[BlackPrapor]

As far as I can see, there is no way for the bond issuing company to back their bonds, without buying bitcoins beforehand. The mechanism of synchronizing ownership of btc with ownership of bonds is nearly impossible. The only thing that comes into my mind is having some large portion of btc to be in possession of this company, say 210,000btc, or 2,1mil btc and according number of shares to be issued for trading at stock exchange. But what if you own the share and want the btc it's backed up with? What if demand and supply for btc is different from one for those shares? Would it be possible to liquidate shares when the owner demands the gold...erm, btc it's backed up with? Or automatically issue new ones when company purchases more btc? I've seen someone stating that in order for btc to be legally recognized, it has to be some country's currency.
So, how much does it cost to register a new country? Let's say it's located on the Moon, and btc is it's currency. Whats next? ))

I would create a satellite and launch it into orbit then register it as a sovereign nation. I would then sell small parts of its surface as "land" for bitcoins. This country by design would be entirely online. There might be a bitcoin client onboard and a wallet.

Dont know how to stop the space shuttle from raping it though!

That's out of question. Chinese already tested their ability to take down satellites, and in short time Russia and US should be able to do the same.

[Foxpup]

That's out of question. Chinese already tested their ability to take down satellites, and in short time Russia and US should be able to do the same.

The US already did, over twenty years before the Chinese, using a purpose-built anti-satellite missile. They then did it again, this time using a standard anti-ballistic missile. India is also developing such weapons, though they haven't (yet) tested any.

To solve the problem, we should make this Bitcoin satellite a manned space station. After all, it's against international law to fire upon civilians, and in any case it would cause way too much of a public outcry. So, does anyone want to volunteer to be the satellite's human shield?

[molecular]

Well it requires that someone, pegs a public listed company to the Bitcoin price, by issuing a bond, a socalled zero-coupon bond.

Wow, I love this idea. This would open up bitcoin for a crowd of investors that currently cannot or do not want to invest in bitcoin directly because it's too cumbersome, dangerous or doesn't fit into their set of procedures (banks, institutional investors,...).

There's one thing that's unclear to me how it should work: how would the pegging itself work?

Let's say some pension fund throws 10 million USD at the bond, which is currently priced 8.89 USD/bond because it's pegged to BTC. Our company would then have to buy 1.125 million BTC for 10 million USD, which is clearly not possible. Even for smaller purchases this does not work.

As suggested earlier in this thread, the company might have to buy some BTC in advance. But then the volume would have to be somehow limited on the real-world exchange handling the bond. For example the company could try to always keep 21,000 BTC in it's coffers and only offer 21,000 shares of the bond on the real-world exchange. Once some of them are bought, the stash of BTC will be re-filled and the bond-price adjusted?

Can the bond-price even be adjusted/fixed by the issuing company?

It seems I know too little about real-world financial markets to even begin to answer these questions for myself...

[cbeast]

I love how people are looking for ways to "back" Bitcoin with abstractions because Bitcoin is too abstract and then don't understand why it becomes too abstract to work. If you want Bitcoin adapted to traditional markets then you'll need to remove it's liquidity and lock it contractually to a bond. This is what GLBSE does. You could also do this by creating escrows and exchanging a bond for a set amount based on the current Bitcoin price. Because the Bitcoin is escrowed and no longer liquid and under control of the bond issuer, the bond will fluctuate with the price of Bitcoin because it controls the Bitcoin liquidity. The only problem with this is the licensing required to issue the bonds are quite expensive though I'm sure some is working on it.

The reason I believe escrowing the Bitcoin for the bond is so that the bond issuer does not abscond with the entire investment and instead would only get a small percentage by default.

[n8rwJeTt8TrrLKPa55eU]

Buying a clear OTCBB company. I guess it will cost several thousands of USD. Then make this company issue more shares to raise money and use the money to buy bitcoin. Then the only asset of this company is bitcoin. People can trade the share of the company to trade the bitcoin.

This company can sell more share to raise more money to buy bitcoins.

Why should we do this?

Because the traditional financial institutions will be able to hold the bitcoin commodity without the legal risk of sending money to Mtgox as of today. You cannot image Goldman Sachs can have an account on mtgox officially. However, GS can buy a share on the OTCBB market. If lots of people have an interest related to bitcoin, there will be more people who will actually use\talk\promote bitcoin in their daily life.

Any Wall Street bankers can do this without any difficult. If you're an Wall Street banker, please make this happen in your company. As you surface on this board, I don't think you can call yourself a big name on the Street today. If you make this happen, However, you WILL be the next star in your firm.

This.

No need to reinvent the wheel.  The easiest model to get going for a Bitcoin security is not a bond or an ETF, but a closed-end fund traded on pinksheets (and/or an overseas exchange).  This is how gold first got securitized for US investors, during the time when possession of gold was illegal in the US.  In 1961 Phillip Spicer bought a bunch of gold/siver in Canada and deposited in a warehouse.  He then created a holding company (Central Fund of Canada, AKA CEF) to own the warehoused metals, and then floated the shares of the company on the NYSE and TSX.  That way, people in the US could get direct access to a gold-linked investment without having to own the metal itself.  The price of each CEF share naturally floats towards its proportional ownership of the gold in the warehouse.

A Bitcoin fund would work similarly.  You could start it with a limited quantity of Bitcoins and a structure taken almost verbatim from CEF, with proper audits and so on.  Via a reverse takeover or merger with shell company (cost: $35K?) you could then get it floated on US pinksheets.  People would buy and sell the stock in lieu of Bitcoins, and the share price would gravitate towards the company's audited Bitcoin holdings divided by number of shares outstanding.  Managers of the fund would take a small commission (unlike CEF which requires metal storage costs, management fees would be tiny).

As a closed end fund, it would trade at a premium or discount to its net asset value, but whenever the premium gets too high, the fund simply issues more shares and uses the proceeds to buy more Bitcoins.  If NAV gets too low, it sells Bitcoins and does share buybacks.  The mechanism is self-correcting, albeit with bigger standard deviations and on a longer timescale than ETF/ETNs.  But it's an infinitely simpler structure to get set up versus getting SEC approval for an ETF or bond in the US. The initial Bitcoin holdings can be tiny, so the startup capital required is mostly the legal and listing costs.

More info:
http://en.wikipedia.org/wiki/Closed-end_fund
http://www.centralfund.com/

Unfortunately I'm just an investor and don't have professional experience or contacts in the financial industry, but if I did, I'd be looking into setting this up ASAP, there's undoubtedly going to be big demand for this kind of product.

[DublinBrian]

No need to reinvent the wheel.  The easiest model to get going for a Bitcoin security is not a bond or an ETF, but a closed-end fund traded on pinksheets (and/or an overseas exchange).  This is how gold first got securitized for US investors, during the time when possession of gold was illegal in the US.  In 1961 Phillip Spicer bought a bunch of gold/siver in Canada and deposited in a warehouse.  He then created a holding company (Central Fund of Canada, AKA CEF) to own the warehoused metals, and then floated the shares of the company on the NYSE and TSX.  That way, people in the US could get direct access to a gold-linked investment without having to own the metal itself.  The price of each CEF share naturally floats towards its proportional ownership of the gold in the warehouse.

A Bitcoin fund would work similarly.  You could start it with a limited quantity of Bitcoins and a structure taken almost verbatim from CEF, with proper audits and so on.  Via a reverse takeover or merger with shell company (cost: $35K?) you could then get it floated on US pinksheets.  People would buy and sell the stock in lieu of Bitcoins, and the share price would gravitate towards the company's audited Bitcoin holdings divided by number of shares outstanding.  Managers of the fund would take a small commission (unlike CEF which requires metal storage costs, management fees would be tiny).

As a closed end fund, it would trade at a premium or discount to its net asset value, but whenever the premium gets too high, the fund simply issues more shares and uses the proceeds to buy more Bitcoins.  If NAV gets too low, it sells Bitcoins and does share buybacks.  The mechanism is self-correcting, albeit with bigger standard deviations and on a longer timescale than ETF/ETNs.  But it's an infinitely simpler structure to get set up versus getting SEC approval for an ETF or bond in the US. The initial Bitcoin holdings can be tiny, so the startup capital required is mostly the legal and listing costs.

More info:
http://en.wikipedia.org/wiki/Closed-end_fund
http://www.centralfund.com/

Unfortunately I'm just an investor and don't have professional experience or contacts in the financial industry, but if I did, I'd be looking into setting this up ASAP, there's undoubtedly going to be big demand for this kind of product.

Max Keiser the former Wall St broker, has the contacts to make this happen. Hes going to be at the Bitcoin Conference in London in september. Maybe someone should mention this topic to him.

[n8rwJeTt8TrrLKPa55eU]

Max Keiser the former Wall St broker, has the contacts to make this happen. Hes going to be at the Bitcoin Conference in London in september. Maybe someone should mention this topic to him.

Great idea....I plan to attend as well, I will try to find him and do as you suggest!

[BlackPrapor]

Damn, not enough time to make a visa...

[JackH]

If anyone in London wants to get together for this, lets do so. I am still interested to see where we can bring Bitcoin in relation to the public credit markets.

[JoelKatz]

There's one thing that's unclear to me how it should work: how would the pegging itself work?

Very simple. When people buy bonds, you use that money to buy Bitcoins. When people sell bonds, you buy Bitcoins with the money.

Let's say some pension fund throws 10 million USD at the bond, which is currently priced 8.89 USD/bond because it's pegged to BTC. Our company would then have to buy 1.125 million BTC for 10 million USD, which is clearly not possible. Even for smaller purchases this does not work.

Correct, so you can't issue that many bonds. You can only issue as many bonds as you can obtain Bitcoins. In the process of performing this transaction, the price of Bitcoins will go up, meaning that you have fewer bonds left to issue. One easy way to do it is to obtain the Bitcoins over time and then auction the bonds.

As suggested earlier in this thread, the company might have to buy some BTC in advance. But then the volume would have to be somehow limited on the real-world exchange handling the bond. For example the company could try to always keep 21,000 BTC in it's coffers and only offer 21,000 shares of the bond on the real-world exchange. Once some of them are bought, the stash of BTC will be re-filled and the bond-price adjusted?

Mostly correct, except the bond-price has already adjusted itself.

Can the bond-price even be adjusted/fixed by the issuing company?

The company simply states that it's pegged to the price of Bitcoin. Theoretically, they should publish how the pegging is done (Mt. Gox daily average?) and how redemption works (the price as of what time?) and so on.

These are all solvable problems. I'm just not sure that it actually gets you anything because you have to charge for your services and you have to "rig" things to protect yourself from exchange rate losses.

[n8rwJeTt8TrrLKPa55eU]

If anyone in London wants to get together for this, lets do so. I am still interested to see where we can bring Bitcoin in relation to the public credit markets.

Jack, I'll make sure to PM you the week of the conference to try and meet up wrt. this topic.