Spin-offs: bootstrap an altcoin with a btc-blockchain-based initial distribution

[Peter R]

Spin-offs: bootstrap your alt-coin with a bitcoin-blockchain-based initial coin distribution

There are alt-coin lovers, alt-coin haters, alt-coin pumpers and alt-coin players.  At this early stage in the development of cryptocurrency, our community hasn’t come to a clear consensus on these coins.  Many people claim that alt-coins are important for conducting experiments that are too risky to do with bitcoin, while others say the primary purpose of alt-coins is to transfer bitcoins into the pockets of alt-coin developers.  

Recently Daniel K published a compelling article describing the coming demise of alt-coins based on bitcoin’s superior liquidity, market capitalization, and user base [1].  Although I agree with all points Daniel made, I believe he failed to recognize the importance of the bitcoin blockchain itself.  Over 5 years, 3 crashes, and $600,000,000 of unrecoverable mining costs, bitcoins have diffused across our user base and the resulting distribution has been logged to the blockchain.  By tempting you with unimaginable wealth during a rally and then threatening to take it all away during a crash, the free market has become a highly-efficient computer continuously refining the answer to the question “what is the most efficient distribution of coins in a cryptocurrency?”  

Through discussion in Cypherdoc’s “Gold down. Bitcoin UP” thread, we came up with an interesting method of solving the problem of how to initially distribute coins in a project like NxT or Ripple.  Since the market has already encoded its best estimate of the “most efficient distribution” into the unforgeable global ledger known as the blockchain, why not use this?  Since all bitcoin users can cryptographically prove ownership of their share of bitcoins, the code-base of any alt-coin can be modified in a trivial way to allow bitcoin users to claim a share of any pre-mine in direct proportion to the percentage of bitcoin’s market cap they control.  This method (a) bootstraps alt-coins with a very large potential user base, (b) places all alt-coins on equal footings thereby allowing them to compete on their own merits, (c) automatically piggybacks bitcoin investors in any financial gains that may result due to community innovation, (d) fairly rewards innovative alt-coin developers as they can scoop up spin-offs dumped cheaply on the open market, (e) makes it difficult to “pump and dump.”

Our first case study is a clone of Ethereum called æthereum scheduled to launch shortly after the Ethereum IPO.  æthereum is functionally identical to Ethereum, but rather than purchasing ether with bitcoins, you can freely claim your share of æther by signing an æthereum address with your bitcoin private keys.  This process bootstraps æthereum by giving it a larger potential user base than Ethereum could hope to achieve with an IPO process.  A broad user base is important as recent work has shown that the market cap of a coin is proportional to the square of the number of users [2].  What’s even nicer is that you get your æther for free simply based on the investment in cryptocurrency that you have already made by holding bitcoins (that you can prove to the æthereum network by producing signatures with your private keys to claim your æther).

If you are interested in joining the discussion about æthereum, please take a look at the æthereum RFC thread [3].

References:
[1] http://themisescircle.org/blog/2014/03/14/the-coming-demise-of-the-altcoins/
[2] https://bitcointalk.org/index.php?topic=400235.msg6025866#msg6025866
[3] https://bitcointalk.org/index.php?topic=563925.msg6148297#msg6148297


Useful Resources for Spin-Offs

Simplified claim verification (SCV) proposal
This post describes a method that can be used to allow 100% of the valid unspent outputs (at the time the snapshot was taken) to be claimed.

Snapshot file format specification
This post describes the most up-to-date format for the blockchain snapshot files.

Example Snapshot file
This post contains a diagram that illustrates an example snapshot file.  

Example Merkle Tree
This post illustrates the Merkle tree construction for a given blockchain snapshot.  

Example Merkle branch claim proof
This post illustrates the Merkle branch technique used to prove one's claim.  

UTXO Distribution
This post summarizes the % bitcons by wealth and by claim number that be classified as pay2PubKeyHash (99.86%), pay2ScriptHash (0.14%), native multisig (0.0001%) and raw script (16 claims).  100% of valid outputs can be classified in one of these four bins.    

[1713978964]

1713978964

[1713978964]

1713978964

[Velkro]

scam coin 2.0

[Adrian-x]

scam coin 2.0

how is this a scam?
its more like a seed for altcoin 3.0
this scheme makes every altcoin look like a scam.

this scheme also can bring the Bitcoin user-base to the new alt, this is an exciting approach to launching new cryptocurrencies.

[Peter R]

its more like a seed for altcoin 3.0
this scheme makes every altcoin look like a scam.

this scheme also can bring the Bitcoin user-base to the new alt, this is an exciting approach to launching new cryptocurrencies.

Yes, this bootstraps future alts with the largest potential user base.  If the coin has merits, people will hold (it didn't cost them anything), developers who believe in it will buy more, and it may survive.  If the coin is useless, no one will use it, some will dump it, and it will fail.  

An interesting side-effect is that if a bitcoin user does nothing, they automatically become a "holder" in the new coin, and holders play an important role in the evolution of a cryptocurrency.  

If this bootstrapping technique becomes widely adopted, it will actually increase demand to hold bitcoin.  It will also reduce the aggregate amount of wealth lost to what are commonly referred to as "scam coins."

[pa]

See: http://www.reddit.com/r/Bitcoin/comments/22m063/blockchain_20_let_a_thousand_chains_blossom/

[Peter R]

See: http://www.reddit.com/r/Bitcoin/comments/22m063/blockchain_20_let_a_thousand_chains_blossom/

This idea will spread quickly, and clearly others are realizing the fundamental importance of bitcoin's blockchain independently too.  We've been discussing it in cypherdoc's thread since yesterday, and I've been working on it since reading Daniel's article.  I think this changes everything about our perception of alt-coins (in a way that is good for bitcoin and good for innovation).  

Interesting: Levine recently did a podcast about a similar concept:

http://letstalkbitcoin.com/e99-sidechain-innovation/#.U0X-TVdI964

https://bitcointalk.org/index.php?topic=564021.msg6149663#msg6149663

The value is stored in bitcoin's blockchain: the decentralized highly-redundent and unforgeable global ledger.  A blockchain-based clone will eat any promising alt coin.  

[jonald_fyookball]

Wow.  Game changer

[seriouscoin]

Mind blowing....

To the hell with Ethereum scam coin.

This is how it should be done.

[Ix]

Since the market has already encoded its best estimate of the “right distribution” into the unforgeable global ledger known as the blockchain, why not use this?

Weasel words - "A weasel word (also, anonymous authority) is an informal term[1] for equivocating words and phrases aimed at creating an impression that something specific and meaningful has been said, when in fact only a vague or ambiguous claim has been communicated."

[Peter R]

Since the market has already encoded its best estimate of the “right distribution” into the unforgeable global ledger known as the blockchain, why not use this?

Weasel words - "A weasel word (also, anonymous authority) is an informal term[1] for equivocating words and phrases aimed at creating an impression that something specific and meaningful has been said, when in fact only a vague or ambiguous claim has been communicated."

What we know empirically is that over 5 years, 3 crashes, and $600,000,000 of unrecoverable mining costs, bitcoins have diffused across our user base and the resulting distribution has been logged to the blockchain.  By tempting you with unimaginable wealth during a rally and then threatening to take it all way during a crash, the free market has become a highly-efficient computer continuously refining the answer to the question “what is the right distribution of coins in a cryptocurrency?

If you thought you should hold more bitcoins, you'd buy more (within your means).  If you thought you held too many bitcoins, you'd sell some.  The distribution is efficient and has been tested over time and through the ups and downs of the bitcoin market-price rollercoaster.

Whether you think wealth disparity is good or bad, the truth is that it is inevitable.  The existing bitcoin distribution is the most efficient of all coins in existence.  Thus, by cloning any interesting alt (e.g., NxT) with the exact distribution contained in the blockchain, the freely-distributed clone naturally becomes superior to the expensive pre-mined version.  The clone automatically has the largest user base and a highly diffused distribution.

Why would you purchase NxT if you received bNxT for free?  Why would you think that NxT would succeed more than bNxT when bNxT automatically has a vastly larger user base should the merits of its technology prove useful?


My premise is simply that a bitcoin-blockchain-based clone will eat any promising alt-coin.  We will need empirical evidence to know if this is true.  It seems the idea is quickly spreading, however...

[jonald_fyookball]

I still think 1 or 2 alternative blockchains is a good idea in the grand scheme of things (litecoin)

[cypherdoc]

my first impression is that i like this idea much better than Hill and Beck's Sidechain proposal.

1.  the initial distribution is fair and codified.  
2.  Bitcoin holders have everything to gain and nothing to fear from any altcoin clone distributed in this manner.  they are free to evaluate the altcoin on it's own merits as to whether they hold, sell, or even mine their aether.
3.  it's a much more effective separation from an altcoin; no firewall needed.  i have my doubts about how BTC's can traverse back and forth btwn the main Bitcoin blockchain and a Sidechain w/o interfering with the main chain function long term.  i believe there will be some risk.
4.  they have said they are forming a "company" with "core devs" who undoubtedly will be employed and/or shareholders.  this introduces potential bias and risk to Bitcoin from profit motives.
5.  Peter has introduced an ingenious way to set up a head to head competition btwn aether and ether that can be applied to any altcoin.  this has the potential to severely inhibit scamcoins and premines.  which is a good thing.
6.  altcoin devs still have an incentive to innovate.  if Bitcoin holders dump their free aether, as Peter suggests, the devs have the opportunity to scoop up cheap aether as testimony to the belief in the merits of their altcoin.

i eagerly await more information.

[Zarathustra]

Therefore, someone's 10 Bitcoins will be cloned indefinitely into 10 aether1, aether2, ...  , aether9999.
Isn't that inflationary?

[Peter R]

Therefore, someone's 10 Bitcoins will be cloned indefinitely into 10 aether1, aether2, ...  , aether9999.
Isn't that inflationary?

And then they'll collapse.  But even if in an alternate universe they didn't collapse, it's still not inflationary because every user retains the same % slice of the total cryptocurrency pie.  

If the innovations in an alt-coin are actually useful, a single bitcoin-blockchain-based clone will become dominant and retain some market value.  If this is the case, the community benefits as a whole as we've made our "money" more useful.  If the innovations are useless, then the only loss is the time spent by the devs (but they chose to take this risk).    

I personally think bitcoin is ideal exactly as it is.  My proposal is simply a non-threatening and cooperative method to experiment with new ideas such that the entire community can cheer on real innovation.  

  

[jubalix]

this had occurred to me as a distribution mechanism, its sort of what the DAC/BTISHARE of proto shares was proposing for a built in user base.

It could work.

give it a shot.

As long as people don't put their private keys in some sort of software that sends it off and they lose their BTC.

[YarkoL]

Yes, this bootstraps future alts with the largest potential user base.

But the rising trend is "nation coins" or more generally, "community coins", where the whole point is that user base (or distribution) is limited...

If I made scrypt clone, called it AbbaCoin and announced airdrop to Abba Fan Club members, would you clone my scrypt clone?

[michellj]

I think this really has the basis of a great idea.

As a close follower of Ethereum, although I agree that that team have done us all a great service in outlining the potential that exists in that wide space of Crypto 2.0 - I have increasing doubts about the way they are going about realizing their vision. I was at a couple of Ethereum meetups in London recently which just gave me the impression that despite their great ideas they as a team are disorganized and indecisive (eg they keep on moving their IPO goalposts).

The idea mooted here seems far more solid and reality-based in its real-world implementation, ie making use of the solidity of the BTC blockchain rather than on an altchain with all of the security (51% attacks etc) issues associated with any new initiative.

Crypto will succeed if we all get behind a tested blockchain rather than dilute our energy with a myriad of altchains most of which will go nowhere.

This idea as well as the Sidechain idea of Beck & Hill seem the best way to go for now as they focus energy on the stablest of the blockchains where the future lies.

[eldentyrell]

I see two problems, one of them partially fixable and one not:

1. The altcoin's success is directly proportional to its destruction of bitcoin fungibility.  BTC on the BTC chain whose corresponding airdropped-altcoins have not been claimed are different from BTC whose airdropped-altcoins have been claimed.

2. This creates massive unpredictability regarding the size of the altchain money supply.  Optimistically, say 5% of the BTC coin-owners adopt the altcoin.  This means that something like 95% of the altcoin money supply is "slumbering", at risk of suddenly being dumped into the market.  Markets are smart, but they aren't clairvoyant, and this uncertainty will be interpreted as reduced value.

You might fix #2 by having only, say, 25% of the altcoin money supply be airdropped.  At least then the uncertainty in the size of the money supply is bounded to something reasonable.

I don't think #1 can be fixed.  If you can't separate ownership of the altcoin from ownership of the BTC it was airdropped to, most of the interesting features that need testing out can't be implemented.

[Vitalik Buterin]

was at a couple of Ethereum meetups in London recently which just gave me the impression that despite their great ideas they as a team are disorganized and indecisive (eg they keep on moving their IPO goalposts).

That actually has more to do with us trying to have a solid business structure that makes multiple categories of stakeholders happy, spend more time building the product so ether purchasers have actual working code (eg. my recent pyethereum/serpent upgrades and Gav's POC4) to see what they're getting into, and actually being regulatory-compliant. The pre-sale is the only thing that's getting pushed back; everything else is humming along quite nicely with many contracts already running on the testnet.

[cypherdoc]

I see two problems, one of them partially fixable and one not:

1. The altcoin's success is directly proportional to its destruction of bitcoin fungibility.  BTC on the BTC chain whose corresponding airdropped-altcoins have not been claimed are different from BTC whose airdropped-altcoins have been claimed.

no. BTC is only used to initially distribute the aether.  from then on, aether is untethered to those BTC, as they can freely trade on the market as presumably they will do so as some dump or hold.

2. This creates massive unpredictability regarding the size of the altchain money supply.  Optimistically, say 5% of the BTC coin-owners adopt the altcoin.  This means that something like 95% of the altcoin money supply is "slumbering", at risk of suddenly being dumped into the market.  Markets are smart, but they aren't clairvoyant, and this uncertainty will be interpreted as reduced value.

this is no different then what we have now with Bitcoin.  the market has already factored in that Satoshi could "dump" his entire holdings.  plus, you might get a hint of that intent if suddenly a bunch of aether is claimed from the nucleus years out that are tied to Satoshi. 

You might fix #2 by having only, say, 25% of the altcoin money supply be airdropped.  At least then the uncertainty in the size of the money supply is bounded to something reasonable.

I don't think #1 can be fixed.  If you can't separate ownership of the altcoin from ownership of the BTC it was airdropped to, most of the interesting features that need testing out can't be implemented.