Dollar-Backed Digital Currency Aims to Fix Bitcoin’s Volatility Dilemma

[Fiftysven]

who the hell needs this...i can aswell just use the dollar. Brock Pierce involved doesnt make it more trustworthy either 

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[tmbp]

Brock Pierce is a homo pedophile that boasts about raping 13 year old boys in Thailand, has a criminal case opened against him in the U.S. for children and he ran away, fuck him and his shitty currency.

[BADecker]

Volatility? The volatility in Bitcoin is apparent and visible to everyone who uses Bitcoin. The volatility of the Dollar is a one-direction volatility. It is a gigantic devaluation volatility. It is cause by things like Quantum Easing.

Common Americans don't see/feel this volatility, because the cash money in QE hasn't been dumped onto the market... yet. It IS, however, making itself felt slightly, in the fact of the recent food price increases.

Regarding the Dollar... continue to use and continue to lose. Wake up to how many ways you are being screwed by the bankers and the whole financial regulatory system. Get up and get out while you can.

The disadvantage in Bitcoin is that the Internet system may collapse along with the coming collapse of the Dollar. So, be smart, and put some of your money into silver - bags of old silver coins (pre-1984 dimes, quarters and halves) along with bars and Silver Eagles. Also, keep a box full of $ones, because they will be handy immediately following the crash, simply for living on.

GET YOUR FUNDS OUT OF THE BANKS!

[toxic1978]

What a pointless coin?

The only advantage it has is transaction fees over the dollar - Other than that its only disadvantages.

It makes no logical sense to create a coin backed by the very system that encouraged cryptocurrencies introduction to economics.

[Peter R]

If this project comes to fruition in the form described in the WSJ post, it could be a very good thing for bitcoin.  It will be the first serious decentralized asset traded on the Blockchain.  The asset will of course be "IOUs for US dollars".  Read the post:

Realcoin is the latest in a wave of so-called Bitcoin 2.0 ventures, which use bitcoin’s computer infrastructure to exchange property and execute contracts without third-party intermediaries. These projects open up bitcoin’s decentralized, peer-to-peer network to a variety of commercial uses beyond just transactions denominated in bitcoins.

This is an application of the colored coin idea that most people here were excited about.  Realcoins are bitcoin tokens encoded in such a way that each token represents an IOU for a certain number of dollars.  The blockchain technology and digital signatures allows users to split up and re-assign these IOUs in a decentralized and trustless way (without the assistance of the issuer of the IOUs).  

...Realcoin will use a Bitcoin 2.0 software protocol known as Mastercoin…

Apparently they are using the Mastercoin protocol as opposed to Open-Assets (colored coins); but regardless, Realcoins are Blockchain assets.  Blockchain assets are only secure if the Blockchain is secure.  The Blockchain is only secure if Bitcoin is valuable.  

...we are digitizing the dollar and giving that digital dollar access to the bitcoin blockchain…

Since digitized claims for these dollars will exist on the blockchain, then it will be very efficient to trade bitcoins for these dollar IOUs¹.  Imagine that you just sold 10 BTC and have a USD balance sitting at Bitfinex.  Wouldn't it be nice to withdraw this balance over the blockchain?  If you trusted the issuer of Realcoins more than Bitfinex, wouldn't this also be preferable, as it would reduce your counterparty risk?

Here's a cool app that might be possible with a little creativity and carefully execution:

1.  Create a wallet that stores bitcoins AND real coins.

2.  Add a "slider bar" in the app that allows the user to select anywhere between 0% and 100% bitcoin exposure.  With the slider at 0%, your wealth is correlated with the $; with the slider at 100%, your wealth is correlated with BTC.  At points in between, your wealth is correlated to each in proportion to your exposure.  Your wallet automatically initiates the required realcoin/bitcoin swaps each time you adjust the slider.  Feeling a bit bearish?  Just slide the bar from 80% to 60%.  Feeling bullish?  Crank it to 100%.

Just imagine 1,000,000 people moving there sliders up by 10% all at the same time lol.  


Seriously though, the biggest obstacle here is regulation.  Since Realcoins would actually be IOUs traded on the blockchain, it seems they would fall under the jurisdiction of the SEC.  But the WSJ post doesn't really discuss this important aspect in any real detail…


Remember: there's only one Blockchain asset with zero counterparty risk.   http://en.wikipedia.org/wiki/Attractor

¹If the Open-Assets protocol was used, then it would be possible to trade BTC for $-IOUs in a trustless manner using a single coinjoin TX.  I'm not sure if this is possible using the Mastercoin protocol, but perhaps someone else knows.

[DannyElfman]

The problem with this is that the incentives for miners to secure the blockchain would be missing. Even if miners earned a TX fee, they would almost certainly not earn any kind of block subsidy; since TX volume would be very low at first, there would be little reward for mining, making it very easy to attack the blockchain.

[Peter R]

The problem with this is that the incentives for miners to secure the blockchain would be missing. Even if miners earned a TX fee, they would almost certainly not earn any kind of block subsidy; since TX volume would be very low at first, there would be little reward for mining, making it very easy to attack the blockchain.

The blockchain is the Blockchain.

This is not an alt-coin.  Refer to my post three above.    

[seriouscoin]

The problem with this is that the incentives for miners to secure the blockchain would be missing. Even if miners earned a TX fee, they would almost certainly not earn any kind of block subsidy; since TX volume would be very low at first, there would be little reward for mining, making it very easy to attack the blockchain.

The blockchain is the Blockchain.

This is not an alt-coin.  Refer to my post three above.    

All you've pointed out was the IOUs can be secured (by blockchain) and traded without the issuer's intervention.

But that still doesnt explain how to redeem those IOUs truslessly to actually fiat for normal transactions. Do you really trust the USD reserve? or human?

Heck i can beat Brock by saying i have a gold reserve and issue IOUs for 1 oz of gold on blockchain.

What a failed idea.

[kashish948]

all this is just degrading the value of BTC!!!! altcoins should be banned!

[davidgdg]

If this project comes to fruition in the form described in the WSJ post, it could be a very good thing for bitcoin.  It will be the first serious decentralized asset traded on the Blockchain.  The asset will of course be "IOUs for US dollars".  Read the post:

Realcoin is the latest in a wave of so-called Bitcoin 2.0 ventures, which use bitcoin’s computer infrastructure to exchange property and execute contracts without third-party intermediaries. These projects open up bitcoin’s decentralized, peer-to-peer network to a variety of commercial uses beyond just transactions denominated in bitcoins.

This is an application of the colored coin idea that most people here were excited about.  Realcoins are bitcoin tokens encoded in such a way that each token represents an IOU for a certain number of dollars.  The blockchain technology and digital signatures allows users to split up and re-assign these IOUs in a decentralized and trustless way (without the assistance of the issuer of the IOUs).  

...Realcoin will use a Bitcoin 2.0 software protocol known as Mastercoin…

Apparently they are using the Mastercoin protocol as opposed to Open-Assets (colored coins); but regardless, Realcoins are Blockchain assets.  Blockchain assets are only secure if the Blockchain is secure.  The Blockchain is only secure if Bitcoin is valuable.  

...we are digitizing the dollar and giving that digital dollar access to the bitcoin blockchain…

Since digitized claims for these dollars will exist on the blockchain, then it will be very efficient to trade bitcoins for these dollar IOUs¹.  Imagine that you just sold 10 BTC and have a USD balance sitting at Bitfinex.  Wouldn't it be nice to withdraw this balance over the blockchain?  If you trusted the issuer of Realcoins more than Bitfinex, wouldn't this also be preferable, as it would reduce your counterparty risk?

Here's a cool app that might be possible with a little creativity and carefully execution:

1.  Create a wallet that stores bitcoins AND real coins.

2.  Add a "slider bar" in the app that allows the user to select anywhere between 0% and 100% bitcoin exposure.  With the slider at 0%, your wealth is correlated with the $; with the slider at 100%, your wealth is correlated with BTC.  At points in between, your wealth is correlated to each in proportion to your exposure.  Your wallet automatically initiates the required realcoin/bitcoin swaps each time you adjust the slider.  Feeling a bit bearish?  Just slide the bar from 80% to 60%.  Feeling bullish?  Crank it to 100%.

Just imagine 1,000,000 people moving there sliders up by 10% all at the same time lol.  


Seriously though, the biggest obstacle here is regulation.  Since Realcoins would actually be IOUs traded on the blockchain, it seems they would fall under the jurisdiction of the SEC.  But the WSJ post doesn't really discuss this important aspect in any real detail…


Remember: there's only one Blockchain asset with zero counterparty risk.   http://en.wikipedia.org/wiki/Attractor

¹If the Open-Assets protocol was used, then it would be possible to trade BTC for $-IOUs in a trustless manner using a single coinjoin TX.  I'm not sure if this is possible using the Mastercoin protocol, but perhaps someone else knows.

Spot on.

The idea of using the blockchain as a register for digitally tradeable financial assets (whether dollar IOUs or anything else) is very exciting but the more the idiot regulators get in the way, the more obstacles there will be to innovation.

[JorgeStolfi]

I don't know if people are seeing the real problem.

"The bitcoin community, represented by Brock Pierce, the billionaire president of the Bitcoin Foundation, recommends the use of RealCoin for e-commerce, rather than bitcoin -- since RealCoin is a new-generation cryptocoin that fixes an incurable flaw of the latter, its volatility.  People should pay no attention to a few fringe bitcoiners who may whine about some irrelevant philosophical quibbles."

[davidgdg]

It's only as "dollar-backed" as the backers have dollars. Basically these will be blockchain transferable dollar IOUs.

But I wonder why they are using mastercoin rather than open assets? The advantage of the latter as I see it is that it benefits the Bitcoin ecosystem. Transactions will take place within the blockchain thus producing a future source of transaction volume and fees.

I don't think the same is true of mastercoin transactions, though happy to be corrected.

[Erdogan]

It is really hard to peg some form of money to another exactly. Some reasons are that the two have slighly different characteristics, there will be variable demand, and there is some cost in transacting. Therefore you see that the only realistic way is to let it vary in a band around the peg. Interventions then come when the spread comes near the edges of the band. To avoid speculation, the exact band can be made secret. To make the peg trustworthy, the backing organization has to have some reserves. See Singapore dollar
http://www.investopedia.com/terms/s/sgd-singapore-dollar.asp

tl;dr I do not think he can do it, but the fed can.

[Peter R]

Imagine if the headlines related to Realcoin were instead things like:

"Bitcoin Foundation paves the way for decentralized bitcoin exchanges with the launch of blockchain-tradeable $-IOUs."

or

"Brock Pierce set to battle SEC regarding rules for Blockchain-based asset transfers."

I think most people would be pleased. But this is what Realcoin is.  How else do you think you create a decentralized exchange if you don't have blockchain-tradeable dollar IOUs?  And the cool thing is that Realcoin is just the first.  This would open the door to other companies launching blockchain-tradeable IOU products, or stocks and bonds too. 

The question I want an answer to is: what does the SEC have to say about this?

Lastly, one aspect of this proposal that does seem questionable to me is the use of Mastercoin.  Is there a reason that the Open-Assets protocol (colored-coins) wasn't used instead?

For more info:  https://bitcointalk.org/index.php?topic=683675.msg7761651#msg7761651

[Peter R]

It is really hard to peg some form of money to another exactly. Some reasons are that the two have slighly different characteristics, there will be variable demand, and there is some cost in transacting. Therefore you see that the only realistic way is to let it vary in a band around the peg. Interventions then come when the spread comes near the edges of the band. To avoid speculation, the exact band can be made secret. To make the peg trustworthy, the backing organization has to have some reserves. See Singapore dollar
http://www.investopedia.com/terms/s/sgd-singapore-dollar.asp

tl;dr I do not think he can do it, but the fed can.

I think you may change your mind.  For example, Realcoin could be structured similarly to the Winklevoss ETF.  The difference is that the ETF-tokens represent bitcoin-IOUs whereas the Realcoin-tokens represent dollar IOUs.  The peg, in both cases, is maintained by arbitragers (e.g., the Authorized Participants) swapping baskets of the underlying.  

TL/DR: Winklevoss ETF   --->  bitcoin IOUs that exist in the legacy financial system
          Realcoin             --->  dollar IOUs that exist in the Blockchain financial system
 

[coinsolidation]

Peter R, that is a nice tl;dr!

I have not read much of this thread or the article. But does realcoin allow any named thing to be in IOU form on the block chain? If so that would be huge.

OT: Has anybody implemented a real world proof of burn, where notes are destroyed in return for crypto currency, perhaps using the serial numbers as a proof?

[Peter R]

I have not read much of this thread or the article. But does realcoin allow any named thing to be in IOU form on the block chain? If so that would be huge.

No.  Realcoin is a product that uses an existing protocol for blockchain-tradeable IOUs.  It is a proposed realization of the concept that you just mentioned.  

[Erdogan]

It is really hard to peg some form of money to another exactly. Some reasons are that the two have slighly different characteristics, there will be variable demand, and there is some cost in transacting. Therefore you see that the only realistic way is to let it vary in a band around the peg. Interventions then come when the spread comes near the edges of the band. To avoid speculation, the exact band can be made secret. To make the peg trustworthy, the backing organization has to have some reserves. See Singapore dollar
http://www.investopedia.com/terms/s/sgd-singapore-dollar.asp

tl;dr I do not think he can do it, but the fed can.

I think you may change your mind.  For example, Realcoin could be structured similarly to the Winklevoss ETF.  The difference is that the ETF-tokens represent bitcoin-IOUs whereas the Realcoin-tokens represent dollar IOUs.  The peg, in both cases, is maintained by arbitragers (e.g., the Authorized Participants) swapping baskets of the underlying.  

TL/DR: Winklevoss ETF   --->  bitcoin IOUs that exist in the legacy financial system
          Realcoin             --->  dollar IOUs that exist in the Blockchain financial system
 

You can not expect the WV ETF to have the exact price of bitcoin either.

So, if realcoin moves above the peg, he can of course offer to sell more realcoin for dollars an pocet the difference. But what if realcoin goes lower? He has to buy realcoins for dollar, possibly all of them. A buffer is needed to temporarily drive them above dollar again to quiesce the traders.

[IIOII]

"Backed" by the dollar. What a joke.

The persons doing this are either entirely clueless about bitcoin or plain scammers. Oh just wait - one of them is actually a member of The Bitcoin Foundation, that thingy that is somehow "Freeing people to transact on THEIR OWN TERMS".

God, please donate a neuron!

[Erdogan]

"Backed" by the dollar. What a joke.

The persons doing this are either entirely clueless about bitcoin or plain scammers. Oh just wait - one of them is actually a member of The Bitcoin Foundation, that thingy that is somehow "Freeing people to transact on THEIR OWN TERMS".

God, please donate a neuron!

Yes it is inaccurate. It is redeemable for a fixed amount of dollars, backed by an organization, with the dollars that that organization has in reserve.