Gold collapsing. Bitcoin UP.

[Adrian-x]

I think this is right. The same using other words: There is a separate value for the scBTC. When the peg is broken, this value is revealed. It also means that while the peg is intact, the holding preference would be with bitcoin in cases #1 and #2, and with scBTC in case #3. This will suppress the usage of scBTC #1 and #2, and may render them less and less liquid.

The problem for scBTC in case #3, is that it first will have to survive a period with less freefloating value, so it will have a problem achiveing the status of #3.

Blockstream are attracting big clients, they want to run entire countries on SideChains, one way to grow it is to do a 1934  Gold Reserve Act  and have everyone convert, they could even do it at favorable rates above current exchange rates. you cant dismiss #3 is the point I'm making.  

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[Peter R]

Peter R, what if scBTC#1, scBTC#2 and scBTC#3 is still same BTC and has equal value in all chains b/c 2wp works ?
Transfering BTC from chain to chain is only "thought experiment". I have never seen or touched Bitcoin -> b/c it is only private key.

I'm just trying to make incremental progress in my understanding by answering the question "on which ledger is the value stored?"  The probability that the 2-way peg is severed is a different discussion. 

I think it's clear that value is stored on both Bitcoin's Ledger and the Sidechain's Ledger.  Erdogan phrased this succinctly:

There is a separate value for the scBTC. When the peg is broken, this value is revealed.

The % of value that is stored on the sidechain is related to the scBTCs utility and network effects, as NewLiberty pointed out:

Value = convertibility + utility/network effects

So value is retained even if convertibility is closed.

But I'm not sure that these arguments are strong enough to show that SPV sidechains hurt Bitcoin's sound-money property.  In my opinion, this is only possible in Case #3, but, like Erdogan implied, it might be highly unlikely (impossible?) for a sidechain to obtain the status of #3. 

The problem for scBTC in case #3, is that it first will have to survive a period with less freefloating value, so it will have a problem achiveing the status of #3.

[tvbcof]

...
In one of the previous examples we had:

 MC
 |   \
SC₁ SC₃
 |   /
SC₂

Where SC₁ had rogue devs/miners who inflated it with new assets or subverted the proofs so no SC₂ would convert back to SC₁ and so convertibility was lost.
Subsequently SC₃ is set up to restore convertibility because SC₂ had such utility that it kept going and new owner folks wanted to (somewhat) regain the convertibility aspects (including new issuance from SPV).

So now you have SC₂ with some BTC convertible back to MC and some not.

Some people who put their confidence in something (sc2) backed by a corrupt value backing (sc1) would lose.  Sidechains are not some magic bullet which nullifies end-user stupidity and provider scammery.  It just makes it possible for end-users to have an alternative to scammery if they want to put in the effort to do due dilligence.  That alternative is found missing in almost every other financial instrument these days (except arguably physical PMs.)

[cypherdoc]

[quote author=Peter R link=topic=68655.msg9573468#msg9573468 date=1416252764
But I'm not sure that these arguments are strong enough to show that SPV sidechains hurt Bitcoin's sound-money property.  In my opinion, this is only possible in Case #3, but, like Erdogan implied, it might be highly unlikely (impossible?) for a sidechain to obtain the status of #3. 

The problem for scBTC in case #3, is that it first will have to survive a period with less freefloating value, so it will have a problem achiveing the status of #3.

[/quote]

which brings up my problem with Blockstream.

they have a fiduciary duty aka financial incentive to make it happen regardless.  and given their power positions in core dev, they may be able to make it happen.

[Adrian-x]

an analogy to the self contained financial system that i envision with Bitcoin is gold.

there is a finite amount of gold circulating throughout the world.  it's stored, it's used, it's supply is theoretically immutable.  none of it gets "transformed" to other speculative assets at any time.  and for 5000 yrs it served as the basis for a sound money system. 

by promoting the transformation of BTC units over to "different less secure ledgers" which now seems to be accepted here by even brg444, how is Bitcoins Sound Money function sustained?

There are plenty of examples of gold "side chains".  The GLD ETF derives its value from gold.  Egold once derived its value from gold.  In fact anyone who owns any kind of note that is redeemable for gold is participating in a gold "side chain".  Perhaps the most infamous example is the USD which has also lost its peg to gold.  These pegs were eventually lost because of central points of failure, but the physical gold remained unharmed.  Bitcoin distributes these central points of failure and if side chains fail, the bitcoin will remain.  Of course none of the elemental properties of gold were changed to create gold "side chains" and that is why we should go the federated route with bitcoin.

the bitcoin can be lost in a SC failure though.  i think confidence is eroded in the entire system certainly in the case of those owners who lose their scBTC.

Bitcoin can also be locked in for a length of time by the miners, remember merge mining can mine empty blocks on the SideChain locking it without forfeiting there mining revenue earned on other SideChains or Bitcoin. 

[NewLiberty]

But I'm not sure that these arguments are strong enough to show that SPV sidechains hurt Bitcoin's sound-money property.  In my opinion, this is only possible in Case #3, but, like Erdogan implied, it might be highly unlikely (impossible?) for a sidechain to obtain the status of #3. 

The problem for scBTC in case #3, is that it first will have to survive a period with less freefloating value, so it will have a problem achiveing the status of #3.

Others would claim that a #3 is ultimately inevitable due to the ossification of Bitcoin.
At some point there would become a new SC that would be better in every way for everyone than Bitcoin and those that can exit do when then can do so.

[Odalv]

Peter R, what if scBTC#1, scBTC#2 and scBTC#3 is still same BTC and has equal value in all chains b/c 2wp works ?
Transfering BTC from chain to chain is only "thought experiment". I have never seen or touched Bitcoin -> b/c it is only private key.

I'm just trying to make incremental progress in my understanding by answering the question "on which ledger is the value stored?"  The probability that the 2-way peg is severed is a different discussion. 

I think it's clear that value is stored on both Bitcoin's Ledger and the Sidechain's Ledger.  Erdogan phrased this succinctly:

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

[cypherdoc]

Peter R, what if scBTC#1, scBTC#2 and scBTC#3 is still same BTC and has equal value in all chains b/c 2wp works ?
Transfering BTC from chain to chain is only "thought experiment". I have never seen or touched Bitcoin -> b/c it is only private key.

I'm just trying to make incremental progress in my understanding by answering the question "on which ledger is the value stored?"  The probability that the 2-way peg is severed is a different discussion. 

I think it's clear that value is stored on both Bitcoin's Ledger and the Sidechain's Ledger.  Erdogan phrased this succinctly:

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

that statement is a contradiction.

[Peter R]

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

Shouldn't you then believe that the severing of the 2-way peg would result in a scBTC value of zero in all cases?  I think I've convincingly shown that this would not always be the case.  Therefore, a % of the value must actually be stored on the sidechain's ledger.  

[HeliKopterBen]

There are plenty of examples of gold "side chains".  The GLD ETF derives its value from gold.  Egold once derived its value from gold.  In fact anyone who owns any kind of note that is redeemable for gold is participating in a gold "side chain".  Perhaps the most infamous example is the USD which has also lost its peg to gold.  These pegs were eventually lost because of central points of failure, but the physical gold remained unharmed.  Bitcoin distributes these central points of failure and if side chains fail, the bitcoin will remain.  Of course none of the elemental properties of gold were changed to create gold "side chains" and that is why we should go the federated route with bitcoin.

i don't necessarily agree with this.  those ETF's and egold had to hold physical gold which "backs" those derivatives, whereas with SC's, BTC units are "transformed" into something totally different and then ride on less secure SC's.  these speculative assets i think are worth less than the original BTC.  if they get hacked or fail, those BTC are locked up forever, which i don't think necessarily translates into higher value for the rest of us still on MC.  it could erode confidence.

Just because GLD is supposed to be backed by gold doesn't mean that it is.  At least with bitcoin we can have cryptographic proof that side chains are backed by a certain amount of bitcoin.  I see these gold derivatives as precedent for side chains just as gold was precedent for bitcoin. 

[tvbcof]

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

Shouldn't you then believe that the severing of 2-way peg would result in a scBTC value of zero in all cases?  I think I've convincingly shown that this would not always be the case.  Therefore, a % of the value must actually be stored on the sidechain's ledger.  

Sidechains introduce a huge marginal value-add by providing services which people need and cannot achieve on the main chain.  My seat-of-the-pants estimate is that this will easily account for any increase in value associated with scBTC on an ecosystem level and some of the value will probably back-wash into Bitcoin itself in a big way.

[Erdogan]

I think this is right. The same using other words: There is a separate value for the scBTC. When the peg is broken, this value is revealed. It also means that while the peg is intact, the holding preference would be with bitcoin in cases #1 and #2, and with scBTC in case #3. This will suppress the usage of scBTC #1 and #2, and may render them less and less liquid.

The problem for scBTC in case #3, is that it first will have to survive a period with less freefloating value, so it will have a problem achiveing the status of #3.

Blockstream are attracting big clients, they want to run entire countries on SideChains, one way to grow it is to do a 1934  Gold Reserve Act  and have everyone convert, they could even do it at favorable rates above current exchange rates. you cant dismiss #3 is the point I'm making.  

I agree it is possible. And better than 100% reserve gold certificates, which may have had a higher value sometimes due to ease of transport. In the case of sidechains, we have provable reserves. So it is possible, but the quality of the sidechain must be really good.

[Odalv]

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

Shouldn't you then believe that the severing of 2-way peg would result in a scBTC value of zero in all cases?  I think I've convincingly shown that this would not always be the case.  Therefore, a % of the value must actually be stored on the sidechain's ledger.  

If 2wp does not work then pegged SC does not work.  If we are talking about pegged sidechains then 2wp MUST be working.

or maybe you want to talk about "pegged SC are not possible to create ?" => let's talk about why it is not possible to create functional 2wp SC

SC does not have any value -> until BTC are locked(escrowed) to fund this SC

[cypherdoc]

Of course none of the elemental properties of gold were changed to create gold "side chains" and that is why we should go the federated route with bitcoin.

i think this is where we agree; if we are going to use SC's at all.  of course, there's always OT as well.

[cypherdoc]

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

Shouldn't you then believe that the severing of 2-way peg would result in a scBTC value of zero in all cases?  I think I've convincingly shown that this would not always be the case.  Therefore, a % of the value must actually be stored on the sidechain's ledger.  

If 2wp does not work then pegged SC does not work.  If we are talking about pegged sidechains then 2wp MUST be working.

or maybe you want to talk about "pegged SC are not possible to create ?" => let's talk about why it is not possible to create functional 2wp SC

SC does not have any value -> until BTC are locked(escrowed) to fund this SC

how is it even possible to have thousands of spvp SC's when there are not enough resources to MM all of them?  and even then, they're not secure.

[HeliKopterBen]

Of course none of the elemental properties of gold were changed to create gold "side chains" and that is why we should go the federated route with bitcoin.

i think this is where we agree; if we are going to use SC's at all.  of course, there's always OT as well.

Yes.  If it ain't broke, don't fix it.

[cypherdoc]

I think, that value is always stored in MC. You can only put your bitcoins into "escrow" (lock them in main-chain) and use "value" on side-chain.

Shouldn't you then believe that the severing of 2-way peg would result in a scBTC value of zero in all cases?  I think I've convincingly shown that this would not always be the case.  Therefore, a % of the value must actually be stored on the sidechain's ledger.  

Sidechains introduce a huge marginal value-add by providing services which people need and cannot achieve on the main chain.  My seat-of-the-pants estimate is that this will easily account for any increase in value associated with scBTC on an ecosystem level and some of the value will probably back-wash into Bitcoin itself in a big way.

who needs the MC to achieve all these services?  to me, Bitoin is Money and only money.  all these services can be created and just adopt BTC as their currency unit of exchange.  this would be how to drive the price of BTC much higher.

[cypherdoc]

Of course none of the elemental properties of gold were changed to create gold "side chains" and that is why we should go the federated route with bitcoin.

i think this is where we agree; if we are going to use SC's at all.  of course, there's always OT as well.

Yes.  If it ain't broke, don't fix it.

Bingo!  we have a Winner!

[sidhujag]

Haven't heard anyone talk about it but on here.. so I don't consider that strong. A simple gui was needed from grandma that couldn't be done in 3 years of trying? Is that strong software development to you?

That you don't understand the problem domain is more a reflection on you than on OT.

Don't know how you jump to that conclusion but sure... it must be SOOO complicated that it takes longer to do especially since my premise is probably playing out that there is no financial incentive to do so other than the gigantic bounty that noone will be paying out.

I've got 10+ years of professional software development under my belt so I highly doubt you know what you are talking about.

[Peter R]

Sidechains introduce a huge marginal value-add by providing services which people need and cannot achieve on the main chain.  My seat-of-the-pants estimate is that this will easily account for any increase in value associated with scBTC on an ecosystem level and some of the value will probably back-wash into Bitcoin itself in a big way.

I agree that sidechains could introduce a "value-add by providing services which people need and cannot achieve on the main chain" and that this could increase demand to hold BTC.  

What I'm not convinced of is whether the value-add is "huge" or not, and whether providing support for SPV sidechains at the protocol level is worth the existential risk it creates.  

Let's see what happens with federated sidechains first...