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Author Topic: Goldbits  (Read 1919 times)
Vessko
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October 01, 2014, 11:38:20 AM
 #1

Hello folks,

I recently found about this (new?) cryptocurrency and would like to hear your thoughts about it. It is called Goldbits. The idea is to have a cryptocurrency pegged to gold. The way I understand it, it works like this:

1) The currency is a fork of Litecoin. This has been chosen to make the computations easier and faster (as opposed to Bitcoin, for instance) and to make use of the already existing open source software (e.g., wallet).

2) The currency is 100% pre-mined - all the 30 billion coins of it. Only 2000 coins are released to the market by the developers, because they are backed by 2 kg gold held in the vault of the developers. It their gold reserves increase in the future, a corresponding amount of coins will be released; the idea is to have one coin backed by 1 gram of gold.

3) The gold reserves are audited every month and there is a semi-live web camera feed monitoring the gold in the vault (all the 2 bars of it that are there now).

4) The currency is not redeemable for gold from the reserves. The reasons stated are practical (you can't shave 1-gram slices from a certified investment-grade gold bar and mail them around), but even if you have 1000 coins, you won't be allowed to exchange them for 1 bar.

What are your thoughts on this? I can see the following problems:

1) It is not a true P2P currency. The ledger is public and distributed but the developers hold practically all the coins (which have been pre-mined) and practically act as a "world central bank" for the currency. To begin with, this flies in the face of Satoshi's original idea of "free, distributed, peer-to-peer currency". The libertarian in me shivers at the thought of one entity controlling the whole currency.

2) How can we trust that the gold is really there? None of us is likely to fly to Iceland and consult the auditing company. And digital feeds are easily faked - how do we know that we aren't shown one constant loop and the gold is long gone?

3) Even if the gold is still there and the company can be trusted now, what guarantee do we have that it can be trusted in the future? Suppose that the next year they say "oops, we have decided that from now on 1 coin will be backed only by 0.5 grams of gold". This will effectively devalue the holdings of everyone and there is nothing they can do about it.

4) Since the currency is not redeemable for gold, no arbitrage is possible. At the time of this writing, the gold price is about $38 per gram. Suppose that as the cryptocurrency trades on the exchanges, its price is set to $30 per coin. Obviously, a distortion has occurred and the 1 goldbit/goldgram ratio has been broken. In a free market, arbitrageurs would buy the coins, exchange them for gold, sell the gold and make a profit - and with this action will push the price of the coin up and the price of gold down, restoring the intended ratio automatically. But since the currency is irredeemable, this is not possible. (Exactly the same problem can occur in the opposite direction - if the coin becomes more expensive than a gram of gold.)

Anything else I might have missed? Or am I wrong about any of the above? Because, for now, from my point of view this is a currency made by a company I don't know and can't trust, a company with full control of the currency in circulation, and a currency that has an embedded economic problem.
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October 01, 2014, 11:45:54 AM
 #2

probably a scam

i don't like those huge premined shit coin, it doesn't matter what they offer
tattooist
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October 01, 2014, 12:25:16 PM
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here's something similar https://bitcointalk.org/index.php?topic=700145.0

don't know if anybody actualy got paid in gold though..
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October 01, 2014, 01:08:05 PM
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Such an obvious scam. Why not just buy your own gold? Then you have it in your possession and its truly pegged to the price of gold. Put it on ignore and move to a real crypto.
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October 01, 2014, 06:36:35 PM
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I don't think that it is a scam. They are well-meaning, it's just what they want to do cannot be done for economical reasons. You cannot have a stable peg without arbitrage. Even when you don't let the free market maintain the peg, the central bank has to act as an arbitrageur, in order to maintain the peg. And they can't do that, despite the fact that they own almost all the coins.

There is also another economical problem, although it's mostly a theoretical one - i.e., won't arise until all the pre-mined coins are already in circulation, and the probability for this to happen is essentially nil. You see, the amount of Goldbits in existence is constant. But the amount of gold isn't - it keeps increasing by about 1.5% annually, due to mining. Since you can't mine additional 1.5% Goldbits every year, there is just no way of keeping the peg to the gold price, even if you allow redeeming for gold.

The reason why they have invented yet another cryptocurrency is because they have a different service (encrypted e-mail, chat and voice communication) and they want to provide the possibility to pay for the service in anonymous, P2P currency. But they are going the wrong way about it; they should just accept Bitcoin.
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October 01, 2014, 07:05:26 PM
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3) Even if the gold is still there and the company can be trusted now, what guarantee do we have that it can be trusted in the future?


what if the company goes bankrupt?
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October 01, 2014, 08:43:31 PM
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This doesn't makes sense. If it is a fork of Litecoin (Scrypt PoW) and 100% premined, how do they incentivize people to secure the network?

I call scam if it works as described.

Vessko
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October 02, 2014, 11:23:04 AM
 #8

If it is a fork of Litecoin (Scrypt PoW) and 100% premined, how do they incentivize people to secure the network?

You mean, who pays the miners to sign the transactions, if they cannot mine new coins? I don't know but presumably the company does - don't forget that it has almost all of the pre-mined coins.

I just did a test transaction and it definitely went through. 1476 confirmations already. The wallet client shows presently 37503 blocks transaction history on the blockchain, so definitely somebody is "securing the network". Of course, those could be just computers the company owns.
pizza77
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October 02, 2014, 11:46:55 AM
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If it's just computers the company owns, then it's not a decentralized crypto like bitcoin. If the company goes down, the coin network goes down.
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October 04, 2014, 11:44:10 PM
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There is also another economical problem, although it's mostly a theoretical one - i.e., won't arise until all the pre-mined coins are already in circulation, and the probability for this to happen is essentially nil. You see, the amount of Goldbits in existence is constant. But the amount of gold isn't - it keeps increasing by about 1.5% annually, due to mining. Since you can't mine additional 1.5% Goldbits every year, there is just no way of keeping the peg to the gold price, even if you allow redeeming for gold.


The reason why they have invented yet another cryptocurrency is because they have a different service (encrypted e-mail, chat and voice communication) and they want to provide the possibility to pay for the service in anonymous, P2P currency. But they are going the wrong way about it; they should just accept Bitcoin.

I think the point about the pre mined GLB is that there is no possibility of them all ever going into circulation.  If this were to happen it would imply the company owned all the physical gold in the world.  All the company is saying is there is no need for the GBL to be mined in the future.

One issue I can see is that the company could have difficulty in accessing sufficient gold to really expand the currency.

An interesting issue is that all the speculation is taking place with the price of physical gold not GLB  the only issue to be resolved
are the margins to be charged by the exchanges to convert to and from GLB.  Some arbitrage might occur there.
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October 05, 2014, 01:20:04 AM
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If it is a fork of Litecoin (Scrypt PoW) and 100% premined, how do they incentivize people to secure the network?

You mean, who pays the miners to sign the transactions, if they cannot mine new coins? I don't know but presumably the company does - don't forget that it has almost all of the pre-mined coins.

I just did a test transaction and it definitely went through. 1476 confirmations already. The wallet client shows presently 37503 blocks transaction history on the blockchain, so definitely somebody is "securing the network". Of course, those could be just computers the company owns.

At the moment the company owns the processing computers - but recall the system is in very early beta testing and there are no GLB coins to
purchase - at this time.

It is intended the processing will be done by a decentralised system (of affiliate computers) who will be paid to perform the processing.  But stripped of the artificial computational load imposed by the mining process - this is not a big load.
fuguebtc
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October 05, 2014, 02:42:13 AM
 #12

Most coins backed with gold has failed badly
Look at midascoin, its price is below its backed value.
Vessko
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October 05, 2014, 09:28:46 AM
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Most coins backed with gold has failed badly
Look at midascoin, its price is below its backed value.

Because it is impossible to peg the price of anything to gold without redeemability. At least not long-term. And by anything I do mean anything - fiat, cryptocoins, silver, anything. That's why the bimetallic systems have all failed.

Redeemability does not need to be universal. It could be limited to a central bank or some other governing body. But it must exist, in order to maintain the peg.

Look at the GLD ETF. It has been doing a marvelous job of tracking the spot price of gold (minus expenses). And the average ETF holder cannot redeem his shares for gold. But the governing body can and, in fact, constantly does it. When the demand for physical gold is larger than the demand for GLD shares, the ETF sells physical gold from its reserves and uses the money from the proceedings to buy back shares and destroy them. This suppresses the price of physical gold and raises the prices of the ETF shares, restoring the peg. Conversely, when the demand for ETF shares is larger than the demand for physical gold, the ETF issues new shares, sells them in the market and uses the money to buy gold, thus suppressing the price of the shares and raising the price of gold, and therefore restoring the peg.

But you can't do that when there is a fixed number of "shares" as with a normal crypto-currency, even if it is 100% pre-mined. You could manipulate the market for a short while but mostly in one direction (if the price of the currency raises above the price of gold, you could release some coins to the market without having gold backing for them) but eventually the peg must fail. It's basic economics.

Sadly, the creators of crypto currencies seem to know more about cryptography than about economics...
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October 05, 2014, 09:47:25 AM
 #14

You can trade redeemable gold on http://melotic.com

Uro: A Real Long Term Currency, 1 URO = 1 metric tonne of Urea N46 fertilizer[/url]
Urea N46 tracks gradual increases in energy and food prices over the long term.
Vessko
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October 05, 2014, 10:17:01 AM
 #15

You can trade redeemable gold on http://melotic.com

Non-sequitur. You can trade gold for US dollars, too. That doesn't make the US dollar redeemable for gold.
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October 22, 2014, 06:33:50 AM
 #16

You can trade redeemable gold on http://melotic.com

Non-sequitur. You can trade gold for US dollars, too. That doesn't make the US dollar redeemable for gold.

https://www.melotic.com/markets/gold-btc

"Each GOLD token is backed by a 1 oz PAMP suisse gold bar, held in bonded and insured custody. Each whole GOLD token can be redeemed for real gold. For any holder of a whole GOLD token, Melotic will repurchase any whole GOLD token at a price equal to 2.5% below the spot price of gold at the time that the transfer is made, payable in bitcoin. GOLD tokens are issued by DigitalTangible using the Counterparty protocol using the symbol GLDPAMPBAROZ."

http://www.blockscan.com/assetinfo.aspx?q=GLDPAMPBAROZ

https://www.melotic.com/digitaltangible

https://www.digitaltangibletrust.com/product/1-oz-pampcredit-bar/


Uro: A Real Long Term Currency, 1 URO = 1 metric tonne of Urea N46 fertilizer[/url]
Urea N46 tracks gradual increases in energy and food prices over the long term.
Vessko
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October 24, 2014, 11:05:43 AM
 #17

You still do not understand. Large amounts of GLD shares (an ETF that aims to track the sport price of gold) can be redeemed for gold, too. That doesn't make GLD a gold-redeemable currency.
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