BitBucks - a discussion starter

[Red]

Suppose I wanted to create a system like bitcoin, but I wanted it to have a value pegged to the dollar. Let's call it bitbuck. By definition, one bitbuck (BTB) would always trade at one USD.

In bitbuck's case "like bitcoin" means that it does all the accounting and verification a la bitcoin. But it DOES NOT generate new coins with each block. Instead, an *int max* account is created in the first block belonging to the "Central BTB Reserve". A centralized service would take care of moving BTB in and out of circulation.

It is easy to see that a central bank could work if it operated in the following fashion.

1. The central bank would sell BTB in exchange for paper federal reserve notes.
2. The central bank would alway deposit the paper in a safe "piggy bank". (100% reserve on-demand access)
3. The central bank would buy BTB on-demand in exchange for the FRN in the piggy bank.

That makes in a simplified version of PayPal. Except one with zero potential for profit. However, that also makes it a money transfer service with all the hassles that come from that.

But the key feature is people understand dollars. Both working for dollars and spending dollars for things priced in dollars. There is no extra "philosophy" to cloud acceptance. There are no exchange rates to check when comparing prices.

So that's obvious and uninteresting, so far. But the real discussion I want to have is:

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What if in the above scenario, you replaced "piggy bank" with a bitcoin wallet.

So to be clear, someone buys a bitbuck and the dollar is used ASAP on one of the existing exchanges to buy the equivalent quantity of bitcoin at market rates. These coins are held in the central banks bitcoin wallet, which is just like any other bitcoin user's wallet. There is no special relationship between the two systems.

The benefit is that any merchant willing to accept bitcoins, automatically takes bitbucks as well. Since they probably already post an equivalent price in USD, they already have bitbuck prices listed.  (There are pricing issues worth discussing.)

There is potential for the central bank to profit in USD if the value of BTC rises over time.
There is a potential for loss if the value of BTC drops.

So in reality the bitbuck system wins by making bitcoin popular and loses if bitcoin fails to gain acceptance. (The risks here are worth discussing. And the likely necessity of a futures market for mitigating the risk.)

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[nelisky]

Nice... this is very close (in philosophy, not implementation) to one of my wannabe projects, which is a connected exchange framework. It would 'copy' mtgox but operate on a different exchange pair, and under the hood both exchanges would fill out bids and offers by buying/selling bitcoins on the other exchange, if the exchange was favorable.

So, having mtgox doing USD and mtclone doing EUR, and using the exchange rate for USD/EUR without any spreads, we could operate bitcoins in a way that their price actually fluctuates to negate the differences between to USD/EUR pair (assuming enough people trade on both exchanges). This is cool, but now imaging you do that for 10 other currencies too... Bitcoin would become pegged to the balanced average of *all* those currencies, not USD or EUR. I think that would do wonders to get the financial wiz dudes paying close attention to this system.

I'm not a financially educated person, but I am a coder, so if I do find the time to put on this, I will create a package that anyone can use to create their own exchange site, and connect to others they trust as described above. Heck, I may even run one myself!

The only thing still on the open is: how do we get the money in? Paypal is obviously not a good idea. In Europe we have very low wire transfer charges, so that could work but I don't know the legal implications of that.

[hugolp]

My doubt is: Why would someone choose this currency over bitcoins? It seems to me that it has the same advantages and problems that bitcoin has, except that it has one more problem that bitcoins do not have, it is tied to the dollar value and will depreciate with it. Why would anyone choose them over bitcoin?

[Insti]

And it seems to be centralized.

[MoonShadow]

Suppose I wanted to create a system like bitcoin, but I wanted it to have a value pegged to the dollar. Let's call it bitbuck. By definition, one bitbuck (BTB) would always trade at one USD.

All that you have done is create another cryptocurrency and 'pegged' it to the US dollar.  If anyone were to do this, they had better have the resources to back up that peg, or it will fail spectacularly.  Ask Brazil or Argentina about the difficulties of maintaining a currency peg.  Even the resources of an entire nation can't really protect against arbitrage if there is a non-concurrent recession.  The only national currency that seems to be able to hedge a peg with the US dollar is China, and that might yet prove false.  Any cryptocurrency pegged to any particular national currency will either largely remain within that nation, or risk breaking the peg if that nation has a national economic crisis while the rest of the world is doing okay.

I mentioned in another thread that the US Federal Reserve could do something along these lines if they desired, but even they would be subject to the faith of the world outside the sphere of influnce of the US legal system.

[FreeMoney]

I mean if I trusted that the Fed would maintain the value of the dollar then I'd still have to trust you. I don't even trust that the dollar you are going to peg it to is going to hold value.

Regardless, I think it would be interesting to watch.

[nelisky]

Maybe I'm not as paranoid as I advertise, but I actually think there is a social interest in this. On the one side is everyone who, while looking for alternative currencies (because they are pseudo-anonymous, because their favorite mmorpg accepts it or 'simply because') don't really see with good eyes the deflation 'risk', or simply can't cope with following another currency, as because of that end up never adopting bitcoins.

The described system would not overrun or replace bitcoins, but it would allow for a 'buffer mechanism' for those that want to use another currency (which is just dollars, as it is pegged to them, but goes by another name... think linden dollars, they actually have a huge user base). What I don't see is why would anyone take the effort and risk of running this service. It would be a sitting duck if governments ever come after this. I mean, it's dollars by another name, how can it not be a currency controlled by the feds?

[MoonShadow]

Maybe I'm not as paranoid as I advertise, but I actually think there is a social interest in this. On the one side is everyone who, while looking for alternative currencies (because they are pseudo-anonymous, because their favorite mmorpg accepts it or 'simply because') don't really see with good eyes the deflation 'risk', or simply can't cope with following another currency, as because of that end up never adopting bitcoins.

What deflation risk?  There are no risks of deflation or inflation within bitcoin for 120+ years.  Risk implies an unforseen event, the inflation of the currency is already well mapped out.  The market value of the currency may vary, but that has more to do with the size of the economy that Bitcoin represents, not due to the absolute total monetary base at any given time.  Stablilty is a goal, and even though Bitcoin will continue to inflate for some time, a predictable & mild rate of inflation (or deflation) is not harmful to stability.  Bitcoin will mature at about the four year mark, when inflation drops to about 6% annually and falling.  Within six years the inflation rate of Bitcoin will be below the historical average for major fiat currencies such as the US FRN and the Euro.  Within ten years it will be below the target inflation rate of the European Central Bank, dropping below 2% annually.  It will never vary from it's predetermined inflation plan regardless of the will of powerful people anywhere.  That is stability, and stability is the single most important characteristic of a trade currency.  All positive characteristics of a currency, be it national or local, natural hard money or fiat by design; exist to contribute to that singular goal.

[nelisky]

Maybe I'm not as paranoid as I advertise, but I actually think there is a social interest in this. On the one side is everyone who, while looking for alternative currencies (because they are pseudo-anonymous, because their favorite mmorpg accepts it or 'simply because') don't really see with good eyes the deflation 'risk', or simply can't cope with following another currency, as because of that end up never adopting bitcoins.

What deflation risk?  There are no risks of deflation or inflation within bitcoin ...

the risk I mentioned was very well contextualized... I called it 'risk'. As in, not a real risk, but something that over and over again is discussed in the threads as a risk. People debunk that, explain, complain and eventually got bark at some other tree, because those who perceive deflation as a problem, or lack of inflation for that matter, are the majority and are pretty stubborn.

I like the fact that Bitcoins are pretty stable, but that actually deflates them when compared to currencies (and notice I didn't say *other* currencies), because the same amount of Bitcoins within 1 year is supposed to be only mildly inflated while the USD will probably be much more so, hence 100 Bitcoins buys less bread, because bread in indexed to the USD. Of course, once there's enough critical mass behind the Bitcoin ecosystem we can index stuff to Bitcoins, but for the time being... Bitcoin is deflationary.

I hope I got the terms straight, I'm not a native English speaker and while I know all the geeky computer terms, the financial theories and their terms escape me completely

[Red]

My doubt is: Why would someone choose this currency over bitcoins? It seems to me that it has the same advantages and problems that bitcoin has, except that it has one more problem that bitcoins do not have, it is tied to the dollar value and will depreciate with it. Why would anyone choose them over bitcoin?

So first let me point out that his particular post is not a philosophical statement, or an attempt to change the world. This post is about marketing and business profits. As distasteful as it may seem.

So I noticed an issue during the 10x value jump. One of the merchants I was interested in had not changed their BTC prices and was inadvertently asking a price 10x higher in USD than they were originally asking. Many people are not used to checking exchange rates and repricing their products daily. I personally hate the idea. I even find it annoying when traveling. I just let American express handle it.

There seems to be a very common use case that goes:
1) I give X $10 for 200 BTC
2) I send the 200 BTC to Y for a anonymous service.
3) Y gives XX 200 BTC for ~$10
4) Y buys some tacos from a guy who doesn't care how tenuous USD is because he's just going to spend them too.

So the immediate goal is to sent $10 to someone anonymously.

Now if I convert $10 to BTC, send it, and Y converts it to $11 he's happy and I don't care.
But if he converts it to $9.50 he's going to be a little annoyed. I don't want that to happen because this is not a dual, it's mutual cooperation.

Believe it or not there are lots of people who think like me.

Now, me being me. I don't want to take risk for the cash, so I'd rather create a front end to existing markets and let them take the money changing risk. I just hold virtual BTC and sell virtual BTB. I stay one level removed. (which may or may not be far enough removed.)

[Insti]

Now if I convert $10 to BTC, send it, and Y converts it to $11 he's happy and I don't care.
But if he converts it to $9.50 he's going to be a little annoyed. I don't want that to happen because this is not a dual, it's mutual cooperation.

Believe it or not there are lots of people who think like me.

What Y does with his money shouldn't be your problem.

If it really has to be, then just pay him 220, or 250 or 400 or however much will mean you never feel guilty about getting a good deal.

I'm, probably too much of a sociopath to understand all this.

[Red]

The BTC to USD rates change over the short term and the long term.

For my use case, I presuming people want to hold $10 as 10 BTB for a few days or couple weeks but to be sure they are still worth $10 when they spend them. Just like an anonymous debit card.

I was considering an in country usage case so I may need to consider additional details given creighto's international trade comments. (I'll skip that case for the moment)

Profit comes of course if the BTC savers are correct and BTC increases in value against the dollar. This seems most likely to happen if there is a huge increase in users of the bitcoin ecosystem. If the BTC savers are wrong and BTC declines against the dollar, it likely means that the Ponzi-like story is played out but there is not a sufficient increase in consumers uptake to makeup the difference. If that happens there is going to be a BTC value crash.

The real question is what are the trends likely to be?

If there is a long term up trend in BTC value than holding BTC makes cents. Holding other people's BTC makes even more cents. A sufficient buffer of BTC can smooth out minor price corrections. It also let's me automate a simple BTC cost averaging strategy.

Pitching BTB to potential users can be easier than pitching bitcoin, because you can say, "Its just like paypal or a debit card, but no fees and it's anonymous." I don't have to convince them the fed sucks.  

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If there is a crash, I can tell people I just fell victim to satoshi's Ponzi scheme, just like everyone else. I need a bail out!

[FreeMoney]

My doubt is: Why would someone choose this currency over bitcoins? It seems to me that it has the same advantages and problems that bitcoin has, except that it has one more problem that bitcoins do not have, it is tied to the dollar value and will depreciate with it. Why would anyone choose them over bitcoin?

So first let me point out that his particular post is not a philosophical statement, or an attempt to change the world. This post is about marketing and business profits. As distasteful as it may seem.

So I noticed an issue during the 10x value jump. One of the merchants I was interested in had not changed their BTC prices and was inadvertently asking a price 10x higher in USD than they were originally asking. Many people are not used to checking exchange rates and repricing their products daily. I personally hate the idea. I even find it annoying when traveling. I just let American express handle it.

There seems to be a very common use case that goes:
1) I give X $10 for 200 BTC
2) I send the 200 BTC to Y for a anonymous service.
3) Y gives XX 200 BTC for ~$10
4) Y buys some tacos from a guy who doesn't care how tenuous USD is because he's just going to spend them too.

So the immediate goal is to sent $10 to someone anonymously.

Now if I convert $10 to BTC, send it, and Y converts it to $11 he's happy and I don't care.
But if he converts it to $9.50 he's going to be a little annoyed. I don't want that to happen because this is not a dual, it's mutual cooperation.

Believe it or not there are lots of people who think like me.

Now, me being me. I don't want to take risk for the cash, so I'd rather create a front end to existing markets and let them take the money changing risk. I just hold virtual BTC and sell virtual BTB. I stay one level removed. (which may or may not be far enough removed.)

Do you feel badly when ever the exchange rate moves against a trading partner? You buy a french hen from a french firm who prices in EUR, you have USD, they take dollars at an agreed on exchange rate, before they convert the rate moves. Do you feel badly? If the rate moves in their favor do you think they should feel badly? It's a currency, people will agree on rates, those rates will change, no one should feel badly for fulfilling an agreement.

I guess you win because the question is what people will think and if you think it, then you are right, some people think it.

[Red]

Do you feel badly when ever the exchange rate moves against a trading partner? You buy a french hen from a french firm who prices in EUR, you have USD, they take dollars at an agreed on exchange rate, before they convert the rate moves. Do you feel badly? If the rate moves in their favor do you think they should feel badly? It's a currency, people will agree on rates, those rates will change, no one should feel badly for fulfilling an agreement.

I guess you win because the question is what people will think and if you think it, then you are right, some people think it.

I'm not arguing that anyone need feel bad.

I'm suggesting that most Americans have never seen a Euro in their life. Most probably never will. They see prices in USD that only go down for sales but usually go up as a trend. No one says, they went up, because the the dollar fell against the Euro or etc.

If a merchant wants $10 for something, and I want him to have my $10 for that something, then there should be a process that is trivially easy and one that requires zero additional thought, rationalization or argument.

Because the taco guy really doesn't want to hear his woes about BTC fluctuations to the dollar either. If he was trying to overthrow the Fed buying corn and chicken in BTCs and then selling tacos in BTCs, perhaps he might understand. But he isn't. He's just selling the damn tacos.

[FreeMoney]

Okay, I understand and agree that that's how most people think. I predict that people who refuse to think about currency are going to get bit hard this decade, but that's for a different thread.

Concerning technical details. Do people take fees for block generation? Do you run some nodes? With bitcoin the people who could potentially double spend have the option of being honest and getting paid a crapton of BTC. How will you prevent someone from building a longer chain?

[MoonShadow]

those who perceive deflation as a problem, or lack of inflation for that matter, are the majority and are pretty stubborn.

You'll get no argument from me on that statement.

I like the fact that Bitcoins are pretty stable, but that actually deflates them when compared to currencies (and notice I didn't say *other* currencies), because the same amount of Bitcoins within 1 year is supposed to be only mildly inflated while the USD will probably be much more so, hence 100 Bitcoins buys less bread, because bread in indexed to the USD.

This is actually not accurate, because bread (or any other commodity) is not 'indexed' to any particular price in any particular currency, at least outside of nations that practice price controls.  In a free market economy, or even one that somewhat resembles a free market economy like what we have in the United States, one could expect that a (fairly) stable Bitcoin could maintain it's buying power in bread or anything else regardless of what the national currency is doing.  There might be some local 'knock-on' effects from a large devaluation of the national currency, but even that should be temporary.  Likewise, a stable Bitcoin could be expected to rise in price relative to the national currency at the same rate that the national currency is falling in value.

 Of course, once there's enough critical mass behind the Bitcoin ecosystem we can index stuff to Bitcoins, but for the time being... Bitcoin is deflationary.

I understand what you are trying to say, but to be precise, Bitcoin is currently inflationary but is also growing in demand at a faster rate than the inflationary rate.  By my "back of the envelope" numbers; the Bitcoin economy must be growing at a tremendous rate to so drasticly overtake the current inflation rate and increase the value of a bitcoin by an order of magnitude from May to August.  This can be expected in the early days, but will be tempered as the size of the Bitcoin economy grows and "matures".  In another two or three years of steady growth, even another "slashdotting" wouldn't show up in the exchange rates.  The voltility of the exchange rate can be expected to stabilize as the Bitcoin economy matures and the inflation rate drops below 10% annually.

I hope I got the terms straight, I'm not a native English speaker and while I know all the geeky computer terms, the financial theories and their terms escape me completely

I'm an Economics geek more than I am a computer geek.  Actually, I'm a Praxeology geek.  Would you mind me asking what your native tongue is?

[nelisky]

I like the fact that Bitcoins are pretty stable, but that actually deflates them when compared to currencies (and notice I didn't say *other* currencies), because the same amount of Bitcoins within 1 year is supposed to be only mildly inflated while the USD will probably be much more so, hence 100 Bitcoins buys less bread, because bread in indexed to the USD.

This is actually not accurate, because bread (or any other commodity) is not 'indexed' to any particular price in any particular currency, at least outside of nations that practice price controls.  In a free market economy, or even one that somewhat resembles a free market economy like what we have in the United States, one could expect that a (fairly) stable Bitcoin could maintain it's buying power in bread or anything else regardless of what the national currency is doing.  There might be some local 'knock-on' effects from a large devaluation of the national currency, but even that should be temporary.  Likewise, a stable Bitcoin could be expected to rise in price relative to the national currency at the same rate that the national currency is falling in value.

While you are obviously right in stating the current trend, there are some factors, like the slashdot effect, that will probably be repeated a few times still, but that are maintained in time, especially when you think on a broader time lapse. The bread index, or the milk index or any other basic product for that matter is just a reflex of my observation, not a science I grasp. I used to buy bread cheaper, in absolute values. Maybe taking inflation into account that is not so, but when Bitcoins, not having a Fed making it's value decrease to 'stabilize' the economy, stay at the same value per dollar while 1 dollar buys less bread, I guess you can call it deflationary. It's not that bitcoins are worth less, much the opposite, but this goes against what most everyone is used to, or has been taught is "normal".

 Of course, once there's enough critical mass behind the Bitcoin ecosystem we can index stuff to Bitcoins, but for the time being... Bitcoin is deflationary.

I understand what you are trying to say, but to be precise, Bitcoin is currently inflationary but is also growing in demand at a faster rate than the inflationary rate.  By my "back of the envelope" numbers; the Bitcoin economy must be growing at a tremendous rate to so drasticly overtake the current inflation rate and increase the value of a bitcoin by an order of magnitude from May to August.  This can be expected in the early days, but will be tempered as the size of the Bitcoin economy grows and "matures".  In another two or three years of steady growth, even another "slashdotting" wouldn't show up in the exchange rates.  The voltility of the exchange rate can be expected to stabilize as the Bitcoin economy matures and the inflation rate drops below 10% annually.

I hope I got the terms straight, I'm not a native English speaker and while I know all the geeky computer terms, the financial theories and their terms escape me completely

I'm an Economics geek more than I am a computer geek.  Actually, I'm a Praxeology geek.  Would you mind me asking what your native tongue is?

Not at all. I'm a native Portuguese speaker. I do have a *lot* of exposure to English, in its most varied forms, though

[MoonShadow]

It's not that bitcoins are worth less, much the opposite, but this goes against what most everyone is used to, or has been taught is "normal".

What almost everyone has been taught about Economics is *wrong*.


 

 
Not at all. I'm a native Portuguese speaker. I do have a *lot* of exposure to English, in its most varied forms, though

Do you live in Brazil?  If so, can I come an live with you if the US collapses into a fascist state?  I'm presuming, of course, that Brazil is well enough beyond it's own oppressive past that it's no longer at risk of a relapse.

[nelisky]

It's not that bitcoins are worth less, much the opposite, but this goes against what most everyone is used to, or has been taught is "normal".

What almost everyone has been taught about Economics is *wrong*.

And education, and the environment. It's a sad truth, we're mostly all sheep. But all it takes is a good sheppard....
 

 
Not at all. I'm a native Portuguese speaker. I do have a *lot* of exposure to English, in its most varied forms, though

Do you live in Brazil?  If so, can I come an live with you if the US collapses into a fascist state?  I'm presuming, of course, that Brazil is well enough beyond it's own oppressive past that it's no longer at risk of a relapse.

No, I live in Portugal. You probably will do alright in Portugal when the US comes to grips with the fascist state they are (there, I fixed that for you). Our government sucks, our system is always in the verge of collapse but we still are very down to earth people and the truth is that we are years behind most every other country which, in my personal opinion, is a major bonus. And the beaches where I live are great.

I do go to Brazil often enough and have very dear friends there, so if you ever need to quickly escape I can make your arrival easier

From an  economic view, Brazil is probably the best place to be right now. They not only have a growing economy, unlike everyone else, but they also still accept that people will do business with people, not just with taxed businesses. It's a reality they don't fight.

They even have a name for people who run local businesses without having an formal business. We call them illegal, they call them informal... it's beautiful.

[MoonShadow]

It's not that bitcoins are worth less, much the opposite, but this goes against what most everyone is used to, or has been taught is "normal".

What almost everyone has been taught about Economics is *wrong*.

And education, and the environment. It's a sad truth, we're mostly all sheep. But all it takes is a good sheppard....
 

My wife & I homeschool our two kids, I know what you mean.

 
Not at all. I'm a native Portuguese speaker. I do have a *lot* of exposure to English, in its most varied forms, though

Do you live in Brazil?  If so, can I come an live with you if the US collapses into a fascist state?  I'm presuming, of course, that Brazil is well enough beyond it's own oppressive past that it's no longer at risk of a relapse.

No, I live in Portugal. You probably will do alright in Portugal when the US comes to grips with the fascist state they are (there, I fixed that for you).

Truth that.  I really meant to say "when the US becomes an *openly* fascist state".

Our government sucks, our system is always in the verge of collapse but we still are very down to earth people and the truth is that we are years behind most every other country which, in my personal opinion, is a major bonus. And the beaches where I live are great.

A government always on it's deathbed is ideal from the perspectives of a libertarian.  Far better to deal with an agent of the state that is always one screw-up away from the unemployment line than an agent of a nanny state with nearly limitless resources.

I think most Europeans don't understand 'libertarian' but you guys might still call us 'liberals' since that term was never corrupted so in Europe.

I do go to Brazil often enough and have very dear friends there, so if you ever need to quickly escape I can make your arrival easier

From an  economic view, Brazil is probably the best place to be right now. They not only have a growing economy, unlike everyone else, but they also still accept that people will do business with people, not just with taxed businesses. It's a reality they don't fight.

They even have a name for people who run local businesses without having an formal business. We call them illegal, they call them informal... it's beautiful.

Sounds like my kind of place.