Digital currency backed by Bitcoin

[Anders]

I came to think of a cool idea that maybe already has been discussed but the idea is to create a new digital currency backed by bitcoins. In the past, currencies were often backed by gold. Today, bitcoins can be seen as a digital version of gold or similar scarce resource. And it should be possible to create a new kind of digital currency that is backed by bitcoins.

What would the purpose of the new digital currency be? The main purpose would be to create a currency that was stable when it comes to inflation and deflation. So that prices for goods and services in the new digital currency would remain very stable over time. Another purpose would be to create a convenient level of the value of the new current. With bitcoins the price in the future for say a cup of coffee could be something like 0.0000032 BTC. That can be a bit unpractical. The price in the new currency, such as NDC (new digital currency) for the same cup of coffee could be 20 NDC, and remain fairly steady at that price.

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[FreeMoney]

This is what pretty much every site that holds a bitcoin balance for you is doing. I have BTC credits at Mtgox. I expect it's fully backed, but it's still not the same as actual bitcoins. Betco gives you 100 cents for each bitcoin you send. They could call them chips and it would work exactly the same way.

[error]

Something you could possibly look into is a DigiCash backed by Bitcoin.

[grondilu]

Another purpose would be to create a convenient level of the value of the new current. With bitcoins the price in the future for say a cup of coffee could be something like 0.0000032 BTC. That can be a bit unpractical.

0.00000032 BTC = 0.32 µBTC = 320 nBTC

[Anders]

This is what pretty much every site that holds a bitcoin balance for you is doing. I have BTC credits at Mtgox. I expect it's fully backed, but it's still not the same as actual bitcoins. Betco gives you 100 cents for each bitcoin you send. They could call them chips and it would work exactly the same way.

Ok, but if 100 Betco cents equal one bitcoin then those cents follow the same deflation as the bitcoins. My idea was to create a currency that remains stable without inflation or deflation.

[Anders]

Something you could possibly look into is a DigiCash backed by Bitcoin.

I read about DigiCash that it is a currency that started in the 90s. I was thinking about a new currency created especially for the purpose of being backed by bitcoins and resilient against deflation and inflation.

[Anders]

Another purpose would be to create a convenient level of the value of the new current. With bitcoins the price in the future for say a cup of coffee could be something like 0.0000032 BTC. That can be a bit unpractical.

0.00000032 BTC = 0.32 µBTC = 320 nBTC

Yes, it would be fairly practical using such terms but it still would be a currency with deflation (at least for many years to come).

[Anders]

How would the new currency be made stable when it comes to inflation and deflation? One idea would be to pin the value of the new currency so that a Big Mac in the U.S. costs say 20 NDC. It might sound silly to use the Big Mac as a reference, but there actually exists a serious economic model called the Big Mac index. See for example: http://www.economist.com/markets/Bigmac/Index.cfm

Then bitcoins could be exchanged for the new currency and vice versa.

[grondilu]

What would the purpose of the new digital currency be? The main purpose would be to create a currency that was stable when it comes to inflation and deflation. So that prices for goods and services in the new digital currency would remain very stable over time.

Prices don't have to be stable.  They have to reflect economic reality.

Trying to cheat with price signals does nothing good for the economy, and it defeats the purpose of the very concept of price.

[Anders]

What would the purpose of the new digital currency be? The main purpose would be to create a currency that was stable when it comes to inflation and deflation. So that prices for goods and services in the new digital currency would remain very stable over time.

Prices don't have to be stable.  They have to reflect economic reality.

Trying to cheat with price signals does nothing good for the economy, and it defeats the purpose of the very concept of price.

But the currency would only be pinned to the Big Mac! So the price of cotton, oil, gold, wheat etc would still fluctuate relative to the price of a Big Mac.

The purpose is to create a currency that remains fairly stable for consumer goods.

Let's look at an example of how it would work. John wants to buy 100 NDC. How many bitcoins would he have to pay? First we check what the current price of one bitcoin is in USD = $8.20. Then we take the current price of a Big Mac = $3.80. 100 NDC = 5 Big Macs = 5 * 3.80 = $19. In bitcoins: 19/8.20 = 2.32 BTC. So at the moment John would have to pay 2.32 bitcoins for 100 NDC. Pretty cool, eh? 

[error]

This has already been done.

[Anders]

This has already been done.

Very interesting. It looks similar to my idea but not exactly the same. This part is very similar: "The purpose of the Beertokens trust is an attempt to create a more stable currency that will not change in value more than  between +-3% over time..."

The idea I had is simpler I think. I haven't figured out yet the technical solution for how the transactions would be made with the new digital currency though.  Perhaps some kind of simple yet secure public/private key solution that would be very fast, much faster than the bitcoin transactions.

[error]

The idea I had is simpler I think. I haven't figured out yet the technical solution for how the transactions would be made with the new digital currency though.   Perhaps some kind of simple yet secure public/private key solution that would be very fast, much faster than the bitcoin transactions.

That's why I suggested Chaum's DigiCash as a starting point. All the patents should be expiring very soon or already expired.

[smooth]

The idea I had is simpler I think. I haven't figured out yet the technical solution for how the transactions would be made with the new digital currency though.   Perhaps some kind of simple yet secure public/private key solution that would be very fast, much faster than the bitcoin transactions.

That's why I suggested Chaum's DigiCash as a starting point. All the patents should be expiring very soon or already expired.

How does DigiCash work in a distributed anonymous world?  I thought that what happens if you double spend is that your identity is revealed.  That works in meatspace where the signer is a bank, can have you arrested for bank fraud, etc. 

[error]

The idea I had is simpler I think. I haven't figured out yet the technical solution for how the transactions would be made with the new digital currency though.  Perhaps some kind of simple yet secure public/private key solution that would be very fast, much faster than the bitcoin transactions.

That's why I suggested Chaum's DigiCash as a starting point. All the patents should be expiring very soon or already expired.

How does DigiCash work in a distributed anonymous world?  I thought that what happens if you double spend is that your identity is revealed.  That works in meatspace where the signer is a bank, can have you arrested for bank fraud, etc. 

If you value your anonymity, you won't attempt to double spend. If you attempt to double spend, first the transaction fails, and the consequences are whatever are specified by the bank.

[smooth]

If you value your anonymity, you won't attempt to double spend. If you attempt to double spend, first the transaction fails, and the consequences are whatever are specified by the bank.

Well, no I mean let's say you buy digicash with bitcoins.  No one really knows who you are -- you are just a bitcoin address.  If you double spend, the sender bitcoin address might be revealed, but so what?  In order for there to be any real deterrent to double spending, it has to be some kind of real identity, like going to an actual bank and having them check your ID, fingerprints, iris scan, etc.  I don't see how you do that online.

There is online detection of double spending with digicash, so perhaps that is still helpful relative to waiting for bitcoin confirmations, even if not as useful as allowing offline transactions (with detected and deterred double spending).

[error]

If you value your anonymity, you won't attempt to double spend. If you attempt to double spend, first the transaction fails, and the consequences are whatever are specified by the bank.

Well, no I mean let's say you buy digicash with bitcoins.  No one really knows who you are -- you are just a bitcoin address.  If you double spend, the sender bitcoin address might be revealed, but so what?  In order for there to be any real deterrent to double spending, it has to be some kind of real identity, like going to an actual bank and having them check your ID, fingerprints, iris scan, etc.  I don't see how you do that online.

There is online detection of double spending with digicash, so perhaps that is still helpful relative to waiting for bitcoin confirmations, even if not as useful as allowing offline transactions (with detected and deterred double spending).

I don't think you took my advice to go study DigiCash; you seem to be quite confused, still.

If you attempt to double spend DigiCash, the DigiCash issuer learns your identity. This has nothing to do with Bitcoin, except that the issuer is almost certainly who you would have bought the DigiCash from. And the issuer can set whatever rules they wish with regard to identity, etc., so long as their customers accept the rules.

[smooth]

I don't think you took my advice to go study DigiCash; you seem to be quite confused, still.

Not me, must have been someone else.  I studied DigiCash quite a while ago, which included reading Chaum's papers, FYI.

If you attempt to double spend DigiCash, the DigiCash issuer learns your identity.

The issuer learns the "identity" you used to used to submit the bill request.  But unless that identity is somehow linked to your REAL identity, it's not clear why you care.  The DigiCash system depends on the deterrence of being prosecuted (or at least chased by bill collectors) if you double spend.  At least for offline transactions.  For online transactions i think you can just immediately reject double spends in a way that Bitcoin by itself can't.

[Anders]

Instead of using DigiCash I would invent a new digital currency which would be centralized controlled so that double-spending would be impossible.

And then let people buy the new currency with their bitcoins. And have their saldo of the new currency increase when the Bitcoin value increases, so that the buyers of the new currency would not need to worry about spending their bitcoins in exchange for the new digital currency.

Of course, to get people to start using the new currency in the first place would be really tricky. Who would want to buy a currency that nobody uses?

[smooth]

Instead of using DigiCash I would invent a new digital currency which would be centralized controlled so that double-spending would be impossible.

And then let people buy the new currency with their bitcoins. And have their saldo of the new currency increase when the Bitcoin value increases, so that the buyers of the new currency would not need to worry about spending their bitcoins in exchange for the new digital currency.

Congratulations you've just invented mybitcoin.

Problem is, no real privacy unless you trust the bank (and also trust them to not be compromised).  Every time you spend the money they know.