Digital currency backed by Bitcoin

[ffe]

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.

No no. the account can be anonymous. Bitcoin can be transferred to / from the account anonymously. Double spending in the new currency is still prevented by the central control (confirmation) of the transactions.

All the central authority knows is money transferred between two anonymous accounts.

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[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.

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.

MyBitcoin is for bitcoins I see. I was thinking of having a centralized service for a new digital currency. Yes, there are drawbacks with using a centralized service. But the good thing is that it would be possible to make very fast transactions that immediately checked for double-spending.

A use case would be using the new currency for online shopping:

1. The online shop pastes in HTML code on their website that shows a 'Buy with NDC' button.

2. The buyer clicks on the button and is redirected to his account page and a message: "Do you want to pay 43 NDC to www.onlineshop.com for Obama tea cup?"

3. The buyer clicks 'Yes' and the browser redirects back to the online shop with an OK status code for the transaction.

4. The online shop presents the message: "Thank you for buying the Obama Goes to Tea Party tea cup."

[kjj]

MyBitcoin is for bitcoins I see. I was thinking of having a centralized service for a new digital currency. Yes, there are drawbacks with using a centralized service. But the good thing is that it would be possible to make very fast transactions that immediately checked for double-spending.

A use case would be using the new currency for online shopping:

1. The online shop pastes in HTML code on their website that shows a 'Buy with NDC' button.

2. The buyer clicks on the button and is redirected to his account page and a message: "Do you want to pay 43 NDC to www.onlineshop.com for Obama tea cup?"

3. The buyer clicks 'Yes' and the browser redirects back to the online shop with an OK status code for the transaction.

4. The online shop presents the message: "Thank you for buying the Obama Goes to Tea Party tea cup."

Shit, I missed something.  We started by wanting to lock the price of every product in the entire world into a fixed price for all eternity.  Then there was a digression into anonymity and double spending.  Now we've invented the website shopping cart with online payment processing.  Were the intervening steps in other threads or something?

Well, with regards to the shopping cart and payment processing, this is like the twentieth thread I've read in the last week where someone felt obligated to tell the world that they discovered that a third party was necessary to assume the risk if neither party to a transaction is willing to keep it.  On that point, you are totally correct.  There is no rollback for bitcoin payments (yet).  When you hit send, you are making an irreversible donation.

[sacarlson]

Sounds like you talking about BeerTokens that are a new crypto-currency allmost the same as bitcoin that uses a new block chain.  It requires the the multi crypto chain client called Freecoin to transact from person to person or preson to biz and can be converted into other currency at it's central exchange.   It's based on Beertokens being shares in a holdings trust that the owners of the beertokens control.  It's main objective of The Trust is to keep BeerTokens Value set at "The Price of one Beer".  see the forum for more details. http://forum.bitcoin.org/index.php?topic=9493.0 or come chat with us direct at the #beertokens freenode IRC . We now also have merge mining and escrow support in the new version of the MultiCoin-exp client

[Anders]

Sounds like you talking about BeerTokens that are a new crypto-currency allmost the same as bitcoin that uses a new block chain.  It requires the the multi crypto chain client called Freecoin to transact from person to person or preson to biz and can be converted into other currency at it's central exchange.   It's based on Beertokens being shares in a holdings trust that the owners of the beertokens control.  It's main objective of The Trust is to keep BeerTokens Value set at "The Price of one Beer".  see the forum for more details. http://forum.bitcoin.org/index.php?topic=9493.0 or come chat with us direct at the #beertokens freenode IRC . The next addition needed is p2p escrow to eliminate the need for most of the exchange transactions.  I am working on that also in our new version of the freecoin client

Yes, this was mentioned earlier in this thread. See: http://forum.bitcoin.org/index.php?topic=9923.msg142613#msg142613

It seems similar to the idea I had, especially the part about making the currency stable so that its value remains about the same all the time without having inflation or deflation. The main difference is (besides that BeerTokens is a real crypto-currency and my proposal is only a loose idea yet  ) that the idea I had is based on a much simpler model. No votes of trust needed. No public/private keys or chain of blocks needed (unless it's implemented as P2P perhaps).

[Anders]

Shit, I missed something.  We started by wanting to lock the price of every product in the entire world into a fixed price for all eternity.  Then there was a digression into anonymity and double spending.  Now we've invented the website shopping cart with online payment processing.  Were the intervening steps in other threads or something?

Well, with regards to the shopping cart and payment processing, this is like the twentieth thread I've read in the last week where someone felt obligated to tell the world that they discovered that a third party was necessary to assume the risk if neither party to a transaction is willing to keep it.  On that point, you are totally correct.  There is no rollback for bitcoin payments (yet).  When you hit send, you are making an irreversible donation.

The benefits with the new digital currency would be:

A) Stable value. The price for a product would be same today as tomorrow and the same next week and even in the years to come. The price could of course go up and down, but that would be based on the sellers choice, not something caused by inflation or deflation.

B) Fast transactions. Secure fast payments that directly check for double-spending.

C) Convenient value. No need for values with increasing decimals etc.

[cloud9]

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.

Have a look at FellowTraveler's Open Transactions:  https://github.com/FellowTraveler/Open-Transactions/wiki

[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.

Have a look at FellowTraveler's Open Transactions:  https://github.com/FellowTraveler/Open-Transactions/wiki

I took a brief look at it. Could be very useful. The part about native API sounded a bit worrisome since I had planned to implement it using Google App Engine which does not allow native API calls.

[markm]

Since you probably cannot force all products to have the same relative values forever (are buggy whips still the same fraction of a buggy in value? Is one horsepower still worth the same number of buggy-whips as always? And the same number of buggies? With each of these things still being worth the same amount of gold as it always was, and of silver too of course? Etc.) Open Transactions or Loom or something along those lines seems called for. Specifically, something that lets you buy buggies using buggytokens and buggywhips using buggywhip tokens so that a buggy always costs the same number of buggytokens and a buggywhip always costs the same number of buggywhiptokens regardless of what exchange rates might be between the various tokens...

...If not then gee it sounds like I will probably be looking to buy bitcoins from you using your new currency if you have it pegged to big macs and automobiles and other day to day things' prices and yet also sell bitcoins for always the same number of your tokens constantly...

-MarkM-

[kjj]

I'm going to bold the parts of my comment that you ignored.

Shit, I missed something.  We started by wanting to lock the price of every product in the entire world into a fixed price for all eternity.  Then there was a digression into anonymity and double spending.  Now we've invented the website shopping cart with online payment processing.  Were the intervening steps in other threads or something?

Well, with regards to the shopping cart and payment processing, this is like the twentieth thread I've read in the last week where someone felt obligated to tell the world that they discovered that a third party was necessary to assume the risk if neither party to a transaction is willing to keep it.  On that point, you are totally correct.  There is no rollback for bitcoin payments (yet).  When you hit send, you are making an irreversible donation.

The benefits with the new digital currency would be:

A) Stable value. The price for a product would be same today as tomorrow and the same next week and even in the years to come. The price could of course go up and down, but that would be based on the sellers choice, not something caused by inflation or deflation.

B) Fast transactions. Secure fast payments that directly check for double-spending.

C) Convenient value. No need for values with increasing decimals etc.

And just for fun:

A) requires that all prices be fixed all around the world, and until the end of time.  Do you comprehend this?  Do you understand what it means?

B) is the job of a third party, not a currency.

C) is really just a restatement of A, but it makes you sound like someone that failed out of math class in 4th grade.

[Anders]

I'm going to bold the parts of my comment that you ignored.

Shit, I missed something.  We started by wanting to lock the price of every product in the entire world into a fixed price for all eternity.  Then there was a digression into anonymity and double spending.  Now we've invented the website shopping cart with online payment processing.  Were the intervening steps in other threads or something?

Well, with regards to the shopping cart and payment processing, this is like the twentieth thread I've read in the last week where someone felt obligated to tell the world that they discovered that a third party was necessary to assume the risk if neither party to a transaction is willing to keep it.  On that point, you are totally correct.  There is no rollback for bitcoin payments (yet).  When you hit send, you are making an irreversible donation.

The benefits with the new digital currency would be:

A) Stable value. The price for a product would be same today as tomorrow and the same next week and even in the years to come. The price could of course go up and down, but that would be based on the sellers choice, not something caused by inflation or deflation.

B) Fast transactions. Secure fast payments that directly check for double-spending.

C) Convenient value. No need for values with increasing decimals etc.

And just for fun:

A) requires that all prices be fixed all around the world, and until the end of time.  Do you comprehend this?  Do you understand what it means?

B) is the job of a third party, not a currency.

C) is really just a restatement of A, but it makes you sound like someone that failed out of math class in 4th grade.

A) Prices would be set just as today. The only difference would be that there would be no inflation or deflation of the currency. Since the currency is based on the price of a Big Mac there will be potential inflation and deflation compared to other goods and services. To create an even more stable currency it could be pegged to a basket of well-know commodities. But to peg the currency to the Big Mac would be good enough I think.

B) It would be a currency, but backed by bitcoins. This creates a very stable reserve currency since bitcoins are a well-defined scarce resource, just like gold but more suitable for digital transactions.

C) Yes, the convenient value of the currency is a consequence of point A, but it's important to choose that value so that it becomes convenient in practice. For example 1 Big Mac = 100 NDC. Choosing other values would be impractical such as 1 Big Mac = 0.001 NDC or 1,000,000 NDC.

[Anders]

It would be cool to create an open source project based on this idea. Then it would have to be a distributed peer-to-peer currency, similar to Bitcoin and BeerTokens. Otherwise people could use the open source code to create fraudulent services and other kinds of mischief. I don't know how to start an open source project though. And I don't know exactly how the Bitcoin system works. It would be nice to use a similar solution but more lightweight so that transactions could be made very fast and less computationally demanding.

[markm]

Does the price of a big mac fluctuate wildly relative to the price of a beer?

How many beers does a big mac cost?

Aren't they within about an order of base-ten magnitude, therefore pretty much a who-cares proposition as to whether to peg to beer or burgers?

Peer to peer at high speed would probably have to be done by means of digitally signed contracts.

The protection from double-spending is provided by the recipient simply not accepting the same contract twice. If you want to spend to that same recipient a second time you have to issue a new contract to that same recipient, and a contract to a different recipient is totally different and separate.

Maybe if someone issues a whole lot of contracts and fails to make good on them a class action suit could be brought against them on behalf of all the creditors they have failed to pay?

Maybe you could peg it to a quarter-pounder, call it a quarter-pound of flesh, and make a Merchant of Venice drama out of it whereby if you don't' make good on your contract you'd best avoid dark alleys where bounty hunters lurk waiting to collect a quarter pound of your flesh and take a percent of it for providing the collection service.

Of course an actual quarter-pounder would probably cost many of these contracts due to the overhead expense of actually collecting on them. Take a look at the "Ripple" project, in which each user basically gets to issue their own currency. (Debt based, in that it is done by assigning a credit limit to someone else without any proof that they have ever yet actually given you the [whatever] that you are crediting them with.

-MarkM-

[Anders]

Another advantage to back the currency with bitcoins is that it would be legally isolated from the heavily regulated financial markets involving ordinary currencies and commodities like gold etc. If Bitcoin becomes illegal then the new currency would have to stop. So that is a potential threat. If on the other hand most governments would adopt Bitcoin, then it would be a very stable situation. Unless the Bitcoin would become heavily regulated by law. Then the new digital currency would also need to be regulated. But that could be doable too.

[Anders]

Does the price of a big mac fluctuate wildly relative to the price of a beer?

How many beers does a big mac cost?

Aren't they within about an order of base-ten magnitude, therefore pretty much a who-cares proposition as to whether to peg to beer or burgers?

-MarkM-

Yes, the price of beer no doubt fluctuates somewhat in relation to the price of a Big Mac. But not by much. Not as much as an order of magnitude generally. And to create an even more stable currency it could be pegged to a basket of well-known commodities. My guess is that pegging only to the Big Mac would be enough. The price of a Big Mac in USD in the U.S. Super simple!

[Anders]

With an open source project using a distributed peer-to-peer model, the new digital currency could be backed by bitcoins by letting people lock their bitcoins into the distributed network. At the time a bitcoin, or a fraction of a bitcoin, or several bitcoins are locked into the system, the person owning the bitcoins receive the equivalent amount of the new currency into his or her own private wallet. To get a bitcoin back from the system a person has to send in the amount of the new currency equal to the value of a bitcoin, and then the bitcoin is sent to the person's private Bitcoin wallet.

The idea of locking bitcoins into the system instead of selling them using an ordinary currency exchange is that bitcoins are inherently deflationary. This means that the value of a bitcoin locked into the system can increase over time. The person who has locked the bitcoin into the system will receive more new currency if the value of the bitcoin increases. Therefore the person who locks a bitcoin into the system is freed from the worry of the bitcoin increasing in value. If the value of a locked bitcoin decreases, then nothing happens. The payment of new currency in response to increased bitcoin value is done via an algorithm that minimizes the possibility of currency rate change speculations.

[ene]

Bitcoin is a digital currency backed by bitcoin.

I'm the first person in this thread to actually understand what the OP is saying, because it's so incredibly stupid.

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?

You can *say* that 100 NDC = 5 Big Macs, but people will only actually believe you if they actually can spend 100 NDC to buy 5 Big Macs. So in other words you need to start your own central store and accept 100 NDC from any person and give them 5 Big Macs (or some currency they can actually spend at McDonald's).

In other words you need somebody (usually a government) with a lot of currency reserves, who is willing to use them to maintain NDC at a stable price. If their reserves run out it's like a dam breaking: the value of NDC would go haywire.


https://secure.wikimedia.org/wikipedia/en/wiki/Currency_peg

[Anders]

Bitcoin is a digital currency backed by bitcoin.

I'm the first person in this thread to actually understand what the OP is saying, because it's so incredibly stupid.

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?

You can *say* that 100 NDC = 5 Big Macs, but people will only actually believe you if they actually can spend 100 NDC to buy 5 Big Macs. So in other words you need to start your own central store and accept 100 NDC from any person and give them 5 Big Macs (or some currency they can actually spend at McDonald's).

In other words you need somebody (usually a government) with a lot of currency reserves, who is willing to use them to maintain NDC at a stable price. If their reserves run out it's like a dam breaking: the value of NDC would go haywire.


https://secure.wikimedia.org/wikipedia/en/wiki/Currency_peg

The idea with the new currency is not to replace bitcoins as a reserve of value. The new currency will be backed by bitcoins. So it will have the same kind of value, and the new currency can be exchanged into bitcoins and vice versa at any time. This means that even if nobody at the beginning can use the new currency for anything more than exchanging it into bitcoins and back, there will opportunity to start experimenting with it.

Why would such new currency be needed? Consider the following scenario: I want to buy an Obama tea mug for bitcoins. Let's say that the price of the mug is $5.95 at one online shop. I go to another online shop that has the same mug and the shop uses bitcoins for payments. What would the price of the mug be in bitcoins? It would depend on what the current value of bitcoins is. And the value of bitcoins changes much, at least this can be seen by checking the history of bitcoins vs USD up till now. So it would be tricky for the online shop to set the price, and it would be difficult for me to know if it's a good price because I would have to calculate what the price is in USD. And even if the online shop would show the price in both USD and in bitcoins, how do I know that they use a fair conversion rate? Maybe they are trying to rip me off?

In to the picture comes the new digital currency (NDC): I know that 100 NDC equals one Big Mac, and when I go to an online shop that sells the same Obama tea mug for 149 NDC I know directly a good estimate of what the price of the mug actually is.  (I have used 100 NDC = 1 Big Mac instead of 20 NDC here.)

[ene]

How do you know that 100 NDC equals one big mac? Is there somebody you can go to with your NDC to get Big Macs?

[Anders]

How do you know that 100 NDC equals one big mac? Is there somebody you can go to with your NDC to get Big Macs?

The price of a Big Mac is used to determine how much one NDC is worth. This can be set arbitrarily, but the rate must be fixed before the new currency starts to be used. It can be set to 20 NDC = 1 Big Mac, or 1,000,000 NDC = 1 Big Mac, or 0.0001 NDC = 1 Big Mac. It's important to choose a rate that is practical however, and one such rate could be 100 NDC = 1 Big Mac.