Topic: Crazy idea: a new currency "backed by" bitcoin (Read 1425 times)

Probably not totally what you had in mind, but reminds me of an old Q&A/forum(?) site called witcoin.com - which used "witcoins" on your account instead of Bitcoins, but you could exchange them 1:1 in and out of the site.

Sure there were issues of centralised trust (how many people lost their witcoins when the site went down?) but it does highlight the idea of currencies for a specific network/service. I'm also intrigued by whether this could be extended to a geographically local currency, such as a small town money backed by Bitcoin, but localised.

It goes against Bitcoin principles IMHO, but maybe a centralised assignment/monitoring of addresses could work within a network which already trusts itself (to some extent, or via alternative methods). This could help achieve two things: 1. Control over money coming into/going out of the localised currency*, and 2. easier augmented functionality on top of a currency (from no-cost, instant transactions, to things like colored systems, relationship tracking, etc.)

* Again, against the bitcoin idea but common enough in state fiat and local currencies for someone out there to be interested in.

Not looked into Ripple enough, but will have a dig and see if it's useful for this kind of scenario.

Crypto-currency vouchers are a basic part of the system described here: https://docs.google.com/document/d/1cKlN55wX7n0SLvxidLoFVrJnNMJO-Iefr8bVyeHBseg/edit?usp=sharing

Naturally, you can have Bitcoin backed assets and even design away to allow for their automatic redemption, and probably design a way to make it 100% reliable using crypto and Bitcoin scripting.  More recently a paper was released showing how to make bitcoin BONDS and interest bearing savings accounts.  https://docs.google.com/document/d/1BcFv1UYPK3AOLrcL0ujiIzhr-c7fcs8mY9pASIlI8hM/edit?usp=sharing

The moment you introduce backing you also introduce the possibility of Fractional Reserves(holding only a part of the backing of all outstanding IOUs).  A fun video about the history of these kind of devices: http://www.youtube.com/watch?v=jqvKjsIxT_8



-bm

Essentially, a Casascius physical coin is a different currency, backed by a bitcoin denomination.  But you need to trust that Casascius didn't keep a copy of the key and that the physical coin has never been compromised (exposed) to an attacker.

But if you have a party providing the backing / guarantee, then you become an issuer.  And an issuer must follow the laws (e.g., being a licensed money transmitter) otherwise the regulators will come down.   The way Bitcoin enables this is by having the issuer / centralized authority be the result of the proof-of-work algorithm.

But if your list of requirements includes instant transactions, then you can't have a consensus-based mechanism.  

So, likley what you are looking to do likely exists with either Open Transactions, or Ripple -- though Ripple isn't "instant" either if your payments need the guarantee of being non-reversible (fast, if you consider a few seconds fast, and you discount the risk that RippleLabs, the operator of the verifiers, will reverse the transaction.)
 - https://github.com/FellowTraveler/Open-Transactions/wiki/FAQ

I don't know about a new currency.  That just seems redundant and unnecessary, but it would be nice if there was a way to have physical bitcoins that could be traded without any sort of device.  I know there are some that are more like souvenirs but I'd like a coin or bill that has a certain, stated value that I can be confident in and can trade with others.   

IM no ripple expert, but afaik, yes to all, but with the following caveats:
- the transaction costs some XRP. But with 100 billion XRP that exist and are being handed out for nothing, that is as close to free as you will get.
- there is 100% counter party risk. This is unavoidable IMO if you want a system that guarantees bitcoin but is not bitcoin, whoever makes that guarantee will become a counter party risk. In ripple you can chose who to trust for how much, with inputs.io or coinbase its the respective companies. Bitcoin is designed the way it is to eliminate the counter party risk, and as a result you have the drawbacks you want to circumvent, like confirmation delays. I dont see how you can have your cake and eat it too.

edit: think of it this way; if you could eliminate the counter party risk (bitcoins single most impressive achievement) and achieve instant confirmations, you are smarter than satoshi and you just devised a system thats inherently superior to bitcoin. So why base it on bitcoin? Release it as a new protocol and in time it should replace bitcoin.

Can I use Ripple to do the following? Honest question:

1) Do instant transactions: as fast as Visa/MasterCard/PayPal/etc.

2) Do free transactions: microtransactions should be free always; or at least more often than they would be if transacted in "real" bitcoin. (Note: today this can be done with off-chain transactions e.g. Coinbase's implementation, but it's centralized and has counter-party risk)

3) Have zero exchange rate risk: I send 100 satoshis, the recipient receives 100 satoshis (or something that is guaranteed to be exchangeable for exactly 100 satoshis forever, no matter what). No fees. Instantly.

Who (or what mechanism) would provide the guarantee? Think long and hard before answering.

As for the desired features of your new currency, they can be, and have been implemented with bitcoin. Eg:

https://inputs.io/

Of course, like any such scheme, you get an authority that you have to trust. In your case it would be the issuer of this new redundant currency, or in the above example its input.io.

If you want to decentralize the issuing/trust,  then you just reinvented ripple:

https://ripple.com/

it could work...what would be the unit of btc fixed to the currency denominated?  There would have to be a public address and qr code on the note itself.  There would need to be a network of private keys held by the govt such that you could not cash in on notes btc value at all unless you were to request btc equivalent of what is held on the public address.  

The govt could also choose to decrease the value of btc held on per note as btc increases so that their currency doesnt hyper inflate in comparison value to usd.  Also, the issue of time and money involved to do it properly would mean that an established developed govt would be the best option.  After all it makes no sense to print a new currency if they all same the same public address or if its easy to replicate/counterfeit the currency which it would seem to be possible unless stringent observations are taken (multiple serial number checks, photocopy/counterfeiting checks), etc.

Also, the big factor/problem is that established governments will not want to participate.  (they currently work like this:  their denizens "TRUST" the priciples of the government and choose to recieve fiat currency that is purely issued.  The value of this newly issued fiat is based on the debt and creditworthiness of the country.)  Its easy for bit countries to issue new dollars, but it was not easy for them to acquire more gold to back these currencies so the countries decided to drop the gold standard back in the 70s.  For a nation to back their fiat with btc it would be similar to rebooting the gold standard and would be restrictive of the level of currency that could be issued.  

I think someone is already working on something like this

I'm guessing this would probably be a cryptocurrency, but it might not need to be a cryptocurrency itself, strictly speaking.

The idea is: a new currency which is backed by bitcoin.

Much in the same way that the US Dollar used to be backed by gold (at the rate of $35 an ounce until 1971), our new currency would be backed by bitcoin at some fixed exchange rate.

I'm not sure if this would be an "Alternate cryptocurrency", but even if it is, this topic is intended to discuss how this currency would *relate to* Bitcoin. So, it does belong in this forum.


Now, why would you use this new currency instead of bitcoin? Well, much like the reason you would use dollars instead of gold: Faster, cheaper transactions.

The new currency would need the following properties:

1) Instant transactions: as fast as Visa/MasterCard/PayPal/etc.

2) Cheaper transactions: microtransactions should be free always; or at least more often than they would be if transacted in "real" bitcoin. (Note: today this can be done with off-chain transactions e.g. Coinbase's implementation; is there any way to do this with a new decentralized currency or protocol instead?)

3) Be 100% guaranteed to be backed by a fixed amount of bitcoin, similar to as if $35 guaranteed you one ounce of gold. 35 (for example) of this new currency would guarantee you one Bitcoin. This should be cryptographically guaranteed in a decentralized manner, so no authority could change or prevent this convertibility property of the new currency.

It doesn't need to be 35 - that was just an arbitrary number when it came to dollars and gold. We can make them correspond 1 to 1. Or even 1000 to 1, or whatever. But it would be a fixed rate, so we always know (in terms of Bitcoin) how much the new currency is worth.

What do you think?