Topic: Forking the Blockchain for Bonds (25 BTC Bounty) - page 4. (Read 8562 times)

You say that the difficulty for each maturity is determined "like difficulty is handled right now" i.e. self-adjusting so generation remains constant in terms of units generated per time period. But if generation of bonds of each maturity is constant, then the last sentence in the quote above makes no sense, the relative amount of each bond issued couldn't fluctuate.

You can either let relative hashing power determine the difficulty for each bond type or the amount of each bond type, but not both.

To do what I think you want, you'd need to find out what people are paying for those bonds. Then you would have enough information to adjust the difficulty such that the "(present value at market) per (unit of work)" is the same for all maturities. The problem is you cannot find out easily and securely how much the bonds are trading for - at least it would get very complex at that point.

Let me know if I misunderstood your proposal.

Mining the bonds is just an efficient way of organizing the bond market. Establishing this market should appeal to hoarders. This is the core proposal. The semantics are irrelevant and a waste of time to debate.  

Perhaps it will help to think of the bonds as bitcoin-denominated treasury bonds issued by the bitcoin software. Trading current bitcoin for bonds of identical bitcoin value is equivalent to borrowing money using
your bitcoin as collateral.

For example, I would like to hold bitcoin on the chance it is successful in a few years time. Since I plan to hoard, I would like to convert my bitcoin holdings into bonds. I don't want to invest in a company that might rip me off.  A bond-holding agent who needs to buy things with BTC would want to sell their bond holdings to me in exchange for current bitcoins. I can't transact with this agent because the market doesn't exist at present. The proposal would establish exceptionally low cost markets for this transaction. I doubt that a more efficient solution than embedding the market in the bitcoin client exists.

I'm afraid you dont understand bonds either. bonds are issued by one party and bought by another, as a whole forming a loan agreement. if bitcoin succeeds there will be a bond market.

what has that to do with the monetary system and why do you need to "mine" them?

@ Stefan

Transacting with you (or anyone else) creates default risks that radically drive up the cost of transaction. Negotiating terms with you increases the costs of transactions, evaluating your rep and monitoring changes increases the costs of transaction. Profit you earn from creating one side of a market increases the costs of transactions. Transferring a contract with you to a third party is difficult and this increases the cost of transaction. Transaction costs are so high that at present the bond market is so illiquid that it almost doesn't exist.

My proposal solves all of the above problems in their entirety. Allowing private parties or exchanges to handle this trade is an extremely inefficient alternative. The current lack of a bond market suggests that it is not a viable option.

A bitcoin now and a bitcoin delivered next year are distinct goods, but perhaps calling this a bond would be better. I will edit the original post to reflect the name change. I will also place a 25 BTC bounty on development of a bitcoin client which offers the 'bond' features I am proposing within one year. Happy to deliver the bounty in advance to Gavin Andresen to judge contributions. If he accepts this responsibility, he would judge contributions to successful development of the proposed bond features or return the BTC to me in one year if they are not successfully developed.

I've sold Bitcoin options and made good money with it. You can sell mining contracts, futures, etc. for Bitcoin just like silver or gold or any other commodity. There doesn't need to be any fancy mechanism in the software itself.  :-)

either you or I don't understand futures.
futures are by definition the exchange of one good for another (or a equivalent monetary settlement), here BTC for USD.
how can this NOT be done by an exchange but by bitcoin only?

Market efficiency depends on market organization. My proposed reorganization would create a deep futures market because of miner arbitrage across currency creation with different difficulty levels. It would offer much lower transaction costs than a third party based system. A deep futures market with low transaction costs would make it much easier for companies to reap benefits from long-term entry into the bitcoin economy.

The futures market will not solve Bitcoin's inherent instability. There's no point in taking risks now to develop the Bitcoin economy, when you can leave somebody else to do it and reap the gains. If you don't have any faith in the long term viability of the Bitcoin economy you liquidate now, again zero risk. Efficient markets baby.

[edited post to replace term futures with bonds and add bounty]
I think the bitcoin system should allow mining for bitcoin bonds. Bitcoin bonds would be tradable coins with a fixed maturity date.
Upon reaching the maturity date, bitcoin would become identical to regular bitcoins. In my view, this is a much more efficient solution than exchange-based loans that require third parties to hold collateral.

For example, miners would have the option of mining instantly maturing bitcoins or bitcoins maturing on Jan 1st of 2012, 2013, 2014, 2015, 2016. (one to five year maturity)
Average difficulty for all maturities would be pegged to hold the total number of all types of coins constant according to Satoshi's schedule. Difficulty for each individual maturity would be initially set to the average difficulty and then allowed to float (like difficulty is handled right now). Supply and demand would determine how coin generation was distributed across the various maturities. This would smooth discontinuities in the coin generation rate that exist under the current system.

Bonds could be exchanged for regular bitcoins on bankless electronic exchanges, much like the Namecoin/Bitcoin exchange at bitparking. These exchanges have extremely low costs because the exchange does not need to hold collateral for a prolonged period. The exchange rates would indicate bitcoin holders' expectations about the future of the bitcoin economy.

Bonds would give wealthy individuals a stronger incentive to develop the bitcoin economy. For example, suppose Mary holds bitcoins and has a business idea that would add significant value to the bitcoin economy within one to two years. It would be in Mary's interest to sell some of her current bitcoins for bonds and some for USD to finance her idea. Effectively, Mary would be loaning her bitcoins out to raise USD capital with perfect bitcoin collateral. Mary would internalize some benefit from any bitcoin appreciation resulting from her business. If Mary just held USD, she might want to purchase bitcoin futures for this reason as well. This mechanism could encourage larger companies to enter the bitcoin economy because value-adding companies would earn more from purchasing bitcoin bonds rather than regular bitcoin.

Many will object to revision of the bitcoin generation process, but I think this is misguided. Whether the bitcoin economy will be valuable several years from now depends on the currency remaining more innovative than potential competing currencies. The emergence of a competitor is a much more important concern than whether bitcoin will be inflated through revised currency generation. Bitcoin users wouldn't accept an inflationary revised currency generation anyway.

Offering 25 BTC bounty for this, see post below.