Topic: Mastercoin2 – Can Mastercoin1 even work long-term? (Read 1258 times)

This is a very good question. I'll give it my best shot based on my understanding.

Mastercoin will allow you to issue a user defined currency. So you would be able to name the currency as one of the specific products of your business or in the name of the business itself turning the currency into a gift voucher.

When they purchase the gift voucher in your store they are actually purchasing the Mastercoin wallet with $10 in it. It might even be possible to let them purchase a Mastercoin wallet with $10 in virtual USD in it which would allow you to directly back your escrow with a user currency called virtual USD. So this way $10 is $10 and you wouldn't have to concern yourself with dealing with Mastercoins directly, only with trusting whomever issues the virtual USD currency.

The virtual USD currency will maintain a stable 1:1 price with real USD. It uses the escrow to do this by having Mastercoins on the escrow side of the scale along with virtual USD. When people purchase virtual USD then some of the Mastercoins held in escrow will become virtual USD. If there the price is no longer 1:1 then some of the virtual USD is destroyed and turned back into Mastercoins until it is 1:1 or some more virtual USD is created until it is 1:1. This means virtual USD will always be 1:1 with real USD if the escrow is healthy.

Your store would have to purchase 10,000 virtual USD from the virtual USD issuer. To do this you would first have to purchase some Mastercoins ($10,000 worth however many that is). Then you'll send those Mastercoins to the issuer of virtual USD, and the issuer will send you $10,000 worth of virtual USD back to you for your gift cards.

Whenever someone redeems your gift card it will result in $10 being sent to you until all $10,000 worth of giftcards are redeemed. The virtual USD company could also send the Mastercoins back to you instead of $10.


That is just one way to do it. Another way would be for your store to issue it's own currency. 10,000 units of that currency. You'd then decide what you'd redeem it for which you believe is equal to $10 in value for each gift card. When the purchaser of the gift card redeems then you would have to provide a product and or service worth $10 in value. To do this you would need to hold Mastercoins in escrow and when they purchase the gift cards from you in the store they would actually be purchasing Mastercoins disguised as gift cards. They'd go home with these Mastercoin wallets or scan the QR code into their smartphone/Google glass and suddenly they'd have a balance of Mastercoins which would be taking the form of your currency. If the Mastercoin escrow isn't healthy then some of your virtual user currency would be destroyed until the price is 1:1 with USD and it's $10 per gift card. In my opinion if its backed by virtual USD then the escrow of virtual USD corporation would handle all that for you. If you back it with Mastercoins then you'd have to back the Mastercoins in your escrow directly with your goods and services so that if they redeem then they get a choice to either get $10 in Mastercoins or receive goods and services worth the value of $10.

They'll trade these with their friends, swapping them until eventually someone redeems and you'll have to offer a product and or service or send them the Mastercoins.

Please confer with dacoinminster for the details on the protocol, there are some things which are not in the whie paper or which I might not understand. That is the best of my understanding at this time.

I'm not against using Colored Coins. The problem I have with Colored Coins is that I must buy Bitcoins in order to interact with it. It forces Bitcoin to try to act both as a value of measurement and as a value of account and to try to be good at both. Bitcoin is not good at escrow when it goes in bubbles. It goes in bubbles because it has to be mined, because it's used in transactions and for speculation. If we use Mastercoins then we don't have to use Bitcoins at all or risk Bitcoin sat all. Both Bitcoin and Mastercoin can have independent values and grow in value independent of each other so that if one crashes then it doesn't affect the other.

I could buy Bitcoins with cash and play with Colored Coin or I could buy Mastercoins with cash and play with Mastercoin. The USD is where the value comes from in either case and in my opinion Mastercoin by design will hold value better than Bitcoin because Mastercoin is being designed specifically as a unit of measurement. It doesn't have to act as a currency or do anything but sit in an escrow.


Mastercoins are not a currency.  It only exists to hold the value like gold or silver. It's a measuring stick. A shorter stick just means more density. More density which means you can hold more value in less space which is good because the point is to hold as much value in the least amount of space possible for the purpose of the escrow. If the escrow coin, perpetual coin or whatever you'd like to call the unit of measurement isn't good at containing value then it's worthless.

Currencies on the other hand are more like vouchers. You can have as many vouchers as the issuer can redeem within a period of time. So if the issuer is willing to create 1 trillion oz of gold coins then you could issue 1 trillion vouchers, but you cannot issue more vouchers than all the gold on the planet and that is why you need to balance it out with a unit of measurement like Mastercoin. Mastercoin would represent all the possible value on planet earth and then the issuer on the other side of the scale with their gold coins. If the issuer were to try to announce that they are going to issue 1 trillion gold coins but there isn't even that much value possible on the earth itself then we'd know something is immediately wrong. They cannot issue those gold coins unless there is equal value somewhere else.

That means you can have an escrow with 1 trillion gold coins worth of value? Okay they can now issue 1 trillion virtual gold coins even if they cannot create 1 trillion physical gold coins. When the buyers try to redeem then they'll redeem their virtual gold coins for physical gold coins until there is no more gold left on the planet and then they'll want their Mastercoins back which will still have value because the Mastercoins represent all the possible value on planet earth.

Does that make the picture clearer? Mastercoins are meant to be the most valuable substance in existence so that when people put them in escrow it functions as a way to let anyone back anything and issue anything. Value comes from goods and services and not from precious metals, so ultimately the value in Mastercoins will come from goods and services too. That ultimately will be tracked back to national currencies that people will use either to buy Bitcoins with and then transform into Mastercoins (in which case I am concerned that the instability from Bitcoin speculation will pass on to Mastercoin), or they'll buy Mastercoins directly with USD which is the best way because the instability of Bitcoin cannot pass on to Mastercoin. The best way is if Mastercoins are bought with national currencies and then the value of the USD goes directly into Mastercoin without any interference. It lowers the signal to noise ratio.

You're correct it makes no difference how many there are in a certain context. The context is that when I go to buy Mastercoins in USD if there are an unlimited amount then I have no idea how many and cannot find where on the measuring stick the value is. For that reason you need a set in stone amount. You cannot have unlimited Mastercoins because how do you weigh something when the numbers on one side is infinite in both directions and the number on the other side is finite?

Mastercoin is supposed to be finite in that there is a limit to the amount of Mastercoins that can exist, but it should also be very divisible too. That means it has enough space to hold the value of the earth inside of it but maintains just enough limits to give it a useful structure so we can measure something against it. 1 Mastercoin vs 1 oz of gold can be measured only if we know what 1 Mastercoin is. And we only know what 1 Mastercoin is if the amount of Mastercoins are set in stone from the start.

A unit of account is something which should be able to expand and contract because a currency isn't supposed to be scarce. A unit of measurement is something which is inherently scarce because if value isn't scarce there is no way to distinguish whether or not anything is valuable. It's like if beauty was not scarce then you would have no way to determine what it is anymore. Mastercoins therefore have to at least seem scarce, meaning the highest units have to be scarce but if its infinitely divisible then the whole world can use it just not in the same amounts. That way we can distinguish the difference between 1 Mastercoin and 0.000000000000001 Mastercoins. If there were no upper cap we would not be able to distinguish a difference and what use would it be as a unit of measurement? There need not be a lower cap. Gold can be measured in atoms if you like but the fact is we use oz and carats to measure purity. What does infinite carat gold even mean?

If you're talking about a ruler and it goes on in one direction for infinity then yeah you can use it as a measure. That is how Mastercoin already is. But a ruler which goes on for infinity in both directions cannot work because then you cannot measure the purity, beauty, or value. You can have 10 as the highest purity, highest value rating, and go down for infinite with -0.0001 and that is what Mastercoin (and Bitcoin) does. No one wants to compete for the lowest purity, lowest value or anything, everyone psychologically wants the highest and that is why it can work.

This is where we disagree the most. BTC is extremely risky which is why I don't think Mastercoin or any escrow should be backed by it. BTC is empowered by speculation and easily forms bubbles because of block reward halving, the moods of miners, and the consumer trends. We don't need that to cause instability for escrow. When consumers lose a lot of money on Satoshi dice or when Silk Road shuts down then a lot of people say its time to cash out into national currencies. That means the real value is in the national currencies in the first place. When they go to work they got paid in national currencies and see BTC as play money. When they go to work and get paid in BTC then I could see BTC being used to back something else.

Ultimately goods and services back the USD. So this is like saying why don't we just rely on the USD and not even bother building Bitcoin? The reason is Bitcoin can do some things the USD cannot do. But the USD is more stable because people are working to earn the USD a lot more than they are for BTC and that is never going to change because BTC just isn't designed to be stable. Mastercoin could make it stable over time perhaps.

The point I'm making is, if I'm the issuer I'd rather people buy my products and services with USD because I know what USD is going to be worth in 6 months. so +1 for USD. If I'm the seller who is selling Mastercoins I'd rather sell it for USD because then I know I'll get relatively the same amount that was originally put into it.

It's the BTC that is the unknown variable and all the other user currencies that people might use to buy Mastercoins. Theoretically you can back an escrow with a user currency and that would include backing it with BTC. But why would anyone prefer to back their escrow with BTC when they can back it with USD using Mastercoins? I would choose the most stable currency to back my escrow so that I don't have to worry about waking up to -%60 in the price of BTC and then wondering what will I do. If It's backed by USD then the price of BTC is irrelevant.

If Mastercoin itself is backed by a basket of currencies including USD, the Euro, the Yen, gold, silver, platinum and more, I'd definitely believe that Mastercoin would be far more stable than BTC because Mastercoin doesn't exist for anything other than for people to buy it and hold it. There is no need to use Mastercoins for playing dice, or as a currency. You can turn your Mastercoins into Bitcoins and then use that as a currency or turn it into USD and use that and so on, so I see the only real threat to Mastercoin being whether or not the escrow can remain healthy and that is only at risk if Mastercoin itself is unstable due to Bitcoin speculators thinking it's a stock or a currency and not thinking about it as more a place to put their value.

Say you want to buy 100 gold bars with your Bitcoin wealth now that you've made a million dollars but you don't want to use a bank. What you could do is buy the virtual gold bars from a cash4gold company. That cash4gold company would let you cash out your Bitcoins, send them cash, and then they'd send you some gold vouchers backed by Mastercoins. When you want your gold bars you redeem the voucher and you get the physical bars but when you want paper gold then you keep the vouchers as a paper wallet.

In this way you could own gold without having to physically hold it. You'd own virtual gold bars which could be redeemed for real gold bars. The value of the Mastercoins would be exactly based on the fact that the virtual gold bars can always be redeemed for real gold bars. The value of Bitcoin is irrelevant for this, and the value of the USD is also irrelevant for this, because the value is directly backed by the gold itself.

So in this way Mastercoin is way more stable than Bitcoin will ever be if used right. If used wrong then people will treat it like it's some kind of stock, speculate and then worry more about the price of Mastercoins instead of worrying about how to get their virtual gold vouchers redeemed using Mastercoins as a vehicle.

And you could say Colored Coin can do the same thing but Bitcoin doesn't just exist to be used in escrows. That means all kinds of transactions and other currency related uses will cause price flucuations which will keep Bitcoin unstable. Bitcoin will also be getting the sort of media attention which will attract different people to it while Mastercoin doesn't even need anyone to buy them directly. You could buy Mastercoins and never have to even know it.

For example you could sell gold in a convenience store as a scratch ticket with Mastercoin. They buy the scratch ticket and find they've won a gold bar. So they simply redeem it and the gold bar is sent to their address. Colored Coin would require interaction with Bitcoin and who knows what the price will be for Bitcoins and why should anyone have to really care? Having that separation means we don't have to care about the price of any specific user currency.

Coming from you that means a lot. Thank you. I'm still learning this new technology of colored coins and mastercoins. I think both technologies could survive but I'm a little worried about people thinking it's somehow going to grow to extreme values like bitcoin. People are consistently pumping mastercoin in that it will magically be more valuable than bitcoin. I think the comparison of bitcoin to alt coins is completely wrong and a lot of people are going to lose money EVEN IF mastercoin takes off. But that's just my opinion.

Wow. This is by far the most measured and logical discussion of MasterCoin I have ever seen. I think dillpicklechips did a fantastic job of making the case for forks being possible. Most critics tend to pepper their criticisms liberally with insults, which makes it hard to take them seriously. That was a very well-thought-out post.

I agree completely with Ron's analysis above. I believe he is correct that bitcoin's network effect is mostly coming from mindshare, and I believe the analogy extends nicely to MasterCoin. History will tell if we are right or wrong, but I believe that a more "fair" MasterCoin would have to come at the expense of development momentum. This is capitalism, folks - an inherently unfair system (on purpose).

Perhaps I should have done a longer fund-raiser, but it was long enough to raise the money we needed, and I was certainly not quiet about it. People who decided to trust a complete stranger with nothing more than a whitepaper and a bag of promises were taking a massive risk, and I think they are all pretty happy right now.

Now, we have a whitepaper, some websites which track MSC transfers, and a bag of promises, so I think it's safe to say we are still pretty early in this game

The smart property feature of Mastercoin won't require you to own any mastercoins ... you can just create new vouchers, it works exactly like colored coins in this regard. The killer benefit of Mastercoin over Colored Coins is having a built in distributed exchange.



I was just about to start a thread very similar to this one, when someone referred me to this thread.

I'll post my original thoughts, plus a few replies to the above points:


There is some grounds to this perception, but overall I don't buy this argument. Even if all Bitcoin miners magically disappeared tomorrow and Bitcoin switched to a purely proof-of-stake system, this doesn't mean it would drop in value (maybe the other way around). Bitcoin's value doesn't come from mining, it come from getting a share of people's mindspace and purse.


I think that Colored Coin's failure to come up with an investment model is its greating failing. This is the reason why it has attracted relatively little development attention overall (compared the progress Mastercoin has made in the last 2 months vs Colored Coins last year).

Specifically, betting and backed currencies both require MSC market cap to be high enough.

Smart property features do not really require high MSC valuations, and for those interested only in this particular feature, they won't even have to purchase mastercoins to issue their new currencies/smart property.

Mastercoin is the entire layer, and it suffices that some meaningful parts of it "have use" for high MSC valuations.

I do not understand dillpicklechips' suggestion for mastercoin2, and how would it be different from v1.
Regarding donations, you can look at Nxt (totally different project and goal) - they asked for people to just send a few satoshis, and hadn't intended to collect a large some of money in their own version of 1Exodus. However as soon as you define a distribution mechanism that is proportional to the amount of BTC sent, people would invest large amounts of money if they believe the protocol has a good chance to succeed. I don't see a simple way around that.

To add to the question, how is one supposed to buy one of these vouchers - say I have 0.05BTC and want to buy a voucher, do I first have to acquire MSC as intermediary or can I directly post an offer/buy order via the mastercoin protocoll?

Thanks for any insight to this.

Please give me a concrete example of how the following could work:
I am a business and issue gift vouchers, that I want give out via mastercoins. I value a gift voucher at 10$ in my store and want to issue 1000 of them. As the value of my vouchers will be limited to 10$, but the mastercoin value fluctuates, the amount of mastercoin to purchase these vouchers will vary.
Will mastercoin let me define these vouchers, offer them for sale in a distributed way for mastercoins and invalidate them once they are redeemed?

Exact same thing can be done with colored coins.

A lot of your ideas about Mastercoin are also applicable to colored coins. What is it exactly that Mastercoins can do that colored coins can not? Escrowed currencies don't count as you can make software that will escrow BTC when needed.

My main argument is the creation of scarcity for Mastercoins makes absolutely no sense. It won't work. It was just a clever way to fund development. In the long run I don't think it is sustainable as described above. If it is a unit for measuring and not a currency than it makes no difference if there is unlimited mastercoins because they can do the "unit of measuring" and anytime you need something of value you back it up with BTC. WAY LESS RISK! By trying to be both, mastercoin value is a big house of cards that will fall fast when a competitor clones it.

The exchange rate isn't between Mastercoins and Bitcoins. The exchange rate doesn't really matter. What matters is if you're an issuer do you want to be able to issue your own credits and allow people to buy those credits from you on a decentralized anonymous marketplace? Any business owner should be saying "HELL YEAH". Every business owner will want to issue hundreds of these user credits for all sorts of products they offer.

Mastercoin is almost like the domain name system, it will allow you to literally issue your corporation specific product as a coin. So you could literally issue Gatorade credit coin and anyone who loves Gatorade will be able to get cases of it shipped directly to them by swapping their Valve credit coins. Now the person with too many Gatorade credits can have some Valve credits and the person with too many Valve credits can have some Gatorade credits. WIN/WIN!
I'm trying to explain that Mastercoin is directly backed by the goods and services of the issuers. Not by the miners like with Bitcoin. Miners don't offer any goods and services and that is why Bitcoin is having to find ways to allow people to bring fiat into it because people actually work for fiat and then buy Bitcoins. Mastercoin is entirely different because your corporation will issue it's own currency and you'll work for Valve coins or Sony credits. Those credits will be backed by the actual value in the global economy of the goods and services offered by Valve and Sony to society. That is what Mastercoin can do and why Mastercoin will be immensely more valuable than most people think. All those gift cards, Amazon coin, Netflix credits, on all those different corporate sites? All of it will be on Mastercoin. All Amazon would have to do is issue their Amazon coin on Mastercoin or someone else can do it on their behalf and then they'll simply buy a bunch of Amazon coins with USD and sell them to the decentralized exchange or Amazon themselves will be issuing their own coins for Mastercoin so that they can use those Mastercoins to trade for some goods and services their business needs to run.

What this means is trade will be directly business to business and product to product in the form of swapping coins, credits, vouchers etc. If you add on the ability to have adjustable expiration dates then the issuers can actually cause those holding their coins, credits and vouchers to redeem them by a certain date which will force swapping and trading to take place on the decentralized exchange.

Because people aren't going to be buying Mastercoins with their USD to turn them into Bitcoins. People will be buying giftcards with their USD which expire and if they decide they want to redeem that giftcard before it expires then they'll have to sell it back to the issuer for Mastercoins. Through that mechanism Mastercoins could be sold in any store where you see giftcards.

Mastercoins are designed to work like XRP - the Mastercoin people are going to create a bunch of wonderful services that can only be paid for with Mastercoins, thus establishing demand and an exchange rate between Mastercoins and bitcoins.

Many of these services are going to be open source.

What stops anyone from cloning these open source applications and modifying them such that they can be paid for with any arbitrary bitcoin, not just Mastercoins?

Why would customers prefer services which restrict the acceptable payment methods to Mastercoins over services which accept Bitcoin directly?

All of the above is correct. I don't dispute any of it.



This is correct and it is essential that Mastercoins aren't mined and that the amount of them is stable because it's exactly the block reward halving, mining, inflation and other features of Bitcoin which create the volatility. Mastercoin is meant to function as a unit of measurement and it does not exist for anything else.

Agreed that was a bad analogy but it was marketing and it did the job of getting half a million dollars give or take for crowd funding.

Mastercoins are not a currency and this is where you got it all wrong. It's a unit of measurement.
So no it's not traded like "any other currency" because Mastercoins aren't a currency.

This is partially true. It's actually the usefulness of the decentralized exchange which matters, the usefulness of the functionality of Mastercoin which matters and Mastercoin functions as a unit of measurement not a currency.

The main thing that Mastercoin needs to have in order to be independent from Bitcoin is to give users an ability to buy Mastercoins with their national currencies. So basically once the Mastercoin exchange is up then Coinbase or any other company can form to come along and allow people to buy Mastercoins indirectly by purchasing their Mastercoin gift cards.

It would work like this:
1. I'm a business and I buy 1000 Mastercoins.
2. I now issue my private currency in Mastercoin which I'll call a corporate voucher.
3. This corporate voucher can be redeemed for goods and services from my corporation just like a gift card or corporate credits.
4. The corporate voucher has an expiration date on it which means it expires after a certain date forcing you to use it, swap it, or send it back to the issuer by that date at which it becomes invalid.
5. If you send it back to the issuer before the expiration date then you get some Mastercoins which you can then use to buy any gift card, credit, voucher or currency from any other issuer.
6. The value of the gift card, credit, voucher or currency is backed by the goods and services of the issuer and can at any time before the expiration date be redeemed for those goods and services.

Of course it's a protocol. When did anyone say it wasn't?
It can be easily cloned but that doesn't make the clone useful. If all the issuers are using Mastercoin and if you can buy Mastercoins with national currencies because businesses and markets are set up to allow it but you cannot do the same with the clones then what good are the clones? Mastercoin is only as useful as the size of the market. It's all about the issuers really and they'll decide whether Mastercoin or the clone will be a success. If I'm running a business and I'm offering my credits through Mastercoin then you'll be dealing with Mastercoin and not the clone. My currency once issued through Mastercoin would cost me more money to issue it on a clone of Mastercoin so why exactly would I pay twice?

If you're talking about Colored Coin then for sure I could issue it over Bitcoin but then I don't see how Colored Coin can do units of credit, gift cards or vouchers. If I have to buy a bunch of Bitcoins then it's really no different than if I have to buy a bunch of Mastercoins and in fact it's worse because me buying a bunch of Bitcoins will create volatility in the Bitcoin price for people trying to use Bitcoin as a currency and not as some sort of store of value or unit of measurement. All of that on top of the fact that Bitcoins are still being generated by miners and that the block reward will halve while all the Mastercoins that ever need to exist are mostly already in existance. Mastercoin is set to be far more stable because there is no reason for it to inflate or deflate and even if it did the price of Mastercoins in USD already is beyond 1:1 with the dollar. It started out as 1:1 with the dollar at something like 0.01 BTC per Mastercoin and now it's around 0.1. The problem with pricing it in Bitcoin is that Bitcoin isn't even stable and introduces too much volatility to Mastercoin so the solution is for Mastercoin and all it's future clones to be backed directly by the national currencies. You'll purchase Mastercoin (and whatever clone) with your national currency either directly from a Mastercoin ATM machine or indirectly from an issuer by trading in your voucher. The issuer themselves would have to purchase the Mastercoins aleviating the need of users to have to directly purchase them. Instead as a user you'd purchase a Walmart gift card and then trade it in for Mastercoins or if you have Mastercoins trade it back for the Walmart gift card.

So yes you can do a completely decentralized exchange where people buy the giftcards in local stores and then trade them decentralized on the Internet. The cash would be exchanged at the business issuing the Mastercoins. You'd buy either a voucher or swap a voucher for Mastercoins.

Why is it flawed? Explain.
Mastercoin is backed by issuers. Anyone who owns Mastercoins can be an issuer. Issuers have a strong incentive to stick with whatever they are using. So if you have Mastercoins already you probably don't have a good reason to switch. If you've already issued your currency, credits or vouchers in Mastercoin why would you now have to go to a new ATM machine and buy Clonecoin with your USD so you can issue your currencies again? It makes no sense. If Mastercoin works I can tell you I wont have any reason to use anything else unless something else truly works better and from what I know about Mastercoin if it works it will solve even more long existing problems than Bitcoin does.

Colored Coin is an alternative and truthfully we'll probably be using some combination of both Colored Coin and Mastercoin. But to believe Mastercoin is somehow vulnerable to being cloned and to think issuers are going to go along with the clone is silly. If you were issuing corporate credits and doing good business on Mastercoin or if you're the business who started the Mastercoin ATM then why would you care about some clone? You'll stick with what you already have unless the clone is offering new functionality.

Not quite. When web standards changed but every website on the Internet used the old standards do you think they'll just break all the old sites? The only reason to break old functionality would be to offer newer and better functionality. If a new Masterclone comes along offering the exact same functionality minus the compatibility why would anyone want it? It would be like exotic web browsers which don't follow the mainstream web standards or offer any new functionality so not only will your favorite websites not work, but you'll have to download two browsers and essentially pay twice.

That is because BTC and LTC are units of account and not designated as units of measurement. The price of BTC and LTC matters to speculators. Mastercoin isn't designed for speculation or as a currency but as a unit of measurement. You can easily create BTC or LTC on top of it and it would have the exact same exchange rate and value provided that its backed sufficiently in escrow around 3:1.

I agree it will be competition by features only and that is very good for us. Issuers and users both benefit from new features. The point is we wont want to pay for a competing product which has the exact same features.
I predict Colored Coin and Mastercoin will both survive. I don't predict anything will easily threaten them once the decentralized exchanges and user currencies become popular. At that point we'll all be issuing currencies and we will prefer Colored Coin, Mastercoin or perhaps we'll be using both. It will be Internet Explorer and Netscape. Later on there might be some newcomers which try to duplicate these two but early on it's Colored Coin and Mastercoin which will dominate. So while I cannot tell you which one you should use I can say you will be wise to choose one or both as an issuer.
If you understand what it is as a unit of measurement why do you continue calling it a currency? Mastercoin is not a currency and never claims to be a currency. No one is going to buy a Pizza from a store with Mastercoins. Instead you'll buy Domino's Pizza vouchers from some random anonymous person on a decentralized exchange with your Mastercoins and then you'll go to Domino's Pizza to redeem your Pizza voucher. That means Mastercoin is not a currency, it's Domino's Pizza voucher which is the currency and there is no way Bitcoin will be able to compete with that.

When Domino's has to choose between which currency to value the most, Bitcoin, USD, or Domino's credit vouchers, they'll always value their Domino's credit vouchers the most. That would mean we will always have the best deals using Mastercoins, better deals than with USD or Bitcoin. Colored Coin might be able to do this too but with a drawback, it will make people buy Bitcoins to such an extent that Bitcoins may go up to $100,000 but then it could crash down again to $150. That extreme volatility comes form miners generating new coins and when the price shoots up like that they'll probably sell their coins for USD crashing it down. Mastercoins don't have to be sold for USD because Mastercoins can become USD which defeats the whole purpose of anyone selling them for USD.

You make it sound like issuers are going to decide to switch over for the same functionality. If you're the issuer and you're selling Pizzas using your Pizza Coin which you are backing with your goods and services, and Mastercoins are already purchased with national currencies allowing you to feel safe about it, why would you go onto a new uncertain clone where there aren't any Mastercoin ATM machines and most importantly there isn't a market place of other issuers who you can swap your credits with? If you cannot swap vouchers, credits and currencies then what is the point? If I cannot take my credits over to the Mastercoin clone and redeem them there then what is the point? I worked for my credits and I want a Pizza, but there is no Pizza issuer on that clone so I can't get Pizza and the only thing the clone is offering is to start all over again as an employee. BAD DEAL.

Competition is good but I don't think Mastercoin has much to fear from competition if it works because if it works then we'll all have greater access to goods and services and a market cap in the trillions.

It's possible we will switch to something better than Bitcoin as well, but when things are good and everything works for everybody I don't see any reason why people would have an incentive to.

The functionality of Mastercoin isn't being sacrificed. What the hell are you talking about?

Why would I want to raise funds in Bitcoin when I can raise funds with USD? Most people have USD. Mastercoin can leverage USD so that people don't even have to interact with Bitcoins. Literally you could go into a store and buy a giftcard and it could be backed by Mastercoin and not even have to know it. You could sell that giftcard on the decentralized exchange for Mastercoins or you could buy giftcards for Mastercoins. People could purchase giftcards for USD which solves the fiat to Mastercoin.

Any issuer can produce a giftcard backed by Mastercoins. If you're doing crowdfunding all you would have to do is issue a gift card or vouchers which can be redeemed based on the amount of USD pledged. Those vouchers could be redeemed for Mastercoins.

Example:
If you pledge $50 you get 0.05 Mastercoins plus whatever other gifts.
If you pledge $100 you get 0.1 Mastercoins plus whatever other gifts.
If you pledge $1000 you get 1 Mastercoin plus whatever other gifts.

Suddenly you now have the ability to crowd fund with USD on kickstarter and offer Mastercoins as the gift which allows people to essentially possess Mastercoins. Later on they can use those Mastercoins to buy whatever giftcards they want or they could stick with your voucher and get the gifts you offer by sending the Mastercoins back to you the issuer when you have some product or service they require or want. They could then get a voucher for that product or service which they could then trade in an automated market place with other people who are doing the same kind of thing and swap vouchers between various startups and other businesses so that everyone gets exactly what they want when they want.

But Bitcoin is a currency and not very stable. Why would I buy Bitcoin to put my value in that when I can just stick with USD? With Mastercoin as it's being developed now, if it works then I could never have to even buy Bitcoins. I could just buy Mastercoins directly, or buy vouchers which can be redeemed for Mastercoins. I don't have to care about the value of Bitcoins and that actually provides a massive amount of stability to Bitcoin because people with Bitcoins will be able ot benefit from the stability of Mastercoin. It's possible Mastercoin will be unstable but when you don't have miners, you don't have to worry about hoarders or scarcity affecting the market place, no one really will care all that much about the price of Mastercoin to Bitcoin because the only price that matters is the price of Mastercoin to their local national currency. That price can at least to my understanding be kept absolutely stable. So if $1 is always $1 when I'm in the Mastercoin economy then I just purchase $1000 worth of Mastercoins and I receive however many Mastercoins that is. I'm not a speculator I'm a shopper. If I'm an issuer then I don't really care about the dollar because I'm issuing my own currency and my employees are earning my credit coins, gift cards, and various vouchers which can be traded with other businesses for whatever my employees need. So as long as my business is making a profit and providing valuable goods and services to the market, then my credit coin will be directly backed by the quality and value of my goods and services and not BTC or USD. Mastercoin is merely a unit of measurement to allow me to compare the value of my businesses goods and services with every other.


I think you're not really understanding the dramatic paradigm shifting which will occur once we have user issued credit and an automated decentralized exchange. When we have that then there is no need to care about the price of BTC, the price of the USD or any of that because people will be working for user issued credits which will be redeemed the exact goods and services they need at any given time.

As long as the decentralized exchanges are populated with businesses offering valuable goods and services there will be great value in having Mastercoins and that value will cause great demand.

Mastercoin is an interesting idea whose aim is to “build a protocol layer on top of bitcoin (like how HTTP runs on top of TCP/IP)” 

It promises:

•   Additional security features to make your money much harder to steal

•   Built-in support for a distributed currency exchange

•   Built-in support for distributed betting (no need to trust a website to coordinate bets)

•   Built-in support for "smart property" which can be used to create and transfer property such as   titles, deeds, or stock in a company

•   Capability to hold a stable user-defined value, such as an ounce of gold or U.S. Dollar, with no need to trust a person promising to back up that value

It tries to accomplish these features by moving bits of BTC around in the blockchain in a very specific manner and labels them Mastercoins. All Mastercoins come from the “Exodus Address”. No more Mastercoins can be created. It is hoped by limiting the supply, the value of Mastercoins increase as people use them and that Mastercoins can provide escrow type features. It is a ledger type system of recording BTC movement and having those movements represent something else.

In the introduction thread of Mastercoin it is claimed that “MasterCoins are intended to be an investment opportunity on par with buying bitcoins when they first came out.” Perhaps that is a bad analogy?

Mastercoin development is funded by all the bitcoins sent to the exodus address. Those bitcoins will be used to bankroll the project while the users are given bits of BTC that represent Mastercoins. These new coins are then traded like any other currency.

It is hoped that like bitcoin, it gets the first mover advantage and users will flock to Mastercoin making the bits of BTC representing the Mastercoins very valuable. The momentum behind the project will prevent any other competitor from gaining market share in a similar fashion to all the alt coins compared to bitcoin.

I think they are wrong in many aspects and Mastercoin proponents are comparing “apples to oranges”. I think Mastercoin will have to compete more like a protocol (which it claims it is) and less like a currency.


Because it is a protocol:

1. Mastercoin is easily replaced or cloned with more advanced protocols
2. Mastercoin will not be the only “layer or protocol” built on top of bitcoin and will therefore not be a monopoly forever. They will however have the first mover advantage.
3. Mastercoins as a “store of value” as opposed to “ledger entries” is flawed

Mastercoin claims that with widespread adoption any new system will face lots of resistance because Mastercoin will be already established. The comparison of LTC to BTC often comes up. It’s a bad analogy. BTC and other crypto currencies are backed up by miners. BTC has a huge framework of hardware crunching away. The massive army of miners provides huge momentum and resistance to change. A better comparison would be bitcoin being the routers running the internet while Mastercoin and other frameworks like colored coins are web standards like html or scripting languages. The later being a lot easier to change in a moments notice.

Mastercoin is built on top of bitcoin. This makes it a completely different scenario than previous crypto currencies. All security of transactions in the ledger comes from bitcoin automatically. Imagine a scenario where LTC could instantly have the same network security as BTC. BTC’s hold on the market share would be at risk. They would be on the same playing field with little advantage of one over the other. LTC could easily steal market share under such a scenario. Any Mastercoin competing protocol will have the same network backing it up. Security will be the same. It will be a competition of features only. Will momentum be enough if new protocols emerge that are more advanced? I highly doubt it.

As Colored coins and Mastercoins and other technologies emerge it will be survival of the fittest. Money might not be enough to ensure a protocols success. Eventually the best protocol will likely come out at top and win market share. Especially if the work involved in switching is almost nothing. No hardware to upgrade or change for example.

Attempting to create a new “currency” on top of bitcoin is in my opinion Mastercoin’s biggest mistake. I understand the intentions of trying to fundraise a new protocol and it is a clever attempt. Unfortunately I think that by doing this Mastercoin has sacrificed its potential. It will always be at risk of being replaced and with it all the BTC invested will be gone. And not just the BTC invested to start the project but all the BTC invested as Mastercoins raise in value as they are traded. To survive as a “store of value”, Mastercoin has to remain popular no matter what type of competition emerges. That will be very hard to accomplish. If Mastercoin was a true protocol the store of value would have remained in BTC while Mastercoin was an interface for interpreting the movement of BTC. All the escrow features could have easily been done with actual BTC instead of creating a new currency on top of another currency. 

Perhaps there is another way to fund protocols for bitcoin without having to sacrifice their functionality and ensure that investors are compensated?

1.   Conduct a “protocol IPO” where an idea is presented with a plea to fund the idea
2.   BTC raised would be invested for the development while all investors get “shares” in the technology
3.   Design the protocol in such a way that a “donation” or “fee” is necessary for tracking
4.   As the protocol becomes popular the fees are used for future development and for paying dividends on the protocol's shares


What Mastercoin2 could look like:

-reuses almost all mastercoin code with small modifications allowing for both projects to share code
-the creation of mastercoins2 comes from a transaction where multiple outputs are created with one being the “donation” address. The donation would be similar size to a regular bitcoin fee. A few cents. A mastercoin2 creation transaction would be the donation, a bitcoin network fee, and the actual mastercoin2 outputs. This also means that mastercoins2 are only created when they are needed and don’t have to be purchased anywhere else first. They are just for maintaining the ledger and contain very little value in of themselves. It also means that the users of mastercoin2 are not at risk of speculation of a currency on top of a currency. The value remains in BTC.
-the donation address would be funded as the protocol becomes popular because even though people could send the minimum the bitcoin network will allow most will probably leave the software alone and just pay the few cents as apposed to 1/100 of a cent. The donation would be required as it marks the outputs as mastercoins2
-any time escrow is needed, actual BTC is used. It will keeps it’s value no matter what type of fancy protocols emerge to replace mastercoin2


These are just my thoughts. I have been really thinking about Mastercoin and colored coins and I'm starting to really wonder about all the BTC being invested in speculation on perhaps people being mis-informed on what they are buying.

Perhaps I'm wrong, but I don't really see Mastercoin being similar to bitcoin at all. They are apples to oranges and by people thinking Mastercoins are going to be around just as long as bitcoin in the long run is a pretty big stretch of the imagination. Mastercoin is usefull now but every so often new replacements will come along while bitcoin will always be underneath running all the new protocols. Unless I'm missing something or don't understand Mastercoin?