Why not have the state where MorpheusBank need not be trusted? Allow a user to propose an exchange, and MorpheusBank to sign off on it, and make the two transfers simultaneous and contingent on both being legal transfers.
Why not have the state where MorpheusBank need not be trusted? Allow a user to propose an exchange, and MorpheusBank to sign off on it, and make the two transfers simultaneous and contingent on both being legal transfers.
I don’t think I have properly communicated just which kind of trust in MorpheusBank is required. Perhaps I shouldn’t have used the term ‘Bank’. Morpheus is only required at the point in which external-to-bitcoin value is exchanged with internal-to-bitcoin stuff. ie. It is something that ties an electronic asset to the value of gold, or the value of an index fund, or a particular government backed currency.
Allow a user to propose an exchange, and MorpheusBank to sign off on it, and make the two transfers simultaneous and contingent on both being legal transfers.
Absolutely, that kind of arrangement is possible (using the same kind of transaction mechanism we discussed elsewhere). Where the reputation of Morpheus is concerned the trust is in Morpheus’s contracted promise to make such exchanges in future at a specified rate. The basic decision theoretic reasoning is then:
Morpheus has publicly committed to exchanging MorpheusGold for bitcoins at any time at a rate determined by and .
The fully transparent and publicly accessible bitchain confirms that Morpheus has indeed honoured that commitment.
Morpheus can be seen to be making a known, significant, amount of profit from his business under that identity.
Defecting on his contracts will give Morpheus an immediate payoff while destroying his ability to do business under that name.
The expected future profits of business under the Morpheus name (either by the person using it or whoever it is sold to) exceed the amount that an immediate defection could grant him.
It is likely that Morpheus will indeed trade back the specified value in exchange for MorpheusGold (or MorpheusUSD, whatever) in the future. It is (fairly) safe to buy or exchange MorpheusGold now.
Note that there is actually some advantage to just unilaterally transferring MorpheusGold to Morpheus’s address. That makes the exchange part of the public record and obliges Morpheus to send bitcoin back promptly or be obviously shown to be unreliable. Whereas when proposing simultaneous exchanges with Morpheus, if he delays or refuses trades then the ripped off party must use some other mechanism by which to actively damage Morpheus’s reputation and Morpheus deny it. It also requires communicating with Morpheus directly somehow, either by encrypting data into the bitchain or by Morpheus being directly contactable somehow.
Note that in this case the only additional counterparty risk taken on by making unilateral transfers rather than arranging simultaneous exchanges is whatever the value of the bitcoins were upon which the MorpheusGold has been ‘printed’. He is already being trusted for the component (Gold-representing component of the coins—bitcoin value of the coins).
I figured that the proposed trade would enter the public record; doesn’t it have to in order for MorpheusBank to see and sign it?
I also didn’t notice where MorpheusGold was ever convertible to gold. Clearly MorpheusBank cannot be guaranteed to have enough bitcoin to redeem all of the MorpheusGold to bitcoin if e.g. bitcoin tanks. MorpheusBank is being trusted with the total value of the gold represented by his coins (minus their bitcoin value) and can walk away at any time with that difference. MB has an incentive to sell as much MG as possible and then defect, and any transaction that appears to build trust is not evidence that MB does not intend to defect. (Since if MB was intending to defect, it would perform transactions to build trust)
All in all, I can’t tell the difference between MB and Currin Trading.
Whoa-what? If the demand for gold drives a price increase in gold, there is no ‘rebalancing’ possible to keep one’s ability to purchase gold constant without putting additional reserves into the bank. Likewise, if bitcoin tanks to the point where an ounce of gold can buy all ~21 million bitcoins, but MB has twenty ounces of MG outstanding, it becomes impossible to redeem them for bitcoin (and they were never redeemable for gold).
MB could theoretically avoid both cases by keeping a full reserve of gold, selling gold only as needed to get bitcoins; in the case where bitcoin becomes worthless, MB could effectively set the exchange rate of gold for bitcoin, since there would be no other sellers. If gold became more valuable but bitcoin remained a medium of exchange, MB could simply sell gold at the market rate for any currency convertible to bitcoin.
Why not have the state where MorpheusBank need not be trusted? Allow a user to propose an exchange, and MorpheusBank to sign off on it, and make the two transfers simultaneous and contingent on both being legal transfers.
I don’t think I have properly communicated just which kind of trust in MorpheusBank is required. Perhaps I shouldn’t have used the term ‘Bank’. Morpheus is only required at the point in which external-to-bitcoin value is exchanged with internal-to-bitcoin stuff. ie. It is something that ties an electronic asset to the value of gold, or the value of an index fund, or a particular government backed currency.
Absolutely, that kind of arrangement is possible (using the same kind of transaction mechanism we discussed elsewhere). Where the reputation of Morpheus is concerned the trust is in Morpheus’s contracted promise to make such exchanges in future at a specified rate. The basic decision theoretic reasoning is then:
Morpheus has publicly committed to exchanging MorpheusGold for bitcoins at any time at a rate determined by and .
The fully transparent and publicly accessible bitchain confirms that Morpheus has indeed honoured that commitment.
Morpheus can be seen to be making a known, significant, amount of profit from his business under that identity.
Defecting on his contracts will give Morpheus an immediate payoff while destroying his ability to do business under that name.
The expected future profits of business under the Morpheus name (either by the person using it or whoever it is sold to) exceed the amount that an immediate defection could grant him.
It is likely that Morpheus will indeed trade back the specified value in exchange for MorpheusGold (or MorpheusUSD, whatever) in the future. It is (fairly) safe to buy or exchange MorpheusGold now.
Note that there is actually some advantage to just unilaterally transferring MorpheusGold to Morpheus’s address. That makes the exchange part of the public record and obliges Morpheus to send bitcoin back promptly or be obviously shown to be unreliable. Whereas when proposing simultaneous exchanges with Morpheus, if he delays or refuses trades then the ripped off party must use some other mechanism by which to actively damage Morpheus’s reputation and Morpheus deny it. It also requires communicating with Morpheus directly somehow, either by encrypting data into the bitchain or by Morpheus being directly contactable somehow.
Note that in this case the only additional counterparty risk taken on by making unilateral transfers rather than arranging simultaneous exchanges is whatever the value of the bitcoins were upon which the MorpheusGold has been ‘printed’. He is already being trusted for the component (Gold-representing component of the coins—bitcoin value of the coins).
I figured that the proposed trade would enter the public record; doesn’t it have to in order for MorpheusBank to see and sign it?
I also didn’t notice where MorpheusGold was ever convertible to gold. Clearly MorpheusBank cannot be guaranteed to have enough bitcoin to redeem all of the MorpheusGold to bitcoin if e.g. bitcoin tanks. MorpheusBank is being trusted with the total value of the gold represented by his coins (minus their bitcoin value) and can walk away at any time with that difference. MB has an incentive to sell as much MG as possible and then defect, and any transaction that appears to build trust is not evidence that MB does not intend to defect. (Since if MB was intending to defect, it would perform transactions to build trust)
All in all, I can’t tell the difference between MB and Currin Trading.
MB should be engaging in continuous rebalancing to keep their ability to purchase gold constant.
Whoa-what? If the demand for gold drives a price increase in gold, there is no ‘rebalancing’ possible to keep one’s ability to purchase gold constant without putting additional reserves into the bank. Likewise, if bitcoin tanks to the point where an ounce of gold can buy all ~21 million bitcoins, but MB has twenty ounces of MG outstanding, it becomes impossible to redeem them for bitcoin (and they were never redeemable for gold).
MB could theoretically avoid both cases by keeping a full reserve of gold, selling gold only as needed to get bitcoins; in the case where bitcoin becomes worthless, MB could effectively set the exchange rate of gold for bitcoin, since there would be no other sellers. If gold became more valuable but bitcoin remained a medium of exchange, MB could simply sell gold at the market rate for any currency convertible to bitcoin.