But, different brokers will have different margin requirements.  Surely those won't always be 1:1.

I see.  That does sound like a better system indeed (especially with the borderless nature of bitcoin).


I'm a bit confused about how your system handles both bonds and 'contingent blocks [aka options/futures]' and the relation between the two (if any).

Yes that was essentially it.  I didn't remember seeing the bond idea in the original post but now I see that it is the underlying instrument for the 'contingent claims'.


Perfect.  Now a few more questions:
How do you propose that pricing be done for the derivative market?  Can the pricing be standardized (i.e., efficient) without the intervention and facilitation of market makers (i.e., isn't pricing in a constant state of flux depending on current bets [supply/demand thereof] and market [or network in this case] conditions)?  Is it possible to back both bonds and contingent claims with the security of the blockchain or will it require p2p contracts?

Maybe I'm getting lost within the concreteness of the ad hoc contract in your example (and so you may have covered this earlier).  If that's the case, my apologies.

EDIT:  Found the answer here:

In this case, I think there needs to be some hard design put into exactly how this system of linear equations is built and adjusted over time.  :-)

This is the simplest system I can think of. Miners mine only one type of block. Coins in the blocks are evenly divided among 4 coin types. So a miner would get a block of 12.5 current coins, 12.5 maturity date 1 bonds (nearer in future), 12.5 maturity date 2 bonds, 12. 5 maturity date 3 bonds (farther in future). When maturity date 1 arrives, a new maturity date is introduced.

To make this last after mining stops, the txn fee system would need to be changes as well. For example, 1 current coin paid as a txn fee is converted into 0.25 current coins, 0.25 maturity date 1 bonds, 0.25 maturity date 2 bonds, 0.25 maturity date 3 bonds. Since current coins are more valuable, you would need to force this conversion on transaction processors. In this system, current coins would constantly be withdrawn from the system to issue bonds, the current coins would be reintroduced when the bonds mature.




The bitcoin vis bitcoin bond would not have a pegged exchange rate. You would just handle exchange using a system like bit-parking, the exchange rate is just a market price. I don't know what they will be worth either. The market has to figure it out.

If you use a simple system in which you just mine for one type of block and the proportions of currencies/bonds in each block are constant, then you only need one difficulty. You can set this difficulty using the current algorithm. No modifications necessary. I could make a hard design which allows multiple mining choices and would need a new algorithm.  I don't think benefits associated with a new algorithm are sufficient to justify added complexity.

Okay, so this is back into the realm of 'let the market sort it out'.  I thought you were trying to roll such things into the blockchain by use of some system of linear equations (which adjust prices per difficulty dynamically).  So you may have gotten rid of some inefficiency [or 'tax' as you put it] in the first order, but second, third and higher orders (or degrees) would still be traditional markets (with all their pricing inefficiencies)?

I'm just throwing something out here. This is based on cunicula's responses, but I think it's framed a little differently.

Assume you create two new block chains. One is identical to bitcoin except that it can be converted back and forth with matured bitcoin bonds. The other block chain is also the same as bitcoin except that once the coins reach their maturation date, but not before, they can be converted to the other block chain. Conversion means that the coins disappear from one block chain, and appear out of nothing in the second.

Assume that the bonds mature in one year. The difficulty of the first block chain is computed the same as in vanilla bitcoin. The difficulty of the bond chain is computed so that the number of coins in the bond chain is the same as the number of coins in the regular chain one year later, and doing the same difficulty calculations as regular bitcoin. One way of doing this is starting the bond chain one year before the regular chain is started.

After the first day of the new regular chain, there will be about 7,200 matured bond coins from the first day of the bond chain. There will also be about 7,200 vanilla coins from the previous day's mining. These coins will be tradable on an exchange, but there's no need because you can convert them 1:1 yourself with your modified bitcoin client. This will have an anchoring effect on the relative prices. Because the new block chain is equivalent in every way to original bitcoins except for the start date, the added functionality, and the number of miners working on the chain, it's reasonable to expect its coins to trade at some constant to original bitcoins. This anchors the new regular chain's price to bitcoin. The part the market will determine is the price that unmatured bond coins will trade at against new regular bitcoins, and therefore against bitcoins.

Admittedly, I haven't thought this through much, but I think it might shed some light on the subject. This scheme simplifies the mechanisms for me (assuming it's not totally flawed), but it still has the problem that it's dependent on mining for new bonds, and that will go away. I can't think of a way to get around that, while keeping the number of coins the same. I guess that miners could get paid transaction fees in new unmatured bonds, but that would make all the calculations a lot more complicated. Miners would become long term speculators, and this would greatly affect difficulty rates. Maybe it all works out to create a useful instrument, I'm not convinced yet.

I think the main reason I'm skeptical about all this, is that I think debt and credit become much less important in a deflationary world. Maybe they're just essential features in a highly inflationary context. I think the inflationary spread between today's dollar and a stable bitcoin could be as high as 10%, meaning that holding that bitcoin would give you a 10% return on your dollar investment. In a world like that, who needs to buy bonds?

Hmm, I think the poll would have been more interesting if you had asked the opposite: If I loan you 1 BTC now, how many BTC will you be willing to pay me back in a year? I suspect that the values would be quite low. Assume the market interest rate is in fact, 0%. It's possible that that's because nobody is willing to take a loan at any interest rate because they realize they wouldn't be able to pay it back, yet nobody would be willing to provide a loan at 2% since those 2% don't properly reimburse the lender for the lockup of the funds. In essence, there's simply no market for bitcoin loans, just as there's no market for platinum bicycles. Or maybe there is a market, but only for specific uses and not something the general public would be interested in.

Also, any comments on the block chain scheme?