It looks like colored coins have the ability to completely replace actual bitcoins as units of value, and in fact this might be preferable. I am surprised I didn’t think of this myself because the first (or maybe second or third) thing I thought of when hearing about bitcoins was that a currency based on a issuer-backed market-basket of goods would have been superior, but much more difficult to bootstrap (how do you build trust in a currency that anyone can issue on a network with no enforcement mechanism?). Having an existing infrastructure to pass new coins of arbitrary value sounds like a Win, and bootstrapping the first colored coin value against bitcoin value is smart.
Do you think it’s possible that fiat $10,000/USDcoins2 colored coins redeemable for either $10,000 OR 100 bitcoins would be economically feasible? There would be no demand if there was an expected movement from $100/bitcoin since the issuer wins on volatility, but what if a distribution of distinct USDcoins2 were issued, with 1% being redeemable for $15,000 or 150 and the remaining 99% redeemable for $10,000 or 100 bitcoins, but whose actual value would only be revealed after a period of time (months). Pre-committing to this seems fairly straightforward and would generate demand for the currency with a positive expected net value. I believe the effect would be toward stabilizing the exchange rates at ~$100/bitcoin and 100 bitcoins/USDcoins2. I don’t know if the exact percentages would work, but I imagine that there is some distribution that would have the intended effect. The issuer would be spending to achieve a stable exchange rate, which may be important for clearinghouses, banks, or individuals with savings.
EDIT: I forgot to clarify that the issuer of USDcoins2 decides whether to pay $10,000 or 100 bitcoins when an owner redeems 1 USDcoins2.
Do you think it’s possible that fiat $10,000/USDcoins2 colored coins redeemable for either $10,000 OR 100 bitcoins would be economically feasible?
Sure. And once USDcoins are available USDcoin call options are possible, as are all the various permutations of security constructs you can think of. It’s just a matter of having someone to bet against.
The issuer would be spending to achieve a stable exchange rate, which may be important for clearinghouses, banks, or individuals with savings.
I don’t think the issuer spending to try to force the exchange rate to be stable works too well. It would be better if the issuer is paid an appropriate premium for the issuing the option and the purchaser paying them for what amounts for insurance against a large risk. (And instead of ‘better’ I could also have said “outright inevitable if crypocurrency use becomes widespread”.)
They″ll sell for more than $10k dollars. You’d be long bitcoins by owning that, and won’t be long bitcoins for the nonexchangeable version.
Apparently I left out the important part: The issuer of USDcoins2 would buy them back for either $10k or 100 bitcoins at their option, not at the option of the owner. Issuing USDcoins2 would be a hedge against either currency losing value which is why there would need to be an incentive for anyone else to buy them.
Eh, that’s the same thing as the straight up USDcoins, along with the issuer buying an option to buy back the USDcoin for 100 bitcoins instead of it’s market price.
The straight commission structure makes more sense to me. The bundle isn’t an attractive option to potential customers.
Eh, that’s the same thing as the straight up USDcoins, along with the issuer buying an option to buy back the USDcoin for 100 bitcoins instead of it’s market price.
My thoughts exactly. People use put and call options rather than ‘bundles’ for a reason. It’s just so much simpler.
It looks like colored coins have the ability to completely replace actual bitcoins as units of value, and in fact this might be preferable. I am surprised I didn’t think of this myself because the first (or maybe second or third) thing I thought of when hearing about bitcoins was that a currency based on a issuer-backed market-basket of goods would have been superior, but much more difficult to bootstrap (how do you build trust in a currency that anyone can issue on a network with no enforcement mechanism?). Having an existing infrastructure to pass new coins of arbitrary value sounds like a Win, and bootstrapping the first colored coin value against bitcoin value is smart.
Do you think it’s possible that fiat $10,000/USDcoins2 colored coins redeemable for either $10,000 OR 100 bitcoins would be economically feasible? There would be no demand if there was an expected movement from $100/bitcoin since the issuer wins on volatility, but what if a distribution of distinct USDcoins2 were issued, with 1% being redeemable for $15,000 or 150 and the remaining 99% redeemable for $10,000 or 100 bitcoins, but whose actual value would only be revealed after a period of time (months). Pre-committing to this seems fairly straightforward and would generate demand for the currency with a positive expected net value. I believe the effect would be toward stabilizing the exchange rates at ~$100/bitcoin and 100 bitcoins/USDcoins2. I don’t know if the exact percentages would work, but I imagine that there is some distribution that would have the intended effect. The issuer would be spending to achieve a stable exchange rate, which may be important for clearinghouses, banks, or individuals with savings.
EDIT: I forgot to clarify that the issuer of USDcoins2 decides whether to pay $10,000 or 100 bitcoins when an owner redeems 1 USDcoins2.
Sure. And once USDcoins are available USDcoin call options are possible, as are all the various permutations of security constructs you can think of. It’s just a matter of having someone to bet against.
I don’t think the issuer spending to try to force the exchange rate to be stable works too well. It would be better if the issuer is paid an appropriate premium for the issuing the option and the purchaser paying them for what amounts for insurance against a large risk. (And instead of ‘better’ I could also have said “outright inevitable if crypocurrency use becomes widespread”.)
Why is the issuer keeping both a fractional reserve of BTC and a reserve of USD large enough to maintain the value of the USDcoin2?
Just to be clear, you mean that the issuer decides which value to redeem the coins at, not the holder, right?
They″ll sell for more than $10k dollars. You’d be long bitcoins by owning that, and won’t be long bitcoins for the nonexchangeable version.
Apparently I left out the important part: The issuer of USDcoins2 would buy them back for either $10k or 100 bitcoins at their option, not at the option of the owner. Issuing USDcoins2 would be a hedge against either currency losing value which is why there would need to be an incentive for anyone else to buy them.
Eh, that’s the same thing as the straight up USDcoins, along with the issuer buying an option to buy back the USDcoin for 100 bitcoins instead of it’s market price.
The straight commission structure makes more sense to me. The bundle isn’t an attractive option to potential customers.
My thoughts exactly. People use put and call options rather than ‘bundles’ for a reason. It’s just so much simpler.