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Baking Bread Amidst Price Volatility

19 Sep 2014 / CodaSiren

In many a conversation, I have come across the argument that Bitcoin, or other cryptocurrencies for that matter, would never be regularly used by merchants because of the inherent price instability in the markets. There are those who contradict this opinion by pointing out that when Bitcoin is beyond its adoption phase its price will stabilize enough to enable it to be used just like fiat currencies. This discussion doesn't matter much to me. The day my fridge or pantry is capable of stocking up on food automatically, it may well do so by using dedicated assets to buy different types of groceries. Price instability will not be much of an issue. A more stable price in cryptocurrencies would be good in my opinion, and yet there is another way to work around the insecurity of price fluctuations (besides NuBits). By using dedicated assets tied to representative real-world units of value, fluctuations in the price of cryptocurrencies matter less in the daily life of a consumer. Actually, using assets in this way could make life a whole lot easier. Let me give an example.

Tom is a baker, and wants to sell loaves of whole grain bread. He picks his favorite asset-supporting blockchain (NXT-AE, CounterParty, Ethereum, Mastercoin, or other) and creates an asset on it called TOMSWHOLEGRAIN. In its description, Tom promises that one asset of TOMSWHOLEGRAIN is always going to be worth one loaf of his tasty wholegrain bread. When someone buys this asset from Tom, it can later be exchanged for one loaf of Toms bread at any supporting point of sale, one-on-one. Tom makes sure he has enough ingredients and capacity to make enough bread to live up to the demand. The statistics on his asset give him a lot of helpful information. He knows how many assets have been bought, and thus how much bread he owes the buyers. He can also anticipate on future orders by extrapolating the data. He may be able to stock up on local and fair ingredients, and thus make local trade realistically competitive against global trade, which is better for the environment. Tom will not be entirely free of price fluctuation. At least for the cryptosphere, we can agree with the Greek Heraclitus that "everything is in flux". Still, the effect of flux will be a lot less for Tom when he uses his dedicated asset, than when he would offer his bread for sale denominated in Bitcoins. Besides this, Tom needs to worry a lot less about speculators, as his small asset will not be very attractive to traders who would rather take part in highly liquid and volatile markets. It is relatively easy for him to automatically calculate the price of his TOMSWHOLEGRAIN asset, using variables like the current cost of flour, or energy as inputs into an automatic pricing API. To make all this user friendly, he only needs a front-end onto his digital, asset-based sales system to make it usable for anyone. Even without front-end, however, my fridge orders TOMSWHOLEGRAIN and other assets as soon as my Volatilecoin paycheck comes in, making sure I can eat until next month. For each product Tom has, he can issue an asset. Some products that cost a similar amount of ingredients and energy to make, could be grouped under a dedicated asset. Assets could be named, or use codes translated back to a product table. In any case, Tom has enough flexible options to jump-start his business on the blockchain. Possibilities are endless. And if he wanted to, Tom could start today.

Bitcoinference Summer 2014 - the Internet of Coins in pictures

03 Sep 2014 / CodaSiren

Today, we had our first presentation on the Internet of Coins at the Amsterdam Bitcoinference Summer 2014. The presentation sheet itself is now added to the home page, providing a short explanation of the concept of decentralized blockchain interconnectivity. If you have any questions or remarks, please let us know.

We had some great talks and have seen several interesting presentations, for instance about the history of centralized exchanges which eventually led to Draglet and the interest for miners in the use of block-hiding strategies. We would like to thank Nicolas Courtois in particular for providing a refreshing critical view on the vulnerabilities of current Bitcoin technology.

So what's next? The Bitcoinference will last a few more days, after which we plan on visiting several other meetups; most of them in the Netherlands to discuss the consortium and the required technology for the Internet of Coins. In the meantime we will continue to work on our hybrid assets whitepaper and keep you posted via this website - or you can fire questions at us any time via Twitter.

When Diversifying is Not Enough

02 Sep 2014 / CodaSiren

Centralized exchanges can and will be hacked. The most recent example of this was BTER, with its loss of millions of NXT coins, and before that Vircurex, with a large loss of Litecoins. Even though the thief that stole from BTER has returned the greater portion of stolen value, yet another example of such a hack does not comfort the users of these exchanges.

For the project I run, this poses a problem. The hybrid asset STORMWIND was initially designed to counter pump-and-dump schemes in the market. Where do these mostly occur? On the centralized exchanges. It is becoming clear that to change this situation, we must decentralize an important aspect of the growing cryptosphere: inter-blockchain value exchange.

Even though the STORMWIND portfolio is spread over 7 different exchanges, and value is diversified between many different cryptocurrencies, the losses incurred by each exchange hack make the project more risky, and less prone to be sustainable. Every unanticipated bite out of the trading capital increases the risk for asset holders. The hack at BTER, if left unresolved, could have resulted in a 5% loss of STORMWIND capital. This means at least several months of dividends in value - an unacceptable risk.

This brings me to the inevitable conclusion that with such untrustworthy security among the exchanges STORMWIND in its current form cannot sustain itself. It must evolve, and the very notion of a hybrid asset should be decentralized to avoid these risks in the future. Technologies such as CounterParty, NXT, Ethereum, Codius, Open Transactions, etcetera, present us with a large toolchain to integrate cryptocurrency technologies and create a coherent network by connecting them all together.

To me it seems we need to take this one step further to make a completely interconnected crypto-economy a reality. In the past weeks I have been in talks with several programmers and cryptographers about the possibility to decentralize the concept of a hybrid asset. Cryptocurrencies, Blockchain based assets, Multigateways, Smart Contracts, and Sandboxed Oracles need to evolve to become a decentralized meta-network.

Evolving all these technologies to become integrated would make it possible to actually turn the idea of an network of coins into reality. For now, however, let's start closer to home, and make sure hybrid assets can traverse blockchains. This can bootstrap an Internet of Coins, and is a worthwhile first step.

Internet of Coins (or: On the Current Decline of Altcoins)

21 Aug 2014 / CodaSiren

The current decline of alt-coins has recently been on my mind a lot. As has been the marginalization of many of these coins. Some of them have great concepts, for example Datacoin. So what is going on with these coins, and what to do about them? (also featured on CoinTelegraph)

For the past eight months I have been running my own trading bot called Project Stormwind. It is a bot that performs arbitrage across the board of seven exchanges and many different types of cryptocurrencies. It is supposed to identify pumps-and-dumps in the market and tries to invest capital to stop these from destabilizing the currency by returning the price action to average levels. While the trading engine makes a profit, the overall value of the alt-coins it trades has measurably and steadily been declining.

It can also be seen on the charts that the collective value of most of the coins has been dwindling. Would this leave Bitcoin as the only cryptocurrency to become successful? Some avid Bitcoin fans would have us believe this. It reminds me of a history I once read of the development of bank notes in the United States.

An essay in the spirit of the Friesian School on says: National Bank Notes were established by the National Banking Act of 1863. This was done to raise money for the federal government, since it required that National Banks that wished to issue banknotes deposit United States Securities with the Treasury as backing for the notes. This effectively multiplied the money with which such securities were purchased, turning the money itself over to the Treasury, for its purposes, but then enabling the banks to issue currency against it. The desire of the federal government to monopolize banknotes is evident in the tax that was subsequently levied on all banknotes issued by State banks.

Although this development much differs from what we see happening in cryptocurrencies today, there is a similarity in the way value flows from 'independent' initiatives in digital cash back to the cryptocurrency-to-rule-them-all: Bitcoin. There may be many reasons for this, beside Bitcoin being perceived by a lot of traders as the reserve cryptocurrency, and I do not pretend to know each and every one of them. Still, I want to explore some directions I think this can take us, and contemplate on the concept of creating an Internet of Coins.

Bitcoin is being tempered with legislative action as of late in the United States and other parts of the world. Regulating Bitcoin is impossible according to some, however, the fact that Bitcoins are pseudonymous makes a good case for government to have power over it nonetheless. Spending from non-identified addresses could made illegal for businesses wanting to accept cryptocurrency, and this would severly hamper the adoption of Bitcoin. An immutable public ledger can be abused by governing powers and used to start a campaign for identifying its users.

What we need to stay free from this is further decentralization of the cryptosphere, but this also causes fragmentation and isolation. And that is what we see happening right now. Cryptocurrencies that become marginalized lose value because they cater only to speculators. A cryptocurrency cannot live on speculation alone. It needs a market of diverse elements to thrive.

During the development of the world-wide-web we saw many different ideas and technologies taking shape and making a niche for themselves. However, what made the Internet so powerful was the way in which all these technologies became integrated, empowering eachother its users. Up to today this has never stopped. Some concepts like Gopher, for example, have become marginalized, but are still in use by many across the globe today. My hope is for many marginalized alt-coins to be as resilient in the years to come.

We mustn't forget the diversity of the Internet is often threatened by large companies trying to take a large slice of its market by enticing netizens to use their centralized services. So the same will most likely happen in the world of cryptocurrencies. We must already be thinking right now about how to protect the cryptosphere from becoming just a plateau of monoliths.

So how can we further decentralize the cryptosphere without spreading its benefits too thin and destroying its potential? My take on it is integration of technologies. In the past years we have seen a lot of innovation, and a multitude of blockchains spring forth from this. We have seen the implementation of innovative concepts from being your own bank, to distributed assets, and running decentralized applications.

To make sure we can benefit from all this in the future, now is the time to tie it all together and shape it into a coherent, useful and decentralized philosophy. Now is the time to integrate the greater and smaller technologies. To look beyond your own blockchain, and look towards The Internet of Coins.

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