Intrinsic worth brainstorming

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Revision as of 22:26, 8 August 2011 by Bshanks (talk | contribs) (pseudo-BTC that uses computational power in service of some problem)
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This page is for brainstorming ways to endow Bitcoin with "backing", that is, some sort of near-fundamental or near-intrinsic worth to BTC (that does NOT derive merely from their scarcity or their use as a medium of exchange). This would provide a price floor independent of speculators or BTC's use as a medium of exchange.

This page is not the place to discuss DoesBtcNeedBacking, or to argue if speculation or usage of medium of exchange should be included in the definition of "backing". This page is for brainstorming other kinds of backing.


See . The worth of bitcoins would be the maximum of the worth of any of the services built on top of bitcoin.

Many of the following ideas are a specialization of the BitX idea.


Bitcoin is fundamentally a global censorship-resistant memory system, similar to FreeNet. It just happens that what it is remembering is the log of Bitcoin transactions.

Information can be encoded in the transaction log, and the speed with which it can be encoded is limited by the ability to encode information into the blockchain. Encoding information into the blockchain requires BTC (or, while BTC are mineable, computing power, which has a price floor).

Publishing services could be setup which encode information into the blockchain (that is, to perpetually, globally publish, in a censorship-resistant way), and read out encoded information, for a price. Like FreeNet, for pay. This sort of service is more valuable if it is done on top of something like Bitcoin (because the network effects of Bitcoin provide stronger incorruptibility). This inherent value provides backing.

Marked coins

Because BTC is traceable, other alternative currency systems could be built on top of BTC. For example, if I had a lot of gold, and assuming that 1 BTC was worth less than an ounce of gold, then I could buy 1000 BTC and then say, "My BTC address is XYZ. Any BTC which was has passed thru this address is equivalent to a transferrable IOU for one ounce of gold from me.". Then I sell those BTC for whatever an ounce of gold is worth. This provides a standardized way to electronically transfer gold IOUs.

This would mean that those bitcoins would be backed by gold. It wouldn't mean that ALL bitcoins would be backed by gold. But, the fact that all alternative currency issuers utilizing this "marked coins" scheme on top of bitcoin first need to acquire bitcoins provides a backing for all bitcoins (the value of this backing would be much less than the value of the alternative currencies themselves, of course). In other words, bitcoin's inherent usefulness as a layer underlying other alternative currencies would be the backing.

Namecoin ,


BTC could provide the substrate for an anonymous transitive proxy voting system. Simply give tiny amounts of BTC to the voters, then create a deposit address for each ballot alternative and tell the voters to send their votes thru a mixer before depositing.

The need for the authority holding the vote to buy the BTC initially endows BTC with intrinsic worth.

Goods and services which are ONLY buyable with BTC, for set prices

Mere usage of BTC as a medium of exchange isn't backing. But if some merchants sell something which (a) may ONLY be purchased with BTC (similar to "petrodollars"; a lot of oil can only be purchased with dollars), (b) are made available to sell at a set BTC price, INDEPENDENT OF THE EXCHANGE RATE OF BTC VS ANY OTHER CURRENCY, then this provides backing.

An example would be an MMORPG in which the in-game currency were Bitcoin, and in which the prices of some in-game things were set by the creator of the game without reference to BTC's current price on currency exchanges (specifically, if the price of BTC in dollars fell, the game maker would NOT drop the in-game price of items).

Something which satisfied (a) but not (b) wouldn't quite be backing, but it would be better than nothing.

A club which demands dues in BTC

Consider how the U.S. dollar is the only currency that is accepted for payment of U.S. taxes. This creates a demand for dollars to pay taxes with.

The U.S. gov allows you to transact business in some other currency, but you still have to pay a percentage of the net income generated by those transactions in dollars.

This isn't quite backing but it would be better than nothing.

Alternatives to BTC which would have intrinsic worth

This section is for discussing things that can't be done ON TOP of BTC, but which could be done by creating something very similar to BTC.

pseudo-BTC that uses computational power in service of some problem

If there were a way for someone to purchase a large amount of pseudo-BTC and then could use them to "buy" computing power, in the form of specifying an NP-complete problem, such that solving that problem then becomes a way to encode additional transactions into the blockchain (instead of meaningless hashes), then the price of computing power would be the intrinsic worth of pseudo-BTC.

Obviously, the issue that must be solved is: whoever poses the question (the purchaser of the computing power) may already know the answer. Therefore, we cannot assume that there is a lower bound on the computational difficulty of the problem posed.

If the problem is NP-complete and is posed in a standard NP-complete format, however, we can assume an upper bound on the computational difficulty.

One idea: combine this with the current "meaningless hash" system as follows: in order to mine BTC (or, later, to insert transactions into the block chain), nodes must do both of (a) do some hashing, (b) solve an NP-complete problem whose difficulty is upper bounded at 1000 times the amount of hashing that needs to be done. The system includes a way for computing buyers to bid BTC for the right to pose the problem in (b). Bids are encoded into the blockchain, and the highest already-encoded bid is chosen. The money from the bid is transferred to the node that solves the problem.

Now (a) provides a floor for the difficulty, which is needed to keep the blockchain un-pwnable, and and (b) provides a floor for the value of BTC.

I dunno is 1000 is the right value for the proportionality constant.

Are there any flaws in this? Seems to me that the current BTC ecology could be transitioned to this pretty easily if more than 50% of the nodes agreed. A BTC vote could be held as described above to make changes of this sort.