Quote from: cunicula on June 29, 2011, 06:48:25 AM

Quote from: johanatan on June 29, 2011, 01:17:15 AM

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).

Great question. There is a very close relationship. First off, I am thinking in terms of zero-coupon bonds (bonds which pay all of their interest at maturity rather than gradually over time).
The most common type of bond pays interest periodically and pays back the principal on maturity. This may be throwing you off.

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'.

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a BTC Bond - a security which becomes a bitcoin upon reaching its maturity date. (The price of a BTC Bond in BTC will always be less than the bond's face value at maturity. The price discrepancy is interest.)
Contingent Claim - a claim on ownership to a bond which is only valid if difficulty falls within a certain range when the bond matures

A BTC bond can be divided into several contingent claims held by several different owners.
A BTC bond can be recreated from contingent claims by buying up claims to ownership over the entire possible range of difficulties at maturity [1, infinity].

Maybe an example will help.

Say I hold 1 bitcoin and 1 BTC bond with a maturity date of Jan 1, 2012.
Right now my wallet reads:
BTC : 1
BTC Bond (maturity Jan 1, 2012) : 1

After Jan 1, 2012, the bond will mature and my wallet will read.
BTC : 2

Let's consider dividing this bond up into two contingent claims. Frank starts with 1 BTC. He sends me 0.3 BTC and I send him a contingent claim on my BTC bond. If difficulty is greater than 5,000,000 Jan, 2012, he gets ownership of the bond; otherwise I get ownership.

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:

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Relative difficulty for each coin type would be adjusted according to a system of linear equations that related past difficulty levels to current difficulty and which incorporated the constraint that expected total supply generation remained constant (i.e. solution of a system of linear equations)

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. :-)