Re: Zerocoin: Anonymous Distributed E-Cash from Bitcoin

Quote

We designed a new version of Zerocoin that reduces proof sizes by 98% and allows for direct anonymous payments that hide payment amount.

Is a 98% reduction in proof size enough to overcome any existing valid reasons to not merge ZeroCoin functionality?

I think so, Matthew Green mentioned that he was planning to implement Zerocoin into its own cryptocurrency. This seems like a reasonable idea me, it lets us test Zerocoin, and if it works well, we can merge it into Bitcoin (without the risk of damaging Bitcoin if something goes wrong).

btw see also "bitcoin staging" aka betaCoin.

http://www.mail-archive.com/bitcoin-development@lists.sourceforge.net/msg02944.html

Its a way to one-way peg an alt-coin to bitcoin, so there is no native mining, the way you create coins in the alt-coin is my moving bitcoins into it. And the way to trade them back to bitcoin is to swap them with someone who would otherwise move one. If a security problem develops in the betaCoin, people stop swapping betaCoin at par for bitcoin, or market freezes until the issue is fixed. This is the minimum necessary feature to firewall bitcoin from betaCoin security issues while allowing bitcoins to move between betacoin and bitcoin in the normal case.

This is how I would go about doing an alt (otherwise the usual me-too coin is contingent on the hope of getting in early, or early mining and selling to next stage speculators before the pyramid collapses when it becomes obvious it has no chance of competing with bitcoin for acceptance. As this coins have no acceptance, they have no transactional value, their own value is speculative, which I think must implode at some point.) Also even in the hypothetical that a given coin did overtake bitcoin it could be a dangerous outcome as then what happens to the value of bitcoins? Such an untidy unravelling of bitcoin value would hurt the overall concept of digital scarcity. Say it was litecoin. Then if litecoin got to like 90% to bitcoins 10% BTC/LTC exchange would fall. But then people will be looking nervously at the next runner up, and hedging in the main runner ups. This is a net disservice to digital scarcity. Digital scarcity is a new virtual asset class, and I think is the future of money and financial networks. So we dont want to weaken the concept with me-too alts, even relatively well thought out ones because they define a new digital scarcity race. I think there should only be one credible digital scarcity race or we may have a problem. Digital scarcity becomes digital tulip, then who wants to invest in the next one.

betaCoin is also a way to do an alt that preserves the 21 million coin cap. Fees would be paid in betacoins (or bitcoins). Miners would mine both networks for profit maximization reasons.

Adam

The answer to what happens if 0-Coin takes off as an independent altchain is quite simple. People will invest their money in it, in order to profit from the appreciation against Bitcoin. Would that lead to a collapse of Bitcoin's value? I dont think it would in the short-medium term as like you have rightly stated many risks are associated with a new protocol such as Zerocoin. Some more risk prone investors will put some percentage of their holdings into this new currency, while others will stick with their proven and so far secure Bitoin investments. As the risks over time fade away and Zerocoin's advantages outweigh it's risks over the Bitcoin alternative we could see Zerocoin emerging as the more valuable and/or more used alternative of the two. In any way it will be a gradual process where the market balances the value transfer, processing all available information to agree on a price.

Concerning "digital scarcity": If I understand your concept of digital scarcity in this context correctly, you are afraid that the value of all finite Bitcoins+Namecoins+Litecoins+etc. will be eroded away by every new altcoin that springs up. Well, I cant see how this is not already happening and how an independant Zerocoin altchain would change that development. I think I can console your mind because not every new altchain with its added monetary base has the same effect. When a new run off the mill alt chain comes around people are reluctant to convert their assests into that coin, thus keeping the newest addition to that percived "digital scarcity" almost meaningless. The best example is Ripple with their 100 Billion XRP premined was added to that pool of digital currency units that make up the total supply of the digital scarcity. Did the advent of Ripple devalue all Bitcoins in existance instantly?

TLDR:

I think one should not worry about a sudden devaluation of Bitcoin because a new competitor comes around the corner. This market mechanic of investing your money into promising projects can be a valuable incentive for development of innovation and improvement of new ideas in the crypto zoo. And like someone else said: If you are afraid of devaluation of your Bitcoin stash, just put some into the new alt and you are good