Quote from: dacoinminster on July 27, 2011, 03:46:36 PM

Quote from: jtimon on July 27, 2011, 03:12:27 PM

Well yes, since they're bitcoin denominated, the price in dollars of the commodity doesn't matter at all.
Since you got inputs from markets to the chain, you could also denominate them in dollars Even in dollars from 1971 or any other reference currency. Miners would have to agree on what PCI to look at.

So what happens if bitcoin prices fall 90%?

No matter the denomination, the contracts will be automatically redeemed before some of the parties is insolvent.
The problem with this is that the contracts can expire before the contracted date, but the funds in escrow for the other part are the maximum you should expect to win. If you're losing, you can always add more funds to avoid that the contract gets redeemed.
In fact you don't even have to liquidate the contracts when they are become "insolvent", both parties know the funds that are in escrow from the other party, they shouldn't expect to gain more than that.

Quote from: dacoinminster on July 27, 2011, 03:46:36 PM

I don't understand how the dollar-denominated contracts would stay valid without an escrow fund.

I'm just noting that the contracts could be denominated in a stable currency. The currency doesn't have to even exist, it can be defined as a basket of commodities or the dollar plus the increase in CPI from shadowstats. It doesn't have to be a currency. The contract could have rice vs gold or mac vs google.

I still think that the hardest part is to define what information must the miners include in the block and how is it going to be calculated that a block is valid or not.

Quote from: dacoinminster on July 27, 2011, 03:46:36 PM

I agree that something like this might be the way to go, especially if the bitcoin community is lukewarm on the idea of polluting the protocol with my crazy ideas

I like your idea for a distributed option market, but it requires many changes and some of them (the voting for the input of information from markets) are very risky. You need to move coins from an address to other with the only authorization from the original address of the contract, and the result of the contract depends on voting.