People reading this thread might be interested to know that Mtgox has just now registered as a money transmitter with U.S. government agency FinCen (thanks Nagle for noticing that).

Since one possibility is that the difficulty with USD withdrawals is due to Mtgox not being properly registered in the U.S., it seems to me that this increases the chances that Gox will successfully fix the problem with the wires (and possibly someday even add back Dwolla).

> I'm puzzled by the big spread between Mt. Gox and the other exchanges. For the last week, Mt. Gox has been running about 5 USD above the other exchanges, even though you can't get USD out of Mt. Gox.

Imo it's because traders can't complete an arbitrage trade to bring the prices back into line.

The abstract idea is that, in order to bring the price of BTC relative to USD down, there must be at least the potential for a flow of trades that exchange BTC for USD, and continue on from there to do other things elsewhere in the economy. This flow is blocked at gox, however, because with USD withdrawals on hiatus, there is nowhere for that USD to go. In the other direction there is no block, because you can withdraw BTC. So, because of the uncompensated USD->BTC flow potential, there is an uncompensated upward pressure on price of BTC at gox.

More concretely, let's say that you are a trader with an account on both Mtgox and on Campbx. On each exchange, let's say your account value is half US dollars and half bitcoin.

Normally if you see the BTC/USD price on gox much higher than campbx, you would exchange BTC for dollars on gox and simultaneously exchange dollars for BTC on campbx. This trade has the effect of bringing the price of BTC/USD down on gox and up on Campbx, thereby reducing the price spread between them.

But after you do this, your account on gox is all in dollars, and your account in campbx is all in BTC. To complete the circle (that is, to return you to your starting point, plus profit), you need to transfer most of your newly acquired dollars from gox to campbx, and transfer most of your newly acquired bitcoin from campbx to gox. After you do that, if the prices are still out of line, you can repeat the arbitrage trade.

If USD withdrawals are on hiatus from gox, you can't complete the circle, and so you can only do this trade once. Assuming there is a fixed population of arbitrageurs on gox each with a fixed amount of money, eventually all of the arbitrageurs will run out of ammo and there won't be anyone still trying to bring the prices back into line in this fashion.

In addition, with USD withdrawals but not BTC withdrawals on hiatus, people who want to withdraw USD from gox immediately are forced to convert it to BTC, withdraw that to another exchange, convert that back to dollars, and withdraw from there. This exerts additional upwards pressure on the BTC/USD price on gox, and additional downwards pressure on the BTC/USD price on other exchanges.

If i were Mtgox, i would consider prioritizing the completion of the LARGEST outgoing wire transfers, in an attempt to bring the prices back into line (and to retain the business of large traders).

If gox gets their act together and starts processing wire transfers promptly, it will be interesting to see if this situation briefly reverses, due to a brief, massive flow of dollars out of gox.

If there were a way for someone to purchase a large amount of BTC and then 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 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 would include 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 partially to the node that solves the problem (b), but partially to a different node(s) that also solved the hash (a); the money is divided up in proportion with the 1000 constant (this is so that a rich miner can't just make up problems with known answers and bid huge amounts on them, allowing them to always win the bid for computing power and pose the problem, allowing them to undercut everyone else because, knowing the answer to the problem they posed, they only have to solve (a), whereas everyone else would have to solve (a) and (b); this ensures that if they do that, the money they bid doesn't all go back to them, but in fact is bled off to give to other miners too).

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 miners (weighted by computing power) agreed.

I'm not sure if this would actually cause computing power auctions or not. It may cause:

Miner Q bids unreasonably highly for computing power, then poses a problem for which only they already know the solution; but then eventually, miner R outbids them, then does the same. The prices are too high for others to actually buy computing power. But Q and R themselves generate an enormous demand for bitcoins, because they need to outbid the other in order to monopolize mining.

Hmmm... we don't want mining monopolized.. needs a bit more work..

oh, i got it. choose the bid winner stochastically.

https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming

Let's find some sort of intrinsic value that BTC has (besides scarcity or BTC's usefulness as a medium of exchange). This will put a price floor under BTC.

To get things started, I thought of a few. I'll copy them here for easy reading, but please post replies to this at https://en.bitcoin.it/wiki/Intrinsic_worth_brainstorming .


=== BitX ===
See https://bitcointalk.org/index.php?topic=1790.0 . 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.

=== Publishing ===
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 ===
https://bitcointalk.org/index.php?topic=6017.0 , https://bitcointalk.org/index.php?topic=30294.0

=== 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.