That’s a good point that since you know how many coins exist and how fast new ones are created, you could set a support price based on the amount of legacy currency you have and be sure you’ll have enough to meet all demands. I had imagined an auction, but it would be far simpler and more confidence inspiring to back it at a specific exchange rate.
Offering currency to back bitcoins would attract freebie seekers, with the benefit of attracting a lot of publicity. At first it would mostly be seen as a way to get free money for your computer’s idle time. Maybe pitched like help support the future of e-commerce and get a little money for your computer’s spare cycles. As people cash in and actually get paid, word would spread exponentially.
It might help to keep the minimum transaction size above an amount which a typical user would be able to accumulate with one computer, so that users have to trade with each other for someone to collect enough to cash in. Aggregators would set up shop to buy bitcoins in smaller increments, which would add confidence in users ability to sell bitcoins if there are more available buyers than just you.
People would obviously be sceptical at first that the backing will hold up against an onslaught of people trying to get the free money, but as the competition raises the proof-of-work difficulty, it should become clear that bitcoins stay scarce. People will see that they can’t just get all the bitcoins they want. It would establish a minimum value under bitcoins enabling them to be used for other purposes if, hopefully, other purposes are waiting for something to use.
It would help if there was something for people to use it for. We need an application to bootstrap it. Any ideas?
I’ve been thinking about a currency exchange service that sells and buys bitcoins for euros and other currencies. Direct exchangeability to an existing currency would give bitcoin the best possible initial liquidity and thus the best adoptability for new users. Everyone accepts payment in coins that are easily exchangeable for common money, but not everyone accepts payment in coins that are only guaranteed to buy a specific kind of a product.
That would be more powerful if there was also some narrow product market to use it for. Some virtual currencies like Tencent’s Q coin have made headway with virtual goods. It would be sweet if there was some way to horn in on a market like that as the official virtual currency gets clamped down on with limitations. Not saying it can’t work without something, but a ready specific transaction need that it fills would increase the certainty of success.
At its simplest this exchange service could be a website where traders, who can be individual persons, can post their rates, and random users can leave trade requests. Some kind of an average rate estimate could be shown on the site. Small-scale trading by individuals would be outside legal hassle in most countries, and putting all the eggs in the same basket would be avoided.
Basically like an eBay site with user reviews to try to establish which sellers can be trusted. The escrow feature will help but not solve everything. It would be far more work to set up such a site than just to set up a single exchange site of your own, and there won’t be enough users to make it go until later. I’m thinking it wouldn’t make sense to make an eBay type site until later.
Another idea, which could be additional to the previous one, would be an automated exchange service. The service would automatically calculate the exchange rate and perform the transactions. This would be nicer to the user: completion of the transaction request would be certain and instantaneous. Making this service might actually be quite easy if there was a command line interface to Bitcoin: just take any web application framework and use PayPal back-end integration to automatically send euros when Bitcoins are received, and vice versa. This kind of business would also work great on larger scale if you set up a company and take care of all the bureaucracy needed to practice currency exchange. (I actually have a registered company that I’ve used for billing of some IT work, I could use that as a base.)
Even if you had automation, you’d probably want to review orders manually before processing them anyway. It wouldn’t be hard to process orders by hand, especially at first. You could always set a minimum order size to keep orders more infrequent.
This exchange business thing is something that I’d be interested in doing, and I also have the sufficient technical skills to do it. Although, before this can be done, there should be a non-alpha version of Bitcoin (and the command line interface / API).
If this gets started, donors / high-risk investors would be very welcome to bring capital for the currency’s backup.
So, what do you think about the idea? Note that this is not something that I’m asking you to do (unless you want to) if you’re busy with other things. I can do it myself, if I get positive reviews about the plan.
That’s great, I could probably get a donor to send currency to you which you convert to euros and pay out through methods that are convenient for users. I don’t want to do an exchange business myself, but it can be done independently of me. Like you say, there is more software development to be done first, and also I’d like to keep trying for a while to think of a bootstrap application to use bitcoins for. I’ve had some ideas that could only be done before an exchange exists.
BTW, I tried to buy bitcoin.com before I started but there was no chance, it’s owned by a professional domain speculator. It’s normal for open source projects to have .org so it’s not so bad.
Source: Published by Martti Malmi on GitHub in February 2024 as part of his testimony in the COPA v. Wright trial. The full correspondence archive is available at mmalmi.github.io/satoshi/.