Litecoin-colored coin open-source Bot

[jae...@gmail.com]

I was thinking about how colored coins could be backed by assets and I started wondering how you can use colored coins to represent a litecoin. That would, of course, make trusted trading between the two cryptocurrencies trivial. The main issue is that you need someone that will back the colored coin with a litecoin and will trade a ltc colored coin for ltc.

Then it occurred to me that you could theoretically just build a bot that will do this. Specifically,

1. Bot has an LTC and BTC addresses A and B respectively.

2. User 1 sends some amount of LTC to A specifying a BTC address and in return gets ltc colored coins from B after some number of confirmations.

3. User 1 trades ltc colored coins for BTC to user 2.

4. User 2 sends the ltc colored coins to the bot address B specifying the LTC address to send to.

5. Bot receives ltc colored coins at B and sends actual LTC to the address specified from A after some number of confirmations.

User 1 and User 2 have now completed a peer-to-peer trade of BTC for LTC where they only have to trust a bot, whose the source code could be examined. Better still, there's now are LTC's available to trade from the bitcoin blockchain. And this isn't limited to LTC. It's trivial to extend to other cryptocurrencies, but one might even be able to set up some sort of autonomous corporation which can back a colored coin with dollars and transfers them via bank ACH.

You guys have probably discussed scenarios like this before. What I'd like to know is if there's any project for something like this to make this bot.

Jimmy

[Alex Mizrahi]

 

User 1 and User 2 have now completed a peer-to-peer trade of BTC for LTC where they only have to trust a bot, whose the source code could be examined.

Not really, users have to trust people who have private keys for addresses A and B. If it is a simple address with one private key, then basically you have to trust the person who runs the bot as he can simply run away with the money (litecoins) at any time.

However, it is also possible to use multi-signature address. In that case there is no single point of failure. However, multisignature scripts are currently limited to 3-of-3.

But as Vitalik Buterin have mentioned in his article on decentralized autonomous corporations, it is actually possible to split privkey into many pieces.

Now, that's interesting: address can be controlled by 1000 independent parties, and in that case collusion would be extremely unlikely.

But you need some kind of Sybil-attack prevention mechanism, and, perhaps, some kind of sacrifice.

In that case it would be analogous to proof-of-stake.

By the way, it might be more interesting in other direction: I doubt that many Bitcoin users are intersted in Litecoins, but you can use this method to represent bitcoins within other blockchain. So this can be a solution to blockchain bloat. Suppose that Bitcoin transactions are expensive because of block size limit.

However, it is possible to create a merged-mined alt-chain, let's calls it Fastcoin. Fastcoins themselves might be almost worthless, but a decentralized anonymous corporation can create Bitcoin-representing colored coins within Fastcoin blockchain. Fastcoin transactions might be cheaper (e.g. due to various optimization tricks Fastcoin employs), and colored coins issued by d.a.c. are almost as good as bitcoins.

 

cryptocurrencies, but one might even be able to set up some sort of autonomous corporation which can back a colored coin with dollars and transfers them via bank ACH.

Yep.

 

You guys have probably discussed scenarios like this before. What I'd like to know is if there's any project for something like this to make this bot.

Not really, I doubt a project like this exists.

But you know what, maybe we can do that on top of NGCCC once NGCCC is functionally complete.

I think Vitalik will be interested in a thing like that since he's both involved in colored coins project and described distributed anonymous corporations.

I think it's not particularly hard to implement this (aside from Sybil-preventer).

[jae...@gmail.com]

So are you thinking that if N independent parties hold a part of the private key that we'd have some M of N signatures required in order to complete the transaction? Otherwise, you'd have the problem of a single entity being able to hold the transaction hostage. Can a private key really be split that way?

Are you suggesting the creation of a new cryptocoin which makes bitcoin transactions faster? That would indeed be very interesting. We could make fastcoin have colored coins in them by default and the inherent value of such a currency is only as much as it allows you to make transactions fast, reliable and secure. It's a departure from the mastercoin/bitshares model of using the value of the altcoin as the basis for the value of other assets. Also, colored coins can be an inherent part of the client instead of a layer built on top. In some ways, it would be a meta coin since it's a coin to transact other coins. Anyway, that's an excellent idea.

[Jimmy Song]

Some additional thoughts on a possible fastcoin/metacoin/tradecoin/daccoin:

* There's no need in this coin to limit the number of coins. Instead of the 21 million coin limit, each block found can issue 100 coins in perpetuity.

* Each coinbase transaction can be a new color. That can be the incentive for miners to mine if we don't allow issuing of colored coins.

* Each coinbase transaction (color) can be sold on market in its entirety (for obvious reasons) for issuing new assets. This gives the blocks utility.

* This will limit the number of new assets that are able to be traded in this cryptocoin to the number of blocks found per day, hence giving the coinbase blocks value.

* The price for the coinbase block is essentially a fee/license to set up an asset or corporation. The more assets that want to be issued, the higher the price for the coinbase. Note the coinbase as a whole might be passed around before a backing asset is defined.

Thoughts?

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[goet...@gmail.com]

Hey Jimmy, I dunno how to contact you for a question: Mi...@culini.com