First, I would like to pay respects to tamas blummer, RIP. https://bitcoinmagazine.com/articles/remembering-tamas-blummer-pioneering-bitcoin-developer
Tamas proposed an additional opcode for enabling bitcoin difficulty futures, on this list at https://www.mail-archive.com/bitcoin-dev@lists.linuxfoundation.org/msg07991.html I really like this idea. 1) Trusted third parties are security holes https://nakamotoinstitute.org/trusted-third-parties/ and oracles (eg discreet log contracts) are really just trusted third parties in a blockchain's clothing. So truly ttp-free oracle-free on chain contracts are good. 2) Difficulty is a proxy for energy, which is a proxy for usd, which is what everyone currently cares about, which is bad. Energy is real. Bitcoin traders should care about future difficulty, not future usd price. So in sum I think this is a very good idea, and I would like to continue this work. Ideally I would like to see to completion the BIP that Tamas was unable to produce. Some initial thoughts on the technical merits. My understanding is that adding a single op_difficulty operation as proposed would enable not true difficulty futures but binary options on difficulty. https://en.wikipedia.org/wiki/Binary_option As the wikipedia article notes, "While binary options may be used in theoretical asset pricing, they are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling." The trouble is that because of the all or nothing nature binary options are more of a gamble than a hedge. They are popular with scammers, and even licensed binary options exchanges such as nadex are under constant scrutiny by regulators. Because any form of trusted third party-free / oracle free speculation would encourage economic use of blockchain space and support the transaction fee market, perhaps an economic case can be made for naive op_difficulty as above even it has more of a flavor of gambling than hedging. I think at a psychological level it would be good for a ttp-free difficulty speculation tool to capture mindshare. That being said, true difficulty futures -- real hedging and not just gambling -- would be far healthier for bitcoin than binary options. I am trying to wrangle what additional opcodes and protocol changes would be required beyond just op_difficulty, to get true difficulty futures on chain. I envision something like this. To give some context: Current difficulty is 16.9 Trillion. We're a week in to the current difficulty regime so there's aboout 1000 blocks to retarget, and predicted next difficuly is 18.5 Trillion. So let's pretend we sell a difficulty future that pays out in sats, of the next difficulty divided by a trillion. A reasonable price for this would be, say, 17.4 sats. So in our op_difficulty utxo, one address (the futures buyer) would get current difficulty / trillion, and the other address (the seller) would get however much value is locked in the utxo, minus that amount and miner fee. The payout would be limited by however much value is locked in the utxo. Since difficulty adjusts very slowly I don't think overflowing the locked up value would be much of a problem in practice. We also want a mechanism to enable on-chain purchase of such a contract, say for 17.4 sats. One additional opcode that apparently would be required is division. Some version of rshift could also do. I am not clear if there is a way to solve the accounting for the payouts, but perhaps there is a way to do this with covenants. I'm somewhat new to protocol and script. I would appreciate if anyone has any further advice on this. Cheers, Thomas. _______________________________________________ bitcoin-dev mailing list bitcoin-dev@lists.linuxfoundation.org https://lists.linuxfoundation.org/mailman/listinfo/bitcoin-dev
