Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Good morning ZmnSCPxj,

thank you very much for sharing your BCAN idea and thought process in detail.

I add some thoughs that very likely occured to you, but not formulated 
explicitelly:

1. The unique feature of such advertisement network is that it has no owner, 
just like the Bitcoin network.
If it had an owner, that owner could simply bill for use, but would also be 
forced to restrict access or apply some sort of censorship.
This is why usage costs is imposed through opportunity cost and not billed.

2. Since opportunity cost of one Bitcoin for a short time period is magnitudes 
less than its face value, one would need significant
Bitcoin amounts to impose meaningful costs so they have the chance to be 
included into BCANs purposedly limited bandwidth.
Those who would want to place an ad will often not have sufficient amount of 
Bitcoin holdings which lets them borrow UTXOs.

3. If borrowed Bitcoin is certain to be returned (as in your construction) then 
this offers riskless interest for HODLer.

4. Bitcoin’s most popular use is storing wealth whereby this use currently 
completely relies on the assumption that “the number goes up”.
A service that delivers interest on HODLed coins without exposing the HODLer to 
credit risk of the borrower is a huge game changer.

5.This scheme allows HODLer a concious decision whom or what project they fund.

For above reasons I think that this is a crucial design pattern to build 
censorship resistant networks which also give rise to riskless interest on 
Bitcoin.

My finance examples where abstract and less interesting for this audience but 
the BCAN should ring the bell for many.

As you said BCAN is possible with current Bitcoin, therefore we should no 
longer discuss it under the covenant topic.
The idea of debt covenant will likely resurface as soon as this design pattern 
proves to be useful in practice and one is looking for
a more flexible solution. I am confident we will get there, but not as fast as 
I initially thought.

Regards,

Tamas Blummer

> On Jul 9, 2019, at 12:31, ZmnSCPxj via bitcoin-dev 
>  wrote:
> 
> Good morning all,
> 
> I will attempt to restart my thinking from initial principles regarding my 
> proposed "Bitcoin Classified Ads Network".
> 
> Nodes behave this way:
> 
> * Nodes in this network gossip advertisements.
> * These advertisements refer to a UTXO that must be unspent at the chain tip 
> considered by each node, else they would be rejected.
> * The referred UTXO must contain a commitment to the text of the 
> advertisement, else the advertisement is rejected.
> * Nodes have a maximum limit on the total size of all advertisements they 
> retain and propagate to new nodes, or gossip to their peers.
>  This is a deliberate design decision.
> * If nodes exceed the above limit, they will sort advertisements according to 
> a value-rate, the value of the UTXO divided by the storage size of the 
> advertisement, and prune advertisements with low value-rate until they are 
> within the limit again.
> * Once the backing UTXO is spent, the advertisement is removed by nodes that 
> follow that chaintip.
> * As the name ***Classified Ads*** suggests, each advertisement also 
> indicates a "class" in which they belong to.
> 
> Then, from the above, we derive how a seller might behave.
> 
> * Sellers will attempt to put the minimum possible value into a UTXO 
> committing to an advertisement, to reduce the opportunity cost of using the 
> value elsewhere.
> * Thus the rent of the advertisement in this case is paid to joinmarket 
> makers and LN forwarding nodes, as the value used in a UTXO backing an 
> advertisement is not useable in joinmarket/LN.
> * Sellers remain in full control of their advertising UTXO, and can spend it 
> at any time.
> * Sellers may spend part of the UTXO and put the remaining funds into a 
> change address that is a new advertising UTXO, and re-transmit the 
> advertisement, this time pointing to the new change UTXO.
> * However, if the remaining change becomes too low, then its value-rate may 
> drop below the lowest value-rate that BCAN nodes will retain in their 
> (deliberately limited) storage, thus also deleting their advertisement from 
> the BCAN.
> * Presumably, the reason for advertising at all, is that the seller considers 
> the cost of advertising to be less than the expected gain of actually selling 
> their product.
> * Thus, even if the seller has the ability to spend the UTXO at any time, 
> they run the risk of spending too much and thus removing their advertisement 
> from the BCAN, and losing the expected gain of having the advertisement exist 
> on the BCAN.
> * A utility-maximizing seller would therefore not spend a minimal-value UTXO 
> backing the advertisement until it has gained the advantage of actually 
> selling the product, even if it has the option to do so: it is a forced move.
> * The cost of keeping the minimal-value UTXO unspent is the opportunity cost 
> in that the value may 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning all,

I will attempt to restart my thinking from initial principles regarding my 
proposed "Bitcoin Classified Ads Network".

Nodes behave this way:

* Nodes in this network gossip advertisements.
* These advertisements refer to a UTXO that must be unspent at the chain tip 
considered by each node, else they would be rejected.
* The referred UTXO must contain a commitment to the text of the advertisement, 
else the advertisement is rejected.
* Nodes have a maximum limit on the total size of all advertisements they 
retain and propagate to new nodes, or gossip to their peers.
  This is a deliberate design decision.
* If nodes exceed the above limit, they will sort advertisements according to a 
value-rate, the value of the UTXO divided by the storage size of the 
advertisement, and prune advertisements with low value-rate until they are 
within the limit again.
* Once the backing UTXO is spent, the advertisement is removed by nodes that 
follow that chaintip.
* As the name ***Classified Ads*** suggests, each advertisement also indicates 
a "class" in which they belong to.

Then, from the above, we derive how a seller might behave.

* Sellers will attempt to put the minimum possible value into a UTXO committing 
to an advertisement, to reduce the opportunity cost of using the value 
elsewhere.
* Thus the rent of the advertisement in this case is paid to joinmarket makers 
and LN forwarding nodes, as the value used in a UTXO backing an advertisement 
is not useable in joinmarket/LN.
* Sellers remain in full control of their advertising UTXO, and can spend it at 
any time.
* Sellers may spend part of the UTXO and put the remaining funds into a change 
address that is a new advertising UTXO, and re-transmit the advertisement, this 
time pointing to the new change UTXO.
* However, if the remaining change becomes too low, then its value-rate may 
drop below the lowest value-rate that BCAN nodes will retain in their 
(deliberately limited) storage, thus also deleting their advertisement from the 
BCAN.
* Presumably, the reason for advertising at all, is that the seller considers 
the cost of advertising to be less than the expected gain of actually selling 
their product.
* Thus, even if the seller has the ability to spend the UTXO at any time, they 
run the risk of spending too much and thus removing their advertisement from 
the BCAN, and losing the expected gain of having the advertisement exist on the 
BCAN.
* A utility-maximizing seller would therefore not spend a minimal-value UTXO 
backing the advertisement until it has gained the advantage of actually selling 
the product, even if it has the option to do so: it is a forced move.
* The cost of keeping the minimal-value UTXO unspent is the opportunity cost in 
that the value may have been used in joinmarket or LN instead.
* The minimum value will largely be dependent on how much the BCAN is used; 
more sellers advertising over BCAN will increase the minimum value.
* If the minimum value that is viable to keep its advertisement alive goes 
higher, then the opportunity cost of the seller using the same value elsewhere 
might exceed the expected gain from selling the product.
  However, this is expected of *any* advertising scheme: if the gains from 
selling is too small to justify the advertisement price, advertising does not 
happen; this is expected utility-maximizing behavior.
* If competitors of the seller exist and the BCAN node storage is already 
filled, competitors can increase the minimum value of a UTXO that can keep an 
advertisement alive on BCAN by simply adding more of their advertisements to 
BCAN.
* Thus we expect that, once the BCAN node storage is at or near the maximum 
value, the minimum value of a UTXO that can back an advertisement will approach 
the expected gain from selling the product.

Thus the system of simply committing UTXOs to particular advertisement texts 
seems sufficient to extract value from a seller wishing to advertise.
The purpose of this extraction of value is to ensure that spam does not 
overload the BCAN.

Let us now consider some kind of specialization, where a HODLer specializes in 
owning UTXOs, while an advertiser specializes in trading products that need 
advertising of some kind.

* We assume that the specialization means that the HODLer cannot feasibly make 
and sell products on its own, while the advertiser cannot own and control UTXOs 
of the minimum value needed to keep their advertisement alive on the BCAN.
* We assume that the specialization means that the advertiser can make and sell 
products for cheaper than the HODLer can, while the HODLer can own and control 
(and secure) UTXOs of the minimum value needed for advertisements to be kept 
alive, for cheaper than the advertiser can.

Then:

* A HODLer may offer to provide a UTXO locked by a 2-of-2 with a commitment to 
an advertisement of the advertiser's choosing, in exchange for rent of the 
value, plus an unbreakable promise to return the 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hi Eric,

Your cryproeconomic theories may describe correctly Bitcoin as money, but fall 
short of describing a Bitcoin that would also offer reliable memory for other 
uses.

In consequence you miss, that:

1. If the reliable memory that enables money would have more uses then even 
temporary use of the memory would have utility, therefore value. Bitcoin as is, 
does not have consensus rules to enable reliable alternate uses.

2. Finite supply of coins implies a finite memory capacity of Bitcoin. 
Alternate use of the memory requires that units at least temporarily become 
un-fungible, enforced by consensus. Alternate uses would then have to compete 
for units of memory, which would give rise to a price paid to those enabling 
alternate use, even if temoprarily.

3. If giving up control temorarily has a positive price (through 2) and return 
of control is certain (enforced by consenus) then the price paid is riskless 
interest for those giving up temporary control.

4. If a use requires more units of memory then it imposes higher cost to use 
and it since memory units are finite it imposes more severe scarcity.

Further certainly subjective remarks:

Although burning and loss is unavoidable and therefore Bitcoin (as is) is 
unsustainable we should design systems that they sustain it as long as possible 
(as is). Therefore a requirement to burn for any of unlimited number of uses 
should be avoided.

We currently perceive borrowed money just as good as (fungible with) any other 
money. This is a consequence that money actually comes into existence through 
someone borrowing it. Money on your account is a loan you gave the bank and 
even paper cash is a loan you gave the central bank.

Bitcoin is different as it just is, it is not borrowed into existence. 
Therefore it is not fungible with borrowed version of itself. This however does 
not imply that its borrowed version is worthless as it might be worth something 
if there is a use for it.

Tamas Blummer

> On Jul 7, 2019, at 03:30, Eric Voskuil  wrote:
> 
> I have published a summary here:
> 
> https://github.com/libbitcoin/libbitcoin-system/wiki/Risk-Free-Return-Fallacy 
> 
> 
> Barring any new consequential inputs I’ll refrain from further comment.
> 
> e
> 



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

I have published a summary here:

https://github.com/libbitcoin/libbitcoin-system/wiki/Risk-Free-Return-Fallacy

Barring any new consequential inputs I’ll refrain from further comment.

e

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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 6, 2019, at 03:12, Tamas Blummer  wrote:
> 
> 
>> On Jul 6, 2019, at 01:16, ZmnSCPxj  wrote:
>> 
>> Good morning Eric,
>> 
>> 
>> Sent with ProtonMail Secure Email.
>> 
>> ‐‐‐ Original Message ‐‐‐
>> On Saturday, July 6, 2019 3:27 AM, Eric Voskuil  wrote:
>> 
 On Jul 4, 2019, at 21:05, ZmnSCPxj zmnsc...@protonmail.com wrote:
 Good morning Eric,
 
> As with Bitcoin mining, it is the consumed cost that matters in this 
> scenario, (i.e., not the hash rate, or in this case the encumbered coin 
> face value). Why would the advertiser not simply be required to burn .1 
> coin for the same privilege, just as miners burn energy? Why would it not 
> make more sense to spend that coin in support of the secondary network 
> (e.g. paying for confirmation security), just as with the burning of 
> energy in Bitcoin mining?
>>> 
>>> Good morning ZmnSCPxj,
>>> 
 Using the unspentness-time of a UTXO allows for someone advertising a 
 service or producer to "close up shop" by simply spending the advertising 
 UTXO.
 For instance, if the advertisement is for sale of a limited stock of 
 goods, once the stock has been sold, the merchant (assuming the merchant 
 used own funds) can simply recover the locked funds, with the potential to 
 reinvest them elsewhere.
 This allows some time-based hedging for the merchant (they may be willing 
 to wait indefinitely for the stock to be sold, but once the stock is sold, 
 they can immediately reap the rewards of not having their funds locked 
 anymore).
>>> 
>>> This is a materially different concept than proposed by Tamas.
>>> 
>>> “...he gives up his control of the coins until maturity, he can not use 
>>> them elsewhere until then.”
>> 
>> Possibly.
>> In a way, this is giving up control of the coin, until he no longer needs 
>> the advertisement, i.e. dynamically select the maturity age needed.
>> 
> My proposal would separate the owner of the funds from the one using the 
> advertizement service.

No, it would not. I have seen no proposal requiring identity in the two roles, 
which is necessary to show that two distinct individuals operate in the roles. 
Furthermore, even identity would be insufficient, as two individuals can 
clearly collude in these roles.

> Yes, the owner lock up until maturity. But those using the UTXO for the 
> advertizement service could transfer (sell) the UTXO to someone else as soon 
> as they do not need it, so it is dynamic maturity for them The new owner 
> could use them for an other advertizement or for an entirely different 
> purpose.

Agree, and it is the unremovable time constraint that ensures the opportunity 
cost. This is why in your proposal it is of no consequence that both roles can 
be the same person.

> Regarding burning: I think burning is unsustainable as usage of services is 
> unlimited while coin suply is limited. 

Loss is perpetual, so this implies Bitcoin is unsustainable.

>>> 
>>> And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
>>> same.
>> 
>> You have shown no such thing, merely shown that you have not understood the 
>> proposal.
>> 
>> Regards,
>> ZmnSCPxj
> 
> I also struggle to communicate to Eric and likely many other reader the 
> generic utility of temporary control of an UTXO. Let me try again:

No, you do not. This is not the point at issue. See my previous response.

> Bitcoin offers a memory with remarkable properties:
> - it can be read by anyone anywhere
> - anyone anywhere who knows a key controlling an UTXO, and only them, can 
> initiate an update to the memory
> - global replicas guaranteed to apply updates of the memory within a short 
> time period.
> 
> This is a utility that is sufficient to implement money. 

No, it isn’t. Ownership must be perpetually (actually) transferable, not just 
known. The use of a covenant breaks this transferability, see previous posts.

> Such a reliable shared memory could have however more uses than tracking 
> money, It could keep track of, and thereby make scarce, arbitary other things.

For the same reason this cannot work for money, it cannot work for any 
perpetual asset. See previous posts.

> We can unlock these uses by separating the money use of memory from other 
> uses. 
> 
> The covenant achives this separation temporarily. A UTXO with a covenant that 
> guarantees that current owner re-gains control at a later time means, 
> that the current owner temporarily forgoes the UTXOs use as money and thereby 
> allows its temporary use to keep track of something else.

Only if the asset expires at or before the covenant maturity.

> UTXOs with different covenants or without covenant are not fungible.

Of course.

> Why use UTXOs of significant value to track something that is not money? 
> Because the reason the registry is used is to create scarcity and scarcity 
> can be tailored to more or
> less severe by requiring more or less 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 6, 2019, at 06:34, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
>> On Jul 6, 2019, at 03:28, Eric Voskuil  wrote:
>> 
>> 
>> 
>>> On Jul 5, 2019, at 17:17, ZmnSCPxj  wrote:
>>> 
>>> Good morning Eric,
>>> 
 But it’s worth noting that early recovery of the UTXO entirely eliminates 
 the value of the time lock cost to the ad market. The most obvious example 
 is one encumbering the coin to himself, then releasing it with his own two 
 signatures whenever he wants. In other words, there is no encumbrance at 
 all, just a bunch of pointless obscurantion.
>>> 
>>> You still do not understand.
>>> I strongly suggest actually reading the post instead of skimming it.
>> 
>> I am responding to the cryptoeconomic principles, not the implementation 
>> details. Based on your comments here I am not misrepresenting those 
>> principles.
>> 
>> For example, I have shown that the multisig unlock implementation reduces 
>> the presumably-encumbered UTXO to simply a UTXO. You have not disputed that. 
>> In fact below you have accepted it (more below).
>> 
>>> The advertisement is broadcast to new nodes on the ad network if and only 
>>> if its backing UTXO remains unspent.
>>> Once the UTXO is spent, then the advertisement is considered no longer 
>>> valid and will be outright deleted by existing nodes, and new nodes will 
>>> not learn of them (and would consider it spam if it is forced to them when 
>>> the UTXO is already spent, possibly banning the node that pushes the 
>>> advertisement at them).
>>> 
>>> Thus the locked-ness of the UTXO is the lifetime of the advertisement.
>> 
>> The term “locked” here is misused. A unspent output that can be spent at any 
>> time is just an unspent output. The fact that you can “unencumber” your own 
>> coins should make this exceedingly obvious:
>> 
>>> Once you disencumber the coins (whether your own, or rented) then your 
>>> advertisement is gone; forever.
>> 
>> As I have shown, there is no *actual* encumbrance.
>> 
> If you have to forgo using your money while using a service that encumbers 
> you. You incur opportunity cost proportional to time you use the service and 
> the amount you waived to use elsewhere.
> No crypto is needed to understand this.

My use of “encumbrance” in this thread has been consistently a reference to a 
covenant. When the covenant can be released at any time it serves no purpose 
whatsoever, being an encumbrance in name only.

I gave a detailed explanation of opportunity cost, and gave you a scenario 
where that opportunity cost could actually be used - to purchase a tracking 
output (i.e., a fixed term asset tracked for that term). And I have discussed 
at length the use of opportunity cost in the hash-cash-like anti-spam ad 
scenario.

So it’s not clear to me why you continue to imply that the nature of either 
covenants or opportunity cost is the point at issue, and by implying I don’t 
understand them.

**The central issue in your proposal is that constrained coins can neither be 
used as borrowed money nor the tracking of perpetual assets.** This conclusion 
is not based on a failure to understand the nature of covenants or the concept 
of opportunity cost. It is the necessary consequence of attempting to trade 
something today that will provably disappear tomorrow. The sole possible value 
of such an instrument is to scam the eventual bag-holders.

A secondary issue, in the valid fixed-term asset tracking scenario, is that the 
cost of tracking is dust (and at least one transfer fee). The cost of such 
tracking is a function only of the market price of a satoshi. The financial 
value of renting one dust output is also limited in time by economic  interest 
(i.e., at 10% it is cheaper to buy than rent if the fixed term exceeds 7.2 
years). So while valid, is not likely to be demanded until one satoshi becomes 
worth the overhead of renting it.

The opportunity of interest represents opportunity cost when forgone. This can 
be used to show proof-of-cost (ad scenario), and that level can float as a 
price on the anti-spam market. This is a perfectly valid scenario, as I have 
said.

The issue with that specific proposal is that it uses covenants in an 
irrational manner. The ability to release the covenant at any time eliminates 
the cost it would otherwise represent. One could either simply burn or spend 
coin outright, or use an actual encumbrance (as you propose) to “burn” 
(provably destroy) the opportunity, but a non-encumbrance adds nothing except 
complexity.

>>> Your advertisement exists only as long as the UTXO is unspent.
>> 
>> Exactly, which implies *any* UTXO is sufficient. All that the ad network 
>> requires is proof of ownership of any UTXO.
>> 
> Not any, but one with significant value, so a service with limited bandwith 
> can prioritize by that.

Not significant, which is arbitrary, but sufficient - a result of supply and 
demand. Clearly my intent here is that no covenant on the UTXO is required in 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hi Eric,

> On Jul 6, 2019, at 03:28, Eric Voskuil  wrote:
> 
> 
> 
>> On Jul 5, 2019, at 17:17, ZmnSCPxj  wrote:
>> 
>> Good morning Eric,
>> 
>>> But it’s worth noting that early recovery of the UTXO entirely eliminates 
>>> the value of the time lock cost to the ad market. The most obvious example 
>>> is one encumbering the coin to himself, then releasing it with his own two 
>>> signatures whenever he wants. In other words, there is no encumbrance at 
>>> all, just a bunch of pointless obscurantion.
>> 
>> You still do not understand.
>> I strongly suggest actually reading the post instead of skimming it.
> 
> I am responding to the cryptoeconomic principles, not the implementation 
> details. Based on your comments here I am not misrepresenting those 
> principles.
> 
> For example, I have shown that the multisig unlock implementation reduces the 
> presumably-encumbered UTXO to simply a UTXO. You have not disputed that. In 
> fact below you have accepted it (more below).
> 
>> The advertisement is broadcast to new nodes on the ad network if and only if 
>> its backing UTXO remains unspent.
>> Once the UTXO is spent, then the advertisement is considered no longer valid 
>> and will be outright deleted by existing nodes, and new nodes will not learn 
>> of them (and would consider it spam if it is forced to them when the UTXO is 
>> already spent, possibly banning the node that pushes the advertisement at 
>> them).
>> 
>> Thus the locked-ness of the UTXO is the lifetime of the advertisement.
> 
> The term “locked” here is misused. A unspent output that can be spent at any 
> time is just an unspent output. The fact that you can “unencumber” your own 
> coins should make this exceedingly obvious:
> 
>> Once you disencumber the coins (whether your own, or rented) then your 
>> advertisement is gone; forever.
> 
> As I have shown, there is no *actual* encumbrance.
> 

If you have to forgo using your money while using a service that encumbers you. 
You incur opportunity cost proportional to time you use the service and the 
amount you waived to use elsewhere.
No crypto is needed to understand this.


>> Your advertisement exists only as long as the UTXO is unspent.
> 
> Exactly, which implies *any* UTXO is sufficient. All that the ad network 
> requires is proof of ownership of any UTXO.
> 

Not any, but one with significant value, so a service with limited bandwith can 
prioritize by that.

> Best,
> Eric
> 
>> Regards.
>> ZmnSCPxj

Best,

Tamas Blummer


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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

> On Jul 6, 2019, at 01:16, ZmnSCPxj  wrote:
> 
> Good morning Eric,
> 
> 
> Sent with ProtonMail Secure Email.
> 
> ‐‐‐ Original Message ‐‐‐
> On Saturday, July 6, 2019 3:27 AM, Eric Voskuil  > wrote:
> 
>>> On Jul 4, 2019, at 21:05, ZmnSCPxj zmnsc...@protonmail.com wrote:
>>> Good morning Eric,
>>> 
 As with Bitcoin mining, it is the consumed cost that matters in this 
 scenario, (i.e., not the hash rate, or in this case the encumbered coin 
 face value). Why would the advertiser not simply be required to burn .1 
 coin for the same privilege, just as miners burn energy? Why would it not 
 make more sense to spend that coin in support of the secondary network 
 (e.g. paying for confirmation security), just as with the burning of 
 energy in Bitcoin mining?
>> 
>> Good morning ZmnSCPxj,
>> 
>>> Using the unspentness-time of a UTXO allows for someone advertising a 
>>> service or producer to "close up shop" by simply spending the advertising 
>>> UTXO.
>>> For instance, if the advertisement is for sale of a limited stock of goods, 
>>> once the stock has been sold, the merchant (assuming the merchant used own 
>>> funds) can simply recover the locked funds, with the potential to reinvest 
>>> them elsewhere.
>>> This allows some time-based hedging for the merchant (they may be willing 
>>> to wait indefinitely for the stock to be sold, but once the stock is sold, 
>>> they can immediately reap the rewards of not having their funds locked 
>>> anymore).
>> 
>> This is a materially different concept than proposed by Tamas.
>> 
>> “...he gives up his control of the coins until maturity, he can not use them 
>> elsewhere until then.”
> 
> Possibly.
> In a way, this is giving up control of the coin, until he no longer needs the 
> advertisement, i.e. dynamically select the maturity age needed.
> 

My proposal would separate the owner of the funds from the one using the 
advertizement service. Yes, the owner lock up until maturity. But those using 
the UTXO for the advertizement service could transfer (sell) the UTXO to 
someone else as soon as they do not need it, so it is dynamic maturity for them 
The new owner could use them for an other advertizement or for an entirely 
different purpose.

Regarding burning: I think burning is unsustainable as usage of services is 
unlimited while coin suply is limited.

>> 
>> And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
>> same.
> 
> You have shown no such thing, merely shown that you have not understood the 
> proposal.
> 
> Regards,
> ZmnSCPxj

I also struggle to communicate to Eric and likely many other reader the generic 
utility of temporary control of an UTXO. Let me try again:

Bitcoin offers a memory with remarkable properties:
- it can be read by anyone anywhere
- anyone anywhere who knows a key controlling an UTXO, and only them, can 
initiate an update to the memory
- global replicas guaranteed to apply updates of the memory within a short time 
period.

This is a utility that is sufficient to implement money.

Such a reliable shared memory could have however more uses than tracking money, 
It could keep track of, and thereby make scarce, arbitary other things.

We can unlock these uses by separating the money use of memory from other uses.

The covenant achives this separation temporarily. A UTXO with a covenant that 
guarantees that current owner re-gains control at a later time means,
that the current owner temporarily forgoes the UTXOs use as money and thereby 
allows its temporary use to keep track of something else.
UTXOs with different covenants or without covenant are not fungible.

Why use UTXOs of significant value to track something that is not money? 
Because the reason the registry is used is to create scarcity and scarcity can 
be tailored to more or
less severe by requiring more or less satoshis to track something.

The current owner of a regular UTXO will want to be paid for temporarily giving 
up control, and that payment represents interest. Riskless, since it is certain 
to re-gain control.

Regards,

Tamas Blummer







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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 5, 2019, at 18:28, Eric Voskuil  wrote:
> 
> 
> 
>> On Jul 5, 2019, at 17:17, ZmnSCPxj  wrote:
>> 
>> Good morning Eric,
>> 
>>> But it’s worth noting that early recovery of the UTXO entirely eliminates 
>>> the value of the time lock cost to the ad market. The most obvious example 
>>> is one encumbering the coin to himself, then releasing it with his own two 
>>> signatures whenever he wants. In other words, there is no encumbrance at 
>>> all, just a bunch of pointless obscurantion.
>> 
>> You still do not understand.
>> I strongly suggest actually reading the post instead of skimming it.
> 
> I am responding to the cryptoeconomic principles, not the implementation 
> details. Based on your comments here I am not misrepresenting those 
> principles.
> 
> For example, I have shown that the multisig unlock implementation reduces the 
> presumably-encumbered UTXO to simply a UTXO. You have not disputed that. In 
> fact below you have accepted it (more below).
> 
>> The advertisement is broadcast to new nodes on the ad network if and only if 
>> its backing UTXO remains unspent.
>> Once the UTXO is spent, then the advertisement is considered no longer valid 
>> and will be outright deleted by existing nodes, and new nodes will not learn 
>> of them (and would consider it spam if it is forced to them when the UTXO is 
>> already spent, possibly banning the node that pushes the advertisement at 
>> them).
>> 
>> Thus the locked-ness of the UTXO is the lifetime of the advertisement.
> 
> The term “locked” here is misused. A unspent output that can be spent at any 
> time is just an unspent output. The fact that you can “unencumber” your own 
> coins should make this exceedingly obvious:
> 
>> Once you disencumber the coins (whether your own, or rented) then your 
>> advertisement is gone; forever.
> 
> As I have shown, there is no *actual* encumbrance.
> 
>> Your advertisement exists only as long as the UTXO is unspent.
> 
> Exactly, which implies *any* UTXO is sufficient. All that the ad network 
> requires is proof of ownership of any UTXO.
> 
> Unspentness is not actually a necessary cost (expense). All coin is always 
> represented as UTXOs. If one has a hoard of coin there is no necessary 
> incremental cost of identifying those coins to “back” ads.This isn’t altered 
> by the proposed design.
> 
> The only cost would be to have a hoard that one does not otherwise desire, 
> representing an opportunity cost. Yet, as I have also pointed out, the amount 
> of that opportunity cost can simply be spent (or burned) by the advertiser, 
> representing the same cost. So covering the case where one cannot raise the 
> capital to “back” one’s ad does not require rental, as the cost of the 
> otherwise rental can just be spent outright.
> 
> Presumably it would be ideal to transfer the value of those spends to people 
> who provably present the ads for effective viewing (i.e., the AdWords 
> business model). It is of course this market-driven cost of presenting an ad 
> that provides the spam protection/definition for AdWords.

It’s worth pointing out at this point that this implies Google, etc. would 
achieve the same result by simply accepting Bitcoin for ad placement. In your 
model the advertiser is paying only for access to people who wish to avoid 
spam, not for targeted and actual placement. In other words your ad system 
would be directly competing with others that provide material additional value 
for the advertiser beyond anti-spam. If nothing else this implies the return on 
coin “lock-up” would be exceeded by its opportunity cost.

> Best,
> Eric
> 
>> Regards.
>> ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 5, 2019, at 17:17, ZmnSCPxj  wrote:
> 
> Good morning Eric,
> 
>> But it’s worth noting that early recovery of the UTXO entirely eliminates 
>> the value of the time lock cost to the ad market. The most obvious example 
>> is one encumbering the coin to himself, then releasing it with his own two 
>> signatures whenever he wants. In other words, there is no encumbrance at 
>> all, just a bunch of pointless obscurantion.
> 
> You still do not understand.
> I strongly suggest actually reading the post instead of skimming it.

I am responding to the cryptoeconomic principles, not the implementation 
details. Based on your comments here I am not misrepresenting those principles.

For example, I have shown that the multisig unlock implementation reduces the 
presumably-encumbered UTXO to simply a UTXO. You have not disputed that. In 
fact below you have accepted it (more below).

> The advertisement is broadcast to new nodes on the ad network if and only if 
> its backing UTXO remains unspent.
> Once the UTXO is spent, then the advertisement is considered no longer valid 
> and will be outright deleted by existing nodes, and new nodes will not learn 
> of them (and would consider it spam if it is forced to them when the UTXO is 
> already spent, possibly banning the node that pushes the advertisement at 
> them).
> 
> Thus the locked-ness of the UTXO is the lifetime of the advertisement.

The term “locked” here is misused. A unspent output that can be spent at any 
time is just an unspent output. The fact that you can “unencumber” your own 
coins should make this exceedingly obvious:

> Once you disencumber the coins (whether your own, or rented) then your 
> advertisement is gone; forever.

As I have shown, there is no *actual* encumbrance.

> Your advertisement exists only as long as the UTXO is unspent.

Exactly, which implies *any* UTXO is sufficient. All that the ad network 
requires is proof of ownership of any UTXO.

Unspentness is not actually a necessary cost (expense). All coin is always 
represented as UTXOs. If one has a hoard of coin there is no necessary 
incremental cost of identifying those coins to “back” ads.This isn’t altered by 
the proposed design.

The only cost would be to have a hoard that one does not otherwise desire, 
representing an opportunity cost. Yet, as I have also pointed out, the amount 
of that opportunity cost can simply be spent (or burned) by the advertiser, 
representing the same cost. So covering the case where one cannot raise the 
capital to “back” one’s ad does not require rental, as the cost of the 
otherwise rental can just be spent outright.

Presumably it would be ideal to transfer the value of those spends to people 
who provably present the ads for effective viewing (i.e., the AdWords business 
model). It is of course this market-driven cost of presenting an ad that 
provides the spam protection/definition for AdWords.

Best,
Eric

> Regards.
> ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Eric,

> But it’s worth noting that early recovery of the UTXO entirely eliminates the 
> value of the time lock cost to the ad market. The most obvious example is one 
> encumbering the coin to himself, then releasing it with his own two 
> signatures whenever he wants. In other words, there is no encumbrance at all, 
> just a bunch of pointless obscurantion.

You still do not understand.
I strongly suggest actually reading the post instead of skimming it.

The advertisement is broadcast to new nodes on the ad network if and only if 
its backing UTXO remains unspent.
Once the UTXO is spent, then the advertisement is considered no longer valid 
and will be outright deleted by existing nodes, and new nodes will not learn of 
them (and would consider it spam if it is forced to them when the UTXO is 
already spent, possibly banning the node that pushes the advertisement at them).

Thus the locked-ness of the UTXO is the lifetime of the advertisement.
Once you disencumber the coins (whether your own, or rented) then your 
advertisement is gone; forever.
Your advertisement exists only as long as the UTXO is unspent.


Regards.
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 5, 2019, at 16:16, ZmnSCPxj  wrote:
> 
> Good morning Eric,
> 
> 
> Sent with ProtonMail Secure Email.
> 
> ‐‐‐ Original Message ‐‐‐
> On Saturday, July 6, 2019 3:27 AM, Eric Voskuil  wrote:
> 
>>> On Jul 4, 2019, at 21:05, ZmnSCPxj zmnsc...@protonmail.com wrote:
>>> Good morning Eric,
>>> 
 As with Bitcoin mining, it is the consumed cost that matters in this 
 scenario, (i.e., not the hash rate, or in this case the encumbered coin 
 face value). Why would the advertiser not simply be required to burn .1 
 coin for the same privilege, just as miners burn energy? Why would it not 
 make more sense to spend that coin in support of the secondary network 
 (e.g. paying for confirmation security), just as with the burning of 
 energy in Bitcoin mining?
>> 
>> Good morning ZmnSCPxj,
>> 
>>> Using the unspentness-time of a UTXO allows for someone advertising a 
>>> service or producer to "close up shop" by simply spending the advertising 
>>> UTXO.
>>> For instance, if the advertisement is for sale of a limited stock of goods, 
>>> once the stock has been sold, the merchant (assuming the merchant used own 
>>> funds) can simply recover the locked funds, with the potential to reinvest 
>>> them elsewhere.
>>> This allows some time-based hedging for the merchant (they may be willing 
>>> to wait indefinitely for the stock to be sold, but once the stock is sold, 
>>> they can immediately reap the rewards of not having their funds locked 
>>> anymore).
>> 
>> This is a materially different concept than proposed by Tamas.
>> 
>> “...he gives up his control of the coins until maturity, he can not use them 
>> elsewhere until then.”
> 
> Possibly.
> In a way, this is giving up control of the coin, until he no longer needs the 
> advertisement, i.e. dynamically select the maturity age needed.
> 
>>> Similarly, an entity renting out a UTXO for an advertisement might allow 
>>> for early reclamation of the UTXO in exchange for partial refund of fee; as 
>>> the value in the UTXO is now freed to be spent elsewhere, the lessor can 
>>> lease it to another advertiser.
>> 
>> You appear to be proposing a design whereby either the owner or the renter 
>> (not entirely clear to me which) can spend the “locked up” coin at any time 
>> (no maturity constraint), by dropping the covenant.
>> 
>> If the renter can do this he can simply steal the coin from the owner.
>> 
>> If the owner can do this there is no value to the renter (or as a proof of 
>> cost), as the owner retains full control of the coin.
>> 
> 
> Obviously this will require a 2-of-2 multisig, with an timelocked transaction 
> that lets the owner recover at a futuredate, so that it is the agreement of 
> *both* that is needed to perform any actions before the timelock.
> I already described this in the link I provided.
> 
> 
>> If you mean that the age of the encumbrance is the proof of cost, this 
>> requires no covenant. I don’t believe this is what you intended, just 
>> covering all bases.
> 
> Not age of encumbrance, quite.
> Instead, it is the simple fact that the UTXO is a UTXO (and not yet spent), 
> that validates the advertisement.

Not any UTXO then, one that with sufficient time-locked coin.

> No, it does not *require* a covenant.
> However, covenants do make it easier to use, in the sense that the renter can 
> repurpose the UTXO (e.g. change details of advertisement) without having to 
> contact the owner.

So how does one get the owner to sign off on the multisig release? Presumably 
the renter cares because he wants to recover the remaining value of rental. So 
he not only needs to contact the owner, he also needs to negotiate with the 
owner for a pro-rated refund. In other words, he must sell the remaining 
portion of the rental return - essentially how I described it previously. He 
might as well just sell the marketable ad space that he controls through the 
remainder of the term (the same value).

Certainly the owner could given him a partially-signed transaction, returning 
the coin, allowing the renter to exit at any time, but the renter has no reason 
to sign it without a refund, which must be pro-rated in some way, implying 
later contact/negotiation with the owner.

But it’s worth noting that early recovery of the UTXO entirely eliminates the 
value of the time lock cost to the ad market. The most obvious example is one 
encumbering the coin to himself, then releasing it with his own two signatures 
whenever he wants. In other words, there is no encumbrance at all, just a bunch 
of pointless obscurantion.

>>> Burnt funds cannot be "un-burnt" to easily signal the end of a term for an 
>>> advertisement.
>> 
>> And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
>> same.
> 
> You have shown no such thing, merely shown that you have not understood the 
> proposal.

I think I understand the implications of it clearly. Feel free to point out 
what I’m missing. But I don’t 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 5, 2019, at 12:27, Eric Voskuil  wrote:
> 
> 
>> On Jul 4, 2019, at 21:05, ZmnSCPxj  wrote:
>> 
>> Good morning Eric,
>> 
>>> As with Bitcoin mining, it is the consumed cost that matters in this 
>>> scenario, (i.e., not the hash rate, or in this case the encumbered coin 
>>> face value). Why would the advertiser not simply be required to burn .1 
>>> coin for the same privilege, just as miners burn energy? Why would it not 
>>> make more sense to spend that coin in support of the secondary network 
>>> (e.g. paying for confirmation security), just as with the burning of energy 
>>> in Bitcoin mining?
> 
> Good morning ZmnSCPxj,
> 
>> Using the unspentness-time of a UTXO allows for someone advertising a 
>> service or producer to "close up shop" by simply spending the advertising 
>> UTXO.
>> For instance, if the advertisement is for sale of a limited stock of goods, 
>> once the stock has been sold, the merchant (assuming the merchant used own 
>> funds) can simply recover the locked funds, with the potential to reinvest 
>> them elsewhere.
>> This allows some time-based hedging for the merchant (they may be willing to 
>> wait indefinitely for the stock to be sold, but once the stock is sold, they 
>> can immediately reap the rewards of not having their funds locked anymore).
> 
> This is a materially different concept than proposed by Tamas.
> 
> “...he gives up his control of the coins until maturity, he can not use them 
> elsewhere until then.”
> 
>> Similarly, an entity renting out a UTXO for an advertisement might allow for 
>> early reclamation of the UTXO in exchange for partial refund of fee; as the 
>> value in the UTXO is now freed to be spent elsewhere, the lessor can lease 
>> it to another advertiser.
> 
> You appear to be proposing a design whereby either the owner or the renter 
> (not entirely clear to me which) can spend the “locked up” coin at any time 
> (no maturity constraint), by dropping the covenant.
> 
> If the renter can do this he can simply steal the coin from the owner.
> 
> If the owner can do this there is no value to the renter (or as a proof of 
> cost), as the owner retains full control of the coin.
> 
> If you mean that the age of the encumbrance is the proof of cost, this 
> requires no covenant. I don’t believe this is what you intended, just 
> covering all bases.
> 
>> Burnt funds cannot be "un-burnt" to easily signal the end of a term for an 
>> advertisement.
> 
> And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
> same.
> 
>> Similarly for miner fees.
> 
> Well that’s the point, money spent is no longer under one’s control. The 
> provable cost of this surrender was your stated objective. Renting at a 
> fractional cost of coin face value is a non-recoverable spend by the renter 
> to the owner. Burning or spending the same amount in a way that is provably 
> not to one’s self achieves the exact same result.
> 
>> The best that can be done would be to have the nodes of the classified ads 
>> network automatically decay the spent value of older advertisements to let 
>> them be dropped from their advertisements pool.
> 
> The advertiser can presumably trade control of as space on the ad network. 
> It’s not clear to me why this is not simply an independent chain of limited 
> ad space ownership. It might as well be namecoin.
> 
>> Less importantly, burning currently has bad resource usage for practical 
>> applications.
>> Practical burning requires spending to a provably-unspendable P2PKH or P2SH 
>> or similar output.
>> This adds UTXO entries to the UTXO database that will never be removed.

I forgot to add that it is certainly possible to burn using a nonstandard 
script, such as the non-zero OP_RETURN you suggested, without a consensus 
change. This can be, as you say, made more practical with a policy change. But 
such changes are up to individual node operators as they require no deviation 
from consensus. Yet ultimately this is a miner preference, and anyone can mine. 
Finally, as I pointed out, burning is not necessary. Simply spending the coin 
as a fee is sufficient.

> If an output is provably unspendable (burned) it is not a UTXO.
> 
> It is worth noting that not all full node implementations require a store of 
> UTXOs, this is an implementation detail. For example, libbitcoin uses a flag 
> on each output to indicate its spentness on the strong branch. As such the 
> store size is linear by height.
> 
>> This will of course be remedied by compact UTXO representations later, but 
>> not today.
>> Similarly, it would be very nice to have non-0-amount `OP_RETURN` outputs, 
>> as `OP_RETURN` outputs are never stored in the UTXO database.
>> However, this will require a change in node relay policy, which again will 
>> take time to make possible, and would not be practical today.
>> 
>> Thus I think use of UTXO is better than burning or mining-fee-spending.
> 
> I don’t believe you have shown this.
> 
> Best,
> 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Eric,


Sent with ProtonMail Secure Email.

‐‐‐ Original Message ‐‐‐
On Saturday, July 6, 2019 3:27 AM, Eric Voskuil  wrote:

> > On Jul 4, 2019, at 21:05, ZmnSCPxj zmnsc...@protonmail.com wrote:
> > Good morning Eric,
> >
> > > As with Bitcoin mining, it is the consumed cost that matters in this 
> > > scenario, (i.e., not the hash rate, or in this case the encumbered coin 
> > > face value). Why would the advertiser not simply be required to burn .1 
> > > coin for the same privilege, just as miners burn energy? Why would it not 
> > > make more sense to spend that coin in support of the secondary network 
> > > (e.g. paying for confirmation security), just as with the burning of 
> > > energy in Bitcoin mining?
>
> Good morning ZmnSCPxj,
>
> > Using the unspentness-time of a UTXO allows for someone advertising a 
> > service or producer to "close up shop" by simply spending the advertising 
> > UTXO.
> > For instance, if the advertisement is for sale of a limited stock of goods, 
> > once the stock has been sold, the merchant (assuming the merchant used own 
> > funds) can simply recover the locked funds, with the potential to reinvest 
> > them elsewhere.
> > This allows some time-based hedging for the merchant (they may be willing 
> > to wait indefinitely for the stock to be sold, but once the stock is sold, 
> > they can immediately reap the rewards of not having their funds locked 
> > anymore).
>
> This is a materially different concept than proposed by Tamas.
>
> “...he gives up his control of the coins until maturity, he can not use them 
> elsewhere until then.”

Possibly.
In a way, this is giving up control of the coin, until he no longer needs the 
advertisement, i.e. dynamically select the maturity age needed.

> > Similarly, an entity renting out a UTXO for an advertisement might allow 
> > for early reclamation of the UTXO in exchange for partial refund of fee; as 
> > the value in the UTXO is now freed to be spent elsewhere, the lessor can 
> > lease it to another advertiser.
>
> You appear to be proposing a design whereby either the owner or the renter 
> (not entirely clear to me which) can spend the “locked up” coin at any time 
> (no maturity constraint), by dropping the covenant.
>
> If the renter can do this he can simply steal the coin from the owner.
>
> If the owner can do this there is no value to the renter (or as a proof of 
> cost), as the owner retains full control of the coin.
>

Obviously this will require a 2-of-2 multisig, with an timelocked transaction 
that lets the owner recover at a futuredate, so that it is the agreement of 
*both* that is needed to perform any actions before the timelock.
I already described this in the link I provided.


> If you mean that the age of the encumbrance is the proof of cost, this 
> requires no covenant. I don’t believe this is what you intended, just 
> covering all bases.

Not age of encumbrance, quite.
Instead, it is the simple fact that the UTXO is a UTXO (and not yet spent), 
that validates the advertisement.

No, it does not *require* a covenant.
However, covenants do make it easier to use, in the sense that the renter can 
repurpose the UTXO (e.g. change details of advertisement) without having to 
contact the owner.



>
> > Burnt funds cannot be "un-burnt" to easily signal the end of a term for an 
> > advertisement.
>
> And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
> same.

You have shown no such thing, merely shown that you have not understood the 
proposal.

Regards,
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 4, 2019, at 21:05, ZmnSCPxj  wrote:
> 
> Good morning Eric,
> 
>> As with Bitcoin mining, it is the consumed cost that matters in this 
>> scenario, (i.e., not the hash rate, or in this case the encumbered coin face 
>> value). Why would the advertiser not simply be required to burn .1 coin for 
>> the same privilege, just as miners burn energy? Why would it not make more 
>> sense to spend that coin in support of the secondary network (e.g. paying 
>> for confirmation security), just as with the burning of energy in Bitcoin 
>> mining?

Good morning ZmnSCPxj,

> Using the unspentness-time of a UTXO allows for someone advertising a service 
> or producer to "close up shop" by simply spending the advertising UTXO.
> For instance, if the advertisement is for sale of a limited stock of goods, 
> once the stock has been sold, the merchant (assuming the merchant used own 
> funds) can simply recover the locked funds, with the potential to reinvest 
> them elsewhere.
> This allows some time-based hedging for the merchant (they may be willing to 
> wait indefinitely for the stock to be sold, but once the stock is sold, they 
> can immediately reap the rewards of not having their funds locked anymore).

This is a materially different concept than proposed by Tamas.

“...he gives up his control of the coins until maturity, he can not use them 
elsewhere until then.”

> Similarly, an entity renting out a UTXO for an advertisement might allow for 
> early reclamation of the UTXO in exchange for partial refund of fee; as the 
> value in the UTXO is now freed to be spent elsewhere, the lessor can lease it 
> to another advertiser.

You appear to be proposing a design whereby either the owner or the renter (not 
entirely clear to me which) can spend the “locked up” coin at any time (no 
maturity constraint), by dropping the covenant.

If the renter can do this he can simply steal the coin from the owner.

If the owner can do this there is no value to the renter (or as a proof of 
cost), as the owner retains full control of the coin.

If you mean that the age of the encumbrance is the proof of cost, this requires 
no covenant. I don’t believe this is what you intended, just covering all bases.

> Burnt funds cannot be "un-burnt" to easily signal the end of a term for an 
> advertisement.

And as I have shown above, nor can a “locked-up” coin be unlocked to do the 
same.

> Similarly for miner fees.

Well that’s the point, money spent is no longer under one’s control. The 
provable cost of this surrender was your stated objective. Renting at a 
fractional cost of coin face value is a non-recoverable spend by the renter to 
the owner. Burning or spending the same amount in a way that is provably not to 
one’s self achieves the exact same result.

> The best that can be done would be to have the nodes of the classified ads 
> network automatically decay the spent value of older advertisements to let 
> them be dropped from their advertisements pool.

The advertiser can presumably trade control of as space on the ad network. It’s 
not clear to me why this is not simply an independent chain of limited ad space 
ownership. It might as well be namecoin.

> Less importantly, burning currently has bad resource usage for practical 
> applications.
> Practical burning requires spending to a provably-unspendable P2PKH or P2SH 
> or similar output.
> This adds UTXO entries to the UTXO database that will never be removed.

If an output is provably unspendable (burned) it is not a UTXO.

It is worth noting that not all full node implementations require a store of 
UTXOs, this is an implementation detail. For example, libbitcoin uses a flag on 
each output to indicate its spentness on the strong branch. As such the store 
size is linear by height.

> This will of course be remedied by compact UTXO representations later, but 
> not today.
> Similarly, it would be very nice to have non-0-amount `OP_RETURN` outputs, as 
> `OP_RETURN` outputs are never stored in the UTXO database.
> However, this will require a change in node relay policy, which again will 
> take time to make possible, and would not be practical today.
> 
> Thus I think use of UTXO is better than burning or mining-fee-spending.

I don’t believe you have shown this.

Best,
Eric

> Also, mostly trivia:
> The use of UTXOs to advertise services is not original to me --- I found the 
> LN channel gossip to be the inspiration for this.
> Publicly-announced channels indicate the backing UTXO that funds the channel.
> The purpose of publicly announcing the channels is to be able to provide the 
> service, of forwarding across the Lightning Network; thus the public 
> announcement serves as an advertisement for the service.
> Channel closure immediately spends the UTXO, and also doubles to "revoke" the 
> existing "advertisement".
> I found this ability to "revoke" the advertisement appealing, and thereby 
> designed the Bitcoin Classified Ads Network around the UTXO 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 4, 2019, at 12:10, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
> there are some other ways to impose cost on use without direct billing, e.g.:
> 
> - Burn Bitcoins to use the service, as you mentioned. This could work and 
> would benefit remaining Bitcoin owner, but is unsustainable.
> 
> - Pay high fees in self dealing transactions. This could work and would 
> benefit miner.
> 
> - Time lock own Bitcoins. This is forgoing control of an UTXO for a time 
> period, which implies opportunity cost. This could be done with CLTV 
> (OP_HODL). It damages the current owner but benefits no one.

I meant to point out that a voluntarily trade cannot represent “damage” to the 
person making it. The person chooses the action because it is preferred over 
alternatives (i.e. it is beneficial). Such choices are the only objective 
expression of preference, a fundamental principle of praxeology.

> The problem is one might not have substantial UTXO to  imply high enough 
> opportunity cost.
> 
> - Pay someone else to time lock. This is paying someone to lock an UTXO for a 
> time span. Payment and time lock could be combined in the same transaction.
> 
> - Transferable borrowed Bitcoin.  This needs the covenant. This benefits 
> those who consciously give up control for a time span. Its advantage is that 
> since transferable it can be sold if no longer needed, thereby shortening the 
> term of the original arrangement. It coul be re-rented for a shorter time 
> period.
> 
> Tamas Blummer
> 
> 
>> On Jul 4, 2019, at 18:43, Eric Voskuil  wrote:
>> 
>> Hi ZmnSCPxj,
>> 
>> Generalizing a bit this appears to be the same with one exception. The 
>> amount of encumbered coin is relevant to an external observer. Of course the 
>> effective dust limit is the maximum necessary encumbrance otherwise.
>> 
>> In the case of simple tracking, the market value of the coin is not 
>> relevant, all that is required is a valid output. Hence the devolution to 1 
>> sat tracking. In your scenario the objective is to establish a meaningful 
>> cost for the output.
>> 
>> A community of people using this as a sort of hashcash spam protection can 
>> raise the amount of encumbered coin (i.e. advertising threshold price) 
>> required in that context. The cost of this encumberance includes not only at 
>> least one tx fee but market cost of the coin rental.
>> 
>> At a 1 year advertisement term, 10% APR capital cost, and threshold of 1 
>> encumbered coin, the same is achieved by burning .1 coin. In other words the 
>> renter (advertiser) has actually paid to the coin owner .1 coin to rent 1 
>> coin for one year.
>> 
>> As with Bitcoin mining, it is the consumed cost that matters in this 
>> scenario, (i.e., not the hash rate, or in this case the encumbered coin face 
>> value). Why would the advertiser not simply be required to burn .1 coin for 
>> the same privilege, just as miners burn energy? Why would it not make more 
>> sense to spend that coin in support of the secondary network (e.g. paying 
>> for confirmation security), just as with the burning of energy in Bitcoin 
>> mining?
>> 
>> e
>> 
>>> On Jul 3, 2019, at 23:57, ZmnSCPxj  wrote:
>>> 
>>> Good morning Eric,
>>> 
>>> 
> and thanks to you and ZmnSCPxj we now have two additional uses cases for 
> UTXOs that are only temporarily accessible to their current owner.
 
 Actually you have a single potentially-valid use case, the one I have 
 presented. The others I have shown to be invalid (apart from scamming) and 
 no additional information to demonstrate errors in my conclusions have 
 been offered.
>>> 
>>> I presented another use case, that of the "Bitcoin Classified Ads Network".
>>> https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2019-July/017083.html
>>> 
>>> Advertisements are "backed" by an unspent TXO.
>>> In order to limit their local resource consumption, nodes of this network 
>>> will preferentially keep advertisements that are backed by higher UTXO 
>>> values divided by advertisement size, and drop those with too low UTXO 
>>> value divided by advertisement size.
>>> 
>>> Thus, spammers will either need to rent larger UTXO values for their spam, 
>>> paying for the higher rent involved, or fall back to pre-Bitcoin spamming 
>>> methods.
>>> Thus I think I have presented a use-case that is viable for this and does 
>>> not simply devolve to "just burn a 1-satoshi output".
>>> 
>>> I still do not quite support generalized covenants as the use-case is 
>>> already possible on current Bitcoin (and given that with just a little more 
>>> transaction introspection this enables Turing-completeness), but the basic 
>>> concept of "renting a UTXO of substantial value" appears sound to me.
>>> 
>>> 
>>> Regards,
>>> ZmnSCPxj
> 
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 4, 2019, at 12:10, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
> there are some other ways to impose cost on use without direct billing, e.g.:
> 
> - Burn Bitcoins to use the service, as you mentioned. This could work and 
> would benefit remaining Bitcoin owner, but is unsustainable.

Burning is not an economic concern and cannot be prevented. As there are fewer 
coins, all things being equal, the cost of each increases, and thus fewer must 
be burned to achieve the same cost. So assuming sufficient divisibility (an 
existing Bitcoin assumption) it is sustainable. But as I demonstrated, it’s not 
necessary.

> - Pay high fees in self dealing transactions. This could work and would 
> benefit miner.

This is essentially what I suggested, though presumably you mean Bitcoin fees 
not secondary network.

> - Time lock own Bitcoins. This is forgoing control of an UTXO for a time 
> period, which implies opportunity cost. This could be done with CLTV 
> (OP_HODL). It damages the current owner but benefits no one. The problem is 
> one might not have substantial UTXO to  imply high enough opportunity cost.

Another reason why simply spending or burning them is preferential.

> - Pay someone else to time lock. This is paying someone to lock an UTXO for a 
> time span. Payment and time lock could be combined in the same transaction.

This implies additional complexity with no benefit to anyone required by the 
scenario, which was my implication.

> - Transferable borrowed Bitcoin.  This needs the covenant. This benefits 
> those who consciously give up control for a time span. Its advantage is that 
> since transferable it can be sold if no longer needed, thereby shortening the 
> term of the original arrangement. It coul be re-rented for a shorter time 
> period.

The terms lend/borrow are misleading here, as I have previously shown. The coin 
is neither spendable nor consumable. This is why I have used the terms 
owner/renter. Yes, the renter can sell the remaining rental expense to another.

Yes, the potential incremental value over the other scenarios is 
transferability of the output, but this accrues to both to the 
advertiser/renter and the owner (trade always benefits both parties trading). 
This transfer incurs a fee if on chain, and in the tracking scenario may easily 
overwhelm the effective benefit (fraction of the rental, no higher than dust, 
not yet expired), making it economically non-transferrable.

In the advertising scenario this transfer can be achieved independent of 
Bitcoin, by simply changing the advertisement (e.g. publish a 
provably-superseding ad for the same output), avoiding the material on-chain 
fee. Recall that the value of the coin cannot be captured by the advertiser 
through transfer, just the tracking cost.

e

> Tamas Blummer
> 
> 
>> On Jul 4, 2019, at 18:43, Eric Voskuil  wrote:
>> 
>> Hi ZmnSCPxj,
>> 
>> Generalizing a bit this appears to be the same with one exception. The 
>> amount of encumbered coin is relevant to an external observer. Of course the 
>> effective dust limit is the maximum necessary encumbrance otherwise.
>> 
>> In the case of simple tracking, the market value of the coin is not 
>> relevant, all that is required is a valid output. Hence the devolution to 1 
>> sat tracking. In your scenario the objective is to establish a meaningful 
>> cost for the output.
>> 
>> A community of people using this as a sort of hashcash spam protection can 
>> raise the amount of encumbered coin (i.e. advertising threshold price) 
>> required in that context. The cost of this encumberance includes not only at 
>> least one tx fee but market cost of the coin rental.
>> 
>> At a 1 year advertisement term, 10% APR capital cost, and threshold of 1 
>> encumbered coin, the same is achieved by burning .1 coin. In other words the 
>> renter (advertiser) has actually paid to the coin owner .1 coin to rent 1 
>> coin for one year.
>> 
>> As with Bitcoin mining, it is the consumed cost that matters in this 
>> scenario, (i.e., not the hash rate, or in this case the encumbered coin face 
>> value). Why would the advertiser not simply be required to burn .1 coin for 
>> the same privilege, just as miners burn energy? Why would it not make more 
>> sense to spend that coin in support of the secondary network (e.g. paying 
>> for confirmation security), just as with the burning of energy in Bitcoin 
>> mining?
>> 
>> e
>> 
>>> On Jul 3, 2019, at 23:57, ZmnSCPxj  wrote:
>>> 
>>> Good morning Eric,
>>> 
>>> 
> and thanks to you and ZmnSCPxj we now have two additional uses cases for 
> UTXOs that are only temporarily accessible to their current owner.
 
 Actually you have a single potentially-valid use case, the one I have 
 presented. The others I have shown to be invalid (apart from scamming) and 
 no additional information to demonstrate errors in my conclusions have 
 been offered.
>>> 
>>> I presented another use case, that of the "Bitcoin 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hi Eric,

there are some other ways to impose cost on use without direct billing, e.g.:

- Burn Bitcoins to use the service, as you mentioned. This could work and would 
benefit remaining Bitcoin owner, but is unsustainable.

- Pay high fees in self dealing transactions. This could work and would benefit 
miner.

- Time lock own Bitcoins. This is forgoing control of an UTXO for a time 
period, which implies opportunity cost. This could be done with CLTV (OP_HODL). 
It damages the current owner but benefits no one. The problem is one might not 
have substantial UTXO to  imply high enough opportunity cost.

- Pay someone else to time lock. This is paying someone to lock an UTXO for a 
time span. Payment and time lock could be combined in the same transaction.

- Transferable borrowed Bitcoin.  This needs the covenant. This benefits those 
who consciously give up control for a time span. Its advantage is that since 
transferable it can be sold if no longer needed, thereby shortening the term of 
the original arrangement. It coul be re-rented for a shorter time period.

Tamas Blummer


> On Jul 4, 2019, at 18:43, Eric Voskuil  wrote:
> 
> Hi ZmnSCPxj,
> 
> Generalizing a bit this appears to be the same with one exception. The amount 
> of encumbered coin is relevant to an external observer. Of course the 
> effective dust limit is the maximum necessary encumbrance otherwise.
> 
> In the case of simple tracking, the market value of the coin is not relevant, 
> all that is required is a valid output. Hence the devolution to 1 sat 
> tracking. In your scenario the objective is to establish a meaningful cost 
> for the output.
> 
> A community of people using this as a sort of hashcash spam protection can 
> raise the amount of encumbered coin (i.e. advertising threshold price) 
> required in that context. The cost of this encumberance includes not only at 
> least one tx fee but market cost of the coin rental.
> 
> At a 1 year advertisement term, 10% APR capital cost, and threshold of 1 
> encumbered coin, the same is achieved by burning .1 coin. In other words the 
> renter (advertiser) has actually paid to the coin owner .1 coin to rent 1 
> coin for one year.
> 
> As with Bitcoin mining, it is the consumed cost that matters in this 
> scenario, (i.e., not the hash rate, or in this case the encumbered coin face 
> value). Why would the advertiser not simply be required to burn .1 coin for 
> the same privilege, just as miners burn energy? Why would it not make more 
> sense to spend that coin in support of the secondary network (e.g. paying for 
> confirmation security), just as with the burning of energy in Bitcoin mining?
> 
> e
> 
>> On Jul 3, 2019, at 23:57, ZmnSCPxj  wrote:
>> 
>> Good morning Eric,
>> 
>> 
 and thanks to you and ZmnSCPxj we now have two additional uses cases for 
 UTXOs that are only temporarily accessible to their current owner.
>>> 
>>> Actually you have a single potentially-valid use case, the one I have 
>>> presented. The others I have shown to be invalid (apart from scamming) and 
>>> no additional information to demonstrate errors in my conclusions have been 
>>> offered.
>> 
>> I presented another use case, that of the "Bitcoin Classified Ads Network".
>> https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2019-July/017083.html
>> 
>> Advertisements are "backed" by an unspent TXO.
>> In order to limit their local resource consumption, nodes of this network 
>> will preferentially keep advertisements that are backed by higher UTXO 
>> values divided by advertisement size, and drop those with too low UTXO value 
>> divided by advertisement size.
>> 
>> Thus, spammers will either need to rent larger UTXO values for their spam, 
>> paying for the higher rent involved, or fall back to pre-Bitcoin spamming 
>> methods.
>> Thus I think I have presented a use-case that is viable for this and does 
>> not simply devolve to "just burn a 1-satoshi output".
>> 
>> I still do not quite support generalized covenants as the use-case is 
>> already possible on current Bitcoin (and given that with just a little more 
>> transaction introspection this enables Turing-completeness), but the basic 
>> concept of "renting a UTXO of substantial value" appears sound to me.
>> 
>> 
>> Regards,
>> ZmnSCPxj



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Eric,

> As with Bitcoin mining, it is the consumed cost that matters in this 
> scenario, (i.e., not the hash rate, or in this case the encumbered coin face 
> value). Why would the advertiser not simply be required to burn .1 coin for 
> the same privilege, just as miners burn energy? Why would it not make more 
> sense to spend that coin in support of the secondary network (e.g. paying for 
> confirmation security), just as with the burning of energy in Bitcoin mining?

Using the unspentness-time of a UTXO allows for someone advertising a service 
or producer to "close up shop" by simply spending the advertising UTXO.
For instance, if the advertisement is for sale of a limited stock of goods, 
once the stock has been sold, the merchant (assuming the merchant used own 
funds) can simply recover the locked funds, with the potential to reinvest them 
elsewhere.
This allows some time-based hedging for the merchant (they may be willing to 
wait indefinitely for the stock to be sold, but once the stock is sold, they 
can immediately reap the rewards of not having their funds locked anymore).

Similarly, an entity renting out a UTXO for an advertisement might allow for 
early reclamation of the UTXO in exchange for partial refund of fee; as the 
value in the UTXO is now freed to be spent elsewhere, the lessor can lease it 
to another advertiser.

Burnt funds cannot be "un-burnt" to easily signal the end of a term for an 
advertisement.
Similarly for miner fees.
The best that can be done would be to have the nodes of the classified ads 
network automatically decay the spent value of older advertisements to let them 
be dropped from their advertisements pool.

Less importantly, burning currently has bad resource usage for practical 
applications.
Practical burning requires spending to a provably-unspendable P2PKH or P2SH or 
similar output.
This adds UTXO entries to the UTXO database that will never be removed.
This will of course be remedied by compact UTXO representations later, but not 
today.
Similarly, it would be very nice to have non-0-amount `OP_RETURN` outputs, as 
`OP_RETURN` outputs are never stored in the UTXO database.
However, this will require a change in node relay policy, which again will take 
time to make possible, and would not be practical today.

Thus I think use of UTXO is better than burning or mining-fee-spending.


Also, mostly trivia:
The use of UTXOs to advertise services is not original to me --- I found the LN 
channel gossip to be the inspiration for this.
Publicly-announced channels indicate the backing UTXO that funds the channel.
The purpose of publicly announcing the channels is to be able to provide the 
service, of forwarding across the Lightning Network; thus the public 
announcement serves as an advertisement for the service.
Channel closure immediately spends the UTXO, and also doubles to "revoke" the 
existing "advertisement".
I found this ability to "revoke" the advertisement appealing, and thereby 
designed the Bitcoin Classified Ads Network around the UTXO spentness mechanism.

Regards,
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Eric,


> > and thanks to you and ZmnSCPxj we now have two additional uses cases for 
> > UTXOs that are only temporarily accessible to their current owner.
>
> Actually you have a single potentially-valid use case, the one I have 
> presented. The others I have shown to be invalid (apart from scamming) and no 
> additional information to demonstrate errors in my conclusions have been 
> offered.

I presented another use case, that of the "Bitcoin Classified Ads Network".
https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2019-July/017083.html

Advertisements are "backed" by an unspent TXO.
In order to limit their local resource consumption, nodes of this network will 
preferentially keep advertisements that are backed by higher UTXO values 
divided by advertisement size, and drop those with too low UTXO value divided 
by advertisement size.

Thus, spammers will either need to rent larger UTXO values for their spam, 
paying for the higher rent involved, or fall back to pre-Bitcoin spamming 
methods.
Thus I think I have presented a use-case that is viable for this and does not 
simply devolve to "just burn a 1-satoshi output".

I still do not quite support generalized covenants as the use-case is already 
possible on current Bitcoin (and given that with just a little more transaction 
introspection this enables Turing-completeness), but the basic concept of 
"renting a UTXO of substantial value" appears sound to me.


Regards,
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jul 2, 2019, at 00:08, Tamas Blummer  wrote:
> 
> 
>> On Jul 1, 2019, at 20:52, Eric Voskuil  wrote:
>> 
>> I said that I would make no further comment given the belief that no new 
>> ideas were surfacing. However, after giving it some more thought on my own, 
>> I believe I have found the one case in which a person could value such 
>> encumbered coins.
>> 
>> In the case of tracking an asset that becomes worthless at a specific time, 
>> one could value a record of ownership, and the ability to trade ownership of 
>> the asset during the period. Consider colored coin type tracking of a 
>> theater ticket for a specific show, where the ticket is worthless by the end 
>> of the show.
> 
> 
> In other words you now see the utility of a register offered by UTXOs that 
> are only temporary availability to current owner. If there is a utility there 
> is also a value in it for them.

In other words I discovered a potentially-valid use case for you. The concern I 
expressed was that you had not presented one.

> I am glad we are on the same side on this utility

My goal is never to discourage, but understanding of provable behavior and 
utility. Our space is replete with unsupportable conjecture and hyperbole. 
There are no sides, just discovery of truth.

> and thanks to you and ZmnSCPxj we now have two additional uses cases for 
> UTXOs that are only temporarily accessible to their current owner.

Actually you have a single potentially-valid use case, the one I have 
presented. The others I have shown to be invalid (apart from scamming) and no 
additional information to demonstrate errors in my conclusions have been 
offered.

I’ve noticed that in subsequent posts you continue to imply that there is 
economic value in such tracking of any asset, and of course here imply the 
validity of your other use case, monetary lending. This, as I have shown, is 
not the case. Tracking of an asset of value beyond the net compound interest 
cost of dust is more cheaply accomplished by burning than by renting, and as I 
have shown, it is not accurate to claim that the encumbered coin can be used as 
money (or to track any asset of perpetual value). When the coin expires the 
money/asset holder becomes a bag holder, invalidating any initial value apart 
from scamming.

In the valid use case that I have demonstrated (tracking of expiring assets), 
the marketable value of the rented coin is not the market price of that coin, 
but the price paid for it. So for example, 1 coin rented at 10% APR for one 
year is worth .1 coin. And when a renter resells this tracking coin it is worth 
the fraction of this amount for the time remaining. The coin itself (i.e. its 
face value) cannot be used by the renter to purchase anything.

As such this is truly not a loan in the financial or economic sense. Given an 
actual loan the borrower can use the full value of the amount borrowed to 
purchase goods that can be used in production. Subsequent generation of 
products and thereby revenue is the source of yield on a loan (economically 
equivalent to dividend on an equity contract). This allows the borrower to 
repay the loan with interest. Without *any* usable capital over the term of the 
rental, there is no investment possible and the time value of the rented coin 
cannot be realized by the renter.

So the one potentially-valid scenario, a fixed-term tracking rental, is 
entirely an *expense*, not a loan. A financial loan incurs an interest expense, 
but also implies the value of the amount loaned is fully usable (i.e., consumed 
or traded) during the term (the reason to pay interest). That is money over 
time, yielding the time value of money. In this case the value of the loan at 
any time to the renter is simply the amortized interest remaining. This implies 
that no income can be generated from the rental “principle” by the renter. A 
price is paid for the rental and that value of the rental is fully exhausted by 
the end of the term, with no other benefit than the tracking that was purchased.

The person renting the fixed-term tracking coin (i.e. “owner”) can earn income 
by selling dust+1 outputs at the cost of capital, limited to a maximum term 
dictated by the cost of capital and the dust limit (as shown previously). 
Economically speaking, all business returns gravitate toward the cost of 
capital, including lending, and this is no different. But it cannot be said 
that the owner is a financial lender. The owner is simply selling 
non-depreciating (from his perspective) fixed-term tracking space.

The owner can of course trade rights to the controlling output. The rental 
contract has been prepaid (by your design, in order to shift counterparty 
risk). As such the traded contract has no yield and therefore contracting for 
its sale is a currency future, not an interest rate future as would be implied 
by a debt market. Yet FX speculation already exists for Bitcoin, requiring no 
covenant or rental market. This would seem to 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hello ZmnSCPxj,

> On Jul 2, 2019, at 12:33, ZmnSCPxj  wrote:
> 
> ‐‐‐ Original Message ‐‐‐
> On Tuesday, July 2, 2019 5:30 PM, Tamas Blummer  > wrote:
> 
>> The advertiser would thereby put the funds of the HODLer on risk of his 
>> misbehavior, which means the HODLer would have to trust the advertizing 
>> service.
> 
> No it would not :)


You are right. I noticed after sending my reply and then I sent two other. I 
apologize for being noisy.

Let me consolidate my thinking, here.

If there is a use for UTXOs with temporary control, then those who want that 
use will pay for it.

A user of a service that requires temporary control UTXOs would need to cover:

1. fees required by the service
2. the opportunity cost of temporary ownership paid to the original holder who 
gave up control.

If the service is operated by an entity billing user then it can use UTXOs of 
minimal value for its operation and practically ignore opportunity interest.
This is the case with theater tickets just and other simple colored coin like 
use of Bitcoin. Also in case of the unchained advertizement, if the service 
bills its user
for its internal re-allocation of an UTXO, then why would it need to use 
significant value temorary control UTXOs? Actually why not use plain UTXOs, to 
start with?

If however the service is a common good, a network without owner and therefore 
not billing on behalf of someone, but wants to protect itself from spam, then 
it is could require temporary access to significant value UTXOs and thereby 
induce opportunity cost to user. Alternatively it could require burning 
ordinary UTXOs. Burning indirectly benefits all HODLer, temporary control 
benefits those who consciously gave up control. I dislike burning as it is 
unsustainable.

If the implementation of temporary use is enforced by consenus such that it is 
transitive, then temporary use could be re-rented or sold to recover 
opportunity cost for no longer needed temporary access, making it useable for 
an other service.

Temporary access UTXOs with covenants allows us to build spam limited public 
services that are not owned by an operator and financially benefit HODLer 
offering them riskless interest.

Tamas Blummer


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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Sent with ProtonMail Secure Email.

‐‐‐ Original Message ‐‐‐
On Tuesday, July 2, 2019 5:30 PM, Tamas Blummer  wrote:

> Hello ZmnSCPxj,
>
> > On Jul 2, 2019, at 10:12, ZmnSCPxj zmnsc...@protonmail.com wrote:
> > As a counterargument, I observe that committing to the advertisement on the 
> > UTXO is similar to committing to a SCRIPT on a UTXO.
> > And I observe the Graftroot idea, wherein we commit to a public key on the 
> > UTXO, and admit a SCRIPT that is signed by the public key as a SCRIPT that 
> > unlocks the UTXO for spending.
> > By analogy, in my "advertising" scheme, instead of committing the 
> > advertisement on the UTXO, I can instead commit a public key (for example, 
> > the hash of the "advertiser pubkey" is used to tweak the onchain public 
> > key).
> > Then we use this advertiser pubkey to admit advertisements on the 
> > advertising network.
> > This advertiser pubkey is used to sign an "advertisement chain", which is a 
> > merklized singly-linked list whose contents are the actual advertisements, 
> > each node being signed using the advertiser pubkey.
> > To ensure that the advertiser does not sign multiple versions of this 
> > chain, we can have the signing nonce be derived from the height of the 
> > advertchain, such that signing the same height multiple times leads to 
> > private key revelation.
>
> The advertiser would thereby put the funds of the HODLer on risk of his 
> misbehavior, which means the HODLer would have to trust the advertizing 
> service.

No it would not :)

Onchain, the locked UTXO would be a 2-of-2 MuSig / 2p-ECDSA of the HODLer and 
the advertising broker.
The HODLer and advertising broker perform a (mostly-offchain) ritual that 
ensures that the HODLer gets a `nLockTime` transaction spending from this UTXO 
and paying it back to the HODLer, and that the advertising broker pays for rent 
of this UTXO, prior to the UTXO actually appearing onchain.

The UTXO requires both cooperation of HODLer and advertising broker in order to 
spend, and the HODLer only cares that it gets an `nLockTime` transaction and 
will no longer cooperate / will permanently delete its share of the key after 
getting this.

The MuSig / 2p-ECDSA pubkey used will then be tweaked (by addition in MuSig, by 
multiplication in 2p-ECDSA; the HOLDer need not even learn it, the advertising 
broker can tweak its pubkey in the Bitcoin-level transaction beforehand) to 
commit to a hash of the "Advertising pubkey".
Thus I say the UTXO "commits to the advertising pubkey", not "pays to the 
advertising pubkey".
Indeed, the pubkey of the advertising broker used on the Bitcoin blockchain can 
be very different from the advertising pubkey used on the advertchain.

This "Advertising pubkey" is the pubkey used in the advertchain.

The actual money on Bitcoin cannot be spent by the broker unilaterally.

However, what advertisement it will commit to on the advertchain, can be 
controlled unilaterally by the advertising broker.
That is the entire point: the HODLer rents out the UTXO to the advertising 
broker, relinquishes control over the advertchain, but retaining (eventual) 
control over the actual Bitcoins.
The advertising broker then has sole control of the advertchain, and can rent 
it out for smaller timeframes to actual service/product providers.


Regards,
ZmnSCPxj

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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hello ZmnSCPxj,

To be more precise, the value of the UTXO is severaly damaged that it is 
governed by rules of a de-facto side chain with different rules.
Therefore its value to those renting it from the advertizer is just that of the 
advertizement, which is not neccesarily following the opportunity cost.

The covenant supported temporary access is transitive, therefore anyone who is 
in temporary control of an UTXO can recover its cost by sub-renting.
The opportunity (riskless) interest provides a baseline of value on top of 
which you may have utility that is the advertizement.

Regards,

Tamas Blummer

> On Jul 2, 2019, at 11:30, Tamas Blummer  wrote:
> 
> Hello ZmnSCPxj,
> 
>> On Jul 2, 2019, at 10:12, ZmnSCPxj  wrote:
>> 
>> As a counterargument, I observe that committing to the advertisement on the 
>> UTXO is similar to committing to a SCRIPT on a UTXO.
>> And I observe the Graftroot idea, wherein we commit to a public key on the 
>> UTXO, and admit a SCRIPT that is signed by the public key as a SCRIPT that 
>> unlocks the UTXO for spending.
>> 
>> By analogy, in my "advertising" scheme, instead of committing the 
>> advertisement on the UTXO, I can instead commit a public key (for example, 
>> the hash of the "advertiser pubkey" is used to tweak the onchain public key).
>> Then we use this advertiser pubkey to admit advertisements on the 
>> advertising network.
>> 
>> This advertiser pubkey is used to sign an "advertisement chain", which is a 
>> merklized singly-linked list whose contents are the actual advertisements, 
>> each node being signed using the advertiser pubkey.
>> To ensure that the advertiser does not sign multiple versions of this chain, 
>> we can have the signing nonce be derived from the height of the advertchain, 
>> such that signing the same height multiple times leads to private key 
>> revelation.
> 
> The advertiser would thereby put the funds of the HODLer on risk of his 
> misbehavior, which means the HODLer would have to trust the advertizing 
> service.
> This is not the trustless separation the covenant achives.
> 
> Regards,
> 
> Tamas Blummer
> 



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hello ZmnSCPxj,

I share your goal to move everything possible off-chain.

The discussion of covenant is not an on/off-chain discussion, but if covenant 
is needed to solve problems we currently can not and which unlock significant 
innovation.

Consensus support of the covenant is only needed if an unchained setup using it 
is closed uncooperatively, otherwise there is not even a reason to disclose 
on-chain that a covenant was used.

Regards,

Tamas Blummer

> On Jul 2, 2019, at 11:30, Tamas Blummer  wrote:
> 
> Hello ZmnSCPxj,
> 
>> On Jul 2, 2019, at 10:12, ZmnSCPxj  wrote:
>> 
>> As a counterargument, I observe that committing to the advertisement on the 
>> UTXO is similar to committing to a SCRIPT on a UTXO.
>> And I observe the Graftroot idea, wherein we commit to a public key on the 
>> UTXO, and admit a SCRIPT that is signed by the public key as a SCRIPT that 
>> unlocks the UTXO for spending.
>> 
>> By analogy, in my "advertising" scheme, instead of committing the 
>> advertisement on the UTXO, I can instead commit a public key (for example, 
>> the hash of the "advertiser pubkey" is used to tweak the onchain public key).
>> Then we use this advertiser pubkey to admit advertisements on the 
>> advertising network.
>> 
>> This advertiser pubkey is used to sign an "advertisement chain", which is a 
>> merklized singly-linked list whose contents are the actual advertisements, 
>> each node being signed using the advertiser pubkey.
>> To ensure that the advertiser does not sign multiple versions of this chain, 
>> we can have the signing nonce be derived from the height of the advertchain, 
>> such that signing the same height multiple times leads to private key 
>> revelation.
> 
> The advertiser would thereby put the funds of the HODLer on risk of his 
> misbehavior, which means the HODLer would have to trust the advertizing 
> service.
> This is not the trustless separation the covenant achives.
> 
> Regards,
> 
> Tamas Blummer
> 



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hello ZmnSCPxj,

> On Jul 2, 2019, at 10:12, ZmnSCPxj  wrote:
> 
> As a counterargument, I observe that committing to the advertisement on the 
> UTXO is similar to committing to a SCRIPT on a UTXO.
> And I observe the Graftroot idea, wherein we commit to a public key on the 
> UTXO, and admit a SCRIPT that is signed by the public key as a SCRIPT that 
> unlocks the UTXO for spending.
> 
> By analogy, in my "advertising" scheme, instead of committing the 
> advertisement on the UTXO, I can instead commit a public key (for example, 
> the hash of the "advertiser pubkey" is used to tweak the onchain public key).
> Then we use this advertiser pubkey to admit advertisements on the advertising 
> network.
> 
> This advertiser pubkey is used to sign an "advertisement chain", which is a 
> merklized singly-linked list whose contents are the actual advertisements, 
> each node being signed using the advertiser pubkey.
> To ensure that the advertiser does not sign multiple versions of this chain, 
> we can have the signing nonce be derived from the height of the advertchain, 
> such that signing the same height multiple times leads to private key 
> revelation.

The advertiser would thereby put the funds of the HODLer on risk of his 
misbehavior, which means the HODLer would have to trust the advertizing service.
This is not the trustless separation the covenant achives.

Regards,

Tamas Blummer



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Tamas,

> Note that the advertizing service provider would need temporary access to 
> UTXOs of signficant value, so opportunity cost and thereby cost of 
> advertizing becomes significant.
> Covenants would allow the separation of the advertizing service from HODLer 
> funding it with significant UTXOs.
> HODLer could give temporary control to the service and the service could 
> broker those to others, but the original HODLer was sure to receive the UTXOs 
> back and the HODLer would not be bothered with the operation of the service.

Thank you for this thought.
It has challenged me to consider how to bring this capability out of the 
Bitcoin blockchain.

As a counterargument, I observe that committing to the advertisement on the 
UTXO is similar to committing to a SCRIPT on a UTXO.
And I observe the Graftroot idea, wherein we commit to a public key on the 
UTXO, and admit a SCRIPT that is signed by the public key as a SCRIPT that 
unlocks the UTXO for spending.

By analogy, in my "advertising" scheme, instead of committing the advertisement 
on the UTXO, I can instead commit a public key (for example, the hash of the 
"advertiser pubkey" is used to tweak the onchain public key).
Then we use this advertiser pubkey to admit advertisements on the advertising 
network.

This advertiser pubkey is used to sign an "advertisement chain", which is a 
merklized singly-linked list whose contents are the actual advertisements, each 
node being signed using the advertiser pubkey.
To ensure that the advertiser does not sign multiple versions of this chain, we 
can have the signing nonce be derived from the height of the advertchain, such 
that signing the same height multiple times leads to private key revelation.
Each header of the advertchain also includes a `CLTV`-like construct, which is 
the Bitcoin blockheight that must be reached first before another advertchain 
header can be added, containing a new advertisement that replaces the previous 
one.

This lets an advertising broker pay for some onchain UTXO to a HODLer, 
providing a `nLockTime`d onchain transaction returning the funds to the HODLer, 
with the UTXO paying to a 2-of-2 with a commitment to the advertiser pubkey.
Then the advertising broker can rent out the UTXO to providers who wish to 
advertise, though I have to figure out how to make this atomic (i.e. paying the 
advertiser onchain or on Lightning, would be enough for the provider to derive 
the advertchain header and its signature, for its own advertisement --- perhaps 
some minimal SCRIPT-like language on the advertchain can be done).

This lets the advertising broker case to work even without generalized 
covenants on the Bitcoin blockchain, while providing the same benefit of not 
bothering the HODLer who ultimately owns the funds each time advertisements 
need to be changed.
This gives the advantage that changes to the advertisement that is attested by 
a UTXO do not have any activity on the Bitcoin blockchain itself, only on the 
advertchain; at the cost that the advertising network now takes on the added 
bandwidth of handling several tiny blockchains of limited lifetime, instead of 
keeping the data on "which advertisement is valid" on the Bitcoin blockchain.

Regards,
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Good morning Eric and ZmnSCPxj,

> On Jul 2, 2019, at 05:45, ZmnSCPxj  wrote:
> 
> Good morning Eric, and Tamas,
> 
>> In the case of tracking an asset that becomes worthless at a specific time, 
>> one could value a record of ownership, and the ability to trade ownership of 
>> the asset during the period. Consider colored coin type tracking of a 
>> theater ticket for a specific show, where the ticket is worthless by the end 
>> of the show.
> 
> As it happens, I was playing around with another idea I am developing.
> And it involves something very much similar, but distinct.
> 
> In particular, currencies are worthless unless exchanged for things of value 
> to existent beings.
> And the discovery of things of value is enabled by advertising.
> The idea I am developing, is that of a "Bitcoin Classified Ads Network", 
> wherein ordinary P2PKH UTXOs (or P2WPKH equivalents) embed a commitment to an 
> advertisement.
> A secondary network of nodes (separate from the Bitcoin network) transmits 
> the actual advertisements, as well as the UTXOs being used to commit to them.
> This secondary network would then reject/purge advertisements once the UTXO 
> is spent on the Bitcoin blockchain.
> This makes advertising costly (for the opportunity cost of locking some money 
> in a UTXO until one has acquired actual paying custom) while reducing impact 
> on Bitcoin blockchain space (commitment to the advertisment is in the same 
> space as the ownership of the coin).
> Changing the advertisement one makes is possible, at the cost of paying for a 
> transaction in the Bitcoin blockchain to spend the old UTXO and publish a new 
> UTXO now committing to the new advertisement.
> 
> Of note is that I also derived that it would be beneficial, for some HODLers 
> to offer their funds for the purpose of making these advertisements.

All above aligns with my intuition that: on one side giving up temporary 
control of UTXOs represent opportunity cost and on the receiver side having 
temporary control can unlock utility they would pay for.
If the techical setup is trustless and return of control to those who gave it 
up temporarilty is certain, then this in combination means that HODLer are able 
to earn riskless interest by giving up control of their UTXOs temporarily.


> Some service or product provider would agree with an advertiser to lock some 
> coins of the advertiser for a limited amount of time, in exchange for payment 
> upfront, with the coin address committing to the indicate advertisement of 
> the service or product provider.
> This can be done by paying to a 2p-ECDSA (or with Schnorr, MuSig) public key, 
> with the service/product provider embedding a commitment to its advertisement 
> to its own key, and a pre-signed `nLockTime` transaction that lets the 
> advertiser recover the money.
> 
> This is in fact a similar use to the "theater ticket" case you mentioned, yet 
> distinct.
> In the case of the Bitcoin Classified Ads Network, it is the intermediate 
> addresses used before reclamation by the advertiser that is valuable, as they 
> also serve as commitments to advertisements, attesting to the (probable) 
> validity of the advertisement and making spam have a cost.
> Given that nodes of the Bitcoin Classified Ads Network will have memory 
> limits, advertisements whose "lockup-rate" (i.e. the amount of value of the 
> backing UTXO, divided by the size of the advertisement) are low could be 
> evicted from memory before advertisements with high lockup-rate, and thus be 
> less likely to propagate across the network.
> Thus service/product providers would want to increase their "marketing 
> budget" to be less likely to be evicted from nodes of the Bitcoin Classified 
> Ads Network, which is beneficial as it increases the minimum practical 
> lockup-rate needed to spam the network, thus making spam costly.
> 
> My current plan is that the provider can contact the advertiser in order to 
> effect changes to their advertisement.
> Then the provider and the advertiser sign a new timelocked reclamation 
> transaction, then sign a transaction moving from the old advertisement to the 
> new advertisement (presumably there is some protocol for ensuring the 
> advertiser gets paid for this, such as an HTLC that can be triggered by an 
> onchain payment or by an LN payment; I have the details in my processing 
> space but require some time to serialize to human-readabe format).
> 
> Arguably, this example seems to show that generalized covenants are not 
> needed in fact, if transfers of coin require paying to the issuer/lender of 
> the coin.
> Generalized covenants allows the provider (or ticket-holder in your example) 
> to effect transfers from one advertisement to another (or one ticket-holder 
> to another in your example) without cooperation with the advertiser (or 
> ticket-issuer in your example).
> This would be otherwise needed if we lock using a 2-of-2 address that has a 
> timelocked transaction to 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

> On Jul 1, 2019, at 20:52, Eric Voskuil  wrote:
> 
> I said that I would make no further comment given the belief that no new 
> ideas were surfacing. However, after giving it some more thought on my own, I 
> believe I have found the one case in which a person could value such 
> encumbered coins.
> 
> In the case of tracking an asset that becomes worthless at a specific time, 
> one could value a record of ownership, and the ability to trade ownership of 
> the asset during the period. Consider colored coin type tracking of a theater 
> ticket for a specific show, where the ticket is worthless by the end of the 
> show.
> 


In other words you now see the utility of a register offered by UTXOs that are 
only temporary availability to current owner. If there is a utility there is 
also a value in it for them.
I am glad we are on the same side on this utility and thanks to you and 
ZmnSCPxj we now have two additional uses cases for UTXOs that are only 
temporarily accessible to their current owner.

Since ZmnSCPxj also raised the question if covenants are needed at all, let me 
continue my thoughts on this in reply to his mail.

Tamas Blummer

> 
> 
>> On Jun 30, 2019, at 13:26, Tamas Blummer  wrote:
>> 
>> My argument does not need the comparison with ICOs.
>> 
>> They were just an example that people pay for the utility of register even 
>> though others think the tokens they keep track of are worthless.
>> 
>> Tamas Blummer
>> 
>> 
>>> On Jun 30, 2019, at 22:13, Eric Voskuil  wrote:
>>> 
>>> ICO tokens can be traded (indefinitely) for other things of value, so the 
>>> comparison isn’t valid. I think we’ve both made our points clearly, so I’ll 
>>> leave it at that.
>>> 
>>> Best,
>>> Eric
>>> 
 On Jun 30, 2019, at 12:55, Tamas Blummer  wrote:
 
 
> On Jun 30, 2019, at 20:54, Eric Voskuil  wrote:
> 
> Could you please explain the meaning and utility of “unforgeable 
> register” as it pertains to such encumbered coins?
 
 I guess we agree that some way of keeping track of ownership is 
 prerequisite for something to aquire value.
 We likely also agree that the security of that ownership register has 
 great influence to the value.
 
 The question remains if a register as utility in itself gives value to the 
 thing needed to use that register.
 I think it does, if people are interested in what it keeps track of, for 
 whatever reason, even for reasons you find bogus.
 
 It was not intentional, but I think I just explained why Ethereum aquired 
 higher market value by being register of ICO tokens.
 
 Now back to the coins encumbered with the debt covenant:
 Transactions moving them constitute a register of covered debt and you 
 need them to update that register.
 Should some people find such a register useful then those coins needed to 
 update this register will aquire value.
 Does not matter if you think the concept of covered debt is just as bogus 
 as ICOs.
 
 Here some good news: If they aquire value then they offer a way to 
 generate income for hodler by temporarily giving up control.
 
 Tamas Blummer
 
> 
> The meaning in terms of Bitcoin is clear - the “owner” of outputs that 
> represent value (i.e. in the ability to trade them for something else) is 
> recorded publicly and, given Bitcoin security assumptions, cannot be 
> faked. What is not clear is the utility of a record of outputs that 
> cannot be traded for something else. You seem to imply that a record is 
> valuable simply because it’s a record.
> 
> e
> 
>> On Jun 30, 2019, at 11:35, Tamas Blummer  wrote:
>> 
>> 
>>> On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
>>> 
>>> 
 On Jun 30, 2019, at 03:56, Tamas Blummer  
 wrote:
 
 Hi Eric,
 
> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
> 
> What loan? Alice has paid Bob for something of no possible utility to 
> her, or anyone else.
 
 Coins encumbered with the described covenant represent temporary 
 control of a scarce resource.
 
 Can this obtain value? That depends on the availability of final 
 control and ability to deal with temporary control.
>>> 
>>> For something to become property (and therefore have marketable value) 
>>> requires that it be both scarce and useful. Bitcoin is useful only to 
>>> the extent that it can be traded for something else that is useful. 
>>> Above you are only dealing with scarcity, ignoring utility.
>> 
>> There is a deeper utility of Bitcoin than it can be traded for something 
>> else. That utility is to use its unforgeable register.
>> We have only one kind of units in this register and by having covenants 
>> we would create other kinds that are while encumbered not fungible with 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[ZmnSCPxj via bitcoin-dev]

Good morning Eric, and Tamas,

> In the case of tracking an asset that becomes worthless at a specific time, 
> one could value a record of ownership, and the ability to trade ownership of 
> the asset during the period. Consider colored coin type tracking of a theater 
> ticket for a specific show, where the ticket is worthless by the end of the 
> show.

As it happens, I was playing around with another idea I am developing.
And it involves something very much similar, but distinct.

In particular, currencies are worthless unless exchanged for things of value to 
existent beings.
And the discovery of things of value is enabled by advertising.
The idea I am developing, is that of a "Bitcoin Classified Ads Network", 
wherein ordinary P2PKH UTXOs (or P2WPKH equivalents) embed a commitment to an 
advertisement.
A secondary network of nodes (separate from the Bitcoin network) transmits the 
actual advertisements, as well as the UTXOs being used to commit to them.
This secondary network would then reject/purge advertisements once the UTXO is 
spent on the Bitcoin blockchain.
This makes advertising costly (for the opportunity cost of locking some money 
in a UTXO until one has acquired actual paying custom) while reducing impact on 
Bitcoin blockchain space (commitment to the advertisment is in the same space 
as the ownership of the coin).
Changing the advertisement one makes is possible, at the cost of paying for a 
transaction in the Bitcoin blockchain to spend the old UTXO and publish a new 
UTXO now committing to the new advertisement.

Of note is that I also derived that it would be beneficial, for some HODLers to 
offer their funds for the purpose of making these advertisements.
Some service or product provider would agree with an advertiser to lock some 
coins of the advertiser for a limited amount of time, in exchange for payment 
upfront, with the coin address committing to the indicate advertisement of the 
service or product provider.
This can be done by paying to a 2p-ECDSA (or with Schnorr, MuSig) public key, 
with the service/product provider embedding a commitment to its advertisement 
to its own key, and a pre-signed `nLockTime` transaction that lets the 
advertiser recover the money.

This is in fact a similar use to the "theater ticket" case you mentioned, yet 
distinct.
In the case of the Bitcoin Classified Ads Network, it is the intermediate 
addresses used before reclamation by the advertiser that is valuable, as they 
also serve as commitments to advertisements, attesting to the (probable) 
validity of the advertisement and making spam have a cost.
Given that nodes of the Bitcoin Classified Ads Network will have memory limits, 
advertisements whose "lockup-rate" (i.e. the amount of value of the backing 
UTXO, divided by the size of the advertisement) are low could be evicted from 
memory before advertisements with high lockup-rate, and thus be less likely to 
propagate across the network.
Thus service/product providers would want to increase their "marketing budget" 
to be less likely to be evicted from nodes of the Bitcoin Classified Ads 
Network, which is beneficial as it increases the minimum practical lockup-rate 
needed to spam the network, thus making spam costly.

My current plan is that the provider can contact the advertiser in order to 
effect changes to their advertisement.
Then the provider and the advertiser sign a new timelocked reclamation 
transaction, then sign a transaction moving from the old advertisement to the 
new advertisement (presumably there is some protocol for ensuring the 
advertiser gets paid for this, such as an HTLC that can be triggered by an 
onchain payment or by an LN payment; I have the details in my processing space 
but require some time to serialize to human-readabe format).

Arguably, this example seems to show that generalized covenants are not needed 
in fact, if transfers of coin require paying to the issuer/lender of the coin.
Generalized covenants allows the provider (or ticket-holder in your example) to 
effect transfers from one advertisement to another (or one ticket-holder to 
another in your example) without cooperation with the advertiser (or 
ticket-issuer in your example).
This would be otherwise needed if we lock using a 2-of-2 address that has a 
timelocked transaction to reclaim the funds.

Regards,
ZmnSCPxj
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

It’s an exceedingly poor example. First, value is subjective. It matters not 
what other people may consider, only those who act. Given that people trade 
them (ICO tokens), they have value to those people. Second, the scenario would 
not function given that the value, as with money, is based on the ability to 
trade perpetually.

I said that I would make no further comment given the belief that no new ideas 
were surfacing. However, after giving it some more thought on my own, I believe 
I have found the one case in which a person could value such encumbered coins.

In the case of tracking an asset that becomes worthless at a specific time, one 
could value a record of ownership, and the ability to trade ownership of the 
asset during the period. Consider colored coin type tracking of a theater 
ticket for a specific show, where the ticket is worthless by the end of the 
show.

Now consider the value attributable to renting coin (e.g. to the tick issuer) 
in order to track the ticket. First, there is no net value in renting coin to 
pay confirmation (mining) fees on transfers. The cost of a fee is driven by 
competition and remains the same whether the coin used for payment is 
encumbered or not. In other words, even with value in tracking there is no 
*cost advantage* to renting of such coins for use as money.

But tracking an asset in this manner has required not only a fee for each 
trade, but also the burning of coin. By allowing the lender to recover the coin 
when the asset expires, this part of the cost of on-chain tracking can be 
time-shared (rented), and without depreciation of the coin.

In this case the lender is achieving both a time-locked hoard/speculation and a 
pre-paid rental return. The return to the lender would be the rental price 
minus the opportunity cost of not investing (ie, in production) this coin 
otherwise during that period. This is of course based on the economic principle 
that both hoarding and speculation are expected to produce no predictable 
return. As such the cost of the rental would be driven (by competition) toward 
the cost of capital (e.g. annualized 10% of the coin price) for the same 
period. 

Depending on the term, rental will be cheaper than the outright cost of burning 
the same minimum amount of coin (i.e. dust+1, assuming policy compliance) as 
required for tracking. As soon as the rental cost exceeds the minimum tracking 
burn, rental becomes more expensive than just purchasing the coin. So, for 
example, at 10% market return on capital (rental cost), purchasing the coin is 
cheaper than rental at any tracking term beyond 7.2 years.

As discussed previously, there can be no monetary value of such encumbered 
coins. And as shown above, the non-monetary (tracking) scenario is limited to 
fixed-term tracking. This use of Bitcoin would of course reduce the average 
cost of non-monetary blockchain storage. I’m not sure that is a use people want 
to facilitate with a protocol change, but that’s for the community to decide.

Best,
Eric

> On Jun 30, 2019, at 13:26, Tamas Blummer  wrote:
> 
> My argument does not need the comparison with ICOs.
> 
> They were just an example that people pay for the utility of register even 
> though others think the tokens they keep track of are worthless.
> 
> Tamas Blummer
> 
> 
>> On Jun 30, 2019, at 22:13, Eric Voskuil  wrote:
>> 
>> ICO tokens can be traded (indefinitely) for other things of value, so the 
>> comparison isn’t valid. I think we’ve both made our points clearly, so I’ll 
>> leave it at that.
>> 
>> Best,
>> Eric
>> 
>>> On Jun 30, 2019, at 12:55, Tamas Blummer  wrote:
>>> 
>>> 
 On Jun 30, 2019, at 20:54, Eric Voskuil  wrote:
 
 Could you please explain the meaning and utility of “unforgeable register” 
 as it pertains to such encumbered coins?
>>> 
>>> I guess we agree that some way of keeping track of ownership is 
>>> prerequisite for something to aquire value.
>>> We likely also agree that the security of that ownership register has great 
>>> influence to the value.
>>> 
>>> The question remains if a register as utility in itself gives value to the 
>>> thing needed to use that register.
>>> I think it does, if people are interested in what it keeps track of, for 
>>> whatever reason, even for reasons you find bogus.
>>> 
>>> It was not intentional, but I think I just explained why Ethereum aquired 
>>> higher market value by being register of ICO tokens.
>>> 
>>> Now back to the coins encumbered with the debt covenant:
>>> Transactions moving them constitute a register of covered debt and you need 
>>> them to update that register.
>>> Should some people find such a register useful then those coins needed to 
>>> update this register will aquire value.
>>> Does not matter if you think the concept of covered debt is just as bogus 
>>> as ICOs.
>>> 
>>> Here some good news: If they aquire value then they offer a way to generate 
>>> income for hodler by temporarily giving up control.
>>> 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

My argument does not need the comparison with ICOs.

They were just an example that people pay for the utility of register even 
though others think the tokens they keep track of are worthless.

Tamas Blummer


> On Jun 30, 2019, at 22:13, Eric Voskuil  wrote:
> 
> ICO tokens can be traded (indefinitely) for other things of value, so the 
> comparison isn’t valid. I think we’ve both made our points clearly, so I’ll 
> leave it at that.
> 
> Best,
> Eric
> 
>> On Jun 30, 2019, at 12:55, Tamas Blummer  wrote:
>> 
>> 
>>> On Jun 30, 2019, at 20:54, Eric Voskuil  wrote:
>>> 
>>> Could you please explain the meaning and utility of “unforgeable register” 
>>> as it pertains to such encumbered coins?
>> 
>> I guess we agree that some way of keeping track of ownership is prerequisite 
>> for something to aquire value.
>> We likely also agree that the security of that ownership register has great 
>> influence to the value.
>> 
>> The question remains if a register as utility in itself gives value to the 
>> thing needed to use that register.
>> I think it does, if people are interested in what it keeps track of, for 
>> whatever reason, even for reasons you find bogus.
>> 
>> It was not intentional, but I think I just explained why Ethereum aquired 
>> higher market value by being register of ICO tokens.
>> 
>> Now back to the coins encumbered with the debt covenant:
>> Transactions moving them constitute a register of covered debt and you need 
>> them to update that register.
>> Should some people find such a register useful then those coins needed to 
>> update this register will aquire value.
>> Does not matter if you think the concept of covered debt is just as bogus as 
>> ICOs.
>> 
>> Here some good news: If they aquire value then they offer a way to generate 
>> income for hodler by temporarily giving up control.
>> 
>> Tamas Blummer
>> 
>>> 
>>> The meaning in terms of Bitcoin is clear - the “owner” of outputs that 
>>> represent value (i.e. in the ability to trade them for something else) is 
>>> recorded publicly and, given Bitcoin security assumptions, cannot be faked. 
>>> What is not clear is the utility of a record of outputs that cannot be 
>>> traded for something else. You seem to imply that a record is valuable 
>>> simply because it’s a record.
>>> 
>>> e
>>> 
 On Jun 30, 2019, at 11:35, Tamas Blummer  wrote:
 
 
> On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
> 
> 
>> On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
>> 
>> Hi Eric,
>> 
>>> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
>>> 
>>> What loan? Alice has paid Bob for something of no possible utility to 
>>> her, or anyone else.
>>> 
>> 
>> Coins encumbered with the described covenant represent temporary control 
>> of a scarce resource.
>> 
>> Can this obtain value? That depends on the availability of final control 
>> and ability to deal with temporary control.
> 
> For something to become property (and therefore have marketable value) 
> requires that it be both scarce and useful. Bitcoin is useful only to the 
> extent that it can be traded for something else that is useful. Above you 
> are only dealing with scarcity, ignoring utility.
 
 There is a deeper utility of Bitcoin than it can be traded for something 
 else. That utility is to use its unforgeable register.
 We have only one kind of units in this register and by having covenants we 
 would create other kinds that are while encumbered not fungible with the 
 common ones.
 
 Units are certainly less desirable if encumbered with a debt covenant. You 
 say no one would assign them any value.
 
 I am not that sure as they still offer the utility of using the 
 unforgeable register, in this case a register of debt covered by reserves.
 You also doubt forcing debt to be covered by reserves is a good idea, I 
 got that, but suppose we do not discuss this here.
 If there are people who think it is a good idea, then they would find 
 having an unforgeable register of it useful and therefore units needed to 
 maintain that register valuable to some extent.
 
> 
>> I think you do not show the neccesary respect of the market.
> 
> I’m not sure what is meant here by respect, or how much of it is 
> necessary. I am merely explaining the market.
> 
 
 You are not explaining an existing market but claim that market that is 
 not yet there will follow your arguments.
 
>> Your rant reminds me of renowed economists who still argue final control 
>> Bitcoin can not have value, you do the same proclaiming that temporary 
>> control of Bitcoin can not have value.
> 
> It seems to me you have reversed the meaning of temporary and final. 
> Bitcoin is useful because of the presumption that there is no finality of 
> control. One presumes an ability 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

ICO tokens can be traded (indefinitely) for other things of value, so the 
comparison isn’t valid. I think we’ve both made our points clearly, so I’ll 
leave it at that.

Best,
Eric

> On Jun 30, 2019, at 12:55, Tamas Blummer  wrote:
> 
> 
>> On Jun 30, 2019, at 20:54, Eric Voskuil  wrote:
>> 
>> Could you please explain the meaning and utility of “unforgeable register” 
>> as it pertains to such encumbered coins?
> 
> I guess we agree that some way of keeping track of ownership is prerequisite 
> for something to aquire value.
> We likely also agree that the security of that ownership register has great 
> influence to the value.
> 
> The question remains if a register as utility in itself gives value to the 
> thing needed to use that register.
> I think it does, if people are interested in what it keeps track of, for 
> whatever reason, even for reasons you find bogus.
> 
> It was not intentional, but I think I just explained why Ethereum aquired 
> higher market value by being register of ICO tokens.
> 
> Now back to the coins encumbered with the debt covenant:
> Transactions moving them constitute a register of covered debt and you need 
> them to update that register.
> Should some people find such a register useful then those coins needed to 
> update this register will aquire value.
> Does not matter if you think the concept of covered debt is just as bogus as 
> ICOs.
> 
> Here some good news: If they aquire value then they offer a way to generate 
> income for hodler by temporarily giving up control.
> 
> Tamas Blummer
> 
>> 
>> The meaning in terms of Bitcoin is clear - the “owner” of outputs that 
>> represent value (i.e. in the ability to trade them for something else) is 
>> recorded publicly and, given Bitcoin security assumptions, cannot be faked. 
>> What is not clear is the utility of a record of outputs that cannot be 
>> traded for something else. You seem to imply that a record is valuable 
>> simply because it’s a record.
>> 
>> e
>> 
>>> On Jun 30, 2019, at 11:35, Tamas Blummer  wrote:
>>> 
>>> 
 On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
 
 
> On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
>> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
>> 
>> What loan? Alice has paid Bob for something of no possible utility to 
>> her, or anyone else.
>> 
> 
> Coins encumbered with the described covenant represent temporary control 
> of a scarce resource.
> 
> Can this obtain value? That depends on the availability of final control 
> and ability to deal with temporary control.
 
 For something to become property (and therefore have marketable value) 
 requires that it be both scarce and useful. Bitcoin is useful only to the 
 extent that it can be traded for something else that is useful. Above you 
 are only dealing with scarcity, ignoring utility.
>>> 
>>> There is a deeper utility of Bitcoin than it can be traded for something 
>>> else. That utility is to use its unforgeable register.
>>> We have only one kind of units in this register and by having covenants we 
>>> would create other kinds that are while encumbered not fungible with the 
>>> common ones.
>>> 
>>> Units are certainly less desirable if encumbered with a debt covenant. You 
>>> say no one would assign them any value.
>>> 
>>> I am not that sure as they still offer the utility of using the unforgeable 
>>> register, in this case a register of debt covered by reserves.
>>> You also doubt forcing debt to be covered by reserves is a good idea, I got 
>>> that, but suppose we do not discuss this here.
>>> If there are people who think it is a good idea, then they would find 
>>> having an unforgeable register of it useful and therefore units needed to 
>>> maintain that register valuable to some extent.
>>> 
 
> I think you do not show the neccesary respect of the market.
 
 I’m not sure what is meant here by respect, or how much of it is 
 necessary. I am merely explaining the market.
 
>>> 
>>> You are not explaining an existing market but claim that market that is not 
>>> yet there will follow your arguments.
>>> 
> Your rant reminds me of renowed economists who still argue final control 
> Bitcoin can not have value, you do the same proclaiming that temporary 
> control of Bitcoin can not have value.
 
 It seems to me you have reversed the meaning of temporary and final. 
 Bitcoin is useful because of the presumption that there is no finality of 
 control. One presumes an ability to trade control of it for something 
 else. This is temporary control. Final control would be the case in which, 
 at some point, it can no longer be traded, making it worthless at that 
 point. If this is known to be the case it implies that it it worthless at 
 all prior points as well.
 
 These are distinct scenarios. The fact that temporary (in my 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

> On Jun 30, 2019, at 20:54, Eric Voskuil  wrote:
> 
> Could you please explain the meaning and utility of “unforgeable register” as 
> it pertains to such encumbered coins?

I guess we agree that some way of keeping track of ownership is prerequisite 
for something to aquire value.
We likely also agree that the security of that ownership register has great 
influence to the value.

The question remains if a register as utility in itself gives value to the 
thing needed to use that register.
I think it does, if people are interested in what it keeps track of, for 
whatever reason, even for reasons you find bogus.

It was not intentional, but I think I just explained why Ethereum aquired 
higher market value by being register of ICO tokens.

Now back to the coins encumbered with the debt covenant:
Transactions moving them constitute a register of covered debt and you need 
them to update that register.
Should some people find such a register useful then those coins needed to 
update this register will aquire value.
Does not matter if you think the concept of covered debt is just as bogus as 
ICOs.

Here some good news: If they aquire value then they offer a way to generate 
income for hodler by temporarily giving up control.

Tamas Blummer

> 
> The meaning in terms of Bitcoin is clear - the “owner” of outputs that 
> represent value (i.e. in the ability to trade them for something else) is 
> recorded publicly and, given Bitcoin security assumptions, cannot be faked. 
> What is not clear is the utility of a record of outputs that cannot be traded 
> for something else. You seem to imply that a record is valuable simply 
> because it’s a record.
> 
> e
> 
>> On Jun 30, 2019, at 11:35, Tamas Blummer  wrote:
>> 
>> 
>>> On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
>>> 
>>> 
 On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
 
 Hi Eric,
 
> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
> 
> What loan? Alice has paid Bob for something of no possible utility to 
> her, or anyone else.
> 
 
 Coins encumbered with the described covenant represent temporary control 
 of a scarce resource.
 
 Can this obtain value? That depends on the availability of final control 
 and ability to deal with temporary control.
>>> 
>>> For something to become property (and therefore have marketable value) 
>>> requires that it be both scarce and useful. Bitcoin is useful only to the 
>>> extent that it can be traded for something else that is useful. Above you 
>>> are only dealing with scarcity, ignoring utility.
>> 
>> There is a deeper utility of Bitcoin than it can be traded for something 
>> else. That utility is to use its unforgeable register.
>> We have only one kind of units in this register and by having covenants we 
>> would create other kinds that are while encumbered not fungible with the 
>> common ones.
>> 
>> Units are certainly less desirable if encumbered with a debt covenant. You 
>> say no one would assign them any value.
>> 
>> I am not that sure as they still offer the utility of using the unforgeable 
>> register, in this case a register of debt covered by reserves.
>> You also doubt forcing debt to be covered by reserves is a good idea, I got 
>> that, but suppose we do not discuss this here.
>> If there are people who think it is a good idea, then they would find having 
>> an unforgeable register of it useful and therefore units needed to maintain 
>> that register valuable to some extent.
>> 
>>> 
 I think you do not show the neccesary respect of the market.
>>> 
>>> I’m not sure what is meant here by respect, or how much of it is necessary. 
>>> I am merely explaining the market.
>>> 
>> 
>> You are not explaining an existing market but claim that market that is not 
>> yet there will follow your arguments.
>> 
 Your rant reminds me of renowed economists who still argue final control 
 Bitcoin can not have value, you do the same proclaiming that temporary 
 control of Bitcoin can not have value.
>>> 
>>> It seems to me you have reversed the meaning of temporary and final. 
>>> Bitcoin is useful because of the presumption that there is no finality of 
>>> control. One presumes an ability to trade control of it for something else. 
>>> This is temporary control. Final control would be the case in which, at 
>>> some point, it can no longer be traded, making it worthless at that point. 
>>> If this is known to be the case it implies that it it worthless at all 
>>> prior points as well.
>>> 
>>> These are distinct scenarios. The fact that temporary (in my usage) control 
>>> implies the possibility of value does not imply that finality of control 
>>> does as well. The fact that (renowned or otherwise) people have made errors 
>>> does not imply that I am making an error. These are both non-sequiturs.
>>> 
 I say, that temporary control does not have value until means dealing with 
 it are offered, and that is I work 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

Could you please explain the meaning and utility of “unforgeable register” as 
it pertains to such encumbered coins?

The meaning in terms of Bitcoin is clear - the “owner” of outputs that 
represent value (i.e. in the ability to trade them for something else) is 
recorded publicly and, given Bitcoin security assumptions, cannot be faked. 
What is not clear is the utility of a record of outputs that cannot be traded 
for something else. You seem to imply that a record is valuable simply because 
it’s a record.

e

> On Jun 30, 2019, at 11:35, Tamas Blummer  wrote:
> 
> 
>> On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
>> 
>> 
>>> On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
>>> 
>>> Hi Eric,
>>> 
 On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
 
 What loan? Alice has paid Bob for something of no possible utility to her, 
 or anyone else.
 
>>> 
>>> Coins encumbered with the described covenant represent temporary control of 
>>> a scarce resource.
>>> 
>>> Can this obtain value? That depends on the availability of final control 
>>> and ability to deal with temporary control.
>> 
>> For something to become property (and therefore have marketable value) 
>> requires that it be both scarce and useful. Bitcoin is useful only to the 
>> extent that it can be traded for something else that is useful. Above you 
>> are only dealing with scarcity, ignoring utility.
> 
> There is a deeper utility of Bitcoin than it can be traded for something 
> else. That utility is to use its unforgeable register.
> We have only one kind of units in this register and by having covenants we 
> would create other kinds that are while encumbered not fungible with the 
> common ones.
> 
> Units are certainly less desirable if encumbered with a debt covenant. You 
> say no one would assign them any value.
> 
> I am not that sure as they still offer the utility of using the unforgeable 
> register, in this case a register of debt covered by reserves.
> You also doubt forcing debt to be covered by reserves is a good idea, I got 
> that, but suppose we do not discuss this here.
> If there are people who think it is a good idea, then they would find having 
> an unforgeable register of it useful and therefore units needed to maintain 
> that register valuable to some extent.
> 
>> 
>>> I think you do not show the neccesary respect of the market.
>> 
>> I’m not sure what is meant here by respect, or how much of it is necessary. 
>> I am merely explaining the market.
>> 
> 
> You are not explaining an existing market but claim that market that is not 
> yet there will follow your arguments.
> 
>>> Your rant reminds me of renowed economists who still argue final control 
>>> Bitcoin can not have value, you do the same proclaiming that temporary 
>>> control of Bitcoin can not have value.
>> 
>> It seems to me you have reversed the meaning of temporary and final. Bitcoin 
>> is useful because of the presumption that there is no finality of control. 
>> One presumes an ability to trade control of it for something else. This is 
>> temporary control. Final control would be the case in which, at some point, 
>> it can no longer be traded, making it worthless at that point. If this is 
>> known to be the case it implies that it it worthless at all prior points as 
>> well.
>> 
>> These are distinct scenarios. The fact that temporary (in my usage) control 
>> implies the possibility of value does not imply that finality of control 
>> does as well. The fact that (renowned or otherwise) people have made errors 
>> does not imply that I am making an error. These are both non-sequiturs.
>> 
>>> I say, that temporary control does not have value until means dealing with 
>>> it are offered, and that is I work on. Thereafter might obtain value if 
>>> final control is deemed too expensive or not attainable, we shall see.
>> 
>> The analogy to rental of a consumable good does not apply to the case of a 
>> non-consumable good. If it cannot be traded and cannot be consumed it cannot 
>> obtain marketable value. To this point it matters not whether it exists.
>> 
> 
> I meant with control the control of entries in the register which I think is 
> the deeper utility of Bitcoin. Final control is meant to be the opposite of 
> temporary which is the time limited control with some expiry.
> 
> Thank you for your thoughts as they help to sharpen my arguments.
> 
> Best,
> 
> Tamas Blummer
> 
>> Best,
>> Eric
>> 
>>> Tamas Blummer
>>> 
>>> 
> 
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

> On Jun 30, 2019, at 19:41, Eric Voskuil  wrote:
> 
> 
>> On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
>> 
>> Hi Eric,
>> 
>>> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
>>> 
>>> What loan? Alice has paid Bob for something of no possible utility to her, 
>>> or anyone else.
>>> 
>> 
>> Coins encumbered with the described covenant represent temporary control of 
>> a scarce resource.
>> 
>> Can this obtain value? That depends on the availability of final control and 
>> ability to deal with temporary control.
> 
> For something to become property (and therefore have marketable value) 
> requires that it be both scarce and useful. Bitcoin is useful only to the 
> extent that it can be traded for something else that is useful. Above you are 
> only dealing with scarcity, ignoring utility.

There is a deeper utility of Bitcoin than it can be traded for something else. 
That utility is to use its unforgeable register.
We have only one kind of units in this register and by having covenants we 
would create other kinds that are while encumbered not fungible with the common 
ones.

Units are certainly less desirable if encumbered with a debt covenant. You say 
no one would assign them any value.

I am not that sure as they still offer the utility of using the unforgeable 
register, in this case a register of debt covered by reserves.
You also doubt forcing debt to be covered by reserves is a good idea, I got 
that, but suppose we do not discuss this here.
If there are people who think it is a good idea, then they would find having an 
unforgeable register of it useful and therefore units needed to maintain that 
register valuable to some extent.

> 
>> I think you do not show the neccesary respect of the market.
> 
> I’m not sure what is meant here by respect, or how much of it is necessary. I 
> am merely explaining the market.
> 

You are not explaining an existing market but claim that market that is not yet 
there will follow your arguments.

>> Your rant reminds me of renowed economists who still argue final control 
>> Bitcoin can not have value, you do the same proclaiming that temporary 
>> control of Bitcoin can not have value.
> 
> It seems to me you have reversed the meaning of temporary and final. Bitcoin 
> is useful because of the presumption that there is no finality of control. 
> One presumes an ability to trade control of it for something else. This is 
> temporary control. Final control would be the case in which, at some point, 
> it can no longer be traded, making it worthless at that point. If this is 
> known to be the case it implies that it it worthless at all prior points as 
> well.
> 
> These are distinct scenarios. The fact that temporary (in my usage) control 
> implies the possibility of value does not imply that finality of control does 
> as well. The fact that (renowned or otherwise) people have made errors does 
> not imply that I am making an error. These are both non-sequiturs.
> 
>> I say, that temporary control does not have value until means dealing with 
>> it are offered, and that is I work on. Thereafter might obtain value if 
>> final control is deemed too expensive or not attainable, we shall see.
> 
> The analogy to rental of a consumable good does not apply to the case of a 
> non-consumable good. If it cannot be traded and cannot be consumed it cannot 
> obtain marketable value. To this point it matters not whether it exists.
> 

I meant with control the control of entries in the register which I think is 
the deeper utility of Bitcoin. Final control is meant to be the opposite of 
temporary which is the time limited control with some expiry.

Thank you for your thoughts as they help to sharpen my arguments.

Best,

Tamas Blummer

> Best,
> Eric
> 
>> Tamas Blummer
>> 
>> 



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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jun 30, 2019, at 03:56, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
>> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
>> 
>> What loan? Alice has paid Bob for something of no possible utility to her, 
>> or anyone else.
>> 
> 
> Coins encumbered with the described covenant represent temporary control of a 
> scarce resource.
> 
> Can this obtain value? That depends on the availability of final control and 
> ability to deal with temporary control.

For something to become property (and therefore have marketable value) requires 
that it be both scarce and useful. Bitcoin is useful only to the extent that it 
can be traded for something else that is useful. Above you are only dealing 
with scarcity, ignoring utility.

> An example where final control is not available are areas and jurisdictions 
> where land can not be bought only long time rents are offered.
> People pay high prices there to step in place of the renter in an existing 
> long term rent contract and they figured out the contracts that work under 
> these restrictions.

I was careful to point out that bitcoin is not in any way consumable. Occupying 
scarce land is a service to people. Units of bitcoin encumbered such that they 
cannot be traded for something of service to a person do not constitute 
property. You cannot even polish them, stack them on the floor, and roll around 
on them.

> Bitcoin’s predominant use is already store of value. Many assume not only 
> wealth preservation but that it would allow to purchase of more goods in the 
> future than now.

Yet it has been established that these encumbered coins cannot purchase 
anything of value except to the extent that an imperfect market is unaware of 
the scam.

> This leads to unwillingnes to give up final control, which can resolve in two 
> ways:
> 
> - Increasing fiat prices for final control. We see this, and is actually 
> further reinforcing unwillingnes to give up final control.
> - dealing with temporary control. We do not yet have the technical means of 
> even representing this. Developing them is my goal.

Your goal is clear and not at issue.

> I think you do not show the neccesary respect of the market.

I’m not sure what is meant here by respect, or how much of it is necessary. I 
am merely explaining the market.

> Your rant reminds me of renowed economists who still argue final control 
> Bitcoin can not have value, you do the same proclaiming that temporary 
> control of Bitcoin can not have value.

It seems to me you have reversed the meaning of temporary and final. Bitcoin is 
useful because of the presumption that there is no finality of control. One 
presumes an ability to trade control of it for something else. This is 
temporary control. Final control would be the case in which, at some point, it 
can no longer be traded, making it worthless at that point. If this is known to 
be the case it implies that it it worthless at all prior points as well.

These are distinct scenarios. The fact that temporary (in my usage) control 
implies the possibility of value does not imply that finality of control does 
as well. The fact that (renowned or otherwise) people have made errors does not 
imply that I am making an error. These are both non-sequiturs.

> I say, that temporary control does not have value until means dealing with it 
> are offered, and that is I work on. Thereafter might obtain value if final 
> control is deemed too expensive or not attainable, we shall see.

The analogy to rental of a consumable good does not apply to the case of a 
non-consumable good. If it cannot be traded and cannot be consumed it cannot 
obtain marketable value. To this point it matters not whether it exists.

Best,
Eric

> Tamas Blummer
> 
> 
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hi Eric,

> On Jun 29, 2019, at 23:21, Eric Voskuil  wrote:
> 
> What loan? Alice has paid Bob for something of no possible utility to her, or 
> anyone else.
> 

Coins encumbered with the described covenant represent temporary control of a 
scarce resource.

Can this obtain value? That depends on the availability of final control and 
ability to deal with temporary control.

An example where final control is not available are areas and jurisdictions 
where land can not be bought only long time rents are offered.
People pay high prices there to step in place of the renter in an existing long 
term rent contract and they figured out the contracts that work under these 
restrictions.

Bitcoin’s predominant use is already store of value. Many assume not only 
wealth preservation but that it would allow to purchase of more goods in the 
future than now.
This leads to unwillingnes to give up final control, which can resolve in two 
ways:

- Increasing fiat prices for final control. We see this, and is actually 
further reinforcing unwillingnes to give up final control.
- dealing with temporary control. We do not yet have the technical means of 
even representing this. Developing them is my goal.

I think you do not show the neccesary respect of the market.

Your rant reminds me of renowed economists who still argue final control 
Bitcoin can not have value, you do the same proclaiming that temporary control 
of Bitcoin can not have value.

I say, that temporary control does not have value until means dealing with it 
are offered, and that is I work on. Thereafter might obtain value if final 
control is deemed too expensive or not attainable, we shall see.

Tamas Blummer




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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

> On Jun 28, 2019, at 12:21, Tamas Blummer  wrote:
> 
> Hi Eric,
> 
> Thank you for your questions as they show what concepts need further 
> explanation, so you understand the potential of this proposal and how it is 
> helpful to the ecosystem.
> 
> Riskless zero bond is in fact the most basic concept of financial 
> engineering. Yes, there are engineers of finance, those who create and price 
> financial derivatives (e.g. options, swaps) and structure products such as 
> e.g. ABS, CDO etc.
> I used to be one of them.
> 
> A zero bond formalizes the observation that 1 unit of currency in the future 
> has different value than 1 unit available now. It is called riskless if it is 
> certain to receive the payment in the future.
> If we put this difference of vaue in relation to the amount then we get the 
> “risk freee rate of return”, that you heard of.
> 
> E.g if one is willing to exchange 1 BTC unconditionally available now for 1.1 
> BTC certainly available in a year but not earlier, then the implied “risk 
> free rate of return” is apparently 10% pa. for Bitcoins.

As I implied, I am well aware of the concept of risk free rate of return, which 
is a hypothetical.

> The transaction I construct in the first example achives exactly this, 
> because:

Which implies you have created an actual instance of this heretofore purely 
hypothetical concept.

> Bob forgoes his ability to use his unconditionally available coins by giving 
> them to Alice with a covenant that ensures that Bob will receive them back 
> later.
> Bob does this because Alice pays for this in advance. 
> 
> Alice can further transfer the coins encumbered by the covenant, but they 
> will unconditionally return to Bob in the future. 

Why would Alice pay for this at all?

> The utility of these encumbered coins is that they prove that the loan is 
> fully covered by reserves.

What loan? Alice has paid Bob for something of no possible utility to her, or 
anyone else.

Bitcoin is a money, not consumable in any way. Its utility arises strictly from 
the possibility of eventually being traded for something else. The only reason 
to accept it in trade is that expectation. Removing that possibility, even 
transitively and over time, removes all utility immediately. In my previous 
comments I described a necessary discount to NPV, but it’s safe to say that 
must be 100%.

> How valuable this utility is will be decided by the market

Value is of course subjective, and is determined by individual preferences. Yet 
what is the value one might place on something of no use? Economically speaking 
it must be zero, since value is a subjective evaluation of utility (i.e. 
service to a person).

Consider the case of the 1000 and 500 rupee demonetization. Long lines of 
people formed at banks to convert to notes to others of equivalent denomination.

https://en.m.wikipedia.org/wiki/2016_Indian_banknote_demonetisation

Of course, upon announcement of the demonetization, existing 1000/500 rupee 
notes were discounted for the cost/risk of accomplishing this conversion 
(several people are reported to have died in the effort). If there was no such 
conversion possible, making the notes worthless at the future date, the 
*immediate* effect would necessarily have been 100% discount.

This of course sets aside any consumable value of the “paper” notes, such as 
burning for heat or trading as novelties (e.g. demonetized Zimbabwean 100T 
notes currently trading), as Bitcoin is not capable of being consumed. It also 
sets aside the possibility that some people were unaware of the demonetization.

Who would accept such a note today that was known to be worthless at a future 
date? If they did, who would would accept it from them? It’s literally an 
on-chain scamcoin, where the first sucker must find another, and he another, an 
so on, as soon as possible, before it expires, leaving the last sucker holding 
the bag. Given an efficient market (i.e perfect knowledge of the scam), zero 
initial value is implied.

> and that value will be interest received by those who temporarily give up 
> control. I am guess the value will be low but positive.

Giving up control of money for a period does not imply the money is useful to 
someone else. Bob might as well lock his coins in a time capsule, for which he 
has the only key, and ask Alice to pay him for it.

> Lending does not mandate fractional or full reserves.

I didn’t say that it does. Lending implies no “mandate”. But the nature of 
fractional reservation is inherent in every loan/investment. 

> These are choices the market or regulators enforce.

Fractional reservation is not a consequence of statutory or market controls. 
The level of hoarding vs. lending is a consequence of individual time 
preference.

> Full reserve banking is not a fiction but is how things worked before 
> introduction of gold receipts. A bank could only lend gold coins it possesed. 
> Perils of fractional reserve were felt repeatedly by 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[David A. Harding via bitcoin-dev]

On Fri, Jun 28, 2019 at 10:27:16AM +0200, Tamas Blummer via bitcoin-dev wrote:
> The value of these outputs to Charlie is the proof that he has
> exclusive control of the coins until maturity.
>
> Alice can not issue promissory notes in excess of own capital or
> capital that she was able to borrow. No coin inflation or fractional
> reserve here, which also reduces the credit risk Charlie takes.

I believe these goals are obtainable today without any consensus
changes.  Bob can provably timelock bitcoins using CLTV or CSV in a
script that commits to the outpoint (txid, vout) of an output that will
be used as a colored coin to track the debt instrument.  The colored
coin, which has no appreciable onchain value itself, can then be
trustlessly traded, e.g. from Alice to Charlie to Dan as you describe.  

Anyone with a copy of the script Bob paid, the confirmed transaction he
included it in, and the confirmed transaction history of the colored
coin can trustlessly verify the ownership record---including that no
inflation or fractional reserve occurred.

I believe the RGB working group has set for itself the goal[1] of making
trustless colored coin protocols more efficient when performed on top of
Bitcoin.  I'd also suggest reading about Peter Todd's concept of
single-use seals[2].  You may want to investigate these ideas and see
whether they can be integrated with your own.

[1] https://github.com/rgb-org/spec/blob/master/00-introduction.md
[2] 
https://petertodd.org/2016/commitments-and-single-use-seals#bitcoin-transaction-outputs-as-single-use-seals

-Dave
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Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Tamas Blummer via bitcoin-dev]

Hi Eric,

Thank you for your questions as they show what concepts need further 
explanation, so you understand the potential of this proposal and how it is 
helpful to the ecosystem.

Riskless zero bond is in fact the most basic concept of financial engineering. 
Yes, there are engineers of finance, those who create and price financial 
derivatives (e.g. options, swaps) and structure products such as e.g. ABS, CDO 
etc.
I used to be one of them.

A zero bond formalizes the observation that 1 unit of currency in the future 
has different value than 1 unit available now. It is called riskless if it is 
certain to receive the payment in the future.
If we put this difference of vaue in relation to the amount then we get the 
“risk freee rate of return”, that you heard of.

E.g if one is willing to exchange 1 BTC unconditionally available now for 1.1 
BTC certainly available in a year but not earlier, then the implied “risk free 
rate of return” is apparently 10% pa. for Bitcoins.

The transaction I construct in the first example achives exactly this, because:

Bob forgoes his ability to use his unconditionally available coins by giving 
them to Alice with a covenant that ensures that Bob will receive them back 
later.
Bob does this because Alice pays for this in advance.

Alice can further transfer the coins encumbered by the covenant, but they will 
unconditionally return to Bob in the future.

The utility of these encumbered coins is that they prove that the loan is fully 
covered by reserves.

How valuable this utility is will be decided by the market and that value will 
be interest received by those who temporarily give up control. I am guess the 
value will be low but positive.

Lending does not mandate fractional or full reserves. These are choices the 
market or regulators enforce. Full reserve banking is not a fiction but is how 
things worked before introduction of gold receipts. A bank could only lend gold 
coins it possesed. Perils of fractional reserve were felt repeatedly by the 
Bitcoin ecnomy e.g. in the collaps of MtGox.

The idea to return to full reserve banking is not unique to gold bugs or 
Bitcoin but recently a popular vote was initiated in Switzerland to force Swiss 
banks to full reserves with respect to lending. This popular vote achived  24% 
support [1] which is quite remarkable if considered that the topic is not 
trivial as also our exchange shows.

I published today a writing in medium, that explains the concept of fractional 
vs. full reserve banking in conjunction with this proposal. Please read: 
https://medium.com/@tamas.blummer/full-reserve-banking-with-bitcoin-462b21ae9479
 


I would welcome feedback on the generalized covenant construct or its 
implementation, as I think it can open up much more uses than the few examples 
I gave.

Tamas Blummer

[1] Vollgeld Initiative: 
https://www.bfs.admin.ch/bfs/de/home/statistiken/politik/abstimmungen/jahr-2018/2018-06-10/vollgeld-initiative.html
 

> On Jun 28, 2019, at 19:25, Eric Voskuil  wrote:
> 
> Hi Tamas,
> 
> There are a number of economic assumptions contained herein. While I 
> understand you would like to focus on implementation, the worst bugs are 
> requirements bugs. IMO these should be addressed first. I’ve addressed some 
> possible issues inline.
> 
>> On Jun 28, 2019, at 01:27, Tamas Blummer via bitcoin-dev 
>> > > wrote:
>> 
>> I start with a formalisation of loans as common in finance:
>> 
>> A zero bond is a contract between two parties Alice and Bob whereby Alice 
>> receives an amount less than P and has to pay back P at a later time point 
>> called maturity.
>> The difference between the amount received and P is the interest implied by 
>> the contract. E.g. receiving 1 Bitcoin (> in a year is the same as getting a loan with 10% p.a. interest.
>> 
>> The inherent risk in the contract is that Alice may not honor the agreement 
>> or be bankrupt by then.
>> 
>> If we could programmatically guarantee that Alice honors the contract then 
>> we would be able to create a riskless zero bond, the fundation of financial 
>> engineering.
> 
> I’m not aware of the basis of this statement. While people use the term “risk 
> free rate of return” there has never actually been such a thing. It’s not 
> clear to me how a unicorn has been the foundation of “financial engineering”, 
> but I’m not also clear and what is intended by “engineering” in this sense. 
> Generally engineering is the implementation of higher level concepts. It is 
> those concepts that constitute requirements here.
> 
> At a minimum, interest cannot be guaranteed by this proposal, which implies 
> that at best it guarantees, setting aside changes in purchasing power, a 
> return of principle minus economic 

Re: [bitcoin-dev] Generalized covenants with taproot enable riskless or risky lending, prevent credit inflation through fractional reserve

[Eric Voskuil via bitcoin-dev]

Hi Tamas,

There are a number of economic assumptions contained herein. While I understand 
you would like to focus on implementation, the worst bugs are requirements 
bugs. IMO these should be addressed first. I’ve addressed some possible issues 
inline.

> On Jun 28, 2019, at 01:27, Tamas Blummer via bitcoin-dev 
>  wrote:
> 
> I start with a formalisation of loans as common in finance:
> 
> A zero bond is a contract between two parties Alice and Bob whereby Alice 
> receives an amount less than P and has to pay back P at a later time point 
> called maturity.
> The difference between the amount received and P is the interest implied by 
> the contract. E.g. receiving 1 Bitcoin ( a year is the same as getting a loan with 10% p.a. interest.
> 
> The inherent risk in the contract is that Alice may not honor the agreement 
> or be bankrupt by then.
> 
> If we could programmatically guarantee that Alice honors the contract then we 
> would be able to create a riskless zero bond, the fundation of financial 
> engineering.

I’m not aware of the basis of this statement. While people use the term “risk 
free rate of return” there has never actually been such a thing. It’s not clear 
to me how a unicorn has been the foundation of “financial engineering”, but I’m 
not also clear and what is intended by “engineering” in this sense. Generally 
engineering is the implementation of higher level concepts. It is those 
concepts that constitute requirements here.

At a minimum, interest cannot be guaranteed by this proposal, which implies 
that at best it guarantees, setting aside changes in purchasing power, a return 
of principle minus economic interest on that principle (ie opportunity cost). 
Given that purchasing power changes over time, risk increases with the term of 
the loan. As such this is not riskless - both volatility and opportunity cost 
remain as risks.

> A systemic problem with loans is that the lender might operate on fractional 
> reserve, that is lending more than his capital.

This is not a systemic problem, this is the very nature of lending. Fractional 
reserve is simply a state banking term used to describe the fact that people 
invest (lend) a fraction of their savings and hoard the rest. It matters not 
that banks or individuals do this, credit expansion is inherent in economy. 
Without it there is no investment and therefore no production whatsoever.

> Unchecked inflation of money supply through fractional reserve is creating a 
> mess in the world we live in. Bitcoin could overcome this mess implementing 
> this proposal!

You seem to be conflating state banking with the effects of investing. Taxpayer 
support for bank investment creates both a moral hazard (and the resulting 
misallocation of capital to state-favored projects, creating the famed economic 
“business cycle”) and is a manifestation of persistent monetary inflation (ie 
seigniorage is a source taxation. Investment implies credit expansion, and the 
level of this expansion is controlled by time preference alone.

> I stop here with finance speak as the purpose of this mail is not to dive 
> into finance, but to show how loans with full reserve check could be 
> implemented in Bitcoin.
> 
> 1. Receiving the loan is a payment from Bob to Alice, but we need a 
> restriction how Alice can use the funds, so Bob can get them back 
> unconditionally at maturity, so lending is riskless to him.
> 2. Bob wants to receive interest, since he gives up his control of the coins 
> until maturity, he can not use them elsewhere until then. That interest could 
> be paid in advance, this can be solved with Bitcoin as is.

Interest cannot be paid in advance. This implies nothing more than a smaller 
amount of principle.

> How do we allow Alice to use the coins, that is: split/merge and transfer 
> them to others, but still ensure Bob can claim them back at maturity?
> 
> We ensure that Alice can only send the coins to outputs that inherit a 
> taproot path of validation (using http://bitcoin.sipa.be/miniscript/): 
> 'and(time(100),pk(C))' where C is Bob’s key and 100 is maturity
> 
> This requires a generalization of the Bitcoin Covenants Idea[1] such that it 
> nicely fits with taproot as follows:
> 
> 1. A covenant in the form of '_ covenant C’ on output means that it can be 
> spent to an output that maches the covenant pattern with placeholder _  and 
> the output(s) will be assigned 'covenant C'.
> 2. A covenant that mandates an output script with alternate validation paths 
> can also assign alternate covernants to be inherited by the output(s) 
> depending on which path was used to spend the input eg. 'covenant or(c 
> covenant C, d covernant D)’
> 3. The resulting covenant of outputs should be reduced following boolean 
> algebra, e.g. or(b,or(b,a)) to or(b, a)
> 4. express transitivity with 'covenant transitive’ which means the output 
> will have the same covenant as the input
> 5. allow to omit covenant on the output with 'covenant