A Reset for Bitcoin

Security Notes

German Chancellor Angela Merkel frowned on Cyprus. So Italians and Spaniards panicked, pulled their money out of their bank accounts, and bought an obscure cryptocurrency by the name of Bitcoin.

When all this happened, in 2013, Bitcoin was just learning to walk, setting itself up, not ready for prime time. Pick your metaphor. But there it was, and now it was thrust into the limelight. Half-baked, it soared nonetheless, warts, blemishes, misfittings, and all. Since then, its proponents have been pushing Bitcoin hard, driven by a tantalizing vision of a “Joseph Dream” in which all other currencies bow before the new king.

When you start a long walk with ill-fitting shoes, you are tempted not to stop, but rather to parade through your blisters and pain. But if your trip is really long, you’d better step aside, switch shoes, and then continue. Welcome to Bitcoin:Reset.

The most troubling aspect of Unreset Bitcoin is its inherent instability. The fundamental solution to this problem, of course, is a replay of the way fiat currencies achieve their stability. Only in this case the price-stability agent, which we’ll call the PSA, should be established as part of the Bitcoin:Reset protocol.

The PSA would be funded through the very non-innovative mechanism called taxation. Money would be collected as a percentage of a transaction (other taxation mechanisms are possible), and the tax-funded PSA would divide its holdings, with 50% going to Bitcoins and 50% to a fiat currency, say U.S. dollars. Over time, these holdings would increase and enable PSA to intervene in a counter-flow mode. When the Bitcoin price soars, the PSA would flood the market with Bitcoins. When the price loses ground, the PSA would buy them up. The effect would be proportional to the PSA’s financial power.

But who should design the PSA protocol? Unreset Bitcoin is run by a largely unchallenged, self-appointed cabal that tweaks the rules here and there. To be durable, serious, and transparent, the Bitcoin steering committee will have to be elected by the community it manages. Beautiful—but how will the Bitcoin election protocol be set up? For example, would it be proportional to Bitcoin wealth? A good reset idea is needed to allow the PSA, elections, enhancements of algorithms, and so on, to take place.

Here is a reset idea: BitMint is a non-speculative cryptocurrency that trades at par with the U.S. dollar. It offers all the enticing goodies offered by Bitcoin, and more. But, of course, it is “centralized,” so it does not pass the Satoshi Nakamoto test of not requiring trust in fallible human beings. If you pay or get paid with BitMint, you implicitly trust the BitMint mint.

Recently, the BitMint team developed a powerful protocol that enables a community of BitMint traders to shift at once to a decentralized trading regimen, and in such a way that the traders, or a subset thereof, can reverse the transition (if they are not happy with it), re-entering the centralized BitMint trading protocol.

Now, what does that mean? It means the Bitcoin community is hereby invited to trade in a BitMint-centralized mode for a time, and use this time to unhurriedly develop a robust protocol covering all the points that need review and adjustment, taking on elections, the PSA, and so on. At a preset time, trading would emerge from the “centralized womb” into decentralized freedom, with all its engineering perfectly designed.

Hence, while newborn babies don’t have the option to return to the womb for more “cooking,” Bitcoin:Reset can be reversed to its centralized origins.

Not only will Bitcoin:Reset offer the means to “change shoes” for the long march toward success, but it will also attract Main Street’s attention. As the PSA proves itself, as the current self-appointed back-room Bitcoin executives are properly elected, the risk will deflate to acceptable levels and the average Joe will buy his beer with Bitcoin:Reset and even opt to receive his paycheck in this currency.

By way of analogy, consider the Declaration of Independence. Written in the stress and rush of the emergence of this epic story we call the United States of America, this document eventually led to that much longer, much more deliberate effort by many of the same visionaries, the U.S. Constitution.

Unreset Bitcoin was catapulted into the limelight before its design had a chance to mature and be refined, so let’s reset the currency and re-establish it on deliberate, well-thought-out premises.

-Gideon Samid • Gideon@BitMint.com