Pegging and Double Deposit Escrow: "Hello world" from yours truly dzimbeck

INTRODUCTION

Hi everyone, this is David Zimbeck (dzimbeck) from BitHalo/BlackHalo/BitBay. You can confirm this account by asking me on bitcointalk or reddit if need be. For those of you that don't know, when I first started coding BitHalo 3 years ago, I had to teach myself Python (and programming) from scratch. It was hell. 12-16 hour days. I was stuck in North Dakota in -50 below temperatures recently separated from my wife and dead focused on coding Double Deposit Escrow. I was unable to find a reliable coder and was broke so had to do it myself. For anyone who has worked the oil rigs in Dakota, you should know that there is no social life there (no women within 100 miles haha). I literally stayed in my trailer for 3 months to bash out a functional prototype.

The result? The WORLDS FIRST smart contracting software, first multi-signature client (months before Armory and at least a year before Ethereum)

The software was to be a fully customizable offer/counter-offer contracting system. For making UNBREAKABLE CONTRACTS. Not selling dreams, not selling vaporware. No bullshit. This was meant to be the hammer of crypto. I'm not a blogger, I'm the type of guy who speaks first and thinks later. As I can see this platform doing extremely well, I felt like this would be a good (decentralized) platform for media. For now at least. So I'm going to take the time to explain why double deposit escrow is so important. Then I will discuss pegging and why it matters. Then you may not see me post for a while because I will be coding and don't want to distract myself too much. I don't have a marketing team, no PR, no angels. Just time to finish this beast of software.

If you haven't checked lately, both Bitbay and BitHalo/BlackHalo had the worlds first decentralized markets although it was only covered by Vice. The news likes to pretend like BitHalo doesn't exist. Yet... there it was. Built on the excellent Bitmessage platform. For those that wondered about the source it can be downloaded from my server as well as all the distros. Recently I updated the Linux Windows and Mac builds. Although before I am to announce it on r/Bitcoin I wanted to do a few more updates. The most recent version has "user friendly templates" with one active so far. The "cash for coins" template which tracks the fiat price of the coin... like a decentralized LocalBitcoins.

So what is double deposit escrow and why should you care?

REAL WORLD UNBREAKABLE CONTRACTS: Double deposit escrow

The idea is simple. The repercussions, endless. Both parties put a deposit into a joint account. They then agree to destroy the funds. This serves as a disincentive to break the agreement. ANY AGREEMENT. No fancy computer code. No "pie in the sky" Ethereum contracts with promises of computers walking your dog and doing your laundry. No this agreement is truly trustless. You don't need to trust the coder. No judges. No lawyers. It is the most simple form of enforcement available.

The analogy is like this: We both have a gun to each others heads and if either of us lie, we both lose. Thus we must work together to honor our agreements.

This is the first peaceful enforcement in history. If you stop and think deep about it, all modern contracts are backed by guns. Behind every lawyer is a gun. This is why it was so important to me to popularize this idea in society. My company doesn't matter, but the IDEA must survive.

What can be done with this? Well, self-assurance can replace insurance. You can have BARTER (for example a farm co-op... you don't even need Bitcoin), decentralized exchange using micro-trading, trustless wire transfers, no more ebay empty box scams, international business without trust, its perfect for employment/outsourcing (no more lazy outsourcers lying about credentials and padding hours), you can make private contracts without lawyers, the list is endless.

Tell me, what could YOU use double deposit to improve?

An example deal, Bob and Alice (its always Bob and Alice isn't it) decide they want to enter a purchase. Bob wants to sell his guitar for 100 dollars. So in BitHalo, Alice puts up 100(payment) and 100 deposit. Bob puts up 100 for deposit as well. (This happens simultaneously. For the techno geeks, read my whitepaper. I made the software when malleability was a thing, but now you can do it in one transaction with checklocktimeverify although the software is compatible with ALL coins in theory)

So we have:
Bob -100
Alice -200

Bob sends the guitar to have:
Bob -200 (deposit minus guitar)
Alice -100 (deposit and payment plus guitar)

At no point can Alice steal, she must release the funds or pay double. And that's a basic DDE contract.

But don't let the word "double" fool you. It implies that two parties deposit. In the software there is MUCH more flexibility than that. You can do unilateral contracts (guarantor) where only one side deposits, you can set custom deposit levels etc. Escrows can be extended on mutual consent, the software translates to 92 languages and has tons of ninja features like steganography, joint accounts, pay to email and with more to come.

Note that an extortion attack or someone defaulting out of spite is not a wise decision. As there is a reputation system for starters AND the attack would never be profitable since the amount of times you need to pull it off must be at least more than what you lose. If you put equal amounts to the payment you must first convince the counter-parties to settle for losing their full deposit AND somehow pull that off at least 50% of the time.

So in my eyes, it is the PERFECT contract.

The thing is, the news has been hyping Ethereum for a while. And granted, under the hood matters too which is what Ethereum works on. The Bitcoin scripting system is a bit weak, the "Bitcoin foundation" takes forever to make decisions and is centralized etc. People forget though. All contracts NEED enforcement. How can a DAO force the company who receives cash to accurately do their accounting to pay dividends to the members? In fact, how can a DAO do anything but vote? There is a famous saying "too many cooks spoil the soup". There has been a lot of talk about DAPPS and Smart Contracts but the news so quickly forgets that Double Deposit Escrow in BitHalo was the first smart contract in crypto! It is still the only software that has a full user interface for Smart Contracts. Also, Ethereum contracts will STILL need to use deposits to enforce REAL WORLD AGREEMENTS. A computer cannot tell if the box you got from E-Bay is empty. The only people who know the truth is the victim and assailant. This is where double deposit escrow shines. The BitHalo/BlackHalo client can be made for Ethereum and even Steem as long as they have multisignature. Anyways, I'm just shedding light on the importance of enforcement using incentives or disincentives in contracts with money on a blockchain. Ethereum and Vitalik as always, have my blessings. My concern was always simply marketing and fund chasing without a product, and bloat. On a side note, I'm not sure how Steem doesn't bloat the blockchain like crazy. Can anyone enlighten me as to how they address bloat? Is this service centralized?

PEGGING: By controlling the most important law of value... supply

This unique pegging concept was an idea that I proposed in Bitbay a project I was contracted into about a year and half ago. The original owners of the project left the coin with a good share of what was raised unfortunately. This left me coding the project on top of the Halo work with very limited funding. However, this also positioned the pegging as the ultimate test market in Bitbay. Is it possible to make a coin rise from the ashes like a phoenix?

YES it is!

There are many ways to peg. The most pure and simple peg proposal has not been done by any coin yet. But it will happen in this coin. The method relies on freezing and unfreezing funds. Lets say you have a total of 1 million coins in supply. Those coins lets say hold a value a dollar. You want to raise the price to two dollars. So one way of doing this is to FREEZE 50% of the coins.

Thus .5 million will be LIQUID, movable and .5 million will be FROZEN immovable. So now with the lower supply, the demand if it remains exactly the same with the same volume will force a rise in price to $2.

Why is this such a game changer? Because it removes the market makers, the pumpers and the lot.

LOW VOLUME currencies can now BACK their own coins by freezing coins to adjust the volume and demand.

Lets take an extreme example. Lets say that you are the only person left in your coins community. You want the coins to be worth a dollar but they are worthless. SO you promise to back the coins with your own money. But you are poor! Have no fear, you can do it with even 1000 dollars. You freeze 99.9% of the coins to leave only 1000 coins. Then you put your 1000 dollar buy wall on the exchange so now the liquid coins cannot be sold for less because you would end up buying them all!!

This means, that coins can first of all promise long term slow growth of the coin... by setting reasonable inflation/deflation rates to match volume and demand. And then, only the projects usefulness and popularity would matter. It would still leave room for speculation but eliminate volatility! This has been termed a "rolling peg" or as the Bitbay community calls it "User Value Protection"

One thing to realize here: If Bob had 100 coins and 50% were frozen. He would have 50 frozen and 50 liquid. IF the network decides later to inflate because of increased demand, he would have access to those frozen coins. The pegging that I'm coding will do this for ALL users EQUALLY. So nobody has an unfair advantage. Everyone is the bank. Rates in the first incarnation of this, will probably be limited to 1-2% a day maximum increase or decrease and there will be minimum liquidity sending requirements.

How are we deciding inflation/deflation rates as you might ask? Well, simple really. Staking has been proven to be fair and secure. So the miners will be able to case a vote. Recently we did the first multisignature staking in Blackcoin so I'm going to be able to leverage that for more control over outputs in a staking transaction.

And finally, there will be a way to send frozen coins with the condition that they are "locked" for 3 months. This makes the movement of those funds slow but inevitable. This means you can do loans without trust!! Simply exchange frozen funds for liquid funds at a discount. You can also do bonds, credit swaps and all kinds of amazing complex financial instruments thought to be impossible before.

So hopefully this post opens your eyes on how much power the blockchain contains. And this is just a friendly reminder about unbreakable contracts. Hopefully the Steem community will discuss it more. Its a major paradigm shift but a really cool one. Slowly but surely, power is returning to the people.