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I understand Bitcoin software can be used for private currencies. Can it be used to create a private currency (the NewCurrency) where there is only one issuer of NewCurrency and any monies raised are invested. So that investments "belong" to the holders of the NewCurrency, and any returns on the investments benefit the holders of the NewCurrency (i.e. improve exchange rates against other currencies). Issuer of NewCurrency can quote the net asset value of the investments daily (like for open ended funds), which supports the value (i.e. exchange rate) of the NewCurrency?

Does Bitcoin software/infrastructure support implementation of this?

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    Let me see if I understand: you want to create a new currency which is controlled by someone? You don't need bitcoin to do that. Just create something unique that only you own and annouce it as a currency. People may want to use it or not... Bitcoin does not have one issuer. It is completely decentralized. It is controlled by everyone. – nmat Oct 7 '11 at 18:10
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If I understand you correctly, the answer is yes. You could use a Bitcoin-like system simply to track the movement of 'shares' or 'units'. All the 'coins' could start out pre-mined, and the system's sole purpose could be to track the movement of those units.

However, there would be a lot of reasons why this would be a bad idea. The primary one is this: the Bitcoin system makes a lot of trade-offs to get the benefit of decentralization (nobody needs to trust anyone else at all ever). If you want to have one central authority anyway, you are trading off all those things for nothing.

Securing the block chain requires sufficient hashing power such that a malicious organization can't easily muster 51% of it. So to keep the system secure on a day-to-day basis, you'd need some way to fund that massive amount of computing power. It's hard to see what benefit you'd get back for that cost.

There are systems, even cryptographic ones with similar properties, that are more suitable for a centralized currency. The basic design change would be that instead of having a block chain, you'd simply have the central authority (or authorities) sign all transactions.

For example, if I had 50 units of this currency, I could request a signed and dated statement from the central authority saying that I had those coins and showing my public key. If I want to transfer 10 units to you, I make a signed statement saying so and get the central authority to sign it. You can now prove you have those 10 coins with that signed statement. I can prove I have 40 coins by showing the signed statements and the central authority can't argue I made a transaction I didn't make because I have to sign them. So you get the same security properties and don't need all the CPU power.

  • Remember that Bitcoin will eventually stop paying block rewards and will switch over to fee-subsidized mining. The same model could support a privately-issued network. Since the fees come from users sending coins to one another, they wouldn't be "double issued" or such. I the central issuer simply control how many coins are in circulation, the Bitcoin protocol would allow the circulation to take care of itself. – David Perry Oct 10 '11 at 18:11
  • You would at least want to change the model so that instead of piling hashes onto blocks, the central authority simply signs them. (The central authority could cheat, of course, but the victims would have proof and could sue them.) – David Schwartz Oct 10 '11 at 18:16
  • You don't necessarily need the central authority to sign anything. Just view the central authority as the "issuing bank" and let other clients handle other transactions independently. The Bitcoin protocol will work just fine once the coins are in the wild, the coins simply enter the economy from a non-distributed source. – David Perry Oct 10 '11 at 19:54
  • That assumes the currency can amass sufficient hashing power to secure itself. A lot of currencies have failed to do so. If you have a central authority, it seems both much harder and much less necessary to secure with hashing power. Bitcoins are secured with hash only because they have no central authority. – David Schwartz Oct 10 '11 at 20:21
  • True enough, perhaps it's not an ideal solution but it could be used. Also, the blockchain mechanism isn't just a method of reducing/eliminating centralization, it also outsources the cost of securing and operating the transaction database. Still, @ChrisAcheson is probably correct in stating that Open Transactions might be the better solution. – David Perry Oct 11 '11 at 0:01
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For a private currency, you'd want a digital bearer certificate system (such as Open Transactions) instead of a Bitcoin-like system.

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this IS possible to do with bitcoin.

Create a new genesis block. Total number of coins to produce that can be produced within the first block. Dont release the client and refuse incoming connections. mining after this will only process transactiosn ofcourse, but that is all you want anyway.

Viola. One man blockchain.

  • How can transactions be made if no incoming connections are accepted? – Highly Irregular Oct 7 '11 at 19:56
  • He would make the transactions himself. – David Schwartz Oct 7 '11 at 20:22
  • modified to allow transactiosn with a flat client but no block generation – MaxSan Oct 8 '11 at 9:15
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You could but it would be pointless. Bitcoin was designed from the ground up to support a decentralized economy that requires no entity to trust any other entity.

Using that infrastructure for a centrally controlled currency that has ability to create "trust" would be horribly inefficient.

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