ETC Proof of Work Course: 20. Integrating Bit Gold in Ethereum Classic

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In the previous class, 19, we explained that all cryptocurrencies are community fiat money, but that at least proof of work (POW) coins have an objective physical base that makes them unforgeably costly and scarce, while proof of stake (POS) coins have no objective base.

In this class, 20, we will talk about integrating Bit Gold into Ethereum Classic (ETC) to dispel any doubts that the money is sound.

Bit Gold was the original idea that eventually gave rise to Bitcoin. Bit Gold are the block hashes buried in the blocks that are not used as money but as a protection wall.

ETC supports all the components necessary to release the Bit Gold embedded in the system, and to create an efficient Bit Gold based economy.

All Cryptocurrencies Are Community Fiat Money

It is important to note again that Bitcoin, ETC, Litecoin, and all current POW blockchains are fiat community money as we explained in the previous class.

What determines their issuance is just a software parameter, such as “print X coins every block, and discount that by Y every number of blocks”.

Although it is true that no coins can be printed before a lot of work has been done for the block, the reality is that it is trivial, and a subjective “community” decision, to change these parameters.

However, it important to point out that POW cryptocurrencies are much harder and sound than POS coins because they are truly decentralized, therefore it is much more difficult to achieve in them a global consensus to arbitrarily change their monetary policies.

Bit Gold As A Way to Eliminate Any Remaining Uncertainty

Nevertheless, POW coins still have a remaining uncertainty in their monetary policies because of their purely subjective nature.

The solution that I have proposed, inspired by Nick Szabo’s ideas, is to integrate Bit Gold into a network such as ETC.

Ethereum Classic and the other POW blockchains already produce Bit Gold, which are the cryptographic hashes that seal the blocks.

The Bit Gold is embedded inside the chains and never used for anything other than as a wall of defense.

But, they could be released to the public and become transferable if they were turned into NFTs and became tradeable in decentralized exchanges.

Using the Bit Gold with NFTs and ERC-20 Tokens

ETC is optimal for this transformation because it is programmable, so it supports NFTs, decentralized exchanges, and ERC-20 tokens.

NFTs would represent the Bit Gold hashes, which are non-fungible units with irregular values.

Decentralized exchanges would be used to trade the NFTs, the Bit Gold bundles mentioned below, and the ERC-20 tokens that would be issued against these bundles.

ERC-20 smart contracts would be used to bundle groups of Bit Gold NFTs to form equally valuable quantities of Bit Gold. More or less the way gold is bundled into gold bars that are standardized quantities so they may be easily used for trading, transfers, and backing others assets.

The ERC-20 tokens would be issued as fungible and divisible tokens that would work as coins backed by the Bit Gold. Very much like the gold standard before fiat currencies became prevalent.

This means that whenever anyone would want the Bit Gold back, they could just redeem their ERC-20 tokens by sending them back to the ERC-20 smart contracts, the tokens would be burned, and then users would receive the NFTs that represented the Bit Gold bundles.

Rationale for Integrating Bit Gold into ETC

Bit Gold in ETC would definitely solve not only the uncertainty left in its community fiat token and the trustworthiness of its still subjective monetary policy, but would also solve both the supposed fee model threat that POW blockchains have and the capped supply problem, which is related.

The fee model threat is the idea that fees alone will not pay for the security budget of POW blockchain such as Bitcoin and ETC in the future because people will use cheaper ways to send money.

The capped supply problem is related because it is the idea that when the supplies and issuance of BTC and ETC dry out overtime, then miners will depend only on transaction fees to pay for their operations, but if fees will not be high enough, then the systems may fail.

Integrating Bit Gold into ETC would turn ETC miners into miners of Bit Gold which, like gold, will exist indefinitely as long as there are miners willing to invest in mining it.

Thank you for reading this article!

To learn more about ETC please go to: https://ethereumclassic.org