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How would one peg the price to existing bitcoin (honest question)?

• btilly 14y ago
  See https://en.bitcoin.it/wiki/Contracts#Example_5:_Trading_across_chains https://en.bitcoin.it/wiki/Contracts#Example_5:_Trading_acro... for how to verify trades across currencies without trust. So what you would need to do is have an account in both currencies with large amounts of currency in it, and publicly advertise that you will trade across currencies in some predetermined ratio. If your account has enough currency to succeed in handling people who might deliberately try to trade against you, then you will successfully peg currencies. Admittedly an attempt to provide a peg like this might fail. But what is in it for the entity trying to do it? Quite simply, that entity presumably starts with a much larger amount of the new currency than they used for establishing the peg. If you can successfully create the peg, your net worth decreased by the amount of bitcoin you had to accumulate to create the peg, and increased by the amount of other currency that you had. So you make a handsome profit. (Conversely you have the risk that people will set about mining your new currency and converting it all to bitcoin through your peg, then when you have to abandon the peg you've lost the bitcoin you had to purchase to try to establish said peg.) There are a number of tricks that can improve your odds of establishing a successful peg. But that's the principle.