[Cryptography] Zimbabwean Bitcoin, was Re: Shorting Bitcoin

[John Levine]

In article <E1eNfIJ-000FVk-E1 at elasmtp-mealy.atl.sa.earthlink.net> you write:
>At 08:08 AM 12/4/2017, John Levine wrote:
>>But that's not how shorting works.
>
>Yes, I know how shorting works -- currently.
>
>But the whole point of cryptocurrencies is that they don't have to mimic every feature (or bug) in current currency systems. ...

>But standard physics provides at least one example where "negative" (anti) particles work, so there is hope for currency systems which incorporate "short" positions naturally.

I have to say, I couldn't ask for a better example of "blockchains are magic."

Real world markets have all those complex rules about naked short
sales not because they don't know how to make negative ledger entries,
but to prevent market manipulation and outright fraud.  Market
manipulation is from selling fake shares to try to depress the price
before you buy from suckers to cover, the outright fraud is when
someone tries to collect the shares you sold that don't exist and you
don't have them.  That's why you have to borrow any shares you short
(and pay the real owner interest) so the shares you sell are real.
It's also way your broker and regulators have margin rules so when
it's time to collect on a short sale or short futures position, you
have enough to pay what you owe.

Every intro to Bitcoin seems to have a mandatory slide of a 100
trillion Zimbabwean dollar note, and a pompous explanation of how that
can never happen to Bitcoin.  Remember that your Bitcoin wallet
doesn't actually have a balance; the balance you see is just the sum
of all the its transactions.  One of the rules computing that sum is
that the inputs to each transaction have to be at least as much as the
outputs.

But let's wave our hands and now we have positronic Bitcoins.  We
could repeal the rule about inputs exceeding outputs.  If I want to
sell a thousand bitcoins, I create the transaction, add a nice juicy
transaction fee, and wait for a miner to pick it up.  Because I am a
nice person, I sincerely intend to buy enough coins later to get back
to zero.  What could go wrong?  Personally this is my favorite
approach, since it promptly leads to the Zimbabwe scenario, and puts
Bitcoin out of its misery.

Well, OK, how about a secured deal where you can sell coins you don't
own so long as someone who does have enough coins vouches for you.
Technically that's not hard, but if you think for two seconds,
administratively it's no different from the vouching party selling the
coins since that's who's going to pay when you default, and anything
that happens between you and her after that is outside the scope of
the blockchain.  So there's no reason to put it on the blockchain
since it's just a private loan between the voucher and you.

It's not impossible to do short sales of anything, but the reason
markets have all those rules is not because they are stupid, it's
because they understand all the problems the rules avoid and the
inevitable math when people sell things they don't own.

R's,
John

PS: See PS on my previous message in this thread.