Merchant Mining and the Proof-of-Commerce Protocol
The “mining” industry is bursting with innovation, right now. It started as a way to incentivize people to support the Bitcoin network without allowing any one entity to take control, but has grown with new blockchain technologies. Cryptocurrencies are now being used to incentivize contribution to all kinds of initiatives, like solar energy adoption and the race to cure diseases like cancer. Instead of mining bitcoins by solving a cryptographic math problem, you can mine solarcoins or curecoins by generating photoelectricity or folding proteins, respectively, rather than by wasting processing power. Society could accomplish a lot of great things this way without the need for a central authority, but if we want to have a real impact, we need to get more people using cryptocurrency.
Merchant mining is the process of doing exactly that. Merchants are “mined” by convincing them to adopt cryptocurrency; the idea was conceived by MerchantCoin, which plans for miners and merchants alike to be rewarded with XMC for Bitcoin adoption. This still requires another mining mechanism to secure the blockchain, which in the case of MerchantCoin is handled by Bitcoin miners that utilize the Master Protocol in return for Mastercoins. MerchantCoin tokens are automatically redeemed when a merchant has transacted at least $25 in in BTC, thus stimulating the Bitcoin economy with a supplementary altcoin.
This could do great things for merchant adoption of Bitcoin. MerchantCoin can verify it has signed up many miners (or “advocates” as they call them) via their website, already. The founder has real estate platform and development experience and has already facilitated the sale of some large properties for cryptocurrency. Their team is also developing some other co-projects, such as a decentralized point-of-sale platform, exchange, and multi-coin wallet as they search for a way to generate revenue in the process.
This still leaves unanswered one very important question: how can we validate that cryptocurrency-based commerce has occurred? This led to the development of another new concept called proof-of-commerce. Rather than proving to have solved a SHA256 function or held coins for a certain amount of time–as in proof-of-work or proof-of-stake — proof-of-commerce is the process of validating the use of Bitcoin. Although the technology for this has not yet been developed, several hypothetical methods exist, and the MerchantCoin team is in a convenient position to do this.
Since MerchantCoin runs on Mastercoin, which runs on the Bitcoin blockchain, it can see all bitcoin transactions (and therefore account balances). Bitcoin miners embed information about the Merchant Coin network in blocks alongside Bitcoin data; link a MerchantCoin address to a Bitcoin address, and XMC can be granted to an advocate and merchant when one or more Bitcoin transactions totaling over a certain amount are detected. If Mastercoin was integrated with other cryptocurrencies’ mining networks, it could detect commerce conducted in those, as well, potentially in a trustless manner.
The exact manner in which they plan to proceed isn’t clear yet; although I was given the chance to look at the draft of their white paper, it’s not yet ready to show to the general public. The talk I heard about a decentralized POS system seemed to be a step in the right direction, though. The concept behind it is sound, and if Merchant Coin is going to be as successful as Bitcoin, it will follow the same open source and trust-free principles.