Russel, thanks for the information. That's what I was after. Not water-based, but that ethanol absorbs water from the environment

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After installing new breaker points/cam -combo, they seem to work just fine. At first I had a doubt, if the breaker's spring was too stiff, but it doesn't affect the engine's behavior.
When testing, once the engine fired, it ran at fast speed for a short time. I noticed by the ear, that something was preventing it to run longer.
At earlier stage, I had to kill the spark to stop the revving.
But anyway, I checked the ignition system(numerous times), and it was ok. Although the compression felt quite right, there was something wrong.
I have avoided opening the cylinder head, because I've finally managed to get it airtight; But no other way to check the valves.
Most excellent chance to reveal the interior of the head also.
I couldn't get the gasket off willingly, so I'll let it be:


Above pics show the major flaw in my design; middle holes are far too close to the ignition chamber; or the cavity is too wide.
Making a gasket for that is an adventurous thing

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Cylinder head:

As this picture shows, there is a brass button to increase the compression ratio. It has something to do with earlier cylinder head sealing problems.

Valves as they are; far from being similar to each other:

Cylinder liner, made of stainless steel, having two brass parts silver soldered to it: