Bitcoin Forum

CoinDesk has recently published an article on what Charles and I are doing with Invictus Innovations & BitShares.   http://www.coindesk.com/bitshares-p2p-trading-platform-to-offer-dividends-on-bitcoins/

update: http://letstalkbitcoin.com/own-your-identity-with-bitshares/


I wanted to open this thread to discuss the article and to correct some of the things Danny Bradbury got wrong in the article, though overall it was relatively accurate for a journalist covering complex topics.

Mentioned in the article, project Hydra (aka Quixote) aims to combine the best ideas we can find into a single, easy-to-use product.  This product aims to decentralize Identity Management, Communication, and the Financial System.   If you have been following all of my posts you will have seen aspects of this discussed earlier.    So what does this final product look like?

You will be able to 'mine' a human friendly account name of your choice (provided it is globally unique) and then use this name to send secure 'emails', 'text messages', chatrooms, forums and other communications using a system modeled on BitMessage.   Among the messages that will be exchanged are off-chain bids/asks and options negotiations along with invoices and purchase orders.   The article implied you have to pay for this name with BitShares, you do not.  It merely requires about one hour of CPU time per year.

This will all be integrated into the same client with BitShares where you will be able to manage your dividend paying BitAssets.  Unlike Bitcoin, BitShares users will never have to see a 'bitshare address' or deal with such clumsy technical details.  Instead users will simply enter the BitName of the person they want to send money to.    To further enhance security Hierarchical Deterministic Wallets are used to ensure that the same 'address' is never used more than once and that 'addresses' are never linked together via single transaction in the block chain in such a way that would compromise your identity through network analysis.  

We are working to integrate BitNames with a Chrome Extension to allow one click login to compatible websites.     BitDNS will come a later and will offer high-value, paid-for, names at auction using a system designed to prevent squatters.  The combination of BitNames & BitDNS means we can eliminate man-in-the-middle between websites and their users due to compromised Certificate Authorities.    Our aim is to promote the protocol with the W3C web payments group as an alternative to Open-ID and other proposals that ultimately rely on a central authority (your email provider) and have a broken certificate system.

Just to clarify:  Everything will be open source and has been.   There will be no pre-mining.  We are developing this as quickly as possible, and would welcome help/feedback from the community.  As you can probably tell we are still trying to name this thing with something that properly captures things.   Oh, and we are hiring.

This is really crazy stuff. I'll be watching closely for sure.

Sounds very interesting. I will be watching closely to see how this develops. Hope they manage to deliver a working system. Can't wait to try it out.

Looks interesting. Shame Coindesk couldn't keep their facts straight--I've seen some questionable journalism come from them as of late.

Do you have any sort of timeline for this? Will code be viewable in a github repo before it's complete?

I have to hand it to Danny, he did a fairly good job understanding a lot of information and condensed it down into a manageable length article.  But it is like a game of telephone paired with lossy compression.   I don't blame him.

The code has been open and on github from day 1.  https://github.com/InvictusInnovations/BitShares

Though it is not ready for consumption by anyone other than our dev. team or those looking to be very involved.   We are still filling in the core components, but it is coming together very rapidly. 




 

Yes, we are releasing our first preview in October at C3 as stated in the article. Our beta in November as stated in the article and our global release at a conference in Tokyo in February. I look forward to reading your feedback once it is released.

this sounds really interesting! I'll join the beta, if it's open!

Exciting, must have missed that sorry.

You guys should consider a table of contents for the whitepaper when you get a chance. Would be helpful.

Last page of the white paper!

Coming from a mathematical background, the whitepaper reminds me of one of those papers with enormous inspiration, but some clarity issues yielded as a result of not being in the author's minds. We've made a commitment in September to completely rewriting the paper specifically to make it more readable and also to address some of the feedback we get from the community.

I love constructive criticism and critical thinking. It's a wonderful experience to work with so many bright minds in discovering how to take a collection of technologies and turn them into something really magical.

I've done a lot of technical writing, wrote a short book on bitcoins, and have contacts at Caltech and MIT who do peer review for tech journals and such.  I'd be open to helping out when it comes time to do the rewrite.  Sometimes a fresh pair of eyes can help tease out the stuff that might not be so easy to comprehend.

That would be an amazing help for the cause!    If we can get a clear, easily understood, explanation of the mechanics of the trading algorithm, collateral, dividends, and margin calls then we would be in a much better position to offer a bounty for anyone who can 'break' the economics of our market-peg system.    If you would like to help out I would suggest taking a stab at explaining it all yourself.   I am available to talk you through anything that isn't 100% clear from the white paper and hopefully you can improve on teaching it!  Send me a PM for skype info.

Hi, I am very happy to see your effort. It's great that you want to include an email system. This is a thing that retroshare http://retroshare.sourceforge.net is missing. Please have a look at proof-of-concept implementation linked from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.5.9728&rep=rep1&type=pdf It is written in java. I hope it will be interesting for you.

I've been thinking about this problem for a while, and here are my thoughts, I am cross posting from this post: http://slashdot.org/comments.pl?sid=4071967&cid=44519965

Lavabit and silent circle inspired me to think about some kind of peer to peer distributed email system.

Although currently everyone can install an email server (e.g. there are several available in debian). It is not what would solve the problem. Not just because it requires technical expertise, but also because it requires too much dedication on your side to maintain your freshly installed server. Also to make sure it has outside access with SMTP port, and so on. Not mentioning that it needs about 100% uptime. Such solution is too much centralized.

I was thinking about p2p email more like this one  http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.5.9728&rep=rep1&type=pdf which I googled right after I had this initial idea. This is a proof of concept so it can work.

Key features would be:
1) uses p2p distributed encrypted file system, like tahoe https://tahoe-lafs.org/~warner/pycon-tahoe.html
2) each p2p node can act as email receiver/sender
3) to send email to someone you use nick@1.2.3.4 where 1.2.3.4 is any IP that is running p2pemail. Simplest would be 127.0.0.1 if you just run a p2pemail node yourself.
4) everyone can have p2pemail account, just connect via https to nearest p2pemail node. It can be running on your computer or anywhere else. Doesn't matter. This just requires setting up an account name on your side, and a lenghty password, which is also used as a sha256 seed for private key for encryption of your emails and also as a PGP signature for you emails.
5) PGP signing emails would be so easy, that it would be a new standard.
6) all encryption and decryption is done locally on your computer either in javascript or in your email client. Just make sure that your browser and computer are not compromised.
7) if any of p2pemail nodes are running compromised code (eg. like compromised tor nodes) they still cannot read your email, because they have no acces to your private key. The only hope they can have is to monitor when you are accessing your data, but only if a request to the compromised node is made.
8) even if huge NSA datacenter decided to store all p2pemail data, they still cannot read it, and have nobody to file a warrant to.

If we combined that with bitcoins we would get additional (optional) features:
9) buy storage with bitcoins, while buying decide how many copies of your data you want to have (can change this anytime later). Offer any price you want, lower bids might not be taken.
10) provide encrypted storage space and get paid. If you store multiple copies of same data (might be possible before p2pemail gets popular) ensure that at least it is on different physical locations, otherwise you might be compromising security
11) create whitelists with people from whom you want to receive email, add mandatory bitcoin fees if anyone not on the whitelist wants to send you email.
12) You can create various stages if whitelisting, depending on domains you can define different prices to receive email. Or you can say that first email is free for everyone, and each next will be paid or not depending on if you received spam. Or configure spamassasin to decide for you.

PROBLEM: where do my friends send email to?
ANSWER: your_nick@p2pemail.org/net/com/info (we need to register many domains, and use many IPs to resolve those dns-es)

PROBLEM: Will my address still be the same after long time?
ANSWER: your nick in p2pemail will be the same, tell your friends that if they cant send email (eg. govt seized all p2pemail domain names), then they have to find some p2pemail node. Google it, or install one themselves. If they can't do that, you can solve this by installing a node yourself, and making sure it has the same domain name all the time. Services like dyndns can help you with that.

well maybe that's just a pipe dream. But the proof of concept implementation that I linked above gives some hope. What do you think?

I have looked at your site http://invictus-innovations.com/ and I am worried about one thing. Maybe you can clear this up.

Do you have 5 directors, 1 administrator and only one developer?

Succesfull opensource projects usually have 5 developers one lead developer and no directors...

reserved

We have three developers and are hiring.    It is a real challenge to recruit a team in a 6 weeks even for an established company.  Most of the directors are unpaid or strategic partners and investors.  

I am both the inventor primary developer and director.   This project would be nowhere without the work Charles has done to build partnerships or the funding Li has brought to the table.   Stan and Pam have handled the enormous amount of leg work to setup an maintain the day to day operations of the company.  We have a very well-rounded team.

Note that this is bigger than just an open source project.

I think you are still revealing the meta info in the emails to enable your routing and dependent on Dns.  You still need a decentralized name registration system.

What about Mozilla Firefox support ?

Great to hear that. I hope that more developers will join your cause. I think that you should update http://invictus-innovations.com/ website adding information who in the team is developer, and who is the lead developer. Not just "director". That will give people more confidence in the project.

What do you think about that p2p email that I decribed in earlier post?

If I understood http://www.coindesk.com/bitshares-p2p-trading-platform-to-offer-dividends-on-bitcoins/ correctly you are seriously looking into a peer to peer, blockchain based email system too. The real challenge will be to make it work with existing email infrastructure, so that a person can send email from yahoo or gmail to BitName of a particuler person. I think it implies that each BitShares node must have open port 25 so that anyone can connect and send an email into the p2p network. Fighting spam in this case is a challenge as usual, since you cannot expect somebody sending from yahoo to do "some CPU work" in order to get his email accepted. I think we could only use whitelisting plus optional small BTC fee in order to get the email into the p2p system.



Oh yes. A decentralized DNS would be great. But we still need to get BitShares p2p email to work with existing email infrastructure and existing DNS system. So that for example PJ Groklaw will have email in BitShares and anyone on the world will be able to send her an email and be not afraid that it will get into wrong hands, because once it reaches BitShare node through SMTP port 25 it gets encrypted. I hope you understand that working with "legacy" email is the "killer" feature.

If you don't work with legacy email it won't be much different than retroshare, or any other "closed" system, which only geeks join and use only among themselves.

If BitShares email works with legacy email, then geeks join it, but still can talk with non-geeks. And eventually can get them to join BitShares too. That's how getting virally popular works...

You're hiring?  What jobs and skills are you looking for?

It's open sourse.  Hopefully someone will add it

I had a chat with the Invictus founders this morning and confirmed that there were indeed a couple of errors in the article:

1) Users don't spend BitShares to earn BitNames (they're free).
2) CPUs and GPUs don't in fact rely on branch prediction.
3) We said that  positions are closed out in a move called a 'short squeeze'. I should have said 'margin call'. And I said that if a trade doesn’t have a suitable counterparty, and it leaves a short position that can’t be covered, the miner automatically exercises a margin call. In fact, short positions can be covered when a margin call is issued, because the protocol issues the margin call before there are insufficient funds to cover it.

These have now been corrected. I also added one piece of information about the block chain to clarify that you can simply start your client once a year to avoid being charged a 5% transaction fee for having your old outputs automatically moved forward in the chain.

Thanks for your patience and I apologize for the errors.

Danny Bradbury
Coindesk

Thanks Danny.     You did a great job explaining the concept in readily understandable terms.

Damn. I'm so looking forward to this!! Excited  :o ;D
Do you guys have some IRC-channel?  ???

and/or a reddit?

I don't know how i would ever get anything done hanging out in an IRC channel all day.     We have our web developer actively working to setup forums dedicated to this project and until then this thread will be the one were conversation on this topic will be focused.

Hi bytemaster,

I finally took a look at your whitepaper; this latest version of your project is much more ambitious than I had imagined! The sheer scope of what you are attempting boggles my mind. The name you have chosen, "Project Quixote", definitely seems appropriate given those grand ambitions.

Do you have a feeling for when mining of bitshares will begin? Am I correct in assuming that mining will begin well before the planned feature set is complete? How much code has been written so far?

I'm frequently amazed at how unimaginative people can be when they try guess where distributed currency might be going and what might be possible. Your project definitely does not have that problem.

Best of luck!

Will be watching  ;D best of luck!

This software will be released in phases testing the less critical aspects throughly with a large user base of 'Bit Message' and 'BitShares ID' users who can use it for communication without really risking much financial value.   The goal is to have the Test Network up by Thanksgiving and hopefully launch the live network as soon as we can go a month without any major new bugs showing up.    The blockchain should support short/long, options, and cross-chain trading, multi-sig, and simple escrow at launch, though full support for the escrow system will be built out over coming year.  

While the block chain will be ready and usable with an RPC / command line interface, the GUI will take longer to mature.   Our schedule is highly dependent upon finding good developers and testers!

 C++, Qt, Boost, Java Script, PHP, Browser Extensions, CSS, HTML5

Our team currently has a part-time drupal developer handling the web work.   We are hoping to leverage the work that Joe Cascio has done with Bitcoin ID as the model / template for our implementation.  He already has a proof-of-concept chrome extension.

Send me a PM with your contact information if you have skills that could help.

While there are some paid positions at the moment, there is amble opportunity to get involved via open source contributions.  We are likely to pull from the pool of volunteers before hiring outsiders as we grow so get involved.

Our company is based on very deep philosophical foundation of freedom, voluntary association, and the principle that the free market should be able to provide all of the services traditionally "provided" by governments without relying on the initiation of force.   Our IP philosophy is relative unique in that we view Intellectual Property as a government granted privilege backed by force and that violates the rights of others to produce and express themselves.  We are committed to only use Intellectual Property as 'self defense' against those who would attempt to claim they 'own' IP and may exclude us from the market.  Thus if you Live by IP.... well you know the rest.   

Our profit model is not based upon vendor lock-in nor do we intend on relying on licensing IP.   To compete with our business you must be equally as open and decentralized.   In fact, our goal is to keep Invictus Innovations as decentralized as possible because corporations are themselves creatures of the state and represent yet another form of centralization and control that we hope to decentralize.

Joining our team with BitShares is just the beginning of what we have planned because by the time we are done you will no longer have to rely on the government to defend your life, liberty, and property....

Very interesting, I like that it has a mining aspect to it, will be watching the project for sure :)

While I appreciate what you try to achieve I still don't understand why did you decide to create new blockchain? Why colored coins over bitcoin blockchain is not sufficient for your project?

Colored coins have no value beyond the bitcoin backing them without an issuer using the colored coin as a bearer bond.    BitShares has no issuers, BitUSD is not a promise to pay.  Colored coins cannot do this.

Secondly, the Bitcoin blockchain is fatally flawed in several ways:

1) full nodes will soon be beyond the reach of the average user who cares about having spare bandwidth and disk space.
2) mining is being specialized by extremely wealthy VC firms which are building ASICs for their own use and ultimately the 'decentralization of mining' depends upon pools of one form or the other. Pools are 'centralized' and the hardware required to even participate in a pool is also specialized.   
3) colored coins do no enable 'margin calls' in a decentralized manner.   Ultimately colored coins are not decentralized any more than Open Transactions which is far more effecient.
4) the bitcoin block chain does not have a reliable block production rate, it is currently over 55 days ahead of schedule and thus fundamentally broken from an inflation control perspective and thus not a reliable time source for options expiration.
5) the transaction size and bandwidth requirements of bitcoin are larger than necessary
6) bitcoin does not support merged mining
7) cross-chain-trading with bitcoin is not currently supported as a 'standard transaction'
8) bitcoin can not handle the transaction volume of an exchange
9) there will be more than 1 BitShares chain to enable scalability and offer a wide variety of BitAssets each with a decentralized market.
10) I need data maintained with every block header beyond the data stored in transactions.

I could go on, but I think I have made my point.   Please demonstrate how you can achieve everything BitShares does with colored coins and you will quickly understand the problems.

Seriously just wow.

Have you got some rough list of tasks/milestones/priorities. Github? How can a volunteer get stuck in and help make this happen?

What they wrote on Github just now might shed some light with their strategy for interworking with the Bitcoin ecosystem:
In any case, this thread belongs in alternative cryptocurrencies, not project development.  Cheers.

From bytemaster:

October at C3 release I think.

The BitShare ID & Communication framework will work with bitcoin to make it easier to use and eliminate the need for bitcoin addresses.   So this is more than just a crypto-currency, the blockchain / crypto currency is just one aspect of Project Quixote

Thanks Max for quoting me out of context in a post that has since been removed in a conversation  on github that started four months ago. I really appreciate it. We are perfectly comfortable in the Bitcoin ecosystem and support all cryptocurrencies equally. That statement was in reference to the blockchain bloat, the lack of community involvement in decisions regarding the open source development of bitcoin and also the general resistant amongst devs to embrace emerging new ideas.

There are some clear philosophical differences between your vision and ours including the threat of ASICs and the continuing centralization of Bitcoin. But let's be very clear, BitShares is not meant as a replacement of Bitcoin, but rather the infrastructure needed to ensure compatibility between cryptocurrencies and fiat monies in general. Our primary design goal has always been to reduce volatility and increase liquidity for all cryptocurrencies. Since we are playing the posting thread game let's go down history lane: https://bitcointalk.org/index.php?topic=229315.0

My statement about Bitcoin's death comes from the idea that new cryptocurrencies using our ecosystem will be better positioned for the needs of the future and thus more competitive when compared with Bitcoin. In a free market, the best product wins. 

But please do take a single deleted statement out of context from a four month old thread that resulted in the creation of the Bitcoin Press Center as a statement of our business strategy. As I recall specifically because of the issues mentioned above. We have gone to great pains to explain our vision and goals in our whitepaper, partnerships, media interviews and upcoming conference lectures. And we will continue to do so as much as possible. Successful open source projects all require a rich, diverse community that has a legitimate opportunity to participate in the evolution of the software.

We are an entirely new ecosystem combining some amazing innovations from decentralized identity management, always encrypted communication and p2p decentralized exchange into a single protocol and a single easy to use multi-platform piece of software. This is not an alt currency. It is an ecosystem for all cryptocurrencies including Bitcoin.

Four months ago?  That comment was left an hour ago and explicitly links to a URL that didn't exist until today.

He was referring to the age of the thread, not the post.  I was confused by that myself.

https://github.com/bitcoin/bitcoin.org/pull/162#issuecomment-23188122

let's post the link for clarity. The post came from a convo with one of the posters in the repo and was part of a much larger conversation. Again it has since been deleted because it does not reflect what we are trying to accomplish

Browser plugins have been explored as a way to increase both the ease of use and better integrate with existing user experiences. I'm a big fan of Cryptocat and I can imagine similar apps working well in Chrome and Firefox; however, these would be side projects pursued after the core product has been relentlessly refined.

We'd love for you to attend C3 and meet us in person. We'll have a much more significant announcement there and also specific roadmaps and timetables for everyone who's like to be a volunteer, business partner or developer for the platform. We also would love to give you a software demo of our communication and ID systems. We'll bring a laptop :)

I'm not sure what you want here. I'm just stating the facts: I was confused by the response because it appeared to be claiming that I was posting old material, not stuff which hit my inbox moments before.

Needless to say, I'm not entirely enthused to find out about something new through that kind of rude message. If someone doesn't want me pointing it out, then they should refrain from sending it and darkening my inbox with it.

To the best of my ability to discern is an altcoin / opencoin competitor with a number of seemingly marginal ideas being thrown at it, it is being— in my opinion— somewhat deceptively marketed as improvements to bitcoin when its is more of an alternative.  The people responsible for it apparently (see the post) view it as a mechanism for undermining Bitcoin or at least the people who've been working on Bitcoin thus far. I, as you might expect, think thats disappointing. I see now that the message has _since_ been deleted, so it would seem that apparently the team here isn't entirely lacking in PR skills.

I'm usually pretty happy in the rare event that I see genuinely new ideas explored in altcoins, less so to see them promoted trading on Bitcoin's brand, and less so when they're really just shallow rehashings of the ideas in Bitcoin, often twiddled and changed without a deep understanding of the implications. They might have been able to convince some VC, who hasn't had the benefit of working in this space for a number of years and seen the same bad ideas over and over again, to fund this effort, but that doesn't mean I have to be impressed by it. If you want to fault me for sharing my thoughts, be my guest, but I continue to see part of my value in this community as being a person who sees through obfuscation and marketing.

Unfortunately for whatever "It's over" for me that Hos has planned, it doesn't seem likely to me that his team is technically prepared to pull it off.

Allow me to demonstrate,

The POW is a easily understood, relatively isolated part of a POW blockchain cryptocurrency. BitShares claims to have a novel POW with a number of desirable properties.  So lets take a look at it (https://github.com/InvictusInnovations/BitShares/blob/master/src/proof_of_work.cpp#L31) and see if it lives up to their claims.

Quoting from their PR piece:
I'm pretty skeptical of the claimed advantages altcoins often make about their modified POW.Like we saw with Litcoin's "GPU proof", they don't usually hold up— or have unexpected effects if any at all.  At least in the case of Litecoin they used a published cryptographic construct which had an extensive paper providing some pretty strong substantiation for its properties, novel cryptography is a real easy way to burn yourself.

The structure of their POW is that it takes a SHA256 bit hash of the block header and then repeats it to fill up a 128MByte buffer. It then runs an apparently home-brew "memory hard" function over it which perform a number of xors and makes data dependant swaps of the data. Then it runs a 128 bit non-cryptographic "CRC" function over the data, and then computes a SHA512 of that.

The code remarks:
The comments continue for a screen full describing the characteristics and merits of the particular algorithm.

Indeed, as implemented, it's very expensive to run this function. This has some pretty serious negative consequences since any client of this network or full node catching up will need to do a lot of computation just to check the validity of blocks. Checking block validity is also important because valid-looking blocks being cheap to detect is normally an important anti-DOS step. But I assume they realizes this and are prepared to deal with the consequences in exchange for this function's benefits.

But does it live up to its claims?

Here is the actual code:


I don't believe that it does.  Within 30 seconds of seeing the code I made the following observations:

• The interior 128-bit bottleneck opens it up to a collision attack with an average work factor of 2^64 (and 2^64 storage, or a bit more work and less storage by constructing a rainbow table).  I consider this mostly a certificational weakness and not a practical attack, though in theory it could be perform today, especially if the memory-hardness is eliminated allowing a cheap and fast ASIC or FPGA implementation.
• The simple xor and constants construction would almost certainly yield to boolen logic simplification, potentially even subsuming the "CRC" step since it's not intended to be a cryptographic function.
  
• The memory-hardness can be removed in a probabilistic approximation of the POW function built out of the observation that 1024 is a very small fraction of 16777216 and so it's unlikely that any iterations of the interior loop will read from an entry which has already been updated. It could just be run 1024 way parallel, and will most of the time produce a correct result.
• Alternatively, the memory-hardness can be removed by pivoting the algorithm about its main-loop and using 1024 words of storage for the 1024 possible writes the algorithm can make. This is an exact implementation, not probabilistic.

I went ahead and implemented the last in plain ANSI-C, since it seemed the most convincing:


This reduces the memory footprint from about 134,217,728 bytes to about 24,576 bytes and could be made half that size with slightly more work.

It outputs a whole bunch of:

Frankly, if I were out to make a bad POW that would be easy for me and hard for others I don't think I would use one as obviously flawed as this one. But at least it makes it cheaper for validating nodes to check!

I haven't looked at any other parts of the BitShare code— I was not especially inspired by this part but keep in mind: There are other cryptocoin systems which are completely closed, and I couldn't even tell you what laughably bad things they are doing. The developers here should not be penalized for building their tools in the open, not everyone does. They should be lauded for this much, if nothing else. :)

I honestly hope this small security / cryptography analysis is helpful, and that the price of me using it to blast Invictus Innovations a bit in public wasn't too high.  I'd recommend avoiding any crypto more novel than what the Bitcoin ecosystem is using at least unless you get a professional cryptographer on your team (who will then also tell you not to use novel crypto).

If you genuinely are interested in making a asset trading system which is complementary to Bitcoin, I'd strongly suggest merge-mining it as you would obtain the protection of the enormous hashpower held by the Bitcoin community such infrastructure would serve. It doesn't sound fantastic in a VC pitch, but if you don't intend this to be an attack on the Bitcoin ecosystem you'd enjoy a lot more security that way.  I think it's still an open question what the necessary economic incentives are for POW consensus to have lasting security...

There are a lot of people with loud ideas about how they want to change Bitcoin to make it better. Sometimes they get angry that the core developers will not consider their pet modifications. Many of the ideas are just simply bad, like this one, and would lead to insecurity or would disrupt the economic promises many users consider immutable. Often the baddness in an idea is subtle and takes a lot more work to tease out than this one, so with limited resources the onus has to be on the proposer to show that their work is necessary, beneficial, and safe. This isn't because the people with the ideas are not smart or good people, it's because ideas in this space are tricky and take a lot more consideration than many realize.

Gmax, I appreciate the feedback and thanks for your brief analysis of our alpha code and place holder PoW. The code base is highly fluid at this point and not sufficiently formed to survive even a rudimentary cryptanalysis. I think you tend to forget the amount of time and effort it took for Bitcoin to evolve and harden. We are at the beginning of this process and focused on a great many moving pieces that will soon come together.

The PoW you analyzed was never intended for a production system as we were much more concerned with other issues in the ecosystem and was scheduled to be updated with a new design in early September that corresponds to the statements made in the Coindesk article. You may have noticed the code wasn't even touched until today for more than a month. We really do appreciate you taking the time to look at the repo and would love for you to drop by from time to time to challenge us on specific decisions.

We are also going to offer some bounties after the C3 conference and it appears you have an opportunity to make some Bitcoin off of our emerging Crypto. Thanks for your time

Milly, I understand your sentiment and share a desire for more openness; however, this isn't the thread to discuss such matters. Honestly we are just trying to get the community to focus on our efforts and try to answer questions about high level aspects of a both very exciting and very complex system. Rehashing old fights and performing a cryptanalysis on alpha placeholder code isn't productive for this thread. I mean we didn't even use a CSPNG to populate the memory.

I'd be happy to debate Gmax and other alongside you in a different thread at any time.

gmaxwell,
   You have stumbled upon an area in our code base that was under active experimentation and the problems you identified with it actually pail in comparison to the problems we found with it prior to your post.  For starters, we were experimenting with various ways of accelerating the validation time and profiling different settings the inner loop.  The code that was checked in just happened to be the last benchmark for that round of testing before we put proof of work on the back burner until we could come back to it.     The random number generator that populated the whole thing was not secure and you could quickly calculate any index required.

   We have identified the principles and design specs for our proof of work with the primary goal of making it memory hard.  Finding a collision on 128 bit hash function that takes this long to run and simultaneously satisfies all of the requirements for the block chain is not a legitimate concern given the time constraints and you rightly pointed out that it was theoretical.    Assuming a truly memory-hard hash function without the obvious weaknesses of the code you reviewed and assumed was our 'production' algorithm 128 bits should be plenty.  Now obviously, cryptographers like to error on the side of caution and we would be looking for community consensus / review of every cryptographically significant part of our code before ever launching it into the wild.  We are obviously trying to balance security-over-kill with decentralization and bandwidth.

   Even with all of the faults of the test algorithm it is still no worse than Bitcoin because it ultimately relies on sha256().  

   So we have high goals, solid guiding principles of attempting to create a memory hard hash function, and the ultimate ace-in-the-hole to ensure the long-term viability is flexibility.   The 'currency contract' between the developers, users, and miners was to establish the common intention that at any time if the hash function was optimized for GPU or ASIC it could and would be changed by a majority vote (hash power).   The CPU holders would have too much to lose not to vote for a change that undermined the ASICs and there mere threat of this option would prevent the production of ASICs in the first place.  

   What I gather from your post is that we shouldn't attempt innovate and we should conform to the status quo.   The real question is this:  is it possible to develop an algorithm that is both secure, requires 128 MB of ram, and yet can be validated in a fraction of a second?    I believe the answer to that question is *yes* it is possible and therefore it can be achieved.

   There are two kinds of people in this world, those with a can-do attitude and those who go around telling everyone that it is impossible for man to fly.    
    
   One last factor as to why your merged mining suggestion is horribly flawed is because it means that the existing Bitcoin Miner Barons would 'own' the network from day one, especially if we supported merged mining with bitcoin and bloated our blockchain in the process.   This is not in the best interest of anyone but the Miner Barons.  

   There is a reason why everything is open source, because with enough eyes on the problem it will get solved.  The true value of our system is not the hash-function.  We are just trying to make things better while launching a new chain where the true value is the economic transactions it can enable.

Dan        

Sounds fascinating. I'm watching and following this too
 ::)

Design Requirements of Proof-of-Work:

1) Require a relatively large amount of RAM that cannot be 'optimized away' through various techniques such as:
      - streaming the data, random sampling, or jump ahead short cuts.
2) Must be able validate the proof-of-work in about 0.25 seconds, this would require several hours to verify the whole chain's work.
3) Must rely on CPU instructions that have no equivalent on the GPU.

The challenge with such a proof of work is keeping the validation time relatively fast and this is where the temptation to take short cuts comes to play.  It is trivial to create a 'secure' CPU-only hash, the challenge is making it fast to validate.    I submit the following revision to the proof of work as an example of what can be done in a brute force manner that should address every single item presented by gmaxwell.


First, lets consider the input, sha256( merged_mining_merkel_root + nonce), this is as secure as double sha256(bitcoin header).  
Next, we populate 64 MB of memory via AES encryption of 64 MB of 0's.    There is no way to jump-ahead with this random number generator and it utilizes Intel AES hardware acceleration.
Next, we use the last encrypted uint64 to pick a random KB of the encrypted data to sha512 hash and generate a new initial value + key for a second round of AES.
This second round of AES encrypts the results of the first round, which requires the whole first round to be kept in memory and also utilizes Intel AES hardware.
Then we take a 256 bit digest using more CPU-only instructions via city_hash 256.
Lastly we end the whole operation with a crypto-graphically secure hash to compress it down to 160 bits which given the requirements of the input is more than enough bits to prevent rainbow tables.

I can mine this at 5 hz with 8 cores on a Macbook Pro Core i7.   This doesn't quite hit my design goal because on a single core it takes over 1 second to validate a single hash and thus validating the proof-of-work on 1 years worth of blockchain headers would take 24 hours.  So now the only question that remains is how can we accelerate this hash without compromising either the memory requirements or the security.    

It is worth noting that even at 1 second per block validation time will be overwhelmingly in the transaction validation of the chain, not the proof of work (assuming a reasonable number of transactions).  That said, I would still like faster validation times.

Options:
1) Reduce the memory requirement, this will increase performance linearly while making ASICs more viable.
2) Only perform 'spot-checking' with the second round of aes encryption, this could provide a 25 to 33% gain
3) Potentially replace AES with Salsa20... though AES enjoys a hardware advantage that Salsa20 would lack.

Potential Attacks
An ASIC could implement a very fast AES algorithm, run through the first 64 MB to calculate the last 8 bytes, then calculate the a second time to find the key, then a 3rd and 4th time to generate the 2nd round and city hash.  Such an ASIC would probably take 4 times as long to run each hash, but would be freed from the memory constraint and could therefore do more hashes in parallel.     This attack could probably be mitigated by a few changes that would require the ASIC to run through everything 1000 times rather than just 4 times.   But ultimately, the only defense against ASIC is change they are like a virus that will mutate and adapt to any hash algorithm we create.   We just need to slow them down and reduce the magnitude of advantage they might see.

Conclusion:
The real goal of the hash algorithm is to control the block-production rate and keep verification decentralized while preventing 'forged blocks' from being created.  Every other criterion (ram, instruction, etc) are just means to an end not the end itself.  The only true security against ASICs is to change the hashing algorithm every year or so to something of roughly the same level of CPU difficulty.    In the mean time all that is required is a secure hashing algorithm that is GPU resistant.

To that end, I suspect that reducing the RAM requirements down to 8 or 16 MB will enable validation times that are sufficiently fast while keeping GPUs at bay with a hashing algorithm that leverages SSE encryption instructions.  

We are committed to delivering a working product and getting the best minds working with us that we can.  

The nice thing about the proof of work algorithm is that it is the easiest thing in the world to change.  Especially if both the code and the community is prepared to do so.   All of that said, I would rather not focus so much of this discussion on proof of work because that is the least significant aspect of our system.

At least make a twitter account and a Facebook page.

Can it be a web app? What about a high level API so we can program for it in Python or Ruby?

There are plans to do so with the Hydra client using Javascript, HTML5 and CSS3 and we've discuss web apps with the web payments group at the W3C alongside browser extensions (which seem to be slowly fading out). When we launch our first beta we'll have some spec on how extensions will work and also a roadmap for our API library.

Twitter and Facebook are proprietary platforms, have been compromised by the NSA to spy on their users, and don't really offer any useful functionality beyond what can be achieved with a web site, email list, and forum.

I'm very interested in Bitshares and have questions on mining. I very much like that it favors CPUs over ASICs and GPUs.

Questions:

1. math expression to predict performance - will performance be a function of CPU speed, core quantity, and available RAM, like:

Hashes/second=A*(CPU speed GHz)*(CPU core quantity)*(RAM size Gbytes) where A is a constant

or maybe

Hashes/second=A*(CPU speed GHz)^B*(CPU core quantity)^C*(RAM size Gbytes)^D where A,B, C and D are constants

another possibility is

Hashes/second=(A*CPU speed GHz)^B*(C*CPU core quantity)^D*(E*RAM size Gbytes)^F where A,B, C, D, E and F are constants

2. Will mining work equally well on Intel, AMD, and ARM processors?

3. Will multi core CPUs have higher performance per core than single core CPUs?

4. Is speed bottleneck from CPU internal clock speed or memory bus speed.

These factors will determine if it would be better to use high end multi core CPUs and fast memory or if low cost System-on-Chip boards can be used to achieve the lowest mining cost (Giga Hash?) per dollar.

I see a huge potential for this project if it can achieve its stated aims. Biggest risk I see would be to invest a lot in mining and then have the project not fulfill the rest of the planned features.

As you can tell from this thread the mining algorithm is still under flux, but the goals are as you stated favor CPU over everything else.

Based upon my most recent thoughts (pending experiments) here is what I expect:

If the algorithm accesses the memory in random order that invalidates the CPU cache, then memory bus bandwidth will be the bottleneck.  After thinking about it, the memory bus is something that could be optimized out by an ASIC so this is not a desirable situation.

The algorithm needs to be 'fast to validate' which also implies you do not want to be memory bus bound.

The result is that I will probably target the hash memory requirements to near 8 MB (Core i7 CPU cache) which means that your best performance will probably be from single-core operation (multiple cores would start cache thrashing).  As Intel releases new chips with more cache you can start using more cores to positive effect.

A GPU has several different memory classes (global, shared, and local) and the global memory is much slower (like CPU to RAM) than the shared or local memory which behave like CPU cache.  So an algorithm that will fit in cache on a CPU will result in cache thrashing on a GPU.   This cache-thrashing combined with an unpredictable fetch pattern means the GPU will be stalled waiting on data most of the time.    GPU shared and local cache sizes are under 1 MB. 

Based upon transistor count, I would expect the highest end FPGA with 8 billion transistors (compared to 1 billion for an i7) to have a maximum gain of 8x assuming the ratio of transistors to execution units and cache was the same and there is no transistor count overhead or clock frequency disadvantages in the FPGA compared to an Intel ASIC.    By relying on Intel's AES instructions for 90% of the hash, you already have an almost ideal ASIC right in your computer.

So to answer your question:  CPU cache and AES hardware instructions will determine mining performance in one case, and memory bus speeds in the other. 

Note that the real protection against ASIC will be the community consensus and will to change the hashing algorithm to keep it CPU bound.

But that is where the people are. A lot of people use and are on twitter and for communication purposes its just fine. What does it matter if the NSA sees some tweet telling people the software is passing some milestone?

But that is fine, where is the mailing list?

What is to stop it from becoming centralized by virtual machines?

One thing virtual machines are not good at is random number generation. Maybe you should find a way to make people use real cpus? Otherwise you'll end up with even more centralization than you'd have from ASICs.

Virtual machines are still cache limited and incur extra overhead.

Mining is interesting and all, but I really thought there would be much more discussion about the revolutionary nature of BitUSD and BitGold as well as options and shorts.   

Give it time. There is quite a bit to digest in your white paper.

I'm already enthused on the possibilities, most interested in the nuts 'n' bolts of mining to be prepared with an optimized platform when it starts since this is one of the shortest lead items per your announced schedule.

I have just posted the latest algorithm for the proof of work that we will be reviewing closely. 

Some notes: 
- I reduced the memory requirement to 8 MB so that I could achieve the target of 0.25 sec / hash on a 2.3 Ghz Core i7 single thread.
- The function has a unpredictable runtime which should choke many data-parallel systems like GPUs which must idle cores on branches.
- It uses AES to randomly encrypt and re-encrypt random bytes spread across the buffer, you cannot determine ahead of time which bytes will be needed.
- The inner part of the algorithm cannot be made parallel in any manner because every step depends upon the prior step in a cryptographically secure way.


This code should be peer reviewed to check for security flaws. 

Looks like an interesting project and CIYAM Open https://ciyam.org/open would be happy to list this project "fee free for life" (as one of the first 10 projects to be listed) if you are interested in using a task workflow control system (please view the slideshow at http://ciyam.org to see how this works).

The project Moneychanger is listed and has attracted a few developers who will have much of the skills that this project requires (and am sure would be interested in working on tasks for BTC when they have completed their current work).

Welcome to PM me for further details.

Oh lala, Looks like something I'd be interested in, I'll have to wait till I full fill my other contracts before I start this one. I will be available by October if someone wants to give me a ping by that time if this project hasn't been started. I constantly lurk on ciyam so if you post it there no need to ping I can keep track of the status naturally.

Namecoin project is already doing many of these parts ... how will bitnames and bitdns be different/improvement? ( I note you are using names others have suggested back in 2011, are you affiliated with them somehow?)

Also, I haven't read the white paper but it is honest and typical to provide proper attribution when extending the seminal concepts, ideas and works of others. If you haven't done from day one, with the sincere intention to do so, it can be a source of FUD rot that when planted at the very beginning will only fester and corrode the project forever. Just so you have been warned.

We certainly attempt to give credit to anyone who's ideas we leverage and build upon.    We did not go back and review all of the proposed names but as far as I know there is no current BitDNS or BitNames project and the names are rather obvious.   We have certainly given Namecoin, BitMessage, and Bitcoin ID credit for their inspirations.   We will not be running with any name in use by an existing project when we launch without the blessing of the existing owners.

As for why we are not using Namecoin:

1) Bandwidth requirements and storage requirements are too great for our 'account' system and it will not scale like we want for 1 billion accounts.
2) Domain squatting has not been solved with Namecoin and namecoin violates some of our economic axims against price fixing.  We have solved the domain squatting issue for the most part.
3) People don't want to 'pay' for a login name
4) Tight integration will allow a better user experience.

We haven't put together a full white paper for the designs of our DNS and Name system yet, but I have talked about the concepts in other threads on this forum.

I am working with Ian to get us on ciyam because it looks very promising as a way to decentralize our development process an invite participation of the community.   By October there should be plenty of tasks for you on there.

If this could be merge mined with bitcoin I think both the project and miners would benefit.

Rather than prevent ASICS, I want to promote decentralization and if we can get decentralization with ASICS then I have no problem.

Preventing squatters is just a side effect, I want to promote the highest economic allocation of business names.

I have higher goals than DNS, but DNS is just one aspect of it.

BTW: the sooner we have a decentralized secure email system the better. that alone will give you huge PR!

I'd rather discourage ASICs. Aside from the centralization issues they seem to be a waste of development effort and resources for a highly specialized "make work" type application. Also, since they are manufactured and deployed in batches, they create discontinuities in the mining curves. A steady stream of CPUs entering the mining pool is a lot smoother. Unlike ASICs, CPU systems can be re-purposed and run other applications.

Discouraging domain squatting is also a good thing. Will this network evolve to have anonymization and encryption like TOR?

Nah, pretty sure here that's not what he meant. Also you have to admit that other post on Github was not so nice.


Why not use Scrypt with proper parameters (unlike Litecoin)? It was created to solve the problem at hand.

The problem with changing the algorithm every year or so is that it could bend the system towards centralization.


Similar to what MoA said: Bitmessage (http://bitmessage.org) has Namecoin ID integration now. Also there is NameID (http://nameid.org), a Namecoin based login system. And there is a working Namecoin TLS Firefox plugin to replace certificate authorities. There is more coming but I won't tell as I am afraid you will stuff it all into Bitshares.  :P


So that means the BitUSD are squeezed out if BitShares drop in value? How much will the collateral be?


Hope you will succeed, Cryptocoinland needs a decentralized exchange.

What if the law is crafted to not leave any room IN BETWEEN? Should we try get slimmer to have some freedom?

Yeah, thats the problem with digital communications things said out of frustration have a way of haunting you long after they would have otherwise been forgotten.  Unfortunately, the context is often forgotten as well.

If you have a suggestion for parameters to Scrypt that you think would achieve the goal I am open to it.  After all, I am not tied to any particular algorithm just the goal of decentralization.

Depends upon how the algorithm is changed every couple of years.   Obviously current hash power would have to 'vote' to move to new a hashing technique.  

BitMessage & Namecoin are great proof of concepts.  Yes, they are solving the problem in similar way.   We think we can offer a better user experience with better scalability.  

If BitShares fall in value relative to BitUSD then those who are short will face a margin call where they are forced to accept the lowest ask.

Example:
Initial Condition:
Sam:  1 BTS
Alice:  1 BTS
$1 USD = 1 BTS

Sam decides to short, alice goes long...
Sam:   2 BTS held in blockchain-escrow backing 1 BitUSD
Alice:   1 BitUSD

Time passes....
$1 BitUSD = 1.5 BTS
Miner forces Sam to accept lowest ask... 1.6 BTS per USD
Alice (or someone she traded with) was the one asking 1.6 BTS / BitUSD

Result:
Sam:  .4 BTS
Alice:  1.6 BTS

Of course, all BitUSD is fungible and the miner could have just as easily covered the margin with a new short position... in which case the result would be:

Sam: .4 BTS
NewShortOwner:   3.2 BTS held in block-chain escrow backing $1 BitUSD

Notice... the price as a result of the margin call went above market value (1.5) to 1.6... thus profit opportunity for new short.   Of course, rapid movements would result in a short squeeze which will bring in new capital.

LOL. (If you see a connection between my quotes I missed it.)

The answer is no - you need to maintain the law so that there is always some space around you. Unfortunately a lot of people don't see that, though, and are comfortable as long as anything they currently like to do is legal.


That's why you have to be extra careful with what you say. (I will stop picking now :))

Just crank up the parameters until it uses the amount of memory you want it to.

IIRC this has been discussed somewhere before. Changing algorithm would be a great solution but what if voters don't want to move on until it's too late?  E.g. ASICs are coming up but most CPU miners are at the RAM limit.

I hope you do. We will work on it, too.

There might be situations where everyone wants to just get out (bank run, loss of trust in BitUSD). Will it not break then?

Kudos on the innovative concept of BitAsset (#5 below), as this is the first time I've seen that idea. The P2P exchange in #4 was already proposed by others, yet this is the first time I've seen it proposed as a way to decentralized the same protocol for an altcoin (obvious, but that point didn't register in my mind until now).

1. I have a superior name for your coin (and the domain names too). Forget "Bit" that is so copycat and lost in a sea of similar name permutations. I've demonstrated marketing skills in the past with 335,000 web sites published with my Cool Page (http://download.cnet.com/Cool-Page/3000-10247_4-10024827.html) as verified by AltaVista circa 2001. Brandable names express meaning and are dissimilar from everything already in use, e.g. when I "Google", I am "goggling". When I "Yahoo!", I am "hurrah! I found it on the web".

2. Why C++ yuk!? If you used Scala (3 times less verbose than Java), and stub in C for performance only where needed (through the JNI), then I might contribute coding (maybe even for free) instead of creating my own altcoin. No way I am going back to 1990s with C++. Been there, done that. Hey that was 15 years ago when I wrote Cool Page in C++!

3. The coindesk article claims, "BitShares aren’t designed to be spent with merchants in the same way that bitcoins are". Where in the whitepaper does it say that BitShares can't be sent to another keyname? Even if that was the intention, it is trivial to create a new BitAsset named BitSharesAsset which is the value of 1 BitShares. Thus BitShares is a new currency unit, so this is an altcoin.

4. Your whitepaper says that BitShares may have multiple chains. Thus BitShares from different chains would have different values and are only fungible by using the cross-chain transaction, i.e. P2P exchange. Thus I think they should also have different names, e.g. BitShare-Chain___.

5. BitAsset isn't concisely summarized in the whitepaper. Let me take a stab at it, while simultaneously improving the design of it. A BitAsset is designated to mirror the percentage price moves (not the exact same price) of some real world asset. The designation of which asset is made by the creator of a BitAsset, who also names it if it hadn't already been created by others. More copies of a named BitAsset, e.g. BitUSD, can be created in this same way, and the same name is reused. The creator either wants to take a long position on the BitAsset so makes a bid offer, or wants to take a short position on the BidAsset so makes an ask offer. The offer is made in units of BitShares. When a counter party makes a matching ask or bid respectively, the BitAsset is created and the BitShares from both parties are deposited into the blockchain, thus the collateral is initially 2x the market value of the BitAsset. As new copies of that named BitAsset are created, the market value fluctuates according the settlement of bid/ask by miners as described in the whitepaper. If the market value increases 50% above the short position's deposited collateral, the miner issues a margin call against the short. Whereas, if the market value decreases 50% below the long position's deposited collateral, the miner issues a margin call against the long. The BitAsset is retired at the cost of abs(market value - collateral) and the excess collateral is returned to the short or long respectively. These threshold's appear to be an arbitrary design decision? The short and long owners can independently (or each other) deposit extra collateral at any time to avoid a margin call.

6. I assume that long and short owners can sell their position at any time thus transferring it to another keyname (i.e. anonymous entity)?

7. Can the short and long enter an algorithmic contract to exit the position at a preset expiration date?

8. What is the redeemable concept? Do you mean to say the long or short can close their position at any time without permission of the counter-party? How can that be fair?

9. In the margin call, the BitAsset is destroyed, so what happens to the collateral of the counter-party which did not receive a margin call? If it goes to them, why are they forced to redeem their BitAsset prematurely? Wouldn't a better design be let the BitAsset remain for the counter-party? Also why does the redeemed money go to the dividend pool (for that BitAsset or all BitShares?) and not to counter-party, so that the counter-party gets some leverage?

10. There is the risk that the market value moves to more than 100% of one-side of the collateral before than the miner can issue the margin call. There is no default here, it is just the redeemed money is not as great as it should be. If the redeemed money was going to the counter-party instead of the dividend pool, then the counter-party would lose some real-time time-preference, but this isn't designed to a be a real-time trading system any way.

11. It is presumed that the market will try to maintain the market value of the BitAsset proportional to the price changes in its designated asset. I have some doubt in this concept. Has it ever been tested before? Economics 101 says price is determined where the marginal supply and demand curves meet. Ignoring the proposed dividends relative to interest or leasing rates of designated assets, and relative value of holding an asset proxy in a decentralized digital store versus holding the real asset, the supply is the distribution of people who think the price will go down, relative to the premium and time-preference offered. The demand is the distribution of people who think the price will go up, relative to the premium and time-preference offered. Thus if you want the BitAsset to track the designated asset, then the expiration period should be relatively short, so that the secular price trend of that asset is not biasing the supply and demand and instead you have fairly balanced expectations for relative exchange (BitShares <-> designated asset) price moves in either direction over the short-term. I am not confident that I have captured all the math that would apply. Should we be looking at models of options, e.g. Black-Scholes (http://en.wikipedia.org/wiki/Black%E2%80%93Scholes)?

12. Kudos on determining market price from the bid/ask that don't settle (due to positive bid/ask spread), i.e. the marginal supply and demand, as that is correct economic theory of price. And also because as you say the transactions that do settle (due to zero or negative bid/ask spread) could be transactions to self if also control the miner with winning PoW block (although they incur a transaction fee, and probably also capital gains tax if the system isn't perfectly anonymous). But couldn't a miner also exclude bid and asks, thus manipulating the market price? This appears to be a major flaw in the design.. I don't have idea for a solution yet.

13. Why canceling bid/ask takes 24 hours when blockchain becomes secure after roughly 6 blocks, e.g. 60 minutes?

14. Dividends allow idle capital to not invest in mining, we want to maximally secure the blockchain.


...to be continued, I have more analysis and thoughts to share on this...

P.S.  I am (http://www.coolpagehelp.com/developer.html) age 48, math, engineering, computer science, entrepreneur, and deep conceptual thinker (http://unheresy.com/).

Kudos on the post and I'm sure Daniel is going to have a great deal of fun thinking about your points :). This is how a great product is built.

Perhaps the following is why tracking ETFs are known to lose value during periods of volatility, because they roll over short-term futures contracts usually daily.

I need to think more deeply about this and the math. This was just off the top-of-my-head, as I just quickly read the first half of your whitepaper a couple of hours ago. Someone sent me a PM with a link to this thread.

The leverage I proposed apparently can be controlled by abs(market value - collateral) x leverage ÷ 2 as the amount of collateral of the losing side awarded to the counter-party.


So far, my only idea for a solution is that market makers should be separate entities from miners. Miners must take all the bid and asks sent by each market maker (take it all or none, so more difficult to hide manipulation). Each market maker resolves the bid/asks before sending them to the miners. Market makers need to receive some compensation. Users choose which market markers to use based on their performance. The miner still resolves the margin calls, using the market pricing from the market makers which the miner included in the block. The miner will have much fewer variables to play with, since users will pick market makers. Users can't pick miners, because PoW does randomly (weighted by miner's share of difficulty).

This has another benefit of enabling market makers to present real-time data of their bid/ask distributions.

It is not perfect (relies on trust which is inherently centralizing, although freedom-of-choice and P2P is more decentralized than the trading systems we have now), but no such trading system will ever be. At least you can make this P2P and the barrier-to-entry for new market makers is fairly low. Users keep it honest by monitoring the market makers they trade with.

This is why we must keep the altcoin transfers (PoW mining) orthogonal to trust based trading. The market marker will always have to be trusted.

I think an axiom is to never never make miners responsible for time-preference transactions, because there is too much conflict of interest that corrupts mining from its primary purpose which is to secure the block chain. When transactions don't have a strong time-preference then the random selection of miners by PoW insures that transactions are likely to go through, unless one entity controls a large % of the difficulty.

When I wrote my Bitcoin: The Digital Kill Switch (https://bitcointalk.org/index.php?topic=160612) (mirrored on a popular financial site (http://www.marketoracle.co.uk/Article39704.html)), I was primarily worried about corporations gaining a large percentage of the PoW and then using such a cartel to gain leverage w.r.t. to time-preference of consumer transactions, e.g. Amazon's quick checkout (1 click). Later I came to find out the key developers and Satoshi had long planned (the link is buried in my posts) for Bitcoin to be taken over by the large corporations (which is very dangerous given we are headed into a period of fascism due to the need of boomers to tax at greater than the Laffer limit in order to sustain the bankrupt socialism (http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-519) with a police state). We are in the dangerous stage where the financial center of the world transfers (http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/#comment-233), this time to Asia after 2033 with lots of pain between 2007 and 2033 (mirroring 1929 to 1955). Btw, inflation is necessary (https://bitcointalk.org/index.php?topic=160612.msg2902571#msg2902571) and also this link (https://bitcointalk.org/index.php?topic=160612.msg2980443#msg2980443), it is centralized inflation that is bad.

Btw, I think I may have already solved the level playing field for GPU/ASIC-resistant PoW (some details buried in my posts, no code written yet). I see you are coming closer to my ideas on that since the astute (obviously very intelligent) core Bitcoin developer Gregory Maxwell challenged you.

P.S. I had some tangential misconceptions (e.g. thinking Bitcoin could be a Ponzi scheme) when I first got seriously into Bitcoin when I wrote The Digital Kill Switch. Nevertheless, the main aspect I was concerned about remains my concern.

Many domains that I registered and never used, ended up being used by others after I gave them up because of the hassle and cost of maintaining the $10 per year registration fees wasn't worth my possible use of them someday.

You can't give away for free a resource that is finite (the number of good brandable names is finite). One of my examples is the toll road from Makati, Manila to the airport in Pasay costs about $1 and takes 20 minutes. The free public roads take about 1 hour. Which economy do you want? Gridlock or efficiency?

I am a rational min-anarchist, so generally I agree with your ideology. But my rationality (and the min-) says that if you let people sit on capital forever without incurring any costs or dilution, then the economy must mathematically stagnate (https://bitcointalk.org/index.php?topic=160612.msg2980443#msg2980443). This is why I am frowning on the proposal for dividend pools (socialism!), we need decentralized (not centralized top-down control of) inflation (c.f. the links I provided in my prior post). It is very important to understand the math at the above link. Many (probably most, if not 99% of) people who claim to be capitalists are really socialists because they don't understand the concept in that link. I also recommend reading the following tutorials on economics:

http://armstrongeconomics.com/2013/08/18/money-had-never-been-tangible-period-if-you-do-not-understand-what-money-is-you-will-lose-your-shirt-more/

More:

http://armstrongeconomics.com/2013/08/24/gold-5000-why/
http://armstrongeconomics.com/2013/08/24/14007/
http://armstrongeconomics.com/2013/08/22/no-single-investment-will-ever-be-perpetual-it-all-changes/
http://armstrongeconomics.com/2013/08/21/as-the-war-cycle-turns-up-middle-east-is-going-nuts/
http://armstrongeconomics.com/2013/08/24/yes-in-a-mad-max-dark-age-not-even-gold-has-value/
http://armstrongeconomics.com/2013/08/23/gold-the-coming-slingshot-move/
http://armstrongeconomics.com/2013/08/24/the-fire-is-burning-we-need-more-fuel/
http://armstrongeconomics.com/2013/08/19/emerging-markets-collapsing/
http://armstrongeconomics.com/2013/08/05/how-empires-collapse-a-orderly-path-to-conclusion/
http://armstrongeconomics.com/2013/03/27/are-we-head-to-a-mad-max-scenario/
http://armstrongeconomics.com/2013/05/23/mad-max-begins-in-spain/
http://armstrongeconomics.com/2013/05/08/the-mad-max-outcome/

BRIC-by-BRIC global collapse (https://bitcointalk.org/index.php?topic=160612.msg2997753#msg2997753) (underway)

HELP.org, you and I are in complete agreement.

Unfortunately I detect a whiff (not too strong) of socialism-leaning slant to the designers of this proposal. I urge them to back away from the instances of "equality" (e.g. BitShares-wide, wide-area dividend pools) in their design (unless these can be economically justified) back to the time-preference (opportunity cost) return on capital as a model of economics. Capital != money. Capital != wealth. Those are proxies for capital, which is the human productivity.

The only known global optimization algorithm where the dynamic variables are not known a priori is simulated annealing (why ice formed with slow cooling has less cracks than if flash frozen), i.e. maximum degrees-of-freedom (i.e. independent actors) with many microsteps of the state machine (slow cooling).

Binding things together (pools, sharing, and centralization) is the antithesis of degrees-of-freedom, e.g. a train has less degrees-of-freedom of movement than an offroad motorcycle (although the train has more degrees-of-freedom in cargo capacity), c.f. my two relevant blogs:

http://unheresy.com/Information%20Is%20Alive.html#2nd_Law_of_Thermo
http://unheresy.com/The%20Universe.html#Entropic_derivation

Sometimes we tradeoff degrees-of-freedom in some facet in return for greater short-term efficiency (expediency) in another facet, e.g. closed source is more expedient but over the long-term it is less optimal.

See this from core developers discussion:


Note Scala is a better Java and runs on the JVM, so it is a managed language also.

So it's strange then isn't it that still the majority of banking and insurance back-end software is written in COBOL not Java.

(something to do with *security holes* like we are seeing with Java implementations perhaps?)

Am not really into language wars, however, recent *thefts* that have occurred have been due to Android and Java (not heard of anything similar in that horrible language C++ which Satoshi himself stupidly decided to use).

Regarding gmaxwell picking on you upthread over the PoW algorithm, I just challenged his logic skills (https://bitcointalk.org/index.php?topic=279249.msg3005335#msg3005335) w.r.t. to anonymity.

Seriously gmaxwell is more knowledgeable about the details of crypto algorithms than I am.

There is never any reason to call margin on the long.  The long isn't in 'debt' and the result of the price move is to increase the margin of the short.  As a result Longs only ever voluntarily sell.

How is this not an arbitrary definition, given that the short is never in 'debt' either if there is no obligation to pay the long any more than the market value of the BitAsset?

So then where does the collateral of the long go?

How does the short profit?

As far as I know, security holes have been in libraries and Java code not in the JVM (Java Virtual Machine), i.e. it doesn't apply to Scala unless we use crappy libraries.

Code written in C++ also has security holes, just as severe and numerous as Java code if not more.

The difference is:

1. Managed code (JVM) removes a large class of security errors that you can make in unmanaged code like C/C++, e.g. buffer overruns and erroneous pointers.

2. Scala is 2 - 3X more concise than Java (and C++), and concise code enables clearer code study.

3. Using vals and pure functional programming concepts, a whole other class of security errors (referential transparency) are eliminated.

COBOL is still used because of legacy code, not because it is more secure (is it?).

And Scala is just a hell of lot more fun to program with  ;D

The downside of Scala is if you don't restrict yourself to commonly known idioms, it is possibly to write code that no one can read except yourself (write-only languages are bad for open source). However, if you avoid the unnecessary use of such constructs, then Scala is more readable than Java.

P.S. I am working on a language that removes those constructs to limit Scala to a more readable subset. The name of my language is Copute and it is often even more concise than Scala.

Perhaps you've never heard of std::string and std::auto_ptr (i.e. these problems were fixed back before the Java vs. C++ language wars had even really started and a big reason why I really don't buy the whole Java is safer argument).

You can't *overrun* a std::string (unless you're trying to) and std::auto_ptr's look after the memory and validate the pointers themselves - did you miss something?


COBOL and DB/2 SQL (with pre-compiled queries) is used because it does *not allow anything dynamic* period (i.e. it is more secure than *anything* else available today).

Understand that it is simply *not possible* to do a SQL Injection attack when you use DB/2 pre-compiled queries (which is what COBOL apps normally do).

Also understand that I am a C++ programmer (and advocate) but I understand and respect what is used in banking and insurance industries because I spent years *working* with them (and no it's not just because of the legacy code being there - they can afford to get it re-written anytime they like just as they spent billions sorting out the Y2K issues with the COBOL programs they are still running today).

That doesn't even catch half of the issues.

And it doesn't force you to use them.

In the JVM it is absolutely impossible to get a pointer and change where it points to in memory.

I wanted to say "Geez  ::)" because of the way you scolded me for my suggestion to use Scala. I can be nice, if you are too.

Be careful with getting all pompous on me, I know my shit. ;)



So write a Bitcoin client in COBOL please?

It is more secure for its narrow area of applicability because as far as I know, COBOL can't realistically be used to program generally any kind of personal computer application. Thus, it isn't any more secure for the things we need to program.

And here you are making the argument for managed code, not against it. ;)

Also you did not address my points #2 and #3.

So this is just getting pointless - now your argument has conveniently changed into one that I can write *shit* in C++ - so I can't possibly write *shit* in Java?

(again - the only BTC lost though shitty programming seems to be via Android and Java - nothing from C++ but of course I *must* be wrong so please correct me)


I made the point in regards to *financial software* (traditional banking and insurance apps) and as stated I am a C++ guy first and foremost.

Once again I would just like to ask - if Satoshi posted here again would you criticize him for his (according to you) *stupid* use of such a *crappy* language?

In regards to Scala I know nothing about it so am not qualified to comment about it (apart from to say that languages are languages - there is no *perfect* one).

Yes, and they are divisible and have all of the properties of Bitcoin.


Yes, Options also work this way.


Aside from margin calls, positions can only be closed by finding a buyer and trading out of your position.  Fortunately the market is liquid and all BitUSD is fungible.


When a short 'covers' their position they do so by BUYING the BitAsset on the market using the collateral.  Thus some owner of BitUSD is now the proud owner of the some of the Bitshares held as collateral based upon the price. Any left-over collateral is returned to the owner of the short position.


First of all, BitUSD is composed of 1000's of positions entered at different prices by different people.  The price would have to fall 50% in 5 minutes and even then there are no losses because the collateral would still be able to purchase the BitUSD at market price.   Obviously the short positions would be entirely wiped out in such a rapid movement in price as they are forced to buy as much BitUSD as their collateral will allow and bid up the price in a short squeeze.  Worst case outcome is that some people will end up with BitUSD with no backing at all and thus 0 interest.   Fortunately, new BitUSD is always being created as new shorts / longs enter the game and the new BitUSD would be fungible with the old so only someone attempting to sell BitUSD in a very narrow window may face a discount to face value.  Because market forces always push the price back toward parity, speculators would readily buy up BitUSD at a slight discount created during such an insane price move.  

There is no reason to ever have expiration on longs (see above).


A miner could exclude a new bid or ask in the most recent block, but would be unable to do anything about limit orders placed in prior blocks that were not filled.  The miner will always have a slight advantage in picking which bids get into the block chain and thus how the price moves in the 5 minute window of the block they win.   But in a given 1 hour window, there will be 12 different miners who win and they will have different goals with respect to which way they want the price to 'move' based upon their individual position (short or long).    The reality is that the offers placed on the block chain are generally spread in a collar around the current bid ask and therefore the order book will be full on both sides of the trade at the start of mining.  No single block would be able to budge that order book by more than the 'new bids/asks'.    So margin calls will be based upon a wider bid/ask spread than the 'real-time market'.  Most people who care about price fluctuation in time periods of less than 1 hour should be trading on an Open Transactions exchange that is funded with BitUSD / BitShares.    

I suspect that the small market advantage garnered by generating a block would further motivate miners and ultimately help secure the network.   Of course, the reason why decentralizing the hashing algorithm is important is to keep a large percentage of the hash power in the hands of non-professional miners and thus limit the ability to control the market by any one actor.



Any action that could be taken by a miner must wait for the 'chain reorg window' to pass.  Bitcoin currently uses 100 blocks before miners can 'spend' their rewards because during a re-org, decisions of the miners based upon then-current prices are no longer valid.   If I cancel my order and then a re-org occurs, a miner in the reorg may have executed my order prior to the cancel.     Obviously, re-orgs are a risk for any trade executed by a miner and those that care about having instant spends should use the off-chain system to exchange and sign an atomic transaction that could survive a re-org.   This is another example where the only bids/asks that will end up in the block chain are the 'open orders' / backlog that will only be executed if the price moves significantly (1% or so) in one direction or another.  


We want the minimal security required to prevent chain forgeries and ensure things are decentralized.  You don't go around paying for the MAXIMUM security for your house because after a while additional security has a marginal ROI.  Dividends provide the following benefits that ultimately improve security of the network:

1) then encourage saving and value accumulation within the chain.
2) they create an incentive to bring the unwashed, greedy, masses such as Grandma, into the system because they can get a better ROI than their bank with a better risk profile.  
3) having a relatively secure way to generate passive income will help make this go viral
4) increased adoption means more small time users, each of which can profitably mine with their CPU, and thus there will be more hash power in the network.



Thanks for all of your feedback, it is nice to see some deep conceptual thinkers picking through the paper and design.!






 

Guys, language choice is a holy war and not productive debate for this thread.    All I will say on the subject is that making asynchronous applications easy to read and develop is hard.  Designing software that can handle the number of async connections, encryption demands, database demands, and memory demands of a block-chain that is running at full capacity (1 MB of trx every 5 minutes) with the ambitious goal of operating in the background as an always-on app like your email client means that picking a language with a lot of overhead would be enough to push us over the threshold that is ambitious to achieve even with optimized with C++.  Fact of the matter is, native C++ apps with Qt provide a better user experience than apps built with a host of other languages where your cross-platform support is limited by the availability of a runtime environment.   Runtime environments represent a source of bugs and security holes that are unacceptable for this application.     Even if you assume all of these things are a wash, as the primary developer C++ is the only option for the core code because I can write the best code in C++.    THe core components can be compiled into a library and then provide bindings to any language. 

If you think that Scala is so much faster to develop in, then you should be able to catch up to the work I have done in the past 6 weeks within a couple of weeks.   I would gladly work with you to define an open over-the-wire spec and if you really can get the kind of improvements you are talking about and can catch up then that would be great.  In my experience though, those types of gains are mostly on paper.

You completely missed the point. Try reading again.


Everyone who breathes eventually dies.

Correlation is not cause and effect.

If those who code in C++ did not use the bad libraries that caused the problem, does not mean that coding in C++ is inherently more secure (and not less secure).

Also the sample size is way too small to make any statistically relevant conclusions.

And the main issue here is to write a lot of compelling s/w as efficiently (quickly, correctly, etc) as possible.

Scala fits that bill better than C++ if we are evaluating purely on the productivity of an expert Scala programmer vs. an expert C++ programmer.

However, we have to factor in there are a lot more C++ programmers than Scala programmers. And the learning curve for those who don't know Scala.

And factor domain specific expert knowledge (in this field) may be reside more amongst C/C++ programmers.

Yet more programmers does not always trump the quality of the best few programmers.

In any case, I was only sharing my personal opinion of what I would contribute to. You did more than share back your personal opinion of what you would contribute to. You thought you could scold me, yet you got caught with bad logic. You deserve the embarrassment because your intentions were to embarrass me, but it backfired on you.


We are writing altcoin clients here with networking, bit twiddling, GUIs, etc.  ::)


I would express my opinion that I would not wish to code in C++ ever again after learning Scala.

It is like going back from C to assembly language. I wrote 5MB of 68000 assembly language for my WordUp (http://www.atarimagazines.com/st-log/issue29/84_1_REVIEW_WORDUP.php) before C arrived on my radar.


Imagine the assembly programmer who never tried C.

I think I'd have to agree with bytemaster that this had crossed into "Language Wars" which is not productive for anyone (so will not further it with more fuel).

If you have found your nirvana with Scala then I am not against that at all - so please don't argue that my nirvana with C++ is somehow *inferior*.

Enjoy your programming and *change the world* - that is what we are really striving to do here (rather than win a silly argument about which compiler/interpreter/parser is the best).

We are really only going to have the greatest influence by working together rather being at each others throats about our choices of computer languages.

I agree let's work together.

I will just say it is hard for people who learn Scala to go back to C++, just as it would be painful for you to go back to ASM or only C.

Languages do progress.

Well you have piqued my interest in finding out about Scala but I think that after more than 15 years of C++ programming I am probably not the right person to become a convert.

;D

(maybe we can end the OT language stuff now and get back to what I think could be a very interesting project)

Domain squatting is a creature of price fixing combined with first-come, first-serve awarding of names.   The goal is to maximize the economic utility of each unique piece of real estate.  In my approach, imagine all available names as being real-estate in the New World.  No one knows which acres have gold, oil, or nice views until they can be explored.   It is absolutely ridiculous to create a system where all lots are the same price and then sell them all to the first person in line.    To solve this problem I have created a name crypto-currency that acts as 'stock' in all names and owners of this stock make a profit anytime a name is sold.  To ensure proper price discovery names are auctioned.   The result is that the most profitably way to 'squat' is to own the crypto-currency because it sees almost all of the profits from every name actually sold and no need to tie up capital in names speculatively.  It puts everyone on a equal playing field in the domain squatting game because whether you have $100 or $1M to invest, you can get the same rate of return by investing in 'unclaimed' names via owning 'stock' in the crypto-currency.

My motivations are always economic and never about 'social justice' or redistribution for 'feel good' or 'nanny' reasons. The goal is efficient allocation of resources and profit while avoiding socialist concepts of 'fair prices', price fixing, and other economic policies.   THe result is a better system that can compete on the market, not 'nanny developers'.

I think the domain squatting problem is an interesting one - few (apart from Aussies) would know about the whole Burger King vs. Hungry Jacks issue (someone incorporated a company called Burger King in Australia before the USA chain tried to do so).

Strangely enough even after "Hungry Jacks" finally got back its name ("Burger King") in Australia - it failed as the name "Hungry Jacks" had become more popular (so they closed down the one and only "Burger King" in Melbourne only about a year after opening it and just continued under the name "Hungry Jacks").

This was some years back though so am not sure if they have managed to change the public perception since then but it does show that a name is really only as important as the publicity that surrounds it (as an Aussie I hadn't even *heard* of the name Burger King until I learned about the legal case and didn't even initially know that "Hungry Jacks" == "Burger King" as I am pretty sure many other Aussies would also not have known).

I would love to hear what you have to offer in this area.

I'm most comfortable with python and Haskell. I think everyone has a pet language and honestly If I could choose any language for this project, then I'd choose Go: https://en.wikipedia.org/wiki/Go_(programming_language). I've used Scala and I actually met Martin Odersky while at a conference in Switzerland. I really believe Scala is an amazing language and I'd highly encourage anyone interested to take Martin's course on Coursera: https://www.coursera.org/course/progfun.

But here's the reality, I'm a CEO and we are running a business with timetables and talent pools. Daniel, and others on the project are experts developing in C++ all with over ten years of experience. It's my job to best use the resources I have at hand and the community has at its disposal. If we choose C++, then we can write code from day 1 and it will be solid, secure code conforming with the best practices of software engineering. If we choose a new language, then we have to spend resources learning it. I just can't justify the months it will take to migrate.

Allow me one more transgression on OT.

Scala is much more concise (lots of boilerplate you don't need to write), even on common patterns. For an example of more high-end pattern, see the convoluted C++ templates (http://stackoverflow.com/questions/2565097/higher-kinded-types-with-c#answer-2565191) required to emulate higher-kinds. An important use case of higher-kinds is concisely explained on this page (http://goldwetrust.up-with.com/t112p165-computers#4422).

Higher-kinds are all about code reuse (http://copute.com/docs/Applicative.html#Rationale), which is very important if we want to build a lot of varied s/w faster and more correctly (less bugs), but that is probably going to be difficult for you to get a mental picture initially (http://esr.ibiblio.org/?p=4824&cpage=1#comment-396626). In practice, it is very elegant once you play around with it.

The conciseness of Scala is not hinged only on such an esoteric concept of higher-kinds.


Scala (under TypeSafe) is especially targeting this with their Akka library. Twitter uses Scala (https://www.google.com/search?q=twitter+scala) because it scales better to such real-time, asynchronous needs.

Besides, it is well known that profiling is and hand-coding only 5 - 15% of your application in C/C++ is a more correct and efficient paradigm than unnecessarily writing the entire uncritical sections of the program (usually the majority) in low-level code (C++ is low-level from my stance now).

On language shootout tests Java and Scala are usually within 2 - 3X of C/C++ speed, but this doesn't matter for most of your code. Only a few sections of your code are the limiting factor.

Whereas, being much more productive with the bulk of your coding is the big win of high-level semantic language programming.


Does Java (JVM) not have the necessary runtimes, or all them inferior to Qt?


Agreed the languages preferred by the core developer(s) is crucial. I made that point also before reading your post.

And yes one could write portions in Scala/Java and the core in C/C++. You probably know is best practice to put an API between your core library and the GUI code any way (even if you use C++ for both). Then anyone could code another GUI in any language they want and call into your native code API.


I am too slow on domain specific knowledge w.r.t. this field. I have the big picture, I am a good coder, and I am good with details, but I haven't been in this field long enough, so my domain specific gap exists. I learn fast, but not fast enough to catch up with you if you are already coding.

I may be interested to contribute to a C++ code if it is 100% modularized by an API away from the GUI and other support code. So then I could reuse it, if I decide create a Scala version.


Agreed. Understood. That is why I mentioned those other factors to consider.

I found many flaws in Go. I will find my link.

Your 'socialism-leaning' detector is indeed very sensitive and I highly respect that.  I always aim to eliminate socialist principles where some people subsidize others and receive un-earned benefits at the expense of others who have un-earned losses.  So, I am going to not take offense at your comment implying a socialism-leaning slant because in my book that is like saying I have a whiff (not too strong) of wife-beating, anti-semantic, racist, commie slant.   I will instead redirect your (whiff of an ad hominem) attack on the designers (me) of this proposal to the proposal itself as you will never find anyone more committed to economic principles than me.  

Given that I am not perfect, I would like to explore the dividend and asset pooling as a form of socialism and eliminate anything that smells of it.

From what I can see the whiff of socialism is highlighted with these two simple trades:

Alice & Bob are paired short / long   at    1 BTS to 1 BitUSD
time passes... price changes...
Adam & Joe then pair short / long  at  1.1 BTS to 1 BitUSD

Both longs end up receiving the same dividends.  With Joe getting the short end of the stick because instead of getting dividends from 2.2 BTS he only gets dividends from 2.1 BTS... mean while Bob saw his dividend rate go up as a result of Adam and Joe's trade.  

Taken in isolation this looks like a redistribution of wealth in a socialist manner, but failure to do this would result in non-fungible assets.   The key being that not all BitUSD is traded short/long, but some people can just sell BitUSD for BitShares without creating a new short position.  This fungibility, divisibility, and merge-ability is a very important aspect of an asset that is being traded.

There is another way of looking at this same deal between Alice, Bob, Adam and Joe.    The price of BitUSD went up and therefore the dividends earned need to adjust to keep a the same relative rate of return.    I also assume that people are constantly rolling over their positions and therefore the average 'margin' should never deviate much from from 1.9 to 2.1 except in extreme volatility.   Instead of viewing it as 2 parties, view this system as 3 parties and I think the socialism smell disappears.  The third party is the exchange itself, which absent a block chain, would be a trusted 3rd party.  

The exchange is the one providing the brokerage service that enables Adam to 'borrow' BitUSD to sell to Joe.   The exchange charges Adam a fee to borrow BitUSD, the dividends on his collateral.  This is a simple market transaction and not socialist at all.   On the other side coin is Joe.  Joe is simply an owner if BitUSD which is issued by the exchange at a variable interest rate.   Joe and Adam are both trading in the exchanges asset.  One is paying interest to borrow it, the other is receiving 'interest' to lend it.   The interest rate is determined by how well capitalized the exchange is.  Thus no socialism at all.







  

Go is an experimental language like Rust that has enormous potential and great vision. Also being backed by Google and used in Google products tells me that it's evolution is practically assured. But this actually really beautifully demonstrates the larger point.

Google has a core business model that generates enormous income and permits them to build glass and self-driving cars. Thus that freedom also allows them to embrace new development paradigms that will be better suited for the future realities of programming. We are a small company with a grand vision, but finite resources.

C++ is a horse that has built more than half of all the world's software and will continue to be in wide scale use for decades like C before it. I see not issue with developing our MVP and much of the source for the first few years in C++ and then embracing a gradual migration to other languages where it makes sense. We already have plans to be multilinguistic in respect to our plugin system allowing developers to use javascript.  

Another value C++ provides us is that its mastery is difficult. Any developer who can write good asynchronous C++ code is usually a talented and disciplined programmer. It tells us a lot about the individual behind the keyboard more so than something like Python or Ruby (god help us JS skills). Thus I enjoy it as a recruitment tool to gain a better sense of the skillsets of the people I'm working with.  

The OT link as promised...


The key issue with Go is duck typing instead of nominal typing (http://magicmakerman.blogspot.com/2013/07/why-googles-go-programming-language.html). The link explains some of the issues, but they go far beyond that.

Given you like Python and Haskell (excellent languages for their use cases), which both have structural forms of typing, I can see where you would initially think Go might be good.

But there is a key point that you may not have considered yet (assuming you haven't coded extensively in Go, neither have I), is that Python isn't a statically typed language and Haskell is a co-inductively typed language (where Bottom is the type that all types inherit from, unlike inductive languages that mere mortals normally use where Top is the type that all types inherit from (https://groups.google.com/d/msg/scala-debate/vysv97J0xok/iHpZPvlbFcIJ)-- one of my contributions to computer science theory).

Thus I think you will find that a statically typed, inductive language with duck typing is fundamentally flawed.


The problem with Rust is its main innovative feature Typestate. It is an auxiliary type system that coexists with and purports to be orthogonal to the actual type system but this is impossible (if we get into type theory), thus it will put the program in an indeterminate state, as exceptions do.

Rather it is better to have a unified, highly expressive type system as Scala does, then (especially if using category theory) you can avoid impedance mismatches (otherwise known as refactorings instead of fulfilling the Expression Problem for reuse (http://copute.com/dev/docs/Copute/ref/Complete%20solutions%20to%20the%20%93Expression%20Problem.htm)).

The following link has some elaboration and links on the above, but please ignore the rest of what is there as it is out-of-date:

http://copute.com/dev/docs/Copute/ref/intro.html#Exceptions


I hope you separate your code into modular layers with APIs that are modular as much as is reasonable given the rushed deadlines. This is not really easy to accomplish.

Then we can reuse the C++ code in layers, with what ever language we want to going forward.  


Yeah that makes sense. And the set of Scala programmers who can do that is so small, you might be lucky to find one in the next few years.

But for the outer layers (GUI, etc), let's try to be as language agnostic as possible?

Guys.... please delete your posts on the language debate, they detract from the thread and can be discussed in a PM or separate thread if you want it public.    

Couldn't agree more, let's end this pissing match.

Back to the main design points...

P.S. I don't really want to delete my posts about language choices, as I think it is relevant and I put some effort into them but I agree to stop it so it doesn't dominate the discussion. I hope you will try to write modular layers/APIs (which might be difficult if under deadline pressure), but in any case it is your priorities that will dominate as you are the lead. The Unix design philosophy is you write your app with no GUI to begin with to be sure you've made the core functionality orthogonal.


What pissing? We were discussing technical aspects of programming languages. Very interesting and relevant for those who understand.


Thus the BitAsset isn't destroyed and isn't redeemed. So I still don't see where the redeemable concept comes in.


I am not following this. I could try to guess what you mean by the somewhat ambiguous terminology ('cover', 'owner') you've used, but this will increase the verbosity of back and forth. How about an example?


Why you mention that extraneous info? How is that relevant? Are you implying a pooling of collateral?


What if it falls 150% in 5 minutes?


Why do they have to buy a BitUSD, who did they promise delivery to?

The long already has ownership of the BitUSD correct?

I am very much confused now.


I am totally lost now.


I am lacking basic understanding of the design in order to comprehend the private language you are using above.


Then I don't see the pricing working as you expect. My understanding (perhaps wrong) is that probabilities for expectations on the price moves over the duration of the asset held have to symmetrical in order for the price to mirror the targeted asset. My prior explanation was more thorough.

Perhaps I am just missing something in the design which will give me an epiphany once I get it, so I reserve the judgment on whether I am correct or not. But I think I'm correct at this point in my understanding.


Good point. Include also stop-loss orders, etc.


If the volume of bid/ask is much lower than options outstanding, they could possibly offset the cost to sweep away the bid/ask with a gain from manipulating the options causing a margin call in that 5 minute window.


I am not following you. Does this invalidate my point above about relative volume? I think not.



You assume "small" but is that true. See above.


So 17 hours.

I don't understand why the blockchain takes 100 blocks to choose between competing forks. I thought that probability of competing forks beyond 6 blocks is exceedingly small?


You lost me again. I don't understand. What decisions? What "then-current prices"?

Writing in a clear, layman's language is very important.


Ok.


You have thoughts going on in your brain that you are not writing down. Again I don't follow why that must be so.

This is typical for programmers (like us) though :) Hate slowing down to do clear documentation right.


The marginal-utility of blockchain security is a constant, and never declines if the mischief that a 51% attack can do it irrecoverable or catastropic (or even less than 51% attack if more frequently manipulating bid/ask, which is why I suggested upthread you remove bid/ask resolution aggregation from the mining).

I am yet undecided if the potential mischief is so grave.

Also with CPU-only PoW, everyone can mine, so everyone can utilize their existing resource (computer) when it is idle (person is sleeping). So everyone can grab some of the debasement, proportional to the productive resources they bring to the system.


I provided links upthread that there is tension between saving and growth of the economy via investment at-risk. Saving isn't really a good thing in excess, as it is capital that is not applying any thinking, just sitting there dumb.


I don't think so, because they get less than the debasement rate of the coin (as some goes to the miners). Unless fees and such will be so extensive, but then people will run from such an onerous coin.

People invest in Bitcoin for the capital gains and for the benefits of decentralized digital currencies. Conversative savers are not going to leave fiat because of interest rates. Heck they are fighting to get negative rates in Europe for the safety-- they pay the sovereign to borrow their money  :o
  

Yeah because they can earn coins for using their idle resource (computer). Has nothing to do with dividends.  A society-wide dividend (without some additional justification) seems silly. We take debasement from ourselves and give it to ourselves again.


Yw. Thanks for replying. Hope I didn't offend. I like something easy-to-grasp.

I hope you don't get negative vibes when I often play the critical eye role. I will also be very supportive when there is an unarguable design win.


Meaning that the price is arbitrary and not market driven. Agreed on that point, but do not agree on the value of being first not being part of discovery...read on...


Agreed. Lucid analogy.


Is it so ridiculous when one of the components of value created is the first person to discover that a name is worth buying?

I propose a solution that when someone goes to register a name, then there is a window of time in which anyone else who comes to register that name, then they are all introduced to a secret auction ongoing?

That balances the value of knowing against the price discovery amongst those who know in the same approximate early time.


Analogously to your idea about dividends for BitShares, this is where your socialistic tendency overturns logic.

You think that pooling things creates value. No it destroys value. Please re-read my posts upthread about degrees-of-freedom and how arbitrary dynamic systems optimize via simulated annealing.

No value is created by allowing people to buy a share in selling of names. No knowledge was added, thus no value. This is just silly transferring of wealth, i.e. SOCIALISM 101.

Why are you trying to stop people from using their knowledge to bid up the best names? You are not the market. Stay out!


You may think that about yourself, but your design is exactly what you say you don't want. You are trying to design a way to stop people from competing on names, by trying to bribe them with pooled transfer of wealth with no valued added.

I hope you get this. This is entirely wrong.

AnonyMint... wow you have written a lot and it is very clear that communicating the mechanics of this system is like trying to explain the mechanics and economics of Bitcoin 5 years ago.   It is made all the more difficult due to wide spread economic ignorance which means even those most literate among us often have some of the subtitles of economics polluted by the economic propaganda and fallacies pushed upon us by government paid 'economists'.


I am not calling you economically ignorant, only that there is a whiff of keyensian economics to your arguments and I have as strong detector for that.    Economics is another one of those areas that quickly turn into holy wars without sound deductive, praxeological arguments.   I will respond with my position once, but would like to avoid turning this into an economic debate.  While I enjoy the debate, I need to spend time coding and the debate on these issues has already been through addressed by Mises, Rockwell, and others.

First Principles:
1) There is no such thing as idle 'money' or 'unproductive money'.  At all times money is always sitting in someone's account.  It represents a future claim on resources, and abstaining from making a claim is better than trying and failing.
2) At any point in time there is a fixed set of resources in the economy and they all belong to someone.
3) Two people swapping resources does not change the size of the pie or health of the economy from the perspective of anyone else simply because they swapped.  Only those two individuals can perceive a gain from the trade as they each have something they value more than they had before.  In other words, money is always held by hoarders and changing the current hoarder is neutral on its own.
4) only action can create or destroy value in the economy as a whole.
5) Ignore the money and labels, there are only two things that any action can result in:
       - using inputs to create outputs of greater value (production)
       - using inputs to create outputs of lesser or no value (consumption)
5) Hoarding money is choosing not to consume resources.  It drives prices down (deflation) which encourages more 'hoarding of money' in a positive cycle that drives prices down until someone sees something they can trade their money for that will increase the value (production) or meet their pressing needs (consumption).   Either way, the hoarders of money benefit both the production of goods by freeing up real capital (not money) for productive purposes and consumption of others by reducing prices through reduced demand and increased production due to investment in capital such as factories.

Based upon these principles I reject any argument on its face that claims hoarding and saving is bad.  Anyone who is willing to produce value today in exchange for money, and then not consume any resources for 10 years, is providing a huge loan to all of society and interest on that loan is paid via the resulting deflation.    

The really easy 'proof' of the fallacy in your argument is to define 'excess savings' in a meaningful way.  How can I tell that there are excess savings?  If it exists, what free-market options are there to solve it?   Ultimately the answer is always, "tax", "inflate", or "subsidize" and all of these are a violation of non-violent, decentralized principles.  

Dividends are a non-negotiable part of the system.  We consider a desire to hoard our currency a huge success because it means we are creating a product people want to own.  The market will then decide our fate.    

I will address your other points in a bit.

Lets resolve the claimed socialist nature of dividends in my systems once and for all:

1) Suppose I create a new email service at the and decide to start selling ${name}@bytemaster.com 
2) Who initially owns   ${*}@bytemaster.com?   Me.
3) At what price should I sell the names to maximize my profit?  At what ever price the market will bear.
4) How do I figure that out?  I auction it publicly, not privately. 
5) Would you suggest that it is socialist for me to do that?  Would you suggest I set a fixed price first come first serve?   Why, fairness and other 'socialist' reasons? Would it make me more money?

Now who owns the ${*}@blockchain?  Why, those who hold the currency and who mined it.  Who should profit from every name sold?  Those who own the currency.  How much should they get?  Proportional to their investment in mining / acquiring the shares.    On what basis should it be any different?   Only socialist 'entitlement' to cheap names and resistance to markets which are replaced by 'first-in-line', 'shortages', etc.   So while you claim my approach is socialist, what exactly is yours?

In case you haven't caught on to the real innovation here, it is the creation of decentralized ownership of decentralized, for-profit, businesses.   Names & Exchanges are just two such examples of what is possible.

I understood the Bitcoin white paper within an hour or so.

Please don't tell me that I can't read research papers.

Be very careful about what you assume...it is likely your explanations that are not well organized and presented. However, I will leave open the possibility that I am sufficiently ignorant of option trading to understand what might be obvious to others.


I have learned very much from Martin Armstrong who was a friend of Milton Friedman (http://armstrongeconomics.com/2013/08/24/gold-5000-why/) (and Margaret Thatcher), and Friedman admired his understanding of economics.


First of all, probably you (and 99% of readers) don't even know what Keynesian economics is (http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-615)-- it is not printing money. And even so, I don't agree (http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-559) with Keynes's theory.


This smells bad. Lew believes in gold standard, along with Ron Paul and Gary North. They are clueless. I provided a post upthread with many links from Martin Armstrong, which puts to rest that nonsense. I also had a link upthread to my unarguable economic point with a math proof, which I assume you did not read.


This is a clueless statement. Stop right there.

Go back upthread and read my links about inflation, debasement, and how an economy functions.

I am talking about who is rewarded return, based on what risk and knowledge they input.

There is a very clear math proof. Go find my link to it upthread. You are obviously moving too fast and not able to absorb all the details, because you are trying to program at the same time as do this.

Programming before having a clear consensus on design is not wise, unless you are sure you are omniscient.


No, no, no. Wrong, wrong, wrong. People are not same. What they do with capital is based on their unique knowledge and risk profile.



Wrong! So very wrong.

Inaction destroys capital. Time-preference is fundamental, because the duration of human life is finite.

Your fundamentals are way off course.



It is more than that. It depends on how we dilute inaction with debasement. Go read my links upthread so you can learn.


It is choice of where capital is directed that is more important than the choice of doing nothing. Because all capital (human lives) are in motion.

Savers shouldn't lose all their saved money overnight, but they certainly shouldn't be rewarded for doing nothing. They do add some knowledge by being selective, but this is more valuable when they are selective in a way that they are always deploying.


Malthusian nonsense. More and more efficient production overturns scarcity. Reward goes to those who know how to deploy.

Contrast this against a debt induced demand, which is giving money ignorantly to everyone to spend ignorantly.

Whereas when you give return to those who proved efficient production increase, you concentrate capital to those who increase everything and away from dumb savers and debtors who add nothing.

A saver can only gain return by stealing from those who deploy increases in productivity.


There needs to be some reserves because of the business cycle due to waves caused by inertia.

That is why we don't debase savers to 0 overnight.


Excess is stealing value from producers to give it to savers with a blanket dividend.


Then you don't have my support.

I would rather compete against you.

So I will stop giving you design help.

This discussion touches upon a couple of lesser known economic theories.

Antal Fekete, http://www.professorfekete.com/ ,  has some very good theory on hoarding and dishoarding of gold as a driver of interest rates which is determined in a decentralized manner by the public. If interest rates are too low, people will tend to hoard the physical metal since the risk of default by borrowers is too high for the rate of return. Interest rates will need to increase to lure investors to reinvest (dishoard) the gold into bank accounts, bonds, and other assets. If interest rates are too high, a surplus of gold will be dishoarded, eventually driving interest rates back down.

The domain squatting issue and idea of auctioning them touches on theories of Henry George, http://en.wikipedia.org/wiki/Henry_George . He advocated a land value tax to capture some or all of the value from appreciation. This discourages speculation by holding but not improving land, so it is only economical to hold land if the owner is developing it and producing an income from it.

Since participation in Bitshares is purely voluntary, it is by definition not socialism. It may be more akin to an intentional community where members have agreed to pay Georgist rents to the association which are redistributed to members according to some mutually agreed upon formula.

You are an individual. Thus you represent one actor in dynamic annealing system of optimization.


No one! That is the key point of it being decentralized and algorithmically autonomous.


Disagree. Collective ownership is SOCIALISM!!!!! My gosh how could you not miss what the definition of collectivism is?


Those who secure the names. The miners who bring their productive capital to bear.


The business runs autonomously by algorithm. There is no value-added, except by those securing it.

I don't want to clutter your thread. I wish you good luck and I hope you continue with your design, because I want to compete with you.

May the best mind win.

Ah yes, Antal Fekete's Real Bills Doctrine. We had our debates in private email.

---

My obstinate replies to Daniel are not intended to be a personal matter, simply that I don't want to support collectivism.

Also the value of the main innovation BitAsset is still somewhat dubious in my mind thus far. So unless that can be explained in a way that really overshadows the differing view that Daniel and I appear to have on economic principles, then I think I should be more of a casual observer and perhaps casual contributor.

I am also concerned about the complexity of what you are trying to achieve. It might be better to find a way to structure the system in orthogonal components, so that partial outcomes between binary  success or failure are possible.

As for modularity, we would have to dig in to the coding.

Any way, you don't need me. There are many valuable people around. I am just one guy, and I might be wrong.

I would most like to work on something that I firmly believe in. I am sure you feel the same way.

Although some aspects of your plans are interesting to me, it seems there is too wide of a gap between us for us to be able to reconcile in such a short deadline as you all are proposing.

And I have to be very selective also how I appropriate my scarce time resource.

So perhaps the most efficient is I bow out and just try to read if you explain things more clearly. Then leave open the possibility of reengaging if I gain an epiphany or become less demanding on my objectives, etc..

Great, I love competition it results in better products for everyone.

Everyone owns the blockchain. You could say it's left libertarianism but not centralized authoritarian socialism http://en.wikipedia.org/wiki/Libertarian_socialism.

Bitcoin is collectively owned, but it's not typical socialism. I don't believe it's socialist at all, I see it as technologically applied libertarian socialism if I had to try to put any political ideology on it at all and even in that instance many people would completely disagree.

Bitcoin is public property owned collectively by the Internet itself and the miners who support the blockchain. This is necessary or Bitcoin could not exist. Since the miners own the means of production (the mechanism to produce the Bitcoins), then you can say it's applied libertarian socialism. It's not authoritarian socialism though, and as long as it's not authoritarian socialism it's not taking anything from anyone else. Private property is respected, and Bitcoin is a open property similar to stuff licensed under the creative commons or the GPL.


Exactly. I don't think he is grasping the concept that you can have private property as a decentralized group. Bitcoin could be considered private property, owned by the community itself. If you want to stretch it you can see it as a libertarian socialist type thing, but it's not socialist in the sense of the word where there is some authority in control of it.

Agreed and apologies for cluttering your thread. And my sincere wishes for your success.

I will reengage if I gain some new perspective.

Have you guys addressed some of the legal issues that will rest on your shoulders as the public 'issuers' of this metacurrency system?

We are merely publishing open source software that happens to create a crypto-currency that is mined into existence with 0 pre-mining.  This, in theory, is protected as free speech and does not constitute issuing a currency.  The last page or so of the white paper addresses our personal assessment of the legal standing of BitAssets. 

1) They are not financial instruments in the legal sense because there is no contract or liability.
2) There are no contracts in the legal sense between any two parties.
3) Our company could disappear and this system would continue to function.
4) We will not be engaging in money transmission, but will be partnering with those who are.
5) Our company is not an exchange and does not act as an intermediary between customers.

Last one.


You are not grasping that whole != SumOf(parts), because dynamic changes in composition do not yield same whole because are quite different in outcome.

I suggest you lock arms with everyone on the face of earth, since we all "own" it, and then try to optimize your movements collectively.

My math points were either ignored or complete flew over the head.

---

P.S. I wouldn't expect the "rule of law" to be sane in what we are heading into. Study Hitler, and even he couldn't track every email and communication, but the developed nations do now. Much better to be entirely anonymous.

They don't get you for free speech, rather in the Wallstreet protests they arrest you on a technicality, such as stepping on the grass.

In your case, you can end up always being audited (harassed) by the IRS, then they can cancel your passport (due to IRS assessment not paid), etc.

The million dollar question. I see this becoming a decisive issue moving forward. As Satoshi is a mystery and no legislation has been written to capture the essence of decentralized OS projects, the opportunity for the creators of a widely-adopted OS distributed digital asset class to be persecuted is non-zero. This seems to be a risk you are willing to take and I commend that, as doing so fits into your vision for this platform. If I had the skills I would help; unfortunately I do not, so I will be watching closely for the time being :)

Invictus

Out of the night that covers me,
Black as the Pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul.

In the fell clutch of circumstance
I have not winced nor cried aloud.
Under the bludgeonings of chance
My head is bloody, but unbowed.

Beyond this place of wrath and tears
Looms but the Horror of the shade,
And yet the menace of the years
Finds, and shall find, me unafraid.

It matters not how strait the gate,
How charged with punishments the scroll.
I am the master of my fate:
I am the captain of my soul.

William Ernest Henley

If I write software and never run it, did I issue any coins?

So by that logic you are shifting the burden to the miners.

Regardless HELP you are missing the point of the argument, as is clarified by bytemaster's most recent post.

Read his first post more carefully:

It boils down to (from the whitepaper):

this whole convo might be too OT, up to you bytemaster

Legal issues will always be a problem when we live under a corrupt system.  We could follow the law and it could be changed or reinterpreted.   The truth is we live in a lawless society where no one knows or can even agree on what the law is, it is selectively enforced, and entirely detached from morality.   This makes the 'law' irrelevant if someone in power considers you a threat. 

The only defense against corrupt enforcement of the law is publicity and providing a good to society that is so in demand that the government is unable to outlaw it. 

The true purpose of our company is as a free market solution to fighting the most common crimes in our society:  identity theft and fraud in the financial industry.  You cannot overcome government by 'fighting the government' because they can always claim the 'moral high ground' of fighting crime and 'protecting people' from 'money laundering' and ponzie schemes.     Well, we are claiming that high-ground first.   If they want to fight us, they are going to have to claim that our efforts to fight identity theft and financial fraud are a bad thing.  That grandma doesn't deserve a safe ROI on her savings, and that people should not have free and easy to use secure communication software. 

So our goal is to provide people the services they expect from their government, but do it without shoving a gun in their face.   So people expect the government to regulate the financial markets to prevent fraud and abuse.  To insure deposits at banks.  To provide counterfeit resistant identities.  To provide postal service.   We will provide those same services and do a better job in an entirely transparent manner.

If governments want to claim the high ground, they will have to start actually doing the job they sell themselves as doing because they will look very foolish attacking us we will achieve what they have failed to do... regulate financial markets and secure identities.     Besides, wall street will be able to make a killing with this system so they will probably not push for it to be outlawed entirely nor for us to be put in jail. 

It is all a public relations game.   

When events like this happen: http://articles.chicagotribune.com/2013-08-02/news/ct-met-kass-0802-20130803_1_butcher-type-kitchen-knife-park-forest-police-taser

Who knows with the government. Honestly we can just start with our principles and our vision and have the courage to follow it. Our lawyers believe the business plan is solid and we can't see a regulation or law we are breaking by building this software. It doesn't mean we are immune to legal concerns, but it does mean we've done our best to see if the road ahead has issues.

I have no doubt that part of our time and money will have to be invested in educating regulators, law enforcement and lawmakers about BitShares and cryptocurrencies, but frankly any business in the Bitcoin ecosystem has this duty as well. We are at the bleeding edge of technology and social innovation. Nothing is known about the best practices or relationships we will have moving forward. That's what makes being an entrepreneur fun and also it lets us wear our hopes and dreams on our sleeves.

I've had a wonderful time working with Daniel and I've learned so much over the past few months. I can't wait for the next six.

Regardless of the legalities involved, the Bitshares idea has severe technical problems. As announced, bitshares is infeasible.

1) Via double-spending, miners will be able to selectively reverse trades that have been signed, but not yet entered the blockchain.
1a) If reversing trades is potentially profitable, the whole decentralized trading system will be borked by manipulation. Why trade if some privileged fucks can selectively reverse deals.
1b) To prevent this, the blockchain must not execute trades instantaneously. Instead, trade execution must be delayed until long after trades enter the blockchain. The execution price should be a unknown future price determined by the 'feed' price. Buyers and sellers should simply agree to exchange a certain quantity of assets, put collateral in the blockchain, and wait to see what the price will turn out to be.

2) A bunch of 'feeds' is a horrible idea. Again, 'feeds' can be profitably manipulated. The more competing feeds you have the cheaper they will be to game. You need a single secure 'feed' that is as strong as the blockchain itself. The price data should be submitted by proof of stake miners. Use a median of prices submitted over a large number of blocks to determine the current asset price. If you do this, meaningful feed manipulation will require control of the blockchain.

If you think about this it is kind of like trading in slow motion. The 'feed price' lags the true market price, but is forward with respect to the market price when buyers and sellers agree to trade.

There are other issues, but I will wait to see whether you address the manipulation problem before saying anything else.

First of all, I do not know where you get the idea that I am using a price feed because that violates core economic axioms such as:
1) historical trades are meaningless for algorithmic purposes are can be arbitrarilly manipulated by trades to self.
2) only trades at prices agreed to by both parties are valid... no feed prices
3) prices cannot be calculated and math operations are invalid on prices
4) this system must be decentralized and trust-less, thus there is no point where any trusted oracle is used.

1) trades that have been signed but not entered in the block chain are about as valid as a bitcoin transaction that has been signed but not entered of course you must wait to have it confirmed by 6 blocks.
1a) it is not possible to reverse trades that are confirmed in the block-chain
1b) violates economic axioms on price calculation being invalid

The block chain will not work for instant trades, and of course if you place your 'order' in the chain, then it will be matched by a miner and instantly confirmed.  

Agree to a price, both parties sign, broadcast, wait, spend your funds after 6 confirmation.  If the other party cancels the trade by double-spending then trade with some one else or use the on-chain orderbook.  

There are only two ways you will not be destroyed by the government.

1. Cooperate on regulating the coin such that all anonymity is destroyed (https://bitcointalk.org/index.php?topic=160612.msg2930989#msg2930989). (make sure you read this link, it quotes an astute Yahoo Finance op ed)

2. Be entirely anonymous.

There is no way that government will give up its power to give people debt (and welfare handouts which are the same thing in a different skin), keep the profits and socialize (charge to the public) the losses.

You are arguing that you can convince the ignorant masses they want to give up getting something for nothing. Impossible. There is several thousand years of recorded history that shows this is impossible.

This is an epic racket, and anyone who claims they will eliminate (with grand delusion of a public relations campaign and heroic poems) what has been around since before Jesus and even Mesopotamia, is delusional.

Okay... I don't think there is any point in further discussion. I'll leave you to your 'axioms.'

You obviously would never pass the Kobayashi Maru.  

AnonyMint, I'm glad you are an expert on programming languages, economics, regulation, the behavior of the American government, human behavior, history and perhaps a thousand other topics; however, this dialogue has not been productive. I asked for a meeting over skype with my CTO, you and me and you declined.

Your feedback is appreciated, but even you must concede that this discussion isn't the intended purpose of this thread. I'd be happy at any time to discuss why we feel our business model is compatible with the existing regulatory environment and our business strategy, yet let's do it in a thread or in a format specifically for that purpose. Our goal here is to help people understand BitShares, the whitepaper and also collect volunteers who would like to help us evolve the idea in a productive way.

I had to Wikipedia that term.  :-[

I guess I had to fight with my sister too much over whether our TV was tuned to Captain Kirk or Barbie.

Could you please explain BitAssets? I still don't understand them apparently. And it appears to be your most innovative concept, so I wish to understand it.

He answered your question. I'm sorry that you feel it wasn't sufficient.

Wow, AnonyMint... How did you succeed to gather all the wrong postulates of modern economics in such a small space? LOL...

Capital is nothing else than postponed consumption. Newly printed money is not capital. Actually, the most efficient way to destroy capital is to print more money thus decreasing the purchasing power of the existing capital. "Dumb" savers don't need your "reward" if there is no monetary inflation. They will gladly keep their savings even at 0% IF there is no monetary inflation (money printing)! Inflation is just an additional tax imposed on our society masked behind smoke and mirrors as a production and consumption incentive in the pseudo scientific economic theories...

If you encourage consumers and punish savers you actually punish the most efficient members of our society, those that produce more with less resources. In the same time you subsidize consumers, those that produce less with more resources. We all know what will happen with a system that is using more material than it creates! It is happening right in front of our eyes. Ever increasing number of people that can't physically exist without loans. This is why payday loan services are flourishing in recent years.

I did not raise the issue of legal threats. Other parties here are discussing it, so they must feel it is important.

I acknowledge that creating the s/w for a coin is far from being officially illegal. But the people who are profiting on the system will take out threats if they deem those threats to be credible, e.g. Edward Snowden has a difficult challenge to stay alive even in Russia (planted double-agents etc).

becoin, you entirely missed the points, and are suffering from Dunning-Kruger effect (http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect). Sorry to say. If you want to debate it with me, please start another thread. I am willing to waste another day, to prove to you that my understanding of economics is correct, but in another thread please.

I would gladly attempt to explain it again, but I will do so by way of an analogy that takes the blockchain out of the picture and replaces it with trusted 3rd party.

Assume  1 BTS == 1 USD on the market as the initial condition.

Sam wants to buy 1 BitUSD
Pam wants to short 1 BitUSD

Neither Sam nor Pam currently own any BitUSD because BitUSD is issued by Bank of Dan.

Before Pam can sell BitUSD she must borrow it from Dan.  Dan doesn't trust Pam one bit so requires 2x the collateral to be held in escrow.  Pam agrees and gives Dan  2 BTS and Dan lends Pam 1 BitUSD.  

Pam then Sells the 1 BitUSD to Sam for 1 BTS.  

At some point in the future Pam has to pay off her loan from Dan and to do so she must buy 1 BitUSD on the market.  

There are two outcomes:

1) 1 BTS == 2 USD,  Pam is able to buy 1 BitUSD for 0.5 BTS on the open market, then go to the bank pay off her loan and free her 2 BTS collateral.  In this case Pam ends up with a profit of .5 BTS for a 50% gain.

2) 1 BTS == 0.67 USD,  in this event Dan starts to get concerned that Pam will run out of margin so exercises his right to cover the loan with the collateral.   Dan enters the market and buys 1 BitUSD for 1.5 BTS and then gives Pam the change of 0.5 BTS minus a margin call fee.

At the start and end of the day all BitUSD is owned by the Bank.

BTS can be thought of as shares in the bank.  Dividends as profits from operating the bank.  

The only thing required for this to function is a way to enable the block chain to enforce margin calls that cannot be manipulated.


  

Typo, I assume you mean 1 BTS == 0.67 USD, else you mean 1 BitUSD for 1.33 BTS.

I had it right at first, then 'fixed' it wrong.   

Is it a good sign that you only had a math error to point out?

Pam puts up 2X collateral, so where does Sam's payment go? Or are you saying that Pam gets 1/2 her collateral by selling to Sam?

Sam owns the BitUSD but you say the bank owns the BitUSD.  ???

Where did the bank get the BitUSD? If they create it out of thin air, then this is an increase in the money supply, but then it is retired later when it is redeemed? But if the Bank makes a margin call on Pam, then if the BitUSD is retired, then how is Sam affected?

Sorry I am still confused. Perhaps I am very slow to grasp it. Apologies.

I find it beyond dubious that a random man walks into my thread and systematically attacks every design decision we have made, programming languages built by teams of brilliant designers with decades of collective experience, the economic knowledge of men like Ron Paul and Lew Rockwell and then has the audacity to cite the Dunning-Kruger effect. This almost seems like a game rather than a legitimate debate. I understand that you are thoroughly impressed with yourself so much so to label us as unskilled individuals.

But let me remind you that we are also the ones who are actually building a product and working countless hours every week. While I really do love having debates, at some point work needs to be done and I'm confident we can manage without your help. Why don't you run along and start competing with us as you stated earlier. And please keep those trade secrets with you.

Sam buys it from Pam as an even trade.

Initially the bank owns the BitUSD... it then lends it out (like bank notes) and ultimately Sam will own the BitUSD until he sells it to someone else.  Ultimately someone will use it to pay off a loan and return to the bank.

It BitUSD is an IOU from the Bank backed by the Bank's stock.

When the bank makes a margin call, it accepts the lowest Ask for BitUSD on the market... Sam is given the opportunity to sell above market value.   Of course there are many players here and all BitUSD is fungible so it may not affect Sam at all.  Some other seller of BitUSD will provide the BitUSD used to cover the margin call.

So the margin call on Pam, causes the expiration on Sam too? If so, I think this is problematic.

P.S. to becoin and bytemaster, if you want to discuss economics with me, please start another thread. I will pique your interest by pointing out that hoarding is a knowledge-added risk activity which entirely fits with my economic understanding. I contrast this against usury which doesn't care how the interest is produced, only that it is guaranteed with a public backstop to be paid. Then note that if the usury rate is greater than the growth rate of the money supply, then it is mathematically impossible for the economy to remain solvent (a debt crisis is always on the horizon). I don't wish to outlaw usury (as I pointed out even sitting on capital insured is valuable to a lesser extent thus we don't debase overnight to 0), yet I don't want to build it in by default either. Inflation is absolutely necessary to bleed capital from those who aren't adding value to those that are, but not too fast, because of inertia and imperfection is necessary for knowledge creation.  Centralized inflation is bad, because a few people game it, e.g. QE we have now. Decentralized algorithmic debasement is good and necessary. We can get into that in more detail, if you are so inclined. Actually I would prefer not to waste a day or more on that, and you may concur.

No, the margin call on Pam only results in Dan accepting the lowest ask in the market on her behalf.   If there is no ask in the market, then an bid is placed at the full collateral amount.

If I didn't have so much other work to be doing I would gladly debate the economics with you, unfortunately I will have to defer that to Mises and other austrian bloggers and researchers. 

Yet you still don't explain what happens to Sam's BitUSD asset when the margin call is placed on Pam? Does Sam receive BitShares? If yes, then his position in BitUSD has expired.

P.S. My understanding of economics does not disagree with Austrian economics, it is what I understand to be (if I am correctly reading you) your interpretation of Austrian economics which I believe to be mistaken. However, we can't assume I am correct, without a debate to hash it out. Just as I pointed out with a hyperlink upthread, that most people misinterpret what Keynesian economics is. I agree debating economics seems pointless, because people never change their mind except by experiencing failure.

I admired the merged mining improvement, using the cross-chain transactions to decentralize multiple blockchains running same protocol, even am interested in the BitAsset although I am trying to ascertain its qualities first before I complete my analysis.

As for optimal blockchain design for scaling and other factors (features needed), there is much more study and analysis I need to do.

I admitted that C++ was probably best given the reality of the situation, notwithstanding my belief that Scala is the best language going forward for strongly statically typed s/w (while noting that Python and Haskell are excellent for their use cases). I did criticize both Go and Rust, because type theory is something I have been into lately and so I have a knowledgeable perspective there. Ken Thompson is a legend, but not in strongly typed, high-level semantics. Martin Odersky and Philip Wadler are the gurus. The IQ level in the Scala community is extremely high. Haskell probably even higher. But that doesn't apply to what you need now.

Economics is something I have been thinking (and writing extensively) about deeply since about 2005, when I realized the global sovereign debt crisis was coming (long before most people did). We can't really ascertain the relative knowledge on economics without a detailed debate, and I have agreed not to do it in this thread. I did want to point out that I am not disagreeing with Austrian economics, nor other misunderstandings that some readers have erroneously attributed to my ideology. Because it is very difficult to explain the entirety of my economics understanding in a few short snippets of text.

On the legal issue, if you don't credibly threaten the establishment, you will be okay. Otherwise, you will need to conform, change society (i.e. alter human nature), or hide. Daniel seems to think the middle case is likely. I don't (at least not in the near-term and the long-term, we will get a wave of society-wide freedom again in the middle phase as always happens on these repeating historical cycles). One thing I learned from Armstrong and Margaret Thatcher (http://armstrongeconomics.com/2013/04/08/margaret-thatcher-died-at-age-87/), is that timing is very important on the political cycle (http://armstrongeconomics.com/wp-content/uploads/2012/03/its-just-time-martin-armstrong.pdf).

I have enough experience to know when someone isn't understanding what I am saying and recognize it has Dunning-Kruger effect. You will note for example, that I wrote that I was sufficiently ignorant of options trading that I may not be grasping BitAssets readily and downthread, you see my expectation was correct. I also noted upthread where I lack domain specific knowledge and that I could not likely catch up to Daniel in coding. This humility quality is the antithesis of the Dunning-Kruger effect.

Sam keeps his BitUSD until he wants to sell it.
Bank of Dan will cover her position by buying from someone else (anyone looking to sell)

Got it. Thanks.


I suppose if there is no ask, then there can't be a margin call since these are block atomic, yet there could be more margin calls than asks in that block. So I see you just take all the collateral, so a thinly traded market is dangerous for the short.

So the Bank of Dan(iel) is always losing value, as there is no interest rate charged on these loans, yet the debasement of BitShares is greater than the dividends paid on BitShares (because some percent goes to the miners)?

Yet if the miners were the only ones receiving dividends (awards for PoW) as I proposed, then they would never be losing, as difficulty would scale to match ROI in an at-risk (i.e. high knowledge) activity (those who apply high knowledge don't lose even it means abstaining from mining while the majority are irrational). Note there is no way for an individual to opt-out of BitShares dividends, nor apply any knowledge to earning them. That is a crucial point, and I think Daniel is smart. Economics is all about advancing knowledge. The real capital is knowledge creation (the highest form of labor).

I hope soon you may have an epiphany on my economics point differentiating valueless no-risk activity of usury (which forces centralization and pooling risk due to mathematically guaranteed failure) from the value-added activity of at-risk hoarding (which rewards individual risk).

So now back to analyzing the valuation of BitAssets...in next post...

P.S. One last bit on programming languages, I am keenly watching the development of Ceylon. Ceylon has a first-class intersection (disjunction, e.g. Int | Bool | MyClass) type which Scala lacks, but doesn't do higher-kinded types. Both have union (conjunction) types. I lean to higher-kinded types as essential and intersection types as an improvement over downcasting from AnyRef (i.e. the top type in an inductive language or bottom _|_ in Haskell).

I remembered Antal Fekete's point about backwardation, which is when the demand for the real asset NOW is so much greater than than the demand for the commodity in the future, that the spot or near-term, interest-rate (cost of capital) discounted prices are much higher than the futures market interest-rate discounted prices. This signals a broken futures market losing trust in future delivery and wants the real asset now. Perhaps this could cause BitGold to diverge lower from the actual price of gold in future when the "shit hits the fan" on the global sovereign debt crisis.

Okay so we've learned that the design of BitAssets is that the demand and supply have asymmetric probabilities, because the demand can be an indefinite position and there is no margin; whereas, the supply are those who borrow short and thus have a market risk to manage on their margin cost of capital. If an asset is in a bull secular trend, then I am thinking that (on average over the entire distribution of positions and strategies) the shorts are going to be using shorter-term valuations and the longs are going to be more longer-term focused, and vice versa in a bear market secular trend.

The whitepaper already acknowledged that the ratio of the valuation of the BitAsset to its designated asset would be influenced by the evaluation of relative opportunity cost (i.e. time and asset preference) by the market participants.

So if the opportunity cost probabilities are asymmetric, then wouldn't we expect mathematically that the valuation of the BitAsset would diverge from the designated asset valuation over time?

I had also written upthread that forcing synchronized shorter-term expiration on each short and long position would balance properties, but then value is lost over time relative to the designated asset due to volatility losses from rolling over the options frequently, which is observed in all tracking ETFs as far as I am aware of.

So I am doubting the theory that BitAssets can track designated asset valuations even proportionally long-term.

I am thinking maybe the best we can hope for is they track valuations reasonably well over very short periods of time (which accomplishes the whitepaper's goal of reducing liquidity risk for local face-to-face meetup exchanges). And to that goal, I would rather see a symmetric short and long position given (I assume, haven't studied the exact details) this has been proven to work for ETFs then you can just copy it, and still offer the long-term asymmetric positions separately.

Thoughts?

Are the ETF algorithms decentralized or do they require input price quotes that can't be adapted to this purpose?

P.S. I am sort of excited about BitAssets. This appears to be a very significant innovation. Kudos!

What did you decide on miners being market makers?

I suggested upthread that users could instead choose their market makers (free market, at-risk, optout/optin, knowledge behavior) and the miners could accept these inputs in whole, so miners don't have control over market making.

Those three principles (or axioms as you will), you will see repeated over and over in my economic understanding is this concept that the decisions must be with the individuals. If there is no optout, it is socialism (collectivism) and destroying value. This is entirely consistent with Austrian economic theory. When you try to "bribe" grandma to join a monolithic pool of BitShare dividends with a guaranteed (no-risk) positive return, or similarly for your idea for BitDomainNames, then you are deciding for the market, thus reducing degrees-of-freedom, impinging upon knowledge creation, and thus destroying value. And you've told me you never want to decide for the market or destroy value. So I am hopeful you are going to have an epipheny, and retract your "non-negotiable" stance on dividends. You think dividends will create more demand for your altcoin, but (famously well-organized (http://www.theguardian.com/world/2013/aug/26/bo-xilai-trial-ends)) top-down planners are myopic to the unintended effects of their interference (ahem "choices") with individual choice (this is almost verbatim from Austrian economics!). I believe this is analogous to HELP.org's feedback to you about domain name squatting regulation.

Individuals can't choose which miner wins the PoW.

I provided one example of potential manipulation where if the volume of trades was much lower than the value of open shorts, miners might have an incentive to buy up all the spreads, then run the price as high as they need to and trigger margin calls.

Other manipulations are delaying trades by not adding them to the block and generally that the individual can't demand any level of service, because the individual has no choice in the selection of which miner wins the PoW.

My economic understanding is based on the way knowledge is created, since all our prosperity is due to knowledge creation (we live better than Kings of yore because of technology):

http://unheresy.com/Information%20Is%20Alive.html

We are not so far from being able to see eye-to-eye and still work together. Daniel as I PMed you before I slept, I was exhausted when I lost my patience yesterday because I had been awake for about 36 hours.

Any way, I am not expecting you to change your economics stance. So I will read your replies and then once my understanding of your plans and theories is complete, I can move on. If however, there is a way we can work together, then I am not closed-minded to it.

Hope my feedback has been constructive in some way.

charleshoskinson, I was too exhausted for meeting on Skype yesterday, besides I am high in the TROPICAL, INSECT INFESTED mountain right now and don't have enough internet connectivity bandwidth at this "rest house" location for a voice call. Also I wanted to see in public if there was some way that we could coalesce before getting to that serious point. I got a bit frustrated yesterday when from my perspective Daniel was so far off base in his guess of my economics ideology (yet now I am noting he is likely deep-in-thought programming simultaneously with posting here) and also in his single-minded focus only on one facet of capital formation (which from my perspective doesn't capture everything that Austrian economic theory is about) causing him (as far as I can see so far) to conflate issues and understanding (and actually caused him to think I was leaning Keynesian while noting to myself that the popular misinterpretation of Keynes is the antithesis of my ideology). I was simply too tired to untangle it all. Communication is complex and especially written versus verbal. Yet sometimes written it is more efficient in other ways, c.f. above hopefully it is coming more lucid now....

becoin, you don't know how many times I have reflexively tried to kill that bug on my screen in your avatar. You would think I would remember it is a gif animation. Striving to be a good socialist, I am sending you the bill as taxation for the Windex cleaning solution I needed to clean off the smudges in a certifiably government approved antiseptic standard, plus the $100 it cost to deliver it to me in the mountain by 36 weeks expedited Marxist-collective delivery service-- the collective is fairly owned by all who are guaranteed their fair share of a dividend with no downside (negative return) risk whatsoever placed on their gains. Noting that "cleaning" solution will likely be imported from China and contain harmful chemicals, I assuredly will be increasing my medical bills charged to you via taxation forever (because my children and their grandchildren are also in on this (http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-652) on this "fair share" ownership ideology).

I read about this a couple of days ago and am still doing a happy dance.

Of these the most interesting piece to me is the decentralized identity management. You've mentioned the code is open source. I also have some ideas on how to build this on top of the BitCoin protocol.

Can you point me to the code base?

Are you looking for any contributors in anyway?

If you are interested in decentralised identities built on top of the Bitcoin protocol, maybe it is also interesting to note that Namecoin can already do that: https://dot-bit.org/Namespace:Identity

And please don't take me wrong, I'm very curious to see what Bitshares will really develop into and if the economics behind work out.  I'm just not sure whether it is a good idea to do everything from a decentralised exchange over identities/names and messages in a single project at the same time.

Without considering the technical factors, only a purely economic ideology basis off the top of my head, I would rather see namespace (e.g. .bit, .bts, etc) providers be a free market with many different competing models and ideas.

I have also suggested to Daniel in private message that he consider feature pruning and making things more modular + orthogonal, but I also stated that maybe I am wrong.

It occurred to me about this and my suggestion to have market makers chosen by the users in a free market (instead of the randomly awarded PoW miners), creates more interest in the coin, because more businesses can build diverse business models around the coin.

This is another example of why well-intentioned top-down hard-coded ("non-negotiable") choices usually are unoptimal. PoW is not a choice. Rather it is unarguable because nothing else will work for securing a block chain. When something is arguable, it is better to leave the choice to the users.

AnonyMint,
    You are clearly investing a lot of time into this thread and attempting to understand how things are expected to work and where we might have missed something.   Recognizing that I have been wrong before and paid people to show me where I am wrong I can appreciate your efforts.   I argued long and hard in the Master Coin thread about why their similar escrow system for creating 'GoldCoin' was fundamentally flawed and it took a long time to find the magic example / explanation that finally got him to see his flaws.   We are in a similar situation here.  

    I am betting the farm on my way of thinking and have been thinking through it for months.  So you will have a very up hill battle and will need to find the magic insight that can undo all of my previous thinking.   If you can do that it would be greatly appreciated because above all in life I seek knowledge and truth.
    
    If I am wrong then it means I hold two contradictory beliefs to be true at the same time.  Convincing me of that will depend upon arguing via reason from the truths I already accept and demonstrating the contradiction.   Ie: never argue with a Christian by quoting the Koran.  Never argue with an Atheist by quoting the Bible.   An atheist can quote the bible 'as true' when attempting to demonstrate contradictions to a Christian.    The point of this is that I can be convinced, want to be convinced, but have very high standards of reason.

    So here is the problem, your arguments are based on assumptions that I reject combined with appeals to authorities I do not respect.  You will have to adjust your strategy if you want this to be productive.  

So we can start with assumptions I reject based upon my current understanding of austrian economics:
   1) markets can be modeled by math.
   2) saving / hoarding is harmful in any situation
   3) dividends / pooling is 'socialistic' and inherently bad.
   4) fixing the dividend / mining ratio
  
Here are the tests I use to determine 'bad' socialism:
   1) is there any coercion
   2) are the risks divorced from the rewards

By your view, all forms of insurance are 'socialist' because people are pooling their money and then redistributing it disproportionally.   I am generally against insurance myself, but only because most conventional insurance is so regulated by the government that the risk/reward payoff for me doesn't line up in most instances.  
 
Based upon this perspective, my opinion on economics is guided by both Austrian theory and Non-Aggression principle and any position that would violate one or the other I default to non-aggression trumping economics and attempt to find the flaw with my economic theory.

You could say that my founding axiom from which I derive and evaluate all of my thinking is, "don't do unto others what you don't want them doing to you".   From this my entire world view flows and I attempt to resolve all conflicts.

Back to topic:

I interpret this point as being logically equivalent to price fixing.  If you 'fix prices' then you are deciding for the market and the consequences are obvious.   I fully accept and attempt to avoid price fixing when ever possible with the following design points that still bug me:

1) price fixing 5% fee for margin calls
2) fixing 1 year of history
3) fixing initial margin and maintenance margin requirements.

However, if you take a view that this system is not the 'entire market' and that it will be competing against LiteShares, FeatherShares, etc then market forces still apply and one chain is competing on price and features with all others then there is still a corrective market force / knowledge at work.   For example, the miners of a coin could agree to change the fee to 1% or reduce the margin requirements in order to compete with an alt-share.   An alt-share could also adjust the dividend / mining split based upon some other rationale.  In the end I am not deciding anything for the market, i am introducing one product that will compete with all others.  Simplicity is also a product that is highly valued (ie: Apple) so any alt-share that increases trust requirements or adds complexity to achieve an economic ideal may actually destroy value derived from simplicity.


I have stated constantly that grandma does not get a 'no-risk' positive return.   The BitUSD price will fluctuate +/- 5% and the effective dividend rate will also fluctuate with the result being that if she enters/leaves at the wrong time and doesn't hold long enough her expected ROI may be more or less than what she was expecting.   Granted the risk is minimal and within relatively safe min/max gains/losses.   The fact of the matter is her value is ultimately backed by a crypto-currency and that is a risk in and of itself.

There for 'no-risk' must be qualified as, "assuming you have 100% faith in the crypto-currency and market pegging".  

Now that I have debunked your 'no-risk', zero-knowledge, basis, I think the foundation of your argument against dividends is gone.



    

The reason they are being integrated are as follows:

1) ease of use (eliminating the need for bitcoin-style address exchanges)
2) off-chain trading
3) names / messaging is being done first so we can harden the network/code prior to introducing a crypto-currency on top of it.

Just to be clear:  Only the BitShares ID and BitShares Mail system will be released in beta at C3.   Rushing a crypto-currency to market without ample testing and review is something we want to avoid.   That said, a large part of the BitShares blockchain has already been defined including the transaction types.   I have even generated and validated 5 blocks to prove the basic behavior as a crypto-currency with dividends.  You can view my debug block-explorer output: http://the-iland.net/static/chain.html for an example of how the numbers work.    Anyway, just showing you that we have a plan and will be systematically rolling it out as time permits. 

https://github.com/InvictusInnovations/BitShares

Yes.   Because we are not pre-mining everyone has equal opportunity to profit from being involved.  If you have C++ or web skills and don't require a lot of management overhead then we would love to have contributors.   Lots to do.  More eyes the better.

Surely you don't agree with paying people to do nothing.

When I deposit my savings at a bank, I expect an interest bearing rate, because I expect my bank to loan out the funds and make them productive. I don't expect to get paid for my capital sitting in the vault. We can't create capital out of nothing, it must be created from increased productivity.

When you debase BitShares and then distribute (a portion of) it proportionally to each BitShares unit, this is a facetious claim that you have given the BitShares owners something for doing nothing, because all you've done is debased the value of what they had, by (a multiple of) what you just handed them.

What do you expect to gain with such a lie? Let me try to enumerate some of what you what you may lose...

If you also distribute (a portion of) transaction fees to the BitShares owners, you are transferring wealth from the producers in the economy and paying people to do nothing. Remember M x V = nominal GDP, thus transaction volume is proportional to GDP and thus is proxy for production. Please don't tell me I can't use math to understand. I just did.

Your claim is that by buying BitShares, one is taking a proportional ownership position in a business which offers transaction services. And thus that (a portion of) transaction fees should be distributed to the owners of the business. I have several problems with this.

1. The wealthy transact a much lower percentage of their wealth than the lower class, yet they own 90% of the wealth. If BitShares is truly to become a means for decentralized stock markets as you envision with BitAssets, then you have just invented the most regressive tax ever known to mankind. Way, way, way above the Laffer limit, thus guaranteed economic implosion if BitShares became the dominant money and capital stock.

2. It is an oxymoron to conceive of a "investment" which is the entire economy (if BitShares becomes the dominant money and capital stock). Investment requires diversity, otherwise it is travesty of the concept of opportunity cost. Another way of putting this, is that when the dollar is your unit-of-account, you don't say your dollars are worth less when gold goes up in price. Thus you can't have an "investment" which is also your unit-of-account. It is nonsensical. Thus everyone who is investing (versus using for transactions) in BitShares is by definition in it for the capital gains, for as long as it is not their unit-of-account. And the aim is for it to become their unit-of-account, then the capital gains will be irrelevant (c.f. aforementioned gold example). So if you are growth mode, why do you want bleed your customers (the transactions) and starve your desperately needed PoW to secure against attack (while BitShares is still small and not a unit-of-account) who you need to grow, just to pay a silly dividend which isn't relevant to how the investment is being valued. And the dividend will be miniscule compared to the volatility in the BitShares -> USD exchange rate, so it is just noise, but yet costing you PoW resources when you need them most.

3. As you admitted, the ratio of split between the miners and the BitShare holders is not market determined. That is evidence to you that you've made an economics design error.

4. To the extent that your facetious gimick works to attract people to BitShares, these are dumb people who don't understand that the capital gains volatility made any dividends irrelevant. If you attract dumb early adopters, then you have dumber ecosystem built around it. Wrong trajectory.

5. Should I go on?

I do hope you do your dividends, because I want to see if any of my statements end up being true. Any way dividends are probably not a killer either way for your plans. My impression is a similar ideology infects also on the market maker issue (possibly also the domain name issue too). I am thinking I may be wiser to not try to too hard to change your design for I can gain knowledge by watching your results. Also I should not want to be responsible if I am wrong, since it is not my baby.

A few comments below interleaved...



You too. Thank you.


Yeah I can relate. But how confident are you about the accuracy of the tracking price of the BitAssets relative to the designated asset? I just couldn't go so rambunctiously into something with some more concrete basis.


Thanks for the willingness to have a brief exchange of thoughts. I don't think I applied exceptional effort to change your mind. I don't believe in controlling others like puppets.
    

When you have some time, you should learn to respect Martin Armstrong. I haven't found a significant market turn that he has predicted wrongly since the 1970s. His predictions are made 10 and 20 years in advance and then accurate to usually within a day or two. The recent examples he called the gold price to decline from $1600 level and said it would go to slightly below $1200 by end of June. It was exactly correct both on price and timing. He is now calling for double in the DJIA by 2015.75 and he said we would see a correct to $14250 in Sept before resuming the rise.

The reason he can do this, is he spent $100 million to collect the history of the world and put it in an A.I. computer system.

He is way more advanced in understanding than any of the people you respect, including Mises, Rockwell, etc..




If you believe that Austrian economics says that an always going higher level of savings is positive for the economy, then you are egregiously misinformed. Note your use of word "any".

I am not against hoarding, when it is driven by market forces, then it can't become higher than optimum for longer than the irrational can remain solvent.

But if you view an economy only in the capital model of savings versus consumption, then you entirely miss the importance of fitness. This is where the math of simulated annealing comes in. I explained fitness in terms of knowledge creation and finance/saving:

http://unheresy.com/Information%20Is%20Alive.html#Knowledge_Anneals
http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#KnowledgeInvesting

You want to imagine that the simple act of delaying consumption is high-valued activity, but the fact is that the economy only functions between the diversity of knowledge is always finding matches of solutions to problems.

Fitness means that given a fractal coastline, you could select from a diversity of shapes to fit all the differently shaped indentations on it. In the real world, imagine the indentations as opportunities (or problems to be solved) and the fitting shapes to be human brains.

So saving versus consumption is really not where the economy derives. One of the proofs of this is the repeating 78 year cycle of technological unemployment that causes depressions and war, yet also brings all the prosperity we have today as compared to the Kings of countries of yore.

Armstrong understands this, because his computer identified these repeating cycles backtested to Mesopotamia.




I can support this one with a some simple math explanation. But I am tired.


Actually because the capital is invested as usury and not at risk with knowledge applied, because each person is not investing their own capital. This is part of the math I would explain, but I grow weary. Been there, explained this so many times in past.


It can't mathematically.
 


Astute. See point #3 above.


See my point #2 above.


See points #2 and #4.


I don't see how you claimed to debunk it. But in any case, I grow weary now.

Lets clarify something before you accuse us of lies...
1) The long-term stability has 100% of dividends coming from transaction fees, thus productive value provided by the network itself.
2) The short-term dividends are just a stock-split as a new miner is issued shares.  It is like a new investor bringing capital into a company and the company issuing new shares to both the investor and everyone else.    Thus initial miner reward is just like a the miner is a VC funding the initial security of the network and diluting the current share holders of the company slightly.

The result of this system is that BitShares is less inflationary than Bitcoin because only 50% of the new shares issued to the miner actually dilutes their position.   When this sinks in the hard-money, anti-inflation, advocates will like BitShares because we do not dilute early adopters as much as the currency is issued relative to Bitcoin.

Okay I must have forgotten this detail if it was in the whitepaper.

Then my points #1 and #2 apply even more so.



Stock splits accomplish what (?) other than tricking naive people to think the stock price is still low?

But this doesn't address any of my meaty points.


Lack of inflation is not a benefit. The USA nominal M2 and nominal GDP both grew at roughly 5% per annum since 1790.

I had all the math of why it must be that way. Go find the link I provided upthread to those statistics and the simple math I explained.

I am very, very weary now.

I see mining as a way to get anonymous coin when the sovereign debt crisis goes into "confiscate everything" mode in 2016 (as Armstrong predicts, and he has never been wrong since the 1970s).

Thus giving it all to miners is very very important to me.

It is comments like this that show you have no value for capital accumulation and believe only the 'workers' deserve the profits of a business.   This is the heart and soul of marxism.   Throwing in terms like "Regressive" tax is also a political opinion based upon an idea of fairness where someone other than the owners of capital deserve the profits.   Apparently the current 'owners' of the network are not entitled to the profits of the network.    Then to claim that a transaction fee system that operates on the same basis as Bitcoin (auction for space in the chain) would result in implosion is the ultimate slippery slope thinking.  

A very simple way to understand the goal of my design:  view the block-chain as a profit-seeking business that attempts to maximize profits for its owner.    If I pre-mined the whole thing after building it then clearly you would have no problem with all profits going to me, especially if I also provided all of the CPU power to secure the network.    

Now clearly I do not have enough capital to buy the CPU power and the risk of being centralized could destroy my business, so I offer to pay people in company stock to mine for me.  In exchange they get some dividends from the company in return for their mining effort.  

The fact that you introduced yourself as a min-archist shows you have contradictions in your thinking because you support some exceptions to the non-agression principle.

I say exactly this - they indeed are worth less when the price of gold goes up, soon to be worthless. The dollar is worth 1/70 of what it was in 1933, and 1/40th of what it was worth in 1970.

Increased productivity has lessened the loss in dollar purchasing power in some areas like food, and even increased it in electronics, but overall it has been an exponentially increasing decline in value.

I am the one embellishing capital creation (necessary for accumulation) and you can't see how you want to destroy it.

The fact is you can't tax over the Laffer limit long-term without imploding the economy. It is an established fact, whether you like it or not.

You are conflating buzzwords without deep understanding.

The difference between wealthy creating a diversity of businesses, and a monopoly in the money business handed to them by you seems to have escaped you. You keep missing the point about fitness. It is flying right over your head.

The Sum(Parts) != Whole. An economy is composed of many local issues that have to solved with many diverse actors. If you provide a means for people to get wealthy by doing JUST ONE THING, you destroy what makes an economy exist.

Now if you can't wrap your mind around this, I am not going to explain it again. Just go on in your myopic understanding.


You don't seem to differentiate between someone who funded you to create the network and someone who just comes along later and does JUST ONE THING with 90% of the capital of the world. Your concept of ownership is fundamentally flawed because you don't understand the economy-of-(diversity of)fitness.

You haven't even read my links. So I am going to stop now my effort since you are not trying to comprehend.


The dividend part isn't required to make your statement still valid.  


Non-aggression sounds to me like tree hugging and other such nonsense, but I think it is irrelevant to our discussion.

I agree with your philosophy on this.

I am sorry to inform you that you speak complete nonsense. If you held gold you would be a pauper compared to holding the DJIA:

http://armstrongeconomics.com/2013/08/18/money-had-never-been-tangible-period-if-you-do-not-understand-what-money-is-you-will-lose-your-shirt-more/
http://armstrongeconomics.com/2013/08/22/no-single-investment-will-ever-be-perpetual-it-all-changes/

Do you all even know that Martin Armstrong was managing $3 Trillion (the most ever) and that is why the bankers locked him maximum security prison for 7 years without a trial on a bogus contempt charge, because his computer was helping capital outsmart the bankers. Luckily he had too many well connected friends, so they had to back down, after they almost succeeded to kill him in prison.

You had better listen, he has never been wrong.

I hope this is my last.

Imagine how ludicrous if everyone holding dollar bills got paid a transaction fee from everyone who spent dollar bills.

It doesn't make any sense to tax money itself. Even our government is not that stupid.

From Armstrong, http://armstrongeconomics.com/2013/08/18/money-had-never-been-tangible-period-if-you-do-not-understand-what-money-is-you-will-lose-your-shirt-more/


This presents a very false impression since he only picks a limited time span to make his assertion when the Dow was bubbling up. He should track the Dow to gold ratio over the total time the dollar, DJIA, and gold have been around. http://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart shows this info.

I agree that it would be much better to invest in income producing and appreciating assets, but the current climate makes that far too risky, for reasons that Armstrong makes very clear. Also, the only types of securities I would invest in, bearer shares and gold bearer bonds, are not currently available. I do not trust any asset where some one else can come along and say I don't own it any more. Hence my interest in Bitshares and other systems which eliminate the need for accounts.

He has never been wrong? No one on this earth has "never been wrong"

He may be right or may not be, but the best way to find out is to put his ideas to the test and compete against other ideas. The best ideas will win and evolve.

bytemaster, as stated already I'm very interested in your ideas about BitAssets.  (In fact, I even commented in your initial threads some months ago if you remember.)  However, while I see and understand the basic claims you make about why BitUSD will track the USD value, I'm still very sceptical about it.  You know, in comparison to BitAssets, Bitcoin itself is almost trivial - so I'm really not sure whether there are some problems in the design I (and everyone) missed.  (I'm aware of your "design by bounty for pointing out problems" efforts, but this can't ever rule out that there's not still some problem not discovered yet.)

As a mathematician, I have to admit that I find your whitepaper interesting to read but not really 'exact' in the way I would want it in order to accept that BitUSD will really track USD.  (Also the Bitcoin whitepaper is not really as I expect a mathematical paper, but that doesn't matter because the ideas there are so clear and easy to grasp that the description is enough.  I also think it is a good idea to have a non-mathematical whitepaper, but it would be great to have more details in addition.)  Have you ever tried to precisely state your assumptions on the market for USD, BitShares, BitUSD and such (I mean mathematical definitions, not like your "axioms" in the whitepaper), and then to prove (mathematically) that given your assumptions the best (according to game theory) move of a rational participant is always such that it leads the price of BitUSD towards that of USD?  That BitUSD = USD (or something like that) is the Nash equilibrium?  Something similar?

Of course such a proof would still not ensure that, if BitAssets are deployed, not someone found a way to manipulate and trick the market because people are behaving irrationally, but it would at least give me much more confidence that it really works out.  If you have not yet tried to do that, would you be interested that I try?  (Although I can't promise how much time I have for this.)

I am very interested to see that genre of analysis. I am also considering to implement BitAssets in my coin, yet improve on any mistakes bytemaster makes.

I hope such analysis considers my point about asymmetric motivations (probabilities) between the short and the long, due to asymmetric probability of expiration of investment position and secular price trend of the designated asset given the positions can be held for longer periods of time.


I went back and looked at his amazingly accurate predictions since the 1970s which were published in the likes of Barron's. He hit every major turn, e.g. the Japanese bubble and crash 1990. The USA flash crash 1987 and all the events since, including 9/11 way before it happened. He was predicting 10 years in advance nearly to the day the events that actually transpired.

He has said the only way the DJIA will not have a phase transition before 2015.75 is if we get a significant enough war to stop the sovereign debt collapse from proceeding which would delay it by 8.6 years (1000 x Pi days) to 2025 (but he doesn't view this as very likely).

Agreed he is not correct about every small turn in the economy. No one can be. It is randomized by the entropy of the universe. However, the longer the period of the periodic wave (e.g. 8.6 years x Pi = 26 years x Pi = 78 years x Pi = 224 years), the more accurate he is. Which makes sense if you understand Fourier analysis.

I know it sounds crazy that someone could predict the future. As a math and scientific method driven skeptic, I didn't want to believe it. Then I realized the universe actually derives from the frequency domain and spacetime is just an illusion (perception) of our senses:

http://unheresy.com/The%20Universe.html#Entropic_derivation (my blog)

Armstrong has said he never made assumptions. Everything was found via the scientific method, even when it disagreed with his personal opinion, e.g. he started as a market maker in gold and loves gold:

http://armstrongeconomics.com/2013/08/24/gold-5000-why/
http://armstrongeconomics.com/2013/08/23/gold-the-coming-slingshot-move/


Compare the average time the ratio is rising to that of falling, and you can clearly see that on a time-weighted basis (given our time-preference opportunity cost in life), it is better to invest in the DJIA.

So yeah, if you are wise you trade into gold for 17 - 21 year bull market every 30 - 50 years. But if sat in gold always, you would be a pauper (you have to invest to keep up with those who are productive and this is precisely my point to bytemaster about the value of savings).

Facts is facts.  ;)


There is no gain in life without risk. You may or may not be making an accurate assessment that the risk outweighs the rewards. Personally I am throwing $5 - $10K into LEAPS. I can afford to lose that in return for the 30-50% probability of $100K  - $1 million return.

Hiding in a cave waiting for the end of the world that takes a lifetime to come is not wise. It is all about assessing relative risk and opportunity cost.


I too wish for that!

But don't ever expect an investment that is without risk. That would be a travesty of optimization, thus can't exist.

In the moment, I still have to deal with what is in reality, not what I wish.

I certainly welcome any and all attempts to prove by game theory that the price will behave as I expect.  I will gladly help define my basic assumptions and work through this formally.    One technique I find very powerful to solve problems is to assume a solution exists that I have not found yet.   So assume there exists a solution then try to find it.

The next step toward this discovery process involves ruling out solutions that are a waste of time for some fundamental reason.   This is where my economic axioms (not the ones in the white paper) come to play.   I impose the following limits on the solution space:

1) You cannot perform mathematical operations on prices except comparison.  Addition, subtraction, multiplication, division are not valid operations on prices.
2) A price represents a single exchange ratio, a single data point.  Its meaning is limited to the two people involved in the exchange and cannot speak for the global value.  It cannot be aggregated, averaged, or used for anything other than curiosity.
3) As a result of a market exchange, value may neither be created nor destroyed, only reallocated.
4) No one should get something for nothing or nothing for something.
5) There is no 'unit' of value.
6) BitShares have a non-0 value.
7) the only valid price is between the highest bid and lowest ask because this means the whole market agrees, not just one person.
8) If there is an opportunity to profit, someone will find it.
9) All trades must be voluntary, ie: the two sides of the trade must agree.
      * note * margin calls the 'bank' has authority to sell the collateral but not force someone to buy it.

Given those rules I then went with basic game theory between the long and short positions as well as the individual vs the consensus.

I would love to see what you can come up with, and if you can express any other assumptions I must make.

I am an INTJ so the challenge for me is moving from intuition to explanation.  If you can help define things in formal concrete terms that would be great.    We are also working on an informal white paper that is easier to read than the current one.   Having a more formal explanation than the current one would be nice too.  Charles would be happy.

I've been reading the Armstrong site, quite interested. Has he published and open sourced his math analysis and algorithms for peer review? My current favorites are Nassim Taleb, Benoit Mandelbrot, and Edgar Peters.

As far as I know, no. He open sources the overview description now on his blog as a "public service". He apparently considers the $100 million investment proprietary. For example, he claims to have spent $10 million constructing an accurate price history of silver during the Roman empire. He had researchers compiling from libraries, news archives, ancient artifacts archives, etc.. The database is what he claims is so valuable.


Taleb replied (1 sentence) in private email in the affirmative on the following I wrote:

http://unheresy.com/Information%20Is%20Alive.html#Knowledge_Anneals

Never ask a mathematician for a formal explanation. David Hilbert tried to do that:

https://en.wikipedia.org/wiki/Hilbert's_program

It ended up creating the foundations of computer science. You're welcome btw.

Yeah I see that (The Scientist (http://www.personalitypage.com/INTJ.html)), including the J for Judgment. I am ENTP (The Visionary (http://www.personalitypage.com/ENTP.html)), very much including the E for Extrovert and the P for Perception. I back it up with strong T for Thinking so I don't get my facts wrong, and N for Intuition so I derive from big picture (over the trees) instead of mired in the forest. I also have a significant F component, i.e. sometimes I subsume the T to employ F where it aids my big picture perception (this is my brain jumping to a pseudo-randomized distant location in the solution space incorporating more potentially randomized fitness data/entropy).

The downsides of my personality type are too many ideas and too many crap ideas that have to shifted through to get to the profound ones.

Causes me to think of the nature of the proof of the Four Color Theorem.

Although they exhibit highly insightful and intelligent thought (e.g. #1  seems like I may have thought of long ago but didn't carry around in my mind as being significant, so it took me by suprise now), I am skeptical of most of these. I sense (the F and P and not T and J in ENFP/ENTP which I am) the same methodology of logic that applied in our debate about economics. My hypothesis is it seems you may desire to view systems as orthogonal rules, without considering how the system anneals (optimizes). I hypothesize the possibility that your assumptions are not mathematically independent. (no proof, I could be wrong)

I see no mention of the marginal price, which is a key concept in economics 101.

I see no mention of asymmetric time and risk preference and the effect on the strategy for profit.

Nothing in life is ever 100% voluntary. We all have finite degrees-of-freedom. (Here is your J poking you in the eye again with that non-aggressive delusion, which is not rational)

There is a unit of value, that is what money is. Money is what the majority decide is fungible. Everything else is measured relative to the unit-of-account, because it is what is most liquid. This is not an absolute, e.g. exporters and importers must hedge FX.

I was more thinking along the lines of fixing a certain point in time and considering all possible "moves" a single participant could make in the market.  The assumptions could be something like this:

1) Bitshares have some "external" price (or marginal price if you prefer) at which everyone can buy/sell Bitshares for (real) USD.  At least for low volumes and if we for simplicity neglect the exchange spread such a price is given.  As I understand it, this is the basis on which everything is built.  (Bitshares as cryptocurrency.)

2) This price changes over time, but the future prices are unknown (a stochastic process).  Not sure yet if we have to assume something about the probabilities for going up/down or how those are perceived.  Probably the intrinsic "margin calls" put some kind of bound on the maximum steepness of the price, at least in one direction.  But I haven't yet thought about that.

3) It is known to every participant how just holding either Bitshares or BitUSD will pay out dividends over time, at least if we assume that the total amount of BitUSD does not change (because we consider short time intervals for instance).

4) There is a current market rate for Bitshares to BitUSD, similarly to 1.

5) The moves a participant can make are to buy/sell Bitshares on the market (see 1) for USD, buy/sell them for BitUSD (see 4) or create/destroy BitUSD with Bitshares collateral.  I have to admit that I have to check the current whitepaper for how/when exactly this is possible and at what rate, because this changed over time in the proposal and I didn't check the current version.

This is of course not really formalised yet - but do you think those assumptions seem reasonable?  Did I misinterpret something in the proposal or miss something?  I know this is very simplified and doesn't take a real market into account yet (because of 1 and 4), but maybe this already does for a starter.  Then the next question would be to consider the possible cases (BS/BitUSD is greater/smaller than BS/USD for instance), how the possible "moves" in 5 pay out for a single participant over a small time interval (thus how a rational participant would react) and what the influence of this move is on the rates - the question is then whether or not this always tends to equalise exchange rates, and if this can be argumented in general.

Disclaimer: As said I'm a mathematician and interested in economics, but my actual field of research is not related to economics or game theory.  I also only have some basic training in economics (you guessed it, mostly Keynesian models for macroeconomics as well as some very simplified microeconomic models).

The value of the BitAsset will be driven by the desire for each party to maximize their return w.r.t. to their preference. Opportunity cost preference can span time, diversity, liquidity, security, anonymity, etc, etc, etc, etc.. Yes a stochastic distribution of unknowable preference strategies.

Since we can't categorize every preference scenario, my idea is to paradigm-shift to a different semantic level to remove the unknowable. I assume that if the preferences degrees-of-freedom are symmetric for both long and shorts (which in current BitAsset proposal they are not), then can assume there is no other variable to drive the valuation other than the perceived (expectation) of the value. In that case, the only expectation is the designated asset.

This is why I proposed symmetric, day trading BitAssets for tracking designated assets.

Perhaps this idea is all crap. I need to spend more time on it.

P.S. The proof of the Four Color Theorem paradigm-shifts the problem space.

P.S.S. Semantics (abstraction) are very important to me in solving problems, which is why I like Scala over low-level C++. Category theory is provably modular, ad hoc is not.

Is this guy constantly shadowing me and reading my mind!

http://armstrongeconomics.com/2013/08/27/technology-advancement-changes-employment/ (Aug. 27)

You (domob) definitely have the right approach. It won't get very far however because equilibria in monetary systems are never unique. The market equilibrium depends on the beliefs of market participants, which can change arbitrarily. (i.e. unique beliefs are not pinned down by math. their is an infinite set of possible beliefs which map into an infinite set of equilibria). The key questions are "how/why do market participants coordinate on the selection of one particular equilibrium" and "what causes this coordination to break down"

The selection of equilibria depends on the beliefs of market participants because pure monetary instruments have no intrinsic uses besides the store and transfer of value.

If I believe that other market participants think that a BitUSD is worth 0.00 USD, then I will not buy a BitUSD unless it is free and I will sell a BitUSD for any positive price.
If I believe that other market participants think that a BitUSD is worth 1 BTC, then I will purchase it for any price less than 1 BTC and I will sell a BitUSD for any price > 1 BTC.
If I believe that other market participants think that a BitUSD is worth 1 USD,  then I will purchase it for any price less than 1 USD and I will sell a BitUSD for any price > 1 USD.

You can see these belief-driven movements in price in the BTC market. Wild price fluctuations occur despite no obvious changes in fundamentals.

For state currency, beliefs depend on expectations of state behavior. Looking at state currencies is illustrative. Let's look at the Brunei dollar as an example. The Brunei dollar is pegged 1 to 1 to the Singapore Dollar (SGD). (see the linked graph)
https://www.google.com.sg/search?q=hkd+i+nusd&oq=hkd+i+nusd&aqs=chrome..69i57j0l3.5033j0&sourceid=chrome&ie=UTF-8#fp=a70c8018b0426e41&q=1+brunei+dollar+in+sgd&safe=off
This doesn't mean that the Brunei gov't has 1 SGD or USD equivalent in reserves for every Brunei dollar issued. They hold far less than this (maybe 15 billion SGD in monetary issue, and 5 billion in reserves). If market participants suddenly shifted their beliefs to 1 Brunei Dollar = 0.00 SGD, then the Brunei gov't would be forced to devalue their currency. This type of simultaneous belief shift is extremely unlikely, but it is a nash equiliribium outcome. If the reserves dropped to say 1 billion, then market participants nerves would begin to rattle. Some speculator (e.g. George Soros has famously done this vs. Bank of England, HK, etc.) could see profit in precipitating a change in beliefs, by placing huge leveraged shorts on the Brunei dollar. To save themselves, market participants would go to the central bank and trade in their Brunei Dollars for SGD, causing the bank to run out of foreign currency reserves and thus force a devaluation. This is called a self-fulfilling prophecy. If Soros didn't come in and make the speculative bet, the Brunei Dollar could just as easily have gone on trucking at parity with the SGD.  

Maintaining a fixed price for a monetary instrument depends on the issuer's willingness to step in to buy it at that price. BitUSD confuses things because there are multiple issuers of fungible BitUSD. This creates some problems for value stability. To see this, suppose that 90% of bitshares are owned by one guy. He may then issue BitUSD backing them with bitshares. This one guy has quite strong incentives to maintain the price of BitUSD at parity by intervening in the market. If the whole BitUSD thing falls apart, then bitshares will become worthless. If not, then he can charge txn fees and essentially run a paypal like business.

Now suppose that their are 1000 people who each own 0.1% of bitshares. We now have a free rider problem. Again, these people would prefer for BitUSD to maintain parity, but providing finance to stabilize the currency against market fluctuations is costly/riskly. If someone else does it, then you enjoy all the benefits but face not of the cost/risk. So why do it yourself? Consequently, equilibria in this set-up are likely to be highly unstable. An eventual shift to a devaluation equilibrium is the likely outcome. The price would most likely approach zero. (i.e. expect bitUSD to initially be stable if ownership is extremely concentrated, but collapse if ownership becomes diffuse (i.e. if the bitShares becomes truly decentralized rather than a paypal style operation).

The takeaway message is that someone needs to have a strong profit-driven incentive to intervene in markets for the system to work (in the sense that paypalUSD works even though they are debt issued by paypal not debt issued by the US gov't). I actually think it is possible to decentralize these incentives and build a successful system to do this. However, I am extremely sceptical of the bitshares project. I haven't seen any serious consideration whatsoever to the incentives of market participants.

Consider some unanswered questions:

Why do people issue bitUSD?
How is this profitable?
Who has a strong incentive to spend money ensuring that the 1 bitUSD = 1 USD equilibirum is maintained? It is not adequate to say that it will be maintained because people expect it to be maintained and a deviation is an arbitrage opportunity. You could just as easily say that about the 1 bitUSD = 1 Euro equilibrium or the 1 bitUSD = 0.00 USD equilibrium, etc. Someone or some group has to be willing to sacrifice money to demonstrate a commitment to the good equilibrium. Who will this be? (surely not minority owners)

The bitshares paper presents us with a bunch of 'axioms' as a substitute for economic analysis. There is no one trained (or even vaguely familiar with) in mathematics-based economics on their staff. In fact they disavow constructs such as game theory as invalid by some anti-math axiom.

How could this really work:

I think the most productive way of addressing bitshares' objectives is by viewing the operations as a decentralized paypal. Sort of like a paypal credit union run for the benefit of its users. You need to have a mechanism where a large group of minority owners collaborates to make decisions normally delegated to a CEO. The mechanism needs to be incentive compatible and individually rational. Individually rational means that investments in bitshares offer a fair-risk adjusted return on average. Incentive compatible means that users have some pecuniary reward for contributing to the currency's stability. Stability can never be guaranteed. Paypal can (hopefully will) go bankrupt too. However, the probability of this happening depends heavily on how well paypal is managed. For a decentralized system, the probability will depend on how well the program coordinating decentralized management is designed. Individuals should be rewarded with money for successfully managing the exchange rate. To me, the design of a program to govern this (in economics language such a program is called "a mechanism") is a very exciting idea.

I'm not going to go into the details of how I would do this here. It is not my thread and the alt-coin development community is not ready to go there yet.  You (Dobom) seem equipped with some appropriate analytic tools. I (quite honestly) wish I could say the same for the BitShares team. I thank Bitshares for having a laudable and visionary goal though. Failures will lay the stage for future successful efforts. At this point, however, the ideas are so new that hardly anyone can evaluate the feasibility of different implementations. Projects like bitshares will help draw more eyes to the issue. Hopefully, both people with relevant economic expertise (that is in mathematics-based economics at the PhD level) and developers will take an interest. Without input from both groups, we will never see a successful outcome. [hint to investors: hire an economics professor from a leading university as a consultant. There is a huge quality gradient and you really need a good economist to guarantee quality input. They will charge a lot, but it shouldn't require much of their time just to evaluate the project's feasibility. A theorist specializing in mechanism design or better yet the design of financial markets is probably the best choice. The finance people will be super expensive though.]
 
Disclaimer: I'm an economics professor. Monetary economics and mechanism design (the relevant branch of game theory) are not my primary fields of research, but I have graduate training in both areas.

Do you have a planned date when mining will start? I thought it also was this fall, maybe I misread something.

Also, will the mining code be available to test mining prior to the actual start?

Finally, how do the current investors plan on earning a return on their investment in Bitshares?

You've essentially wrote the same as what I wrote in my prior post quoted as follows, yet you attribute the other guy instead of me. Oh well.

---

Now re-consider my solution to solve the above drift away from equilibrium, quoted as follows.


Since everyone closes their positions daily, then the expectation and drift away from the designated asset price can not occur.

The tracking ETFs already showed us how to do accomplish asset tracking using the futures markets (there is no 90% backstop as you require!).

We don't need to reinvent what was already invented and tested.

@bytemaster and charleshoskinson

Did you consider to somehow link your Identification system with OpenPGP keys?
If it is possible to cross-sign the Bitshare-Id and the OpenPGP-Key you could make use of the already existing Web-Of-Trust.
This would make the system more interoperable with existing cryptogrphic identities.
Wouldn't it be nice if you already know the OpenPGP-key of a friend for email encryption and if you can easily switch to send messages via the Bitshare system?
And vice-versa, if you know the Bitshare-Id/Name of a friend, you could also easily send him an encrypted email, because you can lookup his email address and OpenPGP-key in the Bitshare account.

I find it a bit hasty professor that you've decide to make such a judgment without ever meeting us in person or having a direct conversation with us about our plans and team. We are very well funded and have a long term roadmap. I think you have discounted that we established our company in early July and have only just begun this journey. Perhaps in the future, you'll revisit your opinion of us.

PGP keys are too big and lack support for deterministic wallets.

It seems very clear to me that economic debates are entertaining, but ultimately will require experimentation.    Obviously all new innovations enter a market of skeptics and often appear to contradict conventional thinking.    So rather than debating the theory, lets plan the experiment.   Bitcoin was an experiment that has left many "economics professors" at a loss and has defied their predictions.   Throwing in those credentials at the end as a "disclaimer" is really just the fallacy of "appeal to authority" and should be entirely left out of such a conversation.  Such an appeal causes readers to avoid critical thinking and instead be lazy and 'trust' an authority.   

So when we launch the test network one side will be filled with professors who doubt, the other with believers and the market will show us what actually happens given the set of rules proposed by BitShares.

Until we have proved via experimentation that BitUSD will behave as I expect it to, it is merely a conjecture.   

Once the code is complete it would be trivial to launch a version without dividends and see how it competes.

In the end the market will discover what works and what doesn't.  In the mean time, lets focus on trading strategies given the proposed set of rules.  Explain how you would value BitUSD relative to BitShares, when you would 'short' and when you would go long.   

For the sake of getting the experiment out the door and settling all debate, I am going to restrict my involvement in this thread to a minimum.    If you have ideas on how to run an experiment please post.

Well, I am not saying you should use these keys as your Id-System, but rather to be able to link these identities. So they don't have to be deterministic wallets.
And also the OpenPGP key fingerprint is just 20 bytes. Wouldn't it make sense to be able to include these 20 bytes in the BitNames public account ledger?
Then you can use any public key servers to find the email addresses and send encrypted emails using the existing infrastructure and vice-versa.
Similarly, in openPGP you could use cross-certification to prove that the BitName-Id belongs to you. Therefore, anyone who knows your OpenPGP signature could directly send money to you.

I read the white paper and its states some ambitious goals, would be looking forward to beta, when is that anyways? But you will also need way more developers to get this beast of an idea rolling.

Sure, I am well known for excessively harsh criticism. Things could easily change. I just don't think this will happen unless you bring in outside expertise from mainstram economics (not Austrian). Just think of it as a strong recommendation.

We've already been pursuing partnerships with several academic entities including Virginia Tech. My primary concern at this stage is to resolve all the legal, financial and personnel issues associated with starting a corporation that does international business.

That said, it's very important to understand four core concepts about our business model:

We are developing three products that are both modular and produce emergent properties

Combining identity, communication and money into a single piece of software that is accessible to developers is really the most unique feature of our ecosystem. Once we have finished building the foundation, then you guys get to build (and sell) whatever software you can dream useful in this trinity.

The economics and design of BitShares is still in an experimental phase 

We have a lot of tough design work alongside a great degree of mathematical rigor and model building to do over the coming months capstoned by data collected from the test network. The core takeaway is that we have the resources to try different ideas to see what works and what doesn't.

No one has ever built a true decentralized P2P exchange, but there are a lot of ideas and they are in the open domain 

As our software is open sourced and free alongside many competing ideas, we only need one exchange to succeed for the original goal of Invictus to be a successful company- even if this idea is a competing exchange. The key concept here is to understand that I am referring to a decentralized exchange as defined in our whitepaper as an ideal free market financial system.

We feel that our design roadmap will get BitShares there and provides the maximum benefit to everyone in the ecosystem not just a few.

Good Technology is a mix of inspiration, iteration and collaboration

I find it odd to read statements from one of the core devs discounting the innovations of altcoins. Bitcoin does not enjoy a technology monopoly just a network effect monopoly. Building a completely new coin specifically for our exchange gives us the freedom to implement some of the most creative and innovative ideas that have been proposed over the past 4 years.

I totally reject that only a handful of privileged few should be entrusted with the keys to progress. Over the coming months, we'll be systematically working our way into every corner of the cryptocurrency world looking for that perfect blend for BitShares architecture. One of our biggest advantages is that we have software developers capable of building nearly anything once they understand the fundamentals.

It really is the most fun I've ever had and I hope I can share it with many of you over the coming months. 

We've had a lot of discussions about an email bridge that would connect normal email addresses to our ecosystem similar to some of the ideas Zimmerman had with silent circle. The challenge with any scheme where you are trying to combine a system you don't control with one that you do is that security cannot be guaranteed. In fact, without homomorphic encryption, all email bridges would be susceptible to man in the middle attacks from maleficent or coerced operators.

I can promise you we definitely are going to explore OpenID and OpenPGP a great deal as we are building this system and have a great advantage to be collaborating with the W3C in this respect via the Web Payments Group. We'll probably have a much clearer idea towards the November timeframe of what we can do at launch in February.     


We should have a beta for BitCom and some form of BitID ready by C3 or somewhere in that timeframe (so October). In terms of BitShares, we are going to launch a test net in November and be good scientists. Our tentative goal is to launch BitShares for the general community in February.

While this sounds very flattering to me, I have to admit that I also don't think this is fair judgement.  I don't know about their staff, but you also don't really know about myself.  I don't think I really have the expertise in economics / design of "mechanisms" you mention to be better situated in designing a project like that.  I'm just used to mathematical thinking and would like a bit more rigour in the description in order to understand and "believe in" the ideas behind BitAssets.

And I'm also aware that of course it all depends on how "BitUSD" is perceived by the market participants - after all, it doesn't matter whether or not it is called "BitUSD" or "BitBananas" or whatever.  (But to be fair, bytemaster already mentioned this some time ago and is seemingly well aware of that fact.  His argument was that, since people want/need a P2P exchange, it is to everyone's advantage to agree upon BitUSD tracking USD and thus this will happen.  (Please correct me if I'm misrepresenting you, that is how I remember it.)  Not sure about this, but I'm not the person to judge whether or not such thinking is ok.)

However even if we leave this point away for now, I just did a very simplistic calculation I want to present here:  Assume that 1 Bitshare (BS) is worth ps USD (as mentioned above it doesn't matter whether we use USD here or any other unit of "value" someone interested in investing is holding) and that 1 BitUSD (BU) is worth pu USD at the moment.  We have Ms BS in total and Mu BU created (how that works is not important for me now).  C BS are held of the Ms in collateral for the Mu BU.  D is the total amount of dividends paid for all BS in some time interval.

This means that 1 BS pays D/Ms dividends in this interval, and 1 BU pays D/Ms C/Mu, also in BS.  If I'm now an investor holding x USD and looking for a return, I can consider the two choices to invest in BS or in BU:

1) Investing in BS: I can buy x/ps BS, which pay x/ps D/Ms BS dividends.  My return in USD is thus this times ps, which is x D/Ms per time interval.

2) Investing in BU: I can buy x/pu BU, which pay x/pu D/Ms C/Mu BS dividends.  My return in USD is thus x ps/pu D/Ms C/Mu per time interval.

Comparing both, it is clear that the crucial question for me is whether the expression ps/pu C/Mu, which is the "difference" between both possible returns, is larger than 1 (in which case I should invest in BU) or smaller than 1 (in which case I should buy BS).  If it is the former and I buy BU accordingly, this decreases the price ratio ps/pu and makes the expression smaller.  If it is the latter and I buy BS, it increases the expression.  Thus at least from this very simplistic analysis, it follows that this system should converge to an "asymptotically stable equilibrium" where

pu / ps = C / Mu.

This makes sense because it means that the relative price of BU in BS should equal the quotient of the total amount of collateral in BS backing the all BUs to their monetary base.  However, I wonder how this result fits to the premise that collateral must be 1.5 times the amount of BU created ... wouldn't that imply that no-one ever has an incentive to create BU because he/she always gets less dividends back?  The only reason for why I could want to issue BU is that I imagine that the market price of BU relative to BS will rise, so that I can make money not from dividends (which I miss out on) but rather speculation.

Let's consider this.  Assume that C/Mu = 1.5 pr, where pr is some mean average relative price at the times when BU were issued against BS collateral.  If now others join the game, they will follow the same decision process as above, and if no fresh BU are issued and only BS or BU bought on the market, this will lead again to the equilibrium of

pu / ps = C / Mu = 1.5 pr.

Thus it is indeed expected that the price of BU in BS rises to 1.5 times the price at which BU were issued.  Because this means that the price rises which each issuance of BU, it should be fair to assume that pr as average price over all past BU issuances is less than the price at which I was able to issue BU if this is the current market rate (not sure about how this is done in the current BitAssets proposal though).  Thus the anticipated price rise is less than what I need to get even with the dividends, so it makes no sense for me to issue BU except if I speculate on others also doing this after me ... which feels like a Ponzi scheme.

As stated I have no training in economics, so please forgive me if my interpretation is wrong.  But it seems to me as if it would not matter at all whether I invest in BU or BS (assuming the market reached equilibrium already), and that issuing BU is a loss for me if not others also do it after me.  This is the dynamics by itself without considering that people might "want" BU to track USD (pu = 1), but it seems like an odd system to me (particularly because of the 1.5 factor in the collateral requirement).  Please also note that the forum is not very well suited to typing formula (although they are quite simple), so if it helps in reading I could also typeset this calculation again in LaTeX.  And finally, please excuse if I made any typos in the formulas or similar ... I just wanted to contribute my quick calculation but haven't done thorough review.

Edit: This assertion about BitAssets will go to 0 is incorrect. Please see discussion near the end of this page.

cunicula is correct, BitAssets will go to 0.

It is very easy to explain. Both the short and the long have an incentive to ask and bid (respectively) a lower price. Both seller and buyer want a lower price (at the moment they transact). Period.

Short wants to sell for a lower price, so he is protected on the downside. Long wants to buy for a lower price, so he can gain more on the upside.

In a normal futures market, there is always threat of delivery of the real asset, thus the short's liability is the value of the real asset and the short has an incentive to sell (ask) for a premium on the external price of the real asset.

In BitAssets, there is no such backstop, thus both short and long of the trade profit more the lower the price they sell and pay for respectively. This is the Tragedy of the Commons (http://cunicula) (cunicula's free rider).

I am sure everyone will realize now, BitAssets are dead. Forget it. I tried to think of way to make them work, and cunicula is 100% correct. The only way to make them work is if there is a backer willing to defend the external price and who is paid some fees for doing this.

---

I arrived at the (quite obvious) epipheny in a roundabout manner, as I was thinking about how my proposal for shorter duration forced expiration would work as I had a few spare moments laying in bed as I awoke. Lately I have been very busy when at the computer, coding the Xtext parser for my new Scala-inspired language Copute (which compiles to Scala). I managed to trip on the HUGE EGO of the super capable lead developer of Xtext (his own fault! (https://bugs.eclipse.org/bugs/show_bug.cgi?id=415909#c26)), so I must be back to my very high-level of programming that I used to do. I must reiterate what Eric S. Raymond (creator of the term open source and the famous Cathedral and Bazaar essay which catapulted the open source revolution) wrote about Ego is for little people (http://esr.ibiblio.org/?p=1404), "if I am not regularly pissing people off, I must be doing something wrong". This is simply because most people have their ego dialed higher than their logic.

Some misinterpret my ENTP/ENFP personality as ego, whereas it is usually just the E in Extroverted. I love communication (except when I am coding, then I have an INTP personality switch, which is why I hate to stop to interact, e.g. file bug report, when I am coding because it pulls me out of my INTP into ENTP then ENFP modes).


bytemaster, I hope you come off your high-chair about economics. You don't know economics. I don't say this with any personal vendetta or animosity. It is just that you block your own learning, when you try to resolve economics to some subset of fixed axioms.

Axiom of Leadership: Being an effective opensource leader means never, never assert on the group what you can not prove beyond any reasonable doubt. In closedsource you can take proprietary risks. Separate your closedsource activity from the opensource, if you want support of others who as smart or smarter than you.


Unlike BitAssets, Bitcoin doesn't need a backstop, because it is tracking the value of itself, thus there is no situation where short (seller) and long (buyer) both want a lower price.


I hope you are implementing my suggestion to write modular code. Scala would have been a much better choice for that vector of need.


<joke>But you don't have me and Scala.</joke>  :-[

The 'mainstream economics' I've seen is just some combination of Keynesian and Monetarist drivel. Since money supply is backed by government debt, they are really just two sides of the same silver plated copper coin. Intelligent life is hard to find in academic economic departments, and the results of their handiwork is plain for all to see in the current global economic crises, with no end in sight. History has shown repeatedly where things are headed, though this time it will be on a global scale. Please don't contaminate a promising project like Bitshares with mainstream economic theory and its history of failure.

I have heard, though, that there are actually Austrian economists at UC San Jose, and Santa Clara University also has some good professors in the field. Harvard is the bottom of the swamp, mouthpieces for the elites.

Oh my, you go off on the same mistakes and single-minded delusion as bytemaster and goldbugs with their "tinfoil hats". Read Armstrong more carefully and thoroughly.

First of all, you don't understand what Keynesian economics really is, because vested interests have distorted his theories for their own use. Here are some quotes from a blog and the comments that you should study. Make sure you read the comments from me that are bolded, as I don't agree with Keynes.

http://blog.mpettis.com/2013/08/the-urbanization-fallacy


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-750


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-752


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-574


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-581 (my comment)


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-637


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-615


Rest of the comments below are from me.

http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-621


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-516


Want to know why the G5 is going to make a war now, read the following comment.

http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-559


http://blog.mpettis.com/2013/08/the-urbanization-fallacy/#comment-760

Right - Keynes advocated trying to level out the boom-bust cycle with government spending financed by government debt to stimulate the economy by reducing unemployment. Herbert Hoover tried and failed with this at the beginning of the Depression with a slew of public works projects(think Hoover Dam). People think FDR started this with WPA and New Deal, but it actually started much sooner under Hoover, ending with a mass panic and bank run.

My understanding is even Armstrong points out that attempts to counter business cycles with manipulation of the economy is futile and just exacerbates the problem. The panics prior to the Great Depression were much less severe and only lasted a few years when allowed to resolve on their own.

The context of the discussion was I explained that Keynes(ism) never proposed to run deficits year-after-year, yet the failure of Keynesism is he assumed government was rational and self-limiting.

Agreed, but don't conflate and then assume it is because of a gold standard that the 1800s were more prosperous. They were because the USA was a frontier and the government was less than 10-20% of the GDP (now is it roughly 60 - 80% if include cost of complying with regulation and local govts (http://grandfather-economic-report.com/), especially when the $5 trillion per year unfunded liability deficit is considered).

And don't conflate and say that inflation is bad. It is centralized inflation that is bad, because it helps to build the government. Decentralized inflation is absolutely necessary, M2 and nominal GDP grew by 5% per annum since 1790 in the USA. Without inflation, you can't grow the economy. The USA never had ONLY gold and silver as money, there were always fractional receipts from private banks. It was the decentralized nature (private banks making fractional receipts for gold) of the debasement that made the USA great during the 1800s. The downfall was that the receipts were fractional reserves. This allowed JP Morgan to bail out the Treasury and bankers took over the government by 1913. The decentralized digital currencies solve this problem, but Bitcoin has a flaw in that debasement stops (very bad).

Please read the math:

https://bitcointalk.org/index.php?topic=160612.msg2895021#msg2895021

And more discussion on that (follow the sub-links too):

https://bitcointalk.org/index.php?topic=160612.msg2930843#msg2930843

Per Adam Smith's Real Bills Doctrine, there wasn't really inflation during the 1800s. The private bank notes were backed by gold and bills of exchange held by the issuing banks. The bills were 90 day notes representing goods in production. The amount of bills in circulation reflected the level of economic activity. Thus, money supply could expand and contract to match the level of economic activity. The British Empire also thrived and expanded under this system.

I debated Antal Fekete about this in private email a few years ago.

If there weren't fractional reserves, then why were there massive bank runs and panics, that led to JP Morgan bailing out the system in the late 1800s?

I forget all my logic about Real Bills, but I don't think they stopped fractional reserves at the private banks. I think Real Bills is all smoke and mirrors. The M2 still increased by 5% per annum. I supplied the link to the data in prior post.

P.S. There is very high quality of discussion in this thread. Participants are very astute thus far.

true, but to be honest, I'm lost since page 6. this is too deep for the average person to follow, if you just want information/status on the project.

How about you open a bitmessage channel for this conversation?

This is a Bitcoin Forum > Bitcoin > Project Development thread. Thus, I assume it is for developers to discuss how to get the design correct.

I suggest bytemaster can start a thread in Bitcoin Forum > Bitcoin > Alternate Cryptocurrencies, if he wants to present a less technical thread.

There needs to be some place for us to discuss the deep issues on this proposal.

For example, what is the point of bytemaster telling you BitAssets are wonderful (putting the cart before the horse so to speak), when I have very simply proven upthread they will go to 0 value (https://bitcointalk.org/index.php?topic=279771.msg3024053#msg3024053).

If I am going to go short, I want to sell for as high a price as possible because I have borrowed the asset and will have to buy back at a lower price in the future.     Thus the foundation of the rest of your conjecture that BitAssets will go to 0 is gone.

Damn, I brain farted (in bed), inverted my logic on long needs higher price, short needs lower price (trying to do too many things at same time).

Okay excellent. Now I can excited about BitAssets again.

So then I continue with the thought process I was doing to redesign BitAssets to make symmetric the stochastic range of preferences on both sides, long and short.

If instead of borrowing to go short, both short and long put their collateral as backing for the BitAsset, and they agree to subtract the (L x) movement in price (higher from short, lower from long) from their half of the collateral and give it to the other party. Then they can agree to any term of contract expiration. We can even support leverage, by making L > 1.

Example, if short ask and long bid meet at 1 BitUSD for 10 BitShares. They both put up 10 BitShares of collateral. If L = 1, and at the end of the agreed expiration, the market price for 1 BitUSD is 6 BitShares, then the long gives 4 of his collateral to the short, and the BitUSD (BitAsset) is retired. (Problem: how do we determine market price?)

My expectation is that by balancing it this way, instead of your current asymmetric design (your design short gets margin, but long never does and no expiration date), then the shorter-term expirations will much more closely track the value of the designated BitAsset.

Why?

1. Both long and short have a balanced set time preference.

2. Shorter-term positions remove the secular trend of the designated asset from the equation.

3. The short and long are more frequently renewing their positions in the market place of bid / ask, thus resetting their target price to the current real-time price of the designated asset.

The problem with my design above as compared to bytemaster's design is that there is no buying of a BitUSD to cover, thus there isn't a 1-to-1 trade for each covering. Rather my design expects a "market price", but such doesn't really exist.

So let's fix my design.

My solution is in the above example, the long must buy a BitUSD and give it to the short. The long keeps the remainder of his collateral, plus takes 2 BitShares from the short's collateral. This is done automatically by the miner of the block. Note this is what I originally thought BitAssets were designed to do. I later learned from bytemaster's example upthread, that his design is asymmetric. In this case, leverage can still be paid out, by giving the appropriate calculation of collateral to the short, along with the BitUSD.

But my design still has a problem. The BitUSD the long buys can't be one that expires. So this creates N classes of each BitAsset, one for non-expiration, and N-1 others for different expiration terms. But how does the BitUSD with no expiration get created? We are back to bytemaster's design in order to create the BitUSD with unlimited expiration time. So what have I just described? Options on the BitAsset?

The asymmetric design has the advantage that the long can hold his/her position indefinitely. Both designs could be offered in the system.

Can anyone make any other observations of ramifications between my design and bytemaster's design for BitAssets?

One of the design goals was having something people could 'hold' long term and would be suitable for non-speculators to transact in. 
Fungibility of positions was also important.
Having the ability to derive meaningful price information for automatic margin calls / settlement.

All of that said, your approach would work to some extent assuming you had a settlement method.

Interesting project.  I'm very excited to watch it develop.

If you guys are looking for a user interface designer, I might consider it.
My latest in-development project: http://kryptotrader.com (http://kryptotrader.com)

Latest Article: http://letstalkbitcoin.com/own-your-identity-with-bitshares/

Re-read mine. I think I just described options on your BitAsset?


I was editing my post while you were reading it. Re-read the last part about settlement. It is same as for your design.

Seems these options will add symmetric supply and demand for your design, thus helping to track the price of the designated asset?

I would probably come on board as a coder, if you let me contribute Scala code (I would try to code faster than you, hehe so more code would be Scala than C++). Then I would be responsible for integrating with the C++ code and teaching you Scala. Doesn't sound realistic, so perhaps I have to be a bystander. I don't think you want to ship and require the Java Virtual Machine to be installed. Can't force my will on the majority here.

Maybe I can write a Scala version of your code in parallel, e.g. Bitcoin has a bitcoinj version of the client. I am contemplating my options now.

Not mentioned in detail in the white paper, BitShares also enable options trading.

Options work like this:
Suppose I have $100 BitUSD
I will give you the option to Buy them for 1 BTS any time in the next 1 month (a specific block number).
In exchange for that option, you would give me .01 BTS today.
You of course would not exercise that option until the price was above 1 BTS.
In order to exercise the option, you must send me 1 BTS to claim the 100 BitUSD.

The 100 BitUSD are 'locked' in the blockchain for the duration of the option.  After the deadline, if they have not been claimed then I can spend them normally.

So in addition to shorts/longs, options provide another way to speculate.

As for your claim of asymmetric motivations between short/long positions this is not a problem because it would be accounted for in the price which would be slightly biased.

Note:  the goal isn't price parity, it is exchange rate hedging.   So 1 BitUSD will be worth more than 1 USD almost all of the time.  How much more depends upon relative expectations of future dividend rates.

I have a strong desire for the 'protocol' to be open and not defined by an 'implementation' like bitcoin.   Having a parallel code-base would force us to produce a detailed spec independent of any implementation and resolve many problems faced by using Bitcoin Qt as the 'defacto standard definition'. 

It is encouraging to me to see that you have evaluated the idea and found it worth investing your time in creating an implementation.

Those are asymmetric again.

Your options don't appear to create symmetric demand for the BitAsset in the same way as my proposal does, because one side has to put up much more capital than the other?



I understood that already from the white paper.

Why do you think they will only be slightly biased? I am concerned that asymmetry is pernicious, meaning I expect there is no equilibrium.

Why do you think otherwise?

Having symmetric options on your asymmetric asset, might stabilize it.

As I said from the start, there is a lot innovation here that I am interested in.

But I don't agree with every design decision you are making.

So I am trying to think of how we can help each other reach our respective goals, with the least disruption of our respective scarce time.

Modularity comes to my mind. There may be modules of functionality we agree on.

Also HIGH-LATENCY mix-net is crucial. You haven't mentioned it at all.

Can we design it such that the cross-chain transactions will interface blockchains using competing protocols (e.g. no dividends)?

I think yes?

So then I can launch a slightly different protocol, but we can share much code?

Thought I'd ask again since I think the questions got lost in all the economics discussion. This has a large impact on my mining approach and timing.

Cross-chain transactions are compatible with Bitcoin.    After much work I was unable to create an efficient, secure, means of having 'one currency' with a 'fixed supply' split among multiple chains without allowing a 51% attack on one chain to steal 100% of the value stored on that chain.   So all cross-chain transactions work like https://en.bitcoin.it/wiki/Atomic_cross-chain_trading

We have a method to our madness, but that is our trade secret.   As for timing code availability, we are considering a competition on the algorithm so the final candidate is not known at this time.

I assume you mean the GPU/ASIC-resistant PoW. I purposely haven't responded to your request for my algorithm, but I will share at the right time, when I get closer to releasing something.

I don't want you to control the money supply of my coin. I want mine to debase at 5% per annum, all going to miners, no dividends. I just want to make sure that if my blockchain accepts transactions from your blockchain, that you reciprocate. Can we design a general interface for this so any altcoin can participate reciprocally?

I would probably try to support your other features, but I have to study them in detail before I can say for sure.

Isn't the entire point to get more options out there for the market to choose? If it is all opensource, why do you care which protocol wins? Surely you can continue to innovate on what ever takes the lead in the market. I want your Asset, ID and messaging features. It is just the details that I have to review first.

I don't know your business model, perhaps it is making clients for the communication, etc.. I am thinking it would be best for you to not tie your clients too tightly to one variant of your protocol and design as much modularity as you can, so your efforts aren't lost if you need to change things or some other altcoin protocol is winning more marketshare.

As for atomic operation, Sergio described a very simple algorithm. For example, Bob has BTC and Alice has BTS, so put a TX in BTS blockchain saying that Alice is waiting for TX from Bob in BTC on the BTC blockchain. Put a timeout, but it is non-repudiable during that timeout period. Bob then can safely send the BTC TX. The BTS blockchain automatically sees the BTC TX and finalizes the TX to send Bob BTS.

What do you think?

Any trading system that requires one chain to 'monitor' another chain is not scalable.   The chains must function with 0 knowledge of the other chain.  Clients may support both chains, but only those clients care about both chains.    I don't want to inherit BTC's scalability issues by requiring 'miners' to see the BTC TRX.

I hope you consider to implement several PoW systems simultaneously in Bitshares. Then let proof-of-stake voters decide for the relative contribution of each PoW algorithm. This would be much more secure because an attacker would need not only 50% of the CPU power, but also 50% of ASICs and 50% of the stake (if we consider an example where all 3 contribute equally). At the same time it would be much more energy efficient because stakeholders could vote to decrease the contribution of PoW to maybe 20% and increase the contribution of PoS to 80%. In addition to the better energy efficiency it would also lower the effective inflation of Bitshares for regular users/consumers/investors.

Yes, it's very important to have it setup that the mining algorithm can be changed. Just look at https://en.bitcoin.it/wiki/Prohibited_changes (https://en.bitcoin.it/wiki/Prohibited_changes) to see how difficulty this is, if you don't plan a change ahead.

Current hash power would never vote to give up their power. Therefore it is much better to use proof-of-stake to vote for protocol changes or parameter changes of the network. Anyway, the value of the network ultimately stems from the stakeholders who define the market capitalization of the coin. So they should be the ones who should be able to vote for a change of the mining algorithm. If this isn't defined in the beginning, then it is hard to argue for a change later on, when the coin is running.

So why not code it modular with maybe scrypt (50%) AND hash256 (50%) in the beginning and add some more later on. And use proof-of-stake to vote for the relative contribution.

OK, can you at least say whether or not the planned return on investment involves mining. If it is from just selling mobile apps or other interfaces and services, it doesn't affect my plans, but if it involves deploying preconfigured and optimized mass CPU power to mine at the very start then it would have a large impact.

Agreed that scales better. I didn't realize Bitcoin has scripting for transactions. Are you including Script? Have you considered including CoinWitness (https://bitcointalk.org/index.php?topic=277389.0) (or Microsoft Research's Pinnochio), given gmaxell says Script is currently "mostly unused" in Bitcoin, then maybe experimental isn't so risky? Probably not realistic, but future-proofing is a thought.

If BitAssets can reliably track designated assets, then it may not be necessary to cross-chain if all one wants is the store-of-value and not some features of the other chain, just hold the proxy in your chain. Secure atomic cross-chain will be useful when you don't trust the exchange, e.g. an individual.

I read in the white paper.


Forcing old transactions to send to a new key every year, doesn't do much to reduce the size of the block chain. I don't know why you think it does?

Is that and cross-chain the only ideas you have for scalable blockchain?

I also saw this:


But if you don't limit the number of keys that users can have, then you can't compress the ledger to a fixed size.


Ah so you arrived at the same solution I did, which is you must limit the number of keys users can have?

Hierarchical Deterministic Wallets don't solve the problem of needing to combine change from several keys into one spend. So it seems to me your claim of "never" above is incorrect. Every user is going to end up with small balances in their keys at some point and need some way merge them.

https://bitcointalk.org/index.php?topic=279249.0


https://bitcointalk.org/index.php?topic=279249.msg3009655#msg3009655

How can you fix this?

It is safe to merge outputs that haven't been merged in a while.  This is particularly true when you consider 'off-chain' option/bid/ask negotiations where two different people both sign a transaction rather than let the miner do it.  If this occurred on a regular basis then you could safely merge inputs/outputs without it correlating with a high likelihood of you owning both of them.  

My thinking was that after a coin had ping-ponged back and forth without merging for 4 or 5 transactions you can safely merge it.

A large transaction would be comprised of many smaller transactions thus, if I wanted to send you $100 but only have outputs of $5, $20, $10, $50, and $15 then I would broadcast 5 independent transactions to you without having to exchange 5 addresses.   Spread out the broadcast of those transactions over 10 minutes and it would be hard to correlate them.

Every new altcoin has to have a killer feature, else it has no chance of gaining traction.

It seems you all are betting your initial effort on the BitName and Messaging features. I don't think those are the killer feature.

When looking to buy a car, I am not so interested in whether it has a communications system. I am more interested in the features of the car.

I don't see what time has to do with it, unless you are thinking of what you wrote below.


What is this off-chain signing?


Yeah merging can be solved that way, yet it is the forking due to giving change that can't be delinked. Nearly every transaction involves giving change.

Also your merging solution isn't so solid if paying to a merchant whose incoming address are well known.

Bottom line is that the blockchain is subject to traffic analysis. Very difficult to avoid.

That my friend is a problem I spent days on before coming to a workable solution.   So here it goes:

Given a known genesis time, you can calculate the 'expected time' of block N based on the target interval I as   G + N*I.

Given the last 2 weeks of blocks, and the timestamp included in the block, it is possible to calculate the 'median error from expected time'.

If the median error from expected time is positive... we are producing too fast, set the target interval to 1.05 * I
If the median error from expected time is negative... we are producing too slow, set the target interval to .95 * I
If the median error is accurate within a safe range then keep the target interval at I.

Combined with a continuous adjustment of difficulty based upon the following algorithm:

Current Difficulty = median difficulty of last 4096 blocks (about 2 weeks).
Next Difficulty     = current difficulty * target interval / median_interval

On a purely random basis (steady hash power with normal distribution of times proportional to difficulty) this algorithm keeps the max median error from expected time less than 12 hours after decades of simulation.
In a system with increasing hash power the clock should skew, but will correct when the growth rate stabilizes.   This algorithm should also adapt continuously and thus minimize the area between the target difficulty and current hash power producing a graceful curve.   Once the clock skews to much as a result of increasing hash power, the sudden increase in difficulty by 5% should limit the damage.

The key here is that the target should not be off by more than a day or 2 max.  Combined with a hash algorithm that is limited to scaling with CPU and no huge ASIC style jumps and we can hopefully keep the block rate production within much tighter tolerances than Bitcoin.

Off-chain is where I create a transaction with 3 inputs from me and 3 from you.  I sign it, send it to you, you sign it and broadcast it to the network.   These types of transactions will be cheaper than using the built-in block chain for bids and orders. 

Perhaps use Newton's method or gradient descent rather than assuming a Gaussian, steady state.

I am very interested in any improvements that could be generated.  To see my current algorithm which is generic and self-contained:

https://github.com/InvictusInnovations/BitShares/blob/master/src/blockchain/blockchain_time_keeper.cpp

The test I used to simulate behavior:

https://github.com/InvictusInnovations/BitShares/blob/master/tests/timekeeper.cpp

My algorithm only works assuming the growth in hash power is not continuous and that there are periods of time with steady or decreasing hash power which gives the algorithm enough time to correct.

We would need to estimate not only the current hash power, but the median rate of change in hash power.   The challenge is avoiding over-corrections that cause large oscillations in the median error.

BitUSD and BitGold are what we are betting on.    Diversification is best.

How about if miners are tumblers wouldn't that solve the problem to great extent?

https://bitcointalk.org/index.php?topic=279249.0

Suppose back in the days when CPU mining was the majority and GPU mining was just starting to gain traction but still a minority.   The CPU miners would all vote to move to something that would keep them in power before the GPU owners could take over.  The FPGA developers wouldn't even begin investing any effort.  The only way to perform a successful ASIC take-over would be to perform a 51% attack before anyone knew it and then vote to keep yourself in power.   Of course, such an attack would immediately undermine the entire currency.

So the CPU users must pro-actively change the hashing algorithm at least once per year to prevent any secret ASIC developments.  Combine this with a hash algorithm that doesn't give ASIC as much advantage as SHA256 does (by being memory and computation hard, ie: the point behind the scrypt white paper) and even if ASICs were developed they would not be able to gain a majority of the hashing power quickly nor cheaply.

Those do appear to be a potential killer feature, but I am not sure if they are the most important need at the moment. Something to contemplate.

This is exactly what I had in mind down the road.   

I started a new thread dedicated to the technical details of the Bitshares ID system.  You will see why it is VERY different from Namecoin with very different properties and scalability. 

https://bitcointalk.org/index.php?topic=283513.msg3033138#msg3033138

Off top-of-my-head (not really thinking it through deeply) need a damping factor that increases if not converging. I won't say more unless I write down some math.

A determined, highly capitalized attacker might be able to prepare FPGAs and launch an attack within say less than a month, maybe even only a week if they are the NSA or other highly organized entity.

Increasing the memory requirements significantly reduces who can capitalize such an attack.

But if you are only depending on being able to change the hashing algorithm, this seems to me to be very risky, not only for the above reason, yet also because hashing algorithms will have different performance profiles on different models of CPUs and systems, so vested interests may form. Also even with auto-update, there may be a limit to how fast miners can upgrade due to being offline for say a week while someone is on vacation, their computer is in repair, their ISP blocked the port, etc.. Murphy's Law applies when ever you expect large diverse systems to coalesce.

Also depending on how the blockchain is designed, doesn't this mean keeping the old hashing algorithms around to verify the historical blockchain?

Also if the hashing algorithm is going to change frequently, it is more difficult for miners to plan in terms of buying the optimum hardware. They won't be able to do reliable ROI calculations, e.g. a hashing change could alter the total difficulty power in the network, because not all systems have the same profile relative to the performance of different hashes.

Unknown risk doesn't build confidence. Whereas, a hash that has withstood the test of time, does.

---

My thought on ASICs is embrace them, so that everyone can plug one in to their PCIe port, yet insure memory is the higher cost. Moore's law is steady and so miners can plan. Someone who claims they design ASICs backed down on their criticism and complimented me when I mentioned that strategy.

So now I have revealed to you one of my secrets. I have more secrets on how to make the Scrypt GPU-resistant. Actually they aren't secrets, just buried in my past posts, but I didn't even write-down the pseudo-code yet, just a verbal discussion.

P.S. I may not be the ultra-elite-tier technician, mathematician, etc.. yet I am conversant in (and nearer to the top in some areas of) technology and I combine big picture and marketing analysis.

I'm not sure how Newton's method is being applied here, though I guess you are choosing difficulty as a nonlinear function of recent block arrival times and current difficulty in order to minimize the expected deviation in the block interval. Better to use a a flexible linear approximation of your function and OLS esitmates of parameters.

If you insist on nonlinear optimization methods, you should use a simplex method; it is derivative free and therefore much more robust to discontinuities than Newton's method. Google the fminsearch function on matlab which uses a simplex algorithm. Trust me if you want to avoid something going wrong in your optimization program the simplex method is much more reliable than newton's method. A good book on relevant nonlinear techniques is Numerical Methods in Economics by Kenneth Judd.

If you do use Newton's method make sure you calculate your derivatives over a long time interval say 300 blocks.

Regardless of the optimization method you choose, do not be too aggressive in updating model parameters based on recent history. It is better to err on the conservative side than frequently overshoot the adjustments. Oscillations due to overshooting could produce unstable behavior.

Takeaway:
Use a linear model and OLS to estimate parameters
Update parameters slowly to avoid overshooting

Final advice: use a consevative number of parameters; say a quadratic function of difficulty, difficulty at times (t, t-1, t-2) and block interval average at times (t, t-1, t-2). That is a total of six variables, yielding a constant term, six linear parameters, and eighteen quadratic parameters.

This is boring stuff so offer to send BTC my way if you want more advice. I'd charge 1 BTC per hour. The above is 30 minutes.

I ran a poll on new features for an altcoin, and as I expected (my username is AnonyMint), anonymity is the #1 request:

https://bitcointalk.org/index.php?topic=279340

Anonymity may become even more important when the G8 begins the already officially published plans for bail-in confiscations (https://bitcointalk.org/index.php?topic=160612.msg3025586#msg3025586) (note bank derivative losses take precedence over bond holders and depositors).

Results at 27 votes:

2. Blockchain scaling
3. GPU-resistant
4. Energy-efficient mining
5. Create new coins forever
   P2P exchange (cross-chain txs)
   0-confirmation txs

As you can see, this forum is very into mining (4 of the of 7 top features) and very concerned about privacy.

It seems to me that either a tumblr (a.k.a. coin mixer or laundry) or the ability to send an untraceable message is going to be crucial for supporting anonymous transactions. For even if I am paying a known entity (e.g. a website), I don't want that website storing my public key on a server that any one can find. Thus I want to be able to send my proof of payment in a message that ends up at a server which no one can find, which replies to me with a key I can use to enter at the website to gain access to what I paid for. In this way, even if the known server is hacked or served a court order, the key can't be linked with my coin public key without finding that server that can't be found. Then even if I reveal my identity on that website (e.g. interactive porn cams or forum with pics of my genitals), that can't be linked to the public key for my coin without finding that server that can't be found. However, the downside of this, it expects the other party to do many things correctly. Whereas a tumblr delinks the public key back to my other transactions, thus is more robust. Devil is in the details though, as to which is more practical and scalable.

It seems there is much more work to be done on anonymity that you are not yet talking about.

bytemaster can you please give me an explanation on how could you possibly trade gold over a p2p trustless network? How will it be backed?

I want you to put the explanation as simple as possible. Thanks.

I explained some of my early thoughts and calculations on blockchain scaling (http://blog.jim.com/economics/bitcoin-scaling-problems.html/comment-page-1#comment-342437). Since then, I have looked at the MiniBlockchain proposal and need to sort through what is the best design.


I posted some issues there.

P.S. you joined this forum 2010, I joined March 2013, and didn't really start to think deeply about technical design until perhaps August 1.

It still holds, that the ultimate value of the network stems from the stakeholders and they should have the right to vote for protocol changes. The idea to let miners vote for protocol changes is fundamentally flawed. The shareholders should have the ultimate decision about the security of their coins. I really do not see ANY advantage of letting miners vote in comparison to letting shareholders vote.
Compare it with the shareholders of a company. Your proposal is similar as saying some external component supplier of your company should vote for the next component supplier of your company. Instead it makes much more sense to let the shareholders of the company vote for these decisions.

It is really not so complex to incorporate several PoW algorithms together with PoS in your design and let PoS vote for all major protocol changes.
It is also more secure if you combine these algorithms such that at a certain block height it is determined which of these algorithms has the right to submit the next block.
If you want to just use a CPU/memory intensive mining algoirthm, then you are so insecure against botnet owners.
So really, there is no principal disadvantage of incorporating PoS with several PoW algorithms in parallel? there are just advantages.
And then you also have a mechanism to justify that a majority of users is behind a protocol change.

The tragedy (lie) of democracy is that the masses can be manipulated by the rich who control the media and goodies that the masses want. And the rich have the most stake.

My point in my reply upthread is that the developers only get one chance to apply their best design, then the vested interests take form.

I prefer economics-by-design than design-by-popularity which devolves to centralized control.

I could trade the Mona Lisa over a trustless p2p network and I will use the Mona Lisa as an example because it highlights the following:

1) My system does not transfer the actual item, nor create the item, nor is it 'backed' by the item in question.
2) My system does transfer the value (purchasing power) of the actual item
3) My system does transfer value between longs and shorts proportional to the price movement.

Suppose that every couple of years the Mona Lisa comes up for auction.  As a result we have an estimated market price as a foundation.

You and I could then speculate via a 'prediction market' what the Mona Lisa will sell for in the future.  We would back our speculation with a crypto-currency.

If there were enough people speculating on the prediction market then I could trade my long position with someone else. 

Now the Mona Lisa market would have a wide spread and suffer sudden jolts every time there was an actual auction that provided a new data-point to the 'prediction market'.   Every rumor, appraisal, or piece of news associated with the Mona Lisa would directly reflect in movements on the prediction market.   

BitGold is just the long-side of a continuous, collateralized, prediction market on the future price of Gold relative to BitShares.  If you buy BitGold and the price of actual Gold goes up relative to BitShares, those short BitGold would transfer to you the purchasing power that would allow you to enter the market and buy actual Gold.       Unlike the Mona Lisa, there is continuous data feed of prices on the open market and therefore there will not be the jolts experienced by the Mona Lisa market. 

To turn this into a P2P way of trading actual gold consider that because the price is always a relatively constant ratio between Gold/BitGold the buy sell spread will be much lower locally than local-bitcoins.   So, you take your gold, sell it to someone for BitGold, wire the BitGold across the globe to your friend.  They then take the BitGold to a local coin shop and buy actual gold.   All of this while having minimal exchange rate risk for the duration of the transaction even if it is spread out over a year or more. 
 

 

Myself and at least 2 others have challenged you to present any sort of explanation or proof as why those assumptions above are true. At least two of us are thinking there might not be an equilibrium and the BitAsset might perniciously migrate to its intrinsic value of 0. Notwithstanding my silly error (when I attempted a simple logic to prove it would go to 0), the point remains that you haven't shown any substantial (non-hand-waving) theory to back this claim. Future's markets are always backed by the threat of taking delivery, which will not apply in this case. You mention NPV in the whitepaper, but that was handwaving.

I am not asserting you are wrong. I am saying a wish and a prayer is not science.

Well you could just try it.

Either it was in a dream or reality, someone already tried something like this and it went to 0. I am trying to discern the vague memory that is teasing me from the back of my mind.

I don't think it is the Tulip Mania I am thinking of.

I can prove that BitUSD will not go to 0 with a very simple proof.

1) Given two revenue streams in the same 'unknown asset of non-0 value'  Streams A and B
2) Assume A pays 2x as much per unit time as B....
3) What is A worth relative to B?
4) Answer is that A is always worth 2x B regardless of the unit of the revenue stream.

I can therefore conclude that only looking at differential dividend rates and ignoring margin calls and other market factors that BitUSD would be worth 2x as much as BitShares based upon the revenue stream alone. 
The other reason it will not go to 0 is that the 'short position' incurs an opportunity cost and is in a nash equilibrium where they would rather buy and get 75% of their money back than 'not buy' and lose 100%. 

Conclusion: I have proven, mathematically, that the price is not 0 unless BitShares are 0.  Furthermore, I have demonstrated that there exists demand for BitUSD at a price point equal to the backing collateral due to dividends alone.

Okay, 2 shares of stock are worth twice as much as one share of stock. What does this have to do with BitUSD again?

To create BitUSD,  2x the value of USD worth of BitShares are held in escrow.    (Both the short & long put in the market price of USD in BitShares to create the long position (BitUSD) and the short position (collateralized debt) ).    The dividends from the collateral are paid to the holder of the BitUSD.   Thus an opportunity cost on the short position creates buying pressure, and the higher BitShare return on BitUSD makes them more liquid to those who wish to earn a higher return in BitShares.     If there is expected price 'stability' between USD and BitShares then it makes sense to buy BitUSD rather than hold BitShares because you will end up with 2x as many BitShares at the end of the day (at the risk that BitShares could rise and you would lose that gain).

Of course it is important to have a good design from the beginning on. But as has been stated earlier it is also very important for mining algorithms to be adapted to technological advancements. Furthermore protocol changes are sometimes a really good thing. So I think everyone would agree that it is important to be able to change parameters later on.
Why do you assume miners would be better to make decisions about the network? Why not developers? Or the rich (which is equivalent to PoS)? Anyway, you have to decide from the beginning on how decisions should take place. In the bitcoin network it is clear that all decisions are taken by core developers and to a small degree by miners. I wouldn't argue that it is very bad if developers take some decisions. But I see a huge conflict of interest if miners are the decision makers, because they are neither the ones who have the best technical understanding of the protocol nor do they represent the stakeholders of the coin. Miners are more like external entities who get rewards for their service. As I said, they are like external component suppliers of a company. They shouldn't have a right to vote for changes in the protocol.

On the other hand, if you decide that PoS is used for voting for protocol changes or mining algorithm updates, then you have several benefits:
1) No conflict of interests (especially in regard to mining rewards and network security)
2) Regular users will leave the expert options of their clients untouched and therefore will just vote for the option, that the developer of his client choose to be the best option
3) Automatic check if the userclients do support some of the new features (therefore new features will only be enabled if enough clients do support them)
4) Very flexible, esspecially if you consider that you want to have several Bitshare-blockchains, because each shareholder of a specific blockchain could vote for their desired protocol parameters. Therefore, from the beginning on, it wouldn't make sense to create altcoins of your cryptocurrency. You could just add modules to the core client, and then shareholders of some specific blockchains could vote to enable this specific new feature.

Just think a bit about the implications of the last point! Let's consider Bitshares become really popular. You will have many specialized experts who would like to trade in a very specific framework with some specific network parameters. It would be so much beneficial if they could just use the standard client and create a new subchain, where they are the shareholders, and vote for their desired parameters. The whole ecosystem of Bitshares would hugely benefit, because it would automatically support a wide range of different users:
- Some users might prefer a subchain with high double-spend security so that they will vote for a large percentage of PoW contribution
- Some users might want to take part in a subchain, which has a high block frequency, but they don't care about bandwidth, so they create their own chain with these parameters
- Some users might want to trade in a subchain, where the blocksize is just 100 Kb and others might prefer 1 MB, so they will just move to a corresponding chain which has these parameters set

If bitcoin would have been build with this in mind, it would have a huge advantage in regard to protocol updates and technological and scientific progress. There are currently many altcoins, who try to improve the protocol of bitcoin. But they have no chance to be used just because of the network effect of bitcoin. Although, some of these changes are well tested and understood, it is no possible to change the bitcoin protocol, because there is no democratic decision process implemented. I think this idea is in total agreement with the ideas of bytemaster and charleshoskinson.

I understand, that it is very hard for a developer to give up some control to the users. But it would be beneficial in the long term if it is clearly defined how protocol changes should be introduced. If this is defined, then progress is possible in a very controlled way after the initial launch. In contrast, if you want that miners vote for changes in the mining algorithm, then you will create a deadlock from the beginning on (similar to the inflexible bitcoin mining algorithm).

So if you read my post carefully, I hope you could maybe agree that it is shortsighted to assume that all users will be satisfied in all time with the specific set of parameters of your initial design. I very much prefer a wide range of parameters that could be tested and then the subchains with the best parameters will win. You would make altcoins unneccessary because they could all be incorporated within modules in your software. So the whole ecosystem is more flexible. Thereby you would enable design-by-popularity in contrast to the bitcoin way where you are constrained by economics-by-design.
(*Edited for clarity)

I'm sorry but I don't understand a word you are saying. Where is the "buying pressure" coming from?

The market price of stream A is twice the market price of stream B. How is the price of stream A in terms of stream B related to the price of the USD in terms of stream B?
Simply because one stream is called "bitUSD" or is there a real reason? Do you really think people will pay attention to your names when they have no fundamental link to the real world?

Lets apply some basic game theory...

If you speculate and go short BitUSD by placing 2x the value in escrow and giving up the dividends.    You can get your money out of escrow any time for 50% the price by repurchasing the BitUSD.  Thus buying pressure caused by opportunity cost. 

Now the only reason you would go short is if you thought the price change would be more than your opportunity cost.

Okay, so maybe there is no incentive to create so-called bitUSD in the first place? Still not getting why the USD price of bitshares matters for any of this.

Larger dividends (nominal or percentage of price) don't stop some stock prices from being lower (nominally or P/E basis). There are two different asset classes here, one is a BitShare and the other is an asset that has a short and long position that created it. Exxon-Mobile != Apple Computer != Gold futures options (Python syntax).


The nash equilibrium point needs more elaboration (at least for me to understand).

This is a false analogy. We are talking about the  the price of 2*dividend stream B in terms of dividend stream B. You are talking about two different dividend streams entirely.  


This talk of long, short, etc. has no intrinsic relationship to the real world. There is an assumption that everyone will expect the price of a bitUSD in terms of bitshares to track the price of a USD in terms of bitshares. Why won't it track the price of a Euro instead? Or a piece of horseshit? Or a weighted basket of horseshit and Euros, where the weights change at random from hour to hour? Explain.

Can I issue bitHorseshit? Will it track the price of a kg of horseshit if I back it with 2 kg of horseshit in bitshares when I issue it initially? If not, why not?

Yes, you can issue BitHorseshit if you can find enough market participants to make it a viable market and establish consensus.. of course you would have to launch a new blockchain with BitShorseshit as one of the items listed and because few people are interested in speculating on the price of Horseshit no one would mine the chain.     But the economics would still work.

The key here is market consensus.  Bitcoin only has the value it does because of market consensus and the price discovery on Bitcoin started out with very wide Bid/Ask spreads that were all over the map.  Eventually you establish some market depth and everyone knows what everyone else is currently thinking based upon the order book.   So on day one this is what will happen.

I will offer to short BitUSD at price     100 BTS
Someone else will bid                      1 BTS
Someone else will bid                      5 BTS
Someone else will offer to short at    50 BTS

This back and forth placing of bids will continue until finally two people agree on what the BTS / BitUSD price should be.   By this time there is enough market depth that consensus has been reached.  No one person can change this consensus and cause it to track something else. 

Assuming B=BitShares, B is not only valued based on its revenue stream. Bitcoin has no revenue stream and it is $120.  


Check out some of the gambling site's shit that people bet on. People will bet on anything. Bookies in Vegas will give you odds on a booger falling from Obama's nose when he is giving his state-of-the-prison address.

Make that State-of-the-Sanitarium

Okay, sure. But the gambling is centralized. This is a decentralized currency right? So we should be able to make bitObamaBooger with no problem, as long as we define it precisely (e.g. bitObamaBooger is worth the one bitShare for every distinct booger visible in Obama's nose during the 2014 NBC HD broadcast of the State of the Union address ).

However, I don't see why the price of bitObamaBooger will be related to the real world booger count. It doesn't matter what actually happens in the real world because the real world has no link to the bitshares world at all.


 

Okay, but why is the consensus at all related to the real world price of horseshit? Couldn't you just as easily suppose that consensus will determine that a bitHorseshit is worth 1 kg of diamonds as 1 kg of horseshit. What makes my choice of the name horseshit matter for the outcome in any way? If I backed bitHorseshit_1kg with 2x the price of 1 kg of diamonds and bitDiamonds_1kg with 2x the price of 1 kg of diamonds, wouldn't they be fungible assets? After all, they both yield the same revenue stream for asset holders. If my strongly backed horseshit sells for less then bitDiamonds_1kg, it seems like that would be an arbitrage opportunity.

[I am sounding like a broken record here. Indicating time for bed.]

There is no contention about that. If that is what you mean by "nash equilibrium" then the above is an insufficient model, because it doesn't explain how moves in the price of USD will translate to moves in BitUSD. Over time there could be a pernicious drift, because the relative probabilities for being short and long are not symmetric in your design. I proposed a way to attempt to make them symmetric upthread.

Indeed we share that rational skepticism.

But I am more open to the idea that decentralized speculation is viable. Yet I've never seen undeliverable futures or options markets.

The link is in every user of the system communicating information they know through the prices they buy and sell at.

In game theory, they don't have an incentive to bet the price that USD is, rather they have an incentive to calculate the probabilities of the risks of the other market participants, then bet on where that moves the price to. That is why I say asymmretric probabilities may cause either a proportional skew or a parasitic pernicious drift. I have not been able to model which it will be.

Is that not the same argument Bitcoin skeptics use?

One difference is Bitcoin isn't tracking another asset.

So maybe your point can be taken to support that BitAssets won't go to 0. Yet that facie evidence doesn't support a cogent argument that BitUSD will track USD (at least over long periods of time). We need a model.

bytemaster, you really only need it to track for short periods of time, so that you can get the liquidity benefits for local exchangers. I think you are safe. Implement.

Yes, we need a model... so my mental model has been to come up with rational choices actors can make that would cause it to have any other value than one highly correlated with USD?  

The way I see it there are 3 'options':

1) Min Value  ==  0  (Ruled Out)
2) Max Value == collateral value. (Should be obvious extreme on the other side)
3) Something in the middle... based upon market forces.

I think we have proven 0 Value is not valid, and by the same logic, can assume that the value can never exceed the collateral or we would be creating value from nothing.

So this means there is some other 'equilibrium point'... the point at which a buyer and seller can agree to issue a new asset with offsetting positions.   So the only questions are:  what price would this be and why?  How does this change over time?  What does the change over time do to the expected present value of the asset.

One theory is that the price will fluctuate 'randomly'... namely the market won't know how to price it.... but I reject this theory because without some basis for consensus the very first trade creating BitUSD would never be executed.
My theory is that it will fluctuate according to market consensus of what it should follow.  You either trade with where you think the consensus will move or you will face loses by being on the wrong side of the bet.  On what basis could you rationally bet on which way the consensus would move?  

All that remains are attacks where the rules can be manipulated by a single actor independent of market consensus to manipulate the price to any arbitrary point profitably.  If these kinds of attacks are possible it would entirely undermine the system and thus I place a high value / bounty on finding and revealing them.

Ah yes, this I understand.

bytemaster: when are you planning to put up bounties for specific tasks. And are you using CIYAM? I have a friend who wants to help out.

No harm in a little embedded humor, I hope you include BitBeavisAndButthead or BitMoanLisa in the main blockchain.

P.S. I dropped underscores from local variable names. I prefer lower case first letter. The underscores make names longer.

Bit MonaLisa at least as some market value to calculate against, not sure how a speculator would be on BitBeavisAndButthead...  when we launch our test network we are considering including some exotic assets just to collect the market data.   

Yes, we have plans to use CIYAM or a model very similar to it.  We are working with Ian to get BitID logins for CIYAM.   However, we are working on the project management overhead.  In the mean time I have created some tasks in the github repo... tasks.md  and put BTC bounties on them.   I will be adding tasks there as I come up with them until I can get a full time PM to manage CIYAM.    If you know anyone who wants to work on small tasks for small bounties then they can start with that.  As it grows and is proven successful I will probably spend more time enhancing the process and integrating with CIYAM.   

So check out the tasks.md file in the github repo, contact me, and I will update the tasks.md file to indicate that it is reserved for you..  Fork the code, submit a pull request with a BTC address for payment and I will payout on merge.  Some of the tasks are 'menial' right now, but good to get your feet wet and allow me to focus on the core algorithms.

Bit MoanLisa wasn't a typo  :P

Cheers. I am headed over to CoinJoin thread for a while.

Oh my, Obama wants to starve students at school (http://esr.ibiblio.org/?p=5030).

Socialism always ends in scarce resources.

Oh cool. He was hoping for some more serious tasks, I'll have him check back in due time.

Here is another suggestion for improvement:

In the white paper you propose:

You do not have to include the full merkel-tree in your block header, but just some nodes of the tree. If you have a merkle tree with depth N, then it is enough to include only N hashes in each individual blockchain, but at the same time you can merge mine in parallel in 2^N chains. So i hope you realize that the problem of space in the block headers, what you describe, is not really such a big problem.
*EDIT: see https://en.bitcoin.it/wiki/Merged_mining_specification for more in depth explanation

So if you discount the block reward by block-reward / 2^(merkel-branch-depth), as you suggest in the white paper, then you give incentives to miners to not do merge mining, because it wouldn't generate more reward but would require more bandwidth and storage. This is a very serious security issue, because this will lead to maybe 1000+ chains eventually (as proposed in your paper) with miners distributed across all chains not merge mining. In this distributed mining environment, it is very easy for an attacker with less than 1% of the total hashing power to control over 50% of the hashing power in one of the individual chains.

So you really should either remove the discounting based on the merkel-tree-branch or at least do the discounting proportional to the space requirements by merged mining. So instead the reward could be:
block-reward / merkel-branch-depth

Edit: i.e. if you do merge mining on 4000 chains, then you just have to include 12 hashes in the block headers. This is really not so much space, if you evaluate the benefit of much improved security and the benefit of more miners running full nodes in all chains if their bandwidth allows it.

Don't forget the loss of fungibility argument for anonymity:

Our goal is to have as much Anon. as possible.  Including using things like CoinJoin, ZeroCoin, etc.   Ultimately privacy is protected at a higher level than the block chain based upon how clients generate transactions and use the chain.

Thoughts anyone?

Again, thought I'd ask again since the question probably got lost in all the technical discussion. Thanks.

Yes, we will be mining like everyone else, we would be crazy not to.    Though with the current popularity and people like you out there ready to jump in on day one, it will be a challenge for us to acquire significant numbers of bitshares through mining. 

My thoughts are that your math is very hard to follow. 

The carrying cost of shorting BitUSD is the dividend rate on the collateral.
The benefit of holding BitUSD is  1.5 to 2.5 x the dividends per unit value.
Thus, it is only wise to short BitUSD if the expected rise in the price of BitShares is greater than 1.5 to 2.5x the dividend rate. 

Assuming a stable exchange rate (or growth rate below the dividend rate), it is wise to sell (not short) BitShares for BitUSD because you would get 2x the rate of return.

This creates buying pressure for BitUSD that will bid the price of BitUSD UP and push BitShares DOWN  until an equilibrium is reached where no one is willing to switch from BitShares to BitUSD because it is 'over-priced' and the risk of a correction outweighs the 2x return.     As the price rises, it will also increase selling pressure from shorts which will tend to increase the supply as needed to keep prices near equilibrium.

If BitUSD is extremely under priced, it makes sense for shorts to cover and for holders of BitShares to buy, wait for the correction, and sell. 

Now how does one know whether BitUSD is over or under priced relative to BitShares?   It doesn't really matter because anyone can look at the market and look at the ratio of BitUSD to BitGold vs USD to Gold and do ratio trading with the value of BitShares being irrelevant.   If a large number of speculators adopt the ratio trading strategy then I believe it is self-evident that the value of BitUSD will track USD because the entire network would have to be off by a 'constant' factor and thus gains and losses in BitUSD would be proportional to change in the price of BitUSD.

I am conflicted on premining. I don't believe in socialism. Opensource doesn't mean you can't reward yourself for the investment you put in.

What you need is to incentivize people to work with you early on to help you. So they should participate in the premine. During the premine, you can agree to reset, if there is some serious problem of unfairness that had to be fixed.

Flipping a switch from no real world test to the entire community, seems a bit abrupt.

Thoughts from others?

I am very curious how people feel about this, because it affects how I might launch a coin and/or contribute to this effort.

I believe the only entities that should premine are the programmers who are contributing. First of all, they did most of the word. Second, they know the issues well if there is a bug, so the process can be most efficient and of short duration.

One problem then is their coins aren't anonymous, unless they were anonymous from the beginning, which isn't the case here.

A benefit is then the developers have an additional strong incentive to continue to maintain the project.

Yes, that's basically also the outcome of my calculation (which I find not really complicated ... if you have specific questions and I did not point things out clearly let me know).  But at least I as mathematician find it much more convincing to have a calculation like that instead of just "arguments in words" as you did above (but maybe the calculation is not so easy to understand for people who don't think that way, I don't know).

What my fundamental question with that is then:  To me as non-economist it seems like a very weird situation to have such a strong incentive to buy BitUSD for BitShares and have consequently rather the expectation that the price rises over time ... also from my calculation it follows that the price of BitUSD will increase to 1.5 the average price at which it was issued.  Thus whenever someone issues BitUSD at the current market rate (which is higher than the average issuance price before), it raises this average price which leads to further increase in the market rate.  On the other hand, this means that I'm encouraged to issue BitUSD as long as I believe someone else will do that after me again - which somehow means that people will issue BitUSD until they (or "the market") thinks that the amount of BitUSD issued so far is "correct".  Maybe this leads to exactly the correct structure (decentralised control over the BitUSD supply), but it gives me a weird gut feeling as mentioned already.  (I feel like this could easily lead to bubbles, because everyone profits who's not the last to issue BitUSD - like a Ponzi scheme.)

I didn't see it as an issue, but there has been a very negative reaction to Ripple due to premining (though in this case it was 100% premined). The advantage of not premining is there is more interest in it when it launches. An advantage of premining is it is a way to incentivize as mentioned.

My personal preference would be no premine since I'm not a programmer but am very familiar with hardware and building systems. If there is premine, it would be important that it be disclosed as to the amount so those who can't can plan accordingly and decide whether or not it is worth participating. Lack of communication and secretiveness seems to often lead to suspicion and loss of interest in a project, whether justified or not.