Bitcoin Forum

If you have any investment experience in the real world, especially in the fixed income instruments, you have probably noticed how the word "bond" is misused in this forum over and over again.

Bond is a very specific investment instrument. Fancy way to put it is -  bond is a negotiable certificate that acknowledges the indebtedness of the bond issuer to the holder. Other way to say it is: bond is a loan to bond issuer and who ever holds the bond, receives the payment form the issuer. It's like a IOU.
Another important feature of the bond is this: Issuer is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity.
This means, that you do not only receive the regular coupon payments, but at date X, your bonds will be bought back by the issuer at predetermined price X.
 
Information about different types of bonds and notes is readily available all over the internet. I recommend you read it and make sure you understand the basic ideas of bonds and why people invest in bonds.  

Now, typical mining bonds issued via GLBSE are perpetual mining bonds with fixed Mh/s coupon. It is very important to understand, that there is NOTHING fixed about this type of coupon- Especially, when it comes to your earnings. When difficulty goes up, you earn less per Mh/s. When difficulty drops, you earn more per Mh/s.
I call them mining turds, because they are almost like Floating Rate Notes (FRN) aka floaters - hence the name "turd".  
  
Why are bonds good and turds bad?

Bonds are usually good for preserving your capital and earning you a fixed income from dividends. If you think about it, mining turds offer you none of the previously mentioned benefits. At the moment, dividends do not cover the depreciation of your invested capital. Sorry, but this applies to all the mining turds out there.

There have been some exceptions, where turd price has actually gone up temporarily. One of the example is the GIGAMINING. Vps managed to push his turd prices up temporarily. Last month he increased dividends by 10% (110% PPS) for few weeks. Lets be honest, this was just a ruse, to get you all worked up over nothing.  

Did I really make 2.3841% per week?

To understand, what you have actually lost/gained by investing to mining turds, look at the price you paid for you turd and how much have you earned form your dividends. If you sell your turd today, will your loss of of invested capital be offset by the continuously diminishing dividends?  

If one month ago you paid 0.30 for your "bond" and you have earned 0.038 BTC in dividends, did you actually made money?
You say "Yes!", I say "No!"
OK, lets look at the market price. Oops, as of today, your turd is worth only 0.145 BTC! Now, did you make money or did you actually lose ~40% of your investment in one month to "earn" 0.038.
If diff keeps going up or stays where it is now, you are not going to see your principal returned to you any time soon. As you know, turd issuer has no obligation to buy it back from you at the IPO price. How long will it take for a monthly dividend of 0.038 to earn you those 0.155 BTC, to cover the loss?  4 months if diff stays at or below the current level and price is not dropping another 40%. If it diff keeps rising and price keeps dropping, you are almost perpetually screwed.
 

Bonds, I'll or you can invest in

Only mining bonds (not a turd!), that make any sense to invest in, are the ones with a truly fixed or partially fixed coupon. Bonds with floating rate must have a part of the coupon fixed at % from IPO price (par) and a part of the coupon tied to a Y Mh/s or something similar.

"Mh/s only" turds are garbage and burn investors hard earned bitcoins, while buying turd issuer a room full of equipment at 0 risk.
Difficulty and market risks are all left to to you - turd holder.
 
 If you truly believe that difficulty is going to go trough a massive drop, then yes, you have a good chance of getting back the money you paid for the turd. Now, lets not forget, that the income from mining will be halved soon. No more 50 BTC blocks. Can you see, how this affects your income and turd price, dear turd holder?

reserved

made some minor edits and removed a section about the .25 BTC rip-off fee.

EDIT: 25.08.2012
You can read all the 11+ pages of this thread if you have nothing better to do with your life. There are some interesting points and counter arguments but it all boils down to this: Buying miningturds (fixed Mh/s perpetual "bonds")  will guaranteed, that every month you can buy less crap with your coin (what ever currency) if you cash in your "investment" -  aka value of your investment is deteriorating. 
If you still think that miningturds are a good investment, please use simple calculations and actual data from GLBSE to confirm, what so many will tell you in this thread - your dividends will not cover your loss of principal even if BTC:EUR (USD, Tögrög or what ever currency) exchange rate improves over the same time. You are better off sitting in BTC.
How hard is it to understand this? Looks like for some this is a serious problem. If you have difficulty understanding 1+1-3=-1, please go play somewhere else :)
 
Cheers and happy reading. Keep your BTC safe and remember that X Mh/s is meaningless, if you do not know what the "difficulty" is/was/...
 

...which you, only by the way of example, are happy to suggest. I see what you did there :)

 :P

Hi EskimoBob,

If you think Mh/s only bonds are, as you call "turds", then are you calling bitcoin mining the same thing?

Also, what exactly is your strategy for investing in these things? I would like to point you to a post that should help form your strategy when dealing with deleting assets.

https://bitcointalk.org/index.php?topic=92090.msg1014750#msg1014750

Just because your investment strategy isn't working to your benefit doesn't mean others haven't figured out the game.

Best regards,
gigavps

BDT has a 3% weekly coupon and buy back clause @1.2, but no maturity date is set.
BDK.BND - has a 1% weekly coupon, will be bought back at .101 but no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he wills. I don't like this at all.
CIUCIU.BOND -  has a 1.1% weekly coupon, will be bought back at ??? and no maturity date is set. Issuer can dump unlimited number of bonds on the market at any price he likes. I do not like this because it can turn in to a bottomless pit of debt - outstanding debt gets extended and new debt gets piled on top of it. Usually a red flag and a sign, that there is no positive cash flow in sight. Refinancing a bond is a different story because old bonds are called.

 In that case are there any bonds at all on glbse that fit the criteria ?

Aside from pirate I mean  :)

I think you are comparing a bit different things here. I am talking about "Mh/s only" bonds and not equity in a mining farm.   


I think you are confusing the issue here. I have no problems with depleting assets, but this is done for accounting purposes and is used in a different situation. You, as a miner, can use it to offset your taxable income etc. while your rig still works and produces income.
Issue here is different. People are buying mining bonds that are losing value (not preserve the capital), and do not pay enough dividends to offset the capital loss (realized or not).
If you can not sell your bond, because you love paper loss and hate realized loss, you own a investment, that can "not" be liquidated.
So, only thing you can do now, is wait 65? weeks, and hope that difficulty stays the same, bond issuer in not going under and bonds will be bought back (or sold) at price, that gives you a positive income. Simply put, you get back your own money but in really small payments and over a very long period of time. Idea of preserving your invested capital and earning fixed income is actually gone.
 
Sure,  you can make money with bonds by day trading. But this is not the idea behind the bond. Thank you for asking, but my personal portfolio is doing well but I see no reasons to get back into turds any time soon.
 

I agree. I hope this gets fixed soon and different instruments get grouped by the type. There is another thread for this: https://bitcointalk.org/index.php?topic=74049.260

I personally like zeros and those are excellent instruments to finance all sorts of stuff. Not just issuing a zero, but also by buying zeros.

Just release a script that parses the GLBSE CSV file and calculates if one has actually made a loss or is still in the win-zone atm. with mining "bonds".

What I did was try to project depreciating asset values and reduced dividends into the future, using a spreadsheet.  The fact of the matter is, as long as you're invested in ASIC-based mining operations, your dividends will outweigh your losses on the bonds well into 2013.  There are some difficult factors to predict, like how much the difficulty is going to increase, but as long as you trust that the owner of the mining operation is going to keep ahead of the difficulty curve (i.e. be one of the first wave to acquire ASIC), then you're golden.

All of my mining bonds are currently worth more than I paid for them.  Add dividend revenues to the mix and I'm laughing. 

Will the value of the bonds eventually drop to zero?  Well yes, they will, but in the short to medium term, they're still profitable.  The key is to not be the last bag holder.  I will probably start selling in a year from now, but a year in Bitcoin-land is a long time.

The OP is completely nonsensical.

Buying mining equipment has two components - choosing and operating hardware, and speculating on the future of price/difficulty ratio.

Having these two components as a bundle is inefficient.

Mining bonds allow each component to be carried out most efficiently - one side buys bonds thus investing in the concept of mining profitability without having to physically operate hardware, and the other side uses the money to buy equipment without taking speculative risk.

To say that buying (or selling for that matter) mining bonds is "bad" because the returns are not fixed in some arbitrary denomination reflects no understanding at all of economics. It's the equivalent of saying bitcoins shouldn't be bought because they're not backed by a specified amount of dollars, or that any commodity or stock shouldn't be bought because its future price is unknown. It's called "risky investment" and if one doesn't like it he can sit it out, as long as he doesn't complain about those who profit from thought out risky investments.

It's all a matter of the offered price. If the traded price of a bond is high enough it is a bad decision to buy it, if it is low enough it is a good decision, in the middle there's uncertainty and the one making the best decisions wins. The OP can argue that the bonds at some specific time are overvalued but it doesn't seem like that's what he's trying to do.

Mining bonds are called "mining bonds" precisely because unlike usual bonds they are not tied to some currency but rather to mining hashrate. But the OP can call them whatever he wants (except for the term he's used which is offensive).

+100

I hear that if EskimoBob keeps whining and moaning while you keep laughing then EskimoBob will magically have a positive return on investment.

The real issue though is probably his inability to do a discounted future cash flow using multiple numeraires and assumptions.

Are you high? You are mixing up debt and equity and some of your references make no sense at all. Obviously you have no idea wtf you are talking about. But keep at it. vps likes this crap because you help to confuse the issue.

gigavps,  +100?  LOL! No wonder.  As you are one of the biggest mining turd pedlar,  I did not expect anything less from you. Cheers!

I agree with all.

OP, do you have a point besides that you think the mining bonds are overpriced? Would you buy GIGA at .01BTC even if you were somehow forbidden from selling it forever?

Right, debt and equity are not the same but the difference is irrelevant to the point I was making.

It is important to remember that mining bond prices took a huge hit after BFL announced and sold ASICS.  The returns of mining bonds would probably have outweighed the depreciation without unexpected news  of disruptive mining technology.

I would be interested in the results of this.  Might do it myself...

I find it interesting that your only recourse to Meni's comments is to tell him that he doesn't know what he is talking about when in fact he is the creator of mining bonds. I also find your comments about me quite distasteful and rather telling of your maturity and skill level at having a reasonable debate.

EskimoBob, why even post this stuff if you are unwilling to discuss them with people who disagree with you and resort to personal attacks to try and defend you position?

Bonds in the traditional finance industry come in many flavors. One such flavor, are so called catastrophe bonds (http://en.wikipedia.org/wiki/Catastrophe_bond) which operate nothing like the more typical (fixed or floating) sovereign, muni, or corporate bonds.

Furthermore, not all (traditional finance industry) bonds have a maturity. Perpetual bonds, or perpetuities (http://en.wikipedia.org/wiki/Perpetuity), have no maturity date; some of which are actively traded. For all intents and purposes, century or 100-year bonds might as well be a perpetual bond in terms of pricing.

I think at the crux of this discussion, is that mining bonds have some unique pricing model parameters, foremost of which is that mining bonds are short difficulty. On top of that, there are the traditional factors, such as exchange risk (e.g., BTCUSD rate), counter-party and default risk (i.e., GLBSE, issuer), and what I would call exploit risk (risk that Bitcoin, and the implementations thereof, are exploited). Of course, regular bond pricing constructs, such as interest rates and duration, are applicable as well, although the concept of the "risk-free rate" is less well-defined for bitcoins than for traditional fiat currencies.

TL;DR: Mining bonds are certainly bonds, though they are fundamentally new and come with new pricing models

The main point that the OP makes is important - the value of 1 Mh/s is nearly guaranteed to drop over time. This is because as miners upgrade, more total Mh/s will be needed to get a constant (well, actually falling) amount of bitcoin.

Those disagreeing with the OP also make a good point: You can discount the falling value of Mh/s in order determine the real value of the bond, and compare that to the current price. I would like to make another point. In order to counteract the falling value of Mh/s, several miners are "upgrading" their bonds, increasing the Mh/s per bond. I don't consider these bonds to be "turds".

His point about "bonds" not being bonds is red herring. As long as everyone understands the terms of the security, it doesn't really matter what it is called.

Come on bob. Don't educate the masses, take advantage of them. I was thinking of issuing a bond too so I could take advantage of this. :)

The GLBSE Chrome extension will do that for you.

The whole point behind what I am saying is that if you do a discounted cash flow based valuation of current mining stocks, you will see that without an upgrade in Mhash per share, they are only worth about .11-.12 btc per Mhash.

It's highly profitable even with the dividend returns likely lowering over time. Hydro bonds (https://glbse.com/asset/view/HYDRO.BONDS) has been paying out almost 2.5% weekly. This will most likely increase when butterfly delivers the new ASIC's. I keep the price about $1.45 -$1.50 per mhash or currently .13 btc. Apparently you need to brush up on your math, because that is a highly profitable return rate. If you want your payouts to increase every week you need to reinvest some of your dividends. The same way miners reinvest into their farms. You can't have your cake and eat it too. Also calling something a bond or a share has little relevance. The contract is all that matters.

I must say this EskimoBob. You are the most annoying TROLL I have seen on this forum. If you can't figure out how a investment that gives a full return in a matter of months is profitable, there is little hope for you. You seem to be under the impression that by calling something a share, it will sprout a higher return rate. My mining equipment only earns so much. I basically charge 15% initially for maintaining equipment. Calling it a share or changing the contract is not share is not going to generate bitcoins out of this air. Bonds will remain profitable so long as mining is profitable and there is no reason to believe that will change.

Hydrobonds has an upgrade policy. Thanks for validating everything I said. I am more looking at YABMC. Reinvesting into something overvalued will only magnify your overall losses.

OP is correct in his analysis, but this does not apply to every mining bond. Some are fantastic, but the vast majority are indeed, as he puts it, "turds."

The trick is to have a method of buying gems and selling turds. It's not rocket science, but I would never, ever invest a penny into any market without a well defined objective investment strategy.

He's pretty much talking about all of them. He's been posting this crap in all the threads including mine. He's just trying to piss people off. First he wants to buy them, then calls it bs. He's a idiot.

Hm, I got an unspecified error there... how can I debug this properly and let you know the necessary info?

cuz0882, no need to get personal and start trolling the thread. Relax, it's nothing personal (unless you feel guilty and this causes you get mad. BTW, this is actually a good reaction -  there is still hope ;)   



BTW, I like your upgrade path because you have no additional rip off fee attached to it. Interesting, how you brought the fiat into this equation but this is is irrelevant.

OK, lets look at the HYDRO.BONDS
About 4 weeks ago you managed to get the outstanding bonds number close to 700. It was trading at 1.9 or close to it.
As of today, your bonds market value has lost about 34,2% and dropped to 1.25. Lets not forget,  that the lucky turd holder has earned impressive 0,15 BTC in dividends (no pun intended). Now,  -0.65+0,15=-0.49 BTC. This equal to about 25% loss in 4 weeks. Impressive, I must say. Impressive indeed. If difficulty makes another jump, the loss will grow and earnings will shrink even more.
In those 4 weeks, your dividends per bond have lost 0,00262597 BTC, (- 6,51%)
 
BTW, I have one question: "Do you understand, that your hydro power at  X cents per KWh has absolutely NOTHING to do with how many bitcoins 10 Mh/s can crank out and it has no benefit for bond holders? For shareholders, yes.

 
Back to the topic at hand.
Looks like some, who have done simple math, do agree with me that outlook is not good and once invented "new bond" is not what it used to be. Nothing is written in stone. BTC can take another hit and difficulty will be back where it was 6 months ago. BFL can go under and ASIC hysteria is over. Anything can happen.
I am sure that most bond issuers will be scrambling to call the outstanding bonds and buying back the debt for pennies.

For some of you, sorry but you hyperboles are bull shit and not lets waste time on those.  ;)

 
If you read the article, take a look at consol's too. I bet you understand, why perpetual mining turds can not really be compared to bank and gov notes. ;)

No, I have not asked for increase in div's every week. :)
I am talking about how bonds work in the real world -  usually principal is preserved and dividends are fixed to a some % from par value.
I am not so much against those strange mining bonds contracts pers se, but more  against that they are called bonds.
It actually is important, how you call something. Especially when the word used has a very specific meaning in the real world - secure investment, (yes, there is lots of junk out there but still, bond are considered safe) with guaranteed income form coupon -  preserve capital and generates regular income (usually tax free, if you go for gov. issues)

If I want to share your risks, I'll buy equity in your mining farm. If I want fixed steady income, I'll look for a bond. Do you see the difference?
You go belly up, at least bondholders are (because it is debt in your books) paid before owners of equity and so on. Stop confusing investment in equity and investment in debt.

I'm not confused with what your saying. Bond holders are guaranteed a hashrate instead of a dollar amount. Removing the word "bond" from the contract changes nothing. Dividends and ownership would still be the same. Clearly no one is going to guarantee a fixed return on mining, it would make no sense from a business stand point. There is no golden rule that says a bonds are only secure debt investments.

Bond holders are paid before owners. It's written right into the contract.

Really?
https://bitcointalk.org/index.php?topic=88756.0 - and still no real counter arguments so far!

Just wait for the crash down to 5 USD, then suddenly "x MH/s contracts" will become more attractive again.

Now that you have got back and changed all your replies I'm just going to write my response here. When you purchase a single for $600 its not going to be worth $1200 because the price of bitcoin goes up. The bonds have not lost value in dollars. When it comes to saying power prices are irrelevant to bond holders. It's always better for a company to have lower expenses.

stop trolling boy, I have changed nothing in my replies. What if I did not use US dollars to buy my BTC and I have no use for USD at all?
Stop fooling yourself! If I invest my BTC and like to preserve invested capital (my BTC) then this is what I like to see happening.
You can always pull another fiat currency out of your ass, after you have lost 25% of your BTC, and tell yourself: "bb.. bbu... bbub.. but in currency X, I actually made money"
In this case, please ask yourself:  How much would I have earned,  if I did not buy a those turds in the first place?  Yes, those same ones that wiped out 1/4 of your BTC holdings?
What's next? "Bbb.. bbb... but BTC can lose its value...." defence?

LOL


 

Buying mining bonds is shorting BTC as others have posted. Something that might be useful is if a mining company started that let you invest fiat and earn btc. But then the SEC would be on your ass like a fly on shit.

If your want your investment to follow the value of btc then keep it in btc. Mining equipment has always been valued in dollars just like your house your car and everything else. The price of bitcoin does not effect the value of mining equipment. It's still valued at X dollars. Butterfly is not going to sell singles for $300 dollars because the price of bitcoin doubled. This is all common sense.

If you want to increase your real wealth mining shares are awesome, if you check your numbers you'll find nearly all bonds have increased in real world value though maybe decreased when priced in bitcoins, what you're forgetting is that if the price of bitcoin crashes mining bonds will probably maintain their real world purchasing power and still payout a nice weekly dividend whilst storing your wealth in just bitcoins will net you a huge loss.

The OP is right.  You are making the mistake that he pointed out.  It looks like he has facts on his side.   These instruments may be efficient (for the seller??) but that does not make them BONDS.  A bond has a specific meaning, and no matter how many times it is used wrong, that does not make it right. 

I am not commenting on the usefulness of the instruments, just the terminology.  They are not bonds.  Calling them such makes them sound much safer then they really are. 

What should we call them? I am not really excited about using EskimoBob's current terminology and it is quite offensive.

I think calling them perpetual mining contracts would probably be the most appropriate.

+1  Contract makes sense. 

For someone such as myself who are semi active in the (non bit coin )stock markets and own hybrid bonds and other bonds in the past.
I have never heard of floating rates called turds before.

It elicited a laugh from me so for that i thank you ;)

Bonds are not required to have a fixed return rate or a maturity date. You can call them whatever you like. It won't change what they are. Even if we decided to call them something else, wording on glbse can't be changed.

All I will say is I wish you could buy mining bonds using usd  :)

But you can. Take the USD you want to buy the bonds with, convert to BTC, and buy the bonds. Maybe you meant something else.

How much for these mining turds?

My German Shepard is interested in eating them...

If you're commenting on terminology you should have quoted the part of my reply where I talked about terminology.

Are BTC-denominated bonds with a specified BTC face value and returns "safe"? No, because BTC itself is highly speculative, volatile, and could crash any minute. Mining bonds have a fixed face value and return denominated in MH/s, which is also speculative.

From Wikipedia:
A mining bond fits the definition. It pays coupons which, according to the terms of the bond, are tied to mining.

Why are we doing this again? Bitcoin is not officially a currency, Bitcoin banks are not really banks, Bitcoin wallets are not really wallets, mining isn't really mining. We want to use familiar terminology and expand to an entirely new domain, it will have to take on meaning which steps slightly outside what we're used to.

To me contract seems more descriptive of what Vladimir et al were offering, which was not publicly tradeable. A publicly tradeable debt instrument is a bond.

I can see the OP's point; however, the issue is not that mining bonds are fundamentally flawed. There is nothing wrong with offloading the mining difficulty risk to investors. Its just that whoever is buying doesnt seem to understand the mining market and are bidding these up to ridiculously high prices.

Part of the reason why they do that may be due to not understanding the instrument and confusing it with a more traditional bonds, staring themselves blind on the high yields. Ive seen investors ask questions like "why did coupon payments go down this month" while difficulty is skyrocketing. Part of it may be ignorance about the impact reward halving and ASICs will have. An ignorance thats still shared even by many miners Im afraid.

Anyway, I dont think it hurts to point out these issues like the OP does because clearly, investors didnt and dont really understand what they are buying. But I also dont think it makes sense to blame the issuers or the instrument itself for such investor myopy. If these bonds are "turds" right now, its only because they cost far too much.

Ive said this months ago, and Im saying it now. I wish I could easily short these bonds.

I agree, a new name, that will not give investors a false sense of security, stability and hints low risk, is a right step in right direction.


+1


 
 

Isn't a contract something that is negotiated and signed between 2 (or maybe even more) parties? Mining shares/bonds/contracts/floaters/... on GLBSE though can be transferred and sold on a secondary market at will.

"Solar power bonds" also do exist, though from a quick google search I only found some that are paying fixed interest rates as opposed to a portion of the real earnings. This could be done as well here, but I doubt many ppl. would be interested in a "mining bond" that pays <10% per year fixed rate but for 5 years or so. Might be interesting to try out though!

Shorting the current issues on GLBSE is also possible, as ciuciu demonstrated, though you need a partner who trusts you with their shares. Alternatively I'm sure there's a way to create "anti-mining" contracts, there seems to be already some demand for it.

An anti mining contract would just hold BTC.

Sorry Meni, I don't think logic is going to work on bob.

I like the "contract" because it sets no specific characteristics for the issue and issuer can write it up as he likes.

"10 Mh/s mining contract" actually makes sense and it's up to issuer to define the details - risk, reward, coupon, etc.

cuz0882, Rosenfelds post in this matter only makes sens to you because you have no idea what bonds really are, how they work and are used/issued in the real world. Hes last rant here is a good example of demagoguery.

I understand, you do not like me because I asked some questions and/or pointed out some of the flaws in a typical "mining contract".
Put your personal feelings aside and move on. You have learned something, you did not know last week.
And for fuck sake, stop trolling.

No, that would be 100% going long on BTC - mining is a combination of going short (by buying stuff in USD) and a little bit long (by generating + paying out BTC). Anti-mining would need to go long (by holding BTC) and a bit short (maybe selling an amount equal to mining output on an exchange?).

Maybe one could put it like this:
Sell shares for 1000 BTC. Then on dividend day, calculate how many USD these would be and pay out 0.1 USD (converted to BTC) per share or so from the raised capital. I don't really see how this model can be in any way attractive though, since you could just invest into a non-mining fund (e.g. lending operations) etc. or just hold BTC yourself.

That would have been great if that's what the OP was doing. But he's too focused on his witchhunt on the concept of perpetual deterministic mining instruments (or PDMIs) to discuss in any reasonable way the factors that go into their valuation.

FWIW I think I have clarified in every possible way in the PureMining OP that it does not have a fixed BTC-denominated face value, it does not have fixed BTC-denominated returns, it is affected by block reward halving and hardware advances, and that the investor should consider this.

Right but I was replying to littleshop.

A PDMI is going long on mining profitability. It correlates with changes in BTC price because of the lag between price and difficulty, so in a way it is longer on BTC than USD but not as long as BTC. But mining profitability is its own thing, affected by hardware developments and such so it can't be equivocated with holding either USD or BTC.

I've spent some thought on how to do an anti-PDMI, and I don't think there's a very elegant solution. If it doesn't have to be elegant it's easy to do.

You have not pointed out any flaws. You basically claim mining bonds are garbage because they are worth less in btc when the bitcoin prices increases. Some how, equipment is suppose to be worth more in dollars when the bitcoin price rises. That's just not practical. Unless you hold your investment in bitcoins its not going to increase with the value of bitcoins.

When it comes to calling them bonds, shares or contracts its just a matter of opinion. All the properties in mining bonds are used in real world bonds as well. No one is doing anything misleading by calling them bonds. There is no reason to assume it's safer because its a bond. A lot of unsafe bonds like High Yield Bonds (http://en.wikipedia.org/wiki/High-yield_bond) are around. If someone is purchasing bonds on glbse without reading the contracts that is their own negligence.

Ahm. No.
Bitcoin price has very little to do with it. Mining difficulty has everything to do with it at its been going up by almost 10% per month, and thats before the ASICs and before reward halving.  It doesnt take a lot of genius to predict what will happen with those bond yields, and therefore, their value.

That's pretty much what I said. I don't think its all that clear what earnings will be though. They could drop a especially if there is no ASIC upgrade plan. Although this year bond returns have been increasing despite increases in difficulty. 

Mining bond dividend yields have been increasing % wise because the prices have been falling.

No, the amount of money earned  per mhash is up in general. 100/mhash earns about 54 cents a day right now. It was below 30 cents earlier this year.

You really have to keep bitcoin price out of it. Bonds are denominated in btc and pay out in btc. What btc does compared to fiat is irrelevant.  Otherwise I can offer you a negative interest rate on your BTC and you could still  "make money".
Difficulty is what matters:
http://bitcoin.sipa.be/speed-lin-ever.png

People still buying bonds at current prices either have no clue, or they must expect the above trend to reverse pretty dramatically somehow, assume ASICs will never materialise and pretend reward halving will not happen.

Mining equipment, mining electricity and rent for the space where this is housed as well as internet connections etc. are all denominated in USD or other fiat currencies.

"Mining bond" issuers only sold their assets cheaper when the BTC price went up, so they would still be able to keep their end of the bargain.

Instead of offering me a negative interest rate on BTC, you could offer me 1% interest per week on USD, backed by BTC trades/mining if you dare going long on that... ::)

So what? You dont own shares in a mining company, you own bonds. Does it matter what gigavps pays for electricity or his hardware?  Does it matter whether he mines on GPUs, FPGAs, or a solar powered desktop calculator? Does it even matter how many GH he has? Not a damn thing.  Anyone could issue such bonds, even without any mining hardware backing it.  You seem to confuse owning shares in a mining company with owning fixed MH bonds.  All the bond issuer owes you is a perpetually diminishing coupon payment thats function of difficulty. Nothing else.

Now, lets do the math. Gigamining bonds currently sell for 1.11 BTC for 5MH (down from 1.5BTC IIRC).  Im not picking on gigavps btw,, its just the biggest one out there. Coupon payments on that would currently be 0.075 BTC per month. Even at constant difficulty, that means ~0.3 BTC until December when block reward halves .  From then on  it would be 0.038 BTC per month, or another 24 months or so before coupon payments would exceed the cost of the bond.  That is, if somehow difficulty wouldnt go up one tiny bit.  

Even if difficulty just followed Moore's law it would outpace your coupon payments with ease. In reality asics  will cause a  10 fold increase at the very least and your 24 months will become 240 months.  Small problem, in 24 months block reward will halve again. And again and again. Not in a 1000 years will these bond earn more in coupons than they costs.


I have no doubt! At current prices I will gladly sell you perpetual mining bonds too.  The investor risk is not in the mining company going bust, its in the mining revenue per MH collapsing, and that is pretty much a given. Miners who sold you those bonds are not idiots, most of them saw precisely what was coming. Even without the looming shadow of ASICs,  moore's law applied to GPU and FPGAs alone made these things very risky investments from day 1.  And it didnt take a lot of genius to anticipate ASICs at some point in the future.

My turds don't always float, so it's an analogy that doesn't even work in the first place.  ::)

It does, because if he only has to pay 1 BTC to buy another GH/s he can issue a LOT of new shares and dump the current prices (the main concern of the OP is not the dividend return or a mining ponzi but that bonds loose value quicker on the market than they pay out dividends). Just look at what Obsi did as soon as BTC prices went up - completely crashing the market of his 1MHS "bonds", because he could.

Also I'd like to see your math skills on current bank book rates that are below inflation... ::) Still people are investing billions of fiat money in these.

GIGAMINING has in total paid ~35 Bitcents or more (I just did quick estimates) to date, so the price is currently not too far away from "IPO_price - dividends" so far. Again I'd like to challenge you to release a script that calculates profits/losses individually from mining assets on GLBSE (both dividends and on paper) so you can really verify if you were trading at a loss so far or not.

If you really think it's such a good idea to sell mining bonds without backing (no mining hardware), then do so please! You can even undercut current assets, as you have 0 costs besides dividends. Actually a mining ponzi scheme is something that I still fear to happen and since a LOT of "miners" don't disclose anything, I think there are already a few on GLBSE right now... I see this as a much larger threat to people's money than losses on paper by not selling the mining "bonds" they have right now for cheaper prices than they bought.

They are NOT SHARES. Creating extra bonds should have virtually zero  impact on their price.  The only reason these bonds lose value is diminishing coupon payments caused by increasing difficulty. Well, that, and perhaps some people waking up and smelling the coffee, and selling to cut  their losses.


And a better "investment" it is. Ill take a ~1% per year loss over a >30% per year loss any day :).


Yes, I agree, they are currently still way overpriced. Now gigamining is a special cause  because it has an ASIC upgrade path. Its something giga didnt have to do, and he is offering one deal for free, which would boost the price, even though the upgrade will only add insult to injury IMO.

So lets look at a bond without freebee upgrade path, and keep in mind Ive warned for this months ago, but my stand is that they are still overpriced today, so even if they had made a profit so far, that wouldnt disprove my point, the bubble is still firmly inflated. You can call me out in 6 or 12 month if was wrong.

Bitbond. IPOd at 0.6 BTC,  currently valued at 0.36 after earning 0.15 in coupons. Close, but no cigar
YAMBC. IPO'd at 0.35 BTC, currently valued at 0.126 after earning 0.067 in coupons. Ouch.
Puremining, not sure what IPO price was, but seems like 0.5. Currently valued at 0.1501 after earning 0.084. Double ouch.
DMC. IPO at 1BTC, currently valued at 0.31 after yielding 0.026. Triple ouch.

Admittedly the latter doesnt really belong in the list as its supposedly a share, not a bond, even though DMC  only owns bonds and pays coupons as if its a bond.


Just copy paste the dividend payout table in oo calc and sum it.


I intended to:
https://bitcointalk.org/index.php?topic=88496.0

But Benitio and someone else promised me an easier solution, I havent seen it yet tho :/.


Meh. I dont see what the difference is between a mining ponzi and a miner just running off with your coins. Wether or not he has the hashrate to back up his bonds is of little importance.

Sukrim said "shares" because that's the term usually used for units on GLBSE, he knows they are not company shares.

Issuing new PDMIs (or traditional bonds for that matter) doesn't affect their returns, but that doesn't mean it doesn't affect their traded price. Increasing supply reduces price since there is only a limited number of people willing to pay the higher prices.

Technically yes, but investors who bought at that price were compensated so the effective IPO price was 0.28 BTC, and the highest I ever offered it is 0.4 BTC (the highest it was ever traded is 0.7 BTW).

As of 8/2/2012, GIGAMINING had yielded exactly negative 0.4% per week compounded since approximately four months ago (and that's with reinvesting all your dividends). Investment research is a bummer, huh? :P

That said, I think the massive upgrade path that the issuer offers will turn it into a strongly positive investment, which is its saving grace and a good reason to buy it. It has a higher yield than most other ASIC-pending offerings, and the behavior of the issuer to take action to protect his investors is excellent, and lends immense trust to his future offerings.

You see, this is what you need as an investor: an offering in an actual company that looks out for its shareholders, not just a contract. Bonds and equities are great most of the time, but contracts are much more speculative and dangerous.

I believe it's not the issuer's fault here for the losses; rather it's up to each investor to do their due diligence and only buy mining companies and bitcoin denominated bonds, and stay away from fixed rate contracts. You want to invest with someone that has an incentive to keep you happy because you will reinvest with them, both in their current capacity and in their future endeavors.

For issuers that do not protect their investors, it is your job as an investor to simply filter out those assets from your buy list, and don't give them any capital: problem solved.

Which means absolutely nothing for the bondholder.  Those fiat costs only determines the profitability or lack there of for the operator.

Technically a mining bond issuer doesn't even NEED any hashing power.  Given the limited due diligence I would hazard a guess that there is at least one naked issuer (issuing bonds on hashing power they don't actually have).   A mining bond is essentially a negative difficulty synthetic contract.   When difficulty rises you get paid less, when it falls you get paid more.

Someone issuing a bond is taking a wager that difficulty will rise significantly and someone buying the bond is taking the reverse side of that trade.

FTFY

DOH!  Fixed.

There's something about this whole situation that people simply aren't getting. The upgrade path offered by Giga et al isn't allowed by sprinkling magic powder on his equipment. It is making use of BFL's upgrade offer which is a once in a lifetime event brought about by a very specific circumstance. In the "real world", mining companies can't upgrade their equipment for free. If the company bought X GH/s of equipment with its IPO funds it is stuck with X GH/s of equipment. If there is anything that negatively impacts mining profitability, the company's profits and dividends will shrink accordingly, just like with a deterministic instrument.

The same issuer that is "protecting his investors" could just as well screw over his investors. IMHO it is much less risky to invest in a deterministic asset where the issuer has no influence at all on the returns - the investor can focus on global parameters such as difficulty and price instead of playing guessing games what the issuer will or will not do. You're entitled to a different opinion but please stop the trash-talk saying deterministic assets should be "filtered out".

I respect Giga's decision but it's taking us one step further from a true commodity market for hashrate, which would be to the benefit of all.

Who,  besides GigaVPS himself,  has shares in Gigamining?

It's funny that, if wanted, the most "secure" asset could be easily use for a scam.

IPO some mining bond at a rate of X MHash/s. Give back dividend based on the X MHash/s. Since the difficulty is going up for a while, the more the time pass, the less you give dividend by bond. If you lack money or to make more profit, you can issue new bonds (hey guys, I bought new mining equipment!).

When ASIC comes by, difficulty would go to the stratosphere and crash the value of the mining bonds. Buy back these bonds for market value (or 0.000001 BTC) and magic! You just made profit without even having one single gpu mining.

Value of issued bond - dividend over a couple of months - buy back = Profit.

I think we could even build a ponzi pyramid with that. With the difficulty constantly going up, you pay less and less dividend each week and if you issue new bonds at a small but fixed rate (200 new bonds each week), I think it could go for a long time.

5 MHash cost 1 BTC.
5 MH gives 100 shares/day.
1 share is 0.00002454
0.002454/day

At the current difficulty rate, it takes 407 days to pay back the actual bond cost. In a ponzi/scam scheme, I know that right now, I have at least 1 year in front of me before I run out of cash for my scam. Since there's a good chance the difficulty goes up, it will take even longer than that. I can also issue new bonds in the next year, giving me even more time for my scam.

A large issue should drop prices since it indicates that more power is coming online and difficulty will be rising. The issue itself is information.

Besides that 'real' (but probably tiny) effect, there could be a temporary dip if it takes new money a while to arrive. Also if people consider GLBSE to have counter-party risk then a mining bond there is more similar to another mining bond there than an equivalent amount of power on the outside and in the same way a new GIGA is more like a GIGA than some other mining companies GLBSE bond so it competes even more closely and should drop the price extra.

Am I thinking right? There is a smaller market for GLBSE mining bonds than there is for 'all mining' and a smaller market for (example) GIGA than for all 'GLBSE mining' and the demand curves must all be at least slightly downward sloping. The more narrow the market and the less perfect the substitute the larger effect an increase in supply will have.

If you always pay and don't claim to have equipment that's not even a scam, it's just a way to bet that the value of mining power is going down faster than it earns.

In the end, the market is always the judge, not my opinion, nor yours. There are good mining-related investments, and bad ones, and I know which is which because I have the hard numbers on all mining assets from my research. When I filter something out, I always do it because it has a negative expectation, not because I have a certain "gut feeling" about it. From what I can see, at the present time most (but not all) non-upgradable fixed-rate mining bonds have a negative expectation relative to holding bitcoins directly, although there are some notable exceptions to this guideline.

It's not personal, so don't take it that way. It's business.

You call it scam, but in essence, you just described  a perpetual mining bond (even if its one thats not backed by any mining power, but thats largely irrelevant. I think Meni does it like this? ).  As long as you meet your obligations, its not a scam, its just making an almost certain profit off clueless investors that dont understand mining market dynamics.

So why nobody launches a fund to short mining bonds?

Wrong: If the operator doesn't run a scam he would be able to sell equipment in order to acquire new equipment with higher profitability. (if earnings on sale > price for new equipment with same GH/s) After that he could easily increase the MH/share. Doing not so is irrational and tells us that the operator either:
1. exchanges equipment for OWN profit by emitting additional shares
2. doesn't have equipment and runs a scam

Why is it a scam as long as he sticks to his contractual obligations? What do you care how much, if any, mining power the issuer of the bond has? It has no impact on your yields or bond value.

If more is traded than is actually mining it does affect me. Demand is covered by non existent supply and therefore prices fall.

Another concern:
Can you apply for mortgage without actually buying a house as long as you stick to your payment plan?
If you don't mine why do you mislead your investors by letting them think their investment is backed?

A bank has a claim on your house. You have zero claim on (say) GigaVPS' mining equipment. You might want to think twice about buying bonds on GLBSE from people that are not verified (in so far thats any help), but whether they own a large farm or not does nothing to protect your investment. If you fear he is going to scam you, he can do just as well with or without owning x TH. In fact, you might be better served buying bonds from someone who has no farm, but puts up bitcoins in escrow than someone owning a large farm that might break, get stolen or whatever.

As for synthetic bonds lowering the price; it shouldnt. If it does, then you paid too much for yours. The price should reflect expected future mining earnings, nothing else. I might offer 1 trillion terrahash in mining bonds, but unless Im crazy,  I wont sell them at a price I dont expect to make a profit; nor should you buy them at any other price. More "supply" (or demand for that matter),  in this case would only serve price discovery.

You could even go a step further and claim buying "real" mining bonds will lower your bond value, because that would result in more hashing power and therefore, higher difficulty. Synthetic bonds dont have this side effect ;).

Exactly, it's about the market. You can certainly say assets A, B and C are currently overvalued and are thus a bad investment. If you found a "rule of thumb" that these assets happen to be those with property X it's ok to say this as well. But it's unacceptable for you to say that PDMIs are inherently bad, which you did - and for that purpose it doesn't matter if you're harming my business, disparaging my invention, or just being wrong on the internet.

I'm backed by hardware.

This makes sense only in very specific circumstances. In general nobody will want to buy the equipment at a price which will make this profitable. This is viable if he's selling GPUs to gamers to get ASICs (also at some loss), but again this is a once in a lifetime event.

Maybe but they have every right to affect you in this way.

No, because then the bank has no way of knowing that you'll be willing and able to stick to your payment plan. But you can offer a car as collateral to get a loan for a purpose which has nothing to do with cars. Similarly, an issuer doesn't need mining hardware to be good on a mining asset, but he does need to be honest and responsible with his liabilities and assets (and could also offer unrelated assets as collateral if applicable).

Who said anything about misleading? If someone is offering a naked PDMI he should definitely make it very explicit.

That's extremely simplistic. It's a market and there are only so many people interested in the asset, and so much they can and will spend on it. Utility of money is sublinear and as you scale an investment the risk (which is quadratic) increases proportionally, requiring a higher expected profit (i.e., lower price) to compensate.

The dollar amount is all that matters. I really don't care how many bitcoins I get back from my investments. I care about how much money I get back. There is also no point in speculating on what will happen in the future. Make your own determination and invest accordingly. We only trade bonds in bitcoins, they are invested in equipment that holds a dollar value. People buying singles from butterfly are in the same boat as people buying bonds. Your basically just paying a initial fee for someone to purchase and run the equipment for you. Once you cash in your bitcoins for equipment or bonds you will no longer be effected by price changes in btc.

While I don't care about this dispute, everybody should do some calculations before investing, I personally invest in mining because I want more bitcoins, not dollars. Actually, I invest dollars to get as much bitcoins as I can.

There is not really a way to calculate where the price of btc is going to go, or how many bitcoins your going to make. I see no reason to think you would end up with less, maybe if the value of bitcoin skyrockets. In which case, at least I will be happy.. You can always send some dollars my way if you got to many..

You are trying too hard, you are becoming annoying, same as EskimoBob.

Then you should speculate on btc value instead of betting the wrong way on mining difficulty.


Here is the thing though: no one in their right minds would order a BFL single today if he didnt intend to trade it in for ASICs.
No one.

+1

I think it's worth mentioning another difference between mining bonds backed by fictional and actual hardware- some people may invest with the hopes of helping to secure the network by increasing the total hashing power. Obviously that doesn't happen w/ fictional hardware

I was referring to bonds invested only butterfly equipment with SC upgrade plans. Your correct though.

I would hope none of the bonds are backed my fictional hardware. I know some bonds are being sold before equipment is ordered. If they intend on ordering, I don't see anything wrong with that. I may take pictures and post a link on my thread. I don't sell any bonds if I don't have the actual hashing power to back them up. I've only taken that approach to protect myself. It's possible butterfly may run out of old singles or take longer then expected to deliver them. Returns are almost 10% monthly on bonds right now, it would not take long to lose a large amount of money.

Do you have a problem with people who don't farm corn selling corn futures?

Not that I know of, I've never looked into it. I would have a problem if I paid someone x amount of money to purchase a piece of land, and farm corn on it. Giving me a share of the corn each year. And instead of purchasing land, he just used the money to buy corn every year and pays me that way.

BFL offers 100% refund on their fpgas if you "upgrade" to asics. Does your bond?
And mind, I think its bonkers to buy an FPGA today even if you want to trade it in. You can guess what that makes me think of buying perpetual mining bonds that cost even more.

Upgrades will be free.

Yeah, a 5x increase and afaik, thats only for gigamining.
But if you trade in the BFL hardware, you get a 20x increase in GH/$.

Yes I do,
As stated by others you have an additional emittent risk. Such risks (especially in an anonymous bitcoin world) don't come cheap.
So as a result an insurance to cover a non backed bond issuer would be more expensive than mining earnings - definitely that is not the investment i am looking for.
In traditional banking you carefully select futures by whom they are issued. Ratings and margin monitoring contrary to the bitcoin world helps you deciding - but still it is no easy task

Wrong.  You can still sell a bfl single in 4 months time to someone else upgrading to ASIC.

So basically gigavps devalues your existing bonds by 4 times if you take the "free  upgrade" and if you pay .25 BTC extra (additional 25% from IPO price), you get a upgrade,  you actually must for free in the first place. Yes, for free! Because equipment is paid by bitcoins from IPO - your money, bondholders.
If this is correct, then this must be the worst upgrade path ever proposed by any mining contract out there.

It was not the whole point of this thread?

No, giga gives a free upgrade path, which he is under absolutely zero obligation to do. Most other bond issuers dont and wont.  If anything, I think Giga is being quite generous. Not that it will fundamentally change the fact that these bonds, even the upgraded ones will most likely turn out to be terrible investments. But you bought mining bonds not shares. You dont own the fpgas, you have no claim to the upgrade.  Giga owns it and only owes you coupon payments that are function of difficulty, no more, no less.  Those payments will become worthless as mining revenue per GH is about to vaporize, but thats not giga's fault and its not up to him to compensate anyone for their stupidity.

BTW,  the fact giga will trade 5MH bonds for 20MH bonds for free, just shows you how incredibly overpriced these things are.

OK, thanks for clearing this up.

EskimoBob,

It seems you only like to rant without answering any specific questions. If you don't like the plans I have laid out for my bond holders to upgrade to ASIC hardware, please come back to my thread and answer the questions I asked you there. I even sent you a PM regarding this some time ago.

Best,
gigavps

I specifically said companies invested in butterfly only, like mine. Gigamining is not all fpga. I'm increasing the hashrate 21.5x if they meet the specs.

That's not really fair, giga will trade 5 MH/s assets for 20 MH/s for free if and when BFL releases their ASICs and upgrades his equipment. Part of the current valuation of mining bonds is a result of uncertainty (whether justified or not) of this event.

I take it that if Giga's DC gets hit by a meteorite, the asset should downgrade to 0 MH/s because the melted equipment really belongs to the holders?

If you want to enjoy all positive events but suffer from none of the negative events, we can do that but it would cost extra and people who don't want this extra service shouldn't be forced to pay for it.

You are right, my statement is not correct in context of how bonds are operated. 
Let me rephrase it. What we are actually witnessing is a massive devaluation of so called "currency" aka Mh/s while the bond issuer escapes this buy upgrading the equipment for free. Bondholders will get hit by a massive 20x inflation, miners with FPGA upgrade to ASIC, do not.
Question is, if "Mh/s currency" gets devalued, is it honest to let bondholders get fucked?
   

Yes, because they would get even more phucked if they personally invest in mining with anything else than BFLs, IF asics are really incoming as they say.

Since many (me included) have more than one doubt about the promised BFL Asic's performances and timing of delivery, non-asic mining bonds can deliver anyway if such doubts materialize.

It just takes that mining bonds sustain their dividends around 2% maintaining a stable price for a few months to get the capital back.

Moreover, whatever will happen, much depends on decisions by the bond issuers: some might decide to upgrade too, or liquidate and offer a partial refund, others might just liquidate and run.  

Yes. They didn't invest in FPGA currency or BFL currency or whatever (and there are ways to do that if that's what you want). They invested in MH/s currency. Usually when a currency you invest in is devalued you will suffer loss.

Which was the scenario to be expected considering rising difficulty paired with technology cycles - while you issuing the shares profit additionally (besides IPO profit margin) from customers losses by exchanging mining equipment (protecting your hardware currency from devaluation). Technology shifts not being a specific scenario in the contract gives you all right to realize the full share of additional profits, but the question whether this is fair still remains. Other issuers obviously answered the question differently. They might have thought of establishing a long term trust-relationship with their investors instead of gambling against them.

People investing in these vehicles should already think of further technology shifts (this is not a once in a lifetime scenario) and how their issuer decided to pursue. but i guess not long and those gambling against their customers bought back their shares (financing of your mining farm nicely done - trust gone).
 

I am thinking of establishing a long term trust-relationship with my investors by doing exactly what I said I would do, rather than resort to whims and marketing gimmicks. Really, if you read the PureMining OP and contract appendix you'll see I went out of my way to specify what I would do in every contingency and why, and I made a huge deal out of it being deterministic. I have no idea how could anyone get the impression that upgrading the bond was an option. If I wanted to do a mining company like everyone else I would have done a mining company.

Switching from GPU/FPGA to ASIC is once in a lifetime. There will be further hardware advances but they won't be anywhere near as drastic. The disruptive thing here isn't the ASIC, it's BFL's upgrade plan. There's no way every time they make a new device they will allow everyone to do 100% value trade-in.

Buying back does not harm investors. If the asset devalues it means so have its expected earnings, at which point the investors are better off with the issuer buying the bonds back.

Seriously: Given that, for whom can you still recommend an investment in your fund????

The only scenario I can think of with a small chance for profit is when the trade-in fails.

Blaming the 100% trade-in is not entirely correct, since mining equipment might have multiple uses in the future (f.e. research, alternative mining etc.). Also a 50% trade-in might be as drastic if the hash-rate multiplies respectively.

I doubt your intention creating a win-win situation, you bet to find investors stupid enough to finance your one-sided game. Since you made a clear contract, it is your right to do so - still fair is different! You must be like many a greedy person.

As I said multiple times, an investment being "recommended" is a function of the price. It will be inappropriate for me to discuss whether the investment is recommended at any specific price. I am currently not offering any new bonds so I have no direct interest in people buying them at this point.

You can doubt it all you want, it was my intention. I wanted to simultaneously make a profitable, honest business venture, offer people a streamlined way to invest in mining, and move us one step closer to a hashrate commodity market.

When I created the bond I did not know when would ASICs arrive, did not expect them to be introduced with such an aggressive pricing strategy, and I definitely didn't expect the trade-in program. To suggest that I somehow plotted to cunningly profit from these events is ludicrous.

In the long term issuers don't determine the price of bonds, the market does. I explained very clearly what the asset does, what factors go into valuating it, and that it is every investor's responsibility to evaluate how much they stand to gain from it. It is not my fault if someone decides to pay 0.7 BTC per bond (not to me, in the secondary market) and it ends up a bad investment.

In theory the prospect of profiting from upgrade plans and such would make its way into the price the issuer is willing to offer the bond at. In my case I had not expected such a plan, and so it was not reflected in my initial price.

I am not. (Not like most greedy people, or like most people of any kind for that matter. I do like money however.) If I was I would probably have given up my word and my values and offered an upgrade plan to win the popularity contest. Or try to offer new bonds the moment ASICs arrive to capitalize on the uncertainty with regards to the target equilibrium.

You keep focusing on the "fairness" of issuers sharing the outcome of every positive event with investors but never stop to consider the bad things that can happen, and the risks of being committed to stick to the contract no matter what. I could die and continue to pay coupons from beyond the grave, would many greedy people do that?

I have to jump in here and defend Mr. Rosenfeld. He has been 100% honest here and upheld all of his obligations, and I think many of these attacks are a way of investors not taking personal responsibility for their decisions. If an investor made a bad bet, it's not the fault of an contract issuer that followed his contract to a T.

And of course, while the market is currently signalling that the arrival of ASICs will be disruptive (based on current pricing and the relatively much higher interest rates of non-ASIC upgradable mining assets), there is no guarantee that this will occur, which would subsequently send prices for these assets higher and prices for ASIC-based ventures lower.

I generally like to bet that the market is right (except at extremes), but it's not always the case.

Not to be misunderstood:
1. I am not invested in these perpetual mining funds.
2. I respect him for his reliability
BUT - to me contractual design is unfair because risk distribution is skewed. Looking at the market reaction people having bought this asset might have not been aware of the contractual implications (compare to complexity of derivatives sold to the elderly). Others miners realized how inappropriate their deal was and voluntarily corrected their contract only to their investors' benefit.

Clearly our views on this subject differ. Yes, the deterministic model doesn't handle the current events very gracefully. But it's not about the current events, deterministic contracts will play a key role for many years to come, and I am not interested in contaminating the concept.

Rosenfeld, chill out and screw your investors any way you like it. Be a true Rosenfeld.

Good news is, that some of the "bond" issuers have understood that this is like any other devaluation situation. Everything gets a new value and  20 is the constant used. Miner gets a 20x more powerful equipment for free, "bond"holders get a 20x bigger dividend for free and 10 Mh/s = todays 0.5 MH/s. Nobody in this example gets shafted. Except the ones who did not upgrade or who's "bond" issuer realized, that this is a once in a lifetime opportunity to turn the outstanding debt in to a 1/20 of what it's worth today. Only one who gets seriously fucked here, is the "bond" holder.

Imagine it like this: all the money is exchanges to a new money and you get 20:1 what you had before. Your 1 becomes 20.
Only problem is, that some of the guys, who borrowed money from you, decide that they will be paying you back the same sum of money as before, so what it's 20 times less.

Fact is, that most (if not all) fixed Mh/s mining "bonds" aka turds, with no free plan for upgrade, have become the ultimate junk and will be worth next to nothing when those damn ASIC's hit the market. So far, I have not seen a single calculation that proves this to be wrong.
Those turd will lose money until the difficulty stops rising and drops dramatically. Depends, how high the difficulty has risen, there is a good chance, you will never get back your invested money.

Nonsense. This is more like if I take a 1 BTC loan when 1 BTC=$10, clarify that it is BTC-denominated, the BTC price drops to $0.5 and then you'll expect me to pay back 20 BTC because that's worth the same $10.

You are also forgetting that only people who bought from BFL get a free upgrade. People who bought alternative FPGAs do not get anything, do they also need to increase their bond x20?

I never said otherwise. I only said that's part of the risk investors are taking and for which they are ultimately responsible.

This is crazy. If a fixed Mhash bond is worth so little don't buy it. What a dumb game to go around guessing who will randomly increase the Mhash and by how much. Do what you say, that's what matters.

Did I really?


Thank you Rosenfeld for clearing this up and finally stating, that you have sold turds to your investors from day one.
Rosenfeld, you are the master of nonsense here. No, its more like utter bull shit and this applies to most of your posts, where you attempt to talk "white in to black" and so on.
Your counter example is also wrong - you took out the loan in Mh/s not in BTC ;) and when Mh/s gets "globally devalued", you think you have right to ignore it and fuck your investors for extra profit. I am not here to stop you. I just hope people realize what a greedy fuck you actually are and stay clear form your next snake-oil deal. I guess this greed shit runs in your blood. LOL...
What I am saying, is this:  Some of the "bond" issuers have understood, that this is wrong and have done everything to set up a deal so no one gets hurt. You and some others), on the other hand, are abusing the situation and keep twisting it for your own profit. You are like a fkn war profiteer.

If you want, I can use bigger and friendlier letters to make sure you actually read, what I write.

This +1.

Way to twist my words. On day one there was no ASIC on the horizon. Now the ASIC prospects seem promising, but there is still uncertainty if and when BFL will deliver; if it happens any time soon then yes, the value of deterministic mining bonds will greatly decrease.

By the way, back then even BFL's FPGA products were considered vaporware/scam by many. I took all the information available to me and estimated that they are in fact legitimate. Because of this I was able to offer bonds at a price that made use of their products' cost-effectiveness. After a long time (during which I still paid coupons!) they did indeed deliver (some, I'm still waiting for my second order). If they had not, I would have suffered a major loss and still be committed to my deterministic obligation. That was a risk I took, not the investors. I took a bet on BFL and won, and it's perfectly fair for me to profit from it. If we instead penalized people for making the right decisions we'd be in a lot of trouble.

I've used something called an "analogy".
If I take 1 BTC debt, I still owe 1 BTC even if the value of a BTC decreases.
If I take 1 MH/s debt, I still owe 1 MH/s even if the value of a MH/s decreases.

Your argument would have made some sense if there was indeed a global splitting of hashrate. But there's not, miners who bought equipment from one specific manufacturer will get an increase at some unspecified time which differs between them (and which they are unable to prove). Others are either stuck with what they have (other FPGAs) or sell their equipment at a loss (GPUs).

It is unfortunate that they think deterministic assets are wrong, and this indicates that the Bitcoin market lacks maturity and economic understanding.

Thank you, I've been waiting for the right time to unwatch this thread and add you to my ignore list (you're at the respectable 2nd place). Happy trolling.

It's too late for me but for future reference if you want people to read what you write you should consider the following:
1. Only write about things you understand.
2. Present your argument in a clear, methodical way.
3. Avoid personal attacks and offensive terms.

Careful with the unfair latter statement!

But I also advise investors to read contracts carefully. Fair play is not to be expected with Meni Rosenfeld - you might get fucked already by design!

A true business venture worth to invest in creates a win-win situation for receiver and donor of the funds. In other words those issuing should be convinced to invest themselves in their asset if they had enough cash available. Not the case here. There is practically no risk for Rosenfeld with very high return (which is per se a contradiction). Rosenfeld sticking to his contract contrary to others shows that his venture didn't just unintentionally turn this way. Be warned there is nothing virtuous about sticking to deceitful contracts - true the price might stabilize when ASIC hit the market for a short time but already so low that it would make no sense not to buy them back. Subsequent technology shifts are also up to come with similar devastating effects (doesn't matter whether there are buy back programs or not).

EskimoBob? And here I had you pegged for a redneck.

Which ones, actually? Please say the asset IDs on GLBSE...

Edit:
@sarpar: Just check when actually PUREMINING was started - Meni would be the last person to blame for selling overpriced bonds in the light of FPGAs and ASICs!

Please detail what about the contract you think was deceitful.

And as Meni has posted in detail, they was major risk for him in issuing his securities. That risk paid off, but if it hadn't, he would still be bound to his obligations.

The bond thing is true it is way overly misused on the GLBSE, when I first discovered the mighty world of Bitcoin and the Glsbe I looked at the company right up for all these so called "Bonds" and they looked more like shares the company reserved the right to buy back then bonds.

How do you fail to understand mining bonds aren't "turds" when priced in $?  Using that logic I've been ripped off in every transaction from everyone in the last six months because anything priced in bitocins was 100% more expensive 6months ago compared to now.

Also way to be a whiny bitch about something you're in no way compelled to buy for any reason.

Mining bonds are turds, even when priced in $. Let's say you and I had 100 BTC ($450) 6 months ago. Then, you invest in a mining bond and I don't. Now, after 6 months, the value of the bond has dropped 50% to 50 BTC but has paid 26 BTC in interest. We both cash out our BTC at $11, and you have $836 and I have $1100. That bond is a turd even when priced in $ because if you did not invest in the bond, you would have more money (in both $ and BTC).

Part 1
Despite my previous post, I disagree with EskimoBob on a few points. I think he is just trolling now, but I'm going to take the bait.

• The statement that bonds return the principal is not strictly true. According to Investopedia:
  
  Quote
  Definition of 'Perpetual Bond'
  A bond with no maturity date. Perpetual bonds are not redeemable but pay a steady stream of interest forever. Some of the only notable perpetual bonds in existence are those that were issued by the British Treasury... http://www.investopedia.com/terms/p/perpetualbond.asp#ixzz23CwCJy7f
• Mh/s is not a depreciating asset. A depreciating asset loses value over time because it must eventually be replaced. While a mining company must replace its equipment (and therefore must depreciate it). It doesn't have to replace its Mh/s.
• A mining bond's varying dividend is not unusual. While most bonds have fixed coupon rates, some bonds (e.g. TIPS) do not. Furthermore, bond mutual funds pay varying dividends.

Attacking Meni is not ok. It does not give you credibility or make your case any less false. Meni Rosenfeld is well respected as a contributor to Bitcoin itself, and frankly, you look like an idiot when you say otherwise.

---

Free market, supply and demand, invisible hand, fools and their money, caveat emptor, capitalism and competition, due diligence and all that. Fixed MH/s bonds are bonds denominated in MH/s. They have use cases from hedges to diversification to betting on a DDoS of mining pools. All I hear in this thread are people whining about their poor investment choices and blaming it on other people. If you're so smart, why don't you start shorting mining bonds? Alternatively, liquidate your turds (;)) and place some nice low bids for them. Surely they are worth more than one week's dividend? Place your bids there. Again, supply and demand etc.

Part 2
I think that EskimoBob's best points are these:

• The value of mining bonds are dropping faster than the dividends are being paid, therefore they are currently bad investments. The real question is, "why are the values of mining bonds dropping"?
  
  The answer is not that values are dropping because the dividends are falling. The dividend rate is falling because of the rising total hash rate, but since it is falling the same amount for all bonds, the values of the bonds should remain constant. The value of a perpetual bond is the coupon rate divided by the "discount" rate (times the principal), and the value should remain the same since both the coupon and discount rates are falling.
  
  The answer is supply and demand. The supply of mining bonds is increasing, and (more importantly) the demand for the bonds is decreasing.
  Demand is decreasing because:
  
  • Investors are flocking to pirate bonds and BTCST deposits, leaving less money to invest in mining bonds.
  • Investors are anticipating a huge increase in the hash rate once the ASIC rigs come online and miners that don't upgrade won't be able to compete.
  • Momentum -- investors are avoid mining bonds because the prices are falling, causing the prices to fall even more.

• In reality, "perpetual" mining bonds will not pay forever. It is more likely that the operator will close up shop one day and the investors will lose all their money because the equipment is worthless. The solution is for the operators to depreciate their equipment so that the sum of the equipment value and the cash from depreciation is constant, and agree to pay that value to bondholders if they cease operations.
  
  Operators that:
  
  • don't depreciate equipment and back the value of the bonds with equipment and cash from depreciation, or
  • take a cut of mining proceeds for upgrades without actually upgrading (or using it to back the bonds), or
  • simply don't back the value of the bonds
  are ripping off the bondholders (intentionally or not).

I have yet to see a mining company balance sheet or P&L. It's ok to mine for a hobby, but IMHO if you have a business with investors then it needs to be run as a legitimate business. Investors must insist on basic accounting and reporting if they really want to have a hope of making any money.

That's not accurate at all. If you had purchased a bonds six months ago, it would be the same as purchasing mining equipment. Except your paying a initial fee for not operation it. The btc price of the bond is not important. Bonds and mining equipment have all paid out well so far. If you math is showing that miners are taking loses right now, your not doing it right.

We are talking about the bonds, not the equipment. Maybe I wasn't clear. Let's use a real bond as an example. Let's say that we both had 100BTC ($650) in June. Then, you used your 100BTC to buy 333 shares of YABMC @ .30BTC/share, while I kept my 100BTC. Today, you sell your YABMC shares for .12BTC and you have only 53BTC (40BTC plus 13BTC from dividends). Converting back to $, you now have only $583, but I have $1100. In 2 months, that bond lost you 47% in BTC and 11% in $ and that is why it is a turd (according to EskimoBob).

Your HYDRO.BONDS bonds are similar (dropping from 2BTC to 1.5BTC, and not paying enough dividends to make up for the loss), but you are promising to upgrade to ASICs and boost the Mh/s per bond, and I think that makes your bonds a good deal right now.

On the other hand, lower prices are increasing the yield: at current price YABMC is paying >3% weekly.
At that rate, getting back the whole capital invested as dividends in a few months, before the halvening, while ASICS are still a pie in the sky, does not seems so unlikely to me.

3% per week for a few more months. Then its 1.5% even we would assume asics dont materialize and somehow difficulty would stop skyrocketing.  Even with zero growth and no asics, it would take a year for the bond to pay back its investment. Anyone buying equipment or bonds that takes a year to pay for itself at current difficulty, is.. well, gonna lose money over that year. A lot of it. Even as it is, difficulty is going up faster than 3% per week, and you aint seen nothing yet.

You shouldn't compare bonds to investments in btc. If you just put your money in btc a month ago, you would have made a good return. Yet your risk factor was high. If you had purchased my bond when I started, and then sold it today. You would have the same amount of dollars + dividends earned. I'm selling the bonds for less btc now because btc is worth more. Your counting losses where there are none. If the btc drops in half, I will be charging twice the btc price for the bonds.

Why would returns drop in half? When the block rewards drops to 25, are you expecting not a single person is going to stop mining with their gpu's? Difficulty is rising because payouts are increasing. Difficulty has not been keeping up with the price increases. You can see the increased returns per mhash on http://bitcoinx.com/charts/ (http://bitcoinx.com/charts/). If there is some kind of skyrocket at the end of the chart, its some kind of glitch today.

Oh, Im expecting  a few gpu's to be turned off, but only because of minirigs and asics being turned on. And no, I dont expect a single FPGA or Asic to be turned off, for the simple reason that electricity cost is only marginal compared to the investment. Even if some of those FPGAs will have no more hope to earn back their investment, keeping them running will at least reduce the loss for quite some time.


All the more reason to expect further increases in difficulty.  If you think difficulty will be lower in January than it is now, I will gladly take a bet.

This thread really bothers me.

Lets bet on your false title.

You pick N, if the price of GIGA drops N% each of the next 4 weeks you win, else I win. I'll give you 2-1 odds.

A lot of gpu's will be turned off because of reward drop. The difficulty should drop a decent amount unless ASIC's get delivered.

So you are betting that difficulty will actually go down over the next 12 months? Good luck with that. Not only is it a crazy bet, the rewards are  almost non existent should you somehow be right.

Shhh P4man!

cuz0882, I want to make a bet with you .... ;)

But as far as the thread topic goes, who could not have known the pros and cons of mining bonds? Even if ASICs could not have been predicted, it is and always was clear that 1 Mhps would always vary in terms of both btc and usd. If you's bought mining rigs and paid for electricity, you'd be in just as much trouble. Bond purchasers should have worked out whether it would be cheaper to buy bonds or a mining rig. For me, it was cheaper to buy bonds given the price of electricity here. My strategy didn't work out as well as I'd liked - so what? At least I don't have a chunk of unsellable technology on my hands.

Does everyone just joyfully buy everything and hope for the best? Does no one do due diligence and develop a strategy to deal with future possibilities?

Can anyone pull out a formula to calculate the "proper" value of 1 Mhs PPS according the difficulty?

Ideally I'd like a sort of the mining calculatur by bitcoinx.com for mining bonds, to estimate depreciation and dividend earnings in a given period under different assumptions on the future difficulty.

1 MH/s =  ~1000000 / 2^32  shares per second
1 share = 50 / difficulty bitcoins (soon 25)

so 1MH/s = 1000000 * 50  / (2^32 * D) btc per second.
or 0.000000005314 btc per second
or 0.013773062 btc per month.

I just wrote a piece (https://bitcointalk.org/index.php?topic=100303.0) elaborating on that. Hadn't seen your (very well thought out) post, smickles pointed it out tho.

Maybe Diablo's "$1 million" mining company turning in to a 1 millionth of a dollar mining company will open some people's eyes as to what can (and will) happen with these bonds:
 
https://glbse.com/asset/view/DMC

Now Im sure Diablo will purchase a few shares back himself to save face, but the simple fact is his shareholders (which really are mining bond holders since DMC only owns mining bonds) saw 99.5%. of their investment evaporate,  Oh well, 99.48% if you take past dividend payments in to account. Like I said, if you like high coupon payments, buy Greek debt, its far less risky.

Your comparing purchasing btc to purchasing mining bonds... There is no way to know what bitcoin will be worth in the future. You should be comparing holding your money in dollars vs purchasing mining equipment or bonds. It's pretty clear that mining and bonds are paying out well. There are no capital investment loses right now on the bonds using singles or mini rigs. Even gpu's hold their value pretty well. I expect most gpu's have already paid for themselves.

The massive price dumps of these is the market deciding how much they suck  :)

Glad I have never owned any of them and never will.

What price dumps are you referring to? Mining and dividends have not been this profitable in 7 months.

http://bitcoinx.com/charts/chart_large_lin_90d.png

You need to take into account the loss of principal over time. If you cant redeem a bond for what you paid you need to account for that loss in your calculations.

Lending to greece and spain was never this profitable either

http://www.mymoneycalculator.com.au/assets/_resampled/resizedimage520331-greece-2yr-government-bond-yields-chart.png

Shares arent purchased with dollars. If gigavps was listed on the NYSE and you could buy and sell in USD then you might have a good argument  :)

You suggesting that I should charge a higher dollar amount to purchase and run a single for someone? Even though it still costs me the same dollar amount.. And if the price of btc drops to one dollar how would I purchase a single for a fraction of what butterfly charges.. When you purchase a bond, its used to purchase equipment for a set dollar amount. The bitcoins are not just sitting around fluctuation with the price.

If you are going to insist on looking at this from a $ perspective, then at least be consistent: you will not have realized a single dollar cent of profits before you sell your bond and sell the bitcoins. The latter is pretty profitable for now, at least for anyone not silly enough to have traded nice coins for worthless bonds, but the former is something you consistently ignore.

I will try to explain it as simple as possible.

If you purchase 100 bonds while the btc price is $5.00.(50btc) The bond issuer turns around and buys, lets say a 5970. It costs him $500 dollars. He pays out 10% monthly in interested. After the first month, you decide to cash in your bond. But the price of btc doubled since last month. The issuer can sell that equipment for $500 dollars. Which is only half the number of bitcoins you paid. That 5970 didn't lose or gain value because of the btc price change. Now you only have 25btc+10%. If the price of bitcoin had dropped in half. That $500 dollars worth of equipment could have purchased 100 btc. You would have ended up with twice as many bitcoins+10%. Although the bond was traded in btc, your invested was not held in btc. So you didn't profit or lose any dollar amount because of the btc price changes. Unless your money is held in something with a fixed btc value. Your not going to gain or lose anything because of changes in btc price. So until a company starts selling mining equipment for a fixed btc amount regardless of its value, this is not going to change. Mining equipment will always be valued in dollars, and that's what bonds are invested in.

Cuz, I understand that very well. Im not saying bonds are per definition a bad idea, they are not.
But Im a miner. And unlike you,  and unlike most investors apparently,  I can see *why* miners are so keen to sell you bonds at those prices. It seems investors dont understand the mining market and dont understand the impact reward halving,  Moore's law, fpgas and in particular, asics will have. Thats why these bonds were ridiculously overpriced, and most still are today.
Ive been saying this for months, and I just showed you DMC as an example, I could have pointed to YABMC as well:
https://glbse.com/asset/view/YABMC

Or puremining, or other bonds that are not propped up by freebee asic upgrades.

If you want to hedge against a BTC price collapse, all you have to do is buy less BTC. But holding BTC at this point makes infinitely more sense than buying overpriced bonds.

Anyway, Ill repeat my offer: lend me your bonds for 6 months, and Ill pay you all dividends plus a negotiable bonus. If you feel so strongly about holding bonds, how could you possibly lose?

I'm done explaining this to you. I never said no bonds are overpriced. Some charge just above cost. Some people would rather pay a small fee and not bother with equipment. If you want to mine yourself, go for it.

I created a little script to help with this as well:
https://bitcointalk.org/index.php?topic=89970.0


Note:  Script is not currently being improved or updated since I pulled everything out of GLBSE last month.

Would you mind to tell us why?

I set sail on the pirate ship.  And I fully agree with EskimoBob about the validity of mining "bonds" at a fixed mh/s with no buyback....

I wouldnt mind buying bonds so much if your dividend didnt also take a haircut. Investors lose on both counts.

In what sense? Earning per mhash have been increasing for a while. It's unclear how the reward drop and ASIC release will effect it though.

[quote author=cuz0882 link=topic=98517.msg1100910#msg1100910
In what sense? Earning per mhash have been increasing for a while. It's unclear how the reward drop and ASIC release will effect it though.
[/quote]

lol. How is that unclear? Bitfountain claim they will have 12 TH online by october or november, and that they can easily expand to 50TH shortly after. Butterfly labs is expected to ship a comparable hashrate around the same period.  And there are at least two other ASIC projects underway. One of them might fail or miss their deadlines, maybe even two. But all of them? Bloody unlikely, since its difficult to imagine an ASIC that is easier to design than a bitcoin miner.  None of those asics will be unplugged when rewards halve, whatever gpuminers do is essentially irrelevant. Now guess what will happen with your cherished fixed MH bonds.

Exactly the same as a miner with a fixed Mhps GPU. They will earn significantly less btc. No point guessing what USD they'll earn though - if you knew that, you'd be set to make a killing on MTGOX.

Not quite exactly the same, because a gpuminer can salvage part of his investment by selling his cards to gamers, or perhaps even participate in that distributed computing project by (dont remember the name, that VC backed startup?). Most FPGA miners (BFL) will be able to salvage their investment by either upgrading or selling their kit to people who want to buy ASICs. A fixed MH bond holder? He is simply screwed. IN fact he is doubly screwed because last time I checked, per MH bonds were more expensive to buy than GPUs, and they will have close to zero residual value.

Did I say anything about earnings for fixed mhash? Almost all the bonds will be upgraded to ASIC, so it is very unclear what earnings will be.

How do you upgrade a fixed Mhps bond? Do you make one new bond equal one hundred older ones? If so, it's not fixed.

So you are counting on "profits" that some bond issuers will voluntarily donate to you?
Sounds like a fantastic investment opportunity. Who knows how generous those miners will be. Maybe you will only lose 75% of your btc investment?

Butterfly is letting people who purchased their equipment trade it in for ASIC at 100% value. It should be around 21x times faster. I've only seen one that requires switching the bond. It depends on the contract, mostly everyone with butterfly equipment is not charging anything for it.

So it's conspiracy theories now? Dividends are just voluntarily donated profits. Nothing to do with contract obligations.. I'm glad we have you to explain these things.

It seems like its really necessary someone explains those things to you. Go read the contracts for any of the big mining bonds. Indeed the issuers are under absolutely zero obligation to increase their MH ratings for  their coupons. Gigamining voluntarily upgrades you from gigamining to terramining, giving you a free  4x (not 21x) increase. Many of the other bonds dont and none of them have to.

You have a vested interest in ignoring the facts because you are a turd issuer  :)

Please, don't. There's enough emotive posting here without calling someone an arsehole.

I see this same pointless argument popping up how someone bought equipment and how miningturds are like buying equipment or becoming a miner and blaa blaa. Or if you look at the equipment price id USD and what not, then .... News flash! This is all irrelevant! We are talking about bonds (http://en.wikipedia.org/wiki/Bond_%28finance%29).

Lets get few things straight.  This is overly simplified so do not start nitpicking.

If  I buy SHARES with a reasonable contract (not bonds!) in your mining farm - I participate in your mining adventure as I participate in IBM's business when I get few shares of IBM (pun intended). You pay me dividends and I hope you have enough foresight to make correct decisions and not go belly up, before I earn few divs and sell shares at profit (or hold for bigger capital gain).
In this case, you sold me a slice of your mining farm to buy more equipment or what ever your plans are to improve the income. We share your business (equipment etc) and risks, as long as I am your share holder.  BTW, this is overly simplified, so do not get hysterical. I recommend you read more on this topic. Utterly retarded TV shows and Gordon Gekko films are not the source of correct information.

If I buy "BONDS", you have issued, I do NOT participate in your mining adventure as I do not participate running a government, while buying government backed bonds or any other DEBT! instruments. Corporate or gov.
Only thing I did is: I lent you and you borrowed from me a pile of (do not blink now!) BITCOINS! Lenders do not give a flying fuck to what currency you convert this and at what price you bought your equipment at. From bond holders simplified point of view - your responsibility is to pay them back those bitcoins (principal) and interest on TOP! of that.

The whole mining bond contract idea got fucked up for the investor, when the "currency" of interest payments become Mh/s - coupon is tied ONLY to what ever Mh/s can produce.
Bbb...bbb.... but but it still paid in bitcoins!
You see,  the bitcoin is built so that stronger it gets, higher the difficulty rises and harder it gets to mine the coins. What this means in perpetual bond context is this: All the risks from bond issuer is transferred to the perpetual turd holders. Period.

As I have written in my previous post and as it has been repeated to ad fkn nauseam buy multiple others, perpetual mining "bonds" with deteriorating coupon payments are junk and not worth investors time nor money.

No matter what some of you are attempting to show, the truth is that: 1+1-3=-1

I don't get it. Two parties agreed on a thing called "perpetual mining bond"
that from the inception and as long as glbse is online the issuer will pay 'a coupon' denominated in hashing operations per second
buyer could do nothing, keep bitcoin and "profit" by avoiding potential loss in this trade.
since buyers decided to trade bitcoins for the perpetual mining contracts, it's theirs choice and probably a questionable investment decision but why repeating the obvious?

I agree, mila, it was obvious from the start. I think more obvious if you've been a miner and look at it from that point of view.

This. My guess is most bond holders dont have a clue about mining and thought that by buying bonds they would profit like miners once did (and perhaps still do, for some time at least). In reality they purchased the huge risk of all the things that are about to happen.

Your views are so distorted on mining and bonds its ridiculous. Mining is more profitable right now, then it was this time last year. A bond worth 10mhash pays just as much as mining 10mhash yourself. Bonds hold their value when the btc price changes just like mining equipment.

Holding the price of a mining bond at a set btc amount or having dividends paid that way is ridiculous. If you don't think so write up a contract that way. Even if it was possible, there would be nothing safe about having your initial investment or dividends always hold the same btc amount. If the price of btc dropped down to 6 dollars you would have lost half your investment. If the value of btc went up, who would buy that bond? Not the issuer, he spent your investment on mining equipment to pay your dividends. Since the btc price went up he owes you more then that equipment is even worth now. With the increased price came increased difficulty, now he can't even pay dividends and is about to default on the contract.  No one else is buying your bond either, your asking way to much for it. They decide to buy the bond from the new issuer like yours, except that it came out after the price went up. Of course this is assuming anyone would be stupid enough to purchase them in the first place.

You are almost getting it but you are still stuck in your own little bubble that keeps you from understanding the big picture, the OP and why miningturds are a bad investment in market conditions like we are now and probably will be for a long-long time.


You are correct! Question is, where did this one come from? Let me guess, you have no idea what is the meaning of par in this context. My bad.
Par value, in finance and accounting, means stated value or face value.
If one issues a bond and states, that the face value is 1 then  the "coupon" will be calculated form 1 (the face value) no matter what the market price of this bond is at the moment.  Bond prices always fluctuate and this is normal but you can not confuse "coupon" and various types of other yields (current ..., ... to coupon, ... to maturity etc).
 
BTW, I do not recall asking to "fix the bond price" while it's traded on the open market.

Because you have probably misunderstood the "par value" and coupon, rest of your comment actually is distorted and ridiculous.

1) For start, I recommend you forget all about BTC:USD or any other exchange rates. BTC is the only currency you know from now on.
2) What is the expected difficulty trend if BTC popularity grows slowly and more real life uses for BTC pop into existence?
3) What happens to output form 1 Mh/s when difficulty keeps rising?
3a) and block reward gets halved?
3c) superior mining technology gets introduced? 

Now the tricky part:
4) What happens to a mining "bond" price, when it's payout drops after ever 2016 blocks? 
5) If those same miningturds loss of its resale value is grater than the gain from regular dividents, why do you want to buy one? (1+1-3="your actual income")

If one is making money in the bitcoin environment, then it is advantageous to have bitcoins continue. One could purchase some mining bonds to help continue bitcoin mining, and thus bitcoins. Even though the bonds themselves are not making a viable return on the investment, they perpetuate the bitcoin system, thus preserving the rest of this ones hypothetical business.

If the block reward drops to 25, it's equivalent to the price of btc dropping in half in terms of dividends received. The last time the price was $7.50 things were going just fine. ASIC's coming out is actually beneficial to those people who are getting them.

Mining bonds are not valued in btc, saying they lose there value based off (original btc investment) - (current btc value) is stupid. Mining equipment/bonds can't hold btc value when the price changes. That's just the way it is and has always been.  If you think otherwise. Why don't you explain a way to invest in mining equipment while still being able to get back your original btc investment after a btc price increase. If you can't do that, just lock this thread and stop spreading this bs propaganda. All your doing is misleading people.

But ASIC's coming out are not helpful to people who are holding a bond for "1 MHs", since ASIC's will certainly increase the total hashrate and therefore the difficulty, so your 1 MHs will certainly earn less.

It also remains to be seen if they will indeed be profitable for miners that get them. My bet is that the vast majority of asic buyers will lose and never recover their investment. I would make that bet if there was just 1 asic provider (BFL), but as it seems there will be at least 2 players entering the market at roughly the same time, and that makes a price war and difficulty explosion unavoidable. Fixed MH bonds holders are going to be so screwed it will actually be funny :).

I've been talking about bonds with free upgrades, but you are correct.

Something like that.

The ideas of a stolen porn website operator, sure bring a lot of "substance" to the discussion. Mircea have you got some pictures?

lets keep it civilized.

So, for a while it looked like there will be a new name for those so called "bonds".
 

lol :)

I agree buying a fixed MH/s rate perpetual bond in bitcoin mining doesn't make sense with the long term trend in increasing network difficulty hash-rate.  That's why at RSM - https://bitcointalk.org/index.php?topic=63257.0 - you own actually own a share of all the hardware, wallet and anything else of value.  With us also saving between 90% to 50% of mining profits (to be decided by motion) to purchase more ASIC's to increase the MH/s a share-rate to beat the long term trend in growth increasing network difficulty hash-rate.  Meaning our share price value shouldn't decrease on the long term trend of increasing network difficulty like fixed rate bonds but actually grow and with that you will get a weekly dividend.

But what you describe is a share of a bitcoin mining operation, which is totally different than a fixed hash bond. A fixed share bond only makes sense to buy if you think the difficulty will go down, which has not happened even when the bitcoin price dropped by an order of magnitude.

If difficult goes down on a long term trend then that means bitcoin is going (down) out of use on a long term trend.

When you get a car loan your payments dont decrease because the car depreciates in value. A bond is a loan and you should get back your principal + your interest. Otherwise you are better off just loaning coins to Patrick Harnett at a constant 1% a week return.

Investing with Patrick relies on him not messing up.  With RSM - https://bitcointalk.org/index.php?topic=63257.0 - you own a share of all the hardware, wallet and anything else of value as long as you trust me not to disappear.  Major investors can be added to my personal Facebook page where I have over thirty family members all confirmed by relationship.

 Patrick doesnt let someone borrow off him and pay back less than what he lent out.

Eskimobob, wealth isn't however much of currency N you hold, it's how much real stuff you can buy with currency N.  If you believe wealth is whatever some numbers on a computer somewhere says instead of the amount of real stuff you have bankers are gonna own your ass bitcoin or no bitcoin.

I do not recall arguing against it. Buy miningturds (fixed Mh/s perpetual "bonds")  and it's guaranteed, that every month you can buy less crap with your coin (what ever currency) if you cash in your "investment". 
If some of you still think that miningturds are a good investment, please use simple calculations and actual data from GLBSE to confirm, what so many have told in this thread - your dividends will not cover your loss of principal even if BTC:USD price improves over time. You are better off sitting in BTC.
How hard is it to understand this?
If you have difficulty understanding 1+1-3=-1, please go play somewhere else :)
 
 

Yes it's possible just holding btc could be more profitable(and it has been over the last few months), but it's also more risky because if the price falls by 50% your wealth falls by 50% where as holding mining bonds you would be better protected in such a situation.  Basically the reason you think mining bonds are turds is because you could put your wealth into something riskier and potentially profit even more - well duh but you're forgetting you could also lose a lot more if things go south too.

The issue with those bonds is that they will lose value even if BTC price goes up.

Simple Google search shows that EsikimoBob is right on all counts:

http://en.wikipedia.org/wiki/Floating_rate_note

Simple Google search shows that EsikimoBob is cool:

https://www.google.com.au/search?q=EsikimoBob

So...

https://i.imgur.com/Z7kae.png

And you're saying HYDRO.BONDS is profitable? I suppose if you only bought 13 shares. Any more than that, and you'd have no buyers. Unless you want to sell at 0.001BTC

There is no escape.....

More then that have sold this morning, and it wasn't because anyone lowered the price to fill a bid order. Saying you can only sell x amount, because x = bid orders is pretty ignorant.

cuz0882, you keep calling me troll. I like to know, what exactly is your problem? If you do not mind, pleas send me a PM and stop whining here.

Lest look at the HYDRO coupon payments


Total: 0.34271179

Your "bond" holders are in green, if they this simple calculation returns a positive number: 'sale price'-'price bought'+'coupon payment received'
If they bought those at IPO, they are fine unless the price drops below 1.73-0.34271179=1.38728821.

This is what I see at the moment in GLBSE (bid):
18 shares and that is it. There is no liquidity. And this is bad news for any investment.

On August 06 you made the announcement:

This had a positive effect to  https://glbse.com/asset/view/HYDRO.BONDS price and whopping 347 BTC worth of trades (close to 3 weeks) helped the "bond" out of its all time low of 1.24.
As of today, only 18 BTC worth of trades can send the bond back to "not so funny" price range.
DO not fool yourself, your bond will lose value as difficulty rises because the damn Mh/s can produce less and less bitcoins. I am not saying, that mining is not profitable to you, I am saying, perpetual miningturds are a guaranteed to be losers from day one. If the difficulty trend changes, things will get better but as of now, I see no reason for this to happen.

If you like to call someone a troll, go take a peek at the mirror.
 

The issue with those bonds is that they will also lose value even if BTC price goes down.

I'm not going to explain it all again. The bonds dollar value is what matters. You are clearly to ignorant to even read the posts on here. If you did, you would have know I posted that 3 weeks. Your head in the sand views are no revelation to me. Why you think difficulty and btc price of the bond are the go to calculations or 18 btc is going to hurt anything is beyond me. I don't even want to know how you draw these narrow minded conclusions.

No one gives a fuck about the "dollar value" since its all denominated in BTC and youre not listed on a USD stock exchange.

Go read the earlier posts, its pretty well explained. Even if we traded them in dollars they would not be worth the same amount of dollars when the value of the dollar changed. You only benefit and lose from those changes if you invested in dollars. Bonds are invested in equipment, not a currency. So logically its not going to follow those changes in value. Go take a valium or somthing.

Here is my position.

• It is claimed that many (if not most) fixed Mh/s bonds have dropped in value more than the dividends that have been paid. EskimoBob says that these are the worst investments ever, but that is an exaggeration. Really, it means that they are bad investments because you would have made more money (in dollars or BTC) by just holding the BTC instead of buying the bonds.
  
  This is an important point because even if the value of BTC goes through the roof, if the total value of the bond (price + dividends) drops then it would be better to just hold the BTC instead of buying the bond. In this case, it doesn't matter if the value is in BTC or dollars.
  
  
• It is claimed that the BTC value of bonds fixed to a constant Mh/s will decline as the difficulty rises. This is only correct if you accept certain assumptions because the value of a Mh/s bond is dependent on supply and demand, and not difficulty. So, for EskimoBob's point to be correct, you must accept the assumption that an increase in difficulty goes along with a decrease in demand or an increase in supply.
  
  For example, when the ASICs come out, the dividend for 1 Mh/s bond will drop significantly. But if there is not an increase in fixed Mh/s bonds (supply is constant) and there are no alternatives (demand is constant), then the value of the bonds will remain the same because there is nothing else to invest in. It is simple supply and demand.
  
  However, we know that this is not the case because many of the miners are upgrading the bonds when the ASICs come out. The amount of fixed-Mh/s bonds is going to go up by a factor of 10-20. That means that the value 1 Mh/s bond will probably drop to about 5%-10% of its current value. Here we see that the value of a fixed Mh/s bond drops not because the difficulty rises, but because the supply of the bonds increases.
  
  Even if we ignore the coming ASICs for now, it is pretty safe to assume that a rising difficulty is due to more miners and these miners are selling more bonds. In this case the value of the bonds fall not because of the rising difficulty, but again because of the increase in the supply of bonds.
  
  
• Finally, the value of equipment. If a company's shares are denominated in BTC, then the value of its equipment should also be denominated in BTC (or in dollars with a separate line for currency adjustments). This makes sense because investors need to be able to directly compare the value of a company to the value of its shares. Now, if the value of the equipment is constant in dollar terms, then it will vary in BTC terms. There is no way to avoid this. If the value of BTC goes up, the value of the equipment must go down because if you sell the equipment, you get less BTC for it. This is important for doing the accounting correctly. So, if the value of the company is determined by the value of the equipment and the value of BTC goes up, then the value of the company (in BTC) will go down. If the value goes down more than the dividends, the company is a "bad" investment (regardless of its dollar value) because you would have done better by holding the BTC instead of buying shares in the company.
  

I think all of this is pretty straightforward and indisputable. If you want to make other assumptions or if you don't mind if the value of your investment is less than the value of the BTC used to buy the investment (as long as the value has gone up in dollar terms), then that is your choice.


Unfortunately, a statement like this means that no further rational discussion is possible.

This thread is great work. Please post a donation address.

Let me put my money where my mouth is. Anyone owning these bonds, lend them to me so I can short them. I will pay you all dividends +10% bonus. Minimum duration 3 months, after that Im free to return them whenever I want, or you want. PM me when interested.

Wow...I'd like some of that action. Can you set up a GLBSE security so that we can all profit?

I intended to start something like that here:
https://bitcointalk.org/index.php?topic=88496.0

Imagine my profits if I had done it back then, but Brendio promised an easier solution, that Ive yet to see materialize.
And now,  I dont think the new GLSBE rules would allow it.

Interesting idea and thank you for all who have participated.

 1C1gJABrGYdSGZ7wBcVWWcM8yraLuPc8m5

I must agree that buying a Mhash/s turd is a bad investment. But heck, let anyone invest in what they want...

Net present value analyis relies on using a discount rate to model the present value of a flow of money.

I was dicking around in excel to get some NPVs for an xMH/s perpetual (zero face value) mining bond. I am modeling these simply as a flow of ever-decreasing dividends. The difficulty increase rate (dividend decrease rate) is also an input. The mining rewards are modeled to halve after 18 weeks from today, and the NPV is then calculated at 1%, 2%, and 4% weekly discount rates over 2 years of projected dividends.

Might be fun to play around with!

http://www.filedropper.com/miningnpv (http://www.filedropper.com/miningnpv)

Good idea. Thank you.
http://striketeam.ath.cx/btccalc/btccalc.php is a nice Mh/s calculator that shows you what happens to Mh/s production, when difficulty rises.
In February 2012, difficulty was 1379647.  I did calculations with 5% rise per month. I was sure, it never happen that fast. I was wrong :)
We are at 2440642.60
 

I'll bump this because people are still getting sucked in to fixed Mh/s perpetual bond scams.

You have a funny definition of "scam". Then anyone betting with Matthew N. Wright has been scamming him, since he has allowed him to make a stupid choice with his money...

You mean you'll bump this because you are now trolling. I think a good in-depth thoughtful analysis would make a good sticky, but this thread is far from that.

You can thank your fellow forum users for that :)

Point proven.

Nice list.

Now people who support these are going to say "But for the people who bought in AFTER the IPO, after the price crashed, these were a great deal since they got them cheaper." But the price will continue to go down in the future, so what looks like a great price now is going to look overpriced when you look back at it in a couple months.

For what it's worth, GIGAMINING's original IPO price was 1 BTC each.

Thanks,
gigavps

EDIT: FTFY

And Puremining's was 0.37.

For comparison, could you add a few of the "mining companies" to the list? I mean the ones where the shares actually own a percentage of the company?

I suggest a new list as that would not be an apples to apples comparison.

Well then.

Asset	IPO Price	Total Dividends	Last Traded	Profit
GIGAMINING	1	0.443176	0.6	+0.043176 (+04%)
BITBOND	0.6	0.188358	0.32	-0.091642 (-15%)
YABMC	0.3	0.085533	0.0999	-0.114567 (-38%)
PUREMINING	0.37	0.101208	0.0953	-0.173492 (-47%)

How does one find the IPO Price? I was using the earliest trade, or so I thought.

Comparison with equity companies:

Asset	IPO Price	Total Dividends	Last Traded	Profit
BTC-MINING	1	0.250579	0.8	+0.050579 (+5%)
COGNITIVE	0.6	0.092174	0.62479998	+0.116974 (+20%)
FPGAMINING	1	0.344258	0.688	+0.032258 (+3%)

Everyone is welcome to expand upon this table, but I find it boring work :-\

Thanks for making the table with pretty colors.  :D

I feel that mining bonds are not the means to the end, aka, just buy the bond and hold it. Although, if you bought at the original IPO, you would still be ahead of the game by the 4%.

This thread claims that mining bonds are the turds. Could it be that "investors" strategies in owning mining bonds are the real problem?

Bitcoin mining should be considered to be a depleting asset and as such, one must understand depleting assets in order to understand how to invest in them. It is becoming common place knowledge now that reinvestment is an essential part of any mining strategy, whether you are buying mining equipment or you are buying mining bonds. Otherwise, you lose on both ends because of technology advances eroding value in your mining equipment and difficulty increases eroding your dividend payments.

If you are not willing to reinvest, mining and mining bonds are probably not for you.

Hm, try assbot

( smickles ) !pl gigamining 1
( @assbot ) GIGAMINING [1@1BTC] paid: 0.45625096 BTC. Last price: 0.6 BTC. Capital gain: -0.4 BTC. Total: 0.05625096 BTC. (5.6%)

#bitcoin-assets.

If I remember well, only the first 5000 GIGAMINING were sold at 1 BTC. The rest were sold at 1.5.

The first 10k bonds sold at 1 BTC. All trading activity to 1.5 BTC was the market finding what it felt was the current value.

YO, 'Bob? What's up with NASTY, is that a mining turd? Because it looks to have appreciated over the last few months instead of going down. And it has paid dividends:

https://glbse.com/asset/view/NASTY

lrn2read contracts

"Shareholders will own the Bitcoin mining equipment and in the event of a liquidation, proceeds from sales of equipment will be paid to shareholders"

NASTY is not a mining bond at all. Thanks for proving the point that I made earlier about a mining company being better than a fixed mining bond.

This is ultimately the crux of the situation. You can either buy a mining company which will manage the reinvestment for you or buy mining bonds and perform the reinvestment yourself.

There are still some things about fixed MH/s bonds that are rather "turdy" in my opinion. This is in the short term, and will be corrected once ASIC is out and is established.

Basically, the argument is that what miners do is use real money (bitcoins) at a present day to purchase equipment with a fixed MH/s, thus a bond holder is really performing the same action that miner is now. However, just look at that statement. If you wanted to get into mining, would you buy equipment now? With ASIC difficulties coming along with the reward halving, I certainly wouldn't buy a GPU. I wouldn't even consider a non-BFL FPGA. So my option is a BFL FPGA.

However, BFL FPGAs are not spending a fixed amount now for a fixed MH/s because of the ASIC upgrade program. Right now, assuming BFL delivers on their specs, 830 MH/s can be traded for about 18,445 MH/s, a 2200% increase. Let's go back to GPUs, they have a secondary market, and so they could be sold to purchase ASICs as well. I could see 3,000 MH/s being traded for a 40,000 MH/s SC single, a 1333% increase.

But owners of fixed mining contracts right now have no promises to increase hashrate in the future. All of the outstanding bonds for gigamining could be fulfilled with a single $30,000 SC minirig, with hash power to spare, and all the existing equipment can be sold to the owner's profit. I'm not saying it's wrong: people went into that deal with a clear understanding of what they were going to get. I'm just saying that at the prices I've seen for these contracts, it's a horribly bad deal and I don't see how people are going to get an ROI.

NASTY is not doing anything different in that regard. The price has gone up only because he keeps charging more.

This is basically false.

To a first order approximation your investment decisions are linearly superposed together. In month 1 you invest X1 in mining equipment/bonds and that investment will generate a NPV of Y1 over its lifetime. In month 2 you invest X2 in mining equipment/bonds and that investment will generate a NPV of Y2 over its lifetime. Y2 is independent of X1 and Y1 is independent of X2; any one of the investment decisions will either be profitable or not, and your total profit is the sum of the individual profits. If E[Y1]>X1 then investing in month 1 was a good decision, no matter what you do next. If E[Y2]>X2 then investing in month 2 was a good decision, no matter what you did before.

This is truer for buying bonds than for equipment, since economies of scale with the latter may make it more lucrative to keep a consistent stake (which means reinvesting in more MH/s). I don't think this effect is large though, and for bonds it doesn't apply at all.

To a second order approximation you need to correct for your risks, and this supports having a consistent stake; but in the same way that martingale strategies can't gain you expected profit when gambling, "investment strategies" can't get you expected profit unless there is expected profit in the individual decisions. If there is ever expected profit to be made, it can be obtained by buying and holding forever.

You're double-counting the loss. Either you compare against selling now, in which case you only care about the current traded price; or you compare against keeping forever, in which case you only care about the future dividends. In a reasonably efficient market, the two are commensurable; pick one to focus on.

If the dividends you have obtained in a unit of time are greater than the depreciation of your holdings, the original investment was good whether you reinvest or not. If the dividends you have obtained in a unit of time are less than the depreciation of your holdings, the original investment was bad whether you reinvest or not.


You can pre-order BFL ASICs. And if you issue new bonds you can price them according to ASIC prices. Currently signal-to-noise ratio is too low so issuing new deterministic bonds doesn't make much sense. But any known future development and upgrade path can be trivially priced in, giving a price which is fair for both issuer and investor.

The point with deterministic bonds is that the concept of "issuer" is fundamentally meaningless. A MH/s is a MH/s, it will generate Y BTC over its lifetime and traders should be able to place bids and asks according to their estimation of Y (or its correlation with their underlying operations), with leverage of course. The traded price for a deterministic perpetual MH/s will converge to an equilibrium reflecting the opinions and needs of everyone on the market. It just happens that the best way to sell MH/s currently is as an issuer on GLBSE, leveraging personal trust rather than collateral.

Because of the way difficulty retargeting works, a large discrepancy between the total cost of physically obtaining MH/s and its lifetime earnings (hence its traded price) can't be sustained for long periods of time.

My point is that not all MH/s are created equal. A MH/s from a BFL FPGA has a higher value of trade in for a BFL ASIC than a MH/s from a GPU.

Every single security I see for straight MHps with no upgrade offer are horribly overpriced by two orders of magnitude. They don't even seem to consider reward halving, which is less than 2 months away.

My point is that "A MH/s from a BFL FPGA" is not a MH/s. A perpetual determinstic MH/s has a specific definition and is worth what it's worth (and its worth takes into account the various ways to obtain physical hashrate, and the uncertainties in them). A BFL FPGA doing X MH/s is worth more than X MH/s.

I hope you understand that "they" is the market, not the issuers.

Very true... Thanks for great insight and enlightening post as always!

how perpetually will you mine without glbse, please?

If that's a question to me it belongs in the PureMining thread (and the answer is that I will pay coupons until an ELE-based buyback is in order).

As a general question - GLBSE isn't important, what's important is the data which I hope is recoverable (of course the situation isn't better with any other stock or bond on GLBSE).

I'm fine with hijacking this thread and welcome your contribution. I value your input because of proven track of record, pioneering the area and I am sure you have a lot to say. I'm nit picking around the fact that an established capital exchange service is gone, business continuity of something perpetual suddenly interrupted. I do not doubt that mining with glbse funded assets is going on, want to see how share/bond/contract holders will continue to operate.
maybe it solves itself by migrating as soon as data will be available for export (see RSM example). kinda important glbse is.

I will possibly migrate to colored coins at some point, until then it will be static (no ability of holders to transfer ownership). For the foreseeable future paying coupons will be more lucrative for me than buying back, and running my mining operation will be more lucrative than liquidating it (and the two are mostly independent).

The offering did assume the existence of GLBSE, but the prospect of perpetuity is fundamentally future-looking, the discontinuity of the coming weeks won't harm the essence of it - again assuming bondholders can be identified.