Let me be clear on what IS automatic - and shouldn't be.

I trust TF for 100 BTC - NOT automatic.
I trust Bitstamp for 100 BTC - NOT automatic.
Anyone else who trusts both can swap IOUs to me from one of TF/Bitstamp to the other - IS automatic and shouldn't be.


I explained this before.

Even aside from the issue of someone you WON'T repay there's the simple FACT that debts from different sources are often worth different amounts.  That depends not just on the degree of trustworthyness of the debtor - but also (and vitally) on the repayment terms of the IOUS.

Given counterparties who you trust equally, a debt of 1 BTC from one with a promise to redeem on request is, beyond doubt, worth more than a debt of 1 BTC from someone who promises to repay it in a year.  If I accepted IOUs for both debts then I'd (obviously) have built in a bigger markup when accepting the debt from the person who wasn't going to settle for a year.  Issuing a fixed-value IOU in return for a smaller amount of cash NOW is entirely reasonable.

Now ripple does NOT allow attachment of settlement terms to debts.  That leaves two alternatives:

1.  Settlement terms need to be agreed off-ripple.  This is what I assumed to be the case - and is why it is HORRIBLE for debts in the same currency to be considered of equal value.  The settlement terms define the value far more than the face value.
2.  All ripple BTC are to be immediately redeemable for 'real' BTC.  If this was the intent then the system is fucked beyond all belief - as there's not even a token effort to ensure issuers are even aware of that requirement, let alone comply with it.

Believing all debt in the same currency has the same value so long as the issuer intends to repay is just terribly naive and totally ignorant.  That the system not only treats them as equal value but offers no way to do otherwise is a huge flaw (yes - I'm aware there's apparently a way for the inner circle or maybe it's just a planned future way, but in a closed-source project that's not much use to everyone else).

If you believe someone won't repay then their IOUs have the same value as an IOU with no settlement terms : you can have no reasonable expectation of ever being repaid.  The lack of any settlement terms being propagated through ripple is a serious issue if the intent is to ever have debt being widely traded : even if users get the ability to price different debt they'll lack the information needed to do so.  That limits the usefulness of ripple to only debt issued by gateways that pass some quality control - which aside from being a limiting factor also means it has to remain centralised (if every man and his dog can create gateways and issue IOUs with no settlement terms then how do users decide which is trustworthy?).

How can you capitalise the revenue at 5% when a large chunk of the shares are held by yourself without having put in the same amount of capital/share?  Not arguing against you retaining a chunk of shares - but it massively impacts valuation (sold shares generated .005 or whatever each, you shares generated the value of the avalons you purchased/shares you own).

Also if you extrapolate from current orders to a lot more (what you've done) then you MUST factor in the change that quantity of hash-power makes to difficulty, as it becomes significant.  If all those machines arrive and get deployed, difficulty would change within a week - the 50% reinvestment would only keep up with external changes, it can't possibly compensate for the immediate change when you deploy before you've mined anything.

It's also misleading to value shares now as though they already generated revenue that you project for a year.

Plus the value NOW can only be based on the capital you've currently raised - the company's value can't be calculated based on money you HOPE to raise by selling more shares.  And the value of an investor's share now is based on company value/number of dividend-paying shares.  So if you've sold 1 share for every 5 you hold (can't tell actual numbers as can't distinguish between treasury shares and your personal ones) then at present investors would only own 1/6th of the company.  As you sell more that figure increases - as does the value of their share - but right now, because the majority of shares are owned by yourself - without similar capital having been put in - the actual value of the shares sold must be pretty low (they put in 90% of capital and own 1/6th of company - or whatever actual figures are based on shares sold).

Who gets the dividend payment from shares allocated for public sale but unsold btw?  We know investors don't (they get a fixed portion of profits) but do they go to you or into reinvestment?

Have to say the distribution method used (a not uncommon one around here ) of x% of profits per share is grossly unfair to investors if the IPO doesn't sell out.  If less shares sell then they get the same percentage of profits on a much smaller capital base.  So if 1 share sold (ignoring your avalons for a second - just to show the point) then he'd have put in 100% of the capital but get 1/100 millionth of the profits.  Your existing avalon orders make it less unfair - but still grossly so unless most of that 40 million shares get sold (at which point you're 'only' taking 60% of profits plus any salary in return for a few avalons - looking only at capital invested, not at work put in).

No - he did NOT tell them to do that.  And they didn't tell  ripple to consider the two as equal in value.

Ripple AUTOMATICALLY considers them as equal in value without any such request being made.  That's the problem - a shame you can't see it or won't accept or won't admit it.  Not only does ripple immediately consider them as being equal in value it also (without being asked to - and with no way to prevent it unless in the inner-circle) allows others to exchange your holdings of one for holdings of the other.

TF didn't explain to users the ramifications of extending trust.  But he didn't tell them to do anything to cause a change in the default behaviour of ripple.  As it stands ripple FORCES worthless BTC-denominated debt to be treated as equal value to redeemable BTC-denominated debt.

Or maybe you'd like to explain how a ripple user COULD extend trust to TF and NOT be forced by the software to accept his debt in return for other BTC debt?

WEEKLY REPORT




4.68% growth this week (before management fee) with an estimated 3.28% from trading and the remainder from the continued slow fall in the price of LTC vs BTC.

Bitfinex have now introduced LTC/BTC and LTC/USD trading - as indicated last week.  At present volume is very slim there, but I've moved some funds over to take advantage of arbitrage opportunities with the BTC-E books.  Once our new security gets going we'll be moving funds in and out of there anyway.  I'm still waiting for the MtGox situation to clear up before launching the security - but it looks as though they may have pretty much pulled out of using Gox completely (which is the safest solution).

We now have 250 BTC worth of LTC-ATF.B1 bonds issued - which is where we'll be stopping.  When next we need more funds I'll be looking to raise them via a new bond on BTC.CO - on which we'll offer a lower rate of interest.  We can't lower the rate on LTC-ATF.B1 and launching a second bond on LTC-Global would be confusing - so that's our best way forward to reduce the cost of further capital.  We don't NEED to reduce the cost of capital but there's absolutely no point in paying more than we have to.

Our S.DICE holdings are still high - but don't misread that as meaning that we just sat on them.  We sold most of our surplus from last week (all at over .0023) and now have new stock of them (bought for less of course).

Management fee of 1 unit this week (rounded down from 1.27) which will be transferred after posting this.

I agree that what he did was possibly stupid and definitely risked people losing money.

But this thread was accusing him of scamming - which isn't the case.

And the risk already existed - my view is, in part, that it was better he did it WITHOUT trying to scam people than someone did it in a more subtle way causing significant loss.  The issue's been around (and been commented on) since ripple was first promoted in the alt-currencies forum.  There was no sign of any attempt to fix it - or even an acknowledgement that there was a problem.  So I tend to think this episode will end up doing way more good than harm - the good being both a much greater general awareness of the flaw/risk with ripple trust and hopefully a bit more urgency from the ripple team to do something about it.  The bad seems to be a loss of 1 BTC or so plus maybe a further 10 BTC from someone who insisted on losing it to prove a point that we already all knew (point proven - hope it was worth 10 BTC).

He's been running other bonds for his main company Koddos on BTC.CO and (mainly) LTC-Global for a long time now.  Those have always paid out on time (a few days late occasionally - but nothing significant).

I don't think he's scamming - I just think he saw $ signs at the idea of an exchange and started collecting investors' funds way before he was ready to launch.  Moderators should never have approved the security until the exchange was functional given that he claimed he didn't need the funds to get it running.

Getting the site running is the easy part anyway - the hard part is yet to come : attracting customers and maintaining banking relationships such that cash can be moved in and out easily.  He seems to think he can just magically grow to same size as BTC-E : I think he's in for a rude awakening from that dream/delusion.

Give him some time to respond - it can't be easy to constantly come up with new excuses.

I think he did a pretty good job of achieving the emboldened.

I pointed out that particular issue ages ago - explaining that just because I (ripple) trust A and B doesn't mean I'm fine with debt from one being exchanged for debt from the other.  That just got ignored - seems his approach had more success in highlighting the issue.

And are you seriously claiming that the ability to ripple debts is a "microscopic design feature" of ripple?  I thought that was pretty much the whole point of it (either that or making profit by selling XRPs).  And the way it currently works is horribly broken.

To take your gun analogy it's as if you'd designed a gun where if you pointed it in the general direction of someone it automatically fired without the trigger needing to be pulled.  And the safety catch was proprietary and not available to the public - only an inner circle got one of those.

Similarly your hammer analogy is incorrect.  You've designed a hammer where it's impossible to hit a nail (maintain extended trust to multiple people) without hitting your fingers (allow equal-value exchange of debt you've accepted even when that debt is NOT of equal value).  It's not about failure to understand how to use the tool - it's that, right now, the tool can't do what it's meant to do safely (If you have unused trust extended then you CAN'T stop it being used in exchange for existing debt you hold).  It's not that you CAN hit your finger - it's that it's impossible to avoid it.

If you're working on a solution to that problem don't fall into the tempting trap of just allowing assignment of value or weight to individual debtors - that would be a more subtly broken solution.  By that I mean a solution where if I trusted A and B and C I could assign a weight of 1 to A and 0.9 to B and 0.01 to C - and any ripples through me would apply the appropriate rates (so someone would have to give me 100 C BTC to get 1 A BTC or 10 B BTC to get 9 A BTC).  It's an obvious way to do it - but wrong.

I like the concept behind ripple.  I'm not so keen on some of the decisions made in your implementation.  Not just technical details like this one but basic things like trying to get sympathy/support by claiming to be open-source whilst not being open-source at all (I assume you realise that a vague promise of becoming open-source at an unspecified time in the future isn't the same thing as being open-source).  Any claims that you are open-source would be lies wouldn't they?

Well the direct answer to the 'argument' you're making is that it's NOT roughly comparable.  To address it in any more depth would be giving credibility to the strawman you constructed.

A roughly comparable situation would be if when you made a transfer of coins in Bitcoin the transaction contained your private key in plain-text by default - and you had to have access to closed-source source-code to change the settings to not broadcast it.  In my view that's how bad an idea valuing, by default, all debt equally (at a non-zero value) is.  The problem isn't that trust CAN be used to provide liquidity - it's that it does so by default.

Take a step back from the TF situation and consider what will happen when (and it WILL happen at some point) a gateway defaults.  Is it really desirable that whoever happens to be around gets to shift all their debt from it to whoever happens to be offline (assuming the system gains enough traction that there are actually a signficiant number of users trusting multiple gateways)?  Exposure to that kind of risk needs to be opted into by users (by them actively setting their trusted counterparties as exchangable) not something they have forced on them without warning the moment they trust more than one target.

Similar bets had been made on here and paid up.

Which immediately invalidates most of your junk about what a reasonable person would believe.  Bets on here get made and paid - so a reasonable person is entitled to assume good faith when a bet is offered.

As far as jurisdiction is concerned, the jurisdiction is rather obviously this forum - where it's been explicitly made clear before that if you make an agreement to do something then you're expected to do it.

Your argument that it's an illegal contract in nevada is irrelevant because:

a) Matt isn't in Nevada.
b) The scammer tag is given for breaking a contract - not for breaking a legal contract.  If you don't want to get a scammer tag AND you don't want to break the law then the solution is not to enter into contracts that are illegal.  That's not actually all that hard to work out is it?

Contract is not the same as Legal Contract.  If I enter into a contract with you to do something illegal then don't do it then I HAVE scammed you.  Now it may well be the case that scamming you is preferable to breaking the law - but that doesn't alter the fact that I made an agreement and broke it.  And that's what gets the scammer tag here.

Where our views are maybe more in agreement is that I believe there's plenty of forum members who have done as bad as or worse than Matt and not got scammer tags.  In my view he got his, in part, because he did it so blatantly and in such a public manner - so it didn't take much effort to find the evidence.  Whilst there's valid reasons to argue against him having a tag, trying to misinterpret things to argue no contract was entered into isn't one of them.  Noone here cares what RL jurisdiction etc applies - the simple test is did he promise to do something specific and then fail to deliver. 

If (and ONLY if) there were some convincing evidence that it was a prank from the start and that he 100% would not have taken a penny if his side of the bet won then I'd tend to support removing the tag.  But I'm by no means convinced of that and recall a post he made which gave the distinct impression that at least initially it was meant as a genuine bet.

That number is somewhere in London - not in the BVI.  All numbers beginning 020 are in London.

If they're requesting personal ID and are in the UK's jurisdiction then they need to have a policy for it (how it's handled, what it's collected for, what use will be made of it etc) and a company compliance officer responsible for ensuring that the policy is followed.

You should have taken the next part of whatever law course you flunked out on (or, more likely, read a few more Google results).

A consideration can be a promise to do/pay something (and it can be conditional) - it doesn't have to actually be transferred or escrowed to be a consideration.  The purpose of the requirement for a consideration is NOT to say that contracts aren't binding until something has changed hands - but rather that there must be an agreed intent for a transfer of some value.

If I make a contract with you to exchange X for Y then your horribly flawed contention is that until one of us has sent there's no consideration and so there's no contract.  That's just totally wrong.

You seem to be missing the rather basic point that if you buy BTC someone else has to be selling them.  And that means they get USD.  Why would someone sell you BTC for USD if they then couldn't withdraw the USD?

I assume if you'd promised to settle in ripple IOUs (without specifying any settlement date for those IOUs) then you could have just issued ripple IOUs and then forgotten about them.

An IOU without settlement terms is worthless.

What you did was make a bet - where established practice is immediate settlemenet in cash as soon as the outcome is determined.  There's no equivalent default settlement terms for IOUs.

Bets need to be settled in cash on demand (unless agreed otherwise).  IOUs don't.

That's the difference - and why you got tagged but TF didn't/shouldn't.  If anyone should get tagged for this it's the ripple developers for promoting a system which automatically treats even explicitly worthless debt as having the same value as payable-on-demand debt.  Sounds like they intend to fix this - but it's hardly a new issue or one which they were unaware of.

And people handing out ripple trust for no reason is hardly new either - as soon as ripple was launched there were threads where bunches of idiots handed out trust at random to one another.

My thoughts are that the vast majority of investments sold on BTC exchanges are in practice tied to fiat (exceptions being securities which don't hold significant physical assets or trade in physical assets - e.g. shares in exchanges themselves and trading funds).  It's pretty much inevitable that this is the case - as nothing of any note has a price that's actually fixed in BTC so the value of BTC itself is entirely driven by speculation/confidence.

As a result the performance of the vast majority of BTC securities will continue to be predominantly set by the exchange-rate.  When BTC rises profits (in BTC) will fall and price will fall - and vice-versa.  Which is why I continue to stick to trading rather than investing - it's easier to make profit from the bad judgment of other investors than from the actual securities.  Most investors' idea of valuing a security is to look at what the bid and ask are at and the value is somewhere in between.  Which is often correct if determining book value - but useless when evaluating something as an investment or trying to make a decision on whether to buy, hold or sell.

Maybe we're just using 'denominated' for different purposes - you meaning the currency they're traded in and me meaning the currency in which their value is defined in practice.

So let me reword our difference.

You claimed mining securities have low fiat-exosure.  I disagree - they have as high fiat-exposure as you can get.

Just because you buy something with BTC doesn't make it BTC-denominated.

If you buy a Dollar bill with BTC the bill is still denominated in USD.  Same with mining securities.  Their value is pegged to USD not BTC - no matter what the issuers pretend or which currency trades are transacted in.  If BTC rises vs USD their value falls.

Given that mining securities have 100% exposure to fiat it's hard to see how your claim they have less exposure than some other investments could be correct.  Are there securities whose value is more than 100% tied to fiat?  If BTC double vs USD do you honestly believe S.DICE bet volume more than halves (S.DICE being something you claimed had more exposure to fiat than mining securities)?

Your claim that they were priced in BTC was made when you stated that hash power was priced in BTC.  Hash power is pretty much ALL that mining companies have - so rather obviously their price is denominated in whatever hashing power is priced in.  Which you said was BTC - but it's usually fiat (even if transacted in BTC).  Try finding somewhere that sells hashing power priced in BTC - and keeps same BTC price if BTC moves majorly in either direction vs USD.

I didn't gloss over those points - they were irrelevant.  My example was looking at two companies with identical hardware/hashpower - only difference being when they bought it.  They have identical future outlooks (other than a potential minor difference in that company A's equipment is older and so likely to fail sooner).



Plans to expand/reinvest/keep up with changes are a red herring.  Mining companies talk about reinvestment as though it somehow increases profitability.  It doesn't - profitability as a percentage of capital over the lifetime of an investment is unaffected by reinvestment.  If a business model is unprofitable then reinvestment won't change that - it'll just increase losses as a percentage of invested capital (but delay the point at which the losses become unavoidably obvious).

Where reinvestment serves a useful purpose is in maintaining the capital value of an investment - which is something you only want done on investments that are profitable in the first place.

In any event, until mining companies stop defining profit as "anything I mine" and instead define it as "the excess value of our assets over their initial value" reinvestment is the wrong word.  Most mining companies that claim to reinvest aren't actually doing so - they're just not dividending out as much of their capital as ones that make no such claims.  And they won't change because they like to define profit as "anything I mine" so they can then claim their management fee is taken from profit - when in reality its taken at the expense of eroding the asset base which isn't really profit at all.



Not all securities are created with the primary intent of passing risk on to investors.  Obviously there's always SOME risk in investment but it doesn't have to be the one-sided transaction that it is in most mining securities.  Some securities are issued to raise capital - with little risk to investors.  But to do that means the issuer needs to be confident of making profit - which doesn't apply to most mining securities.

There's absolutely nothing wrong with passing risk on to investors.  What's wrong is the amount of cream some issuers want to skim off the top risk-free without any realistic likelihood of investors making any profit in return for all the risk being passed to them.  That's by no means unique to mining securities - just look around and you'll find plenty of other 'businesses' that have made trivial profit, have modest epectations, yet want a fat chunk of cash up front as a reward for exposing investors to high-risk, low-potential securities.



No.

You claimed mining securities are BTC denominated.
I pointed out they're fiat denominated.

That's in no way the same thing.  They're about as opposite points of view as you can get.

Emboldened is where you're going wrong.

As soon as supply of ASICs is sufficient to meet demand their price will NOT be in BTC it'll be in USD.  Same as was the case with CPUs, GPUs and FPGAs.  That's unavoidable because the manufacturing costs are in USD not BTC.

Once hardware reverts to being priced in fiat then mining shares/bonds also end up being effectively valued in fiat.  You don't need to do any complicated math to demonstrate it either.  All you need to do is consider the following:

Company A starts operations and sells shares in BTC.
BTC doubles in value vs USD.
Company B starts operations with same hashpower as company A.
Company B can raise the capital for half the BTC it cost company A (same USD).
How can company A's shares now be worth twice that of company B's?  They can't - they've fallen to same BTC value.

Mining companies aren't like most companies when it comes to valuing shares.  There's a minimal barrier to entry and no real benefit for being in operation first.  If I produced a website with all the functionality of Facebook, share in my company would be worth nowhere near those of Facebook - as I wouldn't have the billions of existing customers.  No such issue exists with mining - just buy the hardware, set it up and you generate same revenue as an existing company.

The only way to value mining companies is on hashing power - and so they have to be valued in the currency hashing power is priced in.  And that's fiat other than briefy, as now, when demand supasses supply and pricing is whatever they ask for with no meaningful denomination.

In general when BTC rises vs USD more miners come online (as it makes sense for them to mine) increasing difficulty and reducing BTC earned per hash (but not necessarily USD earned per hash).  Difficulty follows exchange-rate - not the other way round (as some mistakenly think).  And that makes actual earnings tend to be inline with USD not BTC anyway - even discounting my earlier point.  Where supply meets or exceeds demand then profitability of mining will tend to zero - meaning only those with cheap power make any profit at all - which is why, other than in short-term supply shortages - mining in general is a horrible investment, especially if the issuer takes their cut as a percentage of revenue rather than of profit.

There may be other factors impacting the traded price of specific securities - e.g. reliability of issuer - but those are entirely independent of the BTC/fiat denomination discussion and generally serve to ensure that if you want a reliable issuer you make a larger loss.

Mining companies are all about an issuer passing the risk to investors whilst getting some income whether or not investors ever get their original money back.  If BTC rises then it's pretty much a certainty other than in exceptional circumstances (e.g. investment has early ASICs) that an investment in mining is worse than just holding BTC.  There's plenty of 'reliable' mining comapneis around.  But take a look at their dividend history and see how reliable they've been at getting investors back their initial investment - it's not a pretty picture.  Right now mining securities is all about late-batch Avalons etc being resold by purchasers to investors so as to lock in their profits and leave investors with the risk of never making their investment back if either BTC rises a lot OR another manufacturer starts mass shipping.

By all means consider mining as a BTC-denominated investment - but you're wrong if you do so (once ASIC supply rises to around demand or higher).

Interesting thing with BitPride:

Shares Total   50,000,000
Shares Issued   50,000,052

Seems somehow the number of shares in circulation is rising above the number that actually exist.  Is there some wierd bug where shares are getting created from nothing or duplicated during transfers or something?

If you look at their dividend history it shows number of shares slowly creeping up above 50 million.