Hi Dunster, welcome to the Bitcoin forum.

See for example this, this and this for discussion of blockchain-based decentralized asset representation and exchange.

Somewhat related is this comment about a computational generalization of the concept of "company". There's not much written discussion of this, but I've talked in person with the suggester and he's very enthusiastic about it.

The article now lists PureMining with a generic "Mining" title - but it's worth noting that this bond is quite different from most mining assets, and in fact in some sense antithetical to them. One of my long-term goals is to commoditize mining - as mining is, after all, a commodity - and to move away from the infungible "Please invest in my mining farm!" model. Rather, people and companies who wish to mine, should employ basic instruments according to their needs:

1. If they are willing to take the risk but in need of immediate cash for the purchase, borrow X BTC and commit to repay Y BTC at a later time (this would require some form of reputation and/or accountability). Borrowing USD can also work, and in all cases hedging against BTC/USD volatility should be considered.

2. If they have funds but don't want to have a stake in the long-term prospects of mining, sell short a generic mining bond, offering BTC as collateral. (There could be markets which allow negative mining bond balances and automatically deduct BTC coupons)

3. If they have some or all of the required funds and want to take some or all of the risk, do some combination of the above or similar instruments.

This of course does not preclude public investment in companies which mine (with or without additional activities), but the existence of an efficient global market for speculating on the generic, idealized profitability of mining, can help focus such investments on advantages specific to the company, by investors who are in a position to evaluate them.


All that said, for the time being the bond merely acts as an alternative to investing in mining companies, which streamlines typical costs into the valuation.

vampire was alluding to the fact that he registered to the forum on June 8 2011, two days before you, so referring to him as "new" was inappropriate.

Even if going by post count alone, 90 is in no way new. It just means we are very, very old.

I priced it by considering both my own costs and risks, and the attractiveness of competing offers. If there is not enough interest at this price I'll consider offering at a lower price, admittedly there's some room for this. The price includes many things when compared to direct hardware purchase, as described in the OP.

This is something which I have considered but unfortunately GLBSE doesn't offer a good solution. My payment cycle is every 2.3 days, most mining companies pay every week. The fluctuations would at worst be about 0.34% which are likely much less than the spreads.

Right, I wanted to include that figure but forgot, you beat me to it. Everyone should agree that 4.45% monthly return is good on one hand, but that the difficulty will increase on the other hand. By investing in this, you are betting that the difficulty will not increase too much.

The Ticker symbol is PureMining, the asset ID is 3cc7f4be83ff553ecbe53e57e55e5a672397a1d15b7bf7548ec07d996e76971b.

In practice I will likely buy back all the bonds sometime in the next 50 years, either at market rates or via my contractual right. But this should still leave you with a total value which surpasses what the contract would provide to infinity (it's approximately a convergent geometric series).

(reserved)

Coupons are computed as follows.

Every Bitcoin block with height 1 less than a multiple of 336 is a key block. Whenever a key block is found and confirmed by 5 more blocks, its vital data is recorded and used in the calculation of the coupon for the period between the time the last key block was found and the time this key block was found. Letting

T = Difference, in seconds, between the timestamps of this key block and the last key block.
B = Block reward (new generated coins) in this key block (a deterministic function of block height)
D = Difficulty of this key block

The coupon is (T*B*10^6)/(D*2^32) per bond, rounded to within a reasonable numerical precision.

The time of physically paying out the coupons via the GLBSE mechanism is on a best-effort basis.


If Bitcoin changes so that the letter of the above procedure no longer accurately reflects the spirit of the asset, which is that every bond is equivalent to two million applications of SHA-256 per second, the procedure will change to maintain the spirit. If such time comes that computation of SHA-256 can no longer be used for mining Bitcoin, the bond will become worthless and no longer entitle the holder to any coupons.


The bond is callable by the issuer at a price equal to 1.2 times the highest price the asset was traded on GLBSE over the prior 744 hours. If no technical means is offered by GLBSE for the call, it will be carried out as follows:
1. The call and the offered price will be announced.
2. Bondholders will be given 24 hours to cancel any ask orders.
3. A bid order will be placed at the specified price for the entire amount of outstanding shares.
4. Coupons will no longer be paid.
5. Bondholders will manually order to sell their bonds.


Holding the bond does not entitle the holder to any rights, or commit the issuer to any obligations, beyond what is stated in the asset contract and this appendix.

tl; dr: Every PureMining bond entitles the holder to coupons in the value of the average Bitcoin mining output (w/o tx fees) of 1 MH/s, forever. So far 20000 bonds have been issued, ~16000 have been outstanding for a while and now recalled.

Introduction. Mining assets are common on GLBSE. This is understandable given the need to match investors who have funds to stake on their belief in the long-term viability of mining, with people who have the opportunities and skills to operate mining hardware efficiently.

Such assets usually come in the form of shares in a company which owns mining equipment, and which pays dividends based on the actual output of this equipment, minus any operating costs. I believe that this model entails too much involvement of investors in the details of the company's operations, with the following disadvantages:
1. Complexity. Valuating shares of such a company requires an analysis of its particular costs and risks.
2. Competence. This requires reliance on the operator's competence in utilizing his equipment effectively, which is difficult to determine.
3. Honesty. Because the exact output of a remote operation is difficult to verify, the company could easily falsify their data to obtain more than their fair share of the revenues, without risking damaging the reputation of the people behind it.

PureMining offers to people who want to invest in mining, without physically purchasing and operating hardware, a simpler, "purer" alternative to this model. It is a bond asset for which the holder gets a steady payment equivalent to the mining output of a certain hashrate (1 MH/s per bond). The amount of coupons due can be deterministically and easily verified from blockchain data (which is external to the issuer and publicly available).

Coupons. Coupons for a bond over a period of time emulate the statistical expectation of the mining output of 1 MH/s (MegaHash per second) over this time period - coinbase only, no transaction fees, merged mining or alternative uses of hashing are considered. The exact procedure for the calculation is as follows.

Coupons are handed out on a schedule based on chunks of 336 blocks. The number 336 was chosen because it is the GCD of 2016 and 210000, meaning that within each such chunk, the network hashed at a consistent difficulty and block reward, so the average output of 1 MH/s over this time period can be easily calculated by multiplying the time span, the hashrate, the chance for a hash to be a block, and the block reward.

Every block with height 1 less than a multiple of 336 is a key block. Whenever a key block is found and confirmed by 5 more blocks, its vital data is recorded and used in the calculation of the coupon for the period between the time the previous key block was found and the time this key block was found. Letting

T = Difference, in seconds, between the timestamps of this key block and the previous key block.
B = Block reward (new generated coins) in this block
D = Difficulty of this block

The coupon is (T*B*10^6)/(D*2^32) per bond, rounded to within a reasonable numerical precision.

The time of physically paying out the coupons via the GLBSE mechanism is on a best-effort basis. It will usually be no more than 36 hours after a key block is found. If a period of unavailability is expected, I will make an effort to announce it in advance. When available I will pay coupons equal to the sum of due coupons for all unpaid key blocks.

Note that the total coupons in a time period are not subject to variability due to the number of blocks found. If blocks are generated more rapidly than usual, the next coupon will be paid sooner but will be proportionally smaller due to the smaller timespan. The blocks are used only as a reference for the difficulty and coinbase parameters the network worked on at a given time.

Information on key blocks and due coupons is available at http://bitcoinpuremining.com. This website is informational only and is in no way binding.

The first key block for which coupons will apply has height 168335.

Expiration. The bond does not expire. Coupons according to the described schedule are due forever if the bond is held that long. In practice, due to advances in hardware technology and diminishing coinbase, the prospects of the bond many years into the future are of little practical current value. But the infinite term gives a more consistent framework to think about the bond, and allows persistence of the asset by obviating the need for different assets for different times.

One way the bond can expire is if calculations of SHA-256 can no longer be used for mining Bitcoin. Since the bond is defined as corresponding to one million double applications of SHA-256 per second, and there is no universal way to translate this performance to other computations, the bond will become worthless in this scenario and no longer entitle for any coupons. It is highly unlikely that SHA-256 will be eschewed completely in the foreseeable future.

If GLBSE where the asset is traded ceases operation, an effort will be made to either call the bonds or replace them with a privately issued equivalent.

Also see calling below.

Calling. This is a callable bond. To limit my potential losses in case unforeseen financial, technical or legal issues arise, I maintain the right to buy back the asset, at a price per bond equal to 20% above the highest price it was traded at over the last month.

I believe that the call terms are generous enough to bondholders so that it poses very little risk of loss, and hence, should not greatly subtract from the bond's value.

Comparison with hardware purchase. When valuating the bond, investors should consider the following advantages over purchasing mining hardware of equivalent hashrate:
1. No electricity costs. For large-scale investments, no need for special facilities which can supply unusual power draw.
2. No effort spent on purchasing, setting up and maintaining the equipment. No physical space occupied by equipment, and no heat or noise generated.
3. No variance, pool fees, invalids, downtime or losses due to improperly run pools.
4. Ability to scale down the investment, as much as a single MH/s.
5. No dealing with hardware failures, which involve additional hassle at best, renewed purchase at worst.
6. Friction-free way to exit the investment via selling on GLBSE.

The following disadvantages should also be considered:
1. No income from transaction fees. These would have greatly complicated verification of due payments. Tx fees will also be for the most part insignificant for the foreseeable future, and whatever significance they have can be fairly easily estimated and entered into the valuation.
2. No income from merged mining or alternative uses of hardware (this includes exit strategies for a scenario where Bitcoin fails or ceases to use SHA-256).
3. No ability to control what goes in a block. Do note however that I have no intention to knowingly condone double-spending or DoS attacks on the Bitcoin network.

ROI projections. At the current network parameters (as of Jun 24 2012), the following ROI values can be calculated:
Issue price - 0.28 BTC
Difficulty - 1726567
Block reward - 50 BTC
Daily return - 582.6 uBTC (0.2081% ROI) = 86400 * 50 * 10^6 / (1591075 * 2^32)
Weekly ROI - 1.457% (linear, non-compounded) = 7 * 0.2081%
Monthly ROI - 6.347% (linear, non-compounded) = 30.5 * 0.2081%
Annual ROI - 112.60% (compunded weekly) = 1.01457 ^ (365/7) - 1

This means that, if the network parameters remain unchanged, the investment will more than double in a year. Of course, the parameters will not remain unchanged, so this value will not be fully realized. By investing in this bond, you are essentially betting that the difficulty will not rise too much.

Applicability for other miners. Although I am the issuer of this bond, its existence could benefit anyone who wishes to raise funds for a mining operation and share some of the risk. Such a person could borrow PureMining bonds, committing to return them at a later time, plus interest, plus any coupons due over the loan period. Selling the bonds will both supply funds and hedge the risk; should the profitability of mining decrease, so will the price of the bond, and hence the cost to pay back the obligation. A market allowing selling such bonds on margin would further facilitate this.

Trustworthiness. I, Meni Rosenfeld, am issuing the PureMining GLBSE asset, and committing to fulfilling the terms of the bond as described. I am a veteran of this forum and other Bitcoin communities, and own a Bitcoin business. I am using my real name which can be linked to my identity via my extensive online presence, and I have verified my identity with GLBSE.

My obligations are backed up by a partnership with Inaba in which I will purchase mining hardware and he will run them for me in his datacenter. So far I have ordered 13 BFL single units and half ownership in a BFL mini-rig. I have included the call clause to allow me to live up to the terms should the worst happen. I have also instructed my family how to handle the bond in case something happens to me.

The only way I can conceive not honoring the terms is if a malicious cracker hacks into my GLBSE account and issues new bonds on my behalf. The obligation thus created is arbitrarily high and there is no way to commit to it (of course, if the damage is within reason I will absorb the losses). I am using a strong password for GLBSE and keeping my computing environment reasonably secure, but cannot absolutely preclude this scenario. Do not buy newly issued shares unless I announce them on the forum, and in case of suspicious activity you would do well to verify via additional channels. Going forward I will look for robust ways to limit the plausibility of this scenario.

Contract appendix. The asset comes with contractual terms to which I wish to commit cryptographically, but which are too long for the asset contract. The next post will list these terms. Their hash, a7a7e87fe219bed1c4e6cc5b19d42fa607781abe8944fb305eea5c482480f956, is included in the contract.

The extra comes from being able to find more valid blocks for the pool. Let's say each share has 1/100 chance of being a block. Miners A and B have the same hashrate and find 1 share per second. B uses cgminer, A doesn't.

Miner A: Each share has 91% to be unrejected, and hence 0.91% chance to be a valid block which increases the pool's total rewards. Miner A's payment for this share is on average 0.91% of block reward.
Miner B: Each share has 100% to be unrejected, and hence 1% chance to be a valid block which increases the pool's total rewards. Miner B's payment for this share is on average 1% of block reward.

It's just like if a miner adds or removes mining hardware. He changes his contribution to the pool, and accordingly his reward.

All this assumes there isn't something very strange with the whole p2pool/cgminer issue I'm missing.

You can get more blocks if you avoid wasting your hashes on something that will be invalid.

I guess he meant there's no permanent record of this fact here on bitcointalk. But I guess you've just provided it.

I agree that dwelling too much on fair/unfair is a red herring. But I'd say people have enough of their perceived meaning of "fair" in common that it does carry some information content, and useful in the conversation.

Fairness is relative to the intended purpose of the mechanism in question and what people can reasonably expect from it. Stock exchanges are known to be a mechanism for people who have beliefs about future price changes of stocks to profit from these beliefs (or lose if the beliefs are wrong). There is thus no unfairness in doing just that.

But pooled mining is a mechanism to allow miners to join forces to reduce individual variance. Miners expect their average reward to be equal to solo mining (minus fees). Given that, a strategy that increases your own average reward at the expense of others is unfair.

This argument doesn't hold any water and you're not the first to suggest it.
1. Using cgminer increases your expected payment per share you find, but it does not reduce other miners' expected payment per share they find. It also causes no ill-effects if done by everyone.
2. A pool is a give-and-take relationship. You give shares which could end up a valid block and thus benefit the pool. In return you get payment for these shares. When hopping you contribute the same to the pool but receive more in return (at the expense of others). Using cgminer or any other similar technique increases the total quantity of shares you submit and benefit the pool, but you get the same payment for each.
3. Mining exists to secure the Bitcoin network. Using cgminer increases the total amount of valid proof-of-work you submit to the network, and warrants a corresponding increase in your reward. Hopping does not increase your contribution to network security.

I bought this ebook but got a different ebook instead. I tried contacting the author but got no reply. Anyone able to upload it somewhere?

"Seems" is the key word, to a flawed logic it might appear unfair, correct logic will show it's fair.

I already answered your questions. You basically repeated what you said - I'll spare us both repeating what I said.

But you might want to read up on Simpson's paradox.

@kano: Your error is that you do not properly consider the effect of round length on how much shares are worth.

In a proportional pool, shares in a short round are worth more than in a long round. If you look at the intra-round level then yes, hoppers get per share the same as anyone else in the round. But the trick is that hoppers get more of their shares in short rounds than normal miners, thus profit more per share.

So to be fair in a proportional system you need not only for all shares in a round to be rewarded equally, you also need each share to have the same chance to go into a short round as other shares. And this simply doesn't hold true for hoppers, so it's unfair.

To give an analogy: At a soup kitchen people are randomly assigned to a line where potatoes are handed out or a line where meat (which is superior) is handed out. Suppose someone sneaks into the meat line although he was assigned to the potato line. He gets the same food as everyone else in the line - but it's unfair because he cheated his way into the better line. (Though this example will only make sense to people who understand that true randomness is fair).

In DGM the concept of rounds isn't rigidly defined. If a hopper tries to hop a DGM pool as if it was proportional then yes, in every "round" he'd get per share on average less than normal miners. But this is only because the artificial division to rounds is flawed. What matters is the reward per share on the global level. If you must, you can say that hoppers get more of their shares in the shorter, more lucrative rounds, but in those rounds get less per share than other shares in the round. The two effects cancel each other to result in average payout per share equal to (1-f)pB, no matter the mining pattern.


And I disagree vehemently with your sentiment that "maths wins logic loses". If a mathematical result seems illogical the art did not fail you, it is you who failed the art.

Is it possible to add Hebrew to the list at https://www.transifex.net/projects/p/bitcoin/ ?

Will there be any problem accommodating a right-to-left language?

I'm assuming their methodology is as follows (and the fact they misreport block finding times suggests this may not be their methodology):
1. When a block is found, determine X, the number of shares since the last block (in multiples of the difficulty).
2. Report there were f(X)*D shares in the last round, and pay (50 BTC / (D*f(X))) per each share since the last block, for a total of (50BTC * X / (D*f(X))).
3. f is chosen so that f(X) will follow a specific distribution with CDF F2(X).

X follows the exponential distribution so the real CDF is F1(X) = 1 - exp(-X). To have a CDF F2 for the reported lengths, the transformation they need is f(X) = F2^{-1}(F1(X)).

If they take F2(X)=F1(X), then f(X) = X and they are not doing any transformation. This results in normal proportional payments.

If they make it so f(X) is always 1 (corresponding to number of shares per round precisely equal to the difficulty) - that is, the target distribution has no variance, it's a "random" variable that always takes the same value - they will always pay (50 BTC / D) per share, that is, they are handing out PPS payments which has high variance for them, and no variance for miners.

If they make the target distribution something in between, with variance less than exponential but more than a singleton, they will have some variance, but less than PPS (and for miners, less than exponential). But this is moot unless they choose the distribution so that E[X/f(X)] = 1 (the expectation is over the real exponential distribution of X) so that they pay 50 BTC per block on average.

There are several ways to go about it but they all require a good numerical root-finding/optimization function (which should take less than 10 iterations to converge). I copped out by simply fitting your reported mean and variance exactly. Expressing alpha in terms of beta is easy from one equation, and then you solve the second equation numerically for beta. A more accurate result can be obtained by taking some statistics (such as moments or quantiles) and building a loss function for any given alpha/beta combination based on their difference from the real values of the distribution, with a weight that depends on each statistic's estimate variance. Then it's just a matter of numerically minimizing the loss function over alpha and beta.

The best method would be Bayesian inference, but if we don't want to commit to any particular prior, the Maximum Likelihood Estimator is the next best thing. For any given alpha and beta, calculate the logarithm of the pdf at each datapoint, and add. Maximize this function with respect to alpha and beta, again with whatever numerical optimization function you have available.

PS if you can give me the complete list of values of round length divided by difficulty, I can try to run an MLE.

If it involves pointing fingers, it's politics in the wide sense of the word, it being a noble pursuit notwithstanding.

EDIT: The following may not be true because I didn't include in this analysis the fact they're messing with the round boundaries. If the modified round lengths are caused strictly by moving the boundaries, it's possible they don't have a hidden fee.

The situation may be much worse than we (I?) thought.

The average of their reported round lengths seems close enough to D. But this doesn't mean they pay fairly on average, since their payout per round is inversely, rather than directly, proportional to the reported round length.

So if f is their transformation function, the average total they pay per round is

$int_0^{\infty}\frac{e^{-x}x}{f(x)}\ dx$

I fitted a loglogistic distribution with alpha = 0.953236, beta = 4.55639 (I'm lazy, a better fit is possible), and the result turned out as 78%. That's right, they're paying 78% of the rewards, keeping 22% fee to themselves.

So I'd say their transformation has nothing to do with combating hopping, and everything to do with being thieves. I guess they thought they could get away with it by keeping round length average similar to the expected one. Seeing how long this went on, I guess they were right.

My calculations were kind of hasty and I'm not that much interested in these politics, so I'll let organ volunteer to make the "BITCLOCKERS ARE STEALING 20% OF MINERS' REWARDS" public announcement once he confirms this with his data.

How do you know this? That the reported lengths follows a log-logistic distribution doesn't mean they're just doing a simple transformation.

But if it is indeed a simple transformation on the round length, this means they are greatly increasing their own risk. (And it only has limited anti-hopping effectiveness.)

If they did a transformation based on a singleton target distribution, it would be PPS. What they are doing is something in between.

In other words, they have a reward system which is some sort of interpolation between proportional and PPS (perhaps with weighting affected by their estimate of hopping level in each round), but instead of being open about it, they fake stats.

I find it troubling that such egregious falsification has gone unnoticed for so long. If they had added 2% fake shares to every round to collect a hidden fee, would it be spotted quickly? Perhaps the "stats hunters" pay more attention to the distribution's expectation than its variance?

And finally, WHY? Their system either greatly increases their own risk, or required some nontrivial control mechanism. Why can't they use a hopping-proof method that just works, probably has similar long-term characteristics, and allows them to be honest about what they are doing? Were they bitten by a hopping-proof method as a child?

You're welcome, I'm glad you're enjoying it.