If you sell for higher than market price there's no reason anyone would buy from you. By definition a "market price" implies that this is a well functioning market which requires there to be plenty of buyers and sellers (not just you). If others are selling the same asset as you but for 1% lower there's no reason anyone would ever buy from the escrow.
By the way where are you proposing this escrow even comes from? So far you've just proposed that money sent to the "exodus address" go directly to funding you, your wife, and your kids.
Ah. There's the spiral_mind I know and love! The escrow fund buys the cheapest coins below target. If somebody has offered them for sale below the target price, the escrow fund can buy them at that price. If they didn't want to sell at that price, they shouldn't have offered them for sale. The escrow fund merely buys and sells what is out there. The escrow fund is created the moment the first person buys a new pegged currency. 100% of their money goes into the escrow fund. |
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If the fund sells at the ask price of $1.2 then presumably it will not result in the price falling, but instead the MC Held / Value Owed ratio would be unchanged.
Well, the escrow fund hits the bid or ask as appropriate. If you do that enough times, the price moves. It's logic would be "buy the cheapest 1% of coins for sale below the target" or "sell new coins to the 1% highest bids above the target" |
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Your examples (both here and previously) seem to assume that an over-funded escrow fund would cause investors to over-pay for a currency and take a loss when the escrow fund debases them. I can't think of why someone would do this, knowing they would take a loss. Consequently, it seems clear that the escrow fund would remain 150% over-funded indefinitely. You are correct, the fund would never have an opportunity to act to push the price down because no one would bid it up until the margin was insane. So your debasing algorithm could work assuming it never debased the fund below 150 to 200% margin. Unfortunately, to get there everyone had to bet right initially. People would probably be willing to pay above market rates proportional to their demand for margin and thus GoldCoin will always trade at a premium to Gold when the escrow fund is above 150% and the algorithm will not debase beyond 150%. On the down side though, your algorithm cannot prop up the price because it will create a positive feedback loop devaluing GoldCoin to nothing be continually debasing it. This means that your system only offers down-side protection *after* it has already profited to the upside. The initial buyers of GoldCoin have no such protection and would be better off not owning GoldCoin because they are exposed to losses but not gains in MC. It seems we're finally getting somewhere after all these walls of text. I was starting to wonder if it would ever end, but I think I see the light at the end of the tunnel! So, we've established that an over-funded escrow fund can provide downside protection. I argue that a break-even fund or even a modestly underfunded one can also provide protection. For instance, a 90% funded escrow fund can survive 80% of the GoldCoins being cashed out in a panic (and be healthier in the end!). Your instinct is correct that this fund is vulnerable, but only to a sufficiently large panic. |
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Is the fund really profiting by selling for $1.1 when the current ask price is $1.2? Every other actor on the market believes a GC is worth $1.2 and yet the escrow fund is selling for $1.1.... when it does this value is neither created nor destroyed, only transferred. It gets transferred from everyone who holds GoldCoin to the new owner. In this case $0.1 is transferred and the average backing after the freshly printed GC is less than the average backing before and therefore even when selling for $1.1 the fund is de-capitalizing itself rather than capitalizing itself. Profit or loss from the perspective of the fund must be measured in terms of MC Held / Value Owed. Show me once how your escrow agent is ever able to take an action that increases the MC Held / Value Owed?
When someone wants out they are willing to take a loss. The normal loss would be at the price of MC Held / Value Owed, however, you are attempting to prop up the price and let them out for more than MC Held / Value Owed and as a result the fund makes a loss.
No, that would be the opposite of a premium - that would be a giveaway! The escrow fund sells at $1.2 when the ask is $1.2. Consequently, the ask price is now less than $1.2 by some amount. |
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Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.
The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.
Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it. The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy). You are only looking at the market from the perspective of the escrow fund, but not from other users. Why should *I* buy above the target price? If I do, the fund will push the price down and I have guaranteed losses. Conclusion: no market participant with any sanity what-so-ever would ever bid above the target price and therefore your assumption that the escrow fund could raise money this way is wrong. The only time the escrow fund could sell GoldCoin would be when the value of the escrow fund is over 100% and it wouldn't be selling at a profit. The escrow fund socializes the losses and privatizes the profits. If MC goes up the fund keeps the profits and prints new GoldCoin transferring the gain from the fund to those who buy the new GoldCoin. After all they would be buying GC with 1.5 backing for the price of 1 until the backing fell back to 1:1. If MC goes down then the fund is unable to make everyone whole and is left playing a confidence game / ponzi scheme of temporally propping up the price by stealing the backing from other GoldCoin holders. As long as the current holders are ignorant to the fact that the only thing propping up the price is the backing of their own coins it will work. How can you tell if the automated system is making or losing value? If it makes decisions that no rational actor would make, it is losing money. Remove the 'magic' of your algorithm for a second and instead lets pretend I create a bank, the ByteMasterBank BMB. I tell people that I will issue a BMB IOU for $100 USD if you deposit 1 BTC into my bank and that I will always be willing to redeem that $100 USD IOU at face value, but you will have to accept $100 worth of BTC in place of actual USD when you redeem your IOU. Assuming price stability I will always be able to meet my obligations. If the price of BTC goes up then I can make a killing because my IOUs are denominated in USD. So the price of USD goes up and I now have enough BTC in my fund to buy back all outstanding USD loans 2x over. Great! I can now print up additional USD loans and start buying things with them all while maintaining over 100% reserves! The next week the price of USD goes up and all of a sudden I am insolvent, I only have the ability to buy back 50% of the outstanding USD loans. As long as no one catches on I can play the game of a fractional reserve bank and still honor withdraws (redemptions at face value). How ever, once 50% of my depositors have withdrawn their money that game is over and everyone else loses everything because I am unable to pay. Unlike traditional banks, I don't earn any interest on my loans and must cover all losses from depositor funds. I also don't have the ability to hide the true state of my balance sheet nor do I have any ability to raise any additional capital on my own. Everyone that continues to bank with me knows they are playing a game of musical chairs and they will only continue to trust it as long as everyone else does. It will not last long, especially for a crypto-currency not backed by the full faith and credit of a big bank. The problem you have is that you need the system to be workable on day one when MC is worth almost nothing and has no reputation. The first 'panic' or 'market correction' it faces would entirely collapse all of MC because everyone with GoldCoin would lose and once that is revealed all other currencies (not backed by a public issuer violating bearer bonds laws) would also make a rush to safety. You are right about the possibility of collapse when the escrow fund is unhealthy. I think we are all agreed on that, although we probably have different ideas of how unhealthy it would have to be before it reached the tipping point. Your examples (both here and previously) seem to assume that an over-funded escrow fund would cause investors to over-pay for a currency and take a loss when the escrow fund debases them. I can't think of why someone would do this, knowing they would take a loss. Consequently, it seems clear that the escrow fund would remain 150% over-funded indefinitely. |
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Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?
I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).
When a target currency is above target, that means that people want that currency so badly that they are willing to pay a small premium for it, which the escrow fund collects. When a target currency is below target, that means that people want OUT of the currency so badly that they are willing to pay a small premium to get out, which the escrow fund also collects. It would be irrational to give that premium to the escrow fund if there was another choice, but there is not. I just realized that this very intelligent question came from SPIRAL_MIND! I think maybe he's just messing with me now. Is this really the same spiral_mind? |
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Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?
I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).
When a target currency is above target, that means that people want that currency so badly that they are willing to pay a small premium for it, which the escrow fund collects. When a target currency is below target, that means that people want OUT of the currency so badly that they are willing to pay a small premium to get out, which the escrow fund also collects. It would be irrational to give that premium to the escrow fund if there was another choice, but there is not. |
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Here is an economic principle that MasterCoin violates:
Law of conservation of Value. - absent a change in perception of an individual, value can neither be created nor destroyed, it can only change hands.
If you create 1 GC backed by 100 MC when 100 MC is worth 1 Oz of Gold and the 100 MC are held in escrow (cannot be spent) then you have neither created nor destroyed value (only the purchasing power of 1 Oz of gold remains in circulation).
Assume the value of MC falls by 50% such that 1 Oz of Gold is now worth 200 MC, the escrow fund is only holding 0.5 Oz of value but according to dacoin there is still 1 Oz of Gold worth of purchasing power that exists.
Now he is smart enough to realize that if the escrow fund is worth 0, the GoldCoin is worth 0. He just doesn't compute the fact that the when the escrow fund is worth 0.50 the GoldCoin is worth 0.50 and when the fund is worth 1 GoldCoin is worth 1.
With BitShares I fully follow this law because when the price of Gold changes value is transferred between the short/long positions accordingly and never created nor destroyed. BitShares get their value from the perception that they provide utility to the users. All parties take risks and know the terms, but the market forces (not automated pegs) keep BitGold properly priced.
A good counter-example is fractional reserve banking. Like MasterCoin, banks which don't have enough money on hand to cover all deposits are inherently unstable and might crash. On the other hand, like MasterCoin they also have the potential to keep going for many years without crashing. Banks fundamentally violate this law, and take on risk as a result. MasterCoin makes similar trade-offs. |
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Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.
The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.
Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it. The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy). |
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He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields.
I did address it the first time it came up. The footprint of MasterCoin is very small in the block chain, and consists mostly of transfers of value. However, it is true that MasterCoin transactions do contribute to block-chain bloat just like other bitcoin transactions do. The total cost per MasterCoin transaction is about 2 cents, which is obviously not going to interfere with adoption. |
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No. the main reason to buy bitcoins is because it will appreciate in value because other people will buy bitcoins to use them because they have extremely desirable properties as a currency.
Look, let's say we have 2 coins XxxCoin and YyyCoin. X starts with 100 backing MasterCoins, Y starts with 1000 backing MasterCoins. Why would XxxCoin track the price of Silver and YyyCoin track the price of gold?
It'll only happen if the person (that you must trust) behind the escrow, issues and redeems xxx or yyy coins such that its supply vs demand creates a price that tracks gold and silver respectively. First off, this requires you trust the escrow admin. So its not a trustless coin. Secondly, the escrow is gonna get drained or be so "full" it becomes more valuable than the commodity ... even just random walk math shows that eventually this will happen. Deliberate speculator manipulation, profiting on the information asymmetry where they know how the other party (the escrow) will behave will make it happen sooner.
Sorry - just noticed that I haven't replied to this. There is no escrow admin - it's all handled by the protocol. Speculators can reduce the escrow fund's trading profits, but cannot eliminate them entirely. I think maybe I'll stop debating whether the escrow fund can work, and just point out that even if people are doubtful about the escrow-backed currencies, MasterCoins can be absurdly valuable without that feature. Distributed betting is going to be big. Thanks to your suggestion, the spec will also support user-issued coins without escrow backing (working like colored coins). You assume that your escrow is going to profit by maintaining a peg. Basic supply and demand make the maintenance of an arbitrary peg always a money losing proposition. People are only ever going to buy from the fund when they can make money. They're also only going to sell to the fund when they can make money. Eventually any "escrow" you set up will run out of cash as the public treats it like a big money giveaway. How do you counter this? He counters it by removing the feature from the spec and stoping all discussion on it. Instead he is going to build MasterCoin for the betting system and issuer-based coins backed by trusted parties. He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields. Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to. The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed. |
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Here are the differences between the current BitShares system and MasterCoin:
1) BitGold is initially backed by 2x its value in BitShares by someone intentionally taking a short position that will LOSE MONEY if BitGold goes up.
2) The price of BitGold is only ever determined by voluntary market actors, no oracles or data feeds.
3) The highest unaccepted bid is used to perform automatic margin calls for any short position with less than 1.5x backing.
4) BitShare positions actually pay dividends & there is an opportunity cost for being short and a positive ROI benefit for being long.
My original BitShares idea suffered from the same core problem as MasterCoin does today... I was attempting to operate with 0 margin in the event the price moved against the creator of BitGold or GoldCoin. I also attempted to rely entirely on market expectation that BitGold would track gold on its own based entirely on expectation and new issuers creating BitGold at the new price. In effect, I started out with all of the mistakes that MasterCoin is repeating. The difference is that I paid people to find these things and challenge me to fix them. TheZerg made 10 BTC (when it was worth $1300) and forced me to innovate and come up with the current version of BitShares.
Last I heard from TheZerg he said the new BitShares system is much harder to find fault with. That said, I am still willing to pay a 1 BTC bounty to anyone who can find a fault with the BitShares protocol that will result in me making a change and 10 BTC to anyone who can convince me to abandon BitShares all together. Note: Charles & I are the sole judge of whether or not to award the 10 BTC bounty, but we have a history of being fair/honest in our judgements. If you can convince us of fundamental problems you will save us money and we would gladly pay 10 BTC... if you cannot convince us then we will be rolling out BitShares as the proof of your failure to convince us.
MasterCoin seems unwilling to risk 10 BTC on the potential that the flaws in his system might be discovered. If he is so confident his approach will work then it is a 0 risk proposition to offer a 10 BTC bounty. At the very least his investors will know that he has put up enough money to insure his ideas are properly vetted.
I don't mind posting such a bounty if my oversight board (currently Ripper and vokain) thinks it would be a good use of funds from the Exodus Address. However, the posts so far don't even come close to convincing me that the idea can't work at all. The closest they have come is pointing out the trade-offs involved with this kind of system. There are clearly scenarios where excrow funds break down, but to claim the idea couldn't work for any amount of time is over-reaching. Also, welcome back to the thread  |
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I like that. I want nothing more than to see this project through, and as a hopeful budding entrepreneur, I do see ways we can make this project truly the Second Bitcoin Whitepaper. The main emphasis should be on communication, communication, communication, and from there I believe everything will work itself out in the best possible way. I'll look at getting a secure laptop on which to store said keys right now. In the mean time we can discuss the specifics of how this agreement would work.
Cool. I don't think any bitcoin client implements multi-sig yet, although armory is getting close. Perhaps the veto power should be informal at first, and once a way to do multi-sig becomes available, we can codify it using m-of-n multisig. Does that sound good to you guys? |
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If the OP is interested then I would be happy to create a project on CIYAM Open for this (subject to *zero* fees). CIYAM Open is a project management system that unlike traditional "bounties" (where multiple contributors compete for a reward that only one will get) locks in a single contributor to finishing the task by an agreed date and time (with a merged git commit being generally used as "proof of delivery"). The system is currently being used to help manage the Moneychanger project ( https://ciyam.org/open/?cmd=view&data=20130606055250338000&ident=M100V137&chksum=a2a9d6d5) and note that all BTC is held by the project's owner (i.e. no actual BTC is held on CIYAM Open and each project manager provides their own BTC addresses). An introductory slideshow about the workflow can be found at http://ciyam.org. Can you tell me about how this works? I'm interested in using this for a FOSS project I'm getting off the ground http://bitcoinmagazine.com/bitcoins-watershed-moment-an-open-source-cryptocurrency-ecosystem/Yes, I finally took a look at the slideshow - it looks like a really cool way to organize bounties! (But how does your website make money?) Do you have a thread for this somewhere else? (So we don't clutter up this one) |
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No. the main reason to buy bitcoins is because it will appreciate in value because other people will buy bitcoins to use them because they have extremely desirable properties as a currency.
Look, let's say we have 2 coins XxxCoin and YyyCoin. X starts with 100 backing MasterCoins, Y starts with 1000 backing MasterCoins. Why would XxxCoin track the price of Silver and YyyCoin track the price of gold?
It'll only happen if the person (that you must trust) behind the escrow, issues and redeems xxx or yyy coins such that its supply vs demand creates a price that tracks gold and silver respectively. First off, this requires you trust the escrow admin. So its not a trustless coin. Secondly, the escrow is gonna get drained or be so "full" it becomes more valuable than the commodity ... even just random walk math shows that eventually this will happen. Deliberate speculator manipulation, profiting on the information asymmetry where they know how the other party (the escrow) will behave will make it happen sooner.
Sorry - just noticed that I haven't replied to this. There is no escrow admin - it's all handled by the protocol. Speculators can reduce the escrow fund's trading profits, but cannot eliminate them entirely. I think maybe I'll stop debating whether the escrow fund can work, and just point out that even if people are doubtful about the escrow-backed currencies, MasterCoins can be absurdly valuable without that feature. Distributed betting is going to be big. Thanks to your suggestion, the spec will also support user-issued coins without escrow backing (working like colored coins). |
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Sweet! I love how it only requires actually permission to the Exodus!
How about setting up a "mastercoin-foundation" github organization, that will hold all the different repos? (mastercoin, greesemonkey, website, etc.)
I went ahead and forked Armory in anticipation of tearing it all apart: https://github.com/dacoinminster/MasterCoin-AdviserThe greasemonkey script probably won't change much. I have no idea what I want to do for a website. Probably just contract it out at some point, since I don't really enjoy working on static pages. |
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This morning I whipped up a greasemonkey script to show how many MasterCoins have been purchased by each transaction sent to the Exodus Address. If you have Firefox or Chrome, you can install it from here: http://userscripts.org/scripts/show/175196 (Chrome requires that you download the script and install it manually. In Firefox, you can just click "Install") The script is only active while viewing http://blockchain.info/address/1EXoDusjGwvnjZUyKkxZ4UHEf77z6A5S4PAnd with that, the first project milestone (see post #2 in this thread) is complete!! Here is a screenshot of what the page looks like with the script running:  |
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How about building the organization?
Is this (= finding the group of people) a priority goal?
If I were building something from scratch, I'd probably try to come up with a way to give other investors (everyone except for me) veto power over the Exodus Address funds. That is, if somebody thought I was using funds inappropriately, there could be a vote, and I would respect their wishes by trying to find an alternate way to accomplish the goal. Votes would probably be based on investment size, although that would obviously be dominated by the mystery person who purchased 420BTC worth of MasterCoins. Obviously, this veto power would still require people to trust me, but they are doing that anyway. Another way would be to nominate a couple people to hold this veto power. I think Ripper and Vokain would do a fine job, given their obvious interest and investment in this project, although spiral_mind will claim they are just sock-puppet accounts which I control. FYI, here is a list of reimbursements I intend to file immediately come September 1st: - $80 for netbook purchase (clean OS install, used for armory offline-only transaction signing for the Exodus Address)
- Reimbursement for Ripper's purchase of MasterCoin.org (how much?)
- Reimbursement for laptop purchase for development (I'll be purchasing it this weekend in Oregon, where there is no sales tax - since I'lll be using Armory and copying armory code, I spoke to Alan Reiner and he said I should get something with a lot of RAM)
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I believe all applicable laws deal with transfers into and out of U.S. Dollars, which I am not doing. Also, my LinkedIn profile links to the MasterCoin spec, and I spoke about it on video at the bitcoin conference, so I really doubt anybody is seriously questioning my identity. |
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What he's doing is almost certainly illegal. He is selling an investment instrument without complying with any of the regulations. See this article: http://www.pcworld.com/article/2045083/sec-charges-texas-man-with-running-bitcoin-ponzi-scheme.htmlEven if you disagree with that assessment he's proposing at minimum to sell a virtual currency directly to consumers without doing any know your customer regulation compliance. See: http://www.paritynews.com/2013/05/26/libertyreservecom-shuttered-founder-arrested-in-spain/He claims to be based within the US yet follows none of the applicable laws. Even if he doesn't run with the money and actually releases some source code he's going to get a nasty visit from the law eventually. If he's really released his true identity, I think he's screwed. He still hasn't proved he is who he says he is. Maybe he could take a picture holding a sign saying "Mastercoin is totally not a scam guys"? Definitely stay away from this one and don't give him any money. Since even if he succeeded at his project he'd be violating the law I think it's far more likely he'll run with the money instead. I believe all applicable laws deal with transfers into and out of U.S. Dollars, which I am not doing. Also, my LinkedIn profile links to the MasterCoin spec, and I spoke about it on video at the bitcoin conference, so I really doubt anybody is seriously questioning my identity. |
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