Go to include.php and change $mysql_password.

I actually came up with a system for a decentralized exchange several months ago and have been looking for people interested in making one.
I have a lot of problems with this whitepaper, I think I got about about 2/3rds of the way through it before I realized it's not really decentralized at all. I mean it's no more decentralized than any other Forex, and simply making it peer-to-peer doesn't change the fact that fees, incentives and the behaviour of escrows are regulated by the developers rather than the government. It stands to reason that a free market solution would have the users of the exchange create their own fees, incentives etc.

Rather than detailing every problem I have with this I think it would be easier to explain the solution I came up with and hopefully the flaws will become more apparent.

One of the biggest flaws in the way exchanges are run today is that most assets are priced by currency. For example, if I want to sell my gold to buy palladium or company shares or a bond etc, I'd probably have to sell it for USD first and then by my desired asset. And the seller will be similarly restricted in that he can only sell his asset for USD or a similar currency, even if he wants to sell it for gold. A free market system allows a buyer and seller to transact any asset pair without going through some kind of "world reserve currency". This means anything from gold/USD to bandwith/driving lessons.

Secondly, there seems to be a lot of discussion on how to determine trust of a 3rd party in the absence of government enforcement, as if that were something we relied on in the first place. Now I didn't wait for the government to approve of MtGox before I made an account there, and I don't expect Paypal to tell me which ebay sellers are the 'bad eggs', I go to the crowd for that. Reviews, ratings, experience etc. That's something software does very well. As a buyer, the statistics I'm interested in from the seller are things like the number of successful transactions, the number of disputes, whether their products are exactly as described and delivered on time etc. That kind of information can be associated with the users digital identity, be it some kind of public key or a self signed certificate etc.

While there may be philosophical arguments as to what ownership is or isn't, it doesn't really matter until there is a dispute over a given asset. The best way to foster effective dispute resolution period, is to open it up to the market. Just as Bitcoin created a market for ASIC miners, which would otherwise be a fairly useless piece of hardware, a free market exchange would allow users to choose their own service. Escrows and dispute resolution organisations of all different shapes and sizes would spring up to fill various niches. For example, if I trade exotic financial derivatives with other savvy traders who realize we are playing a zero sum game on the market, it stands to reason that I would choose a savvy dispute resolution organisation with a proven track record in exotic financial derivatives. The seller and I would determine our own conditions and agree to be bound by the judgement of the DRO rather than relying on government regulation, which at the moment is as effective as a wet stick being beaten by the carrot it used to wield. DROs can offer varying degrees of anonymity and ways of ensuring transactions run smoothly. And DROs will fail or survive depending on whether the market uses them, just like any other business. If you don't trust the DRO's the seller uses then don't trade with him. Simple as that.

Now on to trading fees. There are many organisations which generate revenue by allowing traders to buy and sell assets which they hold. Take MtGox for example, they have the bank accounts and the software which allow us to trade and receive currencies and we are grateful for it. This is simply a different kind of market order and it rests on the distinction between the owner and the possessor of the asset. And every one of us should have the ability to do the same thing, assuming the market trusts us of course. Imagine you ran a business storing vintage wine and generated revenue from the trading fees of speculators, it's really no different from an exchange selling coffee, cacao, sugar etc. The only way we know those assets exist is because some trusted party says they do and probably has insurance policies to account for fires, natural disasters, human error etc. An example implementation of this would require the buyer to have a funded account with a 3rd party to pay the fees and approve the transaction.

Now asset distinctions, this is actually a tougher nut to crack in the sense that some assets are regular - one US Dollar behaves exactly like every other US Dollar - and some are irregular - one second hand Playstation may be wildly different from another second hand Playstation. That's something I don't really have a good solution for. However, we can categorize all assets into 4 main distinctions: Commodities, Currencies, Services and Contracts. When you do that, a lot of the confusion regarding various financial instruments and legal distinctions dissipate into the ether. For example, bonds, short selling, leverage, company shares, hedging, derivatives etc, are all contracts between 2 or more parties. A contract is essentially a set of if/else statements determined by the contract itself, statutes and legal tradition. A free market solution would not restrict people from using leverage or complicated contracts with more pages than the dictionary but simply give them the responsibility of clearly identifying liability and ensuring enforcement.

Now I could go on all day about the implications of this kind of system and what it would mean in the long term but these are the core features which would make it work. I completely endorse the idea of a standard protocol for communicating with the network but I'm pretty confused about some of the other ideas mentioned in the white paper.

Bitshare - polymorphic digital asset - mined like bitcoins, produces dividends.
My understanding of a share, is a contract identifying a percentage of ownership of the thing which it represents, created by the people who manage the thing which it represents and who also pay dividends from the revenue generated by it.
Mining on the other hand is a design feature which incentivizes miners to make bitcoins valuable in the absence of a bitcoin economy.
Now if you want to sell ownership of your business/project to raise capital for it, you are already incentivised to make that thing valuable and you don't need any other obstacle in your way to make your investment obvious.
I mean if the purpose of mining is to distribute the creation of something so that anyone can become an entrepreneur in that asset, but your system requires late entrants of the mining game to pay dividends to early adopters then there are no incentives for late adopters.
And why would you mine your own shares? You already have your company and can sell it as you please.
As much as I like the word polymorphic, I just don't know what this thing is or why I as a user of your system would be interested.
So is it decentralized or are you forced as a miner to pay dividends to other holders of bitshares?
I mean if I find gold in a field somewhere I don't immediately give 5% of it to other people who already have gold.

What are bitshares for?
Can you give me an example or thought experiment to explain the advantages of it, why would I use it?

Fair point.
Either way though, the martingale system is fun and doesn't require much thought.
If you play on a table with a large minimum bet say $1,000, you only need to win 20 times to make a years salary.
And given that it takes about 500 spins to hit a losing streak, that's enough to work for 200 years, given a bit of luck.

Agreed, that's why I don't recommend it.
It is significantly better on a table without a ZERO.
Just tested that over 10 million spins and it seems to have about a 50/50 chance of a positive result in the long run.

Hmm, would like an application to keep track of your strategy for you?
Might be ideal for drinking purposes.

Well the system tested over 1 million spins, on average yields a balance of -300,000 units so I would be absolutely delighted to discover that the results are bogus.
I wasn't trying to imply that you are a central banker with an infinite supply of cash, it's just that the application records your gains and losses relative to ZERO rather than having you input your bankroll at the beginning.
I could make a roulette simulator with fake cash if you like, it would only take a couple of hours but that isn't really the purpose of the thread.

And yes, I do note that the chances are the same at each spin.
Again, I thought I explained that quite clearly.

The system is there and available for anyone who likes gambling systems.
And it is explained so that it is open for improvement by anyone who is already familiar with the inherent nature of gambling.

I'm confused, I thought I explained that already.
It is an assumption of the Martingale system, and a flawed one.
While it may be quite possible for the ball to land on ZERO 18 times in a row, or inevitable given enough time, I consider it unlikely enough to risk some money on the assumption that it won't happen.

And while I don't consider this system reliable enough to put decent money into, there may be some gamblers with a higher risk tolerance who enjoy it.
Gambling is not just about money, it's about risk and anxiety, for me it's mostly about strategy.

The single martingale system records your losses and determines your next bet accordingly.
The triple martingale does not lump all of your losses into one account.
It is three separate accounts recording three separate losses.
If you bet 1,1,1, respectively, and the ball lands in the middle, you lose 3 and gain 3 - neutral result.
However your next bet will be 2,1,2, and if the ball lands in the left, you lose 5 and gain 6 - positive result.
Then if you bet 1,2,3, and the ball lands on the right, you lose 6 and gain 9 - positive result.
So you see how a neutral risk ratio yields a neutral result, but an imbalanced set of bets yields a positive result.

If the ball misses the right of the table 10 times, your accrued losses on the third account will be -92 units and your next bet will be 1,2,47.
If the ball then lands on the right you will lose 50 and gain 141, which brings the third balance back into positive numbers and the discrepancy is a result of the 1st and 2nd accounts still betting.

One of the properties of random numbers is that they will yield the same result several times in a row, streaks you might call them.
Long streaks happen less often than short streaks.
That is to say, that the ball landing on the left twice in a row is more likely than 3 times in a row, which is more likely than 4 times in a row, and so on.
This is not a predictive pattern, it cannot be used to determine future results.
It is simply a property of randomness which can only be determined retrospectively.
But we can infer that 18 losses in a row is an unlikely event, inevitable yes, but on average we can expect X number of wins between those streaks.

A couple of years ago I developed a gambling system for roulette based on the popular http://en.wikipedia.org/wiki/Martingale_(betting_system).
I never could get it to work consistently over one million spins but I haven't come across any better system for roulette so I thought I would explain it in the hope that some math wizard can suggest improvements.

In the Martingale system, the gambler assumes that given enough time, the desired result will eventually appear.
And that by increasing his bet every time he loses he will eventually win enough to recover his losses and make a profit.
Sometimes this is simply double the previous bet and sometimes it is determined using The Fibonacci Sequence (madness!).

This is no good for roulette however, because roulette has a maximum bet (usually about 1000x the minimum bet).
So even if the gambler has a substantial bankroll he will quickly exceed the maximum bet allowed by the house.
A popular innovation for the martingale system is to increase your bet just enough to cover your losses and make the smallest possible profit on winning bets, and to bet on one third of the table rather than a single number.
This way you can withstand about 17 losses in a row and still continue profitably (when betting on one third of the table that is).

This was a bit of a waste of time when BTC was worth only a couple of dollars so I expanded the system across all 3 thirds of the table.
Which may seem silly at first glance because betting the same amount on each third will yield a neutral result.
However, each time one third gains a profit, the bet on that third is reduced to 1 while the other thirds are still betting at higher values.
It is this imbalance of risk which yields profits.

The fundamental problem with this system, like many gambling systems is the http://en.wikipedia.org/wiki/Gambler's_fallacy which states that past results of a random system are not indicative of future results, no matter how much you want them to be!
If you have suffered 17 losses in a row, you are NOT more likely to encounter a win!
All results have an equal chance of being successful each and every time.

So unlike the snake oil salesmen I learned from, I am not going to tell you this system will work consistently given enough time.
In fact, the opposite is true, given enough time this system is guaranteed to fail!
It seems to work best in short bursts, but as I explained above you can easily encounter 18 losses on your first 18 spins, and yes that does happen!
From testing the system over 1 million spins I've found that the maximum bet is exceeded on average once every 500 spins.
That number is significantly lower when there is no ZERO on the table, however I am putting my efforts into finding a better way to distribute risk after X number of losses.

MOD NOTE:
Be careful when downloading software from unknown sources

I've built an application to demonstrate the system which you can download at http://www.filedropper.com/triplemartingale.
Disclaimer: I do not endorse the use of this system. I am not liable for any decisions you make. You are responsible for your own decisions.
However donations are welcome if you do find it to your liking.

The application assumes that you have an infinite bankroll, that the minimum bet is 1 unit, and the maximum bet is 1000 units.
It will tell you how much to bet on each third of the table.
Click on one section of the table to tell the application where the ball landed and it will update your balance and determine new bets for you.
If one third loses 18 times in a row you will accrue those losses and the bet figure will return to 1.

Now with all of that said, is there anyone with some voodoo math skills who can suggest improvements?

Thank you!

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