I know people don't read here all the time, but simply put:

without dilution shares are worth negative BTC
with dilution shares are worth positive BTC

I don't see how anyone could vote no, unless they think they can get a better deal on the debt - but if they do they should be presenting their arguments...

From a business outlook, this is a no brainer. Without this dilution nastyfans has a negative valuation; the balance sheet is fatally in the red.

What are the arguments against dilution?

[/quote]

I've read both your posts, and I can't find what you have a problem with. It seems you don't like the settlement agreement, but it seems to be done in a straightforward, transparent, and fair way.

1) Lenders lend to a Nastyfans.
2) Nastyfans pays back lenders per the original agreement.
3) Nastyfans offers a offer to settle the debt.
4) Lenders accept the offer.

It seems like you didn't like the original agreement. That's fine, you don't have to lend to Nastyfans. And if you don't like that they settled, then don't lend to Nastyfans in the future or make sure that you have favourable terms if you do.

I think this was done in a great way, a win-win for all parties.

it's built into the client, so users don't really need it. But you're right, people should be able to look at it without downloading the client

Monday is the plan, I think

PoS = proof of stake, rather than mining by finding hard hashes, transaction fees are distributed to nodes running the code proportional to stake (i.e., number of coins).

I'd suggest looking into bitshares, a PoS coin that doesn't simply assign transaction fees proportional to stake, but assign them to "delegates" elected by the stake holders. These delegates only keep a fraction for themselves and destroy the rest, which creates value for all other shareholders. Since it is a market, the fraction delegates keep to themselves will approach the cost of maintaining servers + whatever value add they do for the community (run faucets, developer time, hosting community services). Thus, it is an efficient (in energy) and robust system (from attacks) since assigning block production to delegates protects against many forms of attacks, you can read more in the DPOS white papers.

Bitshares is also a flexible platform for providing services beyond just "coins." It's more of a technology base than a product in itself. The first product is a distributed exchange where users can generate their own securities to trade, the next version will be an exchange to trade contracts pegged to assets (USD, gold, BTC), a long with plans for DNS, lotteries, music/literature publication, etc.

While your bad luck up front won't even out in the end, neither will your good luck up front. I think people that say it will "even out in the end" mean that if you were to start mining now, you are just as likely to be lucky as unlucky, so the expected value washes out so in the end (from now until you stop). Of course, that ignores everything in the past. So if I was unlucky, I lost money. Going forward, everything will even out (from now on). If I was lucky, I made money - but going forward (from now on) it will even out.

which goes back to Mike Hearn's post - people don't know how p2pool works so they'll just say "11.8% is wasted, lolz, [insert pool name here] is so much better and they charge a lower fee than p2pool charges" and they think p2pool.org is "The P2Pool" (which is the equivalent to saying MtGox is bitcoin).

it's too bad, I think that guy actually believes 17% is wasted work and he actually thinks there is a 2% fee

Kelly criterion says that no players should ever play just-dice, nor should they go to vegas (except blackjack if you card count). However, Kelly criterion says casinos and Doog should allow players to play.

There was a pretty lengthy debate a after max winning was reduced to 0.25% of bankroll (i.e. quarter Kelly) and they increased up to 0.5% (half Kelly). It seems that some do want it back at full Kelly, but there wasn't a clear way of how to implement it in a way that everyone thought was fair. Some wanted two pools: one pool for small bets less half kelly and and another pool for bets greater than half kelly. This way people that only wanted to risk 1/2 Kelly would only do that, while others would be free to risk more. Doog thought such a set up was unfair to the people who wanted to invest more. They were taking the increase in risk/variance for the site while everyone was benefiting. The counter was that this system would basically limit losses to what a person was comfortable with per bet. people in the 0.5% pool would never loose more than 0.5% per bet.

Example of system:
Player A invests 100BTC in 0.5% pool
Player B invests 100BTC in 1% pool
Total pool is 200BTC
The max winning is thus 1.5 BTC (0.5% of 100BTC+1% of 100 BTC)
The total amount of BTC invested by people ok with 1/2 Kelly (0.5%) = 200 BTC
Total amount of BTC invested by people ok with full Kelly (1%) = 100 BTC

The first 1BTC (0.5%) of losses and winnings is shared amongst everyone that is OK with half Kelly (200 BTC). The second 0.5% of losses and winnings are assigned to those that are OK with full Kelly.

gains/losses per person is:

Player_Total = player_sum_of_amount_invested_in_either_pool
House_Total = total invested in all pools by all players
Payout_HK = the loss or winnings of a single bet capped at half Kelly
Player_FK = player amount invested in full kelly pool
House_FK = total invested in full Kelly pool by all players
Payout_FK = the loss or winnings of a single bet that is in excess of half Kelly but less than full kelly

Player_Totall/House_Total*Payout_HK + Player_FK/House_FK*Payout_FK

Case 1:
Someone bets wins/loses 1BTC (so it is entirely 1/2 kelly). Losses/gains are assigned as follows:
Player A: 100/200*1 BTC= 0.5 BTC
Player B: 100/200*1BTC=0.5 BTC

Case 2:
Someone bets wins/loses 1.5BTC (maximum allowed). Losses/gains are assigned as follows:
Player A: 100/200*1 BTC= 0.5 BTC
Player B: 100/200*1BTC + 100/100*0.5BTC=1 BTC

The alternative was to have and "adjustable" risk factor - either as two separate pools (half kelly and full kelly) where earnings/winnings are assigned proportionally. It was pointed out that that would be identical to having house edge be 1% for everyone, but everyone have an adjustable slider as to what they wanted their "kelly" to be, and thus invest accordingly. Since that was identical to the original situation that led to high variance, it too didn't get much traction

Example:
Same investments as above, but there is only one pool
Player A effectively contributed 50 BTC to the pool
Player B contributed 100 BTC to the pool
Total pool size = 150BTC
Max winnings/losses = 1.5 BTC (same as above)

Case 1:
Someone bets wins/loses 1BTC (so it is entirely 1/2 kelly). Losses/gains are assigned as follows:
Player A: 50/150*1 BTC= 0.33 BTC
Player B: 100/150*1BTC=0.67 BTC

Case 2:
Someone bets wins/loses 1.5BTC (maximum allowed). Losses/gains are assigned as follows:
Player A: 50/150*1.5 BTC= 0.5 BTC
Player B: 100/150*1.5BTC=1.0 BTC

As you can see, max bet sizes end up the same, but the player that chooses 1/2 kelly earns more money in the first system (which is where nearly EVERY bet occurs on just dice) than they do in the second. That's why it appears unfair: maximum jackpot increases which benefits everyone and increases site traffic and potentially profits for the people that did not "do the work" in order to increase traffic. The counter argument to that is that it actually does help those that assume more risk: they still get the exact same return as they currently do at the current site, and they get to take advantage (and attract) play by whales that the lower kelly players do not get to do.

Two news stories from today involving bitcoin security offerings and hosted mining companies:
"Eric Voorhees Faces $50,000 Fine Over Unauthorized Securities Sale"
http://www.coindesk.com/sec-eric-voorhees-deal-unauthorized-securities-sales/

"Missouri Secretary of State Halts Mining Business Over ‘Deceptive Tactics'"
http://www.coindesk.com/missouri-secretary-state-halts-mining-business-deceptive-tactics/

LRM is not close to being as bad as those two (Voorhees blatantly had an IPO of an unregistered security; VMC was intentionally deceptive); I think LRM doesn't have to worry about this stuff. It's close, but it should fall on the "safe" side.

Vince is exactly correct, which is more evidence for my point that LRM should NOT sell shares above market value if they actually want to sell contracts.

Offering contracts above market is a bad business decision and shows zach did not learn from his mistake the last time he tried it. I have no problem with bonds being valued at what they are valued, and it is possible LRM can buy at $1/gh/s. He still should not offer contracts for sale above market value because no rational investor will buy them for two reasons:
(1) As MaxwellsDemon pointed out, the marginal gain in equity (buying power, whatever) from an investor purchasing shares over market is diluted by the outstanding shares, so the purchaser is basically donating money to the other shareholders. Why would I do that when I can get the exact same thing from buying on the open market and not give money to other shareholders? Also, Vince pointed out that LR can buy hardware for cheap, so LRM does not need to price contracts above market rates in order to purchase hardware. Offering at market minus 10% will sell significantly more shares than market + 10%, and raise more money for purchasing hardware than market plus 10%. (in theory, infinitely more money)

(2) nothing in the sales contract says that premiums from sale go to new hardware for contract holders, it's possible that it's pure profit, or buys hardware for LR himself. Cheaper, existing contracts, are "safer" than possibly throwing money away into a blackhole. That's another reason why LR has to offer below market.


This is a simple, no brainer, basic securities management concept. Of course this also assumes rational investors, but bitcoin investors don't always follow rationality. A few fools [1] will purchase above market value, but not enough to make a difference.

[1] http://swombat.com/2013/7/22/friends-family-fools see the section on "fools." sounds familiar?

If this is true, labrat should be using LRM funds to buy existing contracts. What you just said means that it is more expensive to go buy new hashrate than it is for LRM to consolidate existing hashrate. However, since Zach gets paid based on total hashrate (and not on share price), it's in his best interest to buy more hardware although it is in LRM's best interest to buy up cheap shares.

Such a conflict of interest is usually managed by the board of directors (company officers have a duty to what's best for the company, and if they do not they are personally liable and sometimes got to jail). However, LRM is set up in such a way that he's protected, and if a conflict like this comes up he wins and investors lose.

I don't think he understands this, probably not even worth discussing except to point out the conflict of interest and illustrate a bad decision (preordering hashrate for more money than it would cost to buy existing hashrate from your own company).

Because it becomes really close to being a security:


 - you start to push a gray area between a hardware contract and a security (as a profit sharing agreement). You are not free to sell securities however you'd like, even though they are your property.

From what I've pieced together, the contracts now look "legal" (although very difficult to valuate) and are clean. He's legally allowed to sell them to anyone. Once you own them, they are your property and you can sell them to someone else (within some limits so you don't draw attention to yourself as selling unregistered securities). However, running something that is an exchange (centralized place where people can trade contracts) requires more regulations. He doesn't want to get involved with that. Whether it's public or not doesn't matter, any centralized market is a regulatory liability for the operator. That's why it appears his lawyer is ok with someone else setting it up an exchange in a permissive jurisdiction. There is some regulatory liability placed on participants in the market, especially if you are a large holder of shares (selling unregistered securities), but that is kind of a stretch and might not be worth anyone from the SEC's time to look into.

Two things LRM contracts need, in order to have any value in the future, are a working exchange and enough information for people to value how much shares are really worth. Well, in theory, LRM only needs to have a way of accurately assigning value to shares (since that will allow direct, one-time, sales), the exchange is icing and will increase the value of the direct, one-time sales.

grnbrg is/was paid:

and addiction:
https://bitcointalk.org/index.php?topic=244042.msg6201645#msg6201645
(had the same situation as LRM - bitfunder failed, delays in delivery - but addiction customers love their managers because of the amount of transparency and communications)

and nastyfans:
https://bitcointalk.org/index.php?topic=86854.0
(they use "donations" like LRM wants to use "bonus," but they give auditable financial data and details of their current hardware and pending orders so you can calculate what your bonus should be and that you are receiving it)

grnbrg asked if anyone would step up and acknowledge that they are working on a trading platform, and no one has yet.

There was an opportunity for LRM to come out in much better shape with the new contracts, but the opportunity was blown and LRM at the moment is dead in the water. Since LRM is surprised people are upset, I'll explain it in simply.

Prior to the new contracts, customers were turned off by the lack of transparency. No one knew what was being done with their investments. There was a mysterious management fee that was never defined (neither how big the fee was or what it went for). This lack of transparency and support was evident by LRMs lack of ability to raise further funds. (the pricing of those second round securities was poorly chosen, shockingly poorly chosen)

The solution is to replace everything with a nominal (and essentially zero) minimum hashrate per bond, and replace payouts with a mysterious "bonus" which is also not defined. Even if you have the best intentions in the world, financial agreements do not run on best intentions. They run on what is in the contract. The contract only says people will get 100 MH/s, so no matter what you say - or what history you give, the valuation of the security will be severely deflated. Add this to the history of changing rules midgame, and now using extortion to get people to agree to the new format (I won't give you proceeds from hardware you purchased unless you agree to this new contract I unilaterally changed). Courts are not going to look favourably on that attempt at extortion.

Unless you release regular financial statements (like ognasty) so people can audit and calculate what their bonus should be and verify that they are receiving it, you're making people have to trust you in a way that they would not have when they first invested. There is no trust in business, just contracts.

No other security, or company, in the world bases a financial contract that is the foundation of their funding on "trust me." No serious money would touch it, they would laugh you out.

As others said, if you want LRM to raise funds in the future, and avoid getting sued by your previous funders, you have to act like a real company.

On top of it all, you blew a lot of customer's money (yes customers, since you probably didn't do any FFF, self-funding, VC/angel) on lawyers with someone that doesn't have corporate formation/financial instrument/SEC/IRS experience. He/she might have had one of those, but that contract looks like something they pawned off to the lowest intern - or something you wrote and asked them to edit.

1) LRM as a public company is dead. LRM needs external funds to grow, and no one will buy new contracts anymore. Even before this, when LRM tried to raise funds selling AT ABOVE market rates, only a few fools purchased.
2) I'm sorry you see your customers as trolls spreading FUD.
3) Simple corporate accounting, you don't need to respond to this but this will help you prepare for the lawsuit defence:
What percentage of the total funds raised came from contract sales? What percentage of funds did LR contribute/raise via VC?
What percentage of total hashrate is returned to contract holders? What percentage are retained earnings for LRM?

If those percentages do not line up, you might be running a scam.

4) If you're response to "3" above is "but IPO was a property transfer, so I only account for it in $. All other growth are unrealized gains on assets until I traded them for goods."
The easy response to that is:
a) Fine, I'm sure you reported those gains as taxes (you probably have a passthrough LLC, so taxes may be up to 30%)
b) The money you collected for the "managed group buy" should have gone to purchase hardware, you instead invested it in a volatile and risky asset? That is financial negligence, and in violation of the contract. That's the equivalent of "Hey, I'll sell you a bike for $100." You then take that $100 and gamble it on red in vegas, turning it into $200. Then you give the guy the bike, after you make sure you got your profit, then go out and buy yourself a new bike. If you lost, you would have said "sorry dude, the value went down - here's a big wheels."