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Author Topic: *old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid.  (Read 9759 times)
domob
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May 29, 2013, 05:50:28 AM
 #101

All sub currencies are fungible.  All units of the same currency pay the same number of BitShares per unit of sub-currency.

If User A  mints at 10:1 and User B mints at  5:1 then the resulting dividend will be 15:2.

Can someone mint for themselves? What is to stop Bob from minting 100Q with say $0.0001 worth of Bitshare collateral?

Such that he has now 100Q which are worth $100 and perfectly fungible



Exactly. QED.  bytemaster, please send the bounty to: 1CKeoT8vBDQDEpMHz5VAswV39pZJ2GTGYd.  Remember, I'm saving you 20000 bucks.

Edit: But if I have to sign me up for the game.  I'll take every currency anyone creates, instantly mint 100000000000000 units (or whatever the maximum currency units are) for 1 bitshare (or whatever the minimum is), therefore reducing the currency's value to essentially 0.  These currencies will never track USD.   And as a bonus, if I'm the only one doing the above, I'll get all the dividends.

I already mentioned this problem some time ago ... but apparently the rules are such that this is not possible because minting can only be done when no-one else is trying to sell Q.  Thus if we have a market and Q has any value at all (some bid offers) basically never.  This is what's my current problem with the proposed system.  And yes, I also do agree that I *still* haven't really understood all the rules; also the whitepaper doesn't clearly define every detail as I think a proper definition should.  (But maybe as a mathematician I have different assumptions on what a "definition" should be than other people.)

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May 29, 2013, 06:51:53 AM
 #102

this encourages hoarding all coins

The economics section already addresses the hoarding myth promoted by mainstream economics and throughly debunked by austrian economics.  I will not debate this particular issue on this thread.

The mechanics of what you're trying to do are completely over my head, but Austrian economics is most definitely not.

For this comment alone, I'm watching this carefully. (and hopefully I'll learn something useful to both of us along the way!)

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May 29, 2013, 11:24:27 AM
 #103

Points:
1. The strategy detailed above to wipe the value of the crypto-USD is ironclad.  
2. And so it the point that nobody would trust a currency where if the bottom bid got filled it would zero the currency value.

Isn't this the case also for all real-life currencies.
So I think you haven't presented a proof that the idea will not work.

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May 29, 2013, 04:03:57 PM
 #104

First of all I would like to thank everyone who has contributed to this thread.   I think we can all agree that the 'ideal' solution to the exchange issue is to the ability to create any crypto-currency that will track anything else and has value in and of itself.   The complete lack of counter-party risk makes my ideas an order of magnitude above all other known approaches... if they can work.   

Clearly there are some doubts and that is good and healthy.  I have provided a lot of explanations based upon sound austrian economics of how prices would stay in parity.  All that remains is understanding 'hacking' attempts.

Can one person change the value of crypto-USD, profitably?

So lets see if we can classify the proposed attack vectors:

1) Someone gets the wild-idea that they want to hijack crypto-USD and completely debase it by issuing more and more crypto-USD backed by less and less BS.   If this were possible, then anyone who bought crypto-USD would lose a lot of money.  So lets step through this attack:

       Assume the initial price of 1 crypto-USD is 100 BitShares and that equals parity.
       The attacker says:  Hey, I want to buy 1 crypto-USD for 1 BitShare.
       There are no takers, so the attacker issues 1 crypto-USD for 1 BitShare and keeps the crypto-USD for himself.

       At this point crypto-USD will be paying a revenue stream 50% of what it use to pay.   The attacker is making money because it only cost them 1 BitShare to gain a revenue stream of about 50 BitShares.   At this point crypto-USD is already entirely debased and it would appear that you found a potential weakness.

Lets see if this weakness is entirely intractable and without any defenses that could be implemented in a blockchain or by market participants.
       
        a) For this attack to be successful there has to be 0 demand or no open bids at all for a crypto-USD based currency
               * implication here is that crypto-USD is already worthless, and that after the attacker completed the transaction, he would be unable to cover except at
                  a reduced evaluation.
               * when the attacker did decide to cover his short position then instantly crypto-USD would be back to its old value.
        b) Therefore, this attack could only occur in a very thin market long before crypto-USD was established as 'crypto-USD'.
        c) Any market-participant interested in 'defending' the crypto-USD valuation would have bids placed at or near 100 BitShares.
               * they would know that they could make money if they could buy crypto-USD for 99 BitShares... just like the attacker was attempting to buy for 1 BitShare.
               * All 'attackers' would be competing against one another to 'debase' the crypto-USD and make a profit, but only the 'attacker' who
                  debased it the least could 'win' any given bid.
               * Only one such attack attempt could occur every 10 minutes due to the requirement that new issuance can only occur in response to the highest open bid in the block-chain.
         d) The real backing behind crypto-USD is everyone in the market who wants a crypto-USD at parity to USD.  If there is a known exchange rate of  $100 paper-USD per BitShare then those who want to buy a crypto-USD would buy it at any price up to 100 BS.   Therefore, so long as there is demand for paper-USD there will be bids to buy it at or near the current exchange rate.  Only if the value of paper-USD fell would it be possible to 'debase' crypto-USD and in that case the debasement is proving my theory that the price will follow the market value of paper-USD.
          e) I would argue (but cannot prove) that the demand to buy crypto-USD would be higher than the demand to buy BitShares simply because of the exchange risk of owning BitShares.  So it *might* be rational for someone to bid 101 paper-USD to buy 1 crypto-USD.   This would create market forces that would entirely destroy the potential for your attack.

In conclusion, I hope I have identified and debunked the potential for such an attack as being both unrealistic and something that could only happen in what I will call a SIDS (Sudden Infant Death Syndrom) attack on a new crypto-USD.   

So how would the market protect against SIDS?   As a BS holder, I want to see their value go up.  I also know there is a market of people who would buy crypto-USD at a premium from me if crypto-USD were 'stable' and tracked the market.   As a result my self and other BS holders who understand the same logic would back the crypto-USD exchange rate near parity with our own BS.  It wouldn't cost us much, if anything because we are really investors in BS and crypto-USD is just another form of BS.   As a result the initial 'creators' of crypto-USD would never let it go no-bid early on.   Once crypto-USD had gained some traction and a history then it would be 'grown up' and the market would take care of itself.


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May 29, 2013, 04:21:47 PM
 #105

I have provided a lot of explanations based upon sound austrian economics of how prices would stay in parity.

I don't think you've done that at all. I was attracted by your initial argument that a real interest rate differential would drive the exchange rate to parity, but on closer inspection I don't think the argument is valid. A pity, because it would have been great if it had worked. Your other arguments sound like hand-waving, circular reasoning, and wishful thinking to me. I'm still open to persuasion, but I'm pessimistic now. It really looks as if there is no reliable way to get fiat data into the system.

Quote
 All that remains is understanding 'hacking' attempts.

I'm not even interested in the hacking argument. It looks as if you no longer even have a prima facie case.

ROI is not a verb, the term you're looking for is 'to break even'.
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May 29, 2013, 04:25:50 PM
 #106

I have provided a lot of explanations based upon sound austrian economics of how prices would stay in parity.

I don't think you've done that at all. I was attracted by your initial argument that a real interest rate differential would drive the exchange rate to parity, but on closer inspection I don't think the argument is valid. A pity, because it would have been great if it had worked. Your other arguments sound like hand-waving, circular reasoning, and wishful thinking to me. I'm still open to persuasion, but I'm pessimistic now. It really looks as if there is no reliable way to get fiat data into the system.

Quote
 All that remains is understanding 'hacking' attempts.

I'm not even interested in the hacking argument. It looks as if you no longer even have a prima facie case.

Ok, so now you have a new argument:  namely that there is no way for fiat data to enter the system.  By fiat data do you mean price information?  The exchange rate between crypto-USD and BS is clearly valid in the system... what is not 'in the software' is the exchange rate between BS and paper-USD or crypto-USD and paper-USD.    So are you suggesting that the software needs to know those exchange rates?  Why?

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May 29, 2013, 04:31:49 PM
 #107

It's not a new argument, both Thezerg and I have mentioned it before. I can see the exchange system between Q and BS establishes prices, but not how it gives reliable information about USD vs BS. You started with an ingenious and superficially attractive argument about interest rate differentials, but unfortunately it appeared not to survive closer scrutiny. The rules of the system were unclear, and despite ongoing tweaks you have not persuaded me exchange rate parity is at all likely. In fact, it now seems positively unlikely to me, much as I would want it to be otherwise. Mere reputation doesn't appear to do the trick, and the exchange system doesn't give reliable data about the price of USD vs BS, it gives information between Q and BS, which unfortunately need not be the same thing.

I don't think you're ready to give up on it yet, and that's fine, but it now does look to me as if you're wasting your time. Other interesting tricks may be possible with your idea for interest rates, but crypto-USD doesn't appear to be one of them.

ROI is not a verb, the term you're looking for is 'to break even'.
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May 29, 2013, 04:44:57 PM
 #108

Here is the biggest challenge I see so far, without something like Mt. Gox how does one establish paper-USD vs BS from which all other prices are derived.   It would appear that initially the price discover of paper-USD vs BS would be OTC and thus have wide-spreads and some liquidity challenges (like early bitcoin days).   But gradually the value of BS would become known my market participants even without a Mt. Gox.

Clearly this 'value' would not be in the software, it would exist outside the software on other (less efficient) decentralized exchanges or even perhaps on a (more efficient) centralized exchange.  

Once this 'price' is known then the BS client would probably have a table that looks like this:

BS      10%
GLD    100%
SLV     3%
USD    0.1%

Those who hold BS would move it to the highest yield sub-currency after factoring in exchange risk.  Those who held BS and wanted to sell would have an easier time if they first converted it into a form that was more 'marketable' because it was less volatile.

The only price information the user needs to provide would be the price of BS in $USD (in that user's perspective).  So the user enters:   $100 BS per USD.

The software then displays the prices:

BS    $100
GLD  $1000
SLV   $30
USD   $1

Given that information the user can trade between GLD, SLV and USD.  

So all that remains is to tie the client to a public 'ticker' the user trusts.   This ticker would not be used by the blockchain, but instead to allow the user to see prices in terms of $USD or EUR or any other currency instead of expressed as percentage rates of return.


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May 29, 2013, 04:48:19 PM
 #109

It's not a new argument, both Thezerg and I have mentioned it before. I can see the exchange system between Q and BS establishes prices, but not how it gives reliable information about USD vs BS. You started with an ingenious and superficially attractive argument about interest rate differentials, but unfortunately it appeared not to survive closer scrutiny. The rules of the system were unclear, and despite ongoing tweaks you have not persuaded me exchange rate parity is at all likely. In fact, it now seems positively unlikely to me, much as I would want it to be otherwise. Mere reputation doesn't appear to do the trick, and the exchange system doesn't give reliable data about the price of USD vs BS, it gives information between Q and BS, which unfortunately need not be the same thing.

I don't think you're ready to give up on it yet, and that's fine, but it now does look to me as if you're wasting your time. Other interesting tricks may be possible with your idea for interest rates, but crypto-USD doesn't appear to be one of them.

Sorry I don't really understand this argument. There would be a market for buying and selling BS just like there is a market for Bitcoin.

You would go to MtGox or BitStamp or whatever and you would get your price information for BS just like you do for BTC.

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May 29, 2013, 04:50:30 PM
 #110

Sure, there would be a USD price for BS, and a USD price for Q. There would also be a BS price for Q, and arbitrage would make sure the three were in equilibrium. But there appears to be no convincing mechanism to make sure the USD price for Q would track the USD.

ROI is not a verb, the term you're looking for is 'to break even'.
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May 29, 2013, 04:50:39 PM
 #111

greBit gets it!   Thanks for helping to explain / defend the approach!

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May 29, 2013, 05:00:28 PM
 #112

Sure, there would be a USD price for BS, and a USD price for Q. There would also be a BS price for Q, and arbitrage would make sure the three were in equilibrium. But there appears to be no convincing mechanism to make sure the USD price for Q would track the USD.

So the focus should be on disproving this point in a concise manner to convince the OP (+ other interested parties Smiley ) to stop wasting their time on an unworkable idea

Start with "Q would not track USD because ..."
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May 29, 2013, 05:04:16 PM
 #113

Well, the argument would really have to come from the other side, since there is no compelling reason to believe otherwise in the absence of an argument. Why would one asset class track another in the absence of a causal link? And why wouldn't it track the EUR instead? The fact that bytemaster has radically changed his system without abandoning his belief he can make Q track the USD should give you (and him) pause. I want this to work too, but will power alone isn't going to make it work.

But I already gave my argument: no fiat data can reliably enter the system, or so it seems to me.

ROI is not a verb, the term you're looking for is 'to break even'.
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May 29, 2013, 05:17:40 PM
 #114

Well, the argument would really have to come from the other side,

Well look at the title of the thread. The onus is on someone convincing the OP that his idea his unworkable. This thread is for getting the 10BTC bounty

But I already gave my argument: no fiat data can reliably enter the system, or so it seems to me.

That argument, although it may satisfy you, is pretty lacking and will not earn you a bounty in any case Smiley



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May 29, 2013, 05:18:31 PM
 #115

I'm not in it for the bounty.

ROI is not a verb, the term you're looking for is 'to break even'.
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May 29, 2013, 05:39:39 PM
 #116

The idea of a decentralized Cryptofiatexchange is out of the box thinking we need to further advance the widespread use of cryptocurrency.

 Bytemaster's  thread is a modern example of what pioneer inventors (Thomas Edison,Leo Baekeland, Salvador Luria,Alexander Graham Bell, Hiram Maxim, David Bohm, Lars Onsager,Satoshi Nakamoto etc etc) must have endured.

As I am not a coder, mathematician or have a degree in economics, all I can offer is my support via donation. Is there an address to send payment for investment?

The only thing constant in life is change

Cheers

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May 29, 2013, 05:50:23 PM
 #117

no fiat data can reliably enter the system, or so it seems to me.

This has been stated several times, but it is not true. You underestimate the psychology of all market participants. Actually fiat data could enter the system through all parties which are trading between real USD, bitshares and crypto-USD.

Here is an illustration of how it might work, just by psychology:
Let's compare it to bitcoins. The supply of bitcoins is exactly determined. Therefore the bitcoin-USD exchange rate is very volatile because the demand is always changing according to good or bad news about bitcoins.
In contrast, now lets look at the supply of crypto-USD. The supply is floating and constantly changing according to the decisions of all market-participants (going short or long).
Nobody so far has stated exactly if the exchange rate will definitely go up or go down. So nobody knows exactly if it will go up or down. Therefore we could assume the following:
A) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go up
B) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go down
C) 20% believe that the concept of bitshares will work and therefore they think that crypto-USD will track fiat-USD

So 40% will go long, 40% will go short and 20% will go short or long depending on if the price is below or above parity.
Therefore the 20% of all market participants are enough to drive the market to parity.

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May 29, 2013, 06:01:36 PM
 #118

no fiat data can reliably enter the system, or so it seems to me.

This has been stated several times, but it is not true. You underestimate the psychology of all market participants. Actually fiat data could enter the system through all parties which are trading between real USD, bitshares and crypto-USD.

Here is an illustration of how it might work, just by psychology:
Let's compare it to bitcoins. The supply of bitcoins is exactly determined. Therefore the bitcoin-USD exchange rate is very volatile because the demand is always changing according to good or bad news about bitcoins.
In contrast, now lets look at the supply of crypto-USD. The supply is floating and constantly changing according to the decisions of all market-participants (going short or long).
Nobody so far has stated exactly if the exchange rate will definitely go up or go down. So nobody knows exactly if it will go up or down. Therefore we could assume the following:
A) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go up
B) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go down
C) 20% believe that the concept of bitshares will work and therefore they think that crypto-USD will track fiat-USD

So 40% will go long, 40% will go short and 20% will go short or long depending on if the price is below or above parity.
Therefore the 20% of all market participants are enough to drive the market to parity.

Egad Brain!   That is a wonderful insight and explanation!  So can we go take over the world now?

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May 29, 2013, 06:07:20 PM
 #119

Sure, there would be a USD price for BS, and a USD price for Q. There would also be a BS price for Q, and arbitrage would make sure the three were in equilibrium. But there appears to be no convincing mechanism to make sure the USD price for Q would track the USD.

So the focus should be on disproving this point in a concise manner to convince the OP (+ other interested parties Smiley ) to stop wasting their time on an unworkable idea

Start with "Q would not track USD because ..."

The proponents seem to think that it would follow USD simply because people want it to.  LOL!  See below


So I create a '0-sum' game between BS and Q.   To create crypto-Q you must give up current market value of Q in BS.   

Let's stop right there.  Right at "you must".  Who enforces that?

And in fact if your crypto-Q really worked it should be able to start at any backing (value) and be pulled towards the valuation of Q in BS.

I think you want to research control algorithms.  Look up "PID" proportional-integral-derivative control. 



What drives price parity while the value of Q is rising and the value of BS is falling is the demand of depositors to receive equal value.
What drives price parity while the value of Q is falling and the value of BS is rising is shorts competing to buy BS (which is appreciating) at a discount.

As I've shown in my examples and was shown in the first round of the game, there is NO first force.  Nobody will buy crypto-Q above the average BS backing of the original buyers.  There is only the 2nd force which will cause crypto-Q to slowly fall to zero.  Owners of crypto-Q cannot stop this fall, because of the "minting" rule.  The minting rule was that if the top bid is not filled, it is "minted".


I think I have given many, many examples of how the price stabilizes.  I would like to see one example that causes the price to not follow parity assuming:

1) No buyer accepts crypto-Q in exchange for Q unless it has equal value.
2) No one can short new crypto-Q so long as there is someone with existing crypto-Q willing to sell at that price.
3) There is a large market for crypto-Q with many competing shorts, buyers, and sellers.
4) All parties are profit seeking / maximizing. 

Lets construct one trade sequence at a time... and demonstrate the instability.  So far all I see is a lot of handwaving and straw-man that violate the rules of the blockchain.  Lets stick to the rules.  Propose a sequence of transactions that you would execute and if they conform to the rules of the blockchain and yet result in easy manipulation by a single party then it clearly will not work.   

The worst-conceivable-outcome that I can contrive involves the complete disappearance of all depositors seeking crypto-Q paying interest.   In this event, the value of crypto-Q gradually falls until the very last crypto-Q reaches parity with the short-issuer with the lowest basis.   But this outcome is so out-there that I cannot conceive of a single reason why all of a sudden no one would care about getting a high-yield crypto-Q revenue?   

How come you are the only one who does not understand this obvious strategy?  It is even WORSE with lots of buyers.  They just offer bids with a lot of volume but always with less backing then current owners.  If the current owners sell, they are selling at a loss.  If they do not sell, the currency is minted at the lower backing, so the buyer gets some of the dividends from your backing.  Next iteration someone does the same thing AGAIN.  The only thing stopping this process is if ALL the buyers run out of BitShares which is why it works better if there are lots of buyers.

But in fact the strategy is so easy to use (now that I discovered it) that nobody would touch crypto-Q with a 10 foot pole.  Because as soon as they buy some, they'd lose $ to a lower bid in the next round.


Here is the biggest challenge I see so far, without something like Mt. Gox how does one establish paper-USD vs BS from which all other prices are derived.   It would appear that initially the price discover of paper-USD vs BS would be OTC and thus have wide-spreads and some liquidity challenges (like early bitcoin days).   But gradually the value of BS would become known my market participants even without a Mt. Gox.

Exactly, and I asked this of you 4 days ago:
Questions:

1. How does information about the price of USD in THC enter the system?

But you still don't "get" it.  Which is that the information must enter the system in a way that is provably honest even with dishonest participants.  Or just give up and use an "Oracle" -- an exchange like Gox or 1 million of them ARE "oracles" if they simply "report" how much fiat Q was paid to buy/sell X BitShares.

And I asked this:
2. When I was talking about anyone creating their own currency... you said at one point that "we" will start with just the major currencies.  Who is "we" here?
And so now you've moved to a system where anyone can mint a currency.
And this:
3. How does crypto-USD enter the system?  I get that someone buys it for USD, but I mean technically how is it actually created?
Which has turned out to be a critical Achilles heel of the entire system (see above).

4. How does your dividend system cause crypto-USD to approach USD value?
And here's the point we are debating now.  And in fact, the dividend system does NOT apply any control algorithm to drive the price of crypto-Q toward Q.  As I showed above (and several other times), it simply drives the price down.


Clearly this 'value' would not be in the software, it would exist outside the software on other (less efficient) decentralized exchanges or even perhaps on a (more efficient) centralized exchange.   

Once this 'price' is known

That's it right there.  It is NEVER known.  Because anyone holding crypto-Q wants to lie and trick crypto-Q to rise relative to Q.  And anyone not holding crypto-Q wants to trick crypto-Q to fall relative to Q (so they can buy it cheap).  And finally, any "disinterested" party is by definition an "oracle" and additionally its impossible to prove that they are truly "disinterested" and haven't bought crypto-Q on the sly.


...
Given that information the user can trade between GLD, SLV and USD. 

So all that remains is to tie the client to a public 'ticker' the user trusts.   This ticker would not be used by the blockchain, but instead to allow the user to see prices in terms of $USD or EUR or any other currency instead of expressed as percentage rates of return.

Yup that's it that's "ALL" that remains, LOL!  But not an "oracle" that the "user" trusts -- its got to be one the entire network trusts.  You'll understand once you learn about PID control algorithms and apply them to your dividend in order to actually force the price of crypto-Q towards the price of Q.  In order to do that, the network as a whole needs to agree on a particular dividend rate for every moment in time.  To pick this rate, it needs to apply a PID control algorithm with the following inputs: crypto-Q per BS over time, and Q per BS over time. 

You cannot report Q per BS without an oracle because Q is a fiat currency that is completely external to the network.


It's not a new argument, both Thezerg and I have mentioned it before. I can see the exchange system between Q and BS establishes prices, but not how it gives reliable information about USD vs BS. You started with an ingenious and superficially attractive argument about interest rate differentials, but unfortunately it appeared not to survive closer scrutiny. The rules of the system were unclear, and despite ongoing tweaks you have not persuaded me exchange rate parity is at all likely. In fact, it now seems positively unlikely to me, much as I would want it to be otherwise. Mere reputation doesn't appear to do the trick, and the exchange system doesn't give reliable data about the price of USD vs BS, it gives information between Q and BS, which unfortunately need not be the same thing.

I don't think you're ready to give up on it yet, and that's fine, but it now does look to me as if you're wasting your time. Other interesting tricks may be possible with your idea for interest rates, but crypto-USD doesn't appear to be one of them.

The sad truth of the matter is we're doing all the work, first off by refining the idea to the point where it is actually understandable to the majority from a vague set of "for instances".  And second by pointing out the flaws.  And we were seduced by a carrot of 20k for dev and when that wasn't enough to garner interest 10btc to prove the flaws.  Which we've done time and time again.

We've refined the rules to the system to the point where they succeed except for a single data point -- the value of Q in BS.  Its obvious. 

You can't drive a car blindfolded.  You can't execute a control algorithm if you don't know the target price.


I'm going to give bytemaster a few days to understand these concepts and play his simulation, etc.  But after that, payment or scammer tag.

Even though his heart was in the right place we can't let people promise bounties and not pay if we want to keep this forum even vaguely a marketplace.  I'm sorry that the result is not what was wanted.  I would also have preferred to be implementing a FOSS system with the properties that bytemaster originally claimed.  But that is unfortunately not reality.

I hope you readers will support me on this (by affirming that BitShares has been proven unworkable) when/if a determination needs to be made by theymos.

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May 29, 2013, 06:12:05 PM
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So I create a '0-sum' game between BS and Q.   To create crypto-Q you must give up current market value of Q in BS.   

Let's stop right there.  Right at "you must".  Who enforces that?

And in fact if your crypto-Q really worked it should be able to start at any backing (value) and be pulled towards the valuation of Q in BS.

Well, crypto-Q doesn't become crypto-USD unless someone is willing to trade paper-USD for crypto-Q.  Therefore, the original creator of Q created something other than crypto-USD.

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