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Author Topic: *old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid.  (Read 9778 times)
bytemaster
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May 31, 2013, 07:09:50 AM
 #201

The purpose of having an anonymous peg was merely to simulate the 'invisible hand of the market' that was confusing the debate, the idea being that there is just 1 eOil company, but 1000's of them all competing to provide goods to the market.  The purpose of making it anonymous was to make sure there was no 'trust' or 'contract' between eOil and the users of crypto-Oil.   So, the biggest problem you have forced me to face (whether you realize it or not) is that my pricing mechanism either forces everything above parity until there is no longer a connection or to 0 with most of the dividends going to the attacker.   

Clearly my pricing mechanism is broken... but never fear bytemaster is here.. and he has a new pricing strategy that is far better!

The source of our problems is establishing the minting rate... right now it is entirely one sided with no market forces to push it to the proper rate.  This occurs because the exchange was based upon trading existing crypto-Gold for BS and attempting to 'tack' minting onto an entirely un-related exchange.   So, here is my new strategy for controlling mint rates:

1) It is entirely pointless to have an exchange between BS and crypto-Gold because we know the exchange rate 'exactly' based upon the dividends... thus my old exchange was 'pointless'.
2) What we really want is an exchange between 'minting' and 'melting', thus when you melt you reverse the process of minting by turning crypto-Gold into BS at some 'rate'.   

So instead you turn the market into an 'mint' vs 'melt' market...
    - when I melt...  I want the highest possible ratio that allows me to buy the most gold.
    - when I mint.... I want the lowest possible ratio that allows me to sell the crypto-Gold for gold.
    - the two market participants must agree to the mint/melt price.
   
* note * the minter is no longer given an option to cover at his mint price, thus there is no longer a 'short' position to be covered.

So how would this work?
     - Initially there is no crypto-Gold... thus, you can mint at any price you want you are creating a new currency
     - This creates new crypto-Gold which the holder does not want to melt for some time.
     - When there are no melters, you can only 'mint' at the same or higher ratio (no debasing)
     - Once there is an offer to melt, that is the highest (and lowest) you can mint at (melter/minter just exchange).
     - When there are no minters, just melters, then you can melt at the current rate.

Why would someone mint in the first place?
     - to create a new peg and establish a new crypto-Gold.  Those who have crypto-Gold know they paid 1 gold coin for it, and it was at parity, they are not going to take a loss if they can help it.
     - If the value of gold goes up it requires more BS to back it, thus you can always mint at a new higher rate.
     - If the value of gold goes down, then crypto-Gold will be 'over-backed'.  No one will want to 'mint' at the old backing... and any crypto-Gold holders will not be able to 'melt' over the mint price,
          both parties realize that the only price they can 'agree on' is the current market price of gold.   This would allow 'one in' and 'one out' of the crypto-gold market.

Why would someone melt from a high-yield (over-backed) crypto-Gold balance into BS?  
     After all they could just trade their crypto-Gold balance at full value without melting!  No one will melt unless they are forced to melt and thus we need to find a way to force melting.  I think the way you do that is to only allow transfer between addresses while in BS form.  Thus, you can only transfer value through BS, but you can store it as crypto-Gold.   

If we ignore the technical challenge of turning every gold wire-transfer into two market orders... this approach should work.

So, how would eGold operate? 
    - initially they would Mint as much crypto-Gold as they could sell for gold with a fee.... thus they have acquired a lot of gold.
    - if the price of gold goes up... egold would sell some of their gold for BS and offer to mint for anyone willing to melt.. there would be a spread (egolds profit)
    - if the price of gold goes down... the crypto-gold would now be backed by too much BS... so the holders are earning a lot of interest... this causes a rush into
      the crypto-gold market with everyone wanting to 'mint'... but they could only mint at the lowest melt price.. this forces them to mint high and for the melter to melt low so
they can agree on a price... thus parity will be established with supply and demand.


I am re-opening the bounty on this thread!

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May 31, 2013, 10:05:39 PM
 #202

See the following video explaining bitshares: http://www.youtube.com/watch?v=RPbSaznUbg8&feature=youtu.be

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June 01, 2013, 02:30:13 AM
 #203

BitShare Dividend Algorithm
Dividends are generated with each new block as 50% of the transaction fees and mining rewards.

Because Dividends are generated via mining, they cannot be confirmed nor spent for 120 blocks. If we were to attempt to pay out dividends sooner than that then a chain split would invalidate all transactions on the bad chain and the dividends could generate a lot of 'dust' (aka: outputs to small to spend).

As a result the following algorithm will be used to claim dividends:

1) Whenever an output is spent, it may claim all dividends from blocks with more than 120 confirmations as part of the balance.

2) All dividends from blocks less than 120 confirmations become part of the transaction fee. This will serve to aggregate all of these 'unconfirmed' dust dividends into a single fee that will be 'recycled' once the next block reaches 120 confirmations.

3) The end result is that high-frequency transactions generate more dividends for those who hold!

4) 'inter-day-trading' by rapidly minting will result in 0 dividends and thus no profit opportunity.

5) For high-speed trading, do that off chain where you can speculate with sub-second timing if you like.

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June 01, 2013, 07:12:46 AM
 #204

This is what convinced me this system will not work:

Assume I issue  $1,000,000 of crypto-Gold at todays exchange rate.

Tomorrow Gold goes up by 50%.

Where does the extra $500,000 of value come from to back the already issued crypto-Gold?

If I simply issue another $1,000,000 of crypto-Gold at the new exchange rate... it would still be diluted.

Therefore, there would be no profit to back new crypto-Gold with *MORE* backing than existing crypto-Gold.


DO YOU KNOW WHAT THIS MEANS???

The only way to make BitShares work anything close to what I had dreamed would require users to post collateral in excess of the current exchange rate to create crypto-GLD (closer to Version 1.0)

Why didn't I see this before?  I was looking at small 'incremental' rises that would push it up and then extrapolating wrong.  I was thinking that individuals who 'wanted interest bearing USD' would pay a
premium to get the return, and therefore cover losses.  It might work for small movements, but certainly not for large ones.

Why couldn't anyone convince me before?  Because no one could explain it in such simple terms.

Lessons learned?   It was incredibly valuable to have input from those who hung around and the bounties I have paid have been well worth it.  I also learned that my arguments were very convincing to everyone around me and to multiple investors who also couldn't see what I was missing.  Even TheZerg whom I paid 2 bounties to was resorting to using more and more arcane attacks that required very expensive attackers.   

When I re-read some of the arguments against my system in light of my new perspective, I see that indeed I am lacking outside pricing information. 

-------------------------------

That said, what I do know for sure is that I have created a system that enables 'short-selling' of bitcoins.   Assume we ignore all of the crypto-Gold/USD stuff, and focus just on 'mortgaging' 1:1.   It would allow you to receive $USD today 'selling' your mortgaged shares... and then buy back your shares in the future when they are cheaper.   

The ability to short-sell bitcoins would enable people to hedge their bets and 'reduce' volatility both of which would be incredibly useful and potentially worthy of investing in on their own.

So, if anyone wants to talk about the potential uses / benefits of a crypto-Currency that supports trust-less short-selling then I am open to discuss it.

--------------------------------
Regarding the Bounty:

I do not believe anyone here *convinced* me.  If you believe that it was your input that convinced me, then I will listen to your arguments, and if I still disagree then we can have it arbitrated via judge.me then I am game.
Those who did help me and provided constructive feedback received tips or were paid for their exploits/time.

Regarding Investors:
All investment funds will be returned, unless you want to pursue a short-selling crypto-Currency.

Thanks everyone, I hope you found this discussion / idea had some redeeming value on its own even if it was a dead end.

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June 01, 2013, 07:42:03 AM
 #205

Why couldn't anyone convince me before?  Because no one could explain it in such simple terms.
Great. Now you can abandon this idea and help me implement the mini-blockchain idea. Grin

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June 03, 2013, 08:07:55 PM
 #206

This is what convinced me this system will not work:

Assume I issue  $1,000,000 of crypto-Gold at todays exchange rate.

Tomorrow Gold goes up by 50%.

Where does the extra $500,000 of value come from to back the already issued crypto-Gold?

If I simply issue another $1,000,000 of crypto-Gold at the new exchange rate... it would still be diluted.

Therefore, there would be no profit to back new crypto-Gold with *MORE* backing than existing crypto-Gold.


DO YOU KNOW WHAT THIS MEANS???

The only way to make BitShares work anything close to what I had dreamed would require users to post collateral in excess of the current exchange rate to create crypto-GLD (closer to Version 1.0)

Why didn't I see this before?  I was looking at small 'incremental' rises that would push it up and then extrapolating wrong.  I was thinking that individuals who 'wanted interest bearing USD' would pay a
premium to get the return, and therefore cover losses.  It might work for small movements, but certainly not for large ones.

Why couldn't anyone convince me before?  Because no one could explain it in such simple terms.

Lessons learned?   It was incredibly valuable to have input from those who hung around and the bounties I have paid have been well worth it.  I also learned that my arguments were very convincing to everyone around me and to multiple investors who also couldn't see what I was missing.  Even TheZerg whom I paid 2 bounties to was resorting to using more and more arcane attacks that required very expensive attackers.   

When I re-read some of the arguments against my system in light of my new perspective, I see that indeed I am lacking outside pricing information. 

-------------------------------

That said, what I do know for sure is that I have created a system that enables 'short-selling' of bitcoins.   Assume we ignore all of the crypto-Gold/USD stuff, and focus just on 'mortgaging' 1:1.   It would allow you to receive $USD today 'selling' your mortgaged shares... and then buy back your shares in the future when they are cheaper.   

The ability to short-sell bitcoins would enable people to hedge their bets and 'reduce' volatility both of which would be incredibly useful and potentially worthy of investing in on their own.

So, if anyone wants to talk about the potential uses / benefits of a crypto-Currency that supports trust-less short-selling then I am open to discuss it.

--------------------------------
Regarding the Bounty:

I do not believe anyone here *convinced* me.  If you believe that it was your input that convinced me, then I will listen to your arguments, and if I still disagree then we can have it arbitrated via judge.me then I am game.
Those who did help me and provided constructive feedback received tips or were paid for their exploits/time.

Regarding Investors:
All investment funds will be returned, unless you want to pursue a short-selling crypto-Currency.

Thanks everyone, I hope you found this discussion / idea had some redeeming value on its own even if it was a dead end.


QFT
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June 03, 2013, 08:29:15 PM
 #207

bytemaster,

No one can convince anyone of anything... I can only lead you there, but you have to do some thinking on your own.  Which you have now done.  This is a universal truth.  I believe that I led you there so deserve the 10BTC bounty.  While there were other posters, I was one of the first and I am the only poster who did not just give up and move on.  The second posting I made asked the very question that you now realize is unanswerable "how does USD pricing information enter the system?" -- and other issues that in fact remain unresolved.

I write the above in the hopes that you will happily pay me the remaining balance on the 10BTC bounty in full understanding of my efforts.

But it is technically irrelevant because you agreed to the following terms of our .25BTC bounty:  These payments go towards my claim on the 10BTC bounty.  But if you stop the process, you essentially agree that you're abandoning the project and pay me the rest.

Go ahead and find the above statement in the the following quoted exchange (bolded) which can be found earlier in this thread.

Please do not force some tiresome judge.me process.  Meet your commitments honestly.  Since you have abandoned the project, but have already paid me .5BTC in bounties, those commitments are 9.5BTC to address 1CKeoT8vBDQDEpMHz5VAswV39pZJ2GTGYd.

Best,
thezerg


Zerg, you haven't convinced me things are unworkable, but you have provided the most challenging and innovative attacks that cause me to put on my thinking cap.  Thanks for hanging in on this discussion, send me your BTC address and I will drop you a 0.05 BTC tip for your efforts, you deserve one even though you haven't yet convinced me.

Ok .05 BTC is peanuts so here's my counter-offer.  If you truly value my challenging attacks to your system (and you know they DO take a LOT more time to think up then drawing a logo) then pay for them.  Every time I show an attack that illustrates any or some combination of:

1. a problem in your system that makes you change a rule or add a new one
2. a way to nearly zero the value of a crypto-currency
3. a way to force minting enough coins that gets me the lions share of the dividends.
4. a way to force crypto-Q to diverge from Q
5. a way to force the system to leave me with more BS and/or crypto-Q then I started with (aka to "make" money).


You pay me .25 BTC.  If I show attack A, and you modify the rules and I show attack A' which is just slightly different that's 2 attacks.  Imagine you're really writing the code, updating it, and releasing it every time, but instead of pwning you, all the coins and millions of dollars, I just get .25 BTC.

I post one attack at a time, and do not post another until I receive the .25BTC.  If you want to stop the process you must indicate so in this thread before paying me the .25BTC for the prior attack.  That way I won't post the next one when you want to quit. 

These payments go towards my claim on the 10BTC bounty.  But if you stop the process, you essentially agree that you're abandoning the project and pay me the rest.  But if I run out of ideas, I am not abandoning my claim... because of my previous discussed but not (yet) accepted by you ideas of why its broken.  If you obstinately reject one of my attacks, at my option I can "shelve" it for a time when you might recognize it, or I can simply realize that you are not actually willing to pay anything and so cut-my losses and stop posting attacks.

If you agree to these terms, please show your appreciation for my blockchain attack and start the games by sending .25BTC to: 1CKeoT8vBDQDEpMHz5VAswV39pZJ2GTGYd

Cheers!

I will accept your terms because you seem to be very competent at finding things with a few, minor, tweaks to the clauses.

1) I have discussed many rules and sometimes your attacks violate an existing rule or a rule that you did not understand.  Pointing this out or clarifying an existing rule shall not count as a new rule.  If any other poster on this thread will agree with me that it is not a new rule, then I win, if no one will agree that it is an old-rule that you misunderstood... then you win.
2) Working the system with only transactions between yourself (no other people) is the only way to collect on #5, otherwise you would just be playing the market spreads to make money.
3) crypto-Q and Q will vary in price as the ratio of depositors / withdrawers changes and this is expected behavior.   You must show that given an honest anonymous 'backer' with a large fixed supply of Gold and a matching supply of BS and no new infusions of cash that has the intention of maintaining a peg of crypto-Gold within +/- 10% can be driven to bankruptcy provided they are intelligent about managing their spreads/margins.   
4) you must zero the value of crypto-Gold backed by the anonymous 'peg'.
5) you must mint enough crypto-Gold to get the lions share of the crypto-Gold dividends from the anonymous 'peg'. 
6) Your attack must assume all actors are rational profit-seekers.
7) Your attack must not be something that Bitcoin is also vulnerable to (51% etc).

* edit *   I want to clarify that I may choose to stop paying you without giving up on this idea.  It just means I do not believe your attacks are valid. Thus not paying you does not entitle anyone to the full bounty.


The purpose of the anonymous peg is simply to avoid the SIDS attack issue which is an entirely different area of discussion.   

Therefore, I will send you 0.25 BTC for your most recent attack.   Thanks for hanging around and helping out.



.25BTC incoming confirmed!

GAME ON!!! :-)    


Now let me put on my thinking cap.  ...Probably nothing until tomorrow...


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June 03, 2013, 09:48:39 PM
 #208

TheZerg,
     You have convinced me that I would owe you the bounty if I gave up on the project and decided not to invest money in creating a distributed peer-to-peer exchange based upon dividend paying BitShares.  As such, I will commit to pay you the 10 BTC bounty as the only person who stuck with it once I actually do give up; however, I gave up pre-maturely and because 'rule changes' in how the system *could work* were part of determining when a 0.25 BTC bounty would be paid out and I have paid out a 0.25 BTC bounty for each rule change you forced me to make I will now present a new set of rules that will solve the problem.  As a result of these new rule changes I am accelerating my investment in the exchange and ultimately you only convinced me that one particular set of block-chain rules was unworkable.     

   I would now like to offer you the following settlement and open new opportunities:  1) I will issue you 10 BTC worth of pre-mined BitShares (1000) if I continue with the project through to completion *or* I will pay you 10 BTC - in addition to any bug-fix bounties paid in the event I fail to follow through.   Either way you should win and either way you would have a clear-case in arbitration that is no longer subject to impossible to prove claims.  Furthermore, everyone on this forum will be able to judge whether you are owed the bounty in non-ambiguous terms and I will therefore not even bother with arbitration and simply pay you.

So, here is the deal, I am re-opening the bug-finding process with 0.5 BTC bounty per rule-change you can find.  I still value your efforts. 

For starters you should consider this thread: https://bitcointalk.org/index.php?topic=223747.0  which explains the works of the system.   I will be releasing a video update describing the process as well. 

1) Anyone may sell short any asset on the exchange provided:
       a) there exists a buyer who is willing to take the other side of the trade *at built-in market price*
       b) after the short sale, they have 3x the value of the short sale as collateral.

2) Any short position may be redeemed by the market when the value of the collateral falls to 1.5x the value of the short.
       a) half of the position is sold and the proceeds are used as collateral for the other half of the position (unless collateral would still be insufficient, or the balance would be 'dust')
       b) there is a 5% fee paid by all shorts which force the network to cover their position. The goal is to
          encourage any short to keep their margin sufficient or close out their position early. This fee also
          motivates miners to give closing out of short positions priority over most (all?) other transactions.

4) All 'short' positions must be closed in full before any of the collateral may be spent.
       - as the price of an asset falls, the effective interest rate paid to longs will go up as the ratio between short and collateral grows.
       - this will cause increasing opportunity costs for the short position which will motivate them to cover the entire position
         and re-open their position at a new base. 
   
3) Dividends paid on BitShares held as collateral are redirected to individuals who went Long (taking the other side of the trade).
       a) As a result, crypto-USD pays 1.5x to 3x to dividend rate rate as BitShares.

4) Users place their bids / asks into the blockchain as 'outputs' that can be canceled by spending them, or accepted by
       spending them as part of a transaction that satisfies the bid and market requirements. 

5) No block may execute a trade below the highest bid or above the lowest ask in the block chain.
      -  The order in which trades are executed is based upon 'price' first, 'fee' second, and otherwise up to the miner
      -  If the highest bid is greater than the lowest ask, then the transaction occurs at the *bid* price.

6) No transactions that contain multiple currency units are allowed outside of the bid/ask system.
      -  This requirement may be lifted after a careful audit for potential attacks by circumventing the 'market'.

Cool In the event that the price of an asset changes so rapidly as to blow through all 'margin', the Longs will eat the losses.
      - this is the justification for the higher dividend rates paid to the longs and the opportunity cost incurred by the shorts.
      - No system can gurantee 0 losses and BitShares is no different.

9) All trades on the built-in exchange incur a 0.05% transaction fee that contributes to mining fees / dividends.  This fee is
   designed to minimize the profitability of 'rapid trading' and generate profits for the BitShare holders.
      - minimum transaction size limits will also be imposed (like Bitcoin) to prevent dust spam.
      - minimum transaction fee just like bitcoin also applies.

10) All dividends paid to 'transaction outputs' in the last 120 blocks are recaptured as mining fees, spending these unconfirmed
dividends would result in chain-splits invalidating the tranaction.
      - as a result, those who spend money rapidly will receive no dividends, while those who save will receive the dividends.

11) Users may transact in any currency just like they do Bitcoin (provided all non-market transactions only deal with a single currency).
      - this includes trading of their short position.

12) No block may clear out more than 5% of the value of all open bids/asks for a particular asset.
      - this prevents certain classes of attack in 'thin' markets.

13) A maximum reduction in exchange rate of 5% per block.  The goal is to give market participants time to add collateral or buy the
dip.  It would also prevent certain types of attacks based upon 'rapid manipulation' of the price.

14) No trade may occur unless there are at least N? bids/asks capable of 'reversing' the position.
      - this aims to prevent attacks on new issuance and insures that there exists a deep enough market to justifiy creating
      a new asset class.  It also 'halts' trading when the market gets thin.
      - the definition of 'capable of reversing' is still TBD

15) You must wait 10 blocks before spending the output of a trade.
      - if we allow people to immediately spend with the proceeds of a trade then, chain forks could be exploited to
        reverse trades, manipulate prices, and cause losses.

All of the rules above ultimately mean that trading can only occur at 'human speed' and all high-frequency trading will be
forced off-chain.  Trading is not 'free', but cheaper than any current exchange.   


In particular I am looking for ways that the market can be manipulated that do not also apply to traditional markets.  Some avenues of
attack that must be considered:

1) What would happen if someone had 51% of the hashing power?
   - they could control what bids made it into (or out of) the blockchain.
         * prevent people from canceling bids.
   - they could control who got want bids.
         * play favorites
   - they could do anything they could do with Bitcoin.

2) What would happen if someone had 1% of the hashing power?
   - they may gain some advantage in picking/choosing bids.
   - would this motivate professional traders to invest heavily in mining?
   - would the competition ultimately be good for the network?

3) What weaknesses would be exposed by having all short positions and margin available as public information?
       * Somone with significant capital could 'trigger' a short-squeeze by bidding up the underlying asset.
           - is this mitigated by not allowing uncollateralized shorting?
       * The short-squeeze would then enable new shorts to sell at higher prices (offsetting their attempt to push it up)
       * In theory someone could take advantage of such moves... but only if they could move fast enough between
         short and long positions to 'head-fake' the network.  Because all positions require 6 confirmations before they can be adjusted does it
         make it difficult or impossible to benefit from this kind of manipulation?

4) In theory all 'shorts' are naked, but backed, and are ultimately settled in BitShares.  What are the implications?
   - don't trade in illiquid, rare, or non-fungibile/divisible items.  It would be up to the Longs to assess this risk.
   - the total 'short' position for any asset class is public and therefore can be audited.  If the total short position
   is too-large the market will respond by discounting the 'long' position from face value.
   - how does 'naked' shorting enable manipulation?  In theory, someone with a large amount of capital (BitShares) someone
   could keep selling into a market.  This would result in pushing the price down but would also drive the dividends paid
   to longs up. 
   - Because longs are not buying with leverage, short-selling to push the price down CANNOT trigger margin calls and further selling.
   - another way this can be viewed is that the 'shorts' are 'borrowing' the USD from the longs and are posting collateral and
   paying interest to do so. 
   - any naked-short is ultimately has to cover and thus 'unwinds' his position.  He can only profit if supply and demand
   actually creates a fall in prices independent of the action of the short-seller.

5) Why would anyone go 'long' against someone known to be naked-short?   Perhaps you can think of the short-long market as
  a betters market where the winner takes home BitShares.  All market participants are attempting to manipulate the price and
  predict which way it will move.  50% think it will go up, 50% think it will go down and the result is a tug-of-war.  What
  are people really betting on?  They are betting on what *other market participants* will do!  How do you know what the
  other participants will do?  You have to assume they are all expecting the price to follow real market prices. Anyone who
  is out-of-sync with the emergent consensus opinion about what a price should track will ultimately end up making losses
  in this market.

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June 03, 2013, 10:05:13 PM
 #209

You have self-admitted to essentially throwing out the entire approach and starting anew.  That was the point of the bounty... to stop you from going down the wrong street.  The point was not that the entire idea is utterly impossible like a perpetual motion machine.

If you want to keep the trust of this community, please pay the bounty and THEN I promise I will examine your new ideas closely (you'll note I already posted a quick positive message about how interesting the approach is) and contribute as best as I can. 

But actual payment is essential rather then deferment.  I honestly haven't even looked at the details in the offer in your posting, and I won't until the 9.5BTC owed is received. 

That type of "re-negotiation" behavior is what rings ponzi alarm bells in people's minds... you don't want that.  What you want is me to be able to affirm that you've got the ammo to fund your ideas...

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June 03, 2013, 10:18:53 PM
 #210

Ok Zerg.  I will pay the bounty to you and respectfully request that you *choose* to contribute the funds back to this project in exchange for 9500 BitShares.

In the future I will be more careful about my bounties.  

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June 03, 2013, 10:54:53 PM
 #211

Paid, please confirm.

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June 04, 2013, 12:53:56 AM
 #212

Paid, please confirm.

Confirmed!!!  Thanks for standing by your word!
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June 04, 2013, 02:30:25 AM
 #213

You are moving closer to what I suggested previously, but you still do not have a credible mechanism for introducing price information into the system. There are other problems too, but this is the big one.

Ignore this stuff about interest, shorts, and longs, etc... It is not critical and it is a distraction.

The key question is "how is price information input into the system?" A MARKET WILL NOT WORK. FULL STOP. The instruments being traded have no fixed definition. You are asking the market to simultaneously decide a) what the asset is b) what the assets price is in terms of bit shares. There are an infinite number of equilibria described by (a, b) pairs. e.g., recall that a cryptoUSD can turn into a cryptoMANGO and visa versa. (a) is ambiguous. You continue to pretend that a cryptoUSD is a cryptoUSD because someone calls it that. Stop pretending.

Use voting by third-party observers to set prices. Create incentives for the third parties to vote honestly.

Otherwise, continue wasting your time and money.

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June 04, 2013, 02:42:41 AM
 #214

Before a trade can occur a Buyer and Seller must *know* what they are buying / selling.  Therefore, unless there is some sort of 'understood contract' of what a crypto-USD is there would be no trading.  If there *is* an understood definition of what a crypto-USD is *then* the market can handle the rest.  Anyone who trades contrary to the consensus would lose money. 


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June 04, 2013, 02:56:53 AM
 #215

Before a trade can occur a Buyer and Seller must *know* what they are buying / selling.  Therefore, unless there is some sort of 'understood contract' of what a crypto-USD is there would be no trading.  If there *is* an understood definition of what a crypto-USD is *then* the market can handle the rest.  Anyone who trades contrary to the consensus would lose money. 



Okay, names are good enough to establish market conensus. Let's take that on faith.

 I made 100 "cryptoUSD" to sell you. They are each backed by 3 satoshis. No matter though, I'm sure market consensus will create extra cryptoUSD with adequate backing. Buy them for 99 USD each now and you are sure to profit. Wait, if that happens I receive 99 USD for 3 satoshis...

Names aren't good enough at all. You need a third party authority. It could be a decentralized authority, but it still needs to be an authority.

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June 04, 2013, 03:25:32 AM
 #216

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?

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June 04, 2013, 03:34:32 AM
 #217

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?
No.

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June 04, 2013, 03:38:12 AM
 #218

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?
No.

What is the difference?   

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June 04, 2013, 04:16:07 AM
 #219

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?

I think as a proof-of-concept, your model (with some refinement) will work.  My concern is whether or not it will be practical.  As you know, a functioning market requires liquidity and I don't see any efficient way to inject liquidity into the model right now.  Basically you're stuck at the fiat to crypto exchange hurdle.  Using escrow and such works on a micro level but if you scale everything up to a macro view, I just don't see how you're going to be able to get all the necessary funds into the market. 

Maybe I'm getting ahead of myself but it seems the main feature of your new endeavor is to eliminate the need for fiat deposits.  Without an efficient way to do that, I can't see a need for all of the rest.  I'm hoping in this respect you are more visionary than I am as I think this is the main issue facing Bitcoin right now (how to decentralize the exchange of fiat to BTC).  I'll be watching closely and hopefully adding some productive comments along the way.  Maybe even some capital if I can be convinced this is potentially a viable solution.

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June 04, 2013, 04:46:01 AM
 #220

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?

I think as a proof-of-concept, your model (with some refinement) will work.  My concern is whether or not it will be practical.  As you know, a functioning market requires liquidity and I don't see any efficient way to inject liquidity into the model right now.  Basically you're stuck at the fiat to crypto exchange hurdle.  Using escrow and such works on a micro level but if you scale everything up to a macro view, I just don't see how you're going to be able to get all the necessary funds into the market. 

Maybe I'm getting ahead of myself but it seems the main feature of your new endeavor is to eliminate the need for fiat deposits.  Without an efficient way to do that, I can't see a need for all of the rest.  I'm hoping in this respect you are more visionary than I am as I think this is the main issue facing Bitcoin right now (how to decentralize the exchange of fiat to BTC).  I'll be watching closely and hopefully adding some productive comments along the way.  Maybe even some capital if I can be convinced this is potentially a viable solution.

This is certainly a growing pain issue and adoption will be slow at first.   But lets make some assumptions:  assume that crypto-USD ends up tracking actual USD within a small range for 6 months.   Assume that crypto-USD is actually paying a 10% APR.    Now, ask yourself this... how many people will be 'interested' in trying that out?   How many people will create a business out of accepting 'deposits' of USD for a small fee and selling crypto-USD?   Perhaps just as a hobby?    Watch as this starts catching on and people realize they can make money.  All of a sudden it goes viral and you can deposit / withdraw cash with just about anyone for a small 'ATM' fee.    Sure, it may take a while to catch on, but it will.


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