*old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid.

[bytemaster]

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".

Ok you just made a claim: there is no first force.  You did not prove it. 

So there are now two ways you can respond:  prove the force doesn't exist *or* prove that even if it did exist it still wouldn't work.

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[mmeijeri]

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.

Well, I don't care about either the $20k or the 10 BTC, I was attracted to this because it would be revolutionary if it worked, and at first it looked superficially as if it might.

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.

I'd caution against this. I agree bytemaster's heart is in the right place, and we never really did establish the rules of the game, put money into escrow etc. Personally, I had no reason for that, because the money wasn't the reason I participated. We might all draw another lesson from this: if you intend you collect a bounty, make sure you set up the rules first and make sure you set up an arbitrator first.

I hope bytemaster will give up after trying to get it to work for a few more days. I hope he and others aren't going to learn the hard way that this won't work. If they do succeed, the more power to them, but as Elon Musk puts it: I'm not sure success is even a possible outcome. I think bytemaster has valuable contributions to make, but it seems to me this isn't one of them. His earlier idea for a Bitcoin-financed Tor-like P2P network looks a lot more valuable to me.

[bytemaster]

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".

Ok you just made a claim: there is no first force.  You did not prove it. 

So there are now two ways you can respond:  prove the force doesn't exist *or* prove that even if it did exist it still wouldn't work.

I will also take it upon myself to *prove* that it does exist:  

Suppose you hold Bitcoins, you believe in Bitcoins, but you  *REALLY* need some paper-USD today.   You are terrified of selling your Bitcoins because it could double tomorrow.   So instead, you borrow against your bitcoins at the current exchange rate ... or perhaps even at a premium... so that you can convince someone to give you paper-USD today.    When the value of Bitoins double then you will be able to cover your short position with half the BS used to create it and you be very happy.    If the value of Bitcoins falls... then you will be unable to cover your position and will be in the same boat as if you had simply sold your Bitcoins... except... that if it ever does rise again you can still see that profit and so your position isn't a complete loss.

[bytemaster]

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.

Well, I don't care about either the $20k or the 10 BTC, I was attracted to this because it would be revolutionary if it worked, and at first it looked superficially as if it might.

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.

I'd caution against this. I agree bytemaster's heart is in the right place, and we never really did establish the rules of the game, put money into escrow etc. Personally, I had no reason for that, because the money wasn't the reason I participated. We might all draw another lesson from this: if you intend you collect a bounty, make sure you set up the rules first and make sure you set up an arbitrator first.

I hope bytemaster will give up after trying to get it to work for a few more days. I hope he and others aren't going to learn the hard way that this won't work. If they do succeed, the more power to them, but as Elon Musk puts it: I'm not sure success is even a possible outcome. I think bytemaster has valuable contributions to make, but it seems to me this isn't it. His earlier idea for a Bitcoin-financed Tor-like P2P network looks a lot more valuable to me.

If someone would like to arbitrate this bounty via Judge.me then I will gladly accept to arbitrate it.    If you feel the terms of the bounty are too vague and subjective or lacking in an objective basis by which it may be collected, then I will work with anyone to define an objective basis.    Here is my proposed objective basis.   If I do not produce an implementation of BitShares within 1 year then we can conclude that I decided not to invest in it.   If I can produce receipts, documentation of time, that show I am still actively working on it and investing money then we can conclude I was not convinced and was still investing in it.    We have the fact that if it is *unworkable* I will be losing money by investing in it, so I have no financial incentive to lie about being convinced *or* to take a position that I will ignore logic in order to avoid paying the bounty. 

So, anyone who is only in this for the bounty and would like a signed, objective, contract disputable via Judge.me then please send me a PM and we can discuss the terms.   

For everyone else who either trusts me or is in this for reasons other than the bounty continue as always.

[thezerg]

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.

Well, I don't care about either the $20k or the 10 BTC, I was attracted to this because it would be revolutionary if it worked, and at first it looked superficially as if it might.

Honestly me too.  Rather then just disappear once I realized it would not work, I stuck around and posted again and again and again after everyone but bytemaster was convinced.  Beating my head against this wall.  I did THAT for the 10BTC

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.

I'd caution against this. I agree bytemaster's heart is in the right place, and we never really did establish the rules of the game, put money into escrow etc. Personally, I had no reason for that, because the money wasn't the reason I participated. We might all draw another lesson from this: if you intend you collect a bounty, make sure you set up the rules first and make sure you set up an arbitrator first.

I hope bytemaster will give up after trying to get it to work for a few more days. I hope he and others aren't going to learn the hard way that this won't work. If they do succeed, the more power to them, but as Elon Musk puts it: I'm not sure success is even a possible outcome. I think bytemaster has valuable contributions to make, but it seems to me this isn't one of them. His earlier idea for a Bitcoin-financed Tor-like P2P network looks a lot more valuable to me.

Maybe, but that is not how this forum system works today... there are countless examples of promises without escrow made that end up getting scammer tags.  And I believe in the way it works today.  If it worked your way (i.e. I can post any promises and don't need to fill them unless some higher authority enforces it) it would definitely undermine the philosophy of the libertarian readers of this forum.  And render subject lines like: [Bounty 10 BTC: XXXX] useless.

[bytemaster]

Just for the record, I am not the only one who is unconvinced by your argument.   Will everyone who thinks this could still work please affirm their belief that it hasn't been proven unworkable.

[bytemaster]

Maybe, but that is not how this forum system works today... there are countless examples of promises without escrow made that end up getting scammer tags.  And I believe in the way it works today.  If it worked your way (i.e. I can post any promises and don't need to fill them unless some higher authority enforces it) it would definitely undermine the philosophy of the libertarian readers of this forum.  And render subject lines like: [Bounty 10 BTC: XXXX] useless.

1) I didn't post this anonymously.
2) I have offered objective means of discerning whether or not I am a scammer
3) I am as libertarian / anarchist as they come (haven't met anyone more so)
4) Not having escrow is not undermining the forum... I have already paid out bounties related to this project and I am clearly investing a ton of time and energy attempting to produce something that if it works would be AMAZING.   
5) The purpose of the bounty was to show that I am serious, the value of the bounty depends upon your trust in my ability to be convinced and integrity to pay out.  This value is different for everyone and may be 0 for some.
6) I have offered the equivalent of 'escrow' and that is the creation of a more concrete contract with objective terms and arbitration with Judge.me,  all of which is clearly libertarian and in line with this forum.

Questions or can we drop this and get back to changing the world?

[thezerg]

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".

Ok you just made a claim: there is no first force.  You did not prove it. 

So there are now two ways you can respond:  prove the force doesn't exist *or* prove that even if it did exist it still wouldn't work.

Ok here's the proof.  You say in your first line that a depositor (and by that I think you mean someone who owns Q, the crypto currency that supposedly tracks USD) won't sell because he wants to receive equal value.  Yes.  So instead my bid will be minted at the lower price.  It will be the highest lower price but it will still be lower.  Repeat until 0.  Because my bid is minted, there is no force pulling Q up.

Sure someone who REALLY wants Q could buy it even higher.  But this will be temporary.  He'll have paid more for less in dividends then I did.  So he'll rapidly choose my strategy.

Note that nowhere does USD actually affect the price of Q.

And Q has nothing in terms of marginal utility that BS does not already have, so people won't need to use Q for the reasons they need Bitcoin.

Just for the record, I am not the only one who is unconvinced by your argument.   Will everyone who thinks this could still work please affirm their belief that it hasn't been proven unworkable.

Yes please! :-)


But Bytemaster, I'm going to choose to believe that you will pay the bounty when you realize that the system is unworkable so great let's drop that aspect.  And more importantly, I hope after you realize that your brainchild won't work you invest your 20k into a system that actually DOES allow representation of external currencies. 

But that system will unfortunately be one where trusted individuals and corporations keep USD, gold, etc in a vault.  Or are backed like a stock by the value of a corporation still have to post annual reports.  Or for mortgage offerings, an assessor still has to check out the house and digitally sign the mortgage bond contract.

However, given the above "trust-based" currencies, can bytemaster's dividend or backing technique create a "combined currency" (think currency backed by what's essentially a mutual fund containing verifiable quantities of "trust-based" currencies) that mitigates risk of default.  This combined currency would track whatever its constituent currencies are denominated in (i.e. USD).

Cheers!
thezerg

[bytemaster]

Depositor:  Someone with paper dollars that wants crypto-Dollars
Withdrawer: Someone with crypto-Dollars that wants paper-Dollars.

It is the Depositor who demands crypto-Dollars track parity.
It is the individual who wants to have exposure to 'Bitcoin Growth' but whom needs money that will mortgage bitcoins to get dollars... thus they will mortgage at a price that will attract depositors so that *they* can receive paper-USD.

[nomailing]

Just for the record, I am not the only one who is unconvinced by your argument.   Will everyone who thinks this could still work please affirm their belief that it hasn't been proven unworkable.

I'm still not convinced by either side.
As you can see from my earlier posts I was first also very skeptical about it, because bytemaster used circular reasoning when he says that the price will be parity.

But still I also haven't seen a proof that it will not work. For example, it is not enough to say that the fiat price cannot enter the system because

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.

[greBit]

I am not yet convinced either way.

I am intrigued by the 'attack scenario' discussed by thezerg to gradually bring down the price. But I expect a refuttal to arrive shortly. Does it violate the all-users-are-profit-seeking rule?

But I disagree that there is no fiat price information. There is a marketplace for USD/BS. So every user has this information in the same way that everyone can find out the BTC/USD or USD/EUR exchange rate.

[bytemaster]

But that system will unfortunately be one where trusted individuals and corporations keep USD, gold, etc in a vault.  Or are backed like a stock by the value of a corporation still have to post annual reports.  Or for mortgage offerings, an assessor still has to check out the house and digitally sign the mortgage bond contract.

However, given the above "trust-based" currencies, can bytemaster's dividend or backing technique create a "combined currency" (think currency backed by what's essentially a mutual fund containing verifiable quantities of "trust-based" currencies) that mitigates risk of default.  This combined currency would track whatever its constituent currencies are denominated in (i.e. USD).

It is really sad that you confine your thinking to such a box.  Without opening your mind to the possibility that such a solution could exist you will never even attempt to conceive of such a solution, despite it being clearly desirable.

That said, I am 100% confident that crypto-USD could track USD if you could trust some 'anonymous' backer to enter the market and 'peg it'.   I claim that market forces will take the place of the 'anonymous' backer, but clearly you could use my system 'as-is' and add someone to 'hold the peg' without that individual having to actually expose the location of their vault or bank account.   You could even have a group of independent individuals working together to hold-the-peg and thus make money off of the buy-sell spread between crypto-USD and USD while still being anonymous.

[bytemaster]

I am not yet convinced either way.

I am intrigued by the 'attack scenario' discussed by thezerg to gradually bring down the price. But I expect a refuttal to arrive shortly. Does it violate the all-users-are-profit-seeking rule?

But I disagree that there is no fiat price information. There is a marketplace for USD/BS. So every user has this information in the same way that everyone can find out the BTC/USD or USD/EUR exchange rate.

Perhaps my refutal to that was lost in the mix... but I believe it was a very good one:

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.

[bytemaster]

But that system will unfortunately be one where trusted individuals and corporations keep USD, gold, etc in a vault.  Or are backed like a stock by the value of a corporation still have to post annual reports.  Or for mortgage offerings, an assessor still has to check out the house and digitally sign the mortgage bond contract.

However, given the above "trust-based" currencies, can bytemaster's dividend or backing technique create a "combined currency" (think currency backed by what's essentially a mutual fund containing verifiable quantities of "trust-based" currencies) that mitigates risk of default.  This combined currency would track whatever its constituent currencies are denominated in (i.e. USD).

It is really sad that you confine your thinking to such a box.  Without opening your mind to the possibility that such a solution could exist you will never even attempt to conceive of such a solution, despite it being clearly desirable.

That said, I am 100% confident that crypto-USD could track USD if you could trust some 'anonymous' backer to enter the market and 'peg it'.   I claim that market forces will take the place of the 'anonymous' backer, but clearly you could use my system 'as-is' and add someone to 'hold the peg' without that individual having to actually expose the location of their vault or bank account.   You could even have a group of independent individuals working together to hold-the-peg and thus make money off of the buy-sell spread between crypto-USD and USD while still being anonymous.

Perhaps this explanation will actually help you see *how* my idea works.   Clearly any corporation could buy a vault to hold gold, USD, etc.  This corporation wants to be able to operate anonymously and therefore doesn't want anyone to know who they are or where their vault is.   Instead, they build brand-equity over time by pegging crypto-gold to gold.   They charge a small transaction transaction fee for taking money in and out of their account and they also pay you interest on your account.   In order for their business model to be successful people must come to trust that crypto-gold will indeed track gold.  But that is easy enough for the corporation to do because they are actually holding the gold and the BitShares and thus are fully capitalized.  So they issue crypto-gold and the market observes the price action and realizes that it does indeed track.   Eventually people start trading gold/crypto-GOLD near parity and everyone is making money even though they do not know who the real backer is.

[greBit]

Perhaps this explanation will actually help you see *how* my idea works.   Clearly any corporation could buy a vault to hold gold, USD, etc.  This corporation wants to be able to operate anonymously and therefore doesn't want anyone to know who they are or where their vault is.   Instead, they build brand-equity over time by pegging crypto-gold to gold.   They charge a small transaction transaction fee for taking money in and out of their account and they also pay you interest on your account.   In order for their business model to be successful people must come to trust that crypto-gold will indeed track gold.  But that is easy enough for the corporation to do because they are actually holding the gold and the BitShares and thus are fully capitalized.  So they issue crypto-gold and the market observes the price action and realizes that it does indeed track.   Eventually people start trading gold/crypto-GOLD near parity and everyone is making money even though they do not know who the real backer is.

How would this be better than if the stated corporation just issued colored coin IOU promises? Is there less trust involved?

[bytemaster]

Yes there is less trust involved.

1) Anyone else could enter as a backer and make money on "ATM" fees in the same way as this anonymous backer.
2) You have crypto-Gold which has value to ANYONE at market value where as colored coins only have value to those who *TRUST THE ISSUER*.

[bytemaster]

Yes there is less trust involved.

1) Anyone else could enter as a backer and make money on "ATM" fees in the same way as this anonymous backer.
2) You have crypto-Gold which has value to ANYONE at market value where as colored coins only have value to those who *TRUST THE ISSUER*.

Let me clarify:  the only way to ultimately convert colored coins to Gold is to go to the issuer.   The issuer would have no way to 'start' a colored coin system anonymously because a colored coin really only has the value of the BTC being used to color it.   Where as crypto-Gold actually has the value on parity with gold and the issuer can easily 'peg' that value anonymously.   

There can be any number of issuers and ultimately, anyone who has Gold at home is an 'issuer' that could make money backing the crypto-Gold price for a transaction fee.

QED

[greBit]

So even if the hypothesis that 'market forces will cause price parity' proves to be false, we still have a better system than anything else proposed?

Third party backers come in to guarantee price parity, make money in the process, and would not require significant trust.

Im getting more convinced by this idea.

[thezerg]

Ok I wrote I big long rebuttal but have since deleted it.  I don't give up my claim to the bounty but I give up convincing you for awhile. 

I've already spent 10btc of my time, trying to couch my proof in a way you will understand.   So run your simulations, and fork Bitcoin and spend your 20k.  When you learn a bit you will see the exact issues I brought up.  But please fork Bitcoin into Bitshares publicly so the community will have a great basis to build a multi-currency distributed crypto exchange.


Oops except for this one last try (not going to respond though):


Given the way the bitcoin solved the byzantine general's problem, you can't enforce the rule "stop a minting event if someone buys the bid". 

And it was the lack of a solution to the byzantine general's problem that forced all crypto-currencies to be centralized before bitcoin's proof-of-work solution.  So this is a big problem.

Google it to really find out why, but in summary, there is no proof that all bitcoin nodes "see" any particular unconfirmed txn.  That's why some unconfirmed TXNs (esp. ones with no txn fee) don't make it into the blockchain right away.  So an "attacking" miner could simply claim to not have seen the "fill" orders (or any buy orders) and therefore mint coins to fill a very low priced buy of infinite coins that the attacker himself issued.  The likelihood of success is proportional to the miner's fraction of the total hash power. 

So bid/asks must be in the blockchain.  When this is the case the exchange slows down so much it is unusable and not scaleable.  Today we are irritated because Gox can't keep up with 10s of txn a second.  Imagine every 10 minutes. :-)  And even then a finney-attack variant (premining blocks but not submitting them until certain external conditions favor yourself) could get you an "infinite" minting event if you are lucky.


Do the readers of the thread actually understand the bitcoin technical details or am I the only one?

[spiral_mind]

I've exchanged messages with Bytemaster and posted in his thread in the Economics sub-forum. Here's a repost of one of my posts for this thread:



Here's a few areas from the whitepaper that were especially concerning:

"1.  BitShares derive their value from the same sources as Bitcoins."

Bitcoin gets its value from its utility. Where would the utility for the BitShare blockchain come from? From it's ability to create sub-currencies according to the whitepaper. The big problem is that he has no way of making these sub currencies even resemble the value of those assets:

"How does everyone come to an agreement about what a particular sub-currency is supposed to track?

How did language develop?  Who decided what words would track what ideas?  The answer is that anyone who doesn’t learn and adapt to the consensus would be unable to communicate.  This is a very natural process and does not require any central authority or formal ‘contracts’ between people to define the meaning of words.  

Likewise, people will naturally come to a consensus about what currencies track what ideas and there would be ample market pressure for all participants to find a way to reach consensus.  Any individual who is wrong about the consensus opinion would end up mispricing assets. "

So there is no mechanism to force anyone to trade these electronic representations of assets for anything resembling their price in the physical world. This is a big problem because this is the only thing giving value to his alternative blockchain. BitShares would get their value from the sub-currencies being related to real assets, and not the other way around as he proposed. Since these sub currencies can't be forced into any particular price they will never work. This is a fatal flaw in the plan.

The logic of collective action, economics, and game theory all say that humans do whatever is in their best interest that they can get away with. Sub-currencies would quickly spiral totally out of relation to any name that is slapped on them. Without any mechanism to ensure that the represented currencies resemble the value of real currencies they do not represent anything and hence add no value.

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You can't expect the community to maintain the prices of these representative electronic sub-currencies at their own expense. People will only do what they can make money on.

Link to other thread: https://bitcointalk.org/index.php?topic=217181.0