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Author Topic: Convince me not to Invest $20,000 in P2P Bank/Exchange Idea  (Read 3041 times)
monsterer
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May 28, 2013, 07:56:56 AM
 #21

For most people one trade every 10 minutes is good enough.  The crypto-USD could be used outside the shared exchange as easily as bitcoin-to-litecoin exchanges operate today.  Do your High Frequency trading there.

Is that really true? That might be fine for most limit orders (since they usually sit in the book for a while), but can you really say that waiting 10 minutes between hitting sell and receiving the response (for a market order) is going to be satisfactory?
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May 28, 2013, 08:13:33 AM
 #22

For most people one trade every 10 minutes is good enough.  The crypto-USD could be used outside the shared exchange as easily as bitcoin-to-litecoin exchanges operate today.  Do your High Frequency trading there.

Is that really true? That might be fine for most limit orders (since they usually sit in the book for a while), but can you really say that waiting 10 minutes between hitting sell and receiving the response (for a market order) is going to be satisfactory?

I imagine 3rd party services would be built up to support high frequency trading. Fast P2P solutions could also be developed to allow trade deals to be negotiated off the blockchain, no?

Otherwise yeah 10 minutes is too slow.

My concern is with the economics of it, are there any real-world examples that demonstrate that the mechanisms you assume will make crypto-USD track the price of some external asset, do actually work?  I guess my problem is that I don't really understand your whitepaper, as im not an economist

Maybe you should try to explain it as if you were talking it to an 8 year old  Smiley
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May 28, 2013, 11:51:32 AM
 #23

For most people one trade every 10 minutes is good enough.  The crypto-USD could be used outside the shared exchange as easily as bitcoin-to-litecoin exchanges operate today.  Do your High Frequency trading there.

Is that really true? That might be fine for most limit orders (since they usually sit in the book for a while), but can you really say that waiting 10 minutes between hitting sell and receiving the response (for a market order) is going to be satisfactory?

I imagine 3rd party services would be built up to support high frequency trading. Fast P2P solutions could also be developed to allow trade deals to be negotiated off the blockchain, no?

Otherwise yeah 10 minutes is too slow.

My concern is with the economics of it, are there any real-world examples that demonstrate that the mechanisms you assume will make crypto-USD track the price of some external asset, do actually work?  I guess my problem is that I don't really understand your whitepaper, as im not an economist

Maybe you should try to explain it as if you were talking it to an 8 year old  Smiley

Yes, HFT can and should occur off chain.

Trust me, I have been trying to get this explained in simpler and simpler terms.  The best I have so far is this:

If you are going to give someone $10, you want something worth $10 in return right?   Now imagine there are a whole lot of people that want to earn interest on their $10.   Now imagine that at any point in time it is possible to construct a bitcoin-bond that is worth $10 based entirely on blockchain enforced interest payments.   Lastly, imagine that there is a profit opportunity to provide a bitcoin-bond worth $10.  This profit opportunity is in the transaction costs, like an ATM fee.

It is in the best interest of everyone creating bit-coin bonds worth $10 to give it the same 'name', say crypto-USD.  If the market didn't agree to a standard then there would be less people willing to buy because less people would trust it and everyone would make less money.  Therefore, profit-motive causes de-facto standards to be used.

As the price of $10 changes relative to the price of a BitShare each new issuance must occur at the new exchange rate or no one would buy them.   Because all crypto-USD are interchangeable (they are bitcoin-bonds that pay the same interest rate) everyone's crypto-USD follows the price of $10. 

Why do people want to create crypto-USD worth $10 out of BitShares?  Because they want to receive paper-USD and make a withdraw.  If the market didn't adjust the crypto-USD price then people who want to make a withdraw of USD would have a much harder time finding buyers (it would be like attempting to sell Bitcoins without an exchange).

So, assuming BitShares are falling in value those wishing to cash-out in $USD will be willing to issue new crypto-USD at higher and higher exchange ratios in order to attract buyers.

Now if you assume the value of BitShares are going up, and thus $USD is going down then the value of the interest paid to those who hold crypto-USD will be higher than those who hold BitShares because the interest payments were determined at the old exchange rate.     

What this means is that someone who created crypto-USD at 10:1 could now buy crypto-USD at 5:1 and then 'cover' their short position.  In other words, for 5 BS worth of value, they could 'buy' 10 BS worth of dividends.  When they cover their short position it starts reducing the interest rate paid to crypto-USD holders back to near parity.

Therefore, regardless of whether prices go up or down everyone has profit motives to make trades that push things toward parity.


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May 28, 2013, 11:55:14 AM
 #24

Have you seen this yet? http://nashx.com/

Looks like he'd sell the whole thing if you're interested.

Yes I saw it.  Had the idea for the same kind of exchange myself months before NashX existed.  NashX is more of an escrow system where there is still counter-party-risk.  Nothing like what I am doing.

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Hunterbunter
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May 30, 2013, 11:10:40 AM
 #25

Hi Bytemaster,

It seems you have the technical aspects down quite well, but I'm not so sure about the marketing for this idea. I have to admit it's taken quite some time to really understand what you're trying to do, and even then, I'm still not really sure I understand it comprehensively. From what I understand, though, this is what's happening, and please correct me if I'm wrong:

I join the bitshare project and mine shares (which is a confusing name, btw; I'm facing enormous cognitive dissonance with the idea of scarcity-wealth bitcoins combined with virtual stocks of a company, even though that's what I suspect the dividend aspect is intended to model...but maybe I'll just get over that). In some ways what you're proposing seems like an analogy to working to gain fiat, which can be seen as shares in the total productive capacity of an economy, rather than 'just like gold' bitcoins. So you've done some 'work' to get these shares; either securing the network, or earned them from someone else. That's all well and good so far, and has potential.

So I have some shares, by either mining or earning, and what happens next boggles my mind a little. As I understand it, if I just let them sit there, I'll automatically be sent a few more bitshares over time to a particular address(which?) as interest on the shares I still have. Those shares will either come from new shares being mined, or from transaction fees later on at a 10% siphon rate divided by all bitshares in existence. If I wish to capitalize on those shares now, however, and let the interest in bitshares go to someone else, I can 'short' the shares (or short the other currency? I'm not sure which, you say short the other currency but shorting the shares makes more sense since that's what I'm selling, no? If I short the other currency...I borrow it then sell it for what?), but suffice to say I get some paper USD now in exchange for some currencies I make an offer to buy in the future, by someone putting it into my account directly, and me transferring 'ownership' of the interest on my bitshares to them (but not the actual bitshares if I'm to recollect them?). Ok I'm totally lost as to what's going on here. Really need some clarification. Maybe a typical use case example would make this easier to understand.

The reason I mention marketing earlier is because I just don't see the purpose of this, probably due to my misunderstanding of it. It's looking a lot like just another tool to speculate on and maybe grow rich with. The actual value it presents is obtuse. I'm in mensa, and I'm really struggling to understand it as it's presented now, and I can tell you that unless the average person understands it, it's not going to gain mass appeal. Bitcoins, while the algorithm isn't, are otherwise really easy to understand. Shorting currencies against others will keep this to an extremely small and intensely competitive group of people who have the money to invest but no interest in consumption, plus the explorers. What's going on here?

I have to ask you...is this intended to replace fiat? Replace bitcoins? More easily allow the interchange between the two (and other currencies) and be used for minor arbitrage? This level of speculation is very dangerous for the average person, so who is this aimed at most benefiting?
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May 30, 2013, 11:40:56 AM
 #26

The 'why' aspect is fairly simple to understand. The 'how' is pretty heavy going!

Basically we want to have an asset-backed crypto-currency. The price of which stays in parity with something say the dollar or 1oz of Gold.

By having crypto-USD, which has all the advantages of Bitcoin, but which can always be bought and sold for $1 would be very useful. It would make it far easier to get fiat in and out of the crypto economy without the exchange rate risk that exists with Bitcoin.

Having a crypto representation of fiat would allow for truly P2P currency/commodity exchanges to arise.

Most people seem to think that the only way to achieve this is by trusting a single authority to issue redeemable USD-tokens - IOUs which could be implemented as colored Bitcoins. Bob accepts $1, gives you Bob-IOU-colored-bitcoin, and promises to redeem it back at a later date.

The problem with this is that we rely 100% on Bob redeeming our IOUs and not running off with the money or going bankrupt.

The OPs proposal aims to achieve the same thing but where we don't need to trust anyone.

The complexity behind his proposal is there to allow market forces to operate on keeping price parity between crypto-USD and USD.
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May 30, 2013, 01:06:04 PM
 #27

I think I have laid this out fairly clearly in my latest posts that describe how an anonymous peg could make crypto-Gold always equal the price of gold and operate at a profit.  Because the 'peg' is anonymous no one could *ever* hold that peg on the hook to honor an IOU, instead you are trusting their profit motive (and that of everyone competing against them) to keep the VALUE peged. 

I would gladly explain more later, but I think you could benefit from reading a few more of my existing posts (or ree-reading them).

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June 02, 2013, 05:11:32 AM
 #28

The 'why' aspect is fairly simple to understand. The 'how' is pretty heavy going!

Basically we want to have an asset-backed crypto-currency. The price of which stays in parity with something say the dollar or 1oz of Gold.

By having crypto-USD, which has all the advantages of Bitcoin, but which can always be bought and sold for $1 would be very useful. It would make it far easier to get fiat in and out of the crypto economy without the exchange rate risk that exists with Bitcoin.

Having a crypto representation of fiat would allow for truly P2P currency/commodity exchanges to arise.

Most people seem to think that the only way to achieve this is by trusting a single authority to issue redeemable USD-tokens - IOUs which could be implemented as colored Bitcoins. Bob accepts $1, gives you Bob-IOU-colored-bitcoin, and promises to redeem it back at a later date.

The problem with this is that we rely 100% on Bob redeeming our IOUs and not running off with the money or going bankrupt.

The OPs proposal aims to achieve the same thing but where we don't need to trust anyone.

The complexity behind his proposal is there to allow market forces to operate on keeping price parity between crypto-USD and USD.

Ok, that does clear up a few holes in my understanding. Thanks for that. I still have more but we'll get that eventually I'm sure.

I wouldn't worry too much about price parity, as bytemaster's already mentioned (and you probably already know), the market will take care of that. What's more important is what role this is going to take in the general consumption market. The important thing you mention here is the IOU part, and that means this is intended to replace the USD, not bitcoins, but replace it in a way that is both decentralized and as forgery proof as bitcoins are - one of the reasons we trust the USD (or any fiat) is because they make them difficult to forge. This is part of what government backing actually means (along with legal tender etc).

I think I have laid this out fairly clearly in my latest posts that describe how an anonymous peg could make crypto-Gold always equal the price of gold and operate at a profit.  Because the 'peg' is anonymous no one could *ever* hold that peg on the hook to honor an IOU, instead you are trusting their profit motive (and that of everyone competing against them) to keep the VALUE peged.  

I would gladly explain more later, but I think you could benefit from reading a few more of my existing posts (or ree-reading them).

I had written a couple posts some time ago regarding one of the fundamental flaws of bitcoin as a trade device, links here, and here. The summary of those posts is that bitcoins are actual units of value, while fiat currencies are 'worthless' IOUs. Trading goods of value for other goods of value (coffee for tea, bitcoins for bread, etc), is nothing more than bartering, an inelegant and clumsy trade mechanism on a large scale. What modern economies run on, very efficiently, is debt: Sometimes you want something of value, but don't currently have something of value that the other person wants, so you borrow what they do want, and pay it back later - everyone knows they can resupply with fiat. Fiat is also a way of tracking this debt, even if you did not take out the original loan that created the money. There has to be a system to track and manage debt, and that is what the USD and all other fiats are used for. That is their value, and what we pay 3-10% a year to the banks to run. That's what they provide that no other commodity can provide. Fiat is not wealth, it's access to the wealth up for sale at any one time. Bitcoins are wealth due to their scarcity.

Bitcoins provide the easiest transfer of actual wealth so far, but they still aren't very good for running an economy. For trade, it's slow, and needs 3rd party to work properly in this context (mtgox USD, for example, is instant only between mt gox accounts...how fast will yours be?). You still need the separate account of who borrowed what from whom, and this is where centralization occurs (eg mtgox's books being taken by a government).

Are you guys designing a way to track and manage debt via p2p? If so, good, this is exactly what the market needs...if not, you should be, because it's far bigger than bitcoins. Anything else will just be wasting your time, as fiat is extremely good at being fiat already. If you're purely creating a system to allow arbitrage against currencies then it will have marginal success, I'm sure, but I don't see it as world changing as btc. I know you've said you follow an Austrian Economics viewpoint, so I don't know how this fits into your existing views, but trade excels more with an inflating currency than with a deflating one. No one wants to hold on to cash for long if it's worth less next year, and that gets them trading it "for what they want". It just so happens with fiat that increasing debt means an inflating currency, so fiat is fantastic for both tracking debt and trade. It sucks for keeping value, therefore gold, silver, and bitcoins arise. Bitcoins only allow you to trade with other people who want bitcoins, which as long as governments exist, will always be less than those who want fiat. How often does one use gold? How often does one buy a coffee? In this context a person might want both; a way to save, and a way to quickly get minor commodities. Crypto-IOUs, would track debt, which will always increase due to property laws, and if they were widely held and accepted (this is a must, of course), would they also be perfect for economic activity, and have tremendous value for the world.

You did mention backing IOUs with the interest from pre-paid bits of wealth (bitcoins), which goes against the grain a little of what I'm saying here, but that is the risk taken by the investor, both in fiat and in this. As a microbank, do you give someone $10 or not? They say they will pay you back, but what if they don't? Is credit rating built in? (I suppose it might be, actually)

How does what your doing hold in this light?
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June 02, 2013, 02:34:39 PM
 #29

Unfortunately, the system will not keep price parity because it is possible to issue more crypto-USD than exists even if it is all 'at-market-value'.

Imagine how this system would work with something like art or rare base-ball-cards and you will quickly see that it will not track Sad

It took me over a week + a large bounty to get discussion going on this topic before I could see and explain the flaws in very understandable terms.

That said, BitShares will still be created as an interest-bearing alt-chain with a new proof-of-work designed to require 128MB of ram and therefore be ASIC + GPU 'proof' and
hopefully keep things far more decentralized.

 


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