10 BTC Challenge for Praxeological Proof of Economic Cause and Effect

[bytemaster]

I am re-posting this bounty in the Economics section to attract people that may not follow the project-development blog where I am attempting to find someone to convince me that my strategy for creating an issuer-less crypto-currency that tracks the value of any other economic asset (gold/silver/dollars/etc) would break down in the market.   If the crypto-USD fails to have any 'meaning' relative to paper-USD then my system fails.  If the crypto-USD does have meaning that tracks paper-USD, then I will have created the first interest-paying bank with 0 counter party risk that can take deposits in any currency.   This woud be a major breakthrough.   However, I need someone to double / tripple check my reasoning and attempt to convince me that the prices would not behave as I believe they would.

If someone could explain via an austrian-based praxeological proof how the price of crypto-USD created according the rules in my proposed block-chain will deviate significantly and without correcting forces from paper-USD on a long-term basis and barring complete failure of the underlying 'bitcoin like' backing currency which we will assume will not lose all value (or else bitcoin could suffer the same fate).

You will have to trust me that I will be honest and allow myself to be convinced.  If you do convince me then I will abandon the project.

If you find minor, but easily correctable flaws then I will provide tips at my discretion as thanks for your contribution.  If you prove it *impossible* using anything even remotely similar to my strategy then you will win the bounty. 

Note: this bounty is a variation on my existing 10 BTC bounty and is not a *second* bounty. 

I have posted a draft white paper describing the block-chain here.   

https://docs.google.com/document/d/1GL3KVgqkm-p0YT0sGniagPlqjBq43b-LTbegbTJ6hAo/edit

Alternatively, if you can provide a clear and and original explanation for why my system will perform as I expect then I will gladly provide tips.   

[Spendulus]

I am re-posting this bounty in the Economics section to attract people that may not follow the project-development blog where I am attempting to find someone to convince me that my strategy for creating an issuer-less crypto-currency that tracks the value of any other economic asset (gold/silver/dollars/etc) would break down in the market.   If the crypto-USD fails to have any 'meaning' relative to paper-USD then my system fails.  If the crypto-USD does have meaning that tracks paper-USD, then I will have created the first interest-paying bank with 0 counter party risk that can take deposits in any currency.   This woud be a major breakthrough.   However, I need someone to double / tripple check my reasoning and attempt to convince me that the prices would not behave as I believe they would.

If someone could explain via an austrian-based praxeological proof how the price of crypto-USD created according the rules in my proposed block-chain will deviate significantly and without correcting forces from paper-USD on a long-term basis and barring complete failure of the underlying 'bitcoin like' backing currency which we will assume will not lose all value (or else bitcoin could suffer the same fate).

You will have to trust me that I will be honest and allow myself to be convinced.  If you do convince me then I will abandon the project.

If you find minor, but easily correctable flaws then I will provide tips at my discretion as thanks for your contribution.  If you prove it *impossible* using anything even remotely similar to my strategy then you will win the bounty. 

Note: this bounty is a variation on my existing 10 BTC bounty and is not a *second* bounty. 

I have posted a draft white paper describing the block-chain here.   

https://docs.google.com/document/d/1GL3KVgqkm-p0YT0sGniagPlqjBq43b-LTbegbTJ6hAo/edit

Alternatively, if you can provide a clear and and original explanation for why my system will perform as I expect then I will gladly provide tips.   

I take your challenge and here is my answer.

Counterparty risk.

[bytemaster]

Who is the counter-party and what is the contract?

[Skrapps]

I doubt I can give you a proof of failure that you ask, and I'm not 100% solid or professional on financial terms, but I think my questions maybe worthy and helpful (let me know if they are not).

1) Currency=Shares=BitShares, right? Share dividends and mining fees are paid in what, fractions of shares? Rewards are shares, the native currency of this chain, right?

2) So if I have 1 Bitshare, I can issue any type or amount of sub-currency by backing it with either my own share, or the future dividends from it?

3) Trade of BitShares is possible, right?

4) Why bother issuing sub-currencies, what does that help or solve? Why would I give someone my real gold for a crypto-gold that is backed by someone's BitShares/dividends, which is backed by bitcoins, which is referenced in exchange rates between paper monies? Wouldn't I rather opt for for the BitShares themselves?

5) Is the interest rate determined by the user, or the mining fees/rewards/transaction rate? Are dividends always half? Are interest rates and dividends separate?

[bytemaster]

I doubt I can give you a proof of failure that you ask, and I'm not 100% solid or professional on financial terms, but I think my questions maybe worthy and helpful (let me know if they are not).

1) Currency=Shares=BitShares, right? Share dividends and mining fees are paid in what, fractions of shares? Rewards are shares, the native currency of this chain, right?

2) So if I have 1 Bitshare, I can issue any type or amount of sub-currency by backing it with either my own share, or the future dividends from it?

3) Trade of BitShares is possible, right?

4) Why bother issuing sub-currencies, what does that help or solve? Why would I give someone my real gold for a crypto-gold that is backed by someone's BitShares/dividends, which is backed by bitcoins, which is referenced in exchange rates between paper monies? Wouldn't I rather opt for for the BitShares themselves?

5) Is the interest rate determined by the user, or the mining fees/rewards/transaction rate? Are dividends always half? Are interest rates and dividends separate?

Dividends on bitshares are paid using half of mining reward + trx fees.

Dividends on crypto-gold are some multiple of dividends on bitshares based upon the exchange rate used to create the crypto-gold.   Thus dividends that would have been paid to the person who who went short crypto-gold are now payed to the holder of crypto-gold.

Crypto-gold now has value to those who value bitshares.  The value of crypto-gold to those who value bitshares will follow the price of gold coins.   

People prefer owning crypto-gold because they do not want the exchange risk / volatility of bitshares but would like to know that their crypto-gold will always be worth about 1 gold coin + interest.

[spiral_mind]

I've exchanged quite a few private messages with Bytemaster but he still isn't convinced that I have found the flaw in his plan.

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.

You promised 10 BTC, but if you payed even just 1 BTC it would be fine. Please don't be someone who posts bounties without ever planning to pay them.

[bytemaster]

It is clear that you have convinced yourself, but the bounty is to convince me not to invest more into the idea.  I am still investing money, paying bounties for logos, tipping those who are helping me figure it out and writing code.  So, as long as I am continuing to pay out to other people to help make this real there is proof that I have not given up and that you did not convince me.   I will pay out if I am convinced by any argument.

I will now answer your latest claim regarding the value of Bitshares, I have people that have already pledged to buy them, mine them, and want to see them become a reality.  I am investing $20,000 to create them.  As a result there is a non-0 market value for Bitshares today, even though they do not exist except as an idea.   This is the same source as the original bitcoin value.  People want bitcoins for what they *think* they can do, thus people want BS for the same reason.

I didn't say Bitshares would be a parity with Bitcoin, I said the value comes from the same source which is true and need not be explained.  Litecoin, Devcoin, and other chains all get their value from the saem source.

[bytemaster]

Right now the way I am judging when to 'tip' is anytime someone provides constructive feedback that helps to solve / improve upon the idea.

Those who decided to focus entirely on debunking / disproving the idea without helping to improve upon it may win the bounty if I cannot provide a counter-argument showing that it works.  There are still others on this forum who believe as I do that it might work.  Therefore we have 'independent' opinions that the arguments presented thus far are not conclusive and that I am not just 'refusing to pay out'.

I appreciate your attempts and have had to invest significant time attempting to defend against your claims. 

[spiral_mind]

Right now the way I am judging when to 'tip' is anytime someone provides constructive feedback that helps to solve / improve upon the idea.

Those who decided to focus entirely on debunking / disproving the idea without helping to improve upon it may win the bounty if I cannot provide a counter-argument showing that it works.  There are still others on this forum who believe as I do that it might work.  Therefore we have 'independent' opinions that the arguments presented thus far are not conclusive and that I am not just 'refusing to pay out'.

I appreciate your attempts and have had to invest significant time attempting to defend against your claims.  

I am a firm believer that critical thought is a key component to creation. You have to brainstorm and then cull your ideas down into a nugget of truth.
Don't take my posts as any sort of personal insult. I want you to succeed because a decentralized exchange would be amazingly cool. I think you need a lot more work on your idea though.
I'd love to help you come up with a way to make it work once we can agree that there is a problem with this current implementation.

[bytemaster]

I believe the ball is in your court to concede or counter this:

"I will now answer your latest claim regarding the value of Bitshares, I have people that have already pledged to buy them, mine them, and want to see them become a reality.  I am investing $20,000 to create them.  As a result there is a non-0 market value for Bitshares today, even though they do not exist except as an idea.   This is the same source as the original bitcoin value.  People want bitcoins for what they *think* they can do, thus people want BS for the same reason."

[spiral_mind]

I will now answer your latest claim regarding the value of Bitshares, I have people that have already pledged to buy them, mine them, and want to see them become a reality.  I am investing $20,000 to create them.  As a result there is a non-0 market value for Bitshares today, even though they do not exist except as an idea.   This is the same source as the original bitcoin value.  People want bitcoins for what they *think* they can do, thus people want BS for the same reason.

That 20,000 only gives value to BitShares if you propose to give it to people in exchange for BitShares (direct monetary backing). Developing logos, writing code, etc actually doesn't necessarily give them a non-0 value.
As a currency the only thing that will give BitShares value is to either honor them in exchange for other value or if people collectively believe in the utility of them (Like Bitcoin).

 Since their main method of providing utility (sub-currencies) is flawed (no forced relation to the value of actual currencies) then BitShares are too.
Anyone who is currently saying they want them doesn't have an understanding of why things are valuable. You can't rely on people misunderstanding the system to make a system work. That's not going to give BitShares widespread adoption or value. Bitcoin became so popular because it was overwhelmingly recognized as a good idea (it provides utility above and beyond what were currently currencies).

For this proposal to work you would need some way for the prices of sub-currencies to be mathematically pegged to their actual prices (even remotely related). Otherwise the money to be made by deviating from market price for those assets will entice people to instantly deviate the prices away from any state resembling reality and cause the whole thing to collapse.

[kodo]

Cool goodluck guys

[kodo]

Goodluck guys!

[bytemaster]

I will now answer your latest claim regarding the value of Bitshares, I have people that have already pledged to buy them, mine them, and want to see them become a reality.  I am investing $20,000 to create them.  As a result there is a non-0 market value for Bitshares today, even though they do not exist except as an idea.   This is the same source as the original bitcoin value.  People want bitcoins for what they *think* they can do, thus people want BS for the same reason.

That 20,000 only gives value to BitShares if you propose to give it to people in exchange for BitShares (direct monetary backing). Developing logos, writing code, etc actually doesn't necessarily give them a non-0 value.
As a currency the only thing that will give BitShares value is to either honor them in exchange for other value or if people collectively believe in the utility of them (Like Bitcoin).

 Since their main method of providing utility (sub-currencies) is flawed (no forced relation to the value of actual currencies) then BitShares are too.
Anyone who is currently saying they want them doesn't have an understanding of why things are valuable. You can't rely on people misunderstanding the system to make a system work. That's not going to give BitShares widespread adoption or value. Bitcoin became so popular because it was overwhelmingly recognized as a good idea (it provides utility above and beyond what were currently currencies).

For this proposal to work you would need some way for the prices of sub-currencies to be mathematically pegged to their actual prices (even remotely related). Otherwise the money to be made by deviating from market price for those assets will entice people to instantly deviate the prices away from any state resembling reality and cause the whole thing to collapse.

You have now engaged in circular reasoning yourself.  You claim they have no value because it doesn't work, then you claim it doesn't work because it has no value.

I am willing to buy Bitshares right now, therefore if someone had bitshares they could sell them, therefore they have value in the market.

[bytemaster]

I will now answer your latest claim regarding the value of Bitshares, I have people that have already pledged to buy them, mine them, and want to see them become a reality.  I am investing $20,000 to create them.  As a result there is a non-0 market value for Bitshares today, even though they do not exist except as an idea.   This is the same source as the original bitcoin value.  People want bitcoins for what they *think* they can do, thus people want BS for the same reason.

That 20,000 only gives value to BitShares if you propose to give it to people in exchange for BitShares (direct monetary backing). Developing logos, writing code, etc actually doesn't necessarily give them a non-0 value.
As a currency the only thing that will give BitShares value is to either honor them in exchange for other value or if people collectively believe in the utility of them (Like Bitcoin).

 Since their main method of providing utility (sub-currencies) is flawed (no forced relation to the value of actual currencies) then BitShares are too.
Anyone who is currently saying they want them doesn't have an understanding of why things are valuable. You can't rely on people misunderstanding the system to make a system work. That's not going to give BitShares widespread adoption or value. Bitcoin became so popular because it was overwhelmingly recognized as a good idea (it provides utility above and beyond what were currently currencies).

For this proposal to work you would need some way for the prices of sub-currencies to be mathematically pegged to their actual prices (even remotely related). Otherwise the money to be made by deviating from market price for those assets will entice people to instantly deviate the prices away from any state resembling reality and cause the whole thing to collapse.

You have now engaged in circular reasoning yourself.  You claim they have no value because it doesn't work, then you claim it doesn't work because it has no value.

I am willing to buy Bitshares right now, therefore if someone had bitshares they could sell them, therefore they have value in the market.

You can never 'mathematically peg' anything, that would be called price fixing.
There is a 'forced' relation to actual USD value of crypto-USD and that 'force' comes from the buyers of crypto-USD who will not pay with paper-USD unless it has parity.

[spiral_mind]

You have now engaged in circular reasoning yourself.  You claim they have no value because it doesn't work, then you claim it doesn't work because it has no value.

I am willing to buy Bitshares right now, therefore if someone had bitshares they could sell them, therefore they have value in the market.

So the creator of the project says he wants to buy them, therefore they have value? You don't see the obvious problem with that logic?

There is no circular reasoning on my side.

You can never 'mathematically peg' anything, that would be called price fixing.
There is a 'forced' relation to actual USD value of crypto-USD and that 'force' comes from the buyers of crypto-USD who will not pay with paper-USD unless it has parity.

So if buyers of crypto-USD won't buy unless it has parity, then how does it get parity in the first place? Buying is the behavior which causes the price to rise.

[bytemaster]

Lets continue this debate on the other thread in the Project Development section so everyone can benefit from our exchanges.

[kodo]

This is a great challenge!