[TAT.VIRTUALMINE]

[Entropy-uc]

Is shit hitting the fan already?

Write this down - ALL perpetual mining "bonds" that pay based on FIXED Mh are turds and are guaranteed to lose their value.
Buy "turds" ONLY if you believe that difficulty is going to drop.

All perpetual mining bonds are expected to lose their value in the long term, given the expectation that difficulty will continue to rise over the long term.

But they are bets on how fast difficulty will rise, and it is possible to buy them for less than their future value.

I would be fascinated to learn of the cases where someone has made a capital gain on Mining Bonds.  Please do share the numerous examples that must exist.

Issuing the bonds doesn't count!

[fently]

Is shit hitting the fan already?

Write this down - ALL perpetual mining "bonds" that pay based on FIXED Mh are turds and are guaranteed to lose their value.
Buy "turds" ONLY if you believe that difficulty is going to drop.

All perpetual mining bonds are expected to lose their value in the long term, given the expectation that difficulty will continue to rise over the long term.

But they are bets on how fast difficulty will rise, and it is possible to buy them for less than their future value.

I would be fascinated to learn of the cases where someone has made a capital gain on Mining Bonds.  Please do share the numerous examples that must exist.

Issuing the bonds doesn't count!

But tell me, do you actually disagree with anything I actually did write?

[odolvlobo]

Write this down - ALL perpetual mining "bonds" that pay based on FIXED Mh are turds and are guaranteed to lose their value.
Buy "turds" ONLY if you believe that difficulty is going to drop.

EskimoBob, you can't just say they are turds, and leave it at that. You have to explain or nobody will listen to you.

Anyone that wants to mine or wants to buy a PMB (which is not really a bond, btw) must understand the following. The value of a PMB depends on the dividends that it pays and the dividends depend on the difficulty.

Here is how the dividends are computed:

dividend per block = hashes per second * 25* 600 * 65535/2⁴⁸ / difficulty

The dividend per block for 1Mh/s at the current difficulty is 0.00000018 BTC.

The total dividend for 2016 blocks (the number of blocks at each difficulty) at the current difficulty is 2016 times that, or 0.00036406 BTC. I'm going to call this D. The total amount of dividends received (D_T) is simply the sum of all the dividends paid forever:

D_T = D + D₁ + D₂ + D₃ + ...

Now, we know that the difficulty continues to rise because more people are mining and technology advances. Every time the difficulty rises, the dividend falls by the same amount. In other words, if the new difficulty is 20% higher, then the new dividend about 20% lower (actually it is multiplied by 1/1.2, or 0.83).

Let's pretend that the difficulty rises 20% every change. That is,

D₁ = D  / 1.2
D₂ = D₁ / 1.2
D₃ = D₂ / 1.2
...

So,

D_T = D + D/1.2 + D/1.2² + D/1.2³ + ...

Luckily, Gauss (at the age of 4, believe it or not) figured out a simple formula for computing this value:

D_T = D * (1 + 1/0.2), or 0.00218436 BTC

So there you have it. If the difficulty increases by 20% every time, a 1 Mh/s PMB will pay up to 0.00218436 BTC in dividends, and you will lose money if you pay more than 0.00218436 BTC for it.

The general equation for determining how much a PMB is going to pay is this:

D_T = H * D * (1 + 1/R)

H is the hashing rate in Mh/s
D is the amount of dividends paid for 2016 blocks (approximately 14 days) at the current difficulty and a 1 Mh/s hash rate
R is the expected increase in difficulty every 2016 blocks (if the increase is 20%, R is 0.2)

[odolvlobo]

Nobody knows what the difficulty is going to be, so lets make a table of possible values for a 1 Mh/s PMB at the current difficulty.

Expected Increase	| Total Dividends
30%	0.00157759
20%	0.00218436
10%	0.00400466
7%	0.00556492
2% (Moore's Law)	0.01856706
0%	infinite

EskimoBob and others are wrong. You can see that it is possible to make money from a PMB if you buy it at the right price. So, figure out what you think the difficulty will rise by every 2 weeks over the next several months, and don't pay more than the dividends you will receive.

[Entropy-uc]

Nobody knows what the difficulty is going to be, so lets make a table of possible values for a 1 Mh/s PMB at the current difficulty.

Expected Increase	| Total Dividends
30%	0.00157759
20%	0.00218436
10%	0.00400466
7%	0.00556492
2% (Moore's Law)	0.01856706
0%	infinite

EskimoBob and others are wrong. You can see that it is possible to make money from a PMB if you buy it at the right price. So, figure out what you think the difficulty will rise by every 2 weeks over the next several months, and don't pay more than the dividends you will receive.

Your analysis is incorrect.

You fail to include a time value of money for the present value of the bonds.  Even at negative difficulty growth, the value of the income stream from mining is finite.

Given the risks the discount rate for the time value of money needs to be very high - at least 30% in my opinion.

Risks taken by buying a mining bond include
Failure of bitcoin protocol
Exchange rate risk
default risk by operator

Anyone with basic understanding of the situation will realize that the only way a mining bond would be profitable is if it is priced lower than the cost of equivalent mining hardware.  Ultimately, sellers of mining bonds are exploiting people ignorant of the economics of bitcoin.  The result is a guaranteed loss for the buyers.

Worse, many of these buyers will project their experience onto bitcoin itself, and paint the entire concept as a scam.

[odolvlobo]

Last one ...

Currently, someone is bidding 0.003903 BTC for TAT.VIRTUALMINER on BTC-TC. That person believes that the difficulty will increase (on average) by less than 10.3% every 2 weeks because if it increases at a faster rate he will lose money.

When TAT.VIRTUALMINER was first offered on BTC-TC, the difficulty was 15,605,633 and one share paid 0.00045117 total every two weeks. A person buying a share at 0.007 BTC believed that the difficulty would increase (on average) by 6.9% because the person would lose money if it rose faster than that.

It looks like the people that bought at 0.007 BTC may have made a big mistake because the difficulty has been rising at 20%, not 6.9%. On the other hand, if the difficulty stops rising, then they still can make money on their investment.

[ldrgn]

D_T = H * D * (1 + 1/R)

H is the hashing rate in Mh/s
D is the amount of dividends paid for 2016 blocks (approximately 14 days) at the current difficulty and a 1 Mh/s hash rate
R is the expected increase in difficulty every 2016 blocks (if the increase is 20%, R is 0.2)

Are... are you adding cash flows from different time periods?  motherofgod.jpg

[odolvlobo]

Your analysis is incorrect.

You fail to include a time value of money for the present value of the bonds.  Even at negative difficulty growth, the value of the income stream from mining is finite.

Given the risks the discount rate for the time value of money needs to be very high - at least 30% in my opinion.

Risks taken by buying a mining bond include
Failure of bitcoin protocol
Exchange rate risk
default risk by operator

Anyone with basic understanding of the situation will realize that the only way a mining bond would be profitable is if it is priced lower than the cost of equivalent mining hardware.  Ultimately, sellers of mining bonds are exploiting people ignorant of the economics of bitcoin.  The result is a guaranteed loss for the buyers.

Worse, many of these buyers will project their experience onto bitcoin itself, and paint the entire concept as a scam.

Are... are you adding cash flows from different time periods?  motherofgod.jpg

I purposefully left out present value and risk because it complicates an already complicated subject. If you want to explain it all in detail, please be my guest.

[Entropy-uc]

Your analysis is incorrect.

You fail to include a time value of money for the present value of the bonds.  Even at negative difficulty growth, the value of the income stream from mining is finite.

Given the risks the discount rate for the time value of money needs to be very high - at least 30% in my opinion.

Risks taken by buying a mining bond include
Failure of bitcoin protocol
Exchange rate risk
default risk by operator

Anyone with basic understanding of the situation will realize that the only way a mining bond would be profitable is if it is priced lower than the cost of equivalent mining hardware.  Ultimately, sellers of mining bonds are exploiting people ignorant of the economics of bitcoin.  The result is a guaranteed loss for the buyers.

Worse, many of these buyers will project their experience onto bitcoin itself, and paint the entire concept as a scam.

Are... are you adding cash flows from different time periods?  motherofgod.jpg

I purposefully left out present value and risk because it complicates an already complicated subject. If you want to explain it all in detail, please be my guest.

You are spouting off that EskimoBob is wrong, but you don't want to consider present value or risk?

It's is much better to be silent and assumed a fool, than to speak up and prove it.  In the future, you should try to keep quiet.

[ldrgn]

It's is much better to be silent and assumed a fool, than to speak up and prove it.  In the future, you should try to keep quiet.

You missed where he said 'purposefully' - he's intentionally trying to get people to overvalue securities by leaving out a fundamental part of the analysis.  Scammer tag time!

[odolvlobo]

You are spouting off that EskimoBob is wrong, but you don't want to consider present value or risk?
It's is much better to be silent and assumed a fool, than to speak up and prove it.  In the future, you should try to keep quiet.

Alright, I interpreted his statement as saying that PMBs are guaranteed to lose money. He didn't say that. He is not wrong.

“He has a right to criticize, who has a heart to help.”
― Abraham Lincoln

[odolvlobo]

Are... are you adding cash flows from different time periods?  motherofgod.jpg

Oh and BTW, no, I am not. I am computing the present value of a perpetual bond using the rate of increase in difficulty as the discount rate.

[EskimoBob]

odolvlobo, well written stuff but not sure, why you think I am wrong. Yes, you are correct, I need to explain more and not just say that PMB are turds. I have actually explained this multiple times and kept the terminology as simple as possible. Even when GLBSE was around. Every perpetual bond was losing money back then too and guess what, people kept dumping coins in to this garbage.

PMB are not bonds. Period. Bond is a loan with fixed payment, regardless what the price is at the market (hence the different yield calculations like YTM etc) 
There are instruments like Floating Rate Notes (FRNs) with floating rate but even those have part of the payment rate (quoted spread) fixed.
FRNs are also called floaters and you know what "floater" means in slang. This is how PMB became known as "turds" long time ago.

Who ever invented those nasty perpetual mining turds, was either a clueless fuck, who did not understand how bad it is for the investors or, he knew exactly! what it is and abused the nonexisting investing experience of BTC enthusiasts. PMB are dressed up nice indeed.

Let me break it down for ya'll so you can understand wtf you get yourself in to.

Lets say we have 2 guys. A and B. A wants to buy a bike so he can deliver newspapers. He ask you (B) for a loan. Once more, bond is a loan and principal investment must be returned.
 
He tells you:
1) Give me a loan but I have no obligation to pay you back what you gave me or in other words - I will stretch this loan out forever and will not guarantee you get back you money. I'll try to do my best so it won't happen.

2) I will make weekly (or what ever) payments but those payments are not fixed and can float up or down, depending how many papers I managed to deliver riding this bike. Bike I bought with your money. BTW. if I say home and sleep, you get nothing.

3) The road is one way and endless.  It's mostly up the hill pedaling. Higher I get, slower I move and less papers deliver. BTW, there will be fewer and fewer houses too. One more thing... I'll deduct the cost of sandwiches and water from the earnings and keep some of the earned coin for my self.

Now, do you lend me the money to buy that bike?

[🏰 TradeFortress 🏰]

Yes, if lending you 1 BTC will produce me 0.2 BTC this week and 0.18 BTC next week, etc. PMBs (or PMTs) can be profitable if the price is low enough, but so far no PMB on the market (not even DMS.MINING) is.

[Lytse]

I believe that TAT is not issueing bonds at a 'fair' market price.

The 'fair' price is stated under the Buyback rights why else would this paragraph have any purpose.

When issueing new bonds TAT just fill's the outstanding bids this causes market drops.

I have no problem with this as long as TAT pays out the diffenrence as an extra dividend. I think he added 2000 shares for approx. 0.0042 BTC per share. The other 21000 share should be compensated with an (0.0052-0.0042) * 2000/21000 extra dividend.

Just my 0.02BTC 

[ThickAsThieves]

I'm going to try and address a few of the hot topics about PMBs here, in regards to TAT.VM at least.

The Right Price to Buy a PMB
I actually think the work that has been done in the past few days to try and shine a light on PMB valuation and risk has been very interesting to read, and is providing a great service to the community. It's awesome to see people rally around educating themselves, sharing their analysis, and learning how to be more responsible investors overall. That said, I want to make some points regarding TAT.VM's place in a all of this.

TAT.VM was not designed with any exploitative intent. With a rearview mirror, it seems some people want to paint it that way. At the time I was writing up the prospectus, I saw most PMBs and similar "real" mining assets going for a rate of about .014+ per mh/s. I thought to myself, "Man, that is a ridiculous price to pay, someone needs to come in and correct that market to be a fair value."

So I asked myself what a fair value might be at that time. That week, AM Block Eruptor blades were still selling at about .005 mh/s rates. I decided I did not want to compete with the cheapest hardware available, because I did not want to take part in devaluing the hardware market, or expose myself to the risks of miners-with-issued-mining-assets selling their hardware to buy virtual hashes. I felt this would be unhealthy and potentially dangerous.

From there, I weighed my other risks:
- What if AM stopped hashing and started doing only hardware sales, requiring selling AM shares and getting new backing?
- What if AM failed as a company altogether, requiring new backing, with no AM share value to lean on?
- What if difficulty stopped rising for a long period?
- What if difficulty decreased?
- What if one of the exchanges were hacked and I had to pick up the pieces?
...to name a few

Then I weighed the costs of providing the asset:
- Application Fees (10btc)
- Trading Fees to sell the "bonds" (.2%-.5%)
- Time managing dividends
- Time managing my accounting to track the asset and its backing ratio
- Time helping customers with questions via pm/email
- Time responding to forum posts
- Any unforeseen misc work/cost needed to maintain the health of the asset

From there, I decided that a fair starting price would be .007 per mh/s, about half what everyone else was selling for. I was pretty happy that I found a way to sell so much more affordably, and come IPO day, the community showed that they agreed with my valuation by buying 120,000+ units in the first few days.

Now that some time has passed, the environment has changed dramatically. Network difficulty skyrocketed, and the market now has an issuer that found a different way to manage his risk (DMS), causing the "fair" market price to fall to less than .003 per mh/s. In my world, a mere 3 weeks ago, a price like that wasn't even possible without taking on insane risk.

Now, the community is feeling the effects of these changes. Unfortunately, all mining investments have risks for BOTH sides, and, as several people have stated, the only way to trade mining assets is temporally. More than ever, you must aggressively stay informed to make sure you are weighing risk, price, and timing to your own personal gain. While all mining assets have provided opportunity for easy profit, none can ever guarantee it.

All of this considered, I want to tell you that there is not one absolute "fair" market price for a hash, there are virtually three.
1. Fair price to the Buyer
2. Fair price to the Seller/Issuer
3. Fair price to the Market

The Buyer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Seller/Issuer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Market will see fair price as and the push-and-pull between the risk profiles and analysis of Sellers vs. Buyers.

[Lytse]

All of this considered, I want to tell you that there is not one absolute "fair" market price for a hash, there are virtually three.
1. Fair price to the Buyer
2. Fair price to the seller
3. Fair price to the market

The Buyer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Seller will see fair price as one that is nearly guaranteed to meet his profit standards.

The Market will see fair price as and the push-and-pull between the risk profiles and analysis of Sellers vs. Buyers.

OK, but what is the fair price for the issuer, issuing new shares?

The market drops were caused by you issueing new bonds. Yesterday it caused a 0.0007 drop and today a 0.0003 drop on btct.co.

I think with current difficulty rises a fair price should not be higher than 0.0027 BTC (oops market will drop   )

By the way, where are the BTC going of the new bonds issued?

[Franktank]

All of this considered, I want to tell you that there is not one absolute "fair" market price for a hash, there are virtually three.
1. Fair price to the Buyer
2. Fair price to the seller
3. Fair price to the market

The Buyer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Seller will see fair price as one that is nearly guaranteed to meet his profit standards.

The Market will see fair price as and the push-and-pull between the risk profiles and analysis of Sellers vs. Buyers.

OK, but what is the fair price for the issuer, issuing new shares?

The market drops were caused by you issueing new bonds. Yesterday it caused a 0.0007 drop and today a 0.0003 drop on btct.co.

I think with current difficulty rises a fair price should not be higher than 0.0027 BTC (oops market will drop   )

By the way, where are the BTC going of the new bonds issued?

To his own coffers. There is NO PLAN to increase the hash rates of the existing bonds, they will only go DOWN in value. PMB's are a sucker's bet. You have a better chance of making more money with S. Dice, honestly.

[ThickAsThieves]

All of this considered, I want to tell you that there is not one absolute "fair" market price for a hash, there are virtually three.
1. Fair price to the Buyer
2. Fair price to the seller
3. Fair price to the market

The Buyer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Seller will see fair price as one that is nearly guaranteed to meet his profit standards.

The Market will see fair price as and the push-and-pull between the risk profiles and analysis of Sellers vs. Buyers.

OK, but what is the fair price for the issuer, issuing new shares?

The market drops were caused by you issueing new bonds. Yesterday it caused a 0.0007 drop and today a 0.0003 drop on btct.co.

I think with current difficulty rises a fair price should not be higher than 0.0027 BTC (oops market will drop   )

By the way, where are the BTC going of the new bonds issued?

If I issued new units at what the community has determined as currently "fair" it would be too low for my risk analysis. My issuance of new units has been pretty slow since the BTCT.co IPO of TAT.VM, and is likely to be very very small now that DMS is around.

The BTC so far has mostly gone to buying more backing. However, the usage of TATI income isn't exactly relevant in this discussion.

[ThickAsThieves]

All of this considered, I want to tell you that there is not one absolute "fair" market price for a hash, there are virtually three.
1. Fair price to the Buyer
2. Fair price to the seller
3. Fair price to the market

The Buyer will see fair price as one that is nearly guaranteed to meet his profit standards.

The Seller will see fair price as one that is nearly guaranteed to meet his profit standards.

The Market will see fair price as and the push-and-pull between the risk profiles and analysis of Sellers vs. Buyers.

OK, but what is the fair price for the issuer, issuing new shares?

The market drops were caused by you issueing new bonds. Yesterday it caused a 0.0007 drop and today a 0.0003 drop on btct.co.

I think with current difficulty rises a fair price should not be higher than 0.0027 BTC (oops market will drop   )

By the way, where are the BTC going of the new bonds issued?

You have a better chance of making more money with S. Dice, honestly.

That would actually be interesting to see. SDICE seems to keep finding new ways to sink its own ship.