I assume that long and short owners can sell their position at any time thus transferring it to another keyname (i.e. anonymous entity)?
Yes, and they are divisible and have all of the properties of Bitcoin.
Can the short and long enter an algorithmic contract to exit the position at a preset expiration date?
Yes, Options also work this way.
8. What is the redeemable concept? Do you mean to say the long or short can close their position at any time without permission of the counter-party? How can that be fair?
Aside from margin calls, positions can only be closed by finding a buyer and trading out of your position. Fortunately the market is liquid and all BitUSD is fungible.
9. In the margin call, the BitAsset is destroyed, so what happens to the collateral of the counter-party which did not receive a margin call? If it goes to them, why are they forced to redeem their BitAsset prematurely? Wouldn't a better design be let the BitAsset remain for the counter-party? Also why does the redeemed money go to the dividend pool (for that BitAsset or all BitShares?) and not to counter-party, so that the counter-party gets some leverage?
When a short 'covers' their position they do so by BUYING the BitAsset on the market using the collateral. Thus some owner of BitUSD is now the proud owner of the some of the Bitshares held as collateral based upon the price. Any left-over collateral is returned to the owner of the short position.
There is the risk that the market value moves to more than 100% of one-side of the collateral before than the miner can issue the margin call. There is no default here, it is just the redeemed money is not as great as it should be. If the redeemed money was going to the counter-party instead of the dividend pool, then the counter-party would lose some real-time time-preference, but this isn't designed to a be a real-time trading system any way.
First of all, BitUSD is composed of 1000's of positions entered at different prices by different people. The price would have to fall 50% in 5 minutes and even then there are no losses because the collateral would still be able to purchase the BitUSD at market price. Obviously the short positions would be entirely wiped out in such a rapid movement in price as they are forced to buy as much BitUSD as their collateral will allow and bid up the price in a short squeeze. Worst case outcome is that some people will end up with BitUSD with no backing at all and thus 0 interest. Fortunately, new BitUSD is always being created as new shorts / longs enter the game and the new BitUSD would be fungible with the old so only someone attempting to sell BitUSD in a very narrow window may face a discount to face value. Because market forces always push the price back toward parity, speculators would readily buy up BitUSD at a slight discount created during such an insane price move.
11.... It is presumed that the market will try to maintain the market value of the BitAsset proportional to the price changes in its designated asset.... then the expiration period should be relatively short...
There is no reason to ever have expiration on longs (see above).
But couldn't a miner also exclude bid and asks, thus manipulating the market price? This appears to be a major flaw in the design.. I don't have idea for a solution yet.
A miner could exclude a new bid or ask in the most recent block, but would be unable to do anything about limit orders placed in prior blocks that were not filled. The miner will always have a slight advantage in picking which bids get into the block chain and thus how the price moves in the 5 minute window of the block they win. But in a given 1 hour window, there will be 12 different miners who win and they will have different goals with respect to which way they want the price to 'move' based upon their individual position (short or long). The reality is that the offers placed on the block chain are generally spread in a collar around the current bid ask and therefore the order book will be full on both sides of the trade at the start of mining. No single block would be able to budge that order book by more than the 'new bids/asks'. So margin calls will be based upon a wider bid/ask spread than the 'real-time market'. Most people who care about price fluctuation in time periods of less than 1 hour should be trading on an Open Transactions exchange that is funded with BitUSD / BitShares.
I suspect that the small market advantage garnered by generating a block would further motivate miners and ultimately help secure the network. Of course, the reason why decentralizing the hashing algorithm is important is to keep a large percentage of the hash power in the hands of non-professional miners and thus limit the ability to control the market by any one actor.
Why canceling bid/ask takes 24 hours when blockchain becomes secure after roughly 6 blocks, e.g. 60 minutes?
Any action that could be taken by a miner must wait for the 'chain reorg window' to pass. Bitcoin currently uses 100 blocks before miners can 'spend' their rewards because during a re-org, decisions of the miners based upon then-current prices are no longer valid. If I cancel my order and then a re-org occurs, a miner in the reorg may have executed my order prior to the cancel. Obviously, re-orgs are a risk for any trade executed by a miner and those that care about having instant spends should use the off-chain system to exchange and sign an atomic transaction that could survive a re-org. This is another example where the only bids/asks that will end up in the block chain are the 'open orders' / backlog that will only be executed if the price moves significantly (1% or so) in one direction or another.
14. Dividends allow idle capital to not invest in mining, we want to maximally secure the blockchain.
We want the minimal security required to prevent chain forgeries and ensure things are decentralized. You don't go around paying for the MAXIMUM security for your house because after a while additional security has a marginal ROI. Dividends provide the following benefits that ultimately improve security of the network:
1) then encourage saving and value accumulation within the chain.
2) they create an incentive to bring the unwashed, greedy, masses such as Grandma, into the system because they can get a better ROI than their bank with a better risk profile.
3) having a relatively secure way to generate passive income will help make this go viral
4) increased adoption means more small time users, each of which can profitably mine with their CPU, and thus there will be more hash power in the network.
Thanks for all of your feedback, it is nice to see some deep conceptual thinkers picking through the paper and design.!