Pirate v2.0: Unravelling the Bitshares Ponzi

[cunicula]

What exactly is the criteria for determining whether it is flawed? Is it theoretical or empirical?

I have 70 BTC. I am very happy to wager them against your eventual collapse. But I can't put a date on it yet.

It is a ponzi. As long as you maintain positive net inflows you can maintain it for a long time.

See MMM, pirateat40

Perhaps once I can get some measure of growth in inflows than I can predict the date with more accuracy.

Ok, lets find some other metric... perhaps a Market Cap you don't think BitShares will ever achieve?

Okay, you are a complete idiot. The MMM ponzi scheme achieved a notional market cap of perhaps $10 billion.
Bernie madoff had on paper gains of $65 billion.

Am I betting that your Ponzi will be less successful than Madoff's? It is not really a bet about whether it is a ponzi or not, but I am willing to take that bet.

[1715416063]

1715416063

[bytemaster]

We are not attempting to Peg BitShares to USD via monetary policy.   BitUSD is the result of two sides of a prediction market that neither creates nor destroys value, it merely transfers it from those who bet wrong on future price movement to those who bet right.  

So are you saying the 'savers' of bitBTC face a risk loss of their BTC depending on price movements?

“If you own BitBTC you can earn dividends on your bitcoins,” said Larimer. “If you have a thousand bitcoins and you convert them to BitBTC, and then you hold it for six months, then you convert the BitBTC plus the dividends you received back to bitcoins, you’ll end up with more bitcoins than you started with.”

Since you really don't give that impression in your press release, see above. Seems a bit fraudulent, doesn't it?

From the above, it seems like the bitBTC earns risk free dividends, no?

If the savers of bitBTC can just see their BTC disappear out from under them, then perhaps I misunderstood.

That is all my powerpoint said.

BitBTC holders lose opportunity cost relative to gains in BitShares.  The market value of their position will remain near parity with BTC.   The short profits from this lost opportunity of the holder of BitBTC.    On the other hand, the BitBTC holder is protected when the price of BitShares falls against BitBTC because the Short position is forced to cover and thus at the end of the day the BItBTC holder ends up with more BitShares of equal value to real BTC.

[cunicula]

We are not attempting to Peg BitShares to USD via monetary policy.   BitUSD is the result of two sides of a prediction market that neither creates nor destroys value, it merely transfers it from those who bet wrong on future price movement to those who bet right.  

So are you saying the 'savers' of bitBTC face a risk loss of their BTC depending on price movements?

“If you own BitBTC you can earn dividends on your bitcoins,” said Larimer. “If you have a thousand bitcoins and you convert them to BitBTC, and then you hold it for six months, then you convert the BitBTC plus the dividends you received back to bitcoins, you’ll end up with more bitcoins than you started with.”

Since you really don't give that impression in your press release, see above. Seems a bit fraudulent, doesn't it?

From the above, it seems like the bitBTC earns risk free dividends, no?

If the savers of bitBTC can just see their BTC disappear out from under them, then perhaps I misunderstood.

That is all my powerpoint said.

BitBTC holders lose opportunity cost relative to gains in BitShares.  The market value of their position will remain near parity with BTC.   The short profits from this lost opportunity of the holder of BitBTC.    On the other hand, the BitBTC holder is protected when the price falls against BitShares because the Short position is forced to cover and thus at the end of the day the BItBTC holder ends up with more BitShares.

So are you saying that the savers of 'bitBTC' risk forced conversion of their derivative into bitshares? (again doesn't look like that from the press claim does it?)

“If you own BitBTC you can earn dividends on your bitcoins,” said Larimer. “If you have a thousand bitcoins and you convert them to BitBTC, and then you hold it for six months, then you convert the BitBTC plus the dividends you received back to bitcoins, you’ll end up with more bitcoins than you started with.”

Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in? How do you mop up the outstanding BTC that you can no longer maintain. There must be some confiscation involved, no? Otherwise you can have an arbitrarily large supply of outstanding BTC backed by an arbitrarily small market value of bitshares. Can't you?

So you do confiscate the bitBTC from the holder right? I mean you must be joking me. You have these bitBTC. You have to force their destruction somehow. You can't just say, oh, our liabilities will conveniently also go away if and whenever our assets go away.

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

Further details are just a distraction.  

[bytemaster]

From the above, it seems like the bitBTC earns risk free dividends, no?

I never claimed the system was risk free... lets look at the risks:

1) it is a crypto-currency so holding it is subject to risks associated with holding a crypto-currency.
2) buying BitBTC risks the buy-sell spread vs BitShares
3) there is a variable dividend rate based upon transaction volume and small changes in backing between 1.5 and 2.5x...
4) because of the dividend rate, there will be a premium for BitBTC over regular BTC... this premium will fluctuate based upon the expected future dividend rate and the relative flow of money into or out of BitBTC vs BTC.
5) there is a relatively small risk that attempting to sell during rapid decline by 50% of the BitShare price in 10 minutes would blow through the margin... but if you hold through the correction, new shorts/longs will appear at the new price.

All of that said, the risk of investing in BitUSD would be like depositing funds in CD with a Bank that only gave out mortgages at 50% the home value and then claiming the bank was a ponzi scheme because they promise a 'risk free' return on their deposits?  Further, assume the terms on the CD were longer than the terms on the mortgages and factor in the difference in liquidity of homes vs houses (ie eliminate forclosure / resale risk) and it is clear this is a relatively safe ROI... so safe that you might call it 'risk free' without actually being risk free.

[bytemaster]

Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in?

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

The additional collateral is put upfront... not after the fact.   Margin is called long before there is insufficient collateral.

This is not a foreign exchange market, it is a prediction market.   It works just like the prediction markets for president, sporting events, etc with the only difference being that it is continuous and the market players have access to far more information.  If you understand prediction markets and created a prediction market for the price of BTC vs USD based entirely on 'play money' it would be very accurate and you could accumulate 'play money' by investing wisely in this market.   If you replace the 'play money' with a crypto currency then the play money might gain value on its own.

[cunicula]

From the above, it seems like the bitBTC earns risk free dividends, no?

I never claimed the system was risk free... lets look at the risks:

1) it is a crypto-currency so holding it is subject to risks associated with holding a crypto-currency.
2) buying BitBTC risks the buy-sell spread vs BitShares
3) there is a variable dividend rate based upon transaction volume and small changes in backing between 1.5 and 2.5x...
4) because of the dividend rate, there will be a premium for BitBTC over regular BTC... this premium will fluctuate based upon the expected future dividend rate and the relative flow of money into or out of BitBTC vs BTC.
5) there is a relatively small risk that attempting to sell during rapid decline by 50% of the BitShare price in 10 minutes would blow through the margin... but if you hold through the correction, new shorts/longs will appear at the new price.

All of that said, the risk of investing in BitUSD would be like depositing funds in CD with a Bank that only gave out mortgages at 50% the home value and then claiming the bank was a ponzi scheme because they promise a 'risk free' return on their deposits?  Further, assume the terms on the CD were longer than the terms on the mortgages and factor in the difference in liquidity of homes vs houses (ie eliminate forclosure / resale risk) and it is clear this is a relatively safe ROI... so safe that you might call it 'risk free' without actually being risk free.

Just answer clearly. If you keep holding a bitBTC. Can it be involuntarily taken from you?

bitBTC earn interest in bitshares correct? So there is some positive rate of return?

In the long-term or over some time interval the bitBTC are expected to maintain parity with BTC on average (not necessarily at every point in time) ?

Because you must know that this cannot all be simultaneously true.

[cunicula]

Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in?

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

The additional collateral is put upfront... not after the fact.   Margin is called long before there is insufficient collateral.

This is not a foreign exchange market, it is a prediction market.   It works just like the prediction markets for president, sporting events, etc with the only difference being that it is continuous and the market players have access to far more information.  If you understand prediction markets and created a prediction market for the price of BTC vs USD based entirely on 'play money' it would be very accurate and you could accumulate 'play money' by investing wisely in this market.   If you replace the 'play money' with a crypto currency then the play money might gain value on its own.

You cannot rename your market and expect different economic behavior because of the name change.

If you are going to have storable, exchangable units of value, then you are going to have to accept that it is a monetary market.
If you are going to offer interest on these storable, exchangable units of value, then you are going to have to accept that this has implications for relative prices.

If it turns out I can't store them (because you confiscate them from me when I try [either all or in part]), well that changes things.

Once you start confiscating my bitBTC, you have more latitude to achieve other aims. Including a stable peg btw.

This is why I keep asking you to answer whether "savers'" bitBTC accounting entries can be involuntarily adjusted in response to price movements.

It is kind of important to understand this, no? People would really want to know that you plan to confiscate their BTC before they agree to use your system right? It is kind of fraud if you don't let in on this possibility, isn't it?

[bytemaster]

Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in?

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

The additional collateral is put upfront... not after the fact.   Margin is called long before there is insufficient collateral.

This is not a foreign exchange market, it is a prediction market.   It works just like the prediction markets for president, sporting events, etc with the only difference being that it is continuous and the market players have access to far more information.  If you understand prediction markets and created a prediction market for the price of BTC vs USD based entirely on 'play money' it would be very accurate and you could accumulate 'play money' by investing wisely in this market.   If you replace the 'play money' with a crypto currency then the play money might gain value on its own.

You cannot rename your market and expect different economic behavior because of the name change.

If you are going to have storable, exchangable units of value, then you are going to have to accept that it is a monetary market.
If you are going to offer interest on these storable, exchangable units of value, then you are going to have to accept that this has implications for relative prices.

If it turns out I can't store them (because you confiscate them from me when I try [either all or in part]), well that changes things.

Once you start confiscating my bitBTC, you have more latitude to achieve other aims. Including a stable peg btw.

This is why I keep asking you to answer whether "savers'" bitBTC accounting entries can be involuntarily adjusted in response to price movements.

It is kind of important to understand this, no? People would really want to know that you plan to confiscate their BTC before they agree to use your system right? It is kind of fraud if you don't let in on this possibility, isn't it?

I have no need to confiscate BitBTC because shorts have financial incentive to cover it or they will lose money.    The shorts are the only ones that face a margin call.

[cunicula]

Okay then. So you have all these bitBTC lying around that you will not confiscate. They are clearly better than bitcoin because they earn interest.

I don't plan to spend my BTC, they are a speculative investment. Why should I hold on to my BTC if your bitBTC earn interest?

Shouldn't I become a saver instead?

Well, I'm bored, so let's use the shill to respond for you.

“If you own BitBTC you can earn dividends on your bitcoins,” said Larimer. “If you have a thousand bitcoins and you convert them to BitBTC, and then you hold it for six months, then you convert the BitBTC plus the dividends you received back to bitcoins, you’ll end up with more bitcoins than you started with.”

It definitely sounds like I should become a saver.

Now there is some risk of fluctuation you admit. But supposedly, on average, 1 BitBTC should have a price of 1 BTC for many years.

So I shouldn't really care about these fluctuations too much. I will just hold the BTC until things improve and earn interest.
Worst case I still earn enough interest over a five year span to cover any loss from the fluctuation.

So now suppose many people think like this and decide to become savers. This is great for you. Everyone is selling BTC and buying bitshares to snap up these magical bitBTC.

Now, you have a large number of people hoarding these bitBTC.

Bitshares itself is not guarenteed to be worth anything just because people hold bitBTC in it. Suppose demand for bitshares drops and the price collapses.

What is to stop you from having more value in bitBTC outstanding than the entire market cap of bitshares? After all, the value of backing can erode. You can't force your speculators to come in forever constantly rebacking your bitBTC as a personal favor. You are assuming they get something out of this (I can't see what). But say they do. Now for some reason a lot less of them arrive. They might move to some other market. Maybe there is a competitor. You can't just assume that more and more money arrives forever (well that is what you assume if you are running a really giant ponzi)

Why is a bitBTC still worth one BTC? Is the backing completely irrelevant? Your speculators have all fled. The bitBTC are still out there. Who the hell is going to back them?

[mercSuey]

Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in?

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

The additional collateral is put upfront... not after the fact.   Margin is called long before there is insufficient collateral.

This is not a foreign exchange market, it is a prediction market.   It works just like the prediction markets for president, sporting events, etc with the only difference being that it is continuous and the market players have access to far more information.  If you understand prediction markets and created a prediction market for the price of BTC vs USD based entirely on 'play money' it would be very accurate and you could accumulate 'play money' by investing wisely in this market.   If you replace the 'play money' with a crypto currency then the play money might gain value on its own.

You cannot rename your market and expect different economic behavior because of the name change.

If you are going to have storable, exchangable units of value, then you are going to have to accept that it is a monetary market.
If you are going to offer interest on these storable, exchangable units of value, then you are going to have to accept that this has implications for relative prices.

If it turns out I can't store them (because you confiscate them from me when I try [either all or in part]), well that changes things.

Once you start confiscating my bitBTC, you have more latitude to achieve other aims. Including a stable peg btw.

This is why I keep asking you to answer whether "savers'" bitBTC accounting entries can be involuntarily adjusted in response to price movements.

It is kind of important to understand this, no? People would really want to know that you plan to confiscate their BTC before they agree to use your system right? It is kind of fraud if you don't let in on this possibility, isn't it?

I have no need to confiscate BitBTC because shorts have financial incentive to cover it or they will lose money.    The shorts are the only ones that face a margin call.

I'd suggest you answer cunicula's questions with great care now...or be forced to answer my question in public on October 3rd in Atlanta.

[charleshoskinson]

I'd suggest you answer cunicula's questions with great care now...or be forced to answer my question in public on October 3rd in Atlanta.

First stop propagating the meme:



Second, we shouldn't wait until C3. Please shoot me a pm and I'll send you my skypeID and we can discuss this at length. BitShares has yet to be released as a product. The TestNet has yet to be released. The whitepaper update has yet to be released. And yet we are a ponzi scheme because we propose sharing the inflation produced from coinbase transactions with BitShares holders?

Maybe I'm missing his point, but dividends do not come from thin air. They are produced from the mining and transaction process and serve as an incentive to save in the system. In order to preserve a sum zero system, someone has to receive the Bitshares dividends from the units held in collateral for a BitAsset. We made a design decision to pay these to the BitAsset holder.

There is still volatility that could result in a BitAsset holder losing money similar to a T-Bill holder losing money. So again, either he doesn't understand our system or he is spreading FUD to promote his own product.

Also we don't have a premine, we have invested a massive amount of time in building several derivative technologies like our ID and anonymous communication system and we are planning on releasing a TestNet with fake BitShares to test our economic assumptions first. So where is the fucking Ponzi? Wouldn't it be discovered with the TestNet? How does my company value from a bad product? Everything we do is open sourced. Every idea we generate, we vet in the open domain.

This has got to stop. You are moving into the domain of slander and have attacked the work of many passionate people trying to build something innovative and cool while also trying to raise 300k for your own idea, Cunicula.

 

[mercSuey]

I'd suggest you answer cunicula's questions with great care now...or be forced to answer my question in public on October 3rd in Atlanta.

First stop propagating the meme:



Second, we shouldn't wait until C3. Please shoot me a pm and I'll send you my skypeID and we can discuss this at length. BitShares has yet to be released as a product. The TestNet has yet to be released. The whitepaper update has yet to be released. And yet we are a ponzi scheme because we propose sharing the inflation produced from coinbase transactions with BitShares holders?

Maybe I'm missing his point, but dividends do not come from thin air. They are produced from the mining and transaction process and serve as an incentive to save in the system. In order to preserve a sum zero system, someone has to receive the Bitshares dividends from the units held in collateral for a BitAsset. We made a design decision to pay these to the BitAsset holder.

There is still volatility that could result in a BitAsset holder losing money similar to a T-Bill holder losing money. So again, either he doesn't understand our system or he is spreading FUD to promote his own product.

Also we don't have a premine, we have invested a massive amount of time in building several derivative technologies like our ID and anonymous communication system and we are planning on releasing a TestNet with fake BitShares to test our economic assumptions first. So where is the fucking Ponzi? Wouldn't it be discovered with the TestNet? How does my company value from a bad product? Everything we do is open sourced. Every idea we generate, we vet in the open domain.

This has got to stop. You are moving into the domain of slander and have attacked the work of many passionate people trying to build something innovative and cool while also trying to raise 300k for your own idea, Cunicula.

 

I do not see any mention of mining in cunicula's post, perhaps I missed it...

But, is there a system in place to assure no extreme deviation occurs in accumulating bitBTC versus the rate of minting for dividends?  In other words, you cannot control the open market activity.  But can mining properly correlate with market activity?  Is there a white paper with technical details?

(By the way, my profile is publicly available on the CB website.  I wasn't being an internet tough guy at all.  But scams are a common occurrence in the alt coin world, especially lately, and I've lost my patience.  Maybe it's just this forum, I don't know.)

[bytemaster]

I'd suggest you answer cunicula's questions with great care now...or be forced to answer my question in public on October 3rd in Atlanta.

We have been incredibly transparent in everything we are attempting to do.   Unfortunately, the arguments presented by cunicula are attacking a straw-man.   If you are going to attack what we are doing you must first understand what we are doing.  I would hope that before you go around calling us scammers you would take some time to talk with us via Skype.

MercSuey, I would be more than happy to publicly answer any and all questions you might have.   Though, I suggest you send me a PM with your skype info so we can chat because your implied intent to 'publicly shame us' with your questions will only serve to prove your ignorance when we are able to answer them fully.  

So here are the questions for you:
1) What money have we taken from the public?  0.
2) How are we using new investor money to payout early investors?
3) How are we using the investors own money to pay out returns?  
4) Are we doing any pre-mining?  No.

Lacking any evidence on those three items, you cannot call us a ponzi scheme and doing so is intellectually dishonest.  

What remains is whether or not the economics of the system we have designed work and are sustainable.  This has several layers, so lets deal with the BitShares themselves and not any derivatives based upon them.   The dividend system pays people a real return from the transaction fees and the stock-split process is just a means of gradually increasing the number of units in circulation without diluting anyones position.  As a result, BitShares as a 'currency' is less inflationary than Bitcoin.

At this point I have done nothing but create a less inflationary crytpo-currency than bitcoin, it could be called an alt-coin if that is all the system allowed.   This is no more ponzi than bitcoin and no more 'pump and dump' than Litecoin which was launched to address centralization in bitcoin and represents significant innovation in the space.

Then I add one very simple instrument on top of a legitimate crypto-coin.  I allow two people to create a transaction that are equal and opposite sides of a bet.  The strike-price on the bet is the current estimated exchange rate between BitShares and some other asset.    The terms of the bet are that the Long side must voluntarily sell their position.  The Short side must pay their dividends to the long side.   And that a miner may force the short-side to accept the lowest ask in order to cover the position if the lowest ask would result in less than 50% margin.     I am not one of these parties, and both parties agree to the terms.

Our theory is that such a contract, enforced by the blockchain, will result in a market-based price discovery system.  If our theory is wrong then the test network which will be used to validate the economics of the system will discover the flaw and no one will make or lose any money.  

You can surmise that the result of this game theory will not result in price stability, but to make that assumption you must pick one of three potential outcomes:

1) BitAsset goes to 0 thus scamming the holder to benefit the short which would profit.
2) BitAsset maintains the value of the collateral and is thus no different than BitShares in terms of volatility.
3) BitAsset will deviate in some non-deterministic manner from the intended market peg.. this is a serious claim and requires proof.

All we are doing is creating a market for people to speculate and we are providing a means to test it prior to anyone investing significant money.  

Good luck raising your own funds, your system is complex, flawed in fundamental ways, and yet you are attempting to raise money directly from the public which has no way to evaluate your ideas.   I would call your system a scam, but that would involve making a judgement about your intentions which I am smart enough to realize I have no ability to know or judge.

[charleshoskinson]

I do not see any mention of mining in cunicula's post, perhaps I missed it...

Again it is difficult to understand what he is attacking, but the genesis appears to revolve around the ROI of holding onto a BitAsset. The dividends are like interest on a bond and as long as volatility of the derivative is low, over time most positions will result in a positive return.

We are making some economic assumptions based upon this paper alongside other works:

http://www.brookings.edu/~/media/research/files/papers/2012/6/13%20prediction%20markets%20wolfers/13%20prediction%20markets%20wolfers.pdf

But, is there a system in place to assure no extreme deviation occurs in accumulating bitBTC versus the rate of minting for dividends?  In other words, you cannot control the open market activity.  But can mining properly correlate with market activity?  Is there a white paper with technical details?

It is an exercise in mechanism design and some theory explained in the paper above. This said, we are making economic assumptions in some cases about the nature of the market pegs and thus are launching a TestNet first to test our ideas. Bounties can create market incentives to break the system if possible. Again, we are not premining nor accepting anyone's money other than our VC partners. The TestNet does not contain real money. So we are basically being attacked for running an experiment with our own money.

(By the way, my profile is publicly available on the CB website.  I wasn't being an internet tough guy at all.  But scams are a common occurrence in the alt coin world, especially lately, and I've lost my patience.  Maybe it's just this forum, I don't know.)

First let's agree this could be better stated

be forced to answer my question in public on October 3rd in Atlanta.

Second, I agree about scams in this market, which is why from day one we started this process with principles:

(1) Don't premine BitShares
(2) Test everything in the open domain
(3) Build the communication and reputation system first in the event we need to adopt a better exchange model

Our goal is to build a prediction market that serves as a decentralized p2p exchange for all cryptocurrencies and an effective way to facilitate fiat to CC transactions. Should the BitShares standard fail, the infrastructure we have built can adopt a different implementation. This is why I take such enormous umbrage to these allegations. They are both misguided and fundamentally dishonest. Our company is trying to build several extremely complex products and we are doing it off of our own money and time in the open domain.

[mercSuey]

We are making some economic assumptions based upon this paper alongside other works:

http://www.brookings.edu/~/media/research/files/papers/2012/6/13%20prediction%20markets%20wolfers/13%20prediction%20markets%20wolfers.pdf

Okay, great.  My issue is the economic assumptions you have made, based on my own experience in the industry.  Isn't it always the 'economic assumptions' that are blamed when a model blows up in the end?  But you address it below...and I'll take a closer look at the white paper, thanks for the link.

It is an exercise in mechanism design and some theory explained in the paper above. This said, we are making economic assumptions in some cases about the nature of the market pegs and thus are launching a TestNet first to test our ideas. Bounties can create market incentives to break the system if possible. Again, we are not premining nor accepting anyone's money other than our VC partners. The TestNet does not contain real money. So we are basically being attacked for running an experiment with our own money.

Launching it this way seems very necessary, given the assumptions made.  This is good.

First let's agree this could be better stated

revision:  (By the way, my profile is publicly available on the CB website.  I wasn't being an internet tough guy at all.  Lets view this as an exercise in testing integrity....because this forum can really suck sometimes, and completely new ideas can immediately seem dishonest.)

...be forced to answer my question in public on October 3rd in Atlanta. Second, I agree about scams in this market, which is why from day one we started this process with principles:

(1) Don't premine BitShares
(2) Test everything in the open domain
(3) Build the communication and reputation system first in the event we need to adopt a better exchange model

Point (3) was why I was looking forward to seeing how your project turns out....the industry as a whole needs better exchange model(s).

Our goal is to build a prediction market that serves as a decentralized p2p exchange for all cryptocurrencies and an effective way to facilitate fiat to CC transactions. Should the BitShares standard fail, the infrastructure we have built can adopt a different implementation. This is why I take such enormous umbrage to these allegations. They are both misguided and fundamentally dishonest. Our company is trying to build several extremely complex products and we are doing it off of our own money and time in the open domain.

In all honesty, cunicula annoys the shit out of me.  But there is still the issue of how well can your testnet experiment stress the model.  Just because it passes your tests doesn't mean the potential for extremes is nonexistent.  My questions at C3 were going to be with regards to HOW you were going to test/simulate market extremes.   And how well will the mining process financially justify (or 'backs' the bitAssets, to use cunicula's verbiage) market action at these extremes. Because lets face it, every model that blew up passed some kind of initial testing.  

[bytemaster]

In all honesty, cunicula annoys the shit out of me.  But there is still the issue of how well can your testnet experiment stress the model.  Just because it passes your tests doesn't mean the potential for extremes is nonexistent.  My questions at C3 were going to be with regards to HOW you were going to test/simulate market extremes.   And how well will the mining process financially justifies (or 'backs' the bitAssets, to use cunicula's verbiage) market action at these extremes. Because lets face it, every model that blew up passed some kind of initial testing.  

MercSuey,  thanks for your rational response.  Charles and I take great pride in honesty, integrity, and making the world a better place we would certainly hate to hurt anyone. 

The problem with most models on Wall Street are the same problems that cunicula has with all of his fancy math.  This is why we use austrian principles and theory of value rather than mainstream economic models.  For starters we have the following principles:

1) prices are historical data and cannot be used to calculate or 'measure' value because prices can be arbitrarily manipulated.  An existing price represents only the agreement between two market participants at one point in time and could be a 'straw exchange' and thus meaningless.
2) margin call is based upon the buy/sell spread which proves that 100% of the market believes the price should be below the lowest ask and above the highest bid.
3) all value is relative and individualized, you cannot add, subtract, multiply, or divide prices to calculate new prices. 
4) You cannot compare value systems of any two individuals except after a trade has occurred, and that comparison is only valid at the very instant of the trade.
5) All trades are voluntary and occur at a market price with 1 exception, the margin call.  But the user subject to the margin call chose to take that risk and the settlement of the margin call is based upon the lowest ask.

Given all of these systems we are not attempting to 'model' the economy or economic behavior, we have merely created a trust-free way of buying/selling positions in a relatively simple market.  The result is that we avoid 99.9% of all problems with the wall street systems which ultimately attempt to replace market forces and voluntary trades with equations and computer models in a manner that market participants have no way of understanding.

[QuantPlus]

The result is that we avoid 99.9% of all problems with the wall street systems which ultimately attempt to replace market forces and voluntary trades with equations and computer models in a manner that market participants have no way of understanding.

As someone who has made 2,000,000 trades on Wall Street over 20 years...
And about 2,000 this week as a Market Maker in about 150 stocks...
It's completely nonsensical statements like this = pure FUD...
That often show how OUT-OF-DEPTH engineers are when trying to re-invent the Financial Markets.

Ripple is an example of this = something Reuters might have been doing in the 90s.

You guys are gonna be running elaborate simulations on a Testnet...
In order to divine information a good Margin Clerk could give you in 15 minutes.

Also, I would standardize using either 150% or 50% to address the same thing.

--------------------------------------------------------------------------

From the White Paper:

2. by a miner who enforces a margin call when the value of the backing falls to less than
150% of the value of the BitUSD....

If the miner is forced to exercise a margin call, the network assess a 5% transaction fee in order
to motivate market participants to proactively manage their margin. If the market moves so fast
that the margin is insufficient...

Many fast markets are manufactured...
So miners will incentivized to game this market to accumulate FAT fees?


 

[charleshoskinson]

More in reference to events like these:

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

[digitalindustry]

Lets simplify this for you... I am Mt. Gox and am running a P2P exchange.  You deposit your BTC with me I pay you interest from the fees I charge facilitating the exchange.   You can withdraw more BTC in 6 months than you started with because the business earned a profit providing a service.

The only thing I have done is decentralize Mt. Gox and allocate the profits to the shareholders.

Hi bytemaster

I'm glad you joined in , true , but that's not what I asked , i asked where does it come from , the "interest" the "work" .

I'd just it to be said here in plain English , so as to not avoid the question :

where does the extra BTC in the scenario quoted above derive from .

** just read the read of the page - but this is still relevant

[digitalindustry]

In this case, the "work" is actually mining rewards. They print bitshares as interest and distribute them to the holders of bitBTC. You can use the bitshares to print more bitBTC.

If people invest in bitshares then they can keep using bitshares to create bitBTC as long as money keeps flowing in.
They can maintain a market price of 1 bitBTC = 1 bitcoin using some of the inflows as a cash reserves to establish confidence in the system.

and cunicula this is what I expected you to say - and you are right , but the important thing is to break it down:

so if i'm Jon on the street , if the "extra" is being derived from a) a simple rise in asset value or b) a new issuance of currency .

why not just invest in the asset ?

as the asset is distributed and digital , with a blockchain.


you see this scam worked with gold etc , but if you go back i explained why it won't with Crypto .