Pirate v2.0: Unravelling the Bitshares Ponzi

[digitalindustry]

Maybe the "work" is the increase in bitcoin value compared to USD value?

So that, like pirateat40, as long as bitcoin keeps going up (or was it down in pirateat40's case?) the scheme will get to continue a little longer?

-MarkM-

+1

got it in one.

that's what I would suspect.

[1714917147]

1714917147

[1714917147]

1714917147

[markm]

See this is where it helps to have a whole newfangled currency of your own you can print at will.

In CoffeeMUD we have gold coins, it just so happens that CoffeeMUD lets the admin(s) create the stuff at will.

So, we could propose a whole grand scheme of things in which we point out how much gold coins trade at, even if that is, say, one satoshi per billion of them, then go on about all the grand investments in magic armour and shields and pounds of wood and stone and so on and so on that we propose to invest in to do productive "work" in the game producing stuff to make more gold coins for you, and thus have some awesome gold coin bonds you can buy that will pay you seven percent per week on the gold coins you invest.

We can do it, too! No problem at all! The MUD admin can create out of thin air seven percent more gold coins!

So buy gold coins right now with your bitcoins, earn seven percent a week, and sell your profit gold coins for bitcoins when you want to cash back out to bitcoins!

Now do you see where the interest rate parity between currencies comes into it?

-MarkM-

[cunicula]

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.

Success of the early entrants proves the scheme is legit for the second wave. These guys not only buy bitBTC. They are also buying bitshares too. Bitshares earn interest also. They are marketed as essentially an ownership stake in Pirate, Inc. If you really think Pirate, Inc. created a magic system for printing BTC, USD, and whatever else then it will be worth a lot of money.

As long as people keep sending cash in to buy bitshares they can keep it going. Once net cash inflows stop it must collapse. They walk away with the BTC horde. prices of bitshares and bitBTC go to zero.


If people need to be paid out in BTC then BTC going up in value doesn't help any. They need bitshares to go up in value.
Bitshares will go up in value if people are convinced by the scheme. You need to buy bitshares to mint bitBTC which they then convince you can always be sold for 1 BTC + interest.

If they were really telling the truth about bitshares magical properties then you would want to buy bitshares and it would go up in value. Unfortunately, people may believe they are telling the truth...

I imagine they think that calling this a high risk technological project will cover their asses from the SEC. I fully expect them to end up like pirate.

[dacoinminster]

My quote on this from another thread:

Let's see them try to refute the claim that bitshares is a ponzi.

A sum zero system with no premine and fully collateralized positions to serve as a prediction market is in no way a ponzi scheme. I'm not going to argue with an idiot. We addressed your concerns in our thread. This is a thread about your product. Please do not slander ours in it. 

Yes, just offering interest (or dividends) does not make a Ponzi scheme. For instance, if Ponzi really was investing 100% of the money he collected in arbitraging postage stamps, it wouldn't have been a Ponzi scheme, and we would be calling his scheme something else today. Calling bitshares a Ponzi scheme doesn't do much for your credibility.

I'm not affiliated with bitshares (more of a competitor, actually), but calling them a Ponzi scheme is just absurd.

[cunicula]

Honestly, don't drag yourself into this.

I don't think you are a scammer. I think you have good intentions. Even if your mastercoin proposal is riddled with holes as of now.

There is a big difference between a flawed draft proposal

and a completely impossible proposal + ponzi solicitations

“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.”

Before I believed they created a ponzi by accident from idiocy. I didn't even give bitshares the time of day relative to mastercoin because the whole thing is so absurd and they insisted on using unintelligible faux-economics jargon.
 
It was only when I read the press releases that I realized what they are doing.

[bytemaster]

Definition of a Ponzee Scheme:   a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.

So given this definition you make the faulty assumption that I am paying returns with their own money or with money from future investors.  I am responding here because this is complete nonsense and I want to show you how this Distributed Autonomous Cooperation (DAC) works to both make money legitimately and then pay this to the share holders.

The single biggest source of confusion is that the 'mining reward' is partially paid as dividends.  Ignoring the BitAssets such as BitUSD, the logical analogy to this is a stock-split.  No one is 'debased' or has value transferred from one person to another, with the exception that some of the stock split is paid to the miner.  It is no different than bitcoin in this respect.  You would not consider a stock-split a 'ponzi scheme' if a regular corporation did it.   Certainly there are irrational psychological effects with having 'more' of something that is worth 'less' as can be demonstrated by people who think they have made money in the stock market despite the debasement of the dollar.   We will be working very hard to educate people that the stock-split does not transfer any wealth from the holder's of BitShares.   However, the stock split DOES transfer wealth from those who are Short BitBTC to those who are Long BitBTC and this is how we 'charge interest' to the shorts who borrow to pay dividends to the Longs.    

But, to clarify everyone's thinking on the subject, lets look at the long-run when the currency supply stops growing (12 years) and only focus on how dividends will be paid then.

The DAC earns a profit by facilitating trade via transaction fees.  Some of these fees are paid to miners for their services.  The rest are paid as dividends.   These dividends are not SOURCED from future investment and could be sustained forever.  If there are no transactions there are no dividends.  In other words, the system does not promise any particular rate of return beyond a share of the 'profit' the DAC earns selling space in the block chain for transactions.

So how does BitBTC pay dividends on BTC?   The dividends paid are from the BitShares held as collateral for the short position that created the BitBTC.  The source of the dividends is the transaction fees.   The ratio of dividends paid to BitBTC vs BitShares is always proportional to the price ratio between BTC and BitShares and because the collateral is 1.5 to 2.5 the value of the BitBTC short position, in percentage terms BitBTC pays 1.5 to 2.5 the rate of return as owning BitShares proper.

Money is transferred from the people  who are Short BitBTC to the individuals who are Long BitBTC as the carrying cost of maintaining the short position.  This is not a ponzi, these are opposite sides of a trade who entered into a voluntary arrangement.


I will go one step further to prove this isn't a ponzi scheme.  The system will work even if no one ever trades BitBTC for actual BTC.   Your profits are entirely denominated in BitShares and those who 'trade' the best within the system earn the most BitShares.  BitShares could be viewed as nothing but play money or bragging rights in a virtual prediction market on the price between BitBTC vs BitUSD vs BitGold.   If BitSHares have a non-0 value then the dividends paid have real value and at all times the source of the dividends is profits from fees and not future investors money or dilution of existing investor money.

You will never find a more solid group of honest individuals attempting to make the world a better place than at Invictus Innovations.  

You have your own 'solution' based on so many arbitrary constants and price fixing that I must shake my head.... if you cannot understand the economics of BitShares then you are not fit to design mathematical models of anything related to economics and prices.   I suggest you study the mechanics of prediction markets, voluntary exchange, etc before you go around accusing people of running a ponzi scheme.  


 
 

[cunicula]

Again, you are not going to cloak your ponzi scheme in a (distributed asset corporation), blah blah blah.

You are going to the press and saying:

“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.”

Sure you can create whatever type of intellectual property you want. Freedom of speech and all.

You cannot misrepresent what you are doing to naive investors in order to attract investment.

That is fraud.

Distributed / not distributed does not make a damn bit of difference.

[bytemaster]

Again, you are not going to cloak your ponzi scheme in a (distributed asset corporation), blah blah blah.

You are going to the press and saying:

“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.”

Sure you can create whatever type of intellectual property you want. Freedom of speech and all.

You cannot misrepresent what you are doing to naive investors in order to attract investment.

That is fraud.

Distributed / not distributed does not make a damn bit of difference.

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.

[cunicula]

Sure, you can distribute mining rewards as interest to holders of bitshares. This is bitshares monetary policy. You can choose whatever you want.

Sure, it is possible to maintain a peg to the USD or BTC or whatever.

Sure, it is possible to have free markets in your currency. Currency pairs, etc.

You cannot do all three simultaneously.
http://en.wikipedia.org/wiki/Impossible_trinity

There is a reason why they put the word impossible before the word trinity in the phrase.

You are claiming to be able to violate the impossible trinity in the press. You must know that you cannot do this.
You are using your claim to solicit investment.

This is equivalent to a ponzi. You have tried to cleverly disguise it.

Anyways, aren't you supposed to be sending me a bounty for exposing a flaw in your scheme:

[cunicula]

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

No. You have changed one critical thing.

Mt. Gox does not pay interest on USD deposits using inflows from other depositors (well I hope they don't).

You are offer interest through monetary creation.

This is 100% equivalent to using investments from new depositors to pay interest to existing depositors.
Which is the definition of a ponzi. Therefore, you are planning to run a ponzi.

(I thought printing money was like the original sin for bitcoiners. Apparently, if you dress up seignorage in cryptocurrency it is sufficient to fool a large number of Austrians. Hmmm... are doing this to have a highly profitable fun at their expense? If so, I must say it is brilliant irony.)  

Finally, to repeat
(the funding interest through monetary creation thing + free markets -> impossible to maintain a peg with the USD.)

This is the impossible trinity.

[bytemaster]

Sure, you can distribute mining rewards as interest to holders of bitshares. This is bitshares monetary policy. You can choose whatever you want.

Sure, it is possible to maintain a peg to the USD or BTC or whatever.

Sure, it is possible to have free markets in your currency. Currency pairs, etc.

You cannot do all three simultaneously.
http://en.wikipedia.org/wiki/Impossible_trinity

There is a reason why they put the word impossible before the word trinity in the phrase.

You are claiming to be able to violate the impossible trinity in the press. You must know that you cannot do this.
You are using your claim to solicit investment.

This is equivalent to a ponzi. You have tried to cleverly disguise it.

Anyways, aren't you supposed to be sending me a bounty for exposing a flaw in your scheme:

1HxNKmUd1YgR9Metop4mHZdGNGEhUfEvcP

The impossible trinity is true if the only means of controlling the price is 'printing money' or 'destroying' money, but that is not what we have.  Furthermore, the analogy breaks down when you factor in 'Sovereign monetary policy'.    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.   This can be maintained forever, especially because of automatic margin calls that 'settle the trade' before the long position can lose money.  

[bytemaster]

Still waiting for those monetary inflows:
1HxNKmUd1YgR9Metop4mHZdGNGEhUfEvcP

If you are so sure that you deserve payment for claiming to show how my system is flawed, then publicly back your position with an equal amount of BTC for proving you wrong.  

Otherwise, your unfounded claims cost you nothing and the true test of a belief is being willing to put your money on it.

[dacoinminster]

The impossible trinity is true if the only means of controlling the price is 'printing money' or 'destroying' money, but that is not what we have.  Furthermore, the analogy breaks down when you factor in 'Sovereign monetary policy'.    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.   This can be maintained forever, especially because of automatic margin calls that 'settle the trade' before the long position can lose money.  

Absolute, complete, bullshit.

You are paying interest on BTC deposits. The interest rate is determined by the mining algorithm.
This is the monetary policy you are adopting for bitBTC. Bitcoin also has monetary policy. It is different from yours.
You don't magically not have a money supply just because you are not a sovereign. It just becomes a criminal offense now.

You are maintaining a peg. (or well you are using the claim of a peg to attract marks).

You are using free markets. (the better to access your marks).

Review the webpage again:
http://en.wikipedia.org/wiki/Impossible_trinity

Done?

Open your wallet
Put in this address: 1HxNKmUd1YgR9Metop4mHZdGNGEhUfEvcP
Type in as large a number as possible.
Click Send.

Now thank me for saving you from jail time.

Wow. If this is the best argument against bitshares, maybe it's worth another look!

[jedunnigan]

The impossible trinity is true if the only means of controlling the price is 'printing money' or 'destroying' money, but that is not what we have.  Furthermore, the analogy breaks down when you factor in 'Sovereign monetary policy'.    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.   This can be maintained forever, especially because of automatic margin calls that 'settle the trade' before the long position can lose money.  

Absolute, complete, bullshit.

You are paying interest on BTC deposits. The interest rate is determined by the mining algorithm.
This is the monetary policy you are adopting for bitBTC. Bitcoin also has monetary policy. It is different from yours.
You don't magically not have a money supply just because you are not a sovereign. It just becomes a criminal offense now.

You are maintaining a peg. (or well you are using the claim of a peg to attract marks).

You are using free markets. (the better to access your marks).

Review the webpage again:
http://en.wikipedia.org/wiki/Impossible_trinity

Done?

Open your wallet
Put in this address: 1HxNKmUd1YgR9Metop4mHZdGNGEhUfEvcP
Type in as large a number as possible.
Click Send.

Now thank me for saving you from jail time.

Wow. If this is the best argument against bitshares, maybe it's worth another look!

JR, stop throwing popcorn. Let this play out, it has to.

[markm]

Holy cow this is amazing.

Cunicula, would my MUDgoldat40 (described in my earlier post) scheme be illegal? If not I think it might be a major moneymaker...

-MarkM-

[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.

[cunicula]

Holy cow this is amazing.

Cunicula, would my MUDgoldat40 (described in my earlier post) scheme be illegal? If not I think it might be a major moneymaker...

-MarkM-

I think fraud has to involve intentional misrepresentation. So if you can convince the court that you are simply an idiot trying to design something complex it might work.

This seems to be the defense that bitshares has planned out. Personally though I don't think anyone is going to buy this.

[bytemaster]

The impossible trinity is true if the only means of controlling the price is 'printing money' or 'destroying' money, but that is not what we have.  Furthermore, the analogy breaks down when you factor in 'Sovereign monetary policy'.    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.   This can be maintained forever, especially because of automatic margin calls that 'settle the trade' before the long position can lose money.  

Absolute, complete, bullshit.

You are paying interest on BTC deposits. The interest rate is determined by the mining algorithm.
This is the monetary policy you are adopting for bitBTC. Bitcoin also has monetary policy. It is different from yours.
You don't magically not have a money supply just because you are not a sovereign. It just becomes a criminal offense now.

You are maintaining a peg. (or well you are using the claim of a peg to attract marks).

You are using free markets. (the better to access your marks).

Review the webpage again:
http://en.wikipedia.org/wiki/Impossible_trinity

Done?

Open your wallet
Put in this address: 1HxNKmUd1YgR9Metop4mHZdGNGEhUfEvcP
Type in as large a number as possible.
Click Send.

Now thank me for saving you from jail time.

The interest rate on BitBTC is not based upon the mining algorithm and it is not paid in BTC.    No BitBTC is ever created unless two people agree on a price and take opposite sides of the bet on the movement of the price.  Furthermore, they must both put in equal value in terms of BitShares.  

If there is no price movement, the short pays the long via the opportunity cost of lost dividends.
If the price goes up, bitshare-value is transferred from short to long.
If the price goes down, bitshare-value is transferred from long to short.

This is a 0-sum game, not a ponzi, not a peg enforced by monetary policy.  This is a prediction market of voluntary actors speculating on future price movements and making money proportional to their investing skills.  

The return on real BTC is a growing supply of BitShares... which if they have a non-0 value can be sold for additional BTC.   I am not promising any particular rate of return and my peg is not a 'hard peg' but fluctuates over time within a narrow range.  This is why we adopted an axiomatic approach to designing our system:

1) no price fixing
2) all voluntary transactions
3) no creating value from nothing
4) 0 sum, value is only transferred never created nor destroyed.

Unfortunately, your system violates these core axioms despite your fancy math.

One last caveat... we are not pre-mining and have accepted no investor money from non-sophisticated investors... the money I received early on (May) was refunded + 50% and we continue to turn down funds from people who want to invest in the idea because of SEC laws.  These are not the actions that would be taken by a scammer.

Furthermore, we are spending significant time and money to build revolutionary market-based systems far beyond just BitShares with the goal of securing life, liberty and property for all without the need for government.   We want to make the world a better place.

I spent significant time and effort to teach and educate people in the Mastercoin thread.  As a result of my efforts Mastercoin has been forced to redesign their market pegging system.   So while I disagree with the approach of Mastercoin, I have developed the utmost respect for dracoinmister as being well intentioned and thinking outside the box.

[bytemaster]

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?

[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.