Pirate v2.0: Unravelling the Bitshares Ponzi

[jedunnigan]

     1) It is theoretically possible for your scenario to occur, and in such a scenario everyone who was  Short BitBTC would be entirely wiped out and everyone who was long BitBTC would end up with twice as many BitShares as they started with (assuming they sold).   It is even possible for the result of this catastrophic loss of value in BitShares to result in BitBTC being on the books without any corresponding short positions backing it up.   Such an event would be terrible for those long BitShares, even worse for those Short BitBTC... but those who are impacted the least would be those who are Long BitBTC... they doubled their BitShare holdings.

Let's put this in simple terms, so that everyone understands.

I purchase 1 BTC worth of bitBTC today. I plan to convert this back into BTC exactly one month from today.
As long as the next month's price of bitshares in terms of BTC is at least 50% of the current price, I will get my 1 BTC back.

However, if next month's price is less than 50% of the current price, I will not be able to recover my initial investment in full. (i.e. I will get back less than 1 BTC)

Correct? (please don't tell me that some magic speculator is going to come in and bail me out)

Mate, it's over now. Give it a rest. All your arguments could be made against Bitcoin (as has been said two times now). There is risk, but that risk != ponzi. If you do in fact report this to the SEC, shame on you. What a filthy thing to do. Paints a grim picture of your character.

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[bytemaster]

     1) It is theoretically possible for your scenario to occur, and in such a scenario everyone who was  Short BitBTC would be entirely wiped out and everyone who was long BitBTC would end up with twice as many BitShares as they started with (assuming they sold).   It is even possible for the result of this catastrophic loss of value in BitShares to result in BitBTC being on the books without any corresponding short positions backing it up.   Such an event would be terrible for those long BitShares, even worse for those Short BitBTC... but those who are impacted the least would be those who are Long BitBTC... they doubled their BitShare holdings.

Let's put this in simple terms, so that everyone understands.

I purchase 1 BTC worth of bitBTC today. I plan to convert this back into BTC exactly one month from today.
As long as the next month's price of bitshares in terms of BTC is at least 50% of the current price, I will get my 1 BTC back.

However, if next month's price is less than 50% of the current price, I will not be able to recover my initial investment in full. (i.e. I will get back less than 1 BTC)

Correct? (please don't tell me that some magic speculator is going to come in and bail me out)

This whole system is geared around speculators.  To take speculators out of the equation is like having a debate about whether a car will work and then say don't tell me that some 'magic' wheels are going keep me rolling.

It depends upon what percent of the BitShare market cap was tied up backing that 1 BitBTC and how many traders are in the market and why the price fell 50%.  With a lot of traders in the market you would still be safe because new short positions would be issued the whole time the price of BitSHares relative to BitBTC was falling.  

This is only a problem if  near 75% or more of BitShares are placed in a short position against BitBTC, but if only 10% of the BitShares are used to back BitBTC then the price would have to fall by more than 95% before anyone risked losing money due to this particular scenario.

This system will launch like bitcoin, it will have to prove itself.    

[cunicula]

Mate, it's over now. Give it a rest. All your arguments could be made against Bitcoin (as has been said two times now). There is risk, but that risk != ponzi. If you do in fact report this to the SEC, shame on you. What a filthy thing to do. Paints a grim picture of your character.

Misrepresenting a highly risky investment as extremely low risk or risk free is illegal.

e.g. recall the coindesk article

One bitUSD will always be worth about one USD, say the founders, just as one BitBTC will always be worth around 1 bitcoin.

Recall the CEO's statement

Let me be clear, we believe firmly that the floor will always be at or above 1 btc. We have always claimed that and will always believe it.

These have now been acknowledged to be false statements.

If anyone happens to lose money all they have to do is dredge up these quotes. US courts will hold these guys liable.

 

[jedunnigan]

Mate, it's over now. Give it a rest. All your arguments could be made against Bitcoin (as has been said two times now). There is risk, but that risk != ponzi. If you do in fact report this to the SEC, shame on you. What a filthy thing to do. Paints a grim picture of your character.

Misrepresenting a highly risky investment as extremely low risk or risk free is illegal.

e.g. recall the coindesk article

One bitUSD will always be worth about one USD, say the founders, just as one BitBTC will always be worth around 1 bitcoin.

Recall the CEO's statement

Let me be clear, we believe firmly that the floor will always be at or above 1 btc. We have always claimed that and will always believe it.

These have now been acknowledged to be false statements.

If anyone happens to lose money all they have to do is dredge up these quotes. US courts will hold these guys liable.

 

This is not an absolute. Everyone should believe in their product, that doesn't mean they are implying that it will cure cancer. They could have worded the Coindesk article with a bit more grace, but you are overreaching. More likley the author misunderstood what they were trying to say (he got some facts wrong to begin with). Considering the product hasn't even been released (the final draft of the white paper isn't even done yet!!!) there is ample time to mold the message.

[p2pbucks]

Sorry , i dont trust bitshares !

1.bitshares 白皮书去掉了最后一章（和Ripple、Local Bitcoins、Colored Coins的对比）。相对于建立在矿工节点上非信任机制上的去中心化(bitshares)，我个人还是倾向于建立在对gateway信任机制上的去中心化模式（coloredcoin、ripple）。coloredcoin是构建在BTC协议上的，而bitshares完全推倒重来。

2.至于bitshares所强调的金融杠杆功能，coloredcoin在信任机制模式上能够轻易构建，如同796一样，而不需要矿工来维护。coloredcoin构建的资产是基于比特币的，而bitshares构建的资产基于BTS，就像ripple系统中的xrp一样。我们是否需要一种新的虚拟货币来替代BTC呢？

3.在bitshare白皮书15页case里说“He buys his BitUSD by posting an ad on craigslist saying that he is looking to buy some.” 难道，交易BitUSD还需要使用场外交易方式 ？为什么bitasset中经常提到的资产是BitUSD 和 BitGold 而不是BitBTC？要知道 Coloredcoin协议中的资产确实是完全用BTC背书的。

4.另外，bitshares的高额分红完全是吸引新玩家的做法，让人感觉很可疑。我个人认为，就好像http是建立在tcp协议上一样，比特币用户希望看见一个基于BTC协议上的P2P多态智能资产协议框架。而不是一个以P2P 交易所为诱饵的，实际损害比特币价值的”新协议“。

[anaikh]

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

Excellent Work！I feel something is wrong with bitshare but I cannot figure it out. You have reminded me of one important point!

Bitshare is definitely impossible.

[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

Excellent Work！I feel something is wrong with bitshare but I cannot figure it out. You have reminded me of one important point!

Bitshare is definitely impossible.

You keep thinking that.   But this is not how BitShares works.  BitShares create USD the same way banks do, by lending it into existence against a collateralized loan.   BitUSD is just an IOU for one dollar worth of BitShares.  The block chain is able to honor that request.


BitBTC is an IOU one BTC in BitShares.   The IOU is collateralized with 2 BTC worth of BitShares and is automatically enforced when the collateral falls to 1.5 BTC worth of BitShares

If you set up a straw man, then of course it would never work, but what you describe is NOT how this works.  I am not maintaing a peg by controlling supply of the currency.

[anaikh]

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

Excellent Work！I feel something is wrong with bitshare but I cannot figure it out. You have reminded me of one important point!

Bitshare is definitely impossible.

You keep thinking that.   But this is not how BitShares works.  BitShares create USD the same way banks do, by lending it into existence against a collateralized loan.   BitUSD is just an IOU for one dollar worth of BitShares.  The block chain is able to honor that request.


BitBTC is an IOU one BTC in BitShares.   The IOU is collateralized with 2 BTC worth of BitShares and is automatically enforced when the collateral falls to 1.5 BTC worth of BitShares

If you set up a straw man, then of course it would never work, but what you describe is NOT how this works.  I am not maintaing a peg by controlling supply of the currency.

Well, can you answer my following questions?
1. How can you guarantee 1BitUSD ≈ 1USD?
2. If I buy 1 BitUSD by USD, I can receive BitShare Dividend, and as a dividend, the value of my BitUSD will become say 1.1 BitUSD, then I can get 1.1 USD, am I right?
3. Why not people choose to by BitUSD rather than BitShares?

[bytemaster]

Well, can you answer my following questions?
1. How can you guarantee 1BitUSD ≈ 1USD?

Prediction Market dynamics long and short have to agree on the price and have opposing incentives which force an accurate price.   After all the short has to repurchase in the future from someone to free his collateral and the long has to agree to the new price or he will sell to someone else.

2. If I buy 1 BitUSD by USD, I can receive BitShare Dividend, and as a dividend, the value of my BitUSD will become say 1.1 BitUSD, then I can get 1.1 USD, am I right?

If you buy 1 BitUSD then you will accrue additional BitShares as dividends like earning interest at a bank.  You can sell your dividends for more BitUSD and end up with 1.1 BitUSD or you can sell your 1 BitUSD for BTS and end up with 1.1 dollars worth of BitShares.

3. Why not people choose to by BitUSD rather than BitShares?

Why do people go short rather than long?   People disagree about which way the price of BitUSD vs BitShares will move in the future.  If there is high demand for BitUSD then it will cause the value of BitShares to rise in order to meet the demand for BitUSD.  Anyone who expects there to be high demand for BitUSD due to price stability and ROI will want to short BitUSD relative to BitShares.   Demand for BitUSD causes the price to rise above parity with USD until someone decides to create more by shorting it.  At nearly all times there is 1.5 to 2.5x the value in BitShares relative to BitUSD.   

Me personally, I would short BitUSD and go long BitShares to maximize my return.

[anaikh]

Well, can you answer my following questions?
1. How can you guarantee 1BitUSD ≈ 1USD?

Prediction Market dynamics long and short have to agree on the price and have opposing incentives which force an accurate price.   After all the short has to repurchase in the future from someone to free his collateral and the long has to agree to the new price or he will sell to someone else.
And Then? You said 1BitUSD≈ 1USD and everyone will accept that? If Fed prints mroe money, the number of BitUSD will automatically increase?

2. If I buy 1 BitUSD by USD, I can receive BitShare Dividend, and as a dividend, the value of my BitUSD will become say 1.1 BitUSD, then I can get 1.1 USD, am I right?

If you buy 1 BitUSD then you will accrue additional BitShares as dividends like earning interest at a bank.  You can sell your dividends for more BitUSD and end up with 1.1 BitUSD or you can sell your 1 BitUSD for BTS and end up with 1.1 dollars worth of BitShares.
what will happen after all bitshares has been mined?

3. Why not people choose to by BitUSD rather than BitShares?

Why do people go short rather than long?   People disagree about which way the price of BitUSD vs BitShares will move in the future.  If there is high demand for BitUSD then it will cause the value of BitShares to rise in order to meet the demand for BitUSD.  Anyone who expects there to be high demand for BitUSD due to price stability and ROI will want to short BitUSD relative to BitShares.   Demand for BitUSD causes the price to rise above parity with USD until someone decides to create more by shorting it.  At nearly all times there is 1.5 to 2.5x the value in BitShares relative to BitUSD.  

Me personally, I would short BitUSD and go long BitShares to maximize my return.

So you mean buying BitShares equals short BitAsset?
If so, assume there are 32 kinds of BitAssets and each is pegged to different asset, then what is the rate?

[bytemaster]

And Then? You said 1BitUSD≈ 1USD and everyone will accept that? If Fed prints mroe money, the number of BitUSD will automatically increase?

No the value of BitUSD will decrease without any change in the supply.  Value is not based upon supply alone.

[bytemaster]

what will happen after all bitshares has been mined?

Transaction fees will pay the miners and dividends.

[bytemaster]

So you mean buying BitShares equals short BitAsset?
If so, assume there are 32 kinds of BitAssets and each is pegged to different asset, then what is the rate?

They are market pegged each BitAsset class floats against BitShares based upon supply and demand factors alone.  Of course BitUSD can only be borrowed into existence and is destroyed when the loan is repaid to the blockchain.

[anaikh]

So you mean buying BitShares equals short BitAsset?
If so, assume there are 32 kinds of BitAssets and each is pegged to different asset, then what is the rate?

They are market pegged each BitAsset class floats against BitShares based upon supply and demand factors alone.  Of course BitUSD can only be borrowed into existence and is destroyed when the loan is repaid to the blockchain.

The total bitshare is LIMITED, so I wonder your backup will be insufficient unless 1 BitShare can support multiple BitAssets.

[anaikh]

what will happen after all bitshares has been mined?

Transaction fees will pay the miners and dividends.

Then your transaction fee will be very high....
Your economy will be inefficient.

[bytemaster]

So you mean buying BitShares equals short BitAsset?
If so, assume there are 32 kinds of BitAssets and each is pegged to different asset, then what is the rate?

They are market pegged each BitAsset class floats against BitShares based upon supply and demand factors alone.  Of course BitUSD can only be borrowed into existence and is destroyed when the loan is repaid to the blockchain.

The total bitshare is LIMITED, so I wonder your backup will be insufficient unless 1 BitShare can support multiple BitAssets.

Suppose a BitShare has value worth $100
1oz of Gold is $1000

You can borrow 1 BitGold from the blockchain provided you post 20 BitShares (worth $2000) as collateral on your loan.  This will create new BitGold and you will be unable to spend your 20 BitShares or receive dividends on them until you pay off your loan.  If the value of 1 BitGold rises relative to BitShares then your collateral will be used to repurchase 1 BitGold and pay off your loan and give you back what ever BitShares are left over... likely 5 BitShares.   When the loan is repaid the 1 BitGold is destroyed.

So, the only way for X value worth of BitGold to exist is if 2x value worth of BitShares already exist.    The only way to increase the supply of BitGold is for the value of BitShares to rise enough to provide the proper backing.

This is exactly how 99% of real USD is created.  First there must exist 1.2x value worth of House.  Then X USD is lent into existence.  When the loan is paid off, X USD is destroyed.  

 

[bytemaster]

what will happen after all bitshares has been mined?

Transaction fees will pay the miners and dividends.

Then your transaction fee will be very high....
Your economy will be inefficient.

Transaction fee is only as high as required to buy space in the blockchain.  No higher than Bitcoin.

[anaikh]

So you mean buying BitShares equals short BitAsset?
If so, assume there are 32 kinds of BitAssets and each is pegged to different asset, then what is the rate?

They are market pegged each BitAsset class floats against BitShares based upon supply and demand factors alone.  Of course BitUSD can only be borrowed into existence and is destroyed when the loan is repaid to the blockchain.

The total bitshare is LIMITED, so I wonder your backup will be insufficient unless 1 BitShare can support multiple BitAssets.

Suppose a BitShare has value worth $100
1oz of Gold is $1000

You can borrow 1 BitGold from the blockchain provided you post 20 BitShares (worth $2000) as collateral on your loan.  This will create new BitGold and you will be unable to spend your 20 BitShares or receive dividends on them until you pay off your loan.  If the value of 1 BitGold rises relative to BitShares then your collateral will be used to repurchase 1 BitGold and pay off your loan and give you back what ever BitShares are left over... likely 5 BitShares.   When the loan is repaid the 1 BitGold is destroyed.

So, the only way for X value worth of BitGold to exist is if 2x value worth of BitShares already exist.    The only way to increase the supply of BitGold is for the value of BitShares to rise enough to provide the proper backing.

This is exactly how 99% of real USD is created.  First there must exist 1.2x value worth of House.  Then X USD is lent into existence.  When the loan is paid off, X USD is destroyed.  

 

In your example you short BitGold
What if you long BitGold?

[bytemaster]

The Long position is always paired with a short position.   

To Short BitGold you borrow it like the prior example, and then sell the BitGold you receive to the individual who goes long.   Now to cover your short position you must repurchase it from the Long.

[anaikh]

The Long position is always paired with a short position.   

To Short BitGold you borrow it like the prior example, and then sell the BitGold you receive to the individual who goes long.   Now to cover your short position you must repurchase it from the Long.

Can you describe the long process just like the short process? It won't take you a long time and I believe it will clear the mist for many people.