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Author Topic: Bot to operate a price bloc to stabilize price of BitCoins  (Read 5723 times)
IdeaMan
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August 28, 2011, 02:35:27 AM
 #1

The trick is actually to stabilize the value of bit coin - give or take.

The answer is to create a financial entity large enough to back up a certain USD/BTC price throughout the entire bit coin economy.

As an example, let's say you wanted to stabilize the price (ratio) at 1$:1BTC for all eternity - they would simply place a $21,000,000 bid at 1$ on MtGox.  As a result the price cannot go below 1$.

This amount of force in that market would also influence many people to move their prices (bid or ask) towards the super bid at 1$.

Really though, what you would best be served by doing is running a bot that constantly adjusts it's bid price and quantity to:

(The current number of BitCoins @ a price of 21,000,000 / Current number of BTC minted)

To achieve this effect without the interference of big business, we would need to create something akin to a price bloc that acted on the exchange(s).

The bot would have to:
1) communicate to a server how much buying power it contributed to the bloc.
2) poll the server for the tool buying power of the price bloc
3) calculate this instance's proportional share of the price bloc
4) calculate this instance's proportional share of the number of BTC build
5) automatically adjust the user's bids on exchange(s) to reflect these new values as per the above equation
6) do the reverse for ask prices

It would be nice if the bot:
1) polled the instances of the client for a vote on target bid/ask prices, which would be then be determined by the instance's proportional share of the purchasing power in the bloc and the bloc's total purchasing power
2) listed the public value of the bloc in terms of total purchasing power and weighted average price per BitCoin in the user's local currency

It would be nice if the server
1) fed JSON data out on request
2) tracked historical values and displayed them with easy-to-read graphs
3) had an API to access it's data as part of other bots or data modeling systems

Donate to this wallet to contribute to the bounty for this idea:
19CCVDxm53WZuyGvNr4ZaVFgn1kYha4dC1

The bounty will be paid to the best bot (determined by consensus in the thread about the bot, ultimately decided by me, since I'm the IdeaMan) one week after the first bot is posted on that thread.

I keep 1 percent for coming up with the idea (deal with it), the other 99 goes to the developer who can first submit a functional bot to this thread that handles MtGox.  Further payouts will be spread to the development team as a whole equally, again minus my 1 percent. For the sake of transparency, all transactions to and from this wallet will be posted to a new thread regarding this bot.

And of course, my 1 percent of the incoming donations will be used by the final bot to stabilize prices.

(the above is copy-pasted from my post in the thread that brought me to this idea, this is the official thread)

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August 28, 2011, 06:49:33 AM
 #2

Whaddya think about Zeitgeist?

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August 28, 2011, 07:59:57 AM
 #3

Whaddya think about Zeitgeist?

I wouldn't call myself a huge fan of the film, but it makes a few interesting points.

Not that that has anything at all to do with this thread.

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August 28, 2011, 08:27:24 AM
 #4

And what would you deem the optimal bid wall price to be?

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August 28, 2011, 12:48:10 PM
 #5

<sarcasm> An entity to game the free market, what a great (and original) idea! </sarcasm>

If my post helped, I'll happily accept a few bitmills!   15rGg6A1JFZV3b7TTbtpAaiYGdUD1e1oAm
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August 28, 2011, 03:35:50 PM
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<sarcasm> An entity to game the free market, what a great (and original) idea! </sarcasm>

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August 28, 2011, 03:53:49 PM
 #7

Go ahead and place a bid for 21M bitcoins at 1.00$ on MtGox.

If someone wants to drive the price lower, they will simply sell on Tradehill. Then you should probably put up this same wall on Tradehill, but don't take off your wall on MtGox, because these same people would move back over there. Takes a few minutes to move BTC.

Then same at Intersango, then bitcoin7, then CampBX, and then the next exchange which will open to bypass your "wall".

You're going to need a hell of a lot of money to pull this off.

I did not understand the percentages. If you need to keep 1% to place the bids (that's about 100M$ at least according to the above) then the 99% of the developers goes to ... 10Billion $ !!!!

Boy, I can do it for half that price for you...

I'm just trying to show you in simple terms, that this is utterly unfeasible. Not trying to make fun of you in any way.

If you are really an IdeaMan, then you will certainly be able to come up with better ones. Don't stop trying.

Cheers.

 

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August 28, 2011, 05:17:05 PM
 #8

And what would you deem the optimal bid wall price to be?

This is not my decision.  This should (and will) be determined mathematically by the bot and a combination of votes by people running the bot.

<sarcasm> An entity to game the free market, what a great (and original) idea! </sarcasm>

It's ironic that someone called "norulezapply" thinks I am trying to game a system.

People are quick to jump to conclusions, as usual.  Let's get started on the truth here, instead.

A little background on me

I'm an old school gamer, and I love to game systems.  I have loved doing it since I was a kid playing JRPGs on the PS1.  Finding a loophole that you can exploit for personal benefit has always been a personal challenge to me when playing games.  I'm of the belief that the best games are (nearly) perfectly balanced, to make it fair to all players.  This is generally either accomplished through very simple rules (See also: chess, poker) or very flexible, but well-arbitrated rules (See also: Mage: The Ascension, Amber).

This is one of the main things that attracted me to Bitcoin initially - it is a way to escape a misbalanced system (central banking) and be on a level playing field as a player.

Game balance

A game that isn't well-balanced results in a play experience that is frequently unsatisfactory.  If one player (or most commonly The House) has an inherent advantage over another player, there will soon come a time when one player consistently wins, and all other players lose.  This is usually followed by overturned game boards, thrown controllers, people claiming a game is rigged (often correctly), and most importantly, people not playing the game in the future (which would manifest as massive long-term sell-off in this example, thereby destabilizing the price, the exact opposite of the goal).

To say that you exploit a system is incorrect, or at least incomplete.  Really you exploit badly formed rules within a system.

Exploiting imbalanced systems

In order to exploit a system, the system must have a set of rules that are reliable enough to build a strategy on, and poorly formed enough to have a loophole large enough to exploit at a rate of (subjective) benefit greater than the amount of effort required to exploit the rules.  The exploiting player must be in a position to utilize these poorly formed rules.

The rules of BitCoin

Unlike traditional fiat currency, the value of a BitCoin is determined by the Bitcoin community as a whole.  In the BitCoin market, there is virtually no regulation of any kind, there are no real indicators of who controls what percent of the market, and no reliable pattern to base your strategy on.  Therefore, no truly successful way to "game the system" exists.  The closest thing we have to a reliable pattern to exploit is that BitCoin is extremely volatile, which is the antithesis of a reliable pattern.

Exploiting BitCoins's system of rules

Which isn't to say people can't try, or even succeed at such a goal.  Simply that it hasn't happened yet, and that the BitCoin market is a poor system to try in - not that it will stop people from trying.  So called "price regulation" bots are already functional on mtgox.  All they do is generate volume at a certain range to throw off the weighted close indicator.  Functionally "scalping" bots have a similar result by virtue of similar behavior.  Mining pools, Bid/Ask strategies, stop-loss order bots, and in fact, almost everything done on the exchanges right now besides buying for a long position, (and maybe even that too,) are forms of attempting to game the system semi-successfully.

Fundamentally, all of us who are creating BitCoin businesses, speculating on an exchange, mining, or even buying for a long position are gamblers, and maybe investors.  To say that any one group or individual has enough leverage in the BitCoin economy to successfully game the system is a fallacy.  The closest thing we have to someone capable of gaming the system right now is the deep bit mining pool, or the mtgox exchange itself.  They control large portions of the economy in terms of production and pricing, respectively, which are two of the most relevant facets of any economy.

This closely mirrors what happens on other currency/commodity exchanges and markets.  The NYSE is traded by bots all day long.  The entire concept of a broker on the floor of a stock exchange is just a bot that has to go to the bathroom sometimes, or sleep, or can make decisions you didn't tell him to.  The inherent weaknesses of stock brokers is one of the reasons bots are so prevalent in that market.

One could easily utilize a bot that is designed to manipulate the market force graphs as they appear on mtgoxlive.com and pull or push the market price over time.  One could easily utilize a bot that is designed to only accept standing orders as they are offered at a certain price point, but never to place a standing order.  One could easily utilize a bot that is designed to pump-and-dump BitCoins over a certain period of time or price range.  One could easily utilize a bot to track market depth and automatically even out the bid/ask curves (a far less transparent attempt at market stabilization).  Every one of these is an obvious attempt to game the system.

Successfully gaming a system is a result of manipulating the rules (I'm looking at you norulezapply) which are malformed within that system to form reliable beneficial results for one player above the rest of the pack.

What this bot will do

I theorize that a bot can be used to set artificial low and high points for the market depth charts by automatically generating a pool of bids and asks by a distributed network of individuals contributing whatever amount of buying or selling power they like of their own volition, to a system that is designed to neither make actual bid orders or actual ask orders go off (unless the price skyrockets or plummets, in which case the bot is the least concern of anyone in the market, and it buys some time for the entire market at both ends).

So rather than create an environment where the rules benefit exploitation, the result of this bot is to create an environment where the rules obstruct exploitation via limiting risk across the board to all participants in the environment, (even those who don't run the bot or are unaware of it's existence).

Is this bot an attempt to game the system?

I guess this a form of gaming the system, in that it is an attempt to control the market - to get that control away from people who currently try to exploit it.  It is an attempt to game the system in that it represents an attempt to use meta-game information to manipulate the playing field - to make it more level to all players.  It is an attempt to game the system in the sense that all price blocs are - only this one isn't controlled by a few people who control all the supply, it's distributed across a pool of anonymous individuals.  It is an attempt to game the system by virtue of being a strategy to utilize in a market - like every strategy in every market.

At the core of this concept is a desire to add a stable pattern at the extreme ends of the BitCoin exchange market (where it is hardest to successfully exploit) for the stated and transparent goal of minimizing the ability of the system to be gamed.  This protocol is designed to eliminate the profitability margins for scalping, pump-and-dump, and the other traditional gaming strategies that currently dominate many (not just BitCoin) markets.  The result of this bot is insulation to the market from people attempting to game it.

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August 28, 2011, 05:32:25 PM
 #9

Go ahead and place a bid for 21M bitcoins at 1.00$ on MtGox.

If someone wants to drive the price lower, they will simply sell on Tradehill. Then you should probably put up this same wall on Tradehill, but don't take off your wall on MtGox, because these same people would move back over there. Takes a few minutes to move BTC.

Then same at Intersango, then bitcoin7, then CampBX, and then the next exchange which will open to bypass your "wall".


$1.00 is just an example price, and I chose mtgox because it has the highest volume of trading currently, and tends to lead the other markets in terms of price.  In practice, the prices set would initially be far below $1.00, because the amount of capital required is high.

You're going to need a hell of a lot of money to pull this off.

I did not understand the percentages. If you need to keep 1% to place the bids (that's about 100M$ at least according to the above) then the 99% of the developers goes to ... 10Billion $ !!!!

The 1% fee is from donations to the bounty for writing the best bot - none of the fiat or BitCoins utilized by the bot would ever leave the hands of the owner of that wealth running their instance of the bot (unless the floor or ceiling was hit in trading, highly unlikely given the automatically adjusting nature of the bot).  I merely stated that 1% of the donations to the bounty for creation of the bot would go to my hands, where they would then be assigned to the bot's purchasing power pool.

Boy, I can do it for half that price for you...

I'm assuming this is because your understanding of my original post is incorrect.

I'm just trying to show you in simple terms, that this is utterly unfeasible. Not trying to make fun of you in any way.

Using your math, it's certainly highly unlikely.  Does it make more sense now that you understand what I meant by the 1% fee?

If you are really an IdeaMan, then you will certainly be able to come up with better ones. Don't stop trying.

I promise I'm the IdeaMan - and this is just the beginning.  I know that what BitCoin needs more than anything else right now is the ideas that are going to push it from fringe economy to mainstream economy.  This is where I (and everyone else who wants to see it succeed) come in.  In order for the necessary business gaps in the BitCoin economy to be filled, we need ideas and execution.  It all starts with ideas.

Cheers.

Thanks for your input.

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August 28, 2011, 07:09:08 PM
 #10

If you want to place a limit (either low or high) on a market, you need to be able to absorb all of it potentially.

If you want to limit the price of Bitcoins to at least 10 USD/piece, you need to have over 70 Million USD available on an exchange site to buy all Bitcoins. This does however NOT mean that you can on the same time (with the coins sold to you) place a limit on the maximum price too (e.g. at 12 USD)! For this you'd need additionally up to 7 million Bitcoins to sell them to anyone who wants to buy coins. If you don'T provide them, the price might move away if people are eager to buy coins.

Currently, let's say you have 7k USD:

You can place a bid for 7 million BTC @ 0.001 USD/piece. I don't see however how this will stabilize anything or how it will make people more confident in BTC.

If you want to stabilize the price at at least 10 USD however, once you bought 700 BTC the price can go below your limit again, so you either need more money or you have lost. Also now providing a "ceiling" with these 700 BTC at 12 USD/BTC will only work if the price climbs up again. Then however you will have made a nice 20% earning and can start to enforce the 10 USD limit with a bit more money again and so on.

In reality I'd try to not write a network of bots and require people to trust you and put money in a fund (this is what you actually invented - if 100 people have 7000 USD each then you have a much bigger power than 100 uncoordinated traders on their own) but just code a bot that takes your 7k USD, buys at current prices and creates a bid at a level where it is profitable (let's say 2% more, since you had to pay exchange fees). Continue to do this until you can buy all current coins at the level of your choice (which might potentially take quite a long time - and also has some risks, like selling when the price is on it's all-time low). If you want, you can also invite others to invest in this bot and you can gain money faster that way (via GLBSE for example).

NOTHING you described however is anything without risks, new or original!

Your error is that to break a price block at once, you simply need money. There's no way around this. Writing a bot and distributing it amongst miners might be a way how to do this, but in the end your success depends on how much money these traders have and not how well written your bot software or algorithm is. Also what you're suggesting is already happening, constantly: Every trade is an attempt to set a stable value for bitcoins. If you want a ceiling value, you'd simply need to put up a bid at this value with all your Bitcoins you have in posession - if these are enough, you will have created your block, if they aren't, you loose. The same goes for any other strategy - the more money you have, the easier it is to force a price.


Actually, if you want to manipulate prices with a low amount of money, you need a lot of smaller exchanges (like Tradehill), then you can play "god" more easily. As it is easier to transfer BTC than USD however, you might think of lowering the BTC value though. If you then manage to force the value down at the same time for a day or so on ALL other exchanges (remember: MtGox = ~90% of volume!) but MtGox (which is not as difficult as it might seem!) you could succeed in even causing a dump on MtGox, as all exchanges but MtGox show constant, lower prices on bitcoincharts. The same might work the other way around, but then you have the problem of being able to transfer a significant amount of (foreign) money to a multitude of exchanges.

http://bitcoincharts.com/markets/ - the total volume today "off MtGox" is ~10-15% of the volume on MtGox and many have volumes below 100 BTC. If the WHOLE page is completely red with BTC being worth 5 USD and equivalents in other currencies, this might also lead to panic sales on MtGox, causing a crash there as well - even though you wouldn't be able to manipulate them directly due to the volume there.

You of course also risk that people don't panic + you have the problem(?) that BTC might not crash far enough, so you could end up with a loss after buying back BTC on all these exchanges. If you're lucky though, a few 1000 BTC might be able to cause crashes on MtGox far bigger than selling them directly there and earn you a really nice profit in BTC. To pull this off, you need either to have lots of money yourself OR a big fund + people who trust you with their money. If you start out big enough, you might even be able (as you will tell your share holders the time when you pull it off as well) to use a multiplier effect. You need to make sure however to only let in "big fish" in the pond, as you can also be screwed by people buying your dumped BTC while investing only a single BTC to your fund to get the insider info.

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August 28, 2011, 10:53:37 PM
 #11

If you want to place a limit (either low or high) on a market, you need to be able to absorb all of it potentially.

If you want to limit the price of Bitcoins to at least 10 USD/piece, you need to have over 70 Million USD available on an exchange site to buy all Bitcoins. This does however NOT mean that you can on the same time (with the coins sold to you) place a limit on the maximum price too (e.g. at 12 USD)! For this you'd need additionally up to 7 million Bitcoins to sell them to anyone who wants to buy coins. If you don'T provide them, the price might move away if people are eager to buy coins.
No, you need $210,000,000.00 to set the price at $10.00 vs. the number of BitCoins that will ever exist.

Currently, let's say you have 7k USD:

You can place a bid for 7 million BTC @ 0.001 USD/piece. I don't see however how this will stabilize anything or how it will make people more confident in BTC.

Again, you would need $21,000.00 to set a price minimum of 0.001 $/BitCoin.  You need to account for production that is yet to come.

Of course, not all of those 21,000,000 BitCoins have been minted yet.  So your actual price (for now) if you had that much capital in the pool would be 0.003 $/BitCoin, but that number would go down over time if the amount of capital you had in the bloc never changed.

If you want to stabilize the price at at least 10 USD however, once you bought 700 BTC the price can go below your limit again, so you either need more money or you have lost. Also now providing a "ceiling" with these 700 BTC at 12 USD/BTC will only work if the price climbs up again. Then however you will have made a nice 20% earning and can start to enforce the 10 USD limit with a bit more money again and so on.

If the goal here were to day-trade BitCoins at markup, you'd be correct.  This isn't about speculation, it's about stabilization.

In reality I'd try to not write a network of bots and require people to trust you and put money in a fund (this is what you actually invented - if 100 people have 7000 USD each then you have a much bigger power than 100 uncoordinated traders on their own) but just code a bot that takes your 7k USD, buys at current prices and creates a bid at a level where it is profitable (let's say 2% more, since you had to pay exchange fees). Continue to do this until you can buy all current coins at the level of your choice (which might potentially take quite a long time - and also has some risks, like selling when the price is on it's all-time low). If you want, you can also invite others to invest in this bot and you can gain money faster that way (via GLBSE for example).

NOTHING you described however is anything without risks, new or original!
No, the concept of a price bloc is very old.  OPEC has been doing it my entire life.  The method you describe is a scalping bot - again, not a producer of stability.

Your error is that to break a price block at once, you simply need money. There's no way around this. Writing a bot and distributing it amongst miners might be a way how to do this, but in the end your success depends on how much money these traders have and not how well written your bot software or algorithm is. Also what you're suggesting is already happening, constantly: Every trade is an attempt to set a stable value for bitcoins. If you want a ceiling value, you'd simply need to put up a bid at this value with all your Bitcoins you have in posession - if these are enough, you will have created your block, if they aren't, you loose. The same goes for any other strategy - the more money you have, the easier it is to force a price.

The bot isn't run by miners, it is distributed amongst mtgox accounts.  Not every trade is an attempt to create a stable price, in fact many are simply a method for profiting regardless (and maybe in spite of) of long-term price stability.  Yes, to create floors in a market you need a lot of buying power.  Yes, to create ceilings in a market you need lots of product to sell.  Yes, having more money gives you more power in a market.  The purpose of this bot is to simulate that level of power without anyone actually having the fiat or BitCoins in hand to force the market by themselves.

Actually, if you want to manipulate prices with a low amount of money, you need a lot of smaller exchanges (like Tradehill), then you can play "god" more easily. As it is easier to transfer BTC than USD however, you might think of lowering the BTC value though. If you then manage to force the value down at the same time for a day or so on ALL other exchanges (remember: MtGox = ~90% of volume!) but MtGox (which is not as difficult as it might seem!) you could succeed in even causing a dump on MtGox, as all exchanges but MtGox show constant, lower prices on bitcoincharts. The same might work the other way around, but then you have the problem of being able to transfer a significant amount of (foreign) money to a multitude of exchanges.

Why am I trying to force the price up or down?  I'm trying to limit it at both ends at the extremes.  What you're describing is a distributed pump-and-dump attempt to manipulate prices to take advantage of the market - the exact opposite of what I'm trying to accomplish.

http://bitcoincharts.com/markets/ - the total volume today "off MtGox" is ~10-15% of the volume on MtGox and many have volumes below 100 BTC. If the WHOLE page is completely red with BTC being worth 5 USD and equivalents in other currencies, this might also lead to panic sales on MtGox, causing a crash there as well - even though you wouldn't be able to manipulate them directly due to the volume there.

And that's just counterintuitive - that I should distribute buying power across a huge number of minor exchanges instead of focusing it on the dominant one.  The vast majority of instances where there are major differences between mtgox prices and another exchange is due to the fact that mtgox fluctuates so wildly.

You of course also risk that people don't panic + you have the problem(?) that BTC might not crash far enough, so you could end up with a loss after buying back BTC on all these exchanges. If you're lucky though, a few 1000 BTC might be able to cause crashes on MtGox far bigger than selling them directly there and earn you a really nice profit in BTC. To pull this off, you need either to have lots of money yourself OR a big fund + people who trust you with their money. If you start out big enough, you might even be able (as you will tell your share holders the time when you pull it off as well) to use a multiplier effect. You need to make sure however to only let in "big fish" in the pond, as you can also be screwed by people buying your dumped BTC while investing only a single BTC to your fund to get the insider info.

So basically I should use this method because it's more work, more risk, doesn't remotely approach the idea of what I want to do by creating instability in the market, start a company that trades shares to do so, and then only allow people with lots of money into the fund so that we can manipulate the market screwing out the little guy without letting the average consumer take advantage of BitCoin as a real currency?

They must not teach reading comprehension where you're from.

The goal is to create stability - the bot is merely a tool to help generate a price bloc, which is the actual tool that creates stability.

The purpose of a distributed price bloc is to democratize the process of bloc membership and prevent the bloc from engaging in price fixing that would damage the actual stability of BitCoin.

No amount of money less than hundreds of millions of dollars will stabilize the BitCoin economy in the long term.  Either we can leave it to the public to do so en masse without any helper guidance (and have wild fluctuations and manipulation like we have now), we can leave it in the hands of banks who have that kind of money just lying around (thereby destroying BitCoin), or we can try to generate that kind of purchasing power without involving big money (which would require large-scale automatic cooperation of people who can only contribute small (less than $100.00 apiece) amounts to the overall project, but can't afford and don't deserve to have their money turned over to an outside party that is controlled by a few people.

Which do you think is a best potential outcome for BitCoin as a whole?  Which do you think I'm trying to achieve?

Edit history - $21,000,000.00 to $210,000,000.00 math typo fix

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August 28, 2011, 11:42:33 PM
 #12

Before proposing a solution, maybe you should go back a step and define the following:

What is the problem you are trying to solve?

Then look at your solution and determine:

1.  Does it solve the problem?
2.  What's the cost of that solution?
3.  Is 2 worth the benefits of 1.?

Until you can answer those questions there's no real point looking at the details of implementing your solution as it may either:

1.  Not solve the problem.
2.  Solve a problem that isn't really a problem anyway.
3.  Cost so much to implement (in terms of opportunity cost and risk) that it's not worth doing anyway.

You appear to be proposing either setting a minimum price on BTC (in $) (what your solution would achieve) OR pegging the BTC vs the US$ in a narrow range (what you talk about wanting to achieve).  I'm not seeing how either of those is desirable.

I already discussed your apparent confusion between price and value in the newbie forum - so I'll ignore that for now.  But here's a few questions for you:

What is the benefit of artifically trying to peg the BTC to the US$?
Do you not accept that the BTC should have its own value (and price) rather than being pegged to the US$?
If the US$ falls dramatically vs other fiat currencies is it really your belief that people using those other fiat currencies should also see a fall in the value of their BTC (expressed in their local currency)?  And vice-versa of course.
Are you by any chance someone with a ton of early-mined BTC who would love a minimum sell price set so you could dump all your BTC at a fixed price?

I don't believe the instability of the exchange-value of the BTC is best addressed by trying to price-fix it.  The right solution is for non-speculative use of BTC to increase so that the majority of BTC use (and hence it's perceived value and price) is no longer driven by speculation/hoarding.
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August 29, 2011, 12:16:23 AM
 #13

No, you need $21,000,000.00 to set the price at $10.00 vs. the number of BitCoins that will ever exist.
I think you miss a zero...

No, the concept of a price bloc is very old.  OPEC has been doing it my entire life.  The method you describe is a scalping bot - again, not a producer of stability.

OPEC owns a LOT of oil and is one of the main producers. You do not seem to own a lot of money (otherwise you would already execute your strategy).

The bot isn't run by miners, it is distributed amongst mtgox accounts.  Not every trade is an attempt to create a stable price, in fact many are simply a method for profiting regardless (and maybe in spite of) of long-term price stability.  Yes, to create floors in a market you need a lot of buying power.  Yes, to create ceilings in a market you need lots of product to sell.  Yes, having more money gives you more power in a market.  The purpose of this bot is to simulate that level of power without anyone actually having the fiat or BitCoins in hand to force the market by themselves.
Sorry, I originally meant traders... Again: You can "simulate" as much as you want - it'll only work as long as you have funds, and you risk loosing a LOT of these funds in the process. The only way to be sure not to loose is to have 21 million USD times the price you want to fix effectively backing the whole bitcoin ecosystem by this amount.

http://bitcoincharts.com/markets/ - the total volume today "off MtGox" is ~10-15% of the volume on MtGox and many have volumes below 100 BTC. If the WHOLE page is completely red with BTC being worth 5 USD and equivalents in other currencies, this might also lead to panic sales on MtGox, causing a crash there as well - even though you wouldn't be able to manipulate them directly due to the volume there.

And that's just counterintuitive - that I should distribute buying power across a huge number of minor exchanges instead of focusing it on the dominant one.  The vast majority of instances where there are major differences between mtgox prices and another exchange is due to the fact that mtgox fluctuates so wildly.
Also because the other exchanges never really had bigger traders - if you dump 15k coins on MtGox, you destroy prices on Tradehill too. There just hasn't been something done the other way round. Yet.

You of course also risk that people don't panic + you have the problem(?) that BTC might not crash far enough, so you could end up with a loss after buying back BTC on all these exchanges. If you're lucky though, a few 1000 BTC might be able to cause crashes on MtGox far bigger than selling them directly there and earn you a really nice profit in BTC. To pull this off, you need either to have lots of money yourself OR a big fund + people who trust you with their money. If you start out big enough, you might even be able (as you will tell your share holders the time when you pull it off as well) to use a multiplier effect. You need to make sure however to only let in "big fish" in the pond, as you can also be screwed by people buying your dumped BTC while investing only a single BTC to your fund to get the insider info.

So basically I should use this method because it's more work, more risk, doesn't remotely approach the idea of what I want to do by creating instability in the market, start a company that trades shares to do so, and then only allow people with lots of money into the fund so that we can manipulate the market screwing out the little guy without letting the average consumer take advantage of BitCoin as a real currency?

You don't need to start a company to list something on GLBSE, you can play the EXACT same game the other way around (dumping USD etc.) you WILL have to employ some of these methods if you want to create a ceiling if you have only limited funds and you are in fact already talking about manipulating the market - as soon as one knows what price you want to set, one can take advantage of this until your funds run out. If you allow any small contributer to get this information, anyone can suck you dry in no time.

They must not teach reading comprehension where you're from.

At least they teach some basic economics + math.

The goal is to create stability - the bot is merely a tool to help generate a price bloc, which is the actual tool that creates stability.

The purpose of a distributed price bloc is to democratize the process of bloc membership and prevent the bloc from engaging in price fixing that would damage the actual stability of BitCoin.

No amount of money less than hundreds of millions of dollars will stabilize the BitCoin economy in the long term.  Either we can leave it to the public to do so en masse without any helper guidance (and have wild fluctuations and manipulation like we have now), we can leave it in the hands of banks who have that kind of money just lying around (thereby destroying BitCoin), or we can try to generate that kind of purchasing power without involving big money (which would require large-scale automatic cooperation of people who can only contribute small (less than $100.00 apiece) amounts to the overall project, but can't afford and don't deserve to have their money turned over to an outside party that is controlled by a few people.

Which do you think is a best potential outcome for BitCoin as a whole?  Which do you think I'm trying to achieve?

I think you're trying to get some people to give you their money (or: give you control over their money via a bot) so you can scam them.

What you try to achieve is either building up a fund to back Bitcoin with USD (with the risk of loosing that fund if the fund doesn't hold 21 million USD times the desired price in USD) or dumping coins to create an artificial ceiling (with the risk of loosing these coins etc. etc.) via centralisation.

If you want stability, you can easily write a stabilizing bot too - it's effect however will only be as big as the funds backing it - and if you use it on MtGox, you'll likely be quickly eaten by the daily turnover. If you want to create just "virtual bids" (for example offer 100,000 coins @ 10 USD so it looks threatening on charts) you can always simply be eaten by a bigger fish who suddenly buys these up before you can cancel the offer.

Anyways: just write that bot, make it public and you'll very soon see someone who writes another bot that catches exactly these offers/bids and makes a profit out of them. A stabilizing bot will be for example killed by a better funded destabilizing bot and vice versa. If you allow little people to add funds, you'll just enable big players to invest very little to get insider information and screw you over.
There is no way for you to overcome this, unless you really manage to fake some numbers (like crashing/pumping all other exchanges worldwide, which is considerably cheaper than pulling this off on MtGox) and make a crowd react on its own. For this you however also just need money, not a bot and lots of it too!

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August 29, 2011, 12:39:10 AM
 #14

Before proposing a solution, maybe you should go back a step and define the following:

What is the problem you are trying to solve?

To stabilize the value of the BitCoin versus other currencies and goods/services

Then look at your solution and determine:

1.  Does it solve the problem?
2.  What's the cost of that solution?
3.  Is 2 worth the benefits of 1.?

1) There is no solution, only measures that can be taken towards the goal of stability.  Nothing ever has 100% stability, why would BitCoin be any different?
2) The cost of generating the bot, since in greater than 99% of instances, the bot will never make a purchase or sale.  So, next to nothing.
3) Is it worth a small amount of investment to move towards stabilization of a market I would like to see stabilize?  It seems like a good idea to me.

Until you can answer those questions there's no real point looking at the details of implementing your solution as it may either:

1.  Not solve the problem.
2.  Solve a problem that isn't really a problem anyway.
3.  Cost so much to implement (in terms of opportunity cost and risk) that it's not worth doing anyway.

1) It is doubtful the problem can be "solved", only addressed.
2) price instability is the primary cause merchants have trouble adopting BitCoin as a standard of exchange, so I would call that a problem
3) It costs next to nothing for an individual to contribute to the bot's pool for the combined effect of greater stability, which in general protects the value and long term potential of BitCoin

You appear to be proposing either setting a minimum price on BTC (in $) (what your solution would achieve)
yup
OR pegging the BTC vs the US$ in a narrow range (what you talk about wanting to achieve).  I'm not seeing how either of those is desirable.

Like it or love it, the BitCoin is currently pegged to the USD, just not well enough to do it any good.  Until it stabilizes to the point where it can be used as a currency, it will only be a speculation commodity.  Once the value has stabilized versus the USD, then merchants can begin offering prices for goods or services in BitCoin, and at that point the bot becomes redundant - since there is now a real market value for BitCoin besides the price in dollars.

I already discussed your apparent confusion between price and value in the newbie forum - so I'll ignore that for now.  But here's a few questions for you:

As it currently stands, the BitCoin's primary value is it's price compared to USD - that's why it is so unstable, it's a speculation market.

What is the benefit of artifically trying to peg the BTC to the US$?

Do you not accept that the BTC should have its own value (and price) rather than being pegged to the US$?

On the contrary, it needs it's own value.  What road will get us there?  Letting it sit as a speculation market with no hope of enough stability to be used as a currency?  Or trying to stabilize it to facilitate it's use as a currency with real consistent value determined by the market?  How will we make it stable enough for businesses and John Q Public to accept it's use as a currency?  By saying it's value should be allowed to fluctuate by a factor of 20% daily?

If the US$ falls dramatically vs other fiat currencies is it really your belief that people using those other fiat currencies should also see a fall in the value of their BTC (expressed in their local currency)?  And vice-versa of course.

The bot is not tied to the USD, GBP, EUR, CNY, or JPY - with slight modification from my basic outline, it can accept any fiat currency the exchange will accept.  It is merely a method of contributing purchasing power (in the form of local fiat, wherever you may be) towards the goal of setting a bottom boundary for the price.  Assuming the purchasing power of fiat will decrease, the bot will adjust the location of the floor accordingly.  This doesn't change the value of BitCoins, only the price.

Are you by any chance someone with a ton of early-mined BTC who would love a minimum sell price set so you could dump all your BTC at a fixed price?

I wish!  I only found out about BitCoin about a month ago (after the 30$ spike and drop)  If I had been an early miner, I would have saturated the market at $18 and set the floor myself at $3.

I don't believe the instability of the exchange-value of the BTC is best addressed by trying to price-fix it.  The right solution is for non-speculative use of BTC to increase so that the majority of BTC use (and hence it's perceived value and price) is no longer driven by speculation/hoarding.

I agree.  But here is our catch-22:  Without increased stability, there is no way to accelerate adoption by businesses.  Without adoption by business, there's no way to increase stability.  My theory is that we can communally aggregate funds towards the goal of stabilization without removing funds from the hands of the individual, thereby lowering the amount of fluctuation in the market and accelerating merchant adoption.  Until it stabilizes, speculation will be it's primary use.

If you can think of a better way to make the BitCoin stable enough to make it simple for a business to utilize it, please, share it here.

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August 29, 2011, 12:57:16 AM
 #15

2) The cost of generating the bot, since in greater than 99% of instances, the bot will never make a purchase or sale.  So, next to nothing.
OR pegging the BTC vs the US$ in a narrow range (what you talk about wanting to achieve).  I'm not seeing how either of those is desirable.

You're misunderstanding so many things.  But let's just address this one.

The cost of your proposal is FAR more than the development cost of the bot.

There's two very immediate costs:

1.  The cost of getting all the US$ onto the various exchanges.
2.  The opportunity cost of having all that money sitting around generating no income.

There's some obvious risks as well (which are costs):

1.  The risk one or more exchanges will get hacked/scam your deposits there.  Having millions of US$ given to exchanges definitely has a risk.
2.  The risk that BTC will devalue below your lower threshold leaving you holding the can.

Then there's also another risk:

The risk that BTC will increase significantly in value - meaning you've just lost out on profit you could have had were you holding BTC rather than inactive US$ parked on an exchange.

In essence your scheme relies on a bot network that deliberately makes a loss to almost certainly achieve nothing.  That's because you achieve nothing if either:

1.  Your safeguards are never activated - i.,e. the cash just sits there unused until either it's taken back our or stolen/scamed.
2.  There's a move in BTC value such that it overwhelms your protection - meaning you just cause a tiny blip in the graph direction in return for absorbing a significant loss.

Put simply your proposal is probably unworkable and defiinitely has no real value.  For it to work as you intend BTC would end up as being a currency backed at a fiixed minimum exchange-price by US$.  For it to be meaningful that rate has to be somewhere near the current traded price - meaning a US$ sum of similalr proprortion to the value of all BTC in existence has to be tied up.  You really don't see any problem with that?  Isn't that just turning BTC iinto a US$ e-wallet but with slower transaction processing, a higher barrier to entry and no guarantee that at any point the rug may be pulled away from under it?  With I guess a possible speculative upside - subsidized by those tieing funds up in US$ for no real benefit.
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August 29, 2011, 01:07:59 AM
 #16

No, you need $21,000,000.00 to set the price at $10.00 vs. the number of BitCoins that will ever exist.
I think you miss a zero...

Yup, just woke up when I wrote that.  It would be $210,000,000.00 - That's why my example started at $1.00

No, the concept of a price bloc is very old.  OPEC has been doing it my entire life.  The method you describe is a scalping bot - again, not a producer of stability.

OPEC owns a LOT of oil and is one of the main producers. You do not seem to own a lot of money (otherwise you would already execute your strategy).

Obviously if I had million of dollars to spend on BitCoin I would just pump-and-dump.

The bot isn't run by miners, it is distributed amongst mtgox accounts.  Not every trade is an attempt to create a stable price, in fact many are simply a method for profiting regardless (and maybe in spite of) of long-term price stability.  Yes, to create floors in a market you need a lot of buying power.  Yes, to create ceilings in a market you need lots of product to sell.  Yes, having more money gives you more power in a market.  The purpose of this bot is to simulate that level of power without anyone actually having the fiat or BitCoins in hand to force the market by themselves.
Sorry, I originally meant traders... Again: You can "simulate" as much as you want - it'll only work as long as you have funds, and you risk loosing a LOT of these funds in the process. The only way to be sure not to loose is to have 21 million USD times the price you want to fix effectively backing the whole bitcoin ecosystem by this amount.

This is why the bot would automatically adjust prices based on the amount of purchasing power in the pool.

http://bitcoincharts.com/markets/ - the total volume today "off MtGox" is ~10-15% of the volume on MtGox and many have volumes below 100 BTC. If the WHOLE page is completely red with BTC being worth 5 USD and equivalents in other currencies, this might also lead to panic sales on MtGox, causing a crash there as well - even though you wouldn't be able to manipulate them directly due to the volume there.

And that's just counterintuitive - that I should distribute buying power across a huge number of minor exchanges instead of focusing it on the dominant one.  The vast majority of instances where there are major differences between mtgox prices and another exchange is due to the fact that mtgox fluctuates so wildly.
Also because the other exchanges never really had bigger traders - if you dump 15k coins on MtGox, you destroy prices on Tradehill too. There just hasn't been something done the other way round. Yet.

The other exchanges also don't have the volume in trades to support this - if TradeHill or CampBX had enough BitCoins deposited to support anything resembling this amount of volume, it might be a consideration.

You of course also risk that people don't panic + you have the problem(?) that BTC might not crash far enough, so you could end up with a loss after buying back BTC on all these exchanges. If you're lucky though, a few 1000 BTC might be able to cause crashes on MtGox far bigger than selling them directly there and earn you a really nice profit in BTC. To pull this off, you need either to have lots of money yourself OR a big fund + people who trust you with their money. If you start out big enough, you might even be able (as you will tell your share holders the time when you pull it off as well) to use a multiplier effect. You need to make sure however to only let in "big fish" in the pond, as you can also be screwed by people buying your dumped BTC while investing only a single BTC to your fund to get the insider info.

So basically I should use this method because it's more work, more risk, doesn't remotely approach the idea of what I want to do by creating instability in the market, start a company that trades shares to do so, and then only allow people with lots of money into the fund so that we can manipulate the market screwing out the little guy without letting the average consumer take advantage of BitCoin as a real currency?

You don't need to start a company to list something on GLBSE, you can play the EXACT same game the other way around (dumping USD etc.) you WILL have to employ some of these methods if you want to create a ceiling if you have only limited funds and you are in fact already talking about manipulating the market - as soon as one knows what price you want to set, one can take advantage of this until your funds run out. If you allow any small contributer to get this information, anyone can suck you dry in no time.

So if the bot has set a floor price of $0.15, magically someone will be able to sell through everyone above that and exploit that bid?

They must not teach reading comprehension where you're from.

At least they teach some basic economics + math.

Did you take them?  Tell me, how does BitCoin behave compared to traditional currencies?  Is it predictable by the usual trends and indicators?  Is it stable in the way a currency tends to be?

The goal is to create stability - the bot is merely a tool to help generate a price bloc, which is the actual tool that creates stability.

The purpose of a distributed price bloc is to democratize the process of bloc membership and prevent the bloc from engaging in price fixing that would damage the actual stability of BitCoin.

No amount of money less than hundreds of millions of dollars will stabilize the BitCoin economy in the long term.  Either we can leave it to the public to do so en masse without any helper guidance (and have wild fluctuations and manipulation like we have now), we can leave it in the hands of banks who have that kind of money just lying around (thereby destroying BitCoin), or we can try to generate that kind of purchasing power without involving big money (which would require large-scale automatic cooperation of people who can only contribute small (less than $100.00 apiece) amounts to the overall project, but can't afford and don't deserve to have their money turned over to an outside party that is controlled by a few people.

Which do you think is a best potential outcome for BitCoin as a whole?  Which do you think I'm trying to achieve?

I think you're trying to get some people to give you their money (or: give you control over their money via a bot) so you can scam them.

Why wouldn't I ask for things like closed-source bots then?  Why wouldn't I silently manipulate the market instead of discussing it in a public forum?  Why wouldn't I have the bot take control of the funds and put them into one account so I could steal it?

What you try to achieve is either building up a fund to back Bitcoin with USD (with the risk of loosing that fund if the fund doesn't hold 21 million USD times the desired price in USD) or dumping coins to create an artificial ceiling (with the risk of loosing these coins etc. etc.) via centralisation.

If you want stability, you can easily write a stabilizing bot too - it's effect however will only be as big as the funds backing it - and if you use it on MtGox, you'll likely be quickly eaten by the daily turnover. If you want to create just "virtual bids" (for example offer 100,000 coins @ 10 USD so it looks threatening on charts) you can always simply be eaten by a bigger fish who suddenly buys these up before you can cancel the offer.

This is why the stabilizing bot has to sit at the outside of the ranges: to prevent "bigger fish" from taking the bid or ask simply.  The goal is to get prices to consolidate inside of the range set by the bot, by setting the greatest number of BitCoins to be bought or sold at the outside of the range.

Anyways: just write that bot, make it public and you'll very soon see someone who writes another bot that catches exactly these offers/bids and makes a profit out of them. A stabilizing bot will be for example killed by a better funded destabilizing bot and vice versa. If you allow little people to add funds, you'll just enable big players to invest very little to get insider information and screw you over.

Because a big player who can sell the price down to a $1.00 would have already done that.  A big player who could buy the price up to $30.00 would have already done that.  Assuming that interested them, and they were big enough to have the funds.

There is no way for you to overcome this, unless you really manage to fake some numbers (like crashing/pumping all other exchanges worldwide, which is considerably cheaper than pulling this off on MtGox) and make a crowd react on its own. For this you however also just need money, not a bot and lots of it too!

After all, why try to do something a legitimate way with minimal risk when you can deceptively twist the markets around by taking on maximum exposure to risk across a number of markets that would need to be manipulated simultaneously to maybe achieve the opposite result?

I don't want to create a market panic.   I don't want people's money.  I don't want to see the price of BitCoin skyrocket or free fall.  That's what stabilization means.

Edit history - pceeof - price of - typo fix

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August 29, 2011, 01:19:26 AM
 #17

It's kind of funny how you think my online handle actually means something.

It doesn't. It's just a method of identification, but anyway. This to me still sounds like you want to make a bot to control/manipulate the price. As you mentioned in the first post, it'd influence traders to move prices towards this wall set by the bot. Thus seems like an attempt to control the market and I honestly don't see what's to be gained by this.

The price would not go below the wall set by the bot, that's true. But you'd need a fuck ton of money to make it work anyway, and there's no guarantee to people that that price will always be there (just like there's no guarantee that your bitcoins are safe in an online wallet..) and people will see that.

If my post helped, I'll happily accept a few bitmills!   15rGg6A1JFZV3b7TTbtpAaiYGdUD1e1oAm
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August 29, 2011, 01:36:12 AM
 #18

2) The cost of generating the bot, since in greater than 99% of instances, the bot will never make a purchase or sale.  So, next to nothing.
OR pegging the BTC vs the US$ in a narrow range (what you talk about wanting to achieve).  I'm not seeing how either of those is desirable.

You're misunderstanding so many things.  But let's just address this one.

The cost of your proposal is FAR more than the development cost of the bot.

There's two very immediate costs:

1.  The cost of getting all the US$ onto the various exchanges.
2.  The opportunity cost of having all that money sitting around generating no income.

1) Individual users already have paid the costs to get their money into the exchanges.
2) Opportunity cost is distributed amongst all the users of the bot.

There's some obvious risks as well (which are costs):

1.  The risk one or more exchanges will get hacked/scam your deposits there.  Having millions of US$ given to exchanges definitely has a risk.
2.  The risk that BTC will devalue below your lower threshold leaving you holding the can.

1) This is the primary reason to use MtGox, since it is the most reputable exchange so far.  If a better exchange with more volume and a better reputation were to exist, I would recommend that one.
2) If it were about to drop below the floor we set or spike above the ceiling, the amount of purchasing/selling power in either direction would already buy out or sell through every bid or ask in the way anyway, regardless of whether or not that floor or ceiling had been built there.

Then there's also another risk:

The risk that BTC will increase significantly in value - meaning you've just lost out on profit you could have had were you holding BTC rather than inactive US$ parked on an exchange.

This is the same risk every speculator already takes every day by not holding BTC, or by not selling BTC (floor/ceiling side)  The only difference here is that the small percentage of money put up by individuals running the bot is actually working towards a goal, not just sitting inactive.

In essence your scheme relies on a bot network that deliberately makes a loss to almost certainly achieve nothing.  That's because you achieve nothing if either:

1.  Your safeguards are never activated - i.,e. the cash just sits there unused until either it's taken back our or stolen/scamed.
2.  There's a move in BTC value such that it overwhelms your protection - meaning you just cause a tiny blip in the graph direction in return for absorbing a significant loss.

1) The safeguards are meant to never be activated, they're meant to act as boundaries to the market price.
2) There's no way it could actually do that - the pool would set the lowest or highest possible prices.  In order for someone to reach you at the bottom, they would have to have all of the BitCoins, and to reach you at the top, they would have to have enough fiat purchasing power to buy all of the BitCoins.

Put simply your proposal is probably unworkable and defiinitely has no real value.  For it to work as you intend BTC would end up as being a currency backed at a fiixed minimum exchange-price by US$.  For it to be meaningful that rate has to be somewhere near the current traded price - meaning a US$ sum of similalr proprortion to the value of all BTC in existence has to be tied up.  You really don't see any problem with that?  Isn't that just turning BTC iinto a US$ e-wallet but with slower transaction processing, a higher barrier to entry and no guarantee that at any point the rug may be pulled away from under it?  With I guess a possible speculative upside - subsidized by those tieing funds up in US$ for no real benefit.

As it stands BitCoin isn't used as a currency - it's used as a speculative commodity.  Even a currency pegged to an arbitrary fiat value is better than an unstable currency.  Over time, as the bot accumulates more purchasing power, the limits will move towards a narrower range, decreasing opportunity for speculation, and moving towards stability - in other words, it becomes more like a real currency.

We don't need to cement the price somewhere, we need to get it to move around less.  Much less, if we want it to be a serious contender to the ruling fiat currencies.  Right now BitCoin's greatest weakness is it's lack of purchasing power before being converted to a local currency.  If BitCoin's price only fluctuated within a 1-dollar range week-to-week, we would at least be at the point where businesses could (almost) easily integrate BitCoin pricing into their storefronts.

If BitCoin could be (only temporarily, to facilitate it's transformation to a full-fledged currency in the public eye) used as an e-wallet to buy things online priced in USD, that would be a huge step towards John Q Public accepting it as a currency.  That is still a lower barrier to entry than it has today (the barrier of being virtually unspendable), by the way.  There's nothing to be done about the speed of transaction processing, unfortunately, that I can think of, short of using an external e-wallet service (which is fundamentally as "bad" to your point of view as anything I've suggested, only you actually have to relinquish control of your money).

There is no speculative upside, in fact, quite the opposite.  Speculation requires volatility to be profitable.  This system only removes volatility from the market, in other words, decreasing the profitability of speculative trading.

I'm not talking about trying to own every BitCoin for a few cents apiece.  I'm not talking about selling huge quantities of BitCoins at exorbitant prices.  I'm not talking about pegging the long-term value of the BitCoin to the USD (or any other fiat currency).  I'm talking about setting up a distributed pool of fiat buying power and BitCoin selling power to limit the fluctuation in the market in order to facilitate becoming stable enough that businesses can begin to use it the way they currently use fiat currencies.

Once the price has stabilized then merchants have not only the ability, but also the motivation, to begin accepting it as a currency.  This bot is only a stepping stone [it]towards[/i] that goal.

Edit history - thehount, r - the amount, or - typo fix

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August 29, 2011, 01:47:20 AM
 #19

It's kind of funny how you think my online handle actually means something.

Nope, just thought it was ironic that a guy with "rulez" in his handle was the one to bring up gaming a system.

It doesn't. It's just a method of identification, but anyway. This to me still sounds like you want to make a bot to control/manipulate the price. As you mentioned in the first post, it'd influence traders to move prices towards this wall set by the bot. Thus seems like an attempt to control the market and I honestly don't see what's to be gained by this.

The thing to be gained is long term price stability to allow merchants to accept it as a currency more easily, thereby opening up the BitCoin economy.

The price would not go below the wall set by the bot, that's true. But you'd need a fuck ton of money to make it work anyway, and there's no guarantee to people that that price will always be there (just like there's no guarantee that your bitcoins are safe in an online wallet..) and people will see that.

First of all, thank you for actually doing the math and realizing it's possible to set a real unbreakable floor.

The design of the bot is such that any amount of money will set a price for the bid floor.  You are correct that in order for that bid wall to gain serious oomph, it needs to have a significant amount of purchasing power behind it, which is why I figured I should open the idea up to this forum - for improvement suggestions and to gauge response to the concept.

I assumed this place was full of people who wanted to see BitCoin succeed as a currency, and that some of those people would be willing to turn down an opportunity for a small amount of profit (without relinquishing control of their money, fiat or BitCoin) in the name of stabilizing the price for long enough for it to be treated like a traditional currency by consumers and businesses alike.

For those of you who don't get it yet - that's the only way BitCoin can ever truly succeed.  If it lingers too long as a primarily speculative investment opportunity, all the naysayers will end up being correct - It will be another in a long list of Internet scams.  All you speculators out there will lose your investment.  Miners will have wasted tons of money on GPUs and power to operate them.  And this whole experiment will have been a failure, because we couldn't agree on a way to make it work - and for no other reason.

It's up to us to see to it that doesn't happen.

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August 29, 2011, 03:50:11 AM
 #20

I applaud your dedication at researching stabilization of the BTC economy.

I think the USD value of BTC is of little significance to the people who truly believe in it.

IMO There are many more important things that affect the value of BTC  :
Accessibility, Network Security, wallet security, adoption ect

I think every trade/trader/bot of BTC-USD is there to profit while stabilizing the price.

I do believe in cryptocurrencies and I adjust, regularly, my own USD:BTC ratio at which I will not sell at / or buy at,  thus stabilizing.

Your proposition vaguely look like an attack on free market, You would have more chance doing this in private with BTC/USD rich partners.



I, for one, believe the price should be 10+ fold what it is now IF the network security threat was dealt with preemptively !!!
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August 29, 2011, 12:15:53 PM
 #21

I do want to see bitcoin succeed as a "day-to-day" currency, don't get me wrong. I just think that this is not the way to go about it.
And no, I'm not actually in this just to make a quick profit. You definitely have some good points in this post though that should be built upon. I personally just don't like the idea of an entity manipulating the market.

I don't have a lot of knowledge in economics but I'd like to say that the price should stabilize eventually on it's own, given enough time.
But as you say that might be too late and bitcoin might've been palmed off as a pryamid scheme by retailers by then. But only time will tell. I'd rather ride it out than try to manipulate it I guess.

If my post helped, I'll happily accept a few bitmills!   15rGg6A1JFZV3b7TTbtpAaiYGdUD1e1oAm
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August 29, 2011, 12:49:23 PM
 #22

All you want to create is a fund that backs the entire 21 million bitcoins.

"stabilizing" or "setting a floor" at 0.001 USD/BTC is not that hard - but for that floor to be of use for anyone, the BTC price should be near that floor too.
If you set a floor at 0.001 USD/BTC, that still would mean for a merchant to either: charge 1000 BTC per USD or take some risks. Unless you manage to get ~a quarter billion of USD quickly in that fund (and to MtGox!), you won't succeed in stabilizing current prices - and even then you risk thinning out the market so much, that 1 BTC then is worth 10000 USD and people only trade in miliBTC, leading to the exact same dilemma.


By the way, it is VERY easy to overcome any price fluctuations as merchant:
Move as many BTC to an exchange site as you plan to get per week.
If someone wants to buy something in BTC, calculate the BTC price from current prices, trade this amount of BTC on the exchange and bill the user (alternatively: wait for 1-2 confirmations after the user paid, then trade - slightly higher volatility risk but lower "order and never pay" risk) for the total amount (incl. exchange fees).

No matter what the price is, this will always give the user the current exchange rate and you canat the end of the week transfer your money from the exchange site + upload the bitcoins again to the exchange that you received in your private wallet as payments. If the price is very volatile, you just might need a bigger buffer in BTC on the exchange site, that's all.

Edit:
Oh, and I'm going stabilize the whole bitcoin economy now with just 1 single public offer!

I buy 21 million BTC @ 21 EUR, so 0.000001 EUR/BTC is guaranteed! Bitcoin is stable now! Happy trading...

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August 29, 2011, 01:31:53 PM
 #23

All you want to create is a fund that backs the entire 21 million bitcoins.

That's correct.

"stabilizing" or "setting a floor" at 0.001 USD/BTC is not that hard - but for that floor to be of use for anyone, the BTC price should be near that floor too.

And eventually the price would approach the floor, but not instantly, since that would be a shock to the economy.

If you set a floor at 0.001 USD/BTC, that still would mean for a merchant to either: charge 1000 BTC per USD or take some risks. Unless you manage to get ~a quarter billion of USD quickly in that fund (and to MtGox!), you won't succeed in stabilizing current prices - and even then you risk thinning out the market so much, that 1 BTC then is worth 10000 USD and people only trade in miliBTC, leading to the exact same dilemma.

Actually, this is what will happen eventually regardless of anything else, assuming BitCoin sees wide scale adoption.

By the way, it is VERY easy to overcome any price fluctuations as merchant:
Move as many BTC to an exchange site as you plan to get per week.
If someone wants to buy something in BTC, calculate the BTC price from current prices, trade this amount of BTC on the exchange and bill the user (alternatively: wait for 1-2 confirmations after the user paid, then trade - slightly higher volatility risk but lower "order and never pay" risk) for the total amount (incl. exchange fees).

Waiting for 1-2 confirmations could easily take 20 minutes - in which time the price could drop by $1.00/BitCoin.

Now it may be a simple process to use BitCoin and set up your business to take the risk of that loss - and it is - but it isn't a simple process to set up your business to accept BitCoin without jumping through a bunch of hoops (price fluctuation, new PoS/software, etc.).

No matter what the price is, this will always give the user the current exchange rate and you can at the end of the week transfer your money from the exchange site + upload the bitcoins again to the exchange that you received in your private wallet as payments. If the price is very volatile, you just might need a bigger buffer in BTC on the exchange site, that's all.

The longer the wait between accepting and converting BTC, the greater the risk the business takes on.  Furthermore, this solution still results in businesses dumping BitCoins for fiat, not using them as a currency.

Edit:
Oh, and I'm going stabilize the whole bitcoin economy now with just 1 single public offer!

I buy 21 million BTC @ 21 EUR, so 0.000001 EUR/BTC is guaranteed! Bitcoin is stable now! Happy trading...

Thanks for your commitment! If every one could easily commit even a few cents (USD) to this goal, we'd be well underway to achieving the goal.  21 EUR is a generous first commitment!

Oh, sarcasm doesn't help in real discussions.

Right.

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August 29, 2011, 03:08:31 PM
 #24

But this wasn't sarcasm, this was exactly what you suggested, jsut on a smaller scale. Now I only need to convince people to send me their money (or give me access to it via a bot) and we can raise the limit to 0.00001 or even 0.0001 EUR/BTC!

Bitcoin will be much stable after that, I'm sure (ok, THAT was sarcasm!).

You can easily set up a business that charges lower fees than Paypal or credit cards + handles all these BTC<->fiat conversions for merchants to totally eliminate the merchant's risk.

As long as businesses pay for their goods + employees in fiat, they also will have to use BTC as an alternative to fiat. A stable conversion rate also just achieves that Bitcoin can be easily + reliably interchanged for fiat currencies and stable bitcoin prices (1 eBook will cost 1 BTC, now and in one year too) make sense.

Why should bitcoin be used as it's own currency in the first place - and how does exchanging it for a fair wrice in fiat currency hurt that goal?

Having a Bitcoin backing fund means: You create a central entity (you/your bot) that promises to be able to pay at least X USD/BTC, so everyone using this conversion rate will be safe from loosing any USD when accepting BTC, as they could in the extreme case always be exchanged at your fund.

This will ONLY work if you own lots of money and will make you a very interesting target. To build up this fund, you could require/ask everyone to send the same amount of USD that they want to use for trading to your fund to be used for backing.


The trick why this works with central banks ("normal" currencies are backed also just by a few % - would be like promising a USD/BTC price of 0.4 or 0.5 at a rate of 10...) is that they are _central_ - something that is missing by design in Bitcoin.

Sorry, but full backing of the current economy is no longer possible due to the size and partial backing won't work, as you cannot control the amount of money in the system. All you will gain with such a bot is control over the money of the people participating.
By the way - what would happen if someone has a lot of money in that fund, the price is close to the limit and this guy wants to buy cheap? All he'd need to do is to move his money out of the fund, the backing goes down, the price goes down and he can buy cheap coins. Backing BTC with fiat money requires people who have a lot of money but do NOT want to buy bitcoins cheap.

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August 29, 2011, 04:11:22 PM
 #25

But this wasn't sarcasm, this was exactly what you suggested, jsut on a smaller scale. Now I only need to convince people to send me their money (or give me access to it via a bot) and we can raise the limit to 0.00001 or even 0.0001 EUR/BTC!

Let's try some actual distributed examples.

There are approximately 312 million people in America alone, representing approximately 4 percent of world population.  If each of them contributed $0.10 to the bot's operating pool, the price is set at $1.48500 on mtgox.

There are approximately 62,435,709 people in the UK.  If each of them were to donate €1.00, the price floor would be set at €2.97313.  If each of them were to contribute your generous €21.00 offer, the price would be set at €62.47351.

There are approximately 6,940,000,000 people in the world.  If each of them contributed $0.01 to the pool of the bot, the pool would have a value of $69,400,000 giving the floor a buy price of $3.30475.

If each person in the pool contributed say, $5.00 in the America example the floor is set at $74.25.  In the world example, the floor price is set at $1652.375.

Keep in mind these examples mean the guaranteed value of a BitCoin, ever.

Bitcoin will be much stable after that, I'm sure (ok, THAT was sarcasm!).

Hmm, if we approached any of those values over time at a relatively stable rate of change, then yes, it would result in stability.  That's irony.

You can easily set up a business that charges lower fees than Paypal or credit cards + handles all these BTC<->fiat conversions for merchants to totally eliminate the merchant's risk.

I fully endorse you setting up this business.  Whoever does it will make a fortune, and add to the buying power of BitCoins.  Of course, you do have to take on the risk that the initial miners and large scale hoarders will come out of the woodwork and buy a ton of things, forcing you to sell to cover your costs.

Then the price will go down.

And you will absorb that loss.

Unless the price is already stabilized.

Which must be why that hasn't happened yet in any large scale sense.

That's sarcasm.

As long as businesses pay for their goods + employees in fiat, they also will have to use BTC as an alternative to fiat. A stable conversion rate also just achieves that Bitcoin can be easily + reliably interchanged for fiat currencies and stable bitcoin prices (1 eBook will cost 1 BTC, now and in one year too) make sense.

No one has to use BitCoin, or we wouldn't have be having this conversation - everyone would already be using BitCoin if that were the case.  A stable conversion rate gives people the option to use it as a currency instead of local fiat.

Why should bitcoin be used as it's own currency in the first place - and how does exchanging it for a fair wrice in fiat currency hurt that goal?

BitCoin is described in the protocol as a cryptocurrency, which would imply it is designed with purpose of being a currency.  That's why it should be used as one.  Exchanging it for fiat at a variety of prices hurts that goal by destabilizing the value of a BitCoin, making it tough for merchants to accept it as a currency since they have no idea whether or not it will have the same value when they make the purchase as it does in 30 minutes - which a currency should do.

Having a Bitcoin backing fund means: You create a central entity (you/your bot) that promises to be able to pay at least X USD/BTC, so everyone using this conversion rate will be safe from loosing any USD when accepting BTC, as they could in the extreme case always be exchanged at your fund.

This will ONLY work if you own lots of money and will make you a very interesting target. To build up this fund, you could require/ask everyone to send the same amount of USD that they want to use for trading to your fund to be used for backing.

If I were trying to create a central issuing authority, I would just create a separate BitCoin fork, mine all the coins myself, then open them up for public trading.  This system is entirely voluntary, and requires literally only a few cents per person to work.  Obviously, the more people choose to out in the fund, the faster it works.  How can I be a target if my $1.00 or €1.00 is one of millions in different accounts all over the world hosted on mtgox at the same bid price?

The trick why this works with central banks ("normal" currencies are backed also just by a few % - would be like promising a USD/BTC price of 0.4 or 0.5 at a rate of 10...) is that they are _central_ - something that is missing by design in Bitcoin.

Sorry, but full backing of the current economy is no longer possible due to the size and partial backing won't work, as you cannot control the amount of money in the system. All you will gain with such a bot is control over the money of the people participating.

Most central banks are backed by nothing but the word their currency has value, hence the definition of fiat being applied to all those currencies issued by central banks.

The total value of the BitCoin economy is minuscule in comparison to say, the US economy, or the UK economy, or the Chinese economy.  It is minuscule compared to the economy of say, California or Texas.  Full backing is entirely possible, since the price point being set is a sliding point set by the amount of money used by the bot across all instances.

Once again, I don't have control over that money, it never leaves the hands of the person running their instance of the open-source bot at home.

By the way - what would happen if someone has a lot of money in that fund, the price is close to the limit and this guy wants to buy cheap? All he'd need to do is to move his money out of the fund, the backing goes down, the price goes down and he can buy cheap coins. Backing BTC with fiat money requires people who have a lot of money but do NOT want to buy bitcoins cheap.

Glad you asked.  Let's say there's a huge player who represents 95% of the floor.  The example floor is set at $1.00, so when he leaves the bot pool, the floor plummets to $0.05.  This causes a huge panic in the market and everyone sells off at $0.05. They guy comes back and the price is far lower, so he can buy them from the people who bought them at $0.05, but it's doubtful that if he wants to buy that many the price will stay that low.

This causes more people to leave the floor, further dropping the price.  So our big player would be foolish to buy in yet, since the price is still dropping, and buying now results in a net loss.  As the price drops, more people sell their bit coins into the floor, reducing the amount of money in the pool, and lowering the price the pool offers.  Further sales through the floor lower the price even more until there's only one person left in the fund, contributing only a few cents.

The further the price drops, the less incentive there is for our big player to buy back in at all, actually.

Even in the instance that you were the last person running the bot and total market collapse occurred, you just end up holding 21 million entirely worthless BitCoins for a total cost of a few cents.

Backing BitCoins with fiat doesn't require people who have a lot of fiat to throw around - it requires a lot of people with a few cents of faith in BitCoin.  Obviously, they don't want the price to get too low, as that would destabilize their currency.  They don't want it to sell low or buy high or vice versa.  They want it to be a stable currency.

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August 30, 2011, 07:05:57 PM
 #26

Currently, there are NOT millions of Bitcoin users out there, if you take a look at the simultaneous online nodes statistics and/or client download statistics. Also nice "if everyone in ... would ..." ideas don't work - if they would even KNOW of Bitcoin, the price would soar much higher and your "stable" ~3€/BTC would be like my offer of 21 EUR in comparison and a return to a rate of 3€/BTC would be seen as "crash" + "failure".

I don't set up such a company, because Tradehill is currently doing the same - and being under the jurisdiction of Chile I figure it might be easier for them than me under EU law.

Also:
How/why does it hurt a currency if it is being exchanged for another currency at various prices or even if it is a meta-currency (like SDRs http://en.wikipedia.org/wiki/Special_Drawing_Rights)?

If you are not holding that money and the system is voluntary, you have the exact same thing as you already have on MtGox: People have a pile of USD in their account and when they think the price is right, they buy BTC. All you would do is to say: "As there are 21 million USD on MtGox right now that I know of, it does not make sense to set offers below 1 USD!". I still don't see how this would stabilize anything, if you cannot even remotely approach the current prices.

Most central banks DO have reserve requirements (http://en.wikipedia.org/wiki/Reserve_requirement) but it again only works because they are central. You're free to try it out with an alternate chain. If you let people come and go at will, your "backing" is also completely unstable so there's no trust in it.

In the scenario you described, you have successfully devaluated BTC into nothingness, even though your bot was correctly working someone could still play pump + dump. To me this sounds like a complete failure of this bot.

For a backing to work EVERYONE who trades fiat for BTC needs to put the same amount of fiat into the fund as well (I buy 10 BTC @ 10 USD --> I pay 100 USD to the seller + 100 USD to the fund to keep the value up). Then over time the fund will become large enough to really back Bitcoin. If you only pay in a lower amount of fiat into the fund than you trade, you have a fractional reserve and risk that amount you overpay (If you trade 10 BTC@10 USD and pay 80USD to the fund, over time the fund will only grow to a maximum of 80% of the then current trade price).

All in all your bot's a nice idea and all, but it has 3 shortcomings:
1) It won't work for ceilings (no BTC will be traded above x USD) as the amount of USD is unknown (depending of the money amount you take into account) or so high, that you will need far over 20 million BTC in that fund to bring it down to current sub-100 USD levels.
2) It requires people to publicly tell a lot of people how much buying power in fiat they have and pledge to use to back Bitcoin.
3) It is voluntary, so panics + dumps can still occur (floors will most likely be magnitudes below current values and your system only works if noone needs their fiat money for anything else but backing Bitcoin. Ever.). You even gave an example in your last post.


Anyways, I still haven't seen a single line of code yet! If it is such a great idea, just do it, don't listen to me and argue with me - prove me wrong!

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August 30, 2011, 07:09:29 PM
 #27

<sarcasm> An entity to game the free market, what a great (and original) idea! </sarcasm>

+1

+10
Why does this forum attract so many scammers?
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August 30, 2011, 07:16:13 PM
 #28

Why does this forum attract so many scammers?

Please illustrate the part where this is a scam.  Start with the point where people show a loss, and end with the point where I profit from that loss.  Be sure to show your work, including the part where I lie or manipulate people to achieve that end.

Some helpful points to consider might be the total transparency of this theory, the result that I am attempting to achieve, and the actual word I have used in the thread.

If you're going to make an accusation that someone is a scammer, be prepared to prove it.

In cases where you accuse someone of being a scammer who is not, be prepared to fail to prove it.

It also may help to read the thread and know what you're actually talking about.

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August 30, 2011, 07:21:50 PM
 #29

  It is an attempt to game the system in that it represents an attempt to use meta-game information to manipulate the playing field - to make it more level to all players. 

How is the free market not level? If someone wants to protect against price volatility in a longer time frame, they hedge against it. As a general concept, if I have 100 shares of company X and I dont want to lose money on the share value, then I short 100 shares of company X...duh.

The payment processors are not going to help you out here...another fact of who is really a community member rather than a quick buck con artist. If you really wanted to help out, we have to figure out something that moves against bitcoin. I know one of the exchanges was going to put in short-selling, but I never heard anything past that.
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August 30, 2011, 07:27:06 PM
 #30

Why does this forum attract so many scammers?

Please illustrate the part where this is a scam.  Start with the point where people show a loss, and end with the point where I profit from that loss.  Be sure to show your work, including the part where I lie or manipulate people to achieve that end.

Some helpful points to consider might be the total transparency of this theory, the result that I am attempting to achieve, and the actual word I have used in the thread.

If you're going to make an accusation that someone is a scammer, be prepared to prove it.

In cases where you accuse someone of being a scammer who is not, be prepared to fail to prove it.

It also may help to read the thread and know what you're actually talking about.

All I need to know is you want people's money, you have no trust verification, and you could have access to it. If you arent a scammer, you would seek to prove the system of trust, you would not assume people will trust in such a system. I dont need to prove anything, you need to prove it cant be scammed..then we can talk. You use the same logic all the other scammers have done...such as mybitcoin.com...no, I couldnt prove it was a scam, but guess what? Roll Eyes
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August 30, 2011, 09:04:04 PM
 #31

Currently, there are NOT millions of Bitcoin users out there, if you take a look at the simultaneous online nodes statistics and/or client download statistics. Also nice "if everyone in ... would ..." ideas don't work - if they would even KNOW of Bitcoin, the price would soar much higher and your "stable" ~3€/BTC would be like my offer of 21 EUR in comparison and a return to a rate of 3€/BTC would be seen as "crash" + "failure".

Therefore we can assume the floor set initially will be much lower than the actual traded price, thereby setting a bottom boundary - exactly what the bot purports to do.

I don't set up such a company, because Tradehill is currently doing the same - and being under the jurisdiction of Chile I figure it might be easier for them than me under EU law.

Therefore Tradehill is willing to take on the risk.  It could pay off for them, or the early adopters could put them underwater at a moment's notice.  Hopefully it'll work out - this business is excellent for the ecosystem.

Also:
How/why does it hurt a currency if it is being exchanged for another currency at various prices or even if it is a meta-currency (like SDRs http://en.wikipedia.org/wiki/Special_Drawing_Rights)?

If you are not holding that money and the system is voluntary, you have the exact same thing as you already have on MtGox: People have a pile of USD in their account and when they think the price is right, they buy BTC. All you would do is to say: "As there are 21 million USD on MtGox right now that I know of, it does not make sense to set offers below 1 USD!". I still don't see how this would stabilize anything, if you cannot even remotely approach the current prices.

To approach current prices would require a far greater amount of money than this bot needs to set a floor.  The more money is used by instances of the bot, the higher the value of the floor.  As you said, it won't get to $10.00 per BitCoin the moment it's released - and that's a good thing.  A sudden spike in demand only serves to artificially inflate the value to an unrealistically high level - where BitCoin's price currently sits compared to its purchasing power or backing (actual value). Hence, the floor would be unlikely to sit near the current price, as the current price has little to support it beyond speculation interest.

Most central banks DO have reserve requirements (http://en.wikipedia.org/wiki/Reserve_requirement) but it again only works because they are central. You're free to try it out with an alternate chain. If you let people come and go at will, your "backing" is also completely unstable so there's no trust in it.

Most central banks have nowhere near the amount of wealth backing their currencies as they claim the total amount of currency in circulation is worth.  This is an inherent weakness of fiat currencies as a whole.  They are backed by primarily words.  Anything less than complete backing is merely a psychological measure to engender trust to the asset.  Similarly, this bot is meant to set a minimum price, to help BitCoin users know a minimum real value of their BitCoins - just like the real total value of the gold in Fort Knox is equivalent to the actual backing of the USD, but not to the actual value of every USD printed.

In the scenario you described, you have successfully devaluated BTC into nothingness, even though your bot was correctly working someone could still play pump + dump. To me this sounds like a complete failure of this bot.

My scenario also requires that everyone in the world simultaneously loses all faith in BitCoin except for one person running the bot - a highly unlikely situation.  This situation doesn't describe a failure of the bot - it describes a total meltdown of the market.  I chose it as it is the most extreme situation in which operating the bot could ever result in real asset risk to the user.  Did the bot fail in the instance of total market collapse?  Yes.  Was the bot the source of the failure?  No.  Did every other thing in the BitCoin market also fail before the bot did?  Yes.  Did the bot fail to set a stable floor?  Yes.

I concede the point than in the instance of total market failure, when someone sells every BitCoin into the floor, the bot will probably not work to force BitCoin to hold a price as people leave the fund and sell their BitCoins into the floor.  In the case of 100% market collapse, the bot only slows the end game by a few minutes, giving the people in the fund a chance to get out and minimize their losses.

For a backing to work EVERYONE who trades fiat for BTC needs to put the same amount of fiat into the fund as well (I buy 10 BTC @ 10 USD --> I pay 100 USD to the seller + 100 USD to the fund to keep the value up).

For full backing to work, yes.  For fractional backing, like we see in other currencies, no.  Otherwise it wouldn't work in other currencies.  Of course, really, all backing is full backing.  We just pretend that the amount backed means more, and call it fractional backing.  Because the chance of actually needing to back the entire currency is slim to none.

Then over time the fund will become large enough to really back Bitcoin.

With even $0.01 in it, the fund backs BitCoin, just not very strongly.  Over time as(summing) the fund accumulates users, the backing becomes more powerful.  Then the price of BitCoin stabilizes compared to an actual value it takes on.  The bot is simply meant to speed the process along and make market collapse less likely in the mean time.

If you only pay in a lower amount of fiat into the fund than you trade, you have a fractional reserve and risk that amount you overpay (If you trade 10 BTC@10 USD and pay 80USD to the fund, over time the fund will only grow to a maximum of 80% of the then current trade price).

If only my goal were to lock in the current price, your math would matter.  I'm not trying to set a permanent price - I'm trying to guide the price range to a stable one.

All in all your bot's a nice idea and all, but it has 3 shortcomings:
1) It won't work for ceilings (no BTC will be traded above x USD) as the amount of USD is unknown (depending of the money amount you take into account) or so high, that you will need far over 20 million BTC in that fund to bring it down to current sub-100 USD levels.

The math for setting the ceiling is tougher, certainly.  I've been looking at a few theories of how to aim the ceiling, I should have something usable, or at least discussable, in a day or so.  While there is a finite (though ever-changing and unpredictable) number of USD in circulation, there is no way to know how much of that is in the BitCoin market.

2) It requires people to publicly tell a lot of people how much buying power in fiat they have and pledge to use to back Bitcoin.

False.  It requires individuals to tell a server how much they intend to put towards backing the BitCoin, and then to listen to the server's recommendation on a price.  Because the bot is open source, different people will likely change the math to alter the level of the backing in their particular pool, or to a level they feel is more correct than the server, be it lower or higher.  This organic process helps to set the actual floor.

3) It is voluntary, so panics + dumps can still occur (floors will most likely be magnitudes below current values and your system only works if noone needs their fiat money for anything else but backing Bitcoin. Ever.). You even gave an example in your last post.

The bot is a band-aid, not a panacea.  Until the market stabilizes (and even afterwards) some strategies like pump-and-dump can still affect the market.  I stand by the concept that the best thing for BitCoin stability is real purchasing power set in the form of merchant prices.  The bot is voluntary explicitly by design for the reason of democratization of the floor price - which makes the floor a far more useful indicator of minimum real value.  This means the floor can easily slip away - should people lose faith in BitCoin en masse.  This is to protect the assets of the people that compose the floor.  Why would I require them to stay in a tanking market?  Furthermore, why would I do it if someone required it of me?  People will stay voluntarily because they want to support the market, or leave because they don't want to.  Just like people who aren't using the bot.

The panic/dump example I gave was a worst-case scenario: the complete simultaneous evacuation of the entire BitCoin economy.  Nothing can protect BitCoin from sudden absolute devaluation except a huge backing fund, first of all.  Secondly, the chances of total simultaneous abandonment of BitCoin actually happening are slim, and if it did, the chances of any one particular individual being the last one running the bot are even slimmer.  Thirdly, this final running instance of the bot could have as little as $0.01 running on it - as little or as much as the owner of that contribution to the pool chooses to let the bot use.

So, that is to say that in the case of total BitCoin implosion, one person running the bot may be left with a few cents of net loss as a result of their decision to run the bot.  But until the time that the entire BitCoin economy up and dies, the bot (or variants of it) sets a minimum value, as determined by the free market with voluntarily ceded shared buying power that is only pseudo-contributed to a backing fund (never leaving the hands of the person running the bot until the entire BitCoin economy collapses suddenly on itself while they're sleeping), to help stabilize the value for the long term, thereby stepping away from total BitCoin disintegration.

Anyways, I still haven't seen a single line of code yet! If it is such a great idea, just do it, don't listen to me and argue with me - prove me wrong!

I'm not a php coder, but if no one else does it, I may have to learn php eventually just to get this project off the ground.  While the coding part is boring to me compared to the theory, I still see the bot as a necessary step towards stability, so how boring learning php is may not matter.

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August 30, 2011, 09:47:00 PM
 #32

Why does this forum attract so many scammers?

Please illustrate the part where this is a scam.  Start with the point where people show a loss, and end with the point where I profit from that loss.  Be sure to show your work, including the part where I lie or manipulate people to achieve that end.

Some helpful points to consider might be the total transparency of this theory, the result that I am attempting to achieve, and the actual word I have used in the thread.

If you're going to make an accusation that someone is a scammer, be prepared to prove it.

In cases where you accuse someone of being a scammer who is not, be prepared to fail to prove it.

It also may help to read the thread and know what you're actually talking about.

All I need to know is you want people's money,
I've explicitly said that I did not want anyone's money.
you have no trust verification
No one has asked for any, and I'm new here.  What would you like to see?
and you could have access to it.
I don't even know which trust verification systems are in place in the BitCoin ecosystem.  That being said, I'd love to be a part of them - trusted systems only increase overall stability.
If you arent a scammer, you would seek to prove the system of trust, you would not assume people will trust in such a system.
Or I would provide them with transparency and logic to earn their trust.
I dont need to prove anything,
except the things you claim are true.
you need to prove it cant be scammed.
No system is unbreakable.  Anyone who tells you otherwise is trying to scam you through that system.
...then we can talk.
We're talking right now.  But only one of us is listening.
You use the same logic all the other scammers have done.
The logic that stabilizing the price makes for a better currency?
...such as mybitcoin.com.
They might have taken those BitCoins, let's see what the investigation says before jumping to conclusions.
...no, I couldnt prove it was a scam, but guess what? Roll Eyes
It still might not be?  They may have actually been hacked - there have been digital attacks against Bitcoin for the last 2 months with increasing regularity.  Is it so hard to believe that a high-profile target was underprepared for that eventuality?  People are quick to scream "witch" and start to burn each other alive, but bad at looking for answers before they start the fire.

You display obvious signs of confirmation bias, which there is no known cure for.  You continue to ignore any of the questions I ask, like how I could possibly be a scammer when I am explicitly NOT asking for anyone's money and demanding a transparent open source bot for a bounty.  You act as though your assumption of the truth must be the truth, because you have nothing but your feelings to go on.

I can't tell you to trust me...  and I wouldn't  It's pointless to ask someone to trust you.  I'm just asking you to read the thread before you comment.  But jumping to conclusions and name-calling and mud-throwing does nothing for the good of BitCoin as a whole, this thread, or you personally.  You can keep trolling if you like, I'll keep thinking.

If you hadn't noticed, the thread isn't about a person, it's about a theoretical bot.  Discuss the pros and cons of the bot, or of the underlying idea behind it.  Make it stronger or tear down it's weak points.  But first read the rest of the discussion before you weigh in.  Then keep it on topic.  If you think the bot points to me being a scammer, show me, and everyone else, how it would do that.  I may not see the way it can be exploited, but if it's pointed out to me I'll help to fix that design flaw.

That's the reason we open up ideas to discussion - to expound upon and improve them.  If I wanted to call people names I would go on the MTV forums, Star Trek discussion boards, YouTube comments, or FARK.com, or any of a number of other sites populated with people who expect and enjoy that kind of thing.  If you just want to do those things, I would suggest you try those environs - they're a more natural fit for that type of communication.

If you want to discuss BitCoin, there's probably far fewer places better than this board, though.  Those of us who wish to have real discussions about it have nothing to gain from users who contribute nothing of value to the forum.  either contribute something of value or go hang out on FARK.

So again, how am I a scammer?  The burden of proof lies on the accuser.  Failure to provide adequate proof for this point just means you're spamming invalid accusations about users you can't even be bothered to read.

Signatures are only used for 2 things - Advertising, like this one, and teenagers on social networking sites that feel a need to waste your time, which is fundamentally what all advertising does.  Abolish signatures on message boards.
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August 30, 2011, 09:50:17 PM
 #33

Interesting please put the wall at 10 $

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August 30, 2011, 09:54:08 PM
 #34

  It is an attempt to game the system in that it represents an attempt to use meta-game information to manipulate the playing field - to make it more level to all players. 

How is the free market not level? If someone wants to protect against price volatility in a longer time frame, they hedge against it. As a general concept, if I have 100 shares of company X and I dont want to lose money on the share value, then I short 100 shares of company X...duh.

The payment processors are not going to help you out here...another fact of who is really a community member rather than a quick buck con artist. If you really wanted to help out, we have to figure out something that moves against bitcoin. I know one of the exchanges was going to put in short-selling, but I never heard anything past that.

You sound well-informed and thoroughly educated on the topic.  Let's begin.

The free market isn't level because more than 80% of the wealth in the market is silent.  That's a massive (chaotic) unknown waiting to go off.

No hedges against BitCoin currently exist that adequately cover the volatile spread of BitCoin's potential losses as an investment.

Short-selling is a speculative strategy and does nothing for the net value of BtCoin as a currency.

Payment processors are just as likely to be honest or dishonest as the entities they do business with.

There is no indicator as to whether or not payment processors would help with this idea - none of them have weighed in on it.

Nothing moves against BitCoin, it is too volatile - nearly random, in fact.

CampBX was discussing short-selling and margin trading, but to my knowledge those haven't materialized yet.

Now you know at least this much.

Signatures are only used for 2 things - Advertising, like this one, and teenagers on social networking sites that feel a need to waste your time, which is fundamentally what all advertising does.  Abolish signatures on message boards.
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August 30, 2011, 09:56:22 PM
 #35

Interesting please put the wall at 10 $

That isn't the way it works.  No one "sets" the price of the wall.  Users of the bot dedicate small amounts of money to it and it is set automatically by mathematical analysis of the market prices and the total value of the money running in all combined instances of the bot that report back to the server.  Re-read the thread and ask any questions you like.

Signatures are only used for 2 things - Advertising, like this one, and teenagers on social networking sites that feel a need to waste your time, which is fundamentally what all advertising does.  Abolish signatures on message boards.
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August 31, 2011, 12:35:26 AM
 #36

Interesting please put the wall at 10 $
This requires 210 million USD pledged by people using this fund (called "bot" by the OP).

Why should it be written in PHP in the first place? You could write it in any language you can program in... actually few people have a working PHP installation on their home PC, so it might get difficult for them to use.

About this part:
Quote
Quote
2) It requires people to publicly tell a lot of people how much buying power in fiat they have and pledge to use to back Bitcoin.

False.  It requires individuals to tell a server how much they intend to put towards backing the BitCoin, and then to listen to the server's recommendation on a price.  Because the bot is open source, different people will likely change the math to alter the level of the backing in their particular pool, or to a level they feel is more correct than the server, be it lower or higher.  This organic process helps to set the actual floor.
How is this different from:
Quote
Individuals tell a server how much they intend to pay for a Bitcoin, and then listen to the server if there was someone who wanted to sell at this price. Because the server accepts bids + offers, people will likely set their individual prices or - if they think current offers are too high (or low), choose to bid less or more. This organic process helps to establish an actual exchange rate.
?

Anyways, telling a server how much money you want to put towards Bitcoin backing IS making it public, or at least making this sensitive information available to the owner of that server.

What you want to achieve is to have dozens/hundreds/thousands to put a few dollars towards Bitcoin backing and from that to calculate a safe floor.
This won't work as I already said, as this floor is likely far too low to have any effect (would you pay 1000 BTC for a simple book, just because that's the "floor value"?!) - and fractional reserving only works for banks because they control the money, you don't.
In reality your floor might exist but will be irrelevant then (as it is many magnitudes below trade prices) - OR it can crumble, as everyone can remove funds from the floor at will, if the price gets close.

About exploits:
As you control the server (or someone else controls it...) anyone controlling that server can send out bogus data to the owners of this bot.
If I now took control of the server and told it, that there are 210 million USD in reserves in total pledged, the bot would recommend to (or even automatically do) trade BTC at a price of at least 10 USD/peice (maybe even nearly 30 USD/BTC, if you take into account that only ~1/3 has been mined yet). You have a single point of failure in this system and you seem to control it by design. This makes you suspicious, an attack target and a potential scammer.
Also how would you verify the amount of money that people claim to have without actually getting access to it? I might just happen to have a few billion USD sitting on my MtGox account right now... Roll Eyes

On a side note: http://blockexplorer.com/address/19CCVDxm53WZuyGvNr4ZaVFgn1kYha4dC1 shows 0 BTC as of now - do you not even trust your own idea as you don't set a bounty yourself but just want the money of others for that simple idea of yours (called currency backing...)?

https://www.coinlend.org <-- automated lending at various exchanges. No fees(!).
Mail me at Bitmessage: BM-BbiHiVv5qh858ULsyRDtpRrG9WjXN3xf
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August 31, 2011, 01:43:06 PM
 #37

Interesting please put the wall at 10 $
This requires 210 million USD pledged by people using this fund (called "bot" by the OP).

No one pledges, pays, donates, gifts, or otherwise spends anything.  They get an estimate floor price that they then have the option of adding power to by letting the bot calculate an arbitrary amount in to the floor and suggesting a new floor value.

Why should it be written in PHP in the first place? You could write it in any language you can program in... actually few people have a working PHP installation on their home PC, so it might get difficult for them to use.

I chose PHP because it is relatively human readable and has a low barrier to entry so that other people can more easily understand and modify the code.  It is freely available on all major OSes and integrates easily with web services.  Seeing as the web browser and the BitCoin client are the two places most people interact with BitCoin, it seemed like a natural fit to me.  PHP's relative ease of server setup makes it simple for a small price bloc to set up together independent of my price bloc, thereby making the code more useful to the BitCoin public.  The option to install a PHP server on a computer to take commands from a remote mobile device through a standard browser is a nice feature too, but not necessary, or even exclusive to PHP.  Obviously there are security concerns dealing with mobile access as well, but the PHP option gives you convenient access to the mtgox APIs.  Any security chain is only as strong as its weakest link, and mtgox already has access through PHP APIs.  For the sake of simplicity for users learning the mtgox API, why convolute the process by making the community learn another language to understand the bot?  There could be better options here I suppose, and theoretically it could be written in any language as long as the code was well-commented.  There are no shortage of cross-platfrom web-savvy languages.  Which would you write it in?  PHP is just a place to start the discussion, really.

About this part:
Quote
Quote
2) It requires people to publicly tell a lot of people how much buying power in fiat they have and pledge to use to back Bitcoin.

False.  It requires individuals to tell a server how much they intend to put towards backing the BitCoin, and then to listen to the server's recommendation on a price.  Because the bot is open source, different people will likely change the math to alter the level of the backing in their particular pool, or to a level they feel is more correct than the server, be it lower or higher.  This organic process helps to set the actual floor.
How is this different from:
Quote
Individuals tell a server how much they intend to pay for a Bitcoin, and then listen to the server if there was someone who wanted to sell at this price. Because the server accepts bids + offers, people will likely set their individual prices or - if they think current offers are too high (or low), choose to bid less or more. This organic process helps to establish an actual exchange rate.
?

Anyways, telling a server how much money you want to put towards Bitcoin backing IS making it public, or at least making this sensitive information available to the owner of that server.

The first paragraph says the user must listen to the server and agree to place their bid, while the second paragraph says they would have take a sell order at the bid the price the server recommended if someone sold to it.  The first paragraph also discusses the user altering the math of the bot, not just modifying the result of the output directly (which they can also still do).

Lets try this again:

1) The bot has no control.  The human always has the option to turn the bot off.
2) The bot has no money.  The human can only use or ignore a suggestion from the bot.
3) The bot is open source.  The human can change the bot's behavior at any time.
4) All bids and asks are already publicly viewable.
5) The only time bids execute at the floor price is in the event of near-total collapse of the market.

The sensitive information is that a few hundred or thousand or whatever individuals placed bids for less than a quarter around the same price.  This information will already be easily publicly visible on mtgox, mtgoxlive, and bitcoincharts in the section labeled "Market Depth".  All the sensitive data that can be revealed by the bot, all the complex modeling at the bottom of the spectrum that can't be exploited, is already publicly available to anyone with a desktop calculator and a web browser. 

What you want to achieve is to have dozens/hundreds/thousands to put a few dollars towards Bitcoin backing and from that to calculate a safe floor.
This won't work as I already said, as this floor is likely far too low to have any effect (would you pay 1000 BTC for a simple book, just because that's the "floor value"?!) - and fractional reserving only works for banks because they control the money, you don't.
In reality your floor might exist but will be irrelevant then (as it is many magnitudes below trade prices) - OR it can crumble, as everyone can remove funds from the floor at will, if the price gets close.

What I actually want is in the long term for millions to back BitCoin with a few cents.  Initially the floor's value would be very low because the currency's current market price is entirely unbacked speculation.  I'm not talking about nonsensical fractional backing, or central backing, I'm talking about distributed full backing and the process to bring that to the economic landscape democratically.  And yes, that still means that anyone using the bot and it's recommendations has the option to back out of the floor at any time and stop backing BitCoin if they decide it no longer has the value they are backing it with.

About exploits:
As you control the server (or someone else controls it...) anyone controlling that server can send out bogus data to the owners of this bot.

Which can then be double-checked automatically vs. market depth for accuracy.  And of course anyone can use the open-source bot and an off-the-rack PHP install to set up their own price bloc and their own server for free, disproving the server as a sole weak point to be attacked and the theory that I have control over the server and could use it to manipulate price.

If I now took control of the server and told it, that there are 210 million USD in reserves in total pledged, the bot would recommend to (or even automatically do) trade BTC at a price of at least 10 USD/peice (maybe even nearly 30 USD/BTC, if you take into account that only ~1/3 has been mined yet).

So suddenly 21 million people who were never going to join the one evil bot pool now have, they have each contributed $30.00 and magically the now closed-source bot exploits them, setting the floor at $30.00 against the user's wills in a way they can't verify versus market depth because the bot is written using an ancient voodoo hex, and me selling every Bitcoin ever minted at ridiculous mustache-twirling profit levels, even though I never had them to sell.  The bot has mysteriously gained the power to compel people's minds in this example, the market behavior of the entire world has changed, and the ownership of all the BitCoins has been transferred to me to sell off for a quick profit.  Of course, not a single word of that makes sense or fits in with even a half of one of the facts.  Especially me with a mustache.

You have a single point of failure in this system and you seem to control it by design. This makes you suspicious, an attack target and a potential scammer.

I suppose the best solution here is to set up a distributed mirror of the server, or make sure anyone can modify the source and run their own variant of the bot/server.  Thankfully, that already exists in the design document.

Also how would you verify the amount of money that people claim to have without actually getting access to it? I might just happen to have a few billion USD sitting on my MtGox account right now... Roll Eyes

Read the market depth graph.  Maybe design the bot to calculate directly from the JSON of market depth data instead from a PHP server and just reinforce the lowest current floor without a recommendation from a server.  Of course this gives some big player who is already sitting at the lowest price wall a bunch of free weight in the market, and give him the ability to manipulate the bot pool instead of having the distribution of the backing be democratic, and really describes something more akin to following the low floor than setting an actual backed value.

Of course, if you had a few billion USD and were in the BitCoin market, you could just set a hard floor yourself well above the current bid or ask and stabilize the market instantly.  So why haven't you?

On a side note: http://blockexplorer.com/address/19CCVDxm53WZuyGvNr4ZaVFgn1kYha4dC1 shows 0 BTC as of now - do you not even trust your own idea as you don't set a bounty yourself but just want the money of others for that simple idea of yours (called currency backing...)?

Seeing as it is looking more and more like I'm going to write the bot myself, I don't see a need to clutter the block chain by donating BitCoins from one of my wallets to another.  Since no one else has even voiced an interest in writing the bot, it seems deceptive to put money into the donation wallet to artificially inflate the donation value.  I encourage everyone here not to donate until someone at least shows interest in writing the bot and you feel they deserve to be paid for their work (besides me).

The bounty is for a programmer that wants to write the bot and earn BTC, and for people who agree with the idea to pay that programmer for his work.  The 1% fee out of the bounty is to reward me for the idea of the bot, otherwise known as my work.  It may even be considered dishonest for me to contribute to the pool, since I could just do so anonymously and then take the whole pool once it was donated to, or contribute to the pool for the purposes of getting the 1% to be worth more net, knowing full well that I control the donation wallet and could easily just pay myself back out that money if the bounty never picked up to a point where someone tried to earn it.

At no point have I claimed that I donated to the bot's pool, only discussed the ideas behind the bot on this thread.  At no point have I said anything about not believing in this system, and in fact I have expressed and logically defended it over and over already.

You may feel this represents a lack of trust in my own idea (which I've already spent hours and hours writing about in this thread).  I would think my trust in the concept is apparent by the fact that I'm here as a proponent of the idea.  Please don't transfer your lack of trust in me to me by proxy.

Psychologists call that "transference".

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August 31, 2011, 03:37:36 PM
 #38

What is the problem you are trying to solve?

To stabilize the value of the BitCoin versus other currencies and goods/services

Any "instability" isn't a problem.  It's the solution to finding the right level.

The problem would be price stability.  If you don't believe me you're welcome to try and stabilize it in either direction.  Be prepared to lose a lot of dough though.

Maybe you've heard of central banks?  The FX market?  They try to do that in FX all the time.  Can you name even one that has succeeded?
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August 31, 2011, 03:55:46 PM
 #39

What is the problem you are trying to solve?

To stabilize the value of the BitCoin versus other currencies and goods/services

Any "instability" isn't a problem.  It's the solution to finding the right level.

Instability prevents merchants from adopting BitCoin, thereby preventing it from becoming a currency.  This is a problem, unless you're a speculator.

The problem would be price stability.

Price stability is only a problem to speculators.

If you don't believe me you're welcome to try and stabilize it in either direction.  Be prepared to lose a lot of dough though.

I am actually trying to if you haven't noticed.  Thanks for the words of encouragement.  How exactly will we lose a lot of money if no one puts in more than a few cents?

Maybe you've heard of central banks?  The FX market?  They try to do that in FX all the time.  Can you name even one that has succeeded?

Central banks have not been successful, ever, in the history of mankind.  They never successfully created a stable enough store of wealth that it was used as a currency.  They have never created anything that was ever used as a currency except for every currency accepted by the mainstream market.

The foreign exchange market never shows evidence of any two currencies tending to hold relatively stable values versus each other.  It never shows price fluctuations of an order of magnitude less than BitCoin shows routinely.  It never reports data about currencies being stable, they're always jumping willy-nilly all over the graph, doing exactly nothing predictable, because that's what all currencies do.

Let me throw out a blanket statement here, no matter how much I hate them as a rule:

Only speculators want the market to stay volatile.

Anyone who wants it to be a currency, wants the value to be stable, as this is a prerequisite for use as a currency.  If you didn't already realize this, I understand.  Many people in the BitCoin economy are new to the ideas underlying economics.  But it is bad for a currency to fluctuate wildly - price instability makes it tougher for people to use it as an actual gauge of value, which is what currency is supposed to represent.

Either decide you're a speculator, and that you want the volatility for your personal profit margins, or decide you want BitCoin to succeed as a currency and help find ways to stabilize it.

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August 31, 2011, 05:14:51 PM
 #40

Only speculators want the market to stay volatile.

Sorry man, you got this one wrong. It appears that you want to abolish speculation (in an admittedly speculative market, but that's another story). Well let me tell you that funnily enough, they do want it to stay volatile, but they also stabilize it with their trades.

Speculators cause stability in the market. If they weren't there, who on earth would ever buy a plummeting commodity or asset? Without speculators it would drop to zero. Or the opposite, how would you ever get a rally in a downward spiral if it wasn't for short covering?

So don't blame speculators so easily. Yes, they make a lot of money with volatility, but have in mind that they also risk their pants too.

See as an example the recent short selling ban by several European governments, imposed on the Stock Exchanges. The result of such moves in the past has always without exception been a stock market dropping more rapidly than before the ban. Why? Because speculators are not allowed to participate in price discovery. Greek stock exchange is down 16% since then, and it was falling at 5-8% per month before.

If you don't believe me, check the indexes of the exchanges that banned short selling 2 weeks ago, and compare them to the indexes in 2 months time (end of October). Or check the recent history in the NYSE (2008 autumn).

It might seem counter-intuitive but this is the case. And I'm putting this here, because I had the same delusions as you present above, about speculation, before I finally understood what's going on in money markets.

Hope it helps.


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August 31, 2011, 05:29:58 PM
 #41

This isn't going to work the way you think it would work. Although the idea is non-evil, it will never happen.

If you create a "non free market" situation where a giant lump of cash is keeping the price fixed... Then you are giving hackers / theives a huge amount of money once they steal it. They can sell it all at once, and your "investors" or whoever put in the 21$million is the one going to lose a ton of money. Why would any investor agree to such a situation?

And even worse is if suddenly noone likes this block chain anymore, they can all cashout and your investors are stuck again with worthlessness instead of their $21million.

In fact it would make the most sense for everyone to just cash out and start a new block chain without the $21million blocker on it. Everyone wins except the guys who put up the $21 million.


Sure is fun to tell other people to put up a bunch of money for one of your own silly ideas isn't it? Too bad it has no basis in reality.
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August 31, 2011, 06:08:34 PM
 #42

Can you explain why you'd want to create this artificial price stability in the first place? Shouldn't you want free market as a libertarian? People already vote with their dollars now so if bitcoin fails, it fails. What makes you think people will put up the money necessary to implement your scheme? What assurance would they have that the money they put up would not be swallowed? What happens if someone wants a refund on their investment? What's in it for them in the first place, if they put money up towards this?

Also, couldn't someone easily create schemes to drain money from this system since they'd know how it works? And why would outsiders want to participate in such a system? Are you anti-speculation? Is that why you want to create fake price stability? To overcome the price swings that contribute to peoples' reticence to doing commerce in BTC?
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August 31, 2011, 07:29:24 PM
 #43

WARNING: This "IdeaMan" is either:

1) Scammer

or

2) Completely Unqualified Person

If you know anything about AI programming and/or how electronic markets in other currencies, stocks, bonds, commodities, ebay, etc. work, then you already know more than this guy than he does in his proposed field.  There are already plenty of people with bots.  And plenty of people working on new bots.  And no electronic market for a valuable good is "stable".  And you probably stopped reading this thread long before you got to this post.

Btw I only read a little bit of what IdeaMan posted and I still want my 10 minutes back for taking the time to warn people to stay away! Embarrassed

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August 31, 2011, 07:38:55 PM
 #44

Only speculators want the market to stay volatile.

Sorry man, you got this one wrong. It appears that you want to abolish speculation (in an admittedly speculative market, but that's another story). Well let me tell you that funnily enough, they do want it to stay volatile, but they also stabilize it with their trades.

I don't want to abolish speculation - I just think that the amount of speculation we have is damaging to BitCoin as a whole.  This is a spurious argument - speculation is just people pulling out random numbers and pricing it for profit when possible.  Nothing about randomness lends itself to stability.

Speculators cause stability in the market

No, they are the primary cause of instability in the market.  If every speculator valued BitCoins at or around the same price, that would be the exception to this rule.

If they weren't there, who on earth would ever buy a plummeting commodity or asset?

Or cause it to plummet?  For that matter, how could it plummet if it had a stable value?  Therefore it must not have a stable value, and the spikes and free falls are the result of speculation in the market - some speculator buys or sells many BitCoins at once, the price (being the only indicator of value) shifts dramatically, and the market shifts suddenly to match the new price.  This is not the way a currency behaves, and it is the reason Bitoin hasn't been accepted as a currency, and will not be accepted as a currency for the foreseeable future.

Without speculators it would drop to zero.

This statement is correct - because the value of BitCoin is primarily determined by speculation interest, not actual value.

Or the opposite, how would you ever get a rally in a downward spiral if it wasn't for short covering?

And why would we need one if speculation didn't result in a downward spiral?  In the instance of a stable currency, small shifts are met by immediate response in the free market - that's because the value is stable regardless of the price, and a shift to benefit a FOREX trader will be taken advantage of immediately.

So don't blame speculators so easily. Yes, they make a lot of money with volatility, but have in mind that they also risk their pants too.

I don't blame them easily, I blame them logically.  The ridiculously high current price of BitCoin is a function of speculation alone.  That inflated perception of value (not actual value) is where most people stand to lose money - the speculation risk.  So basically the speculators are taking on risk for no logical reason except to assume the value will go up - which it only will actually do in the long term if the speculation stops and the BitCoin becomes a real currency.

See as an example the recent short selling ban by several European governments, imposed on the Stock Exchanges. The result of such moves in the past has always without exception been a stock market dropping more rapidly than before the ban. Why? Because speculators are not allowed to participate in price discovery. Greek stock exchange is down 16% since then, and it was falling at 5-8% per month before.

I should probably explain that commodities and stocks are not currencies.  They behave in different ways, most notably in the amount of value they represent.  Commodities and stocks are more volatile than currencies traditionally.  In the example of BitCoin, it is more volatile than almost any stock or commodity that exists.  That is not the behavior of a currency.  Using non-currency examples proves nothing except that you do not understand the word "currency" and the implications the definition of that word holds for BitCoin.

If you don't believe me, check the indexes of the exchanges that banned short selling 2 weeks ago, and compare them to the indexes in 2 months time (end of October). Or check the recent history in the NYSE (2008 autumn).

You may be correct about the Stock Exchanges in Europe.  But compare the market movement in the currency space over the same time (or almost any other time), and you'll find they stay mostly flat.  This is why people care about the value of the USD falling dramatically - it's not supposed to do that, it's a currency.

It might seem counter-intuitive but this is the case.

It seems counterintuitive because it's incorrect.  Your logic uses flawed assumptions - like BitCoin "is a stock", or "isn't meant to be a currency".

And I'm putting this here, because I had the same delusions as you present above, about speculation, before I finally understood what's going on in money markets.

One of us is clearly confusing commodities and stocks with currencies and laboring under the delusion that all financial assets do or are meant to perform the same way.  The only reason I can think of to make this argument is that you are a speculator, but I suppose you could just be wrong about it.

Hope it helps.

No, not really.

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August 31, 2011, 07:56:10 PM
 #45

This isn't going to work the way you think it would work.

It might not - but it's worth trying at least.  There has never been a contender to become a real new currency since the advent of digital trading.  BitCoin may not take center stage.  But I'd like to see it do so.

Although the idea is non-evil, it will never happen.

Thanks for realizing it's non-evil, please explain why it will never happen.

If you create a "non free market" situation where a giant lump of cash is keeping the price fixed... Then you are giving hackers / theives a huge amount of money once they steal it.

I think you mean if they steal it.  Mtgox today became officially Verisign secured, so it's approximately as secure as any other site on the Internet.

They can sell it all at once, and your "investors" or whoever put in the 21$million is the one going to lose a ton of money. Why would any investor agree to such a situation?

The investors are free to come and go as they please.  They can set their bid prices at any point they wish.  They aren't required to agree to anything.

And even worse is if suddenly noone likes this block chain anymore, they can all cashout and your investors are stuck again with worthlessness instead of their $21million.

Why hasn't this happened already?  If it was that easy to create a new block chain and have it accepted by the BitCoin network, this scam would have already happened countless times.

In fact it would make the most sense for everyone to just cash out and start a new block chain without the $21million blocker on it. Everyone wins except the guys who put up the $21 million.

If only it was that easy, yes.

Sure is fun to tell other people to put up a bunch of money for one of your own silly ideas isn't it? Too bad it has no basis in reality.

There's no factual basis for financially backing a currency in the history of finance.

It has no basis in reality.

And please note the difference between tell someone, and ask someone.

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August 31, 2011, 08:07:59 PM
 #46

WARNING: This "IdeaMan" is either:

1) Scammer

or

2) Completely Unqualified Person

If you know anything about AI programming and/or how electronic markets in other currencies, stocks, bonds, commodities, ebay, etc. work, then you already know more than this guy than he does in his proposed field.  There are already plenty of people with bots.  And plenty of people working on new bots.  And no electronic market for a valuable good is "stable".  And you probably stopped reading this thread long before you got to this post.

Btw I only read a little bit of what IdeaMan posted and I still want my 10 minutes back for taking the time to warn people to stay away! Embarrassed

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August 31, 2011, 08:09:52 PM
 #47

Can you explain why you'd want to create this artificial price stability in the first place?

To ease the adoption of BitCoin as a currency.

Shouldn't you want free market as a libertarian?

I'm not a libertarian.  I still do want a free market, however I also want a market that's not prone to total catastrophic implosion, just a little bit more.

People already vote with their dollars now so if bitcoin fails, it fails.

If the success or failure of BitCoin don't matter to you, why are you in this thread, let alone on this forum?

What makes you think people will put up the money necessary to implement your scheme?

I assume people on this forum are (as a whole) more interested in BitCoin's success than not.

What assurance would they have that the money they put up would not be swallowed?

Their faith in the actual value of BitCoin, and their willingness to lose a few cents if they're wrong.

What happens if someone wants a refund on their investment?

They stop and remove any bids they placed at the recommendation of the bot.

What's in it for them in the first place, if they put money up towards this?

Long-term stability.

Also, couldn't someone easily create schemes to drain money from this system since they'd know how it works?

Yes, if they had enough BitCoins to sell through the entire market and reach that very low price, and were willing to sell all their BitCoins at said very low price.

And why would outsiders want to participate in such a system?

Because they would like to see BitCoin succeed in the long term.

Are you anti-speculation?

I have nothing against speculation in a commodity that has a proven history of stable of value - but speculation in the BitCoin market contributes to it's failure at this point, largely because the market is dominated by speculators.

Is that why you want to create fake price stability?

I want to create real stability - this is a stepping stone towards that endpoint.  By getting the BitCoin community as a whole to stake the value of BitCoin, it becomes actually valuable.

To overcome the price swings that contribute to peoples' reticence to doing commerce in BTC?

This is, again, a means to an end.  Price stability results in merchant adoption results in increased actual value results in increased stability, rinse, repeat.

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August 31, 2011, 08:21:06 PM
 #48

WARNING: This "IdeaMan" is either:

1) Scammer

or

2) Completely Unqualified Person

On a nice day, I might accept your second option, but since you have only your accusation, I'm not going to today.  By no means am I a financial expert - just another guy on the forum with some ideas to share.

If you know anything about AI programming and/or how electronic markets in other currencies, stocks, bonds, commodities, ebay, etc. work, then you already know more than this guy than he does in his proposed field.

If my theory is incorrect, don't just state it, prove it.  If you know more about AI programming in electronic markets than the average reader of this thread, why not share that information with the BitCoin community?  Right here is a prime place to start.  I'm more than happy to address any concerns you may have.

There are already plenty of people with bots.

Yup.

And plenty of people working on new bots.

Yup.

And no electronic market for a valuable good is "stable".

Citation needed.  A good counterargument for me here would be if I could somehow prove that most accepted currencies maintain a relatively stable value in comparison to each other over time.

Counterpoint:
http://www.fxstreet.com/rates-charts/currency-charts/

And you probably stopped reading this thread long before you got to this post.

I almost stopped reading halfway through this post, but I'm committed to actually understanding any potential pitfalls this idea may have, so I took the time to read your opinion, even though you haven't backed it up in any way.

Btw I only read a little bit of what IdeaMan posted and I still want my 10 minutes back for taking the time to warn people to stay away! Embarrassed

Well, at least you have a well-formed opinion justified by your understanding of the concept as you leapt to it fully formed in your mind, regardless of what I may have had to say about it.  And at least you care enough about the community to warn them about a dangerous plot to steal a few cents from them by a nefarious mastermind huddled in the darkest corners of the web.  And wish you could have saved yourself the 10 minutes by not doing it.  Way to be a team player.

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August 31, 2011, 09:05:04 PM
 #49

I think you mean if they steal it.  Mtgox today became officially Verisign secured, so it's approximately as secure as any other site on the Internet.
...
The investors are free to come and go as they please.  They can set their bid prices at any point they wish.  They aren't required to agree to anything.

Verisign secured as in they have an https/ssl certificate? Or is that some kind of third party penetration test? Either way It doesn't mean a whole lot as many users are hacked on their end as well, and more sites like mybitcoin will popup and steal coins forever, it will never stop (until bitcoins are worthless). So WHEN not if, coins are stolen, an artificial price will maximiize their profits, instead of crashing the value like what should happen when a huge dump on the market occurs.


The second quote makes no sense to me. If people are setting whatever prices they want, then you are describing the current system, not an "artificial wall value" system.

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August 31, 2011, 09:30:11 PM
 #50

I think you mean if they steal it.  Mtgox today became officially Verisign secured, so it's approximately as secure as any other site on the Internet.
...
The investors are free to come and go as they please.  They can set their bid prices at any point they wish.  They aren't required to agree to anything.

Verisign secured as in they have an https/ssl certificate? Or is that some kind of third party penetration test?

http://en.wikipedia.org/wiki/Verisign
Read all about it.  Google is the source of all worldly knowledge.  The wikipedia page is just a primer on the topic.

Either way It doesn't mean a whole lot as many users are hacked on their end as well, and more sites like mybitcoin will popup and steal coins forever, it will never stop (until bitcoins are worthless).

Assuming those BitCoins never re-entered circulation, the price would go up.  Assuming they re-entered circulation, the theft of them would have minimal long-term material effect on the price of BitCoin, or the value.

So WHEN not if, coins are stolen, an artificial price will maximiize their profits, instead of crashing the value like what should happen when a huge dump on the market occurs.

If someone stole all the BitCoins ever to be minted and sold them all the way to the lowest possible floor value, then yes.  That would be quite a feat, however, since nearly 65% of them haven't been mined yet, and don't exist to be stolen.  Furthermore, BitCoin isn't like cash - someone using those coins again leaves a record in the block chain that can be easily traced.  I bet that over time we will see fewer and fewer BitCoin thefts as prosecution of it is far easier than prosecuting the theft of untraceable fiat cash.

The second quote makes no sense to me. If people are setting whatever prices they want, then you are describing the current system, not an "artificial wall value" system.

This point actually bears investigation.  The system this bot creates is actually a hybrid of free market and artificial wall, falling closer to artificial wall in terms of application, but closer to free market in terms of user choice to participate.  The purpose isn't to lock in a particular value, but rather to create a pooled backing of BitCoin which would help to move the price towards stability by creating a new indicator - approximate backing faith, let's call it, or ABF.

The current location of the ABF wall will act as a lower boundary to the market, since it cannot mathematically drop below that point, even though that point can move due to the amount of pooled purchasing power that determines the ABF wall being voluntary to participate in.

The longer ABF stays relatively stable, the more likely that the price moves towards the ABF wall.

As the price decreases towards the ABF wall, some players will back out of the bot, lowering the value of ABF, and therefore the price as measured in fiat.  Others will leave the wall to buy BitCoins cheaply, raising the price away from the wall.  Other still will back the wall more strongly to "brace for impact" as it were.

The stronger the ABF wall is, the more people are likely to bid near it than any other price point/range, regardless of whether or not they are using the bot.  This adds non-bot users to the strength of ABF, and the closer they are to ABF, the more it strengthens it.  If there's a $21,000,000.00 bid at $1.00 per BitCoin, it becomes silly to bid $1,000 at $2.00 per BitCoin unless you are trying to back a higher value than the ABF wall represents, trying to pay twice as much for your BitCoins, or speculating.

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September 02, 2011, 10:54:26 PM
 #51

Someone has donated the first 0.05 BitCoins to the bounty.  This is posted here for transparency, and to upset all the nay-sayers.

Whoever you are, thank you for getting the ball rolling!

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September 03, 2011, 12:36:11 AM
 #52

What you are proposing is, in essence, a scalping bot. I don't see any problem at all with scalping: indeed, it will help the scalper fill his pockets with money, while decreasing volatility and providing liquidity. However, to any would be donators: know that a lot of people are already operating bots like this, for free (or rather, they expect to earn money letting them trade).
Also, I find it ironic that OP proposes what is essentially speculation to end the problem of speculators.
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September 03, 2011, 06:14:51 AM
 #53

Whaddya think about Zeitgeist?

IMHO It would take something like BitCoin (or similar system) tied to something like Time Dollars for a place like the http://www.thevenusproject.com/ to exist without being totally socialist.
But in that concept everything you need is given to you and since machines do the work you live happy so no need for any currency unless you want to earn above what you would be "entitled".
I'm only assuming you were referring to the economic possibilities in regards to getting past the Evils shown in that film and how it would relate to crypt o-currency.

However in response to a Bot to control the "perceived" worth of a Btc it would a much simpler task to fork the project and assign a standard to them. As mentioned, I have been entertaining the Time Dollar concept where everyone's time is paid with the same measure.

Freedom with SciFi Coin
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September 03, 2011, 08:05:15 AM
 #54

Hate to ruin everyone's fun, but watch the list of buy and sell orders on mtgox next time prices take a tumble. You will notice very large buy walls meant to prop up the price that magically get withdrawn the second before prices hit that limit and go through.


MTGox is already manipulating their market in an attempt to stabilize price beyond what the free market wants.
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September 03, 2011, 08:38:51 AM
 #55


I like this idea.  It's a system where the community of the commoner can chose to participate in the "speculation" and together
become powerful enough to have their goals represented in the market.  And what do they want? stability!

Congratulations, you have created a tool to democratize speculation!  If this isn't the free market at work,  I don't know what is.
Hedgers and shorters, quit whining and get a real job!

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September 03, 2011, 11:06:05 AM
 #56

It's a noble enough idea, IdeaMan, but it won't work.  I don't think I can explain it better than others have already tried.  So how about we play a game?  We can pen & paper a small bitcoin economy with an exchange.  You play the bot, I play a forex trader, someone else plays the rest of the market which is trying to buy M&Ms for a price that's roughly equivalent to USD$2/pack.  I'll start with 100 RevCoins, you'll start with $100 USD.  You try to hold a floor of $1/RC.  We take turns issuing market orders.

In the end, I guarantee that:
You can prevent the price from going under $1, as long as you don't try to do anything else.
I can make the price fluctuate wildly (several orders of magnitude).
I will end up with all your USD.
You probably won't even end up holding all the RevCoins unless you stick to a straight $1/RC exchange rate.
Some M&M buyers will get screwed for a notable percentage of their money.

I'm not sure I actually am up to really doing this (it'd involve a few hundred trades to show you all the ways the market will slap you around and achieve all my goals above), but I'm hoping just thinking about how you'd approach it will make you think about where the problems are.  It's an exercise you should certainly try doing on your own notepad, though.

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September 03, 2011, 02:36:20 PM
 #57

What you are proposing is, in essence, a scalping bot.

A scalping bot tends to play around the range of the bid and the ask usually, and is designed to make a relatively large volume of trades as quickly as possible at a very slight profit margin.  The theory is that over time a bot that is barely profitable will return tangible profits.

This bot plays only at the outside edges of the market depth graph and is designed to generate no trades (barring total market collapse).  The theory is that over time contributions to the backing floor will allow BitCoin to move towards stabilization by actually backing the currency temporarily (through the bot's collective pool of various local fiats).  A few days ago mtgox announced exchanges for 15 new currencies:

mtgoxEUR - Euro
mtgoxCAD - Canadian Dollar
mtgoxGBP - British Pound
mtgoxCHF - Swiss Francs
mtgoxRUB - Russian Rubles
mtgoxAUD - Australian Dollars
mtgoxSKK - Swedish Krona
mtgoxDKK - Danish Krona
mtgoxHKD - Hong Kong Dollars
mtgoxPLN - Polish Zloty
mtgoxCNY - Chinese Yuan
mtgoxSGD - Singapore Dollars
mtgoxTBH - Thai Baht
mtgoxNZD - New Zealand Dollars
mtgoxJPY - Japanese Yen

-and now every person on the internet with a mtgox account and some local fiat has the ability to use BitCoin as a currency and exchange it for local fiat as needed, and can support the idea of BitCoin by backing it with a tiny amount of fiat that adds to the bot's pooled backing power..

I don't see any problem at all with scalping: indeed, it will help the scalper fill his pockets with money, while decreasing volatility and providing liquidity

There's the moral question of milking wealth out of an economy from people who want to migrate to BitCoin because they don't want their financial system to be exploited, but we'll ignore that for now.  It does nothing to decrease volatility in the BitCoin market, because almost all of the movement in the market is the direct result of speculation.  The price varies at ludicrous speeds across wide ranges that a currency can not even pretend to sustain - strictly based on BitCoin's perception as a virtually worthless (in purchasing power before conversion to fiat) commodity to be speculated on for future (most commonly, short-term) gains.  But it does provide liquidity.

However, to any would be donators: know that a lot of people are already operating bots like this, for free (or rather, they expect to earn money letting them trade).

No, but many people are running scalping bots, which do function that way.

Also, I find it ironic that OP proposes what is essentially speculation to end the problem of speculators.

Not quite.  I support backing the asset with a distributed pool of fiat currency that would act as a guaranteed minimum price - the first guaranteed anything in the BitCoin economy.  It is impossible to have stability in your structure if the ground hasn't even begun to solidify yet.

Seeing as currencies are traditionally issued by the state, the traditional process to speed adoption (passing a law across the jurisdiction of the currency that it is a legal currency that must be accepted) isn't available to BitCoin.  This makes it an inhospitable environment to BitCoin as a currency - local fiat already covers most meatspace purchases, and there are some options online in most places.  If BitCoin can't at least be used to buy things online, it will never be valuable in any real sense.  Therefore it is on us to discover and implement best practices towards aiding it's adoption as a full-fledged currency and not just a commodity if we want it to have real value - and therefore pay off for our collective investment of time energy and money into it individually.

BitCoins have no real inherent value - they're just numbers.  The only value they have now is speculative interest.  Once they become a spendable unit of money, they gain real value that will last.  If they don't gain real value, people will eventually start to sell off, causing the price to drop, since there's nothing that it's actually worth in trade without speculation value behind it.

Furthermore, speculation is a game of diminishing returns - mtgox charges fees, don't forget.  The strategy is only profitable while BitCoin gains new investors or while current investors are willing to pour more money into a losing investment.  Their profit comes from somewhere - other people.  When some people stop wanting to spend money on BitCoin as a commodity, it will pay less out to those who are still willing to.  Neither of those scenarios is sustainable - and both result in long-term crash and depreciation.  With speculation mapping it's current path, BitCoin will more likely than not fail.

Make no mistake about it - this is a pass or fail class.  If we goof off and treat it like a get-rich-quick Ponzi scheme, it will end up being one.

Hate to ruin everyone's fun, but watch the list of buy and sell orders on mtgox next time prices take a tumble. You will notice very large buy walls meant to prop up the price that magically get withdrawn the second before prices hit that limit and go through.


MTGox is already manipulating their market in an attempt to stabilize price beyond what the free market wants.

I'm not sure this is MtGox manipulating the market, but it certainly illustrates the issue of unbridled free market speculation being an unstable basis for determining value.

I like this idea.  It's a system where the community of the commoner can chose to participate in the "speculation" and together become powerful enough to have their goals represented in the market.  And what do they want? stability!

It's more accurately described as a co-op of contributed pocket change that becomes a backing fund over time.

Congratulations, you have created a tool to democratize speculation!

Not really, it's more of a tool to democratize the backing of a commodity into a currency.  The tool that democratizes speculation is an exchange (like mtgox).

If this isn't the free market at work,  I don't know what is.

Interesting point - this is very much the free market at work, just not in the disorganized way that it is now.  Thanks for pointing that out.

Hedgers and shorters, quit whining and get a real job!

Agreed - if you're into BitCoin to make a quick buck, do yourself a favor and cash out before the rest of the speculators do.  You'll save yourself the loss, and BitCoin will begin to become stable from those who stay to hold it long.

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September 03, 2011, 03:11:28 PM
 #58

It's a noble enough idea, IdeaMan, but it won't work.  I don't think I can explain it better than others have already tried.  So how about we play a game?

Oooo, I love games, gogogo!

We can pen & paper a small bitcoin economy with an exchange.

Sounds interesting!  Where are we going to get enough hands to simulate a market of thousands of people though?

You play the bot, I play a forex trader, someone else plays the rest of the market which is trying to buy M&Ms for a price that's roughly equivalent to USD$2/pack.

This is not the way shopping works - The market tries to buy M&M's for the cheapest price they can reasonably get in a window of time short enough to satisfy their craving for chocolate candy.  If there is no price cheap enough, shoppers spend too much or don't buy it.  If the price is low, shoppers buy many and save them for later chocolate cravings.  But no shopper ever goes to the store thinking, "I'll only buy M&M's if they're within 7% fluctuation range of $2.00" - they go thinking that they want M&M's, and expect them not to cost $2.75 today if they cost $1.49 yesterday.

I'll start with 100 RevCoins, you'll start with $100 USD.  You try to hold a floor of $1/RC.  We take turns issuing market orders.

This is not the way the bot or the market works.  A better example would be if you and I were in the middle of running this example, and then 5000 other people came in and contributed $0.01 towards the goal of holding a floor at $0.50.  In that example, I move my price to $0.51, since there's little point offering you twice what the market as a whole offers you in exchange for your Coins, but I still want to buy first.  The bot pool may eventually surpass my offer and hit $0.52, but I can always move my bid.

In the end, I guarantee that:
You can prevent the price from going under $1, as long as you don't try to do anything else.

Yes, that is correct.  But the bot's goal is not to set a fixed floor price - it's to aggregate spare change from users into a democratically priced backing floor, regardless of what the price at the floor is.

I can make the price fluctuate wildly (several orders of magnitude).

You can make the ask price fluctuate wildly.  If I suddenly decide to spend $90.00 on a Coin, I'm being a fool.  If I suddenly decide to spend $50.00 on a Coin, I'm being a fool.  If I decide to set my bid within +15% of the floor, you have no choice but to meet me around that range if you want to sell.

I will end up with all your USD.

Sure, assuming the bot locked at a stable price of $1.00 apiece.  In practice, the bot would actually end up not being sold to, and the market would move towards the stabilized floor price.  You could sell all your Coins to me, but likely I would be unwilling to pay 1:1 for them when the rest of the market clearly values them at a lower price.  Really, you would end up with no coins and maybe $20-30 USD, $60 tops.

You probably won't even end up holding all the RevCoins unless you stick to a straight $1/RC exchange rate.

If I was the only buyer (very little demand for RevCoins) then I would be a fool to set the bid at $1.00 when I could easily set it at $0.10.  Then you get $10.00, but I get all 100 Coins.  What if I set my bid at $0.01? $0.001?  What if the floor is set at $0.00001?  What if buy 20 Coins at $1.00 and sell them at $0.75 to the rest of the market, lowering the speculative perceived value?  Then when you lower your price below $0.75 for the remaining Coins (since you're trying to sell them), and I buy your Coins then?

Some M&M buyers will get screwed for a notable percentage of their money.

If they take prices near your wildly fluctuating ask price, yes.  If they take prices near the bot's comparatively stable bid floor (at any value less than $1.00, for instance), then no.

I'm not sure I actually am up to really doing this

Me either, this would take forever if we intended for it to actually hit the floor the bot would set, but it would be faster than the BitCoin economy, since it's a smaller pool of players.

(it'd involve a few hundred trades to show you all the ways the market will slap you around and achieve all my goals above),

It would also require the bot to behave very differently, the market to behave very differently, and for you to be the only seller and for me the only person in the bot's pool, and for me to be foolish enough not to realize that while you have 100% of the supply, I have 100% of the demand.  What if I just waited for your price to approach the backed value, which is less than $1.00?

but I'm hoping just thinking about how you'd approach it will make you think about where the problems are.

Right now the majority of the problems with the idea come from the potential user base not understanding the concept or the execution because they'd rather jump to their own idea of the way it operates than read the incredibly detailed description in this thread.

It's an exercise you should certainly try doing on your own notepad, though.

We just did it right here on a public notepad.  It turned out your theory was incorrect.  But this was a very fun game!  Let's play again some time!

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September 03, 2011, 10:51:18 PM
 #59

Sounds interesting!  Where are we going to get enough hands to simulate a market of thousands of people though?
We can each simulate a handful of people.   Clearly me playing a single forex trader would be silly, since I could refuse to sell anything below an absurd price.  I'd do it by playing perhaps three traders who are making reasonable, competitive moves.

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This is not the way shopping works - The market tries to buy M&M's for the cheapest price they can reasonably get in a window of time short enough to satisfy their craving for chocolate candy.
Their price is sticky enough that we can assume that it'll stay constant over the amount of time we'd simulate (which would only be a few days).  The goal of the buyers would be to start with USD and buy M&Ms through RC within 10% of the USD-equivalent.  For this game, simulating them at a fixed USD value would work fine.

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This is not the way the bot or the market works.
That's just the starting conditions.  From there we'd trade it out to a few players until the market's functioning and those players have seeded your bot with enough RC to get it running.

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Yes, that is correct.  But the bot's goal is not to set a fixed floor price - it's to aggregate spare change from users into a democratically priced backing floor, regardless of what the price at the floor is.
At any given moment you'll have a fixed floor based on how much capital the bot has access to.

Regardless, your model requires that people donate the full value of the floor, at whatever level.  The problem is that if that floor is anywhere near the current trading price, the amount of donations required would be about the BTC market cap.  That's asking for an awful lot of donations, and it's not something we can just do once: we'd have to do it on an ongoing basis to keep up if the BTC grows.

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You can make the ask price fluctuate wildly.  If I suddenly decide to spend $90.00 on a Coin, I'm being a fool.  If I suddenly decide to spend $50.00 on a Coin, I'm being a fool.  If I decide to set my bid within +15% of the floor, you have no choice but to meet me around that range if you want to sell.
Nope.  I can make the market price fluctuate wildly, even with rational buyers just trying to do commerce.  If I corner the BTC market, I can force it to $10 per coin by limiting supply.  The M&M buyers will buy 0.2RC, purchase their M&Ms, the merchant will sell back to USD; and it can continue on in this fashion indefinitely until I release some more RC and let the price fall.  Even if the forex guys get out of the market for a bit, the M&M buyers can't trade the price down to USD$0.1, because they need to hold some value in RC at least for a little while (since wiring money to the exchange is slow so people do it well ahead of time, transactions have to confirm, the merchant may not immediately dump the coins when he receives them, etc; figure it's a 3 day cycle at minimum.), and the next buyer still needs to get his transaction going.  My three forex guys won't net any aggregate money doing this, though individuals may come out ahead or behind.

Now consider:  This isn't a contrived scenario, because this exactly what's occurring in the BTC market right now.  The majority of coins are buried somewhere and not moving.  The ones that are are circling around at high prices, mostly between forex guys, but a little bit to people who're buying high-value coins to complete their transactions.

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Sure, assuming the bot locked at a stable price of $1.00 apiece.  In practice, the bot would actually end up not being sold to, and the market would move towards the stabilized floor price.
Sure, the market will settle out at some price...  If it's above $1, your bot is irrelevant.  If it starts to drift down, your bot will act as a floor, it'll buy up some of the excess, and the market will take over again.  Unfortunately, if the market keeps wanting to drift down, you'll keep buying up more and more BTC/RC until you basically have lost most of your USD and are holding most of the BTC/RC.  If the few remaining players at that stage decide they want out, they dump the remainder of their holdings in exchange for the remainder of your USD.

  You could sell all your Coins to me, but likely I would be unwilling to pay 1:1 for them when the rest of the market clearly values them at a lower price.  Really, you would end up with no coins and maybe $20-30 USD, $60 tops.

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If I was the only buyer (very little demand for RevCoins) then I would be a fool to set the bid at $1.00 when I could easily set it at $0.10.  Then you get $10.00, but I get all 100 Coins.  What if I set my bid at $0.01? $0.001?  What if the floor is set at $0.00001?  What if buy 20 Coins at $1.00 and sell them at $0.75 to the rest of the market, lowering the speculative perceived value?  Then when you lower your price below $0.75 for the remaining Coins (since you're trying to sell them), and I buy your Coins then?
Yes, we'd clearly have to simulate a few of each class of player, all competing, if it's going to be at all realistic.  That's why I'm a little reluctant to actually do this.  It'd require a whole lot of paper pushing.  Smiley

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If they take prices near your wildly fluctuating ask price, yes.  If they take prices near the bot's comparatively stable bid floor (at any value less than $1.00, for instance), then no.
They can't if I've forced the price up to $10.

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 What if I just waited for your price to approach the backed value, which is less than $1.00?
If I'm forcing the price high by limiting supply, the buyers will eventually buy at that price so they can complete their transactions.  Sure, I'd love to hold out for $0.10 bitcoins to buy bitmunchies...  But if I want my bitmunchies today, I have no choice but to pay $8.50/BTC.  And I will, since it doesn't affect the cost to me, which remains the same in USD.

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Right now the majority of the problems with the idea come from the potential user base not understanding the concept or the execution because they'd rather jump to their own idea of the way it operates than read the incredibly detailed description in this thread.
Well, as best I understand it, you could provide something of a floor on the BTC, but it would require an unreasonably large investment: your bot would need a fund that's a majority of the market cap.  I can't imagine that you're ever going to get that much donation, short of someone very rich doing a very nice thing.  Even then it'd become irrelevant if BTC is more widely adopted, since the price will go up (you really can't prevent that), and you'd need more donations unless your floor is to become an ever-diminshing fraction of the BTC's price.

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We just did it right here on a public notepad.  It turned out your theory was incorrect.  But this was a very fun game!  Let's play again some time!

I don't agree that my theory's wrong.  I think it's clear that one of us misunderstands the other, and I do not concede that the error is on my side.  Smiley


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September 04, 2011, 03:45:57 AM
 #60

Sounds interesting!  Where are we going to get enough hands to simulate a market of thousands of people though?
We can each simulate a handful of people.   Clearly me playing a single forex trader would be silly, since I could refuse to sell anything below an absurd price.  I'd do it by playing perhaps three traders who are making reasonable, competitive moves.

Ok, but that still doesn't remotely accurately synthesize market behavior.   No one has a stranglehold on the price.
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This is not the way shopping works - The market tries to buy M&M's for the cheapest price they can reasonably get in a window of time short enough to satisfy their craving for chocolate candy.
Their price is sticky enough that we can assume that it'll stay constant over the amount of time we'd simulate (which would only be a few days).  The goal of the buyers would be to start with USD and buy M&Ms through RC within 10% of the USD-equivalent.  For this game, simulating them at a fixed USD value would work fine.

No one is going to pay $10.00 local fiat to convert money into another format to buy M&Ms at a store that already accepts local fiat.  Simulating them at a fixed value isn't fine, since the value of BitCoins isn't fixed.

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This is not the way the bot or the market works.
That's just the starting conditions.  From there we'd trade it out to a few players until the market's functioning and those players have seeded your bot with enough RC to get it running.

No, you miss my point.  The market doesn't have one person with a monopoly on bid or ask prices.  Not even close, actually.  And the bot uses fiat, not Coins.

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Yes, that is correct.  But the bot's goal is not to set a fixed floor price - it's to aggregate spare change from users into a democratically priced backing floor, regardless of what the price at the floor is.
At any given moment you'll have a fixed floor based on how much capital the bot has access to.

Regardless, your model requires that people donate the full value of the floor, at whatever level.  The problem is that if that floor is anywhere near the current trading price, the amount of donations required would be about the BTC market cap.  That's asking for an awful lot of donations, and it's not something we can just do once: we'd have to do it on an ongoing basis to keep up if the BTC grows.

No, my model takes any amount of donations and uses them to determine the floor.  The floor price is only fixed as long as no one in the market moves capital in or out of the bot.  I'm not saying people should contribute a total of nearly the market cap for a theory - I'm saying that whatever fiat people put in to generate the floor will eventually cause the price to move towards that relatively stable value.

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You can make the ask price fluctuate wildly.  If I suddenly decide to spend $90.00 on a Coin, I'm being a fool.  If I suddenly decide to spend $50.00 on a Coin, I'm being a fool.  If I decide to set my bid within +15% of the floor, you have no choice but to meet me around that range if you want to sell.
Nope.  I can make the market price fluctuate wildly, even with rational buyers just trying to do commerce.

Only if these rational buyers take your asks offers.  Without your asks being met, no transfer of Coins occurs, meaning the market price doesn't ever change at your whim alone.

If I corner the BTC market,

A huge "if", I might add.

I can force it to $10 per coin by limiting supply.  The M&M buyers will buy 0.2RC, purchase their M&Ms, the merchant will sell back to USD; and it can continue on in this fashion indefinitely until I release some more RC and let the price fall.  Even if the forex guys get out of the market for a bit, the M&M buyers can't trade the price down to USD$0.1, because they need to hold some value in RC at least for a little while (since wiring money to the exchange is slow so people do it well ahead of time, transactions have to confirm, the merchant may not immediately dump the coins when he receives them, etc; figure it's a 3 day cycle at minimum.), and the next buyer still needs to get his transaction going.  My three forex guys won't net any aggregate money doing this, though individuals may come out ahead or behind.

This whole paragraph is reliant on one person cornering the market - which is impossible.  There's a possibility that a group of early miner/hoarders working in concert could effectively corner the market, but that is just the same theory as this bot working at the outside end of the ask instead of the outside end of the bid.

Now consider:  This isn't a contrived scenario, because this exactly what's occurring in the BTC market right now.  The majority of coins are buried somewhere and not moving.

The majority of coins are buried right now because that group of early miners/hoarders have yet to re-enter the market.  Assuming they aren't part of some vast conspiracy and enter the market as individuals, when they enter the market to sell, increased availability means decreased prices compared to the market price when they decided to enter, since they must price competitively to make their sales.

A more likely scenario is that many of those BitCoins are being held until BitCoin becomes a currency and can be spent at real value.

The ones that are are circling around at high prices, mostly between forex guys, but a little bit to people who're buying high-value coins to complete their transactions.

There are no forex guys in the market right now - only speculators.  They are circulating at high prices now because the market is artificially inflated by speculation.

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Sure, assuming the bot locked at a stable price of $1.00 apiece.  In practice, the bot would actually end up not being sold to, and the market would move towards the stabilized floor price.
Sure, the market will settle out at some price...  If it's above $1, your bot is irrelevant.  If it starts to drift down, your bot will act as a floor, it'll buy up some of the excess, and the market will take over again.  Unfortunately, if the market keeps wanting to drift down, you'll keep buying up more and more BTC/RC until you basically have lost most of your USD and are holding most of the BTC/RC.  If the few remaining players at that stage decide they want out, they dump the remainder of their holdings in exchange for the remainder of your USD.

You could sell all your Coins to me, but likely I would be unwilling to pay 1:1 for them when the rest of the market clearly values them at a lower price.  Really, you would end up with no coins and maybe $20-30 USD, $60 tops.

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If I was the only buyer (very little demand for RevCoins) then I would be a fool to set the bid at $1.00 when I could easily set it at $0.10.  Then you get $10.00, but I get all 100 Coins.  What if I set my bid at $0.01? $0.001?  What if the floor is set at $0.00001?  What if buy 20 Coins at $1.00 and sell them at $0.75 to the rest of the market, lowering the speculative perceived value?  Then when you lower your price below $0.75 for the remaining Coins (since you're trying to sell them), and I buy your Coins then?
Yes, we'd clearly have to simulate a few of each class of player, all competing, if it's going to be at all realistic.  That's why I'm a little reluctant to actually do this.  It'd require a whole lot of paper pushing.  Smiley

And more importantly with the correct number of players it wouldn't resemble your example in the slightest way.  The market would compete and people would get a better price than the artificially high one you set your ask at.

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If they take prices near your wildly fluctuating ask price, yes.  If they take prices near the bot's comparatively stable bid floor (at any value less than $1.00, for instance), then no.
They can't if I've forced the price up to $10.

You can only force the price to any amount higher than the current high bid if you control all the BitCoins, and refuse to compromise to make a sale indefinitely.  This is also not the way the free market works.

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What if I just waited for your price to approach the backed value, which is less than $1.00?
If I'm forcing the price high by limiting supply, the buyers will eventually buy at that price so they can complete their transactions.  Sure, I'd love to hold out for $0.10 bitcoins to buy bitmunchies...  But if I want my bitmunchies today, I have no choice but to pay $8.50/BTC.  And I will, since it doesn't affect the cost to me, which remains the same in USD.

The people trying to buy M&Ms still have the option to just buy in fiat.  why would they jump through additional hoops and transaction fees to buy a grossly overpriced commodity and try to use that as a currency when they have a valid currency in their hands?

Quote
Right now the majority of the problems with the idea come from the potential user base not understanding the concept or the execution because they'd rather jump to their own idea of the way it operates than read the incredibly detailed description in this thread.
Well, as best I understand it, you could provide something of a floor on the BTC, but it would require an unreasonably large investment: your bot would need a fund that's a majority of the market cap.

This is what I mean about not understanding the theory.  The bot doesn't require a fund of any amount - it just becomes a more powerful market force as that fund approaches the market cap.  The market price will move towards the backing floor, and the closer the floor is to current the market price, the less distance it has to move.

I can't imagine that you're ever going to get that much donation, short of someone very rich doing a very nice thing.

Maybe, maybe not.  I believe there's enough people willing to temporarily lock up a few cents of their money to stabilize BitCoin to currency behavior patterns for the sake of seeing it succeed.

Even then it'd become irrelevant if BTC is more widely adopted, since the price will go up (you really can't prevent that), and you'd need more donations unless your floor is to become an ever-diminshing fraction of the BTC's price.

Once BitCoin is adopted as a currency it gains real value outside of the backing fund, negating it's need for stabilization, and therefore freeing up the funds, should users wish to remove them.  The purpose is to back the BitCoin until it becomes stable enough to be treated as a currency.  Why does no one get this?

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We just did it right here on a public notepad.  It turned out your theory was incorrect.  But this was a very fun game!  Let's play again some time!

I don't agree that my theory's wrong.  I think it's clear that one of us misunderstands the other, and I do not concede that the error is on my side.  Smiley

As this is just a theory, neither of us can know whether or not either one of us, or both of us, are wrong.  However:

•Your comprehension of my theory is incorrect.

•Your examples rely on near-impossible or impossible situations.

•Your examples fail to take into account basic facts like multiple participants co-existing in the market.

•You assume a situation where one player has functional monopoly control of supply.

•You neglect to provide any reason for converting fiat at a loss through an exchange to make a transaction.

•You misunderstand the basic operation of the bot.

•You misunderstand the concept of backing an asset.

•You ignore entirely the concept of value history.

•You ignore entirely the concept of speculative distortion of value.

•You ignore entirely the concept of market liquidity.

•You seem to believe that people are hard-up enough to buy Coins that they will buy them at any price, even if they have no concrete value as a currency, and have to buy them at a net loss to purchasing power.

As such, I not only do not concede that the error is on my side, but also believe it is likely on yours.

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September 04, 2011, 05:39:19 AM
 #61

Quote
No one is going to pay $10.00 local fiat to convert money into another format to buy M&Ms at a store that already accepts local fiat.  Simulating them at a fixed value isn't fine, since the value of BitCoins isn't fixed.

Exhibit 1: Goods priced at a fixed USD value, sold in BTC, that can be purchased locally in fiat; yet somehow people choose to shop there.  It's mostly for novelty, but so is most of the bitcoin economy right now.

http://bitmunchies.com/product_info.php?cPath=29_27&products_id=202

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No, you miss my point.  The market doesn't have one person with a monopoly on bid or ask prices.  Not even close, actually.  And the bot uses fiat, not Coins.

Do I?  I specifically said we'd trade it out to multiple players of each class until we have a functioning economy.

If the bot is trading, by definition it's using both fiat and coins.

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Quote
At any given moment you'll have a fixed floor based on how much capital the bot has access to.
No, my model takes any amount of donations and uses them to determine the floor.
Isn't that what I just said?

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The floor price is only fixed as long as no one in the market moves capital in or out of the bot.  I'm not saying people should contribute a total of nearly the market cap for a theory - I'm saying that whatever fiat people put in to generate the floor will eventually cause the price to move towards that relatively stable value.

No, I don't have the misconception that the bot has to be fully funded from the get-go.  I understand your dynamic floor.

What I'm saying is that the bot won't be relevant until the backing capital is a substantial portion of the market cap.  If the capital pool is only 5% of the market cap, it's not going to prevent panic selloffs - someone with USD$100k invested in BTC isn't going to be reassured that your bot guarantees it won't fall below USD$5k value.  An 85% guarantee would be wonderful!  But that requires people donate 85% of the market cap.

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Only if these rational buyers take your asks offers.  Without your asks being met, no transfer of Coins occurs, meaning the market price doesn't ever change at your whim alone.

People are buying bitcoins at $8.5 right now.  Smiley

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If I corner the BTC market,
A huge "if", I might add.
For a single player?  Sure.  But I consider the market currently "cornered" by speculators and early adopters.  They've locked up a large percentage of the commodity, so only a small percentage is in circulation, and anyone who wants to do business with it is doing so at a very high price/BTC.

I would simulate that by having one guy buy up 90% of the coins and holding them forever.  Don't get hung up on the market spike that causes; that's temporary, and the price will settle out when he's done.  What I'm concerned about is if people are still using RC to do business, the coins are going to be used at a much higher value since the supply is limited to 10%.

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There are no forex guys in the market right now - only speculators.
There's a difference?  Smiley

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Yes, we'd clearly have to simulate a few of each class of player, all competing, if it's going to be at all realistic.
And more importantly with the correct number of players it wouldn't resemble your example in the slightest way.  The market would compete and people would get a better price than the artificially high one you set your ask at.
That's what I just said.  Read those two quotes again.

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You can only force the price to any amount higher than the current high bid if you control all the BitCoins, and refuse to compromise to make a sale indefinitely.  This is also not the way the free market works.
No?  I think you're really not listening to anything I'm saying.  This is exactly what I address in this next quote:

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 What if I just waited for your price to approach the backed value, which is less than $1.00?
If I'm forcing the price high by limiting supply, the buyers will eventually buy at that price so they can complete their transactions.  Sure, I'd love to hold out for $0.10 bitcoins to buy bitmunchies...  But if I want my bitmunchies today, I have no choice but to pay $8.50/BTC.  And I will, since it doesn't affect the cost to me, which remains the same in USD.

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The people trying to buy M&Ms still have the option to just buy in fiat.  why would they jump through additional hoops and transaction fees to buy a grossly overpriced commodity and try to use that as a currency when they have a valid currency in their hands?

Indeed, why should people use BitCoins for anything at all, since they have perfectly good fiat currency?

They do it because it's an easier way to send money over distance, because Paypal sucks, for novelty, for speed, for anonymity, and who knows what else. They do it because BitCoin's properties are different from cash, and sometimes people prefer BitCoin's properties for a transaction.

Eventually we might have a native economy in BitCoins, but for the foreseeable future BTC is mostly a proxy for fiat currency.

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This is what I mean about not understanding the theory.  The bot doesn't require a fund of any amount - it just becomes a more powerful market force as that fund approaches the market cap.  The market price will move towards the backing floor, and the closer the floor is to current the market price, the less distance it has to move.
By "More powerful market force", do you mean it will raise the floor?  If so, yes, I get it.

If you mean you're trying to maintain a soft floor that's higher than the (total donations / total BTC in circulation), your bot is going to be trampled by smarter bots; if you're really unlucky it will be actively exploited by other bots.

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Once BitCoin is adopted as a currency it gains real value outside of the backing fund, negating it's need for stabilization, and therefore freeing up the funds, should users wish to remove them.  The purpose is to back the BitCoin until it becomes stable enough to be treated as a currency.  Why does no one get this?

I get it!  Really!  I think the reason you don't think I get it is because I'm drawing different conclusions than you do, and so you think I must not understand.

The "continual funding" problem I'm talking about is a short-term one, not a long-term one.  If you got $7M in donations, you'd be able to back at $1...  Which won't have an appreciable effect on the market.  If you get $30M, you'll have a credible backing at about 50% of market cap.  It'll boost confidence a fair bit.  Then the market trades up to $25.  At that point, your backing has become essentially irrelevant again, but it's still way too early for BC to be considered a stable, established currency.  So what do you do?  Either your bot remains irrelevant, or you have to seek out more donations.  And it'll take a whole lot of these cycles before BC becomes so established that it's no longer necessary.

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September 09, 2011, 05:43:05 PM
 #62

The "continual funding" problem I'm talking about is a short-term one, not a long-term one.  If you got $7M in donations, you'd be able to back at $1...  Which won't have an appreciable effect on the market.  If you get $30M, you'll have a credible backing at about 50% of market cap.  It'll boost confidence a fair bit.  Then the market trades up to $25.  At that point, your backing has become essentially irrelevant again, but it's still way too early for BC to be considered a stable, established currency.  So what do you do?  Either your bot remains irrelevant, or you have to seek out more donations.  And it'll take a whole lot of these cycles before BC becomes so established that it's no longer necessary.

I don't know, I think backing at $1.00 might be a good thing at this point.  You're still wrong about the math ($21,000,000.00 is required to back BitCoin to 1$), however.

I'm actually just here to comment that someone else anonymously generated 5 BitCoins to this project  Of course, that's only $25.00 USD today, since the market is so unstable.

Oh well..

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September 09, 2011, 07:38:34 PM
 #63

There are only 7.2M in circulation right now, so USD$7.2M would let you back it at $1 per.  As more are mined you would need additional donations of course.

If you did that in this market, people would sell into it heavily and you'd end up holding a lot of coins and a little fiat.  It would certainly hold the price rock solid at $1 for a long time since you'd presumably also keep an open sell order at $1 and it'll be quite a while before you sell them all off again.

So, two things:

1) where will you find someone willing to donate millions for this project?

2) Who can be trusted to run an account this large?  I think it can't be distributed because that would allow people to pull out their funds - you'd have speculators "backing" it as a pump tactic, but as soon as the price fell to $1.20 they'd pull out before having to actually use their money.  What centralized authority can be entrusted with that much?  Is that even a good idea?

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Bitcoin is the Devil's way of teaching geeks economics.  --Revalin 165YUuQUWhBz3d27iXKxRiazQnjEtJNG9g
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September 09, 2011, 08:00:47 PM
 #64

What road will get us there?  Letting it sit as a speculation market with no hope of enough stability to be used as a currency?  Or trying to stabilize it to facilitate it's use as a currency with real consistent value determined by the market?  How will we make it stable enough for businesses and John Q Public to accept it's use as a currency?

There's your problem.

What you don't realize yet is that Bitcoin is not a very good currency right now, but rather it is a speculative commodity.

See the following:

The role of a currency is to be both a long-term store of value, and a short term medium of exchange.  To be a store of value it needs to have stable prices, and to be a medium of exchange it needs to be easy to use and exchange.

If it's worth 0.01 US cent, it doesn't matter, as long as it retains that value over a long period of time and people use it in exchanges.

Right now we have neither:

The money supply is inflating, last I checked, by around +37% a year (as of a few days ago; obviously that number will converge to zero as the months go by, but 37% inflation is still significant).  At the same time, Bitcoin is getting all kinds of positive and negative publicity, resulting in fluctuating demand.  Right now we're in a deflationary period as a result of all of the bad publicity.  This rapid inflationary pressures and fluctuating deflationary pressures means the currency can't hold a stable price.  Security issues are also at the forefront as no significant third-party solutions have come forth and I haven't seen much commitment from the developers.  In the future when inflation dies down and demand stops fluctuating so wildly, we'll see significant price stabilization.

As a medium of exchange, it's also weak: there's little to actually buy and the services available to facilitate those transactions are untrustworthy at best, outright frauds at worst.  Basically what we have is a bunch of lone techies writing code in their basement, not professional companies creating products; this does not mean we won't have reliable facilitators in the future, but the fact is we just don't have any now (in my opinion).

Bitcoin isn't useful as a currency now.  The most investment and focus by third parties is in BTC mining and exchange right now, as is to be expected and as is necessary, as developed mining and exchange is absolutely necessary for the short, medium, and long term prospects.  When the economy has developed enough to allow convenient BTC purchases in supermarket stores I think Bitcoin will be just about 'ready' to move from a mining-based, long-term investment to an exchange-focused currency.
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