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Author Topic: Bot to operate a price bloc to stabilize price of BitCoins  (Read 5109 times)
norulezapply
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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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Sukrim
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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...

https://bitfinex.com <-- leveraged trading of BTCUSD, LTCUSD and LTCBTC (long and short) - 10% discount on fees for the first 30 days with this refcode: x5K9YtL3Zb
Mail me at Bitmessage: BM-BbiHiVv5qh858ULsyRDtpRrG9WjXN3xf
IdeaMan
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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.

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.
Sukrim
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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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IdeaMan
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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.

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, 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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nighteyes
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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.

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, 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
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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.

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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.

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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.

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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://bitfinex.com <-- leveraged trading of BTCUSD, LTCUSD and LTCBTC (long and short) - 10% discount on fees for the first 30 days with this refcode: x5K9YtL3Zb
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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