Bot to operate a price bloc to stabilize price of BitCoins

[IdeaMan]

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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[FreeMoney]

Whaddya think about Zeitgeist?

[IdeaMan]

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.

[the joint]

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

[norulezapply]

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

[Jr00t]

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

+1

[3phase]

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.

 

[IdeaMan]

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.

[IdeaMan]

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.

[Sukrim]

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.

[IdeaMan]

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

[Deprived]

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.

[Sukrim]

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!

[IdeaMan]

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.

[Deprived]

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.

[IdeaMan]

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

[norulezapply]

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.

[IdeaMan]

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

[IdeaMan]

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.

[Transisto]

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 !!!