Sounds interesting! Where are we going to get enough hands to simulate a market of thousands of people though?
We can each simulate a handful of people. Clearly me playing a single forex trader would be silly, since I could refuse to sell anything below an absurd price. I'd do it by playing perhaps three traders who are making reasonable, competitive moves.
Ok, but that still doesn't remotely accurately synthesize market behavior. No one has a stranglehold on the price.
This is not the way shopping works - The market tries to buy M&M's for the cheapest price they can reasonably get in a window of time short enough to satisfy their craving for chocolate candy.
Their price is sticky enough that we can assume that it'll stay constant over the amount of time we'd simulate (which would only be a few days). The goal of the buyers would be to start with USD and buy M&Ms through RC within 10% of the USD-equivalent. For this game, simulating them at a fixed USD value would work fine.
No one is going to pay $10.00 local fiat to convert money into another format to buy M&Ms at a store that already accepts local fiat. Simulating them at a fixed value isn't fine, since the value of BitCoins isn't fixed.
This is not the way the bot or the market works.
That's just the starting conditions. From there we'd trade it out to a few players until the market's functioning and those players have seeded your bot with enough RC to get it running.
No, you miss my point. The market doesn't have one person with a monopoly on bid or ask prices. Not even close, actually. And the bot uses fiat, not Coins.
Yes, that is correct. But the bot's goal is not to set a fixed floor price - it's to aggregate spare change from users into a democratically priced backing floor, regardless of what the price at the floor is.
At any given moment you'll have a fixed floor based on how much capital the bot has access to.
Regardless, your model requires that people donate the full value of the floor, at whatever level. The problem is that if that floor is anywhere near the current trading price, the amount of donations required would be about the BTC market cap. That's asking for an
awful lot of donations, and it's not something we can just do once: we'd have to do it on an ongoing basis to keep up if the BTC grows.
No, my model takes any amount of donations and uses them to determine the floor. The floor price is only fixed as long as no one in the market moves capital in or out of the bot. I'm not saying people should contribute a total of nearly the market cap for a theory - I'm saying that whatever fiat people put in to generate the floor will eventually cause the price to move towards that relatively stable value.
You can make the ask price fluctuate wildly. If I suddenly decide to spend $90.00 on a Coin, I'm being a fool. If I suddenly decide to spend $50.00 on a Coin, I'm being a fool. If I decide to set my bid within +15% of the floor, you have no choice but to meet me around that range if you want to sell.
Nope. I can make the market price fluctuate wildly, even with rational buyers just trying to do commerce.
Only if these
rational buyers take your asks offers. Without your asks being met, no transfer of Coins occurs, meaning the market price doesn't ever change at your whim alone.
If I corner the BTC market,
A huge "if", I might add.
I can force it to $10 per coin by limiting supply. The M&M buyers will buy 0.2RC, purchase their M&Ms, the merchant will sell back to USD; and it can continue on in this fashion indefinitely until I release some more RC and let the price fall. Even if the forex guys get out of the market for a bit, the M&M buyers can't trade the price down to USD$0.1, because they need to hold some value in RC at least for a little while (since wiring money to the exchange is slow so people do it well ahead of time, transactions have to confirm, the merchant may not immediately dump the coins when he receives them, etc; figure it's a 3 day cycle at minimum.), and the next buyer still needs to get his transaction going. My three forex guys won't net any aggregate money doing this, though individuals may come out ahead or behind.
This whole paragraph is reliant on one person cornering the market - which is impossible. There's a possibility that a group of early miner/hoarders working in concert could effectively corner the market, but that is just the same theory as this bot working at the outside end of the ask instead of the outside end of the bid.
Now consider: This isn't a contrived scenario, because this exactly what's occurring in the BTC market right now. The majority of coins are buried somewhere and not moving.
The majority of coins are buried right now because that group of early miners/hoarders have yet to re-enter the market. Assuming they aren't part of some vast conspiracy and enter the market as individuals, when they enter the market to sell, increased availability means decreased prices compared to the market price when they decided to enter, since they must price competitively to make their sales.
A more likely scenario is that many of those BitCoins are being held until BitCoin becomes a currency and can be spent at real value.
The ones that are are circling around at high prices, mostly between forex guys, but a little bit to people who're buying high-value coins to complete their transactions.
There are no forex guys in the market right now - only speculators. They are circulating at high prices now because the market is artificially inflated by speculation.
Sure, assuming the bot locked at a stable price of $1.00 apiece. In practice, the bot would actually end up not being sold to, and the market would move towards the stabilized floor price.
Sure, the market will settle out at some price... If it's above $1, your bot is irrelevant. If it starts to drift down, your bot will act as a floor, it'll buy up some of the excess, and the market will take over again. Unfortunately, if the market keeps wanting to drift down, you'll keep buying up more and more BTC/RC until you basically have lost most of your USD and are holding most of the BTC/RC. If the few remaining players at that stage decide they want out, they dump the remainder of their holdings in exchange for the remainder of your USD.
You could sell all your Coins to me, but likely I would be unwilling to pay 1:1 for them when the rest of the market clearly values them at a lower price. Really, you would end up with no coins and maybe $20-30 USD, $60 tops.
If I was the only buyer (very little demand for RevCoins) then I would be a fool to set the bid at $1.00 when I could easily set it at $0.10. Then you get $10.00, but I get all 100 Coins. What if I set my bid at $0.01? $0.001? What if the floor is set at $0.00001? What if buy 20 Coins at $1.00 and sell them at $0.75 to the rest of the market, lowering the speculative perceived value? Then when you lower your price below $0.75 for the remaining Coins (since you're trying to sell them), and I buy your Coins then?
Yes, we'd clearly have to simulate a few of each class of player, all competing, if it's going to be at all realistic. That's why I'm a little reluctant to actually do this. It'd require a whole lot of paper pushing.
And more importantly with the correct number of players it wouldn't resemble your example in the slightest way. The market would compete and people would get a better price than the artificially high one you set your ask at.
If they take prices near your wildly fluctuating ask price, yes. If they take prices near the bot's comparatively stable bid floor (at any value less than $1.00, for instance), then no.
They can't if I've forced the price up to $10.
You can only force the price to any amount higher than the current high bid if you control all the BitCoins, and refuse to compromise to make a sale indefinitely. This is also not the way the free market works.
What if I just waited for your price to approach the backed value, which is less than $1.00?
If I'm forcing the price high by limiting supply, the buyers will eventually buy at that price so they can complete their transactions. Sure, I'd love to hold out for $0.10 bitcoins to buy bitmunchies... But if I want my bitmunchies today, I have no choice but to pay $8.50/BTC. And I will, since it doesn't affect the cost to me, which remains the same in USD.
The people trying to buy M&Ms still have the option to just buy in fiat. why would they jump through additional hoops and transaction fees to buy a grossly overpriced commodity and try to use that as a currency when they have a valid currency in their hands?
Right now the majority of the problems with the idea come from the potential user base not understanding the concept or the execution because they'd rather jump to their own idea of the way it operates than read the incredibly detailed description in this thread.
Well, as best I understand it, you could provide something of a floor on the BTC, but it would require an unreasonably large investment: your bot would need a fund that's a majority of the market cap.
This is what I mean about not understanding the theory. The bot doesn't require a fund of any amount - it just becomes a more powerful market force as that fund approaches the market cap. The market price will move towards the backing floor, and the closer the floor is to current the market price, the less distance it has to move.
I can't imagine that you're ever going to get that much donation, short of someone very rich doing a very nice thing.
Maybe, maybe not. I believe there's enough people willing to temporarily lock up a few cents of their money to stabilize BitCoin to currency behavior patterns for the sake of seeing it succeed.
Even then it'd become irrelevant if BTC is more widely adopted, since the price will go up (you really can't prevent that), and you'd need more donations unless your floor is to become an ever-diminshing fraction of the BTC's price.
Once BitCoin is adopted as a currency it gains real value outside of the backing fund, negating it's need for stabilization, and therefore freeing up the funds, should users wish to remove them.
The purpose is to back the BitCoin until it becomes stable enough to be treated as a currency. Why does no one get this?
We just did it right here on a public notepad. It turned out your theory was incorrect. But this was a very fun game! Let's play again some time!
I don't agree that my theory's wrong. I think it's clear that one of us misunderstands the other, and I do not concede that the error is on my side.
As this is just a theory, neither of us can know whether or not either one of us, or both of us, are wrong. However:
•Your comprehension of my theory is incorrect.
•Your examples rely on near-impossible or impossible situations.
•Your examples fail to take into account basic facts like multiple participants co-existing in the market.
•You assume a situation where one player has functional monopoly control of supply.
•You neglect to provide any reason for converting fiat at a loss through an exchange to make a transaction.
•You misunderstand the basic operation of the bot.
•You misunderstand the concept of backing an asset.
•You ignore entirely the concept of value history.
•You ignore entirely the concept of speculative distortion of value.
•You ignore entirely the concept of market liquidity.
•You seem to believe that people are hard-up enough to buy Coins that they will buy them at any price, even if they have no concrete value as a currency, and have to buy them at a net loss to purchasing power.
As such, I not only do not concede that the error is on my side, but also believe it is likely on yours.
