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Author Topic: Naked Short Selling Bitcoin  (Read 6396 times)
bonker
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September 09, 2011, 10:44:21 AM
 #1

Anyone doing this yet? There must be a great market for naked short selling of this stuff. Come on
exchanges and you Bitcoin bulls, there is a market waiting for you to put
your money where your mouth is and offer naked short selling!

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September 09, 2011, 11:37:24 AM
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How would that even work?  Bitcoins safeguards kind of prevent that don't they?  You'd need an exchange that allows you to sell Bitcoins that you haven't deposited for that to work.  And even then, the exchange would quickly go belly up when people tried to get their Bitcoins out.

To me, one of the beauties of bitcoin is that is prevents this sort of thing. I could see the day when stock certificates are issued bitcoin style precisely to prevent naked short selling.

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the founder
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September 09, 2011, 11:52:58 AM
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Campbx is going live with naked short selling is what I understand

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September 09, 2011, 01:32:10 PM
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The only way to do naked shorts in bitcoin is if some exchange is willing to go fractional reserve.  This would be considered fraud, and would probably be prosecutable.

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September 09, 2011, 02:27:29 PM
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The only way to do naked shorts in bitcoin is if some exchange is willing to go fractional reserve.  This would be considered fraud, and would probably be prosecutable.

Do you know what a short sale is?

User A signs up to have their bitcoin holdings entered into a pool. User B borrows xxx bitcoins from pool and sells at xxx price. Price goes down/up. User B either gains or loses money on the short. User B closes the trade and bitcoins are re-purchased to be put into User A's pool holdings. Typically to get users to allow their bitcoins to be borrowed they'll get a small return from allowing someone to borrow them. No risk for user A and they get a small return. User B assumes all risk and needs to maintain a balance in their account to cover the short based on market prices.

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September 09, 2011, 03:11:31 PM
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You need to look up the difference between short selling (which will certainly come to the exchanges) and naked shorting (which should not be done on the exchanges but on prediction markets instead)
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September 09, 2011, 03:15:12 PM
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You need to look up the difference between short selling (which will certainly come to the exchanges) and naked shorting (which should not be done on the exchanges but on prediction markets instead)

Hey this aint no intellecutal competition. Setting up a short selling outfit is a piece of piss. Just wondering why there aint one out there.
Short selling Bitcoin would batter the price and drive out the speculators leaving only the true believers.

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September 09, 2011, 03:21:17 PM
 #8

Wasn't responding to you, was responding to the poster above me who seems to think that "naked shorting" and "regular shorting" are the same thing.

Quote
No risk for user A and they get a small return. User B assumes all risk and needs to maintain a balance in their account to cover the short based on market prices.

Naked short selling, no one is borrowing the securities before they sell them. They are just selling them and assuming they will be able to deliver them at a future date.

Shorting is in the works. But otherwise, if you want to bet on the price of bitcoin going down, best done on derivatives/prediction markets where you are simply opening positions against other people, no bitcoins needed.
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September 09, 2011, 04:03:56 PM
 #9

Anyone doing this yet? There must be a great market for naked short selling of this stuff. Come on
exchanges and you Bitcoin bulls, there is a market waiting for you to put
your money where your mouth is and offer naked short selling!

I think you might be confusing your lack of wearing any shorts in the morning with an economic concept.  To check, after you put your shorts back on, does this question leave your mind?  if so, then don't worry about it...

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September 09, 2011, 05:04:28 PM
 #10

There are no options, derivatives, or short selling for Bitcoin because there are no parties who can be trusted to pay up when they lose big, and no enforcement system to make them. Just getting the current parties to reliably pay up on ordinary transactions is hard enough.
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September 09, 2011, 08:30:25 PM
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There are no options, derivatives, or short selling for Bitcoin because there are no parties who can be trusted to pay up when they lose big, and no enforcement system to make them. Just getting the current parties to reliably pay up on ordinary transactions is hard enough.
In addition to the above: some potential players actually audited the source code for the Satoshi bitcoin client and know that it contains the code to reverse transactions (chain reorganization) and change transaction timestamps in direct violation of the GAAP (or their equivalent throughout the civilized world).

And yet the bitcoin promoters continue to advertise that there's no chargebacks in bitcoin.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
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September 11, 2011, 01:29:06 PM
 #12

I agree viperjbm, it would be easy to do standard short sales.   It was naked short sales I was doubting would be possible.

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September 12, 2011, 08:04:45 AM
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In addition to the above: some potential players actually audited the source code for the Satoshi bitcoin client and know that it contains the code to reverse transactions (chain reorganization) and change transaction timestamps in direct violation of the GAAP (or their equivalent throughout the civilized world).

And yet the bitcoin promoters continue to advertise that there's no chargebacks in bitcoin.

Can you point me at this thread?

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September 12, 2011, 11:29:09 AM
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In addition to the above: some potential players actually audited the source code for the Satoshi bitcoin client and know that it contains the code to reverse transactions (chain reorganization) and change transaction timestamps in direct violation of the GAAP (or their equivalent throughout the civilized world).

And yet the bitcoin promoters continue to advertise that there's no chargebacks in bitcoin.

Can you point me at this thread?

No one needed to audit the code to learn this, it has been very well known since day 1.  It isn't anything like a chargeback though, since an arbitrary spender can't just make the decision to reverse one of their transactions on a whim.

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September 12, 2011, 07:24:48 PM
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No one needed to audit the code to learn this, it has been very well known since day 1.  It isn't anything like a chargeback though, since an arbitrary spender can't just make the decision to reverse one of their transactions on a whim.
Well, in a way what you say is true. And yet nobody important from the bitcoin community was willing to sign their name under the sacramental formula:
Quote
I certify under penalty of perjury that the foregoing is true and correct. Executed on ...
In fact at least Gavin Andresen closed his company instead of facing an audit. Simultaneusly, I have to commend him for not accepting patches that change or completely remove the chain reorganization functionality.

There's lots of patched and otherwise badly designed code floating around that makes the assumption about nonexistence of chargebacks. This is going to be an interesting subject for litigation:

1) on one hand the chargebacks "should never happen",
2) on the other hand this is the major feature of the protocol as described in the whitepaper.

There will be interesting legal debate wheter removing the chargeback functionality was: (a) negligent accounting, (b) fraudulent accounting, (c) conspiracy to commit accounting fraud, (d) something else. Interesting times ahead.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
kjj
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September 12, 2011, 07:39:39 PM
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No one needed to audit the code to learn this, it has been very well known since day 1.  It isn't anything like a chargeback though, since an arbitrary spender can't just make the decision to reverse one of their transactions on a whim.
Well, in a way what you say is true. And yet nobody important from the bitcoin community was willing to sign their name under the sacramental formula:
Quote
I certify under penalty of perjury that the foregoing is true and correct. Executed on ...
In fact at least Gavin Andresen closed his company instead of facing an audit. Simultaneusly, I have to commend him for not accepting patches that change or completely remove the chain reorganization functionality.

There's lots of patched and otherwise badly designed code floating around that makes the assumption about nonexistence of chargebacks. This is going to be an interesting subject for litigation:

1) on one hand the chargebacks "should never happen",
2) on the other hand this is the major feature of the protocol as described in the whitepaper.

There will be interesting legal debate wheter removing the chargeback functionality was: (a) negligent accounting, (b) fraudulent accounting, (c) conspiracy to commit accounting fraud, (d) something else. Interesting times ahead.

You should really stop saying "chargeback".  It isn't even slightly similar to what actually exists in the bitcoin system.

p2pcoin: a USB/CD/PXE p2pool miner - 1N8ZXx2cuMzqBYSK72X4DAy1UdDbZQNPLf - todo
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September 12, 2011, 08:55:35 PM
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You should really stop saying "chargeback".  It isn't even slightly similar to what actually exists in the bitcoin system.
Tell this to your accountant. How about "wholesale transaction reversal and freshly mined coin destruction"? Does this sound better to your ear? It certainly is more true.

Chargeback is the proper term of art when writing about accounting in English.

Here's the Gavin Anderson dancing around the issue in the section of this forum related to the alternative currencies.

https://bitcointalk.org/index.php?topic=43465.msg520923#msg520923

Since that section is the "wildest of the Wild West" it may have been missed by many of the readers of this forum.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
kjj
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September 12, 2011, 10:56:39 PM
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You should really stop saying "chargeback".  It isn't even slightly similar to what actually exists in the bitcoin system.
Tell this to your accountant. How about "wholesale transaction reversal and freshly mined coin destruction"? Does this sound better to your ear? It certainly is more true.

Chargeback is the proper term of art when writing about accounting in English.

Here's the Gavin Anderson dancing around the issue in the section of this forum related to the alternative currencies.

https://bitcointalk.org/index.php?topic=43465.msg520923#msg520923

Since that section is the "wildest of the Wild West" it may have been missed by many of the readers of this forum.

Ahh, you are using chargeback as accounting jargon, and not in the sense that the other 99.99% of English speakers use in normal conversation.  I'm no accountant, so I'll take your word for it.  I'll even apologize:  my bad.

Now that we have the basic definitions straight, we can continue.

What exactly is it that you imagine Gavin to be dancing around?  Even better, how did you make it two months on this forum without learning about this?

The block chain, as a whole, represents a consensus agreement about the global state of transactions.  It can exist in different versions in different places and times.  The "correct" version is, by protocol, the version that would require the most work (statistically) to replace.  The protocol was designed to minimize the amount of trust that any one party needs to have for any other party, so the "correct" version of the block chain is still correct, even if it isn't the version that you saw first.

This is explained in the FAQ, and the Weaknesses page of the wiki, and in many, many threads here on the forums.

If an accountant (or author of accounting software) doesn't understand this, the fault lies with the accountant for improper recording, not with the software for doing exactly what it says it is going to do.

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September 13, 2011, 12:29:12 AM
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What exactly is it that you imagine Gavin to be dancing around?  Even better, how did you make it two months on this forum without learning about this?
I imagine Gavin dancing around GAAP (Generally Accepted Accounting Principles).

Actually, I'll ask you the opposite. Do you see any easy-to-use software advertised here on this forum that is upfront about:

1) bitcoins could disappear from your wallet
2) transactions will get their timestamps changed in some obscure ways

I'm not talking "upfront" as "discoverable here on the forum after two months of reading". I'm talking "upfront" as popping up a message when that happens or having any other mechanism to alert the user about those occurences.

Please comment, critique, criticize or ridicule BIP 2112: https://bitcointalk.org/index.php?topic=54382.0
Long-term mining prognosis: https://bitcointalk.org/index.php?topic=91101.0
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September 13, 2011, 01:26:35 AM
 #20

Seems to me that...

Naked short selling relies on selling someone something which does not exist.  This is possible with stocks because the DTCC allows it to some extent and because the DTCC is out of the loop in ex-clearing situations.  The buyer _thinks_ they have bought shares, and that is what shows up in their Scottrade accounts, but in reality what they have is an IOU.

So, as long as you can give a buyer something which they can be convinced is a BTC, knock yourself out.  If you work with an exchange or develop your own app which shows a BTC balance of your choosing, you can probably get away with it for some time.

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