The Miner's Swap

[skubeedooo]

I'm writing a document on an exchange-traded contract that would allow a miner to hedge his exposure to future prices and difficulty. The first draft is available here

http://dl.dropbox.com/u/42985614/miners_swap_draft_1.pdf

If anyone has any comments or suggestions for improvement, I'd very much appreciate it.

Thanks

[1714047066]

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[fivebells]

If anyone has any comments or suggestions for improvement, I'd very much appreciate it.

  Hi, I read your document.  I don't really see what this gets the parties over a simple   "You pay me $x now, and I will pay you y bitcoins at time t."  Also, I am fluent in the notation, and did not have a problem reading it, but you really buried the lede by describing the contract using mathematical equations.  The document would be more accessible to more people if you had a subsection of the introduction describing the key ideas of the contract in words.  If you do that, you will probably get more people asking the same question I am, but you need to answer that question anyway.

[skubeedooo]

Thanks for the feedback.

The benefit over a straight short (or short future) is that a miner doesn't actually know the rate at which he will be mining since he doesn't know the future global hashrate. Since the global hashrate will be longterm correlated to the price, an outright short is likely to be worse than no hedge.

The mswap contract takes into account both price and difficulty, so a miner is much better hedged with it.

I will add all this into the pdf.

Thanks!

[nmat]

This post would have a lot more responses if you could explain your proposal without mathematical formulas. If you are proposing a system for people to use, you must be able to explain it to them without using summations.

[fivebells]

Yes, it's really a pretty simple idea.  The mathematical notation doesn't particularly help to elucidate it.