Gold collapsing. Bitcoin UP.

[brg444]

BTW, for those who haven't seen it yet, this new Coinbase feature is FANTASTIC : http://blog.coinbase.com/post/101266587127/introducing-multisig-vault-you-can-now-control-your


Terrific innovation and demonstration that technology can enable better consumer protection than mere regulations

[smooth]

- I cannot imagine how somebody can pump scBTC when exchanging them against BTC is 1:1 at the protocol level.

One example was specifically described: A nominally 1:1 side chain with a cap on the amount of BTC that can be moved to the side chain. Now imagine that the developer secretly grabs 90% of the cap before pumping the sidechain. The developer has a put that makes this a largely risk free (with my caveat about security risks).

I imagine that once speculators and scammers get to work on coming up with their own variations there will be more such methods developed. Scammers are innovative when it comes to methods of scamming if nothing else.

[brg444]

this is the follow on from me beating around the bush the other day, btw.

if BTC holders and miners can be seduced to switch to the SC, full nodes might be expected to as well. 

I guess this is a possible scenario but I find it highly unlikely and a fail to see exactly how the whale profits from such attack? Can you explain further? The way I see it, yes the last out the door may lose but the first in do not gain anything other than securing is stake on the new chain?

I also think the growth of BTC's market cap will eventually mitigate such an attack as what you are suggesting assumes the "attacker" a considerable % stake of the BTC market

[smooth]

if BTC holders and miners can be seduced to switch to the SC, full nodes might be expected to as well. 

That is called an upgrade. The same thing happens today if you convince miners, nodes, and users to adopt a new version of the software. It has nothing to do with sidechains, except perhaps providing a more gradual method to migrate.

[cypherdoc]

- I cannot imagine how somebody can pump scBTC when exchanging them against BTC is 1:1 at the protocol level.

One example was specifically described: A nominally 1:1 side chain with a cap on the amount of BTC that can be moved to the side chain. Now imagine that the developer secretly grabs 90% of the cap before pumping the sidechain. The developer has a put that makes this a largely risk free (with my caveat about security risks).

I imagine that once speculators and scammers get to work on coming up with their own variations there will be more such methods developed. Scammers are innovative when it comes to methods of scamming if nothing else.

it's pretty clear that Sidescams are going to blossom.  all they have to do is cause volatility to the Bitcoin ecosystem to have a negative effect. 

but, i have just described to you a SC situation that starts out with good intent and how a whale could exploit that situation with a speculative attack all b/c he has the economic equivalent of a risk free put with the 2 way peg.

everyone knows the consequences of the Greenspan Put, do they not?

[brg444]

- I cannot imagine how somebody can pump scBTC when exchanging them against BTC is 1:1 at the protocol level.

One example was specifically described: A nominally 1:1 side chain with a cap on the amount of BTC that can be moved to the side chain. Now imagine that the developer secretly grabs 90% of the cap before pumping the sidechain. The developer has a put that makes this a largely risk free (with my caveat about security risks).

I imagine that once speculators and scammers get to work on coming up with their own variations there will be more such methods developed. Scammers are innovative when it comes to methods of scamming if nothing else.

Would any sensible person put their BTC in such a capped sidechain? I don't see it. I'm also not sure how the developer could "secretly" grab 90% of the cap before pumping the sidechain. If 90% of the cap is held then I don't see any feasible way that you could create such a pump that would incite a BTC exodus. The numbers don't work.

[tvbcof]

you touched on something i'm very worried with SC's the other day:  a speculative attack.
...

Ya, I like to focus on real problems.  Any non-trivial system will have some of these, though I had to dig surprisingly deeply to find some with sidechains.  It's frusterating to me that 99% of the loudly proposed 'problems' with sidechains driven by simplistic misunderstandings, and more often than not by people playing off these.

By identifying real problems at this phase they can be considered in some of the foundational designs of sidechain implementations.

[cypherdoc]

if BTC holders and miners can be seduced to switch to the SC, full nodes might be expected to as well. 

That is called an upgrade. The same thing happens today if you convince miners, nodes, and users to adopt a new version of the software. It has nothing to do with sidechains, except perhaps providing a more gradual method to migrate.

no, no. read my first post about this above.

initially, scBTC can be expected to trade below BTC, as it is new and MM'd.  as brg444 concluded from my questioning days ago, if observers see a large #scBTC appearing on the SC a price rise will likely follow as it indicates there might be merit to the innovation.  if other speculators start to smell an opportunity of the SC becoming the MC, they will follow in a self feeding cycle.  BTC hodlers then have a problem; either they follow or not.  if not, i say they risk losing value b/c there comes a tipping point where arbitrage won't keep the relative prices close together.  who knows where that point is in the transition; 30, 40, 50%?  but at some point, in the case where we have a truly innovative SC, miners will primarily mine the SC and start MM the MC.  then, the MC becomes less secure and in danger of a 51% attack.  that's where BTC become priced below scBTC.  and that's where you'll get a run/stampede of BTC to scBTC.

[smooth]

Would any sensible person put their BTC in such a capped sidechain?

Why not? There is no risk (beyond the normal risk of side chain security) to doing so before the cap is reached. After the cap is reached you have the possibility of upside with downside protection. I can very much see how that might be attractive to some people.

In fact, if the cap has not been reached and you have a choice between a capped and uncapped sidechain with equivalent features, why would you not choose the capped one? You have greater upside with equivalent downside.

I don't see it. I'm also not sure how the developer could "secretly" grab 90% of the cap before pumping the sidechain.

Why not? Create the side chain, don't publicize it that much. Quietly lock 90% of the cap. Then add a few features and begin to publicize. Greed ("the cap has almost been reached, this baby is ready to fly") and no risk to the developer anyway does the rest.

If 90% of the cap is held then I don't see any feasible way that you could create such a pump that would incite a BTC exodus. The numbers don't work.

I wasn't suggesting a BTC exodus, that was another scenario entirely, although it does potentially allow for a "value exodus" (BTC goes down while scBTC goes up). This is a method to create more speculative assets that could add to volatility to the overall economy. Whether that is a good thing or a bad thing is a matter of opinion.

[cypherdoc]

- I cannot imagine how somebody can pump scBTC when exchanging them against BTC is 1:1 at the protocol level.

One example was specifically described: A nominally 1:1 side chain with a cap on the amount of BTC that can be moved to the side chain. Now imagine that the developer secretly grabs 90% of the cap before pumping the sidechain. The developer has a put that makes this a largely risk free (with my caveat about security risks).

I imagine that once speculators and scammers get to work on coming up with their own variations there will be more such methods developed. Scammers are innovative when it comes to methods of scamming if nothing else.

Would any sensible person put their BTC in such a capped sidechain? I don't see it. I'm also not sure how the developer could "secretly" grab 90% of the cap before pumping the sidechain. If 90% of the cap is held then I don't see any feasible way that you could create such a pump that would incite a BTC exodus. The numbers don't work.

i agree.  focus on my scenario.

[cypherdoc]

if BTC holders and miners can be seduced to switch to the SC, full nodes might be expected to as well. 

That is called an upgrade. The same thing happens today if you convince miners, nodes, and users to adopt a new version of the software. It has nothing to do with sidechains, except perhaps providing a more gradual method to migrate.

it's also different from an upgrade b/c in that scenario, ppl don't have to crack open cold wallets. they just download software.

what i'm describing is a market exploitation/transition that will cause huge volatility.  ppl lose money when there's volatility.

[brg444]

Would any sensible person put their BTC in such a capped sidechain?

Why not? There is no risk (beyond the normal risk of side chain security) to doing so before the cap is reached. After the cap is reached you have the possibility of upside with downside protection. I can very much see how that might be attractive to some people.

In fact, if the cap has not been reached and you have a choice between a capped and uncapped sidechain with equivalent features, why would you not choose the capped one? You have greater upside with equivalent downside.

A cap would effectively prohibit users from participating in that sidechain without having to pay a premium (I think this is what you are suggesting). My opinion is someone would simply clone the sidechain and remove the cap.

I think the difference is you are proposing a speculative sidechain which can only acquire so many users vs. a utility sidechain. The utility sidechain with no cap is expected to win over the speculative sidechain that would try to attract user with the same feature.

[brg444]

i agree.  focus on my scenario.

I guess this is a possible scenario but I find it highly unlikely and a fail to see exactly how the whale profits from such attack? Can you explain further? The way I see it, yes the last out the door may lose but the first in do not gain anything other than securing is stake on the new chain?

I also think the growth of BTC's market cap will eventually mitigate such an attack as what you are suggesting assumes the "attacker" a considerable % stake of the BTC market

I'd like if you could develop your idea more regarding the first part of my comment.

[cypherdoc]

take a look at the VIX graph i just posted today.

whether the volatility causes the market to go down or it's the market going down that causes volatility, we don't know.  we do know that when volatility is going up, someone is losing money.

[smooth]

I think the difference is you are proposing a speculative sidechain which can only acquire so many users vs. a utility sidechain. The utility sidechain with no cap is expected to win over the speculative sidechain that would try to attract user with the same feature.

I'm pretty sure that in anything approximating the current cryptocurrency population, demand for speculation greatly exceeds demand for "utility." Long term you may be right, but not now (and not for a while) in my opinion.

My opinion is someone would simply clone the sidechain and remove the cap.

As I already explained a sidechain with a cap is strictly more attractive than a sidechain without a cap, all else being equal, if the cap has not been reached. So if someone clones the sidechain without a cap, someone else will clone the sidechain with a cap, and the latter will outcompete the former.

The question then is whether, in a group of undifferentiated sidechains with individual caps, users will spread out between them (making the caps irrelevant) or decide to pick one winner. I think one winner will be picked, not only for speculative reasons (which presently dominate, as I opined above), but for network effects as well. Users on different sidechains can't directly transact.

[brg444]

I think the difference is you are proposing a speculative sidechain which can only acquire so many users vs. a utility sidechain. The utility sidechain with no cap is expected to win over the speculative sidechain that would try to attract user with the same feature.

I'm pretty sure that in anything approximating the current cryptocurrency population, demand for speculation greatly exceeds demand for "utility." Long term you may be right, but not now (and not for a while) in my opinion.

I agree, but I am honestly still having trouble wrapping my head about how BTC would react if the value of such a capped scBTC would go up because of increased scarcity of available unit on the sidechain. From my point of view arbitrage would likely balance both units price.

So, yes, it might indeed create volatility but this is effectively a pump and dump scheme and just another case of buyers beware and due dilligence. Also, I'm not sure how the developer can "lock" 90% of the cap and make it appear as if these are actual BTCs locked onto this sidechain. My understanding is someone could determinate if the cap is indeed "almost reached" by investigating the blockchain.

[smooth]

I agree, but I am honestly still having trouble wrapping my head about how BTC would react if the value of such a capped scBTC would go up because of increased scarcity of available unit on the sidechain. From my point of view arbitrage would likely balance both units price.

There is no arbitrage.

So, yes, it might indeed create volatility but this is effectively a pump and dump scheme and just another case of buyers beware and due dilligence.

Yes that was the point. It is a tool for feeding speculative demand and creating volatility.

Also, I'm not sure how the developer can "lock" 90% of the cap and make it appear as if these are actual BTCs locked onto this sidechain.

Because there would be actual BTC locked to the sidechain.

Here is my evil plan for pump and dump riches:

1. Quietly create a sidechain with 1:1 conversion and a cap of 100k bitcoins.

2. Borrow 90k BTC

3. Lock 90k BTC in order to release 90k scBTC

4. Add a few features, spend some money on marketing and promote the sidechain as being "hot". ("Look how much has already been locked!")

5. Wait for the cap to be reached and speculators to continue buying at a premium.

6. Sell some or all of my 90k scBTC to the speculators for >90k BTC

7. Repay the loan.

8. Lambo


Failure scenario:

1. Quietly create a sidechain with 1:1 conversion and a cap of 100k bitcoins.

2. Borrow 90k BTC

3. Lock 90k BTC in order to release 90k scBTC

4. Add a few features, spend some money on marketing and promote the sidechain as being "hot". ("Look how much has already been locked!")

5. Speculators laugh at me and ignore, because DOGE is being pumped.

6. Burn/lock my 90k scBTC to unlock 90k BTC

7. Repay loan.

8. Try again

[explorer]

Meanwhile, Gold collapsing,  bitcoin (also collapsing)

[smooth]

Meanwhile, Gold collapsing,  bitcoin (also collapsing)

Oil too.

What is up? Just USD?

[brg444]

I agree, but I am honestly still having trouble wrapping my head about how BTC would react if the value of such a capped scBTC would go up because of increased scarcity of available unit on the sidechain. From my point of view arbitrage would likely balance both units price.

There is no arbitrage.

Explain? You're not the only one who's gonna want to dump so of that premium priced scBTC for more Bitcoins