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Author Topic: NuBits are operating as a fractional reserve.  (Read 6455 times)
FandangledGizmo
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January 17, 2015, 03:17:50 AM
 #41

The argument they're selling you that there is no central point of failure because there is no vault of assets backing the whole thing up is brilliant!

That's like a gold vault telling you they've removed centralized risk because when you give them your gold they spend it on hookers and blow and then say 'Look! There's no gold in the vault! No centralized risk!'

Don't worry. We'll maintain the value of your deposit by agreeing what it's worth and maintaining a buy and sell wall because it's in our interest to do so  Tongue (Hint: It's only in their interest to do so while new money is coming in.)

(Their argument of not being able to provide reserves without centralized risk is also more balderdash because BitShares is able to provide an average of 300% collateral without centralised counterparty risk/central point of failure.)

Yes, it is brilliant. No, it's not like gold vault telling you what you just said. About your hint, you just destroyed your own argument with it. It's in the interest of any shareholder to keep new money coming in, that's the point. That's why the shareholders won't run away with the money. Your line of logic assumes that a treasurer would run away with the money they look after. So why aren't all the security guards and treasurers running away with the money they guard? Answer that question and you will see the problem in your statement.


Vaults work on a re-occuring storage cost model, they are sustainable without new gold coming in. They have security systems in place, abide by stringent laws and submit to regular audits. In the event that a vault is unprofitable and needs to close, everybody can in theory recover their gold. However they, like exchanges, still carry large centralized risks and the custodians often do take the money and run or engage in risky trading/other practices that result in the loss of customer funds.

Blockchains with their decentralized ledgers and decentralized systems of control allow you to verify your funds or collateral are accounted for and secure, so are arguably an improvement over even a centralized gold vault.

NuBits however, unlike a gold vault doesn't have the assets available to allow a large percentage of people to redeem their NuBits for $1 & without new money coming in, their current system will collapse. Their blockchain doesn't transparently allow you to verify the collateral/assets are there or secure either. NuBits is essentially the worst of both worlds for anyone holding NuBits but the best of both for the people you buy NuBits from as the majority have a great level of anonymity unlike centralized counterparts running similar systems.



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January 17, 2015, 05:31:00 AM
 #42

Is this real news?
Btw i think its not. Because if they had millions of usd worth of btc dumped on them, then that means people bought nubits. which is good.
i think you are making FUD.

Yep, they had millions worth of BTC dumped on them. That means that when BTC went from 300 to 200, they held BTC and lost hundreds of thousands of dollars in value.

If people try to get out of NuBits now, then they will suddenly find that there is not enough BTC to cover the bought NuBits at this lower price. Suddenly the buy wall will disappear and your NuBits will be worthless. The only way you can have a safe peg is if the collateral is locked on the blockchain where you can see it and evaluate the risk!

I'm absolutely making FUD, yes. But until there is cryptographic proof that NuBits' "trusted" custodians are solvent, then my FUD is true. NuBits is operating as a fractional reserve.

is there proof that they are insolvent tho?

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January 17, 2015, 05:51:39 AM
 #43

Just to let you guys know , we are from www.Bitcoin.co.id currently open Nubits/BTC market with 0% trading fee Smiley We really need supply of Nubits in our exchange. The price of nubits in our exchange is higher than 20% than other exchanger.

Thank you

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January 17, 2015, 06:55:57 AM
 #44

Is this real news?
Btw i think its not. Because if they had millions of usd worth of btc dumped on them, then that means people bought nubits. which is good.
i think you are making FUD.

Yep, they had millions worth of BTC dumped on them. That means that when BTC went from 300 to 200, they held BTC and lost hundreds of thousands of dollars in value.

If people try to get out of NuBits now, then they will suddenly find that there is not enough BTC to cover the bought NuBits at this lower price. Suddenly the buy wall will disappear and your NuBits will be worthless. The only way you can have a safe peg is if the collateral is locked on the blockchain where you can see it and evaluate the risk!

I'm absolutely making FUD, yes. But until there is cryptographic proof that NuBits' "trusted" custodians are solvent, then my FUD is true. NuBits is operating as a fractional reserve.

is there proof that they are insolvent tho?

Of course not. This person does not even understand what "true" means. It is also a huge turn off seeing all this FUD coming out of Bitshares. Some of their holders are acting like a second rate anoncoin, unprofessional, childish, and unappealing for serious investors.

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January 17, 2015, 10:47:58 AM
 #45

NuBits however, unlike a gold vault doesn't have the assets available to allow a large percentage of people to redeem their NuBits for $1 & without new money coming in, their current system will collapse. Their blockchain doesn't transparently allow you to verify the collateral/assets are there or secure either. NuBits is essentially the worst of both worlds for anyone holding NuBits but the best of both for the people you buy NuBits from as the majority have a great level of anonymity unlike centralized counterparts running similar systems.

Wrong, NuBits has assets available to allow a large percentage of people to redeem their nubits for 1$.

Without new money coming in, nothing will collapse. Assuming such a collapse is as ignorant as saying that without BTC's price increasing the development of the open-source protocol of Bitcoin will stop and network stops confirming transactions.

The blockchain indeed cannot allow verification of a lot of things. That's the reason why NuBits was built the way it was. If it was possible for the blockchain to verify exchange rate of BTC/USD then the volatility issue could be solved on the protocol level. Because a mathematical protocol cannot track the exchange rate of its units of value by itself we need to choose between 2 options:
  • Fight volatility with the means of centralized human intervention
  • Fight volatility with the means of decentralized human intervention

Which of these two do you think is the lesser evil?

Correct! Decentralization is the future.
Quote from: David A. Johnston
Everything that can be decentralized, will be decentralized.

Perhaps I am just a random internet's folk with a clear agenda to defend NuBits so my arguments are somehow less plausible? No problem, I can link you some objective scientific material that favours the approach NuBits has taken:
http://www.coindesk.com/japanese-scholars-draft-proposal-better-bitcoin/

So, if we want a cryptocurrency that is not volatile, NuBits is exactly the only and most reasonable way to achieve it. Fact is that there is clear demand for volatility-free cryptocurrencies. Wherever there is demand there will eventually be supply. Don't hate the player, hate the game.

NuBits is essentially the best of both worlds for anyone holding NuBits because:
  • Currency board's decision-making is fully transparent.
  • Anyone who holds nushares can participate in voting.
  • The software is open source.
  • The system is fully decentralized.

If NuBits had a central vault of reserves I wouldn't be in their community. I have seen peg failing due to the centralized reserves before (paycoin promised 20$ floor but failed miserably). The reason such centralization is impending doom is that it's a central point of failure and those reserves have a legal owner. The legal owner can go rogue or some other disaster could destroy the reservs, bringing down the whole concept. I think I don't need to remind you e-gold and Liberty Dollar.

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January 17, 2015, 01:48:37 PM
 #46

NuBits however, unlike a gold vault doesn't have the assets available to allow a large percentage of people to redeem their NuBits for $1 & without new money coming in, their current system will collapse. Their blockchain doesn't transparently allow you to verify the collateral/assets are there or secure either. NuBits is essentially the worst of both worlds for anyone holding NuBits but the best of both for the people you buy NuBits from as the majority have a great level of anonymity unlike centralized counterparts running similar systems.

Wrong, NuBits has assets available to allow a large percentage of people to redeem their nubits for 1$.

Without new money coming in, nothing will collapse. Assuming such a collapse is as ignorant as saying that without BTC's price increasing the development of the open-source protocol of Bitcoin will stop and network stops confirming transactions.

The blockchain indeed cannot allow verification of a lot of things. That's the reason why NuBits was built the way it was. If it was possible for the blockchain to verify exchange rate of BTC/USD then the volatility issue could be solved on the protocol level. Because a mathematical protocol cannot track the exchange rate of its units of value by itself we need to choose between 2 options:
  • Fight volatility with the means of centralized human intervention
  • Fight volatility with the means of decentralized human intervention

Which of these two do you think is the lesser evil?

Correct! Decentralization is the future.
Quote from: David A. Johnston
Everything that can be decentralized, will be decentralized.

Perhaps I am just a random internet's folk with a clear agenda to defend NuBits so my arguments are somehow less plausible? No problem, I can link you some objective scientific material that favours the approach NuBits has taken:
http://www.coindesk.com/japanese-scholars-draft-proposal-better-bitcoin/

So, if we want a cryptocurrency that is not volatile, NuBits is exactly the only and most reasonable way to achieve it. Fact is that there is clear demand for volatility-free cryptocurrencies. Wherever there is demand there will eventually be supply. Don't hate the player, hate the game.

NuBits is essentially the best of both worlds for anyone holding NuBits because:
  • Currency board's decision-making is fully transparent.
  • Anyone who holds nushares can participate in voting.
  • The software is open source.
  • The system is fully decentralized.

If NuBits had a central vault of reserves I wouldn't be in their community. I have seen peg failing due to the centralized reserves before (paycoin promised 20$ floor but failed miserably). The reason such centralization is impending doom is that it's a central point of failure and those reserves have a legal owner. The legal owner can go rogue or some other disaster could destroy the reservs, bringing down the whole concept. I think I don't need to remind you e-gold and Liberty Dollar.

Your entire argument that you are not able to provide a decentralized vault of reserves is untrue.

BitShares has an average of 300% decentralized collateral backing BitUSD. That's collateral without centralized counterparty risk.

I'm also well aware of examples like e-gold. No central point of failure is an advantage but is not an excuse for not having decentralized reserves too. Ironically the majority of cases, where centralized funds are lost, like Gox, are not a validation for NuBits but rather a warning as to why you shouldn't buy NuBits.

Any system without decentralized proof of reserves requires you to trust audits/incentives/good intentions. Blockchains with their decentralized ledgers and decentralized systems of control solve this and allow you to verify your funds & collateral are accounted for and secure.

As I said earlier, without decentralized proof of reserves, NuBits has used decentralization & the fantastic invention of the blockchain not to better protect customer funds than say a Bank/Mt. Gox but has instead used it to decentralize the role of the owners of those fractional reserve systems who will be unable to reimburse customers in the event of large redemptions.




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January 17, 2015, 02:41:33 PM
 #47

Your entire argument that you are not able to provide a decentralized vault of reserves is untrue.

BitShares has an average of 300% decentralized collateral backing BitUSD. That's collateral without centralized counterparty risk.

I'm also well aware of examples like e-gold. No central point of failure is an advantage but is not an excuse for not having decentralized reserves too. Ironically the majority of cases, where centralized funds are lost, like Gox, are not a validation for NuBits but rather a warning as to why you shouldn't buy NuBits.

Any system without decentralized proof of reserves requires you to trust audits/incentives/good intentions. Blockchains with their decentralized ledgers and decentralized systems of control solve this and allow you to verify your funds & collateral are accounted for and secure.

As I said earlier, without decentralized proof of reserves, NuBits has used decentralization & the fantastic invention of the blockchain not to better protect customer funds than say a Bank/Mt. Gox but has instead used it to decentralize the role of the owners of those fractional reserve systems who will be unable to reimburse customers in the event of large redemptions.

Deja vu. Again we go back to the reserves. I'm almost tempted to let you prove the existence, location and custodians of the "300% decentralized collateral backing BitUSD" but I really don't care since this topic is not about BitUSD (whatever that is).

And what the hell has mtgox to do here with anything? Cheesy

It is clear that much of the confusion arises from the definitions of the terms such as:
  • reserves
  • decentralized reserves
  • decentralized vault of reserves
  • decentralized proof of reserves
  • decentralized systems of control

So when you prepare your next reply, please take time to provide me with a rigorous definition of those terms. I would also like to remind you that in the context of NuBits the conventional notion of reserves is irrelevant and there's a good reason for that.

The so called reserves are paralyzed wealth --- they just sit somewhere safe (hopefully), doing nothing. The clever concept of NuBits, however, uses those reserves to provide liquidity. If at some point audit is needed, it can easily be arranged. By cryptographically signing a message with the private keys that store the wealth held by liquidity providers their individual solvency can be verified.

Having said that, we see why the term reserves is not appropriate in the context of NuBits. Thus, an attentive reader could easily conclude that the term fractional reserves doesn't really apply to NuBits either.

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January 17, 2015, 04:29:02 PM
 #48

Your entire argument that you are not able to provide a decentralized vault of reserves is untrue.

BitShares has an average of 300% decentralized collateral backing BitUSD. That's collateral without centralized counterparty risk.

I'm also well aware of examples like e-gold. No central point of failure is an advantage but is not an excuse for not having decentralized reserves too. Ironically the majority of cases, where centralized funds are lost, like Gox, are not a validation for NuBits but rather a warning as to why you shouldn't buy NuBits.

Any system without decentralized proof of reserves requires you to trust audits/incentives/good intentions. Blockchains with their decentralized ledgers and decentralized systems of control solve this and allow you to verify your funds & collateral are accounted for and secure.

As I said earlier, without decentralized proof of reserves, NuBits has used decentralization & the fantastic invention of the blockchain not to better protect customer funds than say a Bank/Mt. Gox but has instead used it to decentralize the role of the owners of those fractional reserve systems who will be unable to reimburse customers in the event of large redemptions.

Deja vu. Again we go back to the reserves. I'm almost tempted to let you prove the existence, location and custodians of the "300% decentralized collateral backing BitUSD" but I really don't care since this topic is not about BitUSD (whatever that is).

And what the hell has mtgox to do here with anything? Cheesy

It is clear that much of the confusion arises from the definitions of the terms such as:
  • reserves
  • decentralized reserves
  • decentralized vault of reserves
  • decentralized proof of reserves
  • decentralized systems of control

So when you prepare your next reply, please take time to provide me with a rigorous definition of those terms. I would also like to remind you that in the context of NuBits the conventional notion of reserves is irrelevant and there's a good reason for that.

The so called reserves are paralyzed wealth --- they just sit somewhere safe (hopefully), doing nothing. The clever concept of NuBits, however, uses those reserves to provide liquidity. If at some point audit is needed, it can easily be arranged. By cryptographically signing a message with the private keys that store the wealth held by liquidity providers their individual solvency can be verified.

Having said that, we see why the term reserves is not appropriate in the context of NuBits. Thus, an attentive reader could easily conclude that the term fractional reserves doesn't really apply to NuBits either.

(Gox was an example of the risks you take trusting any form of IOU not backed by some decentralized proof of reserves/collateral.)

http://www.bitsharesblocks.com/assets/asset?id=USD

There are no custodians of the BitUSD collateral you see present there. It is all locked up as part of the open source code and process that occurs around BitAsset creation on the BitShares blockchain. (The system will automatically margin call it in the event BTS (the collateral) loses significant value & the system will also automatically use it to cover positions if the original short has not done so in thirty days.)

http://bitshares.org/the-value-proposition-of-bitshares-part-ii-bitassets/

(In response to your other question that is what I mean by decentralized reserves/decentralized vault of reserves/decentralized proof of reserves.)

I generally warn people about the high risk of all fractional reserve systems so this was not a personal attack on NuBits. Hopefully there is enough clear alternative information presented here to allow people to make an independent assessment of the possible risks & whether or not in the NuBits case traditional reserves are not required.

For now I'll say we agree to disagree on the merits of the NuBits system.

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January 17, 2015, 05:08:07 PM
 #49

I never really got the concept i guess tho I see a lot of their posts on r/cryptocurrency. I kind of want to *break away* from fractional reserve and pegged currencies.

Me too. But you must understand that nubits are not hard pegged. The shareholders can decide what buy/sell walls they maintain. The voting is decentralized and you can do that with the private keys of your nushares. Should USD collapse, the nushareholders would probably set some other (more reliable) peg.

The mere function of the peg is to reduce volatility by mutually agreeing on what the price should be. The term "fractional reserve" in the context of nubits does not make any sense. NuBits does its best to maintain the price of 1 NBT at the desired value in a decentralized manner. There is no central point of failure since there is no giant vault of assets backing the whole thing up.

The whole idea behind NuBits was to separate store of value function from the currency function. Currency should not be volatile and nushareholders do their best to keep volatility away from nubits. It is for their interest to fulfill the promise because if nubits succeeds there will be more dividends paid to the shareholders.

You really have no understanding of volatility.

Volatility in a free market is always present and positive and NORMAL...
Just like entropy in the universe is always present and positive...
Just like the weather is always present and creates volatility.

Volatility costs a non-trivial amount of money to insure against.

If you want to eliminate volatility from a financial asset...
You have to keep buying straddles (a long call and a long put) which can be priced quite precisely...
Straddles for eternity on a crypto-currency would be insanely expensive.

Whatever the Nu Crowd is doing MUST BE A SIMULATION of continuously buying straddles...
Mathematically, the operation must run at a big loss...
So they must run some kind of "market making" operation...
And get a lot of idiots/"investors" paying a 5% spread or otherwise "donating" money.

If you are not seeing detailed, daily accounting...
And they are running a massive loss and hiding it from "shareholders"...
Then this is Bernie Madoff territory... the kind of thing people do serious jail time for.

Personally, I think FinCEN and the SEC have NuBits and BitShares under a microscope...
And you will eventually see very public trials of the individuals responsible.
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January 17, 2015, 05:33:45 PM
 #50

there is no 5% spread,  where does this keep coming from?

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January 17, 2015, 06:01:42 PM
 #51

Also Zer0Sum missed the point that there's a HUGE difference between the consequences of 30% daily volatility and 0.3%.

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January 17, 2015, 07:43:16 PM
 #52

Volatility costs a non-trivial amount of money to insure against.

OK, I just read the whitepaper... and will stick with the above quote:

"Volatility costs a non-trivial amount of money to insure against".

But Nu pays this cost not by simulating hedging using options...
Nu pays this cost by creating a virtual Central Bank that issues bonds to currency owners....
And then PRINTS MONEY to pay the interest on these bonds.

This is precisely what, say, the Swiss Central Bank did for 3 years...
When they had to print $75,000,000,000 CHF to maintain the peg...
That's the cost of maintaining a straddle on CHF for 3 years... and keeping volatility at zero.

Using different terminology like "parking" = "issue bonds"...
Or "create a coinbase transaction" = "printing money"... 
Or "voting by shareholders" = "voting by Central Bank Committee" changes nothing.
 
It's just another Central Bank...
The whitepaper even says Nubits will utilimately be worthless as pegging costs mount over time.

The only interesting question is who made millions and what their motives were...
When the Nu group manufactured another transient crypto asset bubble in China.

 Cheesy Cheesy Cheesy
 
 
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January 17, 2015, 09:26:41 PM
 #53

Personally, I think FinCEN and the SEC have NuBits and BitShares under a microscope...
And you will eventually see very public trials of the individuals responsible.
Why BitShares?  Sad
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January 17, 2015, 10:52:53 PM
 #54



Isnt' NuSharers doing exactly what the Swiss central bank was doing? Trying to artificially maintain the peg of the franc to the euro. When the euro value got so low they gave up because it was damaging the Franc. When will the NuShares holders give-up?
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January 17, 2015, 11:03:56 PM
 #55

Isnt' NuSharers doing exactly what the Swiss central bank was doing? Trying to artificially maintain the peg of the franc to the euro. When the euro value got so low they gave up because it was damaging the Franc. When will the NuShares holders give-up?

When USD starts performing real bad another peg will be chosen to protect the wealth of the people holding nubits. When hyperinflation of USD happens, for example.

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January 18, 2015, 04:12:41 AM
 #56

Is this real news?
Btw i think its not. Because if they had millions of usd worth of btc dumped on them, then that means people bought nubits. which is good.
i think you are making FUD.

Yep, they had millions worth of BTC dumped on them. That means that when BTC went from 300 to 200, they held BTC and lost hundreds of thousands of dollars in value.

If people try to get out of NuBits now, then they will suddenly find that there is not enough BTC to cover the bought NuBits at this lower price. Suddenly the buy wall will disappear and your NuBits will be worthless. The only way you can have a safe peg is if the collateral is locked on the blockchain where you can see it and evaluate the risk!

I'm absolutely making FUD, yes. But until there is cryptographic proof that NuBits' "trusted" custodians are solvent, then my FUD is true. NuBits is operating as a fractional reserve.

is there proof that they are insolvent tho?

Of course not. This person does not even understand what "true" means. It is also a huge turn off seeing all this FUD coming out of Bitshares. Some of their holders are acting like a second rate anoncoin, unprofessional, childish, and unappealing for serious investors.

so there's no proof.  delete this thread.

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Hyena
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January 18, 2015, 07:02:04 AM
 #57

so there's no proof.  delete this thread.

Or perhaps just the first post Cheesy because it does provide some good information about the essence of nubits.

robrigo
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January 18, 2015, 07:08:33 AM
 #58

Is this real news?
Btw i think its not. Because if they had millions of usd worth of btc dumped on them, then that means people bought nubits. which is good.
i think you are making FUD.

Yep, they had millions worth of BTC dumped on them. That means that when BTC went from 300 to 200, they held BTC and lost hundreds of thousands of dollars in value.

If people try to get out of NuBits now, then they will suddenly find that there is not enough BTC to cover the bought NuBits at this lower price. Suddenly the buy wall will disappear and your NuBits will be worthless. The only way you can have a safe peg is if the collateral is locked on the blockchain where you can see it and evaluate the risk!

I'm absolutely making FUD, yes. But until there is cryptographic proof that NuBits' "trusted" custodians are solvent, then my FUD is true. NuBits is operating as a fractional reserve.

is there proof that they are insolvent tho?

Of course not. This person does not even understand what "true" means. It is also a huge turn off seeing all this FUD coming out of Bitshares. Some of their holders are acting like a second rate anoncoin, unprofessional, childish, and unappealing for serious investors.

so there's no proof.  delete this thread.

So when / where are NuBits custodians going to publish proof of solvency? The burden of proof is on them, considering they are the only ones with access to that information.

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January 18, 2015, 07:29:03 AM
 #59

So when / where are NuBits custodians going to publish proof of solvency? The burden of proof is on them, considering they are the only ones with access to that information.

Do you understand that Nu custodians use their own finances?

https://discuss.nubits.com/t/bitusd-finally-has-some-volume-inspired-by-success-of-nu:
Quote from: mhps
Nu is a collection of people using their own funds with strategies they agree to (via a uncorruptable voting mechanism) to provide superb performance and usability of a pegged product to the user. Apparently many people in the BitShares community like having MM bot. Next you will see bots colliding and will have to coordinate. You will move more close to how Nu operates. We are all just different part of the same spectrum.

For example, if I want to be a custodian for Nu, I first must have my own personal capital (say 5000$). Now I promise to provide buy side liquidity for a month in return of 500 NBT. The nushareholders then vote and if I get elected I must use my own funds for a month to provide that liquidity. Instead of 5000$ I can use 10000$ or just 1000$. Either way I must prove to nushareholders that I filled my promise and this can be done. So if I cheat, for example, then I don't get elected next time (and perhaps I don't even get the 500 NBT?). So, now you ask NuBits custodians to publish proof of solvency? As a custodian in this hypothetical scenario, I personally don't care if some internet troll asks proof since I'm using my own capital to begin with. If the nushareholders doubt in my solvency then they simply won't elect me as a custodian.

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January 18, 2015, 07:40:13 AM
 #60

For example, if I want to be a custodian for Nu, I first must have my own personal capital (say 5000$). Now I promise to provide buy side liquidity for a month in return of 500 NBT. The nushareholders then vote and if I get elected I must use my own funds for a month to provide that liquidity. Instead of 5000$ I can use 10000$ or just 1000$. Either way I must prove to nushareholders that I filled my promise and this can be done. So if I cheat, for example, then I don't get elected next time (and perhaps I don't even get the 500 NBT?). So, now you ask NuBits custodians to publish proof of solvency? As a custodian in this hypothetical scenario, I personally don't care if some internet troll asks proof since I'm using my own capital to begin with. If the nushareholders doubt in my solvency then they simply won't elect me as a custodian.

This sounds very dangerous. Essentially we are being asked to trust you, which is opposite to the trustless movement Bitcoin started.






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