Should a bitcoinica clone be put online ?

[rjk]

Hmmm maybe altcoinica so peeps can get the margin devil out of their system without risking too much?

This +1. Waste your damned altcoins on insecure code, and wait for a secure alternative to be built and audited before using it on bitcoins.

[2112]

How was the pricing algo an invention ?
From what I thought I understood it was simply the mtgox price at a certain depth.

I don't know the details either. From what little I understand his modified algorithm would sandbag the spreads in such a way that the loss was always on customer's side not on the house's side. The amount of sandbagging was somehow keyed with volatility.

I distinctly remember somebody somewhere posting a Python code to whipsaw bitcents from the original algorithm and then Zhoutong came up with a fix for that.

[kangasbros]

I think more services = better, so you should go for it. There is always space for alternatives.

[2112]

I'm not really far in understanding how it actually works, until then, calling it a bucket shop (or a legitimate trading platform for the matter) is IMO a little premature.

I understand that you are French and the bucket shop moniker is very much rooted in the American tradition.

But the line of reasoning is really simple. You don't really have to disassembly any perpetuum mobile to say that it can't work.

1) Long trade has a range from unlimited gain and 100% loss.
2) Short trafe has a range from 100% gain to unlimited loss.
3) To honestly allow shorting you have to do a credit check on the customers.
4) Bitcoinica wasn't doing credit checks and didn't attempt to collect on loses.
5) From the above Bitcoinica was a gambling establishment.

Call it "bucket shop", "bunga-bunga shop", "spread betting", "contract for difference" or whatever else the gambling regulations allow throughout the world. The logical outcome is really simple.

[davout]

I understand that you are French and the bucket shop moniker is very much rooted in the American tradition.

But the line of reasoning is really simple. You don't really have to disassembly any perpetuum mobile to say that it can't work.

1) Long trade has a range from unlimited gain and 100% loss.
2) Short trafe has a range from 100% gain to unlimited loss.
3) To honestly allow shorting you have to do a credit check on the customers.
4) Bitcoinica wasn't doing credit checks and didn't attempt to collect on loses.
5) From the above Bitcoinica was a gambling establishment.

Call it "bucket shop", "bunga-bunga shop", "spread betting", "contract for difference" or whatever else the gambling regulations allow throughout the world. The logical outcome is really simple.

Interesting.

My understanding is that they did not require credit checks on people because they would reimburse themselves by force-liquidating your position once it was getting close to net_worth = borrowed_amount

In my understanding how it works is the following (haven't checked much in the actual code so far) :
 - For a short position you borrow BTC from the house. If your own BTCs are N your leverage 2, you end up with selling 2*N BTC at price P1, you're now holding 2*N*P1 USD, if price falls to P2 you can liquidate your position with a buy order, you buy (2*N*P1)/P2 BTC. If P1 > P2 you get keep a profit, if P1 < P2 you're at a loss. Your position is force-liquidated when P2 rises so much that re-buying would leave just enough to reimburse the house.

 - For a long position it's pretty much the opposite. You're just shorting the USD.

And since (always in my understanding) you liquidate positions with market orders there is always enough to pay profits.

People can approach this as gambling, or trading, doesn't matter, as long as the rule is clear I see no malice in that. BUT my understanding of margin trading concepts is still fairly limited, I'm genuinely curious about it, and ready to stand corrected.

[markm]

3) To honestly allow shorting you have to do a credit check on the customers.

I don't see a credit check being a necessity if you hold assets of theirs. Basically their credit is equal to the amount of their assets you have in hand to draw from to cover their losses.

I thought that is what margin calls are all about: any time they seem to be running short of collateral you tell them you will close the position unless they deposit more collateral.

You can limit the losses by never lending more than half your stockpile of an asset.

For example if some LiTeCoin bull wants to short DeVCoin, you only lend him, at maximum, half of your DeVCoins; the rest you put on the market at a high price to guarantee there will be DeVCoins for sale for him to buy come time he is to repay the loan.

Or, you can stretch more by buying what he is shorting. Loan him DeVCoin to short, and buy those same DeVCoin from him as fast as he puts them on the market. If you put back on the market, at a higher price, each and every DeVCoin that you loan him, you can loan him every DeVCoin you started with while still ensuring he will be able to buy enough to pay you back at any time.

So provided you have enough DeVCoin to loan him, and never loan him more than can be bought back with the number of LiTeCoins of his that you have in escrow, all should be good. You get to choose, by placing on the market as many DeVCoins as he owes you, the limit of his losses; you simply do not loan him more than you are willing to buy his escrowed LiTeCoins for.

Leverage of course complicates matters but even with leverage you know how much collateral he has and you know the max price he will have to pay to buy back the asset that he borrowed (because even if no one else will sell him any you stand ready to sell them to him yourself).

Thus far I do not see a big problem, as market-maker you are always in a position to know exactly how much you will charge him for what he is short if no one else will sell it to him, thus you are always able to limit his loss.

-MarkM-

[kangasbros]

3) To honestly allow shorting you have to do a credit check on the customers.
4) Bitcoinica wasn't doing credit checks and didn't attempt to collect on loses.

To my understanding, when you can force liquiditations, there is much smaller risk to the service runner than in traditional lending. The money in the table is the funds that the customer has.

5) From the above Bitcoinica was a gambling establishment.

I agree with that. However I don't think that credit check is necessary for this kind of site, if you create the necessary precautions (forced liquiditations).

[Herodes]

Since the code was leaked, it would probably not be legal to use the exact same code to set up a new site. I am not a lawyer, but I don't think it would be legal to use proprietary source code retrieved through non official ways to set up a bitcoinica clone.

However, if there was a team of information security professionals (with actual degrees and stuff), such a site could be a good idea. I hope that everyone by now has learned that a site created by a 17 year old in 4 days (ignoring the fact that it, isolated speaking was a good achivement), isn't something that we should put our trust in.

But of course, seeing as nobody seems interested in calling the cops, who knows, perhaps somebody setting it up could actually get away with it ?

With the leak of the code I'm asking myself whether it would be a good idea to setup a bitcoinica clone.

Pros :

• Would make some good money
• There is demand for gambling margin trading
• Half the profits could go to the people who lost money because of Bitcoin Consultancy/Bitcoinica/[insert scapegoat here]
• The app itself has never been broken into (even though it's quite surprising when reading the code)

Cons :

• Needs moar reverse-engineering/fixing
• Needs moar testing
• ...

Thoughts ?

[davout]

Since the code was leaked, it would probably not be legal to use the exact same code to set up a new site. I am not a lawyer, but I don't think it would be legal to use proprietary source code retrieved through non official ways to set up a bitcoinica clone.

As far as I'm concerned I downloaded code from someone who voluntarily published it, and there are no copyright notices anywhere in it.  

[racerguy]

With the leak of the code I'm asking myself whether it would be a good idea to setup a bitcoinica clone.

Pros :

• Would make some good money
• There is demand for gambling margin trading
• Half the profits could go to the people who lost money because of Bitcoin Consultancy/Bitcoinica/[insert scapegoat here]
• The app itself has never been broken into (even though it's quite surprising when reading the code)

Cons :

• Needs moar reverse-engineering/fixing
• Needs moar testing
• ...

Thoughts ?

I'm finished with margin trading myself but I say do it,  and from my view in the stands it seems you're a more capable programmer so hopefully the security issues could be prevented with more competent admins.

[2112]

BUT my understanding of margin trading concepts is still fairly limited, I'm genuinely curious about it, and ready to stand corrected.

I don't see a credit check being a necessity if you hold assets of theirs. Basically their credit is equal to the amount of their assets you have in hand to draw from to cover their losses.

To my understanding, when you can force liquiditations, there is much smaller risk to the service runner than in traditional lending. The money in the table is the funds that the customer has.

I think that everyone here should first try to add margin and shorting priviledges to your regular stockbrokerage account. The forms you'll have to submit have a very detailed explanations for the collateral requirements and how that affects your allowable leverage. There also will be the explanation of charges you'll have to pay for the capital you've borrowed to execute your margin or short trade.

In an honest trading establishment even 1:1 leverage requires credit check for shorting. If the lever is more than 1:1 then by definition the customer didn't put enough capital up front.

[davout]

I'm finished with margin trading myself but I say do it,  and from my view in the stands it seems you're a more capable programmer so hopefully the security issues could be prevented with more competent admins.

In fact, even though the code doesn't seem very secure it is still a fact that the only flaws that led to the thefts were organizational and not technical.

[davout]

Since the code was leaked, it would probably not be legal to use the exact same code to set up a new site. I am not a lawyer, but I don't think it would be legal to use proprietary source code retrieved through non official ways to set up a bitcoinica clone.

Oh, and BTW, if someone actually contacts me with a C&D notice we'll know who actually owns the IP

[EnergyVampire]

With the leak of the code I'm asking myself whether it would be a good idea to setup a bitcoinica clone.

Pros :

• Would make some good money
• There is demand for gambling margin trading
• Half the profits could go to the people who lost money because of Bitcoin Consultancy/Bitcoinica/[insert scapegoat here]
• The app itself has never been broken into (even though it's quite surprising when reading the code)

Cons :

• Needs moar reverse-engineering/fixing
• Needs moar testing
• ...

Thoughts ?

I like this project.

My understanding is that Intersango LTD ( or Bitcoin Consultancy LTD, Bitcoinica LP, Core Credit LTD) owns the code, maybe they will be kind enough to Open Source it?

However I don't think that credit check is necessary for this kind of site, if you create the necessary precautions (forced liquiditations).

I agree with this comment. Forced liquidations would reduce the risk for the exchange/broker and make credit checks unnecessary.

The original code surely belongs to someone, regardless of whether it's been leaked.

Though given the leak it looks trivial to reverse engineer and write a clone from scratch.

I agree.
If, for whatever reason, the owner(s) refuse to release the code, you can always make a better clone including the options to adjust the authorized leverage per contract (BTC/USD, BTC/EUR, BTC/AUD, etc.) and add/remove contracts based on liquidity and/or market demands.

[hazek]

My understanding is that Intersango LTD ( or Bitcoin Consultancy LTD, Bitcoinica LP, Core Credit LTD) owns the code, maybe they will be kind enough to Open Source it?

Hey I didn't know that if you run a website, the server side code is automatically visible to everyone..

I mean, please. Not only is the notion of IP completely ridiculous but how are they ever going to know if someone changes the frontend a bit but keeps the server side code exactly the same? It's impossible to enforce.

This genie is out of the box and no one is ever putting it back.

[hazek]

For me, this is the most interesting part about having their source code now, we actually get to see exactly how their exchange was operating:

In my understanding how it works is the following (haven't checked much in the actual code so far) :
 - For a short position you borrow BTC from the house. If your own BTCs are N your leverage 2, you end up with selling 2*N BTC at price P1, you're now holding 2*N*P1 USD, if price falls to P2 you can liquidate your position with a buy order, you buy (2*N*P1)/P2 BTC. If P1 > P2 you get keep a profit, if P1 < P2 you're at a loss. Your position is force-liquidated when P2 rises so much that re-buying would leave just enough to reimburse the house.

 - For a long position it's pretty much the opposite. You're just shorting the USD.

And since (always in my understanding) you liquidate positions with market orders there is always enough to pay profits.

Interesting.. can you find out how P1 and P2 are determined?

[kiba]

As far as I'm concerned I downloaded code from someone who voluntarily published it, and there are no copyright notices anywhere in it.  

Don't you know that everything is automatically copyrighted?

[MatthewLM]

Aren't copyright notices required or else information is in the public domain? If there are no notices then from my limited knowledge I would guess it was in the public domain legally.

[davout]

brb getting server

[jgarzik]

Aren't copyright notices required or else information is in the public domain? If there are no notices then from my limited knowledge I would guess it was in the public domain legally.

According to US law...

Q. Do I have to register with your office to be protected?
A. No. In general, registration is voluntary. Copyright exists from the moment the work is created. You will have to register, however, if you wish to bring a lawsuit for infringement of a U.S. work. See Circular 1, Copyright Basics, section “Copyright Registration.”

From http://www.copyright.gov/help/faq/faq-general.html