Topic: NICEHASH: The Virtue of Laissez Faire Markets aka Actual Theft - thoughts wanted (Read 194 times)
September 14, 2017, 08:36:50 PM
... and crickets... :-P
September 13, 2017, 05:00:37 PM
Please put your flamethrowers away. If this post offends you it is a per se admission that you are engaging in questionable (at best) if not illegal collusion/market fixing and your opinion is hence almost certainly superfluous and colored by a profit motive aka valueless for the purposes of a serious academic inquiry.
I have always considered myself a hard line capitalist and believe that free markets are not only the most efficient means to allocate scarce resources but also that any centralized regulation thereof is almost certain to create inefficiencies that render everyone involved worse off. For example, I once got into a screaming argument with a professor at the law school I attended because I insisted that insider trading of publicly traded securities is useful and valuable to the market generally, that trying to regulate it is a fool's errand and hence a manifest waste of resources, and that if he didn't understand why that was the case he shouldn't be teaching (he is a prof emeritus with a PhD in economics from Harvard). All that said, I have been going back and forth in my mind over the following premise and can't seem to come up with a firm conclusion.
Here is the situation. Nicehash provides, as opposed to what I would call facially scammy alternatives, "cloud mining" services on demand. In other words, one can with BTC (at quoted prices) instantaneously procure hashing power from the network provided by miners running black-box proprietary software distributed by Nicehash. The business model - and I mean this in the most cloying way - would give Satan a hard-on. In short they supply the software, run the web frontend and to a degree a mining brokerage backend (e.g. they facilitate one's ability to direct that power at third party stratums or solo mining nodes as designated by the lessee) and collect a commission from every.single.party involved. They further make it difficult (if not impossible) to direct said hashing power at pools they do not endorse (you know, the ones they don't get a cut of) under the auspices that other pools are not "efficient" enough to work with their software. This might be only half bullshit but to anyone paying attention it is conspicuously not "no bullshit" (unless we are to believe that all of the largest, best established, most profitable pools that are not in bed with the Nicehash peeps do not know how to run efficient [in technical terms] pools). The miners using their software are not engaged in what I would call theoretically pure "mining" as their compensation is not in any way tied to the results of the work they perform except to the extent that someone else is willing to pay them for it. I do not have access to enough data to perform a statistical analysis to say for certain but even considering the modest gains a miner would expect to earn from superior software the basic idea seems to be that the miners give up the opportunity to hit the crypto lottery and so exchange risk for more modest but consistent returns (not unlike pooled mining generally). Seems totally fair and even desirable.
My issue is that in practice the Nicehash markets to not behave like rational markets and I am pretty sure I know why. In a what seems like an almost constant broadside, automation will consume liquidity in a pool at prices that would be considered suicidal for someone with a profit motive. There are situations, of course, where parties might have a legitimate/rational reason to lock up a significant percentage of the network hashing power and be willing to pay a premium for the privilege. For instance, an arb with a cash flow issue that NEEDS to hit a benchmark to keep the whole system working. That said, what I have experienced personally is a large quantity of orders at the minimum volume rocket from that minimum to a much higher percentage of the total purchasable power, above the ostensible market price, in a matter of milliseconds to wipe out any "lower price" (i.e. actual market price) orders to frustrate the purposes of those lessees. This phenomenon is readily observable even to a troglodyte like myself because the parties fixing the market don't even deign to mask their efforts and will almost always have numerically connected order #s (they are placed simultaneously) and jump the fix by volume at THE SAME RANDOM VOLUME - say 104.32 16 orders in a row, among other methods. The net effect is that the bots buy hashing power at a 10% or 20% premium for short periods of time, wipe out lower orders and force anyone wishing to lease the hashing power at profitable rates to take on all of the expense associated with swings in the number of miners/hashrate (they pay extra rewards to the miners) knowing that because of the nature of mining, disconnects and the like are very expensive.
So as far as I can tell the most likely explanation for this "irrational" market participation is that it is not irrational at all. Meaning, some combination of Nicehash itself (actively or tacitly), a contingent of miners with a motivation to keep the prices artificially high knowing doing so is not costless, and other lessees attempting to stamp out competition by making it unprofitable for anyone trying to rent a material amount of the available hashrate, are the causes. Fine, OK, I see whats going on there, good job. But really to me that isn't nearly as interesting as the question of whether or not this market fixing is good, bad, or both and whether or not it should be tolerated or regulated.
Now that I have gotten to the beleaguered conclusion of this post I ask what your feelings are on this. On the one hand, if this was a "real market" the mid-thirties, balding, SEC lawyer in the Enforcement Division with the rotund spouse who is going through an existential crisis in their Cleveland Park apartment (because DuPont and Logan Circle are just too overpriced to make sense) after realizing they paid a an order of magnitude too much for their second tier law degree WOULD HAVE A HOLIDAY on such egregious market fixing. This calls into question the point of these markets in general and whether or not adoption by "normal" people really is the goal or even desirable at this juncture. Assume for the sake of that analysis we all agree that decentralized markets are useful because that bald guy poking his finger into the pot screws everyone over but also that we understand why the government would, and perhaps even should, police abuses in securities available for purchase to the general public. But then on the other hand, if we really do support a system that isn't beholden to a nanny regulator in chief do we have to accept as a cost therefor actual stealing on the part of miners/conspirators who are sold - both to the lessors and the lessee - as knowingly giving up part of an upside for consistency who work/conspire to end-around the whole system to increase their earnings (i.e. recovering that upside OR rent seeking) by utilizing superior technology to actively manipulate the market at everyone else's expense? Should it be enough that such behavior should drive innovation on the part of the actual consumer or are we simply looking the other way on fraud that is accomplished without breaking the letter of the rules but certainly with malintent nevertheless. I am asking the community here at large because I genuinely do not know the answer to the question...
I have always considered myself a hard line capitalist and believe that free markets are not only the most efficient means to allocate scarce resources but also that any centralized regulation thereof is almost certain to create inefficiencies that render everyone involved worse off. For example, I once got into a screaming argument with a professor at the law school I attended because I insisted that insider trading of publicly traded securities is useful and valuable to the market generally, that trying to regulate it is a fool's errand and hence a manifest waste of resources, and that if he didn't understand why that was the case he shouldn't be teaching (he is a prof emeritus with a PhD in economics from Harvard). All that said, I have been going back and forth in my mind over the following premise and can't seem to come up with a firm conclusion.
Here is the situation. Nicehash provides, as opposed to what I would call facially scammy alternatives, "cloud mining" services on demand. In other words, one can with BTC (at quoted prices) instantaneously procure hashing power from the network provided by miners running black-box proprietary software distributed by Nicehash. The business model - and I mean this in the most cloying way - would give Satan a hard-on. In short they supply the software, run the web frontend and to a degree a mining brokerage backend (e.g. they facilitate one's ability to direct that power at third party stratums or solo mining nodes as designated by the lessee) and collect a commission from every.single.party involved. They further make it difficult (if not impossible) to direct said hashing power at pools they do not endorse (you know, the ones they don't get a cut of) under the auspices that other pools are not "efficient" enough to work with their software. This might be only half bullshit but to anyone paying attention it is conspicuously not "no bullshit" (unless we are to believe that all of the largest, best established, most profitable pools that are not in bed with the Nicehash peeps do not know how to run efficient [in technical terms] pools). The miners using their software are not engaged in what I would call theoretically pure "mining" as their compensation is not in any way tied to the results of the work they perform except to the extent that someone else is willing to pay them for it. I do not have access to enough data to perform a statistical analysis to say for certain but even considering the modest gains a miner would expect to earn from superior software the basic idea seems to be that the miners give up the opportunity to hit the crypto lottery and so exchange risk for more modest but consistent returns (not unlike pooled mining generally). Seems totally fair and even desirable.
My issue is that in practice the Nicehash markets to not behave like rational markets and I am pretty sure I know why. In a what seems like an almost constant broadside, automation will consume liquidity in a pool at prices that would be considered suicidal for someone with a profit motive. There are situations, of course, where parties might have a legitimate/rational reason to lock up a significant percentage of the network hashing power and be willing to pay a premium for the privilege. For instance, an arb with a cash flow issue that NEEDS to hit a benchmark to keep the whole system working. That said, what I have experienced personally is a large quantity of orders at the minimum volume rocket from that minimum to a much higher percentage of the total purchasable power, above the ostensible market price, in a matter of milliseconds to wipe out any "lower price" (i.e. actual market price) orders to frustrate the purposes of those lessees. This phenomenon is readily observable even to a troglodyte like myself because the parties fixing the market don't even deign to mask their efforts and will almost always have numerically connected order #s (they are placed simultaneously) and jump the fix by volume at THE SAME RANDOM VOLUME - say 104.32 16 orders in a row, among other methods. The net effect is that the bots buy hashing power at a 10% or 20% premium for short periods of time, wipe out lower orders and force anyone wishing to lease the hashing power at profitable rates to take on all of the expense associated with swings in the number of miners/hashrate (they pay extra rewards to the miners) knowing that because of the nature of mining, disconnects and the like are very expensive.
So as far as I can tell the most likely explanation for this "irrational" market participation is that it is not irrational at all. Meaning, some combination of Nicehash itself (actively or tacitly), a contingent of miners with a motivation to keep the prices artificially high knowing doing so is not costless, and other lessees attempting to stamp out competition by making it unprofitable for anyone trying to rent a material amount of the available hashrate, are the causes. Fine, OK, I see whats going on there, good job. But really to me that isn't nearly as interesting as the question of whether or not this market fixing is good, bad, or both and whether or not it should be tolerated or regulated.
Now that I have gotten to the beleaguered conclusion of this post I ask what your feelings are on this. On the one hand, if this was a "real market" the mid-thirties, balding, SEC lawyer in the Enforcement Division with the rotund spouse who is going through an existential crisis in their Cleveland Park apartment (because DuPont and Logan Circle are just too overpriced to make sense) after realizing they paid a an order of magnitude too much for their second tier law degree WOULD HAVE A HOLIDAY on such egregious market fixing. This calls into question the point of these markets in general and whether or not adoption by "normal" people really is the goal or even desirable at this juncture. Assume for the sake of that analysis we all agree that decentralized markets are useful because that bald guy poking his finger into the pot screws everyone over but also that we understand why the government would, and perhaps even should, police abuses in securities available for purchase to the general public. But then on the other hand, if we really do support a system that isn't beholden to a nanny regulator in chief do we have to accept as a cost therefor actual stealing on the part of miners/conspirators who are sold - both to the lessors and the lessee - as knowingly giving up part of an upside for consistency who work/conspire to end-around the whole system to increase their earnings (i.e. recovering that upside OR rent seeking) by utilizing superior technology to actively manipulate the market at everyone else's expense? Should it be enough that such behavior should drive innovation on the part of the actual consumer or are we simply looking the other way on fraud that is accomplished without breaking the letter of the rules but certainly with malintent nevertheless. I am asking the community here at large because I genuinely do not know the answer to the question...
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