Topic: *old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid. (Read 10080 times)

10% will be the rate after 2-3 years, early adopters will see 100%+ rates as  50 BS per block will be a much larger percentage of the initial money supply.

Clearly if you are big enough to be a gate way then AML laws will apply, but I suspect many people will just do it casually when they want some extra money.  Large number of informal arrangements can add up.

Any created business that accepts USD and issues "virtual currency" will have to obtain a money transmitter license.  They'll have to comply with the same AML/KYC laws.  So essentially it's like setting up gateways like Ripple, just off network.  It would be difficult to do as a hobby unless you deal with very small denominations.  Although maybe established gateways and Bitcoin exchanges could be enticed to be brought on board, afterall they've already forked out the cash for the licenses so they may as well dip their toe in as many markets as they can.

The dividend paying aspect is interesting and where your idea differentiates yourself.  It will help to garner interest but even by your own admission, you cannot protect the longs from big market corrections.  In a young and illiquid market, you're going to have large price swings.  Will a 10% dividend be enough to entice a large amount of investors to see that reward as commensurate with the risk, that's the big question.

This is certainly a growing pain issue and adoption will be slow at first.   But lets make some assumptions:  assume that crypto-USD ends up tracking actual USD within a small range for 6 months.   Assume that crypto-USD is actually paying a 10% APR.    Now, ask yourself this... how many people will be 'interested' in trying that out?   How many people will create a business out of accepting 'deposits' of USD for a small fee and selling crypto-USD?   Perhaps just as a hobby?    Watch as this starts catching on and people realize they can make money.  All of a sudden it goes viral and you can deposit / withdraw cash with just about anyone for a small 'ATM' fee.    Sure, it may take a while to catch on, but it will.

I think as a proof-of-concept, your model (with some refinement) will work.  My concern is whether or not it will be practical.  As you know, a functioning market requires liquidity and I don't see any efficient way to inject liquidity into the model right now.  Basically you're stuck at the fiat to crypto exchange hurdle.  Using escrow and such works on a micro level but if you scale everything up to a macro view, I just don't see how you're going to be able to get all the necessary funds into the market. 

Maybe I'm getting ahead of myself but it seems the main feature of your new endeavor is to eliminate the need for fiat deposits.  Without an efficient way to do that, I can't see a need for all of the rest.  I'm hoping in this respect you are more visionary than I am as I think this is the main issue facing Bitcoin right now (how to decentralize the exchange of fiat to BTC).  I'll be watching closely and hopefully adding some productive comments along the way.  Maybe even some capital if I can be convinced this is potentially a viable solution.

What is the difference?   

No.

You are entitled to your opinion, so I am going to create the centralized version of this exchange first because that will prove the model.    If it works in a centralized manner where the central 'authority' is merely simulating matching bids / asks, then do you agree that it would work in a blockchain?

Okay, names are good enough to establish market conensus. Let's take that on faith.

 I made 100 "cryptoUSD" to sell you. They are each backed by 3 satoshis. No matter though, I'm sure market consensus will create extra cryptoUSD with adequate backing. Buy them for 99 USD each now and you are sure to profit. Wait, if that happens I receive 99 USD for 3 satoshis...

Names aren't good enough at all. You need a third party authority. It could be a decentralized authority, but it still needs to be an authority.

Before a trade can occur a Buyer and Seller must *know* what they are buying / selling.  Therefore, unless there is some sort of 'understood contract' of what a crypto-USD is there would be no trading.  If there *is* an understood definition of what a crypto-USD is *then* the market can handle the rest.  Anyone who trades contrary to the consensus would lose money. 

You are moving closer to what I suggested previously, but you still do not have a credible mechanism for introducing price information into the system. There are other problems too, but this is the big one.

Ignore this stuff about interest, shorts, and longs, etc... It is not critical and it is a distraction.

The key question is "how is price information input into the system?" A MARKET WILL NOT WORK. FULL STOP. The instruments being traded have no fixed definition. You are asking the market to simultaneously decide a) what the asset is b) what the assets price is in terms of bit shares. There are an infinite number of equilibria described by (a, b) pairs. e.g., recall that a cryptoUSD can turn into a cryptoMANGO and visa versa. (a) is ambiguous. You continue to pretend that a cryptoUSD is a cryptoUSD because someone calls it that. Stop pretending.

Use voting by third-party observers to set prices. Create incentives for the third parties to vote honestly.

Otherwise, continue wasting your time and money.

Confirmed!!!  Thanks for standing by your word!

Paid, please confirm.

Ok Zerg.  I will pay the bounty to you and respectfully request that you *choose* to contribute the funds back to this project in exchange for 9500 BitShares.

In the future I will be more careful about my bounties.  

You have self-admitted to essentially throwing out the entire approach and starting anew.  That was the point of the bounty... to stop you from going down the wrong street.  The point was not that the entire idea is utterly impossible like a perpetual motion machine.

If you want to keep the trust of this community, please pay the bounty and THEN I promise I will examine your new ideas closely (you'll note I already posted a quick positive message about how interesting the approach is) and contribute as best as I can. 

But actual payment is essential rather then deferment.  I honestly haven't even looked at the details in the offer in your posting, and I won't until the 9.5BTC owed is received. 

That type of "re-negotiation" behavior is what rings ponzi alarm bells in people's minds... you don't want that.  What you want is me to be able to affirm that you've got the ammo to fund your ideas...

TheZerg,
     You have convinced me that I would owe you the bounty if I gave up on the project and decided not to invest money in creating a distributed peer-to-peer exchange based upon dividend paying BitShares.  As such, I will commit to pay you the 10 BTC bounty as the only person who stuck with it once I actually do give up; however, I gave up pre-maturely and because 'rule changes' in how the system *could work* were part of determining when a 0.25 BTC bounty would be paid out and I have paid out a 0.25 BTC bounty for each rule change you forced me to make I will now present a new set of rules that will solve the problem.  As a result of these new rule changes I am accelerating my investment in the exchange and ultimately you only convinced me that one particular set of block-chain rules was unworkable.     

   I would now like to offer you the following settlement and open new opportunities:  1) I will issue you 10 BTC worth of pre-mined BitShares (1000) if I continue with the project through to completion *or* I will pay you 10 BTC - in addition to any bug-fix bounties paid in the event I fail to follow through.   Either way you should win and either way you would have a clear-case in arbitration that is no longer subject to impossible to prove claims.  Furthermore, everyone on this forum will be able to judge whether you are owed the bounty in non-ambiguous terms and I will therefore not even bother with arbitration and simply pay you.

So, here is the deal, I am re-opening the bug-finding process with 0.5 BTC bounty per rule-change you can find.  I still value your efforts. 

For starters you should consider this thread: https://bitcointalksearch.org/topic/05-btc-bounty-creating-a-fiatbitcoin-exchange-without-fiat-deposits-223747  which explains the works of the system.   I will be releasing a video update describing the process as well. 

1) Anyone may sell short any asset on the exchange provided:
       a) there exists a buyer who is willing to take the other side of the trade *at built-in market price*
       b) after the short sale, they have 3x the value of the short sale as collateral.

2) Any short position may be redeemed by the market when the value of the collateral falls to 1.5x the value of the short.
       a) half of the position is sold and the proceeds are used as collateral for the other half of the position (unless collateral would still be insufficient, or the balance would be 'dust')
       b) there is a 5% fee paid by all shorts which force the network to cover their position. The goal is to
          encourage any short to keep their margin sufficient or close out their position early. This fee also
          motivates miners to give closing out of short positions priority over most (all?) other transactions.

4) All 'short' positions must be closed in full before any of the collateral may be spent.
       - as the price of an asset falls, the effective interest rate paid to longs will go up as the ratio between short and collateral grows.
       - this will cause increasing opportunity costs for the short position which will motivate them to cover the entire position
         and re-open their position at a new base. 
   
3) Dividends paid on BitShares held as collateral are redirected to individuals who went Long (taking the other side of the trade).
       a) As a result, crypto-USD pays 1.5x to 3x to dividend rate rate as BitShares.

4) Users place their bids / asks into the blockchain as 'outputs' that can be canceled by spending them, or accepted by
       spending them as part of a transaction that satisfies the bid and market requirements. 

5) No block may execute a trade below the highest bid or above the lowest ask in the block chain.
      -  The order in which trades are executed is based upon 'price' first, 'fee' second, and otherwise up to the miner
      -  If the highest bid is greater than the lowest ask, then the transaction occurs at the *bid* price.

6) No transactions that contain multiple currency units are allowed outside of the bid/ask system.
      -  This requirement may be lifted after a careful audit for potential attacks by circumventing the 'market'.

In the event that the price of an asset changes so rapidly as to blow through all 'margin', the Longs will eat the losses.
      - this is the justification for the higher dividend rates paid to the longs and the opportunity cost incurred by the shorts.
      - No system can gurantee 0 losses and BitShares is no different.

9) All trades on the built-in exchange incur a 0.05% transaction fee that contributes to mining fees / dividends.  This fee is
   designed to minimize the profitability of 'rapid trading' and generate profits for the BitShare holders.
      - minimum transaction size limits will also be imposed (like Bitcoin) to prevent dust spam.
      - minimum transaction fee just like bitcoin also applies.

10) All dividends paid to 'transaction outputs' in the last 120 blocks are recaptured as mining fees, spending these unconfirmed
dividends would result in chain-splits invalidating the tranaction.
      - as a result, those who spend money rapidly will receive no dividends, while those who save will receive the dividends.

11) Users may transact in any currency just like they do Bitcoin (provided all non-market transactions only deal with a single currency).
      - this includes trading of their short position.

12) No block may clear out more than 5% of the value of all open bids/asks for a particular asset.
      - this prevents certain classes of attack in 'thin' markets.

13) A maximum reduction in exchange rate of 5% per block.  The goal is to give market participants time to add collateral or buy the
dip.  It would also prevent certain types of attacks based upon 'rapid manipulation' of the price.

14) No trade may occur unless there are at least N? bids/asks capable of 'reversing' the position.
      - this aims to prevent attacks on new issuance and insures that there exists a deep enough market to justifiy creating
      a new asset class.  It also 'halts' trading when the market gets thin.
      - the definition of 'capable of reversing' is still TBD

15) You must wait 10 blocks before spending the output of a trade.
      - if we allow people to immediately spend with the proceeds of a trade then, chain forks could be exploited to
        reverse trades, manipulate prices, and cause losses.

All of the rules above ultimately mean that trading can only occur at 'human speed' and all high-frequency trading will be
forced off-chain.  Trading is not 'free', but cheaper than any current exchange.   


In particular I am looking for ways that the market can be manipulated that do not also apply to traditional markets.  Some avenues of
attack that must be considered:

1) What would happen if someone had 51% of the hashing power?
   - they could control what bids made it into (or out of) the blockchain.
         * prevent people from canceling bids.
   - they could control who got want bids.
         * play favorites
   - they could do anything they could do with Bitcoin.

2) What would happen if someone had 1% of the hashing power?
   - they may gain some advantage in picking/choosing bids.
   - would this motivate professional traders to invest heavily in mining?
   - would the competition ultimately be good for the network?

3) What weaknesses would be exposed by having all short positions and margin available as public information?
       * Somone with significant capital could 'trigger' a short-squeeze by bidding up the underlying asset.
           - is this mitigated by not allowing uncollateralized shorting?
       * The short-squeeze would then enable new shorts to sell at higher prices (offsetting their attempt to push it up)
       * In theory someone could take advantage of such moves... but only if they could move fast enough between
         short and long positions to 'head-fake' the network.  Because all positions require 6 confirmations before they can be adjusted does it
         make it difficult or impossible to benefit from this kind of manipulation?

4) In theory all 'shorts' are naked, but backed, and are ultimately settled in BitShares.  What are the implications?
   - don't trade in illiquid, rare, or non-fungibile/divisible items.  It would be up to the Longs to assess this risk.
   - the total 'short' position for any asset class is public and therefore can be audited.  If the total short position
   is too-large the market will respond by discounting the 'long' position from face value.
   - how does 'naked' shorting enable manipulation?  In theory, someone with a large amount of capital (BitShares) someone
   could keep selling into a market.  This would result in pushing the price down but would also drive the dividends paid
   to longs up. 
   - Because longs are not buying with leverage, short-selling to push the price down CANNOT trigger margin calls and further selling.
   - another way this can be viewed is that the 'shorts' are 'borrowing' the USD from the longs and are posting collateral and
   paying interest to do so. 
   - any naked-short is ultimately has to cover and thus 'unwinds' his position.  He can only profit if supply and demand
   actually creates a fall in prices independent of the action of the short-seller.

5) Why would anyone go 'long' against someone known to be naked-short?   Perhaps you can think of the short-long market as
  a betters market where the winner takes home BitShares.  All market participants are attempting to manipulate the price and
  predict which way it will move.  50% think it will go up, 50% think it will go down and the result is a tug-of-war.  What
  are people really betting on?  They are betting on what *other market participants* will do!  How do you know what the
  other participants will do?  You have to assume they are all expecting the price to follow real market prices. Anyone who
  is out-of-sync with the emergent consensus opinion about what a price should track will ultimately end up making losses
  in this market.

bytemaster,

No one can convince anyone of anything... I can only lead you there, but you have to do some thinking on your own.  Which you have now done.  This is a universal truth.  I believe that I led you there so deserve the 10BTC bounty.  While there were other posters, I was one of the first and I am the only poster who did not just give up and move on.  The second posting I made asked the very question that you now realize is unanswerable "how does USD pricing information enter the system?" -- and other issues that in fact remain unresolved.

I write the above in the hopes that you will happily pay me the remaining balance on the 10BTC bounty in full understanding of my efforts.

But it is technically irrelevant because you agreed to the following terms of our .25BTC bounty:  These payments go towards my claim on the 10BTC bounty.  But if you stop the process, you essentially agree that you're abandoning the project and pay me the rest.

Go ahead and find the above statement in the the following quoted exchange (bolded) which can be found earlier in this thread.

Please do not force some tiresome judge.me process.  Meet your commitments honestly.  Since you have abandoned the project, but have already paid me .5BTC in bounties, those commitments are 9.5BTC to address 1CKeoT8vBDQDEpMHz5VAswV39pZJ2GTGYd.

Best,
thezerg

QFT

Great. Now you can abandon this idea and help me implement the mini-blockchain idea.

This is what convinced me this system will not work:

Assume I issue  $1,000,000 of crypto-Gold at todays exchange rate.

Tomorrow Gold goes up by 50%.

Where does the extra $500,000 of value come from to back the already issued crypto-Gold?

If I simply issue another $1,000,000 of crypto-Gold at the new exchange rate... it would still be diluted.

Therefore, there would be no profit to back new crypto-Gold with *MORE* backing than existing crypto-Gold.


DO YOU KNOW WHAT THIS MEANS???

The only way to make BitShares work anything close to what I had dreamed would require users to post collateral in excess of the current exchange rate to create crypto-GLD (closer to Version 1.0)

Why didn't I see this before?  I was looking at small 'incremental' rises that would push it up and then extrapolating wrong.  I was thinking that individuals who 'wanted interest bearing USD' would pay a
premium to get the return, and therefore cover losses.  It might work for small movements, but certainly not for large ones.

Why couldn't anyone convince me before?  Because no one could explain it in such simple terms.

Lessons learned?   It was incredibly valuable to have input from those who hung around and the bounties I have paid have been well worth it.  I also learned that my arguments were very convincing to everyone around me and to multiple investors who also couldn't see what I was missing.  Even TheZerg whom I paid 2 bounties to was resorting to using more and more arcane attacks that required very expensive attackers.   

When I re-read some of the arguments against my system in light of my new perspective, I see that indeed I am lacking outside pricing information. 

-------------------------------

That said, what I do know for sure is that I have created a system that enables 'short-selling' of bitcoins.   Assume we ignore all of the crypto-Gold/USD stuff, and focus just on 'mortgaging' 1:1.   It would allow you to receive $USD today 'selling' your mortgaged shares... and then buy back your shares in the future when they are cheaper.   

The ability to short-sell bitcoins would enable people to hedge their bets and 'reduce' volatility both of which would be incredibly useful and potentially worthy of investing in on their own.

So, if anyone wants to talk about the potential uses / benefits of a crypto-Currency that supports trust-less short-selling then I am open to discuss it.

--------------------------------
Regarding the Bounty:

I do not believe anyone here *convinced* me.  If you believe that it was your input that convinced me, then I will listen to your arguments, and if I still disagree then we can have it arbitrated via judge.me then I am game.
Those who did help me and provided constructive feedback received tips or were paid for their exploits/time.

Regarding Investors:
All investment funds will be returned, unless you want to pursue a short-selling crypto-Currency.

Thanks everyone, I hope you found this discussion / idea had some redeeming value on its own even if it was a dead end.

BitShare Dividend Algorithm
Dividends are generated with each new block as 50% of the transaction fees and mining rewards.

Because Dividends are generated via mining, they cannot be confirmed nor spent for 120 blocks. If we were to attempt to pay out dividends sooner than that then a chain split would invalidate all transactions on the bad chain and the dividends could generate a lot of 'dust' (aka: outputs to small to spend).

As a result the following algorithm will be used to claim dividends:

1) Whenever an output is spent, it may claim all dividends from blocks with more than 120 confirmations as part of the balance.

2) All dividends from blocks less than 120 confirmations become part of the transaction fee. This will serve to aggregate all of these 'unconfirmed' dust dividends into a single fee that will be 'recycled' once the next block reaches 120 confirmations.

3) The end result is that high-frequency transactions generate more dividends for those who hold!

4) 'inter-day-trading' by rapidly minting will result in 0 dividends and thus no profit opportunity.

5) For high-speed trading, do that off chain where you can speculate with sub-second timing if you like.