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

How much crypto-USD and other crypto-fiat could the system support relative to the market cap of the underlying cybercurrency? I'm assuming always strictly less. What would happen if we approached that limit? What would happen if the value of the underlying currency dropped to nearly zero, say because it was supplanted by a different cybercurrency without a proof-of-burn transition path?

OK, let's try it another way, maybe that will help clear up the confusion.

Do we agree you could create a crypto-USD that acts much like Ripple IOUs if we had a central party (it could still be a commercial venture, it doesn't have to be a central bank) issuing crypto-USD and redeeming it at face value (minus some small fee). To the degree the central party was considered credit-worthy and reliable, the crypto-USD would then indeed track the real USD.

The disadvantage of this is that you are now reliant on a central party and it is this you want to remedy?

Can you explain the nature and details of the differences between your proposal and what I just described?

Yep, this is the crucial point.  I would also be interested in how that is achieved.  (I haven't yet understood that fully, neither.)

I'm not sure I understand the shorting terminology. The person creating the Q "out of thin air" is figuratively borrowing the Q from a non-existent central bank and has to post a collateral that helps ensure he can eventually buy them back for the still non-existent central bank to destroy?


I thought it was the collateral that was backing the value of Q, with the interest rate differential somehow causing the exchange rate to remain near parity with the USD. I still don't understand the latter part, and like nomailing I think I'm seeing some circular reasoning.


Does this mean that in your scheme there is no way to destroy the Q again?

I have to ponder the rest of your post.

In general, I can see you could have a currency tracking the USD inside a BTC-based system, provided the crypto-USD is always automatically redeemable for BTC from the collateral and the total amount of crypto-USD outstanding equals the USD value of the BTC collateral. I generally understand how differing interest rates could induce people to convert between BTC and crypto-USD, but not how your present proposal does this. And because of the fact that the system doesn't know about exchange rates, I'm skeptical it could even work in principle.

Have you looked at this Post?:

https://bitcointalksearch.org/topic/ann-ussc-crypto-p2p-server-decentralized-p2p-exchange-application-209269


I think this would be a better way to go.

But your assumtion that they *FEAR* that crypto-USD will fall in value is based on the assumption that they assume that the price will reach parity in the future. You haven't proven that this is the case.

For example you could do the same reasoning for BTC by just renaming it to crypto-USD. Just by naming it USD you could argue that people want to sell it for paper-USD if the price is 101$. But nobody can guaranty that the price will be on parity. In reality the price could diverge to some arbitrary number (like with the BTC-USD exchange rate). So I still think that you use circular reasoning... But probably I just miss some important point... Would be nice if you could point me to the correct reasoning if I made an error. thanks a lot..

I think you misunderstand the nature of motive 2.  Someone who wants to convert crypto-USD to USD is doing so because they *FEAR* that crypto-USD will fall in value.  Therefore, they become SELLERS of crypto-USD which pushes the price of crypto-USD down.

Also, if the price of crypto-USD is above face value then that effectively means they can make a profit by selling 100 crypto-USD for 101 paper-USD assuming they bought 100-crypto USD for $99 paper-USD the last time their was an imbalance of withdrawals and deposits.

Therefore when there is a high demand to convert paper-USD to crypto-USD the crypto-USD price rises in paper-USD terms.  When the withdraws take over it falls in paper-USD terms.   

No pre-mining, it would be public the very first day. 

The person who goes short can cover their position at any time by buying Q on the market.

You have N shares(S) that pay P% dividends where the dividends = N*P.   If the exchange rate between S and Q is  X  then  what is backing Q is X*P*S / year.  

The collateral is redeemable 'in general' by selling Q for S at the current exchange rate. which may be slightly more or slightly less than the original exchange rate.

The reason why Q fetches a market price close to where you bought it over time is because there is PROFIT to be made by redeeming Q for S anytime Q is slightly below what you paid for it.  The reason why you can sometimes sell Q for more S than you paid originally is because the creation of Q made it more profitable to hold Q than S because Q pays 10.1% and S pays 9.9% and thus anyone who owns Q and expects Q to appreciate against S by less than .2% over some time period would sell their S and buy your Q.  

Here is another way to think about how the prices stay near parity:

If you have two bonds, A = $100 @ 10% and B = $100 at 5% then the net-present-value of A = 2x the net-present-value of B.

Therefore, the reason people who value S are willing to pay more (or less) for a Q BOND is because how they really see a Q BOND is an opportunity to buy a bond that pays more (or less) interest (in S) in as a percent of the Q bond price Y.  If the value of S doubles then the value of the interest paid on Q bonds doubles from the perspective of people who want to own S.   Therefore Q BONDS  become 2x as valuable to owners of S simply because by selling their S for a Q BOND they could earn 2x the S in interest.    Thus on a net-present-value basis the value of Q BONDS tracks the original exchange VALUE because the interest rate changes on Q cause the net-present-value as measured in S of a Q BOND to be about equal to the original VALUE.

Now that was hard for me to follow, but I am hoping someone can take a hint at what I am getting at and explain it even better.
 

 

I am trying to understand your white paper. And there are definitely some interesting ideas.


here is my reason, why the idea will not work:
Isn't your key argument, why the crypto-USD will be on parity with fiat-USD, based on circular reasoning ("paradoxical thinking")? So it is false.
In the white paper you answer the question of "what market forces bring the price of crypto-USD back down?" with two arguments which are only true if the individuals assume that in the future the price will be on parity. So it is circular reasoning.

More specifically you give these two reasons:
1) "Holders of crypto-USD may see the potential for equity gains in bitshares". But this potential for equity gains in bitshares is only true if you assume that in the future the price will be on parity. So you use your argument to prove your argument.
2) "Holders of crypto-USD may wish to withdraw their money into paper-USD." Why would they withdraw it. Only if they assume that in the future the price will be on parity, then it would make sense to withdraw. So here again you use circular reasoning.

in the end it doesn't matter if you have bitshares or you issue them to yourself as crypto-USD, because the interest is paid in proportion to your balance.

Please correct me if I am wrong...
Btw, your ideas are indeed very interesing and I very much appreciate your work done here...

So you would premine and then release to the public?

I monetize it by mining from day 1.   Everyone who helps make this a reality can start mining on day 1.  Community project 100%.  I don't want to 'own', I just want to see it work.

Still haven't gotten anyone familiar with Bitcoin express interest in the Job.... but I may just quit my day job instead and live off of savings.   I have gotten lots of offers to help support the idea which is great.

What are the mechanics of redeeming Q? I won't call it crypto-USD, because I'm not yet persuaded it will track the USD. Is the initial amount of bitshare put up really a collateral, so that you get back your original amount, or do you get a prorated amount of the total amount backing Q? Under what circumstances is the original owner permitted to redeem Q he bought back on the internal market?

Im still trying to get my head around your proposal, but for now I was just curious since you mentioned investing $20k+ in it.

Would this end up being a community project that would benefit everyone, or is there some monetization strategy for those developing/investing in your value-tracking-currency?

Thanks for supplying more details to your idea, this finally cleared some more things up for me.  In particular if I understand your latest proposal correctly, anyone can issue crypto-USDs (or whatever he/she likes) at any exchange rate they want.  I somehow see how you think that the expected return from dividens on the bitshares backing the issuance regulates the rate they will choose.

However, with my current understanding (I may still be wrong about your idea) I see the following situation:

Assume we have a current exchange rate on the market of 1 $/BitShare, and assume further that currently already 1 crypto-USD has been created in exchange for 1 BitShare by someone else (in accordance to the market rate).  For simplicity assume that we look at a certain time-frame such that BitShares get 100% return over that time in dividends.  Thus currently 1 crypto-USD also returns 1 BitShare in dividends, because it is backed by 1 BitShare as collateral.

Now, what if I issue myself now 2 crypto-USD in exchange for 1 BitShare?  Then we have 3 crypto-USDs and 2 BitShares backing them, thus each crypto-USD earns a dividend of 2/3 BitShares.  I acknowledge that this is of course less than what it would earn I had taken out also only 1 crypto-USD.  However, because I now have 2 crypto-USDs, I would earn 2 * 2/3 = 4/3 > 1 BitShares in dividends!  Because the more crypto-USDs I issue for my collateral of 1 BitShare, the higher the fraction of the crypto-USD balance I get, and the more I can "parasite" on the dividends of other crypto-USD issuers.

Wouldn't that lead to people issuing more and more crypto-USDs for ever higher (in terms of USD/BitShare) rates instead of approaching the rate that someone holding real USDs is willing to pay for BitShares?  Can you please tell me what part of your proposal I still misunderstand?

I didn't say you would get the bounty for providing a reason... it has to be convincing.  You have not convinced me not to spend $20,000 on making this a reality.  Furthermore, just because something else may have extra features does not prove that my features do not work.

Given that my idea is tied more to economics than the exact crypto algorithm, it could easily work with strong anonymity.  In fact, I would be very interested in using a strong anonymity crypto-currency as a 'base' unless it had other usability issues. 

That said, I believe that using an Open Transactions server operating on Tor or BitMessage and using my system to move value into and out of the server would be the preferred solution for anonymous P2P. 

I believe that is not so big an issue - in fact, things like Zerocoin could be layered on top of Bitcoin (or a comparable currency).  Or one could implement things like a p2p mixing service based on multisig transactions.  In any case, I believe while there's no really usable p2p anonymisation technology for Bitcoin here yet, it will be possible to upgrade Bitcoin rather than going through the pains of bootstrapping a new currency when that is not strictly necessary.

You shouldn't do this because ANY blockchain currencies with only pseudo-anonymity will be made obsolete by crypto-coin technologies that allow for strong anonymity.

PM for btc address to send the "why not to do this" 10 btc bounty.