Topic: *old* BitShare Economic Theory 10 BTC bounty to prove me wrong... paid. - page 5. (Read 10080 times)

Ok I wrote I big long rebuttal but have since deleted it.  I don't give up my claim to the bounty but I give up convincing you for awhile. 

I've already spent 10btc of my time, trying to couch my proof in a way you will understand.   So run your simulations, and fork Bitcoin and spend your 20k.  When you learn a bit you will see the exact issues I brought up.  But please fork Bitcoin into Bitshares publicly so the community will have a great basis to build a multi-currency distributed crypto exchange.

Oops except for this one last try (not going to respond though):

Given the way the bitcoin solved the byzantine general's problem, you can't enforce the rule "stop a minting event if someone buys the bid". 

And it was the lack of a solution to the byzantine general's problem that forced all crypto-currencies to be centralized before bitcoin's proof-of-work solution.  So this is a big problem.

Google it to really find out why, but in summary, there is no proof that all bitcoin nodes "see" any particular unconfirmed txn.  That's why some unconfirmed TXNs (esp. ones with no txn fee) don't make it into the blockchain right away.  So an "attacking" miner could simply claim to not have seen the "fill" orders (or any buy orders) and therefore mint coins to fill a very low priced buy of infinite coins that the attacker himself issued.  The likelihood of success is proportional to the miner's fraction of the total hash power. 

So bid/asks must be in the blockchain.  When this is the case the exchange slows down so much it is unusable and not scaleable.  Today we are irritated because Gox can't keep up with 10s of txn a second.  Imagine every 10 minutes. :-)  And even then a finney-attack variant (premining blocks but not submitting them until certain external conditions favor yourself) could get you an "infinite" minting event if you are lucky.

So even if the hypothesis that 'market forces will cause price parity' proves to be false, we still have a better system than anything else proposed?

Third party backers come in to guarantee price parity, make money in the process, and would not require significant trust.

Im getting more convinced by this idea.

"1.  BitShares derive their value from the same sources as Bitcoins."

"How does everyone come to an agreement about what a particular sub-currency is supposed to track?

How did language develop?  Who decided what words would track what ideas?  The answer is that anyone who doesn’t learn and adapt to the consensus would be unable to communicate.  This is a very natural process and does not require any central authority or formal ‘contracts’ between people to define the meaning of words.  

Likewise, people will naturally come to a consensus about what currencies track what ideas and there would be ample market pressure for all participants to find a way to reach consensus.  Any individual who is wrong about the consensus opinion would end up mispricing assets. "

Yes there is less trust involved.

1) Anyone else could enter as a backer and make money on "ATM" fees in the same way as this anonymous backer.
2) You have crypto-Gold which has value to ANYONE at market value where as colored coins only have value to those who *TRUST THE ISSUER*.

Perhaps this explanation will actually help you see *how* my idea works.   Clearly any corporation could buy a vault to hold gold, USD, etc.  This corporation wants to be able to operate anonymously and therefore doesn't want anyone to know who they are or where their vault is.   Instead, they build brand-equity over time by pegging crypto-gold to gold.   They charge a small transaction transaction fee for taking money in and out of their account and they also pay you interest on your account.   In order for their business model to be successful people must come to trust that crypto-gold will indeed track gold.  But that is easy enough for the corporation to do because they are actually holding the gold and the BitShares and thus are fully capitalized.  So they issue crypto-gold and the market observes the price action and realizes that it does indeed track.   Eventually people start trading gold/crypto-GOLD near parity and everyone is making money even though they do not know who the real backer is.

It is really sad that you confine your thinking to such a box.  Without opening your mind to the possibility that such a solution could exist you will never even attempt to conceive of such a solution, despite it being clearly desirable.

That said, I am 100% confident that crypto-USD could track USD if you could trust some 'anonymous' backer to enter the market and 'peg it'.   I claim that market forces will take the place of the 'anonymous' backer, but clearly you could use my system 'as-is' and add someone to 'hold the peg' without that individual having to actually expose the location of their vault or bank account.   You could even have a group of independent individuals working together to hold-the-peg and thus make money off of the buy-sell spread between crypto-USD and USD while still being anonymous.

I am not yet convinced either way.

I am intrigued by the 'attack scenario' discussed by thezerg to gradually bring down the price. But I expect a refuttal to arrive shortly. Does it violate the all-users-are-profit-seeking rule?

But I disagree that there is no fiat price information. There is a marketplace for USD/BS. So every user has this information in the same way that everyone can find out the BTC/USD or USD/EUR exchange rate.

1) Someone gets the wild-idea that they want to hijack crypto-USD and completely debase it by issuing more and more crypto-USD backed by less and less BS.   If this were possible, then anyone who bought crypto-USD would lose a lot of money.  So lets step through this attack:

       Assume the initial price of 1 crypto-USD is 100 BitShares and that equals parity.
       The attacker says:  Hey, I want to buy 1 crypto-USD for 1 BitShare.
       There are no takers, so the attacker issues 1 crypto-USD for 1 BitShare and keeps the crypto-USD for himself.

       At this point crypto-USD will be paying a revenue stream 50% of what it use to pay.   The attacker is making money because it only cost them 1 BitShare to gain a revenue stream of about 50 BitShares.   At this point crypto-USD is already entirely debased and it would appear that you found a potential weakness.

Lets see if this weakness is entirely intractable and without any defenses that could be implemented in a blockchain or by market participants.
      
        a) For this attack to be successful there has to be 0 demand or no open bids at all for a crypto-USD based currency
               * implication here is that crypto-USD is already worthless, and that after the attacker completed the transaction, he would be unable to cover except at
                  a reduced evaluation.
               * when the attacker did decide to cover his short position then instantly crypto-USD would be back to its old value.
        b) Therefore, this attack could only occur in a very thin market long before crypto-USD was established as 'crypto-USD'.
        c) Any market-participant interested in 'defending' the crypto-USD valuation would have bids placed at or near 100 BitShares.
               * they would know that they could make money if they could buy crypto-USD for 99 BitShares... just like the attacker was attempting to buy for 1 BitShare.
               * All 'attackers' would be competing against one another to 'debase' the crypto-USD and make a profit, but only the 'attacker' who
                  debased it the least could 'win' any given bid.
               * Only one such attack attempt could occur every 10 minutes due to the requirement that new issuance can only occur in response to the highest open bid in the block-chain.
         d) The real backing behind crypto-USD is everyone in the market who wants a crypto-USD at parity to USD.  If there is a known exchange rate of  $100 paper-USD per BitShare then those who want to buy a crypto-USD would buy it at any price up to 100 BS.   Therefore, so long as there is demand for paper-USD there will be bids to buy it at or near the current exchange rate.  Only if the value of paper-USD fell would it be possible to 'debase' crypto-USD and in that case the debasement is proving my theory that the price will follow the market value of paper-USD.
          e) I would argue (but cannot prove) that the demand to buy crypto-USD would be higher than the demand to buy BitShares simply because of the exchange risk of owning BitShares.  So it *might* be rational for someone to bid 101 paper-USD to buy 1 crypto-USD.   This would create market forces that would entirely destroy the potential for your attack.

In conclusion, I hope I have identified and debunked the potential for such an attack as being both unrealistic and something that could only happen in what I will call a SIDS (Sudden Infant Death Syndrom) attack on a new crypto-USD.    

So how would the market protect against SIDS?   As a BS holder, I want to see their value go up.  I also know there is a market of people who would buy crypto-USD at a premium from me if crypto-USD were 'stable' and tracked the market.   As a result my self and other BS holders who understand the same logic would back the crypto-USD exchange rate near parity with our own BS.  It wouldn't cost us much, if anything because we are really investors in BS and crypto-USD is just another form of BS.   As a result the initial 'creators' of crypto-USD would never let it go no-bid early on.   Once crypto-USD had gained some traction and a history then it would be 'grown up' and the market would take care of itself.

But that system will unfortunately be one where trusted individuals and corporations keep USD, gold, etc in a vault.  Or are backed like a stock by the value of a corporation still have to post annual reports.  Or for mortgage offerings, an assessor still has to check out the house and digitally sign the mortgage bond contract.

However, given the above "trust-based" currencies, can bytemaster's dividend or backing technique create a "combined currency" (think currency backed by what's essentially a mutual fund containing verifiable quantities of "trust-based" currencies) that mitigates risk of default.  This combined currency would track whatever its constituent currencies are denominated in (i.e. USD).

Just for the record, I am not the only one who is unconvinced by your argument.   Will everyone who thinks this could still work please affirm their belief that it hasn't been proven unworkable.

This has been stated several times, but it is not true. You underestimate the psychology of all market participants. Actually fiat data could enter the system through all parties which are trading between real USD, bitshares and crypto-USD.

Here is an illustration of how it might work, just by psychology:
Let's compare it to bitcoins. The supply of bitcoins is exactly determined. Therefore the bitcoin-USD exchange rate is very volatile because the demand is always changing according to good or bad news about bitcoins.
In contrast, now lets look at the supply of crypto-USD. The supply is floating and constantly changing according to the decisions of all market-participants (going short or long).
Nobody so far has stated exactly if the exchange rate will definitely go up or go down. So nobody knows exactly if it will go up or down. Therefore we could assume the following:
A) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go up
B) 40% of all market-participants think the exhange rate between crypto-USD to fiat-USD will go down
C) 20% believe that the concept of bitshares will work and therefore they think that crypto-USD will track fiat-USD

So 40% will go long, 40% will go short and 20% will go short or long depending on if the price is below or above parity.
Therefore the 20% of all market participants are enough to drive the market to parity.

Ok you just made a claim: there is no first force.  You did not prove it. 

So there are now two ways you can respond:  prove the force doesn't exist *or* prove that even if it did exist it still wouldn't work.

Just for the record, I am not the only one who is unconvinced by your argument.   Will everyone who thinks this could still work please affirm their belief that it hasn't been proven unworkable.

Maybe, but that is not how this forum system works today... there are countless examples of promises without escrow made that end up getting scammer tags.  And I believe in the way it works today.  If it worked your way (i.e. I can post any promises and don't need to fill them unless some higher authority enforces it) it would definitely undermine the philosophy of the libertarian readers of this forum.  And render subject lines like: [Bounty 10 BTC: XXXX] useless.

Well, I don't care about either the $20k or the 10 BTC, I was attracted to this because it would be revolutionary if it worked, and at first it looked superficially as if it might.

I'd caution against this. I agree bytemaster's heart is in the right place, and we never really did establish the rules of the game, put money into escrow etc. Personally, I had no reason for that, because the money wasn't the reason I participated. We might all draw another lesson from this: if you intend you collect a bounty, make sure you set up the rules first and make sure you set up an arbitrator first.

I hope bytemaster will give up after trying to get it to work for a few more days. I hope he and others aren't going to learn the hard way that this won't work. If they do succeed, the more power to them, but as Elon Musk puts it: I'm not sure success is even a possible outcome. I think bytemaster has valuable contributions to make, but it seems to me this isn't one of them. His earlier idea for a Bitcoin-financed Tor-like P2P network looks a lot more valuable to me.

Well, I don't care about either the $20k or the 10 BTC, I was attracted to this because it would be revolutionary if it worked, and at first it looked superficially as if it might.


I'd caution against this. I agree bytemaster's heart is in the right place, and we never really did establish the rules of the game, put money into escrow etc. Personally, I had no reason for that, because the money wasn't the reason I participated. We might all draw another lesson from this: if you intend you collect a bounty, make sure you set up the rules first and make sure you set up an arbitrator first.

I hope bytemaster will give up after trying to get it to work for a few more days. I hope he and others aren't going to learn the hard way that this won't work. If they do succeed, the more power to them, but as Elon Musk puts it: I'm not sure success is even a possible outcome. I think bytemaster has valuable contributions to make, but it seems to me this isn't it. His earlier idea for a Bitcoin-financed Tor-like P2P network looks a lot more valuable to me.

Ok you just made a claim: there is no first force.  You did not prove it. 

So there are now two ways you can respond:  prove the force doesn't exist *or* prove that even if it did exist it still wouldn't work.