Topic: Pirate v2.0: Unravelling the Bitshares Ponzi - page 6. (Read 12706 times)

We have been incredibly transparent in everything we are attempting to do.   Unfortunately, the arguments presented by cunicula are attacking a straw-man.   If you are going to attack what we are doing you must first understand what we are doing.  I would hope that before you go around calling us scammers you would take some time to talk with us via Skype.

MercSuey, I would be more than happy to publicly answer any and all questions you might have.   Though, I suggest you send me a PM with your skype info so we can chat because your implied intent to 'publicly shame us' with your questions will only serve to prove your ignorance when we are able to answer them fully.  

So here are the questions for you:
1) What money have we taken from the public?  0.
2) How are we using new investor money to payout early investors?
3) How are we using the investors own money to pay out returns?  
4) Are we doing any pre-mining?  No.

Lacking any evidence on those three items, you cannot call us a ponzi scheme and doing so is intellectually dishonest.  

What remains is whether or not the economics of the system we have designed work and are sustainable.  This has several layers, so lets deal with the BitShares themselves and not any derivatives based upon them.   The dividend system pays people a real return from the transaction fees and the stock-split process is just a means of gradually increasing the number of units in circulation without diluting anyones position.  As a result, BitShares as a 'currency' is less inflationary than Bitcoin.

At this point I have done nothing but create a less inflationary crytpo-currency than bitcoin, it could be called an alt-coin if that is all the system allowed.   This is no more ponzi than bitcoin and no more 'pump and dump' than Litecoin which was launched to address centralization in bitcoin and represents significant innovation in the space.

Then I add one very simple instrument on top of a legitimate crypto-coin.  I allow two people to create a transaction that are equal and opposite sides of a bet.  The strike-price on the bet is the current estimated exchange rate between BitShares and some other asset.    The terms of the bet are that the Long side must voluntarily sell their position.  The Short side must pay their dividends to the long side.   And that a miner may force the short-side to accept the lowest ask in order to cover the position if the lowest ask would result in less than 50% margin.     I am not one of these parties, and both parties agree to the terms.

Our theory is that such a contract, enforced by the blockchain, will result in a market-based price discovery system.  If our theory is wrong then the test network which will be used to validate the economics of the system will discover the flaw and no one will make or lose any money.  

You can surmise that the result of this game theory will not result in price stability, but to make that assumption you must pick one of three potential outcomes:

1) BitAsset goes to 0 thus scamming the holder to benefit the short which would profit.
2) BitAsset maintains the value of the collateral and is thus no different than BitShares in terms of volatility.
3) BitAsset will deviate in some non-deterministic manner from the intended market peg.. this is a serious claim and requires proof.

All we are doing is creating a market for people to speculate and we are providing a means to test it prior to anyone investing significant money.  

Good luck raising your own funds, your system is complex, flawed in fundamental ways, and yet you are attempting to raise money directly from the public which has no way to evaluate your ideas.   I would call your system a scam, but that would involve making a judgement about your intentions which I am smart enough to realize I have no ability to know or judge.

I do not see any mention of mining in cunicula's post, perhaps I missed it...

But, is there a system in place to assure no extreme deviation occurs in accumulating bitBTC versus the rate of minting for dividends?  In other words, you cannot control the open market activity.  But can mining properly correlate with market activity?  Is there a white paper with technical details?

(By the way, my profile is publicly available on the CB website.  I wasn't being an internet tough guy at all.  But scams are a common occurrence in the alt coin world, especially lately, and I've lost my patience.  Maybe it's just this forum, I don't know.)

First stop propagating the meme:



Second, we shouldn't wait until C3. Please shoot me a pm and I'll send you my skypeID and we can discuss this at length. BitShares has yet to be released as a product. The TestNet has yet to be released. The whitepaper update has yet to be released. And yet we are a ponzi scheme because we propose sharing the inflation produced from coinbase transactions with BitShares holders?

Maybe I'm missing his point, but dividends do not come from thin air. They are produced from the mining and transaction process and serve as an incentive to save in the system. In order to preserve a sum zero system, someone has to receive the Bitshares dividends from the units held in collateral for a BitAsset. We made a design decision to pay these to the BitAsset holder.

There is still volatility that could result in a BitAsset holder losing money similar to a T-Bill holder losing money. So again, either he doesn't understand our system or he is spreading FUD to promote his own product.

Also we don't have a premine, we have invested a massive amount of time in building several derivative technologies like our ID and anonymous communication system and we are planning on releasing a TestNet with fake BitShares to test our economic assumptions first. So where is the fucking Ponzi? Wouldn't it be discovered with the TestNet? How does my company value from a bad product? Everything we do is open sourced. Every idea we generate, we vet in the open domain.

This has got to stop. You are moving into the domain of slander and have attacked the work of many passionate people trying to build something innovative and cool while also trying to raise 300k for your own idea, Cunicula.

 

I'd suggest you answer cunicula's questions with great care now...or be forced to answer my question in public on October 3rd in Atlanta.

Okay then. So you have all these bitBTC lying around that you will not confiscate. They are clearly better than bitcoin because they earn interest.

I don't plan to spend my BTC, they are a speculative investment. Why should I hold on to my BTC if your bitBTC earn interest?

Shouldn't I become a saver instead?

Well, I'm bored, so let's use the shill to respond for you.


It definitely sounds like I should become a saver.

Now there is some risk of fluctuation you admit. But supposedly, on average, 1 BitBTC should have a price of 1 BTC for many years.

So I shouldn't really care about these fluctuations too much. I will just hold the BTC until things improve and earn interest.
Worst case I still earn enough interest over a five year span to cover any loss from the fluctuation.

So now suppose many people think like this and decide to become savers. This is great for you. Everyone is selling BTC and buying bitshares to snap up these magical bitBTC.

Now, you have a large number of people hoarding these bitBTC.

Bitshares itself is not guarenteed to be worth anything just because people hold bitBTC in it. Suppose demand for bitshares drops and the price collapses.

What is to stop you from having more value in bitBTC outstanding than the entire market cap of bitshares? After all, the value of backing can erode. You can't force your speculators to come in forever constantly rebacking your bitBTC as a personal favor. You are assuming they get something out of this (I can't see what). But say they do. Now for some reason a lot less of them arrive. They might move to some other market. Maybe there is a competitor. You can't just assume that more and more money arrives forever (well that is what you assume if you are running a really giant ponzi)

Why is a bitBTC still worth one BTC? Is the backing completely irrelevant? Your speculators have all fled. The bitBTC are still out there. Who the hell is going to back them?

I have no need to confiscate BitBTC because shorts have financial incentive to cover it or they will lose money.    The shorts are the only ones that face a margin call.

You cannot rename your market and expect different economic behavior because of the name change.

If you are going to have storable, exchangable units of value, then you are going to have to accept that it is a monetary market.
If you are going to offer interest on these storable, exchangable units of value, then you are going to have to accept that this has implications for relative prices.

If it turns out I can't store them (because you confiscate them from me when I try [either all or in part]), well that changes things.

Once you start confiscating my bitBTC, you have more latitude to achieve other aims. Including a stable peg btw.

This is why I keep asking you to answer whether "savers'" bitBTC accounting entries can be involuntarily adjusted in response to price movements.

It is kind of important to understand this, no? People would really want to know that you plan to confiscate their BTC before they agree to use your system right? It is kind of fraud if you don't let in on this possibility, isn't it?

Just answer clearly. If you keep holding a bitBTC. Can it be involuntarily taken from you?

bitBTC earn interest in bitshares correct? So there is some positive rate of return?

In the long-term or over some time interval the bitBTC are expected to maintain parity with BTC on average (not necessarily at every point in time) ?

Because you must know that this cannot all be simultaneously true.

The additional collateral is put upfront... not after the fact.   Margin is called long before there is insufficient collateral.

This is not a foreign exchange market, it is a prediction market.   It works just like the prediction markets for president, sporting events, etc with the only difference being that it is continuous and the market players have access to far more information.  If you understand prediction markets and created a prediction market for the price of BTC vs USD based entirely on 'play money' it would be very accurate and you could accumulate 'play money' by investing wisely in this market.   If you replace the 'play money' with a crypto currency then the play money might gain value on its own.

I never claimed the system was risk free... lets look at the risks:

1) it is a crypto-currency so holding it is subject to risks associated with holding a crypto-currency.
2) buying BitBTC risks the buy-sell spread vs BitShares
3) there is a variable dividend rate based upon transaction volume and small changes in backing between 1.5 and 2.5x...
4) because of the dividend rate, there will be a premium for BitBTC over regular BTC... this premium will fluctuate based upon the expected future dividend rate and the relative flow of money into or out of BitBTC vs BTC.
5) there is a relatively small risk that attempting to sell during rapid decline by 50% of the BitShare price in 10 minutes would blow through the margin... but if you hold through the correction, new shorts/longs will appear at the new price.

All of that said, the risk of investing in BitUSD would be like depositing funds in CD with a Bank that only gave out mortgages at 50% the home value and then claiming the bank was a ponzi scheme because they promise a 'risk free' return on their deposits?  Further, assume the terms on the CD were longer than the terms on the mortgages and factor in the difference in liquidity of homes vs houses (ie eliminate forclosure / resale risk) and it is clear this is a relatively safe ROI... so safe that you might call it 'risk free' without actually being risk free.

So are you saying that the savers of 'bitBTC' risk forced conversion of their derivative into bitshares? (again doesn't look like that from the press claim does it?)


Or when you say someone is forced to cover, are you essentially saying that more capital will flow into the ponzi to prevent the bitBTC from devaluing. And if so what happens when the capital stops flowing in? How do you mop up the outstanding BTC that you can no longer maintain. There must be some confiscation involved, no? Otherwise you can have an arbitrarily large supply of outstanding BTC backed by an arbitrarily small market value of bitshares. Can't you?

So you do confiscate the bitBTC from the holder right? I mean you must be joking me. You have these bitBTC. You have to force their destruction somehow. You can't just say, oh, our liabilities will conveniently also go away if and whenever our assets go away.

Anyways, whatever you plan to do violates basic economic theory of foreign exchange markets.

Further details are just a distraction.  

BitBTC holders lose opportunity cost relative to gains in BitShares.  The market value of their position will remain near parity with BTC.   The short profits from this lost opportunity of the holder of BitBTC.    On the other hand, the BitBTC holder is protected when the price of BitShares falls against BitBTC because the Short position is forced to cover and thus at the end of the day the BItBTC holder ends up with more BitShares of equal value to real BTC.

Okay, you are a complete idiot. The MMM ponzi scheme achieved a notional market cap of perhaps $10 billion.
Bernie madoff had on paper gains of $65 billion.

Am I betting that your Ponzi will be less successful than Madoff's? It is not really a bet about whether it is a ponzi or not, but I am willing to take that bet.

So are you saying the 'savers' of bitBTC face a risk loss of their BTC depending on price movements?


Since you really don't give that impression in your press release, see above. Seems a bit fraudulent, doesn't it?

From the above, it seems like the bitBTC earns risk free dividends, no?

If the savers of bitBTC can just see their BTC disappear out from under them, then perhaps I misunderstood.

That is all my powerpoint said.

Ok, lets find some other metric... perhaps a Market Cap you don't think BitShares will ever achieve?

The interest rate on BitBTC is not based upon the mining algorithm and it is not paid in BTC.    No BitBTC is ever created unless two people agree on a price and take opposite sides of the bet on the movement of the price.  Furthermore, they must both put in equal value in terms of BitShares.  

If there is no price movement, the short pays the long via the opportunity cost of lost dividends.
If the price goes up, bitshare-value is transferred from short to long.
If the price goes down, bitshare-value is transferred from long to short.

This is a 0-sum game, not a ponzi, not a peg enforced by monetary policy.  This is a prediction market of voluntary actors speculating on future price movements and making money proportional to their investing skills.  

The return on real BTC is a growing supply of BitShares... which if they have a non-0 value can be sold for additional BTC.   I am not promising any particular rate of return and my peg is not a 'hard peg' but fluctuates over time within a narrow range.  This is why we adopted an axiomatic approach to designing our system:

1) no price fixing
2) all voluntary transactions
3) no creating value from nothing
4) 0 sum, value is only transferred never created nor destroyed.

Unfortunately, your system violates these core axioms despite your fancy math.

One last caveat... we are not pre-mining and have accepted no investor money from non-sophisticated investors... the money I received early on (May) was refunded + 50% and we continue to turn down funds from people who want to invest in the idea because of SEC laws.  These are not the actions that would be taken by a scammer.

Furthermore, we are spending significant time and money to build revolutionary market-based systems far beyond just BitShares with the goal of securing life, liberty and property for all without the need for government.   We want to make the world a better place.

I spent significant time and effort to teach and educate people in the Mastercoin thread.  As a result of my efforts Mastercoin has been forced to redesign their market pegging system.   So while I disagree with the approach of Mastercoin, I have developed the utmost respect for dracoinmister as being well intentioned and thinking outside the box.

I think fraud has to involve intentional misrepresentation. So if you can convince the court that you are simply an idiot trying to design something complex it might work.

This seems to be the defense that bitshares has planned out. Personally though I don't think anyone is going to buy this.

What exactly is the criteria for determining whether it is flawed? Is it theoretical or empirical?

I have 70 BTC. I am very happy to wager them against your eventual collapse. But I can't put a date on it yet.

It is a ponzi. As long as you maintain positive net inflows you can maintain it for a long time.

See MMM, pirateat40

Perhaps once I can get some measure of growth in inflows than I can predict the date with more accuracy.

Holy cow this is amazing.

Cunicula, would my MUDgoldat40 (described in my earlier post) scheme be illegal? If not I think it might be a major moneymaker...

-MarkM-

JR, stop throwing popcorn. Let this play out, it has to.