Topic: Pirate v2.0: Unravelling the Bitshares Ponzi - page 7. (Read 12720 times)

Wow. If this is the best argument against bitshares, maybe it's worth another look!

If you are so sure that you deserve payment for claiming to show how my system is flawed, then publicly back your position with an equal amount of BTC for proving you wrong.  

Otherwise, your unfounded claims cost you nothing and the true test of a belief is being willing to put your money on it.

The impossible trinity is true if the only means of controlling the price is 'printing money' or 'destroying' money, but that is not what we have.  Furthermore, the analogy breaks down when you factor in 'Sovereign monetary policy'.    We are not attempting to Peg BitShares to USD via monetary policy.   BitUSD is the result of two sides of a prediction market that neither creates nor destroys value, it merely transfers it from those who bet wrong on future price movement to those who bet right.   This can be maintained forever, especially because of automatic margin calls that 'settle the trade' before the long position can lose money.  

No. You have changed one critical thing.

Mt. Gox does not pay interest on USD deposits using inflows from other depositors (well I hope they don't).

You are offer interest through monetary creation.

This is 100% equivalent to using investments from new depositors to pay interest to existing depositors.
Which is the definition of a ponzi. Therefore, you are planning to run a ponzi.

(I thought printing money was like the original sin for bitcoiners. Apparently, if you dress up seignorage in cryptocurrency it is sufficient to fool a large number of Austrians. Hmmm... are doing this to have a highly profitable fun at their expense? If so, I must say it is brilliant irony.)  

Finally, to repeat
(the funding interest through monetary creation thing + free markets -> impossible to maintain a peg with the USD.)

This is the impossible trinity.

Sure, you can distribute mining rewards as interest to holders of bitshares. This is bitshares monetary policy. You can choose whatever you want.

Sure, it is possible to maintain a peg to the USD or BTC or whatever.

Sure, it is possible to have free markets in your currency. Currency pairs, etc.

You cannot do all three simultaneously.
http://en.wikipedia.org/wiki/Impossible_trinity

There is a reason why they put the word impossible before the word trinity in the phrase.

You are claiming to be able to violate the impossible trinity in the press. You must know that you cannot do this.
You are using your claim to solicit investment.

This is equivalent to a ponzi. You have tried to cleverly disguise it.

Anyways, aren't you supposed to be sending me a bounty for exposing a flaw in your scheme:

Lets simplify this for you... I am Mt. Gox and am running a P2P exchange.  You deposit your BTC with me I pay you interest from the fees I charge facilitating the exchange.   You can withdraw more BTC in 6 months than you started with because the business earned a profit providing a service.

The only thing I have done is decentralize Mt. Gox and allocate the profits to the shareholders.

Again, you are not going to cloak your ponzi scheme in a (distributed asset corporation), blah blah blah.

You are going to the press and saying:

Sure you can create whatever type of intellectual property you want. Freedom of speech and all.

You cannot misrepresent what you are doing to naive investors in order to attract investment.

That is fraud.

Distributed / not distributed does not make a damn bit of difference.

Definition of a Ponzee Scheme:   a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.

So given this definition you make the faulty assumption that I am paying returns with their own money or with money from future investors.  I am responding here because this is complete nonsense and I want to show you how this Distributed Autonomous Cooperation (DAC) works to both make money legitimately and then pay this to the share holders.

The single biggest source of confusion is that the 'mining reward' is partially paid as dividends.  Ignoring the BitAssets such as BitUSD, the logical analogy to this is a stock-split.  No one is 'debased' or has value transferred from one person to another, with the exception that some of the stock split is paid to the miner.  It is no different than bitcoin in this respect.  You would not consider a stock-split a 'ponzi scheme' if a regular corporation did it.   Certainly there are irrational psychological effects with having 'more' of something that is worth 'less' as can be demonstrated by people who think they have made money in the stock market despite the debasement of the dollar.   We will be working very hard to educate people that the stock-split does not transfer any wealth from the holder's of BitShares.   However, the stock split DOES transfer wealth from those who are Short BitBTC to those who are Long BitBTC and this is how we 'charge interest' to the shorts who borrow to pay dividends to the Longs.    

But, to clarify everyone's thinking on the subject, lets look at the long-run when the currency supply stops growing (12 years) and only focus on how dividends will be paid then.

The DAC earns a profit by facilitating trade via transaction fees.  Some of these fees are paid to miners for their services.  The rest are paid as dividends.   These dividends are not SOURCED from future investment and could be sustained forever.  If there are no transactions there are no dividends.  In other words, the system does not promise any particular rate of return beyond a share of the 'profit' the DAC earns selling space in the block chain for transactions.

So how does BitBTC pay dividends on BTC?   The dividends paid are from the BitShares held as collateral for the short position that created the BitBTC.  The source of the dividends is the transaction fees.   The ratio of dividends paid to BitBTC vs BitShares is always proportional to the price ratio between BTC and BitShares and because the collateral is 1.5 to 2.5 the value of the BitBTC short position, in percentage terms BitBTC pays 1.5 to 2.5 the rate of return as owning BitShares proper.

Money is transferred from the people  who are Short BitBTC to the individuals who are Long BitBTC as the carrying cost of maintaining the short position.  This is not a ponzi, these are opposite sides of a trade who entered into a voluntary arrangement.


I will go one step further to prove this isn't a ponzi scheme.  The system will work even if no one ever trades BitBTC for actual BTC.   Your profits are entirely denominated in BitShares and those who 'trade' the best within the system earn the most BitShares.  BitShares could be viewed as nothing but play money or bragging rights in a virtual prediction market on the price between BitBTC vs BitUSD vs BitGold.   If BitSHares have a non-0 value then the dividends paid have real value and at all times the source of the dividends is profits from fees and not future investors money or dilution of existing investor money.

You will never find a more solid group of honest individuals attempting to make the world a better place than at Invictus Innovations.  

You have your own 'solution' based on so many arbitrary constants and price fixing that I must shake my head.... if you cannot understand the economics of BitShares then you are not fit to design mathematical models of anything related to economics and prices.   I suggest you study the mechanics of prediction markets, voluntary exchange, etc before you go around accusing people of running a ponzi scheme.  


 
 

Honestly, don't drag yourself into this.

I don't think you are a scammer. I think you have good intentions. Even if your mastercoin proposal is riddled with holes as of now.

There is a big difference between a flawed draft proposal

and a completely impossible proposal + ponzi solicitations

Before I believed they created a ponzi by accident from idiocy. I didn't even give bitshares the time of day relative to mastercoin because the whole thing is so absurd and they insisted on using unintelligible faux-economics jargon.
 
It was only when I read the press releases that I realized what they are doing.

My quote on this from another thread:


I'm not affiliated with bitshares (more of a competitor, actually), but calling them a Ponzi scheme is just absurd.

In this case, the "work" is actually mining rewards. They print bitshares as interest and distribute them to the holders of bitBTC. You can use the bitshares to print more bitBTC.

If people invest in bitshares then they can keep using bitshares to create bitBTC as long as money keeps flowing in.
They can maintain a market price of 1 bitBTC = 1 bitcoin using some of the inflows as a cash reserves to establish confidence in the system.

Success of the early entrants proves the scheme is legit for the second wave. These guys not only buy bitBTC. They are also buying bitshares too. Bitshares earn interest also. They are marketed as essentially an ownership stake in Pirate, Inc. If you really think Pirate, Inc. created a magic system for printing BTC, USD, and whatever else then it will be worth a lot of money.

As long as people keep sending cash in to buy bitshares they can keep it going. Once net cash inflows stop it must collapse. They walk away with the BTC horde. prices of bitshares and bitBTC go to zero.


If people need to be paid out in BTC then BTC going up in value doesn't help any. They need bitshares to go up in value.
Bitshares will go up in value if people are convinced by the scheme. You need to buy bitshares to mint bitBTC which they then convince you can always be sold for 1 BTC + interest.

If they were really telling the truth about bitshares magical properties then you would want to buy bitshares and it would go up in value. Unfortunately, people may believe they are telling the truth...

I imagine they think that calling this a high risk technological project will cover their asses from the SEC. I fully expect them to end up like pirate.

See this is where it helps to have a whole newfangled currency of your own you can print at will.

In CoffeeMUD we have gold coins, it just so happens that CoffeeMUD lets the admin(s) create the stuff at will.

So, we could propose a whole grand scheme of things in which we point out how much gold coins trade at, even if that is, say, one satoshi per billion of them, then go on about all the grand investments in magic armour and shields and pounds of wood and stone and so on and so on that we propose to invest in to do productive "work" in the game producing stuff to make more gold coins for you, and thus have some awesome gold coin bonds you can buy that will pay you seven percent per week on the gold coins you invest.

We can do it, too! No problem at all! The MUD admin can create out of thin air seven percent more gold coins!

So buy gold coins right now with your bitcoins, earn seven percent a week, and sell your profit gold coins for bitcoins when you want to cash back out to bitcoins!

Now do you see where the interest rate parity between currencies comes into it?

-MarkM-

+1

got it in one.

that's what I would suspect.

over-simplifying it is the whole point.

If someone says something about physics theory, and it turns out that their conclusion implies a violation of the law of thermodynamics...

If you just follow their argument it is very hard to understand. If you check the conclusions of their argument against standard theory and they are inconsistent with one another. Well, this is very revealing. Either the standard theory is wrong or they are wrong.

Most people would trust economics texts over new economic theory developed at bitshares.
However, with the bitcoin community who knows.

If you won't accept the standard theory, however. It is not going to be possible to convince you. (much like if you won't accept the law of thermodynamics then it is going to be hard to argue about the feasibility of your new physics invention)

Maybe the "work" is the increase in bitcoin value compared to USD value?

So that, like pirateat40, as long as bitcoin keeps going up (or was it down in pirateat40's case?) the scheme will get to continue a little longer?

-MarkM-

yes but even a child could understand "earn interest"

so the very simple question of course is , where does thou interest derive ?



interest is the principal of payment for risk , Usury is the principal of fraud .

interest is acceptable on a loan at risk to the counter-party as if this did not exist , no one would have an incentive to loan.

so now that we know that interest in this simple sense is an "offset for risk",  where is the risk?

and where is the "work" - if the principal is investment there is usually "work" related to growth, i.e productive growth.


even in so called no productive loans - there is a work derivative ;

for example Jon borrows 100k for a car loan, he buys the car and promises to pay the interest (lets pretend we don't live in a fraudulent usurious society so i'll leave out all the fake money creation)

he gets the loan and pays back the principal and interests - Jons work to earn the transfer of new currency to pay the principal is allowing for the existence of the loan and by extension the car, back at the car factory there is work being done , to justify its existence . 


@MarkM -

The quote I provided is directly from the Coindesk article. the claim has been made.

It could work as long as they could keep printing more bitcoins. But if the interest due increases faster than new bitcoins are printed/minted, it, as described by Cunicula, is obviously doomed.

I suppose in principle the possibility remains that Cunicula is over-simplifying a complicated system, but if their marketing also did so it would seem like the marketers were trying to market it as a ponzi.

EDIT: Oh wait, possibly as long as bitcoin keeps going up in value relative to USD that also could prolong the scheme?

-MarkM-

Impossible it may be, idiots will still fall for it. This forum has a profound lack of economic sense.

ha ha i'm not sure if you are talking to me in the first person here?

As soon as I saw its conception , I never doubted the principal upon which Bitcoin is built .

I can choose to speak eco-speak just find it redundant and obtuse , a disgrace to the field that use to be called "economics" .

I know of others that have had a hard time understanding  PoW Blockchain etc principals , to the point of faith > security > confidence.

But some of these questions are justified certainly with regard to BTC , the principal however I believe is pretty rock solid, its proven, double blind and in real life.

A simpler way of putting it might be through "covered interest rate parity"

Say that a bitUSD is really expected to be worth a bitUSD next year.

If so, then would you agree to buy 1 bitUSD from me for 1 USD next year? (i.e. we are both obligated to make the exchange)

Of course you would, it is just exchanging one USD for another.

Okay, but bitUSD earn interest, so if I can buy it for 1 USD, earn interest, and sell it back to you for 1 USD, it is a great opportunity.

It generates a risk-free return for me. With no risk at all for you either. Hey maybe I can even share the wealth since I can earn infinite money this way.

This is impossible.