Should a bitcoinica clone be put online ? - page 2.

tvbcof

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Quote from: rjk on July 18, 2012, 12:10:12 PM

Quote from: elux on July 18, 2012, 11:53:24 AM

Quote from: N12 on July 18, 2012, 11:06:32 AM

We need shorting back.

Aye. Could care less for trading on margin and interest on deposits and open positions.

Uhhh, shorting in this sense is trading on margin. Interest was there to attract capital, but it shouldn't be needed for a well-funded setup.
Without margin, you can "short" by simply selling into the market.

I am not sure that I would agree with that. Many people may have a desire to have a negative balance of BTC which is perfectly legitimate. In that case, borrowing from your own stash is not possible.

At this point I _want_ to own N BTC. I can short by borrowing (from myself) and selling to the point where I have fewer than N and plan to buy them back when the price falls. If it doesn't fall, I lose...if I my N target remains valid and I buy in to achieve it.

I believe that 'margin' commonly implies 'leverage' (using fewer notional value of one asset to control a higher value of another) but I am not certain of that.

Back to Blitz's original; who is 'we'? You could probably find someone to loan you some BTC if the price is right. If I were to do so, I would want pretty solid protection up to about $100/BTC (where I plan to sell a certain fraction of my holdings anyway) and I don't have any automation set up (to buy in in an emergency) so I'l probably want, say, $10,000 to loan you 100 BTC. Kind of negative leverage if you will. I would be surprised if you jumped on the deal...and disappointed since in reality I have no interest in dealing with all the hassles.

rjk

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Quote from: elux on July 18, 2012, 11:53:24 AM

Quote from: N12 on July 18, 2012, 11:06:32 AM

We need shorting back.

Aye. Could care less for trading on margin and interest on deposits and open positions.

Uhhh, shorting in this sense is trading on margin. Interest was there to attract capital, but it shouldn't be needed for a well-funded setup.
Without margin, you can "short" by simply selling into the market.

elux

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Quote from: N12 on July 18, 2012, 11:06:32 AM

We need shorting back.

Aye. Could care less for trading on margin and interest on deposits and open positions.

How come mt-gox does not allow short selling? Financial regulations?

N12

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If you think you can manage the financial exploit side of things (not allow anonymous accounts to have up to 10:1 leverage [leaving them with negative acc balances in some cases], and forbid 5:1 and 10:1 in general), then I am all for it. Please do it.

We need shorting back.

davout

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Of course the Bitcoinica name would be changed for a clone to come online, but first I want to :
- finish the reverse-engineering completely (which means understand every subtlety in the algorithms),
- understand exactly how it can be properly monitored (the business side, not the technical side),
- do an actual security audit (the things I tweaked already were pretty obvious, now I need to go more in depth),
- have a solid plan for a GLBSE IPO,
- have a plan for the C&D letter case,
- start writing my own platform (because the code is not written in a maintainable way, and because I'd have a good incentive to write a fuckton of tests)

muyuu

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Quote from: notme on July 18, 2012, 10:20:13 AM

Quote from: ErebusBat on July 18, 2012, 10:16:34 AM

Thanks for posting here genjix. I noticed you didn't address either the 'should it go back online?' nor the intelectual property questions.

Saying it was unprofitable kind of suggests not putting it back online unless davout likes losing his money.

Provided he was in the middle of a total rewrite and the hedging algorithm would be different, why carry the Bitcoinica name? it's a drawback at this point.

I'd probably run a completely new margin trading platform with my own people, once the liabilities are settled.

notme

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Quote from: ErebusBat on July 18, 2012, 10:16:34 AM

Thanks for posting here genjix. I noticed you didn't address either the 'should it go back online?' nor the intelectual property questions.

Saying it was unprofitable kind of suggests not putting it back online unless davout likes losing his money.

ErebusBat

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Thanks for posting here genjix. I noticed you didn't address either the 'should it go back online?' nor the intelectual property questions.

genjix

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Quote from: davout on July 14, 2012, 04:27:22 PM

Quote from: ninjarobot on July 14, 2012, 04:23:31 PM

I understand the new Bitcoinica owners found so many holes in the current code that they most likely decided to not to maintain and and instead develop a new platform from scratch. Unfortunately Bitcoinica came down before the new platform was ready.

The more I read the code, the more I see it is very very messy. I think the reason they'd want to rewrite it from scratch would have been for maintenability, not security.

No, it was for security.

Also Bitcoinica was losing money because its hedging algorithm was too simple, and during the last few months the site had negative profit. My role in the new Bitcoinica was to design a new hedging algorithm. The old algorithm simply had barriers that when reached would begin trading. These values were set manually on the site. I was designing better ways to assess the risk, and reduce it to acceptable levels (3 sigmas or more).

And this is why:

From: http://bitcoinmedia.com/market-volatility-has-gone-down/

Local volatility in the market has gone way down. In the beginning, Bitcoinica could have a non-optimal hedging algorithm and still profit. But now things are getting harder as the Bitcoin economy gets sharper.

anu

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Quote from: notme on July 15, 2012, 10:52:34 PM

I agree that Bitcoinica made bitcoin more volatile, but it only profited from forced liquidations if you assume the volatility made people trade more. Force liquidations only recovered their lent funds since the loss had grown to the size of the available margin. Bitcoinica profited only from the spread.

Trade more? You mean gamble more. People trade less if Bitcoin is volatile. Merchants are not in the gambling business. You don't sell stuff for Bitcoin if there is a real risk that Bitcoin looses 20% on the way to the exchange - even if there is a chance that it gains 20% at the same time.

Volatility is poison.

notme

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Quote from: muyuu on July 15, 2012, 10:13:06 PM

It just so happened that they benefited strongly from force liquidation. For all its life BTC valuation oscillated back and forth making force liquidation very profitable for them.

Valuation swings remarkably less now without BTC, it's a fact. A rally like this one would consistently correct itself with Bitcoinica in play, I doubt it's a coincidence, it happened many times.

I don't think it's a stretch to say the market is not liquid enough to bear a leverage trading platform the size Bitcoinica ended up having, without serious disruption.

I agree that Bitcoinica made bitcoin more volatile, but it only profited from forced liquidations if you assume the volatility made people trade more. Force liquidations only recovered their lent funds since the loss had grown to the size of the available margin. Bitcoinica profited only from the spread.

muyuu

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It just so happened that they benefited strongly from force liquidation. For all its life BTC valuation oscillated back and forth making force liquidation very profitable for them.

Valuation swings remarkably less now without BTC, it's a fact. A rally like this one would consistently correct itself with Bitcoinica in play, I doubt it's a coincidence, it happened many times.

I don't think it's a stretch to say the market is not liquid enough to bear a leverage trading platform the size Bitcoinica ended up having, without serious disruption.

notme

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Quote from: Ichthyo on July 15, 2012, 09:08:05 PM

Quote from: Ukigo on July 15, 2012, 10:54:44 AM

Profit of Bitcoinica-like service goes from 90+ % of gamblers, that gamble at net loss.
You gamble --> you go deep in red --> forced liquidation --> "Bitcoinica" now in profit.

I'm more and more puzzled what makes people think Bitcoinica profited from force liquidation.
Force liquidation just protects them against losses.

The business plan of Bitcoinica seems to be quite obvious: they earn the spread. As long as people continue trading, this generates a constant stream of revenue, with a very small risk. (The only risk was that the market might move to fast for force liquidation to protect Bitcoinica from losses). And, moreover, the spread was so large as to make day trading not really feasible. You could make quite nice revenue though, when staying in for the more long term moves.

Thus, additionally we may conclude that the business plan of Bitcoinica was to attract every newbie in the bitcoin community, just to learn the hard way that the spread is to high for day trading. The fact that a lot of people hated Bitcoinica and constantly warned about "being zouthonged" just tremendously helped with that business. It helped hightening the thrill.

IMHO we should take Bitcoinica for what it is/was, and not condemning it for what it was not. As far as I can see, they indeed forwarded the neted amount of all positions into the real market. So it was not betting against their customers, thus not a bucket shop.

Yep.

Ichthyo

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Quote from: Ukigo on July 15, 2012, 10:54:44 AM

Profit of Bitcoinica-like service goes from 90+ % of gamblers, that gamble at net loss.
You gamble --> you go deep in red --> forced liquidation --> "Bitcoinica" now in profit.

I'm more and more puzzled what makes people think Bitcoinica profited from force liquidation.
Force liquidation just protects them against losses.

The business plan of Bitcoinica seems to be quite obvious: they earn the spread. As long as people continue trading, this generates a constant stream of revenue, with a very small risk. (The only risk was that the market might move to fast for force liquidation to protect Bitcoinica from losses). And, moreover, the spread was so large as to make day trading not really feasible. You could make quite nice revenue though, when staying in for the more long term moves.

Thus, additionally we may conclude that the business plan of Bitcoinica was to attract every newbie in the bitcoin community, just to learn the hard way that the spread is to high for day trading. The fact that a lot of people hated Bitcoinica and constantly warned about "being zouthonged" just tremendously helped with that business. It helped hightening the thrill.

IMHO we should take Bitcoinica for what it is/was, and not condemning it for what it was not. As far as I can see, they indeed forwarded the neted amount of all positions into the real market. So it was not betting against their customers, thus not a bucket shop.

davout

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Quote from: tvbcof on July 15, 2012, 12:04:41 PM

I think it was that:

Instawallet is/was one of the few designs which I trusted as it made no pretenses of mining for more personal data than it needed to do it's job.

JAV seemed like a straight-up guy, and (iirc) handed things off to you.

Last I checked, my 50-ish BTC was still there. But that was many months ago, and I'm only going by what the UI told me.

Thank you!

tvbcof

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Quote from: davout on July 15, 2012, 03:57:36 AM

Quote from: tvbcof on July 14, 2012, 06:18:06 PM

You are one of a handful of people I would trust with non-trivial amounts of Bitcoin. Cannot quite remALL GLORY TO THE HYPNOTOAD

FTFY

I think it was that:

Instawallet is/was one of the few designs which I trusted as it made no pretenses of mining for more personal data than it needed to do it's job.

JAV seemed like a straight-up guy, and (iirc) handed things off to you.

Last I checked, my 50-ish BTC was still there. But that was many months ago, and I'm only going by what the UI told me.

doobadoo

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Quote from: markm on July 14, 2012, 10:15:31 AM

Quote from: Bigpiggy01 on July 14, 2012, 10:07:27 AM

Hmmm maybe altcoinica so peeps can get the margin devil out of their system without risking too much?

Yes indeed. Being able to short any coin type against any other coin type would be very interesting and is where I will be heading with Open Transactions if I can actually figure out how shorting is woth implementing at all. I am still not clear on why anyone would loan an asset to someone else knowing the someone else is going to use it to lower its value so as to ideally be paying back less value than they borrowed...

-MarkM-

For a better explanation of how it worked, check this tube: https://www.youtube.com/watch?v=kdvTkddp1F0

Ukigo

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Quote

What about the algorithm being public? Would this affect profitability?

No.
Profit of Bitcoinica-like service goes from 90+ % of gamblers, that gamble at net loss.
You gamble --> you go deep in red --> forced liquidation --> "Bitcoinica" now in profit.

Even if algo is public, it does not matter how fair algo is.
Always will be number of people, that will gamble blindly or emotinally.

doobadoo

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I thought this through, and came to the conclusion that the concept needs to be re thought. We should try to adopt a new principle here in Bitcoin Land: If the service can be run without the vendor holding your coins, it should.

I thought about whether there was a way to do this with escrow. Everyone long bitcoin sends margin to an account, each short does the same. The accounts do some kind of escrow thing, where they send their coins in equal proportions to holders on the other side. You would need a trusted person to do this, that individual is sort of like a market maker. Their job is to police the margin and settled closed contracts.

In the end the worst that could happen, were the vendor or market maker to go poof, would be the coins defaulted to all the contract holders as if the trades didn't happen. That way the liquidation goes to all the participants and any lost funds relative to the true position value only affects people trading through that market maker or "desk." You could have competing desks, and new desks that let you trade things like oil and gold. Commission would be split between the market makers who manage escrow of the funds, and the parent company (exchange) itself simply provides the signed code/server services.

Is there some one who gets the protocol enough who can figure it out?

ErebusBat

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Quote from: davout on July 15, 2012, 03:57:36 AM

Quote from: tvbcof on July 14, 2012, 06:18:06 PM

You are one of a handful of people I would trust with non-trivial amounts of Bitcoin. Cannot quite remALL GLORY TO THE HYPNOTOAD

FTFY

^^^^ This.

Second: why not explore a GLBSE company? Allow people to buy in plus that way there is an easy way to motion and what not. We would need to agree here how many shares you would get for the work you have already done and the hosting and whatnot. I am also a rails guy, but not sure what time I would be able to commit to yet.

What about the algorithm being public? Would this affect profitability?

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