Topic: Should a bitcoinica clone be put online ? - page 5. (Read 7547 times)

Interesting.

My understanding is that they did not require credit checks on people because they would reimburse themselves by force-liquidating your position once it was getting close to net_worth = borrowed_amount

In my understanding how it works is the following (haven't checked much in the actual code so far) :
 - For a short position you borrow BTC from the house. If your own BTCs are N your leverage 2, you end up with selling 2*N BTC at price P1, you're now holding 2*N*P1 USD, if price falls to P2 you can liquidate your position with a buy order, you buy (2*N*P1)/P2 BTC. If P1 > P2 you get keep a profit, if P1 < P2 you're at a loss. Your position is force-liquidated when P2 rises so much that re-buying would leave just enough to reimburse the house.

 - For a long position it's pretty much the opposite. You're just shorting the USD.

And since (always in my understanding) you liquidate positions with market orders there is always enough to pay profits.

People can approach this as gambling, or trading, doesn't matter, as long as the rule is clear I see no malice in that. BUT my understanding of margin trading concepts is still fairly limited, I'm genuinely curious about it, and ready to stand corrected.

I understand that you are French and the bucket shop moniker is very much rooted in the American tradition.

But the line of reasoning is really simple. You don't really have to disassembly any perpetuum mobile to say that it can't work.

1) Long trade has a range from unlimited gain and 100% loss.
2) Short trafe has a range from 100% gain to unlimited loss.
3) To honestly allow shorting you have to do a credit check on the customers.
4) Bitcoinica wasn't doing credit checks and didn't attempt to collect on loses.
5) From the above Bitcoinica was a gambling establishment.

Call it "bucket shop", "bunga-bunga shop", "spread betting", "contract for difference" or whatever else the gambling regulations allow throughout the world. The logical outcome is really simple.

I think more services = better, so you should go for it. There is always space for alternatives.

I don't know the details either. From what little I understand his modified algorithm would sandbag the spreads in such a way that the loss was always on customer's side not on the house's side. The amount of sandbagging was somehow keyed with volatility.

I distinctly remember somebody somewhere posting a Python code to whipsaw bitcents from the original algorithm and then Zhoutong came up with a fix for that.

This +1. Waste your damned altcoins on insecure code, and wait for a secure alternative to be built and audited before using it on bitcoins.

NOO! You must use emacs! 

Yep, so that's basically a non-issue

The original code surely belongs to someone, regardless of whether it's been leaked.

Though given the leak it looks trivial to reverse engineer and write a clone from scratch.

How was the pricing algo an invention ?
From what I thought I understood it was simply the mtgox price at a certain depth.

Ah, OK then. I was worried that you are going to waste your skill and time on doing the security audit on the cadaver.

Zhoutong's key invention was the secret semi-random pricing algorithm. I recall that somebody reverse-engineered his original pricing algorithm and posted a Python script to reliably scrape small profits (maybe that person was "macbookair"?). Then he added some randomness and it worked like catnip on all the gamblers here.

I would let other people do the necromancy and create Frankencoinica, Litecoinica, Solidcoinica and whatever else.

Actually it will probably be Биткоиница.

Doesn't mean it's desirable

Hmm so they were a bucket-shop but just not a totally self-contained one? The use of MtGox was just a way of helping keep the bucket shop from getting caught out a little longer by at least sometimes actually buying or selling actual assets?

I have been testing Open Transactions for a year or so now and am very pleased with its progress so I am very interested in figuring out a "right" way of implementing leverage and shorting. But if "doing it wrong" is what the customers want, as evidenced by their flocking to those who "do it wrong" to avoid the costs involved in "doing it right" maybe having floods of MyBitcoinica sites springing up all over the place is going to be inevitable?

-MarkM-

From my understanding there are actual trades happening when users place orders, if they have a long position actual BTCs are bought for example.
I'm not really far in understanding how it actually works, until then, calling it a bucket shop (or a legitimate trading platform for the matter) is IMO a little premature.

No, for reasons like this.

Understood, if you want to read the business logic it is in the app/models folder (each model is linked to a database table), and in the app/workers folder (this one contains all the periodic running tasks) the pricing logic probably resides in one of the workers.

I don't think it would be extremely difficult, Ruby is awesome for this kind of things, you can transparently replace code at runtime.
See pastebin below

I've added a couple comments, but this is pretty much the raw TickingJob http://pastebin.com/4Ej858a8

I love it, and JetBrains gave me a free open-source license for developing Bitcoin-Central.net

I know NOTHING about ruby... but I don't doubt your assessment.  Yahoo Voice stores passwords in plaintext so don't event begin to think that any larger entity's online security practices are any better.  The bigger the entity the more money that have to throw any security breach when it happens and for now it seems that is cheaper for them then rolling out fully secured code into production.

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...

Also I worry about how to ensure there are enough on the market to buy come payback time. It seemed to me there is a double cost in shorting if secured by a marketmaker who puts aside enough of what someone borrowed from someone to ensure there will be enough left on the market at payback time for the borrower to buy to pay back the loaned assets.

The more "alt" the asset the more need, it seemed to me at first glance at least, there is for a marketmaker like that because if there are none of the borrowed thing on the market there is no price available to determine how much value needs to be paid back in some different type of thing.

(If you short 1968 Coupe de Villes, and there are not Coupe de Villes on the market come payback time, how can anyone figure out how much dollars or gold or something you'd need to pay to make up for having defaulted on paying back the loan of Coupe de Villes?)

-MarkM-

I can assure you this one is.

I'm not "Rails coder" and most of the people here aren't either. But we are all curious and capable of coding or at least reading code. I would suggest that your target audience shouldn't be a "Rails coder", but any curious hacker not afraid to code.

Since you've mentioned Mt.Gox API key I have another question: how difficult is to stub out the portion that queries Mt.Gox and instead plays back a stored ticker tape in the csv or any other spreadsheet-compatible format.

Many people are interested what the secret pricing algorithm did to the bid/ask spreads on Bitcoinica. This could probably be of paramount importance if any litigation comes to fuition.

And thank you for the Rubymine reference.

Code is not inherently insecure.  Coders practices create insecurities.

There is absolutely a need desire for a bitcoinica clone.  However based on recent events I believe the community would demand (but maybe not!):

1.  Clear declaration of ownership
2.  Proof/validation of security practices
3.  Regular third party financial audits.

That wouldn't be inexpensive however the evident profit margins of such a business would certainly warrant the expense.