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Offline Riverhead


I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.

Offline bytemaster

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #1 on: August 23, 2014, 02:48:40 PM »
The take away from this is that people don't want Dollars, they want the VALUE of a dollar.    You can have a dollar worth of anything, gold, silver, gas, or Bitcoin.   The amount of gold/silver/gas or Bitcoin will change over time but why do you care how much gold/silver/gas or bitcoin you have so long as what you have is worth a dollar.

People don't buy gold because they want gold, they buy gold because they want the exposure to the price.  Any asset that tracks the value of gold faithfully is as good as gold for 99% of the people who aren't using gold for industry.
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Offline Riverhead

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #2 on: August 23, 2014, 03:00:23 PM »
The take away from this is that people don't want Dollars, they want the VALUE of a dollar.    You can have a dollar worth of anything, People don't buy gold because they want gold, they buy gold because they want the exposure to the price.  Any asset that tracks the value of gold faithfully is as good as gold for 99% of the people who aren't using gold for industry.


I like this better. This is the same as my, "neither have even the slightest interest in gaining a controlling stake in Google, the important thing is they can sell it to someone else for more later".


Perhaps I should rewrite it using bitGold and your take aways.  Thanks for the input.

Ggozzo

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #3 on: August 23, 2014, 04:33:56 PM »
Try this:

1dollar bill equals $1.
4 quarters equal $1.
10 dimes equal $1.
20 nickels equal $1.
100 pennies equal $1.

So sometimes you have different coin worth different amounts and depending on how many of each coin you have they can add up to $1.

BTSX and bitUSD are similar in this same way.

BTSX are the coins that can add up to 1 bitUSD. The only difference is that people get to decide how much value BTSX has every day, hour, minute and second relative to a dollar. Thus, BTSX will constantly be changing from a "Penny" coin one day, to a "quarter" coin on some other day.

For example:

2 days ago, 115 BTSX equaled 1 bitUSD (approximations)
Yesterday, 33 BTSX equaled 1 bitUSD
Today, 40 BTSX equals equals 1 bitUSD

Here is the kicker: 1 bitUSD always equals $1.
« Last Edit: August 23, 2014, 05:27:20 PM by skyscraperfarms »

Offline toast

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #4 on: August 23, 2014, 06:29:10 PM »
None of these explain why it actually tracks...

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Ggozzo

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #5 on: August 23, 2014, 07:17:50 PM »
None of these explain why it actually tracks...

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Explain it like you're talking to a FIVE year old.

Offline Riverhead

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #6 on: August 23, 2014, 07:34:00 PM »

Actually as I'm writing this my thoughts are changing. It'll track GOOG because people need to be able to trade their bitGOOG for GOOG at 1:1 (bitGOOG->bitUSD->USD->Broker->NYSE.GOOG..maybe there's a shorter path). I think I have had an epiphany lol. Stupid thick skull.
« Last Edit: August 23, 2014, 07:52:54 PM by Riverhead »

Offline toast

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #7 on: August 23, 2014, 09:31:37 PM »
None of these explain why it actually tracks...

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Explain it like you're talking to a FIVE year old.

It works because everyone else thinks it works. If you don't think it will work, you will lose money by trading the wrong way, because you disagree with the majority. So the only people that stay in and make money are those that agree.

The other explanations are more complex *and* fail to explain *why* it works, they just say *how*.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline GaltReport

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #8 on: August 23, 2014, 09:37:55 PM »
Try this:

1dollar bill equals $1.
4 quarters equal $1.
10 dimes equal $1.
20 nickels equal $1.
100 pennies equal $1.

So sometimes you have different coin worth different amounts and depending on how many of each coin you have they can add up to $1.

BTSX and bitUSD are similar in this same way.

BTSX are the coins that can add up to 1 bitUSD. The only difference is that people get to decide how much value BTSX has every day, hour, minute and second relative to a dollar. Thus, BTSX will constantly be changing from a "Penny" coin one day, to a "quarter" coin on some other day.

For example:

2 days ago, 115 BTSX equaled 1 bitUSD (approximations)
Yesterday, 33 BTSX equaled 1 bitUSD
Today, 40 BTSX equals equals 1 bitUSD

Here is the kicker: 1 bitUSD always equals $1.

So, is buying bitUSD like cashing out without having to pay taxes?
« Last Edit: August 23, 2014, 10:31:56 PM by GaltReport »

busygin

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #9 on: August 23, 2014, 09:57:11 PM »
For everyone to act as if bitUSD represents USD is a better Nash equilibrium than ignoring bitUSD. That's one-sentence explanation that should suffice for people who know what a Nash equilibrium is.

Offline xeroc

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #10 on: August 23, 2014, 10:10:22 PM »
For everyone to act as if bitUSD represents USD is a better Nash equilibrium than ignoring bitUSD. That's one-sentence explanation that should suffice for people who know what a Nash equilibrium is.
I had to goole it :) - doesn't hurt for the reader to also goole that term!

From wikipedia:
Quote
In game theory, the Nash equilibrium is a solution concept of a non-cooperative game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only their own strategy.[1] If each player has chosen a strategy and no player can benefit by changing strategies while the other players keep theirs unchanged, then the current set of strategy choices and the corresponding payoffs constitute a Nash equilibrium.
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Offline luckybit

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #11 on: August 23, 2014, 10:16:52 PM »
I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.


Not backed yet. But it isn't impossible to make a Ripple Gateway which turns BitUSD into USD.
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Offline tonyk

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #12 on: August 23, 2014, 10:21:26 PM »
It will not be backed lucky....

Not yet, not ever.

Yes I suggest dilation of the above.
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline toast

Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #13 on: August 23, 2014, 10:21:36 PM »
I want to add an article to the reddit "Explain it like I'm Five" section. Please edit or tell me why it's a complete fabrication and I should start over :) . I am writing this as a person who has a basic understanding of the stock market but am by no means an economist.


https://docs.google.com/document/d/1C_4MR4d8AsoqWQw8UMCyKeuvhO5TSws_TPHG421HVJg/edit?usp=sharing


Let's take Google. The share price of Google is supposed to be their book value plus some fudging for revenue, growth potential, etc. It's why share-price/book is a key stat that tries to guess how much intangible value pushing the price above or below book is correct.
Now let's take two day traders:

Trader A looks at the price of Google and says, "$400? Heck no.  They're about to be regulated out of existence and Amazon is releasing Amazon Search soon. I think it's worth $80" so they short.


Trader B thinks Trader A is off his rocker. The Google pipeline looks awesome and the stock will easily reach $600 by the end of the year. He bids long $500.

And so the game goes on. The big take away from this is neither have even the slightest interest in gaining a controlling stake in Google. It could be the worth of fiddle sticks for all they care.  The important thing is one person thinks it's worth more than the other and the market transactions tend toward a consensus of the intangible value above/below book.

Call them Google Shares or bitGoogle, it doesn't matter. It's not like if you had a Google share you could walk into Google HQ and start scarfing down the free food. The share really only has demand, and therefore value, because someone else thinks they can sell it for more later.


Not backed yet. But it isn't impossible to make a Ripple Gateway which turns BitUSD into USD.

This will only confuse things further for someone who doesn't get why it should track to begin with, even without gateways
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline Empirical1

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Re: ELI5 Reddit - Why will bitUSD work when they aren't backed by USD?
« Reply #14 on: August 24, 2014, 12:22:09 AM »
This is kind of how I explain to gambling people...

Imagine betting on a big soccer match; If the score is 2-0 with 5 minutes to go, there's no way if I gave you the same betting odds for the 2-0 winning team as the 2-0 down team that you'd bet on the losing team right?

From that we can see that betting on the team likely to lose without receiving much better odds is a bad idea. 

With BitUSD everybody has already agreed beforehand the outcome of the 'soccer match' was 1-1. 

As a result it's very hard to move the market too much in another direction, because it's simplicity itself for the majority of bettors to notice if 1BitUSD is moving too far from 1USD.

As an example - If BitUSD was 0.95 to 1 USD, unless you were getting better odds for it to go to 0.9, there's no reason to fight the bettors taking it back to 1-1. It would be like betting for the losing team without being given better odds to do so. So the right move is always to bet in the direction of  1-1. 

Provided you trust the collateral system* to back up the bets, then you can have a lot of confidence the bettors are going to keep 1BitUSD very closely tied to 1USD.

As a result retailers/savers/other can substitute BitUSD for USD if it benefits them to hold/accept an asset mirroring the value of a USD held in a decentralised way.

*The collateral system. Because crypto-currencies are volatile people going short have to post a lot of collateral in the form of BTSX. Additionally as a contingency, fees charged for making bets are directed to an insurance fund. However in practice only an extremely rapid BTSX flash crash of more than 50% would bring any of the insurance fund into play

 

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