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2] You go back in time, and build a large fake chain which ONLY contains a new series of transactions, all of them from address A to other addresses for which you have the private key.
3] You use these transactions to elect an entirely new set of 100 delegates (as you control the only votes). This may not be possible quickly, but when you cant, you simply claim that the other delegates (who aren't here) failed to sign your block (and disqualified them). For a while, there might be only 3 delegates actually signing on this chain, but you quickly establish 100.

This is not possible, someone with a minority of shares cannot elect 100 delegates.  All shares are voting for someone at some time.  You can change your vote, but not create new votes.   End result is that if you control 10% of the shares, you can only effect 10% of the delegate selection and thus your secret chain would only ever be able to produce 1/10 of the blocks of the public chain.

The attack only works if you buy 51% of the delegates because regardless of how much computational power you have you can only produce one block per delegate per round (a round is where every delegate produces a block).   

Lastly, once you did reveal your secret chain (or if it were accidentally discovered) evidence that you signed two blocks with the same timestamp will get you fired from both chains.

Conclusion: this attack is just the 51% attack carried out with leverage.   However, it has one other problem.  The main chain ignores all forks older than a certain date provided you have the majority of delegates producing blocks on your fork.   The secret chain wouldn't be accepted even if it were 'longer'. 

Quote from: MolonLabe on May 12, 2014, 04:56:43 pm

I thought that, to go long BitUSD, you spent BTS to receive BitUSD. That's usually what people mean when they say they went long stocks (that they spent dollars on stocks). If the price of stocks in terms of usd has gone up, then the price of usd in terms of stock has gone down. So buying BitUSD is putting pressure on the price of BTS, not supporting it. Or have I misunderstood?

2nd way:
Buy BTS first and then use it to buy bitUSD within the BTS system.

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Really? I can go long an ounce of gold, and short a barrel of oil. Each of those transactions could be described as "buying some amount of USD in the future", but I would NOT then describe them as "an investment in USD". You must be saying that the BTS system will be valuable, and BTS-owners will receive a sizable quantity of fees (paid in BTS, I assume). Even if this were true, it wouldn't be a reason NOT to sell those BTS off during a collapse in value.

The difference is that BitUSD is only redeemable in BTS where as gold/oil contracts are redeemable in gold/oil (in theory).   So at the end of the day BitUSD is just a claim on BTS.  You do not buy BitUSD unless you expect BTS to have value in the future with less volatility than the collateral can support. 

So think of BitUSD as an alternative investment that is highly correlated to USD but is not USD.

Manipulating the real value of BTS is like manipulating a penny stock (initially) but becomes increasingly difficult as the network grows. 

Unfortunately the network does not know the real BTS / USD price and is operating entirely on the BTS / BitUSD price.   So to crash BTS in the BTS/BitUSD price means you must buy up a lot of BitUSD in a market where there is no one willing to short BitUSD.   So the window of attack is in the arbitrage delay between BTS/USD price changes and BTS/BitUSD price changes.  Thus it requires speed to trigger a 'false margin call' and this is why having minimum market depth and maximum price movements helps give all market participants TIME to assess the reality of the value change in BTS/USD before a chain reaction can gain speed and force shorts out of their position at a loss based upon noise rather than fundamentals. 

Like we said earlier, if you could require 100x margin then you would be unable to shake someone from their position, but  you expose yourself to the monopoly attack when someone buys up all of the BitUSD to force the margin call.    Having 2x margin increases the risks of the shorts, but the good news is that 2x is just the minimum margin and any short that wishes to have a defense against certain market manipulation attacks would be proactive about maintaining higher collateral than everyone else.   In time the market will learn what to expect in terms of volatility.

!!!This is not an ‘attack’!!!

OK – please move this discussion to something else – like ‘Miner feasibility issues on trading platforms with no real deliveries’ or even better  ‘OMG, OMG margin calls make the shorts real uncomfortable’ or whatever you want to call it.

!!!This is not an ‘attack’!!!

   Your argument that you should be long BitUSD because you can get more BTS when margin is called because in your estimation the network is worthless.

Volatility is constant and taking your bet is extremely risky because of the single unknown component: time.

You are betting a run-away short squeeze is inevitable

and when this happens the value of BitUSD becomes pegged to the value of the collateral.

The market participants recognizing that going long BitUSD is just like going long BTS and that they therefore have nothing to gain by attempting to 'join an attack'.

The fact remains that BitUSD would be serving its purpose most of the time with any deviations being short-lived.

So by your estimate no-one should go short which means no one will be able to go long.  So if a market forms at all then your assumption is wrong.