BitShares Forum
Other => Graveyard => Marketplace => Topic started by: bytemaster on January 15, 2014, 05:19:09 pm
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Maybe we need an open analogy bounty. All good analogies could then be used in any future marketing campaigns. Not only could this lead to good marketing material but it would help encourage people on these boards to think about these concepts in new, creative ways.
We will award 1 PTS to every unique analogy or clarified analogy that we think provides new insight with fewer words. We are the sole judge but will award this bounty liberally.
Analogies that I have used thus far: The price is pegged by the same principles that peg a prediction market. They are financial derivatives. They are an IOU from the blockchain issued when a user makes a collateralized IOU to the blockchain. It works just like a bank.
Every creative, concise, and accurate analogy or clarification/rephrasing of one of my analogies has an opportunity to earn 1 PTS.
We reserve the right for partial rewards as well.
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Think about quantum entanglement. You can bind anything together and they doing the same. As example USD/EUR is entangled to BitUSD/BitEUR. So you get a old correlation in a decentralised environment.
Sorry for my bad english :D
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Think about quantum entanglement. You can bind anything together and they doing the same. As example USD/EUR is entangled to BitUSD/BitEUR. So you get a old correlation in a decentralised environment.
Sorry for my bad english :D
I am afraid I cannot follow that analogy ;)
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Decentralization is a form of Democracy, by owning shares you get a say and benefits.
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It is supposed to be like a future contact with infinite maturity.
This nailed it for me.
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3I is like a hatchery, it attracts seeds(new born DAC), gives them feeds(AGS) and helps them rise.
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Very Protoshares very AngelShares. Much Bitshares Much Money.
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Decentralization is a form of Democracy, by owning shares you get a say and benefits.
Doesn't explain BitUSD price pegging. The market is the ultimate democracy.
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Very Protoshares very AngelShares. Much Bitshares Much Money.
LOL
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3I is like a hatchery, it attracts seeds(new born DAC), gives them feeds(AGS) and helps them rise.
I like this analogy for 3I but does not address how BitShares X works to Peg BitUSD to USD.
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It is supposed to be like a future contact with infinite maturity.
This nailed it for me.
I agree that is a very good one.
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They are peace of bet from every market move.
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Mine from the Bitshares Brand thread:
"Bitshares: the digital standard for assets and equities." or even simpler "Bitshares: the digital standard of value exchange."
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So far I see good marketing slogans for BitShares X but not any analogies that explain the BitUSD to USD peg....
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So far I see good marketing slogans for BitShares X but not any analogies that explain the BitUSD to USD peg....
I think nobody knows exactly how it works but ashamed to admit. Maybe some plain language explanation would help or link from where to learn about.
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how BitUSD beg to USD?imagine BitUSD is the USD currency futures.
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how BitUSD beg to USD?imagine BitUSD is the USD currency futures.
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Ok , I have imagined. How it goes further? What is Bitshare roll?
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how BitUSD beg to USD?imagine BitUSD is the USD currency futures.
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Ok , I have imagined. How it goes further? What is Bitshare roll?
Bitshares likes the currency futures exchange,the currency futures will eventually beg to the real currency through market activities .
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how BitUSD beg to USD?imagine BitUSD is the USD currency futures.
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Ok , I have imagined. How it goes further? What is Bitshare roll?
Bitshares likes the currency futures exchange,the currency futures will eventually beg to the real currency through market activities .
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You didnt explained mechanism how it works ;) This is still fogy. I didn't understood this "Bitshares likes the currency futures exchange"
You mean they are like currency future exchanges? Bitshare is not exchange , rather it is backing asset for future contract.
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how BitUSD beg to USD?imagine BitUSD is the USD currency futures.
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Ok , I have imagined. How it goes further? What is Bitshare roll?
Bitshares likes the currency futures exchange,the currency futures will eventually beg to the real currency through market activities .
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You didnt explained mechanism how it works ;) This is still fogy. I didn't understood this "Bitshares likes the currency futures exchange"
You mean they are like currency future exchanges? Bitshare is not exchange , rather it is backing asset for future contract.
The "BitShares" i mentioned is the system which is under development, The "Bitshare"you means is the BTS,it is a backing asset in the system,there are diffident concept.
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Ok, there it seams much inconsistency and misunderstanding in terms we use. We should take care of it first.
I am not a bot that could easily distinguish difference between "BitShares" and "Bitshare".
So what represents Bishares X? Market for BitUsd and usd currency futures, right? What is Bts roll in that market?
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They are peace of bet from every market move.
I like this.
BitShares provide a decentralized price feed. The only common point people all across the network have is that the "BitUSD" asset has the words "USD" in it. If someone wants to "attack" this price feed and cause it to deviate from real USD/BTS, and they don't have a large majority of BTS, the opposing market forces from the rest of the network are enough to push the price down and take money from the attacker, because everyone else has the choice of either "cooperate towards USD and make money if other do too" or "defect and hope to make money if enough people coincidentally defect in the same direction as you".
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They are peace of bet from every market move.
I like this.
BitShares provide a decentralized price feed. The only common point people all across the network have is that the "BitUSD" asset has the words "USD" in it. If someone wants to "attack" this price feed and cause it to deviate from real USD/BTS, and they don't have a large majority of BTS, the opposing market forces from the rest of the network are enough to push the price down and take money from the attacker, because everyone else has the choice of either "cooperate towards USD and make money if other do too" or "defect and hope to make money if enough people coincidentally defect in the same direction as you".
Toast gets a 1 PTS tip... this is an accurate description though it is can certainly be improved upon... note this bounty pays for multiple answers...
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They are peace of bet from every market move.
I like this.
BitShares provide a decentralized price feed. The only common point people all across the network have is that the "BitUSD" asset has the words "USD" in it. If someone wants to "attack" this price feed and cause it to deviate from real USD/BTS, and they don't have a large majority of BTS, the opposing market forces from the rest of the network are enough to push the price down and take money from the attacker, because everyone else has the choice of either "cooperate towards USD and make money if other do too" or "defect and hope to make money if enough people coincidentally defect in the same direction as you".
Toast gets a 1 PTS tip... this is an accurate description though it is can certainly be improved upon... note this bounty pays for multiple answers...
Congratulations Toast, only I thought it was mine description :D
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Geneko, your statement "They are peace of bet from every market move." does not describe how the peg works and 'they' is ambiguous in your statement.
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Buying BitUSD within BitShares X is like buying part of an index fund that tracks the USD value of a share(s) of the stock exchange itself (BTS).
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Bitcoin rise and fall dramatically , but BitUSD can keep rise moderately
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Geneko, your statement "They are peace of bet from every market move." does not describe how the peg works and 'they' is ambiguous in your statement.
Ok I all try with something more accurate. How about:
They are insurance policies against future Bitusd and Usd price difference.
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Geneko, your statement "They are peace of bet from every market move." does not describe how the peg works and 'they' is ambiguous in your statement.
Ok I all try with something more accurate. How about:
They are insurance policies against future Bitusd and Usd price difference.
Wouldn't that be future BTS to USD price difference?
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It is supposed to be like a future contact with infinite maturity.
This nailed it for me.
I agree that is a very good one.
I would have picked that one too :)
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Geneko, your statement "They are peace of bet from every market move." does not describe how the peg works and 'they' is ambiguous in your statement.
Ok I all try with something more accurate. How about:
They are insurance policies against future Bitusd and Usd price difference.
"They are insurance policies against future Bitusd and Usd price difference." ... this is getting closer, but "They" is still undefined and BitUSD and USD price difference shouldn't ever be much..
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Buying BitUSD within BitShares X is like buying part of an index fund that tracks the USD value of a share(s) of the stock exchange itself (BTS).
This seems like it is going in the right direction... but doesn't quite seem accurate for me.
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Bitcoin rise and fall dramatically , but BitUSD can keep rise moderately
This describes what, but not how.
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More like an ETF? This analogy might make more sense using BitGold:
BitGold is pegged to the price of gold much like the SPDR Gold Trust ETF (GLD) is pegged to the price of gold.
A share of BitGold is valued in BTS on BitShares X while a share of GLD is valued in USD on the NYSE.
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我有一个理解和假设，不知道对不对，为了方便理解，我用金本位相关例子来说明：
也许BitUSD和USD的1:1价格关联，在第一笔BitUSD被创造出来的时候就锚定了，就像早期银本位时发行出来的银元券一样，1银元券可以后面有等价1两银子作为背书，1个单位的BitUSD在被发行时也有1USD等价的BTS作为保证金(根据外部市场价格，这些BTS是可以兑换到1USD)，这种本位机制是市场的依据，如果外部市场1BTS所能兑换到的USD单位数量变化了，那么在BEX中，1BTS对应的BitUSD价格也跟着相同方向变动。
举个例子，比如原来1BTS=10USD，1BTS=10BitUSD，如果外部市场波动美元上涨变成1BTS=5USD，那么原来10BitUSD所对应的BTS保证金等价的只有5USD，相当于增大了风险因为没有了等价10USD的BTS本位保证，那么BEX中BTS对BitUSD的价格会怎样呢？ 如果BitUSD价格保持不变或者继续下跌，那么做空者的风险就会越来越大被强制平仓，所以为了避免被强制平仓，做空者会选择回补买入更多BitUSD导致价格上涨，直到保证金可以保证围绕着外部美元等价BTS本位。
Sorry about quoting some of my Chinese explanation posted 3 days ago. I'll try to translate them, sorry for my poor English.
BitUSD is like Gold standard system of earlier central bank, endorsed by Gov credit, e.g. one USD is endorsed by equal priced Gold. But BitUSD is endorsed by the similar concept of BTS(priced in USD for BitUSD) standard system, driven by margin and the market consensus created when some one created "BitUSD" relative to USD, gave the "USD" name, and the others followers. Any tend to deviate BitUSD price from USD will create long/short chance for the supporters/believers of the USD priced BTS standard system, which should be the mainstream market player of BTS X to avoid 51% attack to the BitUSD price feed.
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A non technical example for newbies
To buy 1 bitshare from a exchange cost you 10 USD , each bitshare gives you 10 BitUSD.
If the buying price of 1 bitshare goes down to 5 USD then your bitshare will only be worth 5 BitUSD. So it does not matter how the price of bitshare fluctuates 1 BitUSD it will always be equal to 1 real USD.
Bitshares X it is a set of rules that use market consensus to force the value of a bitasset to always be equal to the value of the object that represents ex: BitUSD.
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A non technical example for newbies
To buy 1 bitshare from a exchange cost you 10 USD , each bitshare gives you 10 BitUSD.
If the buying price of 1 bitshare goes down to 5 USD then your bitshare will only be worth 5 BitUSD. So it does not matter how the price of bitshare fluctuates 1 BitUSD it will always be equal to 1 real USD.
Bitshares X it is a set of rules that use market consensus to force the value of a bitasset to always be equal to the value of the object that represents ex: BitUSD.
The second paragraph states what happens and doesn't help explain how.
The 3rd paragraph says how in the most vague way possible to the point of not being helpful to newbies other than accepting it on faith. "market consensus to force value to always be equal"
This is a very challenging thing to explain concisely which is why this bounty is here.
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They are peace of bet from every market move.
I like this.
BitShares provide a decentralized price feed. The only common point people all across the network have is that the "BitUSD" asset has the words "USD" in it. If someone wants to "attack" this price feed and cause it to deviate from real USD/BTS, and they don't have a large majority of BTS, the opposing market forces from the rest of the network are enough to push the price down and take money from the attacker, because everyone else has the choice of either "cooperate towards USD and make money if other do too" or "defect and hope to make money if enough people coincidentally defect in the same direction as you".
Toast gets a 1 PTS tip... this is an accurate description though it is can certainly be improved upon... note this bounty pays for multiple answers...
I thought The Bounty was for an "analogy", not an explanation...
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Analogy for How
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After all, I have to change real USD with my bitUSD, because I can't buy food with my bitUSD.
But who can guarentee the exchange?maybe 1k bitUSD, maybe 100k bitUSD.
If nobody buy my bitUSD, should I sell it more cheaper?
A non technical example for newbies
To buy 1 bitshare from a exchange cost you 10 USD , each bitshare gives you 10 BitUSD.
If the buying price of 1 bitshare goes down to 5 USD then your bitshare will only be worth 5 BitUSD. So it does not matter how the price of bitshare fluctuates 1 BitUSD it will always be equal to 1 real USD.
Bitshares X it is a set of rules that use market consensus to force the value of a bitasset to always be equal to the value of the object that represents ex: BitUSD.
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I think we need more benefit to attract the bank to offer the exchange service.
And we need some methord to guarentee the exchange not depend on trust, so we can exchange with anybody. but I don't know howto implement this.
After all, I have to change real USD with my bitUSD, because I can't buy food with my bitUSD.
But who can guarentee the exchange?maybe 1k bitUSD, maybe 100k bitUSD.
If nobody buy my bitUSD, should I sell it more cheaper?
A non technical example for newbies
To buy 1 bitshare from a exchange cost you 10 USD , each bitshare gives you 10 BitUSD.
If the buying price of 1 bitshare goes down to 5 USD then your bitshare will only be worth 5 BitUSD. So it does not matter how the price of bitshare fluctuates 1 BitUSD it will always be equal to 1 real USD.
Bitshares X it is a set of rules that use market consensus to force the value of a bitasset to always be equal to the value of the object that represents ex: BitUSD.
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Suppose some musicians make bets about whose instrument is the most in tune. They all bet about whether anyone will be out of tune, and anyone who is not gets rewarded. They decide who is out of tune by comparing each individual to the average pitch of everyone playing together.
Every musician can either use his various reference instruments and tuners to try to get the pitch as close to "correct" as possible, but they can't share such reference points between them directly. "correct" means the closest to the pitch that people named "A#" or whatever the current bet is, notice how that can mean slightly different things to different people in different regions but they're close enough that they can average out to some sort of global consensus.
To be malicious, you have to collude with the majority of musicians by stake (stake could be like, volume of their instrument) to play a particular named pitch "incorrectly". Only then can divert the price and screw someone over, but if you try to do so without such secret supermajority collusion you'll just lose money because people will still just think you're out of tune based on their "locally credible" sources.
That's the theory, anyway.
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Suppose some musicians make bets about whose instrument is the most in tune. They all bet about whether anyone will be out of tune, and anyone who is not gets rewarded. They decide who is out of tune by comparing each individual to the average pitch of everyone playing together.
Every musician can either use his various reference instruments and tuners to try to get the pitch as close to "correct" as possible, but they can't share such reference points between them directly. "correct" means the closest to the pitch that people named "A#" or whatever the current bet is, notice how that can mean slightly different things to different people in different regions but they're close enough that they can average out to some sort of global consensus.
To be malicious, you have to collude with the majority of musicians by stake (stake could be like, volume of their instrument) to play a particular named pitch "incorrectly". Only then can divert the price and screw someone over, but if you try to do so without such secret supermajority collusion you'll just lose money because people will still just think you're out of tune based on their "locally credible" sources.
That's the theory, anyway.
And another one for the toast master!
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Suppose some musicians make bets about whose instrument is the most in tune. They all bet about whether anyone will be out of tune, and anyone who is not gets rewarded. They decide who is out of tune by comparing each individual to the average pitch of everyone playing together.
Every musician can either use his various reference instruments and tuners to try to get the pitch as close to "correct" as possible, but they can't share such reference points between them directly. "correct" means the closest to the pitch that people named "A#" or whatever the current bet is, notice how that can mean slightly different things to different people in different regions but they're close enough that they can average out to some sort of global consensus.
To be malicious, you have to collude with the majority of musicians by stake (stake could be like, volume of their instrument) to play a particular named pitch "incorrectly". Only then can divert the price and screw someone over, but if you try to do so without such secret supermajority collusion you'll just lose money because people will still just think you're out of tune based on their "locally credible" sources.
That's the theory, anyway.
And another one for the toast master!
Toast very nicely describes BitUSD as a bet that rewards proximity to consensus at close (like a spread option), but what does it mean then to own BitUSD? I somehow came to think of BitUSD as more asset than option/bet but then I'm stuck with reconciling how it could be both an underlying asset that grows in value and also an option that rewards proximity to USD. Could it be said that PTS&AGS ownership will earn a number of shares of BitUSD bets on a change in value between BitShares and USD such that BitShares are paid if USD value decreases and BitUSD ownership is reduced if USD value increases? I need a refresher on how these prediction markets are supposed to work because I suspect I'm way off.
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A bitUSD exists only if the market has found a bitusd/btc ratio and people have different beliefs about the sign of the first derivative of that ratio
Owning a bitusd is like owning a piece of paper that says the bank will buy back the bitusd for $1 worth or bts, which means taking collateral from short positions on the prediction market if the value of bts starts falling relative to usd
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'Bitshares is gonna make me rich'
I guess thats simple enough ;)
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Let me see is this fits:
BitShares X is table where are placed bets for future Bts and Usd price ratio.The averidge of those bets are considered Bitusd. Bts are also means for chips in that game.
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Let me see is this fits:
BitShares X is table where are placed bets for future Bts and Usd price ratio.The averidge of those bets are considered Bitusd. Bts are also means for chips in that game.
I think it is bet between bts and bitusd, not usd.
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Didn't know what peg or pegging meant so I googled on 'pegging', I'll spare you the description haha. Although looking a bit further I now got it :p
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
+1
I think this is simplest explanation so far.
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
+1
I think this is simplest explanation so far.
1 PTS for wasthatawolf
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
+1
I think this is simplest explanation so far.
1 PTS for wasthatawolf
Awesome! Here's my PTS address: PYDhxRmdd8YQdYLD757s7robuvafFdMARi
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
+1
I think this is simplest explanation so far.
It is very clear and simple indeed great explanation, but to me still does't explain the "how" as in "Bitshares network then provides a mechanism ". As I understand it the analogy is for the mechanism of " pegging".
Toast and the musicians analogy explain the "how".
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Another attempt to work this out logically...
What gives BitUSD a specific value in USD?
BitUSD is a contract with a fixed USD value backed by a promise to pay that corresponding USD value in BitShares. The Bitshares network then provides a mechanism to ensure that all BitUSD is fully collateralized or that promise to pay is exercised. This leads to the next question, what gives a BitShare a specific USD value?
Bitshares themselves can be traded on a cryptocurrency exchange for USD in the same way Bitcoin is bought and sold for USD on Bitstamp or Mt. Gox. Bitshares have value because, like Bitcoin, they facilitate participation in the BitShares network while also providing equity in the network.
+1
I think this is simplest explanation so far.
It is very clear and simple indeed great explanation, but to me still does't explain the "how" as in "Bitshares network then provides a mechanism ". As I understand it the analogy is for the mechanism of " pegging".
Toast and the musicians analogy explain the "how".
+1, how the Bitshares mechanism take effect? except the "USD" name telling people to form a consensus, or avoid price feed attack, it seems not so strong to me.
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My analogy will not use fewer words. Perhaps someone else will feel inspired to reduce it to compete for the bounty.
Chuck E. Cheese's (http://www.chuckecheese.com/) uses tokens for the sale of entertainment and food. I'll use hypothetical changes to their business model to show how BitUSD tokens have a natural incentive to stay close to the value of a dollar. I'll call this hypothetical 'Mr.Cheeze'.
Mr.Cheeze's video game tokens can be purchased for a quarter and are given generously as participation incentives. You can exchange the tokens or hold them, but there is no incentive to hold them since the value will never increase to be more than a quarter and they have limited utility value elsewhere. There are fewer video game tokens than quarters, but that doesn't affect token value because there is a high recirculation rate that causes tokens to re-enter the market at what is perceived as an unlimited supply. Tokens circulate quickly because they only have value for specific games that consume the tokens entirely; they are treated as consumables because the game options only allow consumption. If the token supply were to become limited then people would still not pay more than a quarter because a quarter will buy the same amount of entertainment elsewhere.
Suppose Mr.Cheeze were to replace games with betting machines that divide tokens between game participants rather than consume them. Participants discover it is now entertaining to defer consumption and also to exchange tokens. If there is demand for a limited supply of tokens then that is an incentive for the price of a token to exceed a quarter; however, holders of tokens come to realize that few really offer more for a token than what a quarter will buy of similar entertainment elsewhere. Potential buyers go elsewhere. Holders eventually sell for a quarter to purchase other things as there still isn't much incentive to hold tokens.
The market price for a token is inelastic because there is a maximum price for demand. Small quantities of tokens will sell for close to a quarter and larger quantities could be purchased at a premium for inelastic demands like a large birthday party for kids like Johnny who only likes Mr.Cheeze stores. If tokens are hard to acquire then fewer kids like Johnny would ever come to know of Mr.Cheeze to desire it. The limited supply of tokens for sale would over time prevent even large quantities of tokens from being sold for more than a quarter; in fact, there is now risk that tokens will sell for less than a quarter each due to decreased market participation and greater profit incentives elsewhere. Liquidity would come at a large premium, and therefore there would be low liquidity and sudden price fluctuations. The value of a token would be defined by other ways to spend a quarter. The market value for a token would naturally approach a quarter, but low liquidity discourages participation. Mr.Cheeze would sell less pizza and entertainment, and profits would go elsewhere. Mr.Cheeze would need to do something quickly to say in business.
Mr.Cheeze caused tokens to be treated as assets, so why not allow lending and borrowing like other assets? If a person lends their tokens then they can earn interest. If a person has an interest in holding tokens then they'll pay interest. The interest rate is an incentive to put tokens into circulation. Loan instruments make it easier for people to acquire tokens to spend on entertainment. People could then consume a large supply of tokens at close to a quarter. They could purchase tokens for a quarter and then loan them out for interest. The value of a token would only drop below a quarter if greater returns are offered elsewhere. The value of holding a token is the interest that it can return for lending it into circulation.
Loans aren't the only opportunity, Mr.Cheeze also introduces futures contracts on the price of tokens. These games are now built around the trading of tokens themselves. The futures contracts are a leveraged financial incentive for avoiding price fluctuation. A vibrant economy has grown around the exchange of tokens. Everyone is talking about the tokens, the industry had changed. Competitors give up or are pushed out by taxes and regulations that Mr.Cheeze drafted to regulate his token exchange industry. Any "failure" becomes a need for more regulation. Mr.Cheeze is happy again for a while.
Mr.Cheeze soon realizes that pizzas are still not selling as quickly as they once had. He begins to lament that he can no longer easily give tokens as participation incentives. It is harder to increase entertainment value for some customers while maintaining value for those who are willing to pay more. Mr.Cheeze dislikes that others are getting the profits that he once had for himself, and that he has lost control over his tokens. Because he can, he decides to change more rules for his benefit.
Mr.Cheeze decides to mint more tokens and keep the profits. But calling it "profit" would be unpopular so he says that he is doing it to maintain sound monetary policy (much like the Federal Reserve) and that he will not personally benefit (except for the generous salary he pays himself and staff). The idea is sold as "necessary and prudent" to encourage token liquidity and price stability. The idea sells well. It is suddenly much easier to acquire tokens and more people are consuming tokens and pizza again. The tokens are now closer to currency than asset. There is less incentive to hold tokens, and people hold them until better forms of money are available. Mr.Cheeze actually likes it if people sell their tokens because it just means more for him to control. He learns to maximize his profits by adjusting the token supply, and over time he naturally acquires most of the token supply again. All is good for Mr.Cheeze, he inspired others to work to build an economy that became his gain over time. Through exclusive control over the idea of token exchanges, Mr.Cheeze decides to expand into more markets.
Mr.Cheeze redefined the industry in a way that removes competition through excitement of a new token use. The token value still needs to compete with other entertainment uses for quarters, but few dare to compete in the same markets. The only thing Mr.Cheeze has to fear now is competition from a token use that avoids his regulatory monopoly and provides a better return on investment. Mr.Cheeze still likes to convince himself that he cares for open markets and competition though. He'd probably pause for a moment or two before cracking heads when new technology threatens his monopoly. Come to think of it, none of these ideas really are new. ;)
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Lengthy analogy that didn't seem to connect with me or how BitAssets work.
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Lengthy analogy that didn't seem to connect with me or how BitAssets work.
But it sure made me hungry for pizza!
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My analogy will not use fewer words. Perhaps someone else will feel inspired to reduce it to compete for the bounty.
Chuck E. Cheese's (http://www.chuckecheese.com/) uses tokens for the sale of entertainment and food. I'll use hypothetical changes to their business model to show how BitUSD tokens have a natural incentive to stay close to the value of a dollar. I'll call this hypothetical 'Mr.Cheeze'.
Is it just me or does Mr. Cheeze become more and more megalomaniacal as the analogy progresses.
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A bitUSD is simply a futures contract for redemption to actual USD (physical or electronic) by a regulated financial entity that has been granted the privilege of doing so by its sovereign nation.
Markets should reach a consensus equilibrium value that represents the additional costs of exchange, transmission, regulatory compliance, licensing, and other operating costs necessary for convertibility to actual USD. Consensus discounts for future value between crypto and fiat markets may also appear if processing or clearing times are significant.
These costs may be negligible, but will never be non-zero. The theoretical fundamental price of bitUSD shall always be lower than USD already present in an account at a privileged financial entity.
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A bitUSD is simply a futures contract for redemption to actual USD (physical or electronic) by a regulated financial entity that has been granted the privilege of doing so by its sovereign nation.
Markets should reach a consensus equilibrium value that represents the additional costs of exchange, transmission, regulatory compliance, licensing, and other operating costs necessary for convertibility to actual USD. Consensus discounts for future value between crypto and fiat markets may also appear if processing or clearing times are significant.
These costs may be negligible, but will never be non-zero. The theoretical fundamental price of bitUSD shall always be lower than USD already present in an account at a privileged financial entity.
I disagree with your economic assessment about the fundamental price of BitUSD. USD in your privileged financial entity pays 0% in BitUSD pays 5% which should more than make up for regulatory issues.
This says that it is redeemable but that implies it is a debt instrument, instead I would say that it always has the purchasing power of about 1 USD
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i) It seems to me that for this concept to work well, there has to be a reliable, efficient, and trustworthy mechanism to convert fiat to BTS and back. That means the system is going to be fundamentally reliant on 3rd party exchanges like MtGox, btc-e, bitstamp, etc. We all know the risks these present due to the history of cyber attacks, server failures, and governmental pressure. Lack of liquidity on MtGox is keeping BTC prices higher there. Yes, you've removed the need to trust the central bank, but you're still exposed to the exchanges. Is that the weak link?
ii) A futures contract with no expiration is simply equity like a stock, an ETF, or an ETN.
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i) It seems to me that for this concept to work well, there has to be a reliable, efficient, and trustworthy mechanism to convert fiat to BTS and back. That means the system is going to be fundamentally reliant on 3rd party exchanges like MtGox, btc-e, bitstamp, etc. We all know the risks these present due to the history of cyber attacks, server failures, and governmental pressure. Lack of liquidity on MtGox is keeping BTC prices higher there. Yes, you've removed the need to trust the central bank, but you're still exposed to the exchanges. Is that the weak link?
ii) A futures contract with no expiration is simply equity like a stock, an ETF, or an ETN.
BitShares X removes the price discovery and volatility from the exchange process which leaves only an 'escrow' function which is much easier to resolve than a full up bid/ask market.
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It's a 'currency basket' situation.
The exchange rate between BitUSD and USD is not only affected by the exchange activity of this two elements.
In fact,there will be hundreds of BitAssets like BitEuro or BitBTC or BitLTC or even BitPTS.
These BitAssets can be trade on a real USD related market,plus the fact that BitAsset can trade with each other,then the exchange rate
between real USD and BitAssets will create a powerful interaction and correction
course to adjust the rate between the two element in question---BitUSD and USD.
As more BitAssets are being created and traded with each other,the exchange rates between every single BitAsset will have more
restrain on each other.Because you can manipulate one pair of BitAssets for so long before the correction of the market take it's course.
So,the BitUSD becomes a 'de facto dollar peg',BitUSD will not be only pegging the USD,but also pegging every BitAssets that peg with USD.
It creates both room for flotation and solid ground for stability.
==================================
Hint: de facto is latin for "acctually"
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My PTS address: PZ5HY1MWutWhnNemrG5DCAti8AmMvDBmnE
Aside from not liking the 'currency basket' description... everything other than the first sentence is spot on. 1 PTS for you :)
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BitShares X removes the price discovery and volatility from the exchange process which leaves only an 'escrow' function which is much easier to resolve than a full up bid/ask market.
OK, I see that escrow is discussed at various points in the white paper. Getting a crypto-currency like BTC in and out of the system (BTC <-> BitBTC) is clean and easy by its very nature, ie. for the same reason the Bitcoin transfer works.
Converting other assets like gold, dollars, or Apple stock to an equivalent bit entity is more complicated, eg. how would I arrange the sale of my fiat $USD for BitUSD? One way is a face-to-face meeting in the same way as localbitcoins. Since that won't work well in a global market, the white paper describes anonymous escrow agents, who register into the block chain. The two interested parties (buyer and seller of the asset) perform wire transfers, presumably using a service like Western Union. This means the buyer and seller are not anonymous to each other and would also incur wire transfer fees, which are a function of geographic location. Note that some people have little to no access to such services.
The BitShare escrow agent has no legal obligation to deliver. Instead, the agent is incentivized to earn the trust of the network to earn future fees. The assumption here is that the agent would be smarter to perform the service, maintain a reputation, and collect ongoing fees rather than doing a one-time asset ripoff in collusion with one of the parties. This is the same incentive that MtGox has, but still brings third-party trust into the BitShare-X system. Buyer and seller must also trust the decision of the agent to divide funds in the event of a dispute, with no legal recourse (by design). The agent is the judge and jury in this situation.
Do I understand this correctly?
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Below is an adaption of something I wrote earlier https://bitsharestalk.org/index.php?topic=13.15
bitUSD will track the price of USD due to the suggestive pricing nature of the asset (ie. it is called bitUSD).
Akin to Litecoin which is said to be the silver to Bitcoin (being gold), as a result the relationship between bitcoin and litecoin is highly similar to that of gold and silver.
This was achieved through mere suggestion by the Litecoin developers that Litecoin is the silver to Bitcoins gold.
In a system such as BitShares BEX, where a bitasset is brought into existence with the tangible asset price in mind (it is called bitUSD), the tracking of the tangible asset price will be much more precise.
References for LTC tracking BTC price in silver to gold manner.
http://thegenesisblock.com/understanding-the-gold-silver-ratio-and-how-it-may-apply-to-bitcoin-and-litecoin/
http://thegenesisblock.com/bitcoin-litecoin-ratio-returns-historic-norm-peercoin-climbs-200/
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I disagree with your economic assessment about the fundamental price of BitUSD. USD in your privileged financial entity pays 0% in BitUSD pays 5% which should more than make up for regulatory issues.
This says that it is redeemable but that implies it is a debt instrument, instead I would say that it always has the purchasing power of about 1 USD
Well, the answer to the OP question is trivial - you peg the price to USD by convincing market participants that bitUSD is a 1:1 substitute for USD.
I am not saying it is redeemable or has the legal power of a debt instrument - only that it should be fundamentally valued as such. "Fundamental" value is nowhere the same as "market" value, which makes most of this a moot point similar to "academic" vs. "engineering" discussions.
In practice, we can overcome these issues for market participants, e.g., through widespread adoption to make costs negligible, or a 5% dividend, or a good PR campaign. Even a dividend paid in crypto would suffer the same conversion / tax losses to fiat, and each individual would subjectively value it differently due to future uncertainties, but I doubt most market participants would consider or price that in to the equation.
Although the intent is to get them as close as possible, bitUSD value cannot be fundamentally equal to USD value. One is a unit of measure in a wealth system, the other is a unit of measure in a debt system. A person cannot expect wealth systems to completely replace debt systems. You cannot completely eliminate either, and you need to consider system interfaces.
For cryptocurrency systems in general, fundamental value is based on cashing out to legal tender - i.e., exiting the system. This is evident in current differences in btc prices across exchanges / currencies, which can be fundamentally attributed to the cost / time / ease to market participants of cashing out if market effects such as liquidity and information imbalances are neglected.
I hope that bitshares and crypto markets in general will not have to consider this - either crypto will become so widely used between individuals that you do not need legal tender in day-to-day activities, or so widely accepted that cost of converting to legal tender can be ignored in day-to-day activities. But currently, we have no financial institutions that will even convert btc to legal tender - exchanges convert and only act as approved payment processors divisions of banks to impose KYC regulations. Fiat exchanges must absorb the cost of maintaining fiat reserves / debt funding to cover any runs on cashing out, e.g. if price rises suddenly. Crypto-only exchanges ignore this wealth-debt system interface, and pass this issue on to others to address.
Ideally, crypto and bitshares would result in people using USD only when it has to be used - whenever governments say it has to be used, which from legal tender laws would be for payments to governments - taxes. Right now, this is not how USD is valued - it is considered a substitute for wealth as well as debt, but the growth of crypto systems will only clarify these value distinctions.
A bitUSD will only have the purchasing power of 1 USD if someone else accepts it as a substitute. If someone accepts bitUSD as a 1:1 substitute, that is only saying they will have no obligations to convert any of it to USD legal tender for taxes / government payments. If they do have obligations to convert any, they would add a premium to cover the cost necessary to do so. This cost will ultimately depend on regulations and fees from fiat exchanges to cover operating costs and reserve risks.
I like to build castles in the air but, without a solid foundation in the real world, I will never be able to move in. I have to consider that some portion of cryptocurrencies will need to be converted to real-world fiat, and I need to conservatively assume that is the limiting factor for an assessment of fundamental, objective, ex-crypto-system value of a bitUSD.
I would propose the two questions below as thought experiments:
1) How does I3 expect a person to be able to pay taxes using bitUSD?
2) Assume you own a store that sells physical silver. As the store owner, you are ultimately responsible for meeting any regulatory, reporting, sales tax, etc requirements.
Customer A walks in with 1,000 bitUSD in his account. Customer B walks in with 1,000 USD in his account. Both can swipe a card, push a button, etc and transfer their account balance to yours with the same ease and cost. Both expect to receive more silver than the other, and will not buy if they are not offered more than the other.
Which customer will leave your store with physical silver?
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Inspired by this criticism (https://bitsharestalk.org/index.php?topic=2467.0) I had some new thoughts regarding BitAssets:
People say that BitAssets are worthless because there will be no payout. What they forget is that the total market cap of any BitAsset is already zero. There are always the same amount of short and long positions which makes the number of net outstanding shares zero. There might be 5 million BitUSD long and -5 million BitUSD short. The sum is always zero.
Market cap
= Outstanding shares • Price per share
= 0 • p
= 0
The critics are right that all BitAssets are worthless, but that is not because of the price of one of them. The price can have any finite value.
BTW: I claim half a PTS for any analogy using the term "antimatter" :)
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Below is an adaption of something I wrote earlier https://bitsharestalk.org/index.php?topic=13.15
bitUSD will track the price of USD due to the suggestive pricing nature of the asset (ie. it is called bitUSD).
Akin to Litecoin which is said to be the silver to Bitcoin (being gold), as a result the relationship between bitcoin and litecoin is highly similar to that of gold and silver.
This was achieved through mere suggestion by the Litecoin developers that Litecoin is the silver to Bitcoins gold.
In a system such as BitShares BEX, where a bitasset is brought into existence with the tangible asset price in mind (it is called bitUSD), the tracking of the tangible asset price will be much more precise.
References for LTC tracking BTC price in silver to gold manner.
http://thegenesisblock.com/understanding-the-gold-silver-ratio-and-how-it-may-apply-to-bitcoin-and-litecoin/
http://thegenesisblock.com/bitcoin-litecoin-ratio-returns-historic-norm-peercoin-climbs-200/
This is not why litecoin is valued where it is and is and is more of a coincidence.
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I disagree with your economic assessment about the fundamental price of BitUSD. USD in your privileged financial entity pays 0% in BitUSD pays 5% which should more than make up for regulatory issues.
This says that it is redeemable but that implies it is a debt instrument, instead I would say that it always has the purchasing power of about 1 USD
Well, the answer to the OP question is trivial - you peg the price to USD by convincing market participants that bitUSD is a 1:1 substitute for USD.
...
Which customer will leave your store with physical silver?
Well it depends. If the store owner needs more Fiat USD for spending or more BitUSD for saving. So lets just stipulate something fundamental: there is no such thing as USD. There are FRN and Bank Deposits and Credit Cards... all denominated in USD.
BitUSD has the property of being 99% correlated to USD price movements such that if USD doubles in value BitUSD will also double in value. While maintaining this correlation the FRN USD vs BitUSD price will fluctuate based upon where you live and the GoxUSD vs BitUSD price will fluctuate based upon Mt. Gox's withdraw policies.
So which customer will leave the store depends entirely upon the current preference of the store owner for 'savings' vs 'checking' and how hard it would be for said store owner to convert USD to BitUSD if they want more BitUSD or BitUSD to USD if they need more spending. Thus the price ratio varies based upon relative 'deposit vs withdraw' demand.
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Below is an adaption of something I wrote earlier https://bitsharestalk.org/index.php?topic=13.15
bitUSD will track the price of USD due to the suggestive pricing nature of the asset (ie. it is called bitUSD).
Akin to Litecoin which is said to be the silver to Bitcoin (being gold), as a result the relationship between bitcoin and litecoin is highly similar to that of gold and silver.
This was achieved through mere suggestion by the Litecoin developers that Litecoin is the silver to Bitcoins gold.
In a system such as BitShares BEX, where a bitasset is brought into existence with the tangible asset price in mind (it is called bitUSD), the tracking of the tangible asset price will be much more precise.
References for LTC tracking BTC price in silver to gold manner.
http://thegenesisblock.com/understanding-the-gold-silver-ratio-and-how-it-may-apply-to-bitcoin-and-litecoin/
http://thegenesisblock.com/bitcoin-litecoin-ratio-returns-historic-norm-peercoin-climbs-200/
This is not why litecoin is valued where it is and is and is more of a coincidence.
Ah, well for a PTS it was worth a try
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Here is my succinct explanation:
BitUSD is a digital asset traded on the internal exchange built into the Bitshares blockchain. BitUSD tracks the value of a dollar relative to Bitshares. This happens by behavioural confirmation - all traders in the blockchain expect BitUSD to peg to the dollar, which leads them to trade in ways that confirm that expectation. If traders start to see Bitshares rising in value relative to dollars, this will result in lower bids being put in for BitUSD because of the expectation of seeing lower asks from the shorts.
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Here is my succinct explanation:
BitUSD is a digital asset traded on the internal exchange built into the Bitshares blockchain. BitUSD tracks the value of a dollar relative to Bitshares. This happens by behavioural confirmation - all traders in the blockchain expect BitUSD to peg to the dollar, which leads them to trade in ways that confirm that expectation. If traders start to see Bitshares rising in value relative to dollars, this will result in lower bids being put in for BitUSD because of the expectation of seeing lower asks from the shorts.
1 PTS for you.
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1 PTS for you.
Sweet! My address is in my sig :)
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How I view it:
The way Countries use US Treasuries to peg their currency to the US dollar is analogous to how traders use BitShares to peg BitUSD to the US dollar: A country will monitor its exchange rate relative to the dollar's value. If their currency falls below a certain range, the country will buy dollars in the form of US Treasuries - increasing their currency’s value so it once again falls within the intended range. If their currency were to rise above the range, the country would sell its Treasuries to lower their currency’s value back within its targeted range. Similarly traders monitor BitUSD relative to the dollar's value. If BitUSD falls below a certain range, traders buy dollars in the form of BitShares - thus increasing the BitUSD value so it falls within the intended range. If BitUSD were to rise above the range, traders sell BitShares to lower BitUSD back within its targeted range.
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Countries print money to do this and are not concerned with trading losses.
This is a poor analogy because it invites the attack that these kinds of pegs are unsustainable.
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Countries print money to do this and are not concerned with trading losses.
This is a poor analogy because it invites the attack that these kinds of pegs are unsustainable.
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Right, I can see how it could invite an attack, but the analogy remains
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Here's my take:
A BitUSD is essentially a certificate that says “The BitShares network promises to pay the bearer $1 worth of BitShares upon request.” So suppose at some point a BitUSD is worth 9 BitShares, but $1 is worth 10 BitShares. In other words, BitUSD is trading at a bargain - if I buy 90 BitUSD, I can redeem them for $100 as long as I trust the BitShares network to make good on its promise. So I will go and buy as many of these cheap BitUSD as I can until the price of BitUSD again matches that of fiat-USD.
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Here's my take:
A BitUSD is essentially a certificate that says “The BitShares network promises to pay the bearer $1 worth of BitShares upon request.” So suppose at some point a BitUSD is worth 9 BitShares, but $1 is worth 10 BitShares. In other words, BitUSD is trading at a bargain - if I buy 90 BitUSD, I can redeem them for $100 as long as I trust the BitShares network to make good on its promise. So I will go and buy as many of these cheap BitUSD as I can until the price of BitUSD again matches that of fiat-USD.
Good. Only 50% of the answer. What about when it is overpriced and how does the network make good?
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Here's my take:
A BitUSD is essentially a certificate that says “The BitShares network promises to pay the bearer $1 worth of BitShares upon request.” So suppose at some point a BitUSD is worth 9 BitShares, but $1 is worth 10 BitShares. In other words, BitUSD is trading at a bargain - if I buy 90 BitUSD, I can redeem them for $100 as long as I trust the BitShares network to make good on its promise. So I will go and buy as many of these cheap BitUSD as I can until the price of BitUSD again matches that of fiat-USD.
Good. Only 50% of the answer. What about when it is overpriced and how does the network make good?
The exact opposite. Suppose one BitUSD is worth 11 BitShares when $1 is worth 10 BitShares. Now, BitUSD is trading at a premium to USD: I have to buy 110 BitUSD to get a redemption value of $100, so I will not buy BitUSD. Rather, owners of BitUSD will sell as many of them as it takes to bring the price of BitUSD down to parity with fiat-USD.
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MY A：关于BTS平台上比特资产与实物资产价值锚定的本质https://bitsharestalk.org/index.php?topic=2589.0
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The BitShares Bank and Exchange is like a public web based utility, much like water and electricity, except with it has no government interactions, nor any interactions with regulators. It's primary function is to turn USD into an electronic form, BitUSD, so that the dollars can transfer online, without the sizable bank fees we see in today's US banking market. The pegging of BitUSD to USD is a direct market tie in wherein BitUSD's are like the chips you use in Vegas casinos that can be exchanged for real USD at any given time.
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Growing up in a world where money tends to travel digitally rather than physically gives a bit of a different perspective on things. To me, the money in my bank feels more 'real' than physical paper money, because the money in my bank is what I tend to buy things with and what I use to pay for bills. Because of this, I'm going to flip things around and try to explain BitUSD from a perspective that I don't think has been explored yet:
BitUSD is pegged to the USD because it says it is.
That may seem a little hand wavy, but the social meme of a perceived value from branding is a lot more powerful than people tend to assume. Take paper money. There's no reason a $5 bill has to buy the same amount of stuff as the abstract concept of '$5'. You could just as easily walk into a grocery store and find that you can purchase 2 loaves of bread for $5 sent through your debit card where a $5 paper bill might only buy you a single loaf of bread. This rarely happens, however, because the expectation that others will value the $5 paper bill at $5 motivates people to treat it as being worth $5.
With bitUSD, the expectation that 1 bitUSD will be worth 1 USD keeps it at equilibrium. If people sell their bitUSD and the price drops, then this will trigger investors to buy, as they expect the long term value to be larger than the current value. This, in turn, drives the price back up. If people buy enough to push the price above 1 USD then this triggers sells, as the current price is higher than the perceived value. This, in turn, drives the price back down to its perceived value. This is called a 'nash equilibrium': The value of something that is arrived at by the actors in a system because of the perception that the other actors will arrive at the same value.
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Growing up in a world where money tends to travel digitally rather than physically gives a bit of a different perspective on things. To me, the money in my bank feels more 'real' than physical paper money, because the money in my bank is what I tend to buy things with and what I use to pay for bills. Because of this, I'm going to flip things around and try to explain BitUSD from a perspective that I don't think has been explored yet:
BitUSD is pegged to the USD because it says it is.
That may seem a little hand wavy, but the social meme of a perceived value from branding is a lot more powerful than people tend to assume. Take paper money. There's no reason a $5 bill has to buy the same amount of stuff as the abstract concept of '$5'. You could just as easily walk into a grocery store and find that you can purchase 2 loaves of bread for $5 sent through your debit card where a $5 paper bill might only buy you a single loaf of bread. This rarely happens, however, because the expectation that others will value the $5 paper bill at $5 motivates people to treat it as being worth $5.
With bitUSD, the expectation that 1 bitUSD will be worth 1 USD keeps it at equilibrium. If people sell their bitUSD and the price drops, then this will trigger investors to buy, as they expect the long term value to be larger than the current value. This, in turn, drives the price back up. If people buy enough to push the price above 1 USD then this triggers sells, as the current price is higher than the perceived value. This, in turn, drives the price back down to its perceived value. This is called a 'nash equilibrium': The value of something that is arrived at by the actors in a system because of the perception that the other actors will arrive at the same value.
Cool, that one is definitely worth one PTS.
Person 1: So you think that just because you name a virtual asset, its value will be that of what you name it after??? Just because this one is called "GLD" it will have more than 1000 times the value of the one called "USD"??
Person 2: Yes, what do you think is the difference between a 100 dollar bill and a 1 dollar bill.
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You both earn 1 PTS... please contact Amazon about bounty payouts on this.
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You both earn 1 PTS... please contact Amazon about bounty payouts on this.
Is that a user on the forums, or did you convince Amazon Store to start using PTS before BTC?
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You both earn 1 PTS... please contact Amazon about bounty payouts on this.
Is that a user on the forums, or did you convince Amazon Store to start using PTS before BTS?
LOL.. Amazon is the admin.
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It is like betting on a horse race, which I think most people understand, but just in case, I will first explain briefly how a standard peri-mutuel betting system operates at most horse tracks.
In a normal horse race scenario, you bet on which horse you think will win. The winnings that you receive are based on the "odds" which are calculated constantly, determined by how much money has been bet on each horse, from all of the bettors placing bets on that race. So, for example, say there is a 3-horse race, and all the winnings will be paid out to bettors (in real life, there would be more horses, and the event organizer would take a cut). $100 have been bet on Horse A to win, $20 have been bet on Horse B to win, $10 have been bet on Horse C to win. So $130 has been wagered in total. Most people think that Horse A will win, so there must be some reason for this, and it is probably likely that Horse A will win. So the payout if Horse A wins, is $130/100 = $1.3 per $1 wagered. So if you bet $1 on Horse A, and Horse A wins, you will receive $1.30 in winnings. If you bet on Horse B, and Horse B wins, you will receive $130/20 = $6.50 if you wagered $1. So you win much more money, but Horse B winning was much less likely. So the reward is always proportional to the risk, and the risk is determined by the knowledge of the market as a whole -- all of the people betting on that race.
Now, let's change things a bit. In a real horse race, all betting is closed when the race starts. So you can't watch half of the race, and go up and bet on the horse who's in the lead at that time. However, in this race, you can make bets during the race, and you can even change your bets during the race. So you're watching the race, and you see Horse B now has the lead, so you can change your bet from Horse A to Horse B. However, EVERYBODY will do this! The entire market will gradually change their bets to Horse B as the race progresses, and as Horse B is seen to be in the lead. By the time the race is over, everybody will have changed their bets to Horse B. Therefore everybody's payout will be the same, $130/130 = $1.00 exactly.
Now, you may say: What is the point of this? The whole fun of betting is to win something! Just getting your money back is boring! But if you were at a horse race, and you were given the option to change your bet in the middle of the race, wouldn't you take advantage of it? Wouldn't you at least NOT LOSE your money, even if it means it's not possible to win?
Ok, now what does this mean for BitUSD? It is a perpetual horse race, where you can change your bets at any given moment. The market converges on everybody "betting" that 1 BitUSD = 1 USD.
Now say that someone had a lot of BitUSD that they want to get rid of quickly. So maybe they put in an order for 1 BitUSD = 0.99 USD. There will be long a line of people waiting to buy the BitUSD's for the price of only 0.99 USD, because that will mean instant profit! And it also works the other way around. If someone has a lot of USD that they want to use to buy BitUSD, and they're in a hurry to do it, they'll come up and say "All right, gimme a bunch of BitUSD, and I'll pay 1.01 USD for each of them!" And again, there will be a long line of people happy to sell them BitUSD at 1.01 each, because hey, profit of 1 cent each!
As long as the market "agrees" that the price of 1 BitUSD = 1 USD, all of this will happen automatically. It is just like the market "agreeing" that Horse B is going to win the race, right before Horse B crosses the finish line.
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It is like betting on a horse race, which I think most people understand, but just in case, I will first explain briefly how a standard peri-mutuel betting system operates at most horse tracks.
In a normal horse race scenario, you bet on which horse you think will win. The winnings that you receive are based on the "odds" which are calculated constantly, determined by how much money has been bet on each horse, from all of the bettors placing bets on that race. So, for example, say there is a 3-horse race, and all the winnings will be paid out to bettors (in real life, there would be more horses, and the event organizer would take a cut). $100 have been bet on Horse A to win, $20 have been bet on Horse B to win, $10 have been bet on Horse C to win. So $130 has been wagered in total. Most people think that Horse A will win, so there must be some reason for this, and it is probably likely that Horse A will win. So the payout if Horse A wins, is $130/100 = $1.3 per $1 wagered. So if you bet $1 on Horse A, and Horse A wins, you will receive $1.30 in winnings. If you bet on Horse B, and Horse B wins, you will receive $130/20 = $6.50 if you wagered $1. So you win much more money, but Horse B winning was much less likely. So the reward is always proportional to the risk, and the risk is determined by the knowledge of the market as a whole -- all of the people betting on that race.
Now, let's change things a bit. In a real horse race, all betting is closed when the race starts. So you can't watch half of the race, and go up and bet on the horse who's in the lead at that time. However, in this race, you can make bets during the race, and you can even change your bets during the race. So you're watching the race, and you see Horse B now has the lead, so you can change your bet from Horse A to Horse B. However, EVERYBODY will do this! The entire market will gradually change their bets to Horse B as the race progresses, and as Horse B is seen to be in the lead. By the time the race is over, everybody will have changed their bets to Horse B. Therefore everybody's payout will be the same, $130/130 = $1.00 exactly.
Now, you may say: What is the point of this? The whole fun of betting is to win something! Just getting your money back is boring! But if you were at a horse race, and you were given the option to change your bet in the middle of the race, wouldn't you take advantage of it? Wouldn't you at least NOT LOSE your money, even if it means it's not possible to win?
Ok, now what does this mean for BitUSD? It is a perpetual horse race, where you can change your bets at any given moment. The market converges on everybody "betting" that 1 BitUSD = 1 USD.
Now say that someone had a lot of BitUSD that they want to get rid of quickly. So maybe they put in an order for 1 BitUSD = 0.99 USD. There will be long a line of people waiting to buy the BitUSD's for the price of only 0.99 USD, because that will mean instant profit! And it also works the other way around. If someone has a lot of USD that they want to use to buy BitUSD, and they're in a hurry to do it, they'll come up and say "All right, gimme a bunch of BitUSD, and I'll pay 1.01 USD for each of them!" And again, there will be a long line of people happy to sell them BitUSD at 1.01 each, because hey, profit of 1 cent each!
As long as the market "agrees" that the price of 1 BitUSD = 1 USD, all of this will happen automatically. It is just like the market "agreeing" that Horse B is going to win the race, right before Horse B crosses the finish line.
That's pretty great actually. To make the analogy complete, they are racing to the middle two conveyer belts going in opposite directions with varying speeds that depend on weather conditions, and betting more money makes the horse go faster
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Assume the following:
numbers aren't accurate but easier to work with.
Gold = $1300
FRN = Cash (Federal Reserve Notes)
there are 1 million FRNs chasing a constant 1 million BitShares[].
1FRN can purchase 1BitShare[]
1 BitShare[] can purchase 1 BitShare[USD]
1FRN=1BitShare[]=1Bitshare[USD]
Consider: 2 million FRNs chasing the same 1 million BitShares[] would make
2FRN = 1BitShare[] = 2BitShare[USD]
The market that determines the price of a BitShare[] in FRNs,
is the same market that determines the price of a BitShare[] in BitShare[USD]
The more FRNs it takes to purchase a BitShare[], the less incentive there is to stay in FRNs.
The same market determines the price of a BitShare[USD], so there is equally less incentive to stay in BitShare[USD]. No one will pay $2 for $1. The incentive behind any move is to pay $1 for $2. So for a perceived value of a BitShare[] at $3 I would equally trade 2BitShare[USD] for a BitShare[] as I would 2FRNs for a BitShare[], its the same market. So, as long as this trade works it reinforces all other BitShare[<assets>], because all assets will move relative to the value of the entire BitShares Network, and the incentive will always be to acquire more BitShare[]. The overall intrest/value of the BitShares Network itself determines the accuracy of the BitShare[<assets>].
The holder of a BitShare[] will no sooner trade his BitShare[] for a FRN then for a BitShare[USD]
They are equivalent. So long as the trade from BitShare[USD] to BitShare[] to FRNs is seamless they should nearly always be the same. Any price difference would represent, in part, either a stronger need to save or a stronger need to spend. The same is true with a bank or trading account where the depositor is moving his money to a possition of spending by withdrawing cash or saving by moving the money to a MM account to earn interest or to an asset like GLD to invest.
The holder of 1300 BitShare[] can purchase either 1300 FRN or 1 BitShare[GLD]
The holder of 1300 AmeriTrade[FRN] can purchase 1300 FRN or 1 AmeriTrade[GLD]
With the speed of digital assets all programmed to trade against each other based on real world asset valuations, pushing against 1 asset is equivalent to pushing against all assets, so the larger the overall market, the more difficult it is for any 1 party to push any one asset anywhere.
The change in price of a BitShare[] is immediately felt on All BitShare[<assets>], like BitShare[USD] because for every increase in value of a BitShare[] relative to FRN's the more incentive A BitShare[USD] holder has to sell there BitShare[USD] for an increasing value BitShare[]
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That's pretty great actually. To make the analogy complete, they are racing to the middle two conveyer belts going in opposite directions with varying speeds that depend on weather conditions, and betting more money makes the horse go faster
Thanks! I was quite happy when I thought of it. I then did a quick search of the thread for "horse" to make sure nobody else had come up with it yet, then scrambled to write it as quickly as possible!
FWIW, in the spirit of terseness from the OP, I think that this analogy can be summed up in two sentences (slightly adapted from the above):
"It is a perpetual horse race, where you can change your bets at any given moment. The market converges on all participants "betting" on the final outcome, that 1 BitUSD = 1 USD."
Obviously this assumes a certain amount of knowledge on the part of the reader.
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That's pretty great actually. To make the analogy complete, they are racing to the middle two conveyer belts going in opposite directions with varying speeds that depend on weather conditions, and betting more money makes the horse go faster
Thanks! I was quite happy when I thought of it. I then did a quick search of the thread for "horse" to make sure nobody else had come up with it yet, then scrambled to write it as quickly as possible!
FWIW, in the spirit of terseness from the OP, I think that this analogy can be summed up in two sentences (slightly adapted from the above):
"It is a perpetual horse race, where you can change your bets at any given moment. The market converges on all participants "betting" on the final outcome, that 1 BitUSD = 1 USD."
Obiously this assumes a certain amount of knowledge on the part of the reader.
Very nice! 1 PTS for the Horse analogy... FYI... all of these kinds of bounties I have delegated to Amazon who I then pay back periodically so I don't have to track as many details personally.
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Assume the following:
numbers aren't accurate but easier to work with.
Gold = $1300
FRN = Cash (Federal Reserve Notes)
there are 1 million FRNs chasing a constant 1 million BitShares[].
1FRN can purchase 1BitShare[]
1 BitShare[] can purchase 1 BitShare[USD]
1FRN=1BitShare[]=1Bitshare[USD]
Consider: 2 million FRNs chasing the same 1 million BitShares[] would make
2FRN = 1BitShare[] = 2BitShare[USD]
The market that determines the price of a BitShare[] in FRNs,
is the same market that determines the price of a BitShare[] in BitShare[USD]
The more FRNs it takes to purchase a BitShare[], the less incentive there is to stay in FRNs.
The same market determines the price of a BitShare[USD], so there is equally less incentive to stay in BitShare[USD]. No one will pay $2 for $1. The incentive behind any move is to pay $1 for $2. So for a perceived value of a BitShare[] at $3 I would equally trade 2BitShare[USD] for a BitShare[] as I would 2FRNs for a BitShare[], its the same market. So, as long as this trade works it reinforces all other BitShare[<assets>], because all assets will move relative to the value of the entire BitShares Network, and the incentive will always be to acquire more BitShare[]. The overall intrest/value of the BitShares Network itself determines the accuracy of the BitShare[<assets>].
The holder of a BitShare[] will no sooner trade his BitShare[] for a FRN then for a BitShare[USD]
They are equivalent. So long as the trade from BitShare[USD] to BitShare[] to FRNs is seamless they should nearly always be the same. Any price difference would represent, in part, either a stronger need to save or a stronger need to spend. The same is true with a bank or trading account where the depositor is moving his money to a possition of spending by withdrawing cash or saving by moving the money to a MM account to earn interest or to an asset like GLD to invest.
The holder of 1300 BitShare[] can purchase either 1300 FRN or 1 BitShare[GLD]
The holder of 1300 AmeriTrade[FRN] can purchase 1300 FRN or 1 AmeriTrade[GLD]
With the speed of digital assets all programmed to trade against each other based on real world asset valuations, pushing against 1 asset is equivalent to pushing against all assets, so the larger the overall market, the more difficult it is for any 1 party to push any one asset anywhere.
The change in price of a BitShare[] is immediately felt on All BitShare[<assets>], like BitShare[USD] because for every increase in value of a BitShare[] relative to FRN's the more incentive A BitShare[USD] holder has to sell there BitShare[USD] for an increasing value BitShare[]
Complex explanation, light on analogy, but still worth 1 PTS.
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It is like betting on a horse race, which I think most people understand, but just in case, I will first explain briefly how a standard peri-mutuel betting system operates at most horse tracks.
In a normal horse race scenario, you bet on which horse you think will win. The winnings that you receive are based on the "odds" which are calculated constantly, determined by how much money has been bet on each horse, from all of the bettors placing bets on that race. So, for example, say there is a 3-horse race, and all the winnings will be paid out to bettors (in real life, there would be more horses, and the event organizer would take a cut). $100 have been bet on Horse A to win, $20 have been bet on Horse B to win, $10 have been bet on Horse C to win. So $130 has been wagered in total. Most people think that Horse A will win, so there must be some reason for this, and it is probably likely that Horse A will win. So the payout if Horse A wins, is $130/100 = $1.3 per $1 wagered. So if you bet $1 on Horse A, and Horse A wins, you will receive $1.30 in winnings. If you bet on Horse B, and Horse B wins, you will receive $130/20 = $6.50 if you wagered $1. So you win much more money, but Horse B winning was much less likely. So the reward is always proportional to the risk, and the risk is determined by the knowledge of the market as a whole -- all of the people betting on that race.
Now, let's change things a bit. In a real horse race, all betting is closed when the race starts. So you can't watch half of the race, and go up and bet on the horse who's in the lead at that time. However, in this race, you can make bets during the race, and you can even change your bets during the race. So you're watching the race, and you see Horse B now has the lead, so you can change your bet from Horse A to Horse B. However, EVERYBODY will do this! The entire market will gradually change their bets to Horse B as the race progresses, and as Horse B is seen to be in the lead. By the time the race is over, everybody will have changed their bets to Horse B. Therefore everybody's payout will be the same, $130/130 = $1.00 exactly.
Now, you may say: What is the point of this? The whole fun of betting is to win something! Just getting your money back is boring! But if you were at a horse race, and you were given the option to change your bet in the middle of the race, wouldn't you take advantage of it? Wouldn't you at least NOT LOSE your money, even if it means it's not possible to win?
Ok, now what does this mean for BitUSD? It is a perpetual horse race, where you can change your bets at any given moment. The market converges on everybody "betting" that 1 BitUSD = 1 USD.
Now say that someone had a lot of BitUSD that they want to get rid of quickly. So maybe they put in an order for 1 BitUSD = 0.99 USD. There will be long a line of people waiting to buy the BitUSD's for the price of only 0.99 USD, because that will mean instant profit! And it also works the other way around. If someone has a lot of USD that they want to use to buy BitUSD, and they're in a hurry to do it, they'll come up and say "All right, gimme a bunch of BitUSD, and I'll pay 1.01 USD for each of them!" And again, there will be a long line of people happy to sell them BitUSD at 1.01 each, because hey, profit of 1 cent each!
As long as the market "agrees" that the price of 1 BitUSD = 1 USD, all of this will happen automatically. It is just like the market "agreeing" that Horse B is going to win the race, right before Horse B crosses the finish line.
This analogy is so great and so powerful that I want to find a place to use it and give you a bonus double reward for actually having an analogy and for it making sense!
As Mr. Skeptical I would ask... but how does the market come to that agreement?
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Good job everyone. Please send me PM if I missed you in the payout list:
8bit PcsgTPDppJLjeko1HntwUwysczpK9aERzx paid
Markus PevqNySjEGqULqrLAoDWFVraVRm5dd36S8 paid
bitbadger Pei5BrnEUqcCuUdffNZmBPL3rg6duj3vnU paid
Xeldal
Xeldal, please send me your PTS address or add it into your signature. Thanks all
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This analogy is so great and so powerful that I want to find a place to use it and give you a bonus double reward for actually having an analogy and for it making sense!
As Mr. Skeptical I would ask... but how does the market come to that agreement?
Essentially, because it's set that way from the get-go. It says so, right there in the name. Once people accept that, it self-perpetuates.
It's announced at the beginning, "1 BitUSD = 1 USD" and everybody buys into the market based on that assumption, and all market participants have the incentive to keep it that way. It will be the same way with BitBTC, BitEUR, BitJPY, BitOzAg or any other currency/commodity that you can come up with. You could come up with Bit_MSFT_QtrRev to represent the value of Microsoft's quarterly revenue.
People do this kind of thing all the time in Futures markets and legal and illegal betting on anything you want. When Kate Middleton becomes pregnant again, there can be a value set to Bit_FutureRoyalIsMale for people to bet on whether the heir to the throne will be male or female. People want to bet on all kinds of things. All you have to do is create a market for it, and people will use that market to place bets.
So somebody may come along and say "Well then what is the point of the entire BitUSD market? Why not just keep my USD where they are?" The answer is that there may be many reasons for holding BitUSD instead of holding USD. Why do you put your paycheck in a bank account? Why not carry all of your net worth around with you all of the time, in cash? Because having that money in a bank account gives certain benefits... security, transferability, insurance. While cash has its own benefits; anonymity, proximate-immediacy*, etc. Of course, you can change BankUSD into CashUSD at any time, or vice-versa.**
BitUSD holdings will have certain benefits to them, just as BankUSD or CashUSD holdings have their own benefits. Anonymity, security, and transferability will be some of those benefits.
*A word that I just made up meaning that if you are in close proximity to me, I can transfer cash to you immediately, irrevocably, and provably. There's no password needed, no external verification, no network delays.
**(Not really "at any time" of course -- banks aren't open 24/7, and ATM's have limits, and deposits usually take a while to clear.... but close enough that it's fair to say, for most purposes, "you can change your BankUSD into CashUSD at any time" is approximately true.)
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We should be able to make the case that BitShares is like a carnival, in which the price of every game and ride floats in response to changes in demand. For example, if a large number of people decided at the same time that they wanted to ride the roller coaster, instead of a long line forming, the price would rise.
In this way, at a particular moment a BitRollerCoasterRide might be just another name for BTS 0.25, and a BitLogFlumeRide for BTS 0.15. These values might change from minute-to-minute, depending on the lengths of the lines at each ride, such that at 8:00am if one said, "BitRollerCoasterRide," the market would respond, "BTS 0.10;" at 12:30pm maybe, "0.3325," in response to the crush of prospective riders. However, the names refer to quantities of BTS, prices of, rather than title to some underlying asset.
We'll need to emphasize that a BitX's price is the answer to the question, "How many BitShares is an X worth?" The BitX is a claim on that many BTS, and not on a unit of X.
- Charles Evans
I would critique this analogy slightly by saying it is like a Carnival where when a line gets long enough they open an additional ride in order to keep all rides the same price (wait in line). When the lines get too short, they close one of the rides.
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Sorry if already suggested:
1.Togather i.e. all 4
2. Just the first sentence
3. Sentence 1 , 3 and 4
Your dollars digitalized.
Your bitcoins dollarized.
Their features multiplied.
Their value fortified.
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The best analogy if your audience is from the financial world is it works exactly like a spot forex contract.
They are kind of like futures except they are perpetual. And instead of a retail broker who bets against you, you are betting against the hive mind consensus of everyone else who is involved.
Sent from my iPhone using Tapatalk
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I know this is an old thread, but the new short cover rules etc prompted me to think of an analogy like this.
One party (the insured) wishes to ensure that their funds (BTS) will be able to buy the same value of a reference asset in 30 days' time. So they go to another party (the insurer) to place those funds in a vault for 30 days, and in return they receive a receipt from the insurer. The insurer also tips twice this amount into the vault. An automatic mechanism is put in place such that at the end of the 30 days at the latest the vault will be reopened, and that on presentation of their receipt the insured will receive funds (in BTS) equivalent in value to the reference asset that the funds were worth on the day of deposit. The insurer will then receive the remainder of the funds from the vault.
Now in the marketplace there are many such insurers, and their receipts are fungible and equally accepted by all other insurers. Each insurer is obliged to unlock their vault within 30 days, and to pay funds (BTS) equivalent in value to the reference asset that the funds were worth on the day they were deposited to the vault, to whichever insured party presents them with a receipt. However if there are multiple insured parties presenting receipts, the insurer will choose the insured party demanding the least funds in return. This allows insured parties to compete for the return of funds should they demand them more urgently before 30 days. However if the insured is willing to wait for up to 30 days, they can present their receipt in the market for full price and receive this from an insurer within the 30 days.
The receipts are also transferable and can be sold to any other party that seeks similar insurance, at an agreed market price. As a result the receipts can also be used for transaction and exchange with other parties.
(It gets more complicated thinking about what happens when insurers fail, e.g. under-collateralisation scenarios etc, but just trying to keep it simple).
Not sure if that helps with a marketing angle, or not :)
[Edit: For completeness I began another thread here with a different analogy that might be better suited to the vision of "the future of banking".
https://bitsharestalk.org/index.php?topic=11172.msg147165#msg147165
]