Author Topic: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD  (Read 7608 times)

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Offline bitbadger

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #90 on: February 20, 2014, 04:19:45 am »
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.
« Last Edit: February 20, 2014, 04:54:14 am by bitbadger »
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Offline bytemaster

Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #91 on: February 20, 2014, 04:34:17 am »
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.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #92 on: February 20, 2014, 04:34:44 am »
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.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline bytemaster

Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #93 on: February 20, 2014, 07:28:25 am »
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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Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline Amazon

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #94 on: February 20, 2014, 01:10:09 pm »
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
« Last Edit: February 21, 2014, 03:11:05 am by Amazon »
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Offline bitbadger

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #95 on: February 20, 2014, 06:29:23 pm »
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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Offline bytemaster

Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #96 on: February 22, 2014, 06:25:45 pm »
Quote
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.

For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

Offline tonyk

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #97 on: May 02, 2014, 10:44:27 pm »
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. 
« Last Edit: May 02, 2014, 11:00:46 pm by tonyk »
Lack of arbitrage is the problem, isn't it. And this 'should' solves it.

Offline bitmeat

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #98 on: May 03, 2014, 02:46:49 am »
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.


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Offline starspirit

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Re: 1 PTS Analogy Bounty for How BitShares X works to peg BitUSD to USD
« Reply #99 on: November 03, 2014, 11:04:20 am »
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
]
« Last Edit: November 11, 2014, 10:27:03 am by starspirit »