From: Subject: Print Page - hedged escrow, at last... Date: Fri, 04 Oct 2013 00:04:01 -0400 MIME-Version: 1.0 Content-Type: text/html; charset="UTF-8" Content-Transfer-Encoding: quoted-printable Content-Location: http://dkn255hz262ypmii.onion/index.php?action=printpage;topic=819.0 X-MAF-Information: Produced By MAF V3.0.0 Print Page - hedged escrow, at last...

Silk Road forums

Discussion =3D> Silk Road discussion =3D> Topic= started by: Dread Pirate Roberts on July 09, 2011, 07:53 pm

Title: hedged escrow, at last...
Post by: Dread Pirate Roberts on July 09, 2011= , 07:53 pm: ***Update***
It has been about a month and a half now since we intro= duced the hedged escrow feature, and I am happy to say it has worked really= well!=C2=A0 If you don't know what that is, check out the buyer's and sell= er's guides.=C2=A0 There has been plenty of market volatility over this tim= e and the system has balanced out irregardless of what the exchange rate ha= s done, exactly as it should.=C2=A0 We've been tracking all of the numbers,= and have found that sellers will lose about 4% of their payment when using= the escrow hedge.=C2=A0 This is due to the bid/ask spread and slippage in= the markets, especially at times when the bitcoin markets are thin.=C2=A0= Basically, when the payment is hedged, the lowest available "ask" prices= adding up to the price of the order are used.=C2=A0 Then, when it is unhed= ged, the highest available "bid" prices adding up to the price of the order= are used.=C2=A0 So, if you are willing to forgo this 4% or so, or raise yo= ur prices by 4%, for the security and predictability of being protected fro= m exchange rate fluctuations while your payments are in escrow, then I reco= mmend you enable escrow hedging on your settings page :)

-----BEGIN= PGP SIGNED MESSAGE-----
Hash: SHA1

Probably the longest standing= and most important feature request to date is finally here.=C2=A0 Sellers= now have the option to hedge their escrow balances against fluctuations in= the BTC/USD exchange rate.=C2=A0 Our hope is that this will bring some muc= h needed predictability and stability to the transaction process and allow= sellers to price their items with confidence.=C2=A0 Detailed explanations= can be found in the buyer's and seller's guides.

Please note that= this feature is experimental at the moment and we reserve the right to dea= ctivate it without notice.=C2=A0 Deactivating won't affect current hedged= orders.=C2=A0 It will only prevent future hedging.

cheers

--= ---BEGIN PGP SIGNATURE-----
Version: GnuPG v2.0.14 (GNU/Linux)

iQ= EcBAEBAgAGBQJOGLFYAAoJEAIiQjtnt/ol0jcIAMbjuqAEzJy9213WiEf7lVDE
F4bDNWE22= bdqvUfo5yvTx04mw37Ocpa/s/W3zdbpiBw44fgGH86hWl4U7+0SXrWS
ZdFxMDcWFBatj6IM= 5NGgOkQtzoIsKkiMJqSIs4pBmgEzXeV/kNm4+eJuARIIefzS
W79O0PkFjKIlHFVyjsNtqgS= bTonG5E8Jqj+E2Wfkh99olDb3w9THIoisp/IRJ6Ks
r7sG/eiVgpEOliBRtX0tbqmc+/S4yZ= JK2/3e4ZxwyAjYd48YYg7Aw98j7wleV5wN
KwOAy37OiUEbTHeh7Wi3ZlK1eReJQlSgQCwr4= Ez+IY3x1wW0WIg0t5l4x3AFZak=3D
=3D7Ra7
-----END PGP SIGNATURE-----
Title: Re: hedged escrow, at last...
Post by: Mitanox on July 09, 2011, 08:02 pm: Can you explain how it is hedged?
Title: Re: hedged escrow, at last...
Post by: XMachina on July 09, 2011, 08:29 pm: From the Sellers Guide:

"Escrow Hedging
DISCLAIMER: at this= point, escrow hedging is experimental and we reserve the right to disconti= nue it without notice.

Unfortunately, the bitcoin exchange rate isn'= t as stable as we would all like it to be, and can fluctuate wildly in a ma= tter of hours, let alone the days or weeks it takes for a package to arrive= . Because of this, there is a real danger that the bitcoins being held in= your escrow account will lose value by the time your customers finalize th= eir orders. So, we've given you the option to hedge the future payments you= are expecting from escrow such that the dollar value of the payment doesn'= t change as the bitcoin exchange rate changes.

For example, someone= purchases one of your 10 btc listings. The dollar value of the order when= purchased is $100. Now, a week later when the transaction is finalized, th= ose 10 btc are no longer worth $100, they're worth $50! Because you hedged= the escrow, you won't get paid 10 btc, you'll get 20 btc equaling the orig= inal value of $100. Of course, the opposite is also true. If bitcoins appre= ciate in value while your payment is in escrow, you'll get fewer bitcoins,= but they will still equal the original dollar value.

The option to= turn off or on escrow hedging can be found on your "settings" page. While= it is on, the payments for any orders placed with you will be hedged. Paym= ents for orders placed while it is off will not be hedged, but any hedged= orders still not finalized will remain hedged.

On your account page= , your escrow balances are split up between hedged and unhedged orders. All= orders are unhedged until you confirm shipment, at which point, if you are= set to hedge, the payment for the order will show up on the dollar side of= your escrow balance. "
Title: Re: hedged escrow, at last...
Post by: XMachina on July 09, 2011, 08:32 pm: From the Buyers Guide:

"Escrow hedge
Unfortunately, the bitco= in exchange rate isn't as stable as we would all like it to be, and can flu= ctuate wildly in a matter of hours, let alone the days or weeks it takes fo= r a package to arrive. Because of this, there is a real danger that the bit= coins being held in your escrow account will lose value by the time your ve= ndor gets paid or you are refunded. So, we've given the option to vendors= to hedge the future payments they are expecting from escrow such that the= dollar value of the payment doesn't change as the bitcoin exchange rate ch= anges.

For example, a seller is hedging the escrow for a 10 btc orde= r you place with them, and the dollar value of your order when you purchase= it is $100. Now, let's say your order never arrives and your vendor agrees= to a full refund, but those 10 btc are no longer worth $100, they're worth= $50! Because your vendor hedged the escrow, you won't get a refund of 10= btc, you'll get 20 btc equaling the original value of $100. Of course, the= opposite is also true. If bitcoins appreciate in value while your order is= in escrow, your refund will be fewer bitcoins, but still equalling the ori= ginal dollar value.

When checking out, you will see which orders wil= l be hedged and which won't. After the order is placed, your escrow balance= will reflect the dollar value of your hedged orders and the bitcoin value= of your unhedged orders. All orders are unhedged until your vendor ships,= at which point, payment for the hedged orders will be transferred from you= r bitcoin balance to your dollar balance. "
Title: Re: hedged escrow, at last...
Post by: XMachina on July 09, 2011, 08:36 pm: Just keep that hedge fund/funds from getting frozen.=C2=A0 ;D

Gr= eat feature! :::CHEERING:::
Title: Re: hedged escrow, at last...
Post by: mrroboto187 on July 09, 2011, 10:13= pm: There might be an obvious answer for this but, where do the extra Bitco= ins come from?
Title: Re: hedged escrow, at last...
Post by: Rook on July 09, 2011, 10:51 pm: Awesome! Thanks SR!
Title: Re: hedged escrow, at last...
Post by: Quantum on July 10, 2011, 01:39 am: Holy moley wow!
Title: Re: hedged escrow, at last...
Post by: performance on July 10, 2011, 02:42= am: >There might be an obvious answer for this but, where do the extra= Bitcoins come from?

Yes, exactly my question!
Title: Re: hedged escrow, at last...
Post by: mrroboto187 on July 10, 2011, 02:50= am: Right? It's been like 4.5 hours and still no answer, it's bugging the= hell out of me haha.
Title: Re: hedged escrow, at last...
Post by: performance on July 10, 2011, 02:54= am: >Right? It's been like 4.5 hours and still no answer, it's bugging= the hell out of me haha.

LOL yes, it's bothering me because I can't= figure it out.

Although, I thought of a related question. If a buye= r cancels and he receives less BTC than the original order (due to price in= crease) where do those lost BTC go? I can only conclude that Silk Road main= tains a separate pool of spare Bitcoins that act as a buffer.

It's= possible there are enough canceled orders and market volatility such that= the collection of these Bitcoins resulting from cancellations is sufficien= t to maintain enough balance to fulfill the hedge requirements.

Of= course, if there is a large enough drop in the value of BTC, it would wipe= out the reserve.
Title: Re: hedged escrow, at last...
Post by: TikTok on July 10, 2011, 02:56 am: @mrroboto I would guess it works by selling the bitcoins for USD and th= en buying them back.
Title: Re: hedged escrow, at last...
Post by: nef on July 10, 2011, 03:08 am: Quote fro= m: TikTok on July 10, 2011, 02:56 am
@mrroboto I would guess it works by selling the bitcoins= for USD and then buying them back.

If I were running SR, I= wouldn't answer your question: no need to release operational details.=C2= =A0 But my guess is that he/she has deep bitcoin pockets, and two weeks of= SR volume is less than the number of bitcoins they have on hand.=C2=A0 So= long as the price doesn't drop more than 50%, they'll be fine, and will ho= pefully recoup losses by gains when the price rises.
Title: Re: hedged escrow, at last...
Post by: anonamoose on July 10, 2011, 04:23 am=: Quote fro= m: mrroboto187 on July 09, 2011, 10:13 pm
There might be an obvious answer for this but, wher= e do the extra Bitcoins come from?

My guess is SR has set him= self up as an options market maker, willing (and hopefully) to buy and sell= the hedges.=C2=A0 If roughly the same $ amount of buyers and sellers buy= protection, there is little risk to SR.=C2=A0 In fact, he should be able= to make some money off this.=C2=A0 =C2=A0The problem will be if only selle= rs by protection, then he'll have to start adjusting the cost of these hedg= es.=20
Title: Re: hedged escrow, at last...
Post by: phubaiblues on July 10, 2011, 04:33= am: Me: I don't want to know...the less we know about each other--and SR--t= he better the chances of this site surviving...seems there are some heavyhi= tters feel threatened by SR, and even a *little* info gets into the news...= so, how, what, or where he gets and keeps btc is of no concern to me...long= may he reign in the dark corners of the world he's chosen...
Title: Re: hedged escrow, at last...
Post by: chronicpain on July 10, 2011, 04:44= am: I'm diggn' this idea A LOT!!! Yea, I think that SR will make money off= this, in the long run. I don't care how it's done as long as it works..
Title: Re: hedged escrow, at last...
Post by: j789745 on July 10, 2011, 04:54 am: SR does make a profit from each transaction, actually, so this is prett= y conceivable. They probably have confidence that the BTC, with its ups and= downs, will be stable enough for people in it for the long haul. Of course= , they also make it quite clear that they reserve the right to cancel, so= I guess the real test is ahead.
Title: Re: hedged escrow, at last...
Post by: phubaiblues on July 10, 2011, 06:20= am: SR is making bitcoins real...we turn it into a serious currency, not ju= st a political statement...and the world is quickly getting away from stati= sm anyway...this is just the beginning...eventually the whole idea of seper= ate countries will just be a quaint thing that we'll read about on wiki.=C2= =A0 Open all the borders, have one currency, one language...and...something= : oh yeah--give everybody a gun!=C2=A0

And also, we'll issue paper= currency representing bitcoins!=C2=A0 Ha ha ha...;)
Title: Re: hedged escrow, at last...
Post by: sandybridge on July 10, 2011, 11:39= am: How does this work?
Title: Re: hedged escrow, at last...
Post by: anozimous on July 10, 2011, 02:44 pm<= /strong>: So as a buyer, would this make prices more stable for me?
Title: Re: hedged escrow, at last...
Post by: subg on July 10, 2011, 02:51 pm: Similar to my proposal but better! SR will do the hedging without need= for collateral. Awesome guys. I know there are privacy and LEO concerns an= d such, but you guys need to find a way to open source this stuff. Bar none= , you guys offer the best bitcoin payment system and the bitcoin ecosystem= could really benefit from your code.
Title: Re: hedged escrow, at last...
Post by: chronicpain on July 10, 2011, 02:53= pm: Can my picture be on the new BTC paper? Kidding of course. It would be= funny to have a picture of Bill gates or someone like that on it. It struc= k me funny when I imagined paper BTC and what could go on it..
Title: Re: hedged escrow, at last...
Post by: Colonel Sanders on July 12, 2011, 12:= 59 am: I feel slow and stupid, but I still don't understand how this works.=C2= =A0 Where does the extra BTC come from?

Like, if someone buys someth= ing for $100 at 10 BTC at 10 USD, and the exchange rate drops to 5 USD by= the end, that would be 20 BTC by the end.=C2=A0

Where does the ext= ra 10 BTC come from?
Title: Re: hedged escrow, at last...
Post by: chronicpain on July 12, 2011, 01:05= am: This is really unknown, but most likely SR is footing the bill. It can= go both ways. SR will probably ending up making money in the long run, hop= efully.
Title: Re: hedged escrow, at last...
Post by: jsmith on July 12, 2011, 02:38 am: yeah, hopefully SR is not actually holding the escrow in cash by doing= an FX transaction for each hedge -- that would definitely be traceable sin= ce it needs to go through an exchange.

And as I understood it, only= sellers have the option to hedge, and buyers simply go along for the ride= if the seller chooses to do so.=C2=A0 If that's correct, that rules out SR= playing market maker and taking both sides assuming an equal number of buy= ers and sellers hedge (as someone suggested may be the case).

I'd be= t SR maintains a master hedge book that hedges the aggregate value of all= hedged transactions and rebalances every day.=C2=A0 These could be two com= pletely separate accounts and unlinked in any way.

Anyways, it's pro= bably best if we don't know.=C2=A0 I'm all for open knowledge, but unfortun= ately our respective governments don't respect individual freedom.
Title: Re: hedged escrow, at last...
Post by: joeblow2 on July 20, 2011, 12:15 am: One possibility would be that SR mined a large number of BTC at virtual= ly no cost, had no way to effectively monetize them, and came up with the= idea for SR as a result.=C2=A0 This would explain the hedging issue: he ha= s a large pool to draw from in case of a down market.=C2=A0 And he has both= been a large part of the legitimization of the BTC as a real digital curre= ncy AND put together a business model that will be the envy of many people.=

I don't think, however, they'll ever make a movie about him like th= ey did the Zuck.=C2=A0 haha! :D
Title: Re: hedged escrow, at last...
Post by: Dread Pirate Roberts on July 20, 2011= , 04:03 am: yea, we're hiding the nuts and bolts on this one "for security purposes= " ;)=C2=A0 Thanks for being understanding about the lack of transparency.
Title: Re: hedged escrow, at last...
Post by: watmm on July 22, 2011, 01:02 am: Good luck. But you know what they say about security through obscurity.= ..
Title: Re: hedged escrow, at last...
Post by: MB80 on August 05, 2011, 09:43 pm: Perhaps SR played a small role in the whole MtGox incident..... Kidding= of course.... or maybe they really did... I guess we'll never know.
Title: Re: hedged escrow, at last...
Post by: SR Discount Pharmacy on August 06, 20= 11, 04:36 pm: I just switched to hedged. I wish i did it before this drop though haaha
Title: Re: hedged escrow, at last...
Post by: Raffael on August 06, 2011, 11:26 pm<= /strong>: joeblow2 - interesting theory :-D=C2=A0 so far with the slide down of= BTC it's only what can keep it running (a reserve of many coins).
Title: Re: hedged escrow, at last...
Post by: joeblow2 on August 07, 2011, 11:57 pm=: The past couple of days the BTC value diminished by about 40% at one po= int.=C2=A0 SR didn't immediately stop the hedging, even for new orders.
= If the market follows its usual pattern, the BTC will now drift up slowly= until it reaches 80-85% of its previous value.

As SR has shown hims= elf to be quite adept at matters of anonymity, finance, etc. I think we can= safely assume that this was an event that he had foreseen when setting up= the hedging feature.=C2=A0

What is not known, and will never be kn= own, is how many of the outstanding order will actually have to be paid out= using the reduced BTC values before the BTC drifts upward enough that it= meets the average value of all the bitcoins that SR has in his possession.= =C2=A0 Regardless of that figure, the appearance is that the depth of SR's= bitcoin pool is sufficient to weather a very significant devaluation of th= e BTC.

Bravo again SR! :)
Title: Re: hedged escrow, at last...
Post by: anarcho47 on September 04, 2011, 05:2= 8 am: Sellers pay a hedging fee on top of the listing fee a buyer pays for bu= ying product.=C2=A0 These funds are used in the hedging pool.

Also,= a few exchanges are offering short sales on BTC in the near future (about= damned time so there is a lot more liquidy and a damned price floor on dro= ps, for fucks sake), so I would be SR will probably start levering out shor= t sales against its long hedge holdings.=C2=A0 At least that's what I would= be doing.

A guy from citigroup has a pretty high-tech btc exchange= in beta right now.=C2=A0 I'm interested to check it out once it opens to= the public, as it will have futures and options from what I'm reading (The= n I can do my own hedging!)
Title: Re: hedged escrow, at last...
Post by: ruddyRudeman on September 09, 2011,= 12:34 pm: If say the order was hedged, but ended up with a refund (package loss),= will the refunded % be hedged too?=20
Title: Re: hedged escrow, at last...
Post by: mseller on September 09, 2011, 01:25= pm: Yes, refund is hedged also when refund is given. Value in US (what you= pay in coins) when item is marked in transit, but less to around 4% for bu= y/bid price.
IMO,still better to pay 4% (vendor pays it when he choose= hedge and when order is finalized) then leave it exposed to unstable marke= t.
Title: Re: hedged escrow, at last...
Post by: treebeard on October 02, 2011, 02:31= am: thanks for the updated info SR
Title: Re: hedged escrow, at last...
Post by: peach on November 05, 2011, 10:26 am<= /strong>: I don't understand why people is so troubled with "where is the extra= bitcoin coming", it comes from the market fluctuation itself.

Lets= say that a customer buys my Driver License for 90 bitcoins.
It is hedge= d at its current market value in dollars.
Lets say that $1 dollar =3D = =E0=B8=BF3 Bitcoins, then =E0=B8=BF90 bitcoins =3D $270 dollars.
So now= my hedged escrow shows=3D $270 as a pending payment.

When the custo= mer receives my License at his home and he happily liberates the escrow, bu= t now the bitcoin appreciated, lets say that now $1 dollar =3D =E0=B8=BF5= Bitcoins, so the escrow pays me only =E0=B8=BF54 bitcoins.

So Silk= Road ends up keeping =E0=B8=BF36 bitcoins... plus the 4% bid/ask spread wh= ich is actually an extra profit since they are the ones exchanging it.
S= o basically you wouldn't actually be receiving =E0=B8=BF54, but =E0=B8=BF51= .84.

Of course when the bitcoin depreciates, they may use those =E0= =B8=BF36 bitcoins to pay another guy the extra bitcoins to cover him up. Lets say that someone pays me for my Driver licenses with =E0=B8=BF90 bit= coins, it is hedged $1 dollar =3D =E0=B8=BF3 Bitcoins, then =E0=B8=BF90 bit= coins =3D $270 dollars.
Now the price of the bitcoin is =E0=B8=BF2.5 whe= n the hedge is liberated, SR pays me: =E0=B8=BF108.
Customer deposited= =E0=B8=BF90, I got =E0=B8=BF108, the extra =E0=B8=BF18 would come from the= fund before (the =E0=B8=BF36, remember?)
And again SR keeps 4% of the= conversion.

As long as the price of the market fluctuates, the hedg= e will be healthy and the final balance would tend to zero.
As long as= the price of the bitcoin appreciates, the hedge will be accumulating more= and more bitcoins.
The price of the bitcoin depreciates, the hedge will= be running dangerously low and they may need to use their own savings.
Title: Re: hedged escrow, at last...
Post by: Isa on November 05, 2011, 02:22 pm: Peach, you're close, but not exactly right.=C2=A0 All of your math is= right.=C2=A0 Yes, the dollar amount received would be fixed for the seller= and the bitcoin amount would fluctuate based on the market.

However= , the "extra" bitcoins aren't coming from any "fund", so it doesn't matter= at all if the market appreciates or depreciates.=C2=A0 And there is no "da= ngerously low" situation and no one will have to "use own savings".

= Going back to your example:

A customer buys your drivers license for= 90 bitcoins.
It's hedged in dollars and 1 dollar is 3 bitcoins, so you,= as a seller will receive a dollar value of $270 minus fees upon finalizati= on.
During the time before the customer finalizes, let's say bitcoins de= preciate to 2 bitcoins to the dollar.=C2=A0 You would receive ($270/2 bitco= ins) or 135 bitcoins.

Now where do these 45 "extra" bitcoins come fr= om?

When the customer places the order, 90 bitcoins leave the custom= er's account.=C2=A0 Then SR immediately sells 90 bitcoins to the market in= exchange for $270.=C2=A0 So SR now has $270, not 90 bitcoin.=C2=A0 When th= e customer finalizes, SR uses the $270 to re-purchase bitcoins.=C2=A0 Remem= ber during this time bitcoins depreciated to 2 bitcoins per $1, so $270 wil= l now buy 135 bitcoins.=C2=A0 Then SR deposits those 135 bitcoins into the= sellers account.=C2=A0

The fee you pay for hedging covers the cost= of SR having to sell then repurchase the bitcoins, plus a small margin for= conducting the trade for you.
Title: Re: hedged escrow, at last...
Post by: Sugar Mama on November 05, 2011, 06:2= 3 pm: Quote= from: peach on November 05, 2011, 10:26 am
I don't understand why people is so troubled with= "where is the extra bitcoin coming", it comes from the market fluctuation= itself.

Lets say that a customer buys my Driver License for 90 bitc= oins.
It is hedged at its current market value in dollars.
Lets say= that $1 dollar =3D =E0=B8=BF3 Bitcoins, then =E0=B8=BF90 bitcoins =3D $270= dollars.
So now my hedged escrow shows=3D $270 as a pending payment.
When the customer receives my License at his home and he happily liber= ates the escrow, but now the bitcoin appreciated, lets say that now $1 doll= ar =3D =E0=B8=BF5 Bitcoins, so the escrow pays me only =E0=B8=BF54 bitcoins= .

So Silk Road ends up keeping =E0=B8=BF36 bitcoins... plus the 4%= bid/ask spread which is actually an extra profit since they are the ones= exchanging it.
So basically you wouldn't actually be receiving =E0=B8= =BF54, but =E0=B8=BF51.84.

Of course when the bitcoin depreciates,= they may use those =E0=B8=BF36 bitcoins to pay another guy the extra bitco= ins to cover him up.
Lets say that someone pays me for my Driver licens= es with =E0=B8=BF90 bitcoins, it is hedged $1 dollar =3D =E0=B8=BF3 Bitcoin= s, then =E0=B8=BF90 bitcoins =3D $270 dollars.
Now the price of the bitc= oin is =E0=B8=BF2.5 when the hedge is liberated, SR pays me: =E0=B8=BF108.<= br>Customer deposited =E0=B8=BF90, I got =E0=B8=BF108, the extra =E0=B8=BF1= 8 would come from the fund before (the =E0=B8=BF36, remember?)
And again= SR keeps 4% of the conversion.

As long as the price of the market= fluctuates, the hedge will be healthy and the final balance would tend to= zero.
As long as the price of the bitcoin appreciates, the hedge will= be accumulating more and more bitcoins.
The price of the bitcoin deprec= iates, the hedge will be running dangerously low and they may need to use= their own savings.

That's not how a hedge works. If that= was the case SR would be taking a huge risk, there's no reason to assume= the fluctuations of the market will net to zero. According to wikipedia "H= edging is the practice of taking a position in one market to offset and bal= ance against the risk adopted by assuming a position in a contrary or oppos= ing market or investment." So like Isa says, to hedge against fluctuations= in the price of bitcoins to dollars you simply buy an equivalent amount of= dollars. Then when the bitcoins go up the dollars go down and vice versa= so your position is always the same as when you began the hedge. If you ga= ined bitcoins the extra coins come from the sale of the dollars at the high= er rate, if you lost bitcoins the loss is realized when selling the dollars= for a lower amount.

SR's position is always nuetral, the gain or lo= ss from the change in value is realized by the party that invested in the= coins that SR sold.
Title: Re: hedged escrow, at last...
Post by: peach on November 05, 2011, 06:38 pm<= /strong>: Well, my scheme makes sense considering that bitcoins are actually prog= rammed to eventually increase value in time by controlled deflation.
If= bitcoins keep appreciating, the total amount of bitcoins accumulated in SR= 's arcs would substantially increase.
Title: Re: hedged escrow, at last...
Post by: anarcho47 on November 05, 2011, 06:56= pm: ^"controlled deflation".

If rational markets actually existed yo= u would be correct.=C2=A0 However, that is a theory that gains immense popu= larity during bull markets, whereas "uncontrollable" aspects measured via= technical analysis gain popularity during bear markets (people don't want= to admit they are the cause of BOTH cyclical price increases and cyclical= price decreases).

Rational markets have been thoroughly debunked,= several times (the theory always comes back though).

Bitcoins to US= D are a tiny fraction and basd on their circulation they should be worth 10= 0 - 1000x more than they are.=C2=A0 If markets were rational...

SR's= hedge is a risk-neutral hedge, meaning there is a "book" with USD/BTC rate= s overall and they buy and sell to match the cumulative total of members of= the community.
Title: Re: hedged escrow, at last...
Post by: peach on November 05, 2011, 10:51 pm<= /strong>: anarcho47

We are not talking about the fiat currency and the fre= e market we have in our current economy.
We are talking about a programm= ed feature in the bitcoin economy where there will be a fixed total amount= of currency in circulation. It will definitely force a hyper-deflation in= the next couple of decades, and it probably will become gradual as the cha= llenge to mine these coins increases.
Title: Re: hedged escrow, at last...
Post by: anarcho47 on November 06, 2011, 02:15= am: Quote= from: peach on November 05, 2011, 10:51 pm
anarcho47

We are not talking about the fiat= currency and the free market we have in our current economy.
We are tal= king about a programmed feature in the bitcoin economy where there will be= a fixed total amount of currency in circulation. It will definitely force= a hyper-deflation in the next couple of decades, and it probably will beco= me gradual as the challenge to mine these coins increases.
=

I'= m not arguing about fiat currencies and free markets (although to be honest= those two terms should not be included in the same sentence as synonymous= entities).

What I'm saying is that, despite all of the arguments of= "tangible value" in bitcoins because of processor cycles and blah blah, th= e only thing that gives bitcoins its value is the overall market's willingn= ess to accept it to act in the capacity of money - namely, to be a unit of= account, a unit of savings, to be hard/impossible to counterfeit, to be po= rtable, and to be divisible.=C2=A0

The world COULD wake up tomorrow= and nobody would want gold.=C2=A0 Gold's price was fixed for 28 years and= the monetary base inflated over 1000% from 1933, yet markets outside of th= e central bank discount window (i.e. jewelry bulk purchases, mine sales, et= c) didn't push the value of gold any high and they could have.=C2=A0 All yo= u are doing when you buy gold is making a probability play based on a prett= y outstanding track record that humankind will at some point treat it as mo= ney again.=C2=A0 Which means it will retain at least some modicum of value.=

The same goes for bitcoins.=C2=A0 Mining difficulty doesn't matter= in irrational markets, only how market participants FEEL.=C2=A0 We will pr= obably see bitcoins drop off agin as the US dollar strengthens, because we= are in a bear market, where people flee for cash and cash equivalents (thi= s also makes credit near-worthless).=C2=A0 This will not bode well for BTC,= not for the mid-term anyway.=C2=A0 Once we see a return to buillishness we= will see a willingness for alternative assets, BTC among them.=C2=A0 There= may be a time when BTC appreciate to over $100 USD/coin, but it will not= be soon.=C2=A0 The real litmus test is if bitcoin can last.=C2=A0 So many= great ideas have been quashed by the state as they are true competition to= fiat currency and expose the inherent theft and violence of a legal tender= monopoly (see Liberty Dollar founder - specifically that he is labelled as= a "domestic terroriest" and rotting in jail for offering a competing alter= native to the USD).=C2=A0 if bitcion can somehow manage to survive the stat= e, and I don't mean the state actually being able to kill bitcoin itself be= cause that's virtually impossible, but instead survive the persecution of= its users, we might be talking.

Until then, I treat it as a hot pot= ato.....
Title: Re: hedged escrow, at last...
Post by: peach on November 06, 2011, 02:38 am<= /strong>: I have nothing to add, you said it all. :)
"There may be a time when= BTC appreciate to over $100 USD/coin, but it will not be soon."

Tha= t's precisely what I was referring to, as I specified it in my previous pos= t:
"...in the next couple of decades..."

The irrationality of mar= kets are short-mid term, but all markets tends to become efficient over tim= e.
Yes, we are living in a house of mirrors, markets jumping and falling= with self-fulfilled prophecies, but in the very long term, big picture-wis= e, the trend of the market is not all that irrational.

The only reas= on that eGold has fell is because it was a major money laundering scheme an= d they were absolutely aware of it. Also it fell because it has an owner,= it was centralized.
The persecutions of bitcoin users are very highly= unlikely. I mean, if even we at SR (with the full weight of senators) aren= 't capable of putting a dent in SR, then what are the chances of bringing= down the innocent seller of alpaca socks.

The real challenge and tr= ial-of-fire would be to have a self-sufficient bitcoin economy, where we do= n't need to exchange to any other currencies in the world for purchase of= supplies and goods whatever we need within the bitcoin economy.
If that= ever happens, no nation will be able to stop the bitcoin ever.
Title: Re: hedged escrow, at last...
Post by: phubaiblues on November 07, 2011, 12:= 05 am: Yep, they are just like all the other currencies, except they don't hav= e any particular 'state' saying they are their official money.=C2=A0 Unless= you consider the online world a 'country', but even most of the online wor= ld, doesn't accept them...they might, someday, but not today....

But= , for example, once the dollar got off the gold standard, it doesn't have= any worth either....could sink overnight....all you've got to do is, say,= look at the 'peso' anywhere....take aregentina...

It's all a crapsh= oot, as far as having any currency goes...this one is a little weirder, too= , right now, but hell, read the history of money...or Christ, read Neal Ste= phenson's Cryptonomicon .... if you don't see btc in that novel, then you= need to read it again...hell, I"m going to read it again... :)
Title: Re: hedged escrow, at last...
Post by: Hermione on November 10, 2011, 09:57= pm: Quote= from: Isa on November 05, 2011, 02:22 pm
When the customer places the order, 90 bitcoins lea= ve the customer's account.=C2=A0 Then SR immediately sells 90 bitcoins to= the market in exchange for $270.=C2=A0 So SR now has $270, not 90 bitcoin.= =C2=A0 When the customer finalizes, SR uses the $270 to re-purchase bitcoin= s.=C2=A0 Remember during this time bitcoins depreciated to 2 bitcoins per= $1, so $270 will now buy 135 bitcoins.=C2=A0 Then SR deposits those 135 bi= tcoins into the sellers account.

On an SR scale, this would= be horrendously inefficient. If his hedging system had become sophisticate= d enough to make this inefficiency acceptable, why would he still be runnin= g SR rather than trading in larger markets?

On the other hand, given= the range of btc fluctuation, a hedge 'pool' would have to be vast.

=09 SMF 2.0.5 | SMF =C2=A9 2013, Simple Machines
=09