Hi Auburn, thanks for the questions. I must have missed your message yesterday when I posted my update, sorry about that.
Thanks, eltopo, for answering these in my stead. My responses are in bold:
I have a few questions about BDD, being new to these derivatives:
1. Does the difficulty reset every 10 days on average?
Difficulty is not "resetting". Difficulty is just the current difficulty and it changes every 10-14 days on average. Have a look here for history:
http://runeks.dk/bitcoin/diff.txtThe difficulty changes after 2016 blocks are issued. The network is set to try and have miners 'mine' a block on an average of every 10 minutes. At 10 minutes * 2016 Blocks = 14 Days exactly. If miners issued 2016 blocks in exactly 14 days, then the Difficulty would not change.
However, if the network hashrate increases, then the 2016 blocks will be issued sooner than the 14 days, as they are being released more quickly than an average of one block every 10 minutes. So, in the past 6-9 months, as difficulty has been increasing at a rapid pace, there have been about 10-12 days before each difficulty adjustment. However, the difficulty could stagnate or decrease, leading to longer periods before an adjustment in the difficulty. Check out more information about Difficulty here: https://en.bitcoin.it/wiki/Difficulty2. At the posted BDD.EXCH price of 0.24310364, if this price includes the 1% fee, then is the NAV/U actually 0.24069666?
No, the current price of BDD.EXCH is 210 days of dividends (will change to 200 days after next difficulty change), so NAV/U is 0.22923491
Actually, The price of .24310364 is for 210 days of dividends plus the fee of 1%. However, .4% of that fee goes to the exchange for the exchange fee and the remaining .6% does go to the fund.
So, 210 Days of Dividends is 0.22923491 and 1% of that is .0022923491
60% of that fee goes to the fund (0.00137540946) and the remainder of the fee goes to Havelock. So, the NAV/U would be .22923491 + .00137540946 = .23061032 (rounded).
I added the 1% fee on purchases of EXCH to pay Havelock's exchange fee and to give the fund just a little bit of cushion in the case of extra fees / if necessary (see withdraw fee below)
Calculating NAV/U (and many other values) will always have rounding, so using Excel or Wolfram will sometimes yield very slightly different results. I normally only round when needed (at/near the end of the calculations) and round down to ensure that the fund stays 'in the black'. The only other difference, besides rounding, in my values and users' values would be the Havelock withdrawal fee of 0.001 per withdrawal - I currently do have to withdraw funds from EXCH using the network to get them to MINE/SELL - I'm working on a plan with Havelock to hopefully eliminate this. 3. If this 0.24310364 does in fact represent 210 days of daily dividends, then is this daily dividend = 0.00114617?
Correct.
Yep.4. Using the formula in the prospectus (5,000,000,000*25*86,400*65,535/2^48/2,514,532) the daily dividend computes to 0.00000023. Why the difference? Does it imply 5,000 shares outstanding? (0.00114617/0.00000023)
What is that 2,514,532? Difficulty is 2,193,847,870 right now.
Yeah, double check your difficulty value. Bitcoindifficulty.com and Allchains.info are great resources
5. About how much time will each cycle (intro to end game) represent? Do you intend to restart the derivative funds anew after the end game has concluded?
Depends on how much the difficulty will increase on average, about 2-5 months per cycle.
eltopo said it well; it just depends on how the Difficulty changes - most likely a few months. I do intend to restart the funds after this Round has concluded - I would just change the MINE theoretical hashrate to something more appropriate. DMS had a 5MH/s value, BDD has a 5GH/s value - maybe the next round will be 5TH/s?6. Since you are not actually mining for BTC, where do the BTC you need to pay those daily dividends come from? In other words, is there an independent source of income using cash flows not provided by your investors?
No, dividends come from the investors. It's part of the zero sum game.
eltopo is correct here as well - it's very important to understand this. The dividends are paid from the sales of EXCH. EXCH will be paid out totally to MINE and SELL - the whole point of this security is to figure out HOW (what proportion) it will be paid out. This is, of course, linked to how the Difficulty changes.7. I get the impression that the way you have designed the BDD pairs it's a zero sum game--if difficulty increases the BDD.Mine will get most of the 0.24 initial cash flow and if difficulty decreases then BDD.Sell will get the majority of the cash flow. Is this inference accurate, and if not why not?
You are right on the zero sum game, the invested coins are redistributed between MINE and SELL holders (less Havelock fees), depending on the difficulty changes.
For your second part: Higher difficulty increases (than expected) are bad for MINE holders, because it reduces prices and dividends. You are right when we reach the "endgame", as most of the investment thats left goes to MINE holders.
The Zero-Sum part is correct, yes. However, your example is wrong - if difficulty increases as it has (15%, 20%, 30% increases), then SELL will receive most of the EXCH value / capital. If difficulty increases slowly, stagnates, or decreases, then MINE will receive most of the initial capital.
There will be an amount that MINE will receive, at the end-game, but right now that amount (.2mBTC or less) is very small compared to EXCH. This will change if difficulty continues to increase
@twentyseventy: If I explained something wrong, please correct me.
I'm always happy to answer questions, so please feel free to post here if there's anything else you'd like to know.
I've paid the second day of dividends; one person purchased a share right before the dividends were paid, so his EXCH was bought back by the fund for the value of the dividends that he should have received.
If possible, please do not purchase shares in the five minutes before dividends are set to be sent (1155 AM to 1200 PM Eastern), as it creates more work on my end.
- when I see that some have been purchased, I buy them back and issue the MINE and SELL shares. Sending them to me WILL NOT make it go any faster - really. I plan to update the Contract(s) to show this change soon.