Re: [Havelock] Bitcoin Difficulty Derivative (BDD) - Now Live!
Hello Folks:
Many thanks for your considerate and informative responses to my 7 questions yesterday. I just have a few additional questions and comments:
1. Is it correct to assume that you will always value MINE at the stated 200 days of dividends, no matter where in the cycle we are? For example, after a typical 14-day cycle will dividends be based on 200 days or on 186 days?
2. I understand where the 1% fee goes much better now. But I don't see how the Issuer of the fund makes any BTC. If that fee is just enough to pay HL their fee and to provide a small buffer then how does the Issuer get rewarded for all of the quality time, energy, and ongoing management work necessary to bring this innovative concept to market and to make it a success? The Issuer deserves compensation for all this work and hassle!
4. I got the 2,514,532 Difficulty number from the IPO Prospectus on p. 4. Many thanks for the link to the actual data--it really helps to clear up this issue. Might I suggest that you include this link directly in future communications with investors, especially those of us who are kind of hazy on the nuts and bolts of how hashing & mining works?
I assume that you set the penalty at 1/2 % per day for MINE transactions because it reflects the shorter remaining life of the fund, at 1 day less/ 200 days standard. So in this way it's like the situation with ex-dividend valuation of shares of common stock, where the market price of the stock falls by the $ amount of the quarterly dividend on the ex date. Since you pay dividends each day this adjustment makes sense.
In sum, if I get your plan correctly now the 0.2431 BTC for EXCH is ultimately divided between MINE and SELL holders depending on whether the difficulty increases rapidly (favoring SELL) or slowly/as expected (favoring MINE). So it really IS a zero-sum game! In effect your derivative functions as a LEAP where the time frame is several months, MINE represents a call option for those bullish on mining investments, and SELL represents a put option for those bearish on mining investments. I really like this concept!
Many thanks for your considerate and informative responses to my 7 questions yesterday. I just have a few additional questions and comments:
1. Is it correct to assume that you will always value MINE at the stated 200 days of dividends, no matter where in the cycle we are? For example, after a typical 14-day cycle will dividends be based on 200 days or on 186 days?
2. I understand where the 1% fee goes much better now. But I don't see how the Issuer of the fund makes any BTC. If that fee is just enough to pay HL their fee and to provide a small buffer then how does the Issuer get rewarded for all of the quality time, energy, and ongoing management work necessary to bring this innovative concept to market and to make it a success? The Issuer deserves compensation for all this work and hassle!
4. I got the 2,514,532 Difficulty number from the IPO Prospectus on p. 4. Many thanks for the link to the actual data--it really helps to clear up this issue. Might I suggest that you include this link directly in future communications with investors, especially those of us who are kind of hazy on the nuts and bolts of how hashing & mining works?
I assume that you set the penalty at 1/2 % per day for MINE transactions because it reflects the shorter remaining life of the fund, at 1 day less/ 200 days standard. So in this way it's like the situation with ex-dividend valuation of shares of common stock, where the market price of the stock falls by the $ amount of the quarterly dividend on the ex date. Since you pay dividends each day this adjustment makes sense.
In sum, if I get your plan correctly now the 0.2431 BTC for EXCH is ultimately divided between MINE and SELL holders depending on whether the difficulty increases rapidly (favoring SELL) or slowly/as expected (favoring MINE). So it really IS a zero-sum game! In effect your derivative functions as a LEAP where the time frame is several months, MINE represents a call option for those bullish on mining investments, and SELL represents a put option for those bearish on mining investments. I really like this concept!
To answer your questions:
1. If you're talking about how a user would value MINE: they should look at what a 5GH/s miner would mine over the next 200 days and go from there. Some factors to consider here are (1) how will the difficulty change? and (2) how is this different from a real 5GH/s miner?. Obviously, no one knows if the Difficulty will go up, down, or sideways - predicting this is most of the point here. MINE will probably actually pay out less than a 5GH/s Miner because it's has a finite amount of capital to draw upon and because the dividends are paid once per day, so if the difficulty changes at Midnight, you'll be paid at Noon that next day at the new Difficulty rate, not half at the old Diff and half at the new Diff.
If you're talking about how BDD values MINE: BDD doesn't set a MINE value, it only sells EXCH per the formula.
2. Thank you for thinking of me!
Yes, this is not a charity and it does take time and energy to run the fund. I have worked out an agreement with Havelock regarding my compensation for running the fund.
3. I think we missed #3?
4. Sorry for any confusion - that Difficulty amount was used in order to give me a nice round number (200BTC total reserve / 1BTC daily dividends) to use for that example calculation.
The values for the current dividend calculation are: 5000000000 * 25 * 86400 * ( ( 65535 / 2^48 ) / 2193847870)
Other questions:
--I set the .5% per day Buy-back penalty because it's actually how much has been paid out in dividends for that Period. The fund reserve is 200 Days of Dividends, so 1 day of dividends is .5%. I have to have that discount there because, otherwise, someone could buy EXCH, get MINE and SELL, hold on for a few days of dividends, and then sell back SELL and MINE to me for the original price, thereby netting free dividends.
Yes, it seems that you've got it! It can take a while for the whole thing to click for people (myself included), but when it does, everything seems to fall into place. All credit to Deprived for this concept; I'm merely reviving it on Havelock with some changes (improvements, I believe).
Your MINE/SELL call/put example is actually a great way to think about it. In any case, there IS a perfect number / right answer about how much MINE will pay out and how much SELL will pay out.
There will always be disagreement on this future value, plus some friction due to people not understanding the concept or willing to learn about it.