Quote from: germanjew on June 07, 2014, 07:06:14 PM

Hi, I am also very new here, however I would like to give Chellger my take on the BDD Fund, please correct me where I am wrong. I think my explanation below is oversimplified, but much better than saying B.SELL is shorting B.MINE:

While you get to essentially short B.MINE with B.SELL, I wouldn't call it shorting because their prices both derive from the bitcoin difficulty and not B.MINE. Also, when shorting a security you can potentially lose much more than what you spent on that security, whereas with B.SELL the maximum you can lose is the amount spent on the contract itself (i.e. the price at which you bought it). The nice thing that B.SELL provides is hedging your SHA256/BTC mining activities against difficulty increases.

Think of it this way, the sum of what B.SELL and B.MINE can payout (in total) is equal to the amount raised by the BDD fund from selling B.EXCH contracts. Buying the contracts at the correct prices is therefore your main concern as you can then get a bigger piece of the pie.

If you really want to delve in deep, consider learning more about derivative pricing models, as both B.MINE and B.SELL derive their value from mining difficulty.

That's very true, germanjew - the maximum downside is the total of the funds ventured. It's not a true short since you can only lose what you've put up.

You're correct that, at it's core, B.EXCH is purchased by someone and its parts (B.MINE and B.SELL) receive back nearly all of that value - determining how much each share will be paid out via dividends is the trick.

Determining the dividend payouts requires calculating how much a 5GH/s miner might expect to generate over its life. I advise everyone to read the overview and then read it again; it's a concept that takes more than one read-through to understand. If anyone has any specific questions about how the derivative works after that, I'm happy to help.