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Guys, if you are seriously thinking of using this platform, and even forget security from a technical aspect for a moment, there are a lot of very basic trading

Guys, if you are seriously thinking of using this platform, and even forget security from a technical aspect for a moment, there are a lot of very basic trading and social-engineering questions that need to be answer by zhoutong and bitcoinica before you deposit money into this account: 1) Who are zhoutong and bitoinica? Where is this based out of? I went through the web site and it doesn't seem to mention this. Is he really who he says he is? A 17-year old who built a sophisticated web site in 1 week by himself? Why did he say that he built the web site himself, but in the blog of bitcoinica, it's written as "we"? 2) Why do they deposit everyone's money into a single account? Who owns this account? How do they keep track of everyone's money? REAL brokerages have people's money in segregated accounts, meaning that the brokerage firm CAN'T TOUCH THE MONEY even if they collapse. How do we know they won't one day turn around, transfer the money to China or Singapore and disappear? How do we know this isn't another Madoff case? 3) How the heck does he afford to give everyone 5:1 margin? The simple story of using the money that no one else is using doesn't fly, it's not that easy. You need to have excess capital in order to do this. What is bitcoinica's excess capital? 4) They do NOTHING to ensure counter-party risk!! What if Bitcoinica implodes and goes under? Again, what is their excess capital to ensure that customers don't share in any losses? If they suffer a catastrophic loss from bad trades, is that loss divided amongst all the customers? I'm not saying they are crooks. I'm very interested in their platform, because I do a lot of algorithmic trading, so I'm familiar with this. I just want answers to these very basic questions before I deposit any money into this thing.

zhoutong 15y ago
I understand your concerns. Many people coming from Forex trading have such concerns. But the Bitcoin market is very different. Many people choose to be anonymous. There're currently no explicit laws regulating Bitcoin transactions and Bitcoin trading. All these points apply to Mt. Gox or TradeHill as well. There are no law restrictions on this kind of trading. I use "we" because I represent my company xWaylab Inc. (registered in US). I'm the sole developer and project manager but I'm not the only shareholder. For margin part, since we offer short selling, generally the combined portfolio is quite balanced. Currently our finances are quite healthy. We will never bet against our clients. I don't really hope anyone will set a double standard in the Bitcoin market. I think everyone is a fair player. You can choose not to trust Bitcoinica if you're skeptical. But a few dozens of people have chosen to give us a try and they have deposited thousands and thousands of dollars. Believe it or not, Bitcoinica is currently the third largest Bitcoin Trading Platform, following Mt. Gox and TradeHill. (8000+ BTC traded within merely 48 hours of establishment.) I still believe in time. If Bitcoinica is still around after a few months, maybe there will be more people joining in.
- steve8918 15y ago
  You didn't answer the vast majority of my questions, even though they were pretty straightforward. If you want people to deposit money into your account, then they should have faith that you actually exist and that you will hold up your end of the transaction. This, in financial parlance, is known as counter-party risk. Will the counter-party to my transaction actually be able to guarantee their side of the deal? Who are you? So far, you are a 17 year old Singaporean, who registered a business in Delaware, when you were 16? How is that possible? Right now, to me there is a severe degree of counter party risk. If you stole everyone's money (not saying you will), and then I complained to the FBI, they would look at me and say "Are you stupid? You deposited money into someone's bank account 10,000 miles away, and you actually expected the money back?" "A few dozen people have deposited thousands and thousands of dollars." And yet you have enough money to offer 5:1 margin? If there are 50 people, if all accounts are of roughly equal size, then it takes just 10 people to max out their margin and the entire Bitcoinica has run out of money!!! But assuming a normal distribution of account sizes, and assuming that the ones who deposited the most are the most aggressive, then you would need much less than 10 to max out before you ran out of money. There are better ways to set up this company so that you can protect yourself and your customers. Even more surprisingly, you offer no protections to YOURSELF. This is a huge red flag. Why would you not be afraid of suffering consequences if bitcoinica melts down or if there is a huge fraud? From what I gather, you are asking people to deposit money directly into your account (another huge red flag). You are supposed to be held accountable, if there is fraud or if there is a catastrophic loss to bitcoinica, but you're not protecting yourself, at all. The only way is by remaining highly anonymous, and by living in a foreign country that could be outside the reaches of US law. If you cared about protecting your customers, you would set up a system of segregated accounts, so that one customer can't destroy people's accounts. I think bitcoinica is a fantastic piece of coding, it's slick and seems to work nicely. But in order to protect yourself, I would return everyone's money and just allow simulated trading. Even as a simulated trading account, bitcoinica is still a fantastic accomplishment. Then, once you have created a way to protect yourself and protect customers financially, by using things like segregated accounts, and by going through proper channels, etc, then it might be okay to start accepting real money.
- Estragon 15y ago
veyron 15y ago
To answer these questions for the US futures market: The options clearing corporation [OCC] is the organization that performs clearing and alleviates most of the counterparty risk. They demand deposits from various member companies to ensure that, if a member defaults, at least the other parties get their payments. Organizations such as SIPC offer protection for investors in the case that brokerage firms belly up. They are government-backed. It's hard for a private company to do that. Leverage involves a contractual agrement which generally involves some sort of clause that allows the broker to go after your company assets, and sometimes even your personal assets, if you blow up. And the brokers generally have enough cash to provide necessary float (in case of a failure to meet requirements). zhoutong, it's useful to study how existing futures markets work, and try to see how you can replicate some of those key facets (like counterparty risk)

zhoutong 15y ago

I understand your concerns. Many people coming from Forex trading have such concerns. But the Bitcoin market is very different. Many people choose to be anonymous. There're currently no explicit laws regulating Bitcoin transactions and Bitcoin trading. All these points apply to Mt. Gox or TradeHill as well. There are no law restrictions on this kind of trading. I use "we" because I represent my company xWaylab Inc. (registered in US). I'm the sole developer and project manager but I'm not the only shareholder. For margin part, since we offer short selling, generally the combined portfolio is quite balanced. Currently our finances are quite healthy. We will never bet against our clients. I don't really hope anyone will set a double standard in the Bitcoin market. I think everyone is a fair player. You can choose not to trust Bitcoinica if you're skeptical. But a few dozens of people have chosen to give us a try and they have deposited thousands and thousands of dollars. Believe it or not, Bitcoinica is currently the third largest Bitcoin Trading Platform, following Mt. Gox and TradeHill. (8000+ BTC traded within merely 48 hours of establishment.) I still believe in time. If Bitcoinica is still around after a few months, maybe there will be more people joining in.

steve8918 15y ago
You didn't answer the vast majority of my questions, even though they were pretty straightforward. If you want people to deposit money into your account, then they should have faith that you actually exist and that you will hold up your end of the transaction. This, in financial parlance, is known as counter-party risk. Will the counter-party to my transaction actually be able to guarantee their side of the deal? Who are you? So far, you are a 17 year old Singaporean, who registered a business in Delaware, when you were 16? How is that possible? Right now, to me there is a severe degree of counter party risk. If you stole everyone's money (not saying you will), and then I complained to the FBI, they would look at me and say "Are you stupid? You deposited money into someone's bank account 10,000 miles away, and you actually expected the money back?" "A few dozen people have deposited thousands and thousands of dollars." And yet you have enough money to offer 5:1 margin? If there are 50 people, if all accounts are of roughly equal size, then it takes just 10 people to max out their margin and the entire Bitcoinica has run out of money!!! But assuming a normal distribution of account sizes, and assuming that the ones who deposited the most are the most aggressive, then you would need much less than 10 to max out before you ran out of money. There are better ways to set up this company so that you can protect yourself and your customers. Even more surprisingly, you offer no protections to YOURSELF. This is a huge red flag. Why would you not be afraid of suffering consequences if bitcoinica melts down or if there is a huge fraud? From what I gather, you are asking people to deposit money directly into your account (another huge red flag). You are supposed to be held accountable, if there is fraud or if there is a catastrophic loss to bitcoinica, but you're not protecting yourself, at all. The only way is by remaining highly anonymous, and by living in a foreign country that could be outside the reaches of US law. If you cared about protecting your customers, you would set up a system of segregated accounts, so that one customer can't destroy people's accounts. I think bitcoinica is a fantastic piece of coding, it's slick and seems to work nicely. But in order to protect yourself, I would return everyone's money and just allow simulated trading. Even as a simulated trading account, bitcoinica is still a fantastic accomplishment. Then, once you have created a way to protect yourself and protect customers financially, by using things like segregated accounts, and by going through proper channels, etc, then it might be okay to start accepting real money.
Estragon 15y ago

veyron 15y ago

To answer these questions for the US futures market: The options clearing corporation [OCC] is the organization that performs clearing and alleviates most of the counterparty risk. They demand deposits from various member companies to ensure that, if a member defaults, at least the other parties get their payments. Organizations such as SIPC offer protection for investors in the case that brokerage firms belly up. They are government-backed. It's hard for a private company to do that. Leverage involves a contractual agrement which generally involves some sort of clause that allows the broker to go after your company assets, and sometimes even your personal assets, if you blow up. And the brokers generally have enough cash to provide necessary float (in case of a failure to meet requirements). zhoutong, it's useful to study how existing futures markets work, and try to see how you can replicate some of those key facets (like counterparty risk)