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Offline speedy

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Idea: BitAssets could be used to insure Altcoin IOUs
« on: October 24, 2014, 12:04:46 PM »

Blockchains cannot control altcoins from other blockchains, which is why we still need to deposit altcoins at centralized exchanges to trade between them. In return the centralized exchange gives us an IOU for our deposit, and we have to trust that the exchange is honest and competent. These exchanges rarely insure their users' deposits with an equivalent value of something else, so if they do go tits up then there is no way to compensate the users.

Well here is a way to fix that, and add even more value to BitShares X.

Users of BitSharesX could register to be custodians of altcoin deposits. They would be required to hold 200% of the equivalent BitAsset to the altcoin. For example if a custodian holds 20 BitBTC, he can be trusted to hold 10 Bitcoins worth of user deposits. Once a custodian has registered that 20 BitBTC as collateral, the system can accept Bitcoin deposits directly from users. There would have to be a 3-way escrow system in the event of the custodian and depositer not agreeing.

Once a deposit has been recorded, the custodian's BitBTC is locked into the system until it is no longer required to insure against deposits. Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin. Withdrawals of Bitcoin will reduce the custodian's collateral requirements and allow them to get their BitBTC back if they wish. BitBTC is now not just a derivative, its an IOU for real Bitcoin.

This is the beautiful bit: if a custodian does mess up and lose customer deposits, his 200% BitBTC collateral can simply be claimed for compensating the Bitcoin IOU holder. BitSharesX then becomes the world's only provably insured altcoin exchange. Deposits can also be stored by multiple custodians, the more the merrier.

We could even have a frontend website similar to PeerTracks so that the user can trade altcoins without even knowing that he is actually using a blockchain.

Is this the nail in the coffin of centralized altcoin exchanges ?
« Last Edit: October 24, 2014, 12:08:35 PM by trader »

Offline matt608

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #1 on: October 24, 2014, 12:20:36 PM »
Nice idea, sounds like it could work. 

Offline luckybit

Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #2 on: October 25, 2014, 01:36:50 AM »
Blockchains cannot control altcoins from other blockchains, which is why we still need to deposit altcoins at centralized exchanges to trade between them. In return the centralized exchange gives us an IOU for our deposit, and we have to trust that the exchange is honest and competent. These exchanges rarely insure their users' deposits with an equivalent value of something else, so if they do go tits up then there is no way to compensate the users.

Well here is a way to fix that, and add even more value to BitShares X.

Users of BitSharesX could register to be custodians of altcoin deposits. They would be required to hold 200% of the equivalent BitAsset to the altcoin. For example if a custodian holds 20 BitBTC, he can be trusted to hold 10 Bitcoins worth of user deposits. Once a custodian has registered that 20 BitBTC as collateral, the system can accept Bitcoin deposits directly from users. There would have to be a 3-way escrow system in the event of the custodian and depositer not agreeing.

Once a deposit has been recorded, the custodian's BitBTC is locked into the system until it is no longer required to insure against deposits. Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin. Withdrawals of Bitcoin will reduce the custodian's collateral requirements and allow them to get their BitBTC back if they wish. BitBTC is now not just a derivative, its an IOU for real Bitcoin.

This is the beautiful bit: if a custodian does mess up and lose customer deposits, his 200% BitBTC collateral can simply be claimed for compensating the Bitcoin IOU holder. BitSharesX then becomes the world's only provably insured altcoin exchange. Deposits can also be stored by multiple custodians, the more the merrier.

We could even have a frontend website similar to PeerTracks so that the user can trade altcoins without even knowing that he is actually using a blockchain.

Is this the nail in the coffin of centralized altcoin exchanges ?


How about this enhancement to the idea. We start our own centralized exchange that we all own. We use the Bitshares Cooperative to share dividends in the centralized exchange with members of the cooperative.

We could call it the Bitshares Cooperative Exchange.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline donkeypong

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #3 on: October 25, 2014, 02:59:43 AM »
Fascinating. What's in it for the custodian? I assume the exchange would be decentralized, so anyone could perform this function. There would need to be some incentive for doing so, striking a tight balance between profitability for the custodian and affordability for the user.

Offline starspirit

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #4 on: October 25, 2014, 04:02:35 AM »
Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin.
Would you explain this bit? Are you saying that any holders of BitBTC, who have not made real BTC deposits but maybe just bought with BTS, can decide to redeem for the real bitcoin that has been placed for safe-keeping by depositors? How will the depositors be repaid? I'm clearly missing something fundamental about the idea - sorry.

Offline xeroc

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #5 on: October 25, 2014, 11:08:00 AM »
How about this enhancement to the idea. We start our own centralized exchange that we all own. We use the Bitshares Cooperative to share dividends in the centralized exchange with members of the cooperative.

We could call it the Bitshares Cooperative Exchange.
wow .. sure the content is well known to at least most of this community .. but the wording is so amazing!!

It reminds me of why I invested 1BTC in just-dice as part of the "house" .. getting 1% (on average) after plenty of rolls ..
but THIS really needs to open the eyes of everyone in crypto currencies!

paging reddit task-force!!

//edit: it makes soooo much sense .. bitBTC is nothing more than BTC in cryptsy .. EXCEPT you own the private key!
holy .. that message opens eyes!

it was all clear to me .. just some of the connections were missing!!
we should market this to the crypto masses exactly like that!

+5% +5% +5% +5%
« Last Edit: October 25, 2014, 11:09:41 AM by xeroc »
Give BitShares a try! Use the http://testnet.bitshares.eu provided by http://bitshares.eu powered by ChainSquad GmbH

Offline speedy

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #6 on: October 25, 2014, 11:30:50 AM »
Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin.
Would you explain this bit? Are you saying that any holders of BitBTC, who have not made real BTC deposits but maybe just bought with BTS, can decide to redeem for the real bitcoin that has been placed for safe-keeping by depositors? How will the depositors be repaid? I'm clearly missing something fundamental about the idea - sorry.

Yes anyone with BitBTC can redeem for real BTC as long as there are custodians who are holding enough BTC. This would not be the case at the beginning, because custodians need to buy up a 200% reserve of BitBTC and lock it first before they can be trusted.

Holders of BitBTC could register a withdrawal on the blockchain, which decides which of the currently active custodians is responsible for fulfilling that withdrawal. He could be payed a fee for his services. If the user didnt get his withdrawal successfully, it would be up to the delegates to make an escrow-type decision and fire the custodian, taking his 200% BitBTC, which would be given to the withdrawal user.

Anyway this is just an idea for how a truly decentralized altcoin exchange could work. It would be interesting to see what Bytemaster thinks of it.

Offline starspirit

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #7 on: October 26, 2014, 12:04:35 AM »
Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin.
Would you explain this bit? Are you saying that any holders of BitBTC, who have not made real BTC deposits but maybe just bought with BTS, can decide to redeem for the real bitcoin that has been placed for safe-keeping by depositors? How will the depositors be repaid? I'm clearly missing something fundamental about the idea - sorry.

Yes anyone with BitBTC can redeem for real BTC as long as there are custodians who are holding enough BTC. This would not be the case at the beginning, because custodians need to buy up a 200% reserve of BitBTC and lock it first before they can be trusted.

Holders of BitBTC could register a withdrawal on the blockchain, which decides which of the currently active custodians is responsible for fulfilling that withdrawal. He could be payed a fee for his services. If the user didnt get his withdrawal successfully, it would be up to the delegates to make an escrow-type decision and fire the custodian, taking his 200% BitBTC, which would be given to the withdrawal user.

Anyway this is just an idea for how a truly decentralized altcoin exchange could work. It would be interesting to see what Bytemaster thinks of it.
So if I owned 1 BitBTC and wanted to redeem it for 1 BTC, and the custodian failed to fulfil this, I would receive 2 BitBTC?
And likewise if the BTC depositor wanted to reclaim their 1 BTC, and the custodian failed to deliver this, they would receive 2 BitBTC?

Offline luckybit

Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #8 on: October 26, 2014, 12:21:40 AM »
How about this enhancement to the idea. We start our own centralized exchange that we all own. We use the Bitshares Cooperative to share dividends in the centralized exchange with members of the cooperative.

We could call it the Bitshares Cooperative Exchange.
wow .. sure the content is well known to at least most of this community .. but the wording is so amazing!!

It reminds me of why I invested 1BTC in just-dice as part of the "house" .. getting 1% (on average) after plenty of rolls ..
but THIS really needs to open the eyes of everyone in crypto currencies!

paging reddit task-force!!

//edit: it makes soooo much sense .. bitBTC is nothing more than BTC in cryptsy .. EXCEPT you own the private key!
holy .. that message opens eyes!

it was all clear to me .. just some of the connections were missing!!
we should market this to the crypto masses exactly like that!

+5% +5% +5% +5%

First we need a Bitshares Cooperative. Once we have that then we can have a Bitshares Cooperative Exchange as a department of the Bitshares Cooperative.

We have all the technology to make it global from the onset. We could then build something out like these examples:

https://en.wikipedia.org/wiki/The_Co-operative_Group

Quote
A Co-operative Wholesale Society, or CWS, is a form of Co-operative Federation (that is, a Co-operative in which all the members are Co-operatives), in this case, the members are usually Consumers' Co-operatives. According to Co-operative economist Charles Gide, the aim of a Co-operative Wholesale Society is to arrange “bulk purchases, and, if possible, organise production.”[1] In other words, a Co-operative Wholesale Society is a form of Federal Co-operative through which Consumers' Co-operatives can collectively purchase goods at wholesale prices, and in some cases collectively own factories or farms.
https://en.wikipedia.org/wiki/Co-operative_Wholesale_Society

By being members of the Bitshares Cooperative we could get physical world benefits. We could pass the dividends to each member. We could sell "digital gift certificates" to the outside world and that would be a way to bring their fiat into the Bitshares ecosystem. As long as we have wholesale production capability we'd also have an easy time setting up retail cooperatives like this example:
Quote
The John Lewis Partnership is an employee-owned UK company which operates John Lewis department stores, Waitrose supermarkets and some other services. The company is owned by a trust on behalf of all its employees — known as Partners – who have a say in the running of the business and receive a share of annual profits, which is usually a significant addition to their salary. The group is the third largest UK private company in the Sunday Times Top Track 100 for 2010.[4] Additionally, John Lewis also has the distinction of being UK's best high-street website after beating M&S in October 2010.[5] The chain's image is upmarket, and it appeals strongly to middle- and upper-class shoppers. Recently, however, John Lewis has broadened its marketing strategy towards all types of buyers, with the introduction of the 'Value' range to John Lewis and the 'Essential' range to Waitrose, and the expansion of the business.
https://en.wikipedia.org/wiki/John_Lewis_Partnership

I'm trying to relay a big picture here. If the idea is to consolidate for "network effects" then why not take it all the way? If we are going to take it all the way then why not have cooperatives in the physical world which can allow us to have legal retail front ends to our DACs which exist in the digital/virtual world?

Every BTS individual shareholder could go to the Bitshares Cooperative to verify their legal identity. Once they do this then they'd immediately become a member of the legally operated Bitshares Cooperative. This Cooperative could form partnerships with any of the legal entities in the public/private sector and then pass dividends to the members. Members could receive rebates, gift cards, or anything else, so the idea is that if you have all these legal tools why not use them?? You can't do everything on the blockchain so if you want to get serious then think outside the box.



« Last Edit: October 26, 2014, 12:37:09 AM by luckybit »
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Offline luckybit

Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #9 on: October 26, 2014, 12:32:01 AM »
Users who own BitBTC can request that it be redeemed in return for a withdrawal of real Bitcoin.
Would you explain this bit? Are you saying that any holders of BitBTC, who have not made real BTC deposits but maybe just bought with BTS, can decide to redeem for the real bitcoin that has been placed for safe-keeping by depositors? How will the depositors be repaid? I'm clearly missing something fundamental about the idea - sorry.

Yes anyone with BitBTC can redeem for real BTC as long as there are custodians who are holding enough BTC. This would not be the case at the beginning, because custodians need to buy up a 200% reserve of BitBTC and lock it first before they can be trusted.

Holders of BitBTC could register a withdrawal on the blockchain, which decides which of the currently active custodians is responsible for fulfilling that withdrawal. He could be payed a fee for his services. If the user didnt get his withdrawal successfully, it would be up to the delegates to make an escrow-type decision and fire the custodian, taking his 200% BitBTC, which would be given to the withdrawal user.

Anyway this is just an idea for how a truly decentralized altcoin exchange could work. It would be interesting to see what Bytemaster thinks of it.
So if I owned 1 BitBTC and wanted to redeem it for 1 BTC, and the custodian failed to fulfil this, I would receive 2 BitBTC?
And likewise if the BTC depositor wanted to reclaim their 1 BTC, and the custodian failed to deliver this, they would receive 2 BitBTC?

With Escrow a truly decentralized crypto-to-crypto exchange is easy. The problem is if people want to buy fiat-to-crypto. You need a Bitshares Cooperative Exchange so people can buy anything with crypto. You simply turn physical objects into digital smart property and in theory you could sell a house as a token on Bitshares Cooperative Exchange powered by Bitshares X or Bitshares ME. The Bitshares Cooperative exchange would make sure that the people doing this care about their reputation by rewarding people with Patronage Points for giving donations to others or it can reward people points for loyalty or anything else.

As long as you have a centralized Bitshares Cooperative Exchange so that all the KYC and AML stuff can be followed then the sky is the limit. The question is how much would it cost to set it up? That part is unknown at this time until the BitLicense is finalized.
https://metaexchange.info | Bitcoin<->Altcoin exchange | Instant | Safe | Low spreads

Offline donkeypong

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Re: Idea: BitAssets could be used to insure Altcoin IOUs
« Reply #10 on: October 26, 2014, 02:42:32 AM »
Heads up: Blackhalo looking to allow Bitcoin-backing for Blackcoin:

http://www.reddit.com/r/blackcoin/comments/2kbjt8/backing_blackcoin_with_bitcoin_it_can_be_done/

 

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