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Offline toknormal

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Can't Banks do Bitshares ?
« on: November 16, 2014, 08:33:31 PM »

Hi !

Newb here. I'm a seasoned crypto trader and techy for whom the penny recently dropped re. Bitshares. I've been aware of it for a while but haven't properly had the time to learn about how it works and te differences form a regular crypto.

For the last week, however I've immersed myself  in Bitshares philosophy and techology. First of all, I'd like to say that I think this is one of the most elegant and exciting inovations in crypto I've ever seen, specially from a commercial point of view. I was in the shower the other day thinking through the mechanism of how Bit-USD gets created by matching shorts with longs etc and the lightbulb suddenly went on. I got one of those shivers up my spine where you suddenly see a 1000 mile long road ahead of you.

It's great the way it's a self-balancing system where people who are looking for trading stability are matched with speculators in such a constructive way. I totally get the various aspects of it - collateralised asset vs the underlying shares etc and how that's a potentially virtuous cycle so I don't need to be sold on the concept at all and have already put a few of my BTC into this to get started.

However, I've got some questions which I'd like to ask if anyone was interested - both technical stuff and business model stuff.

First up, I've been looking for downsides to this which are very difficult to see but I do see one. That is that Bitshares biggest innovation is also its biggest weakness - the reliance on the adoption of collateralised assets and branding thereof to give value to the underlying shares. With Bitcoin we are actually trading the "physical gold" as opposed to the paper gold. That's what makes Bitcoin's blockchain have value - it's the currency and collateral rolled into one. No bank or payment processor can replicate bitcoin because they can't reproduce neither the hashpower or the network effect overnight no matter how much money they put into it.

On the other hand, I'm thinking (perhaps wrongly) that they can probably quite easily set up a Bitshares type blockchain and prime it with their own collateral to kickstart a branded collateralised asset (such as "BitVisa-USD or something). Since adopters of collateralised assets are only interested in "a" Bit-USD rather than "the" Bit-USD why would they adopt Bitshare's brand over Visa's ?

This vulnerability to concept-copying is compounded it seems to me by the POS algo. While I agree with the technical merits of this approach, POW does have one thing going for it in this respect which is that it takes time (years ?) to accumulate the hashpower that Bitcoin has. It's generally accepted that banks and big corporations cannot compete with bitcoin - it's too decentralised, to ubiquitous and too advanced (in terms of "rights of passage", confidence etc). But anyone can setup a POS network in a couple of hours and it doesn't need hashpower.

So this is where I see the problem. By being so like a bank in its operating principle it kind of plays into their hands in terms of copyability (at least I see the concept as copyable given that Banks love proxymoney).

If anyone would like to address this issue I'd love to hear what people have to say about it.

Thanks !
« Last Edit: November 16, 2014, 08:35:40 PM by toknormal »

Offline toast

Re: Can't Banks do Bitshares ?
« Reply #1 on: November 16, 2014, 08:40:36 PM »
I was following you until you said Bitcoin is not vulnerable to copycats because there's a lot of hash power behind it already. What? In any case, the competitor has to make a new chain. The mining is not what gives the BTC value. All the hash power does is protect you against modifications of history on a *particular* chain, which POS algorithms are already better than POW for.

Copycats are a threat and anybody can make bitassets backed by "better" collateral. That might make that network feel safer and be more popular, but what BTS is competing on is the "intrinsic" value of BTS as stake in *this* network of bitUSD's. In other words, BTS actually has to provide more value than its competitors! Go figure...
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Offline toknormal

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Re: Can't Banks do Bitshares ?
« Reply #2 on: November 16, 2014, 10:24:10 PM »
I was following you until you said Bitcoin is not vulnerable to copycats because there's a lot of hash power behind it already.

Hi, thanks for the reply.

I do actually see hashpower as quite significant. I realise that in theory it isn't, but in practice the difference between the Bitcoin network and any other is so colossally huge that it almost renders them non existent by comparison through sheer force of presence.

By all accounts we should not be watching video, playing games, listening to music or chatting over http protocol because back in the early nineties it was "condemned" as being wildly unsuitable for any of these media. And yet here we are. It just was "made to work" because the protocol had become too prolific  and had gathered enough network effect to make it commercially viable to work round the problems without going back to the drawing board. Now that I've watched Bitcoin see of a flotilla of 1000 competitors, many of them with vastly superior tech, I suspect it is on its way to the same destiny whatever theoretical issues people see with it.

All the same, the Bitshares concept is unique. I can see it being an essential element in a crypto-economy with its ability to address directly the need for exchange rate stability. I'm just not sure that it isn't more like a business than a crypto currency in the sense that the concept can be easily produced, owned and branded by existing corporate dominant entities.

Your remark that "BTS actually has to provide more value than its competitors" kind of endorses that perspective - i.e. that it's a question of branding and that we do not have something unique here. I actually don't think that its a question of providing more value than competitors because the value is academic and deterministic based on algorithms. I think it's a question of adoption.

The market is the commercial trading and retail world. The thing I like about this concept is that (for example) retailers could be easily convinced to accept Bit-USD and hold it since it has a guaranteed exchangeability with the dollar (as long as the peg works - lets see). The more Bit-USD (and other DACs) gets borrowed into existence, the more value the underlying collateral will have.

So it's the BitUSD adoption curve that will determine the BTS value (as I understand it), not the other way around. Traders are also not going to care much which "brand" of Bit-USD they adopt. It won't be according to "which network provides most value" it will be which provides them most exposure to their own potential customer base.

That's where I see the problem.

Visa just have to bring out a "Bit-USD" type product and those potential adopters have then got instance exposure due to Visa's vast brand recognition, thereby driving adoption through the roof overnight with appropriate implications for the underlying collateral of their brand of "Bitshares" network.

« Last Edit: November 16, 2014, 10:29:48 PM by toknormal »

Offline toast

Re: Can't Banks do Bitshares ?
« Reply #3 on: November 16, 2014, 10:43:41 PM »
Quote
Visa just have to bring out a "Bit-USD" type product and those potential adopters have then got instance exposure due to Visa's vast brand recognition, thereby driving adoption through the roof overnight with appropriate implications for the underlying collateral of their brand of "Bitshares" network.

That's what I was trying to say, this is possible and inevitable. We are on a time limit.
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Offline toknormal

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Re: Can't Banks do Bitshares ?
« Reply #4 on: November 16, 2014, 10:47:32 PM »

ok - thanks.

Much appreciate your replies.

Offline jsidhu

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Re: Can't Banks do Bitshares ?
« Reply #5 on: November 16, 2014, 11:52:15 PM »
U can always create a copycat of bitcoin and merge mine with with btc or ltc.. or the largest network at the time. Your hash power is now up there and u can copy anything u want about it.

The intrinsic value cannot be copied the idea is to align all projects in bts for one rocket ship to get a network effect going. Once achieved it cant be copied.
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Offline toknormal

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Re: Can't Banks do Bitshares ?
« Reply #6 on: November 17, 2014, 12:34:52 AM »
Once achieved it cant be copied.

I think that tripped off your tongue a bit to easily there  ;)

As far as I can see it most certainly can be copied and will be if it looks like having the slightest chance of adoption. By "adoption" what I mean is this type of scenario:

Lets say retailers get interested (due to an attractive package of low volatility of Bit-USD combined with the advantages of blockchain approach - low cost, speed etc). We are the "David" and the challenge for the Goliath is to match that package - low volatility combined with blockchain approach.

Because Bit-USD is a financial derivative (unlike Bitcoin) it's within the capacity of the big payment processors to reproduce it. We've basically come full circle. I'm not saying that the Bitshares network is copyable but the service / incentive it provides to the market to trade and hold the collateralised assets is as far as I can see.

I realise I'm painting a slightly negative scenario. It could also be a great success - the market is so huge that Bitshares could become absolutely massive and still only capture a small portion of the USD market. There are also other scenarios I see involving collapse of the dollar etc. There are lots of ways this could go.

But I'd be interested to know how far the adoption scenario has been thought through. We're talking about taking market share away from some of the most powerful and commercially aggressive co-orporations in the world. That fact isn't adequately addressed by simply saying "Once achieved it cant be copied".

P.S. The reason the "retail adoption" part is important I think is that initially I could see where the incentive is for traders to take short positions against the dollar in the BTS / BitUSD market, but I couldn't see where the long positions would come from. Then I suddenly realised that the whole commercial world ALREADY IS long the dollar of course. They need to be for commercial trade.

So that group only needs to be convinced to switch from trading / holding commercial bank USD to BitUSD which is within the realms of possibility given that it has a huge USP in removing the counterparty from the transaction and therefore most of the fees and clearing time.

So the business model is very compelling. However the implications of that is that is that it will engender competition and outright hostile action if it develops into the slightest threat. Bit USD is a brand that can be reproduced many times - that's my problem with it (and without the collateralised assets being created and adopted widespread, BTS looses its value).

« Last Edit: November 17, 2014, 12:58:34 AM by toknormal »

Offline starspirit

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Re: Can't Banks do Bitshares ?
« Reply #7 on: November 17, 2014, 01:16:13 AM »
toknormal, there is a related thread I launched a month ago asking the same question. https://bitsharestalk.org/index.php?topic=10123.msg132088#msg132088
It was also brushed off with a lack of response. Is there complacency on this competitive threat?

Offline CLains

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Re: Can't Banks do Bitshares ?
« Reply #8 on: November 17, 2014, 01:18:25 AM »
It can certainly be copied, but the security of bitUSD rests on security of DPOS, which in turn rests on the value of the stake: Delegates are "backed" by the value of the stake that votes for them. Of course we are only at 30 mill now, so any bank could come in and crush us still ;)

What prevents this from happening is what prevented anyone from overtaking Bitcoin. They don't know what hits them before they find themselves spinning in quicksand.. And then it is too late.

Offline BTSdac

Re: Can't Banks do Bitshares ?
« Reply #9 on: November 17, 2014, 01:36:30 AM »
yes  you are right , other alt-coin cannot copy BTC, but the reason is not the hash power but the network effect.
resume someone create a Pooled mining, non-fee, even give 15% additional income than BTC.   and he would get much hash power than BTC, but why  no one succeed, so hash power is`nt the point
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Offline toknormal

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Re: Can't Banks do Bitshares ?
« Reply #10 on: November 17, 2014, 01:56:29 AM »
yes  you are right , other alt-coin cannot copy BTC, but the reason is not the hash power but the network effect.

To me, hashpower IS network effect - or at least part of it. I don't see how you can separate the two.

If people are investing a million dollars per day in INCREMENTAL mining power for a particular cryptocurrency as opposed to others, then that's one hell of a a significant phenomenon. You may say it's money down the drain but markets are a relative thing - it clearly isn't "money down the drain" for those who are spending it and it's their opinion that matters because they are the market. If there was no value for them in what they're mining then they wouldn't be spending that money.

Not only that, there is a correlation between Bitcoin adoption and hashpower.

I don't see any value in multi-billion dollar defence programs but others do, so by definition there's a market.

It can certainly be copied, but the security of bitUSD rests on security of DPOS, which in turn rests on the value of the stake: Delegates are "backed" by the value of the stake that votes for them. Of course we are only at 30 mill now, so any bank could come in and crush us still ;)

Thanks ! I'll have to go away and think about that. Delegates and voting is something that I need to look into more. Maybe that's the answer - that the asset branding isn't as centralised as it appears.

toknormal, there is a related thread I launched a month ago asking the same question. https://bitsharestalk.org/index.php?topic=10123.msg132088#msg132088
It was also brushed off with a lack of response. Is there complacency on this competitive threat?

Just read it. You read my mind :

Thanks for all the obliging responses - very useful ! Will digest !

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Re: Can't Banks do Bitshares ?
« Reply #11 on: November 17, 2014, 02:27:25 AM »
toats, i'm assuming that when you say a "better" collateral you mean one that is redeemable for a tangible asset that a bank possess. the advantage of bts is that its has no "intrinsic" value, so it can absorb an infinite amount of value into the system. if a bank used its own shares as collateral then the cumulative value of the network would be confined to the "intrinsic" value of those shares.

therefore a decentralized network with an arbitrary collateral such as bts can exceed the value of a system with a "better" collateral. as i have said before i can see the market capitalization of bts exceeding a trillion dollars because thats how much value the network would have to store to make the network ubiquitous amongst the global community of savers and institutional investors.

on the other hand the legal implications of bitUSD, at least as it is implemented on the system currently, should deter any corporation from competing in the space. i'm not a lawyer, but bitUSD, if issued or collateralized by a centralized company, would constitute a bear bond, which is illegal. this is why you have to verify your identity with gateways on the ripple protocol.

Offline jsidhu

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Re: Can't Banks do Bitshares ?
« Reply #12 on: November 17, 2014, 04:00:17 AM »
Once achieved it cant be copied.

I think that tripped off your tongue a bit to easily there  ;)

As far as I can see it most certainly can be copied and will be if it looks like having the slightest chance of adoption. By "adoption" what I mean is this type of scenario:

Lets say retailers get interested (due to an attractive package of low volatility of Bit-USD combined with the advantages of blockchain approach - low cost, speed etc). We are the "David" and the challenge for the Goliath is to match that package - low volatility combined with blockchain approach.

Because Bit-USD is a financial derivative (unlike Bitcoin) it's within the capacity of the big payment processors to reproduce it. We've basically come full circle. I'm not saying that the Bitshares network is copyable but the service / incentive it provides to the market to trade and hold the collateralised assets is as far as I can see.

I realise I'm painting a slightly negative scenario. It could also be a great success - the market is so huge that Bitshares could become absolutely massive and still only capture a small portion of the USD market. There are also other scenarios I see involving collapse of the dollar etc. There are lots of ways this could go.

But I'd be interested to know how far the adoption scenario has been thought through. We're talking about taking market share away from some of the most powerful and commercially aggressive co-orporations in the world. That fact isn't adequately addressed by simply saying "Once achieved it cant be copied".

P.S. The reason the "retail adoption" part is important I think is that initially I could see where the incentive is for traders to take short positions against the dollar in the BTS / BitUSD market, but I couldn't see where the long positions would come from. Then I suddenly realised that the whole commercial world ALREADY IS long the dollar of course. They need to be for commercial trade.

So that group only needs to be convinced to switch from trading / holding commercial bank USD to BitUSD which is within the realms of possibility given that it has a huge USP in removing the counterparty from the transaction and therefore most of the fees and clearing time.

So the business model is very compelling. However the implications of that is that is that it will engender competition and outright hostile action if it develops into the slightest threat. Bit USD is a brand that can be reproduced many times - that's my problem with it (and without the collateralised assets being created and adopted widespread, BTS looses its value).
What i meant was if someone was to try to copy the idea and rebrand it after bts has already achieved network effect it will be that much harder financially to compete.. Although its not impossible if banks see the value and go for it... But id also think that it would help bts knowing a large corporation decided to join instead of fight or run
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Offline starspirit

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Re: Can't Banks do Bitshares ?
« Reply #13 on: November 17, 2014, 04:09:17 AM »
I just thought there may be another reason why banks would be reluctant to do this until "the last minute". Banks earn good income from deposit account fees, withdrawal fees, checking fees, ATM fees, and the list goes on. As a general practice incumbent institutions are loathe to cannibalise their own businesses, and that often inhibits innovation. By introducing their own bitUSD version, they would need to produce a product that retains a similar level of income for them. This would be more costly than bitUSD for users. I could imagine many of their customers would make this migration for the added payment convenience that digital currency would offer them compared to their traditional services. But on cost, I think bitUSD could still hold the upper hand and grow its market share, on the condition that it proves itself to be just as secure. I could also imagine the banks using all their branding power to argue why low-cost p2p platforms are services not to be trusted.

Possibly when banks realise "the gig is up", they will be forced to make a more drastic change, and the question is by that time have they lost the battle for the customer or not?



Offline donkeypong

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Re: Can't Banks do Bitshares ?
« Reply #14 on: November 17, 2014, 04:13:37 AM »
Hi !

Newb here. I'm a seasoned crypto trader and techy for whom the penny recently dropped re. Bitshares. I've been aware of it for a while but haven't properly had the time to learn about how it works and te differences form a regular crypto.

For the last week, however I've immersed myself  in Bitshares philosophy and techology. First of all, I'd like to say that I think this is one of the most elegant and exciting inovations in crypto I've ever seen, specially from a commercial point of view. I was in the shower the other day thinking through the mechanism of how Bit-USD gets created by matching shorts with longs etc and the lightbulb suddenly went on. I got one of those shivers up my spine where you suddenly see a 1000 mile long road ahead of you.

It's great the way it's a self-balancing system where people who are looking for trading stability are matched with speculators in such a constructive way. I totally get the various aspects of it - collateralised asset vs the underlying shares etc and how that's a potentially virtuous cycle so I don't need to be sold on the concept at all and have already put a few of my BTC into this to get started.

However, I've got some questions which I'd like to ask if anyone was interested - both technical stuff and business model stuff.

First up, I've been looking for downsides to this which are very difficult to see but I do see one. That is that Bitshares biggest innovation is also its biggest weakness - the reliance on the adoption of collateralised assets and branding thereof to give value to the underlying shares. With Bitcoin we are actually trading the "physical gold" as opposed to the paper gold. That's what makes Bitcoin's blockchain have value - it's the currency and collateral rolled into one. No bank or payment processor can replicate bitcoin because they can't reproduce neither the hashpower or the network effect overnight no matter how much money they put into it.

On the other hand, I'm thinking (perhaps wrongly) that they can probably quite easily set up a Bitshares type blockchain and prime it with their own collateral to kickstart a branded collateralised asset (such as "BitVisa-USD or something). Since adopters of collateralised assets are only interested in "a" Bit-USD rather than "the" Bit-USD why would they adopt Bitshare's brand over Visa's ?

This vulnerability to concept-copying is compounded it seems to me by the POS algo. While I agree with the technical merits of this approach, POW does have one thing going for it in this respect which is that it takes time (years ?) to accumulate the hashpower that Bitcoin has. It's generally accepted that banks and big corporations cannot compete with bitcoin - it's too decentralised, to ubiquitous and too advanced (in terms of "rights of passage", confidence etc). But anyone can setup a POS network in a couple of hours and it doesn't need hashpower.

So this is where I see the problem. By being so like a bank in its operating principle it kind of plays into their hands in terms of copyability (at least I see the concept as copyable given that Banks love proxymoney).

If anyone would like to address this issue I'd love to hear what people have to say about it.

Thanks !

Welcome to BitShares! Yes, banks could copy it. Eventually, they will. But by the time they understand it, hopefully BitUSD will be established and their reaction will be to adopt it rather than fight or clone it. It will take a few billion in market cap to get banks' attention, anyway, and so if you're an investor, you're sitting pretty by the time we get that high.

Blockchain technology has a "lowest common denominator" effect. It does away with the waste and the levels of bureaucracy that add so much to the cost of everything. BitShares can move money more cheaply than anyone else can, just because there's almost no cost left in the system. PeerTracks (a.k.a. BitShares Music) could be cloned and Apple/Amazon/Google could make their own version quickly. But they'd need to charge more for it, because they have shareholders who expect a certain level of profit.

So if BitShares' 'businesses' are done well and have first mover advantage, I give us a pretty good chance. At the very least, if there eventually are a range of price option choices within this space, this could always be the discount option. But I think it can be more than that. If the share price goes up and delegates have the money to hire developers, marketers, etc., then this is going to be extremely viral and its momentum may be hard to stop. We can hope!
« Last Edit: November 17, 2014, 04:15:13 AM by donkeypong »

 

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