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Offline Black Arrow

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Dilution of Bitshares
« on: December 28, 2014, 05:56:41 AM »

I am trying to understand how share dilution works with bitshares.

With bitcoin, a new block is created on average every 10 minutes and 25 new bitcoins are created, which results in a current inflation rate of about 10%. 6 x 24 x 25 x 365 / 13,650,000 = 9.6%.

According to bitsharesblocks.com, the share supply of bitshares fluctuates. There are currently about 2.5 billion shares and the 24 hour supply change is about 50,000 which results in an inflation rate of about .7%.  50,000 x 365 /2.5 billion = .7%.

I understand how inflation works in bitcoin but I don't understand how it works in with bitshares. How are new bitshares created, where do they come from, and what is the formula that determines how many and when they are created. Also, I read somewhere that there is a hard cap of 3.5 billion bitshares.  If that is correct, where would I find the documentation for it?

Although I’m sure these questions have already been answered, I wasn’t able to find an answer that I understood in the forums, so any links would be appreciated.

Offline Ander

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Re: Dilution of Bitshares
« Reply #1 on: December 28, 2014, 06:14:33 AM »
Bitshares delegates are elected by shareholders, and they are similar to miners.  (They create the blocks, and they also supply price feeds that help the system's internal exchange function).


Delegates get paid BTS as a reward, just like bitcoin miners.

Most delegates get a reward of 1.5 BTS each time their turn comes up.  Each delegate creates 1 out of 101 blocks, so they get paid 1.5 BTS per 1010 seconds.

A few delegates are "paid delegates", who are people such as developers working for bitshares.  They are also elected by shareholders.  For example, Toast (Nikolai) was the first person to be elected as a paid delegate.

Paid delegates get 50 BTS instead of 1.5 when they create a block.  However, they are performing valuable services for bitshares such as working as a developer.  (If they werent, shareholders would not vote them into a paid position).


It is also possible for a delegate to receive partial pay (any amount lower than 50 BTS).  The pay level is set when they create the delegate, and then if voters agree, they will get voted in.  No delegate can get more than 50 BTS per block.

The maximum possible inflation would occur if voters elected 101 paid delegates at 100% pay rate of the full 50 BTS per block.  If this occurred, inflation would be about 6.3%.  At the current rate, there are less than 10 full pay delegates, plus about 90 normal delegates that get only 1.5 BTS (3% pay).  As a result, inflation is around .7% currently, which is pretty tiny.  If we got a lot more paid delegates, inflation would go up, but that would also mean that many people had been hired by bitshares to work as developers, marketers, etc, that voters trusted and chose to vote for, so if we ever have inflation in the range that bitcoin does, it would also mean we have dozens of devs working on the bitshares product.
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Offline Ander

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Re: Dilution of Bitshares
« Reply #2 on: December 28, 2014, 06:16:35 AM »
Also, I read somewhere that there is a hard cap of 3.5 billion bitshares.  If that is correct, where would I find the documentation for it?

Yes the cap is about 3.7 billion.  Every 4 years, the block reward is cut in half, just like with bitcoin.
If we elected 101 paid delegates at max rate, forever, the bitshares supply would eventually hit 3.6 billion. However, it is much more likely that the supply never goes above 3 billion.

Also, bitshares are also burned in various ways, such as for transaction fees and for registering a delegate.  Every time BTS is burned, that effectively reduces the eventual hard cap. 

Here is my post doing the math of the hard cap:
https://bitsharestalk.org/index.php?topic=11213.0
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Offline gamey

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Re: Dilution of Bitshares
« Reply #3 on: December 28, 2014, 06:23:17 AM »
If anyone cares to polish up an explanation I can put this in the wiki somewhere.  Although it became dated quite fast I think there is a lot of fundamental stuff that is valid and the out of date can be pushed off front page + noted as dated.

I can also give accounts if anyone would like to start the process.  Dan's new blog is quite useful though, so I dunno...
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Offline Black Arrow

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Re: Dilution of Bitshares
« Reply #4 on: December 28, 2014, 01:29:39 PM »
Ander,

Thank you for that very clear explanation. It is by far the best and most easily understood explanation that I have ever seen, and the whole thing makes much better sense to me now.

FWIW, I agree with gamey, that some version of this should go on the wiki.

 

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