Author [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] [EN] [ZH] [ES] [PT] [IT] [DE] [FR] [NL] [TR] [SR] [AR] [RU] Topic: Does BTS burning represent a form of income for BTS?  (Read 678 times)

0 Members and 1 Guest are viewing this topic.

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Does BTS burning represent a form of income for BTS?
« on: January 13, 2015, 02:09:06 AM »

I was struggling with this conundrum, open to thoughts of others. My tentative conclusion is BTS does not earn income at all, at least in the traditional sense.

If a company earns income in USD, its underlying asset base rises due to the profit. It can then:

1) distribute this profit to share owners as cash (dividend)
2) use the cash to buy back and burn shares (effectively distributing cash while increasing the value of remaining shares) or
3) keep it retained in the business to increase the value per share.

In each case, there is a return to investors in aggregate as a result of the profit. Importantly its the profit that drives the return, not the form of distribution or re-allocation.

Without a profit, representing an accrual of value of assets held by the entity, no change to the share structure (e.g. burning shares) adds value to the group of owners as a whole. Therefore burning per se (a mere change in ownership structure after the fact of value-creation) cannot be considered income of the entity, and it does not lend any increase in valuation to the entity as a whole.

As BTS (and derivative bitAsset) transactions occur, and BTS are burned, the value per share rises, but the value of the entity does not. There has been no externally-derived value to the group as a whole that can be distributed. There has only been a transfer of value from those burning BTS through transactions to those not. Doesn't this mean that the BTS burning through transaction fees, which we often designate as "income", does not give any value to BTS at all?

This line of thinking has led me to wonder if any crypto-asset can theoretically earn profit, in the traditional sense of the word, unless shares in it represent ownership accrual in things that exist outside its own share ledger. For example, a company has a balance sheet made up of assets outside of its own shares. I think the only way this can be replicated in our ecosystem, or to create "profitable" DACs, is with a resource management system built around the required block-chain(s), that allows the use and improvement of other assets in order accrue more of them (an example is that Music is forced to manage assets (like music tracks) outside the Notes block-chain).

If there is no income, value accretion is driven solely by the increasing utility of the coin itself in use or exchange. This is also potentially a valid approach, but is not so different in approach to most other crypto-currencies in general.

Views?

End Brain-Dump.

Offline toast

Re: Does BTS burning represent a form of income for BTS?
« Reply #1 on: January 13, 2015, 02:19:55 AM »
Burning BTS is equivalent to income under the assumption that there will be demand for the DAC's services in the future.

First imagine that Apple immediately took any profit from the sale of a macbook and used it to buy back stock.
Now imagine that Apple first pre-sold coupons redeemable for macbooks and bought back stock from the presale.

The key is that someone had to buy the BTS in the first place for it to be redeemable for a service.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does BTS burning represent a form of income for BTS?
« Reply #2 on: January 13, 2015, 04:30:43 AM »
Burning BTS is equivalent to income under the assumption that there will be demand for the DAC's services in the future.

First imagine that Apple immediately took any profit from the sale of a macbook and used it to buy back stock.
Now imagine that Apple first pre-sold coupons redeemable for macbooks and bought back stock from the presale.

The key is that someone had to buy the BTS in the first place for it to be redeemable for a service.

I'm happy to assume that the DAC does offer valuable services in the future, which gives the money some value today. I'm not sure that makes burning equate to income in the present however, because its simply an internal cost provided by some BTS owners to other BTS owners. This creates a paradox that the higher the fee income, the greater the burden on others, and the less efficient the economy.

Suppose you had a choice of participating in one of two economies, each using gold money. In economy T0, there are zero transaction fees. In economy T10, there are 10% transaction fees, and gold extracted as fees is destroyed in a nuclear furnace. Which economy would you rather participate in? In which economy would the total remaining supply of gold be valued more highly? Which economy would be more efficient?

Offline toast

Re: Does BTS burning represent a form of income for BTS?
« Reply #3 on: January 13, 2015, 04:34:26 AM »
I don't understand the analogy - is the version where we don't burn BTS and instead put it into a pot of spendable funds somehow analagous to the zero-fee economy?
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does BTS burning represent a form of income for BTS?
« Reply #4 on: January 13, 2015, 04:37:59 AM »
I don't understand the analogy - is the version where we don't burn BTS and instead put it into a pot of spendable funds somehow analagous to the zero-fee economy?
Yes, assuming there were no costs to maintain the integrity of the network, for which we need a minimum fee in practice.

Offline toast

Re: Does BTS burning represent a form of income for BTS?
« Reply #5 on: January 13, 2015, 04:39:11 AM »
I don't understand the analogy - is the version where we don't burn BTS and instead put it into a pot of spendable funds somehow analagous to the zero-fee economy?
Yes, assuming there were no costs to maintain the integrity of the network, for which we need a minimum fee in practice.

Ok, then why is there a 10% fee in the other scenario?
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does BTS burning represent a form of income for BTS?
« Reply #6 on: January 13, 2015, 04:54:08 AM »
I don't understand the analogy - is the version where we don't burn BTS and instead put it into a pot of spendable funds somehow analagous to the zero-fee economy?
Yes, assuming there were no costs to maintain the integrity of the network, for which we need a minimum fee in practice.

Ok, then why is there a 10% fee in the other scenario?
Only because somebody thought it might be a good idea to offer an income stream to money-holders, to attract investors to that economy. Apart from that, consider the two ecosystems equal. My question is, does the 10% income stream increase the value of the money in the T10 economy. Maybe that's not a fair comparison, because people will not participate in an economy where fees are unreasonable, but they will in one where the fees are seen to be reasonable. But still, even if the fees are reasonable, any income earned in saving years turns into a cost in consuming years. So I'm still unsure whether the fee stream increases the value of the total money supply.

Offline toast

Re: Does BTS burning represent a form of income for BTS?
« Reply #7 on: January 13, 2015, 04:58:45 AM »
But it's not like we are charging *extra* BTS just to burn it right? We're just burning whatever we already charge. I still don't get it..
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does BTS burning represent a form of income for BTS?
« Reply #8 on: January 13, 2015, 05:25:13 AM »
But it's not like we are charging *extra* BTS just to burn it right? We're just burning whatever we already charge. I still don't get it..
Correct, and what we are doing is right. This is only a hypothetical - which could be done - to illustrate that income from internally generated fees may not be valued given the benefit to some stakeholders exactly matches the costs to other stakeholders. This is different to a company that earns income externally, to the benefit of all owners, and therefore trades at a multiple of this income.

At the risk of too many analogies, imagine Apple encouraged all its employees to use Apple shares to perform any economic transactions between its different divisions, took a reasonable cost-based fee in shares for running the program, then burnt these shares. Should the total valuation of Apple rise due to this additional income stream? I don't think it should, because Apple's externally generated profits from customers (paying into the system) have not directly increased. The burning is just a reallocation of shares. It's just not making sense to me, but then I'm probably not making sense to you!


Offline toast

Re: Does BTS burning represent a form of income for BTS?
« Reply #9 on: January 13, 2015, 05:29:16 AM »
But it's not like we are charging *extra* BTS just to burn it right? We're just burning whatever we already charge. I still don't get it..
Correct, and what we are doing is right. This is only a hypothetical - which could be done - to illustrate that income from internally generated fees may not be valued given the benefit to some stakeholders exactly matches the costs to other stakeholders. This is different to a company that earns income externally, to the benefit of all owners, and therefore trades at a multiple of this income.

At the risk of too many analogies, imagine Apple encouraged all its employees to use Apple shares to perform any economic transactions between its different divisions, took a reasonable cost-based fee in shares for running the program, then burnt these shares. Should the total valuation of Apple rise due to this additional income stream? I don't think it should, because Apple's externally generated profits from customers (paying into the system) have not directly increased. The burning is just a reallocation of shares. It's just not making sense to me, but then I'm probably not making sense to you!

Right, it's total valuation should stay exactly the same, not increase. This isn't an "additional income stream" in apple's case, compared to BTS, where all BTS buyers are "customers" contributing income. It think it would be analagous if apple forced its different departments to actually pay the same price as the customer for various services rendered, like if each individual employee was a separate economic entity trying to maximize its own profits.
Do not use this post as information for making any important decisions. The only agreements I ever make are informal and non-binding. Take the same precautions as when dealing with a compromised account, scammer, sockpuppet, etc.

Offline fluxer555

  • Hero Member
  • *****
  • Posts: 601
    • View Profile
Re: Does BTS burning represent a form of income for BTS?
« Reply #10 on: January 13, 2015, 05:46:33 AM »
I might be not following this conversation completely, but I think the key thing here is anyone being charged a transaction fee is a customer in BTS (even shareholders transferring funds or registering a delegate). Other companies are able to accept multiple forms of value-storage devices (USD, for example), but on the BTS blockchain, all customers *must* pay in BTS. That means any customer *must* have BTS (or a bitasset backed by BTS), which they can obtain at market rates. When this customer pays a fee (a percentage of the BTS they purchased at market rates), it is distributed to all shareholders (burned).

I think eventually it might make sense to pool the fees together and distribute them to shareholders via quarterly dividends. While this might seem economically equivalent to burning them, the problem is that the market may lag behind due to the psychological factor of how intangible burn-dividends are. And as an added bonus, quarterly dividends would have much higher marketing potential.
BTS: flux-tips


Offline starspirit

  • Hero Member
  • *****
  • Posts: 948
  • Financial markets pro over 20 years
    • View Profile
  • BTS: starspirit
Re: Does BTS burning represent a form of income for BTS?
« Reply #12 on: January 13, 2015, 08:22:16 AM »
I might be not following this conversation completely, but I think the key thing here is anyone being charged a transaction fee is a customer in BTS (even shareholders transferring funds or registering a delegate). Other companies are able to accept multiple forms of value-storage devices (USD, for example), but on the BTS blockchain, all customers *must* pay in BTS. That means any customer *must* have BTS (or a bitasset backed by BTS), which they can obtain at market rates. When this customer pays a fee (a percentage of the BTS they purchased at market rates), it is distributed to all shareholders (burned).
OK, I think this has helped me to make a distinction, feel free to let me know if it makes sense.
When there is no value transfer into the system (e.g. BTS transaction fees, registrations etc, where BTS is simply given up to be burned), these cannot increase the valuation of the entity as a whole, so these fees do not increase the total valuation of BTS to owners (though there is a net transfer between them). When there is value transfer into the system (for example, a customer is forced to buy BTS at market to pay a fee, such as for a bitAsset transaction), then there is cash or some other value received by the seller of BTS, and the total valuation of BTS is still retained after the burn, albeit on a lower supply. Therefore there has been net income to BTS holders in aggregate equal to the fee/BTS burned.
So not all burns are equal for the purpose of valuing BTS, but for the most part, I would think burns relate to customers buying BTS to pay fees (especially as bitAssets grow).

I think eventually it might make sense to pool the fees together and distribute them to shareholders via quarterly dividends. While this might seem economically equivalent to burning them, the problem is that the market may lag behind due to the psychological factor of how intangible burn-dividends are. And as an added bonus, quarterly dividends would have much higher marketing potential.
Despite all the above, I would not recommend moulding traditional practices into these new systems. I would prefer we force our paradigms to adapt to the new approaches available to us.


Offline Volker

  • Full Member
  • ***
  • Posts: 62
    • View Profile
  • BTS: Volker
Re: Does BTS burning represent a form of income for BTS?
« Reply #13 on: January 30, 2015, 06:08:51 PM »
Burning BTS is equivalent to income under the assumption that there will be demand for the DAC's services in the future.

First imagine that Apple immediately took any profit from the sale of a macbook and used it to buy back stock.
Now imagine that Apple first pre-sold coupons redeemable for macbooks and bought back stock from the presale.

The key is that someone had to buy the BTS in the first place for it to be redeemable for a service.

I've tried to flesh out the analogy to make sense of it to myself.
So I own 1/10 shares of Apple and Apple is worth $100. $10 shares. And Apple's factory can produce Macbooks at no cost. So Apple pre-sells a voucher that says "Good for 2 Macbooks" for 20 USD. Then Apple takes that 20 USD and buys 2 shares back from other shareholders who want out and Apple burns those two shares. So now there are only 8 shares.  I still own 1. So I have 1/8 shares of Apple.  Assuming Apple is still worth the same as before ($100), then now my 1/8th is worth $12.50.

But although Apple can make Macbooks for free, it still has some costs. There are bandits and vandals and other evildoers who will destroy the factory unless Apple creates 0.01 shares every year and gives it to a security company.

At the end of the year,  Apple sells 2 macbooks, buys 2 shares, burns them, but then creates .01 shares and gives them to the security company.
Now I have 1 out of 8.01 shares and the company is still worth $100.

Apple = BTS
Apple stock = bts
macbooks = transactions on the bitshares blockchain
factory = blockchain
shareholders = bts users
shares from other shareholders =  unclaimed bts
voucher = bts (shares in the company and fees are the same thing)
security company = delegates

What do you think?
« Last Edit: January 30, 2015, 06:41:41 PM by Volker »

Offline bytemaster

Re: Does BTS burning represent a form of income for BTS?
« Reply #14 on: January 30, 2015, 06:42:44 PM »
Burning BTS is equivalent to income under the assumption that there will be demand for the DAC's services in the future.

First imagine that Apple immediately took any profit from the sale of a macbook and used it to buy back stock.
Now imagine that Apple first pre-sold coupons redeemable for macbooks and bought back stock from the presale.

The key is that someone had to buy the BTS in the first place for it to be redeemable for a service.

I've tried to flesh out the analogy to make sense of it to myself.
So I own 1/10 shares of Apple and Apple is worth $100. $10 shares. And Apple's factory can produce Macbooks at no cost. So Apple pre-sells a voucher that says "Good for 2 Macbooks" for 20 USD. Then Apple takes that 20 USD and buys 2 shares back from other shareholders who want out and Apple burns those two shares. So now there are only 8 shares.  I still own 1. So I have 1/8 shares of Apple.  Assuming Apple is still worth the same as before ($100), then now my 1/8th is worth $12.50.

But although Apple can make Macbooks for free, it still has some costs. There are bandits and vandals and other evildoers who will destroy the factory unless Apple creates 0.01 shares every year and gives it to a security company.

At the end of the year,  Apple sells 2 macbooks, buys 2 shares, burns them, but then creates .01 shares and gives them to the security company.
Now I have 1 out of 8.01 shares and the company is still worth $100.

Apple = BTS
Apple stock = bts
macbooks = transactions on the bitshares blockchain
factory = blockchain
shareholders = bts users
shares from other shareholders =  unclaimed bts
voucher = bts (shares in the company and fees are the same thing)
security company = delegates

What do you think?

Looks right to me.
For the latest updates checkout my blog: http://bytemaster.bitshares.org
Anything said on these forums does not constitute an intent to create a legal obligation or contract between myself and anyone else.   These are merely my opinions and I reserve the right to change them at any time.

 

Google+