Author Topic: The New Consensus: Bitshares' response to DecentralizedEconomics criticisms  (Read 8969 times)

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Offline bytemaster

I thought there was a hard cap for Bitshares. 3.7 billion.

https://bitsharestalk.org/index.php?topic=11213.0

Yes, there is a hard cap at 3.7 billion written into the code.   Nothing will change that without community and delegate approval.   I do not think it will be necessary to change that.   
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Offline Ander

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I thought there was a hard cap for Bitshares. 3.7 billion.

https://bitsharestalk.org/index.php?topic=11213.0

There is if no one changes the rules.  The point of this post is that we should all publically agree to commit to "we won't change the rules, even if it seems like a good idea".  Such a commitment would greatly raise the cost of changing the rules, thus making it less likely to occur, thus making investors perceive of the BTS hard cap as real, in the same way that they perceive the Bitcoin hard cap of 21 million as real. 

Because right now, plenty of people out there do NOT perceive the 3.7 billion BTS hard cap as real, and it hurts us.
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Offline liondani

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Many developers would take "equity" in place of salary (ie, not contribute to sell pressure) but if you cannot offer them equity then they will go work someplace else and support BitShares part time if at all.

This statement (if true) disappoints me ...  :(
So all (or the majority) of the Dev's are motivated because of money/equity only? Is anybody motivated for the great vision behind bitshares?
Is anybody motivated to dedicate himself in the name of freedom, in the name of liberty or whatever? So you say we are depended from the bitcoin success (or not) and not by our self?
I really don't want to believe that in case that our market cap decrease to much (whatever the reason is) we will loose the support of all of our Dev's...
Sorry but I have imagined it a little bit different ... and I still (want to) believe, I can keep dreaming ...


Offline islandking

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Offline bytemaster

It is really kind of a catch-22 on the community.   Imagine for a moment that BTS value fell down to $10M because Bitcoin fell down to $80.    At our maximum dilution rate of 50 BTS per block (~6% per year) your development budget would be crushed to $600,000 per year which is enough to pay about 5 developers each with 20 delegates.   

Who would we let go?  Toast, Nathan, Vikram, Valentine, Ben, Me, Stan, the entire marketing team?   

So while I think it is safe to say that we will never dilute by more than $3 million dollars per year of capital infusion I doubt the stakeholders would want to cripple our team which is the only hope we have toward long term viability. 

As it stands right now, we will need 101 fully paid 100% delegates to maintain our current burn rate.   The community would have to start making tough choices on who to let go. 

Many developers would take "equity" in place of salary (ie, not contribute to sell pressure) but if you cannot offer them equity then they will go work someplace else and support BitShares part time if at all.

On the other hand by the time we grow to be the size of Bitcoin it is inconceivable that we should need any additional dilution.   So I would be sure to caveat any "rules" on dilution to only apply at market caps above $250M because below that point we are still in the "bootstrap" phase.   

Not saying I want to dilute, I would much rather have us grow faster than we are diluting, but we can never guess how Bitcoin's fate could impact us.

One way to ensure developers have enough budget, and the market gets its certainty, is to set the maximum inflation as an annual dollar amount. The market will then be guaranteed that when the market cap grows high enough, inflation will be very small. And if the market cap is very low, that must be due to other reasons, so any investors left ought to be willing to fund the developers even if the "inflation rate" is high, or else see the project die.

Having said that, on a philosophical front, I still feel that voluntary funding solutions are closer to the ideal of personal freedom than a mandated inflation, which leaves the only real free choice as "like it or leave it". It would be great to start imagining solutions in this direction.

If BitShares ended up with too much inflation someone would launch a 0 (or low) inflation clone.  I agree, we should work with a budget and guarantee that any extra inflation is approved by shareholders and also LIMITED.   Having 100 BTS per block max with all current delegates being downgraded to 50% pay would mean new delegates would have to get elected before inflation would actually increase.   
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Offline Ander

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Regarding things about how paid delegates work (X shares payout vs Y dollars payout).  My post wasn't about paid delegates.  Paid delegates are great, they are what is going to catalyze the massive growth of BTS.  They are also necessary to sustain our current development.

It was about making a commitment against unknown, unforseen inflations of the supply, outside of this fixed schedule.
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Offline starspirit

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It is really kind of a catch-22 on the community.   Imagine for a moment that BTS value fell down to $10M because Bitcoin fell down to $80.    At our maximum dilution rate of 50 BTS per block (~6% per year) your development budget would be crushed to $600,000 per year which is enough to pay about 5 developers each with 20 delegates.   

Who would we let go?  Toast, Nathan, Vikram, Valentine, Ben, Me, Stan, the entire marketing team?   

So while I think it is safe to say that we will never dilute by more than $3 million dollars per year of capital infusion I doubt the stakeholders would want to cripple our team which is the only hope we have toward long term viability. 

As it stands right now, we will need 101 fully paid 100% delegates to maintain our current burn rate.   The community would have to start making tough choices on who to let go. 

Many developers would take "equity" in place of salary (ie, not contribute to sell pressure) but if you cannot offer them equity then they will go work someplace else and support BitShares part time if at all.

On the other hand by the time we grow to be the size of Bitcoin it is inconceivable that we should need any additional dilution.   So I would be sure to caveat any "rules" on dilution to only apply at market caps above $250M because below that point we are still in the "bootstrap" phase.   

Not saying I want to dilute, I would much rather have us grow faster than we are diluting, but we can never guess how Bitcoin's fate could impact us.

One way to ensure developers have enough budget, and the market gets its certainty, is to set the maximum inflation as an annual dollar amount. The market will then be guaranteed that when the market cap grows high enough, inflation will be very small. And if the market cap is very low, that must be due to other reasons, so any investors left ought to be willing to fund the developers even if the "inflation rate" is high, or else see the project die.

Having said that, on a philosophical front, I still feel that voluntary funding solutions are closer to the ideal of personal freedom than a mandated inflation, which leaves the only real free choice as "like it or leave it". It would be great to start imagining solutions in this direction.

Offline Empirical1.1

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I didn't read past your first paragraph.

Based on what you wrote, I think that if you read it all you wouldve seen that I was agreeing with you. :)

Yeah I meant I saw the first bolded paragraph and it was basically the conclusion I'd also already drawn so I presumed the rest of the long post was in a similar vein. I'll definitely read the whole thread a bit later.

I didn't read past your first paragraph.

Inflating BTSX heavily damaged our value and network effect. The income derived from fees at a higher valuation may well have been comparable to what we currently access via dilution at a low CAP. Losing profitable DAC status but more importantly crypto-money status especially given the way inflation is distributed will be our main marketing & PR headwind going forward and it's possible no amount of dilution spent on marketing can offset the marketing cost of dilution.

Also looking at the big picture, long term outlook, BitAssets will take you only so far and then the future belongs to a very large defined supply crypto-currency.  It will be hard for BitShares to play that role vs. a money that defines a supply, which builds trust, confidence and increasing value in it over a period of time as well as stickiness. (Ie. Future investors wouldn't change by consensus because of the loss of crypto-currency status and BitShares has already given them an example of what happens to your value when you do.) Now we may just be seen as a crypto-equity whereas other options established by more far sighted investors can play a dual role.

BitShares is still best places to replace Bitcoin in the near term imo.

People like rune came when inflation was added

He came before it was added I think and pushed hard for it. I seem to recall some heated debates. I think he's a big asset, very competitive, hostile take-over mindset, but like many weak on the psychology of money and therefore the impact of the move.

It's close though. Now that we have dilution if we maximise it and continue adding value at a pace that outstrips existing competitors, then there's no reason BitShares can't rapidly grow bigger than Bitcoin. Bytemaster has also suggested that over time fees should outstrip the need for dilution anyway at which point BTS may be the equivalent of a no inflation crypto-money and with enough time spent sticking to that it could become viewed by the market as a crypto-currency & one that future consensus would be unlikely to try inflate/change the supply of.

Edit: Ok I read the second part of Anders post. Yes you can basically enforce a supply curve by just explicitly stating it. Even though it doesn't provide a guarantee, it makes it harder to change because of the loss of value changing it would cause & so immediately gives more confidence and certainty to the market in terms of future expectations. I agree with this and have been in favour of something like that.
« Last Edit: January 23, 2015, 12:34:50 am by Empirical1.1 »

Offline ticklebiscuit

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I didn't read past your first paragraph.

Inflating BTSX heavily damaged our value and network effect. The income derived from fees at a higher valuation may well have been comparable to what we currently access via dilution at a low CAP. Losing profitable DAC status but more importantly crypto-money status especially given the way inflation is distributed will be our main marketing & PR headwind going forward and it's possible no amount of dilution spent on marketing can offset the marketing cost of dilution.

Also looking at the big picture, long term outlook, BitAssets will take you only so far and then the future belongs to a very large defined supply crypto-currency.  It will be hard for BitShares to play that role vs. a money that defines a supply, which builds trust, confidence and increasing value in it over a period of time as well as stickiness. (Ie. Future investors wouldn't change by consensus because of the loss of crypto-currency status and BitShares has already given them an example of what happens to your value when you do.) Now we may just be seen as a crypto-equity whereas other options established by more far sighted investors can play a dual role.

BitShares is still best places to replace Bitcoin in the near term imo.

People like rune came when inflation was added

Offline Ander

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I didn't read past your first paragraph.

Based on what you wrote, I think that if you read it all you wouldve seen that I was agreeing with you. :)
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Offline Empirical1.1

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I didn't read past your first paragraph.

Inflating BTSX heavily damaged our value and network effect. The income derived from fees at a higher valuation may well have been comparable to what we currently access via dilution at a low CAP. Losing profitable DAC status but more importantly crypto-money status especially given the way inflation is distributed will be our main marketing & PR headwind going forward and it's possible no amount of dilution spent on marketing can offset the marketing cost of dilution.

Also looking at the big picture, long term outlook, BitAssets will take you only so far and then the future belongs to a very large defined supply crypto-currency.  It will be hard for BitShares to play that role vs. a money that defines a supply, which builds trust, confidence and increasing value in it over a period of time as well as stickiness. (Ie. Future investors wouldn't change by consensus because of the loss of crypto-currency status and BitShares has already given them an example of what happens to your value when you do.) Now we may just be seen as a crypto-equity whereas other options established by more far sighted investors can play a dual role.

BitShares is still best places to replace Bitcoin in the near term imo.

Offline Ander

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I think that theoretical's desire to be paid in debt instead of equity is a problem that will be solved in Bitshares, in the current system, as soon as our price goes up 10x to the point that a paid delegate represents more than just 1 person.

At that point, a delegate will be more like a team, and it will collect BTS, raise funds, and hire people, probably with bitUSD.  Then you will get the desired stability as a developer, but we will not have needed to change how BTS block rewards work.


The critical thing, I believe, is to break through to that level.  We need to get through this risky period, to get to the point where BTS is valued high enough that paid delegates are a large source of funds that support all our plans to grow BTS.

I believe that a firm commitment to a hard cap on supply helps us greatly in achieving that.  If BTS languishes as below current prices for years to come, no amount of massive inflations will let us really do anything special.  If we repair investor confidence in BTS as an eventually deflationary store of value, it helps us a great deal in getting there. 
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Offline Ander

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Rather than having an income of X BTS per round, I'd rather have an income of $Y per round.  The dilution of BTS holders necessary to sustain that level of income will change as the BTS / USD exchange rate rises and falls.  It makes more sense to pay developers fiat-denominated salaries.

Measuring inflation in terms of $ value instead of BTS quantity provides stability for delegates like a salary at a job does, so I understand that desire. 

But it also leaves open the vulnerability of a death spiral in BTS.  If the price of BTS drops, then to cover expenses a greatly increased number of BTS are created.  These BTS are sold causing the price to drop, which causes even more BTS to be created, and so on.

In that situation, if the price decline is sustained and not just short term, I feel that the Bitshares project must cut back, in the same way that a government needs to cut back its spending when it is facing hyperinflation, instead of trying to continue to pay its current expenses with an ever increasing quantity of fiat money.


The developers need to resist the temptation to be like an irresponsible government, willing to inflate their currency to fund their projects.  We must stick to the sustainable, fixed inflation plan, fixed as a percentage of BTS like we have now.





Also, I think that this plan would open up an attack vector for BTS, which is the following:
* Buy up enough stake to elect most/all of the delegates.
* Using your control of the delegates, give bogus price feeds saying that BTS is almost worthless.  As a result, give massive block rewards to all your delegates, taking away the stake of everyone else. 

(Of course, the response to that attack could be to hard fork back to previous snapshot, just as the response might be to any such attack which controlled all of the delegates, so I dont know if this is actually any worse than before).
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Offline bytemaster


TLDR of my previous post:  I'm a developer and I'd rather have debt, not equity, if we can make the debt USD-denominated and have a reasonable plan for having delegates elected to pay it off over time.

Many developers would take "equity" in place of salary (ie, not contribute to sell pressure) but if you cannot offer them equity then they will go work someplace else and support BitShares part time if at all.

All debt would be backed by equity.  If the equity doesn't grow enough to pay off the debt then the debt is worthless.  If it does grow enough to pay off the debt, then you end up with greater upside. 

In this case, equity == debt. 
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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.

Offline theoretical


TLDR of my previous post:  I'm a developer and I'd rather have debt, not equity, if we can make the debt USD-denominated and have a reasonable plan for having delegates elected to pay it off over time.

Many developers would take "equity" in place of salary (ie, not contribute to sell pressure) but if you cannot offer them equity then they will go work someplace else and support BitShares part time if at all.
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