The Origin of BitShares

[Stan]

The Origin of BitShares
Part 10
BitShares Unleashed

In this industry, talk often turns to the virtues of decentralization.  This usually means distributed software, but we have aimed to decentralize the BitShares industry as well. And for good reasons!  What good is decentralized software if someone can attack the human organization that maintains it? How do we actually achieve the word “Autonomous” in the DAC acronym anyway?
 

Now that BitShares has become the world’s first self-funding DAC,
that vision is within reach.

Those who have been with us since the beginning will remember we emphasized that a critical stage in the life of a DAC would be when it is able to become unleashed from its developers.  Only then would it be truly emancipated and autonomous …even sovereign.  Barely sixteen months ago, we said it this way when we unveiled our the concept of a Decentralized Autonomous Company (DAC) in a LetsTalkBitcoin.com article entitled:

Bitcoin and the Three Laws of Robotics:

Ultimately, to achieve complete incorruptibility,
developers must be willing to let go of their own control.  
If there remains any centralized human control anywhere,
it will eventually be exploited to the detriment of the DAC’s stakeholders.  
DACs need to be free to be trusted.

We think we have now come close to achieving this vision.
 

BitShares will be the first fully automatic company.
It will employ humans, not the other way around.

BitShares will still have human owners; it will still serve human customers; and it will still hire human staff; but it will be managed by independent software agents that cannot be corrupted, seduced or coerced. Because it can be trusted in ways that manned companies cannot, it will be able to serve its owners and customers more reliably than any manned company you may still be inclined to trust.

So, as long planned, we have set BitShares free - releasing it into the wild!

Invictus Innovations Incorporated (I3) has ceased operations in the crypto currency space to ensure that there remains no central control over BitShares of any kind.  For a while, the corporation will continue to exist as a legal entity to handle any future regulatory inquiry, tax audits, or other government duties associated with its past existence.   But BitShares will no longer depend upon Invictus for anything.

Invictus has delivered BitShares to its owners as a self-funding, self-maintaining, self-promoting product.

Having accomplished that mission, Invictus can quietly ride off into the sunset in search of Satoshi Nakamoto.

Meanwhile BitShares, DAC (not BitShares, Inc.) has already begun hiring its own support, development, and promotional contractors. Most of us who have been employed by Invictus Innovations have sought employment directly with BitShares.   We have been hired by our own software!  And up to 101 delegate-based contractor slots are now open for other new talent of all kinds.

Whether we are familiar old-timers or newly arriving talent, each of us will have to make our case to the community of BitShares holders. They will make all hiring decisions. Based upon the indicated preferences of those voters on the blockchain, BitShares, DAC will automatically hire and pay the top 101 vote getters.  This will make elected delegates very competitive, responsive, open and transparent – since those same voters can just as easily fire us… in about ten seconds.

So now you are caught up.  The Vision first laid out in Bitcoin and the Three Laws of Robotics has been, at least partly, achieved.  There is still much work to do to grow BitShares, DAC into a Fortune 100 Unmanned Company. But the whole world can work on it together...and the path forward is clear.  

[Stan]

The Origin of BitShares
Part 9
What is a SuperDAC?

SuperDAC - noun - soup-er-dak
A Decentralized Autonomous Company (DAC) providing common services that support layering of other DAC business models onto a common public ledger for the sake of shared network effect.

The need to merge our various DACs into a single "SuperDAC" was based on the realization that they all needed a whole bunch of common services that are much less effective if they aren't common services:

• A unified basket of stable, robust global currencies (bitAssets)
  
• A unified set of well compensated, best-of-breed delegates.
• A unified name system.
• A unified secure messaging system.
• A unified set of on and off ramps - portals to the fiat world.
• A unified marketing message.
• A unified consensus-based governing system.
• A unified family of tools and wallets.
• A unified way for newcomers to make instant friends with everyone already there.
• A built-in venture capital system where you can compete for start-up funds - democratically.

New business developers (DAC engineers) shouldn't want to reinvent these things any more than I would want to reinvent my computer's device drivers and operating system.  And what sense would it make to have different competing operating systems, each with a subset of drivers and services?

Gee, I sure wish I could go back in time and invest in MS-DOS.  
Rats.  
An opportunity like that will never come around again.

BitShares took the whole ecosystem into one DAC friendly free-trade zone with all the services that benefit from network effect already in place.

Any developer who wants to build a business would be crazy to stay on the outside and try to replicate that.  Even if they can pick up the toolkit and get all the functions - the network effect doesn't come with the toolkit!  You get that by joining the club.  You still run your own business with its own custom storefront and Internet presence.  You just skipped a year or two of trying to get traffic to stop by!

Now do you begin to see why it wasn't hard for the VOTE and DNS developers to agree to a merger?

We offer instant network effect.  Built in.

If I were going to summarize the opportunity for other developers, I might put it this way:

Come build you business in our free trade zone mall.  Join us in free space.  We are the mall developers.  You can be a mall tenant.   We've got lots of real estate for you - all wired up with power, plumbing, internet and customers browsing the halls.  Add your biological and technological distinctiveness to our own and get issued shares to match the value you have added to our free trade ecosystem.  And its growing network effect.

You'd be crazy to locate your business outside the mall.  Why start over?

When new entrepreneurs contact us about how to leverage the BitShares Toolkit,
these are some of the considerations we often discuss.

(To be continued...)

[Stan]

The Origin of BitShares
Part 8
Experimenting and Pivoting

I was skimming through one of the other threads on bitcointalk where I read with interest that Crypti was about to adopt DPOS. 
That's when I ran across this wonderful graphic:

"That's it!", I enthused,
"That's exactly what it's been like on every project I've worked on in the past 40 years!"

And it's certainly what we've experienced in the BitShares community since Invictus Innovations was founded on the Fourth of July, 2013. It's a good thing we put "Innovations" in our name, because we've certainly needed to innovate.

I especially liked the chart's Trough of Sorrow where "experimenting and pivoting" is said to go on.  Been there.  Done that!

In general, the market doesn't like it when you pivot.  Makes you look like you don't know what you're doing.  However, once you admit that to everybody, the pivot can be a devastating competitive move.  You'd be crazy not to use it in combat, if you can pull it off.

Michael Jordan's Pivot Moves

Of course, most investors would prefer it if you would simply run a fast break straight down the middle of the court for a lay-up.  We would too.  Why can't all those moving obstacles stay seated on the opposing bench?

So, that's what we're about.  We regret that we have lost some supporters along the way who expected us to dribble straight down the court. But our intention was to maneuver quickly around the obstacles and get on with the Grand Vision with all of our supporters against the challenges that ahead of us. Without the change, we would've lost eventually.

We do smile when our detractors point out each of our pivot moves.
I don't know why they want to keep playing our highlight reel, but ok...
For their convenience, I'll summarize them here:

Obstacle: Big Mining ProtoShares (PTS) built a fantastic community, but Big Mining sucked up all the shares before we could mine enough to fund development.  We played by the rules offering a "fair" mining lottery - and got our head handed to us.  We had to find another way to fund development.

Pivot:  We invented AngelShares (AGS) - a simulated mining lottery where people donated what they would otherwise have burned up in a traditional mining lottery.

Result:  We raised over $6 million dollars in donations.  Enough to fund our team for two years, produce a general purpose software toolkit, and spin off six new DACs (BitShares X, BitShares Music, BitShares Play, BitShares ME,  BitShares DNS, and BitShares VOTE).  Share growth in all of these DACs promised to fund continued development indefinitely.  Life was good.

Obstacle: Unprofitable Mining  Mining wasn't going to work for implementing a decentralized exchange.  It was too wasteful and too slow.  No market would wait for confirmations that could take up to an hour to lock down a transaction.  We needed trades to confirm as fast as users could specify them.  And we were trying to build a profitable company.  Burning the value of each issued share made no sense at all.

Pivot:  Read all about it in Part 5:  POW to POS to TaPOS to DPOS!

Result:  It delayed our release by over 4 months (a real Trough of Sorrow!).  But it gave us blazing fast 10 second confirmation times.  Bring on the traders!  As a byproduct, we had a system we could upgrade weekly under control of elected delegates - great for tuning market rules and parameters as we observed trading in live action. These delegates also became an amazing resource of reputation based distilled trust - highly useful in overcoming obstacles we didn't even know about yet!

Obstacle:  The Great Bitcoin Recession  For the sake of transparency, we left all the donated funds in BTC and PTS on the block chains where everyone could keep track of how we were spending them.  (Volatility-free BitAssets weren't available yet.)  PTS was supposed to drop as its value was transferred to new products.  But Bitcoin was supposed to hit $1200 by years end!  Instead it dropped like a rock all year long.  By the fall it was clear that our two year runway had been whittled down to one year - and that was about to end!

Pivot:  We rediscovered something every Silicon Valley startup knows well:  working for equity!  Why couldn't that work for block chain based companies?  Why not do the same thing as bitcoin - issue new shares at a slowly decreasing rate.  Except, unlike Bitcoin, we didn't have to burn them.  We could use them to pay employees!  What's a few percent annual dilution when we were expecting value to grow by hundreds of percent in the coming year?  All we had to do is bleed off a few percent of that growth and we could fund much faster growth!

Result:  If Bitcoin could do what we could now do, it could pay 101 small businesses several million dollars a year - each!  Instead Bitcoin gives all that new money to the electric companies to produce global warming.  Even at BitShares current scale, that same rate of token issuance could sustain our 2014 development budget into the future indefinitely.  With just a couple doublings of our market cap we would be looking at 101 full time developer and marketer positions working to grow the whole ecosystem.

Obstacle:  Promises, Promises  We had the solution to all our funding problems and a path to ever-accelerating growth right there within our grasp - and couldn't implement it for BitShares X!  Its Social Consensus and ownership distribution had already been defined.  No Dilution! You Promised! Remember a few posts back when I said that allocating zero shares for development and giving it all to PTS and AGS holders (50/50/0) had been a mistake?  Well that mistake had come home to roost.  BitShares X was boxed into a corner.  Bound by the same suicide pact as Bitcoin and most other chains - no way to fund developers and marketers!  Rats.

Pivot:  That's ok.  We'll just apply that lesson learned to all future DACs we develop.  MUSIC and PLAY had already spun off to their own independent developers, and ME had been merged into BitShares X, but we still had VOTE and DNS on the launch pads.  We would build them to be self-funding DACs - and they could pick up the development and marketing torch for the whole ecosystem.

Result:  Bytemaster turned his attention to VOTE and DNS.  These had to get up and operational and generating funds to pay salaries by the end of the year.  We were about out of railroad track and had to get them up to 88 miles per hour in a hurry!

Obstacle:  Fratricide!  There's just one problem.  Every new DAC we build has to be the best we can build - using all the past lessons learned - or some competitor will seize the opportunity to do it for us!  VOTE would need its own stable BitAsset currency.  To produce that it would need a full-scale decentralized exchange.  It would need its own name registration system.  It would need its own network effect and would be leveraging every poll, petition, and election registration to build it's own huge base of provably unique users.  It would need to become a SuperDAC, able to compete on all possible fronts for all important market depth and network effect.  And BitShares X would inevitably be in its cross-hairs!  Most importantly, BitShares VOTE would be self-funding - able to recycle a few percent of its growth every year into paying developers and marketeers.  We were creating our own BitShares X killer.

Does anyone know where the love of God goes
When the waves turn the minutes to hours?

-- Gordon Lightfoot, The Wreck of the Edmund Fitzgerald.

Pivot: We had to go back and explain this to the BitShares community.  It wasn't pretty.  We explained that as long as we were building new DACs we would keep learning and applying those lessons to each new DAC.  And each new DAC would want to have its own BitAssets, domain names, and network effect.  Each would be forced to clone all its predecessors and fight for dominance over all our previous efforts.  If we tried to play nice and keep features separate, some outside competitor would come along and combine everything into a SuperDAC.  We couldn't leave that option on the table for them.  BitShares X would have to be upgraded, or face eventual extinction. There was wailing and gnashing of teeth. 

Result:  We merged all our DACs into one SuperDAC called simply BitShares.  For some, this was the last straw and they jumped ship.  But for those who patiently understood the reasons and the vision, the future is incredibly bright. 

They now own shares in a self-funding, hyper-competitive SuperDAC.

What good is a SuperDAC?  Why, that's the subject of Part 9!   

(To be continued...)

[Stan]

The Origin of BitShares
Part 7
BitShares Sharedrop Theory

Albert Einstein spent most of his career in search of Unified Field Theory.  Today’s physicists are closing in on their Theory of Everything.  We, on the other hand will settle for nothing less than Grand BitShares Sharedrop Theory!

Each of these Grand Unification Theories seeks to describe their field with one simple explanation, preferably no bigger than
e = mc².  In our case, we’ve been seeking a simple way to explain BitShares PTS, AGS, BTS, snapshots and virtual mining all in one relaxing elevator ride.

And just like Newton’s apple, and Archimedes’s bathtub, or Fleming’s Petri dish,
we found our solution in one blazing flash of the obvious.

Our breakthrough in clarity came when a new altcoin decided to target its promotional coin give-away to a specific demographic: employees of leading firms in Silicon Valley.  Rather than give their coins to the general population, most of who would either ignore or quickly sell them, Silicon Valley Coin developers were trying to get them into the hands of people who might appreciate them more by targeting specific Silicon Valley postal codes.  This was much better than simply dropping them from a helicopter somewhere over southern California.  Targeted airdrops were the now obvious answer to getting a fair distribution to likely users!

“That’s it!  That’s what we’ve been doing all along!”  We have been designing coins to represent demographic groups that developers would rather give their promotional shares to than the general public.  There was now a new reason, perhaps the most important reason, for all altcoins to exist!

Enough altcoins have distributed their shares through, ahem, “fair” mining
that we no longer need to use mining to fairly distribute shares!

Instead, we can “sharedrop” them onto holders of one or more existing coins whose demographic profile matches the group of users we want to become our new customers. Whether your coin represented dog-lovers or permaculture enthusiasts or Mars colonizers, air dropping your coin to the holders of their coin represented the perfect bootstrap operation.  Just take a snapshot of the account balances in their block chain and use the same public keys for their corresponding accounts in your block chain.

An altcoin blockchain is a mailing list for reaching a specific demographic group.
(The group of people who, for whatever reason, are currently holding that coin.)

Now we could describe our first products using the targeted promotion paradigm:

ProtoShares
is just an altcoin you could mine or buy from others (not us)
to try to get targeted by developers
who see promotional advantages in a free airdrop of their new product samples
to a demographic of people who liked mining and understand DACs.

AngelShares
is just a public ledger of donors you got on by donating to a development trust,
to support the industry and maybe get targeted by developers
who see promotional advantages in a free airdrop of their new product samples
to a demographic of people who have donated to developers!

BitShares
is an unmanned company with a decentralized exchange as it's core business model.
You own it to share in the value it generates - like any traditional company.
And, as a bonus, try to get targeted by developers
who see promotional advantages in a free airdrop of their new product samples
to a demographic of people who are active customers/owners of a decentralized exchange!

We think these are three demographic “mailing lists” that every savvy developer will want to honor as airdrops replace mining as the preferred way to get a fair (but targeted) distribution of new give-away samples.  Targeted sharedrops to finely tuned demographics are far better than tossing your samples into a few zip codes or to all the uncaring masses of a typical currency.

Companies pay big money for focused mailing lists.

We have generated three outstanding lists – and make them available for free. Savvy developers want to give free promotional shares in their new digital companies to people who will appreciate them – the kind of people who will hold onto and promote them so their value goes up, rather than crashing prices by dumping them on the market.

These shares work like “sign-up lists” for more free shares

ProtoShares (PTS) – The original grandfather prototype .  Having PTS in your wallet means you are a “holder” not a “dumper” – presumably because you think long term and value owning a stake in the BitShares industry.  Whether you mined them or bought them on the market, the fact that you still have them proves you are a long-term supporter.

AngelShares (AGS) – The original grandmother prototype in reference to the patron “angels” who once funded the performing arts.   That’s why AGS are not liquid.  (No one can trade the proof that you were the one willing to donate to this cause.)  But you can imagine why developers will want to give an industry donor free shares more than anyone else!

BitShares (BTS) - The first child of ProtoShares and AngelShares.  It's a mailing list of people who are currently interested in DACs of this type - and actively engaged as its customers and/or owners. 

A final word that many altcoin developers know instinctively:

It’s not about imitating Bitcoin.  It’s about attracting an affinity group.  And once you’ve motivated that group to hold onto your coin, you have eyeballs to sell.  In this case, the value of your coin is tied to the value of your group as a target for other developers’ promotional shares. This is exactly what PTS, AGS, and BTS holders are:  A demographic MUCH more likely to be good supporters.  These block chains are like mailing codes that let you target your shares to the people you want to reach much, much, much more precisely than using Silicon Valley mailing codes!

You can see the control this gives a developer to build a reliable constituency and minimize the amount of shares wasted on people inclined to quickly sell them!  BitShares Sharedrop Theory offers a much better option than conventional mining for achieving a fair but smart distribution of  new coins or shares.  We think many clever targeting mixes will be devised and this will become a preferred initial share distribution approach in the days ahead.

The following block chains have or will be using this Sharedropping technique:  BitShares, LottoShares, MemoryCoin, PLAY, Music, RandPaulCoin, and Sparkle.

Ordinary altcoins now have a big new reason to exist:  to attract a particular sharedrop demographic!

We think this fair distribution method will be adopted widely in the next few years.  There are many possible options.  For example, here is the distribution chosen independently by the Chinese developers of the PLAY DAC:

35 % will go to BTS holders on December 8, 2014 12:00 PM (UTC).
10 % will go to AGS holders on July 18, 2014 12:00 PM (UTC).
10 % will go to PTS holders on November 5, 2014 12:00 PM (UTC).
15 % will go to the R & D team to cover development costs.
10% will be held in reserves
20% will go to a public PLS sale

You can read about other third party DACs here:  Third Party DACs Newsletter

(To be continued...)

[Stan]

The Origin of BitShares
Part 6
Sharedrops and Snapshots

Sharedrops and Snapshots were another BitShares innovation - It was our replacement for mining as a fair share distribution mechanism.  (Actually, primitive sharedrops were also being tried by other coins, more on that next time)

snapshot - noun
A picture of the instantaneous ownership of all coins in a block chain at a specified point in time (i.e. at a specified block number).  Every block in any blockchain represents a snapshot of the evolving ownership record, and the entire blockchain can be viewed as a motion picture consisting of the ordered sequence of all snapshots.

sharedrop - noun
Distribution of shares in a new coin to holders of another coin by initializing the new genesis block with the same keys holding shares in the old block chain at a specified snapshot.  

The original PTS deal was that a minimum of 10% of new DAC shares would be sharedropped onto holders of ProtoShares on a snapshot date to be announced for each DAC.  Another minimum of 10% would be proportionally sharedropped onto AGS donors on that same date.  At the time, that left 80% to be mined.

Um, except that we were in the process of eliminating mining!

So what to do with the remaining 80%?

Over the coming months, our community developed the general consensus that it was up to each DAC developer to propose what to do with the remaining 80%.  If they wanted to, they could propose keeping the 80% for themselves, presumably to fund development and promotion of the new DAC.  But we also pointed out that, derived from the The Ten Natural Laws of the Crypto-Asset Universe, lay one particularly Inconvenient Truth:  If they did that, there was nothing to stop a competitor from cloning their DAC and offering everyone a better deal, like 20/20/60 or 30/30/40 or 40/40/20!

So it is important for a developer to pick a distribution that leaves a competitor no toe-hold.  

Since we already had funding from AGS, we saw no reason to reserve any developer funds in the BitShares distribution, so we simply made the BitShares distribution 50/50/0.  This is, of course the same as 10/10/0 where the 80% were simply viewed as burned (or never mined in the first place).  

This turned out to be a mistake.

We discovered there were lots of reasons to reserve some shares for use in developing and promoting the DAC.  In the months that followed, other developers continued to honor AGS and PTS with at least their minimum 10/10 shares while experimenting with other allocations for their discretionary 80%.  We actually developed a whole new school of thought we dubbed "BitShares Sharedrop Theory".  I'll cover that next time.

(To be continued...)

[Stan]

The Origin of BitShares
Part 5
POW to POS to TaPOS to DPOS!

While AngelShares was off and running we turned our attention to eliminating mining from the security component of BitShares. Our goal was to get BitShares launched by "The Ides of March", but Bytemaster was not yet satisfied with the technology.

During his analysis of all the POSsibilities, just four weeks after the launch of ProtoShares, he made this famous statement:

Nxt looks very interesting.

He read everything he could about Proof of Stake, but was unable to convince himself that he could cover all the attack vectors that still remained in the literature.  He wasn't saying there was anything provably wrong with POS.  But he couldn't convince himself it had all bases covered.  That's when he began pondering if it was possible to do an end-run around these issues.

So he started looking at ways to make the system more deterministic.  
More analyzable.  
What if he traded mathematical generality for engineering structure?

This led to his invention of Transactions as Proof of Stake which he presented for review here on bitcointalk.  
A similar, longer thread ran in parallel on bitsharestalk:  Transactions as Proof-of-Stake & The End of Mining

These links show the discussions for historical purposes.  I won't go into them here. I just link to them to show this community that a serious attempt was made to:

• Build on top of Proof of Stake
• Involve this forum in the discussions

So with all this effort, why did Bytemaster abandon his TaPOS invention?  Suffice it to say, when I asked him today, he simply said "It wasn't fast enough.  It took too long to confirm transactions. To support a decentralized trading exchange it needed to do that much, much faster."  For Bitcoin it can take an hour.  We needed it to take seconds.  TaPOS was faster, but not fast enough.

That was unfortunate.  He was going back to the drawing board and we weren't going to make our March 15th target.

It took another six weeks to invent DPOS and even longer to test and debug it.  Four precious months in this industry is a long painful time.  It delayed the launch of BitShares from March to August.  But we all feel it was absolutely necessary -- and well worth the wait.

DPOS solved both problems.  It was totally analyzable and lightning fast.  And best of all, it gave us a new commodity as a by product:  Distilled Trust!

Aaack!  Another Heresy!  
These are supposed to be trustless systems!  
What was he doing?!?

Yes!  He had recognized that residual trust lay scattered in dark corners all around existing systems.   We trusted the coin's self-hired developers.  We trusted their wallets with our keys.  We trusted its self-appointed big miners and big forgers to sign most of the blocks.  Come to think about it, we do a lot of trusting for supposedly trustless systems!

Bytemaster's crowning innovation was to collect all that trust, bring it out into the bright light, make it explicit, subject it to a competitive Darwinian reputation distillation process, and place control over it directly into the hands of the token owners.  

If we have to trust somebody, let's make sure we know who it is and how we can fire them!

But it get's better!  Once you have such a mechanism, you have a valuable commodity to exploit.  Having decentralized hiring and firing of people with trusted reputations as part of the system gives powerful new capabilities.  We can have them publish trusted price feeds which are invaluable for bootstrapping market pegs.  We can give them control over tunable system parameters - like what fees to charge and what thresholds to set.  Hard fork upgrades are now trivial to implement - but only with the approval of elected delegates.  The system can hire developers and marketeers using the same distilled reputation mechanism.  It can have built-in multi-sig escrow functions and other services that require trustworthy human judgment.  This was especially perfect for bytemaster's long term vision of transferring many of the traditional roles of government to the incorruptible block chain.

Systems without Distilled Trust must work very hard to limit the impact of unknown powers in dark places.  This makes them very rigid and unresponsive to changes in market conditions.  This may be ok if all you aim to make is a single unchanging currency like Bitcoin.  But rigidity and unresponsiveness are not exactly what you are looking for in a competitive company!

DPOS is the key enabling factor for highly competitive,
quick responding companies that can turn on a dime.
And that is why the BitShares family of unmanned companies are all built upon it.

If you are a developer and find they are handing out competitive edges in this industry, you want one!

Bytemaster carries this thinking to its logical conclusion in his latest blog article, just posted:

The Minimal Requirement for Decentralization

[Stan]

The Origin of BitShares
Part 4
AngelShares and Virtual Mining

On Christmas Eve, 2013 we proposed a revolutionary companion to ProtoShares (PTS) called AngelShares (AGS).  Just like PTS, AGS would be good for free upgrades to all future DACs.  We wanted it to be a pure virtual mining pool that would work just like a black box PTS mining pool except instead of burning the money it would put the money into a development fund to grow the industry.  It didn't conflict with PTS because it was upgradable to receive a separate 10% slice of the BitShares free samples pie.

PTS formed our community.  AGS would fund its development!

Sigh.  Nothing is ever easy.  While the concept of simulated, virtual, or "angel" mining had been easy to explain, its actual implementation was not.  Regulatory authorities are, as they say, happy to indict a ham sandwich.  The U.S. Supreme court ruled back in the world war era that you can't even sell somebody a row of orange trees if you also offer to maintain them and split the harvest.  Why, that would be creating an unlicensed security and we can't have that!

So, simply put, we couldn't implement something simple.  If you ever see us implement something that is not brain dead simple, it can only be for one of two reasons:  1) because regulations in over 250 jurisdictions around the world preclude doing anything simple, or 2) because we are hopeless geeks who inherently love complexity.

So, instead, we had to structure the Angel Shares as pure, no strings attached, donations to build the community.  We offered a proposed Social Consensus that suggested to developers of new DACs that it would be in their best interest to distribute their new shares to Angel Shares donors instead of Big Mining, but it had to be left entirely up to them.

After spending close to a hundred thousand dollars consulting several teams of crypto-space lawyers, here's how the deal turned out.   (In Stop the Crowd Sales! Bytemaster has since recommended against this approach as well as all forms of crowd sales because we've since found better ways. But at the time this was state of the art fund raising!)

Introducing Angel Shares

We are introducing a general AGS Consensus recommendation that mirrors the PTS Social Consensus except that wasteful mining is replaced with productive donations in either PTS or BTC. 

We are also recommending the share allocation of the first release of BitShares X to have 4 million total shares.  2 million will be allocated proportional to PTS holders and 2 million proportional to AGS donors. Developers are of course free to change the total in their ultimate releases as long as they do so proportionally.

How to Get Recognized as a Donor via Angel Shares

AGS is just a public ledger of donors you can get on by donating to a development trust, 
to build the industry and try to get targeted by developers
who see promotional advantages in a free airdrop of their new product samples
to a demographic of people who donate to developers!

Unlike PTS, AGS do not have their own block chain and are not actually issued as any form of asset.  They exist only notionally in that anyone can compute what the conceptual distribution would be using the proposed virtual mining algorithm below.  This algorithm is intended only for use by developers wishing to identify who has donated toward developing the BitShares industry for the purpose of targeting them as a demographic with free promotional tokens in their new DAC releases. 

AGS Virtual Mining Algorithm
Beginning New Year’s Day 2014,
the algorithm will allocate 10,000 new AGS in a new virtual mining competition every day for 200 days.
5000 of them will be allocated to PTS donors.
5000 of them will be allocated to Bitcoin donors. 
That's ultimately 2,000,000 total, just like PTS.

Those who donate bitcoins to this address will notionally split 5000 AGS proportionally:
1ANGELwQwWxMmbdaSWhWLqBEtPTkWb8uDc
Those who donate PTS to this address will notionally split 5000 AGS proportionally:
PaNGELmZgzRQCKeEKM6ifgTqNkC4ceiAWw
Every day the virtual shares are notionally divided among those who donated that day.

"What happens to all the donations?"

100% of the proceeds go to growing the crypto-equity industry.
Zero percent will be retained as profits by Invictus.

Funds will be used to encourage new developers with salaries, grants, contracts, and bounties to build everything from small components to entire new DACs.  They will be used provide a free high-quality Developer's Toolkit giving DAC developers a huge head start.  They will be used for advertisements, conferences, promotions and give-aways to stimulate interest in the new industry and to provide opportunities for everyone to contribute.  They will be used for legal advocacy for the ecosystem in many jurisdictions.  Anything is fair game that we believe will grow the value of PTS and all DACs that honor the contributions of PTS and AGS holders. 

That said, these are pure donations for which your only expectation must be
that we will use our best judgement to apply them toward these purposes.

It is beyond our control to prevent an unethical developer from forking our open source code in a way that fails to recognize your donations.  It is up to the market to reject this, or not.  If you do not like our recommended allocation, do not trust the market to reject copycats, or do not trust us to use your donations wisely, then please take your money, fund competition, and build your own DACs that fit your preferred allocation strategy. 

Remember - your donations are recorded in a public block chain which developers may or may not use to target 10% or more of their products as a promotion to gain your support for their projects.  It is their choice - we merely define the public ledger documenting your contributions and a recommended formula for computing a fair share proportional to everyone's contribution.  Our free open source genesis-block initialization software will implement the recommended formula, but we cannot prevent any developer from modifying or replacing this software with their own algorithms or none at all.

Why would a developer want to recognize your donations?
https://bitsharestalk.org/index.php?topic=3980.msg50093#msg50093
Learn more about targeted share give-aways in our blog article on BitShares Sharedrop Theory here
http://bitshares.org/bitshares-airdrop-theory/

Well, the donations came rolling in and over the entire year of 2014 the community spent them to develop the BitShares Toolkit and a whole family of DACs, including the BitShares Exchange, BitShares Music, BitShares Play, BitShares DNS and BitShares VOTE and several others.  An entire ecosystem has grown up that would never have existed without this innovation.

The Developers of each of these DACs did decide to follow the BitShares Social Consensus, and as a result owners of PTS and donors of AGS have received "share drops" of free samples from each of them.

We had done it!  We had eliminated the need for mining to get a fair initial distribution of tokens and had seen it used in all kinds of new block chains.  Now, instead of distributing your initial coins to the demographic of rich miners and technically savvy geeks, you could target any demographic you like.  Just like a mailing list to specialized zip codes.

It’s like dropping shares with terminal homing seekers for DAC-savvy supporters!

You could target dog lovers or mars colonizers or permaculture enthusiasts if you wanted to.  We recommended that developers target the PTS and AGS mailing lists because those demographics already understood DACs.  You would get an instant fan club of people more likely to hold your shares than dump them.

So that was it.  We had accomplished our goal of eliminating the need for mining in fair share distribution.  Now we just had to figure out how get rid of the need for it in securing the block chain.

The obvious answer was Proof of Stake!

(To be Continued)

[Stan]

The Origin of BitShares
Part 3
The Ideal Mining Pool

The biggest challenge for us was convincing our brand new ProtoShares-centric community that we needed to change the plan.  (We would become famous for this.)

Here's the argument I made to the BitSharesTalk.org community just six weeks after PTS was launched.  (You guys think you're a tough crowd?  Not even close!)  But we forged ahead anyway.  When you are out to change the world, you can't let yourselves be constrained by little things like how stupid you were last month!  Here's the case as presented:

The Ideal Mining Pool

During the past six weeks I have agonized while I watched my fellow PTS holders labor in the minefields. It breaks my heart. So much pain and suffering. So much uncertainty and frustration. So much wasted time and resources. So much for an incurable engineer to reinvent!

If I were going to design the ideal (objectively fair) mining pool what would it be like? Well, here’s my Top Ten wish list. How would yours be different?

Make it easy. I hate to see people shut out because they don’t have the technical expertise to configure a bunch of source code and IP addresses. Why can’t I just spend a millibitcoin to the pool’s Bitcoin wallet address and, boom, I’ve rented a mining node for a month? Spend a whole bitcoin and I’ve got 1000 miners working for me. Let all my earnings show up in my Keyhotee wallet automagically, without me lifting a finger.

Make it uniform. As long as mining is intended to be a fair lottery why can’t we have everyone use miners with the exact same performance? Who said this was supposed to turn into an engineering contest for miners? That whole circus is just a side effect allowed by the fact that we assume open source software is the only way to achieve transparency. Its not an end it itself. Homogeneous mining pools would implement the purest form of lottery if we just had a way to enforce such a rule.

Make it incorruptible. I hate seeing bot nets and proprietary pools running off with the lion’s share of a distribution intended for real stakeholders. Why leave the currency exposed to such abuses? This is not an engineering and hacking contest! Set up one official authorized pool and just audit its inputs and outputs to keep it honest. Let’s see, I rented 1 BTC worth of miners out of 100 total BTC paid to that public wallet address. I should get 1% of the total new shares created in the transparent block chain. If I did, I can tell its working fairly. Why does the lottery need to expose itself to hackers with a counter-productive agenda?

Uh, gee, I guess I don’t need ten wishes. I’ll settle for these three. Let the developer run a single simulated cloud pool. As long as we can prove it is honest by inspecting its transparent inputs and outputs, who cares? If it gives me the same percentage of its outputs as I gave to its inputs, what’s not to like? Why tie the developer’s hands by forcing her to open her well-intended lottery to unnecessary avenues of attack?

Take my money and give me my share. Done!

This, and other such posts, set our forum on fire.  This fire would blaze for two solid weeks (an eternity for a forum fire).  We listened and debated and reinvented. 

Then, on Christmas Eve, 2013 we announced the Angel Shares (AGS) campaign.

The wise and resilient supporters who survived the resulting forum fire (and several others that would follow) are the ones the shamelessly envious now place with disdain among the "wealthiest stakeholders".  Some of them have a significant fraction of 1% of the stake.  Believe me, they earned it!

(To be continued...)

[Stan]

The Origin of BitShares
Part 2
The Death of Mining

In Bitcoin lore, there are two leading rationales for mining:
1.  To secure the network.
2.  To provide a "fair" initial distribution of coins.

We had just proven that mining was no longer able to provide a fair distribution.  Big Mining was lurking out there with their vacuum cleaners, just waiting for another coin to be announced so that they could suck it all up.    The days where everyone with a PC got a sip at the mining spigot were over.  Big Mining was always there, ready to gulp the spigot dry.  Chug-a-lug!

And even those miners didn't get all that much benefit from their advantage.  They were obligated to spend most of it on electricity and hardware doing barely useful work.  We knew that if we were going to develop profitable companies, we had to start by ruthlessly cutting costs.  The money the miners were obligated to burn should be going to grow the bitcoin ecosystem.  But, first, we had to overcome the self-defeating lessons that all newcomers to Bitcoin were being taught.  With almost religious zeal, it was considered heresy not to burn the industry's seed corn.  Why, Satoshi said we have to, don't you know?

This is tough.  Remember how Copernicus and Galileo had the same kind of trouble convincing the scientific community about the earth revolving around the sun?  Yeah, it was like that.

We resorted to humor:

Angel Miners
An Environmentally Friendly Solution.

in·cin·er·a·tor  (n-sn-rtr)  n.
… an apparatus, such as a furnace, for burning waste.

Remember the incinerator?  Every big box store used to have one for burning empty cardboard shipping boxes.  Now-a-days that would be considered “environmentally unfriendly”.  You’re supposed to recycle, don’t you know?  Its good for the ecosystem.

I think its time we talked about environmentally friendly crypto-equity mining.  At this very moment most BitShares PTS are being mined by sending money to outside companies to be burned up in high-tech incinerators.

Amazon rents them, for example.  You send Amazon your money once a month.  They burn it up in their incinerators and then send you PTS proportional to the amount of money they burned up for you.  They have all kinds of incinerators to choose from if you care about how they burn your money.  They have CPU incinerators and GPU incinerators and if you want, someone will burn your money up on a high-powered ASIC incinerator.  New incinerators are being developed every day.  Most people don’t care how their money is burned up, as long as they get their expected number of shares.

Invictus is researching a new kind of environmentally friendly incinerator replacement that we could make available to the crypto-equity community for any new DAC developer to use.  We call them “Angel Miners”.  As a black box, they work the same as all the others.  You send money to the incinerator operator and get back DACshares.  The difference is in how this incinerator disposes of your money.  Instead of burning it up and blowing the heat up a chimney, the money gets recycled into the ecosystem!

Yes, you heard that right, your money gets recycled into the ecosystem!

Its used for developing better wallets, and new kinds of DACs, and browsers, and tools.  It goes for support hot-lines, and better documentation, and promotional videos, and maybe even Super Bowl ads.  All things that grow the ecosystem and increase the value of all its crypto-equities.

Most people don’t care what kind of incinerator Amazon uses.  Now you have an environmentally responsible reason to choose!

DAC developers should clearly state in their promotional literature whether your mining software is eco-friendly or not.  Going green could make a difference in how the community embraces your product!

We had to let that soak in for a while while we worked on a better way to replace those two failing miner functions.

We started by inventing Angel Shares (AGS).

(To be continued...)

[Stan]

The Origin of BitShares
Part 1
It Began with ProtoShares

ProtoShares (PTS) began mining on Guy Fawkes Day, Nov 5, 2013.

It was created by an independent developer known as FreeTrade as a mineable clone of Bitcoin in response to a bounty offered by Invictus.  The first block was mined by Super3 of Storj fame - who also had no affiliation with Invictus. There was no pre-mine.

ProtoShares was unique in that it was designed to be a prototype coin, a "protocoin" - something to allow supporters to begin mining before the much more complex BitShares Decentralized Exchange software was complete.  ProtoShares were conceived as coins that would be good for a free upgrade when BitShares was ready.

The initial deal was that ProtoShares holders would be honored with the first 10% of BitShares, giving that 10% the same "fair" mining distribution as the remaining 90% which, at the time, were planned to be mined in the same way.  A week later, Invictus sweetened the deal - ProtoShares would be good for free upgrades to all future Invictus products.

During the next few weeks, all the people who had been following Invictus Innovations since its birth on the Fourth of July, 2013 got a decent chance to mine Protoshares.  A classic mining lottery.  It was the best of times.  It was the worst of times.

Somewhere in the dark Land of Mordor (where the shadows lie) an all-seeing eye awoke.  It turned its merciless gaze toward ProtoShares and directed its awful mining power into the competition.  All the ProtoShares miners saw the lights on their hobby rigs flicker and brown out.  Analysis showed that big professional mining rigs and pools were vacuuming up most of  the intended "fair" distribution and dumping them on the market.  The little guys, including Invictus, could still get ProtoShares, but they now had to buy them with bitcoins. 

Invictus quit mining ProtoShares a few weeks later, before much of its ordered mining equipment had even arrived.  It had become unprofitable to mine them with ordinary CPUs.

Instead of raising development funds from the sale of fairly mined ProtoShares, Invictus was forced to buy its own ProtoShares from the market.  All the bitcoins that were flooding to buy ProtoShares were now being burned in the fiery cracks of Mount Doom instead of funding development and marketing of BitShares. 

It was clear that the old bitcoin mining paradigm was completely broken.  What was intended as a fair lottery, had become a give away to Big Mining.  Mining had become centralized, wasteful, and unfair. 

Bytemaster announced that mining was dead and set out to invent a replacement.  This took him on a six month detour.  The dark forces of Mordor had no idea what was coming after them.

Necessity became the Mother of Invention

(To Be Continued)

[Stan]

If you are new to BitShares (or have been away for a while) and have questions about it's past history and how we got to where we are today, then this is the thread for you!

If you are a BitShares evangelist, you may find linking to or excerpting from these articles useful  for answer the honest and dishonest misunderstandings that keep spinning out there in the Wild, Wild, West of forumdom.

I originally wrote this as a ten-part series for bitcointalk.org to answer such disinformation placed there by our competitors.  I have republished them here for easy reference.

Enjoy! 

Part 1   - It Began with ProtoShares
Part 2   - The Death of Mining
Part 3   - The Ideal Mining Pool
Part 4   - AngelShares and Virtual Mining
Part 5   - POW to POS to TaPOS to DPOS!
Part 6   - Sharedrops and Snapshots
Part 7   - BitShares Sharedrop Theory
Part 8   - Experimenting and Pivoting
Part 9   - What is a SuperDAC?
Part 10 - BitShares Unleashed