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Offline starspirit

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Should we split BTS into a currency and a business?
« on: June 23, 2015, 12:57:27 AM »

***Short version***

The community has a schizophrenic view on BTS as a result of its history. A currency demands very little or no dilution. That's why we had many leave the community when dilution to fund development was introduced. On the other hand, developing a financial platform is a business endeavour that requires a lot of funding in return for profit. That's why CNX has had to establish externally to bitShares, to give the development team other avenues of funding the business. That separation has also upset some of the community. The basic problem is that BTS cannot be both a currency and a development business. In answer to my question on whether bitShares might consider market loans to help fund development (a business need), bytemaster in the Hangout suggested the big problem is aversion to dilution (the currency need). I understand that answer completely.

What I'm suggesting here is a way to potentially meet both needs within the bitShares system. What if we split BTS into separate decentralised currency and business vehicles? It's not fully thought out, and I'm not certain this would be a good idea yet or not - this is just conceptual and posted for feedback.

***Long version***

The currency vehicle(s)

The primary purpose of a currency is as a reliable unit of account and store of value. We could feasibly have one or more stand-alone currencies within the system, that could compete directly against Bitcoin or other cryptos. Unlike market pegged currencies, these would stand alone as independent units of account, rather than being pegged to fiat. The core properties would be:

- Negligible dilution to cover only network cost, which is very low under DPoS, a competitive advantage against PoW.
- No participation in platform profits.
- Competitive advantage of using all the speed and capacity benefits of the bitShares platform.

Apart from these core properties, competitive variations could offer a range of different features around interest, stability, and the like, just like the alts market today, but on our platform.

The business vehicle

The primary purpose of the business is to earn profit through the development of the financial platform. Such a vehicle would be able to take advantage of various funding methods, and have full flexibility over its capital structure subject to the determination of its stakeholders. Some of these methods will result in dilution, much as company capital raising does in traditional markets, but on the prospect that future growth will more than compensate for these new investments.

So as an example, the business could raise equity or debt funds in currency, and use those for development. The business keeps all the common platform fees (except for privatised structures). There is a wide range of possible fund raising structures (via tokens offering different forms of participation) ranging between full equity and pure debt, such as preferred tokens (first cut of profits), convertibles (only dilute if the equity token price rises above certain levels) etc. Its only limited by imagination.

Transition

We'd have to decide whether the currency or business vehicle would be best to retain the BTS label. Then the token for the other vehicle would be 100% sharedropped on existing BTS holders.

Other considerations

This is not comprehensive, but some other considerations would be:
- How clear is the business model? To successfully raise funds requires a robust model and profit expectations.
- How clear is the currency model? Does a currency require a profit stream to underpin it or can it exist purely as a unit of account?
- How do we incorporate the possibility of multiple development teams in the future that could each be contributing to the platform in different ways? How are profits divided from common sources?
« Last Edit: June 23, 2015, 02:49:40 AM by starspirit »

jakub

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Re: Should we split BTS into a currency and a business?
« Reply #1 on: June 23, 2015, 06:46:37 AM »
If we the split the platform the into business (which gets to keep all the fees) and currency, I can't see a reason for the currency part to have any value above zero.

The business vehicle has a value because it can be treated as equity in a DAC.
The currency vehicle has a value - because of what?

Offline starspirit

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Re: Should we split BTS into a currency and a business?
« Reply #2 on: June 23, 2015, 11:08:35 AM »
If we the split the platform the into business (which gets to keep all the fees) and currency, I can't see a reason for the currency part to have any value above zero.

The business vehicle has a value because it can be treated as equity in a DAC.
The currency vehicle has a value - because of what?

A thorny question! My view is a currency has value because of its potential reliability as a unit of account and in transactions. Its the same reason that fiat has any value, or bitcoin, or any other alternative crypto. All of these have non-zero value today because of trust in the system of account. So I expect a super-fast non-pegged non-backed currency with a trusted supply mechanism on the bitshares block-chain would also have non-zero value. Also, such a currency might have immediate transactional utility in bitShares because it would be used as the denomination for funding, reserving, and payments within the DAC, for collateral backing and other purposes.

While I think that having negligible dilution is a major source of value for an asset that is to be used as a unit of account and store of value, it is of very little value to a business, or DAC, that is trying to grow toward profitability. What I was trying to do with this OP is show that if want want BTS to be a profit-earning system, we should not constrain funding so much that we cannot afford to create it. That's why I was suggesting to set BTS free, and that is really the core proposition of the OP.

It was then only really a secondary consideration as to whether people may want a currency substitute, and what that currency would be worth. But there is certainly an element of "currency value" in BTS that would be lost if we made BTS an unbounded DAC. That may be potentially retained if we set up a currency with all the same properties as BTS except dilution and profit participation (a trivial step), that can clearly outcompete other cryptos on performance.



 

jakub

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Re: Should we split BTS into a currency and a business?
« Reply #3 on: June 23, 2015, 01:04:29 PM »
My view is a currency has value because of its potential reliability as a unit of account and in transactions. Its the same reason that fiat has any value, or bitcoin, or any other alternative crypto.
Would people still attach any value to bitcoin if it didn't have transaction fees?
I doubt it but I guess nobody knows for sure.

I think the essence of the problem is that when you separate currency from the DAC then the currency has a very weak reason to have any perceived value. Being detached from the underling business and only declared as a unit of account might not be convincing enough to form a consensus giving it value.

Offline cylonmaker2053

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Re: Should we split BTS into a currency and a business?
« Reply #4 on: June 23, 2015, 01:11:54 PM »
i'm a fan of the current approach considering BTS to be equity in the business. it gives the 'currency' much more value as representing a token in a network with useful functionality. sure, money transfer networks have value, but that's what BTC and LTC do well...we should keep focusing on our niche and not simply try to replicate things already done well by others. 

Offline Empirical1.2

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Re: Should we split BTS into a currency and a business?
« Reply #5 on: June 23, 2015, 03:09:36 PM »
A hybrid is optimal (Currency and business in one unit)

However a crypto-currency needs to be as immutable as possible. So a hybrid's weakness vs. a business like BTS will be limited flexibility.

The ultimate question

Is flexibility worth more than immutability?

We already know that high immutability carries a strong market value thanks to the examples of  gold, silver, Bitcoin and a few other currencies that would be little/no worth when valued as businesses but are valued in the billions (or trillions in gold's case) due to the comparative immutability of their units vs. shares in a company.

BTSX was perhaps the best example of this. It was a currency/company hybrid. As a no inflation, profitable currency on a superior blockchain that would also be the home of BitAssets, it was a very credible crypto-currency challenger to  Bitcoin and achieved a very high valuation. However once it transitioned to a pure company, it then became revalued as such. (Unfortunately as a pure company BitShares was broke. It had burned through it's seed funding and was using dilution to pay for a costly merger and workers. It rapidly lost 90% of it's value and would have lost all of it, if it wasn't for BTS 2.0 which wasn't actually funded by BTS.)

So you are now left with the frustrating situation where vastly inferior blockchains will rise rapidly in value when centralised currencies have problems despite having almost no development and being extremely costly while BitShares, who is literally blowing them away from a development standpoint and cost comparison has to get it's valuation up the hard way through blood, sweat and tears.

So I would argue immutability in this market is a gold mine of easy money relatively speaking, even though there are trade-offs, the likes of which Bitcoin are struggling to deal with, vs. the flexibility a company provides. (As shown by BTSX being worth $80 million and growing, vs. BTS the exact same construct but that's valued high flexibility (company) over high immutability (gold,sliver, bitcoin) being almost worthless, less than $8 million and declining, had it not been for Cryptonomex intervention.)

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Offline sschechter

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Re: Should we split BTS into a currency and a business?
« Reply #6 on: June 23, 2015, 03:11:54 PM »
BTS are shares in a business.  BitAssets are market pegged currencies. End of story.
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Offline Helikopterben

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Re: Should we split BTS into a currency and a business?
« Reply #7 on: June 23, 2015, 03:33:34 PM »
I have always thought of bts as the underlying backbone or reserve currency of the entire system of value transfer, whether that currency is used as collateral for MPA, funding of development through transactions fees, as just a plain old currency, or a myriad of other uses.  This should give bts much more value. 

I think we should see how the cnx model works once fully deployed and continue to have them funded through tx fees.  Hopefully the system can become self sustaining through tx fees and shareholder control.  Once that happens, then shareholders can hire cnx basically as a contractor to develop and maintain the system indefinitely if they so choose.  I don't see a problem with this all being done through the underlying bts.

Besides, to implement your strategy would require ANOTHER complete overhaul.  It may be a thought for another chain, but I think we should stay the course at this time.

Offline phillyguy

Re: Should we split BTS into a currency and a business?
« Reply #8 on: June 23, 2015, 04:35:55 PM »
Could this be proposed after BitShares 2.0 is launched and then stakeholders could decide if it should be implemented? I personally think we should/will stay the course at this point though.
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Offline Permie

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Re: Should we split BTS into a currency and a business?
« Reply #9 on: June 23, 2015, 09:37:38 PM »
i'm a fan of the current approach considering BTS to be equity in the business. it gives the 'currency' much more value as representing a token in a network with useful functionality. sure, money transfer networks have value, but that's what BTC and LTC do well...we should keep focusing on our niche and not simply try to replicate things already done well by others.
+5%

Startspirit, I like your idea of taking a loan to fund development by vesting a lump sum of bts and selling it cheaper than market-price (or some other enticing benefit, maybe sharedrops of some kind?) to investors willing to take the risk on the medium term success of bts.
Couldn't this be done with a worker proposal?
The shareholders can allocate reserve-pool funds to a vesting account and delegates can publicly vet and announce fiat banking relationships.
I really like the product-freeze mentioned by Cryptonomex.
We're wait ahead in development, now we need to get our products in front of our target audience.
An existing system that can get the job done ~80% efficiently will still advance bts faster than developing a 95% efficient system that takes months in R&D. (Numbers for illustration only.)
We may only need dev-loans for the first year or so, it may not be worth developing a whole new system.
If after a year it turns out that we would benefit from a superior loan system, then bts will be profitable enough to comfortably pay for the R&D due to the dev-loans secured with the tools we currently have.
In which case there would be no point in investing scarce funding in developing a new system right now.

Bitcoin seems to be doing ok as a currency, but neither bts or btc will ever behave as an ideal currency until mass adoption.
If business-BitShares gain mass adoption then they should be fairly stable anyway. If at that point people choose to use bts as a currency then great.
But I don't see the need to jeopardize BitShares' business niche to muck about with trying to make our own brand of currency and expect it to behave as such from the get-go.
It will be highly illiquid and untrusted for ages - so what's the point?
Bitcoin has a 5 year headstart, and no amount of investment can buy the time needed for customers to get comfortable with something brand new and unproven.
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Offline starspirit

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Re: Should we split BTS into a currency and a business?
« Reply #10 on: June 23, 2015, 10:57:40 PM »
Thanks everyone for all the very constructive feedback. To summarise the views:
- there is skepticism that a pure currency will gain traction,
- reluctance to give up the hybrid model and the extra "immutability" valuation conferred from the crypto space
- question on whether the R&D is worth it
I understand each of those concerns.

I think it is a safeguard for bitShares to have flexibility in its own funding options. Its possible that a competitor starts up with deeper and more flexible funding sources to build a competing financial platform. Its also possible that CNX may not receive enough funding from bitShares to prioritise bitShares-specific projects over competing calls on its developer resources if its business grows in other areas. Either of those events still dilutes our interest, and we may be compelled to consider wider options. What I'd like to see happen is for CNX or other development teams to always see working for the system as their best option. So I still want to explore ideas here, but perhaps that are less disruptive on the current BTS structure.

[As a tentative possibility along these lines, we could keep BTS as is, while less restricted tokens could be sold to provide additional finance to a development team (CNX for example) under more flexible funding arrangements.]

Offline cass

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Re: Should we split BTS into a currency and a business?
« Reply #11 on: June 23, 2015, 11:16:05 PM »
Thanks everyone for all the very constructive feedback. To summarise the views:
- there is skepticism that a pure currency will gain traction,
- reluctance to give up the hybrid model and the extra "immutability" valuation conferred from the crypto space
- question on whether the R&D is worth it
I understand each of those concerns.

I think it is a safeguard for bitShares to have flexibility in its own funding options. Its possible that a competitor starts up with deeper and more flexible funding sources to build a competing financial platform. Its also possible that CNX may not receive enough funding from bitShares to prioritise bitShares-specific projects over competing calls on its developer resources if its business grows in other areas. Either of those events still dilutes our interest, and we may be compelled to consider wider options. What I'd like to see happen is for CNX or other development teams to always see working for the system as their best option. So I still want to explore ideas here, but perhaps that are less disruptive on the current BTS structure.

[As a tentative possibility along these lines, we could keep BTS as is, while less restricted tokens could be sold to provide additional finance to a development team (CNX for example) under more flexible funding arrangements.]

+ 5% absolutely    - MUCH APPRECIATED - pls continue :) 
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Re: Should we split BTS into a currency and a business?
« Reply #12 on: June 24, 2015, 03:02:40 AM »
I always thought something like this eventually happen. My reasoning was that there will come a stage when it will not be possible to implement everything here and a secondary blockchain will be needed. What form it will be we will have to wait and see.

Regarding CNX and BTS, what worries me is that the economic benefits are not fully aligned. There is a real possibility that they mightn't be too bothered for BTS when they get better options to sell their products. There is a good chance that when they receive a good offer they will simply sell off all their shares, pocket the money and work for their contract with third party. BTS pays to build a module and test it but that later can be sold by CNX to others which is messed up.

 

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