I've gone ahead and revised my articles with all the suggestions that have been posted so far. Toast, I really couldn't come up with a way to explain the market pegging thing any better than you did, so I basically went with your example (but I intend to cite you as well). Can anybody think of any other ways I could expand on the topic of innovativeness as it pertains to market pegging?
As for the airdrop/snapshot article, I think it's almost done. I did a few minor edits to it, and I'm posting it here for people to have one more look over. If nobody has any further input I'm going to go ahead and call that one a wrap and post it in various places tomorrow.
I'm doing something to promote angelshares. I think I'm going to take a few days off from writing this after I publish the airdrop article, and start putting some effort into that before I return to this thread and continue to work down toast's list. I'm on this hardcore now. In the meantime, any feedback that can be offered on the current iteration of the market pegging article would be invaluable.
Anyway, here's the most current iterations of both articles.
Airdrops and Snapshots final draftYou're going to hear the phrases "snapshots," and "airdrops," thrown around quite a bit in the Bitshares community. What are they and what role do they play in the DAC biosphere?
The term "airdrop" was first popularized by the
Auroracoin project. The Auroracoin devs thought it would be a good idea to try and bring digital cryptocurrency a little closer to mainstream by premining half a coin, and earmarking it for distribution to a specific demographic, in this case, the population of Iceland.
The Auroracoin team achieved this by using a system set up by the Icelandic government to keep track of their population to verify that they were only handing out coins to Icelandic citizens. Although this is not the only means by which an airdrop can be carried out.
To be clear, "airdrop" does not refer to literally physically dropping anything out of an airbound vehicle, although that would certainly be neat to watch. What it does refer to is any means of distribution of a coin, or in the case of DACs, shares, which are basically coins but tailor-made to suit the purposes of a specific DAC and it's corresponding blockchain.
Developers who create DACs by using the Bitshares toolkit, angelshare funds, or who just want the support of the Bitshare community are expected to honor what the community refers to as a "social consensus," which asks that they airdrop a certain percentage of their coin's initial public offering to holders of PTS and AGS, or if the DAC doesn't work that way contrive a way to otherwise honor said PTS and AGS holders.
In a typical scenario this would be effectuated by means of a snapshot. Snapshot is a pretty apt metaphor here, when you take a picture with a camera, you're freezing time in a manner of speaking. In DAC-speak a snapshot also means to freeze time, but instead of taking a real-world image, you're taking a picture of the blockchains for different coins.
For those not yet familiar a blockchain is a freely distributed public ledger containing every transaction that has ever taken place in a cryptocurrency. This means that a blockchain contains up-to-date information about the balances of every single wallet, even yours. A snapshot is actually taking a picture of those balances.
Angelshares do not have a blockchain, but there is a means in place by which the same effect can be achieved.
So imagine that you've developed a new DAC, coded it up and you're all ready to go. You decide to honor the social consensus by airdropping a certain percent of your initial coin/share distribution to PTS/AGS holders, so you take a snapshot. Now you have a list of wallets belonging to the holders of PTS and AGS that you'd like to honor. Through programming magic you can now reward those groups of people for their support by designating a certain amount of your premine to be distributed proportionally to the wallets on those lists. You simply include them in the blockchain from the beginning.
When holders of PTS and AGS see that you've done this they can download the client for your new DAC and there will be an easy to use tool made available that you can point at the wallets you're using to donate to angelshares or to hold an honored currency, which will communicate to the new DAC that you are the holder of those coins, and you'll get credited the balance.
All this kind of begs the question, if you were making a DAC why on earth would you WANT to use a snapshot to airdrop a premine out to people? Well, the main motivation here is that honoring this social consensus by allocating at least ten percent of your initial shares to AGS donators, and ten percent to PTS holders, gets the support of the Bitshares community behind you. This would open up the door to getting marketing help from both the community. This would also cause the community to embrace your project more enthusiastically, and give you a place you could get technical support in maintaining your DAC where needed.
Additionally, honoring the social consensus causes Invictus to be on your side. Depending on the availability of funds, which get replenished from time to time when new snapshots are released, and the amount of other projects currently being backed by the company, support from Invictus, per Stan, could potentially include legal help getting your company set up in it's chosen favorable jurisdiction, literal office space at Invictus' US headquarters at Virginia Tech, help putting together a website while you work on more important things, legal help on the financial end of things, use of Invictus' trusted escrow service, consultation with Bytemaster (Dan Larimer) and other really smart people for help making your code better, help with finding conferences to speak at for marketing your DAC as well as promotional support within the bounds of Invcitus' global marketing campaign. [citation for Stan's post here]
Individual BitShares delegate, who will be given to opprtunity to spread Angelshares funds out through a program of "smart spigots," may also choose to toss you some startup cash at their discretion. [citation]
What kind of support, and how much of it your DAC could get from invictus depends on certain factors including but not limited to how promising the community deems your business model to be, what technologies you choose to use to implement your business model, whether or not you've selected an optimal legal jurisdiction for your DAC to flourish, how qualified you and your team is to make it happen, and how popular your idea is. [citation]
Snapshots aren't limited exclusively to PTS and AGS, you could give a portion of your premine to the Peercoin community if you wanted simply by tacking on a snapshot of their blockchain. This allows you to kickstart a community for your DAC by having a certain percentage of your coins/shares distributed to a demographic who already knows what to do with them. This is a huge advantage in and of itself because since the alt-coin explosion earlier this year just about any demographic you can think of is already represented by an alt-coin of some kind. Let me toss a couple examples out there. Protoshares would be a way of targetting more technically oriented people interested in business. Angelshares might be a way of targetting a group of people more likely to donate to some cause or participate in an IPO. If you're trying to target the meme loving redditors of the world you could include dogecoin in your airdrop. If you had a DAC that you want to get into the hands of scientists you might consider airdropping to Primecoin. If you're trying to undercut a competitor you may even consider airdropping to their coin! Possibilities are limitless and growing with each to addition to the cryptocurrency world.
In effect, the existence of blockchains make possible a system of rewarding early investors in a manner similar to a public IPO, except one need not be an accredited investor to get in on it. The ability to airdrop coins allows for you to start with a nice, diverse community of holders who are already a part of the crypto-world, ready to get behind your DAC and give it value from the get-go.
Market Pegging third draftMarket pegging is a term to describe how the value of bitAssets will be equal to about the value of their real world counterparts. Anything in the real world that has value can theoretically be represented as part of the BitShares X banking and exchange platform, examples: bitUSD, bitEuro, bitGOLD, bitBTC, bitDiapers, bitOil etc. At first the software will focus on fiat currencies but later will expand to include other commodities. This will be accomplished through several different iterations of BitShares X which will have different letters attached to the end of their names.
None of these bitAssets will exist when the exchange first comes out. They get created when people place bets that the price of these real world assets will go down, to facilitate these bets, BitSharesX will have something akin to a prediction market, enabling people to profit from the view that a given asset will go down in value. Placing such a bet is called shorting.
When somebody is shorting an asset this means they think the price of said asset will fall with respect to the price of BitShares, the currency that's to be used as collateral for placing these bets. They put an amount of BitShares equal to twice the value of the amount of the asset they want to short up to be held by the system as collateral, and the system creates an appropriate amount of bitAssets to match the value of half that collateral.
The system holds this BitAsset until somebody decides to accept their bet by taking a long position on the asset. When somebody takes a long position against an asset they are simply purchasing the newly created BitAsset from the system, and the system gives the BitShares paid for that bitAsset back to the person who did the shorting.
Now the person who went short has half the amount of BitShares that they put up as collateral back, the person who went long has the bitAsset, and the system is still holding the collateral that was put up by the person doing the shorting until the person shorting it decides to close their position.
At this point, the person who bought the bitAsset can disappear and do whatever they want with it, if they choose. To close their position, the person doing the shorting will have to purchase an amount of the bitAsset from an exchange equal to what's been created so they can reclaim their collateral. When they do this, if they were correct and the price of the bitAsset has fallen, then it will cost them less bitShares to buy the asset back to cover their position and the difference is profit for them.
On the flipside, if the person doing the shorting was incorrect in the thinking the value of the asset would fall then it would cost them more of their bitshares to buy back enough of the bitAsset to close out their position. If the value goes up 50% to 1.5x the starting price then the network uses the collateral to buy the amount of the bitAsset that was created back from the market, destroys it and returns the remaining collateral minus a 5% fee for letting the system close their position for them which gets destroyed. When the system closes a short position for somebody this referred to as a margin call. This removes the extra value from the market that was created when the bitAsset came into existence.
You might be wondering how we know that the bitAssets that get created through this process will stay the same price as their real-world asset counterparts. This price tracking occurs as a result of the belief by the majority of participants in the market that this bitAsset will be pegged to the price of the real world asset. If the price were to somehow deviate, perhaps from somebody making an incredibly large buy or sell order for a bitAsset, then the rest of the world knows that the bitAsset is supposed to be the same price as the real world asset, and they will buy and sell accordingly, hoping to profit. Arbitrage is what ensures that the price of a bitAsset will equal the price of a real asset.
Let me explain what I mean by that, the easiest way to do so is to use an example such as the one bitsharetalk forum member, and code contributer 'toast' walked me through [citation]. It involves imagining every possible scenario that involves the price of a bitAsset deviating from the price of it's real world asset. The hidden secret here is the precedent established by everybody knowing that a bitUSD should be worth about a dollar. As long as most people agree with that precedent then disagreeing with it will not result in profit for you. Say you're a naysayer, and you think a bitUSD is actually going to be worth ninety cents, this means you would likely short at ninety-five cents or a dollar- but if the price goes up to a dollar you're going to be stuck covering your position, which involves buying some bitUSD helping push the price up. On the other hand, if you think a bitUSD is worth $1.10, it would make sense to buy at $1.05 but if the price falls back to a dollar you would only be able to get out at a loss. Now let's look at how that would play out for somebody who agrees that a bitUSD is worth a dollar. If the price were to fall to ninety-five cents you would buy it, pushing up the price a little, so that you could sell at a dollar. If it were $1.10 you would short it, creating new bitUSD and pushing the price down a little bit, so the cycle is self-perpetuating. Knowing that most other people agree that the price of a bitUSD should be a dollar would cause you to take actions that support that assertion in the interest of your own profit.
This system of market pegging is what makes BitShares X use as a bank possible. The creation of what might be thought of as the crypto equivalent to fiat currencies creates a more stable alternative to traditional cryptocurrencies for the time being, defeating the argument that instability will prevent cryptocurrencies from ever being more widely used. This also enables people who value stability in their currency to truly approach a blockchain as a means of storing their wealth, until the market cap of an actual cryptocurrency is high enough to create stability in its own right.
***lead into intro to BitShares X here***