Questions from a beginner

[Permie]

In a nutshell: BitShares is like ripple without the centralized controlling authority (No ripple labs equivalent) and holders of bts vote as to how the blockchain operates.

A little out of date and quite long but I wrote a piece on why BitShares should increase in value and dominate some markets.

I've cut quite a lot out, so if you want to read more follow through to the post itself.

TL;DR: There is a market niche for a global unbounded corporation organization that efficiently adapts and morphs to the needs of the market and the desires of it's shareholders.
I believe BitShares is that corporation organization.
The upper limit of this corporation is bound only by the size of the global economy. The current main use for trading tokens of value are financial derivatives purchased by large institutions and well educated individuals who reside in geographical locations favoured by financially powerful nations who have capital to risk.
A system that can drop the barriers to entry and allow everyone in the world access to the global economy will rapdily expand the total value of the economy.
BitShares will not only rapidly grow to meet the existing market, it will rapidly grow the size of the market itself.
Currently this potential is valued at around $20M.

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BitShares aims to replace all centralized exchanges into one decentralized, open ledger with a shared orderbook resulting in the combined liquidity of all participating exchanges, who reduce costs and increase profits by joining the BitShares exchange.

There are several main issues that result in numerous competing exchanges existing in today's financial market and if all of these issues were solved then only one exchange would be needed to meet the needs of the market.

Counterparty risk mitigation -  holding value on several exchanges.

A single party guaranteeing the IOUs traded on its exchange carries counterparty risk – that they may default on their obligations.
The risk is factored into the cost of doing business with this exchange.
A reduction in counterparty risk results in a reduction in cost of doing business there.
If counterparty risk is eliminated from an exchange then separate exchanges cannot compete on mitigating this risk.
A decentralised exchange where ONLY the users are able to spend their own funds (hold their private keys) and that has many parties providing price-feeds has negligible counterparty risk.

Competition of fees that each exchange charges.

If fees required to trade on an exchange are negligible <£0.0025 and much lower than the total value of the trade then separate exchanges cannot compete on fees unless they offer
significant advantages to entice customers away from the established exchange that has the
largest market depth/liquidity.
Would you rather pay 0.25p to trade on the largest, longest running exchange with the highest liquidity – or would you choose to trade on a newer exchange if it could offer fees of 0.2p? Bearing in mind that transaction fees pay to keep the network (exchange) secure against attack.

Systemic risk in the trading platform - The code might get hacked and trick users.

The risk that a fatal bug in the code exists but has not yet been exploited decreases over time and with the number of people auditing the open source code.
A separate competing exchange cannot surpass the incumbent/leading decentralised exchange without significantly simpler code (less potential bugs) and without being active for a sufficient amount of time. During which time the incumbent has attracted even more capital due to an even greater reduction in risk (due to increased uptime with no fatal flaws). The competitor would have to be much better in order to catch up.
   
Laws in different geographical regions - bureaucracy involved in global transfer.

Cryptocurrency can be transferred globally in seconds. There is no inefficiency in moving funds between jurisdictions except when 'cashing out'.
Separate 'gateways' to real world assets will still exist and they will be able to issue derivatives on the decentralised exchange that track the spot price given by the external 'gateway'. This allows arbitrage between spot prices from several gateways all within the decentralised exchange ecosystem.

Arbitrage

Currently, due to the time delays in moving funds from one centralized exchange to another (days with fiat, 10-60 minutes with bitcoin) a trader wanting to take advantage of arbitrage opportunities must hold value across several different centralized exchanges.
With the ability for a decentralised exchange to hold derivatives of the spot prices given by centralized exchanges there is no longer any need to hold value on separate centralized exchange that present counterparty risk.

Competition for market share

A decentralised exchange based on cryptocurrency allows anyone to hold shares in the exchange itself so all participants profit as the value traded on the exchange increases. There is no need to set up a competing decentralised exchange because there is more profit to be made by assimilating and bringing value to the existing market-leading exchange.


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With decreasing demand for separate exchanges comes an increase in the liquidity and market depth offered by the most successful exchange.
This leads to an increase in its market share, which in turn breeds even more liquidity making it even more attractive as THE place to trade value.

For the reasons stated above the most successful exchange will be:
A Decentralized Autonomous Corporation (DAC) with (low) fees that adequately cover the expenses of securing the network.

This DAC (likely to be Bitshares) will:

Be Decentralized
Counterparty risk (of maliciously quoted prices) decreases as the number of 'nodes' offering price feed data increases and is almost eliminated completely if the DAC/exchange holds no custodial funds.

Have very low fees
A DAC exchange built with a cryptocurrency can transfer the underlying collateralizing asset irreversibly in seconds for very little cost.


Be a Corporation with shareholder voting rights
The most successful exchange will adapt to market conditions and customer desires fastest.
Shareholders are anyone who holds the cryptocurrency, bts

Be Autonomous
Top down central planning is an inefficiency.
Shareholders vote directly for blockchain parameters and the direction BitShares takes


Cater to as large a market as possible
The current main use for trading tokens of value are financial derivatives purchased by large institutions and well educated individuals who reside in geographical locations favoured by financially powerful nations who have capital to risk.
With cryptocurrency comes the ability for the tokens of value to contain data that can only be utilised by the current holder of the token. This brings countless new use cases for these derivatives/tokens of value.

One example is Peer Tracks – a company using a DAC to issue scarce tokens that represent a share in the value of music sales made by a particular artist. It aims to be a competitor to Spotify that instead of paying artists with advertising income it encourages artists to crowd-sale shares in their future career. A user who finds talent they like can invest in their career. If they make it big the value of the tokens they hold will have increased dramatically. 'Hipsters' are now financially incentivized to invest and advertise music they think will be the next big thing.
How many more genres of music do you think there will be if a record label is no longer needed and musicians do not need to 'sell out' to appeal to a mass market large enough to be worth the investment of said record labels?

The DAC can provide banking services to internet connected users (individuals or businesses) with no questions asked as there are no compliance costs as no custodial funds are held.

Enable businesses to use the DAC ecosystem for their own needs. 'User Issued Assets' are not backed by collateral but by the assurances made by the party/business that issues them.

Provide Identity Verification services so that things like user website login and proving you are a human user and not a bot can all be controlled from within the DAC.

Provide gateways to external services

Provide Price-Feeds and Validate Transactions

Honesty is heavily rewarded and malevolence is punished swiftly.


Provide ease of use and secure account recovery for the user.


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The current state of BitShares and the risks of a competitor
Only 2.5 billion currently exist and they are highly divisible so there is no upper limit to the number of trades this total supply can support.
E.g A $1 derivative could be collateralized with 0.00001 bitshares one day in the future if bitshares were valuable enough.

The theoretical maximum supply of BitShares is 3.7 Billion. The 1.2 B yet unissued shares are kept in a reserve-pool and every day a fraction of these funds are directed where the shareholders deem most useful. There is a hard-limit on the number of reserve-pool funds available each day, and the yet-undesignated reserve-pool funds cannot be spent by anyone.
They can either be: burned and removed from the supply forever, recycled and sent back to the reserve-pool for use later, or pledged to Worker Proposals as payment to complete shareholder desired tasks.

Each BitShare is currently worth $0.0046 (21/04/15)
The current market cap of bitshares is $11.5M




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Questions
How many more people and how much more capital can benefit from exposure to a derivatives market in this new system compared to the old system?

Will there be as much competition between exchanges if the main exchange is highly trustworthy, highly secure and has negligible fees?
It is much cheaper to assimilate and provide value to the customers of the existing BitShares DAC than it is to create a competing ecosystem, which the bitshares DAC would bridge to anyway.
This is much the same as starting an internet company to benefit internet connected customers instead of trying to design a replacement for the internet itself.
Separate ventures that DO NOT compete as a derivatives market but instead

It is estimated that there are currently less than 1 million Bitcoin holders. That leaves 99.985% of the population who are yet to hear about and benefit from cryptocurrency. If they all understood what they could get out of it, how much more value would be within the crypto ecosystem?
It is my researched opinion that the systemic risk of Bitcoin or BitShares failure is far outweighed by the systemic risk of counterparty default in the traditional banking system.
Bitcoin and BitShares are just more volatile in the short to medium term. Such volatility can be solved by holding market-pegged SmartCoin assets to stable commodities of the users choice. Funds never need leave the BitShares ecosystem.

The reason that Bitcoin and Bitshares have such low valuations is PR. The global advertising campaign is yet to take place.
With the BitShares referral system, marketers are encouraged to attract new users and will be paid up to $80 to do so.

So, do you think BitShares will increase in value?

[cylonmaker2053]

Bitshares' core functionality is a p2p asset exchange for market-pegged assets, BTS being both shares in the organization and the currency over which the bitassets are synthesized and exchanged. for instance, our best products are bitUSD and bitCNY, but we also offer bitBTC, bitGOLD, and bitSILVER, as well as a variety of other less liquid products.

Understanding how the bitassets are created can be illustrative of the entire business model:

-someone wants to buy a digital version of USD, bitUSD. there are a variety of reasons someone might want this product: (1) it's digital and has all the beneficial characteristics of blockchain assets wrt transferability, fungibility, etc. (2) it earns an above average interest rate (currently ~5.6% for bitUSD), and (3) going long bitUSD is equivalent to going short BTS.

-someone wants a leveraged long bet on BTS, so they short bitUSD into existence and sell it to the buying party. this speculator offers an interest rate to attract buyers and has to put up collateral that automatically triggers a margin call if the price exceeds 300% of the shorted amount. The collateral is held in escrow on the blockchain and algorithmically released with either a margin call or covering the position. This process significantly reduces counterparty risk.

-Price feeds are used for each asset and updated frequently to manage the collateral system.

This is just one of the core functions of the Bitshares network, but it's what i consider the real innovation and value proposition of the system. i'm sure others can fill you in briefly on additional operations that could add value to the network.

[National]

Also, can someone explain the currency/commodity system. For example, I know there is bitshares.usd and others. How does that work. Is there anyway to invest into one natvie currency or do you choose from the whole variety?

[National]

Hello everyone,

I am new to BTS. I know its a bit much to ask, and I could most likely look it all up, but in the interest of saving some time, can anyone answer a few of these questions:

1.) Simplistically, what is BTS, and what gives it potential?
2.) What is the consensus on the speculative value of BTS?
3.) Can you compare BTS to NXT?

I have a large investment in XRP and that is what I am most familiar with, so feel free to bring up XRP or tie it in at any point. In addition to xrp, and through the ripple platform, I am invested in Grantcoin (GRT) and BTC as well. I have also been very interested and slightly invested in Maidsafe. Besides that I have some smaller investments into CANN and for ish and giggles, HTML5.