People of Bitshares, I’ve been discussing an issue privately with Stan and it was suggested that I present the issue to the community for input. As many of you know, a group of us are trying to organize an upgrade to PTS and to reposition PTS as a currency DAC and sharedrop instrument. I’ll try to provide a quick summary before diving into the details.

Background Information

* Many PTS investors are displeased with the recent merger proposal. In particular, many feel that the social contract has been violated by:
  -granting only 7% stake to PTS/AGS holders instead of 10%.
  -even worse, locking PTS into a 2 year vesting period in the merged BTS.
  It is not the intent of this post to discuss the “fairness” of the allocation.
* Currently, the PTS Angel address currently holds ~13.5% of the entire money supply of PTS.
* It was the intent of the merger proposal to “absorb PTS” into the new BTS and therefore, in theory, PTS residual value would be almost nothing without community action.

Problems

A single entity owning 13.5% of the money supply is a non-starter for “distributed consensus” in a DPOS version of PTS. This is because the entire legitimacy of the coin comes into question when a single entity owns such a massive stake. There is a "critical mass" of centralization (which someone alluded to in another post) that effectively makes the entire consensus algorithm useless. Here is a thought exercise illustrating the point:

  * What is the likely percentage of PTS holders who move their funds out of the genesis block? I would guess a minority within the first year. Let's take an estimate of 50%.
  * What percentage of those people would actively participate in voting? Let's estimate that at 35%.

If these estimates are even close to being reasonable, it would mean that only 17.5% percent of the stake would be used in active voting. A single entity owning 13.5% of the money supply (not counting the personal funds of I3 employees) means that essentially a single person (Dan) decides the entire 101 delegate stack. This translates into complete centralization of the currency. I want to emphasize that I am not arguing that Dan should not be trusted, just that it violates the intent of a distributed consensus algorithm for a single entity to possess absolute and unanswerable control. At this point it becomes more efficient for Dan to simply manage the ledger as a trusted counterparty. I contend that we are currently at that point with PTS.

Proposal

Firstly, I appreciate that the Bitshares Trust has been careful not to crash the price of PTS by liquidating the Angel fund recklessly. I think most would agree that, long term, having a 13.5% stake in such an asset is not in the best interest of the Trust or PTS holders. I’ve proposed a structure for reducing the position of the Angel fund in the upgraded PTS, as follows:

The Bitshares Trust would promise to:
-reduce the fund’s position to a maximum of 3% stake within 2 years. This requires divesting about 180,000 PTS.
-sell 55,000 PTS to private investors in a series of blind auctions distributed over the next year (e.g., monthly). For example, two 2300 PTS segments can be sold each month at a discount to large investors in exchange for a non-binding commitment to not sell for at least 1 year.
-sell another 55,000 PTS on the exchanges over the next 2 years.
-perform a controlled burn of 30% of the fund to offset the downward price pressure of the above. The 30% stake is not chosen randomly. The BTS allocation of PTS was discounted by 30% from the amount of the social contract and this would be a similar allocation.

This proposal would allow I3 to generate a lot of cash and to maintain a very large stake in PTS without compromising the integrity of the whole system.

Advantages

* Over the long haul, the Trust would get a higher return on investment than if it were to simply sell the whole 13.5% on the exchanges. In fact, I’m not sure if there would be any incentive to keep PTS alive without such a commitment from the Trust. Without such a structure in place, the actual end result might be that PTS completely dies after the BTS merger.
* Such a commitment would do a lot to restore PTS investor’s confidence in Bitshares and I3, and to inspire PTS investors to grow the Bitshares ecosystem.
* Lastly, such a commitment would better position PTS as a stable long-term store of value for outsiders who may be wary of investing in a PoS coin with low participation and a single shareholder having a lopsided proportion of the money supply.

Conclusion

This proposal allows the Bitshares Trust to generate a lot of revenue from a currency that would otherwise die and therefore be worthless to all parties. The Fund would keep a significant stake in the new PTS, and at the same time show PTS investors a token of good faith after the very tumultuous recent events.

I have presented this proposal to Stan. He did not offer an approval or disapproval of the idea, but he did mention that the proposal should be presented to the community in order for the Bitshares Trust to consider supporting it. Please voice your concerns and opinions here.

This is a call to action to upgrade and reposition Bitshares PTS as a currency-DAC & sharedrop instrument. The new Bitshares superDAC (BTS) will be changing in some ways that make it better suited for adoption as a niche application (user-issued asset exchange) and far less suited to gain adoption as a global currency. The superDAC has the following properties that make it suboptimal for use as a currency:

* The threshold for inflation is too low. By allowing inflation of up to 8% perpetually in the protocol, you end up with a situation where large stakeholders are able to "write their own paycheck" for lack of a better term. The biggest stakeholders in the superDAC will be I3, and for all intents and purposes they will be setting their own pay. It would take an almost impossible amount of stake (if you consider the avg participation rate) to "disagree" with their payrate and to vote them out completely. Any currency (even Bitcoin) can be modified for inflation. The difference is that inflation is not baked into the protocol, and would therefore require a far greater "stake" to implement (with a hard fork). Bitshares has ignored one of the main principles of crypto community: that scarcity should be (almost) inviolable.
* The second weakness of the superDAC is distribution. AGS distribution has already alienated some Bitcoin purists who are adamantly against "IPO coins". I don't necessarily agree with their philosophy, but there is a large segment of crypto users who will only invest in coins that have no IPO, no premine, and ONLY PoW distribution. For all its flaws, I agree that PoW distribute has one huge advantage over IPO - it is trustless and provable (i.e., that the devs did not “donate” any coins to themselves during distro).
* The last weakness of the superDAC is a logical extension of the "DAC analogy". The killer app in the crypto-space has always been and will always be currency. Running a DAC like a business will result in a more agile and adaptive token, but these benefits come at the expense of the type of stability that is required for a currency application. In other words, the coin that wins adoption as a widespread currency will have properties that are hugely different from those of a "digital corporation". In order to build a successful currency-DAC, we should run our "business" with the aim of positioning ourselves as the best currency and store of value (the killer app). And to be a good store of value, any coin that maintains the sanctity of scarce supply at the protocol layer, will be leaps and bounds ahead of the competition. The crypto-space is searching for a token that has attributes that are well suited for this application, and Bitshares should have a horse in this race.

The Future

The distribution of value among the top competitors will probably result in something similar to that of credit cards today, with a couple of coins taking a large majority of the market share and a long tail of competitors directed to increasingly niche applications. The coin that wins this battle will likely not be Bitcoin (primarily due to the pitfalls of PoW) and it will not be the coin with the most advanced features (see Nxt). Any coin that becomes a global currency must be appealing to governments and serious investors and must be perceived as (i) fairly distributed, (ii) scarce (non-inflationary), (iii) efficient (DPOS), and (iv) secure. Any feature built on top of this coin cannot be done at the expense of these 4 things.

Why Bitshares PTS?

* PTS is an existing Bitshares product with a wide network of support.
* Despite all of its shortcomings, PoW is the fairest method of distribution that is currently available. PTS has had 100% PoW distribution over 1 year.
* DPOS is hands down the best consensus algorithm, and it should be attempted in a pure and agnostic token with strong scarcity and fair distribution.
* We can piggyback on the work of I3 developers without being bound to the potential pitfalls of their business strategy.
* The purity of PTS distribution also makes it an ideal candidate for sharedropping by other DACs.

What Now?

* We are assembling a technical team. Contact me if you can help in any way (running delegates, testing, etc).
* Brand deck, website, and marketing materials are in the works.
* We need contacts at the major exchanges and a coordinated effort to promote our message.

Please DM me if you’d like to contribute in any way.

Edit: modified logo

Repeat after me: BTS is not a currency, BTS is not a currency, BTS is not a currency. The fact that BTS can be diluted is irrelevant, because BTS is not a currency. If people want a currency they should be using BitUSD, BitEUR, etc. The goal of a currency should be price stability (not too inflationary and not too deflationary). If you want an asset that isn't in the control of central banks you can even use BitGLD (even though that is not as stable in price).

We are in agreement that BTS is not a currency. In fact, that was the entire point of this initiative. As for any of the BitAssets being suitable as a global currency, that is where we disagree. Fiat based BitAssets have all of the flaws inherent with fiat and commodity based BitAssets inherit the same deficiencies that make BTS itself unsuitable as a currency. Hence the argument for a currency-DAC.

Edit: BitAssets will probably have great success as a stop-gap measure to onboard new users to the crypto space, but no BitAsset will reach global status as a store of value or as a transactional currency.

Your plan for this is featureless DPOS+TITAN, right? A plain and simple fixed-supply store of value? Why not piggyback the network effect of BTS and just issue it as a user-issued asset on BTS? You'd be able to achieve your goals that way without the hassle of a second blockchain.

Edit: What's your dividend plan: are you planning to burn fees, or redistribute them as yield (like the current BitAsset scheme in BTSX)? That could impact whether a UIA on BTS would do the trick for you.

Yes, featureless DPOS+TITAN for now. Later I think we can own the currency and commodity-type BitAssets and let BTS own the user-issued assets. BTS folks may disagree with that but I think that makes the most sense given the different properties of each DAC. For now I don't want to position this as a competitor to BTS.

One of the biggest issues I'm trying to leapfrog here is the allocation and distribution stigma. By sticking with 100% PTS distribution we may be able to onboard some of the "purists" who believe that proof of work is the only fair distribution method (it is the only provable one, that's for sure). I want to emphasize that this is not a new DAC and therefore there will be no changes to allocation of funds. This is simply an "upgrade" to PTS and should be honored as such.

I propose that the delegate fee structure be the same as BTSX - absolutely no inflation and delegate pay ranging from 0-100% of transaction fees. I think most fee structures (including BTSX) are arbitrary or flawed in their incentive structure. The simplest solution is to eventually eliminate fees entirely and I have some ideas on how that can be achieved, but I wont pollute this discussion with any more detail on that.

Further to this post, the killer app in the crypto-space has always been and will always be one thing: currency. The Bitshares superDAC has attributes that make it poorly suited for use as a global currency including weak scarcity and suboptimal distribution.

Any cryptocurrency hoping to dethrone Bitcoin and ascend to become a global currency must be stable, predictable, fairly distributed, and non-inflationary. If you have any interest in PTS, join me in forking the Bitshares Toolkit and creating a new DPOS version of Bitshares PTS that launches using the November 5th snapshot.

To start the discussion, I'd like to put together a mailing list. Please PM me if you're interested.

Donkey and Ander - saying that "BitUSD is the currency of the future" is not very ambitious. Here's why you're wrong:

1) You're assuming that in the long run people will continue to prefer Fed-controlled fiat currency over the guaranteed scarcity of crypto.

2) As I said before, collateral requirements will make it such that the value of BTS must be far greater than the value of the combined BitAssets issued on top of it. Many aspects of the superDAC, especially the fact that it will support a "currency" token and not just "company shares", requires that the superDAC itself maintains the currency-like properties I have outlined above - (i) fair distribution, (ii) scarcity (non-inflationary), (iii) efficiency (DPOS), and (iv) security.

3) The reason serious investors (governments, institutions, high net-worth individuals, etc.) look for these properties is that they expect currency to be the lowest risk and most stable unit of account. Building currency on top of a protocol layer that does not meet these requirements (or has weaknesses) does nothing to alleviate such concerns.

Personally I believe a couple/handful of cryptocurrencies will rise to global status and that they will gradually replace fiat currencies. BitAssets will play a huge part as (i) a stop-gap measure to onboard new users while crypto is still young and misunderstood and (ii) as an investment vehicle for traders who wish to hedge into non-crypto positions. The superDAC will have incredible features that may be appealing to a lot of people (including myself), but the new Bitshares PTS would have better distribution, strong scarcity, and would be a far better currency and sharedrop instrument. Different models for different applications.

I disagree.  BTS was never intended to be a store of value or global currency, its an investment.  The bitassets are the product, they are scarce because they track the price of real-world commodities.  Bitassets meets your requirements "(i) fairly distributed, (ii) scarce (non-inflationary), (iii) efficient (DPOS), and (iv) secure."  (you could argue they are inflationary but they're not really because users have to buy them so equivalent value flows into the system).

The BitAsset concept is interesting as a stop-gap measure to solve the volatility problem that is inherent in shallow/illiquid crypto markets. If a coin were to reach global scale, or even a fraction thereof, BitAssets would be redundant, inefficient, and unnecessary (edit: as money). All that being said, I think BitAssets are revolutionary and have the potential to bootstrap a crypto-currency into mainstream adoption IF it has the properties of money.

Edit: I should add that BitAssets will always exist as an investment vehicle for tracking the value various commodities or assets, even after crypto-coins reach global adoption. However, the underlying token of the platform (due to collateral requirements) will always exceed the value of BitAssets issued on top of it. There are compelling reasons why the underlying token itself must possess the characteristics of currency.