Author Topic: Can't Banks do Bitshares ?  (Read 6071 times)

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Offline toknormal

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The value of a bitAsset is not determined by a legally binding contractual agreement as you have assumed, it is determined by the distributed consensus of the free market. The genius behind bitAssets are that they replicate the value of derivatives but do not entail any legal ramification and most importantly they are fungible

Thanks ! I'll have to go away and have a think about that now :)

Could you elaborate on "fungible" ? I realise that fungible means that it doesn't matter which particular unit of the asset you have (i.e. they are interchangeable) but how is that different from, say, a gold ETF or futures contract. Is it because the contract itself prohibits fungibility ? (i.e. my "futures contract" is not the same as your futures contract ?).

By the way, I just realised one huge advantage of BitUSD over regular USD - no need for a bank account and counterparty to broker the transaction (duh). So in that sense it in fact is like a cryptocurrency.

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Lets think this through from the ground up.

Why is cryptocurrency "revolutionary" ? Why did people get excited about it and its disruptive capacity ? What is the one single property that more than anything makes it compelling and resistant to competition from banks ?

It's revolutionary because it uses non violent consensus to determine property ownership. These consensus systems do not care about individual identities only about private keys. Now you can move digital money without being tracked (or without being tracked easily and without registering you identity with a centralized company that must adhere to the legal constraints of its jurisdiction). This is the inherent advantage of a crypto-currency and banks can not provide that service. BitUSD is not the same Visa-USD, Chase-USD, Paypal-USD, Bitstamp-USD, Mt.Gox-USD, etc. To say that a bank can replicate bitUSD in its current form is completely wrong.

Answer: It is unlevered base money and a payment system rolled into one.

This isn't really the answer, as I have addressed it above.

In other words, it's "gold" that can travel through wires. Cryptocurrency is not a proxy for some other asset, it IS the asset.

Banks cannot compete with this because they are *brokers* who simply act as the counterparty between an asset derivative and its collateral base. (The derivative being account balances and the collateral being corporate & personal debt for the most part). They could use Bitcoin as capital (if they were allowed by regs) and then lever it to create derivatives but they cannot actually reproduce the concept to the same standard as Bitcoin - no matter how much money they throw at it - because something that's so decentralised requires a "rights of passage"phase that takes many years. It requires organic growth. Nor can you duplicate the concept AND the value (as we've seen with the altcoin phenomenon). On the other hand, with derivatives such as Bit-USD, you can duplicate the concept AND the value.

Once again, you have misunderstood what bitUSD is. It is not actually a derivative... it is an asset that is traded on par with USD (or more appropriately a 1:1 correlation with the USD/BTS price). The value of a bitAsset is not determined by a legally binding contractual agreement as you have assumed, it is determined by the distributed consensus of the free market. The genius behind bitAssets are that they replicate the value of derivatives but do not entail any legal ramification and most importantly they are fungible. (I would be very intrigued to see how a bank could create a fungible contract for difference - I don think it is possible. The reason that bitAssets are fungible is because they are not contracts but rather they are their own asset, just like bitcoin)

« Last Edit: November 18, 2014, 05:35:44 pm by clout »

Offline toknormal

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Thanks for all the thoughtful replies. I see some interesting ideas but none which directly address the issue. In particular, I'm not sure that Bitshares has "first mover advantage" in this market because - unlike Bitcoin - it's not a cryptocurrency market. To me it's a derivatives market (at least as far as the assets are concerned) and that puts a very different characteristic on its competitive survivability I think.

Lets think this through from the ground up.

Why is cryptocurrency "revolutionary" ? Why did people get excited about it and its disruptive capacity ? What is the one single property that more than anything makes it compelling and resistant to competition from banks ?

Answer: It is unlevered base money and a payment system rolled into one.

In other words, it's "gold" that can travel through wires. Cryptocurrency is not a proxy for some other asset, it IS the asset.

Banks cannot compete with this because they are *brokers* who simply act as the counterparty between an asset derivative and its collateral base. (The derivative being account balances and the collateral being corporate & personal debt for the most part). They could use Bitcoin as capital (if they were allowed by regs) and then lever it to create derivatives but they cannot actually reproduce the concept to the same standard as Bitcoin - no matter how much money they throw at it - because something that's so decentralised requires a "rights of passage"phase that takes many years. It requires organic growth. Nor can you duplicate the concept AND the value (as we've seen with the altcoin phenomenon). On the other hand, with derivatives such as Bit-USD, you can duplicate the concept AND the value.

Now lets consider the Bitshares concept in this context.

Bitshares reverses the cryptocurrency concept. It de-couples the collateral from the traded token so that we're back to using derivatives again. (Thats the price it pays for non-volatility). This is where I see the weakness because there's no "first mover advantage" in this sector. It's simply another derivatives market amongst thousands. The fact that is uses shares on a blockchain as its collateral is immaterial - it could be anything as far as the asset customers are concerned. Their priorities as very similar to those of customers of any other type of derivative and although the Bitshares type derivative may be marginally more competitive in some cases there's nothing revolutionary about it. For example how are you going to sell "Bit-GOLD" backed by blockchain collateral to someone over a gold derivative that's backed by gold in a vault ? How are you going to sell "Bit-USD" over Paypal, Visa or Amex USD ? What's the USP here ? It's just an alternative route to the same derivative as far as I can see but the end product is no more competitive to its consumers.

There is one area I can see the Bitshares concept being unique though - and that is in decentralising the concept of banking.

A BIT-USD transaction to me is basically a granular bank by virtue of allowing the USD to be "borrowed into existence". Right now you need a banking licence to do that and it's a monopoly. This is an extremely powerful development I think but my problem is that I can't see how to make it competitive with Bank generated USD (or any other asset). Possibly I'm just not seeing the wood for the trees because I *can* see that the concept of granulising and decentralising banking is revolutionary.

To me this is the nub of the matter - determining what it is that makes Bitshares derivatives more competitive than other derivatives, and I think this needs to be thought through to death. It's all very well creating a cryptocurreny that doesn't have volatility anymore, but perhaps not so much if it isn't a cryptocurrency anymore - just a payments system.
« Last Edit: November 18, 2014, 09:31:16 am by toknormal »

Offline donkeypong

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Hi !

Newb here. I'm a seasoned crypto trader and techy for whom the penny recently dropped re. Bitshares. I've been aware of it for a while but haven't properly had the time to learn about how it works and te differences form a regular crypto.

For the last week, however I've immersed myself  in Bitshares philosophy and techology. First of all, I'd like to say that I think this is one of the most elegant and exciting inovations in crypto I've ever seen, specially from a commercial point of view. I was in the shower the other day thinking through the mechanism of how Bit-USD gets created by matching shorts with longs etc and the lightbulb suddenly went on. I got one of those shivers up my spine where you suddenly see a 1000 mile long road ahead of you.

It's great the way it's a self-balancing system where people who are looking for trading stability are matched with speculators in such a constructive way. I totally get the various aspects of it - collateralised asset vs the underlying shares etc and how that's a potentially virtuous cycle so I don't need to be sold on the concept at all and have already put a few of my BTC into this to get started.

However, I've got some questions which I'd like to ask if anyone was interested - both technical stuff and business model stuff.

First up, I've been looking for downsides to this which are very difficult to see but I do see one. That is that Bitshares biggest innovation is also its biggest weakness - the reliance on the adoption of collateralised assets and branding thereof to give value to the underlying shares. With Bitcoin we are actually trading the "physical gold" as opposed to the paper gold. That's what makes Bitcoin's blockchain have value - it's the currency and collateral rolled into one. No bank or payment processor can replicate bitcoin because they can't reproduce neither the hashpower or the network effect overnight no matter how much money they put into it.

On the other hand, I'm thinking (perhaps wrongly) that they can probably quite easily set up a Bitshares type blockchain and prime it with their own collateral to kickstart a branded collateralised asset (such as "BitVisa-USD or something). Since adopters of collateralised assets are only interested in "a" Bit-USD rather than "the" Bit-USD why would they adopt Bitshare's brand over Visa's ?

This vulnerability to concept-copying is compounded it seems to me by the POS algo. While I agree with the technical merits of this approach, POW does have one thing going for it in this respect which is that it takes time (years ?) to accumulate the hashpower that Bitcoin has. It's generally accepted that banks and big corporations cannot compete with bitcoin - it's too decentralised, to ubiquitous and too advanced (in terms of "rights of passage", confidence etc). But anyone can setup a POS network in a couple of hours and it doesn't need hashpower.

So this is where I see the problem. By being so like a bank in its operating principle it kind of plays into their hands in terms of copyability (at least I see the concept as copyable given that Banks love proxymoney).

If anyone would like to address this issue I'd love to hear what people have to say about it.

Thanks !

Welcome to BitShares! Yes, banks could copy it. Eventually, they will. But by the time they understand it, hopefully BitUSD will be established and their reaction will be to adopt it rather than fight or clone it. It will take a few billion in market cap to get banks' attention, anyway, and so if you're an investor, you're sitting pretty by the time we get that high.

Blockchain technology has a "lowest common denominator" effect. It does away with the waste and the levels of bureaucracy that add so much to the cost of everything. BitShares can move money more cheaply than anyone else can, just because there's almost no cost left in the system. PeerTracks (a.k.a. BitShares Music) could be cloned and Apple/Amazon/Google could make their own version quickly. But they'd need to charge more for it, because they have shareholders who expect a certain level of profit.

So if BitShares' 'businesses' are done well and have first mover advantage, I give us a pretty good chance. At the very least, if there eventually are a range of price option choices within this space, this could always be the discount option. But I think it can be more than that. If the share price goes up and delegates have the money to hire developers, marketers, etc., then this is going to be extremely viral and its momentum may be hard to stop. We can hope!
« Last Edit: November 17, 2014, 04:15:13 am by donkeypong »

Offline starspirit

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I just thought there may be another reason why banks would be reluctant to do this until "the last minute". Banks earn good income from deposit account fees, withdrawal fees, checking fees, ATM fees, and the list goes on. As a general practice incumbent institutions are loathe to cannibalise their own businesses, and that often inhibits innovation. By introducing their own bitUSD version, they would need to produce a product that retains a similar level of income for them. This would be more costly than bitUSD for users. I could imagine many of their customers would make this migration for the added payment convenience that digital currency would offer them compared to their traditional services. But on cost, I think bitUSD could still hold the upper hand and grow its market share, on the condition that it proves itself to be just as secure. I could also imagine the banks using all their branding power to argue why low-cost p2p platforms are services not to be trusted.

Possibly when banks realise "the gig is up", they will be forced to make a more drastic change, and the question is by that time have they lost the battle for the customer or not?



Offline jsidhu

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Once achieved it cant be copied.

I think that tripped off your tongue a bit to easily there  ;)

As far as I can see it most certainly can be copied and will be if it looks like having the slightest chance of adoption. By "adoption" what I mean is this type of scenario:

Lets say retailers get interested (due to an attractive package of low volatility of Bit-USD combined with the advantages of blockchain approach - low cost, speed etc). We are the "David" and the challenge for the Goliath is to match that package - low volatility combined with blockchain approach.

Because Bit-USD is a financial derivative (unlike Bitcoin) it's within the capacity of the big payment processors to reproduce it. We've basically come full circle. I'm not saying that the Bitshares network is copyable but the service / incentive it provides to the market to trade and hold the collateralised assets is as far as I can see.

I realise I'm painting a slightly negative scenario. It could also be a great success - the market is so huge that Bitshares could become absolutely massive and still only capture a small portion of the USD market. There are also other scenarios I see involving collapse of the dollar etc. There are lots of ways this could go.

But I'd be interested to know how far the adoption scenario has been thought through. We're talking about taking market share away from some of the most powerful and commercially aggressive co-orporations in the world. That fact isn't adequately addressed by simply saying "Once achieved it cant be copied".

P.S. The reason the "retail adoption" part is important I think is that initially I could see where the incentive is for traders to take short positions against the dollar in the BTS / BitUSD market, but I couldn't see where the long positions would come from. Then I suddenly realised that the whole commercial world ALREADY IS long the dollar of course. They need to be for commercial trade.

So that group only needs to be convinced to switch from trading / holding commercial bank USD to BitUSD which is within the realms of possibility given that it has a huge USP in removing the counterparty from the transaction and therefore most of the fees and clearing time.

So the business model is very compelling. However the implications of that is that is that it will engender competition and outright hostile action if it develops into the slightest threat. Bit USD is a brand that can be reproduced many times - that's my problem with it (and without the collateralised assets being created and adopted widespread, BTS looses its value).
What i meant was if someone was to try to copy the idea and rebrand it after bts has already achieved network effect it will be that much harder financially to compete.. Although its not impossible if banks see the value and go for it... But id also think that it would help bts knowing a large corporation decided to join instead of fight or run
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toats, i'm assuming that when you say a "better" collateral you mean one that is redeemable for a tangible asset that a bank possess. the advantage of bts is that its has no "intrinsic" value, so it can absorb an infinite amount of value into the system. if a bank used its own shares as collateral then the cumulative value of the network would be confined to the "intrinsic" value of those shares.

therefore a decentralized network with an arbitrary collateral such as bts can exceed the value of a system with a "better" collateral. as i have said before i can see the market capitalization of bts exceeding a trillion dollars because thats how much value the network would have to store to make the network ubiquitous amongst the global community of savers and institutional investors.

on the other hand the legal implications of bitUSD, at least as it is implemented on the system currently, should deter any corporation from competing in the space. i'm not a lawyer, but bitUSD, if issued or collateralized by a centralized company, would constitute a bear bond, which is illegal. this is why you have to verify your identity with gateways on the ripple protocol.

Offline toknormal

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yes  you are right , other alt-coin cannot copy BTC, but the reason is not the hash power but the network effect.

To me, hashpower IS network effect - or at least part of it. I don't see how you can separate the two.

If people are investing a million dollars per day in INCREMENTAL mining power for a particular cryptocurrency as opposed to others, then that's one hell of a a significant phenomenon. You may say it's money down the drain but markets are a relative thing - it clearly isn't "money down the drain" for those who are spending it and it's their opinion that matters because they are the market. If there was no value for them in what they're mining then they wouldn't be spending that money.

Not only that, there is a correlation between Bitcoin adoption and hashpower.

I don't see any value in multi-billion dollar defence programs but others do, so by definition there's a market.

It can certainly be copied, but the security of bitUSD rests on security of DPOS, which in turn rests on the value of the stake: Delegates are "backed" by the value of the stake that votes for them. Of course we are only at 30 mill now, so any bank could come in and crush us still ;)

Thanks ! I'll have to go away and think about that. Delegates and voting is something that I need to look into more. Maybe that's the answer - that the asset branding isn't as centralised as it appears.

toknormal, there is a related thread I launched a month ago asking the same question. https://bitsharestalk.org/index.php?topic=10123.msg132088#msg132088
It was also brushed off with a lack of response. Is there complacency on this competitive threat?

Just read it. You read my mind :

Thanks for all the obliging responses - very useful ! Will digest !

Offline BTSdac

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yes  you are right , other alt-coin cannot copy BTC, but the reason is not the hash power but the network effect.
resume someone create a Pooled mining, non-fee, even give 15% additional income than BTC.   and he would get much hash power than BTC, but why  no one succeed, so hash power is`nt the point
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Offline CLains

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It can certainly be copied, but the security of bitUSD rests on security of DPOS, which in turn rests on the value of the stake: Delegates are "backed" by the value of the stake that votes for them. Of course we are only at 30 mill now, so any bank could come in and crush us still ;)

What prevents this from happening is what prevented anyone from overtaking Bitcoin. They don't know what hits them before they find themselves spinning in quicksand.. And then it is too late.
« Last Edit: November 17, 2014, 01:22:02 am by CLains »

Offline starspirit

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toknormal, there is a related thread I launched a month ago asking the same question. https://bitsharestalk.org/index.php?topic=10123.msg132088#msg132088
It was also brushed off with a lack of response. Is there complacency on this competitive threat?

Offline toknormal

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Once achieved it cant be copied.

I think that tripped off your tongue a bit to easily there  ;)

As far as I can see it most certainly can be copied and will be if it looks like having the slightest chance of adoption. By "adoption" what I mean is this type of scenario:

Lets say retailers get interested (due to an attractive package of low volatility of Bit-USD combined with the advantages of blockchain approach - low cost, speed etc). We are the "David" and the challenge for the Goliath is to match that package - low volatility combined with blockchain approach.

Because Bit-USD is a financial derivative (unlike Bitcoin) it's within the capacity of the big payment processors to reproduce it. We've basically come full circle. I'm not saying that the Bitshares network is copyable but the service / incentive it provides to the market to trade and hold the collateralised assets is as far as I can see.

I realise I'm painting a slightly negative scenario. It could also be a great success - the market is so huge that Bitshares could become absolutely massive and still only capture a small portion of the USD market. There are also other scenarios I see involving collapse of the dollar etc. There are lots of ways this could go.

But I'd be interested to know how far the adoption scenario has been thought through. We're talking about taking market share away from some of the most powerful and commercially aggressive co-orporations in the world. That fact isn't adequately addressed by simply saying "Once achieved it cant be copied".

P.S. The reason the "retail adoption" part is important I think is that initially I could see where the incentive is for traders to take short positions against the dollar in the BTS / BitUSD market, but I couldn't see where the long positions would come from. Then I suddenly realised that the whole commercial world ALREADY IS long the dollar of course. They need to be for commercial trade.

So that group only needs to be convinced to switch from trading / holding commercial bank USD to BitUSD which is within the realms of possibility given that it has a huge USP in removing the counterparty from the transaction and therefore most of the fees and clearing time.

So the business model is very compelling. However the implications of that is that is that it will engender competition and outright hostile action if it develops into the slightest threat. Bit USD is a brand that can be reproduced many times - that's my problem with it (and without the collateralised assets being created and adopted widespread, BTS looses its value).

« Last Edit: November 17, 2014, 12:58:34 am by toknormal »

Offline jsidhu

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U can always create a copycat of bitcoin and merge mine with with btc or ltc.. or the largest network at the time. Your hash power is now up there and u can copy anything u want about it.

The intrinsic value cannot be copied the idea is to align all projects in bts for one rocket ship to get a network effect going. Once achieved it cant be copied.
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Offline toknormal

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ok - thanks.

Much appreciate your replies.

Offline toast

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Visa just have to bring out a "Bit-USD" type product and those potential adopters have then got instance exposure due to Visa's vast brand recognition, thereby driving adoption through the roof overnight with appropriate implications for the underlying collateral of their brand of "Bitshares" network.

That's what I was trying to say, this is possible and inevitable. We are on a time limit.
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