diff --git a/Makefile b/Makefile index 5fc4fdd..ad26054 100644 --- a/Makefile +++ b/Makefile @@ -10,16 +10,14 @@ TMPFILES = *.aux *.log *.dvi *.bbl *.blg *.mtc* *.maf \ SRC=$(wildcard bitshares-*.tex) BIBS=$(wildcard *.bib) $(wildcard *.bst) -all: compile clean move +all: compile clean compile: $(SRC:.tex=.pdf) -move: - @mv *.pdf pdfs/ - %.pdf: %.tex %.bbl @pdflatex $(PDFLATEXOPTS) $< @pdflatex $(PDFLATEXOPTS) $< + @mv $(shell basename $< .tex).pdf pdfs/ %.aux: %.tex @pdflatex $(PDFLATEXOPTS) $< diff --git a/bitshares-financial-platform.tex b/bitshares-financial-platform.tex index 01c671d..3a3c667 100644 --- a/bitshares-financial-platform.tex +++ b/bitshares-financial-platform.tex @@ -7,17 +7,21 @@ \maketitle \begin{abstract}% - Since the time Satoshi Nakamoto released his whitepaper and corresponding - software for bitcoin, the cryptocurrency ecosystem has grown rapidly. Anyone - can now \emph{transfer} value without unnecessary middlemen, banks, or - counterparty risk. With the blockchain and consensus technology established - and proven stable, the question has arisen whether this technology could be - applied to allow \emph{trading} of multiple assets without the need for a - broker or central entity. The aim of BitShares 2.0 is to evolve the term - \emph{decentralized exchange} (DEX) and not only provide trading of assets but - also offer classical financial instruments on the blockchain. Two of these - instruments --- market pegged assets and user-issued assets --- are discussed - here. + + Ever since Satoshi Nakamoto released his whitepaper and corresponding + software for bitcoin, the cryptocurrency ecosystem has continued to grow at a + rapid pace. In the beginning, Bitcoin created a platform that anyone could + use to \emph{transfer} value across the internet without middlemen, banks or + counterparty risk. However, once bitcoin's basic blockchain consensus + technology became established and stable, people began to discuss whether + blockchain technology could also be applied to enable the \emph{trade} of + multiple assets without the need for a broker or centralized clearinghouse. + BitShares has created such a technology, and has coined the term + "\emph{decentralized exchange}" (DEX) to describe our Bitcoin 2.0 platform. + Currently, it supports trade not only in digital assets, but also traditional + financial instruments and securities on the blockchain. The two main tools we + provide for the creation of these instruments, market pegged assets (MPA) and + user-issued assets (UIA), are discussed in detail in this paper. \end{abstract} @@ -54,7 +58,7 @@ \subsubsection { Rewards Points } \input { content/fp-uia-uc-points } \subsubsection { Event Tickets } \input { content/fp-uia-uc-ticket } \subsubsection { Digital Property } \input { content/fp-uia-uc-property } -\subsubsection { Crowd Funding } \input { content/fp-uia-uc-crowdfunding } +\subsubsection { Crowdfunding } \input { content/fp-uia-uc-crowdfunding } \subsubsection { Information/Prediction Markets } \input { content/fp-uia-uc-pm } \subsubsection { Company Shares } \input { content/fp-uia-uc-stock } \subsubsection { Privatized SmartCoins } \input { content/fp-uia-uc-privatized } diff --git a/content/bts-consensus.tex b/content/bts-consensus.tex index 41909c1..8d6250a 100644 --- a/content/bts-consensus.tex +++ b/content/bts-consensus.tex @@ -51,7 +51,7 @@ stake systems. In a delegated proof-of-stake system, centralization still occurs, but it is -controlled. Unlike other methods of securing crypto-currency networks, every +controlled. Unlike other methods of securing cryptocurrency networks, every client in a DPOS system has the ability to decide who is trusted rather than trust concentrating in the hands of those with the most resources. DPOS allows the network to reap some of the major advantages of centralization, while still diff --git a/content/bts-orga-committee.tex b/content/bts-orga-committee.tex index cabaa5d..62a2003 100644 --- a/content/bts-orga-committee.tex +++ b/content/bts-orga-committee.tex @@ -39,7 +39,7 @@ parameters: % \begin{description}[leftmargin=4em,style=nextline] - \item[{fee structure}: ] fess that have to be paid by costumers for individual transactions + \item[{fee structure}: ] fess that have to be paid by customers for individual transactions \item[{block interval}: ] i.e. block interval, max size of block/transaction \item[{expiration parameters}:] i.e. maximum expiration interval \item[{witness parameters}: ] i.e. maximum amount of witnesses (block producers) diff --git a/content/bts-products.tex b/content/bts-products.tex index 367ba33..d654533 100644 --- a/content/bts-products.tex +++ b/content/bts-products.tex @@ -1,4 +1,4 @@ -The BitShares DAC offers their private costumers several products and in this +The BitShares DAC offers their private customers several products and in this paper we would like to briefly highlight some of them. Of course, all of these come with with the properties of cryptocurrencies, namely \begin{inparaenum}[(a)] diff --git a/content/bts-token-dist-pts.tex b/content/bts-token-dist-pts.tex index bd00c5b..34e3483 100644 --- a/content/bts-token-dist-pts.tex +++ b/content/bts-token-dist-pts.tex @@ -1,5 +1,5 @@ The original grandfather prototype, formerly called proto-shares (PTS), -BitShares PTS was a simple minable crypto-currency (similar to Bitcoin) that +BitShares PTS was a simple minable cryptocurrency (similar to Bitcoin) that was created to allow people to advertise their interest in receiving free token samples in future DACs. PTS functions as a high-tech \emph{mailing list} for distributing free sample bitshares from many developers of decentral autonomous diff --git a/content/fp-conc.tex b/content/fp-conc.tex index c88a37b..9393631 100644 --- a/content/fp-conc.tex +++ b/content/fp-conc.tex @@ -1,38 +1,27 @@ -The BitShares network offers financial instruments for everyone to use at a low -fee. -% -% DEX -The decentralized exchange (DEX) allows for trade of any arbitrary pair of -assets issued on the BitShares blockchain. The order-matching algorithm is -equivalent to most central exchanges and allows to directly fill an existing -given order or walk-the-books up to a given price by means of a limit order. -% -% MPA +In this paper, we have described the foundations of the BitShares network, +which we hope will soon begin to inspire a paradigm shift from classical +banking towards peer-to-peer financing. We have laid out the many features and +benefits of the BitShares Decentralized Exchange, which offers financial +instruments for anyone to utilize with low barriers to entry. + With SmartCoins, the BitShares ecosystem offers a powerful tool for everyone -from speculators and savers, to traders and entrepreneurs. The BitShares -platform provides a toolset with which innovators can experiment to find -optimal currency solutions using free market discovery. It was shown that in -order to achieve a price \emph{predictability}, a price floor of \$1.00 USD per -bitUSD is most reasonable. Hence, any long position can be settled at the -current price of the underlying asset. -% -% UIA -Additionally, we have shown that user issued assets (UIA) offer countless -opportunities to reduce costs. Not only can they be used to simply store a -token on a decentralized database (the blockchain), but it was also shown that -IOUs can be issued complying with regulations. Since the BitShares network -takes care of order processing in storage of user balances, an implementation -of UIAs come at almost no cost while obsoleting expensive central server -infrastructure. -% -% %% Bonds -% The Bitshares bond market allows investors who wish to gain leverage in a -% particular asset to offer competitive interest rates to those willing to -% commit capital for a specified time. The implementation of a bond market on a -% blockchain consensus system efficiently reduces the overhead and counterparty -% risk typically associated with such contracts. -% +from speculators and savers, to traders and entrepreneurs. + +The order-matching algorithm is similar to most central exchanges, and allows a +user to directly fill an existing order or walk-the-books up to a given price +by means of a limit order. It also allows for trade of any arbitrary pair of +assets issued on the BitShares blockchain. -In this paper, we have laid out the foundations of the BitShares network aimed -to shift the paradigm of classical banking towards a large scale peer-to-peer -financing. +The BitShares platform provides a toolkit with which innovators can experiment +to discover optimal currency solutions using free market trading. + +We also discussed how a price floor of \$1.00 USD per bitUSD is the most +reasonable approach to achieving price predictability. + +Additionally, we have shown that user issued assets (UIA) offer countless +opportunities to reduce costs. They can be used to distribute a token on a +decentralized database (the blockchain), and can be programmed to comply with +government regulations. Since the BitShares protocol handles order processing +and storage of user balances, any implementation of business models around UIAs +comes at very low cost to the issuer and will make expensive central server +infrastructure a thing of the past. diff --git a/content/fp-dex-anything.tex b/content/fp-dex-anything.tex index cbb23b6..1ae10e9 100644 --- a/content/fp-dex-anything.tex +++ b/content/fp-dex-anything.tex @@ -1,9 +1,9 @@ BitShares offers the tools to trade in Gold, Silver, Gas, and Oil in addition -to your national currency and crypto-currencies. Few limits exists on what can -be traded on the BitShares exchange, if enough people are interested to form a -market. The DEX allows any two pairs to be traded directly. There is no need to -ask the exchange to open up an additional market. If customers prefer to trade -Silver:Gold directly, they can simply do it. The BitShares exchange can support -assets that can track stocks, bonds, indexes, or inflation. Companies can issue -their own stock on the BitShares network and allow easy, low-cost trading with -complete protection against naked shorting. +to several national currencies and cryptocurrencies. There are few limits on +what can be traded on the BitShares exchange, if there are enough people +interested to form a market. The DEX allows any two pairs to be traded +directly. There is no need to ask the exchange to open up an additional market. +If customers prefer to trade Silver:Gold directly, they can simply do it. The +BitShares exchange can support assets that can track stocks, bonds, indexes, or +inflation. Companies can issue their own stock on the BitShares network and +allow easy, low-cost trading with complete protection against naked shorting. diff --git a/content/fp-dex-collateral.tex b/content/fp-dex-collateral.tex index 2e19699..46b4c6b 100644 --- a/content/fp-dex-collateral.tex +++ b/content/fp-dex-collateral.tex @@ -3,9 +3,9 @@ properties of traditional cryptocurrencies like Bitcoin, with the additional features from BitShares combined with the price stability of the US dollar. At any point in time you can sell a BitUSD for at least 1 dollar worth of BTS. If -at any time the value of the collateral falls below a certain point the +at any time the value of the collateral falls below a certain point, the blockchain will automatically buy back the BitUSD with a dollars worth of BTS -(force settlement, see~\cref{sec:mpa}). +(forced settlement, see~\cref{sec:mpa}). When you hold BitUSD the value of your holdings will remain pegged to the dollar so long as BitShares have a value greater than $0$. This means that diff --git a/content/fp-dex-decentral.tex b/content/fp-dex-decentral.tex index 1600cf7..bb22cc8 100644 --- a/content/fp-dex-decentral.tex +++ b/content/fp-dex-decentral.tex @@ -1,31 +1,29 @@ -Decentralization gives BitShares robustness against failure. When a -centralized exchange is compromised, millions of dollars and thousands of users -are impacted all at once. In a decentralized system, any attack or failure +Decentralization gives BitShares robustness against failure. When a centralized +exchange is compromised, millions of dollars and thousands of users are +impacted all at once. In a decentralized system, any attack or failure would impacts only a single user and their funds. Users are in control of their own -security, which can be much better than any centralized entity. +security, which is generally preferable to trusting a centralized entity. Furthermore, since KYC/AML verification can be outsourced via whitelists, a -gateway that holds customers funds in terms of IOU backing fiat does not -necessarily have direct access to your identity as was the case with -Mt.Gox~\cite{mtgox} where thousands of identities have been stolen. +gateway that holds customers funds for fiat backed IOU's would not necessarily +need direct access to the customers' identities. This was an issue with +Mt.Gox~\cite{mtgox}, where thousands of customers' identities were stolen. -Since, there is a fixed cost associated with attempting to hack an exchange or -an individual user, the difference is the size of the reward. If you place a -multi-million dollar bounty on attacking a specific exchange, then you can -expect a lot more effort to be put into compromising that exchange than would -be put into attacking your individual account. +Since there is a fixed cost associated with attempting to hack an exchange or +an individual user, the difference between a centralized exchange and the DEX +is the size of the reward. If someone places a multi-million dollar bounty on +attacking a specific exchange, then you can expect a lot more effort to be put +into compromising that exchange than would be put into attacking your +individual account. -Within a given company, multiple people usually have access to customer funds. -% -%You may have heard the expression, "Three can keep a secret if two are dead". -% -Currently, all centralized exchanges end up depending upon multiple people who -share the responsibility of guarding the secret key that controls the funds. -If any one of them is compromised, everyone's funds are put at risk. Because of -this, being individually responsible for maintaining your own secrets is the -only safe option. +Furthermore, within any centralized company multiple people usually have access +to customer funds. Likewise, most centralized exchanges end up depending upon +multiple people who share the responsibility of guarding the secret key that +controls the funds. If any one of them is compromised, everyone's funds are put +at risk. Because of this, being individually responsible for maintaining your +own secrets is a much safer option. -Accessing funds in BitShares can be even more secured by means of corporate +Access to funds in BitShares can be further secured by means of corporate accounts that implement threshold signatures~\cite{bts:general,ripple:multisig} and validate only those transactions which signature weights (e.g. the CEO has more say than a worker) surpass a pre-defined threshold. diff --git a/content/fp-dex-fast.tex b/content/fp-dex-fast.tex index e636a0a..4fa2346 100644 --- a/content/fp-dex-fast.tex +++ b/content/fp-dex-fast.tex @@ -1,11 +1,12 @@ -With BitShares your trades execute in seconds, just like any centralized -website interface. Unlike centralized exchanges, there can be no prioritized -trading, front running, or hidden orders. This puts all traders on a level -playing field. - On Wall Street, traders go to great lengths to get as physically close to the -exchange systems as possible, because their automated trading robots make -decisions so quickly that the speed of light is a considerable factor. Thus -distinct fiber cables are put in the ocean between London and New York to -improve profitability in Europe. A decentralized exchange is -\emph{location-neutral}, and gives everyone equal opportunity. +core computers as possible, because their automated trading robots make +decisions so quickly that the speed of light is a formidable factor. This gives +them an unfair advantage against other traders, and allows them to engage +borderline unethical practices such as order frontrunning. They have even spent +billions of dollars to lay transatlantic fiber optic cables between London and +New York to shave milliseconds off of their trading times. + +On the BitShares DEX, all trades execute in seconds, just like with any other +centralized website interface. Unlike centralized exchanges however, there is +\emph{no prioritized trading}, front running, or hidden orders. This puts all +traders on a level playing field. diff --git a/content/fp-dex-features.tex b/content/fp-dex-features.tex index 9dcc278..796e08c 100644 --- a/content/fp-dex-features.tex +++ b/content/fp-dex-features.tex @@ -1,4 +1,4 @@ A decentralized exchange has a very particular set of advantages over -traditional centralized exchanges and we would like to address some of them +traditional centralized exchanges, and we would like to address some of them briefly below. Although the BitShares DEX comes with all of them, it is up to -the reader and customer to leverage those features in full or only partially. +the reader and customer to leverage those features for their particular needs. diff --git a/content/fp-dex-gateway.tex b/content/fp-dex-gateway.tex index 1481b6b..66dc6c0 100644 --- a/content/fp-dex-gateway.tex +++ b/content/fp-dex-gateway.tex @@ -1,9 +1,9 @@ \label{sec:gateway} -The roles that traditional exchanges perform today encompass: +The roles that traditional exchanges perform today are: \begin{compactenum} - \item \label{it:g1} Receiving crypto-currency and issuing IOUs. + \item \label{it:g1} Receiving cryptocurrency and issuing IOUs. \item \label{it:g2} Receiving fiat and issuing IOUs. \item \label{it:g3} Redeeming IOUs. \item \label{it:g4} Processing an order book. @@ -18,7 +18,7 @@ Moving money into or out of an exchange often incurs a significant time delay, which means that active traders must keep their funds on the exchange. This magnifies the amount of risk to users of the exchange. It also magnifies the -risk to all users in the crypto-currency ecosystem. Each large security breach +risk to all users in the cryptocurrency ecosystem. Each large security breach results in significant sell pressure, from both the thief looking to cash in their loot, and from regular users hoping to sell before the thief does. @@ -29,8 +29,8 @@ processing and storage of account balances are managed by the BitShares protocol/network. An entity issuing and redeeming IOUs for another asset in BitShares is called a \emph{gateway}. In contrast to central exchanges, the -IOUs are sent to the wallet of the customer directly and are under his full -control (see \cref{sec:uia:restrictions}). +IOUs are sent to the wallet of the customer and are under his full control (see +\cref{sec:uia:restrictions}). Many gateways prefer the low-risk approach of one-for-one redemption and will simply allow the GatewayUSD to float against BitUSD with a small but variable diff --git a/content/fp-dex-globalbook.tex b/content/fp-dex-globalbook.tex index 8c2ea88..3b79adf 100644 --- a/content/fp-dex-globalbook.tex +++ b/content/fp-dex-globalbook.tex @@ -1,23 +1,17 @@ Because BitShares can be accessed through an internet connection and there exists only one source of truth, namely \emph{the blockchain}, there can only exist one global order book for one particular market. The impact of such a -global unified order book is to improve market efficiencies (hence reduce all +global unified order book would be to improve market efficiencies (reduce all arbitrage opportunities), minimize spreads, maximize liquidity and provide accountability and auditability. -By having the trades executed on the BitShares network, we also eliminate +By having the trades executed on the BitShares network, it would eliminate all high-frequency trading and front running because everyone has the same chance of filling an order. High frequency trading and front running depend upon centralized exchanges with high volume and deep markets. When the vast majority of trading activity moves to a decentralized, trust-free exchange with open -order books, the remaining centralized exchanges become much less appealing to -traders. +order books, the remaining centralized exchanges will become much less +appealing to honest traders. -It becomes quite obvious that BitShares does not have opening hours and is -available for trading 24 hours a day and 7 days a week. - -% Talking about crypto-currencies, once the market adopts BitUSD and BitBTC as -% more reliable and decentralized alternatives to BitstampUSD and BitfinexBTC, -% you will see the majority of trading volume move toward BitUSD vs BitBTC. The -% only time someone would want to move from BitUSD to BitstampUSD is when they -% are in the process of withdrawing to the traditional banking system. +Furthermore, BitShares does not have restricted open hours, and is available +for trading 24 hours a day and 7 days a week. diff --git a/content/fp-dex-limits.tex b/content/fp-dex-limits.tex index 652a045..8884ad5 100644 --- a/content/fp-dex-limits.tex +++ b/content/fp-dex-limits.tex @@ -6,7 +6,7 @@ increasingly invasive levels of documentation. Some exchanges, such as Coinbase~\cite{coinbase}, even limit what you can do with your money after you have withdrawn it~\cite{ct:compliance}. Other exchanges demand documentation of -how you earned your crypto-currency. +how you earned your cryptocurrency. -With BitShares, no one must approve your account. You have complete financial -freedom. +With BitShares, no one must approve your account, so you have complete +financial freedom. diff --git a/content/fp-dex-ordermatching.tex b/content/fp-dex-ordermatching.tex index 2f00393..99af1c9 100644 --- a/content/fp-dex-ordermatching.tex +++ b/content/fp-dex-ordermatching.tex @@ -16,6 +16,6 @@ configure their fees as described in~\cref{seq:feepool}. In contrast to BitShares 1.0, there will also be \emph{limit-orders} that allow -to buy on the market up to a pre-defined price. This allows to instantly fill +to buy on the market up to a predefined price. This allows to instantly fill any order below or above your price at the cost of a single fee~(c.f., \cref{sec:dexfee}). diff --git a/content/fp-dex-powers.tex b/content/fp-dex-powers.tex index 33226fd..b143957 100644 --- a/content/fp-dex-powers.tex +++ b/content/fp-dex-powers.tex @@ -1,33 +1,41 @@ There is no reason why the same entity needs to be responsible for -\emph{issuing IOUs} and for \emph{processing the order book}. It is only -because these two roles are combined that we have a tendency toward -centralization in the Bitcoin exchange space. Since, both sides of any order -book consist of amount/price pairs, we can easily store these information in a -public ledger, such as a blockchain. If we want to create a decentralized -exchange then the first step is to move the order book on to the blockchain so -that everyone can see (and audit) it. +\emph{issuing IOUs} and for \emph{processing the order book}. In fact, this is +is actually a disadvantage from a security standpoint. It is only because these +two roles have been combined that there is a tendency toward centralization in +the Bitcoin exchange space. Since both sides of any order book consist of +amount/price pairs, it makes more sense to store this data on a public ledger +such as a blockchain. Therefore, to create a decentralized exchange, the first +step is to move the order book onto the blockchain so that anyone can see and +audit it. -Since, the blockchain allows users to trade, for example, BitstampUSD against -BitfinexUSD, in order to easily move funds from one gateway to another, users -could even trade BitstampUSD against BitstampBTC or BitstampUSD vs BitfinexBTC. +After this is done, \emph{gateway services} can still be used to enter and +leave exchange order book through IOUs, just like a traditional exchange uses. +The blockchain can allow users to trade, for example, BitstampUSD against +BitfinexUSD, and in order to easily move funds from one gateway to another. +Users could even trade BitstampUSD against BitstampBTC or BitstampUSD vs +BitfinexBTC. -In this model, traditional exchanges merely become \emph{gateways} that receive -fiat and issue GatewayFiat as an UIA on the blockchain. Later, they receive -GatewayFiat, execute a wire transfer and then burn the GatewayFiat. These -gateways can make their money entirely on transaction fees and from a -percentage of the trading fees similar to their current model. +With this model, traditional exchanges merely act as gateways that receive fiat +and issue GatewayFiat as an UIA on the blockchain (In reverse, they would +receive their own GatewayFiat token, execute a wire transfer and then burn the +token). These gateways would make their money entirely on transaction fees and +from a percentage of the trading fees similar to their current model. -Unfortunately, simply moving the order book to the blockchain is not enough, -because the market will naturally centralize around a few gateway IOUs and the -markets for them. BitstampUSD is not fungible with BitfinexUSD because they -have different trust profiles and regulatory considerations. Any of these IOUs -are subject to default just like the IOUs that currently exist on the -exchanges' internal databases. +But simply moving the order book to the blockchain is not enough, because the +market would naturally centralize around a few gateway IOUs and the markets for +them. Also, BitstampUSD is not fungible with BitfinexUSD because they have +different trust profiles and regulatory considerations. Plus, any IOU carries +the risk default similar to the the IOUs that currently exist on the exchanges' +internal databases. If we only had gateway IOUs, it would prevent the +possibility of having a single, unified order book for USD pairs (or any fiat +pair). -What we need to do is move the trust from individual issuers to the blockchain -itself. Hence, we have the bitUSD which is backed by collateral and is -independent of governments, and trades for \$1 independent of any gateway. It -is also universal as you don't need to register anywhere to use bitUSD (or any -other market pegged asset). This core features sets us apart from Ripple and -has as software protocol as counterparty that does provably not cheat on your -funds. +Fortunately, BitShares has solved this issue with market-pegged assets. We have +bitUSD which is backed by collateral and is independent of governments or +centralized entities, and trades for \$1 independent of any gateway. It is also +universal because users don't need to register their identity with anyone to +use bitUSD or any other market pegged asset. So bitUSD pairs can now act as the +\emph{universal order book}, where users are safe to keep their funds on the +books without risking counterparty exposure. This core features sets BitShare +apart from Ripple, because BitShares has this unique ``\emph{software +protocol-based counterparty}'' that can never cheat a user out of their funds. diff --git a/content/fp-dex-privacy.tex b/content/fp-dex-privacy.tex index ffc7e2a..e071bfa 100644 --- a/content/fp-dex-privacy.tex +++ b/content/fp-dex-privacy.tex @@ -1,9 +1,9 @@ Crypto-currencies depend upon a public ledger or blockchain, which makes privacy challenging, because everyone can see every transaction. Bitcoin gives every user one or more account numbers, and that gives many people a false -sense of security. People assume that as long as no one knows your account -number and you use a new account number with every transaction that no one can -tie all of your bitcoins to your real life identity. +sense of security. People assume that as long as no one knows their account +number and they use a new account number with every transaction, it is +impossible to tie their bitcoins to their real life identify. This is where the large centralized exchanges become a problem. In order to comply with government regulations, exchanges must know everyone they do @@ -21,6 +21,6 @@ In BitShares, your identity need only be verified by issuers of IOUs (e.g. GateUSD) in order to comply with fiat regulations. Once traded for bitUSD your link to the gateway or exchange \emph{Gate} can be removed quickly by means of -\emph{blinded transactions} that allow to publicly move funds without revealing -the exact amount~\cite{bts:general,blindSigPaper}. If issuers approve, blinded -transactions may even be performed for UIAs directly. +\emph{blinded transactions} that enables users to publicly move funds without +revealing the exact amount~\cite{bts:general,blindSigPaper}. If issuers +approve, blinded transactions may even be performed for UIAs directly. diff --git a/content/fp-dex-secure.tex b/content/fp-dex-secure.tex index d08551b..0ca6393 100644 --- a/content/fp-dex-secure.tex +++ b/content/fp-dex-secure.tex @@ -1,14 +1,15 @@ -Every Dollar, Euro, bitcoin and ounce of gold held as a SmartCoin on the -BitShares exchange is backed by at least 100\% of the reserves of traditional -centralized exchanges. The traditional banking system has long practiced what -is called \emph{fictional} reserve banking, more commonly known as -\emph{fractional} reserve banking. In the current crypto currency ecosystem, we -demand at least 100\% reserve. A single hack, mistake, or theft can quickly -turn a 100\% reserve system into a fractional reserve system, or worse, a no -reserve system. Without any reserves, it is unlikely that an exchange can give -you the funds it owes you. +The traditional banking system has long practiced what is called +\emph{fractional} reserve banking, but in many cases the more appropriate term +is ``\emph{fictional}'' reserve banking. In the BitShares ecosystem, however, +we demand at least 100\% reserves. Every Dollar, Euro, bitcoin and ounce of +gold held as a SmartCoin on the BitShares DEX is backed by at least, but often +greater than 100\% reserves. In a centralized exchange, a single hack, +mistake, or theft can quickly turn a 100\% reserve system into a fractional +reserve system, or worse, a "fictional" reserve system. Without any reserves, +it is unlikely that an exchange would ever be able to pay back the funds it +owes to its customers. -By always maintaining reserves, you can rest assured that BitShares is solvent -in almost any market. All of the reserves are kept as BTS held in collateral on -the blockchain, and they cannot be stolen, because there are no private keys -that can be compromised to steal all of the reserves. +Because the BitShares DEX always maintains a minimum of 100\% reserves, users +can rest assured that BitShares will be solvent in almost any market. Since all +of the reserves are kept as BTS held in collateral on the blockchain, they +cannot be compromised because there are no private keys that can be stolen. diff --git a/content/fp-dex.tex b/content/fp-dex.tex index fc0fbb7..2d576af 100644 --- a/content/fp-dex.tex +++ b/content/fp-dex.tex @@ -1,14 +1,14 @@ \label{sec:dex} -Throughout history, centralized exchanges have repeatedly proven unreliable and -untrustworthy. Whether it is MF~Global, Mt.~Gox, BitStamp, or +Throughout recent history, centralized exchanges have repeatedly proven +unreliable and untrustworthy. Whether it is MF~Global, Mt.~Gox, BitStamp, or Bitfinex~\cite{mfglobal,mtgox,bitstamp,bitfinex}, many people have been cheated because they allowed a 3rd party to hold their funds. It doesn't matter how big they are, or how many auditors, regulators or insurers are involved, every kind -of fraud, abuse, and theft can occur and has occurred. In the modern financial +of fraud, abuse, and theft can and has occurred. In the modern financial system, these transgressions happen all too frequently within centralized banks -and exchanges operating across the world. +and exchanges all around the world. -Hence, in the following paragraphs, we introduce the decentralized exchange -(DEX) within the BitShares network and discusses the benefits of using it in -contrary to centralized exchanges. +Hence, in the following paragraphs, we will outline the concept of the +decentralized exchange (DEX) that powers the BitShares network and discuss the +many benefits of using it has over traditional centralized exchanges. diff --git a/content/fp-fees.tex b/content/fp-fees.tex index 99e1a41..8503121 100644 --- a/content/fp-fees.tex +++ b/content/fp-fees.tex @@ -9,12 +9,12 @@ In the BitShares ecosystem every operation is assigned an \emph{individual} fee. These fees are subject to change. However, they are defined solely by -shareholder approval and, hence, every shareholder of the BitShares core asset -(BTS) has a say as to what the fees should be. If shareholders can be convinced -to reduce a certain fee and consensus is reached, the fee will be reduced -automatically by the blockchain\footnote{Changes of blockchain parameters are -proposed by members of the committee. These members are voted by shareholders -and improve the flexibility and reaction rate.}. +shareholder approval, thus each and every shareholder of the BitShares core +asset (BTS) has a say as to what the fees should be. If shareholders can be +convinced to reduce a certain fee and consensus is reached, the fee will be +reduced automatically by the blockchain\footnote{Changes of blockchain +parameters are proposed by members of the committee. These members are voted by +shareholders and improve the flexibility and reaction rate.}. % The following fees are associated with the DEX and financial instruments: % % diff --git a/content/fp-morecontr.tex b/content/fp-morecontr.tex index 34afdf8..e420682 100644 --- a/content/fp-morecontr.tex +++ b/content/fp-morecontr.tex @@ -3,10 +3,10 @@ allow for limited smart contracting capabilities, the BitShares network allows for arbitrary transactions types, in general. -However, in contrast to so called \emph{Turing-complete} blockchain project, +However, in contrast to so called \emph{Turing-complete} blockchain projects, such as Ethereum, adding new features or transaction types to the protocol requires shareholder consensus. -Hence, new features have to be \emph{proposed} to the shareholders and the -implementation has to reach approval. Only after that will the protocol be -upgraded to the next version including that particular feature set. +Hence, new features must be \emph{proposed} to the shareholders who must reach +consensus to approve them. Only after this happens is the protocol then +upgraded to the next version which includes the new feature set. diff --git a/content/fp-mpa-blackswan.tex b/content/fp-mpa-blackswan.tex index 1177fe6..5a8bf9d 100644 --- a/content/fp-mpa-blackswan.tex +++ b/content/fp-mpa-blackswan.tex @@ -1,14 +1,12 @@ \label{sec:blackswan} -All guarantees of smartcoins are subject to the caveat that a smartcoin can +All guarantees of SmartCoins are subject to the caveat that a SmartCoin can never be worth more than the collateral backing the \emph{least-collateralized} short position. All collateral above this maintenance collateral limit is effectively meaningless when it comes to enforcing the ``peg''. In normal market conditions, the value of the collateral is always more than sufficient, but, from time to time, markets can rapidly revalue the collateral. -% A black swan event occurs whenever . - If this revaluation happens faster than the short positions can be forced to cover, then all SmartCoins are liquidated at the exchange rate of the least collateralized short position. This is called a \emph{black swan} event since diff --git a/content/fp-mpa-costumer.tex b/content/fp-mpa-costumer.tex index 84eef8a..958d8e1 100644 --- a/content/fp-mpa-costumer.tex +++ b/content/fp-mpa-costumer.tex @@ -1,5 +1,5 @@ Customers use BitUSD because it provides them the convenience and freedom of a -crypto-currency, and has lower transfer fees compared to most other payment +cryptocurrency, and has lower transfer fees compared to most other payment platforms besides being significantly more convenient than fiat. A customer looking to buy goods and services with BitUSD finds himself paying a @@ -14,7 +14,7 @@ is theoretically worth slightly more outside the ecosystem. Of course, merchants and customers are free to negotiate the best way to split -the premium, and the free market will take care of the rest. In the mean time, +the premium, and the free market will take care of the rest. In the meantime, all participants can rest assured that BitUSD is always worth \emph{at least} \$1, and can consider the premium for entering the ecosystem as a one-time fee comparable to fees required for the exchange of foreign currencies. diff --git a/content/fp-mpa-create.tex b/content/fp-mpa-create.tex index 77824fc..27a8ba0 100644 --- a/content/fp-mpa-create.tex +++ b/content/fp-mpa-create.tex @@ -8,15 +8,15 @@ block chain based marketplace is referred to as the \emph{decentralized exchange} or \emph{internal market} (c.f., \cref{sec:dex}) to distinguish from \emph{external markets} such as websites that facilitate the exchange of -government issued currencies with crypto-currency. +government issued currencies with cryptocurrency. -SmartCoins are tokens of a particular MPA (e.g. bitUSD), take the concept of a -contract for difference, and make the long side fungible. For the purpose of -this discussion, we will assume that the long side of the contract is BitUSD +SmartCoins are tokens of a particular MPA (e.g. bitUSD). They use the concept +of a contract for difference, and make the long side fungible. For the purpose +of this discussion, we will assume that the long side of the contract is BitUSD and that the backing \emph{collateral} is BTS (the BitShares core asset). In practice, bitUSD are created on the BitShares blockchain when a BTS holder -asks the network for them by handing over \emph{collateral} to the network +asks the network for them by handing over \emph{collateral} to the network, essentially locking them in a contract for difference (c.f., \emph{1)} in \cref{fig:btsdex}). @@ -24,24 +24,23 @@ \begin{center} \includegraphics[width=.8\linewidth]{figures/external-pricefeed} \end{center} - \caption{Illustration of external price discovery and a ``short-sell'' to seek + \caption{Illustration of external price discovery and a ``short sell'' to seek greater exposure for BTS price movements.} \label{fig:btsdex} \end{figure} The collateral is only returned to the short seller when the corresponding amount of the asset agreed in the contract is handed over to the BitShares -network again. The protocol will then effectively destroyed these tokens and +network again. The protocol will then effectively destroy these tokens and fulfill the contract. This is referred to as \emph{covering a short}. At the moment of creation, the position of the \emph{shorter} has not changed at all because he can directly cover his own short position using the bitUSD to gain back his BTS used as collateral. -In the case the short seller has sold the smartcoins he is required to purchase -them back from the market. - -In the mean-time, if the value of the collateral relative to the current price -of the market pegged asset falls below a certain margin of safety the assets +If the short seller has sold the SmartCoins he has created, then he would be +required to purchase them back from the market before closing his short +position. Meanwhile, if the value of the collateral relative to the current price +of the market pegged asset falls below a certain margin of safety, the assets can be automatically (i.e. initiated by the protocol itself) repurchased from the market before the collateral becomes insufficient. @@ -56,10 +55,10 @@ (for the sake of simplicity, we here focus on the MPA bitUSD): \begin{itemize} \item Anyone with BitUSD can settle their position within an - interval\footnote{defined by the shareholder approval} at the feed - price. - \item The \emph{least} collateralized short positions are used to settle the - position. + interval\footnote{defined by the shareholder approval} at the settlement + price (identical to the feed price). + \item In this case, the \emph{least} collateralized short positions would be + margin called and their collateral would be used to settle the position. \item The price feed is the median of many sources that are updated at least once per hour. \item Short positions never expire, except by hitting the maintenance @@ -68,7 +67,7 @@ \item In the event that the least-collateralized short position lacks enough collateral to cover at the price feed, then all BitUSD positions are automatically force settled at the price of the least collateralized - short (black swan even, see~\cref{sec:blackswan}). + short (black swan event, see~\cref{sec:blackswan}). \end{itemize} These simple rules enable a price floor of \$1.00 for 1.00 BitUSD. A simple diff --git a/content/fp-mpa-manipulation.tex b/content/fp-mpa-manipulation.tex index 3093361..e2fa16e 100644 --- a/content/fp-mpa-manipulation.tex +++ b/content/fp-mpa-manipulation.tex @@ -3,7 +3,7 @@ and thus the price feed. If the amount of money they lose manipulating the markets is less than the amount of money they can gain by manipulating the price feed, then it will be profitable to manipulate the market at the expense -of either the BitUSD longs or the shorts. A low-collateralized short that sees +of either the BitUSD longs or the shorts. A low collateralized short that sees a large force or global settlement order requested can attempt to manipulate the markets and thus the feed against the BitUSD holder. diff --git a/content/fp-mpa-merchant.tex b/content/fp-mpa-merchant.tex index 8231a1b..5eafb7d 100644 --- a/content/fp-mpa-merchant.tex +++ b/content/fp-mpa-merchant.tex @@ -1,5 +1,5 @@ A merchant wants to be able to price merchandise in BitUSD, and obtain real USD -in the bank account, in a reasonable time, with minimal risk. In this case, a +in their bank account, in a reasonable time, with minimal risk. In this case, a merchant would place BitUSD on the market at \$1 per BitUSD. As discussed, BTS buyers are looking for the opportunity to buy BitUSD at that price. diff --git a/content/fp-mpa-risk-counter.tex b/content/fp-mpa-risk-counter.tex index f2dee83..1120d8a 100644 --- a/content/fp-mpa-risk-counter.tex +++ b/content/fp-mpa-risk-counter.tex @@ -1,7 +1,8 @@ Unlike many attempts to create a digital asset that tracks the dollar, market -pegged asset are not an \emph{I owe you} issued by any entity. For this reason, -it does not rely on a specific counterparty to honor its value (unless a -software protocol is seen as an independent entity). +pegged asset are not an ``\emph{I owe you}'' issued by any entity. For this +reason, it does not rely on a specific counterparty to honor its value (unless +you choose to view the software protocol itself as an independent +``counterparty'' entity). Although manipulation risk occurs in any market, it is minimized by the open source and auditable nature of the BitShares system and carefully considered diff --git a/content/fp-mpa-risk-system.tex b/content/fp-mpa-risk-system.tex index 67bb2bf..cfd3afa 100644 --- a/content/fp-mpa-risk-system.tex +++ b/content/fp-mpa-risk-system.tex @@ -9,7 +9,7 @@ Systemic risk also includes the possibility of an overlooked fatal flaw in the open source software or the possibility of large scale failure of global network infrastructure. While some risk components should drastically reduce -over time, such as implementation bugs and computational bottle necks, others +over time, such as implementation bugs and computational bottlenecks, others are constant and difficult to predict, such as politics (i.e. legislation, regulations, etc.) or natural catastrophes that may result in partial or global internet outages. diff --git a/content/fp-mpa-risk.tex b/content/fp-mpa-risk.tex index 3a05142..8054357 100644 --- a/content/fp-mpa-risk.tex +++ b/content/fp-mpa-risk.tex @@ -1,5 +1,5 @@ The current implementation of market pegged assets in the BitShares system is -designed to minimize risk of loss to smartcoin holders. The collateral +designed to minimize risk of loss to SmartCoin holders. The collateral requirements and margin triggers were chosen conservatively to protect the holders of market pegged assets from volatility of the underlying collateral. Control over the price feed is distributed among $N$ separately elected feed diff --git a/content/fp-mpa-short.tex b/content/fp-mpa-short.tex index 36aacc0..17beac8 100644 --- a/content/fp-mpa-short.tex +++ b/content/fp-mpa-short.tex @@ -13,11 +13,11 @@ unlikely to be forced to settle at the feed or at an inopportune time. \medskip -In practice, the only way new smartcoins enters circulation is if there is +In practice, the only way new SmartCoins enter circulation is if there is someone willing to pay enough of a premium to convince a short to provide guaranteed liquidity at the price feed on demand, while also covering the cost of exchange rate risk. This premium will be higher for the backing -crypto-currency in a bear market, and will be lower in a bull market. +cryptocurrency in a bear market, and will be lower in a bull market. Someone who is short has only one way to exit their position: by buying smartcoins off the market. This means that a short must also factor in the risk diff --git a/content/fp-mpa-stab-bts1.tex b/content/fp-mpa-stab-bts1.tex index c088d31..412333b 100644 --- a/content/fp-mpa-stab-bts1.tex +++ b/content/fp-mpa-stab-bts1.tex @@ -1,22 +1,23 @@ \label{sec:bitassets1} -The first proposal of the BitAsset system has evolved over 9 months since it -first launched as we learned how market participants reacted to various rules. -We noticed that, liquidity is critical to confidence in the value of the token -and that a system with unbalanced rules will tend to bias the price in one +The first iteration of the BitShares bitAsset engine evolved for over 9 months +as we observed how market participants reacted to various rules. We noticed +that liquidity is critical to bring confidence in the value of the token, and +that a system with unbalanced rules will tend to bias the price in one direction or the other. -Early on, BitUSD was driven down to \$0.85 as demand for shorting outstripped -demand for BitUSD and shorts were not forced to cover. Then, after implementing -a \emph{30 day forced covering rules}, the price stabilized around \$0.98 to -\$1.00. Later, as the cryptocurrency bear market progressed, we had BitUSD -trading at \$1.05 or more because everyone is scared to use leverage and those -that have open positions looked to cover their position while those who held -BitUSD were not looking to sell. Over the course of these past 9 months, we -have seen 3 different markets and had an opportunity to better understand the -behavior of market participants and improve the protocol accordingly. +Early on, BitUSD (BitShares SmartCoin pegged to the U.S. dollar) was driven +down to \$0.85 as demand for shorting outstripped demand for BitUSD and shorts +were not forced to cover. Then, after implementing a \emph{30 day forced +covering rule}, the price stabilized around \$0.98 to \$1.00. Later, as the +cryptocurrency bear market progressed, BitUSD was trading at \$1.05 or more +because everyone was scared to use leverage and those that had open positions +looked to cover their position while those who held BitUSD were not looking to +sell. Over the course of these past 9 months, we observed the dynamics of 3 +different markets and thus had the opportunity to refine our understanding of +the the behavior of market participants and improve the protocol accordingly. -We have seen that the idea of a market pegged crypto token can in general work, -but obviously, we were not satisfied as to \emph{how well} BitAssets 1.0 -worked. For that reason, the improved BitAssets 2.0 protocol was proposed which -will be described in the following. +While we saw that the idea of a market pegged crypto token was generally well +accepted in the marketplace, we were not yet satisfied as that the system had +been perfected. For that reason, we improved the BitAssets engine for the +BitShares 2.0 protocol. diff --git a/content/fp-mpa-stab-def.tex b/content/fp-mpa-stab-def.tex index 01f833d..8c37fdd 100644 --- a/content/fp-mpa-stab-def.tex +++ b/content/fp-mpa-stab-def.tex @@ -1,31 +1,32 @@ -Before we discuss how BitShares achieves price \emph{stability} we first need to -define what properties make a currency \emph{stable}. +Before we discuss how BitShares achieves price \emph{stability}, we first need +to define what properties make a currency \emph{stable}. -In the U.S., for instance, the Federal Reserve (FED) has a mandate of -\emph{stable prices} and it is almost universally accepted that this is a good -mandate. The same holds true for the Euro with its stability being -\emph{controlled} by the European Central Bank (ECB). Mostly every -country/nation or federation applies a similar concept to gain control over -prices via monetary policies like quantitative easing and interest rates for -commercial banks that borrow money from the central bank. +In the U.S. for instance, the Federal Reserve (FED) has a mandate of +\emph{stable prices} and it is almost universally accepted by the market that +this is a good mandate. The same holds true for the Euro, with its stability +being achieved through the European Central Bank (ECB). Almost every country +applies a similar methods to gain control over prices via monetary policies +like quantitative easing and fixing of the interest rates for commercial banks +that borrow money from the central bank. -As a very basic example, imagine a central bank managed to keep prices stable -through their monetary policy with 0\% price inflation over 20 years. Now lets -assume that during this same 20 years the advances in robotics and automation -resulted in a 3x increase in efficiency and thus there are now 3x as much food, -cars, phones, houses, etc. For the sake of this example we will assume the -population is the same and everyone has the same amount of money in the bank. -You would normally expect that everything would be 1/3 the price and that -everyone would be able to afford 3x their prior life style. But because of the -central bank's intervention they have managed to also increase the money supply -by 3x. The newly created money is then borrowed to the commercial banks which -borrow it again to the people at a profit. +As a very basic example, imagine that a central bank has managed to keep prices +stable through their monetary policy with 0\% price inflation for 20 years. +Now let's assume that during this same 20 years the advances in robotics and +automation resulted in a 3x increase in efficiency and thus there are now 3x as +much food, cars, phones, houses, etc. For the sake of this example we will +assume the population is the same and everyone has the same amount of money in +the bank. You would normally expect that everything would be 1/3 the price and +that everyone would be able to afford 3x their prior lifestyle. However, this +is unfortunately not the case. Because of constant intervention by the central +banks, they have managed to also increase the money supply by 3x. The newly +created money is then lent to the commercial banks which then lend it again to +the people at a profit. -Since this monetary inflation is a sustained increase in the general level of -prices, it is equivalent to a decline in purchasing power of money. Hence, a -dollar buys less and less over time. As a result, we see the dollar losing 99\% -of its \emph{purchasing power} since the FED was founded in 1913~(see -\cref{fig:monetarybase}). +Since this monetary inflation results in a sustained increase in the general +level of prices, it is equivalent to a decline in the purchasing power of +money. Hence, a dollar buys less and less over time. As a result, we see the +dollar hast lost 99\% of its \emph{purchasing power} since the FED was founded +in 1913~(see \cref{fig:monetarybase}). \begin{figure}[!htp] \centering @@ -34,21 +35,22 @@ \label{fig:monetarybase} \end{figure} -Of course, the goal of this paper is not to propose a replacement of central -banks or their monetary policies, but to clarify the terminology in particular -with regards to ``stable'' cryptocurrencies. Some other projects in the -cryptocurrency space are attempting to provide an alternative currency that can -achieve the exact same mandate as the central banks and leave the profits in -the hands of only few institutional entities. However, we do not want to bring -this same mandate to crypto currencies but instead aim for a decentralized -\emph{market-peg}. +Of course, the goal of this paper is not to propose a replacement for central +banks or their monetary policies, but we do wish to clarify some terminology, +particularly as it relates to other ``stable'' cryptocurrencies. Other projects +in the cryptocurrency space have attempted to provide an alternative currency +that will ultimately achieve a similar mandate as the central banks, leaving +the profits in the hands of only few institutional entities. BitShares +\emph{market-pegged} assets will not result in the centralization of power and +control in this way. -Let us discuss the example above: Since, we see a decreasing purchasing power -over time, we notice that price \emph{stability} is not too important. -Obviously, we would rather achieve a \emph{stable purchasing power}. However, -since we want to \emph{peg} to the dollar, which simply doesn't show a -\emph{stable value}, we, for now, cannot aim for this. What we want to achieve -instead is +Let us discuss the example above. Since the centralized bank policies have +resulted in a steady decrease in purchasing power over time, we notice that +price stability does not seem very important to them. Eventually, the ideal +goal would be to achieve a currency with a long term \emph{stable purchasing +power}. However, for now we must be content to achieve \emph{relative +stability} by pegging SmartCoins to the dollar or euro or gold, etc. To +summarize, what we want to achieve is: \begin{itemize} \item a \emph{predictable} price with \emph{reduced volatility} \item a somewhat reliable ability to \emph{predict the future value} of a token, and @@ -56,26 +58,13 @@ losses for tax purposes. \end{itemize} -Hence, for us, price ``stability'' means price \emph{predictability} within -some tolerance level. In the case of the U.S. dollar, a willingness to accept a -yearly loss in purchasing power via monetary policies, demonstrates that +Hence for us, price ``stability'' means price \emph{predictability} within some +tolerance level. In the case of the U.S. dollar, a willingness to accept a +yearly loss in purchasing power via monetary policies demonstrates that predictability is more important than stability~\cite{bm:stable:impossible}. Alternatively, BitShares offers a decentralized solution to implement the Consumer Price Index (CPI) to peg to the changes in the price of a market -basket purchased by regular households. This way, a stable crypto token (that -must not be denoted in dollar, etc.) can trade with constant purchasing power. - - -% Since price stability at its heart is the same as \emph{price fixing}, this is -% a well known economic fallacy that crypto-currencies should avoid. -% -% The goal of the FED price stability mandate is to mask the systematic theft of -% all increases in the production efficiency of the economy. -% -% and distribute it in secret. The end result is that some people get a 1000x -% increase in life style while everyone else stands still. -% -% We can conclude from this example that the mandate for price stability is -% mostly a goal meant to mislead the general public and mask theft from the lower -% and middle classes on a massive scale even at 0\% price inflation. +basket of goods and services purchased by regular households. This is another +way BitShares users can hold and trade a stable crypto token that will help +them retain their purchasing power. diff --git a/content/fp-mpa-stab-feed.tex b/content/fp-mpa-stab-feed.tex index 9c31bb8..76bbe76 100644 --- a/content/fp-mpa-stab-feed.tex +++ b/content/fp-mpa-stab-feed.tex @@ -1,8 +1,7 @@ \label{sec:feeds} -In order for settlements to convert any smartcoin into the core asset (e.g. BTS -in the BitShares network) at a fair price, the blockchain needs to be aware of -the external price of BTS. +The blockchain needs to be aware of the external price of BTS in order for +settlements to convert SmartCoins into the core asset (BTS) at a fair price. In BitShares, this is achieved by means of a set of $N$ trusted \emph{witnesses}. These witnesses have to be elected by the corresponding @@ -23,12 +22,13 @@ \frac {1}{2}\left(x[{\frac{N}{2}}] + x[\frac{N}{2} + 1]\right) & N \text{ even.} \end{cases} \end{align} -Hence, the price is resistant against misbehaving witnesses in such as only a +Hence, the price is resistant against misbehaving witnesses in that only a majority of price publishers can manipulate the outcome of the median. In practice, any unintentional feed \emph{error} is thus balanced around the true price. % FIXME later, show some statistics from bts-0.9 Obviously, the shareholders are required to constantly monitor the published -prices of their witnesses and should make public note about discrepancies. This -is similar to traditional \emph{quality management} for the \emph{smartcoin} -products (e.g. bitUSD) and BitShares can offer a paid position in that regard. +prices of their witnesses and should make a public note about any +discrepancies. This is similar to traditional \emph{quality management} for the +\emph{Smart Coin} products (e.g. bitUSD) and BitShares system can offer a paid +position to perform this service. diff --git a/content/fp-mpa-stab-floor.tex b/content/fp-mpa-stab-floor.tex index 63603dc..004cb19 100644 --- a/content/fp-mpa-stab-floor.tex +++ b/content/fp-mpa-stab-floor.tex @@ -1,19 +1,15 @@ -In order for BitUSD to be accepted as being equal to \$1.00 for the purposes of -setting prices and online shopping, it only needs to maintain a \emph{floor} of -\$1.00. If it can maintain a floor of \$1.00, then merchants can accept it, -know their margins are safe, and that they are \emph{not exposed to currency -risk}. In order to enable a guaranteed floor, all BitUSD can be \emph{force -liquidated} at a trustworthy price feed\footnote{Price feeds are published by -\emph{witnesses} that have shareholder approval. See~\cref{sec:feeds}.}. If -this rule is present, then those who create the BitUSD must sell it at a price -that properly accounts for this risk of so called \emph{forced settlement}. -This means that at almost all times new BitUSD will only enter circulation when -there is a buyer willing to pay a premium for a guaranteed floor. +For BitUSD to be accepted as being equal to \$1.00 for the purposes of setting +prices, it only needs to maintain a \emph{floor} of \$1.00. If it can maintain +a floor of \$1.00, then merchants can accept it and know their margins are safe +and that they are \emph{not exposed to currency risk}. In order to enable a +guaranteed floor, all BitUSD can be \emph{force liquidated} at a trustworthy +price feed\footnote{Price feeds are published by \emph{witnesses} that have +shareholder approval. See~\cref{sec:feeds}.}. Since this rule is present, +those who create the BitUSD must sell it at a price that properly accounts for +this risk of \emph{forced settlement}. This means that at almost all times, new +BitUSD will only enter circulation when there is a buyer willing to pay a +premium for a guaranteed floor. As we will see, since USD holders can initiate settlement, there is no need for artificial forced covering every 30 days. This relieves shorts of risk, helps increase short demand, and keeps the price of BitUSD near the floor. - -Also note that for reasons of easier description in this paper, the terms -\emph{SmartCoins} and \emph{Market Pegged Assets} are now synonym to BitAsset -2.0. diff --git a/content/fp-mpa-stab.tex b/content/fp-mpa-stab.tex index 8dd642c..fe8f5ea 100644 --- a/content/fp-mpa-stab.tex +++ b/content/fp-mpa-stab.tex @@ -1,5 +1,6 @@ -Ever since the bitcoin blockchain initiated the age of decentral public +Ever since the bitcoin blockchain initiated the age of decentralized public ledgers, economists and computer scientists have attempted to achieve a -\emph{stable} or \emph{price pegged} crypto-currency. The following two -subsections will discuss the meaning of a \emph{stable} or \emph{pegged} -currency and show how BitShares gains from the conclusions. +\emph{stable} or \emph{price pegged} cryptocurrency. The following two +subsections will discuss our discoveries about the true nature of \emph{stable} +or \emph{pegged} currency and explain how BitShares has solved this complex +issue. diff --git a/content/fp-mpa.tex b/content/fp-mpa.tex index 6b61313..01fc567 100644 --- a/content/fp-mpa.tex +++ b/content/fp-mpa.tex @@ -1,41 +1,33 @@ \label{sec:mpa} -A crypto-currency, with the properties and advantages of Bitcoin, that is +A cryptocurrency that has the properties and advantages of Bitcoin, but is also capable of maintaining price parity with a globally adopted currency (e.g. -U.S. dollar), has high utility for convenient and censorship resistant -commerce. This can be achieved by BitShares' market pegged assets (MPA), a new -type of freely traded digital asset whose value is meant to track the value of -a conventional underlying asset by means of contracts for difference (CFD). +U.S. dollar), would have incredible high utility for convenient and +censorship-resistant commerce. This has been achieved by BitShares' market +pegged assets (MPA), a new type of freely traded digital asset whose function +has been designed to track the value of a underlying conventional asset by +means of contracts for difference (CFD). -A \emph{SmartCoin} (synonym for MPA) is a crypto-currency that \emph{always} -has 100\% or more of its value backed by the BitShares core currency (BTS), to +A \emph{SmartCoin} (synonym for MPA) is a cryptocurrency that \emph{always} has +100\% or more of its value backed by the BitShares core currency (BTS), to which they can be converted at any time, as \emph{collateral} in a CFD. What makes MPAs unique is that they are free from counterparty risk even though -they resemble a CFD backed by collateral. This is achievable by letting the -network itself (implemented as a software protocol) be responsible for securing -the collateral and performing settlements as will be described in more detail -below. +they resemble a CFD backed by collateral. This is achieved by allowing the +network itself (implemented as a software protocol) to be responsible for +securing the collateral and performing settlements. This will be described in +greater detail below. -% at an exchange rate set by a trustworthy price feed\footnote{Price feeds are -% published by witnesses that have shareholder approval.}. -% While certain risks of the system have been outlined, no system is -% without risk. The current banking system allows private funds to be frozen or -% confiscated without consent, such as by court order or administrative actions. -% Traditional banks and financial institutions are susceptible to insolvency. -% The availability and quality of banking service varies greatly throughout the -% world. +We will present SmartCoins as a viable open source alternative to the slow, +restrictive, and expensive ``legacy'' banking system. SmartCoins that have +price parity with a commonly used currency will enable merchant adoption with +ease and efficiency. Also, they will reduce the need to calculate capital gains +and losses on volatile assets to determine tax liability. In short, BitShares +is bringing \emph{publicly} auditable open source banking to anyone with access +to the internet. MPAs allow savers and spenders to choose their preferred asset +type, which brings flexibility and ease of use to the open source banking +experience. -We will present SmartCoins as a viable open source alternative to the expensive -banking system. Achieving price parity with a commonly used currency -facilitates pricing and acceptance by merchants. Additionally it reduces the -need to calculate capital gains and losses on volatile assets to determine tax -liability. In short, BitShares brings \emph{publicly} auditable open source -banking to anyone with access to the internet. MPAs allow savers and spenders -to choose preferred asset types. This brings flexibility and ease of use to the -open source banking experience. - -The subsequent paragraphs will explain how market pegged assets including (for -instance) \emph{BitUSD} (intended to track the value of the U.S. dollar) -achieve price parity while minimizing risk to holders. +The subsequent paragraphs will explain how market pegged assets achieve price +parity while minimizing risk to their holders. diff --git a/content/fp-uia-profit.tex b/content/fp-uia-profit.tex index 6cf1374..fa9a9c0 100644 --- a/content/fp-uia-profit.tex +++ b/content/fp-uia-profit.tex @@ -1,17 +1,17 @@ There are many ways to profit from issuing an asset. As the issuer you have complete control over market fees and can tune parameters such as the percent -of each trade that is collected as a fee. This percentage can be bounded by a +of each trade that is collected as a fee. This percentage can be bound by a minimum and maximum fee. The combination of these parameters give issuers flexibility in pricing. -As an example, you could easily implement a centralized payment solution on top +For example, you could easily implement a centralized payment solution on top of the decentralized BitShares network and mimic the business model of Dwolla and Paypal. In BitShares, you simply issue your own IOUs for U.S. dollars or Euro and send them to the wallets of your customers. Whenever a customers buys a market items from another customer, they may choose to pay with your IOU and require a percentage or fixed amount as fee for your service. The major -advantage for your business is that you do not require to maintain your own -highly reliable database servers that contain your costumers' balances since -your costumers maintain their wallets on their own and the public ledger -securely stores the balances. This outsourcing increases your profits and -improves competitiveness and no cost. +advantage for your business is that you are not required to maintain your own +highly reliable database servers that contain your customers' balances since +your customers maintain their wallets on their own and the public ledger +securely stores the balances. This outsourcing increases security and profits, +and improves competitiveness at no extra cost. diff --git a/content/fp-uia-rights-kyc.tex b/content/fp-uia-rights-kyc.tex index f423a15..ed59727 100644 --- a/content/fp-uia-rights-kyc.tex +++ b/content/fp-uia-rights-kyc.tex @@ -1,6 +1,6 @@ -First and foremost the issuer must know every single customer's identity. -BitShares supports this by enabling both \emph{whitelists} and -\emph{blacklists} on the block chain. +To comply with Know Your Customer (KYC) laws the issuer must know every single +customer's real world identity. BitShares supports this by enabling both +\emph{whitelists} and \emph{blacklists} on the block chain. When an asset enables whitelists, no account may send, receive or trade that asset without being on an authorized whitelist. Rather than requiring every @@ -11,9 +11,9 @@ With this feature, account funds can effectively be \emph{frozen} by removing them from the whitelist. Of course this only affects those tokens of that -particular UIA. Additionally, the issue may take back his assets from any +particular UIA. Additionally, the issuer may take back his assets from any account, if required. Note that these kind of administrative powers are available only for UIAs and -not for MPAs. Additionally an issuer may choose to indefinitely give up on -partial of full control over administrative powers. +not for MPAs. Additionally an issuer may choose to indefinitely give up partial +of full control over each specific administrative power. diff --git a/content/fp-uia-rights-market.tex b/content/fp-uia-rights-market.tex index ceb92b5..aec83f0 100644 --- a/content/fp-uia-rights-market.tex +++ b/content/fp-uia-rights-market.tex @@ -1,9 +1,9 @@ An issuer who offers USD, EUR and other fiat deposits may need to restrict direct trading between their fiat assets to avoid being subject to foreign -currency exchange regulations. Some crypto-currency exchanges allow trading +currency exchange regulations. Some cryptocurrency exchanges allow trading between fiat and crypto-currencies, but not between two fiat currencies. Without this feature, many exchanges would be unable to issue their assets on -the BitShares blockchain. Hence, an issuer may chose to also white- or +the BitShares blockchain. Hence, an issuer may choose to also white or blacklist trading partners for their user issued assets (i.e. IOUs). This way, the issuer can prevent customers from trading USD-IOUs for EUR-IOUs without restricting other pairs. Fortunately, MPAs, such as the bitUSD are not fiat and diff --git a/content/fp-uia-rights-seize.tex b/content/fp-uia-rights-seize.tex index c8bc15b..b31a8bd 100644 --- a/content/fp-uia-rights-seize.tex +++ b/content/fp-uia-rights-seize.tex @@ -1,6 +1,6 @@ From time to time, an issuer may be required to seize funds as a result of a -court order. While this may be unappealing to crypto-currency purists, it is an -unavoidable reality of trust-based assets. An issuer can determine whether or -not they wish to revoke this privilege, but it may be a requirement in some +court order. While this may be unappealing to cryptocurrency enthusiasts, it is +an unavoidable reality of trust-based assets. An issuer can determine whether +or not they wish to revoke this privilege, but it may be a requirement in some jurisdictions. Once again, this privilege only affects tokens of a particular UIA and does not apply to MPAs like the bitUSD. diff --git a/content/fp-uia-rights-tx.tex b/content/fp-uia-rights-tx.tex index 265abbb..cfe955f 100644 --- a/content/fp-uia-rights-tx.tex +++ b/content/fp-uia-rights-tx.tex @@ -1,6 +1,6 @@ A transfer-restricted asset allows the holders of the asset to trade it in the -markets but not transfer it from person to person. Only a few crypto-currency +markets but not transfer it from person to person. Only a few cryptocurrency exchanges allow user-to-user transfer of funds outside the market, because this particular activity is often subject to a different set of money transmission regulations. For that reason, known exchanges make use of so called coupon -codes if customers demand for user-to-user transfers. +codes if there is a customer demand for user-to-user transfers. diff --git a/content/fp-uia-rights.tex b/content/fp-uia-rights.tex index 9dd47c1..79dd807 100644 --- a/content/fp-uia-rights.tex +++ b/content/fp-uia-rights.tex @@ -9,14 +9,14 @@ we will describe the tools available in BitShares that allow for compliant deposit receipts on the blockchain. -Therefore, with BitShares, it is now possible to move company-internal -databases onto the blockchain where deposits can make use of smart contracts -such as the internal markets, escrow, or bonds. +With BitShares, it is now possible to move a company's internal databases onto +the blockchain where deposits can make use of all the features that BitShares +offers, such as smart contracts, internal markets, escrow, or (later) bonds. In order to make traditional banking more profitable (through a decentralized -account balance database) and allow services like Paypal and Dwolla while -offering more freedom to the customers we identified (with extensive help from -many different banks and exchanges) the relevant laws required to comply with -when issuing deposit receipts. The following shall briefly discuss how -BitShares can assist to comply with those rules, technically\footnote{This -paper should not replace consultation of a lawyer}. +account balance database), and enable services like Paypal and Dwolla while +offering more freedom to the customers, we have identified (with extensive help +from many different banks and exchanges) the relevant laws required to comply +with when issuing deposit receipts. The following shall briefly discuss how +BitShares can assist to comply with those rules\footnote{This paper should not +replace consultation of a lawyer}. diff --git a/content/fp-uia-uc-crowdfunding.tex b/content/fp-uia-uc-crowdfunding.tex index 0bc08c0..ac5a02f 100644 --- a/content/fp-uia-uc-crowdfunding.tex +++ b/content/fp-uia-uc-crowdfunding.tex @@ -1,4 +1,4 @@ -With BitShares, decentralized crowd funding becomes an easy task. Technically +With BitShares, decentralized crowdfunding becomes an easy task. Technically the process breaks down to as few as two steps: \begin{inparaenum}[(a)] \item Create and issue a new token that should represent your project, and @@ -9,6 +9,6 @@ be traded on traditional (centralized) exchanges but they can also be traded in the decentralized exchange that will be discussed in \cref{sec:dex}. -Whether the UIAs are used as a transferable coupon for a pre-sale, or doing an -initial public offering (IPO) on a small company, issuing an asset is one of -the most effective means of raising money for a cause. +Whether the UIAs are used as a transferable coupon for a pre-sale, or for +holding an initial public offering (IPO) for a small company, issuing an asset +is one of the most effective means of raising money for a cause. diff --git a/content/fp-uia-uc-pm.tex b/content/fp-uia-uc-pm.tex index 6e978b8..f1de691 100644 --- a/content/fp-uia-uc-pm.tex +++ b/content/fp-uia-uc-pm.tex @@ -1,7 +1,7 @@ With BitShares and the decentralized exchange described in \cref{sec:dex}, -prediction markets~\cite{wiki_pm} are quickly implemented. A binary prediction -market has a ``price'' between 0 and 1 representing the two possible outcomes -of an event. All that is needed is a proper prediction criteria in the +prediction markets~\cite{wiki_pm} can be quickly implemented. A binary +prediction market has a ``price'' between 0 and 1 representing the two possible +outcomes of an event. All that is needed is a proper prediction criteria in the description of a newly created asset that anybody can issue by putting up collateral. @@ -10,14 +10,14 @@ collateralized at any price. While the event has not occurred, the price of this asset reflects the -probability of an event to occur. After the event has occured the issuer can +probability of an event to occur. After the event has occurred the issuer can settle all positions at final ``price'' depending on the actual outcome. Participants that have voted correctly will be able to settle their shares back to the network at a higher price and make a profit. -These prediction markets can be very secure if the issuer is a multi-sig +These prediction markets can be very secure if the issuer is a multi-signature account with many independent and trustworthy parties involved. -This feature, in combination with the bitUSD, allows to reimplement most binary -prediction and information markets currently established in a decentralized and -trust-less manner. +This feature, in combination with the bitUSD, allows anyone to implement most +binary prediction and information markets currently established in a +decentralized and trustless manner. diff --git a/content/fp-uia-uc-points.tex b/content/fp-uia-uc-points.tex index 43d558c..5c50b05 100644 --- a/content/fp-uia-uc-points.tex +++ b/content/fp-uia-uc-points.tex @@ -1,10 +1,11 @@ -A use-case easily implemented and with only minor regulative hurdles are -\emph{reward points}, that Merchants already today offer to their loyal -customers. These points are accumulated to earn discounts on future purchases. +A use-case that can be easily implemented and with only minor regulatory +hurdles are \emph{reward points}, which Merchants already today offer to their +loyal customers. These points are accumulated to earn discounts on future +purchases. -These rewards systems are a prime opportunity to add value by making them -available to BitShares smart contracts. With an UIA, a merchant does no longer -need to maintain a database of customers and their rewards. Instead, he simply +Rewards systems are a prime opportunity to add value by making them available +to BitShares smart contracts. With an UIA, a merchant no longer needs to +maintain a database of customers and their rewards. Instead, he simply transfers a crypto token to the customer (e.g. via a mobile phone application) and the public ledger of BitShares takes over the maintenance leaving all administrative power to the merchant (i.e. the issuer of the UIA). diff --git a/content/fp-uia-uc-privatized.tex b/content/fp-uia-uc-privatized.tex index f96a106..95c6708 100644 --- a/content/fp-uia-uc-privatized.tex +++ b/content/fp-uia-uc-privatized.tex @@ -1,8 +1,7 @@ \label{sec:uia:priv} -A market-pegged crypto asset (a.k.a. SmartCoin) was the inspiration for -BitShares. With BitShares 2.0, users can create their own derivatives (i.e. -price-stable assets) with custom parameters designed to track the value of any +Wit BitShares 2.0, users can create their own derivatives (i.e. price-stable +assets) with custom parameters designed to track the value of any asset they can imagine by means of CFDs. The benefit of price-stable crypto-currencies is that they are \emph{fully collateralized}, and the issuer only needs to be trusted to appoint an honest set of independent @@ -10,12 +9,13 @@ Unlike deposit receipts, the value of a privatized SmartCoin is secured even if the issuer disappears (in this case, however, the asset may be declared -non-complying by regulators since white- and black-lists cannot be updated any +non-complying by regulators since white and blacklists cannot be updated any longer). -To create a privatized SmartCoin, Bitshares provides many parameters that an -issuer may tune. In addition to account whitelists, market restrictions, and -transfer restrictions, the issuer of a private SmartCoin has control over +To create a privatized SmartCoin, Bitshares provides several different +parameters that an issuer may fine tune. In addition to account whitelists, +market restrictions, and transfer restrictions, the issuer of a private +SmartCoin has control over \begin{inparaenum}[(a)] \item Collateral Type, \item Initial Collateral Rate, @@ -24,7 +24,7 @@ \item Price Feed Update Rate, \item Settlement Delay, %, and Daily Volume %% (???????) \item Global Forced Settlement, and - \item Trading and Withdrawal Fees + \item Trading and Withdrawal Fees. \end{inparaenum} With these tools it is possible to emulate a pure contract for difference with @@ -33,6 +33,6 @@ (c.f.~\cref{sec:bitassets1}). Hence, any arbitrary financial indexes can be used for the price feed to mimic -all manner of exotic assets. In addition with publicly auditable accounts even -mixed asset funds can be modelled with the advantage of verifiable ownership -claims by the fund manager. +all manner of exotic assets. Also, because accounts are publicly auditable, +even mixed asset funds can be modeled with the advantage of verifiable +ownership claims by the fund manager. diff --git a/content/fp-uia-uc-property.tex b/content/fp-uia-uc-property.tex index 81af941..213acaa 100644 --- a/content/fp-uia-uc-property.tex +++ b/content/fp-uia-uc-property.tex @@ -1,11 +1,11 @@ Software and music licenses can be made transferable by issuing them as a -digital asset. Every copy of a program can check to make sure that the user -has control of a token before running. Software implementing such a licensing +digital asset. Every copy of a program can check to make sure that the user has +control of a token before running. Software implementing such a licensing scheme can remain functional even if the company that produced the license goes out of business. Trading cards can be simulated by creating many limited issue assets. Online games can use these assets to represent game items. -Further related possibilities include (but are not restricted to): ownership +Further related possibilities include, but are not limited to: ownership tracking, authorization, membership identifications, etc. diff --git a/content/fp-uia-uc-stock.tex b/content/fp-uia-uc-stock.tex index a60d0f3..c0fbb4f 100644 --- a/content/fp-uia-uc-stock.tex +++ b/content/fp-uia-uc-stock.tex @@ -9,8 +9,8 @@ to \cref{sec:uia:restrictions}, corporate shares can certainly be issued and traded in the BitShares ecosystem (see \cref{sec:dex}). -When issuing a corporate share in BitShares, the company can decide who can -hold, share, or transfer its shares and can restrict trading markets freely +When issuing a corporate share in BitShares, the company can decide who is able +to hold, share, or transfer its shares and can restrict trading markets freely (e.g. only allow the market STOCK:bitUSD but not STOCK:bitGOLD). % Additionally, BitShares corporate shares can be used as collateral for a bonds diff --git a/content/fp-uia-uc-ticket.tex b/content/fp-uia-uc-ticket.tex index b25b26a..55b44e2 100644 --- a/content/fp-uia-uc-ticket.tex +++ b/content/fp-uia-uc-ticket.tex @@ -1,10 +1,10 @@ -Event tickets are a largely unregulated use case for UIAs. Tickets to a school -play could be issued as digital tokens that are auctioned off to the highest -bidder, who would then resell them. This ensures that the ticket issuer raises -as much money as possible up front, while transferring the risk of ticket sales -on to speculators. On the day of the event, the issuer can freeze all trading -of the asset and then allow users to cryptographically check in (e.g. with -their smart phones). +Event tickets are a largely unregulated use case for UIAs. Tickets to an event +could be issued as digital tokens that are auctioned off to the highest bidder, +who would then resell them. This ensures that the ticket issuer raises as much +money as possible up front, while transferring the risk of ticket sales on to +speculators. On the day of the event, the issuer can freeze all trading of the +asset and then allow users to cryptographically check in (e.g. with their smart +phones). Furthermore, the blockchain maintains the database of tickets which drastically reduces the organizational overhead. diff --git a/content/fp-uia-uc.tex b/content/fp-uia-uc.tex index 933da84..312e477 100644 --- a/content/fp-uia-uc.tex +++ b/content/fp-uia-uc.tex @@ -1,3 +1,3 @@ -Having discussed the administrative possibilities of UIAs, we now list and +Having discussed the administrative possibilities of UIAs, we will now list and briefly describe a few use cases. These serve as examples and only represent a -sub-set of the possibilities. +subset of the possibilities. diff --git a/content/fp-uia.tex b/content/fp-uia.tex index 149b165..0cac9c8 100644 --- a/content/fp-uia.tex +++ b/content/fp-uia.tex @@ -3,14 +3,14 @@ In addition to the aforementioned \emph{market pegged} assets, BitShares allows individuals and companies to create and issue their own tokens for anything they can imagine. The potential use cases for so called user-issued assets -(UIA) are innumerable. On the one hand, UIAs can be used as simple event -tickets deposited on the customers mobile phone to pass the entrance of a +(UIA) are innumerable. One example would be for UIAs to be used as simple event +tickets deposited on the customer's mobile phone to pass the entrance of a concert. On the other hand, they can be used for crowd funding, ownership tracking or even to sell equity of a company in form of stock. Obviously, the regulations that apply to each kind of token vary widely and are often different in every jurisdiction. Hence, BitShares comes with tools that allow issuers to remain compliant with all applicable regulations when issuing -assets assuming regulators allow such assets in the first place. We will +assets, assuming regulators allow such assets in the first place. We will discuss the tools and optional administrative rights given to the issuers of a given UIA and provide a subset of possible use-cases in more detail. diff --git a/content/fp.tex b/content/fp.tex index 937c31d..9acc223 100644 --- a/content/fp.tex +++ b/content/fp.tex @@ -1,81 +1,78 @@ %%%%%%%%%%%%%%%% % Smartcoins %%%%%%%%%%%%%%%% -In todays world, crypto-currencies are unique in that they are the only digital -currency that is not someone else's liability. They are \emph{fungible}, -\emph{decentralized}, and as \emph{valuable} as the network of users that -support them. Unfortunately, they suffer from very high volatility, because -their perception of value constantly changes as users enter and leave the -ecosystem. Although many professional traders appreciate this volatility, it -prevents its adoption as a \emph{payment} solution. +In today's world, crypto-currencies are unique because they are the only type +of digital currency that does not represent a corresponding counterparty +liability. Instead, they are \emph{fungible} \emph{decentralized} tokens, whose +value is derived from the amount of practical utility (or potential future +utility) perceived by the network of users that support and trade in them. Not +surprisingly, most cryptocurrencies suffer from high levels of price volatility +due to many complex factors, such as constantly shifting public perception and +highly speculative and unregulated markets. Although professional traders tend +to appreciate this volatility, so far it has hindered the widespread adoption +of cryptocurrency as a \emph{practical payment solution}. -The traditional approach to creating a \emph{stable} asset is to accept -deposits and issue a digital token as a \emph{claim receipt} (i.e. ``I Owe -You''). Under this approach, the token is valued by the market as the -underlying asset, discounted by any credit risk associated with the issuer. -This can work well for transactions, but less well as a form of savings. -Furthermore, history has repeatedly proven that issuers eventually go bankrupt -due to fraud, incompetence, or government intervention. +One approach to creating a \emph{price-stable} asset would be for an issuer to +accept deposits in return for a digital token as a \emph{claim receipt} (an "I +Owe You"). With this approach, the token would trade in the market as having +the same value as the underlying asset, minus any perceived credit risk +associated with the issuer. While this approach may work well for settlements, +it is far less secure as an instrument for long term savings. History has +repeatedly proven that many issuers will eventually go bankrupt due to +incompetence, government intervention or outright fraud. %%%%%%%%%%%%%%%% % MPA %%%%%%%%%%%%%%%% -More recent alternative approaches have used a crypto-currency as -\emph{collateral} in a \emph{contract for difference} (CFD)~\cite{def:cfd}. -Under this approach, two parties take opposite sides of a trade, where one -party is guaranteed price stability, and the other party is granted leverage. -This approach works as long as sufficient collateral exists, and the contract -can be settled by an honest 3rd party with a price feed. +BitShares has developed an alternative approach to creating price stable +digital assets by using a cryptocurrency as \emph{collateral} in a +\emph{contract for difference} (CFD)~\cite{def:cfd}. With this approach, two +parties take opposite sides of a trade, where one party is guaranteed price +stability, and the other party is granted leverage. This works as long as +sufficient collateral exists, and the contract can be settled by an honest 3rd +party with a price feed -These contracts are \emph{derivative instruments} and part of a wider -definition of \emph{financial instruments}. Since financial instruments are -defined as \emph{tradable} assets of \emph{any} kind they can (in general) be -cash, proof of ownership, or a contractual right to receive or deliver a -financial instrument. - -BitShares, as a decentral counterparty-trust-free platform for financial smart -contracts which operates over the internet, offers a set of financial -instruments including CFDs. Several other financial instruments are fully -implemented, one of which can act as a \emph{derivative} with \emph{cash} as an -underlying asset. These derivatives contracts derive its value from the -performance of an underlying entity and are thus often referred to as -\emph{market pegged assets} (MPA) or ``smart-coins'', and will be presented in -\cref{sec:mpa}. +BitShares is a counterparty-trust free platform for financial smart contracts +which operates over the internet, and offers a set of \emph{financial +instruments} that includes CFDs. These contracts are \emph{derivative +instruments}, and as such they fall under the wider definition of financial +instruments. Financial instruments can be defined as \emph{tradable} assets of +\emph{any} kind, including cash, proof of ownership receipts, or a contractual +right to receive or deliver an underlying instrument, commodity, option, etc. +Additionally, several other digital financial instrument tools are currently +available on BitShares, such as Market Pegged Assets (MPA) or ``SmartCoins'' +which represent a \emph{derivative} with fiat currency, gold, or even other +cryptocurrencies as the underlying asset. These SmartCoins derive their value +from contracts based on the performance of the BitShares base token (BTS). +Smart coins will be presented in detail in \cref{sec:mpa}. %%%%%%%%%%%%%%%% % UIA %%%%%%%%%%%%%%%% -Additionally, the BitShares platform provides an abstract feature known as -"user-issued assets" (UIA) to help facilitate a wide range of profitable -business models for certain types of services. The term refers to a type of -custom token registered on the platform, which users can hold and trade within -certain restrictions. The creator of such an asset publicly names, describes, -and distributes its tokens, and can specify customized requirements, such as an -approved \emph{whitelist} of accounts permitted to hold the tokens, or the -associated trading and transfer fees. These tokens allow for diverse use-cases -such as, for instance, ownership tracking, crowd fund raising, IOUs, coupons, -and many more and will be discussed in \cref{sec:uia} +The BitShares platform also contains an flexible feature called ``user-issued +assets'' (UIA) which will help facilitate a wide range of profitable business +models based around certain types of services. A UIA is a type of custom token +registered on the platform, which users can hold and trade within certain +restrictions. The creator of such an asset can publicly name, describe, and +distribute its tokens, and can specify custom requirements such as an approved +\emph{whitelist} of accounts permitted to hold the tokens, or the associated +trading and transfer fees. These tokens allow for diverse use cases such as +ownership tracking, crowd fundraising, IOUs, coupons, and many more that will +be discussed in \cref{sec:uia}. %%%%%%%%%%%%%%%% % DEX %%%%%%%%%%%%%%%% In order to \emph{trade} financial instruments, BitShares provides a high-performance \emph{decentralized exchange} (DEX), with all the features -expected from a trading platform (see \cref{sec:dex}). Any two assets that are -registered on the blockchain (MPA or UIA) may be traded against each other at -any time. Orders can be settled almost instantly up to at least 100,000 -transactions per second. With this kind of performance on a decentralized -exchange, there is no more need to risk funds in centralized exchanges. - -% %%%%%%%%%%%%%%%% -% % Bonds -% %%%%%%%%%%%%%%%% -% Last but not least, the BitShares bond market (currently not implemented fully) -% is an investment marketplace accessible to anyone that lets you earn interest -% with any of your asset, or take a short position using any other asset as -% collateral. +expected of a professional trading platform (see \cref{sec:dex}). Any two +assets that are registered on the blockchain (MPA or UIA) may be traded against +each other at any time. Orders can be settled almost instantly at speeds of up +to 100,000 transactions per second. With this kind of performance on a +decentralized exchange, there is no longer a need for traders to expose their +funds to the risks of centralized exchanges. -In the following we will discuss the financial instruments available in the -BitShares network as well as the DEX. It is recommended to previously read -through the basic technological components of BitShares in the other white -papers~\cite{bts:general,bts:growth,bts:structure}. +In this paper we will discuss the financial instruments available in the +BitShares network as well as the DEX. Before continuing, we recommend that you +read through the basic technological components of BitShares in the other white +papers~\cite{bts:general} (more papers to be published shortly). diff --git a/literature.bib b/literature.bib index 7629c4c..e394788 100644 --- a/literature.bib +++ b/literature.bib @@ -144,11 +144,6 @@ @ARTICLE{bts:growth journal = {{BitShares Whitepapers}}, year = 2015, } -@ARTICLE{bts:structure, - title = {{BitShares 2.0: Business Plan}}, - journal = {{BitShares Whitepapers}}, - year = 2015, -} @ARTICLE{bts:history, title = {{BitShares 2.0: Historical Overview}}, journal = {{BitShares Whitepapers}}, diff --git a/pdfs/bitshares-financial-platform.pdf b/pdfs/bitshares-financial-platform.pdf index c4f0b99..2381410 100644 Binary files a/pdfs/bitshares-financial-platform.pdf and b/pdfs/bitshares-financial-platform.pdf differ