Topic: Decentralized BTC Stock Market [Goodbye GLBSE] - page 4. (Read 16110 times)

hey guys, interesting discussion!

For me the situation presents itself as follows: we need 3 things:

• decentralized ownership-tracking (e.g. by using colored coins in blockchain) and way to proove ownership (for voting purposes, for example)
• decentralized exchange (order matching)
• accountability / link to real world of asset issuer

I think the first 2 points can be solved satisfactorally given enough resources.

3rd point is the hard part (I agree with casascius that if there is no real-world-link of the colored coin to some enforcable contract, this whole idea probably only makes it easier for scammers. I acknowledge the possibility of independant private dispute resolution as a service)

To solve "link to real world" problem, let me suggest a market for centralized agencies which offer the following services:

• Make accessible a list of "colored coins"/assets in existance
• Record the identity of the real-world person issuing some asset and offer disclosure to a court in case of dispute
• Safely store (in a legally binding manner the contracts associated with the respective assets and ensure these are legally usable in case of problems. Offer relevant services to courts (identify asset issuers, provide means of asset holder to proove ownership of asset at certain point in time)

I think this could solve casascius' "accountability"-objection, no?

Maybe the service would have to have the issuers actually real-world-sign some contract in which they agree to subject ownership of the asset to the mechanics of ownership-transfer using colored-coins / smart property.

What about the stock issuer making himself accountable on his own?

What about separation into a decentralized exchange and (several) third party IDing and stuff?

Go ahead and create it then, and let me know how it works out.  Neither of us are presently in a position to convince the other, so I'm letting it go.  To paraphrase a saying commonly applied to bitcoin: if I don't think it'll work, then I should come back in a few years and either say "told-ya-so", or start using what should be by then a more mature and robust decentralized stock exchange complete with safeguards that ensure that issuers are accountable to their shareholders for their statements and actions.

And the nodes maintaining the blockchain will accept it why?  Because the court clerk controls the majority of CPU power on the network?  Because the court holds a special private key that gives it an elevated status over the rest of the network like RealSolid and his SolidCoins?  What will ensure that a duly authorized court can do this, but not you or I?  What happens if a court misuses its discretion, misapplies the law, or simply fat-fingers an entry and signs something it totally shouldn't have? (something today's courts manage through the judicial review process, i.e. appellate courts etc.)

How about when two different courts with equal ability to simply "sign" and "send" things into the blockchain staunchly disagree on an outcome and see no reason to stop "signing" it into the blockchain in a back-and-forth tug-of-war?  Imagine people edit warring on a hypothetical Wikipedia with no 3RR (3-revert-rule) and no administrators, when does it end?


...and of course, without any meaningful accountability imposed on the issuers of security for the benefit of their shareholders either.  By pointing out the differences between GLBSE and a decentralized exchange, you suggest your understanding is that I am describing a fundamentally technological problem and meanwhile I am describing a fundamentally sociological one that would affect GLBSE and a decentralized exchange equally.

I tend to agree here. The implementation of distributed arbitration in the bitcoin protocol is simply genius. Likewise, distributed arbitration for other transactions could be implemented for securities, somehow. It might be difficult or non-intuitive, but you can't just claim that it would be impossible.

BTW, there is a major problem with using bitcoins (e.g. colorized bitcoins) to represent securities. There is a limited number of bitcoins, but a potentially unlimited number of securities. The solution is to create a separate block chain for securities with no limit on the number of securities that can be created.

The court will sign a message, declaring a coin decolorized, and send it to the blockchain. You don't need a centralized database.

You have a big mistake here: you compare decentralized stock exchange with a real stock exchange. However, the right comparison should be decentralized stock exchange vs. GLBSE. A decentralized exchange does everything GLBSE does, without the extra risk of hacking etc.

Double think is strong in this one. Ignorance is strength.

Yes, and the joke is on the system of banking and central banks.  Oh, and it's not poorly designed, but of course it will need a lot of maturation to evolve and scale to their size and a lot of work to become usable in the minds of the customers they serve.


...which of course would defeat the purpose of a decentralized stock exchange, because you'd need a centralized database to keep track of which colored coins are really colored.

tl;dr: Bitcoin - viable.  Decentralized stock exchange - fundamentally flawed.

This is also true for the bitcoin system. No chargeback possible. Is bitcoin a poorly-designed joke?

(For "crypto-assets infrastructure", the court may simply declare that a colored coin decolorized if there is a fraud.)

Can I buy a credit default swap to guarantee the performance of my landscaper?  the guy remodeling my kitchen?  my magazine subscriptions?  my cell phone?  Will making a claim on it be any less arduous than trying to make an insurance claim on a lost U.P.S. parcel?

I can see how this might help with high-value transactions like long-term loans and overseas consignments of goods, but is totally impractical for the vast majority of daily consumer transactions that are ordinarily protected through contracts enforceable in court.


No, not really - arbitration firms seem to be doing just fine - I thought the issue was that the state's dispute resolution process is coercive and based on men with guns violating others' fundamental rights, not that it's a monopoly.


I agree, problem exists where recourse to the court system does not exist (e.g. international trade), just that in the vast majority of small-scale transactions, the court system is the power foundation of most functional dispute resolution systems including private arbitration, and that the idea of "DRO's" on the surface appear to be economically unviable alternatives.

Ok, then I'd go with the "linking certificates" explained above.

Are you asking why private competition doesn't spontaneously arise in the presence of a state-enforced monopoly?

Some authors have proposed a DRO model as a possible solution to the problem of how to respond to contract disputes, but at this point it's just an idea. The important part is to recognize the need for solutions that don't involve recourse to the state.

This problem has to be solved statelessly one way or another for Bitcoin to be successful. We now have the capability to send payments instantly across international borders, but if you rely on government court systems for dispute resolution you'll quickly run into the problem of mutually incompatible legal systems, or one or more parties residing in countries where the legal system is corrupt, slow, non-existent or otherwise unavailable.

Saying that there is no solution other than relying on the courts is not a solution, it's a method of avoiding the need to look for one. To make the commerce Bitcoin makes possible actually work you need to change the parameters of the problem space. Take recourse to the court system off the table since it's not available to all participants and search for alternatives.

I think the solution set is going to fall into two basic categories: 1) preventing disputes from happening in the first place, and 2) designing systems where the participants have more economic incentive to cooperate than to cheat.

This probably means that viable Bitcoin business models look nothing like their traditional equivalents, since those models were built under a different set of assumptions.

Have you ever heard about credit default swaps? It is essentially a same model as "DRO":


It is not really an alternative: litigation likely won't help you in case issue defaults, but CDS can.

And just like in that "DRO" example, CDS are monitored, and if they are through the roof that means that company or country is likely to default.

I define "security" in this case, of course, as issuing instruments like stocks and bonds on a market like the one referenced in the subject of the OP, not so much loaning money to friends.

No. Well, maybe...
It all depends on your definitions. If my friend defaults on an IOU to me, he may lose my friendship. He would certainly lose my credit line.

Mike's smart car can be used as collateral without legal intervention.

There can be negative consequences for the people who fail with their promises beyond law.

And again, ¡¡¡ SMART PROPERTY BASED CONTRACTS CAN BE MADE LEGALLY ENFORCEABLE !!!

lmgtfy is a site normally used to softly ridicule people who ask questions (which I haven't done), without bothering to search for answers, and the "I'll bet you haven't studied thoroughly" is a line normally used by religious zealots to intimidate followers who are starting to question the religion.  I will assume that what you mean is, "Hey, have you ever heard of stateless dispute resolution?  It seems you may not have.  There's been a lot of theoretical work done on the topic, you ought to Google it."

I'll bite.  Maybe it's a great idea.  But I still wonder what is the incentive for a "dispute resolution organization" to exist.  Let's say I'm totally wrong, and my view that they take all the risk and get none of the reward is a little overboard.  Why aren't dispute resolution organizations popping up all over the place?  They sound like a lucrative alternative to costly and ineffective litigation.  There's arbitration firms, of course, but they work exactly as I described, with their outcomes binding because the parties sign contracts enforceable in a government-run court.

One of the most highly ranked links in that Google search was for nocoercion.com.  The article there provides a simple example: Let us say that I pay you $15,000 to landscape my garden, but you never show up to do the work. Ideally, I would like my $15,000 back, as well as another few thousand dollars for my inconvenience.

It went on to suggest that the DRO would be able to make an assessment as to the risk of default, and charge a fee accordingly.

If this is so lucrative and so much better than litigation, why isn't there a section in the phone book for DRO's?  Why aren't they displacing the back covers of the yellow pages that are normally occupied by ambulance-chasing personal injury lawyers?

Further, for a DRO to make a decision so precise as this article suggests, would require a massive data collection and mining effort that would make Google look like a saint.  A merchant being able to swipe your credit card and being told you're a bad credit risk?  At a hotel?  At a grocery store?  Serious?  What if it's a mistake?  Isn't being "declined" embarrassing enough without a positively negative claim?  Is this theoretical society a free-for-all for privacy violations and digital defamation on the display of a credit card machine?  How do the fees charged by this "DRO" for every nickel and dime transaction (which only a company as big and bad as Google could qualify to be) compare to the fees charged coercively by taxation for the same service provided through violence by men with guns?

Anyway, my original core point is that a security is a promise, an unenforceable promise is a worthless security, and a decentralized exchange of securities is a hotbed of likely scams because it is a marketplace for overpriced unenforceable promises.  I will take an active interest if I learn that a "DRO" actually works  sustainably for the cause of "non-violent contracts" on any sort of unaccredited exchange (doesn't even have to be distributed!) and is actually something more than a mere "pirate passthrough" consisting of somebody interested in a leveraged gamble on a likely scam searching for a counterparty to make it work.

@killerstorm  Those are good suggestions. I wonder why so many people are prone to the saying, "There is no way to solve social problems other than the methods in place now" instead of saying "What new solutions can we invent now that previously-applicable constraints have been removed?"

One more alternative, now without use of collector agency/trust: https://bitcointalksearch.org/topic/m.1280595

It also solves this problem:


"Meat world" resolution will only be used as a last resort.

Contract will be structured in such a way that if you want to claim your money through court system you have to return your security to issuer first, thus making it meaningless in crypto world.

So from "meat world" perspective cryptosecurity simply confirms identity of creditor and his will to redeem it, but it doesn't really represent ownership.

Think about it: digital signature is simply an evidence of consent. Legal system cannot amend digital signature, but that's OK.

Take into account that not all legal systems are based on jurisprudence like the English and the American. Many others are based on roman law.
If I with my eDNI (spanish electronic ID card) digitally sign (which has the same legal value as a regular signature) a document that says that I'm also liable for anything that I sign with a bitcoin keypair and I even describe of the system we're using in that document...What can be the problem? Aren't there private companies that also provide legal digital signature services in other countries?
Not a legal expert but it seems pretty simple and straight forward to me.

Alternatively, instead of a "collection agency" we can use a "trust". Issuer and trust will sign a contract which says that issuer owes trust money, but that money can be claimed only after approval of beneficiaries whose identities are concealed. Beneficiaries will signify their approval via digital signatures which can be verified through digital signature chain known as "colored coins".

From decentralized market point of view, these beneficiaries are just bond holders who want their money. If they don't trust the trust, they might ask trustee to sign a contract with each of them, but they won't be anonymous then. Trustee will get a commission from money he extracts from issuer, so he is interested in doing that.

Alternatively, the original contract between issuer and trust/collection agency might say that this claim is done on behalf of beneficiaries who will confirm their identities with digital signatures, i.e. they won't be anonymous anymore. I guess in this case we don't need an additional contract with each bondholder=beneficiary, since contract already says that they should receive payments. Perhaps we can go back to 'collection agency' model, as there will be no anonymous parties at that point... Although there might be a question how exactly did it happen that issuer owes money to those people...

So we see a pattern here: people can trade via blockchain anonymously, but when there is a bad situation and they need to make a claim they need to reveal their identities. People who wish to stay anonymous should sell their bonds to people who can show their identity to get  money.

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We can also work with shares via offshore trust: shares which are to be sold on decentralized stock market will be sold to this offshore trust, and offshore trust will hold them for the benefit of anonymous beneficiaries identified via colored coin ownership. So what we need is offshore jurisdiction which allows anonymous beneficiaries. Something tells me they exist.

So this requires a separate offshore trust per company... They don't cost that much, do they?

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And finally private currency backed by assets can also be done via offshore trust kind of things: this trust will simply hold a commodity which backs this currency, or perhaps fiat money, and handle withdrawals if needed.

See here: http://en.wikipedia.org/wiki/Unit_investment_trust