Topic: Decentralized BTC Stock Market [Goodbye GLBSE] - page 5. (Read 16117 times)

I wouldn't normally post a link like this except that I don't get the impression that you've actually done a thorough study on all the theoretical work that's been done in this area and debunked it all, but instead are claiming certainty in the absence of knowledge.

http://lmgtfy.com/?q=stateless+dispute+resolution

I've just outlined the general idea, there are many ways to do it... Perhaps, the most straightforward way:

Issuer and collection agency sign a contract which says that issuer owes collection agency money. But only if collector can demonstrate that he owns colored coins which represent bonds. (E.g. he needs to buy bonds on market before he can demand anything from issuer.)

But contract won't mention that these colored coins are bonds, of course. It can just say that collector's identity must be verified via a chain of digital signatures. Or something like that.

From the perspective of decentralized market it looks like this: issuer defaults or just looks shoddy, bonds are dumped, collector buys them for cheap and then tries to extract money through the court system. Difference between price he bought bonds for and whatever he can collect is his premium, so he is interested in doing this.

You don't need to put all trust on one collector, for example, if there are several collectors each one will be given a contract for a fraction of a total sum. E.g. each of three collectors operating on market will get a contract for 30% of loan amount conditional on owning 30% of bonds.

There are many possible tweaks... For example, perhaps it should go through a mandatory arbitration first (I'm talking about traditional arbitration in this case, not bitcoin specific), for two reasons:

• arbitrator will be more tech savvy to verify colored coin ownership (you can probably check whether they dig it beforehands), and court will simply trust arbitrator's decision
• to shield issuer from abuse from collector's side

If you do it correctly, court will simply think that 'colored coins' are just some weird and redundant way to identify a party, and won't consider it seriously. On the other hand arbitrator who has more expertise will understand that this clause is very important.

As for shares, we can say that it's like a preferred stock, so it's both equity and debt instrument, and we already know how to "enforce" debt instruments.

OK, how many officers were held liable for financial crisis of 2008?

AIG lost 96% of its value due to dubious investments on derivative market. (While their core business wasn't derivative trading! It was mostly insurance company.)

Lehman Brothers defaulted, shareholders got nothing. (IIRC.) And so on...

Then there was a lot of scandals associated with mortgages: apparently a lot of people were able to get mortgages without being eligible, not even passing basic sanity check; robo-signing, lack of proper documentation, illegal foreclosures...

I'm sure a lot of people went to jail to for this. Right? Right?

Or... all these things were just honest mistakes?

Somehow I was well aware of US real estate bubble back in the middle of 2000s, and I'm not even living in USA, I just read a couple of forum threads. But CEOs of investment banks didn't know, and neither did risk managers... Maybe they should start reading same forum...

Anyway, all articles I read about financial markets make me think that shareholders are cattle which has very few rights.

But, hey, maybe you can show me an example where wealthy CEO dude who gets like $10M salary actually paid shareholders something after an incredible fuck up which almost killed this company? All I can find is that in such cases CEOs can just retire with a severance packages...

This construct, first of all, ceases to be an issuance of securities, and becomes more like an unsecured loan to a known individual, "underwritten" in some way by some known entity.  How exactly does a decentralized stock market fit in at this point or help with this purpose?

Who pays the arbitrator and collection agency?  Who is their client?  What incentive do they have to "monitor" anything and sue someone for nonperformance?  Who holds them accountable to make a good faith effort to pursue recovery?  What exactly do they promise to their anonymous clients?  They can't really promise anything, because if they did, their anonymous clients would be suing the agency in the likely event the agency is unwilling to collect from the issuer.

Some of these "pirate pass throughs" have a lot of fundamentals in common with this agency.  They have the distinction of being treated as conspirators as though there's a presumption they knew or should have known by helping to make people feel secure about a bad risk, they themselves were perpetrating a scam.

In a nutshell, this arrangement amounts to requiring an agency that takes all of the risks, fights all of the battles, and delivers all the loot back to the good guys.  Fantasies like this make good scripts for movies and stories, but these superheroes don't actually exist in the real world.

As for the question about why we might want "decentralized BTC stock market" in general: largely to escape regulations and limitations. It is hard to argue that all regulation are absolutely necessary, isn't it?

Making a public company is a hard and costly process, due to all those regulations and legalese crap. You probably need to hire some staff just to do required paperwork. It isn't efficient to do that for small companies.

So if you need funding for a small company, you are at mercy of private investors. You need to meet and court them personally, which is again rather slow and ineffective process.

People want to make it more direct and effective. See: crowdfunding, kickstarter.

But kickstarter isn't perfect: wouldn't it be better if they gave shares instead of t-shorts and stickers? Even if those shares aren't valuable, it still kinda makes sense, just in case... But, stupid regulations...

Limitations also exist on buyer's side. For example, I live in ex-USSR country and am not officially allowed to invest into anything abroad unless I get some license which is really hard to get. But even when it's legal, buying shares is quite a bit harder and more expensive than simply buying some product, which prevents masses from doing that.

So traditional system is inefficient. For this reason we have, on one hand, kickstarter and similar crowdfunding establishments.

On the other hand, we have a lot of web trading platforms which give user a thrill of trading on markets without formally making him an owner. Relevant:

http://www.sec.gov/answers/street.htm "This means your brokerage firm will hold your securities in its name or another nominee and not in your name, but your firm will keep records showing you as the real or "beneficial owner.""

So the question is: is it possible to make it more effective with help of modern technologies?

You are exactly right: much of the time, it's not worth suing for.  Other times, that's not the case.  Regardless, the person might be held accountable in some other way, like being prosecuted for fraud.  "Limited liability" is contingent on the officers of the company following the law and making honest representations to their stakeholders.  If someone who owns a limited liability company defrauds you, they risk unlimited personal liability, and their stake (shares) in that or any other company they own are an asset that can be taken from them.

The fact that the stock market favors only wealthy entities offering securities is actually a good thing, because as an investor, you want the party offering the securities to have some skin in the game and something to go after if they are found to be blatantly misrepresenting themselves.  Having anyone able to create a "security" at the click of a button without any need for assets of their own, let alone identifying themselves, is not a breakthrough that will bring positive benefits to society.


You're the one who asked if I knew how debt collection works, right?  So you should know that judgments, garnishments, writs of execution, and such are routine daily business.  And no, I've never seized anyone's assets nor had any of mine seized.


Exactly - that's precisely how it's supposed to work.  Just like the bouncer at the nightclub is there to whoop your ass if you try something, and as a result, you don't.  His job is done just by being there and handling the few that cross the line.


In the real world, someone who mismanaged his company would absolutely be liable for the losses of others if "mismanagement" meant misrepresenting or concealing risks, misrepresenting financial health, or a number of many other things that the law requires issuers of securities to do.  The "powers that be" limit the issuance of securities to the wealthy, and this is a good thing: it cuts down the number of insolvent issuers of worthless securities who have already spent the proceeds of their empty promises.  A decentralized exchange doesn't solve this problem, it exacerbates it.


Yes, you are 100% right about this.  Now, the hard part is actually doing that.

This is where the screen door submarine analogy fits.  "Make screen door submarine watertight" makes for a nice sound bite but isn't a plan.  Same goes for politicians saying "we're going to create jobs".


...who, of course, needs a legal framework for his decisions to have any enforceability.

Have you ever wondered why you can't just pick yourself up by your own feet and lift yourself off the floor, the way you can pick up other objects and lift them?  It sounds like it should be such a wonderful idea, other than the pesky detail that something has to be supporting everything or else it falls.  The same is true in dispute resolution.

Arbitration works because of the legal system, not in spite of it.  When you go into arbitration, all parties sign a contract legally binding them to the outcome of the arbitration.  That contract, of course, is enforceable in a regular court of law, and becomes a regular judgment if you blow it off as entertainment.  It's the "support" that lifts arbitration off the floor and into the air.  Without the contract, it is nothing more than entertainment value - a private pundit's armchair opinion.

Because of this, someone outside of the reach of the legal system is also outside the reach of arbitration.

Why do you think it's going to help you? They might not have any valuable assets at that point. Or valuable assets might be shielded in limited liability company.

And how often does it happen? Have you personally seized someone's assets?

As I already mentioned, it's largely just a deterrent: if someone is dishonest, he might get into a problem.

Also, how exactly would it work for shareholders? Suppose company is bankrupt, goes through liquidation, shareholders get nothing... And? Whose assets are you going to seize?

Suppose you know that CEO was an asshole who mis-managed company. Can you go and seize his assets?

Same thing can happen to bondholders. If company is mismanaged, it will go bankrupt and you'll get nothing. You cannot go after owners or managers because of a limited liability.

You think that contract somehow protects shareholders/bondholders, but in reality it does very little. What protects them is due diligence.

For this reason public companies are forced to provide all sorts of information. Everybody realizes that investments on capital markets carry a lot of risk and best way to protect shareholders is to provide all relevant information for them to make decisions. It's not very different from gambling...

In same way a mature bond market requires rating agencies: bondholders can lose a lot of money even if contract is all valid...

So it looks like there are two necessary components:

1. Investors should be able to get all relevant information.
2. There should be some deterrent for pure scam.

Can't we have this in decentralized exchange? Information verification shouldn't be hard.
As for deterrent, we don't really need to do it exactly the same way as it is done traditionally.

It's just enough to punish dishonest issuer.

We can probably do it better than traditional system: make issuer personally liable.

And it doesn't really need to be related to anonymous investors. It can be done by some arbitrator.

Let's do a recap:

1. "Going after assets" rarely ever helps shareholders/bondholders.
2. What helps them, though, is that defrauding people is PITA.

This means that if we decouple punishment (i.e. creating PITA for dishonest issuers) from asset ownership.

So, once again... Issuer wants to borrow money from anonymous bond market. But instead of making contract which makes him liable to those anonymous parties (which might be illegal and inconvenient), he makes a contract which says that he owes money to certain collection agency. This contract, however, isn't revealed to public or to collection agency, it is revealed only to arbitrator.

Arbitrator's duty is to monitor how issuer interacts with anonymous bondholders. If he finds out that issuer defaults, contract will be sent to collection agency.

Now collection agency can enforce this contract through the court system, get a binding judgement and go after his assets. After that, perhaps it will distribute what it get to anonymous bondholders.

What problems do you see with this construct?

You can do exactly that, but the first time that the legal system disagrees with the records of the "crypto-assets infrastructure" or finds that a legal contract written in support of it is unenforceable or in conflict with existing law, you'll find the legal system disregarding what the system says and substituting its own judgment.  If the "crypto-assets infrastructure" offers no way for the legal system to amend the record to include decisions it considers binding, it will dismiss the whole system as a poorly-designed joke.

The real-world structure that enforces property rights obeys the legal system and not the crypto record (bitcoins themselves being a notable exception, since the crypto record and their existence is the same by definition).  This fact cannot be changed with software, any more than a screen door submarine can be made to function with software no matter how brilliant.

Well, this is true for some use cases, but not for all. As said many times, you can link the crypto-assets to legal contracts through a public or a private electronic ID certificate provider for the use cases where legal liability is an strict requirement (probably future contracts and shares need them, for example).
But first we need the crypto-assets infrastructure.

It indeed mirrors the world, and to the extent it does, it's great.  To the extent it doesn't, that's the sticky part.  Most legal frameworks already have a system that deals for determining the ownership of cars, and by and large, the laws are more sensible than what a decentralized exchange could offer.

If ownership of a car were determined by a decentralized exchange, and I were visiting you and able to get on your computer while you were out getting a cup of coffee because you left it unlocked, and I transferred ownership of your car to me, then you'd be in a position where I own your car, and at best, I'm liable to you for fraud or theft.  Meanwhile, you purportedly don't have the right to drive your "own" car anymore because you don't own it anymore, the decentralized exchange says so, and no judge or jury can take it back.  You can't drive to work tomorrow because your car isn't yours anymore.  That would be nonsensical and bad public policy.


I agree with you in this sense, and point out that stock transfer agents have the legal authority to do what they do.  The problem I point out is more the fact that the legal recognition has to come first before the electronic records have any significance with respect to property rights as defined and upheld by the law.


I am sure many endeavors start out with the best of intentions - Pirate and Zhou Tong may have meant well and hoped for the best when they first started their respective gigs.  When they start out with party A with all the control, and party B holding all of the risk, and party A has no accountability to party B, it's a recipe for a total loss for party B, regardless of whether party A's initial intent was to take the money and run.  Since a major feature of a decentralized exchange is to isolate party A from any sort of accountability, having people lose their money with no recourse is naturally going to be a recurring thing.


Decentralized exchanges work whenever there is a de-facto recognition that the digital record of ownership is authoritative.  It works for bitcoins, it works for virtual swords, but it does not work for houses, cars, and business entities.

A decentralized "exchange" used as a distributed recordkeeping tool whose primary purpose was to ensure transparency and irreversibility of records, on the other hand, would be a huge asset to society.  Such a tool would still need to give the law the last word (for example, if someone dies, the legal system needs to be able to exercise its legitimate authority to reassign the ownership of the deceased's property, even if the private keys went to the grave).  This is where this technology and present legal systems are more likely to have a first meeting of the mind.


A country without property rights would have much in common with a third world country.  Even Ron Paul believes enforcing property rights is a legitimate role of government.  "Authorities control" sounds like an extreme way to say "laws govern", as clearly no government agency aspires or has the resources to "control" every transaction in the literal sense of the word.

A world where houses or cars or businesses and the ownership of them became forever lost in limbo because access to the digital private keys controlling them was lost would be fraught with problems all its own.

So everyone who wanted to be scammed by Zhou Tong and Pirate wanted to be scammed, and their scams have brought good to our community.


Right, just like all products from quack medicine stores are "not intended to cure or prevent any disease", and "bath salts" and "salvia" (where sold online) are for aromatherapy purposes only.


No.  This is because police agencies aren't in the debt collection business and aren't willing to do this.  Defaulting on debt is not illegal and not a law enforcement matter.


If this is an attempt to earn my respect, it is not working.


The powers that legal (not legalese) contracts have is that they are enforceable through the court system.  You can get a binding judgment and go after the assets of the person who breaches the contract.  This isn't magic or religion, this is just the law.  I live in a country (US) that has separation of state and religion in its constitution, and the application of law falls clearly within the realm of the state.  Arbitration only gets its teeth because courts and the law are willing to recognize the outcome of arbitration as another form of contract and issue a judgment accordingly.  Without it, arbitration would have no value beyond "entertainment value".

This money is not a scam and is based on not enforceable agreements: http://en.wikipedia.org/wiki/LETS
The same applies to Ripple (which is in fact inspired on LETS).
There's trust beyond legal contracts...

If market exists it wants to be tapped. By definition.


I have given you examples where both sides win.


This is simply bullshit.

Informal agreements are often honored. (See: pretty much all Bitcoin trade.) And formal, enforceable agreements are often violated.

Very few cases are resolved with help of law enforcement because use of law enforcement has very high overhead.

So those formal, legalese, enforceable agreements usually simply act as a deterrent.

But it isn't the only possible deterrent:

• A lot of people are simply naturally honest, they just do whatever they are used to do without trying to maximize their profit at all cost. Their conscience acts as a deterrent for dishonest behaviour
• Quite often there is an economic incentive for staying honest. You can run away with a little sum or you can continue to get profit from your business.
• Likewise people might simply enjoy running a business and getting money out of it more than they enjoy sitting on their ass and looking at pile of money they extracted from investors.
• People might be afraid of punishment. If somebody knows your identity (which isn't that hard) and you defrauded him, him might make your life non-comfortable, even miserable. Even without use of law enforcement, you know

Are you familiar with how collection agencies work? They usually have all required papers, but they won't use police officers to extract money. Instead they prefer to harass people until they give them money. Apparently it is more effective.

Of course things are a bit different when we talk about large amounts of money... But even then, formal papers and legalese bullshit gives little protection to investors: a lot of companies go bankrupt in such a way that creditors and shareholders get almost nothing.



Hello? People were trading on LitecoinGlobal. Apparently they wanted to try some unusual investments. This site has a disclaimer:


Apparently all investors know that there is a risk, yet they came to trade on LitecoinGlobal, which means that they are OK with it, and so there is a demand for such thing. You cannot deny it, it is a fact.

I personally traded there a bit simply for entertainment value. I made some good profit (relative to tiny investment, of course) so apparently it was good for me... If my entertainment helps someone to run a business I'm all for it.

Also I think you vastly underestimate risks associated with traditional investments. E.g. AIG's stock price dropped 60% in one day. It is a huge, reputable company, which is full of lawyers and is regulated. And still you can lose pretty much everything, without even a default being triggered.

AIG shares' price was around 1000 is spring of 2008 and it was about 30 by the end of year. If somebody held this stock in that period of time he lost everything.

So I'm not convinced that cryptocurrency markets are that much more risky than traditional ones. Sure, it is possible that cryptocurrency stock markets will get more risky as more money will be involved, but we don't know...

It is also possible that with more money being involved people will also use better ways to identify and verify issuers.


Decentralized market gives mankind an alternative to government-regulated markets, which is a major breakthrough.


This isn't true. There are legitimate companies which sold their shares and bonds on GLBSE and other Bitcoin stock exchanges, and there is no reason to believe it would be any different on a decentralized exchange.


This is bullshit. See above.

Also, there is a way to enforce contracts. Or, rather, punish people who violate contracts. It is a same thing.

It is just that we don't need enforcement for small things, arbitration can be much more effective.


If you beliefs are independent on facts it is called a religion.

You seem to believe that legalese contracts have some magic powers.

 If satoshis aren't enough, we need a change in the protocol or a fork to remove this limitation. That's basically the idea behind ripplecoin (sorry, we discussed a lot about the concept but there's no formal design for it). I must say that I've learned a lot about the bitcoin protocol since that early discussion, so don't pay much attention to protocol messages described there (if there's any).

 There's a little summary here (in the third link, but you may need to read the others first):

http://ripple-project.org/Protocol/Protocol
http://ripple-project.org/Protocol/BlockChainCommitMethod
http://ripple-project.org/Protocol/AtomicTradesOfRippleIOUsForChainCoins

 I'm happy that there's people working on colored coins though.

 It's the right time to learn git and python () and put my fingers where my mouth is, the problem is that I've put my mouth in various different places...But at least there's not another project holding me anymore. I got no excuse now (well, there's still my job, but that doesn't count...).

Just because you don't want something does not mean that others do not want it too. GLBSE and other exchanges have demonstrated that there are people in Bitcoin community who want to participate in capital markets, and crypto markets are likely strictly superior to centralized ones.

For example, people who aren't gamblers might say that they do not want SatoshiDice to exist, or people who do not buy stuff do not want SR. But these services use Bitcoin blockchain in same way as everybody else, and so they do not need to ask for approval... They exist just because there is demand and it's possible to provide such service.

Likewise smart property/colored coins are just another another uses for Bitcoin blockchain.  Fundamentally they aren't any better or worse than any other use. Blockchain is just a commodity service, and community just doesn't look good when it tries to shun certain uses.

---

If you are simply asking how it can be useful to you, if you do not want to play with capital market (which isn't that much different from gambling), you might find private currencies useful. Suppose you hold all your savings in Bitcoins. But Bitcoins are very volatile and nobody knows where exchange rate is heading. (Since it is not backed by anything it is simply supply & demand: changes to supply or changes to demand directly affects exchange rates.) You might want to diversify your assets by purchasing private currencies denominated in fiat currencies, gold, other commodities. Of course, you need to trust issuer. But issuer needs to do very little to keep currency alive, so you probably can issuers which exist for a while.

I still dont understand the need for those "bonds" like in GLBSE !  Coloured/tainted coin ?  Why, bitcoin are bitcoin, and they are very fine as they are.. can someone explain me why then need for other stuff ?  In everyday life, I'm bond to dollars, not a choice, but those dollars made it, no need for those derived financial product that makes money out of money, it's non-sense to me.. please someone light my lantern !

thanks

It is difficult to follow your logic here, and this is vague conflation of different concepts.

1) A decentralized exchange for smart property mirrors the real world today.  If you can buy a car for cash today, a decentralized exchange protocol would enable person-to-person property transfers.

2) A decentralized exchange is nothing but a secure ownership transfer and registry mechanism.  It doesn't automatically attach legal meaning, and is not a contract of any sort.

Legal meaning is attached from the real world to a smart property token, just like legal meaning today is attached to stock certificates which are managed by stock transfer agents in an owner-neutral, automated, electronic manner.

3) Functionally speaking, this sort of system would provide (a) pseudonymous ownership exchange and (b) issuer->holder payment tracking.  This is a subscriber list, in essence.  Where payments to subscribers may be publicly inspected and audited.

None of that automatically suggests scams.  In fact, the opposite:  it is very elegant to swap a bitcoin car payment for a digital ownership token that unlocks a car.  Or for the familiar mining bonds, it makes it easy to send publicly audited payments to holders.

Condemning decentralized exchanges whole cloth is nothing less than condemning all digital property.

A future world where the authorities control all exchange of digital property would be a depressing world.

Not true in the United States, with the JOBS Act.

Cascascius speaks the truth. Companies who have a physical prescence are still limited by what their local government allows. And they arent allowed to issue equity to the general public.

It is an awesome tool for scammers to extract wealth though 

That's good for the person tapping the market, but so not good for the market being tapped.  Business is only good for society when both sides come out a winner.  Informal agreements are no good for society either if it means they're unenforceable.  But they're great scam tools.


Right.  Nobody said "Please give me a place to invest my money where it's more likely to disappear without any recourse", but they did respond to the promised 66% interest rate.  As is typical of most scams.


Bitcoin gives mankind an alternative to government fiat currency, which is a major breakthrough.  On the other hand, the only kind of business that a decentralized exchange facilitates is scams.  They are really nothing the same, even if they could both be described as questionable to a lot of people.

Plain and simple, a security is a contract, and you cannot have a contract worth anything more than the paper it's printed on without a means to enforce it. This is sort of like one of those immutable laws that cannot be ignored nor explained away with examples where someone had an unenforceable contract but still got something out of it.