Topic: Decentralized BTC Stock Market [Goodbye GLBSE] - page 6. (Read 16112 times)

We can put intermediaries between issuer and anonymous decentralized market.

Suppose you want to borrow money by selling bonds, but you aren't legally allowed to trade anonymously. You can sell bonds to some offshore intermediary which will then sell them on market. Effectively you will borrow money from that intermediary. which is likely not illegal.

Intermediary does not need to be trusted neither by issuer nor by market participants. It just needs to be legal to borrow money from it.

Likewise, buyback can be done through intermediary too.


The whole point is that agreement won't be public. You can deny connection with what happens on decentralized market: you just borrowed money from some offshore company, and that's all.

If that offshore company in its turn borrowed from some decentralized market is none of your business, you can't be liable for it.

Agreement will only be made public once you default.

Sure, such private currencies might be a big thing, but I thought we were talking about "decentralized BTC stock market".

The business purpose of doing it this way is that you can tap new capital markets which can work on micro-scale, are ready to accept rather informal agreements and so on.


Why do you think so? GLBSE and LitecoinGlobal are counter-examples.

I'll give you an example: one guy was able to borrow ~$6000 on LitecoinGlobal to purchase new servers for his offshore hosting business. He was offering ~66% per year interest rate when bonds were originally sold.

For him it works like this: server costs $2500, he gets $450 per month per server from customers and pays something like $130 to bond holders. So apparently he gets $320 per month per server which is probably enough to cover his expenses and whatnot. And LitecoinGlobal people get a sweet ~60% per year interest rate from a rather reputable entity.

So, well, both parties are happy.

I don't know what is the size of this market, but apparently it exists.


For "much of the world" Bitcoin in general is questionable, and? Bitcoin, among other things, enables business which could not exist otherwise. And so does hypothetical decentralized exchange.

Of course, I would formulate it differently too... "Referenced colored bitcoins" isn't the actual language, it's just an abstract description so you know what I'm talking about.


This is indeed its best shot at plausible legitimacy.  One would have to ask what would be the business purpose of doing it this way instead of just the old fashioned way, the benefit that comes from doing it a new way.  In my view, its bigger challenges would have less to do with digital signatures and more the facilitation of anonymous transfers of centrally stored value.  At least with Bitcoin, there is a palpable demand by honest folks for honest money, because many have a legitimate philosophical objection to the way fiat currency is being (mis)managed.  But the public isn't demanding new places to invest their money with less regulation and less protection (it's arguably bad enough as it is), so the idea that a new decentralized stock exchange serves some legitimate societal purpose is going to seen by much of the world as questionable.

It would end up walking and quacking like another E-Gold, if used as a way for criminals to store and launder wealth (you can guess it invariably would), it would be a centralized target to be seized and shut down.


I don't see it working that way.  The anticipated legal problems would come as a direct result of such an agreement, not due to the lack of it.  The legal problems inherent in starting such a thing is the risk of having the assets seized if the powers that be didn't like what you're doing.  It would be like starting a centralized E-Gold.  A secret piece of paper in the back pocket of the E-Gold founder wouldn't have kept him out of trouble and wouldn't help here either.


Not at all.  Bitcoin is totally decentralized and is not based on anybody promising anything.  It derives its value from its demand as a commodity, and not because it represents a promise that, if unfulfilled, is worthless.  Bitcoin can't be shut down unless you get rid of the whole network and the whole community of people willing to exchange goods and services for it.  On the other hand, XYZ Decentralized Shareholders Corp can easily be shut down because the shareholders are decentralized but the corp and its assets are not!


Equivalent.

There's a phenomenon called risk compensation where it's been noted that humans have a certain amount of risk tolerance and if you change their environment to make it safer in one aspect they'll change their behaviors in other ways to nullify the benefit.

People wearing seat belts drive faster, and more aggressively, and are more dangerous to pedestrians than when they aren't wearing them. This is precisely because they feel more secure with the seat belt on.

I'd rather formulate it along the lines of "ownership of shares can be verified by a chain of digital signatures which confirm transfer of shares down from issuer and are recorded in a 'blockchain'". I.e. it should probably be several paragraphs of text and it should mention things like digital signatures, public record and verifiable timestamps.

Fundamentally it is a same thing as bearer stock certificates. Of course there might be some legal problem, for example, a digital signature of an anonymous entity won't be accepted.


If that's a problem, ownership via colored coins will be just a verbal agreement, and your liability to shareholders will be represented via a separate contract which will be hidden until 'shit hits fan'. This way you can avoid any legal problems before there is really a problem.


Same is true for Bitcoin in general, right?


Proof that someone owns shares is a chain of signatures and blockchain-based timestamps.

E.g. issuer's signature proves that ownership is transferred to Anonymous1, Anonymous1's signature proves that Anonymous2 is now owner. Then John Doe will prove that he is Anonymous2 by signing a message with his private key.

Although we don't know who was Anonymous1, we know that 1) he was owner of shares; 2) he transferred them to John Doe. I think it's a solid proof that John Doe is now the owner.

All this can be done manually, but specialized software will make it more convenient.

Already, I would bet that if I started a corporation, and structured it so its Articles of Incorporation referenced "colored bitcoins" as shareholders, that it would work for a limited time. This would mainly be due to the fact that in the absence of a dispute or problems, the consensus of the shareholders is enough to establish who the shareholders are.

Imagine it works for years. And then somebody sues me for whatever losses he incurs for whatever reason (suppose he gets hacked and disputes his assertion that he transferred his shares or something) and alleges that the whole scheme of using "colored coins" to denote ownership constitutes a scam.

Either it will work wonderfully, or it will be condemned as hocus pocus and considered null and void.  If a lot of people have a stake in the outcome, it will probably be subject to rounds of appeal, making any given decision guiding at best, rather than final.

The only innovation needed to make this sort of ordeal possible is an easily viewed by anyone serial number on each satoshi, and someone with a lot of balls!

I think it is important to decouple trading platform from other stuff like verification/rating/audit. Trading platform must be completely open for everybody: nobody can prevent you from trading, nobody can seize your assets etc.

On the other hand, verification/rating/audit is completely different business. When platform is open and is thus open to all kinds of scammers, legit companies will HAVE to use verification/rating/audit services, otherwise they will get drowned in a crowd of scammers.

Existing centralized exchanges kinda sidestepped this issue: they filtered out obvious scam, so users thought that some level of verification is there, so there was NO urgent need for indepth verification and there was no competition for this service because some service is already bundled with trading platform.

So it is similar to how Microsoft was bundling IE6 with Windows XP and this "feature" poisoned web development for like a decade. Although at the time it was introduced IE6 was actually a good thing..

Anyway... Real demand for verification will create a competition in this area. If some company wants to raise money they have go to some verification/investment banking company and work with them. Perhaps this verification company will demand some accounting to be done in their format, perform audit, check IDs, ask to sign some contracts and so on. For this they can charge some fee, e.g. 5% of IPO.

Verification companies will compete among themselves: if they have a good track record, it's easier to raise money from IPO (since users trust them) so they can get higher commission. OTOH some smaller companies might try to find luck in less demanding verification companies.

Also there is market for insurance: perhaps a trusted insurer will take like 5% out of IPO and will buy back asset in case of default. Of course, they will insure only legit-looking companies.

So there is strong economic incentive to create a working verification system, and I believe that will launch evolutionary. process. Perhaps process will be painful and we'll go through many scams and defaults, but in the end only fittest will survive, and that would be great.

So back to the question:

1. We do not need distributed verification, we need decentralized verification: it will be done not by one, but by several companies, potentially barrier for entry is rather low...

2. In many countries electronic signature is recognized and is binding. So I believe it is possible to make a contract which will recognize blockchain-based asset owner identification and it will be enforceable. I.e. shareholders can sue issuer. I'm not a lawyer, though. But there is a lot of flexibility in this.

Some people say that it is illegal to issue securities... OK. Make contract such that it is structured like IOU, IOUs are likely not illegal. But this contract won't be publically announced, instead it will be submitted to a trusted 3rd party arbitrator. On the other hand public contract will state that it is just play money. If shit hits fan, arbitrator will make IOU contract public. Then each shareholder can legally demand money from issuer personally, via existing law enforcement system.

This structure is a bit similar to bitcoin contracts: https://en.bitcoin.it/wiki/Contracts

Securities without accountability is like automobile safety without seatbelts.  If I had to say why I'm not sure I agree, I'd say it's like saying it's amazing that driving without a seatbelt is actually safe, discounting the fact that you are lucky to have never been in an accident.  It's like saying fiat money works because it works today.

Like everyone else, I have been considering how a distributed exchange might work. I think it would be better to have a separate block chain. I prefer to leave the bitcoin block chain alone and not weigh it down with other kinds of transactions. The exchange block chain would support merged mining and would not have block rewards, just transaction fees.

The most amaizing thing about GLBSE was that it actually worked. Practicaly, we wittnessed only one case of dodgy investment instrument. It was under several pass-through labels, but it was the same entity. Vast mayority of people were actually honest (or even plain generous as it came out in case of race horse owners).

If you can recall, Enron went down despite all checks and balances, internal and external audits, etc. All these overheads costed huge amounts of money and in the end it still boiled down to honesty of few individuals.

Maybe what we need then is simply ways for private groups of people who know each other to pool resources.

Are there though any ways of getting to know people that end up with the people being considered a private group whose private pooling of resources is a private matter between them?

It maybe should be pretty much equivalent to my moving coins and notes/bill around from pocket to pocket, except that I happen to be an entity consisting of more than one actual organic lifeform.

-MarkM-

+100

Being aware of this, right here, is the shortest way to explain why I stayed miles away from "investing" in any Bitcoin "stocks".  Here at Bitcointalk, we seem keen on showing contempt for the status quo legal framework - the one that lets securities function in any way beyond scamcoins that work on the honor system - and finding brilliant ways to invent our way out of it, without realizing that doing so is about as brilliant as a goldfish inventing its way out of a bowl.

A distributed exchange benefits only scammers.  If one can use distributed technology to evade accountability from the law, one can also use it to evade accountability from their shareholders, effectively negating any and all value inherent in owning shares.  It's a software-based screen-door submarine, it just doesn't work.

Shhh, keep this a secret, the scammers will be upset if everyone figures this out!

100% correct

The distributed bond thread describes a separate P2P network and DHT which would be used as a network where traders advertise assets for sale, and make offers.

I still think we are just scratching the surface of the problem. Coloured coins will only provide a "shareholders registry" service. It will not substitute for "stock exchange". Anyone running an exchange is still vulnerable to charges of offering securities without prospectus to unsophisticated clients. I understand that GLBEX was relying on argumentation that BTC is monopoly money, so “securities” traded on it were not real securities. One can argue on what BTC is, but it is hard to argue that BTC is worthless. Securities can be issued based on anything of value; they may be related to some commodity.

The challenge we face is how to create a decentralised trading platform.

Yes, I am planning to do so soon.

I'm doing the same with my ex-GLBSE asset 'RSM'.  Maybe you could add to my bounty - https://bitcointalksearch.org/topic/m.1270041 - there is also another bounty - https://bitcointalksearch.org/topic/m.1273753

When I first created this thread, I wasn't aware of the term "colored coins". Thx for everyone who've posted to this thread, your posts were very informative.

It seems that colored coins is going to be used pretty soon in replacing GLBSE. I am personally thinking about moving my asset "Bitnodes" to colored coins. Currently I am examining this solution: https://bitcointalksearch.org/topic/blockchain-security-trackingcolored-coinssmart-contracts-short-python-script-117630

So what would such colored coins be then? and how it would come to existence?

One thing that would be good is an exchange to trade coloured coins.

In the proposed smart property / smartcoin / colored coin designs, the blockchain merely tracks ownership of an abstract digital object.  Nothing more.

It is up to software and -- as you point out -- the real world to attach meaning to the digital object.