Bitcoin Forum

You probably heard that GLBSE went down recently. I am hoping someone out there can code software that uses BTC address signed contracts and allows companies to issue and track their own stock shares instead of relying on a single third party. In short:

1) Company announces a number of shares for sale.
2) Users bid on shares
3) Once bidders win, they pay for shares, and their BTC addresses become the owners/signature for their shares. I.e. shares are tied to a BTC address, not to users.
4) Company issuing the shares stores the ledger that states "Bitcoin address X owns so many shares," and any dividends get paid directly to those addresses
5) If a user wants to sell/transfer their stock, he sends a transaction message signed by the BTC address that owns those shares, telling the company ledger that the sold shares now belong to a different address
6) Company updates their ledger, and pays dividends to the new address.

This way
- you only have to trust the company issuing shares (and if you can't, you wouldn't buy those shares anyway)
- there are no costs associated with registering or trading stocks unless the issuing company takes a fee themselves
- stocks traded on the open market can be traded through third party auction houses similar to and as simple as eBay style bidding, and can be traded privately among users using OTC.
- shares can be sold by any company in any country, without concern about what regulatory jurisdiction a specific exchange falls under.

I wouldn't think something like this would be TOO difficult, since it doesn't even rely on Bitcoin transactions and blockchain, just signed messages and any means to see what address payments came from. Comments/suggestions/improvements?

Bitcoin addresses can sign stuff but they cannot encrypt stuff, which is a pity since otherwise you could maybe just replace the crypto layer of Open Transactions with a version based on elliptic curves.

The nyms used in Open Transactions are portable though; you can use the same nym on any server, so it still serves as your identity on any server. So if an issuer of assets switches to a different server to issue on, people's nyms will work just as well there to prove who they are.

Most cryptocoins use slightly different addresses than bitcoin does, they are actually able to be translated from one to another but that maybe adds a layer of confusion, and it seems pretty likely that bitcoins will not be the only coins wanting to use the system.

It would probably be helpful for you to get an Open Transactions client installed and get familiar with how Open Transactions works, so that you can make useful suggestions on what additional features it might need as it probably handles most of what you need already.

Starting from scratch to write a new thing to do what Open Transactions already does seems a poor use of effort/resources compared to simply improving what is already done as it is a heck of a lot of code already written and a heck of a lot of testing and debugging already done and it seems to be pretty bulletproof on the most important thing which is keeping everyone's balances correct.

For example one thing you did not even mention is not being able to change someone's balance without them agreeing to the change...

-MarkM-

I don't understand. Is Nefario behind GLBSE the same Nefario who was speaking at the conference? The same smart and confident guy who said if there are any legal issues, he will simply move to another country? Theymos, can you please continue to operate GLBSE until P2P solution is available? If not, are you able to lower the price of the shares you are selling? Or at least open the source code?

I think Open Transactions may be a hell of an overkill for this. Since a single entity is being invested in, that single entity can be the centralized source that keeps all the ledgers and keeps track of all transactions. It doesn't really matter if they decide to change their system or use a different database, either, since all that they have to store is "Address so-and-so owns so many shares, until we get a BTC signed message to tell us otherwise." And if the company goes down, it won't matter which exchange manages the stocks, since they would be worthless. Admittedly, I am only barely familiar with Open Transactions. I just could never figure out the point of using a second layer to send Bitcoin to someone when you can just send Bitcoin directly. Maybe there is a module in OT that already does most of what I described?

Regarding not being able to change someone's balance, I'm not sure why that is required. A centralized exchange can also arbitrarily change people's balances, though that would not be very, um, nice. And not having restrictions on changing balances means a company that controls the stock can do stock splits etc. without needing permission from everyone.

The point is, yes, there would be a single point of failure, and a single entity to trust, but that point of failure and trust is also the company being invested in, meaning the trust is redundant. If you can't trust the company to do basic accounting, you likely shouldn't trust them with your investment. And to get something like this off the ground, I imagine all that's needed is a simple database, and a not-so-simple front-end.

He lied.

https://bitcointalk.org/index.php?topic=105437.0  heres one.

I don't think so. He had clear vision about the future of GLBSE. Problems must came after the conference.

No he didn't. It needs 4 glbse shareholders to decrypt the database backups in the event of nefarios death. There is nothing in place prior to this in case nefario was lent on by the government and the 4 shareholders disagree on whether hes been compromised or not.

He specifically said he will move GLBSE to another country in case of regulation issues.

But another idea came through my mind. What if he's trying to build legitimate stock exchange following all the laws and regulations from scratch? I mean... Even if he started to following the laws suddenly, the GLBSE operation was still probably illegal in the past. If he start another company with possibility to for share issuers to move the stocks there, everything would be clean, and authorities could not complain about the past. However he completely destroyed his confidence here, so there is no point to do that anyway. Maybe his target customers are outside of this community...

All that requires is a text editor that has a search function (so you can zoom quickly to the lines about a particular user or bitcoin address) and an email address where people can send you their instructions.

If you start adding in automated checking of the emails for certain syntax of commands congratulations you are on your way toward emulating MPEX.

-MarkM-

I'm not quite sure of the current progress but I think the best solution will probably the "colored coin" concept as it doesn't require any central authority to hold any information.

If its illegal to issue securities and you create a way to issue securities in bitcoin what is going to happen ? It pretty much means their silly laws are unenforceable. At least with glbse they may have some chance of working with us before we nuke them from orbit with the distributed stock market.

Coloured bitcoins will demolish the 21 million bitcoins limit too, as anyone can issue ten-bitcoin coins and hundred-bitcoin coins and so on as different colours much like poker chips of different colours are declared to have different denominations. Will be kind of amusing to see bitcoin directly enabling all the many altcoins that miners have refused to merged-mine, too.

-MarkM-

As a programmer (and many others here), it can be done, but I personally won't be jumping at it any time soon.
The problem isn't the exchange per say, it's those who abuse it with scams. That connection can still be there, regardless of the method, it still taints your image regardless of how little you were involved, it happened within your system.

There is probably a very good reason outside of even the ones I know why GLBSE was closed.
Personally I saw a lot of scams and ponzi schemes run through these, trying to avoid these was a minefield and he barely made any significant money off the venture personally and probably never would for all the hassle it involved others abusing his site.

There are other sites out there, for those who continue to want to do have involvement with stock exchange still have options.
However it's all moot if it's more of a legal issue, then any exchange will have to either comply before creation or resort to hiding behind TOR only access.

I confirm that:

• stock exchange based on colored coins is possible, it is 100% safe if used correctly (just as Bitcoin), and it's quite close to what OP suggests;
• there are people who work on it right now, so there is hope that it will be available soon.

Source: I'm the guy who implemented colored coins basic prototype and is now working on a more elaborate version.

(By "soon" I mean that a proof-of-concept might be available next week or so, if I'm in mood for it.)

Exchange based on colored coins can be pretty much completely decentralized. It would be essentially a trading platform.

I imagine that if this thing will work, there will be a market for verification/rating/audit services.

If marketplace is completely open, ponzi funds and other bullshit investments will be numerous. But legit businesses would pay some "rating agency" to verify their existence, do audit etc.

Such rating agencies can build their track record and gain trust. Through competition most effective rating agency will win.

So, ironically, 100% open marketplace is a solution for ponzi and spam, IMHO.

Future Bitcoin services need to be run as if they are illegal enterprises, like Silk Road, even if what they are doing is apparently legal.

Why:

• Laws change.
• Regulations are vague and open-ended, and it's probably impossible to operate a business without accidentally violating one.
• Even if you do manage to operate without violating any rule law enforcement agencies do not always limit themselves to the letter of the law when deciding to begin an enforcement action.
• Governments are not the only threats to a successful business. Non-governmental organized crime is almost equally capable of extortion.

The solution is to run all services in the darknet, not tied to any physical location or legal jurisdiction, and without any explicit connection to a real-life identity.

In order to reduce the risk of the operator running away with all the coins customers should start using Bitcoin like it was intended and only get involved with zero-trust business models instead of giving their money to companies that blindly emulate old paradigms.

IANAL, but in 'merica the problem seems to be that it's illegal to issue securities to the public (only licensed brokers can trade securities between each other) and it seems to be illegal for people to audit public companies unless they are a CPA. I'm sure there is some regulation against an unlicensed individual or group being a rating agency too.

So, the system may need to eliminate reliance on trust altogether until people start legitimate (which means lawfully compliant) companies in all these sectors.

It could be done with text, yes, thus my suspicion that this would be a very simple thing to do. But I'm hoping for something like a web app that anyone can install on their web server, that allows issuers to easily set up stock IPOs, the investors can do initial purchases at automatically (purchase with BTC, that addy gets registered automatically), and users can send change announcements to. For example, "log in" by entering your BTC address and signing a provided message, to see that address's holdings and other information; and use some sort of standardized POST commands to request changes, like [BTC address; CHANGEOWNER "new BTC address"; signature], which if standardized can be sent from anywhere, thus allowing third party exchanges go send requests to various distributed company ledgers. So, ideally this would be a plug-and-play package, maybe open source, with some agreed upon standards, and will, in a sense, distribute all stock issuing authority to the final points of failure, those being the actual companies themselves.

The colored Bitcoin idea sounds interesting, as long as it exists alongside Bitcoin, not as a part of it, but, again, it may be overkill for a whole new block chain just for this. It would work well for other types of contracts, but if the stocks are distributed, but the company is not, that distributed colored Bitcoin stock won't help any if the company is shut down.

As for scams, at least until some third party central exchange gets started, if you wish to invest in a company IPO, you would actually have to go to the company page directly. Hopefully that means that you will have to do some actual research and see what they offer, in head of just get a brief description of financials and expected returns. Hopefully this also means that companies will have to do some heavy promotion and advertising to get their awareness out, since they would have to get people to come to their site, as opposed to some fly-by-night scams simply registering on an exchange with minimum of info, and running off as soon as they get enough gullible investors.

Regarding #assets-otc, that's close, but, again, it's another centralized point of failure. Also, why stick with PGP keys? We can sign with BTC addresses, and BTC addresses are all that is needed to receive IPO purchases and distribute dividends. PGP keys seem like a redundant extra layer, since you would still need to register a BTC address alongside it to receive dividend payments, and since to use PGP you need to install separate PGP software and learn how to create, use, and backup PGP keys, while BTC address signing is already available in many BTC wallets.

The train of thought I'm operating on nowadays is decentralize EVERYTHING.

The beauty of "colored bitcoins" is that it can exist within bitcoin without any change to the protocol (it only requires a client that can recognize the "colors" by searching the block chain) so there is absolutely no need for another block chain.

I believe that #assets-otc or #otc-assets project does pretty much what you describe in your original specs minus any automated trading capacity ie open bid/ask.


I would much prefer the flexibility of trading market functionality over an OTC functionality.  



Colored coin is an interesting idea that leverages proven blockchain.  IIRC, it would not require an alt-chain.  But how can CC be used for open market trading and not just OTC transactions?


Decentralizing record of ownership/brokers/dealers, which is the general direction being proposed, makes an open trading market somewhat more difficult.


Re: OT.  What I like about OT is that it already has P2P asset transfers + a trading market.  I'm not sure how mature, robust or resistant to attack this market functionality would be.

It is certainly possible to have a single GUI for Nym management and stock market.  My only doubt is that OT creates it's own set of virtual assets for trading.  Those virtual assets would be backed by BTC and BTC would have to flow in/out of the OT system.


Re:  Trust.  What's nice about digitally signed p2p asset transfers is that parties can prove ownership in cases of malfeasance.  A centralized record of ownership, in the example case being held by the asset issuer, creates an opportunity for fraud that the public would be unable to scrutinize.  This wouldn't be an effective measure for wholesale fraud (as you point out would be an inherent risk in any of the approaches), but for individual cases where either party can prove ownership or payment with signatures.

1. Then companies outside of 'merica will have an edge.

2. Just don't call it "securities" and don't call it "companies". (See below.)

3. Again, auditor can be anywhere on the internet.

4. So you say if you compile a list of companies with ratings it is a crime? Holy shit. Do it over Tor then. Nobody gives a fuck about your real identity, all what matters is track record.

5. I don't think it's really possible to eliminate reliance on trust for all but few specific sectors.

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If you don't want any legal protection for shareholders, simply say that it is a game and do not sign any contracts. Oh, this game items are traded for money? Well, I heard that WoW items are valuable too, but I doubt they are regulated.

If you want some legal protection for shareholders, but you do not want to issue securities, you can do it this way: Release an informal contract which would describe nature of securities, but it won't be signed, so it will effectively be same thing as "game items". Also you will make another contract which would acknowledge your debt to shareholders/bondholders, this contract will be properly signed. Something like "I owe %this% amount to people who can be identified in %such% way". Essentially, it is IOU. I doubt it qualifies as security. Anyway, only a trusted 3rd party (something like audit company) will have access to this contact, it won't be released to public. If shit hits fan, i.e. issuer defaults and shareholders won't to extract money from him, "auditor" will make contract public and so shareholders can demand their money legally.

But BEFORE shit hits fan all regulators can accuse you of is that there are some game items, traded in some weird cryptographic way, which might have some connection with what you do. Good luck with that.

---

Suppose you are, in fact, a 'merican company which wants to issue shares in crypto way. No way to do that? Think again.

First, it should be a private company. A part of it should be owned by an offshore trust(?) company, e.g. something on Cayman Islands. That offshore company will issue crypto shares, and will represent rights of crypto shareholders. Normally, dividends from private 'merican company will go to offshore company and from it to crypto shareholders. If something goes wrong offshore company can do something about it.

The only risk here is that offshore company will go rogue, but I imagine you can secure it same way you secure trust companies. Just say that beneficiaries are identified through a crypto protocol...

See here: http://en.wikipedia.org/wiki/Orphan_structure
and here: http://en.wikipedia.org/wiki/Discretionary_trust
and here: http://en.wikipedia.org/wiki/Unit_trusts

Apparently nefarious activities were known well before Bitcoin, who would have guessed so...

Basically, there is a way to do it :) Basically, colored coins make trade secure, and so there is an easy way to automate such trade. (I.e. if it's secure anyway we don't need to hand-pick whom to trade with.

For a longer answer see here, second part particularly: http://www.reddit.com/r/Bitcoin/comments/110scc/glbse_closes_frauds_investors_might_be_facing/c6ijun1

Using Open-Transactions, you would still have to build your website or user client (we only have a test GUI and a command line utility.) But OT would save you a lot of work and re-inventing the wheel that you would otherwise additionally end up having to do.

OT provides an easy API for financial transactions, specifically allowing you to:

--- Issue a currency or shares. (Similar to GLBSE I'm sure.)
--- Trade account balances on markets against other asset types. (Similar to MtGox or other market exchanges. I assume GLBSE as well.)
--- Pay funds between users (with or without accounts, since a variety of instruments are available, including cash.)
--- All account balances are unforgeable and the server cannot change them without the user signing-off first. (This all happens behind the scenes as you perform your transactions.)
--- Dividends are functional now, and are paid as a cheque sent to the inbox for any Nyms who are shareholders. (Based on number of shares owned.)

After all transactions, each user has the "last signed receipt" which proves the balance of his account. (Even if the server disappears...)



You are correct that a single entity could act as the "issuer" for any given stock, and manage the books offline without needing any software.

OT manages the lower-level details for you, such as account security and balances, market trades, paying dividends, etc. You could also do all that stuff by hand if you really wanted to. But OT's API is pretty easy to use, if you check it out. It will probably only save you a lot of time and effort.

The reason for using a second layer is because you get instant transactions, and you get a variety of instruments (including market trades.)

>"Maybe there is a module in OT that already does most of what I described?"

Yes, I believe it does everything described above, although OT currently doesn't directly do anything on the blockchain itself. You will have to make your own scripts to interface between the two.


Nefario always seemed cool to me, I'm curious to find out what happened.

Regarding "needing 4 shareholders to decrypt the database" I think using OT this wouldn't be necessary, since all users would already hold their "last signed receipt" by which balances can be proven.


OT has real markets with bid/ask offers and automated trading.

All trades are accompanied by a server-signed receipt (which includes the user's original signed offer.) These receipts also prove the user's current balance.

And supplies a scripting environment, "opentxs" for high-level CLI interface with OT API.

Sooo I guess its time to make a P2P Stock Exchange hehe :) Where do we begin :D

https://bitcointalk.org/index.php?topic=117080.0

and likely using

https://bitcointalk.org/index.php?topic=77301.0

(For example if you use WIndows, a pre-build binary is available there.)

-MarkM-

There might be some clues for running a resilient front end at http://torrentfreak.com/pirate-bay-moves-to-the-cloud-becomes-raid-proof-121017/