Decentralized BTC Stock Market [Goodbye GLBSE]

[jtimon]

That's a good reason to use a separate blockchain. It slows down the trades, which prevents two potentially harmful things from happening: high-frequency trades and using shares themselves as currency. (At least for the latter it might not prevent it outright but would make the shares less useful as a currency.)

Why the use as currency should be prevented?
What's wrong with voluntary credit currencies?
What's wrong with high frequency trading when there's no insider information (today the privileged class knows prices in advance and abuses this through high frequency trading)?

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[killerstorm]

Why do you want to put the orders in the chain if the chain protocol is not going to enforce it?
Are you talking about a fork too?

As far as I understand, he wants to use Bitcoin blockchain as a medium of transmission for signed, timestamped messages. On Bitcoin protocol level only signatures are checked, but not message contents.

These messages are interpreted with a special client software which will then maintain current state: i.e. who owns what.

I see a number of problems with this approach:

• To compute current state you need full Bitcoin blockchain. It isn't compatible with pruning. Thin clients are not possible.
• It makes rather inefficient of Bitcoin blockchain. It is, of course, possible to do implement signed, timestamped messaging with much lower overhead.
• Since protocol has to deal with concurrency, it will likely end up being rather complex, but still prone to all kinds of race conditions and stuff.

So, frankly, I don't see it as anything more than a curious mis-use of blockchain.

It is interesting to compare it with colored coins, though. Colored coin protocol is more integrated with Bitcoin protocol: colored coin transactions are Bitcoin transaction, and they have to follow Bitcoin conservation rules, but they impose additional rules (conservation of colors).

Thin colored coin client requires more information than thin Bitcoin client: besides basic information about transaction it also needs information to check correctness of coloring. But still, it doesn't need to download full blockchain: only path which goes from genesis to current transaction is required.

[jtimon]

...
It is interesting to compare it with colored coins, though. Colored coin protocol is more integrated with Bitcoin protocol: colored coin transactions are Bitcoin transaction, and they have to follow Bitcoin conservation rules, but they impose additional rules (conservation of colors).

Thin colored coin client requires more information than thin Bitcoin client: besides basic information about transaction it also needs information to check correctness of coloring. But still, it doesn't need to download full blockchain: only path which goes from genesis to current transaction is required.

Now that you mention it, pruning may be another argument for ripplecoin (do this on an altchain) if all inputs are "tagged" with the issuing address. Tagging the inputs would be more efficient than tagging the outputs, right?

As said somewhere before, the "color conservation rules" would also be enforced by the chain protocol.

[EskimoBob]

[markm]

It looks like one can centralise stock markets pretty easily starting by eliminating the central market and having the brokerages talk to each other directly.

The back end of Marketcetera is an order router to which all your clients (your night traders, your day traders, your evening traders, your financial offer, your compliance officer, basically all your staff that need access to trading) connect and to which you also connect strategy engines and, - here comes decentralisation - the order routers of other brokerages.

The client GUI looks quite nice, take a look at http://www.marketcetera.org/confluence/display/PN/Photon

It talks FIX protocol, which is pretty much standard trading protocol. FIX is also what the brokerages use to talk to each other.

Explore Marketcetera's site, fire up the router and client yourself and try it out, and you'll see that the default setup has you talking to their "stock market simulator". Dig down into the nitty gritty of your strategy engine capabilities (the Photon client includes strategy tools) and it should become clear to you that about the only service a centralised "stock market" would add would be co-ordinating everyone's views of how much of what is for sale at what price and who wants it.

Most of the that the brokerages can get directly from each other, and they can also co-ordinate their views too if they want by using tools such as http://zookeeper.apache.org/doc/trunk/zookeeperStarted.html

To scale up - that is, to become even more distributed, handling more than just the hundreds of brokerages that zookeeper might reasonably suffice to provide synchronised views to, message buses can be set up on which many many such clusters of brokerages can communicate, using things like http://incubator.apache.org/kafka/design.html and http://www.mulesoft.org/what-esb

It is important to notice that Marketcetera does not assume that brokerages just talk to stock exchanges and to end-users but to each other. That is key, as it is clear when you look closer that ultimately the stock is exchange is basically just the biggest broker on the block. If a few hundred brokers synchronised a view well that is what the stock exchange once was, wasn't it? Just hundreds of brokers all communicating with each other at once.

We can go farther with this though, because modern personal computers can run this stuff. So even small brokerages can run it, heck even a power user individual broker could run the whole system in his back room office at home.

-MarkM-

[EskimoBob]

It looks like one can centralise stock markets pretty easily starting by eliminating the central market and having the brokerages talk to each other directly.

The back end of Marketcetera is an order router to which all your clients (your night traders, your day traders, your evening traders, your financial offer, your compliance officer, basically all your staff that need access to trading) connect and to which you also connect strategy engines and, - here comes decentralisation - the order routers of other brokerages.

The client GUI looks quite nice, take a look at http://www.marketcetera.org/confluence/display/PN/Photon

It talks FIX protocol, which is pretty much standard trading protocol. FIX is also what the brokerages use to talk to each other.

Explore Marketcetera's site, fire up the router and client yourself and try it out, and you'll see that the default setup has you talking to their "stock market simulator". Dig down into the nitty gritty of your strategy engine capabilities (the Photon client includes strategy tools) and it should become clear to you that about the only service a centralised "stock market" would add would be co-ordinating everyone's views of how much of what is for sale at what price and who wants it.

Most of the that the brokerages can get directly from each other, and they can also co-ordinate their views too if they want by using tools such as http://zookeeper.apache.org/doc/trunk/zookeeperStarted.html

To scale up - that is, to become even more distributed, handling more than just the hundreds of brokerages that zookeeper might reasonably suffice to provide synchronised views to, message buses can be set up on which many many such clusters of brokerages can communicate, using things like http://incubator.apache.org/kafka/design.html and http://www.mulesoft.org/what-esb

It is important to notice that Marketcetera does not assume that brokerages just talk to stock exchanges and to end-users but to each other. That is key, as it is clear when you look closer that ultimately the stock is exchange is basically just the biggest broker on the block. If a few hundred brokers synchronised a view well that is what the stock exchange once was, wasn't it? Just hundreds of brokers all communicating with each other at once.

We can go farther with this though, because modern personal computers can run this stuff. So even small brokerages can run it, heck even a power user individual broker could run the whole system in his back room office at home.

-MarkM-

Nice, that you found those links useful I sent you but this is not really a decentralized market you are taking about. 
Yes, it looks like the old days of Wall Street, when every broker was hanging around at his favourite lamp post and buyer can walk around the street and shop for trades - sorry, but this is NOT a decentralised market. This is a typical bazaar, where everyone has his own fruit stand and when they go bust, the fruits they sold are gone too.

I am not a technical person so my vocabulary is probably off but this is how I see it:
What we need is a peer-to-peer technology to operate the "exchange" with no central bazaar with multiple GBSE like fruit stand, no assholes like brokers, bankers and other wankers, who are fucking up the world for the rest of us, have no place in this "exchange" - it can operate without those scumbags.
 
Decentralized exchange has to operate similarly to BTC (hopefully with out the absurd and ever growing 4.5+ GB dat files and without wasting absurd amounts of electricity to keep going)
I guess the "exchange" or the "central bazaar" lives in the p2p network and can not be taken down or traced to any single participants because nobody holds the complete data of available stuff. This data can not be used/abused/changed by one "server"  or a node - the "file" is undecipherable alone. No one node ever has a complete picture of the market (in it's data file), but P2P network has it in multiple copies. 
If one node drops dead, the "market" can keep operating. Not a single node can pull a "GLBSE" on us
Yes, investors are screwed if issuer runs but this is the risk you have to accept.
I guess this system requires 3+n nodes to be operational and there has to be at least one more good guys than there are bad guys.
OT, Marketcetera, Monechanger etc can be the clients for the network, there can be websites that show you the complete picture of the market but the single owner/exchange risk is eliminated.

Questions:
1) Why do I want to run a node and carry the cost of power and hardware? How am I rewarded? Maybe I have to run the node if I am a issuer?
2) How are the contracts actually issued and managed (dividends, buy back, I(P)O)?
3) Are prices tied/quoted in BTC/LTC/etc and trade will activate a transfer in one of those blockchains?
4) How is this networks protected from scumbags and lunatics like we have seen trolling the altcoin section of this forum?
5) ...

[markm]

You can decentralise the order-book simply by spamming offers anywhere you can spam anything.

Throw enough offers on the wall and some will stick kind of idea.

You can look as long as you like at as many spam-piles as you like looking for what you thing is a good enough price for you.

So "matching offers" is not important.

Thus it seems like all you absolutely need is atomic exchange, which can already be done on a single block chain and when currently-disabled feature(s) of bitcoin are re-enabled will be possible between chains too.

Another idea is maybe crptography can do some sort of blind XOR type of operation. You can exchange the contents of two variables without needing a third variable by means of XOR operations. A crypto version of XOR if such a thing could exist would similarly switch the bits of two contracts, your contract becoming the other guy's while his becomes yours. Similarly private keys, maybe the contents of two private key storage areas can be swapped one bit at a time or something.

Maybe you could even indicate what price you want for the contents of an address by generating the next address in a predictable/deterministic series of addresses, like the extended ideas beyond deterministic wallets speak of. Anyone can compute what the next address would be, even though they don't know your private key, supposedly. So for any given address anyone could compute its "price address" and look there to see what the contents of the coloured coin address are being offered for sale for, in bitcoins or satishis or heck, maybe even in some other colour of coins.

For markets, your requirement that no one know all the machines involved in their currently selected market seems to maybe rule out using Zookeeper unless we use Zookeeper over i2p and/or Tor so that althrough they all know all of them that form one cluster, they really do not "know" them in a send police to smash in their doors sense, they merely know the current Tor or i2p address of each participant.

But the thing about Tor and i2p comes back somewhat to your question of why would anyone bother.

None of the people going on about how much they need a distributed anonymous market seem to actually have Tor and i2p up and running, I often feel like well gee guys, you are shooting your own idea down by not even being on any of the networks on which such things could be deployed. Maybe the standard response should be "cool idea, bu why are you even talking about it out on the non p2p, non anonymous net" and "great idea, I always like to discover new nodes of the anonymous networks, give me your Freenet email address so we can discuss it" and "great, lets chat about it, what is your Torchat ID" and suchlike.

Basically if these people are incapable of even joining the networks on which the things they want would reasonably be expected to run, what makes them even think the thing they want doesn't already exist? Thousands of people could be anonymously trading right now and these here folk cannot even get off their asses to join the network let alone run an app on it.

We could deliver a servlet and/or applet for Jetty to run in your eepsite, or even a plugin for i2p to run such a thing alongside Jetty as a separate service from their eepsite, but these people don't even have eepsites yet!

So hey maybe lets start from the basics: get your eepsites running, publish your Torchat IDs on them, maybe even run a forum on your eepsite where we can discuss this stuff. The distributed forum system for i2p could be useful too, though that could do with some work. Maybe if people actually used p2p anonymous networks all this stuff people keep complaining about needing would already exist. But instead they seem to keep on pretty much implying that even if what they keep complaining about not having did exist they would not actually use it.

Back again to the cost. If you offer people money to do some sneaking clever stuff to avoid big brother, you will attract sneaky clever people who want to steal your money or defraud you out of your money. People who actually want a thing don't need to paid to have the thing they want, they in fact are the demand side of a market, they are willing to pay to get what they want. For example, programmers who are willing to pay hours and hours of work to get what they want programmed, or anonymous net traders who are willing to pay bandwidth for an anonymous net so they can trade, and so on.

One nice thing about i2p is that unlike Tor is is not designed for random non-contributors to pop in grab what they want and leave. Rather, you tend to get crappy speed until your node has been online long enough, passing along other people's traffic enough, to have established itself as a good reliable node that contributes good bandwidth and does not shut down and so on...

-MarkM-

[EskimoBob]

I agree with above 100%, when it comes to anonymity. Tech is here, use it.
P2P exchange is actually something else and not that "anonymous" - like BTC.
Or we can just say "fuck this RL nonsense" and call it WOB - "World Of Bitcoin" - and play what ever we like to play. We can have many play exchanges, play that we are big-time investors, imagine we are CEO's of play companies (like there was any real Co'in GLBSE... lol) and so on.   
Just like you do it in any other game.

Let the games begin. ( I am not kidding).

... Problem solved!

BTW, I have this really cool game called The ART Project - The game can return some nice play income in toy coins, called dBTC, per Earth month. Are you paying? I am! Sign up now and get yourself a cool hand made Bitcoin Mug (see my signature) 

[markm]

I guess I do not understand what you mean by a decentralised market.

Decentralised exchange, atomic secure exchange, fine.

But is there even any actual need for all the participants in a bazaar or market to all reach unanimous agreement about exactly which is the best price and exactly which is the top of the queue offer against which it should be executed?

Before everyone can agree as to the exact total orderbook, they each need to have an exact total orderbook of their own.

Even if no new orders are published, it will take time for everyone (possibly thousands of people) to all compare their order-books to check that they all have the exact same order-book.

Even if they do all agree on one global orderbook across one entire "market" or "bazaar", it will very likely be out of date by the time they all agree that it is correct and that they all have the exact same contents and sequence in it. Because meanwhile anyone who sees they are not at the top of the queue can go behind the order book's back to contact someone else who might also not be at the top of the queue, and exacute an order directly between themselves, accomplish an exchange directly between themselves, and even choose not to waste time telling the distributed order book that they changed their minds, instead that could simply not bother to answer if or when the distributed order book finally gets around to matching their order (which is now obsolete as they found a partner to exchange with faster by simply doing a p2p exchange with someone else who didn't mind not waiting around for some global distributed order book to match them up with someone.

It seems like what you mean by a market is an order book with associated matching of orders, and it also seems like such a thing is ultimately just one view of what the current offers are that are out there in the bazaar. Thus you basically first have a bazzer, then you have one or more agents trying to put together possibly different order books that try to provide some sense of what the best offers are that are available in the bazaar at a given moment.

Is do not really see what you gain even if you do manage to all agree on one order-book's contents. I do think that forcing any offers shown in such an order book to still be available by the time an attempt is made at matching them probably goes beyond what many people think decentralising is all about. Because it basically centralises matching, even if it is centralising it into an insanely  possible complex form of distributed consensus like the way bitcoin decentralises one one global centralised consensus across many distributed machines.

Isn't being forced to have my funds locked up by some global central consensus system until such a system finally (if ever) gests around to matching them up with a counteroffer going to be seen as being against the whole point of decentralisation from many/most people's view? Why create a massive decentralised Big Brother if the point is to avoid having a Big Brother at all?

-MarkM-

[markm]

Lets get specific.

Look at Zookeeper: http://zookeeper.apache.org/doc/trunk/zookeeperAdmin.html#sc_zkMulitServerSetup

Up to 255 machines can be on one "quorum" of servers/nodes.

We could use Zookeeper itself to ensure all 255 nodes in the quorum all have the exact same information as to who exactly are the current 255 nodes currently (at a given moment) forming that quorum.

Based on their node number within the quorum, each can publish offers.

Each can see the same overall state of all offers all nodes currently have open.

We would need to set watches that will change the list of nodes when a node leaves, and provide some kind of enrollment system whereby machines can apply for a spot as a node in a quorum.

Initially we can start with 255 permanent nodes, 255 people who are committed to engaging in this 24/7. Once all works smoothly with that fixed set of nodes, and of demand is sufficient, we can proceed onward to enrollment interfaces.

It actually does not matter if machines of a quorum are offline, as long as at least three machines of that quorum are still online. So we can assign new people to a not yet full quorum and just leave them there, no need to keep enrolling and un-enrolling.

Once there is more than one quorum up and running, we can start adding gateway nodes that pass on the data in one quorum to another quorum.

-MarkM-

[EskimoBob]

markm, for start, it's important to get the semantics straight.
Lets keep it really simple for now and not start nitpicking.
Les say we have a Market (bazaar) Market place on it's own is just a empty "floor" or a lot of empty land - place to get together and trade something.
First, it starts out where every guy has it's own stand and most of them are selling actually the same stuff.
Lets evolve and make it better (and move away from typical farmers market setup). 
In our new and improved market, all items named "A" are listed in one order book - "A". Users person is irrelevant for the user at the opposite side of the trade. Buyer do not give a flying f* who actually holds the "A"'s and who even sells those. Same applies to seller. It has no importance who is the actual buyer. (In real world, we moved to clearing house/trade matching/broker territory but lets not go there for now)
Now, forget the farmers market analogy for good and lets move on.

Described market is centralized because the "floor" (virtual or real) is "located in one place". You close that place down and... puff, all participants got probably glbse'd. Not only because the "place" was closed down, but because this "market" was acting also like a clearinghouse - the only place for the 'who owns what' data. 
Moving this type of "market" (exchange) to anonymous net will not make it decentralized. It make it anonymous.

I guess I do not understand what you mean by a decentralised market.

Now you know what I mean by "market" and "order book" and what is the role of "clearing house". Let me try to explain.
Decentralized market for me is a market,  where no data is held by single entity so It can be tweaked, deleted etc.
From customers point of view, it actually look like any other market (exchange) -  place where buyer and sellers can meet and trade.
To make it effective -  item "A" is always available in order book "A", "B" in orderbook "B" and so on. I do not have to run around and look for B in multiple "markets" nor multiple order-books.
There is no brokers, no clearing house - only buyers/sellers and orderbooks for the listed items. All the "who owns what" data is in distributed form and can not be fucked up by a single entity.

There is no need to keep the entire trading history around forever. At some regular checkpoint, only balances move forward.
I think the trades have tiny fees and those fees get distributed among the nodes/servers that make this distributed market operate.
Types of securities can be pooled together to a "sub market" that helps you to find "bonds" or "stocks" etc. Those can be tied to any existing coins blockchain so coin can move instantly and is never actually held in/by this "market".

[markm]

Now it sounds like you just need a bunch of newsgroups for people to spam their offers in.

If you're selling bitcoins for devcoins, you spam the alt.forsale.bitcoins.for.devcoins newsgroup, if you are selling litecoins for bitcoins you spam the alt.forsale.litecoins.for.bitcoins newsgroup and so on.

People can independently subscribe to groups of interest and independently decide what offers are the best they have seen and which offers to try to contact the author of to arrange a trade.

-MarkM-

[phelix]

This thread is an attempt to answer the following questions, and to mind storm about the possibility of having an open source decentralized BTC stock market protocol/features/design.

• GLBSE is closed, so what is next?
• Is it possible to have a decentralized BTC stock market in the same manner BTC/namecoin operates?
• Is it possible to have a new protocol/block chain where assets "instead of coins" can be created by the asset issuer instead of mining?
• Is it possible that such block chain handles multiple different kinds of assets instead of one kind of coins?

It seems that the most challenging problem is in the exchange mechanism between assets and e-currencies such as BTC. For that such decentralized stock market has to operate on top of other block chain "if not on top of multiple block chains", where BTC or LTC message signing can confirm assets movement "buy/sell orders" between different accounts.

Namecoin Stock Control: https://bitcointalk.org/index.php?topic=123271

add swap transactions to namecoin and you should be done

[Bitcoin Oz]

Now it sounds like you just need a bunch of newsgroups for people to spam their offers in.

If you're selling bitcoins for devcoins, you spam the alt.forsale.bitcoins.for.devcoins newsgroup, if you are selling litecoins for bitcoins you spam the alt.forsale.litecoins.for.bitcoins newsgroup and so on.

People can independently subscribe to groups of interest and independently decide what offers are the best they have seen and which offers to try to contact the author of to arrange a trade.

-MarkM-

Or different irc channels...

[Ichthyo]

Hi all,

after having read the Killerstorm vs Casascius controversy in this thread, it seems that just a tiny outright obvious detail is missing for a complete solution of the "trust" problem. Casascius is right, there needs to be an enforcable "secundary link" to prevent the issuer from running with the money. Just this link doesn't need to be "old-style real-world".

Instead, there should be a secondary market for default insurance. And this market is cast in terms of colored coins, of course.
Thus, an issuer sells a bundle of a stock-colored coin plus an insurance-colored coin. He buys the latter (the insurance coins) from the insurance market, by providing some limited collateral, possibly even poviding this collateral in regular payments. He doesn't even need to know the actual issuer of the insurance coin.

In case of a default, the current holder of the stock+insurance passes the insurance coin back to its issuer, receiving the default compensation in turn.

The issuer of an insurance coin initially places his own money into multisig escrow to cover the possible default compensation. Over time, he receives the insurance policy payments from the stock issuer, summing up to his own contribution plus a premium. Getting some additional, real-world legally binding dept title from the stock issuer would of course significantly reduce the required insurance premium.

[killerstorm]

Ichthyo: IIRC I mentioned something like this, without any details, though.

In general I think "If you build it, they will come" might work here: it's important to create an open ownership tracking/trading platform.

And then market will find a way how to use it. Insurance ("credit default swaps") seems to be a viable option.

Also we'll likely see other creative ways to deal with it.

BTW (I don't remember whether I mentioned it) it is possible to make secure multi-issuer Ripple-style currencies with help of collateral: large issuers will hold each others' balls via "legally enforceable" collateral agreements, then smaller fish can connect to it and transfer money via that currency.

This scheme can also allow a registered, legal company to support the currency while minimizing money laundering accusations: it won't issue this currency, but it will insure it in case of default. So normally this company never touches the currency and doesn't facilitate the trade, so it's kinda hard to accuse it. But it kinda helps when users know that currency is backed by hard $$$ and a legal company.

[EskimoBob]

Now it sounds like you just need a bunch of newsgroups for people to spam their offers in.

If you're selling bitcoins for devcoins, you spam the alt.forsale.bitcoins.for.devcoins newsgroup, if you are selling litecoins for bitcoins you spam the alt.forsale.litecoins.for.bitcoins newsgroup and so on.

People can independently subscribe to groups of interest and independently decide what offers are the best they have seen and which offers to try to contact the author of to arrange a trade.

-MarkM-

Or different irc channels...

You two...

lol

[jtimon]

Casascius is right, there needs to be an enforcable "secundary link" to prevent the issuer from running with the money.

This is not necessary for all use cases. For example, I can sell you the digital key of my bike without a legal contract demonstrating the ownership of the bike. Or I can just Ripple with my friends.

For cases when legal liability is needed (or desirable) like stocks, keypairs can be linked to legal contracts outside of the protocol.

Instead, there should be a secondary market for default insurance.

That would be a third intermediate case I guess. Well, it's really complementary with both cases.

[killerstorm]

lol

I'm not sure what you guys are talking about, but colored coins + some simple communication medium + some trading software sounds like a viable approach to me.

By simple communication medium I mean anything like IRC/newsgroups/web chat/mailing list/p2p network... I'm going to start with a specialized web chat, though.

If I finish stuff I'm working on this week, next week I'm going to start with p2p exchange for colored coins, and I hope I'll get it working in a week or so.

Problems you talk about seem to be largely theoretic. If authorities shut down IRC server people can go to trade on newsgroup. There might be some disruption, but it can be repaired  in matter of minutes through software reconfiguration, so I doubt it's same thing as getting "GLBSE'd".

If trade happens both on IRC and on newsgroup, then, liek, post your orders onto both, and read both. Problem solved?

It might be a problem only for high-frequency trading, but since any p2p solution is inherently slow and unreliable, they'd have to live with it. Maybe it is not a problem at all because high-frequency traders compete with other such traders, and if it's slow for everybody, that's fine.

If we are talking about capital markets, it's unlikely that fundamentals change more often than once per day or so. So there is NO NEED in high-speed trading. If you trade faster than your peers you can make money on it, like trading right after news were heard. But it just a race, and if trading system is fast, people will compete for milliseconds or even microseconds. Obviously there is no fundamental difference.

Likewise, there is no real problem with multiple separate markets: you can poll many of them to find the best deal. Even if you don't poll some, we can hope that arbitragers will make sure that there is no large discrepancy isn't large. Again since fundamentals change infrequently whatever "commission" arbitragers get is largely unimportant.

[EskimoBob]

The problem in not so much as where the trades happen (the exchange - the market) and how orders are matched/cleared, but where is the asset holders information stored, after the trades is cleared (transfer/payment). Is it the issuer, who only knows that information? Definitely not. Sure, they need to know where to transfer the dividends, invite to voting or similar stuff, but this is it. Exchange? No! Broker? Hell no! We do not need those scumbags.  
As you see, all this information has to float around in the P2P networks in a "distributed" form. It has to be tamper proof and be available, even if a large part of the network keels over and kicks the bucket for good.
Market, call it trading environment, is another layer on top of that network. It's sole purpose is to handle the price quoting and trades - this is where prices are quoted and deal are made.

So you get layers like:

Code:

  |--- trading and quoting ------------|
  |--- clearing trades and payments ---|
> |--- tracking ownership -------------| <
  |--- issuer / holder communication --|

Where everything revolves around "tracking ownership"