Decentralized, Trust-less, Multi-Currency, Interest-bearing, Bank and Exchange

[bytemaster]

Introducing the DShare Crypto-Currency
Decentralized, Trustless, Multi-Currency, Distributed Bank and Exchange

NOTE:  All features / algorithms / hash methods are subject to change.  This is a straw man idea that I want torn to shreds so I can improve upon it.

The KEY is that all fiat-crypto is backed by real crypto and market forces will ensure that backing adjusts over time with price changes in crypto.

I have put together a white paper discussing how a new block-chain-based crypto-currency could provide all of the benefits of bitcoin (block chain, 'anonymous addresses', trust-less) and yet also offer solutions to many of the problems Bitcoin AND Ripple face.

Unique Features:

• Interest-bearing balances held in ANY currency.
• Distributed, block-chain-based, exchange between any two currencies.
• Transfers in any currency.
• No need for 'gateways', Web of Trust, or 'ripple-like' transactions.

White Paper:
http://the-iland.net/static/downloads/DShareCryptoCurrency.pdf

I believe I have solved all of 'economic' problems to create the proper incentives and prevent fraud / negative incentives.  Every single individual acting in their own self-interest will actively help facilitate the growth and decentralization of the network.  

As a software engineer familiar with the implementation details of Bitcoin, I am 100% positive that this can be developed at a technical level.

Not to 'bash' our favorite crypto-currency, but I suspect DShares could grow far faster than bitcoin and be immune to most attacks that bitcoin faces.

Feedback wanted.  Name subject to change...  Investors wanted...

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[knight22]

Unlike bitcoin, the rate at which new DShares are created is a constant 50 per block forever.

No thanks

[bytemaster]

First of all, I am not in favor 'inflationary' monetary systems, but the reality is that as a percentage of the monetary system the inflation rate approaches 0% and when you factor in 'lost' coins it would probably be 0% in practice.  It is the 'relative change' that matters the most.   

My proposed system does not 'depend' upon an 'slightly inflationary' monetary system and deserves more discussion than 'no thanks' as the mining reward was a very small detail of the bigger picture.

[bytemaster]

In 9 years there when 23,000,000 coins are in existence the inflation rate will be 8%, in 27 years it will be 4%, in

At 2,628,000 coins per year it would take 8 years to produce 21,000,000 coins and the inflation rate after 8 years would be 12.5%.    After 16 years the inflation rate would be 6.25%   After 32 years the monetary inflation rate would be 3% after 64 years it would be 1.5%  After 128 years the monetary inflation rate would be 0.75%. 

The current bitcoin inflation rate is about 12% and it will 'fall off' slightly faster than what I proposed; however, there is a mitigating factor.   I pay transaction fees to the current holders of the coins instead of to the miners and those transaction fees will most likely be more than the inflation rate.  So while bitcoin will eventually hit 0 monetary inflation and 0 monetary deflation, my system would pay dividends and therefore ultimately have MORE value for holding them than bitcoin would gain from deflation.

The reason I opted to always pay a fixed mining fee is because it keeps things simple, automatically scales down the inflation percentage rate, and pays the miners for security without having to worry about transaction fees.

I guess mining fees are useful for prioritizing transactions and that without fees miners wouldn't know which transactions to process.  So I could easily see keeping the bitcoin mining fee schedule / reward schedule. 

The thing I wanted to aim for was rewarding those who hold coins with dividends.  Coins are a 'share' of the exchange and my system depends upon rewording those who keep balances in the system.

[keatonatron]

I'm not sure if this was in the white paper (if it was, I missed it), but how is it trust-less when buying/selling with fiat?

I still don't see what stops Joe from saying "Hey Jane, send me your DShares and I'll send you some USD$", and then disappearing as soon as he has them without paying.

[bytemaster]

It is 'trustless' at the exchange level and once money is 'deposited'.   Ie:  If you have a $USD balance then it is as secure as a BTC balance.  There is no 'IOU' after a successful exchange.

So now the exchanges are about trading real dollars for crypto-dollars which means there is no currency exchange risk.   The increased 'demand' generated by paying interest on $USD deposits combined with the elimination of volatility in $USD denominated cash means that finding 'local' users to match deposit/withdraw requests is much easier. 

Lastly, a simple escrow service or NashX can be used to ensure you receive fiat-USD for crypto-USD.  The end result is that you can move USD balances around inside the system without having to worry about IOUs going bad or anyone 'defaulting'.    Once you have crypto-USD the decentralized exchange between USD and BTC is easy.

No matter what you cannot eliminate the need for 'momentary trust' between a depositor / withdrawer of funds regardless of the system.  Fortunately, there exist many cheap systems that allow these 'trades' to occur.   Because funds can be denominated in fiat it also means that you can do business using crypto-fiat without any currency exchange risk.  This means that there is no need to make constant trades between real USD and fiat-USD.

I imagine it would be much easier to find someone local who wants to do a $USD trade for interest-bearing crypto-USD than someone wanting to trade BTC.  Because there is no 'exchange rate' everyone is an equal match.

[keatonatron]

Thanks for the reply. I will continue pondering.

[bytemaster]

Here are the minimal changes I would make to LiteCoin:

This system can be modified with only a few small changes to the ‘rules’ that the nodes use to validate transactions.  These changes will create a new crypto-currency which I will call a BitShare.   These simple rules are described below:

1) 50% of all transaction fees are redistributed among everyone that currently holds a BitShare balance.  This makes all BitShare owners ‘share holders’ in the payment network and they benefit from the transaction volume.  This motivates everyone to encourage the adoption of the currency.

2) Introduce a new transaction type that allows BitShare owners to mortgage their BitShares in exchange for a loan from the network denominated in a national currency.   This transaction would be provided with fiat money by someone who wished to deposit fiat into the network.   The result is that the depositor would have a positive balance for the loan amount while borrower would have a negative balance.   This transaction would also establish a fixed payment plan that would transfer the BitShare from some of the collateral in ‘fixed amounts‘ every 10 minutes paying off some of the fiat loan balance and transferring those BitShares to those whom hold accounts with a positive fiat balance.

3) Introduce another transaction type that allows for ‘deposit’ or ‘withdraw’ of funds denominated in fiat currencies (or gold and silver)
4) Introduce another transaction type that allows an individual to place a bid/ask into the network to trade currencies.  

The critical thing to understand about this process is that those who deposit $USD can transfer the $USD to any other party which can then withdraw that $USD from any party.  The mortgage transaction does not establish a debt between two users, but a debt between one user and the network.   The automatic mortgage payments (from collateral) are not paid to any one account, but instead are distributed to all holders of $USD balances.        

[🏰 TradeFortress 🏰]

I don't understand how you deposit into the system, because you can't do that (involving fiat) in a trust free method. Depositing $100 would mean you must find someone who wants to borrow $100 USD, right? Then it's not going to work, because people will run away.

[bytemaster]

Imagine you have 100 bitcoins that you do not want to sell because you expect them to have long-term high yield ROI value AND they are also paying you dividends (current bitcoin doesn't do that).    Unfortunately, you still need some $USD to pay your rent.    If your rent is $100 and bitcoins are $100 / bitcoin then you would inform the bitcoin network that you wish to mortgage 2 bitcoins (2x the value of current exchange rate) for $100.    You are now someone who wants to borrow $USD.

You can now be paired up against someone who wants to deposit $USD.

You both sign the transaction that creates the mortgage + a $100 deposit.

Some time later you can either sell your BTC to earn crypto-USD and pay off your loan OR you can make a deposit of $100 with someone else who wants to borrow.

Now borrowers are the source of all initial $USD in the system, but they are not the only source for making a deposit of $USD.   You can also pair a deposit with a withdraw from an account with a positive crypto-USD balance.

[bytemaster]

A key thing to note is that it is entirely ok for the individual who took out a mortgage to die and take his private key with him.   In this case his $USD balance will be paid of over time using his collateral.  The network would have received 2x the value he took out of the network by failing to pay off his mortgage.

[🏰 TradeFortress 🏰]

Imagine you have 100 bitcoins that you do not want to sell because you expect them to have long-term high yield ROI value AND they are also paying you dividends (current bitcoin doesn't do that).    Unfortunately, you still need some $USD to pay your rent.    If your rent is $100 and bitcoins are $100 / bitcoin then you would inform the bitcoin network that you wish to mortgage 2 bitcoins (2x the value of current exchange rate) for $100.    You are now someone who wants to borrow $USD.

You can now be paired up against someone who wants to deposit $USD.

You both sign the transaction that creates the mortgage + a $100 deposit.

Some time later you can either sell your BTC to earn crypto-USD and pay off your loan OR you can make a deposit of $100 with someone else who wants to borrow.

Now borrowers are the source of all initial $USD in the system, but they are not the only source for making a deposit of $USD.   You can also pair a deposit with a withdraw from an account with a positive crypto-USD balance.

But what if bitcoin crashes to $20 and I don't pay? If it's automatically liquidated, what if the orderbook is too thin and a large mortgage causes people who lent out (aka have a USD balance) to face a loss?

How does the network get the exchange rate? For example, currently credit cards are generally 8% above spot. You can't have one exchange rate for all payment services.

I think you should probably think this through, and write an actual white paper.

[bytemaster]

Also consider the case of someone who bought BTC at $0.05 and the BTC is now $120 and heading to $200.   You need $USD now but there is no way in the world you would want to actually sell your BTC.   So you mortgage some part of it.  If the BTC value goes up you can easily cover your short position.  If it goes down your losses are capped at 50%.

Note that the exchange rate variations only affect the interest rate paid on $USD balances, not their redemability at face value.

[bytemaster]

But what if bitcoin crashes to $20 and I don't pay? If it's automatically liquidated, what if the orderbook is too thin and a large mortgage causes people who lent out (aka have a USD balance) to face a loss?

How does the network get the exchange rate? For example, currently credit cards are generally 8% above spot. You can't have one exchange rate for all payment services.

I think you should probably think this through, and write an actual white paper.

I did think this through and considered every possible currency movement.  The mortgage is at a defined exchange rate with defined payments that automatically pay it off by a fixed amount each block.  The receivers of USD know that what is actually backing that USD is 2x the value in BTC at TODAYS exchange rate.   They also know that no matter what that is the maximum payout on that mortgage. 

Now the fact that USD account balances are all fungible means that someone new coming into the system taking out a new loan at the $20 exchange rate it would be backed by 10 BTC instead of 2 BTC and would be paying interest payments to all holders of USD.   

You could still exchange your $USD balance for face value with someone with real $USD.   The only thing the change in exchange rate did was reduce the effective interest payment on all USD, but he payment would still be positive.

[🏰 TradeFortress 🏰]

Also consider the case of someone who bought BTC at $0.05 and the BTC is now $120 and heading to $200.   You need $USD now but there is no way in the world you would want to actually sell your BTC.   So you mortgage some part of it.  If the BTC value goes up you can easily cover your short position.  If it goes down your losses are capped at 50%.

Note that the exchange rate variations only affect the interest rate paid on $USD balances, not their redemability at face value.

Yes, it would.

Let's say the BTC orderbook looks like this:

BID
100 @ $1 ea
20 @ $2 ea
40 @ $3 ea
40 @ $4 ea

ASK
20 @ $5 ea
30 @ $6 ea
80 @ $7 ea

LAST: 10 BTC @ $4

So okay, you want $400. You mortgage out 200 BTC. You withdraw your USD into cash and run away.

The orderbook will soon look like this:

BID

ASK
2000 @ $1 ea
1000 @ $2 ea
20 @ $5 ea
30 @ $6 ea
80 @ $7 ea

LAST: 100 BTC @ $1

You buy up 3000 BTC for $3000. Rinse and repeat. If you think this would be challenging to pull off, it would not be, I can place a bunch of my own orders and pull it.

[bytemaster]

I am attempting to understand your order book example.

But what I think you are saying is that if the order book is 'thin' relative to your balance then having a fixed collateral is not sufficient.  In fact, the required collateral would have to factor in the order book and depth of the market.

I would really like to understand your contrived order book and how this 'scam' would be pulled off.  This is exactly the kind of feedback I was hoping to get because all angles need to be addressed.

My question to you is this:  is there any way to foil your scam by changing collateral requirements based upon the existing order book and volume?

[🏰 TradeFortress 🏰]

Yes, it is, however that still opens it up to someone who pulls orderbook entries. Doesn't have to be pull, can simply buy into it yourself. It also makes low liquidity markets very difficult to get that currency / commodity.

[bytemaster]

Initial Condition:  
You own 200 BTC.

Last exchange of USD for BTC was $4 per BTC.

You wish to borrow $400 from the network, so you post 200 BTC collateral.

New Condition:
You own 200 BTC (locked)
You owe $400 USD  (but have $400 in paper USD)

Next step:  You have a 2nd account with ANOTHER 200 BTC in it and sell those 200 BTC for $400 USD (clearing out all the bids).  

New Condition:
Account A)  You own 200 BTC (locked)
Account A) You owe $400 USD   ( but have $400 in paper USD)
Account B) You own $400 USD

Now all of a sudden SOMEONE has 2000 BTC they are suddenly willing to sell for $1??? I guess that SOMEONE is you as well.

So now you use $400 in account B to buy 400 BTC from yourself?   To profit from this someone else would have to be willing to sell their BTC at 1 dollar simply because you cleaned out the bid?  

Something doesn't add up with your contrived example.  It could be me, so I would appreciate clarification.

[🏰 TradeFortress 🏰]

Initial Condition:  
You own 200 BTC.

Last exchange of USD for BTC was $4 per BTC.

You wish to borrow $400 from the network, so you post 200 BTC collateral.

New Condition:
You own 200 BTC (locked)
You owe $400 USD  (but have $400 in paper USD)

You're right up to here, what happens from now is that you ignore your debt if it benefits you. If BTC goes to $4 + [price needed to compensate for interest you are paying] each, you do nothing, you pay the loan back automatically with interest but you make money in USD terms.

Now, if BTC goes to $1 each (illustrated by other players dumping BTCs OR from other mortgaged assets being force liquidated), you do nothing, you pay the loan automatically but only up to 200 BTC (which is worth $200 now) and you make $200 USD.

You have to somehow force someone to deposit more into the system if they have a negative balance.

[bytemaster]

I think the answer here is that while you can manipulate the 'exchange rate' the same as with you could on Mt. Gox given light volume.  It would not affect the ability to cash out the $USD deposit at face value *UNLESS* there was a complete lack of people wanting to convert real USD to crypto USD.   Why would demand for crypto-USD which yields at least some interest drop to a value below face value?

I suppose that would happen any time the number of people wanting to withdraw USD was greater than the number of people wanting to deposit USD.  But to accept less than face-value for an interest bearing USD would suggest that you have extreme time pressure or that the current interest rate paid on USD deposits is below market rates.  The interest rate could fall to below market rates by a sudden and long-term decline in the value of DShares used as collateral.  

However, every day new collateral is being put up at the new exchange rates and paying the higher DShare interest  which are averaged with the older lower DShare interest rates.   This should serve to keep interest rates very close to 'average'.  

The real issue I see here is that by defining a fixed-collateral (2x) and a fixed mortgage term (say 4 years) I am fixing the max interest rate that would be paid (Assuming DShares did not go up in value).    

Assuming you actually took $400 from someone, that someone now has a positive $USD balance.   They will only accept face value upon withdraw.   So they are looking for SOMEONE who will give them face value.   Now after giving you $400 you then 'crash the exchange rate' to DShares by 80%.    Anyone who had insufficient collateral to fully back their position would simply let their current position 'expire' forfeiting 100% of their collateral which would be paid to the holders of $USD.   As a result none of these individuals would never pay off those accounts.  And the network would keep their DShares.   Everything is 100% fair and legit regardless of exchange rate.


This leaves the network with a crypto-USD balance that will pay out a meager DShare interest until all colateral is exhausted at which point in time the interest rate reaches 0.   However, there is still an interest payment so someone else comes along and wishes to deposit USD so the individual with a positive USD balance can still withdraw to the individual wishing to make a deposit (despite the lower interest rate or complete lack of interest rate).

If there are no new depositors then clearly your money is stuck as crypto-USD earning 0 interest.   But if there are no new depositors then the entire exchange and currency system must be dead for some other reason.