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Author Topic: Solving the problem of bitcoin securities and regulation  (Read 2184 times)
axefrog
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October 19, 2013, 09:17:43 AM
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There's a clear problem with the Bitcoin securities market, and that's one of centralisation attracting regulatory problems. BTCT closed down for this reason and BitFunder shut its doors to US citizens for the same reason. In response, the value of these securities has largely artificially been forced down, despite the real practical value the shares may have, due to forced sell-offs by Americans who have lost their means for practical trading of these securities. I'm invested in two of these myself; ActiveMining and LabRat Mining, and both are looking at their own private methods of managing their share/bond allocations, but these are still going to be problematic, because there's still not an easy way for them to be either be discovered by newcomers, or traded back and forth by the existing market.

Guys, Ripple is *perfect* for Bitcoin securities! You can issue your own arbitrary units of value that are tradeable using the Ripple protocol. It's decentralised, so regulatory issues can't get in the way of trading and transacting, and it gives each issuer the power to allocate some arbitrary number of shares and trade them out in exchange for the Bitcoins they need to fund their project. And because they're all managed by the Ripple protocol, you don't have to worry about managing some sort of separate altcoin representing each security.

Finally, for those concerned about XRP being a scam because it's centrally-issued, it's not relevant, because trading XRP is not what's happening here. All XRP would get used for in this case is transaction verification, so that argument is really somewhat irrelevant to this use case.

Would like to hear other people's thoughts on this, as I for one am somewhat upset about the massive unnecessary loss of value that my shares have suffered, all in the face of regulatory fears, when those fears can be completely bypassed by decentralisation, and Ripple provides a perfect vehicle for that to happen.
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axefrog
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October 19, 2013, 09:49:32 AM
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Just to clarify, securities issuers would simply set themselves up as a Ripple gateway. They would issue a set number of security IOUs and take Bitcoins in return. Those IOUs could then be freely traded by the market, while the issuing gateway would be free to fund their projects using the Bitcoins that were received in return for the IOUs (shares/bonds) that they issued. Dividends would simply be paid as BTC to whoever happens to hold the IOUs for the given security.
MPOE-PR
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October 19, 2013, 08:54:46 PM
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There's a clear problem with the Bitcoin securities market, and that's one of centralisation attracting regulatory problems. BTCT closed down for this reason and BitFunder shut its doors to US citizens for the same reason. In response, the value of these securities has largely artificially been forced down, despite the real practical value the shares may have, due to forced sell-offs by Americans who have lost their means for practical trading of these securities. I'm invested in two of these myself; ActiveMining and LabRat Mining, and both are looking at their own private methods of managing their share/bond allocations, but these are still going to be problematic, because there's still not an easy way for them to be either be discovered by newcomers, or traded back and forth by the existing market.

Guys, Ripple is *perfect* for Bitcoin securities! You can issue your own arbitrary units of value that are tradeable using the Ripple protocol. It's decentralised, so regulatory issues can't get in the way of trading and transacting, and it gives each issuer the power to allocate some arbitrary number of shares and trade them out in exchange for the Bitcoins they need to fund their project. And because they're all managed by the Ripple protocol, you don't have to worry about managing some sort of separate altcoin representing each security.

Finally, for those concerned about XRP being a scam because it's centrally-issued, it's not relevant, because trading XRP is not what's happening here. All XRP would get used for in this case is transaction verification, so that argument is really somewhat irrelevant to this use case.

Would like to hear other people's thoughts on this, as I for one am somewhat upset about the massive unnecessary loss of value that my shares have suffered, all in the face of regulatory fears, when those fears can be completely bypassed by decentralisation, and Ripple provides a perfect vehicle for that to happen.

Ripple is defective. It's nice that you'd like to contribute to a healthier marketplace, but the answer is not building yet more nonsense on broken ideas and with bad tools. "Regulatory fears" are not the enemy here. They're but a symptom of the specific ineptitude of those who have followed similar "let's build with broken bits" paths.

My Credentials  | THE BTC Stock Exchange | I have my very own anthology! | Use bitcointa.lk, it's like this one but better.
freethink2013
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October 19, 2013, 08:57:38 PM
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I propose a new coin "the clusterfuck"
axefrog
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October 20, 2013, 06:47:20 AM
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Ripple is defective. It's nice that you'd like to contribute to a healthier marketplace, but the answer is not building yet more nonsense on broken ideas and with bad tools. "Regulatory fears" are not the enemy here. They're but a symptom of the specific ineptitude of those who have followed similar "let's build with broken bits" paths.

This is going to come off inflammatory, but I'm only saying what I've noticed many others insinuating in their responses to you as well. Your securities exchange is extremely unpopular because you have no interest in usability or user experience and have an arrogant attitude that tends toward assuming your users are idiots if they don't want to machette their way through your archaic user interface instead of expecting you to actually take some pride in your site's presentation and do something about it. I've no doubt that your technical ability is great and that the technology powering your exchange is wonderful, but seriously, usability is important. Give a shit about your site's presentation.

http://www.nngroup.com/articles/usability-101-introduction-to-usability/
http://www.visiblelogic.com/blog/2011/03/study-shows-people-dont-trust-badly-designed-websites/
http://www.nngroup.com/articles/definition-user-experience/

Give a shit about your design and assume that feedback from your users is worth considering, because right now, you are hamstringing yourself with that god-awful mess that you're flogging as the best exchange around. If you sorted that out, I'd happily be an advocate for your service.
supermono
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October 20, 2013, 07:14:40 AM
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Just to clarify, securities issuers would simply set themselves up as a Ripple gateway. They would issue a set number of security IOUs and take Bitcoins in return. Those IOUs could then be freely traded by the market, while the issuing gateway would be free to fund their projects using the Bitcoins that were received in return for the IOUs (shares/bonds) that they issued. Dividends would simply be paid as BTC to whoever happens to hold the IOUs for the given security.

I have used Ripple as a user, although I am not familiar with the behind-the-scenes gateway, etc. stuff.

But if looks to me like this should work; if DividendRippler.com could do this with the TAABL.NET asset ( https://bitcointalk.org/index.php?topic=190193.0 ) then it should be possible to do it with more assets. DividendRippler itself might be willing to do this with more assets; I don't know (although I suppose this might risk going back to having too tempting a target for regulators if many assets are hosted by one entity). Or I imagine there is probably a way for more entities to establish themselves as Ripple gateways.

I also notice that it is apparently possible for anyone to create his own 'currency' or 'IOU's on Ripple, not just gateways. I notice for example that as a test of this feature, Bitcointalk user TTBit has created the currency DYM, which is equivalent to one pre-1965 US silver dime ( https://bitcointalk.org/index.php?topic=149533.0 ). In order to use DYM, users simply trust TTBit's Ripple address with the amount of DYM that they are willing to hold (users do not need to trust each other with the DYM, they just need to trust TTBit because all the IOU's are issued by him).... I don't know why other Ripple users couldn't do the same thing. An asset issuer should be able to make a simple webpage saying 'send me X amount of BTC per share (or send me your information if you are an existing shareholder from BTCT/LCG/BitFunder), and trust the following Ripple address for that amount of shares', and let me know your Ripple account, then will be able to send the IOU's representing shares in his asset to that Ripple address. Any user who holds these IOUs should be able to use Ripple's normal trading functions to list his IOUs for sale at whatever price he wants in whatever currency he wants; people wanting to buy shares would just need to trust the issuer's Ripple address with the number of shares they want to buy, then could buy them either from the issuer or on the open market.  I'm not sure if there is a way to pay dividends this way, but at least this would be an easy way to allow people to continue to buy and sell shares during a transitional period for some of these assets that are having trouble quickly finding a new exchange to relocate to. (Although I agree that it seems that the gateway idea would provide more functionality, in particular the ability to pay dividends.)
Luckybit
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October 20, 2013, 01:10:28 PM
 #7

I see no advantage in using Ripple over Mastercoin.
Why would we want to use Ripple when Mastercoin can do the same thing but better?

What are these Ripple gateways? who runs them? Why would we want to trust them? Why choose Ripple? Can we buy Ripples yet?
MPOE-PR
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October 20, 2013, 03:26:26 PM
 #8

This is going to come off inflammatory, but I'm only saying what I've noticed many others insinuating in their responses to you as well.

Many people saying something is not necessarily an indication that the something has any value. What matters is who's saying it and what's actually being said. Try reading a second pass, this time "noticing" who's talking and the sense (or lack thereof) of the content.

Here's a handy starting point:

lol rediculous glbse is much better

Your securities exchange is extremely unpopular because you have no interest in usability or user experience and have an arrogant attitude that tends toward assuming your users are idiots if they don't want to machette their way through your archaic user interface instead of expecting you to actually take some pride in your site's presentation and do something about it. I've no doubt that your technical ability is great and that the technology powering your exchange is wonderful, but seriously, usability is important. Give a shit about your site's presentation.

It's not my exchange, and a handful of agitated forumites doesn't at all render something "unpopular". Why do you imagine you can fail to read to such an extent and yet also have the wherewithal or experience to tell me what's what?

Anyhow, it's been said time and again: the bullshit non-exchanges based on making things overly simplistic and shiny for the sake of coddling the clueless fail. Every time. People like to imagine it's because of the Boogeyman. It's not. It's squarely because some people imagine that securities is about being nice to those who have no business investing in the first place so as to feel cozy about being accepted into the circle jerk. This attitude isn't ever going to be a feature of an actual exchange, anywhere.

And again, Bitcoin is a cryptocurrency. Eschewing cryptography tools that build good security and actually function as they should because learning is too hard will always and forever be the attitude of those who do not belong in BTC finance.

My Credentials  | THE BTC Stock Exchange | I have my very own anthology! | Use bitcointa.lk, it's like this one but better.
supermono
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October 20, 2013, 08:11:20 PM
 #9

I see no advantage in using Ripple over Mastercoin.
Why would we want to use Ripple when Mastercoin can do the same thing but better?

What are these Ripple gateways? who runs them? Why would we want to trust them? Why choose Ripple? Can we buy Ripples yet?

I am not familiar with Mastercoin so I can't speak as to how it might compare with Ripple or which might be better.

Ripple gateways are similar to currency exchanges; they will accept currencies and IOUs, and exchange them for their own IOUs that they issue (Ripple basically works with XRP, which is its own currency, and with IOUs issued by these various gateways).

For example, SnapSwap.us is a Ripple gateway that accepts USD from US users through ACH and Dwolla and gives you an equal number of "SnapSwap USD" IOUs in their place in your Ripple account. Then you can use these IOUs to make purchases through Ripple as if they were USD itself, as long as the recipient accepts SnapSwap USD IOUs. Or, if the intended recipient doesn't accept SnapSwap USD IOUs, but he does accept BitStamp USD IOUs (for example), and the system finds someone who accepts both versions of the USD IOUs, then the system can still fulfill your transaction by 'rippling through' the other account. The Ripple system also uses XRP (Ripples) as its own internal currency; in case it cannot find a path or bridge between the currency IOUs you have, and the currency IOUs that the person you want to pay accepts, then it can convert from your currency to XRP and then back into the currency that the other person wants you to pay in. All of this is automatic and done behind the scenes.

In terms of trust, users need to trust the gateway issuing the IOU, just like if you buy a security from any issuer now, you basically have to trust that the issuer will follow its contract (we've seen a number of examples on the exchanges, like MOO.COW.MINING, Emma's securities, and TRIPLE-B-MINING on Litecoinglobal, where the issuer has basically blatantly violated its contract and there wasn't anything the exchange could really do about it other than post warnings or delist the security after the damage was already done).

You have to be particularly careful in trusting more than one gateway/IOU issuer for the same currency (like SnapSwap USD and BitStamp USD in the example above). As in the example above, the system assumes that the two IOUs for the same currency from different issuers/gateways are equivalent and may swap one for the other in your account, which might be an issue if the two are not of equal value to you. In some cases, you could end up with getting valuable IOUs switched for worthless ones if you end up trusting an IOU issuer that does not actually intend to back up its IOUs. This was the point TradeFortress made with his 'social experiment' he did a while back when he told people that he would give them free "TradeFortress BTC" IOUs for 1 BTC if they would trust him for 100 BTC in the Ripple system; users who accepted this offer and who also had BTC IOUs issued by another gateway ran the risk of the system automatically replacing up to 100 BTC of their BitStamp or other valuable BTC IOUs with the "TradeFortress BTC" IOUs that TradeFortress issued just to make a point.

Besides SnapSwap.us, BitStamp.net, and DividendRippler that I mentioned in my previous post, some other Ripple gateways I am aware of are WeExchange.co and TheRockTrading. Ripple has also incorporated what they call a 'bitcoin bridge', which means that if you have any currency IOUs in your account (whether BTC IOUs or something else, like SnapSwap USD), you can enter a bitcoin address to send funds to, and the system will ask you which of your source currencies you want to use (if you have sufficient amounts of more than one currency), and the system will automatically convert the correct amount to BTC for you and send it to the bitcoin wallet specified. It's more or less the same thing as if you went to an exchange and exchanged it for BTC yourself, and then sent the BTC to a wallet, but the Ripple system tries to make the currency conversion automatic and behind the scenes so that users can simply use it as a way of sending money in any currency without needing to deal with the details like currency conversion themselves. Ripple takes some getting used to, and some setting up (you have to input the Ripple address of each gateway or issuer that you want to trust, and specify the currency and amount--for example, 'I trust BTC IOUs issued by ripple address RXXXXXXXXXXX for up to 2 BTC', before the system will let you hold their IOUs in your account.) But once it is set up, it seems to be a fairly straightforward way of making payments in a variety of currencies without having to deal with the exchanges yourself. There are also order books you can put bids and asks in in order to do currency trading manually. As I mentioned in my previous post, as far as I know, these 'currencies' in Ripple could actually be anything; if a currency can be created for an IOU for a 'pre-1965 US silver dime', I don't know why IOUs couldn't be created for other assets too. 

Ripples (XRP) are available now, and in fact about 200 or so of them are needed in order to fully activate and get started using a Ripple account. There are some giveaways, or you can buy them from exchanges such as TheRockTrading, VirWox, etc.

I don't know enough about Mastercoin (or colored coins) to know if Ripple would be any better than those other two possible solutions. But I do think Ripple would be a possible solution, even if it's possibly not the best one.

Sukrim
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October 20, 2013, 10:49:50 PM
 #10

Ripple is defective. It's nice that you'd like to contribute to a healthier marketplace, but the answer is not building yet more nonsense on broken ideas and with bad tools. "Regulatory fears" are not the enemy here. They're but a symptom of the specific ineptitude of those who have followed similar "let's build with broken bits" paths.
Well, point #3 can be disabled by a setting (Edit: Also it is wrong - if you trust your boss and he trusts his daughter, this does NOT mean you can end up with USD.daughter unless you trust her too. You can disable 1:1 implicit trading/"rippling" via a setting, that's what I initially thought was the perceived problem. Him being bankrupted because he set up a [too high] trust line to his daughter is outside of the system and also not likely with the current use cases. Gateways are encouraged to NOT trust anyone and let the markets be made either from other of their accounts or 3rd parties.), #2 is wrong (you CAN be compensated as liquidity provider and 0% interest is not part of the system but part of the individual agreements of gateways with their users) and #1 is something that is true for MPEX as well, in case one deposits coins there.

Anyways, using colored coins, Ripple, Mastercoin or OpenTransactions will neither solve any issues at all with regards to regulations - only with regards to resilience and eliminating (exchange) operator risk. With neither of these systems (well, a bit with OpenTransactions...) there is any chance that you go on a holiday and suddenly your exchange has changed their ToS and you are to provide documents and whatnot or it has shut down.
There is still a good chance that "doxxing" can happen (check out Gigamining, once listed on MPEX by the way!), just that the business owner then will require KYC documentation, not the exchange platform.

Edit:
In case anyone is more interested in these "lemon laws" that are mentioned in the article linked by MPOE-PR, I can recommend the book http://www.cs.cornell.edu/home/kleinber/networks-book/

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