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Author Topic: Bitcoins, or the ultimate proof of ownership  (Read 2214 times)
Frozenlock
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August 15, 2011, 02:21:21 AM
 #1

Update (2011-08-26):
I wrote an article in order to clarify my thoughts, with some proposed rules for any future implementation.
https://bitcointalk.org/index.php?topic=39433.0

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As discussed before in How Bitcoin will change the voting systems, the power of the blockchain enable us to do much more than simply exchanging bitcoins.

I think dacoinminster has somewhat grasped this power (see [PROPOSAL] The ticker and the hole (path to bitcoins worth $1M each)) but try to use it in sub-optimal application. (Or I didn't quite understand it, which is more than probable.)


Proof of ownership, such as the stock market, is probably the most fertile ground for the blockchain power.

With my broker, it costs me 30$ per stock related transaction. That's per transaction, so 60$ to buy and sell. Even by doing so, I don't ever see any proof of ownership of any company. I have to trust that my broker didn't simply write a bogus number in my account. [tangent = on] Bitcoins make you realize how much you trust everyone around you. [tangent = off]

Can I sell directly to a friend? No sir, I must contact my broker who will then sell - and I don't even think I can decide to whom he is going to sell, not in the usual web interface for sure.

What Bitcoin offers is a way to avoid all that, and in addition make it even more secure - by a wide margin.

My company, Acme inc, wants to go public to finance a big project. We organize a big press conference and publicly announce a master BTC. (see How Bitcoin will change the voting systems)
When someone buy a part of the company, we send him a part of the master BTC. (100% ownership = the whole master BTC).

What's the point?

  • The ownership is publicly announced and protected by the blockchain;
  • The "stock" is transferable. It's as simple as sending a BTC;
  • Dividends can be send to the current owners of a part of the master BTC (send to public key);
  • Owners can be anonymous;
  • Every stock holder can now easily vote in company decision
  • Where you live is irrelevant (I can buy chinese stock if I want to, it's MY money!);

All this is possible without a single modification to the Bitcoin protocol. Some client-side modifications perhaps (don't spend my "proof of ownership" to buy a sandwhich!) and only for the bitcoin-stocks users.

The next stock market will be worldwide, anonymous, inexpensive and available to all.  Grin
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fornit
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August 15, 2011, 03:13:56 AM
 #2

i had the same idea about voting systems including the exact same details quite a while ago. but the idea to use it in this more general way is really cool  Smiley

btw besides spending them for sandwiches you also have to protect the master coin parts of being used for transaction fees.

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August 15, 2011, 03:30:34 AM
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So every company would have their own block chain?

12jAZVfnCjKmPUXTszwmoji9S4NmY26Qvu
Frozenlock
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August 15, 2011, 03:37:38 AM
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No.

The same blockchain is used. All they do is to publicly declare, for example, this Bitcoin from this transaction to be the master BTC.
Karmicads
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August 15, 2011, 04:52:28 AM
 #5

No.

The same blockchain is used. All they do is to publicly declare, for example, this Bitcoin from this transaction to be the master BTC.

I fully agree with the posabilities of taking the bitcoin concept to the level of stock trading. In fact, I have already proposed a complete stock exchange model, based on a modification of the bitcoin protocol and netrwork. The difference would be that a complete new network and protocol would be writen, so that all stocks, comodities or bonds, would have their own blockchain, as an independent means to float freely. Bitcoin would remain an entirely independant network, so that BTC traded for one would simply change hands and no bitcoins would ever be gained or lost by trading across this independent 'bitstock' network.
indio007
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August 15, 2011, 05:04:05 AM
 #6

Problem: 2 people or more people with the same private key. How do you prove true ownership of the key?
Frozenlock
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August 15, 2011, 05:22:08 AM
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@ Karmicads

From what I understand of your proposal, you want to create an alternate network. Perhaps even more?

That is the opposite of what I'm saying: That's the current blockchain that will be used, because nothing is more secure.
If I'm a company and want to sell some stock, I will never start a new blockchain only for it, because I know a big miner could single handedly take over the network.  

@ indio007

The first to spend the Bitcoins associated with a private key is the owner, like for normal Bitcoins.
Don't share your private keys.  Wink
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August 15, 2011, 06:04:26 AM
 #8

The same blockchain is used. All they do is to publicly declare, for example, this Bitcoin from this transaction to be the master BTC.

How do you prevent it being mixed with other coins?
indio007
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August 15, 2011, 06:06:07 AM
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@ indio007

The first to spend the Bitcoins associated with a private key is the owner, like for normal Bitcoins.
Don't share your private keys.  Wink

i was considering theft.
Frozenlock
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August 15, 2011, 11:17:57 AM
 #10

The same blockchain is used. All they do is to publicly declare, for example, this Bitcoin from this transaction to be the master BTC.

How do you prevent it being mixed with other coins?


Yes I thought of the same thing yesterday.

It makes the whole a little less elegant.
I suppose you should check if more than the master BTC part is the product of the transaction, than it's "destroyed".

For example:
0.1 + 0.0001 (fee) = 0.1 Valid
0.1 + 1.0 + 0.0001 (fee) = Invalid
Frozenlock
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August 15, 2011, 11:21:24 AM
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@ indio007

The first to spend the Bitcoins associated with a private key is the owner, like for normal Bitcoins.
Don't share your private keys.  Wink

i was considering theft.

I was too. The private key is everything in Bitcoins.
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August 15, 2011, 11:39:25 AM
 #12

Even by doing so, I don't ever see any proof of ownership of any company.

- With this method you don't either. What is stopping the company changing to a different "master btc", leaving you with one normal bitcoin.

- Bitcoin is divisible by 8 decimal places, so a "master btc" can be divided to 10 million shares - that isn't enough for most large companies.

- A company can never raise capital by issuing new shares, which is common practice.

- If you have to pay transaction fees to trade shares your slowly giving away part of your company to miners

fornit
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August 15, 2011, 12:42:29 PM
 #13

Even by doing so, I don't ever see any proof of ownership of any company.

- With this method you don't either. What is stopping the company changing to a different "master btc", leaving you with one normal bitcoin.

the same thing stopping them from turning your stocks into worthless pieces of paper.

Quote
- Bitcoin is divisible by 8 decimal places, so a "master btc" can be divided to 10 million shares - that isn't enough for most large companies.

who says it needs to be exactly one btc?

Quote
- A company can never raise capital by issuing new shares, which is common practice.

what stops the shareholders from declaring another (or half, quarter whatever) coin to be a new master coin?

Quote
- If you have to pay transaction fees to trade shares your slowly giving away part of your company to miners

worst case is you pay a pool to include all your voting transactions. but i think it should be possible to mark coins so that the will never be spend for transaction fees.


piuk
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August 15, 2011, 01:04:58 PM
 #14

the same thing stopping them from turning your stocks into worthless pieces of paper.

But then it doesn't really have any advantages on the "trust" side, I'd probably rather trust and 3rd party broker than the company itself who has more motive to cheat.

The only advantage is the ownership is public. But if all you have is a bunch of anonymous address the information is useless. If shareholders are anonymous how do you prevent insider trading? How do I know if one single holder has control of more than 51% of the company? Large shareholders legally have to be declared so you know who is running the show and what conflicts of interest there maybe.

Quote
who says it needs to be exactly one btc?

I guess not, I just assumed the phrase "master btc" meant one btc.


Frozenlock
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August 15, 2011, 04:23:30 PM
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- A company can never raise capital by issuing new shares, which is common practice.

Perhaps it's a mistake. If I own 10% of a company, I would be furious if they dilute this into 1%.
You make one master BTC and stick with it. (You don't have to sell everything)

Like fornit said, another master BTC could be declared, but I don't like the idea.

Quote
But then it doesn't really have any advantages on the "trust" side, I'd probably rather trust and 3rd party broker than the company itself who has more motive to cheat.
The advantage here is that the blockchain is the proof.

I have a number in a database that can be changed anytime (without the company even knowing you wanted to buy a share)
VS
I have a part of a master bitcoin coming form an unchangeable history.

Quote
If shareholders are anonymous how do you prevent insider trading?
You don't. People sell and buy with the information they have (like they do today anyway).

Quote
How do I know if one single holder has control of more than 51% of the company? Large shareholders legally have to be declared so you know who is running the show and what conflicts of interest there maybe.
You don't, except if he publicly moves 51% of the master BTC.

By the way, what conflict of interest could you have against your own property? (It's a genuine question, I can't find any example.)
 
piuk
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August 15, 2011, 05:47:16 PM
 #16

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Perhaps it's a mistake. If I own 10% of a company, I would be furious if they dilute this into 1%.

It's better to own 1% of a company that is operational than 10% of a company gone bankrupt.


Quote
I have a number in a database that can be changed anytime (without the company even knowing you wanted to buy a share)
VS
I have a part of a master bitcoin coming form an unchangeable history.

I have a number in a database that can be changed anytime (without the company even knowing you wanted to buy a share)
VS
I have a part of a master bitcoin which can be invalidated at anytime by a company deciding to move to a different "master coin".

The point is law enforcement and trust is still required.

Quote
You don't. People sell and buy with the information they have (like they do today anyway).

No, it's illegal to trade with information which isn't available to the public (all traders are meant to be on the same playing field). Directors have to declare all deals they make. If your an employee of a company who sells your shares right before a company releases bad end of year results the SEC will come for them.

Quote
By the way, what conflict of interest could you have against your own property? (It's a genuine question, I can't find any example.)

Imagine an oil company attempting to take over a company which has just invented a new form of reusable electricity. Once the oil company has taken control they could drive it into bankruptcy. If shareholders know someone is building a significant stake they can refuse to sell, in the proposed system they would have no idea until it was too late. Another example is monopolies: if you don't know who owns companies then you don't know if there is genuine competition or just one group colluding. On the london stock exchange all holders with over 7% stake have to declare themselves.

Bunghole
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August 15, 2011, 09:10:48 PM
 #17

The ruling elites will not allow a major source of their funding (Wall Street) to be usurped without a huge fight.
Karmicads
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August 15, 2011, 10:19:40 PM
 #18

@ Karmicads

From what I understand of your proposal, you want to create an alternate network. Perhaps even more?

That is the opposite of what I'm saying: That's the current blockchain that will be used, because nothing is more secure.

Yes, the bitstock network would operate completely independently as I invisage it. It (and it's protocol) would also be significantly different in some respects. The blockchain as I understand it, provides us with a principal by which we can (and do) derive security. The same principal can be applied to a similar network (ie one with a blockchain) and security can be derived by adopting the same principal. Of course there is nothing more secure than the existing bitcoin blockchain, but that only because there is no other similar network (apart from the bitcoin test network - that I know of) If there were, it could employ the very same principal to also become secure and that would be likely to happen if bitstock became popular, in the same manner as it happened for bitcoin, ie: by leveraging security in numbers.

Quote
If I'm a company and want to sell some stock, I will never start a new blockchain only for it, because I know a big miner could single handedly take over the network.  

I have to do some more reading up on the technical aspects, of exactly how the process of hashing produces security in the existing network. I'm a little sketchy on that aspect of bitcoin. As I understand it though (correct me if I am wrong), mining (ie: producing bitcoin) is not essential to the process that generates security, so no coins have to be produced to provide security for trasnsactions. I make that assumption, based on the inevitable event in the future that there will be no bitcoin to mine. I assume the security won't colapse if there is no mining, because there will still be many connected nodes (we hope), that are each contributing to some hashing for security. The bitstock network as I invisage it, would work the same way with regard to the transfer of bitstock P2P, but there would be no 'mining' in the sense of producing bitstock out of nowhere or from the work of doing hashes. Instead the protocol would allow the company or trading entity, to float their bitstock, which could then be bought and paid for by a normal bitcoin transaction.

I think it's quite implicit in this approach, that the bitstock client would still have the complete functionality of the bitcoin client built into it as well, as it would have to address two seperate networks (or at least two seperate namespaces), one being bitcoin and the other being bitstock. I'm not sure how both could be secured, apart from the bitstock client perhaps being made, so that dedicating some machine cycles to it is compulsory. In the existing bitcoin client the 'mining' (somehow) produces security and also bitcoin. In the existing client you can turn mining off though. If the bitstock client requires 'mining' (actualy just hashing for security), it might even provide a security strengthener for both networks, long after the 21M bitcoins have been produced. Cant a client feasably be made, so that it shares a nominal amount of hashing for security, across more than one blockchain?

Nevertheless, there may yet be other approaches to security, but I'm only considering how adapting the P2P trading aspect might work; where each commodity or company stock, is represented as a seperate blockchain. That to me, is the sensible method to associate company stock with a bitcoin like protocal/network, since the blockchain is the entity that allows the value of the commodity to float freely.  In this model, a transaction consists of transfering ownership of some bitstock from one node to the other while the payment in bitcoin travels in the opposite direction. To create bitstock you have to have something of value to sell and the company or trading entity would float that as their own and then let market forces take over. It would be as if the company stock represents a micro-currency; one that can only be traded back and forth with bitcoin. Floating a stock or commodity is realy just a declaration of value. What you're saying essentialy is: 'My company has someting of value over here'. It could be company stock, commodities or whatever. If nobody agrees it's worth anything then it simply isnt. By the same token, it wouldn't be worth stealing it then either. If it has percieved value, then that value would be represented by paying for and buying it with bitcoin.

Just as there's no information in the bitcoin blockchain to represent the intrinsic value of a bitcoin, there would be nothing of value in any bitstock blockchain to represent it's intrinsic value either. That BTW is good design on Satochi's part IMHO, as nothing realy has any intrinsic value, only value that is percieved. The basic design criteria is that the bitstock protocol, must be made so that bitcoin and ONLY bitcoin, can be used to transct bitstock. It realy needs to made from the bottom up, so that you just CANT obtain it any other way. If I am right, then there would be no way to steal it from the bitstock network itself. You could steal it only in the same way you can steal bitcoin today. If you cant create it (by mining) and cant steal it (if I understand this all properly), then the security is provided by the original bitcoin blockchain and the security of the bitcoin transactions, that flow in the opposite direction to the bitstock.

The other design criteria is that the existing bitcoin blockchain, maintains a registry of public keys assigned to transactions. So bitcoin esentialy carries with it, some information about who owns it. The bitstock will need another element to identify what company stock or commodity, it is associated with. The Information stored in the bitcoin blockchain, for each transaction, of the nodes public key and amount, isn't enough. If I buy 100 bitstock in 'Mr Widgets Software', The transaction will have to be addressed to an associated blockchain and the original 'bitcoin like' ownership information, about the individual node that it is being transfered to, will still have to exist. So bitstock would have data fields denoting a node value and a trading entity value, that must be carried with every transaction. That way, the network knows not only who owns the resulting bitstock but what blockchain it is to be traded on.

Did that help you think, or am I still confused about something?  Undecided
Karmicads
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August 15, 2011, 11:10:19 PM
 #19

The same blockchain is used. All they do is to publicly declare, for example, this Bitcoin from this transaction to be the master BTC.

How do you prevent it being mixed with other coins?


Yes I thought of the same thing yesterday.

It makes the whole a little less elegant.

Which is why I decided that stocks and shares need their own network and protocol designed for that purpouse from the ground up. Bitcoins were designed to represent a single freemarket comodity, in which each node may have shares of the whole. As I understand it, there needs to be another discrete unit of identity information caried by the bitcoin transactions. You  would need bitcoin to store the node it belongs to, as well as the comodity/company it represents. Stocks and bonds are essentialy a companys own micro-currency. They are derived from the 'tally-stick', by which shares in a collective asset, could be represented on a completely unique piece of timber, that carried notches to quantify the amount and was split (with the grain providing a unique fingerprint) so that the notches remained on both peices. The company (or government) retained the stock, while the investor kept the bond (or was it the other way around?). Anyhow, you had a unique identifier of the trading entity in the grain of both halves (like public and private keys) and the amount was in the notches. The 'information' of who either half belonged to, was only a product of who held posesion of it. Bitcoin provides a means to identify each node as independent shareholders of in one single commodity 'bitcoin'. To trade in shares of unique commodities, requires an extra factor of information to be stored, to identify the seperate pools of equity and they in turn, need to float in value independantly. That essentialy means having seperate blockchains as far as I can see.
Karmicads
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August 16, 2011, 01:01:59 AM
 #20

Quote
- A company can never raise capital by issuing new shares, which is common practice.

Perhaps it's a mistake. If I own 10% of a company, I would be furious if they dilute this into 1%.

If it's a mistake, then it's one that a hell of a lot of companies, investors and brokers seem quite indifferent about. Why is nobody generaly upset by a company floating a new lot of shares? It's basic economics realy. The newly created shares, don't just dilute your percentage of equity, but also increase the value of the company by the amount paid for them. For example, a company may have $1,000,000 worth of shares listed and you may own some of them. Now, if they then float the same number of shares, your percentage of the company will obviously halve, but the company will be looking for market value and that injects capital into the company to the tune of whatever price the market is willing to pay for half the company. That influx of capital gives them the power to grow and make more money. They don't just dilute the value of their shares for the fun of it. They gain in working capital (and potential growth) what they release in equity. You effectively then, have a smaller peice of a bigger pie.

The market will only pay for one of your shares, the same price as they think it's worth. The same goes for a share released by the company. Although the share released by the company will also reduce the value of all shares proportinaly, but the diffrence with the share sold by the company, is that it increases the value of the company by the amount paid for it. If the company went to a bank and obtained a loan, it might be said to also decrease the value of your shares, as it would now have a bank account in the red by the amount borrowed, except that by accepting a liability, it would have more working capital. As a shareholder, you share in the profits by also accepting the risks. The company that floats extra shares, also reduces your percentage of risks and liabilities. If you were not concerened about the risk in the first place and had confidence in the ability of the management, to turn a good profit on your investment (as you were when you first bought your shares), then you might even buy more of those extra shares yourself when they are floated and expect the management to use the new capital generated, to grow and perhaps produce even better yeilds. It isn't the percentage of shares that you have that determines the performance of the company, but how well they use the their net equity (including your share of it) to turn a profit.

Quote
You make one master BTC and stick with it. (You don't have to sell everything)
Like fornit said, another master BTC could be declared, but I don't like the idea.
I'm not quite clear on how your indignant disaproval is going to be binding on the company.

Quote
Quote
If shareholders are anonymous how do you prevent insider trading?
You don't. People sell and buy with the information they have (like they do today anyway).
Huh?  Huh I could have sworn there were legal protocols in the existing stock exchange system and laws, to prevent insider trading. Perhaps you mean to imply that they're imperfect (and what isn't), but if you want a level playing field that can lookafter it's own checks and ballances, then it's best to design things from the bottom up, so they avoid such detrimental outcomes as insider trading. It's better to have a system built with forsight from the outset, that destroys the motive, or makes such things technicaly unfeasable, rather than rely on 'top down' regulatory controls. It would at least be desirable, to have built-in transparency.
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