RFC -- Distributed Bitcoin Stock Exchange (DBSE)

[Red Emerald]

I originally liked the idea of using namecoin, but I think some of the asset handling would be better suited for another chain.

So you think we should share addresses across BTC and TT? Interesting. People are still going to have a bunch of addresses though.

How far are we going to take anonymity.  Will it be possible to tell who owns what shares?  Or could someone have a bunch of accounts.  Should we have something like namecoin's personal namespace that allows people to list all of their addresses?

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[jtimon]

Namecoin might be able to handle ownership of shares pretty easily without modification.

I've heard this before but I don't get how it would work.
Let's say I want to issue 10 shares (or units or whatever) with address A and give them to address B. Then B gives the shares to address C.
How is it done in namecoin?

[markm]

I was thinking pretty simplistic, something like d/knotwork to register my knotwork.bit domain then use subdomain-like strings maybe like d/share001.knotwork, d/share002.knotwork etc.

I expect that is not ideal, but since domains can be transferred to new owners presumably shares structured like domains would also be transferable.

Using the actual domain namespace would allow each share to have its own website as a side-effect I guess.

But maybe other namespaces in the chain can also be transferred from owner to owner?

-MarkM-

[jtimon]

I see. Yes, that could work. Don't sure why but I don't like it.
I guess I would want the shares to be destroyed if they return to the original issuer.

[markm]

I suppose. I was thinking of simply re-issuing them later possibly.

I kind of like the idea of buying them back at higher price than I issued them at instead of dividends, because if you have to actually part with shares to realise income/profit the percentage of total shares you own would change if, and as, you cash out. So someone with 51% would have good reason to stay invested instead of cashing out if they want to retain a "controlling interest".

Truthfully though I am not really enamoured of the idea of issuing "common stock", that is, voting shares. I actually thought most share issues nowadays are "preferred shares", used just to raise capital not to dilute control of the company by handing out votes.

Doesn't namecoin have any way of dropping names? Surely one could simply not pay to renew them when they expire if one no longer needs them?

-MarkM-

[jtimon]

I don't remember well. If you can't drop them you can at least not renew them.
But it can be implemented inside bitcoin too. Isn't not interfering with the host chain the reason for starting the new one?
Is it really better to implement it inside namecoin instead of inside bitcoin or in its own chain?

[steelhouse]

I love this.  Don't understand it all but it seems like a good addition to a coin.

[weex]

Basically it would be like adding a MtGox to your Bitcoin client, instead of having to go an exchange on the web.

I think you might be confusing this stock exchange idea with the idea of a distributed currency exchange which is discussed more often. I believe the goal here is to develop a distributed generalization of the blockchain that can be used for pretty much any asset. A distributed currency exchange may be a special case of a distributed stock exchange but I still think one should keep the trading logic out of this first version and focus on the problem of allowing users to issue assets like shares of stock, bonds, options and to be able to transfer ownership to other users of the system.

[notme]

Basically it would be like adding a MtGox to your Bitcoin client, instead of having to go an exchange on the web.

I think you might be confusing this stock exchange idea with the idea of a distributed currency exchange which is discussed more often. I believe the goal here is to develop a distributed generalization of the blockchain that can be used for pretty much any asset. A distributed currency exchange may be a special case of a distributed stock exchange but I still think one should keep the trading logic out of this first version and focus on the problem of allowing users to issue assets like shares of stock, bonds, options and to be able to transfer ownership to other users of the system.

Sure... people can then operate web based or other exchanges that do matchmaking and gather orders for a small fee.  It would be nice if individual nodes could optionally hold a queryable order book.

[caveden]

Shouldn't we be looking toward something like Open Transactions instead? The protocol is already there, and as far as I understood, it suits precisely these kind of "token issuing" use cases.

[Red Emerald]

Shouldn't we be looking toward something like Open Transactions instead? The protocol is already there, and as far as I understood, it suits precisely these kind of "token issuing" use cases.

But OT is centralized.  I think we want OT that uses a blockchain.

[caveden]

Shouldn't we be looking toward something like Open Transactions instead? The protocol is already there, and as far as I understood, it suits precisely these kind of "token issuing" use cases.

But OT is centralized.  I think we want OT that uses a blockchain.

But this problem is inherently centralized. You'll only decentralize the double-spending checks with such blockchain, but the main trust problem - if the issuer of the token will keep up to his "words" - remains centralized on the issuer.

[Red Emerald]

Shouldn't we be looking toward something like Open Transactions instead? The protocol is already there, and as far as I understood, it suits precisely these kind of "token issuing" use cases.

But OT is centralized.  I think we want OT that uses a blockchain.

But this problem is inherently centralized. You'll only decentralize the double-spending checks with such blockchain, but the main trust problem - if the issuer of the token will keep up to his "words" - remains centralized on the issuer.

Correct.  But we want the ability to move to a different centralized place.

Say GLBSE goes bad (I don't think he will, but this is hypothetical).  We would all be stuck because there is no access to their database.  We have our private keys encrypted, but that doesn't get us our accounts back.

However, if GLBSE had their accounts in a blockchain that any other exchange could also use, we could all move around freely.

[markm]

An OT server can publish all its receipts, so everyone knows the balances.

If a server goes away, the issuer of a token can re-issue on another server.

-MarkM-

[weex]

OT is an interesting development and looks to have had a lot of work done on it. Why isn't there a stock exchange built on it already? What has it been lacking? If it's possible to retain an export of all the data necessary to get up and running on another exchange or even better to run on multiple exchanges simultaneously that would seem to accomplish many of the goals of this DBSE.

As an aside, maybe it should be called more generally a Distributed Asset Exchange since Bitcoin is just the currency of choice and Stocks are just one instrument that might be handled within it.

I do still like the idea that in-person or off-exchange transfers could be made if a blockchain existed for these assets.

[jtimon]

I think using OT servers would be an improvement over the existing model for both currency and share exchanges. This could spring more specialization and provide more security. The current exchanges and eWallets would be issuers and the proper exchanges would reside in OT servers with less critical security. If there's enough of them, you only really need to trust the issuers.

But is worth to consider the idea for a longer run.
The advantage of the chain solution is that it would enable a global and completely decentralized market, but it has disadvantages too.
For example, the trades in OT are instant, but the trades within the chain may take longer.

The simplest design I can think of would be a chain like bitcoin but in which each key pair can issue its own currency.
Each output would need to additionally contain the address of the issuer.
The units can represent anything: an mtgoxUSD, a property tittle, an Islamic Bank of Bitcoin share, a right to vote in your neighbor assembly, an IOU for an hour of work...
The parties involved are responsible to make good for the property represented outside of the protocol.
For example, you can pay back your tradehillUSD to tradehill to receive the funds in your bank account.
To receive the profits of a share, you can sign with the key that holds the shares the bitcoin address you want to receive them on.
Basically it would work like smart property but without the need of the "tainted satoshi".
This has an advantage. Some transactions are "instant".
For example, If I give you 10 fresh issued timonCoins, you don't really need to wait for confirmations once you have the transaction.
There's no way I can double spend something that I can just create at will. When you give them to a third person, he has to wait because you can cheat him by doublespend.
When I issue and give them to you I can cheat you, but I don't need to double spend. I can just not honor my word as you're directly trusting me when you accept my shareCoins in exchange of something else.
The fees can be payed in bitcoins or the tokens within the chain (but some miners may not want them).
With contracts the tokens can be securely traded for bitcoins.
Trade tokens between them is trivial (like trading a tainted satoshi for regular bitcoins in the smart property wiki page).

Maybe an additional communication protocol to send messages directly to a given address would be useful.
For example, when the manager of a company wants to pay the dividends, he can look the public keys of the shareholders and send them a ciphered message asking for the bitcoin address.

I have no clue how this could work for options though.

EDIT:

As an aside, maybe it should be called more generally a Distributed Asset Exchange since Bitcoin is just the currency of choice and Stocks are just one instrument that might be handled within it.

+1

[eldentyrell]

This has the same problem as GLBSE: it's called a stock exchange, but what's exchanged isn't actually stock.

Stock in a company represents an enforceable claim on the assets and future earnings of the company.  If those assets are physical, then ultimately that claim must be backed up by an entity (i.e. a government) that is able to use force (i.e. police with guns) to transfer of those physical assets if the company's management flagrantly and repeatedly disobeys the instructions (or at least the best interests) of the shareholders.  This sort of liquidation does not happen very often in real life, but the threat of it happening is essential for the proper functioning of a securities system.

So this can't possibly be useful except for companies whose assets are 100% intangible and for which transfer of those assets can be enforced cryptographically.  There aren't many companies that fit that description.  In fact, there aren't many other assets other than bitcoins that fit that description.  Namecoin is revolutionary because it moves domain names into this category.

[markm]

Until recently Open Transactions was not ready to test.

Now it is working, and I am running a test, see https://bitcointalk.org/index.php?topic=53329.0

It does not have voting yet, nor dividend distribution. So it is not ready to handle voting shares yet.

-MarkM-

[jtimon]

Stock in a company represents an enforceable claim on the assets and future earnings of the company.

You can't enforce law with a technology. But you could sign a legal contract (maybe with a digital signature technology provided by your state) in which you express the legal meaning of the tokens. This way you could sell shares in the legal sense.
What we want is secure the tokens by decentralizing its management first and let people use them with the laws of their jurisdiction or in an informal way if it serves them.

[eldentyrell]

But you could sign a legal contract (maybe with a digital signature technology provided by your state) in which you express the legal meaning of the tokens.

Do you really believe that existing government courts are going to enforce these things?

Good luck explaining to the judge what a "blockchain" is