This document is a guidebook on Bitshares and decentralized cryptocurrencies and businesses. It introduces Bitshares, which is a next generation cryptocurrency built on blockchain technology. Bitshares aims to transform business operations into a decentralized and trustless system through the use of decentralized autonomous companies and digital assets like BitUSD, which aims to be a stable cryptocurrency for consumers. The author believes Bitshares has significant potential for growth.

1. `
Bitshares
101
A
Guidebook
on
How
To
Profit
From
the
Next
Generation
of
Bitcoin,
Crypto
Currencies
and
Decentralized
Businesses
Max
Wright

2. Table
of
Contents
Preface
Introduction
Decentralized
Autonomous
Companies
(DACs)
What
is
Bitshares?
What
are
Bitassets
like
bitUSD?
BitUSD
for
the
consumer
Current
state
of
Bitshares
How
to
get
Bitshares
Bonus
Section:
Delegated
Proof
of
Stake
(DPOS)
Bonus
Section:
Resources

3. Preface:
Bitcoin
did
for
money
what
I
believe
Bitshares
will
do
for
business.
In
the
very
near
future
we
will
see
the
status
quo
of
business
operations
transformed
into
a
decentralized
and
trustless
environment
that
functions
more
efficiently
and
fairly
than
any
of
the
world’s
preceding
models.
My
name
is
Max
Wright,
a
crypto-­‐
currency
author,
investor,
and
evangelist.
I
wrote
this
book
to
give
you
a
base-­‐level
understanding
of
how
this
new
system
will
function,
and
how
you
can
make
it
work
for
you.
Welcome
to
Bitshares
101.
In
this
book
we
will
discuss
the
future
as
it
unfolds
before
our
very
eyes.
I
am
really
excited
about
the
many
technological
advances
happening
in
the
Bitcoin
2.0
world.
While
similar
in
many
ways
to
Bitcoin’s
evolution
several
years
ago,
this
next
generation
Blockchain
technology
has
the
potential
to
generate
billions
of
dollars,
even
if
few
people
know
or
understand
what
is
happening
right
now.
Every
month
I
see
another
seed-­‐fund
or
VC
investing
tens
of
millions
of
dollars
in
Bitcoin
related
businesses.
And
to
me,
there
is
no
surprise
why.
The
future
lies
with
this
technology.
Those
words
are
familiar.
In
2012
when
Bitcoin
cost
only
$11
per
coin
I
created
a
video
series
about
Bitcoin
for
my
paid
subscribers
and
used
those
very
words:
The
future
lies
with
this
technology.
In
2013
when
the
price
of
Bitcoin
was
$100
per
coin
I
transcribed
and
published
that
content
on
Amazon
Kindle
in
a
book
titled
The
Bitcoin
Revolution:
Ending
Tyranny
for
Fun
and
Profit.
That
book
was
the
top
rated
Bitcoin
book
for
the
remainder
of
2013.
In
November
of
2013
with
Bitcoin’s
price
at
an
all-­‐time
high
of
$1100
I
sensed
a
correction
coming
soon
and
told
my
paid
subscribers
to
take
profits
now.
The
reason
I
share
this
is
not
to
brag
or
boast
but
because
I
have
established
a
record
of
predicting
trends
in
the
Bitcoin
world
and
I
have
another
one
for
you.
In
August
of
2014,
I
introduced
Bitshares
to
my
paid
subscribers
on
a
live
webinar.
A
single
Bitshare
at
the
time
was
worth
only
8/10’s
of
one
penny.
Today,
in
December
of
2014,
I
release
this
book
to
Amazon
after
the
price
of
Bitshares
has
more
than
doubled
to
1.9
cents.
Once
again,
I
think
this
is
just
the
beginning
of
an
amazing
ride.
Please
enjoy
this
journey
into
Bitshares
and
join
me
at
www.bitshares.tv
where
I
host
a
weekly
show
and
podcast
exploring
the
fascinating
world
of
Bitshares.
The
future
lies
with
this
technology.

4. Chapter
1:
Introduction.
Satoshi
Nakamoto,
the
anonymous
inventor
of
Bitcoin,
created
a
piece
of
technology
that
many,
including
myself,
view
as
the
most
important
invention
since
the
Internet.
That
crucial
piece
of
technology
is
called
the
Blockchain.
Bitcoin
is
built
on
Blockchain
technology.
The
Blockchain
created
a
method
to
arrive
at
a
reliable
consensus
in
a
decentralized
way.
It
was
the
first
technology
to
ever
accomplish
this
feat.
Before
the
creation
of
the
Blockchain,
it
was
necessary
to
use
a
third
party
like
Visa,
PayPal,
or
a
bank
to
record
a
payment
between
parties.
Both
parties
to
the
transaction
agreed
that
the
records
kept
by
this
third
party
should
be
considered
evidence
of
payment.
In
other
words,
there
was
a
consensus
that
a
payment
took
place
because
the
third
party
said
so.
Bitcoin
allows
us
to
bypass
these
third
parties
and
creates
a
far
more
efficient
method
of
consensus.
The
potential
for
this
technology
extends
far
beyond
its
use
in
monetary
transactions.
Just
like
the
Blockchain
began
a
revolution
in
payments
through
Bitcoin,
I
believe
the
Blockchain
is
about
to
begin
a
revolution
in
many
other
areas
as
well.
For
example:
If
I
sell
my
Amazon
stock
to
a
buyer,
right
now
we
rely
on
a
stock
exchange
like
the
NASDAQ
to
record
that
transaction.
But
in
the
very
near
future,
we
could
rely
on
the
Blockchain
to
do
that.
If
I
purchase
a
piece
of
real
estate
from
someone,
the
sale
is
recorded
at
some
government
office,
but
we
could
record
it
on
a
Blockchain.
If
I
buy
the
domain,
www.bitshares.tv,
currently
that
purchase
is
recorded
at
The
Internet
Corporation
for
Assigned
Names
and
Numbers
(ICANN),
but
it
could
be
recorded
on
the
Blockchain.
If
we
enter
into
a
contract,
we
might
record
that
on
paper
and
each
keep
a
copy.
Instead
it
could
be
recorded
on
the
Blockchain.
These
are
just
a
few
examples
of
existing
industries
that
can
be
revolutionized
with
Blockchain
technology.
However,
because
of
the
efficiencies
of
Blockchain
technology,
brand
new
industries
are
suddenly
possible
too.
For
example:
Let’s
say
that
I
am
an
author
and
I
want
to
write
a
book.
I
have
to
take
a
year
off
work
to
write
the
book,
and
I
need
the
money
to
do
that.
I
could
pre-­‐sell
ownership
rights
to
the
book
via
a
crowd
sale
recorded
on
the
Blockchain,
and
all
of
my
“shareholders”
could
receive
revenues
from
the
sale
of
the
book
once
it
is

5. published.
The
terms
of
their
shares
can
all
be
recorded
and
automatically
executed
on
the
Blockchain.
Because
of
the
laws,
regulations,
and
costs
associated
with
an
IPO
on
the
NASDAQ,
it
is
too
inefficient
to
justify
issuing
traditional
“stocks”
on
a
book
I
was
going
to
write.
With
Blockchain
technology,
this
suddenly
becomes
possible.
This
is
similar
to
crowd
sourcing,
but
with
greater
protection
and
transparency
for
the
investors.
In
this
book
we
are
going
to
examine
this
exciting
new
world
and
find
out
where
the
most
potential
lies.
In
my
opinion,
at
the
center
of
all
of
this
potential
is
Bitshares.
Bitshares
is
a
powerful
open
source
business
engine
built
on
Blockchain
technology.
The
developers
of
Bitshares
have
made
a
number
of
innovations
to
the
Blockchain
technology
as
used
by
Bitcoin.
These
innovations
solve
many
of
the
problems
that
Blockchain-­‐based
enterprises
will
face
when
entering
many
of
the
aforementioned
industries.
As
a
result
of
these
innovations
I
think
the
next
few
years
will
see
Blockchain
technology
massively
disrupt
several
new
industries.
But
surprisingly,
that
is
not
the
most
exciting
thing
about
Bitshares.
In
fact,
that
is
not
even
what
this
book
is
about.
I
do
go
into
these
points
in
the
bonus
chapter
at
the
end,
but
this
book
is
about
another
even
bigger
potential.
All
of
these
new
industry
disruptors
built
on
Blockchain
technology
will
need
to
be
traded
somewhere,
just
like
Apple
and
Amazon
stock
are
traded
at
the
NASDAQ.
So
the
Bitshares
team
went
ahead
and
built
a
Blockchain-­‐based
trading
floor
to
be
the
“NASDAQ”
for
all
future
Blockchain-­‐based
solutions.
As
you
will
learn
in
the
remainder
of
this
book,
this
decentralized
trading
floor
has
the
potential
to
radically
transform
a
wide
range
of
industries,
from
the
$700
trillion
dollar
derivative
market
to
how
we
manage
loyalty
programs
like
frequent
flyer
miles.
The
efficiencies
that
the
Bitshares
Blockchain
can
bring
to
the
world
in
the
next
decade
are
mind
blowing.
This
book
is
an
exploration
of
Bitshares
potential.
It
is
entirely
possible
that
Bitshares
could
explode
in
value
over
the
next
few
years,
just
as
Bitcoin
did
before.
It
is
this
possibility
that
has
kept
me
awake
for
many
months
researching.
I
hope
you
enjoy
the
journey
as
much
as
I
have.
To
warm
us
up
a
little
before
we
get
into
the
real
meat
of
it,
check
out
this
link
to
see
the
Bitshares
short
promo
video.
www.bitshares.tv/chapter1

6. Chapter
2:
Decentralized
Autonomous
Companies
(DACs)
Let’s
start
by
exploring
the
concept
of
a
Decentralized
Autonomous
Company.
From
now
on,
we
will
call
them
DACs.
We
will
explore
this
concept
by
looking
at
the
words
themselves
in
reverse
order.
First
of
all,
a
DAC
is
a
company.
That
means
it
has
many
familiar
components
that
ordinary
companies
have
as
well.
DAC’s
have
revenues.
They
have
costs.
They
have
either
a
profit
or
a
loss.
They
have
employees.
They
have
shareholders.
Shareholders
have
voting
rights.
They
have
a
charter
(a
set
of
rules
by
which
the
company
operates).
They
have
a
product.
And
hopefully
most
of
all,
they
have
customers.
Let’s
have
a
look
at
the
next
word.
Autonomous.
Autonomous
means
that
these
companies
are
self-­‐governing
and
are
not
subject
to
control
from
outside
sources.
In
fact,
they
have
built-­‐in
defense
mechanisms
to
protect
themselves
from
those
outside
influences
that
would
seek
to
regulate
them.
And
finally,
Decentralized
means
the
company
does
not
exist
in
one
or
even
a
few
centralized
locations.
It
is
distributed
on
many
computers
all
around
the
world,
and
within
each
computer
the
entirety
of
the
company
exists.
Even
a
successful
attack
against
many
instances
of
the
company
is
futile
as
it
easily
replicates
itself
and
heals.
This
feature
makes
them
extremely
secure
and
far
less
vulnerable
to
attacks.
The
first
time
I
heard
the
phrase
“Decentralized
Autonomous
Company,”
it
all
sounded
a
bit
wishy-­‐washy
and
didn’t
make
a
lot
of
sense
to
me.
How
do
you
have
an
autonomous
company
that
runs
by
itself?
But
then
I
found
out
that
I
was
already
very
familiar
with
a
DAC.
In
fact,
Bitcoin
was
the
worlds
first
DAC.
I
think
it
will
help
to
examine
this
comparison.
Bitcoin
has
a
product.
It
is
a
payment
service.
It
competes
with
banks,
Visa,
PayPal,
Western
Union,
and
others
for
sending
payments
from
one
party
to
another
all
around
the
world.
It
has
revenues.
Bitcoin
charges
small
fees
on
some
transactions.
Bitcoin
has
shareholders.
The
shareholders
are
you
and
I,
the
people
who
actually
own
Bitcoin.
Let’s
say
you
own
1%
of
all
Bitcoin
in
existence.
That
is
like
owning
1%
of
stock
in
the
Bitcoin
company.
As
the
company
grows,
hopefully
the
share
price
goes
up.
If
the
company
shrinks
or
fails,
the
share
price
drops.
Bitcoin
has
employees.
They
are
called
miners.
Miners
secure
the
network
and
facilitate
these
payments.

7. Bitcoin
has
costs.
It
pays
those
employees
via
two
mechanisms.
The
first
is
the
fees
we
spoke
about
earlier.
100%
of
these
fees
are
passed
onto
the
miners
as
their
salary.
The
second
is
through
the
dilution
of
shares.
Bitcoin
regularly
creates
new
Bitcoin,
called
block
rewards,
and
gives
it
to
the
miners
to
supplement
their
salary.
Because
Bitcoin
is
also
a
currency,
we
call
that
inflation.
In
the
context
of
a
DAC
it
is
called
share
dilution.
Eventually
this
dilution
will
reduce
to
zero
and
miners
will
have
to
work
for
fees
only.
Of
course
Bitcoin
has
customers.
Every
person
who
sends
a
Bitcoin
payment
is
a
customer.
Bitcoin
has
voting
rights.
When
changes
to
the
system
like
code
updates
and
hard
forks
are
proposed,
the
community
decides
if
they
wish
to
accept
those
changes.
The
community
of
miners
who
are
paid
to
secure
the
network
currently
holds
Bitcoin’s
voting
rights
although
it
is
not
a
formalized
process.
While
some
miners
hold
Bitcoin,
some
do
not.
In
this
way,
it
is
Bitcoins
employees
and
not
its
owners
that
hold
Bitcoin’s
voting
rights.
Through
the
lens
of
a
DAC,
this
is
not
desirable.
It
would
be
preferable
if
the
shareholders
had
voting
rights.
Bitcoin
has
a
charter.
This
is
the
Bitcoin
code
that
all
parties
agree
to
operate
by.
As
you
can
see,
the
analogy
of
Bitcoin
being
a
company
is
very
useful
and
quite
accurate.
Bitcoin
is
also
decentralized
and
autonomous,
and
therefore
Bitcoin
is
the
world’s
first
DAC.
You
now
have
a
definition
of
a
DAC,
as
well
as
an
example
of
a
DAC
that
you
are
probably
already
familiar
with.
Let’s
expand
this
concept
to
think
of
other
applications
of
DACs.
I
have
recorded
an
interview
with
Dan
Larimer,
the
lead
developer
and
visionary
behind
Bitshares.
Dan
collaborated
with
Satoshi
Nakamoto
on
the
bitcoin
forums
during
the
early
days
of
Bitcoin.
He
later
invented
the
phrase
DAC.
Bitshares
is
the
very
exciting
DAC
that
is
the
focus
of
this
book.
In
the
video
we
go
through
some
other
examples
of
potential
DACs.
I
think
that
by
the
end
of
this
video,
you
will
have
a
very
clear
understanding
of
what
a
DAC
is.
You
will
also
learn
how
there
are
many
other
industries
that
will
likely
be
disrupted
by
DACs
built
on
Blockchain
technology.
This
should
really
get
your
mind
racing
with
some
of
the
amazing
potential
behind
this
technology.
You
can
see
the
interview
here.
www.bitshares.tv/chapter2

8. Chapter
3:
What
is
Bitshares?
Bitshares
is
a
DAC.
But
what
does
this
DAC
do?
It
offers
a
service.
The
service
is
matching
willing
buyers
and
sellers
of
financial
instruments
and
assets.
In
this
chapter
we
will
focus
on
how
the
Bisthares
platform
can
be
used
to
create
and
trade
a
financial
instrument
called
a
derivative
contract.
Just
like
in
the
traditional
financial
sector,
these
derivatives
become
assets
available
for
trade
in
and
of
themselves.
In
the
Bitshares
world
we
call
these
derivative
contracts
Bitassets.
These
Bitassets
can
be
sent
from
one
person
to
another
just
like
Bitcoin.
This
allows
for
some
interesting
possibilities
that
we
will
explore
together
in
this
book.
As
we
explore
these
possibilities,
I
would
like
you
to
keep
a
couple
of
things
in
mind.
We
all
know
that
Bitcoin
has
some
tremendous
advantages
over
all
other
types
of
money
and
payments,
but
we
also
know
it
has
some
drawbacks.
One
of
Bitcoin’s
biggest
drawbacks
is
its
volatility.
The
high
volatility
of
Bitcoin
makes
it
hard
for
the
mainstream
user
to
treat
Bitcoin
as
a
currency
in
a
self-­‐
contained
ecosystem.
It
is
true
that
in
some
markets,
specifically
the
so-­‐called
“dark
markets”
like
Silk
Road,
users
have
been
forced
to
use
Bitcoin
as
a
currency
in
a
self
contained
ecosystem.
But
for
mainstream
businesses,
Bitcoin
is
generally
received
and
then
immediately
sold
into
a
more
stable
store
of
value.
For
this
reason,
I
see
Bitcoin’s
primary
use
as
a
payment
system.
Its
tertiary
uses
are
for
speculation
and
as
a
store
of
value.
If
the
number
of
people
using
the
payment
network
increases,
it
is
likely
that
the
Bitcoin
price
will
increase
as
well.
Bitcoin
has
many
uses
as
a
payment
network-­‐-­‐
Internet
sales,
remittances,
micro-­‐
payments,
and
lots
more.
But
for
the
mainstream
user
and
especially
for
businesses
with
small
margins,
the
volatility
of
Bitcoin
is
too
high.
Once
a
payment
is
complete,
many
businesses
choose
to
sell
their
Bitcoins
for
a
less
volatile
asset,
generally
trading
into
their
local
fiat
currency.
It
is
true
that
increased
use
of
Bitcoin
as
a
payment
system
will
result
in
a
higher
net
demand
for
Bitcoin
at
any
one
instant.
It
follows
therefore
that
the
price
of
Bitcoin
should
go
up
as
the
number
of
Bitcoin
payments
go
up.
It
is
also
true
that
eventually,
and
at
a
much
larger
scale,
the
volatility
of
Bitcoin
will
reduce.
In
fact
it
already
has.
We
have
noticed
the
volatility
of
Bitcoin
reducing
every
year
since
its
creation.
That
trend
will
no
doubt
continue
as
Bitcoin
gains
more
traction
and
has
larger
liquidity
pools
behind
it.
But
none-­‐the-­‐less,
the

9. volatility
of
Bitcoin
is
expected
to
be
much
higher
than
that
of
say
the
US
dollar
or
gold
for
many
years
to
come.
So
what
if
we
could
have
all
of
the
benefits
of
the
Bitcoin
payment
network,
plus
the
price
stability
of
things
like
gold,
silver,
the
Euro
or
even
the
US
dollar?
If
a
new
crypto
currency
could
achieve
that,
then
we
would
see
people
having
no
need
to
immediately
sell
the
coins.
They
could
hold
them
indefinitely.
They
could
simply
save
them
until
the
next
time
they
want
to
use
a
crypto-­‐coin
to
make
a
payment.
They
could
do
this
without
fear
of
what
the
value
might
be
at
that
time.
This
is,
in
my
opinion,
the
holy
grail
of
crypto-­‐currencies.
We
should
pause
for
a
moment
to
note
that
Bitcoin
is
attempting
to
solve
its
volatility
problem
in
many
different
ways.
Several
different
companies
have
launched
very
innovative
products
that
allow
users
to
“lock”
the
value
of
their
Bitcoins
to
a
number
of
different
options.
I
think
the
best
one
is
a
company
out
of
Panama
called
Coinapult.
This
company
is
funded
and
supported
by
some
of
my
favorite
Bitcoin
ambassadors
like
Roger
Ver
and
Eric
Voorhees.
Coinapult
is
essentially
a
hosted
wallet,
with
a
very
simple
interface
that
allows
you
to
lock
the
value
of
your
Bitcoin
to
one
of
five
assets-­‐-­‐
gold,
silver,
USD,
Euros
or
British
Pounds.
By
“locking”
your
coins,
you
are
no
longer
exposed
to
the
Bitcoin
price
volatility.
In
the
background,
Coinapult
goes
out
and
actually
secures
those
assets
to
keep
themselves
solvent
in
the
case
of
price
swings
against
them.
From
the
user
perspective,
however,
it
is
a
very
simple
process.
I
believe
the
fee
is
1-­‐2%
for
this
service,
and
there
is
a
cap
of
$3000
per
transaction
that
you
can
lock.
Using
this
product,
you
can
easily
lock
the
value
of
your
Bitcoins.
If
you
deposit
$100
worth
of
Bitcoin
and
“lock
it”
to
another
asset,
then
next
year
or
next
month
you
can
withdraw
$100
worth
of
Bitcoin.
It
will
not
matter
if
the
price
of
Bitcoin
has
increased
or
decreased
during
this
time.
You
will
still
have
$100
worth
of
Bitcoin.
This
is
a
useful
product
for
Bitcoin
users,
but
it
still
has
some
serious
drawbacks.
By
locking
your
coins,
you
lose
many
of
the
benefits
of
Bitcoin,
such
as
owning
the
private
keys
to
your
wealth.
There
are
a
plethora
of
other
drawbacks
that
are
mostly
the
result
of
this
solution
being
centralized.
There
is
one
company
that
has
control
over
your
funds.
As
I
mentioned
earlier,
I
really
like
the
guys
behind
this
company
and
have
no
reason
not
to
trust
them.
All
things
being
equal,
however,
I
would
rather
not
have
to
trust
anyone
at
all.
I
am
always
looking
for
a
decentralized,
fully
transparent
solution
where
I
don’t
have
to
place
my
trust
in
any
single
person
or
entity.

10. Just
look
at
some
of
the
things
you
have
to
trust
when
you
use
Coinapult’s
locks:
! You
have
to
trust
that
management
is
honest.
! You
have
to
trust
that
management
is
competent.
! You
have
to
trust
their
servers
don’t
get
hacked.
! You
have
to
trust
employees
not
to
run
off
with
your
Bitcoin.
! You
have
to
trust
their
systems
are
backed
up
and
the
records
of
your
deposits
are
not
lost.
! Coinapult
interacts
with
and
hold
funds
in
the
legacy
banking
system;
therefore,
you
have
to
hope
there
is
not
a
Cyprus-­‐style
bail-­‐in
with
their
bank.
! The
physical
gold
and
silver
backing
your
Bitcoin
is
stored
somewhere
and
is
subject
to
confiscation
by
authorities.
! If
you
are
being
sued,
going
through
a
divorce,
or
under
an
investigation
of
some
sort
and
a
court
order
compels
those
companies
to
confiscate
your
funds,
then
your
funds
will
be
taken.
The
list
is
nearly
endless.
Lest
we
forget
the
infamous
Goxing
incident,
during
which
most
of
the
above
risks
came
to
fruition
for
a
company
called
Mt.
Gox
in
the
space
of
one
year.
The
result?
$700
million
of
wealth
was
stolen
from
its
customers,
who
will
now
be
in
court
for
a
number
of
years
sorting
out
exactly
how
it
happened.
But
the
why
is
very
clear:
Mt.
Gox
is
a
centralized
solution.
That
is
why,
in
my
opinion,
decentralized
solutions
will
always
win
out
over
centralized
solutions.
One
of
the
things
Bitshares
has
achieved
is
to
create
a
decentralized
“locks”
solution.
The
consequence
is
quite
profound.
It
is
a
crypto-­‐currency
just
like
Bitcoin,
but
with
the
price
stability
of
the
US
dollar,
the
Euro,
gold,
silver,
or
whatever
asset
the
customer
desires.
These
crypto-­‐currencies
with
price
stability
are
called
Bitassets.
And
the
first
to
begin
gaining
traction
is
bitUSD.
As
you
might
imagine,
it
functions
just
like
a
crypto-­‐
currency,
but
its
value
is
pegged
to
that
of
the
US
dollar.
One
bitUSD
is
always
worth
close
to
one
actual
US
dollar.
It
is
important
to
mention
here
that
the
deviation
between
one
bitUSD
and
one
US
dollar
is
already
less
than
1-­‐2%.
This
margin
will
continue
to
close
as
the
market
depth
increases.
In
addition
to
bitUSD,
there
is
bitEuro
(pegged
to
the
price
of
the
Euro),
bitCNY
(pegged
to
the
price
of
the
Chinese
Yuan),
bitGLD
(pegged
to
the
price
of
one
ounce
of
gold),
and
bitBTC
(pegged
to
the
price
of
one
Bitcoin).

11. If
Bitshares
achieves
a
critical
a
mass
of
users
with
any
one
of
these
(most
likely
bitUSD),
then
perhaps
businesses
will
start
accepting
it
as
payment
for
goods
and
services,
just
like
they
do
with
Bitcoin.
If
bitUSD
does
reach
that
critical
mass,
I
think
that
it
could
eventually
be
the
dominant
payment
method
for
online
transactions.
If
that
happens,
the
owners
of
Bitshares
could
make
incredible
profits.
Making
the
deal
even
sweeter
for
people
to
buy
and
hold
bitUSD
(or
any
other
Bitasset)
is
the
fact
that
while
you
hold
it,
you
earn
interest
on
your
balance.
This
is
another
powerful
feature
for
everyday
consumers.
While
Bitcoin
is
phenomenal
for
merchants,
its
advantages
are
not
quite
as
strong
for
consumers.
Paying
holders
of
crypto-­‐coins
interest
on
their
holdings
could
be
the
nudge
consumers
need
to
rapidly
increase
their
participation
in
the
crypto-­‐currency
revolution.
We
will
talk
more
about
that
in
the
next
chapter
when
we
focus
on
Bitassets.
To
explain
this
concept
creates
a
chicken
and
egg
situation.
To
understand
Bitassets,
one
must
understand
Bitshares,
as
well
as
the
other
way
around.
They
go
hand
in
hand
and
you
need
to
understand
both
to
make
sense
of
them.
I
think
it
is
useful
to
hold
this
analogy
in
your
mind
as
we
move
forward.
Think
of
Bitshares
as
a
decentralized
company
and
Bitassets
as
its
products.
If
you
think
these
products
are
useful
and
will
be
used
by
lots
of
people,
and
you
think
the
Bitshares
company
can
make
a
profit
providing
these
products
to
the
marketplace,
then
you
might
decide
to
invest
in
the
company
by
purchasing
Bitshares.
If
your
predictions
are
correct,
then
the
value
of
the
company
may
increase
and
your
ownership
portion
of
the
company
may
increase
in
value.
If
you
are
wrong,
then
the
value
of
your
shares
in
Bitshares
may
decrease
in
value.
Conversely,
you
may
not
be
that
much
into
investing
and
may
not
have
the
time
to
understand
how
all
this
technical
mumbo
jumbo
works,
but
still
like
the
idea
of
holding
your
wealth
outside
of
the
banks
in
a
stable
crypto-­‐currency
that
earns
interest.
If
that
is
the
case,
you
could
just
use
one
of
the
products
Bitshares
offers,
called
Bitassets.
I
will
spend
the
rest
of
this
chapter
talking
about
the
business
of
Bitshares,
and
in
the
next
chapter
I
will
talk
about
the
product
of
Bitassets.
So
what
does
Bitshares
do?
Bitshares
is
a
decentralized
platform
that
allows
users
to
enter
into
financial
agreements
with
each
other.
Prior
to
the
invention
of
the
Blockchain,
doing
this
in
a
decentralized
way
was
impossible.
In
the
past,
you
had
to
have
a
centralized
trusted
party
to
hold
collateral
and
enforce
agreements.
Now,
crypto-­‐currency
can
be
used
as
collateral
and
the
Blockchain
can
enforce
contracts.

12. There
are
lots
of
different
uses
for
this,
but
we
are
going
to
start
by
looking
at
the
world
of
derivatives.
The
union
of
Blockchain
smart
contract
and
crypto-­‐currency
technology
is
perfect
for
derivative
markets.
For
some,
derivative
markets
have
a
very
negative
connotation.
There
is
nothing
bad
or
immoral
about
these
financial
assets
in
principle.
However,
some
argue
that
in
the
traditional
markets
they
are
under-­‐collateralized
and
thus
dangerous.
These
arguments
may
have
some
merit,
but
fully
collateralized
derivative
contracts
do
offer
major
advantages
for
business,
with
little
downside.
I
will
spend
just
a
couple
of
minutes
going
through
some
basics
of
how
derivative
markets
work.
If
you
are
new
to
this,
you
may
want
to
re-­‐read
this
chapter
a
few
times,
but
don’t
worry
too
much
if
you
don’t
get
it.
There
are
just
a
couple
of
main
points
you
need
understand,
and
I
will
recap
them
at
the
end.
A
derivative
is
a
contract
that
derives
its
value
from
an
underlying
asset.
As
the
price
of
the
underlying
asset
moves,
the
value
of
the
contract
either
increases
or
decreases.
Let’s
use
a
real
world
example
to
demonstrate.
Let’s
say
I
am
an
American
television
manufacturer
who
purchases
most
of
my
components
from
China.
My
supplier
in
China
prices
his
goods
in
Chinese
Yuan.
Let’s
say
I
am
bidding
to
supply
a
hotel
chain
with
2,000
televisions.
If
my
bid
is
accepted,
then
I
need
to
know
that
in
6
months
time,
when
I
need
my
components,
I
can
still
buy
them
on
budget,
despite
the
price
swings
of
the
Chinese
Yuan.
I
have
two
options.
I
could
just
go
and
buy
the
Yuan
or
the
components
now,
but
that
would
hurt
my
cash
flow.
Or,
for
a
small
fee,
I
could
enter
into
a
derivative
contract
to
guarantee
me
the
price
I
could
buy
the
Yuan
for
in
6
months
time.
This
would
help
my
cash
flow
considerably.
So
let’s
say
the
price
of
the
Yuan
goes
up
over
the
next
six
months.
In
this
case
I
would
use
my
contract
to
buy
the
Yuan
at
the
agreed-­‐upon
price.
I
would
be
unaffected
by
the
price
increase
of
Yuan.
If
the
Yuan
goes
down,
then
the
person
I
have
the
contract
with
would
want
to
force
me
to
buy
the
Yuan
at
the
agreed
upon
price.
I
would
be
paying
over
market
price
for
the
Yuan,
but
I
had
the
peace
of
mind
that
I
could
afford
to
purchase
it
and
build
that
price
into
my
television
contract
with
the
hotels.
So
now
let’s
look
at
who
might
enter
into
that
contract
with
me.
The
answer
is
pretty
simple.
There
might
be
a
Chinese
manufacturer
who
uses
American
parts.
They
have
the
same
problem
in
reverse.
The
Chinese
manufacturer
wants
to
lock
in

13. a
price
they
can
trade
in
their
Yuan
for
dollars
at
a
future
date,
in
the
same
way
I
wanted
to
lock
in
a
price
I
could
trade
my
dollars
for
Yuan
at
a
future
date.
You
can
see
how
both
parties
benefit
from
this
agreement.
This
particular
form
of
derivative
contract
would
be
called
a
future,
as
we
are
locking
in
the
future
price
of
a
commodity.
In
this
case,
the
commodities
are
the
US
dollar
and
the
Chinese
Yuan.
It
is
important
to
note
that
these
are
just
contracts
entered
into
voluntarily
by
two
parties.
They
can
be
any
variation
of
the
above
example.
A
common
variation
would
be
that
I
want
the
privilege
of
being
able
to
buy
my
Yuan
for
X
price,
but
not
the
obligation
to
sell
it.
For
that
privilege
I
will
pay
you
an
upfront
fee.
There
are
an
infinite
number
of
variations
in
the
way
contracts
could
take
shape
and
lots
of
different
reasons
why
various
parties
would
enter
into
these
contracts.
Speculation
is,
of
course,
one
of
those
reasons.
Some
people
just
think
they
know
which
way
the
price
of
a
commodity
will
go
and
want
to
profit
from
that
using
the
derivatives
market.
I
am
going
to
leave
the
discussion
about
derivatives
there
for
our
current
purposes,
but
I
will
mention
these
four
important
things.
1. The
size
of
the
derivatives
markets
is
estimated
to
be
over
$700
Trillion.
It
is
humungous.
It
is
orders
of
magnitude
larger
than
the
entire
world’s
GDP.
To
say
that
bringing
an
efficient
innovation
to
that
world
may
have
some
upside
to
investors
could
be
the
understatement
of
the
century.
2. If
everyone
just
had
a
variety
of
contracts
with
no
commonality
between
them,
they
would
not
be
very
liquid.
Every
contract
would
be
unique
and
not
easily
transferrable.
So,
contracts
with
standard
terms
have
been
formed
to
solve
this
problem.
For
example,
you
might
have
a
market
for
a
gold
futures
contract
maturing
on
January
1st,
another
on
February
1st,
but
not
on
all
the
days
in
between.
Because
everyone
in
the
market
has
his
or
her
contract
maturing
on
the
same
day,
this
allows
for
a
highly
liquid
market.
Traders
can
trade
them
minute
by
minute,
as
the
price
of
the
contract
fluctuates.
The
derivatives
themselves
become
assets.
Even
better
yet,
they
become
fungible
assets.
That
means
any
contract
with
the
same
terms
as
mine
is
identical,
and
thus
can
be
easily
exchanged.
This
is
really
important,
so
please
remember
that.
The
derivative
becomes
a
fungible
asset
itself.
On
December
2nd
I
can
buy
a
contract
to
acquire
gold
at
a
certain
price
at
a
future
date
and
sell
that
same
contract
to
someone
else
on
December
5th.
The
high
liquidity
and
fungible
nature
of
these
assets
make
them
very
useful,
as
we
will
see
shortly.
3. Contracts
are
often
settled
and
secured
in
value
only,
and
not
in
the
actual
commodity.
For
example:
I
may
have
a
contract
to
buy
1
ounce
of
gold
from

14. you
for
$1,200
in
30
days.
The
current
price
of
gold
is
$1,200
per
ounce
and
so
you
have
a
50-­‐50
chance
of
making
or
losing
money.
You
choose
to
charge
me
a
small
fee
for
this
privilege.
But,
how
do
I
know
that
you
have
the
gold
to
give
me?
The
contract
would
be
most
secure
if
you
put
either
the
gold
or
the
dollar
amount
of
the
gold
in
escrow
with
a
trusted
third
party
to
cover
your
obligation
to
me.
That
would
give
me
certainty
that
you
can
deliver
on
your
promise.
But
gold,
wheat,
oil,
copper,
corn
and
most
other
commodities
are
clumsy
and
expensive
to
move
around.
So,
people
usually
just
deposit
some
dollar
amount
with
a
trusted
third
party
as
security,
without
touching
the
underlying
commodity.
So
let’s
examine
that
a
little
closer.
Let’s
say
the
30
days
has
elapsed
and
I
have
the
right
to
buy
gold
from
you
for
$1,200
per
ounce.
But
the
price
of
gold
has
moved
to
$1,300
per
ounce.
Now
I
must
put
in
$1,200,
and
you
must
put
in
$100,
for
me
to
get
a
$1,300
ounce
of
gold
from
the
market.
You
can
see
in
this
instance
that
in
order
for
you
to
cover
your
promise
to
me,
you
only
needed
to
deposit
a
fraction
of
the
dollar
amount
of
your
promise.
In
order
to
guarantee
me
a
price
of
$1,300,
you
only
had
to
deposit
$100
as
security.
However,
at
the
start
of
the
transaction,
we
don’t
know
how
much
the
price
would
swing
or
how
much
you
will
need
to
cover.
Traditionally,
the
more
stable
the
commodity,
the
less
the
security
there
needs
to
be.
But
what
happens
if
your
security
is
not
enough?
Let’s
say
you
only
deposited
$50
as
security
in
the
above
example.
After
15
days
or
so
the
price
of
gold
has
moved
to
$1,250
per
ounce.
I
have
a
promise
to
buy
the
gold
for
$1,200.
You
have
$50
as
security.
If
the
price
goes
up
any
further,
there
will
not
be
enough
money
to
cover
the
position.
At
this
point,
one
of
two
things
can
happen.
One
option
is
for
you
to
put
in
more
security
to
cover
your
position.
This
is
known
as
a
margin
call.
Alternatively,
the
trusted
third
party
can
give
me
the
$50
security
now,
so
I
can
go
and
buy
a
new
futures
contract
for
$1250,
using
my
$1200
and
your
$50.
Remember
that
the
price
of
the
derivative
contract
is
derived
from
the
underlying
value
of
the
asset.
The
new
derivative
contract
will
cost
me
$1250,
and
I
am
not
out
of
pocket.
The
important
thing
to
note
here
is
that
access
to
the
underlying
commodity
is
not
necessary.
The
actual
physical
gold
is
nowhere
to
be
seen
in
this
transaction.
These
are
financial
instruments.
As
long
as
value
can
be
transferred,
the
integrity
of
the
contract
is
held.
The
form
of
that
value
is
not
significant;
as
long
as
it
has
value
and
is
(preferably)
liquid,
the
derivative
market
works.

15. 4. There
are
lots
of
people
who
are
a
putting
up
security
and
offering
these
contracts.
And
there
are
lots
of
people
buying
these
contracts.
For
these
derivative
contracts
to
be
created,
the
two
parties
need
to
be
paired
up.
There
needs
to
be
a
buyer
and
a
seller.
But
because
these
contracts
are
on
standard
terms,
they
are
fungible.
The
parties
can
be
interchangeable.
Let’s
again
look
at
the
above
example
where
you
had
to
put
in
more
security
on
the
15th
day
or
the
trusted
third
party
would
give
me
your
$50.
In
reality,
as
the
$50
security
is
dwindling,
the
escrow
goes
to
the
market
and
buys
back
a
contract.
This
can
be
any
contract
of
the
same
type
because
they
are
all
fungible.
So
just
because
the
person
I
was
paired
up
with
to
create
the
contract
was
forced
to
buy
his
contract
out,
does
not
mean
that
he
must
buy
his
specific
contract
back
from
me.
In
fact
he
can
by
any
other
contract
of
identical
terms.
In
a
contract
with
me
he
is
the
seller
at
$1200
and
in
another
he
is
the
buyer
at
$1250.
He
no
longer
has
any
exposure
to
the
price
of
gold
as
he
has
both
bought
and
sold
one
ounce
of
gold.
I
still
have
my
contract
for
an
ounce
of
gold
at
$1200
even
though
he
has
closed
out
of
his
position.
That
is
the
power
of
fungible
contracts.
Once
these
markets
hit
significant
volume,
there
are
always
people
who
are
willing
to
take
a
position
for
profit.
These
people
are
called
market
makers.
These
speculators,
for
a
price,
will
always
take
a
position
and
these
derivatives
can
exist
indefinitely.
In
a
moment
we
will
see
why
all
of
these
things
are
important,
so
if
it
does
not
make
too
much
sense
at
the
moment…
be
patient.
I
think
it
will
become
clear
in
the
next
chapter.
What
is
important
for
you
to
understand
now
is
that
these
derivative
markets
exist
and
are
functioning.
To
run
this
$700
trillion
derivative
market,
there
are
exchanges
all
over
the
world,
huge
buildings
are
erected,
thousands
of
people
are
employed,
large
bureaucracies
are
paid
for
by
taxpayers
to
reduce
fraud
and
illegal
activity,
and
huge
accounting
and
auditing
firms
must
be
engaged
to
monitor
the
flow
of
funds
to
stop
embezzling
and
other
forms
of
theft.
The
resources
spent
on
running
these
exchanges
are
huge.
But
obviously
the
fees
that
these
exchanges
charge
their
users
to
create,
buy
and
sell
these
derivative
contracts
are
more
than
enough
to
cover
these
enormous
costs.
Despite
all
of
these
measures,
embezzling
still
takes
place,
fraud
is
still
rampant,
and
corruption
is
rife.

16. Blockchain
technology
promises:
" To
create
a
fraud
free
environment.
" An
exchange
where
we
do
not
have
to
trust
bureaucrats,
auditors,
politicians,
bankers,
or
anyone
else.
" An
environment
where
all
of
those
people
are
completely
cut
out.
" An
environment
where
all
we
have
to
trust
is
the
mathematics
of
the
Blockchain.
And
best
of
all,
a
decentralized
exchange
based
on
the
Blockchain
can
make
all
of
these
improvements
while
reducing
the
costs
by
over
99%.
Bitshares
is
the
first
decentralized
exchange
to
be
released
into
the
ether
and
I
don’t
think
the
world
will
ever
be
the
same
again.
Our
ability
to
own
part
of
Bitshares
is
what
this
book
is
all
about.
By
downloading
the
free
open
source
software,
anyone,
anywhere
in
the
world
can
engage
in
offering
or
accepting
derivative
contracts
with
anyone
else.
You
do
not
need
any
middlemen.
You
do
not
need
to
give
up
any
of
your
financial
privacy.
You
do
not
need
to
trust
any
other
person.
You
do
not
even
need
to
trust
the
person
you
are
in
contract
with,
because
the
Blockchain
will
enforce
all
contracts,
no
matter
what.
Just
as
derivative
contracts
become
highly
liquid
assets
in
traditional
markets,
Bitshares
allows
users
to
create
these
same
contracts
on
the
Blockchain
and
trade
them
as
assets.
Just
as
we
send
Bitcoin
to
one
another
now,
we
can
also
send
derivative
contracts.
As
we
said
earlier,
in
the
world
of
Bitshares
we
call
them
Bitassets.
We
will
examine
just
one
of
those
Bitassets
(bitUSD)
in
the
next
chapter,
and
I
think
it
will
really
help
your
understanding
of
how
it
all
works.
But
before
we
do,
I
think
it
is
worth
noting
even
if
these
Bitassets
had
no
other
utility,
what
we
have
already
learned
could
send
Bitshares
skyrocketing
in
usage
as
an
efficient
decentralized
exchange
in
a
$700
trillion
marketplace.
As
amazing
and
as
exciting
as
that
is,
that
is
not
the
most
exciting
part
about
Bitshares
and
Bitassets.
The
next
two
chapters
will
explain
why.
By
the
way,
I
know
this
is
tricky
stuff.
So
congratulations
for
sticking
with
it
so
far.
If
the
concepts
have
not
solidified
in
your
mind,
sometimes
visual
aids
can
be
very
helpful.
I
found
an
excellent
video
on
Youtube
that
goes
through
futures
contracts
step
by
step.
You
may
find
it
useful
to
help
you
understand
exactly
how
they
work.
You
can
check
it
out
here.
www.bitshares.tv/chapter3

17. Chapter
4:
What
are
Bitassets
(like
bitUSD)?
Now
it’s
time
to
talk
about
the
products
that
Bitshares
offers.
Please
be
mindful
that
although
it
may
be
complicated
under
the
hood,
the
usage
and
benefits
for
the
consumer
is
super
simple
to
understand.
Just
like
the
average
Bitcoin
user
has
no
idea
what
en
elliptical
curve
is
or
how
cryptography
works,
so
too
users
of
Bitassets
need
not
know
how
the
technology
behind
Bitshares
or
derivative
markets
work.
I
have
aimed
this
book
more
at
individuals
interested
in
understanding
and
investing
in
the
next
generation
of
crypto
businesses,
and
therefore,
it
is
more
educational
than
promotional
in
nature.
Because
of
my
audience,
I
will
be
going
into
details
that
most
end
users
of
the
products
will
not
be
interested
in.
I
believe
that
bitUSD
will
be
even
simpler
to
use
than
Bitcoin
however
the
underlying
system
is
quite
complicated.
In
this
chapter
I
will
explain
the
more
complicated
aspects
of
Bitassets.
In
the
next
video
I
will
explain
the
simple
but
powerful
result
that
customers
can
enjoy
without
having
to
know
any
of
what
you
are
about
to
learn.
Let’s
begin.
As
we
explained
in
the
previous
chapter,
derivative
contracts
are
assets.
On
the
Bitshares
Blockchain,
we
call
those
assets
Bitassets.
These
Bitassets
can
be
transferred
from
one
party
to
another
just
like
Bitcoin.
The
cool
thing
is
that
we
can
structure
these
assets
to
have
a
stable
value.
The
result
will
be
a
crypto-­‐currency
just
like
Bitcoin,
but
with
the
stability
of
the
underlying
asset,
like
the
US
dollar.
A
Bitasset
like
that
is
called
bitUSD.
So
let’s
start
by
taking
a
look
at
the
underlying
derivative.
A
bitUSD
is
created
when
two
parties
enter
into
a
contract.
Bob
says
to
the
marketplace
“I
am
an
investor
in
Bitshares.
I
have
bought
and
own
shares
in
Bitshares.
However,
I
think
it
is
such
a
great
investment
that
I
would
like
to
buy
more
Bitshares.
Can
anyone
lend
me
$1
so
I
can
buy
an
additional
$1
worth
of
Bitshares?”
Bob
continues
his
pitch,
“So
that
you
can
be
sure
I
will
pay
the
loan
back,
I
will
put
that
$1
worth
of
Bitshares
on
the
Blockchain
in
escrow,
and
I
will
put
2
additional
dollars
worth
of
my
own
Bitshares
into
that
escrow
so
that
your
loan
is
securitized
by
300%
capital.
For
the
privilege
of
borrowing
your
money
I
will
pay
you
an
interest
rate
on
your
$1
until
I
pay
it
back.
Will
anyone
enter
into
this
contract
with
me?”

18. Sally
hears
this.
Sally
is
not
much
of
risk
taker.
She
does
not
care
much
for
speculating
on
the
future
value
of
Bitshares.
She
just
wants
to
keep
her
savings
nice
and
safe,
and
hopefully
get
a
nice
little
interest
rate
return
on
her
money.
Sally
wants
the
peace
of
mind
that
she
can
get
her
$1
back
at
any
time.
She
recognizes
that
Bitshares
is
a
new
concept
and
is
liable
to
have
large
fluctuations
in
price.
She
is
concerned
about
the
safety
of
her
money.
Sally
is
comforted
by
the
fact
that
the
Blockchain
is
holding
300%
security
for
her
loan.
That
means
the
price
of
Bitshares
can
fall
by
up
to
66%,
and
her
money
is
still
protected.
Upon
further
examination,
Sally
learns
that
the
Blockchain
will
check
regularly
what
the
price
of
Bitshares
is
compared
to
the
US
dollar
to
make
sure
that
Bob
has
enough
security.
That
means
that
Bitshares
would
have
to
fall
by
66%
in
value
in
a
matter
of
minutes
or
possibly
hours
in
order
for
her
to
potentially
lose
money.
She
recognizes
that
in
Bitcoin’s
entire
history
it
has
never
been
so
volatile
as
to
lose
more
than
66%
of
its
value
in
minutes
or
hours,
and
she
knows
Bitcoin
was
really
volatile
back
in
its
early
days.
Sally
decides
the
reward
of
the
interest
rate
is
worth
the
potential
risk.
She
enters
into
a
contract
with
Bob.
Sally
puts
$1
worth
of
Bitshares
on
the
Blockchain
for
Bob.
Bob
adds
his
$2
worth
of
Bitshares
on
the
Blockchain
to
protect
Sally
and
a
bitUSD
(a
derivative
asset)
is
born.
A
bitUSD
is
a
derivative
contract
that
promises
one
party,
in
this
case
Sally,
one
US
dollar
in
value
at
any
future
date.
The
contract
also
states
that
Sally
will
earn
interest
on
you
her
loan.
To
secure
the
contract,
300%
collateral
is
held
on
the
Blockchain.
Sally
holds
this
bitUSD
in
her
online
wallet.
Just
like
all
crypto-­‐currencies,
there
are
no
third
parties,
and
only
with
Sally’s
private
key
can
the
bitUSD
be
sent
to
another
party.
Because
the
bitUSD
is
a
promise
to
pay
$1
worth
of
value
at
a
future
date,
its
value
is
always
close
to
$1.
The
result
is
a
crypto
currency
just
like
Bitcoin,
but
with
the
stability
of
the
US
dollar.
What
Bitshares
has
just
done
is
replicate
the
Locks
feature
of
Coinapult
in
a
decentralized
way,
with
no
third
parties,
and
for
a
fraction
of
the
cost.
Whoa!!!
That
is
a
huge
achievement.
Previously,
it
was
not
possible
to
have
a
crypto-­‐
currency
with
a
stable
value.
We
will
explore
some
of
the
implications
of
this
in
the
next
chapter,
but
for
now,
let’s
go
back
and
fill
in
some
details.
Detail
#1:
Just
like
in
the
traditional
market
for
gold
derivatives,
real
gold
is
not
necessary.
So
too,
real
US
dollars
are
not
needed
to
secure
these
US
dollar
promises.

19. As
long
as
the
value
is
there
in
some
form
and
is
offered
as
security,
the
market
functions.
In
the
traditional
markets,
you
might
deposit
dollars
to
a
trusted
third
party
as
your
security
to
enter
into
a
gold
derivative.
On
the
Bitshares
platform,
you
deposit
shares
in
the
Bitshares
exchange
to
the
trusted
Blockchain
as
your
security
to
enter
into
a
US
dollar
derivative.
Detail
#2:
What
is
the
interest
rate
Bob
offered
to
pay
Sally?
In
fact
there
are
many
Bob’s
and
many
Sally’s.
The
Bob’s
specify
the
interest
rate
they
are
willing
to
pay
to
borrow
dollars.
When
the
Sally’s
come
along,
they
take
the
highest
interest
rate
on
offer.
When
a
Sally
lends
to
a
Bob,
then
a
bitUSD
derivative
contract
will
be
born.
Now
if
all
of
the
bitUSD
contracts
had
a
slightly
different
interest
rate,
then
they
would
not
be
fungible.
This
is
not
desirable.
So
while
all
of
the
Bob’s
may
pay
a
slightly
different
interest
rate,
the
interest
is
pooled
and
all
of
the
Sally’s
get
the
exact
same
interest.
It
is
a
variable
rate
that
depends
on
the
interest
rate
promised
by
all
of
the
Bobs
on
all
of
the
outstanding
loans.
The
result:
All
holders
of
bitUSD
earn
the
variable
interest
rate
on
each
bitUSD
they
hold.
I
would
also
like
to
mention
one
other
useful
aspect
of
a
Bitasset.
They
are
divisible.
This
is
different
to
traditional
derivative
products.
In
those
markets
a
contract
may
be
for,
say,
5000
ounces
of
gold.
There
is
no
way
to
cut
that
contract
up
into
smaller
pieces.
With
Bitassets
that
is
not
the
case.
They
are
divisible.
Sally
could
open
a
contract
for
500
bitUSD
with
Bob,
and
then
pay
75
cents
for
a
newspaper
with
that
bitUSD.
Detail
#3:
How
much
collateralization
is
behind
a
Bitasset
like
bitUSD?
Bitshares
is
very
conservative
in
its
collateralization
limits.
By
comparison,
on
most
major
FOREX
exchanges,
you
could
trade
a
currency
pair
with
only
1%
security.
That
means
that
by
only
putting
up
$1
of
collateral,
Bob
could
promise
Sally
$100
of
value.
In
other
words,
only
1%
collateral
is
required.
This
is
because
those
currencies
are
traditionally
very
stable.
As
long
as
the
value
of
that
$100
does
not
fall
below
$99,
then
the
$1
collateral
will
be
sufficient.
Because
Bitshares
is
new
and
its
volatility
for
the
short
term
is
high,
it
must
gain
the
trust
of
the
community.
Therefore
it
chooses
to
demand
300%
security
to
engage
in
contracts.
That
means
that
the
$100
worth
of
value
that
Sally
lent
Bob
to
buy
Bitshares
is
combined
with
the
$200
worth
of
Bitshares
that
Bob
already
has.
This
$300
worth
of
collateral
is
held
on
the
Blockchain
to
securitize
the
100
bitUSD.
The
Bitshares
remain
there
until
Bob
repays
his
loan
plus
interest
and
retires
the
bitUSD
that
he
and
Sally
created.
That
is
300%
collateral
in
Bitshares
versus
1%
collateral
in
traditional
markets.
Detail
#4:
At
what
point
is
Bob
margin
called?
Again,
because
Bitshares
is
new,
it
uses
a
very
conservative
approach.
When
the
$300
worth
of
Bitshares
falls
below

20. $200
in
value,
the
Blockchain
will
automatically
use
Bob’s
security
to
go
out
and
buy
$100
of
bitUSD
from
a
Sally
to
close
out
this
Bob.
Not
necessarily
the
same
Sally,
though.
Of
course
for
a
price
there
will
always
be
a
Sally.
If
you
had
100
bitUSD,
would
you
sell
it
to
me
for
$110
worth
of
value?
Of
course
you
would,
as
you
just
got
$10
for
free.
In
this
way,
bitUSD
is
always
collateralized
by
at
least
200%.
Of
course,
it
could
also
be
much
higher,
assuming
lots
of
different
Bobs
with
various
levels
of
collateralization
of
at
least
200%.
If
the
Blockchain
does
margin
call
Bob,
he
is
charged
a
rather
large
5%
fee
on
security
that
is
released
back
to
him.
For
this
reason,
most
Bobs
choose
to
keep
an
eye
on
their
investment
and
top
up
their
collateral
before
a
margin
call
ever
takes
place.
Detail
#5:
How
does
the
Blockchain
know
the
price?
While
Blockchains
are
great
at
working
on
their
own
in
a
trustless
way,
they
are
not
very
good
at
interacting
with
the
outside
world.
If
the
Blockchain
needs
to
initiate
a
margin
call,
it
must
know
the
price
of
one
Bitshare
compared
to
one
US
dollar.
How
does
it
know?
This
is
another
of
the
technological
leaps
that
Bitshares
has
pioneered.
In
the
bonus
chapter
at
the
end
of
this
book
we
discuss
Delegated
Proof
of
Stake
(DPOS).
You
may
have
heard
that
Bitcoin
uses
a
consensus
algorithm
called
Proof
of
Work.
Bitshares
uses
DPOS,
which
has
a
number
of
advantages
that
we
will
explain
in
detail
in
the
Bonus
Chapter.
At
this
point
we
just
need
to
understand
that
a
panel
of
101
elected
delegates
secures
the
Bitshares
Blockchain.
These
delegates
have
two
primary
functions:
The
first
is
to
create
blocks
and
secure
the
network,
much
like
the
function
of
Bitcoin
miners.
The
second
is
to
provide
price
information
to
the
Blockchain.
This
is
called
the
price
feed.
Delegates
enter
in
the
real
world
price
of
the
Bitassets
underlying
commodity,
like
the
US
dollar
or
gold.
The
software
establishes
the
median
to
reduce
the
potential
for
a
bad
acting
delegate
to
manipulate
the
price.
Prices
published
by
the
delegates
are
public,
and
any
attempt
to
manipulate
the
price
would
result
in
a
delegate
being
voted
out
pretty
swiftly.
In
practice,
delegates
update
prices
quite
often
during
high
volatility
and
less
often
during
stable
times.
No
guarantee
can
be
offered
as
to
how
often
the
price
feed
is
updated,
but
delegates’
income
is
on
the
line.
Failure
to
produce
regular
price
data
during
times
of
high
volatility
will
most
likely
result
in
them
being
fired
and
their
income
going
to
someone
who
will
be
more
prudent.
This
is
the
one
area
in
which
Bitshares
relies
on
trust
of
humans
and
not
on
mathematics.
There
are
many
mechanisms
in
place
to
provide
the
right
incentives
for
good
behavior
and
eliminate
any
upside
for
bad
or
tardy
behavior.
The
net
result
is
a
system
that
is
not
quite
perfectly
trustless.
It
is
however
completely
transparent
and
requires
significantly
less
trust
than
legacy
or
traditional
systems.

21. I
think
these
are
the
most
important
points
for
you
to
understand
about
Bitassets
like
bitUSD.
Now
let’s
start
to
revise
and
take
a
look
at
the
implications
of
what
we
have
learned.
Bitshares
is
a
powerful
marketplace
that
matches
buyers
and
sellers
of
financial
contracts
in
the
world’s
first
fully
decentralized
way.
This
technology
is
just
months
old,
and
already
it
has
the
promise
of
allowing
a
derivatives
market
that
is
significantly
more
secure
and
orders
of
magnitude
less
expensive
than
the
ones
we
currently
have
on
Wall
Street.
Five
derivative
products
are
already
actively
trading
on
the
Bitshares
platform.
They
are:
bitUSD,
bitCNY,
bitEuro,
bitGLD,
and
bitBTC.
Traders
can
and
are
trading
in
and
out
of
these
derivative
products
on
a
daily
basis.
If
confidence
grows,
and
awareness
of
this
technology
spreads,
then
many
more
derivative
products
will
become
available
and
liquidity
in
each
Bitasset
will
deepen.
It
just
may
begin
to
take
a
bigger
and
bigger
slice
of
that
$700
trillion
derivative
marketplace.
Even
more
exciting
is
the
fact
that
just
like
Bitcoin
and
the
TCP/IP
protocol
of
the
Internet,
Bitshares
at
its
heart
is
a
relatively
simple
open-­‐source
protocol.
The
real
magic
occurs
when
entrepreneurs
begin
to
build
new
and
useful
products
in
and
around
this
new
paradigm.
Thanks
to
Google,
Facebook,
Twitter,
Wordpress
and
millions
of
other
companies,
the
TCP/IP
protocol
of
the
Internet
has
changed
our
lives
in
profound
ways.
Thanks
to
companies
like
Blockchain,
Bitpay,
and
BitFinex,
the
Bitcoin
protocol
is
well
on
its
way
to
doing
the
same.
So
too,
with
early
adaptors
and
entrepreneurs
working
on
web
services
built
on
the
Bitshares
protocol
over
the
next
10
years,
we
will
see
the
true
power
of
this
amazing
technology
begin
to
take
shape.
Now,
enough
with
the
complicated
stuff.
In
the
next
chapter
we
will
take
a
look
at
what
it
all
means
to
the
end
users
of
bitUSD.
I
think
you
will
be
amazed
at
how
simple
it
all
becomes
and
just
how
unique
and
valuable
to
the
consumer
a
Bitasset
is.

22. Before
we
leave
this
Chapter,
I
wanted
to
share
with
you
another
video
I
did
with
the
Satoshi
Nakamoto
of
Bitshares,
Dan
Larimer.
In
this
video
Dan
shares
his
vision
for
Bitshares.
I
think
you
will
really
appreciate
the
beautiful
world
that
Bitshares
can
help
create.
I
find
it
particularly
interesting
to
hear
Dan
speak
about
this
thing
that
he
helped
build
and
put
into
the
universe
that
he
no
longer
has
control
of.
I
think
the
message
of
liberty
that
is
the
core
behind
Dan
and
Bitshares
will
really
resonate
with
you.
Just
like
Satoshi
Nakamoto
before
him,
he
has
no
interest
in
controlling
his
fellow
man
or
even
his
very
own
creation.
Bitshares
is
a
gift
to
the
world,
open-­‐source
and
free
for
everyone
to
use
if
they
wish.
A
tool
for
every
person
on
the
planet
to
use
to
contract
with
each
other
in
a
peaceful,
private
and
voluntary
way
that
has
never
existed
before.
Enjoy.
www.bitshares.tv/chapter4

23. Chapter
5:
BitUSD
for
the
consumer.
Now
that
we
know
how
bitUSD
works
under
the
hood,
let’s
take
a
look
at
what
it
means
to
the
consumer.
At
the
beginning
of
this
book,
I
forecast
some
incredible
use-­‐cases
for
Bitshares.
BitUSD
is
one
of
those
incredible
use-­‐cases.
But
the
average
consumer
has
neither
the
time
nor
inclination
to
understand
the
underlying
markets
supporting
this
financial
tool.
Similarly,
the
average
user
of
the
USD
does
not
understand
the
monetary
policy
supporting
his
or
her
fiat
currency.
But
it
“works.”
In
this
chapter,
we
will
explore
how
bitUSD
will
“work”
for
the
average
user.
In
other
words,
what
are
the
use
cases
of
bitUSD
other
than
as
a
derivative
contract?
Here
is
where
Bitassets
like
bitUSD
get
really
exciting.
Three
big
advantages
bitUSD
has
over
non-­‐crypto
tools
are:
1.
The
ability
to
maintain
your
purchasing
privacy.
2.
Confiscation
by
authoritarian
governments
is
impossible.
This
is
a
huge
win
for
those
poor
unfortunate
souls
living
under
tyranny
around
the
world.
3.
It
operates
in
a
trustless
environment
called
the
Blockchain.
There
are
no
third
parties
and
no
trust
is
required.
In
fact
all
of
the
benefits
of
Bitcoin
are
available
for
bitUSD
users
plus
the
ones
discussed
below.
I
have
created
10
of
them
to
get
us
going,
but
I
think
the
uses
of
bitUSD
are
nearly
unlimited.
#1:
Let’s
look
at
bitUSD
as
a
competitor
to
CD
deposit
accounts.
If
you
are
not
from
the
US,
a
CD
account
is
a
normal
bank
account
in
which
you
can
get
a
slightly
higher
interest
rate
by
locking
away
your
money
for
a
fixed
period
of
time.
Lets
compare
locking
your
money
in
a
CD
account
for
one
year
as
compared
to
leaving
your
money
for
one
year
in
bitUSD.
According
to
www.Chase.com
(One
of
the
largest
banks
in
America)
the
highest
interest
rate
you
can
get
with
them
right
now
for
a
one
year
CD
is
0.05%p.a.
For
this
great
rate
you
need
to
deposit
a
minimum
of
$100,000.
There
are
account
fees
you
need
to
consider
and
penalties
if
you
need
to
spend
your
money
early.
It
is
only
available
to
US
citizens.
With
bitUSD,
the
current
variable
rate
is
5%
p.a.
That
is
a
10,000%
increase
over
Chase’s
published
interest
rate.
There
are
no
minimums
and
your
money
is
never
locked
away.
Every
month
you
hold
bitUSD
you
are
earning
that
variable
interest
rate.
There
are
no
account
fees
and
no
penalties
for
spending
your
own
money.
It
is
available
to
everyone
on
Earth.

24. But,
I
hear
you
ask…
“How
secure
is
your
money?”
A
fair
question.
There
is
no
apples-­‐to-­‐apples
comparison,
because
crypto-­‐currency
is
just
completely
different.
But
let’s
look
as
best
we
can.
There
are
three
levels
of
security
for
American
banks
like
Chase.
1. Chase
Corporation
backs
your
money.
2. Your
deposit
is
insured
with
the
FDIC.
3. Because
they
fall
into
the
“too
big
to
fail”
category,
Chase
may
be
bailed
out
by
the
United
States
taxpayer.
I
could
spend
days
dissecting
the
value
of
each
of
these
mechanisms,
but
I
want
to
keep
this
chapter
moving
along,
so
I
will
be
brief.
I
would
invite
you
to
look
at
the
objective
data
and
notice
that
most
banks
in
the
West
have
incredibly
thin
levels
of
capital
and
liquidity—the
exact
opposite
of
what
a
safe
bank
is
supposed
to
have.
They’re
backed
by
poorly
capitalized
deposit
insurance
funds,
which
are
guaranteed
by
insolvent
governments.
Also
bear
in
mind
that
even
if
your
bank
is
reasonably
well
capitalized,
you
are
still
guaranteed
to
lose
money
on
an
inflation-­‐adjusted
basis
if
you’re
holding
your
savings
there.
Inflation
is
higher
than
your
interest
rate.
So
you
are
guaranteed
to
make
a
loss
on
your
money
if
you
store
it
in
a
bank.
In
the
last
real
estate
market
crash
of
2008,
those
thin
levels
of
capital
and
liquidity
were
simply
not
enough.
Many
major
banks
in
the
west
like
Chase
became
insolvent
and
customers
were
about
to
lose
some
of
their
deposits.
They
were
only
saved
by
a
bail
out
from
the
Federal
government.
The
Federal
government
was
at
the
time
$8
trillion
in
debt
and
now
they
are
$18
trillion
in
debt.
Remember,
those
business
cycles
they
put
us
through
are
usually
around
7
years
on
average,
+/-­‐
2
years.
2008
plus
7
years
is
2015.
It
might
not
happen
in
2015,
but
a
correction
is
coming
soon.
During
the
next
real
estate
bust,
will
the
US
government
bail
out
the
banks
again?
It
seems
unlikely.
Let
me
tell
you
why.
After
a
banking
failure
in
Cyprus
in
April
of
2013,
the
European
Central
Bank
tried
a
different
model.
Rather
than
taking
money
from
taxpayers
and
giving
it
to
the
insolvent
banks,
they
took
it
from
the
depositors.
This
process
is
known
as
a
bail
in
instead
of
a
bail
out.
In
the
aftermath
of
Cyprus,
Ben
Bernanke,
then
head
of
the
Federal
Reserve,
said
that
if
a
2008
style
crisis
occurred
in
America
again,
the
bail
in
model
would
likely
be
used
because
of
the
success
of
the
Cyprus
bail-­‐ins.
That
is
of
course
if
you
think
that
depositors
losing
half
of
their
savings
count
as
a
success.

25. The
European
Central
Bank,
the
IMF,
the
Australian
Central
Bank
and
the
Canadian
Central
Bank,
echoed
his
sentiments
as
well.
The
International
Monetary
Fund
went
so
far
as
to
publish
a
report
saying
that
the
key
to
its
success
is
that
depositors
did
not
see
it
coming.
That
means
that
governments
and
banks
will
give
you
no
warning
at
all
if
it
is
about
to
happen.
The
reality
is
that
leaving
your
money
in
a
bank
is
putting
your
money
at
risk
for
a
negative
real
interest
rate.
It
means
risking
your
money
for
a
guaranteed
loss.
Although
I
do
believe
that
the
Western
banks
are
not
as
safe
as
most
people
think
imagine
how
much
more
vulnerable
banks
in
countries
like
Argentina
and
Venezuela
are.
Some
of
these
are
in
absolute
shambles.
Recently
German
retail
banks
started
charging
their
customers
interest
to
store
their
money
with
them
because
of
the
European
Central
Bank’s
negative
interest
rate
policy.
The
worlds
banking
system
is
very,
very
sick.
All
over
the
world,
the
disasters
of
fractional
reserve
banking
practices
have
left
depositors
very
vulnerable.
People
are
waking
up
and
starting
to
look
for
alternatives
to
store
their
wealth.
So,
how
safe
is
your
money
in
bitUSD?
To
begin
with
your
funds
are
secured
by
300%
collateralization
in
Bitshares.
Granted,
Bitshares
is
a
new
concept
and
it
will
likely
be
subject
to
large
swings
in
price.
But
the
swings
in
price
would
have
to
be
very
large
for
the
customer
to
lose
any
portion
or
all
of
their
money.
Larger
swings
than
even
Bitcoin
saw
in
its
infancy.
I
certainly
do
acknowledge
the
possibility
and
it
is
up
to
everyone
to
assess
that
risk
him
or
herself.
One
thing
is
likely
though;
if
Bitshares
gets
more
users
and
the
liquidity
pools
get
larger,
then
volatility
will
become
smaller
and
smaller.
For
the
right
type
of
person
storing
some
portion
of
their
wealth
in
a
Bitasset
for
a
positive
real
interest
rate
could
be
the
right
move.
Especially
for
the
billions
of
people
locked
out
of
the
banking
system.
#2
Currency
and
payments.
We
all
know
of
Bitcoin’s
amazing
potential
for
streamlining
payments,
especially
online
payments.
But
there
are
some
areas
in
which
bitUSD,
has
superior
functionality
than
Bitcoin
when
used
as
a
payment
mechanism.
The
first
is
that
a
merchant
does
not
receive
a
highly
volatile
currency.
That
means
they
are
not
incentivized
to
sell
it
immediately
to
lock
in
their
profits.
They
can
hold
bitUSD
for
days,
months,
or
years
without
losing
or
gaining
any
purchasing
power
when
compared
to
the
US
dollar.
This
will
allow
people
to
hold
some
or
all
of
the
currency
for
longer
periods.
This
is
especially
true
when
you
factor
in
that
merchants
can
earn
a
much
higher
interest
while
holding
bitUSD
than
they
can
when
they
convert
it
to
fiat
and
put
it
in
their
bank.
This
will
result
in
more
people

26. being
able
to
keep
their
wealth
out
of
the
banking
system
and
it
will
hasten
network
effects.
There
are
many
businesses
that
accept
Bitcoin
but
never
hold
Bitcoin.
With
bitUSD
businesses
are
incentivized
to
hold
onto
bitUSD
because
of
the
interest
rate.
The
second
advantage
bitUSD
has
over
Bitcoin
is
because
it
is
stable
in
price
you
can
set
up
recurring
payments.
It
is
easy
to
pay
9.99
bitUSD
each
month,
but
if
you
tried
that
with
Bitcoin,
say
half
a
Bitcoin
per
month,
the
value
of
your
payment
might
change
dramatically.
You
could
of
course
do
it
with
third
party
involvement,
but
not
at
the
client
level.
So
bitUSD,
as
compared
to
other
crypto-­‐currencies,
opens
up
opportunities
for
a
whole
new
range
of
merchants
that
rely
on
continuity
payments.
The
third
advantage
that
is
there
is
no
need
for
conversions.
The
customer
is
already
used
to
thinking
in
terms
of
bitUSD
and
understands
what
that
means.
This
fact
alone
should
help
user
adoption
dramatically.
The
fourth
advantage
is
that
even
though
merchant
processors
like
Bitpay
can
help
most
merchants
eliminate
price
exposure;
no
such
service
exists
for
dark
market
activity
like
Silk
Road
or
even
legal
activity
by
the
unbanked.
This
would
allow
those
people
to
trade
in
a
more
stable
crypto-­‐currency
in
a
way
they
never
have
had
before.
If
Bitpay
or
Coinbase
or
others
were
to
integrate
bitUSD
as
an
option,
they
would
be
able
to
tap
into
billions
of
new
unbanked
customers.
If
they
don’t,
someone
else
will.
#3
Decentralized
locks.
We
spoke
in
a
previous
chapter
about
an
excellent
product
from
a
Panamanian
company
called
Coinapult.
That
product
was
called
Locks,
and
it
helped
users
preserve
the
value
of
their
Bitcoin
irrespective
of
the
Bitcoin
price.
The
challenge
is
that
it
is
a
centralized
solution
and
as
such
has
many
points
of
vulnerability.
BitUSD
would
allow
users
to
achieve
the
same
result
while
still
keeping
the
private
keys
to
their
wealth,
even
when
they
are
“locked”
to
the
value
of
a
given
asset.
#4
A
crypto
that
allows
continuity
payments.
We
touched
on
this
earlier,
but
I
think
it
deserves
a
little
more
attention.
One
of
the
niches
that
are
in
desperate
need
of
a
crypto-­‐currency
is
the
home
shopping
or
the
infomercial
market.
Their
merchant
fees
are
incredibly
high,
charge
backs
expensive,
and
it
is
not
uncommon
for
those
merchants
to
lose
10-­‐20%
of
their
revenue
to
credit
card
processors.
So
why
have
we
not
seen
Bitcoin
making
huge
in-­‐roads
into
that
community?
The
answer
is
that
the
industry
is
built
on
continuity
payments.
Most
infomercial
products
rely
on
a
re-­‐
billing
of
a
cream
or
refill
for
about
$5
to
$30
per
month.
BitUSD
is
the
only
crypto-­‐
currency
that
can
solve
the
needs
of
this
community.
Think
of
your
phone
subscription,
cable
subscription,
Internet
subscription,
or
Netflix
subscription.
All
of
these
industries
rely
on
subscription
payments
and
coins
like
Bitcoin
simply
cannot
meet
their
needs-­‐-­‐
at
least
not
without
a
third
party.
There
is
also
another
feature
of
Bitshares
that
will
help
the
home
shopping
network
that
I
have
not
even
mentioned
yet.
Home
shopping
is
run
with
phone
sales.
Getting
a
Bitcoin
address
over
the
phone
is
quite
the
challenge
without
third
party
tools.

27. Bitshares
has
user-­‐friendly
names
built
right
into
the
protocol.
Their
pioneering
strategy
called
TITAN
(Transfer
Invisibly
To
Any
Name)
allows
people
to
register
a
user-­‐friendly
name
on
the
Blockchain
while
preserving
privacy
of
all
transactions.
These
user-­‐friendly
names
are
perfect
for
phone
sales.
The
phone
sales
person
can
ask
the
purchaser
to
simply
pay
“HomeShopping.”
This
is
a
lot
easier
than
asking
someone
to
pay
3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy.
#5
Decentralized
smart
wallet.
A
smart
wallet
is
a
wallet
that
will
change
currencies
for
you
instantly
and
seamlessly.
So
let’s
say
an
American
tourist
has
bitUSD
in
his
wallet,
but
he
is
holidaying
in
Europe
and
the
merchant
only
accepts
bitEuro.
Prior
to
Bitshares,
a
third
party
was
needed
to
convert
one
currency
into
another.
This,
of
course,
has
all
the
problems
of
a
centralized
solution
and
is
expensive
for
a
third
party
to
manage
and
profit
from.
With
Bitshares,
this
process
can
be
seamless
and
will
cost
almost
nothing.
Another
use
case
is
that
of
a
“prepper”
who
wants
to
accept
gold
or
silver
as
payment.
The
user
can
pay
in
bitUSD
and
the
merchant
can
receive
bitGLD
or
bitSLV.
All
parties
used
the
currency
they
wanted,
and
the
smart
wallet
took
care
of
the
conversion
seamlessly,
without
any
third
parties.
#6
Bank
accounts
in
foreign
currencies.
Right
now
it
is
very
difficult
for
your
average
retail
bank
customer
to
have
a
bank
account
in
a
currency
other
than
that
of
the
country
he
or
she
in.
For
example,
let’s
say
you
live
in
America
and
you
are
concerned
that
because
the
Fed
is
printing
so
much
money
we
might
see
a
lot
of
inflation.
It
is
not
that
easy
to
go
to
your
local
bank
and
say
set
up
an
account
in
Singaporean
dollars
or
Australian
dollars
or
any
other
foreign
currency.
With
Bitshares,
you
can
switch
to
any
currency
you
wish.
You
don’t
have
to
ask
permission
from
anyone;
no
one
can
stop
you,
there
are
no
minimums,
and
you
can
do
it
yourself
in
seconds.
There
are
lots
of
online
communities
preparing
for
the
collapse
of
the
dollar,
and
I
personally
know
many
people
who
have
flown
all
the
way
to
another
country
just
to
open
a
bank
account
and
store
some
of
their
wealth
in
a
non
US
dollar
denominated
account.
#7
Bank
accounts
in
commodities.
What
if
you
don’t
think
any
national
currency
is
a
good
place
for
your
savings.
What
if
you
want
your
savings
tied
to
the
value
of
gold
or
silver
or
oil
or
wheat?
In
your
Bitshares
wallet,
you
can
change
what
your
savings
are
exposed
to
in
a
second
for
near
zero
cost.
And
you
earn
interest
on
your
holdings.
For
all
those
people
in
ETF’s
for
gold,
silver,
or
anything
else,
are
you
earning
interest
on
your
holdings,
or
are
you
paying
middlemen
for
the
privilege
of
exposure
to
those
prices?
With
Bitshares,
you
can
have
exposure
to
the
price
of
any
commodity
and
earn
interest
on
your
holdings.
BitGLD
earns
interest
just
like
bitUSD
does.
All
Bitassets
do.
#8
Streamlining
crypto
currency
trading
platforms.
In
the
last
year
or
so,
Bitcoin
has
attracted
a
lot
of
traders.
Many
are
people
who
are
not
necessarily
interested
in

28. Bitcoin
itself,
but
think
they
can
trade
it
for
profit.
Right
now,
there
are
hundreds
of
millions
of
dollars
per
year
buying
in
and
out
of
Bitcoin
on
exchanges.
Those
traders
are
not
receiving
an
interest
on
their
holdings
and
are
exposed
to
disaster
scenarios
like
that
of
Mt.
Gox.
All
the
problems
associated
with
centralized
solutions
for
those
exchanges
can
be
eliminated.
For
pennies,
traders
can
trade
in
and
out
of
bitBTC
and
bitUSD
on
the
Bitshares
platform.
This
exposes
them
to
the
price
of
Bitcoin,
dollars,
or
any
other
currency,
without
ever
losing
control
of
their
money
or
trusting
any
third
parties.
“Goxing”
can
never
happen
on
the
Bitshares
Blockchain.
#9
Earning
interest
on
your
Bitcoin.
Why
hold
Bitcoin
when
you
can
hold
a
Bitcoin
derivative
that
tracks
the
price
of
Bitcoin
and
pays
you
interest?
bitBTC
is
ready
and
waiting
for
you.
#10
Loans
in
crypto
have
been
nearly
impossible.
This
is
something
seldom
spoken
of,
but
I
think
it
is
holding
Bitcoin
back
as
much
as
anything
else.
Businesses
and
individuals
do
not
really
borrow
Bitcoin
because
it
is
too
volatile.
Imagine
if
I
wanted
to
borrow
1000
Bitcoin
today
to
grow
my
business.
Let’s
say
I
do,
and
in
12
months
time
my
business
is
worth
double.
When
I
go
to
pay
off
my
loan
I
discover
that
the
value
of
the
1000
Bitcoins
has
gone
up
10
fold.
Bitcoin’s
volatility
makes
it
terrible
to
use
for
loans.
With
a
stable
currency,
borrowing
and
lending
of
crypto-­‐
coins
becomes
a
real
possibility.
All
the
use
cases
I
have
just
mentioned
for
bitUSD
and
Bitshares
are
real
world
problems
that
the
Bitshares
platform
solves
right
now.
It
is
just
a
matter
of
letting
the
world
know
about
them
and
streamlining
the
technology.
Many
of
the
above
use
cases
can
replace
whole
industries
that
are
worth
billions
of
dollars.
If
any
one
of
them
were
to
take
off,
it
would
be
the
start
of
something
truly
transformative.
These
are
just
a
few
of
the
possibilities
that
are
the
result
of
having
a
price
stable
crypto-­‐currency
available
on
the
Bitshares
platform.
I
am
sure
that
as
time
goes
on,
many
creative
entrepreneurs
who
begin
playing
with
Bitshares
will
invent
other
possibilities.
In
the
next
chapter
I
will
let
you
know
the
current
state
of
Bitshares
and
what
it
has
planned
in
the
near
future.
But
before
we
head
there,
I
should
tell
you
that
Bitshares
has
a
whole
other
aspect
we
have
not
even
spoken
about
yet.
So
far
we
have
learned
about
collateralized
assets.
By
locking
away
300%
collateral
users
can
create
Bitassets.
However
there
is
also
a
whole
other
world
that
the
Bitshares
platform
supports:
user-­‐created
assets.
These
are
tokens
that
users
create
without
any
on-­‐Blockchain
securitization.
There
are
lots
of
applications
for
this.
Frequent
Flyer
miles
are
one
example.
Airlines
could
issue,
manage,
and
track
their
miles
on
the
Bitshares
platform
for
near
zero
cost.
They
could
save
themselves
a
fortune
and
improve
security
considerably.

29. This
is
a
fun
rabbit
hole
to
explore
and
the
use
cases
will
surprise
you.
This
book
does
not
delve
into
the
world
of
user-­‐created
asset.
However,
I
did
record
an
interview
with
Dan
Larimer
about
this
very
topic
that
I
think
you
will
find
very
interesting.
You
can
view
it
here:
www.bitshares.tv/chapter5

30. Chapter
6:
The
State
of
Bitshares.
In
this
chapter,
I
thought
I
would
give
you
a
quick
run-­‐down
as
to
the
state
of
Bitshares
as
of
December
2014.
I
also
post
quarterly
updates
with
a
new
State
of
Bitshares
address
at
this
location:
www.bitshares.tv/chapter6
I
suggest
you
go
there
now
and
enter
your
email
address
so
that
I
can
notify
you
when
a
new
video
is
released.
If
you
are
reading
this
book
after
Q1
2015,
this
chapter
may
just
be
for
nostalgia’s
sake.
Firstly,
funding.
The
development
team,
which
consists
of
five
really,
really,
really,
high-­‐level
programmers,
has
enough
funding
to
last
until
January
2016.
In
the
world
of
crypto-­‐currencies
that
is
an
eternity.
In
the
world
of
business
that
is
about
10
minutes.
You
should
also
know
that
by
holding
delegate
positions,
this
development
team
and/or
others
could
continue
to
develop
and
bootstrap
the
network
indefinitely.
From
a
technology
perspective,
things
are
advancing
rapidly.
The
core
platform
is
up
and
running
and
working
well
as
a
desktop
application.
You
can
download
the
free
client
today.
You
can
store
your
Bitshares,
or
bitUSD
or
any
other
Bitassets
currently
available
with
your
own
private
keys.
You
can
trade
in
and
out
of
any
of
those
assets.
You
receive
interest
on
all
of
them.
The
market
cap
of
Bitshares
is
over
$30
million.
Over
$1
million
of
bitUSD
and
other
Bitassets
are
in
circulation.
A
very
useful
resource
to
see
these
things
for
yourself
is
www.bitsharesblocks.com
All
of
the
above
is
basically
proof
of
concept.
It
is
working
and
working
well.
The
next
step
is
to
make
it
pretty
and
add
features
ready
for
mass
adoption.
The
development
team
is
working
hard
and
has
a
number
of
exciting
planned
releases
for
Q1
2015.
Some
of
these
are
being
kept
quiet,
but
some
have
been
made
public.
To
make
the
client
even
more
pretty
and
useful,
the
development
team
will
be
releasing
a
new
and
improved
interface
very
shortly.
This
will
make
the
desktop
client
much
more
intuitive
and
user-­‐friendly
so
that
users
can
get
the
most
out
of
Bitshares
and
trade
Bitassets
more
easily.
Very
exciting
also
are
the
iPhone
and
Android
wallets.
This
will
make
it
super
simple
to
send
and
receive
Bitassets.
It
would
not
surprise
me
at
all
to
see
a
young
tech-­‐

31. savvy
crowd
using
bitUSD
to
send
small
payments
to
one
another
with
this
super
simple
wallet.
It
could
be
the
campus
currency
at
your
local
college
soon.
Increased
functionality
will
be
built
right
into
the
wallet
with
MultiSig,
Escrow
support
and
paper
wallet
backups.
All
of
these
features
are
available
with
Bitcoin,
but
they
are
not
built
into
the
client.
This
means
that
users
are
forced
to
go
hunting
for
third
party
websites
and
platforms
to
find
these
functionalities.
This
trend
will
continue,
by
the
way.
Because
the
Bitshares
protocol
has
more
flexibility
than
that
of
Bitcoin,
features
are
more
easily
built
into
the
client
itself.
Perhaps
most
exciting
though,
are
the
partnerships
with
exchanges,
merchants,
and
on
and
off
ramps.
In
the
background,
Bitshares
is
working
hard
to
make
it
simple
for
people
to
get
Bitshares
and
Bitassets.
Right
now,
and
this
is
true
for
most
altcoins,
you
need
to
first
buy
Bitcoin
with
your
fiat
at
an
exchange
and
then
buy
Bitshares,
using
your
Bitcoin,
at
a
crypto-­‐currency-­‐only
exchange.
For
those
of
you
who
want
to
purchase
Bitshares,
I
will
show
you
in
the
next
chapter
how
to
do
that.
But
very
soon
it
will
be
much
simpler.
A
number
of
companies
have
stepped
up
and
asked
to
be
involved
in
the
Bitshares
project.
The
first
ones
will
allow
North
Americans
to
transfer
fiat
straight
into
Bitshares
or
Bitassets
and
back
again
directly
without
having
to
go
through
Bitcoin.
This
will
be
a
major
step
for
Bitshares
and
will
really
allow
it
to
go
mainstream.
When
the
price
of
a
crypto
is
stable,
you
don’t
have
to
explain
the
complication
of
the
Blockchain
or
decentralization
like
you
do
with
Bitcoin.
At
that
point,
the
message
to
users
simply
becomes:
download
a
wallet,
fund
it,
start
earning
interest
on
it,
and
spend
it
at
participating
stores.
All
users
need
to
know
is
that
they
can
fund
a
simple
wallet
and
merchants
will
give
them
discounts
for
this
superior
fee-­‐free
payment
method.
Most
users
will
not
even
care
that
it
is
a
crypto-­‐currency.
They
won’t
have
to
worry
what
the
price
of
bitUSD
will
be
tomorrow
because
it
will
be
worth
the
same
as
it
is
today.
Bitshares
is
also
working
with
debit
card
providers
to
allow
bitUSD
to
be
spent
anywhere
Visa
and
MasterCard
is
accepted.
This
will
re-­‐introduce
all
of
the
annoying
fees
and
lack
of
privacy
of
the
legacy
system,
but
it
will
make
bitUSD
far
more
liquid
in
the
short
term.
The
goal,
hopefully,
is
to
grow
so
much
that
most
merchants
accept
bitUSD
directly
and
one
day
we
can
throw
away
the
debit
cards.
But
for
the
interim,
it
is
a
very
important
step
that
will
allow
people
to
use
bitUSD
anywhere.
All
of
these
things
are
in
the
pipeline,
and
2015
could
be
the
start
of
something
very,
very
big
for
Bitshares.

32. I
hope
you
have
enjoyed
this
educational
book
on
Bitshares.
In
the
next
chapter
I
will
teach
you
how
to
get
Bitshares,
should
you
choose
to
do
so.
To
get
a
more
current
update
recap
on
the
state
of
Bitshares
you
can
go
here:
www.bitshares.tv/chapter6
Please
leave
your
email
address
so
I
can
notify
you
of
future
updates.

33. Chapter
7:
How
to
get
Bitshares
So
you
have
decided
you
would
like
to
purchase
some
Bitshares.
I
have
chosen
to
do
the
same
and
I
hope
it
works
out
very
well
for
both
of
us.
As
of
November
2014
the
only
way
to
get
Bitshares
is
to
first
get
some
Bitcoin
and
then
purchase
some
Bitshares
with
Bitcoin.
This
will
change
early
next
year,
but
for
now
that
is
the
process.
Here
is
a
URL
where
I
will
update
the
instructions
as
they
become
easier.
You
may
want
to
check
that
URL
to
see
if
I
have
posted
a
video
with
an
update.
You
can
also
leave
your
email
address
so
I
can
notify
you
of
future
updates
If
there
is
no
update
then
read
on.
www.bitshares.tv/chapter7
I
assume
you
already
know
how
to
get
Bitcoin,
but
just
in
case
I
will
mention
some
of
my
favorite
places
to
get
Bitcoin.
If
you
are
in
America,
you
can
use
Circle.com
or
Coinbase.com.
In
Europe
I
suggest
Kraken.com,
but
for
the
whole
world,
no
matter
where
you
are,
my
number
one
is
bitfinex.com.
They
are
my
favorite
exchange.
They
are
based
in
Hong
Kong
and
I
have
always
had
a
pleasant
experience
with
them.
Once
you
have
Bitcoin,
you
are
ready
to
buy
Bitshares.
My
personal
preference
at
the
moment
is
www.bter.com.
Just
so
you
know,
Bitshares
is
very
popular
in
China
and
most
trading
activity
is
Chinese.
Before
I
show
you
www.bter.com,
let
me
show
you
a
cool
way
to
find
out
which
exchange
has
the
most
volume
and
which
might
be
right
for
you.
If
you
go
to
www.coinmarketcap.com,
you
will
see
all
of
the
crypto-­‐coins
currently
trading.
Find
Bitshares,
and
in
the
volume
column
click
on
the
hyperlinked
amount.
This
will
give
you
a
breakdown
of
which
exchanges
are
trading
Bitshares
and
how
much
depth
they
have.
You
will
probably
be
buying
Bitshares
in
Bitcoin,
so
you
want
to
find
the
top
one
or
two
exchanges
that
have
the
highest
volume
for
the
BTS/BTC
pair.
If
it
says
BTSX/BTC,
don’t
worry.
They
just
have
not
caught
up
with
the
rebranding
yet.
BitsharesX
was
rebranded
to
Bitshares
in
November
2014.
So,
as
I
mentioned
previously,
www.bter.com
or
www.btc38.com
are
the
best
sites
for
purchasing.

34. Below
are
the
steps
I
recommend
you
go
through.
I
suggest
you
go
through
them
with
a
small
amount
first
to
build
your
confidence.
Once
it
has
worked
for
a
small
amount
(tens
of
dollars),
you
can
proceed
to
larger
amounts.
As
you
go
through
this
process,
I
should
warn
you
that
you
will
probably
think,
“How
on
Earth
can
anyone
deal
with
this
horrible
experience?”
While
no
step
is
actually
difficult,
you
certainly
have
to
be
motivated
to
get
through
it
all.
They
make
it
really
tough.
Said
another
way,
there
is
a
high
barrier
to
entry.
Keep
in
mind
these
two
things:
In
2012,
when
I
first
got
into
Bitcoin,
it
was
about
as
tough
to
buy.
Before
companies
like
Coinbase,
Circle,
and
Blockchain
were
around
to
make
it
easy,
this
is
what
early
Bitcoin
adopters
had
to
go
through.
Once
many
of
those
problems
had
been
fixed
(i.e.
the
barrier
to
entry
had
been
reduced),
then
much
larger
crowds
of
people
were
willing
to
get
involved.
These
high
barriers
to
entry
are
part
of
the
reason
why
in
2012
you
could
buy
Bitcoin
for
$10.
With
many
of
those
barriers
since
overcome,
Bitcoin
is
now
worth
over
$300.
I
believe
the
same
thing
will
take
place
for
Bitshares.
Huge
improvements
in
usability
are
scheduled
for
December
and
Q1
2015.
If
you
want,
you
can
wait
until
then,
but
who
knows
where
the
price
will
be
at
that
time.
If
you
push
through
all
of
these
steps,
I
think
you
will
be
rewarded
very
nicely
in
the
New
Year.
Of
course,
I
cannot
guarantee
that
and
I
make
no
promises,
but
I
know
it
will
be
much,
much,
much,
easier
very
soon.
Okay,
here
are
the
lengthy
steps
you
have
to
go
through
at
the
moment.
1. Sign
up
for
an
account
with
an
exchange
you
have
chosen.
E.g.:
www.bter.com
2. Fund
the
account.
Find
the
page
that
allows
you
to
deposit
Bitcoin.
3. Send
your
Bitcoin
to
the
exchange.
It
may
take
up
to
an
hour
after
your
funds
have
been
sent
until
they
are
available
for
use
in
the
exchange.
Remember
to
use
a
small
amount
the
first
time,
to
make
sure
you
understand
the
process.
4. Once
you
can
see
the
funds
in
your
balance,
find
the
page
where
you
can
buy
Bitshares
with
Bitcoin.
5. Select
the
amount
and
click
buy.
Be
mindful,
if
the
volume
is
low
you
can
move
the
market
with
as
little
as
$3,000.
For
purchases
over
that
amount,
you
may
want
to
split
them
up
into
smaller
amounts
and
purchase
some
every
10
minutes
or
so.
In
2012,
when
I
was
buying
Bitcoin
for
just
$10
per
coin
I
recall
moving
the
market
with
only
slightly
larger
funds.
I
know
it
feels
weird,
but
it’s
a
pretty
cool
phenomenon.
6. You
are
now
the
owner
of
Bitshares.
Congratulations.
You
could
stop
here,
but
I
do
not
recommend
it.
I
never
recommend
leaving
your
funds
on
an
exchange.
If
the
exchange
goes
bankrupt,
you
will
lose
everything.
Better
to
bring
the
Bitshares
over
to
your
wallet.
7. Go
to
www.Bitshares.org
and
in
the
top
right-­‐hand
corner
click
on
download.
Scroll
down
and
download
the
right
client
for
your
machine.

35. 8. Go
through
the
installation
process.
9. Open
the
application.
The
first
time
you
do
this
you
will
be
asked
to
create
a
password.
Just
like
with
Bitcoin,
if
you
lose
your
password
you
will
lose
your
funds.
Do
not
store
your
password
on
your
computer.
Write
the
password
down
on
a
piece
of
paper
and
keep
it
in
a
safe
place.
Do
not
choose
a
password
that
is
easily
guessable
and
do
not
use
a
password
that
you
use
elsewhere.
Write
it
down
in
at
least
one
or
two
locations
and
store
safely.
10. The
program
will
start
downloading
the
Bitshares
Blockchain.
You
may
need
to
wait
for
several
hours
or
even
days,
depending
on
your
Internet
connection,
to
download
the
Blockchain.
Be
patient,
and
think
about
how
great
it
is
that
this
is
so
complicated
that
most
people
will
just
not
bother.
That
means
you
are
still
getting
Bitshares
at
a
really
low
price.
11. The
password
you
chose
in
step
9
is
not
your
private
key.
Your
private
key
is
in
an
encrypted
file
on
your
computer.
Your
password
will
decrypt
that
file.
I
suggest
at
this
point
you
back
up
your
encrypted
wallet
and
store
it
somewhere.
In
the
menu,
choose
File
then
Export
Wallet.
Save
this
file
to
your
desktop.
Then
find
another
location
to
store
it.
Either
put
it
on
a
USB
and
place
it
in
a
drawer
or
email
it
to
yourself.
Do
not
store
the
USB
in
the
same
place
as
the
password
on
the
piece
of
paper.
You
now
have
a
pretty
secure
system.
In
the
event
your
computer
breaks
or
is
stolen,
the
thief
cannot
get
the
funds
and
you
can
recover
the
encrypted
private
keys.
As
long
as
you
remember
or
can
get
to
the
piece
of
paper
with
the
password
on
it,
you
will
be
able
to
decrypt
the
file.
12. The
next
step
is
to
create
an
account
and
choose
a
user-­‐friendly
name.
In
the
menu
system
click
on
Accounts
then
Create
Account.
You
can
choose
a
name.
This
will
be
public.
You
will
give
it
people
so
they
can
send
you
funds.
13. Once
you
have
created
an
account,
find
the
Keys
tab
and
click
on
it.
There
it
will
tell
you
your
Account
Key.
It
is
a
big
long
string
of
characters
starting
with
BTS.
Copy
this.
You
will
need
it
in
the
next
step.
14. The
next
step
is
to
register
the
account
you
just
created
on
the
Blockchain.
This
is
a
pain
because
there
is
a
small
fee
to
register
a
name,
but
until
you
have
the
name
you
can’t
pay
the
fee.
This
circular
riddle
will
be
fixed
in
the
update
next
month,
but
for
now
we
have
a
work
around.
Get
an
existing
user
to
send
you
a
Bitshare
the
old-­‐fashioned
way
so
you
can
register
the
easy-­‐to-­‐use
name.
Let
me
introduce
you
to
the
Bitshares
community.
Go
here
https://Bitsharestalk.org
and
register
to
use
the
forum.
Do
not
use
your
password
from
your
wallet
here
or
anywhere
else
on
the
Internet.
The
forum
is
free
and
is
full
of
great
resources
for
you.
Once
registered,
go
here
https://Bitsharestalk.org/index.php?topic=6439.0
and
follow
the
instructions
in
the
first
post.
Tell
them
Max
sent
you
and
they
will
take
good
care
of
you.
They
will
ask
you
for
your
public
key.
It
is
perfectly
safe
to
send
it
to
them.
Just
paste
the
public

36. key
in
a
post
and
soon,
some
kind
Bitshares
citizen
will
send
you
a
Bitshare.
It
may
take
you
up
to
24
hours.
With
this,
you
will
be
able
to
register
your
account.
15. Once
you
have
received
the
Bitshare
in
your
Bitshares
client
program,
go
to
My
Accounts
and
then
click
on
the
account
you
created
in
the
previous
step.
In
the
top
right
hand
corner
you
will
find
a
blue
button
that
says
Register
with
the
name
you
chose.
Click
on
that
and
click
OK.
You
have
now
registered
that
name
on
the
Blockchain.
16. Go
back
to
the
exchange
and
withdraw
your
Bitshares.
When
asked
where
you
want
to
send
the
money,
you
can
type
in
your
account
name
from
the
previous
step.
Depending
on
how
the
exchange
is
set
up,
they
make
take
a
few
hours
to
actually
send
you
the
Bitshares.
Use
a
small
amount
the
first
time
to
make
sure
it
arrives
safely.
And
it
is
as
simple
as
that.
(joke)
16
easy
steps
to
safely
store
your
Bitshares.
Jeez
Louise.
Given
that
exhaustive
process,
its
quite
amazing
that
there
is
$1
million
dollars
in
Bitassets
in
circulation
and
Bitshares
has
a
market
cap
of
over
$30
million.
That
is
how
exciting
the
promise
of
Bitshares
is.
People
are
willing
to
push
through
all
of
that
just
to
get
involved
in
this
early
stage.
As
I
said
in
the
beginning,
if
the
barriers
to
entry
were
much
lower
then
the
price
would
already
have
jumped
significantly
higher.
As
frustrating
as
all
of
those
steps
are,
it
is
an
indication
that
you
are
probably
getting
a
great
price,
because
other
people
will
simply
give
up.
I
hope
you
have
enjoyed
reading
this
book
as
much
as
I
have
enjoyed
writing
it.
It
has
been
my
pleasure
teaching
you
all
about
Bitshares.
If
you
do
decide
to
get
involved,
keep
an
eye
out
for
2015.
It
is
going
to
be
a
wild
ride.
Don’t
forget
the
Bonus
Chapter
on
Delegated
Proof
of
Stake
(DPOS).
I
think
it
will
be
a
real
eye-­‐opener
for
you.

37. Bonus:
Delegated
Proof
of
Stake
(DPOS)
In
this
chapter,
I
am
going
to
explain
the
technological
leap
that
occurred
in
August
of
2014
that
made
DACs
far
more
viable.
I
should
warn
you
that
this
bonus
chapter
may
get
a
bit
technical,
so
if
you
are
not
interested
in
the
technicalities
of
it
all,
then
you
may
want
to
skip
over
it.
However,
there
is
good
reason
to
become
familiar
with
these
concepts
–
depending
on
your
personal
opinion
and
risk-­‐aversion,
they
just
may
sway
your
investment
decisions
in
the
future.
The
first
question
that
may
pop
into
your
mind
is
this:
“If
Bitcoin
was
the
world’s
first
DAC,
then
why
can’t
other
DACs
just
copy
it?”
This
is
a
great
question,
but
in
order
to
answer
it,
we
first
need
to
understand
just
how
Bitcoin
works.
An
anonymous
inventor
named
Satoshi
Nakamoto
created
Bitcoin.
He
hashed
out
his
ideas
in
a
small
forum
with
a
handful
of
other
people
including
Dan
Larimer.
Five
years
later,
after
millions
of
people
have
studied
the
Bitcoin
code,
several
have
identified
areas
in
which
the
Bitcoin
algorithm
is
not
as
efficient
as
it
could
be.
We
will
explore
some
of
these
arguments
and
the
proposed
solutions.
Let’s
review
how
Bitcoin
works
under
the
hood.
The
consensus
algorithm
used
by
Bitcoin
is
called
Proof
Of
Work
(POW).
At
present,
every
10
minutes,
the
Bitcoin
protocol
rewards
miners
with
25
newly
created
Bitcoin.
Let’s
do
some
math
here.
We’ll
use
the
price
of
$500
per
Bitcoin.
Although
this
may
not
be
the
current
price
of
Bitcoin,
it
pretty
close
to
Bitcoin’s
average
price
in
2014
and
it
will
keep
our
example
nice
and
simple.
Every
10
minutes,
$12,500
worth
of
Bitcoin
is
created
and
paid
to
the
miners
for
their
services.
That
translates
to
1.8
million
dollars
per
day,
or
$650
million
dollars
per
year.
That
number
is
astounding.
Nearly
two-­‐thirds
of
a
billion
dollars
worth
of
Bitcoin
will
be
created
and
paid
to
the
miners
in
2014
alone.
So
where
does
that
money
come
from?
The
answer
is
that
the
owners
of
Bitcoin,
you
and
I,
pay
for
it
through
the
mechanism
of
inflation.
When
those
new
Bitcoins
are
created,
Bitcoin
holders
either
pay
for
it
through
a
drop
in
the
price
of
Bitcoin
(miners
have
to
liquidate
their
new
Bitcoins
to
pay
for
mining
rigs
and
electricity),
or
through
the
fact
that
the
price
of
our
Bitcoin
doesn’t
increase
as
fast
as
it
would
have
if
those
miners
keeping
Bitcoin
had
to
buy
them
on
the
open
market.

38. Inflation
is
always
a
tricky
concept
to
understand,
so
let
me
explain
it
in
a
slightly
different
way.
In
2014,
$650
million
worth
of
new
Bitcoin
will
be
created.
If
less
than
that
amount
of
new
money
buys
into
Bitcoin,
then
the
price
will
fall.
If
more
that
than
amount
of
money
buys
into
Bitcoin,
then
the
price
will
rise.
To
demonstrate
this
point,
let’s
play
a
hypothetical
game.
Let’s
say
the
price
of
Bitcoin
went
up
one
order
of
magnitude;
that
is
to
say,
the
price
was
not
$500,
but
rather
$5,000
per
Bitcoin.
So
instead
of
the
yearly
$650
million
of
new
money
that
would
be
required
to
keep
the
price
stable,
$6.5
billion
of
new
money
would
be
required,
each
year,
to
keep
the
price
from
falling.
If
any
less
than
this
amount
entered
the
Bitcoin
ecosystem,
the
price
would
decline.
As
you
can
see,
as
more
and
more
people
buy
into
Bitcoin,
the
price
of
each
Bitcoin
goes
up.
However,
as
this
happens,
the
value
of
those
25
Bitcoins
being
created
every
10
minutes
increases
simultaneously.
Thus,
it
is
as
if
there
are
reigns
pulling
back
on
the
price
and
stopping
it
from
continuously
increasing.
If
a
new
Bitcoin
consensus
algorithm
could
reduce
the
power
of
those
reigns
considerably,
then
the
Bitcoin
price
would
skyrocket
and
in
my
opinion
would
probably
already
be
over
$100,000.
If
there
were
a
way
to
reduce
the
cost
of
securing
the
network
without
making
it
less
secure,
this
would
be
a
tremendous
victory
for
Bitcoin
and
would
make
future
DACs
a
lot
more
viable.
So
let’s
take
a
look
at
the
security
Bitcoin
receives
for
the
$650
million
per
year
spend.
Running
the
Bitcoin
network
at
its
current
size
actually
costs
very
little,
in
the
order
of
thousands
of
dollars
per
year.
What
Bitcoin
holders
are
really
trying
to
purchase
with
their
$650
million
per
year
is
decentralization.
The
Bitcoin
network
is
only
as
secure
as
it
is
decentralized.
The
more
miners
securing
the
network,
the
less
dependent
on
each
miner
the
network
is.
Each
new
miner
makes
the
system
more
robust.
But
what
is
the
value
for
money
that
Bitcoin
is
getting
for
its
$650
million
spent
yearly
on
decentralization?
First
let’s
look
at
the
trend.
As
Bitcoin
scales,
there
is
a
clear
trend
toward
centralization
of
mining
power.
Once
upon
a
time,
anybody
could
mine
Bitcoins
from
home
using
their
PC
or
laptop.

39. Soon,
mining
became
a
little
bit
more
specialized,
firstly
by
GPU’s,
and
later
by
specialized
computers
called
ASICs
(Application
Specific
Integrated
Circuit),
whose
sole
purpose
is
to
mine
Bitcoin.
These
first
two
iterations
mean
that
it
takes
thousands
of
dollars
of
hardware
just
to
begin
mining
Bitcoin.
This
has
caused
some
centralization
of
mining
power
already,
and
the
nice
little
retail
ASIC
units
in
pretty
casings
you
can
use
at
your
home
are
already
fast
becoming
obsolete.
Huge
mining
farms
are
cropping
up
around
the
world
with
just
the
bare-­‐bones
essentials.
In
the
very
near
future,
most
people
agree
that
giant
purpose-­‐built,
water-­‐cooled
ASIC
farms
will
be
required
to
make
mining
profitable.
Already,
Bitcoin
is
centralized
to
the
point
that
with
just
three
mining
pools,
you
can
control
51%
of
the
network.
With
just
four
ASIC
chip
manufacturers,
you
can
control
90%+
of
production
of
future
hashing
power.
And
as
we
rapidly
approach
giant
purpose
built
mining
centers,
it
is
certainly
conceivable
that
by
controlling
just
a
dozen
or
two
of
these
mining
centers,
one
could
control
51%
of
the
hashing
power.
That
is
not
a
lot
of
decentralization
for
$650
million
dollars.
Don’t
get
me
wrong
here.
I
am
not
saying
Bitcoin
that
is
doomed
or
that
it
is
not
decentralized
enough.
I
am
just
stating
the
facts
about
how
centralized
Bitcoin
hashing
power
is
becoming.
If
an
algorithm
were
created
and
adopted
by
Bitcoin
that
could
either
deliver
more
decentralization
or
the
same
level
of
decentralization
for
less
cost,
then
that
could
send
the
price
of
Bitcoin
soaring.
Remember,
too,
that
the
Byzantine
General’s
problem
that
Satoshi
solved
was
thought
to
be
an
impossible
nut
to
crack.
But
it
was
done.
Getting
more
decentralization
than
four
chip
manufacturers,
two
mining
pools,
and
a
dozen
mining
farms
for
less
than
$650
million
per
year
seems
like
a
walk
in
the
park
compared
to
solving
the
Byzantine
General’s
problem.
Whether
we
have
to
wait
one
year,
two
years,
five
years,
or
even
10
years,
I
am
completely
certain
that
eventually,
a
vastly
more
efficient
consensus
algorithm
than
Proof
of
Work
will
be
created.
As
a
side
note,
it
is
interesting
to
think
about
how
Bitcoin
will
adapt
when
this
new
algorithm
is
found.
One
great
feature
of
Bitcoin
is
that
it
is
software
and
therefore
can
be
updated
at
any
time
with
community
consensus.
Bitcoin
is
the
400-­‐pound
gorilla
of
crypto-­‐currencies,
with
hundreds
of
millions
of
dollars
of
VC
money
pouring
into
it,
and
mind-­‐boggling
network
effects.
When
consensus
is
reached
that
a
more
efficient
algorithm
has
come
along,
then
Bitcoin
can
update
its
code
and
still
remain
the
number-­‐one
crypto.
However,
if
Bitcoin
fails
to
adapt,
then
I
think
it
will
lose
market
share
in
the
long
term.

40. So
how
will
consensus
be
reached?
In
my
opinion,
getting
consensus
on
an
unproven
theory
will
be
impossible.
I
think
this
is
where
the
world
of
alt-­‐coins
is
so
valuable.
I
see
alt-­‐coins
as
a
little
laboratory
with
lots
of
little
experiments
running.
Without
risking
anything
to
Bitcoin,
we
can
watch
plenty
of
experiments
fail
and
find
the
odd
one
that
succeeds.
Only
after
years
of
an
alt-­‐coin
proving
itself
as
secure
and
more
efficient,
and
of
course
exploding
in
price,
would
the
Bitcoin
community
entertain
the
idea
of
updating
to
its
consensus
algorithm.
That
is,
at
least,
how
I
imagine
how
this
transition
will
take
place.
Here
is
the
exciting
part:
Although
we
are
in
the
very
early
days
of
this
technology,
I
don’t
think
we
have
to
wait
five
or
10
years
for
that
efficient
algorithm
to
be
invented.
I
think
it
was
invented
and
released
into
the
wild
in
July
of
2014.
It
will
be
very
interesting
to
watch
over
the
next
few
years.
This
new
consensus
algorithm
is
called
Delegated
Proof
of
Stake
(DPOS).
Dan
Larimer
invented
it.
By
my
calculations,
if
this
algorithm
were
the
backbone
of
the
current
Bitcoin
network,
it
would
produce
more
decentralization
for
less
than
5%
of
the
cost.
The
result
would
be
a
reduction
in
inflation
and
an
increase
in
the
price
of
Bitcoin.
DPOS
also
allows
for
reliably
confirmed
transactions
every
10
seconds.
With
Bitcoin,
this
takes
six
confirmations
at
average
time
of
10
minutes
each.
10
seconds
versus
one
hour
is
a
pretty
significant
difference.
DPOS
has
already
been
implemented,
and
is
the
backbone
of
Bitshares.
Bitshares
launched
in
July
of
2014.
So
how
does
Delegated
Proof
of
Stake
work?
It
works
by
using
reputation
systems
and
frictionless,
real-­‐time
voting
to
create
a
panel
of
limited
trusted
parties.
These
parties
then
have
the
right
to
create
blocks
to
add
to
the
Blockchain
and
prohibit
un-­‐
trusted
parties
from
participating.
The
panel
of
trusted
parties
take
turns
creating
blocks
in
a
randomly
assigned
order
that
changes
with
each
iteration.
It
is
important
to
note
that
not
much
trust
is
required.
Block
creators
(called
delegates)
can
create
blocks
or
not
create
blocks,
include
transactions
or
not
include
transactions.
That
is
it.
They
cannot
change
transaction
details
like
senders,
recipients,
or
balances,
so
they
have
little
power
to
do
anything
harmful.
If
delegates
fail
to
create
a
block
or
include
a
transaction,
the
next
delegate’s
block
will
be
twice
the
size
or
will
include
the
missing
transaction,
and
the
confirmation
time
will
be
20

41. seconds
instead
of
10
seconds.
No
serious
harm
done.
The
malicious
or
tardy
delegates
behavior
is
publically
available
and
the
community
can
vote
them
out
quickly
and
easily.
This
would
result
in
the
delegate
losing
their
income
as
delegates
with
no
potential
upside.
Built
into
the
client
is
a
voting
system.
Every
owner
of
Bitshares
votes
to
create
a
panel
of
101
delegates
who
take
turns
creating
blocks.
The
number
101
is
arbitrary.
The
community
could
allow
more
delegates
for
more
decentralization,
but
their
costs
would
go
up.
They
could
also
reduce
costs
at
the
expense
of
decentralization
by
having
less
than
101
delegates.
101
is
the
first
attempt
at
that
sweet
spot
and
can
be
changed
by
the
community
at
a
later
time.
So
the
30,000-­‐foot
view
is
that
because
the
number
of
delegate
positions
is
limited,
delegates
actually
compete
against
one
another
for
the
job.
By
voluntarily
lowering
their
salaries,
delegates
can
attract
votes,
and
thus,
the
cost
of
securing
the
network
is
kept
in
check
by
competition
among
delegates.
The
degree
to
which
it
is
decentralized
is
firmly
in
control
of
the
holders
of
Bitshares,
as
they
decide
how
many
delegates
can
be
block
creators.
Meanwhile,
nefarious
delegates
get
no
value
from
bad
behavior
and
are
voted
out
quickly.
Where
as
Bitcoin
pays
miners
by
inflating
the
currency
supply,
or
said
another
way,
diluting
the
Bitcoin
shareholders,
Bitshares
can
afford
to
pay
its
101
delegates
out
of
fees
alone,
and
no
dilution
need
take
place.
In
fact,
because
delegates
can
offer
to
lower
their
pay
to
get
more
votes,
the
remaining
fees
are
paid
to
Bitshares
holders
as
dividends.
Something
else
very
cool
happens
with
this
model.
Rather
than
simply
taking
a
pay
cut
to
be
a
delegate,
delegates
may
get
voted
in
because
they
use
the
delegate
pay
on
other
tasks
like
marketing,
legal
work,
or
lobbying.
They
can
thus
perform
some
of
the
duties
that
employees
of
other
types
of
companies
would
do.
Thus,
there
are
strong
incentives
for
all
delegates
to
not
just
secure
the
network,
but
also
to
provide
value
to
shareholders
in
other
ways.
Also,
rather
than
the
ad-­‐hoc
fashion
in
which
Bitcoin
comes
to
consensus,
DPOS
has
a
built
in,
real-­‐time
shareholder
voting
system.
This
allows
the
system
to
act
like
a
continuous
shareholder
meeting
where
shareholders
vote
in
or
out
various
changes
to
the
company’s
charter.
As
compared
with
Bitcoin,
voting
rights
in
BitShares
are
firmly
with
the
shareholders
and
not
the
employees.
While
the
Bitcoin
Proof
Of
Work
algorithm
may
work
well
for
a
currency,
I
believe
the
features
and
efficiencies
of
DPOS
make
it
a
lot
more
suitable
for
building
DACs.

42. I
believe
the
development
of
DPOS
will
unleash
a
number
of
DACs
into
the
world
in
a
way
that
would
have
been
impossible
before.
Exploring
just
some
of
these
opportunities
is
what
this
book
has
been
all
about.
I
will
leave
the
technical
discussion
of
DPOS
here,
but
here
is
a
blog
post
I
wrote
about
the
DPOS
versus
POW
debate,
with
lots
of
links
for
further
study.
http://successcouncil.com/post.php?info=Is-­‐this-­‐the-­‐reason-­‐the-­‐Bitcoin-­‐price-­‐is-­‐
not-­‐exploding-­‐right-­‐now

43. Bonus:
Resources
www.bitshares.org
Bitshares
main
website.
www.bitsharesblocks.com
A
great
resource
for
Blockchain
data.
www.bitsharesmarket.com
One
users
explanation
of
all
things
Bitshares
www.bitsharestalk.org
The
main
forum
where
most
Bitshare
enthusiasts
hang
out.
www.reddit.com/r/Bitshares
The
Bitshares
reddit
community.
www.wiki.bitshares.org
The
Bitshares
wiki
with
lots
of
“How
to…”
manuals
www.bitshares.tv
An
online
show
and
podcast
hosted
by
the
author
of
this
book
Max
Wright
with
regular
updates
about
Bitshares