LETS TALK BITCOIN

Episode 129 Dogeparty and Delegated Proof of Stake

Participants:

Adam B. Levine (ABL) Host
Stephanie Murphy (SM) Co-host
Andreas M. Antonopoulos (AA) Co-host
Daniel Larimer (DL) - CEO of Invictus Innovations

Today is the July 22
nd
2014 and this is Episode129.
This program is intended for informational and educational purposes only. Cryptocurrency is
a new field of study. Consult your local futurist, lawyer and investment advisor before
making any decisions whatsoever for yourself.

ABL: Welcome to Lets Talk Bitcoin, a twice weekly show about the ideas, people and projects
building the digital economy and the future of money. My name is Adam B. Levine, I am the
editor-in-chief here at Lets Talk Bitcoin and today were going to think different. Daniel
Larimer, CEO at Invictus Innovations, recently joined all the hosts LTB for deep dive into their
just-released Bitshares-X platform. We talk Delegated Proof of Stake and 10 second
confirmation times, their new type in technology and the tyranny of the code. The magic words
listeners rewards program is in full swing and going great, listen during this episode for the
magic word, remember and visit letstalkbitcoin.com, login to your account and on your
dashboard, youll see where to use the magic words, keep your ears open. - But first, were few
weeks in the LTBcoin experiment and since things have gotten started, Ive come to some
surprising realizations that Id like to share with you.
Id like tell you about Dogeparty, most coins are valuable because of the network that uses
them and then attempting to bring in service providers who will accept it, thus giving utility of
the coin and therefore value. Here at LTB, weve been thinking about this a lot and recently
rolled out our crypto rewards platform LTBcoin. The tl:dr version is, we reward people with
LTBcoin, who make what we are doing better or more fun, and they can use it to compete with
others for sponsor airtime in the Lets Talk Bitcoin show, and in the near future the entire
network shows and blogs. On July 4
th
we sent our largest distribution so far, 419 registered and
configured users split 1.7 million LTB coin proportionally, based on their contribution.
It went great and the response has been amazing, turns out when you give people something
for free, like for something they were already doing, but not being rewarded for, they really
enjoy It, but there is a problem, because LTBcoin is built on counterparty, which is built on
bitcoin, every single time we send LTBcoin to an users, which were doing weekly, we need to
pay a bitcoin fee, to perform those 419 sends cost a little over 0.05 BTC, which at current rates,
its worth about $31 or $0.07 per person, dont get me wrong, that cost is fantastic when
compared against any non-cryptocurrency solution and of course were actually using artificially
lowered fees, about a quarter of the standard bitcoin through a script that the XCP dev. gave
us, but thatll only work until more projects start pushing volumes through counterparty and on
that subject, while bitcoin is also insanely fast, when compared against conventional financial
options, it turns out theres quite a bit of variance in block times.
The 10 minutes is an average, but block sometimes about seconds apart, while other times an
hour will pass without a single block being found, because each action in counterparty, whether
its send, creation of a new token, placing an order on a decentralized exchange or using the
prediction market. Every single action you perform must first be included in a Bitcoin block
before it actually happened. Youve never felt, how slow the blockchain can be, until you are
waiting for an hour to confirm a market order. What we need is an alternative, something
cheap and plentiful and fast. It turns out there are actually quite a few good options out there,
that meet the need, but my favorite by far is Doge,
Doge is an interesting token, it started off as a joke that exploded in popularity and has found
its place as a kind of ad hoc charity coin. Whenever the need, Doge is there ready to put their
money, where their collective mouths are, although its not one of the more expensive tokens,
Doge is actually one of the largest cryptocoin communities and certainly one of the most vocal.
If value is the language, Doge is a very commonly spoken tongue in the world of crypto, so
when Wendell Davis from Hive and Humint, asked me what I thought about putting the
counterparty protocol onto the Dogecoin blockchain, I was pretty intrigued.
With bitcoin we see about a 1000% variance in block times, ranging from over an hour, like I
mentioned to under a minute, from that 10 minute average. With a 60 second block time, Doge
is just about perfect, if it has something like that same 1000 % variance, youve got a maximum
of 10 minutes and a minimum time of 10 seconds, from user experience standpoint, I think this
order of magnitude is better, but the cost is where my jaw just dropped. Doge is currently
trading around 36 satoshi each, dust limit for bitcoin is several thousand satoshi, so this means
that if we paid even one full Doge per transaction and the default fee in Doge is zero, our cost
for the entire 0.05 BTC transaction, would have been 0.00015 bitcoin or 331 times cheaper.
Doge is 10 times faster, more than 100 times cheaper, whats the downside? First, it has block
orphans, just like in any other network when a miner finds a block, they race to announce it to
the network and claim their reward. Faster blockchains have more orphans, so you need more
confirmation in order to be sure that a transaction actually happened and you are not gonna
see a fork, five blocks on down the line.
In practice, it means that you can wait for 10 confirmations to be as certain as you are with one
bitcoin confirmation, although this is sort of a funny way to say it, Doge fundamentally at this
stage is probably not secure, but putting a value layer on top of it like this, might actually solve
that problem. Right now, Doge is trying to solve a problem, that a lot of people consider already
solved, bitcoin is already good enough, 10 minute transactions, its seven cents, who really
cares, if youre just a normal user, but when it comes to creating new tokens to do innovative
things or even just to play games, were playing with a lot of puzzle type things, where you have
a token that will act as a key, that then when you possess it, it actually shows you things that if
you dont have that token you wouldnt see, so there are all these non-monetary ways that Im
very interested in developing cryptocurrency technology and if we do it on bitcoin and first off
we need the chunk of the Bitcoin blockchain and secondly, its much more expensive, 330 times
more expensive, in the example that we used.
If we were talking about a money transfer this would mean, you need a bunch of confirmations,
10 confirmations plus, but the view is very different, when youre talking about a counterparty
layer. Here, orphans dont really matter at all, if your order or asset didnt get included in a real
block, well its still out there, the network will just keep trying to place it, until it does so and
because the time between blocks is so much shorter, youre gonna get real and meaningful
feedback in a much faster way, even in Doge the majority of blocks dont orphan and so in a
normal scenario youre looking at, a one minute response time and in an extremely bad
scenario, youre looking at perhaps a 30 minute wait time. Compare that against bitcoin, its
really no contest.
LTBcoin is not moving to Doge, yet, but as Ive always said, LTB is focused on solutions in the
new digital economy, much more than we are about raw, raw, lets all be rich with bitcoin, if
theres an obviously better solution out there to accomplish a given task were gonna use it, but
the Dogeparty isnt going to wait for us, its gonna happen pretty much right now.
Id like to introduce to you Dogeparty, Dogeparty is the open source counterparty protocol
adopted and applied to the Dogecoin blockchain. That means you can easily create new
cryptoassets with it, use its full P2P decentralized exchange, use it with feeds for decentralized
prediction market, group chat and its also one of the first multi-token wallets out there and so
would be the first multi-token wallet available on the Doge platform. With Dogeparty anybody
will be able to create a token that rides on top of the Dogecoin blockchain for whatever
purpose they desire, you could create a crypto rewards program like LTBcoin, you could create
a charity token, thats given out to those who donate to your cause. You could create a game
token, thats awarded to winners and a little bit to the losers of your challenge. You could
create a reputation coin, that you create few of them and give out only to those you trust,
whenever you can imagine you can do it and its gonna get more interesting than this, next
week I am gonna be releasing paper on token control viewpoint, that basically describes how
you can use this type of asset built on top of another coin, as a way to gain access to
information, that you otherwise dont have access to.
Its a way to have a website that could have hundreds of versions and people who have
different tokens, visit the page and see different things relative to what types of tokens have.
Its a very nascent concept, but its so much more feasible, if the cost to do it is basically
nothing and with Doge, thats really what we looking at the cost is basically nothing, whatever
you can imagine you can do it. It doesnt require mining or you worrying about the security of
the network, all you have to do is think about what you want to accomplish and then use this
versatile toolkit to make it real, but theres one more thing that we need to figure out and for
this wed really appreciate your help.
In order to do these advanced things we need to create a new token, the first token,
counterparty has a token called XCP. Which was created and assigned through the process
called proof of burn, burn address is an address you can send crypto to, but whos private key
can never be known, because its too challenging to solve, through this process about 2.5
million XCP were created, when 2100 bitcoin were send to the one counterparty and then
followed by a bunch axes, within their 30 day burn. Initially I thought that this was wasteful
because obviously, it wouldve been better to have the funds with which to develop project,
but it wasnt long before I was struck by how drama free this method is. Its really fair, NXT did
something similar, but the problem was the lack of trust in an anonymous developer with a
speculative project, so participation was incredibly low, less than a hundred individuals with the
raise of 21 bit coins or 1% of XCP total. This isnt to denigrate NXT, merely to show the
differences between participation in a project, where money is being given to someone
anonymous, which thus requires trust, that person wont run off with the funds, compared to
the money itself being destroyed. XCP also distinguishes itself by not having any sort of founder
allocation or premine, the founders and developers have what they have because they burn
their own bitcoins, its a way of definitively saying were all playing by the same rules and if we
succeed we all win and if we fail, the developers dont gain from their failure.
The lesson I take from this is that, trust is an important factor; the incentives for all the parties
need to be aligned. There is another path though, while proof of burn is fare, it actually is sort
of wasteful, even if youre not giving them to the development team, because for example you
dont need much in terms of development funds. There are many ways it could be used to
make the world a little better and so weve come up with an alternative for you to consider.
Proof of charity is a burn the can still do good, to create XDP, the token of the Dogeparty
platform, instead of sending your Doge to an unspendable address, youd send it to a MultiSig
address, that requires all of the key holders to sign off, in order to release the funds, this
wouldnt happen until after the XDP generation process is complete to prevent recycling of
token through the system, this is our primary concern during this. During this period we would
enlist the Dogecoin community, specifically on Reddit, to help us find and vet charities who
would participate in the Doge Proof of Charity and once it find a measure popular support
would be entitled to an equal share of the Doge collected by this method. Its important that
the key holders are diverse, so again wed like to ask the help of the community with this, our
proposal would be one key holder from the Dogecoin dev. team, one picked by the Dogecoin
community and then Ill raise my hand here as the third key holders, since I am not really
involved with Dogecoin to much and I have a bit of reputation to lose, but if the community has
a better suggestion, then I would happily not have the responsibility.
Really at this point, we can go either way, this launch is happening next week, so please join the
conversation as soon as possible. You can see all of the relevant links over at Dogeparty.io,
thats DOGEPARTY.IO. What do you think charity or burn? Join the conversation now at
Dogeparty.io.

ABL: My name is Adam B Levine; Im here along with the other hosts of Lets Talk Bitcoin,
Stephanie Murphy.
SM: Hello
ABL: Andreas M. Antonopoulos
AA: Hello
ABL: Today on Lets Talk Bitcoin, were joined by Daniel Larimer, CEO of Invictus Innovations
and the guy behind the BitShares project. Daniel, how you doing?
DL: Im doing great. Its exciting to be here again.
ABL: Its been about six months, I guess since weve had you on the show, before we get into
whats going on, can you kind of give us a recap on your last six months of process with this
project.
DL: BitShares is all about doing decentralized autonomous companies or making blockchains
that are profitable. With our flagship concept that BitShares-X, which allows us to create the
BitUSD, which is a cryptocurrency that is a market, pegged to the value of the dollar and
otherwise, has the properties of the bitcoin and thats sort of where this entire project started.
Over the past six months, we have been trying to find a solution to Proof of Work, Proof of
Stake, basically the consensus problem that is efficient and will scale, after our experience with
Proof of Work showed that, it resulted in centralization, the miners on our early network of
Protoshares was, they were not including transactions. Weve had a lot of issues with Proof of
Work, so our project was set back by a couple months, while we invented two very critical
technology, the first is Delegated Proof of Stake and the second is TITAN, which stands for
Transfer Invisibly To Any Name, combined this allows us to have the transaction speeds of
Ripple without the centralization of Ripple.
ABL: That sounds pretty good, what is the downside?
DL: As far as I can tell, we found the best compromise of all the different technologies out
there.
ABL: Also, what was the problem that you were trying to solve? Because Proof of Work is
something thats been in place for quite a while and a lot of people think that, its pretty much
the legitimate way to do these distributions, so you start off with a Proof of Works system back
in November. Can you talk about; you said that people were including transactions, why wasnt
it working for you, where it has worked for others?
DL: Proof of Works is fundamentally, economic insanity. Its the idea that were going to secure
the network, by burning our money and whoevers willing to burn the most resources for the
least reward gets to control the network. If you own bitcoin, you have no say over how the
network is operated, the miners have complete say over that and mining is something thats
always gonna centralize in economies of scale, so we wanted to get away from that. In order to
get away from that, we need to find a new way of both securing the network, so that the
transaction ledger is unforgeable and irreversible, and deciding who gets to produce the next
block and extend the ledger and there have been various approaches to this. Youve got NXT
and Peercoin are the two alternatives to Proof of Work right now. What we have is Delegated
Proof of Stake and what makes us different is that, we use an approval voting, the
shareholders, the people who actually hold the coins, if you have bitcoin youre a bitcoin, if you
own bitcoin you can thought of as a Bitcoin shareholder, you get to nominate delegates to
produce blocks. We choose the a 101 delegates and they take turns, each producing a block in
turn.
SM: How is that not centralized?
DL: A hundred people are a lot more decentralized then bitcoin, which has two people that
control 51% of the network. The people that are actually producing the blocks, have the
approval of the majority of the shareholders, so the only people that can actually be there are
the ones that have the support from everyone, whereas with bitcoin and other Proof of Work
coins, its whoever buys into the position.
SM: This is sounding familiar, calling up memories of a Congress. Whats not to prevent
corruption and once when someone gets elected, so-called, why would they not turn evil?
DL: Bitcoin already has the same processes, its called a mining pool and the miners vote to
nominate, who the pool owners are, so you already have Delegated Proof of Work and thats
how bitcoins working. NXT is using leased forging, in which case the shareholders dont forge
themselves instead, what they do is, they get someone else to forge and they give them the
kickbacks. The key in these systems is, when they run this system, how easy is it to get the bad
actor out and how much damage can they do when they are in there. Youre nominating people
[have] almost no power, the only thing they can possibly is not produce a block and not include
a transaction. They cant change the rules, they dont have arbitrary power. Its really no more
power than a Bitcoin mining pool operator has or a next NXT forging pool or a large Peercoin
shareholder has.
SM: There power is limited by the Constitution?
DL: The constitution is the code.
SM: How would you, if you wanted to become a delegate, how would you do that or are the
delegates already elected and do they change, every so often?
DL: Delegates are changed on a continual basis, you have to maintain continual approval of the
users of the system, every time they make a transaction, the wallet will automatically vote for
the delegates that they approve and only the top 101, by approval, get to have an opportunity
to produce blocks and Id like to talk about that for a second here, because there is a deep
insight that I had just this week, that why is Delegated Proof of Stake more decentralized or
better, than other Proof of Stake systems and comes down to this; there is a fixed cost
associated with validating a transaction being on the network and if you going to scale a
network to PayPal, Visa size, then youre going to have to have serious hardware, in order to
participate and actually process and validate transactions. There is a bandwidth cost, there is a
CPU cost and there is a storage cost for each transaction. Every single validator has to incur all
of these costs, so if you have a fixed transaction fee, say 1 cent per transaction, that one 1 cent
has to be enough to compensate everyone who is validating. What that means is that systems
like Peercoin, if they scale up, only those who have a very large stake, will be able to participate
in mining, profitably. In fact it ends up being so bad that, if you bitcoin size, you need to have a
$1 million worth of Peercoin in order to process things profitably, thats based on certain
assumptions about the transaction costs, transaction fees and cost for validating, but you can
plot little graph there, and what you see is, that if you have 10,000 people validating, your
transaction fees have to be, a 100 times higher than, if you have 100 people validating and the
lowest possible transaction fee on the network that has one person validating. No matter what,
youre going to centralized into people, whether its NXT with their forging pools or Peercoin,
large stakeholders, you going to centralizing in a handful of people or your fees are going to be
in order magnitude greater than any other system. What Delegated Proof of Strake does, is it
provides the most efficient way for the users to have control of that process and sets an
amount of decentralization, instead of it being an ad hoc, elite group of people that end up
being the only ones the can produce blocks.
SM: A couple of questions, theres an argument that mining pool arent necessarily centralized,
whether you are taking about least forging with NXT or with ASICs, because an individual is free
to join or leave the pool as they see fit, even with NXT, as I understand that the leased forging is
like, you lease your coins to somebody for the purpose of forging or their equivalent of mining,
but they cant spend those coins, be like, youre just loaning the forging power to that person
and same with bitcoin, like if you have an ASIC miners or something, you can join or leave a
pool, so is it really fair to count the pool as an entity and not the individuals that make up the
pool?
DL: Im saying that all these other systems are just a form of Delegated Proof of Stake,
implemented indirectly. find the minors are delegating their hashing power and allowing a
mining pool to produce the blocks for them, but of course they can switch pools. In our case the
shareholders of delegating their authority as a fractional holder in the network, to someone to
produce blocks on their behalf and they can change it at any time, so you can think of it as a
building in 101 mining pools that automatically rebalanced, according to shareholder approval,
instead of having to have separate mining pool set up and managed by people.
SM: Okay I see what you are saying there, what about the approval process, like how do people
know which people they should approve as delegates? It seems like theres some amount of,
like lobbying or trust that would have to go on, but like how you know if a delegate is good and
you wanna approve them, without knowing who they are or whatever or do they know who
they are?
DL: Ideally the delegates would be public representatives of the system, think of it as a way of
electing a Board of Directors of 101 people to replace the Bitcoin Foundation and these people
would be lobbying to get support, right. They are basically advocates for the network; they
want to get people to support them, if they want to do something. It gives you a leadership
community for the system, thats the more organized than whatever might, someone decides
to set up a mining pool or whatever in the bitcoin or NXT world.
SM: If you wanna be a delegate, you essentially have to be a public person.
DL: You dont have to be, but you at least have to have a reputation, thats earned over time.
Now a delegates primary role is to produce blocks on schedule, and then include transactions
that have been broadcast to the network, at that point in time and the network automatically
monitors the performance of delegates from a technical perspective and can advise users, Hey
this guy is not doing his job, because the only thing they can do to harm the network is not do
their job, in which case there likely to be voted out in favor of someone who will do their job.
SM: What would prevent someone from creating a false delegate? Is there any way someone
could do that, like if they were previously a delegate and they just kind of kept their credentials
or whenever, how does that work?
DL: All new delegates are false delegates; start off with no approval. Theyd have to go and get
the reputation and support of the users, so you cant just create one and get in, you have to get
known and get people to give you basically a thumbs-up in our wallet and then you can get in, if
you are among the top 100 people with thumbs-up.
SM: Whats the incentive for anybody to care about voting for delegates and checking them
out? It seems like theyre doing work to check out which delegates are good, like whats the
incentive for people to actually do that and screen potential delegates?
DL: This goes all back to the DAC metaphor and if you view shareholders as electing a Board of
Directors, whats the incentive for shareholders to care? Well the large shareholders those you
own significant stake, probably care about the network and theyre going to, go into their
wallet and nominate the delegates that they would like and if theres any problems people are
going to care and if the networks not performing people are going to care and its very little
work, in fact we provide URLs, which you can just click on a link and get support. If you have a
discussion on forum about some problem, users could just click on it and you add your approval
to your wallet. We are trying to make this as friendly as possible and of course, users can
abstain, most bitcoin users abstain and they are trusting the mining pool operators to do a good
job. A lot of people in NXT abstain or they have to select a pool to join and then how do they
evaluate which pool to join, most of them set it and forget it, so its really no different than the
work the users are already doing, except now theres no need to switch mining pools or pay
much attention, so we actually reduce the burden on the users of the system, compared to the
alternatives out there.
ABL: One of the thing thats different about your approach from what Im hearing is that, it
seems like youve looked at this and basically said that, this is whats going to happen anyways,
so why not build a system thats going to make it, so it happens in a controllable way, instead of
happening as an unintended consequences, because what you are saying basically is that, all
these other systems have exactly the same issues, they just dont acknowledge them and thus
its that developed in a way that hasnt been good.
DL: You pretty much nailed it, we need to control the centralization to make sure that the users
can exercise their influence as effectively and efficiently as possible, and thats all weve really
done and weve acknowledge the economics of the situation, which is that you cannot a million
verifiers and scale a network, the transaction fees to do that are going to be extremely high.
ABL: Also lets talk about Ripple for just a quick second here, because that is the system that
this looks most like and I know that earlier on in this process you had looked at ripples, so can
you talk to us about, how DPOS is different from what Ripple does and why its more
decentralized, because that was the complaint you had, right?
SL: Right! I looked at Ripple, Hey, this is nice, they produce blocks every 10 seconds, it looks
relatively efficient and decentralized, not until I started looking at, what I had to do to
implement it and the best way I can describe Ripple is, as if you started out with an initial set of
delegates and the only way to get a new delegate into the system is for the existing delegates
to approve them, the people that hold the XRP have no say over who the verifiers are, so it sort
of like an insiders club and no one can force their way in, XRP holders have no way of getting
someone on there. What weve done weve selected who the inside crew is through a
democratic process on the blockchain, instead of an insider elite group.
SM: What do you mean by democratic Dan, because like how does someones amount of stake
affect their ability to vote or to make a block, if they are a delegate, does it have any impact,
like the amount coins that they have?
DL: Not that the amount of coins that the delegate has, the amount of coins the people who are
voting for them have, so every share or coin in the network can vote for or support up to a 101
different delegates. You can be a delegate in our system and have no shares at all, to start out
with, if people trust you and you can gain support and then you can earn income providing a
service to the network, whereas all the other systems require you to have a stake in order to
produce the blocks and earn any money. Now, granted these systems are designed to be as
efficient as possible, so at the end of the day there really shouldnt be very many profits for
doing this job, it should basically be whatever the average opportunity cost is, in the society.
AA: Dan, one of the criticisms levied against bitcoin has been that, early adopters of the
technology have been able to amass quite significant wealth and creating a skewed distribution
of wealth in such that, its the 1% of the 1% of the 1% in bitcoin, who holds most of the early
gains from mining and that creates a very skewed Gini coefficient, as its known, which is the
economic metric for, if you like income of wealth people use that as a, levied that as a
criticism against bitcoin vis--vis traditional currencies and certainly that has been something
worthy of discussion. Now one of the similar criticisms levied against Proof of Stake systems is
that, any such wealth disparity is amplified by a Proof of Stake system, because than the
whatever advantages gained early on in the system, then offers additional advantage or
magnifies that advantage through the Proof of Stake system to generate more coins for those
who have coins, essentially Proof of Stake is in essence an algorithmic form of the rich get
richer. What would you like to say to that particular argument? How do you see that?
DL: Well for starters, anyone regardless of how much wealth you have can become a delegate
under my system. You are doing a job, youre performing a service, you have expenses and you
are competing to do that service at the lowest cost, so the holders want to pay the lowest
transaction fees and we only pay out transaction fees right now. Although, there are other
designs, where the delegates can actually be paid through issuance of new shares, but its not
the people that have shares today, that get those shares, its those who can get the most
approval and they get that approval by basically lobbying or campaigning, proposing a budget, I
want to fund marketing, I want to fund development, I want to do all these other things, with
the money that Im going to be receiving and if you dont you get fired and you are out of the
job. Weve created a market feedback incentive, that doesnt concentrate wealth in the people
that already have wealth, but instead allows it to operate like a business, where the directors
have a job to do, they are compensated for the work they are doing. Its a competitive business,
lots different people are competing for the same job and everyone has equal opportunity,
provided that they can convince the market and the shareholders that they will do a good job.
Its not an algorithmic way of making the rich get richer, like some of the other systems out
there.
AA: Let me ask you a follow up question that, I understand that the delegates use their
delegated power in order to validate transactions and collect fees. but in a Delegated Proof of
Stake System and how is new coinage generated and who collects the seigniorage fee for
generating that coin, is that the delegates who generate those coins and keep them or do those
coins go to those who have stake.
DL: On our system, the default mode is that there are no coins generated outside the genesis
block, weve initialized or recommend that others initialize their genesis block to give
possession to people on PPS, which was entirely mined or those who have donated to fund the
development of what weve done, as recognition of their donation and that is a large group of
users that had equal opportunity to participate, so there is no new coins created. Now, if there
were going to be, would be issued to the delegates and the delegate have the option of
basically setting there pay, Im going to take 100% or 0% and so shareholders have the power to
elect delegates that dont take any pay whatsoever, if thats what they like. We give a lot of
power to the users in our system to control both the rate at which delegates are paid and what
the funds that delegates are paid are spent on. Yea, you could become a delegate; you could
operate in.. new shares been issued in a slightly inflationary manner and if you could pocket it
all, you are gonna be very expensive, everyones going to say, Hey, were not getting anything
in return for being debased and then they are going to remove their approval from you. The
end result it is, that the shareholders actually getting something for been debased, in terms of
marketing, in terms of R&D, server and infrastructure. Whereas in bitcoin, the users are being
debased and burned, the electricity and ASICs.
AA: Well let me ask you a bit more directly, Ben. It sounds like, this is a scheme primarily for
supporting corporate governance and the use of such coins for internal use within a corporate
environment or within a crowdsourced environment, rather than a broad and generic currency
either on a national, local or even transnational and global level like bitcoin, otherwise the idea
that you would issue all of the currency to a small number stakeholders right at the beginning,
doesnt sound like a viable basis for doing a broader currency, so is that the case, am I
understanding correctly that Delegated Proof of Stake is primarily aimed at these types of
crowdsourced use coins, rather than brought local currencies.
DL: Id say you got it wrong, it can be used for that particular use case, but its a way of creating
broad global distributed companies owned by millions of people that are executing the
business model companies
AA: Companies, not currencies.
DL: Well, you can think of them as a company, you can think of them as a currency, these are
just terms of understanding things, were basically saying you own a fraction of a system, you
own some percent and the system is doing some service, allowing transactions of some type
with certain rules and that is what the system does. You can use that for a close group of
people or you can open it up to thousands of people in countries all over the world, so the
initial user base is not a small group, Id say there are probably several thousand people
involved and equal opportunity and theres this concept of early adopters profit and latecomers
dont. Well thats always how it is, first person to find something, before its valued they profit
when it comes more valuable and there are some complaints about that, but thats economics
of envy and not based upon economics that actually allow society to grow and prosper.
AA: Well it certainly sounds suitable for distributed autonomous corporation, but I can see how
this might not be a very popular scheme for use in a broad currency, because this would create
a very unbalanced situation for the early adopters, even more imbalanced than some of the
claims against bitcoin and how do you scale that to 7 billion people?
ABL: Well let me break in here to, because I want to interject, that was not always the plan. The
plan was originally that, the tokens that were out there, Protoshares which was the original
token that was released, was supposed to represent about 10% of total supply of BitShares, so
can you talk about the, how that changed over time, in addition to Andrews question?
DL: They are going to represent 50% of the initial supply of the BitShares-X system, they were
all mined into existence, but mining is just a way of centralizing, in giving your shares to the
people who are burning electricity, who are IT experts or who can get large server farms
running, its not a way of making it fair for the average person. At the end of the day, the
average force person always has to buy into these systems and you can have any kind of feel-
good, dont know what the word Im looking for here, but all those ideas cant ignore the laws
of economics, cant give people something for nothing and expect to grow wealth, people will
end up selling it to someone else and then taking the free money or free wealth that they got
and consuming it. Its really, have the right prospective here, and weve eliminated the major
barrier to entry, caused by Proof of Work. Anyone can take our source code, start a new group
with a new initial base of shareholders and whatever allocations gonna help this thing grow and
gain wide acceptance, thats my basic things is, weve removed barriers to entry, made it equal
opportunity, weve had, of all the different Bitcoin 2.0 project out there, the longest time and
easiest ways to get involved and get your initial stake in what were doing.
SM: Is Delegated Proof of Stake implemented yet, in PTS? Was there a hard fork at some point
or is it this planned for the future?
SL: Right now, we have Delegated Proof of Stake is implemented in our test chain and its soon
going to be launched, probably in the next two or three weeks, its going to be launched for our
BitShares-X chain.
SM: Will people who have PTS have to like in install a new client, like howll that work?
DL: You can import your PTS wallet in your Bitcoin wallet and get your initial balance.
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ABL: I think weve managed to make it all the way through this conversation, mostly focusing
on the technology and how it works and why it makes sense or if it does and I dont we have
actually talked about what it is, that this accomplishes for or can you can talk about what
advantages DPOS has given you and like just bullet point list something like that, now that you
have this, what are you doing with it? This was a core piece of technology, right, like you had to
stop everything and build this up from scratch?
DL: Right, so what this is given us is 10 second blocks confirmations, that are more secure than
bitcoin after six block confirmations, its given us the ability to have 10 transactions per second
in our test networks and to scale in the future to thousands of transactions per second, in a
controllable manner that maintains the decentralization of the system, maintains the control of
the average user, over who is running the network, thats the main advantage of the Delegated
Proof of Stake system. Thats not the only thing, weve been doing, its just our core consensus
technology that gives us the best performance of any system out there.
ABL: Tell us whats the experience going to be like; once we can actually use BitShares, what
can we do with it? Why is this product that should be attractive to people who dont already
have it and are interested in bitcoin or interested in this type of technology? What about it, can
they do, that they cant do with bitcoin?
DL: In our system, we are putting a lot of emphasis on ease-of-use, that means that users of our
system never have to see a public key or an address like they do in bitcoin, you send your
transfers to a name, so you can register your account, were going to make all that stuff
extremely easy for the users and whenever you do send transfers from person-to-person, you
actually see, who its to, who its from, a memo on every transaction. It looks and feels just like
online banking, with actual meaningful memos in your transactions and all thats done while
maintaining privacy is a similar way to some of the Darkcoins out there.
ABL: When youre saying that, this is something that I can send, so I can just send from Adam to
Andreas, if we both have accounts here and those are both of our names, if someone looks
our Is there a block chain history going on here? Can someone look and can they see Adam
sent to Andreas or are these addresses really and youre just abstracting it?
DL: Under the hood they are addresses, thats using a technology or concept called a stealth
addresses that has been addressed in the Bitcoin community for some time, what we did is, we
took stealth addresses and made them easy to use by having name or account registration on
the blockchain itself. Looking at the blockchain you never send to the same address twice,
under the hood and no one can tie those thinks together and in fact, in the more advanced
security modes, you can actually send multiple transactions, instead of a single transaction so
they you dont end up tying your inputs and outputs together in a way they can be analyzed
really good analyzing blockchains. TITAN is Transfer Invisibly To Any Name, its what it stands
for and thats basically the process I just described, you sign-up for the blockchain, you
download the wallet, you create an account, you get it registered for free at one or more
Faucets that maybe out there and once youve done that you can send and receive or log into
websites in a cryptographic secure way, kind of like we planned for Keyhotee. This gives you a
lot of those features, and once youve got that account, you can send assets from one person
another. The other thing our system does, is it allow user issued assets, so you could create
LTBcoin on top of BitShares-X and transfer those between users by name with all the benefits of
TITAN, including memos and the privacy and security that you looking for, in the very easy-to-
use manner, entirely through a web interface.
SM: So, is TITAN kind of replacing Keyhotee or is that still planned to rollout also.
DL: Keyhotee, sort of based on Proof of Work and its security model, really needed to benefit
from some the other things you have done, so yea, the Keyhotee blockchain is sort of being
replaced with the DAC that we create, has a name system and it sort of like having an email
account at Apple or at Google, you have your name at BitShares-X, your name at Bitshares-02,
Bitshares, whatever the different DACs may be, so thats how were going to do accounts now.
Instead of having one chain of all accounts, you identify the chain and name together.
SM: What about the people, there was a presale of Keyhotee, I remember, like last around New
Years 2014, what happened to the people who bought into that early?
DL: Theyre getting their names preregistered in the Genesis block of every new chain.
SM: Can you explain a little bit more, just maybe again, because Titan is a new concept to me?
This is a privacy feature and its other things too, but its a privacy feature, like how, is it
definitely private, like is it actually anonymous and how do we know?
DL: Its as anonymous as using bitcoin, with a new address every time you deal with any
transaction with anyone, what it does is, it makes using bitcoin in a secure way. You can actually
use bitcoin today in a private way, its just a lot of work, it requires you to manually exchange
keys and make sure you dont use the same keys multiple times and if youre going to combine
multiple outputs, its just a lot of work to do on the coin today, though it is possible. TITAN is a
way of automating all that and making it easy-to-use, so your secure by default, your memo is
encrypted, so no one can see that, no one sees who you sent the funds to and yet the people,
who you sent the funds to, know who the funds are from. It gives you the ease-of-use features,
without compromising the other aspects of your privacy.
SM: Theres a blockchain, right? Is there a blockchain?
DL: This is all based on a blockchain, yes.
SM: How does it put those privacy features into the blockchain? I am still having trouble
understanding it.
DL: At the risk of getting too technical, it essentially uses an elliptic curve diffie-hellman to
derive the key, using hierarchical wallets, you see how technical it gets, very quickly.
SM: Yea.
DL: To generate a new private key, so when you send the funds to someone, you give them a
means of generating the private key, using a shared secret that only you and the other person
knows, so the keys [are] not known in advance, its generated at the time you send it. It uses a
similar method to how BitMessage allows you to send messages privately to people, so its kind
of like BitMessage meets transactions.
ABL: One of things that eventually, we get to with BitShares, is the, what you actually want to
do with it. You mention other chains, other DACs and the one that you mentioned at the very
beginning of this episode was, BitUSD. Recently, weve seen another type of token-based US
dollar abstraction be proposed, where, essentially it is a redeemable one, where the dollars are
kept in a bank someplace and you can redeem the token through slightly difficult process but
what youre working on, first of youre working on it about a year now, i think this is actually
the first project that we started talking about, back last summer and secondly, you its not a
redeemable assets, so can you talk to us about BitUSD, the use cases that you see for it and
kind of just a high-level view how it works.
DL: Well, BitUSD is redeemable; its redeemable for variable amount of shares in the DAC. The
amount of shares that you get when you redeem it is proportional to the value of the dollar. Its
is redeemable for dollars worth of bitcoin, or if this was on Bitcoin network, itll be like creating
an asset that was redeemable for dollars worth a bitcoin, that might change from day to day,
but when you go to redeeming it, you always get a dollars worth the bitcoin and the way that
works, is the same way that dollars are created in the regular banking system. Dollars are lent
into existence, backed by collateral, in the case of the current banking system, the collateral is
your house, in the case of our system, the collateral is shares in the DAC itself and it implement
automatic margin calls, so that if the price moves against the person who is effectively short,
they borrowed and sold and so it forces them to cover and buy it back from the market. That
creates a peg, and the market peg works on the premise that, all market participants buy and
sell based upon what they think market participants will be buying and selling in the future and
the only rational choices is to assume that, they are going to trade based on the peg in the
future, because if you dont believe that, then you have to decide which way is it gonna go, up
or down and if you dont have a way of saying, you abstain from the market and if you dont
think it works, you sell the shares and get out, because the system is gonna fail in the first
place. Its a self-reinforcing market peg that causes the assets to always have the purchasing
power of a dollar.
ABL: This is one of those elements, that cant really be tested, until after the system that you
are creating is in place, is that right?
DL: It is a bit of an experiment, its an experiment that, a lot of people have a lot of confidence
in, just from thinking about it, in an intuitive sense, but markets are markets and its really hard
to predict how humans will behave in mass, ask any economist. The worst-case scenario in the
system is, you have to add a trusted price feed, to settle it and then it works just like a
prediction market and the hypothesis that we have is that, the price feed is unnecessary, we
have an algorithm and various rules in place to prevent common manipulation, eliminating
front running and other attacks, also because we have user issued assets, its entirely possible
for you to do effectively IOU dollars, ripple style or like this others process you described,
where you can redeem it from someone you trust to hold it, hold real dollars for you, but the
Bit assets, the market pegged assets are the big feature that everyone is most excited about,
now that weve got the foundation in place, weve got a consensus in our architecture that can
scale to handle these transaction volumes. I am very optimistic about where we are going to be
in a month or two from now.
ABL: In the last, I guess eight months you will have issued two new types of tokens, issued the
Protoshares at the beginning and now BitShares at this later point. Now that you have this basis
level, I am not asking for specific dates, I am asking for, do you have any sort of anticipation of
the pace that well see, new things coming out? Do you think well see six months between
projects or is it can be shorter or longer?
DL: Things are going in parallel right now; weve got one team working with a company called
Follow My Votes, working on a voting DAC, thats really exciting. Another one working on the
DNS DAC thats using auctions for that. BitShares music is also being developed in parallel. I
would expect that, you gonna start see an avalanche of many different DACs possibly as many
as six out by the end of this year, of course thats all subject to development and unpredictable
circumstances.
SM: Will other people outside of BitShares, the company have the opportunity to develop DACs
for the platform?
DL: BitShares as a company only produces the tool kit, every single DACs that is released is been
released by another company, not by us.
SM: Gotcha!
ABL: You guys started basically the first crypto equity, back in November with Protoshares and
this was again before this had really been conceptualized, that you could have something,
tokens that you could acquire, that could then give you another token, at a later point as sort of
rewards. It kind of looks like some sort of legal structures, and other words that you guys have
used have changed from shares and we were talk and youre using the word shares now. Can
you talk about the legal environment and how its changed and what thats meant to you over
the last maybe six months, nine months?
DL: The legal environment is a mess for everyone in this industry, things that seem to make
sense, like it doesnt matter what you call it, it matters what it is, is actually seems to be the
opposite. Of course, its different on the federal and state levels, end result is, we are trying to
structure everything were doing to, basically divide the responsibilities and protect everyone
involved, we produce open-source software, we dont operate any DACs, we just provide the
software that makes it possible. Thats like creating a generic exchange, you dont run the
exchange, you provide the software to the exchange, its a different legal standing you have
between those two things and then we allow other companies, other individuals or just random
people on the Internet to take the source code and use it, for whatever its good for, thats how
weve protected ourselves and also our users and the people who are using it, now they can be
more protected as well, because well be able continue to develop and enhance the basic
toolkit upon which theres technology is based. Whether you call it shares, shares is a very
useful way of thinking about it abstractly in economic terms for evaluating the design and of
the system. Our voting DAC will probably call them votes and theres been discussion of calling
them, notes in the music DAC, it doesnt really matter what you call them different things
because theyre not exactly shares, like in traditional company. On the other hand there are
companies out there like Overstock, that is looking to actually back their corporate stock with
these things and it would be accurate to call them shares at that point in time. People want to
use this stuff for that and in fact are toolkit could eventually be adapted to provide an
alternative accounting mechanism for a centralized entity, you can hardcode the regulations
the government requires into the system as well, its really a generic technology, whats being
tracked, whether you call them votes, whether you call them voice or notes or tokens or coins,
you call them whatever is catchy, good for marketing and avoid legal entanglements.
SM: Yea, it seems to be a problem, nobody really knows how to avoid legal entanglements, but
I have to say I do like your approach, well see how it shakes out, I guess. Theres some other
crypto platforms I think that maybe seem to want to be like the blockchain of everything, I am
just wondering like have you ever heard the phrase, tyranny of the code, how far does the
reputation go in the Bitshares platform, how do you protect against sort of tyranny of the
code?
DL: Ive never heard the expression the tyranny of the code, the main thing that Ive come to
understand with all these technologies, is that the code is just an expression of a consensus of a
user community, its a way of keeping score, the true consensus is in the intent of the users and
not the code and the main way that you prevent the real consensus among the users from
being co-opted and turned against them by a minority, is to remove barriers to entry, as long as
its very easy for the users to fork the code and cut out the players that are trying to censor
transactions or shutdown system or change the rules in a way that violates the social
consensus, the system will continue to grow and flourish and your relatively secure and that is
what the true consensus is. If there is a bug in the code, everyones going to follow the chain or
follow the correction that honors the original consensus, as it was intended and very few
people will say Well, technically this is a longer chain and therefore it is the one shoe system,
I believe people are smarter than that, thats the real power of these systems.
SM: Maybe you could give us a roadmap, because I know a lot of things have changed at
Bitshares and its an unpredictable environment, of course and you are trying to get stuff
developed, but when you see happening with Bitshares over the next month, over the next six
months, like paint a picture of what you think is gonna go on and what we can expect to be able
to use?
DL: DACs Unlimited is a company in China, thats going to be launching Bitshares-X, BTX. It is
currently trading on Bter and Cryptsy based upon the February 20
th
snapshot and I would
expect that over the next couple of weeks that, they will be releasing a client for users to
download and actually start trading, and on that client users will be able to create accounts, do
user issued assets and the plan I believe is to do hard fork shortly, within the next couple
months that fully implements the markets in Bit assets, that might be ready from day one, its
all up to them to decide which snapshot they want to do, do they want to delay the release and
include more features or release now, get trading going and do a hard fork in a couple months
to upgrade the system to the full potential. Either way you look at it, we have a product that
you can use and try today, we do continual dry runs on our test network, that are open to the
public, anyone can participate in, if youd like to see what our wallet is, if youd like to
experience TITAN or the joy of 10 second transactions, its a very different experience using our
wallet compared everything else out there. You can visit bitsharestalk.org, there is a thread on
there for various dry runs that were doing. Post the question if you like to know how to get
involved. If you like to learn more about us, you can visit bitshares.org for high-level overview
of what we are doing and what our vision is.
ABL: Just as a quick final note, you trust DACs Unlimited, thats the company that youre aware
of, they are not just a random company thats gonna be releasing your code?
DL: Yes, its run by people I trust.
ABL: Do you have any concerns about that, because the model that youre going forward
basically says that anybody can take what youre doing and do anything with it, so basically you
have partners in place, that make it so you feel like theyre trustworthy people handling these
responsibilities, because it is a responsibility.
DL: its a responsibility, its an opportunity to start a business a new business, so we are
creating jobs for people, and we are sharing things from trying to be as decentralizes as the
system we are building.
CREDITS
Thanks for listening to episode 129 of Lets Talk Bitcoin. Content for todays show was provided
by Adam B. Levine, Stephanie Murphy, Andreas M. Antonopoulos, and Daniel Larimer.
This episode was edited by Adam Levine
Music for todays show was provided by Jared Rubens, Matthew Murkowski and Gurty Beats,
straight from the streets.
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Have a good one.