LET’S TALK BITCOINEpisode 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 22nd 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 Let’s 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 Let’s Talk Bitcoin and today we’re 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 listener’s 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, you’ll see where to use the magic words, keep your ears open. - But first, we’re few weeks in the LTBcoin experiment and since things have gotten started, I’ve come to some surprising realizations that I’d like to share with you.

I’d 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, we’ve 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 Let’s Talk Bitcoin show, and in the near future the entire network shows and blogs. On July 4th 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 we’re 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, it’s worth about $31 or $0.07 per person, don’t get me wrong, that cost is fantastic when compared against any non-cryptocurrency solution and of course we’re actually using artificially lowered fees, about a quarter of the standard bitcoin through a script that the XCP dev. gave us, but that’ll 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 there’s 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 it’s 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. You’ve 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 it’s 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, you’ve 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, what’s 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, it’s seven cents, who really cares, if you’re just a normal user, but when it comes to creating new tokens to do innovative things or even just to play games, we’re 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 don’t have that token you wouldn’t see, so there are all these non-monetary ways that I’m 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, it’s 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 you’re talking about a counterparty layer. Here, orphans don’t really matter at all, if your order or asset didn’t get included in a real block, well it’s 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, you’re gonna get real and meaningful feedback in a much faster way, even in Doge the majority of blocks don’t orphan and so in a normal scenario you’re looking at, a one minute response time and in an extremely bad scenario, you’re looking at perhaps a 30 minute wait time. Compare that against bitcoin, it’s really no contest.

LTBcoin is not moving to Doge, yet, but as I’ve always said, LTB is focused on solutions in the new digital economy, much more than we are about raw, raw, let’s all be rich with bitcoin, if there’s an obviously better solution out there to accomplish a given task we’re gonna use it, but the Dogeparty isn’t going to wait for us, it’s gonna happen pretty much right now.

I’d 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 it’s full P2P decentralized exchange, use it with feeds for decentralized prediction market, group chat and it’s 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, that’s given out to those who donate to your cause. You could create a game token, that’s 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 it’s 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 don’t have access to.

It’s 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. It’s a very nascent concept, but it’s so much more feasible, if the cost to do it is basically nothing and with Doge, that’s really what we looking at the cost is basically nothing, whatever you can imagine you can do it. It doesn’t 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 there’s one more thing that we need to figure out and for this we’d 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 who’s private key can never be known, because it’s 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 would’ve been better to have the funds with which to develop project, but it wasn’t long before I was struck by how drama free this method is. It’s 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 isn’t 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 won’t 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, it’s a way of definitively saying we’re all playing by the same rules and if we succeed we all win and if we fail, the developers don’t 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 you’re not giving them to the development team, because for example you don’t need much in terms of development funds. There are many ways it could be used to make the world a little better and so we’ve 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, you’d send it to a MultiSig address, that requires all of the key holders to sign off, in order to release the funds, this wouldn’t 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. It’s important that the key holders are diverse, so again we’d 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 I’ll 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, that’s DOGEPARTY.IO. What do you think charity or burn? Join the conversation now at Dogeparty.io.

ABL: My name is Adam B Levine; I’m here along with the other hosts of Let’s Talk Bitcoin, Stephanie Murphy.

SM: Hello

ABL: Andreas M. Antonopoulos

AA: Hello

ABL: Today on Let’s Talk Bitcoin, we’re joined by Daniel Larimer, CEO of Invictus Innovations and the guy behind the BitShares project. Daniel, how you doing?

DL: I’m doing great. It’s exciting to be here again.

ABL: It’s been about six months, I guess since we’ve had you on the show, before we get into what’s 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 that’s 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. We’ve 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 that’s been in place for quite a while and a lot of people think that, it’s 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 wasn’t it working for you, where it has worked for others?

DL: Proof of Works is fundamentally, economic insanity. It’s the idea that we’re going to secure the network, by burning our money and whoever’s 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 that’s 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. You’ve 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 you’re 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, it’s whoever buys into the position.

SM: This is sounding familiar, calling up memories of a Congress. What’s 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, it’s called a mining pool and the miners vote to nominate, who the pool owners are, so you already have Delegated Proof of Work and that’s how bitcoin’s working. NXT is using leased forging, in which case the shareholder’s don’t 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. You’re nominating people [have] almost no power, the only thing they can possibly is not produce a block and not include a transaction. They can’t change the rules, they don’t have arbitrary power. It’s 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 I’d 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 you’re 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, that’s 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, you’re going to centralized into people, whether it’s 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, there’s an argument that mining pool aren’t 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 can’t spend those coins, be like, you’re 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: I’m 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 there’s 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, that’s 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 don’t have to be, but you at least have to have a reputation, that’s earned over time. Now a delegate’s 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. They’d have to go and get the reputation and support of the users, so you can’t 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: What’s the incentive for anybody to care about voting for delegates and checking them out? It seems like they’re doing work to check out which delegates are good, like what’s 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, what’s the incentive for shareholders to care? Well the large shareholders those you own significant stake, probably care about the network and they’re going to, go into their wallet and nominate the delegates that they would like and if there’s any problems people are going to care and if the network’s not performing people are going to care and it’s 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 it’s really no different than the work the users are already doing, except now there’s 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 that’s different about your approach from what I’m hearing is that, it seems like you’ve looked at this and basically said that, this is what’s going to happen anyways, so why not build a system that’s 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 don’t acknowledge them and thus it’s that developed in a way that hasn’t 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 that’s all we’ve really done and we’ve 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 let’s 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 it’s 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 insider’s club and no one can force their way in, XRP holders have no way of getting someone on there. What we’ve done we’ve 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 someone’s 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 shouldn’t 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, it’s 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 it’s 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-à-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, you’re 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 it’s not the people that have shares today, that get those shares, it’s 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 I’m going to be receiving and if you don’t you get fired and you are out of the job. We’ve created a market feedback incentive, that doesn’t 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. It’s 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. It’s 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, we’ve 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 we’ve 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, I’m going to take 100% or 0% and so shareholders have the power to elect delegates that don’t take any pay whatsoever, if that’s 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, everyone’s going to say, “Hey, we’re 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, doesn’t 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: I’d say you got it wrong, it can be used for that particular use case, but it’s 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, we’re 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, I’d say there are probably several thousand people involved and equal opportunity and there’s this concept of early adopters profit and latecomers don’t. Well that’s 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 that’s 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 ½ 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, it’s 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, don’t know what the word I’m looking for here, but all those ideas can’t ignore the laws of economics, can’t 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. It’s really, have the right prospective here, and we’ve 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, that’s my basic things is, we’ve removed barriers to entry, made it equal opportunity, we’ve 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 we’re 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 it’s soon going to be launched, probably in the next two or three weeks, it’s going to be launched for our BitShares-X chain.

SM: Will people who have PTS have to like in install a new client, like how’ll 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 we’ve 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 don’t 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, it’s 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, that’s the main advantage of the Delegated Proof of Stake system. That’s not the only thing, we’ve been doing, it’s just our core consensus technology that gives us the best performance of any system out there.

ABL: Tell us what’s 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 don’t already have it and are interested in bitcoin or interested in this type of technology? What about it, can they do, that they can’t 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, we’re 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 it’s to, who it’s from, a memo on every transaction. It looks and feels just like online banking, with actual meaningful memos in your transactions and all that’s done while maintaining privacy is a similar way to some of the Darkcoins out there.

ABL: When you’re 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 you’re just abstracting it?

DL: Under the hood they are addresses, that’s 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 don’t 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, it’s what it stands for and that’s 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 you’ve 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 you’ve 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 that’s how we’re 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 Year’s 2014, what happened to the people who bought into that early?

DL: They’re 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 it’s a privacy feature, like how, is it definitely private, like is it actually anonymous and how do we know?

DL: It’s 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, it’s just a lot of work, it requires you to manually exchange keys and make sure you don’t use the same keys multiple times and if you’re going to combine multiple outputs, it’s 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: There’s 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, it’s generated at the time you send it. It uses a similar method to how BitMessage allows you to send messages privately to people, so it’s 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, we’ve 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 you’re working on, first of you’re 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 it’s 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; it’s 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. It’s is redeemable for dollars’ worth of bitcoin, or if this was on Bitcoin network, it’ll 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 don’t believe that, then you have to decide which way is it gonna go, up or down and if you don’t have a way of saying, you abstain from the market and if you don’t think it works, you sell the shares and get out, because the system is gonna fail in the first place. It’s 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 can’t 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, it’s 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 it’s 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, it’s 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 we’ve got the foundation in place, we’ve 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 we’ll see, new things coming out? Do you think we’ll see six months between projects or is it can be shorter or longer?

DL: Things are going in parallel right now; we’ve got one team working with a company called Follow My Votes, working on a voting DAC, that’s really exciting. Another one working on the DNS DAC that’s 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 that’s 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 you’re using the word shares now. Can you talk about the legal environment and how it’s changed and what that’s 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 doesn’t matter what you call it, it matters what it is, is actually seems to be the opposite. Of course, it’s 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 don’t operate any DACs, we just provide the software that makes it possible. That’s like creating a generic exchange, you don’t run the exchange, you provide the software to the exchange, it’s 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 it’s good for, that’s how we’ve protected ourselves and also our users and the people who are using it, now they can be more protected as well, because we’ll be able continue to develop and enhance the basic toolkit upon which there’s 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 there’s been discussion of calling them, notes in the music DAC, it doesn’t really matter what… you call them different things because they’re 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, it’s really a generic technology, what’s 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, we’ll see how it shakes out, I guess. There’s 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: I’ve never heard the expression the tyranny of the code, the main thing that I’ve come to understand with all these technologies, is that the code is just an expression of a consensus of a user community, it’s 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 it’s 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, everyone’s 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, that’s 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 it’s 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, that’s going to be launching Bitshares-X, BTX. It is currently trading on Bter and Cryptsy based upon the February 20th 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, it’s 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 you’d like to see what our wallet is, if you’d like to experience TITAN or the joy of 10 second transactions, it’s 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 we’re 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, that’s the company that you’re aware of, they are not just a random company that’s gonna be releasing your code?

DL: Yes, it’s run by people I trust.

ABL: Do you have any concerns about that, because the model that you’re going forward basically says that anybody can take what you’re doing and do anything with it, so basically you have partners in place, that make it so you feel like they’re trustworthy people handling these responsibilities, because it is a responsibility.

DL: it’s a responsibility, it’s 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.

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Thanks for listening to episode 129 of Let’s Talk Bitcoin. Content for today’s show was provided by Adam B. Levine, Stephanie Murphy, Andreas M. Antonopoulos, and Daniel Larimer. This episode was edited by Adam LevineMusic for today’s show was provided by Jared Rubens, Matthew Murkowski and Gurty Beats, straight from the streets.The Five Forum Posts promotion still has one more weekly distribution3, you have got 4-5 days left to get 5 posts on your LTB forum account and split your share of the 2.5 million LTBc remaining, so sign up and get posting today!

Have a good one.