BitShares 101: Basics of the World's 4th Most Popular Cryptocurrency

It's my job to provide a snappy overview of BitShares before moving to the interview portion of this article.

But the simple fact is that BitShares is more than a cryptocurrency. It utilizes financial tools and contract types of which I'm no expert. The kind Wall Street cats must specialize in. And so I really don't completely understand it, which makes me equally suspicious and excited.

That's why I reached out to Ken Code, BitShares' public relations manager. I asked him my n00bie questions.

So in lieu of the snappy overview that I should be giving you, here's one straight from the BitShares website:

“BitAssets, the currency of BitShares, are digital asset tokens that have eliminated the burden of price volatility. This means that bitUSD, bitEuro, bitCNY and bitGold will always trade near par value for the dollar, euro, yuan and gold on cryptocurrency exchanges worldwide.”

Cointelegraph: Why does the world need BitShares?

Ken Code: There are many reasons, but here are a few:

BitAssets – these market-pegged assets become “smart currencies,” pegged by market forces to underlying fiat currencies (USD, EUR, CNY) or commodities like gold and silver.  This provides stability, allowing merchants to hold the currency rather than selling it quickly to avoid volatility of first-generation crypto currencies like bitcoin. 

The ability to hold between transactions minimizes the taxes, fees and counterparty risks incurred going into and out of fiat in search of stability.

“[Bitshares’] security costs are a tiny fraction of [Bitcoin] and transactions are confirmed in an average of five seconds.”

Industrial strength – I love Bitcoin, but it wastes hundreds of millions of dollars annually on miners it pays to secure the network and often takes more than an hour to confirm a transaction.  This is not a very practical solution for real world asset trading. BitShares is a platform for deploying profitable businesses with low overhead.  Its security costs are a tiny fraction of this and transactions are confirmed in an average of five seconds.

Functionality – the key functionality of Bitcoin and most of its clones is, in essence, a new form of checking account that has no counterparty risk. BitShares goes beyond that basic service to provide a wide range of other counterparty-free financial services. BitShares takes Bitcoin’s concept of an incorruptible public ledger and applies it to many profitable business models.

CT: Does BitShares offer a native currency, or just futures contracts?

KC: Yes, the native currency is called bitshares (BTS). Viewed as a mere currency, it is every bit as volatile as first-generation currencies like bitcoin. But, viewed as equity in BitShares the unmanned company, BTS value is derived from demand for the company’s incorruptible products and services. 

So BTS makes an excellent form of collateral with which to back stable smart currency derivatives and other financial products.

“BitShares derivatives have zero counterparty risk, and that makes all the difference.”

CT: Derivatives trading has a bad name after the 2008 tax-backed bailouts of bad financial actors. Why is derivatives trading with BitShares different?

KC: Derivatives have gotten a bad reputation because of the corrupt ways in which the world’s financial institutions have implemented them. Many are backed by little – if any – collateral, and there is no transparency about where all the counterparty risk may lie. 

The blockchain eliminates these opportunities for abuse through transparent backing by 200% or more collateral enforced by incorruptible open source software. BitShares derivatives have zero counterparty risk, and that makes all the difference.

CT: Do any merchants accept bitshares for payment?

KC: A few are beginning to, but we see this as Stage Two of the evolution of BitShares. Right now, we are positioning BitShares as a decentralized exchange free of counterparty risks and the costs of trading in and out of fiat all the time. 

It is not starting out competing with Bitcoin; it is offering traders and all centralized exchanges a way to protect themselves from being compromised by hackers, bad employees, and corrupt governments like we've seen with Mt Gox, BitStamp and BTER.

Over time, we expect many exchanges to offload their back-end trading engines to the BitShares blockchain where they can enjoy much deeper markets and better security while continuing to compete via their front-end user experiences and customer service.

As this happens, use by merchants will expand naturally.  There are already a dozen common shopping carts that we have provided with the ability to accept BitShares smart currencies.

CT: Does a person need to engage in futures trading to profit from BitShares, or can it also be a buy-and-hold thing?

KC: There are many ways to profit from BitShares. Just holding the core BTS asset exposes you to the growth potential of a whole new financial services industry.  

Holding one of its stabilized smart currencies (BitUSD, BitCNY, BitEUR, BitGold, BitSilver and even BitBTC) exposes you to the price movement of the underlying asset to which it is pegged. These assets also pay a yield based on how long you hold them. 

“Merchants will eventually profit from its much lower fees, instant confirmations and stability that allows them to stay in a secure digital account without paying to cash in and out with every sale.”

This enables you to construct your own weighted basket of currencies as a savings account that is hedged against the risks of holding any single fiat currency.  And you can change that basket’s weighted mix in ten seconds.

Merchants will eventually profit from its much lower fees, instant confirmations and stability that allows them to stay in a secure digital account without paying to cash in and out with every sale. Ultimately, most everyday users will enjoy the products and services via third parties