Everything you need to know about BitShares technology
BitShares is a decentralised cryptocurrency trading platform. It was created in 2014 by Dan Larimer, co-founder of cryptocurrency EOS. In parallel with BitShares, Larimer created “delegated proof of stake” (DPoS), a new type of consensus protocol technology that underpins the exchange.
Any cryptocurrency exchange or trading platform functions in much the same way as a traditional stock exchange. Users can buy or sell their cryptocurrencies as the prices rise and fall to make a profit. There are two main types of cryptocurrency exchanges: centralised and decentralised.
A centralised exchange is an exchange that is hosted on webservers in one location. Much like a website, if the exchange’s servers go down then the entire exchange can go offline. Centralised exchanges have also proven to be targets for hackers. Coinbase and CoinJar are examples of centralised exchanges.
The other type of exchange is known as “decentralised exchanges” or DEX. The cryptocurrency trading services on a decentralised exchange are usually hosted in the cloud or facilitate direct “peer to peer” trades between users.
Due to high profile hacks of centralised exchanges, decentralised exchanges are becoming more popular. BitShares is one of the most well-known and widely-used decentralised exchanges.
Delegated Proof of Stake – the technology behind BitShares
The technology underpinning BitShares is the protocol known as “delegated proof of stake” (DPoS). DPoS uses real-time voting combined with a system of reputation to achieve consensus. It was essentially designed to prevent unwanted regulatory interference.
DPoS was also created as a response to Proof of Work (PoW), the consensus protocol that underpins Bitcoin mining. PoW was seen as wasteful of energy, in danger of becoming centralised (Larimer predicted giant mining pools being in control of the Bitcoin network) and was too slow to scale effectively.
Advocates say DPoS is the fastest, most efficient, most decentralised, and most flexible consensus model available. The company itself claims it “leverages the power of stakeholder approval voting to resolve consensus issues in a fair and democratic way”.
Everything from fee schedules, block intervals and transaction sizes, can be approved via elected delegates. The streamlined method of electing block producers allows transactions to be confirmed in an average of just one second.
How DPoS works – stakeholders, witnesses and delegates
You need to understand three things: stakeholder, witnesses, delegates. Here goes:
A DPoS system is rather like a representative democracy. Anyone who holds net BTS, the network tokens, are called “stakeholders”. Stakeholders are able to cast votes to elect block producers. Block producers are sometimes called notaries, validators, forgers, or witnesses.
Witnesses are responsible, and rewarded, for adding blocks to the blockchain. Each stakeholder is only permitted one vote per witness, with witnesses with the most votes being elected. However, stakeholder’s vote strength is determined by how many tokens they have. This means that stakeholders with more tokens will influence the network more than those who own very few.
The voting for witnesses is a continuous process, therefore, witnesses have an incentive to carry out their function to the highest standard or they risk losing their position. A reputation scoring system exists in order to assist stakeholders in better assessing the quality of witnesses.
A group of witnesses are typically replaced at a fixed time, e.g. once a day or once a week, with each witness being given a turn to produce a block. Failure to produce a block at the allocated time will typically result in a witness being skipped, as well as negatively affecting their reputation score.
Another key DPoS features is the election of delegates. Delegates are elected in a similar manner to witnesses, however, delegates are responsible for maintaining the integrity of the network itself and can even propose fundamental changes.
Examples of such changes include: block sizes, the amount that witnesses are paid and the overall transaction fees. Once these changes have been submitted, it is then up to the stakeholders to decide whether or not the proposed changes should be approved and then implemented.
Efficiency derived from Graphene
BitShares is built on top of the Graphene blockchain, an open-source blockchain implementation based on the C++ programming language. Many contend that Bitshare’s inherent features and efficiency are a direct result of Graphene.
Graphene enables transaction speeds of up to three seconds and has the potential to scale to 100,000 transactions per second in the future. To put this in perspective, this would enable the BitShares network to carry out more transactions than both the VISA and Mastercard networks combined.
BitShares and SmartCoins
SmartCoins are another key feature of BitShares and also one of the main reasons behind its stability. A SmartCoin is a cryptocurrency whose value is pegged to that of another asset, such as the US Dollar or gold.
BitShares users can stabilise any of their holdings by converting to stable cryptocurrency assets which are pegged to fiat currency – such as the BitUSD, which is pegged to the US dollar at a rate of 1:1. This keeps the value stable at all times, protecting users from volatility, and it also serves to keep assets on the blockchain.
Critics argue that this has not yet been proven. Writing in Coin Telegraph, Anatoly Knyazev, computer scientist and founder of the first bitcoin-only hedge fund said: “BitUSD was the first to try and achieve stability through a reserve fund – in their case through the BitShares cryptocurrency – but that wasn’t enough to stabilize the exchange rate at $1.”
However, the company itself says: “SmartCoins always have 100% or more of their value backed by the BitShares reserve core currency, BTS, to which they can be converted at any time at an exchange rate set by a trustworthy price feed. In all but the most extreme market conditions, SmartCoins are guaranteed to be worth at least their face value”.
Single log in
A key advantage of BitsShares for traders is that all trading platforms based on BitShares have the same log ins, so you can trade on different BitShares based trading platforms without re-registering.