What is Bitshares?

Bitshares is a blockchain project that has been in existence since July 2014. It is primarily a decentralized cryptocurrency exchange as well as an open source financial platform. It was created to solve some of the inherent risks in cryptocurrency exchanges which have led to some disastrous losses such as the Mt. Gox hack and other similar hacks on other exchanges.

As much as cryptocurrencies are decentralized currencies in their very nature, storing and trading them on centralized exchanges introduces an element of centralization where the user has no control over their money.

Scores of users have lost significant amounts as a result of placing their trust in centralized exchanges. Bitshares thus created a model decentralized platform that is difficult to hack since all the data is not centrally stored. Dan Larimer who is the founder of Bitshares (and also happens to be the co-founder of Steemit and EOS) wanted to find a solution to this problem by improving on the proof of work mining algorithm.

To achieve this, he came up with the Delegated Proof of Stake (DPoS) which is a consensus algorithm that makes the system decentralized and gives it more speed and flexibility.

What is the problem that Bitshares Solves?

As we have mentioned earlier, centralized exchanges carry an inherent risk of hacking attacks as seen in the examples mentioned.

Other than this, centralized exchanges can be manipulative when the exchange controls the whole buying and trading process for the user, this presents a conflict of interest. Lastly, speed and efficiency have been a significant hurdle for many centralized exchanges and this has served as a deterrent for many would—be cryptocurrency investors.

It is never a guarantee that a user’s order will be met in good time and worse still certain actors are given preferential treatment to have their orders filled first before the rest can be considered. This takes away from the core of decentralization.

Bitshares seeks to eliminate these challenges through decentralization and delegation of some tasks. This gives the user control over their transactions, security, and privacy.

How does Bitshares solve the problem?

Bitshares has employed different technological methods to address each of the issues they seek to tackle.

Privacy

When setting up an account with Bitshares, the KYC process is not as stringent as it is with other exchanges, they will require minimal personal information from your end.

In addition, your personal data is never stored on any centralized servers making it very appealing to privacy-conscious individuals.

Volatility

The cryptocurrency market is associated with extremely high volatility. Bitshares uses something they refer to as Smartcoins to offer some form of stability to the platform.

As opposed to how many cryptocurrencies work, Bitshares has attached the Smartcoin to real value assets and the value of the Smartcoins is pegged on these assets.

Bitshares also gives users the option of converting their holding to stable cryptocurrency assets which are attached to fiat currencies.

In Bitshares, users do not necessarily have to convert their cryptocurrencies to fiat and this helps in maintain user anonymity. For example, the BitUSD is pegged on to the US dollar at a ratio of 1:1. These features create stability on the Bitshares platform.

Scalability

Bitshares uses an open source blockchain consensus mechanism known as Graphene it is said that Graphene can process up to 100,000 transactions/ second which is more than what Visa and Mastercard can handle combined. With this technology, Bitshares is highly scalable and efficient.

Efficiency in mining

As mentioned earlier, Bitshares uses a modified verification method referred to as the Delegated Proof of Stake mechanism to verify transactions. The traditional proof of work or proof of stake algorithms are highly resource intensive, making it difficult for users to keep up with mining requirements.

This, in turn, creates a form of centralization where mining is left in the hands of a few financially able miners. This is especially true with the advent of the ASIC mining chips.

In this model, users are rewarded for holding onto (staking) their coins but in addition, they are allowed to delegate their stake to others. This creates a governance layer.

The user can delegate their stake to others who act as witnesses and they verify transactions. Since only a few nodes (witnesses) are involved in the verification process, the system becomes more efficient and less time-consuming.

Since the witnesses can be elected out at any given time, decentralization is still maintained in the system.

Decentralized Exchange

One of the weaknesses of centralized exchanges is that they handle all order matching functions, fiat, and IOUs and hold the cryptocurrency assets for the users at the same time.

The first poses the risk of conflict of interest where the buyer is still the broker and the seller. Secondly, since all these data is stored centrally it creates a potential target for hackers.

Bitshares has circumvented this risk by introducing a trustless gateway to handle buy and sell orders while transferring the coins to the user’s personal wallet.

These transactions are all recorded and verified on the blockchain. Unlike other exchanges, Bitshares does not hold private keys for users and this keeps them in full control of their funds.

So in a decentralized exchange, the user has full control over the security of their assets and risk of hacking is minimized unless the user compromises the security of their private keys.

What makes Bitshares better than its competitors?

Unlike other cryptocurrency exchange platforms such as Bittrex, Bitfinex, and Poloniex, Bitshares is a decentralized exchange that allows users to be in full control of their digital assets.

Bitshares is also highly scalable due to its utilization of a technology known as Graphene. Graphene is capable of handling up to 10,000 transactions/ second.

The DPoS verification method also makes it very cheap to transact on Bitshares. This means that you can use Bitshares to but extremely cheap items as the fees are considerable.

An investor can also make profits from small trades as the fees charged are negligible, you cannot do this on other major exchanges as the fees charged are prohibitive.

How can Bitshares be categorized?

Bitshares is first a decentralized cryptocurrency exchange platform. It is also a digital currency, token issuance platform, crowdfunding platform and voting platform.

Bitshares and its vision on security

Bitshares uses the Delegated Proof of Stake model to decentralize transactions.

This shifts the intricate data from one central point on the exchange to different points controlled by the user. In this way, it is very difficult to experience Bitshares hacks.

This is a great security feature that also protects the privacy and anonymity of its users. In addition to decentralization, Bitshares gives further security to its users by significantly reducing the volatility on the platform through issuing Smartcoins.

Every Smartcoin on the Bitshares exchange is backed by a 200% reserve. All the reserves are held as BTS and securely stored on the blockchain. With this reserve system in place, users and investors are assured of the value of their holdings at all times.

Examples of Bitshares use cases/applications.

Bitshares is a decentralized cryptocurrency exchange platform that allows users and investors to trade in a secure and efficient manner. It can handle the trading volumes of NASDAQ if not more and with even greater efficiency.

Other than this, it can also be applied to numerous other segments of the economy. Below is a list of use cases for user issued assets on the Bitshares platform:

1. Deposit receipts

Traditionally banks are tasked with the responsibility of issuing deposit receipts. Banks maintain a database of their customers’ financial holdings and use this to facilitate transfers as instructed. Companies such as Paypal issue deposit receipts and offer cheaper cash transfer services between banks and their customers. Bitshares can hold these customer databases on the blockchain and issue deposit receipts in a way that is faster and cheaper.

2. Customer verification

First and foremost the issuer must know every single customer. BitShares supports this by enabling both whitelists and blacklists. Rather than requiring every issuer to whitelist every customer separately, an issuer may specify a set of identity verifiers that they trust to do this job. This allows issuers to benefit from the network effect of validated users without having to do any direct identity verification themselves.

When an asset enables whitelist, no account may send or receive that asset without being on an authorized whitelist. An accounts fund can be frozen by removing them from the whitelist.

3. Asset seizing

From time to time, an issuer may be required to seize funds as a result of a court order. While this may be unappealing to cryptocurrency purists, it is an unavoidable reality of trust-based assets. An issuer can determine whether or not they wish to revoke this privilege, but it may be a requirement in some jurisdictions.

4. Market restrictions

An issuer who offers both USD and EUR deposits may need to restrict direct trading between their USD and EUR assets to avoid being subject to foreign currency exchange regulations. Some cryptocurrency exchanges allow trading between fiat and cryptocurrencies, but not between two fiat currencies. Without this feature, many exchanges would be unable to issue their assets on the BitShares blockchain.

5. Transfer restrictions

With the Bitshares exchange users can transfer funds from user to user without restrictions imposed on them. This is unlike most cryptocurrency exchanges that have restrictions on transfers of funds outside the market as this is subject to a lot of asset transfer reglations.

6. Bitshares (BTS) as collateral

The Bitshares BTS can be used as collateral for a bond or in smart contracts as the SEC allows corporate shares to be traded on alternative trading systems.

7. Event ticketing

Event ticketing has also gone digital as this makes it reach a broader audience in a way that is economical and efficient. If an event organizer chooses to employ user- issued assets to sell an event, they will have transferred the risk to the audience by auctioning the tokens to the highest bidder who will then resell them to the intended audience.

This will make it possible to raise a lot of money upfront and the issuer can then freeze the token sale on the day of the event and allow the audience to cryptographically check into the event.

8. Crowdfunding

Crowdfunding has also gone digital and issuing an asset is one of the most effective ways to raise money. This makes it very efficient and affordable to issue digital coupons and other digital assets as rewards or hooks for crowdfunding.

9. Digital property

Converting physical assets to digital assets and issuing them securely on the blockchain is another way to utilize Bitshares platform. Software and music licenses can be created on the blockchain and issued to users for immutable record keeping so that even if the business or individual issuing is nonexistent in the future, the transaction and certificates will still be available. The same goes for trading cards and online games that can be simulated on the blockchain.

10. Stable cryptocurrency

Smartcoins were a primary inspiration of Bitshares, to tame the volatility associated with the cryptocurrency market. With Bitshares, users can select a given high-value asset such as gold and use it to create a price stable digital asset that is fully collateralized.

This is very appealing to a broad range of investors who may wish to venture into cryptocurrency investment but with some form of assured security. To further enhance the security of the Smartcoins, Bitshares sets parameters such as market restrictions, transfer restrictions and whitelists to safeguard the interest of the investor.

With the recent hacks on major cryptocurrency exchanges, Bitshares has a unique product to offer to the market.

Additionally, Bitshares offers a stable coin, a feature which is currently “hot” in the cryptocurrency market. Lastly, unlike other cryptocurrency exchanges, the Bitshares DEX has no limits on daily trading volumes.

Other exchanges impose limits based on the personal information given away and parameters of financial standing. Not so with Bitshares as the platform has no account approval process in the first place.

What is Monero?

Monero is an open source blockchain platform that provides a secure, private and untraceable system for transactions. Monero uses a cryptographically sound system that allows users to send and receive payments across its network with complete privacy.

This creates a form of security and confidence for users who value privacy when it comes to their financial transactions.

Monero is a community project that is fully owned and controlled by a community rather than an individual. The initial developers who created what we now know as Monero comprised of a team of 30 core developers.

Over time more than 200 other developers have played significant roles in creating Monero. They have an open policy where everyone interested in positively contributing to the project is welcome to join and give suggestions to the team.

This is also a beneficial factor for Monero as no single government can control the project or limit any of its actions.

Taking us back a little bit, Monero was created back in April of 2014 by Nicolas van Saberhagen. He could be the same person who later launched it on Bitcointalk forum under the username “thankful for today”.

The Monero community took over from there and now play the leading role in determining the course of the project. Since its original launch, Monero has migrated the blockchain to another database structure, improving flexibility and efficiency.

The developers also set minimum ring signature sizes to make all transactions private, and RingCT was added, hiding all transaction amounts.

Almost every improvement made so far has made Monero easier to use or enhanced security and/or privacy.

Monero is able to make transactions untraceable to their origin and destination hence you cannot link a particular transaction to an individual address or account.

The technology that allows this is called ring signatures which we shall be examining later. But what it does is to mix up users’ addresses and break transactions down so that you cannot trace the exact origin of a transaction or the full details of each transaction.

The whole system used by Monero is set up to ensure privacy for its users. A spend key is used to send funds while a view key is used to allow others to view transactions on a given account. The view key which may be helpful say for tax purposes or in any event where the user deems it necessary to share the details of a transaction.

Monero is designed to work with all major operating systems such as Windows, Mac, and Linux and most importantly it is open source meaning that it anyone can make use of the software.

 What is the problem that Monero Solves?

Blockchain technology has had a wide appeal because of the decentralization, trustlessness and the anonymity associated with the technology. But unfortunately, Bitcoin with other emerging cryptocurrencies have not managed to offer a decent level of anonymity, this is because transactions can always be traced back to the user’s address which ultimately can be linked to the real-life person.

Additionally, the Bitcoin network is a transparent ledger meaning anyone in the network can view the transactions of any given address and monitor the activities of an address they have access to.

An example: say J is a supplier and he sends his address to L so they can transfer to them some Bitcoins as payment for goods supplied. L will be able to view the transactions made by L and the number of Bitcoins that L is holding. If J knows the real life identity of L, they can determine their financial standing from this information.

This may not be a good thing for business; hence the need for privacy and complete anonymity in cryptocurrency transactions, and that is where Monero comes in.

Monero has used several techniques to go around this problem, of course not with 100% success, but they have made significant enough strides to place them among the top cryptocurrencies in the market.

Other than the privacy issue, Monero has also sought to tackle the issue of speed and high fees associated with the bitcoin network.

How does Monero Solve the problem?

In a nutshell, this is how Monero tackles the privacy problem;

Just like with Bitcoin and other cryptocurrencies, Monero issues a public address which is a sequence of random characters. If someone needs to send you some money, you will give them your public address to use, but unlike other cryptocurrencies, they will not be able to view the details in your account.

This is because each time someone is sending funds to your account, the system generates a brand new unique address that is used just once.

This means that the public ledger does not contain direct information on the details of each transaction at any given time, creating opacity of some sorts. Same applies to when you send out funds.

The public record will never show that a given transaction originated from a given public address. Instead, a stealth address is created allowing only the recipient of the funds to know that a certain amount of funds has been moved to them.

The recipient will use their private key to confirm that certain funds have been transferred to them at a given time. Because they are the sole owners of the private key, only they can see the transaction/ incoming funds.

Also, when a second transaction is made, there is no way to tell that a certain account is the same recipient of both transactions. The two transactions appear to be having unique recipients due to the stealth address generated each time a transaction is made.

However, you can share your private key to allow others to see the transactions in your account, at your discretion.

So how does Monero protect the privacy of the sender?

Using the example above, when you send money to a recipient, they can be able to view all your transactions, the addresses you have transacted with and how much bitcoin you have transacted.

So Monero tries to protect your sender address by the use of something called ring signatures.

Ring signatures work by jumbling up different addresses to conceal the true address from where the transaction originated from, this is called transaction mixing.

The sender will randomly select several other addresses that will appear as possible originators of the transactions, some of which may be off line at the time. So it will not be possible to pin a given transaction to a certain address.

The sender has the option to select the “mixing level” or the number of potential addresses added to the ring, but the fee charged for this transaction will increase commensurately.

Another advantage is that due to these cryptographic methods, the sender of funds is not able to know whether the receiver is spending the received funds or not.

This is because the receiver’s address could be randomly included as a potential sender in different transactions when in truth they are not taking part in any of them. It may appear as if a particular account has been very busy making transactions while in reality, they have been very passive.

Another additional technology employed by Monero is the Ring CT which went live on Jan 10^th 2017, this disguises the exact amount of funds being sent. The amounts are broken down into fragments so that only the sender and recipient can tell the exact amounts transacted at a given time.

There is also project Kovri which is ongoing. This is all about complete privacy so that it would not even be possible to tell if a user is even using Monero in the first place. This will be achieved by routing the entire user’s Monero traffic through the Invisible Internet Project (I2P) which conceals the messages and final destinations of the messages. This will make it impossible for another party to track the Monero transactions of a user in any way.

This technology by Monero could potentially become the ultimate privacy solution for cryptocurrency transactions.

Monero units are also fungible, meaning that each unit is the exact replication of the next. Compare this to bitcoin. The transaction history of each bitcoin is recorded on the blockchain. If a certain bitcoin is traced to have been spent on illegal activities such as gambling, poaching, fraud or theft, that bitcoin will be blacklisted.

Anyone who eventually comes into contact with that particular bitcoin will be exposed to the same risk or loss. Monero, with its fungible units, offers participants a much safer network where they don’t run the risk of having their held units blacklisted for crimes they themselves did not commit.

But one question arises from having an “opaque” blockchain; if transactions are not visible to all network participants, then how can you prevent double spending?

Monero takes care of this by encrypting each ring signature so that it is recognizable when a user tries to double spend.

What makes Monero better than its competitors?

Zcash is the closest competitor to Monero in the privacy space. Monero has been in the market for longer and has managed to build a stronger community around it receiving greater support.

While Zcash allows users to choose whether to make a public or private transaction, Monero is an all private network.

For Monero this means the effectiveness of the privacy methods will increase over time.

Also fungibility, Monero coins are fungible while Zcash coins are not. Fungibility protect the coins held by investors as they cannot be linked to an illegal activity.

In comparison to Bitcoin and other altcoins, Monero offers a superior advantage  by offering privacy and anonymity of transactions, even going further to completely dissociate the user from Monero through the project Kovri.

How can Monero be categorized?

Monero is first a digital currency then a privacy coin.

Monero and Security

Being a privacy coin, Monero has gone out of its way to ensure security on its platform.

Firstly, security is offered by the technology behind the blockchain itself which is a trustless and decentralized network. All transactions in the network are verified in a concensus model and immutably added to the blockchain creating a form of permanence for transactions.

Once funds are transferred, the transaction cannot be undone and the records remain on the blockchain. On Monero, ring signatures, stealth addresses and RingCT are technologies used to protect the identities of users in the network. Monero affords users the security benefits afforded by the blockchain without having to concede their privacy for it.

These cryptographic technologies obfuscate the details of the financial transactions so that no one can tell how much you are holding, receiving or sending through the network.

This is a security feature for individuals and businesses which value the privacy of their financial transactions and holdings.

The other security feature of Monero is fungibility, this means that all XMR units are identical and one cannot be differentiated from the next.

Take another example where a unit of XMR has been used for an illegal activity and ends up with you legitimately. If that unit could be blacklisted for being involved in the said criminal activity then the user would be at loss. But this does not apply to Monero as all XMR units are fungible.

Examples of Monero’s use cases / applications.

Monero first appeals to users who value privacy. Unfortunately, it has been associated with the “dark web”  where users would want to launder their illegal proceeds.

As that could be a genuine concern, many business people would prefer to conceal their transactions for business reasons that may not be illegal.

Monero has been used as a digital currency to buy and sell goods and services. It has also been used to transfer money globally in a cost effective way. It has also been used as a trade vehicle on cryptocurrency exchanges. Lastly, you can mine Monero as a source of income.

For Monero, the privacy of transactions remains pivotal.