Bytemaster's Blog

How BitShares Works

How BitShares Works

Posted by logicalgrackle on .

How BitShares Works

Posted by logicalgrackle on .

BitShares is a platform for stable value cryptocurrencies. There are now digital versions of dollars, yuan and gold that have the same prices and stability as their counterparts, but with all the advantages of cryptocurrencies. You can send them anywhere in the world for miniscule fees, and you have full control over your money, so it isn’t frozen or lost when the banking system runs into crises. You need to understand how these BitAssets work so you can take advantage of price stability on the blockchain.

Market Peg

The BitShares blockchain has its own native currency called (lowercase) bitshares. Like bitcoins, bitshares have a maximum supply with inflation that decreases over time. Bitshares have a volatile price, but the BitShares system allows stable BitUSD, BitCNY and BitGold (and several more BitAssets) to be created using bitshares as the collateral that backs them and gives them value.

BitUSD, for instance, has a stable value because of the way it’s created and destroyed. It’s created by people who are betting that bitshares will increase in value versus dollars in the next thirty days. The speculator effectively makes a short trade on margin by putting up collateral of $2 worth of bitshares to create $1 of BitUSD. That 1 BitUSD is purchased for the equivalent amount of bitshares (let’s say that’s 100 bitshares, for example), then the BitUSD is released into the economy for trade. Now there’s 300 bitshares of collateral worth three times the value of a dollar locked on the blockchain. If the value of bitshares drops too much, the blockchain forces the speculator to buy a BitUSD with the locked collateral, which destroys the BitUSD and results in a loss for the speculator—she’ll pay 120 bitshares for a BitUSD and only have 180 left instead of the 200 she put in. If the value of bitshares goes up, the speculator can realize her gains by buying a BitUSD, destroying it, and keeping the remaining collateral—she’ll pay 80 bitshares for a BitUSD and have 220 left, more than the 200 she put in. These trades result in a crypto-USD with a stable value. Anyone who wants stable value puts in $1 of bitshares and gets $1 of bitshares out, backed by the speculators and Bitshares’ open source, auditable algorithm. It’s so stable that BTC38, a Chinese cryptocurrency exchange, will accept BitCNY and add regular yuan to your balance.


BitAssets also pay yield to people who own them. It’s like earning interest on bank deposits, but since the yield comes from market fees that vary, it’s more like dividends than interest. When speculators borrow bitshares to create BitAssets, they don’t get to borrow that money for free. The blockchain chooses the order with the highest interest rate, and that interest is paid to people who own that BitAsset. People who buy BitGold are getting an asset that tracks the price of gold, pays yield, and is guaranteed by the blockchain and its 300% collateral. Compared to gold deposits that depend on the issuer staying solvent and require bank transfers to redeem, the choice is clear.

Better Money

BitAssets are better money. Today, the primary users are cryptocurrency traders who want to take their gains in stable currency, but prefer to trust their funds to a blockchain rather than an exchange. Soon, merchants who like cheap transactions but don’t like volatile currencies will learn that they can have both with BitUSD. Some were surprised when currency crises around the world drove people to buy not bitcoins, but durable goods like cars and appliances to try to retain some stable value. Bitcoins are too volatile to be a practical option, but BitAssets are as good as gold—or dollars, or whichever pegged asset they prefer.

I hope you now know enough about BitShares to know what you learn about next: how the market pegs work, how to earn yield on BitAssets, and how to buy bitshares to be a part of this huge revolution in money. Price stability was the best argument against cryptocurrencies. I don’t think there are any good arguments left.

Related Articles: What are BitShares Market Pegged Assets?

What is BitShares?

Recommended by Bytemaster

      (see more...)



My name is Daniel Larimer and I am the founder of BitShares. My mission in life is to find free market solutions to secure life, liberty, and property for all.

The purpose of this blog is to help create a free society by encouraging people to join our community which is centered around Bitshares, a next generation fully decentralized crypto-currency exchange. I use Austrian Economics to engineer the economic incentives which make freedom and non-violence profitable.

Help spread the word.

Featured posts

Recent Articles