The History of BitShares

The History of BitShares

The History of BitShares as laid out by Stan Larimer

“Here are the first parts of a planned series of blog articles that will appear on the website as soon as I am sufficiently pleased with them. This series is intended to be a resource for newbies and a summary of all that has been accomplished in the past year. Think of this as the Official Year One Newsletter.”

The History of BitShares Part One

Today is the one-year anniversary of the invention of BitShares. On the second day of June 2013, a rogue entrepreneur named Dan “Bytemaster” Larimer was struck on the head by a proverbial migrating coconut. When he regained consciousness, he realized that he had invented bit-USD, the key insight that makes BitShares possible. Before sundown he had reworked his original BitShares whitepaper and published the whole new concept at

Over the next five weeks, Bytemaster engaged in a series of vigorous forum discussions defending and refining the concept. There he met Charles Hoskinson who helped to vet the idea and develop a business plan. Charles presented the plan to Li Xiaolai in China who agreed to fund the development. On American Independence Day, the Fourth of July 2013, Invictus Innovations was incorporated in the state of Virginia.

The next several months were spent bootstrapping the company and publishing articles, many of which may be found on the thread at Advice, Tutorials, and General References for Newbies.

In September, the concept of a Distributed Autonomous Company (DAC) was invented and introduced to the world in two groundbreaking articles:

Invictus introduced the BitShares Vision to the world via presentations by Hoskinson and Larimer at the Atlanta Bitcoin Conference in October 2013. It is here that the plans for Keyhotee were first introduced – an integrated multi-wallet, communication, and DAC interface application intended to defend privacy and help spread knowledge of BitShares technologies outside the crypto-currency community.

Hoskinson and Larimer parted company at this point. They each agreed to keep their reasons confidential and there is no bad blood from our point of view. The only official statement on the subject was made by CEO Bo Shen to end a minor forum firestorm here:


It is our opinion that Charles Hoskinson is the best dealmaker we have ever seen, and we miss his vision and talent for recruiting allies. No doubt he will help make his new Ethereum team very successful.

Despite this loss, all of this activity was beginning to create a buzz that would soon explode on the scene with a sequence of revolutionary innovations at roughly monthly intervals that continue to this very day.

The first was ProtoShares...

The History of BitShares Part Two

November’s Innovation – BitShares PTS

BitShares PTS (formerly called ProtoShares) was developed for an entirely different reason than what its paradigm-shattering role became shortly after launch. In fact, every one of the subsequent breathtaking innovations came about from reacting to opportunities and lessons learned from the previous month’s breakthroughs and, um, screw-ups. Necessity is the mother of invention. I wish we could say we had it all planned out in advance, but no business plan survives first contact with the market. We are merely blessed opportunists.

Initially, we were just looking for a way serve people interested in our first objective, BitShares X. A way for them to start mining and trading it early. BitShares X was first viewed as a coin backed by a built-in business that gives it more worth than the speculative value of a meme or some alternative technical implementation. In this first case, that integral unmanned business was a decentralized bank and exchange.

Yep. Your coins would now contain a bank, not the other way around.

Needless to say, this kind of second-generation crypto-company takes a lot longer to build and early adopters were growing impatient. So our plan was to just offer a plain old Bitcoin clone whose coins would be a BitShares X prototype - upgradable into BitShares X “bitshares” when it was ready to launch. We would simply initialize the first 10% of the bitshares to match all the public keys of PTS holders, giving them instant matching control of the same number of bitshares in BitShares X. This is how the concept of a protocoin was born.

We envisioned many exciting uses for protocoins. For example, they could be used as A way to separate investing in an idea from investing in one or more implementations of the idea. An incentive for competitors to cooperate on building an implementation because they could all be common stakeholders in the idea. A way to vet an idea and attract venture capitalists based upon prediction market evidence that the idea has value. A way for developers to invest in an idea and raise funding by generating growth from showing more and more evidence that they will successfully implement the idea in a way that benefits investors in the idea. A way for someone with a good idea but lacking the ability to implement it to share it and benefit from its ultimate implementation by somebody else. A way for an entire community to participate in “pre-mining” in a way that might be deemed fair (e.g. for unmanned businesses that must start out with enough currency to operate and enough credibility to get market depth on exchanges from Day One.) A more graceful “soft fork” way to upgrade to version two of a DAC by instantiating the new in parallel with the old and let the owners (shareholders) not just the employees (miners) decide when and if value transitions from the old to the new. A way to build a community and get them to cooperate on the implementation because they all have a stake in the idea. So you see, right off the bat we are talking about two assets: PTS and BTS. Before long, we would be talking about entire families of such assets. Second-generation crypto-currencies that we began to call crypto-equities because the coins also seemed like “shares” in the underlying unmanned business that gave the currency value - BitShares.

Since then, we have come to prefer the inverse of this dual metaphor:

Bitcoin is a type of crypto-company that implements a coin not BitShares as a type of crypto-coin that implements a company.

Of course, BitShares are something very different than shares in a government-created and therefore government-regulated organization. We are speaking metaphorically to help people understand how they work and what gives them value. They can still be viewed as ordinary altcoins (ok, incredibly powerful ordinary altcoins) as far as their underlying technology is concerned.

Charles Evans explored this dual metaphor in this delightful blog article:

A BitRose by Any Other Name.

We offered a bounty for an experienced coin designer to build the PTS protocoin for us. A developer known as FreeTrade answered the call. It took him about a month to clone it from the Bitcoin library. Then, while we were still evaluating his code, another independent entrepreneur known as Super3 downloaded the open-source from FreeTrade’s library and started it running. On November 5, 2013 Super3 went down in history as the miner of the first protocoin block in crypto-equity history!

POW! The rest of the world (who had been eagerly awaiting the launch based on the several months we had been writing about it) jumped on it with everything they had. It took just a few days before the competition became so intense that people had a hard time mining solo with their individual computers. They started joining pools that several enterprising businessmen quickly set up and then everyone started renting cloud computers to remain competitive. By the end of the third week, there were hundreds of thousands of mining nodes competing. Several independent coin exchanges jumped in and listed PTS, driving it immediately into the top ten of the over 100 coins listed on at the time.

So you see, we really don’t own PTS. It was launched by the industry for the industry. We just described what ought to exist, and a decentralized industry of entrepreneurs produced it practically overnight.

Of course, that moon shot may have had something to do with one small suggestion we made literally at the last minute: we decided to recommend PTS be the basis for more than just BitShares X. PTS should also be used to initialize all of the other second-generation assets we had been writing about. Mine once for a whole family of assets. Why should you have to keep mining over and over again to get a “fair” distribution?

In fact, we recommended that other developers do the same thing. Suddenly BitShares PTS was backed by more than thin air. More than just one unmanned business. More than just one company’s product line of unmanned businesses. It could well become backed by a good portion of the unmanned business industry!

BitShares PTS was valuable because as a universal prototype it was upgradable to multiple future releases like BitShares X.

Just like a good deal on Microsoft Office 1.0 might get you free upgrades on Word, Excel, PowerPoint and all the rest ...for as long as you both shall live!

To a community willing to speculate on any altcoin with a cute name, that was all it took. Now there was something tangible to speculate on. Soon crypto-currency speculators would be demanding to know every new asset’s business case.

Imagine that! We had almost accidentally changed the crypto-currency industry forever.

It was just our opening shot.

The History of BitShares Part Three

December’s Innovation – TAPOS and the End of Mining

In the weeks that followed it became increasingly obvious that the whole paradigm of mining on which the crypto-currency industry is founded was horribly flawed. While generally billed as a “fair” lottery for wide distribution of a new currency, it was clear that the ordinary guy was still at a disadvantage. Technically savvy people could use and optimize the tools - others could not install their wallet. Wealthy individuals could rent computers by the thousands - others had no computer at all. Only a very small percentage of the general population was benefitting - sucking up the lion’s share of the coins and then reselling them on the market at a profit.

Now, there’s nothing wrong with using your brains or wealth to earn a profit while contributing to society (like, say, developing a new technology), but as far as the general public was concerned, this small elite group of individuals were effectively just selling the currency into existence. Most of the general population had to buy them from the market anyway!

And even those elite few only got to keep a small percentage of what the market was willing to pay for the currency. They were required to destroy most of what they received from the market doing the electronic equivalent of digging holes and filling them back in. The whole industry was ein bisschen poco loco.

“No, wait!”, the Bitcoin-trained community protested, “burning the seed capital is the price we must pay for securing the network!”

Except the network was not really being secured. Economies of scale dictate that hashing power will always migrate toward specialized capital-intensive organizations ultimately killing the very decentralization that mining was supposed to ensure. Today, most Bitcoin mining power is concentrated in the hands of a half-dozen individuals with just two of them controlling over 51%. And they proudly collaborate “for the good of the network.”

Bytemaster recognized that Bitcoin could be viewed as an unprofitable company and its coins as stock in that company. Stock value was generally rising because demand for its services (efficient private money transmission) exceeded supply. But, meanwhile it was bleeding red ink. 100% of its transaction fees were going to pay its employees (the miners). But that still wasn’t enough. It had to print more money (up to 12% annual inflation) also to pay its employees. So Bitcoin is a company with annual losses near 12%. (And the employees were only getting to keep a few percent of the money being wasted on them.)

He decided that eliminating those employees was a key objective that would inevitably lead to a whole new generation of profitable crypto-businesses. Assets based on destructive mining would go the way of the dinosaur, unable to compete with profitable business models of second generation assets that could afford to pay dividends and interest to their holders. It was just a matter of time.

So a month after the ProtoShares revolution, around December 1, Bytemaster fired his second shot heard round the world: all his future designs would replace Proof of Work mining with a Proof of Stake derivative.

Transactions as Proof of Stake (TAPOS) and the End of Mining . An algorithm that was lightweight enough to run invisibly on anyone’s computer, for free! Mining was dead. Next generation crypto-assets would be profitable. They would be valuable because they returned a yield, rather than for superficial speculative reasons.

There were merely a few technical wrinkles to iron out...

History of Funding

Also see, Summary of Key Facts for Invictus Stakeholders

When Invictus of VA was formed under Charles Hoskinson’s term as CEO, our purpose was to create a company that would achieve all the objectives of Mr. Li as our primary investor.

(Since shortly after our founding, Mr. Li Xiaolai has held a subscription agreement that entitles him to buy 25% of our shares for a fixed price payable in increments spread out over the first year. Mr. Li also acquired an additional 1% from Charles Hoskinson in a separate purchase. This means that his total stake in Invictus is 26% of which he has completed payments on 21% as scheduled. His final payment for the last 5% is on hold pending completion of a restructuring forced by discovery of certain applicable U.S. regulations. All these shares will be equally treated.)

We had three nested tasks:

Build and launch BitShares X Build a company to Build and launch BitShares X. Build a decentralized industry in which this company could build and launch BitShares X (and many more).

Part of our task was to research the legal requirements to accomplish all of these goals.

In the process of studying the requirements in the United States we ran into a number of issues and uncertainties. In particular, there are strict rules about who can own shares of a U.S. corporation.

We recommended to Mr. Li that he ask an attorney he trusts to start over and create a company that would be able to meet all of the goals and honor all of his commitments. It has taken six months to work out all the details, after consulting with Li’s attorney and multiple U.S law firms.

We will soon be ready to release a public statement about the details, but the bottom line is that Invictus Innovations Incorporated, LTD in Hong Kong is the company we intended to create in Virginia, except with the ability to meet the needs of Asian investors better than we can here.

So, you can think of it as relocating the Virginia company, but legally they are two independent companies with independent management aiming to meet Mr. Li’s goals and obligations 100%.

The Virginia company now only handles small tasks associated with American payroll and payment processing. Further details on this decomposition into independent businesses optimized to comply with all regulations in their domains will be forthcoming.

The Great Consolidation

In the late part of 2014 it became obvious that Bytemaster had to lend his energies to other projects. People had donated AGS funds with the expectation of future DACs. With the decreasing funding due to dropping BTC prices and the requirements of Dan Larimer, the Great Consolidation occurred. Follow My Vote and DNS were merged into BTS so that all developers could be brought to work directly on one product instead of DACs all competing for users.

One outcome of this was also the addition of paying on the blockchain. Previously BitShares was a purely deflationary blockchain with dividends paid out by the burning of transaction fees. (Less currency in existence gives more value to those remaining.) With a pressing need to be the most innovative crypto-currency out there, it was determined that the Delegates needed to start paying. So the cap on Bitshares was raised to be slowly paid out similar to the inflation in Bitcoin. The rate was made to be kept under the current level of Bitcoin inflation, but delivering direct and meaningful value. Timeline of BitShares by forum announcements

In addition there are numerous threads discussing The Great Consolidation.