BitShares is a blockchain-based platform for creating decentralized exchanges. Its built-in Decentralized EXchange, the DEX, lets you trade in a variety of derivatives that track fiat currencies, Bitcoin and several altcoins. This BitShares review will explain whether the innovative exchange delivers for traders.
- Available worldwide 24×7.
- Nearly instant trade execution.
- Fast, easy signup.
- Secure, decentralized structure.
- Sluggish web app.
- Most major altcoins not supported.
- Limited liquidity.
- Cannot deposit fiat currency.
- Requires use of another service to deposit/withdraw funds.
Founded in 2013 by entrepreneur Dan Larimer, his father Stan Larimer, Bitcoin pioneer Charles Hoskinson and Chinese investor Li Xiaolai. They founded Virginia-based Invictus to bring the Larimers’ concept of a distributed autonomous company, or DAC, to life.
Many policies and processes of a business can be defined by instructions software can execute automatically. BitShares uses smart contracts to run all of the processes of an exchange on its blockchain. As a result, the business operations are distributed globally as a DAC. There is nobody “in charge” of the DAC. Decision-making becomes decentralized as owners of BTS, the blockchain’s token, vote on the exchange’s direction.
The Larimers, with Hoskinson’s advice, developed the BitShares platform over the course of 2014 and into 2015. They released “BitShares 2.0” in June 2015. With that release, the core development team gave up control of the project and handed decision-making to the BTS-owning community.
Making sense of things
One of the downsides of a fully-decentralized system is that it can be hard to figure out. Understanding BitShares requires an introduction to three nested systems.
Graphene is a blockchain development library that lets people create DACs. Graphene-based DACs do not use a network of miners to record transactions onto the blockchain. Instead, a network of delegates is given the power to process transactions in a delegated proof-of-stake system.
Relying on proof-of-stake avoids the environmental consequences and concentration of power that exists in Bitcoin’s proof-of-work system.
BitShares is a DAC implemented on a Graphene blockchain. The BTS token gives its owners voting rights in all decisions regarding the spending of BitShares’ resources, setting of transaction fees as well as future developments. The BTS is also the “currency” of the BitShares ecosystem which is used to reward contributors and for users to pay fees.
BitShares is also an open source platform that other groups can use to integrate digital wallets, crypto exchanges and other DAC’s into the BitShares ecosystem.
The BitShares DEX is the digital wallet and decentralized exchange that the BitShares DAC operates. With its decentralized structure, the DEX operates around the clock and around the world. The underlying blockchain operates so quickly that trades get executed almost instantly.
Entire businesses and value chains are being built on top of BitShares and the Graphene blockchain library. The Muse database, for example, is an open and transparent system for royalties in the music business. Our review, however, will focus on BitShare’s DEX and how to use it to trade fiat, cryptocurrency and other digital assets.
Leadership and investors
Decision making in BitShares is completely distributed. There is no executive team. Anyone who owns the BitShares token, BTS, can vote on how to spend BitShares’ resources and which development projects should take priority.
The Larimers are still involved in the community through their company Cryptonomex which provides Graphene development services to companies that want to create a DAC.
Charles Hoskinson advised the Larimers in BitShares’ early years, but left the company over differences of opinion for how the project should evolve. Hoskinson went on to co-found Ethereum and left it when his co-founders wanted to keep it a decentralized operation. “At the time I was pretty pissed off,” Hoskinson told Forbes. “Ether went up [to a market cap of] $120 billion, so what the hell do I know?”
Regulatory issues in the United States place limits on how much of Invictus a Chinese national like Li Xiaoling can own. The founders to reincorporated their headquarters in Hong Kong as Invictus Innovations Incorporated (I3).
Protecting customers’ coins
Decentralization is the way BitShares protects users of the DEX. The digital wallet is completely local. It only exists on the owner’s computer.
Legal and regulatory compliance
You won’t find any statements about regulatory compliance on the BitShares site. Traders on the DEX must understand the regulations set by their local government. This can be tricky because the DEC has instruments called “User-Issued Assets” which could, depending on their design, be treated as securities by regulators.
Especially in the United States, regulators treat securities and commodities differently. Securities are ownership stakes in a company that have their own sets of rights and much more extensive regulatory requirements. Commodities, on the other hand, are things that are bought and sold. To avoid being subject to the strictest regulations, many exchanges avoid dealing in tokens that could be classed as securities.
Since governance of BitShares is completely decentralized, it’s difficult for government regulators to target anyone in an investigation. That and other issues led the crypto exchange Bittrex to delist the BitShares token BTS.
The BitShares community recognized that the absence of a single voice was hurting them and responded by creating the BitShares Blockchain Foundation. The BBF is now working with regulatory experts, especially in the United States, to ensure that the BitShares ecosystem stays clean in the eyes of the regulators. However, the BBF does not control the BitShares site, which may lead to future confusion.
Coin listing policies
BitShares does not have a formal policy on which cryptocurrencies appear in the DEX since it does not create the listings directly. Those decisions are made by the third-party services that choose to create tracking derivatives (see below in What Can You Trade on BitShares).
The BitShares wallet lets you set different permissions levels. Owner Permissions have full control over the entire account. Active Permissions, on the other hand, can only access a limited number of settings while still having the ability to trade funds. In both cases, the permissions are secured using elliptic curve cryptography. This is a much more efficient encryption technique than the system Bitcoin uses, requiring significantly less processing power for the same level of security.
Conducting your day-to-day trades using Active Permissions rather than the full-access Owner Permissions can offer some additional security for the individual trader. However, the structure comes into its own when multiple people share a BitShares account.
BitShares lets the account owner assign Active Permissions to each person. In this form of multi-signature authorization, no single person can transfer or commit the money.
There are two sources for self-help: the BitShares/Graphene documentation site and the help pages in the digital wallet/DEX interface. Both can be confusing for the novice, but the DEX help pages are more focused.
Consistent with its decentralized nature, there is no customer support group for traders on the DEX. Users can turn to several online communities including the BitShares subreddit and the bitsharestalk forum.
Given how long BitShares has been around and the innovative role it played in creating distributed business models, the company does not get as much press or commentary as the centralized exchanges.
A post on the BitShares subreddit by “cryptosapien” gave one take on why BitShares still flies beneath the radar:
- No central marketing team.
- The complicated user interface discourages new users.
- Low liquidity in most DEX markets.
Further comments in the discussion pointed out the sluggish performance of the DEX/digital wallet interface as well as the absence of major altcoins like XMR.
Who can join?
Anyone in the world can create a BitShares digital wallet and trade on the DEX. However, it is up to each individual to determine whether they are in compliance with local laws.
BitShares does not have a verification process.
As mentioned in the reputation section, the DEX suffers in the eyes of crypto traders for the absence of major altcoins. BitShare’s May 2018 State of the Network report listed the top markets on the DEX. The highest trading volume was for the BTS token itself. The next two highest markets were “smartcoins” that track the US dollar and Chinese yuan.
These top three markets accounted for nearly 84% of the DEX’s trading volume.
The DEX does not support Bitcoin or altcoins directly. Instead, you trade smartcoins that track the value of Bitcoin, Ether or other cryptocurrencies. However, only four of the ten largest cryptocurrencies are on the DEX.
As with the cryptocurrencies, you cannot trade fiat currencies directly on the DEX. A form of smartcoin, called bitAssets, track the value of the fiat currency. The bitUSD, for example, tracks the price of the US dollar.
Also like the cryptocurrencies, you can go to exchanges like OpenLedger to cash out of your fiat bitAssets.
When you go into a particular market, you can place simple buy or sell orders.
BitShares lets you short-sell bitAssets, such as the bitUSD or bitCNY, by borrowing from the network. You can also trade on the prediction market, to bet on the outcome of specific events such as an election.
Trading Tools and Fees
The only thing you need when creating an account in the BitShares wallet and exchange is a user name. No email address or other personal information is needed. Once you’re set up, you arrive at a listing of featured markets in the DEX interface.
Selecting one of the markets takes you to a traditional display of market trends as well as forms for placing buy, sell or short orders. The time series chart has some limited analytical tools, but nothing as advanced as those in centralized exchanges like Kraken.
Navigating through the interface can be an exercise in frustration as the transitions take as long as ten seconds to appear.
Mobile app support
BitShares does not have a mobile app.
Deposits and withdrawals
There are no fees associated with depositing or withdrawing funds into your BitShares wallet. However, you cannot make that transfer directly. Instead, you have to go through a bridge or gateway service like GDEX or OpenLedger. Those services may have fees of their own.
None of the services mentioned above support fiat deposits. OpenLedger did at one point, but has suspended fiat deposits and withdrawals.
Each bridge or gateway service supports its own unique combination of cryptocurrencies.
The DEX charges a flat fee, quoted in BTS, for each trade. You can pay the fee in BTS, US dollars, Bitcoin or Gold. However, refunds for fees on canceled orders are only paid in BTS. Right now the cost of placing an order is 0.00578 BTS — less than $0.02 at the current USD/BTS exchange rate.
In the case of User-Issued Assets, the creators of the UIA may set fees that you pay when an order is filled.
A fee also applies when you transfer BTS to another BitShares user.
BitShares was an early pioneer in the concept of distributed autonomous companies. The creation of the DEX demonstrates how companies can go about creating a DAC either within the BitShares ecosystem or separately using the Graphene blockchain library.
As an exchange, however, BitShares has several weaknesses, from a sluggish UI to low liquidity, that its decentralized community has yet to overcome.
For new traders
Several aspects of BitShares can turn off new users. The browser-based interface is confusing and sluggish.
On top of that, there’s the requirement to use third-party services to make deposits in the BitShares wallet. If you have to use OpenLedger anyway, you might as well do your trading there rather than on the BitShares site.
For advanced traders
BitShares offers margin-based short-sales and prediction market betting. However, the limited number of altcoin markets and the low liquidity could be a turn-off for experienced traders.