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Bit20 : Composition, revision and history


WHAT IS AN 'INDEX FUND' ?


COMPOSITION

Choosing how many cryptocurrencies would be included in the index

Including ten cryptocurrencies was our first approach for the index, however we thought that we were overlooking some interesting projects currently ranked in the 11th - 20th range, so even if the market capitalization of these coins is lower than the top 10 cryptocurrencies we felt they deserved to be part of the index since they have a lot of growth potential, we incorporated these coins with less weight on the Bit20 index and we left out coins below the top 20.


Exceptions

Ripple was intentionally excluded from the index since it constitutes a private and centralised institution, it is not considered a cryptocurrency and it is similar to a bank using the blockchain technology. Future bank cryptocurrencies won't be included either.

The derivatives of real assets based on a cryptocurrency won't be part of the index. The reason is simple, a derivative is a copy of the underlying asset price. This asset doesn't represent the value a cryptocurrency project, thus, it doesn't belong in the index.
We won't includes Tether (copy of the dollar), DigixDAO (gold bullion), BitUSD, BitCNY, BitSilver, ...


Percentage by coin

If we added the total market cap of the top 20 cryptocurrencies, we would obtain the total market capitalization of all of them. If we were to use the respective percentage of each cryptocurrency in the top 20 to define which part of the index they should have, we would end up with an index moving in parallel with Bitcoin which represents around 80% of this total market cap of all these coins.

Therefore, we opted for using the same system applied by traditional indexes which consist in having a maximum percentage by asset inside the index. So we proceeded by topping the first one, Bitcoin, at 10%. It left us with 90% to share on the remaining total market capitalization of the last 19 cryptocurrencies. Litecoin (july 2015) was the second biggest one and it also represented more than 10% of the total, so we capped it too. The same process was done to all of the 18 remaining cryptocurrencies, only the few biggest coins reach 10% and the vast majority have percentages going from 9% to 1%.


Initial value

Having the distribution well balanced was a precise task to do. To give a value to the index, we just had to arbitrary chose one. It could have been one dollar, the price of a cereal box or the national debt of a country. To keep things simple and elegant, we chose to gave to our index the price of an ounce of gold on his birthday date, the 21 of july 2015.

The average of several sources on the gold price created the initial value of Bit20 at: 1103.4733333333 USD.

With this value in mind and the percentages of each cryptocurrencies in the index, we can determine how much of each cryptocurrency will constitute the index.


Composition of the index on the 21th of july 2015


Cryptocurrency

Market capitalisation

Percentage

Quantity of coinsValue in USD

bitcoin
4036218085 USD10.000000000000 %0.39385849067828 coins280.17 USD
litecoin162061171 USD10.000000000000 %27.865488215488 coins3.96 USD
dash20577892 USD10.000000000000 %29.985688405797 coins3.68 USD
dogecoin17363437 USD8.8549963577266 %564812.27442284 coins0.000173 USD
stellar14575729 USD7.4333225159403 %27223.608278813 coins0.003013 USD
maidsafecoin13968800 USD7.1238011876227 %2546.7083430557 coins0.030867 USD
bitshares13295265 USD6.7803121668832 %14135.449967563 coins0.005293 USD
banxshares12949699 USD6.6040806021674 %38.762908700403 coins1.88 USD
nxt12671363 USD6.4621349570613 %5627.6486477139 coins0.012671 USD
peercoin11614538 USD5.9231759061687 %126.61103265779 coins0.516232 USD
bytecoin8634985 USD4.4036650534122 %991699.3786474 coins4.9E-5 USD
namecoin7469707 USD3.8093971993152 %67.598219261987 coins0.621846 USD
monero4806169 USD2.4510475080261 %48.350180175225 coins0.559391 USD
counterparty4129650 USD2.1060367085552 %14.897149659691 coins1.56 USD
monacoin3221749 USD1.6430258399019 %120.22142063481 coins0.150808 USD
ybcoin2787624 USD1.4216310035111 %16.882462292774 coins0.929208 USD
startcoin2725266 USD1.3898297038677 %157.41265509839 coins0.097428 USD
blackcoin2557895 USD1.3044739303887 %421.82985471003 coins0.034124 USD
ethercoin2294540 USD1.1701682876874 %5.6386441090628 coins2.29 USD
bitcoindark2194012 USD1.1189010717641 %6.8976396387138 coins1.79 USD

REVISION

Once a month, the scripts involved in the composition of the index run a calibrating algorithm to redefine the coins that constitute the index. Without running this revision we would still have the same coins as they were in the top twenty on the 21th of july 2015. If we run this revision too often, the index is not stable. We consider once a month was enough time to have stability and also allow the index to evolve with the new cryptocurrencies in the top 20.

The revision consist in calculating the percentages of the top cryptocurrencies by market cap, just as we did upon the creation of the index. Once we have the new percentages, we determine how much each cryptocurrency will constitute the index NOT with the value of an ounce of gold BUT with the last value of the index in $.

Once the correction is done, the new composition smoothly replaces the one from the month before and no variation in the price is caused by the revision. We will notice that on each revision, some coins disappear from the index and new ones appear.


TECHNICAL DETAILS

BTWTY has been made in a way that even our team couldn't manipulate it after it has been launched. It is fully trustless and decentralized. It was necessary to reach that point of security. We want the index to be considered as a serious economic tool able to manipulate important funds.

There are two main key parts in the index structure.

As we've just seen, the algorithm creates the index itself. This algorithm calculates the weight ( % ) of each coin in the index.

The second key part is the mechanism producing the price and publishing it in the BitShares Blockchain.
The witnesses represent the highest representation of trust and decentralisation in the BitShares ecosystem. They have the code to produce the index price using the composition created by the first algorithm.
We had to provide the index composition for the witnesses but we couldn't risk to have it on a centralised server. This situation would have created a potential way to hack the index and change its composition and gaming the price. To solve that problem, we've used the BitShares Blockchain to store the index composition. Every month, we send the new composition in a standard transaction memo.

It looks like this :

COMPOSITION :: (2015/07/21) {"data":[["BTC",0.39385849067828],["LTC",27.865488215488],["DASH",29.985688405797],["DOGE",564812.27442284],["XLM",27223.608278813],["MAID",2546.7083430557],["BTS",14135.449967563],["BANX",38.762908700403],["NXT",5627.6486477139],["PPC",126.61103265779],["BCN",991699.3786474],["NMC",67.598219261987],["XMR",48.350180175225],["XCP",14.897149659691],["MONA",120.22142063481],["YBC",16.882462292774],["START",157.41265509839],["BLK",421.82985471003],["ETH",5.6386441090628],["BTCD",6.8976396387138]]}

( http://cryptofresh.com/tx/e519d98127451c5dfa4c4171003c60f65fcd8fd8 )

The witnesses read this memo and obtain the actual composition of the index. With that information, they can now build the index price using the price of each coins coming from several websites API.


REVISIONS HISTORY


















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