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Zero Reserve - A distributed Bitcoin Exchange (bitcointalk.org)
104 points by sathishmanohar on Dec 19, 2013 | hide | past | favorite | 67 comments



How I see it, the most important exchanges increasingly from now onward are those between cryptocoins. Btc is just an onramp and offramp into the cryptocurrency ecosystem.

Such exchanges can be totally anonymous, including who runs them. They don't deal with people or fiat currency. Just usernames and blockchains. People trust them based on their history, like an ebay seller, and admins realize there's no need to rip off users because it's not worth it to them in the long run (let alone what might happen to them if they are personally outed for doing so.) People can go in and out of them for very short periods of time to lower the risk it should disappear during that time, ie to lower their "exchange risk." They could also have a set lifespan... "we will operate from 2015-2018" this might lower risks as well.. imagine if Silk Road had a fixed shelf life that expired before it was caught.


There is an ecomomic law (that I identified, not sure if economists actually recognize it) that people use the currency that is most convenient for whatever kind of trading they are doing.

There is no reason for anyone to prefer altcoins for trade unless they are useful for something bitcoin isn't (which I haven't really seen yet).

Demand for trade is the only difference between bitcoin and a hot potato stock in a company with 0 earnings and 0 capital. In other words, in the long run, absolutely essential.

In summary, altcons have no reason to exist unless they can do something bitcoin can't.


Unless altcoins can freely float with any other altcoins. Then an altcoin simply becomes a stock in a network effect that altcoin can sustain. There's a reason why Dogecoin (as a "joke" as it is), has almost a $10 million market cap, and it just over a week old.

Next year, we'll start seeing altcoins pop up for anything and everything. The marketcap doesn't have to be millions.


> has almost a $10 million market cap

A few days ago, I was talking to my co-workers about DOGE, because I'm pretty into it. This morning, when I walked into work:

"Hey, remember how I was saying DOGE had a $2MM market cap the other day and you were laughing? Today it's $12MM. It's now the 8th biggest altcoin (and is almost 7th)."

http://coinmarketcap.com/ has the whole list of altcoins and the numbers and graphs for them, if anyone is interested in this kind of thing.

DOGE specifically has changed my entire perspective on cryptocurrency. It's incredibly interesting.


Perhaps the market cap is based on one purchase of 1000 DogeCoin for $1.50.


This happened early on, but there's pretty significant volume being traded. A quick add-up of a bunch of the orders shows about 40 BTC that you could actually get. And there's one seller on Cryptsy willing to buy 44 BTC worth of DOGE alone.

https://coinedup.com/OrderBook?market=DOGE&base=BTC

https://www.cryptsy.com/markets/view/132


Nope. On Cryptsy it has a 24 hour, 2900 BTC trading volume so far.


Is this a subtle joke or are you serious?


Dogecoin changed my perspective on cryptocurrencies personally. I battled with the concept of altcoins: why they have value, and whether they aren't just taking away the value from one cryptocurrency. The change it instilled is that crpytocurrencies can simply function as an investment in an any idea/concept/theme. So far all coins were "arbitrary", centered around vague ideas: 'feathercoin', 'litecoin', etc. Some had technical improvements, but its power were just a belief. Dogecoin is the first coin where there is a much more clearer purpose behind: that of the doge meme. It means we will start seeing a cryptocoin for anything and everything. It's a way to create a world of public shareholding... of anythin.


Memes are, almost by definition, temporary fads. That seems like a terrible thing to build a currency around. What happens when people get sick of Doge?


The fact that you have to ask that question is part of it. I really need to do a writeup on it, I've been too busy.


Just because some coin's last trade was at $100 doesn't mean someone who holds 1 million of them is worth $100 million... volume and depth is important too.


Amongst other things, altcoins and anonymous exchanges are perfect for bitcoin laundering. For example, the thief of Sheep marketplace instead of tumbling his coins endlessly through the blockchain (and being watched doing so) could've just waited for an anonymous exchange to open that he could've deposited into and and bought new altcoins (maybe he could even setup the exchange.) On the other hand, people that had their coins stolen could've owned such an exchange and tracked the thief's altcoins out of the exchange.

But every altcoin has a set of pro and cons. They're just like flavours of Linux, and how hard is it to switch over as a miner, user or admin? The real power of altcoins how I see it will come when a second generation of altcoins comes into existence. Perhaps some way of retracting stolen or lost coins would be an interesting feature, perhaps tying coins to an email address for approval of spending or a resending of lost keys.


> Amongst other things, altcoins and anonymous exchanges are perfect for bitcoin laundering. For example, the thief of Sheep marketplace instead of tumbling his coins endlessly through the blockchain (and being watched doing so) could've just waited for an anonymous exchange to open that he could've deposited into and and bought new altcoins (maybe he could even setup the exchange.) On the other hand, people that had their coins stolen could've owned such an exchange and tracked the thief's altcoins out of the exchange.

At first I thought you might really be onto something on this, but you aren't.

To put it simply: BTC->LTC at ex1 and then ex1->ex2 and then LTC->BTC is no more anonymous than BTC->BTC at ex1 and then ex1->ex2 and then BTC->BTC.

In both cases the two exchanges have to collaborate to reveal your identity. But in one case they have two be aware of 2 blockchains instead of 1. No big deal.


Demand for trade is the only difference between bitcoin and a hot potato stock in a company with 0 earnings and 0 capital. In other words, in the long run, absolutely essential.

I would say that political ideology is another big difference. The early adopters of Bitcoin were largely of a certain ideological bent that made them predisposed to wanting Bitcoin to succeed. When have you ever seen this kind of behaviour around a penny stock?


I agree. many ideologues who invested in bitcoin probably had no rational theory of how money attains value to justify what they were doing. Instead, they justified it with an ideology that isn't necessarily correct.

But the thing you quoted me saying is what ultimately does provide a rational justification for bitcoin having a market price.

So basically what I'm saying is those ideologues got the right answer on their math homework, despite having made some mistakes in the calculations.

However not everybody who invested in bitcoin is a mistaken ideologue. I'm not (though I'm not anyone important, just a guy). Certainly Satoshi was not. He acutally "worked the problem correctly" and got a valid answer.


I dub that economic law 'Saves Me Time'. I have X amount of time on this planet. If your whizdoodle saves me more time and brings me more joy than someone else's whizdoodle, I'm going to use yours. Period.


Yep. But it's actually much broader than that. For instance, bitcoin lets me send value to anyone without any counterparty risk.


altcons have no reason to exist unless they can do something bitcoin can't.

That's what will be interesting. I'm bullish on scrypt, but which one? I couldn't call it.


Altcoins are useful for allowing people to trade between them, as a form of gambling. There is some value here.

Still, I think Bitcoin provides much more value than any altcoin.


Still, I think Bitcoin provides much more value than any altcoin.

true, but expect Gox to introduce ltc soon, and then probably Coinbase and BTC China. The debate will shift from is bitcoin needed/useful to are altcoins needed/useful? Interesting times ahead. The $10,000,000 per bitcoin notion will be gradually diffused into other coins, and there'll be winners and losers, and it'll get ugly as blockchains are attacked, pump and dumps, powerful people takes sides, and misinformation put out. Bitpay and the Winklevoss' have already stood by bitcoin (at least publically.)


> The debate will shift from is bitcoin needed/useful to are altcoins needed/useful? Interesting times ahead.

And the answer is "no." Though as they say, the market can potentially stay irrational for longer than you (in this case, I) can stay solvent. So what you are describing could happen for a while.

> The $10,000,000 per bitcoin notion will be gradually diffused into other coins, and there'll be winners and losers, and it'll get ugly as blockchains are attacked, pump and dumps, powerful people takes sides, and misinformation put out.

And those are the reasons that bitcoin is literally always going to be better as a means of trade and store of value. Those coins don't have any advantages but they have all the disadvantages you mentioned. The more widley used/mined/liquid bitcoin is, the more advantage it has. And I don't mean social network effects, I mean the things you are talking about.


The more widley used/mined/liquid bitcoin is

I read there are only about 3500 setups mining bitcoin. It's too difficult to do on a homemade setup. Then again, I don't know how the pools are operating in this concept. If you're a young guy wanting to get into cryptocurrency, you're not going to get into bitcoin except as a way to get or dispense of another crypto from fiat (that's what makes bitcoin valuable - as a trendsetter and gateway.) Other altcoins may not offer any significant benefits to bitcoin on the whole, but vice versa too... I can think of things I don't like about bitcoin including a massive blockchain (13 gb) that takes days to download. To me the differences in algorithm choice and number of confirmations is a side issue (perhaps I should take them more seriously) to other things including demographics of adoption, regulatory environments, adoption and market perceptions.

It not really about the lines of code: its the way and context the software with its blockchain has been implemented, developed and brought to light.


Agreed. By the end of next year there will be thousands of altcoins. By 2015 when it gets easier for anyone to create and sustain one (including the problem of securing small chains), there will be an explosion. Millions of coins. There will be a very long tail.


Yeah, I was thinking about my idea in the comment below, and realized that if a company (or conglomerate of companies) like IBM or a set of airlines which had an intra-coin that they used internally, may actually want it available to the public, as it indicates that the coin has a backing and importantly, it could be a good way for a company to raise capital.. instead of selling stock, it'd sell its intra-coins. In such cases only certain employees can actually withdraw underlying coins for special reasons, otherwise the underlying blockchain is hidden to staff who just see balances in their logins and transfer between other staff for day-to-day tasks.) Same with a government, who may fund projects and accept taxes in their own coin. The tyranny or tax to watch out for on top of all this is if some group comes in and says "I demand x% of all coins from your new blockchain."

On a similar note, Litecoins are big in China. If the blockchain were to come under attack, a large group of Chinese people would be pissed off enough to come together to do something about it. Or, more importantly the Chinese government may have high up officials or execs that hold Litecoins, and it could end up the preferred blockchain of the Chinese, and they turn a blind-eye to regulating it.


I thought about releasing CAD coin transparently so it can be auto traded in p2p exchanges but laws are stupid on that kind of voucher. Coins could later be redeemed but can't allow people to trade it with each other without involving ID bullshit. Otherwise would be an awesome idea to solve exchanger problems


It is notable that this project, which is advertised as something related to Bitcoin, introduces itself on the Wiki with the concept of money-as-IOU. There is a serious clash of underlying philosophies of money here.

On the one hand, you have Bitcoin, which is essentially an attempt to replicate a gold/commodity-like currency in a distributed, electronic fashion.

On the other hand, you have the notion that all money is ultimately an abstraction of who owes who. That is, money models social relationships.

A project that successfully combines these two notions could be quite interesting.


> introduces itself on the Wiki with the concept of money-as-IOU

That's what money is. You don't eat a coin or bill, it's an "IOU some future tangible good or service".

Think about it, you either have barter -- no money concept involved. Or you have money-facilitated trade -- then the money (whether coins or bills or seashells) is always a "debt" of sorts for deferred/future "trade settlement". That IOU characteristic automatically happens to whatever emerges (or is decreed) as the unit-of-account+medium-of-exchange of the day. And that's fine, this and only this allows trade beyond immediate barter.


You are oversimplifying. You can either have a currency with intrinsic value or a fiat currency.

The USD is a fiat currency, it only has value because the US government says it has value. Fiat currencies are very close to debt basises.

Non-fiat currencies like Bitcoin are a little different, since there is actual value to a Bitcoin. It is similar to how gold and silver were once used.

The benefit of fiat currencies is they can't be used for other things affecting the monetary supply, they are always in circulation (pretty much, obviously there are exceptions).

Bitcoin is in a weird spot, it is a non-fiat currency without having to worry about the destruction aspects, as Bitcoins can't be destroyed. There is the whole getting lost thing, but that is unavoidable without implementing a use or lose it scheme (which some altcoins are trying).


There is no way in which Dollars are a fiat currency that bitcoin is not a fiat currency.

Bitcoin has most of the features of a central bank in that it regulates the amount of money in circulation and has policy limits on who can create money and how. Unfortunately it's policies are fixed at birth and cannot be changed without unanimous consent of those participating in it's accounting system ( unanimous consent being a synonym for nearly impossible ) and the enforcement is done by protocol and public accounting; rather than by the fact that your local "insurance company with an army" will accept it as a valid form of payment.


Supermajority is sufficient for changes, and it's worryingly easy to get that level of support with the enormous mining pools.


If the US government said that it was creating a new currency and USD were no longer the official currency, what would happen to the USD?

And to be fair to the USD, Bitcoins regulations are laughable simplistic compared to a "real" currency, especially since it is so heavily biased towards deflation.

I do not mean to say that Bitcoin is unsound or poorly designed, just saying that the intrinsic tools available cannot compare given the scope of the initial creation.


USD would keep going for a long time even if the US government disappeared.

Bitcoins do not have value. I've seen two arguments for it, and I'll counter both.

1. 'value because mining, network uses' Bitcoins are not mining, they are a reward for doing it. If nobody wants to trade for bitcoins, they have no more use than yesterday's lotto numbers.

2. 'bitcoins have qualities that make them good for trading' You cannot apply those qualities to anything other than the bitcoins themselves, so they become null in the scenario where nobody actually wants to trade for bitcoins. This is not intrinsic value.

(bitcoin is fiat)


USD is gov-fiat, decreed by the laws ("legal code") of government.

Bitcoin is crypto-fiat, decreed by the laws of cryptography and computer code (Lawrence Lessig's "code is law").


USD is used outside the US plenty. A lot of its value is simply people preferring to use it, the same kind of potential value that bitcoin has. And that value works with or without cryptography and math and code, so I find crypto-fiat a silly term. All it needs is a ledger, and crypto is merely one (rather secure) method of creating one.


Doubtful, USD is used elsewhere because it is the currency of the largest trader in the world. Especially considering the fact that most USD isn't physical, how would you trust digital dollars without the accounting system in place today?

Gold also has no intrinsic value. Sure it has some industrial applications, but everyone is getting around fine with very small amounts of it. But no one doubts that gold has value.

Market value is determined by demand, not who backs it.


Thank you for answering dualogy's remark pretty well.

There is another reason why Bitcoin is in a weird spot, though. Bitcoin is neither anybody's IOU nor does it have an intrinsic, physically-based value similar to gold. It is perhaps the only example of a currency (or near-currency) that arose purely from something else entirely, and I'm not quite sure what that "something else" even is.


Industrial, physical uses of gold account for a very small fraction of its price. Gold coins originated as IOUs of some King. Bitcoins are nothing more than decentralized IOUs for the "real money" traded at bitcoin exchanges.


I agree that the physical use of gold does not explain its price by itself. Two things though: First of all, the physical use of gold is undeniable, and it's plausible that a sort of "bubble" -- perhaps not quite the right term given how stable that bubble is -- bootstrapped from this physical value.

Second, from what I understand, the first gold coins that were intended as currency were made of gold precisely because gold was already valued for other reasons. I do know that historically speaking, the value of gold coins was usually unrelated to the price of their gold contents, so it is true that they played the role of an IOU. However, (a) there is a reason why governments chose gold rather than a different material (psychology based on the pre-existing value of gold), and (b) throughout the ages, gold was also used as a payment-commodity in trade.

That latter use is probably overstated by the goldbugs, but it would be wrong to dismiss it entirely.


> I agree that the physical use of gold does not explain its price by itself.

Gold was around production costs ($250) before the "general commodity bull-run 2001-2011" and is now back at around production costs (nowadays roughly around $11xx - $12xx, many opinions about this and different ways to quantify but production costs are in this range these days, no longer in the low hundreds as 12 years ago).


Gold is very similar to Bitcoins because production is hard. The government can't create it any cheaper than anyone else. This rarity is what helps stabilize its ability to hold value.

Gold coins are not the same, and are similar to IOUs as you mention. But gold does not base its value off the fact that at one point it was used as a currency.


The only value I can see BTC having is the protocol itself - and that is not unique, any altcoin implements a variation of it.

BTC can be destroyed - as easy as deleting wallet.dat / losing your private key.


That is a completely different thing from how a fiat currency works. Controlled money supplies add and remove money via direct or indirect controls to provide value to society as a whole.


> The USD is a fiat currency, it only has value because the US government says it has value.

It has value because it's the only thing the US will take in payment for tax and fee obligations.


The word 'fiat' as related to currency, is often unhelpful and confusing. It should, in my opinion, only be used to refer to the aspect of some currency which is that it (sometimes) has government backing (ie that currency is declared to be legal tender for all debts by 'government fiat').

The whole money-as-IOU vs money-like-gold distinction is another thing again.

So, I think original reply has a very good point. There are two types of currency being talked about and bitcoin is very much in the money-like-gold camp whereas this proposal is very much a money-as-iou concept. Personally I think this idea of combining the two is really exciting and something I've been working on - like modern banking is to gold, I think money-as-iou built on top of bitcoin is a very exciting prospect.

In my way of looking at things there is fiat money then there is debt based and market based money, or as I like to call them 'two sided' and 'one sided' currency.

Bitcoin is a 'one sided' currency like gold (or tulips during the tulip mania) in that there is only one person involved in creating its value. Originally it's mined, but it's valuable because there are people who will buy it today because they estimate there will be people who want to buy it tomorrow. That is, there is market today, because there is an estimate of a market for it tomorrow (and a guarantee of limited supply). People buy bitcoins (or gold or tulips) today either because they are speculating on it's future value or because they find it useful to convert there thing of value (let's say it's tee shirts they are selling online) temporarily into gold or bitcoins because the instrument in question is more easily transferred, combined and stored than the thing they have of value (tee shirts). However, their intention in either case was to sell it back into the market later on. As the Austrian economists would say there is a market value for cash in your wallet because its easier to carry around this cash and turn it into bread at the corner store than try to convince the shop owner to accept an hour of your labor (or part ownership in your house). The point being that nothing intrinsically 'backs' the currency other than the ongoing existence of a market place [1] and corresponding estimate of that ongoing existence.

'Two sided' money or debt based currency systems require at least two people to create them, They are 'valuable' regardless of the market mood in future, because at some point a promise was made to redeem that instrument for something ostensibly of value in future. To the extent that the person (or person(s)) making that promise continue to be 'in good standing' the instrument in question continues to have value. They also have value, like one sided systems, because of simple market place estimates. Two sided or debt based currency systems include mutual credit systems (such as LETs or 'commercial barter'), the original ripple system, and also, in a much more complicated way, most of the value in our modern commercial money system. You can distinguish a debt based system different from 'one sided' system in that, nominally at least, the instrument of credit is destroyed once it returns back to the person who created it, so the amount of currency in circulation can expand or contract depending on the amount of promises made.

With modern money (what people sometimes, unhelpfully call 'fiat' money [2]) our commercial banks create more money by expanding their balance sheet. When they do this, a new deposit is created at the same time as a corresponding promise in the form of a loan the bank makes to a person (who promises to pay back the loan by doing things for the instrument in question, aka 'money' and then returning that money to the bank). When the person or company eventually pays back that loan (or they default) the corresponding deposits on the other side of the balance sheet are also extinguished. In this way the money supply can both expand or contract. (Unlike gold or bitcoin).

In practice, of course, it only ever expands. Two sided aka modern money is more flexible than one side money (aka money-like-gold, aka bitcoin) in that the supply, or more usually, the rate of creation of supply can be controlled by adjusting the interest rates on loans (and hence the willingness of people to take up new loans and thus expand the money supply). On the other hand some claim it is more open to corruption (or just short term thinking) leading to oversupply and hence inflation (or loss of value) in the longer term.

All of which is to say the grandparent post really has a very good point. This proposal is about money-as-IOU which is really quite the opposite of the bitcoin money-like-gold concept. That said, the combination of the two is very exciting in my opinion (which is why I've been working on http://thankful.as and have been excited about ripple since as an idea since I first heard about it)

Phew.

[1] Of course Gold (unlike bitcoin) does have a small 'intrinsic' value as adornment or in industrial processes, but IMHO this is largely irrelevant as to what is the reason for its value as a currency, and why I believe bitcoin has as much staying power as gold. (ie lots).

[2] Gold has also, on occasion, been stamped with the picture of the king, signifying that it is acceptable within that kingdom in payment of taxes. This 'stamping' is functionally very similar to the 'fiat' laws we have in place today regarding the value of cash.

Interestinyly whenever gold was stamped, the gold traded for a higher value the metal value of raw gold of the same weight, though only within the kingdom in question, not internationally. Of course, from the King's perspective the neat thing about this was that the king could redeem value today by buying (or just taking) raw gold and then stamping it with their picture. Essentially they receiving value today from the future value of taxes that would be paid in that coin. This may be one reason why monarchs would so often call in all the gold in their kingdom, stamp it, and then send it back out again.

Incidentally, by continuing the analogy of gold and bitcoin, the government could also, today, retrieve value from their future taxes by stamping certain parts of the bitcoin chain with a cryptographic stamp indicating that they would be willing to accept those particular bitcoins as legal tender for taxes in future.. thus allowing them to buy bitcoins at price x, stamp them and then sell them for price y, higher than x. (Where market economics would suggest that the carrying capacity of (y-x)*n for the n bitcoins they do this to would be about equal to the future value of all taxes that people want to pay in bitcoins.)


I 100% agree on the value of the grandparent post, which is why I commented when I felt his point was being diluted.

I would also agree that Bitcoin has a good chance as a commodity (I just don't have the right risk factors to invest) the only frustrating thing about Bitcoin is so many people talking about how Bitcoin needs to become a major currency.

The only thing negative I would say about your post is that you have to be really careful talking about inflation and deflation. Inflation is often put in a negative light because it discourages saving, but deflation discourages spending, which is much more dangerous. Which is why I don't have any faith that Bitcoin itself will become a currency, the deflationary problem is built in and part of the core.


money-as-IOU vs money-like-gold distinction

... is false. Both represent the bearer trusting their economic society to pay back the debt for the original goods or labour for which the bearer exchanged for its acquisition, at some point in the future.


> And that's fine, this and only this allows trade beyond immediate barter.

It's a rather open question as to which of these emerged first; it may very well have been the credit systems.


I don't think that it's a conflict, it's reality kicking in.

A good example of why this is happening is in the Christmas story. Mary and Joseph were travelling via donkey in while VERY pregnant to another city to pay their taxes to the Roman government. Tax payment in those days meant putting coins or goods in the tax collector's hands. Not very convenient or practical.

The ability to use IOUs and trust as a payment vehicle solves a great many problems. Kids discover this at age 6 when they forget their lunch money. Trust is the key component, and a good reason why Bitcoin is successful. (example: The Chinese are always exploiting any means possible to get money in forms other than RMB)


A project that successfully combines these two notions could be quite interesting.

http://ifex-project.org/ attempts to do just this. Overall strategy: (1) treat a transaction between entities as a higher level abstraction than that which occurs over the wire within a particular settlement system (2) segregate settlement pathways and assets (3) maintain absolute neutrality on both (4) keep things extensible

Really amazed at how little feedback this has had despite frequently pointing at it in what I would have thought were the 'right' circles...


Our project uses real-world game design and a tri-currency system (XP, time-based currency, dollar-backed currency). You can learn more at http://producia.org.


I mentioned on another thread about using company-specific intracoins to facilitate intra-company resources and commerce. I've had a longer think about it, and realized that an exchange can be the focal point of a company's entire finances. Let's say a company gets funded, those funds are lodged onto the exchange into the management's exchange account, and a certain number of coins are minted. Departments request these coins from management who sends them to various departments. Intra-company transactions are facilited by these intracoins for factors-of-production. For departments that earn revenue, these funds are deposited into that department's exchange account, and they can buy more coins, to spend further. At times, management can demand the Sales department transfer them coins (or funds) so they can move them back around the company as they deem fit (like a tax). As the company grows in sales, the price of the coins can either rise, or more coins are issued so it remains fixed to fiat.

So basically, I think this exchange could be used in such an idea. It'd have to tie in with an accounting information system, and other systems. Possibly an ERP. Management can approve of all intracoin/fiat trades on the exchange, because it means a department will need to make an external purchase, and management may want to approve of it... to see and approve where its real money is about to go. Also, a conglomerate of companies tied into 1 exchange and 1 intracoin would be interesting.

add: company exchange can also hold bitcoins/??coins for spending at other companies that accept cryptocoins. And sales can be received in cryptocoins. If that was the case all the time, fiat would only be needed to pay government taxes.


" Abstract:

    A P2P market place for Bitcoin would permit trading and price
    discovery even in the absence of cooperation from the legacy payment
    infrastructure. Orders get signed and published through the network and matched
    by each node. A buyer sends a Ripple like payment to the seller who sends
    Bitcoins as part of one single transaction. The system requires trust in friends,
    but no further."


Best exchange is IRC #bitcoin-otc with the gnupg web of trust. It's p2p, hard to shutdown, hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator, escrow can be used and market decides what the price people are willing to exchange bitcoins for.


> hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator

It is not hard to defraud people on #bitcoin-otc. In many senses it's not an exchange at all, simply a discovery mechanism, as there is no settlement offered. It's just a lead-gen system.


I like decentralization as much as the next guy but even with this type of a setup you often end up needing something central that can connect you to more users. This is also the case with ripples - it uses this system but in order for you to trade with others you don't know or in order to cash out you need to trust an exchange which is trusted by others.

I'd be interested in seeing what happens but I'd be surprised if this manages to capture more than a portion of the otc trading market.


I don't know much about bitcoin, so can someone explain me what's the point of having an exchange if there is no way of ... actually exchanging that money.


Read the description on their github. There is no need for exchanges as a central component. People who want goods or services essentially issue IOU's for bitcoins to the seller. Which is why you only deal with trusted people (either people you know or people who have acquired a reputation). Those IOU's can then change hands (but not on a fractional reserve basis).


> Which is why you only deal with trusted people

Which makes it far less useful than a conventional exchange.


Just in case you can explain it quickly. What happens if the people you know and trust let your down? (It that's a phrase)

The one who is last is holding the IOU is gonna support the loss ?


Why not just exchange IOUs of dollars?


Ripple and related efforts really should talk less about loans between personal friends, and more about the potential for business. Using ripple IOUs or bitcoin colored coins, a business can easily sell exchangeable vouchers for products as a way of getting financing. Instead of getting bank financing or selling equity, sell discounted vouchers to your existing repeat customer base.


You can do that with a SQL transaction or, heck, paper, and never have to involve your customers with Alpha Black Lotus depository certificates as a transport protocol (!).

My local coffee shop in Ogaki will sell you 11 200 yen vouchers (conveniently equal to one cup of coffee) for 2,000 yen. How precisely does Bitcoin improve this for buyer or seller?


Sure, of course you can. I know a small business that did, very successfully.

But you might want to give some thought to how you'll prevent counterfeiting. A voucher for a cup of coffee is one thing, but if you want to raise a lot of money then security is a bigger concern. As far as I know there's no established infrastructure or service for this sort of thing. If you do it, you're pretty much building something from scratch.

Bitcoin has the potential to make it as simple as installing client software, and telling your customer base about it. If bitcoin gets to common usage, and people succeed in building decentralized exchanges, then your customers could buy your vouchers using the app they use already, and resell them later with a button click or two.


Now copy those vouchers with a quality copier and resell them many times.


Nothing prevents people from doing this without bitcoin. This is another case where Bitcoin adds functionality that isn't valuable to anyone except in your imagination.


There are other ways to do this which stay within the bitcoin protocol which keep pseudoanonymity and do not place all their security and do not place all their security in the unaudited Retroshare network:

https://bitcointalk.org/index.php?topic=280292.0




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