Bitcoin Forum

Got an idea after all problems that MtGox often have because of DDOS and huge amounts of order.
Why do we rely on a Server-Client Exchange (MtGox) when the strength of Bitcoin is in decentralization???
We should outsource the exchange to a P2P blockchain and let companies like MtGox only handle the fiat and the client-contact.
If we create an open source exchange platform that is decentralized and inspired by bitcoin it would benefit both brokers and clients.

Any ideas and suggestions?

----------------------------------------------------------
Discussions on this topic in other threads:
https://bitcointalk.org/index.php?topic=174039  A decentralized exchange!
https://bitcointalk.org/index.php?topic=174326    
How to Create A True Decentralized FAST Exchange...Easily With Existing Code...
https://bitcointalk.org/index.php?topic=174464 The Final Solution to the Mtgox Problem...
https://bitcointalk.org/index.php?topic=174302 Myths and mis-understandings about "decentralized exchanges"
https://bitcointalk.org/index.php?topic=174498 How to fix the exchanges - a professional view
https://bitcointalk.org/index.php?topic=173187 Yet another Decentralized Exchange Topic
https://bitcointalk.org/index.php?topic=62879 P2P Cryptocoin Exchange (P2PX)
https://bitcointalk.org/index.php?topic=27055 Dark Exchange: a 100% decentralized p2p exchange
----------------------------------------------------------
Latest copy from the git: https://github.com/p2p/bitcoin-exchange
bitcoin-exchange
================
The purpose of this project is to build a global exchange system backed by bitcoin and p2p technology. This exchange system will host many virtual exchanges created by broker alliances which enables both local and global trading of assets in form of OTC markets. The overall goal of this project is to contribute to a free market economy with the help of bitcoin and decentralization.

This exchange system could be used by this kind of markets:
* FX (Bitcoin & Fiat currencies)
* Precious metals
* Commodities
* Stocks and Funds
* Derivatives
* Auctions
* Bartering

The solution described in this file is derived from a collection of ideas proposed at bitcointalk.org and is still being discussed until we reach consensus of a final solution and a detailed architecture.

# Inspiration:
github.com/bitcoin, #Bitcoin-OTC, github.com/bitcoinx, github.com/macourtney/Dark-Exchange, github.com/FellowTraveler/Open-Transactions, github/?/p2pool,
retroshare.sourceforge.net, Ripple.com, CME Group, Forex markets, OTC-markets, Western Union, https://en.bitcoin.it/wiki/Contracts, https://en.bitcoin.it/wiki/Distributed_markets, http://en.wikipedia.org/wiki/Peer-to-peer_lending, http://en.wikipedia.org/wiki/Over-the-counter_(finance)


## Exchange system
* The exchange network is built with the bitcoin network as inspiration.
* The network has a blockchain of orders that gets processed by miners willing to participate and get rewarded
from the brokers with one bitcoin for each N orders that are forwarded in to the exchange.
* Each block takes around 1 second.
* Order matching is done once every block.
* Order cancelling is delayed for 10 blocks to discourage market manipulation.
* The order matching is deliberately slow to prevent High Frequency Trading algorithmis having advantage over the rest of the market. The orders are not executed as FIFO but in random order as a second protection against HFT.
* Once the orders are matched it is up to the brokers to settle the traded assets.
* Transaction history of executed orders will be saved in the blockchain as evidence if dispute would occur between brokers and clients
* Brokers need to create unique client ids for each of their clients, but the real identity of the clients will only be known by the broker and can only be revealed to authorities of the jurisdiction where the broker is based.
 

## P2P-model
We should decide on which P2P-model to use:
* One worldwide blockchain for all virtual exchanges and their orders.
* Isolated blockchains for each virtual exchange (similiar to bittorrent, peers can choose which torrents to seed). This model would probably result in faster order processing but less stable and secure - but still better than centralized exchanges. Another benefit is that miners can actively discriminate virtual exchanges with bad reputation and instead provide their computing power to trustable virtual exchanges.

## Market type
Each virtual exchange will be able to chose from this order processing models:
* Dealers market: clients trade with market makers and not directly with each other
* Double auction: clients trade directly with each other, the price is calculated based on supply and demand. http://en.wikipedia.org/wiki/Double_auction
* English auction with reservation price and time limit: Suitable for sales of huge quantities of an asset, or sales of non standardized assets, such as paintings, cars and real estate.

## Assets
* Assets can be both digital or physical, example: cryptocurrencies such as BitCoin and LiteCoin, digital fiat currencies, physical fiat currencies, gold coins, silver coins, barrel of gasoline.
* Any asset pair can be traded in the exchange just as in a futures exchange since no real asset is handled through the exchange itself, only orders of assets.
* An asset pair can be: Bitcoin traded in US Dollar, BitCoin in Euro, 1 Oz Gold in BitCoin, 1 Oz Silver in BitCoin, LiteCoin in BitCoin, Euro in Dollar, 1 Barrel of Gasoline in Gold, 100 chicken eggs in Oz Silver, or whatever asset pair the brokers wishes to enable trading in.


## Clearinghouse:
"A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions.
http://en.wikipedia.org/wiki/Clearing_house_(finance)
* Trust is used instead of a clearing house - the brokers are responsible for the actual transfer of assets between the traders.
* Voluntary rating of the brokers from the clients could be used to indicate the trustworthiness of each broker.

## Brokers and virtual exchanges
"A broker is an individual or party (brokerage firm) that arranges transactions between a buyer and a seller, and gets a commission when the deal is  executed." (http://en.wikipedia.org/wiki/Broker)
* Anyone can become a broker in this exchange.
* A broker must either join an existing virtual exchange or create a new virtual exchange where orders will be executed.
* Each broker wishing to join a virtual exchange must be approved by the founder of the virtual exchange which is done by mutual exchange of certificates.
* When several brokers exist in a virtual exchange their order books will merge for each asset pair they have in common and all of their clients orders will get matched together.
* Creation of a virtual exhange by virtual exchanges is not allowed, therefore trading between virtual exchanges is not possible.
* All brokers should use .bit domains (NameCoin) as a backup domain.
* Two classes of brokers: Class A Broker can settle assets with brokers in other jurisdictions, Class B Broker can only settle assets with a Class A Broker in the same jurisdiction.
* Each broker has its own order book, and its own asset pairs.
* The brokers using this exchange can have clients globally or locally.
* Client orders are always forwarded to the exchange by the brokers. Clients dont need internet access
from the exchanges perspective since the clients will never use the exchange directly.
* Settlement of assets should be made on a regular basis (daily or weekly) between brokers in a broker-pool in order to minimize the possible loss off assets in
the event of fraud or default.

## Legal issues
* Each virtual exchange must comply with local laws in the jurisdictions where the brokers are located.
* Any legal issue is a matter between brokers in a virtual exchange or between a broker and its clients.
* The exchange system itself cannot be held responsible for any legal issues. The exchange system will be distributed among thousands of computers around the world and its role is to host the virtual exchanges.

## Fees
* Fees are taken from the brokers and virtual exchanges to encourage miners to provide computing power to the exchange and to discourage creation of fake virtual exchanges, brokers and orders.
* Brokers and Virtual Exchanges will have bitcoin wallets created in the bitcoin blockchain where they send bitcoins in advance to pay for the exchange fees. If the broker-wallet or virtual exchange-wallet is empty no orders are processed for that broker or virtual exchange.
* The actual fees must be discussed in the community.

We could apply one of this fee models:
* Predefined fee: Static fee during all circumstances until the community changes the fees manually.
* Parameter based fee: Fee based on the number of one or several of this parameters: number of orders in last N blocks, the VWAP price of BtcUSD the last N Blocks, difficulty of the bitcoin blockchain, difficulty of the exchange blockchain
* Free market model: Fees are decided by each virtual exchange, virtual exchanges paying more fee per order will attract more miners.

Example of fees with the predefined model:
* Broker fee: 1 BTC per 30 days (18 144 000 blocks)
* Virtual exchange fee: 10 BTC per 30 days (18 144 000 blocks)
* 1 BTC per 10 000 Orders forwarded to the Exchange
* 1 BTC per 100 000 Orders cancelled from the Exchange  

## Questions
* If the exchange should work as a stock exchange instead of a futures exchange: How to prevent short selling assets that the client dont own and the broker cannot lend on the market?
* Minimum trading size in each asset to prevent order spamming? (0.1 BTC)
* Even trading sizes? (0.1, 0.2, 0.3 ...BTC)
* Clearing houses or two classes of brokers?
* Market makers?
* Darknet?
* Digital tokens to represent the traded assets and wallets to handle the tokens?
* Allowing creation of alliances between virtual exchanges?
* Which P2P model should we apply? Possible to combine a unified worldwide blockchain for some parts of the system and isolated blockchains for parts that are unique for each virtual exchange?
* What kind of fee model should we use?

Discussion on: https://bitcointalk.org/index.php?topic=172705.0

I N C E P T I O N

EDIT: Also, yo dawg i heard you like bitcoins so i put some bitcoins in your bitcoins so you could trade bitcoins while you trade bitcoins.

There is already a project that is moving in this direction:
https://ripple.com

Ripple is owned by a company. Im talking about a free model of ripple where everyone can "mine".

How do you ensure settling up?  If an offer is accepted, both parties are told to settle up offline?

Would settling up be considered a broker feature and not a part of the main exchange?

The settlement should be handled by the brokers. The exchange block chain is only for handling this parts:

-brokerid
-clientid
-orderid
-ordertype
-amount
-price


The miners job is to match orders

so when this 2 orders get matched it is up to the brokers to handle the real transaction of the bitcoins and the money.
The biggest issue here is of course the exchange of USD between the brokers (MtGox, BTCE, Icbit...) but if they trust eachother they can settle with bitcoins or dollars once every night, or once every week.

brokerid = MTGOX
clientid = noob1
orderid = 1000
ordertype = BUY
amount = 1 (BTC)
price = 150 (USD)

brokerid = BTCE
clientid = noob2
orderid = 1001
ordertype = SELL
amount = 1 (BTC)
price = 150 (USD)

Yes the settling must be the reponsibility of the brokers. Thats why we need the brokers in the first place - I trust MtGox more than I can trust a random guy at ebay or IRC.
But I trust a P2P open order book more than I can trust the orderbook of a server that easily can be hacked or ddosed.

So, effectively, the brokers publish promises as their order book? 

Does this get linked to a particular customer?  If you place a sell order, you then see it on the public list?  How are cancels handled?

In theory, you could have the exchanges actually act as banks.  For example, they could issue chaum digital cash.  Mt. Gox could give you 10 Mt. Gox dollar for $10 and buy 10 of them back for $9.90 (or whatever spread made them profitable).

These "dollars" could then be traded using a alt-chain. 

In fact, you could exploit the main chain if you wanted to.  You could use the coloured coin idea with 1 satoshi coins = $1.  Basically, coins generated from a particular source would be alt-coins.  For example, if the coin came from a particular address.  However, an alt chain might be better.

However, it is done, mints convert fiat to/from digital tokens and then they can be handled digitally.

Addition to the functionality:

-Anybody who desires can become a broker, you, me, Mr Scam, Mr Spam, Mr Fraud, MtGox, BTCE, ICBIT, SaxoBank, IGMarkets, Interactive Brokers, Scot Trade..
But to prevent market manipulation or fraud against honest brokers, each broker can list other brokers they trust in their "wallet". And if both parties got eachother in their wallets, the miners will match their orders.
If MtGox dont trust other brokers the result will be that only MtGox client orders will be matched against each other.
If ICIBit and BTCE trust each other, all their orders will be matched against each other.
If I have 2...N friends trusting me, I can act as a broker, putting their orders and they can trade against eachother through me.
If mr Scam have 2...N friends trusting him, he will act as a broker, but the only ones losing money because of him not paying out peoples coins or dollars will be his clients, not MtGox clients or my friends.

-Transaction fees are paid to miners on a percentage basis (0.001%) regardless of actual execution or not in order to prevent market manipulation orders and order spamming. Withdrawn orders will not pay back fee.

-Orders are matched in one-minute auctions in the block chain and randomnes is used if several orders are at the same level and size. High Frequency Trading are thereby eliminated since there is no possibility to cheat in the order book, or to do nanosecond trading since there is one minute between every execution of orders.

Yes the order book will match promises of a deal containing the exchange of bitcoin against fiat. Or bitcoin against potatoes. Or cows against pigs. Or 1 oz gold against BTC... but the preferred exchange would of course be BTC/USD.

The exchange part itself relies on trust since the P2P network cannot handle fiat, potatoes, cows, pigs or gold without the involvement of some kind of broker or bank.

I think you just described Ripple.

Ripple is a wallet, not an exchange matching orders.

would be also nice to have p2pool for standard and blockchain price on the client.
also hidden service integration and .bit dns on tor ,openvpn to connect the p2p net
and namecoin to hold the ca for it :)

I found this projects that are aiming for the same goal: a p2p exchange for different assets. But none of them handles the issue of settlement in a realistic way.
I believe that we need brokers in a p2p exchange to ensure trust in a massive scale.

P2PX https://bitcointalk.org/index.php?topic=62879.0
Dark Exchange https://bitcointalk.org/index.php?topic=26063.0
BitcoinX http://www.bitcoinx.org/

I must say, great mind think a like.

I started this a week ago, all by myself. I do have my day job that feed the family tho so i'm working on this part time:

Yes, I hope many of us can agree on a template for a decentralized exchange-broker system so we can make the BitCoin trading (or any other asset trading) more stable and secure!

I just read over your post and understood fully your proposal as i did think the same as well. What i'm afraid is you will run into concurrency issue with the matching algorithm. We need the orderbook to be as realtime as possible. The price/time priority is not easy to handle.

First, yeah, look into P2Pool code. 10 second blocks, pruned blockchain, very nicely distributed. Might even be better if instead if a 0.001% fee, placing an order was free, and all orders that did not complete that are older than a day or two simply feel off the tail end of the block chain. Only charge a fee for completed orders. That way people can still put up and move walls, and if need be, resubmit their order every few days, without making the blockchain too bloated.

That said, there's still the problem of fiat money:

* How will it be stored? Will people wishing to act as brokers have to accept cash into their banks and store all the money in their checking accounts? If then don't get a business account, there's a risk of their account being flagged for suspicious activity and frozen, making other people's money go poof.

* Thanks to FinCEN, anyone wishing to be a broker will likely need a license. I'm guessing not cheap.

* Still huge issue with fraud and chargebacks. Brokers will be required to take on the risk of having scammers reverse deposits.

* How would bitcoins be transferred? Also through the broker? I'm concerned that if it's automatic, as a requirement to complete and close the order, the buyer of BTC might get his coins, while the seller might discover that there isn't any cash waiting for him at the brokerage (I guess trust issues)

* Last, depending on how the process will work, I'm not entirely sure this idea is possible from a technological point of view.


Other than that, I can't really think of any other issues.

But is that not in the hands of a few people? ( Not decentralized.)

There is a great collection of ideas here, and it looks like everyone has the same end of the stick.

The brokers become the gateway into the exchange.  They deal with the fiat. In theory, you end up with a localbitcoins mixed with mtgox, but all using the same exchange matching data.

The way I see it, is that the brokers sell a digital local currency token for a fraction more than face value.

The exchange shows the bitcoin and the LCT price, and buyers and sellers do their deals on these prices.

That LCT is the currency of brokers, and has a fixed value. When the customer buys or sells bitcoins and wants to go back to fiat, they sell their LCT back to the broker for a fraction less than face value.  The broker makes money on this difference.

It also means that the fiat doesn't need to leave the country, meaning that brokers don't get involved with expensive financial regulations because we are only taking tokens here!

It does sort of mean that bitcoins get bought and sold with altcoins, but at least it is scaleable, where the current system isn't!

Am I on to something here?

Please see this page:

https://en.bitcoin.it/wiki/Ripple_currency_exchange

Note that this is NOT the same thing as what's happening at ripple.com - the page above describes the design of a theoretical system that hasn't been built yet. It uses the concept of settlements moving through a social network with an alternative chain that tracks credit relationships and the flow of fiat through the social graph.

This was also the last slide in my 2012 talk:

https://www.youtube.com/watch?feature=player_embedded&v=mD4L7xDNCmA

(scan to the last few minutes)

Yes, Ripple has potential, but its also completely useless for this task, in its current form.

If I wanted to trade bitcoins with someone using ripple, I wouldn't be able to because I don't know anyone on my facebook who knows anyone who knows anyone who is wanting to sell bitcoins.

Eventually I will, but for now, I don't.

Maybe if the ideas in ripple were used in an altcoin niche social network it might work, but I doubt it can start up for this exact same reason.

If I have misunderstood the concept, please let me know, but for me, the whole 6 degrees of separation theory is a load of nonsense which only got off the ground because it sounds plausible to the innumerate! ;)

Look into "open transactions" by fellow traveller;

https://github.com/FellowTraveler/Open-Transactions

https://en.bitcoin.it/wiki/Open_Transactions

http://vimeo.com/28141679

http://www.youtube.com/watch?v=HSgpStCTw2g

http://agoristradio.com/?tag=open-transactions

 I think it does what you are describing by matching orders, etc for any asset types.

May i suggest an order matching system similar to POSIT.  It worked by entering your order to buy or sell a stock, the price your were willing to pay/take and the an amount of shares.  Every 30 minutes, the system would match all the overlapping orders and execute everything at one price (probably the weighted average of everthing that overlapped).  If there was an imbalance between buys and sells at the given price the larger side would receive a pro rata amount of shares.

Now, no one could see the orders as they were being entered, but in our system that might not be necessary.  Each miner could be working to a hash solution and the first miner to achieve it could cross all the open orders using a methodology like the above and publish a block.  Orders could only be crossed amongst a group of brokers who have signed eachother's public keys.  Brokers would charge widthdrawal and deposit fees, and would settle account differences with competing brokers regularly.

You don't have a trust relationship with anyone who uses Bitcoin? And you think that's still true once you expand out multiple levels? I think you'd be surprised at how the number of people you can reach scales up. Six degrees of separation isn't nonsense, it's the result of research into the average number of contacts a person has along with the power law:

http://en.wikipedia.org/wiki/Six_degrees_of_separation#Mathematics

http://www.telegraph.co.uk/technology/facebook/8906693/Facebook-cuts-six-degrees-of-separation-to-four.html

Yes, the social graph concept isn't workable today because we haven't been building out the infrastructure. But bear in mind a lot of people hear about Bitcoin from someone they know. Even if that isn't true this week, over the long term it will be. So if that person owns Bitcoins and tells you about Bitcoin, and you connect to them with an NFC phone tap or something like that, then you can be linked into the social network without even realizing it.

If you want a P2P exchange that isn't social graph based then you're out of luck. Nobody has ever proposed a workable alternative.

Why should the infrastructure of Bitcoin be based differently than the dynamically fashioned cryptocurrency itself? The concept of Bitcoin should allow markets to stay ahead of rules or limitations. The trading platform itself should be p2p, open stack, scalable open source based, git script installed for anyone to develop and input ideas for maximine transparency of what any iteration is doing to tie in to friendly governed current currency exchange markets.

Open markets has to be the order from the top to the bottom or this concept is going to be limited in its potential. Anybody who can't just jump into Bitcoin in 5 minutes with 5 dollars to make commerce happen anywhere, anyplace will take the path of least resistance opting for cash or its equivalent. We have to think open, free, not evil, no greed; this and only this thinking, will give this concept the best chance to change a very fucked up financial system. It deserves everybody understanding what money is, and that is Abstract, a means to an end, make the system pay, society doesn't have too any more!

In its purest form money is the only reason we have to even have a social life once the basics of nessecities of life are met. Everything we acquire from it, is what makes us who we are as a member of the society. There should be a facebook of Bitcoin believers who can see where they are in relation to what they are doing with Bitcoin. Once liquid exchange markets are commonplace the concept becomes mainstream!

Okay so what would this look like technically:

Customer deposits $100 in mt gox.

Mt gox delivers token privkey to customer & account number (hash of pubkey).
Mt gox signs token pubkey with priv key and transmits to Market Makers.

Market Makers now have a UTXO table, which includes all the pubkeys corresponding to customer account balances, with custody (broker) determined by a sig script entry in the table made with the brokers private key.

They have another table (Balance of Payments, BoP) showing the sig scripts of competing brokers and their endorsements of eachother, a ledger of inter-broker debts, and credit limits brokers impose on eachother before demanding settlement.  (this table is hashed every block, and its hash is included in the following market maker block, see next steps:)

Customer places order by announcing to market makers he wishes to buy 1 bitcoin for $100 dollars.  He signs his bid transaction + fee with his token privkey (issued by gox).

A seller of 1 BTC with a bitinstant token private key signs a tx to sell it for $100

A Market maker discovers the correct proof of work and crosses the orders by making offsetting entries in the BoP table between gox and bitinstant (after checking to see that gox and bitinstant haven't exceeded their credit limits with eachother).   UTXO table is also adjusted to reflect the changes (expenditure of keys).  

Gox & Bitinstand, making note of the change in the UTXO table, issue new privkeys for $100 and 1btc, send those to the customers, and submit the public keys to miners maintaining utxo (signed by their private brokerage keys).

With all utxo accounts reassigned (balanced), miners hash UTXO  and BoP tables and include in PoW attempts to create next tx block.  If bitinstant or gox fail to deliver pubkeys after a period of time, the tx is reversed in utxo and adjustment made to BoP, new hashes would be inclued in next tx block.

When customer wants to w/d 1 btc, he presents new token private key to gox for revocation.  Gox uses customer privkey to txs a revocation of the 1 btc value assigned in UTXO.  Gox sends customer 1 btc to his client.  Bitinstand sends $100 to his customers fiat account.

There could be a "mint" chain and an exchange chain.  The mint chain would be very similar to the standard bitcoin chain (and could be included).  A "mint" could create an address and say that any coins that can be traced back to that address will be converted into dollars on request at an exchange rate of $0.975 per satoshi.  Similarly, they will send you one satoshi from the address, if you deposit $1.025 into their bank account.  They could "unmint" coins by sending them back to a specific "unmint" address.

This would likely be interpreted as spam, in the same way as Satoshi dice is though.  However, you would still need to pay BTC fees for all transactions, so maybe not a big deal and they are "real" transactions.

Exchanges could then be handled separately, but I guess better to keep them together.  They inherently need an offer and accept process and a way to decide what the exchange rate is.

For example, the exchange rate could remain fixed unless no trades are possible at that price.  It isn't clear how best to handle ordering.  Someone more familiar with exchanges order books could comment.  Is it normally ordered by price with tied broken by processing the earliest submitted first?

Exchanges would have different exchange rates relative to the different mints, based on trustworthiness.

Im thinking on similar lines - just wrote a redundant topic over at https://bitcointalk.org/index.php?topic=173187.0

I feel that Ripple might be a bit heavyweight, and that a simpler solution ought to be possible. Having to establish social connections just in order to buy 10$ worth of Bitcoin seems to me like too much overhead for the average consumer, at least for now.

I like the idea of 'minting'. Where some provider can establish him/herself as a clearing house. The provider will give out tokens that are tied to a local currency amount, these tokens can be used for P2P trading and then later cashed-in.

Basically we can decouple the establishing of Bitcoin trade contracts ("I buy 10 btc for $2000" etc) from the handling of fiat. The former can be easily done in a P2P manner, the latter not so much.

I was also thinking about the 'coloring' of coins over the existing infrastructure:

Guys, the forum is overflowing with topics that initiate a p2p bitcoin exchange. I'm not kidding. Yesterday I investigated them all, and I chose help developing bitcoinx (2nd place was darkexchange, at a distance). You can do your research and you'd probably end up joining bitcoinx as well :). See user killerstorm, project armoryx, project bitcoinx.

edit: I meant user "killerstorm" (on this forum).

You are right. Whole countries are run on trust. When people get burned in a transaction, they dont blame the money.





I have one. It needs a PHP programmer. Its P2P. It puts a seller in direct contact with a buyer.


https://bitcoinstarter.com/projects/54

http://www.reddit.com/r/Bitcoin/comments/18w6lu/a_new_idea_for_bitcoin_markets/

Have you got a link?  the firestorm user has made no posts and bitcoinx.org (if thats the same project) is dead

cheers!

Why don't you tell us clearly & concisely what it is that you propose, for the moment I can only see vague mentions of plugins, html and octopi :)

BitcoinX and other projects seems promising but I havent seen any detailed description of their system yet.

Before we jump into any project we should ask the community how the ideal exchange will look like and what we dont want from the current exchanges (MtGox, BTC-E, NYSE, Nasdaq OMX, CME ...)

Then we design the architecture of the system that the community demands - if such project already exists in open source we should of course use it, or make it fit the usage of crypto currencies.
If the current projects dont fit our needs we need to code it our selfs, but of course we can get inspiration from them to create our own exchange.
Let us remember that an exchange is not only for the transaction of digital currencies - but for the exchange of assets between physical humans.
Therefore we need a system that merges the best from digital P2P and the best from the physical exchange/broker model at Wall Street.

If Satoshi could create a decentralized currency - We as a community can create a decentralized exchange!

I am in the process, after putting out other fires, to put it up on: https://bitcoinstarter.com/


Do you want a link to the upcoming page?


All it is, its similar to a RSS feed, but in PHP and more secure and robust. Its a PHP plugin for Wordpress. They already use bitcoin.


Edit: Someone should contact me now about making this. The events with Gox are out of control.

What is needs as a "proof of concept" is working versions of the following

Website/gateway
- fiat -> colored coins -> fiat conversions
- The initial version could use "play" money, so no legal problems
- Actual "mints" just announce that they use dollars, let them worry about legalities

Basic exchange client
- works like Armoury, you have to connect it to a trusted node
- atomic coin exchange transactions (BTC and coloured coins)
- you specify the source of the coloured coins that you will accept
- some kind of simple matching of buyers and sellers

You don't need a full exchange with order books etc.  Even just allowing people swap colored coins for bitcoins in an atomic way would work as a rudimentary exchange.

All that is required for the above is a transaction generator and process system.  You don't need a full client for it to work.

The fiat "gateway" would likely be a website.  You login and can ask that colored coins be sent to a particular address.

Once there is a working version of all the parts of the system, then others have some kind of incentive to support it.

Don't brokers still need to accept large quantities of cash that they sell those tokens, and send out large quantities of cash when those tokens are redeemed? (meaning we're back to problem #1)

I think the benefit lies in the decoupling of concerns. Brokers just sell tokens, they are not the marketplace hub for buying/selling Bitcoin. MtGox does both.

This means we can completely decentralise the Bitcoin/USDToken exchange, meaning we no longer suffer from DDOS/panic caused outages and 1-hour lag!

People will go fairly irregularly to cash in/out and have no expectation that their $100k transfer happen in real-time. People dont mind waiting a few days for their transfer to appear, but would be infuriated at having to wait even a few seconds before making their buy/sell orders.

Also the simplification means that we lower the barrier to entry, meaning we could see hundreds of brokers appear in a short time.

Yes,

Assume that we have a decentralized exchange consisting of MtGox, BTCE and BitStamp.
There will be a net flow of USD and BTC between this brokers according to the clients trades.
So at the end of the day all this firms needs to settle their net trading of USD with each other - instead of doing it for every single trade.
The trading volume might be 100 million dollars on a day on the exchange, but the net transafer of USD between the brokers will only be a fraction of that amount.

Agree completely.

I definitely recommend looking through the posts from killerstorm. His project is pretty much exactly what I (humbly) believe we need. It could open the door for endless awesome opportunities, decentralized exchanges just being the start!

He is here:


https://bitcointalk.org/index.php?action=profile;u=8620

Ripple is already doing this

from their FAQ: https://ripple.com/how-ripple-works/

"Ripple is a decentralized but unified system.
The Ripple network is open source and peer-to-peer. So, instead of a central server, owned by an individual or corporation, a distributed collection of servers around the globe runs Ripple. These interconnected servers collectively maintain a shared Ledger. Since the Ledger tracks account balances and not people, moving money through the Ripple network only takes as long as updating the Ledger, a matter of seconds. Also, Ripple contains its own network currency called ripples (XRP), which serve as the single most efficient way to send payments within the unified system."

People are already using ripple as an exchange.

http://bitcoincharts.com/markets/rippleUSD.html

Am I missing something?

I dont know if you are or not, but Ripple, is it under the control of a few people? If so, it is not decentralized.

Screw ripple.
I think our best bet is colored coins and blockchain transactions. Current exchanges will become gateways, will take fiat and issue fiat-denominated colored coins. So there will be "MtGox USD", "btc-e USD" etc. which you can atomically trade for BTC.
Order matching is another thing and IMO must be handled by separate network of scalable servers for small fee (may be, fixed per-order fee).

"If you're a BitCoin user, the best thing you can do is to monitor the popularity of the services you use and switch away when they get too popular."

Did you guys see this?


http://www.reddit.com/r/Bitcoin/comments/1c4veh/order_placing_suspended_on_mtgox/

mtox: Trading is halted until 2013-04-12 02:00am UTC to allow the market to cooldown following the drop in price. Read more details on the support. Additionally trading fees will not be charged within 48 hours of trading resuming (until 2013-04-14 02:00am UTC).

Maybe if Ripple was open source we could talk about them but it's not (yet) so pointless. Instead I've been playing around with GnuNet, but found many pitfalls like potential flooding therefore denial of service for nodes acting as escrow.

Since we already have p2p trading on IRC, this forum and localbitcoins basically we already have decentralization. apt-get install irssi and go to #bitcoin-otc and make orders. No such thing as a trading freeze on IRC (:

That would never occur in a 100% decentralized exchange. If Broker A wants to halt trading there are Broker B,C,D...XYZ that are okey with accepting orders in a volatile market.

Trading on IRC is way to complicated and nerdy. Joe-Six-Pack, your sister or your grandma will never trade bitcoin that way - they need a simple user friendly system via a broker to put buy and sell orders, through web or iPhone/Android/WinPhone app

One of those dollar exchanges found anywhere would be the same. Its the same thinking. Release the bottleneck ( centralized markets or exchanges ) and bitcoin can be free! :)

Yeah ripple does not seem ready and the colored coins solution should be able to be achieved fairly simply.

Just a thought ... what would the consequences be of having all of these alt/colored coins being thrown about over the same bitcoin infrastructure...

Would we start to see merchants choosing to only accept MtGoxUSDCoin ? or EuroCoin? It would be quite attractive since there would be no exposure to the risk of market fluctuations, and they can put their prices in fiat.

Is it a bad thing? Or perhaps just a stop-gap until we do away with fiat completely :)

Could it also mean that bitcoin hoarding becomes less profitable? 

Could be interesting anyway!

Interesting question.  However, since you would still need to pay the tx fees in BTCs, there would still be a market for them.

I really think we are on to something here.

I'm feeling very confident that the next step towards a crypto currency future is a bit closer.

But on that basis, we should also ensure that we can exchange any alt coin in the same way - and put that into the mix at this point, rather than as an after thought.

Would it be as simple as choosing a different service port for different currencies, or am I missing something?

ok, a bunch of guys talk about a p2p exchange. I tested th opencoin ripple client and it works perfectly with bitstamp.net an think open transactions has been stuck with the same question. so far the only working implementation is the one form ripple.com. why don't you try making an implementation form the ripple client?

We should allow the trade of any two assets against eachother in this system as long as bitcoin is used to pay fees to the exchange servers.
Obviously this kind of markets would emerge:

BTC-USD
BTC-EUR
BTC-JPY
BTC-XAU (Physical Gold or Gold ETF or Gold Futures)
BTC-LTC
EUR-USD
EUR-JPY
USD-JPY
XAU-USD (Physical Gold or Gold ETF or Gold Futures)
BTC-SPY (S&P 500 ETF)
...

http://irdial.com/blogdial/?p=3505

Where is the Ripple white paper?
All these people know about Ripple from what?

Not sure I get it. We already have a price finding mechanism -  the marketplace. The only problem is that it is currently ridiculously centralized, hence talk of colored coins/ripple etc. The decentralized versions i.e. localbitcoins are awesome but are by no means suitable for real-time trading and also are not particularly user-friendly for the average-joe consumer who just wants to quickly buy $20 of bitcoin.

The blog does not seem to mention the hardest part which is dealing with fiat in a decentralized manner. How can you guarantee to the seller that the buyer will indeed transfer the agreed $10k after the price suddenly drops?

We will do it open source - Im sure there are many talented people here at bitcointalk with competency in the field of programming and finance.

https://github.com/p2p/bitcoin-exchange

All if this sounds too much like, "I have this awesome idea, which is WORDS. I don't actually how how it will work, technically, of it it's even possible, and I don't feel like actually executing it myself, because my idea is so good that someone else will like it, figure it out and code it for me."

I can code, but Im not a programming guru like some of you guys. But people like me can at least try to contribute with ideas and architecture.

Sorry, I know ideas are needed, but I'm probably just upset that we've been having these ideas, mostly the same ones, for almost two years, with no one being able to come up with anything new, or how to actually come up with the solution to the fiat storing/transmitting problem (this token thing sounds barely promising). In a way, the fact that we still haven't solved the P2P fiat problem is a testament to the superiority of Bitcoin to cash.

yes he is ok !

what about : http://bitcoin-otc.com/

looks intresting: http://bitcoin-otc.com/vieworderbook.php

easy web frontend  isnt it

Yes Bitcoin-OTC is a great solution! If we can make it decentralized and make it easy for brokers to participate this could be our official exchange.

This is one I am fairly sure you have not seen:


https://bitcointalk.org/index.php?topic=145389.0


Its a PHP plugin for Wordpress.


Many here have plenty of good ideas. Can we mix a few of them? One thing about software; you only have to make it work one time and then it does the rest.

This time it is about the future of bitcoin. If we are so lazy that we let MtGox's failure destroy the reputation of bitcoin, then its a shame Satoshi wasted his time creating bitcoin.

That  wont happen. Too many lives are at stake, plus freedom is at stake as well.


http://lfb.org/today/what-bitcoin-is-teaching-us/

At the end he says:




Bitcoin is still in beta, so the only way is up.

A Federation of OpenTransactions signing servers could have this system up and running in 2-6 months (maybe less if more resources) ... the "exchange servers" are not so much exchanges as Notaries that sign off on any trades/transfers that pass through them ... i.e. it is questionable whether they need to worry about MSB BS because they do not actually transfer anything, just sign off on it.

If someone knows how to do this, please share. Last time I looked at OT it was all very abstract. Yes there is code and everyone agrees it's elegant and amazing, but HOW DO I USE IT?

I'm happy to throw a server or 2 at it - but there needs to be some sort of map on how to get there.

Two things I want to stress. This exchange has to be even more simple than mtGox. It should connect to people on Skype or AIM or ICQ etc and let them order through that interface or web or any other.

The API should allow anything to plug into it so it can be ubiquitous.

It must be modular, so that it can be easily pluggable, extendable, etc.

Basically I think what is needed is a protocol and an API, written in a simple language like Python so anyone can easily read it and make use of it. Ruby could work too for it's worth. If it must be written in C or C++ then write it so that high level scripting languages can make use of all it's functions and API.

As far as how the exchange will work that is up for debate but definitely make the code well written, modular, easy to read, easy to upgrade, and let as many people plug into it as possible. So if the core of it is C++ or C then let as many from the community write code in their own languages for their own plugins as possible.

The goal should be to write code which can be reused a lot by a lot of people and code which can be read and improved up by a lot of people. I think it might be useful to start completely from scratch here, but design is the most important part and that is the part which in my opinion needs the most debate and by design I mean what is the best possible design from a computer scientist or engeering phd perspective?

Maybe it's time to look up some of the academic journals and see whats out there or find some really well written code and see which examples we can use for case studies which have been known to scale up. This code has to scale up without losing flexibility and remain decentralized (not easy).

It needs to be done without servers period!

Techies, is this a potential option:

https://bitcointalk.org/index.php?topic=174326.0

Here is a way to code it. Start by using a language a lot of people know to make a basic open exchange protocol. This could be done in C because C is the most widely used language there is. The basic functions can be written in C and then an API can be created. This API should allow someone such as myself who prefers high level languages like Python to code certain aspects. Basically the protocol should be language agnostic so that as many different programmers as possible can join into the project.

The project has to put a specific focus on countering trading algorithms and on preventing attacks which can game the system. This would require an engineer with PhD level math and programming skills beyond most of ours to come up with some ideas. The first step for any of us who are grad or Phd students is to use our resources to research all the journals on this issue to see whether or not any novel ideas have been found.

For example game theory may be part of the solution just based on my hunch but once again you'd have to look it up and read a journal or two to figure it out. There may be all kinds of solutions but the main thing is research. One way to facilitate research is by offering a Bitcoin bounty to anyone who does the research and discovers the solution.

I don't know how the bounty could be set up but I think this is the best way to encourage the masters or Phd level students in here to actually research the theoretical solution. Once a theoretical solution is proposed then it should be voted on and if it wins the contest then the winner should receive the Bitcoin bounty.

At some point start a Kickstarter or something like this and have the community officially back the project once a theoretical design solution is found. It's not enough to look at already existing projects because the design we'd need for this one would have to prevent all kinds of manipulations, and being distributed doesn't mean it would be completely immune to attack. Also I see this as a chance to strengthen Bitcoin and cryptocurrencies in general. So why not do it right? Bitcoin was done right, so gather up the best brains and start the contests to see which ideas and proposals are the best.

Interesting, thanks for the links! I wasn't aware of any projects actually in development. It has gotten lost in all the theorizing and arguing noise.

Overview of current projects:

- bitcoinx: http://www.bitcoinx.org/  

Protocol description: https://bitcoil.co.il/BitcoinX.pdf
Other code, as well as links to the forum can be found here: http://www.bitcoinx.org/resources/  
Repositories here on github: https://github.com/bitcoinx
Wiki: http://wiki.bitcoinx.org/index.php/Main_Page

- darkxchange "Dark Exchange is a distributed p2p exchange for bitcoin.". Uses the I2P network.

Source available at https://github.com/macourtney/Dark-Exchange  
Described on bitcoin wiki: https://en.bitcoin.it/wiki/Dark_Exchange .
Also has a forum thread: https://bitcointalk.org/index.php?topic=26063.0;

Not really automated P2P exchanges, but P2P nevertheless:

- #bitcoin-otc (peer to peer trading with PGP web of trust and reputation system)

- Running an exchange in Google Docs: https://bitcointalk.org/index.php?topic=174117.0

Any others?

You know, it could be done via sneakernet even but the point is I think we need to start with a Wiki of some sort. We need to have a design contest.

Something like design the best open distributed exchange protocol and win X amount in Bitcoin.
If there is no current way to even do these sorts of contests then we need a way to reliably reward people in Bitcoin who come up with brilliant designs and solutions. The way to avoid having to redesign or avoid embarrassment is to do it right the first try and the way to do that is to hold contests and have peer review.

So let's start with a big contest which lasts perhaps a week or a couple weeks and then see who wins and the winner of that contest should be the person who designs the protocol.

I think for this it might be better to start from scratch. Sure if portions of their code is well done and useful then use it, but where is their code so we can peer review it?


And even with their code it doesn't mean their designs are going to solve all the problems. We need the perfect design first, then ANYONE can write the code. The protocol design is the key, and the underlying algorithms are what make a program efficient. And that is something I admit I'm not very good at, and few people actually are. Satoshi happened to be one of the people who is good at that, how do we find the next Satoshi? I suggest a design contest.

Years of experience with open source has made my way of working is 100% opposed to yours. Sure, only fools rush in, but I usually like to figure out the basics then have something working first, then in time make it better. You will never have a "perfect design". What do you think would have happened when Satoshi first argued for years about a perfect design? There would still be nothing but an academic project. It's a myth that ANYONE can (or will) write the code.

And even when starting completely from scratch you need to learn about the previous projects first, even if only to know why they failed. But let's not start with a NIH attitude, everyone going their own way is what kills projects not what makes them.

Edit: I updated my post above to reflect all the github repositories etc, should be more complete now.

Big plus++++

Design contest is the next logical step.

Lets get that step going today. Seriously, today.

What would it take?  I'm not a techie.  What's the best collaborative platform to use here?

mtGox is broken right now because they didn't properly design their code base. They relied on a flawed design because they didn't actually re-engineer or rethink everything.

Academic projects are useful for coming up with basic prototype designs. The design is extremely important when you want something to scale up without breaking down for instance. MtGox was not designed to scale up which is why they have lag. Just look at Napster, that was the initial design. They built it because it could be built at the time and it solved the problem but it didn't solve the problem in the best way so it got shut down, then we had to go through Kazaa, Bearshare, Limewire, and a bunch of other petty rip off protocols before we actually got to the well designed stuff like Bittorrent, Tor, I2P. All the while Freenet was in the background being worked on since 2000 around the same time as Napster but it didn't stop people from copying Napsters weak design over and over and all of them getting shut down and all their users having to switch from service to service.

That is what I want to have avoided. If it takes a design contest which lasts a week to avoid years of that then so be it. If you don't want to go the academic route you don't have to, but why should we believe your design is better than any other if it's not going to be peer reviewed either on this forum or at some academic journal? If you're afraid of peer review then build it yourself but don't expect people to join in if we don't know the mathematics are sound, that the algorithms will work, that the solutions are scaleable, that it's actually decentralized and not easily attacked etc.

The simple way to do it is at Reddit or on a site like this. You have a contest where people post their designs in different threads. Then later on in the week or at the end of the week after the community has had time to discuss and review each design you have a poll where we vote on which design we think is best. The designer or team of designers who came up with that design should get the reward.

The only difficulty would be having a system where people can pledge a portion of Bitcoin, I don't know if that even exists yet. But even if it doesn't exists it's still a good idea to have the contest whether there is a reward or not because these things need peer review and no amateurish solution is good enough in my opinion for something this important.

This is a good collaboration tool right now.

I can update the github readme file according to the consensus in this thread.

This. All of these ideas skim over the most important part, getting fiat into the system. That requires trust, and that always leads back to a central point. Who do you give $10k to in a decentralized system? Unless you meet them in person and bring your baseball bat and some friends, no one. Our TRUSTLESS bitcoin network relies on TRUST based networks to give it value, so much for independence.

I've had an idea for a while for a new coin. Tradecoin. Which are basically vouchers for a p2p stock market. btc / ltc would be on such stock market and the buying, selling, shorting, calls, puts, spreads ect would all be escroed by the "miners". The "ticker" price for any exchange values would be calculated and verified by the network. Miners would be paid by arbitrage within the network and or trading fees. I would also write a tradecoin constitution which would spell out the rules in the case of blockchain fork or other software glitches. Namely that the block chain is a voting / verification principle and that in the case of failure a new system would be created and shares/coins from the old system would transfer over from the most recent and verified copy of the blockchain. I also would propose an anomymous voting system which should be robust enough to handle even political elections and still ensure one vote per person. Perhaps one vote per share of the given asset on the network

The problem of course is that even though I am a programmer I find such a system to be a daunting task and quite the responsibilty. I prepose an agreed apon "pre mine" as bounty for the system.

That's how innovation works. There is no way around it. It will suck in the beginning. People will find flaws in current systems, then improve on them, version after version, in smaller and bigger bursts.

The constraint area hasn't been mapped yet, let alone that we can know how an "optimal solution" would work. A "design competition", especially with so many non-technical people, is not going to solve that. Who is a judge of what is going to work anyway?

I am not saying that peer review is not good. It's good. That's why I posted links to current projects and collected some information. Why don't you peer-review bitcoinx and darkxchange? Criticize their mathematics?

while your all talking we are already up just clone and go and build in more logic /apis/ code later

http://www.bteex.com/ (http://www.bteex.com/)

see

https://bitcointalk.org/index.php?topic=174117.0 (https://bitcointalk.org/index.php?topic=174117.0)


about 100,000 of these should do it in the interim period

UPDATE GOX CRASHED AGAIN!!!AS SOON AS IT OPENED

http://www.bteex.com/

Google infrastructure is good

lets do it, cut out the bit exchanges problem solved

EDIT 1

Seriously a few good coders and there are api's google .gs scripts, javascript available and all sorts of integration, we can get something together, and en-mass clone it...local exchanges everywhere...and by local I mean in your street.

EDIT 2 design philosophy,

Ok a few layers are needed

[1] a more automated front end with scripts

order of (n) scaling
[2] A way for these to communicate with each other or some torrent like or rss feed or scaled data aggregate data

so feed data up to some sort of aggregate sheet or any number of sheets so that no one sheet is overloaded, eg 1 - 10 feed plus

10 exchanges feed up to one upper spread sheet they do calcs and 10 of those feed up to another upper sheet, this way the caac load is very distributed and easy to grow

Feed down same way 1 to 10 down......6 steps allows for 1 million exchanges each spread sheet only has to do 10 calcs

expand on these ideas

Why should we create another alt-coin? I suggest we use existing bitcoins to reward the exchange-miners.

I've given it further thought, we should do it where there are individuals/teams. We classify the teams with code names, like the red team, the blue team, or the viper team, or the chariot team, or whatever they want to call their team. We let each team come up with their own protocol but we as a community come up with the list of problems we want solved. We list those problems in plain English and the contest is about who can come up with the BEST solutions to these problems, the most efficient, user friendly, scaleable, etc.

As a community we can vote on the teams, reward the teams with points, etc. All of that could be done here and it can be tournament style or contest style. As far as what happens after that, once the winning team is found then we come up with a to-do list of what needs to be coded. We connect to each other via the app like astrid for instance. http://astrid.com/ Astrid allows individuals and teams to share lists. That could be to-do lists or task lists or whatever.

Beyond that github. Once a design is chosen then if people really want to save Bitcoin then they just have to code around that already designed protocol and follow certain rules in their coding so that it's well documented, and so well written etc.

Tradecoin isn't a bad idea. Let tradecoin be part of the contest. Any idea should be considered and voted on.
Tradecoin seems to be a high level abstraction layer protocol similar to devcoin and the like. The problem is if you can't buy coins at all due to the exchanges being centralized and hacked what good is tradecoin?

Do you think in war that they just design the cheapest crap without doing any R&D or running any simulation on the small scale as a test to see if it can scale up? They test for years. We don't have years, I'm saying let's at least do some R&D and not rush something out just to get something out and have it attract a bunch of users and then collapse under it's own weight. That might be fine for music and movie sharing but when people are trading thousands of dollars they wont have that patience.

Just look at Bitinstant. Butterflylabs. All these companies doing exactly your method and look at the results? I don't want anymore amateurware but that is just me.

Enough words about this. I look forward to your perfect P2P exchange that runs without flaws from day one, has all the features people could want from day one, and won't have any scaling issues. In the meantime I'm going to look if I can concretely support some project. Sayonera.

John even if we create a totally fucked up p2p exchange Im sure we cannot fail worse than MtGox :)
The concept that saves us is the p2p-protocol - at least our system will be less harmed by DDOS than the tradition bitcoin exchanges.

It might be immune to DDOS because it's decentralized but then we still have to worry about timing attacks, possibly bots with algorithms designed to game the system. It's distributed but then would it be vulnerable to botnets now that it's distributed? How can we verify each node in the network isn't a zombie node or part of a dark pool to manipulate the network and how would we detect certain patterns or at least design the system to be modular enough that the protocol can continually update it's defenses via plugins or extensions?

I fear if anything is thrown together without much thought about design that the hackers could find flaws in the distributed design. The three main concerns are establishing trust, detecting malicious trade behavior or patterns and limiting the damage, and knowing for certain that every node is who they say they are.

Digital signatures via GPG/PGP can allow for a web of trust and can allow you to know each node is who they say they are. A system where I vouch for you, someone vouched for me, and we all are continuously reviewed can produce a web of trust (just off the top of my head). It still doesn't prevent a team of hackers from conducting malicious trade behavior and I'm not an expert on trading platforms of the possible attacks against them.

I just know when we looked at what happened with mtGox we saw all kinds of unexplained trading behavior that didn't look just like a panic sell but looked algorithmic and coordinated. It didn't look very natural, and I don't know enough to know what natural trading behavior looks like. This is why we would at least need someone in here who is an experienced trader who has seen all the attacks that happen in Forex or Wallstreet and how those attacks have been defended against. The protocol would have to be modular enough that as new attacks are discovered a plugin can be written to manage or detect it similar to how Firefox and Chrome have extensions and the like. Scaling is important because if mtGox really did crash because of too many users and if Bitinstant really is forgetting to pay us our coins because of too much load then that scale and load is still going to be a problem if you decentralize it.

Solution to fight evil algos: "Order matching is done once every block, and each block should take 10 seconds to complete. The order matching is delibarately slow to prevent High Frequency Trading algorithmis having advantgage over the rest of the market."

If you're getting into GPG auth ect, we already have this kind of decentralized exchange it's called bitcoin-otc

GnuNet is the only candidate for such an endeavor and it still is prone to different kinds of ddos they're working out. For instance you can flood a peer til they disconnect and then impersonate them. Not good for an exchange unless you had cryptosigning, and if you're going to go that route why not just use IRC what's the difference. If you're competent enough to do multisig and pgp signing then you can use bitcoin-otc.

It would be trivial to write an application that plugs into #bitcoin-otc and allows you to authenticate with the bot easily instead of reinventing the wheel. The app can list the order book and check for gpg identify or make gpg identify easy for total idiots

Or, run Open Transactions inside Gnunet. Great success

IRC would be rather limited because most people aren't going to want to use IRC. That is the main problem with that but also it's got it's own problems as well.

I have no idea how we can prevent high frequency trading but I suspect that we suffered a flash crash due to high frequency algorithmic traders entering. I think Wallstreet finally took Bitcoin seriously this week and the professionals entered the market with their statistical pair trading and other esoteric algorithms. I guess one of the requirements for the protocol design would have to be a mechanism to protect Bitcoin exchanges from high frequency trading and market manipulation. Just assume Wallstreet insiders want to kill Bitcoin and control the market and what can be done to stop it?

Gollum I hope your solution works. It sounds very simple but if it works it works. Order matching every block, it sounds like it could work or at least be part of a solution.

GNU Net has an interesting paper http://secushare.org/2011-FSW-Scalability-Paranoia

Don't know if it would work with Bitcoin for the exchanges or how you'd put Open-Transactions on top of GNUnet.

So what if the exchange protocol could be a chrome/firefox extension? Would this be simple enough? I will get some sleep and maybe someone smarter than me will solve these problems.

An OTC client on top of RetroShare (http://retroshare.sourceforge.net/) would be another option... It's very user friendly as far as these tools go. And there would be sharing files, communication and trade in one application. It already has the web of trust, and already uses PGP just like OTC (but the user can remain oblivious of this). "Just" add in the reputation system and a way to post trades...

This is the advantages algos have in the regular stock exchanges:

Physical Advantage
The stock exchange servers are physically located in one or a few server facilities in the same city.
Owners of the HFT-machines wants to be physically close the the stock exchange, every meter closer to the exchange server is an advantage.
When the exchange is decentralized, the current matchmaking could be done 100 meters from the HFT or it could be 10 000 miles from the HFT - the randomness creates unpredictable ping time to the exchange.

Order book Advantage
The order book of regular stock exchange follows a set of rules that can be used to the advantage of algos, the stock exchanges are also executing orders so fast that the algos can make lot of trading before a human even has reacted to a price change on the screen and clicks the mouse to buy/sell. When we got blocks of 10-second execution in combination with random order book matching it is a more fair play between algos and humans. It dont matter if you put your order first or last to buy 1000 BTC at 53$, randomness decides if you are the first to get filled.

This sounds like it could work. I also think retroshare has potential. At least we can borrow code from it and solutions if those solutions are proven to work.

Gnunet has it's own naming system you can run servers inside it. A web front end for IRC is much easier, a phone app would be especially easy to interact with bitcoin-otc automating the whole orderbook and gpg authentication/rating system.

We're also forgetting all of our cities are chock full of corner stores and currency exchange booths that could easily buy/sell bitcoins to the public too. Just need to tell them how to do so, and automate that as well, or become their traders for them and settle up end of day.

I know this is against the free market but this thread should be PINNED! A P2P Exchange is a MUST and gollum has started us in the right direction. This need the full focus of the entire community right now. Maybe we should even start a fund for the developers.

anyone here at all familiar with hawala? money transfer system from the arabic world going back a long ways. i don't understand it fully, but it seems like it's applicable here.

http://en.wikipedia.org/wiki/File:Hawala.png
ie: (1) A customer (A, left-hand side) approaches a hawala broker (X) in one city and gives a sum of money (red arrow) that is to be transferred to a recipient (B, right-hand side) in another, usually foreign, city. Along with the money, he usually specifies something like a password that will lead to the money being paid out (blue arrows). (2b) The hawala broker X calls another hawala broker M in the recipient's city, and informs M about the agreed password, or gives other disposition instructions of the funds. Then, the intended recipient (B), who also has been informed by A about the password (2a), now approaches M and tells him the agreed password (3a). If the password is correct, then M releases the transferred sum to B (3b), usually minus a small commission. X now basically owes M the money that M had paid out to B; thus M has to trust X's promise to settle the debt at a later date.

wiki: http://en.wikipedia.org/wiki/Hawala

thoughts?

^^^
That's basically how Western Union works too, nothing novel there ::)

well, color me stupid. :D

Some really great interactions going on, but can we agree on a few things?

It seems that the exchange p2p coding area is already gaining some speed, but what about the other side, the brokers?

I am trying to imagine alternative markets to use for inspiration, and the best I can come up with is the way that torrents are found using websites like Pirate bay.  I can see how our exchange will basically be torrents, and the brokers will be sites who do their own marketing to get customers.

Will the focus for this project be on one or both aspects of this project?

While I can code a little, my skills are really about people and business!

It would seem to me we need to start to think about how to create 1000s of local exchange gateway websites to ensure that we don't move the ddos target from the exchange to the most popular exchange access websites! ;)

Yes we need to market our p2p exchange to many many potential brokers in every country in the world.
The beauty of the this exchange is that bitcoin can be used as the maincurrency to pay the exchange fees regardless of what assets are traded.
My vision is that small cap companies will rather trade their stocks in the p2p exchante than ordinary stock exchanges.

But first of all we must agree on a system architecture and then build the platform, it will take months or maybe over a year even if we got several guru programmers in the project

We need coin that can't be manipulated. Bitcoin is useless now when investors/wall-street players have hoarded large portions of all existing coins.

No need to do money on the currency itself. That stinks from the beginning, and isn't better than fiat in that way.

A design contest is absolutely the most useless route to choose.

It is endless wanking, without any real engineering proof that the design is practical in the real world.

How would you suggest orchestrating a system that would allow the best minds to self organize and collaboratively create some kind of solution?

The x-prize worked way better then expected.

Why could it not work here?  I believe all here would say we are open to any of ideas.

Wow, there are a lot of threads popping up today on new ideas for Decentralized Exchanges. (I can't imagine why...) I started one myself 5 hours ago. ;)

Allow me to throw some ideas on the fire, as this thread seems to have gotten further than the others.

1. Your concerns about how to port in real-world cash are unfounded. There already exists an industry of businesses that will take cash in many forms and give virtual credits, including bitcoins, for them... BitInstant, Dwolla, OKPay, coinbase, ArumXchange, and many others can upload cash into this exchange in one or more forms. Let them deal with this headache; there are many of them so there is no central point of failure there.


2. To really replace MtGox and have real-time graphs and trades like we all want to see, the core of this beast must always determine the other clients running within a short enough pingtime's distance. (So trades can happen in milliseconds, not multiple seconds.)

If a client logs on, looks around for other clients, & notes all of their pingtimes, the client can be a real-time, graph-displaying trading platform for everyone within a decent pingtime of you!

True, this means that someone in Kansas isn't likely to see the trades of someone in Perth... But that's the nature of decentralization. The going price of a bitcoin would therefore not be global, but regional... Although the regions are likely to be continents, not cities. You'd trade quickly with those closer to you (pingtime-wise) and if you can't find your trade there, I guess it would be a good idea to include an OTC board in the package too, or port in #bitcoin-otc somehow.

(Note: VPNs could be used for people that live far away from population centers to reduce pingtimes, too!)


3. No marketing will be needed. (!) If each client for this exchange gives the fees to the person running the client where the trade happened, then it is self-incentivized to spread much like how bitcoin miners get paid to mine. I've got some very specific ideas about how to make this part work, but for now all you need to know is that everyone with an internet connection would want to run this client because it would literally pay them to just run on their PCs. (And they wouldn't need expensive GPUs.) More details on this step later.


4. No miners needed. A lot of the data that runs across these clients need not be encrypted... You want the world to know what the current price for each currency is, for instance... It's just the ownership of things on it you must secure, so no processing of SHAs here, just good, secure ledger keeping.

Every client should be both a place for you to log in and make trades, and a place for other people to trade on. If run this way, it will use a bit of bandwidth (think: bittorrent) but not any advanced hashing that requires special equipment like GPUs.


Enjoy the ideas; I'll add some more later.

How can we prevent order manipulation if the processing of the order book is not encrypted?

If orders are processed in a true bittorrent manner that would mean that traders living close to big cities would get lower spread and better execution while people living far away from the centers would get bigger spread and longer execution times?

Why should we have millisecond execution? That would give a big advantage to HFT trading and make market manipulation easier.

What about a darknet powered by the current miners?  Does that offer enough speed to solve this geographic problem?

When the whole board only exists temporarily and regionally, what exactly is it you are trying to stop from being manipulated? One board seems like too small of a fish...

Perhaps I didn't explain this part well enough: When your client logs on, it notes all other clients within X milliseconds from it, and creates a session of a trading board (like BTC-E's main trade engine) for that region. Every client within X ms instantly got access to that board, and can trade on it... But when your client logs out, the whole board ceases to exist.

That may be 50-500 ppl on that board in total, even in big cities... But it doesn't feel that small to the trader because he's seeing that many board's worth of trades side-by-side!

I think the regionalality would cut down on that effect, if not eliminate it... I may be wrong though, never programmed anything like this before.

the problem with hawala is that it runs afoul of all sorts of AML laws in most 1st world countries. it is indeed a good system for informal transfers but does not scale over a few mln USD.

if you look around online, you can find many examples of "hawalas" that have been shut down inside the US. in many cases they were laundering money for drug cartels in south america.

@ gollum - a decentralized exchange is a great idea in theory but i see several serious problems. i'll list a few of them below

- escrow - in order to put in a proper BTC sell order, you must actually possess the BTC you wish to sell. similarly, if you put in a BTC buy order, there needs to be some assurance that you have enough other currency, e.g. USD, virtual bucks, whatever. this means that both BTC and other currencies being exchanged for BTC need to be kept in escrow somewhere. i don't believe there is a good solution for this when there is no single point of exchange. the result would be submission of orders that are not actually backed by assets and a disorderly market.

- AML issues with high-volume orders/accounts - if we drop the idea of a central exchange, the direct value transfers between participants in the network would be the means for exchange, e.g. BTC for blowjobs or USD. for someone who either makes large purchases or many smaller purchases, the point being that the total value transferred is high, this creates a potentially serious issue with banks: banks _must_ keep track of accounts with lots of activity like that described. this could lead to that individual being investigated by various law enforcement agencies.

i like your idea of "trusted brokers" but the escrow problem is serious. stuff like ripple is great for ppl who want to buy/sell smaller amounts of BTC but does not scale well if you want to purchase USD 50K of BTC.

there is a reason that humans have historically gathered in single places to trade: it is efficient. the fundamental problem is that mtgox is an amateur-hour operation and not efficient.

Hi Guys

Just saw this thread. Please see my post here:

https://bitcointalk.org/index.php?topic=174464.msg1817649#msg1817649

Basically Exchangers become what Verisign is to a browser. My post explains it better

namecoin?

These points are important, but you are missing one big issue.

A decentralized exchange with regional brokers will mean that we get best of both worlds

The decentralized aspect is for the actual price discovery, where the regional brokers will do the admin of matching bitcoins and currencies to the right places.

For instance

Bob visits USAEx.com and buys some currency tokens with real dollars
He then places an order which is sent to the p2p exchange
That order is matched with an order placed by Han on the YellowRiverEx.cn
The deal is done electronically, and at the end of the day, the task is added to the brokers list of things to do.
YellowRiverEX.cn sends all the BTC to USAEx.com - minus a commission
USAEx.com send all the dollars for orders to YellowRiverEX.com by bank transfer - minus a commission
Bob gets his BTC sent to his wallet and Han gets his currency tokens which he can convert to CNY through the YellowRiverEx.com



The end result is that individuals get to only deal with their local brokers, but their deals are world wide, using a mechanism which isn't going to be killed by a DDoS, or regulations or popularity!

Does this make sense - and what have I missed out?

Basically my post above says exactly what nwbitcoin's post says. The whole thing should not be decentralized, just the "orderbook".

Would it be possible to build a P2P exchange based on Namecoin?

sort of like a unified Bitcoin payment ledger, (Fiat currency IOU's for BTC amount), written in the namecoin blockchain, possibly built around an open source cloud based escrow.  Its merged mined so limit the risk of attack.  The obvious flaw in this here would be the bottleneck of still requiring a physical bank account address to get fiat in and out of the system. Thats where I ran out of ideas??? could bitinstant or similar provide a clearing pool?

I'm probably way off the mark here and can't code so don't ridicule me too much, it was just an idea afterall :P

all i need to exchange coins or what ever is one person i trust!
i would exchange with anybody i know.
if bitcoin stays simple and safe there will be trust in the tech and then everybody will
use it so i can exchange with everybody i trust.

just dont use the big exchanger ! there is no need to exchange the whole time.
generate the money in the net and leave it there or buy some coins from who ever and use it.
like usa people going to wallmart and buy some.

and by the way bitpay is much cheaper to get your coins into your bank account ;)

if you think bitcoin is money ,dont play with it!!

Skype is said to have a backdoor:

http://memeburn.com/2011/07/microsoft-and-skype-set-to-allow-backdoor-eavesdropping/

I agree we need a fund but first we need to agree on a design and a plan. I'd be willing to throw a few bucks to a fund in exchange for shares or something to make sure we can get our money back.

Like a kickstarter where we fund the development of the exchange with Bitcoin to buy shares and then we get all our Bitcoin back WITH A PROFIT when the project is completed. This would allow Bitcointalk to gather enough funds in Bitcoin to hold up both for the Bitcoin (Xprize) contest and ultimately for the developers who decide to take on the role. Consider how much money could be at stake in terms of the long term profits on your Bitcon and consider also that to pay for this we could have transaction fees which would give us double what we paid in  and it could be both profitable for us to invest in having the infrastructure built and profitable for the developers who would get paid by us to build it.

Who agrees with this idea? If you agree with this idea then lets figure out how to do it ASAP. Let's have either a contest to determine a design or let the programmers themselves create a bunch of kickstarters and bitcoin investment funds right away and let the community fund them all and see which team wins.

GO GO GO!

www.cypherpunks.ca/otr/
Then you can make use of off the record with pidgin. Pidgin interfaces with AIM, ICQ, Google, etc. Off the record is a plugin which runs over it which supports encryption and perfect forward secrecy.

Geez. 6 pages before there's finally a reasonable post  ::) Thank you!
Much of this does seem like it can be done by OpenTransactions or Ripple. I'm still concerned about being able to execute trades without someone being able to take BTC (or a trade confirmation) and not send the USD/EUR. Has anyone come up with a way to verify that both parties have actually sent their part of the trade without relying on a central service?

In all these discussions, these have been the #1 problems to be solved. Virtual currency and ledgers are easy, or at least doable, but depositing money into the system, and verifying fiat side transactions, are still a big ???

Is there some sort of forum game being played called Ripple Bingo?  Every other post seems to be someone saying - what about Ripple?

Which part of its not open source don't people understand?

Ripple is owned by a company who just want to be the next MT Gox - maybe ;)

Yes, the software might work, but its not a decentralized exchange in the same spirit as bitcoin, so it doesn't pass the most important rule - the concept needs to be totally open for anyone to play with.

Its not the quickest way to get a result, but building this idea to the open standard that made bitcoin is a must!

Hope everyone agrees!

:)

I'm also not entirely sure something like a blockchain is necessary (why I was thinking something closer to ripple than bitcoin). I mean, there are two purposes to a blockchain: Keep a ledger, and prevent double-spends. We need the ledger, but that could just be a distributed file flying around, with some pruning involved (no need to keep executed trades). As for double-spend, if two people have traded, there's really no need to secure against it. All this system needs to do is match two traders and mark that their transaction was executed. A double-spend would be basically someone saying "I sent you these coins twice, so give me more USD", while the other guy could point to the BTC blockchain to say "Nope!"

Another fun thing I've been playing around with is Bitmessage. It basically does something like this, but with e-mail like messages, only holding a copy of yet-to-be received last two days, and removing any that were downloaded. It also encrypts all messages so that only the recipient can read them. If the messages that are in the form of buy/sell orders are not encrypted, people could just download all available ones too.

There's still the problem of sending and verifying cash though... So far, trusted brokers is the best idea I've heard.


P.S. Help out with bitmessage too if you can. I'm not involved, but it looks like a cool idea.

You're welcome.

I'll look into OpenTransactions, but it can't possibly be this decentralized... An exchange house running on every client is pretty radical.

As for Ripple, it is my understanding that it has incredibly major flaws, like not being open source, not being a real time trading platform at all, and has big problems moving larger amounts of money... It certainly isn't a replacement for Mt.Gox in that no wall street traders can find a way to use it to trade bitcoins versus the USD, now is it?


I just did above. Every single client would be a 'central service' for the two other people involved.

Just throwing this out there:
Take an idea similar to bitmessage, where everyone generates their own address ID. Everyone also stores their own coins, and their own USD.
The order book is shared to everyone running this client, and can be modified by anyone to add and remove only their own transaction requests, signed by their own ID. Some proof of work could me included so it takes a second or more to place your order so mitigate spamming by tons of transactions
Anyone is free to put up an order, either sell or buy, with their own conditions, such as method of payment (Dwolla/PayPal/Wire), fees for cash transfer, etc. The order book organizes these so that the fee is included in the price being traded (e.g. all PayPal trades could be 10% above wire trades, etc).
Once a match is found, the transaction is locked and is accessible only to the people executing it. It is then up to the two people to get in touch (possibly using bitmessage type system build right into this) and actually carry out the trade off the system, e.g. sending btc to someone after they send cash, etc.
Once the trade is executed successfully, both parties must mark the transaction as successful, which increases the reputation record of the address IDs. This can be done by both addresses signing that the transaction completed successfully, and will be in both parties' interest to store a copy of. Since both have to sign, those can't be faked. Tying this to the OTC WOT (bitcoin-otc web of trust) would help, too. Someone could try to game the system by trading with themselves, but the risk is that their offer will be picked up by someone else, which means they'll have to carry out the trade, or get a bad rating.
Eventually, certain high reputation level nodes will emerge to be able to handle transactions for those more skiddish, possibly at a higher fee.

Concerns: still may be possible to game the system, will likely be easily succeptible to scams and chargebacks (at least until trusted nodes emerge), will not be able to handle high frequency trades, may be difficult to fill a large order that spans many smaller ones (instant buy on MtGox), and finally may be extremely inconvenient to have to ask for cash from someone directly, v.s. just having a cold anonymous system do it for you.

Of course this could also be expanded to easily include trades of MtGox codes for BtC, too, in which case, like was mentioned, big trusted companies could be the money in-out places.


It seems we have a lot of bases we can start with for the code already, be it Ripple, P2Pool, or Bitmessage...

BitMessage and P2Pool are also open source btw. Maybe someone could bug one of the developers to see what they think about whether their tech can be modified?

Now we are getting somewhere. This is a lot like localbitcoins only it's more streamlined and much better.  Localbitcoins does work.


The only problem is I don't like encryption. We need transparency not secrecy to stop scammers. So we need it so anyone can look at any previous trade messages and only stuff like checking account type info would be considered private but only to a certain extent. We need it so every past trade can be logged and reviewed so that scammers can be punished thoroughly. Also this system would probably work best if integrated into Facebook and real names should be a requirement. Finally we probably want to verify people in the real world, how much or how little should be up to the individual but I should be able to say I wont do business with anyone who isn't on a verified account. Meaning someone with state ID and verified address on file so that if something goes terribly wrong then I can sue them or track them down.

www.cypherpunks.ca/otr/
Then you can make use of off the record with pidgin. Pidgin interfaces with AIM, ICQ, Google, etc. Off the record is a plugin which runs over it which supports encryption and perfect forward secrecy.
[/quote]


Wow. Sounds good, I will look into it.

As long as bitcoin exchanges with fiat currency, it should cooperate with fiat way of working, that is a centralized exchange (because fiat money is centralized). Bitcoin is a completion of existing financial system and provide another alternative, not to replace the existing sytem. Today's financial system exists for many reasons, and in many cases a centralized system has its benefit

There are some really good ideas and points in here, particularly this one

It seems like the P2P client exchange could have a "standard" voucher/virtual credit/token (whatever you call it) to represent that someone has deposited fiat cash into the P2P  exchange system. Those tokens can then be cryptographically locked up when a user commits to trade, using a smart contract escrow or similar, and then released when bot sides are happy the trade has been completed, i.e. P2P token credits are released to seller and bitcoins released to buyer.

The crucial thing here is the standardising of the virtual P2P tokens that represent that fiat cash has gone into the system through one of the known issuers (BitInstant, Dwolla, OKPay, coinbase, AuramXchange, etc) ... so maybe it is simply a matter of someone releasing a good enough Open Source standardised format for P2P fiat token representations that all these fiat exchangers will adopt because it then gives them access to users of the P2P exchange client?

An industry of business, you mean exchanges. All of these ideas floating around here rely on already existent exchanges to facilitate a 'p2p exchange'. If this were p2p i could convert my fiat into coins and back without any sort of legal intermediary.

We need to contact this guy http://www.reddit.com/r/Bitcoin/comments/1c7v6z/buttercoin_open_source_highperformance_bitcoin/

Not all of them. :) Mine puts a seller into contact with a buyer. I need to just get it done and stop posting about it probably... I need a PHP programmer.

Already over there... The project is at: http://buttercoin.hackpad.com (http://buttercoin.hackpad.com)

It's a bit differently-structured now, but I've filled them in on my idea a bit.

In the interests of keeping things in a single thread, I am reposting the below.  Since the value of coloured coins cannot be monitored by the main bitcoin network, atomic operations on the main chain have to be initiated by the BTC buyer.


Under a system like that, the exchange would be like a bulletin board.  However, when you contact a node, their software would be monitoring the market, and wouldn't buy if you asked for more than market price.

This doesn't allow "offline" operation, where you can just post an order to the order book.

Even your idea could be implemented in the p2p exchange we are discussing in this thread:

One exchange containing many virtual exchanges running at the same time, side by side.

each virtual exchange can consist of one or many brokers.

It is up to the brokers of each virtual exchange to decide if they want to trade real fiat dollar
or only some kind of token-dollar to solve the legal issues of some jurisdictions.

Please read through the template and come with ideas and suggestions!

https://github.com/p2p/bitcoin-exchange

Interesting. We might end up contributing to their project.
Or if their goals differ to much from ours at bitcointalk we should develop our own exchange system.

The market for stock / futures exchanges and forex is really huge, if we can create a p2p exchange that is paid with bitcoin that would mean a lot to bitcoin as a currency.

This is the revenues of the worlds greatest exchanges in the year 2012:
CME Group $ 3.0B
Nasdaq OMX Group $ 3.1B
NYSE Euronext $ 3.5B
London Stock Exchange $ 1.2B

The revenues of the Forex exchanges is not known since it is a decentralized OTC-market, but if we assume that their revenues also are in billions and add up all worlds stock and futures exchanges we would probably end up with a market worth up to 100B worth of revenues per year.

If the p2p exchange market paid by bitcoin captures 1% of the global exchange market that means 1 billions dollar worth of bitcoins each year must be used to reward the exchange miners.

Updated https://github.com/p2p/bitcoin-exchange

Fees
Fees are taken from the brokers and virtual exchanges to encourage miners to provide computing power to the exchange and to discourage creation of fake virtual exchanges, brokers and orders.
Brokers and Virtual Exchanges will have bitcoin wallets created in the bitcoin blockchain where they send bitcoins in advance to pay for the exchange fees. If the broker-wallet or virtual exchange-wallet is empty no orders are processed for that broker or virtual exchange.
The actual fees must be discussed in the community.

Broker periodical fee: 1 BTC per 30 days (18 144 000 blocks)

Virtual exchange fee: 10 BTC per 30 days (18 144 000 blocks)

1 BTC per 10 000 Orders forwarded to the Exchange

1 BTC per 100 000 Orders cancelled from the Exchange

Interesting that the p2p username was free on github.

Anyway, it would be nice if you didn't actually need trust to complete the actual trades.  Obviously, the transaction to/from fiat to digital "vouchers" would have to be based somewhat on trust.

You could have something like hierarchical though.  For example, depending on how fees work, it might be worth buying $10k from the mint and then selling those on.  The central mint would sell to local merchants who would handle the actual selling in that country/region.  There could be a few central mints, they could do bulk trades between themselves to keep the exchange rate very close to 1:1.

If you allowed the central mints to operate at less than 100% reserve, they could probably do the system for free.  These coins are effectively senior bonds.  You sell a $100 denomination one Today at $95 and buy it back in 2 years at $100.

I think you need to decide on the core mechanism before you need to decide on more subtle questions.

Colours coins + mints allow the main chain to be used for atomic transactions already.  The only trust that is required is the coloured coin to fiat conversion by the mint.  However, that is pretty much inherent.

You need some way to link an alt chain to the main chain somehow.  Effectively, "pay if the alt chain certifies this tx".

The simplest solution I can imagine is: TRUST
I trust my broker, You trust your broker. Our Brokers trust each other and the exchange. We put orders. The Exchange match the orders. Our brokers swap our assets (BTC vs USD) based on the trade execution and trade is done.

Thats the way human interactions and trading has worked for thousands of years, people trade with each other on trust, and some times people lose money because of scammers or counter parts going into bankrupcy. Thanks to internet any broker trying to scam its counter part would be shut down in a day if they dont settle the dollars or gold coins or bitcoins they owe their fellow broker.

The proposal of colored coins and tokens seems good, tell more about it!
We might use both models in the exchange to allow all kind of brokers to participate in the exchange.
Seems like cryptocurrencies (BTC/USD, BTC/EUR etc) against big currencies could be traded with the colored coin proposal.

But how do we trade a basket of chicken eggs at the farmers market against a barrel of gasoline with colored coins / tokens ? Is it doable?
(In this example farmers market got their order book at this hypothetical p2p exchange where farmers put sell orders of chicken egg and consumers pay with barrells of gasoline,
and they meet at the physical market once a week to settle chicken eggs against barrels of gasoline - Or if the broker dont trust its clients, the farmers put the egg and the consumers puts their gasoline at the brokers office in advance, before the trading can begin)

Right, but you are creating a more centralised system.  The brokers lots of trust links have a lot of power in the system.


Basically, a "mint" would create a coloured coin by sending you a coin from a particular address.  Initial marking of colour requires the mint to formally give info on which tx outputs are coloured as "roots".

The software tracks the coins as they go through the network.  They have rules for how to colour coins before and after a transaction.

For example, you might have

Inputs
0: 5 satoshi (mint1 colour)
1: 15 satoshi (mint1 colour)
2: 50 satoshi (mint2 colour)
3: 0.01 BTC (uncoloured - this is for the tx fee)

Outputs
0: 10 satoshi
2: 10 satoshi
1: 50 satoshi

If this is included in the block chain, the colour tracker will then mark the outputs as coloured to give

Output
0: 10 satoshi (mint1 colour)
1: 10 satoshi (mint1 colour)
2: 50 satoshi (mint2 colour)

If you want your coloured coin value to be preserved you need to make sure you have the right amounts for the coloured coins.

In this case, the first 2 inputs are the same colour and add up to 20.  Similar the first two outputs add to 20.  Your software would remember that those outputs are also coloured.

Likewise the 50 satoshi of mint2's colour are matched values.

These (http://www.bitcoinx.org/resources/) guys have defined a spec for this.


The mints act convert coloured coins to/from their backing.  A mint might send you 100 satoshi coloured by them in exchange for $1.  Likewise, they would do the reverse transaction.  There would be a fee in both directions.

This also works with other things like barrels of oil.  The farmer would sell the eggs for BTC and then buy the oil.


It is more efficient to have a currency for that.  There is no need for barter.  Having many mints to convert to/from fiat is required since fiat isn't in digital format.

In that case we must implement the usage of colored coins, but it should be up to each virtual exchange if they want to use colored coins or a trust-based system.

Merchants look at the dollar value they will get from bitcoin, which means we dont use the full potential of bitcoin as a currency since people always compare it to dollars.
I believe with the help of bitcoin and internet we can revolutionize bartering so people dont have to think in dollar-terms all the time. Most virtual exchanges will of course be around BTC vs some fiat currencies, but some virtual exchanges such as farmer markets might want to use other kind of currencies for trading eggs, meat and animals, maybe physical silver coins?

Right, it is pretty much 2 things anyway.  The exchange is really just a system for matching buyers and sellers.  The coloured coin system lets you create digital representations of real things.

With coloured coins, you would have a wallet which has a total each type off coin colour you have.

The guys at bitcoinX have a proof of concept that does the colouring.  If they added the 2 stage transactions, then they would be pretty much there.


The dollar is also a relatively stable measure of value.  That is one of the things currencies do.

You could have a client which does a weighted average of commodities to work out a stable value.

Isn't this the real problem when talking about exchanges?  

I mean, the creation of a BTC to LTC exchange would be fairly straightforward.  You need an order book, and a process for matching buyers and sellers.  You'd also need some type of two phase commit protocol that would gather the BTC from one person, the LTC from the other person, and distribute those back to the proper parties. A lot like the World of Warcraft trade window.  This would be great if it were a "distributed" thing, and ideally not relying on the trust of any of the three (or two) parties.  This seems like something that's achievable with crypto/p2p technologies.

Another way to look at that part of the exchange would be a secure p2p technology where you actually put your bitcoin or litecoin in the bid/offer, and when they matched, the transaction would happen.  if you were to cancel the order you'd just get the cryptocash put back in your wallet.   This would be a really cool project!  Another thing I've worried about RE bitcoin is that if I pay someone with bitcoins, they have the coins first, then I get what I paid for, right?  The fact is, they could give me what they promised or not, I'm still out my bitcoins.  Some sort of protocol like the WoW trade window could let both sides verify that they are getting what they were looking for (in the digital realm, of course).

However, fiat currency is a real problem.  Anyone sending their dollars to an account held by someone is putting a lot of trust in them.  In other words, when I send MtGox my BTC and "sell" them, MtGox is going to send me back the $USD (hopefully).  Since MtGox is centralized, they are a closed system - the USD out came from another customer that sent USD in.  

To make a distributed/federated exchange we'd need all the endpoints (member exchanges) to be able to move USD between them friction free and securely, which is what would happen when the buyer and seller are in different member exchanges. Otherwise, if MtGox users were buying and btc-e users were selling (and retrieving their cash), btc-e could be drained of liquid funds very quickly.

I thought colored coins might help since I could create coins (eg. tallcoins) for each dollar I have in my bank account.  However, who is going to take tallcoins in exchange for a bitcoin?  I could promise to pay anyone 1USD for each tallcoin, but when someone knocks on my door and wants the money, who knows if I'll cough it up.  You'd have to trust me, right?

If we use colored coins and atomic coin swapping to clear transactions on-blockchain, there are no need for brokers. We still need trust, not for brokers, but for gateways which will take fiat and give IOUs in form of colored coins. We trust them that they will convert IOUs back to fiat on demand. So actually we will trade not USD/BTC but MtGox USD/BTC, BTC-e EUR/BTC, etc. Even MtGox USD/MegaExchange USD.
If you placed order, you should not be able to not fulfill it (until you cancel it). Maybe we can devise coloring scheme that can be used to achieve that with help of contracts (https://en.bitcoin.it/wiki/Contracts) in trust-less way.
Doubt it will work - too much possibilities for manipulation.

That's pretty easy.  If you spend the input transaction, then that counts as cancelling the tx.  However, that would incur a tx fee on the main chain.

In fact, once you publish on offer transaction fragment, you can't cancel it any other way.

The one thing we do need to work out is who are we aiming this product to?

The concept of bitcoin is as a way for anyone and everyone to buy and sell using an online currency - but the  people involved could be a NY trader, or a student in India.  If we are focusing too much on the 1st world needs, we could miss out on the other 4 Billion people who are earning less than a Bitcoin a week!

While we need an exchange to  get the best prices for bitcoin world wide, if we leave the fiat converting side to the likes of OKPay and other blue chip financial specialists, we are actually closing the door on bitcoin to all those millions of micro buyers.

I know we have the likes of localbitcoins, but what we really need is an API that can be used for local websites in rural parts of Africa and Asia - Its this long tail of users that will ensure bitcoin becomes a real success!

With coloured coins, anyone can create fiat currency coloured coins.  The problem would be liquidity for small markets.

A mint only really needs to watch the market and keep the exchange rate between its tokens within a certain band of other major mints.

If there was 10 "major" mints for a given currency, a "minor" mint could promise to keep its tokens within 1% of the exchange rate for the majors.  This could be achieved by offering to buy back its tokens mints at for tokens from any major mint at 99% of their face value.  This would be for large orders, so they would buy 1000 of the $1 tokens and give the seller 990 $1 tokens from other exchanges.

The localcoin system could be used and rather than selling bitcoins could sell fiat currency.  This would lower the risk for people, since they wouldn't have to learn about a whole new currency.  OTOH, they wouldn't get the inflation protections built into bitcoin. 

Once there is lots of local currency flowing in the system, then it makes currency exchanges trivial.

I'm interested in this project because of my own long standing interest in managing money supply via the use of an inflation/deflation prediction market inside of the block-chain which would then adjust the money-supply by a feedback mechanism somewhat like how difficulty is continually readjusted to maintain a steady block creation rate.

So I'm interested in the broad mechanics of how you go about doing a P2P exchange.  One valuable insight I had they may be useful too you is that the biders and sellers have radicly different motivations and STRONG perverse incentive to manipulate and not propagate their competitors bids and offers.  A simple solution is the make Biders responsible for collecting and propagating the Offers, and make Offer'ers responsible for collecting and propagating the Bids.  This aligns incentives and should mean that all bids and offers are tabulated and none are suppressed.  Their is also no need to rely on proof-of-work for this, simply use proof-of-stake with bids and offers being separate, once the bid and offers curves have been created both sides can then validate the clearing price and execute the activation of the broker.

Interesting idea but if we create an exchange where we force a certain way of auction model that the market do not like they will most likely move on to another exchange where they can trade as they do at the stock market.

One solution Ive been thinking of today is to allow each virtual exchange to chose what kind of auction model they want to apply.
Different models that could be implemented:
-Time auction, higest bidder within a certain time wins (ebay) - could be used for virtual exchange that want to handle really huge bitcoin orders that normally would crash the market if sold directly to the market.
-Dealers market (buying and selling against market maker). - the best solution for small exchanges, the spread could be based on the price of the biggest exchange
-Auction market with no obligation- bids and ask orderes are matched and can be cancelled
-Auction market with obligation - bids and ask orders are matched, and they cannot be cancelled.

Example: The auction model of NYSE != Nasdaq even if the average joe trader wouldnt feel the difference:

You guys already failed at this unless the github account is anonymous. Anybody involved in creating a p2p exchange is now responsible according to FinCEN for all transactions that happen on it. Bitcoin Foundation talks about this in their blog how Satoshi, as creator of bitcoin, is responsible for every trade made with bitcoin. Hes supposed to hire compliance officers and report every transaction over $10k on the blockchain which is ludicrous but reality of govt regulation.

Now you know why he is anonymous.

The ripple guys are going to have the same problem unless they live in a country with no US extradition treaty or are anonymous. They even tried to lock up highschool kids who coded p2p file sharing systems

Its like suing the fathers of internet for all illegal activity takeing place at internet, its not practical.
What is practical for the US government however is to regulate the brokers based in USA. Therefore I propose that the p2p bitcoin-exchange system must have virtual exchanges instead of one global exchange. Each virtual exchange must have one founding broker that is legally responsible for the virtual exchange and represents the other brokers in that alliance.

 you know who made the arpanet and later the internet?
also i think everybody knows the french guy aka satoshi!
his geekness brought him to japan and he allready knows he is responsible.

Golum:  The type of auction process is not really what I'm addressing, I'm just talking about the back-end peer-2-peer system that's doing the book-keeping.  In BTC the 'miners' are as a group not hostile to the transactors and have a direct incentive to do the basic job of propagating transactions through the network.  Once you start talking about a market though you always have two groups which ARE to a degree hostile too each other and have lots of incentive to suppress certain bid and offer messages.  Say I have the lowest bid and someone is about to under bid me, I would have every incentive to prevent that bid from ending up on the distributed ledger.  I'm just describing a simple structuring that removes perverse incentives like that by dividing work and assigning it to the group that lacks perverse incentive, it will be applicable no matter what market style you go with.

This is good news. Giving people a choice is our main goal, in my opinion. Whatever people need is what they should get. Once a decentralized market starts to take form, one of the first things to do is also set up a keyword ( tag) cloud and a site like digg.com. This is to get user input on what people need.

The clone software for digg is "pligg". Its like a CMS. ( http://pligg.com/download.php ).


Is this the "official" decentralized market thread?

Yes I believe the discussions going here are more universal than the solutions offered in other threads or in projects such as ButterCoin.
So all ideas are welcome!

Okay - then lets keep it going until something is working, or even maybe a few of these ideas are working... :)

We should decide on which P2P-model to use:

One worldwide blockchain for the orders.

OR

Isolated blockchains for each virtual exchange (similiar to bittorrent, peers can choose which torrents to seed). This model would probably result in faster order processing but less stable and secure - but still better than centralized exchanges. Another benefit is that miners can actively discriminate virtual exchanges with bad reputation and instead provide their computing power to trustable virtual exchanges.

Which P2P model should we apply? Possible to combine a unified worldwide blockchain for some parts of the system and isolated blockchains for parts that are unique for each virtual exchange?

Personally, I would suggest the worldwide blockchain type exchange so it becomes a part of the protocol rather than a commercial venture as the MTGox price at the moment.

This makes the core element of the exchange a for the people by the people type of venture rather than a benevolence to be sold and control later type of deal - like Google search etc

But that is just my opinion!

http://www.247btc.com/bitcoins/134/how-i-would-manipulate-the-bitcoin-exchange-market-and-how-a-discrete-double-auction-could-stop-me/ This site has a very interesting solution to the market manipulation DDOS problem.

Yes that should eliminate much of the manipulations, allowing real time nanosecond trading will only benefit market manipulators.
We were discussing a similiar solution: auctions once every block, and each block should be 1,10 or 60 seconds.

Does this sound like it could work!

The double auction seems weird, you could end up selling at a different price than everyone else.  What about setting the price based on the previous block's order book.

That is very interesting - I especially like the idea of poling all the same prices together to cut down on actual trades, that would make a big difference!

I personally would like to see a worldwide chain for orders. This would give us one single definitive value for BTC instead of having a different value at each existing exchanges like we currently have.

It's one thing for people to know what their money is worth but in order for bitcoin to be accepted, we need it to be used for something. This means merchants and organizations who want your bitcoin for goods and services. Merchants who rely on their business to survive won't want to deal with looking at different exchange networks to figure out how much to sell their goods so that they don't lose out. They will want stability and also the ability to query one single entity that is always online (unlike MtGox) and get a value.

I also think you could have physical exchanges around the world in the form of bitcoin ATMs that would be connected to this worldwide exchange network. A system like this could also transform into a crypto-exchange system not just reserved for bitcoin. Having a one-stop place that could also handle altcoin exchange for BTC, fiat or other altcoins would be pretty nice in the long run and would benefit everyone's move away from fiat and central planning.

There is a problem with just one exchange: legal issues and trust issues. It is easier for a few brokers to trust each other than for thousands of brokers around the world to trust each other. And legally it would be more complicated to make it work due to different regulations in different countries. Thats why we need virtual exchanges - in the same way the Forex market works.

We don't need to have just one exchange to get a fair market price - calculate a Volume-Weighted-Average-Price of the trading on all exchanges in the world and you will have a fair price that merchandisers can use.

I dont see where the guy talks about decentralization there.  ???

This does not look decentralized, but he says it is "high-frequency" and open source:

http://scarcecapital.com/hft/

It could be made decentralized if it is open source.

Hey, I have a question. I know a blockchain is really cool and popular, especially with Bitcoin stuff, but.. why do you need a blockchain exactly? What will be its purpose? I figured just nodes sharing a dynamic database that anyone can add or remove orders from would be sufficient. A blockchain is there mainly to prevent double'spend attacks. Is there a double-spend problem with orders that someone can think of?

Maybe you are right on some points as I'm in no way an expert in trades, markets, stocks or other related stuff. I understand there are a lot of legalities involved.

That being said I don't really like the idea of seperate competing exchanges as people would end up pooling up to a handful of them, which would end up getting most of the traffic and put us right back with a couple of MtGoxs. People who want to trade quickly will go where the traders hang out. If it was all about trust then I don't think anybody would use MtGox. They do because most of the traders are. This is why I think one single p2p "preferred" exchange network work much better for everybody. Take the choice of exchange out of the hands of people and prevent pooling up at single points of failure. Some entities out there could still choose to be exchanges separate from that network but that would be left at the traders own risks.

During the bitcoin adoption phase, we need to make the transition between fiat and bitcoin seemless. The average Joe trying to get into bitcoin for the first time doesn't want the headache of having to figure out which exchange to use, how to transfer their funds to it, what the legalities are, how to buy bitcoin and what the going rate is. What they want is a screen that lets them enter their bank account information, type the amount of bitcoin to buy or sell and the current going rate of bitcoin from a single entity: basically what Coinbase is without the centralization. This would be best accomplished with one single unified exchange system. We need to be stable.

The way I see it is if you have peers handle the fiat for their respective region/countries then you may not have to deal with as many legalities (Again, I'm no expert so correct me if I'm wrong). For example the "coinlab peer" would handle moving USD for people with US bank accounts who buy and sell BTC, while the "btc-e peer" would handle moving EUR/RUR for customers with those types of bank accounts. Of course there would be many more peers per region all sharing in the moving of fiat but at the same time they would all process the matching of trades as a whole network sort of like we mine for BTC. That way If any peers go offline for a short period of time, the overall trading would not suffer or cause panic.

Anything that does not involve moving fiat from a peer's bank account to a buyer or seller's account within their region, should be transferred the form of BTC. Afterall, isn't that what BTC is designed to do: transfer money across borders without being restricted by legalities or regulation? That would include the fees that the peers collect for processing trades or sending money from one peer to the other. The peers would then be free to sell those BTC to buyers within their region for a 0% fee in order to collect their fiat.

Concerning trust, one way to possibly handle that would be to fully disclose to traders who handled the fiat for their transactions and let them rate their experience that peer on a per-transaction basis. You could only rate a peer if you have a valid transaction recently processed by them in order to prevent abuse. As a peer starts to lose rating then they would be given less transactions to handle, losing revenue from fees and eventually if the peer gets too many bad ratings then possibly cut them off from the network. This would also introduce some sort of regulation by the community and market.

Anyway, these are just some ideas based on my opinion (and somewhat limited knowledge).

I think rating may be difficult. Someone could create a ton of trading accounts and trade with a single other account if there is a lull in the market (i.e place an order for a price with little risk that someone else will take it before their own sockpuppets take in in small batches). Other than that, the rating should be a fairly simple deal. Have both the seller and the buyer sign their ratings with the privkey of their trading address, maybe hashed against the transaction. Good ratings will be kept by people whoa re trying to build up rep, bad by people who got screwed, and a few main nodes can keep them all. Would be nice to be able to integrate the thing into the WOT we use now, or even replace it.

Regarding this whole discussion, btw, is looks as if the focus is just on taking the orderbook off the exchange's hands, and letting exchanges only stick to receiving and sending local currency. That seems like the only possible solution, but still leaved a few weak attack points against bitcoin. If an exchange is taken down, whatever digital tokens being used by all these exchanges to represent the cash in their accounts won't be honored, since the cash will be seized along with the exchange.

Exactly, a blockchain is centralized, right?


Why not use a free downloadable script/program for any site that wants to be a part of the system? Anyone could be a "node".

No centralization, no learning code, and if it is in enough languages, it will work anywhere in the world.

↓↓

Yeap. I think after all the discussions your original idea is where it's at.

1 global world-wide order book. With virtual exchanges or brokers or whatever you want to call them to handle fiat conversions etc. And brokers who trust each other settling all balances daily with themselves. But all in one single transparent order book.

Ok I have some ideas, so I'd like to contribute. I haven't read the entire thread, so perhaps of what I have to say is redundant.

So for the sake of this discussion, I assume that a decentralized p2p market on the model of bitcoin/bittorrent/bitmessage is technically possible to make. It would work like MtGox works today, accepting orders, and matching them in a matching engine and keeping track of people's fiat balances and bitcoin balances.

I won't go into details about how I think that should be done, but the real issue here is that of interfacing with the traditional system. So I thought up the concept of brokers or agents if you will. There would be some super agents, that would seed the agent network initially, and there would need to be some kind of system to keep track of all the agents and their trustworthiness, and by community consensus, the license of an agent should be able to be revoked, if he cheats.

Agent 

Could be one of the following

• Person that can give you fiat money for a matched bitcoin sell order that you have done.
• Person that can receive fiat money from you and inject it as an available amount in your fiat account in the p2p exchange.
• Holds a certain amount of fiat money

Now, there would be a structure where agents are referred into the system by other agents. And no agent can refer another agent until they've reached a certain trust level and/or have been in the system a certain length of time, or a combination of the two. If an agent cheats. The agents two level above this one will be hit with a penalty, say the agent that went away went off with 10K USD, the referring agent would have to reimburse 10% of the USD that's gone, and the agent above him again would have to reimburse 5% of the stolen money. This would give each agent an incentive to only chose agents they are reasonably sure they can trust. Since the p2p exchange charges a fee that is distributed among agents and also pooled into an account that can only be touched if 6 of 10 superagents agree. I know, this looks like a quasi-centralized system, but bear with me. Somehow that pool of fees that are accumulated needs to give away some funds to replenish the funds stolen by a rogue agent. Now, if agents were limited to holding 10K USD, or another amount that's reasonable, 1 agent stealing the money would not bring the system down, and by selecting the agents carefully, as the sponsors knows they will be responsible if the agent fails, they also have an incentive to do some due dilligence on the agent they're recruiting. Preferrably it would be someone that they know in person.

When a withdraw is requested by an account holder, a message is broadcast to the network, for example, user TomCat holds now 3K USD in his account, and he wants to withdraw it. He lives in New York and wants to have it in cash. So the message goes out on the network, a request for a 3K USD cash withdraw. The agent meets with the TomCat user and gives him the cash. The agent updates his balance, which again is distributed to all the nodes, updating the total USD holdings in the system.

This system could also be used with different currencies, and there could be agents all over the world using this system. Agents could use bank transfers, or any other preferred method to send funds to account holders.

Also, to reduce risk, new agents would only be allowed to hold a certain amount of money, until their trust increased.

As to make this system actually workable, and having people participate in a fair and honest way, it's a lot of work before it gets there, but I think it would become doable. If a friend recruits you, and that is a good friend that you trust, it's not a friend you want to let down and steal money! However, this system requires a lot of trust, and there's nothing stopping an entire gang from slowly accumulating trust, and then all of a sudden just parting with a lot of money.

Another way to do it would be to be even more careful with the agents, and perhaps strike deal with actual companies, or make divisions all over the world like Western Union, while the p2p exchange still provides the platform. Now a govt. could shut down the agents easily of such a system, but they would have a hard time shutting down the p2p exchange itself.

Anyway, if agents accepted bank transfers, there would be a link to their name in the traditional banking system, and in the event they stole the money it would be possible to trace them and make life uncomfortable for them.

Another variant, which I am sure have been discussed already would be something like bitcoin-otc, but only on a p2p network, so people would basically enter orders, for instance I wanted to buy 2 BTC for 50 USD each, I enter the order in the system, and it's matched with someone else in my country that offers to sell 10 BTC for 50 USD each and accepts partial fills. The other party sends the 2 coins to escrow in the system and I send him 100 USD over a bank transfer. I got the bank transfer details from him on the inbuilt message system in the p2p system. After he receives the money, he release the coins from escrow to me.

The last system I described here I think is possible to make, however it would be not much different from the bitcoin-otc we know of today which is done over bitcoin-otc.com and freenode. However, both freenode and the website could be shut down if a powerful enity wanted to do so. A p2p network would be much harder to shut down.

I don't know if the first option with agents is so smart. I'm pretty sure it would be misued, and people would start aquiring fake bank accounts and become an agent, and police would never find them or their money and so on.

In the second version I proposed, there would be a trail in the system indicating that a trade has been agreed upon, if the seller sends coins to escrow, and the buyer sends fiat to the seller and the seller doesn't realease the coins, then I'm not sure how it should be solved, perhaps there must be a group of super users that can check the evidence and come to a resolution.

There are however many ways in which such a system could be gamed. We can imagine a scammer making an account in the system. His aim is to get free bitcoins, so he tries to buy 20 btc, he gets a trade locked in, and the coins are sent to escrow. The scammer gets the bank account details from the seller, and then the scammer lists an item on an online acution, for instance E-bay. He promises the victim to sell him an Iphone if he sends him money to the bank account of the bitcoin seller. The bitcoin seller receives the money and is happy, and release the coins. Then later on, the Iphone victim can't get hold of the scammer, and eventually resorts to contacting the bank, which again contacts the bank of the bitcoin seller. Then we have a problem. How can we avoid that ?

If everyone was honest, a p2p system would work just great, but as everybody will not be honest, I see a lot of problems that would need to be solved. With a trusted company running everything we might be better off, but then we're back to MtGox-status again. There could also be a group of super-agents that had the final say in the system, but that would also be a certain amount of centralization.

Perhaps the bitcoin-otc version over p2p is the best anyway, and really educating the users about how to avoid scams and so on. For example, in a bank transfer message, there could be a message that read like: agentp2p.com If the user went to that site, he would see a message that said: "This payment is going to an agent in the p2p cryptocurrency exchange network, and if you're buying a laptop or iphone with the account information you got, you are being scammed. Perhaps also for the first few transactions of anybody new in the system some verification needed to take place, like the seller of bitcoins verifying the buyer over the phone, or depositing a small amount to his bank account.

Ie. some steps could be taken to make it much more difficult for a scammer to operate in the p2p exchange. But beware, scammers will undoubtedly infiltrate the exchange when and whenever it comes to life.

I am sure many of you have even brighter ideas as to how the different challenges could be solved. I am not sure if we could actually make a market mimicing MtGox in terms of trade volume, ie. day trading would be very difficult, unless some sort of system, like the one I proposed first could be used. But we would also need to ensure the system could not be cheated and so on, and therw would need to be rules for the matching engine and so on. And as not everything would not happen instantly at the same time everywhere, how could one determine when a sell and ask order is matched.

I am sure there could be many technical challenges.

The utopia is a 100% p2p-system like Ripple where everybody can act as a micro-bank. But until we reach that level of bitcoin-penetration around the world we need centralization to some degree through banks and dealers forming networks of virtual exchanges.

We need a marriage between the bitcoin-world and the old bankning-world and the result would be something like Western Union, ideally we would have several independent corporations like Western Union. The risk of losing money by using Western Union is close to 0% since Western Union is big enough to handle small losses when some dealers goes bankrupt or scams the system.

If bitcoin ever reaches that level of penetration you probably won't be needing many exchanges ... or they will so fringe as to be an insignificant issue.

Summarizing earlier discussion in this and other threads on how to handle fiat in bitcoin exhanges:

Each exchange issues Fiat-contracts and Bitcoin-contracts that N members (brokers and dealers) buys with a X% margin. The exchanges risk for each member is (100-X)/N % in the event that any specific member would disappear (if we assume all members have the same size and same risk. An exchange with 10 members and margin requirement of 10% where one members goes bankrupt means 9% of the exchanges money is lost.)

When brokers and dealers create orders at the exchange and orders are matched the contracts are transferred between their wallets, the contracts must be created and transferred in a secure way to prevent duplication. Some has suggested using "colored coins" for this purpose.

At settlement (each hour, each night or week) the net value of the contracts are sent or received to the exchange to maintain the maximum X% margin.
If any member fails to settle what they owe to the exchange their trading and margin at the exchange is frozen.

The clients of the brokers and dealers who buys bitcoin will actually get the exchange-contract of bitcoin, not real bitcoins until settlement. Trading real bitcoin in real time is not practical since it can take up to one hour to confirm that bitcoin transactions are done.

All kinds of problems here, specifically AML KYC.  The mint can't control who receives the coins, and will have coins presented that may have been issued against a reverse deposit etc.  

Forget the colored coin, you're shoehorning something into the block chain that doesn't need to be there.  The blockchain is slow 1 hour def-confirms.  NO NO NO.

I open account at gox with $1000.  You open account at bitinstant with 10 BTC.  In this brave new future the gox and instant are both running our open source server version.   we as clients are running the client version (which might include a background miner),

Gox inputs the $1000 deposit into his system and credits my account.  i query my account balance by loading the trading client and inputting my user/pass, results supplied by gox.  When i want to buy coins i submit an order to Gox to buy 10 coins at $100.  Gox sees the $1000 in my account, and then tx a signed message to the miner/exchange network that GOX wants to buy  10 coins @ $100 to be matched in block 2500 only (fill or kill).  There will be no HFT, cause miners will not let you cancel the contract.  Miners/exchanges are paid a fee, denominated in BTC (more on that later).

You see an order from gox to buy, and you decide to hurry up and submit your sell order before the next hash is found and the order book resets (who knows if i come back with a buy order next block or if some one else don't sell me the coins ahead of you, so you want to jump in now with a sell order).  

Now Bitinstant sends a signed message to sell 10 btc for $100 to all the miners.  The miners have copies of the Distributed Exchange Web of Trust Table.  Miners see that Bitinstant has endorsed MT Gox's Pubkey, and vice-versa.  They now know that they can match the orders.  They also keep track of the net flow of funds between these two companies, bc in Distributed WoT Table Bitinstant puts a limit of $10,000 as the max amount of money that Gox can wind up owing them before Gox has to "settle up."  This limit will stop miners from continuing to approve tx's after an exchange has failed, or been found to be fraudulent. A hash of this table is included in the headers of each trade block.

The miner/exchange match the orders and keep hashing till he finds a POW solution, then publish the blocks to the other miners.  The other miners make note that Gox now owes Bininstant $1000 ($9000 credit left) and Bitinstant now owes 10 btc to gox.

When gox sends fiat by international wire for $1000, gox will broadcast a signed message to the miner network indicating such,  upon acknowledgement of the money arriving,  Bitinstant will sign the tx and notify miners of the exchange.  Miners will include this in the next trade block as an "off-exchange block-trade" ( or "third market") trade between the two, and will receive a small fee for its inclusion.  Upon inclusion miners will then up Gox's credit limit with Bitinstant back to $10,000

If for any reason a broker decides he can't trust another counterparty (fraud financial failure, etc) he can sign a message to miners revoking said Exchange Web of Trust Table key endorsement (includes fee, goes into exchange block chain).

Miners, will be paid a tx fee, owed to them by each exchange who submits a tx that gets executed denominated in btc.  Our exchange software can charge a flat fee to include tx's.  And we can write this into the protocol.  A fee like 0.25% is nice and low enough to encourage people to use our exchange, but high enough to ensure enough fee revenue to keep the PoW hash strong.  So in this case the miner who scores the block with our 10btc/$1000 trade will publish his exchange account number as the coinbase address (say miner happens to be with Bitinstant), and Bitinstant will credit 0.05 to the miners exchange account (2 x 0.25% x 10 btc). Gox will owe $1000 for the buy,  and Bitinstand will owe gox 9.9725 BTC  (10 BTC - 0.025 BTC).   (Basically Bitinstant being the miner's preferred broker, lays out 0.25% fee charged to both sides of the trade).   Your account at Bitinstant is now credited for $997.50, and my account at Gox is credited for 9.975 BTC.

Payment network addresses: like the one the miner included in the solved block to redeem the block fees (coinbase) will be based on the broker code (First 5 digits of hash of broker pubkey) followed by the internal account number assigned to the miner by Bitinstant.  That address according to Bitinstant's records now has 0.05 BTC.

Did i miss anything?

Oh yeah, do you see what i did there with the miner being able to request an account number from Bitinstant and then include it in the solved block as the coinbase?

I now have like 9.975 BTC in my account at Gox.   I got to Dave Famous Wiener's.  Before Dave will let me put his Wiener in my mouth I have to pay and he doesn't want to wait for an hour for 6 BTC confirms.  He shows me a qr code on his smart phone that includes his account number at Bitinstant.  Encoded in the QR if the address's first 5 digits (Bitinstants broker code), the rest is Dave's assigned account number, the 0.1 BTC i owe him for his Wiener, along with a customer code of XXX.  

I scan the bar code and approve the tx by sending it to gox.  Gox sees the broker code and knows to contact Bitinstant's server, and send a signed message "i owe your exchange 0.1 BTC, and you should put it in some account number's account and the customer code is XXX".  

Dave's invoice of 0.1 BTC for customer XXX on his phone comes back instantly as paid (gasp, an instant off block chain payment has occurred!).  

Bitinstant submits a "Gox now owes me 0.1 BTC, reduce Gox's credit balance by 0.1 BTC due to an off-chain tx" signed message to the miners/exchanges with a small fee for inclusion into the next trade-block.  Or then just keep a side-book and wait to settle debts via the BTC block chain when the BTC owed gets large enough.

So not only can we buy and sell btc for currency, but we can use these account relationships with custody/brokers to do off blockchain, low fee, instant confirmation transactions as well! I SEE WHAT YOU DID THERE!

Now with a colored coin, how are earth do we do and instant payment or a fractional amount of the colored coin?  Besides colored coins spam the blockchain with messages the block chain does not need to see.  Only you and your custodian need to know when fiat is sent back and forth, and micropayments can be instantly done off block chain.

So we have the infrastructure for trading btc & currency and instant off-chain micro payment, which only involves the buyer's and seller's brokers, not announcing your bitdust tx to the whole world and making them each your bitdust unspent outputs.
 

Under my system all the buys or sellers of usd/btc coming from one exchange are interpreted by the miner/exchanges as one order (if the price is all the same).

Remember, miners will not let you cancel tx's: to do so would be for the exchange to forgo a tx fee, bc remember an order submitted to miners is a sign message proving the ecxhange said it was okay to buy or sell a certain amount for a certain price on its account.  So why listen to an exchange who wants a 'backsy"?  You as the miner can stick the order in and if more stock executes you earn a bigger coinbase (tx fee).  

So I imagine that there will be an overlap in the price buyers bid and sellers offer at the time of the hash discovery,  a standard order matching algorithm is run.  All overlapping order get the SAME price (say weighted average price of overlapping bid/offers.  There is one price per block kids.  

EG

Buys                            Sells
A:200 for $11         C:100 @ $10
B:200 for  $10        D:100 @ $9

Trade 200 coins for $10.   Buyer A gets 100, buyer B gets 100 (Sellers  C, D execute all).   Buyer's A and B will have to submit new signed messages to buy the remaining 100 btc they each didn't get.

Now it turns out that there were 2 buyers at "A" exchange willing to pay up to $11/coin.  but this doesn't matter, because even if exchange "A" submitted two successive messages to buy 100 for $11, the miners combined the like-price orders within that exchange as if it was one order for the purpose of publishing a lighter block.

That sounds great. Offices in the world that accept bitcoin in trades for fiat ( or whatever ). The 7-Eleven franchise should be included, in my opinion because they already have a system in place for the web:


http://www.kioskmarketplace.com/article/170137/7-Eleven-adds-bill-payment-to-Vcom-kiosks

http://www.7-eleven.com/Financial/Payment-Services/Default.aspx

http://www.7-eleven.com/Financial/Payment-Services/PayNearMe/Default.aspx

Exactly THIS.  I expect that major businesses would set up their own broker/custodial server.  Imagine sending 10 BTC to the BitCoin Store.  Then when you want to buy a Wiener from Dave's Famous Wiener stand, Dave just whips it out, you scan it.  He may have an account at say Mt. Gox....but Mt. Gox trusts Bitcoin Store, so Bitcoin Store sends a signed message to Mt Gox servers telling them that customer XXX has just paid 0.1 BTC to Dave's Famous Wiener.  Dave's Smartphone alert pops up confirming nearly instantly the payment when Gox sends him a push notification.

Maybe far off into the future, you know when Walmart is accepting Bitcoin and decides "Why the fuck should we pay huge fees to MT. Gox for shitty laggy trade service."   They will set up their own P2P exchange server, every one who's every one will immediately endorse Walmart's pubkey, cause, hey you wanna do biz with all those future customers and Walmart is strong and reliable.  So then i walk into Walmart and hand them $1000 at the cash register and they instantly credit my account.  I can then buy btc, or even just leave it as fiat and spent it around to people who haven't jumped on btc yet, but are cool with a smartphone app that sends them money with a really low fee that they can pick p/u at walmart any time.

Of course this p2p network could be used to smash the visa/mastercards of the world and their usurious fees too, but this method would lend itself to each conversion to btc, which will displace fiat as soon as people realize its superior store of value properties.

Honestly, my first thought regarding the agents was that this sounds like trying to re-establish the Knights Templar, and that it could end in the same tragic way that the Catholic Church ended them all in one night. Intriguing nonetheless.


EDIT: Regarding further suggestions,
1) An exchange MUST be able to cancel trades. Otherwise either everyone will be trading in the dark, just guessing at the price, or anyone who put in a bid of a price lower than the current one risks having their money locked up for ever
2) This P2P exchange MUST be able to handle high frequency trades. Otherwise, MtGox can easily put limits on trading and get rid of all HFT's, and as a result make this P2P exchange pretty pointless. Don't come up with a P2P that's even more limited than what's available, come up with something that can do what other centralized exchanges can't. Besides, despite what you might think, HFT bots actually help more than they hurt. They help narrow the price spread to a single point, so you don't have people selling for $120 and buying for $100, making the price jump all over the place like it has been when Gox got lagged.

So I still think the idea of focusing on a decentralized order book is a good one, with the follow-up of decentralized agents to deposit/withdraw money through.

1) Yes it should be possible to cancel a trade but with a time lag so you cant create fake orders that you never intend to fulfill.
Canceling orders should have a fee of 1/10 of putting orders, so a quitter would need to pay 1,1x in total to the miners.

2) I dont think nanosecond trading is beneficial to regular traders and users. 1-second auctions is good enough for human traders and market makers but hurts HFT and fake orders.

When I see humans mentioned as "agents", I think, "They could be replaced with a computer".

The mining network has 700+ petaflops of computing power and it could replace human agents.


More ideas:


I also thought that since Firefox is free and open source, that a plugin could be created. Keeping it all free will help things spread.


This thread does not lack for ideas.. but some steps need to be taken to congeal them.


Machines are more trustworthy than humans... :o

Why? What is wrong with stating that you think the price should be X if you don't intend to pay for it? And what will stop people from going to someplace else that does allow one to freely cancel orders, if that place ends up attracting more customers? Free market. You have to compete on price and service, not START from figuring out how to make something less convenient and  more expensive.

If we are going to do a block chain, wherein buy and sell orders are cryptographically signed by the broker as being a valid order to buy or sell a certain amount at a certain price, miners would be paid a fee either for each tx, or a % of the tx value.  Whichever we chose doesn't matter.  Game this out if you are the miner.  A broker submitted a cryptographically valid buy order to buy 100 btc at $50.  You can earn the fee on this valid tx by including it in your block solution if you win the hash race.  That broker than send  you a send message, hey ignore that valid order to buy 100 btc for $50,  i'm being a cheap fuck and would rather wiggle it down to 100 btc for $49.95.  Now you have a decision to make, ignore his cancel and stuff it in for  $50, or be nice and revise his bid lower.  Keep in mind that you do not know if any of the sellers you are relying on to make a match (and thus generate fee income that your completely depending)  might get pricy too and raise their offers, which means you will match up fewer share/orders to trade when you have a block discovery ---> less fee income for solving the block.  

Also, remember the miners are decentralized, so some might hear your revision and some wont.  there is no way you could confirm for the client that his old order is nix, and his new one is correctly advertised.  The broker is submitting the buy in his name, b/c there is no reason for any one to see the account origin of the buyer.  Wallstreet trading is anonymous.  you can submit and order to buy a stock every minute for a different amount and price, and no one knows its you who keeps buying.  Its just an anonymous order flow.  The broker then has to worry about both buy orders being executed, cuz remember, 1st order to buy for 50 is valid, and the 2nd order to buy at 49.95 is valid.  And why shouldn't a miner include all valid tx's?  His fee incentive is to include as many as possible, get it?  You need to rethink the block trade-hashing scheme.

Orders would be submitted with a block number in the signed message.  A protocol rule would be that a trade can only be executed in the block that the broker stated it could be.  So if miners are looking for block 250, the message to buy 100 btc for $50 would specify that its for block 250 only.  Once block 250 is transmitted and verified, the broker would see if it went thru.  If it didn't it can't go back in to block 251.  The broker would provide the client with the option to automatically resubmit, or resubmit with a higher bid, or wait for a new ticket from the client.


I don't quite understand how MT Gox can put limits on trading.  In this world mt gox is not longer running an inhouse platform, b/c our blockchain is cheaper, and customers want execution.  They can always w/d their money and open a broker account with a competitor.

EDIT
PS I understand the value of the liquidity HFT short term churning can provide and i'm not intellectually against it.  I just don't think the current proposal of a P2P exchange with a trade-block PoW hash chain, will allow order cancellation, b/c you must ex-post factor convince miners to invalidate a perfectly valid tx that will earn them a larger fee if they include.   Its game theory bro.


You the brilliantly point out the goodness of 'separating church and state.'  We want every one to be able to submit orders to a single execution engine, because then all the liquidity is pooled in one place which benefits liquidity and price discovery.    That pooled execution engine is open source and has competing miners, no one can use it to "lock-in" customers by offering better flow (like gox does with 80%+ market share) in order to charge high commish rates and deal with shitty service, you either solve the block competitively fast or you don't eat.  The companies handling custody (brokers) may try to match orders in house, but the juicy liquidity will be on the p2p exchange so customers won't put up with shitty preferential order handling by brokers sitting on orders.  This is called 'best execution duty' and in an open market with free entry to be a broker market forces will dictate the orders pool up at the nexus of most liquidity and cheap tx fees.

As it think about this i think of all the additional details that need to be worked out.  I have an idea for how we can solve block header forks (when 2 miners produce a valid tx block at about the same time, and traders become unsure for what price and what amount the order will post for because the two competing hash chains have different execution parameters for the same order.  But as they say in airplane, "But that's not important right now."  When we reach bigger consensus on the other issues I can speak about some of the minutia of how we greatly reduce/eliminate reorgs.)

Edit:
I keep telling my self to BE the Satoshi when thinking this thru.  Satoshi didn't just figure out Bitcoin by throwing crypto together in a novel way, He could IMAGINE how it would work in practice and how the protocol rules would be shaped to prevent not just straight up attacks, but also failure do to perverse incentives that might have been introduced by his structure.  He nailed.  So we too must nail it!  

I love this discussion and am deeply engaged in discussing with you how I see it shaping up and listening to your input and ideas and trying to add to your vision.

I wonder if MagicalTux is reading this thread with quivering lipps, worrying about how we're going to take his shit company off the map and reduce it to a  no barrier to entry check cashing service.  Nah...he's probably whipping the hamsters that power his trade engine to try to cut the lag down.

Nah broh, we're still, ahem, HASHING OUT the ins and outs of how this system needs to function and what the correct design parameters must be to meet the objectives.   

I think we're almost there on the objectives:  we all want cheap, deeply liquid execution engine.  We want private firms to be reduced to the thin gruel of being undifferentiated low-margin glorified check cashing services--needed only untill most of the world abandons fiat at the point of singularity-style mass adoption of Bitcoin; Finally rendering their fiat bean counting biz to nothing but a temporarily needed transition service.  An interesting historical footnote of how a once mighty bumbling leviathan was pushed out of the way of screwing up adoption of the greatest social/economic innovation of the 21st century.  You can say it all started right here!

There remains debate about whether/how submitted trades can/should be canceled.  There is no consensus on how orders are matched (I say each block trades every one at the same price, which is determined by the weighted average of the quantity * price of matchable orders).

Some other dude is clueless and probably still talking about ripple tits.

Any system we come up with has to already beat what we got, which allow for fast trading (hahahahah, wait did i just say that).  The service in theory allows for fast trading.   All the brokers, could offer to match orders in house.  If orders are to hit the tx-blockchain if must offer something better than the old way.  I say--->more liquidity?  --> ridonculously cheaper fees? 0.05%?

I had to highlight the "hashing out" part. :) That was good.

Sorry, that was WAY too much to read, so, apologies, I just skimmed through it. Can you tell me why this system requires a blockchain and miners, as opposed to just a shared database anyone can add orders to? What are the miners trying to protect exactly?

What about using POW to build up broker reputation.

We can estimate the BTC to POW ratio using average reward + fees per block / average hashes required per block.

A broker can create an identity by submitting a link in the chain which represents some kind of POW.  Another option would be to just provably destroy BTC in the main chain.

This represents the debt that the exchange chain owes this broker.  Initially, brokers probably wouldn't be willing to destroy any coins.

However, if they received fees for confirming their trades, then they could make a profit.

A broker would make claims that they have submitted transactions into the main chain.  This would be a small amount of signed info.  If another broker published proof that the statement was false, then the lying broker's reputation would be cancelled.  There would need to be some cover for chain re-orgs.  So, a broker could have their reputation restored by submitting the transaction again.

This assumes that the transactions can be verified digitally.  So, it still requires some way to convert fiat into a digital representation.

Glad you asked, functionally nothing is being "secured" against with a PoW.  What they are doing is solving a hash which naturally creates a random window as to when da tradez go down.  People wanting liquidity will need to submit the order early in the window to have a quick execution, people more price sensitive might want to see how committed bids and offers shape up before deciding if they want to participate (trading off execution speed for price sensitivity).

 The difficulty of the hash function will adjust the rapidity of the blocks.  initially there will be little volume, so maybe a 10 or 15 minute initial difficulty window.  Then when trades pick up, volume triggers will drop the difficulty lower to allow for quicker blocks. 

The PoW also solves the who's trades meets who's.  Its the problem of the 3 generals using a delayed communications system trying to coordinate an attack on the enemy problem that Satoshi pointed out that was solved with PoW in Bitcoin.  Some relays will hear some tx's sooner than others, some relays/miners will not hear some at all.  Whatever miner hits the hash solution first decides (according to a standarized algo) the price and trades that go thru.  The brokers then look to this PoW chain to officially determine what client orders executed and in what amount.

A database that any one can access and isn''t stored in one place doesn't work b/c of the timing difference i point out above (unless you can explain how this tx engine would work), and if it is stored in one place you just Goxxed us all over again.

In short the PoW in Bitcoin solves the conundrum of not having a central mint/database to police 2x spends.  In this structure the PoW serves to:

1) Randomize slightly the execution window to incentive people to stand and make a firm order sooner
2) Settle the uncertainty of which orders made it to "market" first, by crossing all overlapping orders according to an averaging method that maximized liquidity and establishes a uniform price for all the trades in that block.  The same price matters cuz, how does one miner match and trade between two guys, then some other miner tries to match one of sides the other miner already executed with some other order which could also have been already by yet another miner elsewhere on the network.  That database the every one accesses (wherever it lives) gets corrupted quickly.  (The equivalent of an attempted 2x spend in Bitcoin is a 2x trade in block-trading).
3) allows miners to respect credit policies of competing brokers...no one wants do wind up being owed a lot of money by a shaky broker who may be quietly buying up Bitcoins from another broker's customer and then not able to pay.  A hash of the most recent relative credit positions between houses can be hashed into the PoW header.  When credit limits are hit, an over extended exchange would have his further buy orders rejected, or only matched with houses he has a surplus position with for a while.  The algo can seek to allocate money matches to reduce net usd debts between houses (as these take the longest to settle and are most tricky and costly), which could be tricky to code.

This is a great thread, so while we are getting some fantastic ideas, can I just reel it in a little with a suggestion?

This is open source in the best tradition, so can we consider the idea that if the basics can be made to be as close to perfect as possible, all the other stuff is made into add ons?

What I'm suggesting is that we have a basic exchange that does the price discovery very well, but some of the more specialist features are kept at the client side so we can keep the exchange as lean as possible?

Obviously, we are nowhere close to having all the ideas on the table yet, but if we keep in mind that some features might not be universally needed, they should be considered an add on feature.

Plus, if we are going to BE Satoshi, we also need to remember he spent a good year just thinking out his / their plan before starting to code.  We might not need that much time, but time spent planning is time well spent!

There is my refocus team speech done! ;)

The problems that need to be solved

- trust between the public and the brokers
- trust between brokers
- transaction system

The biggest difficulty is presenting a uniform platform to the public, but having it distributed.

I think the Ripple system may be the way to go, but at the broker level.

Two brokers will publish their trust level.  This is how much they trust each other.

If you have a signed chain from one broker to another broker, then the 2nd broker promises to payout.

The brokers can publish the state of the link between the periodically.

A broker would publish to the chain

- A list of other brokers and the maximum value of IOUs from those other brokers they will accept
- The maximum total amount of IOUs from any source they will accept

The 2nd rule makes it easier for a broker to have 100% backing of their promises.

Users could then trade these IOUs and they should all have the same value.  If you try to redeem them and the broker refuses to give the money, then you can move on to the next broker.

Tier Nolan, sounds like the colored coin idea.  The portable iou is the colored coin, you negotiate its exchange with other users.  Whoever ends up with the coin when it comes time to redeem though, would have to establish a relationship with the broker house (or already has one). 

So would this colored coin run on its own block chain or leech off the btc network?

i also wonder about liquidity.  for it to exist the items being exchanged must be fungile.  I might not want you gox colored coin, he might not want my bitinstant colored coin.


Also whatever exchange we start, it will be really hard for us to get it going.

1) There must be 1 broker first (see 5)
2)Miners/market makers who will process whatever order book system would have to be incentivized to run the software.
3) whats the hash reward early on when no one is trading, not a terribly hard one to overcome though
4) who will deposit the first cash and btc with the broker (unless we sign an established xchange on first, say one of the floundering non-goxxes looking for a new angle to fight the Gox)

5)  Why will this new broker ever extend trust (and thus clearing) with a 2nd exchange?  If the customer deposit/relationship is the revenue driver, why ever let any one else into the biz?  ( I have an idea for this, some one start the first broker as a non-profit, who will build a customer base, then freeze new accounts to make room for competition.  The Foundation would be the catalyst for forcing all the new players to let new ones in, as they will always be fair and clear with any legitimate new player.  If you refuse to clear with firms the foundation wants to include, foundation stops trading with you, isolating your customers from the big liquidity.)

Hows about a name for this system?

What do you think of Bitcoin Open Exchange (BOX)?

Brokers make public promises about the trust links.  These can then be scanned by software.  It moves the "settling up" into the background.

Moving IOUs from one broker along a path to another broker would be included in the block chain.


I was thinking an alternative block chain in this case.

A user could convert an IOU from one broker to an IOU from another broker by adding it to the block chain.  This would move the trust link between the 2 brokers.

The brokers can reset the link by both signing that the link it re-centered.  A broker can unilaterally reduce how much he trusts another node.  However, he can't reduce it past what he is owed.

If a broker was owed $25k from another broker but had stated that he trusted the broker for $100k, then he can only reduce the trust to $25k.

If a user has an IOU from a broker, they can cash it in.  If that is a face to face operation, then they can take the cash and then sign to cancel the IOU.

However, for an online broker, they will have to sign that the IOU has been paid, before the broker sends the money.

Paying an IOU for BTC could be confirmed digitally.  


If someone intentionally destroys 10BTC, then that would show they are serious.

Ripple has everyone as a trust node.  However, I think that is to fine a resolution.


There could be a similar system to bitcoin.  You can divert some of the funds transferred to winning miner.

Transactions are adding and cancelling orders and any of the other broker updates to the trust chains.


The faster the better probably.  If the exchange works by combining trades over 10 minutes, then that would be the block difficulty target.


Lots of small amounts could work here.  Maybe selling scratch cards could operate as a loss leader.  They cost around 30 cents for a custom one.  You sell a $10 one for face value.  That costs the broker $0.30 + other costs.  Eventually he would have to get that money back on fees and hopefully people don't turn in the IOUs.


If you make it easy to start new brokers that is not an issue.  Brokers will want to be accepted by as many people as possible.

I think having to wait to execute the trade would really really suck. It would basically be exactly like the lagged Gox exchange, where no one knew what the actual price was, and bid blindly.


Unnecessary. Remember, we're dealing with clients looking for trades here. If a match between a buyer and a seller comes up, and somewhere far away anther double match shows up, the client will already have his match and will reject any new matching attempts. So I think something like a Bitcoin transaction memory pool, without having to actually mine the orders into a block will work fine.

You would have the previous block as a guide to where the price discovery and liquidity depth is.  You won't bid blindly.  I've use trading systems even more blind that this on wallstreet.  You enter the number of shares and the maximum you are will to pay.  Others do the same, but you don't see their bids and offers.  Then on or about every half hour the system crosses you anonymously with all the other overlapping trades, resolving allocation and price according to weighted averages.  

I guess you just have to see it in action to believe it.  Its a really neat trick.  Only diff is with Bitcoin Open Xchange (calling it this from now on), you could see every ones order.  So there would be even more price transparency.  If it works not seeing any one's competing orders, it sure as shit can work with more price/depth disclosure.  Trust it.  The logic is sound.

You fundamentally misunderstand the problem.  You transmit your tx to many relays with the hope of fast execution.  So what the first one that responds is the one you execute with?  Well what if he's just relaying some one else tx, and that original tx was filled with some one else while you were negotiating.  Now i suppose you could include your ip in the order or something.  but how do two parties confirm, and what will you do to me if i confirm with you, but then hear a better price from some one else and confirm with that dude.  Who is the ultimate arbiter of what is a valid trade.  With my PoW system, the PoW system says so.

Tier as i read what you are describing I can't help but think, wrf, this is exactly what i'm proposing said a diff way. 

You: The ious are submitted to the PoW block chain by the client looking to trade.   
Me: The broker who you have the iou with is directed by the client to have HIM submit the iou to the PoW block chain and miners would monitor net balances of ious to make sure they are within the credit tolerances. 

Functionally they are the same, but my way is +1 XP for privacy, cause i don't have to fix my IP to the origination of the tx to buy or sell.  I tell gox to go send the order to market on my behalf, and when he squawks it i just relay it to all the miners i know.

maybe my whole description sucks in those earlier posts, but i'm sure we are fundamentally describing almost the exact same thing, if only your structure just sounds a hair different.

What do you think about having separate blockchains for each exchange? something like file sharing torrents, you choose which torrents (files) to share.
Here you choose which exchanges to share (share, host, mine or whatever we wanna call it).
Some parts of the system can be distributed to all miners if needed, for example executed transaction history.

Interesting idea.  Trying to figure how this would impact the network. More decentralization this way?  Lemme think this one thru.  You see if you have a bunch a brokers, some of those brokers may not want to trade with new startups (why enable the competition) and thus not endorse their exchange key (eg not establish them in Web of Trust). 

So if the small fry brokers had a way to start up their own little trading pit, that might help enable more competition amongst brokers.  As the market for bitcoin users grows, the startup guys will attract new biz cuz the big boys who don't wanna play with them might be goxxing it with high fees and shitty service.  So the 'alt-pit' would grow to a point where desire for liquidity and fear of losing customers would eventual bring the gox boys around to integrating with the alt-pit.

You don't want any broker to somehow use his position to corner liquidity, cuz then he can raise fees and goxx it.

Probably put all the hash solutions of each competing trading pit together as a merkle root, which might somehow make their tx's cross compatible.

Need to sleep on this.  Let it roll around in my brain.

This sounds like the kind of modular approach that should work - plus, if it does work like a torrent, the more popular it becomes, the faster it would become, due to there being more options of where to get the data from?

That would be brilliant! :)

The purpose of this proposal has both technical and economical reasons:
-Economical
create a free market that benefits popular exchanges
Give the miners a choice to actively chose which exchanges they want to support with their computing power.
Each exchange should be able to decide what they want to pay to the miners per block, that creates a competition among different exchanges to attract computing power, and also to build up a reputation.

This model will also result in brokers and clients of each exchange to support their exchange by providing computing power to make their exchange more stable and more secure, and also get paid for it.

-Technical
It should benefit the performance of the exchange if the miners are divided in groups where each group is focused on a specific exchange.

Example of how a market with four exchanges could look like:

|Exchange	| Pays/block	| Reputation	| Miners	| Pays/block/Miner   |
| A excellent	| 1 BTC	| 10	| 1000	| 0.001    |
| B average	| 2 BTC	| 5	| 700	| 0.003    |
| C bad service	| 5 BTC	| -5	| 100	| 0.05    |
| D bucket shop	| 10 BTC	|-10	| 10	| 1.000    |

I've been wondering if you could use pieces of Bitmessage ... it has P2P secured comms and a broadcast functionality. So an offer could be broadcast to everyone who's subscribing to the GBP-BTC channel (there could be multiple broadcasting channels (USD-BTC, EUR-BTC, etc) maybe run  by the brokers/market makers?) and then interested parties take up the discussion on P2P messaging from there ... but have no idea how trust ratings, etc, could be policed so just putting this piece of it out there in case it helps someone else's thinking.

If the chain ordered all bids and offers, then there is no need for a crossing system at all.

If you add a bid and the lowest outstanding offer is less than your price, the trade would be immediate at the price of the offer (and vice-versa if you submit an offer).  Otherwise, your bid is added to the order book.

The block size question also arises with regards to flooding the order book.

What if the broker refuses?

why would he? he's being paid to do that for you. you deposit your fiat with him, then say "submit order!" and he, of course, takes a fee for holding your fiat, while the fee for submitting the order goes to pay the miners described above. thus, if he refuses, he goes out of business.

It is here:


https://bitcoinstarter.com/projects/54


No octopi included.

I believe you that it works, but first, this isn't stocks/commodities trading, this is currency, where companies and merchants like BitPay may want to see what the price is right this second, so they can sell right at that second to convert to fiat. And second, you still haven't explained how this is any different from MtGox with a 10 minute lag, where you saw what the price was 10 minutes ago, and just put your bid where you hope it will stick?


I think you are overcomplicating the problem. Yes, you transmit your order to many relays with hopes of fast execution, and yes, the first one to answer your request for a specific price will be the one you trade with. What more do you need? If the relay is relaying someone else's tx, then you trade with that someone else. You are not looking for for relays, you are looking for orders. If you use an address system (like Bitcoin's address-signed transaction broadcasting or Bitmessage's signed message broadcasting), then all you are interested in is the address of the person willing to trade. Make it work like Bitaddress, and you can use the same system to communicate with the other party as well. If there is a better price, placed after your trade, then obviously you wouldn't hear about it, since you already found a match for yours. It's no different from trading at a point in time, then once the price drops after a few seconds, trading again at a later time.
Regarding the arbiter, it's just individual clients. With your PoW system, it's still the individual clients who look at the PoW blockchain to match up with the best price. The difference is that your idea organizes trades into a blockchain, whereas I suggest to just keep it in a shared database without the blocks and PoW since they are not needed. There is no trades to double-spend or counterfeit.
P.S. In a PoW system, there is nothing to prevent a malicious trader from not following through on sending his side of the money if he sees a better deal, either.

Some members suggested that we should have a voting. I suggest that we debate on different solutions til sunday 21 April and afterwards summarize all requirements to vote on.

Example of what to vote on:

1 Colored coin:
a) Use colored-coins in the existing bitcoin blockchain.
b) Create a new blockchain (a new alt-coin) which is only used for the exchange so we dont spam bitcoins blockchain. The new alt-coin has 0 value itself, the only value of the coins are what they represent (1 USD or 1 BTC for example)

2 Orderbook:
a) Order book in blockchain
b) Order book in memory

3 Exchanges:
a) One and only one exchange
b) Many independent virtual exchanges running in the system

5 If we decide on Virtual exchanges, miners right to chose exchange:
a) each miner supports the blockchain and specific virtual exchanges (like bittorrent)
b) each miner supports the blockchain and all exchanges

6 Distribution and processing of order books:
a) order books are distributed and processed by all miners
b) order books are distributed and processed only by the closest peers, and not by all miners
c) order books are distributed and processed only by miners that chose to support a specific virtual exchange

7 Fees to miners:
a) Predefined model of X bitcoins per block and halfing periods
b) Parameter model where the fee depends on several parameters
c) Free-market model where each virtual exchange bids whatever they desire and competes against other virtual exchanges to attract miners

...

Do you need miners for a desentralized bitcoin exchange ? Couldn't an exchange be more of the model of bittorrent, or would that not work ?

That's what I've been saying. A blockchain you have to mine is all the rage with the kids nowadays, so they want to stick it into everything  ::)

Also mining for such a system would take hashing away from the main bitcoin network.

Would it not be possible that each client in the decentralised system either could import an existing private PGP-key, or generate one for you to use, for example it could even import ratings from bitcoin-otc.com if you could prove you had the right private key. Then all that were needed for trading and identifying a certain individual on the network would be to prove that the client holds the private key, kind of like the same authentication method that is used on freenode when auth/verifying with gribble.

That would build kind of a layer over bitcoin-otc, but it could also be made to work stand alone. So the ratings given and received somehow where retained in the system. Not sure how you'd secure the data integrity, perhaps by signing a rating, and then having the client check it against the public key to see if the signature is valid ?

So if you're Alice and trades with Bob, you can see that Bob has received like 20 ratings, and then an indicator could indicate whether the signature of all those ratings were valid or not. And then it would also be possible to click on the usernames that rates Bob to check their history and so on.

I'm not sure what's most desirable, just to connect individual parties for trades, like bitcoin-otc, or to have a more liquid orderbook like MtGox. In the event of the latter, you would need to have a fiat balance and a btc balance for each user, and the btc would need to be held somewhere ? Are we then talking about centralization again, hum.. Perhaps the best option is to neither store fiat nor btc in such a desentralized exchange, but only to connect buyers and sellers. And then there could be a bunch of trusted escrows that could be used as well, or one could just send the funds if one felt comfortable with it based on the rating of the counterparty. A trade could also be completed in bunches, where a 1K USD trade is completed by first sending 100 USD, then 200 and so on. The more I think of it, just having a nice bit-torrent like client connecting buyers and sellers would be pretty nice.

To make things easier, there could be different filters, so one could filter users based on geo-positions for instance, or currency, or whatever. If someone puts up a bid of 10 BTC in london for whatever price, then somebody could chose to match it completely or partially, and after it's matched it could be locked in the market for a certain time frame, perhaps 12 hours, or whatever timeframe (could also be adjustable) the seller or buyer (or both ) is interested in ? If the deal goes through, the order is removed from the market and added to the done trades list, so that other users can see what trades are done, and at what price. In the done trades list, there could also be a link to ratings, as it would be desirable for both parties to rate the other when the deal is done.

Some crafty software could even hide all the 'ugly' PGP details from the less advanced users. So all they needed to do was to download the client, hook up with a counterparty, and check his trustrating, and then decide how to proceed from there, so there should obviously be some messaging capasity in the system as well. I think there's a bitmessage open source system recently created, don't know much about it, but maybe it could be used ?

So in the future, it could be super-easy, just go to bitcoin-org, download BOX (Bitcoin Open eXchange) or whatever name it is called. And then after it is installed, it asks for PGP-import, or generates a private pgp-key if you don't have one, and uploads the public key to a keyserver or perhaps the public key should reside in the exchange network itself ? Anyway, everything happens under the hood, so the only thing the user does is entering his order.

It could be Tom, living in new york, enters buy 3 BTC @ 93, and selects preferred payment method from a drop down list, for instance wire transfer. Then Janice sees this buy order, and she wants to sell 3 BTC for the artwork she sold online, so she marks the order and a message is sent to Tom that Janice wants to trade. Tom then proceeds to check the trust level of Janice, and sees that she is 'highly trusted after 30 successfull trades. There could be a colorbar or something indicating the trust level of a user + the ability to clik the user to see his/her complete story. So after peeking over the ratings of Alice, Tom thinks it looks good, and sends Alice a message asking her for her bank account information. This is then relayed immediately to Tom, and signed by Alice, and it will show up as 'approved message' on Tom's end. Then tom sends the money, and when the money is received on Alice's end, she sends the btc to Tom (he provided his desirable btc address through the client, signed with his private pgp key). Then either of the parties could mark the trade as completed, and give the other user a rating, and the trade then is moved into 'trade history'-list. In the event the trade didn't go through, Tom could label (give negrating) Alice as a scammer if she never sent the BTC, and then reopen his offer for BTC purchase, since it was never completed. The same way, Alice could negrate Tom if Tom for instance saw that the price fell to 70, and he didn't want to honour the negotiated price.

There are so many ways this could've been made, so what do you think ? I don't think we need a blockchain for a desentralized exchange. A bittorrent like system with discovery of peers would work just fine. Perhaps there would be a need for irc-bootstrapping in the beginning or something, but that should only be used in the early days. Heck, this could even be integrated with the official client!

Maybe a hybrid system would be better.  You need some kind of history to establish price discovery and allow orders.

If I want to sell 1 BTC for at most EUR 100, I need some way of figuring out what the market price actually is.  If there was a ticker that tracks the price, then that could be used to handle off-chain trades.

Those trades would have to be handled some way though.

I think that it will be better to add one layer to bitcoin mining protocol which could serve as a cloud-hosting-crowd-sourced p2p service... for start, perhaps only tickers and charts should be deployed at that new infrastructure and therefore take the load of exchanges... Introduction of new coin doesn't have to be mandatory, reward could be spread in form of bitcoins which could be collected from markets in a form of small fee for every transaction... Or even that new hosting layer could demand a 1 satoshi fee for every http request...

Exchange sites will never have the ability to provide a full working service, it is not just up to them to buy more servers, the whole web server hosting system is sort of faulty... Please check more analysis here: https://bitcointalk.org/index.php?topic=179027.0

Perhaps, some integration of openstack or similar technology can be merged with bitcoin mining infrastructure...

On second thought, maybe even there should not be a P2P exchange as a new entity, since PEERs can't handle the fiat exchange with personal authentication rules needed to pull fiat transfers since those rules are different for every country, but PEERs can deliver an unbeatable cloud hosting for the current exchange sites... At least for tickers and charts which are heavily targeted with http requests from bots and traders...

Mining compensation?
People providing their bandwith and computing power should get compensated in some way since they provide a service to commercial exchanges and brokers. Without economical compensation there is no incentive to host the exchange torrent other than your involvement in that exchange (if you are member or client of that exchange).

Blockchain or Torrent?
Blockchain: Yes, an exchange blockchain would compete with the bitcoin blockchain for computing power, but that would also save bitcoin blockchain from "coloring pollution" (if coloring is the way to go). The mining model might be necessary if we want the exchange to transfer "IOUs" between peers, that means we must be sure IOUs cannot be double spent, and that is the same functionality as bitcoin itself. IOUs can be issued by a trustworthy mint and represent a specific asset whatever it may be (bitcoins, dollars, shares, bonds...).
The exchange blockchain stores the IOUs.

Torrent: If we work with trade-contracts instead of IOUs it might be enough to have a trorrent with a growing decentralized database for each exchange containing all executed trades. It is important that everyone can trust that this decentralized database cannot be manipulated or hacked since each trade-contract will be a legally/morally binding contract between two parties (client@broker A and client@broker B) to fulfill their obligations stated on that contract.
The torrent stores executed trade contracts. The contracts cannot be double spent since each contract is unique to a specific trade between two specific parties. After settlement each party sends a signed contract to the database stating that they have have settled, and when both parties has sent this confirmation this is a public evidence of settlement, which could be used as a basis of trust-rating.
http://en.wikipedia.org/wiki/Distributed_hash_table

Using broker or direct trading?
Everyone should be able to act as a broker and trade directly with other people, but it would be more efficient if people chose to use established brokers with many clients. It will be more secure, easier, faster and cheaper compared to individuals settling fiat vs bitcoin with each other over internet. But if they trust each other and the transaction costs are low, nothing should stop them from direct trading.

This is the goal, P2P means "person to person" and the more that happens, the more popular bitcoin will be. It will be more natural.



A personal rating system visible to everyone would be nice. Like the movie rating system. Five stars for really trustworthy people.

I'm sorry to be "that guy" but I'd recommend researching (lurking?) existing ideas on this forum regarding decentralized exchanges, colored coins in particular.

P2P exchange protocol is not really what's needed - buyers and sellers can contact each other any way they deem necessary and can be completely ad hoc (from elaborate high-speed P2P, irc, even snail-mail).

Aspect of "haggling" and "orderbook hosting" is completely decoupled from actual settlement of transactions, where some kind of consesus/permanence is necessary (blockchain) if the goal is to replace trust by cryptography.

You launch your client, it connects to all the peers, and downloads all the available open trades. Maybe even have the system hold onto trades that are currently ongoing, and ones that closed only a few hours ago (E.g. both P2Pool and Bitmessage hold onto historical data up to the last 2 days before pruning it). That should be enough to see what the spot price is and make a trade. Some other services could pop up and keep a log of all the trade history, along with graphs and such, in case you wanted to look it up. Having everyone download gigs of data just to participate and see the trade history is a bit of a waste I think.


And that's actually the most difficult part of this entire idea; not the trading or keeping the order book. Two ideas so far are brokers issuing their own currency tokens redeemable 1:1 for a USD, the other is using the trading platform to find a trading partner and then settling the trade personally, off the system, sort of like Localbitcoins.com, but online.

Would an IOU issued by one exchange be honored by another? For example, if CampBX issues an IOU backed by the USD in their accounts, and is raided, shut down, and the USD is seized, why would, say, MtGox still honor those IOUs, if they don't have the USD to back them, and were not at fault for CampBX getting seized?
If the answer is no, i.e. that each IOU is only honored by the exchange that issued it, then there's no need to decentralize that aspect. The exchange that issued the IOU can keep track of which trading account holds which IOUs, and when a trade happens, both parties to the trade can sign a statement that the trade happened, using their own trading account signatures, to prove to the IOU issuer that now the IOU belongs to a new person. The issuer just has to update their books. At the end of the day, issuers can exchange IOUs with other issuers while transferring the backing cash to them.

It would be smoother to have a few centrally minted IOUs than one IOU per broker since the risk (losses) can be distributed.

We can have a clearing house that issues IOUs and settles IOUs against bitcoins and dollars regularly.
Those mints/clearing houses needs to be audited often to prevent fraud or fractional reserve banking (which is a form of fraud).

The brokers trade the IOUs with each other, and on settlement they send/receive bitcoins and dollars to the clearing house.
You as a client will always trade IOUs of dollars and bitcoin on the exchange, not the real assets
But when you want to withdraw assets to your own bitcoin wallet or your dollar bank account, you withdraw the real assets, not the IOUs.

If we compare to Las Vegas: each casino mints their own casino chip, if one casino goes bankrupt your chips are worthless. But if all casinos in Vegas had an alliance together, you could still use your chips at the other casinos. The loss would be distributed in the casino alliance and not be felt by the clients.

That doesn't answer my question of what happens to the IOUs if one of the brokers busts and losses their USD, resulting in more IOUs than USD in the system. Will the central minter reduce the value of each outstanding IOU to adjust for the reduced value of the backing? Will it track who owns which IOU and delete the IOUs that were bought from that specific broker? Will it punish those who did a lot of research on a broker to make sure they are trustworthy, by forcing them to cover the losses of those who didn't do their work and bought IOUs from a sketchy broker? Is USD stored at one broker really worth the same (including risk/security as USD stored at another broker?

If a broker goes bankrupt, then their IOUs are dead.  This means that there would be different prices for different IOUs.

If having a single price is seen as important, then brokers could guarantee each others IOUs up to a limit.  That would be a cost of doing businesses for the brokers.  It would also be the responsibility of the brokers to make sure anyone they guarantee is safe.

This would be pretty much a public version of the ripple protocol.  A broker's IOU might be 10% guaranteed by 20 other brokers and so on.  There might be a delay in conversion though.

hey, love the ideas so far. in particular i love:

• double auction, where auction windows are a few seconds and overlapping orders are filled randomly
• using colored coins to represent non-bitcoin ditial assets like fiat, deeds
• using a separate data structure to facilitate orderbook
• anyone can be a broker within a web of trust. major brokers are beneficial as they can help settle balances and provide legal protection for minor brokers.

i've been designing a p2p exchange ('unbazaar') that i will work full-time on in a few months. so here are my ideas:
the exchange will be a client-side web app in the spirit of the unhosted (https://unhosted.org) movement, so using remoteStorage (http://remotestorage.io) for per-user data (where each user hosts their asset descriptions and order listings) and in the future we can easily integrate sockethub (http://sockethub.org/) for posting on social media. the data is all JSON-LD (http://json-ld.org) that will be structured in the spirit of payswarm (https://payswarm.com), so assets and order listings follow the spec of Web Commerce (https://payswarm.com/specs/source/web-commerce/), payments (in any currency) are done with Web Payments (https://payswarm.com/specs/source/web-payments/). each user will also be identified by Web Keys (https://payswarm.com/specs/source/web-keys/) in order to build a web of trust. lastly, there will be need to be some way to build a single orderbook index that points to the web of orderbooks, hopefully through some p2p datastructure like a distributed hash table.

would appreciate any feedback on the design above. also i'd be happy to talk more about it.

bitcoin bounties for implementing the above are available (https://groups.google.com/forum/?fromgroups=#!topic/unhosted/SpB_i6md0Ro), as i'm currently busy with school.

cheers!

I like haggling. The trust in the cryptography of bitcoin is not going to completely replace dealing with dishonest people. They will be around for a loooong time. As I said, whole nations are run on trust - but when the people get burned, they never blame the money for the problem.

Here are some scenarios and how you as a client may be affected.
Generally, if you have an account at a stock broker that defaults you risk losing your cash but never your stocks, in this scenarios I apply the same rule.
Here I assume the brokers and mints use offline wallets as much as possible to reduce risk of losing coins.
We assume IOUs are settled to real fiat and real bitcoin once a week.

Stakeholders
Mint - issues US$-IOU and BTC-IOU
Exchange - a network of brokers that trust each other
Broker - trading mint-issued-IOUs with other brokers in the same exchange, in some cases the Brokers issues IOUs as well
Client - Customers of the brokers, they deposit real US$ or real BTC at the brokers account

Scenario 1)  Mint-issued IOUs are traded & Your broker defaults
USD-account: you lose
Mint-USD-IOU: no risk
BTC-account: no risk
Mint-BTC-IOU: no risk

Scenario 2)  Mint-issued IOUs are traded & the Mint defaults
USD-account: no risk
Mint-USD-IOU: you lose
BTC-account: no risk
Mint-BTC-IOU: you lose

Scenario 3) Broker-issued IOUs & One broker defaults
USD-account: no risk
OtherBroker-USD-IOU: you lose
BTC-account: no risk
OtherBroker-BTC-IOU: you lose

I was late to this thread, but I have been redireted to here.

My 5 cents of how I think a P2P can work, just take any idea that can be useful and discard the rest.

1 Use of the same system Bitcoin uses to distribute and store the information, even a login and password.
 
2 Avoid the minning process if possible.

3 Use of different money for buying and sell. All the money that can be sent without a bank a account. Example: UKash codes. We need some research on this for other providers.  Using Mtgox codes only we just move the problem, so if they stop the service, this exchange also goes down.

4 Avoid reputation in buy and sell, this only causes scams. The system is what is needed to be trusted. You insert your UKash code and you have 10, 20 or 50 € and this is your money Ukash, the system keeps the code and the owner of the code. The only problem is how to avoid a double spent.

5 Avoid take a fee, this system should be 100% p2p so no fees would be required as torrent or others. If you want to use the Exchange you should put some resources to the network. That should be the fee.

I was thinking more, take what want and trash the rest.

So about the mtgox DoS or inability so far to scale their servers in line with user demand ramp up:

Gollum suggested I comment on this thread re a short side discussion we had of a subset of this topic.  About exchange security model I do have some ideas, that presumably others have already thought of (not read enough of the massive forum back log to know).  I tweeted about this a few times (@adam3us).  Basically it seems like an easily avoidable design flaw to me that the exchange is holding the bitcoins.  That is why exchanges keep getting hacked - they have a big coin float on them and coin transfers are by design irreversible.

Maybe I should create myself a bitcoin address for free advice tips if anyone does a startup or exchange or anything with this stuff ;)

1. My thought is why not handle the money and transfer proofs in two stages so the actual coin flows p2p and never sees the exchange.  I reckon you could do that without any bitcoin protocol changes.  (eg with the exchange just handling the escrow of the funds, and arbitrating on the basis of the clearance of those funds that the buyers address has been confirmed to have transferred to the buyer's address).  QED, simple no?  (aka Quite Easily Done:)

2. You can do better than that with bitcoins multi signature option probably, then from the exchange point of view the transaction can complete instantly without waiting for the confirmation if it is one of the signatories on the pre-confirmed first stage.  The exchange cant spend the coin because it doesnt have the user private key, and can remove itself from the signature via a second spend and confirm back to the users exclusive control if they wish.

As far as I could see no-one is doing this, nor attempting to do this.

3. Also even within that the exchanges seem not leverage obvious crypto approaches - they dont even use public key crypto to bank coins they dont need immediately with an airgap to the big value stuff.  (They can bank over an airgap by paying to their airgapped address).

4 The rest about the mtgox exchange overload is that they for some reason are struggling presumably due to inexperience or too fast a ramp for what they were expecting to keep up.  Buy more equipment, hire more really experienced data center engineers (who have handled equipment at real stock exchanges or bi g online trading platforms like etrade where a 5min down time costs millions.  These people get per minute mallus on their fat salary for downtime, but they know their shit!)  QED3.

5. There were ideas to introduce dnyamic anti-DoS hashcash requirements into TCP cookies and SSL-handshakes. I wrote about it in one of my hashcash papers.  It would be easy to put bitcoin in there.  That way under attack the exchange just increases its connection fee, and if the attackers persist the exchange makes more money.

http://hashcash.org/papers/

6. about bitcoinx

Its a quite interesting idea, and seems more p2p minded than opencoin.  But a limitation is a big part of the contribution of bitcoin is that transactions are final, irrevocable and not subject to seizure, recipient blocks etc. but not too politically controversial as they arent that anonymous.  Even more than with bitcoin (if bought via an exchange) getting money into a coloured coin actually has to happen via an exchange to represent offline ownership of a share certificate, a claim on a EUR deposit (who holds the actual while the coin is circulating? - what happens if its a Cypriot bank and the government an EU troika seizes 50% of it).   Its like a digital bearer bond (man Bob Hettinga would be drooling over coloured coins).  But I think those interesting bitcoin properties are lost because governments can easily require the exchange or bank / broker entity holding the actual stock certificate or bank deposit to revoke ownership etc.  However was left holding the coloured coin is holding a worthless clump of hashcash.

(ps I presume though I didnt read far enough that the colouring process starts with a valid bitcoin, spends it down to 0, to buy the instrument, leaving a btc 0 coin with a coloured second use as a claim on the exchange held instrument.)

Adam

Adam

I like the "use exchanges as just escrows" idea, but if the trades on a P2P exchange ramp up considerably, won't the escrow holders be holding massive amounts of fiat, and thus still be at risk for Cyprus style issues? Not saying it's not a good idea, just not sure that such an issue can at all be avoided, short of forgoing escrows completely.

How does that cause scams, besides people lying?





I like this part. No fees means the whole thing can spread much faster.

Well they might, but thats a fiat currency issue, thats why some people are buying bitcoin :).  Also dont use exchanges in countries with high banking exposure to GDP.  (Like credit rating of country, you can look them up).

Adam

I can think of one positive aspect of having one and only one exchange, namely the quality and consistency of the data feed (used to plot bars and perform technical analysis).

When there is one exchange, for a particular instrument e.g. CME for S&P 500 this exchange distributes its data to companies like Trading Technology and IQ. Every end user buying data from these distribution companies can be 99% sure that the data plotted on his monitor are the same as data plotted on monitors of other traders - this is good.

Now try the same in forex ... tens of brokers for EUR USD, each broker reports different prices and different volumes (and different spreads). Gosh - it is a nightmare.

Bitcoin is a currency, not a stock, and our goal is decentralization, not centralization. Therefore the decentralized OTC-markets of FX should be our role model.
In the FX-world there are many OTC-exchanges and yes you will not see exactly the same price of EurUsd over all exchanges all the time, but a lot of algos are doing arbitrage 24-7 so most of the price differences will be wiped out before you even notice it.

I agree. Decentralization in a form that takes it out from under the control of a small group of people.

So, what about the following framework.

Transactions would be kept to a few limited types.  Only one type of trade would be allowed per chain (say BTC vs dollar).  Brokers would issue both fiat and BTC IOUs.

Broker introduction

This transaction includes broker id and broker public key.  It could also include an SSL cert or something to verify identity.

Brokers would need to reissue these every so often.

Broker trust update

This allows brokers to change how much they trust another broker.  It is the maximum debt.  It must be signed by the broker.

Broker balance update

This allows the brokers to change the balance.  It must be signed by the broker who clears debt (or has their debt increased).

Trader introduction

This allows a trader id to be created.  A balance is held for each trader.

IOU credit

This assigns an IOU to a trade.

IOU redeem

This cancels an outstanding IOU.  This must be signed by the owner when they collect fiat.

IOU convert

This moves an IOU from one broker to another.

If a broker says they trust another broker for $10k, and the current balance is -$2k, then up to $8k of IOUs can be converted before the link is saturated.

It must be signed by the owner of the IOU.

Offer

This says that the owner will sell fiat for that price in BTC or the market price if higher.

When this link is added if there are any matching bids, then the fiat is sold at the highest bid price.

Otherwise, the offer is added to the order book for the stated lifetime.

Bid

This says that the owner will buy fiat at that price in BTC or the market price if lower.

When this link is added if there are any matching offer, then the fiat is bought at the lowest offer price.

Otherwise, the offer is added to the order book for the stated lifetime.

--------------------------------------------------

Binding to the bitcoin network is an open question.

You could add a rule that a broker can designate a bitcoin address in his introduction.  If a transaction is more than 6 blocks deep and sent to that address, you can automatically create an IOU.

For redeems of bitcoins, the rule might be that the redeem link is valid if a tx with <some random number the owner picked> is added to the main chain and has been confirmed by 10 blocks.

Keeping the network fast is also an open question.

Why just one asset pair / chain?
If we are going to use the colored coin model I dont think there is any limit to how many type of contracts that can be created in the same chain.

If we trade FX we want to have this theoretical FX-crosses in the same exchange:
[ EUR USD CNY RUB JPY SEK GBP BTC LTC XAU XAG ] x [ EUR USD CNY RUB JPY SEK GBP BTC LTC XAU XAG ]

I was trying to keep that chain clean and hopefully faster.  There are both BTC and fiat IOUs on the chain.  As I said, you can link them back to the main chain if required.


That system wouldn't use coloured coins.

Ripple is merely a medium to get bitcoin from point a to point b instantaneously and with extremely low fees. No need to wait for confirmations any more and no need to mine.

Ripple is under the control of how many people?

A couple more threads that can be added to your list. The concept of a decentralised exchange for bond control has been discussed here.

https://bitcointalk.org/index.php?topic=123271 (https://bitcointalk.org/index.php?topic=123271)


https://bitcointalk.org/index.php?topic=152869.0 (https://bitcointalk.org/index.php?topic=152869.0)

Atomic coin swapping and coloured coins
https://bitcointalk.org/index.php?topic=112007.0 (https://bitcointalk.org/index.php?topic=112007.0)

The namecoin protocol seems highly under utilised and ripe for the pickings as its merged mining offers a huge head start with security

 ???

Here is one:

https://bitcoinstarter.com/projects/54

Yes we should look at NameCoin as well, could be an alternative to Bitcoin coloring.
My opinion is we should keep the p2p exchange outside the bitcoin blockchain exchange.
Since NameCoin is not primarily used as a currency it feels better to use it as a database.
If Namecoin dont meet the requirements, we should start a new alt-coin that will not have any value but to store/exchange data securely.

The idea is good, it seems like it could work however based on how it's set up don't expect to receive many donations.
They need to provide some incentives. No one is going to donate without any incentives beyond having their Bitcoin address listed. They can do better than that.

Nothing stops the people developing this from charging transaction fees and paying back the people who donate. We need to contact whoever is behind that project and tell them to set it up so that by making a pledge or donation not only will their Bitcoin addresses be listed in the credits, but actual Bitcoins will be sent to those addresses associated with donating in the form of transaction fees (if you are behind the protect then find a way to set it up like that and I might be able to find some people willing to donate). These fees should last for a limited amount of time so that the donating individuals can make a reasonable profit of perhaps double their money and then make it free for all. This is a better model than making it completely free and taking money from one group of people to provide to another. The right way is to provide money AND reward people who protect Bitcoin similar to how miners get rewarded for protecting Bitcoin.

I'll donate only when it's set up where I have incentive to donate. The best incentive would be simply to add my Bitcoin address to one of the receiving addresses for transaction fees over a certain period of time and to be fair the more I donate the greater the share I should receive, just to be fair. Otherwise if there are any Bitcoin millionaire types out there then someone like that should just pledge 100 Bitcoins or so to this and its done.

https://hacks.mozilla.org/2013/04/web-payments-with-payswarm-identity-part-1-of-3/

The incentive is there already. Becoming a part of the system early on means money for those who do. It is based on the system automatically signing up new members in a fair way to those who adopt it.

Early adopters are the winners, just as we are with bitcoin. This system is nothing but free software that sets up a system that makes its users money.



Decentralized to the max. :)

Solving the Fiat <> BTC gateway problem would essentially circumvent many banking regulations and be illegal in most countries. If you pool money, you're bank. Essentially any good system would work within the banking network which is not based on pools or central identities. But who watches the identities? A BTC exchange currently serves as a bank, a identification system and a fiat-BTC conversion. To take one example. A bitcoin adress can be easily shared, but running a bank account in a foreign name without declaration would be illegal. It will be more than interesting to see how this plays out. What a strange coincidence that BTC was invented shortly after the crisis of 08.

Was this a mention of Mt. Gox?

B24 was closed down with the mention of money laundering and Terrorism. I'm not sure what happened to Bitfloor. This means if you operate an exchange you want to better have the acknowledgement of the government. But then BTC depends on these gateways. BTC could then easily be attacked by shutting down those single points of failures. I'm a bit surprised that people easily say BTC is legal. Most people (99.9999%) haven't understood what it is and certainly allmost all people who have something to say. It would interesting to track this on a global level but the b24 incident is telling. The question is: if you have fiat money in a bank or cash at hand how do you convert that into BTC independent of what anybody tells you what is right and wrong to do with your money. If you're rich you hire a bunch of lawyers who then use the superhighways to offshore centres. Apple Inc has all of it's money in an offshore haven called Ireland.

Is software legal? What if software can change the way people think about money? Machines and software exist to make our lives better. There are no laws against that, that I know of.




Bitcoin will be the money. I have seen the early adopters are sometimes millionaires and bitcoin is still in BETA. :) We are here in this thread to change the bottleneck that centralized markets have created for our money; bitcoin.

Localbitcoins.com is the closest you can get to a distributed exchange.

Yes but you might get robbed if you meet random people at the street to sell/buy bitcoin.

What a lazy thing to say.

If an exchange is set up as a software like bitcoin-qt, and all functions are distributed between clients like the trade ledger, escrow, and processing, then we can have a distributed exchange quite easily... It just may only yeild regional results because of pingtime latency, but that's going to be a far, far larger area than localbitcoins can create.

It is not distributed / decentralized like we are talking about in this thread. Everything is on one server, just like Gox.

Has this thread gone dry?

Lots of talking, no actual doing?

This subject has been discussed a lot in several threads including this and several good ideas have repeated themselves.
Im not the right person to judge which proposal has the best prospects to succeess.
Some of the proposals may be combined, and some may not.

I will summarize different proposals based on the threads mentined in the opening posts so we can choose our path:
-Vote on the proposals
-If there is not a clear vinner: Have final discussions and let consensus decide

We should be flexible to find the best possible solution instead of letting our egos decide.
United we Stand - Divided We Fall.

I am willing to incorporate anything that will further the decentralization of bitcoin markets. A free bit of software like this:

https://bitcoinstarter.com/projects/54

seemed perfect to me, but like you said, its a group decision. I am willing to include other ideas into my idea, but a programmer will have to work that out. As it stands, this  idea (https://bitcoinstarter.com/projects/54) is ready to implement. It just needs making.

I started writing about decentralized markets back in February:

https://bitcointalk.org/index.php?topic=145389.0;all

Gollum started this one off in April, this month.

Right! Work together or fall apart. What is the decision?

honestly, I don't see the market need for this... everyone agrees that exchanges are needed, and the market clearly isn't satisfied with MtGox being the single biggest player by such a wide margin. But the easiest answer to the problem of one massive exchange isn't a complex P2P implementation of real-world transactions, it's simply giving the big exchange better competition. And we have that now in the form of competing exchanges with arguably better uptime and more features, albeit with varying degrees of success... but there are a few very strong competitors already.

I mean, more power to you guys, really - but I don't think this project is going to revolutionize anything. At best, you'll make a semi-anonymous exchange with a requirement for decentralized trust of distributed individuals for the actual, real-world exchange of fiat. And management of that trust of individuals is a VERY difficult thing to do. So difficult, in fact, that I don't see how "the masses" will flock to this system.

The more I read on this, the more I think it's a solution looking for a problem. If it works, great - I'm sure it'll fill a niche need, and there's nothing wrong with that; godspeed, really. But I'd keep the expectations on adoption of this idea reasonable if I were you.

Beliefs are powerful things. Those who believe that bitcoin markets should match bitcoin are growing by the day. I certainly am one of them and so are the people who post here.





How about giving away free open-source software? ( Just like bitcoin. )

The goal is not to make anything complex, but rather something simple and if possible with existing technologies.
Bitcoinx for example uses the bitcoin protocol, so everything dont need to be invented.

Do you think the iPhone or their app-store was a revolution? No, they just packaged different technologies in a way that attracted the mass market.
We could do the same for exchanges, creating a framework that many small exchanges can use so they can attract customers, without the need to code everything.
The goal is an exchange of exchanges, anyone should be able to create their exchange regardless if they got a dealershop in a village or a huge exchange with millions of users.
P2P-technology makes it scalable.

My simplified proposal:

Storage & Transaction of contracts
-New alt-coin called IOU-coin with the purpose of being colored for transactions with bitcoinx.
-Huge inflation to prevent hoarding this coin, since its main purpose is to act as a digital contract. This coin will not compete with bitcoin, but rather be a complement to bitcoin.
-Blockchain stores transaction of IOUs (legally / morally binding contracts) and prevent double spending. transactions are verified in minutes instead of 1 hours in bitcoin.
-Client-software can send colored coins to other clients.
-Settlement of IOUs for real bitcoins, real dollars or real gold is up to each exchange to handle.

Exchange software
-Each exchange is created with a bittorrent file, anyone can create a new exchange.
-Each exchange contains one or many brokers
-Each broker contains one or many traders
-The server software is run by 1 or many hosts that process orders
-Each exchange runs orders in memory and torrent file for fast trading speed.
-The net value of executed orders are sent to the IOU-coin blockchain regulary.

Sorry, but have ever traded with a LOB? As a trader I will got to the liquidity and low latency and low fees. One trade at MtGox takes 500-2000ms to get through. Actually with a proper run exchange this should be <50ms. A decentral LOB just doesn't make sense. What makes sense is to have brokers who in one market place. In the world there is one price for gold, copper, oil, EURUSD and USDBTC. No need for more than one price. Just think what happens if you two prices at two locations. Why would anyone sell for 100$ if he can sell for 130$? So what you have is a bunch of LOs at various levels which meat at one point, the mid-price.

What can and should be done is to create an exchange alliance, which interacts with community.

That is not true, the FX markets are traded decentralized at different OTC-exchanges, but due to high liquidity you will rarely see differences between FX-exchanges, any difference will be used by algos to make arbitrage profits.

The system isn't the complex part - the complex part is the maintenance of the list of trusted entities, which happens on a per transaction basis, and is purely an abstract relational system that has value that differs for each and every person using the system. Every person is responsible for figuring out the level of trust they place in each and every token generated. (Think MtGox codes, BTC-E codes, etc.)

Inherent in the actual transaction of fiat for BTC is trust that the person or entity you're using for the exchange is going to do what you agree to do (perform the transaction at the agreed rate.) That's easy enough in person because you're meeting someone face to face for the transaction. It's almost as easy with a service as big as Gox because they have a history of performing as promised and they have a well understood business model. The proposed system introduces a trust token that can be traded easily, but anyone can generate their own token - meaning the list of entities CLAIMING trustworthiness is going to get very very big very very fast. The real life problem created by the system, then, is that the complexity to the average person trying to figure out who is trustworthy and who is not just got a lot more difficult. Their path of least resistance is to continue dealing with entities they already know and have a reasonable expectation of trusting, so this system will not benefit them at all; they will continue as they already do, preferring face to face transactions or transactions with large well-known commercial entities.

So if there is no practical benefit to end users, the only other benefit I can imagine would necessarily be between exchanges. The same system of trust must still be established between exchanges as the example above. No exchange will automatically trust any other exchange's trust tokens without the establishment of a trust relationship. There is, in practical terms, no difference between the trust an end user places in an emerging exchange and the trust an established exchange places in that same emerging exchange. The new exchange must still prove their trustworthiness, and each trusting entity must still make their own determination of whether or not to trust the new guy, independent of the decisions of others to trust them. Again, the path of least resistance is to continue using already established relationships with large well-known commercial entities. There are already mechanisms that provide this service, like the aforementioned MtGox codes and BTC-E codes; they are not often used because it's easier to just deal with the exchange directly in most cases, or in Bitcoin in others. Sure, they have a small place in the market, and their use is already established without the need for a separate system of trust tokens. I would not be surprised at all if the exchanges didn't already have some sort of agreements between them that stipulates transfers between them get settled at certain thresholds or at regular intervals, and they trust each other to pay as promised when called. But they don't have a need to transfer those agreements (if they exist) out to third parties - they should already have BTC/USD/whatever to be able to do those other transactions as promised.

This system is, in essence, a lot like introducing to Bitcoin the idea of floating checks made out to CASH. Someone creating a trust token is essentially saying to you "this is redeemable for Bitcoin, I promise." If you trust them, that's a perfectly valid transaction if you want to delay the receipt of BTC, but when you try to give the "check" to someone else who may not know who wrote the "check", and ask them to trust that YOU trust the person who gave you the "check", and then they spend it asking the next person to trust them to trust you to trust the person who wrote the "check", and so on until it's ultimately redeemed. All that comes back to each individual person maintaining a list of entities each person trusts. The "check", in the end, is only as good as the entity's word that it is ultimately redeemable, despite how much trust the Nth person has in the Nth-1's trustworthiness, and so we're back to large, well-known commercial entities being the best source of these trust tokens. A Cashier's check from Bank of America is going to be much more easily passable than a post-dated personal check written in a shaky hand with grease stains and a torn corner. Cash, (actual Bitcoin), is still much better, because there's no actual need for trust that it's redeemable for Bitcoin... it *is* Bitcoin.

Like I said, there may be a small niche need for this, such as the relationship between large, well-known commercial exchanges; but it's not really any benefit to the end user or to anyone wishing to become an exchange, as the trust relationships must be established just as it would need to be without this system.

radiumsoup - the issue of trust have been discussed a lot, and my solution to this problem is virtual exchanges (alliance of brokers).
What Im talking about is not something like ripple, but rather isolated exchanges. The customer has to examine and judge which exchange he trusts most before he opens an account, or maybe open account at several exchanges to diversify the risk.

Each exchange must verify and accept the brokers that will be part of that exchange, by sharing certificates with the brokers.

Each virtual exchange issues exchange-IOUs (for BTC, USD, EUR, XAU, XAG etc...) that the brokers buy/sell to their clients. The exchange should require a deposit (in form of BTC or fiat) in advance from each broker as a insurance in the event of a broker defaulting. Any possible loss will hit the exchange, if the exchange has enough deposits the other brokers and traders will never lose money because of a defaulting broker.

The only thing all virtual exchanges will have in common is a blockchain containing IOUs which makes it possible to also send IOUs directly to other people instead of using exchanges.

You might be right that this system don't change anything in real life, but at least it enables more competition by providing the same framework to everyone.

The regular Joe or Jane that is not online much does not know what a torrent is.











Anyone can create a new exchange:

https://bitcoinstarter.com/projects/54      

Your throwing around words. These trading venues are run by operators for a good reason. Sure you can have 5-10 orderbooks, which are then integrated by trading between the venues. But you still need a) a matching engine b) an operator c) gateways. So that is what we have, and that has nothing whatsoever todo with P2P networks / blockchain etc. MtGox might collapse precisely because they have too high a latency. That is the problem. You need central exchanges, because you need people in charge of bank accounts. Even if you have had a solution, this would be money laundering in probably all countries, because this would make fiat money untraceable. I've spoken with someone who has the capacity to open an exchange and it wouldn't even be much effort. But he doesn't want to face the legal challenges. I would say you need a chunk of money to reserve for clever lawyers. Otherwise you will face what B24 operator faces right now.

Yes its up to the exchange operators/brokers/dealers to deal with the legal issues.
What I'm talking about is a technical solution that exchange operators would be able to use and a framework of how the exchange should work, but in the end its up to them how they handle fiat, settlement and regulation. The proposed exchange system is a hosting service which provides a service to run a virtual exchange instead of coding/hosting it your self, but the fiat is always in the bank account of the brokers/exchange operators. Its up to them to follow regulations in their state. Operating an exchange may be pain in the ass in some states, and completely liberal in others.

If I would operate an exchange the last thing I want is a solution I have no control over. That's the first principle of security. You have control over what you do, otherwise how would you know everything is safe? The operator has to have control over the hardware, the software and the bank accounts. Again, the structure of the Bitcoin network has nothing to do with the structure of an exchange. Although there are possibilities, but the central question is how the interface between fiat and BTC works, i.e. the banking side of the exchange. Why should I distribute traffic over a network if I can do all calculations on a local machine? That's like sending a parcel across the street, but around the world first.


The status quo tells you little what can happen to you. The operator of the second biggest exchange could now face prison time. Not quite the same as "pain in the ass".

So one solution would be to have gateways/brokers. Instead of going to the exchange yourself you got to a broker, who can minimize costs. But then you have counterparty risk, which even for exchanges is significant (B24, Bitfloor), but higher for possible brokers. And if the brokers and exchanges move to offshore locations, counterparty risk increases. So in the end, as of today, it does not make that much sense to transact in Bitcoin in a country where you have existing banking infrastructure. The best thing would be to focus on places where the value is so much greater because the infrastructure is not there.

What makes sense to work on is to have exchanges develop which is helpful for the network overall. And the most pressing issue are questions about the legal situation.

MtGox has no control over the bitcoin protocol but still they use bitcoin to store value.
Our proposal is something similar to the bitcoin protocol, no one can control it but no one can manipulate it either.

You are not being precise at all. If an attacker would want to manipulate MtGox he could do several things, but first of all brake into the machines and steal money. MtGox has a database of users, bank accounts and Bitcoin wallets.

Is this a piece of code? What machine runs what code? How does the exchange actually transfer $ on one account to BTC in the same account? Is there a limit order book? Where is the datastructure stored? How does the matching take place? How does a user open an account? where does he open up an account? etc

I see the overall point, and agree with the sentiment, but it simply does not make sense to distribute a matching engine, because for a market price to form one needs on place where computation takes place. Or at least I can't see how this could be possibly be different. And if it is possible I would like to know how this could work. Say you have 100 buy orders and 100 sell orders at various prices going into the system at various times. If every transaction is verified by a network, it would take 1h for one order. At that rate you process 24 orders a day, i.e. at an average order size of 10 BTC ~240 BTC per day. I guess what you could have is something more like a call auction which takes place in time intervals, for example once a day. But that would mean if you have price drops of say 30%, you can not sell, but have to wait. In futures markets this is called limit down and usually means you're going to have a very bad situation.

The idea of one person or a small group of people having control goes against the idea of decentralization. This must be a very tiring obstacle to have to deal with. All that needed to happen was to design a software along the basic lines of bitcoin. Its free, its open source:


https://bitcoinstarter.com/projects/54      

Well... that's 5 minutes of my life I won't get back. Seriously? wow. I would start by reading books about how TCP/IP works, and then write some actual software.

Its not about TCP/IP. Dont worry, it will get done right.

Sure, TCPIP, HTTP, RSS - whatever.

That was meant as a joke  ;D

I thought so when I wrote the "+1". :)

Today is a good day.

Allow me to step in and answer some of this for poor Gollum. I know he and I don't have the exact same definition in mind, but it's pretty close; We both want a fully distributed, un-take-down-able client software exchange.


Yes.

Every client, exactly like bittorrent

i.e. If you want to trade, you gotta host trades.


Each client has a wallet inside it for each currency it can trade in. If your client has $10 USD in it, and you want to trade that for BTC, for instance, then you can't convert it locally, you have to trade others for it.

You do this by creating your order in right there in your client, which broadcasts it around the system (everyone within an acceptable pingtime range) and your order gets stored on the book of orders of all of those other clients...

As a match appears, the client most directly inbetween your client and the match's client does the trade, and collects the trading fee... So it really takes three running clients to make a trade at all.
 

All books we can make work exist on every single client, for the benefit of every client but that one.


The order books on each client are the data structure, I don't think there would be need for a blockchain.


A. Your order gets put into a short string and broadcast around, like this: "User1234BUY10BTC@120USD"

B. That string is instantly displayed on every order book within a short-enough pingtime, likely hundreds of thousands once the network grows large.

C. Bob, then creates an order to sell 10 BTC at a price @ or above $120 USD, and that gets broadcast around as well.

D. Trish's client, which happens to be running directly inbetween you and Bob, notes that your two trades are compatible and executes the trade, acts as a micro-escrow and takes her pre-set fee. (Then broadcasts a 'quit order' on both yours and bob's orders to all other books in her range.)  


Just like downloading the bitcoin wallet client, but funding the wallet with USD will be the hard part, obviously. Everything here should be doable right now except for the nationalized currencies in that wallet. -We're still thinking hard about that part.


None needed excepting of course for the brokers to fund these wallets. Think: OKPay, but hopefully better. ;)


They'd be regional prices. Sure, you're never going to know what the price of BTC is in Japan when you're in NYC, but your trade is safe, secure, non-DDos-able, and no government can stop it either.


Clearly that wouldn't be a worry with thousands of clients in range, fully distributed.


Something else I feel I should mention here: Remember how Trish didn't lift a finger yet got paid a fee?

...That's going to be an awesome incentive for everyone and their uncle to keep these clients open and online 24/7.

Hope that helped!
 

Is this free and open source? The one in my signature is.

Free as in the BTC99 that you want to get paid? That's an interesting definition of free.

Why is there someone in the middle? What happens if you and Bob connect directly? Why can't the quit order be sent when both parties sign something saying they are satisfied with the trade?

Its not made yet. That is the price to make it, its free to distribute. Plus, that was back when a bitcoin was just 60+ dollars. Sheesh... ::)

So, Vaporware, then. Got it.

Nah. Futureware...:)

Lots of great reasons.

First of all it makes it so you can't cheat bob, and bob can't cheat you. 3rd party Escrow safety.

Secondly, it adds distance. If the acceptable pingtime is 100ms, and you're 99 away from trish and trish is 99 away from bob, then you can bob can trade, despite being too far away to see each other.

Third, and my favorite, this setup gives everyone in the world an incentive to keep this client running; Free money.


Good news: Jeff Berwick just said this on his blog (http://dollarvigilante.com/blog/2013/5/2/my-official-withdrawal-from-the-bitcoinatm-project.html) today:

That's some major cash, folks!

If we can get the right P2P programmer with us on this, Jeff could fund/PR it into existence easily.

Any system that puts a seller into contact with a buyer directly without a third person is great. If it is decentralized, it makes it even better. As long as a few people are not in charge of this proposed system, that is, it is open source, it is nearly perfect. The world needs it.

Has anyone involved with this project tried contacting him to make him aware of it? He also said this in his blog...

"If you or anyone you know is one of the top percentile programmers and theorists in P2P protocols please contact us here at TDV."

Not sure if anyone here is a P2P programmer, but it sounds like he's interested in hearing from people that want to build something like this.

We should agree on a final proposal before recruiting programmers.
Right now we are at phase 1-2, we got lot of ideas to organize into one or a few proposals that are practical in the real world.

1) Brainstorming about p2p bitcoin exchange, all ideas are welcome, even crazy ideas.
2) Organizing the ideas into 1-3 solutions  (general architecture and functional requirements)
3) Choosing one solution by voting & discussing
4) Recruiting professional and motivated programmers into the development team. Reward: honor and donations. If you know these programmers please talk to them: https://github.com/bittorrent?tab=members  https://github.com/bitcoin?tab=members
5) Architecture: Dev team makes a detailed architecture based on the final solution.
6) Developing the system
7) Invite existing exchanges MtGox, BitInstant, TradeHill et al. to use this p2p bitcoin exchange

That is a bold move. :) Do you think they will want to practically destroy their own money-makers?

That is the last stage. They will not take us seriously until stage 6 is finished, when we have a working system that is stable, scalable and cannot be DDOSed or hacked they will become interested.
Some of them may join us, some may chose their own path. Our system will not destroy their business, they will benefit from this stable and secure system that they didn't have to pay anything for.
What they charge from their clients, and how they trade the markets is up to them.

Sounds good to me. Charge on OP! Success for us all...

The system I described does use a 3rd person... But that 3rd person is chosen arbitrarily, and is not a permanent middleman in any way.

It's basically anarchy in a software. Two people needing dispute resolution will always look for a 3rd person to fairly resolve their dispute... In nations a person is always assigned to be the dispute resolver, but in anarchy they pick a non-biased, arbitrary 3rd party. This system just takes care of all of that automatically and profitably.


Of course they wouldn't... They'll refuse to look at it until it gets as big as they are...

But then they may find some use for it to free up liquidity too. In the meantime, there's nothing they can do to hurt it.

I was thinking the same thing. Its all about their bottom line.

pitching again my decentralized marketplace ('unbazaar') that can easily be adapted to trade cryptocurrencies. current design has all the features that you guys have been talking about, without being too difficult to make.
current design docs: http://ahdinosaur.github.io/unbazaar/docs (requires up-to-date browser), don't mind the introduction as that highlights another use case of a decentralized market, but please check out the technical design details.
also me and another person will be working full-time on unbazaar starting in around a month. of course we can always use more help.

What computer language is it written in?

javascript.

in the spirit of the unhosted movement (https://unhosted.org/), all code will run locally in the user's web browser and users will host their own buy/sell listings with remoteStorage (http://remotestorage.io/).

Your link doesn't work for me. I get a 404 error.

It would be nice to read a description of what you're planning.

sorry about that, changed the design from a text file to a slideshow last night and forgot to update my post. fixed the link.
http://ahdinosaur.github.io/unbazaar/docs (requires up-to-date browser)

would really appreciate any feedback!  :)

I didn't really understand the focus on that particular group of products/services. The rest sounds interesting, although hard to picture. It would help to write out an explanation for the layman of how it would work and what it would look like.

I also don't quite get the focus on 3d printers / cnc machines, is this just an example of one use of 'unbazaar' or is it the core business?

Though I do like a lot of the ideas behind it, but I would love a uber generalisation..

A general open platform to support next-generation 'discovery services' would be awesome. Where the user always remains in control of the data he publishes and is freely able to communicate with other users.

Upon this infrastructure, open variants of services such as ebay, craigslist, freelancer and of course crypto-currency-exchanges could be built

What is the purpose of your mention of 'Global Domains International'?

A quick google search reveals this to look a lot like a creepy pyramid scheme affiliate program.


EDIT:

Evidence for GDI acting as a tax on idiots : just take one look at their website ... http://globaldomainsint.ws/

wow.

i'm fascinated with the idea of personal manufacturing equipment, so that's where i'm starting as a business, but i want unbazaar as a piece of software to be 'a uber generalisation'.

i really like your idea of 'discovery services'. my next task is to focus on publishing PaySwarm (https://payswarm.com/) assets and listings using remoteStorage (http://remotestorage.io), but after that we will need to have an index of sorts that allows people to 'discover' the remoteStorage account that has the PaySwarm listings they are looking for. i like to imagine a person at the edge of a street market asking what you need and giving you directions on where to find the stand that has what you need. i was thinking we can use a distributed hash table like https://github.com/jinroh/kadoh, does anyone know more about a distributed index like this? search terms would be location and listing content; query should return list of listings. requirements are that it must run entirely in the browser (javascript) and preferably on servers too (nodejs).

Yes.

Im a big fan of the unhosted movement. I think we are heading in a direction where the cloud is being 'dumbed down' and more and more computation occurs on the client side. A nice democratisation of power!

To support open discovery services, the server side component could be relatively simple. As you say it really only needs to provide data storage and indexing. This part could be highly distributed for performance/reliability gains. This could operate as a very light layer above something like RIAK.

The cloud component could even be achieved peer-peer, where anyone can become a node and possibly even receive Bitcoin payments for their efforts.

Your manufacturing equipment business case could be realised as an HTML5 app that simply uses the API of the aforementioned cloud service.

The cryptocurrency exchange could be another.

agree that Riak (http://docs.basho.com/riak/latest/) is the best database choice for the index. how will this be possible to make peer-to-peer with untrusted peers? we may want to consider something like TahoeLAFS (https://tahoe-lafs.org/trac/tahoe-lafs) as that would help with not having to trust the index peers.

either way, i like the idea of receiving bitcoin for helping host the index, which should be done by modeling the process through PaySwarm assets and listings in order to be consistent. buying and selling server resources is another use case of unbazaar i am interested in.

Protip: There is no software solution to this problem.

All the code needed to make a distributed exchange already exists - what's missing is the human capital: people willing to step away from the keyboard, go outside, and do stuff out in the real world.

If you want to solve this problem the first thing to focus is getting as many people as possible to start actively trading on localbitcoins.com. This is harder than it sounds, however, because you do actually have to go out and get your hands dirty in the real world. It involves communication, negotiation, arranging meeting places, and some degree of financial savvy.

Get 1000 new people involved in operating their own local exchanges and they'll be too busy actually solving the problem to have time to worry about whether they should use Riak to TahoeLAFS for yet another order book system that isn't even needed.

i've been an active trader on localbitcoins.com in my local community, been through all too much real-world communication, negotiation, arranging meeting places, etc, just check my profile. i'm taking a break while i assess the legal situation before i get overwhelmed with activity.

i completely agree that solving the immediate need for distributed crypto-currency exchanges is best done by actively using what is already available (localbitcoins). yet i still think improvements to distributed marketplaces will be beneficial to the community in the long run, especially for a large-scale, efficient, open source economy, and in the meantime it shouldn't detract from any existing solutions like localbitcoins. i'm not worried about how to design yet another order book system that isn't needed, right now i'm just thinking aloud while i finish my last week of school, soon i hope to be coding and working on my roadmap using whatever works, because i have an idea that i want to see implemented if only for my own happiness.  :)

False.

You cannot trade other currencies, do arbitrage, nor especially options and futures in bitcoin using localbitcoins-like services.

These financial instruments all work towards reducing volatility in a currency, and therefore are exactly what bitcoin is lacking right now.

Localbitcoins is great, but it and the OTC markets are just the absolute bare minimum of what we need to for bitcoin to survive on... If you want it to thrive and be less volatile, you need to be able to arbitrage it and forex it with many different currencies.

Serious daytraders in financial centers around the world who are used to their 3-monitor wrap-around trading consoles with graphs and charts out the wazoo need to be able to trade bitcoin in their software platforms. MtGox isn't even able to deliver that yet, so clearly Localbitcoins is going in the opposite direction from what we need.


I'm sorry, but this may be the most thoughtless statement I've read on the internet to date... How can you suggest for a nanosecond that Bitcoin doesn't have enough human capital? Name one other organization, on this whole spacefaring rock, that has as many volunteers as bitcoin does!

If that's not good enough for you, I submit that you simply aren't going to get any solutions through adding more manpower.

If you give the world what it IS ABSOLUTELY BEGGING US FOR; a better exchange than mtgox that can't be taken down by governments, then all of today's problems are solved. No additional manpower needed.

I agree that it requires a large investment in time. I've been through the same thing (http://pool.sks-keyservers.net:11371/pks/lookup?op=get&search=0x2A22B0141B438BF4). That's what we need more of though. If everybody would create an account and start helping people in their area get into Bitcoin the additional boots on the ground would have a  larger impact on the Bitcoin/fiat liquidity than yet another exchange that the average person still can't get easy access to.

I don't care about them. Daytrading does not drive real economic activity; at best it can act as a lubricant to make the job of the people who are actually producing economic value a little easier.

Do you care about the fluctuation in price of a bitcoin?

Would you care if there were so much fluctuation that you can't convince a single merchant to touch bitcoins because he can't fathom what it is?

Arbitrage and forex FLATTEN OUT THE GRAPHS. You can't convince merchants to use bitcoin if it's going up and down multiple times in a minute.

I like your statement. I thought it might be better to use a smartphone app with the GPS functionality to find people near your to create a real p2p service. Without a central page of registered users, like localbitcoins does it. Problem is, that I don't see any business model in such a system, since there you cannot monitor any deals made by the users. So you cannot request a fee from the users. So I guess, no company would develop such a system.

The bitcoin price seems to have stabilized... at least for now. Its been around $100 or just above  since the fourth of this month.

I wanted to re-quote this, because it seemed like such a good idea. Its like a digital smorgasbord, with whatever options a person could want right at their fingertips. :)

That's simply not good enough. Consumers expected $1 to buy a loaf of bread for decades... Of course they can't expect that anymore, but hopefully you get a sense of the timescale we're looking for here when we talk about lowering volatility.

In fact since the price of a bitcoin is going up to $thousands of USD per coin someday, we're clearly still in price discovery mode now and a "Low volatility" environment would be one that grows at a very steady rate, such as 1% a month like clockwork... Very flat, just slightly upwards.

That's what we all should want and if we had it bitcoin would be the most desirable currency/value store on the planet for every last person on earth... There would be so much love for that coin that even the sheeple would lead an armed revolt at anyone that tells them they can't have it.

Your google search did not seem to find the headquarters. Its at website.ws. Its not a pyramid scheme, read their site.

if you're looking for a massively convoluted scheme.....or just bored.


https://bitcointalk.org/index.php?topic=207764.0

Ok fine.

I think 'creepy affiliate scheme' still holds. What is the added value that GDI provides?

Anyway, that is all beside the point, your proposal loses all credibility with your shameless plug of GDI. Why even mention it?

No, it does not hold. The added value is that people can make money two ways instead of just one, with a regular decentralized market.


If mentioning a good webhost is "shameless" then I guess I am. :)

Its just that your "solution" is all based around GDI. You have structured it all around the multi-level marketing bullshit that GDI uses. I take it you would kindly sign up people to their overpriced webhosting/domain name registration so you can make a tidy profit?

Why not propose a technical solution that has not been tainted by your personal financial interests.

While i'm ranting, if I want a .ws domain I will get it for half the price elsewhere, with the bonus of not having to deal with brain-washed creepy marketeers. Same goes for webhosting.

I am sorry you are missing the point, but thanks, because you allow me to explain it further. No one is obliged to use GDI if they dont want to:


https://bitcoinstarter.com/projects/54      


What is required is Wordpress, who happen to already be involved with bitcoin. :)


Without marketers in the world, nothing gets done. (https://www.youtube.com/watch?v=xBIVlM435Zg)


Some of them are creepy, I hand it to you on that one.

I have been playing a lot with Ripple, and it works well. The biggest problem with it is trying to understand it. And then it struck me. I am using Ripples own wallet client. For a starters, its confusing (and the ripple team have acknowledged that). But, most importantly, why would I need it, except to manage my account?

If I wanted to send or receive Bitcoins, I would naturally go to my Bitcoin wallet. If I wanted to send, receive or exchange fiat then I would go to whatever bank account or exchange I had my fiat in. I don't need to log into my ripple wallet. All my ripple credentials will be in my trusted currency client.  My Bitcoin wallet will have the option to send via ripple. As will my fiat account.  I dont need to understand how it all works in the background, and how the system gets the best exchange rate etc.  Ripple is just the transmission of payment, and exchange.

The issue of ownership of Ripple put me off initially. I didn't like the idea of a single company holding back some of the the ripple currency. I'm still unsure about it.  However, having given it some thought, we need a well financed company to get this off the ground, and do whatever it takes to make this work. Lobby governments. Sort out the red tape. Advertise. Educate. This could be a good thing.

Please, for the love of all that's good and decent, please log off the internet now and never return.

+1

This is the P2P Decentralized thread... :o

He must have missed that Ripple is backed by a well-financed company, (ironically called Opencoin but have yet to release the source code) who issued their own currency XRP inside the system that has a net capital value in the tens of millions .... Ripple is morphing into a trojan project hiding inside bitcoinosphere of free open exchange, I'm getting sinister undertones from them.

Ripple is already a p2p decentralised isn't it?  Or at least will be when it's out in the wild.

OK, so what about forking it, and switching ripples for bitcoins?

No.

Not so easy to fork something that is closed source. They may lie and say they'll open it "someday" but that wouldn't be congruent with their past actions nor would it make them any more money.

Guys what about Voucher Safe? It' s been around since 2007 and MAYBE bypasses FinCEN because itis BTC<->GOLD.
I think it is an extremely interesting project..

Met a guy behind Open Transactons at a party this past weekend. The way he explained it, it looks like OP can do everything Ripple can, and the code is already done and opensource... Think that may help fr this in any way?

imo ... any efforts towards P2P exchanges should now go in make usable clients to do this ...

https://bitcointalk.org/index.php?topic=212490.msg2227866#msg2227866 (https://bitcointalk.org/index.php?topic=212490.msg2227866#msg2227866)

the pieces are all there now, just join the dots fellas.

Saw this over at reddit:


https://i.imgur.com/P2ZI1Ty.png

This thread has degraded past repair. Let's step back to the last logical point and pick it up over here:

https://bitcointalk.org/index.php?topic=212841.0 (https://bitcointalk.org/index.php?topic=212841.0)

You started that one above.


Gollum started this present one:


https://bitcointalk.org/index.php?topic=172705.0



And I started this one:

https://bitcointalk.org/index.php?topic=145389.0



I believe in choices :)

Im happy that there are so many people interested in the concept of decentralized bitcoin exchanges in different threads. Im sure some projects will succeed, probably a project that makes a simple solution that people can easily understand and use.
Some people have mentioned BitMessage as an important part of an exchange and I agree, BitMessage can be used for parts of that system. Maybe in combination with other concepts.

That is right. Bitcoin can be modified to include whatever we want. If it gets accepted by the majority, we all benefit.

then why don't we use it?

It's not necessarily BTC <-> GOLD.  It has digital vouchers, which is the same basic thing OpenTransactions has.  Last time I looked at the project, the server was not open source.

It has been around for a number of years though, and has a measure of credibility in the DC space.

They're building the GUI for it right now (https://bitcointalk.org/index.php?topic=225954.0). It's "usable," but is command-line only  :P

how do you know?  just taking their word for it?

I find it interesting how people will implicitly trust anyone who claims to be an open source developer.  There is an assumption that there are no gain motives in these scenarios thus most rule out the possibility of deception.

ie. If someone is giving away something for free, why would they be lying about it?

I've posted elsewhere some of the statements of the project founder, and copyright owner of OT.  Let's just assume for a moment that there are no issues with the actual technology of OT(and there are), and just discuss the notion of licensing.  What Chris Odom believes, is that anyone who modifies the OT code must check back in all their changes and publish them.  This makes it virtually impossible to have a competitive business using OT, because all of your competitors have access to anything you might innovate.  There is one party that is not subject to this rule, and that is Chris himself.

this concept is described here: http://producingoss.com/en/dual-licensing.html

an excerpt:


so technically, whoever contributes to this software project needs to also declare their copyright, and worse- anyone who uses it competitively must also gain permission from EVERY copyright owner(in theory, fact is these cases have rarely ever come up in court).  So if anyone has contributed to this project, they also have a right to any profits gained from the licensing of this software.  If what Chris claims is true, that there are MANY contributors to OT, then there also should be many Copyright owners(and this should be indicated in the software code).

So here, we are talking to the 'community' and what does that mean for us?  Basically this makes building on top of OT pointless(and this isnt the only reason that's true), and anything you contribute to the project is, presumably, also under the same license and license owner(although this particular aspect is not clear and falls under the poorly defined 'derivative work').  Fact is GPL is not really amenable to business ideas: http://www.linuxjournal.com/article/5935 .  So if you want to do something profitable(personally I dont think you could do that with OT even if it were licensed MIT), you must rule out GPL licensed software.

Another good article about why GPL use is declining: http://www.itworld.com/it-managementstrategy/233753/gpl-copyleft-use-declining-faster-ever


AGPL. is even MORE restrictive!  http://en.wikipedia.org/wiki/Affero_General_Public_License

Basically it closes a known loophole in the GPL, that of using the software without modification(and not requiring publication) over a network(which will be in all cases if anyone ever manages to use this software to do something).  Bitmessage for instance, is MIT licensed- it's based in sound concepts, it looks like an actual open source project.

So basically, this 'bounty' is an attempt by Chris Odom to get development done for free on his software platform.  This is not the only suprise you get with OT but I'll save those for later.  :)  Sorry if this doesn't read like a fun story out of Wired, but these are the nitty gritty facts of working in these areas.

it isnt decentralized. . .

thats an interesting idea for sure