Bitcoin Forum

Can someone please explain to me how a decentralized P2P exchange would work from a user's point of view? I don't want to discuss the technical aspects of it. Let's just assume that part is worked out and trusted for the sake of this argument. What I mean is, it's easy enough to transfer BTC in and out of an exchange. But how does one get their fiat in and out? The only two ways I can think of are by using cash or going through your bank account, neither of which seem useful for a P2P exchange. Can someone break it down for me? How does this help us?

Maybe a few other sites (each site is of course centralised but as a whole you have many points of failure) which offer "trading tokens" or something in exchange for real money.

A token purchased at one of these sites should be fully redeemable at any other site, so if any of them decide to shut up shop at any point there are more you can use.

Then you deposit this token at the P2P exchange and it acts like fiat to buy/sell btc with.

How would you secure this, make sure the tokens are valid, can't just be made up, sold/used twice, do money laundering checks etc etc? Hell if I know, but this is the sort of thing I'd like to see. Separate fiat from the BTC exchange, make it someone elses problem.

Building a decentralized exchange consists 99% of solving this problem, and 1% building an order book and web site. Of course everybody is focusing all their efforts on the 1% part of the problem because it's easier and more interesting to do it that way.

A viable plan for forming a distributed exchange would start with figuring out how to get 10000 Bitcoin users to open accounts and advertise on Localbitcoins. For price discovery they could just use a volume weighted average of all the applicable exchanges. This would work but no one is interested because it involves interacting with people in meatspace instead of writing new code.

Any exchange transaction has to take place using IOUs (=debt).

Who issues these debt tokens varies depending on the philosophy of the person describing the P2P exchange, a "true" P2P exchange (meaning everyone can be a "full node") would mean that anyone can somehow issue tokens that are redeemable in some way with this issuer e.g. for 1 USD or 1 EUR. Then these tokens would be somehow exchanged for BTC tokens and then the debt will be settled.

This third part is actually the tricky one - it's easy to claim to own a million USD and issue some debt contract and buy some BTC with that contract... but actually settling it might be harder, depending on your real financial situation.

You mention cash or using your bank account. Are you looking for a third way like paypal or credit card? Understandable request but I don't think it can be done because those methods are reversible by design.

Wire transfer should be irreversible by design, but it can be done on the internet. So, my suggestion is in this post:

https://bitcointalk.org/index.php?topic=205796.msg2197907#msg2197907

best decentralised exchange= ................... dramatic drum roll........... localbitcoins.com

I agree. I have solved this problem. I have figured out a way to make a P2P decentralized orderbook.  I will post the solution in a few minutes here:

https://bitcointalk.org/index.php?topic=209269.0

But then the "trading tokens" are just like another form of bitcoin, right?. I still don't understand how this is possible unless it interacts with the banking system, which is obviously a major problem. I think BTC ATMs are the closest we can get to this. Put physical cash in a machine to get BTC, get physical cash out in exchange for BTC. The decentralized aspect would have to come from the market not being dominated by any big players which also seems unlikely in the long run. But as long as the fees are low, who cares?

*No one cares about trading between BTC and LTC. The problem we need to solve is how do a few billion people trade BTC to and from USD, EUR, CNY, RUB, and JPY?

(*)For statistically significant values of "anyone"

The trading tokens will be valued based on a fiat currency, so 1 token would be the same as a .0001 of a $.  Its only role is to create a digital version of fiat so that you can trade for bitcoins. With there being millions of these tokens in existence, there would be no market in growing their value, however, it would mean that bitcoin exchanges would no longer be an international financial transaction, just somewhere to exchange files.

maybe! ;)

More here in a few minutes:

https://bitcointalk.org/index.php?topic=209269.0

I agree - what we need is a turnkey system that uses 'accepted practices' to turn bitcoin into fiat. It would be smarter to operate in your local nation only. The idea is you run just a bit of a margin relative to some exchanges (aka be willing to buy large amounts of bitcoin for under market rate) and immediately fund the end user via alternate payment processor (paypal, dwolla, check, direct deposit, etc).

Give the user the option of taking a small hit re:price to sell to your service knowing that they'll have a check to deposit in ~3 days. Really (at least domestically) you could simply deposit into someone bank account.

The leaves your service having cycles where you have to sell & wire the fiat to yourself. Easier for the end user... bit of a headache for the service provider. It doesn't solve the problem of users having to trust the exchange not to mess with their funds.

My question is not how it would work but how could it be decided? Why you and not me? How can "the community" make a strict and formal specification/design?

Make something like LocalBitcoins, but distributed, and with good trust metrics so it doesn't become a tool for kidnappers. Eventually turn it into what Ripple was originally supposed to be.

To get FIAT into a P2P exchange you must first get a P2P representation of fiat value.   We know that crypto currencies convey value.   Therefore a crypto-fiat currency that is issued as fiat-(IO-the-network) backed by crypto-collateral (held by the network) ensurs that the crypto-fiat can be redeemed because it has more crypto-currency backing than fiat value.   The key is that it doesn't matter who redeems it.  All that matters is that whoever issues it locks enough crypto-currency in 'escrow' and that 'escrow payments' are automatically distributed to all holders of the fiat-crypto balances with each new block.

With this in mind you can find anyone in your area who wants to exchange crypto-USD for real USD and you can meet up and make the exchange.  Alternatively you could use systems like dwolla or intra-bank transfers or money orders.   Combine this with something like NashX mutually assured destruction, escrow, multi-sig, etc and you have effective conversion between fiat-crypto and fiat at near face value and no 'exchange spread' like you get with localbitcoins.   Both parties are essentially exchanging equal value for equal value.

I posted a white-paper on another thread you may want to check out:

https://bitcointalk.org/index.php?topic=213588.msg2238954#msg2238954

A quick summary is this:

1) all balances (fiat or otherwise) pay interest
2) all fiat balances are created by someone borrowing against a crypto-currency used as collateral. 
3) payments from the collateral are distributed to those who hold a balance in that fiat currency.
4) people borrow against their crypto-currency because they expect it to go up in value relative to fiat AND the crypto-currency also pays dividends from transaction fees.
5) once you have a fiat balance it can be traded as easily as a bitcoin balance.
6) fiat balances are always 100% redeemable at face value (excluding transaction fees) so long as the underlying crypto-currency maintains any amount of value.
7) the effective interest rate on fiat balances goes UP when the value of the crypto currency goes up.

Given my approach we can now eliminate the centralized exchange.  Allow individuals acting as 'local-bitcoin operators' or posting on craigslist to 'deposit' and 'withdraw' $USD or EUR from other individuals without having exchange risk but only a potential 'transaction fee'.    There would be more people wanting to deposit $USD because their $USD balances pay interest and with more people wanting to deposit that means more people wanting to withdraw which equals more opportunities for local exchanges.   People could use the system without ever owning an asset denominated in a crypto-currency to trade $USD among themselves, etc.

The problem with fiat isn't the fiat, but the laws.  The way you fix laws is to make breaking them so easy and hard to find and desirable to so many people that they effectively nullify the law.   Copyright is effectively nullified by mass law-breaking and that is enabled by the internet.  Sure some people get caught, but most do not.  There are so many people doing it because it is 'profitable' to them that attempts to shut it down will be fruitless.

OK so why do I need a peer to peer exchange if I'm going to go meet someone and transfer the bitcoins and cash in person? We already have this system today.

I guess I'm just a little confused on what problem everyone is trying to solve here. I was envisioning an exchange, just like Mt. Gox, only without Mt. Gox. The benefit being that it wouldn't be a centralized exchange with a single point of failure, though. It would be decentralized and world wide. If Bitcoin can exist, then I have no problem believing that this type of exchange could exist. But there still is that one nagging problem in that Mt. Gox (or any other current exchange) has to act as the middleman and hold both the bitcoins and the fiat that will be exchanged.

The Bitcoin part is easy enough to overcome, but we already know that getting fiat into an exchange is not trivial. Wouldn't this problem be exacerbated greatly with a decentralized exchange? My money today exists primarily in a bank, I have some cash and lots of credit. But any way you look at it, this money has to somehow get transferred from these institutions into this decentralized system you're all talking about and I cannot perceive how this can happen.

False.

Proof/reasons?

My reasoning is that anything you can get in a valid Bitcoin transaction is either another Bitcoin or an IOU from a trusted 3rd party.

A P2P decentralized exchange is critical for the adoption and widespread use of cryptocurrency. Fiat has no future. What is needed are mechanisms to convert the daily plummeting value of fiat into cryptocurrency. Online sites that do fiat conversions like bitinstant, btc-e, and mtgox can plug directly into a P2P decentralized exchange. Fiat conversions are a political problem not technical. We need to focus on the technical aspect and let the current political libertarian revolution continue...

Focusing on technical aspects is useless; a way to feel like one is making progress without actually accomplishing anything. There have been dozens of attempts to build distributed technical solutions to the exchange problem and the one thing they have in common is that none of them have gone anywhere.

The one and only problem that needs to be solved for distributed exchanges to work is how to move the fiat. If you're not focusing on the problem of moving fiat you are wasting your time, because that's literally the only thing that matters. When fiat is no longer used then we'll have no need for exchanges.

To answer the original question:

Fiat conversions ARE a political problem. Maybe you will realize that when the Department of Homeland Security shows up at your door.

Hey buddy, if you think that the whole world is going to use BTC and no other cryptocurrency then you are in "LaLa" land. Please join the rest of us in reality.

Amen to that!

It's still the only problem that needs to be solved. If you're not going to tackle that problem then everything you do on the technical side accomplishes nothing.

The only reason exchanges exist, and the only reason they have customers at all, is to do fiat conversion. If you can't do that nothing else matters. If you don't first have a credible plan for moving fiat around your project will go nowhere.

What you're trying to do is build a car dealership without having any cars to sell or any plans for how you're going to obtain them.

That's why I said earlier "we need to just let the political Libertarian revolution continue".

Other than that there is really nothing else we can do.

In the meanwhile, we CAN focus on innovation; because innovation is what got us here in the first place.

What if Satoshi said "well I don't know how to convert fiat into bitcoin so I wont focus on developing or coding software for the bitcoin software".

Come-on, man. Get real dude!

We control Crypto. The government controls their money that they print. Its their money dude.

Is it not written "render unto Caesar what is Caesar's".

Its Caesar's money dude; but, its our crypto.

Oh please, enough of this juvenile nonsense.

Nobody can run a serious business by meeting strangers at Starbucks...
My time is worth $300-500/hour and that is typical of a small businessman.

I'm not disagreeing with you at all, but why do we only consider businesses? What about the billions of people out there that we want to be buying bitcoins that have no intention of running a business themselves? If you're running a business then you probably would just build in the cost analysis of money transfers and hassles into your overall business plan.

1 million people willing to handle $1000 USD per day could move $365 billion per year.

To do that we don't need technical innovations - we need a million people willing to register on Localbitcoins and start actively buying and selling. But as always there's a huge shortage of people willing to do that. It's a lot more fun to sit in a chair and write code than it is to go out in public and work with people.

If we could code our way to a solution I'd be ecstatic but unfortunately that's not where the market is right now.

You forget that not everywhere it's easy to receive/send USD over the wire though the banks.

Thank you.

I'm glad to finally see some sanity in these threads. This a waste of time, it's currently not possible. People proposing a 'voucher' system are really proposing another digital currency which, if implemented, would be better than bitcoin.

Moving fiat is the ONLY problem that matters...and it's an impossible problem atm. So let these threads die with dignity.

I don't think it is productive to just let these threads die. I believe there may be a unique solution to this problem but we won't know unless we try. The important thing is that we focus on the right problem. Most of the talk has been around the technical issues but most people don't seem to care about the pragmatic issues. I guess they're just assuming that people will figure it out for themselves. It makes no sense to me.

I can see why moving fiat P2P is hard, but why impossible?

It seems you could at least have meeting-less localbitcoins.com as long as

• you can set up a fiat money transfer with unique ID that states where the money is to go
• you can publicly prove you initiated the ID'd transfer (fiat money on its way, shown on bank website, etc.)
• failure to initiate the transfer within a certain number of minutes/hours would also be public

If Alice wishes to purchase BTC from Bob, the process for a trustless, meeting-less trade would be:

1) Alice draws up a money transfer ID at bank, etc., and informs Bob of the details but does not actually send it yet
2) Bob puts the BTC into escrow with the P2P software, which uses an oracle to monitor the bank website for posting/cancellation of the transaction
3) If the transaction is posted (because Alice actually initiated the transfer), the oracle releases the BTC from escrow to Alice
4) If the transaction ID times out, the oracle releases the BTC back to Bob

Alice can't cheat, Bob can't cheat, Alice can't lose, Bob can't lose. The coins only move if the fiat moves. Note how the bank is unwittingly the trusted party, though it has no knowledge that it's being used as such. It depends on the bank generally disclosing the right information in a reliable manner.

If this can't work, how about cash via certified mail? Any financial service that offers public tracking records that can be checked by the recipient. If there is just one service that offers such a thing, this seems possible.

Even assuming Alice and Bob were honest and could directly send funds via bank transfer, paypal, etc with no worries.... this version of p2p exchange is fatally flawed and not a suitable replacement for Mt. Gox.

1) The transaction fees would be high.
2) Alice or Bob would have to transact with many different people unless their order sizes were identical (unlikely)
3) It would be slow as every exchange would require a bank transfer (no day trading or even weakly trading).
4) Buy/Sell spreads would be high because the exchange was so slow.

I am a little disappointed that so few people have taken time to understand or consider my approach for creating an interest-bearing crypto-USD (EUR,Gold,Etc) that has no counter party risk and would allow near-instant exchanges as frequently as one desires as well as USD-denominated transfers between users.   I believe it solves all of the problems with moving fiat around in a decentralized manner.   Please consider my thread: https://bitcointalk.org/index.php?topic=213588.0  and help me find weaknesses and ways to improve it.

A replacement for MtGox would be the holy grail, but that doesn't mean alleviating some of the centralization for certain types of trades isn't a big deal.

I agree everything helps.   I also have a solution that is much better than the one presented.  I am practically begging people to consider and give me feedback.

We could start an auto dealership where people buy and sell cars without ever having to actually move the cars directly. When someone wants to sell a car they can just transfer the title to the buyer while leaving the car in their driveway. Likewise a buyer can purchase the title for the car without actually needing to take physical delivery of it. It's a perfect plan except for that small little problem that people actually want to drive the cars.

Without moving fiat around what you're building is just a complicated online casino. The only people who will play in the casino are people with spare money to gamble with. If you're talking about a service that's supposed to open up Bitcoin for widespread adoption then the first and most important problem you have to solve is how to move the fiat around. People who aren't interested in online gambling need that fiat in order to pay real bills and purchase actual products and services. If they can't easily do that two things will happen:

1) They'll hold less of their liquid assets in Bitcoin, because they can't afford to tie up much of their income stream in a form they can't easily spend.
2) People who do hold bitcoins will be less willing to list them on the exchange so there will be less liquidity in the market.

Under my system actual USD can enter from anyone and leave from anyone.  Exchange rate risks mostly eliminated and there is financial incentive to keep money in crypto-USD form rather than always cashing it out.  Going in/out of fiat to crypto-fiat is always more expensive.

So anyone can deposit a crypto-car and then the title can be exchanged.  Eventually someone who wants to drive it somewhere finds someone who wants to deposit a crypto-car. They trade.  All crypto-car titles are fully backed by crypto-currency value and then some.   Car owners never really need to handle or consider the crypto-currency backing the system nor its volatility.  They just deal with cars and titles (something they understand) and the let the crypto-currency investors (distributed bankers) worry about the value of the crypto-currency. 

At a higher level of abstraction, all the exchanges or platforms only carry one function: Provide price/deal information to guide people's transaction

Since bitcoin transactions will be done in bitcoin network, and fiat money transactions will be done in legacy banking system, there is no need for an exchange, just a platform that provide price/counter-party information and that's all

This is the reason I think localbitcoins.com is the right direction, it even eliminated the need for foreign currency exchange for non-USD/EUR countries

At a lower abstraction level, this is what an exchange provide

1. Provide the deal price
2. Matching buyers' order and sellers' order
3. eliminate the counter party risk

Localbitcoins can do Nr.1

Currently Nr.2 is manual, e.g. if you want to buy/sell a large amount of bitcoin you have to find enough counter-party orders, otherwise you will have to split your order into small batches, this is the part that can be improved by implementing an order book function in the website, or have some local market makers

Nr.3 is the most difficult part, you can guarantee a bitcoin transaction, but not a fiat money transaction. No one wants to send money first. If this can be solved, then a P2P based localbitcoins.com will be a huge success

So IMO the focus will be on Nr.3. Currently NashX.com provided some idea about having some risk fund before doing transaction, but maybe people are so get used to a secured exchange, it still feels not that convenient, especially for some new users who don't have risk fund in bitcoin

And a slow trading platform like localbitcoins.com will dramatically reduce the amount of speculation, so that most of the trades are driven by real demand, this is good for price stability