Bitcoin Forum

Hey All

I read the Bitcoin article on Slashdot and have been doing a lot of research since then.  It looks like this open-source currency idea has legs, but it's hamstrung on conversion and usage issues. 

I'd love to help get this off the ground with a project that's at least break-even.  I thought it would make sense to start an exchange service, but it looks like there are several already and more on the way.  I was also toying with the idea of miners, but I'm having trouble determining how to convert hardware to hashes-per-second to bitcoins-per-second after you've joined a pool.

Do we need another exchange service or should I find another way to help?  Any suggestions?

Thanks!

The "do we need another exchange" question is partially dependent on where you live.  Since there's no PayPal->Mt Gox service anymore it is more painful for us Canadians to purchase bitcoins.  A Canadian exchange accepting either PayPal or email bank transfers would be a terrific addition to the economy.

can there be enough exchanges?
everyone should exchange whatever currency to BTC and vice versa, then noone would have problems to cash-in, or -out.

The more currency exchanges, the better.

Everyone should be an exchange. The simplest way to do so is start listing offers on #bitcoin-otc.

You dont even need a website to do that just a little perseverence with gpg.

I own Britcoin (https://britcoin.co.uk/) and our source code is open (http://gitorious.org/intersango/master/trees/master). If you contact me then I can get you setup for a small fee as I'm doing with CCCMikey (http://bitcointalk.org/index.php?topic=5102.0). The more people we have using this same software, the easier I can turn it into a safe, secure, easy to install piece of kit for setting up a Bitcoin exchange.

Then we'll have lots of exchanges.

The source code for bitcoin central is also open: https://github.com/davout/bitcoin-central

Bitcoin central is not the easiest system in the world to set up.

This seem interesting.  I'll give this a try.  By myself first, and if I can't manage I'll contact you.

The only downside of a thousand different exchanges is that none of them will have enough activity to make a market.

Is there a way that these exchanges that are all using the same code, but are located in different countries, can somehow aggregate their bids and asks so that there can be trading between exchanges?

There's even profit in the "aggregation" of exchangers... It always puzzled me why there's no known attempt to do that, as it would be fairly easy to have, say, bitcoinusa have a few bucks on mtgox and then offer theirs bids and asks at a slight markup, making the buy/sell on customer request. Hmm, how about an external proxy doing that on multiple exchangers?

Even better would be a client you can download and use that exchanges from your desktop with anyone else.

Thanks for your replies!  Please- keep going!

I'm in the USA.  The Britcoin instance sounds promising but I have a confession- I'm a C# coder and I'd like to write a .net library if I can.  It sounds like one idea coming up here might be to build a hub of exchanges to make it easier to connect everyone together.

That works great for bitcoins, but how do you get the client to do USD/EUR/etc transfers? But a client where you can work all the exchanges at the same time would rock, except that the second person to use it would find all exchanges operating at the same exact rates... ooops :)

How bad would this be?  It sounds like you could get a reasonable price across several exchanges, leaving them to compete on client-side features and transaction costs.

I thought long and hard about this and in the end decided against it.

If I'm running an exchange and I have jon, bill and dave all handling various currencies then I must trust them not to make an exchange/be a scammer. In the end I decided going with the many various exchanges is the best plan.

I'm still working on calculations to find out what kind of return on investment I can expect.  I noticed that the market is rather thin these days- only $5-10k daily volume is being recorded on bitcoincharts.com.  Is that comprehensive data?  If I'm going to put in a couple grand for a site, I'm going to need a more vibrant market in order to recoup costs.

Would it be fair to expect $50,000 USDe being converted every day across the entire bitcoin economy?  If not today, is this a target we may hit soon?

You're not being very realistic and depending on your expertise/requirements I could set you up for far less. Although it would be an operation you'd have to be actively involved in.

Hey Genjix!

That's a mighty fine offer, and thanks again for your help here.  Can you tell me more about what part of my thinking is unrealistic?

>put in a couple grand for a site
That part.

However are you based in the US? Because I must warn you that you will have a major competitor in that market in addition to MtGox.

Ah, I see.  I know it sounds a little odd when we can get sites built for $600 these days, but I've gone that road before and it's awful.  I can't stand ugly sites and ugly code- I'm willing to pay extra for people to write unit tests and make things readable/scalable.  Guess I'm picky that way.  If I'm going to make a contribution, it's going to be excellent.

I am based in the USA but internationalization is an option.

Also, I'm pretty confident that I can get a situation set up where I can convert across many currencies.

Market volume is probably my biggest concern right now.

I have a tangential question. Operating an exchange requires a pretty high level of trust from the traders. After all, the traders are giving the exchange their money up front, and trusting that the exchange operator won't just close down and abscond with the money.

How does a new exchange operator prove their trustworthiness? I am not in any way suggesting that you have any nefarious intentions, I'm just wondering how you will be able to gain people's trust.

Trust needs to grow. Someone who has a good reputation on the forum is more likely to be trusted, then someone who is just joined the market. But still, don't keep to much money on the exchange. Even someone trustworthy can become less reliable and the exchanges here are not registered financial institutions (no protection if an exchange just stops and the owner disappears).

I am currently attempting to do just this.

There are two large problems I am facing:

• Getting USD into the exchanges. Due to the transaction costs, it might not be worth it to do this form of trading. Also, it is impossible to transfer USD between exchanges.
• Confirmation time makes it risky to do a BTC transfer between exchanges as price could change before your money gets there.

Solutions I see to these and other issues surround the Bitcoin markets:

• Exchanges need to allow 'day trader' activity in the form of instant transactions. If the pace of the Bitcoin exchanges picks up, 50 minutes of price changes could kill your position if you're trading with most of the money in your account and have to wait for a confirmed block to get your coins back.
• We need a common trading size on the exchange -- maybe 10 BTC -- so that more trades can go through in a standard way (similar to common stocks trading in 100 share blocks most often).
• Margin trading accounts that give around 4:1 leverage on larger accounts. Proper precaution would be taken on the part of the exchange / broker that all transactions must settle before finds may be withdrawn.

The use-case for what I was thinking here was "no stored value".  I was thinking of a system where people can keep their anonymity but still be able to trade in a secure way.  The exchange would take place like this:

• Buyer submits a ticket to buy 500 BTC with 400 USD at a price of $0.80 each, to execute within 30 days.
• Buyer pays $400 immediately with PayPal.  If the ticket expires or is canceled, the money is refunded.
• Seller submits a ticket to sell 500 BTC for 400 USD at a price of $0.80 each, to execute within 30 days.
• Seller transfers the coins into a temporary wallet before the ticket goes live.  If the ticket expires or is canceled, the money is refunded.
• The system connects the two orders and resolves the payments (wallet->wallet, Paypal->Paypal).

Note this has the potential to charge 2x paypal fees...

Good point.  That automatically ads 3% to the transaction cost from the exchange side.  I think payments would still be free to the exchange since technically we'd be buying the bitcoins on someone's behalf.  That incremental 2-3% comes from the buyer and is their choice WRT the method of payment.

I imagine I'd want to work with alternative payment processing groups, checks, or ACH.

No. If you refund a PayPal transaction within 60 days, the fees get refunded too.

Great find!  Guess that sets my execution time limit to 60 days.  ;)