Well, on top of this online wallets are not good for the ecosystem at all. Copying online wallets is not a good solution, and takes capital, legal integration etc. I would say 10'000$ and 3 months of work? As soon as you have bank integration you have centralization.

Cool stuff. I would prefer prices to quoted as margin on top of bitcoin price.

Interesting discussion also. Has anyone investigated the possibility of combining physical coins with fingerprints or other personal markers?

Gavin joining the board of a company is not good news. Doesn't seem like the devs really care much about how something this looks. Logically next step that Bitcoin caters to 3-5 corporations.

Also online wallets are not good for the system. I mean, overall this is quite bad news. More homogeneity, more strange influences, etc. At this point if a couple of people would come together in a room, could corner the market. So next goal is to implement system which prevents something like this happening.

I've created an opensource project at http://btcpath.com/ which mirrors https://github.com/nfx9/btcpath

"This project has as it's goal to centralize objective information on Bitcoin exchanges, in terms of legal background, performance, fees, interoperability and so on. In the future this might include more dynamic featues such as feedback mechanisms from users of exchanges (rating, votes, etc.) or country specfic information. As the Bitcoin economy grows exchanges are an important link to the fiat money system. Interoperability and efficiency of the exchanges are therefore of high importance. The project wants to organize around opensource principles. These pages are editable through pull request on the Github repository."

I hope the site can function as the goto reference for information around Bitcoin exchanges. Obviously there is a lot of information which should be added for existing exchanges and up and coming exchanges. I think it would interesting to channel some feedback in communities in a structured way.

Pull requests, discussions through issues, etc., very welcome.

Hi,

I'd try to come up with a use-case where property is distributed globally. Probably the best integrated system is that of domain transfer, as opposed to say future contracts or stocks. Would it be possible to implement a domain escrow system on BTC? I'm not speaking of Namecoin, but the regime we are currently leaving under (ICANN).

Yeah, B24 had lots of volume. Having a good legal structure is key, so it's not only about software really. Most people have no idea what they are getting themselves into. Haven't you followed the headlines? B24, Bitfloor are two examples what can go wrong. You will have to study some AML laws, speak with governments, ...

As far as I know there is no service that allows this currently. The only way I can think of is paypal or creditcard routes, but the exchanges I know don't support this.

Yes, https://www.kraken.com/ it has margining, which has certain implications.

I think we agree mostly. Isn't money a kind of contract as well? You trust the central bank / the government not to print too much of the currency. Bitcoin changes this structure. You don't have to trust the central bank, you trust the network to be stable/safe/whatever. Mike Hearn, in his talk at the Bitcon 2012, points out this was Satoshi's idea from the beginning. How could two parties interact, without direct mediation? So then the question is: how can two parties exchange property without intermediation? The two parties need the same "concept" of property. I think we can have types of interactions as well, through online plattforms. Imagine I can pull and fork a contract like a github-repo, then base software agents on an online contract.


You will have to define "decentralized market". Actually on current centralized markets you have quite a lot of intermediation, through brokers. If a broker / agent has a some freedom in negotiation we can call this discretion. Say like a trusted lawyer acting on one's behalf. The more you trust the agent the most freedom you will grant.

Unfortunately I don't understand. Are you talking about services for webapplication-developers? If so, what would be the advantage over AWS or other existing providers?

bytemaster. What is a fair price? Itsn't that for the market decide? I don't understand why you want to socialize profits. I'm a bit confused I must say. A market should be a place where everyone pretty much can do what they want, and the collective decides on certain boundary conditions. And the prime reason why people buy and sell on markets is to make money.

If you have only call auctions, say every hour, then the price will move only once an hour. In futures markets there are sometimes limit periods, which means the price gets locked. Say for instance it's 2008 and Lehman just went bankrupt. You hold 5 billion $ worth of stock for clients. You decide to sell 10% of all stock and go into cash. Well, now the market is limit down and you can't get out. Then in history often, and still sometimes in undeveloped markets, the stock market will close. This is not a position you want to be in. My boss was in such a position in 2008, and that is a time you depend on the market working. In other words, the efficiency of markets depends on quick execution. That in turn depends on computer trading. Of course one can always go back to pen & paper. Again, there is this propaganda that computer trading is bad. But that bitcoiners buy into it, I find quite amazing, because there you have actual currency which depends on computers, which is much more radical. So it just make no sense at all. Perhaps it would make sense to impose time limits, but they should be nanoseconds, not hours. But why not have an arms race for compute power to make the system more efficient? Sounds like bitcoin to me.

A good market will have call auctions, based on volatility interrupts. And also call auctions by beginning and end of trade. Again, this is how markets today work. You guys should study a bit more how stock markets work. Here is DB's market model, which is IMO the best in the world. http://xetra.com/xetra/dispatch/en/kir/navigation/xetra/300_trading_clearing/100_trading_platforms/100_xetra/200_market_model It's only 40 pages to read.

In this thread I want to develop some ideas around exchange markets and how they relate to bitcoin. I will start with a discussion of basic functions of a market, using some pseudocode or simulations. The idea is to evaluate what market models make sense, and if there could be alternative market models. If there are new forms of money one can speculate about new forms of markets. See Mike Hearn's work on this wiki https://en.bitcoin.it/wiki/Contracts or in the forum. Here I'm more interested in the market, than in contracts, i.e. I assume we use standard contracts as they are currently defined, such a stock ownership, bonds or futures. I should also point out there is a lot of academic research in this area, called microstructure and agent-based economics. Some of it might be useful, but I doubt it.

Basic datastructure of a market

So let's start to understand markets a bit, as they currently operate. By markets I mean financial markets, i.e. the stock market will serve as a reference. Basically any market which is operated by an exchange, such as the NYSE, the LSE, the Deutsche Börse, and so on (the NASDAQ actually has a different model than the NYSE).

The fundamental datastructure of a market is a limit order. A limit order signals a willingness to buy or sell a predefined product, at a limit price, with a given quantity.


Then, in a double auction market you have a limit order book, which holds all limit orders which have not yet been filled. To we have to add to the LimitOrder a timestamp. This timestamp is given by the exchange at the point of arrival. The client doesn't necessarily know about timestamps. I will define what a client is perhaps later, but currently I assume that all clients are hooked up to the central node, the exchange.

Note that time is a crucial aspect of the willingness to buy or sell. In the example I don't intend to buy AAPL stock one year from now. A very typical assumption is to assume that the timeframe of my order is only one day. So we should add a property which says that the LimitOrder is GoodForDay. The new datastructure looks like this

     

Network

We have a central server, which could be a certain legal entity as well. I assume this is a server which is known to all clients, say by a URL. Clients are just computers operated by the owners. We don't have brokers here. The clients and the server are connected, traditionally on a private network via UDP.

I assume that clients and server have protocol. Let's call this a trading protocol (TXP). In reality this is almost always the FIX, but I want to imply we could have different kinds of FIX'es.

Server: txp://account.exchange.com

Semantics

We have actions, which correspond to entering limit orders and canceling limit orders. There are no other actions, such as dispute mediation. Say for instance the servers fill my order at a price which is incompatible with my order. Then I'm filled at this price by force. I trust the exchange to operate always according to the protocol.

Clearing

Also there is no settlement yet. If I buy AAPL stock it is unclear how the stock will be transfered, so that I'm the legal holder of this document equipped with rights and obligations. Transferring rights electronically is the clearing mechanism which on a stock market takes usually 1-3 business days. Settlement requires that the transfer of ownership is in own namespace of law (jurisdiction).

Perfect analogy: Bitcoin mining just server the miners. The real users of Bitcoin don't need miners?!

Instead of talking about HFT talk about computer trading and liquidity provision. But for that you will have to understand how a market actually works. I think I will start a thread on that. Good idea, to have actual code to understand what is going. HFT as a term is basically meaningless. HFT simply means you have timestamps. That's all. If you don't have timestamps, you don't know who came first! The alternative is indeed to have batches. But then you would actors predicting cutoffs of batches, which is basically the same. Batches are called call auctions and are commonplace in todays market. You can't have a discussion around this if people don't even have the most basic understand of how stock markets work...

Say you have an orderbook which updates every 1ms, with 100 orders/sec. Then you have a second orderbook with an update of 100ms. The second OB tracks the first. Anyone trading in the second OB will basically lose money if he is a market taker (i.e. crosses the spread). An example: a couple years ago a bank made a market of options on a future. They were not very sophisticated and quoted a price with a 15 second delay, while the underlying had a new quote every second. A trader noticed this and scalped the bank for a couple of hundred thousand $. Then they saw somebody made a lot of profit against them, and they stopped trading with him. This kind of thing goes on in financial markets all the time on different time scales. For a liquidity taker (the buy side) trading in a such a swap market is a losing proposition. It mostly leads to transfer of wealth to the liquidity provider. If the taker only transacts once a month, he doesn't care he had 1% of fees in terms of a spread. If he transacts 100 / day, he will accumulate losses quickly and go out of business. You need market makers for a market to function, to minimize the costs. And they have different incentives. In many markets market makers get money from the exchange to provide quotes.

A very interesting use case for me would be exotic derivatives, which can be transacted with between countries, i.e. a market where transactions are very difficult and don't very often, or transactions in countries which don't even have stock markets. Say establishing a kind of a stock market in rural village in Africa. I believe something like this will happen. I certainly do hope we will have an alternative system in place in case the current one breaks down.

In general some good thoughts. I agree there are some use-cases somewhere.

But for the specific idea of cloud services: I can do that for 5$/month already at digitalocean (Linode starts at 10$). I certainly wouldn't use such a machine in production, let alone for sensitive data. Monitoring service levels of machines is very hard. Perhaps I'm misunderstanding something.

[minor edit]

I find it certainly valuable work in this direction. But you're talking about Swaps or a betting market, not an asset exchange. Somebody with a background in finance will not understand this.

Quite generally you can't base an economy on swaps. Say a company wants to raise money, i.e. sell stock on the market. That's what stock markets are there for in the first place. With swaps you don't real price discovery, but the price tracks the real market, but not very well in the short term. You also don't earn any dividends.

In my opinion, which differs quite a bit from the proposal, there might be some breakthroughs possible by having new types of contracts and negotiations. How this might work I don't know, but the problems are all matter of the law. In terms of actually building an alternative financial system, I think that's quite far away. You really want an exchange to be efficient, which is not possible with a blockchain. IMO you need other types of intermediation, which allow millions of tx's / hour or second or microsecond. Or you could have new types of auction mechanisms.

Where we agree is that looking at cross-exchange issues is important. For example, say it would be almost free to operate an exchange, and all exchanges are interconnected through APIs (and market models). Then the system will be populated by arbitrageurs. This is how the FX market works today. The futures and stock market has a very different structure. FX is OTC but still very performant. Nobody owns the FX market - it is a interbank network.

It seems has to take the lead and then people might contribute bits and pieces. I don't know the bitcoin community well, so I don't know. Posts of botcointalk are of a very wide range of quality.

To get some ideas. I'm going with Rails. No PhP. Has to be open source /free.

http://www.discourse.org/
vanilla forum
http://pivory.com/

Anyone wants to work on this?

I might be doing something, because there is nothing happening. I believe this is pretty important.

Thinking about some rather trivially forum features I'm missing, such as staring a thread and a smoother notification topic, etc.

Any nice forums which are opensource?

https://moot.it/ has a lot of realtime stuff and is overvall very modern.

Edward, I have no idea what you are talking about. How can you have a market without orders - make no sense whatsoever.