Thanks so much for the feedback. We're serious in taking this project on, but only if everything adds up.
However it would be possible for competing exchanges to work together.
Isn't this an arbitrage business opportunity for traders? I'm sure there's more than a few people that make income between btc-e and Mt.Gox. Integrating them together would expose the exchange to second-party failure.
You'll want to make sure you understand the risk of 51% with proof-of-work based currencies like Bitcoin and Litecoin.
That's a really good point. One way to stop this might be to watch miners and prevent trade if one pool, IP or group of IPs gets close to say, 45% (identify related miners using tx network analysis?). There would already be daily individual limits in place w.r.t customer verification (this is also a legal requirement). Another may be to have hourly/daily global (deposits-withdrawl) limits with reserves stored in cold wallets. Another is that each currency would be stored independently, and maybe we can restrict 51% attacks to the traders that were actually involved. We still have to explore how to identify & deal with disconnected or attacked wallets/nodes, etc.
(Is the limited transaction rate of Mt.Gox actually a feature??
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After the recent Bitcoin24 and Bitfloor debacle, I would like to see an exchange that has taken the necessary legal precautions to avoid ending up in the same situation as these, and be as open about these precautions as possible.
This might be somewhat expensive, but I'm getting tired of exchanges run by technical people who don't realize how important legality issues are.
That's absolutely the intent. We've gone over the relevant legislation and independent auditing requirements and we're pretty satisfied we can meet each of these. At the very least we would be registering as a money service business (currency exchange) AML/CFT reporting entity. We're based in Wellington (the capital) - we've got plenty of lawyers and politicians here! Obviously any crypto-based exchange will explore new legal ground but all we can do is our best to satisfy the law. As far as we can tell the legal requirements will not be prohibitively expensive.
(I also thought of running an anonymous Tor-only exchange but I doubt that would receive any volume at all, plus it's grossly illegal!)
I would take a long hard look at what happened with both Tradehill (version #1) and CryptoXChange before entering into this venture.
Both businesses were basically destroyed due to payment reversals ...
This is why all incoming and outgoing transactions would be based on cash - at some point in the transaction, there will be physical currency involved. I don't think there is any way around this, cryptocurrencies are really the safest electronic currencies. Of course the site will have risk, but this will be identified & managed through regular assessment.
The security of traders' funds would always be the most critical business criteria. That's one of the reasons for seeking investors: so we can provide better support from the beginning.
For what it's worth we've already got one site operating with BTC & NMC (& LTC soon), and another with LTC. We've got at least one PhD (CS) on staff. It's fairly trivial to adapt a site to handle cryptocurrencies - arguably easier than accepting CC (of course, an exchange is light years ahead in security & reliability requirements). This is just one of a few other crypto-projects we're considering, but we can only focus on one at a time.
