Opening a BitCoin exchange is futile - ready why

[Batouzo]

Our problem is as much as BitCoin is not defined yet. Its not banned, nor is it accepted by the broader financial sector. All we have is a VERY convenient and transferable mean here.

We NEED a court case in a country that has something to say in the international market. That is one of the 5 UN permanent members. If anyone cares to open an exchange in France, UK, USA, Russia or China and register as exchange platform and take on the authorities once it grows to big, we have a definition. Until then we have Mtgox alike exchanges that will either fail due to insecure systems or pure scam.

+1

Barter is defined.

Why would trading bitcoins be other then trading magical cards (other then it needs more security, ha. ha. ha.) ?

[gst]

Look at the way how Bitmarket works:

The (Bitcoin) seller sends his Bitcoins to the Bitmarket escrow service
The buyer directly wires the Bitcoins to the seller
The seller releases the coins in the escrow

So you don't have to deal with any real money at all.

Another nice thing is that you can operate such an exchange 100% anonymous over Tor - you just need to somehow gain the trust of the community.

[InstaGx]

Another nice thing is that you can operate such an exchange 100% anonymous over Tor - you just need to somehow gain the trust of the community.

That's the tricky part with this currency. I'm convinced of the technical security of a transaction but everyone who wants to trade is a suspected thief and scammer. The mental threshold of people to try fucking over users in this forum and elsewhere is notably low.

[JackH]

That is not a solution, that is a slow slow slow way. Never will BitCoin catch the wider audience is trades cannot occur safe and fast. People in this modern world want convenience. If BitCoin is the future then it should apply all the missing features of the today's established financial sector.

[Trader Steve]

Look at the way how Bitmarket works:

The (Bitcoin) seller sends his Bitcoins to the Bitmarket escrow service
The buyer directly wires the Bitcoins to the seller
The seller releases the coins in the escrow

So you don't have to deal with any real money at all.

Another nice thing is that you can operate such an exchange 100% anonymous over Tor - you just need to somehow gain the trust of the community.

+1
Trust can also be facilitated with online reputation rating schemes like those used at @bitcoin-otc or ebay. Also, to echo your comment, one doesn't need to convert BTC to national currencies when he can trade it directly for the good or service he is seeking.

[JackH]

Look at the way how Bitmarket works:

The (Bitcoin) seller sends his Bitcoins to the Bitmarket escrow service
The buyer directly wires the Bitcoins to the seller
The seller releases the coins in the escrow

So you don't have to deal with any real money at all.

Another nice thing is that you can operate such an exchange 100% anonymous over Tor - you just need to somehow gain the trust of the community.

+1
Trust can also be facilitated with online reputation rating schemes like those used at @bitcoin-otc or ebay. Also, to echo your comment, one doesn't need to convert BTC to national currencies when he can trade it directly for the good or service he is seeking.

I would beg to differ on this one. Despite the fact that Zimbabwe dollars are running crazy inflation wise, then people could still trade them for the most basic needs in their life, food. (well maybe not a fixed amount of food, or good food, but still food).

If we cant convert BTC to food, BTC is just an alternative currency without any price comparison and will truly only be remembered as the "geeks" money. We need price comparison because we are decentralized and we need price comparison because I dont see my local diner or pizza place accepting BTC anytime soon.

[Trader Steve]

Look at the way how Bitmarket works:

The (Bitcoin) seller sends his Bitcoins to the Bitmarket escrow service
The buyer directly wires the Bitcoins to the seller
The seller releases the coins in the escrow

So you don't have to deal with any real money at all.

Another nice thing is that you can operate such an exchange 100% anonymous over Tor - you just need to somehow gain the trust of the community.

+1
Trust can also be facilitated with online reputation rating schemes like those used at @bitcoin-otc or ebay. Also, to echo your comment, one doesn't need to convert BTC to national currencies when he can trade it directly for the good or service he is seeking.

I would beg to differ on this one. Despite the fact that Zimbabwe dollars are running crazy inflation wise, then people could still trade them for the most basic needs in their life, food. (well maybe not a fixed amount of food, or good food, but still food).

If we cant convert BTC to food, BTC is just an alternative currency without any price comparison and will truly only be remembered as the "geeks" money. We need price comparison because we are decentralized and we need price comparison because I dont see my local diner or pizza place accepting BTC anytime soon.

I believe the following statement helps deal with this problem:

"Send me your bitcoin and I'll buy you your pizza."

[Trader Steve]

Also, here is an interesting post that address the market demand for bitcoin:

Bitcoin: A New Commodity Created To Serve Market Demand
http://economicsandliberty.wordpress.com/2011/06/22/bitcoin-a-new-commodity-created-to-serve-market-demand/

[Capitan]

Under the rules of the current world that we live in, administrating any form of financial business requires approval and requires the so-called institution to register with the respective financial authority of the country it is residing in. In well known cases this can be FSA (UK), SEC (USA) or any equivalent financial authority.

Operating an exchange platform would mean that money has to move through it (third party funds) and stored on a medium of exchange (a bank) which would be operating in a country (thus being regulated by a financial authority).

Therefore I dont see how anyone successfully, long term, and stable (from a regulatory point of view) would be able to operate without downtime.

I don't understand the jump you make to say that a regulated exchange would not be able to operate without downtime.

Personally I think that well regulated institutions will be necessary for the Bitcoin economy to grow to anything substantial as they will bring the levels of trust that the general public require

My bad. I ment to say that it would be impossible to operate an exchange service without downtime, unless that respective exchange service was regulated, thus it would be left to do business as usual. If an exchange service pops up and is not regulated, we can only assume its going to crash. Either technically or regulatory.

Just because an exchange is regulated doesn't mean it won't crash. And conversely, an exchange being unregulated is not a guarantee that it will crash.

[enmaku]

Just because an exchange is regulated doesn't mean it won't crash. And conversely, an exchange being unregulated is not a guarantee that it will crash.

Exactly, regulation has less to do with success and failure and more to do with political outlook:

The central principles of capitalism in its purest form are

1) free exchange of goods in an unregulated market;
2) limited taxes to pay for limited government, and
3) private ownership of property.

The central principles of socialism are

1) government control or regulation of the market;
2) high taxes to pay for expanded government services; and
3) government ownership of major industries (particularly large industries that are prone to monopoly control).

The central principles of Georgism are

1) free exchange of goods in markets, with limited regulation of commerce;
2) no taxes on labor; high taxes on certain kinds of property;
3) private ownership of property, but fully offset by taxes that virtually eliminate unearned wealth.

source: http://povertythinkagain.com/controversies/a-word-from-the-sponsor-of-the-film-the-end-of-poverty-georgism-capitalism-and-socialism/

[silverman]

Lets just for a moment pretend that someone succeeds making an exchange with the following attributes

- Safe
- Stable
- Secure
- Has no thoughts of stealing money or scamming its user

Lets pretend that the exchange runs just fine for months after months. It even exceeds the turnover and stability that MtGox ever had, and it does that successfully for a long time.

The portal allows for Dwolla, Liberty Reserve and Wire (Iban/SWIFT/BIC) transfers.

Under the rules of the current world that we live in, administrating any form of financial business requires approval and requires the so-called institution to register with the respective financial authority of the country it is residing in. In well known cases this can be FSA (UK), SEC (USA) or any equivalent financial authority.

Operating an exchange platform would mean that money has to move through it (third party funds) and stored on a medium of exchange (a bank) which would be operating in a country (thus being regulated by a financial authority).

Therefore I dont see how anyone successfully, long term, and stable (from a regulatory point of view) would be able to operate without downtime.

While it is true that funds are secured once they reach the BitCoin network, it is also true that the greatest challenge we face is the exchange medium which has to be both stable and reliable in many aspects. The technology part is only one of them. At the end of the day receiving third party funds is where the heavy battle lies.

And unless someone with a license steps into the BitCoin exchange game, and more or less jeopardize their license (due to the fact nobody knows how a government would intervene against a regulated exchange).

So what is our solution? Some rich individual humouring the BitCoin society by testing the waters, or a governmental body in a country stamping BitCoin as an allowed crypto currency and exchange medium (the latter being unreasonable to think would happen).

I dont see any of the two happening, and thus I see a bit problem with BitCoin. Without a stabile price, or price fluctuation it will just be a shadow currency, where exchanging money in and out from will be harder than just purchasing the equivalent in diamonds and getting on a plane or whatever is required to move money anonymously.

OP, you correctly identify the exchange as the weak point of the Bitcoin system. The King does not like competition, and will come down on the exchanges with every tool in his kingdom.

Just wait until The King makes it profitable to rat on exchanges! Do you see any tools here today?

[dennis_sweden]

Although Mtgox may not be subject to US taxes, depending on where it is based, as many traders are from the US, and given that all countries are more than likely to have similar tax provisions (the U.K. does) the Inland Revenue Service defines barter as following:

Barter Exchanges

Bartering is the trading of one product or service for another. Usually there is no exchange of cash… Unlike one-on-one bartering, members of exchanges are not obligated to barter or purchase directly from a seller. Instead, when a barter exchange member sells a product or a service to another member, their barter account is credited for the fair market value of the sale. When a barter exchange member buys, the account is debited for the fair market value of the purchase.

Internet-based Barter
The Internet provides a new medium for the barter exchange industry.  Pure Internet-based barter companies differ from traditional, organized trade exchanges in that they do not have a physical office. In modern Internet barter exchanges, there is an agreement or process in place to value goods and services exchanged, which is facilitated by the barter exchange for a fee. A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves.

Trade Dollars

Barter exchanges have their own unit of exchange, usually known as barter or trade dollars.  Trade dollars or barter dollars are valued in U.S. currency for the purposes of information returns.   Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other members.  Barter exchanges act as the bookkeeper for keeping track of trade dollars that participants accumulate. Earning trade or barter dollars through a barter exchange is considered taxable income, just as if your product or service was sold for cash.

Many virtual communities, including Second Life and The Superfluid comply with US tax laws, for above reasons. Any U.S. resident bartering is thus subject to above laws, or so I believe. If such laws exist in Japan, if that is where Mtgox have their offices, they must also abide by such laws, if such laws exist in Japan. Above reasons are bound to be one consideration that has led the Electronic Frontier Foundation to stop accepting Bitcoins. If Bitcoin is to grow, it must be accepted as tender by many vendors; this will obviously not occur until it is easy to comply with the law.

I am not at all against Bitcoin, rather I abhor the FIRE sector that set the economical agenda and hinder economic growth and subject people to financial hardship and causes starvation in some parts of the world. Also, the benefits of Bitcoin are intended to be an alternative to financial control and regulation. However, this precludes a widespread adoption. Furthermore, tax laws are only one legal impediment towards Bitcoins.

The Securities Exchange Act of 1934 (U.S. law again) defines an exchange as following:

The term "exchange" means any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.

So Mtgox, and all other exchanges, are subject to all law (any country has similar provisions) that regulates exchanges.

[tymothy]

Would establishing bitcoin on forex address all of these issues? Forex also trades some commodities like gold, so the fact that bitcoin isn't used as a nation's currency wouldn't be an issue.

[dennis_sweden]

Would establishing bitcoin on forex address all of these issues? Forex also trades some commodities like gold, so the fact that bitcoin isn't used as a nation's currency wouldn't be an issue.

Assuming that Bitcoin could abide by all laws and regulations, there probably does not exist any issues; however Bitcoin does not abide by many laws and regulations at all.

[BinaryMage]

That is where you are wrong. Since the currency is decentralized, a stable price comparison to the USD/EUR is necessary (whether you like that or not, these two currencies are paid as wages and puts food on people's tables).

Without a price comparison you can mine all you want, but why would anyone sell you a laptop, computer hardware, clothes or anything else, if they dont know themselves how much food they can buy for BitCoin or how much wages they can pay their staff.

We NEED an exchange. We NEED a value, and such thing is what we dont have after the Mtgox incident. Without a price, there is no trade. Without any trade BTC has no value.

Money intrinsically exists without value. It only has value if people accept it as such. Bitcoin is no different. USD are no longer backed by silver, gold, or any precious resource. Bitcoin can retain its value without exchanges, though I agree at this point they are helpful.

[dennis_sweden]

Interpol have also taken interest in the growth of virtual money and seek to influence lawmakers. Although Interpol would only become involved due to criminal use, the "Silk Road" internet outlet which prompted US politicians to discuss legislation could also prompt Interpol to become involved.

"Online games now have their own foreign exchange which lets players buy and sell different virtual currencies, just as in the real world. Criminals will undoubtedly take advantage of this.

From the perspective of law enforcement, it is important to know the location of servers which provide virtual money services, especially since they may be located in a different country.

Law enforcement needs to influence legislators when drafting future legislation. This is important as law enforcement will need powers to recover data which is stored in a different jurisdiction from where the offence is being investigated.

The Financial Services Authority in the U.K. has devised new regulations on e-money; a fundamental issue is the definition of e-money.

How do the EMRs define e-money?
2.2 Regulation 2 defines e-money as monetary value represented by a claim on the issuer that is:
• stored electronically, including magnetically;
• issued on receipt of funds for the purpose of making payment transactions
(see regulation 2 of the PSRs);
• accepted as a means of payment by persons other than the issuer; and
• is not excluded by regulation 3 of the EMRs (see paragraphs 2.4–2.6 below).

http://www.fsa.gov.uk/pubs/international/approach_emoney.pdf

An exchange based in the U.K. might be advised to actually transfer bitcoins in all purchases, and not, as it is suspected to have been done by Mtgox, devise some kind of fractional scheme. Scuh a fractional scheme might be deemed as "issued on receipt of funds for the purpose of making payment transactions". If actual bitcoins are transmitted it might be deemed as "funds" instead of "receipt of funds". Issue is defined by merriam-webster as amongst others "to send out for sale or circulation"; so even only circulating funds might fall under the scope of "e-money".

[ansible adams]

Money intrinsically exists without value. It only has value if people accept it as such. Bitcoin is no different. USD are no longer backed by silver, gold, or any precious resource. Bitcoin can retain its value without exchanges, though I agree at this point they are helpful.

Bitcoin can retain value without exchanges only if it's bootstrapped to the point where you can easily buy a lot of mundane goods and services with it, like you can with ordinary cash. Exchanges are a necessary part of that bootstrapping process. In order for Bitcoin to take off as a medium of exchange it needs to be socially accepted as well possessing theoretically attractive properties like durability and scarcity. Precious metals have certain theoretically attractive economic qualities, but try finding a business near you that will sell common things like gasoline, diapers, or hair cuts in exchange for grams of bullion instead of cash, check, or credit card. Bitcoins don't even have the survivalist justification that they'll retain value in a post-apocalyptic society. They need to be useful as a medium of exchange, and that means getting acceptance from a lot of people. Exchanges bridge the transition: a businessman doesn't have to hope that everyone else simultaneously adopts Bitcoins, because he can accept BTC and get USD or EUR to deal with employees and suppliers until there's a large enough network effect that BTC is commonly accepted.

[BinaryMage]

Bitcoin can retain value without exchanges only if it's bootstrapped to the point where you can easily buy a lot of mundane goods and services with it, like you can with ordinary cash. Exchanges are a necessary part of that bootstrapping process. In order for Bitcoin to take off as a medium of exchange it needs to be socially accepted as well possessing theoretically attractive properties like durability and scarcity. Precious metals have certain theoretically attractive economic qualities, but try finding a business near you that will sell common things like gasoline, diapers, or hair cuts in exchange for grams of bullion instead of cash, check, or credit card. Bitcoins don't even have the survivalist justification that they'll retain value in a post-apocalyptic society. They need to be useful as a medium of exchange, and that means getting acceptance from a lot of people. Exchanges bridge the transition: a businessman doesn't have to hope that everyone else simultaneously adopts Bitcoins, because he can accept BTC and get USD or EUR to deal with employees and suppliers until there's a large enough network effect that BTC is commonly accepted.

Yes, and I think that is what Bitcoin could become. My point is not that we do not require exchanges now, but that they are not required for all currencies and may not be for Bitcoin in the future.