Decentralized Currency Exchange Needed

[TraderTimm]

Attention coders and crypto-geeks.

Given the onslaught of news articles and the highly probable crackdown on bitcoin by forces that will be undermined (no pun intended) by BTC's outward expansion, we need some way to secure a method of exchange that is as decentralized as bitcoin itself. You can certainly see the problem rushing towards us. Before bitcoin becomes a global currency in the sense that transfer into local currencies isn't even needed anymore, an exchange is necessary to promote further growth.

Any ideas floating out there in your minds on how to build such a function in a peer-to-peer system? I admit not being the best at that, so I will leave it to the more talented members of the community. Is such a thing possible? Are we resigned to watching nervously for Mt. Gox to be pressured by sovereign forces?

I believe in the future of bitcoin, completely. The only way an exchange can survive is either it is distributed, or some code poet whips up a 'exchange-in-a-box' distro that can be booted up and running in a short amount of time.

What do you think? If I'm off-base, or better alternatives have been discussed, please point me to the right areas.

Thanks.

[ben-abuya]

A currency exchange addresses two problems:

1. Coordinating the market price of the currency pair.
2. Safely transferring ownership of the traded currencies.

The first problem can be solved completely within a p2p system using only bitcoins as the currency. See Prediction Markets.

The second problem is tricky because it involves transferring ownership of fiat money, e.g. USD. But, if the market price is known to all via (1), it becomes a lot easier to just meet somebody on the street and swap dollar bills for bitcoins, or do it via #bitcoin-otc. So I think the hard problem here is the prediction market.

[Timo Y]

bitcoin-otc could take over that function.  the heart of bitcoin-otc is the GPG web of trust which could be ported to any website/chatroom.

[TraderTimm]

bitcoin-otc could take over that function.  the heart of bitcoin-otc is the GPG web of trust which could be ported to any website/chatroom.

Interesting. I do know that this resource exists, I was thinking more of a ready-to-go front end that would interface with the otc market and could be hooked up to a willing exchange operator's bank account to process ACH transfers and the like. Perhaps I'm too ambitious, but it would help me breathe easier, (and a lot of other people, I'm sure) if the exchange process had a bit more resiliency in the face of potential censorship.

Appreciate the reply.

[Grant]

Whats the main concern here ?

That the banksters might give an exchange an offer they can't refuse ? (cease transactions <> RW)



As a solution to that, its possible to do what an SL based company did, offer people default swaps on deposits. ie: you pay me 2% a day on the amount you wanna insure at mtgox and i'll pay you the amount you insured if mtgox is unable to process withdrawals/cease to exist (except for if the amount you insured is proven to be counterfeit). Say you wanna insure 100 BTC at mtgox for 30 days, you then pay me 2 BTC each day, if mtgox then ceases to exist within that period of time i pay you 100 BTC.

The ultimate problem with p2ping everything is that you'll be exposed to greater counterparty risk, i've used bitcoin-otc with great success, but just dealing with established institutions (such as mtgox) makes it a lot easier. Once you have a full website the authorities can just as easily shut you down as they can shutdown an established centralized exchange.

[ben-abuya]

What we'd want is not a website but something very similar to bitcoin itself, a p2p client app. You don't need a web of trust for bitcoin and you shouldn't need a web of trust for an exchange. A transaction is a transaction.

[SmokeTooMuch]

bitmarket.eu was planning to clone the site on several servers in several countries. not sure if that is still the current plan.

[TraderTimm]

Okay, thanks for the replies, I just want to clarify why I'm posting about this topic.

1.) Singular exchanges represent a single point of failure in currency transfer.

2.) Distributed systems are robust against specific attacks that would take out a single exchange. (Sovereign policy, malicious hacks)

3.) Having the ability to have an exchange up and running, without much delay would be key in mitigating single point of failure risk.

Perhaps a customized linux distro with the web front end and associated tools to hook into a local bank account, automate functions of facilitating trade, charts, etc...

Just how the combined hashing power of the network secures bitcoin, I'd like a widely distributed exchange solution that acts like Mt.Gox. I know the over-the-counter market exists for this purpose, but something more approachable for the newcomers who will no doubt freak out if one of the top exchanges suddenly goes 'poof'.

What do you think? Can this be done?

[k]

i've been reading about what Nefario and others (Bitcoin Global) are doing about this in some articles in the Bitcoin weekly

see http://bitcoinweekly.com/articles/anonymous-money-needs-an-anonymous-exchange from back in April

and this latest article mentions something called Nomico.in

Nomico.in is to be the implementation of the anonymous exchange

http://bitcoinweekly.com/articles/interview-with-nefario-founder-of-bitcoin-global

[ben-abuya]

The problem with ideas like the Nefario exchange is they try to solve both problems at the same time. The really important part is determining the market price for, say, USD vs BTC. You don't need to interface with any real world banks for this, it's just a betting market. That means you can use the full power of the bitcoin model, and make it p2p, not rely on trust, keep it entirely on the internet, and make it pseudonymous.

The second part, actually exchanging BTC and USD, is easy once the going price has been established. Think of private people selling used cars based on the blue book price. You just find somebody near you and do a cash swap, or find someone on #bitcoin-otc and do something with dwolla or regular bank accounts. At this point it's just a couple of individuals doing a harmless little transaction which is almost impossible to identify or fight.

Sorry if I'm repeating myself, but these are pretty new concepts, so I'm not sure how best to get the point across.