The Exchange Problem

[ltc_foundry]

The increasingly arcane methods people must resort to to getting fiat into the market to acquire BTC (since mining is quickly becoming solely the territory of an elite few) are very worrisome. The fact that for most people there are only a couple of reliable channels for conversion is a blatant achilles heel for the market.

IMO, the real existential threat to BTC isn't the government going after BTC itself, its them completely shutting down the exchange market. It would be alarmingly easy to accomplish this given the current market infrastructure.

For the health and long term stability of Bitcoin, the exchange problem must be solved. The current system (Gox + a few hangers on [vircurex btc-e]) does not have a good long term prognosis.

Also, if the next Satoshi figures out how to bake in a decntralized exchange to a cryptocurrency, that would also marginalize BTC. That of course is an extremely non-trivial problem to solve.

What can be done to mitigate this risk (and potential attack vectors - state action, black hat or otherwise) for the health of Bitcoin?

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[wumpus]

Indeed, exchanges seem like the achilles heel at the moment. Especially mtgox, as that's by far the most well-known one.

I have heard that Ripple (www.ripple.com) can be used as a decentralized exchange. Haven't tried it yet though.

Also there is localbitcoins.com, for buying bitcoins locally.

[ltc_foundry]

Ripple is definitely promising - but it still relies on gateways to get fiat into their database; none of which are currently operational right now, presumably because Ripple is wading through the logistical morass of operating a currency exchange.. Certainly more players cant hurt.

[matt4054]

I would be willing to participate to the development of open-source code so that pretty much anyone with a server / VPS could operate an exchange with calculated risks. The inter-exchange part of this is the awesome part of the project of course :-)

I am aware of some OSS trading engines, anyone has experience with them? Who else thinks it would be worth the effort?

[johnblaze]

I would be willing to participate to the development of open-source code so that pretty much anyone with a server / VPS could operate an exchange with calculated risks. The inter-exchange part of this is the awesome part of the project of course :-)

I am aware of some OSS trading engines, anyone has experience with them? Who else thinks it would be worth the effort?

it would be awesome, whether its worth it or not is up to you personally

what do you mean by inter-exchange?

[marcus_of_augustus]

I would be willing to participate to the development of open-source code so that pretty much anyone with a server / VPS could operate an exchange with calculated risks. The inter-exchange part of this is the awesome part of the project of course :-)

I am aware of some OSS trading engines, anyone has experience with them? Who else thinks it would be worth the effort?

Pretty much already exists ... needs some further operational testing, user-friendly GUI client/server interfaces ... go nuts 

https://github.com/FellowTraveler/Open-Transactions

[wiggi]

Early this year there was an Apple patent about crowdsourced, peer-to-peer mobile banking.
http://techcrunch.com/2013/01/31/apple-patents-crowdsourced-peer-to-peer-mobile-banking-that-could-use-itunes-to-provide-cash-on-demand/

If you imagine such a system in action (for trading btc vs cash, participants can basically
choose to accept deposits or become ATMs) it's almost silly. Could become an unstoppable
worldwide fad 

Also, if the next Satoshi figures out how to bake in a decntralized exchange to a cryptocurrency, that would also marginalize BTC. That of course is an extremely non-trivial problem to solve.

Really extremely non-trivial to implement but more likely to be baked into a new client,
not a new cryptocurrency.

[tlr]

(Cross-posting from https://bitcointalk.org/index.php?topic=172609.0)

I don't think we need a truly decentralized exchange (in the way that Bitcoin itself is decentralized), we just need several competing individual exchanges that are fast and reliable enough that people can arbitrage them.

What we need to do is build a fast, robust, extremely secure, open-source exchange, with a standardized API that traders can plug into to easily arbitrage.

[mobile4ever]

For the health and long term stability of Bitcoin, the exchange problem must be solved. The current system (Gox + a few hangers on [vircurex btc-e]) does not have a good long term prognosis.

The problem has been solved, but not implemented.

https://bitcointalk.org/index.php?topic=145389.0

All it takes is a PHP plugin - open sourced.


If a PHP programmer wants to talk to me about it, please do.

[gollum]

My idea of a p2p exchange is basically this:

-Exchange must be 100% decentralized and open source
-Fees are rewarded to miners sharing their computing power for the exchange
-Anyone can become a broker, but naturally some brokers will become big since many people trust them
-Clients trust the brokers to settle the bitcoins, dollars or gold coins or whatever they trade ( asset X against asset Y )

https://bitcointalk.org/index.php?topic=172705.0

We cant get rid of MtGox et al. completely, we need the brokers to handle the clients and their fiat money!

[BTCisthefuture]

Things like this are bound to happen in any new industry.  Look back in when the internet first started going mainstream and think about all the stupid ways companies did things and the way things worked.

I'm fairly confident that if bitcoin continues to gain in popularity there will be more startup companies getting a good amount of funding from VC's to solve a lot of the problems we have with BTC services today.

BTC has only been around a few years and we are certianly still going through growing pains.  I'm fairly confident though that if bitcoin remains popular we will see smart people coming up with solutions to some of these problems in the next few years.

[franky1]

it needs to get more to a point where localbitcoins is the place people should go to to buy in-out of bitcoins. not the banking infrustructure. i have yet to see media show much about localbitcoins.com.

i have though seen a few TV pres stuff showing mtgox, bitpay, and btc-e (including showing the trollbox where people were swearing) (media facepalm moment)

i think anyone that likes fiat should have their name listed on localbitcoins.com, alternatively if your really into bitcoins and you think your the most knowledgeable person in your town in regards to bitcoin. start up a community exchange website for your town/cluster of villages.

don't rely on mtgox as the centralised valuer of bitcoin

[jhansen858]

With banking regulations what they are, it is a very high cost to entry to get into the exchange business at the moment.  Just staying complaint with local laws in every jurisdiction that the Exchange would operate would take significant investment.  It is doubtful that peer to peer exchange could be operated legally with out being on the level of localbitcoins.  There is also a trust factor to do larger transactions that would never really be supportable by the smaller guys (ie, dropping $80k all the sudden) which would severely limit the overall capacity of bitcoin to move funds around.  I'm afraid we need the big guys to pool the money. 

It would truly be a genius feet which would eclipse the block chain accomplishment if you were able to solve all of these problems.

[pretendo]

I don't think there is even one exchange in the USA.

[freequant]

Ripple is definitely promising - but it still relies on gateways to get fiat into their database; none of which are currently operational right now, presumably because Ripple is wading through the logistical morass of operating a currency exchange.. Certainly more players cant hurt.

Holding IOUs from a gateway and transfering it to or trading it with someone else is conceptually the same as holding balance at MtGox and transfering it to someone as a redeemable code or through a transaction on the exchange. The major difference is that, in the case of MtGox, you are stuck having to use their crapy Php plateform, and jumping in AML/KYC hoops, and exposed to leaks and stealth of your funds, whereas in the case of Ripple, you rely on the built in distributed exchange mechanism written in C++ by much more competent people, you are known only by your wallet's public key that is pseudonymous, and your funds are secured cryptographically like with any cryptocurrency.
In the future of Ripple, MtGox will likely be reduced to acting as a gateway, handling the paper work, and issuing IOUs, which is perfect because MtGox's strong point is the variety of payment and withdrawal methods they offer and their compliance with legal framework, and their universally admitted weak point is trading technology, which is what Ripple proposes to handle on their behalf.