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Author Topic: What do you want from a better crypto exchange?  (Read 969 times)
soundasleep
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April 18, 2013, 06:20:48 AM
 #1

I've seen some argue that the BTC crash was due to MtGox technical problems, and others are reporting lots of integrity/transfer/support problems with BTC-E. There are lots of "e-money exchanges" but they all look too dodgy, or they don't disclose their fees without signup.

So, do you actually want a different/better exchange? Would you support it? What would you like from it?

Background: We're a very creative and technically brilliant web/software startup on a mission to make the world a better place. We've been following the cryptocurrency space for about a year now, and we've launched a few small projects to test out wallet integration etc. Cryptocurrencies are definitely a revolutionary game changer, but existing exchanges don't seem to be taking things seriously enough.

We've been spending the last two weeks thoroughly investigating the technical and legal sides of operating a currency exchange, and nothing fatal has popped up. Our intent would be to create an exchange that is:

  • Extremely secure (OpenID, password hashes, separate systems, cold wallets, DDoS protection etc)
  • Scalable (our initial goal is 100-1000 tx/sec per currency pair)
  • Reliable with automatic failovers (transactions, master/slaves, recovery logs, remote & off-site backups, etc)
  • Supports multiple fiat currencies (our initial goal is USD/NZD/AUD/EUR)
  • Supports multiple cryptocurrencies (our initial goal is BTC/LTC/NMC/TRC)
  • Has automated trading APIs that won't suffer from lag (but will need limits)
  • Has knowledgeable support staff based in English-speaking countries (later, multiple languages)
  • Some radically innovative features that I don't want to share just yet Wink

There are a few normal exchange restrictions that, as a legal company, I'm pretty sure we can't get around. For example:

  • Manual identity verification is necessary to execute deposits/withdrawls over some threshhold value (which will probably be $1k/month), due to international money laundering acts. Both natural people & business can register.
  • Unexpected large deposits/withdrawls will require additional verification (probably something like $50k+/month), but high-volume trusted day traders will be supported.
  • We can't accept Paypal or credit cards due to chargebacks. Transfer in/out would initially be through wire & other services, and in the future local cash deposits (ala BitInstant).
  • Exchange fees will be competitive but can't be too low, because of legal and support requirements.

But first, we need to know if the rest of the community would want this exchange, or if you're happy with staying with MtGox & BTC-E.

If you're interested in investing in shares to make this opportunity happen (any cryptocurrency), reply or send me a PM. Donations would be very welcome.

CryptFolio lets you keep track of your cryptocurrencies (BTC/LTC/NMC/FTC/XPM/DOGE/...), investments, securities and miners using public addresses and read-only APIs. https://cryptfolio.com
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April 18, 2013, 06:52:42 AM
 #2

  • Easy deposit/withdraw fiat.
  • Simple UI that allow quick submission. (for people who don't use the API)
  • well documented API.
  • Complete data, candle-chart, history, etc.
  • Client-side trade.
  • Lots of coins to buy (quantity and variety).
  • Lots of possible way to trade (short, stop-loss, etc.)

And... VOLUME!!!

There only reason people stay with MtGox is the sheer volume there, it dwarfs almost all other exchange.

There are some OK one with small volume out there.

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soundasleep
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April 18, 2013, 07:36:46 AM
 #3

Yup, all of those features would be standard! The intent would be to build an exchange that crypto-newbies can easily understand and navigate around, but also have advanced interfaces for trading (maybe a basic/advanced UI followed by API).

Volume is obviously the hardest one & depends on everyone else. Our goal would be to surpass BTC-E first, and then MtGox. Other than volume (and discounts for high volume trade), what would get you to switch to a better exchange?

CryptFolio lets you keep track of your cryptocurrencies (BTC/LTC/NMC/FTC/XPM/DOGE/...), investments, securities and miners using public addresses and read-only APIs. https://cryptfolio.com
hello_good_sir
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April 18, 2013, 08:46:06 AM
 #4

Volume.

I realize that a fully decentralized exchange is not possible due to trust and regulation.  However it would be possible for competing exchanges to work together.  This happens with the internet, utility companies, etc...

Exchanges would compete based on ease of getting money in, customer service, fees, etc... but not on volume.  Volume would be shared and benefit all exchanges.  Since your exchange is the one setting up this network of exchanges you get to charge the other exchanges a small fee to be part of the network.

It might work something like this:  User x on exchange X posts a buy order.  User y on exchange Y decides to sell at x's price.  He puts in his sell order.  Exchange X deducts $ from x and gives him BTC.  Exchange Y deducts BTC from y and gives him $.  X and Y then exchange $ and BTC at the price that the trade was made at.  X and Y can make fewer and bigger trades, so maybe they trade once per hour.

Want to buy a 2004 Ford Taurus with bitcoin?  I live in Maryland.  Send me a private message if interested.
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April 18, 2013, 09:04:15 AM
 #5

  • Supports multiple cryptocurrencies (our initial goal is BTC/LTC/NMC/TRC)

You'll want to make sure you understand the risk of 51% with proof-of-work based currencies like Bitcoin and Litecoin.  The confirmation threshold for a merchant selling server hosting is one thing, the threshold for withdrawing bitcoins paid for using litecoins might be another.

I personally will not leave bitcoins with an exchange that has exposure to a Litecoin 51% attack.    I do not know if the exchanges that do trading between bitcoin and alts are taking additional precautions but an exchange wanting to grow market share (and revenue from fees) is more inclined to throw caution to the wind since it is primarily the customer's funds at risk to a 51% attack.   Preventative measures could be taken such as imposing a minimum delay before bitcoins purchased with Litecoin can be withdrawn, or daily limits such that if there is a Litecoin 51% attack, any losses are born from the exchange's reserves.

Rockefoten
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April 18, 2013, 10:27:46 AM
 #6

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.
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April 18, 2013, 10:52:58 AM
 #7

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 (the former due to Dwolla in particular and the latter presumably because of criminal activity beyond their control). Also CryptoXChange was never able to get enough volume (and thus commission) to afford to provide a decent level of support (it was mostly just Ken himself) or to get the numerous problems with their trading software addressed.

If you are serious about the business then I don't know how you can say you have spent "two weeks" investigating this - I have spent well over a year (and become an active member of the forum) and am still only slowly putting together a Bitcoin business which has virtually no risk compared to that of an exchange (although I do admit that at times I work at a rather leisurely pace).

The feeling that I tend to get about "yet another exchange" is that it'll be another bunch of "cowboys" that are going to promise the earth, deliver very little and then go out of business before a year is up (hopefully without losing all their clients bitcoins and fiat).

With CIYAM anyone can create 100% generated C++ web applications in literally minutes.

GPG Public Key | 1ciyam3htJit1feGa26p2wQ4aw6KFTejU
soundasleep
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April 18, 2013, 01:05:43 PM
 #8

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?? Wink )

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.

CryptFolio lets you keep track of your cryptocurrencies (BTC/LTC/NMC/FTC/XPM/DOGE/...), investments, securities and miners using public addresses and read-only APIs. https://cryptfolio.com
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