Please simplify the concept of P2P exchange

[keelba]

Can someone please explain to me how a decentralized P2P exchange would work from a user's point of view? I don't want to discuss the technical aspects of it. Let's just assume that part is worked out and trusted for the sake of this argument. What I mean is, it's easy enough to transfer BTC in and out of an exchange. But how does one get their fiat in and out? The only two ways I can think of are by using cash or going through your bank account, neither of which seem useful for a P2P exchange. Can someone break it down for me? How does this help us?

[Caesium]

Maybe a few other sites (each site is of course centralised but as a whole you have many points of failure) which offer "trading tokens" or something in exchange for real money.

A token purchased at one of these sites should be fully redeemable at any other site, so if any of them decide to shut up shop at any point there are more you can use.

Then you deposit this token at the P2P exchange and it acts like fiat to buy/sell btc with.

How would you secure this, make sure the tokens are valid, can't just be made up, sold/used twice, do money laundering checks etc etc? Hell if I know, but this is the sort of thing I'd like to see. Separate fiat from the BTC exchange, make it someone elses problem.

[justusranvier]

But how does one get their fiat in and out?

Building a decentralized exchange consists 99% of solving this problem, and 1% building an order book and web site. Of course everybody is focusing all their efforts on the 1% part of the problem because it's easier and more interesting to do it that way.

A viable plan for forming a distributed exchange would start with figuring out how to get 10000 Bitcoin users to open accounts and advertise on Localbitcoins. For price discovery they could just use a volume weighted average of all the applicable exchanges. This would work but no one is interested because it involves interacting with people in meatspace instead of writing new code.

[Sukrim]

Any exchange transaction has to take place using IOUs (=debt).

Who issues these debt tokens varies depending on the philosophy of the person describing the P2P exchange, a "true" P2P exchange (meaning everyone can be a "full node") would mean that anyone can somehow issue tokens that are redeemable in some way with this issuer e.g. for 1 USD or 1 EUR. Then these tokens would be somehow exchanged for BTC tokens and then the debt will be settled.

This third part is actually the tricky one - it's easy to claim to own a million USD and issue some debt contract and buy some BTC with that contract... but actually settling it might be harder, depending on your real financial situation.

[waxwing]

Can someone please explain to me how a decentralized P2P exchange would work from a user's point of view? I don't want to discuss the technical aspects of it. Let's just assume that part is worked out and trusted for the sake of this argument. What I mean is, it's easy enough to transfer BTC in and out of an exchange. But how does one get their fiat in and out? The only two ways I can think of are by using cash or going through your bank account, neither of which seem useful for a P2P exchange. Can someone break it down for me? How does this help us?

You mention cash or using your bank account. Are you looking for a third way like paypal or credit card? Understandable request but I don't think it can be done because those methods are reversible by design.

Wire transfer should be irreversible by design, but it can be done on the internet. So, my suggestion is in this post:

https://bitcointalk.org/index.php?topic=205796.msg2197907#msg2197907

[franky1]

best decentralised exchange= ................... dramatic drum roll........... localbitcoins.com

[usscfounder]

But how does one get their fiat in and out?

Building a decentralized exchange consists 99% of solving this problem, and 1% building an order book and web site. Of course everybody is focusing all their efforts on the 1% part of the problem because it's easier and more interesting to do it that way.

A viable plan for forming a distributed exchange would start with figuring out how to get 10000 Bitcoin users to open accounts and advertise on Localbitcoins. For price discovery they could just use a volume weighted average of all the applicable exchanges. This would work but no one is interested because it involves interacting with people in meatspace instead of writing new code.

I agree. I have solved this problem. I have figured out a way to make a P2P decentralized orderbook.  I will post the solution in a few minutes here:

https://bitcointalk.org/index.php?topic=209269.0

[CypressXM]

Maybe a few other sites (each site is of course centralised but as a whole you have many points of failure) which offer "trading tokens" or something in exchange for real money.

A token purchased at one of these sites should be fully redeemable at any other site, so if any of them decide to shut up shop at any point there are more you can use.

Then you deposit this token at the P2P exchange and it acts like fiat to buy/sell btc with.

How would you secure this, make sure the tokens are valid, can't just be made up, sold/used twice, do money laundering checks etc etc? Hell if I know, but this is the sort of thing I'd like to see. Separate fiat from the BTC exchange, make it someone elses problem.

But then the "trading tokens" are just like another form of bitcoin, right?. I still don't understand how this is possible unless it interacts with the banking system, which is obviously a major problem. I think BTC ATMs are the closest we can get to this. Put physical cash in a machine to get BTC, get physical cash out in exchange for BTC. The decentralized aspect would have to come from the market not being dominated by any big players which also seems unlikely in the long run. But as long as the fees are low, who cares?

[justusranvier]

I agree. I have solved this problem.

*No one cares about trading between BTC and LTC. The problem we need to solve is how do a few billion people trade BTC to and from USD, EUR, CNY, RUB, and JPY?

(*)For statistically significant values of "anyone"

[nwbitcoin]

Maybe a few other sites (each site is of course centralised but as a whole you have many points of failure) which offer "trading tokens" or something in exchange for real money.

A token purchased at one of these sites should be fully redeemable at any other site, so if any of them decide to shut up shop at any point there are more you can use.

Then you deposit this token at the P2P exchange and it acts like fiat to buy/sell btc with.

How would you secure this, make sure the tokens are valid, can't just be made up, sold/used twice, do money laundering checks etc etc? Hell if I know, but this is the sort of thing I'd like to see. Separate fiat from the BTC exchange, make it someone elses problem.

But then the "trading tokens" are just like another form of bitcoin, right?. I still don't understand how this is possible unless it interacts with the banking system, which is obviously a major problem. I think BTC ATMs are the closest we can get to this. Put physical cash in a machine to get BTC, get physical cash out in exchange for BTC. The decentralized aspect would have to come from the market not being dominated by any big players which also seems unlikely in the long run. But as long as the fees are low, who cares?

The trading tokens will be valued based on a fiat currency, so 1 token would be the same as a .0001 of a $.  Its only role is to create a digital version of fiat so that you can trade for bitcoins. With there being millions of these tokens in existence, there would be no market in growing their value, however, it would mean that bitcoin exchanges would no longer be an international financial transaction, just somewhere to exchange files.

maybe!

[usscfounder]

Decentralized Orderbook - BTA System (Bus - Train - Plane)

BTA - Bus. Train. Plane. BTA is a concept I came up with the solve the problem of a decentralized orderbook for P2P systems.

BTA is a system to move orders from Tier I exchange nodes to Tier II exchange nodes to Tier III exchange nodes according to a predetermined cycle.

BTA is a system akin to a mass-transit public transportation system.

example:
In a mass transit system you could have a bus that would route and cycle through a city with 25 bus stops, stopping at every stop to pick up people. The bus would then drop all of the people off at the last stop which for the purposes of this demonstration is the city's train station. The bus would then repeat the cycle continuously bringing more and more people to the train station.

Eventually the train would arrive to that city and pick up the people who got off the bus and are waiting at the train station. The train would then continue on and cycle through all of the cities of that particular province/state picking up people (who were dropped off by the bus) at every city train station. At the end of the train route would be an airport with a planes ready to pick people up and take them to a specific destination. The train would cycle continuously through all of the cities picking up people and dropping them off at the airport.

The people who were first on the bus and then on the train and now at the airport would then board the plane (jumbo jet if you will) and travel on the plane from the province/state they were in to a final location all the while making stops in every major province/state of that country to pick up additional people. After the plane arrived at the final location it would take off again and cycle through all the provinces/states of the country continuously picking up and dropping off people.

Now, imagine if you will a dating and match making service on one of the sides of that county that has a big convention to help people find a spouse. That service decides to utilizes the same aforementioned mass transportation system to bring people together from all over the country.

People would leave their homes and go to the bus stop. Some people would find compatible matches for themselves at the bus stop or while riding on the bus. Those people would get off the bus pay the fee and then go home with no need to go to to the convention. Those people have what they want; a spouse.

The rest of the people would continue on to the train station and get on the train. But again some people would find matches on the train and at the station; so, they too would pay the fee and go home. They have what they want; a spouse.

What remains of the people would continue on to the airport then get on the plane to go to the convention hoping to find a good match for a spouse.

A P2P BTA (Bus-Train-Airplane) exchange would operate the same way only picking up orders instead of people.

(More in a few minutes)

 

More here in a few minutes:

https://bitcointalk.org/index.php?topic=209269.0

[firefop]

I agree. I have solved this problem.

*No one cares about trading between BTC and LTC. The problem we need to solve is how do a few billion people trade BTC to and from USD, EUR, CNY, RUB, and JPY?

(*)For statistically significant values of "anyone"

I agree - what we need is a turnkey system that uses 'accepted practices' to turn bitcoin into fiat. It would be smarter to operate in your local nation only. The idea is you run just a bit of a margin relative to some exchanges (aka be willing to buy large amounts of bitcoin for under market rate) and immediately fund the end user via alternate payment processor (paypal, dwolla, check, direct deposit, etc).

Give the user the option of taking a small hit re:price to sell to your service knowing that they'll have a check to deposit in ~3 days. Really (at least domestically) you could simply deposit into someone bank account.

The leaves your service having cycles where you have to sell & wire the fiat to yourself. Easier for the end user... bit of a headache for the service provider. It doesn't solve the problem of users having to trust the exchange not to mess with their funds.

[JamesTaylor]

My question is not how it would work but how could it be decided? Why you and not me? How can "the community" make a strict and formal specification/design?

[jaekwon]

Make something like LocalBitcoins, but distributed, and with good trust metrics so it doesn't become a tool for kidnappers. Eventually turn it into what Ripple was originally supposed to be.

[bytemaster]

To get FIAT into a P2P exchange you must first get a P2P representation of fiat value.   We know that crypto currencies convey value.   Therefore a crypto-fiat currency that is issued as fiat-(IO-the-network) backed by crypto-collateral (held by the network) ensurs that the crypto-fiat can be redeemed because it has more crypto-currency backing than fiat value.   The key is that it doesn't matter who redeems it.  All that matters is that whoever issues it locks enough crypto-currency in 'escrow' and that 'escrow payments' are automatically distributed to all holders of the fiat-crypto balances with each new block.

With this in mind you can find anyone in your area who wants to exchange crypto-USD for real USD and you can meet up and make the exchange.  Alternatively you could use systems like dwolla or intra-bank transfers or money orders.   Combine this with something like NashX mutually assured destruction, escrow, multi-sig, etc and you have effective conversion between fiat-crypto and fiat at near face value and no 'exchange spread' like you get with localbitcoins.   Both parties are essentially exchanging equal value for equal value.

I posted a white-paper on another thread you may want to check out:

https://bitcointalk.org/index.php?topic=213588.msg2238954#msg2238954

A quick summary is this:

1) all balances (fiat or otherwise) pay interest
2) all fiat balances are created by someone borrowing against a crypto-currency used as collateral. 
3) payments from the collateral are distributed to those who hold a balance in that fiat currency.
4) people borrow against their crypto-currency because they expect it to go up in value relative to fiat AND the crypto-currency also pays dividends from transaction fees.
5) once you have a fiat balance it can be traded as easily as a bitcoin balance.
6) fiat balances are always 100% redeemable at face value (excluding transaction fees) so long as the underlying crypto-currency maintains any amount of value.
7) the effective interest rate on fiat balances goes UP when the value of the crypto currency goes up.

Given my approach we can now eliminate the centralized exchange.  Allow individuals acting as 'local-bitcoin operators' or posting on craigslist to 'deposit' and 'withdraw' $USD or EUR from other individuals without having exchange risk but only a potential 'transaction fee'.    There would be more people wanting to deposit $USD because their $USD balances pay interest and with more people wanting to deposit that means more people wanting to withdraw which equals more opportunities for local exchanges.   People could use the system without ever owning an asset denominated in a crypto-currency to trade $USD among themselves, etc.

The problem with fiat isn't the fiat, but the laws.  The way you fix laws is to make breaking them so easy and hard to find and desirable to so many people that they effectively nullify the law.   Copyright is effectively nullified by mass law-breaking and that is enabled by the internet.  Sure some people get caught, but most do not.  There are so many people doing it because it is 'profitable' to them that attempts to shut it down will be fruitless.

[keelba]

OK so why do I need a peer to peer exchange if I'm going to go meet someone and transfer the bitcoins and cash in person? We already have this system today.

I guess I'm just a little confused on what problem everyone is trying to solve here. I was envisioning an exchange, just like Mt. Gox, only without Mt. Gox. The benefit being that it wouldn't be a centralized exchange with a single point of failure, though. It would be decentralized and world wide. If Bitcoin can exist, then I have no problem believing that this type of exchange could exist. But there still is that one nagging problem in that Mt. Gox (or any other current exchange) has to act as the middleman and hold both the bitcoins and the fiat that will be exchanged.

The Bitcoin part is easy enough to overcome, but we already know that getting fiat into an exchange is not trivial. Wouldn't this problem be exacerbated greatly with a decentralized exchange? My money today exists primarily in a bank, I have some cash and lots of credit. But any way you look at it, this money has to somehow get transferred from these institutions into this decentralized system you're all talking about and I cannot perceive how this can happen.

[🏰 TradeFortress 🏰]

Any exchange transaction has to take place using IOUs (=debt).

Who issues these debt tokens varies depending on the philosophy of the person describing the P2P exchange, a "true" P2P exchange (meaning everyone can be a "full node") would mean that anyone can somehow issue tokens that are redeemable in some way with this issuer e.g. for 1 USD or 1 EUR. Then these tokens would be somehow exchanged for BTC tokens and then the debt will be settled.

This third part is actually the tricky one - it's easy to claim to own a million USD and issue some debt contract and buy some BTC with that contract... but actually settling it might be harder, depending on your real financial situation.

False.

[Sukrim]

Any exchange transaction has to take place using IOUs (=debt).

Who issues these debt tokens varies depending on the philosophy of the person describing the P2P exchange, a "true" P2P exchange (meaning everyone can be a "full node") would mean that anyone can somehow issue tokens that are redeemable in some way with this issuer e.g. for 1 USD or 1 EUR. Then these tokens would be somehow exchanged for BTC tokens and then the debt will be settled.

This third part is actually the tricky one - it's easy to claim to own a million USD and issue some debt contract and buy some BTC with that contract... but actually settling it might be harder, depending on your real financial situation.

False.

Proof/reasons?

My reasoning is that anything you can get in a valid Bitcoin transaction is either another Bitcoin or an IOU from a trusted 3rd party.

[usscfounder]

I agree. I have solved this problem.

*No one cares about trading between BTC and LTC. The problem we need to solve is how do a few billion people trade BTC to and from USD, EUR, CNY, RUB, and JPY?

(*)For statistically significant values of "anyone"

I agree - what we need is a turnkey system that uses 'accepted practices' to turn bitcoin into fiat. It would be smarter to operate in your local nation only. The idea is you run just a bit of a margin relative to some exchanges (aka be willing to buy large amounts of bitcoin for under market rate) and immediately fund the end user via alternate payment processor (paypal, dwolla, check, direct deposit, etc).

Give the user the option of taking a small hit re:price to sell to your service knowing that they'll have a check to deposit in ~3 days. Really (at least domestically) you could simply deposit into someone bank account.

The leaves your service having cycles where you have to sell & wire the fiat to yourself. Easier for the end user... bit of a headache for the service provider. It doesn't solve the problem of users having to trust the exchange not to mess with their funds.

A P2P decentralized exchange is critical for the adoption and widespread use of cryptocurrency. Fiat has no future. What is needed are mechanisms to convert the daily plummeting value of fiat into cryptocurrency. Online sites that do fiat conversions like bitinstant, btc-e, and mtgox can plug directly into a P2P decentralized exchange. Fiat conversions are a political problem not technical. We need to focus on the technical aspect and let the current political libertarian revolution continue...

[justusranvier]

Fiat conversions are a political problem not technical. We need to focus on the technical aspect and let the current political libertarian revolution continue...

Focusing on technical aspects is useless; a way to feel like one is making progress without actually accomplishing anything. There have been dozens of attempts to build distributed technical solutions to the exchange problem and the one thing they have in common is that none of them have gone anywhere.

The one and only problem that needs to be solved for distributed exchanges to work is how to move the fiat. If you're not focusing on the problem of moving fiat you are wasting your time, because that's literally the only thing that matters. When fiat is no longer used then we'll have no need for exchanges.