Decentralized P2P Exchange Proposals: exactly how do you fix the fiat issue?

[Kazimir]

There have been quite some initiatives lately about setting up decentralized P2P exchange solutions. I believe this is a great development and I'm sure it will all work out (the technology is there and the time is right) except for ONE thing:

Getting fiat in and out safely.

I've asked it before in other threads, and I'd like to once again discuss this issue exclusively:

For all this to work, if Alice wants to buy bitcoins (or other cryptocurrency) with dollars (or other fiat), at some point she'll have to put some money into the P2P exchange ecosystem by means of a wire transfer (I mean a classic oldschool bank transfer or SEPA transaction).
(1) How can she be sure the person she wires her fiat money to (let's call him Bob) doesn't disappear, or claims he never received it, or otherwise screws her over?
(2) Vice versa, what happens if Alice claims she wired her dollars to Bob's bank account, but she actually never did. Who's going to decide if Alice or Bob is right?

[BTCLuke]

I'm a fan of random-man-in-the-middle, myself.

[Kazimir]

I'm a fan of random-man-in-the-middle, myself.

So how is that a solution? What prevents this random-man-in-the-middle to run away with the crypto and/or fiat money that is temporarily trusted to him? Note that in the questions above, Bob could also refer to this random middle man.

Or maybe I misunderstood the whole idea, can you elaborate?

[Chet]

Web of Trust

[Kazimir]

Web of Trust

So, again, how is that a solution?

If Bob's trust level is much higher than Alice's, what prevents Bob from claiming he never received Alice's fiat? Everybody will believe Bob, because he has more trust.

[notme]

There is no universal solution.  Every jurisdiction will have different requirements that must be followed to do business above board.  There can of course be in person cash transactions, but anything digital will likely have to follow laws, and the laws will vary widely.

[waxwing]

Please read here:
https://bitcointalk.org/index.php?topic=210903.msg2210078#msg2210078
and here:
https://bitcointalk.org/index.php?topic=173220.msg2304618#msg2304618
and we would appreciate you and anyone else joining the discussion.

[BTCLuke]

I'm a fan of random-man-in-the-middle, myself.

So how is that a solution? What prevents this random-man-in-the-middle to run away with the crypto and/or fiat money that is temporarily trusted to him? Note that in the questions above, Bob could also refer to this random middle man.

Or maybe I misunderstood the whole idea, can you elaborate?

2-of-3 signatures required for a forward release, but only 1 of 3 required for reversal.

There should never, ever be an arbitrator involved. Any system that settles for arbitration existing at any step is being dangerously lazy.

[k99]

2-of-3 signatures required for a forward release, but only 1 of 3 required for reversal.
There should never, ever be an arbitrator involved. Any system that settles for arbitration existing at any step is being dangerously lazy.

Can you describe that more in detail? I don't understand how that should work.

[johnyj]

This is not a technical problem, but a trust problem, you always need trust when doing trades, and a trusted third party is always needed to do the escrow. You can limit the trading amount each time to reduce the risk on your side, but the risk on escrow still exists

[IsaacGoldbourne]

There is no universal solution.  Every jurisdiction will have different requirements that must be followed to do business above board.  There can of course be in person cash transactions, but anything digital will likely have to follow laws, and the laws will vary widely.

We're talking about decentralized exchanges, so the law will have to sit aside.

The issue is more having trusted escrow of the BTC using 2 of 3.

I think the solution is a web of trust, when someone has a large amount of trust they can be an escrow agent. But only for the BTC part of it, which uses 2 of 3 keys. This way he can't steal.

The only issue is what if I get a trusted account, and keep posting trades until I get myself as the agent.

[k99]

This is not a technical problem, but a trust problem, you always need trust when doing trades, and a trusted third party is always needed to do the escrow. You can limit the trading amount each time to reduce the risk on your side, but the risk on escrow still exists

Instead of trust you can use a collateral and a game strategy where any inhonest behavior will lead to loss on both sides.

Here is my proposal for a solution:
https://bitcointalk.org/index.php?topic=462236

That works in a trust-less environment without 3rd party escrows.

[jubalix]

it comes by having a plug in to the p2p so banks don't know their not sending to the p2p exchange, or receiving from

[gollum]

There have been quite some initiatives lately about setting up decentralized P2P exchange solutions. I believe this is a great development and I'm sure it will all work out (the technology is there and the time is right) except for ONE thing:

Getting fiat in and out safely.

I've asked it before in other threads, and I'd like to once again discuss this issue exclusively:

For all this to work, if Alice wants to buy bitcoins (or other cryptocurrency) with dollars (or other fiat), at some point she'll have to put some money into the P2P exchange ecosystem by means of a wire transfer (I mean a classic oldschool bank transfer or SEPA transaction).
(1) How can she be sure the person she wires her fiat money to (let's call him Bob) doesn't disappear, or claims he never received it, or otherwise screws her over?
(2) Vice versa, what happens if Alice claims she wired her dollars to Bob's bank account, but she actually never did. Who's going to decide if Alice or Bob is right?

It's simple: We trust respectable banks such as JP Morgan, Goldman Sachs, DB to issue digital IOU-coins that are claims for US Dollar.
Bye bye mining and waste of energy and computing power.

[traderman]

You don't solve the fiat issue. You get rid of fiat altogether and you do not use it.

[BTCLuke]

You don't solve the fiat issue. You get rid of fiat altogether and you do not use it.

You damn skippy.

[waxwing]

2-of-3 signatures required for a forward release, but only 1 of 3 required for reversal.
There should never, ever be an arbitrator involved. Any system that settles for arbitration existing at any step is being dangerously lazy.

Can you describe that more in detail? I don't understand how that should work.

I'd also like an answer to that. As far as I'm aware, it's not possible in Bitcoin.

You don't solve the fiat issue. You get rid of fiat altogether and you do not use it.

Those of us working on this issue of course are aiming at that goal. The question is how to get there. For many of us, it's inconvenient but fully achievable to transfer funds into Bitcoin. For many other people around the world, it is not easy at all. And more subtly, the existence of friction at the gateway into crypto greatly slows down the flow and gives the authorities opportunities to control us. So actually, in practice you're quite wrong: there is a fiat issue, and it needs to be solved.

[waxwing]

This is not a technical problem, but a trust problem, you always need trust when doing trades, and a trusted third party is always needed to do the escrow. You can limit the trading amount each time to reduce the risk on your side, but the risk on escrow still exists

Yes and no. We take our lead from Satoshi, who showed that there are two angles to attack the problem of trust: (1) replace trust with cryptographic proof (2) distribute and decentralize trust around a P2P network. (1) is the real game changer in bitcoin, and many people would say we can never get that with fiat.

But it is possible to partially get (1) with a kind of hack. Use existing cryptographic mechanisms within the legacy system, in particular use bank's own ssl certificates as proof of the validity of a receipt/invoice from them, without them ever knowing you've used it.

[traderman]

No government will allow you to get fiat into Bitcoin anonymously, they will start cracking down on anyone doing these types of transactions very soon. Best idea for people is to start using Bitcoin itself, this is what Bitcoin was meant to be. People need to start offer their goods and services for Bitcoin. Any form of fiat is poison to the Bitcoin ecosystem. Bitcoin and fiat do not mix well and never will.

The more fiat gets mixed in with Bitcoin the more excuses governments will have to get involved, by cutting out fiat you are cutting the root of the problem.

[waxwing]

There is no universal solution.  Every jurisdiction will have different requirements that must be followed to do business above board.  There can of course be in person cash transactions, but anything digital will likely have to follow laws, and the laws will vary widely.

We're talking about decentralized exchanges, so the law will have to sit aside.

The issue is more having trusted escrow of the BTC using 2 of 3.

I think the solution is a web of trust, when someone has a large amount of trust they can be an escrow agent. But only for the BTC part of it, which uses 2 of 3 keys. This way he can't steal.

Exactly.

The only issue is what if I get a trusted account, and keep posting trades until I get myself as the agent.

A single escrow agent can be required to post collateral to a large M of N multisig, where the N are the whole set/pool of escrows. This is part of what I proposed in this post: https://bitcointalk.org/index.php?topic=173220.msg4029782#msg4029782