Idea for distributed exchange

[realnowhereman]

I haven't got time to implement this idea; so I'm putting it here in case anyone is inspired.

Consider a new exchange. Let's have the following start conditions for their accounts (ignoring how we got to this point for now); and assume everyone is 100% honest.

User A has zero dollars and zero BTC.
User B has 1000 dollars and zero BTC.
User C has zero dollars and 100 BTC.

User C and user B trade as normal, with B buying 100 BTC for 1000 dollars.

Now, user B wants to withdraw 1000 dollars.  Here's the trick: user A now wants to deposit 1000 dollars.  The exchange tells user A to deposit to user B's bank account, rather than its own.

The exchange adjusts balances accordingly.  User A has "deposited" 1000 dollars in the exchange, and user B has withdrawn 1000 dollars.  Everyone has what they want.

Obviously this needs a lot of users to make it work; and it's unlikely that the figures would match up to make it work as smoothly.  So... next step... the exchange runs a second currency exchange.  Not BTC for dollars, but dollars-in-exchange-account for dollars-outside-exchange-account.  If I happen to have $1000 in my checking account, I can "ask" 1001 inside-dollars for 1000 outside-dollars.  Alternatively, I can "bid" 999 outside-dollars for 1000 inside-dollars.

The exchange then acts as an escrow and web-of-trust keeper rather than a centralised bank account.

Here's the even better bit... there is nothing to limit the currencies to dollars.  People could offer 1600 inside-USD for 1000 outside-GBP.

It would also mean that the exchange was completely protected from the law; it has no bank accounts that can be seized.

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[legion050]

If users A,B,C all have 0BTC, how do they import money into it?

[andes]

I applaud ideas for distributed exchanges, so I play devils advocate here in a constructive way. The first concern I have here is potential legal problems for users. Say I deposit 1000 dollars in the account of a drug dealer (of course I had no idea of this) that gets catched afterwards by the police and his bank account is investigated. You bet I will have problems.

I for one would never allow transactions with total strangers in my account, without the legal protection to back me up. Somehow the legal aspect should be an integral part ot the system, to demonstrate that your only relationship with this person was this particular transaction via the exchange. As long as you received an invoice from the exchange, with the destination/origin bank account clearly writen, so that you could save this document for future reference, I believe it could work.

[realnowhereman]

If users A,B,C all have 0BTC, how do they import money into it?

BTC isn't the problem as they don't need a bank account to transfer money.  BTC could be handled exactly as they are now.

However, the BTC could be handled in the same way... each users personal wallet is the equivalent of their personal checking account.  They can offer whatever BTC they want.

[cloud9]

I applaud ideas for distributed exchanges, so I play devils advocate here in a constructive way. The first concern I have here is potential legal problems for users. Say I deposit 1000 dollars in the account of a drug dealer (of course I had no idea of this) that gets catched afterwards by the police and his bank account is investigated. You bet I will have problems.

If a person gets caught for selling drugs and I bought socks or soda from him that does not criminalize me.  How would it criminalize me if I bought digital bitcoin goods from him?  I am not part of his drug trading activities and I can not police all the activities of every stranger that I conduct business with.  I am related to the stranger solely for what my business was with him - it would be buying or selling digital goods that I have acquired or would dispose of by buying or selling it or keeping it.  You can not be held accountable for any criminal deeds of people you conducted business with if you were not involved in the criminal deed!  If I sell someone fresh fish at a market and he keeps it unrefrigerated for days, and serves it to a customer at his restaurant that acquires food poisoning in the process, the negligent criminal act would be due to his actions, not my due diligent actions.

[Denicen]

I applaud ideas for distributed exchanges, so I play devils advocate here in a constructive way. The first concern I have here is potential legal problems for users. Say I deposit 1000 dollars in the account of a drug dealer (of course I had no idea of this) that gets catched afterwards by the police and his bank account is investigated. You bet I will have problems.

If a person gets caught for selling drugs and I bought socks or soda from him that does not criminalize me.  How would it criminalize me if I bought digital bitcoin goods from him?  I am not part of his drug trading activities and I can not police all the activities of every stranger that I conduct business with.  I am related to the stranger solely for what my business was with him - it would be buying or selling digital goods that I have acquired or would dispose of by buying or selling it or keeping it.  You can not be held accountable for any criminal deeds of people you conducted business with if you were not involved in the criminal deed!  If I sell someone fresh fish at a market and he keeps it unrefrigerated for days, and serves it to a customer at his restaurant that acquires food poisoning in the process, the negligent criminal act would be due to his actions, not my due diligent actions.

yeah, but what if someone sends you stolen money?

[andes]

I applaud ideas for distributed exchanges, so I play devils advocate here in a constructive way. The first concern I have here is potential legal problems for users. Say I deposit 1000 dollars in the account of a drug dealer (of course I had no idea of this) that gets catched afterwards by the police and his bank account is investigated. You bet I will have problems.

If a person gets caught for selling drugs and I bought socks or soda from him that does not criminalize me.  How would it criminalize me if I bought digital bitcoin goods from him?  I am not part of his drug trading activities and I can not police all the activities of every stranger that I conduct business with.  I am related to the stranger solely for what my business was with him - it would be buying or selling digital goods that I have acquired or would dispose of by buying or selling it or keeping it.  You can not be held accountable for any criminal deeds of people you conducted business with if you were not involved in the criminal deed!  If I sell someone fresh fish at a market and he keeps it unrefrigerated for days, and serves it to a customer at his restaurant that acquires food poisoning in the process, the negligent criminal act would be due to his actions, not my due diligent actions.

The point is that as I understand it, the seller will not give me any invoice or receipt. This is the part that should be legally worked out in the system. But you have a point, it shouldnt be a problem if adecuate reporting systems are put in place.