Decentralised trading (not what NXT/Ethereum or anyone is doing at the moment)

[coinrevo]

That's true, it is "revolutionary" in many different ways. So, how do I prove I own 10$ or have send 10$ in a fiat money system? Fiat money transactions are reversible, because they have a counterparty. any fiat within cryptocurrency leads to something like marking, i.e. colored coins. I haven't studied that approach to much, but I suppose the pool you suggested is like that. It seems to me there will now fiat colored coin any time soon.

I have a much easier solution which immediately makes p2p exchanges possible, however not for fiat money. and certainly not for stocks or bonds, which I believe is nonsense (given state of affairs as of 2014). stocks are tied to the legal system, and there is no way one can abstract that.

[waxwing]

That's true, it is "revolutionary" in many different ways. So, how do I prove I own 10$ or have send 10$ in a fiat money system?

Using internet banking. The encrypted ssl record of the session can be recorded. Then the specific encryption key for the page which shows the balance or transfer can be passed to an arbitrator, allowing them to read that particular html page. The proof ultimately traces back to the bank's ssl certificate (exactly the same proof that allows one to be confident of doing internet banking in the first place).
Digital signatures from banks would provide the same thing in a much more elegant way.

Fiat money transactions are reversible, because they have a counterparty.

Well obviously the existence of a counterparty does not imply reversibility, but that aside - not all fiat transactions are reversible. First, obviously there's cash. Second, SWIFT transfers are intended to be irreversible by design (after all settlement has to occur at some point).

any fiat within cryptocurrency leads to something like marking, i.e. colored coins. I haven't studied that approach to much, but I suppose the pool you suggested is like that. It seems to me there will now fiat colored coin any time soon.

I'm not talking about colored coin type systems.

I have a much easier solution which immediately makes p2p exchanges possible, however not for fiat money. and certainly not for stocks or bonds, which I believe is nonsense (given state of affairs as of 2014). stocks are tied to the legal system, and there is no way one can abstract that.

Fair enough, I apologise if I dragged you off topic, I probably misinterpreted some parts of what you wrote. If you're only interested in (2) not (1) (from my first post) then most (but not all) of what I said isn't probably relevant.

[jaybny]

forget about Fiat, what about a Decentralized NXT/BTC exchange or even a pure BTC futures exchange, where we are only dealing with Crypto currency.

I don't think anyone has even come up with a solution for a simple Decentralized limit order book. Seems to me that a Decentralized exchange can be gamed with common latency arbitrage / high frequency market making techniques..

[Bitye West]

Check out this sweet decentralized exchange protocol, Counterparty:

https://bitcointalk.org/index.php?topic=395761.0

You can trade Counterparty (XCP) for BTC or other assets completely decentralized and trust-free.

You can also issue dividends, and place bets on things like sporting events.

[coinrevo]

I've looked at this XCP thing. it doesn't have prices in the orders... why would I buy something at an unknown price? that's what an exchange does. its a price-machine so to speak. I mean this design is like a car that doesn't drive. its completely absurd.

at least they are not taking money for the dev upfront, so that's good.

I don't think anyone has even come up with a solution for a simple Decentralized limit order book. Seems to me that a Decentralized exchange can be gamed with common latency arbitrage / high frequency market making techniques..

yes. people designing an exchange should know what they are talking about. none of this stuff works, for quite obvious reasons. limit order book is a central datastructure like the blockchain. if you think about it bitcoin is de-central and central at the same time. blockchain is the ultimate central datastructure.

I haven't studied NXT at all, only looked the source code for 5 seconds. all current projects MSC, NXT, eth, have not considered much what an exchange is, in terms of price discovery and settlement.

[Bitye West]

I've looked at this XCP thing. it doesn't have prices in the orders... why would I buy something at an unknown price? that's what an exchange does. its a price-machine so to speak. I mean this design is like a car that doesn't drive. its completely absurd.

at least they are not taking money for the dev upfront, so that's good.

I don't think anyone has even come up with a solution for a simple Decentralized limit order book. Seems to me that a Decentralized exchange can be gamed with common latency arbitrage / high frequency market making techniques..

yes. people designing an exchange should know what they are talking about. none of this stuff works, for quite obvious reasons. limit order book is a central datastructure like the blockchain. if you think about it bitcoin is de-central and central at the same time. blockchain is the ultimate central datastructure.

I haven't studied NXT at all, only looked the source code for 5 seconds. all current projects MSC, NXT, eth, have not considered much what an exchange is, in terms of price discovery and settlement.

What do you mean it doesn't have prices in the orders?

http://blockscan.com/order.aspx

[coinrevo]

What do you mean it doesn't have prices in the orders?

http://blockscan.com/order.aspx

ok, I stand corrected. then the readme doc is just badly written (an order without a price is called market-order). I'll look at it more closely then. with a block based exchange there are plenty of attacks one can do. timing attacks, flooding attacks, ... it certainly can't scale to any meaningful volume, because orderbooks are central datastructures. a possible way to solve this is much more involved.

[k99]

I just announced a proposal for a P2P Fiat-Bitcoin Exchange.

BANK RUN! - P2P Fiat-Bitcoin Exchange
https://bitcointalk.org/index.php?topic=462236

waxwing points out very clear that we have 2 different parts when it comes to P2P exchanges:

I also remember the "reams of typing", as you put it, post-April. I think a critical error in those discussions was conflating two entirely different goals: (1)peer to peer exchange of fiat currencies for crypto assets and (2) real time decentralised trading of crypto assets. The reason for the conflation was that people saw the failure of Mt Gox in both areas and wanted solutions to both.

(1) and (2) are both very hard goals, but (2) is by far the easier, as long as you're prepared to sacrifice some performance to achieve the decentralization. Many people made grand claims about having solved (1) and (2) when actually they only had partial solutions to (2); partial in the sense that they were either not real time, or not decentralized. Purported inclusion of (1) into these architectures were dubious at best, usually involving a peg between a crypto and a non-crypto asset, but without accounting for clearing and settlement properly. Such pegs are to my mind fatally flawed.

Personally I am not very interested in (2), although better and better models will come along.

I am much more interested in (1); while conceivably there is an optimistic scenario where regulations get more and more lax and it will be less and less important to worry about on-ramps from fiat to crypto, I find it much more likely that regulations will get stricter and the absence of a private, decentralised, online mechanism will end up being a major throttle on cryptocurrency development.

That's why I spent a lot of time (and still do) on the ideas that were discussed here. Only cryptographic proof of bank balances and transfers allows semi-automated and distributed arbitration required to transfer value between fiat and crypto without bank involvement.

My proposed solution is targeting part (1).

To solve both parts is probably not possible in our current legal framework: Regulation of entities dealing with the money of other parties. For good reason to protect from fraud or default.

Solutions for part 2 are already out there (Ripple, Open transaction or any of the new altcoins advertising crypto-crypto/IOU exchange).
But all those leave one part open: The gateway to the Fiat world.
These gateways are exchanges or Banks. So it is no decentralized solution and has only small benefits to use these exchanges in the first place. It is more like a interbanking network, they improve liquidity and could benefit from arbitrage.
As a normal user you cannot become a gateway as you would be confronted with the regulatory framework. To create a P2P network of gateways where everybody can act as a gateway and play "private bank" is an illegally proposal, as the gateways are dealing with money of other people. Fiat money, so you are in governments realm and control.

The only solution I could image (but which will be pretty complicate and I have not thought it trough completely) would be a kind of  gateway doing the fiat conversion in behalf of 2 other traders.

Something like that:
Gateway issue USD_IOU and need to put a BTC collateral of the same value into a lock as warranty that he will change the USD_IOU to USD any time, otherwise he will loose the locked BTC collateral.
Trader1 wants to buy BTC for USD from trader2. They do the deal with BTC and USD_IOU.
The change from USD to USD_IOU and USD_IOU to USD will be done via the gateway.
There are always only 1 to 1 relationships in the trade: Gateway-trader1, trader1-trader2, Gateway-trader2.

Not sure if that construction could be considered as (assistance for) money laundering, as the gateway doing a fiat conversion in behalf of others. I guess it would.

So at the end if you want to operate in the legal framework the only allowed interaction with Fiat money is to use it for you personally matters (buy, sell form another), but not to offer a service to trade on behalf of others (what a gateway is doing).
Providing liquidity is a service and I assume it could never be done in a pure P2P solution.

[tokeweed]

Decentralised trading, means no need for gateways.

With a true Decentralised trading platform A bank would not be able to tell you are sending funds, or that your funds came from the Decentralised trading platform. To the bank it would just look like another transaction, or international wire.

NXT will again rely on gateways to get Fiat in and out.

A true Decentralised trading  structure will consist of

[1] a decentralised core trading systems,

[2] Plugins that can interface with various banking systems, individuals in various countries will write these for local requirements

it really gets me all the big schemes for decentralised trading when gox went down last April reams of typing and grand schemes but not one came to fruition and now there is talk of decentralised trading that is nothing of the sort, when it misses [2] completely.

jed's new secret bitcoin project could be it.

[k99]

jed's new secret bitcoin project could be it.

Maybe? There would be much demand in China right now as well as in Russia I assume.
But I am not sure if a solution provided by a company (assuming jed's is that style) will be really the solution in a pure P2P sense? A free open source project would be more suitable (like Bitcoin, dark wallet, bitmessage ...).

[tokeweed]

jed's new secret bitcoin project could be it.

Maybe? There would be much demand in China right now as well as in Russia I assume.
But I am not sure if a solution provided by a company (assuming jed's is that style) will be really the solution in a pure P2P sense? A free open source project would be more suitable (like Bitcoin, dark wallet, bitmessage ...).

i don't think there's a company behind his new secret project. maybe he's going back to his roots. that would be rad.

[Sukrim]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

[k99]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

[Sukrim]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

The bank transfer(s) can be reversed after the BTC are released. Alice Will steal Eve's bank data, send 1k USD to Bob, pocket the BTC and then Eve gets Bob in trouble. This happens often enough on both localbitcoins and bitcoins.de already right now (since that's the exact same system these are operating under).

The bank transfer network is the third party in that scheme and it sucks compared to Ripple for example, since transactions between banks are reversible. It would only work with cash-in-mail and even then you need to trust the postal services.

Also if BTC prices fall more than 10% until the BTC are sold, Bob is better off never releasing the coins. Using this system is like shorting BTC on reversible bank transfers no less. Good luck with that.

[Polvos]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

The bank transfer(s) can be reversed after the BTC are released. Alice Will steal Eve's bank data, send 1k USD to Bob, pocket the BTC and then Eve gets Bob in trouble. This happens often enough on both localbitcoins and bitcoins.de already right now (since that's the exact same system these are operating under).

The bank transfer network is the third party in that scheme and it sucks compared to Ripple for example, since transactions between banks are reversible. It would only work with cash-in-mail and even then you need to trust the postal services.

Also if BTC prices fall more than 10% until the BTC are sold, Bob is better off never releasing the coins. Using this system is like shorting BTC on reversible bank transfers no less. Good luck with that.

I agree, but with the Nash equilibrium solution posted here, you don't need to trust the banking system. You can perfectly send cash money by snail-mail.

[Sukrim]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

The bank transfer(s) can be reversed after the BTC are released. Alice Will steal Eve's bank data, send 1k USD to Bob, pocket the BTC and then Eve gets Bob in trouble. This happens often enough on both localbitcoins and bitcoins.de already right now (since that's the exact same system these are operating under).

The bank transfer network is the third party in that scheme and it sucks compared to Ripple for example, since transactions between banks are reversible. It would only work with cash-in-mail and even then you need to trust the postal services.

Also if BTC prices fall more than 10% until the BTC are sold, Bob is better off never releasing the coins. Using this system is like shorting BTC on reversible bank transfers no less. Good luck with that.

I agree, but with the Nash equilibrium solution posted here, you don't need to trust the banking system. You can perfectly send cash money by snail-mail.

No you can't.

We both put up 50 BTC, I send you a couple dozen self-printed 500€ bills and claim the post man switched them. Heck, I can even take pictures and whatever you want of me putting in real money beforehand. If you want to, I'll even make a video, uncul, of me stuffing 100% real money in an envelope, sealing it, writing your name on it and handing it in at the post office, no problem. You'll still receive ony fake money and after some time our 50 BTC each will either have to be returned or destroyed. I still have proof and go to court, also your reputation on that exchange is destroyed.

Also I could send real money. With the GPS tracker from the last bank robbery still inside (or not, doesn't really matter if the serial numbers are tracked).

[k99]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

The bank transfer(s) can be reversed after the BTC are released. Alice Will steal Eve's bank data, send 1k USD to Bob, pocket the BTC and then Eve gets Bob in trouble. This happens often enough on both localbitcoins and bitcoins.de already right now (since that's the exact same system these are operating under).

The bank transfer network is the third party in that scheme and it sucks compared to Ripple for example, since transactions between banks are reversible. It would only work with cash-in-mail and even then you need to trust the postal services.

Also if BTC prices fall more than 10% until the BTC are sold, Bob is better off never releasing the coins. Using this system is like shorting BTC on reversible bank transfers no less. Good luck with that.

You have to use bank transfer types which are irreversible SEPA in europe for example. See: https://en.bitcoin.it/wiki/Payment_methods

Price swings are handled in the paper. Volatility is direct proportional to the collateral high. So if you wnat to cover risk for 10% volatility 10% collateral is enough. for 30% volatility use 30% collateral.

[k99]

This "decentralized trading" idea can only work with digital assets (e.g. blinded Bitcoins...), not fiat money. There is no way to "digitalize" a dollar bill without introducing a third parts (called bank, escrower, gateway, exchange...).

Here is a solution using collateral to build a system for trust-less fiat-btc trading:
https://bitcointalk.org/index.php?topic=462236

The bank transfer(s) can be reversed after the BTC are released. Alice Will steal Eve's bank data, send 1k USD to Bob, pocket the BTC and then Eve gets Bob in trouble. This happens often enough on both localbitcoins and bitcoins.de already right now (since that's the exact same system these are operating under).

The bank transfer network is the third party in that scheme and it sucks compared to Ripple for example, since transactions between banks are reversible. It would only work with cash-in-mail and even then you need to trust the postal services.

Also if BTC prices fall more than 10% until the BTC are sold, Bob is better off never releasing the coins. Using this system is like shorting BTC on reversible bank transfers no less. Good luck with that.

I agree, but with the Nash equilibrium solution posted here, you don't need to trust the banking system. You can perfectly send cash money by snail-mail.

No you can't.

We both put up 50 BTC, I send you a couple dozen self-printed 500€ bills and claim the post man switched them. Heck, I can even take pictures and whatever you want of me putting in real money beforehand. If you want to, I'll even make a video, uncul, of me stuffing 100% real money in an envelope, sealing it, writing your name on it and handing it in at the post office, no problem. You'll still receive ony fake money and after some time our 50 BTC each will either have to be returned or destroyed. I still have proof and go to court, also your reputation on that exchange is destroyed.

Also I could send real money. With the GPS tracker from the last bank robbery still inside (or not, doesn't really matter if the serial numbers are tracked).

I think you are still missing the most important point!
The collateral on both sides guarantees that both will loose money if they are behaving inhonest.
It is not a question of proving the other party anything. If Alice has done the bank tx and she knows that it was successful and Bob received it but tell her "no I didn't get the fiat money" Alice cannot do anything about it, but Bob will loose his collateral when not signing the payout tx and that would lead to a bad deal for him.
There are exact 2 situation where they could behave unfair. In both nobody could steal money from the other but both will losse money. Once Alice would loose 0.1 BTC and Bob 1.1 BTC, and then Alice would loose 1.1 BTC and Bob 0.1 BTC (if you convert the USD to BTC). See the paper all that is covered....

[Sukrim]

You have to use bank transfer types which are irreversible SEPA in europe for example. See: https://en.bitcoin.it/wiki/Payment_methods

I am in Europe and I would not trust that SEPA transfers are irreversible at all. There are cases every few weeks in the German subforum that support this claim. Even if they are irreversible, your bank account still will get locked up sooner or later as soon as someone sends you money from a phished account.

You just describe NashX and as I already said, there are strategies where Bob can benefit from Alice loosing money, even if it costs him a bit as well.

Once the collateral gets higher by the way, there is an easy extortion attack: freeze both collaterals + Alice's coins she sells, don't send money but agree to release the collaterals at least if she claims to have received money. As soon as the collateral become worth more than what she would have gained from selling the coin back in the days, she is acting economically rational to agree to that deal.

[FrictionlessCoin]

jubalix, you seem to have some good understanding of the issue, and raise some important points.

All people currently involved in these "exchanges" know next to nothing about how they work (sorry folks). Anyone who has worked in this area for long enough would be able to tell. The model of the future is going to be very different than most currently imagine. having said that those in traditional institutions have no idea what's coming and are generally completely ignorant of the potential.
 
There are several major reasons why the current P2P-EXC models are flawed:

* liquidity has to be "centralised". this is because orderflow is time-ordered. if you have order_1, ...,order_N, then each depends on the other. this is completely different than the blockchain for most (not all) goods. on the blockchain the tx (tx_1, ..., tx_n) are largely independent of each other (otherwise the block mechanism would not work!). arbitrage insures that liquidity flows to the most efficient pool, which is going to be "central" (although might be distributed in a different sense).

* clearing. seriously, authors of current schemes don't even know what that means. without clearing, you don't really have trading of assets. and for clearing you need a lot of infrastructure, which will take years to build, and nobody hasn't even started. there are so many complicated issues. for example if you know how complex the stock market in its relation to the legal system is, you'll know what I mean.

* laws. assets are rooted in a legal system, which grants rights to asset-holders. without those rights, most assets are really worthless. no investor would be so stupid to invest in virtual shares, without these rights, because loss is almost certain. the idea of launching a "stock market" on top of the blockchain is just ludicrous. nobody wants to lose money, when the counterparty just runs away with the money. those who believe an investor can live without rules, just hasn't invested any real money. how do you properly measure sales and income without fraud? what does rights does an equity holder have in case of bankruptcy vs a bond holder? how are dividends treated? etc.etc. not that the current system is that good, but we have exchange laws, GAAP, IFRS, and so on.  these matters are highly non-trivial. I'm not saying laws as they have existed should exist in the future. but again, if you have serious money on the line, you want protection of your rights.

The community will be better off in thinking more deeply about why institutions exist. it takes much more profound understanding of the mechanisms, which you basically only know if you've studied economics deeply. having said that, new models are possible, but it will require more serious work, instead of amateurs working on it. the problem is that it requires deep technical knowledge of several fields (technical and economical). you can't just ignore the economic side.

Very good insight. I agree entirely.   A lot of coins keep focusing on the technology side but are unable to see the big economic picture.

Anyway,  if you want to explore this more,  I would like to discuss this in light of the direction of NEX.