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Author Topic: BANK RUN! - P2P Fiat-Bitcoin Exchange  (Read 38683 times)
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waxwing
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March 02, 2014, 03:38:43 PM
 #161

cjp,
Manfred's original concept was strictly p2p to avoid trusted third parties.

Escrow based solutions have obviously been discussed, and the advantages are as you mention, but a lot of those advantages can't be properly realised if there is no proof of fiat payment, which is why we (dansmith and I) developed the capacity to prove bank transfers via encrypted ssl records.




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k99
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March 02, 2014, 08:37:54 PM
 #162

A few thoughts here.

I really like the collateral-based system.  I think the only involvement from a 3rd party that is warranted is an oracle which forces the final transaction to not be split, i.e. either the payment goes through completely or a complete refund is given.  And this oracle could be one of the parties of the transaction, as long as that key is wiped after signing both the payment and the refund, right?  So any 3rd party seems unnecessary to me.  Involving 3rd parties holds the potential to compromise anonymity unnecessarily, and the 3rd party could prevent the transaction from completing if they wished to sabotage the system.

Reputation systems would compromise anonymity, and would be vulnerable to Sybil attacks.

For irreversible transactions, cash in the mail seems a good option to me.  It also has much better privacy than banks.  There's a Tor hidden service I saw a while back which acts as an exchange where all fiat transfer is via $20 bills in the mail.  I wouldn't be surprised if that site is a scam, but the idea is good if done using P2P and collateral.  Sure, some people will prefer something faster, but I imagine a lot of people will be okay with waiting 3 business days for USPS to deliver an envelope with cash -- a lot of centralized exchanges take a while too (CoinBase took ages last time I used them).

Also, this concept seems easily applicable to a generic marketplace (a la Bitmit) as opposed to just a currency exchange.  I know that's been mentioned already, but I hope that the emphasis won't just be on currency exchange.

Are you familiar with the BitMarket concept by AyrA?  I'm not sure how similar it is, but maybe some of the stuff in that project would benefit this?

Unfortunately it seems that without a 3rd party there are some problems which cannot be solved.
An escrow will solve those but has to be designed in a way that it does not introduce new attack scenarios.
Waxwing and dansmith are working on such solutions (https://bitcointalk.org/index.php?topic=173220.msg5333865#msg5333865).

A reputation system will be needed because as the identity is known to the other party (bank details) there will follow by itself a reputation system if we dont install it. Users would start to blacklist scammers in forums or make false accusations.
But its another challenge to build a solid reputation system.

You meant BitMarket.eu? No I don't know AyrA. Is he a btctalk user? Didn't find him...

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March 03, 2014, 03:36:29 PM
 #163


A reputation system will be needed because as the identity is known to the other party (bank details) there will follow by itself a reputation system if we dont install it. Users would start to blacklist scammers in forums or make false accusations.
But its another challenge to build a solid reputation system.


Hey k99 Smiley

Have you had an opportunity to take a look at bitcoin-otc "Web of Trust". It has been running smoothly for some time so it's something it's worth checking. This web of trust has supported trades without collaterals, so I guess it's going to be good enough for your enhanced system that includes collaterals and game-theory to enforce that traders stick to the initial contract.

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March 03, 2014, 04:02:48 PM
 #164


A reputation system will be needed because as the identity is known to the other party (bank details) there will follow by itself a reputation system if we dont install it. Users would start to blacklist scammers in forums or make false accusations.
But its another challenge to build a solid reputation system.


Hey k99 Smiley

Have you had an opportunity to take a look at bitcoin-otc "Web of Trust". It has been running smoothly for some time so it's something it's worth checking. This web of trust has supported trades without collaterals, so I guess it's going to be good enough for your enhanced system that includes collaterals and game-theory to enforce that traders stick to the initial contract.

Yes the Web of Trust seems to work pretty good in practice.
We will update soon the concept with escrow and some reputation system included.

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March 04, 2014, 05:24:30 AM
 #165

There is one idea we haven't talked about yet.   Registered mail through the postal service.  When Alice sends her money to Bob,she sends it via registered mail. Bob has to sign for it or he doesn't get it.  And if he signs for it that makes him obligated to carry out his end of the deal or Alice can take him to court.

The thing about dealing in fiat is that in that part of the deal, recourse means recourse to the court and justice system.  Cash doesn't have protocol and executable semantics behind it. That makes it impossible to get a fool proof transaction with it.  People do okay most of the time and when they try to screw each other over,that's why the law is and has to be part of the system that includes cash.

You can't make a deal involving cash without recourse to the legal system. The best you can do is to make sure there is evidence to take there.

Conversely if Alice tries to blackmail Bob, the protocol can make sure that there is evidence of that too.

The law works given a chance. Just make sure it has something to work with and soured transactions will be at least as scarce as they are in traditional business, for the same reasons.
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March 04, 2014, 05:49:14 AM
 #166

We thought about registered mail. The problem for me is that although you can prove delivery, you can't prove the cash amount. Without proof of transfer, I'm not sure how it can work.

As for recourse in the existing legal system, as far as I'm concerned that's a non-starter.

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March 04, 2014, 07:33:47 AM
 #167

There is one idea we haven't talked about yet.   Registered mail through the postal service.  When Alice sends her money to Bob,she sends it via registered mail. Bob has to sign for it or he doesn't get it.  And if he signs for it that makes him obligated to carry out his end of the deal or Alice can take him to court.


I think that in the place where I live it is forbidden to send cash through the postal service.

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March 04, 2014, 09:28:40 AM
 #168

@k99

I was thinking about the name of your exchange and i think you should seriously consider naming it "BankRun" (or "BankRunner" - so the name won't interefere directly with name of bank run concept).

After all, why pretend anything and dilute the reason for which the app was made ? Wink

What i mean is, the banking system is broken beyond repair and i think we should be bold saying it out loud.

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March 04, 2014, 09:43:32 AM
 #169

@k99

I was thinking about the name of your exchange and i think you should seriously consider naming it "BankRun" (or "BankRunner" - so the name won't interefere directly with name of bank run concept).

After all, why pretend anything and dilute the reason for which the app was made ? Wink

What i mean is, the banking system is broken beyond repair and i think we should be bold saying it out loud.

I personally liked the provocative element included in Bank Run. But I think it would not serve the project well, as there are more mainstream people to whom such names are too radical. The overall system will work much better if all those mainstream people are using it as well and not only a minority of people with a clear political mind set.

Another reason why we renamed it to "Bit Square" is that it could be extended later to a P2P market place and then no banks are included anymore, only mail. So square as a meetingplace for interaction seems to be more generic.

But we are open to better names if somebody comes up with one (a free domain is needed as well, what is not easy in bitcoin land).

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March 04, 2014, 09:47:47 AM
 #170

There is one idea we haven't talked about yet.   Registered mail through the postal service.  When Alice sends her money to Bob,she sends it via registered mail. Bob has to sign for it or he doesn't get it.  And if he signs for it that makes him obligated to carry out his end of the deal or Alice can take him to court.


I think that in the place where I live it is forbidden to send cash through the postal service.

I did not know that, if you refer to the country I have in mind. Crazy.

Goes in line with the fact that using cash for more then 2000.- is forbidden in Spain and in Italy it's a even lower limit with 1000.-. There are high fines when using cash above those limits. Crazy...

In Spain as far as I know the Banks are sending all your financial data to the tax authority end of the year. So you have zero privacy in your financial life beside using cash in limited amounts.

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March 04, 2014, 10:00:40 AM
 #171

There is one idea we haven't talked about yet.   Registered mail through the postal service.  When Alice sends her money to Bob,she sends it via registered mail. Bob has to sign for it or he doesn't get it.  And if he signs for it that makes him obligated to carry out his end of the deal or Alice can take him to court.

The thing about dealing in fiat is that in that part of the deal, recourse means recourse to the court and justice system.  Cash doesn't have protocol and executable semantics behind it. That makes it impossible to get a fool proof transaction with it.  People do okay most of the time and when they try to screw each other over,that's why the law is and has to be part of the system that includes cash.

You can't make a deal involving cash without recourse to the legal system. The best you can do is to make sure there is evidence to take there.

Conversely if Alice tries to blackmail Bob, the protocol can make sure that there is evidence of that too.

The law works given a chance. Just make sure it has something to work with and soured transactions will be at least as scarce as they are in traditional business, for the same reasons.

Mail will be the primary medium for a P2P market which could follow the exchange project later.
I guess there are forms of money transfers by mail where the amount is registered, so that could be a safe way, but I assume the costs are pretty high and Western Union and such companies will probably be a better choice.
If those services use https webpages where you can track and prove the tx, than it could be used as well with the SSL-log schemes for a secure proof.
If not, a traditional escrow could be used, but has less standardized and safe abilities for a secure proof.

We will probably include a contract where all the trade details are defined and signed by both parties. That is primarly intended for the escrow or for later proof if one party make accusations to the other.
If that contract could be also used as evidence for legal actions is unclear, and as the exchange might be used in bitcoin-unfriendly countries that support is even more questionable.

Also we prefer to build it "self contained" without inclusion of another legacy system (beside banks, mails). But it will be open to the users to use all the available possibilities.

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March 04, 2014, 02:52:08 PM
 #172

Really interesting project. I see you've dropped the full game theoretical idea? Was this mainly because of the potential blackmail problem derived from the "impossibility" to create equal bargaining power between the two actors which would cause at best a transaction that would would take a rather long time or were there more (technical) problems with your original model? The bargaining problem currently looks like it can only be solved if you could somehow involve characteristics of the bank transaction in the contract.

I'm currently also following the discussion in IRC and as soon as I've got more free time available I'll be able to participate more actively. If developed properly it can definitely have a major positive effect on the bitcoin eco system.
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March 04, 2014, 03:56:06 PM
 #173

Really interesting project. I see you've dropped the full game theoretical idea? Was this mainly because of the potential blackmail problem derived from the "impossibility" to create equal bargaining power between the two actors which would cause at best a transaction that would would take a rather long time or were there more (technical) problems with your original model? The bargaining problem currently looks like it can only be solved if you could somehow involve characteristics of the bank transaction in the contract.

I'm currently also following the discussion in IRC and as soon as I've got more free time available I'll be able to participate more actively. If developed properly it can definitely have a major positive effect on the bitcoin eco system.

There were some concerns about attack scenarios which cannot be prevented by the original design. It is open if it would work good enough in practice, but I lost confidence and you are confronted with certain risks if you design a project which will not work out well in practice.

My main problems with the game theoretical setup are that the potential loss is asymmetric and that if one party acts unfair the other party lose more. So that will be considered as an unfair setup (game) and lead to "out of the game" solutions (breaking out of an unfair game seems positive for both parties).
I came to that conclusion when listening to a broadcast about a "prisoners dilemma" game setup, where the original game setup is designed against the game players and a breakout is a valid strategy.

Other problems was that its hard to define what is rational, in fact in reality there will be always a mix, specially in blackmail scenarios rational behaviour will be mixed with irrational one.

And system attackers are not covered by the Nash idea. Therefore other solutions are needed (lottery, reputation,...) which introduce more complexity and new problems (Sybil).

At the moment we try to design it with escrows, which will solve a lot of the problems.
Contract, identity and reputation will be added as well, but we need to keep the basic concept as simple as possible, otherwise it will explode to a huge project which will be unrealistic to get finished ever...

Feel free to join, we need for sure more work and brain forces!

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March 04, 2014, 04:16:17 PM
 #174


I did not know that, if you refer to the country I have in mind. Crazy.

Goes in line with the fact that using cash for more then 2000.- is forbidden in Spain and in Italy it's a even lower limit with 1000.-. There are high fines when using cash above those limits. Crazy...

In Spain as far as I know the Banks are sending all your financial data to the tax authority end of the year. So you have zero privacy in your financial life beside using cash in limited amounts.

Let me clarify. I remember that I sent once a packet and it was clearly forbidden to send cash. The postal service has specific services for money. I could not find reliable sources regarding the legality of cash-in-mail in Spain.

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March 04, 2014, 04:57:49 PM
 #175

The bargaining problem currently looks like it can only be solved if you could somehow involve characteristics of the bank transaction in the contract.
Could you elaborate? With a contract, the question is always what enforces it.

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March 04, 2014, 07:58:01 PM
 #176

At the moment we try to design it with escrows, which will solve a lot of the problems.

Call your escrowers "gateways" and you are re-inventing Ripple again. Wink
I liked the game theoretical approach, even though it was fundamentally broken... :/

If you want a decentralized order book where you trade with escrowed funds, I'd really recommend looking at Ripple (you can fork it if you don't want to spend one USD to get XRP, but then you miss out on the existing infrastructure). If your idea is fundamentally different, please elaborate.

I just fear that you might be slowly re-inventing and re-implementing already existing technology.

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March 04, 2014, 09:39:40 PM
 #177

It's very easy to prove the amount of the transaction if Alice uses a check.  Not only is the amount visible in her statement from the bank but there's also a record of which account holder cashed or deposited it.

It breaks the hell out of the anonymous transactions idea,but that was a given the minute you wanted a fiat transaction with any serious guarantee.

What you get in fiat is game theory for anonymous transactions and law,courts, etc for anything stronger than that.
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March 05, 2014, 07:26:39 AM
Last edit: March 05, 2014, 07:36:58 AM by k99
 #178

At the moment we try to design it with escrows, which will solve a lot of the problems.

Call your escrowers "gateways" and you are re-inventing Ripple again. Wink
I liked the game theoretical approach, even though it was fundamentally broken... :/
If you want a decentralized order book where you trade with escrowed funds, I'd really recommend looking at Ripple (you can fork it if you don't want to spend one USD to get XRP, but then you miss out on the existing infrastructure). If your idea is fundamentally different, please elaborate.
I just fear that you might be slowly re-inventing and re-implementing already existing technology.

The escrows are used for a 2of3 multisig and have nothing to do with gateways. In case of dispute they decide who will get the funds. SSL-log will be used for secure proof of the bank tx.

You may see the exchange itself as a gateway, as all exchanges might be Ripple gateways, or in other words a Ripple gateway is nothing else then an exchange (but of course something special like "gateway" sells better).
See: https://ripple.com/guide-to-ripple-gateways
Bitstamp, Justcoin, therocktrading, all are classical exchanges.
It is not in our projects intentions to build something which is dependent on centralized structures/companies.
So be assured that we are not going to re-invent Ripple.

I think you still have not read the paper, otherwise you would not compare our model to Ripple.

BTW: You should write I THINK "it was fundamentally broken". It is ONLY YOUR OPINION and you have proven in previous posts that you don't have valid arguments for your strong opinions, so I would appreciate a less arrogant style.

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March 05, 2014, 07:35:47 AM
 #179

It's very easy to prove the amount of the transaction if Alice uses a check.  Not only is the amount visible in her statement from the bank but there's also a record of which account holder cashed or deposited it.

It breaks the hell out of the anonymous transactions idea,but that was a given the minute you wanted a fiat transaction with any serious guarantee.

What you get in fiat is game theory for anonymous transactions and law,courts, etc for anything stronger than that.

Anonymous Fiat transaction is impossible, even face to face is not anonymous (you know at least the face of hte other).

We will not introduce anything from the legal system, but it might be used by the users if they want.
There will be a signed contract which defines the trade, so theoretically that could be used if someone want to use the legal system, but its very questionable if they would accept that.
The basic security will be based on an escrow model with SSL-logs, that will protect agains most attack scenarios.
Stolen bank accounts and chargebacks would be the only problems which could not be covered by escrows. For those we want to use a reputaion system and a mutual identity check (off-system).

A more detailed update of the concept will come soon...

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March 05, 2014, 10:49:00 AM
 #180

The escrows are used for a 2of3 multisig and have nothing to do with gateways. In case of dispute they decide who will get the funds. SSL-log will be used for secure proof of the bank tx.

You may see the exchange itself as a gateway, as all exchanges might be Ripple gateways, or in other words a Ripple gateway is nothing else then an exchange (but of course something special like "gateway" sells better).
See: https://ripple.com/guide-to-ripple-gateways
Bitstamp, Justcoin, therocktrading, all are classical exchanges.
It is not in our projects intentions to build something which is dependent on centralized structures/companies.
So be assured that we are not going to re-invent Ripple.
A Ripple gateway only holds funds safe, takes deposits and withdrawals in whatever they have for safekeeping and issue/redeem balance on Ripple for these things (USD, EUR, Gold...). To me this sounds more like an escrower than an exchange (there is no trading going on in a gateway at all besides maybe currency conversion by the banks if you deposit USD to a EUR account).

Using SSL logs might sound nice in theory, this still does not change the fact that people can claim that this log was taken by someone else, the bank will believe them and reverse the payment and/or freeze the receiving account for fraudulent activity. Besides that I hope you will have a hard time convincing people to record their online banking session to be decrypted later by someone on the internet... though maybe people really are that gullible?

BTW: You should write I THINK "it was fundamentally broken". It is ONLY YOUR OPINION and you have proven in previous posts that you don't have valid arguments for your strong opinions, so I would appreciate a less arrogant style.
I warned about blackmail which you disregarded until someone posted the same argument with different wording and you accepted it... This is not the first time that someone wants to establish this kind of scheme for an exchange, so I might have been too short-worded because it gets tiring to read about this every few months.

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