BANK RUN! - P2P Fiat-Bitcoin Exchange

[SyRenity]

I have some (limited) familiarity with banks and credit cards company fraud prevention systems, and I think that with enough interest, they *might* implement crypto-analytics to try and correlate wired transfers to crypto ones, and block/limit the relevant bank accounts.

That said, it probably will take quite some time until they decide to do that, plus will probably generate a lot of false positives.


In any case, this protocol should be much safer for crypto buyers / sellers, than a central exchange bank account (that can be easily traced and blocked), and I personally know some people who were hit by their banks for such transactions exactly.

Just my 2c.

[1713538277]

1713538277

[k99]

Also I want to keep it as simple as possible. An escrow could be added to the system without much problem, the problem is that the escrow needs a tamper proof document. A screenshot from the bank tx is easy to fake. SSL dump could be a solution but thats complex.

Just to be clear on the practical point - ssl logging to provide proof works, I and dansmith have done hundreds of experiments. Since the core code is already written (actually, more than one version), the complexity isn't much of an issue.
On the other hand I understand you're looking for non-escrow models, so that's fine.

I would prefer if the system does not require escrow (I am still convinced that it should work fine without, but will lay out that more in detail in the paper soon), if it turn out that escrow should be mandatory included, your solution will be the way we have to go. Good to hear that it is already that mature!

[k99]

I have some (limited) familiarity with banks and credit cards company fraud prevention systems, and I think that with enough interest, they *might* implement crypto-analytics to try and correlate wired transfers to crypto ones, and block/limit the relevant bank accounts.

That said, it probably will take quite some time until they decide to do that, plus will probably generate a lot of false positives.


In any case, this protocol should be much safer for crypto buyers / sellers, than a central exchange bank account (that can be easily traced and blocked), and I personally know some people who were hit by their banks for such transactions exactly.

Just my 2c.

Can you tell us how they manage to pick out btc related transactions assuming no central exchange account is used and people do not use any comments like "BTC trade id:1234" in the tx?

Also opening up new bank accout is not a big deal at least in Europe. To be safe, we will be recommended to no use the primary Bank Account. But as far BTC is not illegal there is no reason why they should freeze your account. If you trade huge volumes, you will be confronted with money laundering questions, but thats another issue...

One big open question is the irreversibility of bank transfers. As far as I know SEPA transfers are irreversible (my bank confirmed that for my account at least). But many people in the discussions say they are not. I am not familiar with the situation in the US.
I will research that more to get some facts, but if you are more familiar with that area maybe you could add valueable input here or post some links to good resources?

[k99]

2. As long as centralized platforms like Bitstamp work, people will be too lazy to switch to the system described here, which lacks the funds to make it really attractive to people. And centralized platforms do work - I mean that despite the Gox-shit! If some exchanges go bankrupt every 5 years or so, that is ok.  The normal user only has to trust them with his money for 1 day.  The probability that the exchange goes bankrupt in that time is very very low.

Yes in western countries where we are (yet) not confrontated with governmental attacks against BTC, then main motivation to use a less feature rich platform would be a political one. But localBitcoin and Bitcoin.de have also quite a large user base so it seems there are enough people who are not so much concerned about the missing features/speed.
For other countries like China that solution could be the only way to get into the fiat world. So there could be a huge potential.

You say that localBitcoins and bitcoin.de are quite popular. That is not true. They all suck so much and nobody will use them in the near future.  The only reason they still exist is the lack of any real exchanges that run in EUR.    But in the next months I'm sure we will have a place that people trust.  Kraken.com looks promising. Noone will ever go through all this shit on bitcoin.de or localBitcoins if he can use a proper exchange like Bitstamp or Kraken.

99% of the people also don't care about their data being passed to government.   Exchanges like yours or localBitcoin will never work as 99% of the people are not willing to pay the costs associated with the additional privacy.  


3.  It is really important to determine how BTC Trading will develop if the country bans it.   So maybe you should get informed about the situation in Russia for example.
You should try to figure out if your exchange could possibly run in Russia. If there are ways to solve the Undercover Agent problem, it could very very successful!


To address the blackmail problem:  Studies in behavioral finance have shown, that people are willing accept a major financial loss if they could penalize a malicious trading partner. The only condition is that, the penalty for the malicious user has to be at least around as high as the  penalty you are going to suffer.  As the collateral can be set as high as you want and additional feedback systems could be implemented, blackmailing can be prevented...

Cryptolocker worked because the penalties were imbalanced.

I would not recommend to use bankrun in a country where BTC is illegal.
We cannot prevent them from using it and maybe they find ways how they can use it without risking anything, but the "undercover agent attack" scenario is very real in those cases, and I don't see much room for protection against that.
The privacy between the traders is leaked due the bank transfer. If there are alternatives to a bank transfer (mail?) which preserves privacy, they could gain some protection. But even then I would not recommend it. The project is intended to work inside the legal frameworks.

I would appreciate to get more information about the situation in Russia, so if there is somebody with more knowledge about that please share it!
I am also not sure if it is really illegal or just the central bank said that you may not use it...
Legal questions tend to be complex, and I am absolute not an expert in that.

China I see as much more interesting market. I have no idea how they trade BTC now with the bank bans for the exchanges?

[mcduder1]

I would love to help with the front end of the exchange
PM me or my skype is mcduder1

[SyRenity]

Can you tell us how they manage to pick out btc related transactions assuming no central exchange account is used and people do not use any comments like "BTC trade id:1234" in the tx?

I will research that more to get some facts, but if you are more familiar with that area maybe you could add valueable input here or post some links to good resources?

Again, my knowledge is limited to a certain project I did in the area, during which I was exposed (under strict NDA) to some involved technologies.
The companies in question used an analytic tech platform, which allowed reviewing every transaction against a very broad of both personal and external patterns and trends.

While you right about people not mentioning BTC in transaction (although I did seen few that did!), I still can envision a situation, where blockchain transactions are being reviewed to match to a particular wire transfer, based on the exchange rate at the moment of transfer (for example).

As said this will cause many false positives, but as the tech in question is self-training (at least from what I seen), it may eventually recognize a repeating pattern and flag (including showing the prediction accuracy %) both accounts as participating in the crypto trading.

Long shot - but the chance of this happening (if there is enough pressure) is certainly there.

[UDT - US Dollar Token]

This is good but one obstacle in the USA is how to get funds into the other person's bank account.  Chase is already making it so you are not able to deposit cash into someone else's account, and other banks are likely to follow.

Here is something that could be integrated into your platform, or used independently. It will provide 'near instant' conversion of digital assets into USD. We're just waiting for contributors to get the project started.

[UDT] US-Dollar-Token, STOP THE ABUSIVE AND UNFAIR PRACTICES AND FEES!

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[waxwing]

Can you tell us how they manage to pick out btc related transactions assuming no central exchange account is used and people do not use any comments like "BTC trade id:1234" in the tx?

I will research that more to get some facts, but if you are more familiar with that area maybe you could add valueable input here or post some links to good resources?

Again, my knowledge is limited to a certain project I did in the area, during which I was exposed (under strict NDA) to some involved technologies.
The companies in question used an analytic tech platform, which allowed reviewing every transaction against a very broad of both personal and external patterns and trends.

While you right about people not mentioning BTC in transaction (although I did seen few that did!), I still can envision a situation, where blockchain transactions are being reviewed to match to a particular wire transfer, based on the exchange rate at the moment of transfer (for example).

As said this will cause many false positives, but as the tech in question is self-training (at least from what I seen), it may eventually recognize a repeating pattern and flag (including showing the prediction accuracy %) both accounts as participating in the crypto trading.

Long shot - but the chance of this happening (if there is enough pressure) is certainly there.

Yes, and I think you may have overlooked another element that will make this "attack" more practical - multisig transactions (2 of 2 or 2 of 3) are rare and easy to spot on the blockchain (3abc.. addresses).
But that's the sort of thing you worry about a long way down the line. Initially, what's important is that the current pattern matching algorithms will not flag transactions as suspicious - which I fully accept may happen, because a lot of what banks are checking is "is he doing something unusual".

I'm more thinking about the darker future scenarios where banks are explicitly trying to stop all such trades, which means blanket bans on exchanges - I think that's what this technology is really for.

[SyRenity]

I'm more thinking about the darker future scenarios where banks are explicitly trying to stop all such trades, which means blanket bans on exchanges - I think that's what this technology is really for.

You might be surprised, but I know of at least one country where it already happens (at least with Gox bank address) with all the major banks. With a bit of Googling, you will find which country I mean.

[UDT - US Dollar Token]

There are two problems with that I can think of:

1. Bank transfers can be reversed in some circumstances (account was stolen etc). Some days after Bob gets the money and releases the bitcoins, the bank may reverse the transaction.

2. I'd be worried that the bank may freeze my account if I receive cash transfers from someone who turns out to be a criminal or the bank freaks out for some reason.

I would much prefer a centralized exchange.

This concept could work if A and B meet up and payment is made in cash. This concept could also work for trading between cryptocurrencies (btc <--> ltc etc)

I think these are serious issues which need to be considered

This is the 3rd time these points have been raised - you seem to have addressed literally every other post specifically apart from these ones.

These maybe hard questions to answer, but if #2 in particular starts happening for users of your system, you will become a VERY unpopular person, VERY quickly. Having a primary fiat bank account closed or locked is far more damaging and off putting for the novice user (who you've said this system would be for) than losing some fiat or some BTC.

There is no question that this is a huge issue with p2p systems using bank wires. However it seems to me you're missing a critical aspect - the very fact that the system is P2P rather than client server can lower the chance of an account getting blocked.

If banks start seriously blocking bitcoin-related transfers, they have to have some evidence to suggest which out of the hundreds of thousands of wire transfers a day are related to bitcoin. If all fiat-btc transfers are via one of 10 different exchange companies (especially if they're international), it is not very difficult for banks to do that. If the transfers are peer to peer and local, not so much.

(Of course banks freeze accounts for non-bitcoin reasons, I'm not suggesting the P2P aspect removes the blocking risk, but it moves the goalposts)

I'll take this opportunity to let people know of the architecture I'm working on coding right now - description here. Read the ssllog thread for more details if you're interested.

This issue would be solved easily if you banked with a crypto-currency friendly bank. "There isn't one" you say, then create one!

This is good but one obstacle in the USA is how to get funds into the other person's bank account.  Chase is already making it so you are not able to deposit cash into someone else's account, and other banks are likely to follow.

Here is something that could be integrated into your platform, or used independently. It will provide 'near instant' conversion of digital assets into USD. We're just waiting for contributors to get the project started.

[UDT] US-Dollar-Token, STOP THE ABUSIVE AND UNFAIR PRACTICES AND FEES!

Yay!@SaneBox cleaned out 954 emails, leaving 271 important emails in my Inbox. Try it for free: http://sanebox.com/t/4qw44

[waxwing]

I'm more thinking about the darker future scenarios where banks are explicitly trying to stop all such trades, which means blanket bans on exchanges - I think that's what this technology is really for.

You might be surprised, but I know of at least one country where it already happens (at least with Gox bank address) with all the major banks. With a bit of Googling, you will find which country I mean.

I don't know which particular country you mean, but it doesn't surprise me; many more authoritarian states have made noises in this direction. This is why I've been working in this area for a best part of a year. This "dark scenario" seemed somewhere between likely and inevitable and recent events have done nothing to change my mind.

[waxwing]

...

You have linked to http://index.php

[Duane Vick]

I'm just thinking out loud here but maybe something can come of this.
....
I'm not a programmer and don't fully understand how blocks, etc., work so this might be full of flaws. Hopefully, not so many that it is useless even as a beginning concept.

Thanks for your input. I dont want a dependency to any 3rd party and I guess Western Union could be one of the first victims of the success of BTC ;-). They have high fees and could be replaces soon by BTC.
Also I want to keep it as simple as possible. An escrow could be added to the system without much problem, the problem is that the escrow needs a tamper proof document. A screenshot from the bank tx is easy to fake. SSL dump could be a solution but thats complex. I am still not convinced an escrow is needed at all. I will update the paper soon with more details about that topic, because it seems that many people thinks it will not work without escrow...

There have been mention of a few flaws in your concept, mainly the possibility of a trader holding currency hostage. Since BTC is irreversible, it stands to reason that it should not transfer to the buyer's wallet until the seller receives his cash. There is going to be a lot of concerned buyers who will be too scared that the seller won't deliver or that they hold the BTC hostage, thus stopping many transactions from ever occurring. It takes a great leap of faith to wire funds to someone without being sure they will deliver.

I don't think escrow has to rely on SSLs, statements, etc. If you review what I wrote, you will see that the escrow gets what it needs from the parties to the sale. The seller of BTC would provide the info to receive the funds such as what Western Union requires. The buyer provides the information such as MTCN with information that matches the seller's name, WU agent location, etc. The escrow agent simply needs to verify this data. Since my idea incorporates multiple random escrow agents per transaction, it isn't subject to exploit by a single escrow agent working on behalf of one of the parties.

As far as Bitcoin removing the need for money transmitters like Western Union, I don't agree that this has to be the case. There has to be a way to get fiat into Bitcoin that makes fiat irreversible. Western Union already has locations worldwide and they provide a way for a person to receive cash that is irreversible. If they become less relevant as a transmitter because of the growth of Bitcoin, they can still adapt to the new market. They could very easily incorporate a way to directly buy bitcoin from them, essentially becoming an exchange and providing a trusted centralized option for those holdouts who don't trust p2p. Also, I don't like the idea of bank wire, no matter how many people say they are irreversible. Truth is, as long as a person gets money deposited in their account, their own bank can screw them and take the money back out and send it back. It might not be the pattern of business currently, but there is no shortage of stories where banks and other financial services screwed their clients. With Western Union, you can get cash without having an account that they jack the money out of and send it to collections when you take a principled stand against them.

I understand your concern about escrows. I wish they weren't needed. However, escrow provides a way for the buyer to be assured that the seller can't hold back the BTC. Each transaction is separately verified and the disposition of BTC is already pre-determined based on the escrow review. The parties to the transaction commit to the terms of escrow when they open the transaction. Escrow terms can be pre-defined such as whole release of BTC, percentage release, or no release based on the results of verification.

[dansmith]

@Duane Vick,

earlier you said

The escrow system encrypts all the information and checks Western Union online to verify the MTCN is valid and the receiver matches, etc

Could you elaborate, which URL the escrow should go to to check the transaction?

[k99]

From a thread I started in the russian forum:

BTC is NOT illegal here. The general prosecutor issued a warning that it might consider all deals dont in crypto as "suspicious" - thats for companies, as it goes for citizens there was a clear statemnt in the speech - "that we CANNOT ban people buying bitcoin at the moment" 

[Duane Vick]

@Duane Vick,

earlier you said

The escrow system encrypts all the information and checks Western Union online to verify the MTCN is valid and the receiver matches, etc

Could you elaborate, which URL the escrow should go to to check the transaction?

https://www.westernunion.com/track-transfer?0

Also, I want to add that because this isn't anonymous,  it might not satisfy some of those on here who desire a totally anonymous system. However,  a large portion of the population really doesn't care.

[dansmith]

www.westernunion.com/track-transfer?0

Duane, what you called earlier an "anonymous escrow system" can only be implemented as an oracle machine which will query and parse the westernunion.com  URL in order to make a decision about whether to release the btc funds or not.
But some oracle machine operator has to host that oracle machine and pay for hosting. Thus inevitably, there will be a per-transaction cost on EVERY transaction even those where there is no dispute.
But if you get rid of the oracle machine hosting and use a 2-of-3 multisig escrow and call upon the human escrow agent ONLY when a dispute arises, then there will be NO transaction fee for all normal transactions. There will be only a fee(or rather penalty) payable ONLY by the offending party at the time of a dispute.

TLDR 2-of-3 multisig with a human escrow is much more fairer and preferable than an automated oracle machine.

[Duane Vick]

www.westernunion.com/track-transfer?0

Duane, what you called earlier an "anonymous escrow system" can only be implemented as an oracle machine which will query and parse the westernunion.com  URL in order to make a decision about whether to release the btc funds or not.
But some oracle machine operator has to host that oracle machine and pay for hosting. Thus inevitably, there will be a per-transaction cost on EVERY transaction even those where there is no dispute.
But if you get rid of the oracle machine hosting and use a 2-of-3 multisig escrow and call upon the human escrow agent ONLY when a dispute arises, then there will be NO transaction fee for all normal transactions. There will be only a fee(or rather penalty) payable ONLY by the offending party at the time of a dispute.

TLDR 2-of-3 multisig with a human escrow is much more fairer and preferable than an automated oracle machine.

This is good information, thank you. I imagine the escrow fee could be minimal as a percentage. If the fee were $5 on a $500 worth of BTC, that's only a 1% fee.

My original concept used several people to verify the transaction went through as intended. So, if humans were to do the verification on the WU website instead of a machine, would an Oracle machine and hosting be needed? In any case, I figured the fee could be adjustable if there weren't fixed expenses. The p2p exchange would use human input from the buyer, seller, and escrow agents to create a solvable block that would solve and dispense the BTC according to the escrows' consensus.

Here is how I envision the escrow fee process. Seller of BTC specifies the fee to be paid and the number of escrow agents to confirm. So a $5 fee with 10 agent confirmations would pay out $0.50 to each agent. Since the work required to verify is minimal, this might generate pretty rapid confirmations. If the seller wanted $5 and 100 confirmations, then there would be fewer willing escrow agents, although in poorer countries, this might still be attractive income. I suspect that market forces would choose an equilibrium between the fee, the number of confirmations desired, and the time this will occur in.

Possibly, new escrow agents could start out on the transactions that pay little in per-agent fees. Then, as their trust in achieving consensus rises, they can move up to higher per-agent fee transactions. Those traders with lots of money on the line can opt to pay a higher fee to get more trusted agents. Also, a feedback system can help to adjust agent trust levels. Buyer and seller likes the outcome, they can rank the transaction highly and the agents benefit. If one party didn't like the transaction outcome, this could hurt agents' trust. If trust drops, agents can end up back in lower tiers, etc.

[jubalix]

Ok big issue

when the receiver of the BTC does not sign off the multi sig, he wins.

He has the cash, he withdraws it so bank can not claw back, or physically has it.

what motivation does he have to sign BTC over?

eg by no signing he acutly increases his wealth (sender is poorer) and marginally increases his and every one else BTC worth, by leaving BTC locked up.

time this by millions of transactions and you get alot of BTC locked up forever, and sender looses

[k99]

what motivation does he have to sign BTC over?

eg by no signing he acutly increases his wealth (sender is poorer) and marginally increases his and every one else BTC worth, by leaving BTC locked up.

time this by millions of transactions and you get alot of BTC locked up forever, and sender looses

" what motivation does he have to sign BTC over?" - To get back his collateral.
The 0,1 btc in the paper is only an example, can be any. Think to 1 btc collateral, that's much incentive to behave fair.
No, he does not increase his wealth (he has spent 1 btc + coll and received 1000 USD), so the collateral he needs to get back otherwise he loses.
The effect of a locked up btc is close to zero (about 1/10 M).
Locked funds will happen but probably very rare (1 of 1000?). There is no way to win money, only lose less then the other, that is for normal people no incentive to behave unfair.