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Author Topic: MtGox - single point of failure  (Read 1539 times)
alkor
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April 19, 2011, 05:49:37 PM
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MtGox dominates the Bitcoin trade volume, and its centralized nature makes it a single point of failure. Any action against MtGox will hurt the liquidity of bitcoins by making it more difficult to convert to dollars, thus hurting people's confidence in the currency.

Is anybody working on creating a decentralized trading platform? Maybe a good idea would be to design a web interface around bitcoin-otc and its web of trust (without requiring specialized IRC knowledge), where people can execute trade orders between themselves rather than having to deposit and withdraw funds into a central entity? So the function of the exchange will only be record keeping, rather than dealing with funds transfers. In that way even if the central record keeping server gets blacklisted or banned, it can be backed up and redirected to multiple mirror locations around the world a la wikileaks. In this way people will retain their ability to trade in bitcoins among themselves, and the liquidity of bitcoins will not be affected by a ban.
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tomcollins
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April 19, 2011, 05:55:37 PM
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MtGox dominates the Bitcoin trade volume, and its centralized nature makes it a single point of failure. Any action against MtGox will hurt the liquidity of bitcoins by making it more difficult to convert to dollars, thus hurting people's confidence in the currency.

Is anybody working on creating a decentralized trading platform? Maybe a good idea would be to design a web interface around bitcoin-otc and its web of trust (without requiring specialized IRC knowledge), where people can execute trade orders between themselves rather than having to deposit and withdraw funds into a central entity? So the function of the exchange will only be record keeping, rather than dealing with funds transfers. In that way even if the central record keeping server gets blacklisted or banned, it can be backed up and redirected to multiple mirror locations around the world a la wikileaks. In this way people will retain their ability to trade in bitcoins among themselves, and the liquidity of bitcoins will not be affected by a ban.

If someone can solve the issue of holding USD in a distributed nature, I'd love to see it.
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April 19, 2011, 06:10:30 PM
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A simple solution would be to create a trading platform with links to all the exchanges. When a trade is entered, the system would automatically place the order on the exchange with the best price.

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BioMike
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April 19, 2011, 06:14:16 PM
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A simple solution would be to create a trading platform with links to all the exchanges. When a trade is entered, the system would automatically place the order on the exchange with the best price.

Or a bot that buys on one exchange and sells on the other one... making a profit in the process.
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April 19, 2011, 06:15:59 PM
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If someone can solve the issue of holding USD in a distributed nature, I'd love to see it.

If there was a way to do that, I'm not sure we would need bitcoin in the first place.
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April 19, 2011, 06:16:09 PM
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Or a bot that buys on one exchange and sells on the other one... making a profit in the process.

But of course... There are probably people working on that already  Tongue

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alkor
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April 19, 2011, 06:19:24 PM
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If someone can solve the issue of holding USD in a distributed nature, I'd love to see it.

I don't think the issue is that of holding USD in a decentralized manner per se. What we need is a decentralized web of trust, so that when a peer enters a buy/sell order into the network, they can be trusted that they will execute the order if someone takes it up. Right now this function is done by MtGox by requiring that they user deposit the funds a priori.
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April 19, 2011, 06:36:00 PM
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Anyway, remember there ARE other exchanges places.   MtGox is currently the bigger, but if it disappeared, the other exchange place would get bigger.

Also, there is #bitcoin-otc on freenode.  It's the closest thing we have from a decentralised trading place.
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April 19, 2011, 06:38:06 PM
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I'm new to Bitcoin so please forgive me if I ask noob questions or make noob comments Smiley

There are other exchanges, no?  BTCex.com for one.  I know MtGox is king but if it went away wouldn't one of the others (or a new one) be there to essentially take it's place?

[edit] Nice timing grondilu, thanks for answering my question 2 minutes before I asked it - impresive!
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April 19, 2011, 06:52:53 PM
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If someone can solve the issue of holding USD in a distributed nature, I'd love to see it.

I don't think the issue is that of holding USD in a decentralized manner per se. What we need is a decentralized web of trust, so that when a peer enters a buy/sell order into the network, they can be trusted that they will execute the order if someone takes it up. Right now this function is done by MtGox by requiring that they user deposit the funds a priori.

This is a key point...you have to involve a trusted third party in the process to help ensure 2 things: a) than an order can be accepted by anyone else in the system and b) that trades actually execute (whether that's by requiring collateral up front or by the exchange making a guarantee is a separate question).  Without these, the price discovery function of the system is compromised because the system can be easily manipulated (people making trades with themselves, people not actually settling trades, etc).  The trusted third party then makes certain information about the trade available to the public to help in general market price discovery (which is for the benefit of everyone).  We just need more of these trusted third parties and perhaps a more standardized and federated trading platform.  It would be nice to separate the various concerns in the architecture (allowing different people to operate the order entry and execution system from the people backing orders with collateral, from the people providing market intelligence, etc).

(gasteve on IRC) Does your website accept cash? https://bitpay.com
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April 19, 2011, 06:55:55 PM
 #11

Or a bot that buys on one exchange and sells on the other one... making a profit in the process.

But of course... There are probably people working on that already  Tongue

I've been running a bot for a while now that trades across exchanges to equalize prices (when it has enough of the right currency in the right place to do it and the prices are far enough apart to make up for the transfer fees).  Main issue is that most of it has to be done through screen-scraping and I'm somewhat reluctant to trust that longterm for large trades.

So if you run an exchange you could potentially gain some trading volume by adding an automated trading API *hint* *hint*

BioMike
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April 19, 2011, 07:07:36 PM
 #12

I'm working on a python lib that (hopefully) will provide an uniform interface to the major exchanges.
Currently only MtGox (mostly untested) is in there. I started coding it on last Sunday.

One other issue I see is that money might accumulate at one exchange, while needed on an other one.
Might take a week to get it from one exchange to another.
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