A Problem With Cryptocurrency Exchanges

[xaznarrac]

It is my understanding that there are certain tools not created for the cryptocurrency community that have yet to be developed for the growth of digital currencies. These tools will benefit investors, merchants, or avid miners.
 
I have the experience of using bitcoins, nxt, dogecoin, stellars, and litecoins, and a certain issue comes to play when I trade in popular markets such as btc-e or cryptsy. I will list these issues by personal reference and not by the majority.
 
Let’ say, for example, I would like to trade my 2 million doge for stellars because I see great potential for it. Let’s also pretend that the fee on that exchange is 0.5% per transaction. I would need to first buy bitcoin, or any other currency that is being traded with stellars, in the process losing money just for trading altcoins. Then I would lose another 0.5% from trading them to Stellars.
 
In the past year I have gotten a hold of the concept of digital currencies and I have yet to discover an exchange that lets you do such thing. This would be counter intuitive because the trader only wanted to trade his Dogecoin for Stellars. In my opinion it would just be a waste of money from the pockets of investors.
 
Now I know what you all are thinking, why can’t you just find other traders that would like to trade their currency for the one you possess. It would be a hassle trying to find a trusted party to do the exchange. Also, I realize that the reason we mine, invest, or trade altcoins is to, in turn, get bitcoins. Unlike cryptocurrency, fiat currency is traded in this similar way. Their seems to be no problem trading for what you want.
 
I propose a solution. An exchange where an individual can trade any coin for another, but they would need to pay a premium price of 0.75% thus lowering the fee you would otherwise pay. The problem is finding a company that would like to implement this idea. I realize it would make companies lose some profit but I bet something can be worked out.

From my blog: http://bitcoinvslitecoin.com/a-problem-with-cryptocurrency-exchanges/

[itsAj]

The reason why you must trade almost every altcoin with bitcoin and then another altcoin (if that is what you wanted to do) is because bitcoin is the only coin that is traded heavily enough so that there would be a market between all the coins. There is probably not enough demand to trade shitcoins for scamcoins so that there would be sufficient liquidity to be able to trade this pair efficiently, so you would end up paying more of a fee for this trade then if you were to trade into and out of bitcoin first, but paying the fee to the "market" instead of the exchange. 

[bounst]

Thanks for sharing, learning it.

[chennan]

OP, I think your idea is called decentralized exchange, which is new concept being forming and on the way to build up by many people.

[xaznarrac]

It's a concept that needs to be implemented so other alt coins can be independent. But I fear for the price of Bitcoin.

[negafen]

OP, I think your idea is called decentralized exchange, which is new concept being forming and on the way to build up by many people.

Decentralized exchange isn't new.

Localbitcoin is the largest decentralized exchange that has been working for a while.

[furlong]

Been using Locals, just be sure the dealer is legit.

[odolvlobo]

The reason why you must trade almost every altcoin with bitcoin and then another altcoin (if that is what you wanted to do) is because bitcoin is the only coin that is traded heavily enough so that there would be a market between all the coins. There is probably not enough demand to trade shitcoins for scamcoins so that there would be sufficient liquidity to be able to trade this pair efficiently.  

This is exactly the reason. There are many people trading dogecoin or stellar and bitcoin, but hardly any that would trade dogecoin and stellar. If you put an order in for that trade, then it would just sit there for a long time.

On the other hand, an exchange could implement a linked trade system that would effectively trade dogecoin and stellar by going through bitcoin.

This topic has nothing to do with decentralized exchanges.

[itsAj]

The reason why you must trade almost every altcoin with bitcoin and then another altcoin (if that is what you wanted to do) is because bitcoin is the only coin that is traded heavily enough so that there would be a market between all the coins. There is probably not enough demand to trade shitcoins for scamcoins so that there would be sufficient liquidity to be able to trade this pair efficiently. 

This is exactly the reason. There are many people trading dogecoin or stellar and bitcoin, but hardly any that would trade dogecoin and stellar. If you put an order in for that trade, then it would just sit there for a long time.

On the other hand, an exchange could implement a linked trade system that would effectively trade dogecoin and stellar by going through bitcoin.

In theory this could be implemented, but like both you and I said there is likely not much of a market for this kind of trade. I would also think that the exchange would likely still charge most of the fee that would be charged if a customer were to input both orders themselves.

In regards to the orders not filling, I would disagree. I think there would be somewhat of a market for these kinds of trades, but the effective rate you would likely get would be less then if you were to go through bitcoin and pay the trading fee twice.