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Author Topic: Instawallet Based Exchange - Trade Wallets, Not Coins  (Read 1064 times)
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April 01, 2012, 02:08:28 AM

So I was tossing this idea around with a friend, and a lot of the convenience of having a digital currency is not available to Bitcoin because of people being able to chargeback on transactions, making it impossible to reliably trust either party to follow through with a trade. With Credit based solution, there is nothing to hang onto, so you can react the purchase, but conversely, you only need to declare the purchase to be made for it to happen.

What if you used Instawallet or a homebrewed clone as an intermediary? Keep pocket coinage in your Instawallet, and use that to make purchases. Works great, they have a green address handshake that will instantly confirm any transactions within the wallet, and you have the Bitcoin transfer being checked by Instawallet's systems, so you can put coins in an address and maybe using some bitbucket functionality, make sure both parties know how many BTC are in place before you hand over the private keys and they drain the account.

So what is the point of holding a URL for a set amount of currency as collateral for another purchase, when Bitcoin was designed to be a point to point transaction? You have a confirmation that someone for sure received something,  albeit anonymously, instead of the Bitcoins working their way into the ether and no one being able to get a handle on what went where. This opens the gate for services such as Google Checkout to pay for Bitcoins as well as Paypal to pay out, as you have the advantage of setting up the account, ensuring a unique URL and/or Passcode, and sending it to them with the understanding it's just the two of you who know it, so a chargeback would not be an insta-loss. (In theory, you could even have it work with Paypal if you sent a physical notice of login or a yubikey sent with the "digital version." The product being the account credentials, it did get to their doorstep, so it could not have been fraudulent goods. But this is Paypal, and they can order people off their lawn at their leisure.)

Now that we have an immediate and secure method of verifying that Coins went into a bag and the bag was given to the user, we can start to have some fun with the system. Sure, you can have a website where you buy bundles of bits for a set amount with a CC and immediately get them sent to an account, or you can turn it around, and have the server gift you equivalent Paypal monies for an instawallet URL. Pull off some fancy Javascripting, and you can make an extension  so that when you Pay With Paypal with the Paypal button, you can add a checkmark to the page to pull from an instawallet or Gox account and fill up a Paypal you set up 15 minutes earlier for how much you wanted to spend, and even put it on their debit card if your account is verified. But the big one is that any merchant could build that javascript right into their page, and accept Bitcoin to PP or PP to Bitcoin payments, without having to get their hands dirty with one or the other.

I wanted to work on something like this with a couple of friends and keep it close to the chest,  but my programmer and I lost contact, my code fu is weak, and I figured that someone would come along and do it better anyway the second I put a proof of concept into play. Besides, Prometheus open sourced fire, and that never came back to bite him in the ass, right? I'd still like to see it done though, so if a couple of guys wanted to pick this up and run with it or actually help me piece she infrastructure together, I'll be around.

Edit: This might want to be moved to Project Development, on second thought.
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April 01, 2012, 03:51:40 PM

I use this method for real-world exchanges. The pre-spend the bitcoins to instawallet. When I arrive, they give me the URL, I give them the cash or visa versa. Then if we don't click socially (to hang out and chat), we don't have to wait around for the confirmation.

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