A Block Chain Based Decentralized Exchange

[market.dex]

Hi All,

Would like to introduce you all to a alternative thought line to Exchange mechanics by proposing a block based exchange.

Following is the entire idea.
A Block chain independent of any coin but linked to any coin or having its own coin format
Serving the purpose of exchange.(I.e. Transfer of value)
Network Dependent price discovery.

At technical layer following is the concept -

Forking the blockchain within itself by virtue of Issuers token and definition of Financial Instruments on the block chain.
Trust model of Custodian.
Orders are broadcast within the network.
Price discovery a function of collision of open orders. ( Link Up CSMA/CD )

A Block Chain based decentralised exchange.docx - hhttps://docs.google.com/document/d/1ZRcQGHPyUHbcbKQ69fV-T2Mkf7A4jzw8JNRBvBNO1K8/edit

Abstract. A pure peer to peer version of the exchange system would allow all parties access to the market without relying on any central organization for market access. Paper proposes a solution for the problem of maintain an order book and determine the execution rate in the peer to peer network. Like crypto-currencies the network relies on blockchain of transaction. Digital signature system would be the core of the decentralized market place. The paper defines basic ground rules for the working of decentralized exchange. The major components of the decentralized exchange are issuing process, co-existence of blockchain and order books and functions of the miner. Unlike other crypto currencies de-centralized exchange would have a trust based issuing process which in long run would be a sum zero game. The decentralized
Exchange would have 3 types of entities namely – Issuer, Trader and Miner.



Any Suggestion or feed back is welcome. And PM if required only.

--
Thanking You


A Common man. 

[hua_hui]

There are many types decentralization exchange coming out already, such as Nxt, or qora.

[market.dex]

All of the decentralized exchange have a coin or intermediate point. (e.g . Next has nxt token etc ) and so applies for other current decentralized implementation. A decentralized marketplace has to be network dependent for its functions and not dependent of coin / token for its functions.  The Proposed Decentralized exchange is network dependent for its functions.

Basic Functions of exchange are -

Order books - Open / executed order.
Rate determination.

Getting order / price determining mechanism over the network would mean making a different ecosystem altogether.

[Equality 7-2521]

You do not need Counterparty's token (XCP) to use it's decentralized exchange. Buy some asset directly with BTC now to see for yourself - https://counterwallet.io/.

[market.dex]

I am aware of Coutnerparty and other similar implementation. Most of the decentralised exchange implementation till date are built on top of bitcoin chain. Which may be introducing a risk to bitcoin block chain by volume of transactions that are adding on to that chain. And thats where this thought line differs. (i.e. why not create a individual chain for exchange related transactions.)

Looking at users perspective if everyone starts building on top of bitcoin wont it become heavy weight and create issues of size of bitcoin and become a matter of concern for entire ecosystem.

I do not intend to counter your efforts but intend to bring in a different perspective in place 

[OnkelPaul]

One thing that I never understood is how a decentralized exchange can ensure proper transfer of control over coins that are themselves not under control of the exchange.
Price determination isn't really hard (although doing it in a decentralized safe way is not easy either).
But the actual transfer of value still depends on trust, and in a decentralized system you need to trust your anonymous trade partner. I don't see how this can actually work.

Please explain how the system would work in this very simple scenario:

• Person A wants to sell 1 BTC for 100 LTC. This offer is stored in the orderbook.
• Person B is willing to take on this offer and buy 1 BTC for 100 LTC.

How are the following points ensured?

• Before making the offer to sell 1 BTC, person A should prove that he actually controls that amount (and that this BTC will not be sent somewhere else as long as the offer is in the orderbook.)
• Before taking on this offer, person B should prove that she controls 100 LTC.
• When the deal is complete, ownership of the 1 BTC should be transferred to B, and ownership of the 100 LTC should be transferred to A. The previous owners must not be able to access the coins anymore.

A centralized exchange acts as an escrow for the traded coins, and a Ripple-like system has multiple gateways that each act as escrow for the coins they hold (even though actual trades are performed within Ripple). Of course you need to trust the exchange or gateway if you want to trade on such a market, but these are most often identifiable entities.

Who fills this role in a truly decentralized exchange?

Onkel Paul

(PS sorry that I did not yet read the paper, will do it later today when I've got time. If everything is answered there then just a short "RTFP" suffices as an answer )

[OnkelPaul]

OK I RTFP and it makes sense to me (issuers = gateways in the Ripple system).
Since such an exchange needs short block intervals, you'd probably need a blockchain pruning mechanism, and you'd need to find a reasonable confirmation count.

Good luck!

Onkel Paul

[market.dex]

Ripple system is dependent on XRP's but a completely decentralized exchange would not have a coin. Instead it would be a issuer who is created out of chain of trust entrusted by issuing token's. The tokens can be used to create and issue Financial instruments. Which can be commodities or currencies or even tickets based on dynamic pricing etc. The issuer can issue the financial instrument only ones he has created. The created FI's are granted to Traders/ Users. The users Broadcast the open orders for One Financial instrument to exchange other financial instrument. When a countering order is met then a execution order is generated which is verified by miners and complied into block chain. The execution order determines price of exchange for two financial instruments. Similarly the market exit could be facilitated by Issue in terms of withdrawal by traders.

Moreover ripple is kinda private controlled. A Dex market system is not meant to be privately controlled but open for all.

 
--
Thanking you

Market.dex@gmail.com

[SomethingElse]

All

Basic Functions of exchange are -

Order books - Open / executed order.
Rate determination.

Getting order / price determining mechanism over the network would mean making a different ecosystem altogether.

Hmmmmmm. Sounds a little like Ripple.

[Cassie.Jill]

We no longer have to hold any Bitcoin on Exchange

[monsterer]

Instead it would be a issuer who is created out of chain of trust entrusted by issuing token's.

And in what way are these 'tokens' not a coin?

I presume you've done your research into NXT and BitsharesX?

[OnkelPaul]

We no longer have to hold any Bitcoin on Exchange

Actually, we do. The issuers in such a system take bitcoins or any other asset they're willing to hold from you, store them and issue tokens which then can be traded (just like the IOUs in Ripple).
When you're done with your trades, you can take the tokens and redeem them for the real thing at the issuer. So as long as the token circulates within the exchange, the issuer stores the actual value (we hope). So far this is all not very surprising if you know how Ripple works The main difference might be that this approach aims to achieve a truly decentralized exchange network, something that Ripple didn't fully achieve yet as far as I can determine. However, I don't know whether it is possible to build a blockchain-like thing that performs well enough for block times in the area of 10-60 seconds.

Note that my Ripple comparisons are not meant to endorse that system - it's just the distributed exchange system that I've studied most, so I'm using it to draw analogies and try to understand how things are supposed to work.

Onkel Paul

[n0rBit]

We no longer have to hold any Bitcoin on Exchange

Is there a downside on this?

[market.dex]

Instead it would be a issuer who is created out of chain of trust entrusted by issuing token's.

And in what way are these 'tokens' not a coin?

I presume you've done your research into NXT and BitsharesX?

The function of issuing token is as follows

To create Financial instruments .
To delegate the authority of Issuer to another issuer.  ( A issuer can delegate issuing token only once. Hence limiting the issuing token to one active token at a given point in time )
Create a chain of trust amongst issuers.

Once the token is used up by a issuer it cannot be reused again. Simple fundamental of block chain.
The token cannot be split into two it can only be transferred as a one unity.  

[market.dex]

We no longer have to hold any Bitcoin on Exchange

Is there a downside on this?

All present day exchanges are custodian's. In a pure decentralized exchange the Issuer's handles the role of custodian.  In a traditional scenarios only one custodian handles all the gates for the market place. Hence making the entire market extremely vulnerable to default risk by a single custodian. Like in the case of MTgox. But if Custodian's itself are decentralised then the risk of single custodian defaulting is minimized drastically.

[QuestionAuthority]

In your system who is the trusted party that holds the fiat?

[market.dex]

In your system who is the trusted party that holds the fiat?

The issuer would be the trusted party to hold fiat. But by integrating the concept of multi-sig tx multiple issuers can issue a single Fiat and a consortium of issuer can be trusted party to hold fiat. However I will have to rework on certain elements of the paper to introduce multi-sig based issue.

Thanx for initiating a new thought line that can be added on to table.

[QuestionAuthority]

In your system who is the trusted party that holds the fiat?

The issuer would be the trusted party to hold fiat. But by integrating the concept of multi-sig tx multiple issuers can issue a single Fiat and a consortium of issuer can be trusted party to hold fiat. However I will have to rework on certain elements of the paper to introduce multi-sig based issue.

Thanx for initiating a new thought line that can be added on to table.

You have looked at counterparty.io, right? Adam Krellenstein has done a pretty good job with it and it's ready to use right now.

[franky1]

counterparty/counterwallet.. are web/cloud based...

ummm.. isnt that defeating the whole buzz word dream of "decentralized"

[QuestionAuthority]

counterparty/counterwallet.. are web/cloud based...

ummm.. isnt that defeating the whole buzz word dream of "decentralized"

I like counterparty.io because Patrick Byrne announced at a conference I just attended that he was going to partner up with them and I'm a fanboy. Do you mind! lol