Topic: [ANNOUNCE] Zero Reserve - A distributed Bitcoin Exchange - page 5. (Read 57062 times)

There are various studies about consumer interest payments coming from various angles. The thing is that virtually all money comes from debt on which interest is due. Even if you yourself are not indebted, you still need to pay interest which is hidden in the price of products, services and taxes.

There was a study for my home town (Munich/Germany) about that. With a fairly typical life style you need to own about EUR 2 Million to break even - taking a profit from the debt system. Everyone else is a net interest payer.


The transaction will not proceed and will time out if he tries to keep his ledger in sync with his friends but does not stick to the protocol.

If he chooses to stick with the protocol, but simply does not update his ledger, then your ledger will not agree with his. The next time the nodes try to reconcile, a QDialog will pop up, telling you that something is wrong. Your friend will find from his TX log that his ledger is correct and yours is wrong.

As you see, you can't cheat that way without getting caught red handed either immediately or shortly thereafter

As said, ZR is relying on Bitcoin to prevent the seller from cheating: A 2/3 multisig. First the seller must place the Coins out if his reach, then payment is made, then the seller releases the coins from escrow.

Its similar to the torn bank note. The escrow is necessary because there is a possible attack vector if its only 2/2: You can initiate  a buy on the entire order book and then simply walk away. Doing so must be costly.

No, but as you said, as we both agreed, one of the big strengths/salepoints of Bitcoin is it puts the trust in numbers, in cryptography. Adding another layer on top which puts trust in humans negates the benefit of Bitcoin.

What makes you say that?
Also, that's a big problem with debt based systems: they work well if you know exactly how much money you're going to earn and spend the rest of your life, but in reality, things happen, medical bills, economic problems, house fires, all these sort of things can ruin a person in debt, and their debtor.

I appreciate that, I wouldn't ever want to discourage someone from experimenting, exploring and tinkering with things. I envy you for having the commitment and courage to move forward with things like this, by all means, proceed.

I don't think I understand the system fully though. Could you clearly explain, what happens if Alice buys 1 BTC of Bob, but in the sending of the fiat down the chain, one node is dishonest and doesn't forward the fiat, but pockets it instead, what effect does that have on the chain, and who loses money and how is dishonest behaviour punished?

I got you, and thanks for your response... so in the case of ZR the middle currency can be BTC or anything. (remove the XRP) And I only mention ripple because it has a similar infrastructure of the IOU idea. However your idea is more pure and does introduce a new currency. It just uses its own system.

I have yet to get the exchange setup (a bit intimidated by the procedure for Windows)

OK, I've read the intro post and the tech paper. I still have some questions, forgive me if they're really stupid, but I hope someone has the patience to explain it.

What a user mostly is interested in is to exchange bitcoin for fiat money and the other way around. So he uses an exchange. And he can either buy or sell bitcoins on that exchange, and he can either deposit or withdraw fiat money on that exchange.

Now, talking about a desentralized system as in this case Zero Reserve, I understand it in the end gives pretty much the same result, and that instead of storing fiat money on an exchange, you store IOU's (I owe you)'s in the system? So, when you actually want to say pay your electricity bill you need fiat money, and you can aquire fiat money by exchangig IOU's for fiat money?

OK - perhaps this was poorly explained, but if someone can explain to me in simple terms how the following will take place:

1. I want to buy 2 bitcoins. Do I first set in a buy order, and then get matched by one or several parties, and then have to split up or pay in a single payment the total cost to some person in the system? What guarantees are there that the payment will actually be honoured and that I will receive the bitcoins? I see from the paper that there's a escrow system. Will payments be matched locally, so bank transfers will take place within the same country, or if there's a cash trade, within the same city? Is there any problems or types of scam that can occur here? And also, do I receive full bitcoins, or are these only stored in the system somehow?

2. When selling bitcoins, they're exchanged for IOU's. The IOU's are stored in the system and later exchanged for fiat money, or might be used to purchase bitcoins again? What are the IOU's stored as, and what do they represent, are they tied to the dollar? I assume it's your counterpart(ies) that issues the IOU's? So, if say you live in germany and you had a match in the US, then the US person gets your bitcoins and you now hold some IOU's? You can then exchange the IOU's for a bank transfer within Germany? So you then send the IOU's to another person in germany, and he then sends you fiat money, is that how it works?

So, in theory it could work like this:


I purchase bitcoins at one point. I enter an order, say buiying 1 btc for 700 USD. Someone matches my offer, but since I live in germany, there's no point being matched to someone in the us? Ok, now I have an accepted order, and the price is tied in at 700 USD. I get bank details (how are these transferred?) and send 700 USD to this person. He then sends me 1 btc after receiving this payment. Some days later, I decide to sell my 1 BTC, because it's now worth 800 USD. So I have a match, and I get issued 800 USD IOU's? Then I could trade this back and forth to my hearts desire, but eventually I want to withdraw. Can I withdraw by sending bitcoins directly to someone in the system, or does it always need to  exchanged for IOU's? But for the sake of the discussion, let's say I have now 800 USD IOU's, so then I place an order for a fiat withdrawal, is that so? So when it's accepted, someone is matched and I send the counterparty my banking details, and then he sends me 800 USD? Are the 800 USD IOU's then destroyed? How can it be ensured he actually sends the money, and what if he claims to have sent the money, but I never received it. How is a dispute solved?

What pitfalls are there in such a system and can there arise any 'deadlocks' ? And who's going to be the arbitrator, and who's to appoint the arbitrator? Can people loose money in this system? Can it be hacked?

In general I think a p2p exchange is a brilliant system, but the weak part always seems to be the fiat to virtual currency exchange. I've thought of a system with 'agents', and then you had to appoint trusted ones. So I guess this is a bit similar to that?

And what if someone breaches the trust in the system, how are they punished, are they removed or barred? And what prevents them from entering the system again as a new user, doing the same kind of scam again? And who decided who is to be expelled? And who appoints the ones with the power to make such decisions?

Very interesting concept, and I'm trying to wrap my head around it, to understand it, and to see if there's anything in the system that can be exploited that needs to be taken into consideration.

A p2p exchange where it is straightforward to both buy bitcoins, and extract fiat money must be the absolute perfect desentralized system! Banks can't even know that they're part of it, at least not easily. Still any user should have a dedicated bank account for this in a bank separated from his ordinary financial dealings, as payment for fiat in the first place still is suspectible for fraud (e-bay scam) etc.

Thanks for any insight that you might provide. This thread is very interesting. There's been attempts of a p2p exchange before, but it semed to die.

Hey Ryan (I guess its you?), many thanks for your encouragement and the link! Great to have you here.

May I use the opportunity to ask you about some history? Has the Hawala system somehow inspired Ripple? How would you compare Ripple and Hawala, aside from the Hawala network being run manually?

Also: Have you ever considered interfacing to any Hawaladar?

Right, that is a gap in the chain on the fiat side. To close it, I am using a 2/3 multisig TX on the Bitcoin side to make the whole TX water tight.


I am accepting all friend request on the Retroshare identity I posted at the beginning of the thread. I am far more selective with my "real" Retroshare identity. And even on the "real" identity, not every friend will have credit granted: ZR friends are a subset of Retroshare friends.

OK, but does this mean that Alice has to trust Friend 1, and also Friend 1's trust in Friend 2, and Friend 2's trust in Friend 3, etc? Because Alice may be careful with who she accepts as her friends, but someone else down the chain may be not as careful (not even untrustworthy, just uncareful) and have an untrustworthy friend.

Even simpler: can Bob somehow claim he didn't receive any euros yet, even if he did?

I'm not very familiar with RetroShare yet, but I noticed some people posting their public PGP key in this thread. Would somebody adding their key imply that they become friends? Because people here are obviously anonymous, there's no real way you can trust random users on a forum. I'd say in order for this to work, you'd have to be very picky (and trust others to be picky as well) when choosing friends?

Euros:
Alice->Friend_1->......->Friend_N->Bob

Bitcoin uses a 2/3 multisig TX where the 3rd party is an (optional) escrow:
Bob->Alice

Again, let me stress that the payment is largely anonymous: Friend_1 does not know that Alice is the buyer. Friend_N does not know that Bob is the seller. Alice does not know that Bob is the seller, and vice versa. That is even true in the case that there are no intermediate hops (Friend_n)

Sounds very promising, but I'm missing one crucial point:

Alice has 600 EUR, and she wants to buy a bitcoin.
Bob has 1 BTC, and he wants to sell it for 600 euros.

Classic exchange scenario: Alice sends her euros to exchange, Bob sends his bitcoin to exchange, they both place an order, get eachother's money, withdraw it, everybody happy.
Obviously, they have to trust the exchange in this scenario.

ZR scenario: to whom or where does Alice send her euros, and to whom or where does Bob send his bitcoin?

Hey anu, cool project, congratulations!  It's great to see other implementations of the Ripple concept, and that you are here explaining it to people.

Maybe this will help explain why Ripple is an improvement over exiting debt-based monetary systems:

http://archive.ripple-project.org/paymentrouting.pdf


I think Ripple (in whatever implementation) and Bitcoin complement each other and will grow better together than separately.

You make it sound as if the purpose of Bitcoin is to remove all need to trust. It is not. Even in a pure Bitcoin financial world, you need to trust and there will be credit.


It will always happen that people abuse trust. The implication is that you lose that money. So don't trust anyone with amounts you can't afford to lose. I believe that the losses you take with such fraud will be way below the inflation tax and the interest payment to the govt-financial complex.

For now, ZR is only meant as a way to exchange Bitcoins, should govts crack down on the centralized exchanges. It may evolve into a large credit network - I certainly hope so. But it does not have an incentive to turn everyone into debt slaves, as the banking system has. Because of that, I believe it is not prone to create such crisis as the banking system is, with all these wars which are financed by the printing press. And yes, I believe the average Joe is pretty good at rating his friends. I also hope that ZR helps to educate people about what fiat money is, and how it can be used for your benefit.

Of course ZR is no panacea. It is a tool. I can only offer it and people can accept or reject it. Just like Bitcoin. Just like Linux. I certainly hope that people will try it out and help evolving it into something great. If people choose to continue to place their trust into the govt-financial complex instead, I can at least say that I tried my best.


It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
[Henry Ford]

But one of the benefits regularly touted about Bitcoin is that it's not a debt based system, because it's features of the debt based system that contributed to the various financial crisis. I can understand the purpose of it in the context of this system, but if I were you, I wouldn't market it as doing the same as the banks do, I'm not sure that will get you many supporters - at least on these forums. Debt based systems have bad connotations, at least for me.


That's my point though, Bitcoin doesn't require you trust another human. Once they've sent you the money, that's it. Again, that's one of the benefits of Bitcoin. With ZR, you have to place trust in someone, human trust in a human person which is fallible. Bitcoin removes with human element by implement trust using cryptography. Using ZR with Bitcoin, it's just another layer through which people can scam one another, but instead of it being one big centralized exchange scamming, it's lots of little scammers making it harder to actually get any resolution when you are scammed?
You said it yourself, the strength of Bitcoin is zero trust, the fundamental concept of ZR is you must place trust, the features of ZR negate the benefits of BTC.


There's a difference between knowing and trusting. But with chains, you're not just trusting that your friend will pay you back $20, you're trusting that they make good judgements in who they trust. E.g. I may trust my colleague to pay back $20, but what if my colleague naively trusts a bot to pay back $x, any transaction that goes from me through that bot (because of my friend) is relying on all the other people in the chain making safe judgements. So if one node fails (e.g. the bot doesn't pay up) all the transactions that go through that node will fail, right?

So the links between nodes are effectively defined by humans placing trust. Humans are the weak part of any computer system, and this systems seems to be founded on human decisions.


I understand that. But my point still stands, the whole system is founded on other people giving eachother accurate credit ratings - something that the banks failed spectacularly at despite lots of experience. What makes you think the average Joe would be any better at it? And what are the implications of wrongly placed trust? E.g. what happens if there's a big financial crisis again, and all of a sudden everyone has less money available, so all the links between nodes in the network are effectively wrong?

It sounds like it could be a workable system maybe, but I can't help feel a lot of the requirements of users seems to contradict what Bitcoin users would want to do (e.g. debt based system, trust in humans, undocumented off-system transactions)

The banks don't make mistakes, they are the problem. They are huge, centralized, fraudulent, corrupt power centers.


You have no reason to trust me. Do not grant me credit.

Bitcoin and credit money (ZR) are complementary - they solve different problems. The strength of Bitcoin is that it is zero trust. The strength of ZR is that it can replace the banking system's role in moving in and out of fiat.


You don't need to know the counter party. You need to know your friends.


As you state below, its about chains of trust. The purpose of ZR is to route payments through such chains without the need for anyone (even the friends) to know who the seller and the buyer are.

As to the critical mass - that is indeed the problem and if ZR does not achieve critical mass, it will die.


In the context of ZR, a friend is defined as "An entity you trust for X amount of credit". So in the context of ZR, your drinking buddy may not be your friend, but your business partner may be, even though you personally dislike him.

[EDIT] And yes - a friend does not need to be human. Can be an organization, a trading bot, or whatever.

Wait a minute.... I thought we were meant to be avoiding repeating the mistakes of the bank?

From what I understand, it requires you put trust in people. For me, the strength of Bitcoin is that you don't have to trust people, if they send you the coins, you have the coins. In this system, what's stopping someone saying "okay, I trust Anu for $20" and then anu just not coughing up that $20 when required?

The whole benefit of an exchange, for me, is that I don't need to know anyone (other than the exchange) I can just send my money, buy some coins.

Also, based on reading user experiences, it seems this is even more reliant on critical mass for success, yet it's incredibly hard to get started with nobody else there. That seems a bit paradoxical. Have you any way to incentivise people using this? Also, if you're only streamlining relationships with friends, then why do we need this system in the first place? e.g. it requires me to say "I trust anu" but if I already trust anu, why do I need zeroreserve? Or is the main focus on trust chains formed including people you don't know (which would be hard to do manually arrange)

If the focus is on trust chains, wont things like adding bots as friends, or adding the pirate party as a trusted party be bad? I would have thought trust links formed where there is actually no real world 2 way trust, other than some guy in IRC saying "add this bot", undermine the strength and security of the entire system? And with trust chains, doesn't that mean that the whole networks trust or reliability is dependent on how trustworthy and reliable every single person in the network is (e.g. if everyone adds that bot, and the operator of that bot defaults on the amount people have naively trust it with, any transactions that do or have gone through that node - which would be a lot if everyone randomly adds it to get started - will be defrauded?)

I think the idea of a distributed exchange is good, but to me, this particular system has too much of an (unreliable) human element for trust. Although I may have misinterpreted all this.

ZR has nothing to do with Ripple. While ZR could of course support XRP, they'd not be special in any way. If you believe ZR can help you with your business and what's left is the problem of conversion EUR->USD, I'd suggest to creatively use Bitcoin in the settlement process.

Exactly. Ideally, you don't always need to get hold of the actual money - you treat your ledger with your friends like money. Even though it is only fiat. You see, there is not much of a difference if the bank owes you money or your friend owes you money.

For example you buy a Bitcoin. At that point you owe a friend $568 (price at the time I write this), creating that money.  Later, you sell your used race bike for $600. At that point your friend owes you $32 and the $568 are destroyed.

This is exactly the same as the banks do: Creating and destroying fiat money. Should this catch on, we, the people can take the banking business out of the banks hands and the wealth the banks skim from us remains in our hands.

My hope is that some years down the road, people entirely walk away from the banking system and ZR only needs to support gold (and some other commodities) and Bitcoin. If the FED is simply forgotten, there is no need to abolish it, as Ron Paul demands. Dito for the ECB/BOJ/PBOC....

the whole ripple idea and decentralized exchanges and hawala has my mind going around in circles.

I noticed that bitstamp charges a 0.20% on the IOU, if you are sending a large amount of money, would a bank provide you a better rate on the currency exchange. It seems like BoA does not charge you anything over $1000 when buying currency as they make their money on the spread.

For example I would like to do business in Europe. But I use my USD, in a decentralized exchange I am assuming through IOUs, I could be using USD the whole time. My challenge is, if I where spending a lot of money in inventory maybe even paying someone for warehouse space, etc. (not to mention any kind of business fees etc in the european country)

USD -> XRP -> Euro -> purchase an item (some how) -> sell the item with a mark up to make a profit and cover other expenses -> my profit is in Euro -> XRP -> back to my pocket as USD?

What are the (legal) financial gains from a transaction like this.

BTW... I LOVE THE COMMENT: "Rock solid plain HTML like 1995." Gonna make a shirt like that.

Sounds like Ripple... except that's crippled.

You would only connect to the network through people to whom you have extended some amount of credit (ie people you would trust with money - be it 0.005 BTC, $500 or 50 kilos of fresh fish... whatever currency and in whatever amount you trust them to pay you back if owed to you) - likewise they are only connected to people they would trust.

Imagine there are two books - one is the BTC order book and the other is the debt record. When you buy bitcoin on the order book, you are paying with the credit granted to you by people who trust you to pay them back - all along a chain until it gets to the BTC seller. If you are owed money by your friends, you can collect it - if you owe money to their friends - they can collect it. You deal with BTC more or less anonymously (address to address) and with fiat on a friend-to-friend basis - if I'm understanding correctly.

maybe i'm not connecting the dots, but in a decentralized exchange, how do we get money from BTC > Fiat > In Hand?