decentralized is a promising development to the market and the wallets and exchanged in particular
Keep in mind we have just started the journey in the dApps year 2019
Topic: Decentralized BTC Exchange Client. impossible to implament? (Read 3281 times)
IT has rained since last time last time I proposed ripplecoin in this thread.
Now there's ripple.com, bitcoiners seem to be getting the concept and understand that is what they really wanted when asking for the "p2p exchange" holy grail.
Apart from ripple.com, which uses this nobel consensus mechanism, "ripplecoin" is still possible.
Colored coins are a subset of it that serve for this use case.
maaku and I are working on a design for freicoin (in which satoshis rot and cannot be "tainted").
We take the opportunity of the needed hard-fork to enable some additional use cases. Take a look (still pretty messy):
https://docs.google.com/document/d/1nnul3oDO5z8sspWBKgTKKSjQ7dWoOqU4Pd8DILLmFN8
feedback welcomed.
Now there's ripple.com, bitcoiners seem to be getting the concept and understand that is what they really wanted when asking for the "p2p exchange" holy grail.
Apart from ripple.com, which uses this nobel consensus mechanism, "ripplecoin" is still possible.
Colored coins are a subset of it that serve for this use case.
maaku and I are working on a design for freicoin (in which satoshis rot and cannot be "tainted").
We take the opportunity of the needed hard-fork to enable some additional use cases. Take a look (still pretty messy):
https://docs.google.com/document/d/1nnul3oDO5z8sspWBKgTKKSjQ7dWoOqU4Pd8DILLmFN8
feedback welcomed.
Bump
You have 1 satoshi in address 123 which represents a share, or ounce of gold, or $1 USD, etc. I make a transaction transferring 100 satoshis to address 123.
I was going to say that you destroy your satoshi by doing so, "donating" the amount to the issuer.
I just now realized you cannot prevent some jackass to go on destroying everybody backed coins, if that's so.
Good point, I hadn't thought it before.
Let's think... the address containing the tainted coins is now "polluted" with other, non-backed coins. While everything remains there, one can still guess how much backed coins are there, and how much normal ones. This address in under control of someone who's interested in not losing track of the backed coins.
We could assume as rule that the first transaction with the correct amount (one satoshi in your example) to leave address 123 is the one sending the tainted satoshi. Any subsequent transaction is just normal bitcoin. If you, in control of address 123, spend all coins in it without making a single transaction of the appropriate value (1 satoshi), then you just voluntarily destroyed your own backed coin.
Obviously, a software meant to deal this with this protocol should prevent you from destroying your backed coins.
Answering your last question, if we use the rule above, it should be Person A the new owner, since it was the first.
There's still a potential issue: you send 1 satoshi to two different address in two different transactions with the exact same timestamp, and both get confirmed on the same block. We can't know which is the first in this case. We could treat such case as identical to a single transaction with 2 satoshis being sent to different outputs, thus, not a "backed coin transaction" since it's not the correct amount. Again, software should prevent you from doing this accidentally.
This "following tainted coins" code/protocol could be useful in many different use cases, I think. A satoshi may reference pretty much anything, and be used in contracts. Like that smart property proposition. There are probably even more use cases for it that I just can't think of.
One chain for multiple currencies and multiple issuers would be nice.
This "one chain" already exists: the main bitcoin chain. You just have to "taint" satoshis, and follow them. For free you get all the infrastructure already available to deal with bitcoins, including the mining power.
EDIT: I did not intend to say that it is easy, though. A new protocol would have to be developed. This protocol would be used by issuers to specify what they're issuing, which are the satoshis that correspond to them, which satoshis have already been redeemed or "lost" (i.e., mixed with other coins and thus not traceable anymore). Even details like depreciation of value of backed coin (the issuer has to charge its fees!) or potential fractional reserves should be predicted by this protocol. And, obviously, we would need to write some software capable of connecting to different issuers, gathering their data, recognizing their different satoshis etc, in order to treat them accordingly.
I think the main advantage of using the same chain is that we gain for free everything that already exists for bitcoin, mainly the mining power, but also all software infrastructure (like the block explorer for example), the possibility of making atomic trades among different currencies, mixing any backed coin and bitcoin themselves in the same transaction scripts etc.
How would you handle intentional "tainting".
You have 1 satoshi in address 123 which represents a share, or ounce of gold, or $1 USD, etc. I make a transaction transferring 100 satoshis to address 123.
How does the network handle this "false data"? Obviously you don't have 124 ounces of gold, 124 shares, or $124.
If you then transfered 1 satoshi to person A and 1 satoshi to person B where is the share/gold/USD? Person A, Person B, or still in address 123?
One chain for multiple currencies and multiple issuers would be nice.
This "one chain" already exists: the main bitcoin chain. You just have to "taint" satoshis, and follow them. For free you get all the infrastructure already available to deal with bitcoins, including the mining power.
EDIT: I did not intend to say that it is easy, though. A new protocol would have to be developed. This protocol would be used by issuers to specify what they're issuing, which are the satoshis that correspond to them, which satoshis have already been redeemed or "lost" (i.e., mixed with other coins and thus not traceable anymore). Even details like depreciation of value of backed coin (the issuer has to charge its fees!) or potential fractional reserves should be predicted by this protocol. And, obviously, we would need to write some software capable of connecting to different issuers, gathering their data, recognizing their different satoshis etc, in order to treat them accordingly.
I think the main advantage of using the same chain is that we gain for free everything that already exists for bitcoin, mainly the mining power, but also all software infrastructure (like the block explorer for example), the possibility of making atomic trades among different currencies, mixing any backed coin and bitcoin themselves in the same transaction scripts etc.
Obviously the USD "token" would only be as good as the exchange (maybe moneychanger is better term) that issued it.
Currency tokens need to be sanctioned by the local government as historically this practice resulted from a severe shortage of money or the governments's inability to issue its own coinage. In effect the organization behind the tokens became the regional bank.Instead of "token" I would use "voucher". A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods i.e. purchasing bitcoins. For instance, a trusted 3rd party in Australia would get 100 fiat AUD and issue 100 AUD vouchercoins that can be traded only against bitcoins or redeemed back into 100 fiat AUD minus small fee. IMO, creating an alternative cryptocurrency block chain, say vouchercoin allowing all the world currencies in the chain, is the most robust approach to resolve bank dependencies once and for ever and for merchants to minimize exchange rate risks.
Of course, those trusted 3rd parties need to be ultra solid anchors as they will become prime target for attacks from governments and bank lobbyists.
One chain for multiple currencies and multiple issuers would be nice. I think the easiest way to implement is to allow in that chain for any private key to issue IOUs. The issuer can use that same key to signs documents that credit him (and where he explains the fiat denomination and the conditions for redemption). The document can also be signed with "legal cryptography" such as that contained in some electronic NIFs (for example, Spain has it).
The problem here could be how to reward miners, because the IOUs issued are not fungible and the miner must trust the issuer of the currency paying the fee.
That chain could also have ripple. See my related proposal for a chain implementing ripple:
https://bitcointalksearch.org/topic/ripple-implemented-in-a-block-chain-as-an-iou-exchange-37505
To perpetually reward miners I include a coin with demurrage in the chain (freicoin), but maybe miners can accept the IOUs directly in this case.
The chain doesn't have to contain the denomination of each IOU, only an extra field in inputs and outputs of transaction with the "issuing address".
That can be optimized by not allowing an address to receive from more than one issuing address and not allowing addresses that have issued to receive any IOUs different than their own. This way the field is not necessary.
But I prefer to include the new field because it allows to trade IOUs of one kind for IOUs of another type within the same transaction (and this enables ripple, outside of the objectives here, but also useful). Without that field you cannot, for example, exchange mtgoxUSDcoins for IntersangoEURcoins atomically in a single transaction and you would need to use contracts like if the voucherCoins were in different chains.
One chain for multiple currencies and multiple issuers would be nice. I think the easiest way to implement is to allow in that chain for any private key to issue IOUs. The issuer can use that same key to signs documents that credit him (and where he explains the fiat denomination and the conditions for redemption). The document can also be signed with "legal cryptography" such as that contained in some electronic NIFs (for example, Spain has it).
The problem here could be how to reward miners, because the IOUs issued are not fungible and the miner must trust the issuer of the currency paying the fee.
The problem here could be how to reward miners, because the IOUs issued are not fungible and the miner must trust the issuer of the currency paying the fee.
Miners could be paid in a standardized unit like Bitcoin (being the daddy crypto-currency) or some new token which is used to facilitate inter-unit transfers (say exchangeCoins or xCoins).
Thus to make a transfer which crosses blockchain/meatspace boundaries you would create the transaction on the xCoin blockchain and pay a fee (implemented in either in xCoins or Bitcoins would work). The xCoin blockchain could be merge mined with Bitcoin to gain sufficient hashing power. Using Bitcoins as the fee "currency" would be simpler IMHO as there would be no need to even have block rewards. The exact details aren't that important at this point. Still the general idea is this blockchain would facilitate trade between dissimilar networks/chains.
Using an open protcol their is no limit to how many edge entities that could exist.
For example GreenDot could issue cryptographic vouchers for USD. You could use the xChain to facilitate a trade of 30 BTC for a voucher worth 100 USD. A bullion company could issue cryptographic vouchers for grams of gold. You could use the xChain to faciliate a trade of 30 BTC for 1 gram of gold.
Once you have this voucher you would deal w/ the edge entity for redemption. If you don't want to redeem it and are just using it to store value (for example take digital ownership of gold) you can keep the voucher and later trade it to another party never dealing with the edge entity.
Before someone asks yes trust in the edge entity is required. Just like you need to trust Green Dot to not rip you off when they sell you a physical manifestation of USD (money pak) you would need to trust them to not rip you off when they sell you a cryptographic voucher for USD. Eliminating the need for trust where the cryptospace connects w/ meatspace is impossible. The goal of a distributed exchange is to take all the crypto p2p assets out of the hands of private exchanges AND provide secure P2P trade. Exchanging vouchers for fiat/gold/stock/services will always require trust in the 3rd party.
I haven't read the full discussion, but I just wanted to post an idea I had a while ago.
An exchange could peg value of a different currency to the coins of a specific green address. This way, one can embed say USDcoins inside the standard blockchain. Those USDcoins can then be exchanged for real USDs by that exchange. For instance, one satoshi from this specific USDcoins green address could represent 1 USD.
An exchange could peg value of a different currency to the coins of a specific green address. This way, one can embed say USDcoins inside the standard blockchain. Those USDcoins can then be exchanged for real USDs by that exchange. For instance, one satoshi from this specific USDcoins green address could represent 1 USD.
One problem with that is there is no concept of a "Bitcoin" as a trackable entity. If an account has 100 satoshi there is no 100 satoshis there is simply an address which has a value of 100. You would need a "smart client" which ensures it never comingles the coins w/ real coins because if you did then the value would be lost. You also would run into issues with transaction fees designed to prevent spam dealing w/ small amounts.
Currency tokens need to be sanctioned by the local government as historically this practice resulted from a severe shortage of money or the governments's inability to issue its own coinage. In effect the organization behind the tokens became the regional bank.
Instead of "token" I would use "voucher". A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods i.e. purchasing bitcoins. For instance, a trusted 3rd party in Australia would get 100 fiat AUD and issue 100 AUD vouchercoins that can be traded only against bitcoins or redeemed back into 100 fiat AUD minus small fee. IMO, creating an alternative cryptocurrency block chain, say vouchercoin allowing all the world currencies in the chain, is the most robust approach to resolve bank dependencies once and for ever and for merchants to minimize exchange rate risks.
Instead of "token" I would use "voucher". A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods i.e. purchasing bitcoins. For instance, a trusted 3rd party in Australia would get 100 fiat AUD and issue 100 AUD vouchercoins that can be traded only against bitcoins or redeemed back into 100 fiat AUD minus small fee. IMO, creating an alternative cryptocurrency block chain, say vouchercoin allowing all the world currencies in the chain, is the most robust approach to resolve bank dependencies once and for ever and for merchants to minimize exchange rate risks.
Yeah "voucher" is likely better word for legal reasons. It would be a crypto-bearer bond. Obviously it is only as good as the company that issues it however if say GreenDot (MoneyPaks), Dwolla, or even Mt. Gox issued crypto-bearer bonds which are a promise to redeem for fiat currency I think they would have some acceptance.
The nice thing is that people wouldn't need to use the issuer for redemption. Say a voucher provider decides to only allow redemptions in $10,000 USD "blocks" to minimize processing costs. Now you have $128 vouchers you are out of luck right? No. A third party (say me in this example) could offer a service selling prepaid credit cards. You transfer me your $128 in USD vouchers and I send you the gift card. When I get $10,000 worth of vouchers I can use the trusted 3rd party and redeem $10,000 worth of vouchers for a $10,000 wire transfer (and comply w/ all their identify check, AML regulations, and pay their fixed cost which is more manageable on $10K than $128).
Lots of ways to go about doing it I hope people don't get hung up on the implementations. The larger more generic concept would be some sort of digital manifestation of fiat money that can be issued securely, transferred from party to party securely, and redeemed securely. There will always be a need to trust the 3rd party entity which connects the meatspace to cryptospace however they would be the "edge" of the network and the rest of the network could be decentralized.
The nice thing is these "edge providers" could be large entities w/ insurance, have regulatory apporval, 3rd party auditing, AML compliance, etc. You would only need to use these when making an "edge transaction" (USD voucher -> USD, Gold voucher -> gold coin, SPDR voucher -> SPDR share). Maybe it is an idea a decade ahead of its time but I am sure this is how the meatspace <-> crypto boundry issue will be solved.
I haven't read the full discussion, but I just wanted to post an idea I had a while ago.
An exchange could peg value of a different currency to the coins of a specific green address. This way, one can embed say USDcoins inside the standard blockchain. Those USDcoins can then be exchanged for real USDs by that exchange. For instance, one satoshi from this specific USDcoins green address could represent 1 USD.
An exchange could peg value of a different currency to the coins of a specific green address. This way, one can embed say USDcoins inside the standard blockchain. Those USDcoins can then be exchanged for real USDs by that exchange. For instance, one satoshi from this specific USDcoins green address could represent 1 USD.
Obviously the USD "token" would only be as good as the exchange (maybe moneychanger is better term) that issued it.
Currency tokens need to be sanctioned by the local government as historically this practice resulted from a severe shortage of money or the governments's inability to issue its own coinage. In effect the organization behind the tokens became the regional bank.Instead of "token" I would use "voucher". A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods i.e. purchasing bitcoins. For instance, a trusted 3rd party in Australia would get 100 fiat AUD and issue 100 AUD vouchercoins that can be traded only against bitcoins or redeemed back into 100 fiat AUD minus small fee. IMO, creating an alternative cryptocurrency block chain, say vouchercoin allowing all the world currencies in the chain, is the most robust approach to resolve bank dependencies once and for ever and for merchants to minimize exchange rate risks.
Of course, those trusted 3rd parties need to be ultra solid anchors as they will become prime target for attacks from governments and bank lobbyists.
One chain for multiple currencies and multiple issuers would be nice. I think the easiest way to implement is to allow in that chain for any private key to issue IOUs. The issuer can use that same key to signs documents that credit him (and where he explains the fiat denomination and the conditions for redemption). The document can also be signed with "legal cryptography" such as that contained in some electronic NIFs (for example, Spain has it).
The problem here could be how to reward miners, because the IOUs issued are not fungible and the miner must trust the issuer of the currency paying the fee.
That chain could also have ripple. See my related proposal for a chain implementing ripple:
https://bitcointalksearch.org/topic/ripple-implemented-in-a-block-chain-as-an-iou-exchange-37505
To perpetually reward miners I include a coin with demurrage in the chain (freicoin), but maybe miners can accept the IOUs directly in this case.
The chain doesn't have to contain the denomination of each IOU, only an extra field in inputs and outputs of transaction with the "issuing address".
That can be optimized by not allowing an address to receive from more than one issuing address and not allowing addresses that have issued to receive any IOUs different than their own. This way the field is not necessary.
But I prefer to include the new field because it allows to trade IOUs of one kind for IOUs of another type within the same transaction (and this enables ripple, outside of the objectives here, but also useful). Without that field you cannot, for example, exchange mtgoxUSDcoins for IntersangoEURcoins atomically in a single transaction and you would need to use contracts like if the voucherCoins were in different chains.
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then exchanges would be used for trading, but not leveraged speculation and HST.
What makes you think that? The money would be concentrated into a handful of exchanges and nothing would change. The external price discovery would be mostly ignored. Who cares if the external price says BTC is $2.25. If you are a merchant and the current ask on Mt. Gox is $2.18 then for all intents and purposes that matter the price is $2.18. Period.It's a psychological thing. Having a price set by mathematics gives people a sense of stability. It's like why people don't wildly speculate on fiat money. Math can give bitcoin the sense of fiat (law), only it's the laws of mathematics. Of course there will be fluctuation just as there is with all fiat currencies, but it will be mitigated. This whole Bitcoin phenomena is an experiment, I just think this may be a helpful tool. I just don't trust centralized exchanges because HSTs and bots can have such profound psychological effects on people that cause them to panic buy and sell.
Obviously the USD "token" would only be as good as the exchange (maybe moneychanger is better term) that issued it.
Currency tokens need to be sanctioned by the local government as historically this practice resulted from a severe shortage of money or the governments's inability to issue its own coinage. In effect the organization behind the tokens became the regional bank.Instead of "token" I would use "voucher". A voucher is a bond which is worth a certain monetary value and which may be spent only for specific reasons or on specific goods i.e. purchasing bitcoins. For instance, a trusted 3rd party in Australia would get 100 fiat AUD and issue 100 AUD vouchercoins that can be traded only against bitcoins or redeemed back into 100 fiat AUD minus small fee. IMO, creating an alternative cryptocurrency block chain, say vouchercoin allowing all the world currencies in the chain, is the most robust approach to resolve bank dependencies once and for ever and for merchants to minimize exchange rate risks.
Of course, those trusted 3rd parties need to be ultra solid anchors as they will become prime target for attacks from governments and bank lobbyists.
OK, I cannot find an explanation of how a decentralized exchange would work in this thread. The OP said it works by magic. lol
Seriously though, I don't really see the need for a decentralized exchange if we have a Pricecoin that monitors price of Bitcoin (and possibly other fungible commodities) and algorithmically analyzes price fluctuations, then exchanges would be used for trading, but not leveraged speculation and HST. I think it would boost price confidence and utility of cryptocurrencies.
Seriously though, I don't really see the need for a decentralized exchange if we have a Pricecoin that monitors price of Bitcoin (and possibly other fungible commodities) and algorithmically analyzes price fluctuations, then exchanges would be used for trading, but not leveraged speculation and HST. I think it would boost price confidence and utility of cryptocurrencies.
Having a mechanism of price discovery is only part of the issue. So you know BTC is worth $2.25 USD. OK now you want to trade so what do you do? Use Mt Gox? If so then it doesn't really matter what your external price discovery system says BTC is worth what matter is what the bid is on Mt. Gox. Oh yeah and to avoid the up to 3 hour delay waiting for funds to be confirmed you likely keep all your funds on the exchange hence all your fiat and all your btc are always at risk of theft, fraud, and loss.
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then exchanges would be used for trading, but not leveraged speculation and HST.
What makes you think that? The money would be concentrated into a handful of exchanges and nothing would change. The external price discovery would be mostly ignored. Who cares if the external price says BTC is $2.25. If you are a merchant and the current ask on Mt. Gox is $2.18 then for all intents and purposes that matter the price is $2.18. Period.
OK, I cannot find an explanation of how a decentralized exchange would work in this thread. The OP said it works by magic. lol
Seriously though, I don't really see the need for a decentralized exchange if we have a Pricecoin that monitors price of Bitcoin (and possibly other fungible commodities) and algorithmically analyzes price fluctuations, then exchanges would be used for trading, but not leveraged speculation and HST. I think it would boost price confidence and utility of cryptocurrencies.
Seriously though, I don't really see the need for a decentralized exchange if we have a Pricecoin that monitors price of Bitcoin (and possibly other fungible commodities) and algorithmically analyzes price fluctuations, then exchanges would be used for trading, but not leveraged speculation and HST. I think it would boost price confidence and utility of cryptocurrencies.
I don't see a big advantage over using an escrow service. There are rules of conduct and dispute resolution that way. Besides you don't have just one point of trust (the fiatcoin issuer) but you must also trust the exchange that is handling two decentralized currencies. That requires twice as much faith because there is plausible deniability on both ends of the transaction. If you mix multiple currencies you could end up with a very messy exchange.
There would be no "the exchange" it could be decentralized completely using the blockchain. If block-chain is broken then bitcoin is broken so it doesn't really matter.
The only counterparty risk that would exist is in exchanging fiat tokens for fiat cash. If you are holding 100 $1USD tokens will the moneychanger give you $100 USD cash? Of course that risk exists under current centralized exchange too but your risk isn't limited to only fiat. Centralized exchanges also hold all your Bitcoins (and xCoins) hostage as well. If Mt Gox went bankrupt or was hacked again you risk losing all the Bitcoins you hold there not just the USD/EUR. By seperating the roles of exchange & money changer you limit the assets under risk.
If you don't get it well it probably is because it is late and I am explaining it badly. Better suited for a whitepaper then a forum thread.
I don't see a big advantage over using an escrow service. There are rules of conduct and dispute resolution that way. Besides you don't have just one point of trust (the fiatcoin issuer) but you must also trust the exchange that is handling two decentralized currencies. That requires twice as much faith because there is plausible deniability on both ends of the transaction. If you mix multiple currencies you could end up with a very messy exchange.
You don't which is why I indicated you can NEVER decentralize the fiat half of the exchange however it wouldn't require you to deposit any bitcoin or xCoins w/ the decentralized exchange which would be an advantage over current setup. Trades could occur decentralized, xCoin balances could be held outside the exchange, you could have multiple parties involved in one decentralized cloud however .... the conversion of fiat to token WILL ALWAYS require a trusted 3rd party.
Simply put the linkage between fiat world and crypto world will always require a trusted 3rd party however using a decentralized exchange limits the control and assets that trusted 3rd party has access to.
For example say you want to buy Bitcoins. You would find a moneychanger you trust. Via some merchanism you purchase USD tokens for USD. 1 USD token : 1 USD. If you want Bitcoins or xCoins, or abcCoins you find someone within the decentralized exchange who is willing to trade USD tokens for Bitcoins. The trade occurs they gain ownership of USD tokens (likely w/ intent to exchange those for meat space money) and you gain BTC.
The USD "token" is simply a digital manifestation of a promise by the money changer to payout USD on demand. If the money changer can't be trusted then it is worthless and you lose the value. That isn't any worse than current system but it does limit the assets under risk.
Everything can be decentralized except the linkage to the meatspace world so the goal would be to keep that linkage as small as possible.
Current system (Mt Gox or other centralized exchanges)
Bitcoin balances: held by exchange (trusted 3rd party)
Trades: controlled by exchange (trusted 3rd party)
USD balances: held by exchange (trusted 3rd party)
Decentralized Model
Bitcoin balances: held by individual
Trades: occurs within decentralized exchange
USD Balances: held by trusted 3rd party (in form of promise to redeem USD tokens & actual USD balances held)
In current model if your exchange can't be trusted they can steal from you three ways
a) steal your Bitcoins
b) steal your wealth via manipulating trades
c) steal your Fiat money
In decentralized model if your moneychanger can't be trusted they can steal from you but only one way (and only part of your wealth)
a) steal your fiat money (by issuing tokens they never intend or can't redeem back for fiat money)
It isn't perfectly decentralized but like I said you can't decentralize fiat money which is inherently centralized the goal would be to limit the exposure of centralized control. The advantage is the same decentralized cloud exchange could allow trades between various tokens (USD, Gold, Silver, EURO, S&P 500 shares, etc) while limiting the amount of assets held by the exchange to just the "meatpsace" linkage.
Simply put the linkage between fiat world and crypto world will always require a trusted 3rd party however using a decentralized exchange limits the control and assets that trusted 3rd party has access to.
For example say you want to buy Bitcoins. You would find a moneychanger you trust. Via some merchanism you purchase USD tokens for USD. 1 USD token : 1 USD. If you want Bitcoins or xCoins, or abcCoins you find someone within the decentralized exchange who is willing to trade USD tokens for Bitcoins. The trade occurs they gain ownership of USD tokens (likely w/ intent to exchange those for meat space money) and you gain BTC.
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I'm not clear of the utility of this procedure? Who is this USDCoin issuer? Is it an exchange? How is this USDCoin different than Dwolla and MtGox? How do we know they will buy back their USDCoins when the person stuck with them in the trade wants to cash them in?
The USD "token" is simply a digital manifestation of a promise by the money changer to payout USD on demand. If the money changer can't be trusted then it is worthless and you lose the value. That isn't any worse than current system but it does limit the assets under risk.
Everything can be decentralized except the linkage to the meatspace world so the goal would be to keep that linkage as small as possible.
Current system (Mt Gox or other centralized exchanges)
Bitcoin balances: held by exchange (trusted 3rd party)
Trades: controlled by exchange (trusted 3rd party)
USD balances: held by exchange (trusted 3rd party)
Decentralized Model
Bitcoin balances: held by individual
Trades: occurs within decentralized exchange
USD Balances: held by trusted 3rd party (in form of promise to redeem USD tokens & actual USD balances held)
In current model if your exchange can't be trusted they can steal from you three ways
a) steal your Bitcoins
b) steal your wealth via manipulating trades
c) steal your Fiat money
In decentralized model if your moneychanger can't be trusted they can steal from you but only one way (and only part of your wealth)
a) steal your fiat money (by issuing tokens they never intend or can't redeem back for fiat money)
It isn't perfectly decentralized but like I said you can't decentralize fiat money which is inherently centralized the goal would be to limit the exposure of centralized control. The advantage is the same decentralized cloud exchange could allow trades between various tokens (USD, Gold, Silver, EURO, S&P 500 shares, etc) while limiting the amount of assets held by the exchange to just the "meatpsace" linkage.
The network and trading can be completely decentralized but the handling of fiat never can be.
Imagine if a trusted third party issued a coin called USDCoin (likely you wouldn't want to use that name). One USDCoin could be redeemed for $1 USD by the issuer.
Imagine if a trusted third party issued a coin called USDCoin (likely you wouldn't want to use that name). One USDCoin could be redeemed for $1 USD by the issuer.
Would this hypothetical USDCoin be a cryptocurrency?
If so who would peg the value to $1 and how would they do that?
Once enough USDCoins were purchased you would have fully digital manifestation of fiat money (technically money substitute).
I follow you so far. You now have some USDCoins.If you wanted to sell coins you could then use the decentralized exchange to trade Bitcoins for USDCoins.
OK so now with your USDCoins you are buying Bitcoins, I think.
When you had enough USDCoins you would "cashout" via the originator website (ACH, check, wire transfer, western union, etc) and the USDCoins would be destroyed.
I'm guessing you mean enough Bitcoins instead of USDCoins, or maybe you mean you have extra USDCoins left. Then you go back to fiat currency with those USDCoins.
Now in that example there is a single fiat coin but technically the decentralized exchange could handle multiple fiat currency tokens issued by multiple exchanges (which would simply convert USD to USD token and USD tokens back into USD). The same mechanism could be used to trade silver/gold/other metals, even things like SPDR shares, debt/bonds, etc.
Obviously the USD "token" would only be as good as the exchange (maybe moneychanger is better term) that issued it.
Obviously the USD "token" would only be as good as the exchange (maybe moneychanger is better term) that issued it.
I'm not clear of the utility of this procedure? Who is this USDCoin issuer? Is it an exchange? How is this USDCoin different than Dwolla and MtGox? How do we know they will buy back their USDCoins when the person stuck with them in the trade wants to cash them in?
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