Atomic Swap Between Bitcoin and Ethereum (on a test net)So it looks like the Altcoin Exchange team have successfully swapped BTC for ETH in an atomic swap. From my understanding of the process, this is a direct swap enabled and enforced by code without any requirement for a third party.
https://news.bitcoin.com/altcoin-exchange-performs-first-atomic-swap-between-bitcoin-and-ethereum/If this holds up to scrutiny, survives the testing process, and is brought mainstream, it is a game changer in the cryptocurrency industry.
"The Altcoin Exchange team transferred 0.12345 ETH for 0.12345 BTC using an on-chain open source process. Altcoin Exchange plans to launch the project’s Github repository this Tuesday, the company’s CEO Andrew Gazdecki told news.Bitcoin.com"When China told their exchanges to shut down, they also demanded that their files be sent in to the government on compact discs. I'm romantic enough to be disappointed that the cryptocurrency files weren't demanded on punch cards. But even so, exchangeless swaps mean that personal details stored by the exchange when you login, aren't linked to your swap.
It also has the ability to hamper or completely obstruct other attempts to regulate aspects of the cryptocurrency industry. If you can swap bitcoin for ethereum without an exchange, then you can invest in ICOs from a country that is trying to block them by closing exchanges.
Exchanges will still be required for match making purposes. But because that is all they might be doing, setting up and running an exchange would be much cheaper, and not require users to trust them, or even have an account with them. It would be more like a search engine for open offers.
But ultimately, I believe the most significant effect will be increased public trust in cryptocurrencies. Many people who are concerned about investing in cryptocurrency worry about news of bitcoin being stolen. But stealing a cryptocurrency is much harder than stealing cash or property. The news of stolen bitcoins comes from exchanges, and many believe they are inside jobs. If exchanges give way to atomic swaps made simple by building the functionality into wallets, we won't be hearing any more news about hacked exchanges. Trust in cryptocurrencies will rise dramatically.
I was certain I'd never leave my money in an exchange because of all the negative press. But when I read that DNotes Vault held an equivalent duplicate balance in cold storage, and I looked up that address and found the DNotes sitting there, I decided to trust them. And while I understand that a DNotes Global Inc run exchange is on the road map, if atomic swaps remove the need for this, I don't see it harming their long-term vision of making DNotes a cryptocurrency for daily use. It would just mean someone solved a problem along that journey.
I'd be interested to know if provisions to enable atomic swaps have been designed into DNotes2.0
Thanks for sharing the link with great comments. This is another technology advancement that will make it impossible for the government to shut down decentralized digital currency. However, I don’t think that it will put the likes of Coinbase and Poloniex Exchange out of business anytime soon.
We have been studying both decentralized and full-services exchanges closely. At this point, I am inclined to believe that there is a need for both - integrated with various other exchanges to include the exchange of fiat currencies as well. DNotes’ model is to use the best technology that is most beneficial to our users and stakeholders. Our current ecosystem coupled with decentralized/centralized exchange, bank, partner banks, and multi-currencies card will differentiate us from our competition. Central to its success is the trusted brand of DNotes. After trust is; convenience and ease of use. Those factors will remain as our focus.
How do you guys think regulators might react to decentralized exchange models?
There will likely be push back as there is no central authority there is no one to report back on the users, but ultimately I don't believe they will try to block it. At some point the currency has to reach an off ramp into the real world, whether that be a bank, a fiat exchange, or a store. Live exchanges between users will only go so far before those coins reach an off ramp. The data is all there, on the blockchain, and eventually reaching some form of third party. At least for now. The rules and regulations may have to adapt to new technologies, and that has been true since the beginning of organized society, and will continue for as long as organized society exists. There is no reason, other than fear of the unknown or misunderstanding, to attempt to block new technologies because it's difficult to put rules and regulations in place. Rules and regulations are there to serve people and what they want, not to hinder them.
I completely agree.
Regulators will want to push back. But the reason they will want to push back is the very reason that they can't. Because it is decentralised there are too many semi-anonymous actors to efficiently shutdown. And it would be very difficult to legislate a criminal charge for exchanging directly while not criminalising exchanging via a third party. So direct exchanges are hard to prevent and hard to punish.
I also like how you simplified the problem with on and off ramps. Where these are purchases of services, the uniqueness of both service and provider can lead to options for identification and control. But
where the service is exchange into fiat currency, it is much harder to control. I could offer to transfer a value of bitcoin into a bitcoin address after payment of fiat currency via a wire transfer. There is no more of a trust issue here than there is walking into a back alley in a foreign country to get a better exchange rate for hard cash. I remember when that was such a booming industry in India that the exchange rates and trust levels were so close, you'd make your decision on which one gave you the best cup of chai while you waited.
In fact
online trust levels can be much higher while retaining anonymity with the use of PGP encryption. In hand to hand exchanges, you learn to trust an alley, maybe even a face or a runner. There is no reputation beyond personal experience and possibly a tiny circle of trust. But with PGP, you could gain a strong reputation for an email address that does not link to a real world actor. This email address would exist on a PGP keyserver with a public key.
Private Fiat to Crypto:1) Search online for the most trusted bitcoin to fiat email address. Is there already a Reddit channel for that?
2) Send a proposal to that email address from your own burner email address, encrypted with the public key you got from the keyserver. This encrypted email address contains your second burner email address.
3) Receive at the second email address a response from an unknown email address, but containing acceptance of the decrypted proposal.
4) Check that the PGP signature in the acceptance matches that with the good reputation, and wire transfer to the account provided.
5) Either receive the Bitcoin after the successful wire-transfer, or use your online reputation to trash their email's reputation in the Reddit channel.
Alternatively, use
https://telegram.org/ for the whole process after finding a trusted telegram identity on Reddit.
Eventually there will be websites which profit from banner advertising by curating a list of fiat providers and their reputation with a hyperlink to their telegram addresses.
Once atomic swaps are safe and common,
the big resistance to using a private on or off ramp like this is the cost of wire transfers, or other fiat transfer services. But I suspect that these services are only so expensive because the fiat system is so dysfunctional and monopolised. As these services respond to the competitive pressure of fast and cheap value exchange via cryptocurrencies, their prices are certain to fall dramatically. Yes, I'm saying sell your shares in Western Union.
Even so, providing semi-anonymous on and off ramps for fiat exchange will always be more expensive than the big exchanges with direct agreements and bulk rates with the fiat gatekeepers.
So to answer your question more directly Brandon,
I think regulators will do very little to directly impact atomic swaps. At a deeper, more conspiratorial level, I believe that we'll see a lot of
scare campaigns, negative media, and so on that vilifies atomic swaps and attempts to make the broader consumer base distrustful of them. Of course
the Streisand Effect will make this backfire by instantly raising public awareness of this service.
