Topic: please delete - page 7. (Read 18351 times)

I think the point is that Paxum and other banks won't deal with centralized exchanges, but their business is to move money between individuals, and if you use this system, they won't know if you're trading Bitcoin or just sending someone money. There won't be a single point of failure, that being the exchange's bank account, since many accounts will be involved individually.
Chargebacks will still be a problem with some systems, and I'm not sure how to get around that (force PayPal to send as gift? Use services that don't do chargebacks?)

As for using something like ripple, how do you get your money into ripple? And if it's a hassle, why bother instead of getting it into Bitcoin more directly?

So, in real simple terms, what is the motive to create a P2P exchange?
The biggest bottlenecks right now are banks and payment processor. Recent events are good evidence of that (paxum, tradehill getting ripped off, banks freezing accounts without notice). If we rely on Dwolla, then there is still a central point of failure and it may reverse transactions (See there TOS).

I appreciate your work and your thoughts, but in my opinion, it appears to me you are trying to cut out the wrong man first (the exchange).
Figure out a way to do away with the banks and then you are talking seriously cool disruptive technology.

Um, no.

Seller: Puts up Bitcoin for sale. Bitcoin is transfered to a multisig address. Seller has one priv key, P2Coin stores the other in a way that the seller has no access to (ex. encrypted, with a timer set to expire and release the key and the funds back to the seller after a day or two).

Buyer: Puts up USD for sale, selecting Dwolla. TraderBot verifies balance exists.

Sale is matched

Buyer TraderBot scans P2Coin for other Dwolla users and selects one at random. USD is transfered to the random Dwolla account, with owner info of the this account stored in the chain.

Seller TraderBot verifies that random Dwolla holder received the funds. If funds are received, it send its own private key to the buyer, and requests random user's TraderBot to send money from their Dwolla to the Seller's account.
Third party TraderBot sends USD to the Seller, notifying P2Coin.
P2Coin releases the second priv key to the buyer.
Seller receives USD from random third party, Buyer receives BTC priv keys from seller and from P2Coin to get access to the BTC.

Sale is not matched, or seller cancels sale

USD still sits in Dwolla
BTC is not accessible until P2Coin signs the BTC for sale with the second priv key either when it's asked, or when the sale expires.


Security considerations

From BTC side:
Seller has no access to BTC due to not having the second priv key, so can not choose to keep BTC without letting P2Coin know. If he cancels the sale, P2Coin will know the BTC is no longer available.

From USD side:
There is risk that the randomly picked Dwolla account will have a malicious TraderBot that accepts random cash inputs, but does not send the money out when asked. Risk is reduced by making the third party picked at random, and having their account stored in the P2Coin chain. Reported scam accounts can beblocked from the pool, and reported to Dwolla.

Hope this idea helps keep things moving.

Also, if P2Coin is its own block chain, I suggest it only go back a few days, like the P2Pool chain, deleting blocks older than a few weeks. This will keep the block chain size small, will help with privacy, and will still give a few days to track down thieves. Though I guess someone can just continuously monitor the chain and record all transactions into their own database

If this solution can be FULLY integrated with Bitcoin-OTC, using some IRC Library... It will be a killer app!
BTW, it is open source, right?!
Ah! And it works under Linux... RIGHT?!?! 

Very excited about this! Keep up the good work!

I have to put much more work into this, but I've a proposal that would allow this (and more):

https://bitcointalksearch.org/topic/a-generic-protocol-for-cryptographic-assets-60591

It is based on fiat based crypto-currencies or Ripple.
Fiat based cryptocurrencies could be issued within a chain or just with signatures (needing Timestampers and accounters in that case).
Cash-like IOUs could be traded atomically for bitcoins without the need of accounts in any server (like is the case for OT). It can be argued that my cash-like IOUs are not as untraceable as OT's, I would like Fellow Traveler to clarify this for me.

https://bitcointalksearch.org/topic/m.710842

The "miracle" already exists but people don't see the big picture yet. The solution is a combination of federated, p2p, and f2f architectures.

Earlier in this thread it was said that the exchanges are the natural "bottleneck" in the system that are likely to be targeted by "the authorities" (which is patently true.) But the purpose of these institutions is not trading, per se, but exchanging between fiat and crypto currencies--and this function will someday soon be subsumed by implementations of the Ripple protocol. (You will not need exchanges anymore, because people will be able to exchange in-and-out of various fiat currencies via friend-to-friend technology instead.)

We are standing at an epoch in history.

Normal market interactions will be processed by transaction servers (such as OT) and the security of the Bitcoins traded on those sites will be protected by multi-sign voting pools (on the blockchain) composed of federations of those servers (and someday in combination with auditing and insurance entities as well.) Systems such as OT will perform most of the actual transactions. Bitcoin/Namecoin will be the universal medium that glues it all together, and Ripple will be the gateway in-and-out of the system, which will forever eliminate any need for banks, money transmitters, monetary policy, or tax authorities. At the end of it, I expect to see precious metals re-monetized. (For the masses, I mean. Obviously it's already money for the elite.)

Thank you for your response! At first I didn't want to create a new blockchain because I felt there are already so many and it would only complicate things. But now I'm thinking it may be the only possible way to do this securely without a web-of-trust. We are currently designing an algorithm for this. At the moment we're calling it P2Coin. Both me and the one coder for this project that I have so far are working on it. We both enjoy and are good at designing these types of systems. This will be a fun experiment!

I will also advise that no one trade any amount that would really hurt them if they lost it until it is announced as a stable system. Due to the nature of what's at stake here (people's money) there will be extensive testing involved.

All Best,

Michael

This is an interesting project.  However p2p trade systems have cost; that is the cost of protecting from double spending.  Either you have a distributed verification network (like bitcoin with the block generation), or you have some sort of trusted centralized user that 'clears' the trades...  (this is normally called a 'clearing house').

If by some miracle you have come up with an algorithm to solve this problem in a distributed p2p manner; it would be wonderful if you could produce a white paper that explains how you propose to solve this doubble spending problem.


I'm working on the Open Transactions project;  this project is building secure (and centralized, but to a server of your choice, in the future we can have a group of federated trusted servers);  the market software executes in a similar mechanism to the Bitcoin scripting.  (through the use of cryptographic market contracts).

I really hope the best for your project, except I'm really scared if it doesn't have the well-thought-out cryptographic foundations (that we are still working on for the Open Transactions project); you will be opening your users up to easy scamming.

Transfers less than $10 are free.

Dwolla was only for an example. My goal is to have EVERY payment gateway available eventually.

I've never used Paxum, but dwolla charges $0.25 for each transfer. Though still cheaper than Mt Gox in many cases, for someone selling .1BTC, it would be a large fee. If they (or any other funding option) have an issue regarding the frequency of transactions, this may not be a viable option for a day-trader, esp. a HFT bot.

This  does give an easy straight forward means of getting money in to BTC for the average Joe just trying to make a quick purchase though.

Good Luck with your project.

perhaps Open Transaction Server and this p2p project could somehow be the answer to the problems.

Exchanges perform several functions, of which the following are relevant to the bitcoin community:

• They are a central place where traders can place their trades
• Provides fiscal safety in dealings
• Provides clearing house functions

All other functions such as capital formation, speculation etc are facilitated by the above basic functions

Of the above, fiscal safety is the paramount function. Every trade that occurs on the exchange should somehow be enforceable. In the fiat world, you would need to deposit cash or securities with your broker (actually held by your broker's clearinghouse) and they will ensure that you cannot place a trade unless you can fulfill its obligation. If a trader cannot fulfill his obligations, the clearinghouse is liable and the exchange will ensure the other party in the trade is not impacted negatively. Clearinghouses periodically "clear" their balances by transferring cash or securities from each other.

This model is successful because of clear separation of responsibilities and risks. There are several layers of risk management that allows the exchanges to transact large volumes of cash with confidence. For example, the exchange itself requires clearinghouses to be insured against default and so on.

To adapt this to a P2P model, we would still need to figure out how to have a p2p exchange and a p2p clearinghouse.

Clearinghouse:

In a pure P2p model, every person is his own clearinghouse. When the amount of money is so huge, it would be extremely hard to trust the system would work on blind trust or even historical trust. If a 80+ year old institution like Bear Sterns could not keep its financial commitments, how can you trust random bitcoiners to remain solvent?

To keep everyone honest, we absolutely need a clearinghouse.  One simple option is to have the bitcoin network itself as the clearinghouse. Once someone puts in a trade, that money/currency has to go somewhere out of the persons control. Perhaps it could linger in the bitcoin network or some alt-blockchain. If the order is filled, the money/asset can go to the other party. If the order is cancelled, it should go back to the trader. This allows the bitcoin network itself as the clearing house. This may require some protocol changes and dudes smarter than me need to step up here.

Fiscal Safety:

The above approach also raises some interesting questions. Can the money lingering around in the bitcoin network be stolen? It should not be possible. It should not be double spendable either. It still belongs to the person who put in the order, they are just unable to do anything with it.

I realize that a lot of these are hard to implement unless everything is denominated in BTC, which is why my current project denominates everything in BTC and would love to use this p2p exchange instead of creating my own exchange which would be a possible target of government shutdown: https://bitcointalksearch.org/topic/futures-and-stock-trading-denominated-in-bitcoins-62907 (please vote on this poll)

For example, transactions in blockchains currently only talk about BTC. Can alternative products be added in there? What are the procedures for creating a new instrument? Assign a code? Is this done by committee? Won't this all lead to some centralization anyway? How do we ensure blockchains remain in sync? A BTC to LTC trade should be reflected in both chains. Perhaps a brand new p2px chain just for this?

A web of trust mechanism might be a solution.

I buy/sell/trade on this Forum because I have been vetted by the Bitcoin community.

Seems to be a fairly decent self-regulating system, could we not do that w/ this P2P exchange?


I would like to forward a quote by 1QaZxSw2 on why this is so important for the crypto-coin community:

"P2PX (p2p exchange, yes I just invented an acronym) is an essential step to securing the future of bitcoin commerce.
Right now the exchanges are the possible targets of government shutdown."


We have a decentralized currency;  now we need to do the same for our exchanges.

Micheal, keep up the good work!

yes why can't it be similar to what #bitcoin-otc does in irc.  effectively bringing the irc channel to an easy to use automated program.  a user could specify the lowest rating they allow to complete a trade

Say something that hasn't already been said please! If you have a solution share it!


I'm open to whatever works. I'd like to make it work without a web-of-trust but if it comes down to it then that's what we'll do.

Unlike other attempts at creating a peer-to-peer exchange, P2P Exchange does not rely on a web-of-trust system. How is this possible? The answer is quite simple. I like to call the mechanism that executes the trade a "Trader Bot"
Your proposed trader bot does nothing except error checking before offering a trade.  As an open source client, a malicious party could bypass these checks if desired.

I think you're headed down the wrong path, and should integrate in support for a web of trust.  I know of no other possible solution to the problem of a distributed exchange.

So you've found holes! Now tell me how to fix them! My goal in this posting is to have people find the holes and give their ideas on how to make it work. When a full-proof workable system is developed then the coding will begin. I like your idea of the distributed escrow. Tell me more!

All Best,

Michael