Topic: The Beauty of an Exchange---Server Side (Read 757 times)

I wonder what the requirements for an exchange to get insurance against hacking would be? I'm assuming they would require some sort of code audit in order to qualify? Seems like it would be pretty risky for insurance companies to ensure against hacking for these large exchanges.

Why don't the exchanges do what the banks do, which is take out insurance against hacking? I think Coinbase has insurance, but they appear to be the only ones.

Thanks for the reply. Why don't the exchanges do what the banks do, which is take out insurance against hacking? I think Coinbase has insurance, but they appear to be the only ones.

If lots of exchanges got bespoke insurance from the LLoyds insurance market, for instance, they'd be pooling the risk and be less likely to go down in the event of a hack.

Insured exchanges would attract more users, and the exchange would make more profit as a result. Coinbase's insurance is the reason Circle found it had to compete with them, and withdrew from the bitcoin market.

A genuinely interesting article, OP.

I had no idea that new coin developers paid to get their coins listed for example.

I agree with what others said about security - it is the weak point in the exchange business model. If if the exchange owners and all their staff were scrupulously honest, it just takes one hack for people to lose confidence and withdraw their coins and stop trading.

Can you give us an idea of what sort of security measures Yobit has taken? For example, are they insured in case of a hack (which would allow them to weather the storm and continue trading).

Yes, that would make this possible. The same system can be implemented on many other games besides dice such as roulette and blackjack. Even slots could be made provably fair which would be amazing to see happen on bigger casinos. I have the feeling it won't be happening anytime soon though...

got it, i apologize for originally making the wrong statements and thank you for clarifying.  so in a real casino, this system and coding takes the dealers hands completely off the cards and even hides the way the deck was shuffled.

There's no third party. The calculations don't have to be made anywhere else as the site can't change the client seed without the player knowing and neither can the player know the results ahead. I forgot to mention that the server seed is hashed. The player knows the server seed hash prior to the bet and thus knows the site doesn't change it in the middle of anything. If the site does change the server seed without the player's knowledge, the hash wouldn't match to the new server seed. The server seed is hashed because showing the server seed fully would result in player being able to determine the results.

Sorry for making it more confusing!

i appreciate the correction, let me make sure i understand, the game "code" itself is not on the site hosting the game, in this case yobit, rather the site handles passing their seed and the players seed to the third party where all the calculations are made.  does this sound correct?

This is not what provably fair is. A provably fair dice game is a game where the site nor the player can cheat or be cheated in any way. The results of a provably fair dice game are typically calculated by a few variables. On most sites these are the server seed (which the site determines), client seed (which the player can choose) and a nonce (this just helps that the seeds mentioned earlier don't have to be changed each round and that a new result is produced each roll). What is done is these variables are combined and they produce the result. Why each party can't be cheated? That is because the site is free to choose the server seed at their will and the player can choose any client seed (within some limitations usually such as amount of digits etc.) Usually the seeds are a string of numbers and letters etc. (symbols can be used on some sites too). They are also chosen prior to the bet being placed so cheating is virtually impossible.

Provably fair is (probably) explained better and in a more detailed fashion here: https://dicesites.com/provably-fair

For those that do not know, and I am highly paraphrasing here, provably fair is a third party system that compiles and checks the results for many games and insures there is no tampering, it is there to protect the site and the player, throwing up alerts if there is an issue(I think).  I have not touched it, but it should be a few lines of code added to any game and server side registration.  Think of them like the United States Lottery Commission. 

Interesting post! I realized there were a lot of fees paid to the exchange but didn't quite realize all the other little costs there are.

I have one question about YoBit. Is the dice over there provably fair? Last I checked I found no indications about that.

There is still a little talk around about exchanges closing and hitting the road and, yes, this happens frequently, but not that often as an outright theft.  It is simply, when done right, too profitable to walk away from.

Think about an exchange like YoBit, I picked them because they are popular, well-known, and obviously my sig-camp.

There are some expenses and especially in the beginning this is likely where most will fail.  There are licenses that you need to get and those are expensive and require other things that can get pricey, like an actual office.  We are approved as a MSB and there is an inspection of sorts, basically showing that you are not in your garage.  The license itself is pretty cheap.  State to state there are fees and such, but in the end it is not that bad.

Then, you need the cash in hand to be able to trade back and forth for some time without liquidating your coinage.  That can be about $10,000-100,000 depending on how volatile you are willing to be.  But, once all is said and done and you get a good number of people trading, it is a VERY fast paying business.

1. EVERY trade pays you a fee.  So, every time someone sees a new coin and buys it, then shits themselves and dumps it back to BTC or whatever, there is a fee. 

2. Most new coin owners pay to be on your exchange or pay for an ICO

3. Many people deposit BTC and other coins in and never hit the point where there is enough to cash out.  A minimum withdrawal amount combined with a withdrawal fee, YoBit charges 0.0005 to withdraw BTC, means that most newbies that find BTC and play around only get enough in their account to get disappointed and never withdraw the coins.  This is not technically the property of the exchange, but(like banks) they can leverage that unused coin amount, combined with others, to do more business.  Also, I am sure that buried in the T&C, there is an amount of time that can pass and the coins are theirs to keep.

4. Fun things take money too.  I can never say enough how much I love the "Dice" link on YoBit.  People trade and trade and play faucets and rotators and all that and then one of two things happens to a lot of folks.  There find that there are withdrawing a very small real amount, like two bucks in the real world or they are below the minimum withdrawal, or they are feeling great about just making five dollars trading and................they hit the dice link.  That is just slightly less than a fifty/fifty shot, meaning you will likely loss. 

After you have made you small fortune, after you have slaved at the faucets for six weeks or whatever has gotten you your measly little ten dollars, you still have that one more chance to hand it all back to the exchange in the dice game.

I believe that most exchanges, barring Cryptsy, that bail and run are simply at the end point of months or weeks of mismanagement.  They are bleeding money from one of several business points, they are running low on funds and they have no idea how to simply stop the site without owing many people money.  They made some cash, blew some cash and then got in way over their heads and every day in business gets deeper and deeper, so they bail and run with what they have. 

A well run exchange can make $10,000 a week easily.  That can become true within the first year.  A small upper management group can drop $1000 per person in their pocket every week and never look back.  That is not a rich man's job, but it is a pretty good paycheck for many and still leaves time for other investments.  A poorly run exchange will lose money left and right and find the hole getting deeper and deeper, throw money at the fire trying to put it out and then not know what else to do but run.