Topic: The Final Solution to the Mtgox Problem... (Read 7226 times)

a lot of good points made by the OP.  I just want to focus on the exchange decentralization issue.

I think a peer to peer based distributed exchange would solve a lot of the problems we've seen recently with Mt Gox and all the other exchanges.

The main problem I see with this idea is transferring fiat currency to/from the system to cover trades.

This is one of the services that the current exchanges provide at present. Without this you can't have a working exchange.

Given the present banking and payment transfer setup I can't see how a peer to peer exchange system can possibly interface with the banks.

So you'd need to set up some kind of transfer service for BTC/fiat which everyone would use.

This would either have to be run by a commercial provider or operated as a non-profit service funded via the bitcoin system eg from an automatic levy on each transfer.  

The system would also have to interface with the bitcoin peer to peer exchange.

I'd imagine that technically implementing the above would not be too difficult.  

But you need to have a reliable, safe and accountable operation for the bank/BTC transfers. Maybe a commercial service would be the best solution for this? In that case you would have competing providers offering this facility.

Back to the point - a peer to peer system would need to solve the problem of double executions (rather than double spends). Perhaps a blockchain type solution would be necessary.

Selling directly to someone necessitates exchanging identities.

Relinquishing that level of privacy is simply not acceptable, in my opinion.

I'm by no means saying that this is the answer, I'm merely providing food for thought (and thinking out loud myself).

It would be up to the seller whether to decide to accept an IOU from a particular buyer. With a blockchain-like system, the seller has access to all the buyer's credit history - and can make an informed judgement on whether to accept the trade.

Because being a broker is high risk it should bring high rewards to anyone who does it. How can we move the incentives to motivate people to want to be in high risk positions?

Also how can we create incentives for developers and for investors who want to initially fund this project? Provide the incentives and people will be climbing over each other to develop on this project or invest in it just like they were when trying to buy Bitcoins.

Also to my knowledge during the DDOS BTC-e was down, and all the other exchanges too. Also it takes so much time to transfer fiat around that no one could move between them all. How can we make it easier to move fiat around? IOU? Escrow? Someone with a lot of Bitcoins loaning them out?

There is NO WAY to do this without an escrow that doesn't require a level of trust that is, frankly, insane.

Now, said escrow doesn't necessarily have to be a "full" broker, but the privacy concerns alone would make me prefer a broker.

The M-of-N multisig contracts is a very interesting concept and can help minimize the trust needed between the seller and the broker / escrow.

An Open Ledger (whether just distributed or P2P) would solve the "what's BTC worth" issue and perhaps make it easier to switch brokers / exchanges in case of a problem with one.

However, none of that changes the fundamental problem: Dealing with fiat is a legal mess and there's just no way around it. Brokers will be needed for any kind of limited-trust transaction that won't take forever and minimizes privacy leakage.

When mtgox went black, there were plenty of other exchanges still operating. However, traders had all their bitcoins and fiat stuck there. Getting approved and funds transferred to a different exchange would take time (and require the availability of money in addition to that stuck with mtgox). Any sellers would, of course, also require access to more bitcoins in order to sell.

Good ideas but you need a funding mechanism. How do we get the funds to pay developers to build this?

My plan for that is here https://bitcointalksearch.org/topic/its-time-to-fund-a-distributed-open-exchange-protocol-and-here-is-how-we-can-174950

We can't expect people to build it for free nor can we expect people to invest in infrastructure without ROI. So let's fund it properly and actually use Bitcoin to protect Bitcoin.

I don't get your logic.  Another currency does not solve the centralized inferstructure problem.

The decentralized exchange will allow for p2p exchange of any currency for any other crypto or not... Gold, silver, and any other commodity of value too.

....Solves the exchange problem for all the existing crypto currencies as well. 

So I've been thinking about this for a couple of days now.

I can envisage a peer-to peer exchange, where bitcoin is traded for 'promissory debts' denominated in fiat. For example, I might buy 1BTC from you, I then give you an IOU for $100. This is recorded by the network. From what I understand, this is very similar to Ripple.

Given this, a trader knows whom he owes money to and is owed money from at any given time. And of course, which debts cancel out. With this information, the trader can choose to settle his debts by making a fiat payment directly to the counterparty. The counterparty marks the payment as received on the network, and the debt is settled.

The challenging part is trust. The system could place a hard 'credit limit' on traders based on how trustworthy they are, and disallow any new trades which would go over this limit. But there's a chicken and egg problem here: the network can't give any credit to brand new users, as this could be gamed easily. Credit has to be earned. So how does one earn it, when they can't transact on the system?

Keen to hear people's thoughts on this.

Guys before we shoot this down, let's continue with this train of thought.

So it has been established:

1. We will always need commercial companies to do the exchange between real world currency and BTC.

2. The "centralization" problem lies around the fact that one IP address of a big exchange (with of course load balanced server behind it) can be attacked. It is more of a web problem than what it is a "brick and morar" problem.

Here's my suggestion

1. We have a program exactly like bitcoin. It connects to 6 peers by default.

2. Instead of sending BTC, it sends out a BUY or SELL orders to the network. In other words, the program will maintain a global p2p orderbook. The price of BTC will always be exactly the same worldwide.

3. The problem also maintains a list of exchanges. Think of what Verisign  is to IE/Firefox/Chrome. Inside any browser they maintain a list of "trusted ssl providers". The same thing applies here. Since this is open source, the community can decide which exchanges are trusted and there can be a formal application process.

So your P2P Market App will show you a interface similar to this


So if you select CanadaExchange (just an example) that will be sent to the entire network. Canada Exchange will then pick that up and do their 6 confirmations (the exact same way we receive bitcoins) and will then check their bank account for your reference.

References:
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You could have a "preferences" menu item in the app. From there you configure your exchanges. For example

Configure Exchange:



Additional details will be sent with every outgoing buy order. MTGox will be able to pick up your reference number for you buy order from your transaction.

That's just a quick rough idea of implementation. Of course there are holes in the idea. The bottom line is, something like this is possible, we just have to figure out the details.

The most important aspect of this whole thing is - One Global Peer 2 Peer Order book that cannot be attacked - lets work out the details around that.

Unless you want to send gold to 200 different people, likely it would match you to a gold dealer who could handle your order size.

You would then enter a multi-sig bitcoin transaction with the dealer.  And/or use escrow.

You send him your gold.  Once the gold arrives escrow releases the coins to you.  If the gold gets lost in the mail, well, insurance would handle that (just like online old dealers do it now).

The small-time brokers would keep the market honest.  They would set the market price for the large gold dealers.  Large gold dealers would arbitrage the price difference users are will to pay to fulfill large orders.  Large capacity would carry a premium in the open market.  So would reputation.

What is the meaning and purpose of "security"? How does it relate the the relationships we have? I argue that the formalizations of our relationships -- especially contracts -- provide the blueprint for ideal security.

Many kinds of contractual clauses (such as collateral, bonding, delineation of property rights, etc.) can be embedded in the hardware and software we deal with, in such a way as to make breach of contract expensive (if desired, sometimes prohibitively so) for the breacher. A canonical real-life example, which we might consider to be the primitive ancestor of smart contracts, is the humble vending machine. Within a limited amount of potential loss (the amount in the till should be less than the cost of breaching the mechanism), the machine takes in coins, and via a simple mechanism, which makes a freshman computer science problem in design with finite automata, dispense change and product according to the displayed price. The vending machine is a contract with bearer: anybody with coins can participate in an exchange with the vendor. The lockbox and other security mechanisms protect the stored coins and contents from attackers, sufficiently to allow profitable deployment of vending machines in a wide variety of areas.

Smart contracts go beyond the vending machine in proposing to embed contracts in all sorts of property that is valuable and controlled by digital means. Smart contracts reference that property in a dynamic, often proactively enforced form, and provide much better observation and verification where proactive measures must fall short.

http://szabo.best.vwh.net/smart_contracts_idea.html

Bitcoin is the virtual Lichtenstein: The primary contribution to the economy comes from the financial sector. We can not build a "country" financed on speculation alone. No more than 30% of trade value in an economy, should come from exchanges, ideally around 5%.

Bitcoin is not faulty neither are the exchanges, it's the mentality from debt based currencies being carried over to a pristine system.

There is no reason that a large order cannot be batches to hundreds of different offers in the system.  And there is no reason mtgox cannot exist on the system too, if you prefer to deal only with them.

The competition from the other brokers on the system will keep them honest and prevent another monopoly.

Having another crypto intermediary coin doesnt really solve anything.  Fiat still has to be used to buy that intermediary coin, and hence an exchange for it.  Nothing solved.

There will also evolve intermediaries in the system.  Those who batch arbitrage small orders at a discount into big orders for larger investors.

Create the decentralized platform and the market will fill in the gaps.