9 ms·

Zero Reserve - A distributed Bitcoin Exchange

104 points by sathishmanohar 13y ago

ama729 13y ago
I don't know much about bitcoin, so can someone explain me what's the point of having an exchange if there is no way of ... actually exchanging that money.
- em3rgent0rdr 13y ago
  Read the description on their github. There is no need for exchanges as a central component. People who want goods or services essentially issue IOU's for bitcoins to the seller. Which is why you only deal with trusted people (either people you know or people who have acquired a reputation). Those IOU's can then change hands (but not on a fractional reserve basis).
  - vrotaru 13y ago
    Just in case you can explain it quickly. What happens if the people you know and trust let your down? (It that's a phrase) The one who is last is holding the IOU is gonna support the loss ?
  - eterm 13y ago
    Why not just exchange IOUs of dollars?
  - foobarqux 13y ago
    > Which is why you only deal with trusted people Which makes it far less useful than a conventional exchange.
Tenoke 13y ago
I like decentralization as much as the next guy but even with this type of a setup you often end up needing something central that can connect you to more users. This is also the case with ripples - it uses this system but in order for you to trade with others you don't know or in order to cash out you need to trust an exchange which is trusted by others. I'd be interested in seeing what happens but I'd be surprised if this manages to capture more than a portion of the otc trading market.
gizzlon 13y ago
" Abstract: A P2P market place for Bitcoin would permit trading and price discovery even in the absence of cooperation from the legacy payment infrastructure. Orders get signed and published through the network and matched by each node. A buyer sends a Ripple like payment to the seller who sends Bitcoins as part of one single transaction. The system requires trust in friends, but no further."
nhaehnle 13y ago
It is notable that this project, which is advertised as something related to Bitcoin, introduces itself on the Wiki with the concept of money-as-IOU. There is a serious clash of underlying philosophies of money here. On the one hand, you have Bitcoin, which is essentially an attempt to replicate a gold/commodity-like currency in a distributed, electronic fashion. On the other hand, you have the notion that all money is ultimately an abstraction of who owes who. That is, money models social relationships. A project that successfully combines these two notions could be quite interesting.
- Spooky23 13y ago
  I don't think that it's a conflict, it's reality kicking in. A good example of why this is happening is in the Christmas story. Mary and Joseph were travelling via donkey in while VERY pregnant to another city to pay their taxes to the Roman government. Tax payment in those days meant putting coins or goods in the tax collector's hands. Not very convenient or practical. The ability to use IOUs and trust as a payment vehicle solves a great many problems. Kids discover this at age 6 when they forget their lunch money. Trust is the key component, and a good reason why Bitcoin is successful. (example: The Chinese are always exploiting any means possible to get money in forms other than RMB)
- dualogy 13y ago
  > introduces itself on the Wiki with the concept of money-as-IOU That's what money is. You don't eat a coin or bill, it's an "IOU some future tangible good or service". Think about it, you either have barter -- no money concept involved. Or you have money-facilitated trade -- then the money (whether coins or bills or seashells) is always a "debt" of sorts for deferred/future "trade settlement". That IOU characteristic automatically happens to whatever emerges (or is decreed) as the unit-of-account+medium-of-exchange of the day. And that's fine, this and only this allows trade beyond immediate barter.
  - Guvante 13y ago
    You are oversimplifying. You can either have a currency with intrinsic value or a fiat currency. The USD is a fiat currency, it only has value because the US government says it has value. Fiat currencies are very close to debt basises. Non-fiat currencies like Bitcoin are a little different, since there is actual value to a Bitcoin. It is similar to how gold and silver were once used. The benefit of fiat currencies is they can't be used for other things affecting the monetary supply, they are always in circulation (pretty much, obviously there are exceptions). Bitcoin is in a weird spot, it is a non-fiat currency without having to worry about the destruction aspects, as Bitcoins can't be destroyed. There is the whole getting lost thing, but that is unavoidable without implementing a use or lose it scheme (which some altcoins are trying).
adrianwaj 13y ago
I mentioned on another thread about using company-specific intracoins to facilitate intra-company resources and commerce. I've had a longer think about it, and realized that an exchange can be the focal point of a company's entire finances. Let's say a company gets funded, those funds are lodged onto the exchange into the management's exchange account, and a certain number of coins are minted. Departments request these coins from management who sends them to various departments. Intra-company transactions are facilited by these intracoins for factors-of-production. For departments that earn revenue, these funds are deposited into that department's exchange account, and they can buy more coins, to spend further. At times, management can demand the Sales department transfer them coins (or funds) so they can move them back around the company as they deem fit (like a tax). As the company grows in sales, the price of the coins can either rise, or more coins are issued so it remains fixed to fiat. So basically, I think this exchange could be used in such an idea. It'd have to tie in with an accounting information system, and other systems. Possibly an ERP. Management can approve of all intracoin/fiat trades on the exchange, because it means a department will need to make an external purchase, and management may want to approve of it... to see and approve where its real money is about to go. Also, a conglomerate of companies tied into 1 exchange and 1 intracoin would be interesting. add: company exchange can also hold bitcoins/??coins for spending at other companies that accept cryptocoins. And sales can be received in cryptocoins. If that was the case all the time, fiat would only be needed to pay government taxes.
deleted 13y ago
[deleted]
dobbsbob 13y ago
Best exchange is IRC #bitcoin-otc with the gnupg web of trust. It's p2p, hard to shutdown, hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator, escrow can be used and market decides what the price people are willing to exchange bitcoins for.
- sneak 13y ago
  > hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator It is not hard to defraud people on #bitcoin-otc. In many senses it's not an exchange at all, simply a discovery mechanism, as there is no settlement offered. It's just a lead-gen system.
adrianwaj 13y ago
How I see it, the most important exchanges increasingly from now onward are those between cryptocoins. Btc is just an onramp and offramp into the cryptocurrency ecosystem. Such exchanges can be totally anonymous, including who runs them. They don't deal with people or fiat currency. Just usernames and blockchains. People trust them based on their history, like an ebay seller, and admins realize there's no need to rip off users because it's not worth it to them in the long run (let alone what might happen to them if they are personally outed for doing so.) People can go in and out of them for very short periods of time to lower the risk it should disappear during that time, ie to lower their "exchange risk." They could also have a set lifespan... "we will operate from 2015-2018" this might lower risks as well.. imagine if Silk Road had a fixed shelf life that expired before it was caught.
- simondlr 13y ago
  Agreed. By the end of next year there will be thousands of altcoins. By 2015 when it gets easier for anyone to create and sustain one (including the problem of securing small chains), there will be an explosion. Millions of coins. There will be a very long tail.
  - adrianwaj 13y ago
    Yeah, I was thinking about my idea in the comment below, and realized that if a company (or conglomerate of companies) like IBM or a set of airlines which had an intra-coin that they used internally, may actually want it available to the public, as it indicates that the coin has a backing and importantly, it could be a good way for a company to raise capital.. instead of selling stock, it'd sell its intra-coins. In such cases only certain employees can actually withdraw underlying coins for special reasons, otherwise the underlying blockchain is hidden to staff who just see balances in their logins and transfer between other staff for day-to-day tasks.) Same with a government, who may fund projects and accept taxes in their own coin. The tyranny or tax to watch out for on top of all this is if some group comes in and says "I demand x% of all coins from your new blockchain." On a similar note, Litecoins are big in China. If the blockchain were to come under attack, a large group of Chinese people would be pissed off enough to come together to do something about it. Or, more importantly the Chinese government may have high up officials or execs that hold Litecoins, and it could end up the preferred blockchain of the Chinese, and they turn a blind-eye to regulating it.
DennisP 13y ago
Ripple and related efforts really should talk less about loans between personal friends, and more about the potential for business. Using ripple IOUs or bitcoin colored coins, a business can easily sell exchangeable vouchers for products as a way of getting financing. Instead of getting bank financing or selling equity, sell discounted vouchers to your existing repeat customer base.
- foobarqux 13y ago
  Nothing prevents people from doing this without bitcoin. This is another case where Bitcoin adds functionality that isn't valuable to anyone except in your imagination.
- patio11 13y ago
  You can do that with a SQL transaction or, heck, paper, and never have to involve your customers with Alpha Black Lotus depository certificates as a transport protocol (!). My local coffee shop in Ogaki will sell you 11 200 yen vouchers (conveniently equal to one cup of coffee) for 2,000 yen. How precisely does Bitcoin improve this for buyer or seller?
  - DennisP 13y ago
    Sure, of course you can. I know a small business that did, very successfully. But you might want to give some thought to how you'll prevent counterfeiting. A voucher for a cup of coffee is one thing, but if you want to raise a lot of money then security is a bigger concern. As far as I know there's no established infrastructure or service for this sort of thing. If you do it, you're pretty much building something from scratch. Bitcoin has the potential to make it as simple as installing client software, and telling your customer base about it. If bitcoin gets to common usage, and people succeed in building decentralized exchanges, then your customers could buy your vouchers using the app they use already, and resell them later with a button click or two.
  - mdpopescu 13y ago
    Now copy those vouchers with a quality copier and resell them many times.
maaku 13y ago
There are other ways to do this which stay within the bitcoin protocol which keep pseudoanonymity and do not place all their security and do not place all their security in the unaudited Retroshare network: https://bitcointalk.org/index.php?topic=280292.0 https://bitcointalk.org/index.php?topic=280292.0

104 points by sathishmanohar 13y ago

I don't know much about bitcoin, so can someone explain me what's the point of having an exchange if there is no way of ... actually exchanging that money.

em3rgent0rdr 13y ago
Read the description on their github. There is no need for exchanges as a central component. People who want goods or services essentially issue IOU's for bitcoins to the seller. Which is why you only deal with trusted people (either people you know or people who have acquired a reputation). Those IOU's can then change hands (but not on a fractional reserve basis).
- vrotaru 13y ago
  Just in case you can explain it quickly. What happens if the people you know and trust let your down? (It that's a phrase) The one who is last is holding the IOU is gonna support the loss ?
- eterm 13y ago
  Why not just exchange IOUs of dollars?
- foobarqux 13y ago
  > Which is why you only deal with trusted people Which makes it far less useful than a conventional exchange.

Tenoke 13y ago

I like decentralization as much as the next guy but even with this type of a setup you often end up needing something central that can connect you to more users. This is also the case with ripples - it uses this system but in order for you to trade with others you don't know or in order to cash out you need to trust an exchange which is trusted by others. I'd be interested in seeing what happens but I'd be surprised if this manages to capture more than a portion of the otc trading market.

gizzlon 13y ago

" Abstract: A P2P market place for Bitcoin would permit trading and price discovery even in the absence of cooperation from the legacy payment infrastructure. Orders get signed and published through the network and matched by each node. A buyer sends a Ripple like payment to the seller who sends Bitcoins as part of one single transaction. The system requires trust in friends, but no further."

nhaehnle 13y ago

It is notable that this project, which is advertised as something related to Bitcoin, introduces itself on the Wiki with the concept of money-as-IOU. There is a serious clash of underlying philosophies of money here. On the one hand, you have Bitcoin, which is essentially an attempt to replicate a gold/commodity-like currency in a distributed, electronic fashion. On the other hand, you have the notion that all money is ultimately an abstraction of who owes who. That is, money models social relationships. A project that successfully combines these two notions could be quite interesting.

Spooky23 13y ago
I don't think that it's a conflict, it's reality kicking in. A good example of why this is happening is in the Christmas story. Mary and Joseph were travelling via donkey in while VERY pregnant to another city to pay their taxes to the Roman government. Tax payment in those days meant putting coins or goods in the tax collector's hands. Not very convenient or practical. The ability to use IOUs and trust as a payment vehicle solves a great many problems. Kids discover this at age 6 when they forget their lunch money. Trust is the key component, and a good reason why Bitcoin is successful. (example: The Chinese are always exploiting any means possible to get money in forms other than RMB)
dualogy 13y ago
> introduces itself on the Wiki with the concept of money-as-IOU That's what money is. You don't eat a coin or bill, it's an "IOU some future tangible good or service". Think about it, you either have barter -- no money concept involved. Or you have money-facilitated trade -- then the money (whether coins or bills or seashells) is always a "debt" of sorts for deferred/future "trade settlement". That IOU characteristic automatically happens to whatever emerges (or is decreed) as the unit-of-account+medium-of-exchange of the day. And that's fine, this and only this allows trade beyond immediate barter.
- Guvante 13y ago
  You are oversimplifying. You can either have a currency with intrinsic value or a fiat currency. The USD is a fiat currency, it only has value because the US government says it has value. Fiat currencies are very close to debt basises. Non-fiat currencies like Bitcoin are a little different, since there is actual value to a Bitcoin. It is similar to how gold and silver were once used. The benefit of fiat currencies is they can't be used for other things affecting the monetary supply, they are always in circulation (pretty much, obviously there are exceptions). Bitcoin is in a weird spot, it is a non-fiat currency without having to worry about the destruction aspects, as Bitcoins can't be destroyed. There is the whole getting lost thing, but that is unavoidable without implementing a use or lose it scheme (which some altcoins are trying).

adrianwaj 13y ago

I mentioned on another thread about using company-specific intracoins to facilitate intra-company resources and commerce. I've had a longer think about it, and realized that an exchange can be the focal point of a company's entire finances. Let's say a company gets funded, those funds are lodged onto the exchange into the management's exchange account, and a certain number of coins are minted. Departments request these coins from management who sends them to various departments. Intra-company transactions are facilited by these intracoins for factors-of-production. For departments that earn revenue, these funds are deposited into that department's exchange account, and they can buy more coins, to spend further. At times, management can demand the Sales department transfer them coins (or funds) so they can move them back around the company as they deem fit (like a tax). As the company grows in sales, the price of the coins can either rise, or more coins are issued so it remains fixed to fiat. So basically, I think this exchange could be used in such an idea. It'd have to tie in with an accounting information system, and other systems. Possibly an ERP. Management can approve of all intracoin/fiat trades on the exchange, because it means a department will need to make an external purchase, and management may want to approve of it... to see and approve where its real money is about to go. Also, a conglomerate of companies tied into 1 exchange and 1 intracoin would be interesting. add: company exchange can also hold bitcoins/??coins for spending at other companies that accept cryptocoins. And sales can be received in cryptocoins. If that was the case all the time, fiat would only be needed to pay government taxes.

deleted 13y ago

[deleted]

dobbsbob 13y ago

Best exchange is IRC #bitcoin-otc with the gnupg web of trust. It's p2p, hard to shutdown, hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator, escrow can be used and market decides what the price people are willing to exchange bitcoins for.

sneak 13y ago
> hard to fraud since logins don't rely on flimsy passwords so you know you are not trading with an impersonator It is not hard to defraud people on #bitcoin-otc. In many senses it's not an exchange at all, simply a discovery mechanism, as there is no settlement offered. It's just a lead-gen system.

adrianwaj 13y ago

How I see it, the most important exchanges increasingly from now onward are those between cryptocoins. Btc is just an onramp and offramp into the cryptocurrency ecosystem. Such exchanges can be totally anonymous, including who runs them. They don't deal with people or fiat currency. Just usernames and blockchains. People trust them based on their history, like an ebay seller, and admins realize there's no need to rip off users because it's not worth it to them in the long run (let alone what might happen to them if they are personally outed for doing so.) People can go in and out of them for very short periods of time to lower the risk it should disappear during that time, ie to lower their "exchange risk." They could also have a set lifespan... "we will operate from 2015-2018" this might lower risks as well.. imagine if Silk Road had a fixed shelf life that expired before it was caught.

simondlr 13y ago
Agreed. By the end of next year there will be thousands of altcoins. By 2015 when it gets easier for anyone to create and sustain one (including the problem of securing small chains), there will be an explosion. Millions of coins. There will be a very long tail.
- adrianwaj 13y ago
  Yeah, I was thinking about my idea in the comment below, and realized that if a company (or conglomerate of companies) like IBM or a set of airlines which had an intra-coin that they used internally, may actually want it available to the public, as it indicates that the coin has a backing and importantly, it could be a good way for a company to raise capital.. instead of selling stock, it'd sell its intra-coins. In such cases only certain employees can actually withdraw underlying coins for special reasons, otherwise the underlying blockchain is hidden to staff who just see balances in their logins and transfer between other staff for day-to-day tasks.) Same with a government, who may fund projects and accept taxes in their own coin. The tyranny or tax to watch out for on top of all this is if some group comes in and says "I demand x% of all coins from your new blockchain." On a similar note, Litecoins are big in China. If the blockchain were to come under attack, a large group of Chinese people would be pissed off enough to come together to do something about it. Or, more importantly the Chinese government may have high up officials or execs that hold Litecoins, and it could end up the preferred blockchain of the Chinese, and they turn a blind-eye to regulating it.

DennisP 13y ago

Ripple and related efforts really should talk less about loans between personal friends, and more about the potential for business. Using ripple IOUs or bitcoin colored coins, a business can easily sell exchangeable vouchers for products as a way of getting financing. Instead of getting bank financing or selling equity, sell discounted vouchers to your existing repeat customer base.

foobarqux 13y ago
Nothing prevents people from doing this without bitcoin. This is another case where Bitcoin adds functionality that isn't valuable to anyone except in your imagination.
patio11 13y ago
You can do that with a SQL transaction or, heck, paper, and never have to involve your customers with Alpha Black Lotus depository certificates as a transport protocol (!). My local coffee shop in Ogaki will sell you 11 200 yen vouchers (conveniently equal to one cup of coffee) for 2,000 yen. How precisely does Bitcoin improve this for buyer or seller?
- DennisP 13y ago
  Sure, of course you can. I know a small business that did, very successfully. But you might want to give some thought to how you'll prevent counterfeiting. A voucher for a cup of coffee is one thing, but if you want to raise a lot of money then security is a bigger concern. As far as I know there's no established infrastructure or service for this sort of thing. If you do it, you're pretty much building something from scratch. Bitcoin has the potential to make it as simple as installing client software, and telling your customer base about it. If bitcoin gets to common usage, and people succeed in building decentralized exchanges, then your customers could buy your vouchers using the app they use already, and resell them later with a button click or two.
- mdpopescu 13y ago
  Now copy those vouchers with a quality copier and resell them many times.

maaku 13y ago

There are other ways to do this which stay within the bitcoin protocol which keep pseudoanonymity and do not place all their security and do not place all their security in the unaudited Retroshare network: https://bitcointalk.org/index.php?topic=280292.0 https://bitcointalk.org/index.php?topic=280292.0