The missing link in the Bitcoin ecosystem: decentralized trading platforms

For the digital currency community, it is very important to have a safe digital currency exchange. In particular, the failure of many trading platforms has long troubled users in the Bitcoin community. Many people expect to have a truly decentralized trading platform, which is an ideal and secure trading platform. At present, some developers are committed to the development of decentralized trading platforms. Such platforms can keep users' funds away from centralization and decentralize users' funds. In order to ensure the safety of users' funds, some people also provide different degrees of anonymity.

Bitcoin.com recently sat down with Manfred Karrer, the founder and developer of decentralized exchange Bitsquare, to discuss his research project, Bitsquare. Karrer also told us his feelings about the block size debate and how he sees the current state of Bitcoin development.

Bitcoin.com (BC): Please introduce Bitsquare.

MK: Bitsquare is a completely decentralized trading platform for exchanging Bitcoin for national currencies (dollars, euros) or other cryptocurrencies. Its purpose is to solve the current contradiction - we have decentralized currencies, but there is no corresponding decentralized channel to trade it.

Bitsquare is a desktop application (supporting all major operating systems) that enables users to view, post and accept Bitcoin transactions. Orders are submitted to a public order book. All links are through a custom P2P network called Tor. Bitsquare's trading method is more similar to Localbitcoins than Bitstamp. However, the difference is that Bitsquare is completely decentralized, meaning that Bitsquare does not hold any Bitcoin, fiat currency or other digital currency.

Without relying on a centrally controlled entity, some alternative protection mechanism is needed to ensure transaction security. Fortunately, Bitcoin provides a very powerful tool - multi-signature (multisig). The security deposit serves as an additional protection and is fully refunded when the transaction is successfully completed. A decentralized arbitration system will resolve disputes, and the arbitrator has a third key in 2 to 3 multi-signature escrow protocol addresses, just in case (for example, a trader does not send or receive fiat currency).

BC: How did you get into the cryptocurrency space?

MK: I first heard about Bitcoin in early 2011, and I was like: Wow! This is revolutionizing the banking system and forcing government to redefine itself - to serve the public rather than as a power center. I felt that Bitcoin could be more influential and disruptive than the Internet. Being able to witness such a revolutionary development inspired me to get involved. When I saw that decentralized exchanges were missing from this development, I started to research how to fill this gap. Bitsquare is the result of my attempt.

BC: Compared with traditional trading methods, how is Bitsquare's decentralized nature reflected?

MK: Traditional trading platforms are based on a dedicated server, implement a centralized arbitration system or rely on KYC. Therefore, there is a single point of failure. Decentralized trading needs to achieve censorship immunity and avoid any single point of failure or failure. Decentralization is the core principle of Bitsquare, and we apply this principle to all aspects of the project:

• Infrastructure: Bitsquare utilizes a P2P network (no servers);
• Security: Bitsquare does not hold user funds (Bitcoin and fiat currency);
• Privacy: Bitsquare does not store user data (no registration required, uses Tor);
• Open: It is open source (AGPL license);
• Independent: supported by donations and personal savings;
• Governance: Bitsquare is a DAO (decentralized autonomous organization) that builds, supports, and maintains the project;
• Sustainability: Arbitrators and DAOs can earn transaction fees.

BC: Recently the centralized exchange Cryptsy collapsed. Do you think a decentralized architecture could have prevented this from happening?

MK: Yes, of course. The problem with centralized exchanges is not just the risk to funds and privacy. This model is likely to end up with a highly regulated and expensive system. Like banks or stock exchanges - users need to have a very high level of trust in these companies, and this trust can be easily abused. It is expected that existing laws and regulations used for traditional financial institutions will be applied to cryptocurrency exchanges because they operate in a similar way. To avoid these problems, we need to develop alternative models.

How can we prevent the loss or theft of user funds? How can we prevent the theft or misuse of user data? The answer is simple: don’t hold user funds or data! Even more, we should ask ourselves: What is the real power of Bitcoin? Do we just want another AliPay, or are we only interested in Bitcoin because it allows us to no longer rely on third parties?

BC: The platform offers trading in USD, EUR, JPY, and altcoins. Can you explain how this is done?

MK: Actually, Bitsquare supports any fiat currency, as our payment methods support it. Currently, we support SEPA (Single Euro Payments Area) OKPAY, PerfectMoney, AliPay and Swish, all of which we support. The total number of currencies supported is 23 (including the most widely used currencies such as Japanese Yen, Chinese Yuan, Ruble or Swiss Franc). In the future, we will further expand the types of currencies supported as we add new payment methods.

On the altcoin side, we will initially support only 16 highly correlated currencies, but this will be expanded in the future as we see demand from users. Users need to set their preferred payment method and choose the type of currency they want to trade. For example, with OKPAY they only need to enter their account number, which is the only data exposed to their counterparties. Users can trade 21 currencies, as OKPAY supports internal currency conversion. In the case of altcoins, traders are completely anonymous and only the address is exposed to their counterparties.

The transfer of fiat currency (or altcoin) is done outside the Bitsquare application. The Bitcoin buyer needs to make the payment on their bank page (or altcoin wallet) and then confirm it inside the Bitsquare application to complete the payment. Therefore, the Bitcoin seller will notify the buyer that if the payment is made in fiat currency (or altcoin), the seller needs to confirm the transaction of the invoice and payment: whether there is enough blockchain on the altcoin to confirm it.

BC: You guys seem to be launching a beta version, can you tell us how that’s going?

MK: We are currently testing in a small group. If the test runs are successful, we will open it up to the wider public. Testing a P2P network has its own challenges. In order to cover a large area of ​​the network, we want to test as many real (anonymous) users as possible to ensure that the system runs stably and securely. We will announce our future promotion plans through our communication channels (newsletter, mailing list, blog) and Bitcoin's media channels. Our goal is to have as many users as possible participate in these stress tests - to ensure that the P2P network can run stably under real life conditions. If these tests give us enough confidence that the stability and security are guaranteed, we will launch the beta version as soon as possible.

BC: In October you discussed DHT, Tor hidden services, and Tor. Can you tell us how you use these tools?

MK: Bitsquare originally used DHT, but later, we decided to use Tor as the network layer because Tor outperforms all NATs and firewalls. A P2P node combines the functionality of a client and a server and consumes very little bandwidth. On the server side, Bitsquare uses Tor's hidden services, while the client part uses Tor. This way, the P2P network inherits Tor's high privacy protection, which is fully integrated into the Bitsquare application, so users don't need to set up anything.

BC: What do you think about the current development of Bitcoin?

MK: Despite the endless obituaries Bitcoin is facing I think Bitcoin is going through an interesting growth process and it is doing very well. The block size debate and how it was handled gave me good confidence that the core developers and the scientific community are very strong in terms of being able to manipulate and fight back against pressure. It is a sign of excellence to discuss such a complex and controversial topic in two conferences and that scientific research is a better basis for making decisions. Solutions like Lightning Network or Segregated Witness are certainly more complex than changing a parameter, but the dimensions of the problem they solve are scaling.

The fact that mainstream media, as well as a large part of the Bitcoin community, are on social media platforms is a very different strategy, a sign that communication is still an open problem that needs better solutions. Emotionally driven disputes, personal attacks, smear campaigns, egocentric personalities, differences in thought, different knowledge levels, professional manipulation (such as hired trolls)... make management and communication fundamentally difficult. However, a group with a common goal - to make Bitcoin successful, should strive for effective solutions.

There are many successful approaches in science, far more than those used in mainstream media and politics. I hope to see more use of tools, like Liquid/Delegative democracy is a very effective approach. Although these turmoil caused by Bitcoin's expansion seem disturbing now, it will be insignificant in retrospect over time. In my opinion, the lack of decentralized exchanges and markets is a big problem. Fortunately, there are some projects, like Bitmarkets, Openbazaar, and Mercury, trying to fill this gap.

Another concern, in my opinion, is the weak anonymity of Bitcoin - especially in centralized exchanges, where anonymous addresses can easily be matched to a real identity. Confidential transaction services like JoinMarket or CoinShuffle are working to address this shortcoming. But my main focus is on the centralization of Bitcoin mining. But there are some interesting scenarios - the economics of mining could be fundamentally disrupted by new trends. Imagine, for example, a mesh network using Bitcoin for small transactions, which would require an autonomous money supply. If there were a router with integrated mining capabilities, the tiny fees required to operate would be automatically transmitted, and if these routers were used on a large scale, the economics of mining would be fundamentally changed. These routers would not be able to compete economically with more efficient industrial-scale mining farms. But they would benefit from other uses other than simple mining, such as using them in the Internet of Things, making devices in the Internet of Things part of a network that automatically exchanges value, running smart contracts or acting as a DAC.

BC: Finally, what is Bitsquare’s overall goal?

MK: Bitsquare's goal is to provide a way for users who care about decentralization and privacy to trade in a way that adheres to Bitcoin's own principles. A Bitcoin native trading platform.

Original article: https://news.bitcoin.com/bitsquare-missing-link-decentralized-bitcoin-exchange/
Author: jamieredman
Translator: nous
Editor: printemps
Source (translation): Babbitt Information (http://www.8btc.com/decentralized-bitsquare)