Author Topic: BitSharesTV #5 2015: The year of the decentralized bitcoin exchange  (Read 4771 times)

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Offline bytemaster

What if a gateway only wants to provide a one way USD -> someAsset,   they wouldn't need to create a iou UIA right?  is that still considered a 'gateway' ? 

If localbitcoins sellers can exchange without meeting KYC requirements how does this differ from the above simple gateway?  Could not anyone with a bank account offer that immediately without any hoops?

I guess a localbitcoins example would use escrow and a gateway wouldn't ?

The way they would do it is, they accept USD dollars into their account.  and they issue XeldarIOU's on the blockchain.  Now the user can trade those for any asset on the bitshares exchange. Its up to Xelder to be a market maker for all their IOU's.   So what is likely to happen is Xelder will be a market maker for XeldarIOU <> bitUSD.  In this way bitUSD becomes the reserve currency of the exchange.

I must be missing something.  why not just go directly USD -> bitUSD and user can trade that for any asset on the bitshares exchange.  Why add the extra step USD -> Xeldal-IOU-USD -> bitUSD .  What good is the asset Xeldal-IOU-USD if I'm only operating a 1way on-ramp. 

this made sense to me before. I don't know what happened.  I can see the utility in knowing outstanding IOUs for a 2 way gateway to hold reserves but for 1way it just looks like a extra needless step.

It is not needless if you eliminate centralized exchanges entirely.  We need IOU BTC vs BTS to discover prices for the feeds.   It is also a very different risk proposition.  Both have their place.
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What if a gateway only wants to provide a one way USD -> someAsset,   they wouldn't need to create a iou UIA right?  is that still considered a 'gateway' ? 

If localbitcoins sellers can exchange without meeting KYC requirements how does this differ from the above simple gateway?  Could not anyone with a bank account offer that immediately without any hoops?

I guess a localbitcoins example would use escrow and a gateway wouldn't ?

The way they would do it is, they accept USD dollars into their account.  and they issue XeldarIOU's on the blockchain.  Now the user can trade those for any asset on the bitshares exchange. Its up to Xelder to be a market maker for all their IOU's.   So what is likely to happen is Xelder will be a market maker for XeldarIOU <> bitUSD.  In this way bitUSD becomes the reserve currency of the exchange.

I must be missing something.  why not just go directly USD -> bitUSD and user can trade that for any asset on the bitshares exchange.  Why add the extra step USD -> Xeldal-IOU-USD -> bitUSD .  What good is the asset Xeldal-IOU-USD if I'm only operating a 1way on-ramp. 

this made sense to me before. I don't know what happened.  I can see the utility in knowing outstanding IOUs for a 2 way gateway to hold reserves but for 1way it just looks like a extra needless step.

Offline bytemaster

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Offline bitmarket

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What if a gateway only wants to provide a one way USD -> someAsset,   they wouldn't need to create a iou UIA right?  is that still considered a 'gateway' ? 

If localbitcoins sellers can exchange without meeting KYC requirements how does this differ from the above simple gateway?  Could not anyone with a bank account offer that immediately without any hoops?

I guess a localbitcoins example would use escrow and a gateway wouldn't ?

The way they would do it is, they accept USD dollars into their account.  and they issue XeldarIOU's on the blockchain.  Now the user can trade those for any asset on the bitshares exchange. Its up to Xelder to be a market maker for all their IOU's.   So what is likely to happen is Xelder will be a market maker for XeldarIOU <> bitUSD.  In this way bitUSD becomes the reserve currency of the exchange.
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Offline bitmarket

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Great episode!

If we pretend I'm a gateway, is this how it works?

I accept £100 to my bank account from a buyer who wants to buy bitGBP.

I issue issue 100 matt608GBP to the buyer - which is an IOU from me to the buyer for 100 GBP, an iouGBP - NOT ioubitGBP.

An order book is created in the BitShares client for matt608GBP/bitGBP

People who want to cash out of bitGBP into GBP buy my GBP iou.  To withdraw to their bank account means I send them £100 from my bank account. - is that correct?

So each gateway still has their own separate orderboook except its on the BitShares blockchain.

bitstamp doesn't issue "bitstamp bitUSD", they issue "bitstamp  iouUSD", then if someone buys it they can redeem it at the exchange for USD.

So it appears this means anyone who has achieved local regulatory approval can be a gateway? You could have lots of small gateways starting up in any country providing the person can use their bank account.

Can it all be done entirely within the BitShares client - no exchange website even needed?!  I could simply announce I am now a gateway and provide bank account deposit details on my wall on my BitShares account. People could start making GBP deposits. I issue them matt608GBP.  People who want to sell their bitGBP for GBP buy the IOU from my depositors.  They can then send me the IOU with a memo including their bank account details.  I send them GBP from my account.  If the person who bought the matt608GBP changed their mind and wanted to sell it back to GBP, they could send it back to me and I would send them 100 GBP from my bank account (minus a tiny exchange fee).

Voila.  An gateway can be launched without even coding anything new!

I have no plans to do this of course due not being able to use my bank account for this, but I'm just thinking theoretically around the world.  Any exchanges that already has completed the KYC + regulatory approval could start doing this without even having to do anything to their website.  They just create an account on BitShares and put up their bank account details on their BitShares account wall, issue an IOU and start trading.  They could optionally just add 1 page to their website displaying iou/bitasset order book if they wanted to.  Or they could even just have page telling users they are now a gateway for BitShares and direct them to download the client and visit their account where they will find the banking deposit details.

The only problem is to have regulatory approval they have to have your ID info which means the user would have to verify themselves on the gateways website first before trading, but thats no big deal.  It means all currently approved users of any exchange could trade like this, all an exchange has to do to become a BitShares gateway is make a BitShares account, issue an IOU and start trading.  No integration is even required.  Customers would just need an unique ID that ties them to their exchange account.  Simple.

Is my understanding correct?

You nailed it.
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Offline bitmarket

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What really is the advantage of a decentralized exchange compared to say Bitstamp (in the light of the recent Bitstamp hack)? Gateways would also have to store BTC. And also have a hot wallet?
yes .. bitstampUSD (IOU) have the same issue .. IF THERE wasn't the power of user-issued assets that allow a MASTER key to manipulate (freeze, withdraw, deposit, burn,...)  individual account balances .. :)

If a bitshares gateway gets hacked ... the gateway identifies those balances in time (critical) and freezes the IOUs

The key is that you can convert your gateway IOU into a securitized asset and then place it on the order book.  The balances held in IOU's will be significantly less at any given point in time.
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Offline santaclause102

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What if a gateway only wants to provide a one way USD -> someAsset,   they wouldn't need to create a iou UIA right?  is that still considered a 'gateway' ? 

If localbitcoins sellers can exchange without meeting KYC requirements how does this differ from the above simple gateway?  Could not anyone with a bank account offer that immediately without any hoops?

I guess a localbitcoins example would use escrow and a gateway wouldn't ?
A centralized party can do two things:
1) USD <-> USD-IOU or any_asset <-> any_asset-ÍOU (gateway described in the video)
2) asset1 <-> asset2. Could be automated (not sure). The agent (if automated) would then buy the respective asset on various exchanges. Rune described it above as a "market maker gateway". You would only have to give up trust for as long as the process takes. Disadvantage: I guess higher fees.

Local Bitcoins only matches buyer and seller, they themselves don't do any trades. But I heard a while ago that the Bitcoin sellers on localbitcoins need to follow some regulation. Not up to date there.
« Last Edit: January 05, 2015, 08:23:25 pm by delulo »

Offline bitmarket

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Front page of /r/bitcoin on a high traffic day.   This is cool.
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Xeldal

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What if a gateway only wants to provide a one way USD -> someAsset,   they wouldn't need to create a iou UIA right?  is that still considered a 'gateway' ? 

If localbitcoins sellers can exchange without meeting KYC requirements how does this differ from the above simple gateway?  Could not anyone with a bank account offer that immediately without any hoops?

I guess a localbitcoins example would use escrow and a gateway wouldn't ?


Offline matt608

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Great episode!

If we pretend I'm a gateway, is this how it works?

I accept £100 to my bank account from a buyer who wants to buy bitGBP.

I issue issue 100 matt608GBP to the buyer - which is an IOU from me to the buyer for 100 GBP, an iouGBP - NOT ioubitGBP.

An order book is created in the BitShares client for matt608GBP/bitGBP

People who want to cash out of bitGBP into GBP buy my GBP iou.  To withdraw to their bank account means I send them £100 from my bank account. - is that correct?

So each gateway still has their own separate orderboook except its on the BitShares blockchain.

bitstamp doesn't issue "bitstamp bitUSD", they issue "bitstamp  iouUSD", then if someone buys it they can redeem it at the exchange for USD.

So it appears this means anyone who has achieved local regulatory approval can be a gateway? You could have lots of small gateways starting up in any country providing the person can use their bank account.

Can it all be done entirely within the BitShares client - no exchange website even needed?!  I could simply announce I am now a gateway and provide bank account deposit details on my wall on my BitShares account. People could start making GBP deposits. I issue them matt608GBP.  People who want to sell their bitGBP for GBP buy the IOU from my depositors.  They can then send me the IOU with a memo including their bank account details.  I send them GBP from my account.  If the person who bought the matt608GBP changed their mind and wanted to sell it back to GBP, they could send it back to me and I would send them 100 GBP from my bank account (minus a tiny exchange fee).

Voila.  An gateway can be launched without even coding anything new!

I have no plans to do this of course due not being able to use my bank account for this, but I'm just thinking theoretically around the world.  Any exchanges that already has completed the KYC + regulatory approval could start doing this without even having to do anything to their website.  They just create an account on BitShares and put up their bank account details on their BitShares account wall, issue an IOU and start trading.  They could optionally just add 1 page to their website displaying iou/bitasset order book if they wanted to.  Or they could even just have page telling users they are now a gateway for BitShares and direct them to download the client and visit their account where they will find the banking deposit details.

The only problem is to have regulatory approval they have to have your ID info which means the user would have to verify themselves on the gateways website first before trading, but thats no big deal.  It means all currently approved users of any exchange could trade like this, all an exchange has to do to become a BitShares gateway is make a BitShares account, issue an IOU and start trading.  No integration is even required.  Customers would just need an unique ID that ties them to their exchange account.  Simple.

Is my understanding correct?

Offline santaclause102

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What really is the advantage of a decentralized exchange compared to say Bitstamp (in the light of the recent Bitstamp hack)? Gateways would also have to store BTC. And also have a hot wallet?
yes .. bitstampUSD (IOU) have the same issue .. IF THERE wasn't the power of user-issued assets that allow a MASTER key to manipulate (freeze, withdraw, deposit, burn,...)  individual account balances .. :)

If a bitshares gateway gets hacked ... the gateway identifies those balances in time (critical) and freezes the IOUs

Unless I'm misunderstanding something the big difference is that the client funds are not as much at risk using a gateway, in that the client can freely move their holdings into bitAssets or BTS itself once they've received the IOU. The gateway also does not need to keep track of user balances, they only need to make sure their holdings of for example BTC is larger than or equal to the amount of BTCIOUs they've issued. As long as they can honor people wanting to cash out 1 BTCIOU -> 1 BTC, their reputation is intact and the value of the IOU will hold.

If the gateway gets hacked they may freeze the IOU asset, but that does mean anyone holding IOUs at that time may lose value. However another advantage here is that they can freeze the asset until the situation has been resolved, at which point they may once again be capable of honoring the cashing out.

Quote
The gateway also does not need to keep track of user balances,
That is not a factor that influences the risk of loosing funds. Or is your argument that it becomes an easier task and the gateway can focus on that one task?

Quote
As long as they can honor people wanting to cash out 1 BTCIOU -> 1 BTC, their reputation is intact and the value of the IOU will hold.
The same for Bitstamp? They would not have to have holded trading today if a certain amount of coins would have been stolen and they would be confident that those coins could be recovered over time through tx fees again.

Quote
If the gateway gets hacked they may freeze the IOU asset, but that does mean anyone holding IOUs at that time may lose value. However another advantage here is that they can freeze the asset until the situation has been resolved, at which point they may once again be capable of honoring the cashing out.
Again I don't see a difference to Bitstamp.

Quote
the big difference is that the client funds are not as much at risk using a gateway, in that the client can freely move their holdings into bitAssets or BTS itself once they've received the IOU.
That seems like a real advantage! You can trade for BitUSD WITHIN your client. No need to open any other software or website.

Offline xeroc

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there is no need to freeze ALL usser's accounts ... just the stolen funds .. unless they went through the decentralized exchange .. than things get complicated I think .. A maturation time for IOUs until they can be spend in the exchange might be useful to consider ...

Offline svk

What really is the advantage of a decentralized exchange compared to say Bitstamp (in the light of the recent Bitstamp hack)? Gateways would also have to store BTC. And also have a hot wallet?
yes .. bitstampUSD (IOU) have the same issue .. IF THERE wasn't the power of user-issued assets that allow a MASTER key to manipulate (freeze, withdraw, deposit, burn,...)  individual account balances .. :)

If a bitshares gateway gets hacked ... the gateway identifies those balances in time (critical) and freezes the IOUs

Unless I'm misunderstanding something the big difference is that the client funds are not as much at risk using a gateway, in that the client can freely move their holdings into bitAssets or BTS itself once they've received the IOU. The gateway also does not need to keep track of user balances, they only need to make sure their holdings of for example BTC is larger than or equal to the amount of BTCIOUs they've issued. As long as they can honor people wanting to cash out 1 BTCIOU -> 1 BTC, their reputation is intact and the value of the IOU will hold.

If the gateway gets hacked they may freeze the IOU asset, but that does mean anyone holding IOUs at that time may lose value. However another advantage here is that they can freeze the asset until the situation has been resolved, at which point they may once again be capable of honoring the cashing out.
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What really is the advantage of a decentralized exchange compared to say Bitstamp (in the light of the recent Bitstamp hack)? Gateways would also have to store BTC. And also have a hot wallet?

I think ultimately we will see market making gateways become a lot more popular for crypto than IOU gateways. So you will simply send your bitcoin to the gateway that offers the highest rate in bitUSD. If you want to trade a lot you can find a btc -> bitBTC gateway and then trade bitBTC against bitUSD, however it might turn out that most liquidity goes to bitUSD market maker gateways so even large transactions can efficiently go through them.

IOU gateways will be excellent for fiat though.

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What really is the advantage of a decentralized exchange compared to say Bitstamp (in the light of the recent Bitstamp hack)? Gateways would also have to store BTC. And also have a hot wallet?
yes .. bitstampUSD (IOU) have the same issue .. IF THERE wasn't the power of user-issued assets that allow a MASTER key to manipulate (freeze, withdraw, deposit, burn,...)  individual account balances .. :)

If a bitshares gateway gets hacked ... the gateway identifies those balances in time (critical) and freezes the IOUs