Bitcoin Q&A: Decentralised exchanges and counterparty risk


Jen asks, “How do you envision markets transitioning from centralized to decentralized exchanges? … What are the implications you see, at large?” Decentralized exchanges are a fantastic idea.
I think it’s an idea that can be applied fairly directly to trading between open, digital cryptocurrencies.
But trading cryptocurrencies to fiat currencies, trading between the U.S. dollar and bitcoin,
is a lot harder to decentralize. The reason for that is the dollar system is centralized.
You have some examples of decentralization and recently they haven’t been growing as fast,
like LocalBitcoins [and] various types of cash markets. ATM machines, those are fiat to bitcoin exchanges.
They are decentralized, but they can’t really generate a lot of volume of transactions.
They’re not very convenient. Whereas doing things like atomic swaps, cross-chain
atomic swaps — where you can swap currencies from two blockchains, with two transactions, that are trustless and neither participant can cheat — means that we could see many more decentralized
cryptocurrency to cryptocurrency exchanges. We’ll see how that happens.
I think that will be really interesting Another possibility that we’re seeing
(and I think a lot of different people are now exploring) is the possibility of having fiat currencies
expressed as some kind of pegged cryptocurrency. An example of that would be Tether.
There are proposals for some other forms like that, where you have fiat currency in reserve and then you
have a cryptocurrency asset issued in equal proportion. You can trade that on a blockchain. It allows you to do arbitrage and
decentralized exchanges for fiat currencies too, although of course the bank deposits that contain the
actual asset (ex. U.S. dollar), those are still centralized. “Will a Tether collapse lead to such a
fierce bear market that it kills off Bitcoin? Will decentralized atomic swaps and Bisq
be too late and weak to save the day?” I have not really studied what’s happening
with Tether, but I do know that it is a centralized / centrally managed system.
That represents custodial risks, counterparty risks, like any other centralized / centrally controlled system. Having lived through a few very big crises in Bitcoin,
I’m really not fearful of a “fierce bear market” that could kill off Bitcoin. I really don’t think
that can happen, for a variety of reasons. One reason: most people who get into Bitcoin today
don’t realize how big a deal the collapse of MtGox was. [It was] a time when there was only one exchange,
when that exchange was responsible for price setting, and when that exchange was responsible for
the vast majority of all of the exchange volume. When it collapsed, it collapsed suddenly
and catastrophically, with a loss that was a staggering amount of money as a percentage
of the total amount of Bitcoin in circulation. And Bitcoin didn’t die. It was the first and only time I was afraid that
this might really knock Bitcoin back by a long time. Or even potentially stop it in its tracks, force us
to reboot the currency, and start something new. When it didn’t happen, I realized that
Bitcoin is more resilient than I thought. Then I started thinking about what my reaction would have been if bitcoin had dropped precipitously back to double digits, or even single digits,
in value against the dollar. I realized that what I would probably do is
buy all of them, with whatever cash I had. Then I realized that everybody else would be thinking
the same, or at least a very large number of people who had seen that this experiment was working
and believed in it, would think the same. This idea of “buy the dip” isn’t always
investment advice or good investment advice. In fact in some cases, it’s terrible investment advice. It is like ‘catching a falling knife,’
as they say in investment circles. But there are some people who believe in this project
so strongly that if they see an opportunity to get back in at a much lower cost basis, they will.
Some of these people have a lot of money now. What they consider a buying opportunity
is much higher than what I would. In fact I recently saw a tweet
that was kind of funny, which said: “What would you do if bitcoin dropped to zero?”
Someone responded, “It wouldn’t, because if it dropped to one penny, I could buy
all of them for $168,000. And I would.” That kind of attitude, at different price points,
means that I don’t see that scenario. Could a collapse of something like Tether
set us back for a significant period of time? Yes. We keep seeing these things happen.
They’re the result of centrally controlled, centrally managed, custodial systems.
Tether is one of those. The same thing could be said for the
recent massive theft at CoinCheck, which was half a billion dollars worth of NEM
and a significant amount of Ripple’s [XRP]. We will continue to see these centralized systems introduce counterparty risk Every now and then, that counterparty risk
is going to turn into an actualized loss.

66 thoughts on “Bitcoin Q&A: Decentralised exchanges and counterparty risk”

  1. Hello. I've started listening to your speaches and reading your book and perhaps the book will answer my question eventually but I'm impatient and I'm hoping to get a quicker answer. You are suggesting that bitcoin can bring all the people without
    bank accounts to participate in world economy but how will they do that when you need a bank account to be able to buy bitcoin. How can those people without bank account obtain bitcoin ? via what system? Mining? (That perhaps was an easy way and a good quick start back in the day not so much now ,right ?

  2. When humans stop giving a damn about heroes, superheroes, gods, angels, authority and the like; they are ready for decentralization. You see this theme of trust in our culture. Especially in our entertainment and politics. Marvel and DC comics movies sell. Trust superman, batman, etc. And in politics we elect movie stars, popular people, etc. Trust is still very much embedded in our system.

    But in some way we are headed into a trustless society in the way we have migrated to the internet. In the internet, we interact via protocols. Not via trust. We don't have to know who is at the other end. It's enough to know what protocol is used for the current interaction.

    I look forward to the day when we don't interact based on trust anymore. But based on specification. By then we have truly abandoned our penchant for trusting in the benevolence of the gods and use purely reason to eck out our own existence.

  3. my only interest here is to hear from the 4 people that dislike this video, im really curious to hear anyone that could disagree to a large extent what andreas is talking about, or is it just an accidental click, lol

  4. If Bitcoin and other cryptocurrencies provide no traceability then governments will kill them. Fans of cryptocurrencies seem to be too wrapped up in their ideology to see reality.

  5. Nothing can destroy Bitcoin now. It will never going to cost les than $2000 . So many people belive in the technology now and they growing every day. Especially when you can see the banks are so scared now and all this overvalued stocks. The system will be change and we will be part of that!!

  6. LMFAO Right when he said atomic swaps is when I resumed the video from an idea I had for the scalability issue(s). It entailed exactly that, had never heard the term before until now. Keep up the good fight!

  7. This is a double post! I want to see who has my understanding. If I stand alone and get made fun of “whatever”.

    Right now the problem that I see is that 80% of us can’t earn it compared to government money. We need more jobs for bitcoin not just for developers but for the average employee and this is what I am trying to fight for!

    We need jobs
    We need jobs
    We need jobs

    This might sound crazy to some people but I’ve quit my job looking for a pay check in bitcoin instead. I’m not a developer but I have some skills I might be able to sell or I might be able to get a weekly paycheck out of,in bitcoin!

  8. Empty Gox. Ha! I sure would like to see the US Government use more of Andreas to help them understand Crypto Assets. Much like when he spoke in Canada. To many important people In US government don't even have a basic understanding of the Tech. However, with that said it is a double edged sword. I envision the US government using crypto assets to do it's bidding and restricting or simply cutting off access to the tech for it's citizens..

  9. Hey Andreas, where do you get your inside information on this new technology.
    With so many youtube channels i'm trying to find more great resources.

  10. If tether is gone overnight that just means that all the dollars people ultimately exchanged for it are frozen. The US government will then contemplate how to make use of this lucky occurrence since there will be that much circulating dollars less in the system. Depends on the Tether partner Bitfinex too if there is a mitigation for all that lost tether.

  11. I have been upset that I knew about the possibility of DOA in 2014, but because coinbase didn't accept my dinky credit union (and still doesn't) I didn't buy and bitcoin 🙁 But when I heard that a group of people donated 100 BTC to you because you had to pay off debts, that made me feel really good. I'm really happy that your incredible service is being recognized by the community.

  12. Has anyone tried to find a job with moderate computer skills that pays in bitcoin? Basically a virtual secretary or some kind of online job that doesn’t require knowledge of programming?

  13. The NEX exchange on NEO basis is what I'am looking forward! Very ambitious – it is time for DEX exchanges like that. Thanks Andreas for covering!

  14. Recently I waited watching the price of btc go straight down. Everyone was screaming the sky is falling, sell, sell! When btc went right under $6.000 I bought. There may be more opportunities to get into btc with lower prices as btc will drop again as it always does but I was comfortable with it. I went to the btc obituaries page you talk about and what a good read. Thank you for your time and knowledge. 🙂

  15. Hi Andreas, Considering that current blockchain technology companies ( like Bitcoin, ethereum, ripple) can be analogized to any open source softwares like ANgular JS, ReactJS, Vue Js or perhaps even to technoogies like python, ruby etc how would you consider the valuation of these stock ? I mean Dennis RIchard never made any money writing the C programming language if you know what I mean

  16. Some kind of irony here, though. Yes it's the centralization flaw that allows money to be stolen or hacked, yes, but it's the decentralization flaw that allows robbers to get away with the money and not be traced. At best what happened to the money can be traced for a moment, but never who's behind it.

    Which is the biggest problem with crypto IMHO. It offers no protection. And it can't, because for that you need people, people to speak to, who are gonna judge the case, and help. Sure, a bank can crash and all the money disappear (if it's not helped by the government), but the bank also protects you a lot.

    So I believe that people, the general mass, who aren't criminals or fraudsters, want to have their name on their money, they want protection.
    Which doesn't mean I don't believe in crypto, but I believe that in the end, people will never use crypto as a direct method of payment, only as a storage of value. People will keep using Paypal or whatever is similar, those centralized services will feed from people's crypto accounts in many currencies, transparently, most likely doing convertions all the time. And yes, at a fee. But I'm pretty sure that the vast majority of people want to pay that fee (well, generally it's the seller who does & it's transparent to the buyer anyway) in order to be protected. Especially when buying online. Protection from sellers, or from their own mistakes, like mistyping an address or an amount. You just can't use crypto for this directly, you need a driver anyway. Sure, the lightning network could be a driver, an abstract layer to multiple currencies, but it'd really need to offer full protection & judgement to meet people's need, IMHO.
    Not counting that it won't make sense at all for many many years, at least for europe & the US, to adopt any crypto as currency, with such volatility. If it has been done so far it's only as publicity stunts.
    This said, maybe people want both. It's a little a national sport in every european country (& I'd bet Greece is the worst) not to declare every profit. While it's crime that brought Bitcoin into the light, it may be just the general black economy that will keep crypto used. What is the value of an untaxed USD, and are people ready to give away their protection to avoid taxes, I don't know. Probably on some part of their income, yes.

    About Tether, I've read a lot about it, it's a lot of conspiracy theorists claiming that it is "printed out of thin air", which would mean that no real USD went to exchanges during the last few months, or nowhere near the 2 billions printed, which I wouldn't believe.
    So if Tether isn't backed by real USD, it means the money was stolen (or lost in some way), but you don't need Tether for that. Any exchange can lose the money, it doesn't need a money token for that. Plus whether an exchange lists USD or USDT, it's still a token, a token to "real" money in a bank, bank that doesn't have to be fully solvent on top of it. So whether it's a token to a token, or a token to a token to another token, same risk of losing it all IMHO. I believe it's the fact that Tethers have been printed in batches (there's probably a technical reason for that) that fueled conspiracy theories.

  17. Haha from the title I thought you were talking about risk surrounding the Counterparty DEX and got a bit worried about my holdings there. First I've seen of your videos and I'm already a fan.

  18. This is too true to be funny .

    The next time you hear a politician use the
    Word 'billion' in a casual manner, think about whether you want the 'politicians' spending
    YOUR tax money .

    A billion is a difficult number to comprehend,
    But one advertising agency did a good job of putting that figure into some perspective in one of its releases.

    A.
    A billion seconds ago it was 1959.

    B.
    A billion minutes ago Jesus was alive .

    C.
    A billion hours ago our ancestors were
    living in the Stone Age.

    D.
    A billion days ago no-one walked on the earth on two feet.

    E.
    A billion dollars ago was only
    8 hours and 20 minutes,
    at the rate our government
    is spending it.

    While this thought is still fresh in our brain…
    let's take a look at New Orleans ..
    It's amazing what you can learn with some simple division.

    Louisiana Senator,
    Mary Landrieu (D)
    was asking Congress for
    250 BILLION DOLLARS
    To rebuild New Orleans. Interesting number…
    What does it actually mean?

    A.
    Well .. If you are one of the 484,674 residents of New Orleans
    (every man, woman and child)
    You each get $516,528

    B.
    Or… If you have one of the 188,251 homes in
    New Orleans, your home gets $1,329,787.

    C.
    Or.. If you are a family of four…
    Your family gets $2,066,012.

    Washington, D.C.
    HELLO!
    Are all your calculators broken??

    Building Permit Tax
    CDL License Tax
    Cigarette Tax
    Corporate Income Tax
    Dog License Tax
    Federal Income Tax (Fed)
    Federal Unemployment Tax (FU TA)
    Fishing License Tax
    Food License Tax
    Fuel Permit Tax
    Gasoline Tax
    Hunting License Tax
    Inheritance Tax
    Inventory Tax
    IRS Interest Charges (tax on top of tax)
    IRS Penalties (tax on top of tax)
    Liquor Tax
    Luxury Tax
    Marriage License Tax
    Medicare Tax
    Property Tax
    Real Estate Tax
    Service charge Taxes
    Social Security Tax
    Road Usage Tax (Truckers)
    Sales Taxes
    Recreational Vehicle Tax
    School Tax
    State Income Tax
    State Unemployment Tax (SUTA)
    Telephone Federal Excise Tax
    Telephone Federal Universal Service Fee Tax
    Telephone Federal, State and Local Surcharge Tax
    Telephone Minimum Usage Surcharge Tax
    Telephone Recurring and Non-recurring Charges Tax
    Telephone State and Local Tax
    Telephone Usage Charge Tax
    Utility Tax
    Vehicle License Registration Tax
    Vehicle Sales Tax
    Watercraft Registration Tax
    Well Permit Tax
    Workers Compensation Tax
    (And to think, we left British Rule to avoid so many taxes)

    STILL THINK THIS IS ACTUALLY FUNNY?

    Not one of these latest taxes existed 100 years ago…
    And OUR GREAT NATION_AMERICA WAS ONCE A CONSTITUTIONAL REPUBLIC and the most prosperous in the entire World.

    We had absolutely no alleged National Debt Obligations.
    We had the largest middle class in the world.
    And our Mom stayed home to raise the kids.

    What happened?

    Can you spell " Puppet Masters , The Establishment, The Cabal, The New World Order "

    And I still have to
    Press '1'
    For English.

    I hope this goes around the
    U S A

    At least 100 times

    What the heck has happened to Our Great Country, and Why ?

  19. thank you for all your work, i have been on these because of you, for 3 years now, funny how sometimes you can consider a friend somebody you dont even know

  20. This is why Bitshares that offers BitUSD BitEUR BitCYN is so awesome..they are backed by 1.75-2.00 times collateral so it's much better than Tether….plus every time i turn around there is a new payment remittance or logistics company moving over to the Bitshares graphene blockchain because of their cheap fees and speed….my prediction is that we will possibly see some exchanges whether decentralized or centralized start offering Bit asset pairs …game over

  21. You forgot to mention Bisq ! It's open source and allows very decentralised exchanges. I took a bit of your example, and try to spread the knowledge, acceptance and education around bitcoin and cryptocurrencies in general. This has been the best tool I found to allow people to simply exchange: https://bisq.network

  22. I think the only good thing about Zuckcoin is that it will make easier to do decentralized exchanges. Your thoughts, Andreas?

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