Bitcoin Q&A: Decentralised exchanges with fiat


The next question comes from ‘Harry the Horse.’
That’s a funny name. “Are decentralized, online exchanges
possible with a fiat gateway?” Harry asks. Let me see if there’s a bit more to that question,
I just have to open it up. “With more adoption, many startup projects have been
created to address the issue of centralized exchanges,” “by introducing various decentralized
exchanges from crypto-to-crypto pairings,” “where the exchange trader or customer
owns the keys to the exchange wallet.” “Is it going to be possible to have a decentralized
online exchange with a fiat gateway,” “where you exchange cryptocurrency for national
currency? Or [could this] never happen?” “What are your thoughts on the future of decentralized
online exchanges over the next one / two years?” I think the decentralized exchanges are going to
become a very big part of this industry in two or three ways that might be surprising. Let me start with the last question first.
The future of decentralized online exchanges, I think, is huge, primarily because we’re beginning to see
the ability to launch a couple of technologies… that are really going to revolutionize things.
One of those is atomic swaps. We already have demonstrated applications that can
do atomic swaps between different blockchains. An atomic swap is where two parties pledge
[cryptocurrency on each side], in a way that… they don’t need a third-party or escrow system.
They escrow [with] each other. Then the code that is needed to release one side
guarantees that the other side can release their funds. If neither side releases the funds,
they both get a refund after a time. It’s a basic smart contract
using multi-sig and time locks, very similar to the type of smart contract
you see in payment channels. Atomic swaps make it possible for two individuals, independently, to swap two cryptocurrencies. “Atomically,” meaning that it’s all or nothing. Either both
transactions go through or neither goes through. Neither party can walk away and steal the currency.
They don’t have to trust each other [or] any third party. That’s a big development. The other big development is that Lightning Network can
be used [for] atomic swaps between cryptocurrencies. Effectively, you can create a channel
where you send the payment in bitcoin… and the other party receives it in Litecoin. So you can use Lightning Network as an
overlay network to exchange crypto-to-crypto. I think these two developments
are going to be very exciting. Back to your first question, “can you have a
decentralized exchange with a fiat gateway?” Yes, you can. In fact it already exists.
One example is Bisq, which is spelled B-I-S-Q. Bisq is a decentralized exchange that runs a peer-to-peer
protocol, it runs over Tor, and it allows parties to… escrow and then exchange cryptos for cryptos,
as well as cryptocurrencies for national currencies. Here’s the problem though. There’s a certain degree of
risk when you exchange crypto for a national currency. The reason for that is the cryptocurrency side
[of the trade] is non-reversible. Once you’ve made that payment it cannot be reversed. On the other hand, there is no way to fully guarantee
and clear, with absolute finality, the exchange of fiat. Unless you do it with [physical] cash. if you did a fiat to cryptocurrency exchange, where someone mailed cash through the postal service (which is probably illegal in many countries, I wouldn’t
recommend it), you could have finality on the fiat side. But then that would expose [the person sending fiat] to
extreme risk, because then why pay the cryptocurrency? You need an escrow on both ends. The biggest problem is… If you set it up so that
someone makes a cash deposit into your bank account, then you send them the crypto,
[they can] reverse the cash deposits. You would be surprised at how easy it is to walk into
a bank and say, “That was a fraud, I got defrauded.” “Here’s my deposit slip. I deposited cash into
this bank account. Can you please reverse it?” They will reverse it. They will give you
cash back or move it into another account. If you’re the person who just sent cryptocurrency,
you’re out of luck. Good luck arguing with your bank. In fact the moment you walk in and say, “I gave
this person cryptocurrency in return for that cash,” they’re probably gonna say, “Oh well. Cryptocurrency?
I heard that’s illegal, so we’re not going to help you.” It’s also possible to reverse PayPal transfers,
wire transfers, credit card transactions… There is no limit as to how far back
in time you can go, theoretically. A bank can simply pull the money out of your account.
If you already spent it from the account, they will [still].. deduct the money and you’ll have a negative balance. The next time you put money in there, they’re going
to take from that, so even if that money isn’t in there, they’ll just take from other money like your wages. Or they’ll put you in credit, send you letters,
and eventually send debt collectors after you. There is no time at which you can say, with absolute
finality, that a bank deposit, bank transfer, wire transfer, credit card transfer, or PayPal transfer, is final.
No “six confirmations.” Infinity confirmations are not enough for fiat.
It is a soft promise and it can never be a hard promise. That’s why fiat gateways are always [more] risky.
What do people using Bisq do? They take a risk, but as long as it’s a small amount,
that might be an acceptable risk. That doesn’t scale.

56 thoughts on “Bitcoin Q&A: Decentralised exchanges with fiat”

  1. A few very interesting and promising projects out there laying the foundation for the future of DX's, Blocknet and Block DX is without a doubt one of them, excited to see what this year brings us.

  2. The problem of withdrawing resources you talk about can be easily omitted. All you have to do is enter the feedback / rating system assigned to a specific Bitcoin address so that every exchange user is aware of the risk.

  3. Did you know that in Switzerland you can buy Bitcoin at EVERY SBB (national public train transport company) ticket vending machine? In every little town? In Germany however, afaik, there is not a single Bitcoin ATM.

  4. Curious if you have had any thoughts to information asymmetry for a decentralised exchange system built around payment channel atomic cross chain swaps. Assuming you will require liquidity providers facilitating the cross chain swaps and matching the desired exchanges, will we end up with a case where the LP with the most resources in different chains having a benefit of adverse selection advantage in price formation discovery?

  5. Παμε αντρεα εισαι ο ηρωας μου και ο διαφωτιστης μου!!!!! bitcoin jesus!!!

  6. Isn't anyone else concerned the state/banks are just gonna use this technology against us just like with the internet? What if they are just waiting until its fully scalable before creating state mandated blockchains where no one can buy sell or trade anything usless using the public key granted to them by the state? And just pass a law that being caught using non sanctioned crypto as a crime for some new AML/KYC ruling??? I can't be the only one concerned about this happening it wouldn't take much to make this become a law if the tech becomes workable for the masses.

  7. What are your thoughts on ”hybrid exchanges”, attempting to have both centralized and decentralized exchanges? Would a hybrid exchange be beneficial to the community or might the community be better served with decentirlized only exchanges? Is there a concern in terms of decentrilized adoption if companies in the centralized space attempt this hybrid exchange? Please let me know your thoughts.

  8. It is not that easy to undo a sepa transaction. You are pretty safe. It could become a problem when crypto currencies are illegal. Lets just hope fiat becomes a thing of the past and the people can earn bitcoin instead of buying it with worthless paper. Thumbs up for Bisq.

  9. I do believe in these multi sig tx do require some trust that the other person stay alive and or they have a back person to complete the tx if something happens. Some of you might say this is a small risk, but it is still a risk of having your money locked for ever. I may not know enough about the tech. I once played with multisig transactions.

  10. Thanks for your Q&A's I hope you are able to read this one. I'm a believer in Bitcoin/Cryptocurrency. I'm new to the space, but one aspect that has me wondering (maybe worrying) is why, after all these years, there is a lack of of any major players/contributors. What I mean is, Google, Apple, Amazon, Intel, Tesla, SpaceX, Nvida, Facebook are almost silent (or even anti-crypto) on Crypto. These same companies spend BILLIONS in R&D trying to stay ahead of the competition to be the first- Global Internet Service, Self Driving Cars, AI, Quantum Computers. Why they have not entered the Crypto-space is worrisome. I understand why banks are slow to act, they are in the horse & buggy business. But when a search engine company (Google) has a billion dollar sand box and are trying to do every new tech there is, why the silence on Crypto? Your thoughts on this subject would be greatly appreciated.

  11. that so happened to me, i sold $300 worth of bitcoin and later on they called the bank stating that their account has been hacked!! and they froze my account with the rest of my money, they wanted me to sign a document stating that in order for me to continue using my bank account i have to accept to return the $300. I actually had to hire a lawyer. at the end i kept the $300 but i was banned from the bank. good thing because after that treatment i was going to close the bank account anyway…

  12. Bitshares is the best decentralized exchange. It will soon incorporate it's fiat deposit and withdraw gateway.

  13. Really interesting. The fiat issue is indeed a problem and risk
    Decentralised atomic swapping – barterdex on komodo platform!! They have about 95% of all coins covered, pretty impressive.
    Decentralised exchange wise there a fair few around, bitshares is the most active by a long long way currently do same number of transaction daily as ethereum. It has a fiat option but it's currently not up and running. Waves DEX has a fiat option (bank account), you need to go through a 3rd party ID verification though.

  14. love ur passion and hardwork you doing for bitcoin! You should check out Hans Rosling, and maybe start doing some diagrams and such to get people to understand it easier? 😀 anyway keep up the great work!

  15. Andreas given the current volatile market where do you see a bottom as my bottom is getting a pretty good spanking from this one & is getting more painful by the day.

  16. Nope because 97% of all fiat that exist are bank ledger entries which cannot exist outside the banking system.

  17. Hi!! Question
    Governments are using or have on beta blockchain technology.
    Google is planning on implementing blockchain technology as well.
    Banks and moneygran are using xrp technology.
    what will happen with btc if USA decide to launch its own usd-currency? Wouldn't btc looses its value?

  18. So if we enter into a cash-less society , How would we determine prices if everything was based in Fiat?

  19. Taking out trust factor via atomic swap transactions would undermine underlying crypto character…wouldnt it?

  20. The risk involved in this type of exchange can't be eliminated, but it can be sold. This has already been solved. Say both parties have to pay an insurance fee to a third party that guaranties the transaction will complete. A system would rate transactions according to risk and calculate the insurance fee accordingly, so that the insurer always makes a profit.

  21. the 'softness' of the promise in fiat ALONE is reason enough to strongly oppose cashless idocies and DEMAND the continuation of cash as a human right — because it is unreasonable to force all of us against our better judgement to, all of a sudden, start trusting banksters when we already know better. Cashless is not possible without banksters, plastic card racketeers (charging protection money to the tune of 3£, making everything needlessly more expensive by that same amount — at least — and lose 41% in the process for 'fraud protection' expenses :))) on top), that's why 'cashless' means forcing humanity into the arms of the financial Cosa Nostra, a gross violation of ALL freedoms there are on this planet, not just your Right to Property and to Privacy!

    Sending (insured) valuables to pay for Crypto (as in copper rounds, silver bullion coins or gold, UPS are accepting that kind of freight) might be a (theoretical) workaround then, cost permitting though. Not really very practical, but just saying…

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