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.