 Welcome to the Daily Decrypt, where even currencies, especially currencies, are expected to compete. I am your host, Amanda B. Johnson, and today's episode is brought to you by XMO. Ooh-da-lally, it is my great pleasure to inform you that the world's first decentralized crypto and fiat exchange, called BitSquare, is set to launch in beta next week. Here to tell us more is BitSquare founder and lead developer, Manfred Carrere. First of all, what is BitSquare and what is your relation to the project? Yeah, so BitSquare is a decentralized Bitcoin exchange, both for national currency as well as altcoins. And I'm the founder of BitSquare and the main developer, so it's basically a community project. So there are other contributors as well, but most of the work was done by me. And I started more or less two and a half years ago with the project. And since three months, it's already running on mainnet and we're doing a lot of tests. And next week on the 27th of April, we will have to beat the launch. So it will be really public for the masses and hopefully the masses will come. And yeah, what's special in BitSquare, what makes it different to other normal exchanges, is of course the fact that it's completely decentralized. That means it's decentralized in the infrastructure. So we're using a custom peer-to-peer network over Tor, Tor hidden services to be concrete. But no worry, nobody need to install Tor or to set up anything. It's integrated in BitSquare, so it just works without any extra setup. It's a desktop application, so you just download it, install it for any operating system, and run it, that's it. It's, yeah, the decentralization part, BitSquare is never holding any users funds. So the Bitcoin are either on your local wallet or they are locked in a multi-sig transaction. And that's, yeah, that's the security model. We use a two or three multi-sig. So when you're doing a trade, the funds of both users get to that multi-sig. And when the trade is settled, so when the fear is transferred and everything is fine, then funds get paid out to the Bitcoin buyer from this multi-sig. So BitSquare is never holding the funds and has basically also don't know about the trades. And that's the next point that it protects the privacy of the users. So BitSquare is never holding any data. You don't need to register, you just download it, start it, and that's it. So there's no verification, no, no, your customer or EML requirements. And that's possible because BitSquare is not holding funds. So I was talking to lawyers who were working at regulation authorities for financial markets. So really specialists and they told me, yeah, as long as the exchange is not holding funds and as long the exchange is not doing the automatic order matching, which is also a point where you need to trust the exchange that they are not scamming their customers, then there are no regulation requirements. We also asked directly in London or in England to UK authorities if when BitSquare would be registered in England as a company if there would be any regulation requirements and they told us no. At least at the moment there would be not requirements for such an exchange because it's really decentralized. Wow, so Fiat and not only Bitcoin but also other cryptocurrencies can all be exchanged on this peer-to-peer protocol using two of three multi-signature accounts to act as escrow, is that correct? Yeah, exactly. So for the security mechanisms are based on three parts. One is this two of three multisig where the two traders are the key holders and when everything goes fine there is never a third party included and the third key holder is the arbitrator. So there is planned a fully decentralized arbitration system. It's in OpenBassar for the people who are familiar with OpenBassar, they call it Mediate. So it's very similar. So if anything goes wrong that I send you the money but you never receive it because the bank were too stupid to send the money to you or whatever then you can call the arbitrator. The arbitrator tries to find out what was going on and if there is a dispute that we don't agree or maybe I tried to scam you or whatever then the arbitrator has the third key so he is able to make the payout with the honest trader and to not have a single point of failure with the arbitration system that should be a completely decentralized system as well so anybody could become an arbitrator. They are anonymous basically and to avoid that they are colluding with the other trader and scam another trader they need to pay a quite high security deposit which gets locked in the arbitrators with the highest reputation and it's a little bit complex concept or area but basically for the users they should normally never get in touch with arbitrators because when there are no technical problems and when there are no scams the arbitrator does not play any role and when there are too many scams we have another problem and we have to find out where are the weak points and how to solve it in another way and the other security mechanisms are a security deposit that's a small amount but even when you are buying Bitcoin you need to pay up a small amount which gets locked in this multi-sig as well and it's an incentive that you are following the trade protocol because without this security deposit you could start a trade and then when you need to pay the fiat money you just vanish and you don't continue and the other need to wait until the period is over and ask the arbitrator then it's a question who pays the arbitrator because the other you have disappeared and your funds are not accessible to the arbitrator So does the deposit go into the two of three multi-sig? Is that where it goes? Yeah exactly. Both traders have to pay this security deposit and the seller is putting his trade amount when he's selling one Bitcoin then the one Bitcoin of the seller plus the security deposit of both traders goes as input to the multi-sig and when the seller has received the fiat amount over the altcoin then he confirms it in the application and then there is created a payout transaction with the keys of both traders and the buyer receives the money and the trade amount and both receive the security deposit back So the security deposit is only locked for the time of the trade which can be as short as more or less one Bitcoin confirmation where you use a payment method which is settling instantly like ok pay or perfect money you can really make the transaction instantly and when both are online then you only need to wait for one blockchain confirmation on the Bitcoin blockchain and when you have luck it's just a few seconds sometimes 10 minutes or whatever average 10 minutes and then the trade is basically done and then importantly I've seen that some people think that the fiat or the cryptocurrency transfer is done in BitSquare that's not the case and that makes it much easier to develop otherwise it would be a much bigger project much more difficult or impossible So would one side of every trade whether people are trading fiat or trading other cryptocurrencies does one side of every trade need to be in Bitcoin in order for the two of three multi-sig to work? Exactly because this security mechanism is implemented in Bitcoin basically theoretically you could use any other altcoin which are supporting multi-sig as well but it would be a lot of development effort and not worse to do it you can trade Ethereum for Euro for $1 for instance directly but you can trade Ethereum to Bitcoin and then Bitcoin to Euro $1 Wow Okay so Manfred this is definitely the first of its kind I'm not missing anything this is definitely a world's first if it works on the 27th I think it works already at the end the exchange works already since more than a year but I was using another peer-to-peer network a year ago and that never really worked well in the wild west of the internet so I needed to change the peer-to-peer network and that cost me another half a year and so it's working basically of course it takes time for bootstrapping and so on and will be a long process to be really bulletproof but it's already I think 200 trades have been done in the last weeks already at the moment I think something like 50 or 20 no I don't know 30-40 offers online 34 online right now Yeah so people who are making an offer it's like for the people who are familiar with local Bitcoin it's a similar concept that you are making your I think they call it advertising so you make your offer I want to buy one Bitcoin for 200 Euro but nobody will take it because you have to pay probably a little bit more and when somebody likes your price he can take your offer or can make another offer himself and so there is not not like in a normal centralized exchange where the offers get matched automatically that's not the case here because that would not work with that model it's more like local Bitcoin where the fear transfer is done with a lot of system you receive the necessary data to make the fear transfer the name and the bank account of the other peer then you do the transfer you confirm it in the application you have to get the message and then the other we have to check his bank account when he has received the money he confirms as well and then everything is done but important is that for me one of the main goals of the application you never have to do anything by email send anything around it's everything done in the application just those parts like doing the fiat payment that would be at least for now not feasible these fiat payments can be any way that one can send fiat to another person like a bank wire a bank transfer a western union or even depositing paper money at someone else's bank account branch and any of these things are possible at the moment we have implemented in Europe very the common way how you transfer money over banks then we have national bank transfer where with some extra selection where you can define specific banks because in some countries the fees between the different banks are different so you prefer to just make it transfer to the same bank to not pay too much fees and ok pay and perfect money which are payment processors especially ok pay is great because it's bank chargeback free so that's the best option at the end for such an exchange and it's instant and then we have one mobile processor from Sweden and Alipay the Chinese and we will add more in future it's ongoing work to investigate all the details as we want to be sure that the risk for chargeback is nearly zero or very low because something like PayPal where it's very easy to make a chargeback would be too problematic and when you look at local bitcoin they support PayPal but there are nearly no sellers they're just buyers and no seller because the seller risk that they had to make the chargeback and then it has all the problems so that doesn't make much sense for such an exchange so we only try to support those who are supporting hard money and of course it's a scale so perfect hard money is just other cryptocurrencies and seems that ok pay is really chargeback free but all others might be chargeback when there is in some special cases but at least it's very hard and should be very rare alright so let's talk about somebody who would want to use BitSquare is installing it and running it similar to say like OpenBazaar like if you want to be online and using it you can have the client open and if not you can close the client and it's not some do you just one need to keep it running all of the time I'm assuming not yeah so yeah it's just an application for downloading and installing so it's running on all operating system it does not have any requirements for anything else you don't need to register you just can start you only need to your when you want to make a trade you need to add your bank account details when it's a when you use bank account as the payment method or when you use an altcoin you put your altcoin address in because that will be exchanged to the other trader and then you can start so there is no yeah no registration or anything and when you are putting an offer to the offer book then your client need to stay online because it's a real peer to patient so there are no service or whatever so and when somebody is taking your offer then there is a trade protocol executed the other trader is contacting your client and exchanging the messages and creating this multi-seq transaction and for that your client need to be online you don't have you can sleep no worry but the computer should not be in standby because normally with standby you lose internet connection and then it could not work anymore so when you're shutting down your application your offer gets removed from the other because somebody else could not take your offer when you are not online that's a restriction for the moment there are ideas to how to solve this for later but it's a little bit complex and maybe in a half a year or in a year we have other solutions so how or rather how many other cryptocurrencies aside from Bitcoin will be supported outright how many are supported yeah the moment we try to add for the launch already all relevant currencies I mean of course every community will see how many is that like 5, 10 I think 22 are now supported and all the big ones like Ethereum counterparty next bit shares whatever unfortunately I cannot support at the moment crypto note coins which are one of my favorites like Monero but the Monero at least will be added soon hopefully but it needs a little bit extra handling because they have some special software and some extra effort but I would like to get them in soon as well and basically I'm open to any I don't make the politics even if I don't like one currency as long it's not a clear scam coin I will add it I just probably will make a small rule set for instance that the currency when somebody asking me at XXX coin and nobody is interested in the XXX coin but they wanted okay I added but they have to at least promote something on their webpage that the BitSquare is an official exchange for them and that there's happening something because otherwise it's just waste of energy of resources because when we are supporting thousands of coins and you have a long list and you don't find your really favorite coins because it's a jungle it's a damage for everybody so I want to keep this resource in a something sensually amount that there may be 50 coins all in all and when I see that coins are never used for trades to get removed again so it should be used for those who are really interested to use and support it also and the where it's a community project we don't have budget for professional PR or whatever so we are also dependent that the other who benefit from BitSquare like other altcoins are doing some support and some promotion and push the coin as well and I've seen it already for fair coin for instance or I see a coin they already started to promote it and to help and now is there any monetization in this for you Manfred or are you just like independently wealthy and doing this for shits and giggles I mean is there going to be a return on investment for you? Yeah so that's a very good question because that's actually one important part of the decentralization because when BitSquare is not the venture capital funded startup or whatever with intention because that would introduce some dependencies and at the end single point of failures and BitSquare also will not become a register company or whatever like Bitcoin is not a company it's an open source project where anybody can contribute and can work on it or fork it or whatever and to create incentives for the people who are working on it and also to get some return for myself for all the work what I've done yeah so the business model is to take the trading fees when you create an offer when you take an offer you pay a very tiny amount of trading fee at the moment it's nearly nothing it's more or less like the mining fees and later it will be a little bit more but it will be under the range other than the classical range of the fees what other exchanges take and this fees will go also I will create a DAO a decentralized autonomous organization which basically works in the way that the shareholders of this DAO will yeah the shares are represented as a kind of a color coin and the trading fees will get directly from the trader to one of the shareholders depending on their percentage so when you have 10% of the DAO you receive in average 10% of the trading fees so that's the business model and I hope that I can attract more developers more people contributing when they see that it's not only a donation where when people are donating they don't expect a normal way that you never get anything back so it does not scale very much there are not too many people who are so altruistic to donate without expecting anything but to have a form of investment model where people who are contributing they become co-owners it's like a public company at the end where the shareholders are the owners of the project then it's I think it's interesting incentive to contribute to the project and make it possible for many people because when you have a family you need your income you cannot spend your time working on such a project and at the end it's a lot of work I mean I'm working 12 hours a day since a year probably nearly all two years so it's a lot of effort good software is not growing on trees and to find a professional contribute those good developers and so they are especially in the bitcoin space it's super hard to find those the competition is in the competition with the big companies with the big banks and we see funded companies so it's pretty hard to find those people but I think BitSquare has some good incentives not only from the ideological part that it's really fully decentralized and privacy-protecting project but it also tries to offer a fair ownership distributed ownership model Sponsored shout out from free press publications with the tagline of ensuring a free press for the freedom movement you'll find daily news analysis and opinion pieces on global topics in both text and audio form at fpp.cc What gave you the idea two years ago to dedicate 12 hours a day 7 days a week to make a decentralized cryptocurrency to fiat exchange yeah probably it started when I first heard about bitcoin in 2011 I was completely fascinated I felt immediately in the rabbit hole in the infamous rabbit hole and I wanted to do anything with bitcoin but I felt I'm too far away from my technical skills or whatever and I was working in a company that I didn't have time but later I quit the job and wanted to do something on my own which was more in my interest and then I got back especially in this time when Apple kicked out all the bitcoin applications and this time I wanted I was working on iOS applications and was basically had idea to go in this direction but it was short after the time when bitcoin was rising like hell to more than thousand dollar and I felt I need to do something with bitcoin it's the momentum and I'm losing it when I'm not getting in and I was trying to find a topic where what interests me and where could contribute something and I found out about the project what's called Nash X and it was interesting it's not famous at all a web page where you could somehow do a semi decentralized exchange because never working very well and so but the basic idea was interesting was two of two multisig only and it was the starting point where I have seen okay somehow it's possible it's difficult but when you mix up the right ingredients like the multisig the security deposit the penetration system then you can make it work and I tried to started a white paper and designed a concept how it should work and then I built a prototype and was actually looking for developers because I thought now it's way too big for me and I cannot do it but I didn't find developers so I started to develop more and more and so it was going on then I found a few developers joining and so it was growing over time and people always told me it's completely crazy and way too big I should pick out a small element and make just that like a multisig wallet or so and I agreed basically but I couldn't stop and got addicted to it and now finally this addiction Gali delivered some fruits Gali well so the beta launch is the 27th of April but as you said there is working now and there are even like dozens of offers on it right now for trades so if someone whether they want to try it out now or after the beta launch how would they do so, where would they go yeah they can go best for our web page bitsquare.io there is a download link to a github page where we have our releases they are all releases for all operating systems Windows, Linux and Mac and just download it and install it and that's it and of course there is a lot of information on the web page there is high level information like explainer video and then the white paper and FACU and soon we get the forum on the bitcoin web page as well so the community can be more active directly in the bitcoin forum we have a mailing list newsletter and blog so and a final question I am I correct in assuming that bitsquare the peer to peer protocol if for whatever reason a lot of users decided they didn't want to use bitcoin anymore because for whatever reason it wasn't meeting their needs it certainly is possible to either make it an option for another cryptocurrency to be the two of three multisig trading pair option thing as long as the other currency is similar to bitcoin like all these clones which are basically based on the same code it shouldn't be very difficult but of course it's work it's a question what you gained from this and I mean actually I was in the beginning I was planning was very interested to use a theorem for this because I thought it's easier and I was not sure if I could do everything in bitcoin but it turned out it was not a problem and it was perfectly fine to do it in bitcoin but the theorem would be another but then you have to rewrite a big part of the code because it's completely different I mean one very interesting coin would be Monero for that because with Monero you have a kind of perfect privacy and then you would have on the bitcoin side you would have all the privacy of Monero and I think Monero supports multisig it would be just as Monero is very different to bitcoin it would be quite a lot of effort and I'm using a SPV wallet as a bitcoin chain to avoid to download the whole blockchain and of course that's a problem what you have to solve with any other currency as well that you have an SPV version because otherwise you don't want to download a gigabyte or more just to start the software all right well Manfred that is so exciting and as someone who knew about BitSquare like a year ago or whatever it's so exciting to see your launch date really just come around for real and so thanks for your time and thanks for your software contributions I will probably try it out yeah thanks to you for the interview and hope you enjoy it and hope people will finally use it very good alright thanks Manfred thank you bye bye well that's all folks thanks for watching sure is nice to have you have a good day there is no question that within cryptocurrency bitcoin is king but could it be dethroned certainly the pace of technological progress makes disrupting established players faster, easier and cheaper than ever before if bitcoin is dethroned it will likely be for one or more of the following five reasons