Future Use Cases For Blockchain Technology: Decentralized Peer-to-peer Bitcoin Exchanges

Bitcoin exchanges are the premier solution for everyday consumers to buy and sell Bitcoin in exchange for fiat currency. That being said, the current Bitcoin exchange business model makes these companies act as an intermediary, a third party, which is not what Satoshi Nakamoto originally envisioned while creating Bitcoin. That business model will need to change sooner or later, as more and more consumers are opting to use peer-to-peer exchange options.

Note from the Author: The following article refers to traditional Bitcoin <-> Fiat currency exchanges. Examples such as LocalBitcoins and Bittylicious are not included, as they already exist. The number of true peer-to-peer exchange platforms is still fairly low, which is what is being addressed below.

Bitcoin - No Middleman Involved, Except For Exchanges…?

Traditional Bitcoin exchanges are a bit of an odd creature in the world of digital currency and decentralized solutions. Bitcoin itself is a decentralized payment method, which focuses on enabling peer-to-peer transfers of value without using any intermediary or third party service. Satoshi Nakamoto wants to put the end user in full control of their finances at any given time.

However, most people use Bitcoin exchanges that embrace the “old” financial model: customers send funds to the exchange - either in fiat or BTC - which is then held in the company’s wallets or bank account. Granted, customers can trade with other users on the exchange directly, as buy and sell orders are being matched with one another.

When the customer wants to withdraw funds, though, it has to pass through the Bitcoin exchange’s wallet or bank account once again. It is clear that most Bitcoin exchanges are in fact money transmitters, rather than peer-to-peer exchanges. After all, Bitcoin exchanges have to make money somehow, and there is no way to do that without holding customer funds and taking a cut for every transaction processed.

For a long time, this business model has remained unchanged, as there has been no clear need or desire by customers to fix things when they aren’t broken. But once these Bitcoin exchanges stepped up their identity verification process and started asking for additional documents, the Bitcoin community showed the first signs of unease.

Running a Bitcoin exchange anywhere in the world is not an easy feat, as there are multiple regulatory and legislative requirements to take into account. Additionally some countries or states may require Bitcoin exchange operators to obtain specific licenses, a tedious and costly process. All of those investments have to be recouped somehow by the Bitcoin exchange, which is why there is a fee for every transaction.

That being said, the story remains the same: Bitcoin is all about a peer-to-peer transaction with no third party involvement, and it looks like the Bitcoin exchange scene will have to adapt their business model.

Decentralized Peer-to-peer Exchanges Using Blockchain Technology

True peer-to-peer platforms, such as LocalBitcoins and Bittylicious, have seen great success in recent years. The reason for that success is quite simple: there are no fees involved, and users can directly exchange Bitcoin and fiat currency with each other using the same payment methods they would use on traditional Bitcoin exchanges.

There is something to be said for conducting peer-to-peer Bitcoin exchanges, though. Granted, not all of these trades will take place in person, as walking around with pockets full of cash can attract unwanted attention. But having direct contact between buyer and seller is the way business should be done, especially now that blockchain technology is playing an ever-increasing role of importance in the world of technology.

Having no middleman or third party controlling user funds, both in BTC or fiat, leaves the customer in control of their finances at any given time. This is exactly what Satoshi Nakamoto envisioned when Bitcoin was released: everyday people establishing a market of supply and demand on their own accord, without any outside involvement.

Plus, there is another upside to peer-to-peer Bitcoin exchanges compared to their traditional counterparts. Platforms such as LocalBitcoins offer a reputation system, which gives future customers an idea of the other person's previous trading experiences. Reputation in the Bitcoin world is transparent for everyone to see, and one wrong move can tarnish years of building up credibility.


What are your thoughts on traditional versus decentralized Bitcoin exchanges? Let us know in the comments below!

Images courtesy of Mitigation Partnership, Jamie McIntyre, and QWealthReport

Bitcoin: A Technological Innovation Restoring Peer-to-Peer Interaction During The Shopping Experience

Many everyday consumers view technology as a major obstacle to overcome. Despite best efforts by developers and engineers to make all of the online services as easy to use and streamlined as possible, those efforts do not translate into real life applications. For example, in order to pay at a cashier, you have to manually feed bills into a machine near the counter, as the cashiers do not handle funds directly anymore. Yet at the same time, this shows the potential for future technology to improve on the current models.

Also read: Blockchain Tech and the Wizardry of Sharing Economies

Less Peer-to-Peer Contact Due To Technology?

Upon entering any medium-to-large-sized store these days, one of the elements that are clearly missing is social interaction. Standing in line at the cashier used to be filled with conversations going on all around you, and every time the cashier would be up for a bit of chit-chat while scanning your products and handling your payment.

Our society, on the other hand, has been spoiled with various degrees of technological innovation that slowly removed the human interaction element from the equation. On top of that, we are all being pushed and driven to consume more at a faster rate, leaving little to no room for socializing while doing everyday things.

Shopping at most locations has become far less of a social experience, and more and more a financial matter. Which products are cheaper at which location, are there any discounts involved and how much budget do I have right now? These are all questions we find ourselves asking more and more, all the while ignoring the people around us.

Even though traditional grocery shopping is not always the best place to strike up a conversation, chances are high consumers will cross paths with people they know. Other than a friendly “hello” or even a nod, no conversations are taking place anymore these days. And that trend has been spreading from the moment someone enters the store all the way to when they leave the premises again. Most consumers don’t speak a single word during the whole experience.

An often heard complaint is how “unfriendly” most cashiers have gotten in recent years. And while that is certainly true up to a certain extent, it is just a reflection of how unfriendly the everyday consumer has become as well. To explain this change in behavior, people will look for a scapegoat. In this case, the obvious scapegoat is no one else than the new technology we all love to use, yet blame for everything when things go wrong.

It is hard to say whether or not this criticism stems forth from a lack of understanding how the technology works, or whether he implementations are all wrong. Going back to the earlier cashier example, once bank and credit cards started becoming more popular, the time for social behavior was cut down by quite a margin.

Back in the day when consumers were frantically searching their wallet for the funds required, they would more often than not strike up a conversation with the cashier to counter the awkward silence. But with bank and credit cards, all a consumer has to do is insert their card, press a code, pull the card out and take off with their groceries. There is no real reason to have a conversation, as these transactions take place instantaneously, and no money-scrambling is involved.

Cashless Society = Socially Awkward Society?

Most of the new technologies we face during the shopping experience all focus on the financial part. Granted, financial matters are near and dear to the hearts of all consumers, as well as the stores where the shopping experience takes place. Facilitating the transfer of funds from the consumer to merchant and vice versa has become more streamlined over the years.

From a consumer point of view, the financial aspect of the shopping experience has become more convenient. Rather than looking for bills and coins, consumers can now use a card to facilitate payments. And more and more people are taking a liking towards this “cashless” trend, because of its sheer convenience.

For the merchant, however, these new technological innovations are both a blessing and a curse. Granted, having to deal with fewer cash transactions cuts down on overhead costs in terms of contracting a money transport to pick up funds at regular intervals. On the other hand, more overhead costs are created because card transactions are subject to various degrees of fees per transaction. Furthermore, funds from card transactions will not be in the merchant’s hands until 30 days after the transaction, which may cause an issue with paying suppliers.

Not that any of that will bother the consumer, mind you, as all they want is to get in and out of the store with the things they need as fast as possible. Faster payment methods were only the first step towards creating a socially awkward consumer society, as people have clearly forgotten how to strike up a conversation during their shopping experience.

Bringing Back Peer-to-Peer Interaction

One could go as far as saying that the entire aspect of “peer-to-peer interaction” has taken a back seat in the life of everyday consumers. In fact, most of the consumers are relying on card and mobile payments these days, all of which have one major security flaw, which most people aren’t even aware of to this very day.

Card and mobile payments rely on a centralized infrastructure, which causes a lot of havoc when that system goes down for any period of time. Bitcoin, on the other hand, has no central point of failure, and will be accessible anywhere in the world, at any given time, by any given person.It is important to keep in mind that Bitcoin, as a currency, is not here to overthrow existing payment methods, but rather wants to establish its place as an alternative payment method.

From a technology perspective, Bitcoin - or to be more precise, the blockchain - can remove the security flaw associated with traditional payments altogether. Bitcoin’s blockchain has no central point of failure, and there are thousands of users all around the world supporting the network on a 24/7 basis. Even if half of those users would face an outage at the same time - an event that is highly unlikely - the blockchain would still be able to process transactions without a hitch.

To put that into perspective versus traditional card and mobile payments: both of these services rely on the existing financial infrastructure to operate. If a major bank has system issues, all of its customers are affected, and making either mobile or card payments is impossible for an unknown period of time.

Or to take things one step further, most countries have one major payment network handling card transactions, and another network for mobile payments. Either of these networks are centralized as well, and once they face an outage, that type of payment will be unavailable throughout the country for a period. Not the ideal situation, as you can imagine.

This is where Bitcoin - either as a currency, or as a technology - can play a major role in improving the shopping experience as we know it. Bitcoin a s currency represents the truest form of peer-to-peer payment interaction in a frictionless manner, just like in the “good old days”. And as a technology, the blockchain removes any central points of failure, offering a global network that is growing month over month.

Truth be told, Bitcoin has a learning curve, both for its currency and technology aspect. But then again, any type of innovation, big or small, has had that same learning curve, and consumers managed to overcome that hurdle. There is no reason for history not to repeat itself, but this time in a way that will change the financial infrastructure - and the social aspect - for good.

Technology should never be blamed for the way our society has evolved in recent years. The only reason we use this technology is because it facilitated the way we do everyday things. But in the end, the consumer is responsible for how they “live” the shopping experience. And most of those consumers have become socially awkward, to put it mildly.

What are your thoughts on the social aspect during your shopping experiences? Let us know in the comments below!

Images courtesy of Shutterstock

Bitcoin: A Decentralized Digital Currency Relying on Centralized Services And Platforms

Bitcoin is, at its core, based on a handful of simple ideas and ideologies. First and foremost, Bitcoin is all about decentralization, which means that everyone who is a part of the Bitcoin network has an equally important role. Additionally, Bitcoin is peer-to-peer, which means transactions should take place between two parties directly, without middlemen. Yet for some reason, most of the Bitcoin services offer a middleman service.
Decentralizing Authority, Finances, And More

Whenever a presentation on Bitcoin takes place, one of the very few words you will hear every time is “decentralization”. While that word may be scary to most people out there, it is actually an easy term to comprehend. Decentralization in a practical form means distributing functions, powers, things or even people away from one central location or one central authority.

To put decentralization into everyday terms: a government is a central authority. There are a handful of people, who convene in one - central - location and determine the fate of an entire country or nation. Very few people hold the power to decide over the lives of millions, and such a balance of power is not fair.
Granted, not every individual on this planet is fit to make decisions affecting an entire nation or country, nor should they be. This is exactly what decentralization is all about, as the goal is to let people make their own decisions that will affect them personally. And if those people decide to spread the word about what they are doing to others, networking in its truest form is achieved.

In the world of Bitcoin, centralization often refers to financial institutions, such as banks. A bank is a central authority in the financial world, and a bank’s decisions can - and will - affect the financial status of every single customer they have. If a bank goes out of business, the customer has very little chance of recovering their funds. Such a balance of power is unjust and needs to be corrected.

Bitcoin has the potential to correct any imbalance in the world, whether it is power, control, financial future or anything else. The underlying blockchain technology allows us to achieve many great goals and leaves a lot of room for unexplored potential. More and more developers are showing an interest in blockchain technology and creating additional use cases, which is another form of decentralization.

So then the question becomes: why do we keep using centralized services in an ecosystem that allows us to decentralize everything we want? A very good question indeed, and one that is not easy to answer. However, part of the reasons can be attributed to human nature, as humans do not embrace change naturally. The average human prefers to stick what they know, even though what they know is the source of the problem.

Sticking To Centralized Systems In The Bitcoin World

With Bitcoin’s primary focus being on decentralization, there should be no need for centralized
services at all. Granted, during Bitcoin’s early stages, the average exchange platform had to be centralized in order to accept deposits and process withdrawals. Yet in doing so, Bitcoiners did not take back control of their future, they decided to give it to a different breed of central authority.

At its core, a Bitcoin exchange that does not enable direct peer-to-peer transfers is a centralized authority. Not only do these exchanges force customers to comply with regulation - AML and KYC - but they also impose limits as to how much funds can be deposited, withdrawn and traded on a daily basis.

Additionally, traditional Bitcoin exchanges hold user funds in their own Bitcoin wallets or bank accounts, without giving the end user access to their funds as long as it remains within the exchange’s own ecosystem. Granted, withdrawing funds in Bitcoin or fiat currency is enabled by default. Yet it can take up to a few days before a fiat currency withdrawal has been executed, as users rely on the “goodwill” of these exchanges to carry out transactions swiftly.

Luckily for digital currency enthusiasts, Bitcoin deposits and withdrawals do not require any form of approval or a third party in order to be executed. However, exchange users are still sending a decentralized currency - Bitcoin - to a centralized third party. This is now the vision Satoshi Nakamoto had when Bitcoin was created and introduced to the world.

When the Mt. Gox exchange platform collapsed, a lot of users were affected and lost funds. Those funds were lost either in Bitcoin or tied up in one of Mt. Gox’s bank accounts. In both cases, the end user had no direct control of their funds and was not able to rectify the situation for themselves without outside help.

And within lies the problem with centralized services, even if they are handling Bitcoin transactions. The individual user has no direct control over what is happening to their digital assets once it has been transferred to a third party platform. This is not a problem as long as everything is alright, but in the case of a hack, breach or other malicious activity, there is nothing that can be done.
Peer-to-peer Alternatives Are Hard to Find

Despite Bitcoin being all about decentralization and peer-to-peer interaction, there are very little
services or platforms offering that kind of functionality. In terms of exchange platforms that do not act as a middleman, the most obvious choice is LocalBitcoins. By using this platform, buyers and sellers of Bitcoin can link up with one another, without relying on order books or buy/sell orders to be matched by a trading engine.

Coinffeine is another exchange platform to embrace decentralized peer-to-peer trading, although their service is currently still in beta. Additionally, they have integrated OKPay into their platform, which acts as the sole payment processor for both Bitcoin and fiat currency. In a way, this is centralizing a decentralized aspect once again, so this solution still needs a bit of work.

Buying goods and services in a decentralized and peer-to-peer fashion will take place through projects such as OpenBazaar. With OpenBazaar, anyone can create their own marketplace, without there being one central point of failure or server to attack. Adoption of this type of service is still in its early stages though, so don’t expect a revolution to take place overnight.

Other than that, there is still a lot of room for competitors who want to embrace peer-to-peer contact through Bitcoin. Decentralization starts from within, and we can only hope to see Bitcoin evolve into a proper decentralized ecosystem sooner or later, rather than relying on centralized services.

What are your thoughts on using centralized services with Bitcoin? Let us know in the comments below!

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