Quote from: dr.bitcoin on June 14, 2011, 06:48:07 PM

At this point, one of the main weaknesses of the Bitcoin ecosystem is the exchange of BTC to other currencies. Since Bitcoin may need a few more years to take over the global economy, exchanges will remain necessary.

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Some believe that the solution would be to have more MtGox/TradeHill/BitcoinExchange like exchanges around, so if one fails, gets closed down, etc. the others will remain active etc. While that may be true, it does not solve three fundamental problems: withdrawal limits, privacy and trust.

Withdrawal limits of $1000/day and $10,000/month are laughable. No serious business or trader can live with that. IMHO, this is one of the biggest drawbacks for the Bitcoin economy at this time.

I think there is a simple solution which is in the spirit of Bitcoin: a Distributed Bitcoin Exchange. The software can be anonymous, peer-to-peer, use strong cryptography, and use a network of supernodes to maintain and distribute the database of buy/sell orders. The users/businesses maintaining the supernodes would be sharing the transaction fees using a fair model, and the whole system could interface with LibertyReserve, Dwolla, banks etc.

In order to take care of the administrative side of things, there could be a board-of-trustees-like governing body initially some prominent characters of the community, later elected members etc. This board could hire, manage and pay programers, developers, CPA's etc.

Financing this project could be done by selling stock in this corporation and / or accepting donations of BTC, USD, time, skills, talent etc.

If this project succeeds, maybe later the functionality can be incorporated in the main Bitcoin client, which would make using Bitcoin even simpler.

All comments and opinions are highly appreciated!

I totally agree with the major thrust of this: A peer-to-peer OTC style exchange. The OTC bitcoin exchange is limited by the IRC technology and is just not efficient. I'm no programmer, but if something like bitcoin can be put together, then it seems to me that a secure peer-to-peer OTC trading exchange should also be possible, and without all the hassle of a board of trustees etc. etc.

Perhaps something like this:

Bid and ask would be broadcast to the entire network of peers to match the best buyer and seller.
The bidding and asking peers would be the final arbiters of which offer gets accepted on each end, and trasmit the information to the peer network, thus removing that bid and ask from the list of open orders.
Once the deal is closed, the counterparties would put up the money via the network, and the network would act as the escrow agent. In the case of bitcoins, probably X number confirmations that the money was transfered into the escrow account. On the other side, confirmation from whatever method is used to confirm reciept of funds (Dwalla, Liberty Reserve, physical cash, etc). Which means that the receiver of the established currency (USD, EUROS, etc.) may have to take the extra step of confirming receipt in order to get the bitcoin half of the transaction out of escrow and actually delivered to their wallet.
Once escrow is cleared, perhaps a "mining" type of operation could confirm that each transaction has actually been completed. In the case of person to person transactions, say using something external like Western Union or physical cash transactions, the validity of the counterparties and their reports of completed transactions could be made using GPG.

This would also open up the possibility of using PayPal for payments, as PayPal has several external APIs that could be easily hooked into by such a client. Transactions could be made by each client, using each client's PalPal account individually. That would make the transactions almost instantaneous!

Just my 2 cents.