Quote from: subcoin on May 29, 2013, 10:34:48 PM

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2. They exchange BTC for fiat immediately after that, without waiting for the customer to actually pay.

"exchange" and "immediately" are the problems in this step.
None of the exchanges are "completely liquid".

You can treat exchanges as completely liquid as long as you don't care about the price and as long as you don't have too big volume. Bitpay doesn't care about the price they sell BTC for as they exchange their customers' money - it just has to be some kind of market prices. So when they have this 0.5 BTC transaction to process, they can consider exchanges to be completely liquid.

Quote from: subcoin on May 29, 2013, 10:34:48 PM

Bitpay is not exactly "exchanging"; more like they are placing a sales order at the price that they gave to the customer.
That order may never be fulfilled. Or it may "hang" there for a while (hence, not exactly "immediate").

There is another way Roll Eyes

It's the other way around. Not placing a sales order at the price that they gave to the customer. They give the customer price calculated basing on current bid prices available at the exchanges and they simply put ask orders to match available bid offers - placing that ask order at the exchange at the same time as displaying the price to the customer (for some percentage of the transaction amount, basing on probability of the deal to go through). The whole process should work more in real time than I described in my previous post, but I wanted to simplify the example to be easier understandable, hence the 10-second periods.