Coinffeine – Decentralized Trading Algorithm

The Problem

Bitcoin and other cryptocurrencies are well known to be decentralized technologies. That means that the processing power of the network is spread across multiple points which reduces the chance of failure, security breaches, and obviously centralization.

However, in this sea of decentralization there are centralized services which are powered by the distributed cryptocurrencies. One of such are exchanges. They are in essence centralized islands in a sea of decentralization.

What the Coinffeine team in Spain is trying to accomplish is a decentralized cryptocurrency exchange. An exchange that does not have a central authority which leads to a single point which is prone to failure, scams, and other unpleasantries.

How it works

Here is how Coinffeine works, it provides secure peer-to-peer transactions. Currently in order for someone to engage in peer-to-peer Bitcoin transactions one must have full trust in the other party, for exchange purposes you do not know your party and trust an anonymous Bitcoin user is not something any rational person would do.

To combat this trust issue, Coinffein’s exchange algorithm implements a distributed contract. This contract concept is known as a micropayment channel. In this micropayment channel both parties engage in a multi step transaction. Here is the breakdown:

“Once the deposits have been set up, which proves that both parties are serious about the exchange since they have committed funds, the actual exchange begins. A micropayment channel is a series of transactions in which the deposits and the bitcoins to exchange are split between Sam and Bob.”

In other words, the algorithm is the escrow. After the initial commitment of funds is completed, the algorithm verifies that both parties have submitted the funds and then broadcasts the transaction to the network.

The Development Process

The source code for Coinffeine is available on GitHub for you to review. Coinffeine’s Chief Technology Officer Ximo Guanter said that most of the coding for the company has been done on the side as a project, however, after the huge support the team would be devoting their full attention to Coinffeine in hopes to speed up the development process.

Guanter also said that Coinffeine is looking to become the first decentralized Bitcoin exchange. There are other similar projects that are trying to create a decentralized exchange so it almost seems as if this project is a race to the moon. However, Coinffeine’s team has high hopes because

“we have an advantage over other decentralized exchanges just because we’re in a different phase. We’re far along in our coding process.”

Coinffeine might be the first fully functional decentralized cryptocurrency exchange but Guanter must prioritize his development and lead the team in the right direction. We hope to hear more from Coinffeine when the project hits the Alpha or Beta stage. Currently the project is in the pre-alpha phase, but the company claimed to have received a certain amount of seed funding to support further development. I am sure they will not have a problem with funding when their business is in the Bitcoin community which loves to donate and fund good causes and projects.

To learn more about Coinffeine you can follow their twitter,  visit their website, or visit their LinkedIn page