Decentralized Bitcoin and Fiat Exchanges Are Still A Utopian Dream

Various new projects have come to fruition in recent times in an attempt decentralized Bitcoin to Fiat currency exchanges. Every time government-issued currency involved, real decentralization seems to be impossible, as users still need to rely on third parties to do their part. A recent offering on BazaarBay is no different in this regard.

Also read: 34 Bytes Announces Free Bitcoin Payment Terminal Beta Testing

Decentralizing BTC and Fiat Exchanging Is Difficult

TheMerkle_Decentralized Bitcoin Fiat Exchange BazaarBay

Sending money to anyone in the world in a decentralized manner is not all that difficult. Bitcoin makes an excellent case for itself in this regard, as it is a decentralized payment system available to anyone in the world. But the issues arise when consumers or businesses are looking to exchange Bitcoin to and from fiat currency.

Doing so requires an exchange platform, which comes either in the form of centralized solutions, or platforms such as LocalBitcoins. Centralized Bitcoin exchanges will hold user funds in either digital or fiat currency, which is a scenario that should be avoided at all costs. LocalBitcoins, on the other hand, is providing a way for users to connect in a peer-to-peer fashion, but it is not an “actual” exchange platform in the traditional sense.

Some people have tried to bring their own version of decentralized Bitcoin and fiat exchanges to the table, which creates another problem. Taking a look at this listing on BazaarBay, for example, shows the idea of how this exchange concept can be decentralized, but it will still require users to trust the other party.

In the case of that particular listing, buyers would have to trust the seller to send them the money bills via mail. Most people are already aware of how sending money through the mail system might not be the smartest decision anyone can make as things can get lost or stolen quite easily. Moreover, nothing is preventing the seller from not sending the bills. Even insuring the mail “package” will not do much, as it would incur more costs for the buyer, and to provide a decent exchange rate by any means.

This just goes to show how difficult it will be to decentralize fiat and Bitcoin exchanging while creating a trustless environment at the same time. Proper conversion rates between fiat and Bitcoin is all but impossible, as the value fluctuates constantly. Offering such a service without service fees will be quite a challenge, but hopefully, somebody can tackle it very soon.

Source: Reddit

Images credit 1,2

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One Response

  1. Marco Maltese April 18, 2016

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