Why Governments Can't Stop Bitcoin: Atomic Swaps & Decentralized Crypto Exchanges

Tyler Durden's picture

Authored by Louis Cammarosano via Smaulgld.com,

  • China’s crackdown on crypto exchanges highlights the issue with centralized crypto exchanges.
  • Decentralized crypto exchanges, like local bitcoins gain favor after China’s crackdown.
  • Atomic Swaps bypass exchanges altogether.

Centralized vs Decentralized Exchanges

Cryptocurrencies are decentralized products traded largely on centralized exchanges. Cryptocurrency proponents note that an advantage of cryptocurrencies like bitcoin and litecoin is that reliance on or trust in a third party is not required to transact. Centralized exchanges, however, themselves may make it hard to open an account or may place restrictions or ban the withdrawing of funds or cryptos. Centralized exchanges can also be be hacked or closed by governments. Thus, centralized exchanges may run counter to one of the advantages of transacting in cryptocurrencies.

Centralized exchanges provide places for price discovery to take place. On a centralized exchange the operator of the exchange buys and sells crypto inventory on behalf of its users. The potential for abuse exists, especially absent regulation. A centralized crypto exchange can operate a fractional reserve system of trading and credit user accounts with crypto currencies that may or may not exist at the exchange. The exchange may rely on the knowledge that many account holders may not withdraw their crypto currencies. The possibility of this type of practice most likely was one of the reasons for China’s decision to close crypto exchanges.

Regulated centralized exchanges, however, hold promise as a way of integrating the entire crypto currency space with the existing financial system. In “Crypto Currencies Fiat Strengtheners or Killers?” we noted that solutions like TenX and others that allow for a variety of crypto currencies to be loaded onto Visa cards so that they may be spent worldwide.

Fidelity Investments recently provided its nearly 70 million customers with an integration option whereby they could access their Coinbase accounts on their Fidelity dashboards. The number of Coinbase accounts as of this writing was 10.5 million. If crypto currencies are to become fiat strengtheners, heavily regulated exchanges are necessary to track transactions and collect taxes.

Enter Decentralized Exchanges:

Decentralized exchanges don’t require users to provide identifying information and their servers reside in different locations. A decentralized exchange holds no assets or customer funds and therefore there is nothing to seize and no central location to shut down. Using a decentralized exchange, users can buy and sell crypto currencies with other users on the platform or off platform in person. Decentralized exchanges make it extremely difficult to track transactions and collect taxes.

Currently, the volume of crypto currency trading on centralized exchanges is vastly greater than volumes trading on decentralized exchanges. With the closing of the Chinese cryptocurrency exchanges, however, decentralized exchanges have seen an increase in trading volumes.

The number of decentralized exchanges are proliferating. Here are just a few of them:

Crypto detractors say that Bitcoin and other cryptocurrencies derive their value from the ability to convert into fiat currency to purchase goods and services. Some go as far as to say that this makes cryptos itself an extension of debt-based fiat currencies. If cryptos inevitably become fiat strengtheners with full integration into the banking system, that point of view has validity.

If, however, governments crack down on crypto currencies and don’t embrace centralized crypto currency trading, increased trading may occur on decentralized exchanges and the crypto ecosystem may instead of pricing cryptocurrencies and tokens in fiat pairs, price them only in Bitcoin or Ether.

Atomic Swaps:

Atomic swaps allow users to by-pass even decentralized exchanges and transact with each other, even if the transaction involves different cryptocurrencies. Atomic cross-chain trading allows users to trade cryptocurrencies on different blockchains. For example atomic swappers holding alt coins like Litecoin can trade with holders of Bitcoin (or vice versa) at an agreed ratio (currently about 75-1; just like the gold silver ratio). Atomic swaps can occur using digital signatures that act as a functioning escrow that prevent one party from sending coins to another party and not receiving the bargained for swapped coins in return.

Developers are currently testing atomic swaps. Charlie Lee, creator of Litecoin, recently tweeted his success in an atomic swap involving Bitcoin and Litecoin.

 

 

Questions:

  • Will governments embrace and encourage crypto development and regulated centralized crypto exchanges?
  • Will governments attempt to ban cryptocurrencies?
  • If so will that halt the use of cryptocurrencies whereby only crimminals use them?
  • Will both centralized and decentralized exchanges co-exist?
     

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beemasters's picture

Only Hurricanes can?

overbet's picture

This again? If we dont have internet or electricty youre gold is next to worthless as well. Your bullets and booze will be worth more than your stock pile of gold. 

tmosley's picture

Oldbugs are very proud that they can buy a bag of rice for an ounce of gold.

CH1's picture

What the overlords fail to understand is not only BTC, but the Bitcoin community.

These people aren't going away, and they aren't slaves to the status quo.

And, to make it all even better... opendime.com

malek's picture

Not sure I want to admire some very confused people - even if they aren't slaves to the status quo.

VD's picture

bc the NSA didn't invent BTC. oh yeah, Satoshi is real. Free Satoshi.

wee-weed up's picture

 

 

How much you wanna bet "Governments Can't Stop Bitcoin"???

They can - and they will.

tmosley's picture

They have tried, and they have failed.

They will try some more, and fail some more.

Eventually, they will get tired of failing and realize there is nothing they can do, and hope on the crypto train. Russia has reached this point.

kochevnik's picture

Russians are not afraid of authority, which is the reason I laugh at all the appeals to authority on ZH

OpenThePodBayDoorHAL's picture

Dude it is already illegal to have certain strings of numbers on your PC (child porn MPEGs are just one example). Given they have the ability to get anything about you they want despite what that scrap of paper called the Constitution says, it is child's play for them to make holding crypto keypairs illegal. But go for it, you'd look great in an orange jumpsuit.

We're not even through the first inning of this battle and believe me they hold all the cards.

tmosley's picture

You sound like a real bootlicker.

kochevnik's picture

They can - and they will.

Of course governments can stop people trading cybercurrency, by heating the planet to 10.000C

 

Bunga Bunga's picture

Yes, with a nuclear war against their own country.

Mustafa Kemal's picture

"And, to make it all even better... opendime.com"

Opendimes are really nice. I just gave two of them to a niece and nephew for graduation.  

Off-blockchain bitcoin transaction

Cabreado's picture

So then, how much BTC does it take to buy a bag of rice these days, with the power on?

dasein211's picture

If the power is off KY and soapis a better commodity than gold.

Cabreado's picture

Ha!

Come look me up when you have no soap, and I have gold.

Can't wait for the barter session...

VD's picture

tmoron likes it in the ass, sans soap. so you'll get most favorable barter.

tmosley's picture

Your tears of eternal anguish are really tasty. Prefer them in the morning though.

VD's picture

bc itz so toasty in ur mom's basement in the am. nice "job".

tmosley's picture

Hahaha, citing neocon propoganda rags now?

You've hit bottom kid. Time to give it up.

VD's picture

i cite bc i know how to read between the lines and see the endgame, even if it's a Rothchild owned rag like the economist. you are either/or thinking like you were when trying to crash jpm buying silver. same shit now. i've tried to warn you.

tmosley's picture

>like you were when trying to crash jpm buying silver

You are confusing me with someone else. I didn't buy into that crap beyond changing my monthly buy date to support it. Actually, don't think I even did that.

You don't fight the banks or the Fed, and instead fight the people who ARE trying to fight. Pathetic.

SILVERGEDDON's picture

tmosley boot fucked himself in the silver makets as bad as Gartman or Cramer would have, then went dark and quiet like until the bitcoin roller coaster came along.

Just like silver, he will pontificate upon the ride up, until the POTB throw his ass off the ride at the blow off top again.

Then, hopefully, he crawls off under his kitchen table with some play-doh, scissors, and a puppy to STFU for a few more years. 

He can do a short term daisy chain porno with Satoshi and Fonestar for YouTube and Starbux money. 

 

tmosley's picture

About a seventh as much as this time last year.

mofinance's picture

From what i gather it would be wise to have 20% bitcoin , 20% gold, 20% rice, 20% ammunition and 20% booze in ones portfolio. You cant really go wrong. 

business as stusual's picture

I find it fascinating that you can so easily classify everyone who has a different perspective than your own. The funniest part is that every time you make one of these pronouncements, you have only shown yourself to be limited in your thinking, and limited in your ability to acknowledge the plethora of views that exist in the world. The bottom line is this FREE YOUR MIND AND THE REST WILL FOLLOW.

Winston Churchill's picture

He' a grifter , not a believer. pumping it to find a greater fool.

They techies somehow believe that TPTB won't just shut down the internet and make possesion

illegal.They simply don't care how many die, if it retains their power.That can only be taken

with a gun.

kochevnik's picture

It would seem you have bigger issues to process than money

Golden Phoenix's picture

No one cares if you buy crypto or not. We tried to get you to buy BTC at $200 and now it's at about $4000. If you don't care about yourself why should anyone else? The best anyone could hope for is you don't.

Semi-employed White Guy's picture

Imagine how much these numbskulls will hate crypto when a Bitcoin is $10K. 

dark pools of soros's picture

i told them to buy at $30.. just kick them in the nuts now

Think for yourself's picture

and I told myself to buy at 25 cents... pity the fool!

BadLibertarian's picture

Modern society would have trouble surviving an extended global shutdown of the Internet, and that's what it would take.

Besides, it's easier to just go along with it. It wouldn't have made sense for the first class passengers on the Titanic to have smashed all the life boats, would it?

The debt-based global economy we have is dying. It's going to have to be replaced with something else. Those in charge would love to have it be a system of their design, but who is going to trust them after watching how spectacularly the one they've been responsible for building crashes?

tmosley's picture

>I find it fascinating that you can so easily classify everyone who has a different perspective than your own

Not everyone who disagrees with me is labelled in this way. Just the ones who are slaves to their own bias.

No, my thinking is not limited. I used to be a silverbug. I overcame my bias with an agonizing (literally agonizing) reappraisal of the situation. Then I acted on my conclusions which incorporated the new data. Oldbugs and peanutz don't do this. EVER.

VD's picture

tmoron blew his mom's retirement savings on silver (couldn't afford gold) and now he's bitter and shilling crypt0 oh so hard. sad.

jmack's picture

as digital currencies proliferate, so will internet connectivity, even if it means you have to spend 8 hours hand cranking a generator for 20 minutes of up time, or building an iraq battery from a clay jar and citrus juice.

Bunga Bunga's picture

It's not worthless, but you can't access it easily during the time and at the location of internet or electricty interruption. It is still possible to send a transaction with a battery operated ham radio to an internet gateway at a different location and receive the blocks via satellite.

daggerhashimoto's picture

Here is a thought grampa..... lets say you have 10k in gold and 10K in Bitcoin and hurricane takes out your house in Rico. Now you have an option. Carry 10K worth of gold in your ass to a neighboring country or remember 12 words, and move your entire bitcoins with you anywhere. Which is easier you retarded monkey? Oh, your ass is wide enough for 10K in gold bricks you say? how about  20k, 500K 10 million. 12 FUCKING WORDS. DO YOU FUCKING UNDERSTAND! HOW DENSE ARE YOU FUCKING IDIOTS?

 

jmack's picture

What fun would that be.  Thats the best post on these forums in months.

business as stusual's picture

Your verbal ramapage is a sad thing to see, it only emphasizes,

1. Your complete lack of impulse control

2. your inability to empathise

3. Your inabilty to look beyond your own values, and acknowledge that your path is not the only path.

4. In all honesty that little screed smacks of psychopathy.

tmosley's picture

No, he is just upset at how obtuse people with cognitive dissonance are. 

It's a weird experience, being attacked VICIOUSLY for being right. 

Innominate's picture

What shall we use as money?

1) Gold/Silver which are great for long-term saving but less ideal for daily transactions?

2) Fiat paper-ticket money which is being printed by the trillions and has to be stored inside banks that have questionable solvency and is vulnerable to looting buy both governments and banks?

3) Cyptocurrencies that don't require banks, can't be created out of thin air like fiat, and will be as easy to use in daily transactions as any credit or debit card?

The future is looking like 1 & 3 to me, with the advantage to 3.

francis scott falseflag's picture

12 FUCKING WORDS

 

PLEASE, GOD LET ME MEET A BUYER TO SELL MY BITCOIN TO.