SOIL-ex: A distributed subcurrency exchange on the SOILcoin network.
THEORY
The financial technology industry has recently accepted the benefits behind the application of the decentralized blockchain, along with its disruptive innovations against the traditional ways of doing business in the economic theater. The blockchain is most popularly represented by the distributed public ledger of Bitcoin. This accounting technology, disseminated across a global network of user-participating computers records every transaction - with little or no cost in way of fees compared to traditional monetary services - as a way to authenticate digital transactions, offering irrevocable proof of asset ownership with a traceable and immutable history.
This fiscal disruption, however, has remained thus far on the fringes of the industrial and commercial worlds. While cryptocurrencies have revolutionized the transfer and control of assets, wealth, and commodities; a very specific hindrance has restrained them from reaching their full potentiality and mass adoption. This complication resides in the ongoing dependency on online centralized, privately owned, cryptocurrency exchanges and the difficulty in purchasing currencies .
As more and more individuals have embraced blockchain technology, myriad alternative currencies ("altcoins") have sprung up, boasting a wide range of innovations, providing multitudinous options for investing in cryptocurrencies. Online exchanges have permitted trading between one altcoin to another, and have operated very similarly to real-world stock exchanges, with many available options such as lending, trade-bots, binary options and derivatives.
Within the short history of cryptocurrency trading, though, there is a long list of defunct exchanges that succumbed to poor security, mismanagement, insolvency or outright theft on the part of their owners. The victims of these centralized altcoin exchanges have lost millions as a result, and due to the pseudonymous nature of cryptocurrency, these pilfered funds prove difficult to trace, the perpetrators nearly impossible to locate and prosecute. Extensive adoption of the digital currency ecosystem beyond the cryptocurrency subculture has been inhibited by this problem; potential users, having learned of these disappearances, have chosen to avoid alternative-currency investment, remaining steadfastly in the familiar world of fiat currency.
The most famous theft, originating from the Mt.Gox exchange has even lead to the term "getting Goxxed". Mt.Gox was established by Jed McCaleb on July 2010 as a place to trade Magic the Gathering playing cards, and was subsequently sold to Mark Karpels on March 6, 2011. At its peak, Gox managed nearly 70% of all Bitcoin transactions. In February 2014, the company suspended trading, shut down its website, and filed for bankruptcy protection while 850,000 BTC vanished from customer wallets, valued at more than USD$450 million at the time. CEO Mark Karpels was arrested August 1 2015, by Japanese police for falsifying data on the outstanding debts on Mt.Gox, and was later also charged with embezzlement. He remains imprisoned to this day, and the majority of the missing funds remain unaccounted for.
Bitcoinica, launched on September 8, 2011, suffered heavy financial losses on March 1st, 2012, when its web host was victim to an internal security breach that permitted the attacker to have access to the exchange-wallet in which Bitcoinica stored it's user's funds. More than 43,000 bitcoins were stolen by the attacker. At that time, its operators (Intersango Ltd.) issued a statement guaranteeing its users that exchange reserves were sufficient to cover the loss, but again on May 11, 2012 Bitcoinica suffered another security incident in which its hot wallet was emptied once again, which lead to Bitcoinica's immediate shutdown. On August 6 2012, several plaintiffs filed a lawsuit against Bitcoinica citing "conspiracy, breach of contract, negligence and conversion". By February 2014, the three defendants representing Intersango had not responded to the allegations and plaintiffs were seeking a default judgment.
BitMarket.eu, launched April 5th, 2012, was a multi-exchange order matching market service that did well at first, but was prone to operator dishonesty. After increasingly degraded service, claims of being hacked, and refusals to process outgoing BTC transactions; on December 21, 2012, the operator Maciej Trebacz finally admitted that he had used the customer's funds for speculation, and that nearly 20,000 BTC of its customer's funds were lost. As of October 2014, many people were still searching for their refunds, receiving many excuses from Mr. Trebacz.
Even as recently as this year, Cryptsy threatened bankruptcy, claiming 13,000 BTC and 300,000 LTC were lost in a hack on their system. These losses were experienced over 18 months previously, in July 2014. Owner Paul Vernon claimed in an official blog post that trojan malware was inserted into Cryptsy’s code by the developer of Lucky7Coin giving access to the company’s wallets. Instead of revealing these losses to users, Vernon kept trading open in the hopes of regaining solvency, and did not report the theft as he did not know to whom he should report it. The exchange website remains online, but is considered inactive and has zero volume in trading on it.
These are just a FEW of the failed exchanges, at least three dozen exchanges have fallen by the wayside over the last few years, some due to regulatory issues, some due to security failures and some by sheer fraudulent practices by their owners. As altcoin exchanges go down, smaller currencies, many of them with hard-working development teams, and limited exchange presences, find they are losing their exchange platforms for their currencies. Crosschain integration bringing currencies such as this to be traded on a decentralized exchange will let smaller cryptocurrencies get out from under the thumb of trusting a third party to provide them a place to sell their currencies.
Thus, the need for a better approach: a way forward that will help bring an end to the phenomenon of getting “Goxxed”, a decentralized exchange built on the SOINnet virtual machine, SOIL-ex. SOIL-ex is built from the Ethereum project, EtherEx, and will serve, currently as a subcurrency exchange, and will grow into a pure cryptocurrency exchange with two-way pegged sidechain cryptocurrencies and commodities futures being traded in a secure and distributed fashion.
In August, 2015; Ethereum was launched, providing the opportunity to build smart contracts directly into the blockchain, enabling a previously unrealized scalability of innovative distributed applications (dApps). SOILcoin launched on October 17, 2015 as a fork of Ethereum, with a stated purpose to build dApps that would serve renewable energy, automatized agriculture and computational scientific concerns. Building SOIL-ex to include a pegged hard and soft commodities exchange, attached to a decentralized and contract driven cryptocurrency exchange platform, is where id like to see this project go, and while this basic layer of exchange is based on the EtherEx project for Ethereum, which is what drew me into the idea of truly freeing ones digital assets from any potential breaches of trust presented by centralized third-party exchanges.
TABLE OF CONTENTS
1. Concept
2. Limitations of current platforms
3. The distributed order book
4. Requirements
5. Challenges and potential solutions
-Blockchain bloat
-Cross-chain coins and fiat integration
-Features
-Adoption
6.Conclusion
1. CONCEPT - The NEED for an asset exchange decentralization
SOIL-ex is composed of several smart contracts running on the SOILcoin blockchain, chiefly etherex.se and etx.se. These contracts interact with each other to commit cryptocurrency trades, executed directly between users, with no middleman or fees between, excepting the computational cost of the transaction in gas. Users simply enter trade information and send funds to the master contract. Once this master contract receives and confirms both sides of the trade, it executes and sends the appropriate assets to the respective parties involved. This contract executes on the blockchain and requires no third-party human interaction to complete the trade. Even should the project be abandoned by the developer, the contract will remain live on the blockchain, its functions can be called by API and javascript bindings, and the open sourced frontend can be cloned via GitHub repositories within minutes, either on a cloud server or as a local instance by the user, maintaining market reliability.
Further contracts and interoperability can be seamlessly interwoven into the operations and features of the exchange, leveraging the web3 protocols and javascript in the frontend design, and will create a suite of contracts with an infinitely scalable and modifiable method capable of decentralized exchange of assets of many conceivable values. The present release of SOIL-ex is built to test out these contracts, in a live manner. To find new use concepts for subcurrencies, for "crosschain interoperability". This is the foundation upon which to build on, to improve. This is the "Frontier release" of decentralized asset exchange in the Wild West of a global smart contract machine.
The primary differentiation between a decentralized exchange such as SOIL-ex and a traditional online centralized cryptocurrency exchange is simply the location wherein your funds are held during a trade. On conventional exchanges, that are able to pay out withdrawals instantly can be said to be paying them from a "hot wallet"; one that is connected in some way, live, to the Internet. An exchange hot wallet provides easy access to an asset, but suffers the greatest risk of unrecoverable theft to the user in the event of security breaches or administrative fraud.
Operating a "hot wallet" is also a risk to the centralized exchange owner, as bugs or malicious exploits against their underlying computer systems have already revealed hidden vulnerabilities of one sort or another, and the probability of hackers or malware creators continuing to try to break into the system and steal the balances of digital assets in the blink of an eye, which can create immediate insolvency on the exchange, the inability to honor the digital representation of what proportion of exchange funds your asset represents. This scenario has played out with unfortunate consequences already. Users have no choice but to trust the exchange's owners to execute trades, and to hold their funds in a principled, honest and secure fashion, when many examples, recent and otherwise show that while many ARE honest, some definitely aren't.
The bottom line is, your funds are not really YOURS when theyre held in an exchange wallet, you do not actually own the security behind those assets. What you have is essentially a promissory note that you own this much of the represented asset that is held on that exchange, but there is no guarantee that those assets are absolutely secure. There is no warranty that the private keys owned by the exchange are definitively protected from malicious code or hackers, and you have little chance of retrieving those funds in the case of loss thru security flaw or criminal enterprise by exchange owners or employees.
Furthermore, online cryptocurrency exchanges often require much more detailed personal information, tied into your user account, and therefore tied onto your digital note of ownership to the balance of funds you have stored online in your exchange wallet. Ones private information security is another potential risk of centralized, privately-owned cryptocurrency exchanges. Some exchanges require scanned government issued photographic identification, scans of bank statements or utility bills displaying your name and address, even a photograph of yourself holding your photo id. Some exchanges will now use credit reporting agencies to access your credit score or potentially, the contents of your credit file using your name, date of birth and address information provided during account creation, in order to process user verification. Coinbase, one of the larger and well-established exchanges, has as of 2014 closed accounts of customers who transferred bitcoins from gambling sites.
In the case of a decentralized exchange, like SOIL-ex, the exchange takes advantage of an independent smart contract deployed onto the SOILcoin blockchain. This contract - and not the exchange contract deployer (owner) - controls user deposits and exchanges. This contract has no suicide function, that is: there is no ability for the contract owner to kill the contract and retrieve the contract wallet balance back to themselves.
Embracing the vision of true decentralization, SOIL-ex would maintain no user identifications. Exchanges are done, via smart contract between one private SOILcoin address and another. Ones identity on SOILex is ones wallet address, ones password is their private key, which remains stored on the users computer and off the blockchain. There are options in other sectors of the dAppsphere where one can, via smart contract, register their name or other information against their wallet address. In many cases, creating a verifiable digital identity and reputation is bound to become a more and more important need in this emerging PostCurrency world, but the level of personal information one broadcasts with their wallet address is by personal choice, and as such, not required by the exchange contract to complete an asset transfer.
SOILcoin will scale to produce a full exchange platform, beginning with the exchange of contract subcurrencies built into the SOILcoin ecosystem , which can be assembled with many imaginative parameters, to represent anything of "value", against the base currency (SOIL). There are many use-cases where this method of decentralized asset exchange can be useful on the present SOILcoin network.
Asset-backed DAOs can issue tokens in the value of shares, and have the ability thru their governing contracts to issue dividends. Micro-Lending and crowdsourced campaigns can issue tokens for value towards a funding goal in a fungible marketplace. Registered animal breeders can issue single-asset tokens representing a digital ownership and stored identification of an animal, which the rights to can be traded via a decentralized exchange contract alongside the physical asset, tracing ancestory, provenance and potentially veterinarian records. Microgrid renewable energy projects can build a token to pay participants with, as a reward for production, which can be exchanged for other assets living on the blockchain thru the exchange contract.
With next-step evolution in crosschain interconnectivity, and smart contract design, other offchain cryptocurrencies (altcoins) can be brought onto the SOILcoin network for purpose of decentralized trade via the exchange master contract. This will begin to mirror the general use-case of online centralized exchanges, with the difference that the user does not have to trust the opposite party in the trade; or trust that a private exchange owner will behave responsibly and ethically with user assets within the exchange's control, or to trust the security measures in place to protect both assets and personal information privacy.
Further scaling in operations towards bridging fiat integration for purchases on a decentralized exchange via smart contracts, and pegged hard and soft commodities trades in a decentralized mercantile exchange will be explored, as well as how to apply this sort of contract logic to other services.
SOIL-ex has borrowed MIGHTILY on the EtherEx platform (https://etherex.org/), and the developers: caktux and jorisbontje, and we owe a MASSIVE debt of gratitude for the fact their platform was released open-sourced, in the true sprit of decentralized knowledge, which has lead me to really investigate the technology and potentialities of what a decentralized exchange can BE and how it can serve the users of SOILcoin, now and into our future; and what the challenges ahead might be, and how easily surmountable.
SOIL-ex exists as a smart contract (etherex.se), code which lives on the SOILcoin network, and is auditable. The live SOIL-ex master contract address is deployed to: 0x87e45bfc1e0805b557790b00fbc878f797a185e6. SOIL-ex will also maintain a github repository of changes made from the parent projects, at: <https://github.com/soilcurrency/soilex> We will add further commitments to the platform which provide added functionality and further security as able, and welcome the community to improve upon this project, to find new uses for it, and to push its boundries.
2. LIMITATIONS OF CURRENT PLATFORMS
The concept of a decentralized exchange has been gaining ground in recent months, and several projects have already surfaced, some of which are presently operational: such as Coinffeine (which requires use of centralized payment processors) or Bitsquare (which still maintains a need for third party arbitrators). Both implement the concept of asset exchange in a p2p fashion, and are built to access the Bitcoin network. Bitshares maintains funds in an online wallet, and states that each asset is backed "by up to twice the reserves of traditional centralized exchanges" This still requires the user to trust that statement, and to hand over their assets to the control of a third-party. However, these exchanges are also limited by the restricted nature of Bitcoin's blockchain technology. They approach decentralization, but remain just beyond it's cusp.
Bitcoin, by its fundamental essence, is designed exclusively for secure peer-to-peer currency transposition and transaction accounting; and truly, it is highly proficient at securely providing the technology for this behavior; when one user sends BTC to another, the distributed public ledger will prove that the sender now has less BTC and the receiver has more BTC. But while Bitcoin's inter-mutual registry permits BTC to thrive as a cryptocurrency, its particular design also introduces major constraints. BTC records every users balance, and every transaction ever made on the system, and provides a cryptographically secure way to transmit those funds to other users, and thats about it.
It is these limitations that make the Ethereum Virtual Machine, which SOILcoin parallels, a distinctly superior foundation for hosting a decentralized and secure cryptocurrency exchange.
3. THE DISTRIBUTED ORDER BOOK
With SOILcoin, leveraging the Ethereum-based programmatic system, there is now a secure infrastructure upon which a decentralized exchange can be built, one which requires no concessions of personal anonymity and asset security. Limitations presented by first generation blockchains such as Bitcoin, and the need for coarse bypasses against built-in systemic issues are rendered inconsequential through the use of the EVM protocol, which harnesses an authoritative suite of programming and cryptographic mechanisms built in from scratch.
SOILcoin provides an impeccable platform for trustless asset exchange transparency. The order book, the trading engine, and every rule we need to make an exchange work can be decentralized in the aspect of a pre-built front-end to the application- and we can do this in a way that can be achieved in a manner that is completely and verifiably transparent, with unconditional open-source availability, applying the demonstrable and substantiated security of blockchain technology.
When making trades, your wallet will use the SOIL-ex platform to find bid or ask offers opened by other traders. This service is centralized, but it is never involved in the actual transfer of funds so it doesn't require any trust. The trades are performed by the contract which the platform takes advantage of. This order book, built into SOIL-ex's front end, can be compiled and run on a traders own computer to access the contracts rather than viewed on the hosted server, and the determinative characteristics of smart contracts that run on the SOILnet brings a trustworthy explicitness to a decentralized cryptocurrency exchange.
4. REQUIREMENTS
Fully operational SOILcoin network, with a running local node capable of connecting to the front-end software component thru RPC.
Standard balance check API.
A trustworthy order-book and a secure network to process trade completions.
Cross-chain interaction with other cryptocurrencies.
A standardized subcurrency and token design parameter.
5. CHALLENGES AND POTENTIAL SOLUTIONS
As illustrated within the theory behind the need for this sort of innovation, privately held and centralized exchanges suffer from genuine confidence obstacles, owing from past abuses by unscrupulous operators and weak security measures. A decentralized exchange disentagles these risks, but also creates complications of its own. These include:
Possible blockchain bloat
Cross-chain coins and fiat integration
Features
Adoption
Ecosystem
The integration of other cryptocurrencies and sidechain interconnectivity is a real predicament of a decentralized exchange - and remains a challenge for all aspects of blockchain technology at present. This is one of the chief reasons why few have emerged so far, in any capacity. SOILcoin provides a compelling solution to the security and decentralization issues that are needed to build a trustworthy platform for asset management, but also introduces the mandatory constituents for other cryptocurrencies to begin interacting across blockchains. A true decentralized exchange will be among the first distributed applications to take advantage of these possibilities.
Outside of the SOIL-ex platform, a decentralized exchange will need to communicate with secure wallets (such as SOILsafe) and the related exchange APIs to communicate information back into the trading engine. The initial operation of a SOILcoin/Bitcoin (SOIL/XBTC) trading pair would presently require a more centralized approach, depending on the tools available to secure cross-chain transactions and SPV proofs. Alternatives for sidechain communication will present themselves as the associated technology advances, and these will have to be considered when they emerge as to how they can be utilized on SOIL-ex.
-Blockchain bloat-
Commonly referred to as "blockchain bloat", the problem arises as more transactions are made, causing the blockchain to have more data to record, and as it grows exponentially larger, it becomes difficult to efficiently download or store. As a decentralized exchange gains greater adoption, each transaction, from listing buy and sell orders, to completion of trades, is recorded on the blockchain, which all users of the ecosystem record on their personal nodes. SOILcoin's blockchain is presently approximately 700MB in size, but should SOIL-ex gain traction as a viable alternative to traditional privately run exchanges, this could add much gravity to the SOILcoin chain.
Another consideration will be the cost, in "gas", to make those transactions into the SOIL-ex platform. As such, a decentralized exchange such as SOIL-ex will be inadequate for high-frequency trading (HTF), which is characterized by high speed, high turnover, and high order-to-trade ratios that leverage electronic trading tools, called "trade bots". Also, due to gas costs, and block-time delays needed to record trade orders and completions, this sort of platform will also be unsuited towards very small trades. These sorts of transactions, recorded on the blockchain, would add to potential bloat issues as they accumulate.
As such, the system is set up with a minimum trade order value, equaling to 1 unit of the base currency. While SOILcoin maintains a fairly small market valuation, this 1 SOIL limit isn't prohibitive to trading, but as worth per share increases, such as Ethereum's current value hovering between USD $10-15, this can be a restraint against higher adoption of the system.
-Cross-chain coins and fiat integration-
SOILcoin is a “private blockchain”, and like any decentralized cryptocurrency, is a world unto itself. Even though we run a parallel algorithm with Ethereum, SOILcoin cannot directly speak with ETH, or leverage smart contracts deployed on the ETH blockchain. SOILcoin also cannot directly communicate with the Bitcoin blockchain, or any other cryptocurrency. This means bridging cross-chain currencies into the SOILcoin network through implementations of smart contracts and oracles to communicate with the outside world.
With further development, it will be possible to integrate BTC and ETH "sidechains" inside of SOILcoin contracts, to bring those assets, and their "digital ownership" onto the SOILcoin network via a "SOIL-->contract XCOIN sidechain-->XCOIN" which would allow pegged sidechains for other cryptocurrencies implemented as a subcurrency contract on SOILcoin. Thus, these "smart contract XCOIN sidechains" would be a property of the crosschain currency, but not a part of its protocol. This contract exists separately from the currencys main-chain but is inter-operable with it.
Other options that have been explored to one-way-peg a subcurrency to a crosschain base-currency (e.g. BTC, GEO, ENRG) by releasing the units of base-currency into a sidechain, which would trigger a "proof-of-burn distribution", sending the incoming base-currency to a "burn address", returning a cryptographic proof of transaction, which would release a 1-for-1 purchase of the crosschain’s subcurrency within the SOILcoin network architecture.
These features don't exist ESSENTIALLY within the Ethereum-protocol language we have adopted, the contracts and frameworks have to be completely invented and designed out for this. The challenge with this is that in building pegs to other cryptocurrencies, while maintaining the pure decentralization and security of the SOILcoin network, we will need to ensure incoming crosschain protocols extend to support the SPV proof of possession.
Ensuring that asset security is met, transactions between crosschain currencies and their contract subcurrency sidechain, must be done without counterparty risk (no ability for dishonest parties to prevent the transaction), and should be atomic (happen entirely or not at all). There is a complexity issue to crosschain interoperablility. On a basic network level, there are multiple, unsynchronized and independent blockchains acting as the transaction ledgers for their specific base currency. User interfaces for wallet management would have to be reconfigured, to recognize digital ownership of offchain assets.
"Smart contract XCOIN sidechains" would, by necessity, need to be protected from the potential catastrophic failure of the offchain asset. The sidechain can act as a "fractional reserve" of the assets it is storing from its parent chain. Thresholds of "overall asset reserve" or an insurance contract could act as a way to prevent a "bank run" of withdrawals to or from the sidechain, leaving somebody eventually "holding the bag" on one network or the other.
Sidechains produce another potential issue in mining. Miners will begin to need to validate transactions relating to sidechain asset movement, thus more resources are needed to track and validate them all. With a scalable sized block size, SOILcoin should be able to handle these extra work loads, but many cryptocurrencies have a maximum block size, and transactions can become bottlenecked.
Another potential problem with a decentralized exchange, especially something like SOIL-ex which includes an inherent ability for any user to list their currency, is that some currencies LOSE developer support, dry up and die. As a protection to users, so that a market lister cannot just remove their market and disappear - once listed, a currency cannot be delisted. This will probably present an issue later on, but a process can be implemented to handle that when we have major upgrades to the system that require a new overall deployment, preferably with an oversight committee of sorts, with clear majority multi-sig decision having a voice as to not RELIST a currency during this process.
The use of certain contracts, like btcrelay and btc-swap, the latter of which is built in and deployed with the SOIL-ex exchange and relies on the former, act as an Ethereum-protocol smart contract for Bitcoin SPV. The underlying principle of the btc-swap contract is to purchase SOIL directly with BTC. Although its a little more involved, the simplest explanation is that an order is set, offering an amount of SOIL for a value in BTC, to be sent to an intermediary BTC wallet the purchaser creates. The purchaser performs a proof of work operation to solve a nonce based on the transaction hash produced by the BTC transaction. This nonce is verified, at which point the contract broadcasts the signed Bitcoin Transaction to the Bitcoin network, enabling the purchaser to claim their SOILcoins for BTC, directly, without middleman or centralized exchange.
What the btc-swap contract does, bare bones, is "send $X SOIL to A's SOILcoin address if $Y BTC has been sent to B's BTC address" The code allows the smart contract on SOILcoin to take action based on a BTC transaction hash, with the assurance that the transaction has been sufficiently confirmed and present on the BTC blockchain.
Fiat integration directly towards SOILcoin, be it for direct transactions for the base currency or as a SOILcoin-existant subcurrency, has its own whole set of challenges, as by nature, fiat is not decentralized. One possible solution to this may be the use of SchellingCoin contracts, programmed to hold a steady value against currencies such as the USD, CNY, EUR or towards commodities such as wheat, cattle, oil and gold.
-Features-
As a rule, SOIL-ex, as a decentralized exchange, will never require a sign-up process, of any kind, from users, to allow them to access its normal operations. Users will be required to hold an initial balance of SOIL to interact with the network in the first place. The exchange will charge no fees for contract profit as all transactions are paid for by gas costs using SOIL, which goes to the miners working and maintaining the blockchain consensus engine through Proof of Work. The exchange will feature a trustless interface to directly exchange assets between SOIL users, without any middleman. One's identity on the exchange is their wallet address, the password - their private key.
Online, centralized cryptocurrency exchanges come with a lot of extra features, though. Implementing the usefulness of many of these will be integral to the ongoing maturation of a decentralized exchange. Some features online exchanges offer are in-house mining pools against many cryptocurrencies; marketplaces where goods are listed and requested in exchange for listed altcoins; daily and monthly cryptocurrency lotteries, and random number dice-games; random faucet-sized tipping rewards for making trades, participating in chats or forums, or sending "tips" to other users; altcoin faucets; arbitrage services comparing asset value across other exchanges; advanced market charts and studies, market news reports and releases; margin trading and cryptocurrency lending; incorporated block explorers... the list goes on.
Being that a decentralized exchange such as this can have “modular construction” and interacting smart contracts, adding in features such as those listed above will be available as more and more dApps are created on the SOILcoin network to increase financial functionality, or which leverage the (de)centralized order book.
-Adoption-
The exchange of digital assets will play an important role within the growing SOILcoin ecosystem, and the provisions for a trustless and direct exchange of these assets will assist in currency and exchange adoption. Adoption of both exchange and base currency will accelerate once the exchange offers interaction with an assortment of cross-chain assets. A thriving subcurrency market, to start, will help build new ideas on how to redefine what we assign "value" to, and how we can apply the idea of "currency" to many many things. A full article on subcurrencies and implementations will likely be needed in order to cover the possibilities available therein. There are many different usage scenarios for subcurrencies on the SOILnet, and different stakeholders will have different needs, regarding how they might be traded, if at all.
The key is USABILITY. The test for a good dApp isnt the way its coded, its how its used. Or, more to the point, how MANY people use it REGULARLY. Use of the exchange creates transactions which enrich the miners, it tests out the possibilities of what we can "tokenize" and trade. As use of a decentralized exchange grows, so too does the base currency it rests upon. As we will base trading pairs exclusively against SOIL, this will hopefully increase the purchase and utilization of SOIL..
Naturally, the key to widespread adoption of any cryptocurrency is how it will offer real-world usability. This generally relates to the ability to use and spend one's crypto to purchase THINGS. The way current payment systems work throughout the world vary widely. The added value of cryptocurrencies therefore also hugely differs per geographical area, and thus, the adoptability of ones currency. A study from the Netherlands identified the three barriers facing comprehensive espousal of cryptocurrencies in general.
1.Ease of use: generally, there is an opinion regarding cryptocurrency as having a lack of user-friendliness. Even though sending and receiving BTC has become much easier, it can still be difficult to actually purchase Bitcoin. With Ethereum, as was warned when Frontier came out, it came with the warning about its inherent user-unfriendliness. Much of the developments since have been to make it more accessible to more people. We've been trying, with SOILcoin, to demystify the EVM as we go along, and present things with a clear idea of how to actually WORK with it. I will have documentation written regarding SOIL-ex to assist users to work with it when it is released. This will be available on this website, and will be linked to from within the SOIL-ex user interface.
2.Price stability: cryptocurrency, like ANY stock or tradable asset, will have periods of extreme price volatility, driven by speculation, lack of liquidity or outright manipulation, which makes it a risky proposition for a user to keep funds in cryptocurrency as the value deviates wildly, and oftentimes in a very short period of time. This undermines the function of cryptocurrency as a consistent store of value. In financial markets, though, past performance is no guarantee (and by any efficient market hypothesis and analysis, it is not even an indicator) of future results of expected value, especially when as a movement, cryptocurrency has an established reputation for extreme volatility; even with Bitcoin, the so-called "gold standard" of digital currency, the price can move up or down by as much as 25% in a single week.
Analyzing trends is difficult as cryptocurrency as a whole has not been a tradable asset for long enough to provide a comprehensive sample size. What is considered a short term trend in the NASDAQ market, for example, is something occurring over one months time. In crypto, where markets are open 24/7/365, these are more compressed. A short term trend might last a day, and an intermediate trend a few weeks at most.
SOILcoin has had a very slow and steady increase in valuation, without the typical massive spike upon release followed by a quick drop and long slow rudderless glide into obscurity that 75% of altcoins go through. Though not a pre-set stable value peg, SOIL has maintained higher average valuations for each of the last 12 weeks, with the latter 2/3rds having a much more exponential growth rate. Spikes in value occur infrequently, and generally followed by a slow dip well above the previous floor, before rising to break through another resistance level. It is safe enough, though, to say that SOILcoin has been experiencing a stable uptrend, that is a series of higher highs and higher lows. There will be incidences of strong downward trending for SOILcoin’s valuation, just as there will be periods of strong upward trends.
We have subscribed to many of the good practices that promote a positive valuation movement, mostly in reducing inflation of coin supply and slowing down the distribution model. Remaining in touch with our community and continuing to present a dedication to forward thinking innovation and development will make us an attractive investment. By adding SOIL-ex to the mix, I think we will see a slight increase in upward momentum, due to the new possibilities for USAGE that it brings, not only with promoting a vibrant subcurrency ecosystem, but other use cases that the exchange contract will bring about.
3.Governance: One of the chief complaints about how the current BTC foundation is run is that it undermines the basic ideological aspect of cryptocurrencies by being very centralized and intransparent. I think we've done a damn good job with SOILcoin in that regard, as transparency is probably one of my most frequently used terms when I’m posting, it is one of the SOILcoin project's absolute cornerstones. With our voting process on fundamental protocol changes, we have moved much closer to decentralization, but as we use a 1SOIL/1vote schemata, that still leaves the possibilities open to voting blocs and "whales" holding much more power towards decision making. But, this is also the general model of most corporations when it comes to shareholder votes.
The move towards adoption of SOILcoin and its decentralized exchange will improve every time there is a news article regarding another centralized, privately-owned exchange brought down with scandal, fraud or security flaws. Will SOIL-ex replace online private exchanges? Not likely. There will always be those sorts of entities, which with a framework already built towards moving assets in and out easily, there will always be users approaching that as a quick solution. What a decentralized exchange does is provide the alternative, and provides security that ones own funds remain under ones own control 100% of the time.
Its very clear that cryptocurrency is much more than an ephemeral phenomenon. It has shown that it is well on the way to becoming a new phase of technology driven markets that will disrupt conventional market strategies, longstanding business practices, legal frameworking, and established regulatory perspectives. It is creating a macro-economic efficiency. To speed up cryptocurrency’s adoption process and transition, the product must shift from one being used by solely tech-savvy innovators to one with mass market acceptance, the general public needs to be aware and educated on this new form of currency.
6. CONCLUSION
The "ecosystem" of SOILcoin is that of a programmatic machine which allows any user to build, deploy and interact with smart contracts written on the blockchain, and held there in perpetuity. A decentralized exchange contract residing on this network will improve the ecosystem. The first likely scenario will be a greater investigation into subcurrencies, and how they represent value. Other uses for an exchange contract will emerge, as will a quickening towards crosschain intercommunication.
Built on the Ethereum Virtual Machine model, users can create decentralized, autonomous, and highly extensible application layers. These can built as not only decentralized currency exchanges, multi-sig wallet contracts and distributed escrow services, but decentralized autonomous organizations, forums, and derivatives risk analysis. As a decentralized exchange, SOILex will provide not only the opportunity for trading in custom built subcurrencies, but to peg those against existing assets in a variety of manners.
This is the first version of SOIL-ex, and is definitely not the last. Features will be added as they become available or when obstacles are surmounted. A more efficient front-end and access to analysis tools will need to be explored. Ive built this exchange with much thanks going out to the EtherEx development team. Ive done little more than rebrand the platform towards SOIL during this release, concentrating more on ensuring that trades are completed properly and balances of subcurrencies were accurately moved from one wallet to another. I will be releasing the SOIL-ex platform with an in depth user guide covering the features built into this iteration, including btc-swap, which will allow users to buy SOIL directly, using BTC.
Ive also borrowed, in style if not substance, from the white paper presented by EtherEx, and while I would appreciate any donations people would send in appreciation for the work done (in SOILcoin, please - my developers wallet address is 0xe46731382FbC47621A6C480d4b6118026bBBCb3A), I would be remiss not presenting the idea that those developers at EtherEx deserve your support as well. You can communicate with them, and see the present status of the EtherEx project at etherex.org.
Commonly referred to as "blockchain bloat", the problem arises as more transactions are made, causing the blockchain to have more data to record, and as it grows exponentially larger, it becomes difficult to efficiently download or store. As a decentralized exchange gains greater adoption, each transaction, from listing buy and sell orders, to completion of trades, is recorded on the blockchain, which all users of the ecosystem record on their personal nodes. SOILcoin's blockchain is presently approximately 700MB in size, but should SOIL-ex gain traction as a viable alternative to traditional privately run exchanges, this could add much gravity to the SOILcoin chain.
Another consideration will be the cost, in "gas", to make those transactions into the SOIL-ex platform. As such, a decentralized exchange such as SOIL-ex will be inadequate for high-frequency trading (HTF), which is characterized by high speed, high turnover, and high order-to-trade ratios that leverage electronic trading tools, called "trade bots". Also, due to gas costs, and block-time delays needed to record trade orders and completions, this sort of platform will also be unsuited towards very small trades. These sorts of transactions, recorded on the blockchain, would add to potential bloat issues as they accumulate.
As such, the system is set up with a minimum trade order value, equaling to 1 unit of the base currency. While SOILcoin maintains a fairly small market valuation, this 1 SOIL limit isn't prohibitive to trading, but as worth per share increases, such as Ethereum's current value hovering between USD $10-15, this can be a restraint against higher adoption of the system.
-Cross-chain coins and fiat integration-
SOILcoin is a “private blockchain”, and like any decentralized cryptocurrency, is a world unto itself. Even though we run a parallel algorithm with Ethereum, SOILcoin cannot directly speak with ETH, or leverage smart contracts deployed on the ETH blockchain. SOILcoin also cannot directly communicate with the Bitcoin blockchain, or any other cryptocurrency. This means bridging cross-chain currencies into the SOILcoin network through implementations of smart contracts and oracles to communicate with the outside world.
With further development, it will be possible to integrate BTC and ETH "sidechains" inside of SOILcoin contracts, to bring those assets, and their "digital ownership" onto the SOILcoin network via a "SOIL-->contract XCOIN sidechain-->XCOIN" which would allow pegged sidechains for other cryptocurrencies implemented as a subcurrency contract on SOILcoin. Thus, these "smart contract XCOIN sidechains" would be a property of the crosschain currency, but not a part of its protocol. This contract exists separately from the currencys main-chain but is inter-operable with it.
Other options that have been explored to one-way-peg a subcurrency to a crosschain base-currency (e.g. BTC, GEO, ENRG) by releasing the units of base-currency into a sidechain, which would trigger a "proof-of-burn distribution", sending the incoming base-currency to a "burn address", returning a cryptographic proof of transaction, which would release a 1-for-1 purchase of the crosschain’s subcurrency within the SOILcoin network architecture.
These features don't exist ESSENTIALLY within the Ethereum-protocol language we have adopted, the contracts and frameworks have to be completely invented and designed out for this. The challenge with this is that in building pegs to other cryptocurrencies, while maintaining the pure decentralization and security of the SOILcoin network, we will need to ensure incoming crosschain protocols extend to support the SPV proof of possession.
Ensuring that asset security is met, transactions between crosschain currencies and their contract subcurrency sidechain, must be done without counterparty risk (no ability for dishonest parties to prevent the transaction), and should be atomic (happen entirely or not at all). There is a complexity issue to crosschain interoperablility. On a basic network level, there are multiple, unsynchronized and independent blockchains acting as the transaction ledgers for their specific base currency. User interfaces for wallet management would have to be reconfigured, to recognize digital ownership of offchain assets.
"Smart contract XCOIN sidechains" would, by necessity, need to be protected from the potential catastrophic failure of the offchain asset. The sidechain can act as a "fractional reserve" of the assets it is storing from its parent chain. Thresholds of "overall asset reserve" or an insurance contract could act as a way to prevent a "bank run" of withdrawals to or from the sidechain, leaving somebody eventually "holding the bag" on one network or the other.
Sidechains produce another potential issue in mining. Miners will begin to need to validate transactions relating to sidechain asset movement, thus more resources are needed to track and validate them all. With a scalable sized block size, SOILcoin should be able to handle these extra work loads, but many cryptocurrencies have a maximum block size, and transactions can become bottlenecked.
Another potential problem with a decentralized exchange, especially something like SOIL-ex which includes an inherent ability for any user to list their currency, is that some currencies LOSE developer support, dry up and die. As a protection to users, so that a market lister cannot just remove their market and disappear - once listed, a currency cannot be delisted. This will probably present an issue later on, but a process can be implemented to handle that when we have major upgrades to the system that require a new overall deployment, preferably with an oversight committee of sorts, with clear majority multi-sig decision having a voice as to not RELIST a currency during this process.
The use of certain contracts, like btcrelay and btc-swap, the latter of which is built in and deployed with the SOIL-ex exchange and relies on the former, act as an Ethereum-protocol smart contract for Bitcoin SPV. The underlying principle of the btc-swap contract is to purchase SOIL directly with BTC. Although its a little more involved, the simplest explanation is that an order is set, offering an amount of SOIL for a value in BTC, to be sent to an intermediary BTC wallet the purchaser creates. The purchaser performs a proof of work operation to solve a nonce based on the transaction hash produced by the BTC transaction. This nonce is verified, at which point the contract broadcasts the signed Bitcoin Transaction to the Bitcoin network, enabling the purchaser to claim their SOILcoins for BTC, directly, without middleman or centralized exchange.
What the btc-swap contract does, bare bones, is "send $X SOIL to A's SOILcoin address if $Y BTC has been sent to B's BTC address" The code allows the smart contract on SOILcoin to take action based on a BTC transaction hash, with the assurance that the transaction has been sufficiently confirmed and present on the BTC blockchain.
Fiat integration directly towards SOILcoin, be it for direct transactions for the base currency or as a SOILcoin-existant subcurrency, has its own whole set of challenges, as by nature, fiat is not decentralized. One possible solution to this may be the use of SchellingCoin contracts, programmed to hold a steady value against currencies such as the USD, CNY, EUR or towards commodities such as wheat, cattle, oil and gold.
-Features-
As a rule, SOIL-ex, as a decentralized exchange, will never require a sign-up process, of any kind, from users, to allow them to access its normal operations. Users will be required to hold an initial balance of SOIL to interact with the network in the first place. The exchange will charge no fees for contract profit as all transactions are paid for by gas costs using SOIL, which goes to the miners working and maintaining the blockchain consensus engine through Proof of Work. The exchange will feature a trustless interface to directly exchange assets between SOIL users, without any middleman. One's identity on the exchange is their wallet address, the password - their private key.
Online, centralized cryptocurrency exchanges come with a lot of extra features, though. Implementing the usefulness of many of these will be integral to the ongoing maturation of a decentralized exchange. Some features online exchanges offer are in-house mining pools against many cryptocurrencies; marketplaces where goods are listed and requested in exchange for listed altcoins; daily and monthly cryptocurrency lotteries, and random number dice-games; random faucet-sized tipping rewards for making trades, participating in chats or forums, or sending "tips" to other users; altcoin faucets; arbitrage services comparing asset value across other exchanges; advanced market charts and studies, market news reports and releases; margin trading and cryptocurrency lending; incorporated block explorers... the list goes on.
Being that a decentralized exchange such as this can have “modular construction” and interacting smart contracts, adding in features such as those listed above will be available as more and more dApps are created on the SOILcoin network to increase financial functionality, or which leverage the (de)centralized order book.
-Adoption-
The exchange of digital assets will play an important role within the growing SOILcoin ecosystem, and the provisions for a trustless and direct exchange of these assets will assist in currency and exchange adoption. Adoption of both exchange and base currency will accelerate once the exchange offers interaction with an assortment of cross-chain assets. A thriving subcurrency market, to start, will help build new ideas on how to redefine what we assign "value" to, and how we can apply the idea of "currency" to many many things. A full article on subcurrencies and implementations will likely be needed in order to cover the possibilities available therein. There are many different usage scenarios for subcurrencies on the SOILnet, and different stakeholders will have different needs, regarding how they might be traded, if at all.
The key is USABILITY. The test for a good dApp isnt the way its coded, its how its used. Or, more to the point, how MANY people use it REGULARLY. Use of the exchange creates transactions which enrich the miners, it tests out the possibilities of what we can "tokenize" and trade. As use of a decentralized exchange grows, so too does the base currency it rests upon. As we will base trading pairs exclusively against SOIL, this will hopefully increase the purchase and utilization of SOIL..
Naturally, the key to widespread adoption of any cryptocurrency is how it will offer real-world usability. This generally relates to the ability to use and spend one's crypto to purchase THINGS. The way current payment systems work throughout the world vary widely. The added value of cryptocurrencies therefore also hugely differs per geographical area, and thus, the adoptability of ones currency. A study from the Netherlands identified the three barriers facing comprehensive espousal of cryptocurrencies in general.
1.Ease of use: generally, there is an opinion regarding cryptocurrency as having a lack of user-friendliness. Even though sending and receiving BTC has become much easier, it can still be difficult to actually purchase Bitcoin. With Ethereum, as was warned when Frontier came out, it came with the warning about its inherent user-unfriendliness. Much of the developments since have been to make it more accessible to more people. We've been trying, with SOILcoin, to demystify the EVM as we go along, and present things with a clear idea of how to actually WORK with it. I will have documentation written regarding SOIL-ex to assist users to work with it when it is released. This will be available on this website, and will be linked to from within the SOIL-ex user interface.
2.Price stability: cryptocurrency, like ANY stock or tradable asset, will have periods of extreme price volatility, driven by speculation, lack of liquidity or outright manipulation, which makes it a risky proposition for a user to keep funds in cryptocurrency as the value deviates wildly, and oftentimes in a very short period of time. This undermines the function of cryptocurrency as a consistent store of value. In financial markets, though, past performance is no guarantee (and by any efficient market hypothesis and analysis, it is not even an indicator) of future results of expected value, especially when as a movement, cryptocurrency has an established reputation for extreme volatility; even with Bitcoin, the so-called "gold standard" of digital currency, the price can move up or down by as much as 25% in a single week.
Analyzing trends is difficult as cryptocurrency as a whole has not been a tradable asset for long enough to provide a comprehensive sample size. What is considered a short term trend in the NASDAQ market, for example, is something occurring over one months time. In crypto, where markets are open 24/7/365, these are more compressed. A short term trend might last a day, and an intermediate trend a few weeks at most.
SOILcoin has had a very slow and steady increase in valuation, without the typical massive spike upon release followed by a quick drop and long slow rudderless glide into obscurity that 75% of altcoins go through. Though not a pre-set stable value peg, SOIL has maintained higher average valuations for each of the last 12 weeks, with the latter 2/3rds having a much more exponential growth rate. Spikes in value occur infrequently, and generally followed by a slow dip well above the previous floor, before rising to break through another resistance level. It is safe enough, though, to say that SOILcoin has been experiencing a stable uptrend, that is a series of higher highs and higher lows. There will be incidences of strong downward trending for SOILcoin’s valuation, just as there will be periods of strong upward trends.
We have subscribed to many of the good practices that promote a positive valuation movement, mostly in reducing inflation of coin supply and slowing down the distribution model. Remaining in touch with our community and continuing to present a dedication to forward thinking innovation and development will make us an attractive investment. By adding SOIL-ex to the mix, I think we will see a slight increase in upward momentum, due to the new possibilities for USAGE that it brings, not only with promoting a vibrant subcurrency ecosystem, but other use cases that the exchange contract will bring about.
3.Governance: One of the chief complaints about how the current BTC foundation is run is that it undermines the basic ideological aspect of cryptocurrencies by being very centralized and intransparent. I think we've done a damn good job with SOILcoin in that regard, as transparency is probably one of my most frequently used terms when I’m posting, it is one of the SOILcoin project's absolute cornerstones. With our voting process on fundamental protocol changes, we have moved much closer to decentralization, but as we use a 1SOIL/1vote schemata, that still leaves the possibilities open to voting blocs and "whales" holding much more power towards decision making. But, this is also the general model of most corporations when it comes to shareholder votes.
The move towards adoption of SOILcoin and its decentralized exchange will improve every time there is a news article regarding another centralized, privately-owned exchange brought down with scandal, fraud or security flaws. Will SOIL-ex replace online private exchanges? Not likely. There will always be those sorts of entities, which with a framework already built towards moving assets in and out easily, there will always be users approaching that as a quick solution. What a decentralized exchange does is provide the alternative, and provides security that ones own funds remain under ones own control 100% of the time.
Its very clear that cryptocurrency is much more than an ephemeral phenomenon. It has shown that it is well on the way to becoming a new phase of technology driven markets that will disrupt conventional market strategies, longstanding business practices, legal frameworking, and established regulatory perspectives. It is creating a macro-economic efficiency. To speed up cryptocurrency’s adoption process and transition, the product must shift from one being used by solely tech-savvy innovators to one with mass market acceptance, the general public needs to be aware and educated on this new form of currency.
6. CONCLUSION
The "ecosystem" of SOILcoin is that of a programmatic machine which allows any user to build, deploy and interact with smart contracts written on the blockchain, and held there in perpetuity. A decentralized exchange contract residing on this network will improve the ecosystem. The first likely scenario will be a greater investigation into subcurrencies, and how they represent value. Other uses for an exchange contract will emerge, as will a quickening towards crosschain intercommunication.
Built on the Ethereum Virtual Machine model, users can create decentralized, autonomous, and highly extensible application layers. These can built as not only decentralized currency exchanges, multi-sig wallet contracts and distributed escrow services, but decentralized autonomous organizations, forums, and derivatives risk analysis. As a decentralized exchange, SOILex will provide not only the opportunity for trading in custom built subcurrencies, but to peg those against existing assets in a variety of manners.
This is the first version of SOIL-ex, and is definitely not the last. Features will be added as they become available or when obstacles are surmounted. A more efficient front-end and access to analysis tools will need to be explored. Ive built this exchange with much thanks going out to the EtherEx development team. Ive done little more than rebrand the platform towards SOIL during this release, concentrating more on ensuring that trades are completed properly and balances of subcurrencies were accurately moved from one wallet to another. I will be releasing the SOIL-ex platform with an in depth user guide covering the features built into this iteration, including btc-swap, which will allow users to buy SOIL directly, using BTC.
Ive also borrowed, in style if not substance, from the white paper presented by EtherEx, and while I would appreciate any donations people would send in appreciation for the work done (in SOILcoin, please - my developers wallet address is 0xe46731382FbC47621A6C480d4b6118026bBBCb3A), I would be remiss not presenting the idea that those developers at EtherEx deserve your support as well. You can communicate with them, and see the present status of the EtherEx project at etherex.org.
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