I recently had my first experience in buying bitcoin on a "decentralized" exchange, Bisq, and it was fantastic! As you may know from my introduction post, I hate everything centralized so I have been refusing to use traditional exchanges like CoinBase or Kraken. I do not like the ideas of having my driver license number, social security number, and all kind of private identity information on those exchange for verification purposes. It beats the whole purpose of blockchain technology and I don't trust their security system to have my precious identity sitting there in the hands of god-know-who.
A couple weeks back I found Bisq (formerly named BitSquare) via a crypto currency forum and decided to test it out. In short, Bisq is a true decentralized exchange where everything is operating from your desktop/laptop. You download and install a desktop client (just like a desktop wallet) to your machine. It allows you to connect to a network of peers who also have their Bisq client running from their desktop. There's no single person or entity in the middle to facilitate the buying or selling; it's all automated.
Bisq vs. Centralized Exchanges:
Bisq would just blow all of the current centralized exchanges out of water on every front:
a. No verification is needed: Bisq doesn't ask you for your driver license or bank account number.
b. Support any currency: Bisq allows you to buy or sell bitcoin (and any other altcoin) using your fiat currency (usd, euro, yen, etc...). It can work as a desktop wallet for any of your alt coin.
c. You own your private keys and store them on your desktop/laptop. You also keep your wallet's backup seeds.
d. No hold or limit your funds and withdrawals - it's decentralized!
e. No middle man fees, only transactional fees similar to how you send bitcoin from one wallet to another
The only down side is that the number of peers on the network is relatively small as Bisq is not yet known to many. Currently, there is about 12 - 15 people connected to the network at any given time.
How Does It Work?
In a nutshell, a Bisq transaction involves 5 steps:
1. You post a buy/sell offer on the network based on the cryptocurrency and fiat money that you wish. I'll use BTC/USD as an example.
2. The buyer initiated the transaction on the seller's offer. Bisq will ask buyer and seller each send a small amount of bitcoin (about 0.03 btc) to a security fund.
3. Seller will have to send their bitcoin amount that they want to sell to an escrow account.
4. When 1 confirmation of the seller's bitcoin have cleared, the buyer will then send the payment in USD to the seller as instructed by Bisq with the seller's email / phone number along with an unique transaction code for verification purpose. I've used Zelle payment method where you can directly transfer USD from any major bank (Chase, BOA, Wells Fargo, etc...) to any one's bank account using their email/phone number without costing a single penny.
5. When seller confirms receiving of USD payment along with the unique transaction code, the bitcoin amount will be released to the buyer from escrow. Security deposit (0.03 btc) will be returned to the buyer and seller at the same time.
Now, in case there's a dispute Bisq will randomly select a mediator on its network. The mediator will contact both buyer and seller to get their proof of payment and reasons for dispute. The outcome would be either go forward with the transaction as both parties agree or canceled the transaction altogether where seller gets back his BTC and buyer gets back his USD. In any case, the mediator will collect the security deposit as a fee for his service in resolving the issue.
How is it different than LocalBitcoin?
A lot better! LocalBitcoin is also a decentralized exchange but it comes with much more hassle. A LocalBitcoin transaction requires people to physically meet up and exchange hard cold cash or deposit cash into someone else' bank. It's a time consuming process and sometime a bit unsafe if you trade with someone that you never met before. In some cash transactions on LocalBitcoin, sometime the seller cancels the trade right before the meet up to force buyer in buying at a higher price. Buyers are stuck with either wasting their time for nothing or go ahead buying bitcoin at a higher price. On Bisq, if a party cancels the transaction in the middle of it, he'll lose his security deposit.
I hope with this steemit post, there will be more people starting to use Bisq, the real decentralized exchange for the decentralized world.
PS: I do not work for Bisq or have any interest/association with the software maker.