Exploring Bitsquare. The sad reality of USD trading volumes (Part 2).

Last week I installed the Bitsquare software from Bitsquare.io. This week I've spent some time getting to know the interface and put some offers to buy BTC on the exchange. A sad reality soon became apparent. But first some background.

The Bitsquare application is a distributed exchange through the TOR network. It is a revolutionary idea and I'm very excited to use it as a replacement for services like Coinbase. In part 1 of Exploring Bitsquare, I installed the software and then paused while I set up ClearXchange as a method of fiat payment. I decided to go with Chase Quickpay, which is not strictly the same as ClearXchange, but does cooperate with ClearXchange supporting bank networks.

I spent a day using the software and thinking about what I could elaborate on in part 2 Exploring Bitsquare. I put some offers to buy BTC in USD on the exchange, which involved funding a security deposit in the Bitsquare wallet. This sets up a 2 of 3 multisig wallet deposit that acts as a disincentive to spam the system or attempt to defraud other traders. I funded the wallet and then waited to see if anyone would accept my trade.

What I discovered was that creating offers to sell and buy was not very intuitive. Especially setting a price. It took me some time to realize that the 'spread' was quite large in the exchange. The 'spread' is the difference between what price buyers are offering to buy at, and what price sellers are willing to sell. There was no overlap in the USD exchange.

Which brings me a more fundamental problem of using Bitsquare in the U.S. The way that banking works in the U.S. does not encourage the free flow of money through an exchange like Bitsquare. I feel that this is probably a result of the U.S. governments 'war on [fill in the blank]' policies which seek to monitor and control money flows ie money laundering. What this has left Bitsquare with is a EURO-centric distributed exchange, which can be seen by the greater number of EURO dollar trade offers shown in the drop down menu image below.

It is also noteworthy that trades in XMR are extremely high. That makes a lot of sense when we consider the purpose of Bitsquare is to anonymise transactions. XMR is an anonymity featured coin and lends itself perfectly to the Bitsquare platform. It is also much safer to trade coin for coin on the exchange because there are no chargeback options in cryptocurrencies. This greatly reduces the amount of fraud that can be perpetrated on exchange users.

As you can see from the dropdown menu in the image below, the volume of trading in USD is far below the values for EURO and XMR.

I attempted to initially buy $10 USD worth of coin, as an experiment. The experiment quickly revealed that nobody is interested in trading in these amounts in USD. Buy offers sat for hours without anybody showing any interest. When my paycheck arrived, I put up in larger offer to buy $150 USD. I placed the the offer with a 5% premium for the seller on the current price. I chose this figure because it is slighter higher than what I would have to pay for the same amount of coin on Coinbase using a credit card transaction. The offer again sat for many hours without any interest and I eventually cancelled that offer too. Which brings me to another issue with Bitsquare. Every offer has a small cost incurred for making that offer. Cancelling the offer results in the loss of that small fee for no resulting gain. I found that a huge disincentive to make any more offers. I simply went to Coinbase and bought my BTC with a credit card. Additionally, what may not be obvious at the beginning, it that the Bitsquare application needs to be run continuously for your offers to remain available.

In conclusion, Bitsquare is a revolutionary idea, and has real world applications. This is evident in the growing trade volumes in EURO dollars and XMR. It isn't going to replace Coinbase anytime soon though, as a method of USD/BTC purchases. The volume of trades in USD amounts is still fraught with issues of chargeback fraud and antiquated banking practices. Coin to coin trades however seem to be working very well. I'll be keeping an eye on Bitsquare to see how it evolves over time. Given the attention Coinbase is attracting from the IRS, I'm keen for an alternative.