Our goal: A Bitcoin exchange in China by late summer

Rising Sun
Photo: Stephanie Costa, CC BY 2.0, (Not changes made)

The blockchain’s block 360649 registered the first transaction carried out by two Coinffeine users with real money. Since last June 12th, a small group of users is testing the Beta version of Coinffeine, as prior step to its impending public release.

The transaction of 0.0549 BTC, verified at 21:47:13 last June 12th of 2015 recorded a Smart Contract between two users that has been created following the Coinffeine Protocol and it had enabled both parties to exchange fiat money by bitcoins in a decentralized manner.

For several weeks the Coinffeine’s development team will work closely with this small group of users to ensure that everything is ready for the Beta public release, in which users who choose so, will be able to start exchanging bitcoins and fiat money in a distributed and automatic way.

 

Coinffeine will operate in China and 69 more countries from day one

On the eve of the launch of the Beta version, we are pleased to announce that Coinffeine will be available from the first day in more than 70 countries. This is possible because Coinffeine uses local payment processors -companies as OKPay– to manage the fiat money, and the users will manage the bitcoins using the desktop application as a wallet. Coinffeine doesn’t require identification of the users, or to do a complex legal feasibility study for each of the countries where it will be operating, as our company does not manage money deposits or customer’s bitcoins.

The Coinffeine launch strategy aims to position our product in markets such as China, one of the countries where we will have presence from the day one, where traditional exchanges such as Coinbase or BitStamp cannot easily operate.

China proved to be one of the most active markets in late 2013, before the authorities banned the operations of Bitcoin exchange companies. Since then, Chinese authorities allow individuals to possess and exchange bitcoins particularly, but the operations of companies managing deposits of bitcoins (exchanges) are not allowed.

However, Coinffeine doesn’t accept bitcoin or fiat currency deposits and, even though the user experience is the same as with a traditional exchange, the exchanges are made P2P -among users- what it makes our product to fit perfectly into the Chinese market.

The data also shows that 20% of OkPay users come from China, so to try to differentiate ourselves in a market with almost no competition seems a good opportunity.

 

A replicable and scalable model

Being able to launch our product in more than 70 countries right from the start, simply is just a proof of the scalability of a model like Coinffeine.

Although we decided to start with those markets where there is a high potential and less competition, Coinffeine plans to integrate other payment processors like Dwolla or even PayPal at a very low development cost. Very soon we will be present in many more markets.

We are a start-up that wants to build a business model that is replicable and scalable. In Coinffeine we believe that taking advantage of P2P and decentralized technologies, such as Bitcoin, is the most natural way to achieve that.

Our goal: A Bitcoin exchange in China by late summer

Oracles: the real world enters Bitcoin

Oracles
Photo: Mattys Flicks, CC BY 2.0, (Not changes made)

Bitcoin can do magic with money. Because Bitcoin is not just money on the Internet that allows global peer-to-peer transfers almost instantly. Bitcoin is also programmable money. And Bitcoin also allows the digitally transfer of value. That value can be 10 euros, or an asset as a ship or a house. The title to any form of assets may be entered in the Bitcoin blockchain. If to this we add the ease of transfer, we can think about the next natural evolution: Bitcoin allows smart contracts.

A smart contract is an agreement between two or more parties -people or machines- that allows the creation of conditional terms or clauses (If this, then that) and allows them to run autonomously. With the development of these applications, the Bitcoin blockchain can become a system for the creation of programmable contracts between two or more parties. Several projects and companies in the ecosystem are already working in this direction. This includes Coinffeine that allows two people to exchange euros for bitcoins with smart contracts, or Oraclize, an Italian company that offers services based on smart contracts and has followed the footsteps of Coinffeine and was established using bitcoins as social capital.

 

The real world in Bitcoin Scripting

The language in which these smart contracts are written is not Spanish or English, but a language called Bitcoin Scripting, and has some peculiarities. Among them, it is not possible to create clauses that refer to external conditions. This limitation of smart contracts is partly remedied by a mechanism known as Oracle, at the expense of relying on a third party. Oracles are responsible for enabling a smart contract that incorporates clauses as “only if Real Madrid wins X match” or ” only if the oil price exceeds X value at X index.” This mechanism allows that the payment of a transaction is executed only if an external condition is met. So Oracles can therefore validate clauses that refer to external information. They are the third digital party that verifies and executes certain terms of the contract. We could say it’s like a notary who has the capacity to judge and see if certain conditions are met in the external world, but they cannot touch the money.

 

Oracles and reversible Bitcoin payments

The term Oracle was originally defined by Alan Turing and it has been adapted to Bitcoin by Mike Hearn. “Oracle servers” are companies that provide programming scripts through which we can define a logic to validate its service, allowing us to spend the money as we agreed. Thanks to the Oracles we can get a transaction to execute only if a certain external condition is met and define conditions for cases where it is not met. In addition oracles could make Bitcoin transfers reversible. It is well known that transactions with the cryptocurrency are irreversible, but if money is committed in a smart contract rather than in a current transaction, we can make any scenario possible.

As an example, imagine you buy a pair of sunglasses on the Internet and you agree that the seller will not get your money until you confirm that you have received the package. To do this, instead of sending the money directly to the seller, you create a smart contract. Once this is done, the seller can be sure you’re going to pay because he can verify that the money is committed is locked in a smart contract pending the courier company’s confirmation that the package has been delivered. This is done the delivery consultation on its website. When the application of the courier company confirms that you have received the package, the seller asks the oracle for the verification and it signs the transaction. Automatically the payment transaction that was blocked, is released and minutes after the seller receives the money you have paid for your sunglasses.

The interesting thing about this mechanism is that a trusted third party, the oracle, has authorized the payment, but it doesn’t require having access to the escrow: the oracle does not touch the money.

When Bitcoin is combined with real-world information is when “things start to get really interesting”, said Gavin Andresen on an analysis of this topic. We will have to see how oracle projects evolve in the ecosystem, but for now, they go in the right direction. And there seems to be no turning back.

This is getting interesting!

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  • Over a year ago, in February 2014, I talked about oracles and much more in a speech titled “Bitcoin Protocol for Developers” at the event T3chFest.
  • Oraclize (currently in Beta) offers services based on smart contracts providing Bitcoin transactions based on the occurrence of some verifiable real-life event, and is based on third-parties which were already acting as oracles, such as WolframAlpha or Football API, to link them to Bitcoin transfers.

 

Oracles: the real world enters Bitcoin