The Multigateway: fast, trustless, commission-free crypto trading
Tuesday 05 August 2014
Back in February 2014 a new term entered the bitcoin lexicon with all the subtlety of a freight train. Perhaps it had been used before, in slightly different circumstances; as a synonym for being inconvenienced and frustrated, at the most. But when the world’s first and once largest bitcoin exchange finally crumbled under the weight of its own incompetence, it took on a new sense. It’s hard to put into words exactly what Mt Gox’s customers actually felt, but ever since the word has been used in something like the following way:
Gox, verb, intransitive. To be robbed, literally or figuratively, with no recourse, through the idiocy or dishonesty of one who to all intents and purposes gives the impression of being unable to find his own buttocks with both hands, two opposing mirrors and a copy of Gray’s Anatomy. ‘I got Goxxed’, ‘Don’t trust them, you’ll get Goxxed.’
There is an anguish to a Goxxing; a kind of existential disbelief that such a thing should be able to happen at all. Key to the nature of a proper Goxxing is the obliteration of trust placed in a centralised institution, such as a cryptocurrency exchange like, well, Mt Gox. Cryptocurrency is built on the principle of trustlessness, so the existence of these organisations in the bitcoin ecosystem is jarring at best, humiliatingly expensive at worst. But we used them, because that’s all we had – until now.
Decentralised crypto trading
Decentralised exchanges have long been the holy grail of cryptocurrency, even before a certain MagicalTux mismanaged hundreds of thousands of his customers’ bitcoins away into the eager pockets of hackers – who probably sold them on his own exchange, thereby Goxxing him in return – as well as the odd personal stash ‘old format wallet’ that lay gathering dust until it was inconveniently accidentally discovered.
The problem is that they are really quite tricky to pull off. Fiat <> bitcoin is one problem. Solutions like Coinffeine are being developed, which essentially swap fiat and bitcoins in small amounts, until the trade is complete. It’s a neat solution, though it doesn’t entirely circumvent the problems involved.
But how on earth do you arrange a decentralised trade between two different blockchains? Crypto <> crypto trading is a whole other issue, because blockchains are by nature incompatible – it just wouldn’t do to be able to send your Litecoins to the Dogecoin blockchain, for example. So how do you swap them without trusting an exchange to manage the deal for you (exacting their pound of flesh in the process)?
The answer is the Multigateway (MGW). Strictly speaking it’s not a fully decentralised exchange in the same way that bitcoin itself is decentralised; ‘distributed’ is probably the best way to describe the critical step.
It’s built on top of the NXT Asset Exchange, the P2P platform that allows you to trade digital assets of all kinds. The Multigateway is a mechanism for depositing coins into the Asset Exchange, meaning you can treat them like any other asset. It’s an add-on to the NXT client – details for installation are available on the Multigateway site.
It works by using different coins’ multisignature properties. There are three separate servers that store users’ coins, and when a transfer is made two of these must be in agreement. What this means is that even if one is hacked, it is still impossible to transfer coins out of those wallets.
When you access MGW, through the NXT client, you start by generating a unique address for each supported cryptocurrency – currently bitcoin and Litecoin, but soon a whole host of others (one of the key requirements for full support being multisignature capability). The devs have released the source code and are actively involved in helping other crypto communities add their coins to MGW.
Once you’ve transferred your coins to the given address, you are given a corresponding number of coin assets to trade in the Asset Exchange. Unlike most regular exchanges, there is no commission fee; the only cost is the 1 NXT transaction fee, which should soon be decreased to 0.1, and possibly less in the future. When you’re done trading - which is nice and fast, due to the 1 minute block times - you can withdraw your coins to your own wallet for no more than the transaction fee for that currency.
A neat side-effect of this is that MGW will provide a simple way to store many different cryptocurrencies, easily and safely. Of course, nothing will ever be as secure as cold storage, but on the other hand no one wants to run half-a-dozen different clients on their own computer, and the multi-sig approach is the next best thing. The coin assets are all recorded on the NXT blockchain under the associated address, so there’s a permanent and transparent record of all the coins you hold.
Multigateway has been released in beta, and is still in development. Even as things stand, though, it’s pretty impressive. There are a few rough edges; installation involves downloading the regular NXT client and unzipping the MGW add-on into the right folder (which took me a little longer than I was expecting to figure out, though it has to be said that with hindsight it shouldn’t have done), and you may need to wait for a few confirmations longer than you expect to receive your coin assets (though the vagaries of the bitcoin network means that it might be no longer than you’d have to wait for a deposit to a regular exchange). But the concept is solid, it’s working, and there is plenty of support on hand for those who are having trouble. It’s being iterated and improved on a continuous basis, with more and more coins being added – soon we’ll see Darkcoin, Dogecoin, Vericoin, Earthcoin, BitcoinDark, and a bunch of others. There are also plans afoot for a web wallet, so that users don’t have to download the full client – instead, they will be able to sign up like they would with a standard hot wallet. And naturally, liquidity isn’t as good as it could be, yet – though prices seemed pretty competitive. Arbitrage with traditional exchanges should help improve this, of course.
Decentralised crypto trading will benefit the whole cryptocurrency community. It’s a point of embarrassment that a technology that is devoted to decentralised money transfer should have to rely on centralised exchanges to work properly. Hopefully, thanks to initiatives like the Multigateway, the days of getting Goxxed will be behind us.
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