For those of you new to crypto; “last mile” is the term often used to describe the conversion from fiat system to crypto system and back. This has been one of the hardest things to solve, and has thus been a major obstacle for mass adoption of digital currencies.
There have been three main obstacles to the last mile:
- Government regulations
- Financial institutions refusing to deal with businesses that are involved in crypto
- Knowing who to trust in the crypto ecosystem
There are ways around the first two issues, but they will always lead you to the third issue – trust. There is really no one you should trust in crypto. During the last 12 months three of the exchanges I have been using have gone belly up. One of them being a very well established one. Others have been burnt by escrow agents with good reputation, hijacked accounts on forums where crypto is sold, etc. Wherever there is money involved there will be scammers. Crypto is no exception to this.
BitBay has now solved the trust issue with smart contracts. Time is money for all of us. That also goes for scammers. If there is nothing to gain, there is no point in scamming. With smart contracts there is nothing to gain for them anymore.
The cornerstone of BitBay smart contracts is the double deposit. If you are selling an iphone you must also deposit the value of that phone in Bay. The buyer must do the same and of course, + send the amount of money you have agreed on. The deposit is locked until both parties agree to release it. If you are cheating someone, there is no way they will agree to releasing, and you will have gained nothing. The deposit must be made in Bay because that is the currency the system is able to lock up. But the payment could be in any currency. This means that BitBay is not only solving the last mile for Bay, but for all crypto-currencies!
The smart contracts with double deposits is the solution to the last mile. You can buy and sell digital currencies with smart contracts just like you buy and sell cell phones. The process is identical. Take an example of where one may want to purchase Dogecoin with cash. Normally it is impossible to trust someone with a wire or money order such as Western Union. However, for the first time in history you can! The deposits would be made to make theft unprofitable and offset the need for any escrow to be controlled by a 3rd party (a risk in itself). And it’s really that easy! The coins can be purchased peer to peer, without the need to trust anyone anywhere in the world. The unbanked finally can enter into Bitcoin markets safely. BitBay’s client now includes built-in templates to make the process so easy that even grandma can do it.
For those who already own BitBay, the last mile has finally been achieved! For those that don’t have any Bay and can’t easily convert fiat to crypto, read on, as there is a solution for that also.
In an unbalanced contract a seller will agree to sell Bay to a buyer without any Bay. In this scenario the double deposit is impossible of course. The buyer will be able to pay with fiat or any other crypto-currency the seller agrees to. That is the situation we typically face when someone comes in new to crypto. An unbalanced contract is of course not as secure as the balanced system, but it is only intended for small amounts of money. Once a buyer has bought a few Bay with the unbalanced system, it is possible to use those Bay for balanced deals as described above. There are two main options in BitBay for unbalanced trades.
- One sided deposits ranging from a fraction of the value of the deal to infinity
- Pay to E-mail with password
What you should use depends on who you think should be the one taking a risk. If you want to establish yourself as a trustworthy seller, you might want to choose the one sided deposit where you deposit Bay that equals the value of the deal. There is a “guarantor” template for that in the Wallet. The buyer can then be confident that you have nothing to gain by breaking the deal because you would lose the deposit. You do risk getting burnt, but you can take a little fee on every deal that will function as your insurance pool. Be aware that the reputation system in Bitbay does not calculate reputation for guarantor contracts. Only balanced trade contracts gain reputation points for completed contracts. It can still be useful for rep building if you sell on forums, websites, etc. For both sellers and buyers, we recommend setting up a “KYC” system. For example, if the buyer has a high reputation score on eBay, alibaba, etsy, etc., correspond in a way to prove who they are through those website’s messaging systems. Once you are an established seller with a good reputation you might want to utilize the custom contract template. For example, you could reduce the deposit to a percentage of the deal, or virtually remove it altogether (within Bitcoin’s anti-dust protocol).
In general we advise you to only use guarantor contracts if you think the added risk is worth the gain you hope to achieve. Otherwise we recommend P2M for selling coins in unbalanced contracts.
A variation of no deposit is using the Pay to E-mail (P2M) feature. You send the buyer a password protected P2M, he then sends you the money, and when you receive it you send the password that lets him redeem the coins in the P2M. If the buyer never sends the money, you don’t send the password, and after ten days the P2M is automatically returned to you. In terms of safety there is no difference between a deal with no deposit and the P2M option from a buyer perspective. But the buyer might find it a little reassuring to see you have sent the Email payment before he transfers his money. If you also have a good reputation, it should not feel any different from paying up front on eBay.
Now remember, the unbalanced system should only be used for very small amounts of money. The purpose of it is to allow new users to gain easy access to Bay so they can buy bigger amounts in the balanced system. How you define “small amounts” is up to you of course, but you should take into consideration the transaction fees for sending fiat. In many countries domestic transactions are now possible for free or a very low fee. In some countries the banks have recently opened new transaction systems that allow instant transfers (or rather transfer confirmations) by email or phone. This is perfect for deals both in the balanced and unbalanced system. We will tackle the many innovative payment options in future blogs so stick around!