We’ve decided to open a small round of funding.
If you’re interested in investing in Altcoin.io, you can do so in 5-minutes here: https://wefunder.com/altcoinio
Wefunder interviewed Andrew Gazdecki, CEO of Altcoin.io, earlier this year. This is what he had to say about Altcoin.io’s mission to change cryptocurrency trading for the better.
WF: What is Altcoin.io?
GAZDECKI: Altcoin.io is a platform for trading cryptocurrency peer-to-peer, without ever losing control of your tokens. If our service were to go down or be hacked, users’ tokens are never in harm’s way. All we do is connect one individual to another. We never assume the custodial risk of holding users’ tokens, nor do we have any control over them.
Our mission is to bring the entire cryptocurrency community together to create a transparent, trustworthy, and honest market. We believe that will help take the cryptocurrency industry from where it is today, which is around a $250-$300 billion market cap, up to a multi-trillion dollar market cap.
We look at CoinBase, an exchange that made $1 billion in revenue in 2017 by making it really easy to buy Bitcoin and a few other digital assets, including Ethereum and Litecoin. What CoinBase did for Bitcoin, we want to do for altcoins. We want to help people trade securely, easily, and peer-to-peer, without ever giving your tokens to a third party.
WF: What makes Altcoin.io different from other cryptocurrency exchanges?
GAZDECKI: A lot of cryptocurrency exchanges are centralized, which makes them vulnerable to theft. Since June 2011, about 30 exchanges have been hacked, resulting in the loss of billions of dollars in tokens.
As Bitcoin’s value continues to rise, we’re likely to see more of these hacks. These exchanges store digital assets in a centralized reserve, typically known as a “honeypot”, which is a single point of failure hackers love to exploit.
We’re building a decentralized exchange (DEX) that’s both easy to use and removes the single point of failure exposing traders to theft. With centralized exchanges, users’ coins pass through a third party, similar to an escrow account, and this is why hackers target centralized exchanges. All of our trades, on the other hand, are peer-to-peer.
WF: What makes Altcoin.io different from other decentralized cryptocurrency exchanges?
GAZDECKI: We’ve seen countless new decentralized exchanges popping up over the last few months, and this is a great thing. Finally the market is waking up to the failure of centralized exchanges.
But despite losing their users billions of dollars in hacked funds, centralized exchanges still dominate the market. To compete and really change this market for the better, DEXs must have the following characteristics:
– Instant trustless trading
– A great user experience
– Blockchain interoperability
We originally pursued atomic swaps and smart contracts to address both trustless trading and blockchain interoperability. While we’ve had some success, atomic swaps fail to provide a great user experience for two reasons:
– Transactions can take minutes to be confirmed on their blockchains.
– Users have to pay high blockchain transaction fees.
This constrains trading volume, liquidity, and creates a frustrating trading experience. The community wants security, but not at the expense of transaction speed. So now we’re focusing on building an instant and trustless trading model with an amazing user experience using a Plasma-like sidechain approach.
WF: How are users’ tokens stored?
GAZDECKI: Unlike a centralized exchange, we don’t store users tokens. Instead, users lock their tokens inside smart contracts secured by the blockchain. Smart contracts let our users safely trade cryptocurrency without involving a third party — not even us. Your private keys to access your tokens stay private, known only to you. You don’t have to give us anything.
This is different to CoinBase. When users use dollars to purchase Bitcoin from CoinBase, the digital assets are stored within their centralized web-based wallet, not on the blockchain , so if they get hacked, users could lose their Bitcoin or any other digital assets stored. But since we store everything on a blockchain and don’t have access to anyone’s private keys, users have full control.
WF: How does the Altcoin.io Plasma-like side-chain work?
GAZDECKI: Plasma was introduced by Vitalik Buterin (Ethereum) and Joseph Poon (Lightning Network) in their white paper, Plasma: Scalable Autonomous Smart Contracts.
In its most simplified form, Plasma is a design philosophy for off-chain applications. Plasma’s goal is to scale Ethereum to transact billions of transactions per second (instead of just 10–15) by building a blockchain within a blockchain, and removing the need for every node on the network to verify all transactions as they occur.
To get technical, by splitting a blockchain by transaction type (DEX, dApp, social network, and so on), you can increase the transactional capacity in proportion with the number of divisions. For example, you could create a sub-chain on Ethereum for a DEX, operating independently on a Proof-of-Stake consensus mechanism, that effectively doubles transactional capacity. Three chains would triple it, four quadruples it, and so on, ad infinitum (in theory).
The state of each sub-chain is enforced by its “parent” or “root” chain, but it doesn’t need to do anything unless there’s proof of fraud, which is another reason why Plasma can support so many transactions. To withdraw funds, traders wait a predetermined period of time to ensure other nodes can challenge any fraudulent activity. In the case of proven fraudulent behaviour, Plasma will trigger a “mass-exit”, which allows users to withdraw their funds from smart contracts (after proving ownership from the last legitimate block in the chain) while the fraudulent block is reversed.
There’s theoretically no limit to the number of sub-chains, so Plasma solves the scalability problem while still providing a secure, decentralized trading environment. We explain all this in detail on our blog.
WF: How are you ensuring trades will be trustless and secure?
GAZDECKI: When trading through Altcoin.io, you’re effectively trading on a sidechain that reports to a smart contract on Ethereum. The smart contract is there to ensure everyone in the sidechain, including us, plays by the rules. Trading will be trustless, near instant, and our DEX will have an in-built mass-exit function to ensure you won’t lose your funds if verifiers spot fraudulent activity.
Again, to get technical: We’ve partnered with Tendermint, a consensus technology that’ll operate a Proof-of-Stake (PoS) mechanism for nodes in our DEX. Each node will sign transactions and commit them to blocks. Currently, Tendermint can handle up to 10,000 transactions per second, and as we only commit transactions for our DEX, we’ve massively improved transactional capacity without sacrificing security.
WF: Why haven’t other exchanges decentralized?
GAZDECKI: I believe the main reason is because it’s really difficult to build a decentralized exchange with the same transaction speed as a centralized one. Unlike a decentralized exchange, a centralized exchange controls users’ funds, so when you buy ZRX, ETH, GNT, or any other cryptocurrency assets, those trades execute much faster. But at the same time, users are compromising their security — exposing themselves to hacks and server downtime.
It’s only in the last year or so that we’ve been able to build a decentralized exchange that’s both easy to use and gives users full control over their tokens, but still has the advanced trading options and high liquidity of a centralized exchange.
WF: How will you decide which currencies to include?
GAZDECKI: We haven’t standardized that yet, but we only want to include credible projects. There are a lot of tokens on the market with low market potential, and frankly, a lot of them are bad investments. All the projects we list on our exchange will have undergone a due diligence process — understanding what value a token has, how strong its development team is, and what it will likely be used for.
We want to allow users to trade anything, including niche coins that aren’t available on other exchanges. But we’re not going to let every coin on the planet in just because we can. We’ll focus on offering quality tokens only.
Our customer protection is broader than that, too. There are a lot of shady actors in the crypto space, and we want to protect you against things like bots and pump-and-dump activity, which you see consistently on some of the larger exchanges. We’re going to actively block any sort of activity that doesn’t leave a fair playing field for other traders.
WF: How does the wallet interaction work?
GAZDECKI: Each wallet you create comes with a unique key. Users lock their funds in a smart contract and then put the wallet on a blockchain where only they have access to it. Each wallet has a two-tier security system. The first tier is a mnemonic passphrase of 12 words which users write down and store. We never have those words. This method is very secure, but if users lose those 12 words, they can never get their tokens back. The second tier encrypts wallets with secure passwords. So, to break in, hackers would need to get users’ private keys on the blockchain plus be able to hack a smart contract that holds the funds. And that’s assuming a hacker would go to the trouble of attacking a single account — remember, there’s no honeypot in our decentralized exchange.
Before taking our exchange live, we’ll be conducting private third-party security audits which will go beyond our smart contracts. We’ll release a detailed report when finished. It’s an important test to make sure our wallets and exchange are as secure as possible.
WF: Cryptocurrency can be complicated. How do you plan to attract customers, especially newcomers, to the market?
GAZDECKI: Last year, we saw an explosion in digital assets. We saw the total market cap rise from under ~$10 billion to, at its peak, ~$800 billion. A lot of people are angling to get into this market, and not just with Bitcoin, but existing exchanges are making it difficult. We, on the other hand, want to be a transparent company and offer a high level of user experience and support.
We see a lot of opaque exchanges in this industry. Many refuse to share information about their daily trading volume or the assets they have on hand. Even with a reputable service like Coinbase issues can arise — they rely on centralized services, so when Bitcoin Cash reached its peak price and started to fall, they froze withdrawals and deposits. Because there are no regulations, exchanges make their own rules. We want to build an exchange by traders, for traders, based on their feedback, which gives them true autonomy and security.
Also, many other exchanges lack a user experience that builds trust and understanding at every step. For more experienced traders, using exchanges like Bittrex, Poloniex, or Binance can seem relatively easy, but for those just entering the market, they’re pretty daunting. We see a huge opportunity to introduce an exchange that, one, is trustworthy; two, is secure and never takes custody of your tokens; and three, gives an easy and enjoyable user experience with a support team available to help you along the way.
We believe we can attract not only experienced traders, but also traders who are just entering the market and want to diversify their cryptocurrency portfolio beyond Bitcoin.
WF: How do you make money?
GAZDECKI: We add a small fee to every peer-to-peer transaction we process.
WF: Who’s your competition?
GAZDECKI: First, there’s 0x. 0x is basically a relayer protocol that allows us to share among one another. I mention this project first as, like us, they’re focused on solving liquidity and sharing it among decentralized exchanges.
We plan to do something similar with the Altcoin SDK but it will be more focused on less-technical groups looking to build a decentralized exchange. We’re building a secure way for anyone to become a relayer between buyers and sellers.
Then there are a lot of other decentralized exchanges coming to market including KyberNetwork, Airswap, Bisq, IDEX, RadarRelay, and many more. However, the trading volume on these exchanges is very low compared to centralized exchanges due to liquidity issues.
WF: How do you plan to solve the fragmented liquidity issue amongst decentralized exchanges?
GAZDECKI: Fragmented liquidity is a problem facing all DEXs, so it makes sense for us to work together.
The next version of our DEX will allow us to share our secure trading engine while you customize the exterior however you’d like. You can add extra features, change the UX/UI, mold the exchange to your brand, and tailor everything to your existing traders.
WF: What are you worried about?
GAZDECKI: There’s so much innovation happening so quickly in the blockchain space we sometimes wonder if what we’re building today will be relevant a year from now. For this reason, we’re working with other projects to leverage their technology so we can be nimble and improve our exchange as times moves on, but again, the space is moving very fast.
Another thing I worry about is certain projects failing. It’s unrealistic to think that every company or project that has conducted an ICO (Initial Coin Offering — similar to an Initial Public Offering, but an ICO offers altcoins in exchange for funding) will successfully deliver what they promised the market. As we see projects fail, the market could dip, and then we could start to realize a lot of these new tokens are bad investments.
WF: What happens if the SEC decides none of these coins pass the Howie test and they all have to be treated as securities?
GAZDECKI: Some tokens are 100% utility tokens. That means they’re required to use a certain product or service. The chance of those ever being deemed securities is, I think, fairly low.
But as an exchange, we want to comply with government regulations first and foremost. Our goal is to make cryptocurrency trading more secure, so it would be irresponsible of us to assume the U.S. government won’t issue laws around this. We’ll be staying ahead of the curve in terms of legal requirements and how they affect exchanging digital assets. After all, even if we make the exchange extremely secure and give users full control of their tokens, if the government were to step in and say we’re not complying with regulations, that would mean we had failed in our security goal. Whatever regulations come, we have a legal team to help us understand what they mean so we’re compliant at all times.
WF: Why are you choosing to raise funding through an equity investment instead of an ICO?
GAZDECKI: By raising through Wefunder, we’re still able to involve those in the crypto community who’re looking to invest and support our project, but also leave options open for our project to be acquired by a larger centralized exchange, another cryptocurrency project, Bitcoin wallet, and more. We would love to help secure those exchanges putting traders funds at risk, or help them provide their users access to thousands of cryptocurrencies without any of the custodial risk that comes with it.
Also, we don’t think our exchange needs a utility token to function, so why create one just to raise millions in funding that we don’t need? As a company, we’d like to raise only the amount we need to achieve our goals. As a result, we are driving focus, accountability, and discipline into our team culture to focus on what really matters — development and innovation — without worrying what the price of our token is each day.
WF: How are you planning to spend funds raised?
GAZDECKI: If you invest in Altcoin.io, we’ll spend your funds cautiously. At my previous company, we bootstrapped the business to millions in yearly revenue and eventually exited successfully to a private equity firm. I am a big believer in building strong, distributed teams to save costs and increase team performance.
40% to expand our engineering and UX team
10% to perform 3rd partner security audits
10% on additional legal advisement
20% to build a world-class customer support team
10% to build out an operations team
10% to build our marketing department
WF: Who’s on your team?
GAZDECKI: I’m Andrew Gazdecki, the CEO and founder of Altcoin.io I was also the founder of Bizness Apps, which was number #91 on Inc. Magazine’s list of the 500 fastest-growing companies in 2015. I’m based out of San Diego.
Sule, or Sulejman Sarajlija, is our CTO and lead developer. He specializes in back-end development and blockchain technologies. Day to day, he leads Djenad, Anto, and Azra, who are our engineering team based in Bosnia.
Fabian Vogelsteller has officially joined our advisory board. Fabian’s worked on many open-source projects, including Ethereum’s Mist browser and the Ethereum Wallet. He also proposed the ERC20 standard, ushering in a new era of token trading, and brings a wealth of technical expertise and insight to the team.
Fabian joins five other advisors, four of whom are active cryptocurrency traders. That helps support our goal of creating an exchange built by traders, for traders.
WF: So, to our understanding, upon launch you will not be 100% decentralized, correct? And what is the reasoning behind this?
GAZDECKI: As our community grows, we’ll likely work to become 100% decentralized, but upon launch we want to deliver the best experience possible and to do that we need to have some centralized items to compete with other exchanges.
However, we are decentralizing the most important aspect of the exchange which is the custody of the tokens where users are fully in control of their tokens at all times and their wallets cannot be hacked.
Centralized exchanges trade billions of dollars every day, but decentralized exchanges trade only millions. What does this tell us? It tells us that people want security, but not at the expense of the user experience. Our goal is to give our traders both — a fast, fun trading experience with the security of a decentralized, peer-to-peer trading engine.
The reality today is that decentralized trading is confusing and we want to make it easy and safe for people to enter the market. There are still a lot of legal grey areas with the SEC, so to ensure our traders always have a safe place to exchange altcoins, we must operate within the current regulatory framework. This will also attract institutional and professional traders, which further improves liquidity.
But long answer short, no we will not be 100% decentralized to start, but we will never have control of your tokens and you can expect a strategic approach to solving the liquidity problem which makes us confident in our initial launch strategy. Making cryptocurrency trading more secure is our main priority.
WF: Anything else you’d like to mention about Altcoin.io?
From a blockchain project perspective, we’re kind of doing everything in reverse. We haven’t written a white paper and we have no plans to conduct an ICO. A lot of projects these days create a utility token with the sole purpose of conducting an ICO, but what projects should be doing is thinking more about what utility their token provides. In our opinion, if you have to think about why you need a token, your project probably doesn’t need one, which is why we’ve chosen to avoid the ICO route altogether.
In addition, there’s a kind of a gold rush happening for ICO projects. Unlike other teams, we don’t have millions to burn. This makes us hungrier to find ways to improve organically, as opposed to some project that has raised tens of millions of dollars (sometimes hundreds of millions of dollars). We don’t have the luxury of a 36-month burn rate, vacations included, so we aim to demonstrate value and innovation from the outset.
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