Bisq in Brief
Bisq is a decentralized exchange for fiat and digital currencies formerly known as Bitsquare. Rather than operate through a single company’s servers, the Bisq app uses peer-to-peer technology to create direct connections between users.
The developers at Bisq see their mission as restoring Satoshi Nakamoto’s original vision of a decentralized currency. In their view, centralized exchanges are the “Achilles Heel” of the cryptocurrency system. Not only are the exchanges vulnerable to hacks and fraud, they are also subject to government surveillance and interference.
Bisq does not require verification and does not hold its users’ funds. Instead, all of the fiat-crypto and crypto-crypto trades are made between the Bisq users directly.
Bisq’s approach, however, may place its developers and its users on the radars of financial regulators and law enforcement agencies. Much like the peer-to-peer marketplace Silk Road, Bisq’s blind-eye approach could be used for money laundering, tax evasion and other criminal activities.
- Does not hold customers’ assets, so less exposed to hacks.
- Does not require verification information.
- User-to-user trades hard for outsiders to track.
- Crypto-to-crypto transactions capped at 1 BTC.
- Fiat-crypto transactions capped below 1 BTC.
- Private transactions could draw attention of regulators.
What is Bisq?
Austrian developer Manfred Karrer got involved with Bitcoin in 2011 and soon began turning his ideas for a decentralized bitcoin exchange into reality. Karrer first called his app Bitsquare when he began showing the prototype to fellow developers and bitcoin enthusiasts.
The original Bitsquare whitepaper, published in 2014, pointed to the weaknesses of centralized exchanges as single points of failure in the cryptocurrency system. The Mt. Gox debacle was cited as the latest example of centralized exchanges’ vulnerability to hacking and theft.
Yet Bitsquare has always been about more than financial security. The app’s founders, and the community they created, strongly favor the original cypherpunk vision of an anonymous, decentralized financial system. Centralized exchanges, the white paper argues, “are vulnerable to coin-tracing on a mass scale, which is a serious violation for users’ privacy.”
As 2014 came to a close, the project team kicked off Bitsquare’s alpha testing phase. Karrer explained in the announcement that:
“Bitsquare is designed for those who want to exchange a national currency for bitcoin and do not want to forfeit control or privacy to a central authority in order to trade with other individuals.”
The cypherpunk philosophy shines through in the alpha test announcement. It does not even mention fraud, theft or hacking. Karrer instead focuses on individual information freedom:
“Bitsquare should appeal to people who regard financial transactions as a form of private speech to be protected from surveillance by corporations, governments and other institutions.”
Transitioning from Bitsquare to Bisq
By April 2016, Bitsquare was ready to enter beta. The announcement kicked off a two month, fifteen city road trip across Europe during which Karrer met with local Bitcoin enthusiasts to promote his decentralized solution.
In early 2017, Bitsquare needed a new name. The project team had tried to register the name Bitsquare to protect the brand. A payment processing company with “square” in its name objected to the Bitsquare trademark.
The rebranding to Bisq takes elements from the original name bi(t)sq(uare) to create a unique name that is easy to remember and google.
Bisq closed 2017 with impressive stats for a service still in beta. Bisq had facilitated 5,200 trades worth an estimated $4.1 million USD. Trading volume has doubled every 3.5 months since Bisq launched.
Leadership and investors
Bisq is not a company. It is an open source development project. A small core team managed the project during the development stage and for the first eighteen months of Bisq’s existence. The original core team included Karrer, Chris Beams, Richard Myers and Lloyd Johnson.
Today, Bisq operates as a Decentralized Autonomous Organization, or DAO. A new Bisq whitepaper released in late 2017 describes how the DAO concept helps Bisq better-execute its philosophy of decentralization as it continues to grow.
“We have designed the Bisq DAO, a decentralized autonomous organization, to support that growth by decentralizing the funding and governance aspects of the project.”
Karrer and other project leaders did not believe the traditional approach to open source governance was the right thing for Bisq. Open source projects fail for many reasons, but the centralized management approach creates an extra risk for a project like Bisq. The project leaders become targets for hackers and regulators.
How Bisq DAO works
Adopting DAO principles pushes funding and decision-making out of the original core team and out to the Bisq community. The main vehicle for achieving this will be the Bisq Coin, or BSQ, which will provide a means for rewarding contributions and creating value. The flow chart above shows how the internal economy, or Bisq DAO, operates.
- Contributors earn BSQ’s based on voter-approved compensation requests.
- BSQ holders can sell their tokens through the Bisq app.
- Bisq users can buy BSQ through the Bisq app.
- Use BSQ to pay Bisq fees at a discount.
- BSQ holders vote on compensation requests and other community decisions.
- Interest generated by BSQ bonds pay people who take on high-trust roles.
The BSQ monetary supply will self-regulate through the trading and earning process. When people use BSQ to pay fees, those tokens will be destroyed and reduce the BSQ supply. When people earn BSQ for their contributions, those tokens will be created and increase BSQ supply.
Anyone can become a Bisq stakeholder and earn BSQ by contributing to the project in one or more of the following ways:
- Volunteer Java development skills.
- Fund existing bounties for development tasks.
- Create new bounties for new Bisq features.
- Donate Bitcoin to Bisq’s general operations.
The transition from a centralized open source project to the Bisq DAO is still a work in progress as the Bisq community comes up to speed. The initial distribution of BSQ to the project’s contributors has taken place, as have the earning, bonding and voting processes. The remaining process, such as trading and bounties, will get deployed as they are ready.
Protecting customers’ coins
Legal and regulatory compliance
By its nature, Bisq does not comply with the traditional financial industry’s Anti-Money-Laundering (AML) or Know Your Customer (KYC) regulations. From a technical standpoint, those regulations may not apply since the financial transactions occur outside the Bisq app.
From the regulators’ standpoint, however, that may take hair splitting too far. Bisq’s small size has kept the service from becoming a focus of law enforcement (as far as anybody knows), but that could change given how quickly Bisq is growing.
Despite the claims of privacy, Bisq’s system is not completely anonymous. The transfers of fiat currencies require connections to banks or services that are subject to AML and KYC regulations. Anyone actively trading through Bisq will create a paper trail of payments and deposits with people around the world.
Bisq also can’t keep banks from finding out that you’re trading Bitcoins. Some banks have been known to close accounts associated with bitcoin trading. The bank could find out if, for example, the person you trade with could use the words “Bisq” or “bitcoin” in the reference section.
In addition, people who live in countries that ban cryptocurrency trading face the risk that the user on the other side of a Bisq trade is an undercover agent. That’s a standard part of the Internal Revenue Service’s anti-money-laundering investigations as Time Magazine documented earlier this year.
Bisq helps limit its customers’ potential exposure by limiting the size of any given trade to one Bitcoin, or less for fiat transactions. (See What Can You Trade on Bisq? for more details) The small transaction sizes make Bisq less attractive for criminal elements and reduce users’ potential losses to theft or government seizure.
Coin listing policies
An altcoin’s project team can easily join the Bisq listings. All the project’s developers must do is fork bisq’s GitHub repository, make the changes needed to support their coin, and then submit the changes back to GitHub.
The people maintaining Bisq accept or reject the new listing submission solely based on the project developers ability to edit the repository without screwing things up.
With such a straightforward process, you might ask why Bisq only lists 71 of the hundreds of altcoins floating around out there. Straightforward does not mean easy. Bisq discourages projects whose developers don’t know Java or haven’t used GitHub before from touching the Bisq repository.
On top of that, the Bisq maintainers do not merely rubber stamp every listing request. Any member of the Bisq community can call for a listing to be put to a vote. If that happens the listing is put on hold until Bisq’s next DAO voting period. Provided 5% of the BSQ holders vote, their vote will accept or reject the listing. Failure to reach a quorum automatically rejects the listing.
Coins don’t get to stay in Bisq forever. Any coins on the Bisq listing that have not been traded for more than four months will get delisted.
The Bisq apps run a proprietary peer-to-peer network on top of the Tor network. All communications are encrypted to preserve users’ privacy. Since Bisq does not run on a server, there’s no central location for hackers to target.
The Bisq apps rely on three basic mechanisms to protect transactions:
- Escrow transaction employing 2-of-3 multi-signature address.
- Security deposits to motivate good behavior.
- Arbitration system to resolve disputes.
When Bisq users agree to a trade, the app generates a 2-of-3 multi-signature pay-to-script-hash. This creates an escrow deposit that contains the security deposits, the trade’s bitcoins and the mining fees. These escrow deposits get published to the Bitcoin blockchain.
Unlocking the escrow requires two out of three signatures to be generated in the Bisq app. In most cases, this happens when one user confirms the transfer of fiat currency and the other user confirms receipt of the currency.
It’s only when a dispute arises that a third signature, the arbitrator’s, comes into play.
Each side of the currency trade must pay a security deposit into escrow. The deposit serves two purposes. First, it ensures that a dishonest or incompetent trader pays the arbitration costs. Second, it motivates both sides in the trade to get things right or risk losing their deposit.
The security deposit is a flat 0.1 BTC or 1000 BSQ regardless of the size of the trade. For trades that max out the Bisq transaction limits (see Trading Tools and Fees below), this amounts to 20% to 60% of the total trade. For much smaller trades, on the other hand, the security deposit could be tens or hundreds of times larger than the actual trade.
Arbitrators also pay a 2 BTC or 20,000 BSQ security deposit into escrow when they first take on the role. A portion of the arbitration fees gets placed into the arbitrator’s security deposit. The arbitrator only receives the accumulated funds after relinquishing the role.
Users select arbitrators to adjudicate any disputes with other users. They can select as many arbitrators as they want, so long as the arbitrators speak their language. The Bisq app automatically filters the pool of potential users you can trade with to those who share your arbitrators.
The Bisq app triggers the arbitration process when trades don’t close within a reasonable time. The length of that waiting period varies depending on the method users chose to carry out their trades. SEPA transfers of euros, for example, usually take one to three business days.
If the issue is more of a customer support issue, such as accidentally entering incorrect transaction details, a mediator will step in to help the users get things fixed. Once resolved, the two users enter their confirmations and the two signatures release the escrow.
Three phase arbitration process
Trickier situations require the arbitrator to oversee a three-phase process. At any step in that process, the arbitrator may get the information needed to make a decision. The arbitrator’s signature and the winner’s signature unlock the escrow and release the winner’s funds. The loser’s deposit goes to the arbitrator.
In the first phase of the arbitration process, the users provide proof of their trade. The buyer must prove that they transferred the funds and did it correctly. The seller, in turn, must prove that they have not received the funds.
If phase one does not resolve the situation, then the users must provide proof of identity. During a video call between each user and the arbitrator, the user must show valid government IDs. A user who fails to identify themselves loses the arbitration.
In the final phase, each user shares their computer screens with the arbitrator, accesses their bank accounts, and shows that the transaction occurred (for the seller) or didn’t (for the seller).
If all else fails, the arbitrator makes the final decision based on the evidence gathered in the three phases.
Bisq’s decentralized structure means it never had to deal with the issues centralized exchanges faced during 2017’s hyper-growth. Bisq has no verification staff to get bogged down in new account requests. Neither does it have a support staff to get behind in processing service tickets.
The thorniest issues, those associated with a failed transaction, are handled through the arbitration process.
Despite its rapid growth, Bisq is still a small operation. The few comments that appear in forums like Reddit are very positive.
The main complaint has to do with the small number of potential trading partners. The service only has a few tens of thousands of registered users. The requirement that users and administrators share the same language reduces the pool of potential trades even further.
Other common complaints center around the high cost of the security deposits which price some people out.
How to Join Bisq
Who can join?
Anyone in the world can download the Bisq app and start trading within minutes.
Bisq does not have a verification process.
What Can You Trade on Bisq?
Bisq supports trades in 71 different cryptocurrencies, but those trades must go through one of a handful of base currencies including Bitcoin and Litecoin.
Bisq lets its users buy Bitcoins with any fiat currency and sell bitcoins for any fiat currency.
Bisq users can make as many trades as they want. However, Bisq limits the size of each currency trade as a security measure. New users can only trade at 25 % of these limits and only get full access after their first month with Bisq.
All crypto-to-crypto trades are capped at 1 BTC.
The limits on trades between fiat currencies and Bitcoins vary based on the platforms users use for their transactions. Transactions that use the Cash App, MoneyBeam, Popmoney, Revolut, and Venmo max out at 0.16 BTC. Most transfers using systems run by traditional banks can be no more than 0.25 BTC. A 0.5 BTC cap applies to fiat trades using AliPay, OKPay, PerfectMoney and Swish.
The Bisq app does not automatically match buyers and sellers. It is up to the individual users to find each other.
As a community for exchanging currencies, Bisq does not offer advanced trading tools.
Trading Tools and Fees
You can download Bisq apps for Windows, Mac and three flavors of Linux (Debian, Ubuntu and Arch Linuz) from Bisq’s download page. As Bisq is an open source project, you can also download the source code directly from that page or go to the Bisq GitHub site. When you open the Bisq app, it will connect to the Tor peer-to-peer network and get you set up on Bisq’s network.
The main screen in the Bisq app shows the depth chart for USD/Bitcoin trades along with tables of offers to buy Bitcoins with dollars and offers to sell Bitcoins for dollars. You can place orders directly from this screen or go to dedicated Buy and Sell screens by clicking the icons at the top of the window.
The dropdown box lets you change currencies. Right off the bat you can see the issues that some people have with Bisq. With only 23 offers for euros and 17 for dollars at the time of the screenshot, there’s not a lot of volume going through the exchange at any given time.
The next tab over from the Offer Book shows the spread in the market.
The trades tab gives you a simple snapshot of trends in a particular market. There are not advanced trend analysis tools.
The Settings screen lets you change the default currencies that appear when you first open the app, adjust the transaction fees you’re willing to pay and other preferences. The other tabs give you information about the peer-to-peer Bitcoin and Tor networks you have joined as well as other information about Bisq.
The Account screen is where you manage your fiat and cryptocurrency accounts, select your arbitrators, set wallet security and backup your wallet and the data from the Bisq app.
Mobile app support
Bisq does not have a mobile app.
Deposits and withdrawals
Bisq does not hold its customers’ fiat currencies. Transfers happen directly between the app’s users who can use one of twenty-two money-transfer systems.
In order to minimize the risk of chargebacks, Bisq chose not to support credit card or PayPal transactions.
Bisq does not hold its users’ cryptocurrencies. Users exchange cryptocurrencies directly through wallet-to-wallet transactions.
Bisq applies a maker/taker fee schedule to all trades made through the app.
The offer maker pays the largest of either a minimum fee or a weighted fee. The minimum fee is 0.00005 BTC. The weighted fee uses an equation based on the size of the trade and the difference between the offer price and the market price. A default fee of 0.002 BTC per Bitcoin is multiplied by the size of the trade and then multiplied by the square root of the trade-market price difference.
The offer taker pays the largest of either a 0.00005 BTC minimum fee or 0.002 BTC per bitcoin traded.
In addition, the maker pays the miner fee to process the transaction and the taker pays the miner fees to process the transaction, the deposit and the payout.
Each side in the trade pays a 0.001 BTC fee, one for creating the order and the other for accepting the order. The combined fee goes to the person arbitrating the trade.
Bisq brings Bitcoin trading back to its original decentralized vision and addresses the security and privacy concerns generated by the centralized exchanges.
Despite the constraints of high costs and low liquidity, Bisq saw substantial growth in 2017. Its contributors are making a big push in 2018 to bring more traders and liquidity into its system.
However, growing popularity could bring greater scrutiny from law enforcement as the peer-to-peer approach raises the specter of money laundering and tax evasion.
For new traders
Bisq has extensive resources to get new users up to speed, not least of which is an active and supportive community. You can’t be a complete novice, however, as you need to have Bitcoins in your wallet to fund the security deposits and fees needed to make fiat-to-Bitcoin purchases.
For advanced traders
Bisq’s primary purpose is to facilitate fiat purchases of Bitcoin and other altcoins between individuals. The app is not something you will want to use for high-volume, large-scale trading.