An Exclusive interview with HodlHodl p2p exchange CEO and CTO Max Keidun and Roman Snitko is submitted to attention of readers.
HodlHodl is a non-custodial peer-to-peer bitcoin- and litecoin-trading exchange. The support of multisig contracts, the use of SegWit protocol and Bench32 addresses, low transaction fees and decentralized storage of users’ funds are the features that distinguish HodlHodl from other exchanges of the type, like LocalBitcoins.
Having launched its cryptocurrency trading activity on February 23, 2018, HodlHodl is gaining its popularity among users through the word of mouth solely, as the founders of the exchange stick to rather non-aggressive marketing policies based on the principles of crypto-anarchism, while focusing on meeting the demands of a comparatively small number of advanced financially literate users.
HodlHodl team prefers to explore and upgrade the bitcoin community by holding conferences on Bitcoin network strategic development perspectives and inviting prominent bitcoin activists and developers as speakers. This year, similarly as last year, HodlHodl is the main organizer of Baltic Honeybadger 2018 conference in Riga, Latvia, this event being one of the most attended and appreciated by the crypto community.
BN: Many sources refer to HodlHodl as to a decentralized peer-to-peer exchange. Is your exchange really a decentralized one or is it a misperception?
HodlHodl: We have repeatedly refuted this delusion. HodlHodl provides for decentralized storage of funds only. But speaking of decentralization as it is, unfortunately, we can not be called a decentralized platform, as we have a centralized server, that is, our web application (client-server application).
Despite being included into the list of decentralized trading platforms, HodlHodl provides access just to one of many components of distributed trading, namely, non-custodial fund storage. We decided to discontinue the use of this term and shift the focus from this aspect within the context of our service in order not to offend decentralization enthusiasts.
BN: So could you please tell us about the algorithm exchanging transactions on HodlHodl? By what means the security of trading operations is maintained?
HodlHodl: Each transaction on the exchange gets its own unique multisig escrow address with two keys on the public bitcoin/litecoin blockchain, one of these keys belonging to the seller of cryptocurrency and another one to the exchange. The safety is thus assured in case of exchange hacking, as hackers will also have to get access to a user’s key to withdraw funds in the process of trading.
A user also has to insert a payment password in order to withdraw funds from his escrow account. The exchange signs the transaction automatically, if the latter is approved by user. Should a conflict of any sort erupt, there is no immediate refund: exchange operators intervene and analyze the situation on their own first.
BN: Which country accounts for the bulk of the trade volume on HodlHodl? Are there any countries where your exchange is particularly popular?
HodlHodl: We have quite a lot of registered users from Russia. The highest demand for our services is observed in Europe, as we see the prevalence of offers related to European payment processors and banks. Also, surprisingly enough, our service is rather popular in South America. The latest analysis of trading activity shows that our services are being used by the residents of almost every region of the world. Total trade volume has recently surpassed the threshold of 1000 BTC.
Having registered with our service, one may not find a huge number of bitcoin purchase offerings in his region. That is because users actively use “working hours” functionality by setting the time periods when they are ready to get involved with transactions. That is, if one is comfortable to trade, say, from 9:00 till 12:00 only, his offer will be available on the website only at this time. But don’t let that embarrass you, as you can set your own offer at any given time which will certainly find the interested counterpart, should there be no interesting offers at this or that time.
BN: What is the main point underlying your attitude towards the traditional means of product advertisement and promotion?
HodlHodl: This is all about the specificity of cryptocurrency business, and just a few people do understand it by now. An attempt to apply standard advertisement methods to a cryptocurrency startup will lead to an imminent failure, as users tend to regard any aggressively advertised project with suspicion. Placement of bitcoion exchange ads in Internet search services, social media or on banners triggers negative impulse and excites little or no interest. We think that it is a waste of money. Information about a trading platform specializing in cryptocurrencies should be conveyed through different means: a truly useful product should be advertised by the community itself and by its brightest representatives. That is why we put so much effort in organizing quality bitcoin events and meet-ups, while focusing on bitcoin community development and general bitcoin awareness-raising.
BN: Sure, you are aware of Vitalik Buterin’s opinion towards centralized exchanges, who have recently wished them to “burn in hell”. Centralized trading services, nevertheless, keep on dominating the cryptocurrency market and show no signs of losing ground. What are the reasons underlying the difficulties of decentralized platform development and what challenges do platforms allowing for distributed storage of funds, like HodlHodl, face?
HodlHodl: First of all, centralized exchanges ensure high trade speed and transaction frequency due to a certain automated seller-buyer matching engine they all share in common. This is a crucial factor for day traders.
Secondly, by now, not everyone realizes the importance of safety provided by decentralized trading and distributed storage of funds. Not everyone understands as well, that by sending money to addresses registered on decentralized exchanges, users are, in fact, transferring it in someone else’s hands, thus entrusting a third party with securing their accounts. In general, the majority of users still willingly holds their crypto portfolios in exchanges and does not see any merits or sense in placing them at any alternative technology platforms which offer other ways and means of preserving and exchanging crypto savings.
Thirdly, there are simply more centralized exchanges than decentralized ones. Moreover, some of the former feature rather convenient and user friendly interface. Now, if we take decentralized exchanges, their pool is quite limited, whereas the tools they offer are rather complicated for an average user. When creating our p2p-platform, we were trying to make its interface as simple as possible, so that it would be understandable even to those who had never dealt with buying/selling cryptocurrencies before. If you look at LocalBitcoins or Bisq, you will see that interaction-wise these are rather complicated services full of elements difficult to understand.
To sum it all up, I can say that I don’t see a problem with decentralized exchanges co-existing with centralized ones, as they complement each other and serve different traders’ purposes.
Looking at our service statistics, we see the increasing number of users, offers and trade volume, from what we can conclude that bitcoin trading development is on the right track. Day after day, bitcoin users grow more and more mindful and financially literate. Also, each high-profile exchange hack makes people think about all the benefits and advantages decentralized platforms can bring.
BN: What are your plans for HodlHodl further development?
HodlHodl: We are actively developing OTC desk (off-exchange trading platform) for large institutional transactions. At the same time, the mechanisms of custodianship and non-centralized storage of funds is very important for traditional brokers and investors apt for off-market bitcoin trading. Participants in large-volume transactions feel much better knowing that they are self-responsible for their funds’ safety than entrusting them to third party services, especially during these tumultuous times when the main bulk of hacker attacks are being targeted at the cryptocurrency market. OTC market has one significant advantage over exchange market, which lies in its colossal volume and the associated high concentration of contact persons, as the off-exchange bitcoin market is now very narrow and limited. Thanks to that, given some due connections that we have, the information about an active OTC desk spreads rather rapidly throughout the potential pool of clients.
We are now developing a new type of multisig addresses for this off-exchange platform as well, which will be more secure and envisage the distribution of wallet keys between sellers, buyers and brokers. Should a dispute occur, such a deposit box will allow for two-way transfer of funds: both to a seller and a buyer. It is of utmost importance for sellers and buyers to be able to divert bitcoins to their wallets if they win a dispute.
In addition, we are launching our own broker dealer, that is, an exchange broker responsible for managing big clients’ investments. By the way, “private offers” functionality is already active on HodlHodl: anyone can bring his offer to a closed list. Such offers are available only through special links. This feature considerably increases the privacy of transactions. There is a very high demand for such offers already.
In parallel, we are developing HouseHodl – a new product, which is essentially a platform for cryptocurrency-based real estate deals with the use of escrow accounts. This platform will allow for posting ads and remote signing of documents required for the purpose of completing related formalities.
We are not aiming at moving the real estate market to blockchain – we believe that would be wildly idealistic at the current stage of technological development. We are just trying to create a convenient platform for bitcoin-based real estate and luxury transactions.
BN: How are you doing with financial regulators?
HodlHodl: Fortunately, regulators are yet to approach us with all related matters. Neither do we provide financial processing services, nor keep our users’ funds on our accounts. All we do is just providing a technical solution which brings those who are selling cryptocurrencies with those who are buying them. Someday in the future, when three-key multi-contracts will be added to HodlHodl, we still will not be directly involved in 95% of transactions. All the users need to get registered on our exchange is an e-mail and a password. Therefore, we cannot in all conscience provide regulatory bodies with any valuable information about our clients.
Our service does, however, comprise an option for user identification and KYC/AML verification, which is applicable to users who desire to benefit from reduced transaction fee rates (which is currently set at 0% level) and get a related badge in their user’s profiles.
The launch of OTC desk and broker dealer will expectedly trigger the scrutiny on the part of the regulators, but we are fully prepared to follow all the requirements they may impose, especially since the clients interested in such modes of trading will welcome the transparency of exchange activity.
BN: How is everything coming with adding Lightning Network support? What is your vision of the best implementation of this technology (LN) within the framework of HodlHodl system?
HodlHodl: Indeed, like many other members of bitcoin community, we are actively exploring and testing this technology, but at the same time, we believe that it is too early to consider the Lightning Network support. The main problem with LN now lies in the possible existence of transaction security breaches. If no such breaches detected, we will start integrating Lightning immediately. It is a very interesting and promising technology indeed, but it is still at the early stages of development. Its usage demands extreme caution, because early integration of an immature technology provides hackers with easy entrance points.
We stick to the view that bitcoin transaction fees will grow over time together with the increase of bitcoin price, thus encouraging users to process more or less large transactions via Lightning Network. Also, nobody is ruling out the need and demand for small exchange operations in bitcoins, whether these would be worth $20, $50 or $100. Instant and low-cost small-scale exchange will become the core example of LN implementation within HodlHodl.
BN: There are various bitcoin-fiat and litecoi-fiat pairs currently tradeable on HodlHodl. Do you consider the possibility of adding other cryptocurrencies as well?
HodlHodl: Here we have the situation similar to that with Lightning. We are being frequently approached by the developers of new cryptocurrencies who ask us to “list” their coins as well, but we are not willing to work with immature and untried projects, as this would make transactions too risky. Even the older projects are now susceptible to 51% attacks, and we don’t want to put our clients in a situation when their transactions could be rolled back by intruders. As for time-tested cryptocurrencies, we will probably add some of them, but not this year anyway.
BN: How do you feel about Bitcoin Cash?
HodlHodl: Same as in case with regulators – indifferent. This fork and we exist in parallel universes. We had a talk or two with people working in this project. Some prospective investors interested in this cryptocurrency were approaching us with certain hints on the possibility of adding BCH as well. But our user audience will won’t appreciate such a move on our part. We ourselves do not really believe in Bitcoin Cash too. The things that make us feel suspicious about it is the lack of expertise among the developers of this fork and the total centralization of the network itself.