The Bitsquare open source decentralized bitcoin exchange has launched a campaign funding round using the Lighthouse open source decentralized crowd funding application. Lighthouse was developed by Mike Hearn and partially funded by a $40,000 bounty from technology entrepreneur Olivier Janssens. The Bitsquare project is based on many of the same technologies and principles as Lighthouse but was designed as an alternative to centralized bitcoin exchanges like Coinbase.
Being decentralized all the way down, both in design and funding, is important because any centralization ultimately introduces a single point of failure. History has shown that organizational attacks on projects as diverse as Napster, The Pirate Bay and e-Gold ultimately result in decentralized protocols; bittorrent, magnet links and bitcoin respectively; capable of surviving attacks on their creators.
There are additional problems with centralized bitcoin exchanges that can be summed up in two companies: Mt.Gox and Coinbase. The former lost hundreds of millions of bitcoins held in custodial accounts and the latter threatens the fungibility of bitcoin by actively tracing and restricting transactions.
Bitsquare has taken a ‘radically decentralized’ approach not only to software design but also to project funding. The team has also laid the groundwork for a decentralized governance structure inspired by DAO (decentralized autonomous organization) ideas. A particular challenge for funding a decentralized project is how to encourage developers to dedicate their time and energy to an open source project can be forked by anyone. It is also difficult to compete with well funded companies, and more centralized projects, that can offer salaries and an ownership stake in their projects, such as altcoins.
The solution Bitsquare has pursued for this problem is to use iterative crowd funding. An iterative funding model seeks to reduce the risk for pledgers by only asking them to fund near term milestones on the roadmap to a finished product, and not a distant final release. The team can also take feedback from each funding round and gain trust by successfully delivering milestones on schedule.
“Lighthouse offers a great solution to our funding needs compatible with our decentralized goals” says project founder Manfred Karrer, “we are proud to be one of the early adopters of this technology.”