Decentralization of crypto projects has been the theme of 2018, however, most of these self-proclaimed decentralized projects are not so. Although Bisq might be the closest to fit that description.
Formally known as Bitsquare, the Bisq DEX operates straight on the user’s computer, rather than a hosted site, like most of the self-described DEXs. While DEXs like Airswap and Everbloom are managed by centralized startups, Bisq DEX is a stringently open source project formed by a grassroots cooperative.
Even though Bisq has these advantages over its competitors, the team behind Bisq understands it has more to do to reduce single points of failure.
Bisq contributor Felix Moreno, former CFO of the bitcoin custody startup Xapo said:
“If the [Bisq] founders want to go complete Satoshi and disappear from the project, it has to be able to survive that.”
To achieve this, Bisq team is originating a decentralized autonomous organization (DAO), a software created to handle reward for contributors to the project’s code without oversight from any single entity. The testnet goes live in November, with the mainnet launch following the tests.
Compensating The Contributors
The compensation for the contributors will come in the form of a crypto called BSQ, which is a ‘colored coin.’
Colored coin is a concept designed to be layered on top of Bitcoin, creating a new set of information about coins being exchanged. Using colored coins, bitcoins could be “colored” with specific attributes. This effectively turns them into tokens, which can be used to represent anything. The Bisq DAO will issue bitcoin that’s been donated to the project to those contributors that the community has voted to recommend.
Bisq co-founder Manfred Karrer said:
“Every month there is this voting and compensation cycle where any contributor files a compensation request for the amount of BSQ. Then the BSQ stakeholders, anyone who has BSQ, can vote if they accept or decline this compensation request.”
The Bisq project has earned 2.5 bitcoin in donations, which can conceivably be split into 2.5 million BSQ tokens. But these tokens aren’t automatically generated. They are created when a DAO compensation proposal is accepted. Analogous to a subway token or a movie ticket, BSQ will be utilized when someone spends them to use the DEX.
Particularly, the tokens will be used to pay trading fees to Bisq and security deposits via the DEX’s multi-signature smart contract, which holds bitcoin in escrow until the seller affirms accepting payment from the buyer. Although BSQ is one-time-use only, the tokens will hold value as bitcoin, and those fees are usually utilized to pay bitcoin miners for processing transactions and, if required, an arbitrator to referee disputes.
Challenges Faced By Bisq
Historically, both Colored Coin projects and DAOs haven’t performed too well.
The bitcoin community’s colored coin projects have frequently struggled and drawn far fewer use cases than ethereum-based tokens, which allows people to issue their own cryptocurrency without creating a unique blockchain.
Although, safety is exactly the cause Bisq is originating BSQ on top of bitcoin, rather than ethereum, where The DAO debacle led to a controversial hard fork. Karrer said proof-of-work coins, which depends on miners doing complex calculations to update the blockchain ledger, are only secure when they’ve touched as widespread usage as bitcoin. Besides, the Bisq community doesn’t trust that ethereum developers are able to provide secure token creation quite yet.
Another major issue Bisq network faces is the lack of market makers. Many ethereum-based tokens that propagate on other DEXs are barely represented on Bisq’s order book. Out of 236 specimen Bisq orders for bitcoin, the only crypto payment option with more than 10 orders was the privacy coin Monero, with just 23 compared to the 46 euro offers for bitcoin.
Up until now, more than 144 people have committed to the Bisq project, with about 10 developers managing most of the weight of the project. Currently, approximately 200 people hold small amounts of BSQ. Many more will need to join the platform in order to create an absolutely decentralized BSQ ecosystem.