Striking Twice? Lightning’s Joseph Poon Takes On Ethereum Exchange Project

While cryptocurrency innovation normally calls for ‘banking the unbanked’, Omise, a new startup, has an opposite goal: ‘unbanking the banked’. With help from Joseph Poon, co-author of Bitcoin’s Lightning Network white paper, the Thailand-based payment gateway network is building an Ethereum-based decentralized exchange to move toward that goal. The exchange, which Poon has written another white paper for, is directly built into the company’s proof-of-stake blockchain names OmiseGo. Upon completion, users will be able to trade fiat currencies like the U.S., Canadian and Australian dollar, the British pound and others, for cryptocurrencies or even exchange almost any cryptocurrency (for example, Bitcoin for Ethereum) without utilizing a third party like Coinbase or Kraken.

Eliminating the middleman was the cryptocurrency’s original value proposition. Trust in third parties is arguably what led to some of Bitcoin’s most publicized disasters, including the fall of Mt Gox in 2014 and last summer’s hacking of Bitfinex, resulting in a loss of $65 million. Poon contrasted by describing the project as a sign of what’s to come in the cryptocurrency space, calling the decentralized trading trend “a big deal”. He said in an interview with CoinDesk:

The entire point of money is to trade for other things. To do that in a decentralized way is sort of a no-brainer.

Other people agree. Decentralized exchanges have become all the rage lately with Shapeshift’s Prism, Ox and Swap launching as of recent around the idea of ditching third-party exchanges. Poon, who also helped write the specifications for Purse’s extension blocks scaling project, expects even more such projects to arrive – maybe a couple of dozen – and soon.

Resolving issues

The launch of the OmiseGo is slated for the fourth fiscal quarter of 2017, supported by the launch of a wallet, which Poon believes it will be more feature-rich than competing projects preparing for launch. “This is designed to be a full-blown exchange,” he explained, arguing the fine details other exchange projects haven’t considered yet. The exchange is being built with both an execution engine (which makes the trade between users) and an order book (the component that lists the buyers and sellers looking to move their cryptocurrency and at what price). “A lot of people talk about [these systems], but they don’t talk about: How do you know who’s going to be your counterparty? How do you know what price you’re going to trade at? How do you ensure there’s orderly execution? [OmiseGo] is going to resolve those issues,” Poon said. An important difference from other projects is that it uses a decentralized system to match buyers with sellers. How does it do that? The exchange is baked directly into the blockchain and its consensus rules. All nodes must follow these rules when checking whether blocks and transactions are valid. In addition to checking whether transactions in a block are valid – as they traditionally do – nodes also monitor the order book. So, if Bob aims to trade Alice one ether for one ‘bobcoin’, then the nodes check if the orders match. If they do, the nodes approve of the transfer. Unlike other exchanges such as Ox (winner of the Proof of Work pitch competition at CoinDesk’s Consensus 2017 conference), which is only focused on exchanging ERC-20 standardized tokens, OmiseGo users will be able to trade all but one cryptocurrency, Monero.

The right connections

As an established payment gateway serving six countries in Southeast Asia, Omise might have the right connections to move the project forward. The company already helps banks and telecom companies with their payment system backends, and plans to offer clients the choice of moving onto the public OmiseGo network. “Omise’s existing roles will be leveraged to gain adoption for the network and the framework managing access to the digital money issued on it,” OmiseGo special advisor Thomas Greco told CoinDesk. So, the ultimate goal is to use the decentralized exchange to streamline fiat and cryptocurrency exchanges between these various clients. Plus, in Poon’s eyes, it’s important that OmiseGo is a “public” blockchain project that anyone can join, because it offers a much better model than popular private blockchain consortium efforts. Omise believes using a public blockchain solves industry coordination problems between parties that don’t necessarily trust each other. Private blockchains, he added, are merely recreating the traditional centralized clearinghouse system. Poon said:

So instead, they’re like, ‘Screw it, let’s just make a decentralized system.’