2014-07-03

A killer feature for wallets and exchanges

Awhile back I was working on some software for a Bitcoin ATM that didn't offset its Bitcoin sales instantly at an exchange. During that time it hit me - the software I was developing could be a killer feature for a number of wallets and exchanges. Since at the moment I don't have much time to implement this myself and Coinbase recently announced a similar feature on a smaller scale, I might as well share my thoughts on the matter.

Bitcoin transaction offsetting


One can do a lot with the transparent blockchain that Bitcoin has. For example, if one uses a wallet like Blockchain that reuses the same address for change, it is really easy to estimate how much money one has spent. Take for example, this random transaction:


We can see the owner of that address spent 0.05BTC somewhere and returned 0.0015876BTC back to their address. At the current rate of about 650 USD/BTC, that's roughly a $32.5 purchase.

Since we know exactly how much an address is spending without having to have a direct access to it, we can do a neat trick of offsetting any and all purchases made with an address at an exchange automatically. We would just monitor the blockchain for any transactions coming from our address, and see how much money was transferred out of it. Then, using some publicly available APIs on a number of exchanges we can buy the same amount of BTC back instantly. Pretty neat.

A service like that would encourage a number of Bitcoiners to spend their coins more willingly. I was hesitant to spend my coins at times since buying them at an exchange was a bit of a hassle. If I could just deposit some fiat at an exchange and automatically have all my purchases offset, I would be more willing to spend the coins at a regular basis, since I would be netting the same amount of them at the end of the day.

One step further


This simple scenario is a beginning. The same service could be expanded to say, let you invest into coins as you spend them. One would just take the amount to be offset and multiply that by a ratio greater than 1. For example, 1.05 would mean that I would be buying 5% more coins that I would be spending. As a person that is bullish on Bitcoin, this would not only encourage me to spend my coins, but it would reward me for doing so with more coins ;). (I know this can be done manually and what have you, but sometimes small automatic rewards can feel better than doing things yourself)

Another great part of this approach is that it doesn't have to be an external system. The same functionality could be handled by a wallet or even an exchange itself (they would probably love it more so as it would be bringing in more volume). I would love to see a big exchange implement something like this.

In conclusion


All in all, automatic transaction offsetting in Bitcoin is really easy and encourages more bitcoins to be spent and bought all the time. What Coinbase implemented is a nice step in the right direction, but it's far from a complete solution.

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