Summary

Bitcoin is decentralized. It’s ledger is permissionless, existing everywhere and nowhere. It is hosted by a network of decentralized nodes, meaning it is impossible to shut down or censor. Bitcoin solves a number of problems. Among many other things, it provides a convenient method of monetary transfer for the world’s banked and unbanked; it offers cheap, efficient and counterfeit-proof record-keeping; it can provide anonymity to those who need it most.

The buying and selling of bitcoin is, however, mostly centralized. A few of us depend on face to face exchange in which we place ourselves at the mercy of strangers. Most of us depend on large bitcoin exchanges whom we entrust with holding our bitcoin and our fiat currency, and to act as our trusted intermediaries. We provide them with an extensive profile of our personal details to perform that service, we give them proof of our address, proof of our identity. Our telephone number. Bank details. Social security numbers. Personal photos. These exchanges represent a single point of failure, a single target for theft or hacking of our money or our most private information. Breach of this single point of failure risks the finances and privacy of those of us living in Western countries; for those living elsewhere it might risk more.

Coinffeine founder Alberto Gomez has likened his creation to the “BitTorrent of Bitcoin”. Coinffeine exists on no central server, but rather is hosted by a network of peers, those that have downloaded the Coinffeine client. Coinffeine holds neither the fiat nor the bitcoin of its users, and thus avoids the need for collecting any personal information. Trades are executed directly, without any intermediation, using an automatic game theory mechanism that ensures cheating will not be profitable to any potential cheat. What has been developed, then, is a decentralized method of trading bitcoin against fiat.

Whether Coinffeine will succeed is up for debate. The product has a limited marketing budget and it is up against massive exchanges with deep pockets and critical trading mass built up over many years. We certainly hope it will succeed. It is a fantastic innovation, a needed addition to the expanding infrastructure supporting the bitcoin project.

Security

A bitcoin wallet is included within the client downloaded from Coinffeine. The private key – that is, what is responsible for authenticating the spending of a user’s bitcoin – is created on the client’s computer, meaning it exists only locally. Unlike other online bitcoin exchanges, Coinffeine has zero access to its user’s bitcoin, nor does it have any knowledge of their private key. Securing the wallet, then, is the responsibility of users, who must ensure not to download malware or phishing programs. As it pertains to fiat funds, Coinffeine is currently integrated only with OKPay, a Russian-based payment processor.

Users are currently able to trade for bitcoin only by establishing and funding an OKpay wallet, which is connected by API to the Coinffeine client. OKpay is not a bank, and cash is not insured against theft, fraud, force majeure, etc. Coinffeine has the intention of establishing similar interfaces with additional payment processors as well, and fiat security will vary based on the counterparty.

Gravitas

The Gravitas section of our exchange reviews are meant to provide/undermine user confidence in the trustworthiness of the relevant exchange. This is of course very important when entrusting someone or some entity with money and private details. With Coinffeine there is no need for trust, which is perhaps the best vote of confidence for trusting someone. That being said, OKpay is currently the second half of the equation. We intend to review them in depth elsewhere; for our current purposes, we’ll simply mention that they’ve been around the bitcoin industry for some years now, and reviews are a bit mixed.

Opening an Account

After downloading the product, users must agree to a licensing agreement – done by clicking an “accept” box, and then enter the username and password of the third party payment processor so that Coinffeine can automatically retrieve the API key and establish the integration. For those who are both more paranoid and more technically inclined, this can be done manually.

To “unlock” the Coinffeine account, an amount of bitcoin must be transferred to the user’s bitcoin wallet. This bitcoin will be used as trade collateral – to be discussed below – so the amount of bitcoin required varies depending on the size of planned trades. Of course, an account must also be opened with the third party payment processor, which will have varying degrees of difficulty.

Software Review

The front end of the extremely Spartan client consists of three tabs – Operations, Stats, and Wallet. The operations tab shows all recent user activity, including the depositing and withdrawing of bitcoin and trades placed. The stats tab shows a depth chart of the order book, which is, during the beta stage in which I tested the product, extremely sparse and with a wide spread. The wallet displays its corresponding QR code, a wallet funds box which shows balance status, and a “copy address” button, which copies the actual public address associated with a users wallet. Bitcoin may be sent for a .0001 miner’s fee. The available EUR and bitcoin balances are shown in the upper left hand corner of the client, and the user may also change payment processing information by clicking on the aptly named “payment processor”, located upper right.

The real magic is happening in the backend. Both counterparties to a trade must have additional value which is held in escrow as the trade takes place. Bitcoin or fiat currency is not sent all at once; rather, the exchange takes place in steps, with parts of the fiat going one way, the bitcoin the other. The collateral held is a guarantor against either party pulling out from the trade at an unequal point, and is returned to both parties once the trade is complete.

Fee structure

No fees are taken on the Coinffeinne side, though the payment processors will charge on their end – for instance, OKpay charges 0.5% of a trade in fees. Coinffeine will earn a revenue share from the payment processors.

Might not be for you if:

You are looking for any sort of trading volume.

Coinffeine ain’t there yet.  Check out the best bitcoin exchanges to locate a convenient go-to exchange.  If coinffeine is primarily an issue of anonymity for you, have a look at localbitcoins or even bisq who seems to have surpassed in volume.

Bottom Line

Coinffeine is a great idea that is going to have difficulty penetrating the market. Not only must it compete with established, rich, highly trafficked exchanges, OKpay is a relatively expensive funding alternative for users located in Western Countries. It is up to users within non-core bitcoin markets (outside of North America and Europe at the very least) and the committed crypto/developer demographic motivated by more than just profit maximization, for Coinffeine to succeed. We will definitely be rooting for them!