Dorsey has kept her word, first tweeted on July 15, 2021, by launching a platform that allows funding of a non-custodial (non-exchange) wallet through entry and exit ramps to Bitcoin.
The payment company Square is entering the decentralized exchange space, in a project led by Mike Brock, named TBD. TBD is different from a traditional decentralized exchange, where crypto tokens are exchanged for other tokens and the amount of coins in liquidity pools determines the cost of a token. Brock opines that TBD can be seen as a decentralized exchange for fiat.
TBD uses the tbDEX protocol, which is Square’s pitch to simplify the onboarding process for regular fiat users in the crypto world, and vice versa, and is the subject of their recently released white paper. The challenge of creating this protocol is that no system that connects the fiat world to the crypto world can be completely without trust, due to the regulatory safeguards that accompany fiat transactions.
Social trust model, no governance tokens
There is an element of social trust required when trading between the crypto and fiat worlds, which can be facilitated by Decentralized Identifiers (DIDs). Decentralized identifiers at Square are the baby of @csuwildcat, a self-taught developer who pioneered decentralized digital identities at Microsoft. DIDs allow peer-to-peer connections between parties, without the need for intermediaries like Google or Facebook. It also offers the possibility for the parties to call upon a mutually agreed third party to validate the counterparty in a transaction.
Transaction costs are proportional to the level of anonymity of a transaction; the high risk transaction (based on greater anonymity) attracts the highest transaction fees, while the low risk transaction (based on lower anonymity) attracts the lowest fees. The developer, who is called Daniel Érrr, also tweeted that technologies such as verifiable credentials and Identity Hub data storage / relay protocols are used in the creation of tbDEX.
To understand verifiable credentials, it’s important to consider what credentials are in the world we live in. Educational credentials and identity documents are examples of credentials that have real use. Verifiable credentials are digital credentials that have the following properties: they are “cryptographically secure”, “privacy sensitive” and “machine verifiable”. Cryptography that does not require exposing clear data (compare to ciphertext) can help improve anonymity.
Identity hubs are entities that store and relay data associated with a given DID. It helps data owners to manage and process their data securely, independent of the service provider’s infrastructure, routing mechanisms or interfaces. The three concepts of DID, VC and Identity Hubs are essential for understanding tbDEX.
The white paper also addresses financial crimes, the delicate issue of chargebacks (payment reversals in the event that a promised good or service has not been delivered) and what if a participating financial institution (offers liquidity services) cannot find the necessary funds in a user wallet?
Twitter and Square CEO Jack Dorsey made his intentions clear surrounding the creation of TBD, alongside Seller, CashApp and Tidal. TBD White Paper is open for comments, which can be sent to TBD Twitter ID.
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