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HOW TO: Make Your Own Local Fiat Exchange With NXT AE
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bluemeanie1

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HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« on: May 12, 2014, 11:59:02 pm »

here I'll explain how to get into the fiat exchange business in your town using the AE.  I had made some comments about the Bitcoin ATM and how they are not as useful once you have a decentralized exchange and one commenter wasn't completely clear on why this is, so I'll explain here.

NOTE: there are serious legal considerations with providing these sorts of services.  In many nations, such as the United States of America(also known as The Land of the Free) and most parts of Europe this sort of activity is either partially or strictly illegal.  Make sure you understand the legal consequences of starting your own local fiat exchange.



step 1:  Create A Reserve

First step is taking a bit a cash and making a reserve.  Your eventual users will need to trust that you have this money in the bank because they will be honoring your Cryptonotes for real money.  If the trust(or perception of) breaks down with the public ie. they don't believe that you can honor all outstanding notes, you will have a collapse in market price.  So depending on how you do your banking, it's best to have some sort of service that can provide a document(like a bank statement) that can prove you have the money in the bank to correspond with your cryptonotes.

step 2:  Create Some Marketing Material

Easiest way to do this is make a website that explains why your notes are credible, where/when they can be exchanged, where the money is stored, historical information(how long has the service been running), how many happy customers you have, etc.  Also starting a forum or blog so your customers can communicate with you in a publicly auditable way can really help to instill confidence with your users.

step 3:  Issue The Asset

Next you must Issue the asset.  The Asset Quantity should correspond to how much money is in your reserve(from step 1).



step 4:  Market the Asset

Now you must offer the notes for sale.  They must sell ABOVE the redemption value(in real terms) in order for your business to make sense.  Thus it is your responsibility to make sure the assets are trading at a favorable rate.  They may drop below profitable levels at first, but as you gain reputation they will float above the redemption value.  The difference is called Seigniorage.  If they drop too low, you may have to buy them back.  You must, in all cases redeem them for their pre-defined cash out value or lose your credibility.

step 5:  Offer Redemption Services


"Hello, Welcome to Meaniebank(tm).  How can we help you today?"

You must maintain a way for your customers to redeem the notes for real money.  Depending on the needs of your market, you may offer this service at some place in your town, perhaps at a Bitcoin Meetup, or a NXT Meetup.  As your bank becomes well known, the notes may be accepted in other geographical areas.  You can even work out deals with friends in other town to offer redemption services in other areas(make sure you cut them into the profits :) ).  You should do this in a safe place where robberies and such are unlikely.  Also dressing properly will help you instill confidence with your customers.

step 6:  Enjoy Your Success

You're a banker now like J.P. Morgan.  Doesn't that feel great?

-bm
« Last Edit: May 13, 2014, 05:25:00 pm by bluemeanie1 »
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Nxter

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #1 on: May 13, 2014, 12:12:54 am »

Nice post!
Inspiring, I will think about that!  ::)
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #2 on: May 13, 2014, 12:19:36 am »

Nice post!
Inspiring, I will think about that!  ::)

They're trying to make this completely illegal in the US but they have ZERO constitutional right to do so.

If anyone opens up a fiat exchange in their town, please post here with your experiences!  It's so easy you could provide the service to a few dozen people you know personally and never even interact with the public at all.  They can then spread the word about the value of the notes to people they know.  It could be mostly anonymous if done right.

-bm
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #3 on: May 13, 2014, 12:38:22 am »

naturally you could do this with any valuable commodity, Gold or Silver for instance.  An interesting experiment would be exchanging for something like cigarettes, as there are no laws(yet) prohibiting such exchanges.  As long as the backing commodity is widely valued, and the crypto-assets are bona fide, then you can put it on the Asset Exchange.



-bm
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sparta_cuss

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #4 on: May 13, 2014, 12:38:58 am »



"Hello, Welcome to Meaniebank(tm).  How can we help you today?"


You look different than I had imagined.

Also, excellent post. Thank you for this.
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #5 on: May 13, 2014, 12:43:02 am »

thanks to all the people who put in the hard work of making this amazing work of technology possible.

-bm
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sparta_cuss

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #6 on: May 13, 2014, 12:44:37 am »

In the eyes of the laws of many jurisdictions, there is a difference between an asset and a currency. And even within particular jurisdictions, there are competing interpretations. For example, in the Land of the Free (ahem), the IRS treats bitcoins like an asset, while FINCEN treats them like currency. (Please correct me if this is an incorrect interpretation.) It sounds like you are treating them both the same for the purposes of the AE. Is that correct?
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gck

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #7 on: May 13, 2014, 12:48:25 am »

You might want to bold the warning about making a currency and the legal considerations.
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #8 on: May 13, 2014, 12:50:09 am »

In the eyes of the laws of many jurisdictions, there is a difference between an asset and a currency. And even within particular jurisdictions, there are competing interpretations. For example, in the Land of the Free (ahem), the IRS treats bitcoins like an asset, while FINCEN treats them like currency. (Please correct me if this is an incorrect interpretation.) It sounds like you are treating them both the same for the purposes of the AE. Is that correct?

if you're American you can review the FinCEN guidelines HERE.

note: I AM NOT A LAWYER.
Quote
An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person.10

the above part of the FinCEN guidelines are the basic point that applies in our case.  A money transmitter must have a license in order to operate.  There is some speculation that technologies such as the NXT AE and the general corruption the public has witnessed in our banking sector in the past 10 years or so might instigate massive civil disobedience with regards to these sorts of regulations.

Generally I don't think you're going to run into much trouble starting something like this at your local Bitcoin Meetup(at least for now).  If you attempt to commercialize it in any serious way, I highly recommend you seek legal council.  I think in places like China and Russia this sort of thing will be very widespread and most people will do their banking this way.  Eventually we will have credit instruments on NXT, so in addition to trading and exchanging cryptos, commodities and fiat, we can also have credit networks.   https://nxtforum.org/nxt-improvement-proposals/bonds

Happy banking.

-bm
« Last Edit: May 13, 2014, 01:06:25 am by bluemeanie1 »
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sparta_cuss

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #9 on: May 13, 2014, 01:49:55 am »

the above part of the FinCEN guidelines are the basic point that applies in our case.  A money transmitter must have a license in order to operate.  There is some speculation that technologies such as the NXT AE and the general corruption the public has witnessed in our banking sector in the past 10 years or so might instigate massive civil disobedience with regards to these sorts of regulations.


Let's hope so.
"Let the games begin!"
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josephliton

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #10 on: May 14, 2014, 04:12:37 pm »

here I'll explain how to get into the fiat exchange business in your town using the AE.  I had made some comments about the Bitcoin ATM and how they are not as useful once you have a decentralized exchange and one commenter wasn't completely clear on why this is, so I'll explain here.

NOTE: there are serious legal considerations with providing these sorts of services.  In many nations, such as the United States of America(also known as The Land of the Free) and most parts of Europe this sort of activity is either partially or strictly illegal.  Make sure you understand the legal consequences of starting your own local fiat exchange.



step 1:  Create A Reserve

First step is taking a bit a cash and making a reserve.  Your eventual users will need to trust that you have this money in the bank because they will be honoring your Cryptonotes for real money.  If the trust(or perception of) breaks down with the public ie. they don't believe that you can honor all outstanding notes, you will have a collapse in market price.  So depending on how you do your banking, it's best to have some sort of service that can provide a document(like a bank statement) that can prove you have the money in the bank to correspond with your cryptonotes.

step 2:  Create Some Marketing Material

Easiest way to do this is make a website that explains why your notes are credible, where/when they can be exchanged, where the money is stored, historical information(how long has the service been running), how many happy customers you have, etc.  Also starting a forum or blog so your customers can communicate with you in a publicly auditable way can really help to instill confidence with your users.

step 3:  Issue The Asset

Next you must Issue the asset.  The Asset Quantity should correspond to how much money is in your reserve(from step 1).



step 4:  Market the Asset

Now you must offer the notes for sale.  They must sell ABOVE the redemption value(in real terms) in order for your business to make sense.  Thus it is your responsibility to make sure the assets are trading at a favorable rate.  They may drop below profitable levels at first, but as you gain reputation they will float above the redemption value.  The difference is called Seigniorage.  If they drop too low, you may have to buy them back.  You must, in all cases redeem them for their pre-defined cash out value or lose your credibility.

step 5:  Offer Redemption Services


"Hello, Welcome to Meaniebank(tm).  How can we help you today?"

You must maintain a way for your customers to redeem the notes for real money.  Depending on the needs of your market, you may offer this service at some place in your town, perhaps at a Bitcoin Meetup, or a NXT Meetup.  As your bank becomes well known, the notes may be accepted in other geographical areas.  You can even work out deals with friends in other town to offer redemption services in other areas(make sure you cut them into the profits :) ).  You should do this in a safe place where robberies and such are unlikely.  Also dressing properly will help you instill confidence with your customers.

step 6:  Enjoy Your Success

You're a banker now like J.P. Morgan.  Doesn't that feel great?

-bm

Very Nice ! Thank You.
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #11 on: May 14, 2014, 04:37:40 pm »

So who is going to open up the first NXT Reserve?



big opportunity here...

-bm
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #12 on: May 14, 2014, 04:58:27 pm »

anyone who wants to build the first NXT reserve, PM me.

-bm
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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #13 on: May 14, 2014, 05:15:42 pm »

great tutorials.
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sepehr

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #14 on: May 31, 2014, 10:12:45 am »

Anybody do this yet?
I may want to do this in Dubai, UAE.
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sepehr

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #15 on: May 31, 2014, 10:26:09 am »

Also please explain what can be the benfits of this Exchange?
Can I have some percentage over each you say "Virtual-AED" Transferred?
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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #16 on: May 31, 2014, 12:18:42 pm »

Can I have some percentage over each you say "Virtual-AED" Transferred?
- of course you can. Here noitev takes 1% from Deposits and 1% from Withdrawals.
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sepehr

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #17 on: May 31, 2014, 01:15:01 pm »

Can I have some percentage over each you say "Virtual-AED" Transferred?
- of course you can. Here noitev takes 1% from Deposits and 1% from Withdrawals.
:-* That's it!
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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #18 on: June 02, 2014, 01:22:27 am »

Thanks for the detailed explanation.  I'm not really understanding everything, though.

Are you talking about issuing real circulating notes, or simply virtual notes which are passed through the Asset Exchange?

Can you be more specific about use cases and how and why there would be seigniorage?

Thanks
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bluemeanie1

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Re: HOW TO: Make Your Own Local Fiat Exchange With NXT AE
« Reply #19 on: June 02, 2014, 01:29:51 am »

Thanks for the detailed explanation.  I'm not really understanding everything, though.

Are you talking about issuing real circulating notes, or simply virtual notes which are passed through the Asset Exchange?

Can you be more specific about use cases and how and why there would be seigniorage?

What's suggested here are 'cryptonotes' that correspond to real currency.  If the user wants to 'cash out' they return the cryptonotes to the issuer, and the issuer disburses the corresponding real currency to the redeemer of the cryptonote.  The cryptonotes retail for slightly more than it's redemption value, called seigniorage, and that is the profit of the banker.

You can also charge transaction fees, as suggested by sepher.

-bm
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