CloakX Proposal - The first truly private and decentralised exchange

[lazaruski]

The majority of cryptocurrency trading is conducted on centralised exchanges that provide hackers with a broad attack surface and are susceptible to a single point of failure. Trading privately and securely is increasingly difficult due to reliance on trusting a third party.

Centralised platforms are vulnerable to security threats and a single breach can compromise the assets of every user on an exchange. Many projects within the crypto space have attempted to address security and privacy issues with the implementation of a decentralised exchange (DEX).

Unfortunately, the majority of these DEX projects are not deployed to a decentralised network comprising enough individually distributed nodes. Nor do they implement any form of decentralised distribution of the user interface, the critical risk component when it comes to hacking attempts.

Despite widespread focus on the need for decentralised exchanges, efforts are wrought with profit seeking, centralisation, the unnecessary introduction of further cryptocurrencies, and of course, fees.

Introduction

While the value of privacy coins is dependent almost wholly on their ability to be privately spent, there are also many problems to be solved regarding how they are privately acquired.

Careful consideration has been given to Cloak’s current technology, upcoming developments and ongoing value proposition to both the wider cryptocurrency and general consumer markets.

Decentralised Exchange Overview

The proposed implementation of CloakX is a decentralised exchange network built atop proof of stake nodes, that reserve a fraction of machine resources to facilitate peer to peer trading. Considering Cloak already has over 100 staking nodes and migration to the new BTC codebase is approaching completion, the network is well positioned to accommodate a DEX interface embedded directly in the new hierarchical deterministic (HD) wallet.

Through each wallet connected to the network, a fraction of the exchange interface would be encrypted and stored in a distributed manner on each machine participating as a staking node. As CloakCoin does not incorporate masternodes, it naturally favours the decentralisation of the user interface, as well as the APIs of all supported cryptocurrencies.

CloakCoin Network Utilisation

The decentralised exchange would be supported by the existing CloakCoin network. In order to access and trade using CloakX, users need to hold a certain amount of $CLOAK within their wallet, as a specified percentage (TBA) of their total trading portfolio.

This encourages the acquisition and holding of CloakCoins. It is also inherently aligned with the inflationary properties of the coin, as the staking rewards of 6% per year provide the ‘gas’ required to incentivise further peer to peer trading on the network.

$CLOAK Cryptocurrency Innovation

One might consider $CLOAK serving a similar utility to CloakX, as exchange utility tokens to their respective exchanges, and in future their DEX implementations.

The upcoming release of the HD wallet and new BTC codebase, will very likely welcome integration with popular hardware wallets such as those offered by Ledger, Trezor and KeepKey. These will be a critical component for secure access to CloakX and the primary means of storage for assets traded on the network.

Unlike other decentralised exchanges, CloakX will not require the creation of an additional token and there will be no trading fees on the DEX whatsoever.

CloakX Development Summary

The first implementation of CloakX could welcome trading of most of the top 100 crypto assets as a Cloak-Ethereum client. To expedite development, scale quickly with demand and access IPFS without the need to manage infrastructure, Infura is the recommended solution.

Immediately enabling access to trading of ERC-20 tokens opens up the market for user adoption greatly and best of all, Infura is free. Also, as a truly private and decentralised implementation of a DEX, such as this on the CloakCoin network, legislative risks faced by centralised exchanges are mitigated.

The function of CloakX is absolutely peer to peer.

Reference: CIPs (Cloak Improvement Proposals) > cip-001.md

[warpsp33d]

Interesting idea @lazaruski, first question that comes to mind...

When you propose zero fees:

1. are you referring only to the trading component,
2. or do you also propose removing fees completely?

Also, I've seen Infura in action, but as you didn't provide a link I'm wondering if you are referring to this one?

[lazaruski]

Thanks for the questions @warpsp33d

I propose removing fees completely, because they are not necessary in our decentralised world. It matters more that the platform currency is held as percentage of the trading portfolio, to show support to the project.

Yes exactly, I suggest using the infura.io API for access to the Ethereum network. But we have to find a more decentralised solution. Even 0x is built on Infura.

Recommended reading: https://coin360.com/blog/infura-and-the-inadvertent-centralization-of-ethereum

[lazaruski]

Acquired cloakX.io domain.

[chileminer]

To be blunt, the 2.1.0.0 cloak wallet is a pig. ( I am hoping that the new one is better, but I haven't been able to compile it yet.) It takes up typically 70% of a E5-2600 core running at 2.9GHz, and peaks at 100% for several seconds at a time. If you think you can build this on top of it, I doubt it is technically possible, but even if it was, it wouldn't be a good user experience.

What I would recommend:
Switch to a BCH base. It has, or will have the features you need:
1 Instant transactions with 0conf now for small transactions and Avalanche preconsensus will make it a whole lot more secure.
2. SLP tokens & smart contract features that aren't nearly as heavy as ethereum because not every node needs to run everything. ( used to run an ethereum full node at home...not fun)
3. Ctor now, and graphene is coming for quicker block propagation
4. Solid API's for JavaScript and others lang
5. Atomic Swaps
6. Schnorr signatures to fix transaction malleability IN the block and make the transactions smaller, especially multisig

I would, (and have) recommended getting off of PoSa, which is a pig, and onto something like PoS3 or PoTS. NAV has an excellent implementation of PoS3 and governance and cold staking.
That means that you have to give up that 6% idea, which hasn't been good for the community for a long time. It incentivizes people to just run their wallets every so often. Also inflation is really low and so is difficulty because only about 1/2 of the coins ever stake. In my opinion there needs to be a block reward of .9 cloak to the staker and .1 cloak to the governance fund. That would pay out roughly 9% now and decline(as a percentage) over time.
There needs to be developed a way to combine UTXO's without loosing any privacy for spendability and performance. I have over 500UTXO's in my wallet, which is why I see performance problems with PoSa. (BTW, I have PoS3 wallets that run several times that many UTXOs that use less than 2GB of memory, and less than 35% CPU utilization).

[lazaruski]

Thanks for the comment @chileminer

To rebound in an equally blunt matter, I never proposed to build anything for the current QT wallet.

That's why I said specifically:

"DEX interface embedded directly in the new hierarchical deterministic (HD) wallet."

To your points 1 through 6:

"a decentralised exchange network built atop proof of stake nodes"

-BCH is not Proof of Stake.

Regarding your remaining commentary:

"Despite widespread focus on the need for decentralised exchanges, efforts are wrought with profit seeking, centralisation, the unnecessary introduction of further cryptocurrencies, and of course, fees."

"I propose removing fees completely, because they are not necessary in our decentralised world. It matters more that the platform currency is held as percentage of the trading portfolio, to show support to the project."

Would be delighted to hear from @raizor, @anorakthagreat, @r3rcloak or @CloakProjectDev

[chileminer]

The switch to the BCH codebase means starting with something like bitcoin-abc sourcecode to get all of the features I mentioned + 7) hierarchical determinism, and every other good thing that BCH teams develop into their base protocol.
Then integrating in NAV's PoSV3 implementation which gets you fast, efficient staking, incentivising stakers to stake 24/7, secure cold staking, even on something like an odroid(competitor to raspi) could handle PoSV3. Put CLOAK's block parameters in there with .9 cloak to the staker and .1 cloak to the governance fund for a block target time of 1min(CLOAK's current).
Add to that a solid exchange engine, and you may have a winner!