Difference between revisions of "Security deposit"

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(What are security deposits, why are they needed and recommended amount.)
 
 
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== Security deposit ==
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'''Security deposits''' in Bisq are BTC funds that buyer and seller lock in a 2of2 multisig address together with trade funds when an offer is taken in order to help ensure that both peers follow the trading protocol. Security deposits are fully reimbursed automatically to both trading peers when the trade ends without [[dispute resolution | disputes]].
  
A '''security deposit''' is an amount of BTC that buyer and seller send to a multisig address together with trade funds when an offer is taken, to guarantee that both parts follow the trading protocol. Security deposits are fully reimbursed automatically to each of the trading peers when the trade ends without [[dispute resolution | disputes]].
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Security deposits are the most important tool Bisq offers to protect honest traders. Furthermore, requiring ''both'' parties to post a deposit increases chances that they will be willing to cooperate and determine amicable outcomes in case a trade doesn't go according to plan.
  
In the strange case that a trade protocol violation occurs, and depending on the severity of the violation, a certain amount of the trading deposit will be lost from the part who did not follow the trading protocol and will be used to compensate the aggravated part. For example, it's considered a protocol violation when buyer doesn't pay to seller, when seller doesn't confirm the payment from the buyer or if the account details provided are incorrect.
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When a trade doesn't go the happy path, a portion or the total amount of the offending peer's deposit will be lost, depending on whether the trade is concluded in mediation or arbitration. For example, it is considered a protocol violation when the buyer doesn't pay the seller as specified in the trade contract (e.g., late payment, mismatching names, wrong payment method, etc). [[Trading_rules|This article]] lists all Bisq trading rules.
  
Bisq doesn't keep your funds, and avoids those reputation mechanisms that would deteriorate your privacy (to obtain reputation, information must be revealed) and would give a false sensation of security due to sybil attacks. Security deposits are the most important tool that Bisq offers you to protect from dishonest traders and, at the same time, show you're willing to cooperate because if you don't, you'll risk losing your security deposit.
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== Note for new users ==
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Security deposits create a conundrum for new users: '''bitcoin is required to buy bitcoin'''. This can be inconvenient, but it's a core part of the security protocol. The initial amount of BTC required to do a trade can vary depending on the payment method, but the bare minimum BTC required to buy more BTC (as of this writing) is 0.002 BTC to cover the minimum security deposit and mining fees. Take a look at [[Funding_your_wallet#How_to_Obtain_Your_First_Bitcoin|this article]] for suggestion on how to get this initial BTC without KYC ([[Getting_your_first_BTC|Get your first BTC]] room, a friend, ATM, sell something, work for it, etc).
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Why the hard security deposit requirement? Bisq never custodies your funds, and it avoids reputation mechanisms that would weaken your privacy (e.g., reviews: to such reputation data, it must be stored somewhere ''and'' tied to an identity). Such mechanisms would only give a false sense of security anyway due to [https://en.wikipedia.org/wiki/Sybil_attack sybil attacks].
  
 
== Recommended amounts ==
 
== Recommended amounts ==
  
Bisq allows users to choose a security deposit ranged from a '''minimum of 15%''' of trading amount or 0.006 BTC, to a '''maximum of 50%'''. Both buyer and seller should put the same security deposit amount.
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Bisq allows offer makers to choose a security deposit percentage: '''minimum is 15%''' of trade amount and '''maximum is 50%''' of trade amount (absolute minimum is 0.001 BTC). The offer taker must deposit the same amount as the offer maker.
  
When creating an offer, Bisq recommends a security deposit depending on the recent volatility of the traded asset: '''the higher the volatility, the higher the recommended security deposit'''. Using the recommended amount helps to prevent that a Bisq exchange becomes a future trading contract where the BTC buyer only settles the trade paying fiat or altcoin if BTC price has not fallen enough to compensate losing the security deposit.
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When creating an offer, Bisq recommends a security deposit based on recent volatility of the asset being traded: '''the higher the volatility, the higher the recommended security deposit'''. Using the recommended amount helps prevent trades from becoming future trades where the BTC buyer only sends payment to settle the trade if the BTC price has not fallen enough to compensate for losing the security deposit.
  
{{Admonition_Note|If you create an offer to sell 1 BTC and you use the recommended security deposit which at that moment is 25%, Bisq will ask you to reserve 1.25 for this offer. The buyer, when taking the offer, will have to put 0.25 BTC as security deposit. At this moment, a [[deposit transaction]] will be broadcasted, sending 1.5 BTC in total to a 2of2 multisig address.}}
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{{Admonition_Note|Deposits and trade amounts are locked in the multisignature address to secure trades. So a peer selling 1 BTC who chooses to specify a 25% security deposit when making his offer will need to lock 1.25 BTC, which would require the buyer to lock 0.25 BTC when taking the offer. Ultimately, this means 1.5 BTC will be locked in a 2-of-2 multisig address when the deposit transaction is confirmed, and only at that point can the buyer send payment to the seller.}}
  
[[File:Security deposit 1.png|500px|thumb|left|Depending on volatility, recommended security deposit could be up to 50%.]]
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[[File:Security deposit 1.png|500px|thumb|left|Depending on volatility, recommended security deposits can reach 50%.]]
 
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When taking a buy or sell offer, the security deposit set by the maker can be seen at the "BTC deposit" column.  
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When taking an offer, the security deposit set by the maker can be viewed on the <code>Deposit BTC (%)</code> column.  
[[File:Security deposit 2.png|500px|thumb|left|]]
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[[File:Security deposit 2.png|500px|thumb|left|See required deposit % in this column on the offer book.]]
 
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== Note for new users ==
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== Reduced peer's deposit payout during arbitration ==
  
The security deposit generates an inconvenient, specially to new users: As Bisq acts like a Bitcoin second layer, '''bitcoin is required to buy bitcoin'''. To lift the 0.01 BTC buying [[Account limits | limit]] for new accounts, they must have at least 0.0065 BTC, in order to pay for the security deposit and fees. This amount has to be acquired from an ATM, a friend, by working for it or at a traditional exchange.
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The latest trade protocol, which introduced contributors as BurningMen, to eliminate the single-point-of-failure that was the legacy BurningMan, implies that the trader winning in arbitration will get a considerably smaller (if at all) portion of the peer's deposit as compensation, to account for the risk of malicious BM's exploiting the protocol itself.<br>
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If you want to minimize the risk of having funds locked in arbitration for a prolonged time without any compensation after the resolution, you should take into account [https://github.com/bisq-network/proposals/issues/411 this table], and set a deposit % higher than the minimum amount possible, which will yield no compensation whatsoever.

Latest revision as of 20:49, 18 May 2023

Security deposits in Bisq are BTC funds that buyer and seller lock in a 2of2 multisig address together with trade funds when an offer is taken in order to help ensure that both peers follow the trading protocol. Security deposits are fully reimbursed automatically to both trading peers when the trade ends without disputes.

Security deposits are the most important tool Bisq offers to protect honest traders. Furthermore, requiring both parties to post a deposit increases chances that they will be willing to cooperate and determine amicable outcomes in case a trade doesn't go according to plan.

When a trade doesn't go the happy path, a portion or the total amount of the offending peer's deposit will be lost, depending on whether the trade is concluded in mediation or arbitration. For example, it is considered a protocol violation when the buyer doesn't pay the seller as specified in the trade contract (e.g., late payment, mismatching names, wrong payment method, etc). This article lists all Bisq trading rules.

Note for new users

Security deposits create a conundrum for new users: bitcoin is required to buy bitcoin. This can be inconvenient, but it's a core part of the security protocol. The initial amount of BTC required to do a trade can vary depending on the payment method, but the bare minimum BTC required to buy more BTC (as of this writing) is 0.002 BTC to cover the minimum security deposit and mining fees. Take a look at this article for suggestion on how to get this initial BTC without KYC (Get your first BTC room, a friend, ATM, sell something, work for it, etc).

Why the hard security deposit requirement? Bisq never custodies your funds, and it avoids reputation mechanisms that would weaken your privacy (e.g., reviews: to such reputation data, it must be stored somewhere and tied to an identity). Such mechanisms would only give a false sense of security anyway due to sybil attacks.

Recommended amounts

Bisq allows offer makers to choose a security deposit percentage: minimum is 15% of trade amount and maximum is 50% of trade amount (absolute minimum is 0.001 BTC). The offer taker must deposit the same amount as the offer maker.

When creating an offer, Bisq recommends a security deposit based on recent volatility of the asset being traded: the higher the volatility, the higher the recommended security deposit. Using the recommended amount helps prevent trades from becoming future trades where the BTC buyer only sends payment to settle the trade if the BTC price has not fallen enough to compensate for losing the security deposit.

Note
Deposits and trade amounts are locked in the multisignature address to secure trades. So a peer selling 1 BTC who chooses to specify a 25% security deposit when making his offer will need to lock 1.25 BTC, which would require the buyer to lock 0.25 BTC when taking the offer. Ultimately, this means 1.5 BTC will be locked in a 2-of-2 multisig address when the deposit transaction is confirmed, and only at that point can the buyer send payment to the seller.
Depending on volatility, recommended security deposits can reach 50%.


When taking an offer, the security deposit set by the maker can be viewed on the Deposit BTC (%) column.

See required deposit % in this column on the offer book.


Reduced peer's deposit payout during arbitration

The latest trade protocol, which introduced contributors as BurningMen, to eliminate the single-point-of-failure that was the legacy BurningMan, implies that the trader winning in arbitration will get a considerably smaller (if at all) portion of the peer's deposit as compensation, to account for the risk of malicious BM's exploiting the protocol itself.
If you want to minimize the risk of having funds locked in arbitration for a prolonged time without any compensation after the resolution, you should take into account this table, and set a deposit % higher than the minimum amount possible, which will yield no compensation whatsoever.