Counterparty DEX Tutorial

Learn how to trade using Counterparty technology.

This tutorial is a free crash-course in how to use the Counterparty Decentralized Exchange. Please check out my free DEX explorers: XCPDEX.com and DIGIRARE.com, for examples of what’s traded. I also moderate two Telegram chatrooms, for traders and collectors.

Full Disclosure: I own and trade XCP, as well as other crypto tokens
This tutorial assumes the use of a laptop. Sorry, mobile phone users!

Table of Contents

Introduction
Getting Started
Create a Wallet
Open Wallet
Fund Wallet
Buy/Sell on the DEX

Introduction

Sometimes known as a meta-layer, Counterparty is essentially a distributed ledger technology anchored into the Bitcoin blockchain.

Counterparty’s P2P network is Bitcoin’s P2P network, Counterparty addresses are Bitcoin addresses, Counterparty transactions are Bitcoin transactions.

A federation of Bitcoin full nodes running Counterparty software listen for, validate, and execute smart contract data read from the Bitcoin blockchain.

Getting Started

We’ll be using what’s known as the “testnet” for this tutorial, so we can make mistakes without risking funds. Let’s get started by setting up a Counterparty-enabled bitcoin wallet.

The Counterwallet used in this tutorial, XCPKEY.com, is hosted by the author, but it is not the Counterwallet you necessarily have to use.

Create a Wallet

Step 1.

Visit: https://xcpkey.com/?testnet=1. Using this exact link will ensure that you are using the testnet and not mainnet.

Make sure that you see the word “Testnet”

Step 2.

Create your testnet wallet by clicking, “Create a Wallet”. This will cause a popup window to appear on your screen.

Step 3.

Save your auto-generated passphrase. Write it down and securely store it. Something like a password manager is fine for testnet wallets.

Step 4.

Check, “I have written down or otherwise securely stored my passphrase.”

Step 5.

Click “Continue”.

Step 6.

After clicking continue, you will be prompted to create a “Quick Access URL”. Personally, I skip this. Click through the prompts, depending on your choice.

The passphrase you saved is used to generate private keys. With it, you now have a bitcoin wallet and can use it login to Counterwallet.

Open Wallet

Step 1.

Type or paste your saved passphrase into the form and click “Open Wallet.”

Step 2.

Read and then accept or reject the Terms of Service. Why a ToS? Counterwallet’s are centralized, Counterparty is decentralized.

Step 3.

The first time you login, a welcome message appears. You can close it by clicking the “x” in the top right. Make sure testnet is in use.

Step 4. (Optional)

It’s a good idea, if this if your first time using Counterwallet, to logout and log back in again to be sure that you have saved your passphrase.

Fund Wallet

In order to do anything in Counterparty, you must broadcast bitcoin txs and therefore pay bitcoin gas fees. So, let’s get some testnet BTC.

Step 1.

Copy your first address to your clip board, it will look like a regular bitcoin address, except it will start with the letter ‘m’ or ‘n’.

Step 2.

Visit any bitcoin testnet faucet and paste in the address on your clipboard. This will take time to confirm.

Here is a list of faucets as of September 2018:
https://testnet.manu.backend.hamburg/faucet
https://testnet.coinfaucet.eu/en/
https://kuttler.eu/en/bitcoin/btc/faucet/
http://bitcoinfaucet.uo1.net/
http://tpfaucet.appspot.com/

You can monitor your transaction from your favorite blockchain explorer.

In reality, you would use “mainnet” and fund your Counterwallet using something like Coinbase or your preferred BTC on-ramp provider.

Step 3.

Once your testnet faucet deposit confirms, it will be reflected as a non-zero BTC balance in your Counterwallet. Great!

Buy/Sell on the DEX

Any Counterparty token can be instantly and permissionlessly traded on the Counterparty DEX without any additional setup or coding required. That’s a nice feature for small and independent projects, just starting out.

There are no exchange trading and/or withdrawal fees when using the DEX. Decentralized exchanges will always have less liquidity than centralized ones, but they compete well on the start up costs, like listing fees and paperwork.

Step 1.

From the sidebar menu on the left, select “Exchanges” -> “Markets”. This is the homepage of the DEX.

Step 2.

Select a trading pair from the list or enter a trading pair in the box highlighted below in red. In this case, I am looking to trade TUTORIAL and XCP.

Step 3.

Once you have selected a trading pair, you will be brought to an order book just like how other exchanges work.

Step 4.

Create a sell order for any of the tokens you created as part of this tutorial. Here I am looking to sell 5 TUTORIAL for 1 XCP, making the price 0.2 XCP.

Step 5.

Once confirmed, this order will be available to anyone world wide that has XCP and wants to buy TUTORIAL for 0.2 XCP each.

Disclaimer

This is neither investment nor legal advice. For educational purposes only.