Automated decentralized exchange between bitcoin and similar currency? I want to create a cryptocurrency that's backed by bitcoin, that's running on it's own different blockchain and consensus algorithm.
Is it possible have a decentralized exchange between bitcoin and the new currency so that the only way to get the new coin is to exchange your bitcoin and if you want you can get your bitcoin back by returning your new coin?
And this to be done in a safe way without a central exchange and ANYONE having access to all of the new coin, and without risk for your bitcoin as long as both the bitcoin and new crypto blockchains are both alive and by nodes running the blockchain.
Here's an example:

You send 1 btc to a bitcoin address.
When that's confirmed let's say with 6 confirmations the &quot;decentralized system&quot; sends you 1 coin of the new coin to your &quot;new coin&quot; address of choice.

And if you want you can trade your new coins back for bitcoin.
So the total supply of the new coin = the supply of bitcoin
And no one has access to the total supply of the new coin, the only way to get the new coin is to deposit bitcoin. And you can get your bitcoin back automated and decentralised whenever you want by returning your &quot;new coin&quot; to the system.
Is this possible?
I know about atomic swaps but that relies on 2 parties exchanging coins. What if 1 of the parties is the new blockchain itself? Is this even possible?
No, this is impossible (so far as we know). But the reason is very, very subtle.
The crux of a decentralized system is that nobody gets to decide what the rules are. Otherwise, whoever gets to decide the rules effectively centralizes the system.
Bitcoin is decentralized because anyone who wants to can use whatever rules they want. Those who agree form a useful blockchain.
The problem with this scheme is that there has to be some mechanism to decide what controls the real bitcoins that back the system. For example, bitcoin and bitcoin cash forked off and nobody got to decide which chain was &quot;real&quot;. Both chains now compete in the market.
If your system forks, who or what decides which side of the fork gets the actual bitcoins that back your currency? They can't both get all the bitcoins -- that would require the number of bitcoins backing your currency to double.
There is no known decentralized way to make such a choice.
Think it through -- what do you think should happen if two groups of people using your currency disagree over what the system's rules should be? They can't each get what they want because they are arguing over how a fixed amount of bitcoin should be used.