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Why Digital Currency Needs Decentralized Exchanges?

Digital exchanges work in a fluctuating industry which is bracing for refinement. One such player in the exchanges is Decentralized exchanges.

There have been lots of variations in the regulation and consumer sentiment in the recent years. Decentralized exchanges called as “DEX” is a pivotal influence in the overall market.

However, there are few more players in the race- Centralized that holds the bulk of trading volume for $249 billion worth of crypto assets.

In general, we can categorize exchanges in three types:

  • Custodial exchanges
  • Non-custodial exchanges
  • Decentralized exchanges (DEXs)

Note: The custodial and non-custodial exchanges are named as “Centralized exchanges”.

Decentralized Exchanges

DEX is an exchange platform which doesn’t depend on third-party services to handle the customer’s funds.

Instead, trades happen directly between the users (P2P) via an automated process.

This can be done by making proxy tokens or assets (a share in the company) or via the multi-signature escrow system.

“99% of cryptocurrency transactions still go through centralized exchanges; this trend is expected to be reversed in the coming years.”- Nathan Sexter, Consensys!

Currently, DEX is being built along three avenues:

  • On-chain order books and settlements
  • Off-chain order books with on-chain settlements (0x protocol)
  • Smart contract-based reserves (Bancor)

DEX Benefits

  • The customer holds the control of their funds
  • Anonymity
  • No hacking issues for central server and downtime
  • Trading fees are free of cost
  • No personal document verification

DEX Limitations

  • Hard to use (Not meant for the beginner)
  • Comes with basic features
  • If your system gets hacked, everything is gone

“It’s true that contemporary technology permits decentralization, it also permits centralization. It depends on how you use the technology.”- Noam Chomsky.

Different Flavors of DEXs

While there’s still a long way to develop the completely convenient and functional DEX, there are a number of projects which provide the basic functions to trade coins while protecting our funds from hackers, thefts, and false business models.

1) Bisq

  • Supports 126 cryptocurrencies and fiat payment options
  • Completely decentralized
  • No AML/KYC
  • Uses TOR for privacy and security
  • Windows, Mac, Linux

2) IDEX

  • Deals with Ethereum and ERC-20 tokens
  • Multiple trading pairs and completely decentralized
  • Increased volume than Ether delta
  • Uses smart contract to trade and manage user keys
  • For additional security supports hardware wallet integration with Ledger Nano
  • No AML/KYC policy

3) BarterDEX

  • Completely decentralized and supports over 80 trading pairs
  • Uses Atomic swaps to facilitate trades
  • Works across different blockchain
  • Has privacy features to protect users
  • Users manage their own private keys
  • No AML/KYC

4) Waves DEX

  • Supports any Waves token and popular market cap cryptos
  • The user can launch tokens on Waves blockchain
  • They can even lend Waves tokens for passive income
  • No AML/KYC
  • Supports fiat payment options
  • Centralized order matching for quick trades

Although, decentralizing assets is one of the base pillars of the crypto revolution. However, there are many largest digital exchanges that still follow the centralized power structures. Know why?

Why Avoid Centralized Exchanges?

For beginners, centralized exchanges are a good solution to trade cryptocurrency globally. This platform allows you to buy, sell, as well as exchange digital currencies for fiat or any other coins.

However, these exchanges don’t make out the benefit of everything which decentralized blockchain technology already offers.

Altogether, over 99% of all digital transactions from beginners go via centralized exchanges. The exchange platform holds the client assets themselves, which attracts more hackers.

In addition to this, most of the time there’s a risk of software abnormality with transaction delays. This sometimes results in dropped opportunities, significant losses and loading time.

There are much more issues that can be considered when it comes to the global cryptocurrency adoption.

What is Stopping Us?

Moreover, the mass populace is not entirely familiar with the issues plaguing centralized exchanges. DEX offers more tech expertise which might be vaguely inconvenient for beginners.

Notably, once the industry markets emerge exponentially, centralized exchanges may hardly manage the astronomical volume, despite being favorable.

In 2018 and the coming 2019, the decentralized exchanges will firmly be a trendy topic. Both types of platforms are break-through platforms in their specific area which co-exist in total harmony.            

How to Bring Security to Cryptocurrency?

Many big firms are considering their coins as an investment, however, the only variation is buying a crypto token doesn’t offer you stock in the firm. Thus, Shareholders of common stock hold legal rights which cryptocurrencies owner as well as currencies do not own.

They are the true owners of the firm, while their rights incorporate:

  • A controlled degree over firm management,
  • A share of the firm’s income, profitability, as well as assets,
  • Voting rights,
  • Preemptive rights of freshly issued shares.

As we travel through 2018, that the centralized exchange with ICO’s is being a substitute by the DEX and STO resp. What you can do is waiting for the time when the crypto-economy is entirely stabilized.

Closing Thoughts

DEX is a new paradigm of trading technology which is assisted by Blockchain.

While there are many players competing in the space, the clear winner is yet to see. The true winner will be the one developing a successful business, rather than someone just lifting a bunch of money.

What are your thoughts on “The reason why cryptocurrency needs the decentralized exchanges?” Comment us in the below suggestion box.

 

Image Source: DEX

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Sara Noah

Sara Noah is steadily working on cryptocurrency evaluations, news, and fluctuations in digital currency prices. She is guest author associated with many cryptocurrencies admin and contributes as an active guide to readers about recent updates on virtual currencies.

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