What a Decentralized Exchange Might Offer You
- Decentralized exchanges help a trader to stay in control of his/her funds.
- There is and will always be a place for centralized exchanges.
Andrew Gazdecki, CEO of Altcoin.io, has a lot to be excited about. Back in September of 2017, his team successfully completed the world’s first atomic swap. And in January, they released their first beta wallet supporting such swaps.
If you’re not sure what atomic swaps are, it’s okay, they are pretty new. The first ever atomic swap occurred between cryptocurrencies Litecoin and Decred. Altcoin.io’s bitcoin and Ethereum swap was the second ever swap, although this time it was between two totally different blockchains.
Here is how it works:
Maybe you are starting to get the idea? Atomic swaps are a saving grace for DEXs, or decentralized exchanges; they allow two different cryptocurrencies to be traded without an escrow service or middleman. The word “atomic” comes from their speed: when the trade occurs, it actually happens instantly. Value is never lost during the trade. In other words, the wallet owner is constantly in control of his/her crypto.
This is entirely different from something like Shapeshift, an instant digital asset exchange. Yes, it allows automatic trading between certain coins, but there is a moment when both amounts being traded are in neither of the wallet holder’s hands. Shapeshift acts as a trusted third party to make sure that nobody backs out of the deal. But the problem with trusting a third party is, well, you have to pay for that service… And that goes a bit against the idea of decentralization.
Shouldn’t decentralized coins be run by decentralized services?
Atomic swaps, along with decentralized exchanges, do exactly this. They speak to the very essence of crypto because they cut out the middlemen. I asked Andrew what he thought about this:
“I think the biggest opportunity for decentralized exchanges is giving power back to traders where you never lose ownership of your tokens. With a centralized exchange, you have to pre deposit tokens, and so if the exchange goes down or gets hacked — you're putting valuable assets at risk.”
Andreas Antonopoulos, one of the most respected minds in Bitcoin, believes too that atomic swaps will let us see “many more decentralized cryptocurrency to cryptocurrency exchanges.”
As soon as cryptocurrencies became popular, dozens of exchanges came out of the woodwork. Coinbase, Kraken, Bittrex, and Binance are among the most widely used. But because of the very nature of our society, we overlooked something: all of these exchanges are centralized.
Just like Shapeshift, we give our money to a trusted third party. Just like banks, we are not 100% in control of our money. While we were all getting excited about leaving the current centralized institutions, some of them just disguised themselves to hold our cryptocurrency.
To be fair, DEXs just did not have the technology ready to compete with these exchanges. Escrow services have been in practice since the dawn of the internet, whereas decentralized, peer-2-peer services for finances have only been coming to light now.
This is what is so great about atomic swaps.
If Alice wants 10 ETH for 1 BTC, the p2p network will find someone who wants 1 BTC for 10 ETH. The atomic swap is essentially a smart contract that binds the deal, and trades instantly.
Altcoin.io isn’t the only DEX in the works. DEX Waves, Cryptobridge, Bisq, and EtherDelta are a few that are currently up and running. But when approached these companies were not willing to comment.
Currently, the greatest problem with DEXs is that they often have complicated interfaces and there are still no names that have built up a general level of trust. Most have only dealt with low volumes, and this makes it unattractive for users to participate.
But the interfaces are becoming easier, the DEX concept is becoming more popular and understood, and the tools are becoming more advanced. Andrew of Altcoin.io even mentioned that his DEX is mobile friendly and has its own wallet. So with this, you can keep all of your coins in this wallet, perform atomic swaps to trade between coins, while being in total control of your money. Kind of like Exodus, a desktop multi-asset wallet with ShapeShift built in, without all of the third parties.
One might expect that decentralized exchanges like this will thrive and become very popular in 2018.
And yes, there is and will still be a place for Centralized Exchanges.
There is no way the entire world is going to flop over to using only cryptocurrency in the next 20 years. Understanding decentralization and why it’s important also takes a lot of time.
Centralization is currently humanity’s way of life. Everything is owned by humans. Everything is currently top-down. And to many, they do not mind a trusted institution handling their money. They are not paranoid that this institution will take their money. Even in Coincheck’s hack, the founders of the exchanges promised to reimburse everyone who lost their NEM funds. An exchange Crypto Robinhood is gaining momentum and has even found a way to not charge any taxes on crypto/fiat transactions.
Centralized exchanges will exist for the casual trader. For the people who don’t want to think too deeply about the nitty-gritty details and do not want to feel the full weight of responsibility on their shoulders of being 100% in control of their money.
But for those who choose the decentralized exchange, they are rewiring their minds to understand decentralization. Blockchain is decentralized and its world will be decentralized in the end. It’s like the case between Linux and Apple. You do not need to speak the language, but it sure helps if it is to become your world.
DEXs as the Future of trading Assets
While some may not know what atomic swaps are, many have probably heard of Sophia, the robot citizen of Saudi Arabia. Turns out that Sophia is also creating her very own decentralized exchange. Except this exchange doesn’t trade currencies for other currencies: it trades AGI (SingularityNET tokens) for artificial intelligence.
This decentralized marketplace is going to allow developers and humanoids to buy and sell intelligence. It will become a global opportunity for anyone to take part in buying or selling artificial intelligence.
Decentralized marketplaces have been the dream of cypherpunks and Bitcoin fans alike. OpenBazaar, a decentralized marketplace, is looking to overtake giants like Ebay and Amazon buy letting users be in constant control of their wealth.
Decentralization is a fairly new concept that can finally be put into practice, thanks to inventions like smart contracts, blockchain, and the internet. While the aims of the internet from the beginning were to create a decentralized web, centralized giants like Amazon, Facebook and Google eventually took over. Now that Bitcoin has been around for 9 years, the world is ready to re-introduce decentralization to the web. This year we will see decentralization being introduced to the marketplace.