The Trouble with Centralized Exchanges…
As the Cryptocurrency environment matures, the inherent problems with centralized exchanges present themselves on an almost daily basis and highlight why the need for decentralized exchanges is now more urgent than ever.
On Sunday the 12th of November, during a surge of volume across the cryptocurrency trading platforms, many of the major exchanges experienced delays and technical difficulties as their servers were unable to cope with the massive influx of activity.
Bithumb alone experienced a minimum downtime of 90 minutes during a peak trading period; the estimated impact is more than 60,000 Bitcoin (BTC) worth of lost trade volume. Bithumb also made an organizational decision to cancel all outstanding orders without notice and to put the exchange on pause, causing untold loss for short-term traders, leaving them in confusion and unable to act. During this downtime, the price of BitcoinCash (BCC/BCH) almost halved in value.
This was just one of many problems experienced by centralized exchanges, and cost many traders significant amounts of currency across the ecosystem. Other exchanges such as Kraken have halted deposits and withdrawals without warning at various times, while Bittrex has pricing indexes that freeze or perform sluggishly. So what is really going on here and how can this problem be appropriately addressed?
One of the perceived aims of cryptocurrency is the decentralization of finance — to remove trust based systems and to return security and control of individual and organizational assets to their respective owners. By being able to send funds cryptographically across the internet, people could make transactions without having to go through a middleman.
The majority of crypto-based exchanges, however, are fully or mostly centralized. Network and computer power is centralized in regional servers while crypto-assets must be placed on the exchange wallets for trading, which are then reconciled when the user wants to withdraw. This interaction requires trust in the exchange and Know Your Client (KYC: providing a third party with your ID) submissions are usually mandatory. If something happens to the exchange your funds are at risk and sometimes even completely lost. The fall of Mt. Gox and BTCE are just two examples of what would become many, and does not include the impact of downtime, delay and other technical difficulties that are becoming commonplace among centralized exchanges.
The New Era of Decentralized Exchanges and how Blocknet is ahead of the pack.
The logical solution to these issues has been the creation of Decentralized Exchanges (DEX or DX) — Sites that minimize or eliminate the trust requirement in the exchange and which do not require a user to give up their funds or information to a single organization or consortium.
So far most of the DEX projects fail to deliver some of the core functions that a truly decentralized exchange requires and do not provide any of the extended features that make centralized exchanges more popular. In order for a DEX to be truly trustless it should facilitate wallet-to-wallet transactions, rather than just managing databases or utilizing IOU colored tokens. If a DEX can effectively leverage cross-chain atomic swaps, users can maintain control over their asset until a transaction has been completed, effectively eliminating counter-party risk.
Blocknet has been in development for over 3 years and back in April of 2017, the Blocknet successfully performed an atomic swap on its wallet’s native DEX. Since then, further compatibility upgrades have expanded Blocknet’s range of tradable coins and a partnership with the 0x (ZRX) protocol will facilitate interoperability with Ethereum based (ERC20) tokens. Notable examples of tested and verified cryptocurrencies include: BitBay (BAY), Bitcoin (BTC), Bitcoin Cash (BCH), Blocknet (BLOCK), Dash (DASH), Decred (DCR), Digibyte (DGB), Dogecoin (DOGE), Dynamic (DYN), GameCredits (GAME), Faircoin (FAIR), HShare (HSR), LBRY Credits (LBC), Litecoin (LTC), Monacoin (MONA), MonetaryUnit (MUE), Namecoin (NMC), NavCoin (NAV), Particl (PART), Peercoin (PPC), PIVX (PIVX), Potcoin (POT), Qtum (QTUM), Sequence (SEQ), Stratis (STRAT), Syscoin (SYS), Vericoin (VRC), Verge (XVG), Vertcoin (VTC), ViaCoin (VIA)and many others, with plans to extend to more than 100 different tokens.
Blocknet will be the first to provide the 4 pillars of truly decentralized exchange in a cohesive and accessible interface:
- Decentralized Capital Deposits
- Decentralized Order Broadcasts
- Decentralized Order Matching
- Decentralized Exchange of Tokens
As far as the Blocknet developers are aware, nobody else is doing this.
Blocknet is one of the few projects that are able to run atomic swap transactions, and will likely be first to market with a top-tier user interface featuring virtually all (and in many cases, more) of the functions and charting tools available to the best centralized crypto exchanges. This will also include an API that can be utilized for popular external trading platforms such as TradingView and Coinigy.
In order to realize the full potential of this pioneering service, traders must be able to experience them in an intuitive and customizable way. That’s why Blocknet has joined with VSA Partners to design a “best-in-class” Exchange User Interface as well as a new main website for a seamless experience. (Click here to see a DETAILED preview of the Blocknet UI) In addition, further partnerships are being developed with 0x and Ethfinex to maximise compatibility and liquidity.
Upcoming milestones for blocknet include UI release, SPV wallets, “Toolkit” site that lists supported coins, their config files, documentation, and other data, Bot “skeleton” in Python for easy DX bot building, Visual DX explorer, New Blocknet website, 0x integration (addition of Ethereum and all ERC20 tokens to the DX), Ethfinex integration (Bitfinex’s order book on the DX) and much more. 2018 will be an exciting time for Blocknet!
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