So we have already poured tons of information over you about the speed with which the crypto market is increasing. In fact, we are sure that the ongoing Bitcoin fall is to do with the fact that the world isn’t really capable of processing this much stuff this fast.
The blockchain tech may be just too much for the existing network, and what we have seen in December with a few exchanges having massive problems processing new requests is representative of what the whole world is experiencing right now.
The new exchanges and ICOs turning up every day make things even vaguer and difficult to regulate. The US is still trying to come up with a unified system of regulation, and the same goes for G20:
“We acknowledge that technological innovation, including that underlying crypto-assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly” – The G20 bankers have said – “Crypto-assets do, however, raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Crypto-assets lack the key attributes of sovereign currencies. At some point, they could have financial stability implications.”
Mark Carney, the Governor of The Bank of England, is also calling for a unified legislation that will make the niche more see-through:
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system” – Carney says, although his approach is more focused – “I would have a greater expectation for a series of national steps rather than some big coordinated approach.”
The advantages of decentralized exchanges that use blockchain
The move from “some big coordinated approach” is a move that was on many people’s minds, some all the way from the very beginning.
Bitcoin’s ability to deliver empowerment and freedom to individuals rather than the state was what made it so in-demand, to begin with. There is also a reason or two why decentralized exchanges are viewed by many users as more suited to the current state of things.
The current financial system, which has been in operation for a while, has many flaws, among which are the fact that someone has access to pretty much all of your private information, high transfer fees, and slow speed of transaction. And we know just who can help here.
99% of exchanged are centralized. Among the best features of decentralized exchanges are their improved security, accessibility, and lesser payments. But besides from the obvious, that’s far from all.
With centralized exchanges not only do you fall prey to high commission fees, also you run a risk of being manipulated bye exchanges themselves who control the process to make investors take steps that are profitable to them.
The truth is that trusting a third party with your money doesn’t mean it’s more secure. It’s pretty much the same as being trusted with a task and then delegating it to someone else. As we have found out through history, trusting a centralized regulator with your funds doesn’t mean they’re safe.
Long story short, people have a database of your money, which makes things really no different from the governmental control. The only difference is that if someone hacks an exchange, the CIA won’t be investigating them. Probably no-one will.
The centralized exchange in a sense not only act as a bank but also as a broker and a clearinghouse all at the same time. Check out this awesome interview for more information. Ultimately, a centralized exchange has all the disadvantages of the old systems but none of the advantages of the next-gen systems that use smart contracts and don’t expose their clients’ details to anyone.
Even if you trust the people behind the exchange (which is pretty difficult because really you have no idea who they are), these databases themselves are easy to hack.
There have been multiple demonstrations of the fact that hacking someone is as easy as finding one hole in the code and then accessing the list with all the details. You’re essentially handing the control over to someone else who promises they will take care of things for you, but how does that old saying go? If you want things done right, do them yourself.
Decentralized exchanges offer much better security, which you will be sure of if you have been using EtherDelta or AirSwap. The information isn’t stored on servers which can be hacked at any time.
When large orders come in on centralized exchanges, also, a match is hard to find, which means that liquidity is a problem. Centralized exchanges are also often badly run by badly educated people and often there are manipulations by the platforms themselves aimed at raising costs.
Michael Oved, the founder of AIrSwap, speaks of the benefits of decentralized changes:
“What we are building is a peer-to-peer exchange that promises two of the key advantages of a decentralized exchange: users are always in control of their own assets, and liquidity is accessible by anyone globally. We chose the Swap design because it promises scalability, privacy, and fairness.”
As you can see, the issues of liquidity and safety are addressed here, and also the subject of price manipulation if open for conversation:
“I believe the manipulation you describe IS very damaging in the case where pricing information is being manipulated in the order book itself. That has direct implications for pricing, whereas manipulation of counterparty discovery is less clear.”
We are certain that in many sense decentralized exchanges are better suited to a contemporary crypto user, which is why it is important to pay attention to them. They will highly likely replace centralized exchanges in the same way Wifi replaced dial-up modems (and then you’ll be really glad you listened to us).
Image courtesy of The Merkle, Bitcoin.com.
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