Blockchain.io — Overcoming Scalability Issues Faced By Decentralized Exchanges

BTCKarl
BTCKarl
Sep 3, 2018 · 3 min read

One of the challenges decentralized exchanges face is scalability. Due to the rapid growth in popularity and adoption of cryptocurrencies, trade volume also increases.

A lot of people today are looking forward for decentralized exchanges to flourish in the near future, as they offer much safer and more secure trade settlements and they provide traders full control of their transactions. Although most of decentralized exchanges today are still in development, they are definitely the future of cryptocurrency markets.

Blockchain.io offers a platform that is a centralized exchange with decentralized settlements. The combination of the new-generation technology of a centralized custodial exchange with decentralized “trustless” cross-chain “fair exchange” settlement is a first in the world and what makes the exchange stand out from the rest. The decentralized settlement will be based on cross-chain atomic swaps, cryptographic protocols, and payment networks such as Lightning and Raiden, that will allow users to settle transactions between two different blockchain network without the need of a trusted third-party and without counterparty risk.

Atomic swap (AS) is an on-chain transaction protocol that uses the concept of hashed timelock contracts (HTLCs) which requires cryptographic proof of payment and payment receipt prior to a deadline after which the payment is cancelled. AS, however delay settlement time as the trade lock time depends on the trading parties. In order to eradicate this bottleneck, a payment network called Lightning Network (LN) is needed. LN will hold the cryptocurency on behalf of the end user to secure voucher-based transaction that settle in the future. An atomic swap can only be possible between blockchains that support payment channels. Payment channels, like Lightning network (LN) allow for practically unlimited bidirectional transfers between to parties. Lightning network enable off-chain micro-payments, which is a highly relevant solution for scalability.

Bitcoin has successfully passed cross-chain trading experiment using Lightning Network. The combination of Bitcoin network with Lightning network as a second layer is potentially able to process millions of transactions per second.

These advanced on-chain and off-chain protocols are designed to overcome the scalability issues of decentralized cryptocurrency exchanges. With the use of them allows Blockchain.io to handle large volume of trades in their platform and together with other developments, Blockchain.io will be able to increase the speed and lower costs of trading and be ready for mass adoption.

Overall, decentralized exchanges or exchanges that provide decentralized settlements should offer trading services that could scale, as the crypto-sphere already awaits to use them in the near future. What Blockchain.io offers is a big move to depart from traditional markets and big step towards the internet of value.

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