BCCon speech: Centralization & de centralization block chain asset trading system
This is the speech of BHEX founder Ju Jianhua &CEO at the BCCon global block chain eco technology conference. Ju Jianhua has been the CTO of Fire Coin and is the R&D director of Fire Coin Block Chain Asset Trading System. He has rich experience in Block Chain technology research, product design and global operation of Fire Coin Exchange.
Since the advent of Bitcoin, some well-known centralized token exchanges have been attacked successively by hackers, ranging from 850,000 bitcoins stolen by Mt. Gox to 5.1 million dollars lost by Bitstamp, to more than 30,000 customers’data leaks and property losses by Bithumb, and then Coincheck was hacked into and lost 400 million dollars. Yuan, and in March this year, money security was suspected by hackers to make profits in other exchanges.
We can see that hackers have spearheaded the centralization of these bitcoin exchanges. People are also puzzled, why the decentralized products rely on the centralized exchange for trading, the decentralized exchange is still not coming? This needs to start from the development status of the whole industry.
01 Block chain assets trading market background
Block chain ecosystem consists of three parts: project side, investor and exchange. An exchange for bridges between investors and investors is now at the top of the industry chain.
From the current block chain asset trading market as a whole, the number of exchanges is growing rapidly, small entrepreneurial teams dominated, the average operating time of large exchanges head less than three years.
At this stage, there are three kinds of block chain asset trading venues: centralized exchanges, decentralized exchanges, and OTC over-the-counter point-to-point transactions. Out-of-the-counter point-to-point transactions, because of the inefficiency of matching, are basically only used as large-scale transactions and to avoid legal risks. The current mainstream transactions are completed in the central exchange.
Judging from the mainstream business model of block chain asset trading, the market scale of currency trading is large and the development speed is fast. The profit of block chain asset trading mainly comes from transaction and commission fees. The market size of derivatives such as ETF has just started, but it is developing rapidly.
Introduction to the main business mode of trading platform
In all respects, the Block Chain Asset Exchange is still in a period of opportunities and challenges.
Market growth is fast VS trading platform asset safety
Has not yet formed a head effect.VS User trust problem
Low user satisfaction, VS platform technology stability and performance
In the gradual improvement of supervision, VS market competition is becoming increasingly fierce.
Business profit margins are at a high level. VS Liquidity at the early stage of business startup
02 Differences in centralization and de centralization of trading systems
Block chain assets trading system has two modes: centralization and centralization. Traditionally centralized exchanges, which are efficient in trading, can bring traffic and users to the project side, reduce the trading threshold for investors and improve investment efficiency. However, the centralization exchanges have such problems as poor security and opaque information of operators.
Because of the de-centralization of digital money, many people are also reflecting on whether there is a better way of trading to avoid the abuses of the central exchange, so through the “de-centralized exchange” model to solve the problem, more and more attention has been paid.
The essence of de-centralized exchanges is to de-centralize at the level of trust. From the point of view of technology implementation, it is to realize the trust achieved by technology through the characteristics of cryptography and block chain. In decentralized exchanges, the release of funds is directly authorized by users through digital signatures to ensure that users and trading instructions are not manipulated by centralized institutions, and the security and operational credibility of asset custody is greatly improved. In principle, it is impossible to be robbed.
However, due to the limited liquidity of funds, it is difficult to meet the needs of traders in terms of transaction matching speed, transaction costs, atomic cross-chain and so on, limiting the opportunities of traders; users need to pay higher transaction fees; and have a relatively poor experience.
Compare centralization and de centralization of trading mechanisms:
From the moment a user transfers an asset from his wallet to a centralized exchange, the actual control of the asset is transferred to the platform. To collect money and trade, the platform must have the absolute right to speak and control.
Decentralized exchanges, on the other hand, because the address private key allocated by the platform is also owned by the user, the assets in the platform account are always owned by the user. The transaction to the central exchange is guaranteed by intelligent contracts.
These two ways involve different levels of asset safety.
03 Technical points of centralized trading system
Centralized trading systems are basically using databases to store transaction account information, using non-source code to achieve functions, and deployed on all the company’s intranet machines or cloud virtual hosts. Its operation is more like a black box for the outside world.
This has led to the exchange’s internal wallet developers or hackers with the privilege of preserving private key machines to move users’assets; trading and clearing module developers or hackers can do internal transactions, or even directly modify the accounts to achieve difficult to trace the transfer of illegal assets; trading platform operators; It can also affect the market by making false trading volume without supervision.
The purpose of a user’s “transaction” is to convert his money into another currency at an acceptable price. Whether the transaction can be achieved depends on two aspects: efficiency and cost.
Efficiency refers to whether the user can find the opponent quickly when he wants to trade, can he find the ideal price quickly, can he finish the transaction quickly, and can he deliver the transaction quickly after the transaction is completed; the cost includes the cost of consensus promotion in the industry, the cost of education and learning for the user, and the cost that the user pays behind each transaction. Explicit and implicit costs.
At present, the centralization exchange is a supplement to the centralization exchange. The reason is that many small currencies cannot be listed on the mainstream centralized exchanges for various reasons and choose to be listed on the decentralized exchanges, or some newly issued currencies will be listed on the decentralized exchanges before landing on the mainstream centralized exchanges.
The reason for this is that in the early stages of block chains, there was no infrastructure such as smart contracts, and a centralized exchange was the only option. Despite the emergence of decentralized exchanges based on smart contracts and cross-chain technologies, it is still difficult to compete with centralized exchanges in user experience.
Before the infrastructure of the block chain bottom is perfect, the market will still be centered on the centralization exchange.
04 Core design ideas of decentralized transactions system
The lack of centralized trading system makes the decentralized trading system become an important development direction of block chain asset trading.
The reality is that the nature of intelligent contracts and block chain consensus agreements in decentralized exchanges determines that decentralized exchanges have natural constraints on system iteration, which is both its strengths in terms of business credibility and its weaknesses as a system.
For example, in the managed wallet layer, by designing multiple signature addresses or shared passwords, the exchange can not change the user’s assets without authorization.
In addition, the transaction authorization is checked by cryptography at the transaction and matching levels to ensure the effective authorization of orders and transaction records and the openness and transparency of transaction data, which can not be tampered with or forged.
The three law of design for decentralized trading system:
The user’s assets can not be misappropriated by the trading system.
Non user authorized transaction instructions cannot be executed.
The trading system is completely free from any organization.
Decentralized exchanges generally use smart contracts to write transaction matching and clearing logic, and open source contract code for all to see. In this way, the code is open, but also run in the chain, to a certain extent, to protect the safety of users’funds, prevent internal transactions.
However, there are also unstable factors in the decentralized exchange. In order to gain user confidence, contract codes need to be open source. Anyone can use this code to deploy a single exchange. In the long run, multiple trading platforms will emerge. Competition among multiple trading platforms will lead to the segmentation of market liquidity, which will lead to the lack of depth of a single trading market and affect participation. User’s transaction opportunity cost will also bring price instability.
Decentralized exchanges are difficult to solve the liquidity segmentation problem brought about by decentralized exchanges at the technical level because of the characteristics of the block chain and the different technical schemes of different decentralized exchanges. It is generally solved by the force of automatic price balancing in the market.
The main technical trade-off of de centralized trading system design:
Does cross chain trading support?
Chain or chain matching?
Contract managed assets or user managed assets?
Connection ability between trading systems.
05 Technical solutions for mainstream centering exchanges
The key objectives of the de-centralized exchange system design are to ensure that users and trading instructions are not manipulated by centralized institutions, to resolve the generation of asset custody control and trading instructions, and to resolve the settlement of trading results. For example, in the managed wallet layer, we can design multi-signature addresses or shared passwords to prevent the exchange from altering the user’s assets without authorization; in the transaction and matching level, we can also use cryptography to verify the transaction authorization to ensure the effective authorization of orders and transaction records and the publicity of transaction data. Open and transparent, not to be altered and forged.
From the point of view of the existing decentralized exchanges, one is to continue to be based on the matching model, just like the centralized exchanges. But in order to solve the problems of user assets security and transaction transparency, we choose to put one or more of the four steps of asset custody, order book maintenance, transaction matching and settlement on the chain. Managing assets to chains such as Bitshare bits and smart contracts such as ethfinex, district0x, Augur, and melonport using the 0x protocol.
A typical example of custody of a transaction to a chain is the earliest decentralized exchange, Ether Delta, in Taifang. If an order book is hosted on the chain, it means that both hanging and withdrawing orders require a handling fee, which is seldom used at present. Recent developments, such as dex. top, generally adopt centralized matching and asynchronous clearing and chain-linking to improve performance and liquidity and reduce latency.
It also uses centralization of gateways or counterparties to gather orders to enhance liquidity. A typical example is kyber, which provides a “token reserve” mechanism whereby the seller stores tokens in the reserve in advance and waits for the buyer to place an order. The buyer can complete the transaction and settlement immediately after the order is placed, and this process occurs on the chain.
In the “Decentralized Exchange”, the nature of intelligent contracts and block chain consensus agreements determines that the Decentralized Exchange has natural constraints in system iteration, which is its advantage in business credibility and its disadvantage as a software system. How to face the cycle process of “discovering problems”, “proposing solutions”, “obtaining consensus based on solutions”, “developing and realizing on-line updates”, “discovering new problems” in the software system life cycle is the challenge facing completely decentralized exchanges in real sense.
06BLUEHELIX centralization of trust settlement
The difficulty of de-centralized exchanges is that exchanges, especially those that support advanced financial functions such as high-frequency trading and quantitative trading, produce a very large amount of data, which requires a very high degree of consistency and timeliness of data, which is essentially in conflict with the characteristics of the current implementation of various block chains. Yes.
From the user’s point of view, “trading” users are from the profit, and profit, basically can be summarized as “open source throttling” four words. Open source means to increase revenue, make it convenient for users to buy tokens with more appreciation value, and use various financial instruments to reduce the risk of loss; throttle means to reduce transaction costs, including reducing fees, opportunity costs, learning costs of users, search costs and so on.
Generally speaking, the current digital money exchanges, including centralized and decentralized, have not yet reached the mature stage of traditional financial markets in terms of financial services and derivatives. At present, as long as the real world financial industry has proved to be effective in a variety of financial instruments and financial business models to transform and create. New, there will be more opportunities for profit.
Bluehelix’s centralized managed clearing technology provides basic support for block chain applications through BHPOS consensus protocols supporting block chains and open protocols. It can not only solve the underlying asset custody problem of the central exchange, various funds and quantitative trading service institutions, but also support the development of other block chain applications. BHex, built on the basis of Bluehelix, can solve the trading experience, account trustworthiness and security problems faced by the centralized exchange through the capabilities given by Bluehelix.
Bluehelix’s goal is to build a block chain asset trading system with the characteristics of “decentralization, high performance, transaction depth polymerization, trusted atoms across the chain, low cost, easy access to APP” and so on.
With the evolution of block chain technology and financial consensus, it gradually transited to the form of centralized exchange supported by block chain. Each centralized exchange is in fact a super-node in a decentralized system. The exchange’s trading instructions and assets are executed and circulated in a trusted chain of blocks. At the same time, it is subject to the comprehensive supervision of regulatory agencies. The possibility of business evils is solved by means of both technology and supervision, and the root causes are solved. The current problems of centralized exchanges can provide a better trading experience for transactions, but also promote the development of the digital money industry towards a healthier direction.
07 Prospects for future block chain asset trading technology
At present, the biggest selling point of de-centralized exchanges is safety and credibility compared with centralized exchanges. If the centralized exchanges can evolve into traditional financial exchanges and be supervised by the government or a credible organization, the credibility of the centralized exchanges can also be improved.
Whether it’s going to centralization exchanges or centralization exchanges is software, there are loopholes in software. From this point of view, both face the same code risk, can not overemphasize the security of decentralized exchanges. In the process of development, the decentralized exchange will be subject to the same test as the centralized exchange.
Centralization and decentralization are not inconsistent contradictions. They should be natural choices at different stages of different business scenarios, not preset artificially. Decentralized exchanges will coexist with centralized exchanges for a long time in the future, with centralization as the main and decentralization as a supplement, providing services to users with different needs. (to the end)