Eidoo Exchange to solve scalability and security issues of traditional platforms
Eidoo will integrate a hybrid exchange to convert digital currencies within the app.
In the next few months, we will develop a hybrid exchange for Ethereum and tokens. Later, we will also design a decentralized exchange for Bitcoin and fiat currencies.
Directly through the Eidoo app (available on iOS and Android), in fact, the user will be able to exchange cryptocurrencies, while the funds never leave the actual wallet.
We define it as “hybrid” because it inherits features from both centralized and decentralized exchanges.
Centralized exchanges: pros and cons
Usually exchanges are based on a centralized infrastructure managed by a central authority that can potentially operate maliciously, in ways that users may find difficult to detect.
Not only the owner of the exchange can act maliciously, but systems can also be violated by third parties. At that point, they can manage the assets that were initially only controlled by the exchange owner.
Unfortunately, cases of fake orders, front-running, and listing of new tokens with non-market quotes are normal and a common situation in the current ecosystem.
Centralized exchanges users have to move their crypto assets to addresses which are under the direct control of these exchanges, ultimately losing the control over them.
Users face the risk of the bankruptcy of the exchange, of losing all their digital currencies (as previously happened with Mtgox), of a partial default of the exchange (with losses of a part or the entirety of the cryptocurrencies) and, finally, the risk of temporary regulatory problems leading to the inability to redeem funds.
Centralized exchanges let users trade IOU on centralized servers that can handle a large number of transactions
This means that centralized exchanges are faster than decentralized ones, but are less safe because users have to accept the risk of losing all their funds.
Decentralized exchanges
Users who decide to use decentralized exchanges will not lose control over their assets, because their digital currencies and tokens remain on the user wallet until the exact time of the conversion.
Hence, in the event of failure or technical issues, users will not lose their money.
Each transaction is written on the blockchain, and there is no central authority that can operate maliciously.
Also, decentralized exchanges are based on the so-called “Atomic Swap,” whereby an asset trade may or may not happen, but there is no intermediate status whereby users can be harmed.
One of the decentralized exchange cons is that they take too much time to converge towards a shared solution, hence do not allow for markets with a large trade frequency, and are not therefore suitable for liquid markets, experiencing issues when liquidity exceeds a certain threshold.
Fees are also deducted for unsuccessful trades (e.g., to place an order or to delete it), so decentralized exchanges are more expensive than centralized ones.
Also, the technologies used often lead to a market with particular operating rules that are different from a traditional stock order book.
This is why decentralized exchanges linked to a blockchain have a marginal role, and they don’t exchange more than $2 mln per day.
Decentralized exchanges are safer because they don’t rely on a central authority, but they are more expensive and cannot deal with a large trade volume.
Conversely, centralized exchanges can manage significant trade volumes and are cheaper, but users have to accept the risk of losing their money.
Eidoo Exchange Offers Solutions
Thanks to its hybrid architecture, Eidoo exchange combines positive features of both centralized and decentralized exchanges.
Users will maintain total control over their tokens because Ether and ERC20 tokens will be managed on a safe and trustless platform, but with higher speed and scalability than a normal decentralized exchange.
The hybrid Eidoo Exchange system will overcome current decentralized exchange limitation regarding the management of large amounts of trades while maintaining low fees.
User accounts are based on a smart contract on the Ethereum blockchain, where the ERC20 tokens are placed, the exchange itself not having direct access to funds.
Order management, therefore, happen thanks to software that is disconnected from the exchange system, only by using APIs that verify that a wallet is under the exclusive control of the user.
Also, in a similar way to what happens in decentralized platforms, exchange transactions between two wallets will be based on an atomic swap, hence the operation will be indivisible and can only terminate with a full exchange; otherwise nothing happens.
Finally, thanks to the architecture we have designed for the Eidoo system, DoS attacks do not affect the normal operations of the exchange.
