Why We Need “Trustless” services: the Eidoo roadmap to decentralization
Today’s ecosystem is as centralized as it can be. From education to health, everything is regulated by a central authority.
However, with the advent of the Internet and the blockchain, there has been a substantial shift away from this model, and things are going to be changed toward decentralization and trustless services.
No trust in banks: people prefer technology
According to a report published a few years ago by public relations firm Edelman, 79% of people trust in technology, and 45% trusts in financial services. As a result, 34% of people trust in technology instead of in banks.
The same statistic is confirmed by a more recent research conducted by Ernst & Young Global Limited in 2016 as you can see in the image below:
This means that the financial industry needs to be redirected to decentralization because fewer and fewer people don’t trust them anymore.
Decentralization as a new standard
Generally speaking, decentralization is an organizational structure in which daily operations and responsibilities are delegated to the community.
It can be considered as a democratic approach to continue efficient operations.
Decentralization offers several advantages, depending on the industry we are talking about. In the financial case, we are talking about improved security.
Improved security has a lot of implications:
- A society cannot have bankruptcy-related issues;
- Decisions are not taken in an authoritarian way;
- No one can hack servers;
- Government can’t have full control
So, in a globalized world where people don’t trust in banks and financial institutions, the main goal is going decentralized.
Cryptography offers new Solutions
Since 2008, a lot of work has been done in this direction.
Thanks to the blockchain technology and smart contracts, we can now experience new kinds of financial management, as recent advances in the tech now make it possible to push hybrid and decentralized platforms.
Ethereum, Bitcoin, and other digital currencies open to new systems to manage payments without relying on any central authority, improving security because they are almost impossible to be hacked and are not subjected to DDoS attacks.
This way, blockchain technology provides a new level of security and options if you think about a transfer of values.
To better explain you the difference between centralized and decentralized systems, let’s speak about digital currency exchanges, which are something about the change shops you can find at any railway station or airport of the world.
Centralized exchanges are subjected to a central authority or the company who owns the platform.
Also, it often has technical problems such:
- Hacking: systems can be violated by third-parties;
- Scam: they can operate with bad intentions;
- Front-running: the order book is public so that traders can manipulate the market;
- Partial default: partial non-compliance of the exchange
Also, as more and more projects raise funds through token sales, the number of tokens in the market is increasing. Unfortunately, there are limited options to liquidate all of these tokens.
Centralized exchanges require reserves of the tokens that they are trading. If you want to buy or sell a token that is not so common, you would need time to do so because this kind of token is usually not supported by major centralized exchanges.
And, the greatest part of centralized exchanges tends to require users to wait for several minutes before a trade can be confirmed, or before they are allowed to withdraw their proceeds from an exchange. Because of this, the selling price saw when you start a transaction might not be the same price when the transaction is complete.
There are a few semi-decentralized platforms and services that made it possible to complete certain tasks much more efficiently.
This also enabled businesses to massively cut costs by centralizing only key operations. If we want to do a practical example, we are talking about companies such as Uber and Airbnb that have already effectively applied this model and disrupted entire industries in the process.
Hybrid systems combine centralized and decentralized options. Its positive side of the medal is that the transfer of value is run on the blockchain according to the exchange smart contract and users are guaranteed by what we can call “Code is Law”.
In a first step*, we at Eidoo will offer a hybrid exchange to convert digital currencies from one to another, starting from ETH and ERC20 tokens (tokens based on the Ethereum blockchain).
But, of course, hybrid exchanges have their problems, as the order book can be violated and they can be subjected to regulation.
This is the reason we will direct our work to a decentralized exchange.
A decentralized system is a network that isn’t managed by any central authority and has no point of failure. This is different from traditional platforms where any transfer of value is controlled by a centralized institution.
To make things clearer, let’s talk about credit cards. If you buy something by using your credit card, transactions are checked directly by the credit card issuer and executed.
In the blockchain system, any central authority would check the transaction, cutting costs and providing improved security.
Transactions will be checked and confirmed by miners, through a sophisticated system of algorithms that no one can hack or manipulate.
The problem is, despite the decentralized and trustless nature of digital currencies, the majority of crypto trading takes place on centralized exchanges, which are subject to fraud and hacking.
The final solution: the Eidoo ‘trustless’ decentralized exchange
A decentralized exchange can provide an alternative solution when it comes to dealing with digital assets and offer the ultimate way to trade digital currencies.
The main reason why decentralized exchanges offers a superior method is that it can leverage the Blockchain technology.
An exchange built on the blockchain is ‘trustless’. This means that there is no need to trust a single party to handle transactions, so it will be impossible to create a fake transaction.
Eidoo will provide the ideal model
Using the Lightning network technology the Eidoo decentralized exchange will be designed not to hold any funds: when a trade is started, it is only between the buyer and seller, so there is no need to trust a central platform like in the case of using a centralized exchange.
Eidoo decentralized exchange features
- It will always leave you in total control of your funds: funds will never leave your wallet until the exact time of conversion;
- Order book is broadcasted by a peer-to-peer network like the Lighting Network;
- Order matching will be executed only if the order conditions are respected;
- The conversion will directly happen on the blockchain thanks to a technology called atomic swap: no order cannot be stopped at an intermediate level;
- No central authority can control it;
- It is not subjected to regulation;
- It cannot be manipulated or hacked;
- No front-running possible.
These are a few reasons why we need decentralized exchanges — not only to trade digital currencies in a safe and secure way but also to address other issues that continue to come on foot.
We see a bright future for decentralization, and we want to be part of it.
*as you can read on the official Eidoo roadmap here, the hybrid exchange will be delivered by the end of 2017.