What faster blockchains mean for your trading experience
With a multitude of exchanges available to buy and sell shares and cryptocurrency, it helps to have an understanding of the different models behind the exchange.
The majority of trading, crypto or shares, happens on centralized exchanges, where you do not have control over your funds once they have been deposited.
This model is susceptible to hacks; both the crypto hacks where funds are drained, and traditional finance infrastructure hacks, like the 2010 Nasdaq hack. The centralized exchanges are incentivized to cover up the hack in order to maintain the image of reliability to their customers.
A traditional way to run an exchange is an order book model, which enables traders to pay or receive the exact price they want. This order book model works best in a centralized exchange environment, as it performs best when the trading volume is concentrated.
POWR is available in centralized order book exchanges, such as Binance and Kraken and others.
As cryptography has developed, decentralized exchanges have become possible, where you no longer have to deposit your funds in order to trade, and instead of trusting centralized record keeping you trust code. Making it a lot easier to keep your funds secure.
However, order books on decentralized exchanges are not without problems as lower overall trading volume means that orders may not get executed.
Not getting your order executed is of course a fatal flaw in the eyes of a user, so decentralized exchanges created the pool model. Where orders are not matched against each other, but each order is executed against the pool that is made available for all users.
POWR is available on exchanges with the pool model, such as Uniswap and Bancor.
Pool based decentralized exchanges solved the issue of having to deposit your funds (as in the centralized model), and the issue of orders not being matched (as in the order book model), but it has its own issue of not always getting the exact price you wanted, particularly for less traded assets.
Looking back it would seem that all models to date have their shortcomings.
Fortunately, technological barriers to optimal market design are being quickly eliminated, and we may see decentralized order book markets with some pool functionality come to dominate in both cryptocurrency and traditional finance.
And it gets better. Previously, order placement on-chain was cost-prohibitive, resulting in only partial decentralization. With the development of cheaper and faster blockchains, full decentralization will become possible, with both order matching and order placement on-chain, offering unprecedented transparency.
Powerledger actively explores new blockchain developments, for both the listing of the POWR token and the technical advantages that they bring to our product suite.
Written by Anya Nova, Blockchain & Staking Operations Lead.
Recipient of the 2019 Australian Blockchain Leader of the Year, Anya works as the Blockchain Development & Staking Operations lead. Anya has presented at premier blockchain and energy conferences, including Consensus in New York, Event Horizon in Berlin and World Energy Congress in Abu Dhabi. At Powerledger.