Much of the the worldwide groundswell of interest in digital currency over the past year has been funneled through major exchanges like Coinbase, Gemini, and Kraken. With their simple interfaces and mainstream-ready infrastructure, these centralized exchanges have brought billions of dollars of value to blockchain projects and digital currencies. The growth has been exponential — over 3400% in 2017 alone!
The list of centralized exchanges is long: Bithumb, Bitfinex, Bittrex, Poloniex, Kraken, GDAX, Coinbase, Gemini, just to name a few, but there are hundreds popping up all over the world. However, centralized exchanges are subject to a whole host of problems like hacking and scaling issues, and are beholden to a centralized perspective that does not fall entirely in line with the decentralized ethos of digital currencies and blockchain tech.
All signs point to an evolution in value transfer — decentralized exchanges — taking the lead in the cryptocurrency space in 2018 and beyond. Decentralized exchanges like SingularX provide a more secure and fair way for users to exchange digital assets for a whole host of reasons, and as the general public grows in blockchain savviness, we’re likely to see a move towards holders of digital assets wanting more control and security in their engagement with exchanges.
Amongst the most pressing issues with an over-reliance on centralized exchanges is security. Every week it seems, there is a new report of a major hack at a centralized exchange, with stolen amounts ranging in the hundreds of millions of dollars. This kind of hack is only made possible because centralized exchanges store vast amounts of users’ digital asset holdings in hot wallets that are susceptible to attack. Considering this threat, the decentralized model is preferable, as users get to maintain custody of their own assets and engage directly with a smart contract to exchange tokens with other users in a peer-to-peer fashion.
“Decentralized exchanges completely eliminate the need for a third party service to hold user funds in a centralized system,” says SingularX Product Manager Ruben Carrion. “Trading occurs in a peer-to-peer fashion through automated processes, without trading fees.”
“More importantly, funds belong to the users themselves — this is huge,” says Carrion. “In contrast to centralized exchanges (CEXs), where if a user deposits their funds, they are basically the exchange’s funds. Furthermore, since there aren’t any centralized servers to hack, there are no server downtimes or fear of a large scale hack.” Decentralized exchanges are essentially apparati upon which people can exchange, whereas centralized exchanges follow a model similar to a bank, holding custody over funds with limited oversight and the constant threat of hacks.
Security and privacy are key benefits of decentralized exchanges, but the ethical imperative of decentralization is also a driving factor. The movement of decentralization is somewhat at odds with the notion of one major entity taking control of millions of individuals’ assets.
Although the explosion in development of decentralized exchanges is encouraging and a sign of what’s to come, there are some drawbacks to decentralized exchanges (DEX’s), most of which are due to the early stage of their development. “Decentralized exchanges are fairly new to the cryptoworld, so there is a lot of potential that still needs to be discovered,” says Ruben Carrion. “DEX’s tend to be very bare bones, causing a very steep learning curve to new users, and there can be issues with speed and liquidity.”
Individuals who have now grown comfortable with the basics of blockchain should feel encouraged to experiment with decentralized exchanges. With this new technology comes a responsibility to get educated on how to be an engaged actor with the ecosystem. That’s why education plays such an important role in the SingularX and larger SingularDTV mission to create a decentralized entertainment ecosystem.
Here’s how it works: When artists, musicians, filmmakers, non-profits, and creators of all ilks tokenize their intellectual property via Tokit, they’re able to trade those tokens with many ERC-20 tokens from amazing projects, SNGLS, and ETH on SingularX, which is the decentralized exchange of the SingularDTV ecosystem. It’s a whole new model for creating value in the entertainment industry, and a huge opportunity for artists and fans all over the world.
Here are some great resources for getting up to speed on decentralized exchanges:
Record Crpyto Heist Raises Appeal of a New Type of Exchange (Bloomberg News)
Disclaimer: Users must be aware that the Smart Contract System concept and the underlying software application and software platform (i.e. the Ethereum blockchain) are still in an early development stage and unproven.
Users must also be aware that one must keep one’s password and private keys safe and that Users may not share them with anybody. Users must also be aware that if they lose their private keys and password, the ETH or tokens associated with the User’s Wallet may be unrecoverable and may be permanently lost.