Cryptocurrency exchanges who is to blame and what to do?
Cryptocurrencies are the last and most successful attempt of mankind to rethink the concept of money. Money on the blockchain is the blue dream of anarchists, libertarians, and Jacklondon characters. After all, they allow people to really own their money and not depend on intermediaries and regulators in carrying out financial transactions.
At least, this should work in theory, and in the course of primary experiments everything really worked out successfully. Problems began to arise after the solid entry of blockchain technologies and cryptocurrencies into human life. Human greed and carelessness laid bare the thin spots of the technology that is gaining popularity.
Where it is thin, there it breaks
The technology proposed by Satoshi Nakamoto copes with the declared postulates (exclusion of intermediaries, decentralized control, complete transparency of operations), while all operations are carried out inside the blockchain. But as soon as the need arises to go beyond the blockchain and interact with the outside world, the user again falls into the harsh and dangerous world of traditional market relations, where no consensus algorithms protect him.
The most obvious and striking example is the conversion of cryptocurrencies. The exchange of some crypto assets for other or national currencies is carried out outside the blockchain, and the more expensive bitcoin is, the more demand and the less network users are willing to trust each other. Small forums, personal meetings - all with which the crypto community began, have long and irrevocably sunk into oblivion.
Demand creates supply, and the emergence of large trading floors has become a matter of time. Given the huge number of tokens released to the market monthly, effective trading without the help of an intermediary has become almost impossible today.
Curse of cryptocurrency exchanges
All traders know that cryptocurrency exchanges are a monstrous, but absolutely necessary evil.
The main value of the cryptocurrency is that in the blockchain system, the user really owns his money, and, without knowing the private key, no one can do anything with his wallet. To trade on the exchange, the user voluntarily transfers the money for storage to the same intermediary, a third party that Nakamoto did not like. And this is fraught with sad consequences.
Centralized exchanges are vulnerable to hackers, they can go bankrupt, they are completely opaque, and the exchange management can do anything with user funds - from freezing accounts to trivial theft. There are a million ways to lose money that are on the exchange.
Starting in 2013, when large exchanges began to burst (for example, Mt. Gox) or lose a lot of money (Bitstamp, Bitfinex), users thought about the advisability of maintaining this system forever.
The first experiments on the decentralization of exchanges began even earlier with projects such as NXT and Openledger. But these decisions were too self-contained. Attempts to create truly decentralized exchanges were unsuccessful, since their non-commercial nature did not allow supporting a sufficiently fast and multi-functional trading engine or providing clients with access to such basic tools as loans or margin trading.
So, traders have to put up with centralized exchanges because of the inefficiency of decentralized exchanges. Despite all the positive features of decentralization, the latter simply could not compete with the former in the free market.
A look into the future
Centralized exchanges will not go anywhere for a long time. But it would be logical to expect a hybrid solution that combines the advantages of centralized exchanges, which are private commercial entities, and decentralized, truly “cryptan” solutions.
Today, such a solution is offered by the Expread team.
Expread is an ecosystem project that plans to create a decentralized framework for countless online exchanges united in a single network.
“Our platform is a hybrid model that should combine the advantages of decentralized and centralized infrastructures for the exchange of cryptocurrencies and their inherent control mechanisms,” says Tamar Menteshashvili, co-founder of Expread.
Combining the strengths of both approaches, Expread is going to provide both functionality and a high-performance engine, as well as high security against hacking, transparency of operations and protection of user money from the arbitrariness of individual exchanges.
Centralized private exchanges will still exist inside the Expread ecosystem, but they will all be integrated into a single network and use a single order book, a trading engine and a liquidity pool. According to the developers, this will allow the entire ecosystem to receive certain benefits.
“The Expread liquidity model will allow us to use market depth to get the synergies from the combined liquidity pool,” said Carlos Gao, Expread co-founder.
A single pool of liquidity and a low entry threshold (all code has already been written, it remains only to think over the financial and marketing components of the new project) will allow any user to open and maintain their own exchange node.