Are Decentralized Exchanges the Hero We Need Right Now?


With continuing complaints about the many exchanges operating today and new concerns about insider trading on Coinbase,  many depositors yearn for a trustworthy alternative. Although concerns about such exchanges have been apparent in the crypto sphere since the historic Mt.Gox hack,  the public’s patience with them appears to be at an end.

For many investors, the classic exchange model simply isn’t working for them anymore. They are told to relinquish ownership of their currency by sending it to a centralized exchange, an inviting target for hacking and phishing sites via fake Google ads pages. Then they come to realize that their funds are often at the mercy of exchange operators if they decide to make a withdrawal. And during periods of high traffic, they experience incredibly long delays in making such withdrawals.

Review one of the larger exchanges’ subreddits and you’ll notice a multitude of users complaining about lost or missing funds and unresponsive support personnel. Not infrequently, users must contend with months of uncertainty and nervous waiting about whether they will see their hard-earned money again. Unfortunately, depositors have little leverage over such unresponsive exchanges.

Even security safeguards appear to be unhelpful. Exchanges that require users to provide KYC (Know-Your-Costumer) verification may lock a user’s account if they do not respond quickly and accurately, at times. Such actions occasionally lead to users losing all their funds in these instances. This protocol is also used prevents users from certain countries from using particular exchanges, as they are subject to the laws of the country in which they are registered. However, uneven enforcement of this protocol provided China with the excuse to ban all of its domestic exchanges.

Perhaps most troublesome of all is how frequently users must wait for pending identify verifications. This is particularly the case when investor volume surges dramatically, as has happened in the last few months. Once exchanges and support stuff become overwhelmed with new demand, a growing backlog of pending verifications is all but inevitable. Frustratingly, this scenario often leaves many investors unable to buy and sell during critical trading times. 

At present, high demand for the popular exchange Bittrex has motivated it to close new user registrations. And high demand for Bitstamp and Coinbase has left users waiting several days to have their identity verified.  When trading volume spikes, many exchanges are forced to temporarily shut down their operations for maintenance (even during peak traffic times). Unfortunately, increased demand means that every popular exchange is practically DDOSed during times of big price movements. This can sometimes lead to dramatic losses for traders, as not all orders are allowed to go through and it becomes impossible to cancel buy or sell orders. Indeed, traders left unable to rectify such issues can only watch in horror as their investment plummets. This famously happened to traders on the world’s largest and South Korea’s leading exchange Bithumb, leading them to organize a lawsuit against the exchange.

The centralized exchange model appears wanting in several respects. It takes ownership of funds away from the investor and yet fails to be fully secure or trustless (Fears of an exit scam are omnipresent). And since these exchanges can no longer handle the increasing volume of traders, they’re susceptible to crashing at critical trading times. 

These ongoing concerns encourage investors to move their coins off an exchange as soon as they are purchased. However, this can also prove difficult at times as exchanges must regularly update their wallets, a process that sometimes takes months to complete. Worse yet, traders suspect exchange owners are getting rich from ridiculous trading fees.  These concerns are reinforced when an exchange retains an absurdly high percentage withdrawal fee for currencies that have dramatically risen in value.  So, it is apparent that the current model is obsolete, but what can even be done?

What are Decentralized Exchanges?

A decentralized exchange (or DEX) is nothing more than a smart contract designed to enable trustless peer-to-peer trading via already existing wallets. With a DEX, coins only leave your wallet when they’re traded directly to another user from his or her wallet. This cuts out the middleman and makes the entire process much more streamlined.  Traders are no longer at the mercy of an exchanges’ support staff and no longer have to worry about where their coins reside. They no longer feel compelled to register on a new exchange simply because they have no other options.

Decentralized exchanges like Radar Relay, Waves DEX, BitShares, NXT, CounterParty, and others are hustling to provide the best user experience in the crypto marketplace. However, they must overcome a variety of issues. Consider EtherDelta, a highly popular DEX platform that runs on the Ethereum blockchain. EtherDelta is simply a smart contract, that allows you to interact with it using your wallet to deposit Ether or any ERC-20 token you wish to trade, and then trade it with other users using a rudimentary UI, without market and stop orders and without order matching,  However, new users can sometimes confuse the amount and price-per text boxes, leading them to pay a large amount of ETH for a fraction of a single token.

Along with being very user-unfriendly, decentralized exchanges rely on an underlying protocol that is can slow transactions. Being an added layer, this underlying protocol can make EtherDelta completely unusable, especially in times of higher traffic on the Ethereum blockchain (like during ICO funding times or the CryptoKitties debacle).  This occurs when hundreds of pending transactions exist and/or the order book is not actively updating.  Unfortunately,  EtherDelta has also been a target of hacking attempts in the past, Indeed, during the writing of this article, EtherDelta was actually compromised again. Users who were logged into the exchange at the time had their wallets emptied of all belongings.

Decentralized exchanges that wish to succeed must seek to provide greater transaction speeds and greater security along with a friendly user experience and a fiat gateway. Thus, it is obvious that the first to solve this problem stands to gain the most and usher in a new era of truly decentralized trading, the badly needed next step in the evolution of cryptocurrencies.


The XTRABYTES™ X-CHANGE: A New Trading Ecosystem

“X-CHANGE will be the XTRABYTES decentralized cryptocurrency exchange. Built directly into the wallet, X-CHANGE will allow users to have a trusted, decentralized, and totally secure p2p exchange at their fingertips. To provide proof-of-concept the first tradable pairing within X-CHANGE will be XBY/XFUEL.”

So, if XTRABYTES succeeds, it aims to become the fastest and most secure exchange on the market, and thus the perfect candidate to provide a better-decentralized exchange for the future, and with their own X-CHANGE, one of the first modules to go live on the platform, they aim to do just that. It is their 10,000 transactions per second and state-of-the-art quantum proof SHA-512 encryption protocol, with the plan to add a fiat gateway in the future, that makes them the perfect candidate and prime contender to build the next Coinbase of decentralized exchanges.

Read more about X-CHANGE here.

Would you like to know more?

We don’t just publish articles, XTRABYTES™ is a whole new blockchain platform that allows DApps to be programmed in any language, utilizing a new consensus algorithm called Proof of Signature. In doing so, XTRABYTES™ presents a next – generation blockchain solution capable of providing a diverse set of capabilities to the general public.

You can learn more on our website where you can also help to spread the word through our bounty program and get rewarded in XFUEL™, or join our community and hop into the discussion right now!

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