Decentralized Cryptocurrency Exchange (DEX) was a new buzz word in crypto space after infamous Mt. Gox scam and massive expansion of crypto market pf 2017. Yes the same year witnessed two heavily contrasting side of the crypto truths.
The year 2017 marked the appreciation of the cryptocurrency market from a meagre $18 Bn to around $572Bn. This is a whopping 32 times multiplication or a 3100% growth of crypto market. On account of this milestone, 2017 will likely go down as the year that put crypto on the map.
But, sadly that is only a part of the story. The year 2017 also witnessed highest no. of attacks by malicious hackers over the entire year. Hackers feasted on system vulnerability everywhere from exchanges to wallet services to ICO funds. And the total cheats amount to somewhere around $500mn. If you add up all the major hackings pre-2017 hackings the figure goes to $12.5 bn to date. Thanks to Bitfinex Bitstamp and most infamous Mt. Gox breach.
South Korean exchanges viz. Youbit and Bithumb were the worst hit by the malicious attacks. Parity Etherium Wallet and Tether Treasury wallet were the victims in wallet sphere.
Why Would You Want a Decentralized Cryptocurrency Exchange(DEX)?
If you are in crypto market for any while, you know that all major exchanges of today are centralized. So, the exchanges which suffered victims of getting hacked was no wonder.
And, the obvious reasons for victimization is the convenience to common users which the centralized exchanges offer. Which is there but at the cost of security. Decentralized Exchanges for Cryptos are only logical and scientific solution to all this uninvited catastrophes.
How do centralized exchanges function?
To understand the contours of a centralized exchanges you need to understand in what manner they function as centralized.
First, they do the asset management on behalf of commoners like a bank. One step ahead, they keep your fund in two forms hot wallet (online) and Cold wallets (offline).
Second, they manage their data and infrastructure also in a centralized manner. Control of their infrastructure is through a single source.
For instance, large exchanges use to outsource server space to a single point third party. This only means that the servers are localised.
Hackers take advantage of flaws of Centralized Standards
To any hacker accessing through a single point third party hosting server is not that difficult. And once having made entry, hackers could easily get hands on your hot wallets reserves and private keys.
Not to say, the centralized exchanges are equipped with many state of art security features. But, the recent incidents of thefts and breaches do only show that these security features are not foolproof.
Honestly speaking, the security measures available for centralized exchanges cannot secure them against malicious actors.
And the major reason for all this potential security risk is the way, they function to deliver.
Hence the Decentralized Cryptocurrency Exchange
For so many obvious flaws with centralized protocols, we need decentralized exchanges. Their server is not centralized instead, distributed over nodes. Further, they pick to work on altogether a different slack. The centralized exchanges cannot pick the same slack because of their inherent model of functioning.
So, given these all favouring elements, the decentralized cryptocurrency exchanges can by far offer several security advantages.
Decentralized Cryptocurrency Exchange have edges over Centralized
Decentralized exchanges in their ideal behaviour are trust less arrangement with no intermediary. This means users are always in control of their assets and all the trades are peer-to-peer. As the DEX are moving into Atomic swaps you can experience total control of yours. Since, the SegWit was implemented with Litecoin and Bitcoin, the incorporation of Lightening Network become a feasibility. These all things together are transforming our need of DEX in place a cherished reality.
No Central point of control in Decentralized Cryptocurrency Exchange
Contrary to the centralized counterparts, the DEX are not dependent on localised servers. Their server is distributed over network of nodes instead. Their marketplace too, is not controlled by single entity. Instead the users and participant themselves do this together. This makes entry of hackers highly difficult. To have an access to the data, the hackers would require to a large no. of nodes which the experts assume is not possible.
No Central funds on the Decentralized Cryptocurrency Exchange
Funds within DEX are user controlled, meaning custody of funds is not a single point access. Since, there is no singular entity that owns a DEX, there is also not a one-spot opportunity for hackers to sweep away your privacy. Decentralized Exchanges at their primitive state use Etherium- powered smart contracts. Once funds are locked into a smart contract, only the engaging parties with the corresponding private keys can claim the funds. Nobody else can do.
Contrary to this, under a centralized system, the moment you relinquish your private keys, they are all pooled into a single ledger. This common ledger also reflects the exchange’s hot wallet reserve. So, there is always a risk of getting your funds swept away, if a hacker gets its hands on these keys.
Under the DEX arrangement, you do not require to handover your private keys to anybody. This all has a big time positive bearing on your privacy. This means that your assets are safe under Dex smart contract until, you hand over the private keys to a malicious actor on your own.
Decentralized Cryptocurrency Exchange (Dex) are compliant with hardware wallets
Apart from cold storage, hardware crypto wallets are the safest options for storing and managing your cryptocurrency. On that note, DEX come in handy because they can easily be integrated with hardware Wallets.
DEX, such as Ether Delta and IDEX can sync up with popular Ledger Nano S or Trezor hardware wallets.
Impervious to malware, the hardware wallets are by far the safest devices to store your crypto.
So, the interesting part is here. Choose the DEX that are hardware wallet compatible and get it synced with your wallet. You can now send your fund directly into smart contracts and receive from, as well.
Not only that, you also enjoy an additional security against phishing and keylogging attacks by syncing. These potential remain out there when you enter your private keys manually.
The Decentralized Cryptocurrency Exchange has its challanges
The Decentralized cryptocurrency exchange (Dex) in existence are far from being ideal. Most of the Decentralized Currency Exchanges are not fully decentralized. They are in an intermediate state of being operated. More or less role of intermediaries is still there. Precisely, they are semi decentralized currently.
They are not user friendly yet. The use of decentralized cryptocurrency exchange has learning curve. To the commoners it not easy to deal with DEX. Beginners may get overwhelmed with the maze of smart contracts while trading. Since, you have to transfer funds back and forth from your personal wallet to smart contract which is not without a caveat. So, it does not seem user friendly at least now.
Additionally, the foolproof security with decentralized Cryptocurrency Exchange is still a space to watch.
For instance, EtherDelta reports that they’re still prone to phishing attacks through the exchange’s domain name server.
Decentralized Cryptocurrency Exchange is in the making
There are however a number of projects that are working day in day out to make the decentralized Exchange a living reality. Both, on the count of easy usage and foolproof security as well.
Atomic swap is one of the revolutionary concept that are being tested for off-chain & on-chain transactions. This technology promises to be safe, fast and user friendly too.
The Atomic Swap enabled decentralized cryptocurrency exchange is the future as experts opine. This revolutionary DEX uses SegWit enabled Lightning network for faster delivery.
Projects like 0x, BarterDEX, Blocknet Lykke are pioneer in working towards decentralized cryptocurrency exchange currently.
We at cryptocrypto101.com, believe that with innovations in action crypto ecosystem will shortly be touching the lives of common people. An ideal Decentralized cryptocurrency exchange would be able to transform the general perception of the masses which is skeptical. More because of the incidents under centralized standard of crypto economy.
Speak your mind below in comments and consider sharing the information in larger interest of community.
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