anonymous question

Well, at least someone is no longer asking why libertarians push for bitcoins, and is starting to ask rather specialized questions.

Why are exchanges needed

An exchange trader is the best friend of any cryptocurrency user because, in the hope of buying low and selling high, they provide the cryptocurrency system with the necessary liquidity; and the greater the liquidity, the smaller the difference between the buying and selling price of the currency (spread), the smaller the rate fluctuations (volatility), and, accordingly, the higher the attractiveness of crypto as a means of payment for goods.

A classic exchange (currency, commodity, stock — it doesn’t matter) is structured this way. The exchange acts as an intermediary that maintains a registry of assets in client accounts, provides the ability to place trading orders and close them with opposing orders, and, of course, to deposit assets into the exchange and withdraw them from it. The vast majority of cryptocurrency trading transactions and exchanges of cryptocurrencies for fiat are conducted on such classic centralized exchanges.

Naturally, any crypto-enthusiast starts to cringe at the mere word “centralized.” Moreover, these exchanges generally live up to their reputation: they are regularly hacked, with significant sums of money stolen from wallets, and there are complaints regarding possible market manipulation, fake volumes, and so on.

What is special about decentralized exchanges

Therefore, for several years, there has been a trend in the cryptocurrency community toward creating decentralized exchanges. At the very least, it is relatively easy to make an exchange hybrid: orders are processed on a central server, while private keys to the wallets remain in the hands of the users, and accordingly, all transactions are recorded on the blockchain. This is the principle on which, for example, Waves, the largest hybrid exchange in Russia, operates. But a question immediately arises: in which blockchain, specifically, should the transaction be recorded if I am buying, for example, ether with bitcoins?

What qualities must a blockchain possess to ensure the operation of a decentralized exchange? First, the blockchain must allow any tokens to be issued on its base. This is possible for the aforementioned Waves, Ethereum, and many others. Second, the blockchain must be as fast as possible. If blocks are written once every ten minutes, as with bitcoin, it’s not serious at all. The performance leaders today are blockchains based on the Graphene engine — from 3,000 operations per second, with new blocks written to the blockchain every three seconds. With such lags, one can already trade normally. Moreover, with such an engine, even exchange orders can be written to the blockchain, which means the possibility of creating not hybrid, but fully decentralized exchanges.

The oldest and most venerable Graphene blockchain is bitshares, but there are newer competitors, the full list of which is pointless to provide. I will only note the deex project, which is interesting for three things. First, based on the Graphene blockchain, not only a decentralized exchange is implemented, but also a decentralized messenger and a number of other tools. Second, its own network of ATMs is being launched, and bank cards are on the way. This, of course, no longer has anything to do with decentralization, but it has a huge impact on the convenience of the technology’s penetration into the masses. And third, one of the LPR members participates in the work on the project, and this is, of course, a strong reason to distinguish deex from the others.

And finally, about the downsides of decentralized exchanges

If you want to trade there using fiat, it won’t work directly. First, tokens corresponding to that fiat are purchased through a separate gateway, and then trading is conducted with them. As for how to exchange these tokens back into fiat — ask something easier. Perhaps the notorious deex will allow this in its ATMs, but in general, the problem is not solved. Therefore, the main niche for decentralized exchanges is the exchange of different types of crypto for one another.

As a result, volumes on decentralized exchanges are significantly lower, which means relatively low liquidity and a high spread.

And finally, high blockchain performance does not come for free. Instead of honest POW, as with bitcoin or ether, decentralized exchanges lean toward POS, as with Waves, or even DPOS, as with Graphene blockchains. Each new step that speeds up operation reduces the overall level of system decentralization, as it decreases the number of nodes verifying transactions.

So love the exchange traders; they take high risks — all so that we, simple users, don’t have to worry our heads with all these aforementioned high matters.

Especially since bitcoins for LPR-tyans can be transferred even from a regular bank card, without resorting to such complex tools as decentralized exchanges. Here, give it a try: 1A7Wu2enQNRETLXDNpQEufcbJybtM1VHZ8