Decentralized Exchanges: Really the Best of Both Worlds?


Historically, mankind has always relied on centralized institutions to safeguard their valuable assets and to conduct their transactions. This has always been a logical step as a centralized, specialized institution is far more efficient at keeping your assets safe than you are as an individual. This system has always been profitable to these central institutions, but there were rarely any available alternatives. The individual could not make large-scale decisions or keep their valuables safe as efficiently. These institutions have been met with critique for as long as they have existed, but this rarely changed the facts; they were in control. With the advent of distributed ledger technologies and their accompanying cryptographic currencies or tokens, we see this narrative changing. People no longer need to rely on central institutions to hold and control their wealth, access, and decision power.

However, the cryptocurrency space also knows its fair share of centralization. We all know the famous exchanges like Bittrex, Binance, and Coinbase. They are amongst the most popular places to exchange cryptocurrencies and bring together large amounts of buyers and sellers. They provide a much-needed service and hold a lot of value. For many people, an exchange like this is their entry into the cryptocurrency space, as well as their exit point. Not only does this give them a lot of control, it also creates a direct conflict between their business incentives and the decentralized values envisioned by the blockchain community.

Additionally, centralized exchanges are also a prime target for hackers. Centralized exchanges are profit-oriented companies that not only get revenues from their platform’s fee structures but can also generate all kinds of additional income streams through the aggregation of their customers’ data. The latter aspect makes a centralized exchange an enticing target for malicious actors. Cryptocurrency’s most famous hacks have provoked losses of billions in value (Bitgrail, CoinCheck). And in the worst cases, some can plague the cryptocurrency scene for years (MtGox). These hacks often occur because centralized exchanges do not give you the private keys to access your funds.

Additionally, centralized exchanges face a lot of pressure to be KYC compliant, which means you need to submit your identity documents and go through various other steps to use these services. This opens you up to another vulnerability: identity theft. Or all too often your information being leaked through a (human) error on an exchange’s behalf.

Of course, not all centralized exchanges will fail or err as described in some of the slightly exaggerated scenarios mentioned above. However, the risk of such events is catalyzing the emergence of decentralized exchanges. There are many decentralized exchanges in use or being built as we speak. Decentralized Exchanges, or DEX, introduce a novel method of exchanging value without relying on a central party. There is no requirement for e-mails, passwords, and you manage your own private keys. Additionally, their code is public and available for anyone to verify.

Because you simply interface with a DEX through your own private key you can withdraw and deposit at any time, and your valuables are not held in a central exchange encumbered with any of the weaknesses mentioned above. However, the reality is also that there are a few inherent limitations to DEX and that they are not a definitive alternative yet for most users. A DEX often has a poor user interface, poor to non-existent customer support, and sporadic volume. An upside is that due to their decentralized nature they often skirt regulations and legislation, meaning that a user will not have to go through lengthy KYC and approval procedures.

As mentioned before, there are numerous DEX and DEX protocols being built or already in existence. One of the more interesting players in the space is OmiseGo. OmiseGo is building their own blockchain, and it is designed to be an open and permissionless network belonging to all those using it. People using any of their products will transact with the OmiseGo blockchain, as well as the Ethereum blockchain. One of these products is their DEX. Their DEX will allow real-time value trading of any currency or asset on their network, making use of validator nodes that monitor network activity. This interoperability feature will be key for consumer DEX adoption.

OPEN is working with the OmiseGo Software Development Kit and will build the next generation of payment processing technology, using OmiseGo’s DEX technology. The OPEN Platform offers an API-oriented decentralized payment infrastructure that allows for easy cryptocurrencies integration into existing applications. It does so by linking the OPEN API to regular software, in a manner familiar to most developers, creating a “scaffold” or smart contract template that acts as a payment gateway and can easily be adapted to specific use cases.

The OPEN platform can support any payment scenario in enterprise environments, Software-as-a-Service scenario, video games and more, by providing the missing components applications need to accept cryptocurrency and the associated payment data. Any application payment scheme can be easily deployed, on any blockchain. The end result is a payment gateway integrated with existing and new applications, accepting any cryptocurrency with OmiseGo’s DEX technology.

The blockchain revolution will unlock trillions of dollars’ worth of potential, and decentralized exchanges will play a huge role on the consumer side. OPEN Platform drastically reduces the complexity for cryptocurrency payments integration and can thus give blockchain technology a significant adoption boost. Using OmiseGo’s SDK, OPEN will bring the best of the DEX world together with the best in payments. If you are interested to learn more about how you can contribute to and benefit from the ongoing revolution, join us at https://www.openfuture.io/

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