Centralized Exchanges could soon be facing elimination due in large part to atomic swaps or superconducting transactions.
With the seemingly countless number of centralized exchanges suffering hacks, unexpected shutdowns and seizures; the centralized exchanges, popular today for traders, have proven to be a massive single point of failure for cryptocurrency. Hackers and thieves consistently target these exchanges as well their users and will continue do so. As I have written in past blogs
, we need decentralized solutions for our decentralized currency. Atomic swaps are the gateway to our paradise. The key to unlock the potential of cryptocurrency and allow us, the users, to instantly exchange currency peer-to-peer (P2P) at our terms and without the need for centralized exchanges to facilitate the transaction. Enter Decentralized Exchanges (DEX) with Atomic Swap.
What is an Atomic Swap
So, besides the really cool name, what exactly is an atomic swap? Keeping it simple, this is the ability for two users to exchange cryptocurrency from different blockchains in a completely trustless manner. Each user will agree to terms before the transaction. Then both use private keys to sign a copy of the transaction itself. The exchange is performed instantly, with no transaction fees and removes the need for a centralized party or exchange service to complete the transfer on behalf of the buyer/seller. This allows a user holding Bitcoin to exchange with another user for NEO, as an example.
With the activation of Segwit, atomic swaps are now available for BTC and LTC. NEO has built this ability into their platform calling this process superconducting transactions (more can be read in the NEO white paper section 8.1
) and the first ETH/BTC atomic swap was recently completed by Altcoin Exchange.
The impact to Exchanges
We have seen a large number of DEX’s come and go since 2011 (roughly 26) with the primary reason for failure being the inability to quickly execute trades outside of the blockchain it was built upon. Some that have advertised themselves as having this capability have either hidden behind centralized back-end systems (like Shapeshift
) or have released centralized exchanges with a promise of ‘future development’ of a DEX (KuCoin
is an excellent example). The host of ERC20 token projects that have been released are also limited in scope to ERC20 token exchanges only as well (EtherDelta
a great example).
These limitations have resulted in very poor adoption and limited trading volume on DEX platforms. When given the option of instant (or near instant) trades, there really has been no viable option. At the rate coin values change, traders need the ability to instantly execute. It is the same reason purchasing a coin with naturally low trading volume is dangerous. You end up bag hodling. Provided users and traders adopt to P2P exchanges, liquidity is guaranteed and never reliant upon a central exchange — we remove the middle man and begin exchanging P2P, decentralized, just as our crypto was designed to be done so. Protocols and DEX projects are coming, and fast. Many, however, still rely upon central exchanges or charge fees so we must play close attention to how their protocol works (Loopring
is an example of such).
The projects that will win in the long-term are those open sourced projects that allow us, the users, to not only utilize their platform but also provide the flexibility for others to create and design their own ux/ui’s. That is how decentralization works. Build and design a product for all to use and allow US to decide if WE prefer your interface or would like to design another. Power back to the people, just as crypto should be. These projects will end centralized exchanges. Expect regulators to attempt to limit access as best they can in the name of ‘consumer safety’. However — how can you stop that which cannot be controlled? With no centralized platform or entity to track down, the protocol (once released) will be and will always be; provided the blockchain exists. That is the brilliance of DEX’s. DEX’s with atomic swap/superconducting transactions are, in fact, the future of all cryptocurrency trading.
With the introduction and successful atomic swap/superconducting transactions, the game is about to change — and DEX’s will become the future of all crypto asset trading. Centralized exchanges should be concerned. Regulators are suffocating them with regulations that result in a monopoly, kill upstart centralized exchanges and limit their ability to grow. Add the consistent hacks and phishing schemes, and trust in these exchanges are under consistent pressure. Seemingly a dying business model within the ever-evolving cryptocurrency/blockchain world.
I welcome these changes with open arms and await the DEX that both I and you deserve.
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