Decentralized trading platforms have seen an increase in demand because of privacy concerns and security. Currently the most popular decentralized exchange is Ether Delta. The exchange is a good resource for those seeking deals after an ICO has ended because it’s usually the first place an ERC-20 Standard Token will go after an Initial Coin Offering (ICO) has ended. For those who are newer to Cryptocurrency, ERC-20 simply means a Token was built for Ethereum. According to Wikipedia, ERC-20 defines a common list of rules that an Ethereum token has to implement. Giving developers the ability to program how new tokens will function within the Ethereum network. The biggest complaint that Ether Delta users have is the user interface. It’s not a fast exchange and can be behave buggy. The other problem with centralized exchanges are that you are putting your trust in the owners of the exchange. Over the years, many exchanges have been hacked and Bitcoins stolen from it’s users. One of the most famous incidents was of Mt. Gox which at one point handled over 70% of Bitcoin transactions worldwide. Over 744,408 BTC were claimed to have been “lost” in 2014. This of course lead to a drop in the Bitcoin price and also started a chain of doubt in centralized exchanges.
“We had weaknesses in our system, and our bitcoins vanished. We’ve caused trouble and inconvenience to many people, and I feel deeply sorry for what has happened.” – Mark Karpeles CEO (2014)
Mt. Gox was not the only place where people had their Bitcoins stolen, it has happened again and again from multiple exchanges. The biggest conflict is storing one’s Cryptocurrency under a centralized organization who controls your Bitcoin, and submitting multiple forms of ID which contradicts the philosophy of why Bitcoin or other Cryptocurrencies even exist.
The Rise of Decentralized Exchanges
In the summer of 2017, 0x was introduced and backed by big names in Silicon Valley including executives from Coinbase which is currently the world’s largest Bitcoin bank and where the mass adopters go to buy Bitcoin, Ethereum and Litecoin. The Initial Coin Offering (ICO) was launched in August 2017 and was assisted by identity App Civic and raised $24 Million Dollars. It was also backed by Polychain Capital, Pantera, Blockchain Capital, Fintech Blockchain Group, and Jen Advisors. 0x also partnered with projects like Augur, Aragon, Maker, and MelonPort. Aside from 0x, another decentralized exchange ICO was launched called Kyber Network which raised $60 Million Dollars in just 2 days. Interestingly, Kyber was one of the first ICO’s with a stringent KYC (Know Your Customer) process which required an ID or Passport to be scanned along with a personal address to prove they do not have citizenships in countries like the United States. While the decentralized space does have a bit of competition, there is much room for improvement and we are seeing that with different solutions such as instant trades through liquidity reserves and partnerships with Crypto banks. In 2000, at the beginning of the mass adoption of the internet, many people began to use Napster and Limewire which were a P2P file exchange, usually movies or music. I predict we are going to see an explosion of Decentralized Tokens trading, and all sorts of projects reach exponential levels and this is why we will see a number of Decentralized trading platforms emerging. It is possible that 0x will be the go-to place, or at least a very popular place to trade, but I would not write off any other projects under development now, such as Kyber Network and others that have no launched yet. Let us not forget that the rise of Google came from the ashes of Prodigy, Altavista, AOL, etc.
The Mechanics of 0x
0x, the first major decentralized exchange Initial Coin Offering will be examined a bit more. 0x will be focusing on ERC-20 Standard Token trading. They will be a platform which other projects can build on top of the network, and this can allow for massive expansion. The following projects have already begun: Ethfinex, Radar, Paradex, The 0cean, DYDX, MelonPort, Maker, Dharma, Lendroid, District0x, Aragon, Blocknet, Status, Augur, Open ANX, Auctus, Request Network, Ethix, KinAlpha, Amadeus, Decent Ex, Dextroid and many other projects are in development and planning stages. One of the key features of 0x is what’s called “Off-Chain Relay” and “On-Chain Settlement” this means that orders are transported off-chain reducing gas costs, and Blockchain congestion. Relayers help broadcast orders and collect a fee each time they facilitate a trade. This is open source, and any organization can build their own Relayer. The exchange is Trustless, with no centralized point of failure. Trades are settled atomically and without counterparty risk. Liquidity pools can be aggregated with a standard API. 0x will also enable the following features: Decentralized Governance, using Tokens to represent ownership and guide governance logic, Prediction Markets, Decentralized Loans, and Fund Management. According to their Whitepaper, 0x governance will be a Multi-Signature contract that will be used “until a more sophisticated DAO is developed.”