The next evolution in Crypto Trading

The revolution of emerging blockchain technologies has been shifting from legacy models and habits to embrace the paradigm shift. The most significant aspect of blockchain is that it is decentralization, which allows for a trust to take place, distribution of ownership and removes the necessity for third party arbitration.

It is a fact that money is now flooding into the cryptocurrency market with the market cap increasing from 17 billion US$ to more than 500 billion US$ in 2017 alone. That is more than 200 fold increase in 2017. Several major catalysts are contributing to the move to decentralized cryptocurrency exchanges also known as DEXs.

DEXs are known to be superior in security and provide instant account creation. In their current state of development, they are said to lack liquidity and their user experience and user interface are still immature compared to their centralized counterparts. The more liquid there is in the market, the less volatile and price manipulation, making DEXs vulnerable at this stage. At the moment, investors are still walking a tightrope between friction and fluidity hence causing pains

To learn the importance of this kind of shift and what it means, one should seek to understand how centralization affects the investment ecosystem and explore the development steps needed for DEXs to reach their full potential. Centralized exchanges are platforms that allow investors and traders to buy and sell and exchange cryptocurrency against fiat or other crypto assets. Traders deposit funds and then exchange issues on an IOU that is freely tradeable on the platform.

Centralized exchanges are now on the high for people with fiat currency to purchase cryptocurrency. These exchanges allow movement from fiat to crypto and have become a prime target for hackers who have siphoned billions of dollars. Exchanges which follow regulatory guidelines have lengthy registration processes which further hinder investment speed.

DEXs shift investments from a centralized third party, peer-to-peer transactions through proxy tokens or assets or multi-signature escrow system with other solutions that are being developed. This has allowed for investors to remain sole custodians of their funds rather than relinquish their private keys to centralized exchanges DEX benefits include elevated privacy, account creation and decentralized sever resilience hence ensuring that the infrastructure cannot be shutdown.

DEXs are the next evolution

If DEXs are the next evolution, why is it that there is only 1% market adoption? To start, the DEX concept is something that is brand new. As centralized exchanges proceed through their own market maturity lifecycle, decentralized services are only at the starting gate. DEXs are blockchain driven; account control resides solely in the hands of the trader. If they lose their private key, or make a mistake when entering a buy or sell order, then there is no recourse-liability resides exclusively with the account holder, and there can be no finger-pointing. In addition to all these:-

  • Margin lending and other more advanced trading options are not yet available on DEXs.
  • Miners can be able to see the blockchain transactions before they are cleared, resulting in front-running risk and market manipulation.
  • Fiat to crypto trading in DEXs will require the cooperation of banks which introduces a new centralized point of failure.
  • There is a chicken-egg effect at play, resulting in low liquidity. And since transactions happen on the blockchain itself, there may be issues of scaling pressure if the connected blockchains have not been architected well.

DEX developers are also facing so many challenges but it is good to note that they are swiftly moving in their progress. They are continuing to develop user friendly interfaces (UX/UI) and issues such as scalability; liquidity and front-running are being solved with new technology models such as relayers.

Progress is continuing and the momentum is slowly starting to shift to the direction of DEXs, which are the next evolution of cryptocurrency investment. Those who have their eyes open will move in full speed and capitalize on the decentralized nature of blockchains.

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