Are Decentralized Exchanges Really Decentralized?

In this post I want to talk about decentralized exchanges based on the bitshares platform. Are they really decentralized? I think it depends on which part of the exchange we're addressing. These exchanges are built on the bitshares platform which is arguably a decentralized blockchain. However, these exchanges write their own gateways to convert the actual cryptocurrency or currency or asset, to tokens on the bitshares platform, so people can trade them. This means that these exchanges have full control over the client's funds.

From what I've noticed, with regulations ramping up and kyc creeping through cryptocurrency exchanges, the demand for decentralized exchanges is increasing rapidly. However, the concern remains that these exchanges are not immune to these regulations as recently CryptoBridge for example, started demanding KYC from its US clients. Also, the demand for decentralized exchanges is not just because of these regulations, or concerns over privacy, but also due to the risks involved in trading or trusting your funds with exchanges which can lead to loss or hacks as we've seen before.

What if people could actually trade peer-to-peer in a trustless manner with literally no fees? That would be fantastic wouldn't it? But let's get real. I don't think anything is trustless. Even blockchain or Bitcoin or any other cryptocurrency is not 100% trustless. You still have middle men known as the miners for example. You could argue that such systems are trustless because the middle men don't have 100% control over the network individually, but rather only powerful if they collude with each other. That would be a very valid argument and it would make blockchains more attractive. Now I have an idea for peer-to-peer trading with almost no fees that would also be arguably trustless.

In my idea, traders would use a multisig address to escrow one side of the deal. To put it simply, a multisig address is one that anyone can send coins to, but depending on how it's setup, more than one person must agree before anything can be sent out of the address. This multisig address would be created with 3 keys and would require 2 keys to spend. The 3 keys would come from the buyer, the seller, and also the middle man. In this method, the buyer and seller can spend from this address without needing any help from the middle man. What's the use of the middle man then, you might ask? The use of the middle-man is to make sure no one tries to scam the other. Say for example, if a buyer or seller does something dodgy, the victim can then contact the middle man, and use the middle man's power to recover his funds, perhaps for a small fee.

In this model, the middle man alone does not have any power since at least two keys are required to spend from the escrow. The buyer and seller alone also don't have any power for the very same reason. So this method is arguably trustless. The problem can arise from either the buyer or the seller, colluding with the middle man. However, if middle men are chosen based on their history and reputation, then the chances of traders becoming victims of dodgy middle men will be pretty low.

If you like my idea and want to p2p with someone, you can escrow Bitcoin, Litecoin or Dogecoin via the following pubkey which belongs to me; that is if you're okay with me being the middle man! Hopefully, you will never need me and you manage to p2p with 0 fees! But if anything ever happens, feel free to reach out to me and I will be happy to help you recover your funds for only 0.5% fee!

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Let me know what you think below!

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