Atomic Swap VS Centralized Exchanges

in cryptocurrency •  10 months ago

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Nowadays, cryptocurrency technologies are on top. It is enough to look at the statistics: the market capitalization is estimated in billions of dollars, the volume of transactions is growing, the cryptocurrencies is recognized by the governments. Looks pretty optimistic, isn’t it?

Transparency and decentralization of the crypto exchange without third parties has always been one of the main goals of blockchain technology. However, for today we have this situation: most of major crypto exchanges from the top of coinmarketcap.com are centralized.

At a recent “TechCrunch Sessions: Blockchain” conference founder of Ethereum Vitalik Buterin said:

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“I definitely hope centralized exchanges go burn in hell”.

Despite the fact that the audience reacted with a laugh and ovation, the monopoly of centralized exchanges leads to high security risks. Let’s take a look at reasons for Vitalik’s statement.

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All centralized crypto exchanges works on the same principle: they accept users deposits on their wallets and allow the user to exchange assets as part of the deposit.

Usually, the process looks like this:

  • User creates account, and verification is optional. Many exchanges have a restriction on the volume of trades and a daily withdrawal limit for unverified users (for example — Bittrex, Binance)
  • Deposit of funds to the exchange — for each user the exchange creates a separate wallet for each coin. If the exchange has a millions of users, then a million wallets will be created for only one coin. Some exchanges charge a fee for deposits (Bitfinex,CEX, Coinbase, Bitstamp)
  • The user creates an order to buy or sell the coin.
  • The exchange takes a trading fee for the executed order. After execution, the user can withdraw coins to an external wallet, if necessary.

So, user paid a withdrawal fee, the network fee and a service fee.

Pros

  • The ability to trade via trade bots.
  • A large liquidity for popular instruments.
  • Automatic execution of orders.
  • Friendly user interface.

Cons

  • The exchange is a centralized solution, unsustainable to hacker attacks, blocking from regulators and failures of server hardware.
  • Custodial solution: user sends his funds to the third-party management.
  • Week security: the exchange receives a user deposit and transfers it to the payout wallet and/or cold wallet. Therefore, huge amounts accumulated on a cold wallets.Scammers can take away 70 to 90% of users’ deposited funds by having access to a cold wallets.
  • Withdrawals may be delayed because of: legitimacy verification of transaction, maintenance of the payout wallet, lack of necessary assets amount on the payout wallet.
  • Trading is available by predetermined trading pairs, usually BTC / ETH / USD pairs. To exchange one coin for another user should make at least 2 transactions.
  • Withdrawal limits for unverified users.
  • Delisting unpopular coins.
  • Untransparent orderbook and possible falsification of trading volume.
    Examples: Bitfinex, Binance, Bittrex and many more.

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Since the early days of Bitcoin, cryptocurrency market has evolved into a sophisticated multi-blockchain phenomenon. According to coinmarketcap.com statistics, cryptocurrency market contains over 1,5K different currencies with exchange turnover of over 14 bln in dollar equivalent daily. In addition to coinmarketcap statistics, we should consider the volumes of intransparent and ​ unregulated peer to peer exchange market as well.

More than once have major exchanges experienced security breaches. One of the most disruptive failures was the Mt. Gox exchange collapse. It took the market up to a year to recover after the disaster. The list of the publicly known biggest failures for custodian-based centralized crypto exchanges would impress an unprepared spectator:

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The list is far from complete, but it gives a good picture of users funds security. On a good note, along the process of evolution, each new failure leads to new knowledge, a portion of which crypto professionals comprehend and evangelise in public nowadays in the following way: ​if one doesn’t have the keys to his/her crypto assets, they can be gone at any moment and this will be irreversible.

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Being on the way to achieving its mass adoption, the industry is expected to solve these issues only with a fundamentally new approach based on the idea of decentralization of digital assets exchange. As a reaction to the current challenges of the industry, Atomic project was created — a convenient and versatile decentralized solution for the custody-free cryptocurrency trading. Atomic Wallet platform is based on a unique, proprietary engine, specially designed to solve its specific tasks.

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Here’s the brief description of Atomic Wallet Atomiс Swap exchange. In the nearest article you can find detailed step-by-step manual!

  1. Create a wallet — registration is not required.
  2. Top up the wallet.
  3. Party A select an order from the BitTorrent order book.
  4. Party A enter an amount of coin to swap or coin to receive.
  5. Party A confirm the swap.
  6. Party B receives notification.
  7. Party B confirms the swap.
  8. First party and Second party’s Atomic Wallet checks the contracts.
  9. Both receive their coins!

Atomic wallet Atomic swap exchange pros:

  • No registration, verification.
  • Custody free solution.
  • Unlimited amount of exchange.
  • Fixed exchange rate.
  • Guaranteed by blockchains exchange or refund time.
  • Direct exchanges of one coin for another without intermediary pairs.
  • User to user exchange.
  • User friendly interface.
  • Anonymity.
  • Decentralized order book.
  • Serverless solution.

Atomic Wallet Atomic swap exchange cons:

  • Not all the coins are available for swap yet

We are truly believe that decentralized technologies will play an increasing role in the crypto-exchange market of future!

Try Atomic Wallet by yourself — https://atomicwallet.io/

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Vitalik Buterin correctly says! He is a gifted man!very informative article!