Death to Crypto Exchanges, Long Live Bitshares Gateways
Cryptocurrencies represent an alternative method of trading assets and storing value.
Based on the foundation of Blockchain technology, users may experience transfer of funds, shares, properties and other assets in a decentralised manner free of censorship, government intervention and service outages.
However, purchase of these cryptocurrencies is often done with fiat currencies, in which online Exchanges broker trades between cryptocurrencies, often Bitcoin for local fiat currency, e.g. United States dollars.
Demand for cryptocurrency has grown throughout the world creating individual Exchanges to service these customers each of them with individual
- Market pairs, e.g. BTC/USD, ETH/USD
- Order books
- Crypto currency wallets
- Bank accounts
- Authentication methods
- KYC auditing
- Attack surfaces
The more Exchanges created, the more overlap of these essential services, providing virtually the same function to their customers yet vastly different experiences including
- Different order books resulting in different prices
- Methods of crediting accounts, crypto or fiat
- User interface for buying/selling
- Market pairs, e.g. Powerledger tokens available on one exchange but not another.
- Trading fees.
- Accepted fiat currencies.
- KYC authentication and distribution.
These differences often confuse and hinder users from doing simple functions slowing down adoption not only cryptocurrency but Blockchain services in general.
Saturation of markets also creates fragmentation of liquidity, prices as well as opportunities for arbitrage, whether the work of an arbitrageur is seen as good or bad, the act relies on multiple Exchanges with discrepancies between prices.
With over one hundred Crypto exchanges around the world, large amounts of resources are spent repeatedly on the building, securing and marketing a variant of something already built.
In 2013 Mt.Gox was the leading Bitcoin Exchange in the world processing 70% of all Bitcoins worldwide before 850,000 Bitcoins were lost, valued more than $450 million.
BitShares is an existing Decentralised Exchange (DEX) based on its own BitShares DPOS Blockchain run by the BitShares Decentralised Autonomous Company, issuing its own currency of value the bitshare (Note the lowercase b).
BitShares offers trade of crypto assets with minimal fees, fast transactions and cryptographic-based identity.
Given it's Blockchain nature, assets granted to user accounts are not recorded via traditional client/server frameworks but by a distributed Blockchain via DPOS.
Offering the majority of traditional exchange features with higher security, a lower barrier of entry and competitive pricing, BitShares alone lacks the ability to directly accept fiat currencies as a deposit.
One of the features of BitShares is the User Issued Asset (UIA). Users may issue crypto tokens representing practically anything, e.g. shares, ownership of property, gold, etc.
This unique feature allows trades of greater magnitude offered by Exchanges today as more individuals and companies adopt BitShares as their exchange.
Comparing to the old model, three functions served by a traditional exchange are
- Accept deposit and withdrawal of fiat currencies via bank transfer and credit their Exchange account accordingly.
- Allow the user to trade their fiat for cryptocurrencies with other users of the Exchange.
- Accept deposit and withdrawal of cryptocurrency from the Exchange to users online wallets.
A BitShares Gateway does one of these three functions
- Accept fiat currency via bank transfer and issue a User Issued Asset (UIA) to that user which can be traded.
Jane deposits $100 via bank transfer to Contoso Inc which issues her 100 CONTOSO.USD. Jane trades these tokens for BTC from people who'd like to use her 100 CONTOSO.USD to get $100 USD in cash.
Market Pegged Assets
One of the dangers of trusting a BitShares Gateway is that it can become insolvent, making the UIA's worthless.
BitShares offers an alternative to this by offering Market Pegged Assets, these represent real-world assets backed by 1.75 times their value in bitShares.
This allows users to buy assets such as
These currencies have a common consensus in the Bitshares community of being worth their 1:1 value. With this, UIA assets issued by the gateway can be traded for their MPA counterpart. In this case, bitUSD can be traded for UIA tokens.
Adoption of this valuation can lead to huge potential of trade, commerce and the stability of fiat currencies offer compared to cryptocurrencies volatility.
More gateways penetrating the market will create competition for other gateways to lower fees and pressure on Exchanges to turn into gateways themselves, creating a simpler, cheaper and safer market for everyone.