Exchanges: Is The Future Centralized Or Decentralized?
In the cryptocurrency sphere, we know most of the transactions done are on centralized exchanges. Binance is one of the largest and it keeps its expanding its reach.
This bodes the question is the future in centralized or decentralized?
Decentralized exchanges offered promise from the centralized entities that are standard in the present financial system. Bitshares was one of the first blockchains and was established to be a DEX for the crypto world.
Unfortunately, that did not take off. Nor have any of the other exchanges. Binance, Bittrex, and other centralized exchanges dominate the majority of cryptocurrency transactions.
One thing holding back decentralized exchanges is the fact that they were lacking ease of use. This could be changing as those platforms add more updates.
John McAfee opened up his McAfee exchange in an effort to give people the ability to trade any token. There is no KYC or AML required.
Centralized exchanges are required to get this since they can be shut down by regulators. In many countries, they need approval to operate.
It is rather odd that an industry that is comprised of, mostly, anti-establishment people, that the preference would be centralized exchanges.
One of the advantages they provide is the ability to link to the banking system. Since most people are in need of converting their crypto to and from fiat, centralized exchanges offer this service.
However, as we move more towards a crypto based model, transactions can take place without the use of fiat being involved at all.
That is what McAfee is counting on. His platform does not tie into the banking system at all. According to him, this is something that cannot be shut down by any government.
Right now, the centralized exchanges have all the power. Will that always be the case?
We will see how this unfolds over time.
Decentralized exchanges are trustless. Therefore, they have to rely on cross-chain atomic swaps, which are radically slower than centralized exchanges particularly in the case of PoW coins. A cross-chain atomic swap involves four on-chain transactions, two on both chains. Imagine trading Bitcoin for Litecoin using atomic swaps. A single trade could take over an hour. Goodbye high transaction volume. For PoS or DPoS chains the situation is much less bad but a lot of speed is still sacrificed.
OTC trading can to scale slightly better because you need only one transaction on each chain in a trading pair but it isn't trustless.
All valid pionts @markkujantunen.
The time of atomic swaps, especially on POW, makes it infeasible.
There is no clear "good" solution right now.
Actually, I realized I was wrong because trustless second-tier layers could enable day traders keep their trades off-chain for a day and move them on-chain at the end of the day. But I don't think the Lightning Network is ready for that, yet.