Bitcoin is a digital currency (cryptocurrency) and a worldwide payment system. Since the first block was mined in 2009, Bitcoin has gradually grown into becoming the most popular cryptocurrency in the world. By the year 2017, up to 5.8 million unique users opened cryptocurrency wallets and majority of them were Bitcoin. Its adoption and acceptance by mainstream partners is also notable. As early as December 2014, Dell, PayPal and Microsoft were accepting Bitcoin payments. Bitcoin has also become an investment option for many with it being the hot topic of many water coolers. This has led to some speculation of a pump and dump, but the crypto market has remained strong with many long term holders of he currency. People now buy Bitcoin and hold onto it, Some see it as a means to protect their assets from inflation by backing it with a global decentralized currency. In 2013 Bitcoin was named the best investment by Forbes. I bet many would see the same type of validity now here in early 2018.
For everyone dealing in Bitcoin, exchanges are as vital a part as any in the process. Exchanges are places or forums where your Bitcoin can be exchanged for other currencies, crypto and fiat alike. Using these exchanges, Bitcoin can be exchanged for other digital currencies or even standard national currencies. The exchanges may convert your cryptocurrency wallet into a prepaid ATM card that could be used to withdraw money worldwide and could also accept money orders and credit card payments in exchange for cryptocurrency. This means that Bitcoin can be purchased using the exchanges.
Digital currency networks are decentralized. That is one of the major strengths they possess over fiat currency. Digital currency is described as having a decentralized network because transactions on it are done directly between users without a central administrator or third party. It is a peer to peer network which basically means that tasks and resources are shared between equally privileged participants. These participants are both consumers and suppliers as opposed to the client/server model of traditional banking. Interestingly enough, the decentralization of Bitcoin digital currency has had little impact on the scale of exchanges. Exchanges, ironically, are still mostly centralized.
Centralized exchanges are places where users store their cryptocurrency while trying to exchange it. They are mostly easy to access and provide advanced trade options. Even with top cyber security one of the major weaknesses of centralized exchanges is that the central feature allows it to be easy prey for hackers. This leaves your investment at potential risk.
Bitfinex lost over $70 million to a hack. This cost is passed to the end user (us) before bankruptcy. That means thousands of users lost their investments and potentially their savings if they were irresponsible. This proves to be a great example of the risk of using centralized currencies.
Another disadvantage of centralized exchanges is the fact that they are regulated by government policies. This has been shown to be a great disadvantage by the situation in China where cryptocurrency exchanges have been completely banned. Centralized exchanges are also prone to collapses and operational failures.
The increasing shortcomings of centralized exchanges are leading to a need and increase in popularity for decentralized exchanges.
Decentralized exchanges can be defined as exchanges that enable you conduct the swap of your currency without any third party involvement. Neither are you required to store your Bitcoin on the service. The transaction is peer to peer and is handled by an automated processor that connects the two of you.
Benefits of Decentralized Exchanges
1) Privacy - Decentralized exchanges protect the privacy of their users. Personal details are never required except bank transfers are involved and then the details are only between the users transacting.
2) Security - The system is more secure as funds are kept in the users personal wallet and not in the central system where security is then dependent on a third party.
3) Nodes - The risk of server downtime is totally eliminated as the hosting of decentralized exchanges is distributed through nodes.
4) Global - Decentralized exchanges are available to anyone on the internet in any part of the world and require no form of user verification. This increases the speed of transactions.
There aren't as many decentralized exchanges as there are centralized. The high security risk now associated with centralized exchanges has led to an increase in demand for decentralized exchanges. Below are some of the best decentralized Bitcoin exchanges available right now.
This is a decentralized exchange for Bitcoin and other major cryptocurrencies. It is an anonymous peer to peer network requiring no names, emails or any other personal details or verification. Bitsquare does not hold on to any of the users funds and its interface is easy enough for even a novice to understand. Using Bitsquare, the whole process from placing the order to executing it is completely decentralized. Bitsquare supports more than 120 currencies. It can be used to exchange Bitcoin for fiat currency or other digital currencies.
This is an exchange system created by Open Ledger block chain and is highly decentralized. To open an account all that is needed and asked for is a username and password. No other personal details are required. Open-ledger dex also uses Bitshare's grapheme technology to facilitate its services. The daily volume on open-ledger dex is estimated to be $3 million in trading volume.
This exchange makes use of the peer to peer network this there is no deposit of cryptocurrency or fiat currency. Users are also not required to identify themselves or pay high fees for transactions on the platform. Their promotional material describes them as the bit torrent of bitcoins. If you know anything about Torrents, you know that files are decentralized as you download from hundreds of thousands of CPU’s that host minute file sizes. Essentially you make thousands of individual peer to peer connections through an anonymous network. Coinffeine is a lot like that. You find one of these anonymous peers and purchase their cryptocurrency in exchange for fiat/crypto or whatever you agree to on a peer to peer basis.
This is a decentralized financial platform based on the Bitcoin block chain that enables users basically exchange assets for the Bitcoin. The asset is called the 'user created token'. When it is issued, it is held in escrow until the buyer makes a manual Bitcoin payment using a counterparty wallet. Asset for asset exchange is also enabled on this platform.
Stashcrypto is an extremely fast platform based on signed receipts. It is based on Open-Transactions financial cryptography and is used with Bitcoin. It only requires a signature as identification and it stores no history except the last signed receipt. This platform solved a lot of digital finance issues as it protects the user's balance through the required signature which is necessary to validate transactions.
More decentralized exchanges are being developed and soon centralized exchanges might become a thing of the past depending on how things play out.