What is a DEX (Decentralized Exchange)?

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A Decentralized exchange or DEX is a type of a pair matching that allows users to trade cryptocurrencies and place orders. It’s without an intermediary institution controlling their funds or managing the ledger. Crypto excites people because it is a way to trade value directly. Blockchain allows strangers to trust each other without the need for a central institution.

It is an amazing technology with the potential to change the way we think about trade and structure our economy. Ironically, you have to use a real currency i.e. euros, dollars, yens or any other to enter the crypto ecosystem. This entry is usually done through a number of centralized exchanges like Coinbase or Kraken. To enter a decentralized ecosystem, you have to trust a centralized institution. It manages your accounts, takes your information and is vulnerable to hacks and slowdowns.

Image source: altcoin.io and https://www.cryptocompare.com/exchanges/guides/what-is-a-decentralized-exchange/

Basic Components

There are two basic components when talking about DEXs – centralization, and custody.

Centralization alludes to where is the order routing, matching, and execution. As the term alleges, all action takes place on a specific server using exchange software. DEXs operate on a computer network. Either directly on the chain through the use of smart contracts, or through second layer networks or trusted nodes. Around 98% of transactions take place on centralized networks. This allows some to judge this aspect as one of the most negative concerning crypto infrastructure.

Custody means that the exchange holds the ownership of the accounts keys. If you have coins in a custodial exchange, you do not own them until you have transferred them to an external wallet. In an instance of a hack, slowdown or any technical malfunction there can be serious problems of securing your assets. A non-custodial exchange acts as a service provider. It allows users to keep their coins in private wallets. Also, it helps them do transactions using verified open source smart contracts. The vulnerable point of this system is the time when assets are not in users’ wallets. 

Benefits of a DEX

DEXs offer a number of benefits to crypto users. The main one is free and direct trades, generally representing the main idea and mission of crypto. Centralized exchanges usually gather quite an amount of user data, including name, address and even bank account number. In theory, DEXs use only blockchain information, requiring only a public address. In order to comply with government regulations, even anonymous exchanges have to gather user location data. Some DEXs have tried to pose as open source software providers not liable for their users’ actions. Most of DEXs are non-custodial, giving users the responsibility for the safety of their assets. Existing on a network of separate computers, DEXs are exponentially more secure against hacking. This also means less chance for them to go down.

Top ERC20 DEXs

As you can see in the chart below, IDEX currently is the most popular exchange. However, this chart only represents the exchanges that operate with ERC20 tokens. DEXs like Stellar, Binance, Tron, and Waves native ones aren’t in this chart.

Source: https://etherscan.io/stat/dextracker

The current situation of DEXs

At present DEXs still face a number of drawbacks, being intrinsically more complex than centralized. Even the first steps are not user-friendly and can demand technical knowledge like software installation and configuration. Users typically can only buy and sell their assets, lacking advanced tools like options and margin trading. Only small volume deals with popular coins can be done, meaning low liquidity. High latency time on order processing and cancellation can lead to price changes and price slipping. This allows malevolent users with fast connections to jump ahead and make transactions before anybody else with the same intent.

Major technical problems

There are still some major technical problems that need solving before a move to complete decentralization can happen. It seems that a hybrid model could emerge. It would be with benefits from both – centralized (speed, liquidity, advanced tools) and decentralized (security, anonymity) features. Solutions like 0x protocol, Atomic swaps and Lightning could make the transition even smoother. The role of regulation is still unclear and perhaps governments will still collect KYC information, making true anonymity unreachable. The technologies being developed for DEXs will undoubtedly create a trend of innovations in the crypto world. It will help us to get closer to the dream of fast, anonymous, secure and cheap coin trading.

Source:

https://en.wikipedia.org/wiki/Decentralized_exchange
https://blockgeeks.com/guides/decentralized-exchanges/
https://medium.com/trivial-co/thoughts-on-decentralized-exchanges-and-real-world-usage-of-their-own-tokens-d0a6a16f5d3d
https://www.coindesk.com/why-a-decentralized-crypto-exchange-is-seeking-a-securities-license
https://blog.coinmarketcap.com/2018/09/06/decentralized-exchanges-101-all-you-need-to-know/
https://hackernoon.com/the-state-of-decentralized-exchanges-235064446ab0
https://blog.0xproject.com/a-beginners-guide-to-0x-81d30298a5e0
https://www.investopedia.com/terms/a/atomic-swaps.asp
https://www.investopedia.com/news/understanding-smart-contracts/

Photo by pixabay.com

The most successful Ethereum dApps

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One reason many experts think the Ethereum network has more potential for growth than other blockchain networks are dApps (decentralized applications). Dapps are software applications that run on a network and are not controlled by a centralized authority. Much excitement arises from the potential reliability of such technology because it is secured by a blockchain, thus making it more stable and harder to manipulate. Smart contracts backed by Ether can be included in the system. Allowing it to enforce its clauses and issue cryptocurrency tokens automatically. And this means that dapps have a potential to revolutionize most of established practices and industries. Whether this potential can come to reality, depends on factors like scalability of the network, quality of applications and their adoption rate.

This is a list of Ethereum dApps currently on the market:

Let’s try to have a closer look at some of the most popular and successful of them.

IDEX

The most popular decentralized exchange is IDEX, an exchange that does not rely on a central authority to store funds and allow trades. Users can trade between themselves Ethereum based tokens like Tronix, BNB, and OmiseGo. It stands out amongst other exchanges with the capability of trading in real time. Because it does not wait for the Ethereum network to process transactions before confirmation. Instead, smart contracts are used to process and enforce transactions, queuing them for transactions on the actual network in the order they were accepted.

DNN

Decentralized News Network distributes news that are verifiable and resistant to censorships. This dApp focuses on releasing factual information and eliminates biases with the help of a decentralized community. First, the writers generate and send in news content, which is then inspected by reviewers, and then the content is available for readers. Also, on each of these three steps, users earn tokens for their actions. Readers earn by suggesting topics and by finding errors in the published content. Reviewers get tokens for approved articles, and writers earn when an article gets published. Currently, DNN has over 300 writers, over 5,000 reviewers, and over 50,000 readers.

CryptoKitties

CryptoKitties is a game that allows users to breed, trade and collect unique and irreplaceable cats represented by ERC-721 tokens. In theory, such tokens could eventually represent any real asset, such as real estate or art. However, the game has attracted a lot of attention from players, imitators, investors, and non-users thanks to its initial popularity and by jamming the entire Ethereum network. Since its peak in December, its popularity has dropped down by almost 97 percent. We can argue about how decentralized this app is, as most users access it by one internet portal and it operates from a centralized database.

LocalEthereum

LocalEthereum is a peer-to-peer marketplace intended for buying and selling Ethereum tokens. Smart contracts are used to connect buyers and sellers to complete trades. A variety of mainstream methods can be used to make payments, including PayPal. The Ether is held in escrow until the transaction is confirmed. The dApp offers many advantages compared to centralized crypto exchanges. It has no access to users’ private keys, making it immune to typical hacks. I should point out that hacks on major smart contracts have occurred in the past as well.

Decentraland

Decentraland is a virtual reality where users can buy and sell virtual land with their ownership recorded securely on the blockchain. They also can improve and develop the land and monetize it accordingly. Some examples would be building a casino, underwater hotel or an educational enterprise. The game uses a custom Ethereum token called MANA, which can be used to make property deals and to buy content. Also, The dApp developers state that their product is limited only by their users’ imagination, promising soon to roll out custom items and even the ability to control the laws of physics.

There are a lot more exciting dApps on the Ethereum horizon, the main hindrance for their development is the high internal pricing, so-called gas fees. When the network is congested, the speed of transactions goes down, and the gas fees go up. The community is aware of this and steps are being taken for scaling up the network. Solidity, the programming language used for Ethereum, is gaining ground among developers, as more of them are looking for ways to create exciting dApps. From the middle of the last year, the number of dApps on the Ethereum blockchain has risen from 400 to almost 2000 currently, with this number expected to rise further, especially after a successful scaling.

Source:

https://goo.gl/qyw8kD
https://goo.gl/U5SKJY
https://goo.gl/wTyXdm
https://goo.gl/D6EBtv
https://goo.gl/ZaakNz
https://goo.gl/8btidg
https://goo.gl/YZJ341

Photo by David McBee from Pexels

Binance releases pre-Alpha of the decentralized exchange (DEX)

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In a recent tweet from @cz_binance which is the official account of the Binance CEO Changpeng Zhao, reads that Binance has released a pre-Alpha version of their new decentralized exchange called the Binance Chain. 

In a video which has been shared within the tweet, the Binance CEO explains that they anticipated a much longer development process. The exchange itself is still in a very early stage of development, so they like to call it more a demo than a pre-Alpha. CZ warns the users not to expect much from this release, but the ability to demo the issuing or creation of a token, listing it and trading it against another token on the decentralized exchange will be available.

Also on the video, Binance is showing the practical side of this, presenting how to do the token creation, listing and trading within the DEX.

These are the three most essential features of the new DEX, Binance Chain. As CZ already mentioned, not much is to be expected from this release, since in doesnt have a user interface (UI) yet.

Decentralized exchanges are considered as more secure than centralized ones, which are more vulnerable to hacks. Decentralized platforms are set up in a manner which allows users to retain ownership of their coins using private keys.

Source:

https://goo.gl/wrnes9
https://goo.gl/t7pW9Y