Since the beginning of the Bitcoin journey in 2008, we have seen drastic improvements regarding ease of access, awareness and development for digital assets.
Initially, money had to be wired to Japan before Bitcoin would be sent to you and the whole process could take a couple of weeks. Fast forward to today where you can buy cryptocurrencies instantly and securely, from exchanges such as Coinbase.
On the technology side regarding digital assets, we have moved from a one-layer currency (Bitcoin), to smart contract integration, allowing for tokens to piggyback on a blockchain (Ethereum had the first movers advantage here). This makes it easier for an enterprise to be able to progress onto the blockchain, without having to create one from scratch. Think of WordPress or Magenta; the frameworks are there, you just need to change the content and rules regarding what you want the project to achieve.
Now, there are thousands of different projects aiming to solve some sort of need. Supply chain, invoicing, privacy and asset management are a few examples of how blockchain aims to revolutionize different industries as we know them.
To transact between different digital currencies, assets and commodities, there are different exchanges available such as Binance, Kucoin and Bittrex. These are (currently) centralized, meaning that they are a third party, which act as a middleman between the transactions between buyers and sellers.
Issues Regarding Centralized Exchanges
- Intermediaries (middle man) take a cut from each transaction.
- You do not hold the private keys to any funds stored on an exchange, the exchange does. Trust is placed in the exchange, so that if the servers go down, an exit scam takes place or the exchange gets hacked, your funds will be compromised.
- If there are any regulatory issues, such as China’s decision to make foreign exchanges illegal, any decision to over-regulate transactions between cryptocurrencies or even ban certain digital assets altogether, exchanges will not be accessible. You could lose your funds, or you could get into trouble if the exchange reports your activity to authorities.
Decentralized exchanges allow for peer-to-peer transactions, removing the need for any intermediary that can allow for lower fees and faster transactions. Atomic swaps are currently being worked on, which will provide an instant inter-currency transfer with the click of a button. Liquidity will be guaranteed and in terms of security, the fate of your funds will be in your hands (wallet).
Our Top 3 Decentralized Exchanges
0x is currently an open protocol based on the Ethereum network. It is a collection of smart contracts which are open source which allow for the building of decentralized exchanges. On top of this, they aim to create their own decentralized exchange, with liquidity and order books. Holding ZRX will be useful for
- Paying exchange fees
- Casting a vote because they are aiming to create a decentralized governance for the protocol.
0x makes the list because of their viable and efficient method of decentralized exchange creation; off-chain order matching and on-chain trade execution. This can allow for large transaction volumes without congestion on the blockchain.
As well as being a decentralized exchange, is a platform for decentralized exchanges to be built on as well.
It is peer-to-peer, meaning that anyone can transact with anyone else (increased liquidity) and there are no intermediaries which have any control over your assets or transactions (trustless). One of the end goals for 0x is to allow for any Ethereum token to be able to transact efficiently.
Kyber Network (KNC)
Kyber Network, also based on the Ethereum Network, provides a highly liquid, best price and instant exchange between different cryptocurrencies and digital assets. Payments will be able to be sent in one currency and received in another.
Kyber is also trustless and decentralized and has similar benefits to 0x mentioned above, whilst also being partnered with projects such as Request Network; coined by some as ‘Paypal 2.0’.
Goods will be able to be bought and sold with KNC, with one example being ICOs; one can invest into an Initial Coin Offering with their Kyber Network Tokens, which would then be converted into the preferred payment of choice for the recipient (ICO), before the ICO tokens are sent to you.
There is no registration or verification process (for any of the decentralized exchanges on this list) which can be much more time efficient and easily accessible, especially for those in countries that have an oppressive attitude when it comes to blockchain technology.
Binance Coin (BNB)
Binance, which has made more money than Deutche bank in the first quarter of 2018, is planning to release a decentralized exchange this year (according to the founder, Zhao) to co-exist with their current centralized one.
The aim is to create a decentralized platform so that any cryptocurrency can be listed and exchanged.
Being one of the most reputable, popular and safest exchanges to date, the release of its decentralized platform could potentially propel the price of the BNB coin upward astronomically, because they already have the trust, success and brand awareness there.
There is room for a few different projects in this niche to flourish, because there is such a huge demand for safe and efficient transacting inter-currency across the blockchain. Catching an investment in its early stages can prove to be, and has proven to be in the past, a highly lucrative strategy.