Tag: DEX

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Crypto Guides

What should we know about DEXs & its benefits?

Introduction A decentralized exchange or DEX is referred to as a platform that eliminates the middlemen and allows traders to trade with each other directly. This direct approach allows traders to control their funds instead of giving them to exchange providers where trades are performed via smart contracts. These exchanges are hosted on a collected […]

Introduction A decentralized exchange or DEX is referred to as a platform that eliminates the middlemen and allows traders to trade with each other directly. This direct approach allows traders to control their funds instead of giving them to exchange providers where trades are performed via smart contracts. These exchanges are hosted on a collected […]

Introduction

A decentralized exchange or DEX is referred to as a platform that eliminates the middlemen and allows traders to trade with each other directly. This direct approach allows traders to control their funds instead of giving them to exchange providers where trades are performed via smart contracts.

These exchanges are hosted on a collected ecosystem of distributed nodes. This not only reduces the hacking risk but also addresses the problem of downtime that limits the trading ability. These exchanges are designed to extend an open, transparent network that makes crypto trading accessible to all.

What Makes DEX Different from Centralized Exchanges?

A Centralized exchange is also an online platform where people can buy and sell digital currency, but they use a third-party to authenticate and execute the transactions. This needs the buyers and sellers to entrust their funds to exchanges and allow them to safely complete the transactions.

These exchanges are known to be easy to use and enable traders to buy digital currencies with cryptocurrencies or fiat. They offer a streamlined entry point to the market and cover the majority of cryptocurrency trading.

Benefits of DEX

Following are the reasons we should think about trading in decentralized exchanges:

Control

In centralized exchanges, traders do not tend to have full control over their funds, limiting the trading potentials. Recently, the event known as Proof of Keys was run by centralized exchanges to ensure that exchanges could generate more profits on deposits, the same way a bank works.

This limited the users’ rights to withdraw all their funds in a single day.  The open nature of DEXs implies that our money remains in our control. Users get to withdraw their amount whenever they intend to.

Security

Centralized exchanges collect a massive amount of money from investors. This makes these exchanges the prime target of cybercriminals. Bitstamp and popular exchange based on Slovenia was hacked in 2015.

The hackers got access to the hot wallet and stole 19,000 Bitcoins, which was worth $5 million. And with the increasing number of trading in cryptocurrencies, centralized exchanges are becoming more vulnerable to hackers. Decentralized exchanges offer more security and, over the years, have become more common choices for crypto trading.

Privacy

Centralized exchanges are categorized as MSPs or Money Service Providers. This implies that users have to undergo certain anti-money laundering (AML) and Know-your-customer (KYC) processes. But people are often resistant to providing their personal information to third parties. This is because they end up having no control over what will happen to the data.

Decentralized exchanges, on the other hand, are not controlled by a central authority. Therefore, we do not need to register other than having a valid wallet address. Decentralized exchanges still remain a rather new concept in this ecosystem. But traders are rapidly comprehending its advantages over centralized exchanges.

Bottom line

Many new DEXs are coming in the market with better features, security options, and ease of use. When assessing these platforms, ensure to consider important factors such as security features, trading volume, currencies available, transaction fees, sign-up process, etc.

Categories
Cryptocurrencies

What’s Matic (MATIC) All About?

Blockchain tech has proven to the world that it’s a force to reckon with. It has powered thousands of cryptocurrencies that have shaken the finance world to the core. Multiple industries are scrambling to integrate the tech to benefit from the remarkable characteristics of decentralization, immutability, and radical transparency.

Blockchain tech has proven to the world that it’s a force to reckon with. It has powered thousands of cryptocurrencies that have shaken the finance world to the core. Multiple industries are scrambling to integrate the tech to benefit from the remarkable characteristics of decentralization, immutability, and radical transparency.

Blockchain tech has proven to the world that it’s a force to reckon with. It has powered thousands of cryptocurrencies that have shaken the finance world to the core. Multiple industries are scrambling to integrate the tech to benefit from the remarkable characteristics of decentralization, immutability, and radical transparency.

But despite the attention they have garnered, blockchain-based applications still haven’t gone mainstream. Even applications based on Ethereum, the most popular decentralized applications (DApps) platform, are yet to receive wide-scale recognition. Even in the case of the wildly popular CryptoKitties game, it was only a matter of time before the entire Ethereum network was almost crippled because it couldn’t handle the sheer volume of transactions. Scalability issues and not-so-friendly user experiences are partly to blame. 

The other problem is, for the few smart contract platforms that have managed to achieve high throughput levels, they tend to trade-off speed with decentralization. Also, most upcoming solutions create their own blockchains incognizant of the fact that platforms like Ethereum have already attracted a massive developer community. 

Matic is a Layer 2 solution that seeks to solve the problems facing blockchain-based applications through the use of sidechains. For now, Matic focuses on the Ethereum blockchain but plans to extend its offerings for other smart contracts platforms in the future. 

Let’s examine just how Matic intends to do this.

Understanding Matic

Matic is a platform that wants to solve the scalability and user experience issues of the blockchain, all while still letting decentralization thrive. Matic aims to achieve this through the following key features: 

  • Scalability: provide fast, secure, and minimal to low-cost transactions. 
  • High throughput: achieve up to 10,000 TPS enabled by multiple side chains for horizontal scaling
  • User experience: provide a smooth interface and provide native mobile apps
  • Security: Matic token stakers maintain and secure the network themselves
  • Public sidechains: Matic supports public and permissionless side chains (as opposed to individual DApp chains) that are capable of supporting multiple functionalities

Matic’s Value Proposition

Matic’s value proposition lies both in its technical approach and its variety of potential use cases. Let’s see how: 

#1. Matic utilizes a variant of MoreVP (More Viable Plasma). This framework facilitates protection for assets in the main chain, while generic transactions are secured by a proof-of-stake consensus mechanism. Matic sidechains can use the Ethereum Virtual Machine (EVM) and are thus capable of deploying solidity smart contracts, making it easy for Ethereum developers to use to scale their decentralized applications.

#2. Matic sidechains are capable of supporting the many decentralized finance (DeFi) applications running on top of Ethereum

#3. Matic’s core aim is to provide an enhanced user experience that’s unlike anything offered by today’s centralized applications

#4. Matic aims to support more base chains in the future, apart from Ethereum, as will be proposed by community members

Players of the Matic Ecosystem

The Matic ecosystem will comprise the following participants:

  • End Users 
  • DApps developers. These are the businesses that will take advantage of the Matic platform to offer a better user experience 
  • Stakers: Stakers maintain the security of the network through a proof of stake consensus mechanism with a two-thirds majority. Stakers will also elect block producers amongst themselves, according to certain criteria. Stakers must purchase Matic tokens to qualify for the role
  • Block producers: These are individuals who facilitate block generation. They are chosen by the stakers and have to purchase a significant stake to qualify for the role

The Matic Architecture

The Matic network features a three-tiered architecture that enables it to achieve its scalability and user scalability goals: 

  • The Staking and Plasma smart contracts on Ethereum
  • Heimdall (Proof of Stake Layer)
  • Bor (Block producer layer)

#1. Matic Smart Contracts

Matic runs a set of smart contracts on the Ethereum blockchain. These smart contracts carry out the following responsibilities: 

  • Managing staking functions for the proof-of-stake layer
  • Delegating various management roles, including validator shares 
  • Managing plasma contracts for MoreVP, including checkpoints for sidechains

#2. Heimdall (proof-of-stake validator layer) 

This is the PoS validator node that works together with staking contracts on Ethereum to facilitate the PoS mechanism on Matic. The Heimdall nodes are built on Tendermint, and they validate blocks, select the block producer committee, and so on.

#3. Bor (Block Producer Layer)

Bor is the block producer layer for the Matic network. Block producers are not permanent, but rather shuffled periodically in durations known as ‘spans.’ 

Potential Use Cases

The Matic network, with its goal to provide a scalable and user-friendly environment for users, will support various uses cases, including the following: 

#1. Payments 

The Matic network will facilitate payments in crypto assets for users, payment APIs, merchants. The network will first support Ether, ERC20, and ERC721 tokens, with plans to add more cryptos in the future.

#2. Atomic swaps

Via Matic smart contracts, users will be able to pay and receive payments in their preferred crypto token.

#3. Liquidity providers

Individuals and entities will be able to use the Matic network to exchange a variety of tokens for others by utilizing Magic’s 0x liquidity pool. For Fiat, the Matic team it’s planning to onboard Fiat liquidity providers in major currencies.

#4. Decentralized exchange (DEX) 

The Matic network will support trustless, reliable, and fast crypto trades. The DEX offers better security and solvency as compared to centralized exchanges.

#5. Identity

The Matic network will support an Open-Identity system through which users can sign transactions without having to submit the private team for each single DApp. The system will provide users with control over their private keys. 

#6. Games

The Matic network will support the buying, selling, and trading of in-game assets on its multiple side chains. Developers will get access to a fast, efficient, and secure platform to experiment with various games. 

#7. Infrastructure

The Matic team believes in the mantra “simple and seamless.” For this reason, the network will offer a user-friendly app or structure with user-friendly crypto wallets for both users, user-friendly payroll dashboards, easy-to-use payment software development kits, and more.

Fraud Proofs

To enhance the security and integrity of the network, the Matic network implements Fraud Proofs on the mainchain. Using this mechanism, users can submit the details of any transaction that they suspect is fraudulent. If the transaction turns out to be indeed fraudulent, the stake of the transaction owner is slashed, and the user who submitted the proof is given the slashed funds as a reward. The Matic team considers this a sort of ‘perpetual’ bug bounty program that can help to incentivize good behavior among network participants.

How Does the Matic Token Fit In?

The MATIC token is the native utility token of the network. It plays the following roles in the ecosystem: 

  • Participation and proof of stake consensus. For network participants to be chosen as block producers, they must stake Matic tokens.
  • As a unit of payment by developers who wish to create DApps on the Matic ecosystem
  • As payment of staking rewards to PoS stakers 

The MATIC Token Distribution

The MATIC token was distributed as follows:

  • 3.80% went to the private sale
  • 19% went to the Launchpad token sales
  • 16% went to the team
  • 4% went to advisors
  • 12% was reserved for network operations
  • 21.86% went to the foundation
  • 23.33% was reserved for the running of the ecosystem

Tokenomics of MATIC token

As of July 28, MATIC traded at $. 0.020814. With a market cap of $77, 987, 502, it was the 97th largest cryptocurrency in the world. The token has a 24-hour volume of $27, 493, 973, a circulating supply of 3, 746, 869, 854, and a total supply of 10 billion. MATIC’s all-time high was $0.045017 (May 21, 2019), and its all-time low was $0.003012 (May 09, 2019). 

Where to Buy and Store Matic

You can purchase MATIC from any of several exchanges, including Binance, BitForex, BitMax, Poloniex, HitBTC CoinDCX, WhitBit, Folgory, Coinone, Omgfin, CEX.io, Cat.Ex and Oasis Exchange. 

For storage, the Matic team provides the Matic Wallet available for iOS and Android. Third-party options include Trust, MyEtherWallet, Atomic Wallet, Ledger, and Trezor. 

Final Thoughts

Matic wants to provide scaling solutions for smart-contract platforms through the innovative combination of sidechains, the Plasma Framework, and the PoS validation mechanism. Instead of trying to reinvent the wheel, Matic focuses on already working solutions that will complement its approach. The large developer community on Ethereum will find the Matic solution quite useful and timely. 

Categories
Cryptocurrencies

What’s Waves All About?

Blockchain empowers people, organizations, and other entities to realize faster, more transparent, and trustless processes. But this is not just what the tech can accomplish. In fact, the tech was brought to life so it could support cryptocurrencies, which, in a nutshell, is internet-based, cryptographically-secured, and decentralized money. Thousands of blockchain-based currencies exist today. 

Blockchain empowers people, organizations, and other entities to realize faster, more transparent, and trustless processes. But this is not just what the tech can accomplish. In fact, the tech was brought to life so it could support cryptocurrencies, which, in a nutshell, is internet-based, cryptographically-secured, and decentralized money. Thousands of blockchain-based currencies exist today. 

Blockchain empowers people, organizations, and other entities to realize faster, more transparent, and trustless processes. But this is not just what the tech can accomplish. In fact, the tech was brought to life so it could support cryptocurrencies, which, in a nutshell, is internet-based, cryptographically-secured, and decentralized money. Thousands of blockchain-based currencies exist today. 

But away from ‘mainstream,’ full-blown cryptocurrencies such as Bitcoin, the blockchain can support tokens for more humble purposes such as loyalty tokens for businesses, small-scale ICOs, and even crowdfunding. 

Waves is a platform that’s harnessing the power of blockchain to do just this. And it’s already successful in this niche, with a few high-profile applications. One of these is Burger King, Russia. The fast-food chain has created a loyalty token known as Whoopercoin based on Waves. Another is American politician Larry Sharpe who created a WAVES token – Sharpecoin for his 2018 campaign. 

What’s Waves? This guide tackles that question and more. 

Understanding Waves

Waves is a blockchain-based platform that allows anyone anywhere to create their own token. Whether you want a community-centered token, loyalty program, an in-game currency, there are no limits on the type of tokens you can create on Waves. 

Waves was created in 2016 by Sasha Ivanov with the goal of bringing blockchain-powered tokens closer to the people’s reach. The platform is equipped with token-building kits that are highly functional and easy-to-use. With the platform, Ivanov envisioned a world where anyone, individuals and organizations alike, can access and interact with the blockchain.

How Does Waves Work? 

Waves operates based on three core pieces of software:

  • Custom application tokens 
  • A decentralized exchange
  • Smart contracts 
#1.Custom Application Tokens (CATs)

The Waves platform exists mainly to facilitate the creation of tokens. CATs allow you to do this. You can create a token on the web or through a mobile app available for both iOS and Android.

You can buy, sell, trade, exchange, and transact with Waves-based tokens. Tokens created via the platform may not have as much applicability as tokens created on a more ‘sophisticated’ platform such as Ethereum, but they are infinitely easier to create, and besides, you don’t have to have any developing knowledge. This simple to use quality of  Waves makes it ideal for purposes such as in-app tokens, simple Initial Coin Offerings, and loyalty reward schemes.  

#2. Decentralized Exchange (DEX)

Decentralized exchanges are ones that are not overseen or controlled by any particular authority, with transactions being peer-to-peer. DEXs thus eliminate most of the shortcomings associated with centralized exchanges. 

Not only are DEXs more secure, but they are also more private as you’re not required to provide any personally-identifying information – as it is with centralized exchanges. Also, the exchange cannot arbitrarily freeze your funds or limit how many trades or withdrawals you can make.

Waves’ DEX utilizes an automated mechanism to pair buy and sell requests, streamlining the process for everyone involved. In February 2020, Waves announced the launch of a Fiat gateway that will enable users to purchase crypto with debit and credit cards.

#3. Smart Contracts

The Waves platform added a smart contract functionality to the platform in September 2018. The functionality enables users to create multisig addresses, freeze tokens, carry out atomic swaps, and create customized voting mechanisms. The smart contracts use a proprietary coding language known as RIDE. Unlike the Ethereum platform that requires gas for smart contract transactions, Waves charges a minimal fee -which is more upfront. 

Waves’ Two-tier Architecture

Unlike, say, on Bitcoin, nodes maintaining the Waves network do not need to download the whole blockchain. Instead, full nodes update the rest of the nodes (also known as lightweight nodes) on transaction verifications. 

To ensure trust between the two types of nodes, Waves utilizes the Scorex platform, a modular blockchain framework through which lightweight nodes use the current network state achieved by full nodes. 

A Leased Proof-of-Stake (LPoS)

LPoS is a modified version of the traditional proof-of-stake consensus mechanism. In LPoS, token holders lease their balance to full nodes, who create new blocks and receive rewards. They can then share these rewards with leasing nodes, who are rewarded according to their amount of stake – which is the total amount of tokens they leased. 

Leasing costs 0.002 waves. To run a full node, you need at least 1,000 WAVES. This requirement is a downward adjustment from the former minimum requirement of at least 10,000 WAVES. If you wish to become a full node but do not have 1000 WAVES, you can lease coins from other participants in the network. 

Miner Reward Token (MRT)

As a block creation full node, you earn miner reward tokens (MRTs) along with your WAVES rewards. For the first 70 blocks that you create in a day, you earn 60 MRT, and 30 MRT for every block you produce after that. MRT is a token created for the Waves platform. You can also exchange it for other tokens in the in-house exchange.

What’s the Market Look Like for WAVES?

As of June 14, 2020, WAVES is going for $1.20, and it ranks at #59. It has a market cap of $122, 385, 397, a 24-hour volume of $35, 098, 740, a circulating and total supply of 102, 199, 780. The token had an all-time high of $18.07 (Dec 19, 2017), and an all-time low of $0.122684. 

Buying and Storing WAVES

You have two ways to acquire WAVES. One is by purchasing it from exchanges such as Binance, Bittrex, YoBit, BitMart, LATOKEN, P2PB2B, BitHumb, Huobi, Kraken, IndoEx, Paribu, and YoBit. While you can do so using Fiat in some of the exchanges, others require you to first purchase a proxy token and swap it for WAVES. The other way is to use the in-house DEX to exchange any of the supported tokens for WAVES. 

For storage, you can use the WAVES’  lite wallet supported on the web, iOS, and Android. It is strongly recommended not to store your funds in an exchange since not only are they in the danger of being hacked, but also you do not have full control over your funds, as it should be. Other options include Trust Wallet, Atomic Wallet, Guarda, and Ledger. 

Final Words

Waves brings the power of the blockchain to the people, providing infinitely easy ways to create your own tokens. Whether you’re looking to create a crowdfund, a simple voting mechanism to decide where to go for a holiday, or a loyalty token for your customers, anything goes. 

Its addition of a smart contract functionality puts it right up with the likes of Ethereum, NEO, and other popular platforms. Individuals can also exchange crypto on Waves in a safer and uncensorable way, all while maintaining their anonymity. If Waves continues adding more value to users this way, the platform will continue to grow in popularity. 

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Crypto Guides

What Should You Know About A Cryptocurrency Exchange?

Introduction

Introduction

Introduction

The cryptocurrency exchange is a place that allows trading cryptocurrencies through a trading platform. These are platforms where people can exchange one cryptocurrency for another one, and even for fiat currencies, for that matter. Their operation is very similar to a traditional financial exchange. The cryptocurrency exchange’s primary operation is to allow the buying and selling of digital assets as well as other assets (fiat currencies). Note that digital cryptocurrency (DCE) is another reference to a cryptocurrency exchange. These exchanges can be like a stock exchange or a currency exchange.

Cryptocurrency Exchange Explained

As mentioned, these exchanges are similar to traditional financial exchanges. To clearly understand this, we may bring out the differences between the crypto exchanges and the conventional exchanges. I a cryptocurrency exchange, buyers, and sellers trade based on the current market price of the cryptocurrencies. Here, exchanges play the role of the middleman. Just like on the stock market, there is some fee charged on each transaction.

Some exchanges deal only with cryptocurrencies, while others that deals with the exchange of both cryptocurrencies and fiat currencies. For example, in these exchanges, you can trade the US dollar for Bitcoin.

Cryptocurrencies are typically unstable in terms of value and sourcing. For instance, cryptos like Bitcoin have been under major dispute events where the value of Bitcoin changed dramatically in a very short time, or incidents where the major exchanges went down due to thefts and frauds.

Talking about the most popular and reliable exchanges, Coinbase’s GDAX (AKA Coinbase Pro) is an example of that. Also, there are exchanges run by third parties where there is a middleman, and  decentralized exchanges that mimic traditional exchanges like IDEX. In decentralized systems, trading is based on smart contracts and is not powered by a centralized third party system for the most of it. Trading with centralized exchanges will require a lot of information to be produced. However, they do allow the trading of fiat currencies. DEX exchanges, one the other hand, require lesser information but they do not allow exchanging of fiat currencies.

Classification of Cryptocurrency exchanges

Based on the exchange’s organizational hierarchy and overall controlling bodies, we can classify them as Centralized Exchanges and Decentralized Exchanges.

The Working Of A Centralized Cryptocurrency Exchange

Since these exchanges are centralized, they are run by a third-party or other organizations. More like a bank for exchanging fiat currencies. Here, the middleman takes control over whatever the assets are being traded on the network.

The Working Of A Decentralized Cryptocurrency Exchange

A decentralized exchange (DAX) is a cryptocurrency exchange which operates without the existence of a third party, or a central authority. In simple terms, decentralized exchanges allow peer-to-peer trading of cryptocurrencies. However, there have been signs that these exchanges have been suffering from low trading volumes and market volatility. And to solve this issue, protocols like 0X, Stellar, and Bitshares are being implemented.

Top Cryptocurrency Exchanges

There are several crypto exchanges to from, but not all have the features and technicalities. Below are the exchanges we have listed out by considering factors like user-friendliness, accessibility, security, and fees.

  • Coinbase
  • Kraken
  • Poloniex
  • Bitstamp
  • Coinmama
  • Bitsquare
  • Binance
  • Bitbuy.ca

These exchanges and many more are discussed in other articles, and you may find them here. So watch out this space for more great crypto content.

 

Categories
Cryptocurrencies

What is the ZRX Token?

Cryptocurrencies have stirred the financial space in a way that more and more people want to jump on this economic bandwagon. As the newest asset class, cryptos are overtaking other securities in an unprecedented fashion. But this is where we have a problem. For people to join the crypto revolution, they have to go through centralized exchanges. These exchanges, however, come with their own set of issues.

Cryptocurrencies have stirred the financial space in a way that more and more people want to jump on this economic bandwagon. As the newest asset class, cryptos are overtaking other securities in an unprecedented fashion. But this is where we have a problem. For people to join the crypto revolution, they have to go through centralized exchanges. These exchanges, however, come with their own set of issues.

Cryptocurrencies have stirred the financial space in a way that more and more people want to jump on this economic bandwagon. As the newest asset class, cryptos are overtaking other securities in an unprecedented fashion. But this is where we have a problem. For people to join the crypto revolution, they have to go through centralized exchanges. These exchanges, however, come with their own set of issues.

Enter decentralized exchanges (DEXs). DEXs, in which traders transact directly with each other, are fast becoming popular. 0x is one of the most high-profile of these types of exchanges, and it allows users to trade ERC 20 tokens via its native token, ZRX. In this guide, we’ll dive deeper into the 0x project, how it works, and the ZRX token and how to get your hands on it.

What is 0x?

0x is an open protocol designed to facilitate the peer-to-peer exchange of Ethereum tokens on the Ethereum blockchain. 0x was formed by industry experts Will Warren and Amir Bandeali in 2016.

The two envisioned a future where all kinds of securities, including stocks, precious metals, etc. could be traded as tokens publicly on the blockchain. 0x is created to be different from both centralized and decentralized exchanges and thereby provide the best combination of both their features.

It also seeks to solve problems that arise from both types of exchanges. Let’s begin with the issues facing centralized exchanges.

☑️ Susceptibility to Hacks

Centralized exchanges will always be prone to hacking attacks. Mt. Gox, Bitfinex and Binance are only some of the examples of centralized exchanges that have been hacked for Bitcoins worth millions of dollars. 

☑️ Subject to Mismanagement

Centralized exchanges are regulated by people who are fallible and prone to human error. The example of Mt.Gox is an exchange whose fate was caused by mismanagement.

☑️ Volume problems

Centralized exchanges often have trouble dealing with a sudden increase in demand. For instance, a sudden surge in demand for Bitcoin in November 2017 caused some exchanges to temporarily halt processing transactions while others experienced downtimes.

☑️ Subject to Regulatory Whims

Centralized crypto exchanges are registered in countries. This means they must play by the rules that the government of that country wishes to enact.

0x’s Technology and How It solves these, plus DEXes’ Problems

Decentralized exchanges rely on smart contracts for trading of ERC tokens. However, the sheer proliferation of tokens on Ethereum’s blockchain presents the problem of confusion and scalability. At the time of writing, there are more than 200,000 token contracts on the blockchain.

0x’s whitepaper notes: “End users are exposed to smart contracts of varying quality and security with unique configuration processes and learning curves, all of which implement the same functionality.”

This has caused several problems for the network, including increasing transaction costs for the network. This means for crypto exchanges, transactions would be charged a specified amount of ether. Also, as the volume of orders increases, the costs of operating it increases as well.

Second, the numerous exchanges have led to a fragmented user base and with it, fragmented liquidity for the DEXs crypto market. 

0x’s technology attempts to solve this by combining two technologies – State channels and Automated Market Maker. State channels take transactions off the blockchain, therefore reducing transaction fees. Automated Market Maker (AMMs) are algorithms that conduct trades between two parties, while also acting as the opposite party in transactions.

0x relies on “relayers” to host the off-chain order book and connect buyers and sellers.

Having seen how the platform aims to improve the DEX model, let’s look at how it addresses the main issues faced by centralized exchanges:

  • It provides a more secure platform as there is no single point of failure, thanks to the Ethereum blockchain which is open-source, pubic and distributed 
  • It eliminates the possibility of a rogue or malicious exchange running away with people’s crypto funds
  • It eliminates the whims of governments or regulators  
  • It makes crypto trading an affordable endeavor for all types of traders
  • It makes it effortless to swap tokens on the blockchain by removing the high transaction fees associated with centralized as well as smart contract decentralized exchanges. It intends to do this by taking transactions outside of the blockchain

What is ZRX?

0x has its own Ethereum token, known as ZRX. The token is used to pay relayers for their services. However, 0x’s main intention for the token is to facilitate decentralized governance over the 0x protocol upgrade system. This means anyone who owns ZRX gets to have input – proportional to their holdings, into any upgrades the protocol may get over time.

How to Buy ZRX

The ZRX token is available on the majority of crypto exchanges, including Coinbase, Binance, Bittrex, Shapeshift, Poloniex, Changelly, KuCoin, Huobi, Coinswitch, Bitit, and Idex.

Being an Ethereum token, ZRX can be stored in an Ethereum wallet. Other options include MyEtherWallet, Exodus, Eidoo, and Ledger wallet.

There is a fixed supply of one billion ZRX. During its launch, 50% of the tokens were released to the public, with the 0x project retaining 15%, 15% going to the developer fund, 10% to the founding team, and 10% to the project’s advisors and early supporters.

The Problems With 0x’s Approach

0X is an ambitious project and one that could be the solution to both centralized exchanges and DEXes problems. However, some crypto experts assert that the ZRX token has no clearly defined purpose.

Also, the staking approach – in which the more ZRX you hold the more you can contribute to the project’s development, means that it can be hijacked by investors with large holdings – which does not keep up with the spirit of decentralization. 

Also, some experts contend that the business model is not sustainable. By having its platform open and free, the project might be foregoing revenue from trades and setting itself up for failure in the future.

Conclusion

The 0x project has its flaws, but the protocol is a promising proposition. It solves the challenges presented by centralized exchanges while improving the decentralized exchange model. Its flexibility, versatility and its free availability may very well catapult it to be the future of cryptocurrency exchanges. It’s going to be interesting to see how this project pans out in the future.

 

Categories
Forex Educational Library

Centralized Exchanges And Decentralized Exchanges

Introduction

In this editorial we are going to discuss decentralized exchanges, why they exist or why are they going to exist, what are the advantages, what aren’t people still using them, and we will have an overview of the current projects that are striving to solve these problems.

Centralized exchanges

Let’s start off with explaining how normal (centralized exchanges) work and what’s their purpose. This will serve as an introduction to the problem which decentralized exchanges tend to solve.

Centralized exchanges act as a third party matchmaker between a buyer and a seller of an asset. They are useful because they provide liquidity. What is also important is that this process of trading is speeded up by the convenience of having an account in which you have you deposited funds, which are held by the exchange.

What is liquidity?

>Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.

Market liquidity refers to the extent to which a market, such as a country’s stock market or a city’s real estate market, allows assets to be bought and sold at stable prices. Cash is considered the most liquid asset, while real estate, fine art, and collectibles are all relatively illiquid.

Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them. There are several ratios that express accounting liquidity highlighted below.

Source: investopedia.com

The most popular examples of centralized cryptocurrency exchanges are: Coinbase, Kraken, Cex, Bitfinex, Poloniex…

In the cryptocurrency market exchanges are often divided into two types: fiat-crypto gateway (BTC/USD, ETH/USD, LTC/USD…) and altcoins (BTC/ZRX, BTC/DNT, ETH/ADA…)

This is important to point out because later we will discuss some common problems associated with decentralized exchanges (DEX) that are caused by these points.

Decentralized exchanges

Unlike centralized exchanges, DEXs aren’t owned by anyone. Instead, they are constructed on the same distributed ledger technology as Bitcoin and utilize smart contracts for order execution. This is important to point out, as this means that they do not hold funds for their beneficiaries or any other relevant information regarding the identity or location.

Some common examples are: Etherdelta, IDEX, Radar Relay.

Problem – Solution

Centralized exchanges are charging high fees, which is something cryptocurrencies strive to eliminate. They can be hacked which happened numerous time in the past.  They have the ownership of your funds, which is something that’s not aligned with the advantages of cryptocurrencies in general (cryptos take pride in the part that people have control of their own money). Crypto-unfriendly governments can cut or ban their operations. For all the above reasons they are viewed as the weakest link in the cryptocurrency market ecosystem.

That’s why decentralized exchanges are offered as a solution to the listed problems. They cannot be hacked, they cannot be tampered with, they are censorship resistant and do not hold your funds.

While DEXs are more beneficial when it comes to security (from hackers and government interference), anonymity and cost, there are still great challenges that they need to overcome in order to compete with their centralized competition. They are still difficult to use for the common person, as you would have to be crypto/tech savvy; they are somewhat limited in functionality and/or limited on the type of a cryptocurrency (for example only ERC20 tokens), and most importantly they don’t guarantee liquidity.

Having liquidity and a large trading volume is most important because we as traders are all about fast execution. And if you have to wait for hours for your order to get filled, by the time you might get fill you aren’t potentially looking at a good buy or sell opportunity.

Because of this, DEXs haven’t been much used, compared to their centralized counterpart. But there are projects out there that are going to solve that problem as well. In the following paragraphs, we will review most promising DEX projects.

0x Protocol

0x is a protocol. That means it serves as a layer on top of the Ethereum blockchain for actually building decentralized exchange applications. They describe in their whitepaper that 0x is “a protocol that facilitates low friction peer-to-peer exchange of ERC20 tokens on the Ethereum blockchain. The protocol is intended to serve as an open standard and common building block, driving interoperability among decentralized applications (dApps) that incorporate exchange functionality. Trades are executed by a system of Ethereum smart contracts that are publicly accessible, free to use and that any dApp can hook into. DApps built on top of the protocol can access public liquidity pools or create their own liquidity pool and charge transaction fees on the resulting volume.”

OmiseGo

OmiseGO is a project that incorporates many things, but having in mind the focus of this editorial we are going to point out their dex platform.

“OmiseGO is building a decentralized exchange, liquidity provider mechanism, clearinghouse messaging network, and asset-backed blockchain gateway. OmiseGO is not owned by any single one party. Instead, it is an open distributed network of validators which enforce behavior of all participants. It uses the mechanism of a protocol token to create a proof-of-stake blockchain to enable enforcement of market activity amongst participants. This high-performant distributed network enforces exchange across asset classes, from fiat-backed issuers to fully decentralized blockchain tokens (ERC-20 style and native cryptocurrencies). Unlike nearly all other decentralized exchange platforms, this allows for decentralized exchange of other blockchains and between multiple blockchains directly without a trusted gateway token.”

Source: OmiseGO whitepaper

Airswap

Airswap is similar to 0x in a sense that it will allow users to exchange only ERC20 tokens, and in a sense that it’s a consensus project. The difference is that the transaction on Airswap happens off the chain.

“We present a peer-to-peer methodology for trading ERC20 tokens on the Ethereum blockchain. First, we outline the limitations of blockchain order books and offer a strong alternative in peer-to-peer token trading: off-chain negotiation and on-chain settlement. We then describe a protocol through which parties are able to signal to others their intent to trade tokens. Once connected, counterparties freely communicate prices and transmit orders among themselves. During this process, parties may request prices from an independent third party oracle to verify accuracy. Finally, we present an Ethereum smart contract to fill orders on the Ethereum blockchain.”

Source: Airswap whitepaper

Kyber Network

Kyber network is my favorite project as they tend to emulate the exact same functionalities and user experience as centralized exchanges.

We design and build KyberNetwork, an on-chain protocol which allows instant exchange and conversion of digital assets (e.g. crypto tokens) and cryptocurrencies (e.g. Ether,
Bitcoin, ZCash) with high liquidity. KyberNetwork will be the first system that implements several ideal operating properties of an exchange including trustless, decentralized execution, instant trade and high liquidity.

The only thing that’s different is that they don’t have the order book in order to finally solve the liquidity issue.

Instead of maintaining a global order book, we maintain a reserve warehouse which holds an appropriate amount of crypto tokens for purposes of maintaining exchange liquidity. The reserve is directly controlled by the Kyber contract, and the contract has a conversion rate for each exchange pair of tokens by fetching from all the reserves. The rates are frequently updated by the reserve managers, and Kyber contract will select the best rate for the users. When a request to convert from token A to token B arrives, the
Kyber contract checks if the correct amount of token A has been credited to the contract, then sends the corresponding amount of token B to the sender’s specified address. The
amount of token A, after the fees, is credited to the reserve that provides the token B.

Source: Kyber Network whitepaper

Conclusion

Having experienced these problems of centralized exchanges early on, cryptocurrency ecosystem has already come up with the solution – decentralized exchange applications. They are still far from perfect but as you can see from these promising examples, some major obstacles are already being solved as well. First generation failed but offered a great insight on how and where to look for progress. That’s the beauty of the free market – problems are being solved and those who can’t compete are left behind.   

Final note

The greatest threat of centralized exchanges aren’t the reasons I’ve listed. The greatest power centralized exchanges have is maker manipulation. They collect so many cryptos through fee’s that they can manipulate the price in many ways. They also have awareness of the order book flow that they can use to their advantage.

Something like that happened on October 8. last year on Bittrex exchange. Even though they denied the accusations of market manipulation, the research done by The CryptoSyndicate Research Lab paint a different story.

For more check out the original post:

https://thecryptosyndicate.com/opinion-bittrex-anomaly/

In the spirit of decentralization which cryptocurrencies carry and promise, in order to achieve taking power back from centralized entities, decentralized exchanges are emerging widely. It is up to us to choose what’s best for us, so I have not doubt in my mind that DEXs will become a new standard in the near future, but only after they offer easy user experience and liquidity.

Having said that, and having in mind the projects that are already out there, “near future” may be sooner than we think.

©Forex.Academy