Decentralize the Exchanges

A briefly history why we should start using Decentralized Exchanges.

MT Gox

By far the biggest exchange back in 2014, dealing with more then 70% of the bitcoin tradings. Over a periode of years thousands of coins were stolen while no one seems to notice, that’s like a perfect crime. Looking back it was all because of bad security and bad managment. The only one to blame was MT gox, not the Blockchain nor the users. 650.000 BTC got stolen, worth $368M at that moment.

BTC-E

I was lucky enough not having any coins on MT gox in 2014, I did keep them on BTC-E, ‘lucky me’.
Until juli 2017 BTC-E went down https://bitcointalk.org/index.php?topic=2045453.0 together with the news that a guy in greece was arrested because of monney laundering through a crypto exchange https://www.coindesk.com/btc-e-connected-bitcoin-money-laundering-arrest-greece/ rumors starting to spread. I had my coins on that exchange! Not like a lifesaving amount of money, but hey, it’s supposed to be my money!

The U.S. Department of Justice an authority from a country where I’m not a sitizen, seized the site and for as far as I could see at that point, the coins where seized as well. Making a phonecall to that autority wouldn’t help, so my money was gone.
At least that’s what I tought, but the BTC-E staff was able to recover the database, apparently the American autorities were not able to take all of the private keys. BTC-E did another amazing trick thtrough some tokens to recover the coins, I got back 70% of my coins. But all together an goverment authority tried to sieze my money where I did absolutely nothing wrong, I do have a legal job.

Bitfinex Tether FUD

Somewhere in the fall of 2017 rumors started spreading about Tether not fully being backed by US dollars, without burning my hands on that topic, it didn’t do any good for the crypto market, even in the recent downtrend the Tether story played a role.

CoinCheck

Recently Coincheck got robbed, about 500 Million XEM tokens worth roughtly 530 Million dollar is gone. The NEM foundation is doing what they can to prevent those tokens to be traded on an exchange https://www.coindesk.com/nem-foundation-refutes-exchange-news/ but and coindesk is refunding them, but again you need to trust on some third party and that where it all started.

Binance unexpected outage

On the 8th of Februari, binance did go down because of some technical issue according to their CEO on twitter.

We experienced a server issue on our replica database cluster, causing some data to be out of sync. Need to fully resync from master. Due the size of the data, it will take several hours. No data is lost. We appreciate your understanding and support.

— CZ (@cz_binance) February 8, 2018

This immediatly led to al kind of rumors, including rumors about a binance being hacked.

People are saying that Binance is back up. Can anyone prove this with hard evidence that they have successfully traded anything on Binance in the past 11 hours? I am unable to do so.

— John McAfee (Hive account@officialmcafee) February 8, 2018

What do we have right now?

The main reason Satoshi wrote the withepaper and created bitcoin was to get rid of those ‘trusted’ thirdparties. Right now, we are trading on exchanges that are far less reliable then the banks we know, the big four accounting firms or your goverment.

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

The most secure solution is to store your crypto’s offline on a hardware or paper wallet, but you wanna trade isn’t it? Especiall with the recent dip in mind, you could have made big money if you sold somewere between 15 December and 7 Januari and bought back around 5 Februari.
But that process is not so easy if your assets are not on an exchange. I want to trade when I’m commuting or during lunchbreaks. So as an alternative, I’ve chosen the less worse solution, and I put 1/3 of my crypto’s on a paper wallet. This sucks, because if the market goes down, I’m not able te sell them quickly.
The other 2/3 of my digital assets are spreaded over 4 exchanges, because I want to trade with those coins. If one of the exchanges goes offline for some reason, I still have 4/5the of my belongings. I do see this as the best wors solution for the time being.

What do we need short therm?

There are Decentralized Exchanges available.
Waves platform has DEX, that I used for a while. Altough the trading volume on the exchange isn’t that big I was able to do some trading. But if I sell my Waves for BTC, I still have no access to my BTC private key. Again, this means that I have to trust on a third party.
In the next week’s I’ll start using some Decentralized Exchanges and keep you guys up to date in a followup. For now I do have the following exchanges on my shortlist.
Openledger DEX
IDEX
Etherdelta
Blockport
district0x
ARK
I don’t know if they will fit my requirements, in the following weeks I’m going to do some research on them and maybe more.
My requirements for a good DEX are as follows: Code needs to be open source, there needs to be a good volume and variety of tradable coins (not just ECR20 coins/tokens) and I do need to have access to all my private keys. not just the token that is used as a fundament for the DEX, I do need the private keys of all the tokens I’m trading/own. I don’t trust third parties with my money. It would be nice if I can cash out on a IBAN bank account. No idea if this is realistic requirement.

What do we need long therm

In the future, once crypto currencies are mainstream I don’t want to trade one currency for the other, I want to trade goods using crypto currency’s. That means if I need a new laptop, a want to pay with litecoin or bitcoin or any other crypto currency that fits best for that trade. It also means that the selling partie has to accept that currency. What if he doesn’t accept litecoin which I love that moment for no particular reason and the selling party only accepts Monero? I could go to an exchange (decentralized ofcourse!) and sell my litecoins for monero and then sent my monero coins to the laptop shop. It’s a rather cumbersome proces. I gues that’s where atomic swap fit’s in. Once I made up my mind about the decentralized exchanged, atomic swap is the next thing to figure out.

Final Thoughts

Bitcoin was invented to remove the third party we are ‘forced’ to trust, right now we are trading crytpo’s on exchanges we ‘do trust’, but near history proved us they can not be trusted. As an alternative there is something called Decentralized Exchange, will they be able to replace the traditional crypto exchanges? Do they provide us full acces to our digital assets? That’s what I’ll be investigating in the following articles.

Sources:
https://bitcointalk.org/index.php?topic=2045453.0
https://bitcoinexchangeguide.com/top-cryptocurrency-theft-hacks/
https://blockexplorer.com/news/coincheck-hacked-biggest-crypto-theft-in-history/
https://en.wikipedia.org/wiki/Mt.Gox
https://btc-e.com/index.html
https://en.wikipedia.org/wiki/Tether(cryptocurrency)