Changing Exchanges: Will the Coinbase of Tomorrow Be Decentralized?
Changing Exchanges: Will the Coinbase of Tomorrow Be Decentralized? by Drew Pierson – Coin Desk
Newcomers to blockchain may notice the irony – in an industry obsessed with decentralization, some of the biggest startups are centralized, trusted institutions.
But while it’s true today that single entities are most responsible for the operation of exchanges that allow traditional money to be traded for cryptocurrency, some of the industry’s oldest startups are now showing an interest in migrating to a future more in line with the spirit of the technology.
Forcing this narrative is a new wave of decentralized cryptocurrency exchanges that exist almost entirely on a blockchain, and that can dispense with the need for a third-party intermediary.
“Decentralized exchanges are clearly the way of the future,” said Hugh Madden, technical director for openANX, a decentralized exchange infrastructure protocol.
Madden argues that a change in industry business models is inevitable as current designs are a target for hackers, and indeed the still-brief history of cryptocurrencies already includes several examples, most famously, Mt Gox.
Furthermore, if a centralized exchange operates in a jurisdiction without strong regulatory oversight, the operational and financial transparency of the operation can be limited. And with many such exchanges, customer coins are not technically possessed by the customer until they are withdrawn.
With decentralized exchanges, each customer’s buy and sell orders are directly matched, sometimes without an order book entirely.
Michael Oved, CEO of the decentralized exchange Swap, told CoinDesk:
“Within the next 2–5 years you’re going to see some really good decentralized solutions. But whether they’re going to take market share [from incumbents], I’m not sure.”
So, what’s different about decentralized exchanges like Swap?
For one, it does not have an order book – buy and sell orders are matched completely peer-to-peer. Swap also doesn’t charge fees for its service, profiting instead from the sale of tokens customers must purchase to use Swap. (These are more analogous to a one-time licensing fee.)