Why we are in the early stages of a decentralized future…
Ten years ago a person or group, known as Satoshi Nakamoto, published a whitepaper that would shake the foundations of the established financial sector. The Bitcoin whitepaper described a peer-to-peer network in which two people can safely transfer a certain value without the risk of digital manipulation. All thanks to a brilliant solution to the Byzantine Generals’ Problem.
After publishing the whitepaper it would take another three months before the first actual transaction was made. The Byzantine Generals’ Problem is the problem that happens after you send a message to multiple receivers and they forward the same message to each other. Along the way their can be misinterpretations and, even worse, manipulation. In blockchain technology this problem doesn’t exist anymore, because every node stores a full copy to the blockchain and a network can only accept information and transactions when 51% of the network agrees to the newest block.
Anyway, Bitcoin was born, and now we are ten years further. Dollars and euros still exist and slowly we are moving towards more acceptance of digital cryptocurrencies. All of these coins are – or at least should be – working on decentralized networks, powered by computers that are either staking, mining or just running a node for fun. But despite all this decentralized ambition, there’s still quite a lot of centralization going on.
Currently the crypto market is being dominated by centralized exchanges. Which is a weird given, considering the decentralized nature of blockchain technology. You make an account, confirm your identity, upload your money, and need to hope that the exchange – a third party – takes good care of your personal information and your deposits. This sometimes turns out to be problematic, as the Mt. Gox, Bitfinex and many other hacks have shown over the years.
Thankfully many decentralized exchanges are being build, some of them are already operational while others are coming within the next 6 to 12 months. Remember, we are still in the early days of crypto.
Examples of decentralized exchanges (DEXs) are IDEX, CryptoBridge, Radar Relay and to some extend EtherDelta. Currently Binance, the biggest centralized exchange on the market, is building its own DEX. This shows that decentralized exchanges are the future.
The future of DEXs are not set in stone. Not every DEX will still exist in five years. One of the biggest decentralized exchanges is called IDEX, and they recently started blocking users based on their geo-locations. On top of that they will introduce a KYC policy, which requires every trader to identify themselves. This shows that the decentralized ambitions of blockchain technology is still being formed, both by governments and institutions and the people and companies using the technology.
Standing out from the crowd
Obviously not every DEX needs to be made by the biggest brands in crypto. There are some little gems out there, ready to shine. DACH Exchange is such an example. This DEX is currently in development by the German team of DACH COIN Limited, a company registered in the UK.
In order to differentiate themselves from the rest, decentralized exchanges will need to offer extra services to stand out. For DACH Exchange that would be the DACH EX Cryptotracker, a tool to follow everything you need to know about your favorite coins, upcoming and active ICOs, the latest crypto news and so on. The direct connection between editorial news, data-powered statistics and the upcoming DACH Exchange is something to be excited about. At the center of all this is their own DACH coin, which currently trades on CryptoBridge and Crex24.
Other exchanges use different methods to attract an audience. CryptoBridge as its own BCO token, which can be staked in order to receive a percentage of the monthly exchange revenue. While others might incorporate airdrops and advanced trading features.
The benefit of decentralizing
Why do we want decentralized exchanges? Simply put, because centralized exchanges can be hacked. With a decentralized exchange users are in full control of their money and their login data. The functionality of the DEX is stored on the blockchain, and because this blockchain runs on a decentralized network there’s little to no risk of the service failing on you.
Another beneficial aspect of decentralized technology is that it’s impossible to create fake data or double spend money. When you create a false transaction on the blockchain, other parts of the network will recognize this. Therefore your data will be denied, while the correct data gets synced by the entire blockchain.
Any form of centralization is suspect to being hacked. Just take a look at the EtherDelta hack about a year ago. Someone hacked the DNS of the EtherDelta website and launched their own version of the exchange. As a result they got lots of private keys and were able to steal lots of coins. So even hosting a website of centralized servers is a vulnerability.
CryptoBridge uses servers from the BitShares network. You need to install software on your PC to get access to the exchange or launch it from the web. Every time you login to CryptoBridge you’re connected to a different node for an optimal connection. DACH Exchange will also run on nodes, in this case the masternodes (MNs) from its DACH coin network. This DACH coin on its own will be one of the trading pairs on the upcoming exchange, and will be used as a central trading tool in the mechanism of the DEX.
Power behind having a network
This just shows there’s a lot of power behind having a network. This network can be run by miners, who use their computing power to generate coins. But a decentralized network can also be run by masternodes. Projects like DASH, Hempcoin (THC) and Tezos (XTZ) are proof that masternode powered network are viable and useful. All these nodes can power great technology in the (near) future.
Obviously you still need to install software on your own computer of mobile device, or you need to visit a website. But everything that happens behind that user interface can be powered by a decentralized network. Car registrations, government identification documents, insurance papers, all tied to your personal account. You have access and only share what you need to share. It’s a future we can only dream of, but it’s also a future that’s coming.
As a project owner, all you need to do is provide an incentive for people to help you build that network. With Bitcoin miners help out because they are generating bitcoin. With a masternode network the owners of these nodes receive rewards based on a Proof-of-Stake algorithm. Building a network should bring rewards, and these rewards need to be worth the investment. In short, it needs to outweigh the effort and financial burden of either buying and staking collateral on a VPS or the costs for mining equipment and electricity.
I think blockchain technology is here to stay, and this tech will be implemented in all kinds of services. At the same time our homes are filled with internet enabled devices. All these devices will have an (optional) build-in service for staking or mining. This would mean that every device connected to the internet, is potentially contributing to a decentralized network. Automatically every household gets rewarded for supporting a certain service. This can be through mining BTC or staking DACH.
But as I said, we are still in the early days of blockchain technology. The creation of Bitcoin was the first phase, and now also through masternodes technology we are enabling decentralized services to be build on top of the blockchain. Decentralized exchanges like CryptoBridge and DACH Exchange are among the first, the Lightning Network as a powerful payment network for Bitcoin is another example, and the future will bring a lot more.