Crypto-Currency Exchange Platforms

 

The very first Crypto-Currency Blockchain, Bitcoin Blockchain which solved the double spending problem and with her introduction of Crypto-Economics only came with the ability to transfer her coin from one wallet to another to fulfill settlement of transactions for payment, no other form of investments or transactions other than the zero level sending and receiving of coins to and from crypto wallet addresses that meet to her blockchain standard. As the ecosystem began to grow and emergence of other Crypto-currencies like Ethereum, the need to exchange one Crypto-Currency for another to take advantage of price differences and make profit from such an act was open for the taking, causing a trend that is exactly what is going on today in foreign exchange of fiat currencies around the world that both banks and non banking establishments take advantage of for profit bases was born into the crypto space.

This system that stands in sharp comparison with foreign exchanges in the World Financial System needs participants to fill this space by providing the platform making this exercise possible, this space is so fertile that it begin to give rise to other forms that already exist in the financial world today.

These platforms that enable the exchange of one Crypto-Asset (Crypto-Currency and other Digital Assets) for another are called Crypto Exchange Platforms, these exchange platforms have exploded into a form of investment that have so many facets derived from her which includes Staking to receive returns like interests for depositing your asset with them (Yield farming), Swapping, Lending and Borrowing, buying and selling of crypto assets when the price fluctuates (Spot and Futures Trading). These features need platforms that meet up with the security that blockchain technology uses to protect crypto Assets from been hijacked by bad actors this caused these exchanges  to also run in blockchains as those from which these digital assets are generated from.

Today there are two distinct form of Digital Assets Exchange Platform that exist namely Decentralized Exchanges and Centralized Exchanges. These categorization did not come due to service providing features  to differentiate them but due to authorization of operation that permits them to operate in the Crypto Space.

 I will try the best I can to elaborate on these two types of exchanges as that will throw more light on why they are regarded differently but first let me get to the features Blockchain uses to operate without boundaries.

Permissionless : 

The Blockchain of some Crypto-Currencies do not need any approval from any governmental bodies, private groups or individual to start running as Technology do not have boundaries because technology is always ahead of governmental policies, in-fact the first Crypto-Currency that have stood the test of time longest is Bitcoin, her designer is anonymous, I mean the provider of this new Solution solving the double spending problem that have stopped digital currency from emerging all this while hide from the world to make this currency stand on her own as a natural resource extracted from Electricity via the Internet, he used a virtual name “Satoshi Nakamoto” to identify himself. Which means that this Blockchain Technology of Bitcoin which all  other Crypto-Currencies follow suit did not acquire any permit from any government or regulations to operate , there was ones a time in the Cyber world where you do not need to provide any identity to register a domain name, only payment details and email through which the domain need be activated, this was prevalent during the dotcom bubble era before regulators came into the game of cyberspace and he did this so this new Technology that he assembled will not fail as have happened before bitcoin came into the scene.

Decentralized : 

As Satoshi Nakamoto knows that for such a system to run without a been altered by any central authority be it government, individual  or group of bodies to determine or change the main aim, it have to be controlled, maintained and nurtured by diverse participants from diverse political background, he designed the system that it have to resist any one body authorization just as no governmental system can determine how Gold or any other natural resources is located within her boundaries. By this he devised the blockchain to run in a decentralized and permissionless way, which means that this system is run from different servers in the world but are all synchronized as one body maintaining same records or payment in her account ledger, the entire world of humanity comes from different geographical and governmental system and all these systems can’t come into common agreement about monetary policies all at ones if ever they can, Bitcoin is not handed over to the government to decide her faith neither to any individual, but to the general public from all geographical location provided that your computer system and internet signal and bandwidth meets to the minimum requirement for the blockchain to function.

This gave the people to choose if they will accept bitcoin as a currency for the exchange of value and services or not, and after two years of the blockchain been hosted in the internet, it paid for two pizza with the worth of Ten Thousand Bitcoins kick starting her acceptance as the only currency right now in circulation that is not imposed by any authorization upon humanity.

Censorship Resistance : Due to the decentralized nature of Bitcoin, it stood tall on her own that no one authority or government can impose regulations on how she have to be used and managed globally like all other currencies been used today. And as long as Bitcoin continues to stay this way, it will always maintain her censorship resistance which will make her for storage value and a reserve currency / digital asset as time progresses.

The World Governmental system, groups and Individuals are still trying to control the inflow and outflow of Bitcoin by trying to manipulate or regulate it but how can they regulate what is not within their Judicial District of Authority ?

Transparency : Blockchain technology will be like every other ledger in the world if not that anyone can access her activities and trace how the currency flows, also too anyone who is qualified can participate in validating her activities in the transfer of her asset from one wallet to another as there is no one office governing the transfer of this asset from one wallet to another, her maintenance and upgrading is also done by volunteers with no form of qualification beyond the primary purpose of making the system run in meeting to her purpose.

These  features that Blockchain Technology came with alongside Crypto-Economics   differentiates the Exchange Platforms that exists in the Crypto-Currency space today which are Decentralized and Centralized Exchanges, this same features also apply to Crypto-Currencies in general today as some of these Exchanges started their own Crypto-Currency to rival or better still compete with the Bitcoin and others that follow her footsteps. Blockchain Technology always go with a native currency or I believe can adapt one, this will come in a post of her own.

Decentralized Exchanges : DEXes

I will start with Decentralized Exchanges as they are the first to pop up to take advantage of the space of opportunity open within the Crypto-Currency space. These exchanges follow suit with the steps laid down by Bitcoin, building Dapps ( Decentralized Applications). These Dapps are aided by decentralized wallets, some of these wallets are designed by individuals to enable anyone be able to view and access his or her crypto-currencies within the blockchain and admister special services.

These DEXes came with a downsides which is always improved at, they do not or can’t easily be accessed or keep records of fiat currencies in their wallet as keeping fiat currency means taking deposits from people and the only ones who can take deposits or safe-keep fiat currencies must adhere to the rules and regulations guiding that fiat currency stipulated by national policies. Though this was solved by the introduction of stable coins even when stable coins was introduced to enable the high volatility of crypto-currencies to be checked, but it also solved this problem as anyone can actually buy stable coins with fiat currency coz those who have the stable coin pegged a stable coin to a fiat currency and safekeep it in a banks vault or in some investments that keeps inflation away from the money and even generate income for the stable coin providers.

The DEXes also require technical know-how to make use of  them as their user interface is not very welcoming. DEXes stand by a community of developers and users not in the hand of any one particular authority as their initiator kickstarted it in a decentralized and permissionless manner, something happened in the DEXes space sometime ago that is worth mentioning, the designer of SUSHIWAP came into the Decentralized space as a bad actor and many participants in the DEXes space got involved due to the method that he used to gain their attention which is called “the Vampire Attack”, after he got enough money that he thought is enough for him, he exchanged his SUSHI coin for other crypto-currencies that he deemed fit and left the platform in the hands of the community, to his greatest dismay, the community continued with the project as the developers already involved in the community deemed it fit to continue with the SUSHISWAP project instead of abandoning it like the founder did, the community continued to work on the project and advance her cause till today, though later the founder came back with apologies and rejoined the community. One thing is clear about the DEXes community of Crypto-Currencies, they live a symbiotic lifestyle. 

Downsides of DEXes: DEXes can just disappear with your funds without trace if it is left in the hand of just an individual, since when they choose not to update the website or when they choose to swap the entire coin for another coin and leave the vault empty no one can stop them, though this is no longer common with DEXes as people mostly flock to DEXes with an already established community and at any hint you can just withdraw your funds from their vault, no one will stop you if you want to withdraw your funds from Rocketpool, or Aave’s Vault, or UNISWAP, you can just swap your tokens to a stable coin of your choice, some may only take days but there are no regulations that will stop you due to identity just as no none will stop you from choosing where to buy with the money in your pocket or anyone will decide what pocket you have to keep your money in when going to buy goods or sells services.

Centralized Exchanges : CEXes

These Crypto-Currency exchanges start by following the procedure of normal governmental regulations over their jurisdiction or after they kickstart, they decide to comply or adhere to regulations stipulated upon them. These exchanges have a broad range of services more than those of the Decentralized Exchanges as they can just add the features of any DEXes into her platform, also too they come with so much restrictions that kill the primary reason why Crypto-Currencies came into existence in the first place, permissionless. One of these restrictions is that someone have to register with all her requested identity first before one can withdraw that which they deposited into that blockchain after you make profit or you loose your money to them, they will not require that you do all those registration when you are coming into their platform, but when you want to withdraw your funds like you have something to do with it, you can’t because they will require you to fulfill all regulations which make me see them like scams and fraudulent institutions backed by government to oppress those who can’t attain to identification policies at that particular point in time, . They can easily falter and get away with it as history have shown, with a high list of them that the founders declare bankruptcy and get away with it after doing illegal deeds with customers funds which regulators have caught up with them since they are the ones who build trust not caring about the transparency and intergrity of their blockchain ledgers but on their personal interest, their community is high autonomously centered on the owners decision not any community, this makes the owner manuvuer funds under his custody causing what causes normal banks to collapse as we have seen in history, if I choose to make a list of Centralized Exchanges that have collapse due to one or two misappropriation of peoples funds, this post will be filled with names that you reading this post will be dizzy and sleep off before you get to the end of the list and will cause this post to be too lengthy. 

I am not trying to condemn them as I also have assets in a Centralized Exchange but I am only worried about those who choose regulation over transparency and do shady things with customers Crypto-Assets, one thing not that common with decentralized exchange any more, is that the founder have to decide how to handle the coding of the platform unless he is the only one handling the protocol, which technically turns that DEXes into a CEXes as he is the only one that makes the decision. CEXes have one advantage but leverage it to imprison you so you can’t just move your funds from their vault to any other place, not even a decentralized wallet so you can have your funds in your pocket instead they tie you down that you have to remain with them with one discouragement or another.

Centralized Exchanges have been given the power and authority to manage funds of users the way they see fit as they can easily file for bankruptcy since they are covered by national laws and jurisdiction. 

The whole fraud of the exchanges start from when they start minting their own coin as Blockchain Technology always go along with Crypto-Economics, none want to own a blockchain and use someone else coin in it as native currency.

What can we do about the Exchange Issues ?

We can do something about it, if a blockchain can just come-up adapting a particular coin of lets say Bitcoin and use it as her currency for transaction and everything thing required, this comes with a downside because when the demand of the coin been used begin to increase or decrease about the normal coins amount, it tend to increase in value in the platform which will cause people to take advantage of the slippage and get away with funds without stress collapsing yet another blockchain that decide to work in line in making the decentralized space worthwhile.

Conclusively , It is advisable for anyone who wish to develop an Exchange blockchain platform  to decide what he is really coming into the space for.

Later I believe I can share my ideas into how Bitcoin or any Crypto-Currencies already in place can be adopted into any blockchain to enable it successfully run using that asset as her native currency. The US Dollar is one currency that have been adopted by some other nations as their fiat currency which is one main reason the US Dollar is stable even in so much abundant quantity in circulation, though it is the currency used mainly for international transactions, even the Euro have her limits to leave the borders of the European Union to be traded in another national policy. US Dollar is the wildly accepted currency for national reserve. I believe that will be the birth of a new tentacle in CryptoEconomics.