We have previously written about what the future benefits and possibilities of having a sophisticated and developed cryptocurrency ecosystem integrated within society. You can read the top 10 predictions again here.
You may be interested to see how those future developments will influence payments particularly and we covered that briefly in this article, but this week we are discussing the inevitable adjustment from centralized exchanges and platforms to a more decentralized industry and the positives that are associated with it.
If you were to interview a classic millennial then around 4 in 10 would say that they expect to see Bitcoin amongst other cryptocurrencies as the norm for a standard payment in the next decade. Now, this could and probably will be true but with 99% of cryptocurrency transactions occurring through a centralized exchange if this is to be the case, for security reason alone, this needs to change. A statistic which stands out is 1 million Bitcoins in the last 5 years have been stolen which will cause anxiety and fear with investors and in an asset class where most value of other coins and tokens is still linked to bitcoin as its one of view ways to purchase them than an overhaul in the way we trade is required.
There are several fundamental issues with a centralised exchange:
Customer support
Now, it is getting better as time goes by but the numerous forums slating customer service with accounts locked, money not being transferred quick enough or lack of visibility in problem-solving means trust is fairly low with platforms as a rule.
Proof of identity
As standard proof of ID and sometimes address is needed to verify an account, withdraw and deposit funds. This is welcomed and standard even if you were to open a brokerage or bank account but the giving up of private information to foreign companies is still met with trepidation.
Fees
A necessary evil and accepted that there must be a cost for a service and update of tech and security but when it’s between 0.10 – 3% when a decentralised platform has, in many cases zero it’s hard to justify.
Security fears
Hacks or attempted hacks could cause trading downtime, investigation, police probes and fear and doubt with investment sentiment. Since the hack of MT Gox, things are getting better but large-scale outages and price fluctuation can be attributed to hackers of centralised exchanges.
So, what’s the solution? It seems its already been put forward. A decentralised exchange is a more peer to peer concept meaning not having the need to deposit to a centralised exchange and have the above issues. The blockchain technology gives removes the third party and has the below benefits negating all the negatives:
Worldwide and borderless
The reduced need for a third party means there isn’t a fixed point or place resulting in a global and free state of access and trading. Basically, users can have a service not regimented like a bank or current set up.
Anonymous
The word is controversial at the best of time but even more so in the cryptocurrency world. However, not having to send private and personal information off to relatively invalidated, unknown entities in Asia means data is confidential and encrypted.
Transparent
Some may say the opposite to anonymous but the two can work hand in hand. A decentralised system can be open and transparent. The transaction would be open source and have to checked and validated but all or many other users making the network police and regulate the transactions itself. This is how bitcoin purchasing works in effect, the network approves the trade.
Security
All this leading to a more secure setup. If for whatever reason information is taken, then it’s anonymous making it irrelevant and useless and will be seen by the network, tracked and any transactions not approved. It’s self-regulated by mass participation not one company or entity behind ungoverned, closed doors.
It’s food for thought. The industry is still fairly embryonic to most. Early adopters will pioneer such change to progress the asset class’ inception but I think we may look back and think it strange we all trusted a central, third party to manage our funds and trading, in turn taking a step to realising one of the many aims of why cryptocurrency was created.
