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Decentralized cryptocurrency exchange

Decentralized cryptocurrency exchange

A decentralized cryptocurrency exchange is an exchange market that utilizes blockchain or another decentralized technology to enable peer to peer transfer of digital assets without reliance on a trusted third party to hold funds.

Introduction

A decentralized cryptocurrency exchange is an exchange market that utilizes blockchain or another decentralized technology to enable peer to peer transfer of digital assets without reliance on a trusted third party to hold funds.

Advantages over centralized exchanges

Centralized cryptocurrencies exchanges have experienced significant hacks and loss of funds due to problems with cryptocurrency security. The Mt. Gox exchange was forced to halt trading and declare bankruptcy in 2014 and after hot wallet private keys were compromised and approximately 744,000 BTC were stolen. Bitfinex lost millions of dollars in BTC which were socialized throughout the community. Decentralized exchanges may also provide improved censorship resistance and resilience to regulation as they hold no funds in central location to be seized.

Challenges

Decentralized exchanges face various technical challenges in order to match centralized exchanges in terms of liquidity, speed, and feature sets.

Development

EtherDelta was the first known decentralized exchange. Since then many decentralized exchanges have launched and are in active development however centralized exchanges are still responsible for a majority of cryptocurrency transactions. A variety of protocols intended to develop standards for interoperability for decentralized exchanges such as 0x are being developed.

Implementations
Automated Market Maker

Most common type of decentralized cryptocurrency exchanges. Started from Nick Johnson's proposal enhanced by Vitalik Buterin in his discord post and blog post and later implemented by Hayden Adams and Karl Floersch in their Uniswap Protocol. Most of the common popular DEXes including PancakeSwap, 1inch and SushiSwap use this model in their foundation.

Atomic Swaps

Atomic swaps allow users to directly transact with one another peer to peer while bypassing even decentralized exchanges. The first atomic swap between Bitcoin and Litecoin was performed by Litecoin creator Charlie Lee on Sep 22, 2017.

List of decentralized cryptocurrency exchanges

Exchange name
People
Website

Michael Oved, Don Mosites

https://www.airswap.io/

Chris Beams, Manfred Karrer

https://bisq.network/

Dan Larimer

https://bitshares.org/wallet/

Sebastián Ortega, Alvaro Polo, Alberto Gómez, Ximo Guanter

http://www.coinffeine.com/

Zack Coburn

https://etherdelta.com/

Timeline

Further reading

Title
Author
Link
Type
Date

Mt. Gox Trading Halts as Bitcoin Businesses Move to Assure Investors

Daniel Cawrey

Networked liquidity — projects solving the chicken and egg problem

Radar Relay

The Bitfinex Bitcoin Hack: What We Know (And Don't Know)

Stan Higgins

Waves Debuts DEX Decentralized Exchange, Mining Power Leasing

William Suberg

Documentaries, videos and podcasts

Title
Date
Link

How do LIQUIDITY POOLS work? (Uniswap, Curve, Balancer) | DEFI Explained

July 20, 2020

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