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When it comes to exchanges, people’s first reaction is the Shanghai Stock Exchange, Shenzhen Stock Exchange, Nasdaq, New York Stock Exchange and other domestic and foreign stock exchange giants, or the digital currency exchange giants, such as Binance, Huobi and OK Men, which we love to talk about in the currency circle. Due to monopoly or head effect, especially digital currency exchange, has become the profit harvester of the entire coin circle chain, a steady stream of huge profits. So, the next topic to discuss is exactly the title of this paper — the future path of digital currency exchanges, which is decentralized exchange or exchange decentralization? These are also the two opinions and views existing in the currency circle.

Don’t you have a feeling that decentralization is the same as decentralization of exchanges?

Poor, poor, and listen to the small line slowly road. In fact, small line about this topic, in my small group said a few times, but the group of partners are a face meng force, some people may not understand.

First, let’s take a quick look at how digital currency transactions work: Typically, users have their assets safely escrow somewhere. As soon as there is a demand for a trade, he issues a trade order (buy or sell), and then needs a place with sufficient liquidity to find the right match for the user to fulfill the trade order. After matching the best match for both parties, the buyer and the seller conduct transactions in a safe environment, which also needs to be objectively restricted to prevent one party from cheating or jumping the ticket. Finally, when the transaction is completed, both parties settle the transaction, which means updating the data and values of their existing assets based on the transaction information.

The differences between centralized and decentralized trading are as follows:

Centralized trading process: fund custody, liquidity supply, matching transactions, settlement and clearing are all completed by the exchange.

Decentralized trading process: funds are repursed into users’ wallets, liquidity supply is provided by exchanges, matching trades is done by smart contracts, and settlement and clearing are directly settled on the chain.

Decentralized exchange is the exchange using block chain technology, adopt decentralized trading process, the user of the funds to your wallet, liquidity management, exchange provide buyers and sellers dealmaking by block chain intelligent contract is completed, the final liquidation settlement directly on the chain, money is still in the user’s own purse to exchange can’t get their hands on. So decentralized exchanges are a trend that most people recognize.

And the decentralization of exchanges, how to understand? Take China for example, the trading market is basically monopolized by the head exchanges of Binan, Huobi and OK, that is, 80% of the trading volume is concentrated in 20% of the exchanges. So exchange of decentralization, is to break the monopoly a few centralized trading, to exchange, exchange each have their own characteristics and advantages, let users and trading volumes are relatively evenly dispersed, put an end to the current phenomenon of excessive concentration, avoid a exchange problems or negative to the whole market would be caused by the large fluctuations. This is also a trend recognized by some.

In fact, from the perspective of user needs, whether the exchange uses blockchain technology, whether it is centralized or decentralized is not the core, but the core is capital security and trading experience.

First, capital security;

Second, trading is fast and smooth.

Again, want to have trade volume, trade density and depth, can clinch a deal quickly.

Of course, the order of the three is different in everyone’s mind.

At present, centralized exchanges have absolute advantages in the latter two aspects. For example, centralized exchanges have speed advantages in matching transaction objects and completing transaction settlement, both of which are off-chain order book matching and off-chain settlement. But financial security, to be honest, is not 100% guaranteed. But at present, many countries are gradually incorporating exchanges into the regulation, so if exchanges are better regulated, capital security will not be a problem, then the decentralization of exchanges may really become a general trend.

However, due to the imperfect technology and the early stage of blockchain, decentralized exchanges have many defects:

  1. Trade conflict. After a transaction is reached, the operation of the transaction participants will be displayed to the whole network. Due to the different network performance in different regions, the miner fee paid by different people is different, there is a time delay between the display transaction and the recording transaction (miner packaging), which makes the transaction likely to conflict. For example, when two buyers place the same order to buy the same asset in the same period of time, the two transactions are transmitted to different miners in different order, or the miners’ fees are different, resulting in transaction conflicts when recording. Although only one order ends up being recorded, both transactions consume gas charges. Another example is when one or more buyers place orders and sellers cancel them in the same time frame, or when miners record transactions.

  2. Front-running. Because the time of both sides of the transaction is not completely synchronous, the information of the transaction is transparent to the outside, which provides the third party with the profit space of preemptive transaction. The front-runner sees both sides of the order and enters before the trade is completed to gain a price advantage. For example, after seeing the price of the buyer and the seller, the first trader first buys the asset from the seller by paying a higher miner’s fee, and then sells the asset to the buyer by raising the price, thus making a risk-free profit for himself at the expense of the buyer. Some of the front-runners were miners themselves and were in the right place at the right time to record their trades while they were digging.

  3. High handling fees. Due to the decentralized exchange settlement on general trading and adopt chain chain, each trade cost of miners, and with centralized trading friends all know that in the past, each a sale, our money will flow in different purse many times, every turn need fee, miners miners fee to low, particularly slow turn. At a time when miners’ fees remain high, decentralized exchanges have no competitive advantage over their fees.

  4. Trading volume restrictions. Because the TPS of the current mainstream public chains is too limited to handle too many transactions at once, believers in the trend of decentralized exchanges have their doubts.

5. There is no threshold for buying coins. With the centralized exchange huge fees and thresholds on the currency and a certain strict audit mechanism, decentralized exchange, no fees, no audit and thresholds on the currency, so naturally become a paradise of small coins, air coins, garbage coins, pyramid selling coins. Small leeks, especially secondary leeks are cut here more bloody and cruel. So insiders jokingly call decentralized exchanges the paradise of breaking stocks.

6. The operation is complex and not easy to popularize. With centralized exchange simple registration, certification, prepaid phone, such as buying and selling, withdrawal, compared to the process of decentralized exchange the transaction process is too complex, without some Internet skills, or people who do not care, very easy to get wrong even throw COINS, the lost coin happens, small lines have met many such people.

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Conclusion:

Future trends of exchanges: Decentralized exchanges or decentralized exchanges?

Small line also dare not jump to a conclusion, the big guy’s speech is also different, but the current mainstream view is probably the above two kinds.

At the end of the day, from the perspective of user needs, it does not matter whether the exchange adopts blockchain technology, whether it is centralized or decentralized. What matters is capital security and trading experience.

So let time, users and the market decide.

At the end of the text message: small line wish every person who loves writing, heart rod conscience said, the pen has justice in hand. I hope your writing skills will go to a higher level and you will reap more material and spiritual benefits in the word world. I hope every writing partner will have the natural, proud and full sense of achievement of a swordsman when he or she closes the pen or hits entet on the keyboard every time.

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