Removing the potential for a single point of failure, decentralizing gives way to three enduring principles upon which cryptocurrency rests: security, privacy, and censorship resistance. Perhaps the bitcoin community has deviated too far from these principles and, as a direct result, hacks, flash crashes, government raids and lawsuits against centralized exchanges might slow wider adoption and dash hopes of greater financial freedom, all in the name of expediency.
Centralized Crypto Exchanges Are Tradeoffs
The exchanges bitcoiners use to buy, sell, and trade cryptocurrency are centralized. They’re owned and operated by a single conglomerate, usually in cahoots with legacy banking which, in turn, is utterly dependent upon government regulatory bodies.
Centralized cryptocurrency exchanges hold coins on behalf of customers, and can therefore decide the manner in which those coins are used. The cache of bitcoin held costs not only explicit trading fees but also relative anonymity, which is forfeited. Exchange users have made such platforms enormously powerful and influential on price swings and the economics of bitcoin, but in the process of doing so they’ve handed over gobs of personal information.
Exchanges can, and very soon will, turn over personal information to government agencies seeking tax compliance, perhaps investigating those deemed dangerous, or just to fulfill some bureaucratic mandate.
How on earth did something so seemingly awful happen? The tradeoff was a better deal for the average bitcoiner relative to the ethos of beings one’s own bank, that’s how. Exchanges also provided onboarding for tens of millions of people to somewhat smoothly interact with bitcoin. At least one exchange boasted of 100,000 new customers per day, helping alleviate a natural problem for currency markets – volume. Volume then leads to liquidity, the ability of users to jump in and out, frictionless, from currency to currency.
For example, those worried about a possible bitcoin crash relative to, say, bitcoin cash, might very well wish to keep bitcoin on a central exchange rather than in cold storage or a wallet. When the time comes to swap bitcoin for another crypto, or whatever the scenario, they’ll have a way to sell their losing stock for something better. Centralized exchanges could be invaluable.
It’s safe to assume centralized exchanges will continue to be masters of the bitcoin marketplace for quite some time. There are, however, compelling decentralized competitors like Bisq.
Bisq Is an Answer
Bisq’s Manfred Karrer, formerly of Bitsquare, has been obsessed with this topic. He fell down the rabbit hole in 2011, describing bitcoin as the greatest invention since the internet. Permissionless, programmable money was irresistible. He quit his job, and planned to concentrate for a year on his obsession.
By 2013, he was headlong into the idea of building a decentralized exchange. The biggest challenge then, as now, was how to deal with fiat money and cryptocurrency interaction. He developed an idea, wrote a white paper, and went in search of coders and developers. Also then, as now, developers were either working on their own projects or nonexistent.
Mr. Karrer taught himself. Within about four months he had a working prototype. With a product, he was able to assemble a team and begin the work of running his idea live. The project was indeed brought further along, but turned out to be unstable during testing. He threw it all out, and began again. That one year? He’s now on year three and a half.
His conspirator, Chris Beams, describes the now twenty-month-old, fully functional, Bisq decentralized crypto exchange as providing an on and off ramp for people to leave fiat for bitcoin. Users can opt for fiat as well and also trade cryptos. It took the team about two and a half years to build Bisq. It is now live on the bitcoin mainnet.
At the start, bitcoin trading was about 30,000 USD on Bisq. Last month, November, they did 600,000 USD in bitcoin trades. And on the 15th of December, they recorded 500,000 USD bitcoin trading in a single day. They double their volume about every quarter, and are on pace to be well over 2 million USD for the final month of the year.
Bisq has a complete wallet, and is run as a desktop application. It’s easy to see offers, including fractions of a bitcoin. The niche they’ve carved out is two fold: 1, they’re the most decentralized exchange (literally no one person is in charge, right down to the development team) and 2, they’re the only decentralized exchange to move crypto to fiat. Offers on the exchange can be floated, and there is a minimum security deposit required from buyers.
Everything is locked away in two to three multisig on the bitcoin blockchain, all noncustodial, and fully decentralized. Bisq is modeled after bitcoin, and as such Mr. Beams is not shy of saying it is build on top of bitcoin for bitcoin. No invasive onboarding KYC, AML. No holding coins. No central company headquarters. He believes Bisq to be the only exchange of its kind within the ecosystem.
Mr. Beams too is careful to stress Bisq doesn’t have all the answers. There are as many types of potential exchange platforms as there are traders, and he and the team find such experimentation exciting. He touts the team’s exchange as secure, private, censorship resistant in direct contrast to centralized exchanges.
What are your experiences with decentralized exchanges? Tell us in the comments.
Images courtesy of Pixabay, Bisq.
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Author: C. Edward Kelso