Decentralized Exchanges Are The Future Of Crypto Trading

A few days ago, one of the world’s largest crypto exchanges, Bitfinex, launched a decentralized exchange. Binance, another major exchange has also announced that it will be launching a decentralized exchange in the near future. So why are all these major exchanges shifting from centralized to decentralized? Well, that’s because this was the whole essence of cryptocurrencies in the first place. Cryptocurrencies are all about decentralization, and the fact that exchanges started centralizing client orders was defeating this whole point, and putting clients at risk of theft.That’s probably the reason why governments, such as the Chinese government are against the whole idea of centralization.

In essence, exchanges could be moving towards a decentralized business model so as to beat government regulation. The lesser the government scrutiny on their operations, the more profitably they can operate. It’s pretty much the same concept in all industries.Government regulation usually comes with stricter rules that can limit the ability of a business to operate profitably. Therefore, by moving towards decentralization, exchanges are simply safeguarding their future operations in an industry that is already under attack by government regulators across the world.

Then there is the fact that it is becoming increasingly risky to hold cryptocurrencies in centralized servers.In the last few years, the number of crypto exchange hacks has been on the rise. First it was MtGox, then Bitfinex. Recently we have seen Japanese exchange Coincheck hacked, and close to $500 million of investor funds lost. In all these situations, investors demand payments hence affecting the financial viability of the centralized exchange business model.Some like Italian exchange Bitgrail announced that they didn’t have money to repay investors, which marks a total and irreparable damage to their brand name.

Customers are also increasingly demanding for more control over their money.That’s because with a decentralized exchange, there are no trading fees involved. Anyone who has traded in a centralized exchange knows that fees can put a major dent to their profitability, given that most exchanges take between 15-20% per trade. That’s irrespective of whether you are in profit or not.Unfortunately, centralized exchanges require these fees for them to maintain their systems. There is no other way around this, which makes decentralization the only option for business viability.

But decentralized exchanges are not without fault. One of the greatest problems they face is that of liquidity. Decentralized exchanges in most cases have very low volumes of money flowing through them. Fortunately, this trend is changing as people start taking decentralization more seriously. For instance, Huobi decentralized exchange has come up with an autonomous system that allows participants to vote for the tokens that can be listed on it. Only tokens with the most votes get listed. This concept is likely to increase liquidity levels since only high potential tokens get listed. The future of decentralized exchanges is bright.

As an investor looking to trade at low cost, and without the risk of getting hacked, decentralized exchanges are the way to go.