The Future of Trading is Decentralized
Tags: Crypto, Decentralization, Trading, Cryptocurrency, Bitcoin

In the wake of much speculation about the future of cryptocurrency, we find it’s important to remember why cryptocurrency became “a thing” in the first place. The Bitcoin White Paper introduces Bitcoin as an electronic payment system in which individuals can transact directly with one another (peer-to-peer) without relying on a third party financial institution to verify transactions.

The issue with relying on financial institutions to mediate transactions is that centralized entities are potentially corruptible. In fact, we’ve seen big banks take actions that benefit themselves against the interest of their customers time and time again. Just this month, JPMorgan Chase & Co agreed to pay a fine of $65 million for market manipulation…

while Citibank agreed to pay $100 million for manipulating Libor, a benchmark interest rate that helps set lending rates.

Peer-to-peer systems of exchange eliminate the need for centralized middlemen to verify transactions by incentivizing the community to do this work for the network. Eliminating the middlemen from financial transactions is why many enthusiasts believe crypto should play a part in shaping the future digital economy.

Given the ubiquity of malpractice and corruption plaguing centralized financial institutions, why haven’t peer-to-peer digital transactions overtaken those mediated by centralized third parties?

There are a few reasons for this, the first being tradition. There is a learning curve whenever a novel system is introduced, no matter how superior to the original it may be. This same phenomenon of slow adoption occurred with the Internet as well. Though the first conceptualization of the Internet could be said to have occured in 1962 when J.C.R. Licklider articulated a vision of interconnected computers through which anyone can access information and share knowledge, the dot com boom did not take off until the mid 1990s.

When it comes to cryptocurrency exchanges, even day-traders will admit that the current platforms are far from intuitive. Most require at least a basic understanding of digital currencies, hardware wallets, addresses, private keys, and blockchain technology in general. For this reason, mass adoption of cryptocurrency and correlated products and services depends on the technology reaching the point where people need not understand the intricacies of the technology in order to use it. For comparison, most people who own an iPhone do not understand the inner workings of the device, and yet this ignorance does not prevent them from buying and using the phones en masse.

Usability, or lack thereof

Though crypto exchanges have a ways to go before the average Joe or Jane can start trading without any prior knowledge of the space, exchanges are key to the evolution of the crypto economy toward mainstream acceptance. The main hurdles facing crypto exchanges at present are a lack of usability and distressing prevalence of centralized platforms — a blatant denial of everything crypto and blockchain is supposed to stand for. Coinbase, Bittrex, and Binance for example, go against the spirit of blockchain and decentralization by storing user private keys with the option of controlling user assets, settling transactions off-chain, and requiring personally identifiable information (PII) to access.

The reason for so many centralized exchanges is the same as why the majority of people continue to depend on private on government-backed financial institutions to exchange value — ease of use. For people less familiar with cryptocurrencies, it is much less complicated to sign up with Coinbase using an email and password (a practice most people with Internet are highly familiar with) than learn how to use a hardware wallet and connect to a Decentralized Exchange (DEX).

As opposed to centralized exchanges, DEXs are more aligned with the spirit of blockchain and decentralization. DEXs do not control users’ assets or private keys, transactions are recorded on the blockchain, and users are not required to disclose any personally identifiable information (PII).

The lack of usability across many DEXs is why ease-of-use is a huge focus for us at Totle. By building an intuitive interface through which users can trade across aggregated exchanges, we make DEX trading more accessible and efficient. Try our beta and see for yourself how trading works on Totle.