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Cryptonator exchange
Throughout history, centralized exchanges have repeatedly proven unreliable and untrustworthy. Whether it is MF Global , Mt. Gox , or BitStamp , many people have been cheated because they allowed a 3rd party to hold their funds.
In the modern financial system, these transgressions happen all too frequently within centralized banks and exchanges operating across the world. It is time for a change. Decentralization gives BitShares robustness against failure.
When a centralized exchange is compromised, millions of dollars and thousands of users are impacted all at once. In a decentralized system, any attack or failure impacts only a single user and their funds. Users are in control of their own security, which can be much better than any centralized entity.
There is a fixed cost associated with attempting to hack an exchange or an individual user. The difference is the size of the reward. If you place a multi-million dollar bounty on attacking a specific exchange, then you can expect a lot more effort to be put into compromising that exchange than would be put into attacking your individual account.
Within a given company, multiple people usually have access to customer funds. Currently, all centralized exchanges end up depending upon multiple people who share the responsibility of guarding the secret key that controls the funds. Because of this, being individually responsible for maintaining your own secrets is the only safe option.
With BitShares your trades execute in seconds, just like any centralized website interface. Unlike centralized exchanges, there can be no high-frequency trading, front running, or hidden orders. This puts all traders on a level playing field. On Wall Street, traders go to great lengths to get as physically close to the exchange systems as possible, because their trading bots make decisions so quickly that the speed of light is a considerable factor.
A decentralized exchange is location-neutral, and gives everyone equal opportunity. Every Dollar, Euro, bitcoin and ounce of gold held as a SmartCoin on the BitShares exchange is backed by up to twice the reserves of traditional centralized exchanges. The traditional banking system has long practiced what I like to call fictional reserve banking, more commonly known as fractional reserve banking.
Without any reserves, it is unlikely that an exchange can give you the funds it owes you. By always maintaining reserves, you can rest assured that BitShares is solvent in almost any market.
All of the reserves are kept as BTS held on the blockchain, and they cannot be stolen, because there are no private keys that can be compromised to steal the reserves. You can trade any amount, at any time, from anywhere, without withdrawal limits.
All other legally compliant exchanges have daily withdrawal limits. Those who wish to exceed standard limits must provide increasingly invasive levels of documentation. Some exchanges, such as Coinbase , even limit what you can do with your money after you have withdrawn it. Other exchanges demand documentation of how you earned your cryptocurrency. Other exchanges charge a percentage of your transaction volume. Trade in Gold, Silver, Gas, and Oil in addition to your national currency and cryptocurrencies.
Few limits exists on what can be traded on the BitShares exchange, given enough interest. The BitShares exchange can support assets that can track stocks, bonds, indexes, or inflation. Companies can issue their own stock on the BitShares network and allow easy, low-cost trading with complete protection against naked shorting.
What other cryptocurrency exchange allows you to trade in gold and silver? Learn more about how BitShares creates trust-free digital assets pegged to almost anything. Each of these stages requires a high degree of trust and direct counterparty risk, because they involve an IOU from the exchange. To get the best liquidity and lowest spreads requires a large and active order book, and this means that most people gravitate toward a few core exchanges, leaving everyone exposed to the same counterparty risk.
Moving money into or out of an exchange often incurs a significant time delay, which means that active traders must keep their funds on the exchange.
This magnifies the amount of risk to users of the exchange. It also magnifies the risk to all users in the cryptocurrency ecosystem. Each large security breach results in significant sell pressure, from both the thief looking to cash in their loot, and from regular users hoping to sell before the thief. Cryptocurrencies depend upon a public ledger ,which makes privacy challenging, because everyone can see every transaction. Bitcoin gives every user one or more account numbers, and that gives many people a false sense of security.
People assume that as long as no one knows your account number and you use a new account number with every transaction that no one can tie all of your bitcoins to your real life identity. This is where the large centralized exchanges become a problem. In order to comply with government regulations, exchanges must know everyone they do business with. Since many bitcoin transactions flow through an exchange, the exchange learns who everyone is and can start to track who is doing business with whom.
Coinbase is already closing accounts based upon who you do business with after withdrawing your bitcoins. In order to have even the slightest bit of privacy, the exchange functionality needs to be divided among hundreds of parties who are unlikely to collude to compromise identity.
This is not economically practical today, because the exchange order book creates market incentives that naturally tend toward centralization in just a few exchanges with the vast majority of market share.
There is no reason why the same entity needs to be responsible for issuing IOUs and for processing the order book. It is only because these two roles are combined that we have a tendency toward centralization in the Bitcoin exchange space. If we want to create a decentralized exchange then the first step is to move the order book on to the blockchain where everyone can see it. Later, they receive GatewayUSD and then execute a wire transfer.
They will make their money entirely on transaction fees and not from a percentage of market fees. Unfortunately, simply moving the order book to the blockchain is not enough, because the market will naturally centralize around a few gateway IOUs and the markets for them.
What we need to do is move the trust from individual issuers to the blockchain itself. If at any time the value of the collateral falls below a certain point the blockchain will automatically buy back the BitUSD with a dollars worth of BTS. When you hold BitUSD the value of your holdings will remain pegged to the dollar so long as BitShares itself has reasonable volatility.
Reasonable volatility in this case means that it can handle greater volatility than Bitcoin has ever seen in its lifetime. No legitimate, widely adopted cryptocurrency has ever seen that kind of price movement.
This means that BitUSD is secure against just about everything but an unfixable software bug in the BitShares protocol itself. By the time BitShares matures to the level Bitcoin is at today, we expect the probability of that kind of bug to be similar to that of Bitcoin having such an event.
The impact of a global unified order book is to end all arbitrage opportunities, minimize spreads, and maximize liquidity. By having the trades executed on the BitShares network, we also eliminate high-frequency trading and front running. High frequency trading and front running depend upon centralized exchanges with high volume and deep markets. When the vast majority of trading activity moves to a decentralized, trust-free exchange, the remaining centralized exchanges become much less appealing to high-frequency traders.
Many gateways prefer the low-risk approach of one-for-one redemption and will simply allow the GatewayUSD to float against BitUSD with a small but variable spread in the market. In this mode of operation, the gateway takes care of providing all of the liquidity within a fixed percentage transaction fee. The gateways then compete on offering the lowest possible spread.
This fee will likely be no more than the withdraw and deposit fees that current exchanges charge. At that point, BitShares will be a fully operational exchange with many banking partners and no limits. At no point in time will user deposits ever be subject to default or confiscation by an exchange or gateway. A truly decentralized exchange will have been realized, and the original vision of BitShares completed.
Decentralized Asset Exchange A fast and fluid trading platform. BitShares provides a high-performance decentralized exchange, with all the features you would expect in a trading platform. With this kind of performance on a decentralized exchange, who needs risky centralized exchanges? Decentralized Decentralization gives BitShares robustness against failure. Fast, but not too fast With BitShares your trades execute in seconds, just like any centralized website interface.
Secure Every Dollar, Euro, bitcoin and ounce of gold held as a SmartCoin on the BitShares exchange is backed by up to twice the reserves of traditional centralized exchanges. No Limits You can trade any amount, at any time, from anywhere, without withdrawal limits. With BitShares, no one must approve your account. You have complete financial freedom.
Roles of an Exchange The roles that traditional exchanges perform today encompass: Receiving cryptocurrency and issuing IOUs. Receiving fiat and issuing IOUs. Processing an order book. Centralization Compromises Privacy Cryptocurrencies depend upon a public ledger ,which makes privacy challenging, because everyone can see every transaction. Separation of Powers There is no reason why the same entity needs to be responsible for issuing IOUs and for processing the order book.