Tag Archives: Trading

Decentralized Exchanges

Created in 2008 by the pseudonymous computer programmer Satoshi Nakamoto, bitcoin is digital money that’s tracked via a public ledger and controlled by no central bank, corporation, or individual.

Image courtesy of Wiki Commons

It’s a peer-to-peer currency based on the blockchain running on the internet that allows its users to transfer value with no central authority or third party involved. Since a network of distributed and mostly anonymous miners are all in charge of processing the transactions, we avoid problems like censorship and fraud.

The automated issuance mechanism of bitcoin through mining also seeks to remove the control of money printing from privately owned banks that lend money to the public at an interest, creating the debt based economy. The primary goal of Bitcoin, to return the control of money to its owners, is in a way lost with third party services.

With cryptocurrencies comes the need for exchanges, and centralized exchanges are easy to use, easy to access, and they provide advanced trading functionalities like margin trading and others.

However, they also represent a security risk for your funds. While some exchanges are better guarded than others, hacks are not an uncommon. There are a number or risks related to centralized exchanges like incompetence, bankruptcy, etc.

We need to exchange our currencies. There are certain items and services that we cannot buy with Bitcoin and in order to acquire Bitcoin or cryptocurrencies, most people have to exchange it for a national currency. Furthermore, some cryptocurrencies like Ether or Bitshares have special features or tools that are not present in Bitcoin. So how can we exchange our coins without entrusting them to a third party service? The answer lies with decentralized exchanges.

Image courtesy Wiki Commons

Decentralized Exchanges

A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, trades occur directly between users (peer to peer) through an automated process. This system can be achieved by creating proxy tokens (crypto assets that represent a certain fiat or crypto currency) or assets (that can represent shares in a company for example) or through a decentralized multi-signature escrow system, among other solutions.

This is an alternative to the current centralized model in which users deposit their funds and the exchange issues an IOU that can be freely traded on the platform. When a user asks to withdraw his funds, these are converted back into the cryptocurrency they represent and sent to their owner.

Advantages

The most important benefit to using a decentralized exchange over a centralized one is their “trustless” nature. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party.

Another advantage to the decentralized model is the privacy it provides. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you.

In addition, the hosting of decentralized exchanges is distributed through nodes meaning that there is no risk of server downtime. To summarize,

  • No parenting by governments, banks and other institutions
  • Secure, no 3rd party involved
  • Set the unbanked free
  • Open, Transparent
  • Global, fast, efficient, 24/7
  • No identity theft
  • A platform for innovation

Disadvantages

Some decentralized exchanges require users to be online in order for an order to be listed and for the trade to take place, requiring users to perform certain actions like signaling that a payment was received.

Trading features like margin trading, lending and stop loss are currently not available in the decentralized model as they only allow the basic exchange of currency for a predetermined value.

Overview of decentralized exchanges

While there is still a way to go in order to build fully functional and convenient decentralized exchanges, there are several projects that have brought us the basic functions and an alternative way to trade currencies while keeping your funds safe from hacks, inside thefts and faulty business models.

Bitsquare is a decentralized open-source exchange that allows users to buy and sell Bitcoin for cryptocurrencies and national currencies without the need to entrust funds to third-party or middleman, meaning that the transactions occur directly between the buyer and seller. Bitsquare relies on a decentralized multi-signature escrow system to ensure that all trades are carried out honestly.

CounterParty is a meta-coin smart contract layer that embeds data into regular Bitcoin transactions. It allows anyone to issue assets or tokens inside of the Bitcoin blockchain. When trading assets for other assets, the Counterparty protocol acts as a decentralized escrow service that holds the funds until the orders are matched. When trading an asset for Bitcoin, the asset is held in escrow and the other user must make a manual bitcoin payment using the Counterparty wallet.

Waveplatform Waves Asset Exchange is allowing users to trade assets (including asset-to-asset exchange), fiat tokens, and cryptocurrencies.

Bitshares is a crypto platform with its own native currency, Bitshares. Using the Bitshares platform, users can trade BTS, Market Pegged Assets (a crypto asset pegged to another currency or commodity that always has 100% or more of its value backed by the BitShares core currency, to which they can be converted at any time) and User Issued Assets (assets that can be issued by anyone to represent shares, commodities, currencies and so on). Openledger is the Web-based version of Bitshares, running on the same underlying blockchain.

Nxt is a crypto platform (one of the first crypto 2.0 projects) that allows users to issue and trade assets. These assets, however, can only be exchanged for the coin NXT and not for other cryptocurrencies.

Komodo EasyDEX exchange will allow users to trade cryptocurrencies directly without resorting to proxy tokens, while the PAX (Pegged Asset Exchange), both being developed by the SuperNET and Komodo teams, allows users to exchange national currency assets with the privacy that zero-knowledge proofs provide.

Stashcrypto is built on the Open-Transactions financial cryptography platform, an extremely fast and low cost off-blockchain system based on signed receipts. When combined with Bitcoin, OT solves hard problems in crypto finance. Receipts in OT cannot be forged, and a user’s balance cannot be changed without his signature. OT is also able to prove all balances, as well as which instruments are still valid, without storing any history except for the last signed receipt.

Cryptor Trust will launch Blockchain Asset Exchange, a decentralized distributed platform for trading securities, later in 2017.

Conclusion

Decentralized exchanges provide global, frictionless value-transfers. Without decentralized exchanges, there will be intermediaries having control over the transfer of value.

Geir Solem

Bitcoin Paper Wallet is the Key Tool for Investors

A paper wallet is one of bitcoiner’s best security practices. In this article we will provide a brief overview about its main advantages and important points to care about before starting to invest in the crypto currency.

> What is a Paper Wallet? The Basics

bitcoin_paper_wallet_image
Bitcoin paper wallet generated at bitaddress.org

Also referred as Cold Storage, a paper wallet is a way to store bitcoins as a physical offline document that can be handled as any other real-world materialized currency or value. The main purpose of the paper wallet it to take your private key out of any online record by printing it onto paper.

Once done, bitcoins on a live wallet (web based or software client) can be sent to the public address printed on your paper wallet document for safekeeping.

> Paper Wallet Advantages

As of its advantages, bitcoin paper wallets offer:

(1) A high level of protection against software that might be compromising your computer, like malwares and keyloggers, and of course, against hackers!

(2) The security of possessing your bitcoins on paper, as we are used to deal with cash, although it means that mobility might be an issue at certain point and you need to take other kind of previsions to keep the document in shape.

(3) No dependence on a third party wallet service provider.

(4) Risk reduced by not having to rely only on the security standards applied by a website.

> Points to Care About with Paper Wallets

– Make sure you create a strong and complex enough passphrase when creating your brain wallet on websites like bitaddress.org

– Be aware that the paper contains all the data needed to check your bitcoin balance and import it or spend it, so choose the right place to store it. Also protect it from humidity and other things that could damage it. Losing a single character of any of your 2 keys could become a big issue to recover your assets.

– Before transferring your bitcoins to your paper wallet, make sure you verify it by checking it on alternative sites to bitaddress.org. If the same info comes up, it means everything is ok. Check it on at least 3 more sites.

Hope you found this helpful. On the next article about wallets we will go deeper into how to generate safe paper wallets.

Maximiliano Garcia
Cryptor Trust Inc.

Learn How Bitcoin Transactions Work

Bitcoin transfers are one of the main concerns for those taking their first steps at the crypto-currency ecosystem.

For sure you already know how the usual electronic transfer operates. There are two parties and a middle man. The two parties want to electronically move money from one side to the other. To do so they need a middle man that provides the service, call it bank, Paypal, Western Union, etc. who will almost always take a pretty relevant percentage of the money being sent.

> So, What is Different with Bitcoin Transfers?

money-transfer-stock-board

In the first place, the middle man is now out of the equation. Transfers are made from peer to peer (P2P) using bitcoin wallets. This is digitally signed for security reasons.

> The Transaction Structure Involves 3 Pieces of Information

Those are: Input > Amount > Output

Supposing that John wants to send bitcoins to Mark, the first piece of information is the “Input”, which specifies the address from where John received bitcoins in the first place (from Peter’s address). The second piece of information is the “Amount” that John want to send to Mark, and the third is the “Output”, which will be Mark’s wallet address.

The transfer is distributed through the network and registered in a vast general ledger (public record) called block chain that validates all transactions. This means that everyone can know about transactions being made and trace its history to the point of its inception.

> Sending Bitcoins is Fairly Simple

To send bitcoin, both the address (public key) and the private key assigned to your bitcoin wallet are needed.

At the time John (from the example above) wants to send bitcoins to Mark, the private key is what he will use to sign the message that includes the input, amount and output (Mark’s address).

After the bitcoin is sent from John’s wallet into the BTC network, miners will verify the transaction, put it on a transaction block and solve it. This verification process made by miners usually take up to 10 minutes or less. The bitcoin protocol is set on that time frame to mine each block. You should wait until the process is fully confirmed, but usually some merchants will trust on you assuming that you will not try to spend the same bitcoins before the process is completed.

> Bitcoin Transactions May Involve Fees

Bitcoiners will not always have to pay transaction fees, but that doesn’t mean you shouldn’t. Wallets usually let you manually set the transaction fees. Miners usually process transactions for free as they are rewarded by the block (with bitcoin), but we might see miners starting to raise some low fees in the future, as the block reward decrease.

Sometimes there are portions of transactions that the recipient doesn’t pick up or is considered as change. This is usually considered a fee or a tip for the miner’s good job!

If you have any doubts about how bitcoin transactions work, please let us know by leaving us a comment in the comments section below.

Maximiliano Garcia
Cryptor Trust Inc.