Virtual currencies are primed to go mainstream, and there is not much that cynics and pessimists can do about it. In 2017, Bitcoin—the first ever peer-to-peer (P2P), decentralised cryptocurrency—soared to nearly 1400% gain, dwarfing the performance of the well-known assets such as stock, gold and gold on Wall Street.
Bitcoin has since plunged from $22,000 high price, yet the virtual currency is still stable notwithstanding all the internet noise about how the bubble is almost bursting. As of this writing, the market capitalisation for crypto markets is estimated at over $217 billion and once hit a high of over $800 billion. While these are significant investments, they are often made without considering platforms that facilitate movements of currencies.
Cryptocurrency exchanges are the foundation of crypto markets. Yet most of these exchanges are still centralised. To date, there are over 500 cryptocurrency exchanges located across different geographic regions, with 90% of them still centralised.
The invention of Blockchain—the underlying technology behind all cryptocurrencies—was supposed to usher in a new era of the trustless economy where third-parties or intermediaries are not required in trading. Almost all the centralised exchanges operate by keeping their platforms off-chain.
As such, they function as escrows for their customers, and transactions cannot be directly stored on the Blockchain. In the recent past, this model has led to massive challenges ranging from security breaches, low latency times, potential to react poorly to normal Blockchain events such as hard forks, and are often fraught with numerous regulatory risks.
Besides, traders of centralised exchanges usually remain profoundly limited by the nature of trades allowed on the platform. Essentially, exchanges limit which tokens can be directly bought and sold on the platform, forcing traders to place several orders at the same time.
Each of these hurdles translates into a frustrating and limiting experience for both novice and experienced traders. Trustbar is launching a fully functional and efficient Decentralized Exchange (DEX) that will address the pain points facing traders in centralised cryptocurrency exchanges.
Model of centralised exchanges
Centralised exchanges operate as trusted third parties that store trader’s funds until a corresponding trader is found. Such money will be in the hands of the exchange, but the trust of the third-party makes it easy for the trader to recover lost password or 2FA (2-Factor-Authentication) since he/she will be provided with full access to the account.
This model has led to massive security breaches. Recent statistics indicate that more than 980000 bitcoins have been lost from centralised exchanges. At the prevailing exchange rate, this figure is worth more than $15 billion.
Model of DEXs
A DEX facilitates direct interaction between traders (makers and takers) in a P2P process. DEXs aims to tackle the challenges associated with centralised structures by leveraging P2P marketplaces that are directly implemented on the Blockchain. Any trader (often called maker) can place a buy or a sell order for the cryptocurrency of his/her choice.
On the other hand, the taker can browse for the orders and choose to execute them. At an abstract level, here is how DEX platform works:
- Alice (Maker) places a new order (the order includes the type of cryptocurrency, the amount, and whether she is selling or buying).
- Alice generates a digital hash of the order she has placed and signs it off using her private key.
- Alice sends the order while off-chain (This can be accomplished by Decentralized servers which link to the Blockchain later) via web sockets.
- When Bob (the Taker) wants to trade against Alice’s order, he will require the order data and Alice’s digital signature to be transmitted to the smart contract’s exchange function.
- The smart contract validates that the signature has indeed come from Alice and the order has not expired.
- Funds are sent to Alice and fees charged for the transmission.
How the Trustbar’ DEX works
The ultimate goal of Trustbar’s DEX is to allow cross-chain token exchanges at a single click, via one transaction and on the DEX. The Trustbar’s protocol has been built on multiple Blockchains and ecosystems that use DEXs. Leveraging a smart matching engine, Trustbar allows cross-chain exchanges of cryptocurrencies and tokens transparently and seamlessly.
The trader cross-links multiple wallet addresses on different Blockchains, allowing him/her to only pay from one Blockchain using a different currency/token which can be received on another Blockchain.
Consider a trader who wants to convert Ethereum tokens to Red Pulse via the Trustbar’s DEX:
- The trader places Ethereum tokens on DEX.
- The trader places the sell order to covert Ethereum tokens to Red Pulse tokens.
- Trustbar’s smart engine finds other orders can fulfil the request.
If there is no matching order (no other trader is wishing to swap the Red Pulse for Ethereum tokens), the Trustbar’s smart engine will search for combination orders that can fulfil the request. Consider the following scenarios:
- Trader A places a sell order for Neo to the Red Pulse
- Trader B places an order to sell Neo tokens for Ethereum tokens.
- Trader C places the order to sell Red Pulse for Neo tokens.
The smart engine will match various orders by, for example, selling trader A’s Ethereum to trader B selling Neo tokens to trader C, who sells the Red Pulse tokens back to trader A. Through the Trustbar platform, such a trader will only pay one fee for the transaction. The diagram below summarises the chain of transactions:
More than 90% of cryptocurrency transactions still occur via centralised exchanges. In the future, this will change as a result of the centralised exchanges’ pitfalls. Transitioning to DEXs—which are in tune with Blockchain’s philosophy—is crucial for cryptocurrency traders to exploit maximum potential from crypto markets. Trustbar intends to become the future of cryptocurrency trading through its DEX platform.
- “3 Problems Exchanges Must Solve for Wall Street to Embrace Cryptocurrency,” accessed August 14, 2018, https://www.fxempire.com/news/article/3-problems-exchanges-must-solve-wall-street-embrace-cryptocurrency-470752.
- “Bitcoin’s Bubble Is Bursting. How Low Will Prices Fall,” accessed August 14, 2018, https://www.forbes.com/sites/francescoppola/2018/03/20/bitcoins-bubble-is-bursting-how-low-will-prices-fall/#2abd7ed2724e.
- “Cryptocurrency Market Capitalizations | CoinMarketCap,” accessed August 14, 2018, https://coinmarketcap.com/.
- “The Number of Cryptocurrency Exchanges Has Exploded – Bitcoin News,” accessed August 15, 2018, https://news.bitcoin.com/the-number-of-cryptocurrency-exchanges-has-exploded/.
- “Would You Buy the Dip On Any of the Top 5 Cryptocurrencies?,” accessed August 14, 2018, https://learnbonds.com/135429/meet-the-top-5-cryptocurrencies-by-market-cap/.
- “Lost Bitcoins: 4 Million Bitcoins Gone Forever Study Says | Fortune,” accessed August 15, 2018, http://fortune.com/2017/11/25/lost-bitcoins/.