Exchange platforms are undoubtedly one of the pillars of the modern crypto industry. But the main paradox of distributed ledgers is that more than 99 percent of the transaction volume of cryptocurrencies passes through centralized exchange sites. That is why recently, more and more opinions are being heard in the crypto community about the need to move to 100-percent decentralized exchanges. Nevertheless, according to some experts, centralized sites are still the only possible solution for cryptocurrencies, and it is not only untimely but also pointless to talk about a large-scale transition to distributed exchanges. Whether it is so or not will be discussed in our article.
What Is Bad about Centralized Exchanges
If we briefly abstract ourselves from the pressing problems and turn again to the spirit and concepts of cryptocurrencies, it becomes obvious that centralized exchange platforms are a direct way of concentrating power and resources in one set of hands. It is unlikely that such an approach would have been approved by Satoshi Nakamoto. In addition, centralized exchanges are at the top of the entire cryptocurrency economy, because in many cases, they are the "access point" to the digital assets themselves. Exchanges are one of the options for transforming fiat into cryptos. Also, centralized exchanges often have a rich experience of working with clients and creating tempting offers for both experienced traders and beginners. Blockchains, in which individuals or groups of people control more than 50 percent of the nodes, automatically betray the very essence of the technology. Because of this, numerous companies promoting such concepts are causing concern in the community. Centralized web APIs basically create nodes on behalf of end users, resulting in users having to rely entirely on a centralized trusted party, in which internal mechanisms may not be all that transparent. For example, Bitfinex quite often causes suspicions from regulators. The situation is complicated by its connection with Tether. In addition, crypto exchanges are often victims of hacking. One way or another, centralization is power and, as John Dalberg-Acton said: "Power corrupts, and absolute power corrupts absolutely."
When Will the Era of Decentralized Exchanges Begin?
What can decentralized exchangers offer to their customers in an applied sense? First, the safe storage of investments and data, as they do not concentrate information in one set of hands.
Another feature of distributed exchange platforms is that they are often backed up with tokens, which can provide their owners with certain additional rights or discounts.
Nevertheless, it cannot be said that decentralized sites are the leaders of crypto exchange to date. It will take a long time before they can become a real threat to familiar centralized platforms. "Undoubtedly, the overwhelming majority of crypto exchange exchanges at the moment of the development of the crypto industry are centralized, but there is the concept of a global strategy, and there is the current state of affairs. With the advent of blockchain technology, there has been a shift in the overall system of the world order, but the world has not yet understood this. Our society, of course, is still a fiat society, and we will not be buying apples on the market for Bitcoins all too soon, although there are precedents already. Now, cryptocurrencies are 90 percent speculation and only 10 percent real use," as told to DeCenter by Alexey Beresnev, Head of the Analytics and Financial Management Department at ICA Super Margin.
At the same time, according to the interlocutor, we are only at the very beginning of the path, which is to be passed by crypto exchanges. "This stage is just formation, and mass introduction is waiting for us in the future. This will take more than a decade. The most important thing is projects that can be implemented today, but will find application in the future. The centralization of the decentralized is a frightening phenomenon, but a temporary one, and in the future, it will not be necessary, just like the trade of crypto assets itself," as Beresnev shared his forecasts.
Dura Lex, Sed Lex: How Will Legislators Consider Decentralized Exchanges?
An important factor in the way of distribution of DEXes (decentralized exchanges) is the legislative component. From the point of view of legal practice, even when it comes to classical (or centralized) exchanges, in the absence of a clear legal definition of the cryptocurrency and cryptocurrency exchange, this type of trading cannot be called absolutely legal. "If you look at cryptocurrencies as the equivalent of a foreign currency, as Boris Titov suggested in his time, or look at it (including ICO tokens) as an analog of securities, as suggested in the U.S., the organization of the turnover of cryptocurrencies is unacceptable without the corresponding registration. In particular, Articles 10.1-1, 10.1-2 of Federal Law No. 39 FZ of April 22, 1996 "On the Securities Market," which defines the requirements for professional participants of the securities market, as well as their activities and requirements for the founders (participants) of the professional securities market. It is indicated there that the professional participants of the securities market can be business companies, and in cases provided for by federal laws, they can be legal entities created in a different organizational and legal form. In practice, we see that the exchange of cryptocurrencies is usually organized by individuals (at best, by individual entrepreneurs) and they organize the exchange of cryptocurrencies without obtaining the corresponding licenses of the Central Bank of the Russian Federation, and it is not clear how they are accountable for the activities they conduct" as commented to DeCenter by the public administrator of the Crypto Lawyer public page Alexander Kozlov.
But in the case of the organization of decentralized cryptocurrency exchangers and exchanges, the regulatory situation is even more complicated, because there is no specific individual or legal entity responsible for the exchange of digital currency. "When we talk about decentralized trading with cryptocurrencies, we do not mean the activity of any person, but the creation of an automated web service or a desktop (or mobile) application. It allows on the basis of a pre-designed script to organize an unmediated peer-to-peer exchange of cryptocurrencies with fixation of a transaction record in various blockchains. It is possible to speak for a very long time about the difficulties in the legal regulation of this process. The vast majority of legislative authorities of developed countries and entrepreneurs investing money in this kind of services are not ready to consider cryptocurrency exchange as the work of an exceptionally decentralized blockchain application. Because of the complexity of this process, they prefer to consider the exchange of cryptocurrencies as an activity of an individual or legal entity, which largely justifies the dominance of centralized sites over decentralized ones. Society has not yet grown accustomed to the widespread introduction of decentralized exchangers and exchanges," the interlocutor added.
It is interesting that not all crypto enthusiasts believe that decentralized crypto exchange platforms are the future of the crypto industry. "It is not entirely correct to attribute the role of the main problem to centralized exchanges and other participants in the exchange of cryptocurrencies for fiat and back, if not more. There are more pressing and important problems than that. To place fully decentralized services at the center of success is to abandon the influence of regulators and lawmakers, which grants unlimited use of cryptocurrencies in an illegal environment. I have nothing against the use of decentralized exchange services, but I do not think that they are the future, and most likely, they will lose the liquidity that they still have," said Roman Zabuga, the official representative of the Wirex Crypto Bank.
Whether decentralized exchange platforms will be the future of the crypto industry is still unknown. In any case, it is necessary to develop a well-functioning mechanism for their ubiquitous distribution that is convenient and at least relatively easy to use, to try to "steal" the pros of centralized exchanges that attract users, and to prepare a good legal base for their future growth and development.