Are decentralised exchanges the future?
During last week’s podcast with Will Harbourne the Chief of Operations at Ethfinex, we discussed the future of decentralised exchanges and what their impact on the cryptosphere will be. The main takeaway from the discussion is that despite the inevitability of fully functional and optimised decentralised exchanges hitting the space before the end of 2019, it is very unlikely they will monopolise the market by displacing the behemoth centralised exchanges we see operating today. It is far more likely that both centralised and decentralised exchanges will operate in harmony in the space, in 2019 and long into the future.
The main reasoning behind this opinion is simply that most people are unwilling to take responsibility for their own private keys, which is what you must do in order to use a decentralised exchange. They want a custodian (centralised exchange) to have control on their behalf. This should not be surprising, as if a user loses their private keys or worse hands them over by accident to a dishonest actor, the user’s Cryptocurrencies will be as good as gone. In such a case there is no one to blame, no one to call for help and certainly no insurance policies in place to reclaim lost funds.
Another barrier to the widespread adoption of decentralised exchanges for everyday retail investors is their lack of understanding of how cryptocurrencies work on a semi-technical level. Will described his experiences with some ‘mature investors’ that the Ethfinex team chose to interview for their new Ethfinex trustless exchange as surprising and concerning. “They didn’t understand what the mining fee is for Ethereum, what gas price means, they didn’t know what an address should look like… all these things that we had assumed were entry-level turned out to be blockers from users being able to use this product.” It is, unfortunately, the case that users who don’t have an understanding of these matters are not adequately educated to use decentralised exchanges, this would be the case no matter how advanced the exchanges user interface is or how fast transaction speeds are. Consequently the current customer base for decentralised exchanges is far smaller than their centralised counterparts.
Does this mean then that there is no hope for decentralised exchanges? No, not at all. Both Will & I see the future for decentralised exchanges as very bright in terms of adoption, liquidity, usability, speed and censorship resistance.
The fact of the matter is that the successful adoption of decentralised exchanges by the mainstream is dependent on the increased level of education of everyday users of cryptocurrencies. Included in this education should be the role of private keys, public keys, minor fees in transactions as well as the risks involved with using a centralised exchange… “not your keys, not your Bitcoin” as Andreas Antonopoulos says. This education programme is well underway and will no doubt only accelerate from this point onwards. Once a critical threshold of educated community members has been reached, it will then be possible for decentralised exchanges to achieve a level of adoption that will be able to rival and maybe one-day surpass that of centralised exchanges. In the meantime, avid developers, committed community members and early adopters are driving the continuous improvement of the technology and laying the foundation for a decentralised future.
DISCLAIMER: Opinions expressed by Coinschedule Blog contributors are their own.