After the Chinese crackdown on ICO’s and exchanges, investors are eyeing decentralized platforms to trade bitcoin and other cryptocurrencies. There are several of these decentralized exchanges emerging. “Airswap,” is one that is receiving increasing attention, although it is not yet functional. It will allow anonymous users to trade cryptocurrencies peer-to-peer, without intermediaries or regulators to stop it.
Airswap, Smart Contracting, and Anonymity
Michael Oved, who worked for Virtu Financial Inc., founded Airswap. He is building the Airswap platform on top of the Ethereum blockchain. It is based on the use of smart contracts to allow users to connect with each other and execute trades.
A Bloomberg article clarified, “The new company he cofounded, AirSwap, sounds like a
contradiction in terms: A decentralized exchange. Made possible by the nascent technology of the Ethereum blockchain, there’s no central authority around for buyers and sellers to gather. Instead, a computer program known as a smart contract lets investors find each other anywhere in the world to trade cryptocurrencies. There are no user accounts and identities are hidden as trading is solely on a peer-to-peer basis.”
Airswap operates by allowing any user to trade without concern for regulations due to its anonymity. This means that Chinese investors could trade on the platform and authorities would not know if they are using it. Airswap also cannot be arbitrarily shut down either, since no one controls it from a single location or server.
Institutional Traders and Over the Counter Market to Merge into Decentralized Exchanges
Airswap intends to eventually attract large institutional investors. Oved is especially interested in catching the attention of traders like DRW holdings LLC and DV Chain. This is because most Chinese trading is occurring over the counter, via telegram chat rooms and other channels. Oved mentioned that 60% to 80% of bitcoin trading occurs over the counter. Oved also commented on how Airswap helps institutional traders:
We’re basically a streamlined system for them to do their trading and to interact with a whole new bunch of customers
Possible Shortcomings of Airswap and other Decentralized Exchanges
According to the Bloomberg article, decentralized exchanges do have some shortcomings. They are not compliant with anti-money laundering and know-your-customer rules. This means that anyone could potentially use these platforms without having to provide information on who they are or where their money came from.
Front-running may also be a problem. This is where sneaky traders can jump in on a trade that is pending and outbid the individual to reap the rewards. The Bloomberg article elaborated, “Another risk of decentralized exchanges is front-running. Because the bids and offers are all publicly displayed, another user can jump the line while a transaction is pending and complete a deal at a higher or lower price.”
Furthermore, decentralized exchanges like Airswap may be more secure than centralized exchanges, but they still have weaknesses. For instance, it is possible for nefarious actors to place fake coins on the site and get users to reveal their private keys. This would allow hackers to steal funds. Thus, users still have to be careful with their keys and take necessary precautions. This goes without saying for using all internet-based platforms.
Future of Trading and Exchanges
The future looks interesting for bitcoin and cryptocurrency trading. There are a myriad of decentralized exchanges like Airswap emerging on a regular basis. Many of them are just proof of concepts like Airswap, existing only in the form of a whitepaper or preliminary code. Others like Bitshares, are already fully functioning. At any rate, the way these exchanges manifest and whether governments will be able to control them or their users remains unseen.
What do you think about decentralized exchanges like Airswap? Will decentralized exchanges eventually be a boon for Chinese traders? Let us know in the comments section below.
Images courtesy of Shutterstock and Airswap.io
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