The Future of Crypto Trading Is Hybrid: Hot + Cold Wallets

Crypto markets and the underlying Blockchain technologies are flourishing.  As of this writing, daily transaction volume has reached $20 billion per day, with a market capitalization of over $1 trillion^[1]. Blockchain’s ever-increasing value in varied use cases is ushering in a truly trustless economy by disintermediating exchange of goods and services.

Despite these significant feats, mass adoption of cryptocurrencies is still a challenge. Cryptocurrency exchanges are for all intentions and purposes, the foundation of the crypto markets. Any tradable digital asset needs a market where it can be exchanged, and that is what the exchanges perform—facilitating crypto trading by virtue of all their service solutions.

Within the cryptocurrency universe, there are two categories of exchanges:  Centralized (CEXs) and Decentralized (DEXs). So far, more than 99 percent^[2] of all the transactions in crypto trading pass through CEXs such as Coinbase, Binance and Bittrex.  Cryptocurrency traders have had to select between CEX and DEX trading platforms, with no options of middle ground. Each of these options has had their share of problems.

Problems with the conventional trading model

Both CEXs and DEXs have their advantages and limitations. Currently, crypto traders are forced to choose between CEXs and DEXs, with no options of a middle ground. In a CEX, traders deposit their cryptos or fiat money into their accounts (often hot wallets) which credits their balance on the Exchange.

They then utilize the CEX’s order book and liquidity pool to buy the digital assets they wish and sell the ones they don’t want. By using the CEX’s order book and liquidity pool, these exchanges facilitate faster transactions and make them conform to strict regulatory laws in the countries where they operate.

However, cryptocurrency traders have no control of their private keys and therefore, no control over their funds. By operating as escrow accounts, CEXs do not record their transactions on the Blockchain. This defeats the whole purpose of Blockchain, which was unveiled to ensure decentralized assets such as virtual coins never find their way on a centralized platform.

As a result of unsafe handling of users’ funds, private keys in hot wallets, and personal data, massive breaches of security have occurred in CEXs.  In 2018 alone, more than $1.1 billion in cryptocurrencies has been stolen by hackers^[3].

DEXs, on the other hand, have their architecture completely removed from centralization. As such, there are no third-party escrow services required to hold users’ funds. By disintermediating the exchange ecosystem, DEX allows users to trade directly. This model fits the decentralisation philosophy and mission of Blockchains.

DEXs provide enhanced security by allowing users to have direct control over their funds. Besides, they promote seamless integration with secure cold wallets such as hardware wallets. A number of DEXs provide seamless integration with popular hardware wallets such as Ledger Nano S and Trezor that ensures maximum security of funds.

With an integrated cold wallet system, traders can easily send coins directly from their wallets to a smart contract on a DEX. This is not possible in CEXs since traders have to manually enter their private keys to transfer coins from their wallet to the Exchange. This places CEXs‘ users at increased risks of malicious phishing and keylogging attacks.

And even despite these advantages that DEXs have, they often can come to high transaction costs and times.

What is the way forward?

A platform that provides a hybrid solution (both CEX and DEX) is the ideal solution to the problems bedevilling current cryptocurrency exchanges.  DINNGO platform combines the advantages available in CEXs and security features in DEXs to usher in a system that provides faster transactions while conforming to the decentralization philosophy of Blockchain technologies.

The platform functions as a Hybrid Exchange, allowing traders to buy, sell, spend and convert their crypto assets on one platform. DINNGO aims to simplify the interaction between their users and Blockchain to help make cryptocurrency go mainstream. It achieves this through:

#1: Addressing the security issues

Hacks and security breaches are increasingly becoming more prevalent leading to loss of funds and assets in CEXs. DINNGO has created its own cold wallet service and has established integration with multiple cold storage wallet hardware such as MetaMask, Nano Ledger S and Trezor. To tackle the cold storage integration problems with most exchanges, DINNGO leverages a two-step verification process between the exchange, the mobile application and the cold storage wallet.

#2: Enhanced user experience

The DINNGO platform is primarily a hybrid exchange that leans on centralization while providing decentralized services. This way DINNGO allows its users to have control over their funds in the manner they are exchanged and stored. Besides, DINNGO’s light mobile application is easy be downloaded, intuitive and uncomplicated to use.

#3: Increased transaction speeds

DINNGO leverages a smart transaction matching engine that matches the purchase or selling almost instantaneously. During its proof of concept speed test, DINNGO was able to sustain a throughput and very low latency.

Conclusion

DINNGO is certain that the future of crypto trading lies in an exchange that is not only fast, but also secure and user-friendly. Such a Platform can only be achieved when both CEXs and DEXs functionalities are combined to create an all-in-one platform that serves the two worlds.

^[1] ‘Global Charts | CoinMarketCap’, accessed 8 November 2018, https://coinmarketcap.com/charts/.

^[2] ‘Decentralized Crypto Exchanges vs Centralized Exchanges Like Binance, Bittrex’, accessed 8 November 2018, https://coinsutra.com/decentralized-vs-centralized-crypto-exchange/.

^[3] ‘$1.1B in Cryptocurrency Was Stolen This Year, and It Was Easy to Do’, accessed 8 November 2018, https://www.cnbc.com/2018/06/07/1-point-1b-in-cryptocurrency-was-stolen-this-year-and-it-was-easy-to-do.html.