The creation of Bitcoin was aimed at destroying the centralized character of the currency, however, although the cryptocurrency is decentralized, it is still under the influence of the exchanges on which it is traded. Also there are external problems, such as lack of regulation in most jurisdictions and security issues within exchanges and centralized services. Is there any solutions?
We have witnessed these problems with crypto exchanges, they slow down the global development of the cryptocurrency. In 2016, we witnessed a hacking that costed Bitfinex more than $ 70 million, and then in 2017 there was a sudden shutdown of the BTC-e exchange and investors lost huge funds. We have also seen the power of such regulators that can bring down the whole market as ICO and cryptocurrency exchanging bans in China. Lots of news about hacking online wallets, such as Myetherwallet, creating „fishing“ sites and other illegal activities leading to significant loss of funds – these risks are always paid by ordinary users. Exchange and centralized services will always have shortcomings, and hackers will always find a way to bypass a security system.
Today there is already a huge number of cryptocurrency banks and cards that support crypto-currencies. However, if you face the facts, today there are almost no financial institutions that are friendly to cryptocurrency companies, even in such jurisdictions as Switzerland and Singapore. Cryptocurrency startups have to look for different kinds of loopholes to connect their cards to cryptocurrency operations, which implies huge risks, and high fees to the end user.
Today there are many solutions, such as decentralized exchanges DEX: Waves DEX, NXT, BitShares and others. They allow users to exchange cryptocurrency directly, without the participation of a third party, but they do not solve the issue of exchange crypto for fiat.
Decentralized exchanges are still in their infancy, and while there is still much to be done, there seems to be a huge discrepancy between the ease of use of centralized and decentralized exchanges. Less experienced users face serious problems using decentralized services.
Downloading and installing software, creating and backing up your wallet and many other additional steps can prevent average users from taking advantage of the benefits provided by DEX.
However, the fully decentralized P2P exchange could exchange fiat money as well. The possibility of it proves, for instance, StreamDesk service created by Streamity. Their users need to do is to visit a website or mobile application, create an account, and they can start buying / selling cryptocurrencies, including exchanging for fiat money with minimal fees within a full decentralized network.
A user needs to enter their blockchain wallet address into the system only once and the process becomes simple and automated. There is no need to visit a third-party service to transfer cryptocurrency or to check the balance; meanwhile the cryptocurrency is stored within the user’s wallet, not inside the service, which makes security impenetrable in comparison to centralized services.
There is another solution to develop crypto exchange service and make it safe for users. Transaction security can be guaranteed by the smart-contracts of various infrastructure projects, such as Ethereum, NEO, NEM, EOS. While the cryptocurrency is locked in a smart-contract until the fiat money is transferred in a certain period of time, there is no way to gain access to the smart-contract, the only way to unlock it is to receive the signal from the payment system. It guarantees the security of a transaction. You can transfer fiat using one of many suggested methods, including a bankcard.
And of course, the most popular way to protect users from fraudsters and pumper/dumper traders is KYC procedure. KYC, or Know Your Customer procedure usually consist of questionnaire about user personal data and downloading photos of the ID. It protects exchange against money laundering (so it will be not shot down by some authorities how it happened with BTC-e) and gives the users certain confidence.
To sum up, there are some criterias to find the best crypto exchange, however, the risk of the fraud on an exchange cannot be avoided in many cases. Crypto industry of course is moving towards total transparency and cybersecurity, but it can be still some pitfalls on the way.
This is a sponsored press release and does not necessarily reflect the opinions or views held by any employees of The CoinCryptoz. This is not investment, trading, or gambling advice. Always conduct your own independent research.