Samsung and Sony-backed Theta Network wants to make it cheaper for companies to share video content. Here’s how it all works.
In brief
Theta Network aims to provide a decentralized infrastructure for video streaming that’s cheaper than centralized alternatives.
Participants in the Theta Network are paid in tokens for sharing video content to other users.
Hosting and sharing video content is a tricky business.
The problem is, if the content is all stored in one place, it can be very slow for people around the world to access it. So video sharing websites will use multiple servers around the world so they can deliver the content much more quickly—known as a content delivery network (CDN).
But it’s expensive to pay for a CDN. These services will typically charge for the amount of data being used, meaning that when a video streaming site becomes popular, its costs will rise.
This is where Theta Network wants to make a difference.
What is Theta Network?
Theta Network is aimed at cutting the costs of operation for video streaming services like YouTube. It works by reducing the load on the content distribution network by putting some of it on Theta’s peer-to-peer network. It’s a little bit like BitTorrent, where people share video content with each other, but it actually pays its users for sharing this content.
Theta Network isn’t trying to replace YouTube or live streaming platform Twitch. Instead, it’s trying to provide new infrastructure for such businesses that’s not only decentralized, but far cheaper. https://www.youtube.com/embed/OQR7GVoV-24?autoplay=0&mute=0&controls=1&origin=https%3A%2F%2Fdecrypt.co&playsinline=1&showinfo=0&rel=0&iv_load_policy=3&modestbranding=1&enablejsapi=1&widgetid=1
If you’re trying to watch a video on a video streaming site that uses the Theta Network, you will receive the data in a combination of two ways. Some of the video will be streamed directly from the site’s hosting platform, but you’ll also receive some of it from local peers using the Theta Network.
While Theta Network claims to be cheaper than centralized alternatives, it still has some costs attached—and this is why the Theta tokens are needed.
How Theta Network uses two tokens
Those participating in the Theta Network get paid for sharing video content to other users. The video sites themselves pay for this service, not the end-user.
Theta Network also has a second token, called THETA. This is a governance token that’s designed to help the community manage the Theta blockchain and control its direction in the future. Currently the governance element is in its infancy, but the project plans to hand over more control to THETA holders in the future.
The THETA token has a fixed supply of 1 billion tokens with no inflation. You can stake THETA tokens to receive TFUEL, which has a supply of 5.2 billion tokens and a fixed 5% inflation rate.
What is the Theta blockchain?
The Theta blockchain is fast and designed for smaller payments. This enables it to provide real-time payments to reward content distributors for their efforts.
It achieves this through a proof-of-stake consensus mechanism, which is based on the Tendermint blockchain code. This mechanism involves users locking up large amounts of THETA in a process known as staking. Then they process blocks; if they process malicious blocks, they might lose some of their staked tokens.
Theta nodes around the world. Image: Theta Labs.
But the blockchain has two levels. First, it has validator nodes. These involve powerful computers processing a large number of transactions quickly. There are fewer of these and they are typically run by companies who are backing the network, such as Samsung and Sony. They are the first line of defense in keeping the network secure. Those running validator nodes have to stake 1 million THETA tokens.
Second, there are community nodes. These are run by thousands of community members and they check and validate that the validator nodes are performing accurately. If a malicious block was somehow accepted by all the validator nodes, these community nodes would stop it in its tracks. These nodes only need to stake 1,000 THETA tokens.
Who is backing Theta Network?
The company behind Theta Network is called Theta Labs. It’s run by CEO Mitch Liu and has its own streaming site, Theta.tv, which pays viewers in TFUEL to watch video content (since they are then sharing that content to other peers). The company has around 25 employees, mostly based in the San Francisco Bay Area—although it’s looking to expand and has recently opened an office in Seoul.
The company has a nominal amount of revenue currently, according to Wes Levitt, head of strategy at Theta Labs. While the Theta TV platform brings in some revenue, it’s nothing relative to the size of the Theta blockchain, he explained. Rather, the company has been relying on funds raised from its investors.
These investors include Samsung and the Sony Innovation Fund, along with a string of VC firms. As noted, many of these investors run validator nodes on the Theta blockchain. Four of these VC firms announced in March that they will be staking $100 million of their Theta tokens—largely acquired in earlier investments when the token was cheaper—in a collaborative validator node.
The company also has advisers from a range of mainstream media companies, including Steve Chen, co-founder of YouTube, Justin Kan, co-founder of Twitch, and Jonathan Wong, director of product at video streaming website Rakuten Viki.
Theta Labs has so far been granted three patents by the United States Patent and Trademark Office related to its video streaming service, Levitt told Decrypt. The patents relate to how the data is streaming utilizing a decentralized network.
How does Theta stop people cheating the system?
One potential issue with Theta Network is the idea that someone could just use two computers and share video through the network to themselves and get paid for doing so. However, there are a few safeguards that aim to prevent this.
For a start, the network doesn’t let someone stream content to the same IP address. This prevents the basic example above. The network also has a few other similar limitations, that can be fine-tuned by the video streaming platform, depending on how strict they want to be.
Another key element is that those sharing the video content don’t get to choose who they’re sharing to. So if they tried to game the system and share content to themselves, they would naturally be sharing content to potentially thousands of other users. As a result, they would actually be doing more good to the network than harm, according to Levitt.
What does the future hold?
In the near term, Theta Network will be upgrading to its Mainnet 2.0. This will upgrade the network and provide a few benefits.
The upgrade will provide more support for edge nodes. These are nodes that download and share video content without the user needing to watch the video. This is for people who want to support the network and earn TFUEL. Levitt estimated that a user could earn around $10-15 a month by running a node full time.
Theta Labs also plans to introduce a non-fungible token (NFT) marketplace. NFTs are unique, digital tokens that represent a piece of digital content, such as art or music. The marketplace will allow Theta TV content creators to issue their own NFTs and use them to interact with their viewing audience.
Levitt noted that most of Theta’s partners in the entertainment space are trying to find ways to enter the nascent NFT market. That is, as long as the ballooning NFT market doesn’t pop.
Kyber Network is a decentralized, blockchain-based protocol that aggregates liquidity and enables the exchange of tokens without an intermediary. Kyber Network can be integrated into decentralized applications (dApps), crypto wallets, and decentralized finance (DeFi) platforms. The protocol is governed by holders of its native Kyber Network Crystals (KNC) token through KyberDAO, a decentralized autonomous organization (DAO).
Kyber Network Defined
Kyber Network is a decentralized, blockchain-based protocol that facilitates the exchange of tokens without an intermediary and provides liquidity for decentralized finance (DeFi) applications. At the time of this writing, Kyber Network is integrated with more than 100 applications, and powers KyberSwap, Kyber Network’s decentralized exchange (DEX). Kyber Network is governed by the holders of its native KNC token through KyberDAO, a decentralized autonomous organization (DAO).
Kyber Network Provides Critical Liquidity to DeFi
Before examining Kyber Network’s design, let’s first unpack why liquidity is important to the DeFi ecosystem. In the cryptocurrency community, liquidity refers to several things: the ability to exchange an asset without substantially shifting its price in the process, the amount of trading activity in a market, and the ease with which an asset can be converted to cash. Liquidity is essential to healthy, functional, user-friendly markets, but can be difficult for new DeFi protocols to both attain and retain.
In traditional financial markets, liquidity providers are centralized entities like banks and financial institutions. However, utilizing centralized entities to provide liquidity in DeFi markets would run contrary to the ecosystem’s ethos of decentralization. As a result, permissionless protocols like Kyber Network have emerged to take their place. Kyber Network’s mission is to create a world in which any token of value can be used anywhere for swaps in any wallet, as well as for payment services, and other newly developed financial products.
How Does Kyber Network Work?
Kyber Network consists of a set of smart contracts that can be implemented on any smart contract-capable blockchain, though it is only implemented on Ethereum as of December 2020. The protocol aggregates liquidity from a variety of reserves, including token holders, market makers, and decentralized exchanges, into a single liquidity pool on its network. Anyone can provide liquidity to the network. Kyber Network enables its three primary users — decentralized applications (dApps), vendors, and crypto wallets — to execute instant token swaps without the use of a trusted third party.
Let’s run through two types of trades.
In every trade, there is the token that represents the core asset. Ether (ETH) currently acts as this token in the Ethereum implementation of the protocol, so any trade must involve an exchange of ETH for another token. Imagine that you want to trade ETH for BAT, Brave’s Basic Attention Token:
You send your ETH to the Kyber Network smart contract.
The contract then queries all of its reserves for the best ETH to BAT exchange rate.
The contract then sends the ETH to the reserve with the best ETH to BAT exchange rate.
Finally, that reserve then sends you your BAT.
Now let’s imagine that you want to trade BAT for DAI. In this example, since you are not trading directly in ETH, some additional steps are required because ETH is the core asset:
You send your BAT to the Kyber Network smart contract.
The contract then queries all of its reserves for the best BAT to ETH exchange rate.
The contract then sends the BAT to the reserve with the best BAT to ETH exchange rate.
That reserve then sends ETH to the contract.
The contract then queries all of its reserves for the best ETH to DAI exchange rate.
The contract then sends the ETH to the reserve with the best ETH to DAI exchange rate.
Finally, that reserve then sends you your DAI.
Despite the second trade involving more steps, both trades are completed in a single blockchain transaction. Likewise, with Kyber Network, all trades are instantly settled on the blockchain and are either executed in full or reverted. In other words, your trades should never be partially executed (though they may be partially executed on other types of exchanges). Additionally, all exchange rates offered by reserves are publicly verifiable if you query the smart contracts.
When integrated into dApps, DeFi platforms, and crypto wallets, the Kyber Network has a wide range of use cases. For example, a dApp that would like to accept users who do not hold its native token can integrate the Kyber protocol to allow for in-app token swap and token conversion functionalities. These features enable the dApp’s users to utilize any Kyber Network-supported token and simultaneously enable the dApp to receive payment in the token of its choice.
KyberDAO and KNC
Holders of KNC can participate in the governance of Kyber Network through KyberDAO. By staking their tokens, KNC holders can vote on the network’s fee model, rebates for reserves, and other proposals, and also earn staking rewards denominated in ether. KNC is a deflationary staking token, which means its supply will decrease over time. KNC is only an ERC-20 token as of December 2020, but Kyber Network anticipates that it will also be implemented on other blockchains in the future. Nonetheless, its supply will be managed as if it were a single token, and Kyber Network is developing technologies that will enable the transfer of KNC across blockchains.
Kyber Network’s broadly integrated protocol offers an on-chain, decentralized solution to DeFi’s liquidity challenges and provides ERC-20 tokens with ecosystem-wide utility.
Decentralized cloud computing sounds like a beautiful combination of buzzwords used to hype up a product, doesn’t it? Don’t worry, iExec has substance to back up the buzz, and if this is the first time you’ve heard about the project, that makes sense–the team isn’t big on hype.
As this guide’s title spells out, iExec is a platform for decentralized cloud computing, so think IBM or Microsoft cloud services but broken up into multiple nodes for off-chain computing of blockchain applications. It’s a similar concept to Golem (supercomputing) and Siacoin (cloud storage), except it’s using cloud services for processing power. Its target audience is the blockchain realm itself and its budding ecosystem of DApps.
The State of Cloud Computing
Before we break down how iExec functions, it’d be useful to look at centralized cloud computing as it stands today. Cloud computing has quickly become an industry standard for companies that want access to processing power without having to maintain expensive technological infrastructure. Companies like Netflix, Apple, Etsy, and Xerox, for instance, manage some (or all) of their applications and data with cloud computing from companies like Amazon, Google, IBM, or Microsoft. The reason is simple: if these companies already have tens of thousands of servers to support data-intensive computations, why not outsource their processing power? Simply put, these services give businesses access to otherwise expensive resources.
iExec wants to provide the same service, but they want to decentralize it. The market for this industry was $22.4bln in 2016, and it’s projected to reach $55bln by 2026. More or less, the big players have cemented themselves as reliable providers, so why would iExec try to disrupt an industry that seems set-in-stone?
The simple answer being, they’re not trying to. Instead, they want to be for decentralized applications what popular cloud computing services are for legacy businesses: the one-stop resource for blockchain cloud computing.
You might be asking, why does blockchain need this? Glad you asked. There’s a brilliant article on the subject by Noam Levenson and Alex Price for Hackernoon on the subject. Basically, if any of the smart contracts built on Ethereum (or any DApp platform) want to function properly in real-world use, they’ll need access to more computing than the Ethereum virtual machine provides. Ethereum’s virtual machine houses and executes smart contracts on the network’s nodes and mining programs.
As DApps and smart contracts see adoption and widespread use, running all these computations through Ethereum’s blockchain would create a latency/scalability disaster of such magnitude that would render the network useless–just look at what a few million dollars worth of CryptoKitties did to Ethereum in a matter of days.
Essentially, iExec wants to create a network of computing resources that will allow the Ethereum ecosystem to scale to its potential in the future.
How Does iExec RLC Work?
In order to support DApps, smart contracts, and their platforms, iExec takes processing-intensive computations off-chain so as to keep a blockchain’s on-chain functions running smoothly.
To do this, iExec makes use of XtremWeb-HEP, an open-sourced Desktop Grid Software. Desktop Grid computing (also known as Volunteer Computing) pools unused computing resources to be used by applications and platforms, and according to iExec’s whitepaper, XtremWeb-HEP “implements all the needed features” to make this possible on a global scale, including “fault-tolerance, multi-applications, multi-users, hybrid public/private infrastructure, deployment of virtual images, data management, security and accountability, and many more.”
Essentially, with this software, DApps can utilize any computing resource in the iExec framework to run their programs. This means that developers and DApp users can commission processing power from a resource as small as a PC’s CPU to as large as a warehouse-sized data center. Options will be flexible, scalable, and free-market driven, allowing users to find just the right amount of computing power for the task at hand.
iExec accomplishes this service matching using its smart contracts. The Matchmaking algorithm, for example, takes resource requests on the network and matches them with an appropriate provider. This smart contract basically looks at a DApp’s task and asks, “Can this computing resource run this program?” If yes, then it’s a match made in heaven. If not, then it’s time to move on (nothing personal).In order to ensure that users are getting the resources they need, iExec uses a Proof of Contribution model. This consensus algorithm makes sure that a provider provisions the computational power needed by the user, and it rewards this provider with RLC, iExec’s token, in return for these services.
iExec’s Platform Components
Taking a step outside of the software and technicals, let’s take a look at the pieces that make up iExec’s platform. These include its marketplace, DApp store, and data marketplace.
Marketplace: The marketplace is iExec’s hub for providers and users to exchange RLC for computer resources. Through the marketplace, individuals/developers running DApps can shop for the resources tailored towards their application’s needs. iExec comes with a Matchmaking smart contract that ensures that no provider is biting off more than it can chew when committing its processing power to a contract. Moreover, a reputation smart contract manages a provider’s reliability.
Think of this like a Yelp review for computing resources. This reputation system allows users to choose the level of reliability they want, paying less for a less reliable host if they so desire. Thus, the marketplace is free-market driven, and the more providers and users on it, the more competition will dictate pricing.
DApp Store: Finally, a decentralized equivalent to application stores. As its name suggests, the DApp store allows you to browse and purchase DApps that are built on or use iExec. And the cool thing is, the DApp store is live and already features applications you can purchase today. Additionally, application providers can also submit their DApps for listing on the platform.
Data Marketplace: This marketplace is to data what the DApp store is to applications. With it, data providers can sell their excess data to DApp providers or any other party willing to purchase it. Ranging from athlete stats to government consensus data, the sky’s the limit to what you could market on this platform. If someone is willing to buy it, you can use iExec to sell it. Unlike the DApp store (up and running) and Marketplace (set to release this year), the Data Marketplace is still in the conceptual stages of its development, so don’t expect it for some time yet.
iExec Team and What’s to Come
iExec’s core team consists of six PhDs, four of which have been working in cloud computing since the early 2000s.
These four, Gilles Fedak, Haiwu He, Oleg Lodygensky, and Mircea Moca, have experience working at INRIA and CNRS developing programs for Desktop Grid computing. iExec is the product of their collective experience, and after Gilles Fedak discovered Ethereum in 2016, the team found the solution to a problem they had been debating since 2012: how to create a distributed cloud based on Desktop Grid computing.
Thus, iExec was born, and the team has been making steady progress towards realizing their goal since. They maintain an active GitHub, updating it consistently with the open-sourced fruits of their labor, including iExec’s software development kit in November of 2017.
Most all of iExec’s v1 “Essential Edition” of its roadmap has been accomplished. Up next is the v2 “Market Network,” which will look to expand on the DApp store and launch the network’s Marketplace.
When this Marketplace is launched, iExec will also undergo a decentralization process, as all data/computing centers are currently under the control of iExec’s team for reasons of convenience.
The team will tackle V3-v5 in time, but most of these developments will come in the far future.
iExec’s Competition
In their whitepaper, the iExec team lays out the project’s competitive landscape and explains these competitors in relation to iExec.
They’re quick to note that decentralized cloud storage providers like Filecoin, Storj, and Siacoin are not direct competitors, and it’s easy to see why. While iExec could theoretically take a step in this direction as it matures, it’s not a storage platform; it’s a computing platform.
This does put it in competition with other decentralized computing protocols like Golem and SOMN. Both of these, however, are taking aim at a different animal. Essentially, they’re both building a decentralized supercomputer on blockchain technology, while iExec is targeting DApp development and sustainability. Both look towards a future of a blockchain-powered, decentralized internet, but their functions, while sometimes similar, are more complementary than conflicting.
iExec Trading History
iExec had a brief stint in the market cap top 100 before the crash, only to settle back down below this threshold during the bloodbath.
Where to Buy iExec RLC
Bittrex, Binance, Upbit, and Bitfinex account for the majority of RLC’s trading volume. Each exchange sports BTC and ETH trading pairs, while you can also buy it directly with USD on Bitfinex.
Where to Store iExec RLC
RLC is an ERC20 token, so an Ethereum compatible wallet will have you covered for storage, including MyEtherWallet, Nano Ledger S, Meta Mask, Exodus, Laxx, and imToken.
Final Thoughts
If iExec functions as intended, it could scale exponentially as more providers and computing resources join the network. This could open the door for scalability solutions, sustainable DApp support, and future blockchain adoption. It also provides a greener alternative to current cloud computing models, as resources are only used when they’re needed and in a less energy-intensive manner.
The project is certainly ambitious, but for what it’s worth, the iExec team has worked on successful projects before in the same vein. They helped to develop the European Desktop Grid Infrastructure, a series of 200,000 nodes that executed more than a million tasks using Desktop Grid computing. This project laid the foundation for iExec, while also demonstrating its feasibility.
We don’t know whether or not iExec will live up to its expectations, but we sure do have confidence that its team isn’t piddling around with this project. They have the experience, the brainpower, and the determination to see this project through, and for the future of blockchain, we hope they do. DApps and other platforms will need something like iExec if they want to survive in the working market, so here’s to hoping the best for the project moving forward.
Synthetix is a token trading platform built on Ethereum.
It allows to creation of real world assets, like stocks and shares to be bought and traded using crypto.
Synthetix started out as a stablecoin, before pivoting to DeFi.
The trading of stocks, currencies, commodities, and other assets are still dominated by the likes of Wall Street, London, Hong Kong, and other traditional financial centers. Synthetix wants to bring that toolkit over into the decentralized, global, permission-less, and 24/7 world of crypto.
Read on to discover how a crucial pivot in tokenomics turned Synthetix into one of the hottest DeFi
products available.
What is Synthetix?
Synthetix allows users to bet on crypto assets, stocks, currencies, precious metals, and other assets in the form of ERC20 tokens. Synthetic assets or “Synths” copy the price of an asset in the “real world” and brings it onto the Ethereum blockchain giving that Synth all the properties of an ERC20 token.
Holding a Synth is not the same as holding an asset. For example, a synthetic MKR token is the same price as a “real” MKR token, but without the voting rights an actual MKR token holder would have. This system allows users to bet on the price of an asset without holding the actual asset.
Who Invented Synthetix?
Synthetix started as a stablecoin project called Havven and was founded by Kain Warwick, the current CEO. Synthetix is now one of the biggest projects in DeFi with over $180 million worth of SNX tokens locked up in the protocol in December 2019.
Did you know?
The protocol has a very famous holder of SNX tokens – a16z crypto – the venture fund who bought 6% of the total MakerDAO token supply in September 2018. However, a16z never announced an investment in SNX or even mentioned it. There simply sits 374,111 SNX tokens in the a16z address without any explanation.
What’s so special about it?
Synthetix uses a multi-token infrastructure based on a system of collateral, staking, inflation, and fees. The system uses two types of tokens–the main Synthetix Network Token (SNX) and synthetic assets or Synths. The system is similar to MakerDAO’s where ETH is locked up to create DAI. In Synthetix, SNX is locked up to create sUSD (synthetic USD). The sUSD acts as debt while SNX acts as the collateral. The main difference between Synthetix and MakerDAO is SNX is staked as collateral to potentially create any synthetic asset–not just sUSD.
Much of Synthetix’ recent success can be attributed to its innovative token incentive model. SNX holders stake SNX in return for fees from the Synthetix exchange and rewards from the system’s inflationary monetary policy. To create a new Synth, more than 750% of the value of the Synth must be staked as SNX. The more SNX staked and locked as collateral, the less is available in the market and the more valuable the token becomes. The proof is in the price. The SNX token made a dramatic rise from $0.03 at the start of the year to over $1.30 at the end of 2019.
How are SNX tokens produced?
Back when Synthetix was Havven, it launched an ICO
and raised $30 million with a total supply of 100 million Havven tokens. In February 2019, Synthetix changed its monetary policy and there are now over 164 million SNX tokens, which will increase to 250 million over the next 5 years. The growing supply of SNX tokens was meant to reward and incentivize SNX stakers.
How do you get hold of SNX tokens?
If you have an Ethereum wallet and some crypto already, you can trade SNX tokens on decentralized
exchanges like Kyber and Uniswap. You can also stake SNX to create new Synths using their Mintrdapp.
What can you do with Synthetix?
The Synthetix platform was primarily created for users to trade Synths. Holders of Synths can go long on an asset – bet the price will increase. Or they can short an asset – bet the price will decrease.
By staking SNX, holders can create new Synths, collect rewards, and watch their holdings grow. It could be why over 85% of the total SNX supply is currently locked up in the protocol.
The Future
Synthetix spent much of 2019 rising to the top of the DeFi dapp charts before ending the year with a commitment to transition to a decentralized governance structure. They began 2020 by demonstrating the “money lego” properties of DeFi by integrating their sUSD stablecoin with the margin trading platform bZx. But the big feature most have been waiting for is the ability to trade stocks like Tesla and Apple on top of Ethereum – an absolute game-changer for DeFi believers everywhere.
Cryptocurrencies and decentralized technologies are booming. The numbers speak for themselves — market capitalizations have gone through the roof, transaction volume has skyrocketed, and adoption from individuals, corporations, and governments has reached a global scale.
Thanks to blockchain technology, we are moving toward a trustless economy, with no need of third parties to exchange goods. Yet today’s digital currency exchanges are centralized. They have proven to be vulnerable to hacks, to react poorly to unusual blockchain events like hard forks, and often run with a high regulatory risk. Centralized exchanges keep their systems off-chain, meaning they operate as escrows for their clients, and transactions are not recorded on the blockchain. This leads to massive breaches of security and unsafe storage of information, funds, and private keys.
Trading comes with risks, but traders should not face any other risks than those they are already willing to take.
Blockchain entrepreneurs understand this, and some of them are working hard on what many believe will be the future of trading: decentralized exchanges.
Decentralized exchanges — or DEXes — aim to tackle the problems that impede centralized structures by building peer-to-peer marketplaces directly on the blockchain — Ethereum mostly — allowing traders to remain custodian of their funds. However, building a fully decentralized and efficient exchange remains today something of an utopia. Exchanges are centralized because it is the simplest way to proceed, and it is either too costly or technically complex to build fully decentralized platforms — for now, at least.
Throwbacks and inefficiencies of centralized exchanges leave the model with only few advantages. Many semi-decentralized exchanges are coming into action. They are hybrid models between centralized and decentralized marketplaces, trying to deliver the best of both worlds. There is an increasing number of such exchanges, following up on a need expressed by the crypto-community.
This “state of decentralized exchanges” begins with major cryptocurrency numbers and centralized exchanges, which currently monopolize the market. Decentralized exchanges are building the future of cryptocurrencies trading, and this “state” aims to pave its way with its rough listing of projects in the making. We should pay attention to them as they are shaping the way cryptocurrencies trading will operate in the future.
Disclaimer: I am part of VariabL (a derivatives trading platform on Ethereum) and ConsenSys (one of the largest global blockchain specialists).
I. Cryptocurrency Market Overview and the Flaws of Centralized Exchanges
2017 Cryptocurrency market in numbers¹ :
+3400%*=Market cap of cryptocurrencies is experiencing an exponential growth:
From less than $18B to more than $600B in 2017.
More than 99% of cryptocurrency transactions go through centralized exchanges.
II. Centralized Exchanges
Let’s first define what centralized exchanges are: platforms and apps that enable traders to buy, sell, and exchange cryptocurrencies against fiat currencies or other cryptocurrencies. They are marketplaces for tokens, and are essential to the ecosystem, since many of them enable payments with fiat currencies , i.e. non-crypto holders are able to buy crypto using USD, EUR, etc.
Among most well-known and trafficked centralized exchanges are Bithumb, Bitfinex, Bittrex, Poloniex, Kraken, GDAX, Coinbase and Gemini. Hundreds already exist, but the goal here is not to focus on their number, but rather on their limitations and potential for improvement.
Centralized crypto-exchanges may soon become obsolete as they lose the opportunity to leverage blockchain technology to improve their capabilities and efficiency.
Insecurity, risk of fund loss and thefts due to their centralized functioning. They are legally accountable and a custodian of users’ funds. 73% of centralized exchanges take custody of user funds, while 23% let users control keys⁴. They represent honeypots for hackers as they are responsible for billions of trades per day and store most of them on their servers.
A lack of liquidity: large orders struggle to be matched. Even at an all-time-high, volumes remain low (compared to traditional markets).
A fragmented (not to say decentralized) market: divides the global liquidity into a few main marketplaces. No clear market leader in terms of volume, which increases the liquidity problem.
Source: “State of Blockchain — Q3 2017″ by Coindesk
A high level of risks for users due to potential performance issues, market manipulation, hardware failures, latency problems, and many other inherent problems when it comes to dealing with large volumes…
A lack of trust and transparency: actual costs and processes of trading are opaque and involve high trading costs, often higher than announced fees and higher delays due to peaks of demand badly managed. Plus, they can front-run orders, which is illegal.
A lack of educated users: markets are flooded by pure speculators unaware of safe ways to deal with cryptocurrencies.
III. Decentralized Exchanges and Open Protocols
Due to the lack of security, transparency, and efficiency that centralized exchanges have demonstrated, a strong demand for decentralized exchanges have surfaced. Scores of new actors are tackling these problems and addressing an obvious need by the community. Projects like 0x, Ethfinex, ShapeShift.io (not decentralized but not custodian) and EtherDelta have emerged and generated a strong interest.
One of the oldest projects in the field is EtherDelta, a platform with a simple user-interface and basic trading features (no margin trading), which has already gained sufficient traction to generate up to 25 million USD-equivalent of daily transactions⁵.
Definition
Decentralized exchanges differ from centralized exchanges as they enable users to remain in control of their funds by operating their critical functions on the blockchain: they leverage the technology behind cryptocurrencies themselves to enable a safer and more transparent trading. It solves the main limitations faced by cryptocurrency markets (see above), since there is no single point of failure, aligning them with what has made the blockchain technology so powerful in the first place.
Most decentralized exchanges are not fully decentralized, but semi-decentralized (full decentralization is today more of an ideal, due to limitations listed hereunder). In most cases, servers (centralized) still host order books (among other features) but do not hold private keys.
Another central aspect is that decentralized exchanges present the characteristics, benefits and limitations, of their underlying blockchain.
Main DEX Benefits
Trustless, which means that users’ funds and personal data are safe.
Security and privacy are well preserved.
Main DEX Limitations
Maintain the same scalability problems as the underlying blockchain.
Most are not easily usable, struggle with liquidity, do not provide fiat payments etc.
(more details in a section below)
Decentralized Exchange Mapping
Disclaimers:
This “state of decentralized exchanges” may not be fully exhaustive and did not assess all of those projects’ viability nor teams’ legitimacy. However, an effort has been made towards making an exhaustive mapping. Abandoned or scammy projects might be included. It should be taken with a grain of salt and you should conduct your own due diligence before using or investing in any of those.
All the projects below are or contain decentralized exchanges functionalities in their global offers. Many are not limited to exchange services. For the sake of that study, and since there are not (m)any fully decentralized and working exchanges, semi-decentralized exchange will be included.
Some exchanges offering advanced financial products such as futures or derivatives like dYdX or VariabL are voluntarily excluded of this benchmark since there is another article in the making for these ones.
The vast majority is in production/beta; this report aims to list all of them and assess their current state of development. I included their website and Medium accounts when available, which provide most of projects’ updates.
Decentralized exchange enabling cryptocurrencies trading and fiat currency gateways through cross-chain atomic swaps and cross-chain data transfers (In production)
Decentralized exchange that provides instant order placement and execution, free order cancellation, and real-time order book updates. (Live on the Ethereum MainNet)
Decentralized exchange on NEO with an off-chain matching engine including payment services. (in production, trading platform launch expected in Q3’2018)
Crypto-platform for asset/custom token issuance, transfer and trading on the Waves blockchain, with centralised order matching and decentralised settlement. (Live since June 2016)
Decentralized exchange providing price stable cryptocurrencies and banking services on the blockchain (Live since 2014) [Probably the oldest decentralized exchange sill working]
0x relayer and liquidity pool for trading Ethereum-based token (Beta)
IV. Open Protocols for Decentralized Exchanges
Definition
Open Protocols are setting up and running decentralized applications (dApps) on a common basis: some are designed especially for decentralized exchanges (ie. 0x), others also seem suited (ie. Omise). Both will be mentioned below.
They create synergies by allowing “anyone” to build their own services on top of them: it fosters innovation and is essential for native dApps to interact with each other. For decentralized exchanges, open protocols present the benefits of creating common pools of liquidity by allowing any project built on top to interact with each others.
Peer-to-peer protocol for trading Ethereum tokens, without orderbooks (to be open in the future)
V. What May Slow Down the Adoption of Decentralized Exchanges?
Security benefits, by allowing users to remain custodian of their funds, seem obvious and emphasized by all these hacks stories. So why everyone is not using them?
Some aspects are slowing down their adoption: Education and Technology.
Education
Users are not aware of:
Drawbacks and security issues of Centralized Exchanges
Security measures to undertake (how to manage private keys etc.) since it is users’ responsibility
Existence of Decentralized Exchanges
Advantages of Decentralized Exchanges
Technology
Usability: DEX are not user-friendly enough (very solvable problem, linked to early stages of projects)
Scalability: Possible blockchain bloat with ethereum network congestion and scaling pressure (with Token sales and a slow gas price adaptation…)
Speed: Transactions take time to be validated on blockchains
Cost: There is a potential high costs per trade
Liquidity: Chicken and the egg problem. Traders do not join because traders are not already on the platform to match their orders; getting liquidity through a large adoption by the ecosystem is a long process.
Full decentralization: Some services have to remain off-chain and have to suffer from limitations of centralized infrastructures (ie. onchain orderbook are expensive not efficient enough)
Front-running risk: miners can preview transactions, since they validate them, and can have consequences on any DEX (market manipulation)
Interoperability: need for cross-chain exchanges, and more blockchains/dapps interoperability for decentralized platforms to interact with each others.
Accessibility: Need for fiat integrations and stable tokens for lower volatility.
On the matter, Kyber’s chief executive and co-founder, Loi Luu stated:
“…centralized exchanges are potentially unable to handle large volumes of users, touting decentralized trading platforms as a better alternative. However, decentralized exchanges are not as user-friendly as centralized options, and may not have the funds to support mass trading due to small numbers of users.”6
Conclusion
99% of cryptocurrency transactions still go through centralized exchanges; this trend is expected to be reversed in the coming years. Switching to decentralized exchanges is necessary for cryptocurrency users to exploit their full potential, aligning with the decentralized nature of blockchain itself. Education is arriving, and most technological hurdles we face today will probably be overcome very soon.
Differences between projects’ value propositions are hard to spot in this field, and most of them will probably not exist in a close future. However, the trend towards decentralized exchanges is clearly evident.
Centralized exchanges will shift toward decentralized technologies sooner rather than later, but improvements have to come from both sides. Users to learn how to protect themselves, and platforms must provide better security tools, as well as education around common issues and best practices.
“Ultimately, I believe that centralized and decentralized exchanges will co-exist as they each provide their own unique benefits,” says Linda Xie, who sums up the situation pretty well (talking about 0x). Will Warren (0x Co-Founder) goes even one step further by stating that “centralized exchanges will continue to play a critical role in the cryptocurrency ecosystem, because they offer fiat on/off-ramps.” This is one function that fully decentralized exchanges, by definition, do not allow.
If some factors are slowing down adoption, the above-mentioned open protocols (for decentralized exchanges) are fostering development by lowering entry barriers to their implementation and adoption. 0x is probably among the best projects working on the matter. However, even the 0x protocol may suffer from problems like efficiency and scalability, which still represent massive hurdles for the whole blockchain, Ethereum and exchange ecosystem. Solutions in the making, such as State Channels, or Sharding/Plasma, will allow scaling, albeit with certain sacrifices.
From a wider perspective, decentralized exchange adoption will follow the adoption of the (Ethereum) blockchain itself, alongside better educated users and technological breakthroughs. As mentioned, centralized/decentralized hybrid models will most likely get their break first. Fully decentralized exchanges remain an ideal, towards which most of those projects are aiming.
Some questions remain: does everyone want to take care of their own private keys? Probably not, but they should at least have the choice. Friction for new users switching from centralized exchanges to decentralized ones also remain a big hurdle; even the process of switching represents a considerable effort for most users…
Is the switch is going to happen any time soon? People like Vinny Lingham(Civic) say that some centralized exchanges will soon close, and think this will accelerate the adoption of decentralized exchanges.
If the causes and triggers are matters of debate, we can hardly argue that decentralized exchanges are and will continue to grow as a hot topic of 2018 and potentially an essential pillar of the blockchain ecosystem.
Footnotes:
https://coinmarketcap.com
https://localethereum.com/ belongs to another type of cryptocurrencies marketplaces not mentioned here but also trending: local P2P token market places. Other examples: https://localbitcoins.com/fr/ or Dether
https://blog.localethereum.com/centralised-exchanges-are-terrible-at-holding-your-money/. More hack stories hacks stories: https://bitcointalk.org/index.php?topic=576337
“GLOBAL CRYPTOCURRENCY BENCHMARKING STUDY” Dr Garrick Hileman & Michel Rauchs (2017)
https://coinmarketcap.com/exchanges/etherdelta/
Loi Luu (Kyber Network): https://www.coindesk.com/uc-berkeley-kybernetwork-partner-for-decentralized-exchange-research/
从Sushiswap宣布的信息看，它邀请Trail of Bits、PeckShield、OpenZeppelin、Consensys、Certik、Quantstamp中的其中一家对其合约进行审计。但目前为止还没有完成正式审计。这里是有潜在风险的。即便完成了审计，任何流动性挖矿都存在潜在的智能合约漏洞风险。
Zcash is in the same category as other so-called “privacy coins” such as Monero, PivX, and Verge. The creators of Zcash want to use the underlying technology of Bitcoin and improve it by giving their users the ability to make their transactions untraceable and thus maintain their privacy. The privacy coin market is highly competitive and Zcash sets itself apart with its focus on science-backed technology and a team that is dedicated to decentralization and privacy.
Who Is Behind Zcash?
As the origins of Zcash lie in academia it’s not particularly surprising that the team behind the cryptocurrency contains a number of experienced computer scientists and cryptographers. This highly experienced team used cryptography to design a way to “shield” ZEC transactions and thus protect user privacy. Zcash gives users the ability to engage in two types of transactions. The first is a transparent transaction, which works essentially the same way as a Bitcoin transaction. Users also have the option to store and send their currency from a shielded address. This allows users to hide the metadata behind their transactions and thus maintain control over their privacy. zcash shielded wallets. A user can send money to a shielded wallet from a transparent wallet and this will only reveal the funds sent and not the funds received, this also works in reverse.
What Is Zcash’s zk-SNARK?
These shields are created using zk-SNARKs (the acronym stands for Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). This is an interesting form of zero-knowledge cryptography. They allow one party (the prover) to prove to another (the verifier) possession of data (e.g. a secret key) without ever revealing the information or directly interacting with each other. Zcash is a privacy-focused cryptocurrency. See our cryptocurrency guides on Monero, Dash, and Verge — these are also known as privacy-oriented coins. This means that rather than directly validating the sender and receiving addresses, Zcash is able to validate a transaction without revealing any of the underlying information.
What Proof Is Required To Validate A Zcash Transaction?
In order to validate the transaction, the sender of a ‘shielded transaction’ constructs a proof to demonstrate that: The input values sum to the output values for each shielded transfer. The sender proves that they have the private spending keys of the input notes, giving them the authority to spend. The private spending keys of the input notes are cryptographically linked to a signature over the whole transaction, in such a way that the transaction cannot be modified by a party who did not know these private keys. A shielded transaction is also able to verify that a user possesses enough ZEC in order to process the transaction by using “commitments” and a corresponding nullifier.
What Are Zcash’s Unique Identifiers?
These commitments are all given a unique identifier called an “rho”, which is used to verify the payments. When a shielded transaction is spent the sender publishes a nullifier, which is the rho’s hash from an unused commitment. This provides a zero-knowledge way to demonstrate that they are authorized to make the transaction. The team behind ZEC insist that their blockchain is truly independent and decentralized, despite accusations that it is a corporate coin. They argue that because the protocol behind Zcash is open-source, they don’t have any control over the mining and distribution of ZEC, nor have access to any special shielded features.
Bitcoin vs Zcash: Similarities And Differences
How does Zcash compare to the leading cryptocurrency Bitcoin? What are the key differences? See below for our head-to-head comparison:
The Brief History Of Zcash
The precursor to Zcash started its life in form of Zerocoin. This John Hopkins University (Baltimore, USA) project was designed to address one of the primary drawbacks of Bitcoin, its lack of privacy. This eventually led to collaboration with cryptographers from MIT and Tel Aviv University in 2014, who improved the underlying protocol of Zerocoin. In 2015 the first mentions of collaboration between the Zerocoin team and Zooko surfaced and the coin was rebranded Zcash and released on October 28th, 2016 by the Zcash company.
How Was Zcash’s Launch Welcomed?
The launch of the coin was met with a lot of hype that resulted in the cryptocurrency being worth more than 6 Bitcoins (over $5,000) on the day of launch. This speculation quickly died down and since then ZEC has grown at an organic rate. The original launch was met with some controversy. Zcash was created using a “Parameter generation ceremony”. This involved 6 individuals who each created a fragment of the eventual “master passkey” necessary for Zcash to work. These keys were described as toxic waste.
How Do Zcash Master Keys Work?
A master key requires all 6 shards. This requires a lot of trust in the 6 individuals involved and the ceremony has been described as little more than security theatre. If the passkeys were somehow leaked or the individuals involved had colluded then it is theoretically possible for somebody to acquire the master passkey, which would give them the ability to create their own ZEC. It is impossible to prove the process worked. That being said, the security surrounding the event was particularly tight and there were no reported problems, bar a journalist’s phone acting very strangely.
How Could Zcash Be Compromised?
Despite the potential problems, it is also worth keeping in mind that only a single participant needs to have successfully destroyed all traces of their shard in order to ensure the ceremony was a success. So in order for someone to gain access to the master key, it would require all six participants to either be dishonest or compromised. By May 2017 the Zcash foundation had launched as “A non-profit organization, serving the Zcash community and promoting financial privacy”. This was a major milestone for Zcash which had always maintained that the currency was decentralized to serve the public’s interests, despite claims to the contrary.
How Is Zcash Made?
Zcash is mined in a similar way to most other cryptocurrencies. Governments or banks are centralized institutions that physically print money. Instead, Zcash and other cryptocurrencies take a decentralized approach. ZEC is created by its community through mining. The principles of the basic technology behind Zcash are the same as the technology behind Bitcoin. Both coins are mined through solving algorithms using computing power. The blockchain is secured through a consensus mechanism called Proof-of-Work (POW).
How Does Zcash Mining Work?
A miner uses their computer in order to solve complicated equations. Once the equation is solved, a new block is added to the chain and the miner is rewarded with ZEC. This reward system serves two purposes. The first is to encourage miners to devote computing power in order to complete transactions on the Zcash blockchain. Ethereum is now moving from using a proof-of-work (PoW) mechanism to implementing a proof-of-stake (PoS) protocol. The second is to regulate the creation of new ZEC, which is then distributed by the miners.
What Is The Zcash Founders’ Reward?
Zcash differs significantly from other cryptocurrencies because until 2020 the founders will receive a “founders reward” of 20% of all ZEC created. They have agreed to set aside 10% of this in order to create the Zcash foundation. This means that until 2020 miners receive 80% of all coins produced, the founders receive 10% and the Zcash foundation receives the other 10%. After 2020 the reward will halve and miners will receive 100% of all ZEC produced.
What Do Experts Say About Zcash?
As with most cryptocurrencies, the short-term price outlook for Zcash can be described in one way — volatile. The cryptocurrency market is still young and therefore still unstable. You should expect fairly big peaks and troughs in the short term. In the medium, to long-term, you may see Zcash experience a slow and steady increase in value as it has in the past. You will see ups and downs and while some do buy low and sell high, this is a more risky approach than holding for the long term.
Edward Snowden’s Opinion On Zcash And Privacy Coins
Zcash has proven to be fairly divisive amongst experts. Some, such as Edward Snowden, have argued that Zcash is important because it is one of the few privacy coins developed by actual cryptographers. Snowden has argued that this makes Zcash safer to use than Monero which he has described as “amateur crypto” pointing to traceability issues and design errors with Monero. “Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but if it’s not private, it’s not safe.” Edward Snowden
Manfred Karrer On Zcash
Regulation And Competition Others have also come out in support of Zcash and privacy coins in general.
Manfred Karrer, Developer and Founder of Bitsquare said: “I expect three things. One, regulations on cryptocurrency exchanges will come. Two, the war on cash, gold, and cryptocurrencies will accelerate. And three, privacy-protecting technologies like Monero and Zcash will elevate in importance.”Manfred Karrer, Founder of Bitsquare Despite these positives, there are a number of experts who believe that Zcash is too centralized to be considered a true privacy coin.
与其他交易所不同，1inch目前尚未发行自己的代币，不过距离日期不远了。这点从近期的融资就可以看出端倪。12月2日，1inch宣布以SAFT形式（未来代币简单协议，承诺在将来的某个日期交付代币）完成1200万美金的A轮融资。
此外，SushiSwap目前也在测试挂单模式，产品更新速度非常快。
