In the early days after Bitcoin’s arrival in 2008, it was difficult to acquire the new cryptocurrency. Among some of the ways to get Bitcoins was for investors to wire their money to Japan where it was then converted and exchanged. Seems complicated right?







Methods of exchange have been an ongoing issue for cryptocurrencies, especially in ensuring that trades are secure and reliable. Although there is some peer-to-peer trading or decentralized exchanges, the main way in which we trade crypto is through centralized exchanges, which is when buyers and sellers go through an intermediary who strikes deals in investors’ names.







The problem is that centralized exchanges are vulnerable to hacking because their model requires that assets be stored in one place. With the sudden disappearance of large volumes of cryptocurrencies during the Mt Gox and Bitfinex scandals, centralized exchanges have been proven to be an unsafe way to trade crypto.





If current exchange platforms are prone to be hacked, why do we continue to use them despite the lack of effort to make them more secure?





Simply put, we continue to use centralized exchanged platforms despite continuous hacking scandals because they are convenient and our habitual way of trading. And as creatures of habit, we will continue to use centralized exchanges. So it follows that there needs to be a safer way to trade cryptocurrencies on centralized and peer-to-peer exchange platforms.





What would a safer exchange platform even look like? And is anyone working on developing this platform?





A safe exchange platform would use the features of blockchain technology such as smart contracts and decentralization in order to develop a trading protocol that allows users to maintain control of their funds rather than having them held in large amounts by exchanges.





An Ethereum blockchain startup, known as Loopring, is developing the backend code that will enhance the security of crypto trading for both centralized and decentralized exchange platforms. Where to exchange coins would not change, but the security of the platforms that implement Loopring’s protocol will be greatly increased.





On what features of blockchain is Loopring capitalizing to create a safer exchange protocol?





There are many ways in which exchanges can leverage blockchain technology to create safer trades. Loopring has capitalized on the following properties of blockchain to ensure higher levels of security for traders.





Immutable Ledger: The blockchain immutable ledger is updated in real time, so any transaction that is completed on a blockchain-based platform is recorded. Therefore, if money is funneled from one account to another, for example, all transfers have been recorded in the ledger and are transparent to blockchain users.





Smart Contracts: These are crucial to improving security measures of exchanges because they can reduce counterparty risk or the risk that each party will not live up to its contractual expectations, because of their self-executing nature. This technology will ensure that contracts are held up according to agreed upon terms, reducing the risk of non-compliance and making sure that investments are used only for their intended purposes.

This is a big one for Loopring because rather than having traders place the currency they want to trade in an escrow, the team has created a protocol which means that money can stay in the users’ account. When a user wants to place an order for a trade, they give permission to the smart contract to access a certain amount of currency that is in their wallet but the user retains control over those funds until the order is processed.





Decentralization: This is important as well for secure trading. Centralized platforms share a common weakness with a single point of control. With blockchain, no one group has complete control over the operations of a platform, meaning that the risk associated with hacking is greatly minimized.





Though there are a few blockchain startups that are leveraging these inherent properties of the technology, none is doing it quite as well as Loopring because all of these exchanges require users to put their money in escrow while an order is pending.





What is one of Loopring’s most secure features?





The most important difference in Loopring’s protocol as compared to centralized exchange protocols is that assets will not be held in one place.





The team has developed a safer trading protocol in which investors have complete control over their assets until the moment at which the trade goes through. Then and, and only then, does the currency gets transferred to its destination. By adding this feature to the Loopring protocol, the team has ensured that users do not lose their money based on custodial risks such as frozen accounts, hacking, or the exchange shutting down. This does not remove all risks associated with trading, but it significantly improves the security of trading or exchange platforms.





It is important to remember that Loopring is not an exchange platform, but rather the code that centralized or decentralized exchange platforms can adopt in order to improve their operations and their levels of security. The Loopring protocol was developed out of the necessity to increase security for users because the current crypto exchange market has not yet successfully addressed this issue. But, the best part is that where to exchange coins does not have to change: Loopring will simply be running in the background to enhance existing platforms and add to the overall security of crypto trading.





Where can I find more information about Loopring?





For any questions regarding Loopring’s protocol, join the conversation on their slack and on their reddit.





