This is the second in a series of articles aiming at people with little to zero knowledge about the Waves Platform. Goal is to publish articles in simple words and with “real-life” examples. True to WavesGo’s mission: Making blockchain accessible to the masses

A key feature of the Waves Platform is its integrated exchange. Unlike traditional, centralized exchanges, the Waves Platform is working on a decentralized exchange called Dex. In order to understand the advantages of decentralized over centralized exchanges , one has to understand a core concept of cryptocurrencies and in which way traditional exchanges are opposing this concept.

Satoshi states with the first sentence in his Whitepaper what Bitcoin is aimed to be :“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through financial institution”.

As a matter of fact, cryptocurrencies build upon the idea that you do not need to trust anybody to transfer value from one entity or person to another. Bitcoin was the first major, and eventually successful, system to realize this and many more followed.

Sending peer-to-peer on a no-trust basis works totally fine, but exchanging does not. A centralized exchange works as an intermediate between seller and buyer, which bears big risks, such as hacks ( example 1, 2, 3, 4 ) or misbehavior . Furthermore, as long as your funds are located on a centralized exchange, you do not hold the private keys (on the Waves Platform called Seed), and you have to rely on the exchange to access, transfer and exchange your funds. Essentially, a centralized exchange holds your money the same way a bank would.

So far, decentralized exchanges have not been on the same level as centralized ones regarding speed (due to technical limitations) and UI/UX (a lot more challenging to implement). Overall, decentralized exchanges have simply not been convenient to use and hard to understand, particularly for non-tech-savvy people.

To better understand the advantages of peer-to-peer trading, we are having a look at the processes of both centralized and decentralized exchanges.

Centralized: Deposit funds from private wallet to exchange wallet, do your trades, withdraw funds back to your private wallet. Now, as long as your funds are on the exchange, all you actually have is a coupon from the exchange guaranteeing that they hold your funds safely. You do not hold your own funds.

Decentralized: You hold your funds in a private wallet. When you trade, your funds will be sent directly peer-to-peer to the other party. During the whole process, you hold your funds in a private wallet.

The Waves Dex enables anyone to trade cryptocurencies in a decentralized way.

Security is one argument in favor of decentralized exchanges, however, there are many more to why decentralized exchanges are superior:

They allow you to trade any token against any other token. Unlike centralized exchanges, the user can choose whatever trading pair he wants (e.g. Centralized: LTC → BTC →WAVES; Decentralized: LTC → WAVES). Centralized exchanges dictate their user base the available trading pairs.

LTC → BTC →WAVES; LTC → WAVES). Centralized exchanges dictate their user base the available trading pairs. The fees are significantly lower using decentralized exchanges (on the Waves Dex it is 0.003 WAVES ≈ 0.01 $ flat fee for every trade; no fee for creating or deleting an order).

The Waves Platform and its Dex are currently undergoing heavy development. Before the end of the year two big improvements are going to be implemented.

Waves-NG: A new blockchain protocol which will solve the scalability bottleneck for the Waves blockchain. Waves-NG will make it possible to offer a trading experience almost as fast as centralized exchanges due to microblocks being added in a frequency of 3 seconds. As a result, matching on the Waves Dex takes milliseconds (same as on centralized services) and settlement only lags behind a couple of seconds at maximum.

New User Interface: To get mainstream attention and improve the user experience, the GUI is currently undergoing a complete revamp. The goal is to offer an easy-to-use interface, designed for both tech-savvy and non-tech-savvy people, resembling the user experience on a centralized exchange.

To summarize: Centralized exchanges were a necessary evil to make cryptocurrencies accessible to the masses, however, technical progress now allows us to make the next step and shift to decentralized exchanges.

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