As the Bit.Team DEX approaches launch date, we look at the underlying conceptual and technical model and show how it provides answers to some of the common problems experienced by decentralized crypto exchanges.
If you’ve ever set up a new business, you’ll know the highs and lows that are experienced as the day for launch approaches.
Bit.Team is in the beta testing phase of their new DEX (decentralized exchange) and are completing Stage 3 of their roadmap. This includes correcting deficiencies and bugs, preparing promo materials, undertaking active promotion on social media and other advertising media, writing the next version of the white paper. Stage 4 is the official opening of the service and the ICO.
So, everything is certainly getting close, and emotions are undoubtedly running high.
They have a fairly simple promise: The Bit.Team DEX will be simple, secure and fast. Is this all that is required to set them apart from the rest?
This seems to be a good time to go back to the beginning and remember why this project was undertaken in the first place. We will track the growth of the cryptocurrency market and the emergence of crypto exchanges to understand why the founders decided that a new decentralized crypto exchange was necessary and that it would be a profitable business.
The move to cryptocurrencies
The world has become characterized by speed and instant gratification. The internet allows for 24/7 immediate communication and information sharing. Email, WhatsApp and Instagram keep us in constant touch with one another
Money transactions have been transformed. Gone are the days of standing in queues at banks and staying within banking hours for transactions. In their place are quick and convenient payments via online systems like PayPal and credit cards. As cryptocurrencies have become more embedded into fintech systems, cross border transfers are completed in a fraction of the time and at a fraction of the cost of a system like SWIFT.
Cryptocurrencies have become increasingly more accepted. At the heart of this acceptance is the fundamental nature of cryptocurrency: it is based on a decentralized system of consensus which doesn’t need a centralized authority; it allows for complete security and confidentiality of transactions; and it allows for direct person to person transactions, without the requirement for an intermediary and without regard for geographic borders.
More and more places are now accepting cryptocurrency payments. Outside of individual merchants who have hung up the “we accept bitcoin” sign in their stores, there are some major companies accepting or facilitating such payments.
· Overstock, the online retailer
· Expedia, the online travel booking agency
· eGifter, where people can use cryptos to buy gift cards to be used at other businesses such as Amazon, JCPenny and Home Depot
· Newegg, for electronics
· Shopify stores. All 75,000+ merchants who have set up their ecommerce stores on the Shopify platform will accept payment in bitcoin
· Dish, a satellite and internet service provider
· Roadway, a moving company
· PizzaFor Coins which allows you to pay for pizzas from a variety of brands, including Dominos, Pizza Hut and Papa Johns
· Intuit PayByCoin provides an online QuickBooks invoice service to small businesses and allows the option of payment in crypto
· Microsoft will accept crypto payments for games, movies and apps
The growth in the numbers of people believed to hold cryptocurrencies is increasing. According to Dan Morehead, CEO of the bitcoin investment company Pantera Capital,
“Six or eight years ago there was probably a million people on earth using it, now there are 50 million people that use it… I think in a decade it’s going to be billions of people using it…”
The need for crypto exchanges
Cryptocurrencies have another characteristic that makes them very attractive. Most of them underpin real-world projects or businesses that in themselves have current and future value. Owning these cryptocurrencies gives some “skin in the game” for the future development and success of these businesses.
Buying the coin or token can be compared to traditional investment in a new business.
Let us ignore for the moment some of the technical definitions about whether or not a particular coin or token is a utility, an equity or a security and what the regulations may be in a particular country. From a very simplistic point of view, owners of cryptocurrencies stand to gain if the value of the underlying business increases or if there is increased demand for them.
The initial value of the coin or token is based on its opening price, set during an ICO or as part of seed funding from large investors. These prices are usually defined relative to the USD or to other major cryptos like Bitcoin, ETH or Litecoin.
All of this presupposes that there will be a public place to buy one type of cryptocurrency in order to buy another. It also presupposes that people will be able to buy and sell the coins and tokens they have, or they want. People who did not participate in an ICO may want to purchase the associated coins later. People who did participate may want to liquidate their investment.
So, the need for crypto exchanges was born.
Exchanges are needed for another really important reason: mining and staking. As blockchain technology finds its place in an increasing number of use cases, its success is underpinned by the validity of transactions being established by networks of distributed nodes. Whatever the consensus mechanism (proof of work, proof of stake or other), owners of nodes are rewarded for their efforts by payments in the coin or token native to the blockchain or the Dapp on which the transaction is happening. And node owners need a place to convert these coins or tokens to other crypto or to fiat currencies.
Current status of centralized vs decentralized crypto exchanges
There’s no wonder, then, that crypto exchanges are springing up all over. Today CoinGecko reported on 260 exchanges and 3376 coins.
Most exchanges, including the largest ones like Bithumb, list relatively few coins. Only 4 list more than 1,000 coins, and only about 50 list more than 100. Depending on the coins to be traded, a user may need to register with a number of different exchanges.
Not all of them are doing well. On the day of writing, 32 exchanges recorded daily trades of less than $100. Likewise, for the coins, 1368 of the 3376 recorded 24-hr volumes of less than $100. Of these, 1050 were below $10 for the day.
What is noticeable is that of the 260 exchanges only 26, or 10%, are decentralized exchanges.
In a previous article we discussed the different types of exchanges and noted the pros and cons for centralized vs decentralized and custodial vs non-custodial exchanges. We noted that while cryptocurrencies and blockchain depended on being decentralized, exchanges tended to be centralized. This seems to be a contradiction in terms.
The differences between them are really well-depicted in the following graphic, taken from an article written by Marc Howard:
A quick analysis of this table shows that the positives for a decentralized exchange — all the green ticks in the left-hand column — are associated with the customer’s ability to be independent and free from risk of interference and hacking. This independence also leads to the downsides — the red crosses in the column. The customer must look after the security of his/her own assets and must work out how to operate within the system without much help.
The other negatives for the DEX are more technical. Decentralized exchanges generally are quite slow, they have less liquidity because there is less trading happening, mainly because of the manual matching of buy/sell orders, and only basic trading can be undertaken.
So, it would seem that those who value their independence from centralized control would probably move to a decentralized exchange if some of the technical problems could be ironed out and they could become more user-friendly.
This is where Bit.Team may well have some answers, given that their solution is based on the premises of maximum simplicity and absolute security.
The Bit.Team solutions for decentralized exchanges
The team that have developed this new exchange comes from a centralized exchange background and they have heard what customers have been asking for. There are some promises they keep repeating:
“An exchange that is simple, secure and fast.”
“ A platform which supports the peer-to-peer (P2P) exchange of cryptocurrencies, and which serves as a guarantor of each transaction.”
“A set of services aimed at convenience and simplicity of interaction with the cryptocurrency.”
Here are some of the plans they have to solve current problems on decentralized exchanges:
You need to protect your own wallet and private keys and passphrase.
There is no escaping the need to protect your information. However, Bit.Team has added some optional security features, including a specialized cold wallet, 2-factor authentication, limits on transaction sizes and KYC and AML validation.
A further security step is that the platform will act as the guarantor of deals. The seller’s crypto is “frozen” or blocked until the buyer has made the payment for it. In the case of a dispute, the platform will serve as arbiter.
There is a dedicated team monitoring all online and trading behaviour to immediately detect suspicious transactions.
No central customer support; mainly community based, if any.
Bit.Team will offer 24/7 technical support.
There is also an online chat tool to allow buyers and sellers to deal directly with each other, and a special builder tool that allows them to set up non-standard deals. A variety of payment methods are available to make the completion of deals really easy. A system to rate participants, based on the completion of deals, will build trust.
There is a significant amount of automation on the site to simplify its usage.
Additional support comes from a “marketplace” which is an online resource that collects and systematizes information on goods and services associated with digital assets. The purpose is to help users to compare, choose and purchase assets.
Lower trade volumes and manual matching of buy/sell offers
Automation makes it possible for a trader to do multiple trades in a short period of time.
An automated trading robot app (easy BOT) also makes deals accessible to traders using bots. They can set their limits and leave the bots to do the rest.
There are mobile trading apps and instant notifications via various messenger apps.
The Bit-Team DEX will start at an advantage as the 100,000 active users from their previous exchange — Wallbtc — will transfer. In addition, there is a multi-level referral programme and a concerted advertising campaign will be put in place to attract new users to build trade volume and liquidity.
TPS too slow (<10,000 )
The speed will be finalized after the beta phase.
Limited to basic trading (buying/selling)
The easy BOT and other automated systems and notifications will allow for increasingly more complex trades to be facilitated.
The Bit.Team DEX promise: simple, secure and fast
What seems at face value to be a very simple promise turns out to be backed by solid technical and conceptual IP for the Bit.Team DEX.
As their launch date approaches, it will be interesting to see how well they can sell themselves to a wide community of miners and traders and how they deliver on their very promising model for decentralized exchanges.