A DEX exchange o decentralized exchange is the technological evolution of a traditional exchange. In a DEX exchange, all its operation is transferred to the blockchain and executed on powerful smarts contracts, with which everything is managed within the platform.
Whether you’re new to cryptocurrencies and blockchain, or already have some knowledge of it, chances are you’ve heard of exchanges. These are digital exchange places where you can exchange cryptos and tokens for trust money or other cryptos. And where the value of the cryptocurrencies is determined by the supply and demand of the cryptocurrencies active in the market.
What are DEX exchanges?
There is a lot of talk about this type of exchange nowadays, especially because of the level of security they offer to the user, and even anonymity.
Decentralized exchanges, also known as DEX, are digital platforms that function like traditional exchanges. But, unlike traditional exchanges, a smart contract operates at the heart of the service. This eliminates intermediaries to a great extent, making them more secure and transparent. In short, a decentralized exchange, or DEX, is a cryptocurrency exchange operated by smart contracts.
This means that trust and management of funds is not placed in one central figure. Instead, the exchange’s users maintain control of their assets at all times. A feature that adds a high level of security, privacy and even anonymity, when operating in this type of exchange houses.
But how did we get from traditional exchanges or decentralized exchanges?
What other advantages do DEXs offer us? Well, let’s examine a little bit the history behind these decentralized exchanges.
Origin of decentralized, DEX exchanges
Crypto currency exchanges have evolved a lot since the creation of the first of these platforms. Initially, exchanges like Mt Gox. followed a model of centralized management and interaction. That is, the exchange controlled the funds that we have in it. And in order to perform operations it was necessary to log in. This obviously ends with the decentralisation of cryptocurrencies and generates serious security problems, as demonstrated by the hacking of Mt Gox.
In order to face this and other problems presented by centralized exchanges, decentralized exchanges were born. The first platforms of this type were OmiseGo and BitShares, which began to be developed in 2013. Each of them has different functions and capacities, but they have the same objective: to start the revolution of the decentralized exchanges. But reaching this point has required an evolution in time that we will describe below.
Types of exchanges and DEX exchange
The evolution of exchanges has created three very different types of exchanges or generations. These are:
First generation exchanges
Despite being a relatively new concept, decentralized exchanges already have differentiated versions. On the one hand we have the traditional exchanges, these are centralized, you must send your cryptocurrencies losing absolute control of them and trusting blindly in the good work of the platform. We can call these centralized Exchanges, but also first generation.
Second generation exchange
On the other hand we find the most basic decentralized exchanges, the second generation. These change the central piece for a smart contract, which is in charge of making the exchanges. As a smart contract, everyone can see how it works. However, in these smart contracts you have to send your cryptom currencies, losing possession of them during the time you want to make the exchanges.
Third generation DEX exchange
A new generation of decentralized exchanges improves this last point, allowing you not to send your cryptocurrencies anywhere, even though you can open exchange orders with them. We call them third generation exchanges. In the same way they act by means of a Smart contract in the epicenter of the tool, but it allows you to keep the cryptocurrencies in your wallet at all times, so if those tokens give you dividends, or voting options in a CAD, you will be able to do it until the last millisecond of the exchange.
Blockchain technologies for DEX exchanges
Although Ethereum is the most used platform for this type of development, due to the large number of projects (tokens and DApps) that are being developed on it, there are other blockchains that also allow this, including Bitcoin through the Counterparty project. Some other blockchains that allow the creation of decentralized trading platforms are Stellar, Komodo, Waves, BitShares, NEO or Ardor among others.
Advantages of DEX
Everyone can see transparently how the service works, how it will act in any situation and see in real time what is happening inside it, without manipulation.
Security and protection
Hundreds of millions of money are stolen from centralised exchanges every year. In 2018 alone, more than a billion euros were stolen from the centralised exchanges.
Smart contracts can be implemented on DEX as a protection against fraud and scams. Thus, when establishing a contract with certain conditions to be met, the parties involved in the exchange must obey these conditions for the transaction to be executed. If any or all of the conditions are not met, the contract expires and is not executed. Best of all, these contracts, once scheduled, are executed automatically and in a decentralized manner.
On the other hand, DEXs work through a network of interconnected computers, much like a blockchain network. Therefore, they have a high protection against hacking or computer attacks that threaten the integrity of the users’ funds.
However, decentralized exchanges (especially the second generation) can also be subject to theft, since all the funds are held by a smart contract that can contain failures, such as the famous multi-million dollar robbery The DAO.
A high degree of anonymity is another advantage they can offer. This is because a decentralized exchange DEX only uses addresses to carry out transactions and exchanges. Users are not required to provide personal data and information.
Another advantage of decentralized exchanges is their robustness and solidity. The probability of a system crash of DEX is almost zero; therefore users will not have to worry about this problem. This is because DEXs do not operate with a single server, as is the case with centralized exchanges.
Disadvantages or disadvantages of DEX
Usability of DEX exchange
At first without knowledge, the DEX platform can seem confusing and difficult to trade. So it almost always takes guidance or instruction from an expert user to understand them and start trading on them.
A decentralized exchange (DEX) does not serve to make exchanges between cryptosystems of different blockchains. Since Ethereum is the network with the most tokens, the most famous decentralized exchanges are from this network. But for example you can’t exchange Bitcoin for Ethereum, only Ethereum tokens for other Ethereum tokens.
The types of orders that can be placed on a decentralized exchange are very limited, and only limit and market orders can be placed.
As in DEX, the exchange operations occur within the same blockchain, its process is much slower than in a centralized exchange. Therefore a decentralized exchange cannot handle high frequency.
Liquidity in DEX exchange
The most important thing about a trading platform is liquidity, which in turn generates low spreads. A decentralized exchange (DEX), due to its lack of manipulation capacity, usually has little liquidity, generating in turn little traction that becomes again low liquidity and high spreads. Something that scares off any user.
Bit2Me DEX exchange
At Bit2Me, we have the Bit2Me DEX platform, a professional, third-generation, decentralized exchange that allows you to perform atomic swap type operations. Although, as we have indicated, this type of platform lacks liquidity, this exchange has advanced features and a complete, easy-to-use user interface. In addition, Bit2Me DEX allows you to trade with a wide variety of cryptocurrencies, providing your users with very high levels of security and protection.
The Bit2Me DEX platform operates for Ethereum ERC20 tokens. And it is really easy to start using it, since it does not require registration or deposits, and allows the exchange of cryptomoney from the same wallet. In addition, at Bit2Me DEX, users always keep control of their assets and private keys, so they are never compromised.
Bit2Me DEX exchange features
3rd Generation Platform. At Bit2Me DEX, users maintain custody and real control over their funds and assets at all times. So no other user can access them to manipulate or intervene. In addition, they can trade from anywhere in the world without intermediaries and without commissions.
Easy to use. No user registration or validation of information is required to start trading with Bit2Me DEX. So the platform can be started in a few seconds.
Instructions. The Bit2Me DEX platform has an interactive tour that will help users get to know the platform. It shows all the elements that make up the exchange and an initial configuration tutorial.
No commission. Users can exchange their crypto-currencies and tokens with 0% commission.
Atomic Swap. Users will be able to perform their operations without the need of third parties. Keeping control over funds and private keys in their hands at all times.
TradingView. This integrated function shows, in the price chart, the changes and updates in real time of the cryptographic assets prices. It also shows functions and analysis tools for professional traders.
Fiduciary money trading. With Bit2Me’s Tikebit option, users can easily and securely exchange their Euro money for crypto currencies.
Free trade. On the Bit2Me DEX platform, users will not only have the exchange options, they can also trade their assets and generate profits.
Hardware wallets. In Bit2Me DEX, users can use digital wallets and hardware wallets such as Ledgers. Since the platform offers support for both.
Furthermore, the Bit2Me DEX platform can be customized in a variety of languages; this is to make it more accessible and understandable for all users. In addition, at Bit2Me we have a qualified technical staff to provide advice and information for any doubts or concerns.
0x Protocol in DEX exchange
At Bit2Me DEX we use 0x protocol technology, implemented by 0x Project. This allows this platform to be fully functional through the smart contracts executed in the Ethereum network, while integrating the atomic swap.
These implementations allow Bit2Me DEX to be managed as a completely secure, reliable and decentralized exchange platform. Without the need for third party intervention; providing a great benefit to users, by never having to extract their cryptom currencies or tokens from their wallets, until the time the exchange is made.