According to experts, smart contracts on the Blockchain will eventually create Blockchain-based exchanges if the issues of trust, security and liquidity can be overcome.
One major aspect of the Blockchain that emphasises its disruptive nature is decentralisation. Transactions on the Blockchain are usually based on automatic execution once the underlying conditions are met. This can be explained by the creation of smart contracts, which eliminates the element of human interference once the process is started.
Within the Bitcoin world and the Cryptocurrency ecosystem in general, transactions between crypto users and exchanges is still characterised by human interference, thereby creating room for the need for trust or panic as the case may be.
Cointelegraph asked experts how possible it would be to have exchanges launched on Blockchain platforms, having transactions probably run by smart contracts.
Security is a major issue
Thomas McAlister of AAA Blockchains Ltd says that there are multiple examples of Blockchain technologies facilitating all types of value already in existence. He adds that fundamentally, this is a different issue.
“Even before a viability consensus has been reached based on fairly general economic conditions for it to be profitable, the greatest issue is security. We have already seen millions of dollars of value stolen from participants of these exchanges over the past few years within the crypto world for which many of these exchanges were shut down”.
He also points out that already there is a huge demand for "BANKCOIN", indicated by the fact that AAA Blockchain Ltd is based out of Belize due to the fact that:
- They own 100% of the network.
- They can insure its value.
- It is a banking crypto commodity which was accepted in United States.
Battle for acceptance
McAlister explains that for those already trading millions of dollars of transactions through exchanges, the Bankcoin can and will facilitate their transactions by representing a trusted medium of exchange. However, McAlister expresses his reluctance to agreeing that any crypto exchange will become widely accepted due to the economic principles just not supporting it.
He says to Cointelegraph:
“Unless multiple types of crypto currencies would be participants, I just do not see it as a reality, and I think the financial industry would agree with this opinion, otherwise they would be doing it already.”
Three most important factors
McAlister mentions three elements which must be achieved for Blockchain exchanges to see the light of day. They are trust, security and liquidity. He says that having the Blockchain as a settlement system on the backend to existing exchanges is an absolute possibility as the world is showing that they can trust that particular aspect. But for a participation crypto network, McAlister expresses many doubts unless a reasonable level of trust, security and liquidity is achieved.
However, he concludes by painting the following scenario:
“Assuming McDonalds, KFC or any large global institution with an already devoted consumer base were to create their own crypto coin, then I would say they would definitely meet all the economic and security requirements which they could then essentially float on and a valid sustainable crypto Blockchain exchange. Bitcoin would then surely have a battle for market dominance on their hands.”
Just a matter of time
Jani Valjavec of Cashila is certain that Blockchain based exchanges are not very far away.
Valjavec says to Cointelegraph:
“In the future, exchanges will emerge that will operate only as price information and contract creation, but only for things which will be issued on top of the same platform (ethereum or lisk for example). When you have the Augur issued on Ethereum and also some other tokens, you can exchange two assets between two people who neither know nor trust each other. The "exchange" would form a contract with a price and expiration time and each party would send their own amount in the contract. The contract will execute automatically.”
In the case of an amount too high or too late, value is returned to the original owner. When a party defaults, assets that have been sent would be returned to the original owner. According to Valjavec, this can help protect traders from scams, losses and thefts.
Valjavec concludes that decentralised exchange is possible and it is just a matter of time before we have one. However, he notes that it would not be meant for high frequency trading, but would be a perfect solution for OTC deals.