The past and present of decentralization

Sir Berners-lee invented the World Wide Web in 1990. He wanted it to be decentralised, bringing the world together and collaborating, so he gave it away for free. But not long ago, In an interview with Vanity Fair magazine, Sir Berners-lee expressed his frustration with the current Internet: “The spirit of the Internet was supposed to be decentralised, but some companies have turned it into a cartel.” Indeed, centralization is the reality of the Internet today, and the Internet has destroyed the idea of a decentralized world.

In 2008, the subprime mortgage crisis broke, and millions of people lost their money overnight. A pseudonym satoshi Nakamoto first mentioned the concept of BTC in Bitcoin: A Peer-to-peer Electronic Cash System. “I have been working to build a new electronic cash system that is completely peer-to-peer and does not require” trusted third parties, “he wrote. Key features include: preventing double payments through peer-to-peer networks; No “trusted third party” required; Participants can be anonymous; The new currency is generated through the proof of work mechanism; Proof of work also prevents double payments.”

After 10 years of development, bitcoin has spread widely, and the resulting blockchain technology has attracted a lot of attention around the world. As in the early days of the Internet, the concept of “decentralization” is being talked about with increasing frequency. On this basis, various kinds of decentralized projects and applications (DApps) emerge one after another. All this shows that decentralization may be distant, but it is happening.

What is decentralization?

The essence of blockchain is a decentralized distributed ledger/database, and decentralization is one of its most important features. A simple understanding is that blockchain relies on the operation of all nodes around the world, each of which has all data and equal status. Any number of all nodes can ensure the normal operation of the system, and there is no one or several prominent central nodes. Through this form of organization, combined with encryption algorithms and consensus mechanisms, blockchain enables users to complete peer-to-peer trusted transactions and take control of their assets without the need for third parties.

Currently, the industry has proposed concepts and applications that are applicable to the industry based on blockchain. But when the word “decentralization” is mentioned, the first thing that comes to mind is “decentralized exchanges”. The reality, however, is that centralized exchanges still account for more than 90% of trading volume, which is even more concentrated than ordinary industries. This is a great irony for blockchain, which touts itself as decentralized, and a practical detriment to the industry.

So why should exchanges be decentralised?

1. Security

Hackers have been stealing Hyundai Coins from centralized exchanges around the world since 2014. Since the beginning of 2018 alone, hackers have stolen more than $1.1 billion worth of digital currency from centralized exchanges. Safety has become one of the hottest topics in the industry in recent years.

So can decentralized exchanges solve security problems? The answer is yes. Take R1 protocol, a distributed decentralized transaction protocol developed by ONEROOT based on Taifang, as an example. User assets are stored in smart contracts and are not controlled by any third party. Even if the exchange is attacked, user assets are safe. Users can extract assets through an exchange or by invoking a contract interface.

A hacker attack on a centralised exchange could simply move everyone’s money away; But if a hacker attacks a decentralized exchange based on R1, the asset will only be returned to the user’s wallet account unless the user’s private key is obtained. R1, on the other hand, does not store the user’s private key, and in the end, the hacker will find nothing.

2. Transactions are auditable

On March 30, 2018, at 5 o ‘clock in the morning, the digital currency trading platform OKEX appeared nearly one and a half hours of extreme trading behavior, according to the statistics of OKEX burst position records, just one hour burst long 460,000 bitcoin futures contracts, fell to the lowest point after the moment and pulled up more than 10 points, and in the whole abnormal volatility, The spot floor price did not fall below $6,000, with futures spot spreads as high as close to 30 per cent.

At approximately 9:28 on the same day, OKEX issued a “Notice regarding OKEX rollback of abnormal Transactions.” Regarding OKEX’s behavior, Ding Peng, president of China Quantitative Investment Association, once said, “It is almost impossible for the traditional capital market to roll back trading. The biggest spirit of blockchain is that data cannot be tampered with. It takes rollback transactions to nullify part of the transactions. Did it tamper with its own transaction data? This clearly goes against the spirit of blockchain.”

Compared with centralized exchanges, R1 protocol is open and transparent, avoiding disadvantages such as black box operation, fraudulent trading and data rollback. Every transaction that passes through R1 is searchable, traceable, and once the transaction is submitted to the chain, it is authentic and untampered with. In addition, users’ transactions, deposits and withdrawals can be tracked on the chain and are not controlled by a third party, maximizing the authenticity of transactions.

The future of exchanges

Sun Yingjun, the initiator of ONEROOT Co-creator, said in the live broadcast that “centralization is still the mainstream. The goal of decentralized exchanges is not to replace them. They can coexist and complement each other. The real goal of a decentralized exchange is to return the power of exchange to the community and promote “freedom of exchange.”

“Centralization” or “decentralization”? Each exchange faces its own difficulties. In the future, we may be able to find a balance between the two to solve industry problems and meet user needs.