Except if you go for decentralized exchanges, that sidesteps regulation and KYC/AML entirely. If countries keep fragmenting their crypto regulations, then so will liquidity. The decentralized exchanges will be the only venues left that pool liquidity at a global scale.
You still need a centralized exchange to be an on-ramp to go from regular money to the blockchain. But that's way less lucrative. You convert your dollars to USDT/WBTC/Ethereum at Coinbase, transfer to your wallet, then do 99% of trading/gambling on Uniswap. That's not a future where Coinbase is very valuable.
I had to scroll past far too many hot takes about how centralized exchanges signal the end of decentralization before finally finding someone saying this.
There is a decentralized version of every service that Coinbase currently provides and many more they don't, with the exception of fiat on/off-ramps. Until regulations change that's going to mean centralized entities that cooperate with the existing financial institutions.
That fact alone does not invalidate the significant progress being made in every other part of this space with regard to decentralization. Once my USD are converted to crypto I can leave Coinbase and fully engage with the decentralized ecosystem, only going back to a custodian like Coinbase if/when I want to return to USD or other fiats.
I don't think I said Coinbase should be committed to decentralization. What I will say is more nuanced: if Coinbase and other exchanges aren't committed to decentralization, then you and I have good reason to distrust those exchanges' motives.
From the perspective of an individual investor in cryptocurrencies, decentralization is the entire benefit of cryptocurrencies.
Hacker News isn't a place where this will be popular to say this, but some regulations are good--they exist to protect from scams and obvious economic flaws.
Some regulations are misguided too. Decentralized currencies by their unregulatable nature avoid all regulations: good regulations and bad regulations. If you have reason to avoid the bad regulations, then cryptocurrencies are a good investment for you.
A centralized cryptocurrency is the worst of both worlds. It's (temporarily) unregulated, but it's not unregulatable. That means that investors don't get the benefits of avoiding the bad regulations, because in the long run, centralized cryptocurrencies can be brought into the regulation fold. But it also means that investors don't get the benefit of good regulations, because a scammer can exit long before their crypto gets regulated.
That's a pretty high-level, general view, but this plays out in a lot of specific ways, including what has happened with FTX.
Coinbase, Binance, Tether are a problem to decentralization. They are far more centralized than the fiat alternative. Imagine if the stock exchanges, brokerages, payment processor, private and commercial banks were all controlled by one or two companies.
The success of these centralized exchanges ought to give anyone pause with regards to how truly decentralization crypto really is.
Regardless, defi exchange won’t stop monetary expansion. People with a currency will want to gain a return on those currencies, since they don’t do anything productive sitting in a wallet. Therefore, banks would emerge with deposit accounts who would then lend out loans in excess of deposits. I don’t see a defi way of doing that which would replace institutional banking, because individuals and algorithms are not equipped or financed to analyze the lending risks, fraud, take legal actions, etc..
Sure, but all it takes is centralized one on-ramp that will take you, then you can transfer out of it. That's a big difference from having your funds in a particular exchange, where it may be seized.
I agree with the UX problem. I think the decentralized exchanges will manage to scale, research is ongoing. And the UX of decentralized exchanges is not much worse than/different from using Coinbase or Kraken, for example. The big UX challenge is self-custody of keys.
You're never going to get away from regulation on centralized exchanges. Have a look at injective , its a decentralized derivatives exchange, afterall crypto is meant to be decentralized.
unfortunately for most commercial transactions related to cryptocurrency (at scale) decentralization already seems largely dead.
When you look at the aftermath of exchange hacks (e.g. the recent kucoin hack), and see how quickly funds are frozen by various other exchanges, you can see the direction of travel, especially when combined with the uptick of regulatory interest (e.g. BitMex)
Edit: As this is attracting some downvotes, how about some citations.
Fortunately, there’s a competitive crypto landscape. If none of these are actually decentralized, people will move to different currencies. Sure it will be turbulent, but we’ll probably get to something effectively decentralized eventually.
I think decentralized exchanges are cool but they are only useful for people who already have significant crypto holdings. ~nobody gets paid in bitcoin. The initial transfer of fiat for crypto is the most difficult part since that's where the kyc, regulation, etc comes into effect.
I'm not sure what stablecoins have to do with anything i said.
Exchanges and lending/borrowing markets have already moved to be decentralized.
I think what you're thinking is the ability to convert fiat to crypto. If you got rid of that, it would just move more underground and into the black money markets.
The thing is , that side of things in practice, isn't really decentralized. Where do you buy and sell those "shares"... exchanges (e.g. binance, coinbase, bitfinex etc), which essentially just replace the centralized stock exchanges and banks of traditional finance.
Whilst it's possible to avoid those, I'd guess it's beyond many participants to do technically, so the exchanges become defacto centralization, and instead of regulated stock exchanges that operate in the same judicial location, in many cases these exchanges explicitly try to avoid regulation or accountability.
There are decentralized exchanges, the question is whether they'll see large scale adoption, particularly from less technical astute users.
Also to be successful for the general public, they'll need fiat on and off ramps (at least in the short-->medium term). At the moment most of those go via the centralized exchanges...
While coinbase (and other exchanges) is centralised, in what way does it mean that idea of bitcoin being decentralised is lost?
It's still independent from banks (and pretty much anyone, as designed). I'm not sure if anyone expected bitcoin to succeed without places like coinbase. They still don't control (and never will) emission of bitcoin and you still have an option to trade it however you like.
Very true, we don't need everything to be pegged to a single currency. Another development that will make moving between crypto-currencies more fluid will be decentralized exchanges.
I believe that apart from Counterparty and ColoredCoins, Ethereum may also be able to run as a decentralized exchange in fact helping Bitcoin and the other Alternative coins.
I assumed a long time ago that eventually many of these coins will somehow tie into each other in the process of building the future foundations of a new decentralised internet. I think that time is coming.
Decentralized exchanges are... exactly not that. They only trade on-chain assets for on-chain assets. Fiat ramps are not part of what makes a decentralized exchange.
I think you hit the nail on the head with regards to centralization.
I think there's a more important aspect here: there is very little demand for transacting in a second currency worldwide, and almost 0 demand within stable economies. As an American who does 100% of his transactions with other Americans in USD, why in the would should I introduce exchange rate risk into my daily transactions? The lightning network might be all the hotness, and I doubt that, but so long as its marked in a currency that I don't get paid in and my landlord doesn't take, I have no earthly incentive to tie up any of my hard earned money in a second currency in some lightning channel.
And that's not even starting on the absolute trainwreck that is general crypto UXD. Open a channel and tie up some of my money somewhere so I can eventually make a payment in the unspecified future? No thanks.
You still need a centralized exchange to be an on-ramp to go from regular money to the blockchain. But that's way less lucrative. You convert your dollars to USDT/WBTC/Ethereum at Coinbase, transfer to your wallet, then do 99% of trading/gambling on Uniswap. That's not a future where Coinbase is very valuable.
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