If there is one thing that has been proven time and time again, its that centralized services cannot be trusted. Unfortunately most people don't heed the countless warnings and still allow their coins to be control by others.
It began with Mt GoX where countless peoples funds were stolen through "hacks". The problems have just grown since then to the point where now every couple weeks another exchange is reported as having been hacked.
The most recent company that has shown that they should not be trusted with your details is none other than Binance. Now I already know what you're likely to be thinking. It's something to the effect of "Binance has already proven they were not hacked because the KYC data claimed to have been stolen had none of the Binance watermarks".
Binance is not protecting user data
I am not here to debate whether Binance was hacked or not, but I am here to talk about a quote they made public which is posted below. Based on this quote we can assume some things about Binance that are very dangerous.
There are two things Binance did not say that are somewhat alarming. First is they did not say "our customers KYC data is maintained by a third party so any hack that took place would not have been through the Binance platform". This is actually the common answer when a company is claimed to have been hacked.
Recently when Capital One was hacked that's exactly how it was handled. The company instantly, and correctly, shifted the blame away from themselves and onto the Amazon AWS platform - as that's actually where the hack took place.
Binance however did not deflect the blame to anyone else implying they do in fact store their customers data.
The second thing that should have been said, and was not to me is much more alarming. What was not said is something to the effect of "all KYC documents and privacy specific information is held in cold storage so even if a hack took place no identifying customer data was ever at risk".
Instead we were told that they know its untrue because the images shared did not contain their watermarks. This means privacy specific information about their customers is in fact stored in a way it can be accessed through their network.
So is the answer decentralized exchanges?
Binance is just one of countless exchanges that, as an industry, have proven they can not be trusted. Lost funds, stolen funds, hacked services, improperly storing coins and privacy data, the list just seems to go on and on.
Of course the people that are hardcore about bitcoin will tell you the answer is to start using decentralized exchanges. A decentralized exchange means no central control of coins or documents take place.
There seem to be 4 types of decentralized exchanges.
First are the exchanges that are just lying about being decentralized. We have seen it time and time again in in the crypto world.
Every time a "decentralized" exchange is closed down they are proving they are not decentralized.
Every time they are hacked they are proving they are not decentralized.
After the liars we have cheaters which are decentralized exchanges that are also lying - but they are doing it a way no one can prove it, so we call them cheaters. These exchanges are a bit better than the ones above as you only lose control of your coins during the exchange itself.
These are services like changelly that have a web interface where they do the actual trading behind the scenes. You send them one type of coin, they send you back another. Because you maintain your keys with the exception of when you are directly making an exchange, many people consider these decentralized.
Sadly they are also not decentralized. IF they were, they could never be taken offline or closed down unless the community stopped supporting them. That's the thing about decentralized - its a peer to peer situation where even if a website vanished, its services would live on.
- On-chain Exchanges
On-chain exchanges are exchanges that have setup a blockchain of their own and all trades take place on that blockchain, meaning all exchanges are recorded by the blockchain.
This is still better than the above two options but also still flawed. In this situation you normally do keep control over your keys - the problem is you only keep control of the keys specific to the exchanges blockchain. That's great if you want to restore your account but its also misleading.
The problem is, what happens if you have 1 BTC on such an exchange and the interface for trading vanishes? You can't import your keys to a bitcoin wallet as they are specific to the exchange's blockchain. As long as the trading interface always exists this is not a problem, but the blockchain alone will not allow you to retrieve funds if things go wrong.
- Atomic Swaps
Atomic Swap exchanges are by far the best option that currently exists. The problem with this type of exchange is that there really are no atomic swap exchanges that exist.
Most often when you see the claim of atomic swaps, its specific to a cryptocurrency platform's tokens - mainly ERC-20 tokens.
In a true atomic swap you would be able to exchange any tokens for any other tokens whether they are on the same platform or not.
Time for the NEXT.exchange
Based on the above information its clear that at the moment your choices are limited. Perhaps the problem is that no one is looking at the problem in a different manner. Perhaps the solution is not centralized exchanges nor decentralized exchanges. Perhaps its time for something new.
This is where NEXT.exchange comes in.
NEXT is creating a new kind of exchange that they refer to as a Hybrid Exchange. The goal of next is to combine the best features of both centralized exchanges and decentralized exchanges to create an entirely new exchange while also adding some features that will fix problems experienced by both types.
For example NEXT.Exchange aims to give every user access to ALL their private keys. This means if you are holding ethereum and ethereum tokens, you will have a wallet address and private keys specifically for ethereum that you can export to any ethereum wallet. If you are holding bitcoin, you will have a bitcoin wallet address and you will be able to export the keys out of that address and import them to a bitcoin wallet.
This simple move makes it so not only do you completely have full control over ALL of your crypto keys - it also vastly reduces the fee's and wait time for accessing your cryptocurrency. It means you don't have to wait for transactions to be completed on the blockchain to receive your funds and it means you don't have to pay txid fee's to take your coins out of the exchange.
Another feature is fiat to crypto paring. NEXT will have a 100% optional KYC process. For those who complete the process, they will have access to exchange into and out of fiat currencies and withdraw funds to bank accounts or PayPal. This is a completely optional feature that one only need to be completed if a user wants access to fiat pairing.
Rumor has it, NEXT also plans to allow paring of all currencies and tokens directly to fiat values.
These are only two of the many many features NEXT has planned that could very well solve all the problems that currently exist with cryptocurrency exchanges.You can learn more about these and other features by checking out the official NEXT Exchange channel on medium and by checking out the NEXT Exchange Whitepaper which is actually surprisingly easy to understand even for non-technical people.
The Next Blockchain
Next Exchange started out as many projects do with an Ethereum based ERC-20 token. According to coinmarketcap NEXT token is, at the time if this writing, trading at $0.381196 USD.
However NEXT will soon be making their own blockchain that they call NEXT.chain live within their trading platform. This will become the decentralized backbone of their platform which will maintain all trades that take place.
The NEXT blockchain supports it own DAG protocol, ITC, which runs on top of the masternode network and provides instant transaction confirmations.
This is especially exiting because syscoin, which is also based on a DAG protocol, has been the first chain to seamlessly be able to swap tokens across chains. They have developed a DAG gateway that allows anyone to move ERC-20 tokens from ethereum blockchain to their blockchain, and any tokens created on their blockchain can be moved to the ethereum blockchain making for the first ever true atomic swap between two chains.
Currently the best information about this is in the linked article which only talks swapping their tokens to ethereum chain and back, but they confirmed for me in the syscoin telegram channel this will be a two way swap and they will be issuing a newsletter about this soon.
In any event this is huge news for all DAG protocol's as it means true atomic swapping will be coming soon. More to the point, this means an exchange like NEXT who claims they will be offering atomic swaps in the future, will honestly be able to offer this feature.
NEXT.Exchange is definitely a project to research and keep an eye on. It has a very bright future ahead of it and it may well become the first exchange that can actually be trusted - or more correctly stated - where no trust is needed as you control your own wallet keys.