Decentralized Cryptocurrency Exchange

WhiteBIT
Published 09 March 2022
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Content

It is a service that allows exchanging cryptocurrencies directly between participants. It is less popular than its centralized counterparts but technically more complex.

There is no intermediary on a DEX. Transactions between participants are carried out with the help of self-executing smart contracts. At the same time, smart contracts do not control coins.

Decentralized cryptocurrency exchangesalso do not have a regulatory body. It is a peer-to-peer network that connects buyers and sellers of cryptocurrencies (Makers and Takers). DEXs do not store their clients’ assets, and participants retain control over private keys.

How Crypto Exchanges Without KYC Works?

One of the first platforms was NXT, which emerged in early 2014. In the beginning, it was possible to buy assets for native NXT tokens. Those days, these were not completely decentralized systems. But today, the decentralization principles can be easily verified. If there are requirements to provide personal data or if there is an arbitrage/limits, then this is not a DEX.

The purpose of such services has not changed since 2014: users easily and anonymously buy/sell crypto. They must pay a commission to the exchange and gas fees.

No KYC crypto exchange types:

  • aggregators;
  • automated market maker (AMM);
  • order book.

Decentralized Crypto Exchange with AMM Protocols

They were made to solve the problem of liquidity. The AMM algorithm calculates prices for tokens based on the data from blockchain oracles. Unlike the order book approach, DEXs on AMM make use of liquidity pools.

WhiteSwap works exactly according to these principles. The service provides a safe exchange platform and distributes most of the governance tokens between its users.

In the case of using a market maker protocol, users interact rather with a smart contract than with each other. When buying, the trader’s coins are added to the liquidity pool and then exchanged for another token of the pair.

The most popular liquidity formula used by anonymous crypto exchange services is:

x * y = k,

where x and y are the number of tokens and k is a fixed value. The constant may change if the investor withdraws or deposits his assets into the pool. By providing liquidity, investors earn a share of fees for transactions.

Decentralized Cryptocurrency Exchange

Market maker types:

  1. Constant Product (CPMM) is able to adjust price ranges.
  2. Constant Mean (CMMM) is able to work with more than 2 cryptocurrency pairs simultaneously.
  3. Constant Function (CFMM) is AMMs first class for a decentralized exchanging service of digital currencies.
  4. Constant Sum (CSMM) is not very popular, and the only constant is the sum of assets.

Non Kyc Crypto Exchanges Based on the Order Book Mechanism

An order book is a tool that stores all buy and sell orders. It can locate on-chain and also off-chain. In the first case, all orders (purchases and sales) are recorded as transactions in the blockchain. As a result, the system slows down drastically.

The next step in this direction was trading platforms with an off-chain order book (i.e., separate from the blockchain). It reduced gas costs and significantly sped up the process.

Decentralised Crypto Exchange Aggregators

The liquidity problem is solved with different protocols working together. The pool is collected from several providers at once. This helps to reduce slippage (works for large orders), optimize swap fees and token prices.

Some decentralized exchanging services use the liquidity of CEX platforms and integrate with them. This way, DEXs still remain unrelated to the storage of customers’ funds. But, in this case, the very concept of anonymity and security is distorted.

Buy Crypto Without KYC

Anonymity is relevant for many traders. They are not willing to share their own ID information. Not surprisingly, users do not want to connect any financial transactions with their names. It entails certain risks for many traders.

A decentralized exchange makes it possible to remain “in the shadows”. One only needs to have a cryptocurrency wallet to conduct transactions. And nowhere it should ask for a name or an email. All you need is the virtual finance storage itself.

Where and How to Buy Crypto Without ID

It is possible to buy tokens and coins without an ID on any DEX platform. Therefore, the purchase terms are peculiar. Decentralized trading platforms allow exchanging one cryptocurrency only for another digital currency. So, one needs to create a crypto wallet and buy crypto to be able to use the website.

The only condition is that the wallet must be consistent with the smart contract of the selected provider. Replenish your wallet with some crypto to start trading. It can be bought on a CEX and then withdrawn to a wallet you control. And you also need to have tokens to pay gas fees.

Crypto Exchange Without Kyc and Anonymity

Experienced traders often choose a decentralized trading platform due to anonymity. But, what does that mean?

First, we are talking about KYC. This procedure is usually carried out by CEXs. With its help, centralized exchanges check the person who wants to take advantage of its services. This is necessary due to the fact that CEX is regulated at the state level. This means that companies must comply with the law. In addition, know your customer standards help keep other customers safe. Without users’ identification, the very CEX will also bear responsibility for illegal operations along with a scammer.

Decentralized Cryptocurrency Exchange

Anonymous Cryptocurrency Exchange Security Measures

The information protection within the system is ensured by blockchain principles. One of them is the transaction confirmation algorithm or the consensus algorithm. All transactions on the network are hashed.

Since the service does not store clients’ money, its attack is meaningless. Together with anonymity, this provides DEX platforms with a high level of security.

DEXs do not require registration, and transactions can be carried out without identifying documents.

Blockchain stores all transactions, everyone can see them. Transaction details are known only to its participants. But the blockchain does not store the personal data of Makers and Takers.

Security also comes from the decentralization mechanism itself.

The users solely keep private keys to their accounts, thus eliminating the risk of a company turning into scum and taking all your money.

Pros and Cons of Peer to Peer Crypto Exchange

Besides DEXs, there are also P2P platforms. They combine all the features of the CEX and DEX models. You are able to use fiat on them, but only customers possess private keys. P2P crypto exchanges will most likely require you to verify yourself.

Decentralized Cryptocurrency Exchange

Despite the vast popularity of DEXs among pro traders, they have not only advantages.

For instance, you cannot trade with fiat on a DEX. The overall liquidity is much lower there.

And, by the way, there is no support team. There is nowhere to ask questions, so you will have to learn how to work with your wallet yourself. Fake exchange transactions are also common. You must carefully monitor the whole process, as it is impossible to return the lost funds.

No margin trading or stop-loss orders are available on DEXs. All these are profit-making tools for only CEX users. In addition, the incompatibility of blockchains limits your possibilities. For example, it is simply impossible to exchange assets for a virtual currency that does not support smart contracts.

For a beginner, the difficult part is to know everything and monitor everything. Such knowledge usually comes with experience.

It is logical if you end up with a question – so, what good can come from a peer to peer cryptocurrency exchange at all?

The key points are anonymity and security. We have talked about it in more detail above. Yet, let’s clarify, knowing the private key, it is still possible to steal money. The user is protected only from the side of an exchange.

Still, it is the freedom of control that typically makes traders to use the DEX.

P2P Cryptocurrency Exchange Future Prospects

Decentralization is the path to new, open, and honest relationships. It is not without reason that more and more users are starting to use blockchain. Despite its prospects and opportunities, centralization is unlikely to go away.

P2P crypto exchange platforms today are improving their functionality and borrowing elements from the CEX-model to facilitate the interface. But a complete replacement, at the moment, is impossible due to the complexity of the processes for understanding.

A decentralized blockchain is considered the best option to serve a wide range of users. And until all the UI difficulties are eliminated, they will not be able to scale at all.

It will be a long time before decentralization is accepted at the global level and the functionality of the DEX is simplified. For now, users have a free choice to use what is more convenient for them.

FAQ

Is it possible to trade on a DEX without identifying myself?
Yes, the user does not need to reveal any personal data to a platform. All you need is a wallet that supports the smart contract of the DEX.
Does the exchange track the movement of my assets?
No, the service only provides a direct connection with other users without being tracked.
Who controls my wallet and my money?
You are the only person responsible for the safety and control of assets.
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