Cryptocurrencies, in general, are much safer than fiat money. This is because their main characteristic, decentralization, makes them virtually non-hackable unless you have been notoriously reckless with elementary security rules.
Personally, I have lost more bank notes than cryptocurrencies but there are still many people who prefer to caress their money in their pocket. And there are still those who take refuge in the argument that hackers can easily stay with your money which is a too short point of view.
I am surprised that not a few online banks use the identity document as a user and a sad 4-digit pin as a password to allow you to enter and manage your money. It is incomparably more complicated to hack your cryptocoins wallet.
But all security is diluted if you put your cryptocurrencies in a centralized Exchange. That's where the most famous hacks and frauds have occurred. Precisely because the main characteristic of decentralization is lost.
CENTRALIZED EXCHANGES ARE PROBLEMATIC
Once you send your money to an Exchange, you lose control over it because you are not in possession of the private keys. This means that you have to trust fully in that service which will almost always be a dogma of faith.
On the other hand, the Exchanges operate under the legal jurisdiction of a country. This means that in many of them you will be forced to identify yourself and, therefore, be under the scrutiny of the government of that country.
The rules of the game of an Exchange can change surprisingly when it is subjected to pressures from governments. And your account can be blocked for various reasons without prior notice.
It is clear that all of the above goes against the spirit of cryptocurrencies: decentralization, privacy and security.
In order to survive, the highly competitive world of centralized Exchanges will have to offer certain advantages such as sharing part of the profits obtained by the fees, carrying out competitions with prizes, locating in countries with more lax legislations so as not to demand identification, promoting airdrops of new cryptocurrencies between its users and a thousand other things. This is what they do, for example Kucoin and Binance, two emerging Chinese Exchanges that are proving be much more interesting than Poloniex or Bittrex, based in the USA.
Even so, centralized Exchanges are still potentially very problematic, so it is not advisable to place unlimited trust in them. New possibilities are emerging that place them in a clear decline. Technology is like that and things, fortunately, change and offer us interesting new possibilities.
EXCHANGES ON THE FLY
As a logical response to the unnatural centralized exchange services arise many other options that allow you to change some cryptocurrencies by others on the fly. They do not need identification and the changes are usually quick. These are services that are not totally decentralized. They depend on the liquidity they have at each moment and there is an interval in which they own your coins. I mean that failures could occur and the operation could not be carried out. In other words, there are possibilities of errors or frauds happening; maybe in a much lower proportion than in a centralized Exchange where you have your money in there at all times, until you request a withdrawal. On the other hand, the changes do not happen between users but between user-service. And, one more thing, they tend to play a lot with advantageous changes; that is, they offer you an exchange value that may be acceptable but often less interesting than what you can get by trading in a centralized Exchange.
Examples of this type of services are Shapeshift, Changelly or Flyp.me.
ATOMIC SWAPS ARE COMING
Atomic Swaps allow you to trade different cryptocurrencies without having to trust a service provided by a third party. The changes are produced in a secure and totally reliable way between users and different blockchains. And everything from a single platform or a wallet, keeping control of your private keys and in a totally anonymous way.
Both users who want to exchange a cryptocurrency for another one throw them into their own blockchain. An intelligent contract in the form of hash time-locked contract ensures that both people receive the coins. This type of intelligent contracts requires each recipient to confirm having received the payment before a deadline, generating a cryptographic hash. Both users must enter the unique number that has produced the hash and that only they know. If an error occurs somewhere, the coins poured into the blockchains return to their origin.
The issue of Atomic Swaps is practically starting and, at the moment, it is still not a friendly issue for a majority of users. Komodo is the project with the most work developed and its Barterdex decentralized exchange platform is in an operative phase in a testing state. Thousands of atomic exchanges have already been carried out, although it requires a lot of work so that its user interface is simple and intuitive and, therefore, can be adopted in a generalized way.
There are many other projects underway. Without a doubt, Atomic Swaps represents the logical, sophisticated and secure response to centralized Exchanges.
EXPECTATIONS GROW WITH BITCOIN ATOM
The last candidate to come to the fore is Bitcoin Atom (BCA). A (coming soon) Bitcoin Hard Fork that is creating many expectations. It is not possible to say now if these expectations correspond to reality but its roadmap is full of interesting promises. If they finally become facts Bitcoin Atom can radically change the rules of the game. BCA intends to implement Atomic Swaps through hash time-locked contracts and also through Lightning Network off-chain.
While the Atomic Swaps are made in the respective block chains, the Lightning Network technology allows to minimize the fees since they are carried out outside the blockchain. The implementation of this technology is in its roadmap after the Atomic Swaps.
The popular Coinomi multicurrency wallet is one of its partners and, probably, it will also serve to make Atomic Swaps from the wallet itself since the exchange of some cryptocurrencies by others is one of its characteristics at present, through the services of Shapeshift and Changelly.
SUNSET AND DAWN
While the centralized Exchanges are not able to solve their potential problems and the regulatory hand of the States, fearful of losing their power definitively, are hardening their requirements and laws ... the new technologies brings us a new dawn. On the one hand, the sunset of centralization. On the other hand, the dawn of an unstoppable decentralized technology. The perspectives are exciting.
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