How can Bitcoin market function without centralized exchanges?

[hatshepsut93]

Centralized exchanges have been criticized for many years, and rightfully so, as they pose security, privacy and trust threats to their users, but what is the realistic alternative to them? Decentralized solutions like Bisq still rely on traditional fiat payment systems, so it would be simply impossible to have today's trading volume on a decentralized exchange because of fees and transaction times and transaction limits of fiat payment systems. Without quick price discovery and liquidity, Bitcoin would likely be much more volatile, which would hurt its endgame - becoming a widely used currency.

[totaleclipseofthebank]

Before centralized market, people still have ways to exchange bitcoin for money, for example local bitcoins do not need any intermediator. In fact, there will be website that collect data so as to provide people enough information of liquidity, price and orders on decentralized exchange. We are living in the generation of data right?

After that, supply and demand will do it job. For instance, most of transaction is around $55000 zone (which buyers and sellers agree to make a trade), will you ignorantly sell your bitcoin at $40000. If so, I believe you can easily find a buyer in less than 10 minutes

Though, Im not deny the benefit of centralized exchange. They are making everything functioning more flexible and accurate, although manipulation exists in some exchange.

[Fortify]

Centralized exchanges have been criticized for many years, and rightfully so, as they pose security, privacy and trust threats to their users, but what is the realistic alternative to them? Decentralized solutions like Bisq still rely on traditional fiat payment systems, so it would be simply impossible to have today's trading volume on a decentralized exchange because of fees and transaction times and transaction limits of fiat payment systems. Without quick price discovery and liquidity, Bitcoin would likely be much more volatile, which would hurt its endgame - becoming a widely used currency.

I'm not sure whether less centralized exchanges would cause higher volatility, you might have a big rush to the exit if any sort of regulation was able to wipe the existing ones out, but after that it would likely hold a truer value than now. It would have no where near it's current market cap, but you would probably start to see larger amounts of peer 2 peer transactions and people would be more cautious about choosing it as a long term investment - but that could be a good thing. You still have an asset with a fixed amount (compared to some rapidly currencies facing rapid inflation) and a diminishing pool from "breakage" (small amounts left scattered in wallets or inaccessible to the original owner for whatever reason). In the long term people may still use it as part of a money transfer system, however the price would likely come down a lot due to the inconvenience factor.

[mindrust]

Simple answer. It wouldn't.

Decentralize exchanges are hard to use and they have low volume. Also I am not sure how you put your FIAT on them. Somebody obviously has to receive your FIAT and put it on the exchange and that's by no means "decentralized".

[pixie85]

Since all people in the world have fiat money and many want bitcoin, without centralized exchanges they'd have to meet up with people to trade. It would be almost impossible to do.

We are criticizing centralized exchanges because people hold their coins there and it's very risky. People have to realized that exchanges are a vulnerability. You should use them when you have to and take your money out as soon as possible. Also centralized exchanges can be used to track your coins, but many people are willing to sacrifice privacy for convenience.

[20kevin20]

How does Bisq rely on traditional fiat payment systems? Bisq can run by exchanging alt to alt too, it's not just fiat you can exchange.

The most realistic alternative is atomic swaps, although we're still far from a working product. Nowadays it's so much harder to get a bunch of devs create something they will not profit off. Satoshi's gesture was epic and probably something only he and a very, very few more people would do (Laszlo's pizza?).

The markets would function very well off CEXs, especially if LN is implemented so that txs happen on the second rather than the first layer of the network. Rather than having so many withdrawals and deposits to CEXs, all could happen directly within your wallet.. not congesting the network anymore either.

[hatshepsut93]

How does Bisq rely on traditional fiat payment systems? Bisq can run by exchanging alt to alt too, it's not just fiat you can exchange.

The world still runs on fiat money, so alt to alt markets are irrelevant.

The most realistic alternative is atomic swaps, although we're still far from a working product. Nowadays it's so much harder to get a bunch of devs create something they will not profit off. Satoshi's gesture was epic and probably something only he and a very, very few more people would do (Laszlo's pizza?).

You can't make atomic swaps with Visa or bank wire.

The markets would function very well off CEXs, especially if LN is implemented so that txs happen on the second rather than the first layer of the network. Rather than having so many withdrawals and deposits to CEXs, all could happen directly within your wallet.. not congesting the network anymore either.

Yes, it's great that it's possible to trade alts via LN and smart contracts, but price discovery is happening when BTC is trading against fiat money. This is where the problem comes - DEX can't have the same amount of trades per second as CEX, because every DEX trade must be fully settled, which on CEX it's just swapping numbers in their database.

[avikz]

Centralized exchanges have been criticized for many years, and rightfully so, as they pose security, privacy and trust threats to their users, but what is the realistic alternative to them? Decentralized solutions like Bisq still rely on traditional fiat payment systems, so it would be simply impossible to have today's trading volume on a decentralized exchange because of fees and transaction times and transaction limits of fiat payment systems. Without quick price discovery and liquidity, Bitcoin would likely be much more volatile, which would hurt its endgame - becoming a widely used currency.

It's an adoption game brother! The centralized and decentralized exchanges exist because we can really spend out cryptos to a lot of places to buy our regular stuffs. That's when the exchanges come handy where we can unlock the power of cryptos to make it useful in real world.

If cryptos are accepted everywhere, then we wouldn't need exchanges. We can simply pay through our bitcoin wallets. There wouldn't be any need of exchanges in the market. So all depends on the adoption. However, exchanges will always be needed for day traders who makes money from crypto trading.

[buwaytress]

Now I don't want to hype up that thing people call defi but there is a lot to be said about Automated Market Makers... As they seem to have solved the problem of order books which is or was the downfall of dexes like Counterparty (I try not to remind myself of it but heh).

I can't speak to how secure their implementations are but some sidechains seem to be revving some talk...

[BrewMaster]

can we call it "bitcoin" market when we are trading "bitcoin" with "fiat"?
at least it is "bitcoin fiat" market if not "fiat" market alone. and when we are trading in a market that has at least 50% centralization wanting to decentralize that is very hard which is why i don't think bitcoin-fiat market would ever do well decentralized.

but if it were bitcoin with some other cryptocurrency that is decentralized then it would be a different story since there is no traces of centralization there and it can be fully decentralized. atomic swaps and lightning network comes to mind here.

[hatshepsut93]

Now I don't want to hype up that thing people call defi but there is a lot to be said about Automated Market Makers... As they seem to have solved the problem of order books which is or was the downfall of dexes like Counterparty (I try not to remind myself of it but heh).

I can't speak to how secure their implementations are but some sidechains seem to be revving some talk...

DeFi uses stablecoins and stablecoins are centralized. Yes, it's better to be able to instantly swap BTC for a stablecoin rather than wait for bank wire / Visa or Mastercard transactions, but if stablecoins will become much more popular, they will be easily regulated and start having the negative features of exchanges - KYC, frozen transactions, seized funds, and as they become more centralized, we'll start seeing hacks and inside jobs. You can't have a stablecoin without some company claiming to have $1 in their bank account for every token.

[The Cryptovator]

It's hard to imagine how the Bitcoin market will act without centralized exchange since it won't happen at all. If happen in this case, just imagine the past when there wasn't centralized exchange. Most of the users hate centralized exchange who are believed in privacy, but the reality is quite different. At the end of the day, we have to use a centralized exchange for trading or cash out Bitcoin. There is an alternative like peer-peer but the value of Bitcoin will drop without centralized exchange and it will hard to use as well. There ZERO possibility to think of Bitcoin without centralized exchange.

[buwaytress]

Now I don't want to hype up that thing people call defi but there is a lot to be said about Automated Market Makers... As they seem to have solved the problem of order books which is or was the downfall of dexes like Counterparty (I try not to remind myself of it but heh).

I can't speak to how secure their implementations are but some sidechains seem to be revving some talk...

DeFi uses stablecoins and stablecoins are centralized. Yes, it's better to be able to instantly swap BTC for a stablecoin rather than wait for bank wire / Visa or Mastercard transactions, but if stablecoins will become much more popular, they will be easily regulated and start having the negative features of exchanges - KYC, frozen transactions, seized funds, and as they become more centralized, we'll start seeing hacks and inside jobs. You can't have a stablecoin without some company claiming to have $1 in their bank account for every token.

To my knowledge, not all defi use stablecoins anymore, if not most majority no longer do. I've seen all kinds of wrapped bitcoin directly on ether and other currency pairs now. And I think on many of these liquidity platforms, the stablecoin pairs no longer have the biggest volumes. Just looking at a glance right now the top 5 on finance (yes, I chose that just to avoid saying U or S heh) are all alt-alt or alt-wrapped ETH.

[o_e_l_e_o]

Decentralize exchanges are hard to use and they have low volume. Also I am not sure how you put your FIAT on them. Somebody obviously has to receive your FIAT and put it on the exchange and that's by no means "decentralized".

They are only hard to use if you have never used them before, in the same way reading the chart and placing limit orders on a centralized exchange is hard to do if you have never done it before. Once you've done a few peer to peer trades, it is very straightforward. Also, the fiat exchanges hands directly from buyer to seller, be that via cash, bank transfer, money order, or some electronic money service such as PayPal, Zelle, Advanced Cash, Perfect Money, etc. The fiat is never on the exchange.

Since all people in the world have fiat money and many want bitcoin, without centralized exchanges they'd have to meet up with people to trade. It would be almost impossible to do.

There is no need to physically meet up with another person to trade peer to peer unless you want to exchange cash in person. You can use any of the electronic methods I've mentioned above, and you can even send cash in the mail if you wish.

but if stablecoins will become much more popular, they will be easily regulated and start having the negative features of exchanges - KYC, frozen transactions, seized funds, and as they become more centralized, we'll start seeing hacks and inside jobs. You can't have a stablecoin without some company claiming to have $1 in their bank account for every token.

Many stablecoins can already be frozen or seized and have addresses "blacklisted", and there is also no way to prove that your stablecoins are actually backed up with the same amount of fiat. Indeed Tether, the most popular stablecoin, is known to not be backed up as they claim, and is running a fractional reserve system. Stablecoins are worse than fiat in many respects.

[XZERO1]

As long as Fiat(traditional national currencies) exist it's not very easy to totally remove centralized exchanges and do not cause some minor problems and a little bit of hassle, specially for beginners, there are P2P exchanges that do accept banking Bank transfers as mentioned and it can be done but it's not exactly the smoothest experience but it gets the job done and you will receive your crypto in your wallet using Fiat.

When/If Fiat one day gives its place to cryptocurrencies that would be the end for centralized exchanges, there are two main reasons as to why so many people still use centralized exchanges:

1. It has more volume/liquidity and more trading pairs of all different blockchains all in one place and you will be able to exchange your asset at a better rate.

2. Lower fees on trading on a centralized platform/exchange comparing to a decentralized platform like Uniswap that uses Ethereum blockchain. (which should be solved by the release of Eth 2.0 or just switching to another blockchain with lower fees)

[hatshepsut93]

To my knowledge, not all defi use stablecoins anymore, if not most majority no longer do. I've seen all kinds of wrapped bitcoin directly on ether and other currency pairs now. And I think on many of these liquidity platforms, the stablecoin pairs no longer have the biggest volumes. Just looking at a glance right now the top 5 on finance (yes, I chose that just to avoid saying U or S heh) are all alt-alt or alt-wrapped ETH.

Then DeFi is even more useless than I thought, it's just a tool for automatically speculating on crypto, it has no real economic applications.

There's no good way to build a market with high liquidity and frequency that is at the same time decentralized. Decentralized exchanges as they are now are good for users who occasionally buy or sell crypto for fiat, but they aren't suitable for traders.

[malevolent]

Simple answer. It wouldn't.

Decentralize exchanges are hard to use and they have low volume. Also I am not sure how you put your FIAT on them. Somebody obviously has to receive your FIAT and put it on the exchange and that's by no means "decentralized".

It would but with more inefficiencies and friction, but also with more fraud when accepting funds from stolen accounts and when dealing with con artists socially engineering third parties to authorize fiat transfers for purchases totally unrelated to Bitcoin.

People could also return to F2F cash exchanges, without CEXs it'd be easier to find people to trade like it was once possible via LBC (similar sites have a lot less users).

[mindrust]

To my knowledge, not all defi use stablecoins anymore, if not most majority no longer do. I've seen all kinds of wrapped bitcoin directly on ether and other currency pairs now. And I think on many of these liquidity platforms, the stablecoin pairs no longer have the biggest volumes. Just looking at a glance right now the top 5 on finance (yes, I chose that just to avoid saying U or S heh) are all alt-alt or alt-wrapped ETH.

Then DeFi is even more useless than I thought, it's just a tool for automatically speculating on crypto, it has no real economic applications.

There's no good way to build a market with high liquidity and frequency that is at the same time decentralized. Decentralized exchanges as they are now are good for users who occasionally buy or sell crypto for fiat, but they aren't suitable for traders.

Congratz.

You figured out what is going on. Yes DeFi is just another casino where you can pump and dump crypto. People thought that Defi was going to be like stocks market like Nasdaq but here we are. Even you if you somehow manage to make some gains in stable coins how are you going to spend them? One way or another you will have to turn them to hard cash which is USD and guess what, you can't get them without the legacy banking.