How Bitcoin Atom Rediscovers Truly Decentralized Networks

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by Konstantin Lazarev · 4 min read
How Bitcoin Atom Rediscovers Truly Decentralized Networks

The heart of blockchain technology and cryptocurrencies is decentralization. But are cryptocurrencies really decentralized now, or there is a hidden hand ordering around?

As Vitalik Buterin, co-founder of Ethereum, notes, “thousands of hours of research, and billions of dollars of hashpower, have been spent for the sole purpose of attempting to achieve decentralization, and to protect and improve it.” In the same, post, Buterin goes on to describe the different nuances of the term “decentralization” and concludes about blockchains:

“Blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer).”

In light of the recent spike in cryptocurrency volumes, it’s appropriate to ask whether cryptocurrencies are actually decentralized. Can someone control them? Are there central points of failure? The existence and widespread use of cryptocurrency exchanges suggests “Yes”, in an indirect way.

The coins themselves may be decentralized and secure, but popular exchanges like Coinbase’s GDAX and Bittrex are centralized. Therefore, exchanges act as a chokepoint for investors and traders. In a very real way, they control cryptocurrencies and can be centralized points of failure. Users are required to pay high transaction fees, and ironically enough, become dependent on a centralized authority – exchanges – to use cryptocurrencies.

In an attempt to solve these issues, one development team is working on the Bitcoin Atom blockchain. This unique network, which is a SegWit compatible Bitcoin fork, uses atomic swaps to allow its participants to directly exchange cryptocurrencies. The result is a much less expensive, truly peer-to-peer experience.

Transaction Fees and the Benefits of Atomic Swaps

It’s very understandable that exchanges charge users fees – they take on risk by making markets, in addition to storing information, which requires energy and storage. However, it’s not uncommon for fees to become excessive.

For example, many exchanges charge trading fees in addition to account funding fees. Coinbase, which is one of the largest and most trusted exchanges, charges 1.49% to trade between currencies. In addition, a 3.99% fee is levied for users, who deposit funds with a credit card. Bank deposits for US customers are 1.49%, while USD, Euro, and GDP bank withdrawals all cost additional money.

It’s easy to see how costs pile up for traders, and it can be particular harmful to new traders, who may not have a lot of capital to start with. With fees and surcharges in place, some crypto exchanges are beginning to resemble their traditional counterparts – the NYSE or the NASDAQ.

Yet, users will soon have another option through Bitcoin Atom – atomic swaps. Atomic swaps are an emerging segment in the blockchain sector that allows users to directly exchange, or swap, digital assets. Two parties are allowed to trade coins on different blockchains without the need for a trusted third party.

This revolutionary technology means that users can exchange coins peer-to-peer without needing to involve a cryptocurrency exchange and all the fees that come with it. Bitcoin Atom’s platform makes it extremely easy (and less expensive!) for participants to use the swaps. The network uses a combination of the Proof-of-Work and Proof-of-Stake consensus protocols, so mining costs are also lower for blockchain transactions

Atomic Swaps and True Decentralization

One of the biggest benefits of Bitcoin Atom’s network is that it removes the need for any centralized parties, including crypto exchanges. In a somewhat ironic twist, crypto exchanges force investors and traders to become dependent on them because they are perceived to be the only means of exchange. Thus cryptocurrency users are simply replacing one trusted third party – like a bank – with another one – cryptocurrency exchanges.

Atomic swaps, in contrast, are cross-chain trades that occur directly between end users. They can enjoy the freedom to trade with anyone they want, rather than having to rely on a market maker to match a buyer and a seller. Bitcoin Atom network users also don’t have to disclose any personal information like they usually would when registering for a crypto currency exchange. The platform provides truly peer-to-peer, decentralized coin exchanges.

The growth of cryptocurrencies and the blockhcain technology, which underpins them is very exciting. With the creation of the Bitcoin Atom network, rumored to be around mid to late January, the crypto community will be able to witness the next big step in the industry.

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