Blockchain decentralization: How it ensures fair and tamper-proof trades

The control of individuals by third parties has been a persistent practice, even in a population that is increasingly aware of the dangers it represents. However, a glimmer of hope has emerged through decentralised technology powered by distributed systems.

Since Satoshi Nakamoto published the Bitcoin whitepaper in 2008, the term “decentralization” has become a key concept in the realm of cryptocurrencies driven by blockchain technology.

Let's explore what decentralisation truly means, why people should become familiar with it, and the benefits that decentralised solutions offer to individuals across various industries, such as finance.

Is decentralization the same as blockchain?

There has been a lot of noise around the word “decentralization” since cryptocurrencies became popular, and on some occasions, there’s the mistake of tacitly assuming that blockchain means decentralization.

For those newer to the industry, it can be complex to understand that both terms complement each other and are not necessarily synonyms. It’s important to point out that decentralization is a fundamental principle of blockchain technology, but they are not the same.

In simple terms, decentralization is about transferring control and decision-making to a distributed network. In blockchain, decentralization means that the attributes of decentralization are transferred from a centralized entity to a distributed network, which can be either public or private.

In this way, cryptocurrencies like Bitcoin are strengthened due to the presence of distributed nodes that function within a public, permissionless, decentralized peer-to-peer system, allowing for the transfer of assets without the control of third parties or centralized entities, as it is the Bitcoin network, under a consensus mechanism (PoW), that makes decisions regarding the security and governance of the network itself.

Eliminating the need for a single authority and intermediaries is part of the advantages offered by decentralization in blockchain, which in turn provides robustness and security to the network by reducing dependence on a single entity for operations.

In the case of decentralized platforms, such as cryptocurrency exchanges (DEXs), decentralization gives individuals the ability to have full control and custody of their funds when executing on-chain transactions, a huge step toward financial independence for individuals that had never been seen before the arrival of Bitcoin.

But why is decentralization so important today? To answer this question, it's necessary to understand the issues inherent to its counterpart: traditional centralized systems.

Centralization: Why it's disadvantageous to leave your funds in third-party custody

One of the major concerns that crypto aims to address since its inception is the single points of failure commonly associated with Web2, and to some extent, with certain Web3 entities that are vulnerable to technical failures, cyberattacks, or internal manipulations, especially when it comes to the custody of user funds.

Contrary to what many users consider to be decentralized, there are cryptocurrency exchanges that, while operating with on-chain transactions and allowing interaction with their smart contracts via their interface, still maintain the custody of funds in hybrid solutions that grant a certain degree of control over the funds deposited on the platform for trading.

It's quite typical to observe some decentralized trading platforms that require interaction with smart contracts to deposit user funds on-chain, but ironically, these funds are stored in wallets controlled by centralized entities.

This type of situation may mean giving centralized entities the power to restrict or censor transactions, limiting users’ freedom to access their funds when needed, in addition to the risks posed by negligence or improper control of custody, which could allow malicious actors to exploit such vulnerabilities.

The lack of transparency in operations and decisions made regarding fund custody, particularly in the case of DEX platforms with fund custody solutions, is enough reason for distrust among users who value pure decentralization in blockchain. Moreover, the presence of intermediaries may, in some cases, lead to increased costs and transaction times, along with other key issues associated with centralized or hybrid solutions.

Advantages of decentralization in blockchain

The adoption of decentralized systems offers multiple benefits for users, especially in the areas of fund custody and cryptocurrency trading. Since the emergence of Uniswap, the industry has made significant progress in offering products that give users complete control when trading decentralized digital assets such as Bitcoin (BTC) or Ethereum (ETH).

Distributing control across multiple nodes enables more robust distributed systems that are harder for attackers to compromise. For this reason, using efficient blockchain networks with a high degree of decentralization (a large number of geographically distributed nodes) for developing platforms focused on digital asset trading provides enhanced security.

On the other hand, decentralization through a public ledger, accessible to all participants, fosters trust among users when making transactions that can be executed directly between the involved parties using multi-asset liquidity pool models based on AMM, reducing costs and increasing efficiency.

Decentralized exchanges tend to have lower transaction fees, making them more cost-effective, especially when compared to centralized cryptocurrency exchanges.

Additionally, decentralized solutions for asset exchange minimize the risk of data breaches and allow users to trade with a certain degree of anonymity and privacy, as many DEXs do not require KYC procedures.

Examples of decentralized solutions

Decentralization has managed to penetrate several traditional industries, as it offers more equitable and secure alternatives:

• Finance: Undoubtedly, one of the key foundations for the use of decentralized solutions lies in the vast ecosystem of decentralized finance (DeFi), where platforms operate that allow for reputation-based on-chain lending, yield generation, or simply executing financial instruments like leveraged futures, without the need to rely on traditional banking.

• Supply Chain Management: This is another sector that has benefited from the use of blockchain technology to track products from their origin to the final consumer, ensuring authenticity and preventing loss and fraud. There are many examples worldwide of the application of such decentralized solutions in traditional businesses.
• Decentralized Identity: This is one of the cornerstones of the new digital era, where identities can be managed on-chain with a focus on privacy through the use of ZK proofs. This ensures automation, transparency, and integrity in online verification processes.
• Electronic Voting: Blockchain-based voting systems guarantee integrity and transparency in electoral processes. Although it is a field that has not been fully exploited, there are successful use cases in various elections around the world.

Why a DEX is better than a CEX in terms of decentralization, security, and resilience

As mentioned earlier, decentralized exchanges (DEXs) have emerged as a fundamental part of the new ecosystem revolving around decentralized solutions, providing a tangible alternative to centralized exchanges (CEXs).

Thanks to DEXs, users can trade digital assets without intermediaries, take advantage of complex investment products such as perpetual swaps, and transact in a secure, non-custodial environment.

Since they are based on smart contracts and operate on highly efficient blockchain networks, DEXs are less susceptible to technical failures, restrictive regulations, or targeted attacks on central servers.

As a key component of the decentralized finance (DeFi) sector, DEXs have seen increased activity in recent years as individuals become more aware of the need to control their personal finances and explore the numerous opportunities offered by blockchain-powered technology. This growth is reflected in the sector’s key performance metrics.

Additionally, because there is no central authority, transactions are less likely to be banned or restricted by governments or regulatory bodies, as seen in the past with Tornado Cash.

Beyond preserving user anonymity, DEXs enable anyone with an internet connection to access and use the platform without geographic or time restrictions.

Ultimately, decentralization in blockchain technology is essential for ensuring fair, secure, and transparent transactions, giving users greater control and confidence in their financial operations.

Example of decentralized trading

Zeus Exchange is a example of decentralized platform that enables cryptocurrency trading through spot and perpetual contracts. Unlike centralized exchanges (CEXs), The exchange operates without intermediaries, allowing users to retain full control over their assets at all times, eliminating risks associated with hacks or arbitrary restrictions.

The platform leverages liquidity pools based on Automated Market Maker (AMM) technology (infra tech developed by Uniswap) , incorporating improvements for better price stability and capital efficiency compared to traditional AMM models. This optimized model, built on a diversified basket of assets, enhances liquidity and facilitates efficient trading in a transparent environment.

Furthermore, by running on blockchain networks, all transactions are immutably recorded, ensuring security and resistance to censorship. The platform also minimizes reliance on major financial players, democratizing access to advanced trading strategies such as perpetual swaps.

Currently in its incentivized testnet phase, Zeus Exchange aims to establish itself as a robust, resilient, and highly reliable option for trading high-demand assets like Bitcoin and Ethereum with high leverage for perpetual swaps execution.

With tools and the support of decentralized governance, this kind of platforms fosters a financial ecosystem where users are in control, paving the way for a new era of autonomous and secure trading.

Disclaimer: The platforms or assets mentioned here are merely examples used to explain the content of this article. Do not take this as financial advice or anything of the sort. Do your own research. You are solely responsible for your decisions.