Decentralized cryptocurrency exchange

A decentralized cryptocurrency exchange is an exchange market that utilizes blockchain or another decentralized technology to enable peer to peer transfer of digital assets without reliance on a trusted third party to hold funds.

Centralized cryptocurrencies exchanges have experienced significant hacks and loss of funds due to problems with cryptocurrency security. The Mt. Gox exchange was forced to halt trading and declare bankruptcy in 2014 and after hot wallet private keys were compromised and approximately 744,000 BTC were stolen. Bitfinex lost millions of dollars in BTC which were socialized throughout the community. Decentralized exchanges may also provide improved censorship resistance and resilience to regulation as they hold no funds in central location to be seized.

Decentralized exchanges face various technical challenges in order to match centralized exchanges in terms of liquidity, speed, and feature sets.

EtherDelta was the first known decentralized exchange. Since then many decentralized exchanges have launched and are in active development however centralized exchanges are still responsible for a majority of cryptocurrency transactions. A variety of protocols intended to develop standards for interoperability for decentralized exchanges such as 0x are being developed.

Most common type of decentralized cryptocurrency exchanges. Started from Nick Johnson's proposal enhanced by Vitalik Buterin in his discord post and blog post and later implemented by Hayden Adams and Karl Floersch in their Uniswap Protocol. Most of the common popular DEXes including PancakeSwap, 1inch and SushiSwap use this model in their foundation.

Atomic swaps allow users to directly transact with one another peer to peer while bypassing even decentralized exchanges. The first atomic swap between Bitcoin and Litecoin was performed by Litecoin creator Charlie Lee on Sep 22, 2017.