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ShapeShift New Policies:
Bancor’s Hack and Freeze:

Decentralized exchanges seem like a no brainer, but we’re still not seeing the kind of volume you’d expect from a much needed tool, and they still have a long way to go in fulfilling their purpose. But exchanges that are labeling themselves as decentralized are not always that. Centralization comes in different varieties, let’s explore this so we can all identify the weakness and demand better options.

Dex’s or decentralized exchanges have been a buzzword in this crypto space for several months now. The increase in KYC/AML identity requirements as well as the countless hacks and thefts that have plagued the popular centralized exchanges have certainly helped spotlight why decentralized exchanges are needed.

I can imagine that the idea is to facilitate increased decentralization as these exchanges scale. Even Bitcoin at the beginning was very centralized, only a few people were running nodes and mining. But there’s a very important detail that should not be overlooked or underestimated, and that is the fact that bitcoin was designed to become more decentralized as more people joined the network. It was not designed to be confined or to have limits on how decentralized the network could become.
I mention this because every crypto project or exchange begins in a centralized manner. The trick is to get past it and move on to the green pastures of decentralization.
So keep this in mind when analyzing cryptocurrency projects, especially when considering decentralized exchanges.
Here are some ways that an exchange claiming to be decentralized can prove itself otherwise:

Does it act as a custodian for your funds?
– Do you have to deposit your coins into a wallet on that exchange? Are you trading with your actual coins or are you required to deposit your coins and then issued IOU type tokens that the exchange is ultimately in control of?
If this is so, it’s certainly a form of centralization that requires you to trust that exchange to store your real coins in a way that hackers cannot reach them.

Does it host its services on a website?
– If so, you’ve now been warned that if this is the case, you better hope that they use secure web hosting services. If you’re not sure why this would be an issue, take the time after this video to research what happened to EtherDelta and MyEtherWallet. Both suffered attacks due to their reliance on certain weak web hosting services.

Does it have a public figure head/CEO (someone who can be pressured to require KYC info)
– I know it’s easy to slip into that sense of comfort knowing who exactly is the captain of the ship, but when we’re dealing with decentralized networks and the fact that their strength is found in decentralization, it’s not that much of a leap to understand that one person declared in charge is a weak point. Despite all the good that Erik Voorhees has done for this space, he is an unfortunate example of how this concept can dramatically effect the future of these exchanges and networks. If you’re not sure what I’m referring to, take a look at the recent changes ShapeShift has decided to undergo.

Can it control your funds or trades at all? (Ex. Bancor freezing trades)
– Bancor is a relatively well-known decentralized exchange built on the Ethereum network, yet this one has the ability to freeze trades. Despite the fact that they froze these tokens in order to prevent a hacker from attaining even more coins, the fact they were able to do this sounds like some centralized control if you ask me.

If it is a protocol (like Ethereum’s 0x) remember that those who build on top of these protocols aren’t required to adhere to decentralized best practices, or even to allow for their software to be open source.