IDEX is perhaps the largest crypto exchange branded as a decentralized platform, based on a study in July 2018 by analytics firm Alethio which found it had 69,000 trades in a 2 week period versus 10,000 on the #2 decentralized exchange Bancor. IDEX has USD 1.94 million of daily trading volume per day according to CoinMarketCap, more than all the other decentralized exchanges. However, IDEX has announced that they are banning all New York users, proving that they lack decentralization.
***Notice: #IDEX will begin blocking new orders from users with New York State IP addresses on Thursday, October 25th (6pm UTC). Cancels and withdrawals will remain active.
— IDEX (@idexio) October 24, 2018
Specifically, IDEX is banning New York IP addresses, but allowing New York customers to cancel orders and withdraw funds. New York has been particularly harsh when it comes to regulations on crypto. All centralized crypto exchanges in New York either had to get the New York Bitlicense, which is difficult to obtain or leave the state.
The fact that IDEX has the ability to ban IP addresses proves they are centralized. Indeed, IDEX submits the signed trades to Ethereum, giving them the ability to block trades. Further, the fact that New York was able to contact and threaten IDEX proves that IDEX is a centralized organization.
IDEX is only decentralized in the sense that users do not deposit crypto on the exchange, rather users hold their private keys at all times, and trades are conducted with multisig Ethereum smart contract transactions.
A truly decentralized exchange is Bisq, where there is no central organization to attack, and therefore the government can not threaten or do anything to Bisq. Bisq is simply open source software that is nearly fully autonomous, besides an arbitrator for disputes over fiat payments. However, the Bisq arbitrator cannot block a trade if the buyer and seller sign it, unlike IDEX which can certainly block trades due to the centralized nature of the trade submissions. Therefore, Bisq can be used anywhere in the world regardless of the laws, although technically responsibility falls on the user to not break the law in places where crypto to fiat trading is banned.
Other crypto exchanges labeled as decentralized have proven to not be decentralized, such as Bancor which seized funds after a USD 13.5 million hack, and the only market maker is Bancor itself instead of a peer to peer system. 0x, whose token was recently added to Coinbase, is actually a protocol for building centralized exchanges on top of a decentralized network.
Therefore, just because a crypto exchange is branded as decentralized does not mean it truly is. It is actually difficult for any crypto exchange to achieve true decentralization, and the reality is most supposedly decentralized exchanges have varying degrees of centralization.
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