Advantages of Decentralized Trading. A close look at Komodo BarterDex. Part 2.

BarterDex is a new technology and a truly decentralized trading platform. It allows users to trade cryptocurrencies safely and easily and do so directly with each other, without any third-party involvement.

The technology consists of three key components. They are order matching, trade processing, and supply of liquidity. The components work as a system and allow users to place orders, find parties they want to trade with, and engage in transactions. Finally, BarterDex provides users with a level of privacy and security not available with centralized exchanges. With BarterDex, two machines can perform an atomic peer-to-peer swap without their IPs coming into direct contact.

During the order matching stage of the process, there is no actual trade occurring. Rather, the stage introduces a digital promise that parties make regarding making a trade in the future. The stage runs on algorithms that pair the orders and fulfill them in a certain way. After an order is matched, users must deliver on their promises. This is when the actual trade between the parties occurs. The decentralized exchange facilitates the process and serves as a safe medium to perform a transaction.

One of the biggest problems with decentralized exchanges in the past has been low liquidity. The creators of BarterDex have solved the issue by introducing Liquidity Provider Nodes on the platform. The nodes perform functions of market-makers and do buy and sell assets. They make their money on the spread between asks and bids. Liquidity Provider Nodes bring stability to the marketplace and ensure access of users to fast and efficient trades.

Komodo’s creators are constantly working on BarterDex and improve its features and layers of functionality.

In addition to Liquidity Provider Nodes, BarterDex also has a feature called Liquidity Multiplication. This feature allows users of the decentralized exchange to use the same funds in multiple orders. The first request to go through completes the trade, which automatically cancels all other requests.

Because of this, the feature allows creating a much higher level of liquidity than the original amount of funding, providing users with opportunities that do not exist with other exchanges. While practically speaking there is nothing special about this feature from the technology standpoint and other exchanges can implement the feature, too, very few actually bother to do so. In addition to this, all entries on BarterDex are backed up by real funds and not internal vouchers of centralized cryptocurrency exchanges, which are obviously not as reliable.

 

Technical aspects of BarterDex

BarterDex has several technical features you need to know about to fully grasp how decentralized trading works.

The first feature is order matching, which is similar to a regular exchange order book, but is decentralized. Just like a regular order book, BarterDex order book is a set of bids and offers from end users of the platform.

BarterDex creates the order book by running a peer-to-peer network with two kinds of nodes on it, full-relay and non-relay.

Full-relay nodes are usually high-volume trading machines that provide liquidity to the network and act as network hubs. In return, the network provides them with an ability to perform trades faster compared to other users.

Non-relay nodes are regular users who use the BarterDex exchange to trade cryptocurrencies with each other. While the network doesn’t discriminate non-relay nodes, the number of simultaneous connection they may have to other users is smaller compared to relay nodes.

The network does not have requirements that users need to meet in order to become a relay node or non-relay node other than a fast Internet connection for relay nodes. There are also no fees or minimum balances.

Should the network start experiencing growing pains during the scaling process, Komodo developers plan to introduce new features to it that would allow the decentralized exchange to keep growing. One of the solutions they plan to implement in the future is the creation of clusters of nodes on the network.

With clusters, when one group of clusters is approaching capacity, users can choose to create a new group of seed nodes and keep scaling the decentralized BarterDex network.

At a large scale, the order books should have plenty of inventory to keep the liquidity of the exchange ample, especially if the creation of new groups of clusters were to occur because of overcrowding in trading of certain coins.

In addition to this, Komodo developers are considering a protocol that allows clusters connect via special bridges. Finally, to optimize the operation of the BarterDex exchange, the software minimizes the hierarchical transmission of order books. Komodo developers have also thought about several ways to get data that increase the number of active nodes fully connected to the decentralized exchange.

While non-relaying nodes on the platform don’t have to make their IP public, the exchange itself is not private and uses Jumblr, another Komodo technology, to provide users with privacy options because if users are not using Jumblr, then full-relay nodes can monitor the address of the users at the lower levels of the platform. This means that potentially a malicious full-relay node could gain enough information about lower level users to uncover important elements of their identities.