In this cryptocurrency epoch, digital currency exchanges are essential to the crypto ecosystem. Today, there are over 400 exchanges available worldwide, each of which is classified as centralized or decentralized or P2P.
These two exchanges are now dominating the cryptocurrency economy. Nonetheless, by providing fast transactions between network participants, the Lightning Network (LN) is positioned as an exciting newcomer to the field.
Let’s dive deeper into the blog and understand how decentralized exchanges explore the Lightning Network.
Decentralized exchanges enable traders to purchase and sell cryptocurrencies without a central intermediary. Users must provide identification documentation but are not required to deposit funds into an exchange.
Transactions occur when buyers or sellers make bids in search of trading partners. If the terms are acceptable, the offer is accepted. According to the designers, this solution offers no overhead and low transaction fees.
A Decentralized Exchange On The Lightning Network
The Lightning Network is a second-layer decentralized system based on the Bitcoin blockchain. It solves bitcoin's scalability troubles by allowing participants to conduct instant transactions.
Atomic swaps allow one cryptocurrency to be exchanged for another without using a central intermediary. When the Lightning Network is combined with atomic swap technology, LN users can function as cryptocurrency exchanges or payment processors.
Also, this network could address the arbitrage problem that centralized exchanges face.
Thus, the Lightning Network is quickly becoming a promising option as an add-on to decentralized exchanges.
Advantages Of Using Lightning Network
With proper Lightning Network implementation, the trading process will be faster than on present exchanges, more secure, trustless, and, most crucially, more economical.
The primary benefits include,
- There is no one point of failure. For example, if an exchange platform goes down, a trader can migrate to another platform because their funds are not stored on a specific platform.
- Unlike centralized exchanges, traders control their funds and do not have to give up control to external parties. It eliminates the hackers targeting an exchange and stealing money.
The Lightning Network was created to make bitcoin transactions as quick and inexpensive as feasible. So introducing the Lightning Network to peer-to-peer exchanges will make the exchange one step ahead of others.
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