Author: Corné Plooy 2018-05-22 14:59:08
Published on: 2018-05-22T14:59:08+00:00
The author has been considering the implementation of a decentralized crypto/crypto exchange on the Lightning network through atomic swaps. One issue that arises is participants delaying transactions to speculate on exchange rate changes, which can be prevented through several approaches. The first approach uses a latency monitor service to gather transaction data for building participant reputation, but the author finds it uninteresting due to issues with dealing with reputation in a community of pseudonyms. Instead, the author favors the second approach where trading parties delegate the execution of the Lightning transaction to a trusted third party. This eliminates the need for trust between the trading parties and only requires trust in the third party to not cooperate with the other trading party to perform a delay attack. The design is not completely trust-free, but it offers advantages over traditional exchanges since the trusted service provider cannot steal customers' funds, customers can remain anonymous, and the provider doesn't know which asset is traded. It may not be necessary for a single Lightning node to have channels for different cryptocurrencies since one node can be used for each currency and higher-level exchange software can do the forwarding. The author acknowledges that decentralized Lightning-based exchanges may not be competitive for high-frequency or high-volume needs but could have some use for casual users on Lightning. It also eliminates the need for exchanges with large amounts of stored crypto assets, which are attractive targets for hackers.
Updated on: 2023-05-25T01:01:44.229693+00:00