- January 22, 2019
- Posted by: giancarlo
- Category: Exchanges
Loopring and the Decentralized Exchange of the Future: Fast, Transparent, and Tamper-Proof Transactions
Loopring (LRC) has appreciated roughly 300% in the last week alone. Here we take a deeper look into what this innovative project is all about.
The Loopring protocol can be used to build automated and decentralized systems by providing users with trustless verifiability as well as impenetrable security. Loopring was designed to help overcome issues such as low transaction speeds, low liquidity, high transaction costs, limited asset support, and counterparty risk – all of which are common problems in the crypto exchange space.
Blockchain has taken the world by storm, and everything from healthcare and finance to agriculture, shipping, education, and social media, politics, governance, and more, have leveraged blockchain to make their processes faster, smoother, and more reliable. Most blockchain projects use tokens for raising funds and rewarding users for participating in the project ecosystem. Tokens can also be used to vote on proposals and to transfer data and information.
These tokens – or alternative currencies – are traded on public crypto exchanges that allow people to buy and sell tokens and invest in different projects and initiatives.
The Issues at Hand
Most exchanges require users to deposit their crypto assets into exchange-controlled wallets, defeating the very concept of decentralization. Furthermore, issues such as bottlenecks, price discrepancies, and slow transaction times mean there is a long way to go before exchanges are as performant as they can be.
An interesting issue that comes up due to the fact that blockchains are built on publicly verifiable ledgers of transactions means keeping specific types of information that investors or traders may wish to keep private is very difficult to do. However, not doing so can result in highly negative outcomes. Malicious agents may try to scam the system by using such information for personal benefit.
To illustrate how this would happen, publicly available blockchain information can be analyzed to show when and at what price a token is being bought or sold on the market. Malicious actors execute sell or buy trades accordingly because they essentially know what the market is about to do before publicly visible trades are actually executed.
This is what we call “front-running.” All anyone has to do to jump the queue to buy low or sell high is pay a higher mining fee (or ‘gas’), to have their trades executed before or after those of other traders. This negatively affects market dynamics, supply, demand, trust, and transparency.
Loopring’s Dual Authoring Solution
Loopring works around this issue by executing trade orders in batches, or rings, that contain two to ten orders. Each order contains a number of unique components, including randomly generated public and private key pairs, address information, and specific data on miners who record transactions on the network. Each field of information in the ring – including specific trade parameters – need to be signed with unique keys before an order can be verified and executed.
The dual authoring protocol is hardcoded into the Loopring protocol. It works because:
- Orders submitted for execution cannot be unilaterally changed by anyone unless they have each and every one of all the required keys for all the orders in a given ring.
- Verification signatures generated for each order are unique. They are generated using unique private keys. They also contain signed details specific to that particular order. They also contain miner addresses associated with specific rings.
- Order confirmations cannot be scammed because miner signatures (which are their personal and private keys) guarantee that nobody can use their identity for mining batches of orders.
- Order filching – the manipulation of orders – is prevented because getting a hold of all of this data from an external source is virtually impossible.
Loopring is a lot more than a simple cryptographic token. It is an innovative smart contract that can be used to create transparent and secure exchange systems that free from front-running, order filching, and illiquid markets. You can find their online documentation here. It works with the Ethereum network, ERC20-compliant tokens, and more, thereby significantly improving trading and exchange listing options for the crypto ecosystem as a whole. By empowering exchanges to build secure systems with dual authoring, and because it is blockchain agnostic ie. it provides support not just for ERC20 tokens but for other blockchain projects as well, Loopring is a very promising piece of tech and it is no surprise that it has appreciated in value the way it has, especially in the tumultuous market that we are now in. You can follow the project here.