As cryptocurrencies rapidly gain regulatory attention, the demand for reliable and compliant trading platform solutions is growing. The risks associated with centralized cryptocurrency exchanges have recently been brought to the attention of investors and enthusiasts. Simply put, exchange hosted wallets introduce a centralized point of failure to blockchains with regard to the security of users’ crypto assets. This defeats the purpose of blockchain altogether!
While blockchain offers users the ability to independently store their assets in a cryptographically secure wallet, the approach centralized exchanges are taking to store user funds renders this advantage useless. Rather than providing users with individual wallets to which the user has access to his or her private key, centralized exchanges operate by aggregating all assets of one type into a shared wallet. Exchanges technically ‘own’ these wallets, since only they have the private key. If a private key is compromised, the assets of all users for that wallet are compromised.
Enter Stellar Lumens, a decentralized network for fast, scalable, cross-border and cross-asset payments. Stellar Lumens is actually a fork of the popular cryptocurrency Ripple (XRP). It solves some significant problems with the Ripple platform, most notably its lack of a fully decentralized protocol. Unlike Ripple, no centralized unit exists within the Stellar network that has the power to alter or override transactions. Stellar makes this possible through the use of smart contracts, which help to make the system fully decentralized and trustless. The Stellar project is gaining traction within the cryptocurrency space and has very ambitious goals.
Among these goals includes the implementation of a fiat gateway for IBM’s FairX exchange. FairX is an upcoming decentralized exchange to be hosted on IBM’s Hyperledger blockchain. Stellar announced a partnership with IBM back in October. They intend to collaborate on blockchain solutions for cross-border payment settlements. More recently, IBM announced its creation of the FairX exchange, which runs entirely on the blockchain and solves the problem of compromised wallet security for centralized exchanges. IBM intends to utilize the Stellar Lumens token (XLM) to facilitate trustless cross-asset transactions within their FairX exchange.
Since decentralized exchanges and fiat gateways are both hot topics within the crypto space, Stellar Lumens can really make a splash if its network makes the successful implementation of these features possible for FairX. If XLM becomes the go-to cryptocurrency to act as an intermediary for cross-asset transactions, its utility will skyrocket as it solves major liquidity problems. FairX will create competition for dominant fiat exchanges like Coinbase, while also helping to financially integrate discrete players in the world economy. The launch date for FairX is unknown at this point, but the Stellar – FairX partnership is confirmed.
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