Believe it or not a decentralized Bitcoin exchange has already existed for 5 years. Ever since the creation of the first Bitcoin mining pool – Eligius – a decentralized exchange was formed. Bitcoin pool mining is in fact a completely functional and currently the most reliable Bitcoin exchange available.
Our definition of a decentralized exchange is a globally accessible network which allows for a secure exchange of fiat currency to digital currency. There are a few forms of decentralized exchanges in existence such as Localbitcoins, Coiffeine, EtherEx. However, due to the peer to peer nature of these exchanges one is faced with high risks of fraud, there are many limits on how many coins one can buy from each vendor, and in some cases one is still required to hand over personal information to a bitcoin seller. The beauty of pool mining serving as a decentralized exchange is that a competent miner can reduce the risk of fraud to zero. A transaction with a bitcoin seller on a platform like Localbitcoins is much more likely to go wrong versus paying the electricity bill.
When one mines Bitcoins using a Bitcoin miner one effectively exchanges electricity dollars to bitcoins. While an initial investment and an ongoing maintenance on the machine is required, one can chose what pool to use and how to store the mined bitcoins. The best part is that there is no third party confiscating funds and closing accounts, there is no need to hand over sensitive identity information that will eventually get leaked, and there is no limit to how many Bitcoins you can acquire.
In a way the electricity company of each bitcoin miner is the exchange which turns one’s dollars into Bitcoins, but it does so unknowingly. At the same time Bitcoin mining is completely legal so one does not break any laws when using this exchange. Since each electricity company accepts payment in their local fiat currency, the access to this exchange expands to every person who has electricity and internet – which includes most of the developed world.
Make no mistake that this decentralized exchange is not perfect, one of its main flaws is charging a high fee and requiring a long time to receive your bitcoins. For the average person Bitcoin mining is not going to be profitable, one has to be in the perfect place with low electricity costs and have access to the latest bitcoin miners to break a profit. The average Bitcoin miner will have to make an initial investment for the hardware, only to receive fractions of the investment each day.
Most miners do not break ROI meaning that it would have been easier and cheaper to just buy the same amount of bitcoins from an exchange instead of spending energy maintaining the miner and waiting a few months to a year to see all the bitcoins. However, if one doesn’t want to send sensitive information to an exchange, or one doesn’t have access to an exchange in his country using his local currency, waiting a few months for your bitcoins and paying a 10-15% fee might not sound that bad. Users in the bitcoin community are known to like risky investments and bitcoin mining just might be a perfect the fit, checkout this guide on how to become a bitcoin miner.
Using traditional bitcoin exchanges is an easy and simple way to get bitcoins. However, for some users traditional bitcoin exchanges aren’t an option as they might be unbanked, live in an unsupported country, or not have the means to verify their personal information. In those cases, acquiring bitcoins through mining can be a great solution as all that is required is access to the internet. We first defined a decentralized exchange as a global nondiscriminatory network which allows for a secure conversion of fiat to crypto. Bitcoin mining is exactly that, the conversion of electricity dollars to bitcoins which is available to anyone willing to an initial investment.
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