Blockchains can play an important role in the disintermediation of financial systems. Most financial systems today include a number of middlemen and organizations that facilitate the smooth working of the entire ecosystem. Obviously, this means placing your trust with these intermediary players, and believing that they will not try to carry out any fraudulent activity, or relay incorrect information to you. This chapter is an example of a system that attempts to reduce the number of middlemen and authorities in the existing model, in order to build a faster and more transparent system. A decentralized trading exchange is one where the orderbook is not controlled by a central authority.

As the name suggests, the entire trading process is decentralized, meaning it is without a central authority or organization to facilitate the trades. Removing a central authority means that traders do not have to place their trust in an intermediary for trading. The orderbook is not maintained by such an authority, thus, the scope for fraud or tampering with the orderbook is reduced. You also do not have to pay transaction or trading fees, since the middleman is absent. Additionally, since the system is built on top of a blockchain platform, trades are reconciled and settled between traders that are almost instantaneous when compared to a traditional trading exchange.

The exchange would consist of the following components:

•  A decentralized orderbook that records all offers, and is managed by a smart contract on the blockchain
•  A US-dollar ERC20 token, and a gold ERC20 token to keep a track of our trading assets
•  A frontend app that displays the orderbook to users in real time, and matches a trading request submitted by the user against the available offers on the orderbook