A spot market is referred to assets like forex, crypto, or commodities traded on the spot whenever the buying/selling order is filled. Learn how crypto spot works today!

With an increasing number of institutions beginning to invest in crypto assets, it’s inevitable that more users have started to take an interest in it. To begin a journey in crypto asset investing/trading, one would typically wish to start with the basics, understanding how to buy and sell crypto assets before moving on to trading.

Spot trading is the most basic and simplest method for trading crypto asset. New traders usually start their crypto asset trading journey by interacting with spot markets. Compared to investing in crypto, which typically means holding a crypto asset for a prolonged period of time, spot trading involves buying and selling a range of crypto assets in an attempt to generate regular short-term profits.

In this article, we’ll explore spot trading.

Spot trading refers to buying and selling crypto assets at the current market price, also known as the spot price, with the intention of immediate delivery of the crypto assets traded. “Delivery” in this context refers to the buyer and seller fulfilling their commitment to the transaction, with the buyer offering the payment and the seller offering the crypto assets traded.

Spot traders typically buy crypto assets at the current market price with existing capital, hold onto the crypto asset for a period of time in hopes of the price increasing so they can eventually sell their crypto to realize a profit. Spot trading is popular among traders, given that they can open short-term positions with low spreads and no expiration date.

 the crypto asset spot market. This involves selling a crypto asset and repurchasing it when the price decreases.

A spot price refers to the present market rate for immediate purchase or sale of a particular asset.

Trading pairs describe assets that can be exchanged for one another. There are two main types of trading pairs in the crypto asset spot market: crypto-to fiat pairs (e.g., ETH/USD) and crypto-to-crypto pairs (e.g., ETH/USDT).

 gives traders information regarding the depth of a given market. It displays a real-time list of open buy and sell orders for a selected crypto asset. There are two sides to the order book:

An open order refers to unfilled orders that have yet to be executed.

There are different kinds of orders that can be made in a crypto asset spot market.

This allows spot traders to prepare spot trades in advance. Users can set the desired price at which they wish to buy or sell the crypto asset, known as the limit price. Once the market price reaches that price, the trader’s order will be executed, made possible through conditional agreements that have been specified by the trader.

A market order is executed immediately at current market prices. This order type is used by traders when they wish to complete their trade orders as quickly as possible. Spot traders can make this order easily, without having to enter a price. Once a market order has been executed, a trader can purchase or sell their holdings immediately at the best available spot price.

There is no guarantee that the market price won’t change while the order is being executed, especially given the volatile market conditions of crypto asset.

Traders can refer to the transaction history to keep track of the type of orders they’ve made.

Most crypto asset service providers charge a transaction fee for each spot trade order. The amount of fees to be paid depends on 

Takers are traders who remove liquidity from the order book. A buyer who inputs a market order is considered to be a taker. A trader whose order is matched immediately with an existing buy or sell offer subjects them to a taker fee.

A maker is a trader who provides liquidity to the market by increasing the market depth of the order book. A maker fee is applied when a trade order is placed in advance with limit orders.

However, not all limit orders are charged a maker fee. For example, when a trader is matched with an order straightaway, they might be charged a taker fee instead. To ensure that a maker fee is charged, traders can place a limit order so they won’t be matched with an order immediately even when the terms are met.

Spot markets, also known as cash markets since traders make payments up-front, are available for a wide range of asset classes. These include stocks, bonds and the foreign exchange (forex) market. NASDAQ and NYSE (New York Stock Exchange) are two of the most popular spot markets.

To understand how the spot market works for 

spot trading, let’s take a look at a BTC/USDT spot trading pair.

Buyer A, with 1,000 USDT, puts in a buy order for an equivalent amount of BTC at the unit price of $42,000. Buyer A will be matched with Seller B, who offers BTC in exchange for USDT at Buyer A’s desired price. Once Buyer A and Seller B have agreed on the price, the order will be executed and filled immediately.

Spot markets are commonly affected by market sentiment, and spot prices for nearly all 

fluctuate wildly. Therefore, understanding 

There are different types of spot markets for crypto assets , which we’ll discuss in the next section.

Spot trading occurs in two major types of spot market: Crypto asset service provider and over-the-counter (OTC) trading.

Crypto asset service providers are platforms where market demand and supply are aggregated, allowing spot traders to buy or sell crypto assets quickly at market price. In crypto asset spot markets, there are two distinct crypto asset service providers: centralized crypto asset service providers (CEXs) and decentralized crypto asset service providers (DEXs).

 acts as an intermediary between spot traders and crypto assets, functioning as a custodian and managing the traded crypto assets. CEXs provide an order book, which will provide spot traders information with regard to the amount of crypto asset available for sale, and also the market demand for a crypto asset. This is useful for gauging the market liquidity available for trading.

CEXs grant spot traders access to fiat-crypto trading pairs. To begin spot trading, users simply have to deposit either fiat or crypto into their account.

There are certain responsibilities specific to CEXs:

Since CEXs offer the above functionalities and services for users, spot trading on CEXs often involves transaction fees. Fees are also charged for listing and other trading activities. Thus, CEXs can profit regardless of the market state as long as they have sufficient trading volume and users.

This type of crypto asset service provider is most commonly used for crypto asset trading. 

 have similar functionalities and services as CEXs. However, the greatest difference lies in that there are no intermediaries involved in DEXs. The matching of buyers and sellers is achieved through blockchain technology, where smart contracts with predetermined rules are used to execute trades directly from a trader’s wallet. With self-executing codes, traders are able to transact without needing to trust an intermediary to complete the trade for them. Similarly, the traded crypto asset doesn’t need to be held in custody by the CEX, giving traders full ownership of the crypto asset.

When using DEXs, traders aren’t required to create an account, and can bypass the KYC process. This provides users with a lot more privacy and freedom, allowing them to trade directly with others. However, the tradeoff is that should there be any technical issues, the lack of KYC and customer support leave the trader largely stranded.

Some DEXs use an order book model, similar to that of CEXs. A more recent development within the space is the automated market maker (AMM) model, such as that of Uniswap and PancakeSwap. AMMs use a formula to determine prices and make use of 

Spot trading can be carried out through OTC trading or P2P trading, with each carrying its own benefits.

OTC trading is considered to be off-crypto asset service provider, as the buyer and seller transact directly, without any third party or trading platform overseeing their trade. The buyer and seller aren’t using an order book, and instead can choose to transact any crypto asset at any price that they both deem fit, even if it's below or above market price.

OTC trading is popular among spot traders for the following benefits:

, particularly for crypto assets with lower liquidity such as small-cap crypto assets. This results in spot traders being unable to fill their order at the price desired. OTC trading bypasses the order book, letting spot traders fill their trade positions without experiencing high slippage.

Since OTC traders are transacting off-the-market, they can trade a large amount without worrying about causing volatility that would result from trading in an open market.

Spot trading allows users to hold tokens for up to multiple years. It’s thus used by many traders to dollar-cost average (DCA) their favorite crypto assets. Note that profits only become “real” when crypto assets are “moved,” meaning converted to fiat currency or stablecoins. It’s also at this point that crypto assets become taxable, but they can be held indefinitely before they’re taxed.

How to Trade the Spot Market With Bybit Türkiye

If you’re interested in trading the spot market with Bybit Türkiye, the following is a step-by-step guide to help you get through the process.

Once you’ve inputted the necessary buy or sell information, all you need to do is click on 

 or your preferred digital assets button to execute the trade. 

 Türkiye for spot trading. For instance, market orders can only be filled at the top 10 bid/ask order prices in the order book to prevent market manipulation. In the event that a portion of your order exceeds this limit, it will be declined.

If you wish to deposit funds into your Bybit Türkiye Spot account, here’s what you need to do: 

 in the spot order zone to enter a page where you can transfer your account balance to the Spot account. 

There are 15 Spot trading pairs available on Bybit Türkiye, including BTC/USDT, BIT/USDT, EOS/USDT, XRP/USDT, ETH/USDT, LINK/USDT, DOGE/USDT and more. Every transaction performed in Bybit Türkiye’s Spot market will be charged with 0.1% maker and taker fees. 

Calculating Bybit Türkiye Spot Trading Fees

Let’s take the BTC/USDT spot trading pair as an example. If BTC is trading at a current price of $42,000, traders can buy or sell 1 BTC at 42,000 USDT. The formula is as follows:

Trading Fee = Filled Order Quantity × Trading Fee Rate

Beginner

spot market and spot trading.png

What Is a Spot Market for Crypto Trading?

PAW Chain (formerly known as PAW Swap) is a Layer 3 blockchain designed to enhance scalability, security and interchain operability for DeFi. Learn more here.

PAW Chain isn’t just another blockchain: it represents a leap forward in 

 (DeFi). Leveraging a multiple chains framework and advanced Layer 3 solutions, PAW Chain aims to provide improved speed, security and scalability for digital transactions. At its core, the platform integrates transaction handling and application usage, creating a more efficient and user-friendly experience.

The PAW Wallet, a comprehensive solution for users, integrates all necessary features for an interoperable DeFi experience. Meanwhile, PAW Bridge paves the way for smooth connections between different blockchains, making asset transfers and operational tasks seamless. Connecting multiple blockchains with the same codebases across various platforms ensures extensive compatibility and functionality for PAW Chain.

PAW Chain functions as a Layer 3 blockchain (see below), created to improve scalability and facilitate interchain operability. Initially known as PAW Swap, the rebranding to PAW Chain marks a significant shift toward a more advanced blockchain solution. 

The native crypto asset of this ecosystem, PAW, plays a crucial role in maintaining the platform’s scalability and functionality.

PAW Chain aims to revolutionize the blockchain industry by providing a more efficient and secure infrastructure. Its rebranding signifies the project’s commitment to evolving and meeting the demands of a growing digital finance landscape.

Layer 3 represents the application layer that enhances user experience and scalability in the blockchain ecosystem. Leveraging the scalability of Layer 2 solutions allows Layer 3 to significantly improve transaction handling and processing speed. This makes it ideal for managing high-frequency transactions, a key feature of PAW Chain.

PAW Chain’s Layer 3–centric blockchain is designed to function across multiple layers, creating a connected chain that fosters a scalable and efficient ecosystem. This architecture facilitates better communication across different blockchains, enabling seamless data sharing and interaction. Its focus on user-friendly interfaces and specialized applications further enhances the overall user experience.

 began on Jan 16, 2023, led by five main brand developers and supported by various specialized teams. The introduction of the PAW token marked a significant milestone, with the token reaching a market capitalization of approximately $100 million at its peak. This rapid growth has garnered the trust of over 10,000 holders, reflecting the strong community support behind the project.

PAW Chain’s commitment to DeFi principles and its extensive adoption in the blockchain ecosystem have been driving forces behind its development. Its community forms the core of PAW Chain, significantly contributing to its brand identity and growth.

The transition from PAW Swap to PAW Chain involved a meticulous migration process to maintain the total supply and value of PAW tokens. PAW Coin, the new native asset, is designed to be represented as wPAW for compatibility across various blockchain networks. This rebranding marks a strategic move to enhance interchain operability and position PAW Chain as a leader in the blockchain industry.

A snapshot of PAWSWAP token holders will enable a smooth transition to PAW Coin or wPAW. Initial liquidity for PAW Coin will be established on 

The overall supply of PAW Coin will remain capped at 1 quadrillion, ensuring stability during the migration. CertiK will audit the migration process to ensure transparency and security.

PAW Chain aims to enhance scalability and security in the DeFi sector through its innovative Layer 3 blockchain technology. The network is designed to efficiently accommodate high-frequency transactions for a significant increase in transaction volume without sacrificing performance. This makes it a robust platform for digital finance and trading capabilities.

Interchain operability is another key goal of PAW Chain, enabling 

 to engage with multiple blockchains and enhancing the ecosystem’s versatility. Future initiatives include the development of an e-commerce marketplace and advanced merchant services to expand its utility. In addition, the project aims to create enhanced privacy through advanced cryptographic techniques and biometric security features in the PAW Wallet.

PAW Chain operates across Layer 1, Layer 2 and Layer 3 networks, creating a scalable and efficient system. The platform is designed for high-speed transactions, ensuring a smooth user experience once fully launched. A unique 

 mechanism will be implemented, whereby a percentage of tokens will be permanently removed, promoting 

Only trusted and audited blockchains will be supported, enhancing interoperability and inclusiveness. PAW Chain acts as the core processing platform for all utilities within the PAW ecosystem, ensuring efficient and secure transactions. Rigorous security measures, including a CertiK audit with a score of 92.49, further enhance the platform’s safety.

PAW Chain offers a range of features designed to enhance DeFi by providing a more scalable and secure blockchain infrastructure. These include PAW Swap, PAW Wallet, PAW Scanner, PAW Bridge, PAW DAO, PAW Virtual Card and PAW Pools, each one contributing to overall functionality and user experience of the platform.

Unified liquidity pools enhance the efficiency and reach of decentralized applications (

 enables effortless token exchanges directly within user wallets, enhancing portfolio management by allowing immediate adjustments based on market dynamics. The platform employs 

 (AMM) mechanisms, ensuring liquidity and minimizing price fluctuations. Users can access competitive transaction fees, making PAW Swap an attractive option for cost-effective trading.

Participants in PAW Swap can earn rewards by providing liquidity, receiving 

 that grant them a share of the pool’s assets and trading fees. The platform is designed with user-friendly interfaces, catering to both novice and experienced traders in the crypto asset space.

Additionally, PAW Swap utilizes an aggregator that analyzes multiple sources in real time to provide the best trading rates for users.

 enhances user experience by allowing personalized wallet addresses with the .paw username format, making transactions easier to remember. It features advanced privacy measures, including cryptographic techniques to protect transactions and biometric authentication for added security. Users can track their activities with detailed transaction histories and real-time updates within the PAW Wallet, utilizing unique PAW usernames.

As the native wallet for PAW Chain, PAW Wallet integrates seamlessly with all services and DApps on the platform. The wallet employs a robust security framework, including a triple accounting ledger and adherence to stringent security guidelines.

 is designed to provide real-time monitoring of transactions within the PAW Chain, thereby ensuring high precision in tracking activities. Future updates for PAW Scanner will include features such as contract validation and wallet tracking, demonstrating ongoing enhancements in functionality. This feature supports seamless integration with multiple blockchains, ensuring efficient transactions and overall interoperability.

PAW Scanner enhances asset management by providing integrated tools for tracking and managing digital assets across various blockchains. Its security is reinforced by a three-step redundant failure prevention system, and its capabilities include real-time integration with leading networks to facilitate uninterrupted asset management.

PAW Bridge supports seamless integration across multiple blockchain networks, minimizing the complexities and costs typically involved in such deployments. It allows projects to maintain the same contract address while deploying their crypto assets across different chains, ensuring consistent access to liquidity. Real-time monitoring is implemented to quickly detect and address security threats, enhancing overall ecosystem integrity.

Security and compliance for PAW Bridge are prioritized both through audits by CertiK and adherence to standards set by the National Institute of Standards and Technology (NIST). PAW Bridge supports multiple types of assets, allowing for versatile transactions across different blockchain platforms. It incorporates a fee structure that varies based on the transactions executed across connected networks.

 (DAO) model, aims to ensure a community-driven governance model over project decisions and resource allocation. Token holders can propose and vote on key initiatives, enhancing engagement and decentralized control. The DAO is central to the future direction of PAW Chain, allowing community members to influence development and operational strategies.

Participants in PAW DAO can receive rewards for their contributions to governance and to decision-making processes. Voting in a DAO is public, ensuring transparency in the way decisions are made. This decentralized nature prevents concentrated control, distributing decision-making across a broader community.

 allows users to efficiently manage their digital assets, providing integrated transaction handling across multiple blockchains. It facilitates seamless connection and interaction with prominent blockchains, such as Ethereum and Avalanche, ensuring users can access liquidity pools that span various connected chains. With the PAW Virtual Card, users can easily swap assets across different chains, enhancing their portfolio management.

Security is a top priority with PAW Virtual Card, which incorporates a redundant three-step failure prevention system within the PAW infrastructure. This ensures that users’ assets remain safe and secure during transactions, providing peace of mind in managing digital finance.

PAW Chain liquidity pools allow users to easily access and trade across multiple blockchains. These pools are designed for seamless integration, enabling efficient cross-chain transactions and enhancing market accessibility. In future phases, PAW Pools will introduce customized fee structures at the bridge level for better liquidity management.

With PAW Pools, users can access liquidity from multiple connected blockchains, improving their market opportunities and ensuring efficient liquidity management. This feature will enhance the overall trading capabilities and performance of the PAW Chain ecosystem.

PAW Chain’s road map includes the development of various DApps, including systems for 

 energy trading and secure educational platforms. Future applications also encompass the e-commerce marketplace mentioned above and advanced point-of-sale systems to facilitate transactions.

Technological advancements on the horizon for PAW Chain include exploring new consensus algorithms and implementing its specific burn mechanism, as well as the development of payment cards with a focus on global usability while considering regional specifics.

PAW Coin (PAW) is the native token of PAW Chain. PAW token holders have voting rights, enabling them to participate in PAW Chain's future decisions. For those with 

 PAWSWAP tokens, migration is supported directly through Pawchain.net. 

Of the total PAW token supply of 1 quadrillion, 350 trillion were allocated for team finance, as well as token holder rewards and ecosystem development. The remaining tokens were reserved for liquidity provisioning and growth.

 over the next four years, from $0.000000028970629 at the end of 2024 to $0.000000032742034 by the end of 2027 and $0.000000033117723 one year later.

Although PAW Chain’s Layer 3 endeavor is a new project, it has solid backing with thousands of individual token holders, and has recently introduced advanced features with true utility. While the price of PAW is expected to change minimally over the next few years, the token’s price is negligible. This makes it easy to take advantage of PAW Chain features and to have a say in community governance.

Of course, it’s still crucial for potential investors to 

PAW Chain is a pioneering Layer 3 blockchain that offers enhanced security measures and efficient solutions for digital finance. Its low-cost transactions and rigorous security standards make it an attractive platform for both users and developers. PAW Chain’s core team members have developed a system that supports high-frequency transactions while ensuring regulatory compliance and performance.

With key features such as PAW Wallet, PAW Swap and PAW Bridge, PAW Chain provides a comprehensive suite of tools for managing digital assets. In addition, its future initiatives showcase its potential to revolutionize the blockchain industry. As PAW Chain continues to evolve, it promises to deliver greater control, security and efficiency in the digital finance ecosystem.

Intermediate

PAW Chain (PAW): Enhancing Blockchain With Layer 3 Solutions

Let's revisit staking as volatility continues dominating the market.

Risk appetite has become noticeably lower among traders and investors this week as recent economic data weakness triggered a large scale of unwinds across different asset classes, including crypto. The Volatility Index (VIX) 

 over 50 on Monday in the U.S. trading session, the highest level since Covid, before stabilizing in the 22 to 27 area.

Risk-off was one of the major narratives in the crypto space as well. Crypto Fear & Greed Index, a widely used indicator for measuring investor sentiment in crypto, has touched 17, indicating risk appetite has been extremely low. Despite the index returning to the neutral zone on August 9th, it seems too early to assume normalcy has returned. Chatters among trading communities appear to be ready to embrace more short-term 

Learn more about the Index and how it could affect trading decisions at 

For some users, it could be unbearable when the risk pendulum swings rapidly from one end to the other. At a time of uncertainty, 

 could provide lower-risk returns for crypto portfolios, and a recent development in the US10Y could make staking crypto a topic worth revisiting.

When the equity market sell-off happened earlier, the yield of the U.S. 10-year Treasury fell to below 3.8% at one point, marking it the lowest level since late last year. Interestingly, the annualized staking yield of ETH spiked at the height of this shaky market with the 

, which measures the mean annualized percentage rate (APR) of staking ETH, surged to over 4.0%. While it’s arguable to say if that’s a trend reversal, the recent surge could bring back some interest in staking, especially at a time when market volatility could still be a concern.

 offers a comprehensive suite of staking products, including Flexible Savings, Liquid Staking of ETH at attractive rates and flexible terms. Learn more about earn products at 

Figure 5: ETH staking at Bybit Türkiye Earn

The above calculations and examples are for demonstration purposes only. In order to deliver the message, the examples may simplify potentially complex scenarios, and the yield embedded in the mentioned products can vary over time when entering a contract. The actual performances and yields of these products may differ from the simplified examples provided, as real-world conditions are more dynamic and complex.

Advanced

Investors Hold Breath Despite Crypto Markets Recoup From Sell-off

Decentralized identity is a method of verifying users' identities in web3 projects. Learn more about how it works in this article.

 project, proof of identity is essential for everything from cashing out crypto to recovering lost accounts. However, identity verification can be surprisingly complex. Many methods of identification rely on a centralized source of data, so they come with potential risks. To enjoy the full benefits of 

, a decentralized identity verification method is necessary. If you're interested in finding out how decentralized identity works and why it's so important, check out this helpful guide.

Decentralized identity is a method of verifying users' identities in web3 projects. When managing user identities in a decentralized fashion, organizations can ensure that no single, central party is in charge of issuing, storing and confirming user identities.

To understand how decentralized identity works, it's useful first to take a look at centralized identity verification. The typical identity verification method requires a user to provide their legal name, birth date or social security number. 

Since this information is issued by a government, it relies upon a single, central authority. Any identity verification method that involves obtaining information from an organization controlled by just a few people is a centralized identity provider.

Meanwhile, a decentralized identity relies on the classic principles of decentralization. In a truly decentralized environment, no single organization is in control of anything. Instead, multiple parties work together to create a trustless network where things can keep running, even if one or more parties are malicious actors. In order to create an identity verification method that’s decentralized, it needs to fulfill one or more of the following features:

Decentralized identity might seem like a minor component of blockchain development. However, it has a huge impact on the entire crypto space. Digital identities are essential for interacting with almost every part of the 

 world. While old-school blockchain transactions might only require a 

, modern ones usually involve working through websites, apps and programs. To do things like provide liquidity for a leveraged lending project or mine 

 in a game, identity information is required. 

This makes decentralized identity one of the most critical parts of a user's experience. There’s been a paradigm shift in the past five years or so, and people are no longer happy to turn over their own data to every website that asks for it. Widespread adoption of privacy standards means that the modern user is well-informed of the risk of identity theft and privacy invasion, and they demand a better solution. 

Ultimately, decentralized identity solutions provide many of the key benefits that modern web3 users desire. Decentralized identity provides them with more privacy and security. They can be more confident that their information isn't stolen in data breaches, or that a mix-up with a centralized identity provider isn't going to lock them out of their account. At the same time, decentralized identity can also provide the regulatory compliance that financial businesses require. When properly set up, a decentralized identity system can provide the appropriate level of identity verification needed to safely handle vast amounts of money and private information. 

Types of Decentralized Identity Solutions

Due to its decentralized nature, there is no single, foolproof design for decentralized identity. Here are some of the many ways web3 projects have used decentralized identity to reduce the risk of identity theft and provide users with more privacy and security.

 is one of the most popular options for those who prefer a decentralized identity. With a noncustodial crypto wallet, no third-party organization has custody of the user's crypto. Instead, a noncustodial wallet is like a digital safe. Only the owner has the keys to access its contents, and they can transfer assets without needing to provide any further details of their digital identity. 

Distributed name services are a helpful option for organizations that require each user to have a name. They consist of a decentralized hub capable of looking up and authenticating names. This allows users to submit an accurate name, without needing to mention their legal name or rely on governmental departments. Distributed name services can be helpful for promoting decentralized identity, but they do necessitate some reliance on a third party. The name service is only decentralized if its organization is thoroughly decentralized, so it's important to research these services before trusting them with your personal data.

An unstoppable domain is a new way of managing domain names for sites without requiring users to go through a central registration authority. It functions as an NFT that’s linked to a specific crypto wallet. Users essentially turn their desired web domain into an NFT, and then their information is secured through a decentralized blockchain.

 take the concept of decentralized identity and put it directly onto a blockchain. With this type of technology, users and organizations can self-issue tokens that store their identities’ data on the chain. These tokens are nontransferable, so once they’re linked to a specific user they can’t be moved to another one. This allows projects to attach functions and assets to a single user without needing any details on that user's legal identity.

Proof of humanity is a type of decentralized identity system that relies on social verification. It typically entails submitting a video and then verifying that the entity in it is a human. Some proof of humanity sites also involve browsing participants' social media to check for signs of reasonable behavior. 

Proof of humanity sites can require people to share some of their own data, so widespread adoption isn't guaranteed. However, it can be a useful way of confirming users are authorized to participate in bot-free environments, without asking for users' legal identities.

Benefits of Having a Decentralized Identity

Decentralized identity comes with many benefits for both users and crypto companies. The biggest advantage is security. Cryptographic techniques used for decentralized identity management are a great way to reduce the risk of data breaches and identity theft. No single entity is responsible for security, so customers' private information won’t get stolen because one person made a mistake. Decentralized identity systems have multiple safeguards that maken them much more difficult to access.

This extra security also leads to extra accuracy. With decentralization, it's much harder to damage identity records. For instance, a single server going down due to a power outage won't make it impossible to retrieve data. This results in a user-centric approach that prioritizes customers' convenience and safety. Users can be confident that their verifiable credentials are always accurate, and can be accessed by the desired people at the right time. 

Decentralization does more than just provide practical benefits like privacy and security: its other huge benefit is that it's more accessible. When identity management services are left in the hands of centralized authorities, everyone has to rely upon a single organization. If that organization doesn't provide the services you need, you're out of luck. In the field of identity and access management, this is often seen in cases where a person struggles to get the right ID card because they don't have a strictly regulated list of documents with specific addresses and photos attached. 

With decentralized identity systems, users have more options. There’s no single gatekeeper for identification, so if a user falls afoul of ineffective rules they can choose an identity management service with more reasonable regulations. 

The risks of decentralized identity are primarily related to technological issues. Although the decentralized identity approach works well in theory, in reality it can be hard to implement. Distributed ledger technology often struggles to scale, and a system managing hundreds of thousands of identities might take longer to locate and present information. Compared to centralized systems, a decentralized system can take more hardware to run, since it has so many instances operating. This can make it cost-prohibitive to effectively handle customers' identity needs.

Decentralized identity can also be challenging because it requires a little more effort. There are more options for identification verification, but not all of them are equally valid. The community can even include some scams masquerading as legitimate decentralized identity management systems. Therefore, users need to be able to research and understand some basic technical concepts if they want the best data protection and identity security possible. 

The other major downside of decentralized identity is simply its novelty and lack of adoption. Most people are used to centralized identity systems, and switching the way things have always been done takes time. Some forms of decentralized identity might not be compliant with current regulatory standards, and may not have earned the trust of the general population. It may take time for public opinion and financial regulations to catch up with decentralized identity concepts. 

Decentralized Identity vs. Centralized Identity vs. Self-Sovereign Identity

Keep in mind that a lot of discussions around decentralized identity also bring up secondary concepts such as self-sovereign identity. To discuss the subject thoroughly, it's helpful to take a quick look at what distinguishes these three identity types. 

The following are their respective key characteristics:

Decentralized identities are currently showing up in many surprising locations. The following are some of the ways that many systems are starting to shift to decentralized identity management:

Should You Have a Decentralized Identity?

Exploring decentralized identity is certainly worthwhile. While centralized systems still have their place in the modern world, decentralized identity systems have their own perks. If you're interested in maintaining your privacy and security, you can use things like digital signatures to verify transactions. This type of identity isn't yet acceptable in all situations, but for sites that allow it, it's a great way to protect data and avoid the pitfalls of centralization. 

For the modern web3 enthusiast, a decentralized identity also comes with some additional perks: users who have decentralized identities can access parts of the web not available through traditional identities. A decentralized identity also gives you the chance to explore cutting-edge features that may eventually become a mainstay of modern life. 

Decentralized identity concepts are an intriguing application of blockchain technology. By attaching identification to decentralized networks, it's possible to avoid a lot of the pitfalls of centralized identity providers. Though it may take some time for this concept to achieve full acceptance, it has the potential to provide unparalleled levels of privacy and security.

en-tr_1734363874785

Decentralized Identity: Empowering User Control and Privacy

Glossary

This term describes the main blockchain architecture, on top of which developers build other solutions and layers. A network like Ethereum, on which many applications are built, is an example of a Layer 1 blockchain.

To understand Layer 1 blockchains, it’s important to first learn how blockchain scaling works. To maintain a blockchain’s security and functionality, there are thousands of nodes working around the clock to process transactions. To handle such large numbers of transactions, large volumes of data must be stored and shared across all nodes.

To compete with traditional payment processing systems, blockchain networks need to be highly scalable. For instance, the Bitcoin and Ethereum networks can process

 with its VisaNet electronic payment network. Developers are working on multiple methodologies to improve the scalability of these blockchain networks.

A Layer 1 blockchain is the foundation layer of every blockchain network. Simply put, it’s a network that functions as an infrastructure for other protocols, apps and networks on which to build. Layer 1 is in charge of programming languages and conscious processes, as well as rules and parameters that allow a blockchain network to properly function. The best-known examples of Layer 1 blockchains are 

Even though all Layer 1 blockchains have some similarities, they differ in many ways, including:

While you can modify a Layer 1 blockchain, it’s far easier to build a Layer 2 solution on top of it. Doing this won’t change anything in the first layer. However, it will allow users to enjoy benefits such as quicker transactions and additional features.

Lack of scalability is the biggest obstacle which prevents blockchains from properly competing with popular legacy services. Without quick transactions, mass implementation of blockchain networks like Bitcoin and Ethereum simply isn’t possible.

 is a term coined by Vitalik Buterin, the Russian-Canadian programmer and one of the co-founders of Ethereum, to describe the mandatory compromise needed to improve the existing architecture of blockchains. There are three properties to balance:

As Vitalik has explained, to improve a blockchain, there has to be a trade-off between the three aforementioned properties. The creators of Bitcoin, for example, choose to focus on security and decentralization, thus compromising on scalability.

There are a couple of solutions for Layer 1 blockchain scaling. The first is sharding, which breaks the job of authenticating and validating blockchain transactions into small bits. That makes the process a lot easier to manage.

Another solution is the proof of stake (PoS) consensus mechanism, which is designed to substitute the need for resource-intensive mining. At the moment, Ethereum is in the middle of a transition from being a proof of work (PoW) to a PoS blockchain.

Scalability is the only way Bitcoin networks will be able to compete with traditional financial systems. A good network needs to be able to accommodate growth in terms of transactions, users, and other parameters.There’s a whole new generation of Layer 1 blockchains — for instance, 

, which aims to solve the scalability problem. If you want to know more about the differences between blockchain Layer 1 and Layer 2 in greater detail, you can 

Layer 1 Blockchain