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I'm doing some research on the decentralized exchange multigateway on the NXT platform. I was wondering what are the pros/cons of this service compared to centralized exchanges like cryptsy?

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The Multigateway (often abbreviated MGW) is a service that was built to run on top of Nxt and acts as a semi-decentralized exchange. An asset is issued on the Nxt Asset Exchange (the AE) and users can buy and sell this asset. The value of the asset is presumed value of the associated cryptocurrency, in Nxt. For instance, a BTC Nxt asset should trade at the value of BTC in Nxt.

The idea for semi-decentralization is that N separate individuals agree to run a multigateway server for a specific, non-Nxt cryptocurrency that supports multisig transactions (BTC, LTC, DOGE, just to name a few.)

Each server manager contains a multi-key to the associated addresses that hold the funds for the exchange. When a user makes a multigateway purchase on the Nxt Asset Exchange for the currency provided by the multigateway operator, they can request a withdrawal by sending a message over the blockchain.

For the withdrawal to take place, a majority of the keys, held by the MGW servers, from the payment address must sign the withdrawal transaction. For instance, if 3 MGW servers manage a BTC asset on the AE, then 2 servers must sign the out-going BTC payment before it is considered valid by the BTC daemon.

The advantage to this setup is primarily two-fold. First, if one of these MGW servers manages to get hacked, and the keys are stolen, the hacker can't take the coins. He will have to also hack into at least one other server (assuming there are only 3) and still those keys as well, before he can clear out the exchanges wallet.

The second benefit is that those who run the servers can't withdraw funds on a whim. The majority of the server managers must agree to make a manual withdrawal and sign the transaction together. This means that no single manager of an MGW asset can withdraw any associated cryptocurrency that's being traded on the AE. If a bogus-transaction occurs outside of the typical MGW functionality, then the MGW managers would have some explaining to do.

It must be understood that the 3-Server setup is most common but isn't the only setup possible. There could just as well be 5, 6 or even 7 servers. If there were 7 servers, then 4 of those servers would need to sign the withdrawal request. Notion is why the MGW can claim to be "decentralized".

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Pros are that it has a tradable asset that lets users exchange currency using NXT's native APIs, instead of Cryptsy's custom APIs. It also is typically cheaper than SecureAE.com's list price(although they seem to underquote/over-deliver on their exchange rate). Lastly, it works; I've gotten ripped off. If someone wanted to take the money deposited, they'd have to hack into 2 servers instead of 1.

Cons are that it's not actually decentralized, put simply the center is larger. With N(likely 3) servers there may not be a single target, but the power of the entire trading network rests on N nodes. Worse yet, it's unclear who runs the N servers: JL777? JL777's friends? or did JL777 pick N-1 people he(James) does(or doesn't) know? SecureAE, Bter, and other exchanges are also centralized, but they also don't market themselves to be decentralized.

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