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Centralized vs. decentralized – Exchanges demystified

Discussion in 'General Discussion' started by scott macyy, Apr 17, 2020.

  1. scott macyy

    scott macyy Contributor

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    Cryptocurrencies are all the rage today. These currencies are perceived generally as secure, and in addition, it is impossible to counterfeit them. The consensus among investors and industry analysts is that crypto will continue to evolve, eventually becoming the de-facto standard for trade the world over. Its security features and accessibility are two of the main reasons why crypto is predicted to eclipse traditional forms of currency.

    This ongoing explosion in the prevalence of crypto necessitates a corresponding increase in cryptocurrency exchanges to facilitate their buying, selling, and trade. In order to establish well-established trading, a cryptocurrency exchange usually supports upwards of 20 different currencies. There are two major types of cryptocurrency exchanges that this article will be exploring. They are centralized and decentralized exchanges, respectively.

    A centralized cryptocurrency exchange functions as a modern-day bank. They are owned and are generally safe and well-regulated. These exchanges, however, are not without their drawbacks. Currency stored in a centralized exchange can be susceptible to compromise, as currency stored by a third-party is ultimately not yours. These centralized exchanges are also prone to be hacked as they function around a concentrated point of failure, control, and/or regulation. It is a lot easier to gain control over something once you know where a major part of it is concentrated. What’s worse is the fact that the entire exchange can disappear overnight.

    Decentralized exchanges, however, firmly establish you as the owner of your currency. There are usually no elaborate registration or KYC requirements for decentralized exchanges. Withdrawals and deposits are not necessary. P2P transactions are managed by programmatically, secure smart contacts. One of the primary advantages that decentralized exchanges have over centralized exchanges is that they do not function around a concentrated point of control and/regulation. This drastically reduces their vulnerability to compromise, in comparison to centralized exchanges.

    Decentralized exchanges facilitate trade in such a way that currencies are exchanged from and in between user wallets, over wallets operated by the cryptocurrency exchange. It is not unusual for these exchanges to offer escrow services in order to ensure that fraudulent activities do not take place.

    Let us take a look at how decentralized exchanges function:

    To exchange their assets with some other assets that are available on DEX, the owner of the token places an order.

    Following confirmation of a selling order, other users can enter bids by indicating a buy order.

    Upon expiration of the time set by the seller, the bids are reviewed and executed by the owner and buyer.

    This is how it goes down from a user perspective:

    Using your wallet address - login to blockchain decentralized exchange

    You enter a sell or buy request

    The transfer of assets is completed upon execution of smart contracts

    You disconnect

    The fact remains that decentralized cryptocurrency exchanges have not picked up in popularity, quite yet. Coinbase, Bittrex, and Binance are examples of popular centralized exchanges; centralized exchanges are dominant in today’s scene, being responsible for 99% of total cryptocurrency transaction volumes.

    We just took a brief look at decentralized vs centralized exchanges, and some of the benefits and drawbacks associated with them – in addition to gaining basic insight on how they function. The following criteria also need to be considered when evaluating decentralized exchanges.

    Fees

    When using conventional platforms, customers have to pay a per-trade fee. In centralized exchanges, a set
    percentage of the fee is charged for every transaction. The setup in a decentralized exchange can be compared to the per-trade fee concept.

    Anonymity

    As specified earlier, elaborate registration processes and KYC requirements are not a part of decentralized exchanges. This anonymity, in addition to simplifying, permits access to utilities that are usually unavailable.

    Ownership

    Unlike centralized exchanges, decentralized exchanges provide owners with complete control/authority over their assets.

    Liquidity

    Price discovery becomes difficult to achieve without liquidity. This is one of the prime arguments against decentralized exchanges.

    As crypto grows into its own, cryptocurrencies have to assume center stage in the ever-expanding crypto ecosystem. The choice between centralized and decentralized exchanges completely boils down to personal preference. With decentralized exchanges, a greater degree of accountability is required to protect your assets.

    Decentralization is poised to introduce a new world, a world without boundaries.
     
  2. Goldario Official

    Goldario Official Contributor

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    Thanks for the post.
     
  3. dentw

    dentw Contributor

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  4. plus_minus

    plus_minus Contributor

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    I prefer decentralization. Not exchanges only, but other decentralized projects.
    But remember, decentralized exchange or not, remember that for the safe of coins you responsible first of all
     
  5. Helga Bjarni

    Helga Bjarni Scholar

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    Most business people have the idea to start a crypto exchange platform? But, they didn’t How to start? What are the important features? How much does it cost? Like a lot of questions. Well, here i explain all of them in detail.

    Before you are going to start a new exchange platform you need to know the basics of the crypto trading platform.

    Different Types of cryptocurrency exchange:

    Basically there are three different types of exchanges in the crypto industry.
    • Centralized Exchange

    • Decentralized Exchange

    Centralized Exchange

    Centralize exchange is generally called a traditional exchange. In centralized cryptocurrency exchange a middle man track & stores your the trader’s details like (Transaction history, Private Details). Traders must pay some amount of commission or fee for exchange their digital assets in the centralized exchange.

    Decentralized Exchange

    Decentralized exchanges are introduced to overcome the drawback of a centralized exchange. Most crypto traders shift from centralized exchange to decentralized exchange.

    Decentralized exchanges offer the p2p crypto trade exchange without the involvement of third parties as an intermediator. Traders feel secure in the Decentralized exchanges because transaction details & and private details are not in centralized hands, No need to pay the extra charges or commission in DEX.

    Many crypto traders like to make P2P exchanges. so they prefer exchanges like Localbitcoins, Remitano, Paxful, etc

    You want to start an exchange like Localbitcoins, Remitano, Paxful. by using Localbitcoins clone script, Remitano Clone Script, Paxful Clone Script, etc

    Here, I suggest the best cryptocurrency exchange development providers, where you can get a complete ready-to-launch with the guaranteed fair price.

    If you’re interested, speak to their experts directly via whatsapp/telegram: +91 9500575285
     
  6. FOPL

    FOPL Contributor

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    Depending on the asset I'm trading, I use both DEx and CEx. However, I don't keep my funds on CEx. I sometimes exchange in Atomic Wallet or use changeNOW's platform which does not require registration and KYC even with huge amounts.
     
  7. Wolemoon

    Wolemoon Beginner

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    I guess it depends on the amount you're handling. If it's not to much then it's ok to use a CEx, but if it's to much, the more secure way is with DEx.

    Even tho I've seen huge amount is CEx I guess people find security knowing which who are they buying or selling
     

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