Cryptocurrency has become quite a popular term for the past few years. This growing popularity is the result of the fact that they cannot be faked. People are also attracted to cryptocurrencies because of their security and reliability. The demand for the crypto exchanges has grown to such an extent that it has become an integral part of the blockchain industry.
Usually, a cryptocurrency exchange allows trading in no less than 20 different currencies. This means that people can use their cryptocurrency assets as and when they find the most profitable bid and exchange them with others. Today, both centralized and decentralized exchanges are rapidly gaining popularity. But what is the line that separates the two and the factors that define them individually? Let’s find out!
The Difference
The Centralized Cryptocurrency Exchanges are a lot similar to the ones carried out in a bank. There is an owner and there is the responsibility for security. The established rules and laws also need to be managed.
Though there are a lot of centralized exchanges in existence, the concept of decentralized exchanges is the one capturing the headlines.
This is mainly because the decentralized exchanges let the trader stay in full control of his funds. This was one of the prominent flaws in the centralized exchanges which are now being solved by peer-to-peer decentralized exchanges.
The term ‘peer-to-peer’ essentially indicates that people can carry on there trade directly with each other. There is no involvement of a third person in transferring the cryptocurrencies.
The risks associated with Centralized exchangesYou might be familiar with the famous concept of ‘Proof of Key’ presented by Trace Mayer, a well-known crypto enthusiast. In his opinion, everyone must transfer all the bitcoins on centralized exchanges to their own wallets.
The real problem is that the coins are stored in third-party services. This means that they actually are not your assets and they do not belong to you. In case of theft of your private key, you will not have access to your bitcoins and thus you will be left with nothing.
The centralized exchanges have some huge risks. To name one, they can be easily hacked. And once they are hacked, all your funds will vanish. Another huge risk is that the exchange owners may disappear in an instant along with all the client’s money. The real solutions of these risks are decentralized exchanges.
Main features of the Decentralized exchanges
? Improved privacy because of no need for registration and submission of any personal identification information.
? No involvement of any third-party for deposition and withdrawal of funds. All the exchanges are direct and are processed through reliable contracts.
? No single point of failure, regulation or control.
A couple of years back, the decentralized cryptocurrency exchanges were facing various problems because numerous people lost money even due to minor mistakes. But now, it is an intuitive platform that allows direct exchanges of cryptocurrencies.
Decentralized exchanges are also more reliable because they offer escrow services to prevent any kind of fraud and scams. This service guarantees one to receive their funds under certain circumstances.
Detailed working of decentralized exchanges
This is how a decentralized exchange works:
? A token holder places an order to exchange his assets for another which is available for exchange.
? If a sell order is placed, then other users can place a subsequent buy order.
? When the time set by the seller runs out, all the buy orders are reviewed, and then executed accordingly by both the parties which are involved.
As viewed by the user, the stages of placing an order for decentralized exchanges looks as follows:
? You enter the decentralized exchange on the blockchain using your wallet.
? After you enter, you can apply for a purchase or a sale, as you wish.
? Smart contracts get executed and assets are transferred.
Learn more about the decentralized exchanges at www.top10bitcoinrobots.com .
How to choose the best cryptocurrency exchange
While making this choice the following strategies must also be taken into account
? Low fees
Trading commissions is an aspect most crypto traders keep in mind. While using traditional platforms, the customers need to pay a fixed commission for every transaction. This is a point of difference between the crypto exchanges.
In the case of centralized crypto exchanges, usually, a percentage is charged on each transaction, while in the case of decentralized exchanges, only the traditional transaction fee is charged in order to confirm your transaction on the blockchain. Most of the time, this commission is not more than one dollar in equivalent.
? Anonymity
Since the decentralized exchanges do not have a centrally governing body, there is no requirement for any additional identification details. You can simply register yourself and start trading without any verification.
Anonymity also gives the user access to some additional tools which wouldn’t be available otherwise. For example, BitMEX is a crypto exchange but it doesn’t allow the traders from the US to leverage the services.
? Crypto asset liquidity
One of the clear benefits of centralized exchanges is its cash flow. There is a good supply and demand for several cryptocurrencies. Higher liquidity is important otherwise it would be difficult to achieve stable prices and faster transactions.
This liquidity can be made sure by linking the crypto assets with traditional assets. This is like combining cryptocurrency with fiat markets. Higher liquidity attracts more and more players to the market.
The status of Decentralized Bitcoin Exchanges
In general, centralized exchanges such as Binance, Coinbase, and Bittrex are more in existence. About 99% of the transactions occurring in the crypto market account to the centralized exchanges. However, currently, many startups are opting for decentralized exchanges. This is mainly because of its superior features. They are becoming a priority nowadays and can be even considered as the new business direction.
The co-founder and CEO of IOHK, Charles Hoskinson believes that Cardono will become the most decentralized cryptocurrency around the globe. It will be 50 to 100 times more decentralized than Bitcoin in the near future after the implementation of all its upgrades.
Bottom Line
The crypto market is a highly volatile environment and you must agree that cryptocurrency exchanges are an excellent source of profit in the modern world. Whether you opt for centralized or decentralized exchanges, the choice is entirely up to you and your goals.
When going for centralized, you must stay prepared to bear the loss of your funds while in case of decentralized keep in mind that you are responsible for protecting your assets. You must stay prepared nevertheless, the large sites will provide compensation for any possible damage.
