Centralized vs Decentralized Cryptocurrency Exchanges

In recent years, the term cryptocurrency is well known to everyone. Cryptocurrencies are of interest due to their security and reliability, in addition, they cannot be counterfeited. With the popularity of coins, the demand for exchange platforms where they can be traded has also grown. Today, cryptocurrency exchanges play a crucial role in the development of the blockchain industry.

Consequently, people have the opportunity to use their crypto assets as profitably as possible and exchange them with each other. Uniswap clone Today, we have both centralized and decentralized cryptocurrency exchanges. What is the difference? Are the most popular decentralized exchanges? Let’s look at the Changelly comparison.

What is the difference?

Centralized vs decentralized cryptocurrency exchanges. via: Hackernoon.

Cryptocurrency platforms have two types: centralized and decentralized. A centralized exchange works like banks and traditional exchange houses:

It has an owner.

He is responsible for security.

Adheres to rules and laws.

Despite the existence of many centralized exchanges, one can hear more and more about the concept of decentralized exchanges. One could even say that a real war broke out against centralized exchanges.

A decentralized exchange is a platform that allows users to fully control their own funds. Also, there are no middlemen on such an exchange. Peer to peer means that users can trade with each other directly, transferring crypto between their wallets.

You may have heard about the Proof-of-Key concept proposed by the famous crypto enthusiast, Trace Mayer. He believes that everyone who has bitcoins on centralized exchanges should transfer them to their own wallets.

As everyone knows, the coins that are stored in a third-party service do not actually belong to you. Uniswap clone script For example, by storing your bitcoins on the exchange and not having a private key to access them or recover them in case of theft, you put yourself at great risk of being left with nothing.

You should be prepared for the risks associated with centralized exchanges:

They can be easily hacked and as a result funds will be lost.

Exchange owners can suddenly disappear with customer money.

The real risks of centralized platforms are obvious. Decentralized cryptocurrency exchanges are considered by some operators to be the real solution to this problem. They allow users to own their crypto assets. Here are the key features of decentralized exchanges:

Enhanced confidentiality due to lack of registration or personal identification requirements.

No need to deposit and withdraw funds to a third party service. All transactions are made directly and processed through secure smart contracts.

A few years ago, decentralized cryptocurrency exchanges often faced various issues and people lost money due to minor errors. It is now an intuitive platform for direct cryptocurrency exchange.

Also, to prevent fraud, decentralized exchanges offer custody services, that is, the ability to reserve and guarantee the receipt of funds under certain conditions.

How does a decentralized exchange work?

A decentralized exchange works as follows:

The token holder places an order to exchange his assets for another asset available on the platform.

If a sell order is placed, other users can place their buy orders. When the time set by the seller expires, both parties review and execute all purchase orders. Use your wallet address to enter the decentralized exchange on the blockchain. You can request a buy or sell. Smart contracts are executed and assets are transferred.

low rates

Trading fees are what most cryptocurrency traders pay attention to. In the case of traditional platforms, clients pay a fixed commission for each transaction. Crypto exchanges are different in this case.

Centralized cryptocurrency exchanges generally charge a percentage on each transaction. to confirm your transaction on the blockchain. Typically, such commission does not exceed one dollar in equivalent.

trader anonymity

Decentralized exchanges generally do not have a central governing body. You can simply sign up and start trading. Additionally, anonymity gives users access to tools that are otherwise unavailable.

You can give an example of BitMEX, a cryptocurrency exchange that allows you to trade using leverage, but does not allow US traders to use its services. On the other hand, the decentralized exchange dYdX allows everyone to use all the services.

Crypto asset liquidity

One of the inherent advantages of centralized exchanges is liquidity, that is, the presence of a good demand and supply of various cryptocurrencies. Without liquidity, proper pricing is difficult to achieve.

The liquidity of cryptocurrency can be ensured by linking crypto assets with traditional assets as if combining cryptocurrency and fiat markets. Higher liquidity leads to faster transactions, stable prices, and consequently a larger number of players in the market. This contributes to the widespread adoption of blockchain technology and encryption tools and the maturity of the industry.

Are Bitcoin decentralized exchanges popular now?

Judging by the centralized exchanges (Binance, Coinbase, Bittrex), they account for 99 percent of the total cryptocurrency transaction volume. However, today a large number of startups are interested in creating decentralized exchange platforms, as they can become popular and profitable. At the time when the largest number of crypto investors entered the market, only centralized exchanges were available.

If we compare the features of centralized and decentralized exchanges, then decentralized exchanges are a priority in many aspects. Also, as people are more and more inclined towards such exchanges, it may be worth considering as a new direction in business.

decentralized exchange script