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According to Coinmarketcap, there are currently more than 1,600 digital coins that can be traded in more than 200 different crypto exchanges. Each exchange is different, However, in essence they can be divided into two categories; Centralized and decentralized exchanges. Although they are now an integral part of the blockchain ecosystem, some believe that the use of centralized exchanges to exchange digital currencies goes against the decentralized spirit of the blockchain. That said, centralized exchanges have benefits such as added security and economies of scale that allow for increased efficiency and reduced costs.
The notion itself is fairly basic: a decentralized system simply operates without centralized control. But in the case of secure exchanges for the alternative currency trade, is the difference between centralization and decentralization significant? And if so, should you look for centralized or decentralized exchange sites when selecting your next best cryptocurrencies exchange?
What is centralized exchange ?
A centralized exchange is an exchange that manages the exchange of bitcoins in fiat or other crypto- currencies. The purpose of an exchange is to allow you to exchange BTCs for cash and other cryptographic currencies (such as etherum, litecoin, Ripple etc.)
With centralized exchanges, intermediaries, like companies, act as intermediaries to facilitate exchanges on their platform. In exchange for providing this service, intermediaries charge a trading fee. Essentially, centralized exchanges are often the first point of contact for newcomers interested in the trading of cryptocurrencies. Many people are looking for an interface that can connect them both to the cryptocurrency trade and the real economy, which centralized trading provides.
A Centralized Cryptocurrency exchange (CCE) is owned and operated by a company that fully controls all trading transactions. CCE users do not have access to the private keys of their exchange account portfolios. This puts the trust of the user in the hands of exchange owners, as transactions can only be made through mechanisms provided and approved by a central authority.
List of Centralized Exchange
- Poloniex (http://www.poloniex.com)
- Bittrex (http://bittrex.com)
- Simplefx (http://simplefx.com)
- Binance (http://www.binance.com)
What is a Decentralized Exchange?
According to cryptocompare definition “A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, the exchange takes place directly between users (peer-to-peer) through an automated process. This system can be achieved through the creation of tokens (cryptocurrency assets that represent a particular cryptocurrency) or assets (which may, for example, represent shares in a company) or through a decentralized multi-signature warranty system, among others. Other currently proposed solutions. in development. “
Unlike centralized exchanges, their decentralized counterparts do not need an intermediary for their operation. Instead of matching purchase orders with sales of order in the book orders, a decentralized exchange works by matching the people responsible for buying and selling orders.
List of decentralized exchange
- Bitsquare (http://www.bitsquare.io)
- BlackHalo (http://blackhalo.info)
- Coinffeine (http://www.coinffeine.com)
- Blocknet (http://blocknet.co)
Centralized vs Decentralized cryptocurrency exchanges
Decentralization is the new wave in the cryptocurrency markets. However, this does not mean that they directly triumph over centralized exchanges. In fact, centralized and decentralized exchange sites have respective advantages. Let’s take a closer look at centralized and decentralized cryptocurrency exchanges.
- Anonymity and Sovereignty: Decentralized exchanges provide personal anonymity and financial sovereignty to its operators, since the transactions are executed in a ledger book directly distributed and it is not necessary to register documentation or authentication of identity to use the platform.
- Security: Decentralized exchanges are much more difficult to hack, because the possible chance of attack of decentralized exchanges are much smaller than those of the centralized exchanges. By using decentralized exchanges, you have full control of your own keys to your own funds while centralized exchanges doesn’t provide access private keys to its users
- Ease of Use: Most of today’s decentralized exchanges are difficult to use. Needing to trade using smart contracts can even be a challenge for tech-savvy investors, let alone for beginners. Centralized exchanges, on the other hand, are configured in the same way as online brokers, which most investors are already familiar and comfortable with. Centralized trading offers a relatively easy-to-use solution for cryptocurrency investors.
- Features: Decentralized exchanges currently have limited features. In most cases, decentralized exchange only offers the conversion of one digital token into another. Margin trading, stop-loss limits and other useful features are not available in current DEX model as they only allow base currency exchange for a predetermined value.
- Liquidity: Liquidity in decentralized exchanges is still much lower than that of centralized counterparties, which may be the biggest hurdle for large investors to start trading with a DEX. The decrease in the volume of transactions makes it more difficult to sell cryptocurrency and cash liquidation.
- Openness: The software, code and transactions that occur in a decentralized exchange are open source.
- Audience: Due to the low audience in decentralized exchanges, trading volumes are much lower than centralized ones. This means that finding trade that is acceptable can be a difficult process. The use of decentralized exchanges is just not as common as their centralized counterparts.
For investors seeking to enter the cryptocurrency trades, a centralized exchange remains the most common way to do this. In selecting an exchange, it is important to take into account the many factors that affect the user experience, including exchange pairs, transaction volume and exchange’s security measures in protecting their customers.
In the end, it is up to the person/user to decide, as with any tool, choice depends on personal preferences. More often than not, some choose to use both. Using centralized exchanges to switch to fiat money and decentralized exchange to exchange smaller altcoins which are not included in traditional centralized exchanges.
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