Steemit Crypto Academy Season 4 Beginners' Course - Homework Post for Task 7: DEX, CEX, POPULAR EXCHANGES AND TRADING CRYPTOS
EXPLAIN IN YOUR OWN WORDS WHAT AN EXCHANGE IS? DIFFERENCES BETWEEN A WALLET AND AN EXCHANGE. MENTION THE ADVANTAGES AND DISADVANTAGES OF DEX AND CEX. HAVE YOU USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE
EXPLAIN IN YOUR OWN WORDS WHAT AN EXCHANGE IS?
A cryptocurrency exchange is like a market, digital in nature where cryptocurrency trading and exchange takes place. It is a digital platform where people come to buy or sell cryptocurrencies for other cryptocurrencies or for convectional fiat money at a fixed price. The exchange allows you to convert your fiat currency into crypto or convert the crypto coins to fiat currency and into your bank account.
Different exchanges operate in different ways. For example, some exchanges allow its users to buy but not withdraw cryptos into their wallets. While others do allow crypto withdrawals. Also, an exchange can only exchange traditional payment methods and digital currencies while another exchange can only exchange electronically transferred money and digital currencies.
DIFFERENCE BETWEEN A WALLET AND AN EXCHANGE?
| WALLET | EXCHANGE |
|---|---|
| A crypto wallet allows you to safely store all your cryptocurrency. | A crypto exchange allows you to buy and sell cryptocurrencies or convert fiat currency into digital currency. |
| Wallet allows you have full control over your private key. | Crypto exchange does not allow you to have full access to your private key. |
| Crypto wallets do not offer some features like selling, buying or trading. | Exchanges offer selling, buying and trading. |
| A crypto wallet user can always access his wallet at anytime. | When the exchange platform is undergoing maintenance or there is downtime, the users may not have access to it until the platform comes up again. |
ADVANTAGES OF DEX (DECENTRALIZED EXCHANGE)
There are many advantages of DEX and they include:
- DEX offers enhanced security. Because it uses blockchain technology, it is very secured and difficult to hack.
- There is privacy as transactions carried on DEX shares no data with a third party. That means that users information are kept private.
- Because DEX uses blockchain technology, data is shared across various servers around the world. And that means that the data is highly protected and is almost impossible to be hacked.
- Users identity are anonymous because DEXs do not require customers to fill out Know Your Customer (KYC) forms.
- Since there are no third party or intermediaries, there are little or no charges especially where there is peer to peer exchange of cryptocurrencies.
DISADVANTAGES OF DEX
- DEX allow only trade in cryptocurrencies. You cannot trade fiat currencies for digital ones. So users who do not already hold Cryptos will find it less convenient.
- Because the identity of the users are anonymous, if you mistakenly make transfer to the wrong person, you have lost the digital assets you transferred.
- DEX is not user friendly. For you to use DEX, you need to learn and get familiar with the platform and process. And you must remember the keys and password to your wallet, if not, you will lose your coins permanently.
- It has been noted that most of crypto transactions are carried out on centralized exchanges which accounts for the majority of the trading volume. In other words, DEX often lacks liquidity due to lack of volume which directly influence speed of trading orders.
- DEX has not gained much popularity as CEX, and hence lack visibility as it is difficult for newer DEXs to be found.
ADVANTAGES OF CEX (CENTRALIZED EXCHANGE)
- CEX is user friendly and you can expect better customer support and service from the exchanges.
- Exchanges that are established and regulated are easy to trust.
- Because most of cryptocurrency transactions are done on centralized exchanges, it's very easy to find buyers and sellers. There is no liquidity problem.
- There is no anonymity in centralized exchanges because they require Know Your Customer (KYC) form to be filled during registration and this is also verified. So any wrong transaction mistakenly done are not lost. It could be recovered.
- You can actually exchange cryptocurrency for fiat currency in centralized exchanges.
DISADVANTAGES OF CEX
The disadvantages include:
- There is risk of hacking. Since the company operating the platform is responsible for the holdings of their customers, it makes the exchanges a target for hackers and theft.
- Centralized exchanges charge high transaction fees for their services and convenience, and this can really be high when trading large amounts.
- Since the company operating the platform serves as the intermediary, any transaction must be approved by the company, which means there is no privacy.
- When the servers are down or when the platform is undergoing maintenance, you cannot perform any transaction.
- There is nothing as anonymity.
HAVE YOU USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE.
Well, I have not used an exchange before. I am really new to the crypto world. But the little exposure I have gotten, it is really an interesting experience. I will prefer to use a centralized exchange for my crypto transactions. I know a lot of centralized exchanges like Binance , Coin base (Pro), Kraken, Bitstamp , etc.
Considering the traffic, liquidity and trading volumes, I prefer to use Binance exchange. In Binance, I can deposit my fiat currency in it, and can also swap it for crypto coins. I will start making use of Binance from now on.
CONCLUSION
Considering the pros and cons of CEX and DEX, It will be recommended that a new user go for centralized exchanges. However, you have to make your own researches to be fully informed of which one you decide to go with, but it is good to choose exchanges that are operated by credible companies.