DEX, CEX, WALLETS AND TRADE BY @hdnakum- Steemit Crypto Academy Season 4 - Homework Post for Task 7
Hey Steemians,
Good afternoon to everyone,
Greeting to #steemitcrytoacademy -An amazing community for earn while you learn.
I'm @hdnakum. I would like to begin by thanking @imagen for writing an in-depth homework lecture for the new guys in the field of cryptocurrency or say blockchain web 3.0 technology.
I'm back from the long gap of four days from the steemit to finish my homework 7 written by @imagen. Homework 7 is all about what is DEX, CEX, Wallets, and Trades. I have been using all this stuff (DEX, CEX, WALLETS) for four to six months and I was thinking that I know a lot about it now but then I realized from this homework that I need to learn more about it in-depth.
In this homework 7, same as the first six lectures, there are three questions urged by the dear professor @imagen and gave us full freedom to attend any one. I will attend the third question and will be answering it by breaking it into four smaller questions.
MAIN QUESTION:
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.
Question 1
Explain in your own words what an Exchange is?
If you want to buy a stock of any company whether is good or bad, you need to visit a broker's office or website to sign up there. you need to identify who the hell you are with all your details such as age, address, and bank details. Once you buy the stock of any company from the broker (in India Zerodha, Grow, Angel), your stock will be stored either with Central Depository Service Limited (CDSL) or National Securities Depository Limited (NSDL). In short, Brokers are the middle man and our stocks are safe under highly centralized depository institutes (say centralized wallets in terms of crypto). If your broker declares bankruptcy due to any reason, your stocks are safe with the depository institution and you can sell them by using other brokerage houses.
In the case of cryptocurrency, there are two types of exchanges for buying, selling, and Holding Crypto assets.
- Centralized Exchanges (CEX)
- Decentralized Exchanges (DEX)
1. Centralized exchanges (CEX)
In the case of cryptocurrency centralized exchange (CEX), who have your assets (private key of your assets) in thier exchange wallet, you are screwed up if they declare bankruptcy or disappeared overnight.
In the CEX, same as Stoke market Broker, you need to identify yourself through KYC first and then you can buy, sell, hold, and trade (exchange) cryptocurrency assets.
The risk factor of working with CEX is they store your assets on behalf of you. They have full control over your assets. You let them store your assets by trusting in them.
The buying and selling of crypto assets is quite easy on CEX because CEX has higher liquidity than DEX.
In the CEX, there is always spot wallets that shows your asset balance. You can see your asset balance in various fiat currencies such as the dollar, euro, and INR as well. In most CEX, you can swap one cryptocurrency from another one if the pair is available in a particular centralized exchange (CEX).
You can buy any cryptocurrency by using Fiat money from your bank account or a credit/debit card easily.
If you don't have any idea which exchange is centralized or decentralized, just visit the Coingmarketcap and Click on Exchanges and the tap on spot. A list of Centralized exchanges will be shown below.
Top five centralized exchanges are Binance, Coinbase, FTX, Kucoin, and Kraken.
Security of your assets in the CEX is quite low. Recently on 21st August, Hackers Stole Over $90M From Japan's Liquid Crypto centralized Exchange Source. Now you can imagine storing your assets in CEX is losing all your assets (money) indirectly someday.
2. Decentralized exchanges (DEX)
Decentralized exchanges (DEX) allows you peer-to-peer(P2P) cryptocurrency transactions with high security and even without any interruption of any intermediate.
To use or exchange your crypto assets, you need a wallet connected with the DEX because DEX doesn't store your asset. it's only you who store your asset in your wallet.
Decentralized exchanges (DEX) doesn't allow buying any cryptocurrency from your Fiat money. you need to have at least USDT (Tether) in your wallet to buy any cryptocurrency.
You can use any DEX without revealing your identity, instead it requires your wallet (address) to connect with it (with a suitable mainnet) to buy or sell any cryptocurrency.
The Decentralized Exchanges (DEX) are super secure and hard to heck because the crypto asset you brought is directly stored in your wallet and only you know the private key of your wallet.
If you have no what DEX is the best simple follow the idea depicted above, just visit the Coingmarketcap and Click on Exchanges and tap on DEX. A list of decentralized exchanges will be shown below.
The top five decentralized exchanges are dYdX, Uniswap, Pancakeswap, 1inch Liquidity Protocol and Suchiswap.
Using DEX is very easy if you are having a hot or cold wallet already installed in your system. For example, I have a metamask wallet installed (which support many mainnet) and now I want to buy Crypotasset from 1inch Liquidity Protocol DEX.
Step 1 Go to 1Inch DEX
Step 2 Click on Connect wallet
Step 3 A new window will appear as bellow, select mainnet and wallet you already have installed, then click on next and then Connect. Once the wallet is connected you can swap your one crypto into another cryptocurrency.
By now you must have well known about all kinds of exchange and their merits and demerits. I have made a summary image on DEX, CEC, and stock exchange adobe illustrator about it.
Risk Parameter of Exchanges - Made with Adobe illustrator
Question 2
Differences between a Wallet and an Exchange?
1. Exchange
As we have discussed above, the exchange, whether it is Decentralized or centralized, is a place where anyone can buy or sell or hold the cryptocurrency asset. In most exchanges, there are many pairs available for every cryptocurrency. for example one can buy BTC by using USDT, BUSD, BNB, TUSD, USDC, TRY, AUD and many more. Keep in mind that only CEX support buying Cryptocurrency by using FIAT money. DEX work only if you already have one type of cryptocurrency and want to swap it for other.
2. Wallets
To store your cryptocurrency that you buy from either CEX or DEX, you need something called a wallet. As we know, if you buy cryptocurrency from CEX, CEX stores Cryptocurrency in a spot (exchange) wallet on behalf of you. Remember, crypto wallets do not store the currency but they store the (key) information which is used for connecting with the particular blockchain for sending and receiving Cryptoassset.
There are mainly two types of wallets as listed below
A. Hot wallet
Hot wallets are those wallets that are connected to the internet be it exchange wallets or another software wallet such as metamask and Trust wallet. They are connected to the internet and therefore open to get attacked by hackers anytime., however, the CEX wallets are more prone to get attacked because of large sums of assets stored in them. The software wallets are quite safe because individuals hold the private key of a particular wallet.
Hot Wallets - Made with Adobe illustrator B. Cold Wallet
Cold wallets are the wallet that store cryptocurrency in hardware wallets such as Trezor, Ledger N. These wallets are only connected to the internet when used for buying or selling through DEX. This type of wallet is highly secure and only controlled by the user because most of the time it is not connected to the internet.
Let's compare how the wallet and Exchange are different from each other in the below table
| Parameters | Exchange | Wallet |
|---|---|---|
| Used For | Buy or sell Crypto | Hold or store Crypto |
| Security? | Less Secure | Highly Secure |
| Decentralized ? | DEX - Yes, CEX - NO | Fully Decentralized |
| Build on? | Blockchain | Not on Blockchain |
| Example | Binance, FTX, dYdX, Terraswap | Trust, MetaMask, Trezor, Ledger |
Question 3
Mention the advantages and disadvantages of DEX and CEX.
All about exchanges are discussed in-dept above, in the first question. We will here depict the merits and demerits of both types of cryptocurrency exchanges DEX and CEX.
The advantage and Disadvantages of Centralized Exchanges (CEX) are listed below
| Advantage of CEX | Disadvantage of CEX |
|---|---|
| The liquidity of CEX is higher than DEX most of the time | You need to verify your Email id, Phone Number, address, and KYC to buy or sell cryptocurrency easily |
| Very easy to buy and sell the cryptocurrency at minimum transaction cost | CEX can be hacked easily - less secure than DEX |
| long term holders need to transfer thier cryptocurrency(with fees) to safe software wallets | The centralized exchange have all your private key of all your asset |
| Feature of the CEX is advance for trading, supported by trade machine engine | CEX can be declared bankruptcy or banned by the government anytime - you can end up losing everything |
| Fiat to cryptocurrency buy, sell and Trading is highly Supported | Anonymous Transaction is not possible, unlike DEX. |
| CEX offers a variety of assets under one platform | CEX can easily manipulate the trading volume and the prices of assets shown on their platform |
The advantage and Disadvantages of Decentralized Exchanges (DEX) are listed below
| Advantage of DEX | Disadvantage of DEX |
|---|---|
| You don't need to verify yourself, just connect the wallet with DEX and you are free to buy or sell Cryptocurrency | The liquidity of DEX is always lower than CEX |
| DEX can not be easily hacked any time because it is fully decentralized | Quite tough to use, not that much user friendly, need to switch mainnet every time dealing with different blockchain |
| The transaction can be tracked from respective blockchain explorer | Transaction is slower than usual CEX transaction with high Transaction fees than CEX |
| Dex provides full anonymity to the user | Transaction cannot the reversed once sent to the wrong address |
Question 4
Have you used an Exchange before? tell us about your experience.
I have been using many Centralized exchanges like Binance, FTX, Gate.io. AscendX, Bitmart, WazirX, Poloniex, and Huobi pro. After using all CEX, I would say that Poloniex is the best platform in terms of fees. Every other Exchange I have using don't have Steem/USDT pair and have 1 or 2$ USDT (TRC20) withdrawal fees. As a steemitians, I always prefer to use poloniex due to its low fee and easy to use interface.
| Exchange | TCR20-USDT Withdrawal Fee | Steem/USDT pair available? |
|---|---|---|
| PoloNiex | $ 0 USDT | Yes |
| Binance | $ 1 USDT | No |
| BitMart | $ 2 USDT | Not listed |
| Gate.io | $ 0 USDT | Yes |
| WazirX | $20 USDT | Yes |
| Huobi Global | $ 1 USDT | Yes |
If you visit the Poloniex, you will see the user interface as below, we are going to sell TRX/USDT today to see how easy it is.
1. Search TRX/USDT
Step 2 Click on sell TRX/USDT
Step 3 Enter the Price TRX at which you want to sell, Ammount of TRX, and click on Sell TRX
Step 4 The Order was completed within a second and received 2.44$ in my Spot wallet
Step 5 Checking the USDT Reflection in my Exchange (Spot) wallet
From the above example, you might have got an idea about how easy it is to trade, buy, or sell your cryptocurrency assets using Poloniex centralize exchange.
Conclusion
Concluding Homework 7, We can say that Exchanges are the place where we can buy, sell, trade, and swap cryptocurrency from one to another. The wallet is the software or hardware where you can store all your cryptocurrency securely and hack free. There are many Flows and pros of both the type of exchanges. Most of the people use both the type of exchanges according to thier needs, simultaneously. I would like to thank @imagen for writing such a nice post about CEX, DEX, and wallets. It has enriched my knowledge about the stuff discussed in the lecture. I would like to invite Professor @dilchamo and @nane15 for grading this post and for receiving some valuable suggestions/changes regarding this post if needed.
Amazing,info on Dec,cex,wallets etc...on steemit crypto academy season 4 home work task 7 you presented well:-)
Nice info you shared w/ us
@hdnakum
#affable
Thank you so much @layersinn for your visit
This HOmework 7 is not graded @dilchamo @nane15 even after 3 days sir kindly check it sir/mam @sapwood
Okay, Let me follow up with the Beginner[Fixed] professor.