Crypto Academy Season 3 Beginners' course - Task 5 by @jamezmccoy: Exchange
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3-) 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.
An exchange is a platform where you can simply buy and sell or trade your crypto currencies for other crypto assets or FIAT, in other word we could say an exchange in a relateable term is in this context like a market where buyers and sellers conduct their businesses transacting digital currencies from one asset or wallet to another. An exchange has four (4) core functions which are
- Order Book
- Capital Deposits
- Order Matching
- Assets exchange
We have two types of exchanges
- Decentralized Exchange
- Centralized Exchange
Decentralized Exchange are exchanges that gives users complete and total control over their crypto assets and security of their assets to its users and direct access to market, Decentralized Exchange does not have the power to shut anyone out except the entire chain is shut down and its faster and cheaper to use as there is no third party involved in any of your transactions example is Uniswap While Centralized Exchange are exchanges that strict regulations and requires user KYC or Proof of Identity and this type of Exchange don’t usually give an individual absolute control over assets as government or the company can choose to shut an account if its violates its regulations
Differences between a Wallet and an Exchange
Wallet and Exchanges
An Exchange as I have earlier said is simply a platform where you buy and sell or trade crypto assets while a wallet more like an access provider for individuals with mediums we can use to interact with the blockchain, which on creation usually comes with 2 keys attached a Private key which is used to access an individual’s crypto assets, approve transactions or recover/restore a wallet and a public key which is used to generate an address
| WALLETS | EXCHANGE |
|---|---|
| It is only Decentralized | Can be either Decentralised or Centralized |
| Can not trade on wallet | Trading is available |
| Dosent Require ID and other Verifications | ID and other forms of Verifications are required |
| Free from coorporate Malfunctions and Hacks | Vulnerable to coorporate Malfunctions and Hacks |
| No physical Headquaters | Offices and Headquaters are available |
| Not subject to regulatios | Subject to coorporate or govt regulations |
Mention the advantages and disadvantages of DEX and CEX.
DECENTRALIZED EXCHANGE
ADVANTAGES
- Anonymity: DEX provides anonymity to its users you wont have to verify with in ID or send data if you dont want
- Lower transactions fees: Since there is usually no third party involved in most of its transactions the fees are usually lower compared to CEX
- Absolute Control: A big pointer in using DEX is that an individual has total control over his assets, him alone can temper with his assets anytime any day
- Security: In DEX an indication account safety is completely in his hand, how safe his account is is determined by how much attention he gives to securing his private keys
DISADVANTAGES
- Scalability: Its a well known research fact that DEX transactions tend to take more time than CEX
- Complexity: DEX platforms like Uniswap and Bancoor Protocol are often found very complex and hard to understand if you are a beginner in trading
- Full Responsibility: In the case of DEX anything that happens to your assets is your responsibility you have no 3rd party or cooperation to play complain to
CENTRALIZED EXCHANGE
ADVANTAGES
- Simplicity : Platforms like Binance make it easy for new users to understand their interface,
- Reduced Responsibility: Due to the fact that the company has access to your assets they go to extra length to secure an individuals assets
- Transparency: It publishes its ledger for access to the public
- Scalability: Transactions on CEX are faster compared to DEX transactions
DISADVANTAGES - Less Privacy: For one to be able to use CEX he has to provide Proof of identity, data and other forms of verification before he can be a registered user on the platform
- Transaction Fees: Because their is third party involved they tend to charge extra compared to DEX
- Corporate Vulnerabilities: If the Exchange one is using gets hacked all individuals using the exchange are most likely to get affected also
- Under Regulations: If government releases a policy banning your exchange you migth loose your asset or the exchange can ban you from access to your funds for one reason or the other
Have you used an Exchange before? tell us about your experience.
I have only been using Binance and when i started out with it i was much a bit of a noob but within a short while of using the platform i got very acclamatised with the User Interface and i knew my way around although to be honest my verifcation aspect gave me trouble cause i was required to provide my details and even take a shot with my ID card but overall i believ is one is starting up Centralized Exchanges like Binance is best as most of the tools you need for successful trading is layed out there and they even offer classes for newbies
Conclusion
If you are a newbie entering starting your career off as a trader i would suggest you make quite an extensive research on Crypto terms like Exchanges and choose which would be most suitable for you between DEX and CEX, knowledge is a big advantage you would want on your side if you want to be truly successful here....Thanks for the opportunity to take participate in this lecture @imagen