STEEMIT CRYPTO ACADEMY SEASON 4- HOMEWORK POST FOR TASK 7// DEX, CEX, POPULAR EXCHANGES AND TRADING CYPTOS
Welcome to my task 7 post. For this task, I will be answering question 3 which reads;
EXAPLAIN IN YOUR OWN WORDS WHAT AN EXCHANGE IS. DIFFERENCES BETWEEN A WALLET AND AN EXCHANGE. ADVANTAGES AND DISADVANTAGES OF DEX AND CEX. HAVE YOU EVER USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE.
EXPLAIN AN EXCHANGE IN YOUR OWN WORDS.
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DIFFERENCES BETWEEN A WALLET AND AN EXCHANGE.
We have explored what an exchange is; however, it is important to know that an exchange is not the same as a wallet. How are the two different?
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A hot wallet stays online while a cold wallet stay offline. In this case, hot wallets suffer more from hacking and other security issues. Thus, cold wallets are said to be more secure.
The beauty with wallets is; they offer a high security level. How?
One would need the private keys to gain access to your wallet. And of course, we all know that our private keys are supposed to be kept private from everyone but ourselves. You are the only one who knows your private keys therefore, you are the only one who can have access to your wallet.
Wallets are also easy to access and provide a long term crypto storage.
HOW ARE WALLETS AND EXCHANGES DIFFERENT?
• BY DEFINITION
A wallet is a program that allows an investor to store their cryptocurrencies while an exchange is platform where investors can buy or sell their cryptocurrencies or convert their digital assets into fiat money.
• FEATURES
A wallet offers a "stores" feature while an exchange offers "buying, selling and trading" features.
• CONTROL OVER THE PRIVATE KEY
A wallet allows a user to have full control over their private key while an exchange doesn't.
DEX
Decentralized exchanges are digital markets where financial securities are traded through a P2P without third parties. In other words, the decentralized ledger takes the place of a third party.
DEX uses smart contracts to execute market transactions by allocating transactions to autonomous codes.
Examples of Dex include; WavesDex, Bancon Protocol, Kyber Network, Ether Delta, Air Swap, Uniswap, Justswap among others.
ADVANTAGES
✓ No KYC or ID verification
DEX are trustless and the privacy of the customers is well protected. One can have an account without having to provide personal information.
✓No counterparty risks
The possibility of theft, loss of funds and hacks is greatly reduced. This is because, users are directly interacting with eachother without middlemen and all information regarding any transaction is recorded on the blockchain. This also prevents price manipulation.
✓All tokens can be traded
DEX caters for all cryptocurrencies whether new or old. This gives users a wide variety of cryptocurrencies to choose from in order to trade. Therefore, Dex are diverse.
✓Freedom
This arises due to the fact that there are no third parties involved. Users hereby have the freedom to move their digital assets around in which ever way they see fit.
✓Security
DEX store data of all the transactions on many servers across the world. This makes it impossible for data to be manipulated.
DISADVANTAGES
✓No recovery ability
Remember that with Dex, there is no KYC (know your customer). This means that a user can have an account on the exchange without providing their personal information. Irrespective of the fact that a user's privacy is protected, it also has a down side. This is because; in the event that a user loses or misplaces their funds, they cannot recover them due to the aspect of "No KYC".
✓Low liquidity
DEX faces a problem of low liquidity. This is mainly because they are new.
✓Limited speed
This is entirely dependant on the network's miners rather than the exchange.
✓Scalability issues
This issue is caused by the congestion of the network. DEX is user friendly and thus attracts many new traders. The large number of miners using the network lead to congestion and reduces the speed. This eventually affects the scalability of Dex.
CEX
Centralised exachanges operate like a bank ..there is an owner and they follow rules and regulations. The company that owns the exchange has full control over everything that takes place on the exchange.
ADVANTAGES
√ Security against criminal activity
CEX are protected from criminal activities because they complete KYC, anti-money laundering and counter terrorism financing checks.
√ Volume
They account for the last majority of trading volume.
√ Transparency
CEX have developed public and institutional trust because they work with regulators and employ tight security.
√ Offer digital wallets for customers to store their cryptocurrencies.
DISADVANTAGES
√ Custody
A user entrusts his private keys with the exchange therefore, he has no control over his funds.
√ Hacking risks
CEX are run by companies and they are responsible for the assets of their clients, this makes them highly pron to cyber attacks.
√ The privacy of the users is not protected. This is because of the presence of the Know Your Customer (KYC) that requires users to provide their personal information.
√ Information can easily be manipulated. This is because the users have no say in what happens on the network. Everything is controlled by the owners of the network.
HAVE YOU EVER USED AN EXCHANGE BEFORE?
NO, I have never used an exchange before.
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