Crypto Academy Season 3 Beginners' course - Homework Post for Task 5: [Dex, Cex, popular exchanges and crypto trading] by @preshymukel

I'm participating in this week beginners homework task of Prof. @imagen with great delight. The lecture which was on centralized and decentralized exchanges (DEX and CEX) was an impactful one.

Here's my homework task.

Questions 3:
Explain in your own words what an Exchange is. Differences between Wallet and Exchange. Mention the advantages and disadvantages of DEX and CEX. Have you used an Exchange before? Tell us about your experience.

What is an exchange?

An exchange is simply a platform or place where people trade. An exchange is more like a market place where people purchase and sale assets.
In the Crypto world, an exchange is used to trade different cryptocurrencies either by using the cryptocurrencies or fiat money depending on how the exchange operates. Exchanges plays the role of a middle man between the buyer and the seller. By facilitating trading they get their own commission through transaction fees.
On exchanges different cryptocurrencies can also be exchanged. For instance, $200 Steem can be exchanged with Bitcoin of virtually equal to that value and vise versa. And cryptocurrencies can also be traded for fiat currency.

Source

Types of Exchange

There are two types of exchange with their different mode of operation, they are;

1. Centralized exchange, and
2. Decentralized exchange

1. Centralized Exchange:

Centralized Exchange operation like the conventional stock market. It is controlled by a person or group of persons, it plays the role of a middle man between a seller and a buyer. Centralized exchange is always recommended for beginners because it is very simple. In centralized exchanges high charges are paid during transactions which is the means through which the platform gets their own commissions.

• Some examples of centralized exchanges includes but not limited to the following;
  i. Binance
  ii. Coinbase (Pro)
  iii. Huobi Global
  iv. Bitfinex
  v. Bitstamp
  vi. Kraken

2. Decentralized Exchange:

A Decentralized Exchange is a very complex system of exchange. It involves no third party in it operations thereby supporting peer-to-peer transactions. It doesn't accept fiat currencies for cryptocurrencies trading. An interesting aspect of decentralized exchange is it's high level of anonymity.

• Some examples of centralized exchanges includes but not limited to the following;
  i. Uniswap (V2)
  ii. Tokenlon
  iii. Curve Finance
  iv. Venus
  v. Compound
  vi. BurgerSwap

Source

Differences between Wallet and Exchange.

WALLET	EXCHANGE
Wallet helps in the protection and storage of our cryptocurrencies for as long as we desire.	Exchanges are used to trade crytocurrencies and it stores cryptocurrencies for a short time.
Wallets are more secured for our tokens and here the user is totally in charge of transfer of funds.	Exchange in the other hand could be prone to hacker and the platform controls the transfer of funds.
Wallet transaction fees are relatively low	Exchange transaction fees are high.
In wallet users are solely responsible for their security, if by any means a user lost his or her private keys; the wallet can't be recovered.	In exchange, the platform helps in the storage of private keys, so if a user lost or forgets his/her password, the platform can help recover the account.

Advantages and Disadvantages of DEX and CEX

Advantages of DEX

1. Privacy: Decentralized Exchange maintain a high level of privacy and anonymity. Users' account details are never revealed.
2. High security: Private keys of users' are never backed up on the platform, so there's usually no case of account being hacked except in a situation where by the user discloses his/her private keys.
3. DEX offers a peer-to-peer exchange, there's no involvement of a third party in DEX.
4. Low cost of transaction fees compared to the CEX.

Disadvantages of DEX

1. Fiat currencies are not accepted for the trading of digital currencies in DEX, therefore it's a con for people who want to trade fiat currency for any crytocurrency of their choice.
2. Intricacy: DEX is very intricate especially for beginners. Users' are expected to ungo series of learning inorder to be acquainted and to operate well on the platform.
3. DEX lacks liquidity due to low trading volume which is as a result of the fact that most digital currencies transactions are carried out on CEX because it is simply to use.
4. Unlike the CEX that backup users' private keys DEX doesn't. A user losses all of his/her assets if there's any case of forgotten or missing of private keys.

Advantages of CEX

1. CEX is very simple especially for beginners.
2. The CEX platform backsup users' private informations in case of any forgotten password, a user can easily recover it from the platform.
3. CEX have a high liquidity because of it's high trading volume.
4. Transactions on CEX are monitored thereby making it difficult for fraudters to operate freely.

Disadvantages of CEX

1. High transaction fee when compared to DEX.
2. CEX involves a third party in it's transactions thereby creating no form of privacy between the sell and the buyer.
3. CEX is prone to hackers, and when the platform is hacked all users' are affected.

Have you used an Exchange before? Tell us about your experience.

Yes I've used an exchange before, and it was Binance Exchange.
It's been a year since I started trading crpto. The first crypto I started with was Etherium. But before I started I went through series of tutorial from a friend who was as at that time very willing to guide me in the crypto journey. He was doing greatly and making some cool cash in the crypto and that was what persuaded me. I was introduced to Binance exchange which I started trading with.
The first experience I had with Binance was a great one which had made the exchange my preferred exchange though I wish to explore other exchanges as time goes on.
The first transaction I made on Binance was selling of Etherium, the transaction went very smoothly and fast; infact I was credited in less than ten minutes.
And with that experience I was convinced the more about the exchange and since then I'll say I've really grown in the crypto world and still open for learning.

CONCLUSION

In this lecture I got to understand the different types of exchange and the difference that exit between them that is their mode of operations, and I also got to know other exchanges that can be used for trading apart from Binance which I've been using all these while.
In conclusion I will say it's necessary for every crypto trader to get acquainted with the two types of exchange (Centralized and Decentralized Exchange), and choose any that's most convenient because as long as crypto remains, exchanges are need to carryout transactions.

Best regards; @imagen

Thanks for visiting my post.