Steemit Crypto Academy Contest / S1W2 – Reviewing Centralized Exchanges by @rosita-nkefor
Reviewing Centralized Exchanges
In order to fully understand what centralized exchanges are, we need to know what an exchange is in the first place. In the crypto world, an exchange is a platform or place where you can trade one crypto currency for another crypto currency, or exchange crypto currency with fiat money.
There are two type of crypto exchanges: the decentralized exchange and the centralized exchange. I will now go further to talk solely about centralized exchanges for the sake of this contest.
Centralized exchanges are those digital places where you can exchange crypto currencies for other crypto currencies or fiat money, which are owned by somebody, a group of persons or a company.
So you see that with centralized exchanges, the owner of the exchange has the final say. When your account is created, only the public key is given to you.
Also, any transaction you make will have to be authorized first before they are finalized. So for certain reasons, your transactions can be rejected following certain.
Benefits of Centralized Exchanges
- Since they follow government rules, it is easier for them to get authority to allow fiat to crypto currency exchanges and vice versa.
- Transaction time on centralized exchanges is very small. This allows them to complete transactions within very short periods of time, making them scalable as they can handle processing many transactions at a time.
- They are more transparent and disclose some of their information which gains people's trust.
- They require government permission and follow policies. Thus, they are under government scrutiny and can be audited at any time making it difficult to have corrupt centralized exchanges.
- Due to the large number of users and trading volume, centralized exchanges are very liquid and allow for trades to be almost instant.
There are more than 500 exchanges out there in the crypto market where one can exchange their crytocurrencies. But I cannot use all of them now can I? So I need to select the most suitable exchange to use based on my personal preference. The factors that help me choose an exchange include the following.
- The exchange should not only allow crypto currency to crypto currency trading but also allow me to exchange fiat currency for crypto currency and vice verse.
- The exchange should have a secure wallet so that I can store my funds right there on the exchange.
- The exchange should have a variety of trading pairs and not just USDT pairs.
- The exchange should offer futures trading because that is what I engage in from time to time.
- Their gas fees should be minimum.
- The minimum amount to be traded (spot trading) should not be out of reach.
- The exchange should be highly liquid to allow for trades to be performed almost instantly.
Out of the different exchanges I have come in contact with, my favourite centralized exchange is the Binance Exchange.
History of the Binance Exchange
The centralized exchange Binance, was created by Changpeng Zhao in July 2017. He also created its own coin known as the Binance coin or BNB. This coin was made to be used for fees and other things on the platform. Nowadays, BNB can even be traded on Binance as well.
There was a point in the first few months of existence where the price of 1 BNB dropped way below the price of the ICO. We all know that when something of this sort happens, the project is about to fail.
But against all odds, Mr Zhao brought it to where it is today, by building a blockchain based on Binance known as the Binance Chain. From then, Binance skyrocketed to the number one exchange on the crypto market.
My favourite things about the Binance Exchange
Now that we have seen it's history, let us now see the reasons why Binance is my favourite exchange out of the 515 exchanges that exist.
1) Futures trading option
Binance allows you to perform futures trading on their platform. Not many exchanges give you this option. And not only can you do futures trading, they have so many futures crypto pairs to choose from. Since I mostly do futures trading, this had made Binance my most visited application.
2) Very good user interface
Binance has a very nice user interface. The platform looks attractive as it is arranged in a way such that space is maximized but not clustered. You can expand on what you want to know simply by clicking. Also, short descriptions are given for some technical terms in order to not confuse you.
3) Earning opportunities
Binance exchange is one of the few exchanges that actually pay you for referring certain events to a friend. You can even get up to 1 BNB.
Also, Binance allows you to earn money by staking. Let's say you bought some Bitcoin during a dip and based on calculations, you have to wait for 6 months to pass, instead of just holding it in your wallet, you can stake it for a certain number of days and get returns on it.
It is worth mentioning that sometimes, Binance sends you notifications of bonuses that are up for grabs if certain conditions are fulfilled. It may be to refer a friend to deposit with the app, or for you to make a deposit.
4) Numerous trading pairs
haFinance s one of the biggest number of trading pairs with the many coins listed on the exchange. And since it is a trustworthy platform, you can be assured that the coins listed on it are not scams and are actually legit.
Some of the most popular trading pairs are the USDT, BTC, BUSD and BNB trading pairs. And so you know Binance has STEEM listed? The pairs available are the STEEM/BTC pair, STEEM/ETH pair, and the recently added STEEM/USDT pair.
5) Tutorials and information
The day I got Binance for the first time, I was a bit scared. All I knew about crypto trading was from the crypto academy. But when it came to the actual trading site, I got confused.
But Binance has little inbuilt links in their apps where they expand more knowledge on that particular thing. This helped me a lot.
Even to do futures trading in Binance, there is a tutorial video that explains everything you need to know about futures trading. After watching the video, you have to answer a test and only when you pass all the questions indicating you understand very well, are you allowed to trade using futures.
Binance can be accessed using its mobile phone app. In order to log into the account, you need your email address and password. Then you do a captcha verification after which you input a verification code that is sent to your phone. This makes it difficult for someone who is not you to enter your phone.
Also, in order to withdraw anything from the account, you are subjected to provide a verification code both from your email and phone number. All these help to keep our accounts and funds safe.
7) Transaction fees
Let us not even talk about the transaction fees on Binance. They are so low and affordable. Fees for trading are so small that you don't even notice it. The fees just increase a tiny bit when you want to withdraw.
Also, if you choose to pay your gas fees using BNB, Binance offers you a 25% discount on fees when trading and a 100% discount with margin trading.
Yes, there is something about Binance I wish to change. In Binance spot trading, the minimum amount to be traded is $10. There are times that I just want to hold a few of my coins since I'm mostly based with futures trading.
So I wish the minimum amount was brought down to $5. This will make spot trading much more affordable and allow those with less funds to still make their long term trades easily.
As good as centralized exchanges are, they still have their shortcomings. Some of these shortcomings are as follows.
- Though your personal account cannot be easily hacked on its own, the entire exchange itself can be hacked and funds taken from users’ accounts. This is possible because the account private keys are all kept with with company that controls the exchange.
- Centralized exchanges are liable to downtime. Since somebody owns it, they can shut down the servers at anytime for different reasons. So there are times when you might not be able to trade or access your account.
- Centralized exchanges are under the government of the country it finds itself in. Suppose something happens, the government can decide to ban it and shut it down leading to users losing their money.
We have seen the disadvantages of centralized exchanges. But what can be done to protect the funds of users in such exchanges since they do not have their private keys?
They can start by doing a kyc process. This reduces fraudsters from registering on the exchange. Sophisticated software and hardware can be bought and implemented to reduce the risk of being hacked to close to nil. They could also employ multi signature or multiparty computation to reduce the possibility of hacking.
Despite everything, centralized exchanges continue to rule the crypto exchange market and will continue to do so for a long time till the weaknesses of decentralized exchanges are addressed.
Thanks for reading.