CEX And it Downsides || 10% to TFC

Hello friends and famz,trust you're good. Welcome to my blog once again. I trust you enjoyed my last discussion on the current market situation. Today I will be sharing something entirely different just like I said in my last blog. We will be looking at CEX, centralized exchange and it downsides.

Introduction

Centralized exchange commonly known as CEX has gained prominence over time and it is being used by a lot of traders and investors for their buying and selling transaction. It works more like a stock market but this time for cryptocurrency. Here you buy and sell your digital coin with ease and convenience with a little fee which is for the smooth transaction.

Example of this exchanges are Binance, coinbase ,huobi,Gemini and so on. It is also important too note that centralized exchange do not function like Decentralized exchange (DEX). They have their mode of operation which is distinct from the other.

For instance,Dex allows connection directly from your wallet and then can carry out your swapping activities, swapping from one coin to the other. Examples of Dex are sushiswap , pancakeswap and the likes. I know we are familiar with some of these platform I just mentioned.

Another striking difference is that in cex your coin are always in the custody of the exchange,meaning they have control over your cryptocurrency. While in Dex you have control over your asset. In other words you have the keys and sole access to your asset which is unlike cex. Hence the saying "not your key,not your coin"

Have you ever thought of that statement. It mean although you own the coin but you're not in control of it. Anything could happen to it since you're not in control. It's a bit risky when your asset is in the custody of another. This is one of the reason why many prefer Dex and wallets to CEX.

Weakness of Centralized exchange (Cex)

In this section,we will be looking at the downside of the cex platform. There is almost nothing in this world without a downside. Only God is perfect. As good as this exchanges seems to be,there are some downside to it. Let's explore few of those downsides.

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• Security

This is one of he major issue with a centralized platform that is deemed to be operating from one server. It means once it is hacked,millions or billions of dollars will be going down with it. This is why hackers will not stop trying to break into the system.

They know cex houses a lot of money and once they break into it,they will be very rich with the loot. There had been history of successful hack in the past and history they say, can always repeat itself. That is why it's not so safe to store cryptocurrency in your wallet,only send it in when you need to buy/sell or keep temporarily.

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• Maintenance/ Downtime

This is another issue that Cex tend to face. There are times they need to carry out maintenance or have technical faults and issues. This somehow halts important activities on the exchange. During this period,you might not be able move out fund. Sometimes they make the entry window open for asset to come in while they close the window for asset to go out.

Now come to think of it what happens to you when you need to do some emergency transaction on the platform and discover it's currently undergoing maintenance or having some technical issue...

Sometimes government regulation or authorities could also disrupt the activities of this exchange as they could stop them from operation for a period of time. What then happens to your asset. All these are little caution for us all to be mindful of.

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• Lack of Censorship resistance / independence.

Somehow this cex platforms ain't really independent or free from undue control from government rules and regulations or policies. They are always prone to some checks and balances from time to time. According to research their license to operate can even be revoked. It has happened in China before where exchange were forced to stop operation and shut down activities. Some have even been force to present certain sensitive information which is not suppose to be for public consumption.

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• Transparency

I know it will amaze some of us to know that most of these exchanges are not really transparent. They seem to be on the surface but when you decide to dig deep you see alot of padding just to attract investors to the platform

Some of this CEx platform maliciously boost trading volume. You know what that means to investors and trader,they like it when they see bouyant trading volume because they feel they can take advantage of the roburst volumes.

They also tamper with the fund of their users without prior consent, sometimes misuse and mismanage it. And this is possible because it's in their custody. They have control over it. This brings us back to the statement "if it's not your key,it's not your coin" if it is really yours, no one should use it to do whatever without your consent right? Now you know.

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• Restriction

These exchanges also have a ways of restricting users from taking out a certain amount of fund from the exchange at a go. They do this on the ground of liquidity challenge and the likes. There are times,you want to withdraw and then you find out that the withdrawal option which had always been there had disappeared all of a sudden,leaving only the deposit option open so you can bring in more.

All these and many more are the downside. They offer so many beneficial services but it's also good to touch some of the cons so that we can take caution and be wise with our investments.

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Conclusion

So much has been said already concerning these platform. This is not to say Cex's doesn't have benefit. They indeed have numerous benefit although I didn't capture it in this post because it's not my emphasis for today. The goal is just to allow us apply caution as we use this exchanges. Let's try to balance the use of cex and Dex to our advantage. I hope you got value.
Thanks for your time.

Regards:
@lhorgic♥️