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Centralized vs Decentralized Exchanges is a hot topic in cryptocurrency community, today’s guest post by Patricia Dixon will explore the topic further.
The word “cryptocurrency” is the talk of the town these days. Digital currencies cannot be counterfeited and that is one of the main reasons why most of the investors are leaning on services of crypto exchanges.
According to the survey conducted by the Encrybit Cryptocurrency Exchange Evaluation, 56.88 percent of the polled people had registered for at least three cryptocurrency exchanges in 2018. In fact, by the second quarter of 2019, the average number of Bitcoin transactions was more than 362,000 transactions per day worldwide.
Cryptocurrency Exchanges: A Boon for Investors
However, gaining high-end dividends for businesses is the main motive of people who look out for exchanges; thus, if you are interested in developing a cryptocurrency exchange platform, ensure that it is packed with unique features and offers great functionalities.
Centralized vs Decentralized Cryptocurrency Exchanges
Centralized cryptocurrency exchanges function similar to banks as they follow certain rules and regulations along with an owner who manages all transactions happening across the network.
However, owners of the cryptocurrency who have stored their currency on a centralized exchange cannot easily transfer it to their own wallets. This is because the coins are stored by a third-party service which raises a number of questions concerned with the topic of security.
For instance, HitBTC, a centralized exchange had a trading volume of almost 40,000 BTC; when traders tried withdrawing their BTC, they got a message, “Withdrawals have been disabled for this account temporarily .”
Also, there are many other risks associated with centralized vs decentralized exchanges. Some of them are as follows:
- Traders are not the true owner of their assets.
- They can lose funds as centralized exchanges can be hacked with much ease.
- The entire exchange can become obsolete at any time.
That is when the decentralized crypto exchange came as a messiah. Owing to the number of problems caused by centralized exchanges, decentralized exchanges have helped in making traders the rightful owners of their assets.
A truly decentralized application does not require anyone to control or supervise the system. This makes it resistant to censorship and petty games of power. The other benefits offered when comparing centralized vs decentralized cryptocurrency exchanges include:
- There is enhanced privacy and no need for any registration or KYC process.
- No need for deposit or withdrawal as all transactions occur on a peer-to-peer basis and are handled programmatically by secure smart contracts.
- Even if the nodes of the network go down, it will still be able to function normally. So, there is no point of failure.
- There is no single point of control or regulation. That is why it is very difficult to regulate Bitcoin directly as it doesn’t have any third-party setup. Because of this, the transactions are safe and secure.
- With peer-to-peer exchange, traders can trade with other users and transfer cryptocurrencies easily from one another’s wallets apart from the wallets in the exchange.
- Escrow services ensure that parties deposit their funds and are able to access them whenever needed; thus, there is no place for fraudulent activities in decentralized exchanges.
Centralized vs decentralized means more or less control over your funds.
In recent days, there are a plethora of startups who are shifting to either of the cryptocurrency exchanges as per their roadmaps. However, choosing a centralized vs decentralized exchange will completely depend on your business goals. While the former has its own set of pros and cons, the latter requires a higher responsibility level to safeguard your assets.