WHAT IS A CRYPTOCURRENCY EXCHANGE?
Since cryptocurrency is a digital currency, it also means that the exchange must be digital in nature. A cryptocurrency exchange can be said to be an online platform or digital platform where people can buy or sell their cryptocurrencies either for other cryptocurrencies or for fiat currencies. It is an online market where cryptocurrency trading and exchanges are carried out.
We have many of such exchanges. Some exchanges exchange traditional payment methods and digital currencies while some other exchanges exchange electronically transferred money and digital currencies. Majorly, we have two types of cryptocurrency exchanges and they are centralized exchanges and decentralized exchanges.
DIFFERENCES BETWEEN A WALLET AND AN EXCHANGE.
|Wallets appear to be more secure because they make use of private keys which are only known by the owner and as far as the owner keeps it safe, it cannot be compromised.||Crypto exchange like centralized exchanges are less secure than wallets because the company running the exchange has full access to your private keys, so if anything happens to the exchange platform,you may lose your assets.|
|The wallet is mainly used to hold the digital tokens and safeguard them and not for trading.||It is good to note that digital tokens can be exchanged and traded in crypto exchange.|
|The owner of a wallet can always access his wallet at anytime.||Users of exchange may not always have access to it either because of downtime or when the platform is undergoing maintenance. In such situation, they may have to wait.|
|It is important to note that the owners of wallets exerts full control of their wallets.||In some exchanges, the exchange is in full control of the company that operates it and not in control of the users.|
ADVANTAGES OF DEX (DECENTRALIZED EXCHANGE )
- Since there are no intermediaries, there are little or no charges in using the platform.
- Security wise, DEX is highly secured because it uses the blockchain technology, so it is difficult to hack.
- Because the platform uses blockchain technology, a trader has full control of his account during trades.
- In DEX, there is nothing like KYC (know your customer) requirement for registration purposes, which means that the identity of the users are anonymous.
- Since transactions are more in control by users, transactions carried here are more faster.
DISADVANTAGES OF DEX
- Since there is no KYC requirement during registration, if one mistakenly transfers to the wrong person, you have lost that transaction.
- In decentralized exchange, you cannot swap your cryptocurrency for fiat currencies because only trade in cryptocurrencies takes place on the platform.
- DEX exchanges are not as popular as centralized exchanges.
- For one to use decentralized exchanges effectively, the person must be sound in knowledge and also very good in cryptocurrency trading because the platform is not so easy to understand and use.
- There are some good features that exist in centralized exchanges which you cannot see in decentralized ones, like margin trading and that is really a set back.
ADVANTAGES OF CEX (CENTRALIZED EXCHANGE )
- In centralized exchanges, you notice that the trades and transactions are structured and accurate.
- Centralized exchanges require KYC for registration and the KYC is verified. So if transfer is mistakenly made to a wrong person, it could be recovered easily because the company has every users data.
- Centralized exchanges are very popular and they are easy to understand and be used.
- Centralized exchanges contain many good features lacking in decentralized ones, like margin trading, etc.
- An important point to note is that in centralized exchanges, you can actually exchange cryptocurrency for fiat currencies and many popular cryptocurrencies are available on the platform.
DISADVANTAGES OF CEX
- There is less privacy because the company operating the exchange platform serves as the intermediary which means that any transaction must be approved by the company.
- There is nothing like anonymous identity because every user has her KYC verification in place.
- Security wise, centralized exchanges are less secured. Since the users do not have access to their private keys, it means that everything is in the hand of the company operating the platform, and if the platform is hacked, the users will lose their assets.
- Since the company serves as the intermediary, the trades pay high fees and commission for their transactions.
HAVE YOU USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE.
Honestly, I am new in the cryptocurrency world. I have not fully used any exchange. However, I am learning to use binance as it seems to be the most popular cryptocurrency exchange that some people around me are using. A little enquiry into why they chose binance shows that it is very popular in the industry. I also noted that binance is a centralized exchange platform but somehow it has an integrated wallet.
Another thing is that all popular cryptocurrencies can be traded in the platform. You can do a lot of things in binance which include:
- You can swap your fiat currency for cryptocurrency coins.
- You can deposit fiat currency in binance.
- You can also see the current prices of coins in the market to enable you make a decision.
I have already downloaded binance and will soon start making transactions from it.
I am grateful to Professor @imagen