A crypto exchange is an online platform where users can trade their digital assets. As cryptocurrency mining has been poorly profitable lately, the best way to profit from the popularity of cryptocurrencies has become mediation, so many companies have embarked on the launch of their exchange.
Two types of crypto exchanges
There are two types of crypto exchange: centralized and decentralized exchange. Centralized exchanges “hodl” the funds of all users on their servers, allowing end-users easier trading and more options, while introducing certain restrictions, which, depending on what type of user you are, can be seen as both a positive and a negative attribute.
Decentralized exchange offices work on a distributed ledger as well as the cryptocurrencies themselves, which means that the users themselves are responsible for their assets. On the other hand, how centralized exchange offices function is contrary to the vision of the community that presented cryptocurrencies.
Centralized exchange offices charge a commission for their services and retain all profits, while decentralized ones share profits with service providers, i.e. profits are shared with the community. In decentralized exchange offices, users can maintain their anonymity, while at centralized ones this is not the case.
Since the centralized exchange office controls the assets of all users, it can at any time, arbitrarily or under pressure from another body (for example the government), take away the user’s funds, or deny him access to them. The fact that with decentralized exchange offices the user has absolute control, has its negative sides. If a user loses his private key, he loses access to his funds forever. In case you forget your password and/or lose your phone, you can easily recover your account and your funds in a few simple steps.
Availability is another parameter in which decentralized exchange offices have an advantage. Peer-to-peer decentralized exchange offices do not have such problems. As far as security is concerned, centralized exchange offices sometimes have security vulnerabilities, and since a lot of money is poured into them, they are very attractive targets for hackers, unlike decentralized ones, which are almost impossible to hack.
This is not the case with decentralized ones, where, to trade, you already have to own cryptocurrencies, and that is a big barrier for all those who are new to the crypto world, as well as one of the main reasons for the popularity of centralized exchange offices.
Centralized vs decentralized exchange offices
Based on all that has been said so far, decentralized exchange offices are a better and safer choice for advanced users, but centralized exchange offices will be ahead in popularity for some time to come. They are the ones who popularized cryptocurrencies by making them accessible to everyone and made a great contribution to the blockchain and crypto movement, although they have a different philosophy from the social aspect. Due to the ease of use and the possibility of using decree money, a significantly larger number of exchanges take place at centralized exchange offices, which is a very important aspect when it comes to exchanges.
Although Centralized exchanges are in existence, the concept of Decentralized Exchanges is in circulation everywhere.