Cryptocurrency is well known to everyone as they are of interest because of their security and reliability and also they cannot be faked. As the popularity of coins increases, the demand for exchange also grown. In this era, crypto exchanges play an important role in the development of the blockchain industry.
Generally, cryptocurrency exchanges support trading in more than 20 various currencies. People get the opportunity to use their cryptocurrency assets as a profitable asset. Nowadays, we have both cryptocurrency exchanges,i.e, Centralized and, Decentralized Cryptocurrency Exchanges.
What is Centralized Cryptocurrency :
A centralized cryptocurrency means the currency which is controlled by a singular entity.
This creates more stability within the currency because it is wholly controlled by a singular entity which is in question. That entity sets the price and decides where and how the coin will be traded.
A Centralized Exchange function has the following features :
i) It has an owner.
ii) Security is its responsibility
iii) It sticks to rules and laws.
An Example of Centralized exchange function is traditional banks.
The risks which are associated with centralized exchanges are :
i) These can be easily hacked and hence the funds will be lost.
ii) Exchange owners may disappear with clients’ money.
The Risks Involved in this exchange are obvious. Hence, Decentralized Crypto Exchanges are considered as the real solution to this process.
What is Decentralized Cryptocurrency :
A Decentralized Cryptocurrency resists the control of the central authority which means if you are holding a currency like Bitcoin in a private wallet, it cannot be taken or seized by any outside authority or even the developers of those currencies themselves.
The key features of decentralized exchanges are –
i) Improved Confidentiality as there is no requirement of registration or personal identification.
ii) No requirement of depositing and withdrawing funds to third party services.
iii) All transactions are conducted directly and are passed through secure smart contracts.
iv) Lack of vulnerability, control, or regulation.
How Does Decentralization Process Works?
It works on the following process :
The token holder place an order for the exchange of his assets for another asset which is available on the exchange.
As the time set by the seller expires, all the purchase orders are reviewed.
Factors which Determine How you will Choose a Cryptocurrency Exchange :
Low Fees :
Trading Commissions are what crypto traders look after. In traditional platforms, customers generally pay a fixed commission for each transaction.
Centralized Crypto Exchanges charge a certain percentage on each transaction, whereas in case of decentralized exchanges, commissions resemble traditional transaction fees, which means you need to pay only to confirm your transaction on the blockchain. This type of commissions does not exceed one dollar in equivalent.
Crypto Asset Liquidity :
One of the advantages of centralized exchanges is liquidity which means the presence of good demand and supply for various cryptocurrencies. It is very difficult to achieve adequate pricing without liquidity.
The liquidity of the Cryptocurrency can be ensured by linking crypto assets with traditional assets as if combining cryptocurrency and fiat markets. Higher liquidity results in faster transactions, stable prices, and also to a greater number of players in the market. This leads to the widespread adoption of blockchain technology and crypto tools and the maturity of the industry.
The Popularity of Decentralized Bitcoin Exchanges :
In General, 99 percent of the total volume of cryptocurrency transactions are done by centralized exchanges. However, a large number of startups today are interested more in creating decentralized exchanges, as they can be more profitable.
If we compare the characteristics of both the exchanges, decentralized exchanges are a priority in many respects. Also, people nowadays are more inclined towards exchanges of this type, so it can be considered as a new direction in business.
The choice between Centralized and Decentralized Cryptocurrency exchanges is completely up to you and your goals. If you choose, Centralized Exchanges, you should be prepared for the loss of funds. And, if you choose Decentralized exchange, you need to have a higher level of responsibility to protect your asset.
Decentralization exchanges give a new world where you do not need to trust intermediaries.