Cryptocurrency, just like stocks, experiences volatility. What distinguishes crypto exchange is its function of monetary sovereignty. Ironically, almost all crypto exchanges are centralized. Nevertheless, this trend is slowly being replaced with decentralized trading in different ways. Here is an overview of the two methods of crypto exchanges.
Centralized Cryptocurrency Exchanges
Bitcoin, founded by Satoshi Nakamoto, Ethereum, and other cryptocurrencies had begun to circulate to the public and influence many prospects through centralized exchanges that supplied the needed push and liquidity to the market. Despite the positive effect of centralized trading to the rise of cryptocurrency, it also contracted unfavorable consequences. Nine years have passed, and more than thirty cryptocurrency trading acts have taken place in centralized exchanges such as Coincheck. Another issue that sprung up was the government bans of cryptocurrency trading in countries including China, Korea, and Russia. Understandably, these governments are preventing cybercrime from infecting and spreading across its country. Lastly, a majority of investors and trading participants aren’t fully supporting centralized exchanges anymore.
Because a central body controls the flow of coins, cryptocurrencies on centralized exchanges aren’t legitimately owned by crypto investors. The private information of crypto investors is also required through KYC compliance and identity documentation submission by centralized exchanges for authentication purposes. Your identity is vulnerable to theft and other malicious intents once your information gets leaked.
Decentralized Cryptocurrency Exchanges
Decentralized Exchanges, or DEX, have no centralized body or main server. While the possible failures that centralized exchanges experiences may give administrators reasons to temporarily shut down or freeze crypto trading, decentralized exchanges are naturally immune to shutting down. The innovation of blockchain networks has played a significant role in providing both reliability and convenience. DEX protocol offers the authentication of your identity and verification of your transactions without going through the permission of a central body or administrator. Also, peer-to-peer network helps in proving the legitimacy of transactions between participating members of the blockchain, rendering security from hacks and other vulnerabilities.