As we are aware that cryptocurrency is decentralised in nature when compared with any regulated stock exchange and this acts as a plus point for the investors due to working in a regulation free environment. But to question here is that crypto trading would always be decentralised? The following points would clear this doubt about cryptocurrency exchange features:
At first, cryptocurrency exchange should be clear before moving ahead that it’s an online base where people ought to exchange their government issued currency into cryptocurrencies. Where Cryptocurrency Exchanges are of three types:
Table of Contents
Centralised Exchanges(CEX)
Such an exchange is highly accepted and used and most of the investors tend to use secure and clear platform for trading led Eurex (which is an international exchange) and its motive is to launch its very first regulated Bitcoin market in Europe. As the name suggests, centralised exchanges are entirely controlled and regulated by central authority and are governed by a company offering crypto trading for crypto to crypto or Fiat to crypto. Further add ons to such an exchange are:
a) Acting as an intermediary, such an exchange holds the investors amount similar to a bank.
b) Trading with such an exchange is based on exchange database, for instance Coinbase or Binance database which
are again to be most likely affected by cyber attacks.
c) For accessing wallets, centralised exchanges won’t give private keys for the same and would also require KYC
verification and regulation.
d) Transactions are faster with centralised exchanges as well as liquidity is also high.
e) Few crypto pairings are also offered by centralised exchanges as Bitterex, Kraken and Binance.
Decentralised Exchanges ( DEX)
These exchanges are popular for peer- to – peer marketplace, thereby connecting directly by buyers and sellers or even the investors so that without any intermediary, transactions could be run effectively. The basic concept of DEX is having no regulations and control by the authorities. Trading is based on the blockchain network with the use of decentralised exchanges, therefore having added advantage of it as well:
A) Government can’t shut down such an exchange and it can’t be hacked easily as well.
B) It also aids in being transparent, secure and also providing its investors with wider control and thereby allowing
users privacy as well.
C) Here, involvement of any company is not required for controlling assets of an investor and as well to control the
transactions as it’s an automated process.
Disadvantages
As government regulations are missing from these exchanges and functionality is also limited so, popularity is restricted with again lowered trading volumes, slow transactions and poor liquidity. Main disadvantage with such exchanges is lack of regulation would lead to mistakes which can’t be recovered as funds moved to wrong wallet won’t be retrieved as crypto to crypto trading is done here.
Where, IDEX is a user friendly decentralised exchange which is used for trading Ethereum tokens and for trading with Bitcoin and Litecoin another exchange named Waves DEX is used.
Hybrid Exchange
Third kind of exchange is the Hybrid Exchange, which is believed to be next generation crypto trading marketplace as the gap of limitation of both forms of exchanges is build with the merge of security and privacy of DEX. Also faster transaction, higher liquidity and a regulated framework of CEX.
Few added advantages of Hybrid Exchange are that firstly, they in-build solutions on the blockchain network. Secondly, provide real time access for ensuring that digital laws are complied. Thirdly, funds of investors are stored in cold wallets, thereby decreasing chances of cyber thefts. Last but not the least Hybrid Exchanges also give allowance to its users to have right over their funds so much so that third party has its involvement in trading.
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