Steemit Crypto Academy Contest / S1W2 – Reviewing Centralized Exchanges By @gentles

Fellow Steemians, I welcome you all to my page. We are in a brand new week which happens to be the second week of the Steemit Engagement Challenge contest. At Steemit Crypto Academy, we have a new contest in which we are supposed to talk about Centralised Exchanges and further talk about our favorite exchanges as well. Tag along as we cruise through this topic.

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1. Discuss briefly Centralized exchanges and its Benefits to crypto users.

2. What do you look out for when choosing an exchange to trade your crypto assest?

3. Review your favorite centralized exchange and explain its unique features

4. Is there anything about your favorite exchange you will like to be changed? Discuss.

5. What shortcomings do you see on centralized exchanges and how do you think user funds can be protected since we don’t have access to our wallet private keys?

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Introduction

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An Exchange is basically a virtual marketplace that allows the trading or transaction of cryptocurrencies and other digital assets. Cryptocurrency holders are able to exchange their assets into other cryptocurrencies or real-life currencies (fiat) and vice versa. Exchanges also serve as a platform that links both parties of a trade granting them the opportunity to directly or indirectly communicate with themselves. Some examples of exchanges are;

• HitBTC
• Binance
• Poloniex

Trading is not the only activity done in an exchange, some of these exchanges have wallets that allow users to store their assets or make payments. Exchanges also provide real-time asset prices and volume traded to users.

There are two types of Exchanges;

• Decentralised exchange (have no central authority controlling it)
• Centralised exchange (have a central authority controlling it)

We will be talking about centralized exchanges in this post.

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Question 1

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Centralized exchanges (CEX) are known as online exchange platforms that allow the trading of digital assets but also acts as intercessors between the buyer and seller. They are highly regularized and are to follow the rules in the jurisdiction in which they operate.

They control, secure, and manage users’ private keys. This means they keep and secure the keys so that users wouldn’t be perturbed by their keys getting lost, it also allows the user to recover missing or forgotten private keys. The Know Your Customer (KYC) protocol is mandatory; before users are allowed to enjoy the full functionalities of the platform, they are supposed to give provide their personal information for security purposes. Transactions on these exchanges are not recorded on a blockchain.

Some examples of centralized exchanges are; Bittrex, HitBTC, Binance, and Poloniex.

Centralized Exchanges have some benefits to crypto users, they are given below;

Benefits of Centralized Exchanges to Crypto users

1. Due to their centralization, they have central servers that save backup information of the user’s data. So, in case private keys are lost, a recovery process can be initiated to retrieve them.

2. It allows the trading of fiat currencies in conjunction with cryptocurrencies and this makes it very flexible. Irrespective of the asset you have, whether fiat or cryptocurrency, you can perform a trade with one to obtain the other.

3. Due to their popularity and accessibility, there are numerous assets or cryptocurrencies that are listed to be traded there. This means there is little limitation on the cryptocurrencies the user can trade or transact with.

4. Whenever there is a problem with the platform, its central authority has the responsibility to rectify that problem.

5. Criminal activities like defrauding on the platform are lessened. This is due to the KYC (Know Your Customer) process that is undertaken and requires the personal information of users before they are allowed to use certain functionalities of the platform. With this, wrongdoers cannot get away with their wrongdoings as their personal information are available to track them.

There are disadvantages of centralized exchanges to cryptocurrency users, some of them are;

• Hacks and attacks are more likely to happen; due to the use of central servers for these platforms, hackers can just hack their servers.

• Transactions on these platforms are higher due to the presence of third-parties

• The KYC protocol exposes some personal data of users to the exchange platforms which some users are not comfortable with.

• Users are not in full control of their cryptocurrencies; the platform keeps the user’s private keys and manages them on their behalf.

• The know Your Customer Process is time-consuming and tedious to go through.

• The data of users could be leaked in case of a hack.

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Question 2

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The first thing I will look out for and I know other people will look out for too, is the assets listed on the exchange. This is very important as you cannot trade with an asset that is not listed on the exchange. The trading and exchange fees charged on the platform is also looked as well

How liquid is the platform to carry out any volume of transaction I want. In other terms, does the platform have enough cryptocurrency or fiat to cater to my transactions?

The customer service of the exchange platform is another thing I look out for before choosing an exchange. My cryptocurrencies are assets I do not want to lose so I would like to have a sound mind that they are safe hands. How fast does it take them to respond to an email? Is their customer service something I can rely on in case of an incident? These criteria are what I use to measure the efficiency of their customer service.

How secure is the exchange platform. Before I deposit my asset into any of these exchanges, I try to see how they will be able to protect them from attacks or hacks. I won’t choose the platform if it has a high hack rate with a poor record of a number of hacks in previous years. I like to be comfortable knowing that my assets are in safe hands.

The User-friendliness of their interface. It should not be difficult to browse through and perform certain functions on their platform. it should be comprehensive but not complex so that even beginners can easily use it. It should also respond to commands very fast so that I will not be delayed to missing the market. So far as I have inputted the right credentials, there should not be any glitch in logging in.

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Question 3

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The centralized exchange that I prefer is Binance, I have been using it for about a year now. It is the first centralized exchange that I used and I trust it very much.

Binance is one of the most prominent centralized exchanges in the world with the most daily volume of cryptocurrency trades.

Binance was founded in China and registered in the Cayman Islands but due to Chinese government regulations on cryptocurrency trading in 2017 September, it later relocated its servers and headquarters to Japan. This exchange platform was founded by a developer named Changpeng Zhao.

Early in the following year 2018, it reached a market capitalization of $1.3billion and due to that, it was named the largest cryptocurrency exchange. It still holds that to date despite competition from other centralized exchanges like Coinbase.

It is allowed to operate anywhere in the world except the United States. The Website of the platform is https://binance.com

Somewhere around 2021, Binance was accused of money laundering and some criminal activities related to tax. They were ordered to halt all regulated practices in the UK. Also in 2021, they were again accused of selling users' data along with their names and locations to the Government of Russia.

This platform is known to be performing humanitarian activities like when it donated money to Ukraine during the Russian invasion in 2022.

Binance has a long history, I want to simplify them and tabulate them below.

Activity	When it happened
Binance was founded and registered	in September 2017
It reached a market cap of about $1.3 billion and was named the best cryptocurrency exchange	January 2018
Binance opened a branch in Malta when regulations in Japan and China got stricter	March 2018
There was a memorandum of understanding agreed upon between them and the Government of Bermuda, they later signed another one with the Stock exchange of Malta to help establish a program where security tokens can be traded	April 2018
They teamed up with other three exchanges to bring up $32million to make a stable coin	August 2018
Binance was able to make it possible to buy cryptocurrencies (were only allowed for Litecoin, Bitcoin, Ripple, and Ethereum) with a debit card and a credit card	Jan 2019
There was a security breach on their servers where hackers made away with 7000BTC which was about $40million then	7 May 2019

Some Unique Features of Binance

Binance allows the trade of about 600+ cryptocurrencies, this is a great advantage to cryptocurrency trade, almost all cryptocurrencies are available to be traded. This exchange has gained a 24hr trading volume of about $76 billion. It has about 90 million registered account users which makes it very reliable and very affordable with less than 0.1% transaction fee charged this is the lowest.

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With Binance you can log in by scanning a QR code on their log-in page with the Binance mobile app. There are numerous login ways the user can use, users can use their E-mails, Phone numbers, Apple accounts, or Google account. In the case of a forgotten password, users can just click on Forgot password to recover it.

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The platform also offers a variety of other services like blockchain and cryptocurrency academy, brokering, wallets, Binance live where blockchain broadcasts are shown live, charities, etc.

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Question 4

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Binance has a lot of benefits that it gives to its users but I have noticed some little changes that can be made to make the platform a very convenient place to be.

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• The Know your customer process on Binance is very stressful and time-consuming to complete. It takes a very long time, mine took me like a week to complete. They demanded so much information like my ID cards which took so much time to upload. It made me miss a transaction I wanted to make.

To me, the KYC process is necessary but I think Binance should find a way by any means possible, to lessen the stress it imposes on users, especially beginners, they might get frustrated and decide not to use the platform at all.

• Their management structure is not so transparent which sometimes casts doubt on their credibility. It would be comforting to know their structure.

• It does not operate in countries like the USA, so users who might later find themselves in these areas will not be able to use or transact with it

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Question 5

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My favorite exchange is a centralized exchange but this does not mean that they are without shortcomings. Some of the shortcomings of centralized exchanges are given below;

• They have transparency issues, some of these centralized exchanges manipulate their trading volumes, asset prices, and other metrics for their own gain.

• Transaction fees on centralized exchanges are very high mostly when trading bulk volumes

• They are mostly under attack by hackers due to their centrality. Some users of these exchanges are in constant fear of losing their funds.

• They require users to go through the know your customer process, however in case of an attack users’ identities may be stolen and sold or may be leaked.

Users of centralized exchanges are not in total control of their private keys. Their level of security is also not convenient for the long-term storage of coins. It is highly recommended to only leave coins that will be used for trading in the exchange platform, coins that are not of immediate use should be kept safely in a decentralized wallet or exchange, their users are in total control of their funds and private keys.

Centralized exchanges are highly regularised, so breaking rules in them can give them the right to ban or close your account which also makes you lose your funds.

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In this post we understood what exchanges are, we simply know them to be marketplaces for digital assets like cryptocurrencies. We also know there are two types of them, decentralized and centralized.

We talked about centralized exchanges in detail and what benefits it has for cryptocurrency users. I then continued by giving things I would look out for before I would trade with a certain centralized exchange, some of the things were listed cryptocurrencies, security, etc. I also talked about my favorite centralized exchange, Binance, and its unique features some of which were its low transaction fees, QR code scanning to log in, etc.

I wrote about things on the platform which I would love for them to change. Then I ended the post with some shortcomings of centralized exchanges and ways to protect your funds since users are not given total control of their private keys.