DEX, CEX, POPULAR EXCHANGES AND TRADING CRYPTOS - STEEMIT CRYPTO ACADEMY SEASON 5 - HOMEWORK POST FOR TASK 07
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3-) Explain in your own words what an Exchange is. Differences between a Wallet and an Exchange. Mention the advantages and disadvantages of DEX and CEX. Have you used an Exchange before? tell us about your experience.
Explain in your own words what an Exchange is
The act of giving and receiving something of the same value in return is known as Exchange.
source Exchange in crypto space or crypto exchange is an app or a platform that gives you the liberty of trading cryptocurrencies, that is buying and selling of cryptocurrencies for other assets, and that includes fiat and digital currencies.
Exchanges allow you to trade one coin for another, which means you can exchange steem for the SBD at their equivalent values. You can also convert digital money or Fiat to any cryptocurrency, conversion can mean buying or selling at their actual current value.
Part of the functions of an Exchange is to give you the real-time prices of every coin the platform has available for you to trade. And when you trade a coin for another asset, your transactions are processed with the current market value at that particular time.
An exchange must be readily available to any user to do business as long as they have internet and their location doesn't have regulations on cryptocurrency.
Security should be the top priority of an exchange platform because a countless number of users save their money on these platforms, and most users that buy and sell using Peer-to-peer make ends meet on these platforms so it is expected for it to be secure so that the exchange company doesn't lose its credibility.
A good exchange network should have 90% of legit coins listed on its platform. If it only has Bitcoin or Ethereum then that exchange platform is lacking behind because almost every exchange platform has both Bitcoin and Ethereum as they are the two most popular coins in the world. And the fees structure of an Exchange platform should be relatively cheap.
Differences between a Wallet and an Exchange
A crypto wallet is a software program that investors use to store their crypto assets. While crypto exchange on the other hand is that website or app where a user can buy or sell various cryptocurrencies and crypto-assets. An exchange service also allows a trader to convert these crypto assets into fiat currency, a user can also buy or sell crypto directly from their local bank account if the exchange service allows trading via Debit Cards.
source Some common exchange platforms are;
- Binance
- KuCoin
- Gate
- Coinbase
| Wallet | Exchange |
|---|---|
| This is a program that allows users to store all their crypto assets. | It is a platform that allows users to buy or sell cryptocurrency or convert crypto assets into digital currency. |
| A cold wallet can be operated without an internet connection but a hot needs internet to function. | For your transactions to be initiated and processed, an exchange requires an internet connection. |
| Passwords are generated for you, something like a combination of different words in a particular order. And these passwords most times cannot be retrieved if lost. | We create passwords of our own choice on an exchange platform. |
| An investor has total control over his crypto assets stored in his wallet. | The exchange network has the power over an investor's crypto assets. |
| Most wallets have exchange services. | Not all exchange platforms have wallets. |
NOTE: A Hot wallet uses internet services and that makes it vulnerable to cyber attacks but it's quite easier to spend or trade crypto assets. While a Cold wallet doesn't use an internet connection, it's like the opposite of a hot wallet and it is very secure.
Mention the advantages and disadvantages of DEX and CEX
Decentralized Exchange (DEX):
DEXs or Decentralized Exchanges autonomous dApps (decentralized applications) that allow crypto traders to buy or sell without having to give out control of their assets to any custodian or intermediary.
It is way different from the Centralized Exchanges (CEXs) where traders hand over their funds to the exchange service, which acts as a middleman during transaction processes.
| Advantages | Disadvantages |
|---|---|
| It offers users better security and this is its biggest advantage because there is no intermediary service that is used to store the user's crypto assets. | It is not beginner-friendly. First-timer users in the world of cryptocurrency will have to know what DEX means before they will understand how it works. |
| Users have total control over their assets. | DEX lack proper public awareness, so many users know about the centralized exchanges and use them on a daily unlike the decentralized that is known by few. |
| An amazing thing about DEX is that it doesn't have any centralized server because it is completely decentralized. It ensures the safety of assets as it is less vulnerable to hackers, unlike the centralized system. | Because of its anonymity and how it is decentralized in nature, some countries have decided to put a ban on it. |
| It provides privacy, it doesn't require a user to provide personal details to sign up. | It can be difficult to find users to trade with when many users do not log in regularly on the platform. |
Centralized Exchange (CEX):
CEXs or Centralized Exchanges refer to trading platforms that function like stock markets or traditional brokerage. CEX is owned and managed by a company or an intermediary that maintains complete control over all assets and transactions.
It has third-party management that oversees buying and selling, it is quite different from DEX that is not centralized in nature.
| Advantages | Disadvantages |
|---|---|
| It is not complex to use like DEX. It is user friendly to beginner investors. | Centralized systems are known for their high transaction fees. |
| CEX offers reliability when it comes to security in trading and processing transactions. | Centralized systems are operated and owned by companies that have control over a user's assets and they can be vulnerable to cyber attacks |
| CEX are popular for its ability to carry out high-speed transactions. | It does not offer anonymity. To use CEX services, users are required to provide their personal details that can be stolen if there is a breach in security. |
| It consists of high liquidity. | Putting your funds in the hands of an exchange service means you don't completely have control over your funds. |
Have you used an Exchange before? tell us about your experience
I've used different exchange platforms before, the one that is my favourite that I make use of all the time is Binance, it is complex but with lots of practice, you will get to understand it.
source Binance allows me to store my crypto assets and exchange them too. Because of the government restrictions on cryptocurrency in Nigeria, Binance enables me to still trade my assets using the Peer-to-Peer (P2P) feature on its app.
My overall experience using the Binance app was smooth and really secure. I felt my assets are safe on the app, and it requires 2-Factor authentication whenever I want to log in. The apps have lots of coins, including STEEM which I can either exchange for Bitcoin or Ethereum.