Crypto Academy Season 4 Beginners' course - Homework Post for Task 7: Dex, Cex, Popular Exchanges and Trading Cryptos

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QUESTION THREE

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.

Exchange

An Exchange is a platform where a user can buy,sell,hold cryptocurrencies.In an Exchange,a user can also swap one coin for another or even change fiat for crypto or crypto for fiat.An Exchange is an online market where buying and selling of cryptocurrencies take place.

In Exchange,there is always a wallet section where the funds of the user are stored, depending on the currency that the user chooses,his crypto value will also be shown in fiat equivalent.For example if I have say 2 Steem on Binance Exchange,it will still show me the equivalence of the 2 Steem in my local currency or selected fiat just beside it.In a nutshell,an Exchange is basically used for trading cryptocurrencies.Examples of crypto Exchanges are:

•Binance Exchange
•Huobi Global
•Kraken
•Uniswap
•Coinbase
•Roqqu etc .

An Exchange could be Centralized(CEX) or Decentralized(DEX).

A centralized is a type of Exchange which is owned and run by a company.There exists a central authority that controls the activities of users.In a centralized exchange the users do not have total control of their account because the owners of the exchange platform have access to the keys.This makes it not to be very secure.It is insecure.
A Centralized Exchange has almost all the details about the user.There is a KYC feature, and anonymity is not guaranteed.Examples of Centralized Exchange are Binance Exchange, Kraken,Roqqu etc.

On the other side of the divide,a decentralized exchange is a type of Exchange which is not controlled by any central authority.It is person to person (peer-to-peer) market that allows a buyer to deal with a seller through a smart contract without the interference of a third-party or central authority.
In a decentralized exchange,the user has full control of his keys and initiates a transaction whenever he wants.An example of a decetralized exchange is Uniswap,Kyber etc.

Difference Between a Wallet and an Exchange

Permit me to start with this.When I have money in my pocket,I only need to dip my hand inside the pocket to collect the money and spend.However,if the money is in the bank,I will have to make a request to the bank before I could collect and spend the money.
From the example on the last paragraph,The bank is likened to an Exchange while my pocket is likened to a crypto wallet.

•Wallet is a program or software that allows a user to store and save his crypto assets.Wallets have keys that the user can use to access his funds.A wallet could be online or offline.The main function of a wallet is for holding our digital assets although some wallets allows a user to swap one asset with another.

A wallet has a high level of security and is been controlled by the user.This means that the user alone has full control of the wallet keys and so can access his funds.A wallet could be a cold wallet (offline)-This means that the wallet keys and access are saved offline,the wallet is not accessed using internet which makes it Tobe practically impossible to hack.Examples of cold wallets are Trezor,Ledger N.
Hot Wallets are online that are accessible via the Internet and so are susceptible to hack.Examples of hot wallets is Trust Wallet.

•On the other hand, an Exchange is a market place where trading of digital currencies take place.Exchanges are designed in the way that it supports buying crypto selling crypto, swapping cryptos,storing crypto and exchanging fiat for crypto or crypto for Exchanges could be centralized or decentralized.

Let me summarize the difference between a wallet and an exchange in a table.

Criteria	Wallet	Exchange
Main Function	Storage of Cryptos	Trading of Cryptos
Decentralization	More Decentralized	Less Decentralized
Security	Very Secure	Less Secure
Control	Owner has total control	Exchange platform almost control everything
Currency Supported	Only cryptocurrency	Cryptocurrency and Fiat
Existence	Exist online and offline	Exist only online

Advantages and Disadvantages of Decentralized Exchange (DEX)

A Decentralized Exchange is an Exchange that is not controlled by a single authority.It is a peer-to-peer exchange platform which depends on a smart contract to complete transaction.The users have control of their keys.

Advantages

•It offers a high degree of privacy.This is because it maintains anonymity of the user and there is no third party involved.The users details is not in the public domain or held by a single authority.

•The transactions are stored across various nodes(servers).This means that there is no central server that stores all the transactions.

•It is more secure.Since there is no central server,it makes it more difficult to hack all the nodes at the same time.

•Another advantage of decentralization exchange is that it cannot be regulated by the government.

Disadvantages

•Since is makes the user to be anonymous,fake accounts could be owned by fraudulent individuals who could use it to perpetrate crime.

•Decentralized Exchange platforms are not always user-friendly.

•Cancellation of transactions are more expensive in a DEX.

Advantages and Disadvantages of Centralized Exchange(CEX)

Centralized Exchange are Exchanges that can controlled by a central authority and it has a central server.The users do not have total control of their keys.

Advantages

•High Speed-Centralized Exchange provides a high transaction speed for the users.This makes it easier for the users to initiate and complete trading very much faster.

•Centralized Exchange provides variety of assets to trade from.It gives the users a greater number of crypto to trade with and so users will have to choose to the list of the crypto assets present.

•Centralized Exchange provides higher liquidity. This means that the users can easily convert crypto to cash for withdrawals.This also makes it easier for the user to buy Cryptos at a low price and easily convert his profit to fiat for withdrawal easily.

•A centralized exchange has a higher trading volume when compared to their decentralized counterpart.

•Centralised Exchange has more awareness and more population in the world of Exchanges.It is easy for a new trader to give list of a Centralized Exchange than a DEX.

Disadvantages

•It is vulnerable to Hack-Since a centralized exchange has a single server and all the keys of the users are stored in the centralized exchange,it is easier for hackers to target the server and harvest the keys of the users.

•A breakdown in the system will affect the whole platform.This is because there is just one single server that controls the whole process,once the server is down,the whole network is done.

•Centralized exchanges do not guarantee the user full control of his keys and assets.This means that it is not secure and he user can lose his hard earned assets any day.

•Owners of centralized exchange platforms can manipulate the trading volume or even the prices of assets displayed on their platform.

Have you used an Exchange before.Whats the Experience?

I have used an exchange before and is still using it.Exchanges gives me the opportunity to buy,store,sell,swap and do other crypto trading related activities on their platform.

I normally use the exchange platforms to buy crypto assets when they are low,and I will store them and wait for a price increase (bull season) before I could sell it for profit.I am actually a long term trader.From the knowledge I obtained the crypto academy,I apply the Whales Cycle where I buy during the Accumulation Phase,I will watch when the market continues to go bullish,which is the time that more Whales buy in large quantity at once leading to a price increases,then when the price increase becomes stable (a resistance level),I will know that the Whales have started selling for profit(Distribution phase),i will join and sell mine too for profit because after the Distribution phase,the next phase would be a Downtrend.Do I will sell my assets that I bought a low price before the Downtrend sets in(bearish season.

My Experience in an Exchange is more on Binance Exchange.I have learnt how to use USDT to buy any coin of my choice and also how to Swap a coin with another.Let me demonstrate how to use USDT to buy a coin on Binance Exchange.

•Firstly,I will go to my verified Binance Account www.binance.com

•I will sign in with my Email and Password.

•I clicked on Market and select a trade pair.I selected a trade pair of SHIB/USDT which means that I want to use USDT to buy SHIB.

•I clicked on Buy shib.

•Then I entered 11 USDT in the box which gave me 1564722 Shib.I click on Buy shib and completed the transaction.

•It displayed Success.

Let Present the process I used to buy the shib on Binance Exchange in Pictures

Conclusion

An Exchange is a marketplace where a user can buy,sell or exchange cash for crypto.It is basically an online trading platform which could be in a centralized form or a decentralized form. Decentralized Exchanges are more secure because the user has control of his keys whilst in a Centralized Exchange,the Exchange platform controls and has access to the users keys.

A wallet is a software which is used for storage of Cryptos assets and keys which could be online(hot wallet) or offline (cold wallet).Wallets are managed completely by the user.
Trading in an Exchange is a good and profitable experience especially when the user buys when the price is low and sells when the price is high.

Thank you Professor @imagen @dilchamo @nane15