- Details
Introduction
Cryptocurrency trade is essential to the growth and adoption of blockchain projects since they connect users to sell, buy, and trade opportunities. Nevertheless, not all transactions are created equal. Aside from the bells and whistles, crypto trades are profoundly classified as centralized, decentralized, or hybrid.
You will gain an in-depth understanding of the distinctions between centralized and decentralized cryptocurrency platforms by reading this article. Also, you will understand what crypto platforms are, as well as the numerous features that come with the two different types of exchange platforms.
Crypto exchange platforms and their basic functionalities
Platforms that facilitate the trade of crypto for other assets, such as fiat currencies and digital, are known as cryptocurrency exchange platforms. Exchanges for cryptocurrencies, in practice, play the role of a middleman between buyers and sellers and generate revenue through the collection of transaction fees and commissions.
Centralized Crypto Exchange Platforms
Exchanges for centralized cryptocurrencies serve as a neutral third party between buyers and sellers of cryptocurrencies. Centralized trades are more reliable than others since they are managed and run by a single entity. Approximately 99% of all cryptocurrency transactions take place on regulated exchanges. Tradingbrowser.com is an avid reviewer that lists regulated exchange operators in several different jurisdictions.
Listed below are some examples of centralized exchanges:
- Coinbase
- Uphold
- Kraken
- Gemini
- BitYard
Advantages of Centralized cryptocurrency
User-friendliness
Centralized exchanges provide novice traders and investors with a comfortable and user-friendly platform on which to trade and invest in cryptocurrencies. Centralized exchange users can log in to their accounts, check their account balances, and make any transactions through websites or applications. This is different from using cryptocurrency wallets or peer-to-peer transactions, which can be hard to do.
Reliable
Centralized exchanges offer their consumers an extra layer of security for transactions and trading. A standardized and central platform facilitates the transaction, adding to the higher levels of comfort provided by centralized exchanges.
Disadvantages of Centralized cryptocurrency
Insecurity
Centralized exchanges are run by firms that are accountable for their clients' holdings and are therefore managed by those companies. Hackers and thieves often go after large exchanges because they usually store bitcoin worth billions of dollars.
Costs of transactions
Peer-to-peer transactions often have lower transaction costs than centralized exchanges, which typically impose higher transaction fees. When trading big sums of cryptocurrency, these costs can be quite substantial.
Decentralized Cryptocurrency Exchange Platforms
Traders can conduct one-to-one transactions without the requirement for a middleman or an intermediary while using decentralized crypto exchanges.
Some traders prefer decentralized trades due to some cons associated with centralized exchanges. The trade of fiat money for crypto is not possible on decentralized trad.
Advantages of Decentralized Crypto Exchanges platforms
Reducing the danger of hacking.
There is no need for a third-party mediator while trading on decentralized exchanges. Users may rest easy knowing they are safe from hacking and theft because it is impossible for a company or organization to be compromised.
Stopping the use of manipulative trading strategies.
Decentralized exchanges stop people from messing with the market by letting people trade cryptocurrencies with each other. This protects customers from fraudulent transactions.
Privacy
Customers don't have to fill out KYC paperwork on decentralized exchanges, so their information is kept private and anonymous.
Disadvantages of Decentralized Crypto Exchanges platforms
Complexity
This is one of the drawbacks of decentralized cryptocurrency exchanges. Users of decentralized exchanges must keep track of their crypto wallet keys and passwords at all times, or else their funds will be lost forever. This is different from centralized exchanges, which are more convenient and easy to use but require the user to learn the platform and process and get used to it.
Lack of fiat money
Exchanges that don't trade fiat currency for digital currency are less convenient for people who don't already own cryptocurrencies.
Shortage of liquidity
Centralized exchanges support 99 percent of crypto transactions, indicating that they are responsible for the vast bulk of the market's trading volume. Due to a lack of liquidity, it may be hard to find buyers and sellers on decentralized exchanges when the number of trades is low.
KYC in cryptocurrency
The initial stage of anti-money laundering (AML) due diligence is known as “Know Your Customer” (KYC). In order to identify and confirm a new customer's identification, a financial institution(FI) implements KYC procedures.
Financial organizations can use these procedures to determine a customer's overall risk profile based on their likelihood of fraudulent activity. Since they are now governed like financial organizations, bitcoin exchanges and wallet providers must incorporate KYC procedures into their AML systems.
The procedure that bitcoin exchanges must go through in order to:
- Verify the personal data of their clients and end-users.
- Better comprehend the actions of their potential clients and confirm that they are legal.
- Analyze the likelihood that their clients offer a danger for money laundering.
Cryptocurrencies Features
You should have a basic understanding of cryptocurrencies come characteristics if you want to understand what they are all about.
- Incredibly secure are cryptocurrencies: They are locked using a public cryptographic system and protected by cryptography codes. Each owner has their own private key. Therefore, nobody other than the owner can access that private key. Since the numbers in the encryption used to construct this private key are so large, it is nearly impossible to crack them.
- Cryptocurrency transactions are irreversible: One of their disadvantages is that transactions are irreversible. When using cryptocurrency, such as bitcoin, you must confirm the transaction before it can take place. The payment will be initiated once you provide confirmation. To deal with cryptocurrency transactions, you must be much more cautious before confirming a transaction.
- Super-fast: Their speed is another fantastic quality. A transaction that you start is immediately absorbed by the network and confirmed in two minutes.
- The location is irrelevant to these currencies: Cryptocurrency providers don't care where their owners are physically located.
Real identities can be concealed: Sharing real identities online makes a lot of people terrified. Nevertheless, you are not required to reveal your real-world identities when using cryptocurrency. An address with roughly 30 characters is all you need.