[Dex, Cex, Popular Exchanges and Trading Cryptos] - Steemit Crypto Academy Season 4 - Homework Post for Task 7

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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 any exchange before? Tell us about your experience.

EXPLAIN IN YOUR OWN WORDS WHAT AN EXCHANGE IS

In terms of pure English language, when we talk of Exchange, then it is the act of changing or substituting something for another. Exchange can be defined in terms of many things, however, in this post, it will be in terms of finance precisely, cryptocurrency.

When the concept of exchange is employed in the field of finance and cryptocurrency, it would mean substituting one cryptocurrency with another cryptocurrency considering their market prices.

Going deep down, a cryptocurrency exchange is basically a platform or a virtual marketplace where cryptocurrencies are traded or transacted. It enables the cryptocurrency holders to exchange their currency into other cryptocurrencies or real-life currencies (fiat). It serves as the link between both parties of a trade (buyers and sellers) giving them the opportunity to either directly or indirectly interact with themselves. Some examples are;

• Bittrex
• HitBTC
• Binance
• Poloniex

An exchange not only enables trade, some of them have internal wallets which can be used to store cryptocurrency coins of users, they can also be used to invest in other assets or make payments for online or digital services. People also go to exchanges to view current market prices and the current volume of supply and demand of an asset.

screenshot taken from Binance exchange

The predominantly used to trade assets, the trader who is buying will place a buy order for the asset, and the trader on the other side who is selling will place a sell order for the asset.

Exchanges are in two types;
• Decentralized exchanges (DEX)
• Centralized exchanges (CEX)

These will be further explained in the subsequent paragraphs.

DIFFERENCES BETWEEN A WALLET AND AN EXCHANGE

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Wallet is either a software or a physical device which guards or stores your private keys for your cryptocurrency transaction and keeps your cryptocurrency secured and easily accessible. The wallet safeguards your private keys by encryption or signing into option. They are mostly decentralized; hence, users have total control of their accounts and cryptocurrency. Examples of wallets are;

• TronLink
• MetaMask

Some wallets the swap feature which allows assets to be interchanged or swapped. They also have the seed phrase security measure which keeps them secure. There are two main types of wallets;

• Hot wallets: it is a type of cryptocurrency wallet that requires internet connection to be accessed.
• Cold wallet: this type of wallet can be accessed offline; it does not require the internet.

Some types of wallets keep or secures private keys on storage devices such as hard disks and USBs and this makes them very portable and secure against hackers or viruses.

Wallets are very convenient to use as they guarantee quality security, long term cryptocurrency storage and also give total autonomy to users over the control of the account without any interference.

Exchanges are used for trading or exchanging assets, they are also capable of storing coins but they are not convenient for storing the coins for the long term.

Wallet	Exchange
Users have total control of their account and asset with their private key in their possession	users do not possess their private keys which implies they do not have total control of their accounts and coins.
They are decentralized	exchanges are centralized
It is used to store digital assets	it is used as a medium to buy and sell cryptocurrencies
They cannot be used as exchanges as they do not allow trading	They can be used as wallets to store assets
They are comparably highly secured with seed phrase	they are less secured compared to wallets
Account will be lost beyond recovery if private keys is are lost, missing or compromised	the account can be recovered in case private keys are lost.

MENTION THE ADVANTAGES AND DISADVANTAGES OF DEX AND CEX

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DECENTRALIZED EXCHNAGES (DEX)

Decentralized exchanges (DEX) are trading platforms, that do without intermediaries or third parties and allow for direct trade of assets between the two traders. The two parties of the trade (buyer and seller) do a trade or transaction at their own convenience without any interference of rules and regulations from a central authority.
Their users possess their private keys and have total control of their accounts and funds without interference from the exchange. There are about 35 decentralized exchanges, some of them are;

• Blocknet
• Airswap
• Barterdex.

ADVANTAGES

• Users of a decentralized exchange are in possession of their private keys.
• There are no third parties or intermediaries involved in transactions and trades
• Users also have total control and autonomy of their funds in the exchange
• Privacy is given to the users which makes them anonymous since there is no KYC (know your customer) protocol involved.
• Transactions are less costly on DEX
• Since the accounts are decentralized with no central authority, it is very difficult to hack.

DISADVANTAGES

• It is less popular due to restricted trading options on their platforms
• There is no central server that stores user information so accounts are difficult to recover in case private keys are lost
• If funds are mistakenly sent to the wrong address, they are impossible and this might cause the coins to be lost forever.
• It does not allow the trading of fiat currencies, this limits the trading options and reduces its accessibility.
• New users with less knowledge of cryptocurrencies find it difficult to use their platforms due to how unfriendly the platforms are.
• It condones criminal activities as users are anonymous with no personal information.

CENTRALISED EXCHANGES (CEX)

Centralised exchanges (CEX) are also platforms that are used for the trading of assets but they also come in and act as intermediaries between the two parties of the trade (buyer and seller). They are highly regulated and users are required to follow the rules that governs the exchange in the jurisdiction in which they operate.
They take control, store, and manage the private keys of the users. This implies that the centralized exchanges store the keys to the funds so that users wouldn’t have to be worried about their private keys getting missing. Know Your Customer protocol is required; Personal information or identity of the user is needed by the exchange before it can be fully utilized. Also, transactions are not registered on the blockchain network. Some examples are;

• Bittrex
• HitBTC
• Binance
• Poloniex

ADVANTAGES

• Since it is centralized, there is a central server that stores backup information of the user’s data in case private keys are lost.
• Its interface is user-friendly. Beginners find it easy to use the platform due to its simplicity.
• It allows the trading of fiat currencies which makes it very flexible as opposed to decentralized exchanges.
• They are very popular and accessible as there is little restriction on currencies that can be traded.
• It is centralized so the central authority has the responsibility to rectify problems on the network.
• It reduces criminal activities on the platform by undertaking the Know Your Customer protocol. This way, criminals cannot get away with their wrongdoings as their personal information is available.

DISADVANTAGES

• There is a higher risk of hacks or attacks
• The involvement of third parties in their transactions causes their transactions costs to be relatively higher than DEXs.
• Some users are not comfortable going through the KYC protocol and giving out their personal information.
• Users are not in total control of their assets, the platform stores their private keys and manages them.
• The process needed to go through to be verified on a CEX is time-consuming and stressful. It needs so much information for the know your customer process.
• There is a risk that the data of users will be leaked in case there is a hack.

HAVE YOU USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE.

I have used many exchanges, both decentralized and centralized. I have used Binance, Poloniex, and Airswap. But I am currently using Binance and Poloniex.

I am from Ghana. In our country, we are not allowed to make cryptocurrency transactions with bank accounts. Decentralized exchanges do not allow the trade of Fiat currencies and that was a factor in my exchange decision making, so I ended up with Binance which was a centralized exchange. When I first joined cryptoacademy, I could not transfer my funds until I heard of the peer-to-peer trade on the Binance platform which allowed direct trade of cryptocurrency to fiat between traders through mobile money and other local accounts with no need for banks. So, I created a Binance account.

^Binance

I was a bit scared at first, I thought I was going to be in trouble due to the ban. I sought guidance from friends of mine (@phlexygee and @verdad), they were on the platform already so they had more experience. They helped me to acquaint myself with the platform. The platform is easy to navigate and it also has a very friendly support system for user complaints.

^{transaction history}

For the Poloniex exchange, I created it for an assignment post on steemit cryptoacademy. It also has a very friendly user interface, which facilitates easy trading for traders.

^{poloniex account}

CONCLUSION

Exchanges and wallets are some features of the finance and cryptocurrency space that cannot be done without. Exchanges in a nutshell are platforms that facilitate trading, some popular examples are Binance, poloniex, etc. Also, wallets are components of the crypto space that are mainly used to store cryptocurrencies or assets.

Gratitude to Prof.@imagen for this wonderful lecture, I learned a lot from it.