QUESTION THREE
3.) Explain in your own words what Exchange is. Differences between a Wallet and an Exchange. Mention the advantages and disadvantages of Decentralized Exchange (DEX) and CEX. Have you used an Exchange before? tell us about your experience.
INTRODUCTION
Hello everyone,
I am Grace Tammy Josiah known as @graceyjossy on the Steemit platform. This is my understanding in writing on the homework for Beginner's fixed course, Task 7 with the topic Dex, Cex, Populat Exchanges and Trading Cryptos. I implore you all to enjoy this article as you read through it and hopefully learn something from it.
EXPLAIN IN YOUR OWN WORDS WHAT AN EXCHANGE IS ABOUT.
An Exchange is a platform or digital and financial market where users can trade cryptocurrencies, either by buying, selling, holding or swapping cryptocurrencies and other financial assets (such as stock, fiat and securities) are being conducted.
It is a platform that allows cryptocurrency holders to convert their digital assets into other cryptocurrencies or fiat currency, connecting both the buyers and sellers of digital assets, helping them to interact directly or indirectly in some cases.
To further explain, an Exchange also serves as an avenue where market price and value, as well as demand and supply of a cryptocurrency, can be seen and determined, and this is known as 'Transpiracy' where the buyer and the seller are aware of the current exchange rate, to avoid the buyer giving out more money than required and the seller not to sell lower than the price. Examples of crypto Exchanges are:
•Binance Exchange
•Huobi Global
•Kraken
•Uniswap
•Coinbase
•Roqqu etc.
Types of Exchange
There are two types of exchange, and they are Centralized exchange and Decentralized exchange.
Source
A Centralised Exchange is abbreviated CEX, and it is an exchange owned and runner by a company, meaning it involves a third party or middlemen. The central authority oversees and controls the activities or trading of users to ensure there is no fraud. In a centralised exchange, users are not in total control or possession of their account or key, rather the owner of the exchange platform is in control and can seize or revoke the user's assets if fraud is expected. Examples of Centralized Exchanges include: Binance, Coinbase, Roqqu etc.
Source
A Decentralized Exchange is abbreviated DEX, the user has full or total possession of his keys and assets and can initiate a transaction whenever he wills, as it isn't controlled by any central authority or third party. The transaction is done person to person (peer-to-peer), where the buyer is allowed to deal with the seller through a smart contract and atomic swap without the interference of a central authority or middlemen. Examples of Decentralized Exchanges are cyber, Venus, Uniswap, Airswap, etc.
DIFFERENCE BETWEEN A WALLET AND AN EXCHANGE
A Wallet and an Exchange are considered essential when trading and dealing with cryptocurrency. However, before I state the difference between these two aforementioned, permit me to explain what a wallet is.
- A wallet is a program or software where users have the opportunity to store and save their crypto assets, using keys to access their funds either online or offline by swapping one asset with another.
Using, for instance, I have money in my purse I want to spend, all I need do is to dip my hand into my purse and take the money and spend. However, if the money is saved in the bank, I will have to make a demand from the central authority before I could take or spend my money. Following the example above, the bank is likened to an Exchange while my pocket is likened to a crypto wallet.
Furthermore explained in a table is the difference between a wallet and an exchange.
| No. | Wallet | Exchange |
|---|---|---|
| 1. | Wallet is a platform for storing cryptocurrency | Exchange is a platform for buying, selling and exchanging cryptocurrency |
| 2. | Wallet gets cryptocurrencies from exchange | Exchanges send cryptocurrencies to a wallet |
| 3. | Users are in full custody of private keys in crypto wallet | Users do not have full custody of the private keys |
| 4. | Wallets are very secure, thus less prone to hackers and crypto thieves | Exchange is less secure, this is more prone to crypto thieves or hackers |
| 5. | Wallet Exist online and offline | Exchange Exist only online |
| 6. | Supports only cryptocurrency | Supports cryptocurrency and Fiat |
| 7. | Popular wallets are Trezor and Electrum | Popular Exchanges are Binance and Coinbase Exchange |
| 8. | Types of wallets are web(online) wallets, mobile, desktop, hardware and paper wallet | Types of Exchanges are centralized and decentralized Exchange |
MENTION THE ADVANTAGES AND DISADVANTAGES OF DECENTRALIZED EXCHANGE (DEX) AND CENTRALIZED EXCHANGE (CEX)
To everything that has an advantage, there's a disadvantage, below I will be listing both the advantages and disadvantages of decentralization and centralization.
A Decentralized Exchange (DEX) is an Exchange that is not governed by a sole authority. It is a peer-to-peer exchange platform that relies on a smart contract to complete transactions and the users have control of their keys.
Advantages of Decentralization
High privacy rate: In decentralisation exchange, there is no need for personal information because it maintains the anonymity of its users and no third party is involved.
Total Control of your keys: The Decentralized Exchange enables its users to be in full control of their keys, without any interference from a third party. This can also help secure the keys since it is in your custody.
Users are entirely the controllers of their accounts and keys. They make every decision regarding their assets without external influence. Although, the rate of exchange is limited because of the absence of a middle man. The coins are transacted from one person to another person.Since there is no central server, it is more secure and making it more difficult to hack all the nodes at the same time.
Disadvantages of DecentralizationSince its users are made anonymous with no personal information or even a piece of true personal information to track the person with, fake accounts could be owned by fraudulent individuals for fraudulent activities and also perpetrate crime and can easily get away with it.
Cancellation of transactions is extra expensive in a DEX.
Decentralized Exchange platforms are not always user-friendly, because decentralized exchange requires users to know cryptocurrencies transactions beforehand, which is not fair to users who are just embarking on the journey of becoming a cryptocurrency trader.
Centralized Exchange (CEX) are exchanges that can be controlled by a central authority as the name implied, and it has a central server. Users of centralised exchange do not have absolute control of their keys.
Advantages of Centralized Exchange Cex
There is customer service in a centralized exchange, they help users whenever they require assistance. As all transactions are taken place, there is always a person that monitors that movement and also delivers services in case one gets lost.
Security - To trade on Centralized Exchange is secure since it involves a third-party and the personal details of the users are known by central authorities. Example is binance.
Its Learner's centralized exchange can accommodate beginner's and people who are still getting their way round the exchange, this is to help the user easily understand how it operates and where they need to go for the exchange.
High Speed-Centralized Exchange provides a high transaction speed for the users. This makes it easier for the users to commence and complete trading very much faster.
Disadvantages of CEXThere is no total privacy since your information gets through the middleman for the validation process thus your privacy has been limited.
Security in the CEX system is usually not as high as compared to DEX which raises the risk of you being attacked, increasing the risk of hacking.
You are not in total custody of your keys. The company holds your Keys and this means you have restricted asses to accessing your account.
The rate of exchange of Cryptocurrencies is higher in centralized exchange than the Decentralized during transactions.
HAVE YOU USED AN EXCHANGE BEFORE? TELL US ABOUT YOUR EXPERIENCE.
It's been a while I joined the crypto world and since then, I have come across blockchain wallets and paxful which are used for exchange until I was introduced to Binance. Although I have never used it for any transactions, a friend recently thought me how to link my steam wallet to my Binance accounts and how to use it for transactions like how to buy crypto assets when they are low, store them, sell when the price has an increase or bull season, swap and other crypto trading related activities on the platform.
I experienced rigid security, as Binance Exchange uses the 2 Factor Authentication (2fa) to add an extra level of security to secure your cryptocurrency.
CONCLUSION
In summary, Trading in an Exchange is an adequate and productive experience (especially when the user buys crypto when the price is low and sells when the price is high).
An Exchange is a marketplace or online trading platform where users can buy, sell or exchange crypto. It can be in decentralized or centralised forms.
A wallet is a software used for the storage of crypto assets and keys either online or offline, all managed by the user.
No cryptocurrency can survive without a wallet(store) and an exchange platform (trading and exchanging). Wallet and Exchange are equally important in the Crypto world.
Thank you for reading through.