Am happy to partake of this task,I went through the lecture and decided to carry out the task as listed below.
- Explain in your own word what an exchange is
- Difference between a wallet an 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 word what an exchange is
EXCHANGE.
An exchange can be defined as an open market place where financial instrument are being transacted on a very fair basis.By Financial instrument I mean, stock, securities, commodities and the like. What an exchange aims to promote is fairness,orderliness, efficiency and trading opportunities for those transacting. It is important to mention at this point that there are two major parties that operates on an exchange anr they are referred to as the buyer and the sellers.
Since we are dealing with cryptocurrency, an exchange in this contest will now mran a marketplace where investors come to either buy, sell or swap their cryptocurrencies or token as the case may be. An exchange also helps to promote the rate at which an asset will be sold or bought, this is known as the “Exchange rate”. For this subject to be very detailed, I will like to talk about the two main broad categories of an exchange. They are ;
- Centralized Exchange
- Decentralized exchange.
Centralized Exchange
The word centralized already passes a message to us telling us that we are not in control of the system. it means this exchange is controlled by some individual and with this there will be third party interference in the activities a user. A third party has the right to check the activities of an investor on that exchange and could even manipulate it because its not transparent enough, it means you can’t fully track your transaction because you’re not fully in control of what happens on the exchange. Examples are;
- GDAX
- Kraken
- Coinbase
- Binance
- Huobi e.t.c
Decentralized Exchange
Decentralized exchange is a direct opposite of the centralized exchange, in this type of exchange, a user has full control over it activities so much so that there is no interference of a third party because it operates using a peer-to-peer sytem where you directly transact with who ever you want to without anyone monitoring your transaction. In this type of exchange there is a very high level of transparency, manipulation is very difficult to carry out here because it is not controlled by some central authority. Examples of decentralized exchange;
- Uniswap (v31)
- Pancakeswap (v2) 3
- dYdX
- Sushiswap
- Honeyswap e.t.c
Difference between a wallet an an exchange
There is a clear difference between a wallet and an exchange, we shouldn’t confuse both. Let’s look at those differences below.
| Wallet | Exchange |
|---|---|
| It’s a very secure place to store your crypto | It’s not for storage purpose |
| It’s not a place where crypto is sold, bought or traded | you can buy, sell or trade your cryptos or tokens here |
| It gives full control over your assets or tokens | you are not in total control of your asset as long as it remains in that exchange. |
| Third party doesn’t have access to your asset especially in the case of a non custodial wallet. | Third party has access to your asset |
| It’s is highly secured as no one can have access unless they have your key | security is not as a guaranteed as in the case of wallet where you have control. |
| There is no issue with trust when dealing with wallet | you are not always sure of what will become of your asset in the nearest future. |
Mention the Advantages and disadvantages of DEX and CEX
Adavantages of Dex
Confidentiallity: dex ensures a very high level of confidentiality, your data are not share with anyone and that reduces the risk of beign exposed to a third party.
Decentralized: dex is decentralized in nature, it is not controlled by a central authority neither can they freeze or block your account outrightly.
Dex cannot be closed nor shut down by any regulator because each user (node) functions independently
Hacking is Rare .Dex platform is always difficult to hack, since there are not third party involve in any transaction process.
Most dex platform has a very friendly user interface which make users experience interesting.
Disadvantages of Dex
Margin trading option is not powered on the dex platform, users don’t have this privilege here
Most dex runs on smart contract and only token based on smart contract are traded here
Dex doesn’t support fiat currency exchange which is not good enough for some users who would love to carry out fiat kind of transaction. To bypass this, users will need to exchange crypto for fiat.
Advantages of Cex
- Speed: the cex platform is known to operate with some high level of speed when carrying out transaction.
- Volumn: centralized exchange still records high trading volume when compare with the decentralized exchange.
- Liquidity: liquidity in the centralized exchange is very high when compare to the decentralized exchange, this has a way of bringing balance to the market.
Transactionn Fee: the transaction fee here is fair and moderate
Disadvantages of Cex
- Manipulation: there have been records of manipulation and fraudulent activities about the centralized exchange occurring repeatedly. This include conducting insider trading and displaying fake volumes to attract investors.
- Security/ Risk: The security here is not guarantee, they are usually the main target of fraudster and hacker due to the fact that they hold a very large volume of asset.
- Control: this is on the part of the user, any user who uses the Cex platform doesn’t have full control over his asset because the asset has been entrusted to a third party indirectly.
Have you used an exchange before? Tell us about your experience.
Yes I have used an exchange before. I have a binance account and I must say ive been using the account and it has been helping me with my transaction. Below is a screenshot of my account and how I get to buy and sell on it. There is section where you can spot trade, or trade the future etc. I also use the steemit market place to exchange your SBD for Steems and vice versal
#club5050..
My power ups.
Conclusion.
The knowledge of Dex and Cex is really go for everyone who want to go into trading activity in the financial market place, however ,understanding the one that suits you is very important, none is totally bad, they both have their advantages and disadvantages. I believe in years to come we will see improvement in bother areas.
I want to specially appreciate @imagen and @dilchamo for this privilege to learn.
#club5050 😀
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