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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 an Exchange before? tell us about your experience.
Explain in your own words what an Exchange is.
They are the platforms where exchanges take place in relation to the specific marketing of cryptocurrencies; similar to a large bazaar where investors can buy, store, sell, exchange and exchange cryptocurrencies both for fiat money (money established by the states for legal exchange purposes), and for other cryptocurrencies, such as raw materials and financial products .
These digital markets function as exchange houses, where the references are reflected where the values of the different cryptocurrencies are indicated (these are subject to supply and demand fluctuations, which define the market value), as well as their market capitalizations. , like its temporal oscillations. This is where we buy and sell the tokens at our disposal, as well as being aware of the quotes, rises and falls of crypto assets, as if it were a financial office with respect to a current currency, with the advantage that anyone, from anywhere in the world, you can easily access the exchange market. Prices fluctuate on each platform, according to the internal liquidity and demand available in each market.
These virtual exchange houses work based on the "wallet" mode, where the user, as if it were a bank account, can deposit and store the assets signed in tokens. These platforms, due to their characteristics of origin and data protection, are divided into centralized exchanges (CEX) and decentralized exchanges (DEX) according to which body guarantees the platform.
Differences between a Wallet and an Exchange.
Similar to a traditional market, its primary objective consists of promoting the active exchange of cryptocurrencies, which is able to attract those holders of crypto assets, expand their market reach, and bring together the largest stock of cryptocurrencies available to the investor.
Creating liquidity: A transaction occurs once, a maker proceeding to place the circumstantial valuation of a currency destined for offer, that is, with its offer, it confirms the reference value of the currency as well as its offer conditions; which provides the platform with liquidity and market availability. To promote sufficient liquidity, exchanges offer attractive conditional sales commissions, and exchange facilities. On the other hand, the taker accepts the exchange conditions proposed by the maker , acquiring the referential stake, thus ending the transaction, diversifying the platform's transactions.
Market referentiality : The diversification of services is not only limited to the active exchange of crypto assets. They also serve as sources of complete qualitative references to financial organizations, including indicative rates, the historical evolution of prices and demands, the updated and detailed capitalizations of all operating stocks , and guarantee systems in the purchase-sale schemes.
Plurality in payment methods: The platforms support various payment methods, for the investor's convenience. Depending on each exchange, the methods vary: payments can be processed with fiat currency, other cryptocurrencies, bank transfers, credit payments, or through virtual payment platforms, such as PayPal, Zelle, AirTm. With the advantageous feature that these payments can be made from anywhere in the world. The commissions vary according to the methodology of each exchange house.
Modalities of origin: - According to their category of internal control in origin of the operations they are classified into two fundamental groups (although other systematic modalities also operate): the Centralized Exchanges (CEX) and Desentraliced Exchanges (DEX):
Mention the advantages and disadvantages of DEX and CEX.
Centralized exchange platforms (CEX)
These platforms are subject to unified control by a central controlling entity, which operates and supports the management of funds and transactions, requiring a reliable intermediary that duly records all transactions between the investor and the platform.
In addition to guaranteeing the viability of crypto assets and the security of operations, the managers of the CEX classify the commissions involved in each transaction carried out, keep the platforms updated at all times, as well as establish the minimum exchange and valuation margins. in currencies.
Binance, Kraken, Coinbase, Bitfinex, Houbi Global, are some of the exchange platforms that operate under the centralized system.
Decentralized exchange platforms (DEX)
These platforms operate under a modality based on a pluralistic denomination, since they do not require intermediaries to guarantee purchase-sale operations, with the exception that transactions are processed first-hand between peers (P2P). These operations are completed on the blockchain through smart contracts, providing operational simplicity and primary sustainability between those who offer and those who acquire the currency in circulation.
Without requiring the mediation of a guarantor, as the transactions pass from to peer, the protocols are reduced by not requiring a censor to compile the operations. As the operations are interconnected from end to end, analogous to a chain of blocks, it allows transparency in real time, where the value of the currency will be kept in the wallets of the users at all times.
Platforms that offer the decentralized exchange system are Kybex, AirSwap, WavesDex, Tokenlon, Bancor, among others.
- Advantages and disadvantages of CEX and DEX
Centralized (CEX)
Advantages
Its platforms offer the investor ease in buying and selling transactions, its unitary core allows operations to be instantaneous,
It allows a more functional interactivity. As it has a more diversified operating system, with a greater number of people trading, a deeper offer of cryptocurrencies, and considerably higher liquidity than those found in decentralized platforms.
Complementary and fast assimilation methods of purchase.
Fiat money is equally accepted, as well as financial products.
Its regulations prevent possible fraudulent use or falsification since, to enter the platform, it is necessary to enter information that verifies the identity of the investor, as well as to verify that the money entered comes from supported sources.
As all your information is gathered in a central body, this guarantees the security of the same, since there are transparency parameters about the foundations that support it.
Disadvantages
It is subject to control by regulatory institutions and truthfulness processes in assets, with the consequent risk of having assets frozen and the complete loss of foreign exchange.
Hacking risk, since all the platform's assets are grouped together in a single central; If someone manages to crack the security codes for it, they can fully gain access to the assets and steal them. These security risks increase in platforms whose size and liquidity is small, since a successful hack on their platforms leads to their bankruptcy and the complete loss of all assets stored there.
Each trade carries a higher commission rate compared to DEX. Which means the exaction of part of the revenues in large transactions.
Decentralized (DEX)
Advantages
Its system based on peer-to-peer interaction (P2P), allows transactions to be carried out without the interference of a third party, which ensures privacy in operations.
Anyone can access the transactions. Unlike centralized platforms, no authentication is required, since the user's wallet is the only requirement to carry out a transaction.
In the event of a possible hack or bankruptcy of the platform, the user will not lose their assets. Your currencies are never stored directly on the platform at any time. Assets are kept in the user's wallet at all times .
By having a decentralized system, the risk of a possible malicious alteration is significantly reduced. The multiplicity of servers that have operational readings, allow that, if one is violated, the other servers cancel the external adulteration.
Through smart contracts, transactions are processed directly, with absolute control of the amounts operated there.
Disadvantages
To enter the system requires specific knowledge of its operation. Its operational complexity contrasts with the simplicity of centralized platforms.
As its market is limited in its user base and in its low active supply, the weakness in liquidity is notorious.
Transaction verification processes, which require a frequency of sequential analysis, are slow compared to CEX.
Your form of payment excludes fiat money; transactions can only be made with other cryptocurrencies. This entails the eventuality of transferring the assets to a CEX to transfer the assets to fiat currencies.
Have you used an Exchange before? tell us about your experience.
I have had very satisfactory experiences with the use of exchanges , since I have been able to diversify the way I manage my money, investing it in cryptocurrencies and being able to trade with NFT products, apart from exchanging and investing in currencies such as ArepaCoin, Steem and Ethereum, which I store
To transfer my cryptocurrencies to my national currency, I usually use the Orinoco platform, its interface is very easy to use and its trading methods are very intuitive . In addition, it allows me to transfer the money directly via Mobile Payment. And its platform is very nice to use.