Crypto Academy Week 3 Homework Post for [@yohan2on] … Comparing and Contrasting between Decentralized and Centralized applications (BINANCE and AIRSWAP)

Binance and Airswap are applications or technologies that deals with finance. In other words, they are applications or technologies that support financial activities like trading, investing, borrowing etc. Basically Binance and Airswap are called Exchange due to the type of commodity they deal with, which is cryptocurrency.

An Exchange is a financial platform that supports buying and selling of digital assets (e.g cryptocurrencies). It is a platform where the buyer and seller meet to make transaction on agreed terms. There are two categories of exchange - Centralized and Decentralized exchange.

Binance belongs to the former ( centralized Ex) while Airswap belongs to the later (Decentralized Ex). This two categories performs almost the same function but in different manner.

A centralized exchange is a type of exchange in which activities and transactions are overseen and regulated by a Central body. This body act as the third party and maintain security of the assets as well as the terms of agreement of both parties involved. Examples include Binance, Coinbase, Houbi, Poloniex, Kraken etc

The decentralized exchange is a type of
exchange that allows transactions to be done between two parties without the involvement of a third party (the central body). In this system, there is no control or regulations from any central body, thereby giving the traders a full control over every aspect of the trading; the assets as well as the terms of agreement. Examples include Airswap, Uniswap etc.

However, financial applications are applications built to function in respect to these financial principles and functions. Thus we have Centralized Financial Application e.g Binance and Decentralized Financial Application e.g Airswap

Binance as a Centralized Exchange/Application

Binance is one of the most popular crypto trading platform. It offers trading in various cryptocurrencies like bitcoin, etherium etc. Like every other centralized exchange, in order to trade on the platform, there is a need to sigh-up/register in which you're provided with a wallet address on completion. However, deposition is made into this wallet and this goes directly under the ownership of the exchange (company). These digital assets are trusted to the company which oversee every transaction that is linked to the asset.

Advantages

• Speed: execution of transactions are very fast because functions are not directly placed on the blockchain but on the exchange database and then completed on the blockchain. This lightens the workload on the blockchain and makes trading fast.
• Reliable: traders can trust the safety and management of their assets as well as their wallets with central insured bodies.
• User-friendly: these centralized applications are built to be user-friendly and they continue to develop new features that aid effective trading
• Security: People'sPeople's details are safely guaranteed. For example your password can be retrieved if lost.

Disadvantages

• Control: the traders are subjected to the terms of the company due to KYC (know your customers) and antilaundery compliance.
• They are regulated by external bodies like government
• They are prone to hacks which can result in loss of held assets if successful
• Transaction fees are high

Airswap as a Decentralized Exchange/Application

Airswap is a Decentralized platform that supports peer to peer exchanging without the involvement of a third party. This system involves a purchaser (known as the Taker) and the seller (known as the Marker) who executes a smart contract.

The decentralized system was built to escape reliance on the traditional trading system, making it entirely unregulated. In Airswap no sign-up, no KYC and no holding of funds, all you need is your wallet where you transact directly to your partner.


Advantages

• No fees involved
• Traders have full control of both the assets and the terms of agreement
• No risk of losing funds due to hacks on the application

Disadvantages

• Slow: the execution of transaction is low
• because all functions are done directly on the blockchain
• Personal details are not saved up anywhere, password lost cannot be retrieved
• Application is not as user-friendly as its counterpart

In conclusion, the two types of applications both have their strong points whyare both beneficial to the crypto ecosystem in one way or the other, thus making preference would be of personal discretion.

However, many people seems to gravitate towards the decentralized system especially to escape regulations from government bodies. In the light of these many centralized companies are beginning to incorporate decentralized features in their system. For example Binance having another protocol called Binance DEx and Coinbase having Coinbase commerce. These companies claim to support both features, meaning the cryptosystem has room for both.

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Thank you