3-) 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
A crypto exchange or DCE which is an acronym of digital currency exchange is a house that entertain cryptocurrency trade or digital currencies trade for either fait money or other digital currencies, the act of exchanging digital currencies has been so easy since the existence of exchange platform and it has also enhance the mass use of cryptocurrencies.
cryptocurrency to fait money or cryptocurrency to cryptocurrencies has been the method used in exchange platforms, Fiat money also can be used to buy cryptos with the use of debit card, credit card, paypal and many other virtual platform with the use of a verified exchange, the P2P trade is not left out on the course of interchanging assets, as two users can exchange digital currencies on the same exchange platform.
HOW EXCHANGES WORK
You might be wondering how exchanges work, exchange permits two request which is the buy and sell in order to carry out a transaction, to buy, users have to bid for a specific or particular asset of which he pays at a convenient price he is willing to pay. but in my case I just check the order book for the buy order and find the price I am willing to pay.
NOTE:- The green numbers of the order book are the buy order while the red numbers are the sell order.
To sell a particular crypto the price and the quantity at which you wish to sell must be specified of which it could also be called as the asking price.
Having realize what an exchange is and how it works, exchange can be classified in two type which are the decentralized exchange and the centralized exchange.
DECENTRALIZED EXCHANGE:-
These are exchanges that operate in a decentralized manner, in the sense that it is an exchange where user act on their own without the control of an organisation company or single authority.
In this type of exchange trading of cryptocurrency doesn't require a third-party as they make use of a blockchain technology, it is almost impossible to hack as a result of high security, users needs no requirement for verification with personal information like location, bank account, personal photography and identity documents.
CENTRALIZED EXCHANGE:-
The most used exchange is decentralized exchange because it functions just like our traditional exchange, in this exchange users don't have full authority over their assets as it is controlled by a central body or a company that maintains full control over all transactions going on in the exchange, it is quite common and used among traders unlike the decentralized exchange, the interface of a centralized exchange is easy to operate more reason why it is easy to compromise or hacked, record of transaction are saved on a single server and KYC verification are required.
examples of centralized exchanges
are coinbase , binance
Differences between a Wallet and an Exchange.
Wallet is a store where we keep our cryptocurrency safe for security reasons, the sole aim of a crypto wallet is storage of crypto asset but it also has some other features which are buying, selling, sending and receiving of cryptocurrencies. wallet is different from an exchange, in an exchange trading is done but in a wallet trading cannot be done.
let's see a table of significant differences between the wallet and an exchange
WALLET | EXCHANGE |
---|---|
A wallet is used to safe keep crypto asset | An exchange is used to trade |
A wallet is more secure than an exchange | An exchange is less secure because the exchange can be tampered with by scammers |
A wallet user has the full control over crypto access stored in the wallet | The exchange user has limited access to its asset stored in the exchange |
A wallet has no intermediary between the user and the app | There is an existence of intermediary between the user and exchange |
In the case of mishandled keys or private key and asset compromised, asset stored in the wallet or app cannot be gotten back because it is not controlled by anyone | An exchange provide password recovery in case of loss of password or forgotten password, because the private key is stored inside the exchange and it is controlled by the central authority |
A wallet offers security of assets, asset taking without hindrance at anytime | An exchange consist of trading, buying and selling of cryptos, conversion of cryptos, either a crypto to crypto or crypto to fait or fait to crypto, transfers within the exchange or sending of cryptos to other addresses |
Some wallets are offline wallets which require no internet connection | _ Without an internet connection and exchange can't be accessed._ |
Mention the advantages and disadvantages of DEX and CEX.
ADVANTAGES OF DECENTRALIZED EXCHANGE (DEX)
A DEX gives user full control over asset in the exchange.
In a DEX, personal information of users are not required. Informations like national ID card, driver's licence, international passport etc, are not needed.
In a DEX, security is highly entrusted as such it cannot be hacked by scammers because it runs on a blockchain technology.
Keys are used in the DEX and this keys are within users possession, which gives users full access over asset.
Third party is not required in a DEX when transacting.
Peer-to-peer crypto exchange is allowed in the DEX.
Trading cost in the DEX is low.
DISADVANTAGES OF DECENTRALIZED EXCHANGE(DEX)
Liquidity in DEX is low as a result of low trading.
The DEX interface is difficult to operate.
In a DEX, fait currency to cryptocurrency is not allowed.
Transfer of crypto to wrong account cannot be retrieved in a DEX platform
Trading volume is low in the DEX which makes it difficult to find traders.
ADVANTAGES OF CENTRALISED EXCHANGE(CEX)
Trading volume in a CEX is high which result in a higher liquidity of asset
Buying and selling of cryptocurrency is allowed including Fait withdrawal and deposit of fait currency.
The CEX interface is user-friendly and easy to operate.
Its transactions are quite fast.
Unique features like stop-loss, margin trade and many others are functions that the CEX has, which is an advantage to users.
DISADVANTAGES OF CENTRALISED EXCHANGE (CEX)
Security in CEX is a bit easy to hack, as there been cases of some centralized exchanges being hacked.
Commission and fee are charged when trading in in CEX platform
Third party are required during transaction Ina CEX platform.
The exchanges have full control over users asset, which reduces the privacy of every users transactions.
Kyc or know-your-customer is required to be a user in a CEX platform.
Have you used an Exchange before? tell us about your experience.
With the help of steemit crypto academy homework post I have been previledge to sign up in a CEX platform, which is called BINANCE EXCHANGE.
In this exchange, the interface is user-friendly and also easy to navigate, through the process of signing up I had to download the application of which I signed up with my email and password thereafter I was required to verify my account in which I had to provide personal informations like national ID card and other documents.
The processing of verification was a long one at that, of which hours later I was verified. Due to the app easy interface, I navigated through different features and watched some few videos which put me through.
But with the help of the steemit crypto academy classes, I have been able to perform few trades and convert crypto to cryptos and also deposited steem from my steem wallet to my binance application through the use of binance memo key and username.
This has been the only experience and the use of P2P trade to convert cryptocurrency to fait currency through P2P trading.