Steemit Crypto Academy Contest / S1W2 – Reviewing Centralized Exchanges by @prescottjayy

Hello Steemians, I trust that you all are doing well? I'd be discussing the theme "Centralised Exchange" where I'll be explaining certain things about exchanges in general. Let's get down to it.

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What is a Centralised Exchange?

As we already know, the cryptocurrency exchange is a digital marketplace that supports and allows the peer-to-peer exchange or trading of cryptocurrencies for other digital or crypto assets including fiat currencies, in the same manner that stock exchanges aid and facilitates the trade of stocks, crypto exchanges also aid and facilitate the trade of cryptocurrencies.

Centralized exchange are exchanges that are operated by a central authority which manages a network of transactions. The group or company in charge is tasked with the responsibility of carrying out transactions, holding a ledger, protecting user data, and other responsibilities that come with handling a financial system.
A very practical example is the traditional bank we have today that is used by most people on a daily basis. In this scenario the issuing bank is the centralized agency.
Coinbase, CoinEgg, Binance, GDAX, Kraken and Gemini are some examples of exchanges that are centralized.

Benefits of Centralised Exchanges to crypto users.

• User-friendly.
  Unlike using crypto wallets where peer-to-peer transactions can sometimes be tedious and complex, centralized cryptocurrency exchanges create friendly atmosphere and easy to use platforms which makes it easy to transact at any point of time.
  By entrusting transactions to a company and paying a little fee, users get the benefits of fast and easy access to their assets or money (think debit cards and ATMs).

• Liquidity
  One of the major flaw of decentralized exchanges is that they make it very tough and hard for user to access their cash or assets quickly, there's a limit placed on how much these users can spend at a time and also there are various steps to go through to get from the value on their accounts to fiat currency especially given that few establishments are aware of crypto and accept it as a legal tender,
  while on the centralized exchange there is a quick response and access to cash or assets within short timeframes.

What I would look out for when choosing an exchange to trade my assets.

• Accessibility
  Location is quite important when it comes to exchanges, does the particular exchange serve individuals from the country and state where you reside? your location might restrict you from trading crypto on certain exchanges due to state or national regulations. Countries like Nigeria and China have banned citizens from accessing crypto exchanges at all.
  While in the United States, there’s a lot of regulatory incertitude around cryptocurrency, where some states have also created their own regulations.

• Fees
  In selecting an exchange, fees are to be considered, but a high fee shouldn't turn an individual off an exchange, higher fees are worth it considering the added security and insurance that the larger and more popular exchanges provide.

• Asset Choices
  Asset choices matter, does the exchange here in question trade the assets you want? there are thousands of cryptocurrency in existence, no single exchange can make trading pairs available for all of these cryptocurrencies.
  It is imperative to know that the higher market cap a coin possesses the higher the chances are of that coin being traded on popular exchanges. Investors searching for more exotic, lesser-traded coins may need to search for smaller or less popular exchanges

My favourite Centralized cryptocurrency exchange and it's unique features

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COINBASE
Coinbase was created in 2012 to allow people to effortlessly trade and store Bitcoin. Fast-forward to today, Coinbase is now a publicly-traded cryptocurrency exchange with a market value of over $36 billion.
Coinbase stands out for creating a user-friendly environment to enable good trading experience, robust protection, and a variety of advanced features for pro traders. Due to its large number of supported assets (150+) and easy-to-use platform, Coinbase is now a go-to exchange for many newcomers in the crypto world. It also stands out because it's platform has the look and feel similar to an online banking app, which most people are familiar with and are already using.
Amongst the unique features of the coinbase exchange is that they offer both beginner-friendly and advanced trading platforms for functionality and ease of access, also a large number of cryptocurrencies and trading pairs are present on the exchange, When storing your crypto on the exchange, the platform holds the private keys and effectively stores funds on behalf of each user. The user has complete control over their digital assets as they hold the wallet’s private keys.

What I'd like to change about my favourite exchange.

Although Coinbase is a good exchange for both new and advanced crypto traders, trading fees are relatively high, starting from 0% to 0.60% depending on the particular trade volume which should really be scrutinized because I believe it plays a huge role in sending new investors away. In addition, Coinbase’s customer support seems to be problematic.
Also in recent times, there has being numerous stories of unexpected account closures that have soiled the exchange’s name.

Shortcomings of centralized exchange.

It's no news that users on centralized crypto exchange platforms do not possess permission for securing the private keys of their exchange account’s wallets. Thereby putting all crypto traders trust solely in the hands of the exchange authorities,
Hence the assets which is in their possession is in effect a loan which a user has given to them. Wherever there is a loan, there is room for default. Also crypto transactions can only be carried out through these platforms created and confirmed by a central authority.

There's the problem of fewer options.
In most centralized exchanges today, users are only allowed access to 40 - 50 types of cryptocurrencies available for trading. which is a very little ratio out of the total number of cryptocurrencies available in the cryptoverse. Most of these centralized exchanges are very keen about keeping their reputation, so therefore they permit only reputable cryptocurrencies to list on their exchanges. which in turn decreases the number of trading options available on these exchanges.

Securing user funds on these exchanges since they don't have access to the private keys of their wallet

It is therefore imperative that these exchanges do not use single hot wallets to store users assets but rather use a combination of both hot and cold wallet. Hacking the servers of these exchanges threatens the assets of investors since they are stored on hot wallets. As we recall something similar occurred years back, 2018 to be precise when the Coincheck exchange was hacked due to the fact that they stored all NEM tokens on one single hot wallet and lost about $534 million.
Crypto exchanges should utilize pre-cold and pre-hot wallets to increase the level of security.

• Two-factor

Two-factor authentication is important and necessary within the cryptoverse due to security reasons. Most exchanges do not only use two factors, but over time some have decided to use even three or more. It could be incompetence on the part of the user by setting up a weak password or using the same password on several accounts or wallets.

• Having an anti-fraud department

This is one of the important departments in the exchange company. The existence of this department is, especially for crypto exchanges, very useful in the fight against fraudulent activities and also it's aids in detecting, preventing and identifying of any form of cyber threat.

Conclusion

In summary, for Users who want to get into the crypto market, centralized exchanges are the most common way or method to get in. However, there are certain important things which I may not have mentioned above to also consider when deciding on an exchange to use and certain factors that will bring about a good user experience, they are as follows how high the trading volume is, which pairs are being traded, the security protocols certain exchanges have taken to secure their users.