1.Explain in your own words what an Exchange is. Differences between a Wallet and an Exchange. Mention the advantage and disadvantage of DEX and CEX. Have you used an Exchange before? tell us about your experience.
Ans:-An exchange is an online stage that allows you to exchange a virtual prperty for another based on its value in the current market so it permit you to exchange cryptocurrencies for traditional Monet and many more options depending on the exchange.
For example, there are exchanges that allow you to pay for additional services such as telephone lines, buy gift cards and even earn money by keeping our cryptos in them, the latter is known as staking.
Now we all know that exchanges are exchange platforms and presently there are two types that have been the most trandy, traditional and Peer to peer (P2P)
Peer to Peer (P2P), as its name says, transactions are carried out directly from person to person through the platform, so it gives the advantages of having direct contact with the owner or buyer and you can also establish your own exchange rate as is the case of a well-known platform worldwide "Binance".
Traditional, traditional exchanges are very simple to handle since they work in a similar path to an exchange house, where you place an order to soldl or bought Cryptocurrencies to the stage and it will allow you with the exchange rate of the moment and the exchange methods to make said exchange.
Differences between a Wallet and an Exchange.
Advantage of exchange.
• it stated earlier, exchange helpful to the cryptocurrency trader to make more profit, in that he buys at low rate and sell at high rate.
Disadvantages of exchange.
.Let assume that a trader buying at low rate and he or
shee is face with immediate needs like in case of emergencies, the market is volatile which meant that the asset can be even lower than what it is actually bought and if he sells at that moment, he will bear a loss.
Differences between a Wallet and an Exchange.
wallet
• Wallet is decentralized due to this it means there is no interfere or involvement of any central authority or third party when the individual want to perform transaction
. In wallet, the trader instead of trading and marketing of coin just keep it(save) in the wallet
• peer to peer (P2P) user transaction is being performed here
• If taken about wallet, then it has some higher level of security which makes it huge strong and very trusted because the users will be certain confident with the strong security that it will not be hacked
• Users will be able to perform many transactions as he wants to do , there is no limitations
• Here, the user is being given both the private and public keys
Exchange
• In exchange, the trader here trade the coin he may buy and also sell it but will not save.
• There are 2 type of exchange the centralized( third party involved) and the decentralized exchange(no third party)
• Exchange can be done in financial institutions
• Unlike wallet, the exchange has low security due to third party that can handle your account and they may be hack it.
• Here the user is limited in transaction.
• It is the user that freely choose the key.
Advantages and disadvantage of DEX and CEX.
DEX
Decentralized exchanges are online markets where financial securities are traded through a P2P without third parties. In other words, the decentralized ledger takes the place of a third party.
DEX uses smart contracts to operate market transactions by giving transactions to autonomous codes.
Examples of Dex include; WavesDex, Bancon Protocol, Kyber Network, Ether Delta, Air Swap, Uniswap, Justswap among others.
ADVANTAGES
• No KYC or ID verification
DEX are trustless and the privacy of the customers is well secured. One can have an account without having to giving personal details.
• No counterparty risks
The possibility of theft, loss of funds and hacks is greatly decreased. This is because users are face to face interacting with eachother without middlemen and all details regarding any transaction is stored on the blockchain. This also prevents price manipulation.
• No counterparty risks
The possibility of theft, loss of funds and hacks is greatly decreased because users are directly meet with eachother without middlemen and all information regarding any transaction is recorded on the blockchain. This also prevents price manipulation.
• All tokens can be traded
DEX caters are for all cryptocurrencies whether new one or old. This gives users a
very widee variety of cryptocurrencies to choose from them in order to trade. Therefore, Dex are diverse.
• Freedom
This brings out due to the fact that there are no third parties involved. Users hereby have the freedom to move their digital assets or property around in which ever way they see fit.
• Security
DEX keep data of all the transactions on many servers across the whole world. Due to this it impossible for data to be manipulated.
DISADVANTAGES
• No recovery ability
Remember that with Dex, there is no requirement of KYC ( know your customer). This means that a user can have an account on the exchange stage without giving their personal information. Irrespective of the fact that a user's privacy is secured, it also has a down side. This is because; in the event that a user loses or misplaces their funds, they cannot recover them due to the aspect of "No KYC".
•Low liquidity
DEX faces a problem of low liquidity. This is mainly because they are new.
•Limited speed
This is extremely liable or dependant on the network's miners rather than the exchange.
• Scalability issues
This issue is bring out by the crowding of the network. The large number of miners using the network lead to crowded and reduces the speed. This affects the scalability of this.
CEX
Centralised exachanges work like a bank .. there is an owner and they follow up rules and regulations. The company that owns the exchange has full rights over everything that takes place on the exchange.
ADVANTAGES
• Security against criminal activity
CEX are secured from criminal activities because they complete KYC (know your customer), anti- money laundering and counter terrorism financing checks.
• Volume
They account for the last large number of trading volume.
• Transparency
CEX have developed public and institutional trust because they work with regulations and employ tight security.
• Offer digital wallets for clients to keep their cryptocurrencies
DISADVANTAGES
•Custody
An user authorize his private keys with the exchange therefore, he has no manage over his funds.
• Hacking risks
CEX are run by companies and they are answerable for the property of their clients, this makes them highly pron to cyber attacks.
• The privacy of the users is not Secured. This is because of the presence of the Know Your Customer (KYC) that recommended users to provide their personal information.
• Information can easily be handle. This is because the users have no say in what happens on the network. Everything is manage by the owners of the network.
Have you used an Exchange Before?
Yes, I have used Binance Exchange before. It is a very good exchange. It has almost all Cryptocurencies in many pairs.
It's working mechanism is also good. It's deposit and Withdrawal is also very fast and It has very low trading fees.
Conclusion
Thanks professor @stream4u for this article. Exchange are very important in trading. There are many more exchanges accessable in the market.