Hello Professors and the entire Steemit Crypto Academy Management and Students. I am yet again here to attempt a very interesting task on one of the subjects that is very important in the cryptocurrency world, centralized and decentralized exchanges.
For the questions in this task, I shall answer question 3 to complete this task. With what I have learnt as I red through the course and some kinds of research, I shall answer the questions in question 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.
MEANING OF AN EXCHANGE
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An exchange is basically a marketplace for selling or trading cryptocurrencies for other cryptocurrencies or fiat currency.
In other terms, an exchange is a computer software application that allows you to accept and trade various types of cryptocurrency. It's an online cryptocurrency exchange where you may receive, store, purchase, and sell cryptocurrency assets. An exchange can hold a large number of cryptocurrencies, each with its own wallet address. Exchanges provide services such as dual investing, savings, launch pools, farming, borrowing and lending and more in addition to trading and keeping cryptocurrencies.
The two kinds of exchanges areCentralized exchanges (CEX) and decentralized exchanges (DEX).
These two types of exchanges operate in different ways and have different management systems, but they both have the same goal and aims.
With a central authority that oversees the affairs of their users, centralized exchanges such as Binance, Huobi, KuCoin, Bittrex, Luno,, etc have cryptocurrencies and local currency options that are sold against and/or for each other.
Decentralized exchanges, have a restricted number of cryptocurrencies without fiat choices that are mostly swapped for dollars (USD), and thus have no control over the system. Uniswap, Justswap, Pancakeswap, Polkaswap, Zethyr Finance DEX, and other similar services are examples. Decentralized exchanges only support tokens supported by the blockchain on which they are built.
EXCHANGE DIFFERENTIATED FROM A WALLET
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Though an exchange can serve the purpose of a wallet, it is different from a wallet in many aspects. Some of these differences are stated in a tabular form.
| EXCHANGE | WALLET |
|---|---|
| An exchange is a platform for the trading (buying and selling) of cryptocurrencies and tokens. | A wallet is a place where the keys (public and private) of a cryptocurrency are kept. |
| The major function of an exchange is to trade cryptocurrencies. | The main function of a wallet is to hold cryptocurrency |
| Exchanges cannot exist without internet services because they are actively used. | Some wallets can exist on their own without the support of internet services because they are not actively used. |
| Exchanges cannot function without wallet. They need wallets to hold their assets to be traded with. | Wallets can exist without exchanges. Their operations is not based on the availability of an exchange. |
| Exchanges give primary/fundamental knowledge of the cryptocurrencies they house. | Wallets do not give fundamental knowledge of the cryptocurrencies they hold. |
| Exchanges give charts and technical analytical tools used for taking decisions in trade | Wallets do not have chart of technical analysis tools for trading. |
| Exchanges have order books | Wallets do not have order books. |
| The types of exchanges are centralized and decentralized exchanges. | The types of wallet are paper, digital,hardware, mobile and desktop wallets. |
| Examples of exchanges are Binance, Huobi, KuCoin, Uniswap, Justswap, etc. | Examples of wallets are Trustwallet, Tronlink, Steemit wallet, etc. |
ADVANTAGES AND DISADVANTAGES OF CENTRALIZED EXCHANGES
- CEXs give basic information on all the cryptocurrencies they house
- They process transactions quickly.
- CEXs have significant trade volumes across the board.
- Liquidity is consistently strong on centralized exchanges.
- Many CEXs have fiat options
- Users can still retrieve their accounts in case of careless misplacement of password.
- The authority keeps the public and private keys of users of centralized exchanges, which is a concern.
- CEX verification and certification is a complicated and time-consuming process.
- Hackers are interested in centralized exchanges. This is due to the fact that they contain a large number of cryptocurrencies.
- In most exchanges, volume manipulation is prevalent. This is a ruse that users are fooled into believing.
- Accounts are not completely in the authority of users.
ADVANTAGES AND DISADVANTAGES OF DECENTRALIZED EXCHANGES
- Users' private and public keys are maintained with them at all times. This ensures that it is secure.
- It provides a straightforward sign-up process that does not require KYC verification.
- DEXs show crypto markets in their natural state, with no manipulation.
- The accounts of users are completely under their control.
- They contain a small number of cryptos.
- DEXs do not have any fiat currencies.
- It is impossible to recover an account whose keys are lost by the owner.
- Due to low trade volumes, they lack liquidity.
- Because keys and passwords are used practically every time, users must remember them or write them down somewhere safe lest they lose their possessions.
THE EXPERIENCES I HAVE WITH THE USE OF SOME CEXs AND DEXs
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As I worked on steemit and get rewards, I had initially sent them to my friends who know better than I do in cryptocurrency trading and investment to help me convert. This happened for months because I had to adjust my self well to the world of cryptocurrencies.
Few months along the line, I registered binance and this has been my favourite exchange for my steem. Even though it doesn't USDT trading pair for STEEM, it offers so much services I can benefit from. There many cryptocurrencies paired to the stable USDT which offers many trading options. It has a quick exchange system where I can trade and get profits. I can easily withdraw my money anytime I want without restrictions whatsoever.
I have also registered Huobi for my personal interest on the USDT pair for STEEM. Huobi is also a good CEX because it gives point cards at regular intervals which is used for trading fees. It also have many cryptocurrencies listed in it.
In my attempts of Steemit Crypto Academy Homeworks, I have come across some DEXs e.g Justswap, Zethyr Finance, Uniswap, Pancakeswap Tronlink to do some transactions. They make use of Automated Market Makers for quick swap as their are no order books. Most of them allows user to add their tokens to be added to the liquidity pool of any pair of their choice. They support tokens built on the blockchain on which they are based which makes them have limited cryptocurrencies and pairs for swap. These tokens can be swapped for one another using these DEXs.