Cryptocurrencies can be exchanged in many ways and with the help of many platforms. But all of them fall under the centralized and decentralized cryptocurrency exchange. Now, both of them have benefits and some lacking. Let’s see them in detail.
What Is a Centralized Cryptocurrency Exchange?
When cryptocurrencies are exchanged via the help of third-party media, it’s called centralized cryptocurrency exchange. Now, this method is the best way to make a transaction via cryptocurrency. That is because it offers reliability, and you can trust the source. Suppose you are making transactions through the crypto; if there’s only you and the receiver, then you won’t be able to ask for a refund if something goes wrong. That’s why third-party site plays a vital role in transactions. And since the centralized crypto exchange has this reliability, people are more comfortable with this method. Now, Coinbase, Gemini, GDAX, and Kraken are some of the popular examples of third-party platforms that are responsible for centralized crypto transactions.
Advantages of centralized cryptocurrency exchange are:
As I mentioned earlier that centralized cryptocurrency uses a third-party platform that controls the transaction between two parties. Now, the best thing about those platforms is that they are very simple to use since they have a user-friendly interface. So, even if you are a newbie in crypto and blockchain, you will still understand how to make transactions. However, almost all the digital wallet and transaction platforms for crypto have a complex method that I feel very confused about. But with the help of these platforms, you will be able to make transactions without any issues. At the same time, almost all the third-party platforms offer stock trading and other beneficial features as well.
We all know that crypto is a highly unstable and uncertain environment. And all the traders and investors have to encounter lots of uncertain events in the crypto world. Now, if they have to face that uncertainty while making transactions, then it’s an extra pain. But if you are using a centralized cryptocurrency exchange, then it will provide you with the security and reliability that will make your worries go away.
Disadvantages of centralized cryptocurrency exchange are:
Risk of Hacking
Since all the funds I am cryptocurrency are held by a third-party company, that company faces the risk of cybercrime and hacking. If the cyber security of that company is not strong enough, then all the holdings will be stolen. This sort of incident happened in 2014 when Mt. Gox had become the victim of hackers, and on that incident, 850,000 bitcoins or $460 million were stolen away. After that, Mt. Gox declared bankruptcy.
Centralized cryptocurrency charges a good amount for its services. It’s quite a decent amount, and it will make a difference when you continue the transactions.
What’s Decentralized Cryptocurrency Exchange?
When you make crypto transactions without the help of any third-party platform or, should I say, make peer-to-peer transactions, it’s called a decentralized cryptocurrency exchange.
Advantages of decentralized crypto exchange are:
No Details Needed for Transactions
You can make transactions anonymously. And you won’t have to find KYC or anything that you need for a traditional bank transfer.
No Hacking Risk
Since you don’t have to transfer your funds to any third-party website first, so there is no risk of hacking.
Disadvantages of decentralized cryptocurrency exchange are:
Lack of Fiat Payments
One of the most common disadvantages of decentralized crypto exchange is the lack of fiat currency involvement.
Complex Transfer Method
Since there are no third-party platforms involved, so it is very complex to make peer-to-peer transactions.