Cryptocurrency exchanges (Part 1)
(Reading time 8 minutes)
Trading with Cryptocurencies can be profitable, and
non-profitable if you are new, you don’t know how to trade, but somebody told
you that it is very easy and you can make a lot of money just by buying and
selling cryptocurrencies. Or that someone else can do it for you. Within the
last year there has been a big fuzz about cryptocurrencies, trading platforms,
and how people are making millions out of nothing. Yes, they are making
millions, but not everyone. Millions are making the ones who are already in
this business for a while and know what are they doing. On the other hand the
ordinary people, most of the time are just losing their money. They believe in
fast cash. Unfortunately, a lot of the marketers out there promote it as a fast
cash. Something that will bring them significantly large amount of money for a
short period of time. The everyday person, who is not educated about the
cryptocurrencies, about the trading platforms, the exchanges, and how all of
this things work, can lose a lot of money. I am a member of a several crypto
groups, where I read how people are losing money, how they got scammed. There
are people that even put their life savings in some of the currencies, some of
the exchanges, the platforms and have lost a lot of money. There is no such
thing as fast cash. There is no such things as big profits in a short period of
time. It might be, if you win the lottery by some miracle, or if you bet on
some type of sports games, and you get all the results correct. You need to
work hard, to be educated on how the things are going, and then yes, you can
make money. If you are following the crypto news, you will read how many
speculations, scams, worthless coins, losses but on the other hand as well a
lot of gains, new technology, new promising coins are coming out, almost every
day. The internet is just filled with these things. And that is why I am also
writing these blogs, to educate you more on the cryptoworld. To know where to
start and what to look for. I am not a leading expert, or some hitech guyt, I
am same like you, just an everyday guy, who got caught in the crypto madness.
But everyday I learn little by little, because I want to know, I want to learn
and as well to make certain profits along the way. I do not want to be scammed,
to lose my money, just because someone is trying to HYPE me on that certain
coin, exchange, platform etc. And this is what I see is happening every day. People
promoting new coins, new platforms etc. Many people approach me as well on
Facebook, to tell me about how great their platform is, or how great the new
exchange is. I am not saying that all of them are scams, there are many real
coins that solve real problems, exchanges out there that are working very good,
but there are a lot that don’t. That is why you must be always careful, you
must always look for another opinion, to do some research and then to make your
final decision. At the same time, when you are trying to invest, do not invest
a lot of money. Always invest the amount that you are ready to lose.
The topic about the cryptocurency exchanges is a little bit
bigger and that is why I must brake it down in a few posts.
So let’s dive in:
Cryptocurrency exchanges are nothing but digital marketplaces
(webpages) where you can buy and sell Bitcoins or any other currencies that are
listed on that certain exchange. The Exchanges are the back bones of the
cryptocurrency market. In the world of the cryptocurrencies there are 2 types
of exchanges:
· Decentralized
· Centralized
In today’s article I am going to focus on the Decentralized
Cryptocurrency Exchanges.
In order to understand the decentralized exchange, first you
need to know a cryptocurrency exchange does. The cryptocurrency exchange is a
platform where you can buy and sell cryptocurrencies and receive fiat money or
cryptocurrencies. In a decentralized exchange there is no central controlling
server or a third party to hold the funds of the participants in the exchange
transaction.
There are several differences between the decentralized and
centralized crypto exchange:
·
Control of funds
In a decentralized exchange there is no centralized platform
service that is in possession of order books and custody. Funds are controlled
by the users and participants of the platform. The users transact directly with
their peers without the need of any central server.
The users of centralized exchange platform make deposit to
the exchange in order to facilitate an exchange/trading transaction. These
funds are controlled by the centralized exchange service. This means that order
books and custody it is in the hands of the centralized platform service.
· Anonymity
The decentralized exchanges are all about anonymity.
Some of the centralized platforms allow anonymous trading
accounts on their platforms. Due to many government regulations, it is
difficult to trade anonymously on a centralized crypto exchange.
· Authentication
In decentralized exchanges there is no need to rely on a
third party intermediary. By implementing smart contracts and blockchain
protocol, the system is built to provide trust-less authentication and
authorization of crypto exchange transacions
The users in the centralized crypto exchange rely on the
platform to authenticate and authorize their transactions. The platform is the
third-party intermediary, providing trusted crypto exchange services.
Now that we have highlighted the differences between the
decentralized and centralized exchange, let’s look at some of the qualities
that decentralized exchanges have:
· Faster and cheaper transactions
By removing the third party in the transactions process, the
decentralized platform provides faster, cheaper and more cost effective crypto
exchange transaction
· More difficult to hack. On the centralized crypto exchanges there have been a number
of high-profile hacks during the history of crypto exchanges. Because in the
decentralized exchange, there is no single point of entry, just like in the
blockchain, the hacker will need to compromise more than half of the network to
be able to commander the system
· Seamless Integration with Secure Hardware
Wallets
This is a major advantage in the decentralized exchange. A
number of decentralized exchanges offer integration with the popular hardware
wallets like Trezor and Ledger Nano S, which ensures a much safer transaction
space. The user can send their coins directly from the hardware wallet to the
smart contract of many decentralized exchanges. In centralized exchanges this
is not possible, because the user has to manually enter the private key, if he
wants to move the funds from the wallet to the exchange. This puts users at
risk of malicious phishing and key logging attacks.
· The funds are controlled by users, rather than a
central corporation
In the decentralized exchange the control of the money is
always in the hands of the users, since the network uses P2P network
architecture. The transactions occur between peers in the network. The users
control their private keys as well as their funds at all times.
This are some of the qualities that the decentralized
exchange has, now let’s have a look of the bad qualities the decentralized
exchange has:
· Difficult to use
The dashboard in the decentralized exchange it’s very
confusing and there is too much that needs to be done to navigate through the
smart contracts. You must be knowledgeable in order to do it. The centralized
exchanges are very easy to use, and to navigate.
· Lack of Robust Features and Functionalities
Most of the decentralized exchanges only support the basic
cryptocurrency exchange function. A lot of the advanced trading tools and
features are missing like: margin trading, stop loss as well as host of other
trading features. These are the main reasons why the decentralized exchange
haven’t achieved much popularity in the cryptocurrency world.
This are the main good and bad qualities that the
decentralized exchange platform have. Here are a few of the most famous
decentralized exchange platforms:
· 0xProtocol
0xProtocol is a decentralized exchange platform of
Ethereum-based tokens. It is pronounced as ‘’zero-ex’’. The 0xProtocol enables
transactions of the ERC20 (ethereum) tokens between users in a secure,
trustless, feeless and quick manner through the use of Ethereum smart
contracts. 0x’s goal is to allow any Ethereum tokens to be traded efficiently.
0x was co-founded by Will Warren and Amir Bandeali in October 2016. It is a
very promising project.
· Kyber Network
Kyber Network is a decentralized exchange platform that
enables instant onchain exchange of cryptocurrencies. It shares a lot of
similarities with the 0xProtocol. The project also attempts to minimize the
high costs associated with maintaining the order book of decentralized exchange
on the blockchain.
· BitSquare
Bitsquare is a
peer-to-peer marketplace for cryptocurrencies like Bitcoins. It is a fully decentralized exchange which requires
no name, email ID or verification. It supports 126 cryptocurrencies including
Bitcoin.
Here are a few more decentralized exchanges that you can
trade on:
· IDEX
· Waves Dex
· OpenLedger Dex
· CryptoBridge Dex
· Oasis Dex
· Radar Relay
Conclusion – Working
Decentralized exchanges
There
are some more decentralized exchanges out of which few are still being build
and few are still have very low liquidity or are facing security difficulties.
Namely,
such exchanges are:
- Bancor
liquidity exchange
- EtherDelta (didn’t
covered it due to its recent breach)
- Counterparty
Exchange
- district0x
- Altcoin.io (Atomic
Swap Powered- under development)
- Airswaps (Under
development)
Whatever
their current state may be the future is promising for decentralized exchanges
because they are destined to improve and innovate if they want to save the cryptosphere.
Thank
you for reading
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