CENTRALIZED, DECENTRALIZED & HYBRID EXCHANGES

Cryptocurrency exchanges or digital currency exchanges (DCE) are businesses that allow customers to trade cryptocurrencies or digital currencies for the other assets, such as conventional fiat money or different digital currencies.

There are 3 types of cryptocurrency exchanges. The first is a centralized exchange, the second is a decentralized exchange and the third is a hybrid exchange.

The CEXs (Centralized Exchanges)

A centralized exchange is where all orders are taking place in one specific ‘location’, as they are all routed through the same place. This so called location acts like a centralized authority taking care of all the transactions. The problem with centralized exchange is that it pose a risk of hacking attacks and there’s no actual control over one’s assets. This is due to their hot wallet’s private key is kept on the exchange’s website or platform.

Centralized exchanges (CEXs) have become the standard as they provide quick processing of orders (low latency), liquidity, high-frequency, alongside marginal trading tools. However, while making trusted third-party optional is one of the fundamental benefits of cryptocurrency, centralized exchanges act as third-party intermediaries. This requires users to trust their cryptocurrency funds to be kept safe by centralized exchanges, where there is potential for manipulation, government intervention, and loss of funds through hackers.

In the past, governments have shut down exchanges. For example, in September 2017, China’s largest exchange suspended operations after a national ban was set up. Centralized exchanges also fall susceptible to hacks that have cost users millions of dollars on exchanges such as Mt. Gox, Bitfinex, Bitstamp or Coincheck.

The DEXs (Decentralized Exchanges)

A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, trades occur directly between users through an automated process.

Among the benefits of decentralized exchange over a centralized one is their ‘trust-less’ nature. another advantage to the decentralized model is the privacy it provides. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you. But most importantly, the users have total control of their private keys of their wallet.

Decentralized exchanges (DEXs) help to reduce the risk of front-running as there is no centralized order book controlled by a single entity. At the same time, decentralized exchanges (DEXs) allow users to maintain control and custody of their funds.

However, because of a greater push for privacy and anonymity on DEXs, it is difficult to regulate and collect necessary information from users of DEXs. DEXs do not hold cryptocurrencies or have a central ledger. This bars DEXs from offering efficient latency that would motivate larger investors to participate in these markets to provide more liquidity. Generally, DEXs have lower liquidity than CEXs because of lower users’ adoption and thus, lower trades occurring throughout the platform.

But the problem with centralized exchanges are they have a conflict between what they represent and the blockchain values. The users also has no control of their private keys. Meanwhile, decentralized exchanges provide a horrible user experience and confusing transaction steps even though the users have total control of their private keys.

The HEXs (Hybrid Exchanges)

A solution is needed thus the creation of a hybrid exchange is materialized. A hybrid exchange provide a better option where it is easier to use aka user-friendly. It allows more trading options compared to decentralized exchange which offers only crypto-to-crypto swapping. Besides that, it is more affordable, unlike traditionally centralized exchanges which have high fees. Neither centralized nor decentralized exchanges provide complete functionality allowing institutional and retail investors to trade efficiently in the market.

Vitalik Buterin, the co-founder of Ethereum, commented that hybrid and semi-centralized exchanges are a much better solution than fully centralized exchanges. Where one of the main issues with centralized exchanges is the influence they have over the market, with their ability to decide which currencies to list or not on their exchange.

The concept of a semi-centralized or hybrid exchange is to add components of decentralization to a centralized platform. In some instances, users are able to trade directly from their wallets with tokens deposited into a smart contract, before trading commences. This ensures that no third-party entity holds and maintains custody for user’s funds, thus reducing potential security risks.

Earlier this year, Binance announced their intention to launch a decentralized exchange alongside a public blockchain, claiming that centralized and decentralized exchanges will co-exist interdependently in the future as they complement one another.

HiDEAX (Hybrid i-Digital Asset Exchange)

This is where HiDEAX excels. HIDAEX is a hybrid digital asset exchange which will bridge both conventional and non-conventional exchanges, all of which will be using blockchain connected, into a single exchange. It is meant to allow and ease the connectivity between the existing conventional and non-conventional exchanges with promise of greater liquidity in both markets. HiDEAX is the first government regulated hybrid i-digital asset exchange in the world.

*for more info, please visit https://isavan.io

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