The Difference between Centralized and Decentralized Exchanges
Since the introduction of Bitcoin in 2009, people have been investing in cryptocurrencies, but the past few years have given crypto more popularity than ever, with millions of people getting interested and investing their hard-earned money into different digital currencies. This is also because the trust and confidence of people is shifting toward the digitalized, modern world. As these rapidly growing currencies are virtual and cannot be traded in person, secure and reliable digital exchanges are also needed to execute trading.
A cryptocurrency exchange is utilized by traders, investors, and users to either buy or sell their currencies, and it plays an essential role in facilitating and broadening the blockchain industry. Normally, different exchanges are limited to a certain number of cryptocurrencies, but traders and investors prefer those with limitless functions, flexible options, and many other features that allow them to undergo trading just as comfortably as they can withdraw or deposit money in their conventional bank accounts. There is no shortage of exchanges for crypto trading, as a report published by an analytics website showed. The United States is said to have the highest number of users visiting different exchanges, exceeding 20 million visitors scrolling through almost 100 exchanges each month.
People often wonder which type of exchange will be most beneficial for their investments, a centralized or decentralized one. Centralized exchanges have been in the market for quite a long time and come with many different features. They usually work in the same manner as a conventional bank, as they are owned by a particular individual or company, they are relatively secure, and they follow a set of guidelines and rules for carrying out any sales or transaction on their platform. However, experts suggest that people should transfer their crypto or any other virtual asset they have bought to their wallets for safety. A famous centralized exchange, HitBTC, has demonstrated serious security issues with its platform and led to people’s mistrust and a general loss of confidence in centralized exchanges. HitBTC was a famous exchange with thousands of BTC in trading volume; however, due to an error, it temporarily disabled transactions while people were withdrawing their currency. Centralized exchanges can be a major risk if hacked, as the entire exchange can disappear in a moment and you can lose all of your money.
Decentralized exchanges are not controlled by an authority or an individual and offer greater flexibility with respect to their features. They offer more secure transactions and privacy of your wallet, as there is no registration or KYC process involved. These exchanges do not execute any deposits or withdrawals, as the transactions are only carried out between individuals, or more specifically peer-to-peer, and are secured and executed through smart contracts, i.e., programmed codes. Moreover, there is no particular authority or set of regulations that monitor or govern the transactions being carried out. In recent years, decentralized exchanges have seen less traffic or a lower audience as trivial mistakes can lead to disasters while the platforms are being improved. However, they are updated frequently, allowing secure and trouble-free operations. They were introduced to replace centralized exchanges by offering peer-to-peer transactions without the need for any governing platform or differing regulations by region. Users can easily transfer or exchange currencies from one wallet to another.
A decentralized exchange works in a very simple manner, just like a normal bidding process in a conventional market. An owner who has a specific number of tokens or virtual assets places an order to sell a particular number of tokens at a set price, and a sell order is placed over the DEX. Then the buyers, or those who own other tokens and are looking to exchange, place a buy order with a bid. The programmable codes then review both the orders and execute them securely. A decentralized exchange only needs your wallet address to let you work on the exchange. A user can easily buy or sell their tokens or other cryptocurrencies while the smart contract continues its operation transferring the assets once the set demands and conditions are fulfilled.
Decentralized exchanges are more effective than centralized ones in a variety of ways. The transaction or trading fee is one of the primary factors convincing people to opt for decentralized exchanges. Centralized exchanges charge a minimal percentage on every transaction, which can add up to a huge amount if your transaction is larger, while the DEX charges a flat fee for each trade. The fee varies between $0.05 and $1, and it is not even charged by the exchange but is a gas fee charged by the blockchain as it undergoes or executes certain processes. Moreover, the user can remain anonymous while performing transactions without providing any specific details regarding their identification or account. A major advantage of a decentralized exchange is that the user or trader has complete ownership of his virtual assets, while they are owned by a specific authority on the centralized exchanges. This can be a major risk in terms of attacks, data breaches, or theft, as any vulnerabilities in a centralized exchange can lead to you losing all your assets.
The ViCA token will allow its users to carry out transactions through both centralized and decentralized exchanges, though ViCA will start its listing process through decentralized ones and expand effectively from there. Numerous strategies will be employed to achieve this, as a centralized exchange has many complications, very high listing costs, and a complex verification and listing process. A decentralized exchange will be favorable for both users and the ViCA foundation, as it does not involve any listing process, which means it can be done quickly and charge a negligible gas fee for utilizing Ethereum’s smart contracts.
