Now that you are all set with your cryptocurrencies of choice, familiarizing yourself with the different aspects and pertinent functions that are needed to make things run smoothly should be focused upon with great scrutiny. One of the things that need to be noted here is what system the cryptocurrency runs on, to be more specific, we need to ask the question: to which system does your cryptocurrency belong to?
To answer this we have to familiarize ourselves with the two categories in which the cryptcurrencies may fall under. These are the Centralized and Decentralized cryptocurrencies. This feature will delve into the specific characteristics of specifically the more unheard of the two, the Centralized Cryptocurrency Exchange.
What Exactly is a Centralized Cryptocurrency?
What we usually hear about cryptocurrencies could be summed up in a few important tidbits:
- That it runs in a peer-to-peer system
- All its transactions are recorded in a what is called a blockchain
- It is decentralized
Item number three holds true for all digital coin’s forerunner, Bitcoin (BTC). Upon describing BTC, we often hear the soundness of doing transactions through it: how all transactions are added as a block through the help of the members of the blockchain community through cryptography, thus keeping the integrity of the transactions. BTC is decentralized in that all related activities to it are not being regulated by a central bank, this contributes to the over-all security of the transactions that a token holder lodges.
Now that these are out of the way, we have to look into what a Cryptocurrency exchange is. In an earlier article, we are introduced to cryptocurrency exchanges as venues to buy and sell cryptocurrencies. Transactions through it, meaning sending and receiving cryptos through the exchange means having to buy the cryptos from the exchanges and send such to the user’s individual wallets, may these be through a mobile device or a desktop.
The Decentralized Exchange
If we are to look at simply the terminology, a decentralized exchange (DEx) is one that foregoes the need of a third party. It is in this exchange type that the P2P system functions on. In a DEx, the token holder stores his or her crypto which are exchanged for proxy tokens. These in turn can be utility in the blockchain. These tokens are made into collateral.
Within the DEx, the client would be able to order with the purpose of selling the tokens that you keep. The processes that guide these transactions are kept within the blockchain. Once the user is able to receive these tokens, then he or she can convert them into actual cryptos.
The Centralized Exchange
Fun fact: 99% of cryptocurrency transactions are conducted through centralized exchanges. The reason behind this is that it establishes greater reliability in transactions, imbuing in it greater integrity in the funds and the data.
A Centralized Cryptocurrency Exchange is a venue for crypto traders to purchase and trade digital currencies. The main difference that it has with the a DEx is that it employs the assistance of a third party that might be either seen as a boon and a bane with crypto trading. This system also entails that the client trusts this third party that does its job by monitoring all transactions and effectively safeguards all the assets for both the merchant and the customer.
It is recommended for a crypto trader to keep feeding the platform with details to serve the purpose of increasing his or her quota for making withdrawals. A support team is always on call so as to keep possible technical issues with the transactions at bay, which includes loss of passwords or loss of funds.
Users are given the opportunity to avail of flat pairs within reasonable and competent prices if they are to take the chance to sign up for centralized exchanges. Binance and Coinbase are two of these centralized platforms.
The Two Major Advantages of Using Centralized Exchanges
- Intuitive and Easy to Navigate
The environment fostered by Centralized Exchanges make it conducive for the more novice of crypto investors. The reason behind this is that it does away with the complexities of using crypto wallets and P2P dealings. Through the centralized systems, the users would be allowed to login to their own accounts and look into how much funds they have left. Through this capability, the client would be able to perform transactions through apps and sites.
- High Reliability
More potent layers of protection are found upon examination of centralized exchanges. These are seen with greater reliability as opposed to what decentralized exchanges offers. Transactions are always met with great comfort in centralized platforms.
The Two Major Disadvantages of Using Centralized Exchanges
But while these are highly notable advantages, a centralized exchange is a coin with two faces. As there are noteworthy benefits from using centralized exchanges, there are also disadvantages at its heels. These are the following:
- Risks of Being Hacked
As with any online resource, a centralized cryptocurrency exchange are able to hold volumes of data and funds. And as impressive as this is, it is also open to a lot of vulnerabilities, the most glaring one being its susceptibility to online theft. Hackers are always looking into new methods of getting one over simple hardworking traders. One of the most debilitating incidents that had the cloud grasping for stronger fortifications with their online data and assets is the Mt. Gox encounter. Here, a total of 850,000 BTCs had been hacked and stolen.
- Fee Requirements
Dissimilar to transactions lodged in P2P systems, fees for the centralized exchange are actually high. This is especially true when trades of large amounts are conducted.
The Takeaway: Why You Should Use a Centralized Cryptocurrency Exchange for Your Coin Trades
With everything that had been laid out here regarding the centralized cryptocurrency exchange, it is logical to say that trading cryptocurrencies through it would be a viable for those looking into growing their crypto investment portfolio.
The system is notable in its 99% accommodation of daily crypto transactions. And while it is open to the vulnerabilities of the online community due to incidences of hacking, fact of the matter is, it stands that it is one of the most reliable exchange platforms in light of the multiple layers of protection that it offers. It actually depends on the exchange that you choose to sign up for. As this stands, the issue of vulnerability is a case to case basis. You might want to look at the many reviews on exchanges out there that you can try out to get at the best option.
Fees should not be taken as an issue here given that all good services should and will cost you money. If the service proves to be good then spending for ts would not be all-too tragic.
Probably the icing to the cake is the centralized exchange’s intuitiveness with respect to its functionalities and platform navigation. The developers had made it easy for crypto investors to log into their accounts and check their balances prior to lodging transactions. The usage of this type of exchange allows you to worry less about the process and more of how you could profit out of the crypto trades you choose to engage in.