War Between Centralized and Decentralized Exchanges
Cryptocurrency exchanges are for all intents and purposes, the backbone of the cryptocurrency market. They are online platform that allows customers to trade cryptocurrencies or digital currencies for another (or for fiat currency).
Every tradable asset needs a market where it can be traded and that is what these exchanges do. Within the crypto world, there are basically two types of exchange platform, centralized and decentralized.
Almost 90% of the total numbers of cryptocurrencies exchanges which exist are centralized in nature and the rest being decentralized. Centralized cryptocurrency exchanges are online platforms used to buy and sell cryptocurrencies. They are the most common means that investors use to buy and sell cryptocurrency holdings.
A decentralized cryptocurrency exchange is one in which the architecture of the platform has no central controlling server. That is to say, users transact directly with their peers without the need for a central server.
While in centralized exchange, funds are controlled by the centralized exchanged service. That is to say, funds are solely in the hands of the centralized platform service.
Centralized Exchange vs Decentralized Exchange
In a recent interview with Ethereum’s co-founder Vitalik Buterin, he criticized centralized exchanges, saying that he hopes they “burn in hell”.
Vitalik further criticized projects that pay between $10 million and $15 million only to get their tokens listed on the centralized exchanges. He also noted that many projects with tokens based on Ethereum were “not very successful and not decentralized at all.” According to him, some of them had only a few knots that were controlled by one company.
Speaking about Ethereum, Vitalik said he wants to ensure that the blockchain is as decentralized as possible. However, he noted that the ideas and proposals expressed by the community often go against his vision.
“It’s hard to ignore the irony that an asset created to allow decentralization is currently almost completely traded on centralized exchanges,” Peter Johnson, a vice president at Jump Ventures, said in an interview.
Buterin, however, wants the crypto community to focus more on decentralization so that cryptos can more frequently trade peer-to-peer. Buterin’s remarks come as so-called decentralized exchange gain more attention.
This comment from Ethereum’s co-founder has spiked the crypto community as centralized exchanges react to it.
The CEO of Binance pushed back against Ethereum creator Vitalik Buterin’s comment;
“Let’s not wish others to ‘burn in hell’. Let’s have a bigger heart, and appreciate the fact that we are all part of an eco-system, not independent projects”.
According to Zhao, without centralization, all coins would have less liquidity, the industry would be smaller and the industry would develop slower. Probably all by more than 10x. Just because someone else is doing the lowly grunt work, doesn’t make them dirty.”
CCO of Huobi UK, Josh Goodbody, also addressed the statement expressing that he found Buterin’s statement “visceral”. Although Huobi is working on decentralized solutions, Goodbody felt that saying “centralized exchanges [should] go burn in hell” was taking it too far.
“That’s quite a visceral statement. There’s a case for both centralized and decentralized exchanges and they have their own pros and cons. To say that everything should be decentralized is quite a broad statement. We’re always on the edge of our seats to see what says next and his soundbites are always quite good.”
The UK CCO said that the number one priority for exchanges is security. After recent major hacks of both centralized exchanges, including Bithumb, and arguably ‘partially‘ decentralized exchange Bancor, he said this issue is a ‘very sensitive topic.’ He also pointed out that Huobi hasn’t had a security breach in five years of operation.
The most obvious benefit of using a decentralized exchange over a centralized one is their “trustless” nature. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party.
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.
Problems with Centralized Exchange
Bitcoin was developed to avoid third parties, such as banks and centralized exchanges that require customers to trust them.
2. Personal Document
While centralized exchanges require personal data and proof of identity, in order to deposit or withdraw on their platform, a decentralized exchange does not require users to disclose their identity.
A centralized exchange is easily accessible to hackers through one server. If something goes wrong, as it has multiple times in the past with exchanges like Mt. Gox, you could end up losing all your money.
4. High Trading Fees
Many well-known crypto exchanges charge between 0.25% to 3% in fees, whereas a decentralized exchange mostly requires a small fixed fee, or in some cases – no fee.
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