I’ve dipped my toes into digital currency space since early 2017. Oh, tempus fugit. How quick time flies; and a lot has happened since then. Many custodial, non-custodial, and decentralized exchanges have sprouted like mushrooms. But which is which really?
Let’s start with custodial exchanges. If you are using Binance, Kraken, Coinbase, or Coinsph, then you are using a custodial exchange.
They hold the keys for your coins or tokens.
Oftentimes, you hear people in crypto-community say, “not your keys not your coins” and that is true.
In fact, that’s the biggest drawback of custodial exchanges, since they are “one hack away”.
Don’t believe me? Let’s take a look at some of the famous custodial exchanges that were hacked:
- Binance — $40 million worth of bitcoins were stolen by hackers (Binance is currently the largest centralized exchange for digital currency)
- Upbit — around $52 million worth of cryptocurrency got stolen
- Coinbase — a user lost $100,000 worth of digital assets
- Mt. Gox — lost a total of more than $450 million worth of bitcoins at that time of hack
And the list is growing.
Another risk that custodial exchanges have is fraud. Since they hold your funds, they can just close their exchanges and run away.
Since custodial exchanges run a bigger risk of losing your coins, a non-custodial solution has been offered by non-custodial exchanges.
What makes them better is that they don’t hold your coins. They just act as the medium for trading or swapping your crypto-to-crypto, fiat-to-crypto and vice versa and crypto-to-altcoins transaction.
They do this by integrating their trading algorithm into cryptocurrency exchanges including Binance, Poloniex, Bittrex, Huobi, OKEx, and Bitfinex.
With decentralized exchanges, you don’t have to trust a third party service to trade your digital currencies or tokens. They are essentially peer-to-peer by design.
Charlie Lee’s tweet about Bancor getting hacked
Due to this structure, decentralized exchanges can’t be hacked unless there are bugs with the code, or they have custodial features that compromise the non-custodial functions e.g. the case of Bancor.
Another advantages of decentralized exchanges are there is no single point of failure, no deposit and withdrawal limits as well and there is a higher regard for privacy of the users.
On the other hand, the drawbacks are:
- less trading volume
- not user-friendly
- and because it operates without registration it is often more subjected to legal persecutions
Which one should you choose?
It depends on your needs.
If you want more liquidity, higher trade volumes, fiat currency exchange, margin trading, day trading, you can use custodial exchanges.
If you want an easy crypto-to-crypto and crypto-to-altcoins transactions, choose non-custodial exchanges.
For this, I highly recommend Changenow if you want a limitless crypto exchange and without the hassle of signing up!
The minimum amount needed to exchange your digital coins is also much lower than its counterparts.
Take a look:
Changelly’s minimum btc deposit for floating rate is 0.00817 btc while Changenow’s 0.0002625 btc
Here’s another one:
Changelly Minimum btc deposit for fixed rate is 0.00425 whereas Changenow’s 0.003 btc
That alone is a brownie point for Changenow.
Moreover, Changenow lets you swap more than 200 coins at the time of writing.
What’s even better is that it also has a smooth-functioning mobile app for both ioS and Android devices.
Now, what about decentralized exchanges?
Well, if you want to be more private, don’t want to undergo any KYC, and you’re exchanging altcoins mostly, decentralized exchanges are your best bet.
In general, if you want to hold your own digital coins, always choose non-custodial platforms.
Hi! My name is Yaki.
I write quality over quantity.
Sometimes that makes me look like I’m on hiatus.