There are various cryptocurrency exchange that dominate the crypto space and this short post is meant to give you knowledge on how to distinguish one from the other. Basically, there are two types of cryptocurrency exchanges namely Centralised and Decentralised Exchanges (DEX).
1. Centralised exchanges
These a re exchanges that:
- Are owned and run buy a centralised entity
- Provide various deposit options like visa or payeer
- Require one to submit their ID documentation for Know Your Customer (KYC) or verification purposes
- Don't issue a private key for user accounts
- Have high chances of being hacked since they are not tamper-proof
- Can suffer from privacy attacks since they hold clients documentation in their databases
Examples include Coinbase, Binance, Altilly, Knox, BitFinex, Cryptsy, Upbit, as well as Bitstamp, to mention a few. Some of these exchanges have lost users' funds through theft. For instance Cryptsy lost 13 000 BTC and 300 000 LTC in July 2015. In May 2019 Binance lost 7000 BTC and UpBit lost 342 000 ETH in November 2019.
2. Decentralised Exchanges (DEX)
These exchanges:
- Are owned by a community
- Are built on a blockchain thus tamper-proof
- Enable users to enjoy full privacy or anonymity in their transactions
- Not interested in user documentation for verification
- A safe place to keep one's funds since they provide user anonymity since they are decentralised
- Exist to counter every problem associated with Centralised Exchanges
- Charge lower fees as opposed to non-DeXs
Examples include AfroDex, 0x Protocol, Binance DEX, Loopring, Stellar DEX, as well as Kyperhttps://www.coingecko.com/en/coins/qnodecoin Network.
However, these exchanges provide a ground for individuals to perform criminal activities without being exposed since they provide user anonymity and normally provide services associated with the blockchain they are built on top of. Thus both Centralised and Decentralised Exchanges are important regardless of the problems associated with each.
What to read
Guide to choosing the right cryptocurrency exchange
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