The success of crypto trading depends on the exchanges.
Although I am relatively new in carrying out crypto transactions, it has become apparent to me that choosing the best cryptocurrency exchange is very important to succeed in cryptocurrency trading.
There is no best option in choosing cryptocurrency exchanges and associated wallets. It is always said that choose the most suitable or the better option.
A cryptocurrency lover must learn the basics of different types of cryptocurrency exchanges, wallets, and their pros and cons.
What are the two types of cryptocurrency exchanges?
There are two types of cryptocurrency exchanges:
(1) centralized exchanges,
(2) decentralized exchanges.
The centralized crypto exchanges generally have one centralized server. On the other hand, a decentralized exchange doesn't have any centralized server.
The decentralized exchanges run from a large number of decentralized machines facilitated by a peer-to-peer decentralized exchange protocol.
Basic differences between the centralized and the decentralized cryptocurrency exchanges
Let's see the differences in a tabular form.
Graphics: I created the tabular difference (my own image).
The differences between centralized and decentralized cryptocurrency exchanges show various parameters, such as control, usage, features, fees, the identity of the users, speed of processing the transactions, security, and accountability.
It is apparent from the table that
the centralized exchanges are user-friendly slower in processing, but have higher fees, have lower security, and have higher accountability to the users.
The decentralized exchanges possess better security, less transaction fees, faster processing, and less accountability to the law.
What are the flaws of centralized cryptocurrency exchanges?
The centralized nature of the cryptocurrency exchanges fails to provide the most attractive benefits of blockchain, especially decentralization.
The users can't fully control their cryptocurrency assets. They only hold the assets on a custodial account ID number that the exchanges provide them.
The centralized cryptocurrency exchange more or less acts like any central bank that holds the fiat money of the users in custodial accounts.
The users often face security flaws, account hacking, or even the entire exchanges are attacked with millions of dollars worth of cryptocurrencies stolen.
The centralized exchanges have chances of being intervened by the government regulatory boards and security councils. A single government order may stop all crypto trading, freeze the wallets and addresses, or in the worst case, the government(s) may order the closure of a crypto exchange business!
There could also be less transparency and/or trust, slower processing of transactions, higher fees, insufficient liquidity, and many more unforeseen issues.
Despite these issues, centralized cryptocurrency exchanges are being used by global users because of their user-friendly interface and easy-to-manage wallets.
The most popular cryptocurrency exchanges are centralized
Most cryptocurrency exchanges are centralized. The cryptocurrency wallets on these centralized exchanges are custodial wallets similar to centralized bank accounts.
In the recent past, the Canadian government asked cryptocurrency exchanges to blacklist some cryptocurrency wallet addresses and freeze all crypto transactions. The centralized exchanges were bound to follow the court injunction order because their systems are based on centralized servers.
The Bitcoin wallet software provider company Nunchuk could deny the court order because their wallets are non-custodial or self-custodial and decentralized.
Decentralized cryptocurrency exchanges may give true financial freedom to the cryptocurrency users
Decentralization is the primary benefit of blockchain and other distributed ledgers. Cryptocurrencies are decentralized digital money based on blockchains.
The centralized exchanges are custodial of users' decentralized cryptocurrency assets. The users partially compromise with the decentralized feature of the cryptocurrency assets by giving the decentralized exchanges quasi-ownership of their digital assets.
Now decentralized cryptocurrency exchanges are coming. with a non-custodial or self-custodial cryptocurrency wallet option. The user has all the power to control their wallet and cryptocurrency assets. No government body or agent can have access to the non-custodial or self-custodial cryptocurrency wallets.
That is why a Bitcoin wallet software provider company Nunchuk replied negatively to the court injunction in Ottawa, Canada. They informed the court that they couldn't access the cryptocurrency wallet or the addresses of the users because their technology is decentralized.
There is no third-party control in a decentralized cryptocurrency exchange.
The decentralized exchanges run facilitated by decentralized protocols with complete anonymity and equal possibilities for all users.
Decentralized exchanges can process cryptocurrency transactions faster than centralized exchanges.
No government regulatory body or agents can control the decentralized exchanges, and users' personal data remains private.
The decentralized non-custodial or self-custodial cryptocurrency wallet option can give cryptocurrency users the much wanted financial freedom.
Bringing it altogether
The cryptocurrency user should choose the correct cryptocurrency exchanges and wallet service.
Popular cryptocurrency exchanges are user-friendly but centralized like any traditional fiat bank.
Centralized cryptocurrency exchanges are prone to security attacks and hacking/stealing assets.
Centralized cryptocurrency exchanges may face government orders to freeze certain cryptocurrency users and addresses or shut down cryptocurrency transactions and entire businesses.
Decentralized cryptocurrency exchanges provide non-custodial or self-custodial cryptocurrency wallets that are immune to centralized control and censored by government regulatory bodies or private agencies.
Choosing a non-custodial or self-custodial cryptocurrency wallet can give cryptocurrency users the much wanted financial freedom.
Cross-reference: My earlier article: "Cryptocurrencies and Financial Freedom."
I practice Science, Technology, Engineering, and Mathematics (STEM). I have also added, "Arts" and "Fine Art" to my interests. So, my current interests become STEAM - Science, Technology, Engineering, Arts, and Mathematics.
I actively develop solutions for password and cybersecurity relevant to cryptocurrencies, blockchain, and other block-less distributed ledgers.
Originally posted on read.cash.
Cheers! Debesh Choudhury
Text Copyright © 2022 Debesh Choudhury — All Rights Reserved
All other graphics and videos are credited just below it.
Disclaimer: All texts are mine and original. Any similarity and resemblance to any other content are purely accidental. The article is not advice for life, career, business, or investment. Do your research before adopting any options.
March 28, 2022.