Crypto Academy Season 3 [Beginner's Course] Homework post Task 5: For Prof. @imagen
Explain in your own words what an Exchange is.
Differences between a Wallet and an Exchange.
Mention the advantages and disadvantages of DEX and CEX.
Have you used an Exchange before? tell us about your experience.
Explain in your own words what an Exchange is.
Differences between a Wallet and an Exchange.
Mention the advantages and disadvantages of DEX and CEX.
Have you used an Exchange before? tell us about your experience.
Explain in your own words what an Exchange is.
An exchange can be defined as a digital arena for the transaction of digital asset. An exchange is a platform where users from all over the world converge and connect to purchase, sale and as well exchange crypto assets. In this platform, you can exchange your local currency for a cryptocurrency.
There are two types of exchanges:
- Centralized exchange
- Decentralised exchange.
Centralised exchange:
As the name implies, it is controlled by a sole entity or group of persons who are vested with the responsibility of managing the resources and handling great liquidity as a result of the trust placed on them by the users. These entities offer services like staking and the likes of it.
Decentralised exchange:
Unlike in a centralized exchange, there is no centered authority or group whom the users trust to handle their transactions. Both owners and users have access to the Blockchain and run transactions anonymously.
Differences
In an exchange, traders converge to carry out buying and selling of crypto asset while a wallet is an internal tool of an exchange.
Just as explained before, an exchange is a platform used in transacting and exchanging cryptocurrencies while a wallet is more like a tool used in saving cryptocurrencies encrypted with private keys for security purpose.
With an exchange, you have a savings service in the sense that you can deposit your cryptocurrency for a specified period of time and the user is guaranteed of bonuses for those period of time he saved those tokens while wallet does not provide bonus for holding an asset.
Owing to the fact that that exchanges are online platforms it can be hacked but there's such thing as a child wallet that helps in Storing assets using an external device like USB which makes it impossible for a wallet to be hacked.
An exchange stores any type of token at all while some wallets are selective on the type of token it allows for storage.
Exchange gives option for key recovery through mails while every wallet is assigned with a password that the user ought to safeguard. Loosing this password is equivalent to loosing one's asset.
Users may not always have access to an exchange possibly because the website or platform is undergoing a maintenance while a wallet can be accessed anytime, anyday.
Some exchanges are Centralised in nature in the sense that the company are fully in control of the exchange while users are fully incharge of their wallets.
Advantages and Disadvantages of CEX and DEX
Advantages of DEX
DEX simply means a decentralised exchange which is used to refer to the type of exchange that is not under the control of an entity or a group of persons. This means that it can be accessed and managed by the users.
Cost effective: Having no third party to run transactions in this type of exchange means there can only be little or no charge to run a transaction.
Transparency: Under a DEX, necessary information are transparent to the user and the transactions being carried out can always be traced.
Global system: DEX is a global system as users converge and connect in this type of exchange. As long as both users have a wallet compatible with the currency pair, they can transact from different countries.
Anonymity: The anonymity associated with the system is beneficial to the user because he can decide to keep his details without sharing it on the network this is because transaction in this system only require virtual address.
It is being controlled by a Blockchain protocol. This makes it impossible for it to be hacked as there is no human vice.
Disadvantages of DEX
Not used friendly: A novice who is not acquainted with the Blockchain network will find it difficult to understand and even use the DEX unless with the help of a manual or a person more knowledgeable about the exchange.
Limited services: The only service it offers is buying and selling of cryptocurrencies.
The prices of the assets are hugely affected because the volume of the transaction is low in a DEX.
Advantages of CEX
User friendly: This platform is not hard to understand even for a new user. There are many tools the user can rely on.
Acquisition capacity: The acquisition capacity of this exchange is wide to accommodate any kind of exchange including local currency.
Unlimited services: CEX offers variety of services. Unlike the DEX where there is just buying and selling of crypto, CEX offers services such as leverage, staking and saving.
It give users prior information on new projects thereby giving them offer to make investment in time.
It handles great liquidity because of the large number of users around the world and this makes transaction faster.
Disadvantages of CEX
Level of insecurity is low compared to a DEX
There is an intermediary through which all transactions are verified and validated.
Users need to verify their accounts before transacting and this requires them to leave their personal data in the hands of anonymous persons.
Have you used an Exchange before? tell us about your experience.
Prior to when I joined the steemit platform, I have heard alot about cryptocurrency but I never knew much about it. But as soon as I joined steemit, gradually I started getting more curious about cryptocurrency that I had to download the BINANCE App which was a complex for me as a novice
But with constant practice and the help of a friend, it became somewhat easier for me as I invested some coins I earned from steemit in cryptocurrencies and also sent my TRX to the platform for storage. Now I have gained a level of mastery to the platform as I can comfortably carry out my exchange there.
Conclusion
Thank you so much sir @imagen for this awesome lecture and am really happy to carry out this assignment post as I was able to understand more on exchanges and the likely occurrences that can take place in different exchanges. I also learnt to put the advantage and Disadvantage of an exchange into consideration before embarking on my decision to invest in such exchange.