Assignment

Explain in your own words what an Exchange is. Differences between Wallet and Exchange. Mention the advantages and disadvantages of DEX and CEX. Have you used an Exchange before? Tell us about your experience.

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Introduction

Exchanges, a term of relatively recent use in our language, are platforms that make it possible to exchange between cryptocurrencies, as well as between cryptocurrencies and fiat money. However, there are at least two classifications or types of exchanges, divided by their nature: centralized (CEX) and decentralized (DEX). What is the difference between them? How is the cryptocurrency market in each of them? What are the advantages and disadvantages of each one? I'll be talking about all that in this post, trying to be as clear and brief as possible. With nothing more to say, I start with the concepts

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The Exchange Concept

Exchange in our language is an Anglicism, its original meaning is exchange and the word is used to refer to cryptocurrency exchange platforms. This can be tokens for other tokens of another crypto or for fiat money. To make it easier to understand, it is like a kind of exchange house. However, some are not limited only to the exchange but also offer leveraged tokens and offer their users to trade futures, for example. This depends on each particular exchange. But at a basic level, an exchange offers two options

1. Buy cryptocurrencies. This can be done using a particular cryptocurrency or fiat money, but the latter depends on the platform.

2. Sell cryptocurrencies in another crypto or for fiat money.

To perform any of these actions, the order book and its respective options are used (buy / sell at market price, setting a limit price, stop-limit, etc.). Exchanges charge a commission for this.

Centralized Exchanges (CEX)

Centralized Exchanges are those that are managed by a business entity; In other words, there is a group of people who control an exchange and are responsible for it. The exchange is not anonymous, and much less direct: the exchange records and regulates everything that happens between users and the market. This means that exchanges are regulated, that is, they have some control over users' money through laws whose utility is to make the exchange more secure but some autonomy is lost. These exchanges are the most used.

Centralized Exchanges

1. Binance
2. FTX
3. Bitfinex
4. Bitstamp
5. Kraken

Advantages and disadvantages of centralized exchanges

Advantage

1. Trading is possible between a larger number of cryptocurrencies.

2. It was put to use fiat money to exchange.

3. They have greater volume and liquidity than DEX.

4. They have rules that help make the exchange safe and scam-free.

Disadvantages

1. Higher fees compared to DEX.

2. The exchange is not anonymous.

3. Central authority that has some control over users' money.

4. Its services are hosted on central servers that can be attacked by a hacker.

Decentralized Exchanges (DEX)

Decentralized exchanges are those that are not regulated by a particular company but transactions are made through a blockchain network, which means that the exchange is directly between users. Anonymity and autonomy are maintained here. Unlike the CEX, in the DEX there is no company that regulates transactions and charges for it, but this also means that fiat money cannot be used to exchange, which is one of its most important negative points. Another negative point is that it is not as widely used as the CEX, which translates into less liquidity.

Decentralized Exchanges

1. Uniswap (V3)
2. Quickswap
3. Pancakeswap
4. MDEX
5. 1inch Liquidity Protocol

Advantages and disadvantages of decentralized exchanges

Advantage

1. The user has greater control over their money than in the CEX.

2. The exchange is anonymous.

3. Lower rates than CEX.

4. They use blockchain technology, so the risk of attack by a hacker is lower.

Disadvantages

1. Has fewer exchange options than CEX

2. You cannot use fiat money to exchange.

3. It does not have as much liquidity or volume as the CEX.

4. The interface is more complicated.

Wallet concept and its differences with Exchanges

Wallet

The word Wallet is also an Anglicism and means wallet. It is used in the world of cryptocurrencies to refer to the virtual wallet that stores the different cryptocurrencies that a person owns. In reality, what a Wallet does is record transactions that a particular blockchain provides, in this way a person can have control of the different cryptocurrencies that they use. There are several of them and each one has different tools to manage the currencies, however all must have both the public key, whose function is analogous to the bank account number in the traditional financial system, and the private key, which gives you access a person to the Wallet and all its functions when managing the different cryptocurrencies.

Differences between Wallet and Exchanges

1. Exchanges are platforms intended to function as the meeting point for exchanging cryptocurrencies; its use is merely for the exchange market. Wallets are made only to store cryptocurrencies.

2. Centralized exchanges can use fiat money; Wallets only store cryptocurrencies.

3. Exchanges work completely online, while there are types of online wallets and types of wallets that are electronic devices offlines.

What is my experience with Exchanges?

I have had some experience using Binance. I learned to use the order book of said platform and its different options a bit, although I still choose to use the market order, which is the easiest and most direct when buying or selling. There I have bought USDT through Binance P2P, and with that I made my first investment buying Cardano.

The interface is extremely simple to use, with basic buy and sell options between the pair you choose. It is centralized and is aimed at exchanging cryptocurrencies for fiat money and vice versa. It can be traded with Steem, SBD, HIVE, HBD, Bitcoin, EOS, and Nectar (the latter being the platform's cryptocurrency). The supported fiat money currencies are VES (the currency of my country), PAB or USD. The bank account number must be entered to receive fiat money when you sell cryptocurrencies. If, on the contrary, you want to buy a crypto, you must verify your account using identity documents, number, address, etc. This is to make the exchange more secure.

conclusion

Exchanges are the hub where people who want to trade cryptocurrencies meet. Due to this, it is necessary to know what they are, their types, advantages and disadvantages of each one and what they offer. As well as the differences they have with wallets, in terms of utility and functions; That is why it is necessary to learn these concepts if we want to trade cryptocurrencies. Thank you teacher @imagen for such a pleasant lesson. Thank you!

special thanks for all respected teachers and all members

Regards

@naveed15125