The Pros and Cons of Switching to a Decentralized Exchange in the Coming Years
Advances in cryptocurrency evolution got spiced up with the creation of centralized exchanges which has proliferated the cryptosphere over the past decade. These centralized exchanges due to their pioneering innovations have become well developed serving as a major means of trading for investors. Many enthusiasts may find the concept of centralized exchanges to be confusing as the whole concept of blockchain is decentralized in itself.
Best presented within the context of centralized exchanges is the presence of third parties in crypto-transactions. These third parties hold both the coin from the seller and the fiat money or its equivalent from the buyer and help in completing the transaction as appropriate. These transactions are often carried out in online platforms created by the centralized cryptocurrency exchange.
Some of these exchanges include Coinbase, Robinhood, Kraken, and Gemini. Over time, many frauds and or irregularities have been associated with so many of these centralized exchanged involving a loss in cash, a recent upheaval in the cryptosphere involves the death of Gerald Cotton in December 2018. Cotten up until his death was the CEO of QuadrigaCX, Canada’s first cryptocurrency exchange. He held the private keys to all of his 115000 customers locking in asset worth $140 million USD.
These among other forms of threat to owned assets on centralized exchanges have prompt the emergence of Decentralized exchanges.
Decentralized Exchange: A Worthy Rescue?
Decentralized exchanges came on board as a rescue mission and a game changer in the current cryptosphere. Though undeveloped and relatively unstable as their centralized progenitors, they are proving with new advances in innovations to be the next big platform or model to be adopted for trading.
With a decentralized platform, every crypto investor keeps their private keys themselves and no central third party is instituted to interfere between trades. Most investors are showing more preference for this exchange type but for those of you who haven’t decided yet, I bring you the pros and cons of switching to a decentralized exchange in the near future.
Pros Of Switching To Decentralized Exchanges
- With decentralized exchanges, you can maintain anonymity almost all the time. The high point of marketing Decentralized exchanges is that it does not involve any sign-up process as it runs a decentralized application hosted on the Ethereum platform.
- To top this anonymity is the absence of Know-your-Customer verification prevalent with most centralized exchanges. Many users get anxious with the thought of revealing core personal details to a third party
- The issue of loss of asset or exposure to scam would be reduced thus giving a high level of security of funds
- No deposit required. As most decentralized exchanges are hosted on the Ethereum blockchain, no direct deposit is required and crypto traders are able to send money from wallet to wallet thus attracting no transaction fees. Although some DEX platforms may require a deposit of funds.
Why You Should Reconsider Your Switching Move
Before you get too excited about decentralized exchanges, think of the following;
- Since most decentralized exchanges are hosted on the Ethereum platform thus favoring more intra-chain trading, there appears not to be a well-developed protocol for inter-blockchain transfer, meaning exchanges between an Ethereum based token and other altcoins hosted outside the ethereum platform are possible but rare as they are not fully developed yet.
- There is the possibility that users would forget their private keys which may be difficult or impossible to retrieve. This can lead to a loss of assets
- The volume of intra-chain trading is generally low, which according to coinmarketcap represents less than 3% of total trade volume per day.
- With decentralized exchanges, it is not possible to deposit and withdraw fiat currencies, a feature that generally gives centralized exchanges more preference.
- The process of setting up wallets sometimes can be cumbersome and makes these decentralized exchanges less appealing.
DEX Pros And Cons Conclusion
The cryptosphere has not gotten to utopia yet where everything is perfect with the security of funds and the integrity of the stakeholders involved. For everyone who aims at investing or trading, you must make adequate research and base your decision on which exchange type to go with. Trust is a watchword that has different definitions and applications to different players in the cryptosphere and at any time.