What are Decentralized Exchanges – Introduction
Decentralized Exchanges (DEXs) have drawn crypto users attention and there is an excellent reason for it. In this article, we will show you everything about DEXs.
This type of digital market field is more like the original cryptocurrency concept. The biggest difference between DEXs and Centralized Exchanges is that DEXs allow traders to remain custodian of their funds (without any interference from a third party). However, there are other disparities between both which will be explained in this report.
First of all, we will let you know what DEX is, how it can be applied and why DEX is so important.
What are Decentralized Exchanges?
DEXs are platforms that initiate the trading of cryptocurrencies. They work in a decentralized manner, where it is possible to convert fiat currency to digital currency and vice versa.
DEXs were created to enable buyers and sellers to meet each other in the same place.
In a Centralized Exchange, the platform and its services are managed by a company and it administers all the registered digital wallets into it and usually charges a % of the fee for every transaction.
Whereas on the DEXs, transactions are made without any intervention from a third party.
How do Decentralized Exchanges work?
On a Centralized Exchange, the participant has to register its name, email address and password. After the member’s registration, a code will be sent to make the transaction. Centralized Exchanges are platforms that enable investors to buy, sell, and exchange digital currency against fiat money or other cryptocurrencies.
Registration is a big deal, because it makes people confident about who they are investing with. Whereas, on a DEX there may be a restriction on the e-wallet.
How important are DEXs?
DEXs allow this new way of investing to be innovative and this type of cryptocurrency exchange gives its traders a large number of qualities. For example:
- DEXS are anonymous, it means that limited personal data are well preserved;
- Traders have full control over their e-wallets and funds;
- DEXs do not need to use a central exchange. It implies that this type of cryptocurrency exchange can carry out peer-to-peer transactions without the requirement for a third party or an intermediary.
In addition, the number of transactions on DEXs are higher due to the Smart contracts – it is a tamper-proof program that runs on a blockchain network when certain predefined conditions are satisfied.
Are Decentralized Exchanges safe?
DEXs allow investors to keep custody of their funds. Consequently, they eliminate the risk of a company, person, or organization being a victim of a hack.
Furthermore, registration on DEXs does not require a considerable number of participant’s data as Centralized Exchanges.
Smart Contracts help traders to identify potential risks and thus prevent them from investing in intentionally fraudulent projects. It guarantees the proper transaction.
Major differences between DEXs and Centralized Exchanges
As mentioned before, Centralized Exchanges belong to a particular company, which means that the trader can not remain custody of their capital
DEX’s participants use their own e-wallets and all their personal information is anonymous. These features make DEXs more volatile within the ecosystem
DEX requires more understanding and it is needed to use Smart contracts.
Decentralized Exchange – conclusion
DEXs are an interesting alternative to those who are studying/reading about this type of digital market field as well as using Smart contracts as best as they can.
It might be a bit confusing for those who haven’t experienced/operated DEXs yet. They would rather use a Centralized Exchange instead of a DEX.
However, DEXs are safer and more independent to them, because they won’t have any interference from a third party.
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