A cryptocurrency exchange is also called digital currency exchange (DCE). It is a business that permits crypto traders to trade cryptocurrency. There are two types of cryptocurrency exchanges, and a decentralized exchange (DEX) is one of them.
DEX is a virtual marketplace, which is open sourced. It is a kind of DIY trading solution. Under this exchange, you can trade, and you can hold your fund in your account. One of the best advantages of DEX is that the funds will never be entrusted to another trading organization or any other 3rd party.
The advantages of trading on DEX
Generally, crypto traders love to do their trading on DEX. This preference is not an impulsive preference, it is backed by some logical advantages. Some of the top advantages of trading through DEX are narrated here.
A DEX is more hacking proof: A decentralized exchange is a hacking proof, which cannot be manipulated, maneuvered, or it cannot be the subject of cyber theft. Here account information of the traders are kept completely discrete and by any means is not shared with the exchange admin. Instead, funds are kept in the trader’s account, and only the authorized person will get to access the account and its transaction.
DEX cannot be centrally influenced: Federal bodies cannot disrupt the operation of a DEX because DEX operates via widely distributed nodes. Malware infliction might be interrupting for DEX operation, but in most of the modern DEX, malware protection is taken.
Other advantages of using DEX
- DEX does not work via a server. Hence it is not possible to hack the platform.
- Privacy is maintained as a higher priority.
- You as a trader can fully control your fund.
- Trading can be done with faster speed.
Disadvantages of DEX
Like the reverse side of a coin, DEX has some significant drawbacks. These are:
- The entire trading process has to be handled by you: it can be hectic if you are not technology savvy. A DEX is, usually, not very user-friendly.
- Funds in DEX is not insured or regulated.
- Mostly DEX denies to accept debit card, credit card or bank transfer of funds: they deal only in crypto.
- Trading volume is limited. Here fees are often charged high.
- Customer service is not that active.
- A DEX is more expensive than a CEX.
Who Should Be Using Decentralized Exchanges?
According to expert Crypto traders, decentralized exchanges are not meant for everybody’s use. Many newbie crypto traders including amateur investors, beginners in crypto trade, and persons who just want to have experience in transactions of Altcoins should not attempt to deal with DEX.
Unless you are trading ICO tokens or purchasing a hefty quantity of cryptocurrency, there is little or no advantage of using a DEX. Similarly, traders fascinated in margin trading may not be facilitated by using DEX. The traders planning to buy a large amount of crypto token will better be served by DEX.
Whoever is using DEX, should have another alternative method of cryptocurrency storage like a hardware wallet or a digital wallet. DEX is a trading mechanism and should not be treated as a storage resolution.
In order to understand the right crypto trading plan, an investor must understand the difference between DEX and CEX.
The difference between DEX and CEX
How to use DEX?
On a DEX, the payment is executed right between a buyer and the seller. The buyer and seller can transact in a P2P network and without any intervention of a broker or intermediaries. Only the digital wallet address of seller and buyer should be intimated to each of the parties responsible for the transaction.
The DEX functions just as a platform to coordinate the transaction, which is then gets recorded on a public ledger. The funds from the buyer or seller trusted to an alternative party while doing the transaction. For the buyer to buy cryptocurrency, no funds are detained by the DEX. The seller promptly gets the payment and there is no requirement for a payment network like what credit companies had to do with banks and other merchants.
In DEX, there is no provision of book service to materialize the transaction, it gets done by using the platform’s specific app that is executed from the DEX blockchain. An order that matches will be recognized by the network once it has been accepted and the transfer of value gets completed with the coin changing ownership (in the case of cryptocurrency).
No middleman is involved at any point so this requires very strong security by using encryption techniques to safeguard trust in a permission-less and trust-less system. The good thing is that the cryptocurrency has protocols that perform checks against double-spending and transaction malleability attacks.
That’s all about Decentralized cryptocurrency exchange. Before you start your crypto trading, you must understand the facility of using DEX so that you can act accordingly.
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