Decentralized Exchange

Reading time: 3 minutes

Cryptocurrencies are a digital asset that has been gaining more and more followers and is conquering great space in people’s lives. On the positive side, this causes the commerce, industry and financial sectors to start considering and inserting digital payments in their daily lives, as well as creating the possibility of new businesses, such as cryptocurrency Exchanges.

However, this also represents a full plate for hackers who can attack the services of cryptocurrency brokers and wallets and cause great damage to the owners of the crypto and the companies responsible for their custody.

In order to change this scenario, Decentralized Exchanges appear. Follow the post and understand more about them.

The context of the emergence of DEX

Before the creation and popularization of Decentralized Exchanges, cryptocurrency transactions were carried out through centralized Exchanges, that is, companies that allow their customers to exchange cryptocurrencies of one type for another, or even for fiat currencies.

This model makes the client waive the custody of their cryptocurrencies, as they are deposited in a wallet controlled by the centralized Exchange exchange operator, which credits the client with a “commercial balance”, that is, an entry in a database. a centralized system that is updated by the operator as the customer concludes its negotiations.

However, the security of this model can be questionable, because unless centralized Exchange has perfect security practices, it is subject to hacking attacks or human flaws that can compromise large sums of money from customers in crypto.

An example of this is Mt. Gox, a centralized exchange launched in 2010 that suffered hacking attacks in 2011 and 2014, with the last attack causing the loss of 850,000 BTC (about $ 480 million at the time, equivalent to more than the US $ 5.4 billion currently). The Gox case had such a huge impact on the Bitcoin community that it culminated in the creation of the term “Getting Goxed” to refer to the damage caused by the exchange.

What is a Decentralized Exchange?

Decentralized Exchanges or DEX, for short, are exchange markets that do not depend on third-party services to retain client funds. In this case, negotiations are carried out directly between users (peer-to-peer) through an automated process.

This type of system can be created with the use of proxy tokens (cryptographic assets that represent authorization or even a cryptocurrency), assets (such as a company’s shares) or through a decentralized commitment system in the multisig model which requires multiple signatures to authorize trading.

Benefits of DEXs

The main benefit of Decentralized Exchanges is the “unreliable” nature of this type of exchange, that is, it puts users at the mercy of third parties, forcing them to trust in the security and honesty of exchanges made, as the funds are maintained by the user himself. user and not through intermediaries.

Other advantages of DEX are privacy, as users do not need to share their personal data with anyone and availability, since DEX hosting is distributed among the nodes involved, avoiding server downtime.

Disadvantages of DEX

Although DEX has many benefits, it also has some disadvantages for its users.

One of them is the need for users to be online so that there is an ordered listing so that the transaction can take place, so users need to perform actions, such as signaling receipt of payment.

In addition, DEXs have limited resources compared to centralized exchanges, as few DEXs have features such as margin trading, loan and stop loss. Despite this, DEX has many advantages in terms of privacy and anonymity, when compared to Centralized Exchanges.

What is your opinion about Centralized Exchanges and DEX? Share with us!

Transform your way of using crypocurrencies. Choose the best custody or monetization plan for your cryptoassets with LC Technology Bank!


Crypto Compare | Crypto Briefing |Coincenter

Leave a Reply

Your email address will not be published. Required fields are marked *