Cryptocurrency exchanges allow customers to trade cryptocurrencies or even convert them to conventional fiat money. However, major exchanges don’t give you full control over your wallet’s private key, hence having complete control over your funds. This security issue which makes it vulnerable to hacking and frauds is eradicated by the onset of a decentralized Crypto Exchange, which is partially owned by a 3rd party and where you have complete control over your private keys. This keeps the risk of your funds getting lost due to the exchange being hacked very low, as you can recover and transfer your funds to any other wallets. Decentralized exchanges are also known to be quicker and are often managed by a large group of trusted firms to ensure a greater security compliance.
Pros and Cons of Decentralized Exchanges
- Within centralized exchanges like CoinBase, the exchange controls access to a user’s private key and hence, the user does not theoretically have complete access to it. However, within a decentralized exchange, a user has full access to his/her funds because of transparent ownership of his/her private key and public key.
- Data storage within a centralized exchange is not anonymous, while data-privacy is completely anonymous within a decentralized exchange.
- Centralized exchanges are often in the news for being vulnerable to hacks and facing downtime of withdrawals or trading. A decentralized exchange generally never faces issues of server downtime or being vulnerable to hacks if the platform is programmed professionally.
The market leaders in this space are Waves and OpenLedger along with a couple other reliable decentralized exchanges like BISQ and Etherx/EtherDelta.
Waves is an innovative combination between a centralized and decentralized exchange model where they give you complete control and access to your private keys but uses a centralized matching service to increase the transaction speeds.
Waves is built on the Waves blockchain and trading occurs similar to any other exchange where users can trade their BTC/ETH, etc for Waves or any other issued token.
Based in Denmark, OpenLedger is more decentralized than Waves as it only requires you to remember your unique username and password and does not have any KYC (Know your customer). It utilizes BitShare’s graphene technology for its internal services and has a slightly higher volume along with more cryptocurrencies than Waves
Bitsquare is a relatively new marketplace with lower trading volumes but also requires no KYC and verification. It uses TOR on its server to be classified as a truly decentralized exchange and has a huge potential in the future if volumes increase significantly
EtherX has a huge development potential in the near future due to the fact that it is the first decentralized exchange based on the Ethereum blockchain. However, it’s server is down temporarily so keep an eye out for this space in the near future. A better working alternative would be EtherDelta which is also rapidly gaining traction due to its intuitive and functional design.
Stellar Lumens (XLM) is a rapidly growing cryptocurrency whose native decentralized exchange is StellarTerm Dex, which utilizes a Public Key and a Secret Key which retains the original functions of a Cryptocurrency in an effectively decentralized manner. As Stellar keeps rising in ranks within the list of cryptocurrencies due to its functional technology and highly renowned team backing it, StellarTerm could see a huge rise in popularity in the near future.
There are numerous benefits such as control, security, and anonymity with using decentralized exchanges. However, it is vital to note that these exchanges still trade in relatively lower volumes, might have different exchange rates, and are still adding new cryptocurrencies to their market every day. Moreover, the fact that the funds are literally untraceable and hence are tax-elusive would definitely pose a problem to governments and future regulatory boards as seen recently in countries like China and South Korea issuing widespread bans. John Mcafee, the renowned security pioneer, has also warned publicly to exercise caution due to this regulatory dilemma against decentralized crypto exchanges.
Note that CryptoTicker advises all readers and investors to do your own market research prior to investing in cryptocurrencies within these decentralized exchanges. Never invest more than what you can afford to lose.