In 2009 when the first blockchain-based cryptocurrency, Bitcoin was introduced, it came at a time when financial institutions were going through a crunch.
At the time, not many people believed that cryptocurrency could be profitable, however, the few who invested in it at the early stage got more than their money’s worth, and that paved the way for the creation of several cryptocurrencies.
With more cryptocurrencies, came the need for people to be able to trade cryptocurrencies with each other, and thus, cryptocurrency exchanges came to being.
A cryptocurrency exchange functions like a stock exchange where instead of stock trades, cryptocurrencies are traded. It is basically a platform that facilitates the trading of cryptocurrency assets based on the market prices at the time of the trade.
There are three types of cryptocurrency exchanges:
- Centralized Exchanges (CEX)
- Decentralized Exchanges (DEX)
- Hybrids (CEX + DEX)
This is the very first type of exchange that was available when the need to trade cryptocurrencies came up. The operations of the exchange are centralized, and that means activities are overseen, or governed by a central authority.
Customers are not usually in total control of their assets. The exchanges can be in either cryptocurrency to cryptocurrency, or fiat to cryptocurrency tender.
- Trade volumes are higher
- Presence of high liquidity
- Enhanced functionality
- Availability of fiat to crypto trades
- High susceptibility to hacks, phishing, and fraud
- It is subject to a central authority
- Customers are not in full control of their assets
- It is regulated by the government and can be shut down at any moment
You may want to refer to decentralized exchanges as the opposite of the centralized exchanges, and you would be right if you did. Decentralized exchanges do not function under a central authority, or depend on a service to control customers’ assets, but with the aid of the underlying blockchain technology, are able to automate functions in a very secure manner.
Hence, customers are in full control of their assets. A lot of the decentralized exchanges available are based on Ethereum’s blockchain, and this helps the implementation and facilitation of smart contracts on the exchanges
- The presence of distributed nodes as part of its security feature makes it almost impossible to hack.
- Because it is not centralized, government regulations do not apply, and as such cannot be shut down by the government.
- Customers are in full control of their assets.
- Trade volumes are lower
- Liquidity is lower
- No fiat to crypto trades
- The functionality of the exchange is limited.
There are several exchanges in the crypto market, and Rubix is a blockchain based social exchange that deals with the irregularities facing other cryptocurrency exchanges. It is imperative to know just how secure an exchange is before using it, in order to avoid losing your crypto assets.