How different are Centralized Exchanges from Decentralized ones?

PrivacySwap has recently ventured into a Decentralized Exchange, and it’s for a good reason. It can be considered a big leap for the project as this would mean wider use cases to help traders and common users to grow their money with. But what is this Decentralized Exchange? And how is it different from Centralized Exchanges like Binance? Let’s discuss them here.

Decentralized Exchanges, defined!

A decentralized exchange, or DEX, is a peer-to-peer marketplace where crypto traders do transactions directly with one another. DEXs facilitate financial transactions that are not mediated by banks, brokers, payment processors, or any other type of middleman, thereby realizing one of crypto’s fundamental capabilities.

Popular DEXs, such as Uniswap and Sushiswap, employ the Ethereum blockchain and are part of a growing suite of decentralized finance (DeFi) tools that enable a vast array of financial services accessible straight from a compatible cryptocurrency wallet.

Also Read: Bitcoin technical analysis for beginners

In the first quarter of 2021, $217 billion worth of transactions were conducted on decentralized exchanges. More than two million DeFi merchants existed in April 2021, a tenfold increase from May 2020. And now, PrivacySwap DEX has launched to offer never before existing services like HackerNet, which will be available soon.

How are Centralized Exchanges different from Decentralized Exchanges like PrivacySwap DEX?

The operation of a Centralized Exchanges

Either fiat currency (through bank transfer or credit/debit card) or bitcoin can be deposited on a regular centralized exchange. When you deposit cryptocurrency, you relinquish ownership of it. Not in terms of use, as it can still be traded and withdrawn, but in terms of technology: it cannot be spent on the blockchain.

Since you do not possess the private keys to the funds, you must request the exchange to sign a withdrawal transaction on your behalf. When trading, transactions do not take place on the blockchain; rather, the exchange stores user balances in its own database.

Due to the fact that blockchains’ slow speeds do not impede trading and everything occurs within a single company’s system, the overall procedure is greatly streamlined. It is less difficult to buy and trade crypto, and more tools are available.

This comes at the cost of freedom, as you must entrust your funds to the exchange. Therefore, you are subject to counterparty risk. What happens if the crew flees with your BTC? What if a hacker renders the system inoperable and snatches all the money?

For many individuals, this degree of danger is acceptable. They only use established exchanges with good track records and security measures to prevent data leaks.

The operation of a Decentralized Exchanges

When compared to their centralized counterparts, DEXs are comparable in some aspects, but they are significantly different in others. To begin, it should be noted that consumers have access to a wide range of decentralized exchange platforms. The common denominator is that orders are executed on-chain or through the use of smart contracts, and users never relinquish control over their money.

Conclusion

While it can be said that Centralized Exchanges also have their strengths, other traders prefer Decentralized Exchanges because they retain control over their money. They prefer that there is no mediator with a fear that something will happen to their money, and we can’t blame them for that.

PrivacySwap ventured into a Decentralized Exchange for the reason that it will give users much more control over their funds and grow it at the same time. PrivacySwap DEX is here to help them achieve their desired ROI without the use of any mediator.

Also Read: How to: Calculate your crypto taxes

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