Blockchain and cryptocurrency technology is a rapidly expanding market with adoption growing at the consumer level all the way through to big business. Companies are now integrating or testing blockchain into new and current business models leading to a bright future for the emerging technology.
Cryptocurrency exchanges are an important key factor in the ecosystem as they facilitate trading which helps move the overall market. For a short time now I have explored both centralised and decentralised exchanges; this post covers the positives and negatives of centralised and decentralised exchanges.
Rapid Growth of Centralised exchanges
Coinbase one of the largest exchanges in North America grew their user base from just over 400,000 users in January 2017 to 4.3 million unique users by December 2017 with most growth happening in the last quarter of the year. Another centralised exchange experiencing rapid growth, Binance which was only founded in September 2017 now has an estimated 7.9 million registered users according to their latest update on posted to medium.
Positives
With user numbers growing at record speed, centralised exchanges offer better liquidity, more features for traders, and often provide a better user experience.
- High liquidity with faster settlements
- Price discovery with minimal spread
- Deposits and trading pairs with fiat and other cryptocurrency pairs
Negatives
There are some major draw backs of centralised exchanges which make decentralised (DEX) exchanges all the more appealing. With a centralised exchange:
- You do not hold the private keys to your accounts You are trusting the exchange to keep your assets safe
- Centralised exchanges are under constant attack and can be a single point of failure. Most recently BitGrail an exchange lost USD 170 million in Nano after a hack which will never be recouped
- Deposits are not insured
- Unexpected downtime for minutes, hours or in some cases days Kraken in January of 2018 was down for maintenance for three days
- KYC(Know your customer) process used to approved and verify users This process involves handing over your personal identification documents
Decentralised exchanges making moves
2018 will bring with it a rise in Decentralised exchanges. With the mounting issues that have plagued centralised exchanges like that of MtGox and BitGrail, users are looking for more secure solutions when it comes to trading cryptocurrencies. Decentralised exchanges offer what centralised can’t and that is trustless transactions, transparency and control.
Positives
Decentralised exchanges remove the need for a third party to handle transactions, hold the user’s funds or obtain personal identifying information. They facilitate trading directly on the distributed ledger allowing the user to perform fast, low-cost peer-to-peer transactions that are transparent.
- No sign-up
- No user identification process
- Control of your own assets
- Trade from your own wallet
- Free to low fees
- Fast transactions
Negatives
Low liquidity Can be difficult to use for new users Education and training resources can be hard to find with most offering little to no guide on how to use safely I encourage you to experiment with decentralised exchanges to understand how they work and to be comfortable with this emerging technology, in the not to distance future they will play a big part in our economy.
DEX’s
- Changely
- Shapeshift
- Waves Platform
- StellarPort
- StellarTerm
- Ox
- IDEX
- Kyber Network (Beta)
- Airswap (under development)
- Binance Chain (under development)
This post is also on Medium