Decentralized crypto exchange platforms have grown to become the best marketplace for buying, selling, and exchanging cryptocurrencies.
But centralized exchanges (CEX) are still the most common platforms which integrate intermediaries.
Centralized crypto exchange platforms typically share similar characteristics with traditional financial institutions. Their primary feature is the intermediaries’ presence, responsible for managing traders’ assets.
CEXs have been handling the greatest trading volumes in the history of crypto trading. Nonetheless, their shortcomings cannot go unnoticed. Centralization puts users’ privacy, funds, control, and more at risk.
Therefore, decentralized exchanges came into the picture to give everyone the real value of their assets. So, what are decentralized exchanges?
Decentralized Exchanges (DEXs): a guide
Decentralized exchanges create a trustless platform, enabling peer-to-peer transactions between users without the need for third parties. Following the current ban on cryptocurrencies in some countries, DEXs provide an opportunity for cryptos to grow and become more successful.
Application of the peer-to-peer transactions commences from the development of digital assets that can stand for a particular fiat or cryptocurrency. Furthermore, developing the exchange tokens is also achievable through escrow, a multi-signature protocol, and assets representing a portion of a company’s shares.
Types of DEXs
There are different designs in the building of DEXs that distinguish their functionality in trading of currencies. This factor categorizes them into two:
Currency-centric DEXs run on a single blockchain, limiting their escrow services to the native token of the platforms. For example, using Ethereum, all escrowing activities surround Ether and ERC-20 tokens. If other exchanges run on the blockchain, their native tokens are subject to similar services. This infrastructure is what traditional exchanges employ in their trade.
Unlike currency-centric exchanges, this category facilitates the interactions between different native tokens besides theirs. They act as a pathway for traders to exchange any cryptocurrency without dependence on an exchange’s native token. Additionally, some use decentralized order books and matching besides regular purchase and sale of digital assets.
Atomic swaps are a standard integration to allow activities in currency-neutral DEXs, creating smart contracts to facilitate trade on other blockchains.
How DEXs Become Truly Decentralized
Decentralized exchanges need to employ total decentralization in four vital elements:
- Decentralized depositing of funds within the exchange
- Decentralized order books, which display digital buy and sell orders
- Decentralized order matching, which matches bids and asks by traders to initiate cryptocurrency trade
- Decentralized asset exchange whereby accounts on the exchange perform crypto transactions
Benefits of DEX Platforms
DEX protocol accompanies a variety of advantages that boosts its usability and sustainability, as mentioned below:
Unlike centralized exchanges, which require users to submit their personal information, DEXs are entirely private, giving anonymity to every user. There is no need to create an account on DEXs, and users can complete their transactions while still anonymous.
Securing the user’s assets is the primary priority for DEXs. Centralized exchanges largely depend on a central server. In case a hack occurs, these platforms experience significant losses, seeing as all the information is stored in a central location. DEX networks utilize distributed nodes that provide security to the exchange platforms. Distributed nodes eliminate any issues concerning downtimes and slow databases that make the system prone to cyber-attacks.
In CEX platforms, a single body is responsible for controlling the exchange activities. The situation is different with DEXs that use nodes. Users participate in voting as every node plays a role in governance to make necessary implementations for the exchange platform. DEXs further eradicate risks of government involvement in the exchange’s activity.
Centralized exchanges have access to a user’s private keys. CEX platforms manage the funds and assets a user owns. However, with DEX’S decentralized feature, no one can access the private keys belonging to the user, giving them full control over their funds and assets.
Private keys are solely in the hands of the owners. Personal custody of a user’s assets is practical since they are stored on a personal wallet. Therefore, you do not need to trust the exchange’s system even during any platform breaches. Thanks to the blockchain-powered exchanges, the funds and assets are intact, stored on the personal wallets, and decreased chances of loss.
Demerits of DEXs
DEXs present limited trading options; users can only buy and sell. CEXs, on the other hand, offers lending, margin trading, stop-loss features, and more. Moreover, since the trader is in complete control over their funds, the exchanges have no responsibility for what happens to your assets; it creates a risky environment for trade.
DEXs have a problem with liquidity due to low trading volumes in the past. Considering the increased adoption by traders, there is an upsurge in trading activity on DEXs eradicating liquidity limitations.
The technicality of DEXs’ features is hard to comprehend for novice traders in the market. Most require users to connect to an exchange’s dApp or set up a personal wallet to interact with a dApp. Some require setting up full nodes that actively participate in the networks, which is a more tasking endeavour. However, some of these exchanges offer more straightforward interfaces for beginners to be well acquainted.
Block DX: The Only Truly Decentralized Exchange
Block DX is the most decentralized, safe, and fastest DEX platform currently. It boasts full decentralization of deposits, order books and matching, and trade. It runs on the Blocknet protocol, an open-source protocol facilitating interoperability in both public and private blockchains.
Block DX’s native token is BLOCK, utilized in the network’s transaction fees and governance. It is a PoS coin, rewarding BLOCK holders and node services on the Block DX platform. Furthermore, users have the freedom to trade with any pairs among the currencies supported by Block DX, including BTC, LTC, DOGE, BCH, and over 100 more.
The exchange serves users with limitless trading, withdrawal, and deposits at cheaper transfer fees and zero withdrawals fees. Furthermore, traders have an additional advantage to leverage data from the Block DX UI. It ensures fast transactions through its network of distributed nodes and in-built DoS protection.
The endgame of Block DX is to provide an uncensored, trustless, open-source, secure, reliable, and truly decentralized network. Interoperability will improve the quality of services and liquidity of blockchains through the Blocknet protocol. Finally, it proves that DEXs have the scope to take the reins in crypto trading from CEXs soon.