Centralized vs. Decentralized Exchanges
For those who prefer reading I have added the written version of this video below :)
Centralized vs. Decentralized Exchanges: The FTX Debacle
With the collapse of FTX some people are wondering if this is the end of cryptocurrency.
The fact is FTX and other centralized exchanges are not the reason cryptocurrency was invented.
Cryptocurrency was created as a decentralized alternative to traditional financial systems.
This means that the goal of cryptocurrency is to enable individuals to have more control over their own assets and to reduce the need for intermediaries, such as banks, to facilitate financial transactions.
However, not all exchanges that facilitate the buying and selling of cryptocurrency are created equal.
That’s why we thought it would be good to start with some basic differences between two types of exchanges: centralized and decentralized.
It is important you continue to expand your knowledge in this space because as we all know the ultimate goal is to not only make money but be able to control it as well.
Centralized exchanges are controlled by a single entity or organization and operate in a similar manner to traditional financial institutions.
Users must deposit their assets with the exchange and often go through a lengthy and complex verification process in order to use the exchange's services.
Examples of centralized exchanges include Coinspot and Binance.
Decentralized exchanges (DEXs), on the other hand, operate on a blockchain and do not require users to deposit their assets with the exchange.
This allows for a more decentralized and peer-to-peer approach to trading and can be more in line with the original goals of cryptocurrency.
Examples of DEXs include Uniswap and Kyber Network.
It is important to note that both centralized and decentralized exchanges have their own set of risks and considerations.
For example: Centralized exchanges are vulnerable to hacks and other security breaches, while DEXs may have lower liquidity and may be more difficult to use for beginners.
Centralized and decentralized exchanges both have their own unique set of benefits and drawbacks.
Centralized exchanges are generally easier to use and have higher liquidity, but they also introduce the risk of security breaches and the need to trust a single entity with your assets.
Decentralized exchanges offer a more decentralized and peer-to-peer approach to trading, but they may have lower liquidity and may be more difficult to use for beginners.
It is important to carefully consider your own needs and preferences when choosing an exchange.
It is also crucial to thoroughly research and understand the risks and potential rewards of any exchange before using it.
By understanding the differences between centralized and decentralized exchanges, you can make an informed decision about which type of exchange is right for you.
If you have any questions about what I have shared today let me know and I am happy to add them into my second edition of our deep dive into Defi.