As one travels through the journey of cryptocurrency, not only do they need to choose the coins to be involved with, but there are also a number of wallets and exchanges to consider. There are close to 100 exchanges to choose for trading and they normally break down to centralized and decentralized ones. Currently, centralized exchanges seem to be the more popular choice as it takes less responsibility and technical skills to get started using them.
Having a centralized exchange for cryptocurrency seems to defeat the point of the decentralization part of crypto, but this is usually the first place where new users convert fiat to cryptocurrency. Centralized exchanges are exactly what they sound like. It has a provider which charges commission in the form of trading fees to fulfill an order as it matches users’ buy and sell orders. Centralized exchanges normally don't have KYC/AML procedures for its users to verify where the funds are coming from. Most of the centralized exchanges are regulated so an investor could find the contact info for the provider whenever there is a dispute. In the worst case scenario, a customer of the centralized exchange could file a complaint with the government department whom the centralized exchange was registered. One of the most popular centralized exchanges, Coinbase has over 100 pages of complaints with the SEC from frustration from the lack of customer service to class-act lawsuits for insider trading as the exchange was listing Bitcoin Cash. Most of the complaints are due to the user’s lack of control of the funds or the disappearing of the funds when it is being transferred into or out of Coinbase. One could say that cryptocurrency had gone too successful too fast for the exchange’s complaints, but this is the leader of centralized exchanges.
Since centralized exchanges have more users than decentralized exchanges, it is more liquid than its counterpart. And in terms of fraud, the biggest centralized exchanges are supposed to be safer than decentralized ones if the customer service and security team are working properly. Unfortunately, some centralized exchanges are now victims of cryptocurrency thieves. Most of the centralized trading platforms are very tempting to hackers as they are basically pots of internet gold. So, this is leading people to decentralized exchanges.
Decentralized exchanges are still new to the cryptocurrency world. However, it requires a lot of technical knowledge from their users. Also, since it is still a new concept, there are not so many users on the platform, liquidity is not as great as the centralized exchanges since the trade volume is low. The peer to peer protocol on decentralized exchanges are not scalable as of now, making trades even more difficult and causing users to not get the best pricing for their coins on decentralized platforms. A person new to cryptocurrency wouldn’t understand how to survive in the decentralized exchanges easily as the user interface is very unfriendly, and as of now, decentralized platforms can only convert cryptocurrency to other cryptocurrencies. There are no registered providers to decentralized exchanges since they are mostly peer to peer, meaning that users have no customer support to call in case the funds disappear. There is also no procedure for KYC/AML and the entire environment is not trustworthy. However, security and reliability are amazing on decentralized trading platforms. They run on hundreds of nodes so there is no downtime. Decentralized exchanges also provide a tightly protected storage for private keys.
Centralized and decentralized platforms were all the cryptocurrency world had to offer. Centralized exchanges provide the ability to process transactions quickly, but expose users to a lot of security issues as well as the heavy transaction fee to keep its provider running. Whereas decentralized platforms increase security and reliability while giving up usability and liquidity. What if there is a happy medium between the two? Here come hybrid trading platforms.
Hybrid trading platforms will combine the speed of centralization and the security of decentralization. Zeus Exchange, a hybrid exchange will provide NEM technology enabled security, high-end performance, the ability to exchange cryptocurrency to stock, high liquidity, transparent trading, high-speed APIs, as well as great customer service. Sign up for early access by visiting our website, and start trading in a modern exchange that traders of the 21st century deserve to use.
lllustration by Marina Demchenko (Mamihlapinatana Studio)