Many people believe volatility is the biggest threat posed by cryptocurrencies, yet that’s not the case. Centralized exchanges are. You see, 99% of cryptocurrency trading happens solely on centralized exchanges, and this is the biggest threat.
Centralized exchanges go against the tenets of decentralized cryptocurrencies, which are said to be the future of cryptocurrencies. The former is not entirely safe for your cryptocurrencies.
Why? Because a centralized cryptocurrency exchange acts as a “keeper” of your funds. So you don’t own them. You are no longer in charge. The private keys required to access your funds on the blockchain are locked in a centralized server.
For the record, when you own cryptocurrencies and have full control over the private keys, it means you are in control of your own funds. You pretty much own your own central bank. Yet when you use a centralized exchange, you cease being in control of your funds. This is not what Satoshi Nakamoto envisioned as monetary sovereignty when he gave the world bitcoin.
But according to this Bitfinex review, it is about to change – the dominant trend of centralized exchanges. In fact, a lot has started to take effect as many decentralized exchanges are mushrooming with their unique and diverse ways. This is a good start.
The pros and cons of centralized and decentralized exchange platforms
One of the biggest drawbacks you’ll notice about a centralized exchange is personal data. They keep your name, address, and other crucial personal data like KYC documents.
The same cannot be said of decentralized exchanges. You get to experience 100% anonymity. You don’t need to login or use your email address to access funds.
Centralized exchanges can help to boost liquidity. This is the biggest advantage of this type of exchange. High liquidity reduces the spread and enables the quick filling of orders. Famous centralized exchanges in the market include, but are not limited to:
- BitMex, and many others.
On the flip side, decentralized exchanges offers low liquidity at the moment. This means there are very large spreads. Trading on them can be a risky affair, if this Bitfinex review is anything to go by.
Another advantage of centralized exchanges is the fact that most of them are easy-to-use. Having been around for a while, they boast user friendly interfaces and are often backed by large companies. On the other hand, this is for most part not the case when it comes to decentralized exchanges. They can be complex to use with user interfaces that are not that friendly That being said, a lot of hard work is going into making decentralized exchanges more user friendly and easy to use.
Perhaps the most often discussed disadvantage of centralized exchanges is centralization. Centralization allows them to control your funds in a centralized server. They have full control over your funds.d. This can be a huge inconvenience and the risk of censorship, locked funds and more are very real.
A decentralized crypto exchange, on the other hand, works on a distributed ledger or a blockchain-based system. Some of the decentralized exchanges include:
- Bisq, etc.
Bitfinex Review: Which of the crypto exchanges will rule the cryptosphere?
There is no telling for sure, but decentralized exchanges or exchanges that lack a central control, are expected to become household names in the coming days, months and years.
Decentralized crypto exchanges provide a great way for cryptocurrencies to thrive in the midst of bans and unfair regulations. They for one don’t rely on servers, so it is highly unlikely that this model will fail There are no servers to shut down, literally.
A Bitfinex review reveals that more and more decentralized exchanges are finding their way into the market (or are at the development stage). This is welcomed as it will help cryptocurrencies to go mainstream without censorship.