The increasing interest in cryptocurrencies across the globe has led to new terminology. Technocrats are under pressure to deliver robust solutions to buy, sell, use, and store cryptocurrencies.
Exchanges have a major function in the cryptocurrency world, with different types popping up across the crypto sphere. While the community is supportive of the development of decentralized exchanges, centralized exchanges hold an iron grip on most traders. Both kinds of exchanges have their own set of advantages and disadvantages. But first, what is a distributed ledger?
In the simplest context, a distributed ledger is a shared ledger that is not controlled by a central administrator. A distributed ledger is decentralized by nature and acts as a database for financial, physical, electronic or legal assets. It can be shared across a network of computers, and each node will receive an identical copy, as a distributed ledger is always updated in real-time.
Blockchain is a perfect example of a distributed ledger. There is no central or governing authority that can control the transactions. Such decentralization eliminates single points of failure for the network.
The word “centralized” gives away how these networks are structured. A centralized network has a middleman to facilitate its operations, like a bank of all your transactions and information. This means it holds all your data, and therefore, trust is paramount.
A decentralized network is a “trustless environment,” where there is no single point of failure. The nodes connected in the network are not dependent on a single server point and each node holds the entire copy of the network configurations. As the information never passes through a single server, a decentralized network is highly secure.
A decentralized cryptocurrency exchange is the one where atomic swaps happen between the two nodes. Your cryptocurrency never passes or is held by an escrow service. It is close to a peer-to-peer transaction, but you cannot enter a decentralized exchange with fiat currencies and can only conduct crypto-to-crypto exchanges.
|Asset needs to be transferred to central servers; users lose control of the data.||Your data stays with you. All transfers occur in an atomic manner, just like proxy tokens.|
Third Party Involvement
|Yes, a centralized exchange functions as a middleman between the buyer and seller. It charges operations fees, due to third party involvement.||No, a decentralized exchange functions as a trustless platform to authorize the transactions. Transactions do not incur middleman costs.|
|Centralized networks are more susceptible to hacks, as the data leaves the security of the individual node.||Decentralized networks are difficult to hack, as there is no single point of entry.|
Single Point of failure
|Yes, a centralized network has a single point of failure that can compromise the security of the entire network.||No, a decentralized network does not have a single point of failure, as the information is distributed over multiple blocks appended together.|
Ease of use
|Easy and intuitive to use, even by non-techs.||Complex to use, and not very intuitive.|
|Higher Fees||Lower Fees|
|Centralized networks cannot keep you or your data anonymous.||Decentralized networks are all about anonymity.|
We provide information about Asia Blockchain Review latest activities as well as global blockchain news and research. Subscribe to our Newsletter now or Contact us