Decentralized Exchange (DEX)

An exchange that allows people to trade cryptocurrency without the need of a middleman or an intermediary.

What is a Decentralized Exchange?

In the past, centralized exchange was usually used to trade cryptocurrency. In a centralized exchange, the order of the person who is willing to purchase crypto is matched with the person who’s selling it and vice versa. Some people also consider centralized exchanges like those of securities exchanges. However, centralized exchanges have a few disadvantages that can’t be neglected at any cost.

One main disadvantage of using the traditional centralized exchange is that it is owned by a private organization which means that there is an intermediary present who looks over all the transactions made. Subsequently, these private organizations have all the information regarding their customers. Now, this pertains to the foundation of the cryptocurrency i.e., the complete anonymity of the users (if desired). But, how can there be anonymity if a third party has all your information?

Just like that intermediary, the transactions conducted on these exchanges are custodial. Now, what does custodial mean? It means that all your assets will be held by that private organization till it’s fully transmitted to the other person.

Now, to tackle the issue of a centralized exchange, we have decentralized exchanges that use peer-to-peer transactions. Decentralized exchanges not only provide complete anonymity but all the transactions are non-custodial as well. Non-custodial means that whatever assets you’re trying to exchange, will never go through the hands of a middleman or an intermediary.

A lot of people consider DEXs as the most essential part of crypto development. However, some decentralized offerings are still in the initial phase, and volumes of trading are low. Furthermore, it may seem like DEXs may face a lot of difficulties in the times to come and these difficulties are going to come from the regulators who are of the idea that DEXs should not be subjected to the same oversight as that of centralized competitors.

Why should you go with decentralized exchange?

There are a lot of reasons why you should go with the decentralized exchange for peer-to-peer transactions. Let’s take a look at some of the main reasons for opting DEXs.

You get privacy

As already mentioned, if you want complete anonymity, DEXs should be your go-to option because they won’t ask you even a tiny bit of your detail. In a centralized exchange, you’ll have to provide all the information that they ask for. Thus, if you want privacy, DEXs is your way to go.

It’s relatively cheaper

With centralized exchanges, you need to handle the costs of it set up and, you know, every system requires maintenance to function fully. So, add the maintenance costs as well. Whereas, on the other hand, DEXs are self-regulated and automated which makes them quite cheaper as compared to the centralized exchange. With DEXs, you can trim down a lot of additional costs.

Hacking risk is less

With decentralized exchange, the chances of hacking become very little to none. This is because with decentralized hacking you don’t have to share your details with a third party, keeping all your data protected. Thus, if you’re someone who always remains concerned about hacking, DEXs is the one for you.

You got full control over money

The decentralized exchange allows you to have full control over your funds and overall money. DEX will never ask you to transfer your money into a wallet or something like that in order to carry out a transaction. Just like centralized exchange may be prone to hacking, e-wallet can do the same thing. Thus, it is better to stay cautious when it comes to money.

Conclusion

If you want to keep your hard-earned money as well as personal information safe, you should choose a decentralized exchange instead of a centralized exchange. But, then again, DEXs has its own challenges, you just need to choose wisely.