Cryptocurrencies are a digital equivalent of physical monetary assets transferable from one holder’s wallet to another based on blockchain protocols. The crypto assets in digital wallets include coins, non-fungible tokens (NFTs), and stablecoins backed by physical assets such as fiat money. Coins include Bitcoin (BTC), Ethereum (ETH), and altcoins such as DogeCoin and the US Dollar stable token (USDT). These assets are tradable via transfers executed in two different ways, which define the type of exchange involved.
The following are the crypto exchanges available:
Centralized Exchanges
Despite blockchain networks upon which Cryptocurrencies owe their existence being decentralized, platforms such as KuCoin offer centralized crypto exchanges to their customers. The platforms allow you to create a wallet and buy any crypto tokens you need for future trading activities. Once you identify the assets you want to trade in, you instruct the provider to execute it upon realizing your requirements. The trade happens via the central entity which implements your terms to assure equal value transfer between your wallet and another investor. The following are characteristics of centralized exchanges:
- Investor security
Centralized altcoin exchange networks focus on improving customer data security by adding extra measures to the protocols available on the blockchain. The digital assets in your wallet are only accessible using the private codes you choose upon wallet creation. The best providers demand two-factor authentication, where you set a security code and then add biometric data for verification later.
- KYC implementation
Centralized exchanges depend on trader identity, where you provide data such as social security numbers and identification details. Such details help assure investor protections against fraud in compliance with Securities and Exchange Commission (SEC) requirements.
- Cheaper transactions
Transferring digital assets from one wallet to the next is cheaper via centralized channels than DEX trades. You can exchange your Ethereum coins for the Dollar Stablecoin, where the ETH/USDT transaction costs a negligible percentage of your coin value.
Decentralized Exchanges
A decentralized exchange (DEX) involves the transfer of crypto assets from peer-peer wallets over a blockchain without the involvement of a central platform. Such exchanges do not follow any SEC measures and have the following characteristics:
- anonymity
DEX trades follow the peer-peer exchange policy where user autonomy is an aspect enjoyed by all traders. The user nodes involved in a crypto trade over a DEX network do not depend on implementing a KYC mandate for execution. Such networks will therefore keep data such as social security numbers private and inaccessible to hackers.
- smart contracts
DEX trades rely on special protocols to execute without a central entity to verify the validity of Cryptocurrency exchanges. These smart contracts are codes stipulating the conditions two traders must fulfill before the implementation of a transaction occurs automatically. The protocol in a smart contract identifies each trader’s terms to ensure a fair value transfer towards each wallet involved.
- high liquidity
DEX trades hold a high liquidity capacity where traders can exchange values up to desired values without restrictions. You can buy or sell crypto assets as desired as long as the smart contracts hold terms that ensure equal value exchange is achieved. However, this presents a risk where hackers access your private or public keys because they can steal as much as they want.
