Here’s a quick refresher on cryptocurrency for those of you who are unfamiliar. Cryptocurrency is a virtual currency that one can trade digitally. Such digital assets are designed to have low to no transaction fees and faster confirmation times than traditional online payments. One of the most popular types of cryptocurrency is called bitcoin, which many people use for international payments because it carries relatively little risk.
Centralized exchanges are websites that facilitate buying and selling cryptocurrencies by connecting sellers with buyers via trade orders placed by the site’s visitors. Centralized exchanges offer more coins to trade with than decentralized exchanges, but they also have drawbacks. For example, if the exchange gets hacked or offline for other reasons, you can also lose your funds forever. Get complete information about cryptocurrency trading on some crypto trading mistakes to avoid. In addition, centralized exchanges can dictate the price of cryptocurrencies, which can sometimes cause the price to be different from what you might see elsewhere.
What Are The Advantages Of Centralized Exchanges?
Centralized exchanges offer many advantages over decentralized exchanges.
Convenience – The biggest draw to centralized exchanges is that they’re easy-to-use and user-friendly. They have simple interfaces with few buttons and dropdowns, so you don’t need much knowledge about cryptocurrency to start trading. You can also use a centralized exchange on mobile devices for on-the-go trading.
Customer service – If you get stuck along the way or have other issues, you can usually talk directly to someone at your exchange. Many centralized exchanges are also responsive and helpful when emailing support.
Easy verification – You can use your existing online account without having to provide too many details about yourself. Most centralized exchanges will also automatically create a new wallet so you can start buying bitcoin right away.
Trading fees – Although many new, small-time traders will get better prices on decentralized exchanges, they usually charge higher fees than centralized exchanges do.
Security – The most significant advantage of centralized exchanges is that they’re less likely to get hacked than decentralized ones are. When an exchange gets hacked, your cryptocurrency often gets stolen along with many of the funds you put in the exchange’s “hot wallet.
High liquidity – Centralized exchanges also provide higher liquidity, meaning that you can buy more cryptocurrencies than those available in decentralized exchanges.
What Are The Disadvantages Of Centralized Exchanges?
Problems with user experience – If you’re not used to using a centralized exchange, it can be challenging to use at first. Some interfaces require you to trade with other cryptocurrencies (like ETH or LTC) like bitcoin.
High risk – If the exchange gets hacked and your funds are stolen, there’s nothing you can do about it. Unlike decentralized exchanges, centralized exchanges often hold your cryptocurrency on their wallets, so your coins are directly at risk if the service goes offline or gets hacked.
Price manipulation – Many centralized exchanges control the price of many cryptocurrencies. While there have been few cases of this happening in practice, it’s still a concern for new traders.
Difficulty in withdrawing funds – The moment you purchase on a centralized exchange, your funds can get stuck there until you want to sell them back out. If you need those funds right away and the exchange is closed, they will be gone forever–and they’re not freely accessible even if you’re able to get through their customer support.
Differentiation Between Decentralized And Centralized Cryptocurrency
The most significant difference between decentralized and centralized exchanges could be as decentralized exchanges can’t be hacked. Unlike centralized exchanges, decentralized exchanges don’t hold your funds–they are traded directly from person to person. It means that a hacker can compromise your funds by the centralized exchange. However, no need to worry about getting them back because they’re no longer in the exchange’s control. Also, if the site goes offline or gets hacked, you won’t lose any of your cryptocurrency–as long as you have it stored in a personal wallet.
