1. What is a Centralized Exchange:
The centralized exchange (CEX) is one of the most important vehicles for transacting: these are online where users can buy and sell cryptocurrencies. The idea of centralization refers to the use of a middle man or third party to help conduct transactions - this is common in a bank setup, where a customer trusts the bank to hold his or her money.
Transactors trust not only that the exchange will safely complete their transactions for them, but also that it will make use of the network of users in the exchange in order to find trading partners.
The major risk to rely on third-parties when safeguarding cryptocurrencies is that if the key is lost, then all the amount gets lost as well. In the past, Exchanges have been ground for copious scams for this very reason, which proves that it much more secure storing crypto in one’s personal digital wallet.
It's more common for a centralized exchange to offer cryptocurrency/cryptocurrency pairing: this allows customers to trade, for instance, bitcoin for ether tokens. Fewer exchanges offer fiat currency/cryptocurrency pairs, which would allow, say, bitcoin for USD exchanges.
Since many investors in the space are relatively new to investing in digital currencies, they may be more likely to turn to these types of exchanges. Some of these exchanges include Coinbase, Robinhood, Kraken, and Gemini.
Centralized Exchange for Digital Assets / Financial Securities
One of the most interesting tools is represented by SDX: it’s an exchange for financial tools for the Swiss market. Formed by a global community, their goal is to offer a world’s leading exchange for digital assets “where professional can access, transfer and store value”.
There are different financial entities that are currently trying to obtain licenses, however, - according to us - centralizing exchanges when finance is involved is almost counterproductive:
in many cases, the means to enter a specific exchange are the same that are used in a trading platform – it is therefore mandatory to open a c/c with a financial middleman, or a bank, that will supply the trading platform that allows to enter that specific market.
Centralization is against the blockchain technology, which has been created in order to decentralize and therefore spare the middleman figure totally.
Key Elements of Centralized Exchanges
The higher the levels of trading volume, the lower the volatility and market manipulation that's likely to take place on that exchange: because of the time it takes for transactions to be completed, the price of a given token or coin can change between the time the transaction is initiated and the time it is finished. The higher the trade volume and the faster the transaction can be processed, the less likely this fluctuation is to be a problem.
When selecting an exchange, it's important to keep in mind the host of factors which will impact user experience, including which pairs are traded, how high trading volume is, and the security measures exchanges have adopted to protect their customers.
2. What is a Decentralized Exchange?
Decentralized exchanges (DEX) are a type of cryptocurrency exchange which allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary.
EDSX is one of those decentralized exchange.
The EDSX platform is fully compliant with all the Swiss laws related to financial intermediaries, banking, anti-money laundering, and organized trading facilities. Among its core values, there are innovative solutions through blockchain technology that increase security and liquidity.
It is EDSX’s goal to fully compromise every aspect of the financial revolution and it’s the first platform in Europe with primary and secondary markets for both institutional and retails: the pioneering platform, in fact, employs the world’s leading technology to globally list security tokens in both primary and secondary markets, listing digital securities of real financial instruments to the public with a decentralized peer-to-peer exchange.
How does it work? After the order is placed, the owner of such token specifies the number of units they have to sell, the cost of the token and the time until the bids are accepted. Once the selling order is set, users are allowed to bid. When the time expires, all the bids are evaluated and executed from both parties.
Advantages? There are plenty: in traditional platforms, customers have to pay a per trade fee, in a white-label decentralized exchange it operates similar to the per trade fee, but when a transaction is ready to be placed on DEX, only a “gas” fee is owed to confirm the trade through Blockchain.
…while EDSX is completely free-of-charge!
Another important thing is anonymity: while is not ideal for a security aspect, there are no central authorities involved; that means that users can sign in and start trading without a previous identity verification. It also allows the user to access the tools which are not available otherwise.
Then, we have ownership: because in a centralized exchange the ownership of the coins is held by the exchange completely the keys can lead to a faster execution since the user does not need to provide access… but it also offers easier access to scams. Decentralized Exchanges free the users from this risk.
It is mandatory for financial tools to keep registers – for example, a member register.
Lastly, liquidity: “Liquidity in crypto can be provided by crypto assets backed by traditional assets, aka by bridging crypto and fiat markets. Higher liquidity would cause faster transactions, more stable prices and therefore more market participants. This would boost the general public adoption of blockchain technology and crypto instruments and lead to “maturity” of the industry. While there are discussions around Crypto VS. Fiat worlds, crypto is more of an extension, the next evolution step for the financial market as a whole.”
Main differences between CEX and DEX
The crucial difference between centralized and decentralized exchanges is whether or not a middle man is present.
Centralized exchanges can be used to conduct trades from fiat to cryptocurrency (or vice versa) and to conduct trades between two different cryptocurrencies.
The risks associated with this are:
→ CEX can be hacked easily through which funds could be lost.
→ The entire exchange can disappear any given moment.
Security: the technology may change, but means stays the same (involvement of middlemen, banks, exchange etc). It doesn’t help progression.
Decentralized exchanges are an alternative: they cut out the middle man, generating what is often thought of as a "trustless" environment. These types of exchanges function as peer-to-peer exchanges: assets are never held by an escrow service, and transactions are done entirely based on smart contracts and atomic swaps (a smart contract technology that enables the exchange of one cryptocurrency for another without using centralized intermediaries, such as exchanges).
→ Enhanced Privacy due to no registration requirements or KYC process.
→ No deposit or withdrawal is required. All the transactions happening between peer-to-peer are handled by programmatically secure smart contracts.
→ No single point of failure, control or regulation.
→ It is totally compliant with the tech philosophy!