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What is Decentralized Exchange?

Decentralized exchange
Exchange for Cryptocurrency is a website allowing users to convert fiat money to cryptocurrency and vice versa. Exchanges also allow conversion between different cryptocurrency tokens.

They play an integral role in the cryptocurrency industry because without them crypto-tokens would be virtually impossible to exchange and use. Decentralized exchanges are currently in a rapid phase of development, also known as DEXs.    

They give an alternative to any customer who does not want to rely on their money from a third party. In this article we will include and discuss a full guide to Decentralized Exchanges. Let's now take a closer look at this report.

What is a Decentralized Exchange?

Decentralized exchange is a network that removes middlemen and enables users to trade cryptocurrencies directly with each other. This means that traders have complete control of the funds at all stages of the deal.

Decentralized exchanges eliminate the possibility of hacking due to the distributed node network. They also resolve the problem of server downtime that users face during trading. They have an open and transparent network that makes crypto trading available to everyone.


There are many decentralized exchanges that already exist and offer peer-to-peer trading across a variety of cryptos.

DEX different from a centralized exchange?

In the case of centralized exchanges, funds and order books are kept by the server as the transaction takes place. In the case of decentralized exchanges, however, there is no presence of the central server because the parties in the transaction monitor the users' funds.

It's hard to keep users anonymous in centralized exchanges. However, all transactions are anonymous and encrypted in the case of decentralized exchanges. This helps users to enjoy their privacy without revealing all their personal information.

Subsequently, decentralized exchanges minimize the risks of hacking and server downtime due to the distributed nature of the network. The fees offered are also small compared to centralized exchanges.

Benefits of DEX

1) Faster and Cheaper Transactions: Decentralized exchanges are capable of conducting faster transactions as they minimize the presence of third parties. It also helps to reduce the total related fees.

2) Secure: Decentralized exchanges are relatively safer than centralized exchanges, since user information is not stored on a central server. The attack remains localized even though the hacker has access to the user's details instead of the entire network.

3) Integration with Hardware Wallets: Decentralized exchange allows users to integrate directly into hardware wallets such as Trezor and Ledger Nano S. Users can directly switch from their hardware wallets to smart contracts provided by decentralized exchanges.

4) Users Control Funds: The funds are in the hands of the consumers rather than the central authority in the decentralized exchanges. As the peer-to-peer network architecture is used, the management of funds is still in the hands of users. Private keys remain under the user's hands and are not exchanged with the exchange.

How does it Exchange work?

Almost all decentralized exchanges operate in the same way. Research can be defined briefly as follows:

Step 1: The user brings funds such as ETH, which are then deposited in the form of proxy tokens in the exchange network.

Step 2: These coins would then serve as collateral for the real coins deposited in the exchange.

Move 3: In order to carry out a deal, the customer sends an order to sell the tokens in the exchange.

Phase 4: In addition, proxy tokens are exchanged between the two parties.

Phase 5: After receiving tokens, both parties can convert to the actual currency using the same or another trading channel.

Top Trending Decentralized Exchanges

1) IDEX

IDEX is one of the most common decentralized exchanges. It focuses on trading Ethereum-based ERC-20 tokens. Overall, the exchange offers a well-developed interface and, in terms of volume, also among the top decentralized exchanges.

2) EtherDelta

EtherDelta is another decentralized exchange that is primarily designed for trading Ethereum ERC-20 tokens and Ethereum pairs. The entire exchange is operated by smart contracts based on Ethereum. They are responsible for handling, deposits, withdrawals and the incorporation of wallets. EtherDelta also offers an easy-to-use gui.

3) Kyber Network

The Kyber Network is a well-known, decentralized cryptocurrency exchange based on Ethereum liquids. This exchange is based on a protocol between peers. Users can log in and start trading directly from their wallet.

4) Bisq (BitSquare)

Unlike conventional exchanges, Bisq does not require detailed details for registration or approval by the central authority. Traders can only download the app and start trading assets instantly.

The system is peer-to-peer and is free from a single point of failure. Bisq's key benefit is likely to be its support for fiat currencies.

5) Bancor Network

The Bancor Network is a smart, decentralized contract exchange. It addresses the liquidity problem faced by many decentralized exchanges. Bancor's network is very stable and the platform is less unpredictable.

Bancor has a fantastic web application with a great interface that can be used by users to perform basic functions of buying and selling cryptocurrencies.

Pros and Cons

Pros

  • You will keep ownership of your funds
  • You don't have to trust a third party to handle your coins and tokens safely.
  • Improved privacy for traders
  • No server downtime chance
  • Lower trading fees than centralized exchanges;
  • Decentralized existence decreases the likelihood of government regulation or repression

Cons

  • Hard to use as a conventional exchange.
  • It could be frustrating for new users.
  • They do not have advanced trading instruments such as centralized exchanges.
  • They do not have the same amount of liquidity as centralized exchanges.
  • Other sites have limited customer support.
  • Some users may be impaired by a loss of control.

Limitations

    Some features, such as margin trading, stop losses and others, are devoid of decentralized exchanges. These features may cause some limitations in the performance of the trader. Centralized exchanges are relatively easy to run.

In the case of decentralized exchanges, however, users must pass through different smart contracts. They are also not very user-friendly compared to centralized exchanges.

Conclusion

    Security is one of the main factors in the decentralized exchange. As it does not keep users' funds in the central bank, they are not vulnerable to any kind of hacks or theft. At the same time, they do not need the personal information of users to protect their privacy.

Decentralized exchanges often aim to minimize trading costs, as they remove the job of a middleman. Thus, it is worth exploring the use of decentralized exchanges for traders who want to keep up with crypto market developments.

Yulina Firmansyah
Yulina Firmansyah Hi, I am a wife who really loves crypto and blockchain technology, I am a writer for this blog.

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