1. What is DEX?
DEX is a New Big Trend in Crypto | Finance Magnates
DEX, the full name of Decentralized exchange, is an exchange based on blockchain. It does not store user funds and personal data on the server, but only serves as an infrastructure to match buyers who want to buy and sell digital assets. and sellers. This transaction happens directly between participants (peer-to-peer) with the help of a matching engine.
2. Advantages of DEX
Unlike centralized exchanges that store and control customers' assets, decentralized exchanges do not control customers' assets. Instead, assets are stored in a distributed fashion, usually by users or the exchange software itself. This way, there is no single entity that is the owner of all cryptocurrencies on the exchange, and the risk of loss is much lower.
It has two main characteristics:
One is anonymity.
Using a centralized exchange only requires a public key. At the same time, the creators of some centralized exchanges claim that they only release open source software and are not responsible for the community’s use of the software, thereby avoiding KYC and AML issues.
The second is safety.
In the past 10 years, more than 30 centralized exchanges have been hacked, such as Mt.Gox and Coincheck. Until now, hackers' attempts to steal have never stopped. Every day, hackers are trying to find loopholes to invade centralized systems through various methods. Since decentralized exchanges exist within computer networks, it becomes more difficult to attack decentralized exchanges. There is no single point of entry or failure. This makes decentralized transactions more secure.
3. Shortcomings of DEX
Introduction to DEX (Decentralized Exchange) - Coinversation
1. Low liquidity and trading depth.
Decentralized exchanges are still not as popular as centralized exchanges. As a result, their clients, trading volumes and liquidity are all better
2. Lack of professional trading setup
Decentralized exchanges are less convenient for professional traders to use due to the lack of advanced trading options. Algorithmic trading and high-frequency trading are very difficult in a distributed environment.
3. Lack of ease of use.
Using a decentralized exchange usually requires connecting to a DApp or even installing an offline decentralized exchange client. You may need to configure a separate node and stay online for an extended period of time to complete transactions.
4. The difference between DEX and centralized exchanges
Don’t be in a hurry to sell your platform coins! Maybe centralized exchanges are not dead yet? -OwlNews
The different characteristics of centralized trading platforms and DEX are mainly reflected in the following aspects:
1. Different asset control rights
In a centralized trading platform, user assets are controlled by the centralized trading platform. Users need to recharge their assets to the wallet of the trading platform. The asset custody function of a centralized trading platform is just like a bank. Users deposit money in the bank, and the bank gives the user an account to record the user's funds. The bank has absolute control over the user's funds.
In DEX, users’ assets are completely under their own control. DEX does not provide fund custody services, so it cannot control or transfer user funds.
2. Different financial risks
The wallets of centralized trading platforms store all users' funds. Due to the huge amount of funds, they are easily attacked by hackers. It is not uncommon for them to commit theft or even run away from the trading platform.
Compared with centralized trading platforms, security risks come from hacker attacks and platform escapes. Once problems occur, almost all users will suffer losses; DEX users’ asset risks mainly come from users’ improper management of wallet private keys. A certain user’s private key Leakage will not affect the asset security of other users. Assets between users are completely isolated.
3. Transparency of transactions is different
Transactions between users of the centralized trading platform are accounted for by the trading platform. Transaction information is only recorded on the internal ledger of the trading platform and is not recorded on the tamper-proof blockchain. Therefore, transactions on the centralized trading platform are also Called off-chain transactions, the transparency of its transaction records is relatively low. If the trading platform wants to do evil, the cost of tampering with the transaction records is very low.
In DEX, transactions between users are completed on the blockchain, and their transactions will be packaged by miners and broadcast on the blockchain, so DEX transactions are also called on-chain transactions. Putting transaction information on the chain means that transaction information can be publicly queried on the blockchain and cannot be tampered with, so DEX transaction information is more secure and transparent.
4. Different trading experience
In a centralized trading platform, since the transaction data is not uploaded to the chain, as long as there is a matching counterparty order, the transaction speed is extremely fast. At the same time, the operation steps of the centralized trading platform are simple, the threshold for use is low, and it can provide a wealth of trading pairs, so more users will choose the centralized trading platform. The more users, the better the depth of trading, further promoting centralized trading. The transaction speed of platform orders.
DEX requires transaction data to be uploaded to the chain, and transaction confirmation needs to wait for miners to package and broadcast it, so the transaction speed is slow. The operation steps of DEX are relatively complicated and the threshold for use is higher. When it comes to different blockchain asset transactions, such as Bitcoin and Ethereum transactions, more complex cross-chain technology is required, which many DEX trading platforms cannot implement, so they support fewer transactions than centralized trading platforms.
Centralized trading platforms have faster transaction speeds, lower barriers to use, and are better than DEX in terms of user experience.