Introduction

Cryptocurrency exchanges are one of the most vital applications of the Blockchain industry. The capability of accessing crypto assets, trading them and securely storing them away from the bad actors are a huge responsibility that goes beyond the expectations of a conventional exchange. While some of the pioneers in Fintech and Blockchain financial services have managed to explore the crypto world with élan, many have fallen prey to the inherent and vicious cycle of fraud attacks.

In this blog, we take a look at the top centralised competitors of our BankDex decentralised multicurrency exchange and analyse how it fares better than its counterparts.

Even after 10 years since the conception of the first crypto asset, the debate — centralised vs decentralised is still on. The primary distinction between a centralised and decentralised exchange lies in ownership. Although the concept of centralised exchanges have been in existence since long, decentralised exchanges (a model created with the advent of crypto assets and an immutable, transparent ledger) is relatively new. BankDex integrates the best of both concepts on its cross chain platform, enabling a smooth and fast trading experience to its users.

Blockchain allows the creation of a market place for the exchange of assets without oversight or permission and keeping track of the asset ownership without the help of a third party. The advantages and limitations of the exchanges lay within the bounds of 5 distinct areas namely — anonymity, fees, fiat to crypto transfer, ownership and liquidity. Before we analyse the benefits of BankDex over the top centralised exchanges in the market, let’s have a brief look at the working of a centralised exchange.

Centralisation in Cryptocurrency Exchanges

Today, the blockchain industry acts as the marketplace for exchanges that take the role of a trusted third party in asset transfer or exchange. To be more specific, centralised exchanges act as the custodian of user funds, unlike decentralised exchanges where the assets are completely held by the clients themselves. A traditional centralised exchange holding its client’s fiat, crypto assets or both is considered both as a custodian as well as an exchange. Besides, the exchanges which provide functionalities such as margin trading function on lines of a prime broker as well.

Some of the most popular exchanges in the market like Binance and Coinbase are centralised in nature. They act as the conventional gateway to the crypto world. For many, having a cryptocurrency exchange hold their funds is not a problem. However, the same cannot be said of all, especially the institutional investors. Centralised custody in these exchanges often presents the threat of counterparty risks.

Working of a centralised exchange

When you deposit funds in a centralised exchange, you are actually giving it money, that is the digital assets in your account or wallet is transferred directly into the bank account or the wallet associated with the exchange. The balance seen in the exchange account or wallet is essentially produced as the result of the database entry which is updated by the cryptocurrency exchange. The funds in the exchange are mingled together with the fund of the exchange. The cryptocurrency exchange is the lone source of trust with regards to the balance of the clients.

The present-day cryptocurrency trade is structured in such a way that certain companies hold billions of dollars’ worth of cryptocurrencies of customers. The counterparty risk with is one of the main concerns in crypto trading platforms are centralised by companies that hold the funds, execute trades and trade, finance & leverage for conducting trade on self-owned accounts on the platform. As mentioned earlier, the cryptocurrency exchange platform is the only source of truth for the funds of the exchanges.

The cryptocurrency markets have always urged for three main concepts:

· The funds should be held by appropriate entities only. These entities, be it banks or custodians should be able to keep these assets from theft or loss. Decentralization rose in popularity mainly due to this aspect. In a decentralized exchange, the fund is held under the custody of the trader and there is no involvement from any third party.

· Counterparty risks should be centralised or handled by any selected and dedicated entity. No conventional exchange takes these risks upon themselves and is usually handled by clearing houses which may not be competent authority to ensure security. BankDex overcomes this problem through its decentralised solutions.

· The need for a trustless solution. The market needs to implement a trading platform similar to the Bitcoin network that ensures a trustless interaction between the entities involved in the transaction. This will ensure that an investor pays the accurate price and is not cheated or subjected to fraud by the other participants in a trading lifecycle.

The BankDex decentralized multicurrency exchange implements these concepts to create a trading platform that is secure, simple and is accessible by both beginners and seasoned traders.

BankDex vs Popular Centralised Exchanges: A Comparison Analysis