There is often much confusion around decentralized and centralized exchanges, so let’s start at the beginning to try to evaluate the differences these two form of exchanges present. Cryptocurrency is transferred between buyers and sellers through exchanges, and a decentralized exchange (DEX) has great benefits but also drawbacks. The defining quality of decentralized exchanges is that they allow direct peer-to-peer trades, with no middleman or central entity. There’s more to it, though, since some exchanges function only partially as a decentralized exchange. An exchange that is fully decentralized has these core functions: Token exchange, order matching, capital deposits, and order books.

Pros of Decentralized Exchanges

Some experts say a truly decentralized exchange is what the world of Bitcoin and other types of cryptocurrency needs above all else. The following are some of the benefits of decentralized exchanges:

· Users hold the currency in their own personal wallet, eliminating the need for involvement with a third party that may be unscrupulous or vulnerable to hackers.

· High-level privacy is maintained in DEXs because parties are not required to provide any personal information.

· Decentralized exchanges don’t attract hackers because user information isn’t stored. This denies access to a temptingly large number of accounts and wallets, which are vulnerable in centralized exchanges.

· There is a boost in security for funds and data of each user because exchanges aren’t hosted in one place. Instead, servers are hosted in many places across the world.

· The exchanges operate independently of any involvement from central authorities.

· Frequently, exchanges are made with no transaction fees.

· Entry has a low barrier, making many new coins and tokens available that well-populated centralized exchanges may not list.

Cons of Decentralized Exchanges

Technology needs to catch up with the many potential advantages of DEXs. The following are among the drawbacks of decentralized exchanges:

· It can be frustrating if something goes wrong because customer support is practically nonexistent.

· Margin trading, lending, and stop loss are among the traditional functions of trade and exchanges that are unavailable in decentralized exchanges.

· Many first-time users are intimidated because there hasn’t been appropriate attention given to ensuring a user-friendly experience.

Many users prefer decentralized exchanges for anonymity and heightened security. Hopefully, improvements will continue to be made so that using DEXs won’t be fraught with limitations. One company that is making headway quickly in this area is XendBit, a new decentralized exchange that will offer decentralized trading to emerging markets.

The time for decentralized exchanges is probably coming very soon, as the barriers to making these types of exchanges more accessible are coming down through advances in user-friendly design and exchange-benefitting technologies like Blockchain and AI. The only question is “When?”