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Frequent hacking issues of Centralized Exchanges (CEX) foretole the inevitable advent of Decentralized Exchanges (DEX). Unlike CEX, which is based on a central ledger, DEX decentralizes all information by basing it in blockchain technology. This means that while the central server of a CEX can easily be targeted by hackers, DEX’s information is extremely hard to manipulate and less likely to be successfully hacked. Therefore, DEX is considered to be the solution for security problems in exchanges.

The reason why DEX is so attractive is that all transactions are done P2P — Wallet to Wallet. In other words, individuals do not have to entrust their assets with the exchange. Personal assets can be managed directly and can be traded right away from personal wallets. By reducing the role of intermediary brokers — exchanges — who are entrusted with managing the funds of all individuals, individuals have regained their right to control their own assets. Even if the exchange gets hacked, personal funds will not be leaked.

Moreover, users do not have to leave their personal information on the exchange. In DEX, users can trade anonymously by directly linking their personal wallet such as a Metamask or by receiving a private key without having to enter their personal information. Therefore, DEX is free from the problem of personal information leakage caused by hacking.

Though DEX is a new alternative to CEX, there are some inconveniences that have to be taken in exchange for high security because DEX is still in its infancy.

First of all, the biggest disadvantage of DEX is that cross-chain transactions between different blockchain coins are difficult. Coins with different bases, such as Bitcoin and Ethereum, can not be traded on a one-to-one basis. Even Ethereum based ERC20 tokens can not be exchanged with Ethereum, so it is troublesome to convert Ethereum to ERC20 format WETH. These limitations of cross-chain limit the choice of DEX trading.

Second, DEX is based on blockchain, which means that trading speed is very slow. Whereas CEX supports quick trading through its own server, DEX requires time to wait for blockchain confirmation. For example, it takes 5–10 minutes for a Bitcoin transaction in DEX to go through, whereas CEX takes less than a second.

Personal responsibility for managing one’s own wallet becomes more important because transactions are made directly from an individual’s wallet, rather than depositing and keeping assets in the exchange. If users inadvertently lose their wallet address or private key, it becomes nigh impossible to regain their assets.

There are still some inconveniences, but DEX has the advantage of being able to solve security and fund control issues that the current CEX can not solve. In addition, developers are working on a variety of ideas and suggestions to realize a better DEX. DEX may become a very revolutionary type of exchange that completely reorganizes trading methods in the future.

Nexybit is developing a hybrid exchange that combines CEX and DEX. If you are wondering what kind of influence we will have in the future, join Nexybit now!