Our target product – CoinCasso Exchange 2.0 is going to combine the advantages of centralized and decentralized exchanges. In order to understand what that exactly means, we prepared an article in which we explain briefly the differences between those two types of exchanges. Let’s go!
What is a centralized cryptocurrency exchange?
Currently, on the cryptocurrency market, about 99% of transactions are being handled on centralized exchanges. Centralized exchanges provide higher liquidity and a greater volume of trade. They provide quick transactions, support multiple users at once. Centralized exchanges are in a way similar to traditional stock exchanges. Transactions are being controlled by the owners of the exchange. Transactions can be made only through mechanisms provided and approved by the central body. These exchanges depend on the entity or broker who controls the flow of assets traded. Users of centralized exchanges deposit funds directly on the exchange, and then the exchange becomes responsible for the execution of buy and sell orders in real time. On centralized exchanges, users do not have access to their private keys.
Given the fact that centralized cryptocurrency exchanges are being managed by one central body, they are vulnerable to breakdowns, e.g. caused by hacker attacks. Therefore, a very important issue here is the level of trust that a given exchange gives to users – i.e., security and transparency.
Recently, in the interview for Boxmining YouTube channel, the famous cybersecurity expert and cryptocurrency enthusiast John McAfee said that within 5 years, centralized exchanges will be driven out of the market by decentralized exchanges.
“Decentralized exchanges, when fully functional, will mark the end of any potential control by governments and will be the beginning of the largest economic boom in human history“ he announced on Twitter.
Let’s take a look at what decentralized cryptocurrency exchange is and how it differs from centralized exchanges:
What is a decentralized cryptocurrency exchange (DEX)?
Some people state that the term “decentralized cryptocurrency exchange” is an oxymoron. Many cryptocurrency exchanges advertise them as decentralized ones, while they are, in fact, centralized.
The famous cryptocurrency website CoinDesk together with analytic company Alethio, in July 2018, presented data that shows that what the models of decentralized exchanges offer are in fact the spectrum of technologies with different degrees of centralization.
But what a “real” decentralized cryptocurrency exchange is? Firstly, decentralized exchanges are independent of intermediaries. Decentralized exchanges are not supported by any company and use blockchain technology. The server is obviously controlled and centralized, but the exchange itself is not. Secondly, decentralized cryptocurrency exchanges have been designed in order to protect funds from being stolen – users have control over their funds. Thirdly, in centralized exchanges, users send their funds to wallet controlled by one entity (exchange), while on decentralized exchanges they rely on digital signatures which directly authorize their trade orders. That’s why decentralized exchanges work way slower than centralized ones. Decentralized exchanges only provide the possibility of trading, without storing private information about users.
In today’s world there are no suitable technologies and therefore, there is no possibility to create a decentralized exchange that will work smoothly and execute a huge amount of instant transactions per second.
Some decentralized exchanges work on smart contracts and allow adding tokens without verification, which causes that projects with suspicious levels of trust are added to exchanges.
What’s more, while decentralized exchanges only offer transactional cryptocurrencies, the latter allows for the exchange of FIAT into a cryptocurrency and vice versa. Decentralized exchanges allow only payments in cryptocurrencies, and centralized ones ensure the use of traditional payments.
The current situation on the market
Currently, on the cryptocurrency market, exchanges do not support users because they do not act on the basis of what the community wants. They decide about adding and removing tokens. This full centralization has a bad effect on the industry. Exchanges do not reward users who support the development of the industry. In our opinion, the community should have an impact on deciding and distinguishing projects.
As we mentioned earlier, CoinCasso Exchange 2.0 is a hybrid project that combines the advantages of centralized and decentralized cryptocurrency exchanges. What differs us from other projects is that we want the community to be able to influence the development of our exchange and the entire blockchain industry. We give our users the right to become the co-owners of CoinCasso project. CoinCasso.com – it is a partially centralized exchange, where the users have the decentralized, democratized impact on decisions. Our project is a holistic and democratic solution created for the community.