The blockchain serves as the network within which cryptocurrencies are traded, invested, sent and received. This public ledger operates through a consensus-based system, and it is 100% tamper-proof. Perhaps the most important aspect of the blockchain network is its decentralized nature. This means that no central authority such as a central bank, company, or country controls the blockchain network.
Unfortunately, most exchanges where you can buy and sell cryptocurrency are fully centralized. Over the years, we have seen many leading cryptocurrency exchanges being taken down, starting with Mount Gox and the loss of 850,000 BTC in 2014. Fast-forward to 2016, it was Bitfinex that took a hit, and more recently BitGrail which was embroiled in a Raiblocks (NANO) scandal and found itself shut down by the Italian authorities. This begs the question: Should anyone risk having their cryptocurrency holdings stored on a centralized exchange?
On the face of it, size doesn’t matter. Hackers will happily take down any cryptocurrency platform which has a dominant market share, or minimal market share. For many, the answer to this dilemma is to seek out decentralized exchanges which do not have single points of failure and can safeguard the assets of cryptocurrency traders, investors, and hobbyists. The main characteristics of decentralized exchanges are enhanced security, cloud management of transactions, and data that is forwarded directly to the blockchain. This consensus-based network ensures that every node on the system has management power.
Decentralized exchanges (DEXs) function with peer-to-peer trading technology. There is greater anonymity with these types of systems, with just email addresses and account names required. The lack of personal information stays true to the blockchain dogma. Many of the problems associated with government overreach simply don’t exist on decentralized exchanges since there is no entity to target. Conversely, the lack of funds and lack of structure of these decentralized exchanges makes them unappealing to users, and many of them function as open-source projects. Centralized exchanges such as Coinbase, Bitstamp and the like can process transactions much more quickly, but once again they are squarely in the crosshairs of regulatory authorities.
Variety of DEX options available
There are multiple decentralized exchanges available nowadays, including Altcoin.io, DUBIEX, ERC DEX, Bancor, Kyber Network, OpenLedger DEX, Radar Relay, and Waves DEX. Each of these decentralized exchanges provides plenty of variety for trading purposes. Some are a combination of centralized and decentralized trading such as Waves DEX, with Bitcoin, Ethereum, and Zcash.
Other DEX platforms such as StellarTerm are part of the XLM network – the Stellar Lumens network. There are just 6 coins in this network, and its user-friendly interface ensures a smooth experience for traders. It also offers users a desktop client for trading purposes. One of the better-decentralized Bitcoin exchanges is Counterparty DEX. Users can create tokens on the Bitcoin blockchain and start trading their own tokens top. The native coin for this DEX is XCP.
Benefits of Using Decentralized Exchanges
On the plus side, decentralized exchanges offer many benefits to users such as enhanced security, anonymity, and control over their funds. It has been proven time and again that centralized exchanges cannot protect users from the nefarious activities of hackers, or the overreach of authorities. The best decentralized exchanges offer the largest number of tokens. Consider that ForkDelta and EtherDelta provide maximum coverage of ERC-20 tokens. There are also other issues to consider such as the user interface, and the number of trading options available to cryptocurrency enthusiasts.
EtherDelta serves as the premier Ethereum decentralized exchange. This decentralized exchange lists tokens long before they are available on centralized exchanges. There are many security challenges inherent in using this decentralized exchange since it is geared towards savvy crypto investors and blockchain specialists. A variant (or a fork) of EtherDelta is ForkDelta. This decentralized exchange attempts to portray itself as an upgrade of the original version and designed for the consensus of the community. This DEX is for all intents and purposes identical to EtherDelta, and it uses the same smart contracts. Ultimately, it depends on what type of coverage and user-functionality is required. For serious crypto-gurus, it is less about the interface and more about the anonymity and integration with the blockchain. Personal preferences play a big part in a user’s DEX decision.