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Decentralized exchanges are increasing in popularity.
The biggest fear for any crypto trader is probably waking up to a hacked account with nothing left in the wallet except your tears. Well, it’s 2019 and conventional crypto exchanges have been looking into ways to up their game and provide a seamless user experience – a decentralized exchange (DEX).
So, what is DEX and why should we care?
Even though blockchain prides itself on being entirely decentralized, most of the crypto exchanges on the market are centralized. Due to know-your-customer (KYC) and anti-money laundering (AML) regulations, exchanges are required to record their customers’ identities before they can start trading on the website. This creates a centralized server that stores records of personal information, which defies what Bitcoin and blockchain were meant to achieve.
A decentralized exchange, on the contrary, promises to resolve this mismatch by cutting out the middleman. DEXs do not rely on third-party services to store their customers’ digital assets. Customers are in full control of their funds without having to worry about hacks or server downtime. They can also trade directly amongst themselves on the open and transparent network, fully leveraging the perks of blockchain.
Yet the application of a DEX is still in its infancy. It only supports basic market functions at the moment. Users also cannot trade by fiat currency as DEXs don’t verify a user’s identity. They also have poor liquidity and lack of advanced trading tools compared to centralized exchanges, such as margin trading or leverage. DEXs are not for everybody. If you are not buying a large amount of tokens or trading ICOs, you would be better served by the conventional centralized exchanges.
What’s next for DEX?
Ultimately, DEXs and centralized exchanges serve different purposes and different traders’ needs. Understanding how they work can definitely make trading easier, cheaper and more secure for you.
This post originally appeared on Medium. Read more.
OKEx is a world-leading digital asset exchange headquartered in Malta, offering comprehensive digital assets trading services including token trading, futures trading, perpetual swap trading and index tracker to global traders with blockchain technology. Currently, the exchange offers over 400 token and futures trading pairs enabling users to optimize their strategies.