In the early stages of trading, people bartered directly without middlemen. Herders sold leather to cobblers, farmers sold milk to bakers. As communities grew, producers and manufacturers started transacting through middlemen.
In the financial world, whether fiat or crypto, whether it be Wells Fargo or Coinbase, offer simple and efficient ways of selling products and services but are susceptible to many issues due to their centralized structures.
As the cryptocurrency environment matures, centralized exchanges present a bevy of issues on a regular basis.
“The root problem with conventional currency is all the trust that’s required to make it work.” – Satoshi Nakamoto. Satoshi never envisioned centralized exchanges. Bitcoin was developed to avoid third parties, such as banks and centralized exchanges, that require customers to trust them.
2 Personal Documents
Centralized exchanges often require personal information and proof of identity (IE: passport, selfie), in order to deposit or withdraw on their platform. A decentralized exchange does not require users to disclose their identity, trades are conducted anonymously.
3 Security of Centralized Exchanges
With a single point of entry, it means they are accessible to hackers through one server. If something goes wrong, as it has multiple times in the past with exchanges like Mt. Gox, you could end up losing all your money. Normally you will not have any kind of government protection when trading cryptocurrencies.
4 High Trading Fees
Many well-known crypto exchanges charge between 0.25% to 3% in fees, whereas a decentralized exchange mostly requires a small fixed fee, or in some cases – no fee.
Sometimes it takes harsh lessons to learn how to do things right, but nearly $15 billion (USD) worth of bitcoins have been stolen from centralized exchanges. The need for decentralized exchanges is more urgent than ever. #DYOR, but look into up and coming exchanges like LQDEX that promise to offer decentralized, cross-chain trades with high liquidity.
Ethan is a cryptocurrency and blockchain enthusiast with a background in public relations and content marketing. He has more than six years of experience working in tech startups, ranging from dating websites to higher education. His favorite things in life are Peter (his partner) and their Scottish terrier, Watson.