By now everyone has become aware of cryptocurrencies. To buy, sell, and trade with cryptocurrencies, you need an exchange platform. However, when we talk about a crypto exchange what comes to our mind is – find a good exchange organization, register and create an account, complete KYC and start investing.
Well, all this is about a centralized exchange. Most of us are aware of centralized exchanges but only a few handful of people know about the decentralized platforms. The following guide attempts to offer you complete information on decentralized cryptocurrency exchange in India. We’ll get to learn about how they work, what are different types of DEXs, and what are the benefits and risks associated with them.
What is a decentralized exchange?
A decentralized exchange is a peer-to-peer marketplace that allows you to trade cryptocurrencies in a decentralized manner utilizing smart contracts. Here, decentralization implies that there is no involvement of any intermediary or custodian. The transactions are completely executed on the blockchain. This is achieved through leveraging smart contracts which enable autonomous and automatic execution of a series of codes on fulfillment of certain conditions. With this, the decentralized exchange operators can facilitate automatic deposits, withdrawals, and trades without requiring any authentication or action.
Difference between centralized and decentralized exchange
In a centralized exchange, investors’ digital assets are preserved in wallets that are managed and owned by the exchange itself. A centralized exchange is governed by a specific organization and is obliged to follow norms and legislation of a geographic region where it operates. As such, in CEX the exchange is responsible for protecting users’ holding.
In contrast to this, in decentralized exchange, investors trade directly through their wallets. A DEX has no role in managing funds so all control remains in the users’ hands only. Moreover, DEXs do not fall under the ambit of any regulations. They are entirely anonymous and just act as a mediator between the buyer and seller.
Benefits of Using decentralized exchange
- DEXs provide a higher level of privacy. There is no need to create an account, users can directly execute transactions while staying anonymous.
- DEXs operate on a distributed node network which eliminates the issues of data loss, downtime, and cyberattacks.
- As the custody of funds lay in the user’s hands, there is no counterparty risk.
- DEXs offer easy accessibility to tokens minted on a blockchain.
Risks of Using decentralized exchange
- DEX requires you to possess technical knowledge regarding wallet selection and funding it with suitable tokens.
- DEXs suffer from reduced functionality. They only facilitate crypto buying and selling whereas CEXs offer a number of functions like stop-loss, lending, margin trading, etc.
- Considering the low trade volume DEXs fail to attain liquidity levels as assured by centralized exchanges.
What’s more? Let’s say you are investing in a cryptocurrency that are always in demand eg. Ripple , for conversion of Ripple price in INR, you won’t have to pay any hidden charges with a DEX. You can easily convert your cryptocurrency without worrying about lengthy, time-consuming procedures. Also, your confidentiality will be taken care of.