Centralized vs. decentralized exchange

The rising popularity of cryptocurrencies and their booming value means that hackers are now looking for ways to steal money from users and exchanges. In fact, cryptocurrency exchanges have been hit by more than 60hacker attacks since 2011 that have led to the loss of millions of dollars in wealth.
A common link that connects some of the cryptocurrency exchanges that have been affected by hacker attacks is that they were centralized in nature. The likes of Mt. Gox, Coinrail, Bitfinex, and Bithumb, among others, were all centralized exchanges, which meant that they held users’ money as deposits. Additionally, centralized exchanges are also the custodians of users’ private keys.
They store these private keys in some centralized server or database, making them easy prey for hackers. In case the database is compromised, users of that cryptocurrency exchange stand to lose their wealth in almost no time. That’s one of the reasons why it is always suggested that users shouldn’t leave their cryptocurrency in their exchange accounts.
In effect, users don’t have control over their crypto assets if they are using a centralized exchange. However, the emergence of decentralized exchanges can change the narrative and potentially reduce the number of hacks. That’s because a decentralized exchange doesn’t hold critical user data in a single location and it doesn’t entrust data to a third party, which makes it difficult for the same to be compromised.
In addition, there are some other advantages of using a decentralized exchange. One of the biggest advantages is that decentralized exchanges give users more control over their privacy since they don’t require sign-ups or know-your-client (KYC) documents. As these exchanges are hosted in a decentralized manner, they cannot be taken down by either hackers or governments in the guise of regulation.
Additionally, the distributed nature of the hosting of decentralized exchanges means that they are not prone to downtimes. But the fact remains that centralized exchanges are still very popular because they make it easy for users to buy, sell, or trade in cryptocurrency despite their drawbacks. At the same time, decentralized exchanges are still in the development phase, which means that they are not very friendly to use.
Apart from these problems, decentralized exchanges also suffer from lack of liquidity because of their limited use, while the lack of a central point of contact means that there would be difficulty in addressing users’ concerns. So, decentralized exchanges might not be a viable option for users as of now, but there are some promising developments taking in this place.
The likes of CryptoBridge, EtherDelta, and many other decentralized exchange projects are in the development phase. They could turn out to be the key drivers behind the broader adoption of cryptocurrencies because of the independence, anonymity, and security that they bring to the table.

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