Three Different Types of Cryptocurrency Exchange Models: CEX, DEX And Hybrid
- 1 Types of Cryptocurrency Exchanges: Centralized Cryptocurrency Exchanges (CEX), Decentralized Cryptocurrency Exchanges (DEX) and Hybrid Cryptocurrency Exchanges
Types of Cryptocurrency Exchanges: Centralized Cryptocurrency Exchanges (CEX), Decentralized Cryptocurrency Exchanges (DEX) and Hybrid Cryptocurrency Exchanges
The Cryptocurrency exchanges effectively acts as an intermediary between buyers and sellers, allowing them to trade fiat money for cryptocurrencies such as:-
- Bitcoin Cash,
- Power Ledger (POWR),
- ICON (ICX),
- Kyber Network,
- And many more
To use most cryptocurrency exchanges you’ll be required to create and verify an account with supporting identification documents before you can start trading. You may not want to keep all of your cryptocurrency on these platforms for too long, so in this case it’s recommended that you also utilize a private wallet to protect your cryptocurrencies.
Also Read:- Best Bitcoin Wallets To Safely Store Your BTC
With institution investors wary of risks inherent to Centralized exchanges (CEXs), attention is returning to Decentralized cryptocurrency exchange (DEX) models.
CEXs currently dominate the cryptocurrency exchange world despite blockchain’s decentralized architecture, says TABB senior fintech analyst Monica Summerville, head of European research, who reports,
“But with more than $2bn in crypto assets stolen to date through fraud or hacks on CEXs and investors’ subsequent custody concerns, DEXs are gaining attention, offering a peer-to-peer or order book-based, non-custodial, trustless exchange solution, conducting trades on-blockchain, with parties exchanging assets directly, eliminating the need for a central party to hold client funds.”
Centralized Cryptocurrency Exchange
Centralized cryptocurrency exchange (peer-to-peer, P2P) consists of the following layers: – User interface – Administrative part – Trading engine and matching engines – Database More details about the components of cryptocurrency exchange software you can find out from our previous article. The main essence of a centralized cryptocurrency exchange is that it is the intermediary between the two roles of user-traders (taker and maker). A few examples of centralized cryptocurrency exchanges are:-
- And many more.
Here is a complete is list of best centralized cryptocurrency exchanges to buy/sell/trade bitcoins and other cryptocurrencies.
Centralized cryptocurrency exchanges makes money by obtaining a fee from each transaction (usually from 0.1% to 1.5%). The broker company controls the entire system, infrastructure and platform. In the case of hacker attacks, DDoS attacks or other unauthorized access, the exchange will suspend its work in order to secure user funds. In past various centralized cryptocurrency exchanges have been hacked and million dollars worth of cryptocurrencies has been stolen. Here are few examples:-
- World’s 6’th Largest Exchange, Bithumb Gets Hacked, $32 Million of Coins Stolen.
- South Korean Cryptocurrency Exchange, Coinrail Hacked.
- Indian Bitcoin Exchange Unocoin got hacked.
All money is stored on the accounts of crypto-exchanges, and in fact, it controls its activity, market, assets. Briefly, it controls everything. The scheme of work is that first, the user maker interacts with the exchange by creating an order for selling, and the user maker interacts with the system to buy it. Classical scheme with an intermediary. So what’s different from decentralized?
Decentralized Cryptocurrency Exchange
The first and most important thing in decentralized cryptocurrency exchange is trading without intermediaries. Users directly interact with each other: they buy and sell without any external persons. But how is this even possible?
From a technical point of view, the decentralized exchange is built based on the blockchain technology, which makes it a priori genuine. Each transaction in decentralized cryptocurrency exchange is stored in a public ledger, and every copy of it is owned by every participant.
The second, important point is that DEX does not have access to the investor’s assets, and therefore the attention of hackers to such an exchange will be minimized.
No one controls the Cryptocurrency, no one can fake blockchain, it’s too resource-intensive and almost impossible. The architecture of the decentralized cryptocurrency exchange is completely different, and besides the superior advantages, there are a number of disadvantages.
Hybrid Cryptocurrency Exchange
Both cryptocurrency exchanges types – centralized and decentralized have their own cons and pros. User-friendly, safe to the highest standard, with extend functionality.
Hybrid cryptocurrency exchange built upon blockchain and is itself one of the nodes. Moreover, the problem with liquidity is already fixed. After all, for the user, liquidity in the platform is most important in order to fill their orders. Additional functional as margin trading with the leverage, too, can be implemented.
The first ever hybrid exchange was Qurrex, which launched in 2018. The Qurrex team got together in 2016, consisting of experts who had years of experience working in the forex markets, developers of trade terminals, and founders of successfully operating stock and futures exchanges.
They all saw the significant potential in applying the best practices of the traditional exchanges to create a new generation of cryptocurrency exchange, providing a harmonious merge of centralized and decentralized elements.
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Rohit Kukreja is a Commerce graduate with Financial Markets expertise involving Stocks, Forex, Futures & Options Market and now Bitcoins & Cryptocurrency Markets. Blockchain Enthusiast but not a techie, Rohit is an active member of various Blockchain & Crypto communities all over India.