The greater part of the digital currency trading is done through a centralized digital currency exchange. A couple of the well-known illustrations are Binance, Coinbase, and Bittrex. This is one sort of exchange where it manages a person’s capital alongside his/her private keys and after that performs trading.
Nonetheless, over the last few years, there has been various high profile scams and hacks that brought about the loss of billions of cash. The expanded multifaceted nature of the hardware and software just make these centralized exchanges more vulnerable.
This is the place the decentralized exchanges come into the photo.
The clearest week point in this situation is the need to believe a third party i.e. a middleman for your funds. For digital currencies to accomplish its decentralized target, it needs the decentralized exchange set up for that.
Decentralized Exchange or DEX is another technology in the digital currency circle that has no central controlling server. It fundamentally encourages the digital currency trading on a distributive ledger. Consequently, you needn’t bother with a third-party intermediary to hold your funds when making an exchange transaction exchange.
In these exchanges, the client has been given back the control of funds and the confiscation of funds is very unthinkable. In any case, the technology is as yet young and experiencing development.
How does it work?
In decentralized exchanges, the absence of dependence on the third party enables the trade to happen specifically between two users by means of an automated procedure.
In DEX, you just present your request to purchase or offer and create a kind of order book while on the opposite end an interested party will digitally sign it to make a counter order. Presently, both of the orders will be sent on the blockchain to a smart contract where the transaction execution will happen. In this way, the digital currency will be transferred to the wallet of the user.
You would be in total control of your assets constantly. A personal key is likewise given to you on the off chance that you need to withdraw your funds from the blockchain.
Decentralized digital currency exchanges certainly provider cheaper, speedier and obviously cost-effective transactions. Given the developing hacks in the crypto market, the diminished susceptibility of these exchanges to these hacks is an alluring feature. No central corporation holds your funds rather you are the one with the custody of your deposits. Also, a considerable measure of these decentralized exchanges offers a seamless integration with some prominent hardware wallets.
However, due to being new to the market, these exchanges lack rigorous functionality and characteristics, hence, provides only the basic exchange services. Moreover, they can be a bit difficult to use as they have numerous smart contracts that have to be navigated.
Decentralized exchanges or DEX are still in development stage but they certainly back an innovative idea that is the need of the cryptocurrency market right now.